NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
(In Millions, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization—Huttig Building Products, Inc. and its wholly owned 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. Huttig’s products are sold 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 Company’s consolidated financial statements include the accounts of Huttig Building Products, Inc. and its wholly owned subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
Revenue Recognition—The Company recognizes revenue when customer performance obligations are satisfied. A performance obligation, the unit of account for revenue recognition, is a promise to transfer a distinct good to the customer. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of the Company’s contracts have a single performance obligation as the promise to transfer the individual good is not separately identifiable from other promises and is, therefore, not distinct. The Company’s performance obligations are satisfied at a point in time, and revenue is recognized when the customer accepts product delivery, taking possession of the product with rights and rewards of ownership.
Use of Estimates—The preparation of the Company’s 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, the discount rate for lease valuation, income tax expense and deferred taxes. 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. Huttig’s 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 Company’s 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 88% of inventories were determined by using the last-in, first-out (“LIFO”) method of inventory valuation as of both December 31, 2019 and 2018. The balance of all other inventories is determined by the average cost method. The first-in, first-out cost would be higher than the LIFO valuation by $19.2 million at December 31, 2019 and $18.4 million at December 31, 2018.
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Vendor Rebates—The Company enters into agreements with certain vendors which provide volume-driven purchase rebates. The Company accrues a receivable based on purchase quantities and reduces the cost of inventory by the same amount.
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. Building 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 $4.8 million, $4.2 million and $3.7 million in 2019, 2018 and 2017, respectively.
Goodwill—Goodwill for each reporting unit is reviewed for impairment annually, or more frequently if certain indicators arise. The Company assesses qualitative factors to determine whether a quantitative goodwill impairment test is required. 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 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, sales levels, gross margin rates, capital requirements and discount rates. The carrying value of goodwill is considered impaired when a reporting unit’s fair value is less than its carrying value. In that event, goodwill impairment is recognized to the extent the reporting unit’s carrying value exceeds its fair value. Changes in management assumptions or forecasts in the future may result in goodwill impairments in future periods. See Note 5, “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 Company also reassesses useful lives of previously recognized intangible assets. 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 Company’s customers are charged to operating expense. Shipping and handling costs were $39.5 million, $38.4 million and $34.0 million in each of 2019, 2018 and 2017, respectively.
Stock-Based Compensation—The Company has stock-based compensation plans covering the majority of its employee groups and a plan covering the Company’s Board of Directors. The Company accounts for share-based compensation utilizing the fair value recognition provisions. The Company recognizes compensation cost for equity awards on a straight-line basis over the requisite service period for the entire award. See Note 12, “Stock Based Compensation” for additional information.
Income Taxes—Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and when such amounts are recognized 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. See Note 13, “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 the weighted average shares outstanding. Diluted net income per share reflects the effect of all other potentially dilutive common shares using the treasury stock method. See Note 14, “Basic and Diluted Net Income (Loss) Per Share” for additional information.
Concentration of Credit Risk—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. Customers with high credit risk may be required to pay up front. A significant portion of our sales are concentrated with a relatively small number of our customers. Our top ten customers
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represented 44% of our sales in 2019. The Company had a single customer representing approximately 15% of total sales in 2019, and 14% in each 2018 and 2017. This customer is a buying group for multiple building material dealers.
Collective Bargaining Agreements—As of December 31, 2019, approximately 13% of our employees were represented by one of eight collective bargaining agreements.
Segments—Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. At December 31, 2019 and 2018, under the definition of a segment, each of our distribution centers is considered an operating segment of our business. 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 distribution centers into one reporting segment.
2. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and all related amendments. The Company adopted the standard using the full retrospective method, which did not require a cumulative effect adjustment to retained earnings. As a result of this adoption, there was no material impact on revenue recognition practices, income from continuing operations after taxes, net income or earnings per share. See Note 3 - “Revenue” for further discussion, including additional required qualitative and quantitative disclosures of revenue recognition policies.
On October 1, 2018, the Company adopted ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will now consist of a comparison of the fair value of a reporting unit with its carrying amount. Any impairment will now be determined by using the difference between the carrying amount and the fair value of the reporting unit, not to exceed the total goodwill allocated to that unit.
On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and a lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the standard on its effective date using the modified retrospective approach and a package of practical expedients permitted by the transition guidance of the new standard. The practical expedients included an accounting policy election to forgo recognition of ROU asset and liability on leases with an initial term of 12 months or less, and to forgo separate recognition of lease and non-lease components for all leases.
On January 1, 2019, the Company adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 more closely aligns the accounting for employee and nonemployee share-based payments. There was no material impact to stock compensation, income from continuing operations after taxes, net income or earnings per share as a result of adoption.
The Company adopted the amendments to certain disclosure requirements in Securities Act of 1933, as amended, Release No. 33-10532, “Disclosure Update and Simplification” on November 5, 2018, the effective date of the release. Among the amendments is a requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. See the Consolidated Statement of Shareholders’ Equity.
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Accounting Standards Issued But Not Yet Adopted
On January 1, 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be assessed for impairment under the current expected credit loss model rather than an incurred loss model. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The primary financial asset of the Company in scope of ASU 2016-13 is trade receivables. The adoption of ASU 2016-13 is not expected to have a material impact to the Company's consolidated financial statements.
Recent accounting pronouncements pending adoption and not discussed above are either not applicable or will not have, or are not expected to have, a material impact on our consolidated financial condition, results of operations, or cash flows.
3. REVENUE
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The Company reports sales revenue, including direct sales, on a net basis, which includes gross revenue adjustments for estimated returns, cash payment discounts based on the satisfaction of outstanding receivables, and volume purchase rebates. The Company’s customer payment terms are typical for our industry; these terms vary by customer and location, as well as by the products purchased.
Regarding direct sales, the Company is the principal in the arrangement and is responsible for fulfilling the promise to provide specific goods to its customers, including product specifications, pricing and modifications prior to delivery. Direct sales as a percentage of net sales were 18%, 19%, and 17% in each of the years ended December 31, 2019, 2018 and 2017, respectively.
The following table disaggregates revenue by product classification (in millions):
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Millwork
|
|
$
|
384.6
|
|
|
$
|
400.6
|
|
|
$
|
381.4
|
|
|
Building Products
|
|
|
366.6
|
|
|
|
365.4
|
|
|
|
299.0
|
|
|
Wood Products
|
|
|
60.8
|
|
|
|
73.6
|
|
|
|
72.8
|
|
|
Net Sales
|
|
$
|
812.0
|
|
|
$
|
839.6
|
|
|
$
|
753.2
|
|
4. LEASES
The Company has operating and financing leases for corporate offices, distribution centers, vehicles, and certain equipment. These leases have remaining lease terms of less than 1 year to 12 years and many of the leases have renewal options. Because the Company is not reasonably certain to exercise the renewal options, generally the options are not considered in determining the lease term, and associated potential option payments are excluded from lease payments and right-of-use calculations. Leases with an initial term of 12 months or less are excluded from right-of-use calculations, and we do not separately recognize the lease and non-lease components of lease agreements.
In addition to fixed payments, many of the Company’s lease contracts contain variable payments. Vehicle lease variable payments typically include mileage, and real estate leases include variable charges for taxes and common area maintenance. Variable lease payments and payments for leases with an initial term of 12 months or less are recognized in the period incurred.
The following lease costs are included on the consolidated statements of operations (in millions):
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|
|
2019
|
|
|
Operating Lease Cost
|
$
|
12.4
|
|
|
|
|
|
|
|
Finance Lease Cost:
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
1.8
|
|
|
Interest on lease liabilities
|
|
0.2
|
|
|
Total finance lease cost
|
$
|
2.0
|
|
At January 1, 2019, the Company’s right-of-use assets were $37.6 million and lease liabilities were $38.0 million. The following lease assets and liabilities are included on the condensed consolidated balance sheet (in millions):
|
|
2019
|
|
|
Operating Leases:
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
40.9
|
|
|
|
|
|
|
|
Current maturities of operating lease right-of-use assets
|
|
9.7
|
|
|
Operating lease right-of-use liabilities, less current maturities
|
|
31.6
|
|
|
Total operating lease liabilities
|
$
|
41.3
|
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
Gross property, plant and equipment
|
$
|
10.6
|
|
|
Accumulated depreciation
|
|
(5.2
|
)
|
|
Property, plant and equipment, net
|
$
|
5.4
|
|
|
|
|
|
|
|
Current maturities of long-term lease liabilities
|
$
|
1.4
|
|
|
Long-term lease liabilities, less current maturities
|
|
2.8
|
|
|
Total finance lease liabilities
|
$
|
4.2
|
|
As of December 31, 2019, the weighted average remaining lease term for the Company’s operating leases was 5.3 years and for its financing leases was 3.4 years. These leases have weighted average discount rates of 5.9% and 5.2% for operating leases and financing leases, respectively. The rate implicit in the lease is used to discount leases when known. While the implicit rate is often known for finance leases, the Company is generally unable to calculate the implicit rate in operating leases because it does not have access to the lessor’s residual value estimates nor the amount of the lessor’s deferred initial direct costs. When the implicit rate is not known, the Company uses the incremental borrowing rate for secured loans of similar term. The Company uses available data for unsecured loans to borrowers of similar credit to the Company and adjusts the rate to reflect the effect of providing collateral equivalent to the outstanding obligation balance.
The following cash flow items are included on the condensed consolidated statement of cash flows (in millions):
|
|
2019
|
|
|
Operating cash used for operating leases
|
$
|
12.4
|
|
|
Operating cash used for finance leases
|
$
|
0.2
|
|
|
Financing cash used for finance leases
|
$
|
1.7
|
|
Maturities of lease liabilities are as follows (in millions):
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|
|
Finance
leases
|
|
|
Operating
leases
|
|
|
2020
|
$
|
1.7
|
|
|
$
|
10.1
|
|
|
2021
|
|
1.4
|
|
|
|
8.9
|
|
|
2022
|
|
1.0
|
|
|
|
7.0
|
|
|
2023
|
|
0.6
|
|
|
|
6.1
|
|
|
2024
|
|
0.1
|
|
|
|
3.8
|
|
|
Thereafter
|
|
-
|
|
|
|
8.8
|
|
|
Total lease payments
|
$
|
4.8
|
|
|
$
|
44.7
|
|
|
Less: imputed interest
|
|
(0.6
|
)
|
|
|
(3.4
|
)
|
|
Total future lease obligation
|
$
|
4.2
|
|
|
$
|
41.3
|
|
Disclosures Related to Periods Prior to Adoption of ASU 2016-02
Operating lease rent expense was $16.6 million and $14.8 million, and sublease income $0.5 million and $0.5 million, for the years ended December 31, 2018 and 2017, respectively. Future minimum lease payments under non-cancelable rental and lease agreements with initial or remaining terms in excess of one year were as follows at December 31, 2018 (in millions):
|
|
Operating
|
|
|
|
Leases
|
|
|
2019
|
$
|
11.5
|
|
|
2020
|
|
8.8
|
|
|
2021
|
|
7.0
|
|
|
2022
|
|
4.8
|
|
|
2023
|
|
3.9
|
|
|
Thereafter
|
|
8.0
|
|
|
Total minimum lease payments
|
$
|
44.0
|
|
Certain leases also include options to purchase the leased property. Assets recorded under capital leases as of December 31, 2018 and December 31, 2017 were $8.5 million and $6.6 million, respectively. These assets are recorded net of accumulated amortization of $2.9 million and $2.3 million as of December 31, 2018 and December 31, 2017, respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are reviewed for impairment annually, or more frequently if certain indicators arise. The Company assesses each reporting period whether events and circumstances warrant a revision to the previously established useful lives.
During the fourth quarter in each of 2019, 2018 and 2017, the Company performed the annual test for impairment of its reporting units, concluding there was no impairment of goodwill. The following table summarizes goodwill activity for the three years in the period ended December 31, 2019 (in millions):
|
|
|
|
|
|
|
Accumulated
|
|
|
Goodwill,
|
|
|
|
|
Goodwill
|
|
|
Impairments
|
|
|
Net
|
|
|
Balance at January 1, 2017
|
|
$
|
21.3
|
|
|
$
|
(11.8
|
)
|
|
$
|
9.5
|
|
|
No activity in 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at December 31, 2017
|
|
|
21.3
|
|
|
|
(11.8
|
)
|
|
|
9.5
|
|
|
No activity in 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at December 31, 2018
|
|
|
21.3
|
|
|
|
(11.8
|
)
|
|
|
9.5
|
|
|
No activity in 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at December 31, 2019
|
|
$
|
21.3
|
|
|
$
|
(11.8
|
)
|
|
$
|
9.5
|
|
-38-
Information regarding the Company’s other amortizable intangible assets is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Customer relationships
|
|
$
|
4.9
|
|
|
$
|
4.9
|
|
|
$
|
2.2
|
|
|
$
|
1.8
|
|
|
Trademarks
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
0.9
|
|
|
Other
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.5
|
|
|
Total amortizable intangible assets (1)
|
|
$
|
8.1
|
|
|
$
|
8.1
|
|
|
$
|
5.0
|
|
|
$
|
4.2
|
|
|
|
(1)
|
Amortizable intangible assets are included in “Other Assets.”
|
Customer relationships are amortized over 15 to 16 years. Trademarks are amortized over five years and other intangibles are amortized over three years. The Company recorded amortization expense of $0.9 million, $1.2 million and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Estimated intangible asset amortization expense, by year in the aggregate, consists of the following at December 31, 2019 (in millions):
|
|
|
Amortization
|
|
|
2020
|
|
$
|
0.6
|
|
|
2021
|
|
|
0.3
|
|
|
2022
|
|
|
0.2
|
|
|
2023
|
|
|
0.2
|
|
|
2024
|
|
|
0.2
|
|
|
Thereafter
|
|
|
1.6
|
|
|
Total
|
|
$
|
3.1
|
|
6. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts consisted of the following (in millions):
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Balance at beginning of year
|
|
$
|
2.1
|
|
|
$
|
0.9
|
|
|
$
|
0.7
|
|
|
Provision charged to expense
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
0.2
|
|
|
Write-offs, less recoveries
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Balance at end of year
|
|
$
|
3.1
|
|
|
$
|
2.1
|
|
|
$
|
0.9
|
|
The Company recorded bad debt expense of less than 0.2% of net sales in each of 2019, 2018 and 2017.
7. DEBT
Debt consisted of the following (in millions):
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revolving credit facility
|
|
$
|
131.3
|
|
|
$
|
132.3
|
|
|
Other obligations
|
|
|
5.5
|
|
|
|
6.6
|
|
|
Total debt
|
|
|
136.8
|
|
|
|
138.9
|
|
|
Less current portion
|
|
|
1.7
|
|
|
|
1.8
|
|
|
Long-term debt
|
|
$
|
135.1
|
|
|
$
|
137.1
|
|
-39-
Credit Facility— In July 2017, the Company amended and extended its asset-based senior secured revolving credit facility (“credit facility”) with Wells Fargo Capital Finance, Bank of America and JPMorgan Chase. The amendment, among other things, increased the borrowing capacity from $160 million to $250 million, reduced the interest rate, reduced the minimum fixed charge coverage ratio (“FCCR”) and extended the maturity to July 14, 2022. The amended facility may be increased to $300 million, through an uncommitted $50 million accordion feature, subject to certain conditions. 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 Company’s assets, and the Company is 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.
At December 31, 2019, under the credit facility, the Company had revolving credit borrowings of $131.3 million outstanding at a weighted average interest rate of 3.35% per annum, letters of credit outstanding totaling $3.2 million, primarily for health and workers’ compensation insurance, and $31.5 million of additional committed borrowing capacity based on existing collateral levels. The Company had $4.2 million of financing leases and $1.3 million of other obligations outstanding at December 31, 2019 at a weighted average borrowing rate of 5.42% and 6.11%, respectively.
At December 31, 2018, under the credit facility, the Company had revolving credit borrowings of $132.3 million outstanding at a weighted average interest rate of 4.27% per annum, letters of credit outstanding totaling $3.3 million, primarily for health and workers’ compensation insurance, and $31.5 million of additional committed borrowing capacity. The Company pays a commitment fee for unused capacity of 0.25% per annum. In addition, the Company had $4.9 million of financing leases and $1.7 million of other obligations outstanding at December 31, 2018 at a weighted average rate of 5.01% and 6.11%.
The sole financial covenant in the credit facility is the minimum FCCR of 1.00:1.00, which and must be tested by the Company if the excess borrowing availability falls below an amount in the range of $17.5 million to $31.3 million, depending on our borrowing base. In 2019 the minimum FCCR was not required to be tested as excess borrowing availability was greater than the minimum threshold. However, if the Company’s availability would have fallen below that threshold, the Company would not have met the minimum FCCR. FCCR 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.
Maturities—At December 31, 2019, the aggregate scheduled maturities of debt were as follows (in millions):
|
2020
|
|
$
|
1.7
|
|
|
2021
|
|
|
1.5
|
|
|
2022
|
|
|
132.6
|
|
|
2023
|
|
|
0.9
|
|
|
2024
|
|
|
0.1
|
|
|
Total
|
|
$
|
136.8
|
|
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 $133.0 million and $134.0 million at December 31, 2019 and 2018, respectively, based upon a discounted cash flow analysis using current market interest rates.
8. PREFERRED SHARES
The Company has authorized 5.0 million shares of $0.01 par value preferred stock, of which 400,000 shares have been designated as Series A Junior Participating Preferred Stock. No such shares have been issued. See Note 16, “Rights Agreement” for information concerning a rights agreement pursuant to which shares of the Series A Junior Participating Preferred Stock may be issued.
-40-
9. OTHER ACCRUED LIABILITIES
The Company had other accrued liabilities at December 31, 2019 and 2018 of $15.8 million and $18.0 million, respectively. Liabilities for self-insurance accruals were $3.7 million and $3.5 million, amounts due for sales incentive programs were $7.4 million and $6.7 million, and short term environmental accruals were $1.1 million and $1.1 million at December 31, 2019 and 2018, respectively. The remaining other accruals were $3.6 million and $6.7 million at December 31, 2019 and 2018, respectively.
10. COMMITMENTS AND CONTINGENCIES
Legal and Environmental Matters
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 and other legal matters. It is possible, however, that actual expenses could exceed our accrual by a material amount which could have a material adverse effect on the Company’s future liquidity, financial condition or operating results in the period in which any such additional expenses are incurred or recognized.
Environmental Matters
The Company was previously identified as a potentially responsible party in connection with the cleanup of contamination at a formerly owned property in Montana. On February 18, 2015, the Montana Department of Environmental Quality (the “DEQ”) issued an amendment to the unilateral administrative order of the DEQ outlining the final remediation of the property in its Record of Decision (the “ROD”). In September 2015, the remedial action work plan (“RAWP”) was approved.
The Company paid $0.4 million, $0.6 million and $4.6 million in 2019, 2018 and 2017, respectively, for costs related to implementation of the RAWP. While the Company expects ongoing remediation expenditures to continue, it is unable to ascertain the timeline for completion given the uncertain nature of projects of this type. Following subsequent reviews of the remaining costs to complete the remediation, the Company recorded a charge of $0.5 million in the fourth quarter of 2018 which was reflected in discontinued operations. The Company estimates the total remaining cost of implementing the RAWP to be $2.9 million at December 31, 2019 and this amount is accrued in “other accrued liabilities” and “other non-current liabilities” on the condensed balance sheets. The Company believes the accrual represents a reasonable best estimate of the total remaining remediation costs, based on facts, circumstances, and information currently available. However, there are currently unknown variables relating to the actual levels of contaminants and amounts of soil that will ultimately require treatment or removal and as part of the remediation process, additional soil and groundwater sampling, and bench and pilot testing is required to ensure the remediation will achieve the outcome required by the DEQ. The ultimate final amount of remediation costs and expenditures are difficult to estimate with certainty and as a result, the amount of actual costs and expenses ultimately incurred by the Company with respect to this property could be lower than, or exceed the amount accrued as of December 31, 2019 by a material amount. If actual costs are materially higher, the incremental expenses over the amount currently accrued could have a material adverse effect on our liquidity, financial condition and operating results.
In addition, some of the Company’s current and former distribution centers are located in areas where environmental contamination may have occurred, and for which the Company, among others, could be held responsible. The Company currently believes that there are no material environmental liabilities at any of its distribution center locations.
Legal Matters
On June 29, 2018, the Company entered into a confidential agreement with PrimeSource Building Products, Inc. for settlement and release of all claims between the parties. The agreement does not limit or restrict the future business activities of any of the parties and did not have a material adverse effect on the Company’s financial condition, results of operations, nor cash flows. The Company incurred approximately $3.5 million and $3.1 million
-41-
in expenses related to the Primesource litigation and settlement for the years ended December 31, 2018 and 2017, respectively.
The Company is also party to various other litigation matters, in most cases involving ordinary and routine claims incidental to its business. It cannot reasonably estimate the ultimate legal and financial liability with respect to all pending litigation matters. However, the Company believes, based on our examination of such matters, that the ultimate liability will not have a material adverse effect on its financial position, results of operation or cash flows.
11. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans—The Company sponsors a qualified defined contribution plan covering substantially all its employees. The plan provides for Company matching contributions based upon a percentage of the employee’s voluntary contributions. The Company’s matching contributions were $1.7 million, $1.6 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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-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. The Company’s total contributions to these plans were $0.9 million, $0.9 million, and $0.8 million in the years ended December 31, 2019, 2018 and 2017, respectively. A majority of the contributions were 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 Company’s participation in the multi-employer pension plans as of December 31, 2019 is outlined in the table below.
|
|
|
|
|
|
|
|
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
Pension
|
|
Financial
|
|
|
|
of Collective-
|
|
12/31/2019
|
|
|
|
|
|
Protection Act
|
|
Improvement
|
|
Surcharge
|
|
Bargaining
|
|
Company
|
|
Legal Name of Plan
|
|
EIN - Plan Number
|
|
Zone Status
|
|
Plan
|
|
Imposed
|
|
Agreement
|
|
Participants
|
|
Western Conference of Teamsters Pension Plan
|
|
91-6145047 - 001
|
|
Funded > 80%
|
|
No
|
|
No
|
|
12/1/2019 to
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2021
|
|
|
|
Southern California Lumber Industry
Retirement Fund
|
|
95-6035266 - 001
|
|
Funded > 80%
|
|
No
|
|
No
|
|
6/30/2020
|
|
25
|
|
Central States, Southeast and Southwest Areas
Pension Plan
|
|
36-6044243 - 001
|
|
Funded < 65%
|
|
Implemented
|
|
No
|
|
12/27/2020
|
|
4
|
12. STOCK BASED COMPENSATION
2005 Executive Incentive Compensation Plan
Under the 2005 Executive Incentive Compensation Plan, as amended and restated (the “2005 Plan”), the Company may grant up to 8,125,000 shares of common stock to be used as incentive awards. The 2005 Plan allows the Company to grant awards to key employees, including restricted stock awards, stock options, other stock-based incentive awards and cash-based incentive awards subject primarily to the requirement of continued employment. Awards under the 2005 Plan are available for grant over a ten-year period unless terminated earlier by the Board of Directors. The Company granted 510,684, 406,743, and 404,793 shares of restricted stock to employees in 2019, 2018 and 2017, respectively. No monetary consideration is paid to the Company by employees who receive restricted stock. The restricted shares vest ratably over three to five years. Restricted stock can be granted with or without performance restrictions.
2005 Non-Employee Directors’ Restricted Stock Plan
Under the Company’s 2005 Non-Employee Directors’ Restricted Stock Plan, as amended and restated, incentive awards of up to 1,075,000 shares of common stock may be granted. Awards under this plan are available
-42-
for grant over a ten-year period expiring March 23, 2029, unless terminated earlier by the Board of Directors. The Company granted 90,000, 33,732, and 27,696 shares of restricted stock in 2019, 2018 and 2017, respectively.
Summary of Stock-Based Compensation
The Company recognized approximately $2.3 million, $2.3 million, and $2.2 million in non-cash stock compensation expense for restricted stock awards in 2019, 2018 and 2017, respectively.
The following summary presents information regarding restricted stock and restricted stock units for the three years in the period ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
Remaining
|
|
|
Unrecognized
|
|
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
Vesting
|
|
|
Compensation
|
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
Value
|
|
|
Period
|
|
|
Expense
|
|
|
|
|
(000’s)
|
|
|
Fair Value
|
|
|
(000’s)
|
|
|
(months)
|
|
|
(000’s)
|
|
|
Balance at January 1, 2017
|
|
|
1,349
|
|
|
$
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
432
|
|
|
|
6.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(482
|
)
|
|
|
3.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(109
|
)
|
|
|
3.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
1,190
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
440
|
|
|
|
6.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(393
|
)
|
|
|
4.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(225
|
)
|
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,012
|
|
|
|
5.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
600
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested
|
|
|
(555
|
)
|
|
|
5.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(142
|
)
|
|
|
5.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
915
|
|
|
$
|
3.85
|
|
|
$
|
1,409
|
|
|
|
18.9
|
|
|
$
|
1,518
|
|
|
Restricted stock units
vested at December 31, 2019
|
|
|
134
|
|
|
$
|
2.56
|
|
|
$
|
206
|
|
|
N/A
|
|
|
N/A
|
|
13. INCOME TAXES
The provision for income taxes, relating to continuing operations, is composed of the following as of December 31, 2019, 2018 and 2017 (in millions):
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal expense (benefit)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(0.1
|
)
|
|
State and local tax
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
Total current
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal tax
|
|
|
9.7
|
|
|
|
(1.6
|
)
|
|
|
3.7
|
|
|
State and local tax
|
|
|
1.4
|
|
|
|
0.4
|
|
|
|
(0.8
|
)
|
|
Total deferred
|
|
|
11.1
|
|
|
|
(1.2
|
)
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
11.1
|
|
|
$
|
(1.4
|
)
|
|
$
|
3.2
|
|
-43-
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 is as follows for the years ended December 31, 2019, 2018 and 2017:
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Federal statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes
|
|
|
(13.8
|
)
|
|
|
(7.8
|
)
|
|
|
17.3
|
|
|
Nondeductible items
|
|
|
(1.8
|
)
|
|
|
(2.9
|
)
|
|
|
(17.6
|
)
|
|
Tax Cuts and Jobs Act of 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
(147.7
|
)
|
|
Prior year true-up items
|
|
|
(4.5
|
)
|
|
|
6.9
|
|
|
|
6.8
|
|
|
Refundable tax credits
|
|
|
0.8
|
|
|
|
1.5
|
|
|
|
3.6
|
|
|
Other, net
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
Change in valuation allowance
|
|
|
(111.5
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
Effective income tax rate
|
|
|
(110.6
|
)%
|
|
|
18.6
|
%
|
|
|
(102.6
|
)%
|
At December 31, 2019, our valuation allowance on deferred tax assets (“DTAs”) was approximately $20.0 million compared to $7.3 million at December 31, 2018. In each reporting period, we examine the available positive and negative evidence in assessing whether it is more likely than not that our deferred tax assets are recoverable, including consideration as to whether sufficient future taxable income would be generated to utilize the existing deferred tax assets. Starting in the second quarter of 2019, our operations were in a position of cumulative losses for the most recent three-year period. The cumulative loss incurred by the Company over the three-year period ended December 31, 2019 constitutes a significant piece of objective negative evidence in assessing whether it is more likely than not that our deferred tax assets are recoverable. Such objective negative evidence limits the ability to consider other subjective evidence, such as our projections for future profitability and growth. Based on this evaluation, the company concluded it is more likely than not that a significant portion of our deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance on its net deferred tax asset position, resulting in a $12.7 million income tax expense in our provision for income taxes for the year ended December 31, 2019.
The income tax expense from continuing operations for 2019 was $11.1 million on a loss before taxes of $10.2 million. For 2018, an income tax benefit of $1.4 million was recorded on a pretax loss of $7.4 million. The income tax benefit from discontinued operations for 2018 was $0.1 million on a net loss before taxes of $0.5 million.
At December 31, 2019, the Company had gross deferred tax assets of $35.4 million and a valuation allowance of $20.0 million, netting to deferred tax assets of $15.4 million. The Company had deferred tax liabilities of $15.4 million at December 31, 2019. The Company had $0.0 million and $11.1 million net deferred tax assets at December 31, 2019 and 2018, respectively.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation made significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from 35% to 21%. As a result, the Company was required to revalue deferred tax assets and liability at the enacted rate. This revaluation resulted in $4.5 million of income tax expense in continuing operations and a corresponding reduction in the deferred tax asset. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the 2017 consolidated financial statements.
-44-
Deferred income taxes at December 31, 2019 and 2018 are comprised of the following (in millions):
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Income tax loss carryforwards
|
|
$
|
17.8
|
|
|
$
|
—
|
|
|
$
|
17.8
|
|
|
$
|
—
|
|
|
Other accrued liabilities
|
|
|
1.0
|
|
|
|
—
|
|
|
|
1.2
|
|
|
|
—
|
|
|
Employee benefits related
|
|
|
0.8
|
|
|
|
—
|
|
|
|
1.2
|
|
|
|
—
|
|
|
Property, plant and equipment
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.1
|
|
|
Insurance related
|
|
|
0.7
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
—
|
|
|
Goodwill
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
Inventories
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.5
|
|
|
|
—
|
|
|
Accounts receivables
|
|
|
0.8
|
|
|
|
—
|
|
|
|
0.5
|
|
|
|
—
|
|
|
LIFO
|
|
|
—
|
|
|
|
5.2
|
|
|
|
—
|
|
|
|
6.0
|
|
|
Leases
|
|
|
9.7
|
|
|
|
9.6
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
2.4
|
|
|
|
0.4
|
|
|
|
1.6
|
|
|
|
0.3
|
|
|
Gross deferred tax assets and liabilities
|
|
|
35.4
|
|
|
|
15.4
|
|
|
|
24.8
|
|
|
|
6.4
|
|
|
Valuation allowance
|
|
|
(20.0
|
)
|
|
|
—
|
|
|
|
(7.3
|
)
|
|
|
—
|
|
|
Total
|
|
$
|
15.4
|
|
|
$
|
15.4
|
|
|
$
|
17.5
|
|
|
$
|
6.4
|
|
The Company has both federal and state tax loss carryforwards reflected above. The Company’s federal tax loss carryforwards of approximately $44 million will begin to expire in 2030. As a result of the Tax Act, any federal tax losses incurred by the Company starting in 2018 will have an indefinite carryforward. The Company also has an interest limitation carryforward under IRC Section 163(j) of approximately $9.0 million as of December 31, 2019. This limitation also has an indefinite carryforward period. The Company’s remaining carryforwards have expiration dates from 2018 to 2036. The Company has no material uncertain tax positions at December 31, 2019.
We file U.S. and state tax returns in jurisdictions with varying statutes of limitations. The 2016 through 2019 tax years generally remain subject to examination by federal and state tax authorities.
14. BASIC AND DILUTED NET LOSS PER SHARE
The Company calculates its basic loss per share by dividing net loss 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 for the years ended December 31, 2019, 2018 and 2017 (in millions):
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Earnings allocated to participating shareholders
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
-
|
|
|
Number of participating securities
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
1.1
|
|
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 loss per share from continuing operations for the years ended December 31, 2019, 2018 and 2017 (in millions):
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Weighted-average number of common shares-basic
|
|
|
25.4
|
|
|
|
25.1
|
|
|
|
24.9
|
|
|
Dilutive potential common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted-average number of common shares-dilutive
|
|
|
25.4
|
|
|
|
25.1
|
|
|
|
24.9
|
|
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The Company had no stock options outstanding at December 31, 2019, 2018 and 2017 and as such had no dilutive effect.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table provides selected consolidated financial information from continuing operations on a quarterly basis for each quarter of 2019 and 2018. The Company’s business is seasonal and particularly sensitive to weather conditions. Interim amounts are therefore subject to significant fluctuations (in millions, except per share data).
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
197.4
|
|
|
$
|
218.5
|
|
|
$
|
215.7
|
|
|
$
|
180.4
|
|
|
$
|
812.0
|
|
|
Gross margin
|
|
|
37.4
|
|
|
|
44.3
|
|
|
|
44.7
|
|
|
|
35.6
|
|
|
|
162.0
|
|
|
Operating expenses
|
|
|
39.6
|
|
|
|
41.0
|
|
|
|
41.4
|
|
|
|
43.6
|
|
|
|
165.6
|
|
|
Operating income (loss)
|
|
|
(2.2
|
)
|
|
|
3.3
|
|
|
|
3.3
|
|
|
|
(8.0
|
)
|
|
|
(3.6
|
)
|
|
Net income (loss) from continuing operations
|
|
|
(3.2
|
)
|
|
|
(10.3
|
)
|
|
|
1.6
|
|
|
|
(9.4
|
)
|
|
|
(21.3
|
)
|
|
Net income (loss) from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share—Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.13
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.84
|
)
|
|
Net income (loss) from discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net income (loss)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
198.0
|
|
|
$
|
223.4
|
|
|
$
|
222.0
|
|
|
$
|
196.2
|
|
|
$
|
839.6
|
|
|
Gross margin
|
|
|
38.7
|
|
|
|
45.1
|
|
|
|
44.6
|
|
|
|
38.1
|
|
|
|
166.5
|
|
|
Operating expenses
|
|
|
39.2
|
|
|
|
43.0
|
|
|
|
41.1
|
|
|
|
44.2
|
|
|
|
167.5
|
|
|
Operating income (loss)
|
|
|
(0.5
|
)
|
|
|
2.1
|
|
|
|
3.5
|
|
|
|
(6.0
|
)
|
|
|
(0.9
|
)
|
|
Net income (loss) from continuing operations
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
(6.9
|
)
|
|
|
(6.0
|
)
|
|
Net income (loss) from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share—Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
(0.27
|
)
|
|
$
|
(0.24
|
)
|
|
Net income (loss) from discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Net (income (loss)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.26
|
)
|
16. RIGHTS AGREEMENT
On May 18, 2016, the Board of Directors (the “Board”) of the Company entered into a rights agreement (the “Rights Agreement”) with Computershare Trust Company, N.A. and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, $0.01 par value per share, of the Company. The dividend was paid at close of business on May 31, 2016 to the stockholders of record on that date. The Board adopted the Rights Agreement to protect stockholder value by protecting the Company’s ability to capture the value of its net operating losses used to reduce potential future federal income tax obligations. The Rights Agreement was approved by the Company’s stockholders at the 2017 annual meeting of stockholders. On May 6, 2019 the Board approved and we entered into a First Amendment to Rights Agreement between the Company and ComputerShare Trust Company, N.A., as rights agent. The Amendment, among other things, (i) extends the final expiration date (as defined in the Rights Agreement) from May 18, 2019 to May 18, 2022; (ii) changes the initial purchase price (as defined in the Rights Agreement) from $13.86 to $13.39; and (iii) increases the period pursuant to which the Board has to consider an exemption request (as defined in the Rights Agreement) from ten business days to 20 business days. The Rights Agreement will expire on the earliest of (i) May 18, 2022, (ii) the time at which the Rights are
-46-
redeemed or exchanged, as provided for in the Rights Agreement, (iii) the repeal of Section 382 of the Internal Revenue Code of 1986, as amended, if the Board determines that the Rights Agreement is no longer necessary for the preservation of the Company’s NOLs, and (iv) the beginning of a taxable year of the Company to which the Board determines that no NOLs may be carried forward. We adopted the Rights Agreement to protect stockholder value by attempting to diminish the risk that our ability to use our NOLs to reduce potential future federal income tax obligations may become substantially limited.
Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (“Preferred Shares”), of the Company at a price of $13.39 per one one-hundredth of a Preferred Share, subject to adjustment. As a result of the Rights Agreement, any person or group that acquires beneficial ownership of 4.99% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group.
In connection with entry into the Rights Agreement, on May 18, 2016, the Company filed with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Designation of Series A Junior Participating Preferred Stock to create the Preferred Shares.
17. DISCONTINUED OPERATIONS
The Company’s discontinued operations did not have any sales in 2019, 2018 or 2017. In 2018 and 2017, loss from discontinued operations net of taxes of $0.4 million and $0.9 million, respectively, were primarily related to changes in estimates associated with remediation of formerly owned property in Montana.
18. SUBSEQUENT EVENT
On February 19, 2020, Huttig filed suit, Huttig Building Products, Inc. and Huttig, Inc. v. United States, et al, Court No. 20-00045, at the Court of International Trade (“CIT”) requesting relief from the recently imposed Section 232 derivative steel tariffs on the Company’s customs entries on the basis that such tariffs are unconstitutional and not enacted in accordance with law. The U.S. has agreed to a stipulated injunction against the deposit of the 232 derivative steel duties on Huttig’s entries subject to Huttig increasing its current customs bond to cover the estimated tariffs while the case is being heard. Other parties (including competitors) have filed similar complaints with the CIT and received similar injunctions.
-47-