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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
CADE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1371038
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2365 Woodlake Drive, Suite 120, Okemos, Michigan 48864
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (517) 347-1333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Common Stock Purchase Rights
-----------------------------
(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. [ ]
As of March 18, 1999, 21,701,663 shares of Common Stock were outstanding
(including the Common Stock Purchase Rights), and the aggregate market value of
the registrant's voting and non-voting common equity (based upon the $2-3/16
closing price of the registrant's Common Stock 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 $34,784,308.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which Portions of
Document Document are Incorporated
-------- ----------------------------------------
Portions of Annual Report to
Shareholders for the fiscal year
ended December 31, 1998 Part II
Portions of Proxy Statement for 1999
Annual Meeting of Shareholders Part III
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This Amendment No. 1 is being filed to file Exhibit 13.1, its 1998 Annual
Report.
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SIGNATURES
In accordance with Rule 12b-25 and Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to be
signed on its behalf by the undersigned, thereunto duly authorized.
CADE INDUSTRIES, INC.
By /s/ Edward B. Stephens Dated April 21, 1999
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Edward B. Stephens
Vice President, Assistant Secretary
Chief Financial Officer
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CADE INDUSTRIES, INC.
Exhibit Index to Report on Form 10-K/A
for the fiscal year ended December 31, 1998
<TABLE>
<CAPTION>
Exhibit Incorporated herein Filed
No. Description by reference to: Herewith
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<S> <C> <C> <C>
13.1 Incorporated portions of X
1998 Annual Report to
Shareholders
23.1 Consent of Deloitte & Touche LLP X
</TABLE>
<PAGE>
[LOGO OF CADE INDUSTRIES, INC.]
1998
annual report
<PAGE>
Table of Contents
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3 To Our Shareholders
5 Selected Financial Highlights
6 Management's Discussion and Analysis of Financial
Condition and Results of Operations
11 Report of Independent Auditors
12 Consolidated Balance Sheets
13 Consolidated Statements of Income
14 Consolidated Statements of Cash Flows
15 Consolidated Statements of Changes in Shareholders' Equity
16 Notes to Consolidated Financial Statements
Corporate Overview
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Cade Industries is a leading supplier of products and services to the aerospace
and air transport industries. Cade designs, develops, manufactures, overhauls
and repairs high technology composite components for the aerospace and air
transport industries, and is a global leader in the design and manufacture of
jet engine test facilities and related ground testing equipment.
PRODUCTS
Cade's core products include molded and bonded composite jet engine components,
metal fabricated and bonded composite airframe components and the repair and
overhaul of commercial and military gas turbine engine and airframe components
as well as flight nacelle structures and engine test facilities, related
computer software and data acquisition systems, and associated equipment. Cade
is recognized as one of the world's largest designers and manufacturers of test
nacelle systems employed in the ground testing and overhaul of commercial and
military engines, both in service and in development.
Cade's overhaul and repair facilities are licensed by the Federal Aviation
Administration, the European Joint Airworthiness Authority and the Civil
Aviation Authority of China.
Cade Industries employs approximately 690 employees with manufacturing
facilities located in San Diego, California; Minneapolis, Minnesota; Lansing,
Michigan; and Dallas, Texas.
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Dear Shareholders
Cade Industries enjoyed another year of record earnings and revenues for 1998,
and has recorded a three-year annual growth in earnings per share of greater
than 100 percent. These results reflect strong performance throughout the
company, highlighted by improving margins, significant gains in revenue from our
overhaul and repair services, increased revenues from test facilities and
equipment and sustained growth in OEM products.
Although we are pleased with these results, we are disappointed that our market
valuation decreased by 6 percent for the year. While this is a disappointment to
all of us who are shareholders, I assure you that we are actively addressing
this with the investment community. Towards this end we repurchased 250,000
shares of outstanding stock in 1998, with additional plans to acquire up to 5%
of the outstanding shares in 1999.
We continued to focus on the operations and strategies that create shareholder
value, including the successful integration of our acquisition of Central
Engineering, solid internal growth in our core products and longer-term
strategies designed to benefit fully from the sound industry and economic
fundamentals underlying our businesses.
Key to our future success is a strategic growth plan centered on product
diversification, strategic acquisitions and attainment of world class quality
standards. Throughout 1998, your company's management initiated and executed
successful strategies that are reflected in your company's record results.
Net income for the year increased 80 percent, to $4.2 million, on a 72 percent
gain in revenue to $95.8 million. Earnings per share rose 73 percent, to 19
cents per share.
Cade generated $8.0 million of cash from operations and EBITDA of $10.5 million
or 48 cents per share, which was used to fund our growth and pay down debt. Our
debt to equity ratio was a favorable 31 percent, well below industry standards
and an important advantage in potential acquisitions.
These record results were attributable primarily to the strength of the
aerospace industry combined with the ongoing success of our diversification
strategy, as we widen our product offerings and build a more diversified
domestic and international customer base. Our success will continue to depend on
diversification, and we are working aggressively to further expand our
after-market services sector to 50%-60% of the company's total revenue.
Your Company generated approximately 40 percent of its 1998 revenue directly
from worldwide airlines and repair facilities, and the share of the company's
total revenues from our international business alone grew to 39.7 percent in
1998 up from 21.5 percent in 1997. Cade's customer base has truly become
international in its scope, a factor that will add stability as well as
expansion opportunities.
More important, the solid 1998 results were a continuation of a positive growth
trend. Based upon your company's performance over the past three years, Cade was
listed as the 33rd fastest growing company in Fortune Magazine's annual ranking
of America's Top 100 companies.
The criteria for inclusion in Fortune's prestigious and widely respected ranking
were our annual earnings per share growth of 103 percent, revenue growth of 40
percent, and three-year annualized return of 57 percent on Cade's share
valuation. The management team is proud of this record, and are committed to
pursuing continued strong growth trends.
Among the initiatives we have already undertaken, or that have been identified
as critical to our plans for continued growth into the 21st Century are the
following:
o Continued development and strengthening of the
management team.
o Expanding and upgrading design and manufacturing
capabilities.
o Investment of $3 million in new facilities for overhaul and repair,
including installation of new automated manufacturing equipment to improve
efficiency.
o Focus on customer satisfaction through on-time delivery and high quality
products at competitive prices.
o Meeting world class quality standards for all our products and services.
Two of our four facilities are now ISO 9002 certified, and one has been
certified ASO9000 in 1999.
o Installation of a computer based, fully integrated management information
system at each Subsidiary.
o Achieve full Y2K compliance.
o Strategic acquisitions.
Successful implementation of these initiatives will strengthen the foundation
that supports our growth, and help us realize our ambitious goals.
3
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1999 Outlook
Cade entered 1999 with strong business fundamentals, and is positioned to build
on its 1998 accomplishments. We will allocate our resources to after-market
products and services, test facilities and equipment services, and will expand
our product development in the utilization of engineered composites.
These strategies are designed to increase revenues for our higher margin
overhaul and repair services. We expect to see a favorable shift in our test
equipment services from lower margin subcontract work to data acquisition and
software sales, and increase our market share in engine components. Our goal is
to push margins beyond 5% in 1999 through more profitable products and services,
together with improvements in operating efficiencies and an improved cost
structure.
We are pleased with our record 1998 results and look forward to 1999 with
optimism, fully aware of the challenges presented by the softening in commercial
aircraft production rates. Cade closed
1998 with an order backlog of $75 million and expectations that economic
conditions should stabilize and benefit our customers.
Our increased emphasis on after-market and test equipment, coupled with strict
cost controls, will help offset the projected softness in commercial aircraft
production by balancing our product mix and improving our margins. Based upon
these factors, we have targeted double digit earnings growth in 1999.
Your Cade management team recognizes the importance of alerting the investment
community to the company's activities and its prospects, and creating value for
our fellow shareholders. We are working to increase the investment community's
awareness of the value of Cade and are dedicated to reviewing all our options of
enhancing the value of your investment. We will be working hard in 1999 to meet
your expectations and merit your continued support.
/s/ Richard A. Lund
Richard A. Lund
President and CEO
/s/ John W. Sandford
John W. Sandford
Chairman of the Board
4
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Selected Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31
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1998 1997 (1) 1996 1995 1994 (2)
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(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Operating Data
Sales $95,792 $55,804 $34,867 $30,445 $20,461
Net income (loss) 4,242 2,353 1,058 (382) 159
Net income (loss) per share (3):
Basic 0.19 0.11 0.05 (0.02) 0.01
Diluted 0.19 0.11 0.05 (0.02) 0.01
Selected Balance Sheet Data
Current assets 37,729 31,201 17,147 13,653 14,534
Total assets 62,275 54,570 35,304 32,685 32,937
Current liabilities 26,242 19,766 9,148 6,592 7,969
Working capital 11,487 11,435 7,999 7,061 6,565
Long-term obligations 8,979 11,471 5,473 6,433 4,930
Shareholders' equity 27,054 23,333 20,683 19,660 20,038
</TABLE>
(1) Reflects operations of Central Engineering Company from date of acquisition
(October 31, 1997).
(2) Reflects operations of Pollux Corporation from date of acquisition (December
1, 1994).
(3) Earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
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 24, 1999 was 1,508. 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 the period 1994 through 1998.
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 1998 and 1997.
1998 1997
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High Low High Low
---------------------------------------------
First Quarter $ 3 5/32 $2 10/32 $1 16/32 $1 7/32
Second Quarter 4 4/32 2 25/32 1 20/32 1 9/32
Third Quarter 3 15/32 1 30/32 3 15/32 1 15/32
Fourth Quarter 2 22/32 2 4/32 3 16/32 2 8/32
5
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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 Income expressed
as a percentage of sales, and the percentage changes in the dollar amounts of
such items from the prior period. Effective October 31, 1997, the Company
acquired Central Engineering Company ("Cenco"). The operating results of Cenco
are included with those of the Company from the date of acquisition.
<TABLE>
<CAPTION>
Percentage of Sales Percent Increase in Dollar Amounts
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1998 1997 1996 1998 vs. 1997 1997 vs. 1996
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<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 71.7% 60.0%
Costs and Expenses
Cost of Sales 77.8% 77.9% 76.6% 71.3% 62.8%
Selling, General and
Administrative Expense 14.8% 14.5% 17.5% 75.5% 32.9%
Net Interest Expense 1.0% 1.5% 2.1% 13.7% 14.2%
------ ------- ------
Total Costs and Expenses 93.6% 93.9% 96.2% 71.0% 57.2%
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Income Before Income Taxes 6.4% 6.1% 3.8% * *
Income Tax Expense 2.0% 1.9% 0.8% * *
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Net Income 4.4% 4.2% 3.0%
======= ======= ======
</TABLE>
*Not meaningful to presentation
Cade is engaged worldwide in the design, manufacture, and repair and overhaul of
high technology composite components and engine test facilities for the
aerospace, air transport and specialty industries. Cade's core products include
molded and bonded composite jet engine components, metal fabricated and bonded
composite airframe components and the repair and overhaul of commercial and
military gas turbine engine and airframe components as well as flight nacelle
structures ("Engine and Airframe Products and Services") and engine test
facilities, related computer software and data acquisition systems, and
associated equipment ("Test Facilities and Equipment"). Engine and airframe
products and services include engine inlets and cases, acoustical liners,
fairings, auxiliary power unit enclosures, various control surface products,
access doors, wing tips, interior structures and repair and overhaul services.
Test facilities and equipment are used in the ground testing and overhaul of
major commercial jet engines and related ground support 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, U.S. Government and overhaul facilities. For 1998,
1997, and 1996, sales of Engine and Airframe Products and Services and Test
Facilities and Equipment as a percentage of total sales were as follows:
Percentage of Total Sales
-----------------------------
1998 1997** 1996**
-----------------------------
Engine and airframe products
and services 52.7% 76.3% 77.5%
Test Facilities and Equipment 47.0% 23.6% 19.2%
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99.7% 99.9% 96.7%
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** Certain of the 1997 and 1996 classification and amounts have been
reclassified to conform to the 1998 presentation
6
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The large shift in percentage relationships from 1997 to 1998 primarily reflect
the inclusion of the sales of Cenco, whose products classify as Test Facilities
and Equipment, for all of 1998.
OUTLOOK AND BACKLOG
At December 31, 1998, the Company's backlog of orders was $75.0 million ($79.4
million at December 31, 1997). The 1998 year-end backlog included only the first
two years of scheduled orders ($25.8 million) under long-term agreements; $70.0
million is scheduled for shipment in 1999. 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. The decrease in order backlog at 1998
year-end compared to 1997 primarily reflects the reduction in subcontract
expense content of engine test facility and equipment contracts. Excluding the
effect of the subcontract expense, order backlog increased approximately 6.3%
from 1997 to 1998 year-end. Overhaul and repair orders, representing 23.8% of
total 1998 sales, are excluded from the Company's order backlog due to their
very short lead times. 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.
On the basis of the current order backlog, existing long-term agreements and
current economic conditions, the Company expects continued internal sales growth
in 1999.
1998 COMPARED TO 1997
Sales in 1998 of $95,792,000 increased $39,988,000 or 71.7% from 1997 and
included sales from Cenco, acquired as of October 31, 1997, of $34,582,000 and
$4,420,000 for 1998 and 1997, respectively. The remaining $9,826,000 of the
sales increase, representing 19.1% of 1997 sales, reflects higher sales in gas
turbine engine components, engine test equipment and overhaul and repair
services.
Cost of sales increased 71.3% or $30,998,000 (13.2% or $5,253,000 without regard
to Cenco) in 1998 from 1997. Cost of sales as a percent of sales in 1998 of
77.8% was relatively unchanged from 1997. Excluding subcontract costs, cost of
sales as a percent of sales was 74.8% for 1998, down from 77.6% in 1997. A
portion of Cenco's revenues were derived from contracts to manufacture engine
test facilities that involve building construction by subcontractors. These
subcontract costs, which were expensed as material costs, were passed on to
customers at margins substantially below historical manufacturing results. As
adjusted for subcontract costs, cost of sales components as a percent of sales
were below 1997 percents except for direct labor costs reflecting increased
sales of engine test equipment and repair and overhaul services. Direct labor
content in engine test equipment was above historical percents due to the
inclusion of labor costs related to data acquisition software at Cenco. Material
costs as a percent of sales were below 1997 percents primarily as a result of
the previously discussed change in product mix while the reduction in the
overhead cost of sales percent reflects the continued emphasis on cost
containment and the spreading of fixed manufacturing costs over a larger revenue
base.
Selling, general and administrative expenses ("administrative expenses") as a
percent of sales were 14.8% and 14.5% in 1998 and 1997, respectively (17.4% and
14.8%, respectively, excluding subcontract revenue). The increased percentages
in 1998 were primarily the result of higher marketing, commission and royalty
expenses. Sales commissions and royalties are directly related to the sales mix
of products and/or customers. For 1998, the increased expenses resulted
primarily from the continued growth in sales of repair and overhaul services and
engine test equipment subject to commission and/or royalty. Partially offsetting
the percentage increase was the effect of spreading the administrative expenses
over a larger sales base in 1998. Actual amounts expended in 1998 increased
$6,119,000 ($2,855,000 attributable to Cenco). Factors contributing to the
higher dollar level of administrative expenditures (excluding Cenco) were
increased marketing costs, commission and royalty expense, professional and
consulting fees relating to development of enterprise resource planning systems,
public relations efforts and various tax matters, and travel and certain other
costs incurred to support the higher current and expected sales volume.
Net interest expense as a percent of sales decreased to 1.0% in 1998 from 1.5%
in 1997, while the actual amount increased $114,000 to $947,000. The increase in
the net amount of interest expense was due to a full year's interest on the debt
associated with the acquisition of Cenco and additional debt incurred related to
certain capital asset expansion projects undertaken in 1998. Partially
offsetting this increased debt service cost were debt reductions due to
scheduled repay-
7
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ments, interest received as part of a state tax settlement and lower overall
short-term interest rates as a result of borrowing during the year at
Eurodollar-based interest rates.
Income tax expense was $1,906,000 or 2.0% of sales in 1998, compared to
$1,037,000 or 1.9% of sales in 1997. The effective tax rate was lower than the
statutory rate, due mainly to the lower tax rate applicable to the Company's
foreign sales corporation.
The Company had net income of $4,242,000 in 1998, compared to $2,353,000 in
1997, as a result of the factors discussed above.
1997 COMPARED TO 1996
Sales for 1997 increased by $20,937,000 or 60.0% from 1996, of which $4,420,000
or 12.7% was attributed to the acquisition of Cenco. The remaining $16,517,000
of the sales increase, representing 47.3% of 1996 sales, reflected higher sales
in all of the Company's core product groups, with the largest increases coming
from gas turbine engine and airframe components.
Cost of sales increased 62.8% or $16,776,000 (48.5% or $12,953,000 without
regard to Cenco) in 1997 from 1996 primarily as a result of the 60.0% increase
in sales. Cost of sales as a percent of sales increased to 77.9% (77.2% without
regard to Cenco) from 76.6% in 1996. This increase in cost of sales percent from
1996 resulted, in part, from the inclusion for part of the year of Cenco's
operations, whose material cost percentages were higher than the Company's
historical cost percentages. In addition, material costs increased at certain of
the Company's other operating subsidiaries due to the change from
customer-provided to vendor-procured materials on certain gas turbine engine
components, increased levels of tooling purchased for sale to customers and
increased sales of military spares components which have higher material
contents. Tooling amortization costs as a percent of sales also increased due to
the increased sales of test nacelles and overhaul and repair products in 1997.
Decreases in both labor and overhead costs as a percent of sales partially
offset the material and tooling amortization cost increases. The labor percent
decreases resulted primarily from improved productivity, lower average labor
costs due to new hires in the labor force and increased sales of products with
lower labor content, mainly gas turbine engine components. Overhead costs as a
percent of sales decreased primarily as a result of cost containment efforts and
the spreading of fixed manufacturing costs over a larger sales base.
Administrative expenses were 14.5% (15.0% without regard to Cenco) and 17.5% in
1997 and 1996, respectively. Actual amounts expended in 1997 increased
$2,002,000 ($1,599,000 excluding Cenco) from 1996. The decreased percentage of
administrative expenses during 1997 compared to 1996 primarily resulted from the
60.0% increase in sales and the corresponding spreading of these costs over a
larger sales base. Factors contributing to the higher dollar level of
administrative expenditures in 1997 were increased marketing costs, commission
expenses, professional and consulting fees, administrative staff and related
costs, travel related costs incurred to support the higher current and expected
sales levels, and higher business franchise taxes resulting from the increased
sales volume. The higher sales commissions in 1997 resulted primarily from
growth in test nacelle and repair and overhaul sales subject to commission
payments.
Net interest expense as a percent of sales decreased to 1.5% in 1997 from 2.1%
in 1996, while the actual amount increased by $104,000 to $833,000. The increase
in the net amount of interest expense was due to increased usage of the line of
credit to support the higher 1997 business activity and to the additional debt
associated with the acquisition of Cenco. The effect of the increased line of
credit usage was partially offset by lower overall short-term interest rates as
a result of borrowing at Eurodollar-based interest rates.
Income tax expense was $1,037,000 or 1.9% of sales in 1997, compared to $277,000
or 0.8% of sales in 1996. The effective tax rate was lower than the statutory
tax rate due mainly to the lower tax rate applicable to the Company's foreign
sales corporation.
The Company had net income of $2,353,000 in 1997, compared to $1,058,000 in
1996, 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
acquisition of Cenco with long-term bank debt and the issuance of 250,000 shares
of its common stock.
Capital has principally been used to fund the
8
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Company's inventory and accounts receivable and its plant, equipment and tooling
expenditures. During 1998, the Company invested, mainly through long-term bank
financing, approximately $610,000 in additional manufacturing capacity, about
one half of which was previously leased, for its AutoAir subsidiary in order to
meet increased repair and overhaul production requirements. Management expects
to reduce its present level of investment in accounts receivable, inventory,
production equipment and tooling and to increase its investment in production
and information system technology. The Company will also continue to seek
acquisition opportunities to expand and/or diversify its products.
During 1998 management undertook a company-wide project for the improvement of
its business and manufacturing information systems through the purchase of
enterprise resource planning software ("ERP") from Baan Systems. The ERP
software will serve as the common base platform for the integration of the
manufacturing, financial, sales and procurement systems of each of the Company's
operations, replacing primarily dissimilar manually-driven systems. This new
system is scheduled for completion by end of third quarter 1999.
The Company acquires shares of its stock on an ongoing basis when market
conditions and cash position warrant. For 1999 management is authorized to
purchase up to one million shares under specified conditions. This amount
reflects an increase in the repurchase authorization. During 1998, the Company
acquired 250,000 shares of its common stock for approximately $680,000.
Under the Company's amended and restated loan agreement with a bank, the Company
has a $9,000,000 unsecured line of credit, $8,593,000 of which was available at
December 31, 1998, after consideration of actual line of credit usage and credit
line commitments to support foreign exchange contracts and letters of credit. At
December 31, 1998, the Company also had outstanding, approximately $11,119,000
of secured term debt and $661,000 of subordinated notes.
Management believes that expected increased revenues and continued emphasis on
working capital management will provide positive 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
operations and capital expenditure requirements at present and forecasted
levels.
OTHER MATTERS
Contingency
During the third quarter, the Company became aware the design intended to reduce
certain acoustic emissions at an engine test facility sold by Cenco for delivery
in April 1998, had failed to achieve contract specifications in certain
respects. The original acoustic design and installation work had been performed
for Cenco under subcontract by a French company which filed for protection under
French bankruptcy law in early 1998 prior to completion.
Cenco has provided certain remedial work in an attempt to bring the acoustic
emissions within contract specifications. Cenco, along with engineering services
believed to be reliable, has identified other possible solutions aimed at
remedying the acoustic emissions problem. Cenco is in the process of modifying
the facility's acoustic design and expects to have the remedial work completed
in mid 1999. Subject to completion of an agreement with the customer, Cenco will
fund the cost of the remedial work and certain costs incurred by the customer in
connection with the interim use of alternative test facilities prior to the time
the facility becomes operational. The Company estimates the total cost of
completion of remedial work and engine test to range from $6 million to $8
million. The Company believes that these costs are for the most part covered
under a combination of a policy of insurance guaranteeing the design work of the
subcontractor, an errors and omissions insurance policy covering damages
resulting from Cenco design and engineering deficiencies and by warranty and
other reserves established by the Company.
The subcontractor has asserted a claim against Cenco in the French bankruptcy
action and Cenco has filed an action against the subcontractor's insurer in
England. It is not possible at this time to estimate the full extent of Cenco's
liability for the actual costs of modifications to the facility, or the outcome
of the French bankruptcy or English arbitration proceeding. However, the Company
believes that up to $13 million of potential insurance recoveries may be
available to Cenco for the costs of modifications to the facility and for the
interim use of alternative test facilities, although the actual extent of the
Company's recoveries cannot yet be determined.
Year 2000
Many computer systems and other systems with embedded chip technology process
dates based on two digits for the year of a transaction rather
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than a full four digits. These systems are unable to process properly dates in
the year 2000 and beyond. The Company has developed a Year 2000 Action Plan
("Action Plan") to address the issue of computer programs, information
technology and embedded computer chips being unable to distinguish between the
year 1900 and the year 2000.
The Action Plan consists of three major sections: 1) information technology
("IT") systems, which includes the company-wide ERP project previously
discussed; 2) non-IT systems; and 3) third-party communications. Phases common
to each of the three major sections are: inventory of all equipment and
software; assessment of Year 2000 compliance of inventoried equipment and
software with prioritization of non compliant items determined to be material to
the Company; repair or replacement of material, non compliant items; testing of
material items; and development and implementation of contingency plans in the
event of material system failures.
The Company utilizes a number of computer systems across its operations and has
identified its significant software coding issues related to the year 2000 date
recognition for key financial and operational systems. The Company has resolved
some year 2000 issues at its various operations and plans to continue resolving
the matter through either replacement of existing systems with new year 2000
compatible systems or reprogramming existing systems. In 1998, the Company
incurred costs, including the ERP project, of less than $425,000 related to its
year 2000 efforts. The additional costs, including the ERP project, to be
incurred on reprogramming of existing systems, and of replacement equipment,
hardware and software are estimated to be less than $800,000. Completion of all
reprogramming and replacement of equipment, hardware and software is expected by
the end of third quarter 1999. All costs related to the reprogramming of
existing systems and the identification of replacement systems for the year 2000
issue are expensed as incurred while new equipment, hardware and software
replacement costs will be capitalized.
Based on the Company's efforts to date, management believes that its systems
will be year 2000 compliant. The Company is working with its key customers and
suppliers to obtain assurances that their systems are year 2000 compliant.
However, the Company does not have any control over these third parties and, as
a result, cannot currently determine to what extent future operating results may
be adversely affected by the failure of these third parties to address
successfully their year 2000 issues. In addition, the Company operates across
the world in countries at various stages of economic development and is
dependent on systems operated by governments, financial institutions, utilities,
communications suppliers and others in each of these countries. The failure of
any of such infrastructural systems to be year 2000 compliant could disrupt the
Company's business for a period of time and if not quickly resolved could have a
material adverse effect on the Company. The Company has not yet developed formal
contingency plans in the event of a Year 2000 failure by any of its suppliers.
Effects of Inflation
The Company has 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 contain provisions for renegotiation should
inflation of material costs exceed certain defined levels. Partially offsetting
material and labor cost increases experienced by the Company were long-term
material purchase agreements with suppliers 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.
Forward - Looking Statements
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. Statements in this annual report as to future sales,
earnings, cash flow, operating margins, potential insurance recoveries, and
economic and industry conditions are forward looking information. 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 prod-
10
<PAGE>
ucts 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; foreign trade and fiscal policies;
insurance recoveries; and unexpected developments while implementing the
modifications necessary to mitigate Year 2000 compliance issues, including the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the indirect impacts of third parties
with whom we do business and who do not mitigate their Year 2000 compliance
problems and similar unforeseen consequences of the Year 2000 issue.
New Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities",
which is effective for years beginning after June 15, 1999. The Company has not
completed its evaluation of the effect of adopting SFAS 133, therefore, it is
unable to disclose the impact on its financial position and results of
operations of such statement adoption.
Independent Auditors' Report
Shareholders and Board of Directors
Cade Industries, Inc. and Subsidiaries
Okemos, Michigan
We have audited the accompanying consolidated balance sheets of Cade Industries,
Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Lansing, Michigan
February 9, 1999
11
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 580,489 $ 1,093,176
Trade accounts receivable 13,172,191 12,687,969
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,923,693 2,053,922
Inventories 17,087,921 13,798,967
Deferred income taxes 2,184,000 1,154,000
Prepaid expenses and other assets 780,685 413,132
----------- -----------
Total current assets 37,728,979 31,201,166
Property, plant, and equipment 19,196,668 17,662,161
Intangible and other assets
Goodwill 5,130,957 5,552,849
Other assets 218,227 153,715
----------- -----------
5,349,184 5,706,564
Liabilities and Shareholders' Equity $62,274,831 $54,569,891
Current liabilities
Note payable to bank $ 150,000 $ 1,460,000
Current portion of long-term debt 3,467,066 3,012,998
Trade accounts payable 7,034,214 5,190,782
Employee compensation and amounts withheld 2,446,571 2,471,638
Billings in excess of costs and estimated earnings
on uncompleted contracts 9,600,327 5,626,388
Accrued expenses 2,591,998 1,609,611
Accrued income taxes 951,337 395,088
----------- -----------
Total current liabilities 26,241,513 19,766,505
Long-term debt 8,313,322 10,682,554
Deferred income taxes 666,000 788,000
Contingencies
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
22,348,859 shares (22,238,859 shares in 1997) 22,349 22,239
Additional paid-in capital 9,491,975 9,360,968
Retained earnings 18,717,424 14,475,571
----------- -----------
28,231,748 23,858,778
Less cost of common stock in treasury
(550,232 and 350,055 shares in 1998 and
1997, respectively) 1,177,752 525,946
----------- -----------
27,053,996 23,332,832
----------- -----------
See accompanying notes. $62,274,831 $54,569,891
=========== ===========
</TABLE>
12
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $95,792,417 $55,803,761 $34,867,072
Cost of Sales 74,478,593 43,480,918 26,704,927
----------- ----------- -----------
21,313,824 12,322,843 8,162,145
Selling, general and administrative expenses 14,218,774 8,099,595 6,097,363
----------- ----------- -----------
Income from operations 7,095,050 4,223,248 2,064,782
Interest expense - net (947,197) (832,973) (729,290)
----------- ----------- -----------
Income before income taxes 6,147,853 3,390,275 1,335,492
Income tax expense 1,906,000 1,037,000 277,000
Net income $ 4,241,853 $ 2,353,275 $ 1,058,492
=========== =========== ===========
Net income per common share:
Basic $ 0.19 $ 0.11 $ 0.05
Diluted $ 0.19 $ 0.11 $ 0.05
Average number of common equivalent
shares outstanding
Basic 21,957,000 21,720,000 21,693,000
Diluted 22,545,000 22,166,000 21,880,000
</TABLE>
See accompanying notes.
13
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 4,241,853 $ 2,353,275 $ 1,058,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,372,108 2,898,254 2,626,109
Provision for deferred income taxes (benefit) (952,000) (115,000) 91,000
(Gain) Loss on sale of equipment and other (30,184) 10,529 13,520
Changes in operating assets and liabilities:
Trade accounts receivable (484,222) (2,020,716) (1,915,207)
Billings in excess of costs and estimated
earning on uncompleted contracts - net 254,168 993,793
Inventories (3,288,954) (3,440,390) (1,995,635)
Prepaid expenses and other current assets (367,553) (168,461) 317,826
Trade accounts payable 1,843,432 784,240 1,202,970
Other current liabilities 3,363,569 2,100,701 (149,865)
----------- ----------- -----------
Net Cash provided by operating activities 7,952,217 3,396,225 1,249,210
Investing activities
Additions to property, plant and equipment (4,657,306) (2,683,143) (1,764,166)
Acquisition of Cenco (5,197,106)
Other - net
(83,345) (37,780) (2,261)
----------- ----------- -----------
Net Cash used in investing activities (4,740,651) (7,918,029) (1,766,427)
Financing activities
Proceeds from long-term debt 2,220,473 11,470,134 507,316
Payments and refinancing of long-term debt (4,114,037) (4,171,983) (1,831,021)
Increase (decrease) in note payable to bank (1,310,000) (1,550,000) 1,710,000
Purchases of common stock for treasury (679,208) (203,957) (92,469)
Exercise of stock options and other 158,519 49,180 57,512
----------- ----------- -----------
Net Cash provided by (used in) financing activities (3,724,253) 5,593,374 351,338
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (512,687) 1,071,570 (165,879)
Cash and cash equivalents at beginning of year 1,093,176 21,606 187,485
----------- ----------- -----------
Cash and cash equivalents at end of year $ 580,489 $ 1,093,176 $ 21,606
=========== =========== ===========
Cash paid (received) during the year for:
Interest $ 1,164,308 $ 730,647 $ 772,257
Income taxes, net of refunds received 2,293,200 900,072 (39,415)
Supplemental schedule of noncash investing and
financing activities: $ 507,316
Capital leases $ 70,873 $ 248,706
Fair market value of common stock
Issued for acquisition 451,000
</TABLE>
See accompanying notes.
14
<PAGE>
Consolidated Statements of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In
Number of Shares Par Value Amount Capital Retained Earnings Treasury Stock
---------------- ---------------- ---------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 21,886,409 $ 21,886 $ 8,828,552 $11,063,804 $ (254,442)
Stock options exercised 86,450 87 57,425
Purchase 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)
Stock options exercised 16,000 16 20,844
Purchase of 114,800 shares
of common stock (203,957)
Employee stock awards 3,397 24,922
Shares issued in connection
with acquisition 250,000 250 450,750
Net income for the year 2,353,275
----------- ---------- ------------ ----------- ------------
Balance at December 31, 1997 22,238,859 22,239 9,360,968 14,475,571 (525,946)
Stock options exercised 110,000 110 93,015
Purchase of 250,000 shares
of common stock (679,208)
Employee stock awards 37,992 27,402
Net income for the year 4,241,853
----------- ---------- ------------ ----------- ------------
Balance at December 31, 1998 22,348,859 $ 22,349 $ 9,491,975 $18,717,424 $ (1,177,752)
========== ========== ============ =========== ============
</TABLE>
See accompanying notes.
15
<PAGE>
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): Cade AutoAir, Inc.
(AutoAir); Cade Composites, Inc. (CCI); Cade International, Inc. (CI); Cade
Cenco, Inc. (Cenco); Cade Europe, Inc. (CE) and Pollux Acquisition Corporation
(Pollux) and its wholly-owned subsidiary, Cade HAC, Inc. (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 and engine test facilities 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 facilities 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 and the Civil
Aviation Authority of China.
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 are generally recognized at the time products are shipped. Progress
billings in advance of deliveries on certain contracts are treated as deferred
revenues and are offset against inventoried contract costs in the Company's
financial statements. Reserves for contract losses are accrued when estimated
costs to complete exceed expected future revenues.
The percentage of completion method of accounting is used for certain contracts
covering the construction and manufacture of engine test facilities and related
ground test equipment. Profits on contracts are recorded on the basis of the
percentage of completion of individual contracts, commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. That portion of the total contract price is accrued which
is allocable, on the basis of the Company's estimates of percentage of
completion, to contract expenditures and work performed. Indirect costs are
allocated to contract costs and inventories. As these contracts may extend over
one or more years, revisions in cost and profit estimates during the course of
the work are reflected in the accounting period in which the facts which require
the revision become known. Additionally, the entire amount of the estimated loss
is accrued at the time when it is determined that a loss on a contract is likely
to occur. The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenue recognized.
Goodwill
Goodwill is being amortized over 30 to 40 years using the straight-line method.
Accumulated amortization was $969,000 and $768,000 at December 31, 1998 and
1997, 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.
16
<PAGE>
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 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 Per Share
In 1997, Cade adopted Financial Accounting Standards Board SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the calculation of basic and diluted
earnings per share. Basic earnings per share excludes the dilutive effects of
stock options (588,000, 446,000 and 187,000 shares in 1998, 1997 and 1996,
respectively). Earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to SFAS No. 128 requirements.
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 largely
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 Management continually
reviews long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and long-lived assets and certain
identifiable intangibles to be disposed of for impairment. Management has
determined that there has been no material effect on Cade's consolidated
operating results or financial position.
Forward Exchange Contracts
The Company has entered into foreign currency contracts as a hedge against
foreign currency exposures for certain construction contracts. These foreign
currency contracts limit the Company's exposure to both favorable and
unfavorable currency fluctuations. Such contracts are designated as a hedge of a
firm commitment for construction contracts denominated in foreign currencies,
and any gains and losses are deferred and included in the measurement of the
construction contracts profitability.
Note 2. Acquisition
In October 1997, the Company acquired 100% of the outstanding shares of Central
Engineering Company and its related real estate for $8,174,000. The purchase
price consisted of 250,000 shares of Cade's common stock and approximately
$7,723,000 in cash. The cash portion of the purchase price was financed through
additional bank borrowings, pursuant to which the Company's existing credit
facility was increased from approximately $10.3 million to $19.8 million. In
addition, cash required at acquisition was reduced as a result of on-hand cash
balances at Cenco of $2,893,000. The purchase agreement contained a provision,
which has been extended pending mediation of certain claims, requiring the
escrow of $400,000 to satisfy certain indemnity obligations of the former Cenco
shareholders to the Company. Accordingly, the total purchase price amount may be
adjusted to reflect draws against the escrow. Cenco designs and manufactures
engine test cell facilities and related ground test equipment.
17
<PAGE>
The acquisition of Cenco has been accounted for using the purchase method of
accounting. The results of Cenco's operations have been included in the
Company's financial statements from the date of its acquisition.
The following unaudited pro-forma information sets forth the results of the
Company's operations as though the purchase of Cenco had been made at the
beginning of 1996.
1997 1996
-----------------------------------
Revenues $ 73,377,000 $ 52,117,000
Net Income 2,341,000 734,000
Basic income per share 0.11 0.03
Diluted Income per share 0.10 0.03
The above 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 periods indicated had the acquisition of Cenco been
consummated at the beginning of 1996.
Note 3. Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>
December 31
------------------------------------------
1998 1997
------------------------------------------
<S> <C> <C>
Uncompleted contracts consists of:
Costs incurred on uncompleted contracts $72,283,327 $ 58,740,285
Estimated earnings 6,377,140 5,684,123
------------ ------------
78,660,467 64,424,408
Less billings to date 84,337,101 67,996,874
------------ ------------
$ (5,676,634) $ (3,572,466)
============ ============
Included in the accompanying consolidated balance
sheets under the following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 3,923,693 $ 2,053,922
Billings in excess of costs and estimated earnings on
uncompleted contracts (9,600,327) (5,626,388)
------------ ------------
$ (5,676,634) $ (3,572,466)
============ ============
</TABLE>
Note 4. 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 consist of:
December 31
------------------------------------------
1998 1997
------------------------------------------
Finished goods $ 239,925 $ 882,378
Work-in-progress 8,176,672 6,344,798
Raw materials and supplies 8,671,324 6,571,791
------------- -------------
$ 17,087,921 $ 13,798,967
============= =============
18
<PAGE>
Note 5. Property, Plant, and Equipment
Property, plant and equipment are stated at cost and consist of:
<TABLE>
<CAPTION>
December 31
------------------------------------
1998 1997 Estimated Useful Life
------------------------------------
<S> <C> <C> <C>
Land and improvements $ 803,365 $ 737,365
Buildings 7,766,606 6,934,411 25-31.5 years
Machinery and equipment 13,489,504 11,430,507 3-12 years
Tooling 13,336,445 12,447,568 See below
----------- -----------
35,395,920 31,549,851
Accumulated depreciation and amortization 16,199,252 13,887,690
----------- -----------
$19,196,668 $17,662,161
=========== ===========
</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 6. Leases
Future minimum lease payments, by year and in the aggregate for noncancelable
operating leases with initial or remaining terms of one year or more, consisted
of the following at December 31, 1998:
1999 $ 596,813
2000 491,557
2001 495,853
2002 497,808
2003 458,903
Thereafter 648,598
-----------
Total minimum lease payments $ 3,189,532
===========
Rent expense for 1998, 1997, and 1996 totaled $521,000, $537,000, and $560,000,
respectively.
Note 7. Note Payable and Long-Term Debt
Note payable to bank of $150,000 at December 31, 1998 represents borrowing under
the Company's $9,000,000 unsecured line of credit, which bears interest at the
bank's announced prime interest rate less .50% (7.25% at December 31, 1998) and
is subject to annual renewal each year starting in April 1999. Also, at the
Company's option, increments of not less than $500,000 of the outstanding line
of credit may be placed at a Eurodollar-based rate plus 2.1% (none at December
31, 1998) for fixed periods not to exceed 90 days. Up to $3,500,000 ($257,000 at
December 31, 1998) of the line of credit may be committed to support letters of
credit and foreign exchange contracts, but at no time may the total of such
commitments and advances under the line of credit exceed $9,000,000. 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 exceeds two-to-one.
In October, 1997 the Company and the bank executed an amended and restated loan
agreement to increase its line of credit facility, facilitate the acquisition of
Cenco and refinance a portion of its then existing term debt. This amended and
restated agreement provides for interest rate reduction on all floating-rate
debt if certain future financial conditions are met.
The weighted-average interest rate on short-term borrowings for the year ended
December 31, 1998 was 7.6% and was 7.8% for 1997 and 1996.
19
<PAGE>
Long-term debt consists of:
<TABLE>
<CAPTION> December 31
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Term Note A payable to bank in quarterly
installments of $178,571, commencing January 1998 $ 2,857,143 $ 3,571,429
Term Note B payable to bank in quarterly principal
and interest installments of $118,624, commencing
January 1998 with unpaid balance due November 2002 2,871,197 4,000,000
Term Note C payable to bank in quarterly installments of
$270,833, commencing January 1998 2,166,667 3,250,000
Term Note D payable to bank in quarterly installments of
$100,000 commencing October 1998 900,000
Subordinated notes payable in four equal annual payments
beginning November 1996, interest at 6% payable semi-annually 661,260 1,430,520
Term note payable to bank in monthly installments
commencing February 1999 600,000
Note payable to bank in monthly installments to July 2005 514,649 542,209
Mortgage note payable to bank in monthly installments
commencing April 1997 to February 2001 with unpaid balance due
March 2002 330,000 370,000
Mortgage note payable to bank in monthly installments commencing
October 1998 to August 2003 with unpaid balance due September 2003 549,461
Capital lease obligations, interest rates ranging from
7.75% to 12.71%, due through March 2002 330,011 531,394
---------- -----------
11,780,388 13,695,552
Current maturities 3,467,066 3,012,998
---------- -----------
$ 8,313,322 $10,682,554
========== ===========
</TABLE>
20
<PAGE>
o Term Note A is secured by substantially all of the Company's and
subsidiaries' tangible assets and bears interest at 8.19%. Proceeds of Term
Note A were used to refinance existing term debt ($2,571,429) and partially
finance the 1997 acquisition of Cenco. This term debt is guaranteed by each
subsidiary. Under the amended and restated loan agreement, which covers
Term Notes A, B and C and the line of credit facility, the Company is
subject to restrictive covenants, conditions and default provisions which,
among others, require the maintenance of certain levels of tangible net
worth ($17.0 million at December 31, 1998), 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.
o To support the acquisition of Cenco, the Company executed Term Notes B and
C. This term debt is secured by substantially all of the Company's and
subsidiaries' tangible assets and is guaranteed by each subsidiary. Term
Note B, which bears interest at the bank's announced prime interest rate
less .5% (7.25% at December 31, 1998), matures November 2002 at which time
the remaining balance is payable. Term Note C bears interest at 8.09% until
November 1999, at which time the interest rate will float until maturity
(November 2000) at the bank's announced prime interest rate less .5%.
o Term Note D is secured by substantially all of the Company's and
subsidiaries tangible assets and bears interest at 7.88%. Proceeds of Term
Note D were used to refinance a portion of Term Note B.
o 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.
o The note payable to bank is secured by certain HAC real estate and
equipment items, bearing interest at 2.75% plus the prime lending rate, as
defined (10.5% at December 31, 1998).
o The mortgage notes payable to bank are secured by certain Auto-Air real
estate, bear interest at 8.45% and 7.76%, respectively, and are guaranteed
by the Company.
o The term note payable to bank is secured by the machinery and equipment of
the Company and its subsidiaries and is guaranteed by each subsidiary.
Aggregate annual maturities of long-term debt, including capital leases, for
periods subsequent to December 31, 1998 are approximately as follows:
1999--$3,467,000; 2000--$2,834,000; 2001--$1,395,000; 2002--$3,234,000;
2003--$548,000; and thereafter--$302,000.
Note 8. 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 $336,000 in 1998, $277,000 in 1997, and $198,000 in 1996.
Bargaining unit employees of one subsidiary participate in a union sponsored
multi-employer defined benefit plan. Company cost and contributions were
$247,000, $176,000 and $145,000 in 1998, 1997 and 1996, respectively. 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 significant.
Note 9. Shareholders' Equity
In August 1998, the Company's Board of Directors adopted a shareholder rights
plan and declared a rights dividend of one common stock purchase right for each
share of common stock then outstanding. The shareholder rights plan becomes
operative upon certain events involving the acquisition of 15% or more of the
Company's outstanding common stock by any person or group in a transaction not
approved by the Company's Board of Directors. Upon the occurrence of such an
event, each right, unless redeemed by the Board, entitles its holder (other than
the acquiring person or group whose rights are canceled) to purchase for $15 an
amount of common stock of the Company, or in certain circumstances the acquirer,
having a $30 market value. The rights have no voting power and expire on August
3, 2008.
21
<PAGE>
Note 10. Stock Options
Options activity during the years ended December 31, 1998, 1997, and 1996 is as
follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
Number Shares Price Average Exercise
of Shares Exercisable Per Share Price Per Share
--------- ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996 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
Options granted:
Under 1990 Plan 80,000 1.38 1.38
Directors 100,000 1.38 1.38
Options exercised (16,000) .67 - 2.19 1.30
Options canceled (6,000) .83 - 2.19 1.57
----------
Outstanding at December 31, 1997 1,017,000 866,000 .67 - 2.19 1.07
Options granted:
Under 1990 Plan 228,000 2.38 2.38
Directors 50,000 2.50 2.50
Options exercised (110,000) .67 - 1.70 .85
Options canceled (50,000) .72 .72
----------
Outstanding at December 31, 1998 1,135,000 867,600 .67 - 2.50 1.43
==========
</TABLE>
At the Company's Annual Meeting of Shareholders held in May 1998, the
shareholders approved the 1998 Omnibus Incentive Stock Plan ("1998 Plan"). The
1998 Plan replaces the Company's existing 1990 Nonqualified Stock Option Plan
("1990 Plan"), although options granted under that plan will remain in effect
until they have been exercised or have expired and such options shall be
administered in accordance with their terms and the plan under which they were
granted. The 1998 Plan provides for the issuance of up to 2 million shares of
the Company's common stock . Under the 1998 Plan, nonqualified stock options and
restricted stock (each, an "award") may be granted. Stock options ("options")
granted under the plan: are intended to represent non-qualified stock options;
carry an exercise price not less than fair market value of the common stock on
the date of the grant; expire no longer than ten years from date of grant, and
become exercisable based on the same timetable, unless otherwise provided in the
applicable stock option agreement, as applies to the 1990 Plan as described
below. Restricted stock granted under the plan: cannot be disposed of in any way
while restrictions apply; provide the recipient all the rights of a shareholder
of the Company with respect to the restricted shares; shall be forfeited, unless
otherwise provided in the applicable restricted stock agreement, upon
termination of employment, and, unless terms to the contrary are expressly
provided in a grant of restricted stock, will become unrestricted at a rate of
20% per year beginning one year from date of grant. Awards may be granted under
the 1998 Plan up to May 5, 2008. During 1998, no awards were granted under the
1998 Plan.
The 1990 Nonqualified Stock Option Plan provided 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. No
additional options will be granted under the 1990 Plan as a result of its
replacement by the 1998 Plan.
Members of the Board of Directors hold options to purchase 650,000 (300,000 held
under the Directors Plan) 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 February 2008.
22
<PAGE>
The outstanding stock options at December 31, 1998 have a weighted average
contractual life of 6.5 years and a weighted average exercise price of $1.43 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," the effect on the Company's net income and income
per share for 1998, 1997 and 1996 would not have been material.
The weighted average fair value of the stock options granted during 1998 and
1997 was $1.68 and $0.89, respectively. 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 1998
and 1997, respectively: no dividend yield in either year; risk free interest
rate of 4.75% and 5.75%; expected life of 8.8 years and 8.5 years, and expected
volatility of 61% and 50%.
Note 11. Income Taxes
Significant components of the Company's deferred tax assets (liabilities) as of
December 31, 1998 and 1997 are as follows:
1998 1997
--------------------------
Current
Uniform inventory capitalization $ 174,000 $ 117,000
Uniform tooling capitalization 102,000 73,000
Expense and loss accruals 1,708,000 764,000
Net Operating loss carryforwards 200,000 200,000
----------- -----------
Total current deferred tax assets $ 2,184,000 $ 1,154,000
=========== ===========
Long-term
Net Operating loss carryforwards $ 444,000 $ 557,000
Tax credit carryforwards 101,000 101,000
----------- -----------
Total long-term deferred tax assets 545,000 658,000
Valuation allowance (210,000) (410,000)
----------- -----------
Net long-term deferred tax assets 335,000 248,000
Tax over book depreciation (1,050,000) (1,088,000)
Other - net 49,000 52,000
----------- -----------
Total long-term deferred tax liabilities (1,001,000) (1,036,000)
----------- -----------
Net long-term deferred tax liabilities $ (666,000) $ (788,000)
=========== ===========
With the acquisition of Pollux in 1994, 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 for income taxes consisted of the following:
1998 1997 1996
---------------------------------------
Current (credit):
Federal $ 2,758,000 $ 1,123,000 $ 207,000
State and local 100,000 29,000 (21,000)
----------- ----------- ----------
Total current 2,858,000 1,152,000 186,000
Deferred (credit):
Federal (952,000) (115,000) 91,000
----------- ----------- ----------
$ 1,906,000 $ 1,037,000 $ 277,000
=========== =========== ==========
23
<PAGE>
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense is:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $2,090,000 $1,153,000 $ 454,000
State and local income taxes (net of federal tax benefit) 66,000 19,000 (14,000)
Non-deductible amortization 68,000 42,000 37,000
Lower effective income tax of foreign sales corporation (367,000) (171,000) (55,000)
Adjustment of estimated liabilities (24,000) (150,000)
Other 49,000 18,000 5,000
---------- ---------- ----------
$1,906,000 $1,037,000 $ 277,000
========== ========== ==========
</TABLE>
Note 12. Foreign Currency Contracts
During 1998 and 1997, the Company entered into forward currency contracts to
hedge certain firm commitments for the delivery of goods and services for four
construction contracts denominated in foreign currencies. The purpose of the
Company's foreign currency hedging activity is to protect it from the risk that
the eventual dollar cash flows resulting from the delivery of goods and services
to international customers will be adversely affected by changes in exchange
rates. At December 31, 1998 and 1997, the Company had forward currency
contracts, all with a maturity of less than one year, to exchange British
pounds, Thai bahts, Singapore dollars and German marks for U.S. dollars in the
amounts of $553,000 ($4,175,000 - 1997), $361,000 ($6,066,000 - 1997), $533,000
($3,383,000 - 1997) and $1,123,000, respectively. There were no significant
unrealized gains or losses related to foreign currency contracts at December 31,
1998.
Note 13. Business Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," established standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also established standards for related disclosures
about products and services, geographic areas, and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. Cade's chief operating decision maker is
its Chief Executive Officer. Cade's reportable operating segments ("product
segments") are Engine and Airframe Products and Services and Test Facilities and
Equipment. Engine and Airframe Products and Services consists of molded and
bonded composite jet engine components; metal fabricated and bonded composite
airframe components; and the repair and overhaul of commercial and military gas
turbine engine and airframe components as well as flight nacelle structures.
Engine and airframe products and services are sold worldwide to commercial and
military engine and airframe manufacturers, commercial airlines and government
agencies. Test Facilities and Equipment includes engine test facilities,
computer software and data acquisition systems, and related equipment used in
the ground testing and overhaul of major commercial jet engines and related
ground support equipment sold worldwide to engine manufacturers, commercial
airlines and overhaul facilities. Other includes certain unallocated assets,
goodwill amortization and corporate administration expenses not allocated to
other internal reporting entities.
The accounting policies of the product segments are the same as those described
in the summary of significant accounting policies except that the disaggregated
financial results for the product segments have been prepared using a management
approach, which is consistent with the basis and manner in which management
internally disaggregates financial information for the purposes of assisting in
making internal operating decisions. Generally, Cade evaluates performance based
on stand-alone product segment operating income. Net sales are attributed to
geographic areas based on the location of the customer.
24
<PAGE>
Financial information segregated by reportable product segments is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C>
Sales
Engine and airframe products and services $50,731,000 $42,601,000 $28,184,000
Test facilities and equipment 45,061,000 13,203,000 6,683,000
----------- ----------- -----------
Consolidated Sales $95,792,000 $55,804,000 $34,867,000
=========== =========== ===========
Operating income (loss)
Engine and airframe products and services $ 5,553,000 $ 3,662,000 $ 2,132,000
Test facilities and equipment 3,547,000 1,069,000 (192,000)
Other (2,005,000) (508,000) 125,000
----------- ----------- -----------
Consolidated Operating Income $ 7,095,000 $ 4,223,000 $ 2,065,000
=========== =========== ===========
Depreciation and Amortization
Engine and airframe products and services $ 2,125,000 $ 1,905,000 $ 1,803,000
Test facilities and equipment 1,096,000 858,000 703,000
Other 151,000 135,000 120,000
----------- ----------- -----------
Consolidated Depreciation and Amortization $ 3,372,000 $ 2,898,000 $ 2,626,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total Assets & Asset Additions December 31, 1998 December 31, 1997
Total Asset Total Asset
Assets Additions Assets Additions
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Engine and airframe products
and services $35,647,000 $2,813,000 $30,319,000 $1,483,000
Test facilities and equipment 23,562,000 1,382,000 21,932,000 1,166,000
Other 3,066,000 462,000 2,319,000 34,000
----------- ---------- ----------- ----------
Consolidated $62,275,000 $4,657,000 $54,570,000 $2,683,000
=========== ========== =========== ==========
</TABLE>
Information concerning principal geographic areas is set forth below:
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Sales by Geographic Areas
United States $ 50,736,000 $ 43,802,000 $ 28,843,000
Far East:
Thailand 15,008,000 614,000
Other Far East 10,126,000 2,246,000 2,228,000
Europe 7,189,000 5,925,000 323,000
Americas - other 4,799,000 2,430,000 2,233,000
Other Areas 934,000 787,000 1,240,000
------------ ------------ ------------
Consolidated $ 95,792,000 $ 55,804,000 $ 34,867,000
============ ============ ============
</TABLE>
Sales to Pratt & Whitney, Rolls Royce, General Electric and Boeing/McDonnell
Douglas, with which the Company has long-standing customer relations, amounted
to 18%, 18%, 13% and 4% of 1998 consolidated sales, respectively (25%, 3%, 5%
and 11% in 1997, 25%, 0%, 4% and 10% in 1996). Export sales by the Company's
domestic subsidiaries were $38,056,000, $12,002,000, and $6,024,000, for the
years 1998, 1997, and 1996, respectively and accounts receivable relating to
foreign revenues as of December 31, 1998 and 1997 were $6,926,000 and
$7,638,000, respectively.
25
<PAGE>
Note 14. Contingencies
The Company provides multi-year warranty periods on certain engine test
products. To provide adequate recognition of potential warranty liabilities, the
Company has established reserves to cover issues related to warranty and other
costs associated with performance guarantees.
The Company has remedial work-in-process at a certain engine test facility. This
remedial work is expected to be completed by mid 1999. The Company estimates the
total cost of this remedial work to range from $6 million to $8 million. The
Company believes that these costs are for the most part covered under a
combination of potential insurance proceeds, and by warranty and other reserves
established by the Company.
Note 15. Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
1998
Three Months Ended
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $21,913,348 $24,098,408 $25,501,933 $24,278,728 $95,792,417
Cost of Sales 16,637,336 18,752,711 20,057,461 19,031,085 74,478,593
Net Income 918,437 1,079,687 1,112,966 1,130,763 4,241,853
Net income per common share
Basic 0.04 0.05 0.05 0.05 0.19
Diluted 0.04 0.05 0.05 0.05 0.19
Weighted average common
shares outstanding
Basic 21,980,000 22,035,000 21,978,000 21,835,000 21,957,000
Diluted 22,536,000 22,745,000 22,572,000 22,328,000 22,545,000
1997
Three Months Ended
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------------
Sales $12,355,557 $12,952,885 $13,477,498 $17,017,821 $55,803,761
Cost of Sales 9,376,113 9,826,307 10,602,610 13,675,888 43,480,918
Net Income 471,443 537,943 626,585 717,304 2,353,275
Net income per common share*
Basic 0.02 0.02 0.03 0.03 0.11**
Diluted 0.02 0.02 0.03 0.03 0.11**
Weighted average common
shares outstanding
Basic 21,710,000 21,683,000 21,658,000 21,829,000 21,720,000
Diluted 21,999,000 22,027,000 22,172,000 22,463,000 22,166,000
</TABLE>
* The first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
** The sum of the quarterly net income per share amounts does not equal the
annual amount reported. Net income per share is computed independently for
each quarter and the full year and is based on respective weighted average
common shares outstanding.
26
<PAGE>
Corporate Information
Corporate Headquarters General Counsel
2365 Woodlake Drive - Suite 120 Quarles & Brady
Okemos, MI 48864 411 E. Wisconsin Avenue
Phone: (517) 347-1333 Milwaukee, WI 53202-4497
Fax: (517) 347-6185
Corporate Auditors
Deloitte & Touche LLP
Suite 800
120 N. Washington Square
Lansing, MI 48933-1681
Board of Directors
Molly F. Cade Conrad G. Goodkind William T. Gross Richard A. Lund
Educator Partner Consultant President
Quarles & Brady and Chief Executive
Officer
Terrell L. Ruhlman John W. Sandford Joseph R. O'Gorman
Consultant Chairman of the Board Former Chairman, President
and Chief Executive Officer
Reno Air
Corporate Officers
John W. Sandford Richard A. Lund Edward B. Stephens
Chairman of the Board President Vice President, Chief Financial
and Chief Executive Officer, Treasurer and
Officer Assistant Secretary
Richard A. Joseph Conrad G. Goodkind
Vice President Secretary
Subsidiaries
Cade AutoAir, Inc. Cade Composites, Inc.
5640 Enterprise Drive 4075 Ruffin Road
Lansing, MI 48911 San Diego, CA 92123
Phone: (517) 393-4040 Phone: (619) 571-5220
John F. Scanlon, President Robert C. Spring, President
Cade International, Inc. Cade HAC, Inc.
2365 Woodlake Drive - Suite 120 537 Camden Drive
Okemos, MI 48864 Grand Prairie, TX 75051
Phone: (517) 347-1333 Phone: (972) 263-4387
Richard A. Lund, President John E. Haran, President
Cade Europe, Inc. Cade Cenco, Inc.
Lomeshaye Business Village 2930 Anthony Lane
Nelson, Lancashire, Minneapolis, MN 55418
BB9 7DR Phone: (612) 781-6557
England John H. Nicholson, President
Phone: (01282) 617788
Peter J. Clarke, Director European Sales
Transfer Agent and Registrar
Correspondence and questions concerning shareholder accounts or transfer of
stock should be addressed to:
Firstar Trust Company
1555 N. RiverCenter Drive
Milwaukee, WI 53212
Phone: (414) 905-5000
Financial and Other Information
Cade's Annual
Meeting of Shareholders will be held on Tuesday, May 4, 1999, in Lansing,
Michigan.
Cade Industries issues its news releases through PR Newswire. Faxed copies of
news 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, or you may visit
Cade's web site at http://www.cade-industries.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.
2365 Woodlake Drive - Suite 120
Okemos, MI 48864
Phone: (517) 347-1333
Fax: (517) 347-6185
E-mail address: [email protected]
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)
<PAGE>
[LOGO OF CADE INDUSTRIES, INC.]
Woodlake Drive - Suite 120
Okemos, MI 48864
Phone: (517) 347-1333
Fax: (517) 347-6185
www.cade-industries.com.doc
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-37911, 333-03033 and 333-61331 of Cade Industries, Inc. on Form S-8 of our
report dated February 9, 1999, appearing in the Annual Report to Shareholders
and incorporated by reference in the Annual Report on Form 10-K/A of Cade
Industries, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
April 21, 1999
Lansing, Michigan
