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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1999.
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 91-0508250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
4300 South 104th Place, Seattle, Washington 98178
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code) (206) 725-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, par
value $.01 per
share
-------------------
(Title of Class)
Aggregate market price of shares held by non-affiliates at March 10, 1999 was
$4,282,871 consisting of 1,756,715 shares.
The number of shares of common stock outstanding on March 10, 1999 was 4,131,277
shares.
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
requirement 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The total number of pages in the Form 10-K is 47.
See index to exhibits on page 46.
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PART I
ITEM 1. BUSINESS
Lindal Cedar Homes, Inc. (the "Company") was incorporated under the laws of the
State of Washington in 1966. In 1986, the Company was reincorporated under the
laws of the State of Delaware.
The Company is primarily engaged in the manufacture and distribution of custom
cedar homes, windows and sunrooms. The Company re-manufactures most of its
standard dimensional cedar lumber needs. Remanufactured cedar lumber, that meets
the Company's quality standards, is combined with manufactured and/or purchased
windows, manufactured sunrooms, and other purchased forest products and building
materials into home packages which can be shipped nationally and internationally
to the home buyer's construction site. Remanufactured cedar lumber that is not
of a grade suitable for use in homes is sold on the open lumber market. The sale
of homes accounted for 79% of consolidated revenue in 1999, 78% of consolidated
revenue in 1998, and 76% of consolidated revenue in 1997.
In 1999, 96% of the Company's home sales were made through approximately 180
independent dealers. The balance of home sales was made from one
Company-operated sales court.
In 1998, 96% of the Company's home sales were made through approximately 170
independent dealers. The balance of home sales was made from one
Company-operated sales court.
The Company's dealers are subject to the economic conditions, weather
conditions, housing trends, and demographic influences existing in their locale.
As such, individual dealer sales may vary from year to year.
As non-exclusive independent businesses, the dealers may sell products or
services that compliment the products and services sold by the Company. It is
the Company's policy that dealers cannot sell competitive home products through
their Lindal dealership. The Company continually recruits new dealers to expand
sales into previously unserved locations and to replace dealers that have
retired or otherwise discontinued their dealership operations.
Traditionally, the Company has three classes of dealers: Commercial,
Storefront/Design Center and Home Sales Office. A Commercial dealer constructs a
model home in a commercial location and operates their business from the model.
The Storefront/Design Center dealer displays and operates from a retail
location. A Home Sales Office dealer uses a separate office in their Lindal
residence as their place of business. The Company encourages Commercial
dealerships as this class of dealer has consistently proven to be superior in
average sales volume. However, as the construction of a model home is
economically unfeasible in some urban or sparsely populated areas, the Company
developed the Storefront/Design Center concept. The Design Center, which is
professionally designed, is located in a shopping center environment. It relies
on in-store displays and point-of-sale materials, rather than a model home to
promote and sell the Company's products. The Storefront dealer incorporates many
of the features of the Design Center, but can be opened for a smaller
investment. Of the Company's approximate 180 dealers, approximately 40% are
Commercial dealers, 26% are Storefront/Design Centers and 5% are Home Sales
Offices. The majority of the remaining dealers operate from a Live-in Display.
The Home Sales Office was recently added as a new type of dealership.
The Company has four home products: The Cedar Frame, Cedar: Solid, Access and
Select. The Cedar Frame, Cedar: Solid and Access products predominantly utilize
post and beam design and construction. The Cedar Frame home utilizes a cavity
wall. The Cedar: Solid utilizes, predominantly, a solid cedar wall. The Access
home retains many of the features of the Cedar Frame home, including a cavity
wall. However, the base price of the Access product is approximately 25% to 30%
less than the traditional Cedar Frame home due to a less
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extensive package of materials and less expensive package components. The Select
product, introduced in January 1999, predominantly utilizes conventional design
and construction including a cavity wall. The Select product combines the
material savings of the Access product with the economy of conventionally framed
homes while using quality Lindal materials. In 1999, the Company introduced a
new planbook, containing 215 designs, called "Traditions" which uses the Select
specification for economy and addresses a broader range of home styles than
those included in the Company's "Originals" Planbook.
The Company sells homes both for year-round and seasonal occupancy. Most of the
purchasers of such homes are professional and business people with higher than
average incomes. In recent years approximately 70% of the Company's homes have
been purchased for use as primary residences.
The Company's principal competitor in its home market is the local custom
builder; however, in some circumstances it may also compete with other pre-cut,
pre-fab and modular building firms. The primary basis for competition is design
services, quality of materials, customer service and price.
The Company's revenues tend to be seasonal. Most home shipments traditionally
occur between April and October. It is the Company's policy to carry sufficient
amounts of inventory to respond to the needs of its customers. In 1999, 1998 and
1997, no single customer or dealer accounted for 10% or more of consolidated
revenue.
Besides being seasonal, the housing industry is cyclical. The Company follows
industry patterns, but believes that it is somewhat better positioned to weather
industry downturns than other manufacturers or builders with lower cost products
that appeal to a larger but less affluent market. Further, the Company also
believes that its target market is less affected by economic upturns. This
belief is based on the Lindal products' traditional appeal to middle and upper
income customers who historically have been less affected by economic downturns
and upturns.
The Company recognizes revenue from orders when the home is shipped. The total
backlog, expressed in dollars, approximated $32 million at December 31, 1999
compared to $26 million at December 31, 1998 and $25 million at December 31,
1997. Management expects the majority of the current backlog will ship within
the next 12 months. However, factors beyond the control of management, such as
weather conditions, customer financing, building permits or customer requested
delays, may affect the actual delivery date of some portion of backlog orders
beyond the twelve month period. Because the Company's business is seasonal, the
backlog data does not necessarily reflect the level of the Company's business on
an annual basis.
RAW MATERIALS
The primary raw material used by the Company in its manufacturing is western red
cedar, available in quantity only in British Columbia, Canada, Alaska and the
Pacific Northwest, United States. Pressures continue to be placed on the log and
lumber market in general by timber harvesting restrictions in the United States
and Canada. The Company is aware of the potential for shortages and/or
fluctuations in the price of cedar logs and green cedar lumber. The Company
experienced such conditions in 1997 when the price of cedar logs escalated
dramatically and cedar logs were temporarily in short supply. At December 31,
1999, management believes that the Company can meet the cedar requirements for
its home packages for a minimum of the next five years, as discussed below.
Although green cedar lumber is the primary raw material used in manufacturing,
the Company purchases substantial quantities of forest products on the commodity
market to ship in its home packages. Since 1993, the Company has experienced the
extreme volatility and record price levels that have been present throughout the
forest products industry. Presently, the Company does not anticipate any serious
long-term problems in securing
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the needed forest products in the foreseeable future. The Company does expect
that there may be occasional temporary shortages of some forest products and
that price volatility of forest products may occur for some time. For this
reason, the Company hedges a portion of its non-cedar lumber needs using lumber
options and futures contracts. The Company may also make selected strategic
purchases, when relatively favorable prices exist in the market, of larger
quantities than it has historically purchased. These purchases are not expected
to be in excess of anticipated needs.
Management is working to secure the Company's cedar raw material needs on a
long-term basis. The Province of British Columbia established a program that
sets aside a portion of the allowable annual harvest of timber for smaller
companies. The harvesting rights are sold, through timber sales, to companies
that can demonstrate the highest value added to the raw lumber through efforts
made in British Columbia. In 1994, the Company was first granted rights to
harvest approximately 50,000 cubic meters of timber between 1994 and 1997.
On September 30, 1996, the Company was granted a second timber sale. This grant
is for 327,000 cubic meters to be harvested within a five-year period. As of
December 31, 1999, it is expected that this timber sale will allow the Company
to secure a cedar supply for a minimum of the next five years. Further,
management believes this timber sale will greatly facilitate the procurement of
cedar logs and/or cedar lumber. No timber from the second timber sale has been
harvested.
As a condition of the grant of the second timber sale, the Company committed to
consolidating its home shipment operation in, and transferring a considerable
amount of its lumber re-manufacturing to its facilities located in Surrey,
British Columbia. Transfer of the home shipment operations was completed in
1997. The transfer of lumber re-manufacturing to its Surrey, British Columbia
facility would require the Company to invest $5 to $6 million to construct and
equip a new re-manufacturing facility.
In late 1997, based on then current and prevailing economic conditions in the
forest products industry, management concluded that the financial statement
carrying value of the Company's sawmill would not be recovered from future cash
flows. As a result the Company recorded a $595,000 before and after tax write
down in the carrying value of the sawmill and related equipment. Management
believes it can ensure a supply of cedar without operating its sawmill.
In 1998, based on the same prevailing economic conditions in the forest products
industry, management re-evaluated the Company's financial commitments related to
the second timber sale. Management determined that it was no longer in the best
interests of the Company or it shareholders to invest the capital required to
construct and equip a new re-manufacturing facility. As a result, the Company
proposed certain modifications to the terms and conditions of the second timber
sale originally approved by Canadian regulatory authorities.
As part of its modified proposal the Company, in December 1998, entered into
several agreements with Mill and Timber Products Ltd. (Mill & Timber), a forest
products company located in British Columbia. Under the terms of these
agreements, an affiliate of Mill and Timber purchased the Company's closed
sawmill, which it will operate. Mill & Timber entered into a conditional 5-year
agreement to provide the Company a guaranteed supply of cedar at market prices.
Further, Mill and Timber and the Company entered into a contractual agreement
whereby Mill and Timber will provide services related to the planning,
management of timber harvesting, and marketing of the logs from the second
timber sale. The quantity of cedar to be provided under the terms of the cedar
supply agreement is conditioned by the transfer, to the subsidiary of Mill &
Timber, of the primary lumber quota associated with the sawmill previously owned
by the Company. Once the sawmill has been restarted, management believes that
Canadian regulatory authorities will approve the transfer of quota.
In January 2000, the Company was notified by the British Columbia Ministry of
Forests that its proposed modifications to the terms and conditions of the
second timber sale had been approved. Under the modified
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terms and conditions of the second timber sale the Company and Mill & Timber
have committed to the following:
o The Company will immediately begin transferring the re-manufacturing of
lumber for its homes from its Tacoma, Washington facility to facilities
owned by an affiliate of Mill & Timber, with the entire transfer to be
completed by July 2001,
o The Company will invest approximately $200,000 in new re-manufacturing
equipment to facilitate the re-manufacturing of its lumber by the affiliate
of Mill & Timber, and
o Mill & Timber, through another affiliate, will upgrade and operate the
Company's previously owned sawmill.
All other terms and conditions of the original proposal remain unchanged.
Based on the Company's completed consolidation of shipping operations into its
Surrey, British Columbia facility, the Province of British Columbia has given
the Company authorization to begin limited harvesting of timber. Management
expects timber harvesting to begin the second or third quarter of 2000.
As the re-manufacturing of its lumber is transferred to the subsidiary of Mill &
Timber, the Company's facility in Tacoma, Washington will sell its services to
third parties. In 1999 and 1998, approximately 14% and 5%, respectively, of the
revenues from this facility were from third party customers.
Also, in response to receiving the second timber sale, the Company negotiated a
10-year labor agreement with the union for Canadian plant employees in the
second quarter of 1997. This agreement provides that the new jobs created/moved
to British Columbia will be at wage rates starting at 60% of the present British
Columbia Master Agreement and increasing, over the next 10 years to a maximum of
80% of that agreement. The Company cannot determine the impact, if any, that the
agreements with Mill & Timber and the modifications to the original terms of the
second timber sale might have on its contract with the union representing its
Canadian plant employees, but believes the changes, if any, will be minor and/or
procedural.
In 1996, the Canadian government implemented a lumber quota system. This quota
was part of a negotiated settlement related to the United States government's
allegation that Canada was subsidizing the Canadian forest products industry.
Under the quota system, each company can import to the United States a limited
quantity of lumber. The Company believes that this constraint on the supply of
lumber has been, and continues to be, a significant factor in the volatility
experienced in the lumber market.
With the consolidation of the Company's home shipments in Surrey, British
Columbia, all home packages that are not sold in Canada or overseas are imported
into the United States. U.S. Customs ruled that a Lindal home package is not a
"home" as defined by the applicable customs regulations, rather it constitutes a
shipment of assorted building and forest products. This forces the Company to
use its assigned quota for the lumber component of each home package. The
Company believes that when a home package is imported into the United States, it
constitutes a "home" under the applicable custom regulations. As such, the
lumber component of the home should not be applied against its allowable lumber
quota. The Company vigorously contested the matter through the appeal process
with U.S. Customs and the Company's appeal has been denied. The Company
continues to contest the decision. Separate from the Company's lumber quota to
be transferred to Mill & Timber in connection with their purchase of the
Company's previously owned sawmill, the Company has additional lumber quota
associated with its home distribution operation. Despite the appeal ruling, the
Company believes it has or will be able to obtain sufficient quota, at
foreseeable sales levels, for the term of the United States/Canadian
governments' agreement, which expires in 2001.
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FOREIGN OPERATIONS
The Company's Canadian operations supply home packages to the U.S. operations
and engage in sales outside the United States. Sales to unaffiliated customers
of the Canadian operations during 1999, 1998 and 1997 were as follows (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Home Sales - Canadian $ 1,536 1,894 1,848
Other operating revenue 422 799 4,238
====== ====== ======
Total foreign sales $ 1,958 2,693 6,086
====== ====== ======
</TABLE>
The decline in other operating revenue in 1998 was primarily due to the
reduction in green lumber sales to third parties following the closure of the
Surrey, British Columbia sawmill.
The U.S. parent company had export sales, primarily to Japan, totaling $1.9
million in 1999, $2 million in 1998 and $4.4 million in 1997.
EMPLOYEES
At the end of February 2000, the Company had 214 employees.
A significant number of the Company's Surrey, British Columbia employees are
covered by a collective bargaining agreement with the IWA - Canada. In June
1997, a 10-year agreement was signed with this union. The agreement provides
that the new jobs created through the consolidation of distribution and the
transfer of remanufacturing operations will be at wage rates starting at 60% of
the present British Columbia Coast Master Agreement and increasing, over the
next 10 years, to a maximum of 80% of that agreement. The Company cannot
determine the impact, if any, that the agreements with Mill & Timber or its
modifications to the original terms of the second timber sale might have on its
contract with the union representing its Canadian plant employees, but believes
the changes, if any, will be minor and/or procedural.
ITEM 2. PROPERTIES
Information with respect to the location of the Company's principal locations,
which are owned unless otherwise stated, at December 31, 1999 is as follows:
o Seattle, Washington head office complex on two acres, with 13,000 square
foot office building and two display models.
o Seattle, Washington business park adjacent to the head office complex on
five acres, with 86,000 square feet of concrete tilt-up warehouse. The
Company is using approximately 15,000 square feet for storage and office
space. The balance of the facility is leased to third parties. At December
31, 1999, approximately 71,000 square feet was under lease to third
parties.
o Surrey, British Columbia warehouse and office space on 10 acres of leased
land with approximately 51,000 square feet under roof. All home shipments
originate from this facility. Also located on the leased land is the
sawmill, formerly owned by the Company, which is presently owned by an
affiliate of Mill & Timber. The Company leases the land from the Fraser
River Harbour Commission and the Canadian National Railway Company. The
leases for this land are currently on a year to year basis,
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expiring in January 2001 and June 2000, and are expected to be renewed in
the ordinary course of business. These leases have been renewed regularly
since the early 1970's. Until the existing land leases can be bifurcated,
the Company will sublet the land, upon which the sawmill is situated, to
the affiliate of Mill & Timber.
o Renfrew, Ontario facility on 21 acres with 110,000 square feet under roof.
The Company is using approximately 7,000 square feet for office and
warehouse facilities. Approximately 97,000 square feet of the facility is
leased to third parties.
o Tacoma, Washington leased remanufacturing facility (including dry kilns) on
four acres of leased land with approximately 47,000 square feet under roof.
Leases on the land and building were renewed in January 2000 and expire in
the year 2003. An additional 24,000 square feet of covered storage is
currently being rented on a month-to-month basis.
o Burlington, Washington manufacturing facility on approximately five acres
with 88,000 square feet of tilt-up concrete manufacturing, warehouse and
office space for the manufacture of windows and sunrooms. The land lease
expires in 2024 and is renewable for two consecutive ten-year periods.
o Land for 7 sales locations, including the head office display court. Five
parcels are owned (four in Washington, one in Michigan) and two parcels are
leased (one each in Hawaii and Ontario, Canada.) The Company also owns two
parcels of undeveloped land (one each in Washington and Ontario, Canada)
that it intends to use for future sales locations.
The Company has accepted offers to sell the locations in Michigan and
Ontario. These sales are not expected to have a negative impact on the
Company's results of operations. The sale of the Ontario location is
expected to close in June 2000 and the sale of the Michigan location is
expected to close in the second quarter of 2000.
In March 2000, the Company took possession of a sales display court (land
and model home) located in British Columbia, Canada in exchange for
forgiving the mortgage it holds on the property and other debt owing to the
Company by the previous owner. The Company intends to operate this display
court as a Company owned sales location.
o Office space, ranging from 150 square feet to 1,800 square feet per
location, is leased in Michigan (one location) for use as regional sales
office, and in Washington (one location) for general office and warehouse
use. The leases are either month to month or expire in 2001.
In 1998, the Central Puget Sound Regional Transit Authority (RTA), a
governmental agency, notified the Company that the site occupied by the
Company's head office, display court and adjacent business park, in Seattle,
Washington, had been identified as the preferred site for the location of a
light rail maintenance base. Based on the resolutions adopted by the Board of
the Central Puget Sound Regional Transit Authority and documents submitted by
the RTA to the U.S. Federal Government, a different site has been selected as
the final location of the light rail maintenance base. Although the Company has
not received official notification from the RTA, management believes the site
occupied by the Company's head office, display court and adjacent business park
is no longer under consideration as the location for the light rail maintenance
base.
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ITEM 3. LEGAL PROCEEDINGS
The Company is routinely involved in a number of legal proceedings and claims
covering a wide range of matters. In the opinion of management, the outcome of
these routine matters is not expected to have any material adverse effect on the
consolidated financial position or results of operations of the Company.
On February 1, 2000, six current and former dealers brought suit against Lindal
Cedar Homes and two of its officers and directors in the U.S. District Court for
the Western District of Washington for damages arising from the Company's
termination or threatened termination of their dealership agreements. In late
1998 and early 1999, the Company terminated or threatened to terminate the
dealership agreements of these individuals on the grounds that the dealers had
breached their agreements by selling competitive products. The dealership
contract, signed by each of these claimants, strictly prohibits a dealer from
selling competitive products.
The complaint alleges: (a) the failure of the Company to register as a franchise
in certain states, including Washington, (b) numerous violations of the
Washington Franchise Investment Protection Act, and (c) illegal tie-in
requirements in violation of the Sherman Act and Washington Consumer Protection
Act, including treble damages. The complaint does not specify the damages
sought. However, in a mediation which preceded the filing of the lawsuit, the
plaintiffs claimed damages, including trebling, of approximately $10 million
(prior to attorneys fees).
The Company's dealer agreement provides that, following unsuccessful mediation,
a dealer may pursue claims under the agreement only through an arbitration
proceeding binding on the dealer and the Company. The Company expects to take
the steps necessary to have the matter referred to arbitration before the
American Arbitration Association.
The Company believes that neither the Washington Franchise Investment Protection
Act nor the Federal Sherman Act is applicable nor were there any violations of
either act. The Company will vigorously defend the lawsuit. The Company has not
accrued any amounts relating to these claims
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
(a) Market Information:
The Company's common stock is traded on the NASDAQ Small Cap
Market under the symbol LNDL. In August 1998, the Company
received notification from NASDAQ that its stock no longer met
the listing requirements of the NASDAQ National Market. In
December 1998, the Company applied to transfer its stock to the
NASDAQ Small Cap Market. The transfer was approved in early 1999.
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The following table sets forth the reported high and low activity
for each quarter of 1999 and 1998 as reported by NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
1999
<S> <C> <C>
First Quarter $3.000 1.250
Second Quarter 2.563 1.500
Third Quarter 3.125 2.000
Fourth Quarter 3.156 1.000
1998
First Quarter $3.875 3.000
Second Quarter 3.375 2.875
Third Quarter 3.250 1.500
Fourth Quarter 2.375 1.438
</TABLE>
(b) Approximate number of shareholders of record, including
beneficial shareholders:
TITLE OF CLASS DECEMBER 31, 1999
-------------- -----------------
Common Stock of $.01 par value 351
At March 16, 2000, the Company had approximately 436 round lot
shareholders of beneficial interest.
(c) No cash dividends were paid in 1999, 1998 or 1997, and the
Company does not expect to pay a cash dividend in 2000.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except ratios and per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue ............................. $ 39,505 $ 37,719 48,848 46,635 42,311
Operating income (loss) ............. 1,180 (1,784) (3,860) 1,224 653
Net earnings (loss) ................. 1,020 (936) (2,447) 1,506 1,337
Net basic and diluted earnings (loss)
per common share ................ .25 (.23) (.60) .37 .33
Total assets ........................ 31,879 28,142 31,027 28,900 26,755
Working capital ..................... 10,346 8,957 9,915 10,814 8,840
Long-term debt ...................... 4,418 4,604 4,787 1,164 1,216
Current ratio ....................... 2.18:1 2.39:1 2.33:1 2.59:1 2.44:1
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's policy is that a cash deposit accompanies all home and sunroom
orders and that units be paid in full before shipment or shipped on a C.O.D.
basis. The majority of home and sunroom sales are prepaid. Window and material
sales are made on terms common to the industry.
The Company pays its vendors within terms and takes advantage of discounts for
early payment. Customer deposits for home and sunroom orders and cash from
operations are the Company's primary sources of cash.
Traditionally, operations have been the primary source of funds for working
capital as well as expansion and facilities acquisitions. The Company maintains
a $1.5 million line of credit that bears interest at the rate of prime plus 1%.
The line of credit is secured by a pledge of specific assets. The Company's line
of credit expired on December 31, 1999 and was renewed subsequent to year end.
The renewed line of credit expires on March 30, 2001. The Company does not
anticipate the need to borrow on its line of credit in 2000.
In 1997, the Company invested approximately $3.7 million to acquire, expand and
equip its new Burlington, Washington manufacturing facility. To partially
finance the project, the Company, in November 1997, issued $3.3 million of
tax-exempt and $425,000 of taxable Industrial Revenue Bonds. Interest paid on
the tax-exempt Industrial Revenue Bonds is tax free to the bondholders and
provides preferential interest rates to the Company. The principal of the
taxable bonds matures in approximately equal amounts between 1998 and 2001, with
the principal of the tax exempt bonds maturing between 2002 and 2017. In 1999,
$100,000 of taxable Industrial Revenue Bonds matured. Bond principal (taxable
and tax-exempt) matures on an annual basis in amounts which, when combined with
interest on the outstanding principal, results in approximately equal annual
cash payments of principal and interest.
Under the terms of the Loan Agreement between the Company and the Washington
Economic Development Finance Authority, the Company is required to maintain an
irrevocable letter of credit. To secure the letter of credit, the Company
pledged property, with an aggregate book value at December 31, 1999 of $3.46
million, as collateral. Under the terms of the Reimbursement Agreement between
the Company and the issuer of the letter of credit, the Company is obligated to
make equal monthly payments each year, the total of which equals the scheduled
annual maturities of bond principal plus interest and associated fees for the
year. Under the terms of the Reimbursement Agreement and the Company's line of
credit, the Company is obligated to meet certain financial and operational
covenants. At December 31, 1999 the Company was in compliance with all such
covenants.
CASH FLOW
Cash and cash equivalents increased $750,000 (22%) to $4.21 million at December
31, 1999 from $3.46 million at December 31, 1998. This increase is primarily due
to cash provided by operating activities of $4.62 million and the effect of
changes in currency rates of $310,000, which was offset by cash used in
investing and financing activities of $4.02 million and $160,000 respectively.
Cash flow from operating activities in 1999 was $4.62 million compared to $1.77
million in 1998. In 1999, cash was provided by the decrease in accounts
receivable of $1.48 million, primarily the refund of prior year taxes, increases
in current liabilities, primarily customer deposits and accounts payable of
$1.89 million, non-cash operating charges of $1.31 million, net income of $1.02
million and decreases in prepaid expenses, primarily promotional materials, of
$240,000. Cash was used to increase inventory by $800,000 and other items,
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principally new planbook development costs, by $520,000. Cash flow from
operating activities for 1998 was $1.77 million compared to $2.58 million cash
used by operations in 1997. In 1998, cash was provided by decreases in inventory
of $2.69 million and non-cash charges of $1.42 million, while cash was used by
the decrease in current liabilities of $1.1 million, the net loss of $940,000,
increases in account and notes receivable of $270,000 and other items of
$30,000.
Cash flows from investing activities used $4.02 million in 1999 compared to
$550,000 in 1998. In 1999, $470,000 was used to purchase fixed assets, and $3.96
million, net, was used to increase short-term investments. Repayments of
long-term notes receivable provided $380,000 and sales of used equipment
provided $40,000. Cash flows from investing activities used $550,000 in 1998
compared to using $780,000 of in 1997. In 1998, $660,000 was used to purchase
fixed assets, while other investing activities provided cash of $110,000.
Cash flows from financing activities used $160,000 in 1999 compared to using
$170,000 in 1998. In 1999, repayment of long-term debt used $200,000 while other
financing activities provided $40,000 of cash. In 1998, repayment of long-term
debt used $180,000, while other financing activities provided $10,000 of cash.
Currency fluctuation increased cash by $310,000 and $120,000 in 1999 and 1998,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments embedded in other contracts and
for hedging activities. The Statement requires that entities recognize all
derivatives as either assets or liabilities on the balance sheet and measure
these derivatives at fair value. SFAS No. 133 also specifies a new method of
accounting for hedging transactions, prescribes the type of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. This Statement is effective for financial
statements for years beginning after June 15, 2000. The Company does not expect
the adoption of this Statement to have a material impact on the consolidated
financial statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. The Company will adopt the provisions of SAB 101 in the first
quarter of 2000 and anticipates that such adoption will not have a material
impact on the Company's financial statements.
YEAR 2000
The Company completed its Year 2000 remediation plan by the end of 1999 and has
not experienced any significant disruptions to its financial or operating
activities caused by failure of its computerized systems resulting from Year
2000 issues. Furthermore, the Company has no information that indicates a
significant vendor or service provider has experienced any significant
disruptions to their financial or operating activities such that they would be
unable to provide goods or services to the Company.
11
<PAGE> 12
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
GENERAL
Overall, Company operations continued to improve in 1999. Home revenues
increased 5% from 1998 levels. Orders for new homes exceeded 1998 unit and
dollar value levels by 12%. The introduction of the new Select product line has
been very successful and sales of the new product have been steadily increasing.
The Company's dollar backlog of house orders at December 31, 1999, increased 23%
over December 31, 1998. Material costs have remained in check throughout most of
1999, rising modestly in the fourth quarter. The Company has received approval
of the modifications to terms and conditions of its timber sale license from
Canadian regulatory authorities, thus securing a supply of cedar for at least
the next five years. The Company achieved additional reductions in sales,
general and administrative costs over and above the significant reductions
achieved in 1998. The Central Puget Sound Regional Transit Authority did not
select the Company's head office location and adjacent business park and sales
courts as the final location for the light rail maintenance base. The Company
strengthened its sales and marketing abilities by hiring new Vice-Presidents of
Marketing and Sales. Finally, in 1999 the Company completed the development of
its exciting new planbook, which will be introduced in the spring of 2000.
NEW HOME ORDERS
The dollar value of new orders received increased 12% in 1999 compared to 1998.
The number of new order units also increased 12% in the same time period. The
increase in the number of new orders in 1999 is primarily due to the new order
activity generated from the second quarter sales contest, which ended in early
July and a second sales contest which ended on December 31, 1999.
The following table illustrates the percentage change in the number and dollar
value of new orders for 1999 and each of the previous two years:
<TABLE>
<CAPTION>
% CHANGE IN 1999 1998 1997
------------------ ---- ---- ----
<S> <C> <C> <C>
Units 12% (12)% (12)%
Dollar Value 12% (6)% (11)%
</TABLE>
The Access and Select products represented 61% of new order units in 1999 while
the Access product represented 53% of new order units in 1998. The dollar value
of Access and Select product new orders was 53% of the total dollar value of new
orders in 1999 while Access new orders represented 46% of the total dollar value
of new orders in 1998. The Select product was not available in 1998. Size and
value of a home is a function of customer preference and may change somewhat
from period to period.
REVENUE
Overall, revenue increased $1.79 million (5%) to $39.51 million in 1999 from
$37.72 million in 1998. Home and sunroom revenue increased $1.14 million (4%) to
$32.52 million in 1999 from $31.38 million in 1998. Home revenue increased $1.55
million (5%) to $31.07 million in 1999 from $29.52 million in 1998, while
sunroom revenue decreased $410,000 (22%) to $1.45 million in 1999 from $1.86
million in 1998. The number of home units shipped increased 14 (4%) to 389 units
in 1999 from 375 units in 1998. The average revenue per completed home shipment
increased 3% to $80,000 in 1999 from $78,000 in 1998. Size and value of a home
is a
12
<PAGE> 13
function of customer preference and may change somewhat from period to period.
The Access and Select product lines (the base price of which are 25% - 30% less
than the traditional Cedar Frame product) accounted for 52% of home revenue and
60% of home units shipped in 1999 compared to 46% of home revenue and 54% of
home units shipped in 1998. The Select product was not available in 1998.
Management believes the increase in home units shipped is primarily related to
the home delivery promotion in the first quarter of 1999 and the milder than
usual winter weather experienced throughout most of the country during the
winter of 1999. The increase in the sales value of home units shipped reflects
an increase in the average size of new homes shipped in 1999. Size and value of
a home is a function of customer preference and may change somewhat from period
to period.
In 2000, the Company announced a 3.5% price increase, which will become fully
effective in the second quarter of 2000. The price increase is intended to
offset the higher material costs experienced in the fourth quarter of 1999.
All other revenue sources, primarily material sales, increased $650,000 (10%) to
$6.99 million in 1999 from $6.34 million in 1998.
MATERIAL COSTS
Throughout most of 1999, the Company experienced a softening of costs for lumber
and wood products, especially for cedar, the primary material used in the
Company's homes. In the fourth quarter of 1999, the Company experienced an
increase in costs for lumber and wood products over the levels experienced
earlier in the year.
As a percent of revenue, material costs decreased to 48.6% of revenue in 1999
from 51.3% of revenue in 1998. In the fourth quarter of 1999 material costs
increased to 50.5% of revenue compared to 48.6% of revenue in third quarter of
1999 and 47.7% of revenue in the fourth quarter of 1998.
The mix of home units sold also impacts material costs as a percentage of
revenue. The Access and Select products (the base price of which is 25% - 30%
less than the Cedar Frame home) have lower material costs than the Cedar Frame,
but the dollar and percentage gross margin is lower as well. In the fourth
quarter of 1999, the Company experienced an unusual mix of home units sold,
which resulted in a slight increase in material costs measured as a percentage
of revenue. The Access and Select products accounted for 67% of the home units
delivered and 62% of home revenue in the fourth quarter of 1999 compared to 60%
of home units delivered and 51% of home revenue in the third quarter of 1999.
The Access product accounted for 58% of home units and 49% of home revenue in
the fourth quarter of 1998. The Select product was not available in 1998.
Material costs decreased $150,000 (1%) to $19.21 million in 1999 from $19.36
million in 1998 with 14 additional home shipments.
OTHER COSTS OF GOODS SOLD
Non-material costs included in the cost of goods, sold increased $220,000 (2%)
to $10.96 million in 1999 from $10.74 million in 1998. This increase is
primarily related to the expansion of the Company's engineering capacity in
response to the increase in new orders and to accrued profit sharing amounts.
These increases were partially offset by reductions in plant labor, plant
supervision and labor related expenses, a decrease in customer service costs,
and net decreases in other non-material manufacturing costs. These reductions
are primarily due to improvements in the Company's operational efficiency and
continuation of the Company's cost containment program. There were no profit
sharing amounts in 1998.
13
<PAGE> 14
GROSS PROFIT
The general softening of costs in the wood supply market, which was partially
offset by the increase in other costs of goods sold, increased gross profit to
23.6% of revenue in 1999 compared to 20.2% of revenue in 1998. In the fourth
quarter of 1999, gross profit declined to 20.5% of revenue from 26.4% of revenue
in the fourth quarter of 1998 and 24.8% of revenue in the third quarter of 1999.
The mix of home units sold also impacts gross profit. The Access and Select
products (the base price of which is 25% - 30% less than the Cedar Frame home)
have lower material costs than the Cedar Frame, but the dollar and percentage
gross margin is lower as well. In 1999, the Access and Select products accounted
for 60% of the home units delivered and 52% of home revenue, while the Access
product accounted for 54% of the home units delivered and 46% of home revenue in
1998. The Access and Select products accounted for 67% of the home units
delivered and 62% of home revenue in the fourth quarter of 1999 compared to 60%
of home units delivered and 51% of home revenue in the third quarter of 1999.
The Access product accounted for 58% of the home units delivered and 49% of home
revenue in the fourth quarter of 1998. The Select product was not available in
1998.
OPERATING EXPENSES
Total operating expenses, including sawmill costs and display court expenses,
decreased $1.24 million (13%) to $8.16 million in 1999 from $9.4 million in
1998. Of this decrease $770,000 relates to costs recorded in 1998 associated
with the sale of the Company's sawmill.
Selling and general and administrative expenses decreased $490,000 (6%) to $7.67
million in 1999 from $8.16 million in 1998. Selling and general and
administrative expenses were 19.4% of revenue in 1999 compared to 21.6% of
revenue in 1998.
Selling expenses decreased $350,000 (8%) to $3.83 million in 1999 from $4.18
million in 1998. This is primarily due to decreases in payroll, commissions and
payroll related expenses, reductions in advertising costs, recruitment expenses
and other net reductions, which were partially offset by an increase in profit
sharing. There were no profit sharing amounts in 1998. Selling expense were 9.7%
of revenue in 1999 compared to 11.1% of revenue in 1998.
General and administrative expenses decreased $150,000 (4%) to $3.84 million in
1999 from $3.99 million in 1998. This reduction is primarily due to reductions
in payroll and payroll related expenses, professional fees, communication costs,
bad debts and other net reductions, which were partially offset by an increase
in profit sharing. There were no profit sharing amounts in 1998. General and
administrative expenses were 9.7% of revenue in 1999 compared to 10.6% of
revenue in 1998.
Display court expenses increased $10,000 (2%) to $480,000 in 1999 from $470,000
in 1998.
OTHER INCOME (EXPENSE)
Other income (expense) decreased $130,000 (26%) to $370,000 in 1999 from
$500,000 in 1998. This decrease was primarily due to the decrease in foreign
currency transaction gain or loss of $420,000 and decreased rental income of
$150,000, which were offset by increased interest income of $340,000, an
increase in the gain from the sale of assets of $40,000 and an increase in
miscellaneous income of $60,000. The decrease in rental income is primarily due
to Company owning fewer model homes or land that are being leased to dealers and
that the lease on a design center the Company was subletting to a dealer had
expired. The increase in interest income is due to the increase in cash balances
available for investment.
14
<PAGE> 15
INCOME TAX BENEFIT
In 1999, Company operations in both the United States and Canada were
profitable. Profits, before income tax expense, from operations in the United
States totaled $1.35 million, which resulted in a tax expense of $490,000 (36%).
Profits, before income tax expense, from Canadian subsidiary operations totaled
$200,000, which resulted in a tax expense of $40,000 (20%). The Company did not
recognize a tax benefit in 1999 for individual Canadian Company net operating
losses due to the inability to carryback the net operating losses and the
uncertainty of utilizing the net operating loss carryforward against future
taxable Canadian income.
In 1999, the overall income tax expense was $530,000 for an effective tax rate
of 34% compared to an overall income tax benefit of $350,000 for an effective
tax rate of 27% in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE
Overall, revenue decreased $11.13 million (23%) to $37.72 million in 1998 from
$48.85 million in 1997. Home and sunroom revenue decreased $7.84 million (20%)
to $31.38 million in 1998 from $39.22 million in 1997. Home revenue decreased
$7.42 million (20%) to $29.52 million in 1998 from $36.94 million in 1997, while
sunroom revenue decreased $420,000 (18%) to $1.86 million in 1998 from $2.28
million in 1997. The number of home units shipped decreased 134 (26%) to 375
units in 1998 from 509 units in 1997. The average revenue per completed home
shipment increased 7% to $78,000 in 1998 from $73,000 in 1997. Size and value of
a home is a function of customer preference and may change somewhat from period
to period. The Access home (the base price of which is 25% - 30% less than the
traditional Cedar Frame product) accounted for 46% of home sales revenue and 54%
of home units shipped in 1998 compared to 34% of home sales revenue and 43% of
home units shipped in 1997.
Management believes the decrease in home units shipped and home sales dollar
volume is primarily due to the cumulative effect of price increases implemented
in 1997 and 1998 which depressed the quantity of new orders received in 1998.
The price increases implemented in 1997 and 1998 only partially offset the
elevated material prices experienced in late 1996, 1997 and early 1998. The
increase in average revenue per home is primarily due to the price increases
implemented in 1998 and, to a lesser degree, the price increases implemented in
1997 and to an increase in the average size of new homes shipped.
During 1998, the Company announced one price increase that became fully
effective in the third quarter of 1998.
All other revenue sources, primarily material sales, decreased $3.29 million
(34%) to $6.34 million in 1998 from $9.63 million in 1997. This was primarily
due to decreased sales of green cedar lumber and wood chips, which resulted from
the closure in 1997 and the sale of the Company's sawmill in 1998. The sawmill
operated for approximately a three-week period in 1998 compared to approximately
11 months in 1997. Since most of the sawmill output was sold on the open lumber
market, there was less lumber and wood chips sold during 1998 than in 1997.
MATERIAL COSTS
In general, the Company continued to experience elevated costs for lumber and
wood products, especially for cedar, the primary material used in the Company's
homes over historic levels. The elevated lumber and wood product costs,
including the cost of cedar, were not fully offset by the price increases
implemented in 1997 and 1998.
15
<PAGE> 16
However, during 1998, the Company experienced a gradual softening of costs for
many of the forest products included in its home packages, including premium
framing lumber. While there was softening of costs for green cedar lumber, the
cost decreases experienced in 1998 did not fully offset the dramatic cost
increases experienced in 1997 for cedar logs and green cedar lumber.
As a percent of revenue, material costs decreased to 51.3% of revenue in 1998
from 57% of revenue in 1997. Material costs peaked in the fourth quarter of 1997
at 61% of revenue. The decrease in material costs as a percentage of revenue was
due to softening of wood costs, decreased lumber sales due to the closure of the
sawmill and the cumulative effect of the price increases implemented in 1997 and
1998. Overall, the elevated material costs were only partially offset by the
price increases.
Material costs decreased $8.47 million (30%) to $19.36 million in 1998 from
$27.83 million in 1997 on 134 fewer home shipments and, due to the closure and
sale of the sawmill, a decrease in the amount of cedar lumber sold on the open
market. Since most of the sawmill output was sold on the open lumber market,
there was less lumber sold during 1998 than in 1997.
OTHER COSTS OF GOODS SOLD
Non-material costs included in the cost of goods sold, decreased $3.53 million
(25%) to $10.74 million in 1998 from $14.27 million in 1997. This was largely
due to the cost reductions related to closure of the sawmill and the
classification of certain 1998 sawmill holding costs as operating expenses,
which reduced non-material cost of goods sold by $2.42 million (27%). In
addition, plant labor, plant supervision and related expenses decreased from
1997 levels primarily due to the reduced volume of sales and the Company's cost
containment program. Customer service costs and other charges in non-material
costs of goods sold also decreased. The decrease in customer service costs
reflected the improved efficiency in the Company's operational performance.
GROSS PROFIT
The cumulative effect of price increases, lower non-material costs of goods
sold, and general softening of costs in the wood supply market increased gross
profit to 20.2% of revenue in 1998 compared to 13.8% of revenue in 1997.
The mix of home units sold also impacts gross profit. The Access product
accounted for 54% of home shipments and 46% of home revenue in 1998 compared to
43% of home shipments and 34% of home revenue in 1997.
Although the Access home (the base price of which is 25% - 30% less than the
Cedar Frame home) has lower material costs than the Cedar Frame, the dollar and
percentage gross margin is lower as well.
OPERATING EXPENSES
The Company's sawmill, located in Surrey, British Columbia, was closed and did
not operate during the majority of 1998. However, during the closure, the
Company incurred costs associated with maintaining the sawmill in a state of
operational readiness. Such costs included fixed expenses, such as land rents,
utilities, maintenance, storage costs, maintaining a skeleton crew and certain
union related obligations. In addition, the Company incurred certain costs
associated with the sale of the sawmill and its related assets. In 1998, the
Company recorded pre-tax sawmill charges of $770,000. In 1997, the Company
recorded pre-tax restructuring and valuation charges of $810,000. Of this
amount, $600,000 related to the write-down of the financial statement carrying
value of the sawmill. The remainder related to the costs associated with the
consolidation of window and sunroom operations into the Burlington, Washington
facility.
16
<PAGE> 17
Including 1998 sawmill charges and 1997 restructuring and valuation charges,
total operating expenses decreased $1.21 million (11%) to $9.4 million in 1998
from $10.61 million in 1997.
Selling and general and administrative expenses decreased $1.03 million (11%) to
$8.16 million in 1998 from $9.19 million in 1997. Selling and general and
administrative expenses were 21.6% of revenue in 1998 compared to 18.8% of
revenue in 1997.
Selling expenses decreased $190,000 (4%) to $4.18 million in 1998 from $4.37
million in 1997. This was primarily due to decreases in payroll, commissions and
payroll related expenses, travel expenses, recruitment expenses and seminar and
related expenses. Selling expenses were 11.1% of revenue in 1998 compared to
8.9% of revenue in 1997.
General and administrative expenses decreased $830,000 (17%) to $3.99 million in
1998 from $4.82 million in 1997. This reduction was primarily due to reductions
in payroll and related expenses and in the provision for doubtful accounts.
These reductions were the result of the aggressive cost containment program
implemented by the Company in 1998. General and administrative expenses were
10.6% of revenue in 1998 compared to 9.9% of revenue in 1997.
Display court expenses decreased $150,000 (24%) to $470,000 in 1998 from
$620,000 in 1997. This was largely due to reductions in payroll and compensation
related expenses and reductions in certain amortization costs.
OTHER INCOME (EXPENSE)
Other income (expense) decreased $220,000 (31%) to $500,000 in 1998 from
$720,000 in 1997. In 1997, the Company recorded a pre-tax gain of $470,000 from
the sale of its Kent, Washington distribution facility. Exclusive of this gain,
other income increased $250,000 (100%) from $250,000 in 1997. This increase was
primarily due to gains from foreign currency transactions of $320,000 and
increased rental income of $50,000, which were offset by increased interest
expense of $190,000. The increased interest expense is primarily due to
increased 1998 interest expense from the Industrial Revenue Bonds issued in
November 1997.
INCOME TAX BENEFIT
In 1998, the Company incurred losses from operations in both the United States
and Canada. Losses, before income tax benefit, from operations in the United
States totaled $1.1 million, which provided a tax benefit of $340,000. Losses,
before income tax benefit, from Canadian subsidiary operations totaled $190,000,
which provided a tax benefit of $10,000. The Company did not recognize a tax
benefit from the 1998 Canadian losses due to the inability to carryback the net
operating losses and the uncertainty of utilizing the net operating loss
carryforward against future taxable Canadian income.
In 1998, the overall income tax benefit was $350,000 for an effective tax rate
of 27% compared to an overall income tax benefit of $690,000 for an effective
tax rate of 22% in 1997.
OTHER MATTERS
Statements contained in this report that are not based on historical facts are
forward looking statements subject to uncertainties and risks including but not
limited to: the consolidation of operations, trade and governmental actions,
changing economic conditions, trends in the housing industry, availability of
raw materials, material cost fluctuations, labor costs, product acceptance, the
ability to obtain new orders and recruit new dealers, and demographic
influences.
17
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risks to which the Company is exposed are commodity lumber prices,
interest rates and foreign currency exchange rates.
The Company, from time to time, enters into futures contracts to hedge future
purchases of specific types and grades of non-cedar lumber with the objective of
reducing risk due to market fluctuations. At December 31, 1999, the Company had
30 futures contracts with broker-dealers of approximately $1,091,000 maturing
through July 2000 with a net deferred gain of $25,000. Such gains in fair value,
if realized, would be offset by higher costs of lumber purchased at market
value. At December 31, 1998 the aggregate commitment underlying the Company's
futures contracts and deferred gains from hedged lumber were not material.
The Company is subject to foreign currency exchange rate exposure, primarily
related to Canadian operations and the sale of homes to Canadian customers.
Historically, this exposure has had a minimal impact on the Company. Home sales
into countries other than Canada are made in U.S. dollars. At the present time,
the Company does not hedge foreign currency risk, but may hedge known
transaction exposures in the future.
The Company's exposure to changes in interest rates is minimal. Interest on
short-term investments of less than 90 days is based on market interest rates.
At December 31, 1999, the Company's investment in fixed rate instruments was
approximately $4.0 million. Of this amount approximately $3.92 million is
invested in the United States and approximately $80,000 is invested in Canada.
Interest rates on the U.S. investments range from 5.7% to 5.8% and mature from
January 19, 2000 through April 7, 2000. Interest rates on the Canadian
investments are 3.65%, and mature from February 24, 2000 through March 23, 2000.
Because of the relative short-term nature of these investments, the Company's
exposure to interest rate fluctuation is greatly reduced. At December 31, 1998,
the Company's investment in fixed rate instruments was not material. All of the
Company's long-term debt is fixed rate. The Company's line of credit is based on
the prime rate. During 1999, the Company had no amounts owing on its line of
credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements are listed in the index to the consolidated financial
statements and schedule on page 20 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is contained in the Registrant's 2000 Proxy
Statement, and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in the Registrant's 2000 Proxy
Statement, and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the Registrant's 2000 Proxy
Statement, and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the Registrant's 2000 Proxy
Statement, and is incorporated by reference. See also note 10 to the
consolidated financial statements on page 40 of this report for information
regarding related party transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedule: See page
20 for the index to consolidated financial statements and
schedule.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report
(c) Exhibits:
19
<PAGE> 20
LINDAL CEDAR HOMES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGES
-------
<S> <C>
Independent Auditors' Report 21
Consolidated Balance Sheets as of December 31, 1999 and 1998 22
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1999 23
Consolidated Statements of Stockholders' Equity for each of the
years in the three-year period ended December 31, 1999 24
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999 25
Notes to the Consolidated Financial Statements 26 - 43
SCHEDULE
II Valuation and Qualifying Accounts 44
</TABLE>
All other schedules are omitted because they are not required or because the
information is presented in the consolidated financial statements or notes
thereto.
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lindal Cedar Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Lindal Cedar
Homes, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lindal Cedar Homes,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles. Also in our opinion, the related 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/ KPMG LLP
Seattle, Washington
February 28, 2000
21
<PAGE> 22
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,213 3,457
Short-term investments 4,039 72
Receivables:
Trade 1,680 1,839
Current installments of long-term notes receivable 147 204
Refundable income taxes -- 1,420
---------------- ----------------
1,827 3,463
Less allowance for doubtful receivables 259 320
---------------- ----------------
Net receivables 1,568 3,143
Inventories 8,098 7,120
Promotional materials 510 844
Prepaid expenses 220 358
Deferred income taxes 430 386
---------------- ----------------
Total current assets 19,078 15,380
Long-term notes receivable, excluding current installments and
net of allowance of $164 in 1999 and $169 in 1998 455 697
Property, plant and equipment, net 10,956 11,426
Other assets, at cost less accumulated amortization
of $37 in 1999 and $665 in 1998 1,390 639
---------------- ----------------
$ 31,879 28,142
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 213 190
Accounts payable 2,770 1,437
Accrued salaries and wages 418 85
Other accrued expenses 530 771
Income taxes payable 126 --
Customer deposits 4,675 3,940
---------------- ----------------
Total current liabilities 8,732 6,423
Long-term debt, excluding current installments 4,418 4,604
Deferred income taxes 294 325
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued and
outstanding 4,131,227 shares in 1999 and 4,126,011 shares in 1998 41 41
Additional paid-in capital 16,061 16,049
Accumulated other comprehensive loss (837) (1,450)
Retained earnings 3,170 2,150
---------------- ----------------
Total stockholders' equity 18,435 16,790
---------------- ----------------
$ 31,879 28,142
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue $ 39,505 37,719 48,848
Cost of goods sold 30,167 30,100 42,097
---------------- ---------------- ----------------
Gross profit 9,338 7,619 6,751
Operating expenses:
Selling, general and administrative expenses 7,674 8,163 9,186
Display court expenses 484 472 618
Sawmill costs -- 768 --
Restructuring and valuation charges -- -- 807
---------------- ---------------- ----------------
Total operating expenses 8,158 9,403 10,611
---------------- ---------------- ----------------
Operating income (loss) 1,180 (1,784) (3,860)
Other income (expense):
Rental income 201 356 307
Interest income 505 165 177
Interest expense (322) (337) (152)
Other, net (18) 314 387
---------------- ---------------- ----------------
Other income, net 366 498 719
---------------- ---------------- ----------------
Earnings (loss) before income tax expense (benefit) 1,546 (1,286) (3,141)
Income tax expense (benefit) 526 (350) (694)
---------------- ---------------- ----------------
Net earnings (loss) $ 1,020 (936) (2,447)
================ ================ ================
Net earnings (loss) per common share - basic and diluted $ .25 (.23) (.60)
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER ADDITIONAL OTHER TOTAL
OF SHARES COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL EARNINGS EARNINGS EQUITY
(LOSS)
------------- ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 4,081,830 $ 41 15,916 (748) 5,533 20,742
Stock options exercised and
shares issued through the
Employee Stock Purchase
Plan 32,616 -- 102 -- -- 102
Issuance of restricted
stock 4,000 -- 15 -- -- 15
Comprehensive loss:
Net loss -- -- -- -- (2,447) (2,447)
Other comprehensive earnings-
foreign currency
translation adjustment -- -- -- 36 -- 36
------------ ------------- ------------- --------------- ------------- -------------
Total comprehensive
loss -- -- -- 36 (2,447) (2,411)
------------ ------------- ------------- --------------- ------------- -------------
Balances at December 31, 1997 4,118,446 41 16,033 (712) 3,086 18,448
Stock options exercised and
shares issued through the
Employee Stock Purchase
Plan 2,565 -- 5 -- -- 5
Issuance of restricted
stock 5,000 -- 11 -- -- 11
Comprehensive loss:
Net loss -- -- -- -- (936) (936)
Other comprehensive loss-
foreign currency
translation adjustment -- -- -- (738) -- (738)
------------ ------------- ------------- --------------- ------------- -------------
Total comprehensive
loss -- -- -- (738) (936) (1,674)
------------ ------------- ------------- --------------- ------------- -------------
Balances at December 31, 1998 4,126,011 41 16,049 (1,450) 2,150 16,790
Shares issued through the
Employee Stock Purchase
Plan 1,216 -- 3 -- -- 3
Issuance of restricted
stock 4,000 -- 9 -- -- 9
Comprehensive earnings:
Net earnings -- -- -- -- 1,020 1,020
Other comprehensive earnings-
foreign currency
translation adjustment -- -- -- 613 -- 613
------------ ------------- ------------- --------------- ------------- -------------
Total comprehensive
earnings -- -- -- 613 1,020 1,633
------------ ------------- ------------- --------------- ------------- -------------
Balances at December 31, 1999 4,131,227 $ 41 16,061 (837) 3,170 18,435
============ ============= ============= =============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,020 (936) (2,447)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,396 1,337 2,023
Loss (gain) on disposal of property, plant and equipment (30) 6 (442)
Deferred income tax expense (benefit) (64) 69 121
Compensation expense related to restricted stock 9 11 15
Change in operating assets and liabilities:
Net receivables 1,479 (521) (903)
Inventories (798) 2,688 116
Prepaid expenses and promotional materials 238 110 36
Current liabilities other than current installments of long-term debt 1,892 (1,104) (508)
Other (518) 110 (587)
----------- ----------- -----------
Net cash provided by (used in) operating activities 4,624 1,770 (2,576)
Cash flows from investing activities:
Purchase of short-term investments (7,979) (74) (139)
Maturity of short-term investments 4,016 -- --
Sale of short-term investments -- 74 2,838
Cash received for repayment of non-operating notes receivable 379 166 127
Cash received from sale of property, plant and equipment 35 -- 1,499
Purchase of property, plant and equipment (466) (659) (5,053)
Other -- (57) (48)
----------- ----------- -----------
Net cash used in investing activities (4,015) (550) (776)
Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchased
through the Employee Stock Purchase Plan 3 5 102
Repayment of long-term debt (200) (182) (59)
Additions to long-term debt 35 10 3,810
----------- ----------- -----------
Net cash provided by (used in) financing activities (162) (167) 3,853
Effect of exchange rates on cash and cash equivalents 309 118 523
----------- ----------- -----------
Net increase in cash and cash equivalents 756 1,171 1,024
Cash and cash equivalents at beginning of year 3,457 2,286 1,262
=========== =========== ===========
Cash and cash equivalents at end of year $ 4,213 3,457 2,286
=========== =========== ===========
Supplemental disclosures of cash flow information:
Net cash paid (received) during the year for:
Interest $ 313 331 121
Income taxes (957) 62 30
=========== =========== ===========
Noncash investing and financing activities:
Acquisition of model home in exchange for receivable and liability
assumption $ -- 393 --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Lindal Cedar Homes, Inc. and subsidiaries (collectively, the
Company) manufactures and distributes high quality, custom cedar
home packages and sunrooms to customers, domestically and
internationally, through its network of approximately 180
independent dealers. In addition, the Company re-manufactures
standard dimensional cedar lumber. A portion of the cedar lumber
is combined with other purchased forest products and building
materials into home packages. The remaining cedar lumber is sold
to third parties. The Company generally requires cash deposits
upon placement of an order and final payment upon shipment of the
home package or sunroom.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its Canadian and domestic wholly-owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(d) CONCENTRATIONS
The Company extends credit on the sale of windows and other
materials in the normal course of business. One customer accounts
for 12% of accounts receivable at December 31, 1999. There were no
individual customers that accounted for greater than 10% of
accounts receivable at December 31, 1998.
Notes receivable consist primarily of loans to dealers and are
generally secured by property, primarily model homes. Loans to
four dealers at December 31, 1999 and five dealers at December 31,
1998 make up approximately 79% and 67% of the net notes receivable
balance at December 31, 1999 and 1998, respectively. There are no
other individual balances greater than 10% of the net notes
receivable balance.
The Company can obtain its materials from several sources and is
not dependent on any individual supplier.
(Continued)
26
<PAGE> 27
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(e) FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies are
translated at year-end exchange rates, stockholders' equity at
historical rates, and revenue and expenses at weighted-average
rates during the year. The resulting translation adjustment is
reported as a component of other comprehensive earnings or loss.
Foreign exchange transaction gains (losses) were $(105) in 1999,
$319 in 1998 and $(56) in 1997 and are included in other income
and expense.
(f) CASH EQUIVALENTS
The Company considers all short-term investments with a maturity
at date of purchase of three months or less to be cash
equivalents. Cash equivalents consisted primarily of an investment
sweep account of $3,210 in 1999 and $2,464 in 1998.
(g) SHORT-TERM INVESTMENTS
Short-term investments at December 31, 1999 consist of securities
maturing in January through March 2000, and are classified as
available-for-sale. Accordingly, these investments are carried at
fair value, and the Company records any unrealized holding gains
and losses, net of income taxes, as a separate component of
stockholders' equity. There were no unrealized holding gains or
losses in 1999, 1998 or 1997.
(h) FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments,
using available market information, approximates their recorded
value. The estimates of fair value are not necessarily indicative
of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions may have a
material effect on the estimated fair value amounts.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Futures
and option contracts are used to manage well-defined commodity
price risks on non-cedar lumber used in home packages.
Deferred gains or losses under futures and option contracts are
included on a net basis in the carrying amounts of inventories in
the consolidated balance sheets.
At December 31, 1999, the Company had 30 futures contracts with
broker-dealers of approximately $1,091 maturing through July 2000
with a net deferred gain of $25. The Company is exposed to, but
does not anticipate, credit loss in the event of nonperformance by
the other parties to the contracts. The Company does not obtain or
provide collateral or other security to support the contracts.
(Continued)
27
<PAGE> 28
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(i) INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market (net realizable value).
The Company has erected display homes in various metropolitan and
recreational areas for display to the public and has adopted the
policy of charging the original cost (net of 20% estimated
residual value) of such homes against income over five years. It
is also the Company's policy to offer for sale and to sell the
display homes at prices below normal retail, but generally
approximating recorded valuations plus a normal gross profit;
therefore, the display homes are included in inventories at the
lower of amortized cost or net realizable value. At the time of
sale, any remaining unamortized amounts are charged to cost of
goods sold.
(j) PROMOTIONAL MATERIALS
Promotional materials consist primarily of the Company's plan book
and are stated at the lower of cost (principally first-in,
first-out) or market (net realizable value). Development costs
related to future plan books are recorded in other assets.
(k) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is provided over the estimated
useful lives of the respective assets on the straight-line basis.
Leasehold improvements are amortized on the straight-line basis
over the terms of the respective leases, if shorter than their
estimated useful lives. Improvements and additions are
capitalized; maintenance and repairs are charged to expense.
The estimated useful lives for buildings and leasehold
improvements range from 3 to 30 years; and for equipment,
furniture and fixtures 3 to 10 years.
(l) IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of long-lived assets and
certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be unrecoverable, the
write-down to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or the fair value less costs to sell.
(Continued)
28
<PAGE> 29
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(m) INCOME TAXES
The Company computes income taxes using the asset and liability
method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and
the tax basis of the Company's asset and liabilities and operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using currently enacted tax rates that
are expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. A valuation allowance is established when necessary to
reduce deferred tax assets to the amounts that will more likely
than not be realized.
No provision has been made for U.S. federal income taxes on the
undistributed earnings of the Company's foreign subsidiaries as it
is management's intention to reinvest such earnings indefinitely
or to distribute them in a manner which will not generate
significant additional taxes. At December 31, 1999, the Company's
cumulative undistributed earnings of the subsidiaries for which
federal income taxes have not been provided were $173.
(n) ADVERTISING
The Company expenses advertising costs when the related
advertising first takes place. The Company recognized advertising
expense of $1,149 in 1999, $1,306 in 1998 and $1,206 in 1997.
(o) NET EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is computed using the weighted
average number of common shares outstanding. Diluted net earnings
per share is computed using the weighted average number of common
shares plus dilutive common share equivalents outstanding during
the period using the treasury stock method.
(p) STOCK BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board
(APB) Opinion No. 25 and related interpretations in accounting for
its stock option and stock purchase plans for employees.
Accordingly, the Company does not recognize compensation expense
for options and stock purchase rights granted to employees with an
exercise price equal to or in excess of the fair value of the
related common stock at the date of grant. Note 6 to the
consolidated financial statements contains a summary of pro forma
results of operations for 1999, 1998 and 1997 as if the Company
had recognized compensation expense based on the fair value of the
options and stock purchase rights granted at grant date as
required by Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock Based Compensation.
(Continued)
29
<PAGE> 30
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(q) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) measures all changes in equity of an
enterprise that do not result from transactions with owners and is
reported separately in stockholders' equity.
(r) RECLASSIFICATIONS
Certain reclassifications have been made to the prior period
financial statements to conform with the current year
presentation.
(2) INVENTORIES
A summary of inventories at December 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- -------------------
<S> <C> <C>
Raw materials $ 1,822 1,639
Work-in-process 2,879 2,474
Finished goods 2,707 2,226
Display homes 690 781
-------------------- -------------------
$ 8,098 7,120
==================== ===================
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Buildings and leasehold improvements $ 10,455 10,286
Equipment 3,496 3,349
Furniture and fixtures 4,655 4,372
------------------- -------------------
18,606 18,007
Less accumulated depreciation and amortization 9,832 8,745
------------------- -------------------
8,774 9,262
Land 2,182 2,164
=================== ===================
Property, plant and equipment, net $ 10,956 11,426
=================== ===================
</TABLE>
Due to the unfavorable cedar market conditions that existed in 1997,
management temporarily closed its Surrey, British Columbia, Canada
sawmill operations in the fourth quarter of 1997. Management also
(Continued)
30
<PAGE> 31
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
concluded that the carrying value of the sawmill and related equipment
exceeded the estimated future positive cash flows from the sawmill. As a
result, the Company recorded, as a part of its restructuring and
valuation charge, a $595 write-down in the carrying value of the sawmill
and related equipment to their estimated fair values of zero in the
fourth quarter of 1997.
As a result of the continuing unfavorable market conditions for cedar
lumber, the Company in the fourth quarter of 1998 sold the sawmill,
related equipment and other related assets in exchange for a long-term
cedar supply contract and cash of $426. The holding costs of the sawmill
during 1998 and the loss on the sale of the sawmill and related assets
totaled $768 and is included as operating expense in the 1998
consolidated statement of operations.
(4) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------------- --------------------
<S> <C> <C>
Industrial revenue bonds $ 3,525 3,625
First mortgage note payable, due in monthly installments of $13,
including interest at 9.5%; final payment due 2009; secured by
property with a net book value of $3,105 1,013 1,075
Other 93 94
------------------- --------------------
Total long-term debt 4,631 4,794
Less current installments 213 190
=================== ====================
Long-term debt, excluding current installments $ 4,418 4,604
=================== ====================
</TABLE>
The Industrial Revenue Bonds are divided into two tranches, Series A
Bonds ($225) and Series B Bonds ($3,300), (collectively, the Bonds), with
portions of the Series A bonds maturing annually through November 2001
and portions of the Series B bonds maturing annually from November 2002
through November 2017. The Series A bonds bear an interest rate of 6.45%
and Series B bonds bear fixed rates from 4.65% to 5.80% on various
principal amounts with an approximate effective interest rate of 5.70%.
The Bonds are redeemable at a premium in years 2003 through 2007 and at
par thereafter.
In connection with the issuance of the Bonds, the Company has entered
into a "Reimbursement Agreement" with a bank pursuant to which the bank
issued to the Trustee an irrevocable letter of credit in an amount equal
to the aggregate principal amount of the Bonds outstanding plus 210 days
of interest. The letter of credit will be automatically reinstated
following the drawing in the amount of the interest draws. The letter of
credit expires on November 15, 2002. The Company has an option to replace
or extend the letter of credit at that time; however, if it does not
exercise that option, the Bonds become redeemable by the trustee. The
Company pays annually a 1% fee of the stated amount of the letter of
credit.
(Continued)
31
<PAGE> 32
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
At December 31, 1999, certain properties having an aggregate net book
value of approximately $3,465 are pledged as collateral for the
irrevocable letter of credit guaranteeing the bonds.
The Reimbursement Agreement requires the Company to maintain certain
financial and non-financial covenants. The financial covenants relate
primarily to working capital, tangible net worth, capital expenditure
limitations and debt service coverage ratio. At December 31, 1999, the
Company was in compliance with all such covenants.
Long-term debt matures as follows:
<TABLE>
<S> <C>
2000 $ 213
2001 217
2002 206
2003 227
2004 241
Thereafter 3,527
---------------
$ 4,631
===============
</TABLE>
(5) LINE OF CREDIT
The Company had a $1,500 line of credit with a bank at December 31, 1998.
The line of credit was secured by inventory and receivables and bore
interest at the prime rate plus 1%. The line of credit expired December
31, 1999.
(6) STOCKHOLDERS' EQUITY
(a) EMPLOYEE STOCK OPTION PLANS
The Company grants stock options to employees under the 1997 Stock
Option Plan (the 1997 Plan). The Company has also granted stock
options under the 1988 Combined Incentive Stock Option and
Non-Qualified Stock Option Plan, which plan expired on May 26,
1998, and the 1984 Incentive Stock Option Plan, which plan expired
on December 21, 1994. No future options can be granted under the
1988 or 1984 plans. All three plans are administered by the
Compensation Committee of the Board of Directors (Committee).
Under the terms of the 1997 Plan, options to purchase shares of
the Company's common stock may be designated as incentive or
nonqualified at the discretion of the Committee. The exercise
price of the options granted under these plans are set at the time
of grant, but may not be less than the fair market value of the
Company's common stock at the date of grant. There are 250,000
shares of common stock authorized for grants under the terms of
the 1997 Plan, and at December 31, 1999, there were 197,800
available for grant.
(Continued)
32
<PAGE> 33
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
Generally, options under these plans vest and may be exercised
over either a five-year period in cumulative increments of 20%
each year beginning one year from the date of grant, or as
determined at the discretion of the Committee.
Options granted, other than incentive options to 10% stockholders,
expire ten years from the date of grant. Incentive options to 10%
stockholders expire five years from the date of grant.
(b) DIRECTORS AND DISTRIBUTORS STOCK OPTION PLAN
Outside directors, when first appointed to the Board, receive an
initial grant of options to purchase 10,000 shares of the
Company's common stock. Additional options to purchase 5,000
shares of the Company's common stock are to be granted to outside
directors each October 1. The exercise price of each option is the
fair market value on the date of grant.
The options granted to directors who are not a Lindal distributor
vest and are exercisable six months after the grant. Options
granted to a director, who is also a Lindal distributor, vest and
become exercisable over a four-year period beginning with 20%
after six months and in annual cumulative increments of 20%
beginning from the date of grant.
On February 1 of each year, every distributor who serves on the
Distributor Advisory Council (Council) is granted options to
purchase 100 shares of common stock for each year of service on
the Council. The options vest and are exercisable over a four-year
period beginning with 20% after six months and in annual
cumulative increments of 20% beginning from the date of grant. The
exercise price of each option is the fair market value on the
grant date.
Options granted to outside directors who are not Lindal
distributors expire at the earlier of 10 years from the date of
grant or one year after the option holder ceases to be a director.
Options granted to distributors, including outside directors who
are Lindal distributors, expire at the earlier of 10 years from
the date of grant or 90 days after the option holder ceases to be
a distributor for any reason other than death or one year after
death.
There are 210,000 shares of common stock authorized for grants
under the directors and distributors plan, and at December 31,
1999, there were 73,308 options available for grant.
(Continued)
33
<PAGE> 34
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
A summary of the combined status of the employee and director and
distributor plans as of December 31, 1999, 1998 and 1997 and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 502,024 $3.85 494,154 $ 3.95 594,480 $ 4.00
Granted 90,800 1.75 47,300 2.89 33,200 4.05
Exercised -- -- -- -- (30,219) 3.13
Relinquished (94,952) 3.67 (39,430) 4.02 (103,307) 4.45
------------ ------------ -----------
Outstanding at end
of year 497,872 $3.51 502,024 $ 3.85 494,154 $ 3.95
============ =========== ============ =========== =========== ===========
Options
exercisable at
year-end 387,012 $3.86 403,764 $3.97 366,954 $3.95
============ =========== ============ =========== =========== ===========
</TABLE>
The following table summarizes information about these plans at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE REMAINING AVERAGE AVERAGE
OF EXERCISE NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
PRICE OUTSTANDING LIFE EXERCISABLE
-------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.56-2.25 99,700 9.2 $ 1.84 17,500 $ 2.17
3.16-4.36 348,080 5.4 3.72 319,420 3.72
4.87-6.36 50,092 3.7 5.37 50,092 5.37
--------------- ---------------
1.56-6.36 497,872 6.0 3.51 387,012 3.86
=============== =============== =============== =============== ===============
</TABLE>
(c) EMPLOYEE STOCK PURCHASE PLAN
The Company's 1993 Employee Stock Purchase Plan provides for
110,000 shares of the Company's common stock to be reserved for
issuance upon exercise of purchase rights granted to participating
employees of the Company. The purchase rights are exercisable
annually on October 1 of each year at a price equal to the lesser
of 85% of the fair market value of the Company's stock at the
beginning
(Continued)
34
<PAGE> 35
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
or end of the annual period. In 1999, 1998 and 1997, 1,216, 2,565
and 2,397, shares respectively, for the amounts of $3, $5 and $8,
respectively, were issued under the plan.
(d) ISSUANCE OF RESTRICTED STOCK
Pursuant to a revised compensation program for non-employee
directors, a total of 4,000, 5,000 and 3,000 shares of the
Company's common stock were issued in 1999, 1998 and 1997,
respectively. The stock issued to the non-employee directors was
valued at the fair market value at the date of grant. As the stock
issued was not registered, all certificates bear the appropriate
restrictive legend. Compensation expense of $9, $11 and $11 was
recorded in 1999, 1998 and 1997, respectively.
Pursuant to pre-employment negotiations, in June 1997, 1,000
shares of common stock were issued, and valued at the fair market
value at the date of grant, to the person who became the chief
financial officer of the Company. As the stock has not been
registered, the certificate bears the appropriate restrictive
legend. A charge of $4 was recorded as compensation expense in
1997.
(e) PRO FORMA OPTION COMPENSATION EXPENSE
The Company applies APB Opinion No. 25 in accounting for its stock
options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the date
of grant for its stock options under SFAS No. 123, the Company's
net earnings (loss) and basic and diluted earnings (loss) per
common share would have been the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Net earnings (loss):
As reported $ 1,020 (936) (2,447)
Pro forma 965 (1,014) (2,499)
Basic and diluted earnings (loss) per common shares:
As reported .25 (.23) (.60)
Pro forma .23 (.25) (.61)
</TABLE>
The pro forma amounts reflect only options granted since January
1, 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
1998 and 1997 pro forma amounts presented above. Compensation cost
is recorded over the options' vesting period of five years.
(Continued)
35
<PAGE> 36
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Expected dividend yield -- -- --
Risk free interest rate range 4.7-5.9% 4.4-5.4% 5.9-6.3%
Expected term (years) 4.6 4.6 4.6
Expected volatility 68.0% 37.7% 31.8%
</TABLE>
The weighted average fair value of options granted in 1999, 1998
and 1997 were $1.02, $1.06 and $1.52, respectively.
(f) NET EARNINGS (LOSS) PER SHARE
The following table reconciles the numerator and the denominator
of the basic and diluted per share computations for net earnings
(loss) per share:
<TABLE>
<CAPTION>
NET EARNINGS WEIGHTED AVERAGE NET EARNINGS
(LOSS) SHARES (LOSS) PER
(NUMERATOR) (DENOMINATOR) SHARE
------------------- ------------------- --------------
<S> <C> <C> <C>
1999:
Basic earnings per share $ 1,020 4,127,311 $.25
Effect of dilutive stock options -- 20,184 --
------------------- -------------------
Diluted earnings per share $ 1,020 4,147,495 $.25
=================== ===================
1998:
Basic loss per share $ (936) 4,120,332 $(.23)
Effect of dilutive stock options -- --
------------------- -------------------
Diluted loss per share $ (936) 4,120,332 $(.23)
=================== ===================
1997:
Basic loss per share $ (2,447) 4,103,432 $(.60)
Effect of dilutive stock options -- --
------------------- -------------------
Diluted loss per share $ (2,447) 4,103,432 $(.60)
=================== ===================
</TABLE>
Outstanding options to purchase 398,172, 502,024, and 494,154
shares of common stock were not included in the computation in
1999, 1998 and 1997, respectively, as they were anti-dilutive.
(Continued)
36
<PAGE> 37
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(7) INCOME TAXES
The components of earnings (loss) before income tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
U.S. $ 1,348 (1,095) (2,455)
Canada 198 (191) (686)
---------------- ---------------- ----------------
$ 1,546 (1,286) (3,141)
================ ================ ================
Total income tax expense (benefit) is allocated as follows:
1999 1998 1997
--------------- --------------- ---------------
Current:
U.S. federal $ 560 (492) (881)
Canadian 30 73 66
--------------- --------------- ---------------
590 (419) (815)
Deferred:
U.S. federal (69) 157 121
Canadian 5 (88) --
--------------- --------------- ---------------
(64) 69 121
--------------- --------------- ---------------
Total $ 526 (350) (694)
=============== =============== ===============
</TABLE>
The income tax expense (benefit) in the consolidated financial statements
differs from the amount of income tax determined by applying the
applicable U.S. federal statutory income tax rate to pretax income as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Statutory tax rate 34% (34)% (34)%
Valuation allowance 5 14 9
Effect of Canadian taxes (5) (7) --
Other, net -- -- 3
---------------- ---------------- ----------------
34% (27)% (22)%
================ ================ ================
</TABLE>
(Continued)
37
<PAGE> 38
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities at December 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Deferred income tax assets:
Receivables, due to the allowance for doubtful receivables $ 155 147
Capitalization for tax purposes 199 229
Accrued expenses deductible in different years for tax 82 53
Net operating loss carryforwards 481 372
Foreign tax credit carryforwards 152 135
------------------- -------------------
Deferred income tax assets 1,069 936
Valuation allowance (639) (550)
------------------- -------------------
430 386
Deferred income tax liabilities - property, plant and equipment,
principally due to differences in basis of assets and depreciation 294 325
=================== ===================
Net deferred income tax asset $ 136 61
=================== ===================
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1999, 1998 and 1997 was an increase of $89, $162 and $388,
respectively. In assessing the realizability of deferred income tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred income tax assets will not be realized.
The ultimate realization of deferred income tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred income tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the period which the deferred tax assets are
deductible, management believes it is more likely than not the Company
will realize the benefits of these deferred income tax assets, net of
valuation allowance.
The Company's Canadian subsidiaries have net operating loss carryforwards
of $1,235 which expire in 2000 through 2006.
(Continued)
38
<PAGE> 39
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(8) LEASES
The Company leases certain properties under operating leases, some of
which are subleased to dealers. In addition, the Company leases certain
production facilities and equipment.
A summary of rent expense follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross rent expense $ 282 348 451
Less sublease rental income 32 48 46
--------------- --------------- ---------------
Net rent expense $ 250 300 405
=============== =============== ===============
</TABLE>
Noncancelable long-term operating lease commitments are as follows:
<TABLE>
<CAPTION>
AGGREGATE MINIMUM
YEARS ENDING DECEMBER 31 RENTALS
------------------------- ----------------------
<S> <C>
2000 $ 160
2001 30
2002 18
2003 13
2004 13
Thereafter 247
----------------------
$ 481
======================
</TABLE>
(9) RETIREMENT PLANS
(a) SALARY SAVINGS PROFIT SHARING PLAN
The Company's Salary Savings Profit Sharing Plan under Section
401(k) of the Internal Revenue Code covers substantially all
full-time nonunion employees. Plan participants may contribute up
to 15% of their annual salary to the plan. The Company makes a
matching contribution in the amount of 25% of employee
contributions. Plan administration costs and the Company's costs
of matching employees' contributions to the plan totaled $80 in
1999, $71 in 1998, and $78 in 1997. The Company may also
contribute to the plan such additional amounts as the Board of
Directors may determine at its sole discretion. There were no such
contributions in 1999, 1998, or 1997.
(Continued)
39
<PAGE> 40
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
(b) PENSION PLAN
The Company contributes to various trusteed defined benefit
pension plans under industry-wide agreements. These contributions
are based on the hours worked by employees covered under
collective bargaining agreements. Pension expense for these plans
was $56 in 1999, $102 in 1998 and $193 in 1997.
(10) RELATED PARTY TRANSACTIONS
In 1998 and 1997, the Company made payments to a private company
controlled by Sir Walter Lindal and certain other members of the Lindal
family who are officers and directors of the Company of $34 in each of
the years as consideration for the use of various patents. The agreement
under which these payments were made was terminated in 1999.
Sales of homes to certain members of the Board of Directors who are also
dealers totaled approximately $491 in 1999, $296 in 1998 and $715 in
1997. All sales were made under normal trade terms.
(11) SEGMENT INFORMATION
The Company has two reportable segments: Homes -- United States and Homes
-- Canada. Homes -- United States performs functions associated with
engineering, custom design, drafting, customer service, logistics,
special order materials and distribution planning for home sales
worldwide. Homes -- Canada performs functions associated with inventory
management of stock materials, materials staging, and house shipping for
home sales worldwide. Homes -- United States primarily sells homes, at
wholesale, to independent dealers while Homes -- Canada primarily sells
homes, at wholesale, to Homes -- United States for resale to independent
dealers. Prior to 1998, Homes -- Canada also operated the Company's
sawmill, which produced a majority of the cedar used in houses. The
Company's sawmill operated only for a brief period of time in February
1998 and was sold in December 1998.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.
The Company accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, that is at current prices where
available, or on a cost plus basis when actual market prices are not
available. Lindal Cedar Homes, Inc. evaluates segment performance based
on gross profit from operations. Information on segment assets is not
reported to the Chief Operating Decision Maker.
The Company only reports home revenue for completed home shipments, its
primary product, by geographic location, as it is impractical to report
total revenue by geographic location. Geographic location is determined
by the shipping destination of the home.
No single customer accounts for more than 10% of the revenues of the
Company.
(Continued)
40
<PAGE> 41
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
Information regarding the Company's reportable segments, including other
significant items, for the years ended December 31 follows:
<TABLE>
<CAPTION>
OTHER
U.S. CANADIAN INTERSEGMENT RECONCILING
1999 HOMES HOMES ALL OTHER ELIMINATIONS ITEMS CONSOLIDATED
------------ ----------- ----------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $ 33,401 1,939 4,145 -- 20 39,505
Intersegment revenues 11,456 31,740 6,084 (49,280) -- --
Gross profit 7,345 10,994 1,603 (10,581) (23) 9,338
Interest income 467 39 -- (293) 293 505
Interest expense 106 294 208 (293) 7 322
Depreciation and
amortization 780 128 402 -- 86 1,396
1998
Revenues from
external customers $ 30,975 2,467 4,051 -- 226 37,719
Intersegment revenues 11,512 30,632 5,440 (47,922) 338 --
Gross profit 6,637 10,877 633 (10,500) (28) 7,619
Interest income 124 39 2 (296) 296 165
Interest expense 105 307 215 (296) 6 337
Depreciation and
amortization 743 128 408 -- 58 1,337
Sawmill costs -- 768 -- -- -- 768
1997
Revenues from
external customers $ 38,765 5,883 3,956 -- 244 48,848
Intersegment revenues 14,002 47,778 7,373 (72,956) 3,803 --
Gross profit 4,794 11,371 1,916 (11,144) (186) 6,751
Interest income 135 41 1 (316) 316 177
Interest expense 117 318 30 (316) 2 152
Depreciation and
amortization 852 224 285 -- 67 1,428
Restructuring and
valuation charges -- 595 212 -- -- 807
</TABLE>
Other reconciling items in 1997 consist primarily of amounts related to
log sales among the Company's Canadian subsidiaries.
(Continued)
41
<PAGE> 42
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
The following table presents the approximate percentage of home sales
revenue for completed home shipments by the geographic shipping
destination for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
United States $ 89% 87% 83%
Canada 5% 6% 5%
Other countries 6% 7% 12%
------------------- ------------------- -------------------
$ 100% 100% 100%
=================== =================== ===================
</TABLE>
Additional geographic information is as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Long-lived assets:
United States $ 10,810 10,782
Canada 1,991 1,980
------------------- -------------------
Total $ 12,801 12,762
=================== ===================
Net assets:
United States $ 11,272 9,287
Canada 7,163 7,503
------------------- -------------------
Total $ 18,435 16,790
=================== ===================
</TABLE>
(12) RESTRUCTURING CHARGES
In 1997, the Company recorded a restructuring charge of $212 related to
the consolidation of the window and sunroom operations into the
Burlington, Washington facility. The Company paid all these costs in
1997.
(13) LITIGATION
The Company is routinely involved in a number of legal proceedings and
claims that cover a wide range of matters. In the opinion of management,
the outcome of these matters is not expected to have any material adverse
effect on the consolidated financial position or results of operations of
the Company.
On February 1, 2000, six current and former dealers brought suit against
Lindal Cedar Homes and two of its officers and directors in the U.S.
District Court for the Western District of Washington for damages arising
from the Company's termination or threatened termination of their
dealership agreements. In late 1998 and early 1999, the Company
terminated or threatened to terminate the dealership agreements of these
individuals on the grounds that the dealers had breached their agreements
by selling competitive
(Continued)
42
<PAGE> 43
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
products. The dealership contract, signed by each of these claimants,
strictly prohibits a dealer from selling competitive products.
The complaint alleges: (a) the failure of the Company to register as a
franchise in certain states, including Washington, (b) numerous
violations of the Washington Franchise Investment Protection Act, and (c)
illegal tie-in requirements in violation of the Sherman Act and
Washington Consumer Protection Act, including treble damages. The
complaint does not specify the damages sought. However, in a mediation
which preceded the filing of the lawsuit, the plaintiffs claimed damages,
including trebling, of approximately $10 million (prior to attorneys
fees).
The Company's dealer agreement provides that, following unsuccessful
mediation, a dealer may pursue claims under the agreement only through an
arbitration proceeding binding on the dealer and the Company. The Company
expects to take the steps necessary to have the matter referred to
arbitration before the American Arbitration Association.
The Company believes that neither the Washington Franchise Investment
Protection Act nor the Federal Sherman Act is applicable, nor were there
any violations of either act. The Company will vigorously defend the
lawsuit. Any amount owing as a result of this lawsuit is currently not
estimatable and as such, the Company has not accrued any amount relating
to these claims.
(14) SUBSEQUENT EVENT
In January 2000, the Company was notified by the British Columbia
Ministry of Forests that its proposed modifications to the terms and
conditions of a timber sale agreement had been approved. Under the
modified terms and conditions of the timber sale, the Company has
committed to the following:
o The Company will immediately begin transferring the
re-manufacturing of lumber for its homes from its Tacoma,
Washington facility to facilities owned by an affiliate of Mill
and Timber Products Ltd. (Mill & Timber), with the entire
transfer to be completed by July 2001, and
o The Company will invest approximately $200,000 in new
re-manufacturing equipment to facilitate the re-manufacturing of
its lumber by the affiliate of Mill & Timber.
43
<PAGE> 44
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS- AT END
DESCRIPTION OF YEAR EXPENSES DESCRIBE DEDUCTIONS OF YEAR
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
1999
Allowance for
doubtful
receivables (3) (a)
and notes $ 489 -- -- 69 (b) 423
================== ================== ================== ================== ==================
1998
Allowance for
doubtful
receivables
and notes $ 461 46 -- 18 (a) 489
================== ================== ================== ================== ==================
1997
Allowance for
doubtful
receivables 3 (a)
and notes $ 394 123 -- 53 (b) 461
================== ================== ================== ================== ==================
</TABLE>
(a) Change due to fluctuations in the Canadian dollar exchange rate.
(b) Deductions represent the write-off of uncollectible accounts receivable.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 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.
March 30, 2000
/s/ ROBERT W. LINDAL
-----------------------------------------
Robert W. Lindal, Chairman
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date 3/28/00 /s/ SIR WALTER LINDAL Date 3/28/00 /s/ ROBERT W. LINDAL
------------------ --------------------------- --------------- -------------------------
Sir Walter Lindal Robert W. Lindal
Chairman Emeritus Director, Chairman and
Director and Secretary Chief Executive Officer
Date 3/28/00 /s/ DOUGLAS F. LINDAL Date 3/28/00 /s/ MARTIN J. LINDAL
------------------ --------------------------- --------------- -------------------------
Douglas F. Lindal Martin J. Lindal
Director, President and Director and Vice
Chief Operating Officer President Information
Systems and Assistant
Secretary
Date 3/28/00 /s/ DENNIS GREGG Date 3/28/00 /s/CHARLES W. WIDMAN
------------------ --------------------------- --------------- -------------------------
Dennis Gregg Charles W. Widman
Chief Financial Officer Director
(Principal Financial and
Accounting Officer)
Date 3/28/00 /s/WILLIAM M. WEISFIELD Date 3/28/00 /s/ STEVEN CONLEY
------------------ --------------------------- --------------- -------------------------
William M. Weisfield Steven Conley
Director Director
Date
------------------ ---------------------------
Charles T. Collins
Director
</TABLE>
45
<PAGE> 46
LINDAL CEDAR HOMES, INC.
EXHIBIT INDEX
Exhibits are numbered in accordance with Item 601 of Regulation S-K.
EXHIBIT
NUMBERS DESCRIPTION
(3.1) Certificate of incorporation (a)
(3.2) Bylaws (a)
(3.3) 1993 Amendment to the Certificate of Incorporation (d)
(10.1) 1984 Incentive Stock Option Plan (b)
(10.3) 1998 Combined Incentive Stock Option Plan and Non-Qualified Stock
Option Plan (c)
(10.4) Directors' and Distributors' Stock Option Plan (d)
(10.5) 1993 Employee Stock Purchase Plan (d)
(10.6) Amendment to the Directors' and Distributors' Stock Option Plan
(e)
(10.7) 1997 Stock Option Plan (g)
(21) Subsidiaries of the registrant (f)
(23) Consent of Independent Certified Public Accountants
(27) Financial Data Schedule
(a) Incorporated herein by reference from registration on Form 8B of
Lindal Cedar Homes, Inc., a Delaware corporation dated March 14,
1987.
(b) Incorporated herein by reference from the Registrant's Form 10-K
filed for the fiscal year ended December 31, 1986.
(c) Incorporated herein by reference from the Registrant's Form 10-K
filed for the fiscal year ended December 31, 1989.
(d) Incorporated herein by reference from the Registrant's Form 10-K
filed for the fiscal year ended December 31, 1993.
(e) Incorporated herein by reference from the Registrant's Proxy
Statement dated April 27, 1994.
(f) Incorporated herein by reference from the Registrant's Form 10-K
filed for the fiscal year ended December 31, 1996.
(g) Incorporated herein by reference from the Registrant's Proxy
Statement dated May 9, 1997.
Copies of the above exhibits may be obtained from the Securities and Exchange
Commission or the Registrant by request.
46
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Lindal Cedar Homes, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-64186 and 333-28509) on Form S-8 of Lindal Cedar Homes, Inc. of our report
dated February 28, 2000 relating to the consolidated balance sheets of Lindal
Cedar Homes, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999 and
related schedule, which report appears in the December 31, 1999, annual report
on Form 10-K of Lindal Cedar Homes, Inc.
/s/ KPMG LLP
Seattle, Washington
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,252
<SECURITIES> 0
<RECEIVABLES> 1,827
<ALLOWANCES> 259
<INVENTORY> 8,098
<CURRENT-ASSETS> 19,078
<PP&E> 20,788
<DEPRECIATION> 9,832
<TOTAL-ASSETS> 31,879
<CURRENT-LIABILITIES> 8,732
<BONDS> 4,418
0
0
<COMMON> 41
<OTHER-SE> 18,394
<TOTAL-LIABILITY-AND-EQUITY> 31,879
<SALES> 39,505
<TOTAL-REVENUES> 39,505
<CGS> 30,167
<TOTAL-COSTS> 30,167
<OTHER-EXPENSES> 8,158
<LOSS-PROVISION> (69)
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> 1,546
<INCOME-TAX> 526
<INCOME-CONTINUING> 1,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
