UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 [ ]
The number of shares of Common Stock outstanding on August 8, 2000 was
20,866,145 shares.
<PAGE>
PART I. FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 3-4
Consolidated Statements of Income for the three and
six months ended June 30, 2000 and 1999 5
Consolidated Statement of Stockholder's Equity for the
three and six months ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements. 8-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 6,207 $ 6,794
Accounts receivable, net 112,032 116,602
Inventories 83,306 78,133
Prepaid expenses 2,091 2,788
Deferred tax asset 10 1,247
-------------- --------------
Total current assets 203,646 205,564
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT -
At cost:
Land 6,724 7,324
Buildings and improvements 33,226 36,660
Machinery and equipment 28,585 28,764
-------------- --------------
Gross property, plant and equipment 68,535 72,748
Less accumulated depreciation 30,988 33,207
-------------- --------------
Property, plant and equipment - net 37,547 39,541
-------------- --------------
OTHER ASSETS:
Costs in excess of net assets acquired, net 37,751 38,952
Other 5,796 3,656
Deferred income taxes 13,341 13,638
-------------- --------------
Total other assets 56,888 56,246
-------------- --------------
TOTAL $298,081 $301,351
============== ==============
<PAGE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 263 $ 263
Accounts payable - trade and collections as agents 80,430 72,478
Income taxes payable 169 5,765
Accrued payrolls 7,384 9,226
Accrued insurance 3,524 6,164
Accrued liabilities 11,715 15,448
--------------- --------------
Total current liabilities 103,485 109,344
--------------- --------------
NON-CURRENT LIABILITIES:
Other long-term debt 116,586 121,817
Accrued postretirement benefits 2,089 2,089
Deferred credit - 798
--------------- --------------
Total non-current liabilities 118,675 124,704
--------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY:
Preferred shares; $.01 par (5,000,000 shares authorized)
Common shares; At June 30, 2000 - $.01 par (50,000,000
shares authorized - 20,866,145 shares issued); At
December 31, 1999 - no par value (50,000,000
shares authorized - 20,797,812 shares issued) 209 208
Additional paid-in capital on common stock 33,353 33,051
Retained earnings 44,012 35,438
Unearned compensation - restricted stock (522) (263)
Less: Treasury shares (278,433 shares at cost) (1,131) (1,131)
--------------- --------------
Total shareholders equity 75,921 67,303
--------------- --------------
TOTAL $298,081 $301,351
=============== ==============
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
----------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 285,562 $ 205,979 $ 567,508 $ 380,754
----------------- ----------------- ------------------ -------------
OPERATING COSTS AND EXPENSES:
Cost of sales 228,712 165,292 456,094 305,504
Operating expenses 44,923 31,409 93,097 60,148
Depreciation and amortization 1,659 1,468 3,489 3,306
Restructuring provision (972) - 261 -
Loss (gain) on disposal of capital assets (607) 239 (5,719) 225
----------------- ----------------- ------------------ -------------
Total operating costs and expenses 273,715 198,408 547,222 369,183
----------------- ----------------- ------------------ -------------
OPERATING PROFIT 11,848 7,570 20,287 11,571
----------------- ----------------- ------------------ -------------
OTHER INCOME (EXPENSE):
Interest expense - Crane - 1,889 - 3,788
Interest expense, net 3,175 31 5,405 65
Other miscellaneous - net - 506 - 546
----------------- ----------------- ------------------ -------------
Total other expense - net 3,175 2,425 5,405 4,398
INCOME BEFORE TAXES 8,673 5,145 14,882 7,173
PROVISION FOR INCOME TAXES 3,285 1,933 5,800 2,728
----------------- ----------------- ------------------ -------------
INCOME BEFORE EXTRAORDINARY ITEM 5,388 3,213 9,082 4,445
Extraordinary item (less applicable
income taxes of $309) 508 - 508 -
----------------- ----------------- ------------------ -------------
NET INCOME $ 4,880 $ 3,213 $ 8,574 $ 4,445
================= ================= ================== =============
NET INCOME PER BASIC SHARE BEFORE EXTRAORDINARY ITEM $ 0.26 $ 0.23 $ 0.44 $ 0.31
LOSS PER SHARE FROM EXTRAORDINARY ITEM (0.02) - (0.02) -
NET INCOME PER BASIC SHARE $ 0.24 $ 0.23 $ 0.42 $ 0.31
AVERAGE BASIC SHARES OUTSTANDING (Thousands) 20,588 14,260 20,579 14,260
NET INCOME PER DILUTED SHARE $ 0.26 $ 0.23 $ 0.44 $ 0.31
LOSS PER SHARE FROM EXTRAORDINARY ITEM (0.02) - (0.02) -
NET INCOME PER DILUTED SHARE $ 0.24 $ 0.23 $ 0.42 $ 0.31
AVERAGE DILUTED SHARES OUTSTANDING (Thousands) 20,606 14,260 20,588 14,260
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(UNAUDITED)
(In Thousands)
<CAPTION>
Common Shares Additional Unearned Treasury Total
Outstanding, Paid-In Retained Compensation - Shares, Shareholders
at Par Value Capital Earnings Restricted Stock at Cost Equity
-------------- ------------ ------------ ---------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 10 $ 746 $ 40,699 $ 41,455
Net Income 4,445 4,445
Dividends (13,725) (13,725)
-------------- ------------ ------------ ---------------- ---------- --------------
Balance at June 30, 1999 $ 10 $ 746 $ 31,419 $ 32,175
============== ============ ============ ================ ========== ==============
Balance at December 31, 1999 $ 208 $ 33,051 $ 35,438 $ (263) $ (1,131) $ 67,303
Net Income 8,574 8,574
Restricted stock issued, net
of amortization expense 1 302 (259) 44
-------------- ------------ ------------ ---------------- ---------- --------------
Balance at June 30, 2000 $ 209 $ 33,353 $ 44,012 $ (522) $ (1,131) $ 75,921
============== ============ ============ ================ ========== ==============
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended June 30,
2000 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,574 $ 4,445
Gain on disposal of capital assets (5,719) 226
Depreciation 2,139 1,764
Amortization 1,442 1,462
Deferred Taxes 1,534 (117)
Accrued postretirement benefits - 274
Changes in operating assets and liabilities
(exclusive of acquisitions):
Accounts receivable 4,570 (13,106)
Inventories (6,328) (5,502)
Other current assets 741 (38)
Accounts payable 7,952 (1,582)
Accrued liabilities (13,902) (7,198)
Other (2,381) (82)
----------------- -----------------
Total cash provided (used) from operating activities (1,378) (19,453)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,450) (4,791)
Proceeds from disposition of capital assets 8,472 2,359
Cash used for Cherokee acquisition - (2,000)
----------------- -----------------
Total cash provided (used) from investing activities 6,022 (4,432)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (131) (191)
Repayment of revolving credit agreement (5,100) -
Borrowings from Crane - 31,875
Cash dividend paid to Crane - (13,725)
----------------- -----------------
Total cash provided (used) from financing activities (5,231) 17,959
----------------- -----------------
NET DECREASE IN CASH (587) (5,926)
CASH, BEGINNING OF PERIOD 6,794 9,423
----------------- -----------------
CASH, END OF PERIOD $ 6,207 $ 3,497
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net $ 4,109 $ 3,852
================= =================
Income taxes paid, net $ 9,951 $ 1,377
================= =================
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Huttig Building Products, Inc. (the "Company" or "Huttig") on a consolidated
basis, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The
Company believes that the disclosures are adequate to make the information
presented not misleading. It is recommended that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's latest Annual Report on
Form 10-K. This financial information reflects, in the opinion of management,
all adjustments consisting of only adjustments necessary to present fairly the
results for the interim periods.
The consolidated results of operations and resulting cash flows for the interim
periods presented are not necessarily indicative of the results that might be
expected for the full year. Due to the seasonal nature of Huttig's business,
profitability is usually lower in the Company's first and fourth quarters than
in the second and third quarters.
2. RESERVE ACTIVITY
In December 1999, the Company established a reserve for restructuring costs
expected to be incurred under a strategic plan to consolidate and integrate
various branch operations and support functions. Included in "Other" in the
table below are costs expected to be incurred for uncollectible accounts
receivable and other costs incidental to consolidating and closing branches. In
the second quarter of 2000, the Company reversed $1,056 as a result of a change
in the estimate of the restructuring costs. This reversal is attributable
primarily to completing year to date restructuring activities at lower than
expected costs and anticipated lower costs on remaining restructuring efforts.
The activity in the restructuring reserve for the six months ended June 30, 2000
is summarized as follows:
<TABLE>
<CAPTION>
Inventory Lease Workforce
Adjustments Terminations Reduction Other Total
---------------- ----------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 2,210 $ 1,752 $ 494 $ 829 $ 5,285
Plus: Additional charges 573 70 373 790 1,806
Less: Reversals 84 - - 972 1,056
Less: Costs incurred 1,754 571 239 474 3,038
---------------- ----------------- ------------- ---------------- ------------
Balance at June 30, 2000 $ 945 $ 1,251 $ 628 $ 173 $ 2,997
================ ================= ============= ================ ============
</TABLE>
In December 1999 the Company established a reserve for costs expected to be
incurred in connection with the acquisition of Rugby USA ("Rugby"). 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 activity in this reserve for the six months ended June 30, 2000 is
summarized as follows:
<TABLE>
<CAPTION>
Inventory Lease Workforce
Adjustments Terminations Reduction Other Total
---------------- ----------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 1,001 $ 2,150 $ 591 $ 965 $ 4,707
Plus: Additional charges 1,155 - - 91 1,246
Less: Costs incurred 961 42 591 854 2,448
---------------- ----------------- ------------- ---------------- ------------
Balance at June 30, 2000 $ 1,195 $ 2,108 $ - $ 202 $ 3,505
================ ================= ============= ================ ============
</TABLE>
<PAGE>
During the first quarter, the Company made a change in estimate of the costs
expected to be incurred which resulted in an increase to the reserve and a
reallocation of the acquisition cost. As a result of the change in estimate made
during the first quarter, the deferred credit balance of $798 at December 31,
1999 was reduced to zero and assets increased by $448.
3. DEBT
Debt consisted of the following at June 30, 2000 and December 31, 1999:
June 30, December 31,
2000 1999
--------------- ---------------
Revolving credit agreement $ 115,600 $ 120,700
Capital Lease Obligations 1,055 1,108
Industrial revenue bond 193 272
--------------- ---------------
Total debt 116,848 122,080
Less: current portion 263 263
--------------- ---------------
Long-term debt $ 116,585 $ 121,817
=============== ===============
During April 2000, the Company closed on a new $200,000 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 June 30, 2000, the Company had outstanding, three
interest rate swap contracts having a total notional amount of principal of
$80,000. These swap contracts currently provide for a fixed weighted average
rate of 8.9% on $80,000 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 $125,000 facility and a
$25,000 term loan. In conjunction with the refinancing of the previously
existing facility, the Company recorded an extraordinary expense for the
write-off of the unamortized loan fees.
The Company is currently evaluating the impact that Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, will have on the financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Huttig Building Products, Inc. is one of the largest domestic distributors of
building materials 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 and
industrial and manufactured housing builders. The Company's American Pine
Products manufacturing facility, located in Prineville, Oregon, produces
softwood moldings. Approximately 30% of American Pine's sales are currently to
Huttig's distribution centers.
The following table sets forth the Company's sales, by product classification as
a percentage of net sales, for the three and six months ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Doors 33% 33% 33% 34%
Specialty Building Materials 26% 22% 26% 22%
Lumber & Other Commodity Materials 17% 14% 17% 14%
Windows 14% 17% 13% 17%
Mouldings 10% 14% 11% 14%
-------------------------------------- --------------------------------------
Total Net Product Sales 100% 100% 100% 100%
====================================== ======================================
</TABLE>
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 newly issued
shares of Huttig common stock. Rugby is also a distributor of building
materials. For its year ended December 31, 1999, Rugby's revenues were
approximately $458,000.
<PAGE>
Results from Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net sales for the three months ended June 30, 2000 were $285,562, a 39% increase
from the second quarter of 1999 when sales were $205,979. The increase is
attributable to acquisitions completed during the second half of 1999, the
largest of which was Rugby in December of 1999. Excluding sales attributable to
acquisitions in 1999 and branches which were closed or are consolidating, same
branch sales decreased by approximately 5% from the comparable prior year
period. This decrease is primarily attributable to deflation in the commodity
wood market which is believed to have negatively impacted sales in the second
quarter of 2000 by approximately $12 million compared to last year.
Gross profit, as a percentage of net sales, was 20% for the three months ended
June 30, 2000 and 1999, respectively.
Operating expenses were $44,923 in the second quarter of 2000 as compared to
$31,409 in the second quarter of 1999. The increase is primarily attributable to
costs associated with an increase in the size of the business resulting from the
acquisitions that were completed during the second half of 1999. Included in
operating expenses in the second quarter of 2000 are $500 of non-recurring costs
related to the restructuring of the Company's operations and various integration
costs associated with the acquisition of Rugby. Operating expenses, as a
percentage of net sales, were flat during the comparable periods.
The Company reversed $1,056 of restructuring reserves in the second quarter of
2000 related to the restructuring plan that was initiated in December 1999 (see
footnote 3). This reversal is attributable primarily to completing year to date
restructuring activities at lower than expected costs and anticipated lower
costs on remaining restructuring efforts. Management anticipates that the
restructuring will be complete by the end of 2000.
Gains on disposal of assets increased $846 from the second quarter of 1999 to
the second quarter of 2000. This increase is due primarily to gains from the
sale of property resulting from the Company's restructuring efforts.
Net interest expense increased to $3,175 in the second quarter of 2000 from
$1,920 in the same period of 1999. The increase is due primarily to higher
average debt outstanding and the amortization of loan origination fees related
to the refinancing of the Company's debt in April. Average debt outstanding is
higher than the previous year due primarily to costs incurred for the Spin-Off,
integration costs associated with the Rugby acquisition and costs associated
with restructuring activities.
The Company recorded an extraordinary item of $508 related to the write-off of
loan origination fees resulting from the April refinancing of substantially all
of the Company's debt.
As a result of the foregoing factors, pretax income, excluding the extraordinary
item, increased by $3,528, or 69%, to $8,673.
Income taxes were provided at effective tax rates of 38.0% and 37.6% for the
quarters ended June 30, 2000 and 1999, respectively.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net sales for the six months ended June 30, 2000 were $567,508, a 49% increase
from the comparable period of 1999 when sales were $380,754. The increase is
primarily attributable to acquisitions completed during the second half of 1999,
the largest of which was Rugby in December of 1999. Excluding sales attributable
to acquisitions in 1999 and branches which were closed or are consolidating,
same branch sales were flat compared to the comparable prior year period.
Deflation in the commodity wood market is believed to have negatively impacted
year to date sales in 2000 by approximately $12 million compared to last year.
Gross profit, as a percentage of net sales, was 20% for the six months ended
June 30, 2000 and 1999, respectively.
Operating expenses were $93,097 in the six months ended June 30, 2000 compared
to $60,148 in 1999. The increase is primarily attributable to costs associated
with an increase in the size of the business resulting from the acquisitions
that were completed during the second half of 1999. Included in operating
expenses in the first six months of 2000 are $5,500 of non-recurring costs
related to the restructuring of the Company's operations and various integration
costs associated with the acquisition of Rugby.
<PAGE>
During the first six months of fiscal 2000, the Company recorded a net increase
of $750 to the restructuring reserves related to the restructuring plan that was
initiated in December 1999 (see footnote 3). This was recorded due to
management's changes in estimate during the first and second quarters.
Management anticipates that the restructuring will be complete by the end of
2000.
Gains on disposal of assets increased $5,944 from the first six months of 1999
to 2000. This increase is due primarily to gains from the sale of property
resulting from the Company's restructuring and branch consolidation efforts.
Net interest expense increased to $5,405 in the six months ended June 30, 2000
from $3,853 in the same period of 1999. The increase is due primarily to higher
average debt outstanding and the amortization of loan origination fees related
to the refinancing of the Company's debt in April. Average debt outstanding is
higher than the previous year due primarily to costs incurred for the Spin-Off,
integration costs associated with the Rugby acquisition and costs associated
with restructuring activities.
The Company recorded an extraordinary item of $508 related to the write-off of
loan origination fees as a result of the April refinancing of substantially all
of the Company's debt.
As a result of the foregoing factors, pretax income, excluding the extraordinary
item, increased by $7,709, or 107%, to $14,882.
Income taxes were provided at effective tax rates of 39.0% and 38.0% for the six
months ended June 30, 2000 and 1999, respectively. The Company anticipates that
the overall effective rate for fiscal 2000 will be 38.5%.
Liquidity and Capital Resources
Huttig has depended primarily on the cash generated from its own operations to
finance its needs. The combination of income from operations and cash generation
from improved working capital management has been used to finance capital
expenditures and seasonal working capital needs. The Company's working capital
requirements are generally greatest in the first eight months of the year and
generates cash from working capital reductions in the last four months of the
year. 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.
For the six months ended June 30, 2000, cash decreased by $587 compared to a
decrease of $5,926 in the prior year comparable period. The $5,339 improvement
was due primarily due to an increase in cash provided from operating activities
and proceeds on the disposal of assets which was offset by a decrease in cash
used for financing activities. During the second quarter of 2000, the Company
refinanced $113,000 of the revolving credit facility that was previously held
with Bank One.
As of August, 2000, the Company had commitments of approximately $1,000 for
capital improvements.
Financing
At June 30, 2000 the Company had a $200,000 secured revolving credit facility
with Chase Manhattan Bank as agent. The current rate on the facility is LIBOR
plus 175 basis points. At June 30, 2000, the Company had outstanding, three
interest rate swap contracts having a total notional amount of principal of
$80,000. These swap contracts currently provide for a fixed weighted average
rate of 8.9% on $80,000 of the Company's revolving credit borrowings. The
remainder of the outstanding borrowings under the revolving credit agreement are
at a floating rate of LIBOR plus 175 basis points.
As of August 8, the Company had $75,600 million of unused credit available under
its revolving credit agreement with Chase Manhattan Bank.
The Company believes that cash, funds generated from operations and funds
available under its new secured credit agreement will provide sufficient funds
to meet its currently anticipated requirements.
Restructuring and Acquisition Activities
During the six months ended June 30, 2000 the Company recorded, as a result of
changes in estimates, a net increase to the restructuring reserve of $750 for
lease terminations, severance, inventory impairment and other costs associated
with the closing and/or consolidation of Company distribution facilities. These
changes in estimate are included in the cost of sales and operating expenses for
the six months ended June 30, 2000.
The Company believes that closing duplicate Huttig and Rugby distribution
centers and the former Rugby corporate office and executing other strategic
initiatives resulting from the acquisition will, when completed, reduce the
ongoing cost structure of the Company by an estimated $15 million annually.
Rugby was acquired in December 1999.
<PAGE>
Through July 31, 2000, Huttig completed the consolidation of 18 branches into
eight locations in markets where the Rugby acquisition created duplicate
facilities. The Company anticipates it will complete the consolidation of four
more branches into two locations by the end of the year. The Company continues
to service the markets where duplicate facilities were closed . The former Rugby
headquarters in Alpharetta, GA was closed during the first quarter, with all job
functions transferred either to Huttig's headquarters in St. Louis, MO or to
other branches. In addition to the branch consolidations mentioned above, the
Company closed a branch where it was not economically attractive to continue
servicing that market. As a result of the consolidations and closures, the
number of locations has been reduced from 76 at December 31, 1999 to 62 at July
31, 2000. Headcount decreased by 7% from 3,237 at December 31, 1999 to 3,023 at
July 31, 2000.
Effects of Inflation
As Huttig continues to grow, its manufacturing operations should decrease as a
percentage of its overall business and any impact of inflation is lessened.
Furthermore, management believes that, to the extent inflation affects its costs
in the future and competitive conditions permit, Huttig can offset these
increased costs by increasing sales prices.
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. It is expected that
these seasonal variations will continue in the future.
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
of Huttig or the combined company will not have a material adverse effect on
Huttig's financial condition or results of operations.
Year 2000
Huttig successfully completed its Year 2000 remediation plan in the fall of
1999. The plan included assessment of business critical systems and the upgrade
or replacement of those systems that were determined to be Year 2000 affected.
Also completed was an assessment of the Year 2000 readiness of key vendors and
customers. As of this date, Huttig has experienced no significant problems as a
result of the Year 2000 date change and, based upon testing and system
validation studies conducted in 1999, management does not foresee any
significant future problems or costs related to the Year 2000 millennium date
change. However, it is possible that problems have gone undetected, or that
other dates in the year 2000 may further affect computer software and systems.
The Company is currently unable to assess completely whether its products,
internal computer systems, or the operation of its software or the software of
third parties contains errors or faults with respect to the Year 2000. Unknown
errors or defects that affect the operation of the Company's software and
systems or those of third parties could result in a delay or loss of revenue,
interruption of services, cancellation of customer contracts, diversion of
development resources, damage to reputation, increased service and warranty
costs and litigation costs, any of which could harm the Company's business.
<PAGE>
Caution
Certain statements made in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors are discussed in detail in Huttig
Building Products, Inc. Form 10-K for the year ended December 31, 1999. Given
these uncertainties, investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained in the Annual Report on Form 10-K or this
Form 10-Q except as required by law.
ITEM 3--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 debt outstanding at June 30, 2000 under its
revolving credit agreement of $115,600. At June 30, 2000, the Company had
outstanding, three interest rate swap contracts having a total notional amount
of principal of $80,000. These swap contracts currently provide for a fixed
weighted average rate of 8.9% on $80,000 of the Company's revolving credit
borrowings. The remainder of the outstanding borrowings under the revolving
credit agreement are at a floating rate of LIBOR plus 175 basis points.
The Company is currently evaluating the impact that Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, will have on the financial statements. 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 the Company's
financial position. All transactions are denominated in U.S. dollars.
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.
PART II -- OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Shareholders was held on April 10, 2000. At the
Annual Meeting, the following Directors were elected for terms of office
expiring in 2003:
<TABLE>
<CAPTION>
Votes For Votes Withheld Abstentions* Broker Non-Votes*
---------- -------------- ------------ -----------------
<S> <C> <C> <C> <C>
Dorsey R. Gardner 19,225,196 120,148 0 0
Robert E. Lambourne 19,215,632 129,712 0 0
James L.L. Tullis 19,218,738 12,606 0 0
<FN>
* Pursuant to the terms of the Proxy Statement for the Annual Meeting, proxies
received were voted, unless authority was withheld, in favor of the election of
the three directors named above.
</FN>
</TABLE>
After the Annual Meeting, the term of office as a director of the Company of
each of the following directors continued: R. S. Evans, Alan S. Durant, Barry J.
Kulpa, E. Thayer Bigelow, Jr., Richard S. Forte and Peter L. Young.
A proposal by the Board of Directors to approve the selection of Deloitte &
Touche LLP as independent auditors for the Company for fiscal 2000 was approved
by the shareholders at the Annual Meeting. The shareholders cast 19,261,770
votes in favor of this proposal and 64,084 votes against. There were 19,376
abstentions.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- ----------------------------------------------------------------------------------------
<S> <C>
11.1 Statement Re: Computation of Earnings Per Share for the Three Months Ended June 30, 2000
11.2 Statement Re: Computation of Earnings Per Share for the Six Months Ended June 30, 2000
27 Financial Data Schedule. (Filed herewith).
</TABLE>
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements 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.
-----------------------------------------------
(Registrant)
Date: August 11, 2000 /s/ Barry J.Kulpa
-------------------------------------------------
Barry J. Kulpa
President, Chief Executive Officer
And Director (Principal Executive Officer)
Date: August 11, 2000 /s/ Kenneth E. Thompson
-------------------------------------------------
Kenneth E. Thompson
Acting Chief Financial Officer
Date: August 11, 2000 /s/ Thomas S. McHugh
-------------------------------------------------
Thomas S. McHugh
Corporate Controller
(Principal Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1 Statement re: computation of per share earnings for the three months ended June 30, 2000
Three Months Ended June 30,
2000 1999
--------------------- ---------------------
<S> <C> <C>
Net income (in thousands) (numerator) $ 4,880 $ 3,213
===================== =====================
Computation of Basic Shares Outstanding (in thousands,
except per share amounts)
------------------------------------------------------
Weighted average number of basic shares outstanding (denominator) 20,588 14,260
===================== =====================
Basic earnings per common share $ 0.24 $ 0.23
===================== =====================
Computation of Diluted Shares Outstanding (in thousands,
except per share amounts)
--------------------------------------------------------
Weighted average number of basic shares outstanding 20,588 14,260
Common stock equivalents for diluted common shares outstanding 18 -
--------------------- ---------------------
Weighted average number of diluted shares outstanding (denominator) 20,606 14,260
===================== =====================
Diluted earnings per common share $ 0.24 $ 0.23
===================== =====================
</TABLE>
<PAGE>
<TABLE>
Exhibit 11.2 Statement re: computation of per share earnings for the six months ended June 30, 2000
<CAPTION>
Six Months Ended June 30,
2000 1999
--------------------- ---------------------
<S> <C> <C>
Net income (in thousands) (numerator) $ 8,575 $ 4,445
===================== =====================
Computation of Basic Shares Outstanding (in thousands,
except per share amounts)
-------------------------------------------------------
Weighted average number of basic shares outstanding (denominator) 20,579 14,260
===================== =====================
Basic earnings per common share $ 0.42 $ 0.31
===================== =====================
Computation of Diluted Shares Outstanding (in thousands,
except per share amounts)
---------------------------------------------------------
Weighted average number of basic shares outstanding 20,579 14,260
Common stock equivalents for diluted common shares outstanding 9 -
--------------------- ---------------------
Weighted average number of diluted shares outstanding (denominator) 20,588 14,260
===================== =====================
Diluted earnings per common share $ 0.42 $ 0.31
===================== =====================
</TABLE>
<PAGE>