<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-12808
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Cade Industries, Inc.
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(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.)
2365 Woodlake Drive, Suite 120, Okemos, Michigan 48864
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(517) 347-1333
-----------------------------------
(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 -- 22,028,627 shares as of
May 12, 1998
<PAGE>
INDEX
CADE INDUSTRIES, INC.
---------------------
PART I - FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
PAGE
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Income for the three months ended
March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998
and 1997 4
Notes to Condensed Consolidated Financial
Statements 5
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 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
March 31
1998 December 31,
(Unaudited) 1997*
-------------- --------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 540,425 $ 1,093,176
Trade accounts receivable - net 17,884,123 12,687,969
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,556,358 2,053,922
Inventories:
Finished goods and work in progress 8,312,299 7,227,176
Materials and supplies 6,937,835 6,571,791
-------------- --------------
15,250,134 13,798,967
Deferred income taxes 1,154,000 1,154,000
Prepaid expenses and other current assets 191,796 413,132
-------------- --------------
TOTAL CURRENT ASSETS 36,576,836 31,201,166
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 737,365 737,365
Buildings 6,966,809 6,934,411
Machinery and equipment 11,704,015 11,430,507
Tooling 13,456,348 12,447,568
-------------- --------------
32,864,537 31,549,851
Less accumulated depreciation and amortization 14,641,440 13,887,690
-------------- --------------
18,223,097 17,662,161
INTANGIBLE AND OTHER ASSETS
Goodwill - net 5,481,177 5,552,849
Other assets 232,052 153,715
-------------- --------------
5,713,229 5,706,564
-------------- --------------
$ 60,513,162 $ 54,569,891
============== ==============
</TABLE>
1
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997*
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 3,780,000 $ 1,460,000
Current portion of long-term debt 2,962,367 3,012,998
Trade accounts payable 5,343,140 5,190,782
Employee compensation and amounts withheld 1,939,209 2,471,638
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,686,905 5,626,388
Accrued expenses 2,006,974 1,609,611
Accrued income taxes 546,358 395,088
------------- ------------
TOTAL CURRENT LIABILITIES 25,264,953 19,766,505
LONG-TERM DEBT 10,062,295 10,682,554
DEFERRED INCOME TAXES 788,000 788,000
SHAREHOLDERS' EQUITY
Preferred Stock, 10% cumulative, non-voting,
stated value $300 per share; authorized 500
shares, none issued
Common Stock, par value $.001 per share;
authorized 100,000,000 shares, issued
22,338,859 shares (22,238,859 shares in 1997) 22,339 22,239
Additional paid-in capital 9,480,110 9,360,968
Retained earnings 15,394,008 14,475,571
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24,896,457 23,858,778
Less cost of Common Stock in treasury
(300,232 and 350,055 shares in 1998 and
1997, respectively) 498,543 525,946
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24,397,914 23,332,832
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$ 60,513,162 $ 54,569,891
============= ============
</TABLE>
* The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Sales $21,913,348 $12,355,557
Operating expenses:
Cost of sales 16,637,336 9,376,113
Selling, general and administrative expenses 3,587,418 2,103,835
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20,224,754 11,479,948
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INCOME FROM OPERATIONS 1,688,594 875,609
Interest expense - net 328,157 185,166
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INCOME BEFORE INCOME TAXES 1,360,437 690,443
Income taxes 442,000 219,000
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NET INCOME $ 918,437 $ 471,443
=========== ===========
NET INCOME PER SHARE
Basic $ 0.04 $ 0.02
Diluted 0.04 0.02
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CADE INDUSTRIES, INC.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
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<S> <C> <C>
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES $(1,411,205) $1,398,298
INVESTING ACTIVITIES
Additions to property, plant and equipment (958,900) (981,446)
FINANCING ACTIVITIES
Increase (decrease) in note payable to bank 2,320,000 (665,000)
(Payments) of long-term debt - net of new
borrowing proceeds (670,890) 202,159
Exercise of stock options 81,250
Purchase of common stock for treasury (35,325)
Other 86,994 67,550
----------- ----------
1,817,354 (430,616)
----------- ----------
DECREASE IN CASH AND CASH
EQUIVALENTS (552,751) (13,764)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,093,176 21,606
----------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 540,425 $ 7,842
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADE INDUSTRIES, INC.
MARCH 31, 1998
NOTE A--BASIS OF PRESENTATION
- -----------------------------
The condensed consolidated financial statements as of and for the three month
periods ended March 31, 1998 and 1997, 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, 1997.
NOTE B--EARNINGS PER SHARE
- --------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings
per share - income available to
common shareholders $ 918,437 $ 471,443
=========== ===========
Denominator:
Denominator for basic earnings per share -
weighted average shares 21,979,805 21,710,141
Effect of dilutive stock options - potential
common shares 556,282 289,295
----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares 22,536,087 21,999,436
=========== ===========
Basic Earnings Per Share $ 0.04 $ 0.02
=========== ===========
Diluted Earnings Per Share $ 0.04 $ 0.02
=========== ===========
</TABLE>
5
<PAGE>
NOTE C--NEW ACCOUNTING PRONOUNCEMENT
- ------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which is
effective for financial statements issued after December 15, 1997, and requires
all items of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Other
comprehensive income may include foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. The accumulated balance of other comprehensive
income must be displayed separately from retained earnings and additional paid-
in capital in the equity section of a statement of financial position. The
Company has adopted this accounting standard effective January 1, 1998, as
required, and currently there are no items that qualify as "other comprehensive
income." Accordingly, no separate statement has been presented herein.
6
<PAGE>
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 $21,913,000 in the first quarter of 1998 represented
an increase of 77.4% or $9,558,000 from the same quarter of 1997. The higher
sales for the first quarter of 1998 primarily reflect increased sales of jet
engine test facilities and related ground testing equipment as a result of the
October 1997 acquisition of Central Engineering Company and its subsidiaries
("Cenco") which contributed revenues of $6.8 million. The Company's operations,
excluding Cenco, had increased revenues of 22.6% from the first quarter of 1997,
resulting from higher sales of military spares, OEM gas turbine engine
components and repair and overhaul services.
At March 31, 1998, the Company's backlog was $84.1 million ($40.2 million at
March 31, 1997) which 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.
Cenco's order backlog was $32.0 million of the Company's March 31, 1998 total
$84.1 million backlog. Overhaul and repair orders are not included in the order
backlog due to their very short lead times. These sales currently represent
about 22.3% of Cade's total annual sales.
COST OF SALES
- -------------
Cost of sales for the first quarter of 1998 increased $7,261,000 or 77.4% from
the same quarter of 1997. The increase from the prior year's quarter was
primarily due to the higher sales in 1998. Cost of sales as a percent of sales
was 75.9% in both the first quarters of 1998 and 1997. Material cost of sales as
a percent of sales increased in the first quarter of 1998 due to the inclusion
of the operations of Cenco, the Company's newest subsidiary, which manufactures
jet engine test facilities and certain related ground testing equipment. A
portion of Cenco's contracts to manufacture engine test facilities involves
building construction by subcontractors, the costs of which are considered as
material costs and are passed through to the customers. The increase in the
material cost percentage was offset by decreases in both tooling amortization
and overhead costs as a percent of sales. The decreased tooling amortization
cost percentage resulted from a shift in the mix of ground test equipment sales.
Overhead cost of sales as a percent of sales decreased as a result of continued
cost containment efforts and the spreading of fixed manufacturing costs over a
larger sales base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses ("administrative expenses") as a
percent of sales were 16.4% and 17.0% for the first quarters of 1998 and 1997,
respectively. The decreased percentage of administrative expenses from the 1997
quarter is primarily the
7
<PAGE>
result of the 77.4% increase in sales and the corresponding spreading of these
costs over a larger sales base.
Actual amounts expended increased by $1,484,000 ($792,000 attributable to Cenco)
from the first quarter of 1997 to the same quarter of 1998. Factors contributing
to the higher dollar level of administrative expenditures (excluding Cenco) were
increased marketing costs, professional and consulting fees relating to
development of internal production and information systems, certain insurance
costs, administrative staff and related costs and travel-related costs incurred
to support the higher current and expected sales volumes.
NET INTEREST EXPENSE
- --------------------
Net interest expense as a percent of sales was 1.5% for both the first quarters
of 1998 and 1997, while the actual amount increased by $143,000 to $328,000. The
increase in the net amount of interest expense was due to the additional debt
associated with the acquisition of Cenco.
INCOME TAX EXPENSE
- ------------------
Income taxes were $442,000 or 2.0% of sales in the 1998 first quarter, compared
to $219,000 or 1.8% of sales for the same quarter of 1997. 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 $918,000 in the 1998 first quarter represents an increase in
after-tax earnings of $447,000 or 94.9%, from the 1997 first quarter, as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has historically met its working capital and longer term capital
needs through operating cash flow, short and long-term bank debt and leasing
arrangements on certain items of capital equipment. The Company financed its
1997 acquisition of Cenco with long-term bank debt and the issuance of its
common stock.
During the first quarter of 1998, capital was used principally to fund the
Company's inventory and accounts receivable. Management expects to gradually
reduce its present level of investment in inventory during 1998 and to increase
its present level of investment in plant facilities, production and information
system technology, tooling and equipment for improved manufacturing efficiency
and quality enhancement. The Company will also continue to seek acquisition
opportunities to expand and/or diversify its markets.
At the end of the quarter, the Company maintained a $9,000,000 unsecured credit
line with a bank, $2,524,000 of which was available at March 31, 1998, after
consideration of actual line of credit usage and credit line commitments to
support foreign exchange contracts and letters of credit. The Company also had
outstanding approximately $11,702,000 of secured term debt, and $1,323,000 of
subordinated notes.
8
<PAGE>
The Company is currently studying the potential impact of year 2000 issues on
its business and internal operations. The study is also directed at estimating
amounts to be expended relative to year 2000 issues and their impact on the
Company's operations, liquidity and capital resources. To date, no material
amount has been expended on year 2000 issues. The Company believes the costs
associated with transitioning its current computer environment to one that is
fully year 2000 compliant is not material to its results of operations or its
liquidity and capital resources, although the total cost of compliance with
these issues is not yet known.
Management believes that expected increased revenues and on-going emphasis on
working capital management will provide cash flow from operations. As a result,
the Company's cash flow from operations, its current credit facilities and
available financing opportunities are felt to be adequate to finance its current
operations and capital expenditure requirements at present and anticipated
levels.
Certain of the information contained in Item 2 is of a forward looking nature
and is subject to various uncertainties. See Item 5.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
9
<PAGE>
a
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
At the Company's Annual Meeting of Shareholders on May 5, 1998, shareholders
elected the seven nominees for the Board of Directors. There was no solicitation
in opposition to the nominees proposed in the Proxy Statement and there were no
abstentions or broker nonvotes. The votes with respect to the nominees were as
follows:
<TABLE>
<CAPTION>
DIRECTOR NAME VOTES FOR VOTES WITHHELD
- ------------- ---------- --------------
<S> <C> <C>
Molly F. Cade 20,082,976 35,590
Conrad G. Goodkind 20,083,876 34,690
William T. Gross 20,081,676 36,890
Richard A. Lund 20,083,506 35,060
Joseph R. O'Gorman 20,072,626 45,940
Terrell L. Ruhlman 20,078,606 39,960
John W. Sandford 20,083,576 34,990
</TABLE>
In addition, the Company's 1998 Omnibus Incentive Stock Plan was approved, with
12,226,817 votes in favor, 710,290 against, 123,695 abstaining, and 7,057,764
broker nonvotes.
ITEM 5. OTHER INFORMATION
The Company's officers may, when appropriate, make public statements that
contain forward looking information as to industry conditions and the Company's
sales and earnings. Forward looking information is subject to risks and
uncertainties that may significantly impact expected results. Among the factors
that could cause actual results to differ materially from those which are
anticipated are the following: business conditions generally and conditions
specifically in the aircraft and aerospace industries; timing of receipt and
delivery of orders; the timing and satisfactory completion of engine test
facilities; price fluctuations for raw materials and labor; competitive factors,
including price competition from other suppliers of similar products and
overhaul and repair services; risk of obsolescence of tooling inventory before
full amortization on project costs; cancellation of orders; foreign currency
exchange rates, the ability to obtain effective hedges against fluctuations in
currency exchange rates; and foreign trade and fiscal policies.
Change In Chief Executive Officer
- ---------------------------------
At the Company's Annual Meeting of Shareholders, the Company announced the
election of Cade Industries' President and Chief Operating Officer, Richard A.
Lund, to President and Chief Executive Officer. John W. Sandford, who had been
named Chairman and Chief Executive Officer of the Company effective September 1,
1997, made the announcement and remains as Chairman. Mr. Lund has been
associated with Cade Industries since 1983 and has served as the Company's
President and Chief Operating Officer since April 1990.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27. Financial Data Schedule
(b) The Company has not filed any Reports on Form 8-K during the quarter for
which this report is filed.
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADE INDUSTRIES, INC.
---------------------
May 13, 1998
By /s/ Edward B. Stephens
-----------------------------
Edward B. Stephens
Vice President, Treasurer and
Chief Financial Officer
<PAGE>
CADE INDUSTRIES, INC.
* * *
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1998
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
------ -------------- ------------------- --------
27 Financial Data
Schedule X
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CADE INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 540,425
<SECURITIES> 0
<RECEIVABLES> 18,129,123
<ALLOWANCES> 245,000
<INVENTORY> 15,250,134
<CURRENT-ASSETS> 36,576,836
<PP&E> 32,864,537
<DEPRECIATION> 14,641,440
<TOTAL-ASSETS> 60,513,162
<CURRENT-LIABILITIES> 25,264,953
<BONDS> 10,062,295
0
0
<COMMON> 22,339
<OTHER-SE> 24,375,575
<TOTAL-LIABILITY-AND-EQUITY> 60,513,162
<SALES> 21,913,348
<TOTAL-REVENUES> 21,913,348
<CGS> 16,637,336
<TOTAL-COSTS> 16,637,336
<OTHER-EXPENSES> 3,587,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328,157
<INCOME-PRETAX> 1,360,437
<INCOME-TAX> 442,000
<INCOME-CONTINUING> 918,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 918,437
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
