Lindal Cedar Homes -- Lindal Home Kits Return To Basics In Uncertain Times

Back in 1966, the four Lindal children - Bonnie, Bob, Doug and Marty - received a gift they could barely comprehend.

The Lindal offspring - whose ages then ranged from 10 to 19 - probably would have preferred a Beatles album or a new pair of hip-hugger bell-bottom pants. Instead, each received 10 percent of the stock in a prefab housing company their father was founding, Lindal Cedar Homes.

It wasn't an extravagant gift. Sir Walter (the ``Sir'' is an Anglicization of his Icelandic first name, Skully) Lindal invested a mere $500 in the company, giving each offspring the equivalent of $50 worth of stock in a company that had yet to do business.

That was 25 years ago. Lindal - whose office and sample homes are smack up against the northbound lanes of I-5, near Boeing Field - has since made its reputation from selling cedar homes that come in kits, starting with the A-frame cabins it sold as vacation homes in the 1970s, to the full-sized, year-round homes that account for most sales today. And sales have been strong - more than $50 million in 1989.

Today, Bob Lindal, 43, is company president. A stocky, pleasant-faced man with a mop of gray hair, Lindal is the family's eldest son. His father is chairman and secretary of the board, and his brothers and sister are company officials.

``It's really a private, family-owned company parading as a publicly owned company,'' says Rick Owens, a financial analyst with Gallagher Capital Corp. in Portland. And, noting that the Lindal family owns about two thirds of the company's stock, he adds, ``They certainly have a vested interest in showing a profit.''

While the homebuilding industry slumped, Lindal's total revenues rose 42 percent in 1986 and 70 percent in 1987, before falling off to a still-healthy 20 percent in 1988 and 9 percent last year. Lindal's ability to recruit new dealers pumped up revenues, but losses from two troubled divisions pulled the company's financial results down.

Alarmed by the plunge, Lindal took action. It ditched one division that had been dragging profits down and drastically downsized another. At the same time, housing sales rose to record levels. In a show of optimism, the company announced a 10-percent stock dividend last June.

Then, in August, housing orders started falling. In October, citing uncertain economic conditions, the company cut 15 jobs from a total of about 300.

It was no coincidence that orders started to drop off immediately after Iraq's Aug. 2 invasion of Kuwait, Bob Lindal now believes. The Persian Gulf situation created a climate of uncertainty and caution that dampened sales of discretionary products, such as luxury cedar homes, he says.

Financial results for 1990 aren't in yet, and Lindal declines to say how much orders are off. He acknowledges, though, that 1991 doesn't look particularly promising anymore.

``There's definitely black clouds (on) the horizon,'' Lindal says.

Facing a year whose only certainty right now appears to be its uncertainty, Lindal is hunkering down. After diversifying into hardwood flooring and windows, its strategy is to cut costs and return to basics.

``They really have turned back to their basic business of building homes and sunrooms,'' says financial analyst Susan Hallberg of Piper Jaffray. Lindal's kits for homes cost about $75,000 to $150,000, exclusive of construction or land costs. The company also is focusing on keeping a tight rein on overhead, she said.

Lindal has cut expenses across the board, Bob Lindal says. It is hoping to expand sales by seeking more new distributors to add to its network of more than 300 in this country and Canada. And it's counting on sales of sunrooms to remodelers to help pull it through what it sees as a temporary slowdown.

Last month, after a hard couple of years following the ill-fated diversification, Lindal had the dubious honor of being named ``one of a number of ``beaten up stocks with rising earnings'' by Barron's. Lindal's stock fell from a high of $8.87 in July 1990 to a low of $4 in November.

Financial analysts aren't so sure about that earnings rise. Hallberg estimates Lindal's 1990 revenues will come in at about $45 million, down from $50 million in 1989. Revenues for this year will be the same, or perhaps increased by as much as $48 million, ``so there's not a lot of growth in there for next year.''

It was the brick homes of Toronto that drove the Lindals to Seattle. Though Sir Walter Lindal started his prefab housing business in Toronto, he concluded that the housing environment there was inauspicious for a cedar homebuilder and, in 1962, moved west. First stop was Vancouver, B.C. but the family settled, in 1966, in Seattle. It was a move designed to give them a crack at the larger U.S. housing market.

The Lindals retain some Canadian ties, however. They are dual citizens of both Canada and the U.S., says Bob Lindal, and own a Surrey, B.C. sawmill that processes the second-growth cedar that is the raw material for Lindal homes. In addition, it has a shipping facility and warehouse in Kent and the window-manufacturing plant in Kirkland.

Growing up, he recalls, family and business affairs intertwined. He was in grade school when he started tagging along with his father on company business, visiting plant and model-home sites. Dinner-table conversation revolved around the company, industry trends or his father's upcoming business trips.

Sir Walter remains active in company management, recruiting dealers and researching and developing new products. Daily management of the company, though, now falls largely to Bob, who was trained as a structural engineer, and his younger brother, Doug, 40, whose background is in sales and marketing.

A sister, Bonnie McLennaghan, 46, produces marketing materials, and the youngest brother, Marty, 37, oversees some computer operations.

The second generation Lindals still own about 10 percent of the company's stock apiece, while Sir Walter Lindal, controls a bit more. That arrangement, Bob Lindal says, ``basically means we're all equal partners . . . no one has too much power.''

After Bob Lindal's ascendancy to the presidency in 1981, Lindal took off, says Owens. Since then, revenues have grown at an average annual rate of more than 20 percent a year, and, in the last five years, revenues in the core homebuilding business have grown an average of 30 percent a year, he said.

One of the recurring criticisms of family-run businesses is that all members of the family don't necessarily pull their weight. While Owens says its unclear whether that's true here, he says that collectively, the company's profitability is evidence that the family has managed Lindal well.

``Bob Lindal's not the only one making decisions up there,'' Owens says.

Not all the decisions work out, however. After Lindal bought two businesses in 1986, a Canadian hardwood-flooring business and a Kirkland-based window firm, WindowVisions, company and family fortunes fell. As far as the Lindals knew, WindowVisions never had turned a profit. The family, however, was determined to change that.

Fortunes in Lindal's expansions didn't improve, however, and both acquisitions began to rapidly drain the company. Lindal took care of the two divisions that caused profits to nose-dive. The flooring business was sold for a loss in late 1989, and the window unit was drastically cut back.

Bob Lindal sidesteps questions regarding exactly what went wrong with WindowVisions, which Lindal had purchased with plans to continue sales to WindowVisions' existing customers and to expand to supply Lindal's needs, and analysts say it's not clear exactly what went wrong, though some reports indicate the company simply lacked sufficient experience in that area. WindowVisions now sells largely to Lindal.

Problems with the flooring business were more obvious. Hardwood prices were rising while the price of the finished flooring was falling. Squeezed in the middle, Lindal got out.

The return to its core business means Lindal deals largely with an affluent group of buyers, a market segment less affected than most by the vagaries of the housing market, and this situation has insulated Lindal somewhat from economic downturns. Also, Lindal has managed to buck the downturn in the construction industry by recruiting new dealers and gaining a larger market share. The company, Lindal notes, still has a strong backlog of housing orders.

Meanwhile, a long-term concern is the supply of second-growth western red cedar, the raw material of Lindal's homes. Lindal obtains its supplies from the British Columbia log market, where it says sufficient supplies exist to meet company needs ``in the foreseeable future.''

Precisely what that means, Bob Lindal won't say.

But British Columbia forestry officials note that Canada, like the U.S., is experiencing pressures to preserve its forests where western red cedar grows. Canada expects significant set-asides for parks and wilderness, and that will lead to a reduction in the amount of cedar available, said Dave Gilbert, director of forest inventory for the forestry ministry.

But it is still far too early to estimate how much might be set aside, he said.

Strategies appears weekly in the Business Monday section of The Seattle Times.

------------------------------------

LINDAL CEDAR HOMES

-- Employees: 275.

-- Headquarters: Seattle.

-- Business: Cedar home kits.

-- Chief Executive Officer: Robert Lindal.

-- Fiscal 1989 sales: $50.4 million.

-- Fiscal 1989 profits: $887,301.

-- Current stock price: $6.25.

-- Major customers: Middle-to-upper income homebuyers.

-- Major competitors: Independent contractors.

-- Strategy: Return to core businesses, boost number of distributorships, increase sales of sunrooms to remodelers to help offset a dip in housing sales.