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, 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
342 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, 1997.
5,032,057 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, 1997 DECEMBER 31, 1996
------------- -----------------
(Unaudited)
ASSETS 000's Omitted
- ------ -------------
<S> <C> <C>
Current Assets $ $ 502
Cash
Accounts receivable, net 8,615 11,469
Inventories 15,852 16,219
Marketable securities 709 723
Other current assets 3,708 2,474
------- -------
Total Current Assets 28,884 31,387
Property, plant and equipment, net 6,886 12,632
Net assets of discontinued segments 2,693 5,883
Intangible and other assets 4,488 2,151
------- -------
Total Assets 42,951 52,053
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts 134
Current maturities of
long-term debt 553 868
Accounts payable 3,942 4,874
Accrued expenses 2,492 2,721
Income taxes payable 303
------- -------
Total Current Liabilities 7,121 8,766
Long-term debt 7,627 14,073
Stockholders' equity 28,203 29,214
------- -------
42,951 52,053
======= =======
</TABLE>
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
-------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 30, 1997 JUNE 30, 1996
1997 1996
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Income
Sales $ 13,609 $ 11,614
Investment income (loss) (58) 62
Other 1
----------- -----------
13,551 11,677
Costs and Expenses
Cost of sales 10,073 8,554
Selling, general & administrative 3,001 2,713
Interest 271 220
----------- -----------
13,345 11,487
Income from continuing
operations before income taxes 206 190
Provision for income taxes (benefit) 64 74
----------- -----------
Net income (Loss) from
continuing operations 142 116
Income (loss) from discontinued
operations net of taxes (145) (41)
Gain (loss) on sale of discontinued
operations net of taxes (287)
----------- -----------
Net income (loss) (290) 75
=========== ===========
Earnings Per Common Share
Continuing operations .03 .02
Discontinued operations (.09) (.01)
----------- -----------
Net Income (.06) .01
=========== ===========
Weighted Average Common Shares
Outstanding 5,105,166 5,129,175
=========== ===========
</TABLE>
See Notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
-----------
Condensed Consolidated Statements of Income
-------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
1997 1996
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Income
Sales $ 23,069 $ 23,986
Investment income (loss) (14) 62
----------- -----------
23,055 24,048
Costs and Expenses
Cost of sales 17,105 17,589
Selling, general & administrative 5,546 5,353
Interest 592 518
----------- -----------
23,243 23,460
Income (loss) from continuing
operations before income taxes (188) 588
Provision for income taxes (benefit) (70) 225
Net income (loss) from
continuing operations (118) 363
Income (loss) from discontinued
operations net of taxes (213) (86)
(Loss) on sale of business segments (287)
----------- -----------
Net income (loss) (618) 277
=========== ===========
Earnings Per Common Share
Continuing operations (.02) .07
Discontinued operations (.10) (.02)
----------- -----------
Net Income (.12) .05
=========== ===========
Weighted Average Common Shares
Outstanding 5,105,166 5,129,175
=========== ===========
</TABLE>
See Notes to condensed consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
-----------
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30, 1997 JUNE 30, 1996
1997 1996
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (618) $ 277
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 414 1,617
Gain (loss) on marketable
securities (52)
Deferred Income Tax (94)
Gain (loss) from sale of business segment (287)
Decrease (increase) in current assets
Accounts receivable, net (62) 20
Inventory (1,367) (91)
Other current assets 14 (630)
Increase (decrease) in current
Liabilities
Accounts payable (357) (1,641)
Other current liabilities 1,398 868
Discontinued segment-noncash
charges and working capital
changes 614
------- -------
Cash (used) provided from operations (959) 982
Investing activities:
Property, plant and equipment
Purchases (1,267) (450)
Long-term investments and receivables
Additions and purchases (27)
Proceeds from sale of segments 7,693
Other items 337 (518)
------- -------
6,763
Cash (used) provided by investing
activities (995)
Financing activities:
Long-term debt
Additions 3,289
Payments (163) (1,590)
Changes in lines of credit (9,526) 1,556
Purchase of stock (40)
------- -------
Cash (used) by financing activities (6,440) (36)
------- -------
Decrease in cash (636) (49)
Cash at beginning of period 502 134
------- -------
Cash at end of period
(Overdraft) (134) 85
======= =======
</TABLE>
See Notes to condensed consolidated financial statements.
5
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(000's Omitted)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1997, the
consolidated statements of operations for the three and six months ended
June 30, 1997 and 1996 and the consolidated statements of cash flows for
the six months ended June 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 June 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 June 30, 1997 are not necessarily indicative of the
operating results for a full year.
2. Inventories June 30, December 31,
1997 1996
-------- --------
Inventories consisted of:
Raw Material $ 7,147 $ 7,424
Work in Process 3,949 3,286
Finished goods 4,756 5,509
-------- --------
$ 15,852 $ 16,219
======== ========
3. Stockholders' Equity
Stockholders' Equity is comprised of the following:
June 30, December 31,
1997 1996
-------- --------
Common Stock $ 3,019 $ 3,076
Additional Capital 20,164 20,500
Retained Earnings 4,820 5,638
-------- --------
$ 28,003 $ 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 Six Months Ended Year Ended
June 30, June 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 74.0% 73.7% 74.1% 73.3% 71.1%
Selling, general
administrative 22.1% 23.4% 24.0% 22.3% 27.0%
Interest expense 2.0% 1.9% 2.6% 2.2% 1.4%
Income (loss) from
continuing operations
before income taxes (1.5%) 1.6% (0.8%) 2.5% (0.5%)
Net Income (Loss) from
continuing operations (1.0%) 1.0% (0.5%) 1.5% (0.9%)
</TABLE>
Net Sales
Net sales for the six months ended June 30, 1997 decreased $917 compared to
sales for the same period in 1996.
In the first quarter, sales decreased $2,912 due to lower demand in the
utility sector for load management switches. Declines were also experienced
in land-mobile radio product lines. Sales increased $1,995 in the second
quarter as both areas, particularly land-mobile, rebounded.
Cost of Sales
Cost of sales as a percentage of net sales increased 0.8% to 74.1% for the
six months ended June 30, 1997 from 73.3% for six months ended June 30,
1996. Cost of sales was 71.1% of net sales for the year ended December 31,
1996. This increase is the result of higher labor and related fringe costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of marketing, selling,
engineering, data processing, occupancy and financial costs. These expenses
increased to 24.0% for the six months ended June 30, 1997 compared to 22.3%
for the same period in 1996. This is the result of additional engineering
expenses in support of two strategic product initiatives.
7
<PAGE>
Interest Expense
Interest expense increased to 2.6% for the six months ended June 30, 1997
from 2.2% for the same period in 1996. This increase resulted from higher
debt levels associated with the facility expansion in West Melbourne,
Florida.
Income Taxes
Income taxes (benefit) represented a 37.0% effective tax rate for the six
months ended June 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 June 30, 1997 and
the six months ended June 30, 1996 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. 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 $1,058,000 during the six months ended June
30, 1997. The Company has credit available under its existing lines of
credit in excess of $6 million.
Capital expenditures for the first six months of 1997 were $1,486,000 which
was paid from operating cash flow and bank credit lines.
It is estimated that capital expenditures for 1997 will be approximately
$4.3 million. Of these expenditures, $2.3 million is for the expansion of
the West Melbourne, Florida facility. The purpose of the expansion is to
consolidate operations at this location and $1.4 million is to replace
obsolete surface mount equipment. Management expects that capital
expenditures will be significantly lower in 1998.
Inventories, excluding those of the discontinued business segments,
increased $1,366 for the six months ended June 30, 1997 from December 31,
1996.
8
<PAGE>
Discontinued Operations
In December 1996 the Company agreed in principal to sell its specialty
manufacturing segment 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 six months ended June 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 six
months ended June 30, 1997 and 1996.
9
<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, 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 there unto duly authorized.
ADAGE, INC.
-------------------------
William P. Kelly
Chief Financial Officer and
Vice President - Finance
Date: August ____, 1997
11
<PAGE>
