<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 2, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to_________.
Commission File Number 0-6087
LINDAL CEDAR HOMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-0508250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 South 104th Place, Seattle, Washington 98178
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(206) 725-0900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes [X] No [ ]
Common stock outstanding at April 2, 2000: 4,131,327 shares at $.01 par value.
<PAGE> 2
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures about Market Risk 17
Part II Other information
Item 1 Legal proceedings 18
Item 6(a) Exhibits 18
Item 6(b) Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
3
<PAGE> 4
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, 2000, December 31, 1999 and April 4, 1999
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
APRIL 2, DECEMBER 31, APRIL 4,
2000 1999 1999
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets
Cash, cash equivalents and investments $ 7,314 8,252 4,244
Receivables:
Trade 1,567 1,827 1,744
Refundable income taxes 371 -- 1,496
-------- ------ ------
1,938 1,827 3,240
Less allowance for doubtful receivables 199 259 319
-------- ------ ------
Net receivables 1,739 1,568 2,921
Inventories 8,065 8,098 7,253
Promotional material 502 510 747
Other current assets 751 650 863
-------- ------ ------
Total current assets 18,371 19,078 16,028
Other assets 2,009 1,845 1,352
Property, plant and equipment, net 11,110 10,956 11,287
-------- ------ ------
$ 31,490 31,879 28,667
======== ====== ======
Liabilities and Stockholders' Equity
Current liabilities
Current installments of long-term debt $ 210 213 191
Accounts payable and accrued expenses 3,140 3,718 2,751
Income taxes payable 26 126 7
Customer deposits 5,311 4,675 4,087
-------- ------ ------
Total current liabilities 8,687 8,732 7,036
Long-term debt, excluding current installments 4,394 4,418 4,573
Deferred income taxes 288 294 318
Stockholders' equity:
Common stock 41 41 41
Additional paid-in capital 16,061 16,061 16,049
Accumulated other comprehensive loss (794) (837) (1,217)
Retained earnings 2,813 3,170 1,867
-------- ------ ------
Total stockholders' equity 18,121 18,435 16,740
-------- ------ ------
$ 31,490 31,879 28,667
======== ====== ======
</TABLE>
See accompanying notes to the condensed consolidated financial statements
4
<PAGE> 5
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended April 2, 2000 and April 4, 1999
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------
APRIL 2, APRIL 4,
2000 1999
-------- -------
<S> <C> <C>
Revenue $ 8,452 8,105
Cost of goods sold 7,046 6,438
------- -------
Gross profit 1,406 1,667
Operating expenses:
Selling, general and administrative expenses 1,887 1,863
Display court expenses 89 124
------- -------
Total operating expenses 1,976 1,987
------- -------
Operating loss (570) (320)
Other income (expense):
Rental income 52 52
Interest income, net 40 (39)
Other expense, net (42) (41)
------- -------
Other income (expense), net 50 (28)
------- -------
Loss before income tax benefit (520) (348)
Income tax benefit (163) (65)
------- -------
Net loss $ (357) (283)
======= =======
Basic and diluted - net loss per common share $ (0.09) (0.07)
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements
5
<PAGE> 6
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended April 2, 2000 and April 4, 1999
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 2, APRIL 4,
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (357) (283)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 309 324
Deferred income tax expense (benefit) 27 (7)
Change in operating assets and liabilities:
Net receivables (287) 287
Inventories 93 (55)
Prepaid expenses and promotional materials (155) (65)
Current liabilities other than current
installments of long-term debt 49 843
Other (333) (29)
------- -------
Net cash provided by (used in) operating
activities (654) 1,015
Cash flows from investing activities:
Purchase of investments (3009) --
Maturity of investments 3013 --
Repayment of non-operating notes receivable 43 11
Purchase of property, plant and equipment (288) (74)
------- -------
Net cash used in investing activities (241) (63)
Cash flows from financing activities:
Repayment of long-term debt (27) (30)
Repayment of current notes payable -- (266)
------- -------
Net cash used in financing activities (27) (296)
Effect of exchange rate changes on cash and cash equivalents (11) 58
------- -------
Net increase (decrease) in cash and cash equivalents (933) 714
Cash and cash equivalents beginning of period 4,213 3,457
------- -------
Cash and cash equivalents at end of period 3,280 4,171
======= =======
Supplemental disclosures of cash flow information - cash paid
(received) during period for:
Interest $ 26 32
Income taxes 75 (73)
Non-cash investing and financing activities:
Acquisition of model home in exchange for trade and note receivable $ 231 --
</TABLE>
See accompanying notes to the condensed consolidated financial statements
6
<PAGE> 7
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2000, December 31, 1999 and April 4, 1999
(Amounts in thousands, except per share amounts)
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles, except as noted below, and include all recurring adjustments
that are considered necessary by management to fairly state the results of
the interim periods. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and certain disclosures. Actual results
could differ from those estimates. These consolidated financial statements
and related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. Due to the seasonality of the
Company's business, the accompanying financial statements may not
necessarily be indicative of the results to be obtained for the full year.
This report should be read in conjunction with the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1999.
Certain reclassifications have been made to the prior period financial
statements to conform with the current year presentation.
(2) LOSS PER COMMON SHARE
The following tables present basic and diluted loss per share and
reconciles the numerator and denominator of the basic and diluted per
share computations:
<TABLE>
<CAPTION>
NET WEIGHTED NET
LOSS AVERAGE SHARES LOSS
(NUMERATOR) (DENOMINATOR) PER SHARE
----------- -------------- ---------
<S> <C> <C> <C>
Quarter ended April 2, 2000
Basic loss per share $ (357) 4,131 $ (0.09)
Effect of dilutive options -- -- --
------ ----- -------
Diluted loss per share $ (357) 4,131 $ (0.09)
====== ===== =======
Quarter ended April 4, 1999:
Basic loss per share $ (283) 4,126 $ (0.07)
Effect of dilutive options -- -- --
------ ----- -------
Diluted loss per share $ (283) 4,126 $ (0.07)
====== ===== =======
</TABLE>
7
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LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2000, December 31, 1999 and April 4, 1999
(Amounts in thousands, except per share amounts)
(Unaudited)
Options to purchase shares of common stock where the exercise price
exceeds the average market price were excluded from the computations for
2000 and 1999 because they would be anti-dilutive. All options are
considered to be anti-dilutive in periods where there is a net loss.
Anti-dilutive options excluded from the computations are as follows:
<TABLE>
<CAPTION>
ANTI-DILUTIVE
OPTIONS
--------------
<S> <C>
Quarter ended April 2, 2000 475
Quarter ended April 4, 1999 531
</TABLE>
(3) INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
APRIL 2, DECEMBER 31, APRIL 4,
2000 1999 1999
-------- ------------ --------
<S> <C> <C> <C>
Raw materials $3,166 1,822 1,502
Work-in-process 1,703 2,879 2,798
Finished goods 2,413 2,707 2,197
Display models 783 690 756
------ ----- -----
$8,065 8,098 7,253
====== ===== =====
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 2, DECEMBER 31, APRIL 4,
2000 1999 1999
---------- ------------ ----------
<S> <C> <C> <C>
Building and leasehold improvements $10,510 10,455 10,348
Equipment 3,574 3,496 3,378
Furniture and fixtures 4,796 4,655 4,435
------- ------ ------
18,880 18,606 18,161
Less accumulated depreciation and amortization 10,074 9,832 9,045
------- ------ ------
8,806 8,774 9,116
Land 2,304 2,182 2,171
------- ------ ------
Net property, plant and equipment $11,110 10,956 11,287
======= ====== ======
</TABLE>
(5) 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
8
<PAGE> 9
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2000, December 31, 1999 and April 4, 1999
(Amounts in thousands, except per share amounts)
(Unaudited)
of stock materials, materials staging, and home 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.
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. The Company evaluates segment performance based on gross profit
from operations. Information on segment assets is not reported to the
Chief Operating Decision Maker.
Information regarding the Company's reportable segments, including other
significant items, for the quarters ended April 2, 2000 and April 4, 1999
follows:
<TABLE>
<CAPTION>
OTHER
U.S. CANADIAN ALL INTERSEGMENT RECONCILING
HOMES HOMES OTHER ELIMINATIONS ITEMS CONSOLIDATED
-------- -------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED APRIL 2, 2000
Revenues from external
customers $ 7,371 198 883 -- -- 8,452
Intersegment revenues 2,576 7,355 1,295 (11,226) -- --
Gross profit 1,292 2,444 89 (2,418) (1) 1,406
Interest income 113 2 -- (75) 75 115
Interest expense 23 76 51 (75) -- 75
Depreciation and
amortization 148 35 104 -- 22 309
QUARTER ENDED APRIL 4, 1999
Revenues from external
customers $ 7,069 103 929 -- 4 8,105
Intersegment revenues 2,404 6,579 1,227 (10,210) -- --
Gross profit 1,447 2,222 235 (2,233) (4) 1,667
Interest income 32 11 -- (72) 72 43
Interest expense 26 74 51 (72) 3 82
Depreciation and
amortization 149 29 90 -- 56 324
</TABLE>
(6) COMPREHENSIVE LOSS
Comprehensive loss is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
APRIL 2, APRIL 4,
2000 1999
-------- --------
<S> <C> <C>
Net loss $ (357) (283)
Other comprehensive income - foreign
currency translation 43 233
------- ----
Comprehensive loss $ (314) (50)
======= ====
</TABLE>
9
<PAGE> 10
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2000, December 31, 1999 and April 4, 1999
(Amounts in thousands, except per share amounts)
(Unaudited)
(7) SHORT-TERM INVESTMENTS:
Short-term investments consist of securities maturing within one year, and
are classified as available-for-sale. Accordingly, these investments are
carried at fair value. Any unrealized holding gains and losses, net of
income taxes, are immaterial at April 2, 2000, December 31, 1999 and April
4, 1999.
(8) CONTINGENCIES:
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 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 amounts relating
to these claims.
10
<PAGE> 11
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Lindal Cedar Homes, Inc. (the "Company") is primarily engaged in the design,
manufacture and distribution of custom cedar homes, windows and sunrooms. The
Company also re-manufactures standard dimensional cedar lumber. Cedar lumber,
that meets the Company's quality standards, is combined with manufactured and/or
purchased windows, 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. Re-manufactured cedar lumber that is not
of a grade suitable for use in homes is sold on the open lumber market.
The Company has four home products: 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 and Access products
utilize 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 extensive package of materials and less expensive package components. The
Select product utilizes conventional design and construction including a cavity
wall. The Select product combines the materials savings of the Access product
with the economy of a conventionally framed home while using quality Lindal
building materials.
The primary raw material used by the Company in its re-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
market in general by harvesting restrictions in the United States and Canada,
and the Company is aware of the potential for shortages and/or fluctuations in
the price of cedar logs and cedar lumber.
The Company is working to secure its cedar raw material needs on a long-term
basis. As discussed in the Company's 1999 Annual Report on Form 10-K, the
Company received approval of its proposed modifications to the terms and
conditions of the 327,000 cubic meter timber sale awarded to the Company in 1996
by the Province of British Columbia. Management believes that this timber sale
will allow the Company to secure a cedar supply for a minimum of the next five
years. Management expects that timber harvesting will begin in the third quarter
of 2000.
The Company believes that this timber sale agreement will be moderately
profitable, however it is not expected that this contract will be as profitable,
on a relative basis, as the previously awarded timber sale. However, management
believes obtaining this timber sale will greatly facilitate the procurement of
cedar logs and/or cedar lumber.
Although cedar logs and lumber are 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. Presently, the Company
does not anticipate any serious long-term problems in securing the needed forest
products in the foreseeable future. The Company does expect that there may be
occasional, temporary shortages of cedar logs or cedar lumber and that price
volatility of cedar logs, green cedar lumber, other species of lumber and other
forest products may occur for some time. For this reason, the Company hedges a
portion of its non-cedar lumber needs using 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. These
purchases are not expected to be in excess of anticipated needs.
11
<PAGE> 12
The Company's business is seasonal in that most deliveries have historically
been made during the period from April to October. To illustrate this, revenue
by quarter is presented below:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
2000 8,452
1999 8,105 10,136 10,570 10,694
1998 5,645 11,477 10,793 9,804
1997 7,540 14,913 14,298 12,097
1996 6,587 14,173 14,632 11,243
As discussed in the Company's 1999 Annual Report on Form 10-K, management
believes that the site occupied by the Company's head office, display court and
adjacent business park, in Seattle, Washington has not been selected as the
final location of the light rail maintenance base. This belief is based on the
resolutions adopted by the Board of the Central Puget Sound Regional Transit
Authority (RTA) and documents submitted by the RTA to the U.S. Federal
Government, which indicate that a different site has been selected as the final
location of the light rail maintenance base. The Company has not received any
official notification from the RTA.
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 March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion 25. Interpretation No. 44 clarifies the
application of APB Opinion 25, Accounting for Stock Issued to Employees, for
issues, among others, regarding: (a) the definition of employees, (b) defining
non-compensatory plans, (c) modifications to previously fixed stock option
awards, and (d) accounting for an exchange of stock compensation awards in a
business combination. The Company will adopt Interpretation No. 44 in the second
quarter of 2000 and does not expect the adoption of this Interpretation to have
a material impact on the consolidated financial statements.
In March 2000 the SEC issued Staff Accounting Bulletin No. 101A ("SAB 101A").
SAB 101A delays the effective date of Staff Accounting Bulletin No. 101 ("SAB
101") Revenue Recognition in Financial Statements, to the second quarter for
fiscal years beginning between December 15, 1999 and March 16, 2000. SAB 101
provides guidance on revenue recognition and the SEC staff's views on the
application of accounting principles to selected revenue recognition issues. The
Company will adopt the provisions of SAB 101 in the second quarter of 2000 and
anticipates that such adoption will not have a material impact on the Company's
consolidated financial statements.
YEAR 2000
The Company 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
12
<PAGE> 13
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.
FIRST QUARTER
NEW ORDERS
The dollar value of new orders increased 27% from the first quarter of 1999 to
the first quarter of 2000. The number of new order units increased 43% in the
same time period. This increase is primarily attributable to increased sales of
the new Select product, introduced in 1999, and increased sales of other home
products as a result of sales promotions. Some portion of this increase in new
orders may be in response to the previously announced, staggered 3.5% home price
increase, which will become fully effective in June 2000. Management believes
that there may be a temporary slowdown in the rate of new orders in the second
and third quarters as a result of the price increase. The following table
illustrates the percentage change in the number and dollar value of new orders
for the first quarter of the current and each of the preceding 2 years:
% CHANGE IN 2000 1999 1998
------------ ------ ------ ------
Units 43% -16% -35%
Dollar Value 27% -9% -27%
The Access and Select products represented 66% of new order units in the first
quarter of 2000 compared to 55% of new order units in the first quarter of 1999.
The dollar value of the Access and Select product new orders was 61% of the
total dollar value of new orders in the first quarter of 2000 compared to 46% in
the first quarter of 1999. Size and value of a home is a function of customer
preference and may change somewhat from period to period.
Entering the second quarter of 2000, the total backlog, stated in dollars,
increased $7 million (25%) to approximately $35 million from approximately $28
million in 1999. 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. While the Company expects the majority of the current backlog will ship
within the next 12 months, factors beyond the control of the Company, such as
weather conditions, customer financing, building permits, order cancellations or
customer requested delays, may affect the actual delivery date of an unknown
portion of backlog orders beyond the twelve month period.
REVENUE
The Company recognizes revenue from orders when the home package is shipped.
Revenue increased $350,000 (4%) to $8.45 million in the first quarter of 2000
from $8.10 million in the first quarter of 1999, primarily due to the increase
in home revenue.
Home revenue increased $660,000 (11%) to $6.76 million in the first quarter of
2000 from $6.10 million in the first quarter of 1999. The number of homes
shipped increased 11% to 84 in the first quarter of 2000 from 76 in the first
quarter of 1999. Management believes the increase in home revenue is primarily
related to the effect of the mild winter weather experienced throughout most of
the country and to incentives encouraging customers to take delivery of their
home in the first quarter. By offering incentives to take delivery of a home
earlier in the year than a customer might otherwise do, the Company will free up
capacity later in the year to ship additional homes. However, unlike 1999 when
early delivery incentives shifted some deliveries away from the second quarter
to the first quarter, management believes that the increases in new orders and
backlog will mitigate the effect of shifting deliveries away from the second
quarter. As a result, management believes that second quarter deliveries should
follow a more traditional pattern.
The Access and Select homes (the base price of which is 25%-30% less than the
traditional Cedar: Frame home) accounted for approximately 65% of home sales
revenue and 70% of home units shipped in the first quarter of 2000 compared to
40% of home sales revenue and 49% of the home units shipped in the first
quarter of 1999. The Select product was introduced in January 1999.
13
<PAGE> 14
Sunroom revenue decreased $100,000 (37%) to $170,000 in the first quarter of
2000 from $270,000 in the first quarter of 1999. In early 2000, the Company
introduced its new PatioRoom, an updated sunroom product with less glass and all
the versatility of the traditional sunroom products at about two-thirds the
price of the traditional sunroom products.
Revenue from other sources, primarily material sales, decreased $210,000 (12%)
to $1.53 million in first quarter of 2000 from $1.74 million in the first
quarter of 1999.
MATERIAL COSTS
Material costs, as a percentage of revenue, were flat in the first quarter of
2000 compared to the first quarter of 1999. Material costs, as a percentage of
revenue, decreased in the first half of 1999 and increased modestly during the
last half of 1999. Due to higher material costs, as a percentage of revenue, in
the second half of 1999 the Company announced a 3.5% staggered price increase
which will become fully effective in June 2000.
In dollars, material costs increased $160,000 (4%) to $4.12 million in the first
quarter of 2000 from $3.96 million in the first quarter of 1999 on 8 (11%)
additional home shipments.
As a percent of revenue, material costs were 49% in the first quarter of 2000
and 1999.
OTHER COSTS OF GOODS SOLD
Non material costs, included in the costs of goods sold, increased $450,000
(18%) to $2.93 million in the first quarter of 2000 from $2.48 million in the
first quarter of 1999. This increase is primarily related to the expansion of
the Company's engineering capacity in response to the increase in new home
orders and to increases in other manufacturing labor and labor related costs.
GROSS PROFIT
The increase in total revenue was more than offset by the increase in other
costs of goods sold. As a result, gross profit decreased to 16.6% of revenue in
the first quarter of 2000 from 20.6% of revenue for the same period in 1999. In
dollars, gross profit decreased $260,000 (16%) to $1.41 million in the first
quarter of 2000 from $1.67 million in the first quarter of 1999.
The mix of home units delivered 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. The Access and Select products accounted for 65%
of the home revenue and 70% of home units delivered in the first quarter of 2000
compared with 40% of the home revenue and 49% of the home units delivered in the
first quarter of 1999. For all of 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 Select product was introduced in January 1999.
OPERATING EXPENSES
Total operating expenses, including display court expenses, were flat in the
first quarter of 2000 compared to the same period in 1999.
Selling, and general and administrative expenses increased $30,000 (2%) to $1.89
million in the first quarter of 2000 from $1.86 million in the first quarter of
1999. Selling expenses increased $30,000 (3%) to $980,000 in the first quarter
of 2000 from $950,000 in the first quarter of 1999. General and administrative
expenses were unchanged at $910,000 in the first quarter of 2000 and in the
first quarter of 1999. Display court expenses decreased $30,000 (25%) in the
first quarter of 2000.
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased $80,000 (267%) to $50,000 in the first
quarter of 2000 from $(30,000) in the first quarter of 1999. This is primarily
due to the increase in interest income, $70,000 (167%), and the decrease in
interest expense, $10,000 (10%) in the first quarter of 2000 compared to the
first quarter of 1999.
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<PAGE> 15
INCOME TAX BENEFIT
The Company recognized an income tax benefit of $160,000 (31%) in the first
quarter of 2000 compared to an income tax benefit of $70,000 (19%) in the first
quarter of 1999. In the first quarter of 1999, the Company did not recognize the
income tax benefit for Canadian operating losses due to the inability to
carryback the Canadian net operating losses and the uncertainty of utilizing the
Canadian net operating losses against future taxable Canadian income.
LIQUIDITY
The Company's policy is that all home and sunroom orders be accompanied by a
cash deposit and that units be paid in full before shipment or be shipped on a
C.O.D. basis. The majority of home and sunroom sales are prepaid. Lumber,
material and window sales are made on terms common to the industry.
The Company primarily pays its vendors within stated terms and takes advantage
of discounts for early payments whenever available. Operations and customer
deposits for home and sunroom orders are the Company's primary source of cash.
The Company maintains a $1.5 million operating line of credit with a financial
institution. The line of credit bears interest at the rate of prime plus 1% and
is secured by a pledge of specific assets. During the first quarter of 2000, the
Company renewed its operating line of credit, which will expire on March 30,
2001. The Company maintains a letter of credit with a financial institution
securing payment of the Industrial Revenue Bonds issued in November 1997. The
letter of credit expires on November 15, 2002. The Company does not foresee the
need to borrow on its operating line of credit during 2000.
The Company continues to hedge a portion of its expected non-cedar lumber needs
for its home packages using options and futures contracts. The program's
objective is to manage well-defined commodity risks. These derivative financial
instruments are not being used for trading purposes.
CASH FLOW
OPERATING ACTIVITIES
Operations used $650,000 in cash in the first quarter of 2000 compared to
providing $1.02 million in cash in the first quarter of 1999. In the first
quarter of 2000, operating results used $20,000 in cash while changes in
operating assets, primarily increases in trade and operating notes receivable,
prepaid expenses and other operating assets used an additional $630,000 in cash.
The increase in net receivables is primarily due to the U.S. income tax benefit
arising from the first quarter loss and refundable Canadian GST taxes, which
were offset by decreases in trade receivables and the allowance for doubtful
accounts. The increase in other operating assets is primarily due to
expenditures relating to the development of the Company's new planbook.
In the first quarter of 1999, operating results provided $30,000 in cash while
changes in operating assets, primarily decreases in trade and operating notes
receivable and increases in current liabilities, provided $990,000 in cash. The
increase in current liabilities is primarily due to seasonal increases in
inventory levels, increases in customer deposits and timing of scheduled
payments in relation to quarter end. The decrease in trade and operating notes
receivable is primarily due to higher than normal cash collections resulting
from the additional dealer cash flow generated by the increased number of homes
delivered in the first quarter of 1999 over historic levels.
The Company's current ratio was 2.11:1.0 at April 2, 2000 compared to 2.18:1.0
at December 31, 1999.
INVESTMENT ACTIVITIES
Cash used for investment in the first quarter of 2000 was $240,000 compared to
$60,000 in the first quarter of 1999. Cash expenditures for property, plant and
equipment were $290,000 in the first quarter of 2000 which was partially offset
by the repayment of non-operating notes receivable. In the first quarter of
1999, cash expenditures for property, plant and equipment totaled $70,000 which
was partially offset by repayments of non-operating notes receivable.
In the first quarter of 2000, the Company took title to a dealer's display court
(land and model) located in British Columbia, Canada in exchange for forgiving
the mortgage it held on the property and other debt owing to the Company by the
dealer.
15
<PAGE> 16
FINANCING ACTIVITIES
Cash used for financing in the first quarter of 2000 was $30,000 compared to
$300,000 in the first quarter of 1999. In the first quarter of 2000, $30,000 was
used to repay long-term debt. In the first quarter of 1999, $30,000 was used to
repay long-term debt. An additional $270,000 was used to pay a note payable
relating to the Company's assumption of debt in a transaction where the Company
took title to a dealer's display court (land and model) located in Highland,
Michigan.
EXCHANGE RATES
In the first quarter of 2000, unfavorable changes in exchange rates had a
$10,000 negative effect on cash and cash equivalents while in the first quarter
of 1999 favorable changes in exchange rates had a $60,000 positive effect on
cash and cash equivalents.
COMPARISON OF APRIL 4, 2000 BALANCE SHEET TO PRIOR YEAR
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments increased $3.07 million (72%)
to $7.31 million at April 2, 2000 from $4.24 million at April 4, 1999. This
increase is primarily due to the favorable operating results in 1999, the refund
of prior years federal taxes, and increases in customer deposits and other
current liabilities, which were partially offset by the new planbook development
costs, increases in inventory and capital expenditures.
RECEIVABLES
Net accounts receivable decreased $1.18 million (40%) to $1.74 million at April
2, 2000 from $2.92 million at April 4, 1999. This decrease is primarily due to
the reduction in refundable federal taxes reflecting the receipt of the federal
tax refunds relating to the 1997 and 1998 operating losses.
INVENTORY
Production inventories (raw materials, work-in-process and finished goods)
increased $780,000 (12%) to $7.28 million at April 2, 2000 from $6.5 million at
April 4, 1999. This increase is due to the additional inventory requirements
related to the increase in the number and value of new orders in the first
quarter of 2000 compared to the first quarter of 1999 and the increase in the
value of the backlog.
OTHER ASSETS
Other assets increased $660,000 (49%) to $2.01 million at April 2, 2000 from
$1.35 million at April 4, 1999. This increase is primarily related to the
development costs of the Company's new planbook, which was offset by the
reduction in long-term notes receivable related to the note receivable exchanged
for the display court located in British Columbia, Canada and payments received
on other notes.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses increased $390,000 (14%) to $3.14 million
at April 4, 2000 from $2.75 million at April 4, 1999. This increase is primarily
due to the increase in inventory levels and the timing of scheduled payments in
relation to quarter end.
CUSTOMER DEPOSITS
Customer deposits increased $1.22 million (30%) to $5.31 million at April 2,
2000 from $4.09 million at April 4, 1999. This increase is primarily due to the
increase in new orders and the increased value of the backlog.
CAPITAL EXPENDITURE FINANCING
As discussed earlier, the Company received approval of its proposed
modifications to the terms and conditions of the 327,000 cubic meter timber sale
awarded to the Company in 1996 by the Province of British Columbia. Under the
terms of the approved modifications to the timber sale the Company will invest
approximately $200,000 in equipment to facilitate the re-manufacturing of lumber
for its homes by an affiliate of Mill and Timber.
16
<PAGE> 17
Other capital expenditures in 2000 will be financed from cash flow generated
from operations, leasing or debt.
ITEM 3 - 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 April 2, 2000, the Company had 38
futures contracts with broker-dealers of approximately $1.14 million maturing
through January 2001 with a net deferred loss of $20,000. Such losses in fair
value, if realized, would be offset by the lower costs of lumber purchased at
market value. At April 4, 1999, the Company had 35 futures contracts with
broker-dealers of approximately $800,000 maturing through November 1999 with a
net deferred gain of $50,000. Such gains in fair value, if realized, would be
offset by the higher costs of lumber purchased at market value.
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 April 2, 2000, the Company's investment in fixed rate instruments was
approximately $4.03 million. Of this amount approximately $3.96 million was
invested in the United States and approximately $70,000 was invested in Canada.
Interest rates on the U.S. investments range from 6.0% to 6.1% and mature from
April 7, 2000 through July 26, 2000. Interest rates on the Canadian investments
range from 4.0% to 4.2%, and mature from September 22, 2000 through February 22,
2001. Because of the relative short-term nature of these investments, the
Company's exposure to interest rate fluctuation is greatly reduced. At April 4,
1999, 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 the first quarter of 2000 and through out all of
1999, the Company had no amounts owing on its line of credit.
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 government actions,
changing economic conditions, trends in the housing industry, raw material and
labor costs, availability of raw materials, the ability to obtain orders and
recruit dealers, demographic influences and continued acceptance of products and
services.
17
<PAGE> 18
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 1. 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 6(a) - EXHIBITS
The following exhibits are being filed:
27 Financial Data Schedule for period ended April 2, 2000
Item 6(b) - REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the first quarter of 2000.
18
<PAGE> 19
LINDAL CEDAR HOMES, INC.
AND SUBSIDIARIES
Signature:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINDAL CEDAR HOMES, INC.
By: /s/ Robert W. Lindal
-------------------------------------------
Robert W. Lindal
Chairman and Chief Executive Officer
By: /s/ Dennis Gregg
-------------------------------------------
Dennis Gregg
Chief Financial Officer
DATE:
May 17, 2000
19
<PAGE> 20
Lindal Cedar Homes, Inc.
Exhibit Index
Exhibits are numbered in accordance with Item 601 of Regulation S-B
EXHIBIT
NUMBERS DESCRIPTION
------------- --------------------------------------------------------
27 Financial Data Schedule for period ended April 2, 2000
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 7,314
<SECURITIES> 0
<RECEIVABLES> 1,938
<ALLOWANCES> 199
<INVENTORY> 8,065
<CURRENT-ASSETS> 18,371
<PP&E> 21,184
<DEPRECIATION> 10,074
<TOTAL-ASSETS> 31,490
<CURRENT-LIABILITIES> 8,687
<BONDS> 4,394
0
0
<COMMON> 41
<OTHER-SE> 18,080
<TOTAL-LIABILITY-AND-EQUITY> 31,490
<SALES> 8,452
<TOTAL-REVENUES> 8,452
<CGS> 7,046
<TOTAL-COSTS> 7,046
<OTHER-EXPENSES> 1,976
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> (520)
<INCOME-TAX> (163)
<INCOME-CONTINUING> (357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (357)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
