<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-12808
----------------------
Cade Industries, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1371038
------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5640 Enterprise Drive, Lansing, Michigan 48911
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(517) 394-1333
----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $0.001 Par Value - 21,657,804 shares as of
August 8, 1997
<PAGE> 2
INDEX
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Operations for the three months ended
June 30, 1997 and 1996 3
Condensed Consolidated Statements of
Operations for the six months ended
June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997
and 1996 5
Note to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9
PART II - OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996*
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 91,176 $ 21,606
Trade accounts receivable 7,246,381 6,585,905
Inventories:
Finished goods and work in progress 7,412,138 5,866,912
Materials and supplies 4,195,939 4,046,858
----------- -----------
11,608,077 9,913,770
Deferred income taxes 445,000 445,000
Prepaid expenses and other current assets 262,430 180,279
----------- -----------
TOTAL CURRENT ASSETS 19,653,064 17,146,560
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 509,864 500,864
Buildings 4,897,136 4,356,455
Machinery and equipment 10,413,421 9,910,080
Tooling 11,763,157 11,395,706
----------- -----------
27,583,578 26,163,105
Less accumulated depreciation 12,521,096 11,157,024
----------- -----------
15,062,482 15,006,081
INTANGIBLE AND OTHER ASSETS
Goodwill 2,960,403 3,014,369
Other assets 162,652 137,430
----------- -----------
3,123,055 3,151,799
----------- -----------
$37,838,601 $35,304,440
=========== ===========
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996*
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 3,970,000 $ 3,010,000
Current portion of long-term debt 1,494,302 1,558,220
Trade accounts payable 2,662,556 2,888,283
Employee compensation and amounts withheld 1,131,001 1,013,108
Accrued expenses 1,212,722 552,097
Accrued income taxes 228,787 126,216
----------- -----------
TOTAL CURRENT LIABILITIES 10,699,368 9,147,924
LONG-TERM DEBT 4,872,230 4,839,181
DEFERRED INCOME TAXES 634,000 634,000
SHAREHOLDERS' EQUITY
Preferred Stock, 10% cumulative, non-voting,
stated value $300 per share; authorized 500
shares, none issued
Common Stock, par value $.001 per share;
authorized 100,000,000 shares, issued
21,977,859 shares; outstanding 21,657,804
shares 21,978 21,973
Additional paid-in capital 8,928,599 8,885,977
Retained earnings 13,131,682 12,122,296
----------- -----------
22,082,259 21,030,246
Less cost of Common Stock in treasury 449,256 346,911
----------- -----------
21,633,003 20,683,335
$37,838,601 $35,304,440
=========== ===========
</TABLE>
* The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See note to condensed consolidated financial statements.
2
<PAGE> 5
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended June 30
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Sales $12,952,885 $ 7,618,176
Operating expenses:
Cost of sales 9,826,307 5,672,530
Selling, general and administrative expenses 2,149,744 1,503,155
----------- -----------
11,976,051 7,175,685
----------- -----------
INCOME FROM OPERATIONS 976,834 442,491
Interest expense - net 190,891 185,594
----------- -----------
INCOME BEFORE INCOME TAXES 785,943 256,897
Income taxes 248,000 53,000
----------- -----------
NET INCOME $ 537,943 $ 203,897
=========== ===========
NET INCOME PER SHARE $ 0.02 $ 0.01
=========== ===========
Weighted average number of shares of
common stock outstanding 21,683,270 21,689,094
</TABLE>
See note to condensed consolidated financial statements.
3
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Sales $25,308,442 $14,782,454
Operating expenses:
Cost of sales 19,202,420 10,935,773
Selling, general and administrative expenses 4,253,579 3,006,709
----------- -----------
23,455,999 13,942,482
----------- -----------
INCOME FROM OPERATIONS 1,852,443 839,972
Interest expense - net 376,057 350,645
----------- -----------
INCOME BEFORE INCOME TAXES 1,476,386 489,327
Income taxes 467,000 99,000
----------- -----------
NET INCOME $ 1,009,386 $ 390,327
=========== ===========
NET INCOME PER SHARE $ 0.05 $ 0.02
=========== ===========
Weighted average number of shares of
common stock outstanding 21,696,631 21,687,717
</TABLE>
See note to condensed consolidated financial statements.
4
<PAGE> 7
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES $ 657,255 $ (287,825)
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,420,473) (878,880)
Increase in other assets (36,625)
----------- -----------
(1,457,098) (878,880)
FINANCING ACTIVITIES
Increase in note payable to bank 960,000 1,525,000
(Payments) of long-term debt - net of new
borrowing proceeds (30,869) (469,516)
Exercise of stock options 3,828 34,375
Purchase of common stock for treasury (127,268) (39,636)
Other 63,722
----------- -----------
869,413 1,050,223
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 69,570 (116,482)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 21,606 187,485
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 91,176 $ 71,003
=========== ===========
</TABLE>
See note to condensed consolidated financial statements.
5
<PAGE> 8
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADE INDUSTRIES, INC.
JUNE 30, 1997
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of and for the three and six
month periods ended June 30, 1997 and 1996, have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, such condensed consolidated
financial statements reflect all adjustments necessary (consisting only of
normal recurring accruals) for a fair presentation. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1996.
6
<PAGE> 9
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CADE INDUSTRIES, INC.
RESULTS OF OPERATIONS
SALES
The Company's net sales of $12,953,000 in the second quarter of 1997 represented
an increase of 70.0% or $5,335,000 from the same quarter of 1996, while net
sales of $25,308,000 for the six months ended June 30, 1997, represented an
increase of $10,526,000 or 71.2% compared to the same six month period of the
prior year. The higher sales for both the second quarter and six-month periods
primarily reflect increased sales of test nacelle products, military spares, gas
turbine engine components (primarily engine cases), as well as increased repair
and overhaul services.
Period-to-period comparisons can be significantly impacted by the timing of
shipments of test equipment and other ground support equipment which generally
have selling prices ranging from $500,000 to $1,500,000. At June 30, 1997, the
Company's backlog was $41.0 million ($28.7 million at June 30, 1996) of firm
orders, which included only the first two years of scheduled orders ($8.2
million) under long-term agreements. Overhaul and repair orders are not included
in the order backlog due to their very short lead times.
COST OF SALES
Cost of sales for the second quarter of 1997 increased $4,154,000 or 73.2% from
the same quarter of 1996 and for the six months ended June 30, 1997 increased
$8,267,000 or 75.6% from the comparable period in 1996. The increases for both
the quarter and six-month periods were primarily due to the higher sales in
1997. Cost of sales as a percent of sales increased to 75.9% in the second
quarter of 1997 from 74.5% in the 1996 second quarter and for the six months
ended June 30, 1997 increased to 75.9% from 72.9% in the comparable period of
1996. Material cost of sales as a percent of sales increased in both the three
and six-month periods of 1997 due to the use of purchased versus
customer-supplied material on certain gas turbine engine components and to
purchased tooling, as well as to changes in product mix, primarily increased
sales of test nacelles and military spares components with higher material
contents. Tooling amortization costs as a percent of sales also increased during
both the three and six-month periods due primarily to the increased sales of
test nacelles. The increases in the material and amortization percentages were
partially offset by decreases in both labor and overhead costs as a percent of
sales. The decrease in the labor cost as a percent of sales resulted primarily
from improved productivity, lower average labor costs due to new hires in the
labor force and higher sales of products with lower labor content. Overhead cost
of sales as a percent of sales decreased as a result of cost containment efforts
and the spreading of fixed manufacturing costs over a larger sales base,
partially offset by increases in certain indirect manufacturing expenses.
7
<PAGE> 10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("administrative expenses") as a
percent of net sales were 16.6% and 19.7% for the second quarter of 1997 and
1996, respectively, and 16.8% and 20.3% for the six months ended June 30, 1997
and 1996, respectively. Actual amounts expended increased by $647,000 from the
second quarter of 1996 to the same quarter of 1997 and by $1,247,000 from the
six months ended June 30, 1996 to the same period in 1997.
Factors contributing to the higher administrative expenses in both 1997 periods
were increased marketing costs, commission expense, professional and consulting
fees, administrative staff, equipment maintenance contracts and travel related
costs incurred to support the higher current and expected sales volumes. In
addition, the Company had higher costs related to new business development
activities and higher business franchise taxes resulting from the increase in
sales volume.
NET INTEREST EXPENSE
Net interest expense as a percent of sales was 1.5% and 2.4% for the 1997 and
1996 three and six- month periods, respectively. Actual interest expense
increased slightly to $191,000 and $376,000 for both 1997 periods. Line of
credit usage increased in both the three and six-month 1997 periods, compared to
the comparable 1996 periods, to finance the additional working capital needed to
support the higher 1997 business activity. Partially offsetting the increased
line of credit usage were lower overall interest rates as a result of borrowing
at Eurodollar-based interest rates.
INCOME TAX EXPENSE
Income taxes were $248,000 or 1.9% of sales in the 1997 second quarter, compared
to $60,000 or 0.8% of sales for the same quarter of 1996. Income taxes were
$467,000 or 1.8% of sales for the six months ended June 30, 1997, compared to
$99,000 or 0.7% of sales for the comparable period of 1996. The effective tax
rate is lower than the statutory rate due primarily to the lower tax rate of the
Company's foreign sales corporation.
NET INCOME
Net income of $538,000 in the 1997 second quarter represents an increase in
after-tax earnings of $334,000, or 164%, from the 1996 second quarter. Net
income of $1,009,000 for the first six months of 1997 represents an increase in
after-tax earnings of $619,000, or 159%, from the comparable period of 1996.
Factors contributing to these changes were discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its working capital and longer term capital needs through
short and long-term bank debt and leasing arrangements on certain items of
capital equipment.
8
<PAGE> 11
Capital has principally been used to fund the Company's inventory, accounts
receivable, business development and capital expenditure programs. Management
expects to continue its present level of investment in inventory to support the
higher sales volume expected throughout 1997. During the first six months of
1997, the Company invested approximately $535,000 in additional manufacturing
and warehousing capacity for its Auto-Air Composites subsidiary in order to meet
increased production requirements. Other than this capacity expansion,
investments in production technology, tooling and equipment for improved
manufacturing efficiency and quality enhancement are expected to continue at
present levels. The Company will also continue to seek acquisition opportunities
to expand and/or diversify its markets.
The Company maintains a $5,000,000 unsecured credit line with a bank, $1,030,000
of which was available at June 30, 1997. The Company also has outstanding
approximately $4,172,000 of secured term debt, $49,000 of tax-exempt bonds and
$2,146,000 of subordinated notes.
Management believes that expected increased revenues and on-going emphasis on
working capital management will continue to provide strong cash flow from
operations. As a result, the Company's cash flow from operations and its current
credit facilities are felt to be adequate to finance its current operations and
capital expenditure requirements at present and forecasted levels.
Certain of the information contained in Item 2 is of a forward looking nature
and is subject to various uncertainties. See Item 5.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's officers may, when appropriate, make public statements that
contain forward looking information as to the Company's sales and earnings.
Forward looking information is subject to risks and uncertainties that may
significantly impact expected results. The Company's outlook is based largely on
its interpretation of current order levels and trends and assumption as to
trends in the air transport and aircraft industries. Certain of the Company's
backlog of orders are subject to cancellation, reduction or extended delivery.
The air transport and aircraft industries have historically been subject to
significant cyclical fluctuations and are influenced by factors such as the
general state of the economy, fuel prices, governmental regulation, competition,
and the level of military spending. In addition, the Company's results are
subject to pricing competition, the willingness of the airlines and aircraft
manufacturers to out source work for their 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.
9
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 10.12. Lund/Stephens 1996 Incentive Plans
Exhibit 10.13. Lund/Stephens 1997 Incentive Plans
Exhibit 27. Financial Data Schedule
(b) The Company has not filed any Reports on Form 8-K during the quarter for
which this report is filed.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADE INDUSTRIES, INC.
August 12, 1997
By /s/ Edward B. Stephens
------------------------------
Edward B. Stephens
Vice President, Treasurer and
Chief Financial Officer
<PAGE> 14
CADE INDUSTRIES, INC.
* * *
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
JUNE 30, 1997
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
- ------ ----------- ---------------- --------
<S> <C> <C> <C>
10.12 Lund/Stephens 1996
Incentive Plans X
10.13 Lund/Stephens 1997
Incentive Plans X
27 Financial Data
Schedule X
</TABLE>
<PAGE> 1
EXHIBIT 10.12
CADE INDUSTRIES, INC.
1996 INCENTIVE PLAN
RICHARD A. LUND
EDWARD B. STEPHENS
The 1996 bonus award will be based on performance against
two (2) factors: Cade Industries' results of operations
and Cade Industries' cash flow generation. Each of the two
(2) factors is weighted and the maximum bonus award
possible is fifty percent (50%) of your 1996 total base
compensation. The bonus award earned for 1996 will be paid
both in cash (75%) and Cade Industries stock (25%). The
following table summarizes the factors and their
respective weightings on the 1996 bonus award:
<TABLE>
<CAPTION>
Weighting Bonus
Factor Factor Percent
------------------ --------- -------
<S> <C> <C>
Cade Ind. earnings 60.0% 30.0%
Cade Ind. cash flow 40.0% 20.0%
------- -------
100.0% 50.0%
======= =======
</TABLE>
The number of Cade Industries' shares to be issued will be
based on the closing price of the stock at 12/31/95.
Bonus payments will be made upon the public announcement
of Cade Industries' 1996 earnings.
------------------ --------------- ------------------
Terrell L. Ruhlman Richard A. Lund Edward B. Stephens
<PAGE> 1
EXHIBIT 10.13
CADE INDUSTRIES, INC.
INCENTIVE PLAN
1997
J. SANDFORD
R. LUND
E. STEPHENS
The 1997 incentive program will be based on the following performance factors:
1. Cade Industries After Tax Earnings, and 2. Cash Flow From Operations.
<TABLE>
<CAPTION>
Factor Weighting Factor Incentive %
- ------ ---------------- -----------
<S> <C> <C>
Cade Industries Earnings 70 35%
Cash Flow From Operations 30 15%
</TABLE>
The maximum incentive is fifty percent (50%) of your 1997 total base
compensation. The incentive award will be paid both in cash (75%) and Cade
Industries Stock (25%). The stock price award level is determined as the price
on 12/31/96 ($1.31).
------------------ ------------------
T. L. Ruhlman J. W. Sandford
------------------ ------------------
R. A. Lund E. B. Stephens
Approved By: _______________________
Conrad Goodkind, Chairman
Compensation Committee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CADE
INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 91,176
<SECURITIES> 0
<RECEIVABLES> 7,246,381
<ALLOWANCES> 0
<INVENTORY> 11,608,077
<CURRENT-ASSETS> 19,653,064
<PP&E> 27,583,578
<DEPRECIATION> 12,521,096
<TOTAL-ASSETS> 37,838,601
<CURRENT-LIABILITIES> 10,699,368
<BONDS> 4,872,230
0
0
<COMMON> 21,978
<OTHER-SE> 21,611,025
<TOTAL-LIABILITY-AND-EQUITY> 37,838,601
<SALES> 25,308,442
<TOTAL-REVENUES> 25,308,442
<CGS> 19,202,420
<TOTAL-COSTS> 19,202,420
<OTHER-EXPENSES> 4,253,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,057
<INCOME-PRETAX> 1,476,386
<INCOME-TAX> 467,000
<INCOME-CONTINUING> 1,009,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,009,386
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
