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es

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 1-14982

 

HUTTIG BUILDING PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

 

 Delaware

 

43-0334550

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

555 Maryville University Drive Suite 400

St. Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip code)

(314) 216-2600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common, par value $0.01 per share

HBP

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares of Common Stock outstanding on April 26, 2021 was 27,399,870 shares.

 

 

 

 


 

 

 

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

 

 

 

 

 

Item 1.

  

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021, December 31, 2020 and March 31, 2020 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

19

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

19

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

19

 

 

 

 

 

Item 1A.

 

Risk Factors

 

19

 

 

 

 

 

Item 6.

 

Exhibits

 

20

 

 

 

 

 

Signatures

 

21

 

 

 

 

 

 

 

 

 

 

 

2


 

PART I FINANCIAL INFORMATION

 

ITEM 1 — FINANCIAL STATEMENTS

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net sales

 

$

214.7

 

 

$

203.0

 

Cost of sales

 

 

169.0

 

 

 

162.1

 

Gross margin

 

 

45.7

 

 

 

40.9

 

Operating expenses

 

 

36.9

 

 

 

39.0

 

Goodwill impairment

 

 

 

 

 

9.5

 

Operating income (loss)

 

 

8.8

 

 

 

(7.6

)

Interest expense, net

 

 

0.7

 

 

 

1.3

 

Income (loss) from operations before income taxes

 

 

8.1

 

 

 

(8.9

)

Income tax expense

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

8.1

 

 

 

(8.9

)

Loss from discontinued operations, net of taxes

 

 

 

 

 

 

Net income (loss)

 

$

8.1

 

 

$

(8.9

)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations per share- basic

 

$

0.30

 

 

$

(0.34

)

Loss from discontinued operations per share- basic

 

 

 

 

 

 

Net earnings (loss) per share - basic

 

$

0.30

 

 

$

(0.34

)

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations per share- diluted

 

$

0.30

 

 

$

(0.34

)

Loss from discontinued operations per share- diluted

 

 

 

 

 

 

Net income (loss) per share- diluted

 

$

0.30

 

 

$

(0.34

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic shares outstanding

 

 

27.3

 

 

 

25.9

 

Diluted shares outstanding

 

 

27.4

 

 

 

25.9

 

 

 

See notes to condensed consolidated financial statements

 

 

3


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

 

2021

 

 

2020

 

 

2020

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

4.4

 

 

$

0.3

 

 

$

0.4

 

 

Trade accounts receivable, net

 

 

107.4

 

 

 

69.3

 

 

 

96.7

 

 

Inventories, net

 

 

122.6

 

 

 

105.7

 

 

 

147.3

 

 

Other current assets

 

 

10.4

 

 

 

10.6

 

 

 

10.7

 

 

Total current assets

 

 

244.8

 

 

 

185.9

 

 

 

255.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

5.0

 

 

 

5.0

 

 

 

5.0

 

 

Buildings and improvements

 

 

32.3

 

 

 

32.3

 

 

 

32.6

 

 

Machinery and equipment

 

 

58.5

 

 

 

58.2

 

 

 

58.4

 

 

Gross property, plant and equipment

 

 

95.8

 

 

 

95.5

 

 

 

96.0

 

 

Less accumulated depreciation

 

 

68.2

 

 

 

67.1

 

 

 

65.5

 

 

Property, plant and equipment, net

 

 

27.6

 

 

 

28.4

 

 

 

30.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

34.3

 

 

 

33.9

 

 

 

38.6

 

 

Other

 

 

4.2

 

 

 

4.4

 

 

 

4.8

 

 

Total other assets

 

 

38.5

 

 

 

38.3

 

 

 

43.4

 

 

TOTAL ASSETS

 

$

310.9

 

 

$

252.6

 

 

$

329.0

 

 

See notes to condensed consolidated financial statements

 

 

4


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

 

2021

 

 

2020

 

 

2020

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1.7

 

 

$

1.7

 

 

$

1.7

 

 

Current maturities of operating lease right-of-use liabilities

 

 

8.9

 

 

 

9.1

 

 

 

9.2

 

 

Trade accounts payable

 

 

80.0

 

 

 

53.1

 

 

 

85.5

 

 

Accrued compensation

 

 

10.6

 

 

 

10.0

 

 

 

2.9

 

 

Other accrued liabilities

 

 

16.6

 

 

 

15.7

 

 

 

15.1

 

 

Total current liabilities

 

 

117.8

 

 

 

89.6

 

 

 

114.4

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

113.5

 

 

 

92.4

 

 

 

148.2

 

 

Operating lease right-of-use liabilities, less current maturities

 

 

25.5

 

 

 

24.9

 

 

 

29.7

 

 

Other non-current liabilities

 

 

2.5

 

 

 

2.4

 

 

 

2.4

 

 

Total non-current liabilities

 

 

141.5

 

 

 

119.7

 

 

 

180.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares: $.01 par (5,000,000 shares authorized)

 

 

 

 

 

 

 

 

 

 

Common shares: $.01 par (75,000,000 shares authorized: 27,404,518;

   26,889,190; and 26,894,681 shares issued at March 31, 2021,

   December 31, 2020 and March 31, 2020, respectively)

 

 

0.3

 

 

 

0.3

 

 

 

0.3

 

 

Additional paid-in capital

 

 

49.7

 

 

 

49.5

 

 

 

48.5

 

 

Retained earnings (accumulated deficit)

 

 

1.6

 

 

 

(6.5

)

 

 

(14.5

)

 

Total shareholders’ equity

 

 

51.6

 

 

 

43.3

 

 

 

34.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

310.9

 

 

$

252.6

 

 

$

329.0

 

 

 

See notes to condensed consolidated financial statements

 

 


5


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

(in millions)

 

 

Common Shares

 

 

Additional

 

 

Retained Earnings

 

 

Total

 

 

 

Outstanding,

 

 

Paid-In

 

 

(Accumulated

 

 

Shareholders’

 

 

 

at Par Value

 

 

Capital

 

 

Deficit)

 

 

Equity

 

Balance at January 1, 2020

 

$

0.3

 

 

$

48.2

 

 

$

(5.6

)

 

$

42.9

 

Net loss

 

 

 

 

 

 

 

 

(8.9

)

 

 

(8.9

)

Stock compensation expense

 

 

 

 

 

0.3

 

 

 

 

 

 

0.3

 

Balance at March 31, 2020

 

$

0.3

 

 

$

48.5

 

 

$

(14.5

)

 

$

34.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

$

0.3

 

 

$

49.5

 

 

$

(6.5

)

 

$

43.3

 

Net loss

 

 

 

 

 

 

 

 

8.1

 

 

 

8.1

 

Payment for taxes related to share

   settlement of equity awards

 

 

 

 

 

(0.2

)

 

 

 

 

 

(0.2

)

Stock compensation expense

 

 

 

 

 

0.4

 

 

 

 

 

 

0.4

 

Balance at March 31, 2021

 

$

0.3

 

 

$

49.7

 

 

$

1.6

 

 

$

51.6

 

 

6


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

8.1

 

 

$

(8.9

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1.3

 

 

 

1.3

 

Non-cash interest expense

 

 

0.1

 

 

 

0.1

 

Stock-based compensation

 

 

0.4

 

 

 

0.3

 

Goodwill impairment

 

 

 

 

 

9.5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(38.1

)

 

 

(36.2

)

Inventories, net

 

 

(16.9

)

 

 

(7.9

)

Trade accounts payable

 

 

26.9

 

 

 

28.7

 

Other

 

 

1.7

 

 

 

(1.3

)

Cash used in continuing operating activities

 

 

(16.5

)

 

 

(14.4

)

Cash used in discontinued operating activities

 

 

 

 

 

(0.1

)

Total cash used in operating activities

 

 

(16.5

)

 

 

(14.5

)

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(0.2

)

 

 

(0.4

)

Total cash used in investing activities

 

 

(0.2

)

 

 

(0.4

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Borrowings of debt, net

 

 

21.0

 

 

 

13.1

 

Repurchase of shares to satisfy employee tax withholdings

 

 

(0.2

)

 

 

 

Total cash provided by financing activities

 

 

20.8

 

 

 

13.1

 

Net increase (decrease) in cash and equivalents

 

 

4.1

 

 

 

(1.8

)

Cash and equivalents, beginning of period

 

 

0.3

 

 

 

2.2

 

Cash and equivalents, end of period

 

$

4.4

 

 

$

0.4

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

0.6

 

 

$

1.2

 

Income taxes paid

 

 

 

 

 

0.1

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Assets acquired with debt obligations

 

 

0.1

 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

7


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Huttig Building Products, Inc. and its subsidiary (the “Company” or “Huttig”) were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. Financial statement preparation further requires management to make estimates and assumptions. Management bases these estimates and assumptions on historical results and known trends as well as management forecasts. Actual results could differ from these estimates and assumptions and these differences may be material. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated results of operations and resulting cash flows for the interim periods presented are not necessarily indicative of the results that might be expected for the full year, or any other interim period, which may differ materially due to, among other things, the factors described in Part I, Item 2 of this Quarterly Report on Form 10-Q and those set forth under Part I, Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Due to the seasonal nature of Huttig’s business, operating profitability is usually lower in the Company’s first and fourth quarters than in the second and third quarters.

2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

On January 1, 2020, the Company adopted Accounting Standards Update (“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 within the scope of ASU 2016-13 is trade receivables.  The adoption of ASU 2016-13 did not materially impact 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 vary by customer, location, and the products purchased, but are typical for the Company’s industry.

Regarding direct sales, the Company is the principal of these arrangements 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 25.8% and 21.8% in the three-month periods ended March 31, 2021 and 2020, respectively.

The following table disaggregates revenue by product classification (in millions):

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Millwork products

 

$

96.2

 

 

$

96.2

 

Building products

 

 

101.9

 

 

 

92.6

 

Wood products

 

 

16.6

 

 

 

14.2

 

Net sales

 

$

214.7

 

 

$

203.0

 

 

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, 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 likewise excluded from right-of-use calculations.

8


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.

 

 

Three Months Ended

 

 

March 31,

 

(in millions):

2021

 

 

2020

 

Operating Lease Cost

$

3.0

 

 

$

3.0

 

 

 

 

 

 

 

 

 

Finance Lease Cost:

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

0.3

 

 

 

0.3

 

Interest on lease liabilities

 

0.1

 

 

 

0.1

 

Total finance lease cost

$

0.4

 

 

$

0.4

 

The following lease assets and liabilities are included on the condensed consolidated balance sheet (in millions):

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

2021

 

 

2020

 

 

2020

 

Operating Leases:

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

$

34.3

 

 

$

33.9

 

 

$

38.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of operating lease right-of-use assets

 

8.9

 

 

 

9.1

 

 

 

9.2

 

Operating lease right-of-use liabilities, less current maturities

 

25.5

 

 

 

24.9

 

 

 

29.7

 

Total operating lease liabilities

$

34.4

 

 

$

34.0

 

 

$

38.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance Leases:

 

 

 

 

 

 

 

 

 

 

 

Gross property, plant and equipment

$

11.2

 

 

$

11.1

 

 

$

10.6

 

Accumulated depreciation

 

(6.6

)

 

 

(6.3

)

 

 

(5.5

)

Property, plant and equipment, net

$

4.6

 

 

$

4.8

 

 

$

5.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term lease liabilities

$

1.4

 

 

$

1.4

 

 

$

1.4

 

Long-term lease liabilities, less current maturities

 

1.7

 

 

 

1.9

 

 

 

2.6

 

Total finance lease liabilities

$

3.1

 

 

$

3.3

 

 

$

4.0

 

As of March 31, 2021, the weighted average remaining lease term for the Company’s operating leases was 4.9 years and for its financing leases was 2.7 years. These leases have weighted average discount rates of 6.0% 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):

 

Three Months Ended

 

 

March 31,

 

 

2021

 

 

2020

 

Operating cash used for operating leases

$

(3.0

)

 

$

(3.1

)

Operating cash used for finance leases

 

(0.1

)

 

 

(0.1

)

Financing cash used for finance leases

 

(0.4

)

 

 

(0.4

)

 


9


 

Maturities of lease liabilities are as follows (in millions):

Finance

Leases

 

 

Operating

Leases

 

2021 (1)

$

1.1

 

 

$

8.3

 

2022

 

1.2

 

 

 

9.2

 

2023

 

0.8

 

 

 

7.6

 

2024

 

0.3

 

 

 

4.9

 

2025

 

0.1

 

 

 

3.7

 

Thereafter

 

 

 

 

6.3

 

Total lease payments

$

3.5

 

 

$

40.0

 

Less: imputed interest

 

(0.4

)

 

 

(5.6

)

Total future lease obligation

$

3.1

 

 

$

34.4

 

 

 (1)

This amount excludes the three months ended March 31, 2021.

5. GOODWILL

Goodwill is 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 first quarter of 2020, a decline in the market value of the Company’s public equity concurrent with the COVID-19 pandemic triggered an assessment of goodwill. The fair value of each reporting unit was determined using a market approach to consider factors such as market capitalization of the Company at March 31, 2020, observed ratios of enterprise value to earnings and the relative sales contribution of each reporting unit. If a reporting unit’s carrying value exceeded its estimated fair value, an impairment was recorded for the amount in excess. As a result of the interim goodwill impairment test, the Company recognized a goodwill impairment charge of $9.5 million.  The following table summarizes goodwill activity for the three-month periods ended March 31, 2021 and 2020 (in millions):

 

 

 

 

 

 

 

Accumulated

 

 

Goodwill,

 

 

 

Goodwill

 

 

Impairments

 

 

Net

 

Balance at January 1, 2020

 

$

21.3

 

 

$

(11.8

)

 

$

9.5

 

Impairment

 

 

 

 

 

(9.5

)

 

 

(9.5

)

Balance at March 31, 2020

 

$

21.3

 

 

$

(21.3

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

21.3

 

 

 

(21.3

)

 

 

 

No activity in 2021

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

$

21.3

 

 

$

(21.3

)

 

$

 

 

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful accounts consisted of the following (in millions):

 

 

March 31,

 

 

 

2021

 

 

2020

 

Balance at beginning of year

 

$

3.0

 

 

$

3.1

 

Provision charged to expense

 

 

0.1

 

 

 

0.1

 

Write-offs, less recoveries

 

 

(0.5

)

 

 

 

Balance at end of period

 

$

2.6

 

 

$

3.2

 

 

7. DEBT

Debt consisted of the following (in millions): 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

2020

 

Revolving credit facility

 

$

111.2

 

 

$

89.8

 

 

$

144.8

 

Other obligations

 

 

4.0

 

 

 

4.3

 

 

 

5.1

 

Total debt

 

 

115.2

 

 

 

94.1

 

 

 

149.9

 

Less current maturities of long-term debt

 

 

1.7

 

 

 

1.7

 

 

 

1.7

 

Long-term debt, less current maturities

 

$

113.5

 

 

$

92.4

 

 

$

148.2

 

 

10


 

Credit Facility — The Company has a $250.0 million asset-based senior secured revolving credit facility (the “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 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.  The entire unpaid balance under the credit facility is due and payable on July 14, 2022.    

At March 31, 2021, the Company had revolving credit borrowings of $111.2 million outstanding at a weighted average interest rate of 1.67% per annum, letters of credit outstanding totaling $3.2 million, primarily used as collateral for health and workers’ compensation insurance, and $81.0 million of excess committed borrowing availability.  The Company pays an unused commitment fee of 0.25% per annum. In addition, the Company had $0.9 million of other obligations maturing in 2023 at a borrowing rate of 6.11%. The Company also had $3.1 million of financing lease obligations at March 31, 2021.  See Note 4 – “Leases” for more information.  

The sole financial covenant in the credit facility is the minimum fixed charge coverage ratio (“FCCR”) of 1.00:1.00, which must be tested by the Company if the excess committed borrowing availability falls below an amount in the range of $17.5 million to $31.3 million, depending on the borrowing base. The FCCR must also be tested on a pro forma basis prior to consummation of certain significant business transactions outside the ordinary course of business, as defined in the agreement. 

While the Company believes its cash on hand, borrowing capacity available under the credit facility, and cash flows from operations for the next twelve months will be sufficient to service its liquidity needs, it cannot predict whether future developments associated with the COVID-19 pandemic will materially adversely affect its liquidity position. See Note 13, “Impact of and Company Response to the COVID-19 Pandemic” for additional disclosure regarding the potential impact the current pandemic may have on the Company’s future liquidity and financial position.

8. OTHER ACCRUED LIABILITIES

The Company had other accrued liabilities consisting of the following (in millions):

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

2020

 

Self insurance

 

$

6.2

 

 

$

4.0

 

 

$

3.9

 

Sales incentive programs

 

 

5.4

 

 

 

6.8

 

 

 

7.1

 

Short-term environmental

 

 

1.1

 

 

 

1.1

 

 

 

1.1

 

Other accruals

 

 

3.9

 

 

 

3.8

 

 

 

3.0

 

Other accrued liabilities

 

$

16.6

 

 

$

15.7

 

 

$

15.1

 

 

9. CONTINGENCIES

The Company carries insurance policies on insurable risks with coverage and other terms that it believes to be appropriate. The Company 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 when it is probable that future costs will be incurred and can be reasonably estimated.

Environmental and Legal 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 the accruals by a material amount, which could have a material adverse effect on the Company’s future liquidity, financial condition, and 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 contamination cleanup 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.  In September 2015, the remedial action work plan (“RAWP”) was approved.

The Company paid less than $0.1 million in the first three months of 2021 implementing the RAWP.  The Company estimates the total remaining cost of implementing the RAWP to be $2.7 million at March 31, 2021, with $1.1 million in short-term other accrued liabilities and $1.6 million in other non-current liabilities. As of March 31, 2021, 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. As part of the remediation process, additional soil and groundwater sampling, and bench and pilot testing are required to

11


ensure the remediation will achieve the outcome required by the DEQ.  The ultimate final amount of remediation costs and expenditures is 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 March 31, 2021 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 the Company’s liquidity, financial condition and operating results.

With consent of the DEQ, remediation efforts and expenditures were temporarily suspended during 2020 as a result of pandemic-related health, safety, financial and other considerations.  During the first quarter of 2021, the Company re-engaged in remediation efforts in cooperation with the DEQ.  

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.

 

 

10. EARNINGS (LOSS) PER SHARE

The Company calculates its basic income (loss) per share by dividing net income (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 (in millions):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Earnings allocated to participating shareholders

 

$

0.3

 

 

$

 

Number of participating securities

 

 

1.0

 

 

 

0.9

 

 

The diluted earnings per share calculations include the effect of assumed exercise using the treasury stock method for 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 (loss) per share from continuing operations (in millions):

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Weighted-average number of common shares-basic

 

 

27.3