NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(In Millions, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
Organization
Huttig Building Products, Inc. and subsidiary (the Company or
Huttig) is a distributor of building materials used principally in new residential construction and in home improvement, remodeling and repair work. Huttigs products are distributed through 27 distribution centers serving 41 states
and are sold primarily to building materials dealers, national buying groups, home centers and industrial users including makers of manufactured homes.
Principles of Consolidation
The consolidated financial statements include the accounts of Huttig Building Products, Inc. and its wholly owned subsidiary. All significant inter-company
accounts and transactions have been eliminated.
Reclassifications
Certain prior year amounts have been
reclassified to conform to the current year presentation.
Revenue Recognition
Revenues are recorded when
title passes to the customer, which occurs upon delivery of product, less an allowance for returns, customer rebates and discounts for early payments. Returned products for which the Company assumes responsibility is estimated based on historical
returns and are accrued as a reduction of sales at the time of the original sale.
Use of Estimates
The
preparation of the Companys consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes estimates including but not limited to the
following financial statement items; allowance for doubtful accounts, slow-moving and obsolete inventory, lower of cost or market provisions for inventory, long-lived asset and goodwill impairments, contingencies including environmental liabilities,
accrued expenses and self-insurance accruals, and income tax expense and net deferred tax assets. Actual results may differ from these estimates.
Cash and Equivalents
The Company considers all highly liquid interest-earning investments with an original maturity of three months or less at the date of purchase to be cash
equivalents. The carrying value of cash and equivalents approximates their fair value.
Accounts
Receivable
Trade accounts receivable consist of amounts owed for orders shipped to customers and are stated net of an allowance for doubtful accounts. Huttigs corporate management establishes an overall credit policy for sales to
customers. The allowance for doubtful accounts is determined based on a number of factors including when customer accounts exceed 90 days past due and specific customer account reviews.
Inventory
Inventories are valued at the lower of cost or market. The Companys entire inventory is comprised of
finished goods. The Company reviews inventories on hand and records a provision for slow-moving and obsolete inventory. The provision for slow-moving and obsolete inventory is based on historical and expected sales. Approximately 86% of inventories
were determined by using the LIFO (last-in, first-out) method of inventory valuation as of December 31, 2013 and December 31, 2012. The balance of all other inventories is determined by the average cost method, which approximates costs on
a FIFO (first-in, first-out) method. The FIFO cost would be higher than the LIFO valuation by $11.7 million at December 31, 2013 and $10.5 million at December 31, 2012.
29
Supplier Rebates
The Company enters into agreements with certain vendors
providing for inventory purchase based rebates upon purchasing volumes. The Company accrues the receipt of rebates base on purchases and records vendor rebates as a reduction of the cost of inventory purchased.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets and is charged to operating expenses. Buildings and improvements lives range from 3 to 25 years. Machinery and equipment lives range from 3 to 10 years. The Company
recorded depreciation expense of $2.7 million, $2.6 million and $2.7 million in 2013, 2012 and 2011, respectively.
Goodwill
Goodwill for each reporting unit is reviewed for impairment annually or more frequently if certain indicators
arise. The Company also reassesses useful lives of previously recognized intangible assets. The Company first assesses the qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The
Company does not calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If the two-step quantitative test is deemed
necessary, the Company calculates the fair value using multiple assumptions of its future operations to determine future discounted cash flows including but not limited to such factors as sales levels, gross margin rates, capital requirements and
discount rates. The carrying value of goodwill is considered impaired when a reporting units fair value is less than its carrying value. In that event, goodwill impairment is recognized to the extent recorded goodwill exceeds the implied fair
value of that goodwill. As the Company continues to face a challenging housing environment and general uncertainty in the U.S. economy, its assumptions may change significantly in the future resulting in further goodwill impairments in future
periods. See Note 2, Goodwill and Other Intangible Assets for additional information.
Valuation of
Long-Lived Assets
The Company periodically evaluates the carrying value of its long-lived assets, including intangible and other tangible assets, when events and circumstances warrant such a review. The carrying value of long-lived
assets is considered impaired when the anticipated undiscounted cash flows from such assets are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
Shipping and Handling
Costs associated with shipping and handling products to the Companys customers are charged to operating expense. Shipping and handling costs were $28.4
million, $26.9 million and $27.2 million in 2013, 2012 and 2011, respectively.
Income Taxes
Deferred
income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized are for tax purposes using currently enacted tax rates. A valuation allowance would be
established to reduce deferred income tax assets if it is more likely than not that a deferred tax asset will not be realized. The Company includes interest and penalties related to uncertain tax positions in income tax expense. See Note 10,
Income Taxes for additional information.
Net Income (Loss) Per Share
Basic net income (loss)
per share is computed by dividing income available to common stockholders by weighted average shares outstanding. Diluted net income (loss) per share reflects the effect of all other potentially dilutive common shares using the treasury stock
method. See Note 11, Basic and Diluted Net Income (Loss) Per Share for additional information.
Accounting
For Stock-Based Compensation
The Company has stock-based compensation plans covering the majority of its employee groups and a plan covering the Companys Board of Directors. The Company accounts for share-based compensation
utilizing the fair value recognition provisions of ASC 718, Compensation-Stock Compensation. The Company recognizes compensation cost for equity awards on a straight-line basis over the requisite service period for the entire award. See
Note 9, Stock and Incentive Compensation Plans for additional information.
30
Concentration of Credit Risk
The Company is engaged in the distribution
of building materials throughout the United States. The Company grants credit to customers, substantially all of whom are dependent upon the construction sector. The Company periodically evaluates its customers financial condition but does not
generally require collateral. A significant portion of our sales are concentrated with a relatively small number of our customers. Our top ten customers represented 38% of our sales in 2013. In 2013, 2012, and 2011, the Company had a single customer
representing 12%, 12% and 11% of total sales, respectively. This customer is a buying group for multiple building material dealers.
Segments
ASC 280, Segment Reporting, defines operating segments as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. At December 31, 2013 and 2012, under the definition of a segment, each of our branches is considered an operating segment of our
business. Under ASC 280, operating segments may be aggregated if the operating segments have similar economic characteristics and if the nature of the products, distribution methods, customers and regulatory environments are similar. The Company has
aggregated its branches into one reporting segment, consistent with ASC 280.
2. GOODWILL AND OTHER INTANGIBLE ASSETS
Under ASC 350, Intangibles-Goodwill and Other, goodwill is reviewed for impairment annually or more
frequently if certain indicators arise. In addition, the statement requires reassessment of the useful lives of previously recognized intangible assets.
The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill test. The Company does not calculate the fair value of a reporting unit
unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.
ASC 350 prescribes a two-step process for impairment testing of goodwill. During the fourth quarter of 2013 and 2012, the Company performed the annual test for impairment of its reporting units. In 2012,
the Company experienced lower than anticipated sales trends and operating income at one reporting unit. After performing the first step of the impairment test, we determined the carrying amounts of goodwill in our one reporting unit exceeded fair
value. As a result, we performed the second step and determined that the goodwill was impaired by approximately $1.9 million. In 2011, the Company recorded goodwill impairment of $0.4 million related to the reduction in fair value of two reporting
units. The following table summarizes goodwill activity for the three years ended December 31, 2012 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Accumulated
Impairments
|
|
|
Goodwill, Net
|
|
Balance at January 1, 2011
|
|
$
|
18.1
|
|
|
$
|
(9.5
|
)
|
|
$
|
8.6
|
|
Impairments in 2012
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
18.1
|
|
|
|
(9.9
|
)
|
|
|
8.2
|
|
Impairments in 2012
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
18.1
|
|
|
|
(11.8
|
)
|
|
|
6.3
|
|
No activity in 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
18.1
|
|
|
$
|
(11.8
|
)
|
|
$
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Amortizable intangible assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amortizable intangible assets are included in Other Assets.
|
31
The Company recorded amortization expense of $0.1 million for the years ended
December 31, 2013, 2012 and 2011. The Company expects to record amortization expense for its existing intangible assets of approximately $0.1 million in each year 2014 through 2018, and in total, approximately $0.2 million thereafter.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of year
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
Provision charged to expense
|
|
|
|
|
|
|
0.6
|
|
|
|
0.7
|
|
Write-offs, less recoveries
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded bad debt expense of 0.0%, 0.1%, and 0.1% of net sales in 2013, 2012, 2011,
respectively.
4. LONG-TERM DEBT
Debt consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Revolving credit facility
|
|
$
|
59.8
|
|
|
$
|
59.1
|
|
Other obligations
|
|
|
2.2
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
62.0
|
|
|
|
59.8
|
|
Less current portion
|
|
|
1.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
60.8
|
|
|
$
|
59.2
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
The Company has a $120.0 million asset based senior secured revolving
credit facility (credit facility). Borrowing availability under the credit facility is based on eligible accounts receivable, inventory and real estate. The real estate component of the borrowing base amortizes monthly over 12.5 years on
a straight-line basis. Borrowings under the credit facility are collateralized by substantially all of the Companys assets and are subject to certain operating limitations applicable to a loan of this type, which, among other things, place
limitations on indebtedness, liens, investments, mergers and acquisitions, dispositions of assets, cash dividends and transactions with affiliates. The entire unpaid balance under the credit facility is due and payable on December 21, 2017, the
maturity date of the credit agreement.
At December 31, 2013, under the credit facility, the Company had revolving credit
borrowings of $59.8 million outstanding at a weighted average interest rate of 2.85%, letters of credit outstanding totaling $3.6 million, primarily for health and workers compensation insurance, and $41.2 million of additional
committed borrowing capacity. The Company pays an unused commitment fee in the range of 0.30% to 0.375% per annum. In addition, the Company had $2.2 million of capital lease and other obligations outstanding at December 31, 2013.
The sole financial covenant in the credit facility is the fixed charge coverage ratio (FCCR) which must be tested
by us if the excess borrowing availability falls below an amount in the range of $10.0 million to $15.0 million, depending on our borrowing base, and must also be tested on a pro forma basis prior to consummation of certain significant business
transactions outside our ordinary course of business, as defined in the agreement. At December 31, 2013, the Companys FCCR was in excess of the 1.25:1.00 covenant requirement. The Company had $41.2 million of excess borrowing availability
at December 31, 2013.
32
Huttig believes that cash generated from our operations and funds available under the credit
facility will provide sufficient funds to meet the operating needs of the business for at least the next twelve months. However, if Huttigs availability falls below the required threshold and the Company does not meet the minimum FCCR, our
lenders would have the right, but not the obligation, to terminate the loan commitments and accelerate the repayment of the entire amount outstanding under the credit facility. The lenders could also foreclose on Huttigs assets that secure the
credit facility. In that event, Huttig would be forced to seek alternative sources of financing, which may not be available on terms acceptable to the Company, or at all.
Maturities
At December 31, 2013, the aggregate scheduled maturities of debt are as follows (in millions):
|
|
|
|
|
2014
|
|
$
|
1.2
|
|
2015
|
|
|
0.4
|
|
2016
|
|
|
0.3
|
|
2017
|
|
|
60.0
|
|
2018
|
|
|
0.1
|
|
|
|
|
|
|
Total
|
|
$
|
62.0
|
|
|
|
|
|
|
The fair value of long-term debt, as calculated using the aggregate cash flows from principal and
interest payments over the life of the debt, was approximately $59.8 million and $59.1 million at December 31, 2013 and 2012, respectively, based upon a discounted cash flow analysis using current market interest rates. The fair value
measurement inputs for long-term debt are classified as Level 3 (unobservable inputs) in the valuation hierarchy as defined by ASC 820, Fair Value Measurements and Disclosures.
5. PREFERRED SHARE PURCHASE RIGHTS
The Company has authorized 5.0 million shares of $0.01 par value preferred stock, of which 250,000 shares have
been designated as Series A Junior Participating Preferred Stock.
6. OTHER ACCRUED LIABILITIES
The Company has other accrued liabilities at December 31, 2013 and December 31, 2012 of $13.1 million and
$14.3 million, respectively. Liabilities for self-insurance accruals were $3.5 million and $4.5 million, amounts due for sales incentive programs were $3.6 million and $3.1 million and deferred rent was $1.3 million and $1.5 million at
December 31, 2013 and 2012, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its vehicles, equipment and distribution facilities from various third parties with
non-cancelable operating leases with various terms. Certain leases contain renewal or purchase options. Future minimum payments, by year, and in the aggregate, under these leases with initial terms of one year or more consisted of the following at
December 31, 2013 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
cancelable
Operating
Leases
|
|
|
Minimum
Sublease
Income
|
|
|
Net
|
|
2014
|
|
$
|
10.3
|
|
|
$
|
(1.5
|
)
|
|
$
|
8.8
|
|
2015
|
|
|
10.0
|
|
|
|
(1.4
|
)
|
|
|
8.6
|
|
2016
|
|
|
7.6
|
|
|
|
(0.3
|
)
|
|
|
7.3
|
|
2017
|
|
|
5.2
|
|
|
|
|
|
|
|
5.2
|
|
2018
|
|
|
3.8
|
|
|
|
|
|
|
|
3.8
|
|
Thereafter
|
|
|
2.9
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
39.8
|
|
|
$
|
(3.2
|
)
|
|
$
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Operating lease obligations expire in varying amounts through 2020. Rental expense for all
operating leases was $12.9 million, $13.6 million and $14.8 million in 2013, 2012 and 2011, respectively. Sublease income was $0.7 million, $0.6 million and $0.9 million in 2013, 2012 and 2011, respectively. Operating lease expense in 2011 is net of
a one-time $0.9 million payment to the Company to relinquish lease rights to a long term operating lease.
The Company carries
insurance policies on insurable risks with coverage and other terms that it believes to be appropriate. The Company generally has self-insured retention limits and has obtained fully insured layers of coverage above such self-insured retention
limits. Accruals for self-insurance losses are made based on claims experience. Liabilities for existing and unreported claims are accrued for when it is probable that future costs will be incurred and can be reasonably estimated.
In 1995, Huttig was identified as a potentially responsible party in connection with the cleanup of contamination at a formerly owned
property in Montana that was used for the manufacture of wood windows. Huttig is voluntarily remediating this property under the oversight of and in cooperation with the Montana Department of Environmental Quality (Montana DEQ) and are complying
with a 1995 unilateral administrative order of the Montana DEQ to complete a remedial investigation and feasibility study. The remedial investigation was completed by Huttig and approved in 1998 by the Montana DEQ, which has also issued its final
risk assessment of this property. Since 1998 Huttig has remained in active discussions with the Montana DEQ, expanded the remedial investigation where warranted, implemented voluntary interim cleanup actions, conducted pilot tests, and tested
remedial technologies in the field. Huttig is currently working with the Montana DEQ to develop a final feasibility study which will present and evaluate several potential remedies. The Montana DEQ is ultimately expected to publicize a final remedy
for public comment. After consideration of public comments, the Montana DEQ will then publish a record of decision and negotiate with Huttig for an administrative order of consent on the implementation of the final remedy. Huttig spent less than
$0.5 million on costs related to this site in each of the years ended December 31, 2013, 2012 and 2011. The annual level of future remediation expenditures is difficult to estimate because of the uncertainty relating to the final remedy to
be selected by the Montana DEQ. As of December 31, 2013, the Company has accrued $0.6 million for future costs of remediating this site, which management believes represents a reasonable estimate based on current facts and circumstances
and the currently expected costs of remediation. Until the Montana DEQ selects a final remedy, however, management cannot estimate the top of the range of loss or cost to Huttig of the final remediation order. As a result, the Company may incur
material adverse effect on the consolidated financial statements in the future with respect to this property.
In addition,
some of the Companys current and former distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which it, among others, could be held responsible. The
Company currently believes that there are no material environmental liabilities at any of our distribution center locations.
The Company accrues expenses for contingencies when it is probable that an asset has been impaired or a liability has been incurred and
management can reasonably estimate the expense. Contingencies for which the Company has made accruals include environmental, product liability and other legal matters. It is possible, however, that future results of operations for any particular
quarter or annual period and our financial condition could be materially affected by changes in assumptions or other circumstances related to these matters.
8. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsored a qualified defined contribution plan covering
substantially all its employees. The Company suspended the matching contributions effective January 2009.
Defined
Benefit Plans
The Company participates in several multi-employer pension plans that provide benefits to certain employees under collective bargaining agreements. The risks of participating in these
multi-
34
employer plans are different from single-employer plans in the following aspects: 1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of
other participating employers 2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and 3) if the Company chooses to stop participating in some of
its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Total contributions to these plans were $0.6 million in the year ended 2013 and
$0.5 million in each of the years ended 2012 and 2011. A majority of the contributions are to the Western Conference of Teamsters Pension Plan. The Company does not contribute more than 5 percent of total contributions for any of these
multi-employer pension plans. The Companys participation in the multi-employer pension plans for the year ended December 31, 2013 is outlined in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Name of Plan
|
|
EINPlan Number
|
|
Pension
Protection Act
Zone Status
|
|
Financial
Improvement
Plan
|
|
Surcharge
Imposed
|
|
Expiration Date
of Collective-
Bargaining
Agreement
|
|
12/31/2013
Company
Participants
|
Western Conference of
Teamsters Pension Plan
|
|
91-6145047 - 001
|
|
Funded > 80%
|
|
No
|
|
No
|
|
6/30/2014 to
|
|
85
|
|
|
|
|
|
|
|
|
|
|
4/30/2015
|
|
|
Southern California Lumber Industry Retirement Fund
|
|
95-6035266 - 001
|
|
Funded > 80%
|
|
No
|
|
No
|
|
6/30/2014
|
|
12
|
Central States, Southeast and Southwest Areas Pension Plan
|
|
36-6044243 - 001
|
|
Funded < 65%
|
|
Implemented
|
|
Yes
|
|
3/31/2016
|
|
4
|
9. STOCK AND INCENTIVE COMPENSATION PLANS
EVA Incentive Compensation Plan
The Companys EVA Incentive Compensation Plan is intended to maximize shareholder value by aligning managements interests with those of shareholders by rewarding management for sustainable and
continuous improvement in operating results. The Company recorded $0.8 million, $1.3 million and $0.4 million in expense related to this plan in the years ended December 31, 2013, 2012 and 2011, respectively.
2005 Executive Incentive Compensation Plan
Under the Companys 2005 Executive Incentive Compensation Plan, which was adopted in 2005 and subsequently amended in 2007, 2009, and 2012 (2005 Plan), incentive awards of up to 6,125,000
shares of common stock may be granted. In addition, upon adoption of this plan, no further awards may be issued under either the 1999 Stock Incentive Plan or the 2001 Stock Incentive Plan; however, shares forfeited under those plans are available
for subsequent issuance under this 2005 Plan. The 2005 Plan allows the Company to grant awards to key employees, including restricted stock awards and stock options, subject primarily to the requirement of continued employment. The awards for the
2005 Plan are available for grant over a ten-year period unless terminated earlier by the Board of Directors. No options were issued in 2013, 2012 or 2011. The Company granted 570,680, 970,250, and 1,149,750 shares of restricted stock in 2013, 2012,
and 2011, respectively. No monetary consideration is paid to the company by employees who receive restricted stock. The restricted shares vest ratably over three years. Restricted stock can be granted with or without performance restrictions.
2005 Non-Employee Directors Restricted Stock Plan
Under the Companys 2005 Non-Employee Directors Restricted Stock Plan, which was adopted in 2005 and subsequently amended in
2007, 2009, and 2012, incentive awards of up to 575,000 shares of common stock may be granted. The awards for this plan are available for grant over a ten-year period unless terminated earlier
35
by the Board of Directors. The Company granted 34,818, 78,064, and 52,500 restricted stock units in 2013, 2012, and 2011, respectively. These grants vest approximately one year later on the date
of the following annual shareholders meeting.
Accounting For Stock-Based Compensation
The Company recognized approximately $1.0 million, $0.8 million, and $0.5 million in non-cash stock compensation expense for restricted
stock awards in 2013, 2012 and 2011, respectively.
At December 31, 2013, the Company had 2,062,273 shares available
under all of the stock compensation plans. On January 28, 2014, the Company issued 456,253 restricted shares.
Stock Options
The fair value of each option award is estimated as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options in 2013, 2012 or 2011.
The following table summarizes the stock option transactions pursuant to the Companys stock incentive plans for the three years
ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(000s)
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(000s)
|
|
|
Average
Remaining
Vesting
Period
(months)
|
|
|
Unrecognized
Compensation
Expense
(000s)
|
|
Options Outstanding at January 1, 2011
|
|
|
251
|
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(40
|
)
|
|
|
4.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at December 31, 2011
|
|
|
211
|
|
|
|
8.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6
|
)
|
|
|
9.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at December 31, 2012
|
|
|
205
|
|
|
|
8.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(18
|
)
|
|
|
9.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at December 31, 2013
|
|
|
187
|
|
|
$
|
8.40
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013
|
|
|
187
|
|
|
$
|
8.40
|
|
|
|
1.2
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS OUTSTANDING
|
|
|
OPTIONS EXERCISABLE
|
|
Range of
Exercise Price
|
|
Number
Outstanding
(000s)
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
Exercisable
(000s)
|
|
|
Weighted Average
Exercise Price
|
|
$7.23
|
|
|
76
|
|
|
|
0.3
|
|
|
$
|
7.23
|
|
|
|
76
|
|
|
$
|
7.23
|
|
$8.78
|
|
|
71
|
|
|
|
2.1
|
|
|
|
8.78
|
|
|
|
71
|
|
|
|
8.78
|
|
$9.12
|
|
|
5
|
|
|
|
1.6
|
|
|
|
9.12
|
|
|
|
5
|
|
|
|
9.12
|
|
$10.09
|
|
|
35
|
|
|
|
1.3
|
|
|
|
10.09
|
|
|
|
35
|
|
|
|
10.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
187
|
|
|
|
1.2
|
|
|
$
|
8.40
|
|
|
|
187
|
|
|
$
|
8.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Restricted Stock and Restricted Stock Units
Restricted stock grants are recorded as unearned compensation on the date of grant in additional paid in capital at fair market value. The unearned
compensation is being amortized to expense over the respective vesting periods.
The following summary presents the information regarding the
restricted stock and restricted stock units for the three years ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(000s)
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(000s)
|
|
|
Average
Remaining
Vesting
Period
(months)
|
|
|
Unrecognized
Compensation
Expense
(000s)
|
|
Outstanding at January 1, 2011
|
|
|
1,420
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,202
|
|
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(568
|
)
|
|
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(17
|
)
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
2,037
|
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,048
|
|
|
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(854
|
)
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(65
|
)
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
2,166
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
605
|
|
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(947
|
)
|
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(16
|
)
|
|
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
1,808
|
|
|
$
|
1.48
|
|
|
|
8.1
|
|
|
$
|
6,946
|
|
|
|
7.6
|
|
|
$
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units vested at December 31, 2013
|
|
|
208
|
|
|
$
|
2.28
|
|
|
|
6.4
|
|
|
$
|
803
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. INCOME TAXES
The provision for income taxes, relating to continuing operations, is composed of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal benefit
|
|
$
|
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
State and local tax (benefit)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal tax (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income benefit
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
A reconciliation of income taxes based on the application of the statutory federal income tax rate to income
taxes as set forth in the consolidated statements of operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Contingency accrual adjustment
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
2.6
|
|
Change in valuation allowance
|
|
|
(42.8
|
)
|
|
|
96.6
|
|
|
|
(35.5
|
)
|
Nondeductible items
|
|
|
5.9
|
|
|
|
(121.2
|
)
|
|
|
(1.5
|
)
|
Other, net
|
|
|
3.8
|
|
|
|
(12.4
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
2.7
|
%
|
|
|
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2013, the Company recorded income from continuing operations before income taxes of $3.7 million. In
2012 and 2011, the Company recorded a loss from continuing operations before income taxes of $0.1 million and $13.0 million, respectively. The Company has recorded a decrease in the valuation allowance of $1.5 million for the year ended
December 31, 2013 and an decrease of $0.1 million for the year ended December 31, 2012.
Deferred income taxes at
December 31, 2013 and 2012 are comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Property, plant and equipment
|
|
$
|
1.3
|
|
|
$
|
|
|
|
$
|
1.0
|
|
|
$
|
|
|
Goodwill
|
|
|
1.0
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
Employee benefits related
|
|
|
2.0
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
Inventories
|
|
|
0.6
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
LIFO
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
7.4
|
|
Insurance related
|
|
|
1.0
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
Other accrued liabilities
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Accounts receivables
|
|
|
0.2
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
Income tax loss carryforwards
|
|
|
31.1
|
|
|
|
|
|
|
|
31.3
|
|
|
|
|
|
Other
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets and liabilities
|
|
|
38.9
|
|
|
|
8.8
|
|
|
|
39.6
|
|
|
|
8.0
|
|
Valuation allowance
|
|
|
(30.1
|
)
|
|
|
|
|
|
|
(31.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.8
|
|
|
$
|
8.8
|
|
|
$
|
8.0
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huttig has gross deferred tax assets of $38.9 million and a valuation allowance of $30.1 million netting
to deferred tax assets of $8.8 million at December 31, 2013. After classifying $0.9 of short-term deferred tax assets with short-term deferred tax liabilities, the Company has current deferred tax liabilities of $7.9 million at
December 31, 2013. The Company expects its deferred tax liabilities to be settled with utilization of its deferred tax assets. The deferred tax liabilities enable the Company to partially utilize the deferred tax assets at December 31,
2013 and the balance of the deferred tax assets are covered by the Companys valuation allowance. The Company is not relying on future pre-tax income at December 31, 2013 to support the utilization of the deferred tax assets.
The Company has both federal and state tax loss carryforwards reflected above. The Companys federal tax loss carryforwards of
approximately $69 million will begin to expire in 2028. The state tax loss carryforwards have expiration dates from 2014 to 2033. The total deferred income tax assets (liabilities) as presented in the accompanying consolidated balance sheets are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Net current deferred taxes
|
|
$
|
(7.9
|
)
|
|
$
|
(7.1
|
)
|
Net long-term deferred taxes
|
|
|
7.9
|
|
|
|
7.1
|
|
38
Huttig is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The
Company has substantially concluded all U.S. federal income tax matters for years through 2008. Open tax years related to state jurisdictions remain subject to examination but are not considered material. The Company has no material uncertain
tax positions at December 31, 2013.
11. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The Company calculates its basic income per share by dividing net income allocated to common shares outstanding by the
weighted average number of common shares outstanding. Unvested shares of restricted stock participate in dividends on the same basis as common shares. As a result, these share-based awards meet the definition of participating securities and the
Company applies the two-class method to compute earnings per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common
stockholders. In periods in which the Company has net losses, the losses are not allocated to participating securities because the participating security holders are not obligated to share in such losses. The following table presents the number of
participating securities and earnings allocated to those securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Earnings allocated to participating shareholders
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
|
|
Number of participating securities
|
|
|
1.7
|
|
|
|
2.0
|
|
|
|
2.3
|
|
The diluted earnings per share calculations include the effect of the assumed exercise using the treasury
stock method for both stock options and unvested restricted stock units, except when the effect would be anti-dilutive. The following table presents the number of common shares used in the calculation of net income per share from continuing
operations for the periods ended December 31, 2013 and December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted-average number of common shares-basic
|
|
|
22.8
|
|
|
|
22.9
|
|
|
|
22.1
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares-dilutive
|
|
|
22.8
|
|
|
|
22.9
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of diluted earnings per common share for both the years ended December 31, 2013 and
December 31, 2012 excludes the impact of antidilutive stock options and restricted stock units. The Company had 0.2 million stock options outstanding at December 31, 2013 which were all antidilutive.
39
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table provides selected consolidated financial information from continuing operations on a quarterly basis for each
quarter of 2013 and 2012. The Companys business is seasonal and particularly sensitive to weather conditions. Interim amounts are therefore subject to significant fluctuations (in millions, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Full
Year
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
124.5
|
|
|
$
|
148.9
|
|
|
$
|
153.3
|
|
|
$
|
134.8
|
|
|
$
|
561.5
|
|
Gross margin
|
|
|
23.1
|
|
|
|
29.8
|
|
|
|
30.8
|
|
|
|
27.4
|
|
|
|
111.1
|
|
Operating expenses
|
|
|
24.5
|
|
|
|
26.2
|
|
|
|
27.0
|
|
|
|
27.1
|
|
|
|
104.8
|
|
Operating income (loss )
|
|
|
(1.4
|
)
|
|
|
3.6
|
|
|
|
3.8
|
|
|
|
0.3
|
|
|
|
6.3
|
|
Net income (loss) from continuing operations
|
|
|
(2.0
|
)
|
|
|
2.8
|
|
|
|
3.2
|
|
|
|
(0.4
|
)
|
|
|
3.6
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
Net income (loss) per shareDiluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.09
|
)
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.15
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.09
|
)
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
116.6
|
|
|
$
|
137.8
|
|
|
$
|
141.1
|
|
|
$
|
125.6
|
|
|
$
|
521.1
|
|
Gross margin
|
|
|
21.4
|
|
|
|
27.3
|
|
|
|
27.6
|
|
|
|
24.4
|
|
|
|
100.7
|
|
Operating expenses
|
|
|
23.5
|
|
|
|
24.8
|
|
|
|
25.6
|
|
|
|
24.5
|
|
|
|
98.4
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
1.9
|
|
Gain on disposal of capital assets
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
(2.4
|
)
|
Operating income (loss )
|
|
|
(2.1
|
)
|
|
|
2.5
|
|
|
|
4.4
|
|
|
|
(2.0
|
)
|
|
|
2.8
|
|
Net income (loss) from continuing operations
|
|
|
(2.8
|
)
|
|
|
1.7
|
|
|
|
3.7
|
|
|
|
(2.7
|
)
|
|
|
(0.1
|
)
|
Net loss from discontinued operations
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
Net income (loss) per shareDiluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.15
|
|
|
$
|
(0.12
|
)
|
|
$
|
|
|
Net loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.13
|
)
|
|
$
|
0.07
|
|
|
$
|
0.14
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. DISCONTINUED OPERATIONS
The discontinued operations of the Company had no sales in 2013, 2012 or 2011. In 2013 and 2012, loss from discontinued
operation of $0.4 million was recorded in each year. In 2011, loss from discontinued operations of $0.5 million was recorded. The loss in the three years is related to environmental and legal expenses related to the formerly owned property in
Montana.
40