File No.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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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) (Zip Code)
(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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[CRANE LETTERHEAD]
[Date]
Dear Shareholder:
The enclosed Information Statement sets forth information regarding Huttig
Building Products, Inc. and the spin-off of Huttig common stock to Crane
shareholders on a tax-free basis. Huttig will thereby become a separate public
company, listed on the New York Stock Exchange. If you are a holder of Crane
common stock on , 1999, the record date for the spin-off, you will receive
one share of Huttig common stock for every shares of Crane common stock you
own on that date. The spin-off of Huttig common stock will be registered by
book-entry accounts established for all Crane shareholders, and so you will not
receive a stock certificate but rather an account statement stating the number
of shares of Huttig common stock received by you in the spin-off.
Huttig's business is wholesale distribution of doors, windows and other
building products, which is substantially different from Crane's manufacturing
businesses. We believe that Huttig as a stand-alone company would be a more
effective participant in the consolidation currently taking place in the
building products distribution industry. The separation of this distribution
business from Crane's manufacturing businesses should also produce added value
for Crane shareholders because the market will be better able to see the
strength of our manufacturing businesses. We also believe that this transaction
will provide more value than the alternatives.
The Information Statement contains important information about Huttig's
organization, business and strategies, including financial information. We urge
you to read it carefully and to keep it for future reference.
You are not required to take any action to participate in the spin-off. We
are not soliciting your proxy, because shareholder approval of the spin-off is
not required.
Sincerely,
R. S. Evans
Chairman and Chief Executive Officer
PRELIMINARY INFORMATION STATEMENT DATED , 1999 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
----------------
CRANE CO.'S SPIN-OFF
OF
HUTTIG BUILDING PRODUCTS, INC.
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You are being furnished with this Information Statement in connection with
the spin-off by Crane Co. of all of the outstanding common stock of Huttig
Building Products, Inc. to stockholders of Crane. Huttig comprises the
substantial majority of Crane's Wholesale Distribution segment.
Crane will accomplish the spin-off by distributing all issued and
outstanding shares of Huttig common stock to holders of record of Crane common
stock. Crane will distribute one share of Huttig common stock for every
Crane shares held as of the close of business on , 1999. The actual number
of Huttig shares to be distributed will depend on the number of Crane shares
outstanding on that date.
OWNING SHARES OF HUTTIG COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE 8.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. YOU
ARE NOT BEING ASKED FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND HUTTIG OR
CRANE A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
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The date of this Information Statement is , 1999.
TABLE OF CONTENTS
PAGE
----
SUMMARY .............................................................................. 3
RISK FACTORS ......................................................................... 8
CAUTIONARY STATEMENT ................................................................. 11
BUSINESS ............................................................................. 11
Overview .......................................................................... 11
Industry Trends ................................................................... 12
Strategy .......................................................................... 13
Products .......................................................................... 14
Purchasing ........................................................................ 15
Sales and Marketing ............................................................... 15
Customers ......................................................................... 15
Competition ....................................................................... 16
Facilities ........................................................................ 16
Tradenames ........................................................................ 16
Employees ......................................................................... 16
Seasonality ....................................................................... 17
Backlog ........................................................................... 17
Legal Proceedings ................................................................. 17
Environmental ..................................................................... 17
HUTTIG HISTORICAL SELECTED FINANCIAL DATA ............................................ 18
HUTTIG UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION ........................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION ........................................................................... 22
MARKET RISK DISCLOSURE ............................................................... 24
CREDIT FACILITY ...................................................................... 24
THE SPIN-OFF ......................................................................... 25
Reasons for the Spin-Off ........................................................... 25
Manner of Effecting the Spin-Off ................................................... 25
Results of the Spin-Off ............................................................ 26
Certain Federal Income Tax Consequences of the Spin-Off ............................ 26
Listing and Trading of Huttig Common Stock ......................................... 27
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF ..................................... 28
Distribution Agreement ............................................................. 28
Employee Matters Agreement ......................................................... 29
Tax Allocation Agreement ........................................................... 31
MANAGEMENT ........................................................................... 32
Directors .......................................................................... 32
Committees of the Board of Directors ............................................... 33
Compensation of Directors .......................................................... 33
Executive Officers ................................................................. 34
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT .............. 35
PRINCIPAL STOCKHOLDERS OF HUTTIG ..................................................... 36
COMPENSATION OF EXECUTIVE OFFICERS ................................................... 36
Summary Compensation Table ......................................................... 36
Option Grants In Last Fiscal Year .................................................. 37
Aggregate Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values ... 38
Retirement Benefits ................................................................ 38
Other Agreements and Information ................................................... 39
DESCRIPTION OF HUTTIG CAPITAL STOCK .................................................. 40
Common Stock ....................................................................... 40
Preferred Stock .................................................................... 40
Rights Plan ........................................................................ 41
Certain Provisions of Huttig's Governing Documents ................................. 43
Anti-takeover Legislation .......................................................... 43
Transfer Agent and Registrar ....................................................... 44
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS ....................... 44
Elimination of Liability ........................................................... 44
Indemnification of Officers and Directors .......................................... 44
AVAILABLE INFORMATION ................................................................ 45
INDEX TO FINANCIAL STATEMENTS ........................................................ F-1
2
SUMMARY
This summary highlights selected information from this document, but does
not contain all the details concerning the spin-off, including information that
may be important to you. To better understand Huttig and the spin-off, you
should carefully review this entire document. References to "Huttig" or "the
Company" mean Huttig Building Products, Inc. and its subsidiaries and
divisions. References to "Crane" mean Crane Co. and its subsidiaries and
divisions.
OVERVIEW OF HUTTIG'S BUSINESS AND STRATEGY
Huttig is a distributor of building materials used principally in new
residential construction and in home improvement, remodeling and repair work.
Its products are distributed through 45 distribution centers serving 41 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 and industrial and manufactured housing builders.
Huttig's American Pine Products manufacturing facility, located in Prineville,
Oregon, produces softwood moldings. Approximately 20% of its sales are to
Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction
business with differentiated building products and excellent service and to
enhance Huttig's profitability through increased efficiencies. Huttig plans to
execute this strategy through acquisitions that allow it to expand
geographically, consolidate in existing markets or broaden its customer base,
and by focusing on customer service, capitalizing on the size of its
distribution center network and reducing its transaction costs.
Huttig's products include doors, windows, moldings, specialty building
materials such as housewrap, stair parts and engineered wood products, and
lumber and other commodity building products. Products carried by a particular
distribution center vary by location. Many of Huttig's products, such as
pre-hung doors, pre-assembled windows, cut-to-length molding and lumber, are
customized to customer specifications, resulting in higher margin, value-added
business. In order to improve customer service, Huttig is focused on increasing
its product offerings with a greater depth of similar products and a broader
range of complementary products, such as wall panels, trusses and engineered
floor systems.
To varying degrees in different markets, Huttig offers a number of
services to its customers, including assistance with project design and product
specifications, installation of products and coordination of job-site delivery
with whole house packages staged for delivery as needed by the contractor.
Each distribution center 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 seeks to closely align its employee compensation structure with its
shareholders' interests. A significant part of the compensation of most of
Huttig's employees is based on the performance of individual distribution
centers. Huttig's management incentive compensation programs, in which all
executive officers and building center managers participate, are based on
increasing the after-tax rate of return on the assets employed in its business.
In addition, Huttig's stock-based compensation plans ensure that key employees
are focused on actions and strategies intended to increase shareholder value.
3
QUESTIONS AND ANSWERS ABOUT HUTTIG AND THE SPIN-OFF
Why is Huttig being spun off by Crane? o Huttig is being spun off for the following reasons:
o The spin-off should allow Huttig to more
effectively pursue its acquisition strategy by,
among other things, providing it the flexibility
to use its stock as currency to purchase
potential acquisition targets.
o The growth and management strategies of Huttig's
distribution business are not fully aligned with
the other businesses of Crane. Separation of its
business from Crane will allow Huttig to better
position its own strategic objectives in its area
of expertise, which should result in enhanced
growth.
o The spin-off will enable Huttig to have direct
access to capital markets. Depending upon market
conditions, Huttig may raise equity capital to
retire some or all of its outstanding debt.
o The spin-off will allow Huttig to recruit, retain
and motivate key employees by providing them with
stock-based compensation incentives directly tied
to the success of Huttig's business.
What will I receive in the spin-off? o Crane will distribute one share of Huttig common
stock for every shares of Crane common stock owned
as of , 1999. For example, if you own 100 shares of
Crane common stock, you will receive shares of
Huttig common stock. You will continue to own your
Crane common stock.
What do I have to do to participate in o Nothing. No stockholder vote is required for the
the spin-off? spin-off.
How will Crane distribute Huttig o If you own Crane common stock on the record date,
common stock to me? the distribution agent will automatically credit
your shares of Huttig common stock to a book-entry
account established to hold your Huttig common stock
on , 1999 and will mail you a statement of your
Huttig common stock ownership. Following the
spin-off you may retain your shares of Huttig common
stock in your book-entry account, sell them,
transfer them to a brokerage or other account, or
request a physical certificate for whole shares.
o You will not receive new Crane stock certificates.
What is the record date? o The record date is , 1999.
What if I hold my shares of Crane o If you hold your shares of Crane common stock
common stock through my stockbroker, through your stockbroker, bank or other nominee, you
bank or other nominee? are probably not a stockholder of record and your
receipt of Huttig common stock depends on your
arrangements with the nominee that holds your shares
of Crane common stock for you. It is anticipated
that
4
stockbrokers and banks generally will credit their
customers' accounts with Huttig common stock on or
about , 1999, but you should check with
your stockbroker, bank or other nominee. Following
the spin-off you may instruct your stockbroker, bank
or other nominee to transfer your shares of Huttig
common stock into your own name to be held in
book-entry form through the direct registration
system operated by the distribution agent.
How will you treat fractional shares? o If you own fewer than shares of Crane common stock,
you will receive cash instead of your fractional
share of Huttig common stock. If you own or more
shares of Crane common stock, your book-entry
account will be credited with all whole and
fractional shares of Huttig common stock you should
receive unless you request physical certificates (in
which case you will receive physical certificates
for all whole shares of Huttig common stock you
should receive and cash instead of any fractional
share interest). Fractional shares to be cashed out
will be aggregated and sold by the distribution
agent, which will distribute to you your portion of
the cash proceeds promptly after the spin-off. No
interest will be paid on any cash distributed in
lieu of fractional shares.
What is Huttig's dividend policy? o It is currently anticipated that no cash dividends
will be paid on Huttig common stock in the
foreseeable future in order to conserve cash for use
in Huttig's business, for possible future
acquisitions and for debt reduction. It is expected
that Huttig will periodically re-evaluate this
dividend policy taking into account its operating
results, capital needs and other factors.
How will Huttig common stock trade? o Huttig has applied to list its common stock on the
New York Stock Exchange under the symbol "HBP" and
expects that regular trading will begin on , 1999.
A temporary form of interim trading called
"when-issued trading" may occur for Huttig common
stock on or before , 1999 and continue through
, 1999. A when-issued listing can be identified
by the "wi" letters next to Huttig common stock on the
New York Stock Exchange Composite Tape. If when-issued
trading develops, you may buy or sell Huttig common
stock in advance of the , 1999 spin-off. When-issued
trading occurs in order to develop an orderly market
and trading price for Huttig common stock after the
spin-off.
o Crane common stock will continue to trade on a
regular basis and may also trade on a when-issued
basis, reflecting an assumed post-spin-off value for
Crane common stock. When-issued trading in Crane
5
common stock, if available, could last from on or
before , 1999 through , 1999. If this occurs,
an additional listing for Crane common stock, followed
by the "wi" letters, will appear on the New York
Stock Exchange Composite Tape.
Is the spin-off taxable for United States o No. Crane has requested a tax ruling from the
federal income tax purposes? Internal Revenue Service stating in principle that
the spin-off will be tax-free to Crane and to
Crane's stockholders. See "Risk Factors" and "The
Spin-Off -- Certain Federal Income Tax Consequences
of the Spin-Off."
Will Huttig be related to Crane in any o Crane will not own any Huttig common stock after the
way after the spin-off? spin-off.
o The board of directors of Huttig will consist of
eight directors, seven of whom currently serve as
directors of Crane. Mr. R. S. Evans, Chairman and
Chief Executive Officer of Crane, is the Chairman of
Huttig.
o Crane's largest stockholder, The Crane Fund, will
also be Huttig's largest stockholder holding
approximately 11.00% of Huttig's outstanding common
stock. The current trustees of The Crane Fund are
officers of Crane. See "Principal Stockholders of
the Company."
o Huttig and Crane have entered into the following
agreements:
o A Distribution Agreement, which provides for the
actions required to separate Huttig's businesses
from other businesses of Crane and governs various
relationships and circumstances that may arise
between Huttig and Crane after the spin-off.
o An Employee Matters Agreement, which addresses
issues between Crane and Huttig about employees,
pension and other employee benefit plans and other
compensation arrangements for current and former
employees of Huttig.
o A Tax Allocation Agreement dividing certain U.S.
federal, state, local and non-U.S. tax liabilities
between Crane and Huttig.
o A Transition Services Agreement under which Crane
will provide various transition services to Huttig
for limited periods of time following the spin-off.
Are there any risks entailed in owning o Yes. Stockholders should consider carefully the
Huttig common stock? matters discussed in the section of this Information
Statement called "Risk Factors."
6
WHAT HAS ALREADY BEEN DONE IN PREPARATION FOR THE SPIN-OFF
Board Appointments o The Huttig board of directors is expected to consist
initially of the following individuals, all of whom
are currently directors of Crane other than Mr.
Kulpa: Mr. E. Thayer Bigelow, Jr.,Mr. R. S. Evans,
Mr. Richard S. Forte, Mr. Dorsey R. Gardner, Mr.
Barry J. Kulpa, Mr. Dwight C. Minton, Mr. Charles J.
Queenan, Jr. and Mr. James L. L. Tullis.
Senior Management o It is expected that Huttig senior management after
the spin-off will be the same persons who are
currently serving as executive officers of Huttig.
In addition, Mr. R.S. Evans, Chairman and Chief
Executive Officer of Crane, will continue to be the
Chairman of Huttig. "See Management -- Executive
Officers."
New Credit Arrangements o A -year, $[75] million [unsecured revolving credit
facility] has recently been established by Huttig,
the proceeds of which will be used by Huttig prior
to the spin-off to repay certain of Huttig's debt
obligations and other liabilities to Crane and
certain of its affiliates. Crane will cause any
remaining debt obligation of Huttig to Crane or its
affiliates to be canceled or Crane will contribute
cash to Huttig in an amount sufficient to repay
fully any remaining debt to Crane or its affiliates
prior to the spin-off. In the event that Huttig has
any remaining borrowing availability under this
credit facility following repayment of its debt
obligations to Crane or its affiliates, Huttig
expects to use such funds for working capital or
general corporate purposes.
WHO CAN HELP ANSWER YOUR QUESTIONS
Stockholders of Crane with questions relating to the spin-off should
contact:
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
(212) 843-8500
The distribution agent for Huttig common stock in the spin-off and the
transfer agent and registrar for Huttig common stock after the spin-off is:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield, New Jersey 07660
[Telephone No.]
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7
RISK FACTORS
o CYCLICALITY AND SEASONALITY IN THE NEW RESIDENTIAL CONSTRUCTION AND HOME
IMPROVEMENT INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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 its 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. It is expected that
these seasonal variations will continue in the future.
o COMPETITION IN HUTTIG'S INDUSTRY COULD RESULT IN LOWER SALES AND PRICES,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The building products distribution industry is highly competitive. The
principal competitive factors in this industry are:
o availability of materials and supplies;
o service and delivery capabilities;
o ability to assist with problem-solving;
o relationships with customers; and
o breadth of product offerings.
Also, financial stability and geographic coverage are important to
manufacturers in choosing distributors for their products.
Huttig's competition varies by product line, customer classification and
geographic market. It competes with many local, regional and, in certain
markets and product categories, national building products distributors and
dealers. Huttig also competes with major product manufacturers with national
distribution capability. To a limited extent in certain markets, Huttig
competes with the large home center chains for the business of smaller
contractors. There can be no assurance that competition from these large home
center chains will not, in the future, include competition for the business of
larger contractors.
Some of Huttig's competitors have greater financial and other resources.
Because they have greater resources, they may be able to withstand sales or
price decreases better than Huttig can. There can be no assurance that Huttig
will be able to respond effectively to the competitive pressures in its
industry.
o HUTTIG'S PLANNED PURSUIT OF ACQUISITIONS INVOLVES RISKS THAT MAY HAVE AN
ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As part of its growth strategy, Huttig plans to pursue acquisitions. If
Huttig is not correct when it assesses the value, strengths, weaknesses,
liabilities and potential profitability of acquisition candidates or it is not
successful in integrating the operations of the acquired businesses, it could
have a material adverse effect on Huttig's financial condition and results of
operation. Huttig also may not be successful finding desirable acquisition
candidates or completing acquisitions with candidates that it identifies.
Depending upon the size of a particular transaction or the magnitude of
Huttig's acquisition activity in the aggregate, future acquisitions could
require additional equity capital, further borrowings and/or the consent of
Huttig's lenders. Future acquisitions that Huttig finances through issuing
equity
8
securities could be dilutive to then current stockholders. There can be no
assurances that Huttig's lenders will consent to any capital raising or
acquisition transactions.
o HAVING NO OPERATING HISTORY AS A STAND-ALONE COMPANY MAKES IT IMPOSSIBLE TO
PREDICT HUTTIG'S PROFITABILITY AFTER THE SPIN-OFF.
Huttig has historically relied on Crane for certain financial and
administrative services, such as treasury, legal, tax, insurance and employee
benefit plan administration. After the spin-off, Crane will only be obligated
to provide Huttig with assistance and services set forth in the Transition
Services Agreement. See "Arrangements with Crane Relating to the Spin-Off."
Following the spin-off, Huttig will incur the additional costs of
performing these functions itself, as well as the additional expenses
associated with the management of a public company. While Huttig has been
profitable as part of Crane, there can be no assurance that, as a stand-alone
company, its future profits will be comparable to historical results before the
spin-off. See "Huttig Unaudited Pro Forma Condensed Financial Information."
o IF HUTTIG CANNOT ATTRACT AND RETAIN KEY PERSONNEL IT COULD HAVE A MATERIAL
ADVERSE EFFECT ON ITS FUTURE SUCCESS.
Huttig's future success depends to a significant extent upon the
continued service of its executive officers and other key management and
technical personnel and on its ability to continue to attract, retain and
motivate qualified personnel. The loss of the services of one or more of
Huttig's key employees or its failure to attract, retain and motivate qualified
personnel could have a material adverse effect on its financial condition and
results of operations.
o ANY INABILITY TO OBTAIN THE PRODUCTS THAT HUTTIG DISTRIBUTES COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Huttig distributes building products that are manufactured by a number
of major suppliers. As is customary in this industry, Huttig does not have
long-term contracts with its suppliers. Although Huttig believes that its
relationships with its suppliers are strong and that it would have access to
similar products from competing suppliers, any disruption in its sources of
supply, particularly of the most commonly sold items, could have a material
adverse effect on its financial condition and results of operations. Supply
shortages may occur as a result of unanticipated demand or production
difficulties. When shortages occur, building material suppliers often allocate
products among distributors. Future shortages may occur from time to time and
may have a short-term material adverse effect on Huttig's financial condition
and results of operations.
o HUTTIG'S FINANCIAL PERFORMANCE IS INFLUENCED BY THE FLUCTUATION IN PRICES
OF COMMODITY WOOD PRODUCTS THAT HUTTIG BUYS AND THEN RESELLS.
In parts of Huttig's business, such as the softwood molding
manufacturing operation and certain of its distribution centers, Huttig is
subject to periodic fluctuations in the prices of wood commodities. Huttig's
profitability is influenced by these fluctuations due to the change in
commodity prices between the time it buys them and the time it resells them.
There can be no assurance that an inability to manage these fluctuations would
not have a material adverse effect on Huttig's financial condition and results
of operations.
o BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR HUTTIG'S COMMON STOCK, IT IS
IMPOSSIBLE TO PREDICT THE PRICES AT WHICH HUTTIG COMMON STOCK WILL TRADE
IN THE OPEN MARKET.
There has been no prior trading market for Huttig's common stock, and
there can be no guarantee as to the prices at which it will trade after
completion of the spin-off. Until Huttig common stock is fully distributed and
an orderly market develops, the trading prices for it may fluctuate
significantly. The prices at which shares of Huttig common stock trade will be
determined by the marketplace and may be influenced by many factors, including,
among other things, the following factors:
o the depth and liquidity of the market for Huttig common stock;
o investor perceptions of Huttig, its business and the industries in
which it operates;
o Huttig's dividend policy;
o Huttig's financial results; and
9
o general economic and market conditions.
o IF SUBSTANTIAL VOLUMES OF THE HUTTIG COMMON STOCK RECEIVED IN THE SPIN-OFF
ARE RE-SOLD SOON AFTER THE SPIN-OFF, IT COULD CAUSE A DECREASE IN THE
MARKET PRICE OF HUTTIG COMMON STOCK.
Substantially all of the shares of Huttig common stock distributed in
the spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction because of the differing objectives and
strategies of investors.
It can not be predicted whether substantial amounts of Huttig common
stock will be sold in the open market following the spin-off or what effect
such sales might have. A large volume of sales in the public market during this
period, or the perception that any redistribution has not been completed, could
have a material adverse effect on the market price of Huttig common stock.
o FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING
COULD CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO CRANE OR TO CRANE'S
STOCKHOLDERS AND MAY GIVE RISE TO INDEMNIFICATION OBLIGATIONS ON HUTTIG'S
PART.
While a tax ruling relating to the qualification of a spin-off as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code generally is binding on the IRS, the continuing validity of a tax ruling
is subject to certain factual representations and assumptions. Neither Crane
nor Huttig is aware of any facts or circumstances that would cause the
representations and assumptions contained in the tax ruling request made by
Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within
the meaning of Section 355 of the Code, Crane would recognize taxable gain
equal to the excess of the fair market value of the Huttig common stock
distributed to Crane's stockholders over Crane's tax basis in the Huttig common
stock. In addition, each Crane stockholder who receives the Huttig common stock
in the spin-off would generally be treated as receiving a taxable distribution
in an amount equal to the fair market value of the Huttig common stock.
If the spin-off qualified under Section 355 of the Code but was
disqualified as tax-free to Crane because of certain post-spin-off
circumstances, such as an acquisition of Huttig within two years after the
spin-off, Crane would recognize taxable gain but the spin-off would generally
be tax-free to each Crane stockholder.
The Tax Allocation Agreement provides that Huttig will be responsible
for any taxes imposed on Crane that would not have been payable but for the
breach by Huttig of any representation, warranty or obligation under the Tax
Allocation Agreement, the tax ruling request or the Distribution Agreement. For
example, under the Tax Allocation Agreement, unless Huttig receives an opinion
of counsel reasonably satisfactory to Crane or a new IRS ruling to the effect
that the action will not disqualify the spin-off from tax-free treatment,
Huttig may not for two years after the spin-off, among other things, be
acquired by a third party or repurchase more than 20% of the outstanding Huttig
common stock. If any of the taxes described above were to become payable by
Huttig because it breached one of these or its other representations or
obligations, that payment would have a material adverse effect on Huttig's
financial position, results of operations and cash flow and could exceed its
net worth by a substantial amount. See "Arrangements with Crane Relating to the
Spin-Off-- Tax Allocation Agreement."
o IF HUTTIG IS NOT SUCCESSFUL IN MANAGING ITS YEAR 2000 TRANSITION IT COULD
HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Crane and Huttig are in the process of implementing plans to address
issues related to the impact of the Year 2000 on Huttig's business systems,
infrastructure and suppliers. The estimated costs associated with these efforts
continue to be evaluated based on actual experience.
While Huttig believes, based on available information, that it will be
able to manage its total Year 2000 transition without any material adverse
effect on its business, financial condition and results of operations, there
can be no
10
assurance that this will be the case. In addition, Huttig may be adversely
affected by the failure of suppliers, customers and federal, state, local and
foreign governments to address Year 2000 issues affecting their systems.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Year 2000."
o PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX
ALLOCATION AGREEMENT COULD HAVE THE EFFECT OF DELAYING OR PREVENTING A
CHANGE IN CONTROL OF HUTTIG, WHICH MAY HAVE AN ADVERSE EFFECT ON THE
MARKET PRICE OF HUTTIG'S COMMON STOCK.
Huttig's Restated Certificate of Incorporation, Restated Bylaws and
Rights Agreement, and the General Corporation Law of the State of Delaware (the
"DGCL") contain provisions that could make the acquisition of control of Huttig
in a transaction not approved by Huttig's board of directors more difficult.
See "Description of Huttig Capital Stock -- Rights Plan," "-- Certain
Provisions of Huttig's Governing Documents," and "-- Anti-takeover
Legislation." Certain tax consequences described above may also discourage an
acquisition of control of Huttig for some period of time.
CAUTIONARY STATEMENT
You are cautioned that this document contains disclosures that are
forward-looking statements. All statements regarding Huttig's expected future
financial position, results of operations, cash flows, dividends, financing
plans, business strategy, budgets, projected costs or cost savings, capital
expenditures, competitive positions, growth opportunities, plans and objectives
of management for future operations and markets for stock are forward-looking
statements. In addition, forward-looking statements include statements in which
words such as "expect," "believe," "anticipate," "intend," "plans," "should,"
"opportunity" or similar expressions are used. Although it is believed that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct, and actual results may differ materially from those
reflected in the forward-looking statements.
Factors that could cause Huttig's actual results to differ from the
expectations reflected in the forward-looking statements in this document
include those set forth in "Risk Factors" as well as those risks relating to
leverage and debt service requirements (including sensitivity to fluctuations
in interest rates) and general business and economic conditions.
Neither Huttig nor Crane has any intention of or obligation to update
forward-looking statements, even if new information, future events or other
circumstances make them incorrect or misleading.
BUSINESS
OVERVIEW
Huttig is a distributor of building materials used principally in new
residential construction and in home improvement, remodeling and repair work.
Its products are distributed through 45 distribution centers serving 41 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 and industrial and manufactured housing builders.
Huttig's American Pine Products manufacturing facility, located in Prineville,
Oregon, produces softwood moldings. Approximately 20% of its sales are to
Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction
business with differentiated building products and excellent service and to
enhance its profitability through increased efficiencies. Huttig plans to
execute this strategy through acquisitions that allow it to expand
geographically, consolidate in existing markets or broaden its customer base,
and by focusing on customer service, capitalizing on the size of its
distribution center network and reducing its transaction costs.
Huttig's products include doors, windows, moldings, specialty building
materials such as housewrap, stair parts and engineered wood products, and
lumber and other commodity building products. Products carried by a particular
distribution center vary by location. Many of Huttig's products, such as
pre-hung doors, pre-assembled windows, cut-to-length molding and lumber are
customized to customer specifications, resulting in higher margin
11
value-added business. In order to improve customer service, Huttig is focused
on increasing its product offerings with a greater depth of similar products
and a broader range of complementary products such as wall panels, trusses and
engineered floor systems.
To varying degrees in different markets, Huttig offers a number of
services to its customers, including assistance with project design and product
specifications, installation of products and coordination of job-site delivery
with whole house packages staged for delivery as needed by the contractor.
Huttig sells on open account terms to pre-approved customers at all locations.
Each distribution center 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 seeks to closely align its employee compensation structure with
its shareholders' interests. A significant part of the compensation of most of
Huttig's employees is based on the performance of individual distribution
centers. Huttig's management incentive compensation programs, in which all
executive officers and building center managers participate, are based on
increasing the after-tax rate of return on the assets employed in its business.
In addition, Huttig's stock-based compensation plans ensure that key employees
are focused on actions and strategies intended to increase shareholder value.
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 1998 approximated 1.7 million based on
data from F.W. Dodge, including 1.3 million single family residences.
Approximately 64% of single family new construction in 1998 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 1998 was
$214.0 billion and aggregate expenditures for residential repair and remodeling
were an additional $120.0 billion. Huttig believes that sales of windows, doors
and other millwork accounted for approximately $12.0 billion in 1998.
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 advent of home center chains
such as 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
12
the consolidation trend in favor of companies like Huttig that operate
nationally and have significant infrastructure in place.
STRATEGY
Huttig's strategy is to grow its business by providing the residential
construction industry with differentiated building products and excellent
service, and to enhance its profitability through increased efficiencies. To
execute this strategy, Huttig is focusing on four goals:
o Expansion through acquisition;
o Enhancing customer service;
o Leveraging its size; and
o Lowering transaction costs.
Expansion Through Acquisition. Huttig's acquisition strategy is to
target leading traditional regional building materials distributors whose
acquisition will allow Huttig to:
o enter new geographic markets;
o consolidate its presence in existing markets through
o increasing economies of scale in terms of delivery capabilities
and purchasing, or
o broadening its product offerings, including those that will
enhance its reputation as a value-added distributor of name-brand
products; or
o broaden its customer base, including by increasing direct sales to
builders and contractors.
Although Huttig has locations across most of the U.S., it does not have
distribution centers in Texas or the Rocky Mountain or Great Lakes regions.
Huttig also sees opportunity for greater market penetration in some of the
mid-Atlantic states. Value-added service capabilities, such as project design
assistance, installation of products and the ability to provide and co-ordinate
delivery of building materials for whole house construction, also influence the
selection of acquisition targets.
Enhancing Customer Service. Huttig is seeking to increase sales and
profitability through enhancing customer service in the following ways:
o Increasing the breadth of its product lines to provide more
"one-stop-shop" capabilities.
o Positioning itself to provide efficient outsourcing of value-added
services.
o Optimizing ease and responsiveness in the order-taking and delivery
process.
Leveraging Its Size. Huttig has established a centralized approach to
product management and administrative functions in order to capitalize on the
size of its U.S. distribution center network.
o Inventory levels, merchandising and pricing are tailored to local
markets, but vendor selection and purchase cost are negotiated
nationally from Huttig's headquarters. Huttig seeks to be a major
customer of its suppliers, enabling it to obtain beneficial pricing
and purchasing terms, ensure timely delivery of products and maintain
appropriate inventory availability. Management believes that further
opportunities to realize purchasing economies exist and Huttig
intends to pursue such opportunities.
o Huttig centralizes many administrative functions such as accounting
and finance, information technology, employee benefits, insurance,
human resources, legal and national account sales efforts, both to
achieve economies of scale and to permit distribution center managers
to focus on sales, service and profitability.
o The benefits of centralization are being further leveraged through
the consolidation of distribution centers with overlapping service
areas. Huttig plans to continue consolidation of locations in tandem
with its acquisition strategy.
Lowering Transaction Costs. Huttig is organizing to reduce transaction
costs through increased operating efficiencies. Utilization of Six Sigma, a
statistical and analytic process improvement technique to reduce
inefficiencies, has been employed beneficially in this effort.
13
o Huttig's centralization of product management and administrative
functions, and the consolidation of overlapping locations, are an
integral part of its efforts to increase operating efficiencies.
Huttig is also working to centralize logistics and transportation
functions.
o Another key effort Huttig is undertaking is the standardization of
processes and procedures at its distribution centers, which Huttig
believes will further enhance the ability of its managers to focus on
sales, service and profitability.
o Assisted by recent investment in technology through installation of a
wide area network and upgrades to its computer systems, Huttig can
provide administrative support to multiple distribution centers from
another center or to all centers from headquarters. Huttig's
information system provides its distribution center managers with
real-time pricing, inventory availability and margin analysis.
PRODUCTS
Each distribution center carries a variety of products that vary by
location. Huttig's principal products are doors, windows, moldings, specialty
building materials such as housewrap, stair parts and engineered wood products,
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 two 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.
1998 1997
------ -----
Doors ................. 37% 37%
Specialty Building
Materials .......... 20 21
Windows ............... 19 21
Moldings .............. 12 15
Lumber and Other
Commodity
Products ........... 12 6
Huttig's sales of doors were approximately $260.0 million in 1998 and
included 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 (Registered Trademark) , Jeld-Wen (Registered Trademark) , Florida
Made, and Premdor, 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.
Coupled with pre-hanging, Huttig 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 the past
year in state-of-the-art equipment, which allowed it to increase its capacity
by approximately 20%.
Sales of specialty building materials were $141.0 million in 1998.
Included in this category are products differentiated through branding or
value-added characteristics. Branded products include Tyvek (Registered
Trademark) housewrap, L. J. Smith Stair Systems and Simpson Strong-Tie
(Registered Trademark) connectors. Also included in specialty sales are
trusses, wall panels and engineered wood products such as floor systems
assembled in Huttig's new facility in Topeka, Kansas serving the eastern Kansas
and western Missouri markets.
Window sales amounted to $133.0 million in 1998 and included shipments
of wood, vinyl-clad, vinyl and aluminum windows from branded manufacturers such
as Andersen (Registered Trademark) , Weather Shield and Marvin, as well as
unbranded products. Andersen (Registered Trademark) trademarked products, sold
to dealers through 13 of Huttig's distribution centers, accounted for a
significant
14
majority of Huttig's 1998 sales of windows. Huttig is working to expand the
depth of its offerings of windows to include a wider range of quality and price
as part of the strategy to better serve the customer.
Molding sales, including door jams, door and window frames, and
decorative ceiling, chair and floor molding, were $89.0 million in 1998. The
vast majority of these sales were made by American Pine Products. Profitability
of this highly competitive, commodity-priced product depends upon efficient
plant operations, rapid inventory turnover and quick reaction to changing
market conditions. Moldings are a necessary complementary product line to doors
and windows as part of a house's millwork package.
Sales of lumber and other commodity building products were $85.0 million
in 1998. Growth of Huttig's lumber sales has resulted primarily from its
acquisition of Mallco Lumber Company in Phoenix in 1997 and Huttig's
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 dry
wall, metal vents, siding, nails and other miscellaneous hardware.
PURCHASING
Huttig generally negotiates with its major vendors on a company-wide
basis to obtain favorable pricing, volume discounts and other beneficial
purchase terms. A majority of Huttig'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,
including Andersen (Registered Trademark) , on an exclusive or non-exclusive
basis, depending on the product and the territory involved. Huttig'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.
SALES AND MARKETING
Each of Huttig's distribution centers tailors its product and service
mix to the local market and operates as a separate profit center. 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. Huttig 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 Huttig's suppliers advertise to the
trade and directly to the individual consumer through nationwide print and
other media.
Huttig'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
service representatives at each branch. This sales force is compensated by
commissions determined on the basis of return on sales or total margin on
sales.
CUSTOMERS
Huttig distributes products to a large number and variety of building
materials dealers, professional builders, large contractors, home centers,
national buying groups and others.
Building materials dealers represent Huttig's single largest customer
group. Despite the advent of the home center chains and the trends toward
consolidation of dealers and increased direct participation in wholesale
distribution by some building materials manufacturers, Huttig 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
15
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 Huttig to enhance the value-added component of its
business.
The percentage of Huttig's 1998 revenue attributable to various
categories of customers are as follows:
Dealers .......................... 62%
Home Centers and Buying Groups 15%
Builders and Contractors ......... 13%
Industrial and Manufactured
Housing ....................... 10%
COMPETITION
Huttig'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, Weyerhaeuser 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.
Huttig 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. Huttig'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 molding manufacturing business
competes on the basis of relative length of lead times to produce and deliver
product, service and geographic coverage.
FACILITIES
Huttig's headquarters are in Chesterfield, Missouri, in leased
facilities. Its manufacturing facility for softwood moldings is a
280,000-square foot facility owned by Huttig and located in Prineville, Oregon.
Approximately 53% of Huttig's 45 distribution centers are leased and the
remainder are owned. Warehouse space at Huttig's distribution centers
aggregates approximately 2.7 million 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 classic 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 generally adequate for their purposes.
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
converted most branch operations to the primary tradename "Huttig Building
Products." Some local branches continue to use historical tradenames as
secondary tradenames to maintain goodwill.
EMPLOYEES
At December 31, 1998, Huttig employed 2,328 persons, of which
approximately 300 were
16
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 Huttig's employees:
Officers and corporate
administrative ........... 77
Distribution center ......... 1,574
Field sales ................. 234
Manufacturing ............... 443
SEASONALITY
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 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
Huttig'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 Huttig anticipates in a given
quarter and is not indicative of its actual sales for any future period.
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 or liquidity.
ENVIRONMENTAL
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 also believes that it is in compliance
with applicable laws and regulations regulating the discharge of hazardous
substances into the environment.
17
HUTTIG HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of Huttig.
The Statement of Income Data set forth below for each of the three years in the
period ended December 31, 1998 and the Balance Sheet Data at December 31, 1998
and 1997 are derived from the audited consolidated financial statements and
notes thereto included elsewhere in this Information Statement. The Statement
of Income Data set forth below for each of the two years in the period ended
December 31, 1995 and the Balance Sheet Data at December 31, 1996, 1995 and
1994 are derived from audited consolidated financial statements of Huttig not
included in this Information Statement. The Statement of Income Data set forth
below for the six month periods ended June 30, 1999 and 1998 and the Balance
Sheet Data at June 30, 1999 and 1998 are derived from the unaudited condensed
financial statements included elsewhere in this Information Statement. The
historical selected financial data 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 Information
statement. Per share data has not been presented because Huttig was not a
publicly-held company during the periods presented.
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (IN THOUSANDS)
Statement of Income
Data:
Net sales ................ $380,754 $319,640 $707,450 $625,503 $595,089 $570,856 $598,665
Depreciation and
amortization ........... 3,272 2,226 5,586 4,409 4,929 5,228 5,234
Operating profit ......... 11,797 8,534 26,971 19,842 22,105 18,889 19,500
Interest expense,
net .................... 3,853 2,912 6,870 4,467 200 352 402
Income before
taxes .................. 7,289 5,507 21,851 14,814 20,757 20,094 20,082
Provision for
income taxes ........... 2,769 1,929 8,255 5,759 8,469 8,243 8,225
Net income ............... 4,520 3,578 13,596 9,055 12,288 11,851 11,857
Balance Sheet Data
(at end of period):
Assets ................... 213,217 165,658 218,462 153,950 206,430 191,535 185,527
Long-term debt:
Note Payable--
Parent ................ 92,182 67,100 93,940 67,100 -- -- --
Other long-term
debt .................. 1,253 1,512 1,379 1,715 2,074 2,540 4,911
18
HUTTIG UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Huttig unaudited pro forma statements of income and balance
sheet have been derived from the Huttig historical financial statements
included elsewhere in this Information Statement. These statements should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the consolidated financial statements
and notes thereto included elsewhere in this Information Statement.
The Huttig unaudited pro forma statements of income have been prepared on
the basis that the spin-off, including the initial borrowings under the Huttig
credit agreement and the application of a portion of the proceeds of said
borrowings to repay certain indebtedness to Crane, and the aquisition of
certain assets and assumption of certain liabilities of Consolidated Lumber
Company, Inc., had occurred at January 1, 1998. The Huttig unaudited pro forma
balance sheet has been prepared on the basis that the spin-off and the
borrowings had occurred on June 30, 1999. The pro forma adjustments as
described in the notes to the pro forma statements of income and balance sheet
are based on currently available information and contain adjustments that
management believes are reasonable. This pro forma information does not
necessarily represent what the financial position or results of operations
would have actually been if the transactions had in fact occurred on such date
or at the beginning of such period or to be indicative of the financial results
or results of operations for any future date or period.
HUTTIG UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
PRO FORMA
HISTORICAL ACQUISITION (A) ADJUSTMENTS PRO FORMA (B)
------------ ----------------- ----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales ............................. $707,450 $31,253 $ -- $738,703
Cost of sales ......................... 606,993 22,850 -- 629,843
Selling, general and administrative 67,900 6,664 -- 74,564
Depreciation and amortization ......... 5,586 239 867 (c) 6,692
-------- ------- -------- --------
Operating profit ...................... 26,971 1,500 (867) 27,604
Interest expense, net ................. 6,870 -- (797) (d) 6,073
Miscellaneous income, net ............. 1,750 73 -- 1,823
-------- ------- -------- --------
Income before taxes ................... 21,851 1,573 (70) 23,354
Provision for income taxes ............ 8,255 594 (26)(e) 8,823
-------- ------- -------- --------
Net income ............................ $ 13,596 $ 979 $ (44) $ 14,531
======== ======= ======== ========
Net income per share:
Basic ...............................................................................
Diluted .............................................................................
Average diluted shares outstanding ................................................... (f)
(a) Reflects January to June results of operations of Consolidated Lumber
Company, Inc. not included in 1998 results.
(b) Pro forma amounts do not reflect additional estimated annual expenses of
approximately $2,000 for insurance, compensation, professional fees,
directors fees and other expenses that Huttig expects to incur as a
separate, stand-alone company after the spin-off.
(c) Reflects January to June amortization of the excess of the purchase price
over the cost of the net assets acquired of Consolidated Lumber Company,
Inc. not included in 1998 results.
(d) Reflects interest expense of $5,906 on the $75,000 assumed borrowings under
the credit agreement at an annual interest rate of 73/4% and the
amortization of $750 in financing fees over eight years, which is $797 less
than interest expense of $6,703 incurred on parent company debt for the
period.
(e) Reflects the tax effect of the pro forma adjustments.
(f) Reflects shares issued to effect the spin-off and the dilutive effect of
stock options.
19
HUTTIG UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA (A)
------------ ----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales ................................... $380,754 $ -- $380,754
Cost of sales ............................... 330,323 -- 330,323
Selling, general and administrative ......... 35,362 -- 35,362
Depreciation and amortization ............... 3,272 -- 3,272
-------- -------- --------
Operating profit ............................ 11,797 -- 11,797
Interest expense, net ....................... 3,853 (835)(b) 3,018
Miscellaneous expense, net .................. 655 -- 655
-------- -------- --------
Income before taxes ......................... 7,289 835 8,124
Provision for income taxes .................. 2,769 317 (c) 3,086
-------- -------- --------
Net income .................................. $ 4,520 $ 518 $ 5,038
-------- -------- --------
Net income per share:
Basic .......................................................................
Diluted .....................................................................
Average diluted shares outstanding ........................................... (d)
(a) Pro forma amounts do not reflect additional estimated six-month expenses of
approximately $1,000 for insurance, compensation, professional fees,
directors fees and other expenses that Huttig expects to incur as a
separate, stand-alone company after the spin-off.
(b) Reflects interest expense of $2,953 on the $75,000 assumed borrowings under
the credit agreement at an annual rate of 73/4% and the amortization of
$750 in financing fees over eight years, which is $835 less than interest
expense of $3,788 incurred on parent company debt for the period.
(c) Reflects the tax effect of the pro forma adjustments.
(d) Reflects shares to effect the spin-off and the dilutive effect of stock
options.
20
HUTTIG UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------------ ----------
(IN THOUSANDS)
Assets
- - - ------
Current Assets:
Cash ............................................... $ 946 $ -- $ 946
Accounts receivable (net) .......................... 80,857 -- 80,857
Inventories ........................................ 49,288 -- 49,288
Other current assets ............................... 623 -- 623
-------- --------
Total current assets ............................. 131,714 -- 131,714
Other assets ........................................ 43,682 -- 43,682
Property, plant and equipment -- net ................ 37,821 -- 37,821
-------- --------
Total assets ..................................... $213,217 $ -- $213,217
======== ========== ========
Liabilities and Equity
- - - ----------------------
Current Liabilities:
Loans and current maturities of long-term debt ..... $ 255 $ -- $ 255
Accounts payable ................................... 48,637 -- 48,637
Payable to Parent .................................. 14,494 (14,494)(a) --
Accrued liabilities ................................ 16,569 -- 16,569
-------- ---------- --------
Total current liabilities ........................ 79,955 (14,494) 65,461
Long-term debt ...................................... 1,253 74,250 (b) 75,503
Note payable to Parent .............................. 92,182 (92,182)(c) --
Postretirement benefits ............................. 7,577 -- 7,577
Equity .............................................. 32,250 32,426 (d) 64,676
-------- ----------- --------
Total liabilities and equity ..................... $213,217 $ -- $213,217
======== =========== ========
(a) Reflects the payment of $14,494 due to Crane.
(b) Reflects $75,000 borrowings under the credit agreement, net of $750 for
financing fees.
(c) Reflects the payment of $92,182 note due to a Crane financing subsidiary.
(d) Reflects a $32,426 capital contribution from Crane.
21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The building products industry and Huttig are affected by various factors
including general economic conditions, the level of new residential building
and home improvement activity, weather conditions, interest rates, employment
levels, and the availability of credit. See "Risk Factors."
Huttig has experienced improvement in its results of operations since 1994,
with revenue growing from $598.7 million in 1994 to $707.5 million in 1998.
This revenue growth has been accomplished largely due to acquisitions completed
since 1993. Additionally, Huttig's operating profit has increased from $19.5
million in 1994 to $27.0 million in 1998, a compounded annual growth rate of
8.4%.
These trends are reflected in a 6.2% compounded annual growth rate in gross
margin, which resulted primarily from the contribution of acquired businesses
and sales of higher margin products at existing branches. Gross profit as a
percentage of revenue has grown from 13.2% in 1994 to 14.2% in 1998. Operating
profit as a percentage of revenue has increased from 3.3% in 1994 to 3.8% in
1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue increased 19.1% from $319.6 million in the first six months of 1998 to
$380.8 million in the comparable period of 1999. This increase was due to the
1998 mid-year acquisitions of Consolidated Lumber Company and Number One Supply
and same-branch sales growth of 5.6%.
Gross profit grew $8.5 million to $50.4 million in the first six months of 1999
as the result of the acquisitions discussed above as well as from the increase
in same-branch sales. Gross profit as a percentage of sales on a same-branch
basis increased 0.4% over the 1998 period.
Selling, general and administrative expense increased $4.2 million or 13.5%
from the comparable prior period, to $35.4 million, primarily as a result of
acquisitions. On a same-branch basis, excluding acquisitions, these expenses
increased only 2.1%, and therefore in the first six months of 1999 were 9.4% of
sales compared to 9.7% in the same period last year.
As a result of the contribution from the acquisitions and the improved expense
control, operating income in the first six months of 1999 was $11.8 million, or
$3.3 million higher than the same period last year, and operating profit margin
increased to 3.1% from 2.7%.
Interest expense increased $0.9 million as the result of higher borrowings.
Net income increased $0.9 million, or 26.3%, for the first six months of 1999
compared to the same period in 1998, and reflected a small increase as a
percentage of sales.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue increased 13.1% from $625.5 million in 1997 to $707.5 million in 1998.
This increase was due primarily to the mid-1997 acquisition of MALLCO Lumber
Co. and the mid-1998 acquisitions of Number One Supply and certain assets and
assumption of certain liabilities of Consolidated Lumber Company, Inc.
Same-branch sales grew $6.5 million or 1.1% in 1998.
Gross profit in 1998 grew $18.1 million, or 21.9%, from the prior year and
gross profit margins improved to 14.2% from 13.2%. Total gross profit increased
principally as a result of the acquisitions, and margins increased due to an
improved product mix including a greater percentage of value-added products,
primarily doors.
Selling, general and administrative expenses increased $9.7 million or 16.8%,
to $67.9 million in 1998 from $58.2 million in 1997. This was primarily because
of the effect of acquisitions, but also due to an increase in compensation
expense. This caused these expenses as a percentage of sales to increase from
9.3% in 1997 to 9.6% in 1998.
Because the gross profit margin increase was greater than the related increase
in expenses, operating profit margins increased as a percentage of sales to
3.8% in 1998 from 3.2% in 1997. Operating profit totaled $27.0 million in 1998,
a 35.9% increase from $19.8 million in 1997.
Interest expense increased $2.4 million in 1998 compared to 1997 as result of
higher borrowings to finance a dividend to a subsidiary of Huttig's parent.
22
Net income increased 50.1% from $9.1 million in 1997 to $13.6 million in 1998
and net income as a percentage of sales increased from 1.4% in 1997 to 1.9% in
1998.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue increased 5.1% from $595.1 million in 1996 to $625.5 million in 1997.
This was due primarily to the benefit of the sales contribution of the MALLCO
Lumber acquisition in July 1997.
Gross profit declined $0.8 million or 1.0% in 1997 compared to 1996, because of
an increase in raw materials costs for Huttig's molding manufacturing
operations and the inability to increase selling prices due to competition from
importers.
Selling, general and administrative expense increased $2.0 million or 3.5% from
$56.2 million in 1996 to $58.2 million in 1997, primarily due to the
acquisition noted above and expenses for repair of several older facilities. As
a percentage of sales, these expenses decreased marginally to 9.3% in 1997 from
9.4% in the prior period. Operating income decreased 10.2% from $22.1 million
in 1996 to $19.8 million in 1997.
Interest expense increased $4.3 million in 1997 compared to 1996 as result of
higher borrowings to finance a dividend to a subsidiary of Huttig's parent.
Net income decreased 26.3% from $12.3 million in 1996 to $9.1 million in 1997
and net income as a percentage of sales decreased from 2.1% in 1996 to 1.4% in
1997.
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
generation 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 needs. Inventory turns increased to 10.1 from 8.1 in
1997 and 7.3 in 1996 resulting in a positive effect on cash flow of $12.4
million over the two years. To the extent internal funds generated were
insufficient, Huttig borrowed from Crane Co. and to the extent cash generated
by Huttig was greater than current requirements, the cash was returned to
Crane. In particular, Huttig historically has borrowed from Crane to finance
acquisitions, but has typically been able to generate cash sufficient to
finance all other needs. In 1998, capital expenditures of $5.8 million and
acquisition costs aggregating $44.9 million were financed through $35.9 million
in cash generated from operations, with the remainder through borrowings from
Crane.
In the future, Huttig will finance seasonal working capital requirements and
acquisitions through cash from operations and the [bank facility]. $ of
the proceeds from [the bank facility] will be used to repay indebtedness and
other liabilities to Crane in connection with the spin-off.
EFFECTS OF INFLATION
In 1997, raw material price increases had a negative impact on Huttig's results
of operations as it was unable to pass along these added costs to customers
through sales price increases due to increased competition from imports.
However, as Huttig continues to grow, its manufacturing operations decrease as
a percentage of its overall business and any impact of inflation is lessened.
Furthermore, management believes that, to the extent inflation affects its
costs in the future and competitive conditions permit, Huttig can offset these
increased costs by increasing sales prices.
YEAR 2000
The Year 2000 Issue relates to most computer software programs using two
digits, rather than four, to define the applicable year for dates. Any of
Huttig's information technology (IT) and non-information technology (non-IT)
systems may recognize a date using "00" as the year 1900, rather than the year
2000. This could result in system failures or miscalculations, causing
disruptions in operations, including the inability to process transactions and
engage in similar normal business activities within Huttig and with third
parties.
23
Huttig has implemented a year 2000 program for its IT and non-IT systems
consisting of four phases: 1) awareness, formation, planning and management; 2)
inventory, analysis, compliance testing, prioritization and planning; 3)
implementation and validation; and 4) Year 2000 compliance. Huttig's senior
management receive regular updates on the status of Huttig's Year 2000 program.
In addition, Huttig has contacted significant vendors and customers in order to
determine its risks from a third party's failure to remediate its own Year 2000
issues. While information obtained from these contacts will be used to mitigate
these risks, there can be no assurance that any third party systems or products
will be Year 2000 compliant on a timely basis or that non-compliance by such
third parties will not have a material adverse effect on Huttig.
Huttig's Year 2000 program was initiated in 1997. Virtually all
mission-critical systems, including IT and non-IT systems, are in the
implementation phase or are compliant. Non mission-critical systems are in
various phases of completion and an immaterial amount of work on them is
expected to continue into the year 2000. It is expected that all
mission-critical systems will be implemented, tested and validated by September
of 1999.
Year 2000 costs incurred to date are approximately $1.3 million, of which $0.7
million was expensed and $0.6 million was capitalized. Estimated future costs
to complete the Year 2000 program are $0.5 million, of which $0.2 million will
be expensed as incurred and the remaining $0.3 million will be capitalized.
These costs have been, and will continue to be, funded from normal operating
cash flows of the business. No other information technology projects have been
or are being delayed by this program.
Huttig believes that completed and planned modifications and conversions of its
software and hardware systems and its efforts to verify the readiness and
compliance of material third parties will allow it to meet its Year 2000
compliance schedule. However, the success of the Year 2000 compliance program
is based on the availability of a variety of technical experts, expected
successful software modifications being performed by third parties, timely
delivery of new software and hardware systems, and other factors. A deficiency
with respect to any of these factors could cause a failure in Huttig's Year
2000 program, in whole or in part. The failure to correct a material Year 2000
program could result in an interruption in, or a failure of, certain normal
business activities or operations, which could have a material adverse effect
on Huttig's results of operations, liquidity or financial condition. Due to the
inherent uncertainty in the Year 2000 problem, particularly in regard to third
party vendor and customer Year 2000 readiness, Huttig is unable to determine at
this time whether the consequences of any Year 2000 disruptions or failures
will have a material adverse effect on Huttig's results of operations,
liquidity or financial condition. However, based on current information, the
most reasonably likely worst case scenario would involve the temporary
disruption of Huttig's ability to fulfill customer orders and no material
adverse effect on Huttig's financial condition is expected from this specific
scenario.
MARKET RISK DISCLOSURE
Huttig currently has no floating rate indebtedness, holds no derivative
instruments and does not generate significant income from non-U.S. sources.
Accordingly, changes in interest rates and 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 fluctuations 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.
CREDIT FACILITY
Huttig has recently established a $[75] million [unsecured revolving credit
facility] with . Borrowings under this credit facility will be used to
repay certain of Huttig's debts to Crane and some of its affiliates. If Huttig
has any remaining borrowing availability under this credit facility, it is
expected that those funds will be used for working capital or general corporate
purposes.
24
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
On , 1999, Crane's board of directors approved the spin-off of
Huttig. The Crane board of directors believes that the spin-off is in the best
interest of Crane's stockholders.
Huttig is being spun-off for the following reasons:
o The spin-off should allow Huttig to more effectively pursue its
acquisition strategy by, among other things, providing it the
flexibility to use its stock as currency to purchase potential
acquisition targets.
o The growth and management strategies of Huttig's distribution business
are not fully aligned with the other businesses of Crane. Separation
of Huttig's business from Crane will allow Huttig to better position
its own strategic objectives in its area of expertise, which should
result in enhanced growth.
o The spin-off will enable Huttig to have direct access to capital
markets. Depending upon market conditions, Huttig may raise equity
capital to retire some or all of its outstanding debt.
o The spin-off will allow Huttig to recruit, retain and motivate key
employees by providing them with stock-based compensation incentives
directly tied to the success of Huttig's business.
MANNER OF EFFECTING THE SPIN-OFF
Crane will effect the spin-off by distributing all issued and
outstanding shares of Huttig common stock to holders of record of Crane common
stock as of the close of business on , 1999. The spin-off will be made on
the basis of one share of Huttig common stock for every shares of Crane
common stock held as of the close of business on , 1999.
As Huttig will use a direct registration system to implement the
spin-off, the distribution agent will credit the shares of Huttig common stock
distributed on the date of the spin-off, including fractional interests for
those stockholders who receive at least one whole share of Huttig common stock,
to book-entry accounts established for all Crane stockholders and will mail an
account statement to each stockholder stating the number of shares of Huttig
common stock, including such fractional interests, received by such stockholder
in the spin-off. Following the spin-off, stockholders may request transfer to a
brokerage or other account or physical stock certificates for their shares of
Huttig common stock.
If a stockholder owns fewer than shares of Crane common stock
and therefore is entitled to receive less than one whole share of Huttig common
stock, that stockholder will receive cash instead of a fractional share of
Huttig common stock. If a stockholder requests physical certificates for shares
of Huttig common stock, that stockholder will receive physical certificates for
all whole shares of Huttig common stock and cash instead of any fractional
share interest. The distribution agent will, promptly after the date of the
spin-off, aggregate all such fractional share interests in Huttig common stock
with those of other similarly situated stockholders and sell such fractional
share interests in Huttig common stock at then-prevailing prices. The
distribution agent will distribute the cash proceeds to stockholders entitled
to such proceeds pro rata based upon their fractional interests in Huttig
common stock. No interest will be paid on any cash distributed in lieu of
fractional shares.
No owner of Crane common stock will be required to pay any cash or other
consideration for shares of Huttig common stock received in the spin-off or to
surrender or exchange any shares of Crane common stock to receive shares of
Huttig common stock. The shares of Huttig common stock distributed in the
spin-off will be fully paid and nonassessable. The shares of Huttig common
stock will not be entitled to preemptive rights. See "Description of Huttig
Capital Stock."
Participants in the Crane Dividend Reinvestment and Stock Purchase Plan
will be credited with the number of shares (including fractional shares) of
Huttig common stock distributed in the spin-off in respect of the Crane common
stock held in their dividend reinvestment accounts. Shares of Huttig
25
common stock credited as a result of the spin-off to a participant in the Crane
Dividend Reinvestment and Stock Purchase Plan in respect of the Crane common
stock held in that participant's dividend reinvestment account will be
aggregated with shares of Huttig common stock distributed in the spin-off in
respect of Crane common stock held by that participant outside such account and
will be credited to such stockholder through the book-entry system.
NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF CRANE FOR THE SHARES OF
HUTTIG COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF, NOR WILL THEY BE
REQUIRED TO SURRENDER OR EXCHANGE SHARES OF CRANE COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO RECEIVE HUTTIG COMMON STOCK.
RESULTS OF THE SPIN-OFF
After the spin-off, Huttig will be a separate public company. The number
and identity of its stockholders immediately after the spin-off will be the
same as the number and identity of Crane's stockholders at the close of
business on . Immediately after the spin-off, it is expected that Huttig
will have approximately holders of record of its common stock and
approximately shares of its common stock outstanding, based on the
number of record stockholders and issued and outstanding shares of Crane common
stock at the close of business on and on the distribution ratio of one
share of Huttig common stock for every shares of Crane common stock owned
by a Crane stockholder at that time.
The spin-off will not affect the number of outstanding shares of Crane
common stock or the rights attendant to those shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material U.S. federal income tax
consequences of the spin-off. It is not intended to address the tax
consequences for every stockholder. In particular, this summary does not cover
state, local or non-U.S. income and other tax consequences. Accordingly,
stockholders are strongly encouraged to consult their individual tax advisors
for information on the tax consequences applicable to their individual
situations. In addition, stockholders residing outside of the United States are
encouraged to seek tax advice regarding the tax implications of the spin-off.
Crane has requested a tax ruling from the IRS. If granted, the tax
ruling will state that, among other things, the spin-off will qualify as a
tax-free distribution under Section 355 of the Internal Revenue Code. In
accordance with this tax ruling:
o No gain or loss will be recognized by Crane upon the spin-off of
Huttig common stock to Crane's stockholders.
o No gain or loss will be recognized by Crane's stockholders as a result
of their receipt of Huttig common stock in the spin-off except to the
extent that a stockholder receives cash in lieu of any fractional
share.
o A Crane stockholder who receives cash as a result of the sale of a
fractional share of Huttig common stock by the distribution agent on
behalf of such stockholder will be treated as having received the
fractional share in the spin-off and then having sold the fractional
share. Accordingly, the stockholder will recognize gain or loss equal
to the difference between the cash received and the amount of tax
basis allocable (as described below) to the fractional share. Such
gain or loss will be capital gain or loss if the fractional share
would have been held by the stockholder as a capital asset.
o A stockholder's tax basis in Crane common stock will be apportioned
between Crane common stock and Huttig common stock received in the
spin-off on the basis of the relative fair market values of the shares
at the time of the spin-off.
o The holding period of Huttig common stock received in the spin-off
will be the same as the holding period of Crane common stock with
respect to which Huttig common stock will be distributed, provided
that the stockholder holds the Crane common stock as a capital asset
on the date of the spin-off.
26
A tax ruling relating to the qualification of a spin-off as a tax-free
distribution within the meaning of Section 355 of the Internal Revenue Code
generally is binding on the IRS. However, the continuing validity of a tax
ruling is subject to certain factual representations and assumptions. Crane and
Huttig are not aware of any facts or circumstances that would cause the
representations and assumptions contained in the tax ruling request made by
Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within
the meaning of Section 355 of the Code, Crane would recognize taxable gain
equal to the excess of the fair market value of the Huttig common stock
distributed to Crane's stockholders over Crane's tax basis in the Huttig common
stock. In addition, each Crane stockholder who receives Huttig common stock in
the spin-off would generally be treated as receiving a taxable distribution in
an amount equal to the fair market value of Huttig common stock. If the
spin-off qualified under Section 355 of the Code but was disqualified as
tax-free to Crane because of certain post-spin-off circumstances, such as an
acquisition of Huttig within two years after the spin-off, Crane would
recognize taxable gain but the spin-off would generally be tax-free to each
Crane stockholder. See "Risk Factors."
Promptly following the spin-off, Crane will send a letter to the holders
of Crane common stock who receive Huttig common stock in the spin-off that will
explain the allocation of tax basis between Crane common stock and Huttig
common stock.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS INTENDED FOR GENERAL
INFORMATION ONLY. EACH CRANE STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR
AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION OF STATE, LOCAL AND NON-U.S. TAX LAWS, AND AS TO
POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED
ABOVE.
The Tax Allocation Agreement provides that Huttig will be responsible
for any taxes imposed on Crane that would not have been payable but for the
breach by Huttig of any representation, warranty or obligation under the Tax
Allocation Agreement, the tax ruling request or the Distribution Agreement. See
"Arrangements with Crane Relating to the Spin-Off -- Tax Allocation Agreement."
LISTING AND TRADING OF HUTTIG COMMON STOCK
Currently, there is no public market for Huttig common stock. Huttig has
applied to have its common stock approved for listing on the New York Stock
Exchange under the trading symbol "HBP". It is expected that a when-issued
trading market for Huttig common stock will develop on or before the close of
business on , 1999. The prices at which Huttig common stock may trade on a
when-issued basis cannot be predicted. It is expected that the New York Stock
Exchange will determine that Crane common stock traded on or after , 1999,
the second trading day prior to the record date for the spin-off, may be traded
either "ex-distribution -- when issued" or "regular way" (with due bills
attached). Crane common stock traded "ex-distribution -- when issued" will
entitle the buyer to receive only the underlying shares of Crane common stock.
Crane common stock traded "regular way" (with due bills attached) will have due
bills attached entitling the buyer to receive and requiring the seller to
deliver the shares of Huttig common stock to be issued in the spin-off as well
as the underlying shares of Crane common stock.
Beginning on the first New York Stock Exchange trading day after the
date of the spin-off, it is expected that trading of Crane common stock
"ex-distribution -- when issued" or "regular way" (with due bills attached)
will no longer be permitted and Crane common stock will trade "regular way"
only, entitling the buyer to receive only Crane common stock.
Until Huttig common stock is fully distributed and an orderly market
develops, the prices at which trading in Huttig common stock occurs may
fluctuate significantly and may be lower or higher than the price that would be
expected for a fully-distributed issue. The prices at which Huttig common stock
will trade following the spin-off will be determined by the marketplace and may
be influenced by many factors, including:
o the depth and liquidity of the market for Huttig common stock,
27
o investor perceptions of Huttig, its business and the industries in
which it operates,
o Huttig's dividend policy,
o Huttig's financial results, and
o general economic and market conditions.
Substantially all of the shares of Huttig common stock distributed in
the spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction. We are not able to predict whether
substantial amounts of Huttig common stock will be sold in the open market
following the spin-off or what effect these sales may have on prices at which
Huttig common stock may trade. Sales of substantial amounts of Huttig common
stock in the public market during this period, or the perception that any
redistribution has not been completed, could materially adversely affect the
market price of Huttig common stock.
Generally, Huttig common stock distributed in the spin-off will be
freely transferable, except for securities received by persons deemed to be
Huttig "affiliates" under the Securities Act of 1933. Persons who may be deemed
to be Huttig affiliates after the spin-off generally include individuals or
entities that control, are controlled by, or are under common control with
Huttig, including Huttig directors and executive officers. Persons who are
Huttig affiliates will be permitted to sell their shares of Huttig common stock
received in the spin-off only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as in accordance with the requirements of Rule 144
under the Securities Act.
ARRANGEMENTS WITH CRANE
RELATING TO THE SPIN-OFF
For the purpose of governing certain of the relationships between Crane
and Huttig relating to the spin-off and to provide for an orderly transition
and for other matters, Crane and Huttig have entered into the agreements
described below, copies of which have been filed as exhibits to the
Registration Statement of which this Information Statement is a part. The
following summaries of the material terms of these agreements are qualified by
reference to the agreements as so filed.
DISTRIBUTION AGREEMENT
Huttig and Crane will enter into a Distribution Agreement that provides
for the actions required to effect the spin-off.
The Distribution Agreement provides that on or prior to the
effectiveness of the spin-off, Crane will deliver to the distribution agent a
certificate or certificates representing a number of shares of Huttig common
stock equal to the number of shares of Crane common stock issued and
outstanding as of the record date divided by . Crane will instruct the
distribution agent to make book-entry credits on the date of the spin-off or as
soon thereafter as practicable for each holder of record of Crane common stock
as of the record date for a number of shares of Huttig common stock equal to
the quotient obtained by dividing (i) the number of shares of Crane common
stock held by that holder of record as of the record date by (ii) .
The Distribution Agreement also provides that, after the spin-off, Crane
will continue to have all rights in and to the name "Crane" and all related
corporate symbols and logos.
The Distribution Agreement also provides that prior to the spin-off
Huttig will borrow sufficient funds to repay indebtness and other outstanding
liabilities to Crane in the amount of [ ].
The Distribution Agreement provides generally that all of Huttig's
assets and liabilities will be vested solely in Huttig after the spin-off.
Crane will have no interest in Huttig's assets and will have no obligation with
respect to Huttig's liabilities after the spin-off. Specifically, the
Distribution Agreement provides that Huttig will:
o secure the release of and substitution for Crane and its affiliates
from all liabilities in respect of credit facilities, guaranties,
letters of credit and other similar financial instruments related to
28
Huttig's business, other than those relating to both Huttig's business
and other businesses of Crane; and
o use its reasonable best efforts to secure the release of and
substitution for Crane and its affiliates from all liabilities in
respect of bonds, indemnities, assurances and other contracts related
to Huttig's business and any financial instruments or other
contractual obligations related to both Huttig's business and other
businesses of Crane.
The Distribution Agreement also provides that at the time of the
spin-off:
o intercompany receivables, payables and other balances between Huttig
and Crane and/or an affiliate of Crane will be settled and eliminated,
with limited exceptions related to the spin-off, and
o agreements, arrangements, commitments or understandings between Huttig
and Crane and/or an affiliate of Crane will be terminated except
spin-off related arrangements and agreements with third parties.
The Distribution Agreement provides generally that all costs and
expenses incurred through the time of the spin-off in connection with the
spin-off, the preparation, execution and delivery of the agreements described
in this section and the consummation of the contemplated transactions will be
charged to and paid by Crane, other than (i) costs and expenses of Huttig's
credit facilities and other financings and (ii) costs and expenses to the
extent attributable to Huttig's business subsequent to the spin-off, which will
be paid by Huttig. Except as otherwise expressly provided in any agreement, all
costs and expenses incurred subsequent to and in connection with the spin-off
will be paid by the party for whose benefit the expenses are incurred. Any
expenses that cannot be allocated on that basis will be split equally between
Huttig and Crane.
The Distribution Agreement provides that the spin-off will not occur
until all of the following conditions are satisfied or waived by the Crane
board of directors:
o receipt of the tax ruling from the IRS;
o repayment by Huttig of indebtedness and other liabilities to Crane in
the amount of ;
o all material consents that are required to effect the spin-off having
been obtained;
o the Form 10 having become effective under the Exchange Act;
o Huttig's Restated Certificate, the Restated Bylaws and the Rights Plan
having been adopted and in full force and effect;
o Huttig common stock having been approved for listing on the NYSE;
o Huttig and Crane having entered into the arrangements necessary to
effect the transactions contemplated by the Distribution Agreement,
including any conveyance documents, the Employee Matters Agreement,
the Tax Allocation Agreement, and the Transition Services Agreement;
o no order, injunction or decree having been issued and in effect by any
court of competent jurisdiction or other legal restraint or
prohibition preventing consummation of the spin-off; and
o no suit, action or proceeding by or before any court of competent
jurisdiction or other governmental entity having been commenced and
pending to restrain or challenge the spin-off, and no inquiry having
been received that in the reasonable judgment of the Crane board may
lead to such a suit, action or proceeding.
Satisfaction of each of the foregoing conditions will not create any obligation
on the part of Crane to effect or seek to effect the spin-off or in any way
limit Crane's right to terminate the Distribution Agreement.
EMPLOYEE MATTERS AGREEMENT
Huttig and Crane will enter into an Employee Matters Agreement that will
govern Huttig's employee benefits obligations, including both compensation and
benefits, with respect to its employees. Under the Employee Matters Agreement,
we assume certain liabilities for pension, welfare and other employee benefits
29
with respect to our employees and certain former employees who remain covered
under one or more of our benefit plans and arrangements and agree to establish
certain benefit plans for such individuals. The Employee Matters Agreement does
not alter or affect any employee benefit plan currently sponsored or maintained
by us exclusively for the benefit of our employees.
The Employee Matters Agreement does not preclude us from discontinuing
or changing such plans, or establishing any new plans, at any time after the
spin-off. In addition, the Employee Matters Agreement represents an agreement
between Crane and Huttig and does not create or establish any contract with, or
other right or interest in, any employee of Crane or Huttig or any other party
with respect to employee benefits.
Retirement Plans. Effective prior to or immediately after the spin-off,
we will establish our own qualified and non-qualified employee benefit plans,
which generally will be the same as Crane's plans as in effect at that time,
except that we will not establish or maintain a qualified defined benefit
pension plan for our salaried employees. Benefits accrued by our salaried and
hourly employees under the applicable Crane pension plans will be frozen, and
we will have no liability, and Crane will have no obligation to transfer
assets, with respect to such benefits. Crane will retain responsibility for
funding and paying when due retirement benefits accrued by Huttig employees
under a Crane pension plan prior to the spin-off.
Our salaried employees who have accrued benefits under a Crane pension
plan will be fully vested in those benefits. To the extent that they are not
already 100% vested in their pension benefit, our hourly employees who have
accrued benefits under a Crane pension plan will continue to receive service
credit for vesting purposes under the Crane pension plan for service with
Huttig after the spin-off. In addition, both our salaried and hourly employees
who have accrued benefits under a Crane pension plan will continue to receive
service credit for retirement benefit eligibility purposes under the Crane
pension plan for service with Huttig after the spin-off. However, our employees
will accrue no further benefits under the Crane pension plan after the
spin-off. [Discuss Huttig replacement for defined benefit plan for salaried
employees].
We will establish a new defined benefit pension plan for hourly
employees that will initially provide for accrual of benefits by our hourly
employees from the date of the spin-off on the same basis as is currently
provided under the corresponding Crane pension plan for hourly employees. We
will also set up a 401(k)/profit sharing plan for our employees who
participated in the Crane 401(k) plan. All of the account balances of our
employees under the Crane 401(k) plan will be fully vested and a corresponding
amount of assets will be transferred from the Crane 401(k) plan to our
401(k)/profit sharing plan. We also intend to continue our 401(k) Target Plan
for former bargaining employees of Palmer G. Lewis Company and our American
Pine Products 401(k) Profit Sharing Plan.
Stock and Incentive Compensation Plans. In addition to the tax-qualified
retirement plans discussed above, we will establish certain nonqualified stock
and incentive compensation plans and arrangements similar to those currently
offered by Crane. These plans and arrangements include the EVA Incentive
Compensation Plan for Executive Officers, an omnibus stock incentive plan
providing for stock options and awards of restricted stock and a restricted
stock award plan for non-employee directors of Huttig. We will assume liability
for the account balances of our employees under Crane's EVA Incentive
Compensation Plan for Executive Officers. As described below, we will also
assume responsibility for stock options and restricted stock held by our
employees under Crane's stock-based plans. We further intend to establish an
employee stock purchase plan for our employees that will allow them to invest
in Huttig's future growth by purchasing Huttig stock at market prices.
Crane Stock Plans. Pursuant to the Employee Matters Agreement, each
outstanding stock option for Crane Common Stock granted under the Crane Stock
Option Plan held by any Huttig employee as of the close of business on the date
of the spin-off will be replaced, effective as soon as practicable after the
date of the spin-off, with a stock option for Huttig common stock, with an
appropriate adjustment
30
to reflect the spin-off as described below. The Huttig option will provide for
the purchase of a number of shares of Huttig common stock equal to the number
of shares of Crane common stock subject to the applicable Crane option as of
the date of the spin-off, multiplied by the Ratio (as defined below) and then
rounded to the nearest whole share. The per-share exercise price of such Huttig
option will equal the per-share exercise price of the applicable Crane option
as of the spin-off divided by the Ratio.
For purposes of the replacement awards described above, the "Ratio"
means the amount obtained by dividing (a) the average of the daily high and low
per-share prices of the Crane common stock as listed on the NYSE during each of
the ten consecutive trading days ending on the date of the spin-off by (b) the
average of the daily high and low per-share prices of the Huttig common stock
during each of the ten consecutive trading days immediately after the date of
the spin-off.
Crane and Huttig have agreed with Mr. Kulpa that he will receive an
equivalent replacement award of Huttig restricted stock in exchange for his
performance-based and time-based Crane restricted stock. See the Summary
Compensation Table under "Compensation of Executive Officers."
Shares Subject to Replacement Awards. It is not possible to specify how
many shares of Huttig common stock will be subject to replacement awards. It is
expected that some Crane stock awards consisting of stock options held by
Huttig employees will be exercised, other Crane stock awards will vest and
other Crane stock awards could be granted, prior to the date of the spin-off.
In addition, the remaining balance of unexercised Crane stock awards will be
converted into replacement awards by reference to the Ratio, which will not be
known until after the spin-off is completed. Stockholders of Huttig are,
however, likely to experience some dilutive impact from the above-described
adjustments.
Health and Welfare Plans. As of the spin-off, we generally will assume
all liabilities and responsibilities for providing health and welfare benefits
to our employees and retirees. However, during a transitional period, Crane and
the Company may jointly participate in certain contracts, policies and other
administrative or indemnity arrangements with third parties to provide health
and welfare benefits applicable to their respective employees and retirees.
With respect to postretirement medical and life insurance benefits to be
offered by us, we presently intend to continue to pay 50% of any premium or
cost of such coverage for our current retirees. For our active employees who
began working with us prior to 1992, we intend to continue to offer
postretirement medical and life insurance benefits as are currently offered,
but we will not pay any of the premium or cost of such coverage. For our active
employees who began working with us in 1992 or later, we do not intend to offer
group postretirement medical and life insurance benefits.
TAX ALLOCATION AGREEMENT
Through the date of the spin-off, Huttig's results of operations have
been and will be included in Crane's consolidated U.S. federal income tax
returns. As part of the spin-off, Huttig and Crane will enter into a Tax
Allocation Agreement which provides, among other things, for the allocation
between Crane and Huttig of federal, state, local and non-U.S. tax liabilities
relating to Huttig's business.
The terms of the Tax Allocation Agreement provide that Huttig will pay
its allocable share of any taxes due with respect to consolidated tax returns
that Huttig files with Crane for all periods that commence prior to the
spin-off. Each of Huttig and Crane will be separately responsible for the
filing of tax returns and payment of all taxes for periods beginning after the
date of the spin-off. Under the Tax Allocation Agreement, Huttig is responsible
for any taxes imposed on Crane that would not have been payable but for the
breach by Huttig of any representation, warranty or obligation under the Tax
Allocation Agreement, the tax ruling request or the Distribution Agreement.
Although the Tax Allocation Agreement is binding between Crane and
Huttig, it is not binding on the Internal Revenue Service and does not affect
the liability of Huttig or its subsidiaries, or the liability of Crane and its
subsidiaries, to the IRS for all federal taxes of the consolidated group
relating to periods through the date of the spin-off.
31
MANAGEMENT
DIRECTORS
The Restated Certificate of Incorporation of Huttig provides for three
classes of directors whose initial terms of office will expire at the annual
meeting of stockholders to be held in 2000, 2001 and 2002, respectively. Huttig
expects to hold its first annual meeting of stockholders in April, 2000.
Successors to any directors whose terms have expired are elected to three-year
terms and hold office until their successors are elected and qualified.
The Huttig board of directors is expected initially to consist of the
individuals named below. The age, business experience during the past five
years, directorships in other companies and expected ownership of Huttig common
stock (based on holdings of Crane common stock as of , 1999 and the terms
of the spin-off) for each of the directors are also set forth below.
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
E. Thayer Bigelow, Jr. ................................................................ [ ]
Age 57; Senior Advisor, Time Warner, Inc., New York, NY (a media and
entertainment company) since October 1998. Chief Executive Officer, Court TV,
New York, NY, an affiliate of Time Warner Entertainment LP (cable television
program services) March 1997 to October 1998. President and Chief Executive
Officer, Time Warner Cable Programming, Inc., Stamford, CT, a subsidiary of Time
Warner Entertainment LP (cable television program services), 1991 to 1997. Other
directorships: Crane Co., Lord Abbett & Co. Mutual Funds
Charles J. Queenan, Jr. ............................................................... [ ]
Age 69; Senior Counsel since 1995 and, prior thereto, Partner, Kirkpatrick &
Lockhart LLP, Pittsburgh, PA (attorneys at law). Other directorships: Allegheny
Teledyne Incorporated, Crane Co.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
Richard S. Forte ...................................................................... [ ]
Age 55; President, Dawson Forte Cashmere Company, South Natick, MA (importer)
since January 1997. Chairman since January 1997 and, prior thereto, President,
Forte Cashmere Company, Inc. (importer and manufacturer). Other directorships:
Crane Co.
Barry J. Kulpa ........................................................................ [ ]
Age 51; President, Huttig Sash & Door Company since October 1997. Senior Vice
President and Chief Operating Officer of Dal Tile International (manufacturer and
distributor of ceramic tile), 1994 to 1997. Vice President and Chief Financial Officer
of David Weekley Homes (regional homebuilder), 1992 to 1994.
James L. L. Tullis .................................................................... [ ]
Age 52; Chairman and Chief Executive Officer, Tullis-Dickerson & Co., Inc.,
Greenwich, CT (venture capital investments in the health care industry) since 1986.
Other directorships: Acme United Corporation, Crane Co., PSS Worldmed, Inc.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
R. S. Evans ........................................................................... [ ]
Age 55; Chairman and Chief Executive Officer of Crane. Other directorships: Crane
Co., Fansteel, Inc., HBD Industries, Inc., Southdown Corporation.
Dorsey R. Gardner ..................................................................... [ ]
32
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
Age 51; President, Kelso Management Company, Inc., Boston, MA (investment
management). Other directorships: Crane Co., Filene's Basement Corp., Security
First Technologies, Inc.
Dwight C. Minton ................................................................ [ ]
Age 64; Chairman of the Board, Church & Dwight Co., Inc., Princeton, NJ
(manufacturer of consumer and specialty products). Other directorships: Church &
Dwight Co., Inc., Crane Co.
- - - ----------------------
(1) As determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934. No director except Mr. R. S. Evans is expected to own more
than 1% of the outstanding shares of Huttig common stock. See "Beneficial
Ownership of Huttig Common Stock by Directors and Management."
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an Audit Committee, an
Organization and Compensation Committee and an Executive Committee.
Executive Committee. The Executive Committee is empowered to act in lieu
of the full board of directors at any meeting at which it is not feasible for a
quorum of the full board of directors to meet. The Executive Committee can take
any action that could be taken by the board of directors except, among other
things, electing or removing officers of Huttig, amending the Restated
Certificate of Incorporation or Bylaws or approving a merger, consolidation or
sale of substantially all of Huttig's assets.
Audit Committee. The principal functions of the Audit Committee include:
o Reviewing with the board of directors and the independent accountants
matters relating to the quality of financial reporting and internal
accounting controls.
o Maintaining communication between the internal and external auditors
and the board of directors.
o Reviewing and communicating to the board of directors the nature,
extent and results of the internal and external audit functions.
Organization and Compensation Committee. The Organization and
Compensation Committee will:
o Make recommendations to the board of directors concerning approval of
the compensation of officers and other key employees.
o Make recommendations to the board of directors concerning director
compensation.
o Administer Huttig's incentive compensation plans, including the EVA
Incentive Compensation Plan and Stock Incentive Plan and approval of
significant changes or additions to Huttig's compensation policies and
practices.
The memberships of committees are as follows: [Executive Committee: R.
S. Evans, B. J. Kulpa and D. C. Minton; Audit Committee: R. S. Forte, D. R.
Gardner and C. J. Queenan, Jr. (Chairman); Organization and Compensation
Committee: E.T. Bigelow, Jr. (Chairman), D. R. Gardner, D. C. Minton and J. L.
L. Tullis (Chairman).]
COMPENSATION OF DIRECTORS
The standard retainer payable to each non-employee director is $10,000
per year. Mr. R. S. Evans will receive an annual fee of $100,000 for his
services as Chairman of the Board of Huttig. Pursuant to the Non-Employee
Director Restricted Stock Plan, non-employee directors receive, in lieu of
cash, shares of Huttig common stock with a market value equal to that portion
of the standard annual retainer which exceeds $5,000. All directors who are not
full-time employees of Huttig, of which there
33
are seven, participate in the plan. The shares will be issued each year after
Huttig's annual meeting, will be forfeitable if the director ceases to remain a
director until Huttig's next annual meeting, except in the case of death,
disability or change in control, and may not be sold for a period of five years
or such earlier date as the director leaves the board.
Directors also receive $500 for each board meeting attended.
Non-employee members of the Executive Committee receive an annual retainer of
$2,000. Members of other committees receive $500 and chairmen receive $750 for
each committee meeting attended.
Huttig's Retirement Plan for Non-Employee Directors provides for a
benefit upon retirement at or after age 65 equal to the participant's annual
retainer in effect at the time service terminates, payable for a period of time
equal to the number of years the participant has served on the board and not as
an employee. After two years of service, participants are 50% vested in
benefits payable, and after each full year of service thereafter, participants
are vested in an additional 10%. In the event of death, disability or change in
control, participants are automatically 100% vested and, in the case of a
change in control, a minimum of seven years of retirement benefits is payable.
Additionally, a participant leaving the board after a change in control would
be entitled to receive, in lieu of installment payments, a lump sum cash
payment such that the participant will retain, after all applicable taxes, the
actuarial equivalent of the benefits payable under the plan. A former director
may receive his benefits prior to age 65 on an actuarially reduced basis. The
plan is unfunded and benefits thereunder are payable from Huttig's general
assets, either in the form of a joint and survivor annuity or, if the director
so elects upon reaching age 55, in the form of a survivor annuity should the
director die while in service.
EXECUTIVE OFFICERS
Set forth below are the name, age, position and office to be held with
Huttig, and principal occupations and employment during the past five years of
those individuals who are expected to serve as Huttig's executive officers
immediately following the spin-off. Huttig's executive officers will be elected
to serve until they resign or are removed, or are otherwise disqualified to
serve, or until their successors are elected and qualified.
BARRY J. KULPA, age 51, has served as Huttig'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
(regional homebuilder).
GREGORY D. LAMBERT, age 48, has served as Chief Financial Officer and Vice
President, Administration since January of 1999. Prior to joining Huttig, Mr.
Lambert served as Senior Vice President and Treasurer of Ames Department Store
(discount retailer) from 1996 to 1998. From 1994 to 1996, he was Vice President
of Strategic Planning for Homart Development, a shopping center developer. From
1980 to 1994, Mr. Lambert was the Director of Strategic Planning for May
Department Stores (retailer).
DAVID DEAN, age 56, has served as Controller of Huttig since August of 1992.
DAVID A. GIFFIN, age 50, has served as Regional Vice President since September
of 1998. Prior to that, Mr. Giffin was Vice President of Human Resources for
Huttig from 1991 to 1998.
HOWARD L. HATFIELD, age 55, became a Regional Vice President upon Huttig's
acquisition of Consolidated Lumber Company in July of 1998. Prior to joining
Huttig, he was President, Chief Executive Officer and owner of Consolidated
Lumber Company, Inc. from 1980 to 1998.
CARL A. LILIEQUIST, age 45, became a Regional Vice President upon Huttig's
acquisition of PGL Building Products in July of 1988.
STOKES R. RITCHIE, age 48, has been a Regional Vice President since August of
1998. Prior to joining Huttig, Mr. Ritchie was Vice President of Sales and
Marketing of the Westex Division of LYDALL, Inc. (OEM automotive products
manufacturer) from 1996 to 1998. From 1994 to 1996, Mr. Ritchie was Vice
President, Sales and Marketing for American Woodmark Corporation.
34
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT
To focus management attention on growth in shareholder value, Huttig
believes that officers and key employees should have a significant equity stake
in the Company. Huttig therefore plans to encourage its officers and key
employees to increase their ownership of and to hold common stock through the
Stock Incentive, Employee Stock Purchase and Savings and Investment Plans.
Directors will also receive 50% of their annual retainer in restricted stock
issued under the Non-Employee Director Restricted Stock Plan. The following
table sets forth the number of shares of Huttig common stock expected to be
beneficially owned following the spin-off, directly or indirectly, by the
non-employee directors as a group, the executive officers named in the Summary
Compensation Table, all of Huttig's directors and executive officers as a group
and Huttig's other key employees as a group as of , 1999.
SHARES
UNDER SHARES IN
RESTRICTED STOCK OPTIONS COMPANY TOTAL SHARES % OF SHARES
SHARES STOCK EXERCISABLE SAVINGS PLAN BENEFICIALLY OUTSTANDING AS OF
OWNED PLANS(1) WITHIN 60 DAYS (401(K)) OWNED(2) (2)
-------- ------------ ---------------- -------------- -------------- ------------------
Non-Employee Directors
as a Group (7 persons) ...... [ ] [ ] [ ] [ ] [ ] *
Barry J. Kulpa ............... -- [ ] [ ] [ ] [ ] *
Carl A. Liliequist ........... -- -- [ ] [ ] [ ] *
David A. Giffin .............. [ ] -- [ ] [ ] [ ] *
David Dean ................... -- -- -- [ ] [ ] *
Other Executive Officers
(3 persons) ................. -- -- -- -- -- *
Sub-total -- Directors and
Executive Officers as a
Group (14 persons) .......... [ ] [ ] [ ] [ ] [ ] %
Key Employees
( persons) ................. [ ] [ ] [ ] [ ] [ ] *
------ ------ ------ ------ ------
Total ........................ [ ] [ ] [ ] [ ] [ ] %
====== ====== ====== ====== ======
- - - ----------
* Represents holdings of less than 1%.
(1) Subject to forfeiture if established performance and/or service conditions
are not met.
(2) As determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934.
35
PRINCIPAL STOCKHOLDERS OF HUTTIG
The following table sets forth the ownership of Huttig common stock by
each person expected to own beneficially more than 5% of Huttig common stock
immediately following the spin-off.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- - - ---------------- -------------------------- ------------------ ---------
Common Stock The Crane Fund (1) [ ](1) [ ]
100 First Stamford Place
Stamford, CT 06902
- - - ----------
(1) The Crane Fund is a charitable trust managed by trustees appointed by the
board of directors of Crane Co. The incumbent trustees are: G.A. Dickoff,
A.I. duPont, M.L. Raithel and D.S. Smith, all of whom are executive
officers of Crane. Pursuant to the trust instrument, the shares held by the
trust shall be voted by the trustees as directed by the board of directors
of Crane, the distribution of the income of the trust for its charitable
purposes is subject to the control of the board of directors of Crane and
the shares may be sold by the trustees only upon the direction of the board
of directors of Crane. None of the directors or the trustees has any direct
beneficial interest in, and all disclaim beneficial ownership of, shares
held by The Crane Fund.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Shown below is information concerning the annual and long-term
compensation for services rendered in all capacities to Huttig and its
subsidiaries for the year ended December 31, 1998 for Barry J. Kulpa, Huttig's
Chief Executive Officer, and the other three most highly compensated
individuals who serve as executive officers of Huttig and received at least
$100,000 in cash compensation for services to Huttig for the year 1998. The
compensation described in this table was paid by Huttig or an affiliate of
Huttig.
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- -------------------------------------------------
OTHER RESTRICTED SECURITIES ALL (3)
ANNUAL STOCK UNDERLYING LTIP(2) OTHER
NAME AND BONUS (1) COMPENSATION AWARD (2) OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($) ($) ($) SARS (#) ($) ($)
- - - ---------------------------- ------ ------------ ----------- -------------- ------------ ------------ --------- -------------
Barry J. Kulpa ............. 1998 250,000 130,671 7,625 272,813 36,000 -- 2,498
President and
Chief Executive
Officer
Carl A. Liliequist ......... 1998 147,188 166,031 -- -- 2,250 -- 5,339
Regional Vice
President
David A. Giffin ............ 1998 115,753 37,608 -- -- 750 -- 5,184
Regional Vice
President
David Dean ................. 1998 98,600 23,259 -- -- -- -- 3,912
Controller
- - - ----------
(1) Represents the amounts paid to the named executives under Crane's EVA
Incentive Compensation Plan. After giving effect to such payments, the
named executives have credited to their accounts under such plan the
following amounts, which are subject to increase or decrease in future
years: Barry J. Kulpa, $87,114, Carl A. Liliequist, $297,127, David A.
Giffin, $ -0-, and David Dean, $ -0-. Under the program one-third of the
account balance in any year will be payable to the named executive. Under
the Employee Matters Agreement, Huttig will be responsible for the account
balances of the foregoing employees and the other Huttig employees
participating in this plan. See "Arrangements with Crane Relating to the
Spin-Off--Employee Matters Agreement."
36
(2) Shares of restricted stock issued under Crane's Restricted Stock Award Plan
that are subject to performance-based conditions on vesting are classified
as long-term incentive awards reportable in the column LTIP Payouts of the
Summary Compensation Table upon vesting. The shares of common stock under
the Restricted Stock Award Plan held by each of the named executive
officers and the aggregate value thereof at December 31, 1998 were as
follows:
RESTRICTED STOCK AWARD PLAN
-----------------------------
RESTRICTED AGGREGATE
STOCK HELD LTIP RESTRICTED AGGREGATE
# OF SHARES # OF SHARES SHARES HELD VALUE
------------- ------------- ------------- ----------
Barry J. Kulpa ............. 7,500 15,000 22,500 $679,219
Carl A. Liliequist ......... -- -- -- --
David A. Giffin ............ -- -- -- --
David Dean ................. -- -- -- --
The shares of restricted stock which are performance-based, listed under
the heading "LTIP", may lapse upon failure to achieve the performance
criteria and so the value presented above for such shares remains at-risk
to the executive. Dividends are paid on all restricted stock at the same
rate as other shares of Common Stock and are reported in the column Other
Annual Compensation of the Summary Compensation Table. Under the Employee
Matters Agreement, Huttig has agreed to grant Mr. Kulpa awards of
restricted shares of Huttig common stock having a value equivalent to the
awards of Crane restricted stock shown in the table above, which will be
cancelled on the date of the spin-off. See "Arrangements with Crane
Relating to the Spin-Off -- Employee Matters Agreement."
(3) Amounts include Crane's matching contribution for eligible employees for
the purchase of common stock in Crane's Saving & Investment Plan (401(k))
and premiums for life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants to the named executive officers of
options to purchase shares of Crane common stock pursuant to the Crane Stock
Option Plan during the year ended December 31, 1998, which are reflected in the
Summary Compensation Table above. Huttig will replace each Crane option held by
Huttig employees with an economically equivalent Huttig option. See
"Arrangements with Crane Relating to the Spin-Off -- Employee Matters
Agreement."
NUMBER OF % OF
SECURITIES TOTAL/OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE OR GRANT DATE
SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (1) FISCAL YEAR (1) $/SHARE (2) DATE VALUE ($)(3)
- - - ---------------------------- ------------- ----------------- ------------- ------------ --------------
Barry J. Kulpa ............. 36,000 75% $ 36.37 04/20/2008 $396,360
Carl A. Liliequist ......... 2,250 5 36.37 04/20/2008 24,773
David A. Giffin ............ 750 2 36.37 04/20/2008 8,258
David Dean ................. -- -- -- -- --
- - - ----------
(1) No SARs were granted.
37
(2) The exercise price of options granted under Crane's Stock Option Plan were
not and may not be less than 100% of the fair market value of the shares on
the date of grant. Options granted become exercisable 50% one year, 75% two
years and 100% three years after grant and expire, unless exercised, 10
years after grant. If employment terminates, the optionee generally may
exercise the option only to the extent it could have been exercised on the
date his employment terminated and must be exercised within three months
thereof. In the event employment terminates by reason of retirement,
permanent disability or change in control, options become fully
exercisable. The exercise price may be paid by delivery of shares owned for
more than six months and income tax obligations related to exercise may be
satisfied by surrender of shares received upon exercise, subject to certain
conditions. Under the Employee Matters Agreement, Huttig's stock options
issued in exchange for Crane stock options will have the same terms as the
Crane stock options they replace except that the exercise price and the
number of shares will be adjusted based on the relative market values of
Crane common stock and Huttig common stock as of the date of the spin-off.
(3) The amounts shown were calculated using a Black-Scholes option pricing
model which derives a value of $11.01 per share for each option granted.
The estimated values assume a risk-free rate of return of 5.60% based upon
the 100-year Treasury (adjusted for constant maturities) from the Federal
Reserve Statistical Release H.15(519), stock price volatility of 24.22%, a
dividend payout ratio of .92% and an option duration of 5.29 years. The
actual value, if any, that an executive may realize will depend upon the
excess of the stock price over the exercise price on the date the option is
exercised, and so the value realized by an executive may be more or less
than the value estimated by the Black-Scholes model.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS(1) AT OPTIONS/SARS (1) AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END ($)(2)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ---------------------------- -------------- -------------- ------------- --------------- ------------- --------------
Barry J. Kulpa ............. -- -- 11,250 47,250 24,159 24,159
Carl A. Liliequist ......... -- -- 18,000 4,500 268,099 21,403
David A. Giffin ............ -- -- 15,749 1,876 252,339 10,711
David Dean ................. -- -- 750 750 -- --
- - - ----------------------
(1) No SARs were held at December 31, 1998.
(2) Computed based upon the difference between aggregate fair market value at
December 31, 1998 and aggregate exercise price.
RETIREMENT BENEFITS
All of Huttig's officers, including the individuals identified in the
Summary Compensation Table, are participants in Crane's pension plan for
non-bargaining employees. Directors who are not employees do not participate in
the plan. Following the spin-off, Huttig's executives will participate in
retirement plans maintained by Huttig. See "Arrangements with Crane Relating to
the Spin-Off -- Employee Matters Agreement." Under the Crane pension plan,
eligibility for retirement benefits is subject to certain vesting requirements,
which include completion of five years of service where employment is
terminated prior to normal or other retirement or death, as determined by
applicable law and the plan. Benefit accruals continue for years of service
after age 65.
The annual pension benefits payable under the pension plan are equal to
1 2/3% per year of service of the participant's average annual compensation
during the five highest consecutive compensation years of the 10 years of
service immediately preceding retirement less 1 2/3% per years of service of the
participant's Social Security benefit. Compensation for purposes of the pension
plan is defined as total W-2 compensation less (i) the imputed income value of
group life insurance and auto
38
allowance, (ii), income derived from participation in Crane's Restricted Stock
Award Plan and (iii) on or after January 1, 1993, income derived from Crane's
Stock Option Plan and a former Crane's stock appreciation rights plan. In
general, such covered compensation for any year would be equivalent to the sum
of the salary set forth in the Summary Compensation Table for such years plus
the bonus shown in the Table for the immediately preceding year.
The table below sets forth the estimated annual benefit payable on
retirement at normal retirement age (age 65) under Crane's pension plan based
on benefit accruals through December 31, 1998 for specified salary and years of
service classifications, and assumes benefits to be paid in the form of a
single life annuity. The amounts have not been reduced by the Social Security
offset referred to above. Our employees will not accrue any additional pension
benefits under the Crane pension plan after the spin-off. See "Arrangements
with Crane Relating to the Spin-Off -- Employee Matters Agreement."
YEARS OF SERVICE
AVERAGE ANNUAL
COMPENSATION 10 20 25 30 35
- - - -------------------- ---------- ---------- ---------- ---------- -------------
$150,000............ $25,005 $50,010 $62,513 $75,015 $87,518
$175,000............ 29,173 58,345 72,931 87,518 102,104
$200,000............ 33,340 66,680 83,350 100,020 116,690
$225,000............ 37,508 75,015 93,769 112,523 131,276*
$235,000............ 39,175 78,349 97,936 117,524 136,111*
$250,000** ......... 41,675 83,350 104,188 125,025 145,863*
- - - ----------------------
* Effective January 1, 1996, the actual retirement benefit at normal
retirement date payable pursuant to Section 235(a) of the Tax Equity and
Fiscal Responsibility Act of 1982 (and subsequent to 1986 at the age at
which unreduced Social Security benefits may commence pursuant to the Tax
Reform Act of 1986) may not exceed the lesser of $120,000 or 100% of the
officer's average compensation during his highest three consecutive
calendar years of earnings (the "Tax Act Limitation"). The Tax Act
Limitation may be adjusted annually for changes in the cost of living. The
1998 limit was $130,000, and the limit remains at $130,000 for 1999. The
dollar limit is subject to further reduction to the extent that a
participant has fewer than 10 years of service with Crane or 10 years of
participation in the defined benefit plan.
** Between January 1, 1989 and December 31, 1993, for the purpose of
determining benefit accruals and benefit limitations under the pension plan
for all plan years beginning in 1989, a participant's compensation is
deemed to be limited to $200,000 indexed for inflation ($235,840 for 1993)
("Limitation"). However, in no event will the Limitation reduce any
participant's accrued benefit below his accrued benefit as of December 31,
1988. Commencing January 1, 1994, the compensation limit was further
reduced to $150,000 indexed for inflation in future years ("OBRA '93
Limitation"). As a result of the OBRA '93 limitation, the covered
compensation under Crane's pension plan for the foregoing individuals for
the years 1994 through 1996 was limited to $150,000, and was increased to
$160,000 for 1997, 1998 and 1999. In no event will the OBRA '93 Limitation
reduce any participant's accrued benefit as of December 31, 1993.
OTHER AGREEMENTS AND INFORMATION
Huttig has entered into indemnification agreements with Barry J. Kulpa,
Gregory D. Lambert and each non-employee director of Huttig. The
Indemnification Agreements require Huttig to indemnify the officers or
directors to the full extent permitted by law against any and all expenses
(including advances thereof), judgments, fines, penalties and amounts paid in
settlement incurred in connection with any claim against such person arising
out of the fact that he was a director, officer, employee, trustee, agent or
fiduciary of Huttig or was serving as such for another entity at Huttig's
request, and to maintain directors and officers liability insurance coverage or
to the full extent permitted by law to indemnify such person for the lack of
insurance coverage.
39
Barry J. Kulpa has an agreement which, in the event of a change in
control of Huttig, provides for the continuation of his then current base
salary, incentive compensation and benefits for the three year period following
the change in control. Upon termination within three years after a change in
control, by Huttig without cause or by him with "Good Reason" (as defined in
the agreement), Mr Kulpa is immediately entitled to a proportionate amount of
the greater of the last year's bonus or the average bonus paid in the last
three years, three times the sum of his annual salary and the greater of the
last year's bonus or the average of the last three years' bonuses, and all
accrued deferred compensation and vacation pay. Employee benefits, medical
coverage and other welfare benefits also continue for three years after
termination. "Good Reason" under the agreement includes, among other things,
any action by Huttig which results in a diminution of his position, authority,
duties or responsibilities. The agreement also provides that Mr. Kulpa may
terminate his employment for any reason during the 30 day period immediately
following the first year after the change of control, which shall be deemed
"Good Reason" under the agreement. If it is determined that any economic
benefit or payment or distribution by Huttig to Mr. Kulpa pursuant to the
agreement or otherwise (including, but not limited to, any economic benefit
received by him by reason of the acceleration of rights under Huttig's
incentive plan) ("Payment"), is subject to the excise tax imposed by Section
4999 of the Internal Revenue Code, the agreement provides that Huttig shall
make additional cash payments to Mr. Kulpa such that after payment of all taxes
including any excise tax imposed on such payments, he will retain an amount
equal to the excise tax on all the Payments. The agreement is for a three-year
period, but is automatically renewed annually for a three-year period unless
Huttig gives notice that the period will not be extended.
DESCRIPTION OF HUTTIG CAPITAL STOCK
Huttig's Restated Certificate of Incorporation provides that its
authorized capital stock consists of (i) 50,000,000 shares of common stock,
$.01 par value, of which (based on the number of shares of Crane common stock
outstanding as of , 1999) approximately shares will be issued to
stockholders of Crane in the spin-off, and (ii) 5,000,000 shares of preferred
stock, par value $.01 per share, of which shares have been designated as
Series A Junior Participating Preferred Stock for issuance in connection with
the exercise of rights. See "-- Rights Plan."
COMMON STOCK
Each share of Huttig common stock will entitle its holder of record to
one vote in the election of directors and on all other matters to be voted on
by the stockholders. Holders of Huttig common stock will not have cumulative
voting rights. As a result, the holders of a majority of the shares of Huttig
common stock voting for the election of directors may elect all nominees
standing for election as directors.
Subject to the rights of holders of preferred stock, holders of Huttig
common stock will be entitled to receive such dividends, if any, as may be
declared from time to time by the board of directors in its discretion from
funds legally available for that use. It is currently anticipated that no cash
dividends will be paid on its common stock in the foreseeable future in order
to conserve cash for use in its business, possible future acquisitions and debt
reduction. Huttig's board of directors expects to periodically re-evaluate this
dividend policy taking into account Huttig's operating results, capital needs
and other factors.
Subject to the rights of holders of preferred stock, holders of Huttig
common stock will be entitled to share on a pro rata basis in any distribution
to stockholders upon the liquidation, dissolution or winding up of Huttig. No
holder of Huttig common stock will have any preemptive right to subscribe for
any Huttig common stock or other security.
PREFERRED STOCK
Huttig's board of directors, without further action by the stockholders,
may from time to time authorize the issuance of shares of preferred stock in
one or more series and, within certain limitations, fix the powers, preferences
and rights and the qualifications, limitations or restrictions thereof and the
number of shares constituting any series or designations of such series.
Satisfaction of any dividend preferences of outstanding preferred
40
stock would reduce the amount of funds available for the payment of dividends
on Huttig common stock. Holders of preferred stock would normally be entitled
to receive a preference payment in the event of the liquidation, dissolution or
winding up of Huttig before any payment is made to the holders of Huttig common
stock.
Under certain circumstances, the issuance of preferred stock may render
more difficult or tend to discourage a change in control of Huttig. Although
Huttig currently has no plans to issue shares of preferred stock, the board of
directors, without stockholder approval, may issue preferred stock that could
adversely affect the rights of holders of shares of Huttig common stock. For a
description of the terms of the Series A Junior Participating Preferred Stock,
see "-- Rights Plan."
RIGHTS PLAN
On , 1999, Huttig's board of directors determined to issue one
preferred share purchase right with each share of Huttig common stock
distributed in the spin-off. Each right entitles the registered holder to
purchase from Huttig one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a price of $ per one one-hundredth of a
Preferred Share, subject to adjustment. The description and terms of the rights
are set forth in a Rights Agreement dated as of , 1999 between Huttig and
, as Rights Agent.
Until the earlier to occur of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership of
15% or more of Huttig's outstanding common stock (an "Acquiring
Person"); or
o 10 business days (or such later date as may be determined by Huttig's
board of directors) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a
person or group of 15% or more of the outstanding Huttig common stock
(the earlier of such dates being the "Distribution Date"),
the rights will be evidenced, with respect to any of the common stock
certificates outstanding as of the record date, by such common stock
certificate with a copy of the summary of rights attached to it.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the rights), the rights will be transferred
only with Huttig common stock. Until the Distribution Date (or earlier
redemption or expiration of the rights), new certificates for Huttig common
stock issued upon transfer or new issuance will contain a notation
incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
rights), the surrender for transfer of any certificates for Huttig common
stock, even without such notation or a copy of the summary of rights being
attached, will also constitute the transfer of the rights associated with
Huttig common stock represented by that certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the rights
will be mailed to holders of record of Huttig common stock as of the close of
business on the Distribution Date and those separate certificates alone will
evidence the rights.
The rights are not exercisable until the Distribution Date. The rights
will expire at the close of business on , 2009, unless this date is
extended or unless Huttig earlier redeems or exchanges the rights, in each
case, as described below.
The purchase price payable, and the number of series A preferred shares
or other securities or property issuable, upon exercise of the rights are
subject to adjustment from time to time to prevent dilution:
o in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the series A preferred shares;
o upon the grant to holders of the series A preferred shares of certain
rights or warrants to subscribe for or purchase series A preferred
shares at a price, or securities convertible into series A preferred
shares with a conversion price, less than the then-current market
price of the series A preferred shares; or
41
o upon the distribution to holders of the series A preferred shares of
evidence of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends
payable in series A preferred shares) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding rights and the number of one one-hundredths of
a series A preferred share issuable upon exercise of each right are also
subject to adjustment in the event of a split of Huttig common stock or a
dividend on Huttig common stock payable in shares of Huttig common stock or
subdivisions, consolidations or combinations of Huttig common stock occurring,
in any such case, prior to the Distribution Date.
Series A preferred shares purchasable upon exercise of the rights will
not be redeemable. Each series A preferred share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Huttig
common stock. If Huttig is liquidated, the holders of the series A preferred
shares will be entitled to a minimum preferential liquidation payment of
$100.00 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of Huttig common stock. Each series A preferred share
will have 100 votes, voting together with Huttig common stock. Finally, if
Huttig engages in a merger, consolidation, or any other transaction in which
shares of Huttig common stock are exchanged, each series A preferred share will
be entitled to receive 100 times the amount received per share of Huttig common
stock. These rights are protected by customary antidilution provisions.
Because of the nature of the series A preferred shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
series A preferred share purchasable upon exercise of each right should
approximate the value of one share of Huttig common stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a
right, other than rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Huttig common stock having a market value of two times
the exercise price of the right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by that person or group of 50% or more of the
outstanding shares of Huttig common stock, the board of directors may exchange
the rights (other than rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Huttig
common stock, or one one-hundredth of a series A preferred share, per right.
If Huttig is acquired in a merger or other business combination
transaction or 50% or more of Huttig's consolidated assets or earning power are
sold after a person or group has become an Acquiring Person, proper provision
will be made so that each holder of a right will thereafter have the right to
receive, upon the exercise of a right at the then current exercise price of the
right, that number of shares of common stock of the acquiring company which at
the time of that transaction will have a market value of two times the exercise
price of the right.
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional series A preferred shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
series A preferred share, which may, at Huttig's election, be evidenced by
depository receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the series A preferred shares on the last trading
day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
shares of Huttig common stock, the board of directors may redeem the rights in
whole, but not in part, at a price of $.01 per right. The redemption of the
rights may be made effective at such time, on such basis and with such
conditions as the board of
42
directors in its sole discretion may establish. Immediately upon any redemption
of the rights, the right to exercise the rights will terminate and the only
rights of the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the board of directors without
the consent of the holders of the rights, except that from and after the time
that any person or group of affiliated or associated persons becomes an
Acquiring Person, no amendment may adversely affect the interests of the
holders of the rights.
Until a right is exercised, the holder of the right will have no rights
as a stockholder, including, without limitation, the right to vote or to
receive dividends.
CERTAIN PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS
The following is a description of certain provisions of Huttig's
Restated Certificate of Incorporation and Bylaws. The description is qualified
in its entirety by reference to the full texts of those documents. Certain
provisions of Huttig's Certificate and Bylaws could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from attempting to acquire, control of Huttig, without the approval of
Huttig's board of directors.
Classification of Directors. The Certificate and Bylaws provide that the
board of directors will consist of three classes of directors. The initial
members of the board of directors will be divided into three classes to serve
as follows: one class will initially hold office for a term to expire at the
first annual meeting of stockholders after their initial election; another
class will initially hold office for a term to expire at the second annual
meeting of stockholders after their initial election; and the third class will
initially hold office for a term to expire at the third annual meeting of
stockholders after their initial election. At each annual meeting of Huttig's
stockholders, only the election of directors of the class whose term is expiring
will be voted upon, and upon election each director will serve a three-year
term. See "Management -- Directors."
Right to Call a Special Meeting. The Certificate provides that special
meetings of the stockholders may only be called by the Chairman or by the board
pursuant to a resolution approved by a majority of the entire board.
Accordingly, stockholders will not have the right to call a special meeting of
the stockholders.
No Action by Consent. The Certificate provides that any action required
to be taken by stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by the written consent of
stockholders.
Fiduciary Duties of Directors. As permitted by the DGCL, Huttig's
Certificate includes a provision eliminating the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director except for liability:
o for any breach of the director's duty of loyalty to the corporation or
its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payment of a dividend or an unlawful stock purchase or
redemption; or
o for any transaction from which the director derives an improper
personal benefit.
The Certificate further provides that, if the DGCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of directors shall be eliminated or
limited to the fullest extent so permitted. The Certificate also specifies that
no amendment to or repeal of the provisions shall apply to or have any effect
on the liability or alleged liability of any of Huttig's directors for or with
respect to any acts or omissions of such director occurring prior to the
amendment or repeal.
ANTI-TAKEOVER LEGISLATION
Because neither the Certificate nor the Bylaws contain a provision
expressly electing not to be covered by Section 203 of the DGCL, Huttig is
subject to this statutory anti-takeover provision. Section 203 provides that
any person
43
who acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder") may not engage in a "business combination" with the
corporation for a period of three years following the time the person became an
interested stockholder, unless:
o the board of directors of the corporation approved, prior to such
time, either the business combination or the transaction that resulted
in the person becoming an interested stockholder;
o upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owns at least 85% of
the corporation's voting stock outstanding at the time the transaction
commenced (excluding shares owned by persons who are directors and
officers of that corporation and shares owned by employee stock plans
in which participants do not have the right to determine
confidentially whether shares will be tendered in a tender or exchange
offer); or
o the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting
and not by written consent) of at least 662/3% of the outstanding
shares of voting stock not owned by the interested stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a
corporation's voting stock for purposes of Section 203, ownership is defined to
include the right, directly or indirectly, to acquire stock or to control the
voting or disposition of stock. A "business combination" is defined to include:
o mergers or consolidations of a corporation with an interested
stockholder;
o sales or other dispositions of ten percent or more of the assets of a
corporation with or to an interested stockholder;
o certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of a corporation or its
subsidiaries;
o certain transactions which would result in increasing the
proportionate share of the stock of a corporation or its subsidiaries
owned by an interested stockholder, and
o receipt by an interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits from, by or to a corporation or
any of its majority-owned subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Huttig common stock will be
.
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY
As described above under "Certain Provisions of Huttig's Governing
Documents--
Fiduciary Duties of Directors," Huttig's Restated Certificate of Incorporation
eliminates, subject to certain statutory limitations, the liability of its
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorney's
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a director or officer of
the corporation, if it is determined that he or she acted in accordance with
the applicable standard of conduct set forth in such statutory provision.
The Huttig bylaws provide for mandatory indemnification to its directors
and officers and to persons serving at the Company's request in a similar
capacity with another corporation or other enterprise generally as provided in
the DGCL.
Huttig's bylaws also require the Company to indemnify or advance
expenses within 60 days of receipt of the written request for such
44
indemnification or advance from the director or officer. The costs and expenses
associated with the successful establishment in a court proceeding of the
director's or officer's right to indemnification or advancement of expenses is
also required to be indemnified by Huttig under its bylaws. The bylaws further
require Huttig to purchase and maintain directors' and officers' liability
insurance, provided that such insurance is available under terms which are
deemed acceptable by a majority vote of Huttig's board of directors.
Huttig also has entered into indemnification agreements with its
directors and certain executive officers. See "Management -- Other Agreements
and Information."
Huttig also maintains insurance on behalf of any person who is or was a
Huttig director or officer, or is or was serving at Huttig's request as a
director, officer, employee or agent of another entity against any liability
asserted against such person and incurred by such person in any such capacity
or arising out of his or her status as such, whether or not Huttig would have
the power to indemnify such person against such liability under the DGCL.
AVAILABLE INFORMATION
Huttig has filed a Registration Statement on Form 10 with the SEC with
respect to Huttig common stock. The Registration Statement and the exhibits to
it contain some information not appearing in this Information Statement. This
Information Statement provides a summary of some of the agreements and
contracts appearing as exhibits to the Registration Statement. You are
encouraged to review the exhibits to the Registration Statement for a more
complete description of the contracts and agreements summarized in this
Information Statement.
You may access and read the Registration Statement and all of the
exhibits to it through the SEC's Internet site at www.sec.gov. This site
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. You may also read and
copy any document Huttig files at the SEC's public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Huttig's
SEC filings will also be available after the spin-off at the offices of the New
York Stock Exchange.
After the spin-off, Huttig will be required to file annual, quarterly
and special reports and other information with the SEC. Huttig will also be
subject to proxy solicitation requirements. Once filed, you can access this
information from the SEC in the manner set forth in the preceding paragraph.
45
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Huttig Financial Statements
Independent Auditors' Report .................................................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and unaudited
Consolidated Balance Sheets at June 30, 1999 and 1998 ....................... F-3
Consolidated Statements of Income and Retained Earnings for the Years Ended
December 31, 1998, 1997 and 1996 and unaudited Consolidated Statements
of Income and Retained Earnings for the Six Months Ended June 30, 1999
and 1998 .................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 and unaudited Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998 ......................................... F-5
Notes to Consolidated Financial Statements .................................... F-6
Consolidated Lumber Company, Inc. Financial Statements
Report of Independent Auditors ................................................ F-13
Statement of Assets Acquired and Liabilities Assumed at December 31, 1997 ..... F-14
Statement of Revenues and Expenses Associated with Operations Acquired for the
Year Ended December 31, 1997 ................................................ F-15
Notes to Financial Statements ................................................. F-16
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Huttig Building Products, Inc.:
We have audited the accompanying consolidated balance sheets of Huttig Building
Products, Inc. (formerly Huttig Sash & Door Company) (an indirect wholly owned
subsidiary of Crane Co. through Crane International Holdings, a direct
subsidiary of Crane Co.) and its subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of income and
retained earnings and cash flows for each of the three years in the period
ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 20, 1999
(June 21, 1999 as to Note 9)
F-2
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31, JUNE 30,
--------------------------- ------------
1998 1997 1999
------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash ........................................................ $ 9,423 $ 2,210 $ 946
Accounts receivable, net .................................... 67,028 54,404 80,857
Receivable -- Parent ........................................ 17,098 5,624 --
Inventories ................................................. 43,130 36,406 49,288
Prepaid expenses ............................................ 585 575 623
--------- --------- --------
Total current assets ...................................... 137,264 99,219 131,714
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT -- At cost:
Land ........................................................ 7,335 7,678 7,324
Buildings and improvements .................................. 39,081 42,708 36,446
Machinery and equipment ..................................... 24,638 20,501 25,900
--------- --------- --------
Gross property, plant and equipment ....................... 71,054 70,887 69,670
Less accumulated depreciation ............................... 33,746 35,492 31,849
--------- --------- --------
Property, plant and equipment, net ........................ 37,308 35,395 37,821
--------- --------- --------
OTHER ASSETS:
Cost in excess of assets acquired, net ...................... 42,109 16,840 43,031
Other ....................................................... 1,677 1,609 430
Deferred income taxes ....................................... 104 887 221
--------- --------- --------
Total other assets ........................................ 43,890 19,336 43,682
--------- --------- --------
TOTAL ....................................................... $ 218,462 $ 153,950 $213,217
========= ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........................ $ 319 $ 359 $ 255
Accounts payable -- trade and collections as agents ......... 54,424 33,815 48,637
Accrued payrolls ............................................ 11,109 9,900 8,974
Accrued liabilities ......................................... 8,533 6,452 7,595
Payable -- Parent ........................................... -- -- 14,494
--------- --------- --------
Total current liabilities ................................. 74,385 50,526 79,955
--------- --------- --------
LONG-TERM DEBT:
Notes payable -- Parent ..................................... 93,940 67,100 92,182
Other long-term debt ........................................ 1,379 1,715 1,253
--------- --------- --------
Total long-term debt ...................................... 95,319 68,815 93,435
--------- --------- --------
ACCRUED POSTRETIREMENT BENEFITS .............................. 7,303 6,750 7,577
--------- --------- --------
COMMITMENTS AND CONTINGENCIES (Note 6) .......................
SHAREHOLDER'S EQUITY:
Common stock -- No par value -- authorized, 3,000
shares; issued and outstanding, 1,000 shares .............. 10 10 10
Retained earnings ........................................... 41,445 27,849 32,240
--------- --------- --------
Total shareholder's equity ................................ 41,455 27,859 32,250
--------- --------- --------
TOTAL ........................................................ $ 218,462 $ 153,950 $213,217
========= ========= ========
See notes to consolidated financial statements.
F-3
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
NET SALES .............................. $ 707,450 $ 625,503 $ 595,089 $380,754 $319,640
--------- --------- --------- -------- --------
OPERATING COSTS AND
EXPENSES:
Cost of sales ......................... 606,993 543,097 511,892 330,323 277,723
Selling, general and administrative 67,900 58,155 56,163 35,362 31,157
Depreciation and amortization ......... 5,586 4,409 4,929 3,272 2,226
--------- --------- --------- -------- --------
Total operating costs and
expenses ........................... 680,479 605,661 572,984 368,957 311,106
--------- --------- --------- -------- --------
OPERATING PROFIT ....................... 26,971 19,842 22,105 11,797 8,534
--------- --------- --------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense -- Parent ............ (6,703) (4,285) -- (3,788) (2,820)
Interest expense -- net of interest
income of $3 and $18 in 1997
and 1996, respectively .............. (167) (182) (200) (65) (92)
Other miscellaneous, net .............. 1,750 (561) (1,148) (655) (115)
--------- --------- --------- -------- --------
Total other expense, net ............ (5,120) (5,028) (1,348) (4,508) (3,027)
--------- --------- --------- -------- --------
INCOME BEFORE TAXES .................... 21,851 14,814 20,757 7,289 5,507
PROVISION FOR INCOME
TAXES ................................. 8,255 5,759 8,469 2,769 1,929
--------- --------- --------- -------- --------
NET INCOME ............................. 13,596 9,055 12,288 4,520 3,578
RETAINED EARNINGS,
BEGINNING OF YEAR ..................... 27,849 148,734 136,446 41,445 27,849
DIVIDENDS PAID TO PARENT ............... -- 129,940 -- 13,725 --
--------- --------- --------- -------- --------
RETAINED EARNINGS, END OF
YEAR .................................. $ 41,445 $ 27,849 $ 148,734 $ 32,240 $ 31,427
========= ========= ========= ======== ========
NET INCOME PER SHARE ................... $ 13,596 $ 9,055 $ 12,288 $ 4,520 $ 3,578
========= ========= ========= ======== ========
DIVIDENDS PER SHARE .................... $ -- $ 129,940 $ -- $ 13,725 $ --
========= ========= ========= ======== ========
See notes to consolidated financial statements.
F-4
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------- --------------------------
1998 1997 1996 1999 1998
----------- --------------- ----------- ------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ................................. $ 13,596 $ 9,055 $ 12,288 $ 4,520 $ 3,578
Depreciation ............................... 3,540 3,372 3,642 1,764 1,673
Amortization ............................... 2,046 1,037 1,287 1,508 553
Deferred taxes ............................. (102) (202) (282) (117) 153
Accrued postretirement benefits ............ 553 500 436 274 261
Changes in operating assets and
liabilities (exclusive of acquisitions):
Accounts receivable ...................... (1,864) (1,742) (1,731) (13,106) (7,748)
Inventories .............................. 2,081 10,297 (973) (5,502) 3,944
Other current assets ..................... 324 265 (149) (38) (78)
Accounts payable ......................... 16,629 494 191 (5,787) 7,855
Accrued liabilities ...................... 2,812 (165) 2,494 (3,579) (262)
Other .................................... (3,720) 175 189 (125) 132
--------- ----------- --------- --------- --------
Total cash from operating activities ..... 35,895 23,086 17,392 (20,188) 10,061
--------- ----------- --------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ....................... (5,765) (3,338) (2,515) (4,791) (1,512)
Cash used for acquisitions ................. (44,861) (12,050) (2,000) (5,631)
Proceeds from disposition of capital
assets ................................... 6,069 388 201 2,585 (11)
--------- ----------- --------- --------- --------
Total cash from investing activities ..... (44,557) (15,000) (2,314) (4,206) (7,154)
--------- ----------- --------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash dividend paid to Parent ............... -- (62,840) -- (13,725) --
Repayment of long-term debt ................ (376) (386) (514) (1,950) (187)
Proceeds from (payments to) Parent ......... 16,251 55,672 (15,670) 31,592 (3,927)
--------- ----------- --------- --------- --------
Total cash from financing activities ..... 15,875 (7,554) (16,184) 15,917 (4,114)
--------- ----------- --------- --------- --------
INCREASE (DECREASE) IN CASH ................. 7,213 532 (1,106) (8,477) (1,207)
CASH, BEGINNING OF YEAR ..................... 2,210 1,678 2,784 9,423 2,210
--------- ----------- --------- --------- --------
CASH, END OF YEAR ........................... $ 9,423 $ 2,210 $ 1,678 $ 946 $ 1,003
========= =========== ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid .............................. $ 6,860 $ 4,471 $ 220 $ 3,852 $ 2,854
========= =========== ========= ========= ========
Income taxes paid .......................... $ 4,466 $ 6,099 $ 10,009 $ 1,377 $ 601
========= =========== ========= ========= ========
NON-CASH FINANCING ACTIVITY:
Dividends paid to Parent ................... -- $ (129,940) -- (13,725) --
Issuance of note payable to Parent ......... -- 67,100 -- -- --
----------- ---------
Cash dividends paid to Parent ............ $ -- $ (62,840) $ -- (13,725) $ --
========= =========== ========= ========= ========
Liabilities assumed in connection with
asset acquisitions ....................... $ 4,224 $ 864 $ -- -- 463
========= =========== ========= ========
See notes to consolidated financial statements.
F-5
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ACCOUNTING POLICIES AND PROCEDURES
ORGANIZATION -- Huttig Building Products, Inc. (formerly Huttig Sash &
Door Company), an indirect wholly owned subsidiary of Crane Co. through Crane
International Holdings, a direct subsidiary of Crane Co. (the "Parent" or
"Crane"), and its subsidiaries (the "Company") is one of the largest nationwide
distributors of doors, windows, molding, 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.
PRINCIPLES OF CONSOLIDATION -- The financial statements include the
accounts of Huttig Building Products, Inc. and its wholly owned subsidiaries,
CIPCO, Inc., which was formed January 2, 1997 and Rondel's, Inc., which was
acquired on March 31, 1993. All intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION -- Revenues are recorded when products are delivered
and title passes to the customer or when services are rendered.
USE OF ESTIMATES -- The preparation of the Company's financial statements
in conformity with generally accepted accounting principles 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.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Approximately 68% and 83% of inventories were determined by using the LIFO
(last in, first out) method of inventory valuation as of December 31, 1998 and
1997, respectively; the remainder was 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 been decreased by $2,632, $1,956 and
$735 in 1998, 1997 and 1996, respectively. During 1998, 1997, and 1996 LIFO
inventory quantities were reduced, resulting in a partial liquidation of the
LIFO bases, the effect of which increased net earnings by $1,922, $2,377, and
$1,605, respectively. The replacement cost would be higher than the LIFO
valuation by $15,368 in 1998 and $19,599 in 1997.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Depreciation was computed primarily by the straight-line method over
the estimated useful lives of the respective assets which range from three to
twenty-five years. Amortization expense on property under capital leases is
included in depreciation expense.
OTHER ASSETS -- Cost in excess of net assets acquired is being amortized
on a straight-line basis over fifteen to forty years. Other intangible assets
are being amortized on a straight-line basis over their estimated useful lives
which range from two to five years.
LONG-LIVED ASSETS -- The Company periodically evaluates the recoverability
of its long-lived assets by assessing whether the carrying value of the assets
can be recovered over the remaining life through undiscounted cash flows.
Long-lived assets are carried at lower-of-cost or market. Based on these
evaluations, management does not believe that any impairment has occurred.
INCOME TAXES -- The Company is included in the federal income tax return
of its Parent. The Company is charged its proportionate share of federal income
taxes determined as if it filed a separate federal income tax return. Income
tax payments represent payments of intercompany balances. Income tax expense is
based on reported earnings before income taxes. 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.
F-6
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS -- During 1998, the Company adopted
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information.
SFAS 130 established standards for reporting and display of comprehensive
income in a full set of financial statements. In addition to displaying an
amount for net income (loss), the Company is now required to display other
comprehensive income (loss), which includes other changes in equity (deficit).
SFAS 130 had no effect on the Company's financial statements for the years
ended December 31, 1996, 1997 and 1998.
SFAS 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and also established standards for related disclosures about
products and services, geographic areas, and major customers. Management has
considered the requirements of SFAS 131 and, as discussed in Note 8, believes
the Company operates in one business segment.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities, was
released. SFAS 133, as amended by SFAS 137, is effective for all fiscal years
beginning after June 15, 2000. The Company has historically made no use of
derivative instruments and financial hedges and believes there will be no
impact of the new accounting pronouncement on the financial statements.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The unaudited
interim consolidated financial statements as of June 30, 1999 and for the
six-month periods then ended were prepared in condensed format, in accordance
with the SEC rules and regulations for interim financial statements. In the
opinion of management, the interim financial statements reflect all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation. The accounting principles applied in preparation of the interim
financial statements are consistent with those applied in the annual financial
statements. Results of operations for the six-month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
2. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans covering substantially all
salaried and hourly employees not covered by collective bargaining agreements.
The plans generally provide benefit payments using a formula based on length of
service and final average compensation, except for some hourly employees for
whom the benefits are a fixed amount per year of service. The Company's policy
is to fund at least the minimum amount required by the applicable regulations.
The Company's defined benefit plans for hourly and salaried employees are
part of the Parent's defined benefit plans. The liabilities of the Company for
such plans are recorded through the receivable-Parent balance. As a result, the
Company is charged its proportionate share of the total expense for the plans.
Pension expense related to the Company's defined benefit pension plans was
$1,224, $1,013 and $970 in 1998, 1997 and 1996, respectively. The Company also
participates in several multi-employer pension plans which provide benefits to
certain employees under collective bargaining agreements. Total contributions
to these plans were $468 in 1998, $454 in 1997 and $480 in 1996.
In addition to providing pension benefits, certain health care and life
insurance benefits are provided for a majority of employees. Employees hired
before January 1, 1992 become eligible for these benefits if they meet minimum
age and service requirements. The Company does not prefund those benefits and
has the right to modify or terminate benefits.
F-7
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the amounts recognized in the Company's
balance sheet at December 31, for company sponsored post-retirement benefits:
1998 1997 1996
------------ ------------ ----------
Change in benefit obligation:
Benefit obligation at beginning of year ......... $ 6,750 $ 6,250
Service cost .................................... 248 236
Interest cost ................................... 500 447
Actuarial gain .................................. (12) (52)
Benefits paid ................................... (183) (131)
-------- --------
Benefit obligation at end of year ............. $ 7,303 $ 6,750
======== ========
Funded status .................................... $ (7,303) $ (6,750)
Unrecognized actuarial loss ...................... 242 667
-------- --------
Accrued benefit cost .......................... $ (7,061) $ (6,083)
======== ========
Discount rate .................................... 6.75% 7.25% 7.50%
Components of net periodic benefit cost:
Service cost .................................... $ 248 $ 236 $ 214
Interest cost ................................. 500 447 497
Recognized actuarial gain ....................... (12) (52) (124)
-------- -------- -------
Net periodic benefit cost ..................... $ 736 $ 631 $ 587
======== ======== =======
The cost of covered healthcare benefits was assumed to increase 8.5% for
1998, and then to decrease gradually to 4.75% by 2005 and remain at that level
thereafter. In 1997, the cost of covered healthcare benefits was assumed to
increase 9.4%, and then to decrease gradually to 5% by 2007 and remain at that
level thereafter.
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
---------------- ---------------
Effect on total of service and interest cost components ......... $120 $104
Effect on postretirement benefit obligation ..................... 375 329
3. ACCOUNTS RECEIVABLE
Receivables are carried at net realizable value.
A summary of the allowance for doubtful accounts, cash discounts, returns
and allowances activity at December 31 follows:
1998 1997 1996
--------- --------- ---------
Balance at beginning of year $ 1,459 $ 1,912 $ 1,946
Provisions 16,632 15,641 14,358
Deductions 16,559 16,094 14,392
------- ------- -------
Balance at end of year $ 1,532 $ 1,459 $ 1,912
======= ======= =======
F-8
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
1998 1997
---------- ----------
Notes payable -- Parent ........................... $93,940 $67,100
Industrial revenue bond ........................... 429 588
Capital lease obligations (see Note 6) ............ 1,269 1,486
------- -------
Total long-term debt ........................... 95,638 69,174
Less current portion .............................. 319 359
------- -------
Long-term debt -- net of current portion .......... $95,319 $68,815
======= =======
The notes payable -- Parent bears interest at a weighted average rate of
8.09%. Interest payments are due quarterly through June 30, 2003. Accrued
intercompany interest of $1,941 and $1,434 at December 31, 1998 and 1997,
respectively, is included in receivable-Parent.
The industrial revenue bond bears interest at a rate of 6.46%, based on
63% of the Bank's preferred lending rate which was 10.25% at December 31, 1997
and principal payments of $39 are made quarterly until 2001. The bond is
collateralized by property with a net book value of $1,908 and $1,988 at
December 31, 1998 and 1997, respectively.
At December 31, 1998, the principal amounts of long-term debt repayments
required for future years were $319 in 1999, $263 in 2000, $228 in 2001,
$67,221 in 2002, and $26,962 in 2003.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of investments and short-term debt approximates the
fair value. Long-term debt rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate the fair value
for debt issues that are not quoted on an exchange. The estimated fair value of
long-term debt at December 31, 1998 approximates the carrying value of $95,638.
6. 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, 1998:
MINIMUM
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME NET
--------- ----------- --------- ----------
1999 .................................... $ 216 $ 5,373 $ 1,360 $ 4,229
2000 .................................... 204 4,595 966 3,833
2001 .................................... 204 3,961 652 3,513
2002 .................................... 204 2,907 599 2,512
2003 .................................... 161 1,546 457 1,250
Thereafter .............................. 554 844 17 1,381
------- -------- ------- --------
Total minimum lease payments ......... $ 1,543 $ 19,226 $ 4,051 $ 16,718
======== ======= ========
Interest ................................ 274
-------
Present value ........................... $ 1,269
=======
The present value of the $1,269 above includes $161 due within one year.
F-9
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average interest rate for capital leases is 9.2%. These
obligations mature in varying amounts through 2007. Rental expense for all
operating leases was $6,672, $5,778, and $5,572 for 1998, 1997 and 1996,
respectively.
The cost of assets capitalized under leases is as follows at December 31:
1998 1997
---------- ----------
Land, buildings and improvements .......... $ 3,966 $ 3,966
Machinery and equipment ................... -- 126
------- -------
Cost of leased assets .................. 3,966 4,092
Less accumulated depreciation ............. 2,696 2,582
------- -------
Cost of leased assets -- net ........... $ 1,270 $ 1,510
======= =======
LITIGATION -- As of December 31, 1998, 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. Estimated future environmental
remediation costs of $500 at December 31, 1998 and $143 at December 31, 1997
were fully accrued.
The Company, through its Parent, 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.
7. 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 and retained earnings follows:
1998 1997 1996
------------- ------------- -------------
Income before taxes ................................. $ 21,851 $ 14,814 $ 20,757
========= ========= =========
Statutory federal tax at 35% ........................ $ 7,648 $ 5,185 $ 7,265
Increase resulting from:
State and local income taxes ....................... 411 280 943
Nondeductible goodwill and other expenses .......... 196 294 261
--------- --------- ---------
Provision for income taxes .......................... $ 8,255 $ 5,759 $ 8,469
========= ========= =========
Percentage of income before taxes ................... 37.8% 38.9% 40.8%
========= ========= =========
Deferred income taxes at December 31 are comprised of the following:
1998 1997
-------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ------------- ---------- ------------
Depreciation .................................. $ -- $ 698 $ -- $ 646
Difference between book and tax basis ......... -- 838 -- 865
Inventory related ............................. -- 273 -- 372
Insurance related ............................. 1,301 -- 1,203 --
Employee benefits related ..................... 3,113 -- 4,039 --
Other ......................................... 1,552 -- 696 --
------- ------- ------- -------
Total ...................................... $ 5,966 $ 1,809 $ 5,938 $ 1,883
======= ======= ======= =======
F-10
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998 and 1997, net current deferred tax assets of $4,053
and $3,168, respectively, were included in receivable-Parent. Net non-current
deferred tax assets of $104 and $887 at December 31, 1998 and 1997,
respectively, were included in deferred income taxes. The provision for income
taxes is composed of the following:
1998 1997 1996
--------- --------- ---------
Current:
U.S. Federal tax ............ $7,708 $5,499 $7,256
State and local tax ......... 649 464 1,495
------ ------ ------
Total current ............. 8,357 5,961 8,751
------ ------ ------
Deferred:
U.S. Federal tax ............ (86) (170) (238)
State and local tax ......... (16) (32) (44)
------ ------ ------
Total deferred ............ (102) (202) (282)
------ ------ ------
Total income tax ............ $8,255 $5,759 $8,469
====== ====== ======
8. 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, for the
periods indicated, the Company's sales by product.
1998 1997 1996
----------- ----------- -----------
Doors ...................................... $259,943 $232,502 $214,957
Specialty Building Materials ............... 140,871 133,746 128,169
Windows .................................... 132,991 128,195 128,126
Moldings ................................... 88,641 93,907 102,159
Lumber & Other Commodity Products .......... 85,004 37,152 21,678
-------- -------- --------
Total sales ............................... $707,450 $625,503 $595,089
======== ======== ========
9. ACQUISITIONS
Costs in excess of net assets acquired at December 31, 1998 and 1997
consists of the following:
1998 1997
Costs in excess of net assets acquired $48,412 $21,629
Accumulated amortization 6,303 4,789
------- -------
Total - net $42,109 $16,840
======= =======
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 $4,900. In
July, the Company acquired certain net assets of Consolidated Lumber Company,
Inc., a wholesale distributor of lumber and millwork products in the greater
Kansas City, Missouri area for a total cost of approximately $40,000. In
connection with the acquisition of Consolidated Lumber Company, Inc., the
Company recorded $26,200 of goodwill which will be amortized using the
straight-line basis over 15 years.
F-11
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
During July 1997, the Company completed one acquisition at a total cost of
$12,100. The Company acquired MALLCO Lumber & Building Materials Inc., a
leading wholesale distributor of lumber, doors and engineered wood products
serving Arizona and the surrounding region.
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 Number One Supply and Consolidated Lumber, Inc. as if the
acquisitions had taken place at the beginning of 1998. The pro forma amounts
give effect to certain adjustments including the amortization of goodwill and
intangibles, decreased 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.
Pro forma 1998 results are as follows: net sales of $738,703 and net income of
$14,531.
10. SUBSEQUENT EVENTS
On April 15, 1999, the Company issued dividends of $13,725, which resulted
in a corresponding decrease in the receivable from parent account. On June 21,
1999, Crane's Board of Directors authorized management to develop a plan for
the possible spin-off of the Company to Crane shareholders on a tax-free basis.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected consolidated financial information
of Huttig on a quarterly basis for the first two quarters of 1999 and each
quarter of 1998 and 1997. Huttig's business is seasonal and particularly
sensitive to weather conditions. Interim amounts are therefore subject to
significant fluctuations.
NET COST OF DEPRECIATION AND OPERATING NET
QUARTER SALES SALES AMORTIZATION PROFIT INCOME
(IN THOUSANDS)
1999
First $174,775 $153,887 $1,623 $ 3,987 $ 1,232
Second 205,979 176,436 1,649 7,810 3,288
-------- -------- ------ ------- -------
$380,754 $330,323 $3,272 $11,797 $ 4,520
======== ======== ====== ======= =======
1998
First $146,858 $127,575 $1,129 $ 2,953 $ 966
Second 172,782 150,148 1,097 5,581 2,612
Third 202,209 171,484 1,699 10,638 5,312
Fourth 185,601 157,786 1,661 7,799 4,706
-------- -------- ------ ------- -------
$707,450 $606,993 $5,586 $26,971 $13,596
======== ======== ====== ======= =======
1997
First $133,657 $116,999 $1,073 $ 1,944 $ 1,000
Second 153,140 133,093 1,053 4,760 1,838
Third 176,045 152,419 1,140 7,213 3,487
Fourth 162,661 140,586 1,143 5,925 2,730
-------- -------- ------ ------- -------
$625,503 $543,097 $4,409 $19,842 $ 9,055
======== ======== ====== ======= =======
F-12
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Consolidated Lumber Company, Inc.
We have audited the accompanying statement of assets acquired and liabilities
assumed of Consolidated Lumber Company, Inc. (the Company) as of December 31,
1997, and the related statement of revenues and expenses associated with
operations acquired (as described in Note 1) for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
As described in Note 1, the financial statements referred to above have been
prepared in consideration of the terms of the Asset Purchase Agreement between
Consolidated Lumber Company, Inc. and Huttig Sash & Door Company (Huttig) for
the sale of certain assets, liabilities and business operations to Huttig and
is not intended to be a complete presentation of the Company's assets,
liabilities and results of operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed of
Consolidated Lumber Company, Inc. at December 31, 1997, and the revenues and
expenses associated with the operations acquired for the year then ended,
pursuant to the terms of the Asset Purchase Agreement described in Note 1, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 2, 1998, except Notes 1
and 2, as to which the date is
August 20, 1999
F-13
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1997
ASSETS ACQUIRED (NOTE 2)
Current assets:
Accounts receivable ...................... $ 7,051,563
Inventories .............................. 7,809,052
Prepaid expenses ......................... 106,658
-----------
Total current assets ...................... 14,967,273
Property, plant and equipment, at cost:
Leasehold improvements ................... 334,387
Vehicles ................................. 1,717,382
Office and computer equipment ............ 487,021
Machinery and equipment .................. 465,473
-----------
3,004,263
Accumulated depreciation ................. 1,692,865
-----------
Net property, plant and equipment ......... 1,311,398
-----------
Total assets acquired ..................... 16,278,671
LIABILITIES ASSUMED (NOTE 2)
Current liabilities:
Accounts payable ......................... 2,661,224
Accrued expenses ......................... 1,098,679
-----------
Total current liabilities assumed ......... 3,759,903
-----------
Net assets acquired ....................... $12,518,768
===========
See accompanying notes.
F-14
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENT OF REVENUES AND EXPENSES
ASSOCIATED WITH OPERATIONS ACQUIRED
YEAR ENDED DECEMBER 31, 1997
Net sales ....................................................... $69,243,169
Cost of sales ................................................... 51,737,222
-----------
Gross profit .................................................... 17,505,947
Selling, general and administrative expenses .................... 11,671,107
-----------
Operating income ................................................ 5,834,840
Other income .................................................... 153,667
-----------
Excess of revenues over expenses of operations acquired ......... $ 5,988,507
===========
See accompanying notes.
F-15
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective July 1, 1998, Huttig Sash & Door Company (a subsidiary of Crane Co.)
acquired certain assets and assumed certain liabilities of Consolidated Lumber
Company, Inc. (the Company), a Kansas corporation. In the planned spin off of
Huttig Sash & Door Company (Huttig) from Crane Co., the financial statements of
the Company as of and for the year ended December 31, 1997, as described below,
are required for Huttig's filing of a registration statement on Form 10 with
the Securities and Exchange Commission.
The accompanying financial statements have been prepared from the books and
records of the Company and present the assets acquired and liabilities assumed
in the acquisition and the related revenues and expenses associated with the
operations acquired.
NATURE OF BUSINESS
The operations of the Company, acquired by Huttig, primarily consist of the
wholesale distribution of building materials to professional contractors
building in the single-family home market. The Company also sells value-added
items including prehung doors, fabricated roof trusses and preassembled
windows. The corporate office is in Merriam, Kansas with four lumber yards and
a millwork center located in Kansas and Missouri.
ACCOUNTS RECEIVABLE
The Company grants credit to certain customers who meet the Company's
preestablished credit requirements. Generally, the Company does not require
security when trade credit is granted to customers. Credit losses have
consistently been within management's expectations.
INVENTORIES
Inventories are carried at the lower of cost, determined using the average cost
method which approximates the first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. When retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and the resulting gains or losses are taken into income. Additions,
improvements, renewals and expenditures which materially increase the life of
the property are capitalized. Maintenance and repairs are charged to expense as
incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from five to 39 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. SALE TRANSACTION
On July 1, 1998, certain assets, liabilities and operations of the Company,
specifically excluding the lumber and millwork business operations and related
assets and liabilities located in Tucson, Arizona,
F-16
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SALE TRANSACTION (CONTINUED)
were sold to Huttig for approximately $40 million. In connection with the sale,
all assets used in the Company's business of manufacturing and selling lumber
and millwork products at its four facilities located in Kansas and Missouri,
unless otherwise excluded, and the current liabilities related thereto,
excluding any line of credit debt, notes payable or other long-term debt, were
transferred to Huttig.
3. COMMITMENTS
The Company leases certain vehicles, office space and plant facilities under
long-term, noncancelable operating leases which expire on varying dates through
2002, certain facilities of which are leased from stockholders. Certain vehicle
lease agreements provide the Company with the option to purchase the related
vehicle upon expiration of the lease. Future minimum lease rentals under these
noncancelable operating leases are as follows:
YEAR ENDED DECEMBER 31 AMOUNT
- - - ---------------------- -----------
1998 $ 614,597
1999 539,940
2000 467,212
2001 193,935
2002 13,445
----------
Total minimum lease payments $1,829,129
==========
Rental expense for all operating leases was $668,456 for the year ended
December 31, 1997. In most cases, management expects that in the normal course
of business existing leases will be renewed or replaced by other leases.
Three of the operating leases, with aggregate annual rentals for the year ended
December 31, 1997 of approximately $390,000, are with companies controlled by
stockholders of the Company.
4. INCOME TAXES
The Company has elected to be treated as an S corporation for tax purposes.
Consequently, any income from the acquired business operations is included in
the income tax returns of the Company's stockholders, and no income taxes have
been provided herein.
5. CASH FLOWS
Cash flows provided by operating activities of the acquired operations for the
year ended December 31, 1997 were generated primarily by earnings. Cash flows
used in investing activities related primarily to capital expenditures for the
year.
F-17
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
HUTTIG BUILDING PRODUCTS, INC.
(Registrant)
Date: September 21, 1999 By: /s/ Barry J. Kulpa
------------ -----------------------------
Name: Barry J. Kulpa
Title: President and Chief
Executive Officer
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
2.1 Form of Distribution Agreement between Crane Co. and Huttig Building Products, Inc.*
3.1 Restated Certificate of Incorporation of Huttig Sash & Door Company (filed herewith).
3.2 By-laws of Huttig Building Products, Inc. (filed herewith).
4.1 Specimen certificate for Common Stock of Huttig Building Products, Inc.*
4.2 Form of Rights Agreement between Huttig Building Products, Inc. and the rights agent named
therein*
10.1 Form of Tax Allocation Agreement between Crane Co. and Huttig Building Products, Inc. (filed
herewith).
10.2 Form of Employee Matters Agreement between Crane Co. and Huttig Building Products, Inc.
(filed herewith).
10.3 Form of Transition Services Agreement between Crane Co. and Huttig Building Products, Inc.*
10.4 Form of the Economic Value Added Incentive Compensation Plan for Executive Officers of Huttig
Building Products, Inc.*
10.5 Form of Non-Employee Director Restricted Stock Plan (filed herewith).
10.6 Form of Stock Incentive Plan*
10.7 Form of Employee Stock Purchase Plan*
10.8 Form of Indemnification Agreement for Executive Officers and Directors (filed herewith).
10.9 Amended Employment/Severance Agreement between Huttig Building Products, Inc. and Barry J.
Kulpa dated *.
10.10 Form of Retirement Plan for Non-Employee Directors*
21.1 Subsidiaries of Huttig Building Products, Inc.*
27.1 Financial Data Schedule (filed herewith).
- - - ----------
* To be filed by amendment.