BK Technologies Corp — Interim / Quarterly Report 1995

Nov 15, 1995

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, 1995 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 400 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 October 31, 1995 5,121,538 shares of Common Stock, par value $.60 per share. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ADAGE, INC. Condensed Consolidated Balance Sheets

Note 1. The consolidated balance sheet at December 31, 1994 has been condensed from the audited financial statements. See Notes to condensed consolidated financial statements. 2 ITEM 1 - FINANCIAL STATEMENTS - continued ADAGE, INC. Condensed Consolidated Statements of Income

3 ITEM 1 - FINANCIAL STATEMENTS - continued ADAGE, INC. Condensed Consolidated Statements of Income

See Notes to Condensed Consolidated Financial Statements. 4 ITEM 1 - FINANCIAL STATEMENTS - continued ADAGE, INC. Condensed Consolidated Statements of Cash Flows

See Notes to Condensed Consolidated Financial Statements 5 Notes to Condensed Consolidated Financial Statements (Unaudited) (000's Omitted) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet as of September 30, 1995, the consolidated statements of operations and the consolidated statements of cash flows for the three months ended September 30, 1995 and 1994 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, 1995 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, 1994 Annual Report to Shareholders. The results of operations for the period ended September 30, 1995 are not necessarily indicative of the operating results for a full year. 2. Inventories

The excess of current cost over LIFO inventory value at December 31, 1994 is: $452.

6 3. Stockholder's Equity Stockholder's Equity is comprised of the following:

1. Sale of Niagara Cold Drawn Corporation On August 16, 1995 the Company sold its 80% interest in the stock of Niagara Cold Drawn Corporation to International Metals Acquisition Corporation for $6.8 million in cash. Niagara Cold Drawn Corporation net assets at the date of sale were as follows:

7 ITEM 2. 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 each item from the consolidated statement of income expressed as a percentage of net sales:

Net Sales Net sales for the three months and nine months ended September 30, 1995 increased (decreased) compared to sales for the same period in 1994. This change is made up of the following:

Sales in the wireless communications equipment business segment decreased due to parts shortage which constrained production of certain products. Increases in the paper manufacturing segment were due to price increases. Cost of Sales Cost of sales as a percentage of net sales increased 7.0% to 84.4% for the quarter ended September 30, 1995 from 77.4% for the quarter ended September 30, 1994 and increased 5.1% to 82.0% for the nine months ended September 30, 1995 compared to 76.9% for the nine months ended September 30, 1994. Detail of these changes by segment follows:

8 Material costs, primarily recycled paper fiber, have increased approximately 400% over the past year. Prices for paperboard have increased also but have generally lagged price increases in raw materials. Cost of electronic components have increased in the specialty manufacturing business. These increases have not been passed on fully to customers as of September 30, 1995. Costs increased in the wireless equipment manufacturing segment due to increased labor costs associated with the manufacture of certain products in the Bendix/King product line. These costs are expected to decrease as this product line is fully absorbed into this segment's facility. Selling, General and Administrative Expenses Selling, general and administrative expenses which consist primarily of commissions, marketing, salary and related costs, data processing and occupancy costs increased to 20.6% from 19.9% for the quarter ended September 30, 1995 from the quarter ended September 30, 1994, but decreased to 20.3% from 22.0% for the nine months ended September 30, 1995. Details of this change by segment follow:

The decrease in selling, general and administrative expenses were in the wireless communications equipment segment. This was related to the reduction in personnel in 1994 and the first half of 1995. RELM Communications the Company's wireless communications equipment subsidiary, purchased the Bendix/King Mobile Communications Division from AlliedSignal in September, 1993. Interest Expense Interest Expense decreased from $239 for the quarter ended September 30, 1994 to $230 for the quarter ended September 30, 1995 and increased from $537 for the nine months ended September 30, 1994 to $640 for the nine months ended September 30, 1995. The increase for the nine months ended September 1995 was due to increased debt levels. Investment Income Investment income for the nine months ended September 30, 1995 was due to the settlement of a class action suit for a security previous owned by the Company. 9 Income Taxes Income taxes (benefit) represented a 34.0% effective tax rate for the quarter ended September 30, 1995. This rate is made up of a 34% federal tax rate and varying state tax rates. The effective tax rate for 1994 was 37.6%. The effective tax rate for the quarter ended September 30, 1994 was 36.0%. Inflation and Changing Prices Inflation and changing prices for the nine months ended September 30, 1995 and the nine months ended September 30, 1994 have contributed to increases in wages, facility and raw material costs. The Company believes that it will be able to pass on most of its future inflationary increases to its customers. The wireless 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 cost. Liquidity and Capital Resources Working capital decreased by $3,250,000 during the nine months ended September 30, 1995. This decrease is due to the sale of the Company's steel processing facility during the third quarter of 1995. The Company has credit available under its existing lines of credit in excess of $2,000,000. Capital expenditures for the nine months of 1995 were $588,000 which was paid from operating cash flow and bank credit lines. Capital expenditures for 1995 for the combined entity are not expected to exceed $1.5 million. 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 continue at these levels for the foreseeable future. Inventories decreased $5,459,000 for the nine months ended September 30, 1995. This decrease is due to the sale of the Company's steel processing subsidiary. 10 Discontinued Operations In February, 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. On May 23, 1995 the Board of Directors decided to accept an offer to purchase the stock of Niagara Cold Drawn Corporation for approximately $6.8 million. The sale was completed on August 6, 1995. Management will consider disposal of subsidiaries that do not earn an adequate return or fit the long-term goals of the Company. 11 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, 1995. 12 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: November 14, 1994 13