-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CKC65zk+ZXj+ebvstDbOQs+cChT6gzsyzuJxBj8odRRkEH8nA/mKauvoEDUphFZz YnncPQx2PvSjQ1CnbLe9pg== 0000950115-96-000583.txt : 19960513 0000950115-96-000583.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950115-96-000583 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAGE INC CENTRAL INDEX KEY: 0000002186 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 042225121 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 000-07336 FILM NUMBER: 96560248 BUSINESS ADDRESS: STREET 1: 625 WILLOWBROOK LANE CITY: WEST CHESTER STATE: PA ZIP: 19382 BUSINESS PHONE: 2154303900 MAIL ADDRESS: STREET 1: 625 WILLOWBROOK LANE STREET 2: 625 WILLOWBROOK LANE CITY: WEST CHESTER STATE: PA ZIP: 19382 N-30D 1 ANNUAL REPORT ADAGE, INC. 1995 HIGHLIGHTS- SELECTED FINANCIAL DATA (In Thousands, Except Per Share Amounts)
SELECT INCOME STATEMENT DATA Years Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 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
1 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 ADAGE, INC. STATEMENT OF CONSOLIDATED OPERATIONS (In Thousands, Except Per Share Amounts)
Year Ended December 31, 1995 1994 1993 ---- ---- ---- 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) ====== ====== ======
See notes to consolidated financial statements. 3 ADAGE, INC. CONSOLIDATED BALANCE SHEET (In Thousands)
December 31, 1995 1994 ---- ---- 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 ======== ========
See notes to consolidated financial statements. 4
December 31, 1995 1994 ---- ---- 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 ======== ========
See notes to consolidated financial statements. 5 ADAGE, INC. STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (In Thousands)
Year Ended December 31, 1995 1994 1993 ---- ---- ---- 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 ======== ======== ========
See notes to consolidated financial statements. 6 ADAGE, INC. STATEMENT OF CONSOLIDATED CASH FLOWS (In Thousands)
Year Ended December 31, 1995 1994 1993 ---- ---- ---- 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 ------- ------- -------
See notes to consolidated financial statements. 7 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 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 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 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:
1995 1994 Cost Market Cost Market ---- ------ ---- ------ 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 ====== ====== ====== ======
11 ADAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE C INVESTMENT SECURITIES (continued)
1995 1994 1993 ------ ------ ----- Gross unrealized losses on investment securities - available for sale included in stockholders' equity were: $ 594 $ 724 $ 529 ===== ===== =====
Realized gains and changes in unrealized gains or losses included in investment income were as follows:
1995 1994 1993 ------ ------ ----- Realized gains on investment securities $ 108 $ -- $ 139 Unrealized gains (losses) on trading invest- ment securities 76 (35) 17 ------ -------- ------ $ 184 $ (35) $ 156 ===== ======= =====
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:
1995 1994 -------- ------ 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
12 ADAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE E DEBT (continued)
1995 1994 -------- ------ 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 ======== ========
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 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:
Capital Operating Leases Leases ------ -------- 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 =======
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 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:
1995 1994 1993 ------ ------ ----- 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) ====== ====== ======
15 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:
1995 1994 1993 ------ ------ ---- 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)% ==== ===== =====
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 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 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 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 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 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 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:
1995 1994 1993 -------- -------- ------ 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 =======
22 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 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 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 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:
Percentage of Net Sales Year Ended December 31, 1995 1994 1993 ------ ------ ----- 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%
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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----