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, 1997
---------------------------------------------------------------
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
7505 Technology Drive, West Melbourne, Florida 32904
------------------------------------------------------------
(Address of principal executive officers) (Zip Codes)
(407) 984-1414
-----------------------------------------------------
(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 7, 1997.
5,030,387 shares of Common Stock, par value $.60 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADAGE, INC.
Condensed Consolidated Balance Sheets
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited) (Unaudited)
ASSETS 000's Omitted
Current Assets $ $
Cash 502
Accounts receivable, net 8,161 11,469
Inventories 15,224 16,219
Marketable securities 892 723
Other current assets 2,390 2,474
------ ------
Total Current Assets 26,667 31,387
Property, plant and equipment, net 8,853 12,632
Investments and long-term receivable 2,400 0
Net assets of discontinued segments 2,617 5,883
Intangible and other assets 2,370 2,151
------ ------
Total Assets 42,907 52,053
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts 221 0
Current maturities of
long-term debt 553 868
Accounts payable 4,463 4,874
Accrued expenses 2,088 3,024
Income taxes payable 0 0
------ ------
Total Current Liabilities 7,325 8,766
Long-term debt 7,160 14,073
Stockholders' equity 28,422 29,214
------ ------
42,907 52,053
====== ======
Note 1. The consolidated balance sheet at December 31, 1996 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
SEPTEMBER 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
000's Omitted
Income
Sales $ 10,973 $ 11,596
Expenses
Cost of products 8,451 8,733
Selling, general & administrative 2,549 2,558
----------- -----------
11,000 11,291
Operating Income (loss) (27) 305
Other Expenses (income)
Interest 99 163
Investment and other income (320) (116)
----------- -----------
(221) 47
Income from continuing
operations before income taxes 194 258
Income taxes 66 102
----------- -----------
Income from continuing operations 128 156
Discontinued Operations
Income (loss) from discontinued operations
net of income taxes (benefit) 92 (240)
----------- -----------
Net income (Loss) 220 (84)
=========== ===========
Earnings (Loss) Per Common Share
Continuing operations .02 .03
Discontinued operations .02 (.05)
----------- -----------
Net Income (Loss) .04 (.02)
Weighted Average Common Shares
Outstanding 5,030,387 5,126,698
=========== ===========
See Notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Income
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
000's Omitted
Sales $ 34,042 $ 35,582
Expenses
Cost of products 25,608 26,452
Selling, general & administrative 8,185 8,174
----------- -----------
33,793 34,626
Operating Income 249 956
Other Expenses (income)
Interest 691 436
Investment and other income (306) (179)
----------- -----------
385 257
Income (loss) from continuing
operations before income taxes (136) 699
Income taxes (52) 264
----------- -----------
Income (loss) from
continuing operations (84) 435
Discontinued Operations
Loss from discontinued operations
net of income taxes (benefit) (412) (242)
Gain on sale of discontinued
Operations 98 0
----------- -----------
Net income (loss) (398) 193
=========== ===========
Earnings (Loss) Per Common Share
Continuing operations (.02) .09
Discontinued operations (.08) (.05)
Gain on sale of discontinued
Operations .02 0
----------- -----------
Net Income (loss) (.08) .04
Weighted Average Common Shares
Outstanding 5,080,977 5,124,473
=========== ===========
See Notes to condensed consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Cash Flows
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ----------
(Unaudited) (Unaudited)
000's Omitted
Operating activities:
Net income (Loss) $ (398) $ 193
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 479 1,840
(Gain) Loss on marketable
securities (169) (50)
Deferred Income Tax
(Gain) Loss from sale of property (242) (449)
(Gain) Loss on sale of discontinued
operations (98) 0
Decrease (increase) in current assets
Accounts receivable (9) 154
Inventory (739) (405)
Other current assets 1,598 (337)
Increase (decrease) in current
Liabilities
Accounts payable (295) (2,778)
Other current liabilities 1,626 427
Discontinued segment-noncash
charges and working capital
changes 535
-------- --------
Cash (used) provided from operations 1,753 (870)
Investing activities:
Property, plant and equipment
Purchases (3,618) (755)
Sales 633
Long-term investments and receivables
Additions and purchases (27)
Proceeds from sale of discontinued
operations 7,693
Other items (118)
-------- --------
Cash (used) provided by investing
activities 4,075 (240)
Financing activities:
Long-term debt
Additions 4,300
Payments (640) (1,270)
Changes in lines of credit (10,171) 2,246
Purchase of stock (40)
-------- --------
Cash (used) by financing activities (6,551) 976
-------- --------
Decrease in cash (723) (134)
Cash at beginning of period 502 134
-------- --------
Cash at end of period
(Overdraft) (221)
======= ========
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, 1997, the
consolidated statements of operations for the three and nine months ended
September 30, 1997 and 1996 and the consolidated statements of cash flows for
the nine months ended September 30, 1997 and 1996 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, 1997 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, 1996 Annual
Report to Shareholders. The results of operations for the period ended September
30, 1997 are not necessarily indicative of the operating results for a full
year.
2. Inventories
September 30, December 31,
1997 1996
------------- ------------
Inventories consisted of:
Raw Material $ 6,745 $ 6,902
Work in Process 3,307 3,233
Finished goods 5,172 4,351
Discontinued segment 0 1,733
-------- --------
$ 15,224 $ 16,219
======== ========
3. Stockholders' Equity
Stockholders' Equity is comprised of the following:
September 30, December 31,
1997 1996
------------- -----------
Common Stock $ 3,018 $ 3,076
Additional Capital 20,164 20,500
Retained Earnings 5,240 5,638
-------- --------
$ 28,422 $ 29,214
======== ========
6
<PAGE>
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:
<TABLE>
<CAPTION>
Percentage of Net Sales
------------------------------------------------------------------------------
Quarter Ended Nine Months Ended Year Ended
September 30, September 30, December 31,
1997 1996 1997 1996 1996
------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.0% 75.3% 75.2% 74.3% 75.8%
Selling, general
administrative 23.2% 22.1% 24.0% 23.0% 20.5%
Interest expense 0.9% 1.5% 2.0% 1.2% 1.4%
Income (loss) from
continuing operations
before income taxes 1.8% 2.4% (0.4%) 2.0% (0.5%)
Net Income (Loss) from
continuing operations 1.2% 1.5% (0.2%) 1.2% (0.9%)
</TABLE>
Net Sales
Net sales for the three months and nine months ended September 30, 1997
decreased $623 and $1,540 respectively compared to sales for the same period in
1996.
Sales in the land mobile product line have increased 10.2% from the same period
for 1996. This is a result of the army contract which started this year. These
increases have been offset by decreased customer demand in the load management
and components product lines.
Cost of Sales
Cost of sales as a percentage of net sales increased 0.9% to 75.2% for the nine
months ended September 30, 1997 compared to 74.3% for the same period in 1996.
For the three months ended September 30, 1997, cost of sales increased 1.7% to
77.0% compared to 75.3% for the same period in 1996. The increase resulted from
the installation and start-up of new surface mount equipment during the quarter.
During this period, set-up times and throughput were impacted unfavorably.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of marketing, selling,
engineering, data processing, occupancy and financial costs. For the three
months ended September 30, 1997 these expenses decreased $9 (0.4%) from the
same period for 1996. For the nine months ended, these expenses stayed flat
7
<PAGE>
compared to the prior year ($8,185 in 1997 compared to $8,174 in 1996).
Decreases that have been realized by streamlining and consolidating functions
have been partially offset by additional engineering expenses in support of two
strategic new-product initiatives.
Interest Expense
Interest expense decreased to 0.9% for the three months ended September 30, 1997
from 1.5% for the same period in 1996. For the nine months ended September 30,
1997, interest expense increased to 2.0% from 1.2% for the same period in 1996.
Interest expense was higher in the first half of the year due to higher debt
levels associated with the expansion of the West Melbourne, Florida facility.
This debt was subsequently reduced by using proceeds from the sale of the
Company's specialty manufacturing and paper manufacturing subsidiaries.
Income Taxes
Income taxes (benefit) represented a 38.0% effective tax rate for the nine
months ended September 30, 1997. This rate is made up of a 34% federal tax rate
and varying state tax rates. The effective tax rate for 1996 was 15.4%.
Inflation and Changing Prices
Inflation and changing prices for the three months ended September 30, 1997 and
the nine months ended September 30, 1997 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 Company
is also subject to changing foreign currency exchange rates in its purchases of
raw materials. 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 $2,879 during the nine months ended June 30, 1997.
Long-term debt decreased by $7,228 during the same period. The Company has
credit available under its existing lines of credit in excess of $7 million.
Capital expenditures for the first nine months of 1997 were $3,618 which was
paid from operating cash flow and bank credit lines. Of these expenditures, $2.0
million is for the expansion of the West Melbourne, Florida facility. The
8
<PAGE>
purpose of the expansion is to consolidate operations at this location. Also,
$1.4 million is to replace obsolete surface mount equipment.
Capital expenditures for the remainder of 1997 will be approximately $0.5
million. Management expects that capital expenditures will be significantly
lower in 1998.
Inventories, excluding those of the discontinued business segments, increased
$738 for the nine months ended September 30, 1997 from December 31, 1996.
Discontinued Operations
In December 1996 the Company agreed in principal to sell its specialty
manufacturing subsidiary to an officer and director of the Company. The sale was
completed in June 1997. This segment has been recorded as a discontinued
operation for the three and nine months ended September 30, 1997 and 1996.
The Company sold its paper manufacturing subsidiary in June 1997. This segment
has been reported as a discontinued operation for the three and nine months
ended September 30, 1997 and 1996.
<PAGE>
ITEM 6. Exhibits and Reports of Form 8-K
b.) Reports on Form 8-K
The Registrant was not required to file reports on Form 8K during the
quarter ended September 30, 1997.
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
thereunto duly authorized.
ADAGE, INC.
--------------------------------------
William P. Kelly
Chief Financial Officer and
Vice President - Finance
Date: November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> (221)
<SECURITIES> 892
<RECEIVABLES> 8,161
<ALLOWANCES> 0
<INVENTORY> 15,224
<CURRENT-ASSETS> 26,667
<PP&E> 8,853
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,907
<CURRENT-LIABILITIES> 7,325
<BONDS> 0
3,076
0
<COMMON> 0
<OTHER-SE> 25,346
<TOTAL-LIABILITY-AND-EQUITY> 42,907
<SALES> 10,973
<TOTAL-REVENUES> 10,973
<CGS> 8,451
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 194
<INCOME-TAX> 66
<INCOME-CONTINUING> 128
<DISCONTINUED> 92
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
