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, 1997
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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 Identification
Incorporation or organization) Number)
400 Willowbrook Lane, West Chester, PA 19382
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(Address of principal executive officers) (Zip Code)
(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 May 22, 1996.
5,129,150 shares of Common Stock, par value $ .60 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADAGE, INC.
Condensed Consolidated Balance Sheets
March 31, 1997 December 31, 1996
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(Unaudited)
ASSETS 000's Omitted
Current Assets
Cash $ 976 $ 502
Accounts receivable, net 7,186 11,469
Inventories 16,129 16,219
Marketable securities 672 723
Other current assets 3,156 2,474
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Total Current Assets 28,119 31,387
Property, plant and equipment, net 6,110 12,632
Net assets of discontinued segments 13,858 5,883
Intangible and other assets 2,431 2,151
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Total Assets $50,518 $52,053
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $ 653 $ 868
Accounts payable 3,840 4,874
Accrued expenses 2,175 2,721
Income taxes payable 62 303
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Total Current Liabilities 6,730 8,766
Long-term debt 14,942 14,073
Stockholders' equity 28,846 29,214
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$50,518 $52,053
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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
MARCH 31,
---------------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
000's Omitted
Income
Sales $ 9,460 $ 12,372
Investment income (51) --
Other 95 (1)
----------- -----------
9,504 12,371
Costs and Expenses
Cost of sales 7,032 9,035
Selling, general & administrative 2,545 2,640
Interest 321 298
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9,898 11,973
Income (loss) from continuing
operations before income taxes (394) 398
Provision for income taxes (benefit) (134) 151
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Net income (Loss) from
continuing operations $ (260) $ 247
Income (loss) from discontinued
operations net of taxes (68) (45)
Gain on sale of discontinued
operations net of taxes -- --
----------- -----------
Net income (loss) $ (329) $ 202
=========== ===========
Earnings Per Common Share
Continuing operations $ (.05) $ .05
Discontinued operations (.01) (.01)
----------- -----------
Net Income $ (.06) $ .04
=========== ===========
Weighted Average Common Shares
Outstanding 5,129,150 5,125,234
=========== ===========
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,
--------------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
000's Omitted
Operating activities:
Net income $ (329) $ 211
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 242 707
(Gain) Loss on sale of marketable
securities (51) (76)
Decrease (increase) in current assets
Accounts receivable, net (260) (1,336)
Inventory (859) 857
Other current assets (631) 21
Increase (decrease) in current
liabilities
Accounts payable 1,754 (3,018)
Other current liabilities 893 1,413
Discontinued segment-noncash
charges and working capital
changes (557) (47)
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Cash (used) provided from operations 304 (1,268)
Investing activities:
Property, plant and equipment
Purchases (675) (255)
Investing activities of
discontinued segment (25) --
Other items -- (124)
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Cash (used) provided by investing
activities (700) (379)
Financing activities:
Long-term debt
Borrowings 2,132 --
Payments (142) (413)
Changes in lines of credit (1,120) 1,926
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Cash (used) by financing activities 870 1,513
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Increase in cash 474 (134)
Cash at beginning of period 502 134
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Cash at end of period $ 976 $ 0
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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, 1997, the
consolidated statements of operations and the consolidated statements of cash
flows for the three months ended March 31, 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 March 31,
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 March 31,
1996 are not necessarily indicative of the operating results for a full year.
2. Inventories March 31, December 31,
1997 1996
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Inventories consisted of:
Raw Material $ 7,264 $ 7,424
Work in Process 4,351 3,286
Finished goods 4,514 5,509
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$16,129 $16,219
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3. Stockholder's Equity
Stockholder's Equity is comprised of the following:
March 31, December 31,
1997 1996
--------- ------------
Common Stock $ 3,076 $ 3,076
Additional Capital 20,500 20,500
Retained Earnings 5,270 5,638
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$ 28,846 $ 29,214
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5
<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 Year Ended
March 31, December 31,
1997 1996 1996
------ ------- -------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 74.3% 73.0% 76.7%
Selling, general
administrative 26.9% 21.3% 21.6%
Interest expense 3.4% 2.4% 1.1%
Net Income (Loss) from
continuing operations (2.7%) 2.0% (0.3%)
</TABLE>
Net Sales
Net sales for the three months ended March 31, 1997 decreased $2,912 or 23.5%
compared to sales for the same period in 1996.
Sales decreased due to lower demand in the utility sector for load management
switches. Declines were also experienced in land-mobile product lines serving
both commercial and public safety markets.
Cost of Sales
Cost of sales as a percentage of net sales increased 1.3% to 74.3% for the
quarter ended March 31, 1997 from 73.0% for the quarter ended March 31, 1996.
Increased labor and material costs resulted from unfavorable sales mix in
land-mobile products. Sales of higher margin products in the public safety and
communication component markets declined in 1997 from 1996.
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 26.9% from 21.3% for the quarter ended March 31, 1997 from
the quarter ended March 31, 1996.
6
<PAGE>
However, total spending decreased from $2,640 in 1996 to $2,545 in 1997. Selling
expenses decreased due to lower sales volumes. Expense reductions in date
processing were realized from consolidating operations. These reductions were
partially offset by increased engineering expenses for new product development.
Interest Expense
Interest Expense was $321 for the quarter ended March 31, 1997 compared to $298
for the quarter ended March 31, 1996. This increase was due to increased debt
levels due to the construction of a new facility in West Melbourne, Florida.
Income Taxes
Income taxes (benefit) represented a 34.0% effective tax rate for the quarter
ended March 31, 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%. The effective tax
rate for the quarter ended March 31, 1996 was 38.0%.
Inflation and Changing Prices
Inflation and changing prices for the three months ended March 31, 1997 and the
three months ended March 31, 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
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 $1,232 during the quarter ended March 31, 1997.
This decrease was due primarily to the reclassification of the current assets
and liabilities of the paper manufacturing segment.
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, 1997 were $675 which
was paid from operating cash flow and bank loans.
7
<PAGE>
Capital expenditures for 1997 for the combined entity are expected to be
approximately $3,000,000.
Inventories increased $1,644 for the three months ended March 31, 1997 after the
reclassification of the inventories of the discontinued paper manufacturing
segment.
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 which is conditional upon the buyer obtaining the necessary financing is
anticipated to be concluded in the second quarter of 1997.
The Company has entered into an agreement to sell its paper manufacturing
subsidiary. No material gain or loss is anticipated from the sale. This segment
has been reported as a discontinued operation for the three months ended March
31, 1997 and 1996.
8
<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, 1997.
9
<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.
\s\Robert T. Holland
-------------------------
Robert T. Holland
Vice President - Finance
Date: May 23, 1997
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 976
<SECURITIES> 0
<RECEIVABLES> 7,186
<ALLOWANCES> 0
<INVENTORY> 16,129
<CURRENT-ASSETS> 28,119
<PP&E> 6,110
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,518
<CURRENT-LIABILITIES> 6,730
<BONDS> 0
0
0
<COMMON> 3,076
<OTHER-SE> 25,770
<TOTAL-LIABILITY-AND-EQUITY> 50,518
<SALES> 9,460
<TOTAL-REVENUES> 9,460
<CGS> 7,032
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> (394)
<INCOME-TAX> (134)
<INCOME-CONTINUING> (260)
<DISCONTINUED> (68)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
