<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 June 29, 1997
[ ] 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 August 5, 1997: 4,109,649 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 Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Part II. Other Information
Item 4 Results of Votes of Securities Holders 17
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
June 29, 1997, December 31, 1996 and June 30, 1996
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
June 29, December 31, June 30, 1996
1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,990 1,262 2,012
Short-term investments 39 2,776 2,848
Receivables:
Trade 2,593 2,102 2,872
Current installments of long-term notes receivable 208 203 78
Refundable income taxes 625 357 -
---------------------------------------------
3,426 2,662 2,950
Less allowance for doubtful receivables 437 394 306
---------------------------------------------
Net receivables 2,989 2,268 2,644
Inventories 11,460 10,689 10,521
Prepaid expenses 2,575 1,423 1,907
Deferred income taxes 348 314 127
---------------------------------------------
Total current assets 19,401 18,732 20,059
Long-term notes receivable, excluding current installments 993 927 670
Investment in affiliate 1 - 47
Property, plant and equipment, at cost, less accumulated
depreciation and amortization 11,163 9,829 10,718
Other assets, at cost, less accumulated amortization 463 546 618
=============================================
$ 32,021 30,034 32,112
=============================================
Liabilities and Stockholders'
Equity
Current liabilities:
Current installments of long-term debt 54 52 50
Accounts payable - trade 3,234 1,467 2,764
Accrued salaries and wages 181 759 393
Other accrued expenses 981 983 817
Income taxes payable - - 387
Customer deposits 5,763 4,657 6,642
---------------------------------------------
Total current liabilities 10,213 7,918 11,053
Long-term debt, excluding current installments 1,137 1,164 1,190
Deferred income taxes 387 210 118
Stockholders' equity:
Common stock of $.01 par value. Authorized 10,000,000 shares; issued and
outstanding 4,109,649 shares at June 29, 1997, 4,081,830 shares at
December 31, 1996 and
4,073,982 shares at June 30, 1996 41 41 41
Additional paid-in capital 16,002 15,916 15,888
Cumulative translation adjustment (932) (748) (696)
Retained earnings 5,173 5,533 4,518
---------------------------------------------
Total stockholders' equity 20,284 20,742 19,751
- - ----------------------------------------------------------------------------------------------------------------------
$ 32,021 30,034 32,112
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended June 29, 1997 and June 30, 1996
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Quarters Ended
---------------------- ---------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 22,453 20,760 14,913 14,173
Cost of goods sold 18,783 15,389 11,531 9,744
---------------------------------------------------------
Gross profit 3,670 5,371 3,382 4,429
Operating expenses:
Selling, general and administrative expenses 4,474 4,514 2,291 2,225
Display court expenses 331 317 170 167
---------------------------------------------------------
Total operating expenses 4,805 4,831 2,461 2,392
---------------------------------------------------------
Operating income (loss) (1,135) 540 921 2,037
Other income (expense):
Rental income 165 157 75 95
Interest income 94 132 34 54
Interest expense (60) (67) (31) (36)
Other, net 457 - (9) -
---------------------------------------------------------
Other income, net 656 222 69 113
---------------------------------------------------------
Earnings (loss) before
income tax expense (479) 762 990 2,150
(benefit)
Income tax expense (benefit) (119) 270 358 767
---------------------------------------------------------
Net earnings (loss) $ (360) 492 632 1,383
=========================================================
Net earnings (loss) per common share $ (.09) .12 .15 .34
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the months ended June 29, 1997 and June 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
June 29, June 30,
1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (360) 492
Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization of plant and equipment 504 464
Amortization of other assets 82 83
Amortization of display homes 94 116
Loss (gain) on disposal of property, plant, and furniture and fixtures (463) 3
Deferred income tax expense - 4
Change in certain assets and liabilities:
Increase in net receivables other than current portion of long-term (536) (435)
notes
Increase in inventories exclusive of amortization of display homes (1,065) (2,111)
Decrease (increase) in prepaid expenses (1,151) 23
Increase in current liabilities other than current portion of 2,061 3,651
long-term debt
Increase in deferred income taxes 144 42
Notes receivable increase related to operating activities (128) (142)
------------------------
Net cash provided by (used in) operating activities (818) 2,190
Cash flows from investing activities:
Purchase of short-term investments (99) (3,334)
Liquidation of short-term investments 2,835 2,199
Cash received for repayment of notes (not related to the sale of homes) 60 19
Cash received from sale of property, plant, furniture and fixtures 1,460 4
Additions to property, plant and equipment (2,834) (701)
Disbursements for loans (not related to the sale of homes) (8) -
Additions to other assets - (3)
------------------------
Net cash provided by (used in) investing activities 1,414 (1,816)
Cash flows from financing activities:
Proceeds from exercise of stock options 86 28
Repayment of long-term debt (26) (23)
------------------------
Net cash provided by financing activities 60 5
Effect of exchange rates on cash and cash equivalents 72 (28)
------------------------
Net increase in cash and cash equivalents 728 351
Cash and cash equivalents at beginning of period 1,262 1,661
========================
Cash and cash equivalents at end of period $ 1,990 2,012
========================
Supplemental disclosures of cash flow information - cash paid during the year for:
Interest $ 59 69
Income taxes paid 3 28
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1997, December 31, 1996 and June 30, 1996
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
(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, 1996.
(2) EARNINGS (LOSS) 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 4,118,907 and 4,128,970
for the second quarter of 1997 and 4,088,094 and 4,108,562 for the second
quarter of 1996, 4,102,315 and 4,102,315 for the first six months of 1997
and 4,095,939 and 4,107,337 for the first six months of 1996.
(3) INVENTORIES
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
June 29, December 31, June 30,
1997 1996 1996
----------------------------------------------
<S> <C> <C> <C>
Raw materials $ 5,074 3,491 3,752
Work-in-process 2,257 2,234 2,184
Finished goods 3,456 4,056 3,546
Display homes 673 908 1,039
============================================
$ 11,460 10,689 10,521
============================================
</TABLE>
(Continued)
7
<PAGE> 8
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 29, December 31, June 30,
1997 1996 1996
--------------------------------------------
<S> <C> <C> <C>
Building and leasehold improvements $ 9,445 8,204 7,982
Equipment 4,906 4,834 4,757
Furniture and fixtures 3,927 3,463 3,186
--------------------------------------------
18,278 16,501 15,925
Less accumulated depreciation and amortization 9,429 9,432 9,235
--------------------------------------------
8,849 7,069 6,690
Land 2,314 2,760 4,028
============================================
Net property, plant and equipment $ 11,163 9,829 10,718
============================================
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 29, December 31, June 30,
1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
First mortgage note payable, due in monthly installments of $13,
including interest at 9.5%; final payment due 2009 $ 1,158 1,183 1,206
Other 33 33 34
-----------------------------------------
Total long-term debt 1,191 1,216 1,240
Less current installments 54 52 50
=========================================
Long-term debt, excluding current installments
$ 1,137 1,164 1,190
=========================================
</TABLE>
(Continued)
8
<PAGE> 9
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
At December 31, 1996, certain properties, having an aggregate net book
value of approximately $3,577, were pledged as collateral for the above
long-term debt.
At June 29, 1997, the Company had $2,859 of unsecured lines of credit
with banks to be drawn upon as needed, with interest at 1/2% above the
prime rate.
(6) OUTSTANDING STOCK OPTIONS
(a) EMPLOYEE STOCK OPTION PLANS
The Company has provided for the granting of stock options to key
employees under three plans: the 1984 Incentive Stock Option Plan
(the 1984 Plan), the 1988 Combined Incentive Stock Option and
Nonqualified Stock Option Plan (the 1988 Plan), and the 1997 Stock
Option Plan (the 1997 Plan). All three 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 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.
Under the terms of the 1997 Plan, both incentive and nonqualified
options to purchase shares of the Company's common stock may be
granted. Options 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.
At August 5, 1997, there were options outstanding under the 1984 and
1988 Plans to purchase 420,290 shares of common stock at per share
prices ranging from $3.15 to $5.38. Of these 420,290 options,
299,360 were currently exercisable at an average price of $4.19 per
share. From January 1, 1997 to August 5, 1997, options to purchase
5,000 shares were granted at a price of $4.00 per share. From
January 1, 1997 to August 5, 1997, options to purchase 23,819 shares
were exercised at an average per share price of $3.04 and options to
purchase 27,862 shares were relinquished.
(Continued)
9
<PAGE> 10
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
(b) DIRECTORS AND DISTRIBUTORS STOCK OPTION PLAN
The Company has provided for the granting of stock options to
non-employee directors and distributors who serve on the Distributor
Advisory Council (Council).
Non-employee directors are granted options to purchase 10,000 shares
of common stock when first elected to the Board of Directors.
Additionally, each non-employee 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. No options have been granted to
or exercised by non-employee directors from January 1, 1997 through
August 5, 1997.
At August 5, 1997, there were options outstanding to non-employee
directors to purchase 108,209 shares of common stock at per share
prices ranging from $3.75 to $6.36. Of these 108,209 options, 88,402
were currently exercisable at per share prices ranging from $3.75 to
$6.36.
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. From
January 1, 1997 to August 5, 1997, options to purchase 2,200 shares
were granted at a per share price of $4.13. Between January 1, 1997
and August 5, 1997, options to purchase 4,000 shares were exercised
at a per share price of $3.75, and options to purchase 4,000 shares
were relinquished.
(c) ISSUANCE OF RESTRICTED STOCK
Non-employee directors are granted, on October 1 of each year,
1,000 shares of the Company's common stock at the fair market value
on the date of issuance. As this stock will not have been
registered, all certificates will bear the appropriate restrictive
legend. A charge equal to the fair market value on the date of
issuance will be recorded as compensation. Pursuant to the
pre-employment negotiations, in June 1997, 1,000 shares of common
stock were granted, at the fair market value at the date of
issuance, to the person who became the Vice-President Finance. As
the stock has not been registered, the certificate bears the
appropriate restrictive legend. A charge of $4.00 per share was
recorded as compensation in 1997.
(Continued)
10
<PAGE> 11
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
(7) INCOME TAXES
Income tax expense (benefit) was allocated as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Quarters Ended
------------------------- ----------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Current
U.S. Federal $ (367) 346 341 728
Canadian 103 (129) 50 (1)
State - 10 - 10
-------------------------------------------------------
(264) 227 391 737
Deferred:
U.S. Federal 126 31 (43) 16
Canadian 19 12 10 14
-------------------------------------------------------
145 43 (33) 30
=======================================================
$ (119) 270 358 767
=======================================================
</TABLE>
The Company's consolidated Canadian subsidiary had earnings before income
taxes of $260 for the second quarter of 1997 compared to a loss before
income taxes of $299 for the second quarter of 1996.
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>
June 29, December 31, June 30,
1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Receivables, due to the allowance for doubtful receivables $ 158 128 95
Uniform inventory capitalization for tax purposes 34 34 20
Accrued expenses deductible in different years for tax 156 152 12
-----------------------------------------
Deferred tax assets 348 314 127
Deferred tax liabilities - property, plant and equipment,
principally due to differences in basis of assets and
depreciation 387 210 118
=========================================
Net deferred tax assets (liability) $ (39) 104 9
=========================================
</TABLE>
(Continued)
11
<PAGE> 12
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
================================================================================
(8) 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>
1997
----
Revenue $ 7,540 14,913
1996
----
Revenue 6,587 14,173 14,632 11,243
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
</TABLE>
12
<PAGE> 13
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
SECOND QUARTER
RESULTS OF OPERATIONS
Revenue increased $740,000 (5%) from the second quarter of 1996 due to increased
material sales.
Home revenue remained virtually unchanged from the second quarter of 1996.
Revenue from houses increased $200,000 (2%) from $11.6 million in the second
quarter of 1996 to $11.8 million in the second quarter of 1997, while retrofit
sunroom sales decreased $207,000 (25%) from $823,000 in the second quarter of
1996 to $616,000 in the second quarter of 1997. The number of home units shipped
decreased 1% from 167 units in the second quarter of 1996 to 165 units in the
second quarter of 1997. The average revenue per home unit shipped increased 3%
from $70,000 in the second quarter of 1996 to $72,000 in the second quarter of
1997. This is partially due to a graduated price increase which will become
fully effective in the third quarter of 1997. The Access product, the base
price of which is approximately 25% to 30% less than the traditional Cedar Frame
home accounted for approximately 42% of the home units shipped in the second
quarter of 1997 compared with 28% of the home units shipped in second quarter of
1996.
The dollar value of new home orders decreased 22% from the second quarter of
1996 to the second quarter of 1997. The number of new home orders decreased 18%
from the second quarter of 1996 to the second quarter of 1997. The decrease in
the number of new orders is due largely to the inclement weather experienced in
many parts of the United States and Canada in the Spring and early Summer of
1997 which are prime selling months. The size and value of a home is a function
of customer preference and may change somewhat from period to period. Entering
the third quarter of 1997, the total backlog, stated in dollars, was 8% higher
than it was entering the third quarter of 1996.
The gross profit percentage (gross profit/revenue) was 22.7% in the second
quarter of 1997 compared to 31.2% in the second quarter of 1996, due primarily
to increased wood costs. Wood costs increased from 45.8% of revenue in the
second quarter of 1996 to 54.7% of revenue in second quarter of 1997.
Selling, general and administrative (SG&A) expenses increased $66,000 (3%) from
the second quarter of 1996. Selling expenses decreased $152,000 (12%) from
$1.222 million in the second quarter of 1996 to $1.070 million in the second
quarter of 1997. General and administrative expenses increased $218,000 (22%)
from $1.003 million in the second quarter of 1996 to $1.221 million in the
second quarter of 1997. This is largely due to seasonal factors, an increase in
outside professional services, and the one-time costs associated with moving
into the new manufacturing facility in Burlington, Washington.
In the second quarter, the Company purchased a new manufacturing facility in
Burlington, Washington and has begun an expansion of the facility. The Windows
and Sunroom divisions of the Company have been consolidated into one business
unit and now occupies the facility. The purchase of this facility is being
treated as a tax-free exchange under section 1031 of the Internal Revenue Code
in relation to the Kent, Washington facility, the sale of which occurred in the
first quarter of 1997.
13
<PAGE> 14
In September 1996, the Company obtained the rights to harvest approximately
327,000 cubic meters of timber in the Province of British Columbia. Management
expects that the harvest of this timber will assure a supply of cedar for
approximately the next five years. Harvesting of the timber is expected to begin
later in 1997.
YEAR-TO-DATE
Revenue increased $1.7 million (8%) from $20.8 million in 1996 to $22.5 million
in 1997.
Home and Sunroom revenues increased $400,000 (2%) from $17.2 million in 1996 to
$17.6 million in 1997. The number of home units shipped increased 2% from 228 in
1996 to 233 in 1997. The average revenue per home unit shipped increased 3% from
$70,000 in 1996 to $72,000 in 1997. This is partially due to a graduated price
increase which will become fully effective in the third quarter of 1997, and
customer preference in the size and value of home units shipped.
The dollar value of new home orders decreased 13% from 1996 to 1997. The number
of new home orders decreased by 12%. The decrease in the dollar value of new
homes is primarily due to the increased sales percentage of the Access product
which represented 43% of the new orders in 1997 compared to 31% of new orders in
1996. The base price of the Access product is approximately 25% to 30% less
than the traditional Cedar Frame home. The decrease in the number of new orders
is largely due to the inclement weather experienced in many parts of the United
States and Canada during the Spring and early Summer months which are prime
selling months.
Entering the third quarter of 1997, the total backlog, stated in dollars, was 8%
higher than it was entering the third quarter of 1996.
The gross profit percentage of 25.9% in 1996 compared to 16.3% in 1997. The
decrease in gross profit is largely due to the increase in wood costs which were
53.6% of revenue in 1997 compared to 45.1% in 1996. The increase in wood costs
was partially offset by a graduated price increase which will become fully
effective in the third quarter of 1997.
SG&A expenses decreased $40,000 (1%) from 1996 to 1997, due primarily to the
effect of general cost cutting.
The Kent, Washington facility was sold in the first quarter of 1997. The gain,
$466,000, is included in other income. For tax purposes, the sale of this
property will be treated as a section 1031 tax-free exchange for the Burlington,
Washington manufacturing facility, which the Company purchased in the second
quarter of 1997.
LIQUIDITY
The Company's policy is that all home and sunroom orders be accompanied by a
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 payments. Operations and customer deposits for home and
sunroom orders are the Company's primary source of cash. The Company is
considering increasing one of its lines of credit in 1997 to account for its
seasonal lumber requirements, the value of which has increased due to
the higher cost of wood products.
14
<PAGE> 15
In 1995, the Company began the process of consolidating its manufacturing and
distribution operations and, in late February 1996, notified its employees at
the Kent, Washington facility that the home shipment operations would be moved
to Surrey, British Columbia. All home shipments now originate from Surrey,
British Columbia. In the second quarter of 1997, the Company signed a 10-year
labor contract with the union that represents Canadian plant employees at the
Surrey facility. The Company expects to expand the facility in Surrey to provide
additional manufacturing and shipping capabilities. The Company anticipates that
it will spend approximately $5.0 to $6.0 million expanding this facility in 1997
and 1998. It is anticipated that construction will begin sometime in the late
third or early fourth quarter of 1997 and will be completed in 1998.
The Company has also consolidated its sunroom and window operations into the new
Burlington, Washington facility. When complete, this facility will manufacture
the Company's sunrooms in addition to expanding window production. Currently
sunrooms are manufactured, on a contract basis, by a third party. The Company
expects to begin manufacturing its sunroom products at this location in the
fourth quarter of 1997.
Management expects to finance the required capital expenditures for the
acquisition and expansion of the Burlington, Washington facility through the
issuance of tax-exempt Industrial Revenue Bonds. It is expected that the bonds
will be issued early in the fourth quarter of 1997. In connection with the
issuance of the Industrial Revenue Bonds, the Company will acquire a Letter of
Credit to secure payment of the bonds. To secure the Letter of Credit, the
Company will pledge property and equipment with a fair market value of
approximately $5.4 million.
The total of cash, cash equivalents and short-term investments at June 29, 1997
decreased $2.0 million (50%) from December 31, 1996 due largely to seasonal
factors, an increase in inventories due to the higher cost of wood products, and
the purchase and expansion of the Burlington, Washington facility. The total of
cash, cash equivalents and short-term investments at June 29, 1997 decreased
$2.8 million (58%) from June 30, 1996 due largely to the increase in inventories
due to the higher cost of wood products, and the purchase and expansion of the
Burlington, Washington facility.
At June 29, 1997, short-term investments were primarily composed of tax-exempt
bonds and bankers' acceptances. Approximately 70% of the June 29, 1997
short-term investments mature at planned intervals on or before September 19,
1997.
Production inventories increased $1.0 million (10%) from December 31, 1996 and
$1.3 million (14%) from June 30, 1996, primarily due to increased prices for
lumber products and the strategy of holding larger than normal quantities of
certain lumber components for homes. This strategy is designed to allow the
Company to ship complete home packages even if short-term supply disruptions
occur in the lumber market.
The Company continues to hedge a portion of its expected non-cedar lumber needs
for its home packages using options and futures contracts. The programs
objective is to manage well-defined commodity risks, hedge against increases in
the cost of lumber components and to fulfill orders at quoted prices. These
derivative financial instruments are not being used for trading purposes.
Accounts payable - trade and customer deposits increased $2.9 million (47%) from
December 31, 1996 due to seasonal factors and the increased cost of wood
products, and decreased $400,000 (4%) from June 30, 1996, due to the decrease in
the number of new orders. Entering the third quarter of 1997, the total backlog,
stated in dollars, was 8% higher than it was entering the third quarter of 1996.
15
<PAGE> 16
OTHER MATTERS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) which establishes accounting
standards for computing and presenting earnings per share (EPS). The
computations for determining EPS should be simplified under SFAS 128. The
Company must adopt SFAS 128 beginning December 31, 1997, and will be required to
restate all prior-period EPS data presented.
Earlier adoption is not permitted.
Also in February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129 (SFAS 129) which establishes
standards for disclosing information about an entity's capital structure. The
disclosures are not expected to have a significant impact on the Company.
SFAS 129 is effective for financial statements ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130) which establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS 130 requires that all items that are required to be recognized
under accounting standards as Components of Comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for years beginning after
December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131) which establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes the related disclosures
about products and services, geographic areas, and major customers. SFAS 131
replaces the "industry segment" concept of Financial Accounting Standard No. 14
with a "management approach" concept as the basis for identifying reportable
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997.
16
<PAGE> 17
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 4 - RESULTS OF VOTES OF SECURITIES HOLDERS
The following matters were approved by the shareholders at the Company's annual
meeting of shareholders held on May 29, 1997:
<TABLE>
<CAPTION>
Authority
Withheld/
Description of Proposal For Against Abstain
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Election of Directors
Douglas F. Lindal 1,028,945 9,564 -
Harry A. Pryde 1,029,744 8,765 -
Sir Walter Lindal 1,029,744 8,765 -
William F. Lorenz 1,029,744 8,765 -
William M. Weisfield 1,029,744 8,765 -
2. To amend the Company's Certificate of Incorporation to
eliminate the right of stockholders to accumulate votes
in the election of directors
941,842 95,123 1,544
3. To approve the Company's 1997 Stock Option Plan
917,599 114,041 6,869
4. To elect the independent auditors to examine the
consolidated financial statements of the Company for the
year ending December 31, 1997 1,037,583 617 309
</TABLE>
ITEM 6(B) - REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the second quarter of 1997.
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/ DENNIS L. GREGG
---------------------------------------
Dennis L. Gregg
Vice President Finance
(Chief Accounting Officer)
DATE:
- - -----
August 13, 1997
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-29-1997
<CASH> 2,029
<SECURITIES> 0
<RECEIVABLES> 2,593
<ALLOWANCES> 437
<INVENTORY> 11,460
<CURRENT-ASSETS> 19,401
<PP&E> 20,592
<DEPRECIATION> 9,429
<TOTAL-ASSETS> 32,021
<CURRENT-LIABILITIES> 10,213
<BONDS> 1,137
0
0
<COMMON> 41
<OTHER-SE> 20,243
<TOTAL-LIABILITY-AND-EQUITY> 32,021
<SALES> 22,453
<TOTAL-REVENUES> 22,453
<CGS> 18,783
<TOTAL-COSTS> 18,783
<OTHER-EXPENSES> 4,805
<LOSS-PROVISION> 98
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> (479)
<INCOME-TAX> 119
<INCOME-CONTINUING> (360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (360)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
