<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-12808
Cade Industries, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1371038
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5640 Enterprise Drive, Lansing, Michigan 48911
(Address of principal executive offices)
(Zip Code)
(517) 394-1333
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
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 periods 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $0.001 Par Value -- 21,692,291 shares as of
November 8, 1996
<PAGE> 2
INDEX
CADE INDUSTRIES, INC.
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Operations for the three months ended
September 30, 1996 and 1995 3
Condensed Consolidated Statements of
Operations for the nine months ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II - OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995*
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 835,501 $ 187,485
Trade accounts receivable 5,070,400 4,670,698
Inventories:
Finished goods and work in progress 6,678,333 5,176,320
Materials and supplies 3,746,442 2,741,815
----------- -----------
10,424,775 7,918,135
Refundable federal income taxes 294,500 362,000
Deferred income taxes 379,000 379,000
Prepaid expenses and other current assets 183,310 136,105
----------- -----------
TOTAL CURRENT ASSETS 17,187,486 13,653,423
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 500,864 500,864
Buildings 4,350,818 4,330,657
Machinery and equipment 9,573,185 9,116,644
Tooling 11,040,195 10,512,553
----------- -----------
25,465,062 24,460,718
Less accumulated depreciation 10,342,245 8,701,719
----------- -----------
15,122,817 15,758,999
INTANGIBLE AND OTHER ASSETS
Goodwill 3,046,986 3,123,220
Other assets 128,200 148,863
----------- -----------
3,175,186 3,272,083
----------- -----------
$35,485,489 $32,684,505
=========== ===========
</TABLE>
1
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995*
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 3,450,000 $ 1,300,000
Current portion of long-term debt 1,408,158 1,765,171
Trade accounts payable 2,446,278 1,685,313
Employee compensation and amounts withheld 797,272 614,739
Accrued expenses 732,068 963,747
Accrued income taxes 245,181 262,800
----------- -----------
TOTAL CURRENT LIABILITIES 9,078,957 6,591,770
LONG-TERM DEBT 5,651,518 5,955,935
DEFERRED INCOME TAXES 477,000 477,000
SHAREHOLDERS' EQUITY
Preferred Stock, 10% cumulative, non-voting,
stated value $300 per share; authorized 500
shares, none issued
Common Stock, par value $.001 per share;
authorized 100,000,000 shares, issued
21,936,409 shares; outstanding 21,692,291
shares 21,973 21,886
Additional paid-in capital 8,885,977 8,828,552
Retained earnings 11,716,975 11,063,804
----------- -----------
20,624,925 19,914,242
Less cost of Common Stock in treasury 346,911 254,442
----------- -----------
20,278,014 19,659,800
----------- -----------
$35,485,489 $32,684,505
=========== ===========
</TABLE>
* The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE> 5
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------
1996 1995
----------- ------------
<S> <C> <C>
Sales $ 9,162,445 $ 6,955,259
Operating expenses:
Cost of sales 7,101,094 5,453,939
Selling, general and administrative expenses 1,523,238 1,334,356
----------- ------------
8,624,332 6,788,295
----------- ------------
INCOME FROM OPERATIONS 538,113 166,964
Interest expense - net 204,417 188,900
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 333,696 (21,936)
Income taxes (credit) 70,000 (47,000)
----------- ------------
NET INCOME $ 263,696 $ 25,064
=========== ============
NET INCOME PER SHARE $ 0.01 $ 0.00
=========== ============
Weighted average number of shares of
common stock outstanding 21,706,065 21,686,341
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------
1996 1995
----------- ------------
<S> <C> <C>
Sales $23,942,508 $ 22,943,990
Operating expenses:
Cost of sales 18,033,500 19,117,823
Selling, general and administrative expenses 4,529,933 4,012,426
----------- ------------
22,563,433 23,130,249
----------- ------------
INCOME (LOSS) FROM OPERATIONS 1,379,075 (186,259)
Interest expense - net 555,062 544,632
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 824,013 (730,891)
Income taxes (credit) 169,000 (340,000)
----------- ------------
NET INCOME (LOSS) $ 655,013 $ (390,891)
=========== ============
NET INCOME (LOSS) PER SHARE $ 0.03 $ (0.02)
=========== ============
Weighted average number of shares of
common stock outstanding 21,693,879 21,683,140
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES $ 202,685 $ 488,491
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,008,282) (1,191,820)
Increase in other assets (101,624)
----------- -----------
(1,008,282) (1,293,444)
FINANCING ACTIVITIES
Increase (decrease) in note payable to bank 2,150,000 (1,543,018)
Payments and refinancing of long-term debt (661,430) 2,328,142
Exercise of stock options 57,512
Purchase of common stock for treasury (92,469)
Other 3,683
----------- -----------
1,453,613 788,807
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 648,016 (16,146)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 187,485 71,537
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 835,501 $ 55,391
=========== ===========
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADE INDUSTRIES, INC.
SEPTEMBER 30, 1996
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of and for the three and nine
month periods ended September 30, 1996 and 1995, have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, such condensed
consolidated financial statements reflect all adjustments necessary (consisting
only of normal recurring accruals) for a fair presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
NOTE B - PRIOR YEAR SPECIAL CHARGE TO OPERATIONS
1995 nine month operations includes a special pre-tax charge of $1,130,000 to
write-off certain costs at the Company's Cade Composites, Inc. subsidiary
associated with work-in-progress, non-recurring engineering charges, contract
termination costs, tooling investments, prototype development costs and accounts
receivable charges. The provision was based on the Company's review of
development costs and related project investments and its best estimate of
matching such costs against future revenue.
6
<PAGE> 9
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CADE INDUSTRIES, INC.
RESULTS OF OPERATIONS
SALES
The Company's net sales of $9,162,000 in the third quarter of 1996 represented
an increase of 31.7% or $2,207,000 from the same quarter of 1995, while net
sales of $23,944,000 for the nine months ended September 30, 1996 represented an
increase of $999,000 or 4.4% compared to the same nine month period of the prior
year. The higher sales for the third quarter primarily reflect timing
differences in delivery requirements of test nacelle products, increased sales
of overhaul and repair services and increased shipments of gas turbine engine
component units, primarily engine cases. The higher sales for the 1996 nine
month period result primarily from the increased sales of both overhaul and
repair services and gas turbine engine components. The increases for both the
1996 third quarter and nine month periods were partially offset by lower sales
of military components due to the completion of a government contract in 1995
and delays in military first article approvals in 1996.
Sales for 1996 are expected to increase over those of the prior year as a result
of higher gas turbine engine and airframe component sales as well as increased
test nacelle shipments and sales of repair and overhaul services.
Period-to-period comparisons can be significantly impacted by the timing of
shipments of test equipment and other ground support equipment which typically
have selling prices ranging from $500,000 to $1.5 million. At September 30,
1996, the Company's backlog of orders was $34.1 million which included $13.2
million of scheduled orders under long-term agreements.
COST OF SALES
Cost of sales for the third quarter of 1996 increased $1,647,000 or 30.2% from
the same quarter of 1995 and for the nine months ended September 30, 1996
decreased $1,084,000 or 5.7% from the comparable period in 1995. The increase
for the quarter was primarily due to the higher sales in 1996. Other factors
affecting cost of sales for the quarter were increases in certain manufacturing
overhead costs, offset in part by increased sales of products with higher profit
margins, mainly gas turbine engine components and commercial overhaul and repair
services. The decrease in cost of sales for the 1996 nine month period results
primarily from the inclusion in the 1995 amount of a $960,000 special charge and
the increase in 1996 of product sales with higher profit margins. The 1995
special charge resulted from the write-off of certain costs at the Company's
Cade Composites subsidiary associated with work-in-progress, non-recurring
engineering charges, contract termination costs, tooling investments, and
prototype development costs. Excluding the 1995 special charge, cost of sales
for the 1996 year-to-date period decreased $124,000 or 0.7% on higher sales.
7
<PAGE> 10
Cost of sales as a percentage of sales was 77.5% and 78.4% for the 1996 and 1995
third quarters, respectively, and for the nine months ended September 30, 1996
and 1995 was 75.3% and 83.3%, respectively. Excluding the effect of the 1995
special charge, cost of sales as a percentage of sales was 79.1% for the 1995
nine month period. The increased sales of gas turbine engine components and
commercial overhaul and repair services combined with decreased sales of certain
military aircraft components resulted in significantly lower material, but
slightly higher labor costs. Partially offsetting this significant reduction in
the material cost percentage was a change during the quarter from
customer-supplied to direct purchase of certain gas turbine engine cases. In
addition, manufacturing overhead expenses for the 1996 periods were unfavorably
impacted by increases in premium labor costs, tooling repair costs and certain
other indirect costs. The 31.7% increase in third quarter sales served as a
partial offset to the increased overhead percentage as fixed manufacturing
overhead costs were spread over a larger sales base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("administrative expenses") as a
percent of net sales were 16.6% and 19.2% for the third quarter of 1996 and
1995, respectively, and 18.9% and 17.5% for the nine months ended September 30,
1996 and 1995, respectively. Actual amounts expended increased by $189,000 from
the third quarter of 1995 to the same quarter of 1996 and by $518,000 from the
nine months ended September 30, 1995 to the same period in 1996.
Factors contributing to the higher administrative expenses in both 1996 periods
were increased marketing costs, commission expense, professional and consulting
fees, administrative staff, and travel related costs incurred to support the
expected sales increases for 1996. Sales commissions were $37,000 higher in the
1996 third quarter as compared to the same quarter in 1995 and $109,000 higher
for the nine months ended September 30, 1996 compared to the same period in
1995. Sales commission expenditures are directly related to the sales mix of
products and/or customers involved in the periods presented. The increased sales
commissions for the 1996 periods resulted primarily from greater repair and
overhaul sales subject to commission payments.
NET INTEREST EXPENSE
Net interest expense as a percent of sales was 2.2% and 2.7% for the 1996 and
1995 third quarters, respectively, and was 2.3% and 2.4% of sales for the nine
months ended September 30, 1996 and 1995, respectively. Actual net interest
expense was relatively unchanged for both the three and nine month periods.
8
<PAGE> 11
INCOME TAX EXPENSE
Income taxes were $70,000 or 0.8% of sales in the 1996 third quarter compared to
a negative expense of ($47,000) or (0.7%) of sales for the same quarter of 1995.
Income taxes were $169,000 or 0.7% of sales for the nine months ended September
30, 1996, compared to a negative expense of ($340,000) or (1.5%) of sales
(positive expense of $43,000 or 0.2% of sales excluding the special charge) for
the comparable period of 1995. The effective tax rate is lower than the
statutory rate due to utilization of net operating loss carryforwards at the
Company's H.A.C. subsidiary and the lower tax rate of the Company's foreign
sales corporation.
NET INCOME
Net income of $264,000 in the 1996 third quarter represents an increase in
after-tax earnings of $239,000 from the 1995 third quarter. Net income of
$655,000 for the first nine months of 1996 represents an increase in after-tax
earnings of $1,046,000 ($299,000 excluding the special charge) from the
comparable period of 1995. Factors contributing to these changes were discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its working capital and longer term capital needs through
short and long-term bank debt and leasing arrangements on certain items of
capital equipment.
Capital has principally been used to fund the Company's inventory, accounts
receivable, business development and capital expenditure programs. Management
expects to continue its present level of investment in inventory to support the
higher sales volume expected in the remainder of 1996 and through 1997.
Investments in production technology, tooling and equipment for improved
manufacturing efficiency and quality enhancement are expected to continue at
present levels. The Company will also continue to seek acquisition opportunities
to expand and/or diversify its markets.
The Company maintains a $5,000,000 unsecured credit line with a bank, $1,550,000
of which was available at September 30, 1996. The Company also has outstanding
approximately $4,004,000 of secured term debt, $195,000 of tax-exempt bonds and
$2,861,000 of subordinated notes.
Management believes that expected increased revenues and continued emphasis on
working capital management will lead to improved cash flow from operations. As a
result, the Company's cash flow from operations and its current credit
facilities are believed to be adequate to finance its current operations and
capital expenditure requirements at present and forecasted levels.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's officers may, when appropriate make public statements that contain
forward looking information as to the Company's sales and earnings. Forward
looking information is subject to risks and uncertainties that may significantly
impact expected results. The Company's outlook is based largely on its
interpretation of current order levels and trends and assumption as to trends in
the air transport and aircraft industries. Certain of the Company's backlog of
orders are subject to cancellation, reduction or extended delivery. The air
transport and aircraft industries have historically been subject to significant
cyclical fluctuations and are influenced by factors such as the general state of
the economy, fuel prices, governmental regulation, competition, and the level of
military spending. In addition, the Company's results are subject to pricing
competition, the willingness of the airlines and aircraft manufacturers to out
source work for their manufactured components and repairs, foreign currency
fluctuations with respect of international sales, and the Company's success in
the development, manufacture and marketing of composites products for other
industries and uses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) The following exhibit is filed herewith:
Exhibit 27. Financial Data Schedule
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADE INDUSTRIES, INC.
November 11, 1996
By /s/ Edward B. Stephens
-------------------------------
Edward B. Stephens
Vice President, Treasurer and
Chief Financial Officer
<PAGE> 14
CADE INDUSTRIES, INC.
* * *
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
- ------ ----------- ------------------- --------
<S> <C> <C> <C>
27 Financial Data
Schedule X
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CADE
INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 835,501
<SECURITIES> 0
<RECEIVABLES> 5,070,400
<ALLOWANCES> 0
<INVENTORY> 10,424,775
<CURRENT-ASSETS> 17,187,486
<PP&E> 25,465,062
<DEPRECIATION> 10,342,245
<TOTAL-ASSETS> 35,485,489
<CURRENT-LIABILITIES> 9,078,957
<BONDS> 5,651,518
0
0
<COMMON> 21,973
<OTHER-SE> 20,256,041
<TOTAL-LIABILITY-AND-EQUITY> 35,485,489
<SALES> 23,942,508
<TOTAL-REVENUES> 23,942,508
<CGS> 18,033,500
<TOTAL-COSTS> 18,033,500
<OTHER-EXPENSES> 4,529,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 555,062
<INCOME-PRETAX> 824,013
<INCOME-TAX> 169,000
<INCOME-CONTINUING> 655,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 655,013
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
