-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wv6K3RG5b7B7JWXUfhiAk7JYL8SCq69LejTPZ8YzK1L1kPRpUiQ05bB0/42CF/Wf 9yRV1SF22hDfGGK6oc6Hfw== 0000950153-97-000298.txt : 19970401 0000950153-97-000298.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950153-97-000298 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADE INDUSTRIES INC CENTRAL INDEX KEY: 0000356211 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 391371038 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12808 FILM NUMBER: 97568358 BUSINESS ADDRESS: STREET 1: 5640 ENTERPRISE DR CITY: LANSING STATE: MI ZIP: 48911 BUSINESS PHONE: 5173941333 MAIL ADDRESS: STREET 2: 5640 ENTERPRISE DRIVE CITY: LANSING STATE: MI ZIP: 48911 10-K405 1 FORM 10-K FOR CADE INDUSTRIES 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number: 0-12808 Cade Industries, Inc. (Exact name of registrant as specified in its charter) Wisconsin 39-1371038 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 5640 Enterprise Drive, Lansing, Michigan 48911 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: 517-394-1333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 24, 1997, 21,737,604 shares of Common Stock were outstanding, and the aggregate market value of the Common Stock (based upon the $1.50 closing price on that date in the Nasdaq National Market) held by nonaffiliates (excludes shares reported as beneficially owned by directors and executive officers which exclusion does not constitute an admission as to affiliate status) was approximately $24,071,804. DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which Portions of Document Document are Incorporated -------- ------------------------- Annual Report to Shareholders for the fiscal year ended December 31, 1996 Part II Proxy Statement for 1997 Annual Meeting of Shareholders Part III
2 PART I ITEM 1. BUSINESS. General Cade Industries, Inc. (the "Company" or "Cade") conducts its operations through three operating subsidiaries, Auto-Air Composites, Inc. ("Auto-Air"), Cade Composites, Inc. ("CCI") and H.A.C. Corporation ("HAC"). Cade was incorporated in 1981 and initially was engaged in precision machining of cast parts for the aircraft industry through its former Precision Machining Division located in Marinette, Wisconsin, which was sold in June 1989. The Company acquired Auto-Air in 1984 and the business that now is conducted by CCI in 1988. On November 30, 1994, the Company acquired Pollux Corporation which, through its wholly-owned HAC subsidiary, manufactures and overhauls bonded structures and composite parts for military and commercial aircraft. The Company has included the acquisition in its consolidated financial statements since December 1994. Products Cade is engaged in the design, manufacture and repair and overhaul of high technology composite components for the aerospace, air transport and specialty industries. Composite materials are physical combinations of two or more constituents. One of the materials, typically a fiber or particle such as epoxy glass, graphite, polyamide glass or epoxy kevlar, is placed or dispersed within the other constituent, called the matrix. The composite material formed by the combination of constituents must have attributes which are superior to either one of the constituent materials. Composite materials may be classified as structural or non-structural dependent upon their application. These materials are molded and cured at high temperatures under pressure or vacuum. The high strength and low weight of composite materials makes them especially well suited for aerospace and other applications where weight is a critical factor. Cade's primary products include molded and bonded composite jet engine components consisting of engine inlets, acoustical liners, fairings, auxiliary power unit enclosures and engine cases ("Gas Turbine Products"); metal fabricated and bonded composite airframe components consisting of various control surface products, access doors, wing tips and interior structures ("Airframe Products"); the repair and overhaul of commercial and military airframe components, commercial gas turbine engine components and flight nacelle structures ("Repair and Overhaul Services"); and test nacelles used in the ground testing and overhaul of commercial jet engines and related ground support equipment ("Test Equipment"). These products are sold worldwide through the Company's internal sales force and independent sales representatives to major engine equipment manufacturers, airlines and overhaul facilities. For 1996, 1995 and 1994, sales of Gas Turbine Products, Airframe Products, Repair and Overhaul Services and Test Equipment as a percentage of total sales were as follows: 1 3
Percentage of Total Net Sales ----------------------------- Year Ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Gas Turbine Products 29.4% 25.7% 35.8% Airframe Products 20.9% 24.8% 11.1% Repair and Overhaul Services 27.2% 24.2% 7.2% Test Equipment 19.2% 20.7% 35.3% ----- ----- ----- Total 96.7% 95.4% 89.4% ===== ===== =====
Through Auto-Air and HAC, Cade operates repair stations under Federal Aviation Administration ("FAA") licenses. The repair stations are authorized to repair and overhaul certain gas turbine engine products and other components, sheet metal and composite flight control surfaces, skin panels, bonded honeycomb panels, cargo doors and engine cowls. In addition to FAA certification, Auto-Air and HAC have also been certified by the European Joint Airworthiness Authority ("JAA") to repair specific aircraft parts on certain types of aircraft subject to JAA jurisdiction. Although some nations require approval from their own aviation authorities before Auto-Air and HAC are authorized to repair parts on aircraft subject to their jurisdiction, FAA and JAA certification enable Auto-Air and HAC to repair parts on aircraft subject to the jurisdiction of most foreign countries. HAC has also received repair approval from the Civil Aviation Authority of China. Raw Materials The principal raw materials used in Cade's manufacturing processes consist of epoxy glass, polyamide glass, epoxy kevlar, graphite BMI and aluminum honeycomb. Although none of these materials currently is in short supply, the Company has experienced increased order lead times in certain cases during the past year, which management attributes to the desire of suppliers to minimize inventory as well as the increased overall demand. These raw materials are purchased from multiple suppliers located in the United States. International sources are also available. Certain customers require that purchases be made from one or more approved suppliers or that the Company certify the material specifications in its in-house laboratories. Cade has never experienced a shortage of raw materials as a result of such supplier or material specifications restrictions. Patents and Trademarks Cade currently holds no material patents or registered trademarks, tradenames or similar intellectual property, although the Company has applied for certain patents in the area of high temperature composites applications and expects to seek patent protection in the future as appropriate to preserve proprietary developments. The Company believes that the nature of its business presently does not require the development of patentable products or registered tradenames or trademarks to maintain market position. 2 4 Marketing and Competition The Company's products are marketed primarily through its internal sales force and independent sales representatives. The majority of Cade's sales are made through individual purchase orders, as well as long-term agreements, which are cancelable by customers, subject to cancellation charges to cover certain manufacturing costs and related expenses. In addition, approximately 10.9% of Cade's total net sales during fiscal 1996 was attributable to government contracts which are subject to termination or renegotiation at the option of the U.S. Government. Historically, terminations and renegotiations of government contracts have not materially impacted the Company's earnings. During the fiscal years ended December 31, 1996 and 1995, sales to the Pratt & Whitney unit of United Technologies Corporation ("Pratt & Whitney") accounted for approximately 24.6% and 19.7% of total net sales, respectively. For the fiscal years ended December 31, 1996, 1995 and 1994, the Company's export sales as a percentage of total net sales were 17.3%, 23.1% and 18.2%, respectively. Cade competes in its manufacturing operations primarily on the basis of its design capability, precise quality standards, prompt delivery and price. Management believes that certain of the Company's competitors have adequate expertise in the use of composites to meet customers' quality standards and, as to such competitors, Cade competes primarily on the basis of price. Some of the Company's manufacturing competitors, including customer-affiliated manufacturing units, are larger and have substantially greater resources than Cade. Efforts by the industry's original equipment manufacturers ("OEMs") to reduce the number of their suppliers have led to a consolidation among suppliers. The Company believes that it will benefit from the consolidation and from increased OEM outsourcing. Cade believes it is one of only two manufacturers licensed to design and build test nacelle and related ground support equipment for large commercial jet engines. In addition, Cade believes it is one of only a limited number of suppliers for certain composite jet engine and air frame components whose manufacturing processes have been approved by the relevant engine manufacturer or other prime contractor. Such approval certifies that the Company has been audited by the prime contractor and meets or exceeds such contractor's process, quality control and material specifications. Cade competes in its repair and overhaul operations primarily on the basis of its expertise and ability to provide short turn times within the industry's stringent quality specifications and customers' pricing requirements. The Company's competitors for repair and overhaul services include substantially all commercial airlines and many large and small independent suppliers, many of which are larger and have substantially greater resources than Cade. The market for composite engine and airframe component overhaul and repair is fragmented with many small participants and several large, independent participants, the largest of which is the NORDAM Group. 3 5 Backlog The Company's backlog includes both "firm" orders supported by customer purchase orders with fixed delivery dates and "blanket" purchase orders against which customers issue production releases covering relatively short time periods ("LTAs"). At December 31, 1996, the Company's backlog of orders was $34.8 million ($22.8 million at December 31, 1995), which included $14.9 million ($10.0 million in 1995) of scheduled orders under LTAs. Of the total year-end backlog, the Company expects to ship $30.7 million in 1997. The Company's order backlog is subject to customer rights of cancellation or rescheduling, although in certain cases the Company would be entitled to receive termination payments. Overhaul and repair services typically involve short lead times and thus are underrepresented in backlog numbers. Employees Cade has approximately 363 employees, of which 20 are employed in design and design-related services; 242 are employed in manufacturing, repair and quality control; and 101 are employed in administration (management, sales and clerical). Approximately 26.2% of these employees are represented by a union. ITEM 2. PROPERTIES. The Company's owned and leased facilities are designed and constructed for industrial purposes and are located in industrial districts. Each facility is well maintained, suitable for the Company's purposes, and effectively utilized. The table below sets forth certain information about the Company's principal facilities.
Square Owned Principal Address Feet or Leased Description Activity - ------- ---- --------- ----------- -------- 5640 Enterprise Drive 54,000 Owned 1 and 2 story Composite Lansing, MI brick building manufacturing in industrial park 537 Camden Drive 53,000 Owned 1 and 2 story Manufacturing; Grand Prairie, Texas metal building repair and overhaul in industrial area 4075 Ruffin Road 44,000 Leased (1) 1 story reinforced Manufacturing San Diego, CA concrete building in industrial area 5720 Enterprise Drive 27,500 Owned 1 story brick Composite Lansing, MI building in manufacturing industrial park
- --------------------------- (1) Lease expires January 31, 1999. 4 6 ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any material pending legal proceedings other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of Cade are elected by the Board of Directors to serve until their successors are elected and qualified. The following table sets forth certain information about Cade's executive officers:
NAME (AGE) BUSINESS EXPERIENCE Terrell L. Ruhlman (70) Chairman of the Board and Chief Executive Officer of the Company since April 1990; Member of the Company's Audit and Strategic Planning Committees; Chairman of the Executive Committee of the Company from May 1989 to April 1990; consultant to and director of Sonitrol Corporation (manufacturer of electronic security systems) from 1983 to 1992; director of EI Environmental Engineering Concepts Ltd. (manufacturer of industrial misting systems). Richard A. Lund (45) President and Chief Operating Officer of the Company since May 1990; Director of the Company since January 1991; Member of the Company's Strategic Planning Committee; Chief Executive Officer of Auto-Air; President of Auto-Air from 1988 through 1994. Edward B. Stephens (49) Vice President, Treasurer, Assistant Secretary and Chief Financial Officer of the Company since July 1989; Member of the Company's Strategic Planning Committee.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information in response to this item is incorporated herein by reference to the information under the caption "Selected Financial Highlights - Market Prices" in the Company's 1996 Annual Report to Shareholders. 5 7 ITEM 6. SELECTED FINANCIAL DATA. Information in response to this item is incorporated herein by reference to the information under the caption "Selected Financial Highlights" in the Company's 1996 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. Information in response to this item is incorporated herein by reference to the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1996 Annual Report to Shareholders. The Company may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and its reports to shareholders. Forward-looking statements are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. In connection with these "safe harbor" provisions, the Company identifies important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by or on behalf of the Company. Any such statement is qualified by reference to the following cautionary statements. Forward-looking information regarding the Company is subject to risks and uncertainties that may significantly impact expected results. The Company's outlook is based largely on its interpretation of current order levels and trends and assumptions as to trends in the air transport and aircraft industries. Certain of the Company's backlog of orders are subject to cancellation, reduction or extended delivery. The air transport and aircraft industries have historically been subject to significant cyclical fluctuations and are influenced by factors such as the general state of the economy, fuel prices, governmental regulation, competition, and the level of military spending. In addition, the Company's results are subject to pricing competition, the willingness of the airlines and aircraft manufacturers to out source work for their composite components and repairs, foreign currency fluctuations with respect of international sales, and the Company's success in the development, manufacture and marketing of composites products for other industries and uses. Developments in any of these areas, which are more fully described elsewhere in Item 1 -- Business and Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 4 through 6 of the Company's 1996 Annual Report to Shareholders, each of which is incorporated into this section by reference, could cause the Company's results to differ materially from results that have been or may be projected by or on behalf of the Company. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company. 6 8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information in response to this item is incorporated herein by reference to "Independent Auditors' Report," "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Changes in Shareholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's 1996 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. (The Company need not provide the disclosure called for by this Item 9 because it has been previously reported, as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.) PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information in response to this item is incorporated herein by reference to (i) the information under the caption "Election of Directors" in the Registrant's Proxy Statement for its 1997 Annual Meeting of Shareholders ("Cade 1997 Proxy Statement") and (ii) the information under the caption "Executive Officers of the Registrant" in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION. Information in response to this item is incorporated herein by reference to the information under the caption "Executive Compensation" in the Cade 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information in response to this item is incorporated herein by reference to the information under the caption "Principal Security Holders and Security Holdings of Management" in the Cade 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information in response to this item is incorporated herein by reference to the information under the caption "Election of Directors - Compensation of Directors" in the Cade 1997 Proxy Statement. 7 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed: 1. Financial statements. The financial statements required to be filed by Item 8 hereof have been incorporated by reference to the Registrant's 1996 Annual Report to Shareholders and consist of the following: Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Changes in Shareholders' Equity for the three year period ended December 31, 1996. Notes to Consolidated Financial Statements. Independent Auditors' Report. 2. Financial statement schedules. The following financial statement schedules are included in Item 14(d) hereof: Independent Auditors' Report on Consolidated Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts Report of Predecessor Accountant filed pursuant to Note 1 of Rule 14a-3(b)(1). All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Management Contract and Compensatory Plans and Arrangements. All management contracts and compensatory plans and arrangements are identified by an asterisk after the exhibit number on the attached Exhibit Index. 8 10 (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed during the last quarter of 1996. (c) Exhibits: See the Exhibit Index immediately following the signature page of this report, which Index is incorporated herein by this reference. In addition, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant hereby agrees to furnish to the Commission upon request any instrument with respect to long-term debt pursuant to which the total amount of long-term debt authorized thereunder does not exceed 10% of the Registrant's consolidated total assets. (d) Financial Statement Schedules: 9 11 [DELOITTE & TOUCHE LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT Shareholders and Board of Directors Cade Industries, Inc. and Subsidiaries Lansing, Michigan We have audited the consolidated financial statements of Cade Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and for each of the years then ended, and have issued our report thereon dated February 19, 1997. The consolidated financial statements of the Company for the year ended December 31, 1994 were audited by other auditors whose report, dated February 13, 1995 expressed an unqualified opinion on those statements. Such financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the consolidated financial statement schedule of Cade Industries, Inc. and Subsidiaries, listed in Item 14 as of and for the two years ended December 31, 1996. The consolidated financial statement schedule as of and for the year ended December 31, 1994 was audited by other auditors whose report, dated February 13, 1995, expressed an unqualified opinion on the schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - ---------------------------- February 19, 1997 Lansing, Michigan 10 12 CADE INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - --------------------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------------------ Balance at Charged to Costs Charged to Balance Beginning of and Expenses Other Accounts- Deductions- at End DESCRIPTION Period Describe Describe of Period - --------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1996: Reserves and allowances deducted from asset accounts: Valuation allowances: Inventory $ 947,888 $ 146,860(1) $ 801,028 Deferred income taxes 640,000 30,000(2) 610,000 Other 154,766 $ 32,522 187,288 Amortization allowances: Goodwill 536,219 108,851 645,070 Other 300,206 33,592 333,798 ---------- ---------- ---------- ---------- $2,579,079 $ 174,965 $ 176,860 $2,577,184 ========== ========== ========== ========== Year ended December 31, 1995: Reserves and allowances deducted from asset accounts: Valuation allowances: Inventory $ 461,627 $ 56,261 $ 430,000(3) $ 947,888 Deferred income taxes 536,000 104,000(3) 640,000 Other 135,619 24,466 $ 5,319(4) 154,766 Amortization allowances: Goodwill 444,898 91,321 536,219 Other 253,588 46,618 300,206 ---------- ---------- ---------- ---------- ---------- $1,831,732 $ 218,666 $ 534,000 $ 5,319 $2,579,079 ========== ========== ========== ========== ========== Year ended December 31, 1994: Reserves and allowances deducted from asset accounts: Valuation allowances: Inventory $ 13,678 $ 447,949(3) $ 461,627 Deferred income taxes 536,000(3) 536,000 Other $ 10,619 125,000(3) 135,619 Amortization allowances: Goodwill 400,015 44,883 444,898 Other 193,550 60,038 253,588 ---------- ---------- ---------- ---------- $ 604,184 $ 118,599 $1,108,949 $1,831,732 ========== ========== ========== ==========
(1) Sale of reserved inventory. (2) Adjustments to valuation allowance from Internal Revenue Service review. (3) Valuation allowances recorded via purchase accounting for acquisition of Pollux Corporation. (4) Uncollectible accounts written-off, net of recoveries. 11 13 ERNST & YOUNG LLP Suite 1700 Phone 313 596 7100 500 Woodward Avenue Detroit, Michigan 48226-3426 Report of Independent Auditors Shareholders and Board of Directors Cade Industries, Inc. and Subsidiaries We have audited the accompanying consolidated statements of operations, changes in shareholders' equity, and cash flows of Cade Industries, Inc. and Subsidiaries for the year ended December 31, 1994. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and cash flows of Cade Industries, Inc. and Subsidiaries for the year ended December 31, 1994. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements referred to above taken as a whole, presents fairly in all material respects, the information set forth therein for the year ended December 31, 1994. /s/ Ernst & Young LLP February 13, 1995 12 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CADE INDUSTRIES, INC.
By /s/ Terrell L. Ruhlman Dated March 27 , 1997 ---------------------------------- ------------------ Terrell L. Ruhlman, Chairman of the Board, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Molly F. Cade Director March 27, 1997 - -------------------------------- Molly F. Cade /s/ Conrad G. Goodkind Director March 27, 1997 - ------------------------------- Conrad G. Goodkind /s/ William T. Gross Director March 27, 1997 - ------------------------------- William T. Gross /s/ Richard A. Lund President, Chief Operating Officer March 27, 1997 - ------------------------ and Director Richard A. Lund /s/ Terrell L. Ruhlman Chairman of the Board and March 27, 1997 - ------------------------------- Chief Executive Officer Terrell L. Ruhlman (principal executive officer) /s/ John W. Sandford Director March 27, 1997 - ------------------------------- John W. Sandford /s/ Steven M. Tadler Director March 27, 1997 - ------------------------------- Steven M. Tadler /s/ Edward B. Stephens Vice President, Treasurer March 27, 1997 - ------------------------------- and Chief Financial Officer Edward B. Stephens (principal financial and accounting officer)
13 15 CADE INDUSTRIES, INC. Exhibit Index to Report on Form 10-K for the fiscal year ended December 31, 1996
Exhibit Incorporated herein Filed No. Description by reference to: Herewith - ------- ----------- -------------------- -------- 2.1 Agreement and Plan of Merger by and Exhibit 2.1 to the Registrant's Form S-4 among Cade Industries, Inc., Pollux Registration Statement dated October Acquisition Corporation, Pollux 28, 1994, Registration No. 33-83130 Corporation and H.A.C. Corporation ("1994 S-4") dated as of May 24, 1994 ("Agreement and Plan of Merger") 2.2 Amendment No. 1 to Agreement and Exhibit 2.2 to Registrant's 1994 S-4 Plan of Merger 3.1 Articles of Incorporation, as amended Exhibit 4.1 to the Registrant's Form S-8 Registration Statement dated November 10, 10, 1990, Registration No. 33-37911 ("1990 S-8") 3.2 By-Laws, as amended Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 4.1 Articles IV, V and VIII of the Exhibit 4.1 to Registrant's 1990 S-8 Registrant's Articles of Incorporation, as amended 4.2 Amended and Restated Revolving Credit Exhibit 4.2 to Registrant's Annual Report on and Term Loan Agreement dated as of Form 10-K for the year ended December 31, January 30, 1995, and First Amendment 1994 ("1994 10-K") thereto dated March 3, 1995 4.3 Amendment No. 2 to Amended and Restated Exhibit 4.3 to Registrant's Form 10-K Revolving Credit and Term Loan Agreement for the year ended December 31, 1995 dated as of June 1, 1995 by and between ("1995 10-K") the Registrant and Comerica Bank 4.4 Third Amendment to Amended and Restated Exhibit 4.1 to Registrant's Revolving Credit and Term Loan Agreement Form 10-Q for the quarter ended dated as of September 29, 1995 by and September 30, 1995 between the Registrant and Comerica Bank 4.5 Fourth Amendment to Amended and Exhibit 4.1 to Registrant's Form 10-Q Restated Revolving Credit and Term for the quarter ended June 30, 1996 Loan Agreement dated September 29, 1995 by and between Cade Industries, Inc., and Comerica Bank 4.6 Fifth Amendment to Amended and X Restated Revolving Credit and Term Loan Agreement dated February 19, 1997
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Exhibit Incorporated herein Filed No. Description by reference to: Herewith - ------- ----------- -------------------- -------- by and between Cade Industries, Inc., and Comerica Bank 4.7 Loan Agreement dated as of Exhibit 4.2 to Registrant's September 1, 1990 between Form 10-Q for the quarter ended the Economic Development September 30, 1990 Corporation of the City of Lansing and Auto-Air Composites, Inc. 4.8 Reimbursement Agreement Exhibit 4.2 to Registrant's dated as of September 1, 1990 Form 10-Q for the quarter ended between Auto-Air Composites, Inc. September 30, 1990 and Comerica Bank, as successor to Manufacturers National Bank of Detroit 4.9 Amended and Restated Security Exhibit 4.5 to Registrant's 1994 10-K Agreement dated as of January 30, 1995, between Comerica Bank and the Registrant 4.10 Amended and Restated Guaranty Exhibit 4.6 to Registrant's 1994 10-K dated as of January 30, 1995, between Comerica Bank and Auto-Air Composites, Inc. 4.11 Amended and Restated Security Exhibit 4.7 to Registrant's 1994 10-K Agreement dated as of January 30, 1995, between Comerica Bank and Auto-Air Composites, Inc. 4.12 Amended and Restated Guaranty Exhibit 4.8 to Registrant's 1994 10-K dated as of January 30, 1995, between Comerica Bank and Cade Composites, Inc. 4.13 Amended and Restated Security Exhibit 4.9 to Registrant's 1994 10-K Agreement dated as of January 30, 1995, between Comerica Bank and Cade Composites, Inc. 4.14 Guaranty dated as of Exhibit 4.10 to Registrant's 1994 10-K January 30, 1995, between Comerica Bank and Cade Commercial Composites, Inc. 4.15 Guaranty dated as of Exhibit 4.11 to Registrant's 1994 10-K December 1, 1994, between Comerica Bank and Pollux Acquisition Corporation
15 17
Exhibit Incorporated herein Filed No. Description by reference to: Herewith - ------- ----------- -------------------- -------- 4.16 Guaranty dated as of Exhibit 4.12 to Registrant's 1994 10-K December 1, 1994, between Comerica Bank and H.A.C. Corporation 4.17 Form of 6% Subordinated Notes issued Exhibit 2.1 to Registrant's 1994 in the initial aggregate principal S-4 amount of $2,861,040 10.1 I.A.M. National Pension Benefit Exhibit 19.4 to Registrant's Fund, benefit plan B standard Form 10-Q for the quarter ended participation agreement June 30, 1986 10.2 Sublease dated March 29, 1991 and First Exhibit 10.15 to Registrant's Annual Report Amendment to Sublease dated April 24, on Form 10-K for the year ended December 1991 between Cade Composites, Inc. and 31, 1991 ("1991 10-K") Scientific-Atlanta, Inc. for premises located at 4075 Ruffin Road, San Diego, CA 10.3* Employee Agreement dated January Exhibit 10.14 to Registrant's Form 10-Q 29, 1991 with Edward B. Stephens for the quarter ended March 31, 1991 10.4* Nonstatutory Stock Option Agreement Exhibit 10.7 to Registrant's 1994 10-K for the Benefit of Terrell L. Ruhlman 10.5* Amendment to Employment Agreement Exhibit 10.7 to Registrant's 1995 10-K between Richard Gribbins and the Registrant dated May 11, 1995 10.6* Employment Agreement between Richard Exhibit 10.8 to Registrant's 1995 10-K A. Lund and the Registrant dated May 2, 1995 10.7 Collective Bargaining Agreement effective Exhibit 10.10 to Registrant's 1995 10-K March 15, 1995 between Auto-Air Composites, Inc. and Lodge No. 2184, International Association of Machinists 10.8* Cade Industries, Inc. 1990 Exhibit 10.10 to Registrant's 1989 10-K Nonqualified Stock Option Plan ("1990 Stock Option Plan") 10.9* Amendment No. 1 to Exhibit 10.18 to Registrant's 1991 10-K 1990 Stock Option Plan 10.10* Cade Industries, Inc. 1994 Stock Option Exhibit 10.13 to Registrant's 1994 10-K Plan ("Director Stock Option Plan") 10.11* Form of Option Agreement under Exhibit 10.14 to Registrant's 1994 10-K Director Stock Option Plan
16 18
Exhibit Incorporated herein Filed No. Description by reference to: Herewith - ------- ----------- -------------------- -------- 13.1 Portions of 1996 Annual Report to Shareholders X 21.1 Subsidiaries of the Registrant Exhibit 21.1 to Registrant's 1995 10-K 23.1 Consent of Ernst & Young LLP to X incorporation by reference 23.2 Consent of Deloitte & Touche LLP to X incorporation by reference 27 Financial Data Schedule X
* Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 17 EX-4.6 2 FIFTH AMENDMENT TO AMENDED CREDIT AGREEMENT 1 EXHIBIT 4.6 FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This Amendment made and delivered as of February 19, 1997, by and between CADE INDUSTRIES, INC. ("Borrower") and COMERICA BANK ("Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank are parties to that certain Amended and Restated Revolving Credit and Term Loan Agreement dated January 30, 1995, as amended as of March 3, 1995, June 1, 1995, September 29, 1995 and June 20, 1996 (the "Agreement"); and WHEREAS, the Bank and the Borrower desire to amend the Agreement as set forth below; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree as follows; 1. Section 4.12 is replaced in its entirety by the following: Maintain Current Ratio. On consolidated basis maintain, at all times a ratio of current assets to current liabilities, determined in accordance with GAAP, of not less than 1.75 to 1.00. 2. Borrower is responsible for all costs incurred by Bank, including reasonable attorney fees, with regard to the preparation and execution of this Amendment. 3. The execution of this Amendment shall not be, nor deemed to be, a waiver of any Default or Event of Default. 4. All the terms used herein which are defined in the Agreement shall have the same meanings as used therein, unless the context clearly requires otherwise. 5. Borrower hereby waives, discharges and forever releases Bank, Bank's employees, officers, directors, attorneys, stockholders and successors and assigns, from and of any and all claims, causes of action, allegations or assertions that Borrower has or may have had at any time up through and including the date of this Amendment, against any or all of the foregoing, regardless of whether any such claims, causes of action, allegations or assertions are known to borrower or whether any such claims, causes of action, allegations or assertions arose as a result of Bank's actions or omissions in connection with the Agreement, or any amendments, extensions or modifications thereto, or Bank's administration of debt evidenced by the Agreement or otherwise. 6. Borrower expressly acknowledges and agrees that except as expressly amended herein, the Agreement, as amended, shall remain in full force and effect and is hereby ratified, confirmed and restated. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year first set forth above. CADE INDUSTRIES, INC. By /S/ Edward B. Stephens ------------------------- Its Vice President ------------------------ COMERICA BANK By /S/ Lori M. Fisher ------------------------- Its Vice President ------------------------ EX-13.1 3 PORTIONS OF 1996 ANNUAL 1 EXHIBIT 13.1 2 [CADE LOGO]--------------------------------------------------------------------- SELECTED FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 1994(1) 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) SELECTED OPERATING DATA Sales $34,867 $ 30,445 $20,461 $ 16,184 $26,287 Income (loss) before cumulative effect of change in method of accounting for income taxes 1,058 (382) 159 (869)(2) 1,944 Income (loss) per share before cumulative effect of accounting change 0.05 (0.02) 0.01 (0.05)(2) 0.12 Net income (loss) 1,058 (382) 159 (689) 1,944 Net income (loss) per share 0.05 (0.02) 0.01 (0.04) 0.12 SELECTED BALANCE SHEET DATA Current assets 17,147 13,653 14,534 13,183 12,713 Total assets 35,304 32,685 32,937 24,890 24,055 Current liabilities 9,148 6,592 7,969 5,245 2,621 Working capital 7,999 7,061 6,565 7,938 10,092 Long-term obligations 5,473 6,433 4,930 3,046 4,146 Shareholders' equity 20,683 19,660 20,038 16,599 17,288
(1) Reflects operations of Pollux Corporation from date of acquisition (December 1, 1994). (2) Effective January 1, 1993 the Company adopted FASB Statement No. 109, "Accounting for Income Taxes." MARKET PRICES The Company's Common Stock is traded on the over-the-counter market (NASDAQ). The approximate number of recordholders of the Company's Common Stock at February 28, 1997 was 1,694. The Company presently intends to retain all available funds for the development of its business and for use as working capital and does not expect to pay dividends in the foreseeable future. There were no cash dividends paid in 1996, 1995 or 1994. Firstar Trust Company is the stock transfer agent for the Company's Common Stock. The following table displays the share prices for the Company's Common Stock in 1996 and 1995.
1996 1995 ----------------- -------------------- HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $ 25/32 $ 18/32 $23/32 $19/32 Second Quarter 1 28/32 23/32 26/32 21/32 Third Quarter 1 21/32 1 28/32 19/32 Fourth Quarter 1 17/32 1 5/32 28/32 18/32
3 3 1996 CADE ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from Cade Industries, Inc.'s ("Company") Consolidated Statements of Operations expressed as a percentage of net sales, and the percentage changes in the dollar amounts of such items from the prior period. Effective December 1, 1994, the Company acquired Pollux Corporation, whose operations are conducted through its wholly-owned subsidiary, H.A.C. Corporation ("H.A.C."). The operating results of H.A.C. are included with those of the Company from the date of acquisition.
PERCENT INCREASE PERCENTAGE OF NET SALES (DECREASE) YEAR ENDED DECEMBER 31 IN DOLLAR AMOUNTS - --------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1996 VS. 1995 1995 VS. 1994 - --------------------------------------------------------------------------------------------------------------- Net Sales 100.0% 100.0% 100.0% 14.5% 48.8% Costs and Expenses: Cost of Sales 76.6% 82.4% 78.1% 6.5% 56.9% Selling, General and Administrative Expense 17.5% 17.8% 19.3% 12.3% 37.8% Net Interest Expense 2.1% 2.4% 1.7% 1.5% 105.0% ----- ----- ----- Total Costs and Expenses 96.2% 102.6% 99.1% 7.4% 54.0% ----- ----- ----- Income (Loss) Before Income Taxes 3.8% (2.6%) 0.9% * * Income Tax Expense(Credit) 0.8% (1.3%) 0.1% * * ----- ----- ----- Net Income(Loss) 3.0% (1.3%) 0.8% * * ===== ===== =====
* Not meaningful to presentation Cade is engaged worldwide in the design, manufacture, and repair and overhaul of high technology composite components for the aerospace, air transport and specialty industries. Cade's core products include molded and bonded composite jet engine components consisting of engine inlets, acoustical liners, fairings, auxiliary power unit enclosures and engine cases ("Gas Turbine Products"); metal fabricated and bonded composite airframe components consisting of various control surface products, access doors, wing tips and interior structures ("Airframe Products"); the repair and overhaul of commercial and military airframe components and of commercial gas turbine engine components as well as flight nacelle structures ("Repair and Overhaul Services"); and test nacelles used in the ground testing and overhaul of major commercial jet engines and related ground support equipment ("Test Equipment"). These products are sold worldwide through the Company's internal sales force and independent sales representatives to major engine and airframe equipment manufacturers, airlines and overhaul facilities. For 1996, 1995 and 1994, sales of Gas Turbine Products, Airframe Products, Repair and Overhaul Services and Test Equipment as a percentage of total sales were as follows:
PERCENTAGE OF TOTAL NET SALES - ------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------ Gas Turbine Products 29.4% 25.7% 35.8% Airframe Products 20.9% 24.8% 11.1% Repair and Overhaul Services 27.2% 24.2% 7.2% Test Equipment 19.2% 20.7% 35.3% ---- ---- ---- 96.7% 95.4% 89.4% ==== ==== ====
OUTLOOK AND BACKLOG At December 31, 1996, the Company's backlog of orders was $34.8 million ($22.8 million at December 31, 1995), which included $14.9 million of scheduled orders under long-term agreements. Of the total year-end backlog, $30.7 million is scheduled for shipment in 1997. The Company's backlog includes both firm orders supported by customer purchase orders with fixed delivery dates and blanket purchase orders against which customers issue production Continued on page 5 4 4 [CADE LOGO]--------------------------------------------------------------------- Continued from page 4 releases covering relatively short time periods. The increase in order backlog at year-end 1996 from 1995 primarily reflects the improved economic conditions in the aircraft industry as evidenced by increases in airline traffic, higher fares, record airline profits and increased orders for new aircraft. This growth in order backlog has occurred at each of the Company's subsidiaries and primarily reflects increases in orders for military and commercial airframe components and gas turbine engine products. The Company's order backlog is subject to customer rights of cancellation or rescheduling, although in certain cases the Company would be entitled to receive termination payments. Overhaul and repair orders are excluded from the Company's order backlog due to their very short lead times. Overhaul and repair was the fastest growing product group in 1996 and management presently expects continued strength in this area moving into 1997. On the basis of current backlog and long-term agreements, the Company anticipates another strong sales year in 1997. 1996 COMPARED TO 1995 Net sales for 1996 increased by $4,422,000 or 14.5% from 1995. This increase in sales was due primarily to higher sales of both overhaul and repair services and gas turbine engine components. Partially offsetting these increases were lower sales of military components due to the completion of a government contract in 1995 and delays in military first article approvals in 1996. Cost of sales increased 6.5% or $1,629,000 in 1996 from 1995, primarily as a result of the 14.5% increase in net sales. In addition, the 1995 cost of sales amount included $960,000 related to the write-off in the second quarter of certain costs at the Company's Cade Composites, Inc. subsidiary associated with work-in-process, non-recurring engineering charges, contract termination costs, tooling investments and prototype development costs. Excluding this write-off at Cade Composites from 1995 amounts, cost of sales for 1996 increased $2,589,000 or 10.7%. Cost of sales as a percentage of sales was 76.6% and 82.4% for 1996 and 1995, respectively. Excluding the effect of the write-off at Cade Composites, cost of sales as a percentage of sales was 79.2% in 1995. Material cost of sales as a percent of net sales in 1996 decreased due primarily to lower military sales at H.A.C. and much higher sales of commercial overhaul and repair services in 1996. Military sales in 1995 carried a higher material content than that of the Company's historical product mix while overhaul and repair services reflect lower than normal material contents. These decreases in the material cost percentage due to product mix changes were partially offset by an increase in material content for certain gas turbine engine components as a result of changing from customer supplied material to purchased material. Overhead cost of sales as a percent of sales decreased as a result of cost containment efforts, improved operational efficiency and the spreading of fixed manufacturing costs over a larger sales base. Selling, general and administrative expenses ("administrative expenses") as a percent of net sales decreased slightly in 1996 to 17.5% from 17.8% in 1995, while actual amounts expended increased by $668,000 in 1996 to $6,097,000. The decreased percentage resulted primarily from the 14.5% increase in 1996 sales and the corresponding spreading of administrative expenses over a larger sales base. Factors contributing to the higher administrative expenses in 1996 were increased marketing costs, commission expense, professional and consulting fees, administrative staff and related costs, and travel related costs incurred to support the increased sales levels of 1996 and those expected in 1997. Sales commission expenditures are directly related to the sales mix of products and/or customers involved. The increased sales commissions in 1996 resulted primarily from greater overhaul and repair sales subject to commission payments. Net interest expense as a percent of sales decreased to 2.1% in 1996 from 2.4% in 1995, while the actual net amount expended remained relatively unchanged. Line of credit usage increased in 1996 compared to 1995. However, the effect of increased borrowing was largely offset by lower overall interest rates as a result of borrowing at Eurodollar-based interest rates. Income tax expense was $277,000 or 0.8% of sales in 1996, compared to a negative expense of ($397,000) or (1.3%) of sales in 1995. The effective tax rate was lower than the statutory tax rate due to the lower tax rate applicable to the Company's foreign sales corporation and to certain adjustments to income tax liabilities. The Company had net income of $1,058,000 in 1996, compared to a net loss of ($382,000) in 1995. Factors contributing to this change were discussed above. 1995 COMPARED TO 1994 Net sales in 1995 of $30,445,000 increased $9,984,000 or 48.8% from 1994, as $10,266,000 of sales from H.A.C., which was acquired as of December 1, 1994, more than offset reduced shipments of test nacelles and other ground support equipment. The Company also had higher sales of gas turbine engine products and airframe products. In addition, inclusion of H.A.C. resulted in higher sales of military aircraft airframe components and repair and overhaul services in 1995, when compared to 1994. Cost of sales in 1995 increased $9,095,000 or 56.9% from 1994, of which $8,334,000 related to the operations of H.A.C. In addition, approximately $960,000 of the 1995 increase in cost of sales related to the write-off at the Company's Cade Composites subsidiary as discussed in the previous section. Excluding the results of H.A.C. and the write-off at Cade Composites, cost of sales for 1995 decreased $199,000 or 1.3% from 1994. 5 5 1996 CADE ANNUAL REPORT Cost of sales as a percentage of sales was 82.4% and 78.1% for 1995 and 1994, respectively. Excluding the effect of H.A.C.'s operations and the write-off at Cade Composites, cost of sales as a percentage of sales was 78.1% and 78.0% in 1995 and 1994, respectively. The cost of sales percentage, including H.A.C., but not the write-off at Cade Composites, for 1995 increased slightly during 1995 compared to 1994, primarily due to the inclusion for the full year of H.A.C.'s operations where material and overhead cost percentages were higher than the Company's historical cost relationships. Partially offsetting the impact of H.A.C. on the cost of sales as a percentage of sales was a shift in product mix at the Company's other manufacturing operations, resulting in a larger portion of sales of gas turbine engine and airframe components which have lower material and higher labor contents. Administrative expenses as a percent of net sales were 17.8% (20.9% excluding H.A.C.) and 19.3% (19.6% excluding H.A.C.) in 1995 and 1994, respectively. Actual amounts expended in 1995 increased by $1,489,000 from 1994 primarily as a result of the inclusion of H.A.C. for the full year. The decreased percentage of administrative expenses during 1995 compared to 1994 was a result primarily of H.A.C.'s lower administrative expenses as a percent of sales when compared to the Company's historical cost relationship, partially offset by both slightly increased administrative cost expenditures in 1995 at the Company's other subsidiaries and their slightly lower sales base over which to spread fixed costs. Net interest expense as a percent of sales was 2.4% in 1995 compared to 1.7% for 1994. This increase resulted primarily from higher borrowing (due in large part to the assumption of H.A.C. debt) and higher interest rates. Income taxes in 1995 were a negative expense of ($397,000) or (1.3%) of sales, compared to a positive expense of $30,000 or 0.1% of sales in 1994. The effective tax rate was lower than the statutory tax rate due to the lower tax rate applicable to the Company's foreign sales corporation and to certain adjustments to income tax liabilities. The Company had a net loss of ($382,000) in 1995 compared to net income of $159,000 in 1994 due to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company has met its working capital and longer term capital needs through short and long-term bank debt and leasing arrangements on certain items of capital equipment. The Company financed its 1994 acquisition of Pollux Corporation by the issuance of its common stock and the assumption of debt. Capital has principally been used to fund the Company's inventory, accounts receivable, and equipment and tooling expenditures. Management expects to continue its present level of investment in inventory to support the higher sales volume expected in 1997. Investment in production technology, tooling and equipment for improved manufacturing efficiency and quality enhancement are expected to continue at present levels. Subsequent to December 31, 1996 the Company invested approximately $535,000 in additional manufacturing and warehousing capacity for its Auto-Air Composites subsidiary in order to meet increased production requirements beginning in early 1997. The Company is continuing to pursue acquisition opportunities to expand and/or diversify its markets. The Company maintains a $5,000,000 unsecured credit line with a bank, $1,990,000 of which was available at December 31, 1996. The Company also has outstanding approximately $4,105,000 of secured, long-term debt, $146,000 of tax-exempt bonds and $2,146,000 of subordinated notes. Additional secured, long-term debt was primarily used in 1997 to finance the facility investment for the Company's Auto-Air Composites subsidiary previously discussed. Management believes that expected increased revenues and continued emphasis on working capital management will lead to improved cash flow from operations. As a result, the Company's cash flow from operations and its current credit facilities are believed to be adequate to finance its current operations, and capital expenditure requirements at present and forecasted levels. EFFECTS OF INFLATION The Company had entered into multi-year sales agreements with fixed prices in its core businesses of gas turbine engine components and test nacelle products and services. These contracts were negatively impacted by material and labor cost increases, but the impact was partially offset by long-term material purchase agreements with suppliers, recently renegotiated sales price increases on certain of the multi-year sales agreements and productivity improvements. In addition, Cade continuously reviews cost increases and attempts to reflect these projected cost adjustments in proposals for new orders. As a result, management believes that general inflation did not have a material impact on the Company's operations or financial condition during the periods discussed. 6 6 [CADE LOGO] Cade Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------- DECEMBER 31 1996 1995 - ----------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 21,606 $ 187,485 Trade accounts receivable 6,585,905 4,670,698 Inventories 9,913,770 7,918,135 Refundable federal income taxes 362,000 Deferred income taxes 445,000 379,000 Prepaid expenses and other current assets 180,279 136,105 ----------- ----------- Total current assets 17,146,560 13,653,423 Property, plant and equipment 15,006,081 15,758,999 Intangible and other assets Goodwill 3,014,369 3,123,220 Other assets 137,430 148,863 ----------- ----------- 3,151,799 3,272,083 ----------- ----------- $35,304,440 $32,684,505 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Note payable to bank $ 3,010,000 $ 1,300,000 Current portion of long-term debt 1,558,220 1,765,171 Trade accounts payable 2,888,283 1,685,313 Employee compensation and amounts withheld 1,013,108 614,739 Accrued expenses 552,097 963,747 Accrued income taxes 126,216 262,800 ----------- ----------- Total current liabilities 9,147,924 6,591,770 Long-term debt 4,839,181 5,955,935 Deferred income taxes 634,000 477,000 Shareholders' equity Preferred stock, 10% cumulative, non-voting, stated value $300 per share; authorized 500 shares, none issued Common stock, par value $.001 per share; authorized 100,000,000 shares, issued 21,972,859 shares (1995-21,886,409 shares) 21,973 21,886 Additional paid-in capital 8,885,977 8,828,552 Retained earnings 12,122,296 11,063,804 ---------- ---------- 21,030,246 19,914,242 Less cost of common stock in treasury (280,568 and 200,068 shares in 1996 and 1995, respectively) 346,911 254,442 ---------- ---------- 20,683,335 19,659,800 ---------- ---------- $35,304,440 $32,684,505 =========== ===========
See accompanying notes 7 7 1996 CADE ANNUAL REPORT Cade Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 - ------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- Sales $ 34,867,072 $ 30,445,006 $ 20,460,680 Cost of sales 26,704,927 25,075,996 15,981,016 ------------ ------------ ------------ 8,162,145 5,369,010 4,479,664 Selling, general and administrative expenses 6,097,363 5,429,585 3,940,385 ------------ ------------ ------------ Income (loss) from operations 2,064,782 (60,575) 539,279 Interest Income 32,359 13,627 11,566 Expense (761,649) (732,095) (362,084) ------------ ------------ ------------ (729,290) (718,468) (350,518) ------------ ------------ ------------ Income (loss) before income taxes 1,335,492 (779,043) 188,761 Income tax expense (credit) 277,000 (397,000) 30,000 ------------ ------------ ------------ Net income (loss) $ 1,058,492 $ (382,043) $ 158,761 ============ ============ ============ Weighted average number of shares of common stock outstanding 21,693,479 21,683,947 17,345,814 Net income (loss) per common share $ .05 $ (.02) $ .01 ============ ============ ============
See accompanying notes. 8 8 [CADE LOGO] Cade Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 - ----------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 1,058,492 $ (382,043) $ 158,761 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,626,109 2,356,142 1,453,232 Provision (credit) for deferred income taxes 91,000 (62,000) 16,000 Loss on sale of equipment 13,520 Changes in operating assets and liabilities, net of effect of acquisition: Trade accounts receivable (1,915,207) 147,260 492,100 Inventories (1,995,635) 973,154 381,213 Other current assets 317,826 (327,730) 552,709 Trade accounts payable 1,202,970 (867,366) (54,033) Other current liabilities (149,865) 462,881 227,915 --------- --------- --------- Net cash provided by operating activities 1,249,210 2,300,298 3,227,897 INVESTING ACTIVITIES Additions to property, plant and equipment (1,764,166) (2,424,229) (986,068) Acquisition of Pollux (73,497) (539,115) Other (2,261) (53,091) (24,239) Net cash used in investing activities (1,766,427) (2,550,817) (1,549,422) FINANCING ACTIVITIES Proceeds from long-term debt 507,316 3,600,000 Payments and refinancing of long-term debt (1,831,021) (1,433,533) (903,446) Increase (decrease) in notes payable to bank 1,710,000 (1,800,000) (771,126) Purchases of common stock for treasury (92,469) Exercise of stock options and related repurchase 57,512 36,100 --------- --------- --------- Net cash provided by (used in) financing activities 351,338 366,467 (1,638,472) --------- --------- --------- Increase (decrease) in cash and cash equivalents (165,879) 115,948 40,003 Cash and cash equivalents at beginning of year 187,485 71,537 31,534 --------- --------- --------- Cash and cash equivalents at end of year $ 21,606 $ 187,485 $ 71,537 ========= ========= ========= Cash paid (received) during the year for: Interest $ 772,257 $ 657,805 $ 356,948 Income taxes, net of refunds received (39,415) 89,984 (340,399) Supplemental schedule of noncash investing and financing activities: Capital leases $ 507,316 Debt exchanged for or assumed in acquisition $ 4,485,283 Fair market value of common stock issued for acquisition $ 3,683 3,244,445
See accompanying notes 9 9 1996 CADE ANNUAL REPORT Cade Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ------------------------ ADDITIONAL NUMBER PAR VALUE PAID-IN RETAINED TREASURY OF SHARES AMOUNT CAPITAL EARNINGS STOCK - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 17,087,306 $17,087 $5,532,873 $ 11,287,086 $(238,192) Stock options exercised and related repurchase 75,000 75 52,275 (16,250) Net income for the year 158,761 Shares issued in connection with acquisition 4,719,193 4,719 3,239,726 ---------- ------ --------- ---------- -------- Balance at December 31, 1994 21,881,499 21,881 8,824,874 11,445,847 (254,442) Shares issued in connection with acquisition 4,910 5 3,678 Net loss for the year (382,043) ---------- ------ --------- ---------- -------- Balance at December 31, 1995 21,886,409 21,886 8,828,552 11,063,804 (254,442) Stock options exercised 86,450 87 57,425 Purchases of 80,500 shares of common stock (92,469) Net income for the year 1,058,492 ---------- ------ --------- ---------- -------- Balance at December 31, 1996 21,972,859 $21,973 $8,885,977 $ 12,122,296 $(346,911) ========== ====== ========= ========== ========
See accompanying notes. 10 10 [CADE LOGO]--------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. CORPORATE STRUCTURE AND SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Cade Industries, Inc. and its wholly-owned subsidiaries (Company or Cade); Auto-Air Composites, Inc. (Auto-Air); Cade Composites, Inc. (CCI); Cade International, Inc. (CI) and Pollux Acquisition Corporation (Pollux) and its wholly-owned subsidiary, H.A.C. Corporation (H.A.C.). Intercompany accounts and transactions have been eliminated in consolidation. Cade is engaged worldwide in the design, manufacture, and repair and overhaul of high technology composite components for the aerospace, air transport and specialty industries. The Company's core products consist of original equipment components for gas turbine engines, airframe, and auxiliary power units. Its specialty niche products include ground-based test nacelle systems and repair and overhaul of commercial gas turbine engine components and both commercial and military airframe components. Through Auto-Air and H.A.C., Cade operates repair stations under Federal Aviation Administration ("FAA") licenses. In addition to FAA certification, Auto-Air and H.A.C. are certified by the European Joint Airworthiness Authority. The Company and its subsidiaries offer both manufacturing and design services to the industries they serve. The design and manufacturing are interrelated and the various significant operating locations have essentially the same capability. In the opinion of management, the Company operates in a single business segment. Significant accounting policies are discussed below, and where applicable, in the Notes that follow. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes short-term investments having maturity dates of 90 days or less when purchased. TRADE ACCOUNTS RECEIVABLE/REVENUE RECOGNITION Trade accounts receivable represent amounts due from domestic and international equipment manufacturers and air carriers serving the aerospace and air transportation industries as well as from the U.S. Government under certain long-term contracts. The Company generally does not require collateral from its customers. Credit losses have been minimal. Sales and income are generally recognized at the time products are shipped. Contract progress billings in advance of deliveries are treated as deferred revenues and are offset against inventoried contract costs in the Company's financial statements ($143,000 in 1996). Reserves for contract losses are accrued when estimated costs to complete exceed expected future revenues. Net sales to Pratt & Whitney, McDonnell Douglas, General Electric, and the U.S. Government, with which the Company has long-standing customer relationships, amounted to 25%, 6%, 4% and 5% of 1996 consolidated net sales, respectively (20%, 5%, 7% and 13% in 1995, 29%, 11%, 7% and 3% in 1994). Export sales by the Company's domestic subsidiaries were $6,024,000, $7,028,000 and $5,776,000 for the years 1996, 1995 and 1994, respectively. GOODWILL Goodwill is being amortized over 30 to 40 years using the straight-line method. Accumulated amortization was $645,000 and $536,000 at December 31, 1996 and 1995, respectively. It is the Company's policy to carry goodwill only if the projected undiscounted cash flows of acquired businesses over the remaining amortization periods exceed such recorded amounts of goodwill. INCOME TAXES Income taxes have been provided using the liability method. Deferred income tax liabilities and assets are recorded at the end of each period based on the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the tax rate expected to be in effect when the taxes are actually paid or recovered. Research and development credits are recorded using the flow-through method of accounting whereby, in the year available for utilization, the credits are applied as a reduction of income tax expense. SIGNIFICANT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 11 11 1996 CADE ANNUAL REPORT assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates. NET INCOME (LOSS) PER SHARE Net income (loss) per share is based on the weighted average number of shares of Common Stock outstanding during the year. The dilutive effect of Common Stock equivalents was not material or such effect was antidilutive. FAIR VALUE OF FINANCIAL INSTRUMENTS Management has determined that the carrying values of cash and cash equivalents, trade accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. Management has also determined that the carrying value of its current and long-term debt and note payable to bank approximate market value as they mainly bear interest at rates that vary with the bank's prime lending rate. It is not practical to estimate the fair value of the subordinated notes due to these notes being non-marketable and subordinated to all other debt. LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF Effective January 1, 1996, Cade adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and long-lived assets and certain identifiable intangibles to be disposed of. The adoption of this new accounting standard did not have a material effect on Cade's consolidated operating results or financial position. NOTE 2. ACQUISITION In December 1994, the Company acquired 100% of the outstanding shares of Pollux Corporation in exchange for 4,719,000 of the Company's common shares valued at $3,244,000 and the assumption of $4,485,000 of short- and long-term debt obligations. Pollux, through its wholly-owned subsidiary, H.A.C. Corporation, overhauls, repairs and manufactures flight control surfaces for both commercial and military aircraft. The acquisition of Pollux has been accounted for using the purchase method of accounting. The results of its operations have been included in the Company's financial statements from the date of its acquisition. Had the purchase of Pollux been made at the beginning of 1994 the Company's operations would have reflected the following unaudited pro-forma results for 1994: revenues of $30,842,000, a net loss of $439,000 and a net loss per share of $0.02. These pro-forma unaudited results of operations are not necessarily indicative of the combined operating results as they may be in the future or as they might have been for the period indicated had the acquisition of Pollux been consummated at the beginning of 1994. The purchase agreement provided for the contingent issue of up to 882,000 of the Company's common shares to the former Pollux shareholders based on the post-acquisition earnings of Pollux through 1996. During 1995, the Company issued 4,910 shares based upon 1994 post-acquisition earnings. The value, as defined in the purchase agreement, of the contingent common shares issued was recorded as an addition to intangible assets in 1995. No contingent shares were earned by former Pollux shareholders based on Pollux earnings in 1996 and 1995. During 1995, the Company revised its initial estimate of goodwill by reducing the purchase price allocated to inventory, additional acquisition costs and the issuance of additional shares due to the contingent purchase price described above. NOTE 3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventoried costs relating to long-term contracts are stated at actual production cost. Inventories consists of:
DECEMBER 31 --------------------------- 1996 1995 ---------- ---------- Finished goods $ 372,896 $ 460,501 Work-in-progress 5,494,016 4,715,819 Raw materials and supplies 4,046,858 2,741,815 ---------- ---------- $9,913,770 $7,918,135 ========== ==========
12 12 [CADE LOGO]--------------------------------------------------------------------- NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and consist of:
DECEMBER 31 ------------------------------ ESTIMATED 1996 1995 USEFUL LIFE ----------------------------------------------- Land and improvements $ 500,864 $ 500,864 Buildings 4,356,455 4,330,657 25-30 years Machinery and equipment 9,910,080 9,116,644 3-12 years Tooling 11,395,706 10,512,553 See below ----------- ----------- 26,163,105 24,460,718 Accumulated depreciation and amortization 11,157,024 8,701,719 ----------- ----------- $15,006,081 $15,758,999 =========== ===========
Tooling primarily represents production and engineering costs incurred in the manufacture of tooling for use in new component part and test cell equipment production as well as repair and overhaul efforts. These costs are amortized over projected delivery schedules (new component part and test cell equipment) or estimated time periods (repair and overhaul). NOTE 5. NOTE PAYABLE AND LONG-TERM DEBT Note payable to bank of $3,010,000 at December 31, 1996 represents borrowing under the Company's $5,000,000 unsecured line of credit, which bears interest at the bank's announced prime interest rate less .50% (7.75% at December 31, 1996) and is subject to annual renewal each year in April. Also, at the Company's option, certain increments of the outstanding line of credit may be placed at a Eurodollar-based rate plus 2.1% (7.66% at December 31, 1996) for fixed periods not to exceed 90 days. The line of credit will become secured by substantially all of the Company's and subsidiaries' tangible assets in the event the ratio of debt to tangible net worth equals or exceeds one-to-one. The weighted-average interest rate on short-term borrowings for the years ended December 31, 1996, 1995 and 1994 was 7.8%, 8.7% and 8.5%, respectively. Long-term debt consists of:
December 31 --------------------------- 1996 1995 Term note payable to bank in quarterly installments of $128,571 $3,085,714 $3,600,000 Limited obligation revenue bonds, interest at 7.10%, due September 1997 146,250 652,500 Note payable to bank in monthly installments to July 2005 567,263 591,025 Subordinated notes payable in four equal annual payments beginning November 1996, interest at 6.0% payable semi-annually 2,145,780 2,861,040 Capital lease obligations, interest rates ranging from 8.1% to 9.4%, due through April 2001 452,394 16,541 ---------- ---------- 6,397,401 7,721,106 Current maturities 1,558,220 1,765,171 ---------- ---------- $4,839,181 $5,955,935 ========== ==========
* The term note is secured by substantially all of the Company's and subsidiaries' tangible assets and bears interest at the bank's announced prime interest rate less .25% (8.0% at December 31, 1996). This term debt is guaranteed by each subsidiary. Under this agreement, which covers both the term loan and the line of credit, the Company is subject to restrictive covenants, conditions and default provisions which, among others, require the maintenance of certain levels of tangible net worth ($17.5 million at December 31, 1996), maintenance of financial ratios relating to working capital and debt levels and restrictions relating to disposition of its assets, future acquisitions, incurrence of additional indebtedness and material changes in its capital structure. At certain times during 1996 and subsequent to year end, the Company was not in compliance with the working capital covenant. During the year, the Company received waivers of these violations from the bank. Also, subsequent to year end, the Company and the bank executed an amendment to the loan agreement lowering the required level of working capital. The Company is now in compliance with this new working capital requirement. 13 13 1996 CADE ANNUAL REPORT * The limited obligation revenue bonds were issued by a municipal economic development corporation under an agreement with the Company's Auto-Air subsidiary. Annual principal and semi-annual interest payments to bondholders will be drawn by the appointed trustee from an irrevocable direct pay letter of credit issued by a bank which is guaranteed by the Company and is secured by substantially all of the tangible assets of Auto-Air and the Company. The bonds mature in 1997 and are fixed rate issues with an interest rate of 7.1%. * The note payable to bank is secured by certain Pollux real estate and equipment items, bearing interest at 2.75% plus the prime lending rate, as defined (8.25% at December 31, 1996). * As part of the acquisition of Pollux, the Company issued $2,861,040 of 6.0% subordinated notes in exchange for a like amount of Pollux 8.0% convertible subordinated debentures. Such notes are subordinated to all indebtedness for borrowed money and property and equipment purchases including capital leases. Aggregate annual maturities of long-term debt, including capital leases, for periods subsequent to December 31, 1996 are approximately as follows: 1997--$1,558,000; 1998--$1,431,000; 1999--$1,375,000; 2000--$562,000; 2001--$561,000; and thereafter--$910,000. NOTE 6. LEASES Future minimum lease payments, by year and in the aggregate for noncancellable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 1996: 1997 $424,000 1998 442,000 1999 32,000 2000 10,000 2001 10,000 -------- Total minimum lease payments $918,000 ========
Rent expense for 1996, 1995 and 1994 totaled $560,000, $487,000 and $378,000, respectively. NOTE 7. STOCK OPTIONS Options activity during the years ended December 31, 1996, 1995 and 1994 is as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE EXERCISE NUMBER SHARES PRICE PRICE OF SHARES EXERCISABLE PER SHARE PER SHARE --------- ----------- --------- --------- Outstanding at December 31, 1993 579,000 469,600 $.67 - $2.19 $ 1.30 Options granted: Under 1990 Plan 145,000 .83 - .89 .84 Directors 350,000 .81 .81 Options exercised (75,000) .69 - .72 .70 Options canceled (250,000) .72 - 1.94 1.13 ------- Outstanding at December 31, 1994 749,000 530,400 .67 - 2.19 1.10 Options granted: Under 1990 Plan 96,450 .66 - .72 .71 Directors 100,000 .69 - .72 .70 Options canceled (75,000) .67 - 2.19 1.37 ------- Outstanding at December 31, 1995 870,450 683,050 .66 - 2.19 .98 Options granted under 1990 Plan 75,000 .63 - 1.13 .96 Options exercised (86,450) .63 - .69 .67 ------- Outstanding at December 31, 1996 859,000 720,000 $.67 - $2.19 $ 1.01 =======
Continued on page 15 14 14 [CADE LOGO]--------------------------------------------------------------------- Continued from page 14 The 1990 Nonqualified Stock Option Plan provides for the granting of up to 845,000 options for shares of the Company's Common Stock. The option price is the fair market value of a share of common stock on the date of the grant. Options expire ten years from date of grant. At six months from grant date, 20% of the options may be exercised, and at one year from grant date and for each of the next three years thereafter, an additional 20% may be exercised. Options may be granted under the 1990 Plan through December 31, 2000. Members of the Board of Directors hold options to purchase 575,000 shares of the Company's Common Stock. The options were granted at fair market value of a share of common stock on the date of grant and are exercisable at various dates through May 2005. The outstanding stock options at December 31, 1996 have a weighted average contractual life of 7.0 years and a weighted average exercise price of $1.01 per share. The Company accounts for its stock option plans in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized for stock option grants. Had compensation cost been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the effect on the Company's pro-forma net income and earnings per share for 1996 and 1995 would not have been material. Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1996, the current immateriality of the pro-forma compensation cost may not be representative of that to be expected in future years. The weighted average fair value of the stock options granted during 1996 was $.89. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996: risk-free interest rate of 6.5%; no dividend yield; expected life of 8.3 years and expected volatility of 76.3%. NOTE 8. INCOME TAXES Significant components of the Company's deferred tax assets (liabilities) as of December 31, 1996 and 1995 are as follows:
1996 1995 ----------- ----------- Current Uniform inventory capitalization $ 82,000 $ 77,000 Uniform tooling capitalization 43,000 53,000 Expense and loss accruals 320,000 249,000 ----------- ----------- Total current deferred tax assets $ 445,000 $ 379,000 =========== =========== Long-term Net operating loss carryforwards $ 960,000 $ 1,239,000 Tax credit carryforwards 101,000 101,000 ----------- ----------- Total long-term deferred tax assets 1,061,000 1,340,000 Valuation allowance (610,000) (640,000) ----------- ----------- Net long-term deferred tax assets 451,000 700,000 Tax over book depreciation (1,085,000) (1,177,000) ----------- ----------- Total long-term deferred tax liabilities $ (634,000) $ (477,000) =========== ===========
With the acquisition of Pollux, the Company received deferred tax benefits as of the date of acquisition of $750,000 including the tax impact of net operating loss and other tax credit carryforwards with expiration dates from 2001 to 2008. Realization of these assets is contingent on future taxable earnings of Pollux. In accordance with the provisions of Statement 109, valuation allowances were recorded to reserve for these and other items which may not be realized. The provision (credit) for income taxes consisted of the following:
1996 1995 1994 --------- --------- ------- Current (credit): Federal $ 207,000 $(343,000) $11,000 State and local (21,000) 8,000 3,000 --------- --------- ------- Total current (credit) 186,000 (335,000) 14,000 Deferred (credit): Federal 91,000 (62,000) 16,000 --------- --------- ------- $ 277,000 $(397,000) $30,000 ========= ========= =======
15 15 1996 CADE ANNUAL REPORT The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense (credit) is:
1996 1995 1994 --------- --------- -------- Tax at U.S. federal statutory rate $ 454,100 $(264,900) $ 64,200 State and local income taxes (net of federal tax benefit) (13,900) 5,300 2,000 Non-deductible amortization 37,500 31,500 14,200 Lower effective income tax of foreign sales corporation (55,400) (87,600) (42,100) Adjustment of estimated liabilities (150,000) (94,800) Other 4,700 13,500 (8,300) --------- --------- -------- $ 277,000 $(397,000) $ 30,000 ========= ========= ========
NOTE 9. PENSION PLAN Retirement benefits are provided by the Company to most salaried and non-bargaining unit, hourly employees under contributory defined contribution plans which provide for discretionary contributions. Expense related to these plans was $198,000 in 1996, $151,000 in 1995 and $115,000 in 1994. Bargaining unit employees of one subsidiary participate in a union sponsored multi-employer defined benefit plan. Company cost and contributions were $145,000 in 1996 and $139,000 in both 1995 and 1994. The Company's proportional share of the net assets, accumulated benefits and unfunded vested benefits of this plan is not available. In addition, the Company offers bargaining unit employees electing early retirement continued health benefits for a limited period not to exceed three years with such benefits capped at current rates. Management has determined that the financial impact of this benefit on the Company as determined under Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," is not material. NOTE 10. QUARTERLY RESULTS (UNAUDITED)
1996 THREE MONTHS ENDED ----------------------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ----------- ----------- ----------- ----------- Sales $ 7,164,278 $ 7,618,176 $ 9,160,054 $10,924,564 $34,867,072 Cost of sales 5,263,243 5,672,530 7,097,727 8,671,427 26,704,927 Net income 186,430 203,897 264,686 403,479 1,058,492 Net income per common share 0.01 0.01 0.01 0.02 0.05 Weighted average common shares outstanding 21,686,341 21,689,094 21,706,065 21,692,291 21,693,479
1995 THREE MONTHS ENDED -------------------------------------------------------------------------------------- MARCH 31 JUNE 30** SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ------------ ------------ ------------ ------------ Sales $ 7,349,861 $ 8,638,869 $ 6,955,259 $ 7,501,017 $ 30,445,006 Cost of sales 5,775,640 7,888,244 5,453,939 5,958,173 25,075,996 Net income (loss) 125,246 (541,201) 25,064 8,848 (382,043) Net income (loss) per common share* 0.01 (0.02) (0.00) (0.00) (0.02) Weighted average common shares outstanding 21,681,431 21,681,593 21,686,341 21,686,341 21,683,947
* The sum of the quarterly net income (loss) per share amounts does not equal the annual amount reported. Net income (loss) per share is computed independently for each quarter and the full year and is based on respective weighted average common shares outstanding. ** Second quarter operations includes a charge of $1,130,000 to write-off certain costs at the Company's Cade Composites, Inc. subsidiary associated with work-in-process, non-recurring engineering charges, contract termination costs, tooling investments, prototype development costs and accounts receivable charges. The provision was based on the Company's review of development costs and related project investments and its best estimate of matching such costs against future revenue. 16 16 [CADE LOGO]--------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT Shareholders and Board of Directors Cade Industries, Inc. and Subsidiaries Lansing, Michigan We have audited the accompanying consolidated balance sheets of Cade Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 1994 were audited by other auditors whose report, dated February 19, 1995 expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 1996 and 1995 consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Lansing, Michigan February 19, 1997 17 17 1996 CADE ANNUAL REPORT CORPORATE INFORMATION CORPORATE HEADQUARTERS 5640 Enterprise Drive Lansing, MI 48911 Phone: 517-394-1333 Fax: 517-394-1404 GENERAL COUNSEL Quarles & Brady 411 E. Wisconsin Avenue Milwaukee, WI 53202-4497 CORPORATE AUDITORS Deloitte & Touche, LLP Suite 800 120 N. Washington Square Lansing, MI 48933-1681 BOARD OF DIRECTORS MOLLY F. CADE Educator CONRAD G. GOODKIND Partner Quarles & Brady WILLIAM T. GROSS Consultant RICHARD A. LUND President Chief Operating Officer BOARD OF DIRECTORS CONTINUED TERRELL L. RUHLMAN Chairman of the Board Chief Executive Officer JOHN W. SANDFORD President Chief Executive Officer Rolls-Royce North America STEVEN M. TADLER Managing Director Advent International Corporation CORPORATE OFFICERS TERRELL L. RUHLMAN Chairman of the Board Chief Executive Officer RICHARD A. LUND President Chief Operating Officer EDWARD B. STEPHENS Vice President, Chief Financial Officer, Treasurer and Assistant Secretary RICHARD J. GRIBBINS Vice President CONRAD G. GOODKIND Secretary SUBSIDIARIES AUTO-AIR COMPOSITES, INC. 5640 Enterprise Drive Lansing, MI 48911 Phone: 517-393-4040 John F. Scanlon, President CADE COMPOSITES, INC. 4075 Ruffin Road San Diego, CA 92123 Phone: 619-571-5220 Robert C. Spring, President CADE INTERNATIONAL, INC. 5640 Enterprise Drive Lansing, MI 48911 Phone: 517-394-1333 Richard A. Lund, President H.A.C. CORPORATION 537 Camden Drive Grand Prairie, TX 75051 Phone: 972-263-4387 John E. Haran, President FINANCIAL & OTHER INFORMATION Cade's Annual Meeting of Shareholders will be held on Tuesday, May 6, 1997 in Lansing, Michigan. Cade Industries issues its news releases through PR Newswire. Faxed copies of new releases are available at no charge. To get them, call Company News On-Call at 1-800-758-5804. This electronic system requests a six-digit code (075675) and allows callers to choose from a menu of Cade Industries' news releases. The requested release will be faxed within minutes of the inquiry. This service is available 24 hours a day, 7 days a week. The On-Call information is also posted on the Internet's World Wide Web at http://www.prnewswire.com. Cade Industries files Forms 10-K and 10-Q with the Securities and Exchange Commission. Shareholders may obtain copies of these reports, and of Cade's Annual Report to Shareholders, by writing or calling: Sheryl A. Mull Cade Industries, Inc. P.O. Box 23094 Lansing, MI 48909 Phone: (517) 394-1333 Beginning April 1, 1997, earnings, financial results, corporate news and other company information will be available on Cade's web site: http://www.cade-industries.com TRANSFER AGENT AND REGISTRAR Correspondence and questions concerning shareholder accounts or transfer of stock should be addressed to: Firstar Trust Company 615 E. Michigan Street Milwaukee, WI 53202 Phone: (414) 287-3920 STOCK EXCHANGE Shares of Cade Industries Common Stock are traded on the over-the-counter market on the Nasdaq National Market System (ticker symbol CADE). 18 EX-23.1 4 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.1 Cade Industries, Inc. 1996 10-K [ERNST & YOUNG LLP LETTERHEAD] CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement Form S-8 No. 33-37911 pertaining to the Cade Industries, Inc. 1987 Stock Option Plan, the Cade Industries, Inc. 1990 Nonqualified Stock Option Plan, the Cade Industries, Inc. Nonstatutory Stock Option Agreement for the Benefit of Terrell L. Ruhlman, the Cade Industries, Inc. Nonstatutory Stock Option Agreement for the Benefit of Richard A. Lund, and the Cade Industries, Inc. Nonstatutory Stock Option Agreement for the Benefit of Robert P. Luzzi and in Registration Statement No. 333-03033 pertaining to the Cade Industries, Inc. 1994 Stock Option Plan, the May 3, 1994 Nonstatutory Stock Option Agreement for the Benefit of Terrell L. Ruhlman, the December 30, 1994 Nonstatutory Stock Option Agreement for the Benefit of Richard Gribbins, and the December 31, 1995 Nonstatutory Stock Option Agreement for the Benefit of Richard Gribbins and in each related Prospectus, of our report dated February 13, 1995 with respect to the consolidated financial statements and the financial statement schedule listed in the Index at Item 14(a) included in this Annual Report on Form 10-K of Cade Industries, Inc. for the year ended December 31, 1996. /s/ Ernst & Young LLP --------------------------- ERNST & YOUNG LLP Detroit, Michigan March 25, 1997 EX-23.2 5 CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.2 [DELOITTE & TOUCHE LLP LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-37911 and 333-03033 of Cade Industries, Inc. on Form S-8 of our report dated February 19, 1997, appearing in the Annual Report to Shareholders and incorporated by reference in the Form 10-K of Cade Industries, Inc. for the year ended December 31, 1996. /s/ Deloitte & Touche LLP - -------------------------------- March 25, 1997 Lansing, Michigan EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN CADE INDUSTRIES, INC.'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 DEC-31-1996 21,606 0 6,585,905 0 9,913,770 17,146,560 26,163,105 11,157,024 35,304,440 9,147,924 4,839,181 0 0 21,973 21,008,273 35,304,440 34,867,072 34,867,072 26,704,927 26,704,927 6,097,363 0 729,290 1,335,492 277,000 1,058,492 0 0 0 1,058,492 .05 .05
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