UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-49574
LYMAN LUMBER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0386245
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 Morse Ave., Excelsior, MN 55331
(Address of principal executive (Zip Code)
offices)
(612) 474-0844
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES __X__ NO _____
AT AUGUST 5, 1996, 8,470 SHARES OF $1.00 PER SHARE PAR VALUE VOTING COMMON STOCK
AND 169.4 SHARES OF $100.00 PER SHARE PAR VALUE NON-VOTING STOCK WERE
OUTSTANDING.
LYMAN LUMBER COMPANY
INDEX TO REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1996
Page Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 1
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 11
SIGNATURES 12
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
LYMAN LUMBER COMPANY AND SUBSIDIARIES
UNAUDITED BALANCE SHEETS
(in thousands of dollars)
ASSETS June 30, December 31,
1996 1995
-------- ------------
CURRENT ASSETS:
Cash $ 288 $ 479
Trade accounts receivable (less allowance for
doubtful accounts of $518 and $326, respectively) 14,728 12,475
Construction mortgage receivables (net of
allowance for uncollectibles of $1,719 and $1,539, respectively) 43,816 40,117
Current portion of notes receivable 33 5
Due from affiliated companies 221 48
Inventories 9,013 8,738
Deferred income taxes 1,057 1,057
Prepaid expenses and deposits 427 466
------- -------
Total current assets 69,583 63,385
INVESTMENT IN LIMITED PARTNERSHIP AND JOINT VENTURES 1,041 704
------- -------
PROPERTY, PLANT, AND EQUIPMENT:
Land 1,470 1,571
Buildings 9,029 9,460
Yard equipment 1,542 2,186
Office equipment 1,091 1,059
Autos and trucks 1,671 1,560
------- -------
Total property, plant, and equipment 14,803 15,836
Less accumulated depreciation 8,170 8,486
------- -------
Net property, plant, and equipment 6,633 7,350
------- -------
OTHER REAL ESTATE, INCLUDING LAND DEVELOPMENTS 4,175 7,638
------- -------
FUNDS HELD BY TRUSTEE 366 366
------- -------
NOTES RECEIVABLE, less current portion 575 85
------- -------
DEFERRED CHARGES 571 644
------- -------
OTHER ASSETS 195 255
------- -------
TOTAL ASSETS $83,139 $80,397
======= =======
See notes to unaudited consolidated financial statements.
LYMAN LUMBER COMPANY AND SUBSIDIARIES
UNAUDITED BALANCE SHEETS
(in thousands of dollars except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1996 1995
--------- ------------
CURRENT LIABILITIES:
Commercial paper notes payable $37,815 $24,974
Notes payable to banks 2,200 5,800
Notes payable to related parties 1,229 1,458
Other notes payable 827 695
Current portion of long-term debt 123 142
Accounts payable 978 2,676
Due to affiliated companies 952 1,509
Accrued expenses:
Payroll, bonuses, and vacation pay 1,443 1,583
Profit sharing 305 569
Taxes, other than income taxes 871 1,178
Interest 265 458
Income taxes 64 376
Other 1,040 923
------- -------
Total current liabilities 48,112 42,341
------- -------
DEFERRED COMPENSATION 707 655
------- -------
LONG-TERM DEBT, less current portion 10,775 12,463
------- -------
DEFERRED INCOME TAXES 657 3,274
------- -------
STOCKHOLDERS' EQUITY:
Common stock: $1 par value; 10,000 shares
authorized; 8,470 shares issued and outstanding 8 8
Non-voting stock: $100 par value; 500 shares
authorized; 169.4 shares issued and outstanding 17 17
Additional paid-in capital 725 637
Retained earnings 22,138 21,002
------- -------
Total stockholders' equity 22,888 21,664
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,139 $80,397
======= =======
See notes to unaudited consolidated financial statements.
LYMAN LUMBER COMPANY AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995
(In thousands of dollars except per share amounts)
- --------------------------------------------------
Periods Ended June 30
-----------------------------------------------------
Three Months Six Months
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
NET SALES $ 22,496 $ 20,093 $ 37,695 $ 36,118
COST OF GOODS SOLD 18,139 16,113 30,791 29,227
-------- -------- -------- --------
GROSS MARGIN 4,357 3,980 6,904 6,891
-------- -------- -------- --------
CONSTRUCTION MORTGAGE INTEREST & FEES 1,697 1,664 3,267 3,221
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative expense 4,276 3,613 8,323 7,502
Construction mortgage interest expense 694 698 1,338 1,298
Management fee from affiliates (209) (174) (349) (301)
Other operating expenses 86 197 195 276
-------- -------- -------- --------
Total operating expenses 4,847 4,334 9,507 8,775
-------- -------- -------- --------
OPERATING INCOME 1,207 1,310 664 1,337
OTHER INCOME (EXPENSE):
Interest expense (381) (512) (787) (983)
Interest income 50 75 99 120
Equity in earnings of joint ventures 64 133 106 240
Other 303 325 880 693
-------- -------- -------- --------
Total Other Income (expense) 36 21 298 70
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,243 1,331 962 1,407
INCOME TAX EXPENSE (BENEFIT) 217 534 (390) 565
-------- -------- -------- --------
NET INCOME 1,026 797 1,352 842
RETAINED EARNINGS AT BEGINNING OF PERIOD 21,328 18,074 21,002 18,029
DIVIDENDS PAID ($25 PER SHARE) (216) 0 (216) 0
-------- -------- -------- --------
RETAINED EARNINGS AT END OF PERIOD $ 22,138 $ 18,871 $ 22,138 $ 18,871
======== ======== ======== ========
NET INCOME PER SHARE $ 118.81 $ 93.77 $ 156.56 $ 98.98
======== ======== ======== ========
See notes to unaudited consolidated financial statements.
LYMAN LUMBER COMPANY AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 and 1995
(In thousands of dollars) June 30, June 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,352 $ 842
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 398 446
Amortization 111 77
Bad debt expense 428 338
Equity in earnings of joint ventures (106) (240)
Gain on sales of property and other real estate (348) (2)
Gain on sales of land development projects (844) (557)
Deferred income taxes (2,617)
Deferred compensation 52 (107)
Interest received under construction mortgage receivables 2,121 1,391
Interest charged under construction mortgage receivables (2,386) (2,270)
Proceeds from trade accounts receivable 32,365 32,574
Increase in trade accounts receivable - gross (34,839) (34,181)
Increase in inventories (275) (799)
Decrease (increase) in prepaid expenses and deposits 39 (142)
Decrease in accounts payable and accrued expenses (2,796) (1,971)
Decrease in due from/to affiliated companies (730) (835)
-------- --------
Net cash used in operating activities (8,075) (5,436)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures & limited partnership (652) (53)
Distributions of equity from joint ventures 410 739
Payments for purchases of property (197) (274)
Proceeds from construction mortgage receivables 26,373 20,577
Payments for construction mortgage receivables (30,210) (25,715)
Proceeds from sales of land development projects 3,124 2,100
Payments for purchases of land development projects (914) (833)
Proceeds from notes receivable 6 26
Proceeds from sales of other real estate and property 1,090 30
Payments for purchases of other real estate (46) (2)
-------- --------
Net cash used in investing activities (1,016) (3,405)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 9,144 8,419
Payments of long-term debt (28) (22)
Proceeds from stock issuance 366
Dividends paid (216)
-------- --------
Net cash provided by financing activities 8,900 8,763
-------- --------
NET DECREASE IN CASH (191) (78)
CASH AT BEGINNING OF PERIOD 479 470
-------- --------
CASH AT END OF PERIOD $ 288 $ 392
======== ========
See notes to unaudited consolidated financial statements.
LYMAN LUMBER COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED June 30, 1996 AND 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the condensed consolidated financial
statements reflect all adjustments, which are of a normal recurring
nature, to present fairly the Company's financial position as of June
30, 1996 and December 31, 1995 and the Statements of Income and Cash
Flows for the three month and six month periods ended June 30, 1996 and
1995.
The Statements of Income for the six month periods ended June 30, 1996
and 1995 are not necessarily indicative of the results expected for the
full year.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes for
the year ended December 31, 1995.
Supplemental Cash Flow Information
The Company paid interest of $2,375,000 and $2,149,000 during the
periods ended June 30, 1996 and 1995 and income taxes of $2,539,000 and
$161,000 during the periods ended June 30, 1996 and 1995, respectively.
During the period ended June 30, 1996, the Company received $515,000 of
notes receivable in connection with the sale of other real estate and a
related note payable of $1,589,000 was assumed by a buyer. Construction
mortgage receivables, trade accounts receivable, and accrued interest
of $186,000 during the period ended June 30, 1996 were transferred to
other real estate as a result of the Company foreclosing on the related
property. These noncash flow investing and financing activities have
been excluded from the Statement of Cash Flows.
Concentration of Credit Risk
At June 30, 1996, Construction Mortgage Investors Co. (CMIC) had
certain concentrations of credit risk whereby $2,703,000 of mortgage
receivables were from residential building contractors and developers
whose individual balances exceeded 5 percent of the total outstanding
construction mortgage receivables balance. These receivables are
secured by mortgages which, in the opinion of management, have a
collateral value in excess of the mortgage receivables. CMIC
construction loans are generally secured by the first mortgage with
first lien priority being insured by title insurance. In construction
projects CMIC restricts its commitment amount to approximately 70% of
the estimated hard cost value of the land and construction
improvements. Hard costs include the land cost, cost of the building
materials and labor.
2. RELATED-PARTY TRANSACTIONS
The Company is affiliated by common management and common ownership
with Lyman Lumber of Wisconsin, Inc., Building Material Wholesalers,
Inc., and Automated Building Components, Inc. A significant portion of
the Company's materials are purchased from Building Material
Wholesalers, Inc. and Automated Building Components, Inc. and are
recorded at cost to the Company, which includes a markup percentage
from the seller. The Company charges a management fee to Lyman Lumber
of Wisconsin, Inc., Building Material Wholesalers, Inc., and Automated
Building Components, Inc. which is disclosed in the Statements of
Income.
Sales to and purchases from affiliated companies for the six month
periods ended June 30, 1996 and 1995 were as follows (in thousands of
dollars):
June 30, June 30,
1996 1995
-------- --------
Sales to affiliated companies $ 165 $ 98
======== ========
Purchases from affiliated companies:
Building Material Wholesalers, Inc. $ 23,708 $ 22,819
Automated Building Components, Inc. 1,841 1,811
-------- --------
Total $ 25,549 $ 24,630
======== ========
The Company rents warehouse, yard space and operating equipment to
Automated Building Components, Inc. under operating leases. Rental
income for the periods ended June 30, 1996 and 1995 was $305,000 and
$296,000, respectively. Minimum rental payments under the various
leases for 1996 are $601,000.
At June 30, 1996 the Company was a guarantor on $852,000 of debt of
related parties.
3. CONSTRUCTION MORTGAGE RECEIVABLES
Construction mortgage receivables in nonaccrual status at June 30, 1996
were $3,593,000. The effect of construction mortgage receivables in
nonaccrual status on interest revenue for the periods ended June 30,
1996 and 1995 was $164,000 and $27,000, respectively.
4. INVESTMENT IN JOINT VENTURES
The Company is a partner in seven unincorporated land development joint
venture projects (Ventures). The Company's partner in six of its
Ventures is Lyman Lumber of Wisconsin, Inc. The Company receives a 50%
interest in the earnings of the Ventures. Combined financial
information for the Ventures, representing 100% interest of Ventures,
is combined and summarized as follows (in thousands of dollars):
Balance Sheet
June 30,
1996
--------
ASSETS
Cash $ 1
Land 2,879
Notes receivable 227
-------
TOTAL ASSETS $ 3,107
=======
LIABILITIES
Notes payable $ 1,040
Deposits 35
-------
TOTAL LIABILITIES 1,075
EQUITY 2,032
-------
TOTAL LIABILITIES AND EQUITY $ 3,107
=======
Income Statements
Six Months ended June 30,
1996 1995
-------- --------
Sales $ 732 $ 1,516
Cost of sales 561 1,097
-------- --------
Gross margin 171 419
Interest income 25 53
Other 15 5
-------- --------
Net income $ 211 $ 477
======== ========
Statement of Cash Flows
Six Months Ended June 30,
-------------------------
1996 1995
-------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: $ (242) $ 1,353
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (266) (5)
Partners investment in joint ventures 1,317 153
Distributions of equity to partners (819) (1,475)
------- -------
Net cash provided by (used in) financing activities 232 (1,327)
------- -------
NET (DECREASE) INCREASE IN CASH (10) 26
CASH AT BEGINNING OF PERIOD 11 48
------- -------
CASH AT END OF PERIOD $ 1 $ 74
======= =======
At June 30, 1996 notes receivable represent a note from the City of
Savage, Minnesota (the City) made to facilitate the development of a 33
acre tract of land. The note receivable has various maturity dates
through 1999. The note has a weighted average interest rate of 8.6% at
June 30, 1996. Repayments are to come from tax increment revenues from
the City.
The note payable of $1,040,000 at June 30, 1996 has a maturity date of
April 9, 1999 with annual payments of $400,000 subject to acceleration
if the collateral (developed lots) are sold prior to maturity. The note
has an interest rate of 7% at June 30, 1996. The borrowing is secured
by the Ventures' land inventory.
5. INCOME TAXES
During the six months ended June 30, 1996, the Company's effective tax
rate was a benefit of 41% compared to an expected federal and state
statutory tax rate of approximately 40%. The better than expected
effective tax rate is principally due to a March 21, 1996 settlement
with the IRS in connection with the IRS audits of the Company's tax
returns for the periods January 1, 1991 through December 31, 1994. As a
result of the IRS settlement, the Company recorded an income tax
benefit of approximately $793,000 from the reversal of income tax
previously deferred. In addition, the Company has paid $1,493,000, with
an additional $330,000 to be paid, in income taxes which were
previously deferred.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net Sales
The Company's net sales for the three months ended June 30, 1996 were
$22,496,000, an increase of $2,403,000 (12.0%) from $20,093,000 for the
three months ended June 30, 1995. Net sales for the six months ended
June 30, 1996 were $37,695,000, an increase of $1,577,000 (4.4%) from
$36,118,000 for the six months ended June 30, 1995. The increases were
primarily attributable to the increased volume in the lumber and
building material contractor division. This increased volume was
attributable to the increased demand for residential housing in the
Twin Cities Metropolitan Area which more than offset the decrease in
volume that occurred in the Company's Mid-America Cedar, Inc. wholesale
lumber division during that period.
Gross Profit
The Company's gross profit margin for the three months ended June 30,
1996 was 19.4% as compared to 19.8% for the three months ended June 30,
1995. The Company's gross profit margin for the six months ended June
30, 1996 was 18.3% as compared to 19.1% for the six months ended June
30, 1995. The decreases were primarily the result of increases in cost
of goods sold. The increase in cost of goods sold was due to the
addition of LIFO inventory quantities carried at higher costs
prevailing in 1996. The addition resulted in increased cost of goods
sold and decreased gross profit dollars by approximately $484,000.
Construction Mortgage Interest and Fees
Construction mortgage interest and fees for the three months ended June
30, 1996 were $1,697,000 an increase of $33,000 (2.0%) from $1,664,000
for the three months ended June 30, 1995. Construction mortgage
interest and fees for the six months ended June 30, 1996 were
$3,267,000 an increase of $46,000 (1.4%) from $3,221,000 for the six
months ended June 30, 1995. Interest and fees were constant due to
lower interest rates offsetting higher average outstanding construction
mortgage receivables.
Operating Expenses
Operating expenses were $4,847,000 for the three months ended June 30,
1996, an increase of $513,000 (11.8%) from $4,334,000 for the three
months ended June 30, 1995. Operating expenses were $9,507,000 for the
six months ended June 30, 1996, an increase of $732,000 (8.3%) from
$8,775,000 for the six months ended June 30, 1995. The increases were
primarily due to increases in selling, general and administrative
expense due to the increased sales volume and to the higher outstanding
construction mortgage receivables.
Total Other Income (Expense)
Total other income (expense) for the three months ended June 30, 1996
increased to $36,000 of income compared to income of $21,000 for the
three months ended June 30, 1995. Total other income (expense) for the
six months ended June 30, 1996 increased to $298,000 of income compared
to income of $70,000 for the six months ended June 30, 1995. The
increases were primarily due to lower interest rates on the Company's
borrowings and a gain on sale of other real estate.
Income Tax Expense
Total income tax benefits of $390,000, or a 41% effective tax rate,
were recorded for the six months ended June 30, 1996 compared to income
tax expense of $565,000, or a 40.2% effective tax rate, for the six
months ended June 30, 1995. The income tax benefits recorded during the
six months ended June 30, 1996 include approximately $403,000 of tax
expense, a 40.7% effective tax rate, attributable to the Company's
pre-tax income for the period and approximately $793,000 of tax
benefits, a 58.7% effective tax rate, recorded for a March 21, 1996
settlement with the IRS in connection with the IRS audits of the
Company's tax returns for the periods January 1, 1991 through December
31, 1994. The tax benefits recorded as a result of the IRS settlement
represent the reversal of income tax reserves previously recorded.
Net Income
The Company's net income for the three months ended June 30, 1996
increased to $1,026,000, an increase of $229,000 from $797,000 for the
three months ended June 30, 1995. Net income for the six months ended
June 30, 1996 increased to $1,352,000, an increase of $510,000 from
$842,000 for the six months ended June 30, 1995. The increases were
primarily due to the recording of the tax benefits relating to the IRS
settlement.
LIQUIDITY AND FINANCIAL CONDITION
The Company funds its working capital and capital expenditure
requirements from cash from operations and/or borrowings under bank
credit facilities and other short-term lenders.
During the first six months of 1996, the Company experienced an
increase in the level of inventory principally due to increased
purchases of commodity wood products. Prices for most commodity wood
products increased during the first six months of 1996 due to increased
demand for residential housing nationwide and limited production by
suppliers. The Company has adjusted customer prices regularly to
reflect both the deflationary and inflationary effects of the commodity
materials they sell and has entered into product delivery and pricing
schedules with certain customers to insulate the Company from gross
profit margin erosion from increases in commodity wood product prices.
However, there can be no assurance that such measures will fully
prevent any profit margin erosion for the fiscal year ending December
31, 1996. During the first six months of 1996, the Company experienced
an increase in the amount of construction mortgage receivables
outstanding resulting from increased receivable originations in the
Twin Cities and Milwaukee Metropolitan Areas.
On June 30, 1996, the Company had working capital of $21,471,000 as
compared to $21,044,000 at December 31, 1995. The Company's principal
sources and uses of cash during the first six months ended June 30,
1996 are set forth in the unaudited consolidated statement of cash
flows for that period.
For the six months ended June 30, 1996, the Company used approximately
$8,075,000 of cash to finance operating activities, primarily the
increase in trade accounts receivable and inventories and the decreases
of deferred income taxes, accounts payable and accrued expenses. The
Company used approximately $1,016,000 of cash for investing activities
for the six months ended June 30, 1996 primarily due to the increases
in construction mortgage receivables offset by proceeds from sales of
land development projects. For the six month period, increases in the
Company's cash, cash used in operating activities, and cash used in
investing activities were financed primarily by an increase under its
bank credit facilities.
As of June 30, 1996, Lyman Development Company's share of estimated
funding requirements for property improvement costs Company-owned
projects and for its share of joint venture project costs for the next
twelve months are $0 and $137,500, respectively.
Under an amended and restated bank revolving credit and standby letter
of credit facility (the "Credit Agreement"), Lyman and its subsidiaries
have credit available to $55,000,000 with maturity on June 30, 1998.
The Company is in compliance with the Credit Agreement. Management
believes that it will remain in compliance with the Credit Agreement
through its maturity.
Management believes that the cash flows generated from operations and
continued access to external sources of credit will be sufficient to
meet the Company's liquidity requirements over at least the next twelve
months.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are being filed as part of this Quarterly Report
on Form 10-Q:
(b) No current Reports on Form 8-K were filed during the three
months ended June 30, 1996.
SIGNATURES
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.
LYMAN LUMBER COMPANY
(Registrant)
Date August 5, 1996 /s/ John D. Gilpin
----------------------------- ------------------------------------
John D. Gilpin
Senior Vice President and Secretary
(Chief Financial Officer)
Date August 5, 1996 /s/ Brian C. Balcer
----------------------------- ------------------------------------
Brian C. Balcer
Treasurer and Controller
(Chief Accounting Officer)