-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6UCe9XSJvE15EEjHIQoraVPofQVQJAeWyd7la8roS6E0iJg0RQKUIjp/A4EbBSl EYd8YpRA4hHYzywPVfYxPw== 0000950128-01-000515.txt : 20010326 0000950128-01-000515.hdr.sgml : 20010326 ACCESSION NUMBER: 0000950128-01-000515 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUTTIG BUILDING PRODUCTS INC CENTRAL INDEX KEY: 0001093082 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-LUMBER & OTHER CONSTRUCTION MATERIALS [5030] IRS NUMBER: 430334550 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14982 FILM NUMBER: 1577703 BUSINESS ADDRESS: STREET 1: 14500 S. OUTER FORTY RD STREET 2: SUITE 400 CITY: CHESTERFIELD STATE: MO ZIP: 63006-1041 BUSINESS PHONE: 3142162600 MAIL ADDRESS: STREET 1: PO BOX 1041 CITY: CHESTERFIELD STATE: MO ZIP: 63006-1041 10-K 1 j8530601e10-k.txt FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-14982 HUTTIG BUILDING PRODUCTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-0334550 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) LAKEVIEW CENTER, SUITE 400 14500 SOUTH OUTER FORTY ROAD CHESTERFIELD, MISSOURI 63017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (314) 216-2600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE (TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of February 23, 2001 was approximately $63,975,902. The number of shares of Common Stock outstanding on February 23,2001 was 20,583,219 shares. Documents incorporated by reference: Portions of the Proxy Statement for the 2001 Annual Meeting of Shareholders Part III Page 1 of 34 2 PART I ITEM 1--BUSINESS GENERAL Huttig Building Products, Inc. ("Huttig" or the "Company") is one of the largest domestic distributors of building materials that are used principally in new residential construction and in home improvement, remodeling and repair work. Its products are distributed through 62 distribution centers serving 45 states, principally to building materials dealers (who, in turn, supply the end-user), directly to professional builders and large contractors, and to home centers, national buying groups, industrial and manufactured housing builders. The Company's American Pine Products manufacturing facility, located in Prineville, Oregon, produces softwood mouldings. Approximately 30% of its sales are to Huttig's distribution centers. On December 16, 1999, Crane Co. ("Crane") distributed to its stockholders (the "Spin-Off") all of the Company's outstanding common stock, par value $.01 per share (the "Common Stock"). Immediately after the Spin-Off, Huttig completed the acquisition of Rugby USA, Inc. ("Rugby") in exchange for 6,546,424 newly issued shares of Huttig Common Stock. Rugby is also a distributor of building materials. In this Annual Report on Form 10-K, "Huttig" refers to Huttig Building Products, Inc. and its subsidiaries and predecessors, including Rugby USA, unless the context indicates otherwise. INDUSTRY TRENDS The building materials distribution industry is characterized by its substantial size, highly fragmented ownership structure and dependence on the cyclical and seasonal home building industry. New housing starts in the U.S. in 2000 approximated 1.6 million based on data from F.W. Dodge, including 1.3 million single family residences. Approximately 74% of single family new construction in 2000 occurred in markets served by Huttig's distribution centers. According to the U.S. Department of Commerce, total spending on U.S. new residential construction in 2000 was $255 billion. Huttig estimates that aggregate expenditures for residential repair and remodeling were an additional $148 billion. Huttig believes that sales of windows, doors and other millwork accounted for approximately $16 billion in 2000. Prior to the 1970's, building materials were sold in both rural and metropolitan markets largely by local dealers, such as lumberyards and hardware stores. These dealers, who generally purchased their products from wholesale distributors, sold building products directly to homeowners, contractors and homebuilders. In the late 1970's and 1980's, The Home Depot and Lowe's began to alter this distribution channel, particularly in metropolitan markets, as these retailers started to displace some local dealers. These mass merchandisers market a broad range of competitively priced building materials to the homeowner and small home improvement contractor. Also during this period, some building materials manufacturers such as Georgia Pacific and Weyerhauser began selling their products directly to home center chains and to local dealers as well. Accordingly, most wholesale distributors have been diversifying their businesses by seeking to sell directly to large contractors and homebuilders in selected markets and by providing home centers with fill-in and specialty products. Also, as large homebuilding companies seek to streamline the new residential construction process, building materials distributors have increasing opportunities to provide higher margin turnkey products and services. The increasingly competitive environment faced by dealers also has prompted a trend toward industry consolidation that Huttig believes offers significant opportunities. Many distributors in the building materials industry are small, privately-held companies that generally lack the purchasing power of a larger entity and may also lack the broad lines of products and sophisticated inventory management and control systems typically needed to operate a multi-branch distribution network. These characteristics are also driving the consolidation trend in favor of companies like Huttig that operate nationally and have significant infrastructure in place. Page 2 of 34 3 PRODUCTS Each of the Company's distribution centers carries a variety of products that vary by location. Huttig's principal products are doors, windows, mouldings, specialty building materials such as housewrap, stair parts, engineered wood products, branded roofing and insulation and lumber and other commodity building products. The following table sets forth information regarding the percentage of net sales represented by the specified categories of total products sold by Huttig's distribution centers during each of the last three fiscal years. While it is believed that the percentages included in the table generally indicate the mix of Huttig's sales by category of product, the specific percentages are affected year-to-year by changes in the prices of commodity wood products, as well as changes in unit volumes sold. In addition, Rugby's sales are included in 1999 for only 14 days. As a result, 1999 product mix is not indicative of the mix that would result from including a full year of Rugby's sales. 2000 1999 1998 ---- ---- ---- Doors.............................. 34% 34% 37% Specialty Building Materials....... 26% 21% 20% Windows............................ 18% 17% 19% Lumber and Other Commodity Products 12% 15% 12% Mouldings.......................... 10% 13% 12% The Company's sales of doors totaled $364.8 million in 2000 versus $272.2 million in 1999 including both interior and exterior doors and pre-hung door units. Huttig sells wood, steel and composite doors from various branded manufacturers such as Therma-Tru(R) and Premdor(R) as well as providing value-priced unbranded products. The pre-hanging of a door within its frame is a value-added service that Huttig provides, allowing an installer to quickly place the unit in the house opening. In addition, the Company also assembles many exterior doors with added sidelites and transoms, also value-added services and products. To meet the increasing demand for pre-hung doors, Huttig invested $3.0 million in state-of-the-art equipment during 1999 and 2000 which allowed it to increase its capacity by approximately 30%. Sales of specialty building materials were $279.1 million in 2000 versus $169.8 million in 1999. Included in this category are products differentiated through branding or value-added characteristics. Branded products include Tyvek(R) and Typar(R) housewrap, L. J. Smith Stair Systems(R), Simpson Strong-Tie(R) connectors and Owens Corning(R) roofing and insulation. Also included in specialty sales are trusses, wall panels and engineered wood products such as floor systems assembled in Huttig's facility in Topeka, Kansas serving the eastern Kansas and western Missouri markets. Window sales amounted to $193.1 million in 2000 versus $138.7 million in 1999 and included shipments of wood, vinyl-clad, vinyl and aluminum windows from branded manufacturers such as Caradco(R), and Weather Shield(R) as well as unbranded products. In October 2000, the Company stopped distributing Andersen(R) trademarked products. Andersen(R) windows, which were sold to dealers through 12 of the Company's distribution centers, accounted for approximately $63.8 million and $79.7 million of Huttig's window sales in 2000 and 1999, respectively. Huttig is working to expand the depth of its offerings of windows to include a wider range of quality and price to better serve the Company's customer. Sales of lumber and other commodity building products were $128.7 million in 2000 versus $119.9 million in 1999. Growth of Huttig's lumber sales has resulted primarily from its acquisition of Mallco Lumber Company in Phoenix in 1997 and the acquisition of certain assets of and assumption of certain liabilities of Consolidated Lumber Company, Inc. in Kansas City in 1998. These acquisitions reflect Huttig's strategy to provide builders with the capability to purchase a house's framing and millwork package of products from one source and have each component delivered when needed. Other commodity building products include drywall, metal vents, siding, nails and other miscellaneous hardware. Page 3 of 34 4 Moulding sales, including door jambs, door and window frames, and decorative ceiling, chair and floor moulding, were $107.2 million in 2000 versus $99.7 million 1999. The majority of these sales were made by American Pine Products, a wholly owned subsidiary. Profitability of this highly competitive, commodity-priced product depends upon efficient plant operations, rapid inventory turnover and quick reaction to changing market conditions. Mouldings are a necessary complementary product line to doors and windows as part of a house's millwork package. SALES AND MARKETING Each of the Company's distribution centers is focused on meeting local market needs and offering competitive prices. Inventory levels, merchandising and pricing are tailored to local markets. Huttig's information system provides each distribution center manager with real-time pricing, inventory availability and margin analysis to facilitate this strategy. Huttig also supports its distribution centers with centralized product management, credit and financial controls, training and marketing programs and human resources expertise. Huttig's marketing programs center on fostering strong customer relationships and providing superior service. This strategy is furthered by the high level of technical knowledge and expertise of Huttig's personnel. The Company focuses its marketing efforts on the residential new housing and remodeling segments, with efforts directed toward the commercial and industrial segments limited to a small portion of its business. Certain of the Company's suppliers advertise to the trade and directly to the individual consumer through nationwide print and other media. The Company's distribution center sales organization consists of outside field sales personnel serving the customer on-site who report directly to their local distribution center manager. They are supported by inside customer services representatives at each branch. This sales force is compensated by commissions determined on the basis of return on sales or total margin on sales. PURCHASING Huttig negotiates with its major vendors on a company-wide basis to obtain favorable pricing, volume discounts and other beneficial purchase terms. A majority of the Company's purchases are made from suppliers offering payment, discount and volume purchase programs. Distribution center managers are responsible for inventory selection and ordering on terms negotiated centrally. This approach allows Huttig's distribution centers to remain responsive to local market demand, while still maximizing purchasing leverage through volume orders. Distribution center managers are also responsible for inventory management at their respective locations. Huttig is a party to distribution agreements with certain vendors on an exclusive or non-exclusive basis, depending on the product and the territory involved. The Company's distributorships generally are terminable at any time by either party, in some cases without notice, and otherwise on notice ranging up to 60 days. CUSTOMERS Building materials dealers represent the Company's single largest customer group. Despite the advent of the home center chains and the trend toward consolidation of dealers and increased direct participation in wholesale distribution by some building materials manufacturers, the Company believes that the wholesale distribution business continues to provide opportunities for increased sales. Huttig is targeting home centers for sales of fill-in and specialty products. In addition, some manufacturers are seeking to outsource the marketing function for their products, a role that Huttig, as a large, financially stable distributor, is well positioned to fill. Opportunities also exist for large distributors with the necessary capabilities to perform increasing amounts of services such as pre-hanging doors, thereby enabling the Company to enhance the value-added component of its business. The percentage of the Company's 2000 revenues attributable to various categories of customers are as follows: 2000 1999 ---- ---- Dealers............................... 66% 62% Builders and Contractors.............. 13% 13% Home Centers and Buying Groups........ 12% 15% Industrial and Manufactured Housing... 9% 10% Page 4 of 34 5 COMPETITION The Company's competition varies by product line, customer classification and geographic market. Huttig competes with many local and regional building product distributors, and, in certain markets and product categories, with national building product distributors and dealers. Huttig also competes with major corporations with national distribution capability, such as Georgia-Pacific, Weyerhauser and other product manufacturers that engage in direct sales; however, it also acts as a distributor for certain products of these manufacturers. Huttig sells products to large home center chains such as The Home Depot and Lowe's and, to a limited extent in certain markets, competes with them for business from smaller contractors. Competition from such large home center chains may, in the future, include more competition for the business of larger contractors. The Company believes that competition in the wholesale distribution business is largely on the basis of product availability, service and delivery capabilities and breadth of product offerings. Also, financial stability and geographic coverage are important to manufacturers in choosing distributors for their products. In the builder support business, Huttig's target customers generally select building products distributors on the basis of service and delivery, ability to assist with problem-solving, relationships and breadth of product offerings. The Company's relative size and financial position are advantageous in obtaining and retaining distributorships for important products. Huttig's relative size also permits it to attract experienced sales and service personnel and gives it the resources to provide company-wide sales, product and service training programs. By working closely with its customers and utilizing its information technology, Huttig's branches are able to maintain appropriate inventory levels and are well-positioned to deliver completed orders on time. Huttig's American Pine Products softwood moulding manufacturing business competes on the basis of relative length of lead times to produce and deliver product, service and geographic coverage. SEASONALITY The Company's first quarter and, to a lesser extent, its fourth quarter, are typically adversely affected by winter construction cycles and weather patterns in colder climates as the level of activity in both the new construction and home improvement markets decreases. The effects of winter weather patterns on Huttig's business are offset somewhat by the increase in residential construction activity during the same period in the deep South, Southwest and Southern California markets in which Huttig participates. Huttig also closely monitors operating expenses and inventory levels during seasonally affected periods and, to the extent possible, controls variable operating costs to minimize seasonal effects on profitability. BACKLOG The Company's customers generally order products on an as-needed basis. As a result, virtually all product shipments in a given fiscal quarter result from orders received in that quarter. Consequently, order backlog represents only a very small percentage of the product sales that the Company anticipates in a given quarter and is not indicative of its actual sales for any future period. TRADENAMES Historically, Huttig has operated under various tradenames in the markets it serves, retaining the name of an acquired business to preserve local identification. To capitalize on its increasing national presence, Huttig has been converting most branch operations to the primary tradename "Huttig Building Products." Some local branches continue to use historical tradenames as secondary tradenames to maintain goodwill. In connection with the Company's acquisition of Rugby USA, Huttig has an exclusive, royalty-free right to operate in the United States under the tradename "Rugby Building Products," in all the lines of business which Huttig conducted on December 16, 1999, for a period of two years from that date. The Company expects to phase out use of the Rugby tradename during this period. Page 5 of 34 6 EMPLOYEES As of December 31, 2000 the Company employed 2,767 persons, of which approximately 10% were represented by unions. Huttig has not experienced any strikes or other work interruptions in recent years and has maintained generally favorable relations with its employees. The following table shows the approximate breakdown by job function of the Company's employees: Distribution centers................... 1,824 Field Sales............................ 465 Manufacturing.......................... 344 Office and Corporate Administration.... 134 ITEM 2--PROPERTIES The Company's corporate headquarters are located at 14500 South Outer Forty Road, Chesterfield, Missouri 63017, in leased facilities. Its manufacturing facility for softwood mouldings is a 280,000-square foot facility owned by Huttig and located in Prineville, Oregon. Half of the Company's distribution centers are leased and the remainder are owned. The Company's facilities serve 45 states. Warehouse space at Huttig's distribution centers aggregates approximately 4.4 million square feet. Distribution centers range in size from 12,000 square feet to 160,000 square feet. The types of facilities at these centers vary by location, from traditional wholesale distribution warehouses that may have particular value-added service capabilities such as pre-hung door operations, to traditional lumber yards, and to builder support facilities with broad product offerings and capabilities for a wide range of value-added services. Huttig believes that its locations are well maintained and adequate for their purposes. The following table sets forth the geographic location of the Company's distribution centers as of December 31, 2000: NUMBER OF REGION LOCATIONS ------ --------- Florida................. 5 Lake Central (Great Lakes) 4 Mid-Atlantic............ 9 Midwest................. 17 New England............. 10 Northern California..... 1 Southeast............... 7 Southwest............... 2 Western................. 7 -- Total................... 62 ITEM 3--LEGAL PROCEEDINGS Huttig is involved in various lawsuits, claims and proceedings arising in the ordinary course of its business. While the outcome of any lawsuits, claims or proceedings cannot be predicted, Huttig does not believe that the disposition of any pending matters will have a material adverse effect on its financial condition, results of operations or liquidity. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local environmental laws and regulations. Huttig has been identified as a potentially responsible party in connection with the clean up of contamination at two sites. In addition, some of the Company's distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which Huttig, among others, could be held responsible. The Company does not believe that the ultimate resolution of the environmental matters will have a material adverse effect on the Company's financial position, results of operation, or cash flow. The Company believes that it is in compliance with applicable laws and regulations regulating the discharge of hazardous substances into the environment at the remainder of its facilities. Page 6 of 34 7 REGULATION The Company's trailer equipment is subject to various federal and state licensing and operating regulations as well as to various industry standards. The Federal Highway Administration (the "FHWA") published a rule, effective June 1, 1999 requiring motor carriers engaged in interstate commerce to install retroreflective tape or reflex reflectors on the sides and rear of all trailers that (i) were manufactured prior to December 1, 1993, (ii) have an overall width of 80 inches or more and (iii) have a gross vehicle weight rating of 10,000 lbs. or more. The FHWA has mandated the installation be completed by June 1, 2001. The Company currently estimates that as of December 31, 2000 the remaining expenditures for the Company to comply with the regulation will not be material. Costs to install the reflective tape have been and will continue to be capitalized and depreciated over the remaining life of the specific trailers. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to shareholders of the Company during the fourth quarter of 2000. EXECUTIVE OFFICERS OF THE COMPANY The Company's executive officers as of February 23, 2001 and their respective ages and positions are set forth below. NAME AGE POSITION --------------------- --- ------------------------ Barry J. Kulpa...... 53 President and Chief Executive Officer Kenneth E. Thompson 56 Vice President, Administration, Chief Financial Officer and Secretary David Dean.......... 57 Treasurer Thomas S. McHugh 36 Corporate Controller George M. Dickens, Jr. 38 Regional Vice President Daniel J. Geller.... 39 Regional Vice President Carl A. Liliequist.. 47 Regional Vice President John G. Olson....... 46 Regional Vice President Set forth below are the positions held with the Company, and other principal occupations and employment during the past five years of Huttig's executive officers. Except for Messrs. Kulpa, Dean, and McHugh, each executive officer of the Company serves in his capacity pursuant to the terms of an employment agreement with the Company. Barry J. Kulpa has served as the Company's President and Chief Executive Officer since October of 1997. Prior to joining Huttig, Mr. Kulpa served as Senior Vice President and Chief Operating Officer of Dal-Tile International (manufacturer and distributor of ceramic tile) from 1994 to 1997. From 1992 to 1994, he was Vice President and Chief Financial Officer of David Weekley Homes, a regional homebuilder. Kenneth E. Thompson has served as the Company's Vice President, Administration and Chief Financial Officer since July of 2000. Prior to joining Huttig, Mr. Thompson was employed by Baker Hughes, Inc. in the following capacities: Division Vice President of Manufacturing (petroleum services company), 1998-2000; Division Vice President of Finance, 1993-1998; Division Vice President of Marketing, 1991-1993. David Dean has served as Treasurer of Huttig since January 2000. Previously, Mr. Dean served as the Controller of Huttig since August of 1992. Thomas S. McHugh has served as the Company's Corporate Controller since May 2000. From 1993 until joining Huttig, Mr. McHugh worked at XTRA Corporation, an international lessor of transportation equipment, most recently as Corporate Controller. George M. Dickens, Jr. has been a Regional Vice President of the Company since December 1999. From 1997 until 1999, Mr. Dickens was a Vice President of Rugby Building Products Millwork Division. From 1996 to 1997, Mr. Dickens was the President of Rugby's Midwest Division. From 1990 until 1996, Mr. Dickens was Branch General Manager for Rugby. Page 7 of 34 8 Daniel J. Geller has been a Regional Vice President of the Company since December 1999. From 1997 to 1999, Mr. Geller was Regional District Manager at G. E. Supply (wholesale distributor of electrical supplies), a division of General Electric Co. From 1995 to 1997, Mr. Geller served as a General Manager at G. E. Supply and as Branch Manager from 1991 to 1995. Carl A. Liliequist has served as a Regional Vice President of the Company since Huttig's acquisition of PGL Building Products in July of 1988. John G. Olson has been a Regional Vice President since March 2000. Mr. Olson joined Huttig in 1998 as General Manager of the Southern California branch. From 1992 to 1998, Mr. Olson was the General Manager of Trimco Millwork. PART II ITEM 5--MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange under the symbol "HBP" and began trading on December 8, 1999. At February 23, 2001, there were approximately 3,332 holders of record of the Company's Common Stock. The following table sets forth the range of high and low sale prices of the Company's Common Stock on the New York Stock Exchange Composite Tape during each fiscal quarter of the fiscal year ended December 31, 2000. ----------------------------- ---------- ----------- HIGH LOW ----------------------------- ---------- ----------- Fourth Quarter - 1999 (1) $ 5.06 $ 3.44 ----------------------------- ---------- ----------- First Quarter - 2000 5.00 3.88 ----------------------------- ---------- ----------- Second Quarter - 2000 5.00 4.13 ----------------------------- ---------- ----------- Third Quarter - 2000 5.00 4.00 ----------------------------- ---------- ----------- Fourth Quarter - 2000 4.94 3.88 ----------------------------- ---------- ----------- (1) The Company's common stock began trading on December 8, 1999 and the information presented is for the period from December 8, 1999 to December 31, 1999. The Company anticipates that cash dividends will not be paid on Huttig Common Stock in the foreseeable future in order to conserve cash for use in Huttig's business, for possible acquisitions and for debt reduction. The Company's loan agreements contain covenants that restrict the payment of dividends and repurchases of common stock. ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA The following table summarizes certain selected financial data of Huttig for each of the five years in the period ended December 31, 2000. The information contained in the following table may not necessarily be indicative of Huttig's past or future performance as a separate stand-alone company. Such historical data should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and Huttig's financial statements and notes thereto included elsewhere in this report. Page 8 of 34 9
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (IN MILLIONS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net Sales ..................... $1,072.9 $800.3 $707.5 $625.5 $595.1 Depreciation and amortization . 7.3 6.6 5.6 4.4 4.9 Operating profit .............. 34.0 22.8 28.6 19.8 22.1 Interest expense, net ......... 11.1 7.8 6.9 4.5 .2 Income before taxes and extraordinary item ............ 22.9 14.4 21.8 14.8 20.8 Provision for income taxes .... 8.5 5.9 8.2 5.8 8.5 Net income .................... 13.6 8.5 13.6 9.1 12.3 Net income per share (basic and diluted) .................... .66 .59 1.17 .65 .88 BALANCE SHEET DATA (AT END OF PERIOD): Total assets .................. 249.2 301.3 218.5 154.0 206.4 Debt -- Bank and capital leases 81.1 122.1 1.4 1.7 2.1 Note Payable -- Former parent . -- -- 93.9 67.1 -- Total shareholder's equity .... 81.0 67.3 41.5 27.8 148.7
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 2000 COMPARED TO FISCAL 1999 Revenue increased 34.1% from $800.3 million in 1999 to $1,072.9 million in 2000. Although the 1999 acquisition of Rugby contributed $384.1 million to total revenues in 2000, this increase was offset by a decrease in same-branch sales of 14% or $112.0 million. Contributing to the decrease in same branch sales was deterioration in commodity wood prices which is believed to have negatively impacted revenues by $42.0 million versus 1999. Additionally, the Company stopped distributing Andersen(R) products in October 2000. In 2000, total sales of Andersen(R) products was $63.8 million compared to $79.7 million in 1999. Gross profit grew 35.5% to $218.4 million in 2000. The increase resulted primarily from the Rugby acquisition discussed above and was offset by a decrease in same-branch results of 11% or $17.0 million and the deterioration in commodity wood prices which is believed to have negatively impacted gross profit by $8.0 million. Gross profit as a percentage of sales was 20.4% in 2000 versus 20.2% in 1999. Gross profit in 2000 was also negatively impacted by $1.1 million of restructuring charges discussed below. Operating expenses increased by $53.1 million from 1999. This increase included approximately $51.0 million attributable to the acquisition of Rugby and was offset by a decrease in same-branch expenses of $7.0 million. Operating expenses in 2000 include $6.0 million of non-recurring costs incurred as a result of the restructuring activities described below. Operating expenses in 1999 includes a $5.9 million gain from the curtailment of the Company's post-retirement health benefit plan which was partially offset by $3.0 of other one time costs. Operating expenses as a percent of sales were 16.9% in 2000 vs. 16.0% in 1999. Excluding the impact of one time costs and gains, operating expenses as a percent of sales would have been 16.4% in 2000 and 1999. As a result of the contribution from Rugby, operating profit in 2000 was $34.0 million versus $22.8 million in 1999. Operating profit in 2000 includes $9.2 million of restructuring charges and other costs the Company incurred to integrate Rugby and restructure the Company's operations. Included in the $9.2 million are $2.1 million of restructuring charges related to discontinuing the distribution of Andersen(R) products in the fourth quarter of 2000. These incremental costs were offset by $6.5 million of gains on sale of excess properties. Excluding these items, operating profit would have been $36.7 million or 3.4% of sales in 2000. Non-recurring charges, which are included in cost of sales, operating expenses, and restructuring charges on the income statement totaled $9.2 million in 2000. This includes $1.1 million of restructuring charges for inventory impairment which is recorded as an increase to cost of sales. Included in the $2.1 million of Andersen restructuring charges are costs for lease terminations, severance and other costs associated with the closing and/or consolidation of the Company's distribution facilities. In addition to the $3.2 million of restructuring costs, the Company incurred an additional $6.0 million of non-recurring costs that were not chargeable against Page 9 of 34 10 reserves and are included in operating expenses. The $9.2 million of non-recurring costs were offset by $6.5 million of gains on sale from the disposition of the Company's excess properties and other assets. Interest expense increased $3.3 million primarily as a result of higher average debt outstanding and other expense declined $0.6 million. FISCAL 1999 COMPARED TO FISCAL 1998 Revenue increased 13.1% from $707.4 million in 1998 to $800.3 million in 1999. $52.0 million of this increase was due to the 1998 mid-year acquisitions of Consolidated Lumber Company and Number One Supply and $16.0 million was due to the Cherokee and Rugby acquisitions in May and December, 1999, respectively. The balance was attributable to same-branch sales growth of 4%. Gross profit grew $18.0 million to $161.2 million in 1999. $14.0 million resulted from the acquisitions discussed above and $4.0 million from the increase in same-branch sales. Gross profit as a percentage of sales was 20.2%, unchanged from 1998. Gross profit in 1999 was negatively impacted by $3.0 million of non-recurring charges discussed below. Excluding the $3.0 million in non-recurring charges, gross profit as a percentage of sales would have been 20.5% in 1999. Gross profit as a percentage of sales on a same-branch basis excluding the non-recurring charges increased 0.2% from 20.0% in 1998 to 20.2% in 1999. Total operating expenses, increased by $17.7 million from 1998 to 1999. This increase included approximately $6.0 million attributable to the Company's acquisitions and $18.0 million related to an increase in same-branch expenses. These were partially offset by $5.9 million of non-recurring gains resulting from the curtailment of the Company's post retirement health benefit plan described below. Operating expenses as a percent of sales were 16.0% in 1999, as compared to 15.6% in 1998. Non-recurring charges in 1999 totaled $8.2 million, including $5.3 million of restructuring reserves from lease terminations, severance, inventory impairment and other costs associated with the closing and/or consolidation of some of the Company's distribution facilities, $1.5 million of unreported insurance claims and $1.4 million related to environmental and other costs. In addition, the Company assumed accruals totaling $4.7 million included in the Rugby USA acquisition costs related to lease and contract terminations, severance, inventory impairment and other costs associated with the closing and/or consolidation of four Rugby USA distribution centers and the Rugby USA corporate office. The non-recurring costs were partially offset by the $5.9 million non-recurring gain from the curtailment of the Company's post-retirement health benefit plan. LIQUIDITY AND CAPITAL RESOURCES Huttig has depended primarily on the cash generated from its own operations to finance its needs. The combination of income from operations and cash generated from improved working capital management has been used to finance capital expenditures and seasonal working capital needs. Huttig's working capital requirements are generally greatest in the first eight months of the year and Huttig generates cash from working capital reductions in the last four months of the year. A continuing management focus to improve inventory turnover and accounts receivable and accounts payable days outstanding resulted in reduced working capital of $41.5 million from December 31, 1999 to December 31, 2000. Inventory turns averaged 7.1 in 2000 compared to 7.9 in 1999 and 7.8 in 1998. Prior to the Spin-Off, to the extent internal funds generated were insufficient, Huttig borrowed from Crane and to the extent cash generated by Huttig was greater than current requirements, the cash was returned to Crane. In particular, Huttig historically had borrowed from Crane to finance acquisitions, but has typically been able to generate cash sufficient to finance all other needs. In 2000, capital expenditures of $5.6 million were financed from cash generated from operations. During April 2000, the Company closed on a new $200.0 million secured revolving credit facility. The rate on the facility is LIBOR plus a variable rate based on the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). At December 31, 2000, the Company had outstanding three interest rate swap contracts having a total notional amount of principal of $80.0 million. The swap contracts currently provide for a fixed weighted average rate of 8.9% on $80.0 million of the Company's revolving credit borrowings. The remainder of the outstanding borrowings under the revolving credit agreement are currently at a floating rate of LIBOR plus 175 basis points. The proceeds from the $200.0 million facility were used to retire a previously existing $125.0 million facility and a $25.0 million term loan. In conjunction with the refinancing of the previously existing facility, the Company recorded an extraordinary expense of $0.8 million for the write-off of unamortized loan fees. Huttig expects to continue to finance seasonal working capital requirements and acquisitions through cash from operations and the Page 10 of 34 11 secured $200.0 million credit facility. CYCLICALITY AND SEASONALITY Huttig's sales depend heavily on the strength of the national and local new residential construction and home improvement and remodeling markets. The strength of these markets depends on new housing starts and residential renovation projects, which are a function of many factors beyond Huttig's control, including interest rates, employment levels, availability of credit, prices of commodity wood products and consumer confidence. Future downturns in the markets that Huttig serves could have a material adverse effect on Huttig's operating results or financial condition. In addition, because these markets are sensitive to cyclical changes in the economy in general, future downturns in the economy could have a material adverse effect on Huttig's financial condition and results of operations. Huttig's first quarter and, to a lesser extent, its fourth quarter, are typically adversely affected by winter construction cycles and weather patterns in colder climates as the level of activity in the new construction and home improvement markets decreases. Because much of Huttig's overhead and expense remains relatively fixed throughout the year, its profits also tend to be lower during the first and fourth quarters. The effects of winter weather patterns on Huttig's business are offset somewhat by the increase in residential construction activity during the same period in the deep South, Southwest and Southern California markets in which Huttig participates. ENVIRONMENTAL REGULATION Huttig is subject to federal, state and local environmental laws and regulations. Huttig has been identified as a potentially responsible party in connection with the clean up of contamination at two sites. In addition, some of Huttig's distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which Huttig, among others, could be held responsible. Huttig does not believe that its contribution to the clean up of the two sites will be material or that there are any material environmental liabilities at any of its distribution center locations. Huttig believes that it is in compliance with applicable laws and regulations regulating the discharge of hazardous substances into the environment. However, there can be no assurance that environmental liabilities will not have a material adverse effect on Huttig's financial condition or results of operations. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, is effective for the Company beginning January 1, 2001. SFAS No. 133 establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or liability measured at its fair value. ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Huttig has exposure to market risk as it relates to effects of changes in interest rates. The Company had $80.0 million and $120.7 of variable rate debt outstanding at December 31, 2000 and 1999, respectively. A hypothetical 100 basis point increase in the LIBOR rate would have had an unfavorable impact of $0.4 million on the Company's earnings and cash flows during the year ended December 31, 2000. Huttig's exposure to interest rate fluctuation is mitigated by the interest rate swap agreements it has in place. The total notional amount of the swap agreements is $80.0 million with a weighted average interest rate of 8.9% Huttig does not generate significant income from non-U.S. sources and accordingly, changes in foreign currency exchange rates do not generally have a direct effect on Huttig's financial position. Huttig is subject to periodic fluctuations in the price of wood commodities. Profitability is influenced by these changes as prices change between the time Huttig buys and sells the wood. In addition, to the extent changes in interest rates affect the housing and remodeling market, Huttig would be affected by such changes. Page 11 of 34 12 ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT To the Shareholders of Huttig Building Products, Inc.: We have audited the accompanying consolidated balance sheets of Huttig Building Products, Inc. and its subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP St. Louis, Missouri January 22, 2001 Page 12 of 34 13 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, (IN MILLIONS, EXCEPT SHARE DATA)
2000 1999 ---- ---- ASSETS CURRENT ASSETS: Cash and equivalents ......................... $ 3.6 $ 6.8 Accounts receivable, net ..................... 83.5 116.6 Inventories .................................. 71.5 78.1 Other current assets ......................... 2.8 4.0 -------- -------- Total current assets ...................... 163.3 205.6 -------- -------- PROPERTY, PLANT AND EQUIPMENT At cost: Land ......................................... 6.7 7.3 Buildings and improvements ................... 34.6 36.7 Machinery and equipment ...................... 30.9 28.7 -------- -------- Gross property, plant and equipment ........ 72.2 72.7 Less accumulated depreciation ................ 32.6 33.2 -------- -------- Property, plant and equipment -- net ....... 39.6 39.5 OTHER ASSETS: Costs in excess of net assets acquired, net .. 36.6 38.9 Other ........................................ 5.3 3.7 Deferred income taxes ........................ 6.3 13.6 -------- -------- Total other assets ........................ 46.3 56.2 -------- -------- TOTAL .......................................... $ 249.2 $ 301.3 ======== ========
See notes to consolidated financial statements. Page 13 of 34 14 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, (IN MILLIONS, EXCEPT SHARE DATA)
2000 1999 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of debt ........................... $ .2 $ .3 Accounts payable-- trade and collections as agents ... 63.1 72.5 Income taxes payable ................................. -- 5.3 Accrued payrolls ..................................... 9.6 9.2 Accrued insurance .................................... 4.3 6.2 Other accrued liabilities ............................ 8.6 15.8 -------- -------- Total current liabilities ......................... 85.8 109.3 NON-CURRENT LIABILITIES: Debt ................................................. 80.9 121.8 Accrued postretirement benefits ...................... 1.5 2.1 Deferred credit ...................................... -- .8 -------- -------- Total non-current liabilities ..................... 82.4 124.7 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 9) SHAREHOLDERS' EQUITY: Preferred shares, $.01 par (5,000,000 shares authorized) ....................................... -- -- Common shares, 2000 --- $.01 par (50,000,000 shares authorized, 20,866,145 shares issued), 1999-- $.01 par (50,000,000 shares authorized, 20,797,812 shares issued) ......................................... .2 .2 Additional paid-in capital on common stock ............ 33.2 32.9 Retained earnings ..................................... 49.1 35.5 Unearned compensation - restricted stock .............. (.4) (.2) Less: Treasury shares (278,433 shares at cost) ........ (1.1) (1.1) -------- -------- Total shareholders' equity ........................ 81.0 67.3 -------- -------- TOTAL .................................................. $ 249.2 $ 301.3 ======== ========
See notes to consolidated financial statements. Page 14 of 34 15 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA)
2000 1999 1998 ---- ---- ---- NET SALES .................................................... $1,072.9 $ 800.3 $ 707.4 OPERATING COSTS AND EXPENSES: Cost of sales .............................................. 854.5 639.1 564.2 Operating expenses ......................................... 181.5 128.4 110.7 Depreciation and amortization .............................. 7.3 6.6 5.6 Restructuring charges, net ................................. 2.1 3.1 -- (Gain)Loss on disposal of capital assets ..................... (6.5) .3 (1.7) -------- ------- ------- Total operating costs and expenses ...................... 1,038.9 777.5 678.8 -------- ------- ------- OPERATING PROFIT ............................................. 34.0 22.8 28.6 -------- ------- ------- OTHER INCOME (EXPENSE): Interest expense -- Crane .................................. -- (7.3) (6.7) Interest expense -- net .................................... (11.1) (.5) (.2) Other miscellaneous -- net ................................. -- (.6) .1 -------- ------- ------- Total other expense -- net .............................. (11.1) (8.4) (6.8) -------- ------- ------- INCOME BEFORE TAXES .......................................... 22.9 14.4 21.8 PROVISION FOR INCOME TAXES ................................... 8.8 5.9 8.2 -------- ------- ------- INCOME BEFORE EXTRAORDINARY ITEM ............................. 14.1 8.5 13.6 Extraordinary item (less applicable income taxes of $.3 million) ...................................... (.5) -- -- -------- ------- ------- NET INCOME ................................................... $ 13.6 $ 8.5 $ 13.6 ======== ======= ======= NET INCOME PER BASIC SHARE BEFORE EXTRAORDINARY ITEM ......... .68 .59 1.17 LOSS PER SHARE FROM EXTRAORDINARY ITEM ....................... (.02) -- -- -------- ------- ------- NET INCOME PER BASIC SHARE ................................... .66 .59 1.17 AVERAGE BASIC SHARES OUTSTANDING (Thousands) ................. 20,584 14,260 13,973 NET INCOME PER DILUTED SHARE BEFORE EXTRAORDINARY ITEM ....... .68 .59 1.17 LOSS PER SHARE FROM EXTRAORDINARY ITEM ....................... (.02) -- -- -------- ------- ------- NET INCOME PER DILUTED SHARE ................................. .66 .59 1.17 AVERAGE DILUTED SHARES OUTSTANDING (Thousands) ............... 20,597 14,260 13,973
See notes to consolidated financial statements. Page 15 of 34 16 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1999 & 2000 (IN MILLIONS)
COMMON UNEARNED SHARES ADDITIONAL COMPENSATION - TREASURY TOTAL OUTSTANDING, PAID-IN RETAINED RESTRICTED SHARES, SHAREHOLDERS' AT PAR VALUE CAPITAL EARNINGS STOCK AT COST EQUITY ------------ ------- -------- ----- ------- ------ BALANCES, January 1, 1998 .............. $ -- $ .7 $ 27.1 $ -- $ -- $ 27.8 Net income ........................... -- 13.6 -- 13.6 ------ ----- ------ ---- ----- ------ BALANCES, December 31, 1998 ............ $ -- $ .7 $ 40.7 $ -- $ -- $ 41.4 Dividends paid to Crane (13.7) (13.7) Capital contribution from Crane ............................. 4.5 4.5 Recapitalization in connection with spin-off from Crane .......... .1 1.0 (1.1) -- Shares issued in acquisition of Rugby USA ......................... .1 26.5 26.6 Restricted stock issued, net of amortization expense ................. .2 (.2) -- Net income ........................... -- -- 8.5 -- -- 8.5 ------ ----- ------ ---- ----- ------ BALANCES, December 31, 1999 ............ .2 32.9 35.5 (.2) (1.1) 67.3 Net Income ............................. 13.6 13.6 Restricted stock issued, net of amortization expense ................. -- .3 -- (.2) -- .1 ------ ----- ------ ---- ----- ------ BALANCES, December 31, 2000 ............ .2 33.2 49.1 (.4) (1.1) 81.0
See notes to consolidated financial statements. Page 16 of 34 17 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, (IN MILLIONS)
2000 1999 1998 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ......................................... $ 13.6 $ 8.5 $ 13.6 Loss (gain) on disposal of capital assets .......... (6.5) .3 (1.6) Depreciation ....................................... 4.4 3.6 3.5 Amortization ....................................... 2.9 2.9 2.0 Deferred taxes ..................................... 7.3 3.0 (.1) Accrued postretirement benefits .................... (.6) (5.2) .6 Changes in operating assets and liabilities (exclusive of acquisitions): Accounts receivable ............................. 33.1 11.2 (1.9) Inventories ..................................... 6.6 5.1 2.1 Accounts payable ................................ (9.4) (8.9) 16.6 Accrued liabilities ............................. (14.6) 2.4 2.8 Other ........................................... (2.7) (.2) (3.4) ------- ------- ------ Total cash from operating activities ............ 34.1 22.7 34.2 ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................... (5.6) (8.5) (5.8) Cash received (used) in acquisitions ............... -- .1 (44.8) Proceeds from disposition of capital assets ........ 9.2 2.4 7.7 ------- ------- ------ Total cash from investing activities ............ 3.6 (6.0) (42.9) ------- ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividend paid to Crane -- (13.7) Payments of debt ................................... (120.9) (126.3) (.4) Borrowings of debt ................................. 80.0 120.7 Proceeds from Crane ................................ -- -- 16.3 ------- ------- ------ Total cash from financing activities ............ (40.9) (19.3) 15.9 ------- ------- ------ (DECREASE) INCREASE IN CASH AND EQUIVALENTS .......... (3.2) (2.6) 7.2 CASH AND EQUIVALENTS, BEGINNING OF YEAR .............. 6.8 9.4 2.2 ------- ------- ------ CASH AND EQUIVALENTS, END OF YEAR .................... $ 3.6 $ 6.8 $ 9.4 ======= ======= ======
See notes to consolidated financial statements. Page 17 of 34 18 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, (IN MILLIONS)
2000 1999 1998 ---- ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid ............................................... $9.3 $ 9.5 $6.9 Income taxes paid ........................................... $7.0 $ 4.3 $4.5 NON-CASH FINANCING ACTIVITY: Capital contribution from Crane through reduction of payable to Crane .......................................... $ -- $ 4.5 $ -- Liabilities assumed in connection with asset acquisitions .............................................. $2.2 $74.3 $4.2
See notes to consolidated financial statements. Page 18 of 34 19 HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN MILLIONS, EXCEPT SHARE DATA) 1. ACCOUNTING POLICIES AND PROCEDURES ORGANIZATION -- Huttig Building Products, Inc. and subsidiaries (the "Company" or "Huttig") is a distributor of doors, windows, moulding, trim and related building products in the United States and operates one finished lumber production plant. The Company primarily sells its products for new residential construction and renovation. The Company was formerly a wholly owned subsidiary of Crane Co. ("Crane") through Crane International Holdings, a direct subsidiary of Crane. On December 16, 1999, Crane distributed all of the outstanding common stock of the Company to Crane's stockholders. In addition, on December 16, 1999, the Company acquired the building products and millwork branches of Rugby USA ("Rugby"), a subsidiary of Rugby Group PLC. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Huttig Building Products, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION -- Revenues are generally recorded when title passes to the customer, which occurs upon delivery of product, or when services are rendered. USE OF ESTIMATES -- The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to conform to the current year presentation. INVENTORIES -- Inventories are stated at the lower of cost or market. Substantially, all of the Company's inventory is finished goods. Approximately 79% and 80% of inventories were determined by using the LIFO (last in, first out) method of inventory valuation as of December 31, 2000 and 1999, respectively; the remainder were determined by the FIFO (first in, first out) method. Had the Company used the FIFO method of inventory valuation for all inventories, net income would have decreased by $0.9 million, $1.2 million and $2.6 million in 2000, 1999 and 1998, respectively. During 2000, 1999 and 1998, the LIFO inventory quantities were reduced, resulting in a partial liquidation of the LIFO bases, the effect of which increased net income by $1.7 million, $1.6 million and $1.9 million, respectively. The replacement cost would be higher than the LIFO valuation by $10.6 million in 2000 and $13.3 million in 1999. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets which range from 3 to 25 years. CASH AND EQUIVALENTS - The Company considers all liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. OTHER ASSETS/LIABILITIES -- Costs in excess of net assets acquired are amortized on a straight-line basis over 15 to 40 years. Other intangible assets are amortized on a straight-line basis over their estimated useful lives which range from two to five years. VALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates the carrying value of its long-lived assets, including goodwill and other tangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Page 19 of 34 20 SERVICES PROVIDED BY CRANE -- Prior to the Spin-off, Crane supplied the Company certain shared services including insurance, legal, tax and treasury functions. The costs associated with these services were charged to the Company through an intercompany account based upon specific identification. INCOME TAXES -- Through the date of its Spin-off from Crane, the Company was included in the federal income tax return of Crane. The Company was charged its proportionate share of federal income taxes determined as if it filed a separate federal income tax return. Income tax payments represented payments of intercompany balances. Subsequent to December 16, 1999, the date of the Spin-off, Huttig filed stand-alone federal tax returns. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes using currently enacted tax rates. EARNINGS PER SHARE -- Basic earnings per share is computed by dividing income available to common stockholders by weighted average shares outstanding. Diluted earnings per share reflects the effect of all other outstanding common stock equivalents using the treasury stock method. ACCOUNTING FOR STOCK-BASED COMPENSATION - Statement of Financial Accounting Standards Number 123 (SFAS No. 123), "Accounting for Stock-Based Compensation", sets forth a fair value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to apply APB No. 25, "Accounting for Stock Issued to Employees", to account for its stock-based compensation plans. ACCOUNTING FOR HEDGING ACTIVITIES - The Company has interest rate swap agreements that are used to hedge interest rate risk on the Company's variable rate borrowings. These swap agreements are off-balance sheet and therefore have no carrying value. CONCENTRATION OF CREDIT RISK -- The Company is engaged in the distribution of building products throughout the United States. The Company grants credit to customers, substantially all of whom are dependent upon the construction economic sector. The Company continuously evaluates its customers' financial condition but does not generally require collateral. The concentration of credit risk with respect to trade accounts receivable is limited due to the Company's large customer base located throughout the United States. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of its accounts receivable. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, is effective for the Company beginning January 1, 2001. SFAS No. 133 establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The derivative financial instruments that the Company holds are interest rate swaps that are used to hedge interest rate risks related to its variable rate borrowings and are, therefore, held for purposes other than trading. As a result of adopting SFAS No. 133 on January 1, 2001, the Company will record a $2.8 million adjustment to increase debt to its estimated fair value and will record an offsetting amount in shareholder's equity as Other Comprehensive Income. 2. SPIN-OFF FROM CRANE On December 16, 1999, the Company completed its tax-free Spin-off from Crane. Crane made a capital contribution of $4.5 million to the Company. Then Crane distributed all issued and outstanding shares of Huttig common stock, together with accompanying preferred share purchase rights (see Note 7), to holders of record of Crane common stock as of the close of business on December 8, 1999. The Spin-off was made on the basis of one share of Huttig common stock for every 4.5 shares of Crane common stock. Page 20 of 34 21 3. ACQUISITIONS Costs in excess of net assets acquired consists of the following at December 31: 2000 1999 ---- ---- Costs in excess of net assets acquired .... $47.6 $47.6 Accumulated amortization................. 11.0 8.7 ----- ----- Total-- net............................. $36.6 $38.9 ===== ===== On December 16, 1999 the Company completed its acquisition of Rugby. Crane, Huttig and Rugby Group PLC entered into a Share Exchange Agreement which provided for the transfer to Huttig of all the outstanding capital stock of Rugby USA in exchange for 6.5 million newly issued shares of Huttig common stock. As a result of this exchange, Rugby USA became a wholly owned subsidiary of Huttig. The acquisition of Rugby USA was accounted for under the purchase method of accounting. The $26.6 million value of the 6.5 million shares of stock issued in 1999 was allocated to the assets acquired and liabilities assumed based upon their fair values at the closing date. The relative fair values of the assets acquired and liabilities assumed were based upon valuations and other studies. However, the fair value of the net assets acquired exceeded the purchase price resulting in the write-off of all non-current assets of Rugby USA and a deferred credit of $.8 million was recorded in 1999. During fiscal year 2000, the Company determined the ultimate costs related to exit plans adopted as part of the acquisition exceeded the liabilities that were initially accrued by $2.0 million. Consequently, the acquisition cost was increased by this amount. In addition, the deferred income tax asset decreased by $2.2 million and the previously reported income taxes payable of $1.8 million was reduced to zero. As a result, the previously reported deferred credit balance of $0.8 million at December 31, 1999 was reduced to zero and assets increased by $1.6 million. The following table summarizes the allocation of the stock consideration paid to the fair value of the assets acquired and the liabilities assumed by the Company in connection with the acquisition of Rugby: Accounts receivable....................... $ 42.6 Inventories............................... 39.4 Other current assets...................... 4.7 Deferred income taxes -- non-current ..... 11.5 Note payable to Rugby Group PLC........... (32.0) Accounts payable.......................... (26.5) Accrued liabilities....................... (14.7) Property, plant & equipment............... 1.6 ----- Stock consideration paid............. $26.6 ===== Costs of $2.3 million for professional fees related to the acquisition were included in accrued liabilities in the allocation of the acquisition cost above. In December 1999, the Company established a $4.7 million reserve for asset impairments and costs expected to be incurred to exit certain activities connected with the acquisition of Rugby USA, Inc. ("Rugby"). During 2000, this reserve increased by $2.2 million as a result of a change in estimate of the planned exit costs and the Company also charged $6.7 million of costs against this reserve. The remaining balance of $0.2 million is for costs related to remaining facility shutdowns. The acquisition of Rugby was accounted for by the purchase method and, accordingly, this reserve was included in the allocation of the acquisition costs. The Company anticipates that the remaining exit activities will be substantially completed in the first quarter of 2001. During 1999, the Company acquired Cherokee Lumber Company and Cherokee Millwork Company, a manufacturer and distributor of lumber and millwork products in the Maryville, Tennessee area for a total cost of $1.9 million. In connection with the acquisition, the Company recorded approximately $0.6 million of goodwill which is being amortized on a straight-line basis over 15 years. During 1998, the Company completed two acquisitions. In June, the Company acquired Number One Supply, a building products distribution business based in Baltimore, Maryland and Raleigh, North Carolina, for a total cost of $4.9 million. In July, the Company acquired Consolidated Lumber Company, a distributor of lumber and millwork products in the greater Kansas City, Missouri area for a total cost of $40.0 million. In connection with the acquisition of Consolidated Lumber Company, the Company Page 21 of 34 22 recorded $26.2 million of goodwill which is being amortized on a straight-line basis over 15 years. All acquisitions were accounted for by the purchase method. The results of operations for all acquisitions have been included in the financial statements from their respective dates of purchase. The following unaudited pro forma financial information presents the combined results of operations of the Company and Rugby, Number One Supply and Consolidated Lumber as if the acquisition of Rugby had taken place at the beginning of 1998. The pro forma amounts give effect to certain adjustments including the amortization of goodwill and intangibles, increased interest expense and income tax effects. This pro forma information does not necessarily reflect the results of operations as it would have been if the businesses had been managed by the Company during these periods and is not indicative of results that may be obtained in the future. 1999 1998 ---- ---- Net sales......................... $1,247.1 $1,200.6 Net income........................ 13.3 22.4 Net income per share (basic and diluted)........................ .65 1.09 4. BUSINESS RESTRUCTURING In December 1999, the Company established a $5.3 million reserve for restructuring costs expected to be incurred under a strategic plan to consolidate and integrate various branch operations and support functions. During the year, the Company increased this reserve by $1.1 million of which $0.3 million was included in cost of sales. Also during the year, $6.2 million of costs were charged against the reserve, which included $2.5 million related to inventory impairment. The remaining balance of $0.2 million is primarily for facility shutdown costs. The Company anticipates that the remaining restructuring activities will be completed in the first quarter of 2001. During the fourth quarter of 2000 the Company recorded $2.1 million as a restructuring charge related to the termination of the Company's distribution agreement with Andersen Windows and Doors of which $0.8 million is included in cost of sales. The charge was primarily for items related to inventory impairment and downsizing of branch operations that previously distributed Andersen products. At December 31, 2000, approximately $1.1 million remains in the reserve and the Company anticipates that it will substantially complete the restructuring activity in the first half of 2001. 5. ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts as of December 31, 2000, 1999, and 1998 consists of the following: 2000 1999 1998 ---- ---- ---- Balance at beginning of year ....... $ .7 $ .2 $ .5 Provision charged to expense ....... 1.9 .6 .4 Write-offs, less recoveries ........ (1.0) (.1) (.7) ---- ---- ---- Balance at end of year.............. $1.6 $ .7 $.2 ==== ==== === 6. DEBT Debt as of December 31, 2000 and 1999 consisted of the following: 2000 1999 ---- ---- Revolving credit agreement.......... $ 80.0 $120.7 Industrial Revenue Bond............. .1 .3 Capital lease obligations (see Note 9) 1.0 1.1 Total debt..................... 81.1 122.1 ------ ------ Less current portion................ .2 .3 ------ ------ Long-term debt...................... $ 80.9 $121.8 ====== ====== Page 22 of 34 23 INDUSTRIAL REVENUE BOND -- The Industrial Revenue Bond is a floating rate obligation issued by the City of Deerfield Beach, Florida. The bond is collateralized by property with a net book value of $1.1 million and $1.2 million at December 31, 2000 and 1999, respectively. The obligation is due in quarterly installments until 2001. The interest rate for the bond was 7.1% and 5.9% at December 31, 2000 and 1999, respectively. CREDIT AGREEMENT -- On December 16, 1999 the Company executed a Revolving Credit Agreement (the "Credit Agreement") with certain financial institutions, which provided for a $125 million revolving credit facility. During April 2000, the Company closed on a new $200 million secured revolving credit facility. The rate on the facility is LIBOR plus a variable rate based on the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). At December 31, 2000, the Company had outstanding, three interest rate swap contracts having a total notional amount of principal of $80 million. The swap contracts currently provide for a fixed weighted average rate of 8.9% on $80 million of the Company's revolving credit borrowings. The remainder of the outstanding borrowings under the revolving credit agreement are currently at a floating rate of LIBOR plus 175 basis points. The proceeds from the facility were used to retire the previously existing $125 million facility and a $25 million term loan. The current revolving credit facility expires in April 2003. In conjunction with the refinancing of the previously existing facility, the Company recorded an extraordinary expense of $0.8 million for the write-off of the unamortized loan fees. Provisions of the Credit Agreement contain various covenants which, among other things, limit the Company's ability to incur indebtedness, incur liens, declare or pay dividends or make restricted payments, consolidate, merge or sell assets and require the Company to attain certain financial ratios in regards to leverage, consolidated net worth, and interest expense coverage. MATURITIES -- At December 31, 2000, the aggregate scheduled maturities of debt are as follows: 2001.............. $ .2 2002.............. .1 2003.............. 80.1 2004.............. .1 2005.............. .1 Thereafter........ .5 ------ Total........ $ 81.1 ====== 7. PREFERRED SHARE PURCHASE RIGHTS In December 1999, the Company adopted a Shareholder Rights Plan. The Company distributed one preferred share purchase right for each outstanding share of common stock at the date of the Spin-off. The preferred rights were not exercisable when granted and may only become exercisable under certain circumstances involving actual or potential acquisitions of the Company's common stock by a person or affiliated persons. Depending upon the circumstances, if the rights become exercisable, the holder may be entitled to purchase shares of the Company's Series A Junior Participating Preferred Stock. Preferred shares purchasable upon exercise of the rights will not be redeemable. Each preferred share will be entitled to preferential rights regarding dividend and liquidation payments, voting power, and, in the event of any merger, consolidation or other transaction in which common shares are exchanged, preferential exchange rate. The rights will remain in existence until December 6, 2009 unless they are earlier terminated, exercised or redeemed. The Company has authorized five million shares of $.01 par value preferred stock of which 250 thousand shares have been designated as Series A Junior Participating Preferred Stock. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS CASH EQUIVALENTS The carrying value of cash and equivalents approximates their fair value. DEBT The estimated fair value of the Company's debt approximates book value since the interest rates on nearly all of the outstanding borrowings are frequently adjusted. In addition, the Company has interest rate swap agreements that are off balance sheet and therefore have no carrying value. The fair value of these swap agreements would increase the Company's debt by $2.8 million. Page 23 of 34 24 9. COMMITMENTS AND CONTINGENCIES The Company leases certain of its vehicles, equipment and warehouse and manufacturing facilities under capital and operating leases with various terms. Certain leases contain renewal or purchase options. Future minimum payments, by year, and in the aggregate, under these leases with initial or remaining terms of one year or more consisted of the following at December 31, 2000:
MINIMUM CAPITAL OPERATING SUBLEASE LEASES LEASES INCOME NET ------ ------ ------ --- 2001................................. .2 $ 8.7 $ 1.3 $ 7.6 2002................................. .2 7.3 1.1 6.4 2003................................. .2 5.1 1.1 4.2 2004................................. .2 3.4 .6 3.0 2005................................. .2 2.5 .2 2.5 Thereafter........................... .3 10.6 -- 10.9 ---- ----- ----- ----- Total minimum lease payments......... 1.3 37.6 4.3 34.6 ===== ===== ===== Amount representing interest......... (.3) ---- Present value of minimum lease payments 1.0 ====
The weighted average interest rate for capital leases is 6.9%. These obligations mature in varying amounts through 2007. Rental expense for all operating leases was $15.3 million, $8.2 million and $6.7 million in 2000, 1999 and 1998 respectively. The cost of assets capitalized under leases is as follows at December 31: 2000 1999 ---- ---- Land, buildings and improvements $ 2.3 $ 2.3 Less accumulated depreciation 1.3 1.2 ----- ----- Cost of leased assets-- net $ 1.0 $ 1.1 ===== ===== LITIGATION -- As of December 31, 2000, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's financial condition and results of operations. The Company is involved in two remediation actions to clean up hazardous wastes as required by federal and state laws. The Company has established insurance programs to cover product and general liability losses. These programs have deductible amounts before coverage begins. The Company does not deem its deductible exposure to be material. 10. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PLANS -- Prior to the Spin-off, the Company participated in Crane's defined benefit pension plans covering substantially all salaried and hourly employees not covered by collective bargaining agreements. Effective as of the Spin-off, Company employees who had accrued benefits under a Crane pension plan became fully vested in those benefits and stopped accruing benefits under the Crane pension plan after the Spin-off. Prior to the Spin-off, the Company was charged its proportionate share of the total expense for the plans. Pension expense related to Crane's defined benefit pension plans was $1.1 million and $0.8 million in 1999 and 1998, respectively. The Company also participates in several multi-employer pension plans that provide benefits to certain employees under collective bargaining agreements. Total contributions to these plans were $0.6 million, $0.5 million, $0.5 million in 2000, 1999 and 1998, respectively. HEALTH BENEFITS PLANS -- Prior to the Spin-off, employees hired before January 1, 1992 were eligible for post-retirement medical and life insurance benefits if they met minimum age and service requirements. Page 24 of 34 25 Effective with the Spin-off, the Company will pay 50% of any premium or cost of such coverage for its current retirees between the ages of 55 and 65. All other employees not currently qualified will not receive postretirement medical and life insurance benefits. The reduction in benefits resulted in a curtailment gain of $5.9 million in 1999. The following table sets forth the amounts recognized in the Company's balance sheet at December 31, for the Company sponsored postretirement benefit plan:
2000 1999 1998 ---- ---- ---- Change in benefit obligation: Benefit obligation at beginning of year ............ $ .3 $ 7.3 $ 6.8 Plan participant contributions ..................... .1 .2 Service cost ....................................... -- .2 .2 Interest cost ...................................... -- .4 .5 Amendments ......................................... -- (1.0) -- Actuarial (gain) loss .............................. .2 (1.3) -- Curtailment ........................................ -- (5.1) -- Benefits paid ...................................... (.3) (.4) (.2) ----- ----- ----- Benefit obligation at end of year .................. $ .3 $ .3 $ 7.3 ===== ===== ===== Funded status ........................................ $ (.3) $ (.3) $(7.3) Unrecognized net actuarial (gain) loss ............... (1.2) (1.8) .3 ----- ----- ----- Accrued benefit cost ............................... $(1.5) $(2.1) $(7.0) ===== ===== ===== Discount rate ........................................ 7.75% 7.50% 6.75% Components of net periodic benefit cost: Service cost ....................................... $ -- $ .2 $ .2 Interest cost ...................................... -- .4 .5 Amortization of prior service cost ................. -- (.1) -- Recognized actuarial gain .......................... (.3) (.1) -- ----- ----- ----- (.3) .4 -- Recognition of curtailment gain .................... -- (5.9) -- ----- ----- ----- Net periodic benefit cost ............................ $ (.3) $(5.5) $ .7 ===== ===== =====
In 2000, the cost of covered healthcare benefits was assumed to increase 7.5%, and then to decrease gradually to 5.0% by 2006 and remain at that level thereafter. In 1999, the cost of covered healthcare benefits was assumed to increase 7.2%, and then to decrease gradually to 5.0% by 2005 and remain at that level thereafter. A one percentage point change would not have material effect on the total service and interest cost components or on the post retirement benefit obligation. DEFINED CONTRIBUTION PLANS -- Effective with the spin-off, the Company established a new qualified defined contribution plan for its employees that is substantially similar to the Crane plan. At the spin-off date, all of the account balances of employees under the Crane plan became fully vested and a corresponding amount of assets were transferred from the Crane plan to one or more of the qualified defined contribution plans maintained by the Company. The cost of the defined contribution plans to the Company was $1.9 million, $1.5 million and $1.7 million in 2000, 1999 and 1998, respectively. Page 25 of 34 26 11. STOCK AND INCENTIVE COMPENSATION PLANS 1999 STOCK INCENTIVE PLAN The 1999 Stock Incentive Plan authorizes the issuance of 7% of the issued and outstanding stock of the Company up to a maximum of 2 million shares of common stock under the Plan. The Plan allows the Company to grant awards to key employees including restricted stock awards, stock options, and stock appreciation rights, subject primarily to the requirement of continuing employment. The awards under this plan are available for grant over a period of ten years from the date on which the plan was adopted, but the grants may vest beyond the ten-year period. Stock options issued by the Company are exercisable at a future time as specified by the Company and expire ten years from the date of grant. The exercise price of stock options may not be less than the fair market value of the common stock at the date of grant. The Company is authorized to grant shares of restricted stock to employees. No monetary consideration is paid by employees who receive restricted stock. Restricted stock can be granted with or without performance restrictions. In 2000, the Company granted 65,000 shares of restricted stock under the 1999 Stock Incentive Plan at a market value of $4.25 per share and recorded the total market value of the shares granted as unearned compensation in the Statement of Shareholders' Equity. The unearned compensation is being amortized to expense over a five-year vesting period. EVA INCENTIVE COMPENSATION PLAN Under the Company's EVA Incentive Compensation Plan (the "EVA Plan"), participants in the EVA Plan may elect to allocate 50% of their incentive award to a stock subaccount. Participants who make this election will have restricted shares granted to them with a two year vesting period, with the restrictions lapsing evenly each year. The number of restricted shares issued is calculated by dividing the cash award by the fair market value of the Company's stock at the date of the allocation. If the participant does not make this election, 100% of the participants EVA award is allocated to a cash account. Each participant with a positive aggregate account balance will receive an annual payout of a specified percentage of his or her account, with the standard payout percentage being one-third each year. A participants entire cash subaccount balance will become payable and his or her restricted stock will fully vest upon normal retirement at age 65, death, disability or a change in control (as defined in the EVA Plan). ACCOUNTING FOR STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation", sets forth a fair value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to apply APB No. 25, "Accounting for Stock Issued to Employees", to account for its stock-based compensation plans. Had the compensation cost for these plans been determined according to SFAS No. 123, the Company's net income and earnings per share would have been the following pro forma amounts for the year ended December 31: (Millions of dollars, except per share amounts) 2000(1) ------- NET INCOME As reported $ 13.6 Pro forma 13.2 BASIC EPS As reported $ .66 Pro forma .64 DILUTED EPS As reported $ .66 Pro forma .64 (1) There were no stock options outstanding prior to January 1, 2000. Page 26 of 34 27 For purposes of the pro forma disclosure, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2000 ---- ASSUMPTIONS: Volatility 45% Risk-free interest rate 4.9% Dividend yield 0% Expected life of options (years) 5 Weighted average grant date fair value of options granted under the 1999 stock incentive plan $1.98 The following table summarizes the stock option transactions pursuant to the Company's stock incentive and stock option plans for the one-year period ended December 31, 2000:
Weighted Average Shares Exercise Price (000s) Per Share ($) ------ ------------- Options outstanding at December 31, 1999 -- -- Granted 896 4.34 Exercised -- -- Forfeited (94) 4.29 ---- ---- Options outstanding at December 31, 2000 802 4.35 Exercisable options at December 31, 2000 -- -- Shares available for grant at December 31, 2000 574
The following table summarizes information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Weighted Average Number Outstanding Remaining Number Exercisable Range of At 12/31/00 Contractual Life Weighted Average at 12/31/00 Weighted Average Exercise Price (000's) (Years) Exercise Price (000s) Exercise Price -------------- ------- ------- -------------- ------ -------------- $ 4.29 to $4.73 802 9.1 $ 4.35 -- --
12. INCOME TAXES A reconciliation between income taxes based on the application of the statutory federal income tax rate to income taxes as set forth in the consolidated statements of income follows: 2000 1999 1998 ---- ---- ---- Federal statutory rate ................... 35.0 35.0 35.0 Increase in taxes resulting from: State and local taxes................. 2.7 2.0 1.9 Nondeductible items and other ........ 1.2 4.0 .9 ---- ---- ---- Effective income tax rate ................ 38.9 41.0 37.8 Page 27 of 34 28 Deferred income taxes at December 31 are comprised of the following:
2000 1999 ---- ---- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Accelerated depreciation ..................... $ -- $ 2.9 $ -- $ .6 ------- ------- ------- ------ Purchase price book and tax basis differences ................................ 6.0 12.2 Inventory related ............................ 2.7 3.9 Insurance related ............................ 1.1 -- 1.3 -- Employee benefits related .................... 1.7 -- 1.8 -- Other accrued liabilities .................... 1.8 -- 6.3 -- Other ........................................ 1.3 -- .8 2.9 ------- ------- ------- ------ Total ........................................ $ 11.9 $ 5.6 $ 22.3 $ 7.4 ======= ======= ======= ======
The provision for income taxes is composed of the following: 2000 1999 1998 ---- ---- ---- Current: U.S. Federal tax $ 2.3 $ 3.3 $ 7.7 State and local tax .3 .2 .6 ------ ------ ------ Total current 2.6 3.5 $ 8.3 ------ ------ ------ Deferred: U.S. Federal tax 5.3 2.2 (.1) State and local tax .6 .2 -- ------ ------ ------ Total deferred 5.9 2.4 (.1) ------ ------ ------ Total income tax $ 8.5 $ 5.9 $ 8.2 ====== ====== ====== 13. SALES BY PRODUCT The Company operates in one business segment, the distribution of building materials used principally in new residential construction and in home improvement, remodeling and repair work. The Company derives substantially all of its revenues from domestic customers. The following table presents the Company's sales by product: 2000 1999 1998 ---- ---- ---- Doors .................................... $ 364.8 $272.2 $259.9 Specialty building materials ............. 279.1 169.8 140.9 Windows .................................. 193.1 138.7 133.0 Lumber and other commodity products ...... 128.7 119.9 85.0 Mouldings ................................ 107.2 99.7 88.6 -------- ------ ------ Total sales ......................... $1,072.9 $800.3 $707.4 ======== ====== ====== Page 28 of 34 29 14. BASIC AND DILUTED EARNINGS PER SHARE The following table provides a reconciliation of the numerators and denominators of basic and diluted earnings per share share computations for the years ended December 31:
2000 1999 1998 ---- ---- ---- Net income (in millions) (numerator) $ 13.6 $ 8.5 $ 13.6 Computation of Basic Shares Outstanding (in thousands, except per share amounts) Weighted average number of basic shares outstanding (denominator) 20,584 14,260 13,973 Basic earnings per common share $ .66 $ .59 $ 1.17 Computation of Diluted Shares Outstanding (in thousands, except per share amounts) Weight average number of basic shares outstanding 20,584 14,260 13,973 Common Stock equivalents for diluted shares outstanding 13 -- -- Weighted average number of diluted shares outstanding (denominator) 20,597 14,260 13,973 Diluted earnings per common share $ .66 $ .59 $ 1.17
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table provides selected consolidated financial information on a quarterly basis for each quarter of 2000 and 1999. The Company's business is seasonal and particularly sensitive to weather conditions. Interim amounts are therefore subject to significant fluctuations.
FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ---- 2000 Net sales........................................ $ 282.0 $285.6 $ 278.2 $ 227.1 $1,072.9 Gross profit..................................... 54.1 56.9 57.9 50.6 219.5 Operating profit................................. 8.4 11.8 11.1 2.7 34.0 Net income before extraordinary items 3.7 5.4 5.0 -- 14.1 Net income....................................... 3.7 4.9 5.0 -- 13.6 Basic and diluted earning per share before extraordinary items.............................. .18 .26 .24 -- .68 Loss per share from extraordinary items -- (.02) -- -- (.02) ------- ------ ------- ------- -------- Basic and diluted earnings per share............. .18 .24 .24 -- .66 1999 Net sales........................................ $ 174.8 $205.9 $ 214.2 $ 205.4 $ 800.3 Gross profit..................................... 34.1 40.7 42.6 43.8 161.2 Operating profit................................. 4.0 7.6 7.7 3.5 22.8 Net income....................................... 1.3 3.3 3.9 -- 8.5 Basic and diluted earnings per share............. .09 .23 .28 -- .59
Page 29 of 34 30 ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 (other than the information regarding executive officers set forth at the end of Part I of this Form 10-K) will be contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," and is incorporated herein by reference. ITEM 11--EXECUTIVE COMPENSATION The information required by Item 11 will be contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the captions "Election of Directors" and "Executive Compensation," and is incorporated herein by reference. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 will be contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the captions "Beneficial Ownership of Common Stock by Directors and Management," "Election of Directors" and "Principal Stockholders of the Company," and is incorporated herein by reference. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 will be contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders under the caption "Other Transactions and Relationships," and is incorporated herein by reference. PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K The financial statements, financial statement schedules and exhibits listed below are filed as part of this annual report: (a)(1) FINANCIAL STATEMENTS: The following consolidated financial statements of the Company and the Report of Independent Auditors thereon are included in Item 8 above: Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements for the Years Ended December 31, 2000, 1999 and 1998 Independent Auditors' Report of Deloitte & Touche LLP, Independent Auditors Page 30 of 34 31 (a)(2) FINANCIAL STATEMENT SCHEDULES: None. (a)(3) EXHIBITS: EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------ 2.1 Distribution Agreement dated December 6, 1999 between Crane and the Company. (Incorporated by reference from Exhibit No. 2.1 of Amendment No. 4 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on December 6, 1999.) 2.2 Share Exchange Agreement dated October 19, 1999 among the Rugby Group PLC, Crane and the Company. (Incorporated by reference from Exhibit No. 2.2 to Amendment No. 1 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on October 29, 1999.) 3.1 Restated Certificate of Incorporation of the Company. (Incorporated by reference from Exhibit 3.1 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on September 21, 1999.) 3.2 Bylaws of the Company. (Incorporated by reference from Exhibit 3.2 to Amendment No. 4 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on December 6, 1999.) 4.1 Rights Agreement dated December 6, 1999 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (Incorporated by reference from Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) 4.2 Amendment No. 1 to Rights Agreement between the Company and ChaseMellon Shareholders Services, L.L.C. (Incorporated by reference from Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.) 4.3 Credit Agreement dated April 25, 2000 between the Company and Chase Manhattan Bank, as agent for the lenders named therein, and the Lenders. (Incorporated by reference from Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.) 4.4 Form of Revolving Loan Note dated April 25, 2000 in favor of certain lenders. (Incorporated by reference from Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.) 4.5 Schedule to Form of Revolving Loan Note dated April 25, 2000 in favor of certain lenders. (Incorporated by reference from Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.) 4.6 Certificate of Designations of Series A Junior Participating Preferred Stock of the Company. (Incorporated by reference from Exhibit 4.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) 10.1 Tax Allocation Agreement by and between Crane and the Company dated December 16, 1999. (Incorporated by reference from Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) 10.2 Employee Matters Agreement between Crane and the Company dated December 16, 1999. (Incorporated by reference from Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.3 EVA Incentive Compensation Plan. (Incorporated by reference from Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.4 Form of Restricted Stock Agreement under the Company's EVA Incentive Compensation Plan. (Incorporated - by reference from Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.5 Non-Employee Director Restricted Stock Plan. (Incorporated by reference from Exhibit 10.4 to Amendment No. 4 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on December 6, 1999.) *10.6 Form of Stock Option Agreement under the Company's Stock Incentive Plan. (Incorporated by reference from Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.7 Schedule to Stock Option Agreement under the Company's Stock Incentive Plan. (Filed herewith.) Page 31 of 34 32 *10.8 Stock Incentive Plan. (Incorporated by reference from Exhibit 10.5 to Amendment No. 4 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on December 6, 1999.) *10.9 Form of Indemnification Agreement for Executive Officers and Directors. (Incorporated by reference from Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) 10.10 Schedule to Indemnification Agreement for Executive Officers and Directors. (Filed herewith.) *10.11 Employment/Severance Agreement between the Company and Barry J. Kulpa dated October 18, 1999. (Incorporated by reference from Exhibit 10.7 to Amendment No. 1 to the Company's Registration Statement on Form 10 (File No. 1-14982) filed with the Commission on October 29, 1999.) *10.12 Form of Employment Agreement between the Company and certain of its executive officers. (Incorporated by reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.13 Schedule to Employment Agreement between the Company and certain of its executive officers. (Filed herewith.) 10.14 Registration Rights Agreement by and between The Rugby Group PLC and the Company dated December 16, 1999. (Incorporated by reference from Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.15 Restricted Stock Agreement dated January 24, 2000 between the Company and Barry J. Kulpa. (Incorporated by reference from Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.16 Restricted Stock Agreement dated December 17, 1999 between the Company and Barry J. Kulpa. (Incorporated by reference from Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) 10.17 Restricted Stock Agreement dated December 17, 1999 between the Company and Barry J. Kulpa. (Incorporated by reference from Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.) *10.18 Description of Stock Option Grant by the Company to certain non-employee directors. (Filed herewith) 13.1 Pages 2 through 3, 6 through 10 and 12 through 16 of the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders. (Filed herewith.) 21.1 Subsidiaries of the Company. (Filed herewith.) 23.1 Consent of Deloitte & Touche LLP, independent certified public accountants. (Filed herewith.) - ---------- * Management contract or compensatory plan or arrangement. The registrant hereby agrees to furnish supplementally to the Commission, upon request, a copy of any omitted schedule to any of the agreements contained or incorporated by reference herein. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated September 1, 2000, which reported under Item 5 that the Company had discontinued its distribution agreement with Andersen Windows and Doors, one of its vendors. Page 32 of 34 33 (c) Exhibits See (a)(3) above. Copies of exhibits may be retrieved electronically at the Securities and Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished at a charge of $.20 per page by writing to the Company, c/o Corporate Secretary, Lakeview Center, Suite 400, 14500 South Outer Forty Road, Chesterfield, Missouri 63017. (d) Financial Statement Schedules See (a)(2) above. Page 33 of 34 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HUTTIG BUILDING PRODUCTS, INC. By: /s/ BARRY J. KULPA ------------------------------ Barry J. Kulpa President, and Chief Executive Officer Date: February 16, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ BARRY J. KULPA President, Chief Executive February 16, 2001 - ------------------ Officer (Principal Barry J. Kulpa Executive) and Director /s/ KENNETH E. THOMPSON Vice President, February 16, 2001 - ----------------------- Administration, Chief Kenneth E. Thompson Financial Officer and Secretary (Principal Financial Officer) /s/ THOMAS S. McHUGH Corporate Controller February 16, 2001 - -------------------- (Principal Accounting Thomas S. McHugh Officer) /s/ E. THAYER BIGELOW, JR. Director February 16, 2001 - -------------------------- E. T. Bigelow, Jr. /s/ ALAN S. DURANT Director February 16, 2001 - ------------------ Alan S. Durant /s/ R. S. EVANS Chairman of the Board February 16, 2001 - --------------- R. S. Evans /s/ R. S. FORTE Director February 16, 2001 - --------------- R. S. Forte /s/ DORSEY R. GARDNER Director February 16, 2001 - --------------------- Dorsey R. Gardner /s/ DELBERT TANNER Director February 16, 2001 - ------------------- Delbert Tanner /s/ JAMES L. L. TULLIS Director February 16, 2001 - ---------------------- James L. L. Tullis Page 34 of 34 EX-10.7 2 j8530601ex10-7.txt SCHEDULE TO THE STOCK OPTION AGREEMENT 1 EXHIBIT 10.7 Schedule to Stock Option Agreement under the Company's Stock Incentive Plan
Option Holder Number of Shares Exercise Price Date of Grant - ------------- ---------------- -------------- ------------- David Dean 6,000 $4.29 per share January 24, 2000 George M. Dickens, Jr. 34,000 $4.29 per share January 24, 2000 R. S. Evans 100,000 $4.29 per share January 24, 2000 Daniel J. Geller 20,000 $4.29 per share January 24, 2000 Clifford T. Gordon 15,500 $4.29 per share January 24, 2000 Barry J. Kulpa 326,000 $4.29 per share January 24, 2000 Gregory D. Lambert 65,000 $4.29 per share January 24, 2000 Carl A. Liliequist 39,000 $4.29 per share January 24, 2000 Paul W. Lyle 34,000 $4.29 per share January 24, 2000 Stokes Ritchie 21,000 $4.29 per share January 24, 2000 George M. Dickens, Jr. 29,400 $5.00 per share January 22, 2001 Daniel J. Geller 27,000 $5.00 per share January 22, 2001 Barry J. Kulpa 140,000 $5.00 per share January 22, 2001 Carl A. Liliequist 29,400 $5.00 per share January 22, 2001 Thomas S. McHugh 13,500 $5.00 per share January 22, 2001 John Olson 28,000 $5.00 per share January 22, 2001 Kenneth E. Thompson 20,000 $5.00 per share January 22, 2001
EX-10.10 3 j8530601ex10-10.txt SCHEDULE TO FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.10 Schedule to Form of Indemnification Agreement for Executive Officers and Directors Indemnitee ---------- E. T. Bigelow, Jr. Alan S. J. Durant R. S. Evans R. S. Forte Dorsey R. Gardner Barry J. Kulpa Delbert H. Tanner James L. L. Tullis Peter L. Young EX-10.13 4 j8530601ex10-13.txt SCHEDULE TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.13 Schedule to Employment Agreement between the Company and certain of its executive officers Executive Position of Executive Base Salary George M. Dickens, Jr. Regional Vice President $180,000 Daniel Geller Regional Vice President 135,000 Carl A. Liliequist Regional Vice President 147,500 Paul Lyle Regional Vice President 150,000 John G. Olson Regional Vice President 140,000 EX-10.18 5 j8530601ex10-18.txt SCHEDULE TO STOCK OPTION AGREEMENT 1 EXHIBIT 10.18 Description of Stock Option Grant by the Company to certain non-employee directors On January 22, 2001, the Company granted to each of Messrs. Bigelow, Forte, Tullis and Gardner a stock option to purchase 20,000 shares of the Company's Common Stock at an exercise price of $5.00 per share. The options vest 50% on January 22, 2002; 25% on January 22, 2003; and 25% on January 22, 2004. No written option agreements associated with the grants of these options have yet been entered into by the Company. EX-13.1 6 j8530601ex13-1.txt PAGES FROM DEF PROXY STATEMENT 1 Exhibit 13.1 ELECTION OF DIRECTORS The Board of Directors of the Company consists of nine members divided into three classes. At the meeting, three directors are to be elected to hold office for three-year terms until the Annual Meeting in 2004 and until their successors are elected and qualified. The enclosed proxy will be voted for election of the three directors of such class named in the following table, unless a shareholder indicates that a vote should be withheld with respect to one or more of such directors. The election of these directors has been proposed and recommended by the Board of Directors. If any nominee shall, prior to the meeting, become unavailable for election as a director, the persons named in the accompanying form of proxy will vote for such nominee, if any, as may be recommended by the Board of Directors. Under the Company's By-Laws, a shareholder intending to nominate any person for election as a director of the Company must notify the Secretary of the Company in writing not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting. If an annual meeting is called for a date that is not within 30 days before or after the anniversary date of the immediately preceding annual meeting, a shareholder's notice must be received by the Company not later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. The notice must set forth (a) as to each person nominated, (i) the name, age, business address and residence address of such person, (ii) the principal occupation of such person, (iii) the number of shares of Common Stock beneficially owned by such person and (iv) any other information required to be disclosed in solicitations for proxies for elections of directors under the federal securities laws; and (b) as to the shareholder giving such notice, (i) the name and record address of such shareholder, (ii) the number of shares of Common Stock beneficially owned by such shareholder, (iii) a description of any arrangement between such shareholder and each of his or her nominees and any other persons (including their names) pursuant to which the nominations are made by such shareholder, (iv) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to nominate his or her nominees and (v) any other information required to be disclosed in solicitations for proxies for elections of directors under the federal securities laws. The notice must be accompanied by the executed consent of each nominee to serve as a director if so elected. The age, position with the Company, period of service as a director of the Company, business experience during the past five years, directorships in other companies and shareholdings in the Company as of February 23, 2001 for each of the nominees for election and for each of those directors whose term will continue are set forth below:
SHARES OF COMMON STOCK BENEFICIALLY OWNED (1) ------------ NOMINEES FOR DIRECTOR TO BE ELECTED FOR TERMS TO EXPIRE IN 2004 E. THAYER BIGELOW, JR 5,467 Age 59, Director since October 1999. Senior Advisor, Time-Warner Inc., New York, NY (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. RICHARD S. FORTE 3,677 Age 56, Director since October 1999. 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.
2 2
SHARES OF COMMON STOCK BENEFICIALLY OWNED (1) ------------ PETER L. YOUNG None Age 62, Director since February 2000. Group Chief Executive, RMC Group p.l.c., United Kingdom (international building materials company) from January 1996 to June 2000. Other Directorships: RMC Pension Trust Limited, Ready Mixed Concrete Senior Benefits Trust Limited, RMC Money Purchase Pension Trust Ltd., Harleyford Golf p.l.c., Readymix, p.l.c., Ireland (a building materials company). DIRECTORS WHOSE TERMS EXPIRE IN 2003 DORSEY R. GARDNER 1,762 Age 58, Director since October 1999. President, Kelso Management Company, Inc., Boston, MA (investment management). General Partner, Hollybank Investments, L.P., and Thistle Investments, L.P., Miami, FL (private investment funds). Other directorships: Crane Co. DELBERT H. TANNER None Age 49, Director since January 2001. Senior Vice President, RMC Industries since 1998. Chief Executive Officer, Channel Partners, Inc. 1996-1998. Executive Vice President, Construction Materials -- CalMat Co. 1993-1996. JAMES L. L. TULLIS 444 Age 53, Director since October 1999. Chairman and Chief Executive Officer, Tullis-Dickerson & Co., Inc., Greenwich, CT (venture capital investments in the health care industry) since 1986. Other directorships: Crane Co., PSS Worldmed, Inc. DIRECTORS WHOSE TERMS EXPIRE IN 2002 ALAN S. J. DURANT None Age 63, Director since February 2000. President and Director, RMC Industries Corporation, Decatur, Georgia (building materials company) since 1993. Other directorships: RMC Group p.l.c R. S. EVANS 457,518 Age 56, Director since 1972. Chairman of the Company. Chairman and Chief Executive Officer of Crane Co. Other directorships: Crane Co., Fansteel, Inc., HBD Industries, Inc., Hexcel Corporation. BARRY J. KULPA 203,317 Age 53, Director since October 1997. President and Chief Executive Officer of the 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.
- --------------- (1) As determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. No director except Mr. R. S. Evans and Mr. Barry J. Kulpa owns more than 1% of the outstanding shares of Common Stock. Mr. Evans owns 2.2% of the outstanding shares of Common Stock. For more information on Mr. Kulpa's beneficial ownership, see Beneficial Ownership of Common Stock by Directors and Management, page 6. 3 3 BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND MANAGEMENT The following table sets forth the number of shares of Common Stock beneficially owned, directly or indirectly, by the non-employee directors as a group (see pages 2 and 3 for individual holdings), the executive officers named in the Summary Compensation Table and all of the Company's directors and executive officers as a group, as of February 23, 2001.
SHARES UNDER SHARES IN PERCENT OF SHARES RESTRICTED COMPANY TOTAL SHARES OUTSTANDING AS OF SHARES STOCK SAVINGS PLAN BENEFICIALLY FEBRUARY 23, OWNED PLANS(1) (401(K)) OWNED(2) 2001 ------- ---------- ------------ ------------ ----------------- Non-Employee Directors as a Group (8 persons) (3)....... 468,868 -- -- 468,868 2.3% Barry J. Kulpa................ 54,222 147,121 2,074 203,417 1.0% George M. Dickens............. -- -- 1,174 1,174 * Carl A. Liliequist............ 5,308 -- 6,271 11,579 * Paul W. Lyle.................. -- -- 1,044 1,044 * John G. Olson................. 3,291 -- 4,130 7,421 * Other Executive Officers (4 persons)................. 1,146 -- 4,193 5,339 * Total......................... 532,835 147,121 18,886 698,842 3.4%
- --------------- * Represents holdings of less than 1%. (1) Subject to forfeiture if established service conditions are not met. (2) As determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. (3) Excludes 6,546,424 shares of Common Stock owned by Rugby, which may be deemed to be beneficially owned by Mr. Durant, who is a director of RMC. Mr. Durant is also an executive officer of RMC. Mr. Durant expressly disclaims beneficial ownership of the shares of Common Stock owned by Rugby. Does not include 107 shares owned by Mr. Evans' spouse the beneficial ownership of which is expressly disclaimed by Mr. Evans. 6 4 PRINCIPAL STOCKHOLDERS OF THE COMPANY The following table sets forth the ownership of Common Stock by each person known by the Company to beneficially own more than 5% of the Common Stock on February 23, 2001.
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS - ------------------- -------------------- ---------------- RMC Group p.l.c.(1)......................... 6,546,424 32.0% RMC House Coldharbour Lane Thorpe, Egham Surrey TW20 8TD England The Baupost Group, L.L.C. .................. 2,285,320(2) 11.0% 44 Brattle Street, 5th Floor Cambridge, MA 02138 The Crane Fund(3)........................... 1,728,537 8.3% 100 First Stamford Place Stamford, CT 06902
- --------------- (1) According to a Statement on Schedule 13D/A filed by RMC on April 26, 2000, as of that date it owned 100% of the outstanding shares of Rugby, which is the direct beneficial owner of the 6,546,424 shares of Company Common Stock. (2) According to a Schedule 13G filed by The Baupost Group, L.L.C. on April 10, 2000. (3) 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, E. M. Kopczick and M. L. Raithel, 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. 7 5 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE Shown below is information concerning the annual and long-term compensation for services rendered in all capacities to the Company and its subsidiaries for the years ended December 31, 2000, 1999 and 1998 for Barry J. Kulpa, the Company's Chief Executive Officer, and the other four most highly compensated individuals who serve as executive officers of the Company and one other individual who was an executive officer of the Company during 2000 but was no longer so at December 31, 2000. The compensation described in this table was paid by the Company or a prior affiliate of the Company.
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------------------- ---------------------------------------------------------- COMPANY SECURITIES OTHER RESTRICTED UNDERLYING NAME AND BONUS ANNUAL STOCK OPTIONS/ LTIP ALL OTHER PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION($) AWARD($) SARS(#) (4) PAYOUTS($) COMPENSATION($)(5) ------------------ ---- --------- ------- --------------- ---------- ----------- ---------- ------------------ Barry J. Kulpa........ 2000 350,000 130,000 -- 276,250(2) 326,000 -- 5,250 President and Chief............. 1999 263,000 130,000 -- 274,056(3) 32,528 -- 5,905 Executive Officer... 1998 250,000 130,671 -- -- 36,000 -- 6,152 George M Dickens...... 2000 182,600 -- 34,000 4,033 Regional Vice....... 1999 182,600 63,000 -- -- -- -- 252,908(10) President(6)........ 1998 182,600 62,800 -- -- -- -- 3,185 Carl A. Liliequist.... 2000 147,500 148,465 39,000 5,250 Regional Vice....... 1999 147,500 146,343 -- -- 2,711 -- 5,257 President........... 1998 147,188 166,031 -- -- 2,250 -- 5,339 Paul W. Lyle.......... 2000 160,000 -- 34,000 3,637 Regional Vice....... 1999 160,000 108,000 -- -- -- -- 152,619(10) President(6),(7).... 1998 160,000 90,000 -- -- -- -- 2,077 John G. Olson......... 2000 128,333 53,040 20,000 2,100 Regional Vice....... 1999 93,333 42,705 -- -- -- -- 2,338 President(8)........ 1998 30,833 -- -- -- -- -- -- Gregory D. Lambert.... 2000 107,708 50,000 65,000(9) 1,850 Vice President -...... 1999 185,000 50,000 -- -- 8,132 -- 1,975 Administration and............... 1998 -- -- -- -- -- -- -- Chief Financial Officer(9)
- --------------- (1) Represents the amounts paid to the named executives under the EVA Plan. After giving effect to such payments, the named executives have credited to their accounts under the Company's EVA Plan the following amounts as of December 31, 2000, which are subject to increase or decrease in future years: Barry J. Kulpa, $77,483; Carl A. Liliequist, $302,686; George M. Dickens, $0; Paul W. Lyle, $0; John G. Olson; $53,044. Under the program, one-third of the account balance in any year will be payable to the named executive. The Company is responsible for the account balances of the foregoing employees and the other Company employees participating in this plan. (2) On January 24, 2000, Mr. Kulpa was granted 65,000 restricted shares of Common Stock under the Company's Stock Incentive Plan. Based on the closing price of a share of Common Stock on January 24, 2000 of $4.25, the value of the 65,000 restricted shares on that date was $276,250. Restrictions on the 65,000 shares granted in 2000 will lapse one-fifth per year beginning one year from the date of grant. Dividends will be paid on all restricted shares of Common Stock at the same rate as on other shares of Common Stock. As of December 31, 2000, Mr. Kulpa held a total of 130,121 restricted shares of Common Stock. Based on the closing price of a share of Common Stock on December 29, 2000 (the last New York Stock Exchange trading day of 2000) of $4.125, the value of the 130,121 restricted shares on that date was $536,749. (3) Prior to the distribution by Crane Co. of all of the outstanding shares of Common Stock to Crane Co.'s shareholders on December 16, 1999 (the "Distribution"), Mr. Kulpa had been granted an aggregate of 15,000 shares of time-based Crane restricted stock. In the Distribution, Mr. Kulpa received 3,333 shares of restricted Company Common Stock in respect of his ownership of the 15,000 shares of time-based Crane restricted stock. Based on the closing price of $3.4375 per share of the Company's Common Stock on December 16, 1999, the date of the Distribution, the value of the 3,333 shares on that date was $11,457. 8 6 This value is included in the $274,056 reported in the Summary Compensation Table for 1999. In connection with the Distribution, on December 17, 1999 the 15,000 shares of time-based Crane restricted stock owned by Mr. Kulpa were converted into 61,788 shares of the Company's time-based restricted stock. Based on the closing price of $4.25 per share of the Company's Common Stock on December 17, 1999, the value of the 61,788 shares on that date was $262,599. The restrictions on 32,561 shares of Mr. Kulpa's restricted Common Stock granted in 1999 will lapse in 2003 and restrictions on 32,560 shares granted in 1999 will lapse in 2004. (4) No options to purchase shares of Common Stock were outstanding in 1998 or 1999. The shares reported in this column for 1998 and 1999 represent shares of Crane's common stock underlying options that were granted by Crane prior to the Distribution. All options reported in this column for 1998 and 1999 were forfeited on March 15, 2000. (5) Amounts include Huttig's matching contribution for eligible employees for the purchase of common stock in Huttig's Saving & Investment Plan (401(k)) and premiums for life insurance. (6) Prior to December 16, 1999, Mssrs. Dickens and Lyle were employed by Rugby. Compensation reported for 1998 and 1999 was paid by Rugby. (7) Mr. Lyle resigned from the Company in January 2001. (8) Mr. Olson became an executive officer of the Company on March 15, 2000. (9) Mr. Lambert resigned on June 30, 2000. All options granted to Mr. Lambert were forfeited at the time of his resignation. (10) Includes amounts paid under change of control provisions when Rugby was acquired by Huttig on December 16, 1999. OPTION GRANTS IN LAST FISCAL YEAR Shown below is information on grants to the executive officers named in the Summary Compensation Table of options to purchase shares of Common Stock pursuant to the Stock Incentive Plan during the year ended December 31, 2000.
NUMBER OF % OF SECURITIES TOTAL OPTIONS GRANT UNDERLYING GRANTED TO EXERCISE OR DATE OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT NAME GRANTED FISCAL YEAR $/SHARE DATE VALUE($)(1) ---- ---------- ------------- ----------- ---------- ----------- Barry J. Kulpa..................... 326,000 36% $4.29 1/24/10 $635,341 George M. Dickens.................. 34,000 4% $4.29 1/24/10 $ 66,263 Carl A. Liliequist................. 39,000 4% $4.29 1/24/10 $ 76,000 Paul W. Lyle....................... 34,000 4% $4.29 1/24/10 $ 66,263 John G. Olson...................... 20,000 2% $4.40 5/22/10 $ 40,600 Gregory D. Lambert................. 65,000 7% $4.29 1/24/10 $126,679
- --------------- (1) The amounts shown were calculated using a Black-Scholes option pricing and do not reflect the actual value of the option awards at any time. The estimated values assume a risk-free rate of return of 4.9% based upon the 10-year Treasury Bill rate, a standard deviation of stock return of 45%, a dividend payout ratio of 0% and an option duration of 5 years. The standard deviation of stock return represents a statistical measure intended to reflect the anticipated fluctuation of price movements over the life of the option. The actual value, if any, that an executive may realize will depend upon the excess of the stock price over the exercise price on the date the option is exercised, and so the value realized by an executive may be more or less than the value estimated by the Black-Scholes model. 9 7 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The information set forth in the following table relates to options to purchase Huttig common stock that were exercised by the executive officers named in the Summary Compensation Table in 2000.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)(1) ACQUIRED ON VALUE ---------------------------- ---------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Barry J. Kulpa....... -- -- -- 326,000 -- -- Carl A. Liliequist... -- -- -- 39,000 -- -- George M. Dickens.... -- -- -- 34,000 -- -- Paul W. Lyle......... -- -- -- 34,000 -- -- John G. Olson........ -- -- -- 20,000 -- -- Gregory D. Lambert... -- -- -- -- -- --
- --------------- (1) Based on a share price of $4.13, which was the closing price for a share of the Company's stock on December 29, 2000, no options reported in this table were in-the-money as of December 31, 2000. 10 8 The Company's EVA program involves the meeting of pre-established goals. The increase or decrease in EVA during the year is used to determine the total potential award and the amount of actual award is increased or decreased based on accomplishment of the pre-established goals. Awards are generally uncapped to provide maximum incentive to create value and, because awards may be positive or negative, executives can incur penalties when value is reduced. There is, however, a $2 million limit on the annual award of any participant who is subject to Section 162(m) of the Internal Revenue Code. Reference is made to the Proposal to Approve the EVA Incentive Compensation Plan beginning on page 20 of this Proxy Statement for a detailed description of the EVA Plan. LONG-TERM INCENTIVE COMPENSATION The Compensation Committee believes that executive officers approach their responsibilities more like owners of the Company as their holdings of and potential to own Common Stock increase. This philosophy starts with the Board of Directors, whose non-employee members receive 50% of their annual retainer in Company Common Stock. As of February 23, 2001, 3.4% of the Company's Common Stock was beneficially owned by directors, management and key employees. (See Beneficial Ownership of Common Stock by Directors and Management, pages 2, 3 and 6). In 2000, the Company granted stock options for an aggregate of 895,500 shares of Common Stock to the officers and key employees of the Company pursuant to the Stock Incentive Plan. Based on financial analysis and a review of competitive compensation practices, these option grants were sized to (1) replace Crane stock options forfeited by the recipients in connection with the Distribution and (2) provide the recipients with appropriate incentives for retention and future performance. For a description of the Stock Incentive Plan, reference is made to the Proposal to Approve the Stock Incentive Plan beginning on page 16 of this Proxy Statement. COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER The base salary and incentive compensation of the Company's President and Chief Executive Officer, Barry J. Kulpa, was determined in the same manner as described above for all executive officers of the Company. Mr. Kulpa's base salary of $350,000 was set in the beginning of 2000 by the Compensation Committee. Mr. Kulpa's 2000 incentive compensation award of $427,737 under the EVA Plan was credited to his "account" as provided for in the EVA Plan, and in 2000, one-third of Mr. Kulpa's EVA account balance as of December 31, 1999 was paid to him. In 2000, Mr. Kulpa was granted stock options in respect of 326,000 shares of Common Stock. The amount of this grant was determined on the same basis as was used to determine the 2000 option awards of other executive officers, as described above under "Long-Term Incentive Compensation." In addition, Mr. Kulpa received a grant of 65,000 shares of restricted Common Stock as a performance and retention incentive. The restrictions on the restricted stock will lapse in equal installments over a five-year period. SECTION 162(M) OF THE INTERNAL REVENUE CODE Section 162(m) of the Internal Revenue Code limits to $1 million per employee the deductibility of compensation paid to the executive officers required to be listed in the Company's Proxy Statement unless the compensation meets certain specific requirements for exemption from Section 162(m). The primary exemption under Section 162(m) is for compensation that is "performance-based" within the meaning of Section 162(m) and the applicable regulations. The Compensation Committee believes that amounts paid in the future under its EVA Plan and the stock options and restricted share awards granted under its Stock Incentive Plan will qualify for exemption as performance-based compensation for purposes of Section 162(m) provided that the shareholders approve the Proposals regarding the EVA Plan and the Stock Incentive Plan contained in this Proxy Statement. The Committee's present intention is to comply with the requirements of Section 162(m) except to the extent that 11 9 RETIREMENT BENEFITS The Company does not sponsor a defined benefit pension plan for salaried employees. However, Messrs. Kulpa and Liliequist participated in Crane's pension plan for non-bargaining employees prior to the Distribution. These officers have a non-forfeitable right in their benefits under the Crane pension plan that was accrued as of December 30, 2000. The accrued benefits under the Crane pension plan as of December 31, 2000 entitle Messrs. Kulpa and Liliequist to monthly payments beginning at age 65 of $425.85 and $1,096.78, respectively. OTHER AGREEMENTS The Company has entered into indemnification agreements with Barry J. Kulpa and the non-employee directors of the Company. The Indemnification Agreements require the Company to indemnify the officers or directors to the fullest 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 the Company or was serving as such for another entity at the Company'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. Barry J. Kulpa has an agreement that, in the event of a change in control of the Company, 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 the Company 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 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 until the end of the three-year period. "Good Reason" under the agreement includes, among other things, any action by the Company that 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 the Company 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 the Company's Stock Incentive Plan) ("Payment"), is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the agreement provides that the Company 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 the Company gives notice that the period will not be extended. Each of the Regional Vice Presidents named in the Summary Compensation Table have an Employment Agreement with the Company that provides for the continued employment of the executive unless and until the Employment Agreement is terminated (i) by the Company giving to the executive not less than 12 months' prior written notice, (ii) by the executive giving to the Company not less than 1 month's prior written notice, (iii) without notice on the executive's 65th birthday, (iv) by the Company or the executive upon 1 month's prior 12 10 written notice to the other upon the executive's permanent disability or (v) by the Company without notice if the executive (A) commits fraudulent or dishonest acts, gross negligence, or disloyalty in connection with his employment, or is convicted of a criminal act involving dishonesty (whether or not such conviction is related to his employment), (B) violates the Employment Agreement and does not cure the violation within 30 days after the receipt of written notice by the Company or (C) dies. The Company has the right to treat a notice of termination given by the executive pursuant to clause (ii), above, as effective at any time after the giving of such notice. Each Employment Agreement specifies the executive's applicable annual base salary and provides that the executive is entitled to participate in the Company's EVA Plan in accordance with the terms of that plan. Each Employment Agreement also provides for the use of a Company automobile or the payment of an allowance intended to reimburse the executive for the expenses of his personal automobile. Each Employment Agreement provides generally for the reimbursement of expenses and the participation in the Company's customary benefits plans. If notice of termination of an Employment Agreement is given pursuant to clause (i) or (ii) of the preceding paragraph, the Company will continue to pay the executive his salary and provide all fringe benefits from the date such notice is provided up through the effective date of the termination; provided, however, that in the case of a termination under clause (i), above, if the executive breaches the Employment Agreement during the period when such severance benefits are being paid, the Company will immediately upon such breach cease to be obligated to provide such severance benefits. If the Company exercises its right to treat a notice under clause (ii), above, as immediately effective, the executive shall be entitled to no severance payments or benefits. The executive is obligated to use his best efforts during any applicable severance period to find other employment and severance payments will be offset by any compensation the executive receives from such other employment or could have received with reasonable efforts. Each Employment Agreement (i) prohibits the executive from engaging in other business activities during his employment without the prior written consent of the Company, (ii) requires the executive to maintain in confidence all confidential information concerning the Company and (iii) contains customary non-solicitation, no-hire and non-compete provisions. 13 11 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE For the fiscal year ended December 31, 2000, other than as set forth below, each director and officer of the Company timely filed all required reports under Section 16(a) of the Securities Exchange Act of 1934. Mr. Kulpa did not file a Form 5 with respect to 1999 to report his ownership of 3,333 shares of Common Stock received by him in the Distribution. Ownership of these shares was reported by Mr. Kulpa on a Form 4 filed in 2000. Mr. Olson filed a late Form 3. Mr. Olson also did not file a Form 4 to report the purchase of 3,000 shares of Common Stock on September 25, 2000 at a price of $4.50 per share. Ownership of these shares was reported by Mr. Olson on a timely filed Form 5. Mr. Thompson, the Company's Vice President, Administration and Chief Financial Officer, filed a late Form 3. Mr. Thompson also did not file a Form 4 to report the purchase of 1,000 shares of Common Stock on 14 12 July 28, 2000 at a price of $4.63 per share. Ownership of these shares was reported by Mr. Thompson on a timely filed Form 5. Mr. Lambert, the Company's former Vice President - Administration and Chief Financial Officer, filed a late Form 4 with respect to the purchase by him of 10,000 shares of Common Stock on January 25, 2000 at a price of $4.25 per share. OTHER TRANSACTIONS AND RELATIONSHIPS On December 6, 1999, the Company and Crane entered into a Distribution Agreement (the "Distribution Agreement") that provided for the actions required to effect the Distribution and the allocation of assets and liabilities between the Company and Crane. On December 16, 1999, in connection with the consummation of the Distribution, the Company and Crane entered into an agreement (the "Tax Allocation Agreement") relating to the allocation of liabilities and obligations with respect to taxes and an agreement (the "Employee Matters Agreement") relating to the allocation of liabilities and obligations with respect to employee benefit plans and compensation arrangements. Certain of the Company's directors also serve as directors and an executive officer of Crane. The Distribution Agreement provides generally that after the Distribution, all assets and liabilities of the Company and its business will be vested solely in the Company, and that Crane will have no interest in those assets and will have no obligations with respect to those liabilities. The Distribution Agreement requires the Company to indemnify Crane for certain losses suffered by Crane, including, without limitation, losses that relate to the Company's business (whether those losses relate to the period prior to or after Distribution) or arise as the result of the Company's breach of any agreement or covenant made to Crane in the Distribution Agreement, the Tax Allocation Agreement or the Employee Matters Agreement. Crane is similarly obligated to indemnify the Company for certain losses suffered by the Company, including, without limitation, losses that relate to the businesses of Crane (whether those losses relate to the period prior to or after the Distribution) or arise as the result of Crane's breach of any agreement or covenant made to the Company in the Distribution Agreement, the Tax Allocation Agreement or the Employee Matters Agreement. Under the Tax Allocation Agreement, the Company is responsible for any taxes imposed on Crane that would not have been payable but for the breach by the Company of any representation, warranty or obligation under the Tax Allocation Agreement, the tax ruling request or the Distribution Agreement. These representations, warranties and obligations relate to the Company's continuing satisfaction of certain statutory and judicial requirements necessary for the Distribution to be tax-free to the Company, Crane and its shareholders. In particular, the Company has represented generally that (1) during the two-year period following the Distribution, the Company will not enter into any transaction or make any change in its equity structure that may cause the Distribution to be treated as part of a plan pursuant to which one or more persons acquire Company stock representing a 50-percent or greater equity interest in the Company, (2) it will not repurchase outstanding Company Common Stock after the Distribution representing 20 percent or more of the outstanding Company Common Stock, and (3) following the Distribution, it will continue the active conduct of its businesses. The Company has also agreed with Crane that it will not take any of the actions described in (1) or (2) above prior to December 16, 2001 without Crane's prior written consent. At the Closing of the Exchange, the Company entered into a Registration Rights Agreement with Rugby pursuant to which the Company granted Rugby certain rights to cause the Company to register for sale the shares of Common Stock received by it in the Exchange. Pursuant to the Registration Rights Agreement, so long as the shares of Common Stock owned by Rugby and received in the Exchange constitute at least 30%, 20%, or 10%, respectively, of the outstanding Common Stock, Rugby has the right to designate for nomination by the Board of Directors of the Company three, two and one director(s), respectively. Also at the Closing of the Exchange, the Company entered into a Transition Services Agreement with Rugby pursuant to which the Company agreed to provide, for a period of six months from the date of the Exchange, certain administrative services to the industrial businesses of Rugby USA. The industrial businesses of Rugby USA were transferred to an affiliate of Rugby USA immediately prior to the consummation of the Exchange and, accordingly, were not purchased by the Company. 15 13 One of the Company's directors is also a director and executive officer of RMC, Rugby's parent corporation. The Registration Rights Agreement and the Transition Services Agreement were the result of arms' length negotiations with Rugby. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Organization and Compensation Committee is or has ever been an employee of the Company, and no executive officer of the Company has served as a director or member of a compensation committee of another company of which any member of the Organization and Compensation Committee is an executive officer. 16 EX-21.1 7 j8530601ex21-1.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 Subsidiaries of the Company Name of Subsidiary Jurisdiction of Incorporation or Organization - ------------------ --------------------------------------------- Huttig, Inc. Delaware Huttig Indiana, Inc. Delaware Huttig Indiana Partnership, L.P. Indiana EX-23.1 8 j8530601ex23-1.txt INDEPENDENT AUDITOR'S CONSENT 1 Exhibit 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in the Registration Statements of Huttig Building Products, Inc. on Form S-8 (Nos. 333-92495, 333-92497, and 333-92499) of our report dated January 22, 2001 appearing in the Annual Report on Form 10-K of Huttig Building Products, Inc. for the year ended December 31, 2000. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP St. Louis, Missouri March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----