<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 March 31, 1997
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 -- 21,676,304 shares as of
May 8, 1997
<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
March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and 1996 4
Note to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996*
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,842 $ 21,606
Trade accounts receivable 6,416,914 6,585,905
Inventories:
Finished goods and work in progress 7,087,452 5,866,912
Materials and supplies 4,126,174 4,046,858
----------- -----------
11,213,626 9,913,770
Deferred income taxes 445,000 445,000
Prepaid expenses and other current assets 209,490 180,279
----------- -----------
TOTAL CURRENT ASSETS 18,292,872 17,146,560
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 509,864 500,864
Buildings 4,878,182 4,356,455
Machinery and equipment 10,183,054 9,910,080
Tooling 11,573,451 11,395,706
----------- -----------
27,144,551 26,163,105
Less accumulated depreciation 11,940,833 11,157,024
----------- -----------
15,203,718 15,006,081
INTANGIBLE AND OTHER ASSETS
Goodwill 2,987,386 3,014,369
Other assets 130,735 137,430
----------- -----------
3,118,121 3,151,799
----------- -----------
$36,614,711 $35,304,440
=========== ===========
</TABLE>
1
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996*
----------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 2,345,000 $ 3,010,000
Current portion of long-term debt 1,544,000 1,558,220
Trade accounts payable 3,814,960 2,888,283
Employee compensation and amounts withheld 1,000,185 1,013,108
Accrued expenses 762,897 552,097
Accrued income taxes 271,106 126,216
----------- -----------
TOTAL CURRENT LIABILITIES 9,738,148 9,147,924
LONG-TERM DEBT 5,055,560 4,839,181
DEFERRED INCOME TAXES 634,000 634,000
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
21,977,859 shares; outstanding 21,717,604
shares 21,978 21,973
Additional paid-in capital 8,928,599 8,885,977
Retained earnings 12,593,739 12,122,296
----------- -----------
21,544,316 21,030,246
Less cost of Common Stock in treasury 357,313 346,911
----------- -----------
21,187,003 20,683,335
----------- -----------
$36,614,711 $35,304,440
=========== ===========
</TABLE>
* The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See note 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 March 31
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Sales $12,355,557 $ 7,164,278
Operating expenses:
Cost of sales 9,376,113 5,263,243
Selling, general and administrative expenses 2,103,835 1,502,403
----------- -----------
11,479,948 6,765,646
----------- -----------
INCOME FROM OPERATIONS 875,609 398,632
Interest expense - net 185,166 166,202
----------- -----------
INCOME BEFORE INCOME TAXES 690,443 232,430
Income taxes 219,000 46,000
----------- -----------
NET INCOME $ 471,443 $ 186,430
=========== ===========
NET INCOME PER SHARE $ 0.02 $ 0.01
=========== ===========
Weighted average number of shares of
common stock outstanding 21,710,141 21,686,341
</TABLE>
See note to condensed consolidated financial statements.
3
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1997 1996
---------- ---------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES $1,398,298 $ 36,378
INVESTING ACTIVITIES
Additions to property, plant and equipment (981,446) (407,780)
FINANCING ACTIVITIES
Increase (decrease) in note payable to bank (665,000) 500,000
(Payments) of long-term debt - net of new
borrowing proceeds 202,159 (289,598)
Purchase of common stock for treasury (35,325)
Other 67,550
---------- ---------
(430,616) 210,402
---------- ---------
DECREASE IN CASH AND CASH
EQUIVALENTS (13,764) (161,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 21,606 187,485
---------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,842 $ 26,485
========== =========
</TABLE>
See note to condensed financial statements.
4
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADE INDUSTRIES, INC.
MARCH 31, 1997
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of and for the three month
periods ended March 31, 1997 and 1996, 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, 1996.
5
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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 $12,356,000 in the first quarter of 1997 increased
72.5% or $5,191,000 from the same quarter of 1996. The increase in sales for the
1997 quarter primarily reflects higher unit sales in all of the Company's core
products (gas turbine engine and airframe components, repair and overhaul
services and ground test equipment).
Sales for 1997 are expected to exceed those of the prior year as a result of
continuing increases in all of the Company's core products. Quarter-to-quarter
comparisons can be significantly impacted by the timing of shipments of test
equipment and other ground support equipment. At March 31, 1997, the Company's
backlog of orders was $40.2 million ($25.6 million at March 31, 1996), which
included $13.5 million of scheduled orders under long-term agreements. Overhaul
and repair orders are not reflected in the Company's order backlog due to their
very short lead times.
COST OF SALES
Cost of sales for the first quarter of 1997 increased $4,113,000 or 78.1% from
the same quarter of 1996. Cost of sales increased as a percent of sales to 75.9%
in the first quarter of 1997 from 73.5% in the 1996 first quarter.
Material cost of sales as a percent of sales increased in the 1997 first quarter
due primarily to increases in material content for certain gas turbine engine
components as a result of changing from customer supplied material to purchased
material, pass-through billing of purchased tooling, and changes in product mix,
mainly increased sales of test cells and shipments to the military. Partially
offsetting the increase in the material cost percentage were decreases in both
labor and overhead costs as a percent of sales. The decrease in labor cost as a
percent of sales resulted primarily from increased productivity, higher sales of
products with lower labor content and lower average labor costs due to new hires
in the workforce. Overhead cost of sales as a percent of sales decreased as a
result of cost containment efforts, improved operational efficiency and the
spreading of fixed manufacturing costs over a larger sales base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("administrative expenses") as a
percent of sales decreased to 17.0% in the first quarter of 1997 from 21.0% in
the same quarter of 1996. Actual amounts expended increased by $601,000 in the
first quarter of 1997 from the 1996 first quarter. The increased administrative
expenses largely reflect increased costs in support of the higher present and
expected sales volumes including costs associated with marketing activities,
personnel, administrative supplies and equipment maintenance contracts. In
addition, the Company recorded costs related to new business
6
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development activities and higher business franchise taxes resulting from the
significant increase in sales volume.
NET INTEREST EXPENSE
Net interest expense as a percent of sales was 1.5% and 2.3% for the first
quarters of 1997 and 1996, respectively. Actual net interest expense increased
slightly to $186,000. Line of credit usage increased in the first quarter of
1997, compared to the same quarter of 1996 to finance the additional working
capital required to support the higher sales activity in the 1997 quarter.
However, the effect of the increased borrowing was largely offset by lower
overall interest rates as a result of borrowing at Eurodollar-based interest
rates.
INCOME TAX EXPENSE
Income taxes were $219,000 or 1.8% of sales in the 1997 first quarter, compared
to $46,000 or 0.6% for the same quarter of 1996. The effective tax rate is lower
than the statutory rate due primarily to the lower tax rate of the Company's
foreign sales corporation.
NET INCOME
Net income of $471,000 in the first quarter of 1997 represents an increase in
after-tax earnings of $285,000 from the 1996 first quarter due to the factors
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 throughout 1997. During the first quarter of 1997,
the Company invested approximately $535,000 in additional manufacturing and
warehousing capacity for its Auto-Air Composites subsidiary in order to meet
increased production requirements. Other than this expansion in capacity,
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, $2,655,000
of which was available at March 31, 1997. The Company also has outstanding
approximately $4,356,000 of secured term debt, $98,000 of tax-exempt bonds and
$2,146,000 of subordinated notes.
Management believes that expected increased revenues and continued emphasis on
working capital management will continue to provide strong cash flow from
operations. As a result, the Company's cash flow from operations and its current
credit facilities are felt to
7
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be adequate to finance its current operations and capital expenditure
requirements at present and forecasted levels.
Certain of the information contained in Item 2 is of a forward looking nature
and is subject to various uncertainties. See Item 5.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on May 6, 1997, shareholders
elected the seven nominees for the Board of Directors. There was no solicitation
in opposition to the nominees proposed in the Proxy Statement and there were no
abstentions or broker nonvotes. The votes with respect to the nominees were as
follows:
<TABLE>
<CAPTION>
DIRECTOR NAME VOTES FOR VOTES WITHHELD
- ------------- --------- --------------
<S> <C> <C>
Molly F. Cade 19,950,443 63,105
Conrad G. Goodkind 19,965,973 47,575
William T. Gross 19,957,873 55,675
Richard A. Lund 19,965,973 47,575
Terrell L. Ruhlman 19,962,873 50,675
John W. Sandford 19,965,473 48,075
Steven M. Tadler 19,959,243 54,305
</TABLE>
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 composite 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.
Change In CEO
Effective September 1, 1997, John W. Sandford will become Chairman and Chief
Executive Officer of the Company succeeding Terrell L. Ruhlman who will be
retiring from the position. Mr. Ruhlman, age 70, was elected as a Director in
1987 and has served as the Company's Chairman and Chief Executive Officer since
1990. Mr. Ruhlman will remain
8
<PAGE> 11
as a Director of the Company. Richard A. Lund will continue as the President,
Chief Operating Officer and a member of the Board of Directors.
Mr. Sandford, age 62, has been a member of the Cade Board for seven years. He is
a veteran of the aerospace industry having been the Chief Executive of several
airframe and engine companies. He is currently the Chief Executive of
Rolls-Royce North America and will step up to Chairman of that Company this
summer following the appointment of a successor.
Since joining Rolls-Royce North America in 1990, Mr. Sandford has led that
company's business in the United States, and he spent two years in the United
Kingdom where he was the Managing Director of the Aerospace Group. Prior to
joining Rolls-Royce he was the CEO of Gulfstream Aerospace, Fairchild Republic,
de Havilland Aircraft Canada and Rockwell's Canadian Admiral Corporation. His
career includes 16 years with Rockwell where he also served in various
engineering and program management positions.
Mr. Sandford was born in England and is an American citizen. He and his wife
Shirley reside in McLean, Virginia.
"I am pleased to have Mr. Sandford as my successor," said outgoing Chairman
Terrell Ruhlman. "John's extensive experience and outstanding reputation in the
aerospace industry will be a valuable asset to our Company and the
implementation of our strategic plan."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 4.1. Fifth Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement dated September 29, 1995 by and between
Cade Industries, Inc. and Comerica Bank.
Exhibit 27. Financial Data Schedule
(b) The Company has not filed any Reports on Form 8-K during the quarter for
which this report is filed.
9
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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.
May 13, 1997
By /s/ Edward B. Stephens
------------------------------
Edward B. Stephens
Vice President, Treasurer and
Chief Financial Officer
<PAGE> 13
CADE INDUSTRIES, INC.
* * *
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1997
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
- ------ ----------- ---------------- --------
<S> <C> <C> <C>
4.1 Fifth Amendment to
Amended and Restated
Revolving Credit and
Term Loan Agreement
Dated September 29, 1995
by and between Cade
Industries, Inc. and
Comerica Bank X
27 Financial Data
Schedule X
</TABLE>
<PAGE> 1
Exhibit 4.1
FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
This Amendment made and delivered as of February 19, 1997 by and
between CADE INDUSTRIES, INC. ("Borrower") and COMERICA BANK ("Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank are parties to that certain Amended
and Restated Revolving Credit and Term Loan Agreement dated January 30, 1995,
as amended as of March 3, 1995, June 1, 1995, September 29, 1995 and June 20,
1996 (the "Agreement"); and
WHEREAS, the Bank and the Borrower desire to amend the Agreement as set
forth below;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the Borrower and the Bank agree as follows:
1. Section 4.12 is replaced in its entirety by the following:
Maintain Current Ratio. On consolidated basis maintain, at all times a
ratio of current assets to current liabilities, determined in accordance
with GAAP, of not less than 1.75 to 1.00.
2. Borrower is responsible for all costs incurred by Bank, including
reasonable attorney fees, with regard to the preparation and execution of this
Amendment.
3. The execution of this Amendment shall not be, nor deemed to be, a
waiver of any Default or Event of Default.
4. All the terms used herein which are defined in the Agreement shall
have the same meanings as used herein, unless the context clearly requires
otherwise.
5. Borrower hereby waives, discharges and forever releases Bank, Bank's
employees, officers, directors, attorneys, stockholders and successors and
assigns, from and of any and all claims, causes of action, allegations or
assertions that Borrower has or may have had at any time up through and
including the date of this Amendment, against any or all of the foregoing,
regardless of whether any such claims, causes of action, allegations or
assertions are known to borrower or whether any such claims, causes of action,
allegations or assertions arose as a result of Bank's actions or omissions in
connection with the Agreement, or any amendments, extensions or modifications
thereto, or Bank's administration of debt evidenced by the Agreement or
otherwise.
6. Borrower expressly acknowledges and agrees that except as expressly
amended herein, the Agreement, as amended, shall remain in full force and
effect and is hereby ratified, confirmed and restated.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first set forth above.
CADE INDUSTRIES, INC.
By /s/ Edward B. Stephens
-----------------------------------
Its Vice President
-----------------------------------
COMERICA BANK
By /s/ Lori M. Fisher
-----------------------------------
Its Vice President
-----------------------------------
<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 MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,842
<SECURITIES> 0
<RECEIVABLES> 6,416,914
<ALLOWANCES> 0
<INVENTORY> 11,213,626
<CURRENT-ASSETS> 18,292,872
<PP&E> 27,144,551
<DEPRECIATION> 11,940,833
<TOTAL-ASSETS> 36,614,711
<CURRENT-LIABILITIES> 9,738,148
<BONDS> 5,055,560
0
0
<COMMON> 21,978
<OTHER-SE> 21,165,025
<TOTAL-LIABILITY-AND-EQUITY> 36,614,711
<SALES> 12,355,557
<TOTAL-REVENUES> 12,355,557
<CGS> 9,376,113
<TOTAL-COSTS> 9,376,113
<OTHER-EXPENSES> 2,103,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,166
<INCOME-PRETAX> 690,443
<INCOME-TAX> 219,000
<INCOME-CONTINUING> 471,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471,443
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
