1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-14982
HUTTIG BUILDING PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-0334550
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
LAKEVIEW CENTER, SUITE 400
14500 SOUTH OUTER FORTY ROAD
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of February 23, 2001 was approximately $63,975,902.
The number of shares of Common Stock outstanding on February 23,2001 was
20,583,219 shares.
Documents incorporated by reference:
Portions of the Proxy Statement for the 2001 Annual Meeting of Shareholders
Part III
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PART I
ITEM 1--BUSINESS
GENERAL
Huttig Building Products, Inc. ("Huttig" or the "Company") is one of the
largest domestic distributors of building materials that are used principally in
new residential construction and in home improvement, remodeling and repair
work. Its products are distributed through 62 distribution centers serving 45
states, principally to building materials dealers (who, in turn, supply the
end-user), directly to professional builders and large contractors, and to home
centers, national buying groups, industrial and manufactured housing builders.
The Company's American Pine Products manufacturing facility, located in
Prineville, Oregon, produces softwood mouldings. Approximately 30% of its sales
are to Huttig's distribution centers.
On December 16, 1999, Crane Co. ("Crane") distributed to its stockholders
(the "Spin-Off") all of the Company's outstanding common stock, par value $.01
per share (the "Common Stock"). Immediately after the Spin-Off, Huttig completed
the acquisition of Rugby USA, Inc. ("Rugby") in exchange for 6,546,424 newly
issued shares of Huttig Common Stock. Rugby is also a distributor of building
materials. In this Annual Report on Form 10-K, "Huttig" refers to Huttig
Building Products, Inc. and its subsidiaries and predecessors, including Rugby
USA, unless the context indicates otherwise.
INDUSTRY TRENDS
The building materials distribution industry is characterized by its
substantial size, highly fragmented ownership structure and dependence on the
cyclical and seasonal home building industry.
New housing starts in the U.S. in 2000 approximated 1.6 million based on
data from F.W. Dodge, including 1.3 million single family residences.
Approximately 74% of single family new construction in 2000 occurred in markets
served by Huttig's distribution centers. According to the U.S. Department of
Commerce, total spending on U.S. new residential construction in 2000 was $255
billion. Huttig estimates that aggregate expenditures for residential repair and
remodeling were an additional $148 billion. Huttig believes that sales of
windows, doors and other millwork accounted for approximately $16 billion in
2000.
Prior to the 1970's, building materials were sold in both rural and
metropolitan markets largely by local dealers, such as lumberyards and hardware
stores. These dealers, who generally purchased their products from wholesale
distributors, sold building products directly to homeowners, contractors and
homebuilders. In the late 1970's and 1980's, The Home Depot and Lowe's began to
alter this distribution channel, particularly in metropolitan markets, as these
retailers started to displace some local dealers. These mass merchandisers
market a broad range of competitively priced building materials to the homeowner
and small home improvement contractor. Also during this period, some building
materials manufacturers such as Georgia Pacific and Weyerhauser began selling
their products directly to home center chains and to local dealers as well.
Accordingly, most wholesale distributors have been diversifying their businesses
by seeking to sell directly to large contractors and homebuilders in selected
markets and by providing home centers with fill-in and specialty products. Also,
as large homebuilding companies seek to streamline the new residential
construction process, building materials distributors have increasing
opportunities to provide higher margin turnkey products and services.
The increasingly competitive environment faced by dealers also has prompted
a trend toward industry consolidation that Huttig believes offers significant
opportunities. Many distributors in the building materials industry are small,
privately-held companies that generally lack the purchasing power of a larger
entity and may also lack the broad lines of products and sophisticated inventory
management and control systems typically needed to operate a multi-branch
distribution network. These characteristics are also driving the consolidation
trend in favor of companies like Huttig that operate nationally and have
significant infrastructure in place.
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PRODUCTS
Each of the Company's distribution centers carries a variety of products
that vary by location. Huttig's principal products are doors, windows,
mouldings, specialty building materials such as housewrap, stair parts,
engineered wood products, branded roofing and insulation and lumber and other
commodity building products.
The following table sets forth information regarding the percentage of net
sales represented by the specified categories of total products sold by Huttig's
distribution centers during each of the last three fiscal years. While it is
believed that the percentages included in the table generally indicate the mix
of Huttig's sales by category of product, the specific percentages are affected
year-to-year by changes in the prices of commodity wood products, as well as
changes in unit volumes sold. In addition, Rugby's sales are included in 1999
for only 14 days. As a result, 1999 product mix is not indicative of the mix
that would result from including a full year of Rugby's sales.
2000 1999 1998
---- ---- ----
Doors.............................. 34% 34% 37%
Specialty Building Materials....... 26% 21% 20%
Windows............................ 18% 17% 19%
Lumber and Other Commodity Products 12% 15% 12%
Mouldings.......................... 10% 13% 12%
The Company's sales of doors totaled $364.8 million in 2000 versus $272.2
million in 1999 including both interior and exterior doors and pre-hung door
units. Huttig sells wood, steel and composite doors from various branded
manufacturers such as Therma-Tru(R) and Premdor(R) as well as providing
value-priced unbranded products. The pre-hanging of a door within its frame is a
value-added service that Huttig provides, allowing an installer to quickly place
the unit in the house opening. In addition, the Company also assembles many
exterior doors with added sidelites and transoms, also value-added services and
products. To meet the increasing demand for pre-hung doors, Huttig invested $3.0
million in state-of-the-art equipment during 1999 and 2000 which allowed it to
increase its capacity by approximately 30%.
Sales of specialty building materials were $279.1 million in 2000 versus
$169.8 million in 1999. Included in this category are products differentiated
through branding or value-added characteristics. Branded products include
Tyvek(R) and Typar(R) housewrap, L. J. Smith Stair Systems(R), Simpson
Strong-Tie(R) connectors and Owens Corning(R) roofing and insulation. Also
included in specialty sales are trusses, wall panels and engineered wood
products such as floor systems assembled in Huttig's facility in Topeka, Kansas
serving the eastern Kansas and western Missouri markets.
Window sales amounted to $193.1 million in 2000 versus $138.7 million in
1999 and included shipments of wood, vinyl-clad, vinyl and aluminum windows from
branded manufacturers such as Caradco(R), and Weather Shield(R) as well as
unbranded products. In October 2000, the Company stopped distributing
Andersen(R) trademarked products. Andersen(R) windows, which were sold to
dealers through 12 of the Company's distribution centers, accounted for
approximately $63.8 million and $79.7 million of Huttig's window sales in 2000
and 1999, respectively. Huttig is working to expand the depth of its offerings
of windows to include a wider range of quality and price to better serve the
Company's customer.
Sales of lumber and other commodity building products were $128.7 million in
2000 versus $119.9 million in 1999. Growth of Huttig's lumber sales has resulted
primarily from its acquisition of Mallco Lumber Company in Phoenix in 1997 and
the acquisition of certain assets of and assumption of certain liabilities of
Consolidated Lumber Company, Inc. in Kansas City in 1998. These acquisitions
reflect Huttig's strategy to provide builders with the capability to purchase a
house's framing and millwork package of products from one source and have each
component delivered when needed. Other commodity building products include
drywall, metal vents, siding, nails and other miscellaneous hardware.
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Moulding sales, including door jambs, door and window frames, and decorative
ceiling, chair and floor moulding, were $107.2 million in 2000 versus $99.7
million 1999. The majority of these sales were made by American Pine Products, a
wholly owned subsidiary. Profitability of this highly competitive,
commodity-priced product depends upon efficient plant operations, rapid
inventory turnover and quick reaction to changing market conditions. Mouldings
are a necessary complementary product line to doors and windows as part of a
house's millwork package.
SALES AND MARKETING
Each of the Company's distribution centers is focused on meeting local
market needs and offering competitive prices. Inventory levels, merchandising
and pricing are tailored to local markets. Huttig's information system provides
each distribution center manager with real-time pricing, inventory availability
and margin analysis to facilitate this strategy. Huttig also supports its
distribution centers with centralized product management, credit and financial
controls, training and marketing programs and human resources expertise.
Huttig's marketing programs center on fostering strong customer
relationships and providing superior service. This strategy is furthered by the
high level of technical knowledge and expertise of Huttig's personnel. The
Company focuses its marketing efforts on the residential new housing and
remodeling segments, with efforts directed toward the commercial and industrial
segments limited to a small portion of its business. Certain of the Company's
suppliers advertise to the trade and directly to the individual consumer through
nationwide print and other media.
The Company's distribution center sales organization consists of outside
field sales personnel serving the customer on-site who report directly to their
local distribution center manager. They are supported by inside customer
services representatives at each branch. This sales force is compensated by
commissions determined on the basis of return on sales or total margin on sales.
PURCHASING
Huttig negotiates with its major vendors on a company-wide basis to obtain
favorable pricing, volume discounts and other beneficial purchase terms. A
majority of the Company's purchases are made from suppliers offering payment,
discount and volume purchase programs. Distribution center managers are
responsible for inventory selection and ordering on terms negotiated centrally.
This approach allows Huttig's distribution centers to remain responsive to local
market demand, while still maximizing purchasing leverage through volume orders.
Distribution center managers are also responsible for inventory management at
their respective locations.
Huttig is a party to distribution agreements with certain vendors on an
exclusive or non-exclusive basis, depending on the product and the territory
involved. The Company's distributorships generally are terminable at any time by
either party, in some cases without notice, and otherwise on notice ranging up
to 60 days.
CUSTOMERS
Building materials dealers represent the Company's single largest customer
group. Despite the advent of the home center chains and the trend toward
consolidation of dealers and increased direct participation in wholesale
distribution by some building materials manufacturers, the Company believes that
the wholesale distribution business continues to provide opportunities for
increased sales. Huttig is targeting home centers for sales of fill-in and
specialty products. In addition, some manufacturers are seeking to outsource the
marketing function for their products, a role that Huttig, as a large,
financially stable distributor, is well positioned to fill. Opportunities also
exist for large distributors with the necessary capabilities to perform
increasing amounts of services such as pre-hanging doors, thereby enabling the
Company to enhance the value-added component of its business.
The percentage of the Company's 2000 revenues attributable to various
categories of customers are as follows:
2000 1999
---- ----
Dealers............................... 66% 62%
Builders and Contractors.............. 13% 13%
Home Centers and Buying Groups........ 12% 15%
Industrial and Manufactured Housing... 9% 10%
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COMPETITION
The Company's competition varies by product line, customer classification
and geographic market. Huttig competes with many local and regional building
product distributors, and, in certain markets and product categories, with
national building product distributors and dealers. Huttig also competes with
major corporations with national distribution capability, such as
Georgia-Pacific, Weyerhauser and other product manufacturers that engage in
direct sales; however, it also acts as a distributor for certain products of
these manufacturers. Huttig sells products to large home center chains such as
The Home Depot and Lowe's and, to a limited extent in certain markets, competes
with them for business from smaller contractors. Competition from such large
home center chains may, in the future, include more competition for the business
of larger contractors.
The Company believes that competition in the wholesale distribution business
is largely on the basis of product availability, service and delivery
capabilities and breadth of product offerings. Also, financial stability and
geographic coverage are important to manufacturers in choosing distributors for
their products. In the builder support business, Huttig's target customers
generally select building products distributors on the basis of service and
delivery, ability to assist with problem-solving, relationships and breadth of
product offerings. The Company's relative size and financial position are
advantageous in obtaining and retaining distributorships for important products.
Huttig's relative size also permits it to attract experienced sales and service
personnel and gives it the resources to provide company-wide sales, product and
service training programs. By working closely with its customers and utilizing
its information technology, Huttig's branches are able to maintain appropriate
inventory levels and are well-positioned to deliver completed orders on time.
Huttig's American Pine Products softwood moulding manufacturing business
competes on the basis of relative length of lead times to produce and deliver
product, service and geographic coverage.
SEASONALITY
The Company's first quarter and, to a lesser extent, its fourth quarter, are
typically adversely affected by winter construction cycles and weather patterns
in colder climates as the level of activity in both the new construction and
home improvement markets decreases. The effects of winter weather patterns on
Huttig's business are offset somewhat by the increase in residential
construction activity during the same period in the deep South, Southwest and
Southern California markets in which Huttig participates. Huttig also closely
monitors operating expenses and inventory levels during seasonally affected
periods and, to the extent possible, controls variable operating costs to
minimize seasonal effects on profitability.
BACKLOG
The Company's customers generally order products on an as-needed basis. As a
result, virtually all product shipments in a given fiscal quarter result from
orders received in that quarter. Consequently, order backlog represents only a
very small percentage of the product sales that the Company anticipates in a
given quarter and is not indicative of its actual sales for any future period.
TRADENAMES
Historically, Huttig has operated under various tradenames in the markets it
serves, retaining the name of an acquired business to preserve local
identification. To capitalize on its increasing national presence, Huttig has
been converting most branch operations to the primary tradename "Huttig Building
Products." Some local branches continue to use historical tradenames as
secondary tradenames to maintain goodwill. In connection with the Company's
acquisition of Rugby USA, Huttig has an exclusive, royalty-free right to operate
in the United States under the tradename "Rugby Building Products," in all the
lines of business which Huttig conducted on December 16, 1999, for a period of
two years from that date. The Company expects to phase out use of the Rugby
tradename during this period.
Page 5 of 34
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EMPLOYEES
As of December 31, 2000 the Company employed 2,767 persons, of which
approximately 10% were represented by unions. Huttig has not experienced any
strikes or other work interruptions in recent years and has maintained generally
favorable relations with its employees. The following table shows the
approximate breakdown by job function of the Company's employees:
Distribution centers................... 1,824
Field Sales............................ 465
Manufacturing.......................... 344
Office and Corporate Administration.... 134
ITEM 2--PROPERTIES
The Company's corporate headquarters are located at 14500 South Outer Forty
Road, Chesterfield, Missouri 63017, in leased facilities. Its manufacturing
facility for softwood mouldings is a 280,000-square foot facility owned by
Huttig and located in Prineville, Oregon. Half of the Company's distribution
centers are leased and the remainder are owned. The Company's facilities serve
45 states. Warehouse space at Huttig's distribution centers aggregates
approximately 4.4 million square feet. Distribution centers range in size from
12,000 square feet to 160,000 square feet. The types of facilities at these
centers vary by location, from traditional wholesale distribution warehouses
that may have particular value-added service capabilities such as pre-hung door
operations, to traditional lumber yards, and to builder support facilities with
broad product offerings and capabilities for a wide range of value-added
services. Huttig believes that its locations are well maintained and adequate
for their purposes.
The following table sets forth the geographic location of the Company's
distribution centers as of December 31, 2000:
NUMBER OF
REGION LOCATIONS
------ ---------
Florida................. 5
Lake Central (Great Lakes) 4
Mid-Atlantic............ 9
Midwest................. 17
New England............. 10
Northern California..... 1
Southeast............... 7
Southwest............... 2
Western................. 7
--
Total................... 62
ITEM 3--LEGAL PROCEEDINGS
Huttig is involved in various lawsuits, claims and proceedings arising in
the ordinary course of its business. While the outcome of any lawsuits, claims
or proceedings cannot be predicted, Huttig does not believe that the disposition
of any pending matters will have a material adverse effect on its financial
condition, results of operations or liquidity.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws and
regulations. Huttig has been identified as a potentially responsible party in
connection with the clean up of contamination at two sites. In addition, some of
the Company's distribution centers are located in areas of current or former
industrial activity where environmental contamination may have occurred, and for
which Huttig, among others, could be held responsible. The Company does not
believe that the ultimate resolution of the environmental matters will have a
material adverse effect on the Company's financial position, results of
operation, or cash flow. The Company believes that it is in compliance with
applicable laws and regulations regulating the discharge of hazardous substances
into the environment at the remainder of its facilities.
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REGULATION
The Company's trailer equipment is subject to various federal and state
licensing and operating regulations as well as to various industry standards.
The Federal Highway Administration (the "FHWA") published a rule, effective June
1, 1999 requiring motor carriers engaged in interstate commerce to install
retroreflective tape or reflex reflectors on the sides and rear of all trailers
that (i) were manufactured prior to December 1, 1993, (ii) have an overall width
of 80 inches or more and (iii) have a gross vehicle weight rating of 10,000 lbs.
or more. The FHWA has mandated the installation be completed by June 1, 2001.
The Company currently estimates that as of December 31, 2000 the remaining
expenditures for the Company to comply with the regulation will not be material.
Costs to install the reflective tape have been and will continue to be
capitalized and depreciated over the remaining life of the specific trailers.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to shareholders of the Company during the fourth quarter
of 2000.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers as of February 23, 2001 and their
respective ages and positions are set forth below.
NAME AGE POSITION
--------------------- --- ------------------------
Barry J. Kulpa...... 53 President and Chief Executive Officer
Kenneth E. Thompson 56 Vice President, Administration, Chief
Financial Officer and Secretary
David Dean.......... 57 Treasurer
Thomas S. McHugh 36 Corporate Controller
George M. Dickens, Jr. 38 Regional Vice President
Daniel J. Geller.... 39 Regional Vice President
Carl A. Liliequist.. 47 Regional Vice President
John G. Olson....... 46 Regional Vice President
Set forth below are the positions held with the Company, and other principal
occupations and employment during the past five years of Huttig's executive
officers. Except for Messrs. Kulpa, Dean, and McHugh, each executive officer of
the Company serves in his capacity pursuant to the terms of an employment
agreement with the Company.
Barry J. Kulpa has served as the Company's President and Chief Executive
Officer since October of 1997. Prior to joining Huttig, Mr. Kulpa served as
Senior Vice President and Chief Operating Officer of Dal-Tile International
(manufacturer and distributor of ceramic tile) from 1994 to 1997. From 1992 to
1994, he was Vice President and Chief Financial Officer of David Weekley Homes,
a regional homebuilder.
Kenneth E. Thompson has served as the Company's Vice President,
Administration and Chief Financial Officer since July of 2000. Prior to joining
Huttig, Mr. Thompson was employed by Baker Hughes, Inc. in the following
capacities: Division Vice President of Manufacturing (petroleum services
company), 1998-2000; Division Vice President of Finance, 1993-1998; Division
Vice President of Marketing, 1991-1993.
David Dean has served as Treasurer of Huttig since January 2000. Previously,
Mr. Dean served as the Controller of Huttig since August of 1992.
Thomas S. McHugh has served as the Company's Corporate Controller since May
2000. From 1993 until joining Huttig, Mr. McHugh worked at XTRA Corporation, an
international lessor of transportation equipment, most recently as Corporate
Controller.
George M. Dickens, Jr. has been a Regional Vice President of the Company
since December 1999. From 1997 until 1999, Mr. Dickens was a Vice President of
Rugby Building Products Millwork Division. From 1996 to 1997, Mr. Dickens was
the President of Rugby's Midwest Division. From 1990 until 1996, Mr. Dickens was
Branch General Manager for Rugby.
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Daniel J. Geller has been a Regional Vice President of the Company since
December 1999. From 1997 to 1999, Mr. Geller was Regional District Manager at G.
E. Supply (wholesale distributor of electrical supplies), a division of General
Electric Co. From 1995 to 1997, Mr. Geller served as a General Manager at G. E.
Supply and as Branch Manager from 1991 to 1995.
Carl A. Liliequist has served as a Regional Vice President of the Company
since Huttig's acquisition of PGL Building Products in July of 1988.
John G. Olson has been a Regional Vice President since March 2000. Mr. Olson
joined Huttig in 1998 as General Manager of the Southern California branch. From
1992 to 1998, Mr. Olson was the General Manager of Trimco Millwork.
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "HBP" and began trading on December 8, 1999.
At February 23, 2001, there were approximately 3,332 holders of record of
the Company's Common Stock. The following table sets forth the range of high and
low sale prices of the Company's Common Stock on the New York Stock Exchange
Composite Tape during each fiscal quarter of the fiscal year ended December 31,
2000.
----------------------------- ---------- -----------
HIGH LOW
----------------------------- ---------- -----------
Fourth Quarter - 1999 (1) $ 5.06 $ 3.44
----------------------------- ---------- -----------
First Quarter - 2000 5.00 3.88
----------------------------- ---------- -----------
Second Quarter - 2000 5.00 4.13
----------------------------- ---------- -----------
Third Quarter - 2000 5.00 4.00
----------------------------- ---------- -----------
Fourth Quarter - 2000 4.94 3.88
----------------------------- ---------- -----------
(1) The Company's common stock began trading on December 8,
1999 and the information presented is for the period from
December 8, 1999 to December 31, 1999.
The Company anticipates that cash dividends will not be paid on Huttig
Common Stock in the foreseeable future in order to conserve cash for use in
Huttig's business, for possible acquisitions and for debt reduction. The
Company's loan agreements contain covenants that restrict the payment of
dividends and repurchases of common stock.
ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected financial data of Huttig for
each of the five years in the period ended December 31, 2000. The information
contained in the following table may not necessarily be indicative of Huttig's
past or future performance as a separate stand-alone company. Such historical
data should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Huttig's financial statements
and notes thereto included elsewhere in this report.
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YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net Sales ..................... $1,072.9 $800.3 $707.5 $625.5 $595.1
Depreciation and amortization . 7.3 6.6 5.6 4.4 4.9
Operating profit .............. 34.0 22.8 28.6 19.8 22.1
Interest expense, net ......... 11.1 7.8 6.9 4.5 .2
Income before taxes and
extraordinary item ............ 22.9 14.4 21.8 14.8 20.8
Provision for income taxes .... 8.5 5.9 8.2 5.8 8.5
Net income .................... 13.6 8.5 13.6 9.1 12.3
Net income per share (basic and
diluted) .................... .66 .59 1.17 .65 .88
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets .................. 249.2 301.3 218.5 154.0 206.4
Debt -- Bank and capital leases 81.1 122.1 1.4 1.7 2.1
Note Payable -- Former parent . -- -- 93.9 67.1 --
Total shareholder's equity .... 81.0 67.3 41.5 27.8 148.7
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Revenue increased 34.1% from $800.3 million in 1999 to $1,072.9 million in
2000. Although the 1999 acquisition of Rugby contributed $384.1 million to total
revenues in 2000, this increase was offset by a decrease in same-branch sales of
14% or $112.0 million. Contributing to the decrease in same branch sales was
deterioration in commodity wood prices which is believed to have negatively
impacted revenues by $42.0 million versus 1999. Additionally, the Company
stopped distributing Andersen(R) products in October 2000. In 2000, total sales
of Andersen(R) products was $63.8 million compared to $79.7 million in 1999.
Gross profit grew 35.5% to $218.4 million in 2000. The increase resulted
primarily from the Rugby acquisition discussed above and was offset by a
decrease in same-branch results of 11% or $17.0 million and the deterioration in
commodity wood prices which is believed to have negatively impacted gross profit
by $8.0 million. Gross profit as a percentage of sales was 20.4% in 2000 versus
20.2% in 1999. Gross profit in 2000 was also negatively impacted by $1.1 million
of restructuring charges discussed below.
Operating expenses increased by $53.1 million from 1999. This increase
included approximately $51.0 million attributable to the acquisition of Rugby
and was offset by a decrease in same-branch expenses of $7.0 million. Operating
expenses in 2000 include $6.0 million of non-recurring costs incurred as a
result of the restructuring activities described below. Operating expenses in
1999 includes a $5.9 million gain from the curtailment of the Company's
post-retirement health benefit plan which was partially offset by $3.0 of other
one time costs. Operating expenses as a percent of sales were 16.9% in 2000 vs.
16.0% in 1999. Excluding the impact of one time costs and gains, operating
expenses as a percent of sales would have been 16.4% in 2000 and 1999.
As a result of the contribution from Rugby, operating profit in 2000 was
$34.0 million versus $22.8 million in 1999. Operating profit in 2000 includes
$9.2 million of restructuring charges and other costs the Company incurred to
integrate Rugby and restructure the Company's operations. Included in the $9.2
million are $2.1 million of restructuring charges related to discontinuing the
distribution of Andersen(R) products in the fourth quarter of 2000. These
incremental costs were offset by $6.5 million of gains on sale of excess
properties. Excluding these items, operating profit would have been $36.7
million or 3.4% of sales in 2000.
Non-recurring charges, which are included in cost of sales, operating
expenses, and restructuring charges on the income statement totaled $9.2 million
in 2000. This includes $1.1 million of restructuring charges for inventory
impairment which is recorded as an increase to cost of sales. Included in the
$2.1 million of Andersen restructuring charges are costs for lease terminations,
severance and other costs associated with the closing and/or consolidation of
the Company's distribution facilities. In addition to the $3.2 million of
restructuring costs, the Company incurred an additional $6.0 million of
non-recurring costs that were not chargeable against
Page 9 of 34
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reserves and are included in operating expenses. The $9.2 million of
non-recurring costs were offset by $6.5 million of gains on sale from the
disposition of the Company's excess properties and other assets.
Interest expense increased $3.3 million primarily as a result of higher
average debt outstanding and other expense declined $0.6 million.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenue increased 13.1% from $707.4 million in 1998 to $800.3 million in
1999. $52.0 million of this increase was due to the 1998 mid-year acquisitions
of Consolidated Lumber Company and Number One Supply and $16.0 million was due
to the Cherokee and Rugby acquisitions in May and December, 1999, respectively.
The balance was attributable to same-branch sales growth of 4%.
Gross profit grew $18.0 million to $161.2 million in 1999. $14.0 million
resulted from the acquisitions discussed above and $4.0 million from the
increase in same-branch sales. Gross profit as a percentage of sales was 20.2%,
unchanged from 1998. Gross profit in 1999 was negatively impacted by $3.0
million of non-recurring charges discussed below. Excluding the $3.0 million in
non-recurring charges, gross profit as a percentage of sales would have been
20.5% in 1999. Gross profit as a percentage of sales on a same-branch basis
excluding the non-recurring charges increased 0.2% from 20.0% in 1998 to 20.2%
in 1999.
Total operating expenses, increased by $17.7 million from 1998 to 1999. This
increase included approximately $6.0 million attributable to the Company's
acquisitions and $18.0 million related to an increase in same-branch expenses.
These were partially offset by $5.9 million of non-recurring gains resulting
from the curtailment of the Company's post retirement health benefit plan
described below. Operating expenses as a percent of sales were 16.0% in 1999, as
compared to 15.6% in 1998.
Non-recurring charges in 1999 totaled $8.2 million, including $5.3 million
of restructuring reserves from lease terminations, severance, inventory
impairment and other costs associated with the closing and/or consolidation of
some of the Company's distribution facilities, $1.5 million of unreported
insurance claims and $1.4 million related to environmental and other costs. In
addition, the Company assumed accruals totaling $4.7 million included in the
Rugby USA acquisition costs related to lease and contract terminations,
severance, inventory impairment and other costs associated with the closing
and/or consolidation of four Rugby USA distribution centers and the Rugby USA
corporate office. The non-recurring costs were partially offset by the $5.9
million non-recurring gain from the curtailment of the Company's post-retirement
health benefit plan.
LIQUIDITY AND CAPITAL RESOURCES
Huttig has depended primarily on the cash generated from its own operations
to finance its needs. The combination of income from operations and cash
generated from improved working capital management has been used to finance
capital expenditures and seasonal working capital needs. Huttig's working
capital requirements are generally greatest in the first eight months of the
year and Huttig generates cash from working capital reductions in the last four
months of the year. A continuing management focus to improve inventory turnover
and accounts receivable and accounts payable days outstanding resulted in
reduced working capital of $41.5 million from December 31, 1999 to December 31,
2000. Inventory turns averaged 7.1 in 2000 compared to 7.9 in 1999 and 7.8 in
1998. Prior to the Spin-Off, to the extent internal funds generated were
insufficient, Huttig borrowed from Crane and to the extent cash generated by
Huttig was greater than current requirements, the cash was returned to Crane. In
particular, Huttig historically had borrowed from Crane to finance acquisitions,
but has typically been able to generate cash sufficient to finance all other
needs. In 2000, capital expenditures of $5.6 million were financed from cash
generated from operations.
During April 2000, the Company closed on a new $200.0 million secured
revolving credit facility. The rate on the facility is LIBOR plus a variable
rate based on the Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). At December 31, 2000, the Company had
outstanding three interest rate swap contracts having a total notional amount of
principal of $80.0 million. The swap contracts currently provide for a fixed
weighted average rate of 8.9% on $80.0 million of the Company's revolving credit
borrowings. The remainder of the outstanding borrowings under the revolving
credit agreement are currently at a floating rate of LIBOR plus 175 basis
points. The proceeds from the $200.0 million facility were used to retire a
previously existing $125.0 million facility and a $25.0 million term loan. In
conjunction with the refinancing of the previously existing facility, the
Company recorded an extraordinary expense of $0.8 million for the write-off of
unamortized loan fees.
Huttig expects to continue to finance seasonal working capital requirements
and acquisitions through cash from operations and the
Page 10 of 34
11
secured $200.0 million credit facility.
CYCLICALITY AND SEASONALITY
Huttig's sales depend heavily on the strength of the national and local new
residential construction and home improvement and remodeling markets. The
strength of these markets depends on new housing starts and residential
renovation projects, which are a function of many factors beyond Huttig's
control, including interest rates, employment levels, availability of credit,
prices of commodity wood products and consumer confidence. Future downturns in
the markets that Huttig serves could have a material adverse effect on Huttig's
operating results or financial condition. In addition, because these markets are
sensitive to cyclical changes in the economy in general, future downturns in the
economy could have a material adverse effect on Huttig's financial condition and
results of operations.
Huttig's first quarter and, to a lesser extent, its fourth quarter, are
typically adversely affected by winter construction cycles and weather patterns
in colder climates as the level of activity in the new construction and home
improvement markets decreases. Because much of Huttig's overhead and expense
remains relatively fixed throughout the year, its profits also tend to be lower
during the first and fourth quarters. The effects of winter weather patterns on
Huttig's business are offset somewhat by the increase in residential
construction activity during the same period in the deep South, Southwest and
Southern California markets in which Huttig participates.
ENVIRONMENTAL REGULATION
Huttig is subject to federal, state and local environmental laws and
regulations. Huttig has been identified as a potentially responsible party in
connection with the clean up of contamination at two sites. In addition, some of
Huttig's distribution centers are located in areas of current or former
industrial activity where environmental contamination may have occurred, and for
which Huttig, among others, could be held responsible. Huttig does not believe
that its contribution to the clean up of the two sites will be material or that
there are any material environmental liabilities at any of its distribution
center locations. Huttig believes that it is in compliance with applicable laws
and regulations regulating the discharge of hazardous substances into the
environment. However, there can be no assurance that environmental liabilities
will not have a material adverse effect on Huttig's financial condition or
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, is effective for the Company beginning January 1, 2001. SFAS No. 133
establishes accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Huttig has exposure to market risk as it relates to effects of changes in
interest rates. The Company had $80.0 million and $120.7 of variable rate debt
outstanding at December 31, 2000 and 1999, respectively. A hypothetical 100
basis point increase in the LIBOR rate would have had an unfavorable impact of
$0.4 million on the Company's earnings and cash flows during the year ended
December 31, 2000. Huttig's exposure to interest rate fluctuation is mitigated
by the interest rate swap agreements it has in place. The total notional amount
of the swap agreements is $80.0 million with a weighted average interest rate of
8.9%
Huttig does not generate significant income from non-U.S. sources and
accordingly, changes in foreign currency exchange rates do not generally have a
direct effect on Huttig's financial position. Huttig is subject to periodic
fluctuations in the price of wood commodities. Profitability is influenced by
these changes as prices change between the time Huttig buys and sells the wood.
In addition, to the extent changes in interest rates affect the housing and
remodeling market, Huttig would be affected by such changes.
Page 11 of 34
12
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Huttig Building Products, Inc.:
We have audited the accompanying consolidated balance sheets of Huttig
Building Products, Inc. and its subsidiaries (the "Company") as of December 31,
2000 and 1999, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 2000 and 1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 22, 2001
Page 12 of 34
13
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and equivalents ......................... $ 3.6 $ 6.8
Accounts receivable, net ..................... 83.5 116.6
Inventories .................................. 71.5 78.1
Other current assets ......................... 2.8 4.0
-------- --------
Total current assets ...................... 163.3 205.6
-------- --------
PROPERTY, PLANT AND EQUIPMENT
At cost:
Land ......................................... 6.7 7.3
Buildings and improvements ................... 34.6 36.7
Machinery and equipment ...................... 30.9 28.7
-------- --------
Gross property, plant and equipment ........ 72.2 72.7
Less accumulated depreciation ................ 32.6 33.2
-------- --------
Property, plant and equipment -- net ....... 39.6 39.5
OTHER ASSETS:
Costs in excess of net assets acquired, net .. 36.6 38.9
Other ........................................ 5.3 3.7
Deferred income taxes ........................ 6.3 13.6
-------- --------
Total other assets ........................ 46.3 56.2
-------- --------
TOTAL .......................................... $ 249.2 $ 301.3
======== ========
See notes to consolidated financial statements.
Page 13 of 34
14
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
2000 1999
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of debt ........................... $ .2 $ .3
Accounts payable-- trade and collections as agents ... 63.1 72.5
Income taxes payable ................................. -- 5.3
Accrued payrolls ..................................... 9.6 9.2
Accrued insurance .................................... 4.3 6.2
Other accrued liabilities ............................ 8.6 15.8
-------- --------
Total current liabilities ......................... 85.8 109.3
NON-CURRENT LIABILITIES:
Debt ................................................. 80.9 121.8
Accrued postretirement benefits ...................... 1.5 2.1
Deferred credit ...................................... -- .8
-------- --------
Total non-current liabilities ..................... 82.4 124.7
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par (5,000,000 shares
authorized) ....................................... -- --
Common shares, 2000 --- $.01 par (50,000,000
shares authorized, 20,866,145 shares issued),
1999-- $.01 par (50,000,000 shares authorized, 20,797,812
shares issued) ......................................... .2 .2
Additional paid-in capital on common stock ............ 33.2 32.9
Retained earnings ..................................... 49.1 35.5
Unearned compensation - restricted stock .............. (.4) (.2)
Less: Treasury shares (278,433 shares at cost) ........ (1.1) (1.1)
-------- --------
Total shareholders' equity ........................ 81.0 67.3
-------- --------
TOTAL .................................................. $ 249.2 $ 301.3
======== ========
See notes to consolidated financial statements.
Page 14 of 34
15
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)
2000 1999 1998
---- ---- ----
NET SALES .................................................... $1,072.9 $ 800.3 $ 707.4
OPERATING COSTS AND EXPENSES:
Cost of sales .............................................. 854.5 639.1 564.2
Operating expenses ......................................... 181.5 128.4 110.7
Depreciation and amortization .............................. 7.3 6.6 5.6
Restructuring charges, net ................................. 2.1 3.1 --
(Gain)Loss on disposal of capital assets ..................... (6.5) .3 (1.7)
-------- ------- -------
Total operating costs and expenses ...................... 1,038.9 777.5 678.8
-------- ------- -------
OPERATING PROFIT ............................................. 34.0 22.8 28.6
-------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense -- Crane .................................. -- (7.3) (6.7)
Interest expense -- net .................................... (11.1) (.5) (.2)
Other miscellaneous -- net ................................. -- (.6) .1
-------- ------- -------
Total other expense -- net .............................. (11.1) (8.4) (6.8)
-------- ------- -------
INCOME BEFORE TAXES .......................................... 22.9 14.4 21.8
PROVISION FOR INCOME TAXES ................................... 8.8 5.9 8.2
-------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM ............................. 14.1 8.5 13.6
Extraordinary item (less applicable income
taxes of $.3 million) ...................................... (.5) -- --
-------- ------- -------
NET INCOME ................................................... $ 13.6 $ 8.5 $ 13.6
======== ======= =======
NET INCOME PER BASIC SHARE BEFORE EXTRAORDINARY ITEM ......... .68 .59 1.17
LOSS PER SHARE FROM EXTRAORDINARY ITEM ....................... (.02) -- --
-------- ------- -------
NET INCOME PER BASIC SHARE ................................... .66 .59 1.17
AVERAGE BASIC SHARES OUTSTANDING (Thousands) ................. 20,584 14,260 13,973
NET INCOME PER DILUTED SHARE BEFORE EXTRAORDINARY ITEM ....... .68 .59 1.17
LOSS PER SHARE FROM EXTRAORDINARY ITEM ....................... (.02) -- --
-------- ------- -------
NET INCOME PER DILUTED SHARE ................................. .66 .59 1.17
AVERAGE DILUTED SHARES OUTSTANDING (Thousands) ............... 20,597 14,260 13,973
See notes to consolidated financial statements.
Page 15 of 34
16
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1999 & 2000
(IN MILLIONS)
COMMON UNEARNED
SHARES ADDITIONAL COMPENSATION - TREASURY TOTAL
OUTSTANDING, PAID-IN RETAINED RESTRICTED SHARES, SHAREHOLDERS'
AT PAR VALUE CAPITAL EARNINGS STOCK AT COST EQUITY
------------ ------- -------- ----- ------- ------
BALANCES, January 1, 1998 .............. $ -- $ .7 $ 27.1 $ -- $ -- $ 27.8
Net income ........................... -- 13.6 -- 13.6
------ ----- ------ ---- ----- ------
BALANCES, December 31, 1998 ............ $ -- $ .7 $ 40.7 $ -- $ -- $ 41.4
Dividends paid to Crane (13.7) (13.7)
Capital contribution from
Crane ............................. 4.5 4.5
Recapitalization in connection
with spin-off from Crane .......... .1 1.0 (1.1) --
Shares issued in acquisition of
Rugby USA ......................... .1 26.5 26.6
Restricted stock issued, net of
amortization expense ................. .2 (.2) --
Net income ........................... -- -- 8.5 -- -- 8.5
------ ----- ------ ---- ----- ------
BALANCES, December 31, 1999 ............ .2 32.9 35.5 (.2) (1.1) 67.3
Net Income ............................. 13.6 13.6
Restricted stock issued, net of
amortization expense ................. -- .3 -- (.2) -- .1
------ ----- ------ ---- ----- ------
BALANCES, December 31, 2000 ............ .2 33.2 49.1 (.4) (1.1) 81.0
See notes to consolidated financial statements.
Page 16 of 34
17
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 13.6 $ 8.5 $ 13.6
Loss (gain) on disposal of capital assets .......... (6.5) .3 (1.6)
Depreciation ....................................... 4.4 3.6 3.5
Amortization ....................................... 2.9 2.9 2.0
Deferred taxes ..................................... 7.3 3.0 (.1)
Accrued postretirement benefits .................... (.6) (5.2) .6
Changes in operating assets and liabilities
(exclusive of acquisitions):
Accounts receivable ............................. 33.1 11.2 (1.9)
Inventories ..................................... 6.6 5.1 2.1
Accounts payable ................................ (9.4) (8.9) 16.6
Accrued liabilities ............................. (14.6) 2.4 2.8
Other ........................................... (2.7) (.2) (3.4)
------- ------- ------
Total cash from operating activities ............ 34.1 22.7 34.2
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................... (5.6) (8.5) (5.8)
Cash received (used) in acquisitions ............... -- .1 (44.8)
Proceeds from disposition of capital assets ........ 9.2 2.4 7.7
------- ------- ------
Total cash from investing activities ............ 3.6 (6.0) (42.9)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividend paid to Crane -- (13.7)
Payments of debt ................................... (120.9) (126.3) (.4)
Borrowings of debt ................................. 80.0 120.7
Proceeds from Crane ................................ -- -- 16.3
------- ------- ------
Total cash from financing activities ............ (40.9) (19.3) 15.9
------- ------- ------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS .......... (3.2) (2.6) 7.2
CASH AND EQUIVALENTS, BEGINNING OF YEAR .............. 6.8 9.4 2.2
------- ------- ------
CASH AND EQUIVALENTS, END OF YEAR .................... $ 3.6 $ 6.8 $ 9.4
======= ======= ======
See notes to consolidated financial statements.
Page 17 of 34
18
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
2000 1999 1998
---- ---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................... $9.3 $ 9.5 $6.9
Income taxes paid ........................................... $7.0 $ 4.3 $4.5
NON-CASH FINANCING ACTIVITY:
Capital contribution from Crane through reduction of
payable to Crane .......................................... $ -- $ 4.5 $ --
Liabilities assumed in connection with asset
acquisitions .............................................. $2.2 $74.3 $4.2
See notes to consolidated financial statements.
Page 18 of 34
19
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN MILLIONS, EXCEPT SHARE DATA)
1. ACCOUNTING POLICIES AND PROCEDURES
ORGANIZATION -- Huttig Building Products, Inc. and subsidiaries (the
"Company" or "Huttig") is a distributor of doors, windows, moulding, trim
and related building products in the United States and operates one finished
lumber production plant. The Company primarily sells its products for new
residential construction and renovation. The Company was formerly a wholly
owned subsidiary of Crane Co. ("Crane") through Crane International
Holdings, a direct subsidiary of Crane. On December 16, 1999, Crane
distributed all of the outstanding common stock of the Company to Crane's
stockholders. In addition, on December 16, 1999, the Company acquired the
building products and millwork branches of Rugby USA ("Rugby"), a subsidiary
of Rugby Group PLC.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Huttig Building Products, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION -- Revenues are generally recorded when title passes to
the customer, which occurs upon delivery of product, or when services are
rendered.
USE OF ESTIMATES -- The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from these estimates.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Substantially, all of the Company's inventory is finished goods.
Approximately 79% and 80% of inventories were determined by using the LIFO
(last in, first out) method of inventory valuation as of December 31, 2000
and 1999, respectively; the remainder were determined by the FIFO (first in,
first out) method. Had the Company used the FIFO method of inventory
valuation for all inventories, net income would have decreased by $0.9
million, $1.2 million and $2.6 million in 2000, 1999 and 1998, respectively.
During 2000, 1999 and 1998, the LIFO inventory quantities were reduced,
resulting in a partial liquidation of the LIFO bases, the effect of which
increased net income by $1.7 million, $1.6 million and $1.9 million,
respectively. The replacement cost would be higher than the LIFO valuation
by $10.6 million in 2000 and $13.3 million in 1999.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets which range from 3 to 25
years.
CASH AND EQUIVALENTS - The Company considers all liquid interest-earning
investments with a maturity of three months or less at the date of purchase
to be cash equivalents.
OTHER ASSETS/LIABILITIES -- Costs in excess of net assets acquired are
amortized on a straight-line basis over 15 to 40 years. Other intangible
assets are amortized on a straight-line basis over their estimated useful
lives which range from two to five years.
VALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates the
carrying value of its long-lived assets, including goodwill and other
tangible assets, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
Page 19 of 34
20
SERVICES PROVIDED BY CRANE -- Prior to the Spin-off, Crane supplied the
Company certain shared services including insurance, legal, tax and treasury
functions. The costs associated with these services were charged to the
Company through an intercompany account based upon specific identification.
INCOME TAXES -- Through the date of its Spin-off from Crane, the Company was
included in the federal income tax return of Crane. The Company was charged
its proportionate share of federal income taxes determined as if it filed a
separate federal income tax return. Income tax payments represented payments
of intercompany balances. Subsequent to December 16, 1999, the date of the
Spin-off, Huttig filed stand-alone federal tax returns. Deferred income
taxes reflect the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes using currently enacted tax rates.
EARNINGS PER SHARE -- Basic earnings per share is computed by dividing
income available to common stockholders by weighted average shares
outstanding. Diluted earnings per share reflects the effect of all other
outstanding common stock equivalents using the treasury stock method.
ACCOUNTING FOR STOCK-BASED COMPENSATION - Statement of Financial Accounting
Standards Number 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation", sets forth a fair value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company
has elected to apply APB No. 25, "Accounting for Stock Issued to
Employees", to account for its stock-based compensation plans.
ACCOUNTING FOR HEDGING ACTIVITIES - The Company has interest rate swap
agreements that are used to hedge interest rate risk on the Company's
variable rate borrowings. These swap agreements are off-balance sheet and
therefore have no carrying value.
CONCENTRATION OF CREDIT RISK -- The Company is engaged in the distribution
of building products throughout the United States. The Company grants
credit to customers, substantially all of whom are dependent upon the
construction economic sector. The Company continuously evaluates its
customers' financial condition but does not generally require collateral.
The concentration of credit risk with respect to trade accounts receivable
is limited due to the Company's large customer base located throughout the
United States. The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of its accounts receivable.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, and
SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, is effective for the Company beginning January 1, 2001.
SFAS No. 133 establishes accounting and reporting standards requiring that
derivative instruments be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 also requires that
changes in the derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The derivative financial
instruments that the Company holds are interest rate swaps that are used to
hedge interest rate risks related to its variable rate borrowings and are,
therefore, held for purposes other than trading.
As a result of adopting SFAS No. 133 on January 1, 2001, the Company will
record a $2.8 million adjustment to increase debt to its estimated fair
value and will record an offsetting amount in shareholder's equity as Other
Comprehensive Income.
2. SPIN-OFF FROM CRANE
On December 16, 1999, the Company completed its tax-free Spin-off from
Crane. Crane made a capital contribution of $4.5 million to the Company.
Then Crane distributed all issued and outstanding shares of Huttig common
stock, together with accompanying preferred share purchase rights (see Note
7), to holders of record of Crane common stock as of the close of business
on December 8, 1999. The Spin-off was made on the basis of one share of
Huttig common stock for every 4.5 shares of Crane common stock.
Page 20 of 34
21
3. ACQUISITIONS
Costs in excess of net assets acquired consists of the following at December
31:
2000 1999
---- ----
Costs in excess of net assets acquired .... $47.6 $47.6
Accumulated amortization................. 11.0 8.7
----- -----
Total-- net............................. $36.6 $38.9
===== =====
On December 16, 1999 the Company completed its acquisition of Rugby. Crane,
Huttig and Rugby Group PLC entered into a Share Exchange Agreement which
provided for the transfer to Huttig of all the outstanding capital stock of
Rugby USA in exchange for 6.5 million newly issued shares of Huttig common
stock. As a result of this exchange, Rugby USA became a wholly owned
subsidiary of Huttig.
The acquisition of Rugby USA was accounted for under the purchase method of
accounting. The $26.6 million value of the 6.5 million shares of stock
issued in 1999 was allocated to the assets acquired and liabilities assumed
based upon their fair values at the closing date. The relative fair values
of the assets acquired and liabilities assumed were based upon valuations
and other studies. However, the fair value of the net assets acquired
exceeded the purchase price resulting in the write-off of all non-current
assets of Rugby USA and a deferred credit of $.8 million was recorded in
1999. During fiscal year 2000, the Company determined the ultimate costs
related to exit plans adopted as part of the acquisition exceeded the
liabilities that were initially accrued by $2.0 million. Consequently, the
acquisition cost was increased by this amount. In addition, the deferred
income tax asset decreased by $2.2 million and the previously reported
income taxes payable of $1.8 million was reduced to zero. As a result, the
previously reported deferred credit balance of $0.8 million at December 31,
1999 was reduced to zero and assets increased by $1.6 million.
The following table summarizes the allocation of the stock consideration
paid to the fair value of the assets acquired and the liabilities assumed by
the Company in connection with the acquisition of Rugby:
Accounts receivable....................... $ 42.6
Inventories............................... 39.4
Other current assets...................... 4.7
Deferred income taxes -- non-current ..... 11.5
Note payable to Rugby Group PLC........... (32.0)
Accounts payable.......................... (26.5)
Accrued liabilities....................... (14.7)
Property, plant & equipment............... 1.6
-----
Stock consideration paid............. $26.6
=====
Costs of $2.3 million for professional fees related to the acquisition were
included in accrued liabilities in the allocation of the acquisition cost
above.
In December 1999, the Company established a $4.7 million reserve for asset
impairments and costs expected to be incurred to exit certain activities
connected with the acquisition of Rugby USA, Inc. ("Rugby"). During 2000,
this reserve increased by $2.2 million as a result of a change in estimate
of the planned exit costs and the Company also charged $6.7 million of costs
against this reserve. The remaining balance of $0.2 million is for costs
related to remaining facility shutdowns. The acquisition of Rugby was
accounted for by the purchase method and, accordingly, this reserve was
included in the allocation of the acquisition costs. The Company anticipates
that the remaining exit activities will be substantially completed in the
first quarter of 2001.
During 1999, the Company acquired Cherokee Lumber Company and Cherokee
Millwork Company, a manufacturer and distributor of lumber and millwork
products in the Maryville, Tennessee area for a total cost of $1.9 million.
In connection with the acquisition, the Company recorded approximately $0.6
million of goodwill which is being amortized on a straight-line basis over
15 years.
During 1998, the Company completed two acquisitions. In June, the Company
acquired Number One Supply, a building products distribution business based
in Baltimore, Maryland and Raleigh, North Carolina, for a total cost of $4.9
million. In July, the Company acquired Consolidated Lumber Company, a
distributor of lumber and millwork products in the greater Kansas City,
Missouri area for a total cost of $40.0 million. In connection with the
acquisition of Consolidated Lumber Company, the Company
Page 21 of 34
22
recorded $26.2 million of goodwill which is being amortized on a
straight-line basis over 15 years.
All acquisitions were accounted for by the purchase method. The results of
operations for all acquisitions have been included in the financial
statements from their respective dates of purchase. The following unaudited
pro forma financial information presents the combined results of operations
of the Company and Rugby, Number One Supply and Consolidated Lumber as if
the acquisition of Rugby had taken place at the beginning of 1998. The pro
forma amounts give effect to certain adjustments including the amortization
of goodwill and intangibles, increased interest expense and income tax
effects. This pro forma information does not necessarily reflect the results
of operations as it would have been if the businesses had been managed by
the Company during these periods and is not indicative of results that may
be obtained in the future.
1999 1998
---- ----
Net sales......................... $1,247.1 $1,200.6
Net income........................ 13.3 22.4
Net income per share (basic and
diluted)........................ .65 1.09
4. BUSINESS RESTRUCTURING
In December 1999, the Company established a $5.3 million reserve for
restructuring costs expected to be incurred under a strategic plan to
consolidate and integrate various branch operations and support functions.
During the year, the Company increased this reserve by $1.1 million of which
$0.3 million was included in cost of sales. Also during the year, $6.2
million of costs were charged against the reserve, which included $2.5
million related to inventory impairment. The remaining balance of $0.2
million is primarily for facility shutdown costs. The Company anticipates
that the remaining restructuring activities will be completed in the first
quarter of 2001.
During the fourth quarter of 2000 the Company recorded $2.1 million as a
restructuring charge related to the termination of the Company's
distribution agreement with Andersen Windows and Doors of which $0.8 million
is included in cost of sales. The charge was primarily for items related to
inventory impairment and downsizing of branch operations that previously
distributed Andersen products. At December 31, 2000, approximately $1.1
million remains in the reserve and the Company anticipates that it will
substantially complete the restructuring activity in the first half of 2001.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 2000, 1999, and 1998
consists of the following:
2000 1999 1998
---- ---- ----
Balance at beginning of year ....... $ .7 $ .2 $ .5
Provision charged to expense ....... 1.9 .6 .4
Write-offs, less recoveries ........ (1.0) (.1) (.7)
---- ---- ----
Balance at end of year.............. $1.6 $ .7 $.2
==== ==== ===
6. DEBT
Debt as of December 31, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Revolving credit agreement.......... $ 80.0 $120.7
Industrial Revenue Bond............. .1 .3
Capital lease obligations (see Note 9) 1.0 1.1
Total debt..................... 81.1 122.1
------ ------
Less current portion................ .2 .3
------ ------
Long-term debt...................... $ 80.9 $121.8
====== ======
Page 22 of 34
23
INDUSTRIAL REVENUE BOND -- The Industrial Revenue Bond is a floating rate
obligation issued by the City of Deerfield Beach, Florida. The bond is
collateralized by property with a net book value of $1.1 million and $1.2
million at December 31, 2000 and 1999, respectively. The obligation is due
in quarterly installments until 2001. The interest rate for the bond was
7.1% and 5.9% at December 31, 2000 and 1999, respectively.
CREDIT AGREEMENT -- On December 16, 1999 the Company executed a Revolving
Credit Agreement (the "Credit Agreement") with certain financial
institutions, which provided for a $125 million revolving credit facility.
During April 2000, the Company closed on a new $200 million secured
revolving credit facility. The rate on the facility is LIBOR plus a variable
rate based on the Company's ratio of debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA"). At December 31, 2000, the
Company had outstanding, three interest rate swap contracts having a total
notional amount of principal of $80 million. The swap contracts currently
provide for a fixed weighted average rate of 8.9% on $80 million of the
Company's revolving credit borrowings. The remainder of the outstanding
borrowings under the revolving credit agreement are currently at a floating
rate of LIBOR plus 175 basis points. The proceeds from the facility were
used to retire the previously existing $125 million facility and a $25
million term loan. The current revolving credit facility expires in April
2003. In conjunction with the refinancing of the previously existing
facility, the Company recorded an extraordinary expense of $0.8 million for
the write-off of the unamortized loan fees.
Provisions of the Credit Agreement contain various covenants which, among
other things, limit the Company's ability to incur indebtedness, incur
liens, declare or pay dividends or make restricted payments, consolidate,
merge or sell assets and require the Company to attain certain financial
ratios in regards to leverage, consolidated net worth, and interest expense
coverage.
MATURITIES -- At December 31, 2000, the aggregate scheduled maturities of
debt are as follows:
2001.............. $ .2
2002.............. .1
2003.............. 80.1
2004.............. .1
2005.............. .1
Thereafter........ .5
------
Total........ $ 81.1
======
7. PREFERRED SHARE PURCHASE RIGHTS
In December 1999, the Company adopted a Shareholder Rights Plan. The Company
distributed one preferred share purchase right for each outstanding share of
common stock at the date of the Spin-off. The preferred rights were not
exercisable when granted and may only become exercisable under certain
circumstances involving actual or potential acquisitions of the Company's
common stock by a person or affiliated persons. Depending upon the
circumstances, if the rights become exercisable, the holder may be entitled
to purchase shares of the Company's Series A Junior Participating Preferred
Stock. Preferred shares purchasable upon exercise of the rights will not be
redeemable. Each preferred share will be entitled to preferential rights
regarding dividend and liquidation payments, voting power, and, in the event
of any merger, consolidation or other transaction in which common shares are
exchanged, preferential exchange rate. The rights will remain in existence
until December 6, 2009 unless they are earlier terminated, exercised or
redeemed. The Company has authorized five million shares of $.01 par value
preferred stock of which 250 thousand shares have been designated as Series
A Junior Participating Preferred Stock.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH EQUIVALENTS
The carrying value of cash and equivalents approximates their fair value.
DEBT
The estimated fair value of the Company's debt approximates book value since
the interest rates on nearly all of the outstanding borrowings are
frequently adjusted. In addition, the Company has interest rate swap
agreements that are off balance sheet and therefore have no carrying value.
The fair value of these swap agreements would increase the Company's debt by
$2.8 million.
Page 23 of 34
24
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its vehicles, equipment and warehouse and
manufacturing facilities under capital and operating leases with various
terms. Certain leases contain renewal or purchase options. Future minimum
payments, by year, and in the aggregate, under these leases with initial or
remaining terms of one year or more consisted of the following at December
31, 2000:
MINIMUM
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME NET
------ ------ ------ ---
2001................................. .2 $ 8.7 $ 1.3 $ 7.6
2002................................. .2 7.3 1.1 6.4
2003................................. .2 5.1 1.1 4.2
2004................................. .2 3.4 .6 3.0
2005................................. .2 2.5 .2 2.5
Thereafter........................... .3 10.6 -- 10.9
---- ----- ----- -----
Total minimum lease payments......... 1.3 37.6 4.3 34.6
===== ===== =====
Amount representing interest......... (.3)
----
Present value of minimum lease payments 1.0
====
The weighted average interest rate for capital leases is 6.9%. These
obligations mature in varying amounts through 2007. Rental expense for all
operating leases was $15.3 million, $8.2 million and $6.7 million in 2000,
1999 and 1998 respectively.
The cost of assets capitalized under leases is as follows at December 31:
2000 1999
---- ----
Land, buildings and improvements $ 2.3 $ 2.3
Less accumulated depreciation 1.3 1.2
----- -----
Cost of leased assets-- net $ 1.0 $ 1.1
===== =====
LITIGATION -- As of December 31, 2000, the Company is involved in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not
have a material effect on the Company's financial condition and results of
operations. The Company is involved in two remediation actions to clean up
hazardous wastes as required by federal and state laws.
The Company has established insurance programs to cover product and general
liability losses. These programs have deductible amounts before coverage
begins. The Company does not deem its deductible exposure to be material.
10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS -- Prior to the Spin-off, the Company participated in
Crane's defined benefit pension plans covering substantially all salaried
and hourly employees not covered by collective bargaining agreements.
Effective as of the Spin-off, Company employees who had accrued benefits
under a Crane pension plan became fully vested in those benefits and stopped
accruing benefits under the Crane pension plan after the Spin-off.
Prior to the Spin-off, the Company was charged its proportionate share of
the total expense for the plans. Pension expense related to Crane's defined
benefit pension plans was $1.1 million and $0.8 million in 1999 and 1998,
respectively.
The Company also participates in several multi-employer pension plans that
provide benefits to certain employees under collective bargaining
agreements. Total contributions to these plans were $0.6 million, $0.5
million, $0.5 million in 2000, 1999 and 1998, respectively.
HEALTH BENEFITS PLANS -- Prior to the Spin-off, employees hired before
January 1, 1992 were eligible for post-retirement medical and life insurance
benefits if they met minimum age and service requirements.
Page 24 of 34
25
Effective with the Spin-off, the Company will pay 50% of any premium or cost
of such coverage for its current retirees between the ages of 55 and 65. All
other employees not currently qualified will not receive postretirement
medical and life insurance benefits. The reduction in benefits resulted in a
curtailment gain of $5.9 million in 1999.
The following table sets forth the amounts recognized in the Company's
balance sheet at December 31, for the Company sponsored postretirement
benefit plan:
2000 1999 1998
---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year ............ $ .3 $ 7.3 $ 6.8
Plan participant contributions ..................... .1 .2
Service cost ....................................... -- .2 .2
Interest cost ...................................... -- .4 .5
Amendments ......................................... -- (1.0) --
Actuarial (gain) loss .............................. .2 (1.3) --
Curtailment ........................................ -- (5.1) --
Benefits paid ...................................... (.3) (.4) (.2)
----- ----- -----
Benefit obligation at end of year .................. $ .3 $ .3 $ 7.3
===== ===== =====
Funded status ........................................ $ (.3) $ (.3) $(7.3)
Unrecognized net actuarial (gain) loss ............... (1.2) (1.8) .3
----- ----- -----
Accrued benefit cost ............................... $(1.5) $(2.1) $(7.0)
===== ===== =====
Discount rate ........................................ 7.75% 7.50% 6.75%
Components of net periodic benefit cost:
Service cost ....................................... $ -- $ .2 $ .2
Interest cost ...................................... -- .4 .5
Amortization of prior service cost ................. -- (.1) --
Recognized actuarial gain .......................... (.3) (.1) --
----- ----- -----
(.3) .4 --
Recognition of curtailment gain .................... -- (5.9) --
----- ----- -----
Net periodic benefit cost ............................ $ (.3) $(5.5) $ .7
===== ===== =====
In 2000, the cost of covered healthcare benefits was assumed to increase
7.5%, and then to decrease gradually to 5.0% by 2006 and remain at that
level thereafter. In 1999, the cost of covered healthcare benefits was
assumed to increase 7.2%, and then to decrease gradually to 5.0% by 2005 and
remain at that level thereafter. A one percentage point change would not
have material effect on the total service and interest cost components or on
the post retirement benefit obligation.
DEFINED CONTRIBUTION PLANS -- Effective with the spin-off, the Company
established a new qualified defined contribution plan for its employees that
is substantially similar to the Crane plan.
At the spin-off date, all of the account balances of employees under the
Crane plan became fully vested and a corresponding amount of assets were
transferred from the Crane plan to one or more of the qualified defined
contribution plans maintained by the Company.
The cost of the defined contribution plans to the Company was $1.9 million,
$1.5 million and $1.7 million in 2000, 1999 and 1998, respectively.
Page 25 of 34
26
11. STOCK AND INCENTIVE COMPENSATION PLANS
1999 STOCK INCENTIVE PLAN
The 1999 Stock Incentive Plan authorizes the issuance of 7% of the issued
and outstanding stock of the Company up to a maximum of 2 million shares of
common stock under the Plan. The Plan allows the Company to grant awards to
key employees including restricted stock awards, stock options, and stock
appreciation rights, subject primarily to the requirement of continuing
employment. The awards under this plan are available for grant over a
period of ten years from the date on which the plan was adopted, but the
grants may vest beyond the ten-year period. Stock options issued by the
Company are exercisable at a future time as specified by the Company and
expire ten years from the date of grant. The exercise price of stock
options may not be less than the fair market value of the common stock at
the date of grant.
The Company is authorized to grant shares of restricted stock to employees.
No monetary consideration is paid by employees who receive restricted
stock. Restricted stock can be granted with or without performance
restrictions. In 2000, the Company granted 65,000 shares of restricted
stock under the 1999 Stock Incentive Plan at a market value of $4.25 per
share and recorded the total market value of the shares granted as unearned
compensation in the Statement of Shareholders' Equity. The unearned
compensation is being amortized to expense over a five-year vesting period.
EVA INCENTIVE COMPENSATION PLAN
Under the Company's EVA Incentive Compensation Plan (the "EVA Plan"),
participants in the EVA Plan may elect to allocate 50% of their incentive
award to a stock subaccount. Participants who make this election will have
restricted shares granted to them with a two year vesting period, with the
restrictions lapsing evenly each year. The number of restricted shares
issued is calculated by dividing the cash award by the fair market value of
the Company's stock at the date of the allocation. If the participant does
not make this election, 100% of the participants EVA award is allocated to
a cash account. Each participant with a positive aggregate account balance
will receive an annual payout of a specified percentage of his or her
account, with the standard payout percentage being one-third each year. A
participants entire cash subaccount balance will become payable and his or
her restricted stock will fully vest upon normal retirement at age 65,
death, disability or a change in control (as defined in the EVA Plan).
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation", sets forth a fair value based
method of recognizing stock-based compensation expense. As permitted by SFAS
No. 123, the Company has elected to apply APB No. 25, "Accounting for Stock
Issued to Employees", to account for its stock-based compensation plans.
Had the compensation cost for these plans been determined according to SFAS
No. 123, the Company's net income and earnings per share would have been
the following pro forma amounts for the year ended December 31:
(Millions of dollars, except per share amounts) 2000(1)
-------
NET INCOME
As reported $ 13.6
Pro forma 13.2
BASIC EPS
As reported $ .66
Pro forma .64
DILUTED EPS
As reported $ .66
Pro forma .64
(1) There were no stock options outstanding prior to January 1, 2000.
Page 26 of 34
27
For purposes of the pro forma disclosure, the fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
2000
----
ASSUMPTIONS:
Volatility 45%
Risk-free interest rate 4.9%
Dividend yield 0%
Expected life of options (years) 5
Weighted average grant date fair value of
options granted under the 1999 stock
incentive plan $1.98
The following table summarizes the stock option transactions pursuant to
the Company's stock incentive and stock option plans for the one-year
period ended December 31, 2000:
Weighted Average
Shares Exercise Price
(000s) Per Share ($)
------ -------------
Options outstanding at December 31, 1999 -- --
Granted 896 4.34
Exercised -- --
Forfeited (94) 4.29
---- ----
Options outstanding at December 31, 2000 802 4.35
Exercisable options at December 31, 2000 -- --
Shares available for grant at December 31, 2000 574
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Average
Number Outstanding Remaining Number Exercisable
Range of At 12/31/00 Contractual Life Weighted Average at 12/31/00 Weighted Average
Exercise Price (000's) (Years) Exercise Price (000s) Exercise Price
-------------- ------- ------- -------------- ------ --------------
$ 4.29 to $4.73 802 9.1 $ 4.35 -- --
12. INCOME TAXES
A reconciliation between income taxes based on the application of the
statutory federal income tax rate to income taxes as set forth in the
consolidated statements of income follows:
2000 1999 1998
---- ---- ----
Federal statutory rate ................... 35.0 35.0 35.0
Increase in taxes resulting from:
State and local taxes................. 2.7 2.0 1.9
Nondeductible items and other ........ 1.2 4.0 .9
---- ---- ----
Effective income tax rate ................ 38.9 41.0 37.8
Page 27 of 34
28
Deferred income taxes at December 31 are comprised of the following:
2000 1999
---- ----
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
Accelerated depreciation ..................... $ -- $ 2.9 $ -- $ .6
------- ------- ------- ------
Purchase price book and tax basis
differences ................................ 6.0 12.2
Inventory related ............................ 2.7 3.9
Insurance related ............................ 1.1 -- 1.3 --
Employee benefits related .................... 1.7 -- 1.8 --
Other accrued liabilities .................... 1.8 -- 6.3 --
Other ........................................ 1.3 -- .8 2.9
------- ------- ------- ------
Total ........................................ $ 11.9 $ 5.6 $ 22.3 $ 7.4
======= ======= ======= ======
The provision for income taxes is composed of the following:
2000 1999 1998
---- ---- ----
Current:
U.S. Federal tax $ 2.3 $ 3.3 $ 7.7
State and local tax .3 .2 .6
------ ------ ------
Total current 2.6 3.5 $ 8.3
------ ------ ------
Deferred:
U.S. Federal tax 5.3 2.2 (.1)
State and local tax .6 .2 --
------ ------ ------
Total deferred 5.9 2.4 (.1)
------ ------ ------
Total income tax $ 8.5 $ 5.9 $ 8.2
====== ====== ======
13. SALES BY PRODUCT
The Company operates in one business segment, the distribution of building
materials used principally in new residential construction and in home
improvement, remodeling and repair work. The Company derives substantially
all of its revenues from domestic customers. The following table presents
the Company's sales by product:
2000 1999 1998
---- ---- ----
Doors .................................... $ 364.8 $272.2 $259.9
Specialty building materials ............. 279.1 169.8 140.9
Windows .................................. 193.1 138.7 133.0
Lumber and other commodity products ...... 128.7 119.9 85.0
Mouldings ................................ 107.2 99.7 88.6
-------- ------ ------
Total sales ......................... $1,072.9 $800.3 $707.4
======== ====== ======
Page 28 of 34
29
14. BASIC AND DILUTED EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and
denominators of basic and diluted earnings per share share computations for
the years ended December 31:
2000 1999 1998
---- ---- ----
Net income (in millions) (numerator) $ 13.6 $ 8.5 $ 13.6
Computation of Basic Shares Outstanding
(in thousands, except per share
amounts)
Weighted average number of basic shares
outstanding (denominator) 20,584 14,260 13,973
Basic earnings per common share $ .66 $ .59 $ 1.17
Computation of Diluted Shares
Outstanding (in thousands, except
per share amounts)
Weight average number of basic shares
outstanding 20,584 14,260 13,973
Common Stock equivalents for diluted
shares outstanding 13 -- --
Weighted average number of diluted
shares outstanding (denominator) 20,597 14,260 13,973
Diluted earnings per common share $ .66 $ .59 $ 1.17
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table provides selected consolidated financial information on
a quarterly basis for each quarter of 2000 and 1999. The Company's business
is seasonal and particularly sensitive to weather conditions. Interim
amounts are therefore subject to significant fluctuations.
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
2000
Net sales........................................ $ 282.0 $285.6 $ 278.2 $ 227.1 $1,072.9
Gross profit..................................... 54.1 56.9 57.9 50.6 219.5
Operating profit................................. 8.4 11.8 11.1 2.7 34.0
Net income before extraordinary items 3.7 5.4 5.0 -- 14.1
Net income....................................... 3.7 4.9 5.0 -- 13.6
Basic and diluted earning per share before
extraordinary items.............................. .18 .26 .24 -- .68
Loss per share from extraordinary items -- (.02) -- -- (.02)
------- ------ ------- ------- --------
Basic and diluted earnings per share............. .18 .24 .24 -- .66
1999
Net sales........................................ $ 174.8 $205.9 $ 214.2 $ 205.4 $ 800.3
Gross profit..................................... 34.1 40.7 42.6 43.8 161.2
Operating profit................................. 4.0 7.6 7.7 3.5 22.8
Net income....................................... 1.3 3.3 3.9 -- 8.5
Basic and diluted earnings per share............. .09 .23 .28 -- .59
Page 29 of 34
30
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 (other than the information regarding
executive officers set forth at the end of Part I of this Form 10-K) will be
contained in the Company's definitive Proxy Statement for its 2001 Annual
Meeting of Shareholders under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance," and is incorporated herein by
reference.
ITEM 11--EXECUTIVE COMPENSATION
The information required by Item 11 will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the
captions "Election of Directors" and "Executive Compensation," and is
incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the
captions "Beneficial Ownership of Common Stock by Directors and Management,"
"Election of Directors" and "Principal Stockholders of the Company," and is
incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the
caption "Other Transactions and Relationships," and is incorporated herein by
reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:
(a)(1) FINANCIAL STATEMENTS:
The following consolidated financial statements of the Company and the
Report of Independent Auditors thereon are included in Item 8 above:
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income and Retained Earnings for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements for the Years Ended December 31,
2000, 1999 and 1998
Independent Auditors' Report of Deloitte & Touche LLP, Independent Auditors
Page 30 of 34
31
(a)(2) FINANCIAL STATEMENT SCHEDULES:
None.
(a)(3) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------
2.1 Distribution Agreement dated December 6, 1999 between
Crane and the Company. (Incorporated by reference from
Exhibit No. 2.1 of Amendment No. 4 to the Company's
Registration Statement on Form 10 (File No. 1-14982)
filed with the Commission on December 6, 1999.)
2.2 Share Exchange Agreement dated October 19, 1999 among
the Rugby Group PLC, Crane and the Company.
(Incorporated by reference from Exhibit No. 2.2 to
Amendment No. 1 to the Company's Registration Statement
on Form 10 (File No. 1-14982) filed with the Commission
on October 29, 1999.)
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form 10 (File No.
1-14982) filed with the Commission on September 21,
1999.)
3.2 Bylaws of the Company. (Incorporated by reference from
Exhibit 3.2 to Amendment No. 4 to the Company's
Registration Statement on Form 10 (File No. 1-14982)
filed with the Commission on December 6, 1999.)
4.1 Rights Agreement dated December 6, 1999 between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent. (Incorporated by reference from Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)
4.2 Amendment No. 1 to Rights Agreement between the Company
and ChaseMellon Shareholders Services, L.L.C.
(Incorporated by reference from Exhibit 4.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000.)
4.3 Credit Agreement dated April 25, 2000 between the Company
and Chase Manhattan Bank, as agent for the lenders named
therein, and the Lenders. (Incorporated by reference
from Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.)
4.4 Form of Revolving Loan Note dated April 25, 2000 in
favor of certain lenders. (Incorporated by reference
from Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.)
4.5 Schedule to Form of Revolving Loan Note dated April
25, 2000 in favor of certain lenders. (Incorporated by
reference from Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.)
4.6 Certificate of Designations of Series A Junior
Participating Preferred Stock of the Company. (Incorporated
by reference from Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.)
10.1 Tax Allocation Agreement by and between Crane and the
Company dated December 16, 1999. (Incorporated by
reference from Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.)
10.2 Employee Matters Agreement between Crane and the
Company dated December 16, 1999. (Incorporated by
reference from Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.)
*10.3 EVA Incentive Compensation Plan. (Incorporated by
reference from Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999.)
*10.4 Form of Restricted Stock Agreement under the Company's
EVA Incentive Compensation Plan. (Incorporated - by
reference from Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.)
*10.5 Non-Employee Director Restricted Stock Plan.
(Incorporated by reference from Exhibit 10.4 to
Amendment No. 4 to the Company's Registration Statement
on Form 10 (File No. 1-14982) filed with the Commission
on December 6, 1999.)
*10.6 Form of Stock Option Agreement under the Company's Stock
Incentive Plan. (Incorporated by reference from
Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999.)
*10.7 Schedule to Stock Option Agreement under the Company's
Stock Incentive Plan. (Filed herewith.)
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32
*10.8 Stock Incentive Plan. (Incorporated by reference from
Exhibit 10.5 to Amendment No. 4 to the Company's
Registration Statement on Form 10 (File No. 1-14982)
filed with the Commission on December 6, 1999.)
*10.9 Form of Indemnification Agreement for Executive Officers
and Directors. (Incorporated by reference from Exhibit 10.9
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.)
10.10 Schedule to Indemnification Agreement for Executive
Officers and Directors. (Filed herewith.)
*10.11 Employment/Severance Agreement between the Company and
Barry J. Kulpa dated October 18, 1999. (Incorporated by
reference from Exhibit 10.7 to Amendment No. 1 to the Company's
Registration Statement on Form 10 (File No. 1-14982)
filed with the Commission on October 29, 1999.)
*10.12 Form of Employment Agreement between the Company and certain
of its executive officers. (Incorporated by reference from
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.)
*10.13 Schedule to Employment Agreement between the Company and
certain of its executive officers. (Filed herewith.)
10.14 Registration Rights Agreement by and between The Rugby
Group PLC and the Company dated December 16, 1999.
(Incorporated by reference from Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999.)
*10.15 Restricted Stock Agreement dated January 24, 2000
between the Company and Barry J. Kulpa. (Incorporated by
reference from Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999.)
*10.16 Restricted Stock Agreement dated December 17, 1999
between the Company and Barry J. Kulpa. (Incorporated
by reference from Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999.)
10.17 Restricted Stock Agreement dated December 17, 1999
between the Company and Barry J. Kulpa. (Incorporated by
reference from Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999.)
*10.18 Description of Stock Option Grant by the Company to certain
non-employee directors. (Filed herewith)
13.1 Pages 2 through 3, 6 through 10 and 12 through 16 of the Company's
definitive Proxy Statement for its 2001 Annual Meeting of
Shareholders. (Filed herewith.)
21.1 Subsidiaries of the Company. (Filed herewith.)
23.1 Consent of Deloitte & Touche LLP, independent certified
public accountants. (Filed herewith.)
- ----------
* Management contract or compensatory plan or arrangement.
The registrant hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted schedule to any of the agreements contained
or incorporated by reference herein.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated September 1, 2000,
which reported under Item 5 that the Company had discontinued its distribution
agreement with Andersen Windows and Doors, one of its vendors.
Page 32 of 34
33
(c) Exhibits
See (a)(3) above.
Copies of exhibits may be retrieved electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished
at a charge of $.20 per page by writing to the Company, c/o Corporate Secretary,
Lakeview Center, Suite 400, 14500 South Outer Forty Road, Chesterfield, Missouri
63017.
(d) Financial Statement Schedules
See (a)(2) above.
Page 33 of 34
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HUTTIG BUILDING PRODUCTS, INC.
By: /s/ BARRY J. KULPA
------------------------------
Barry J. Kulpa
President, and Chief Executive Officer
Date: February 16, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ BARRY J. KULPA President, Chief Executive February 16, 2001
- ------------------ Officer (Principal
Barry J. Kulpa Executive) and Director
/s/ KENNETH E. THOMPSON Vice President, February 16, 2001
- ----------------------- Administration, Chief
Kenneth E. Thompson Financial Officer and
Secretary (Principal
Financial Officer)
/s/ THOMAS S. McHUGH Corporate Controller February 16, 2001
- -------------------- (Principal Accounting
Thomas S. McHugh Officer)
/s/ E. THAYER BIGELOW, JR. Director February 16, 2001
- --------------------------
E. T. Bigelow, Jr.
/s/ ALAN S. DURANT Director February 16, 2001
- ------------------
Alan S. Durant
/s/ R. S. EVANS Chairman of the Board February 16, 2001
- ---------------
R. S. Evans
/s/ R. S. FORTE Director February 16, 2001
- ---------------
R. S. Forte
/s/ DORSEY R. GARDNER Director February 16, 2001
- ---------------------
Dorsey R. Gardner
/s/ DELBERT TANNER Director February 16, 2001
- -------------------
Delbert Tanner
/s/ JAMES L. L. TULLIS Director February 16, 2001
- ----------------------
James L. L. Tullis
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