1
[LINDAL LOGO]
FAIRNESS OPINION
FOR
THE BOARD OF DIRECTORS OF
LINDAL CEDAR HOMES, INC.
DECEMBER 13, 2000
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TABLE OF CONTENTS
A. Transaction Overview ............................................................................... 4
B. Fairness Opinion Methodology ....................................................................... 8
C. Lindal Cedar Home's Stock Price and Trading History ................................................ 10
D. Public Comparable Company Analysis ................................................................. 12
E. Discounted Cash Flow Analysis ...................................................................... 22
F. Precedent Transaction Analysis ..................................................................... 28
G. Control Premium Analysis ........................................................................... 32
H. Adjusted Book Value ................................................................................ 34
I. Market Response to Contacts of Potential Strategic and Financial Buyers ............................ 37
J. Valuation Summary .................................................................................. 39
EXHIBITS
1. Stock Price and Volume ............................................................................. 42
2. Public Comparable Company Descriptions ............................................................. 44
3. Financial Statement Projections .................................................................... 50
4. Quarterly Financial Statements ..................................................................... 57
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A. TRANSACTION OVERVIEW
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TRANSACTION OVERVIEW
First Security Van Kasper, Inc. ("FSVK") was retained by the Board of Directors
of Lindal Cedar Homes, Inc. ("Lindal" or the "Company"), a Delaware Corporation,
to advise the Company on its strategic options, contact and negotiate with
potential strategic and financial buyers, and render a Fairness Opinion. The
Board of Directors has received a proposed self-tender offer (the "Transaction")
from the Family. The Family is comprised of four existing shareholders, all
members of the Lindal Family. After a successful tender offer, the Family
intends to delist its shares from the NASDAQ Exchange and cease reporting to the
general public, thereby becoming a private company. The Family intends to follow
a successful tender offer with a second-step cleanup merger with a company
formed by the Family.
Our understanding of the Transaction is as follows:
- - The Company shall effect a fixed price self-tender of its shares not held by
the Family.
- - The proposed price to be offered to the unaffiliated shareholders is $4.55
per share.
- - The Company is comprised of the following shareholders:
Shareholder Basic Shares % Owned
Owned Basic
Sir Walter Lindal 843,224 20.4%
Robert Lindal 469,323 11.3%
Douglas Lindal 350,556 8.5%
Martin Lindal 331,488 8.0%
--------- ---------
Total family 1,994,591 48.2%
--------- ---------
--------- ---------
Non-family 2,142,031 51.8%
--------- ---------
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TRANSACTION OVERVIEW (CONT.)
- - Members of the Family have indicated that they will not exercise options
held by them. With respect to members of the Family, options to purchase
common stock is as follows: options to purchase 35,100 shares held each by
Sir Walter Lindal, Robert Lindal, Douglas Lindal and Martin Lindal.
- - There are 2,142,031 shares owned by holders other than the Family. These
holders own, as of October 1, 2000, 309,726 options in-the-money at $4.55
per share. Fully diluted shares owned by holders other than the Family would
be 2,451,757. Giving effect to the exercise of the 309,726 options, there
would be 4,446,348 fully diluted Common Shares outstanding.
Shareholder Basic Percent Fully Diluted Percent
----------- ----- ------- ------------- -------
Family 1,994,591 48.2% 1,994,591 44.9%
Non-family 2,142,031 51.8% 2,451,757 55.1%
- - Management believes that upon commencement of the Offer, all outstanding
options to purchase Common Shares, except those held by the Family, where
the Offer Price exceeds the applicable exercise price of such option, may be
exercised. The Company has informed FSVK that as of October 1, 2000 there
are 309,726 options in-the-money at $4.55 per share and that cash proceeds
to the Company from the exercise of these options would be $958,038, if all
of the in-the-money options are exercised.
- - Therefore, FSVK believes that the Equity Value of the Tender Offer
consideration is approximately $19.3 million. ($4.55 X 4,446,348 -
$958,038).
- - As of October 1, 2000, the Company represents that there is $3.63 million in
debt and cash of $12.98 million. These amounts of cash and debt were used
for the purpose of calculating implied equity value from the implied
enterprise value in the following analysis.
- - The Family has secured financing to enable it to buy back up to 2,451,757
shares in aggregate.
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TRANSACTION OVERVIEW (CONT.)
- - There is a breakup fee of up to $100,000.
- - There are no minimum conditions to the tender offer.
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B. FAIRNESS OPINION METHODOLOGY
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FAIRNESS OPINION METHODOLOGY
In connection with the preparation of our Opinion, FSVK, among other things:
- Reviewed certain financial information relating to the Company
including publicly available historical financial and operating
statements as well as internal financial and operating projections
prepared by the management of the Company;
- Reviewed the proposed financial terms and conditions set forth in
the draft of the Tender Offer document dated December 8, 2000
representing the Family addressed to The Special Committee and
provided to us by the Company, which will be executed pending the
receipt of the Fairness Opinion;
- Reviewed the stock price and trading history of the Company;
- Reviewed publicly-available data, information and valuations of
publicly-traded companies that FSVK deemed generally comparable to
the Company;
- Compared the financial terms of the proposed Tender Offer with the
financial terms, to the extent publicly available, of other
business combinations that FSVK deemed relevant - including control
premiums paid;
- Performed discounted cash flow analysis using Company provided
financial projections through 2004;
- Reviewed the Company's book value and liquidation value;
- Reviewed the market response to FSVK contacts with potential
strategic and financial buyers;
- Made other studies, inquiries and analysis and reviewed other data
that FSVK deemed relevant and appropriate based on FSVK's judgement
as investment bankers, for the purpose of this Opinion.
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C. LINDAL CEDAR HOMES' STOCK PRICE AND TRADING HISTORY
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LINDAL CEDAR HOMES' STOCK PRICE AND TRADING HISTORY
On December 15, 1971, the Company completed an initial public offering of
200,000 shares at a price of $15 per share. The Company declared 10% stock
dividends in February 1987, March 1988, May 1989, June 1990, May 1991 and April
1993. In April 1992 the Company declared a 5:4 stock split. On December 13,
2000, the closing price (last trade) of the Company's common stock was $2.50.
The Company's common stock closed at an all-time high price of $7.50 on four
occasions between April 26,1993 and April 29, 1993. The Company's common stock
closed at an all-time low price of $0.13 several times between December 13, and
December 31, 1974. The 52-week high price of the Company's common stock was
$3.28 reached on January 13, 2000, and the 52-week low price was $1.50, hit on
September 20, 2000. The Company's stock has not traded above $4.00 per share
since January 20, 1998.
As of December 13, 2000, the three-month and ten-day average trading volumes for
the Company's common shares were 5,773 shares and 13,000 shares, respectively.
The Company's float is estimated to be approximately 1.8 million shares.
Currently, there are no research analysts covering Lindal Cedar Homes, Inc.
Source: Yahoo! Finance and Company Management.
A PRICE AND VOLUME CHART OF THE COMPANY'S COMMON STOCK IS ATTACHED AS EXHIBIT 1.
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D. PUBLIC COMPARABLE COMPANY ANALYSIS
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PUBLIC COMPARABLE COMPANY ANALYSIS
- The Public Comparable Company Analysis approach utilizes ratios of
stock prices (market capitalization and enterprise value) to
several different measures, including revenue, earnings before
interest, taxes, depreciation, and amortization (EBITDA), operating
income, tangible equity, and earnings as an indication of equity
value.
- Trading multiples analyzed by FSVK include:
- Enterprise value to actual net revenues for the latest
twelve-month period;
- Enterprise value to actual EBITDA for the latest
twelve-month period;
- Enterprise value to actual operating income for the latest
twelve-month period;
- Share price to actual fully diluted earnings per share for
the latest twelve-month period and projected fully diluted
earnings per share for calendar 2000 and 2001;
- Tangible equity to market capitalization.
- Lindal re-manufactures cedar lumber and combines it with purchased
and manufactured windows, sunrooms, and other purchased building
materials into home packages that are shipped to homebuyer
construction sites. Similar companies often called "kit builders"
are mostly private companies. Lincoln Logs, which is public, was
not deemed to be an appropriate comparable company because of its
negligible trading volume. Viceroy Homes, a public company on the
Toronto Exchange, has a business model similar to Lindal, but also
has a negligible trading volume. The Lindal business model has some
of the characteristics of both the manufactured housing companies
and of the site builders. Consequently, firms in these sectors were
used for the Public Comparable Company Analysis.
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
- Several of the manufactured housing companies and the site builders
are extremely large with market caps over $1 billion. FSVK chooses
as comparable companies the smaller companies with market caps
under $1 billion. Nonetheless, many of the comparable companies
still have substantially larger revenues, more diverse sources of
revenue, and significantly higher trading volume. These factors
generally result in higher trading multiples.
- Five of the eleven manufactured housing companies in the peer group
had negative EBITDA and, hence, were not computed in the average
Enterprise Value/EBITDA multiple; five of the companies had
negative earnings and, hence, were not computed in the average
Price Earnings Ratio. Consequently, the peer group valuation
multiples on EBITDA and Earnings are somewhat overstated. Also, the
manufactured housing companies tend to focus on lower priced homes
sold to less affluent demographics than Lindal; consequently, while
the markets are related, they are not directly comparable.
- For all the above reasons, the Public Comparable Analysis was not
given significant weight in FSVK's analysis.
- All trading multiples were based on closing bid prices on December
13, 2000 and weighted average diluted shares outstanding during
each of the latest accounting periods for the Public Comparable
Companies.
DESCRIPTIONS OF THE PUBLIC COMPARABLE COMPANIES ARE ATTACHED IN EXHIBIT 2.
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SELECTED PUBLICLY TRADED COMPARABLE COMPANIES (MANUFACTURED HOUSING)
- ------------------------------------------------------------------------------------------------------------------------------------
(Amounts in millions, except per share data and multiples)
TICKER LTM(1) FISCAL SHARES CURRENT PRICE MARKET VALUE TOTAL
COMPANY SYMBOL ENDED YEAR OUTSTANDING 12/13/00 OF COMMON LT DEBT CASH
- ------------------------------------------------------------------------------------------------------------------------------------
American Homestar HSTR 9/30 6/30 18.42 $0.22 $4.0 $123.3 $23.7
Cavalier Homes CAV 9/30 12/31 17.86 $0.81 $14.5 $32.6 $23.8
Champion Enterprises CHB 9/30 12/31 47.25 $3.25 $153.6 $266.5 $32.0
Fleetwood Enterprises FLE 7/31 4/30 32.73 $10.38 $339.6 $105.0 $51.9
KIT Manufacturing KIT 7/31 10/31 1.03 $4.25 $4.4 $0.0 $6.8
Liberty Homes LIBHA 9/30 12/31 3.75 $5.44 $20.4 $0.0 $6.6
Nobility Homes NOBH 8/5 10/31 4.51 $6.00 $27.0 $0.0 $9.1
Oakwood Homes OH 6/30 9/30 47.12 $0.50 $23.6 $422.2 $31.3
Palm Harbor Homes PHHM 9/29 3/31 22.66 $13.00 $294.6 $3.0 $61.5
Southern Energy Homes SEHI 9/29 12/31 12.13 $0.78 $9.5 $30.5 $6.1
Skyline Corporation SKY 8/31 5/31 8.48 $20.25 $171.7 $0.0 $112.3
- ------------------------------------------------------------------------------------------------------------------------------------
LINDAL CEDAR HOMES LNDL 10/1 12/31 4.14 $2.50 $10.3 $3.6 $13.0
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------
TANGIBLE ENTERPRISE(2)
EQUITY (BANK) VALUE
- -----------------------------------------------------------
American Homestar $19.7 $103.7
Cavalier Homes $82.3 $23.3
Champion Enterprises -$22.0 $348.1
Fleetwood Enterprises $294.7 $392.7
KIT Manufacturing $13.2 -$2.4
Liberty Homes $51.2 $13.8
Nobility Homes $20.8 $18.0
Oakwood Homes $490.1 $414.5
Palm Harbor Homes $230.3 $236.2
Southern Energy Homes $63.1 $33.9
Skyline Corporation $191.9 $59.4
- -----------------------------------------------------------
LINDAL CEDAR HOMES $19.5 $1.0
- -----------------------------------------------------------
LAST TWELVE MONTHS
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COMPANY REVENUES EBITDA OPER. INCOME EARNINGS (LOSS) EBITDA OPER. INCOME EARNINGS (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
American Homestar $619.5 ($4.2) ($21.0) ($17.6) -0.68% -3.39% -2.85%
Cavalier Homes $378.6 ($37.7) $(48.0) ($31.4) -9.95% -12.68% -8.29%
Champion Enterprises $2,057.7 $78.0 $37.6 $5.7 3.79% 1.83% 0.28%
Fleetwood Enterprises $3,467.4 $123.1 $88.1 $26.0 3.55% 2.54% 0.75%
KIT Manufacturing $57.4 $0.2 ($0.3) $1.1 0.32% -0.51% 1.89%
Liberty Homes $135.4 ($3.3) ($5.9) ($3.2) -2.43% -4.38% -2.37%
Nobility Homes $30.7 $2.1 $1.8 $2.2 6.83% 5.92% 7.31%
Oakwood Homes $1,324.9 ($37.0) ($86.0) ($98.3) -2.79% -6.49% -7.42%
Palm Harbor Homes $731.1 $71.0 $56.6 $31.7 9.71% 7.75% 4.33%
Southern Energy Homes $187.9 ($5.9) ($9.2) ($7.9) -3.16% -4.90% -4.22%
Skyline Corporation $556.8 $19.2 $15.1 $13.3 3.45% 2.71% 2.38%
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LINDAL CEDAR HOMES $43.3 $3.0 $1.7 $1.4 6.88% 4.00% 3.21%
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CALENDAR YEAR EPS
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EPS 2000 2001
- ------------------------------------------------------------------------------
American Homestar ($3.00) NA NA
Cavalier Homes ($1.76) ($1.20) $0.25
Champion Enterprises $0.13 ($0.20) $0.11
Fleetwood Enterprises $0.74 ($0.59) NA
KIT Manufacturing $1.00 NA NA
Liberty Homes ($0.83) NA NA
Nobility Homes $0.48 NA NA
Oakwood Homes ($2.11) ($1.10) NA
Palm Harbor Homes $1.39 $1.25 NA
Southern Energy Homes ($0.65) NA NA
Skyline Corporation $1.51 NA NA
- -------------------------------------------------------------------------------
LINDAL CEDAR HOMES $0.33 NA NA
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EST. VALUE/ EST. VALUE/ EST. VALUE/ MARKET CAP MARKET CAP/
COMPANY REVENUES EBITDA OPER. INCOME EARNINGS (LOSS) TANG. EQUITY
- ---------------------------------------------------------------------------------------------------
American Homestar 0.17x NA NA NA 0.20x
Cavalier Homes 0.06x NA NA NA 0.18x
Champion Enterprises 0.17x 4.46x 9.26x 26.78x NA
Fleetwood Enterprises 0.11x 3.19x 4.46x 13.05x 1.15x
KIT Manufacturing NA NA NA 4.03x 0.33x
Liberty Homes 0.10x NA NA NA 0.40x
Nobility Homes 0.59x 8.57x 9.89x 12.06x 1.30x
Oakwood Homes 0.31x NA NA NA 0.05x
Palm Harbor Homes 0.32x 3.33x 4.17x 9.30x 1.28x
Southern Energy Homes 0.18x NA NA NA 0.15x
Skyline Corporation 0.11x 3.09x 3.94x 12.94x 0.89x
- ---------------------------------------------------------------------------------------------------
AVERAGE 0.21x 4.53x 6.34x 13.03x 0.59x
AVERAGE EXCLUDING HIGH & LOW 0.18x 3.66x 5.96x 11.84x 0.57x
- ---------------------------------------------------------------------------------------------------
LINDAL CEDAR HOMES 0.02x 0.33x 0.57x 7.44x 0.53x
- ---------------------------------------------------------------------------------------------------
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3-YEAR PRICE/EARNINGS
----------------------------------------------
COMPANY REVENUE CAGR LTM 2000E 2001E
- ------------------------------------------------------------------------------------
American Homestar 3.76% NA NA NA
Cavalier Homes 0.61% NA NA 3.25x
Champion Enterprises 16.28% 25.00x NA 30.95x
Fleetwood Enterprises 8.91% 14.02x NA NA
KIT Manufacturing -13.33% 4.25x NA NA
Liberty Homes 1.60% NA NA NA
Nobility Homes 3.45% 12.50x NA NA
Oakwood Homes 17.73% NA NA NA
Palm Harbor Homes 11.35% 9.35x 10.40x NA
Southern Energy Homes -6.23% NA NA NA
Skyline Corporation -1.32% 13.41x 13.41x NA
- ------------------------------------------------------------------------------------
AVERAGE 3.89% 13.09x 10.40x 17.10x
AVERAGE EXCLUDING HIGH & LOW 4.27% 12.32x NA NA
- ------------------------------------------------------------------------------------
LINDAL CEDAR HOMES -5.38% 7.58x NA NA
- ------------------------------------------------------------------------------------
Notes: Earnings estimates provided by I/B/E/S
(1) LTM = Latest Twelve Months
(2) Enterprise Value = Market Cap + Debt - Cash
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SELECTED PUBLICLY TRADED COMPARABLE COMPANIES (SITE BUILDERS)
- --------------------------------------------------------------------------------
(Amounts in millions, except per share data and multiples)
CURRENT MARKET TANGIBLE
TICKER LTM(1) FISCAL SHARES PRICE VALUE TOTAL EQUITY ENTERPRISE(2)
COMPANY SYMBOL ENDED YEAR OUTSTANDING 12/13/00 OF COMMON LT DEBT CASH (BOOK) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
Beazer Homes BZH 6/30 9/30 8.47 36.00 $305.1 $215.0 $ 0.0 $246.0 $ 520.1
Hovnanian Enterprises HOV 7/31 10/31 21.16 9.19 $194.5 $442.4 $ 20.8 $246.4 $ 616.0
MDC Holdings, Inc. MDC 9/30 12/31 21.10 33.87 $714.7 $174.4 $ 18.9 $440.6 $ 870.2
M/I Schottenstein Homes MHO 9/30 12/31 7.66 25.00 $191.5 $247.3 $ 9.7 $223.1 $ 429.1
NVR, Inc. NVR 9/30 12/31 8.83 106.40 $940.0 $215.1 $118.4 $257.7 $1,036.7
The Ryland Group RYL 9/30 12/31 13.24 39.88 $527.7 $684.4 $ 89.4 $400.6 $1,122.8
Standard Pacific Corporation SPF 9/30 12/31 29.98 23.38 $700.7 $424.3 $ 2.9 $428.0 $1,122.1
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LINDAL CEDAR HOMES LNDL 10/1 12/31 4.14 2.50 $10.3 $ 3.6 $ 13.0 $ 19.5 $ 1.0
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LATEST TWELVE MONTHS CALENDAR YEAR EPS
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OPER. EARNINGS/ OPER. EARNINGS/
COMPANY REVENUES EBITDA INCOME (LOSS) EBITDA INCOME (LOSS) EPS 2000 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Beazer Homes $1,485.5 $ 80.3 $ 73.1 $ 40.8 5.41% 4.92% 2.75% $ 4.70 $ 4.89 NA
Hovnanian Enterprises $1,084.0 $ 77.2 $ 69.7 $ 23.9 7.31% 6.43% 2.20% $ 1.08 $ 1.69 NA
MDC Holdings, Inc. $1,673.7 $205.3 $185.6 $110.6 12.26% 11.09% 6.61% $ 5.02 $ 5.40 $ 5.61
M/I Schottenstein Homes $ 909.2 $ 91.0 $ 88.9 $ 43.2 10.01% 9.77% 4.75% $ 5.22 $ 5.39 $ 5.58
NVR, Inc. $2,190.0 $253.8 $239.2 $136.0 11.59% 10.92% 6.21% $12.25 $13.19 $15.10
The Ryland Group $2,177.7 $165.5 $137.2 $ 71.5 7.60% 6.30% 3.29% $ 5.07 $ 5.78 $ 6.28
Standard Pacific Corporation $1,198.3 $138.8 $135.3 $ 80.4 11.58% 11.29% 6.71% $ 2.74 $ 3.25 $ 3.60
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LINDAL CEDAR HOMES $ 43.3 $ 3.0 $ 1.7 $ 1.4 6.88% 4.00% 3.21% $ 0.33 NA NA
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ENT. VALUE/ MARKET CAP/ PRICE/EARNINGS
ENT. VALUE/ ENT. VALUE/ OPER. EARNINGS/ MARKET CAP/ 3-YEAR ---------------------
COMPANY REVENUES EBITDA INCOME (LOSS) TANG. EQUITY REVENUE CAGR LTM 2000E 2001E
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Beazer Homes 0.35x 6.47x 7.11x 7.47x 1.24x 17.17% 7.66x 7.36x NA
Hovnanian Enterprises 0.57x 7.98x 8.83x 8.14x 0.79x 5.51% 8.51x 5.43x NA
MDC Holdings, Inc. 0.52x 4.24x 4.69x 6.46x 1.62x 19.33% 6.75x 6.28x 6.04x
M/I Schottenstein Homes 0.47x 4.71x 4.83x 4.43x 0.86x 13.88% 4.79x 4.64x 4.48x
NVR, Inc. 0.47x 4.09x 4.33x 6.91x 3.65x 23.06% 8.69x 8.07x 7.05x
The Ryland Group 0.52x 6.79x 8.18x 7.38x 1.32x 8.34% 7.86x 6.90x 6.35x
Standard Pacific Corporation 0.94x 8.09x 8.29x 8.72x 1.64x 44.20% 8.53x 7.19x 6.50x
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AVERAGE 0.55x 6.05x 6.61x 7.07x 1.59x 0.19x 7.54x 6.55x 6.09x
AVERAGE EXCLUDING HIGH & LOW 0.51x 6.04x 6.62x 7.27x 1.34x 0.16x 7.86x 6.63x 6.30x
- ---------------------------------------------------------------------------------------------------------------------------------
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LINDAL CEDAR HOMES 0.02x 0.33x 0.57x 7.44x 0.53x -5.38% 7.58x NA NA
- ---------------------------------------------------------------------------------------------------------------------------------
Notes: Earnings estimates provided by I/B/E/S
(1) LTM = Latest Twelve Months
(2) Enterprise Value = Market Cap + Debt - Cash
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
As set forth in the following table, applying the mean (without the high and the
low values) revenue multiples of the comparable companies, for the latest twelve
months, to corresponding financial data for Lindal resulted in the implied
enterprise values of Lindal. FSVK calculated the corresponding equity values by
subtracting the Company's debt and adding the Company's cash from the
aforementioned enterprise values. These implied equity values of Lindal compare
with the Equity Value of the Tender Offer Consideration of $19.3 million. FVSK
compared the revenue multiples of both manufactured housing and site builders.
The corresponding equity values for the average of each of these is shown below.
Mean Revenue Implied Equity
Multiple Value
Period Site Builders of Lindal
------ ------------- --------------
LTM 0.51x $31.43mm
Mean Revenue Implied Equity
Multiple Value
Period Manufactured Housing of Lindal
------ -------------------- --------------
LTM 0.18x $17.14mm
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
As set forth in the following table, applying the mean (without the high and the
low values) EBITDA multiples of the comparable companies, for the latest twelve
months, to corresponding financial data for Lindal resulted in the implied
enterprise values of Lindal. FSVK calculated the corresponding equity values by
subtracting the Company's debt and adding the Company's cash from the
aforementioned enterprise values. These implied equity values of Lindal compare
with the Equity Value of the Tender Offer Consideration of $19.3 million. FVSK
compared the EBITDA multiples of both manufactured housing and site builders.
The corresponding equity values for the average of each of these is shown below.
Mean EBITDA Implied Equity
Multiple Value
Period Site Builders of Lindal
------ ------------- --------------
LTM 6.04x $27.47mm
Mean EBITDA Implied Equity
Multiple Value
Period Manufactured Housing of Lindal
------ -------------------- --------------
LTM 3.66x $20.33mm
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
As set forth in the following table, applying the mean (without the high and the
low values) operating income multiples of the comparable companies, for the
latest twelve months, to corresponding financial data for Lindal resulted in the
implied enterprise values of Lindal. FSVK calculated the corresponding equity
values by subtracting the Company's debt and adding the Company's cash from the
aforementioned enterprise values. These implied equity values of Lindal compare
with the Equity Value of the Tender Offer Consideration of $19.3 million. FVSK
compared the operating income multiples of both manufactured housing and site
builders. The corresponding equity values for the average of each of these is
shown below.
Mean Operating Implied Equity
Income Multiple Value
Period Site Builders of Lindal
------ ------------- --------------
LTM 6.62x $20.60mm
Mean Operating Implied Equity
Income Multiple Value
Period Manufactured Housing of Lindal
------ -------------------- --------------
LTM 5.96x $19.48mm
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
As set forth in the following table, applying the mean (without the high and the
low values) price to earnings (P/E) multiples of the comparable companies, for
the latest twelve months, to corresponding financial data for Lindal resulted in
the implied equity values of Lindal. These implied equity values of Lindal
compare with the Equity Value of the Tender Offer Consideration of $19.3
million. FVSK compared the P/E multiples of both manufactured housing and site
builders. The corresponding equity values for the average of each of these is
shown below.
Mean Implied Equity
P/E Multiple Value
Period Site Builders of Lindal
------ ------------- --------------
LTM 7.86x $11.00mm
Mean Implied Equity
P/E Multiple Value
Period Manufactured Housing of Lindal
------ -------------------- --------------
LTM 12.32x $17.25mm
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PUBLIC COMPARABLE COMPANY ANALYSIS (CONT.)
As set forth in the following table, applying the mean (without the high and the
low values) of the Market Cap to Tangible Equity (TE) of the comparable
companies, for the latest twelve months, to corresponding financial data for
Lindal resulted in the implied equity values of Lindal. These implied equity
values of Lindal compare with the Equity Value of the Tender Offer Consideration
of $19.3 million. FVSK compared the Market Cap to Tangible Equity multiples of
both manufactured housing and site builders. The corresponding equity values for
the average of each of these is shown below.
Mean Implied Equity
Market Cap/TE Value
Period Site Builders of Lindal
------ ------------- --------------
LTM 1.34x $26.13mm
Mean Implied Equity
Market Cap/TE Value
Period Manufactured Housing of Lindal
------ -------------------- --------------
LTM 0.57x $11.12mm
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E. DISCOUNTED CASH FLOW ANALYSIS
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DISCOUNTED CASH FLOW ANALYSIS
- - The Discounted Cash Flow (DCF) Analysis approach utilizes the concept that
the value of a business is represented by discounting the cash flow streams
it is estimated to generate. The estimated cash flow streams of a business
enterprise are then present valued to reflect the time value of money as
well as the associated business and economic risks of that enterprise.
- - Lindal provided projections to FSVK. FSVK has reviewed the projections and
has been advised by management of the Company that the projections:
- Were reasonably prepared;
- Are based upon assumptions reflecting the best currently available
estimates and good faith judgements of management as the future
performance of the company as an independent company; and,
- Are believed to be realizable in the amounts and time periods
contemplated thereby.
- - FSVK utilized discount rates of 15%, 25%, 30%, and 35% to account for risks
typically associated with equity investments in micro-cap manufacturing
companies.
- - Terminal values were computed on the basis of EBITDA multiple, price to
earnings multiple, and perpetuity of 2004 free cash flow. EBITDA and price
to earnings multiples were computed as an average of Public Comparable
Company's multiples. Perpetuity of 2004 free cash flow was discounted at
rates deemed appropriate by FSVK for the risk associated with those future
cash flows.
- - Management's forecast assumptions and the financial statement projections
from 12/31/00 through 12/31/2004 are attached in Exhibit 3.
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Lindal Cedar Homes, Inc.
Discounted Cash Flow Analysis
Terminal Value on an EBITDA Multiple
Unlevered Free Cash Flows: 1999A 2000E 2001E 2002E 2003E 2004E
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Flows from Operations 4,623,616 1,559,420 3,609,895 2,981,346 3,961,257 2,994,365
Net Cash Flows from Investing (4,014,903) 4,294,211 (696,608) (1,079,200) (975,000) (977,000)
Add-back After-tax Interest Expense 193,245 127,155 113,820 108,864 105,300 101,820
---------- ---------- ---------- ---------- ---------- ----------
Unlevered Free Cash Flows 801,958 5,980,786 3,027,107 2,011,010 3,091,557 2,119,185
Transaction Date (PV Date): 01/01/01 Years
Cash Flow
From PV Date
Unlevered Free Cash Flows:
1999 801,958
2000 5,980,786
2001 3,027,107 1
2002 2,011,010 2
2003 3,091,557 3
2004 2,119,185 4
Terminal Values: 5.0 23,510,439 4
(Multiple of 2004 EBITDA) 5.5 25,861,483 4
6.0 28,212,527 4
6.5 30,563,571 4
Discount Rates 15% 20% 25% 30% 35%
---------- ---------- ---------- ---------- ----------
Present Value of Net Free Cash Flows 7,397,279 6,730,202 6,159,627 5,667,648 5,240,294
Present Value of Terminal Values 5.0 13,442,170 11,337,982 9,629,876 8,231,658 7,078,246
5.5 14,786,387 12,471,780 10,592,864 9,054,824 7,786,071
6.0 16,130,604 13,605,578 11,555,851 9,877,990 8,493,896
6.5 17,474,821 14,739,377 12,518,839 10,701,156 9,201,720
Sum of Present Values 5.0 20,839,449 18,068,184 15,789,503 13,899,306 12,318,540
(Implied Enterprise Value) 5.5 22,183,666 19,201,983 16,752,490 14,722,472 13,026,365
6.0 23,527,883 20,335,781 17,715,478 15,545,638 13,734,190
6.5 24,872,100 21,469,579 18,678,466 16,368,804 14,442,014
Capitalization Adjustment (on Transaction Date)
Plus Excess Cash(1) 9,967,118 9,967,118 9,967,118 9,967,118 9,967,118
Minus Debt 3,473,343 3,473,343 3,473,343 3,473,343 3,473,343
15% 20% 25% 30% 35%
---------- ---------- ---------- ---------- ----------
Equity Value 5.0 27,333,224 24,561,960 22,283,278 20,393,082 18,812,316
5.5 28,677,441 25,695,758 23,246,266 21,216,247 19,520,140
6.0 30,021,658 26,829,556 24,209,253 22,039,413 20,227,965
6.5 31,365,875 27,963,354 25,172,241 22,862,579 20,935,790
(1) Excess cash = 12/31/00 cash less $3 million
deemed by the Company which is needed for working capital
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24
Lindal Cedar Homes, Inc.
Discounted Cash Flow Analysis
Terminal Value on a P/E Ratio
Unlevered Free Cash Flows: 1999A 2000E 2001E 2002E 2003E 2004E
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Flows from Operations 4,623,616 1,559,420 3,609,895 2,981,346 3,961,257 2,994,365
Net Cash Flows from Investing (4,014,903) 4,294,211 (696,608) (1,079,200) (975,000) (977,000)
Add-back After-tax Interest Expense 193,245 127,155 113,820 108,864 105,300 101,820
---------- ---------- ---------- ---------- ---------- ----------
Unlevered Free Cash Flows 801,958 5,980,786 3,027,107 2,011,010 3,091,557 2,119,185
Transaction Date (PV Date): 01/01/01 Years
Cash Flow
From PV Date
Unlevered Free Cash Flows:
1999 801,958
2000 5,980,786
2001 3,027,107 1
2002 2,011,010 2
2003 3,091,557 3
2004 2,119,185 4
Terminal Values: 7.0 20,614,502 4
(Multiple of 2004 Net Income) 8.0 23,559,431 4
9.0 26,504,360 4
10.0 29,449,289 4
Discount Rates 15% 20% 25% 30% 35%
---------- ---------- ---------- ---------- ----------
Present Value of Net Free Cash Flows 7,397,279 6,730,202 6,159,627 5,667,648 5,240,294
Present Value of Terminal Values 7.0 11,786,409 9,941,407 8,443,700 7,217,710 6,206,372
8.0 13,470,181 11,361,608 9,649,943 8,248,812 7,092,996
9.0 15,153,954 12,781,809 10,856,186 9,279,913 7,979,621
10.0 16,837,726 14,202,010 12,062,429 10,311,015 8,866,245
Sum of Present Values 7.0 19,183,687 16,671,610 14,603,327 12,885,358 11,446,666
(Implied Enterprise Value) 8.0 20,867,460 18,091,811 15,809,570 13,916,459 12,333,290
9.0 22,551,232 19,512,012 17,015,813 14,947,561 13,219,915
10.0 24,235,005 20,932,213 18,222,056 15,978,662 14,106,539
Capitalization Adjustment (on Transaction Date)
Plus Excess Cash(1) 9,967,118 9,967,118 9,967,118 9,967,118 9,967,118
Minus Debt 3,473,343 3,473,343 3,473,343 3,473,343 3,473,343
15% 20% 25% 30% 35%
---------- ---------- ---------- ---------- ----------
Equity Value 7.0 25,677,463 23,165,385 21,097,102 19,379,133 17,940,441
8.0 27,361,235 24,585,586 22,303,345 20,410,235 18,827,066
9.0 29,045,008 26,005,787 23,509,588 21,441,336 19,713,690
10.0 30,728,780 27,425,988 24,715,831 22,472,438 20,600,315
(1) Excess cash = 12/31/00 cash less $3 million
deemed by the Company which is needed for working capital
24
25
Lindal Cedar Homes, Inc.
Discounted Cash Flow Analysis
Terminal Value on a Perpetuity of Free Cash Flow
Unlevered Free Cash Flows: 1999A 2000E 2001E 2002E 2003E 2004E
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Flows from Operations 4,623,616 1,559,420 3,609,895 2,981,346 3,961,257 2,994,365
Net Cash Flows from Investing (4,014,903) 4,294,211 (696,608) (1,079,200) (975,000) (977,000)
Add-back After-tax Interest Expense 193,245 127,155 113,820 108,864 105,300 101,820
---------- ---------- ---------- ---------- ---------- ----------
Unlevered Free Cash Flows 801,958 5,980,786 3,027,107 2,011,010 3,091,557 2,119,185
Transaction Date (PV Date): 01/01/01 Years
Cash Flow
From PV Date
Unlevered Free Cash Flows:
1999 801,958
2000 5,980,786
2001 3,027,107 1
2002 2,011,010 2
2003 3,091,557 3
2004 2,119,185 4
Terminal Values: 15% 14,127,899 4
(Pepetuity of 2004 Free Cash Flow) 20% 10,595,924 4
25% 8,476,740 4
30% 7,063,950 4
35% 6,054,814 4
Discount Rates 15% 20% 25% 30% 35%
---------- ---------- ---------- ---------- ----------
Present Value of Net Free Cash Flows 7,397,279 6,730,202 6,159,627 5,667,648 5,240,294
Present Value of Terminal Values 8,077,672 5,109,917 3,472,073 2,473,285 1,822,912
Sum of Present Values 15,474,951 11,840,120 9,631,699 8,140,933 7,063,206
(Implied Enterprise Value)
Capitalization Adjustment (on Transaction Date)
Plus Excess Cash(1) 9,967,118 9,967,118 9,967,118 9,967,118 9,967,118
Minus Debt 3,473,343 3,473,343 3,473,343 3,473,343 3,473,343
Equity Value 21,968,726 18,333,895 16,125,475 14,634,708 13,556,982
(1) Excess cash = 12/31/00 cash less $3 million
deemed by the Company which is needed for working capital
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SUMMARY OF DCF ANALYSIS
Lindal Cedar Homes, Inc.
Discounted Cash Flow Summary
DCF With EBITDA Multiple Terminal Value
15% 20% 25% 30% 35%
----------- ----------- ----------- ----------- -----------
5.0 $27,333,224 $24,561,960 $22,283,278 $20,393,082 $18,812,316
5.5 $28,677,441 $25,695,758 $23,246,266 $21,216,247 $19,520,140
6.0 $30,021,658 $26,829,556 $24,209,253 $22,039,413 $20,227,965
6.5 $31,365,875 $27,963,354 $25,172,241 $22,862,579 $20,935,790
DCF With Price Earnings Ratio Terminal Value
15% 20% 25% 30% 35%
----------- ----------- ----------- ----------- -----------
7.0 $25,677,463 $23,165,385 $21,097,102 $19,379,133 $17,940,441
8.0 $27,361,235 $24,585,586 $22,303,345 $20,410,235 $18,827,066
9.0 $29,045,008 $26,005,787 $23,509,588 $21,441,336 $19,713,690
10.0 $30,728,780 $27,425,988 $24,715,831 $22,472,438 $20,600,315
DCF With Perpetuity of Free Cash Flow Terminal Value
15% 20% 25% 30% 35%
----------- ----------- ----------- ----------- -----------
21,968,726 18,333,895 16,125,475 14,634,708 13,556,982
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F. PRECEDENT TRANSACTION ANALYSIS
27
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PRECEDENT TRANSACTION ANALYSIS
- - FSVK researched a variety of merger and acquisition data sources, including
merger databases, public filings, analyst reports and trade publications for
comparable merger and acquisition transactions within the home building and
manufactured housing industries. We searched for transactions that have
occurred since December 13, 1997.
- - FSVK located 60 transactions in the home building and manufactured housing
industries; however, only 24 had relevant transaction data, and only 11 had
valuation multiples.
- - As set forth in the following tables, FSVK compared, among other things, the
aggregate transaction value in each of these transactions as a multiple of
the latest twelve month's revenues, earnings before interest, taxes,
depreciation, and amortization (EBITDA), and net income, prior to the
transaction.
- - Applying the mean (without the high and the low values) of these multiples
for these transactions to the corresponding Lindal financial data for the
latest twelve-month period, results in implied equity values of Lindal.
These implied equity values of Lindal compare with the Equity Value of the
Tender Offer Consideration of $19.3 million.
Source: Mergerstat
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M&A ACTIVITY: MANUFACTURED HOUSING AND SITE BUILDERS
12/13/97 - 12/13/00
CLOSED TARGET BUYER
11/08/00 Calton Inc Beazer Homes USA Inc
10/20/00 Miller Building Systems Inc Coachmen Industries Inc
08/28/00(1) Washington Homes Inc Hovnanian Enterprises Inc
08/25/00 Writer Corp Standard Pacific Corp
06/22/00 Mod-U-Kraf Inc Coachmen Industries Inc
05/03/00 U.S. Home Corp Lennar Corp
09/08/99 Real Homes Inc Centex Corp
08/03/99 Chai Capital Ltd Century Partners Group Ltd
07/12/99 Sundance Homes Inc Centex Corp
04/15/99 AMEC PLC Centex Corp
03/31/99 Nomas Corp Centex Corp
01/07/99 Lewis Homes Kaufman & Broad Home Corp
01/05/99 R-Anell Custom Homes Inc American Homestar Corp
12/31/98 Calton Inc Centex Corp
12/07/98 Kvaerner ASA Beazer Homes USA Inc
09/01/98 UDC Homes Inc Standard Pacific Corp
08/11/98 HomeUSA Inc Fleetwood Enterprises Inc
04/20/98 Continental Homes Holding Corp Horton (D.R.) Inc
04/01/98 Schult Homes Corp Oakwood Homes Corp
03/19/98 Hallmark Residential Group Inc Kaufman & Broad Home Corp
03/02/98(1) PrideMark Homes Kaufman & Broad Home Corp
02/20/98(1) Wayne Homes Inc Centex Corp
02/17/98 Dobson (Richard C.) Builders Inc Horton (D.R.) Inc
01/02/98 Belmont Homes Inc Cavalier Homes Inc
- --------------
(1) Announce Date
TARGET DEAL SIZE
BUSINESS 30 DAY (BASE EQUITY DEAL SIZE/LTM DEAL SIZE/LTM DEAL SIZE/LTM
DESCRIPTION: PREMIUM PRICE) ($MM) REVENUE EBITDA NET INCOME
Builds homes NA 16.70 NA NA NA
Makes and distributes building modules 9.23% 26.74 NA NA NA
Designs, builds, and markets single-family
detached houses, townhouses, and condominiums 39.55% 77.45 0.18 2.63 5.69
Develops and builds planned residential communities 92.55% 27.01 0.33 4.41 7.40
Makes and sells custom-built sectionalized single
family housing units of its own design 86.21% 9.70 NA NA NA
Builds and sells single-family homes 41.98% 481.05 0.28 2.89 7.05
Builds homes NA 20.00 NA NA NA
Designs, constructs and sells single family homes
and townhomes NA 10.00 0.19 NA NA
Builds single family homes NA 50.00 NA NA NA
Builds residential and commercial buildings NA 170.00 NA NA NA
Develops land for residential and commercial
construction NA 9.00 NA NA NA
Builds homes NA 237.59 0.40 NA 4.33
Produces distinctive lines of high-quality,
upscale HUD-code manufactured homes NA 25.15 0.32 NA NA
Single-family home builder NA 48.10 NA NA NA
Constructs single-family homes and master planned
communities NA 90.00 0.47 9.48 9.48
Builds residential single-family homes NA 55.00 NA NA NA
Mobile homes dealers 17.14% 158.28 3.96 41.54 51.56
Designs, constructs and sells single-family homes 55.42% 340.94 0.46 6.41 12.32
Makes manufactured homes 23.29% 100.73 0.29 5.79 13.39
Builds single family homes NA 32.50 NA NA NA
Builds single family homes NA 65.00 NA NA NA
Manufactures and constructs houses NA 60.00 NA NA NA
Builds single family homes NA 22.90 0.18 NA NA
Makes and markets a variety of single and
double-section manufactured homes NA 75.70 NA NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE 45.67% 92.06 0.64 10.45 13.90
AVERAGE WITHOUT HIGH AND LOW 43.93% 78.16 0.32 5.80 9.22
- ----------------------------------------------------------------------------------------------------------------------------------
Source: Mergerstat
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PRECEDENT TRANSACTION ANALYSIS (CONT.)
Mean Implied
12-Month Deal Size/Revenue Equity Value
Period Multiple of Lindal
------ -------- ---------
LTM 0.32x $13.86mm
Mean Implied
12-Month Deal Size/EBITDA Equity Value
Period Multiple of Lindal
------ -------- ---------
LTM 5.80x $17.4mm
Mean Implied
12-Month Deal Size/Net Income Equity Value
Period Multiple of Lindal
------ -------- ---------
LTM 9.22x $12.91mm
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31
G. CONTROL PREMIUM ANALYSIS
31
32
CONTROL PREMIUM ANALYSIS
- - A control premium is defined as the additional consideration that an
investor would pay over a marketable minority equity value (i.e. current
publicly traded stock prices) in order to own a controlling interest in the
common stock of a company.
- - For the quarter ending June 30, 2000, the control premiums for domestic
transactions were as follows:
# Deals Premium - 30 day Premium - Excluding Negative Premiums
------- ---------------- -------------------------------------
Domestic Average 139 29.7% 51.3%
Domestic Medium 139 29.3% 42.6%
- - The average 30 day control premium on the 8 acquisitions of public site
builders and manufactured housing companies from December 13, 1997 to
December 13, 2000 was 45.67%.
- - The share price of Lindal Cedar Homes, Inc. on December 13, 2000 was $2.50.
The proposed tender offer price of $4.55 per share is an 82% premium over
the December 13, 2000 share price.
Source: Mergerstat
32
33
H. ADJUSTED BOOK VALUE
33
34
ADJUSTED BOOK VALUE
- - Lindal's October 1, 2000 Balance Sheet, prepared in accordance with GAAP,
shows total shareholders' equity of $19.5 million, which compares with the
Equity Value of the Tender Offer Consideration of $19.3 million.
10/1/00
-----------
Shareholders' Equity $19,483,092
Option Proceeds $ 958,038
Adjusted Book Value $20,441,130
Basic Shares Outstanding 4,136,622
Fully Diluted Shares Outstanding 4,446,348
Basic Book Value Per Share $ 4.71
Fully Diluted Book Value per Share $ 4.60
- - FSVK has not made an independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of the Company nor has FSVK
made a physical inspection of any of the properties or assets of the
Company.
- - The Company had Shorett, Kidder, Mathews, & Segner Valuation Advisory Group
perform a liquidation appraisal on five of its properties as of October 31,
2000. Shown below is a comparison of the liquidation appraised value
compared to the projected book value of these properties as of October 31,
2000:
34
35
ADJUSTED BOOK VALUE (CONT.)
Property Book Value 10/31/00 Liquidation Value 10/31/00 Difference
------------------- -------------------------- ----------
Fife Model $ 370,266 $ 430,000 $ 59,734
Kirkland Model $ 304,937 $ 540,000 $ 235,063
Head Office $ 314,152 $ 2,140,000 $ 1,825,848
Surrey Facility $ 434,142 $ 380,000 $ (54,142)
Lindal Building Products Plant $ 2,916,965 $ 4,030,000 $ 1,113,035
----------- ----------- -----------
TOTAL $ 4,340,462 $ 7,520,000 $ 3,179,538
----------- ----------- -----------
- - The liquidation value of the five appraised real estate assets is $3,179,538
over their historical book value as of October 31, 2000.
- - Management has estimated the liquidation value of all other assets and
liabilities. FSVK has not performed an independent analysis of these assets
and liabilities. It is Management's estimate that the liquidation value, as
of October 31, 2000 of all the assets and liabilities of the Company, after
the write-up on the five appraised properties, is $14,431,779 or $3.49 on
the basic shares and $3.46 on a fully diluted basis.
35
36
I. MARKET RESPONSE TO CONTACTS OF POTENTIAL STRATEGIC AND FINANCIAL BUYERS
36
37
MARKET RESPONSE TO CONTACTS OF POTENTIAL STRATEGIC AND FINANCIAL BUYERS
- - FSVK prepared, with management's assistance, an Offering Memorandum
describing the Company.
- - Starting in July 2000, FSVK contacted 12 potential strategic buyers and 22
potential financial buyers to inquire as to their interest in acquiring
Lindal Cedar Homes, Inc. All strategic buyers declined to pursue an
acquisition of the Company. 20 of the financial buyers passed on the
opportunity to acquire Lindal.
- - Two financial buyers presented the Board with an Indication of Interest to
acquire the Company. One buyer proposed $4.50 per share and the other a
range of values between $4.20 and $4.75 per share. The Indications of
Interest were conditioned on due diligence, meeting with management, and
meeting with some Lindal dealers. The two parities submitting the Letters of
Interest were informed that the Family was unwilling to sell their shares
for less than $5.00 per share.
37
38
J. VALUATION SUMMARY
38
39
VALUATION SUMMARY (IN $MILLIONS)
PUBLIC COMPARABLE COMPANY ANALYSIS EQUITY VALUE
Manufactured Housing EV / Revenue Multiple $ 17.14
Manufactured Housing EV / EBITDA Multiple $ 20.33
Manufactured Housing EV / Operating Income Multiple $ 19.48
Manufactured Housing P/E Ratio $ 17.25
Manufactured Housing Market Cap / Tangible Equity $ 11.12
Site Builder EV / Revenue Multiple $ 31.43
Site Builder EV / EBITDA Multiple $ 27.47
Site Builder EV / Operating Income Multiple $ 20.60
Site Builder P/E Ratio $ 11.00
Site Builder Market Cap / Tangible Equity $ 26.13
NOTE: EV (Enterprise Value) defined as Market Cap plus cash minus debt
PRECEDENT TRANSACTION ANALYSIS
Equity Value / Revenue Multiple $ 13.86
Equity Value / EBITDA Multiple $ 17.40
Equity Value / Net Income Multiple $ 12.91
NOTE: Equity Value defined as Deal Size by Mergerstat.
DISCOUNTED CASH FLOW ANALYSIS
Multiple of EBITDA Terminal Value $18.82 - $31.37
Multiple of Price Earnings Ratio Terminal Value $17.94 - $30.73
Perpetuity of Free Cash Flow Terminal Value $13.56 - $21.97
39
40
VALUATION SUMMARY (IN $MILLIONS CONT.)
CONTROL PREMIUM ANALYSIS EQUITY VALUE
30-day Domestic Average $ 14.40
30-day Domestic Medium $ 14.35
30-day Average for Site Builders and $ 16.17
Manufactured Housing
BOOK VALUE - 10/1/00 $ 19.48
LIQUIDATION VALUE - 10/31/00 $ 14.43
40
41
EXHIBIT 1
41
42
LINDAL CEDAR HOMES MONTHLY STOCK PRICE AND VOLUME CHART 12/13/97 - 12/13/00
[PERFORMANCE GRAPH]
[PERFORMANCE GRAPH]
(1)December numbers are
the means of the nine trading
days 12/1/00-12/13/00.
Source: Yahoo! Finance
42
43
EXHIBIT 2
43
44
PUBLIC COMPARABLE COMPANY DESCRIPTIONS
MANUFACTURED HOUSING
American Homestar is a leading maker and marketer of manufactured housing,
producing factory-built single-family residences that are about half the price
of comparable site-built homes. Priced from $17,000 to about $205,000, its homes
are made in 14 plants and sold from nearly 200 company-owned or franchised (Oak
Creek Village) retail sales centers and more than 300 independent retail centers
in 28 states. American Homestar also offers financing (21st Century Mortgage),
insurance (Western Insurance Agency), and home transportation (Roadmasters
Transport and Brilliant Carriers). Co-CEOs Finis Teeter and Laurence Dawson
together own about 27% of American Homestar.
Cavalier Homes makes manufactured single- and multi-section homes, including the
Belmont, Buccaneer, and Homestead lines. It focuses on constructing homes for
the low- to medium-priced market in the South Central and South Atlantic states.
Cavalier's factory-made homes include appliances and can also include furniture.
It also participates in joint ventures with competitors for lumber distribution
and the manufacturing of cabinets and roof trusses. Cavalier markets its homes
through about 800 non-exclusive dealers and more than 270 exclusive dealers in
28 states. The company is also involved in the financing and insuring of its
homes.
Champion Enterprises is the #1 US manufactured-housing maker, passing Fleetwood
Enterprises through acquisitions and internal growth. Champion makes homes at 60
plants in the US and Canada. It sells both single-section and multisection homes
(66% of sales) that cost from $15,000 to $150,000 and range in size from 400 sq.
ft. to 4,000 sq. ft. Champion markets through more than 240 company-owned sales
centers, as well as through some 3,500 retailers. Champion also owns a financing
company (HomePride Finance) and a manufactured-home site-development firm
(Champion Development).
Fleetwood Enterprises is the #1 US maker of RVs, the 2nd leading maker of
manufactured housing (behind Champion Enterprises). Housing features include
vaulted ceilings, walk-in closets, and porches. Fleetwood Enterprises'
recreational vehicles come in three types: folding trailers, travel trailers,
and motor homes. Brand names include American Dream, American Eagle, Bounder,
Jamboree, Pace Arrow, Southwind, and Tioga. Its building-supply operations
include two fiberglass companies and a lumber producer. The company has
facilities in the US in 20 states and in Canada; it sells through its own retail
outlets and independent distributors.
44
45
PUBLIC COMPARABLE COMPANY DESCRIPTIONS (CONT.)
KIT Manufacturing Company's customers can haul a patio behind them with its
travel trailers. Along with its Road Ranger, Millennium, and Patio Hauler brand
trailers, KIT constructs single-section and multisection manufactured housing
under such brand names as Cypress, Sierra, Golden State, and Royal Oaks. Travel
trailers and RVs together account for about 50% of sales. KIT sells its travel
trailers through a network of about 120 dealers in the western US and Canada.
The company sells its mobile homes through 49 dealers in the western US. KIT
operates plants in California and Idaho. CEO Dan Pocapalia owns 47% of the
company.
Liberty Homes builds its manufactured houses on wheel-mounted undercarriages for
relocation to customers' sites. The wholesale and retail homes have living and
dining areas, a kitchen, two to five bedrooms, and one or more baths. They have
dimensions from 12- to 16-ft. in width to 36- to 80-ft. in length. The units can
also be joined to form larger structures. Liberty Homes sells its homes, which
can cost as much as $100,000, through independent US dealers. It has retail
outlets in Indiana and North Carolina and plants in Alabama, Florida, North
Carolina, and Oregon. Chairman Edward Hussey and family own about 52% of the
company.
Nobility Homes makes manufactured homes and sells them in northern and central
Florida through 19 home centers and about 35 dealerships. It also sells in
retirement communities developed by affiliate TLT, Inc. The homes range in size
from 636 sq. ft. to 2,153 sq. ft. with up to five bedrooms. Priced between
$16,000 and $40,000, they are sold under the Kingswood, Richwood, Tropic Isle,
and Tropic Manor brands. Nobility provides financing through a joint venture,
and offers credit life and property and casualty insurance through its Prestige
Insurance Services subsidiary. Founder and President Terry Trexler owns 46% of
Nobility; his son, EVP Thomas, owns about 9%.
Oakwood Homes is the industry's #3, behind Fleetwood and Champion. Its housing
includes both single-section and multisection homes, with its least-expensive
models selling for about $16,000 and its mean sales price at about $32,000. The
homes are sold through about 412 company-owned retail centers and more than 550
independent retailers. Brands include Freedom, Golden West, and House Smart.
Oakwood also sells modular homes, which are delivered in pieces and assembled
on-site. Subsidiary Oakwood Acceptance provides financing for most of the
company's sales.
45
46
PUBLIC COMPARABLE COMPANY DESCRIPTIONS (CONT.)
Palm Harbor Homes offers a range of floor plans that includes two to five
bedrooms, with optional luxury features such as stone fireplaces and whirlpool
baths. The homes are sold through company-owned and independent retailers under
the names Palm Harbor, River Bend, and Windsor Homes. Palm Harbor Homes has 16
plants, operates more than 120 superstores, and sells through some 300 retailers
in 32 states. Subsidiaries offer financing and insurance. Through Capital
Southwest Corporation and Capital Southwest Venture Corporation, company
directors William Thomas and John Wilson control about 35% of Palm Harbor Homes.
Southern Energy Homes' single- and multi-section homes range in cost from about
$19,000 to $74,000 and in size from 640 sq. ft. to more than 2,400 sq. ft. The
homes offer two to five bedrooms, one to three bathrooms, and customized floor
plans. The company operates seven manufacturing plants under four divisions and
markets its homes in 25 states primarily in the southern US. Southern Energy
Homes sells its homes through 28 retail centers and 465 independent dealerships.
The company also operates four component supply divisions and offers retail
financing through its subsidiary Wenco Finance.
Skyline makes mobile homes (about 80% of sales) and recreational vehicles (RVs).
Typical customers are young couples and senior citizens in suburban and rural
communities in the US. Skyline's manufactured housing, sold under a variety of
trademarks, is available in sizes up to 80 ft. by 42 ft. Its RVs include travel
trailers, fifth-wheel trailers (Aljo, Layton, Nomad), and truck campers
(WeekEnder). The company sells its manufactured homes through a network of about
700 dealers across the US. Chairman Arthur Decio, whose father helped found
Skyline, owns 16% of the company.
SITE BUILDERS
Beazer Homes USA builds for the middle-class buyer who's ready to make the move
into the white-picket-fence scene. At an average price of $181,400, Beazer's
single-family homes are built for entry-level and first time move-up buyers. The
company operates in the Southeast, Southwest, and Mid-Atlantic regions of the
US. Beazer Homes also builds affordable housing (less than $60,000 a unit) in
Texas through a joint venture with Corporacion GEO of Mexico. The company
originates mortgages for the buyers of its homes through its Beazer Mortgage
subsidiary and provides title insurance services in Florida through subsidiary
Homebuilders Title.
46
47
PUBLIC COMPARABLE COMPANY DESCRIPTIONS (CONT.)
Hovnanian Enterprises operates primarily in the northeastern US. It builds
condominiums, townhouses, and single-family detached homes aimed at first-time
and move-up buyers, as well as luxury buyers, empty-nesters, and active adults.
Prices range from $33,000 to $921,000 (average selling price: $241,000).
Hovnanian is looking to operations outside the Northeast for growth: The company
builds in California, Florida, North Carolina, Texas, and the Washington, DC,
area; it also builds homes in Poland. Hovnanian will expand further with the
acquisition of Washington Homes. Members of the Hovnanian family own 46% of the
company.
M.D.C. Holdings, one of the top homebuilders in Denver and Colorado Springs,
Colorado, has become a major player in the suburban Maryland and northern
Virginia markets. Operating as Richmond American Homes, the company also has a
growing presence in Las Vegas, Phoenix and Tucson, Arizona, and in markets in
Northern and Southern California. It designs, builds, and sells single-family
homes (and some townhomes) for first-time and move-up buyers; the average sales
price is about $211,000. M.D.C. Holdings' HomeAmerican subsidiary provides
mortgage loans, primarily to Richmond American Homes buyers.
M/I Schottenstein Homes aims for the bull's-eye in a number of growing US
markets, opening up new divisions in the Southeast and Midwest. M/I
Schottenstein sells single-family detached homes, with more than 375 floor plans
and elevations, under the Horizon, M/I Homes, and Showcase Homes brands. The
company also builds attached townhomes and provides financing through its
mortgage-banking subsidiary, M/I Financial. M/I Schottenstein's single-family
homes are priced from about $95,000 to $930,000 (average price: $209,000) and
target first-time, move-up, and empty-nest buyers. The company completes over
3,900 houses a year. The Schottenstein family owns over 34% of the company
NVR builds and markets single-family homes, townhomes, and condominiums in 10 US
states and provides mortgage-banking services. Homes are marketed under three
names: Ryan Homes, along the eastern seaboard and in Ohio, Pennsylvania, and
Tennessee; Fox Ridge Homes, in Nashville, Tennessee; and NVHomes, in the
Washington, DC area. The homes (ranging from 985 sq. ft. to 5,400 sq. ft. and
from $80,000 to $890,000) sell at an average of $208,000. NVR Mortgage Finance
has mortgage banking operations in 12 US states. First Republic Mortgage,
acquired in 1999, operates an 11-branch network in the mid-Atlantic region.
47
48
PUBLIC COMPARABLE COMPANY DESCRIPTIONS (CONT.)
The Ryland Group has built its way up to become one of the top US homebuilders
by targeting its efforts toward entry-level, first- and second-time move-up
buyers, and active retired adults. The group doesn't stop at hammering the homes
together: Ryland also provides mortgage-finance services, including title
search, settlement, escrow services, and homeowners insurance. The average
selling price of the company's homes is about $190,000, and virtually all of the
construction is performed by subcontractors monitored by Ryland supervisors. The
company operates in about 260 communities in 21 markets in 14 US states and
Washington, DC.
Standard Pacific's foundation is its business as a single-family homebuilder. In
major metropolitan markets in California (more than 60% of sales), as well as in
Arizona and Texas, Standard Pacific focuses on its primary product: homes for
move-up buyers. The homes sell at an average of $340,000. Standard Pacific
acquires and develops residential land tracts, both alone and through joint
ventures and has more than 170 projects. The company offers conventional, FHA,
and VA mortgage loans to homebuyers in all of its markets and offers title
examination to Texas homebuyers. Standard Pacific has acquired Writer Corp., a
Colorado-based homebuilder that operates in Denver and the Fort Collins area.
48
49
EXHIBIT 3
49
50
FINANCIAL STATEMENT PROJECTIONS
The Company has provided the following financial projections to FSVK. FSVK has
reviewed the projections, has been advised by certain management of the Company,
and has relied upon and assumed without independent verification, that the
projections:
- Were reasonably prepared;
- Are based upon assumptions reflecting the best currently available
estimates and good faith judgments of management as to the future
performance of the Company as an independent Company; and
- Are believed to be realizable in the amounts and time periods
contemplated thereby.
The management of the Company has also advised FSVK that they do not presently
have any information or beliefs that would make the projections incomplete or
misleading.
With respect to operating and financial projections of companies deemed
comparable to the Company by FSVK and used in the Public Comparable Company
Analysis, FSVK used only projections published in recent research analysts'
reports, reviewed those projections, and in all instances used a mean of the
projected numbers.
50
51
Forecast Assumptions
- - Assumes the sale of the Lindal Corporate Business Park (Seattle, Wa) and the
Renfrew rental property occurred January 1, 2000.
- - Inflation is assumed to be zero. No adjustments have been included for
general increases in the price/cost of goods/services provided to LCH. It is
assumed that inflationary increases would be offset by price increases.
- - Price increases for goods/services sold by LCH is assumed to be zero. No
price increases have been included for home, sunroom, window or material
prices. It is assumed that prices would be increased only by amounts
necessary to offset inflationary increases in material, manufacturing or
operating costs.
- - Raw material cost increases are assumed to be zero. If raw material costs
increase, it is assumed that the price of homes, sunrooms, windows and
materials would increase in amounts necessary to offset the increased raw
material costs. The reader may adjust for his/her own assumptions.
- - No salary/wage increases have been included. It is assumed that increases in
salaries and wages would be offset by increases in prices for homes,
sunrooms, windows and materials.
- - WDK will continue operations with scaled down volume. As intercompany
revenue declines through the transfer of re-manufacturing services to LCH,
WDK's third party revenue will increase.
- - The sales mix of homes delivered will remain constant throughout the
forecast period.
- - There will be no labor shortages, labor unrest, or material scarcities.
- - It is assumed that there will be no unusual litigation. No settlement
amounts related to the dealer litigation are included in the forecast.
- - All operations are assumed to be single shift operations.
- - Capacities are assumed to be adequate for the volume of sales contemplated
by this forecast. No capacity expansion has been included.
- - No revenues or expenses related to the timber sale have been included in
this forecast.
- - Forecast assumes LCH continues its distribution operations from Surrey,
British Columbia.
- - Forecast assumes that the expiration of the current United States/Canadian
softwood lumber quota has no deleterious impact on operations or material
costs.
- - No research or development expenses are contemplated beyond those contained
in this forecast.
- - Assumes any LCH successor meets the requirements for continuation of
Industrial Revenue Bond financing of the LBP facility.
51
52
Adjustments to historical data
With the transfer of re-manufacturing services to LCH, WDK will be selling its
unused capacity to third parties.
To accommodate the transfer of remanufacturing and increased WDK third party
revenue, the percentages ordinarily used to forecast material expenses will need
to be modified:
- - Material costs must be analyzed to include the LCH margin. To accomplish
this we will remove the effect of WDK absorbed costs on consolidated
material costs and replace the WDK absorbed costs with the internal revenue
generated by WDK. The assumption is that the LCH cost will equal the
internal revenue generated by WDK. Further, material costs must be adjusted
to eliminate the cost of transporting the remanufactured parts back to
Canada and the transportation of raw materials from Canada to WDK.
- - The third party revenue generated by WDK will produce a new source of
revenue which will not generate material costs. Currently, material costs
are measured as a percent of total consolidated revenue. A new revenue base
must be determined in order to avoid over forecasting material expenses. The
new revenue base will be: home sales, retro-fit sunroom sales, retro-fit
window sales and material sales. Service revenue and other revenue will be
excluded from the new base revenue, as that revenue does not produce
material costs.
52
53
Lindal Cedar Homes, Inc.
Consolidated Balance Sheets
For each of the seven years ending December 31, 2004
12/31/98 12/31/99 12/31/00 12/31/01
------------ ------------ ------------ ------------
Assets
Current assets
Cash and cash equivalents 3,528,281 8,251,178 12,967,118 15,738,251
Receivables:
Trade 2,042,936 1,826,988 1,448,717 1,907,355
Allowance for doubtful receivables (320,116) (258,514) (207,877) (276,440)
Refundable income taxes 1,420,323 -- -- --
------------ ------------ ------------ ------------
Total receivables 3,143,143 1,568,474 1,240,840 1,630,915
Inventories 7,120,183 8,098,203 9,156,817 9,445,820
Promotional materials 843,968 510,010 902,217 902,217
Other current assets 744,244 650,327 607,648 490,074
------------ ------------ ------------ ------------
Total current assets 15,379,819 19,078,192 24,874,640 28,207,277
Property, plant and equipment
Plant and equipment 18,007,910 18,606,242 14,307,207 15,101,707
Land 2,163,858 2,181,767 1,224,988 1,224,988
------------ ------------ ------------ ------------
20,171,768 20,788,009 15,532,195 16,326,695
Accumulated depreciation (8,745,401) (9,832,263) (8,511,596) (9,277,707)
------------ ------------ ------------ ------------
Net property plant & equipment 11,426,367 10,955,746 7,020,599 7,048,988
Other assets
Tangible 1,336,307 1,598,386 925,835 539,332
Intangibles, net of amortization -- 246,776 227,449 216,769
------------ ------------ ------------ ------------
Total Assets $ 28,142,493 $ 31,879,100 $ 33,048,523 $ 36,012,366
============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Current installments of LT debt $ 190,034 $ 212,665 142,154 130,793
Accounts payable and accrued expenses 2,293,694 3,718,299 4,324,097 4,815,322
Income taxes payable (151) 126,533 -- --
Customer deposits 3,939,505 4,674,714 5,030,979 5,511,848
------------ ------------ ------------ ------------
Total current liabilities 6,423,082 8,732,211 9,497,230 10,457,963
Deferred income taxes 325,171 293,774 271,082 248,391
Long-term debt, excluding current installments 4,603,634 4,418,147 3,331,189 3,200,396
------------ ------------ ------------ ------------
Total liabilities 11,351,887 13,444,132 13,099,501 13,906,750
Stockholders' equity:
Common stock 41,260 41,312 41,312 41,312
Additional paid-in-capital 16,049,434 16,060,705 16,070,705 16,080,705
Accumulated other comprehensive loss (1,449,740) (837,211) (837,211) (837,211)
Retained earnings 2,149,652 3,170,162 4,674,216 6,820,810
------------ ------------ ------------ ------------
16,790,606 18,434,968 19,949,022 22,105,616
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 28,142,493 $ 31,879,100 $ 33,048,523 $ 36,012,366
------------ ------------ ------------ ------------
12/31/02 12/31/03 12/31/04
------------ ------------ ------------
Assets
Current assets
Cash and cash equivalents 17,509,604 20,359,028 22,234,368
Receivables:
Trade 2,042,117 2,214,869 2,382,571
Allowance for doubtful receivables (310,413) (337,305) (363,112)
Refundable income taxes -- -- --
------------ ------------ ------------
Total receivables 1,731,704 1,877,564 2,019,459
Inventories 10,783,403 10,141,752 11,396,639
Promotional materials 902,217 902,217 902,217
Other current assets 491,400 492,727 494,053
------------ ------------ ------------
Total current assets 31,418,328 33,773,288 37,046,736
Property, plant and equipment
Plant and equipment 16,291,907 17,291,907 18,291,907
Land 1,224,988 1,224,988 1,224,988
------------ ------------ ------------
17,516,895 18,516,895 19,516,895
Accumulated depreciation (10,176,007) (11,096,599) (11,946,367)
------------ ------------ ------------
Net property plant & equipment 7,340,888 7,420,296 7,570,528
Other assets
Tangible 335,852 940,653 743,836
Intangibles, net of amortization 206,089 195,409 184,729
------------ ------------ ------------
Total Assets $ 39,301,157 $ 42,329,646 $ 45,545,829
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Current installments of LT debt 136,833 142,025 152,237
Accounts payable and accrued expenses 5,391,531 5,721,388 6,011,782
Income taxes payable -- -- --
Customer deposits 6,071,850 6,305,427 6,441,004
------------ ------------ ------------
Total current liabilities 11,600,214 12,168,840 12,605,023
Deferred income taxes 225,700 203,009 180,317
Long-term debt, excluding current installments 3,063,563 2,921,538 2,769,301
------------ ------------ ------------
Total liabilities 14,889,477 15,293,387 15,554,641
Stockholders' equity:
Common stock 41,312 41,312 41,312
Additional paid-in-capital 16,090,705 16,100,705 16,110,705
Accumulated other comprehensive loss (837,211) (837,211) (837,211)
Retained earnings 9,116,874 11,731,453 14,676,382
------------ ------------ ------------
24,411,680 27,036,259 29,991,188
------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 39,301,157 $ 42,329,646 $ 45,545,829
------------ ------------ ------------
53
54
Lindal Cedar Homes, Inc.
Consolidated Statement of Operations
For each of the seven years ending December 31, 2004
1998 1999 2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------ ------------ ------------
REVENUE 37,719,167 39,505,118 42,600,797 48,138,414 53,271,270 55,988,032 58,045,250
COST OF GOODS SOLD 30,100,838 30,087,587 32,504,104 35,440,290 39,204,787 41,012,243 42,496,012
Gross profit 7,618,329 9,417,531 10,096,693 12,698,124 14,066,483 14,975,789 15,549,238
OPERATING EXPENSES
Selling expenses 4,177,154 3,716,182 4,075,587 4,772,396 5,057,188 5,235,703 5,366,229
General & administrative 3,985,816 4,038,097 4,452,629 4,888,303 5,213,598 5,484,394 5,632,251
Sawmill costs 767,710 -- -- -- -- -- --
Display court 472,176 483,187 520,594 615,720 722,091 742,261 738,795
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 9,402,856 8,237,466 9,048,810 10,276,419 10,992,877 11,462,358 11,737,275
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating income (loss) (1,784,527) 1,180,065 1,047,883 2,421,705 3,073,607 3,513,431 3,811,963
OTHER INCOME (EXPENSE)
Rental income 353,823 200,752 176,695 172,004 172,004 172,004 172,004
Interest income 164,691 505,995 452,493 387,400 457,400 537,400 737,400
Interest expense (337,006) (322,075) (211,925) (189,700) (181,440) (175,500) (169,700)
Gain (loss) sale of assets (2,408) 29,854 916,359 -- -- -- --
Miscellaneous income 319,209 (48,329) (3,330) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET OTHER INCOME (EXPENSE) 498,309 366,197 1,330,292 369,704 447,964 533,904 739,704
------------ ------------ ------------ ------------ ------------ ------------ ------------
Pre-tax earnings (loss) (1,286,218) 1,546,262 2,378,175 2,791,409 3,521,571 4,047,335 4,551,667
------------ ------------ ------------ ------------ ------------ ------------ ------------
INCOME TAX EXPENSE
Income tax expense (350,495) 525,775 874,121 644,815 1,225,507 1,432,756 1,606,738
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ (935,723) $ 1,020,487 $ 1,504,054 $ 2,146,594 $ 2,296,064 $ 2,614,579 $ 2,944,929
============ ============ ============ ============ ============ ============ ============
Operating income:
EBIT (1,784,527) 1,180,065 1,047,883 2,421,705 3,073,607 3,513,431 3,811,963
Add back:
Depreciation 1,062,574 1,037,954 774,987 766,111 898,300 920,592 849,768
Amortization 274,092 357,877 116,215 115,557 115,557 91,557 40,357
------------ ------------ ------------ ------------ ------------ ------------ ------------
EBITDA (447,861) 2,575,896 1,939,085 3,303,373 4,087,464 4,525,580 4,702,088
------------ ------------ ------------ ------------ ------------ ------------ ------------
54
55
Lindal Cedar Homes, Inc.
Consolidated Statement of Cash Flows
For each of the seven years ending 12/31/04
1998 1999 2000 2001
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ (936,000) $ 1,020,510 $ 1,504,054 2,146,594
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,337,000 1,395,831 891,202 881,668
Gain on disposal of property, plant and equipment 6,000 (31,397) (916,359) --
Deferred income tax expense (benefit) 69,000 (64,159) 19,987 94,883
Compensation expense related to restricted stock 11,000 9,012 10,000 10,000
Change in operating assets and liabilities:
Net receivables (521,000) 1,479,163 233,614 (376,967)
Inventories 2,688,000 (798,427) (1,038,406) (393,880)
Prepaid expenses and promotional materials 110,000 238,216 (392,207) --
Current liabilities other than current
installments of long-term debt (1,104,000) 1,892,270 835,530 972,094
Other 110,000 (517,403) 412,005 275,503
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 1,770,000 4,623,616 1,559,420 3,609,895
Cash flows from investing activities:
Purchase of short-term investments (74,000) (7,978,589) -- --
Maturity of short-term investments -- 4,015,839 -- --
Sale of short-term investments 74,000 -- -- --
Repayment of non-operating notes receivable 166,000 378,675 114,211 97,892
Cash received from sale property, plant and equipment -- 35,141 5,180,000 --
Purchase of property, plant and equipment (659,000) (465,969) (1,000,000) (794,500)
Other (57,000) -- -- --
------------ ------------ ------------ ------------
Net cash used in investing activities (550,000) (4,014,903) 4,294,211 (696,608)
Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchased
through the Employee Stock Purchase Plan 5,000 2,311 -- --
Repayment of long-term debt (182,000) (199,343) (1,157,469) (142,154)
Additions to long-term debt 10,000 35,016 -- --
------------ ------------ ------------ ------------
Net cash used in financing activities (167,000) (162,016) (1,157,469) (142,154)
Effect of exchange rate changes on cash and cash equivalents 118,000 309,029 19,778 --
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,171,000 755,726 4,715,940 2,771,133
Cash and cash equivalents beginning of period 2,286,000 3,528,281 8,251,178 12,967,118
Short-term investments 71,281 3,967,171
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,528,281 $ 8,251,178 $ 12,967,118 $ 15,738,251
------------ ------------ ------------ ------------
2002 2003 2004
------------ ------------ ------------
Cash flows from operating activities:
Net earnings 2,296,064 2,614,579 2,944,929
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,013,857 1,012,149 890,125
Gain on disposal of property, plant and equipment -- -- --
Deferred income tax expense (benefit) (24,017) (24,018) (24,018)
Compensation expense related to restricted stock 10,000 10,000 10,000
Change in operating assets and liabilities:
Net receivables (186,789) (147,860) (141,895)
Inventories (1,442,460) 560,774 (1,284,564)
Prepaid expenses and promotional materials -- -- --
Current liabilities other than current
installments of long-term debt 1,136,211 563,434 425,971
Other 178,480 (627,801) 173,817
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,981,346 3,961,257 2,994,365
Cash flows from investing activities:
Purchase of short-term investments -- -- --
Maturity of short-term investments -- -- --
Sale of short-term investments -- -- --
Repayment of non-operating notes receivable 111,000 25,000 23,000
Cash received from sale property, plant and equipment -- -- --
Purchase of property, plant and equipment (1,190,200) (1,000,000) (1,000,000)
Other -- -- --
------------ ------------ ------------
Net cash used in investing activities (1,079,200) (975,000) (977,000)
Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchased
through the Employee Stock Purchase Plan -- -- --
Repayment of long-term debt (130,793) (136,833) (142,025)
Additions to long-term debt -- -- --
------------ ------------ ------------
Net cash used in financing activities (130,793) (136,833) (142,025)
Effect of exchange rate changes on cash and cash equivalents -- -- --
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,771,353 2,849,424 1,875,340
Cash and cash equivalents beginning of period 15,738,251 17,509,604 20,359,028
Short-term investments
------------ ------------ ------------
Cash and cash equivalents at end of period $ 17,509,604 $ 20,359,028 $ 22,234,368
------------ ------------ ------------
55
56
EXHIBIT 4
56
57
Quarterly Income Statement
Trailing Twelve Months (TTM)
In thousand of dollars except
per share data 12/31/99 04/02/00 07/02/00 10/01/00 TTM
------- ------- ------- ------- -------
Sales $10,694 $ 8,452 $12,850 $11,258 $43,254
COGS 8,499 7,046 9,489 8,921 33,955
------- ------- ------- ------- -------
Gross Profit 2,195 1,406 3,361 2,337 9,299
Operating Expenses 2,071 1,976 2,391 2,157 8,595
Net Gain From Disposition and
Impairment of Operating Assets -- -- -- 1,025 1,025
------- ------- ------- ------- -------
Operating Income 124 (570) 970 1,205 1,729
Other Income (Expense), Net 239 50 185 77 551
------- ------- ------- ------- -------
Earnings Before Income Taxes 363 (520) 1,155 1,282 2,280
Income Tax Expense (Benefit) 296 (163) 359 397 889
------- ------- ------- ------- -------
Net Income $ 67 ($ 357) $ 796 $ 885 $ 1,391
======= ======= ======= ======= =======
Fully Diluted EPS $ 0.02 ($ 0.09) $ 0.19 0.21 $ 0.33
- --------------------------------------------------------------------------------
Quarterly Income Statement
FYE 12/31/99
In thousand of dollars except
per share data 04/04/99 07/04/99 10/03/99 12/31/99 FYE
------- ------- ------- ------- -------
Sales $ 8,105 $10,136 $10,570 $10,694 $39,505
COGS 6,438 7,285 7,945 8,499 30,167
------- ------- ------- ------- -------
Gross Profit 1,667 2,851 2,625 2,195 9,338
Operating Expenses 1,987 1,956 2,144 2,071 8,158
------- ------- ------- ------- -------
Operating Income (320) 895 481 124 1,180
Other Income (Expense), Net (28) -- 155 239 366
------- ------- ------- ------- -------
Earnings Before Income Taxes (348) 895 636 363 1,546
Income Tax Expense (Benefit) (65) 146 149 296 526
------- ------- ------- ------- -------
Net Income ($ 283) $ 749 $ 487 $ 67 $ 1,020
======= ======= ======= ======= =======
Fully Diluted EPS ($ 0.07) $ 0.18 $ 0.12 $ 0.02 $ 0.25
Source: Company 10Q's.
57