<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 29, 1996
[ ] 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 0-6087
LINDAL CEDAR HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-0508250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 South 104th Place, Seattle, Washington 98178
(Address of principal executive offices)
(Zip code)
(206) 725-0900
(Registrant's telephone number, including area code)
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
Common stock outstanding at November 1, 1996: 4,081,830 shares at $.01 par
value.
<PAGE> 2
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Earnings 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Part II. Other Information
Item 6(b) Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
3
<PAGE> 4
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 29, 1996, December 31, 1995 and October 1, 1995
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
September 29, December 31, October 1,
1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 848 1,661 2,008
Short-term investments 3,758 1,714 2,101
Receivables:
Trade 2,400 2,342 2,352
Current installments of long-term notes receivable 109 106 105
----------------------------------------
2,509 2,448 2,457
Less allowance for doubtful receivables 347 204 232
----------------------------------------
Net receivables 2,162 2,244 2,225
Inventories 10,729 8,526 9,113
Prepaid expenses 1,609 1,930 2,008
Deferred income taxes 193 157 118
----------------------------------------
Total current assets 19,299 16,232 17,573
Long-term notes receivable, excluding current installments 774 517 848
Investment in affiliate 54 45 --
Property, plant and equipment, at cost, less accumulated depreciation
and amortization 10,675 10,500 10,219
Other assets, at cost, less accumulated amortization 579 698 659
========================================
$ 31,381 27,992 29,299
========================================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 51 48 47
Accounts payable - trade 2,352 1,492 2,139
Accrued salaries and wages 833 617 490
Other accrued expenses 921 682 653
Income taxes payable 245 188 454
Customer deposits 5,197 4,365 4,907
----------------------------------------
Total current liabilities 9,599 7,392 8,690
Long-term debt, excluding current installments 1,177 1,216 1,228
Deferred income taxes 138 104 83
Stockholders' equity:
Common stock of $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 4,073,982 shares at September 29, 1996, 4,060,139
shares at December 31, 1995 and 4,046,906 shares at October 1,
1995 41 41 40
Additional paid-in capital 15,888 15,856 15,811
Cumulative translation adjustment (714) (644) (623)
Retained earnings 5,252 4,027 4,070
----------------------------------------
Total stockholders' equity 20,467 19,280 19,298
- --------------------------------------------------------------------------------------------------------------------------
$ 31,381 27,992 29,299
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the periods ended September 29, 1996 and October 1, 1995
(Dollar amounts in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
=======================================================================================================================
Nine Months Ended Quarters Ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 35,392 32,113 14,632 11,536
Cost of goods sold 26,526 23,826 11,137 8,415
--------------------------------------------------------
Gross profit 8,866 8,287 3,495 3,121
Operating expenses:
Selling, general and administrative expenses 6,820 6,738 2,306 2,222
Display court expenses 506 550 189 198
--------------------------------------------------------
Total operating expenses 7,326 7,288 2,495 2,420
--------------------------------------------------------
Operating income 1,540 999 1,000 701
Other income (expense):
Equity in earnings of affiliate -- 891 -- --
Rental income 266 233 109 88
Interest income 205 285 73 173
Interest expense (98) (168) (31) (72)
--------------------------------------------------------
Other income, net 373 1,241 151 189
--------------------------------------------------------
Earnings before income tax expense 1,913 2,240 1,151 890
Income tax expense 688 860 418 289
--------------------------------------------------------
Net earnings $ 1,225 1,380 733 601
========================================================
Net earnings per common share $ .30 .34 .18 .15
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 29, 1996 and October 1, 1995
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers $ 36,190 33,016
Cash paid to suppliers and employees (33,274) (31,320)
Interest received 160 243
Interest paid (98) (174)
Income tax expense (639) (378)
Cash paid for litigation settlement, including associated legal fees (121) (126)
--------------------
Net cash provided by operating activities 2,218 1,261
Cash flows from investing activities:
Cash received for repayment of notes (not related to the sale of homes) 41 11
Additions to plant and equipment (989) (1,102)
Purchase of short-term cash investments (4,973) (3,323)
Liquidation of short-term cash investments 2,927 1,699
Disbursements for loans (not related to the sale of homes) -- (243)
Proceeds from sale of property and equipment 10 2
Additions to other assets (7) (169)
Investment in affiliate -- 1,245
--------------------
Net cash used in investing activities (2,991) (1,880)
Cash flows from financing activities:
Proceeds from exercise of stock options 28 33
Repayment of long-term debt (35) (43)
Retirement of long-term debt -- (604)
--------------------
Net cash used in financing activities (7) (614)
Effect of exchange rates on cash and cash equivalents (33) 22
--------------------
Net decrease in cash and cash equivalents (813) (1,211)
Cash and cash equivalents at beginning of period 1,661 3,219
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 848 2,008
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 1,225 1,380
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of plant and equipment 712 631
Amortization of other assets 125 152
Amortization of display homes 172 199
Loss (gain) on disposal of property and equipment 9 (1)
Deferred income tax expense (2) (39)
Compensation expense related to restricted stock 4 --
Equity in earnings of affiliate -- (891)
Changes in certain assets and liabilities:
Decrease (increase) in net receivables 74 (255)
Increase in inventories exclusive of amortization of display
models (2,390) (720)
Decrease (increase) in prepaid expenses related to operating
activities 322 (604)
Increase in current liabilities other than current portion of
long-term debt 2,202 1,485
Increase in notes receivable related to operating activities (235) (76)
------------------
Total adjustments 993 (119)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 2,218 1,261
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 1996, December 31, 1995 and October 1, 1995
(Dollar amounts in thousands, except per share amounts)
================================================================================
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
except as noted below, and include all recurring adjustments that are
considered necessary by management to fairly state the results of the
interim periods. 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,
liabilities, revenues and expenses and certain disclosures. Actual
results could differ from those estimates. These consolidated financial
statements and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been omitted. Due to the seasonality
of the Company's business, the accompanying consolidated financial
statements may not necessarily be indicative of the results to be
obtained for the full year. This report should be read in conjunction
with the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1995.
(2) EARNINGS PER COMMON SHARE
There was no difference between primary and fully diluted earnings per
share for all periods presented. The number of shares used to compute
primary and fully diluted earnings per share was 4,096,664 and 4,104,794
for the third quarter of 1996, 4,084,872 and 4,101,544 for the third
quarter of 1995, 4,096,180 and 4,106,489 for the first nine months of
1996, and 4,077,475 and 4,087,577 for the first nine months of 1995.
(3) INVENTORIES
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
September 29, December 31, October 1,
1996 1995 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 3,832 2,838 2,674
Work-in-process 2,324 1,581 1,996
Finished goods 3,589 2,938 2,968
Display homes 984 1,169 1,475
---------------------------------------------------------------------
$10,729 8,526 9,113
=====================================================================
</TABLE>
(Continued)
8
<PAGE> 9
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
================================================================================
(4) INVESTMENT IN AFFILIATE
In 1994, the Company acquired a 50% interest in a corporate joint venture
(JV) which is accounted for in accordance with the equity method. The
remaining 50% interest is held by an unaffiliated company. Any
contributions to the JV, which were made for working capital
requirements, and asset or equity distributions from the JV are made in
accordance with the respective ownership interests. The JV was formed to
harvest timber in British Columbia, Canada. The harvesting of the timber
began in the fourth quarter of 1994. The sale of the harvested logs was
essentially completed in the second quarter of 1995.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
September 29, December 31, October 1,
1996 1995 1995
---------------------------------------
<S> <C> <C> <C>
Building and leasehold improvements $ 8,101 7,634 7,594
Equipment 4,818 4,618 4,642
Furniture and fixtures 3,250 3,079 2,922
---------------------------------------
16,169 15,331 15,158
Less accumulated depreciation and
amortization 9,449 8,856 8,841
---------------------------------------
6,720 6,475 6,317
Land 3,955 4,025 3,902
---------------------------------------
Net property, plant and equipment $10,675 10,500 10,219
=======================================
</TABLE>
(Continued)
9
<PAGE> 10
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
================================================================================
(6) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 29, December 31, October 1,
1996 1995 1995
------------------------------------
<S> <C> <C> <C>
First mortgage note payable, due in monthly
installments of $13, including interest at
9.5%; final payment due 2009 $1,195 1,230 1,240
Other 33 34 35
------------------------------------
Total long-term debt 1,228 1,264 1,275
Less current installments 51 48 47
------------------------------------
Long-term debt, excluding current
installments $1,177 1,216 1,228
====================================
</TABLE>
Certain properties, having an aggregate net book value of approximately
$3,500, were pledged as collateral on the above long-term debt.
At September 29, 1996, the Company had $2,866 of unsecured lines of
credit with banks to be drawn upon as needed, with interest at 1/2% above
the prime rate.
(7) OUTSTANDING STOCK OPTIONS
(A) EMPLOYEE STOCK OPTION PLANS
The Company has provided for the granting of stock options to key
employees under two plans: the 1984 Incentive Stock Option Plan (the
1984 Plan) and the 1988 Combined Incentive Stock Option and
Nonqualified Stock Option Plan (the 1988 Plan). Both plans are
administered by the Compensation Committee of the Board of Directors
(Committee).
Under the terms of the 1984 Plan, incentive options to purchase
shares of the Company's common stock were granted at a price equal
to the market price of the stock at the date of grant. The 1984 Plan
expired on December 21, 1994 and no future options will be granted
under this plan.
Under the terms of the 1988 Plan, both incentive and nonqualified
options to purchase shares of the Company's common stock may be
granted. Options granted under this plan may be designated as
incentive or nonqualified at the discretion of the Committee. The
exercise price of the options granted under this plan is set at the
time of grant, but may not be less than the fair market value of the
Company's stock at the date of grant.
(Continued)
10
<PAGE> 11
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
================================================================================
At November 1, 1996, there were options outstanding under both plans
to purchase 496,346 shares of common stock at per share prices
ranging from $2.94 to $5.38. Of these 496,346 options, 351,891 were
currently exercisable at an average exercise price of $4.10 per
share. From January 1, 1996 to November 1, 1996, options to purchase
218,400 shares of common stock were granted at per share prices
ranging from $3.75 to $4.25. Options to purchase 100,000 shares were
nonqualified. Options to purchase 118,400 shares were qualified.
From January 1, 1996 to November 1, 1996, options to purchase 12,843
shares were exercised at a per share price of $2.16 and options to
purchase 32,279 shares were relinquished.
(B) DIRECTORS AND DISTRIBUTORS STOCK OPTION PLAN
The Company has provided for the granting of stock options to
nonemployee directors and distributors who serve on the Distributor
Advisory Council (Council).
Nonemployee directors are granted options to purchase 10,000 shares
of common stock when first elected to the Board of Directors.
Additionally, each nonemployee director in office each October 1 is
granted options to purchase 5,000 shares of the Company's common
stock. The exercise price of all options granted shall be the fair
market value on the date of grant. On October 1, 1996, options to
purchase 20,000 shares of common stock were granted at a per share
price of $4.00.
At November 1, 1996, there were options outstanding to nonemployee
directors to purchase 102,209 shares of common stock at per share
prices ranging from $3.75 to $6.36. Of these 102,209 options, 71,599
were currently exercisable at per share prices ranging from $3.75 to
$6.36. No options have been exercised from January 1, 1996 through
November 1, 1996.
All distributors who serve on the Council each February 1 are
granted options to purchase 100 shares of common stock for each year
of service on the Council. The exercise price of the options granted
is the market price of the Company's stock on the first business day
of October preceding the year in which the options are granted. At
November 1, 1996, there were options outstanding to purchase 15,300
shares of common stock at per share prices ranging from $3.50 to
$6.36. Of these 15,300 options, 8,320 were currently exercisable at
per share prices ranging from $3.50 to $6.36. From January 1, 1996
to November 1, 1996, options to purchase 2,100 shares were granted
at a per share price of $4.25 and options to purchase 710 shares
were relinquished. No options have been exercised in 1996.
(Continued)
11
<PAGE> 12
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
================================================================================
(C) ISSUANCE OF RESTRICTED STOCK
Pursuant to pre-employment negotiations, in January 1996, 1,000
shares of common stock were granted, at the fair market value at the
date of issuance, to the person who became the manager of the
Company's sunroom division. As the stock issued has not been
registered, the certificate bears the appropriate restrictive
legend. A charge of $4 was recorded as compensation in 1996.
Pursuant to a revised compensation program for nonemployee
directors, 1,000 shares of the Company's common stock were granted
to each of the four nonemployee directors, effective October 1,
1996, at the fair market value on the date granted, $4.00. As the
stock issued is not registered, all certificates bear the
appropriate restrictive legend.
(8) INCOME TAXES
Income tax expense (benefit) was allocated as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Quarters Ended
---------------------------- ----------------------------
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
U.S. Federal $ 838 585 492 401
Canadian (167) 296 (38) (102)
State 20 17 10 7
--------------------------------------------------------
691 898 464 306
Deferred:
U.S. Federal (33) (36) (64) (20)
Canadian 30 (2) 18 3
--------------------------------------------------------
(3) (38) (46) (17)
--------------------------------------------------------
$ 688 860 418 289
========================================================
</TABLE>
The Company's consolidated Canadian subsidiary had a pretax loss of
approximately $381 in the first nine months of 1996 and $342, excluding
the earnings of the affiliate, in the first nine months of 1995.
(Continued)
12
<PAGE> 13
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities were as
follows (in thousands):
<TABLE>
<CAPTION>
September 29, December 31, October 1,
1996 1995 1995
------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Receivables, due to the allowance for doubtful receivables $111 64 80
Uniform inventory capitalization for tax purposes 19 20 15
Accrued expenses, deductible in different years for tax 63 73 23
Foreign tax credit carryforward -- -- 6
------------------------------------
Total gross deferred tax assets 193 157 124
Less valuation allowance -- -- 6
------------------------------------
Net deferred tax assets 193 157 118
Deferred tax liabilities - property, plant and equipment,
principally due to differences in basis of assets and
depreciation 138 104 83
------------------------------------
Net deferred tax liabilities $ 55 53 35
====================================
</TABLE>
(9) OTHER FINANCIAL INFORMATION
The Company's business is seasonal in that most deliveries have
historically been made during the period from April to October. To
illustrate this, revenue by quarter is presented below (in thousands of
dollars):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenue $ 6,587 14,173 14,632
1995
Revenue 6,630 13,947 11,536 10,198
1994
Revenue 7,076 11,521 10,979 9,957
1993
Revenue 7,171 12,776 12,965 9,084
1992
Revenue 5,565 12,478 11,738 8,802
</TABLE>
13
<PAGE> 14
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
THIRD QUARTER
RESULTS OF OPERATIONS
Revenue increased $3.1 million (27%) from the third quarter of 1995 to the third
quarter of 1996 due to home and sunroom sales.
Home and sunroom revenue increased $3.4 million (37%) from $9.2 million in the
third quarter of 1995 to $12.6 million in the third quarter of 1996. The number
of home units shipped increased 47% from 118 units in the third quarter of 1995
to 174 units in the third quarter of 1996. The average revenue per home unit
shipped decreased 3% from $70,200 in the third quarter of 1995 to $67,800 in the
third quarter of 1996 due primarily to the Access product. The Access product
sells for approximately 30% less than the traditional Cedar Frame home. The
Access product accounted for 32% of the home units shipped in the third quarter
of 1996 compared to 18% of the home units shipped in the third quarter of 1995.
It is believed that the Access product allows broader market appeal in the
custom home market.
The dollar value of new orders decreased 20% from the third quarter of 1995 to
the third quarter of 1996. The number of new orders decreased 18% from the third
quarter of 1995 to the third quarter of 1996. July and August were relatively
weaker than the comparable period of 1995 due to the timing of the seasonal peak
in new order activity. For September and October, the number of new orders were
approximately 15% ahead of the comparable periods of 1995. The Access product
represented 41% of the new orders in the third quarter of 1996 compared to 27%
of the new orders in the third quarter of 1995.
As stated in its December 31, 1995 Form 10-K, the Company has begun the process
of consolidating its manufacturing and distribution operations. In late February
1996, employees at the Kent, Washington facility were notified that home
shipment operations would be moved to Surrey, British Columbia. All home
shipments are currently planned to originate from the Surrey, British Columbia
facility not later than January 1, 1997. In August 1996, negotiations with the
union that represents the 12 union employees effected were completed. The
Company will pay approximately $150,000 in severance to these employees. In the
third quarter of 1996, a charge of $150,000 was included in the cost of goods
sold.
The gross profit percentage (gross profit/revenue) was 27.1% in the third
quarter of 1995 compared to 23.9% in the third quarter of 1996. In the third
quarter of 1995, the cost of goods sold was reduced by $189,000 for U.S.
government refunds of duty on Canadian lumber. With this credit removed from the
cost of goods sold, the gross profit percentage was 25.4% for the third quarter
of 1995. With the aforementioned $150,000 charge for the closing of the Kent,
Washington plant removed from the cost of goods sold, the gross profit
percentage was 24.9% for the third quarter of 1996. Increased forest and
building products costs, which more than offset savings in other areas, are
responsible for the decrease in the gross profit percentage, as adjusted, from
25.4% in the third quarter of 1995 to 24.9% in the third quarter of 1996.
14
<PAGE> 15
YEAR-TO-DATE
RESULTS OF OPERATIONS
Revenue increased $3.3 million (10%) from 1995 to 1996.
Home and sunroom revenue increased $3.9 million (15%) from $25.9 million in 1995
to $29.8 million in 1996. The number of home units shipped increased 20% from
336 in 1995 to 402 in 1996. The average revenue per home unit shipped decreased
3% from $71,400 in 1995 to $69,100 in 1996 due to the Access product. The Access
product accounted for 30% of the home units shipped in 1996 compared to 15% of
the home units shipped in 1995.
Material and chip sales revenue decreased $537,000 (16%) from 1995 to 1996.
The dollar value of new orders increased 8% from 1995 to 1996. The number of new
orders increased 6%. The Access product represented 32% of the new orders in
1996 compared to 17% of the new orders in 1995.
Entering the fourth quarter of 1996, the total backlog, stated in dollars, was
8% lower than it was entering the fourth quarter of 1995.
The gross profit percentage was 25.8% in 1995 compared to 25.1% in 1996. With
the $189,000 credit for duty refunds in 1995 and the $150,000 charge related to
the closure of the Kent, Washington plant in 1996 removed from the respective
costs of goods sold, the gross profit percentage was 25.2% in 1995 compared to
25.5% in 1996. The increased cost to produce plans offset cost savings in other
areas of the cost of goods sold.
In 1994, the Company obtained the rights to harvest approximately 50,000 cubic
meters of timber in the Province of British Columbia. The harvesting of the
timber began in the fourth quarter of 1994. In the second quarter of 1995, the
sale of the harvested timber was essentially complete. Equity in the earnings of
the affiliate were $891,000 in 1995. There were no such earnings in 1996.
Interest expense decreased $70,000 (42%) primarily due to the September 1995
pay-off of a mortgage that was due in 2010 with an interest rate of 11%. This
mortgage had a balance owing of approximately $600,000.
LIQUIDITY
The Company's policy is that all home and sunroom orders be accompanied by cash
deposit and that units be paid in full before shipment or be shipped on a C.O.D.
basis. The majority of home and sunroom sales are prepaid. Lumber sales are made
on terms common to the lumber industry.
The Company pays its vendors within stated terms and takes advantage of
discounts for early payment. Operations and customer deposits for home and
sunroom orders are the Company's primary sources of cash. The Company does not
foresee the need to increase its lines of credit in 1996.
Cash and cash equivalents, at September 29, 1996, decreased $813,000 (49%) from
December 31, 1995 and decreased $1.2 million (58%) from October 1, 1995 due to
the corresponding increases in short-term investments. Short-term investments,
at September 29, 1996, increased $2.0 million (119%) from December 31, 1995 and
$1.7 million (79%) from October 1, 1995. At September 29, 1996, short-term
investments were primarily composed of bankers' acceptances,
15
<PAGE> 16
tax exempt bonds and commercial paper. Approximately 90% of the September 29,
1996 short-term investments mature at planned intervals before April 1, 1997.
Although no need to borrow for operating needs is foreseen, should a need arise,
the Company has available lines of credit totaling $2.9 million. The Company did
not use the available lines of credit, at any time, in 1996 or 1995.
On September 30, 1996, the Company announced that it had been awarded a timber
sale by the British Columbia government. The contract is for 372,000 cubic
meters of timber over a five-year period and is expected to allow the Company to
secure a cedar supply for more than five years.
As stated previously, the Company has begun the consolidation of its home
shipment operations in British Columbia. As a condition of the timber sale, the
Company is committed to complete the relocation of the home shipment operations
and move a considerable amount of its lumber manufacturing to British Columbia.
To accomplish this consolidation, it is expected to require an investment of
five to six million dollars in new plant and equipment. The Company has
evaluated the project in light of the required capital investment, operational
viability and other relevant factors. Management believes that the Canadian
consolidation is in the best interest of the Company and its shareholders.
Currently, the Company expects to partially finance the investment by selling
the Kent, Washington facility, undeveloped land located at Marysville,
Washington and possibly one other parcel of real estate. Additional sources of
financing are being investigated as the plans of the new facility are being
finalized. It is not expected that there will be significant cash requirements
for this project until the spring of 1997.
The Company has begun to consolidate its sunroom and window divisions into the
newly created Lindal Building Products Division. It is expected that this new
division will begin manufacturing the Company's sunroom in 1997. Sunrooms are
currently manufactured, on a contract basis, by a third party.
Additionally, the relocation of the Lindal Building Products Division to Skagit
County in Washington State is actively being pursued. An investment of two to
three million dollars is anticipated for plant and equipment. It is expected
that this relocation may happen as early as spring 1997. Various sources of
financing are being evaluated.
In order to finance both projects, the Company may invest a portion of its
current cash reserves.
Management believes that favorable financing for both projects will be obtained.
Inventories, accounts payable-trade and customer deposits increased $2.2 million
(26%), $860,000 (58%) and $832,000 (19%), respectively, from December 31, 1995
to September 29, 1996 due to seasonal factors. Inventories increased $1.6
million (18%) from October 1, 1995 to September 29, 1996 primarily due to
increased home sales and increased costs for forest and building products.
The Company continues to hedge a portion of its expected non-cedar lumber needs
for its home packages using options and future contracts. The program's
objective is to manage well defined commodity risks. These derivative financial
instruments are not being used for trading purposes.
16
<PAGE> 17
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6(b) - REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the third quarter of 1996.
17
<PAGE> 18
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
SIGNATURE:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINDAL CEDAR HOMES, INC.
By: /S/ Robert W. Lindal
----------------------------------------------
Robert W. Lindal
Chairman and Chief Executive Officer
By: /S/ John F. Dacy
----------------------------------------------
John F. Dacy
Vice President Finance & Treasurer
(Chief Accounting Officer)
DATE:
November 13, 1996
18
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<CIK> 0000059591
<NAME> LINDAL CEDAR HOMES, INC.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
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