<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, 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
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Cade Industries, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Wisconsin 39-1371038
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
5640 Enterprise Drive, Lansing, Michigan 48911
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(Address of principal executive offices)
(Zip Code)
(517) 394-1333
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(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 - 21,918,804 shares as of
November 10, 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
September 30, 1997 and 1996 3
Condensed Consolidated Statements of
Operations for the nine months ended
September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 5
Note to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
September 30
1997 December 31,
(Unaudited) 1996*
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $537,044 $21,606
Trade accounts receivable 7,459,859 6,585,905
Inventories:
Finished goods and work in progress 7,183,144 5,866,912
Materials and supplies 3,825,798 4,046,858
---------- ----------
11,008,942 9,913,770
Deferred income taxes 445,000 445,000
Prepaid expenses and other current assets 334,110 180,279
---------- ----------
TOTAL CURRENT ASSETS 19,784,955 17,146,560
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 509,864 500,864
Buildings 4,923,438 4,356,455
Machinery and equipment 10,538,210 9,910,080
Tooling 12,084,138 11,395,706
---------- ----------
28,055,650 26,163,105
Less accumulated depreciation 13,090,812 11,157,024
---------- ----------
14,964,838 15,006,081
INTANGIBLE AND OTHER ASSETS
Goodwill 2,933,419 3,014,369
Other assets 158,569 137,430
---------- ----------
3,091,988 3,151,799
---------- ----------
$37,841,781 $35,304,440
=========== ===========
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
September 30
1997 December 31,
(Unaudited) 1996*
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $2,845,000 $ 3,010,000
Current portion of long-term debt 1,445,552 1,558,220
Trade accounts payable 3,056,377 2,888,283
Employee compensation and amounts withheld 1,390,994 1,013,108
Accrued expenses 1,213,897 552,097
Accrued income taxes 311,205 126,216
------------ -----------
TOTAL CURRENT LIABILITIES 10,263,025 9,147,924
LONG-TERM DEBT 4,684,909 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
21,980,859 shares; outstanding 21,660,804
shares 21,978 21,973
Additional paid-in capital 8,928,599 8,885,977
Retained earnings 13,758,526 12,122,296
------------ -----------
22,709,103 21,030,246
Less cost of Common Stock in treasury 449,256 346,911
------------ -----------
22,259,847 20,683,335
------------ -----------
$37,841,781 $35,304,440
============ ===========
</TABLE>
* The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended September 30
1997 1996
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<S> <C> <C>
Sales $13,477,498 $9,162,445
Operating expenses:
Cost of sales 10,602,610 7,101,094
Selling, general and administrative expenses 1,782,374 1,523,238
------------ -----------
12,384,984 8,624,332
------------ -----------
INCOME FROM OPERATIONS 1,092,514 538,113
Interest expense - net 202,929 204,417
------------ -----------
INCOME BEFORE INCOME TAXES 889,585 333,696
Income taxes 263,000 70,000
------------ -----------
NET INCOME $ 626,585 $263,696
============ ============
NET INCOME PER SHARE $ 0.03 $ 0.01
============ ============
Weighted average number of shares of
common stock outstanding 21,658,000 21,706,000
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
PART 1, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Nine Months Ended September 30
---------------------------------------
1997 1996
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<S> <C> <C>
Sales $38,785,940 $23,942,508
Operating expenses:
Cost of sales 29,805,030 18,033,500
Selling, general and administrative expenses 6,035,953 4,529,933
----------- -----------
35,840,983 22,563,433
----------- -----------
INCOME FROM OPERATIONS 2,944,957 1,379,075
Interest expense - net 578,986 555,062
----------- -----------
INCOME BEFORE INCOME TAXES 2,365,971 824,013
Income taxes 730,000 169,000
----------- -----------
NET INCOME $1,635,971 $655,013
========== ========
NET INCOME PER SHARE $ 0.08 $ 0.03
========== ========
Weighted average number of shares of
common stock outstanding 21,684,000 21,694,000
</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
-------------------------------
1997 1996
------------ --------------
<S> <C> <C>
NET CASH PROVIDED BY(USED IN):
OPERATING ACTIVITIES $2,937,297 $202,685
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,892,546) (1,008,282)
Increase in other assets (37,655)
---------- ----------
(1,930,201) (1,008,282)
FINANCING ACTIVITIES
Increase (decrease) in note payable to bank (165,000) 2,150,000
(Payments) of long-term debt - net of new
borrowing proceeds (266,940) (661,430)
Exercise of stock options 3,828 57,512
Purchase of common stock for treasury (127,268) (92,469)
Other 63,722
---------- ----------
(491,658) 1,453,613
---------- ----------
INCREASE IN CASH AND CASH
EQUIVALENTS 515,438 648,016
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 21,606 187,485
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $537,044 $835,501
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADE INDUSTRIES, INC.
SEPTEMBER 30, 1997
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of and for the three and
nine month periods ended September 30, 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.
NOTE B - DEBT AGREEMENT
During August 1997 the Company amended its line of credit arrangement with a
bank increasing the amount of credit available under the line to $6,000,000
from $5,000,000. The terms and conditions of the amended credit arrangement
were substantially unchanged from the previous agreement.
NOTE C - SUBSEQUENT EVENTS
BUSINESS COMBINATION
Effective October 31, 1997, the Company acquired 100% of the outstanding
shares of Central Engineering Company (Cenco) and the underlying real
estate used in its operations for $7,723,000 in cash and 250,000 of the
Company's common shares valued at $750,000. The cash portion of the
purchase price was financed through additional bank debt.
Cenco is a leader in the design, construction and manufacture of aircraft
engine test and data acquisition equipment and test facilities. Sales for
its fiscal year ended June 30, 1997 were approximately $21 million.
FINANCING AGREEMENT
In conjunction with its acquisition of Cenco at the end of October 1997,
the Company completed the negotiation of an amendment and restatement of
its revolving credit and term loan agreement. The amended and restated
agreement consists of a $9,000,000 unsecured line of credit, a $3,571,000
term note, a $4,000,000 mortgage note and a $3,250,000 term note.
Pre-existing term debt of $2,571,000 and line of credit debt of $527,000
was retired with the proceeds from this financing.
6
<PAGE> 9
NOTE D - NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share", which is
effective for financial statements issued after December 15, 1997, and
requires companies to present earnings per share on the face of the income
statement in two categories called "Basic" and "Diluted" and requires
restatement of all periods presented. The Company will adopt SFAS No. 128
during the fourth quarter of 1997 and anticipates that its adoption will
not have a material impact on earnings per share.
7
<PAGE> 10
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 $13,477,000 in the third quarter of 1997 represented
an increase of 47.1% or $4,315,000 from the same quarter of 1996, while net
sales of $38,786,000 for the nine months ended September 30, 1997, represented
an increase of $14,843,000 or 62.0% compared to the same nine-month period of
the prior year. The higher sales for both the third quarter and nine-month
periods primarily reflect increased sales of test nacelle products, military
spares, and OEM gas turbine engine components as well as increased 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 generally
have selling prices ranging from $500,000 to $1,500,000. At September 30,
1997, the Company's backlog was $41.9 million ($34.1 million at September 30,
1996) of firm orders, which included only the first two years of scheduled
orders ($13.5 million) under long-term agreements. Overhaul and repair orders
are not included in the order backlog due to their very short lead times and
these sales currently represent about 21.0% of Cade's total annual sales.
COST OF SALES
Cost of sales for the third quarter of 1997 increased $3,502,000 or 49.3% from
the same quarter of 1996 and for the nine months ended September 30, 1997,
increased $11,772,000 or 65.3% from the comparable period in 1996. The
increases for both the quarter and nine-month periods were primarily due to the
higher sales in 1997. Cost of sales as a percent of sales increased to 78.7% in
the third quarter of 1997 from 77.5% in the 1996 third quarter and for the nine
months ended September 30, 1997, increased to 76.8% from 75.3% in the
comparable period of 1996. Material cost of sales as a percent of sales
increased in both the three and nine-month periods of 1997 due to the change
from customer-provided to vendor-procured materials on certain gas turbine
engine components and to purchased tooling, as well as to changes in product
mix, primarily increased sales of test nacelles and military spares components
with higher material contents. Tooling amortization costs as a percent of
sales also increased during both the three and nine-month periods due primarily
to the increased sales of test nacelles. The increases in the material and
amortization percentages were partially offset by decreases in both labor and
overhead costs as a percent of sales. The decrease in the labor cost as a
percent of sales resulted primarily from improved productivity, lower average
labor costs due to new hires in the labor force and higher sales of products
with lower labor content. Overhead cost of sales as a percent of sales
decreased as a result of cost containment efforts and the spreading of fixed
manufacturing costs over a larger sales base, partially offset by increases in
certain indirect manufacturing expenses.
8
<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("administrative expenses") as a
percent of net sales were 13.2% and 16.6% for the third quarter of 1997 and
1996, respectively, and 15.6% and 18.9% for the nine months ended September 30,
1997 and 1996, respectively. The decrease in such expenses as a percentage of
sales was due to the spreading of fixed administrative costs over a larger
sales base. Actual amounts expended increased by $259,000 from the third
quarter of 1996 to the same quarter of 1997 and by $1,506,000 from the nine
months ended September 30, 1996 to the same period in 1997.
Factors contributing to the higher administrative expenses in both 1997 periods
were increased marketing costs, commission expense, professional and consulting
fees, administrative staff, equipment maintenance contracts and travel related
costs incurred to support the higher current and expected sales volumes. In
addition, the Company had higher costs related to new business development
activities and higher business franchise taxes resulting from the increase in
sales volume.
NET INTEREST EXPENSE
Net interest expense as a percent of sales was 1.5% for both the three and
nine-month periods in 1997 and was 2.2% and 2.3% for the 1996 three and
nine-month periods, respectively. Actual interest expense was relatively
unchanged at $203,000 for the 1997 and 1996 third quarters and increased
slightly to $579,000 for the 1997 nine-month period. Line of credit usage
increased in both the three and nine-month 1997 periods, compared to the
comparable 1996 periods, to finance the additional working capital needed to
support the higher 1997 business activity. Substantially offsetting the
increased line of credit usage were lower overall interest rates as a result of
borrowing at Eurodollar-based interest rates and the lower average balance of
long-term debt obligations due to scheduled repayments.
INCOME TAX EXPENSE
Income taxes were $263,000 or 2.0% of sales in the 1997 third quarter, compared
to $70,000 or 0.8% of sales for the same quarter of 1996. Income taxes were
$730,000 or 1.9% of sales for the nine months ended September 30, 1997,
compared to $169,000 or 0.7% of sales for the comparable period 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 $627,000 in the 1997 third quarter represents an increase in
after-tax earnings of $363,000, or 138%, from the 1996 third quarter. Net
income of $1,636,000 for the first nine months of 1997 represents an increase
in after-tax earnings of $981,000, or 150%, from the comparable period of 1996.
Factors contributing to these changes are discussed above.
9
<PAGE> 12
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 to continue through 1997 and into 1998. During the
first nine months 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
capacity expansion, 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.
At the end of the quarter, the Company maintained a $6,000,000 unsecured credit
line with a bank, $3,155,000 of which was available at September 30, 1997. The
Company also had outstanding approximately $3,984,000 of secured term debt, and
$2,146,000 of subordinated notes. As discussed in Note C of the Notes To
Condensed Consolidated Financial Statements, subsequent to the end of the third
quarter, the Company negotiated an amendment and restatement of its revolving
credit and term loan agreement. The amended and restated agreement represents
a total credit facility of $19,821,000 consisting of a $9,000,000 unsecured
line of credit, a $4,000,000 mortgage note and term notes of $3,571,000 and
$3,250,000, respectively. Pre-existing term debt of $2,571,000 and line of
credit debt of $527,000 was retired with the proceeds from the new fixed-term
debt.
Management believes that expected increased revenues and on-going 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
amended credit facilities are felt to be adequate to finance its current
operations and capital expenditure requirements at present and anticipated
levels.
Certain of the information contained in Item 2 is of a forward looking nature
and is subject to various uncertainties. See Item 5.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
<PAGE> 13
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 assumptions 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
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.
11
<PAGE> 14
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 12, 1997
By /S/ Edward B. Stephens
--------------------------
Edward B. Stephens
Vice President, Treasurer and
Chief Financial Officer
<PAGE> 15
CADE INDUSTRIES, INC.
* * *
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1997
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 537,044
<SECURITIES> 0
<RECEIVABLES> 7,509,859
<ALLOWANCES> 50,000
<INVENTORY> 11,008,942
<CURRENT-ASSETS> 19,784,955
<PP&E> 28,055,650
<DEPRECIATION> 13,090,812
<TOTAL-ASSETS> 37,841,781
<CURRENT-LIABILITIES> 10,263,025
<BONDS> 4,684,909
0
0
<COMMON> 21,978
<OTHER-SE> 22,237,869
<TOTAL-LIABILITY-AND-EQUITY> 37,841,781
<SALES> 38,785,940
<TOTAL-REVENUES> 38,785,940
<CGS> 35,840,983
<TOTAL-COSTS> 35,840,983
<OTHER-EXPENSES> 6,035,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578,986
<INCOME-PRETAX> 2,365,971
<INCOME-TAX> 730,000
<INCOME-CONTINUING> 1,635,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,635,971
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
