<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer
incorporation or organization Identification No.)
5640 Enterprise Drive, Lansing, Michigan 48911
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 517-394-1333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 24, 1997, 21,737,604 shares of Common Stock were
outstanding, and the aggregate market value of the Common Stock (based upon the
$1.50 closing price on that date in the Nasdaq National Market) held by
nonaffiliates (excludes shares reported as beneficially owned by directors and
executive officers which exclusion does not constitute an admission as to
affiliate status) was approximately $24,071,804.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of Form 10-K Into Which Portions of
Document Document are Incorporated
-------- -------------------------
<S> <C>
Annual Report to Shareholders for the fiscal year ended
December 31, 1996 Part II
Proxy Statement for 1997 Annual Meeting of Shareholders Part III
</TABLE>
<PAGE> 2
PART I
ITEM 1. BUSINESS.
General
Cade Industries, Inc. (the "Company" or "Cade") conducts its operations
through three operating subsidiaries, Auto-Air Composites, Inc. ("Auto-Air"),
Cade Composites, Inc. ("CCI") and H.A.C. Corporation ("HAC").
Cade was incorporated in 1981 and initially was engaged in precision
machining of cast parts for the aircraft industry through its former Precision
Machining Division located in Marinette, Wisconsin, which was sold in June 1989.
The Company acquired Auto-Air in 1984 and the business that now is conducted by
CCI in 1988. On November 30, 1994, the Company acquired Pollux Corporation
which, through its wholly-owned HAC subsidiary, manufactures and overhauls
bonded structures and composite parts for military and commercial aircraft. The
Company has included the acquisition in its consolidated financial statements
since December 1994.
Products
Cade is engaged in the design, manufacture and repair and overhaul of high
technology composite components for the aerospace, air transport and specialty
industries. Composite materials are physical combinations of two or more
constituents. One of the materials, typically a fiber or particle such as epoxy
glass, graphite, polyamide glass or epoxy kevlar, is placed or dispersed within
the other constituent, called the matrix. The composite material formed by the
combination of constituents must have attributes which are superior to either
one of the constituent materials. Composite materials may be classified as
structural or non-structural dependent upon their application. These materials
are molded and cured at high temperatures under pressure or vacuum. The high
strength and low weight of composite materials makes them especially well suited
for aerospace and other applications where weight is a critical factor.
Cade's primary products include molded and bonded composite jet engine
components consisting of engine inlets, acoustical liners, fairings, auxiliary
power unit enclosures and engine cases ("Gas Turbine Products"); metal
fabricated and bonded composite airframe components consisting of various
control surface products, access doors, wing tips and interior structures
("Airframe Products"); the repair and overhaul of commercial and military
airframe components, commercial gas turbine engine components and flight nacelle
structures ("Repair and Overhaul Services"); and test nacelles used in the
ground testing and overhaul of commercial jet engines and related ground support
equipment ("Test Equipment"). These products are sold worldwide through the
Company's internal sales force and independent sales representatives to major
engine equipment manufacturers, airlines and overhaul facilities. For 1996, 1995
and 1994, sales of Gas Turbine Products, Airframe Products, Repair and Overhaul
Services and Test Equipment as a percentage of total sales were as follows:
1
<PAGE> 3
<TABLE>
<CAPTION>
Percentage of Total Net Sales
-----------------------------
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gas Turbine Products 29.4% 25.7% 35.8%
Airframe Products 20.9% 24.8% 11.1%
Repair and Overhaul Services 27.2% 24.2% 7.2%
Test Equipment 19.2% 20.7% 35.3%
----- ----- -----
Total 96.7% 95.4% 89.4%
===== ===== =====
</TABLE>
Through Auto-Air and HAC, Cade operates repair stations under Federal
Aviation Administration ("FAA") licenses. The repair stations are authorized to
repair and overhaul certain gas turbine engine products and other components,
sheet metal and composite flight control surfaces, skin panels, bonded honeycomb
panels, cargo doors and engine cowls. In addition to FAA certification, Auto-Air
and HAC have also been certified by the European Joint Airworthiness Authority
("JAA") to repair specific aircraft parts on certain types of aircraft subject
to JAA jurisdiction. Although some nations require approval from their own
aviation authorities before Auto-Air and HAC are authorized to repair parts on
aircraft subject to their jurisdiction, FAA and JAA certification enable
Auto-Air and HAC to repair parts on aircraft subject to the jurisdiction of most
foreign countries. HAC has also received repair approval from the Civil Aviation
Authority of China.
Raw Materials
The principal raw materials used in Cade's manufacturing processes consist
of epoxy glass, polyamide glass, epoxy kevlar, graphite BMI and aluminum
honeycomb. Although none of these materials currently is in short supply, the
Company has experienced increased order lead times in certain cases during the
past year, which management attributes to the desire of suppliers to minimize
inventory as well as the increased overall demand. These raw materials are
purchased from multiple suppliers located in the United States. International
sources are also available. Certain customers require that purchases be made
from one or more approved suppliers or that the Company certify the material
specifications in its in-house laboratories. Cade has never experienced a
shortage of raw materials as a result of such supplier or material
specifications restrictions.
Patents and Trademarks
Cade currently holds no material patents or registered trademarks,
tradenames or similar intellectual property, although the Company has applied
for certain patents in the area of high temperature composites applications and
expects to seek patent protection in the future as appropriate to preserve
proprietary developments. The Company believes that the nature of its business
presently does not require the development of patentable products or registered
tradenames or trademarks to maintain market position.
2
<PAGE> 4
Marketing and Competition
The Company's products are marketed primarily through its internal sales
force and independent sales representatives. The majority of Cade's sales are
made through individual purchase orders, as well as long-term agreements, which
are cancelable by customers, subject to cancellation charges to cover certain
manufacturing costs and related expenses. In addition, approximately 10.9% of
Cade's total net sales during fiscal 1996 was attributable to government
contracts which are subject to termination or renegotiation at the option of the
U.S. Government. Historically, terminations and renegotiations of government
contracts have not materially impacted the Company's earnings.
During the fiscal years ended December 31, 1996 and 1995, sales to the
Pratt & Whitney unit of United Technologies Corporation ("Pratt & Whitney")
accounted for approximately 24.6% and 19.7% of total net sales, respectively.
For the fiscal years ended December 31, 1996, 1995 and 1994, the Company's
export sales as a percentage of total net sales were 17.3%, 23.1% and 18.2%,
respectively.
Cade competes in its manufacturing operations primarily on the basis of
its design capability, precise quality standards, prompt delivery and price.
Management believes that certain of the Company's competitors have adequate
expertise in the use of composites to meet customers' quality standards and, as
to such competitors, Cade competes primarily on the basis of price. Some of the
Company's manufacturing competitors, including customer-affiliated manufacturing
units, are larger and have substantially greater resources than Cade. Efforts by
the industry's original equipment manufacturers ("OEMs") to reduce the number of
their suppliers have led to a consolidation among suppliers. The Company
believes that it will benefit from the consolidation and from increased OEM
outsourcing.
Cade believes it is one of only two manufacturers licensed to design and
build test nacelle and related ground support equipment for large commercial jet
engines. In addition, Cade believes it is one of only a limited number of
suppliers for certain composite jet engine and air frame components whose
manufacturing processes have been approved by the relevant engine manufacturer
or other prime contractor. Such approval certifies that the Company has been
audited by the prime contractor and meets or exceeds such contractor's process,
quality control and material specifications.
Cade competes in its repair and overhaul operations primarily on the basis
of its expertise and ability to provide short turn times within the industry's
stringent quality specifications and customers' pricing requirements. The
Company's competitors for repair and overhaul services include substantially all
commercial airlines and many large and small independent suppliers, many of
which are larger and have substantially greater resources than Cade. The market
for composite engine and airframe component overhaul and repair is fragmented
with many small participants and several large, independent participants, the
largest of which is the NORDAM Group.
3
<PAGE> 5
Backlog
The Company's backlog includes both "firm" orders supported by customer
purchase orders with fixed delivery dates and "blanket" purchase orders against
which customers issue production releases covering relatively short time periods
("LTAs"). At December 31, 1996, the Company's backlog of orders was $34.8
million ($22.8 million at December 31, 1995), which included $14.9 million
($10.0 million in 1995) of scheduled orders under LTAs. Of the total year-end
backlog, the Company expects to ship $30.7 million in 1997. The Company's order
backlog is subject to customer rights of cancellation or rescheduling, although
in certain cases the Company would be entitled to receive termination payments.
Overhaul and repair services typically involve short lead times and thus are
underrepresented in backlog numbers.
Employees
Cade has approximately 363 employees, of which 20 are employed in design
and design-related services; 242 are employed in manufacturing, repair and
quality control; and 101 are employed in administration (management, sales and
clerical). Approximately 26.2% of these employees are represented by a union.
ITEM 2. PROPERTIES.
The Company's owned and leased facilities are designed and constructed
for industrial purposes and are located in industrial districts. Each facility
is well maintained, suitable for the Company's purposes, and effectively
utilized. The table below sets forth certain information about the Company's
principal facilities.
<TABLE>
<CAPTION>
Square Owned Principal
Address Feet or Leased Description Activity
- ------- ---- --------- ----------- --------
<S> <C> <C> <C> <C>
5640 Enterprise Drive 54,000 Owned 1 and 2 story Composite
Lansing, MI brick building manufacturing
in industrial park
537 Camden Drive 53,000 Owned 1 and 2 story Manufacturing;
Grand Prairie, Texas metal building repair and overhaul
in industrial area
4075 Ruffin Road 44,000 Leased (1) 1 story reinforced Manufacturing
San Diego, CA concrete building in
industrial area
5720 Enterprise Drive 27,500 Owned 1 story brick Composite
Lansing, MI building in manufacturing
industrial park
</TABLE>
- ---------------------------
(1) Lease expires January 31, 1999.
4
<PAGE> 6
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal proceedings
other than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of Cade are elected by the Board of Directors to serve
until their successors are elected and qualified. The following table sets forth
certain information about Cade's executive officers:
<TABLE>
<CAPTION>
NAME (AGE) BUSINESS EXPERIENCE
<S> <C>
Terrell L. Ruhlman (70) Chairman of the Board and Chief Executive
Officer of the Company since April 1990;
Member of the Company's Audit and Strategic
Planning Committees; Chairman of the
Executive Committee of the Company from May
1989 to April 1990; consultant to and
director of Sonitrol Corporation
(manufacturer of electronic security systems)
from 1983 to 1992; director of EI
Environmental Engineering Concepts Ltd.
(manufacturer of industrial misting systems).
Richard A. Lund (45) President and Chief Operating Officer of the
Company since May 1990; Director of the
Company since January 1991; Member of the
Company's Strategic Planning Committee; Chief
Executive Officer of Auto-Air; President of
Auto-Air from 1988 through 1994.
Edward B. Stephens (49) Vice President, Treasurer, Assistant
Secretary and Chief Financial Officer of the
Company since July 1989; Member of the
Company's Strategic Planning Committee.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information in response to this item is incorporated herein by reference
to the information under the caption "Selected Financial Highlights - Market
Prices" in the Company's 1996 Annual Report to Shareholders.
5
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item is incorporated herein by reference
to the information under the caption "Selected Financial Highlights" in the
Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Information in response to this item is incorporated herein by reference
to the information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1996 Annual
Report to Shareholders.
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and its reports to shareholders.
Forward-looking statements are made in good faith by the Company pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. In connection with these "safe harbor" provisions, the Company identifies
important factors that could cause actual results to differ materially from
those contained in any forward-looking statements made by or on behalf of the
Company. Any such statement is qualified by reference to the following
cautionary statements.
Forward-looking information regarding the Company 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.
Developments in any of these areas, which are more fully described
elsewhere in Item 1 -- Business and Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 4 through 6
of the Company's 1996 Annual Report to Shareholders, each of which is
incorporated into this section by reference, could cause the Company's results
to differ materially from results that have been or may be projected by or on
behalf of the Company.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements that may be made from time to time by or on behalf of the Company.
6
<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item is incorporated herein by reference
to "Independent Auditors' Report," "Consolidated Balance Sheets," "Consolidated
Statements of Operations," "Consolidated Statements of Changes in Shareholders'
Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated
Financial Statements" in the Company's 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable. (The Company need not provide the disclosure called for by
this Item 9 because it has been previously reported, as that term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by reference
to (i) the information under the caption "Election of Directors" in the
Registrant's Proxy Statement for its 1997 Annual Meeting of Shareholders ("Cade
1997 Proxy Statement") and (ii) the information under the caption "Executive
Officers of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item is incorporated herein by reference
to the information under the caption "Executive Compensation" in the Cade 1997
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item is incorporated herein by reference
to the information under the caption "Principal Security Holders and Security
Holdings of Management" in the Cade 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated herein by reference
to the information under the caption "Election of Directors - Compensation of
Directors" in the Cade 1997 Proxy Statement.
7
<PAGE> 9
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed:
1. Financial statements.
The financial statements required to be filed by Item 8 hereof
have been incorporated by reference to the Registrant's 1996
Annual Report to Shareholders and consist of the following:
Consolidated Balance Sheets as of December 31, 1996 and
1995.
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Shareholders'
Equity for the three year period ended December 31,
1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial statement schedules.
The following financial statement schedules are included in
Item 14(d) hereof:
Independent Auditors' Report on Consolidated Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Report of Predecessor Accountant filed pursuant to Note 1 of
Rule 14a-3(b)(1).
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
3. Management Contract and Compensatory Plans and Arrangements.
All management contracts and compensatory plans and
arrangements are identified by an asterisk after the exhibit
number on the attached Exhibit Index.
8
<PAGE> 10
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the last quarter of
1996.
(c) Exhibits:
See the Exhibit Index immediately following the signature page of
this report, which Index is incorporated herein by this reference.
In addition, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,
the Registrant hereby agrees to furnish to the Commission upon
request any instrument with respect to long-term debt pursuant to
which the total amount of long-term debt authorized thereunder does
not exceed 10% of the Registrant's consolidated total assets.
(d) Financial Statement Schedules:
9
<PAGE> 11
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Cade Industries, Inc. and Subsidiaries
Lansing, Michigan
We have audited the consolidated financial statements of Cade Industries, Inc.
and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and for each
of the years then ended, and have issued our report thereon dated February 19,
1997. The consolidated financial statements of the Company for the year ended
December 31, 1994 were audited by other auditors whose report, dated February
13, 1995 expressed an unqualified opinion on those statements. Such financial
statements and report are included in your 1996 Annual Report to Stockholders
and are incorporated herein by reference.
Our audit also included the consolidated financial statement schedule of Cade
Industries, Inc. and Subsidiaries, listed in Item 14 as of and for the two
years ended December 31, 1996. The consolidated financial statement schedule as
of and for the year ended December 31, 1994 was audited by other auditors whose
report, dated February 13, 1995, expressed an unqualified opinion on the
schedule. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
- ----------------------------
February 19, 1997
Lansing, Michigan
10
<PAGE> 12
CADE INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
Balance at Charged to Costs Charged to Balance
Beginning of and Expenses Other Accounts- Deductions- at End
DESCRIPTION Period Describe Describe of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Reserves and allowances
deducted from asset accounts:
Valuation allowances:
Inventory $ 947,888 $ 146,860(1) $ 801,028
Deferred income taxes 640,000 30,000(2) 610,000
Other 154,766 $ 32,522 187,288
Amortization allowances:
Goodwill 536,219 108,851 645,070
Other 300,206 33,592 333,798
---------- ---------- ---------- ----------
$2,579,079 $ 174,965 $ 176,860 $2,577,184
========== ========== ========== ==========
Year ended December 31, 1995:
Reserves and allowances
deducted from asset accounts:
Valuation allowances:
Inventory $ 461,627 $ 56,261 $ 430,000(3) $ 947,888
Deferred income taxes 536,000 104,000(3) 640,000
Other 135,619 24,466 $ 5,319(4) 154,766
Amortization allowances:
Goodwill 444,898 91,321 536,219
Other 253,588 46,618 300,206
---------- ---------- ---------- ---------- ----------
$1,831,732 $ 218,666 $ 534,000 $ 5,319 $2,579,079
========== ========== ========== ========== ==========
Year ended December 31, 1994:
Reserves and allowances
deducted from asset accounts:
Valuation allowances:
Inventory $ 13,678 $ 447,949(3) $ 461,627
Deferred income taxes 536,000(3) 536,000
Other $ 10,619 125,000(3) 135,619
Amortization allowances:
Goodwill 400,015 44,883 444,898
Other 193,550 60,038 253,588
---------- ---------- ---------- ----------
$ 604,184 $ 118,599 $1,108,949 $1,831,732
========== ========== ========== ==========
</TABLE>
(1) Sale of reserved inventory.
(2) Adjustments to valuation allowance from Internal Revenue Service review.
(3) Valuation allowances recorded via purchase accounting for acquisition of
Pollux Corporation.
(4) Uncollectible accounts written-off, net of recoveries.
11
<PAGE> 13
ERNST & YOUNG LLP Suite 1700 Phone 313 596 7100
500 Woodward Avenue
Detroit, Michigan 48226-3426
Report of Independent Auditors
Shareholders and Board of Directors
Cade Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity, and cash flows of Cade Industries, Inc. and
Subsidiaries for the year ended December 31, 1994. Our audit also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated results of their operations and cash
flows of Cade Industries, Inc. and Subsidiaries for the year ended December 31,
1994. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements referred to above taken
as a whole, presents fairly in all material respects, the information set forth
therein for the year ended December 31, 1994.
/s/ Ernst & Young LLP
February 13, 1995
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>
<S> <C>
By /s/ Terrell L. Ruhlman Dated March 27 , 1997
---------------------------------- ------------------
Terrell L. Ruhlman, Chairman of
the Board, Chief Executive Officer
and Director
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Molly F. Cade Director March 27, 1997
- --------------------------------
Molly F. Cade
/s/ Conrad G. Goodkind Director March 27, 1997
- -------------------------------
Conrad G. Goodkind
/s/ William T. Gross Director March 27, 1997
- -------------------------------
William T. Gross
/s/ Richard A. Lund President, Chief Operating Officer March 27, 1997
- ------------------------ and Director
Richard A. Lund
/s/ Terrell L. Ruhlman Chairman of the Board and March 27, 1997
- ------------------------------- Chief Executive Officer
Terrell L. Ruhlman (principal executive officer)
/s/ John W. Sandford Director March 27, 1997
- -------------------------------
John W. Sandford
/s/ Steven M. Tadler Director March 27, 1997
- -------------------------------
Steven M. Tadler
/s/ Edward B. Stephens Vice President, Treasurer March 27, 1997
- ------------------------------- and Chief Financial Officer
Edward B. Stephens (principal financial and
accounting officer)
</TABLE>
13
<PAGE> 15
CADE INDUSTRIES, INC.
Exhibit Index to Report on Form 10-K
for the fiscal year ended December 31, 1996
<TABLE>
<CAPTION>
Exhibit Incorporated herein Filed
No. Description by reference to: Herewith
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
2.1 Agreement and Plan of Merger by and Exhibit 2.1 to the Registrant's Form S-4
among Cade Industries, Inc., Pollux Registration Statement dated October
Acquisition Corporation, Pollux 28, 1994, Registration No. 33-83130
Corporation and H.A.C. Corporation ("1994 S-4")
dated as of May 24, 1994 ("Agreement
and Plan of Merger")
2.2 Amendment No. 1 to Agreement and Exhibit 2.2 to Registrant's 1994 S-4
Plan of Merger
3.1 Articles of Incorporation, as amended Exhibit 4.1 to the Registrant's Form S-8
Registration Statement dated November 10,
10, 1990, Registration No. 33-37911
("1990 S-8")
3.2 By-Laws, as amended Exhibit 3.2 to Registrant's Annual Report
on Form 10-K for the year ended December
31, 1992
4.1 Articles IV, V and VIII of the Exhibit 4.1 to Registrant's 1990 S-8
Registrant's Articles of
Incorporation, as amended
4.2 Amended and Restated Revolving Credit Exhibit 4.2 to Registrant's Annual Report on
and Term Loan Agreement dated as of Form 10-K for the year ended December 31,
January 30, 1995, and First Amendment 1994 ("1994 10-K")
thereto dated March 3, 1995
4.3 Amendment No. 2 to Amended and Restated Exhibit 4.3 to Registrant's Form 10-K
Revolving Credit and Term Loan Agreement for the year ended December 31, 1995
dated as of June 1, 1995 by and between ("1995 10-K")
the Registrant and Comerica Bank
4.4 Third Amendment to Amended and Restated Exhibit 4.1 to Registrant's
Revolving Credit and Term Loan Agreement Form 10-Q for the quarter ended
dated as of September 29, 1995 by and September 30, 1995
between the Registrant and Comerica Bank
4.5 Fourth Amendment to Amended and Exhibit 4.1 to Registrant's Form 10-Q
Restated Revolving Credit and Term for the quarter ended June 30, 1996
Loan Agreement dated September 29, 1995
by and between Cade Industries, Inc.,
and Comerica Bank
4.6 Fifth Amendment to Amended and X
Restated Revolving Credit and Term
Loan Agreement dated February 19, 1997
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit Incorporated herein Filed
No. Description by reference to: Herewith
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
by and between Cade Industries, Inc.,
and Comerica Bank
4.7 Loan Agreement dated as of Exhibit 4.2 to Registrant's
September 1, 1990 between Form 10-Q for the quarter ended
the Economic Development September 30, 1990
Corporation of the City of
Lansing and Auto-Air Composites,
Inc.
4.8 Reimbursement Agreement Exhibit 4.2 to Registrant's
dated as of September 1, 1990 Form 10-Q for the quarter ended
between Auto-Air Composites, Inc. September 30, 1990
and Comerica Bank, as successor to
Manufacturers National
Bank of Detroit
4.9 Amended and Restated Security Exhibit 4.5 to Registrant's 1994 10-K
Agreement dated as of January 30,
1995, between Comerica Bank and
the Registrant
4.10 Amended and Restated Guaranty Exhibit 4.6 to Registrant's 1994 10-K
dated as of January 30, 1995,
between Comerica Bank and
Auto-Air Composites, Inc.
4.11 Amended and Restated Security Exhibit 4.7 to Registrant's 1994 10-K
Agreement dated as of January 30,
1995, between Comerica Bank and
Auto-Air Composites, Inc.
4.12 Amended and Restated Guaranty Exhibit 4.8 to Registrant's 1994 10-K
dated as of January 30, 1995,
between Comerica Bank and
Cade Composites, Inc.
4.13 Amended and Restated Security Exhibit 4.9 to Registrant's 1994 10-K
Agreement dated as of January 30,
1995, between Comerica Bank and
Cade Composites, Inc.
4.14 Guaranty dated as of Exhibit 4.10 to Registrant's 1994 10-K
January 30, 1995, between
Comerica Bank and Cade Commercial
Composites, Inc.
4.15 Guaranty dated as of Exhibit 4.11 to Registrant's 1994 10-K
December 1, 1994, between Comerica
Bank and Pollux Acquisition
Corporation
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit Incorporated herein Filed
No. Description by reference to: Herewith
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
4.16 Guaranty dated as of Exhibit 4.12 to Registrant's 1994 10-K
December 1, 1994, between Comerica
Bank and H.A.C. Corporation
4.17 Form of 6% Subordinated Notes issued Exhibit 2.1 to Registrant's 1994
in the initial aggregate principal S-4
amount of $2,861,040
10.1 I.A.M. National Pension Benefit Exhibit 19.4 to Registrant's
Fund, benefit plan B standard Form 10-Q for the quarter ended
participation agreement June 30, 1986
10.2 Sublease dated March 29, 1991 and First Exhibit 10.15 to Registrant's Annual Report
Amendment to Sublease dated April 24, on Form 10-K for the year ended December
1991 between Cade Composites, Inc. and 31, 1991 ("1991 10-K")
Scientific-Atlanta, Inc. for premises
located at 4075 Ruffin Road,
San Diego, CA
10.3* Employee Agreement dated January Exhibit 10.14 to Registrant's Form 10-Q
29, 1991 with Edward B. Stephens for the quarter ended March 31, 1991
10.4* Nonstatutory Stock Option Agreement Exhibit 10.7 to Registrant's 1994 10-K
for the Benefit of Terrell L. Ruhlman
10.5* Amendment to Employment Agreement Exhibit 10.7 to Registrant's 1995 10-K
between Richard Gribbins and the
Registrant dated May 11, 1995
10.6* Employment Agreement between Richard Exhibit 10.8 to Registrant's 1995 10-K
A. Lund and the Registrant dated
May 2, 1995
10.7 Collective Bargaining Agreement effective Exhibit 10.10 to Registrant's 1995 10-K
March 15, 1995 between Auto-Air
Composites, Inc. and Lodge No. 2184,
International Association of Machinists
10.8* Cade Industries, Inc. 1990 Exhibit 10.10 to Registrant's 1989 10-K
Nonqualified Stock Option Plan
("1990 Stock Option Plan")
10.9* Amendment No. 1 to Exhibit 10.18 to Registrant's 1991 10-K
1990 Stock Option Plan
10.10* Cade Industries, Inc. 1994 Stock Option Exhibit 10.13 to Registrant's 1994 10-K
Plan ("Director Stock Option Plan")
10.11* Form of Option Agreement under Exhibit 10.14 to Registrant's 1994 10-K
Director Stock Option Plan
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit Incorporated herein Filed
No. Description by reference to: Herewith
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
13.1 Portions of 1996 Annual
Report to Shareholders X
21.1 Subsidiaries of the Registrant Exhibit 21.1 to Registrant's 1995 10-K
23.1 Consent of Ernst & Young LLP to X
incorporation by reference
23.2 Consent of Deloitte & Touche LLP to X
incorporation by reference
27 Financial Data Schedule X
</TABLE>
* Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14 of Form 10-K.
17
<PAGE> 1
EXHIBIT 4.6
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 therein, 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
------------------------
<PAGE> 1
EXHIBIT 13.1
<PAGE> 2
[CADE LOGO]---------------------------------------------------------------------
SELECTED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994(1) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Sales $34,867 $ 30,445 $20,461 $ 16,184 $26,287
Income (loss) before cumulative
effect of change in method of
accounting for income taxes 1,058 (382) 159 (869)(2) 1,944
Income (loss) per share before
cumulative effect of accounting change 0.05 (0.02) 0.01 (0.05)(2) 0.12
Net income (loss) 1,058 (382) 159 (689) 1,944
Net income (loss) per share 0.05 (0.02) 0.01 (0.04) 0.12
SELECTED BALANCE SHEET DATA
Current assets 17,147 13,653 14,534 13,183 12,713
Total assets 35,304 32,685 32,937 24,890 24,055
Current liabilities 9,148 6,592 7,969 5,245 2,621
Working capital 7,999 7,061 6,565 7,938 10,092
Long-term obligations 5,473 6,433 4,930 3,046 4,146
Shareholders' equity 20,683 19,660 20,038 16,599 17,288
</TABLE>
(1) Reflects operations of Pollux Corporation from date of acquisition
(December 1, 1994).
(2) Effective January 1, 1993 the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes."
MARKET PRICES
The Company's Common Stock is traded on the over-the-counter market (NASDAQ).
The approximate number of recordholders of the Company's Common Stock at
February 28, 1997 was 1,694. The Company presently intends to retain all
available funds for the development of its business and for use as working
capital and does not expect to pay dividends in the foreseeable future. There
were no cash dividends paid in 1996, 1995 or 1994.
Firstar Trust Company is the stock transfer agent for the Company's Common
Stock.
The following table displays the share prices for the Company's Common Stock in
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 25/32 $ 18/32 $23/32 $19/32
Second Quarter 1 28/32 23/32 26/32 21/32
Third Quarter 1 21/32 1 28/32 19/32
Fourth Quarter 1 17/32 1 5/32 28/32 18/32
</TABLE>
3
<PAGE> 3
1996 CADE ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
Cade Industries, Inc.'s ("Company") Consolidated Statements of Operations
expressed as a percentage of net sales, and the percentage changes in the dollar
amounts of such items from the prior period. Effective December 1, 1994, the
Company acquired Pollux Corporation, whose operations are conducted through its
wholly-owned subsidiary, H.A.C. Corporation ("H.A.C."). The operating results of
H.A.C. are included with those of the Company from the date of acquisition.
<TABLE>
<CAPTION>
PERCENT INCREASE
PERCENTAGE OF NET SALES (DECREASE)
YEAR ENDED DECEMBER 31 IN DOLLAR AMOUNTS
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 VS. 1995 1995 VS. 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 14.5% 48.8%
Costs and Expenses:
Cost of Sales 76.6% 82.4% 78.1% 6.5% 56.9%
Selling, General and
Administrative Expense 17.5% 17.8% 19.3% 12.3% 37.8%
Net Interest Expense 2.1% 2.4% 1.7% 1.5% 105.0%
----- ----- -----
Total Costs and Expenses 96.2% 102.6% 99.1% 7.4% 54.0%
----- ----- -----
Income (Loss) Before Income Taxes 3.8% (2.6%) 0.9% * *
Income Tax Expense(Credit) 0.8% (1.3%) 0.1% * *
----- ----- -----
Net Income(Loss) 3.0% (1.3%) 0.8% * *
===== ===== =====
</TABLE>
* Not meaningful to presentation
Cade is engaged worldwide in the design, manufacture, and repair and overhaul of
high technology composite components for the aerospace, air transport and
specialty industries. Cade's core products include molded and bonded composite
jet engine components consisting of engine inlets, acoustical liners, fairings,
auxiliary power unit enclosures and engine cases ("Gas Turbine Products"); metal
fabricated and bonded composite airframe components consisting of various
control surface products, access doors, wing tips and interior structures
("Airframe Products"); the repair and overhaul of commercial and military
airframe components and of commercial gas turbine engine components as well as
flight nacelle structures ("Repair and Overhaul Services"); and test nacelles
used in the ground testing and overhaul of major commercial jet engines and
related ground support equipment ("Test Equipment"). These products are sold
worldwide through the Company's internal sales force and independent sales
representatives to major engine and airframe equipment manufacturers, airlines
and overhaul facilities. For 1996, 1995 and 1994, sales of Gas Turbine Products,
Airframe Products, Repair and Overhaul Services and Test Equipment as a
percentage of total sales were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL NET SALES
- ------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Gas Turbine Products 29.4% 25.7% 35.8%
Airframe Products 20.9% 24.8% 11.1%
Repair and Overhaul Services 27.2% 24.2% 7.2%
Test Equipment 19.2% 20.7% 35.3%
---- ---- ----
96.7% 95.4% 89.4%
==== ==== ====
</TABLE>
OUTLOOK AND BACKLOG
At December 31, 1996, the Company's backlog of orders was $34.8 million ($22.8
million at December 31, 1995), which included $14.9 million of scheduled orders
under long-term agreements. Of the total year-end backlog, $30.7 million is
scheduled for shipment in 1997. The Company's backlog includes both firm orders
supported by customer purchase orders with fixed delivery dates and blanket
purchase orders against which customers issue production
Continued on page 5
4
<PAGE> 4
[CADE LOGO]---------------------------------------------------------------------
Continued from page 4
releases covering relatively short time periods. The increase in order backlog
at year-end 1996 from 1995 primarily reflects the improved economic conditions
in the aircraft industry as evidenced by increases in airline traffic, higher
fares, record airline profits and increased orders for new aircraft. This growth
in order backlog has occurred at each of the Company's subsidiaries and
primarily reflects increases in orders for military and commercial airframe
components and gas turbine engine products. The Company's order backlog is
subject to customer rights of cancellation or rescheduling, although in certain
cases the Company would be entitled to receive termination payments.
Overhaul and repair orders are excluded from the Company's order backlog due to
their very short lead times. Overhaul and repair was the fastest growing product
group in 1996 and management presently expects continued strength in this area
moving into 1997.
On the basis of current backlog and long-term agreements, the Company
anticipates another strong sales year in 1997.
1996 COMPARED TO 1995
Net sales for 1996 increased by $4,422,000 or 14.5% from 1995. This increase in
sales was due primarily to higher sales of both overhaul and repair services and
gas turbine engine components. Partially offsetting these increases were lower
sales of military components due to the completion of a government contract in
1995 and delays in military first article approvals in 1996.
Cost of sales increased 6.5% or $1,629,000 in 1996 from 1995, primarily as a
result of the 14.5% increase in net sales. In addition, the 1995 cost of sales
amount included $960,000 related to the write-off in the second quarter of
certain costs at the Company's Cade Composites, Inc. subsidiary associated with
work-in-process, non-recurring engineering charges, contract termination costs,
tooling investments and prototype development costs. Excluding this write-off at
Cade Composites from 1995 amounts, cost of sales for 1996 increased $2,589,000
or 10.7%.
Cost of sales as a percentage of sales was 76.6% and 82.4% for 1996 and 1995,
respectively. Excluding the effect of the write-off at Cade Composites, cost of
sales as a percentage of sales was 79.2% in 1995. Material cost of sales as a
percent of net sales in 1996 decreased due primarily to lower military sales at
H.A.C. and much higher sales of commercial overhaul and repair services in 1996.
Military sales in 1995 carried a higher material content than that of the
Company's historical product mix while overhaul and repair services reflect
lower than normal material contents. These decreases in the material cost
percentage due to product mix changes were partially offset by an increase in
material content for certain gas turbine engine components as a result of
changing from customer supplied material to purchased material. 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 ("administrative expenses") as a
percent of net sales decreased slightly in 1996 to 17.5% from 17.8% in 1995,
while actual amounts expended increased by $668,000 in 1996 to $6,097,000. The
decreased percentage resulted primarily from the 14.5% increase in 1996 sales
and the corresponding spreading of administrative expenses over a larger sales
base. Factors contributing to the higher administrative expenses in 1996 were
increased marketing costs, commission expense, professional and consulting
fees, administrative staff and related costs, and travel related costs incurred
to support the increased sales levels of 1996 and those expected in 1997. Sales
commission expenditures are directly related to the sales mix of products and/or
customers involved. The increased sales commissions in 1996 resulted primarily
from greater overhaul and repair sales subject to commission payments.
Net interest expense as a percent of sales decreased to 2.1% in 1996 from 2.4%
in 1995, while the actual net amount expended remained relatively unchanged.
Line of credit usage increased in 1996 compared to 1995. However, the effect of
increased borrowing was largely offset by lower overall interest rates as a
result of borrowing at Eurodollar-based interest rates.
Income tax expense was $277,000 or 0.8% of sales in 1996, compared to a negative
expense of ($397,000) or (1.3%) of sales in 1995. The effective tax rate was
lower than the statutory tax rate due to the lower tax rate applicable to the
Company's foreign sales corporation and to certain adjustments to income tax
liabilities.
The Company had net income of $1,058,000 in 1996, compared to a net loss of
($382,000) in 1995. Factors contributing to this change were discussed above.
1995 COMPARED TO 1994
Net sales in 1995 of $30,445,000 increased $9,984,000 or 48.8% from 1994, as
$10,266,000 of sales from H.A.C., which was acquired as of December 1, 1994,
more than offset reduced shipments of test nacelles and other ground support
equipment. The Company also had higher sales of gas turbine engine products and
airframe products. In addition, inclusion of H.A.C. resulted in higher sales of
military aircraft airframe components and repair and overhaul services in 1995,
when compared to 1994.
Cost of sales in 1995 increased $9,095,000 or 56.9% from 1994, of which
$8,334,000 related to the operations of H.A.C. In addition, approximately
$960,000 of the 1995 increase in cost of sales related to the write-off at the
Company's Cade Composites subsidiary as discussed in the previous section.
Excluding the results of H.A.C. and the write-off at Cade Composites, cost of
sales for 1995 decreased $199,000 or 1.3% from 1994.
5
<PAGE> 5
1996 CADE ANNUAL REPORT
Cost of sales as a percentage of sales was 82.4% and 78.1% for 1995 and 1994,
respectively. Excluding the effect of H.A.C.'s operations and the write-off at
Cade Composites, cost of sales as a percentage of sales was 78.1% and 78.0% in
1995 and 1994, respectively. The cost of sales percentage, including H.A.C., but
not the write-off at Cade Composites, for 1995 increased slightly during 1995
compared to 1994, primarily due to the inclusion for the full year of H.A.C.'s
operations where material and overhead cost percentages were higher than the
Company's historical cost relationships. Partially offsetting the impact of
H.A.C. on the cost of sales as a percentage of sales was a shift in product mix
at the Company's other manufacturing operations, resulting in a larger portion
of sales of gas turbine engine and airframe components which have lower material
and higher labor contents.
Administrative expenses as a percent of net sales were 17.8% (20.9% excluding
H.A.C.) and 19.3% (19.6% excluding H.A.C.) in 1995 and 1994, respectively.
Actual amounts expended in 1995 increased by $1,489,000 from 1994 primarily as a
result of the inclusion of H.A.C. for the full year. The decreased percentage of
administrative expenses during 1995 compared to 1994 was a result primarily of
H.A.C.'s lower administrative expenses as a percent of sales when compared to
the Company's historical cost relationship, partially offset by both slightly
increased administrative cost expenditures in 1995 at the Company's other
subsidiaries and their slightly lower sales base over which to spread fixed
costs.
Net interest expense as a percent of sales was 2.4% in 1995 compared to 1.7% for
1994. This increase resulted primarily from higher borrowing (due in large part
to the assumption of H.A.C. debt) and higher interest rates.
Income taxes in 1995 were a negative expense of ($397,000) or (1.3%) of sales,
compared to a positive expense of $30,000 or 0.1% of sales in 1994. The
effective tax rate was lower than the statutory tax rate due to the lower tax
rate applicable to the Company's foreign sales corporation and to certain
adjustments to income tax liabilities.
The Company had a net loss of ($382,000) in 1995 compared to net income of
$159,000 in 1994 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. The Company financed its 1994 acquisition of Pollux
Corporation by the issuance of its common stock and the assumption of debt.
Capital has principally been used to fund the Company's inventory, accounts
receivable, and equipment and tooling expenditures. Management expects to
continue its present level of investment in inventory to support the higher
sales volume expected in 1997. Investment in production technology, tooling and
equipment for improved manufacturing efficiency and quality enhancement are
expected to continue at present levels. Subsequent to December 31, 1996 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 beginning in early 1997. The Company is
continuing to pursue acquisition opportunities to expand and/or diversify its
markets.
The Company maintains a $5,000,000 unsecured credit line with a bank, $1,990,000
of which was available at December 31, 1996. The Company also has outstanding
approximately $4,105,000 of secured, long-term debt, $146,000 of tax-exempt
bonds and $2,146,000 of subordinated notes. Additional secured, long-term debt
was primarily used in 1997 to finance the facility investment for the Company's
Auto-Air Composites subsidiary previously discussed.
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.
EFFECTS OF INFLATION
The Company had entered into multi-year sales agreements with fixed prices in
its core businesses of gas turbine engine components and test nacelle products
and services. These contracts were negatively impacted by material and labor
cost increases, but the impact was partially offset by long-term material
purchase agreements with suppliers, recently renegotiated sales price increases
on certain of the multi-year sales agreements and productivity improvements. In
addition, Cade continuously reviews cost increases and attempts to reflect these
projected cost adjustments in proposals for new orders. As a result, management
believes that general inflation did not have a material impact on the Company's
operations or financial condition during the periods discussed.
6
<PAGE> 6
[CADE LOGO]
Cade Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 21,606 $ 187,485
Trade accounts receivable 6,585,905 4,670,698
Inventories 9,913,770 7,918,135
Refundable federal income taxes 362,000
Deferred income taxes 445,000 379,000
Prepaid expenses and other current assets 180,279 136,105
----------- -----------
Total current assets 17,146,560 13,653,423
Property, plant and equipment 15,006,081 15,758,999
Intangible and other assets
Goodwill 3,014,369 3,123,220
Other assets 137,430 148,863
----------- -----------
3,151,799 3,272,083
----------- -----------
$35,304,440 $32,684,505
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 3,010,000 $ 1,300,000
Current portion of long-term debt 1,558,220 1,765,171
Trade accounts payable 2,888,283 1,685,313
Employee compensation and amounts withheld 1,013,108 614,739
Accrued expenses 552,097 963,747
Accrued income taxes 126,216 262,800
----------- -----------
Total current liabilities 9,147,924 6,591,770
Long-term debt 4,839,181 5,955,935
Deferred income taxes 634,000 477,000
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
21,972,859 shares (1995-21,886,409 shares) 21,973 21,886
Additional paid-in capital 8,885,977 8,828,552
Retained earnings 12,122,296 11,063,804
---------- ----------
21,030,246 19,914,242
Less cost of common stock in treasury
(280,568 and 200,068 shares in 1996 and
1995, respectively) 346,911 254,442
---------- ----------
20,683,335 19,659,800
---------- ----------
$35,304,440 $32,684,505
=========== ===========
</TABLE>
See accompanying notes
7
<PAGE> 7
1996 CADE ANNUAL REPORT
Cade Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 34,867,072 $ 30,445,006 $ 20,460,680
Cost of sales 26,704,927 25,075,996 15,981,016
------------ ------------ ------------
8,162,145 5,369,010 4,479,664
Selling, general and administrative expenses 6,097,363 5,429,585 3,940,385
------------ ------------ ------------
Income (loss) from operations 2,064,782 (60,575) 539,279
Interest
Income 32,359 13,627 11,566
Expense (761,649) (732,095) (362,084)
------------ ------------ ------------
(729,290) (718,468) (350,518)
------------ ------------ ------------
Income (loss) before income taxes 1,335,492 (779,043) 188,761
Income tax expense (credit) 277,000 (397,000) 30,000
------------ ------------ ------------
Net income (loss) $ 1,058,492 $ (382,043) $ 158,761
============ ============ ============
Weighted average number of
shares of common stock outstanding 21,693,479 21,683,947 17,345,814
Net income (loss) per common share $ .05 $ (.02) $ .01
============ ============ ============
</TABLE>
See accompanying notes.
8
<PAGE> 8
[CADE LOGO]
Cade Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,058,492 $ (382,043) $ 158,761
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,626,109 2,356,142 1,453,232
Provision (credit) for deferred income taxes 91,000 (62,000) 16,000
Loss on sale of equipment 13,520
Changes in operating assets and liabilities,
net of effect of acquisition:
Trade accounts receivable (1,915,207) 147,260 492,100
Inventories (1,995,635) 973,154 381,213
Other current assets 317,826 (327,730) 552,709
Trade accounts payable 1,202,970 (867,366) (54,033)
Other current liabilities (149,865) 462,881 227,915
--------- --------- ---------
Net cash provided by operating activities 1,249,210 2,300,298 3,227,897
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,764,166) (2,424,229) (986,068)
Acquisition of Pollux (73,497) (539,115)
Other (2,261) (53,091) (24,239)
Net cash used in investing activities (1,766,427) (2,550,817) (1,549,422)
FINANCING ACTIVITIES
Proceeds from long-term debt 507,316 3,600,000
Payments and refinancing of long-term debt (1,831,021) (1,433,533) (903,446)
Increase (decrease) in notes payable to bank 1,710,000 (1,800,000) (771,126)
Purchases of common stock for treasury (92,469)
Exercise of stock options and related repurchase 57,512 36,100
--------- --------- ---------
Net cash provided by (used in) financing activities 351,338 366,467 (1,638,472)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (165,879) 115,948 40,003
Cash and cash equivalents at beginning of year 187,485 71,537 31,534
--------- --------- ---------
Cash and cash equivalents at end of year $ 21,606 $ 187,485 $ 71,537
========= ========= =========
Cash paid (received) during the year for:
Interest $ 772,257 $ 657,805 $ 356,948
Income taxes, net of refunds received (39,415) 89,984 (340,399)
Supplemental schedule of noncash investing and financing activities:
Capital leases $ 507,316
Debt exchanged for or assumed in acquisition $ 4,485,283
Fair market value of common stock issued
for acquisition $ 3,683 3,244,445
</TABLE>
See accompanying notes
9
<PAGE> 9
1996 CADE ANNUAL REPORT
Cade Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ADDITIONAL
NUMBER PAR VALUE PAID-IN RETAINED TREASURY
OF SHARES AMOUNT CAPITAL EARNINGS STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 17,087,306 $17,087 $5,532,873 $ 11,287,086 $(238,192)
Stock options exercised and
related repurchase 75,000 75 52,275 (16,250)
Net income for the year 158,761
Shares issued in connection with acquisition 4,719,193 4,719 3,239,726
---------- ------ --------- ---------- --------
Balance at December 31, 1994 21,881,499 21,881 8,824,874 11,445,847 (254,442)
Shares issued in connection with acquisition 4,910 5 3,678
Net loss for the year (382,043)
---------- ------ --------- ---------- --------
Balance at December 31, 1995 21,886,409 21,886 8,828,552 11,063,804 (254,442)
Stock options exercised 86,450 87 57,425
Purchases of 80,500 shares of common stock (92,469)
Net income for the year 1,058,492
---------- ------ --------- ---------- --------
Balance at December 31, 1996 21,972,859 $21,973 $8,885,977 $ 12,122,296 $(346,911)
========== ====== ========= ========== ========
</TABLE>
See accompanying notes.
10
<PAGE> 10
[CADE LOGO]---------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CORPORATE STRUCTURE AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cade Industries,
Inc. and its wholly-owned subsidiaries (Company or Cade); Auto-Air Composites,
Inc. (Auto-Air); Cade Composites, Inc. (CCI); Cade International, Inc. (CI) and
Pollux Acquisition Corporation (Pollux) and its wholly-owned subsidiary, H.A.C.
Corporation (H.A.C.). Intercompany accounts and transactions have been
eliminated in consolidation.
Cade is engaged worldwide in the design, manufacture, and repair and overhaul of
high technology composite components for the aerospace, air transport and
specialty industries. The Company's core products consist of original equipment
components for gas turbine engines, airframe, and auxiliary power units. Its
specialty niche products include ground-based test nacelle systems and repair
and overhaul of commercial gas turbine engine components and both commercial and
military airframe components. Through Auto-Air and H.A.C., Cade operates repair
stations under Federal Aviation Administration ("FAA") licenses. In addition to
FAA certification, Auto-Air and H.A.C. are certified by the European Joint
Airworthiness Authority.
The Company and its subsidiaries offer both manufacturing and design services to
the industries they serve. The design and manufacturing are interrelated and the
various significant operating locations have essentially the same capability. In
the opinion of management, the Company operates in a single business segment.
Significant accounting policies are discussed below, and where applicable, in
the Notes that follow.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes short-term investments having maturity dates
of 90 days or less when purchased.
TRADE ACCOUNTS RECEIVABLE/REVENUE RECOGNITION
Trade accounts receivable represent amounts due from domestic and international
equipment manufacturers and air carriers serving the aerospace and air
transportation industries as well as from the U.S. Government under certain
long-term contracts. The Company generally does not require collateral from its
customers. Credit losses have been minimal.
Sales and income are generally recognized at the time products are shipped.
Contract progress billings in advance of deliveries are treated as deferred
revenues and are offset against inventoried contract costs in the Company's
financial statements ($143,000 in 1996). Reserves for contract losses are
accrued when estimated costs to complete exceed expected future revenues.
Net sales to Pratt & Whitney, McDonnell Douglas, General Electric, and the U.S.
Government, with which the Company has long-standing customer relationships,
amounted to 25%, 6%, 4% and 5% of 1996 consolidated net sales, respectively
(20%, 5%, 7% and 13% in 1995, 29%, 11%, 7% and 3% in 1994). Export sales by the
Company's domestic subsidiaries were $6,024,000, $7,028,000 and $5,776,000 for
the years 1996, 1995 and 1994, respectively.
GOODWILL
Goodwill is being amortized over 30 to 40 years using the straight-line method.
Accumulated amortization was $645,000 and $536,000 at December 31, 1996 and
1995, respectively. It is the Company's policy to carry goodwill only if the
projected undiscounted cash flows of acquired businesses over the remaining
amortization periods exceed such recorded amounts of goodwill.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred income tax
liabilities and assets are recorded at the end of each period based on the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases using the tax rate expected to be in effect when the taxes
are actually paid or recovered.
Research and development credits are recorded using the flow-through method of
accounting whereby, in the year available for utilization, the credits are
applied as a reduction of income tax expense.
SIGNIFICANT 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
11
<PAGE> 11
1996 CADE ANNUAL REPORT
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual amounts
could differ from these estimates.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of shares of
Common Stock outstanding during the year. The dilutive effect of Common Stock
equivalents was not material or such effect was antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has determined that the carrying values of cash and cash equivalents,
trade accounts receivable and accounts payable approximate fair value due to the
short-term maturities of these instruments.
Management has also determined that the carrying value of its current and
long-term debt and note payable to bank approximate market value as they mainly
bear interest at rates that vary with the bank's prime lending rate. It is not
practical to estimate the fair value of the subordinated notes due to these
notes being non-marketable and subordinated to all other debt.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Effective January 1, 1996, Cade adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This Statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and
long-lived assets and certain identifiable intangibles to be disposed of. The
adoption of this new accounting standard did not have a material effect on
Cade's consolidated operating results or financial position.
NOTE 2. ACQUISITION
In December 1994, the Company acquired 100% of the outstanding shares of Pollux
Corporation in exchange for 4,719,000 of the Company's common shares valued at
$3,244,000 and the assumption of $4,485,000 of short- and long-term debt
obligations. Pollux, through its wholly-owned subsidiary, H.A.C. Corporation,
overhauls, repairs and manufactures flight control surfaces for both commercial
and military aircraft.
The acquisition of Pollux has been accounted for using the purchase method of
accounting. The results of its operations have been included in the Company's
financial statements from the date of its acquisition.
Had the purchase of Pollux been made at the beginning of 1994 the Company's
operations would have reflected the following unaudited pro-forma results for
1994: revenues of $30,842,000, a net loss of $439,000 and a net loss per share
of $0.02. These pro-forma unaudited results of operations are not necessarily
indicative of the combined operating results as they may be in the future or as
they might have been for the period indicated had the acquisition of Pollux been
consummated at the beginning of 1994.
The purchase agreement provided for the contingent issue of up to 882,000 of the
Company's common shares to the former Pollux shareholders based on the
post-acquisition earnings of Pollux through 1996. During 1995, the Company
issued 4,910 shares based upon 1994 post-acquisition earnings. The value, as
defined in the purchase agreement, of the contingent common shares issued was
recorded as an addition to intangible assets in 1995. No contingent shares were
earned by former Pollux shareholders based on Pollux earnings in 1996 and 1995.
During 1995, the Company revised its initial estimate of goodwill by reducing
the purchase price allocated to inventory, additional acquisition costs and the
issuance of additional shares due to the contingent purchase price described
above.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventoried costs relating to long-term contracts are stated at actual
production cost.
Inventories consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Finished goods $ 372,896 $ 460,501
Work-in-progress 5,494,016 4,715,819
Raw materials and supplies 4,046,858 2,741,815
---------- ----------
$9,913,770 $7,918,135
========== ==========
</TABLE>
12
<PAGE> 12
[CADE LOGO]---------------------------------------------------------------------
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------ ESTIMATED
1996 1995 USEFUL LIFE
-----------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 500,864 $ 500,864
Buildings 4,356,455 4,330,657 25-30 years
Machinery and equipment 9,910,080 9,116,644 3-12 years
Tooling 11,395,706 10,512,553 See below
----------- -----------
26,163,105 24,460,718
Accumulated depreciation and amortization 11,157,024 8,701,719
----------- -----------
$15,006,081 $15,758,999
=========== ===========
</TABLE>
Tooling primarily represents production and engineering costs incurred in the
manufacture of tooling for use in new component part and test cell equipment
production as well as repair and overhaul efforts. These costs are amortized
over projected delivery schedules (new component part and test cell equipment)
or estimated time periods (repair and overhaul).
NOTE 5. NOTE PAYABLE AND LONG-TERM DEBT
Note payable to bank of $3,010,000 at December 31, 1996 represents borrowing
under the Company's $5,000,000 unsecured line of credit, which bears interest at
the bank's announced prime interest rate less .50% (7.75% at December 31, 1996)
and is subject to annual renewal each year in April. Also, at the Company's
option, certain increments of the outstanding line of credit may be placed at a
Eurodollar-based rate plus 2.1% (7.66% at December 31, 1996) for fixed periods
not to exceed 90 days. The line of credit will become secured by substantially
all of the Company's and subsidiaries' tangible assets in the event the ratio of
debt to tangible net worth equals or exceeds one-to-one.
The weighted-average interest rate on short-term borrowings for the years ended
December 31, 1996, 1995 and 1994 was 7.8%, 8.7% and 8.5%, respectively.
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31
---------------------------
1996 1995
<S> <C> <C>
Term note payable to bank in quarterly
installments of $128,571 $3,085,714 $3,600,000
Limited obligation revenue bonds, interest at
7.10%, due September 1997 146,250 652,500
Note payable to bank in monthly installments to
July 2005 567,263 591,025
Subordinated notes payable in four equal annual
payments beginning November 1996, interest
at 6.0% payable semi-annually 2,145,780 2,861,040
Capital lease obligations, interest rates ranging from
8.1% to 9.4%, due through April 2001 452,394 16,541
---------- ----------
6,397,401 7,721,106
Current maturities 1,558,220 1,765,171
---------- ----------
$4,839,181 $5,955,935
========== ==========
</TABLE>
* The term note is secured by substantially all of the Company's and
subsidiaries' tangible assets and bears interest at the bank's announced
prime interest rate less .25% (8.0% at December 31, 1996). This term debt
is guaranteed by each subsidiary. Under this agreement, which covers both
the term loan and the line of credit, the Company is subject to
restrictive covenants, conditions and default provisions which, among
others, require the maintenance of certain levels of tangible net worth
($17.5 million at December 31, 1996), maintenance of financial ratios
relating to working capital and debt levels and restrictions relating to
disposition of its assets, future acquisitions, incurrence of additional
indebtedness and material changes in its capital structure. At certain
times during 1996 and subsequent to year end, the Company was not in
compliance with the working capital covenant. During the year, the Company
received waivers of these violations from the bank. Also, subsequent to
year end, the Company and the bank executed an amendment to the loan
agreement lowering the required level of working capital. The Company is
now in compliance with this new working capital requirement.
13
<PAGE> 13
1996 CADE ANNUAL REPORT
* The limited obligation revenue bonds were issued by a municipal economic
development corporation under an agreement with the Company's Auto-Air
subsidiary. Annual principal and semi-annual interest payments to
bondholders will be drawn by the appointed trustee from an irrevocable
direct pay letter of credit issued by a bank which is guaranteed by the
Company and is secured by substantially all of the tangible assets of
Auto-Air and the Company. The bonds mature in 1997 and are fixed rate
issues with an interest rate of 7.1%.
* The note payable to bank is secured by certain Pollux real estate and
equipment items, bearing interest at 2.75% plus the prime lending rate, as
defined (8.25% at December 31, 1996).
* As part of the acquisition of Pollux, the Company issued $2,861,040 of
6.0% subordinated notes in exchange for a like amount of Pollux 8.0%
convertible subordinated debentures. Such notes are subordinated to all
indebtedness for borrowed money and property and equipment purchases
including capital leases.
Aggregate annual maturities of long-term debt, including capital leases, for
periods subsequent to December 31, 1996 are approximately as follows:
1997--$1,558,000; 1998--$1,431,000; 1999--$1,375,000; 2000--$562,000;
2001--$561,000; and thereafter--$910,000.
NOTE 6. LEASES
Future minimum lease payments, by year and in the aggregate for noncancellable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1996:
<TABLE>
<S> <C>
1997 $424,000
1998 442,000
1999 32,000
2000 10,000
2001 10,000
--------
Total minimum lease payments $918,000
========
</TABLE>
Rent expense for 1996, 1995 and 1994 totaled $560,000, $487,000 and $378,000,
respectively.
NOTE 7. STOCK OPTIONS
Options activity during the years ended December 31, 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE EXERCISE
NUMBER SHARES PRICE PRICE
OF SHARES EXERCISABLE PER SHARE PER SHARE
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 579,000 469,600 $.67 - $2.19 $ 1.30
Options granted:
Under 1990 Plan 145,000 .83 - .89 .84
Directors 350,000 .81 .81
Options exercised (75,000) .69 - .72 .70
Options canceled (250,000) .72 - 1.94 1.13
-------
Outstanding at December 31, 1994 749,000 530,400 .67 - 2.19 1.10
Options granted:
Under 1990 Plan 96,450 .66 - .72 .71
Directors 100,000 .69 - .72 .70
Options canceled (75,000) .67 - 2.19 1.37
-------
Outstanding at December 31, 1995 870,450 683,050 .66 - 2.19 .98
Options granted under 1990 Plan 75,000 .63 - 1.13 .96
Options exercised (86,450) .63 - .69 .67
-------
Outstanding at December 31, 1996 859,000 720,000 $.67 - $2.19 $ 1.01
=======
</TABLE>
Continued on page 15
14
<PAGE> 14
[CADE LOGO]---------------------------------------------------------------------
Continued from page 14
The 1990 Nonqualified Stock Option Plan provides for the granting of up to
845,000 options for shares of the Company's Common Stock. The option price is
the fair market value of a share of common stock on the date of the grant.
Options expire ten years from date of grant. At six months from grant date, 20%
of the options may be exercised, and at one year from grant date and for each of
the next three years thereafter, an additional 20% may be exercised. Options may
be granted under the 1990 Plan through December 31, 2000.
Members of the Board of Directors hold options to purchase 575,000 shares of the
Company's Common Stock. The options were granted at fair market value of a share
of common stock on the date of grant and are exercisable at various dates
through May 2005.
The outstanding stock options at December 31, 1996 have a weighted average
contractual life of 7.0 years and a weighted average exercise price of $1.01 per
share.
The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option grants. Had compensation cost been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123), the effect on the Company's pro-forma
net income and earnings per share for 1996 and 1995 would not have been
material. Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1996, the current immateriality of the
pro-forma compensation cost may not be representative of that to be expected in
future years.
The weighted average fair value of the stock options granted during 1996 was
$.89. The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1996: risk-free interest rate of 6.5%; no
dividend yield; expected life of 8.3 years and expected volatility of 76.3%.
NOTE 8. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities) as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current
Uniform inventory capitalization $ 82,000 $ 77,000
Uniform tooling capitalization 43,000 53,000
Expense and loss accruals 320,000 249,000
----------- -----------
Total current deferred tax assets $ 445,000 $ 379,000
=========== ===========
Long-term
Net operating loss carryforwards $ 960,000 $ 1,239,000
Tax credit carryforwards 101,000 101,000
----------- -----------
Total long-term deferred tax assets 1,061,000 1,340,000
Valuation allowance (610,000) (640,000)
----------- -----------
Net long-term deferred tax assets 451,000 700,000
Tax over book depreciation (1,085,000) (1,177,000)
----------- -----------
Total long-term deferred tax liabilities $ (634,000) $ (477,000)
=========== ===========
</TABLE>
With the acquisition of Pollux, the Company received deferred tax benefits as of
the date of acquisition of $750,000 including the tax impact of net operating
loss and other tax credit carryforwards with expiration dates from 2001 to 2008.
Realization of these assets is contingent on future taxable earnings of Pollux.
In accordance with the provisions of Statement 109, valuation allowances were
recorded to reserve for these and other items which may not be realized.
The provision (credit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Current (credit):
Federal $ 207,000 $(343,000) $11,000
State and local (21,000) 8,000 3,000
--------- --------- -------
Total current (credit) 186,000 (335,000) 14,000
Deferred (credit):
Federal 91,000 (62,000) 16,000
--------- --------- -------
$ 277,000 $(397,000) $30,000
========= ========= =======
</TABLE>
15
<PAGE> 15
1996 CADE ANNUAL REPORT
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense (credit) is:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 454,100 $(264,900) $ 64,200
State and local income taxes (net of federal tax benefit) (13,900) 5,300 2,000
Non-deductible amortization 37,500 31,500 14,200
Lower effective income tax of foreign sales corporation (55,400) (87,600) (42,100)
Adjustment of estimated liabilities (150,000) (94,800)
Other 4,700 13,500 (8,300)
--------- --------- --------
$ 277,000 $(397,000) $ 30,000
========= ========= ========
</TABLE>
NOTE 9. PENSION PLAN
Retirement benefits are provided by the Company to most salaried and
non-bargaining unit, hourly employees under contributory defined contribution
plans which provide for discretionary contributions. Expense related to these
plans was $198,000 in 1996, $151,000 in 1995 and $115,000 in 1994.
Bargaining unit employees of one subsidiary participate in a union sponsored
multi-employer defined benefit plan. Company cost and contributions were
$145,000 in 1996 and $139,000 in both 1995 and 1994. The Company's proportional
share of the net assets, accumulated benefits and unfunded vested benefits of
this plan is not available. In addition, the Company offers bargaining unit
employees electing early retirement continued health benefits for a limited
period not to exceed three years with such benefits capped at current rates.
Management has determined that the financial impact of this benefit on the
Company as determined under Financial Accounting Standards Board Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," is
not material.
NOTE 10. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1996
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 7,164,278 $ 7,618,176 $ 9,160,054 $10,924,564 $34,867,072
Cost of sales 5,263,243 5,672,530 7,097,727 8,671,427 26,704,927
Net income 186,430 203,897 264,686 403,479 1,058,492
Net income per common share 0.01 0.01 0.01 0.02 0.05
Weighted average common
shares outstanding 21,686,341 21,689,094 21,706,065 21,692,291 21,693,479
</TABLE>
<TABLE>
<CAPTION>
1995
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31 JUNE 30** SEPTEMBER 30 DECEMBER 31 TOTAL
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 7,349,861 $ 8,638,869 $ 6,955,259 $ 7,501,017 $ 30,445,006
Cost of sales 5,775,640 7,888,244 5,453,939 5,958,173 25,075,996
Net income (loss) 125,246 (541,201) 25,064 8,848 (382,043)
Net income (loss) per common share* 0.01 (0.02) (0.00) (0.00) (0.02)
Weighted average common
shares outstanding 21,681,431 21,681,593 21,686,341 21,686,341 21,683,947
</TABLE>
* The sum of the quarterly net income (loss) per share amounts does not
equal the annual amount reported. Net income (loss) per share is computed
independently for each quarter and the full year and is based on
respective weighted average common shares outstanding.
** Second quarter operations includes a charge of $1,130,000 to write-off
certain costs at the Company's Cade Composites, Inc. subsidiary associated
with work-in-process, 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.
16
<PAGE> 16
[CADE LOGO]---------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Cade Industries, Inc. and Subsidiaries
Lansing, Michigan
We have audited the accompanying consolidated balance sheets of Cade Industries,
Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in shareholder's equity,
and cash flows for the years then ended. These 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. The consolidated
financial statements of the Company for the year ended December 31, 1994 were
audited by other auditors whose report, dated February 19, 1995 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1996 and 1995 consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lansing, Michigan
February 19, 1997
17
<PAGE> 17
1996 CADE ANNUAL REPORT
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
5640 Enterprise Drive
Lansing, MI 48911
Phone: 517-394-1333
Fax: 517-394-1404
GENERAL COUNSEL
Quarles & Brady
411 E. Wisconsin Avenue
Milwaukee, WI 53202-4497
CORPORATE AUDITORS
Deloitte & Touche, LLP
Suite 800
120 N. Washington Square
Lansing, MI 48933-1681
BOARD OF DIRECTORS
MOLLY F. CADE
Educator
CONRAD G. GOODKIND
Partner
Quarles & Brady
WILLIAM T. GROSS
Consultant
RICHARD A. LUND
President
Chief Operating Officer
BOARD OF DIRECTORS CONTINUED
TERRELL L. RUHLMAN
Chairman of the Board
Chief Executive Officer
JOHN W. SANDFORD
President
Chief Executive Officer
Rolls-Royce North America
STEVEN M. TADLER
Managing Director
Advent International Corporation
CORPORATE OFFICERS
TERRELL L. RUHLMAN
Chairman of the Board
Chief Executive Officer
RICHARD A. LUND
President
Chief Operating Officer
EDWARD B. STEPHENS
Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
RICHARD J. GRIBBINS
Vice President
CONRAD G. GOODKIND
Secretary
SUBSIDIARIES
AUTO-AIR COMPOSITES, INC.
5640 Enterprise Drive
Lansing, MI 48911
Phone: 517-393-4040
John F. Scanlon, President
CADE COMPOSITES, INC.
4075 Ruffin Road
San Diego, CA 92123
Phone: 619-571-5220
Robert C. Spring, President
CADE INTERNATIONAL, INC.
5640 Enterprise Drive
Lansing, MI 48911
Phone: 517-394-1333
Richard A. Lund, President
H.A.C. CORPORATION
537 Camden Drive
Grand Prairie, TX 75051
Phone: 972-263-4387
John E. Haran, President
FINANCIAL & OTHER INFORMATION
Cade's Annual Meeting of Shareholders will be held on Tuesday, May 6, 1997 in
Lansing, Michigan.
Cade Industries issues its news releases through PR Newswire. Faxed copies of
new releases are available at no charge. To get them, call Company News On-Call
at 1-800-758-5804. This electronic system requests a six-digit code (075675) and
allows callers to choose from a menu of Cade Industries' news releases. The
requested release will be faxed within minutes of the inquiry. This service is
available 24 hours a day, 7 days a week. The On-Call information is also posted
on the Internet's World Wide Web at http://www.prnewswire.com.
Cade Industries files Forms 10-K and 10-Q with the Securities and Exchange
Commission. Shareholders may obtain copies of these reports, and of Cade's
Annual Report to Shareholders, by writing or calling:
Sheryl A. Mull
Cade Industries, Inc.
P.O. Box 23094
Lansing, MI 48909
Phone: (517) 394-1333
Beginning April 1, 1997, earnings, financial results, corporate news and other
company information will be available on Cade's web site:
http://www.cade-industries.com
TRANSFER AGENT AND REGISTRAR
Correspondence and questions concerning shareholder accounts or transfer of
stock should be addressed to:
Firstar Trust Company
615 E. Michigan Street
Milwaukee, WI 53202
Phone: (414) 287-3920
STOCK EXCHANGE
Shares of Cade Industries Common Stock are traded on the over-the-counter market
on the Nasdaq National Market System (ticker symbol CADE).
18
<PAGE> 1
EXHIBIT 23.1
Cade Industries, Inc.
1996 10-K
[ERNST & YOUNG LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement Form
S-8 No. 33-37911 pertaining to the Cade Industries, Inc. 1987 Stock Option
Plan, the Cade Industries, Inc. 1990 Nonqualified Stock Option Plan, the Cade
Industries, Inc. Nonstatutory Stock Option Agreement for the Benefit of Terrell
L. Ruhlman, the Cade Industries, Inc. Nonstatutory Stock Option Agreement for
the Benefit of Richard A. Lund, and the Cade Industries, Inc. Nonstatutory
Stock Option Agreement for the Benefit of Robert P. Luzzi and in Registration
Statement No. 333-03033 pertaining to the Cade Industries, Inc. 1994 Stock
Option Plan, the May 3, 1994 Nonstatutory Stock Option Agreement for the
Benefit of Terrell L. Ruhlman, the December 30, 1994 Nonstatutory Stock Option
Agreement for the Benefit of Richard Gribbins, and the December 31, 1995
Nonstatutory Stock Option Agreement for the Benefit of Richard Gribbins and in
each related Prospectus, of our report dated February 13, 1995 with respect to
the consolidated financial statements and the financial statement schedule
listed in the Index at Item 14(a) included in this Annual Report on Form 10-K
of Cade Industries, Inc. for the year ended December 31, 1996.
/s/ Ernst & Young LLP
---------------------------
ERNST & YOUNG LLP
Detroit, Michigan
March 25, 1997
<PAGE> 1
EXHIBIT 23.2
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-37911 and 333-03033 of Cade Industries, Inc. on Form S-8 of our report dated
February 19, 1997, appearing in the Annual Report to Shareholders and
incorporated by reference in the Form 10-K of Cade Industries, Inc. for the
year ended December 31, 1996.
/s/ Deloitte & Touche LLP
- --------------------------------
March 25, 1997
Lansing, Michigan
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN CADE INDUSTRIES, INC.'S REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,606
<SECURITIES> 0
<RECEIVABLES> 6,585,905
<ALLOWANCES> 0
<INVENTORY> 9,913,770
<CURRENT-ASSETS> 17,146,560
<PP&E> 26,163,105
<DEPRECIATION> 11,157,024
<TOTAL-ASSETS> 35,304,440
<CURRENT-LIABILITIES> 9,147,924
<BONDS> 4,839,181
0
0
<COMMON> 21,973
<OTHER-SE> 21,008,273
<TOTAL-LIABILITY-AND-EQUITY> 35,304,440
<SALES> 34,867,072
<TOTAL-REVENUES> 34,867,072
<CGS> 26,704,927
<TOTAL-COSTS> 26,704,927
<OTHER-EXPENSES> 6,097,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 729,290
<INCOME-PRETAX> 1,335,492
<INCOME-TAX> 277,000
<INCOME-CONTINUING> 1,058,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,058,492
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
