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 September 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
incorporation No.)
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)
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 November 10, 2000 was
20,587,712 shares.
<PAGE>
PART I. FINANCIAL INFORMATION Page No.
Item 1..Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3-4
Consolidated Statements of Income for the three and nine months
ended September 30, 2000 and 1999 5
Consolidated Statement of Shareholders' Equity for the three
and nine months ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the nine months ended
September 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 12-13
PART II. OTHER INFORMATION
Item 6...Exhibits and Reports on Form 8-K 13-15
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<CAPTION>
Sept. 30, Dec. 31
2000 1999
(unaudited)
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $9,597 $6,794
Accounts Receivable, net 111,361 116,602
Inventories 78,680 78,133
Prepaid Expenses 1,989 2,788
Deferred tax asset - 1,247
--------------- --------------
Total current assets 201,627 205,564
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT
At cost:
Land 6,724 7,324
Buildings and improvements 33,583 36,660
Machinery and equipment 29,537 28,764
--------------- --------------
Gross property, plant and equipment 69,844 72,748
Less accumulated depreciation 31,939 33,207
--------------- --------------
Property, plant and equipment - net 37,905 39,541
--------------- --------------
OTHER ASSETS:
Costs in excess of net assets acquired, net 37,151 38,952
Other 5,382 3,656
Deferred income taxes 12,198 13,638
--------------- --------------
Total other assets 54,731 56,246
--------------- --------------
TOTAL $294,263 $301,351
=============== ==============
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Sept. 30, Dec. 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 82,618 72,478
Income taxes payable 4,017 5,254
Accrued payrolls 8,962 9,226
Accured insurance 2,496 6,164
Accrued liabilities 10,474 15,959
Deferred Tax Liability 705 -
--------------- --------------
Total current liabilities 109,535 109,344
--------------- --------------
NON-CURRENT LIABILITIES
Other long-term debt 101,920 121,817
Accrued postretirement benefits 1,864 2,089
Deferred credit - 798
--------------- --------------
Total non-current liabilities 103,784 124,704
--------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred shares; $.01 par (5,000,000 shares authorized)
Common shares; At Sept. 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 49,001 35,438
Unearned compensation - restricted stock (488) (263)
Less: Treasury shares (278,433 shares at cost) (1,131) (1,131)
--------------- --------------
Total shareholders' equity 80,944 67,303
--------------- --------------
TOTAL $294,263 $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 NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
2000 1999 2000 1999
-------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 278,244 $ 214,160 $ 845,753 $ 594,914
-------------- --------------- --------------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 220,286 171,613 676,380 477,117
Operating expenses 45,224 32,631 138,322 92,778
Depreciation and amortization 1,652 1,648 5,141 4,954
Restructuring provision - - 261 -
Loss (gain) on disposal of capital assets (1) (1) (5,720) 224
-------------- --------------- --------------- -----------
Total operating costs and expenses 267,162 205,890 814,385 575,074
-------------- --------------- --------------- -----------
OPERATING PROFIT 11,082 8,269 31,368 19,840
-------------- --------------- --------------- -----------
OTHER INCOME (EXPENSE):
Interest expense - Crane - 1,904 - 5,691
Interest expense, net 3,047 33 8,449 98
Other miscellaneous - net - (23) - 523
-------------- --------------- --------------- -----------
Total other expense - net 3,047 1,914 8,449 6,312
INCOME BEFORE TAXES 8,035 6,355 22,919 13,527
PROVISION FOR INCOME TAXES 3,045 2,347 8,848 5,074
-------------- --------------- --------------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 4,990 4,008 14,071 8,453
Extraordinary item (less applicable income taxes of $309) - - 508 -
-------------- --------------- --------------- -----------
NET INCOME $ 4,990 $ 4,008 $ 13,563 $ 8,453
============== =============== =============== ===========
NET INCOME PER BASIC SHARE BEFORE EXTRAORDINARY ITEM $ 0.24 $ 0.28 $ 0.68 $ 0.59
LOSS PER SHARE FROM EXTRAORDINARY ITEM - - (0.02) -
NET INCOME PER BASIC SHARE $ 0.24 $ 0.28 $ 0.66 $ 0.59
AVERAGE BASIC SHARES OUTSTANDING (Thousands) 20,588 14,260 20,582 14,260
NET INCOME PER DILUTED SHARE $ 0.24 $ 0.28 $ 0.68 $ 0.59
LOSS PER SHARE FROM EXTRAORDINARY ITEM - - (0.02) -
NET INCOME PER DILUTED SHARE $ 0.24 $ 0.28 $ 0.66 $ 0.59
AVERAGE DILUTED SHARES OUTSTANDING (Thousands) 20,617 14,260 20,599 14,260
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' 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 8,453 8,453
Dividends (13,725) (13,725)
------------------ ------------------ ------------------ ------------------ ------------- --------------
Balance at
September 30, 1999 $ 10 $ 746 $35,427 $ 36,183
================== ================== ================== ================== ============= =============
Balance at
December 31, 1999 $ 208 $ 33,051 $ 35,438 $ (263) $(1,131) $ 67,303
Net Income 13,563 13,563
Restricted stock
issued,net of
amortization expense 1 302 (225) 78
------------------ ------------------ ------------------ ------------------ ------------- --------------
Balance at
September 30, 2000 $ 209 $ 33,353 $ 49,001 $ (488) $(1,131) $ 80,944
================== ================== ================== ================== ============= ==============
<FN>
see notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Nine Months Ended September 30
2000 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,563 $ 8,453
(Gain) Loss on disposal of capital assets (5,720) 224
Depreciation 3,226 2,632
Amortization 2,162 2,229
Deferred Taxes 2,687 666
Accrued postretirement benefits (225) 354
Changes in operating assets and liabilities
(exclusive of acquisitions):
Accounts receivable 5,241 (10,708)
Inventories (1,702) (8,934)
Other current assets 878 (27)
Accounts payable 10,215 (4,022)
Accrued liabilities (10,115) (8,886)
Other (1,989) (125)
----------------- -----------------
Total cash provided (used) from operating activities 18,221 (18,144)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,946) (7,029)
Proceeds from disposition of capital assets 8,425 2,363
Cash used for Cherokee acquisition (2,000)
----------------- -----------------
Total cash provided (used) from investing activities 4,479 (6,666)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (197) (254)
Repayment of revolving credit agreement (19,700) -
Borrowings from Crane - 33,369
Cash dividend paid to Crane - (13,725)
----------------- -----------------
Total cash provided (used) from financing activities (19,897) 19,390
----------------- -----------------
NET INCREASE (DECREASE) IN CASH 2,803 (5,420)
CASH, BEGINNING OF PERIOD 6,794 9,423
----------------- -----------------
CASH, END OF PERIOD $ 9,597 $ 4,003
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net $ 6,465 $ 5,746
================= =================
Income taxes paid, net $ 6,386 $ 3,984
================= =================
<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 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.
The activity in the restructuring reserve for the nine months ended September
30, 2000 is summarized as follows:
<TABLE>
<CAPTION>
Inventory Lease Workforce
Impairments 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 84 554 156 262 1,056
Less: Costs incurred 1,990 1,008 371 982 4,351
--------------- ----------------- ------------ ------------ ------------
Balance at September 30, 2000 $ 709 $ 260 $ 340 $ 375 $ 1,684
=============== ================= ============ ============= ============
</TABLE>
In December 1999 the Company established a reserve for costs expected to be
incurred in connection with the acquisition of Rugby USA, Inc. ("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 nine months ended September 30, 2000 is
summarized as follows:
<TABLE>
<CAPTION>
Inventory Lease Workforce
Impairments Terminations Reduction Other Total
--------------- ----------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 1,001 $ 2,150 $ 591 $ 965 $ 4,707
Plus/Minus: Changes in estimate 706 (1,250) 1,175 616 1,247
Less: Costs incurred 1,107 627 1,054 1,218 4,006
--------------- ----------------- ------------ ------------ -----------
Balance at September 30, 2000 $ 600 $ 273 $ 712 $ 363 $ 1,948
=============== ================= ============ ============ ===========
</TABLE>
During the first quarter and third quarter, the Company revised its estimate of
the costs expected to be incurred in connection with the Rugby acquisition. This
resulted in an increase to the reserve and a reallocation of the acquisition
cost. As a result, the previously reported deferred credit balance of $798 at
December 31, 1999 was reduced to zero and assets increased by $448.
<PAGE>
3. DEBT
Debt consisted of the following at September 30, 2000 and December 31, 1999:
September 30, December 31,
2000 1999
-------------- ---------------
Revolving credit agreements $ 101,000 $ 120,700
Capital lease obligations 1,029 1,108
Industrial revenue bond 154 272
-------------- ---------------
Total debt 102,183 122,080
Less: current portion 263 263
-------------- ---------------
Long-term debt $ 101,920 $ 121,817
============== ===============
At September 30, 2000, the Company had three interest rate swap contracts with a
total notional principal amount 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 interest rate on the remainder of the
outstanding borrowings under the revolving credit agreement is equal to a
floating rate of LIBOR plus 175 basis points.
Huttig will adopt SFAS 133 and the corresponding amendments under SFAS 138 on
January 1, 2001. The Company is in the process of evaluating the impact of
adopting SFAS 133 but at this time, it is not expected to have a material impact
on the Company's consolidated results of operations, financial position or cash
flows.
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 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 and
industrial and manufactured housing builders. The Company's American Pine
Products manufacturing facility, located in Prineville, Oregon, produces
softwood moldings. Currently, approximately 30% of American Pine's sales are 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 nine months ended September 30,
2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Doors 33% 33% 33% 34%
Specialty Building Materials 27% 22% 26% 22%
Lumber & Other Commodity Materials 16% 14% 18% 14%
Windows 14% 18% 13% 17%
Mouldings 10% 13% 10% 13%
-------------- ------------- -------------- -----------
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 6.5 million newly
issued shares of Huttig common stock. Rugby was 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 September 30, 2000 Compared to
Three Months Ended September 30, 1999
Net sales for the three months ended September 30, 2000 were $278,244, a 30%
increase from the third quarter of 1999 when sales were $214,160. 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 closed or were consolidated with other
branches, same branch sales decreased by approximately 13% or $24 million 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 third quarter of 2000 by approximately $15,000 compared to
the third quarter of last year.
Gross profit, as a percentage of net sales, increased to 21% for the three
months ended September 30, 2000 compared to 20% for the three months ended
September 30 1999.
Operating expenses were $45,224 in the third quarter of 2000 compared to $32,631
in the third 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 third quarter of 2000 are $657 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.
Net interest expense increased to $3,047 in the third quarter of 2000 from
$1,937 in the same period of 1999. The increase is due primarily to higher
average debt outstanding. 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.
As a result of the foregoing factors, pretax income, increased by $1,680, or
26%, to $8,035.
Income taxes were provided at effective tax rates of 38% and 37% for the
quarters ended September 30, 2000 and 1999, respectively.
Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
Net sales for the nine months ended September 30, 2000 were $845,753 a 42%
increase from the comparable period of 1999 when sales were $594,914. 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
consolidated with other branches, same branch sales were 5% or $25 million lower
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 $27,000 compared to last year.
Gross profit, as a percentage of net sales, was 20% for the nine months ended
September 30, 2000 and 1999, respectively.
Operating expenses were $138,322 in the nine months ended September 30, 2000
compared to $92,778 in the comparable period 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 first nine months of 2000 are $6,200
of non-recurring costs related to the restructuring of the Company's operations
and various integration costs associated with the acquisition of Rugby.
During the first nine 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 2). This was recorded due to changes in
management's estimate of the restructuring costs. Management anticipates that
the restructuring activities will be complete by the end of 2000.
Gains on disposal of assets were $5,720 during the first nine months of 2000.
This gain is due primarily to gains from the sale of property in connection with
the Company's restructuring and branch consolidation efforts.
Net interest expense increased to $8,449 in the nine months ended September 30,
2000 from $5,789 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 2000. 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, net of tax, related to the
write-off of loan origination fees as a result of refinancing in April 2000 of
substantially all of the Company's debt.
As a result of the foregoing factors, pretax income, excluding the extraordinary
item, increased by $9,392, or 69%, to $22,919.
<PAGE>
Income taxes were provided at effective tax rates of 39% and 38% for the nine
months ended September 30, 2000 and 1999, respectively. The Company anticipates
that the overall effective tax rate for fiscal 2000 will be 39%.
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
the Company typically 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 nine months ended September 30, 2000, cash increased by $2,803 compared
to a decrease of $5,420 in the prior year comparable period. The $8,223
improvement was due primarily due to an increase in cash provided from operating
activities and proceeds from 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 November, 2000, the Company had commitments of approximately $1,000 for
capital improvements.
Financing
At September 30, 2000 the Company had a $200,000 secured revolving credit
facility with Chase Manhattan Bank as agent. At September 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 interest rate on the remainder of the outstanding borrowings
under the revolving credit agreement is a floating rate equal to LIBOR plus 175
basis points.
As of November 10, the Company had $88,800 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 nine months ended September 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 the Company's distribution
facilities. These changes in estimates are included in the cost of sales and
operating expenses for the nine months ended September 30, 2000.
The Company believes that closing overlapping 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.
Through September 30, 2000, Huttig completed the consolidation of 18
branches\into eight locations in markets where the Rugby acquisition created
overlapping facilities. The Company continues to service the markets where
overlapping 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 September 30, 2000. The
number of employees decreased by 9% from 3,237 at December 31, 1999 to 2,950 at
September 30, 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.
<PAGE>
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 revenues 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 future environmental
liabilities 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 November, 2000, 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.
Cautionary Statement
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 September 30, 2000 under its
revolving credit agreement of $101,000. At September 30, 2000, the Company had
three interest rate swap contracts having a total notional principal amount 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
interest rate on the remainder of the outstanding borrowings under the revolving
credit agreement is a floating rate equal to LIBOR plus 175 basis points.
<PAGE>
Huttig will adopt SFAS 133 and the corresponding amendments under SFAS 138 on
January 1, 2001. The Company is in the process of evaluating the impact of
adopting SFAS 133 but at this time, it is not expected to have a material impact
on the company's consolidated results of operations, financial position or cash
flows.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
11.1 Statement Re: Computation of Earnings Per Share for the Three Months
Ended September 30, 2000
11.2 Statement Re: Computation of Earnings Per Share for the Nine Months
Ended September 30, 2000
27 Financial Data Schedule. (Filed herewith).
(b) Reports on Form 8-K.
On September 1, 2000 the Company filed a Form 8-K with the Securities and
Exchange Commission pursuant to Item 5 of Form 8-K to report the termination of
a distribution agreement with Andersen Windows, one of its vendors.
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: November 13, 2000 /s/ Barry J.Kulpa
-----------------------------------------------
Barry J. Kulpa
President, Chief Executive Officer
And Director (Principal Executive Officer)
Date: November 13,2000 /s/ Kenneth E. Thompson
-----------------------------------------------
Kenneth E. Thompson
Chief Financial Officer
Date: November 13, 2000 /s/ Thomas S. McHugh
-------------------------------------------------
Thomas S. McHugh
Corporate Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 11.1 Statement re: computation of per share earnings
for the three months ended September 30, 2000
Three Months Ended September 30,
2000 1999
--------- ----------
Net income (in thousands) (numerator) $ 4,990 $ 4,008
========= ==========
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 $ 0.28
========== =========
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 29 -
--------- ----------
Weighted average number of diluted shares
outstanding (denominator) 20,617 14,260
========== =========
Diluted earnings per common share $ 0.24 $ 0.28
========== =========
<PAGE>
Exhibit 11.2 Statement re: computation of per share earnings
for the nine months ended September 30, 2000
Nine Months Ended September 30,
2000 1999
--------- ----------
Net income (in thousands) (numerator) $ 13,563 $ 8,453
========= ==========
Computation of Basic Shares Outstanding
(in thousands, except per share amounts)
----------------------------------------
Weighted average number of basic shares
outstanding (denominator) 20,582 14,260
========== =========
Basic earnings per common share $ 0.66 $ 0.59
========== =========
Computation of Diluted Shares Outstanding
(in thousands, except per share amounts)
-----------------------------------------
Weighted average number of basic shares
outstanding 20,582 14,260
Common stock equivalents
for diluted common shares outstanding 29 -
--------- ----------
Weighted average number of diluted shares
outstanding (denominator) 20,599 14,260
========== =========
Diluted earnings per common share $ 0.66 $ 0.59
========== =========
<PAGE>
