MORGAN PRODUCTS LTD, 10-K/A, 1996-04-12

MORGAN PRODUCTS LTD
10-K/A, 1996-04-12
LUMBER, PLYWOOD, MILLWORK & WOOD PANELS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A-1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ___ to ___.

Commission File Number 1-9843

MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)
06-1095650
(I.R.S. Employer Identification No.)

469 McLaws Circle, Williamsburg, Virginia 23185
(Address of principal executive offices) (Zip Code)

(804) 564-1700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.10 par value, New York Stock Exchange
Share Purchase Rights

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 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. __

Aggregate market value of voting stock of the Registrant held by
non-affiliates as of February 1, 1996: $35,930,989.

Number of shares of Common Stock outstanding as of February 1, 1996:
8,647,922 shares; 2,386 shares are held in treasury.

Documents incorporated by reference Part

Annual Report to Stockholders for the Year ended
December 31, 1995 I, II, IV
Proxy Statement for the Annual Meeting of Stockholders
to be held on May 15, 1996 III

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

MORGAN PRODUCTS LTD.

By /s/ Douglas H. MacMillan

Vice President, Chief Financial
Officer and Secretary

April 12, 1996

EXHIBIT INDEX
(Exhibits filed with this Amendment No. 1 to Form 10-K)

Exhibit Page No.

13 Items incorporated by reference to the 1995 Annual Report to Stockholders
(complete restatement).

MORGAN PRODUCTS LTD.

FIVE-YEAR SELECTED FINANCIAL DATA

(In Thousands, Except Per Share Data)

OPERATING RESULTS Year Ended December 31,
1995 1994 1993 1992 1991

<S> <C> <C> <C> <C> <S>
Net sales . . . . . . . . . . . . $338,026 $358,357 $392,702 $387,393 $353,144
Gross profit . . . . . . . . . . . 47,463 52,398 52,797 51,833 44,924
Operating expenses . . . . . . . . 46,736 58,292 49,347 58,690 53,292
Operating income (loss) . . . . . . 727 (5,894) 3,450 (6,857) (8,368)
Other expense . . . . . . . . . . . (3,313) (3,307) (2,248) (4,325) (4,141)
Income (loss) before income taxes . (2,586) (9,201) 1,202 (11,182) (12,509)
Net income (loss) . . . . . . . . . $ (2,682) $ (9,401) $ 952 $(10,178) $ (8,131)
Earnings (loss) per share . . . . . $ (.30) $ (1.10) $ .11 $ (1.20) $ (.96)
Weighted average common and common
equivalent shares outstanding . . 8,644 8,549 8,495 8,490 8,466

BALANCE SHEET DATA At December 31,
1995 1994 1993 1992 1991

Working capital . . . . . . . . . $ 58,674 $ 61,639 $ 77,225 $ 69,534 $ 71,274
Total assets . . . . . . . . . . . 109,515 113,308 133,280 130,355 136,003
Long-term debt, net of cash . . . . 30,439 27,050 43,215 40,257 38,128
Stockholders' equity . . . . . . . 52,835 55,192 64,481 63,499 73,640
Long-term debt, net of cash to
total capitalization . . . . . . 36.6% 32.9% 40.1% 38.8% 34.1%
Return on stockholders' equity . . (4.9)% (15.7)% 1.5% (14.8)% (10.5)%
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Results of Operations

Year Ended December 31, 1995 vs. Year Ended December 31, 1994

The Company's net sales for 1995 were $338.0 million, representing a
decrease of 5.7% from 1994 net sales of $358.4 million. The reduction in net
sales was primarily the result of a 9.4% drop in the sales of manufactured
products and a 4.0% decline in the sales of distributed products. Management
believes that the sales declines are a reflection of the overall weakness in
the residential construction and repair and remodeling markets, including the
attendant competitive pressures on pricing and margins. Lower wood costs also
contributed to a rollback in unit selling prices.

The Company reported a net loss of $2.6 million or $.30 per share for
1995 compared to a net loss of $9.4 million or $1.10 per share for 1994, on
average shares outstanding of 8,643,941 and 8,549,159 respectively. Included
in the 1994 results was a net restructuring charge of $11.3 million ($1.32
per share) to cover the cost of closing the Springfield, Oregon plant and the
Weed, California veneer operation and to provide for other cost reductions
and consolidation within Morgan Products.

Excluding the $11.3 million restructuring charge for 1994, the Company
had income of $1.9 million. The $4.5 million decrease in income from 1994,
before the restructuring charge, reflects lower gross profit partially offset
by lower operating expenses.

The gross profit decrease of $4.9 million from 1994 to 1995 was
primarily the result of the aforementioned decrease in sales at both the
manufacturing and distribution divisions. A $.5 million inventory shortage
reflecting management problems which have been corrected at the Virginia
distribution center, under absorption of fixed overhead and material
substitutions at the manufacturing facilities, and declining sales prices
depressed the gross margins at both divisions from 1994 levels. The Company's
gross profit as a percentage of net sales receded from 14.6% in 1994 to 14.0%
in 1995.

Operating expenses for 1995 were $46.7 million, or 13.8% of net sales,
compared to 1994 operating expenses of $58.3 million, or 16.3% of net sales.
Excluding the restructuring charge, 1994 operating expenses were $47.0
million, or 13.1% of net sales. The $.3 million decrease in 1995 from 1994
(excluding the restructuring charge) was achieved despite $1.1 million
greater spending for advertising and sales promotion and $.7 million to
recruit and relocate a new management team.

Interest expense and other non-operating income were unchanged from 1994
at $3.3 million, representing 1% of sales in 1995 and .9% of net sales in
1994. Higher debt levels in 1995 were offset by lower borrowing rates.

The provision for income taxes in both 1995 and 1994 relates to the
recording of state taxes. There is no provision for federal taxes in either
period given the Company's net operating loss position (see Note 10 of Notes
to Consolidated Financial Statements).

Year Ended December 31, 1994 vs. Year Ended December 31, 1993

The Company's net sales for 1994 were $358.4 million, representing a
decrease of 8.7% from 1993 net sales of $392.7 million. The reduction in net
sales was primarily the result of a 13.3% decrease in sales of manufactured
products and a 7.5% decrease in sales of distributed products. Management
believed that the decline in sales of products distributed by the Company was
due to a major supplier's reallocation of sales regions among its network of
distributors, and by an anticipated up-front loss of some business as a
result of margin improvement programs, which were expected to generate
additional profit in 1995 and beyond. Management also believed part of the
decline in sales of products manufactured by the Company was due to the
ongoing weakness in demand for high quality wood doors in a very cost
conscious market. In addition, the manufacturing sales decline reflected the
loss of low margin business following the closing of the Springfield, Oregon
plant.

The Company reported a net loss of $9.4 million or $1.10 per share for
1994 compared to net income of $1.0 million or $.11 per share for 1993, on
average shares outstanding of 8,549,159 and 8,494,602 respectively. Included
in the 1994 results was a net restructuring charge of $11.3 million ($1.32
per share) to cover the cost of closing the Springfield plant and the Weed,
California veneer operation and to provide for other cost reductions and
consolidation within Morgan Products.

Excluding the $11.3 million restructuring charge for 1994, the Company
had income of $1.9 million. The increase in income from 1993, net of the
restructuring charge, was primarily caused by a decrease in operating
expenses partially offset by a decrease in gross profit and an increase in
other expense.

The gross profit decrease of $.4 million from 1993 to 1994 was primarily
the result of the aforementioned decrease in sales at both the manufacturing
and distribution divisions. Partially offsetting this was an improvement in
gross margins for products distributed and manufactured. The Company's gross
profit as a percentage of net sales improved from 13.4% in 1993 to 14.6% in
1994.

Operating expenses for 1994 were $58.3 million, or 16.3% of net sales,
compared to 1993 operating expenses of $49.3 million, or 12.6% of net sales.
Excluding the restructuring charge, 1994 operating expenses were $47.0
million, or 13.1% of net sales. Contributing to the year-to-year decline in
operating expenses (excluding the restructuring charge) were decreases in
employment-related costs, travel and entertainment, advertising and
promotion, and bad debt expenses.

Other expense increased $1.1 million from 1993 to 1994, primarily due to
the 1993 disposition of idle assets in excess of their carrying value by
approximately $1.0 million which offset other expense. Interest expense
decreased to $3.8 million in 1994 from $4.0 million in 1993 due to lower debt
levels throughout 1994. Partially offsetting this was the impact of higher
borrowing rates.

The provision for income taxes in both 1994 and 1993 relates to the
recording of state taxes. There was no provision for federal taxes in either
period given the Company's net operating loss position (see Note 10 of Notes
to Consolidated Financial Statements).

During 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employer's Accounting for Postemployment Benefits." This
adoption had no material effect on net income.

Significant Business Trends / Uncertainties

Management believes that housing starts have a significant influence on
the Company's level of business activity. Housing starts, in turn, are
heavily influenced by weather, mortgage interest rates, consumer debt levels
and changes in disposable income, employment growth, and consumer confidence.
According to an industry source (Cahners Economics), actual single family
national housing starts were down 11.7% to 1.058 million in 1995 compared to
1.198 million in 1994. In the regions where the Company has its largest
market presence, the Northeast and Midwest, starts were down 13.7% and 10.5%
respectively from 1994 levels. During the year, the housing market improved
from its very weak start. The Federal Home Loan Mortgage Corporation 30-year
fixed mortgage rate peaked at 9.2% in December 1994. This was the highest
level since mid-1988. By February 1995, there was an inventory glut of a 7.2
months supply of new homes unsold. Coupled with inclement weather conditions,
these factors resulted in 1995 single family housing starts being down from
the prior year by 14.5% through July. Interest rates fell to 7.2% by the end
of 1995, the lowest level in 2.5 years. F. W. Dodge projects that "the
turnaround, which became pronounced in the fourth quarter of 1995, will
continue throughout 1996. The Northeast, after being especially hard hit last
year, is set to enjoy especially strong percentage gains in 1996."
Donaldson, Lufkin & Jenrette is projecting a favorable long-term climate for
new housing. "Long-term trendline needs remain 1.5 million per year in this
decade...."

However, management believes that the 1996 market turnaround will be
delayed due to unusually harsh weather conditions early in the year.

Management also believes that the Company's ability to continue to
penetrate the residential repair and remodeling markets through sales to home
center improvement chains may have a significant influence on the Company's
level of business activity. Sales to these customers as a percentage of total
sales increased from 29.4% in 1994 to 29.8% in 1995. However, overall sales
to these customers declined 4.3% to $101 million in 1995 compared to $105
million in 1994. Management believes this market will continue to be
important to the Company.

Over the prior several years, the cost of lumber, the Company's primary
raw material, had increased substantially to record levels. While fir prices
at year-end were relatively unchanged from 1994 record levels, the price of
pine lumber fell 18.5% and oak 12.8%. Due to intense competitive pricing,
this has resulted in reduced selling prices rather than increased profit
margins. As a result, the Company is continuing its efforts to expand the
utilization, where appropriate, of engineered materials in wood door
components and to switch to alternate wood species. In addition, the Company
has established reliable offshore material resources. Management believes
that these actions may help to improve profit margins.

During 1994, Andersen Corporation realigned its distribution
territories. Management believes that this revision will not materially
affect the financial performance of the Company in the long term. However,
there was a reduction in sales in 1994, with continuing impact in 1995, due
to this realignment. Gross margin improvement on Andersen products partially
offset the impact of the lost sales.

The Company announced on January 23, 1995 that its Board of Directors
approved a major investment project that will result in a new and much more
efficient approach to door manufacturing. The Company estimates that it will
invest up to $6 million in 1995 and 1996 in new machinery and equipment and
other process-related improvements associated with the new door manufacturing
project. Management believes that this project will give the Company a
competitive edge and will provide the Company with opportunities for growth
in new and expanded product areas. Significant funds were expended in 1995
for prepayments on equipment and building preparation. Actual delivery and
installation of equipment and machinery began in the first quarter of 1996,
with full-scale production to commence at the beginning of the third quarter
of 1996.

In the first quarter of 1995, the Company added Morgan National Accounts
as an operating business unit which serves large retail chains, marketing and
merchandising millwork and specialty building products for Morgan
Manufacturing and Morgan Distribution.

Liquidity and Capital Resources

The Company's working capital requirements are related to its sales
level, which, because of its dependency upon housing starts and the repair
and remodeling market, is seasonal and, to a degree, weather dependent. This
seasonality affects the need for working capital inasmuch as it is necessary
to carry larger inventories and receivables during certain months of the
year.

Working capital at December 31, 1995 was $58.7 million, with a ratio of
current assets to current liabilities of 3.8 to 1.0, while at December 31,
1994, working capital was $61.6 million, with a current ratio of 3.5 to 1.0.
The decrease in working capital was primarily a result of lower accounts
receivable and inventories due to the reduced sales level.

Long-term debt, net of cash, increased to $30.4 million at December 31,
1995 from $27.1 million at December 31, 1994. The Company's ratio of long-
term debt, net of cash, to total capitalization increased from 32.9% at
December 31, 1994 to 36.6% at December 31, 1995. This increase was primarily
due to additional borrowing required for the aforementioned $6 million
capital spending for the door manufacturing equipment and machinery.

Cash generated by operating activities totaled $2.6 million in 1995. By
comparison, the period ended December 31, 1994 reflected cash generated by
operations of $14.5 million. The primary causes of the decline in operating
cashflow were a $4.5 million lower net income (before the restructuring
charge), $.6 million lower depreciation and other noncash expenses in 1995
(excluding the restructuring reserve), and $6.7 less cash generated from the
reduction of working capital components. Investing activities in 1995 used
$5.8 million, principally for capital spending for door manufacturing
machinery and equipment, compared to 1994 when investing activities used $2.8
million before the $4.2 million of proceeds from the disposal of various
property, plant and equipment, including the sale of the Springfield facility
for $3.5 million. Financing activities generated $2.1 million due to the $3.2
million increase in the revolving line of credit debt and the repayment of
$1.1 million of debt. Financing activities used $13.2 million in 1994 to
repay debt.

As discussed in Note 5 of Notes to Consolidated Financial Statements, on
July 14, 1994, the Company signed a new $65 million revolving credit
agreement. The new agreement should assure the Company adequate capital over
the ensuing three years as it moves to expand its core business. At December
31, 1995, $28.2 million of borrowing was outstanding on the revolver. The
covenants of the agreement are similar to prior agreements adjusted for the
one-time restructuring charge taken in 1994. As a result of lower-than-
planned performance, the Company was not in compliance with restrictive bank
covenants at July 1, 1995 and again at September 30, 1995. The banks issued
a waiver for the first non-compliance. The Company negotiated and executed an
amendment to the credit agreement which adjusted the September and ongoing
covenants so that they more realistically reflect the current market
conditions in which the Company competes. The Company was in compliance with
all covenants of the amended credit agreement at December 31, 1995.

Restructuring of Operations

A review of the Morgan Manufacturing business unit was undertaken in
1992. At that time, door production capacity was rationalized through
reductions in personnel and product line variations, but physical plant
available capacity was unchanged. Those actions did not achieve the desired
result. In October 1993, the Company announced that the Board of Directors
had retained Dillon, Read and Company, Inc., an investment banking firm, to
assist the Company in evaluating its strategic alternatives, including the
possible sale of Morgan Manufacturing. In the second quarter of 1994,
management further announced that Dillon, Read had ended divestiture
discussions and that the Company had decided to retain and realign the
manufacturing business.

In early 1994, Morgan Manufacturing continued to experience order volume
of approximately 18,000-20,000 doors per week or essentially 50% of plant
capacity. While production statistics on a per-door basis continued to show
favorable trends in comparison to the prior year and plan, retaining the
three main door plant configuration created a high fixed overhead situation.
While modestly better than 1993, the level of profitability was substantially
below an adequate return and well below the projected operating income which
would be generated by operating only two door plants. Consequently, in the
second quarter of 1994, the Company decided to shut down the Springfield door
and Weed veneer plants and provide for other cost reductions and
consolidation within the Company, which resulted in a restructuring charge of
$11.3 million. With this action, management expected to more fully utilize
manufacturing capacity by having transferred approximately $10 million of
door volume from Springfield to the remaining two facilities. The Company is
continuing to evaluate its plans for capacity reduction and consolidation in
light of industry trends, current demand and likely growth opportunities.

This 1994 restructuring charge incorporated the costs of certain
personnel actions, including severance, outplacement, relocation, and future
workers' compensation claims ($4.8 million); costs of moving, reworking,
selling, or writing off inventory ($3.7 million); holding costs for idle
facilities until sold ($1.7 million); and other revaluations of assets to net
realizable value ($ 1.1 million). At the end of 1994, $4.9 million of the
original $11.3 million had been used and the closing of the two plants was
substantially completed. The remaining reserve related primarily to the other
cost reductions and consolidation within the Company.

During the third quarter of 1994, the Company reviewed the charges
reserved for in the original restructuring and determined that certain
estimated costs for closing the Weed veneer operations would not be as high
as originally anticipated. However, certain other cost reduction and
restructuring actions were approved and provided for which offset the lower
expenses anticipated to close the Weed veneer facility. Accordingly, $.4
million of the restructuring reserve was reallocated for the downsizing of
two distribution centers and $.5 million was reallocated to cover the
restructuring and relocation of the corporate headquarters.

During the first quarter of 1995, management again evaluated its
restructuring reserves and determined that certain estimated costs would not
be as high as had been expected and adjusted the reserve appropriately. In
addition, incremental restructuring activities for Morgan Distribution (as
described below) were approved during the first quarter.

Since his arrival in September 1994, the Company's new Chief Executive
Officer and other members of senior management have been evaluating what
actions are necessary to improve Morgan Distribution's profitability. A
multi-year plan involving necessary management structure changes, a new
management information system and future facility requirements was developed.
The first phase of this restructuring plan was implemented during the first
quarter of 1995. A new organizational structure was announced that eliminated
several management positions, including the unit president. The costs of
severance and certain other cost reductions were provided for during the
first quarter of 1995, which more than offset the lower than originally
anticipated expenses of the 1994 restructuring. No charges were made for
changes in physical facilities since there will be no actions implemented in
1995 with respect to these.

During 1995, an additional $2.6 million of the reserve was used,
primarily for severance costs and the relocation of the corporate
headquarters to Virginia (see Note 2 of Notes to Consolidated Financial
Statements).

Seasonal Nature of Business

The building products industry is seasonal, particularly in the
Northeast and Midwest regions of the United States, where inclement weather
during the winter months usually reduces the level of building activity in
both the improvement, maintenance and repair market and the new construction
market. The Company's lowest sales levels generally occur during the first
and fourth quarters. However, the Company's Southeast door manufacturing
facility, which serves the more moderate climates, including the West Coast,
partially offsets the effect of seasonal influences on the Company's
operations.

The table below sets forth the Company's quarterly net sales during the
years ended December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994

Net % of Net % of
Sales Total Sales Total

(Millions) (millions)
<S> <C> <C> <C> <C>
First Quarter . . . . . . . . $ 80.7 23.9% $ 82.8 23.1%
Second Quarter . . . . . . . 84.2 24.9 95.2 26.6
Third Quarter . . . . . . . 90.7 26.8 95.2 26.6
Fourth Quarter . . . . . . . 82.4 24.4 85.2 23.7

Total Year . . . . . . . . . $338.0 100.0% $358.4 100.0%
</TABLE>

See Note 13 of Notes to Consolidated Financial Statements for further
quarterly information.

CONSOLIDATED INCOME STATEMENTS
Morgan Products Ltd.
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,

1995 1994 1993

<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $338,026 $358,357 $392,702
Cost of goods sold . . . . . . . . . . . . . . . . 290,563 305,959 339,905
Gross profit . . . . . . . . . . . . . . . . . . 47,463 52,398 52,797

Operating expenses:
Sales and marketing . . . . . . . . . . . . . . 35,652 36,251 38,859
General and administrative . . . . . . . . . . 11,033 10,750 10,488
Provision for restructuring (Note 2) . . . . . . 51 11,291 -

46,736 58,292 49,347

Operating income (loss) . . . . . . . . . . . . . . 727 (5,894) 3,450

Other (expense) income:
Interest . . . . . . . . . . . . . . . . . . . . (3,763) (3,776) (3,968)
Other . . . . . . . . . . . . . . . . . . . . . 450 469 1,720

(3,313) (3,307) (2,248)

Income (loss) before income taxes . . . . . . . . (2,586) (9,201) 1,202
Provision for income taxes . . . . . . . . . . . . 42 200 250

Net income (loss) . . . . . . . . . . . . . . . . . $(2,628) $(9,401) $952

Income (loss) per share . . . . . . . . . . . . . . $(.30) $(1.10) $.11

Weighted average common and common
equivalent shares outstanding . . . . . . . . . . 8,644 8,549 8,495

The accompanying notes are an integral part of the financial statements.
</TABLE>

CONSOLIDATED BALANCE SHEETS
Morgan Products Ltd.
(in thousands)

<TABLE>
<CAPTION>
At December 31

1995 1994

<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 5,135 $ 6,195
Accounts receivable (less allowances of $722 in 1995
and $953 in 1994) . . . . . . . . . . . . . . . . . 20,801 24,361
Inventories (Note 3) . . . . . . . . . . . . . . . . . 53,422 54,957
Other current assets . . . . . . . . . . . . . . . . . 422 997

Total current assets . . . . . . . . . . . . . . . 79,780 86,510

PROPERTY, PLANT AND EQUIPMENT, Net (Note 4) . . . . . . . . . 23,500 20,780
OTHER ASSETS (Notes 1 and 9) . . . . . . . . . . . . . . . . . . 6,235 6,018

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $109,515 $113,308

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5) . . . . $ 954 $ 1,205
Accounts payable . . . . . . . . . . . . . . . . . . 11,121 11,510
Accrued compensation and employee benefits . . . . . . 5,625 8,176
Income tax payable . . . . . . . . . . . . . . . . . . 111 203
Other current liabilities . . . . . . . . . . . . . . . 3,295 3,777

Total current liabilities . . . . . . . . . . . . . 21,106 24,871

LONG-TERM DEBT (Note 5) . . . . . . . . . . . . . . . . . . . . 35,574 33,245

COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY: (Note 7)
Common stock, $.10 par value, 8,647,483 and 8,640,713 shares
outstanding, respectively . . . . . . . . . . . . . 865 864
Paid-in capital . . . . . . . . . . . . . . . . . . . 33,771 33,733
Retained earnings . . . . . . . . . . . . . . . . . . . 18,629 21,257

53,265 55,854

Treasury stock, 2,386 shares, at cost . . . . . . . . (48) (48)
Unearned compensation-restricted stock . . . . . . . . (382) (614)

Total stockholders' equity . . . . . . . . . . . . 52,835 55,192

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . $109,515 $113,308

The accompanying notes are an integral part of the financial statements.
</TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOW
Morgan Products Ltd.
(in thousands)

<TABLE>
<CAPTION>
Year Ended December 31,

1995 1994 1993

<S> <C> <C> <C>
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . $ (2,628) $ (9,401) $ 952
Add (deduct) noncash items included in income:
Depreciation and amortization . . . . . . . . . 3,694 4,794 5,055
Provision for doubtful accounts . . . . . . . . 214 (54) 697
Provision for restructuring . . . . . . . . . . 8 11,291
Gain on sale of property, plant and equipment . (44) (142) (1,394)
Other . . . . . . . . . . . . . . . . . . . . . 232 85 6
Cash generated (used) by changes in components
of working capital:
Accounts receivable . . . . . . . . . . . . . . 3,346 7,957 (6,877)
Inventories . . . . . . . . . . . . . . . . . . 1,606 5,334 (2,273)
Accounts payable . . . . . . . . . . . . . . . . (389) (1,982) 2,342
Other working capital . . . . . . . . . . . . . (3,401) (3,406) (1,847)

NET CASH GENERATED (USED) BY
OPERATING ACTIVITIES . . . . . . . . . . . . . . . 2,638 14,476 (2,979)

CASH GENERATED (USED) BY INVESTING ACTIVITIES:
Acquisition of property, plant and equipment . (5,212) (1,173) (1,946)
Proceeds from disposal of property,
plant and equipment . . . . . . . . . . . . . 117 4,193 3,759
Acquisition of other assets, net . . . . . . . . (720) (1,581) (893)

NET CASH GENERATED (USED) BY
INVESTING ACTIVITIES . . . . . . . . . . . . . . . (5,815) 1,439 920

CASH GENERATED (USED) BY FINANCING ACTIVITIES:
Net change in short-term debt . . . . . . . . . 999 (5,651)
Proceeds from long-term debt . . . . . . . . . . 3,223 25,000 11,226
Repayments of long-term debt . . . . . . . . . . (1,145) (39,200) (4,250)
Common stock issued for cash . . . . . . . . . . 39 27 31

NET CASH GENERATED (USED)
BY FINANCING ACTIVITIES . . . . . . . . . . . . . 2,117 (13,174) 1,356

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . (1,060) 2,741 (703)

CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . 6,195 3,454 4,157
End of period . . . . . . . . . . . . . . . . . $ 5,135 $ 6,195 $ 3,454

CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest . . . . . . . . . . . . . . . . . . . $ 3,885 $ 3,733 $ 3,598
Income taxes . . . . . . . . . . . . . . . . . . 134 (9) 149

The accompanying notes are an integral part of the financial statements.
</TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Morgan Products Ltd.
(in thousands)

<TABLE>
<CAPTION>
UNEARNED
COMPENSATION-
COMMON PAID-IN RETAINED TREASURY RESTRICTED
STOCK CAPITAL EARNINGS STOCK STOCK

<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 . . $ 849 $ 32,991 $ 29,707 $ (48) $
Net income . . . . . . . . . . . 952
Other . . . . . . . . . . . . . . 1 30 (1) - -

Balance at December 31, 1993 . . 850 33,021 30,658 (48)
Net loss . . . . . . . . . . . . (9,401)
Issuance of restricted stock . . 14 686 (700)
Amortization of unearned
compensation . . . . . . . . . 86
Other . . . . . . . . . . . . . . - 26 - - -

Balance at December 31, 1994 . . 864 33,733 21,257 (48) (614)
Net loss . . . . . . . . . . . . (2,628)
Amortization of unearned
compensation . . . . . . . . . 232
Other . . . . . . . . . . . . . . 1 38 - - -

BALANCE AT DECEMBER 31, 1995 . . $ 865 $ 33,771 $ 18,629 $ (48) $ (382)

The accompanying notes are an integral part of the financial statements.
</TABLE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS - Morgan Products Ltd. ("Morgan" or the "Company")
manufactures and purchases products (virtually all considered to be millwork)
which are sold to the residential and light commercial building materials
industry and are used for both new construction and improvements, maintenance
and repairs. In view of the nature of its products and the method of
distribution, management believes that the Company's business constitutes a
single industry segment.

CONSOLIDATION - The consolidated financial statements include the accounts
of all business units of Morgan Products Ltd. All intercompany transactions,
profits and balances are eliminated.

EARNINGS PER SHARE AND SHARE DATA - Earnings per share are computed using
the weighted average number of common and, when applicable, common equivalent
shares outstanding during the period.

INVENTORIES - Inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out (FIFO) method.

PROPERTIES AND OTHER ASSETS- Property, plant and equipment are stated at
cost and depreciated on a straight line basis over the estimated useful lives
of the assets, which generally range from 35 years for buildings, 10 to 20
years for building equipment and improvements, and 5 to 10 years for
machinery and equipment. Expenditures which substantially increase value or
extend useful life are capitalized. Expenditures for maintenance and repairs
are charged against income as incurred.

Included in other assets are software costs, which are amortized over their
estimated useful lives, and deferred debt issue costs, which are amortized
over the life of the related debt agreement.

The Company reviews the carrying value of Properties and Other Assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Measurement of any impairment would
include a comparison of estimated future operating cash flows anticipated to
be generated during the remaining life of the assets to the net carrying
value of the assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS - Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected in the
financial statements at fair value because of the short-term maturity of
those instruments. The fair value of the Company's long-term debt is
discussed in Note 5.

STATEMENT OF CASH FLOW - The Company considers all highly liquid debt
instruments with a maturity of 91 days or less at the time of purchase to be
cash equivalents.

USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 amounts could differ from those
estimates.

NOTE 2 - PROVISION FOR RESTRUCTURING

In the fourth quarter of 1993, the Company announced that it had retained
the investment banking firm of Dillon, Read & Company, Inc. to help evaluate
strategic alternatives for the Company, including the possible sale of its
Morgan Manufacturing business unit. In the second quarter of 1994,
management further announced that Dillon, Read ended divestiture discussions
and that the Company had decided to retain and realign the manufacturing
business.

On May 28, 1994, the Company recorded an $11.3 million restructuring charge
to cover the cost of closing the Springfield, Oregon plant, and the Weed,
California veneer operation and to provide for other cost reductions and
consolidation within the Company. This charge incorporates the costs of
certain personnel actions including severance, outplacement, relocation and
future workers' compensation claims; costs of moving, reworking, selling, or
writing off inventory; holding costs for idle facilities until they can be
sold; and the revaluation of idle assets to estimated net realizable value
based on independent appraisal information.

During the third quarter of 1994, the Company reviewed the charges with
respect to matters reserved for in the original restructuring and determined
that certain estimated costs would not be as high as originally anticipated.
However, certain other cost reduction and restructuring actions were approved
and provided for during the third quarter which offset the lower expenses
originally anticipated. Accordingly, $.4 million of the restructuring
reserve was reallocated for the downsizing of two distribution centers, and
$.5 million was reallocated to cover the restructuring and relocation of the
corporate headquarters operation.

Since his arrival in September 1994, the Company's new Chief Executive
Officer and other members of senior management have been evaluating what
actions are necessary to improve Morgan Distribution's profitability. A
multi-year plan involving necessary management structure changes, a new
management information system and future facility requirements were
developed. The first phase of this restructuring plan was implemented during
the first quarter of 1995. A new organizational structure was announced that
eliminated several management positions, including the Morgan Distribution
president. The costs of severance and certain other cost reductions were
provided for during the first quarter of 1995 which more than offset the
lower-than-originally-anticipated expenses of the 1994 restructuring. No
charges were made for changes in physical facilities since there will be no
actions implemented in 1995 with respect to these.

Reserve Reserve at
at May 28, Utilized Dec. 31,
1994 Cash Noncash Reallocated 1994

<S> <C> <C> <C> <C> <C>
Employee benefits(1) . . . . . . . $ 4.8 $(1.7) $ - $ (.4) $ 2.7
Inventory(2) . . . . . . . . . . . 3.7 (.6) (1.2) (.1) 1.8
Fixed assets . . . . . . . . . . . 1.1 - - .2 1.3
Holding and other costs(3) . . . . 1.7 (1.4) - .3 .6

Total restructuring
reserve . . . . . . . . . . . . . $11.3 $(3.7) $(1.2) $ - $ 6.4

Reserve Reserve at
at Dec. 31, Utilized Dec. 31,
1994 Cash Noncash Reallocated 1995

Employee benefits(4) . . . . . . . $ 2.7 $(2.5) $ - $ 1.2 $ 1.4
Inventory(2) . . . . . . . . . . . 1.8 - - - 1.8
Fixed assets . . . . . . . . . . . 1.3 - - (.9) .4
Holding and other
costs(3) . . . . . . . . . . . . .6 (.1) - (.3) .2

Total restructuring
reserve . . . . . . . . . . . . . $ 6.4 $(2.6) $ - $ - $ 3.8
</TABLE>

(1) Costs associated with severance, outplacement and future workers'
compensation claims due to the closing of the Springfield, Weed veneer, and
other facilities.

(2) Primarily costs associated with inventory that could not be utilized or
costs of reworking inventory for use in other facilities due to closing of
the Springfield, Weed veneer, and other facilities.

(3) Costs associated with continuing utility and property tax due to the
closing of the Springfield, Weed veneer, and other facilities.

(4) Costs associated with severance, outplacement and future workers'
compensation claims due to the closing of the Springfield facilities,
downsizing at the Morgan Manufacturing division office, and the restructuring
of the corporate headquarters.

The downsizing of the distribution centers and the closing of the
Springfield and Weed veneer facilities were substantially completed during
1994. All 158 Springfield employees, 29 Weed veneer employees and 5 Oshkosh
employees were terminated. This represented a 25% reduction in workforce at
the Morgan Manufacturing division. By November of 1994, the sale of the
Springfield plant and Springfield and Weed veneer machinery and equipment was
completed. During 1995, the management of both the Morgan Manufacturing and
Morgan Distribution divisions was changed and the corporate headquarters was
restructured and moved to Williamsburg, Virginia in order to reduce occupancy
expense, facilitate personnel cost reductions, and locate closer to the
Company's traditional major markets. The Company is continuing to evaluate
its plans for capacity reduction and consolidation in light of industry
trends, current demand and likely growth opportunities.

NOTE 3 - INVENTORIES

Inventories consisted of the following at (in thousands of dollars):

December 31,

1995 1994

<S> <C> <C>
Raw materials . . . . . . . . . . . . $ 9,120 $ 9,685
Work-in-process . . . . . . . . . . 6,536 5,272
Finished goods . . . . . . . . . . . 37,766 40,000

Total inventories . . . . . . . $53,422 $54,957
</TABLE>

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at
(in thousands of dollars):

December 31,

1995 1994

<S> <C> <C>
Land and improvements . . . . . . . $ 2,765 $ 2,765
Buildings and improvements . . . . . 16,806 15,593
Machinery and equipment . . . . . . 22,313 21,948
Capitalized building and
equipment leases . . . . . . . . 5,328 5,328
Less accumulated depreciation
and amortization . . . . . . . . (27,705) (24,950)
Construction in progress . . . . . . 3,993 96

Total property, plant and
equipment . . . . . . . . . . . $ 23,500 $ 20,780
</TABLE>

At December 31, 1995 and 1994, accumulated amortization relating to
capitalized building and equipment leases was approximately $4.2 million and
$3.6 million respectively.

NOTE 5 - LONG-TERM DEBT

Long-term debt consisted of the following at (in thousands of dollars):

December 31,

1995 1994

<S> <C> <C>
Revolving credit facilities . . . . . $28,223 $25,000
Industrial revenue bonds . . . . . . 2,000 2,300
Obligations under capital
leases (Note 6) . . . . . . . . . . 3,330 3,820
Obligations under financing leases . 2,229 2,306
Other . . . . . . . . . . . . . . . . 746 1,024

36,528 34,450
Less current maturities . . . . . . . (954) (1,205)

Total long-term debt . . . . . . $35,574 $33,245
</TABLE>

On July 14, 1994, the Company signed a new revolving credit agreement with
a group of banks which provides for a revolving credit facility of up to $65
million and includes a letter of credit facility of up to $9 million, through
July 13, 1997. This credit facility is secured by certain accounts
receivable, inventories, equipment, real estate and general intangibles of
the Company. Available borrowings under the revolving credit facility bear
interest at the option of the Company at the prime rate plus an incremental
1.25 percentage points or at the LIBOR rate plus an incremental 2.75
percentage points. The Company also pays an annual commitment fee of .5% on
the average unused portion of the revolving credit line and certain
additional fees. At December 31, 1995, the weighted average interest rate on
the outstanding revolving credit facilities was 8.78%.

The credit facility contains certain covenants including limitations on the
acquisition and disposition of assets, on the pledging of assets other than
those pledged under the industrial revenue bonds, and the requirement that
the Company maintain minimum tangible net worth, leverage, and interest
coverage ratios. As a result of lower-than-planned performance, the Company
was not in compliance with restrictive bank covenants at July 1, 1995 and
again at September 30, 1995. The banks issued a waiver for the first non-
compliance. The Company negotiated and executed an amendment to the credit
agreement which adjusted the September and ongoing covenants so that they
more realistically reflect the current market conditions in which the Company
competes. The Company was in compliance with all of the amended credit
agreement covenants at December 31, 1995.

As of December 31, 1995, the Company had utilized $.8 million of its $9
million letter of credit facility and had borrowings of $28.2 million under
the revolving credit facility.

The industrial revenue bond outstanding at December 31, 1995 bears a
floating interest rate equal to eighty percent (80%) of the bond equivalent
yield applicable to 91-day United States Treasury Bills. These bonds are
secured by assets with a book value of $17.5 million and $2.1 million in
letters of credit.

During 1991, the Company entered into a sale-leaseback transaction which,
based upon the applicable terms, is accounted for as a financing lease. The
term of the agreement is 15 years beginning on December 30, 1991 and expiring
on December 29, 2006 with an interest rate of 9.73% annually.

Future annual maturities of the Company's long-term debt as of December 31,
1995 are presented below (in thousands of dollars):

<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . $ 954
1997 . . . . . . . . . . . . . . . . . . . . . 29,228
1998 . . . . . . . . . . . . . . . . . . . . . 942
1999 . . . . . . . . . . . . . . . . . . . . . 998
2000 . . . . . . . . . . . . . . . . . . . . . 1,168
Later years . . . . . . . . . . . . . . . . . 3,238
Future annual maturities of long-term debt . . 36,528
</TABLE>

The carrying value of the Company's debt obligations at December 31, 1995
approximates fair value.

NOTE 6 - LEASE OBLIGATIONS

Certain leased equipment and distribution facilities have been capitalized
by the Company. The Company also leases certain facilities, equipment and
vehicles under noncancelable agreements which are operating leases.

Future minimum lease payments required under long-term leases in effect at
December 31, 1995 are as follows (in thousands of dollars):

Capital Operating Total

<S> <C> <C> <C>
1996 . . . . . . . . . . . $ 824 $ 3,369 $ 4,193
1997 . . . . . . . . . . . 722 2,072 2,794
1998 . . . . . . . . . . . 722 1,684 2,406
1999 . . . . . . . . . . . 722 1,377 2,099
2000 . . . . . . . . . . . 722 1,045 1,767
Later years . . . . . . . 4,148 753 4,901

7,860 $10,300 $18,160

Less imputed interest . . . . (4,530)

Total lease
obligations . . . . .$ 3,330
</TABLE>

For 1995, 1994, and 1993, rental expense, including usage charges on the
long-haul fleet, was $6.3 million, $6.6 million, and $6.7 million
respectively.

NOTE 7 - STOCKHOLDERS' EQUITY

COMMON STOCK - The number of authorized shares of Common Stock is
20,000,000 shares.

PREFERRED STOCK - The number of authorized shares of Preferred Stock is
5,000,000 shares.

STOCK OPTION PLAN - In June 1985, the Company adopted a Stock Option Plan
which, as amended, provides for (I) the issuance of incentive stock options
at a purchase price approximating the fair market value at the date of grant
and (II) the issuance of non-qualified options at a price determined by the
Compensation Committee, a committee of the Board of Directors, which cannot
be less than 85% of the market price at the date of grant. In May 1989, the
stockholders ratified a proposal that amended the Company's Stock Option Plan
to increase from 500,000 to 750,000 the number of shares of Common Stock
reserved for issuance under the plan.

At the annual meeting in May 1995, the stockholders voted to amend the plan
and authorized an additional 150,000 shares of Common Stock be set aside for
the granting of options. As of December 31, 1995, the Company has set aside
793,300 shares of Common Stock for the granting of such options. The options
granted become exercisable immediately or in two, three, four, or five
installments from the date of grant, and all of the options granted expire no
more than ten years from the date of grant.

The following table provides summary information regarding stock options
under the Stock Option Plan:

1995 1994

<S> <C> <C>
Options outstanding at January 1 . . . . 614,000 583,200
Granted . . . . . . . . . . . . . . . . . 267,500 492,500
Exercised . . . . . . . . . . . . . . . . (3,500)
Canceled . . . . . . . . . . . . . . . . (189,500) (461,700)
Outstanding at December 31(1) . . . . . . 688,500 614,000

Option price range at December 31 . . . . $5.00-$6.62 $5.00-$9.62
Options exercisable at December 31 . . . 299,299 327,495
Options available for grant
at December 31 . . . . . . . . . . . . 104,800 32,800
</TABLE>

(1) Options outstanding at December 31, 1995 and 1994 of 688,500 and
614,000 respectively, consist solely of non-qualified options.

In May 1992, the stockholders approved the adoption of a Non-employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides
for the automatic grant of non-qualified stock options to purchase 1,000
shares of Common Stock at a purchase price equal to the fair market value at
the date of grant upon a non-employee Director's election or re-election to
the Board of Directors. An aggregate of 50,000 shares of Common Stock is
available for grant under the Director Plan. The options granted become
exercisable in three annual installments from the date of grant, and all of
the options granted expire ten years from the date of grant.

The following table provides summary information regarding stock options
under the Director Plan:

1995 1994

<S> <C> <C>
Options outstanding at January 1 . . . . 9,000 8,000
Granted . . . . . . . . . . . . . . . . 7,000 3,000
Exercised . . . . . . . . . . . . . . . . - -
Canceled . . . . . . . . . . . . . . . . - (2,000)

Options outstanding at December 31 . . . 16,000 9,000

Option price range at December 31 . . . . $5.75-$9.12 $5.75-$9.12
Options exercisable at December 3 . . . . 5,997 2,997
Options available for grant at
December 31 . . . . . . . . . . . . . . 34,000 41,000
</TABLE>

On August 19, 1994, the Company issued 140,000 restricted shares of the
Company's Common Stock to the Chief Executive Officer. These shares were
awarded to a trust of which the Chief Executive Officer is the beneficiary,
subject to certain restrictions and forfeiture provisions. The shares vest
ratably over a three-year period ending August 19, 1997. The restrictions
limit the sale or transfer of shares during the restricted period. The trust
will immediately vest in the shares of Common Stock upon death, disability,
or termination of the Chief Executive Officer as described in the plan. The
unamortized value of the Common Stock totaling $700,000 was recorded at the
date of award based upon the market value of shares as a separate component
of stockholders' equity and is being amortized to expense over the three-year
vesting period.

On August 19, 1994, the Company also granted the Chief Executive Officer
options to purchase 250,000 shares of Common Stock at an exercise price of $5
per share under the Company's Stock Option Plan. This was the fair market
value at the date of grant. Vesting in these options will be over a three-
year period with 62,500 shares or 25% vested immediately. This grant is
included in the table.

NOTE 8 - SHARE PURCHASE RIGHTS PLAN

On March 14, 1989, the Board of Directors of the Company declared a
dividend of one share purchase right for each outstanding share of Common
Stock. The dividend was payable on March 24, 1989 to shareholders of record
on that date. Once exercisable, each right entitles its holder to purchase
one share of Common Stock for $70.00 per share (subject to adjustment). The
rights are not exercisable until 10 days after a tender offer or exchange
offer is announced which would cause the offer or to own 25% of the
outstanding Common Stock, whichever is earlier.

At any time prior to the tenth day following the share acquisition date
(unless extended), the Company's directors may redeem the rights at a cost of
$.01 per right. Unless so redeemed, the rights will expire March 15, 1999.
The Company's directors may amend the rights plan before rights are
exercisable, and thereafter in any manner which does not adversely affect the
interest of the rights holders.

NOTE 9 - EMPLOYEE BENEFIT PLANS

The Company has a profit sharing and 401(k) savings plan for all salaried
employees and certain groups of hourly employees. The Company matches 50% of
participant contributions to the savings plan, with Company contributions
limited to 3% of the participant's compensation. At the discretion of the
Board of Directors, the Company may make an additional contribution, which
has been targeted at 3% of each participant's compensation.

Profit sharing costs and the Company's matching contributions to the
employee savings plan charged to operations were $.4 million, $1.1 million,
and $.6 million for 1995, 1994, and 1993 respectively.

The Company has pension plans which cover some of its hourly employees.
These plans generally provide a stated benefit amount for each year of
service. In addition, Morgan's former Nicolai Company subsidiary had two
salaried pension plans which were curtailed during 1986 and one hourly
pension plan which was curtailed in 1988.

Net pension expense for 1995, 1994, and 1993 was $345,000, $119,000, and
$71,000 respectively. The projected benefit obligations as of December 31,
1995 and December 31, 1994 were $14.2 million and $12.0 million respectively.
The projected benefit obligations were determined using assumed discount
rates of 7.5% and 8.5% at December 31, 1995 and 1994 respectively. The
expected long-term rate of return on plan assets was 8.5% at both December
31, 1995 and 1994. Net assets available for plan benefits, at fair market
value, as of December 31, 1995 and December 31, 1994 were $13.6 million and
$12.1 million respectively. Prepaid pension expense at December 31, 1995 and
1994 was $1.8 million and $1.9 million respectively, and is included in other
assets in the accompanying balance sheet.

Plan assets consist of equity and fixed income securities and insurance
annuity contracts. It is the policy of the Company to fund at least the
minimum required amount in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.

For the hourly employees not covered by Company pension or profit sharing
plans, the Company makes contributions to multi-employer pension plans based
on compensable hours worked in accordance with union contracts. Under
certain conditions, principally withdrawal from such plans, the Company may
have further obligations for pensions with respect to such employees, but the
amount thereof, if any, cannot be determined at the present time.

NOTE 10 - INCOME TAXES

Effective January 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." FAS 109 is an asset and liability approach to accounting for
deferred income taxes that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company accounted for income taxes under the FAS 96 asset and
liability approach, which gave no recognition to future events other than the
recovery of assets and the settlement of liabilities at their carrying
amounts. The adoption of FAS 109 had no material effect on net income in any
period.

The components of the income tax provision consisted of the following (in
thousands of dollars):

Year Ended December 31,

1995 1994 1993

<S> <C> <C> <C>
Current:
Federal . . . . . . . . . $ (78) $ $
State . . . . . . . . . . 120 200 250

Total current . . . . . 42 200 250

Deferred:
Federal . . . . . . . . .
State . . . . . . . . . .

Total deferred . . . . - - -

Income tax
provisions . . . . . . . . $ 42 $ 200 $ 250
</TABLE>

The reconciliation between the U.S. Federal statutory tax rate expressed
as a percentage of pre-tax income (loss) and the effective tax rate was as
follows:

Year Ended December 31,

1995 1994 1993

<S> <C> <C> <C>
U.S. Federal income tax rate . . . . . . (34.0)% (34.0)% 34.0%
Non-utilization (utilization) of
operating loss carryforward . . . . . . 28.6 33.1 (33.4)
State income taxes, net of federal
benefit . . . . . . . . . . . . . . . . 2.1 1.2 5.9
Non-deductible items . . . . . . . . . . 3.5 1.5 2.5
Other . . . . . . . . . . . . . . . . . . 1.4 .4 11.8

Effective tax rate . . . . . . . . 1.6% 2.2% 20.8%
</TABLE>

Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities consisted of the following at (in thousands of
dollars):

December 31,

1995 1994

<S> <C> <C>
Gross deferred tax assets:
Operating loss carryforwards . . . . $ 5,345 $ 3,601
Accrued expenses and reserves . . . . 2,457 3,818
Post-retirement benefits . . . . . . . 140 174
Other . . . . . . . . . . . . . . . . 172 97

8,114 7,690

Valuation allowance . . . . . . . . . (6,779) (6,161)

1,335 1,529

Gross deferred tax liabilities:
Depreciation and amortization . . . . (776) (949)
Pensions . . . . . . . . . . . . . . . (559) (580)

(1,335) (1,529)

Net deferred tax asset . . . . . . . . . $ - $ -
</TABLE>

The valuation allowance primarily reflects operating loss carryforwards for
which utilization is uncertain.

As of December 31, 1995, the Company has unused operating loss
carryforwards for tax purposes of approximately $15.7 million, which expire
in years 2002 through 2010. No benefit for the remaining operating loss
carryforwards has been recognized in the consolidated financial statements.
Should an ownership change occur, as defined under Section 382 of the
Internal Revenue Code, the Company's ability to utilize the operating loss
carryforwards would be restricted.

NOTE 11 - RELATED PARTIES

As of December 31, 1995, Saugatuck Capital Company Limited Partnership
("Saugatuck") in the aggregate, beneficially owned approximately 24% of the
Company's Common Stock. During 1995, the Company paid Saugatuck $125,000 for
services rendered.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Andersen Corporation ("Andersen"), whose products accounted for 40% of 1995
net sales, distributes its products only through independent distributors
such as the Company. The Company and its predecessors have distributed
Andersen products for over 40 years; however, the Company's agreement with
Andersen provides that Andersen can terminate any of the Company's
distributorships at any time upon a 60-day notice. A termination or
significant modification of the distribution relationship with Andersen could
have a material adverse effect on revenues and earnings.

As of December 31, 1995, the Company had capital expenditure purchase
commitments outstanding of approximately $1.6 million.

NOTE 13 - INTERIM FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for 1995 and 1994 is presented below
(in thousands, except for per share data):

1st Quarter 2nd Quarter

1995 1994 1995 1994

<S> <C> <C> <C> <C>
Net sales . . . . . . . $ 80,664 $ 82,803 $ 84,262 $ 95,238
Gross profit . . . . . 11,968 12,844 11,553 13,603
Net income (loss) . . (510) (345) (729) (10,724)
Earnings (loss)
per share . . . . . $ (.06) $ (.04) $ (.08) $ (1.26)

3rd Quarter 4th Quarter

1995 1994 1995 1994

Net sales . . . . . . $ 90,723 $ 95,139 $ 82,377 $ 85,177
Gross profit . . . . . 12,445 14,030 11,497 11,921
Net income (loss) . . 111 1,448 (1,500) 220
Earnings (loss)
per share . . . . . . $ .01 $ .17 $ (.17) $ .03
</TABLE>

The building products industry is seasonal, causing the Company's lowest
sales to occur during the first and fourth quarters.

COMMON STOCK PRICE RANGE AND DIVIDEND POLICY

The Common Stock of the Company commenced trading on the New York Stock
Exchange on March 7, 1988 (NYSE symbol: MGN). As of March 14, 1996, there
were approximately 2,874 holders of record of such Common Stock. The Company
currently does not pay cash dividends on its Common Stock. Any payment of
future dividends, and the amounts thereof, will be dependent upon the
Company's earnings, financial requirements, cash flow and other factors
deemed relevant by the Board of Directors. The Company is restricted in its
ability to pay dividends through July 13, 1997 by its bank agreements. The
following table sets forth the high and low sale prices of the Company's
Common Stock reported in the New York Stock Exchange Consolidated Transaction
Reporting System.

High Low

<S> <C> <C>
1994:
First Quarter . . . . . . . $ 8 7/8 $ 5 7/8
Second Quarter . . . . . . . 6 3/4 4 3/4
Third Quarter . . . . . . . 5 7/8 4 1/2
Fourth Quarter . . . . . . . 6 1/4 5

1995:
First Quarter . . . . . . . $ 6 1/2 $5 3/4
Second Quarter . . . . . . 6 7/8 5 3/8
Third Quarter . . . . . . 7 3/4 5 5/8
Fourth Quarter . . . . . . 7 5 1/4
</TABLE>

On March 1, 1996, the closing price of the Common Stock was $5.38.

The management of Morgan Products Ltd. is responsible for the Consolidated
Financial Statements and other information included in this Annual Report and
for ascertaining that the data fairly reflects the Company's financial
condition and results of operations. The Company prepared the Consolidated
Financial Statements in accordance with generally accepted accounting
principles appropriate in the circumstances, and such statements necessarily
include amounts that are based on best estimates and judgments with
appropriate considerations given to materiality.

The Company's system of internal control is designed to provide reasonable
assurance that Company assets are safeguarded from loss or unauthorized use
or disposition and that transactions are executed in accordance with
management's authorization and are properly recorded to permit the
preparation of financial statements in accordance with generally accepted
accounting principles. The internal control system is augmented by careful
selection and training of qualified employees, proper division of
responsibilities and the development and dissemination of written policies
and procedures.

The Audit Committee of the Board of Directors is comprised of Directors who
are not employees of the Company. The Audit Committee is responsible for
reviewing and evaluating the Company's financial reporting and accounting
practices and related matters. The Audit Committee meets periodically with
management and the independent accountants to discuss any and all matters
within the Committee's responsibilities. The independent accountants have
free access to the Committee, without the presence of management.

The Company's Consolidated Financial Statements have been audited by Price
Waterhouse LLP, independent accountants, whose report also appears on this
page.

/s/ Larry R. Robinette
Larry R. Robinette
President and Chief Executive Officer

/s/ Douglas H. MacMillan
Douglas H. MacMillan
Vice President and Chief Financial Officer

Williamsburg, Virginia
January 25, 1996

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Morgan Products Ltd.

In our opinion, the statements appearing on pages 10 to 18 of this report
present fairly, in all material respects, the financial position of Morgan
Products Ltd. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
January 25, 1996