HUTTIG BUILDING PRODUCTS INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[ ] 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

LAKEVIEW CENTER, SUITE 400
14500 SOUTH OUTER FORTY ROAD
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

(Name of each exchange on
(Title of each class) which registered)
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of February 25, 2002 was approximately $114,138,751.

The number of shares of Common Stock outstanding on February 25, 2002 was
19,679,095 shares.

Documents incorporated by reference:
Portions of the Definitive Proxy Statement for the 2002 Annual Meeting of
Shareholders - Part III

PART I

ITEM 1--BUSINESS

GENERAL

Huttig Building Products, Inc., originally incorporated in 1913, is one of the
largest domestic distributors of building materials used principally in new
residential construction and in home improvement, remodeling and repair work. We
distribute our products through 59 distribution centers serving 46 states,
principally to building materials dealers, who, in turn, supply the end-user,
and directly to professional builders and large contractors, home centers,
national buying groups and industrial and manufactured housing builders. We
produce softwood mouldings at our American Pine Products manufacturing facility
in Prineville, Oregon.

We strive to increase shareholder value by pursuing the following business
strategies:

o expanding product lines and adding higher margin products;

o focusing on providing efficient, high quality customer service through
the deployment of information technology and implementation of industry
best practices;

o simplifying our business processes to make it easier for our customers
and vendors to do business with us;

o leveraging our size to negotiate better pricing, delivery and service
terms with our suppliers;

o achieving operating efficiencies by consolidating administrative
systems across the company; and

o pursuing opportunities to expand our product lines, service and
delivery capabilities and geographic reach through acquisitions.

We believe we have the product offerings, warehouse and builder support
facilities, personnel, systems infrastructure and financial and competitive
resources necessary for continued business success. A number of factors,
however, may affect our future performance, including those discussed under
"Cautionary Statement" beginning on page 20.

On December 16, 1999, Crane Co. distributed to its shareholders all of the
Company's outstanding common stock, par value $.01 per share. On this date,
Huttig also completed the acquisition of Rugby USA, Inc., a distributor of
building materials, in exchange for 6,546,424 newly issued shares of Huttig
common stock. In this Annual Report on Form 10-K, when we refer to "Huttig," the
"company" or "we," we mean Huttig Building Products, Inc. and its subsidiaries
and predecessors, including Rugby, unless the context indicates otherwise.

INDUSTRY CHARACTERISTICS AND TRENDS

The home building materials distribution industry is characterized by its
substantial size and dependence on the cyclical and seasonal home building
industry, its highly fragmented ownership structure and an increasingly
competitive environment.

Residential construction activity is closely linked to a variety of factors
directly affected by general economic conditions, including job and household
formation, interest rates, housing prices, availability of mortgage financing,
regional demographics and consumer confidence. We monitor the issuance of new
housing starts on a national and regional basis and new mortgage applications as
important indicators of our potential future sales volume.

New housing starts in the United States in 2001 totaled approximately 1.6
million, including 1.3 million single family residences, based on data from the
U.S. Census Bureau. Approximately 62% of single family new construction in 2001
occurred in markets that we serve. According to the U.S. Department of Commerce,
total spending on new residential construction in 2001 was $278 billion. We
estimate that aggregate expenditures for residential repair and remodeling were
an additional $169 billion and believe that sales of windows, doors and other
millwork accounted for approximately $17 billion in 2001.

Prior to the 1970s, building materials were sold in both rural and metropolitan
markets largely by local dealers, such as lumberyards and hardware stores. These
dealers, who generally purchased their products from wholesale distributors,
sold building products directly to homeowners, contractors and homebuilders. In
the late 1970s and 1980s, in response, The Home Depot and Lowe's began to
alter this distribution channel, particularly in metropolitan markets. They
began displacing local dealers by marketing a broad range of competitively
priced building materials to the homeowner and small home improvement
contractor. At the same time, some building materials manufacturers such as
Georgia Pacific and Weyerhauser began selling their products directly to home
center chains and to local dealers as well. In response, most wholesale
distributors have been diversifying their businesses by seeking to sell

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directly to large contractors and homebuilders in selected markets and by
providing home centers with fill-in and specialty products. Also, as large
homebuilding companies seek to streamline the new residential construction
process, building materials distributors have increasing opportunities to
provide higher margin turnkey products and services.

The increasingly competitive environment faced by dealers also has prompted a
trend toward industry consolidation that we believe offers significant
opportunities to a company like Huttig. Many distributors in the building
materials industry are small, privately-held companies that generally lack the
purchasing power of a larger entity and may also lack the broad lines of
products and sophisticated inventory management and control systems typically
needed to operate a multi-branch distribution network. These characteristics are
also driving the consolidation trend in favor of companies like us that operate
nationally and have significant infrastructure in place to accommodate the needs
of customers across geographic regions and beyond the local market.

PRODUCTS

Each of our distribution centers carries a variety of products that vary by
location. Our principal products are:

o doors, including interior and exterior doors and pre-hung door
units;

o specialty building materials, such as housewrap, stair and
floor systems, roofing and insulation;

o lumber and other commodity building products;

o mouldings, including door jambs, door and window frames, and
decorative ceiling, chair and floor mouldings; and

o windows.

The following table sets forth information regarding the percentage of our net
sales represented by our principal product categories sold during each of the
last three fiscal years. While the table below generally indicates the mix of
our sales by product category, changes in the prices of commodity wood products
and in unit volumes sold typically change our product mix on a year-to-year
basis. Our product mix in 1999 is not necessarily indicative of the mix that
would result from including a full year of Rugby's sales.

DOORS - Net sales of doors totaled $336.2 million in 2001 versus $367.7 million
and $272.2 million in 2000 and 1999, respectively. We sell wood, steel and
composite doors from various branded manufacturers such as Therma-Tru(R) and
Masonite International(R), as well as provide value-priced unbranded products.
The pre-hanging of a door within its frame is a value-added service that we
provide, allowing an installer to quickly place the unit in a house opening. We
also assemble many exterior doors with added sidelites and transoms. To meet the
increasing demand for pre-hung doors, we invested $3.0 million in
state-of-the-art equipment during 2000 and 1999 which allowed us to increase our
capacity by approximately 30%.

SPECIALTY BUILDING MATERIALS - Net sales of specialty building materials were
$248.9 million in 2001 versus $ 276.0 million and $169.8 million in 2000 and
1999, respectively. Included in this category are products differentiated
through branding or value-added characteristics. Branded products include
Typar(R) housewrap, L. J. Smith Stair Systems(R), Simpson Strong-Tie(R)
connectors and Owens Corning(R) roofing and insulation. Also included are
trusses, wall panels and engineered wood products, such as floor systems.

LUMBER AND OTHER COMMODITY PRODUCTS - Net sales of lumber and other commodity
building products were $213.2 million in 2001 versus $188.2 million and $119.9
million in 2000 and 1999, respectively. Growth of lumber sales has resulted
primarily from additional value-added services and the sale of higher priced
product. Through strategic acquisitions in 1997 and 1998, we have significantly
expanded our lumber business and our ability to sell directly to homebuilders.
We continue to pursue a strategy of providing builders with the capability to
purchase a house's framing and millwork package of products from one source and
have each component delivered when needed. Other commodity building products
include drywall, metal vents, siding, nails and other miscellaneous hardware.

MOULDINGS - Net sales of mouldings were $82.6 million in 2001 versus $111.1
million and $99.7 million in 2000 and 1999, respectively. Profitability of this
highly competitive, commodity-priced product depends upon efficient plant
operations, rapid inventory turnover and quick reaction to changing market
conditions. Mouldings are a necessary complementary product line to doors and
windows as part of a house's millwork package.

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WINDOWS - Net sales of windows amounted to $64.2 million in 2001 versus $129.9
million and $138.7 million in 2000 and 1999, respectively. Our windows include
wood, vinyl-clad, vinyl and aluminum windows from branded manufacturers such as
Caradco(R) and Weather Shield(R) as well as unbranded products. In October 2000,
Andersen(R) terminated our distribution agreement and we discontinued sales of
Andersen(R) trademarked products. Andersen(R) windows, which we sold to dealers
through 12 of our distribution centers, accounted for approximately $63.8
million and $79.7 million of our window sales in 2000 and 1999, respectively.
Excluding Andersen(R) from the product table above, windows would have accounted
for 6% and 7% of total net sales in 2000 and 1999, respectively. We are working
to expand the depth of our offerings of windows to include a wider range of
quality and price to better serve our customers.

CUSTOMERS

We currently serve over 10,000 customers and no single customer accounted for
more than approximately 5% of our sales in 2001. Building materials dealers
represent our single largest customer group. Despite the advent of the home
center chains and the trend toward consolidation of dealers and increased direct
participation in wholesale distribution by some building materials
manufacturers, we believe that the wholesale distribution business continues to
provide opportunities for increased sales. We are targeting home centers for
sales of fill-in and specialty products. In addition, some manufacturers may
seek to outsource the marketing function for their products, a role that we, as
a large, financially stable distributor, are well positioned to fill.
Opportunities also exist for large distributors with the necessary capabilities
to perform increasing amounts of services such as pre-hanging doors, thereby
enabling us to enhance the value-added component of our business.

The percentage of the 2001, 2000, and 1999 revenues attributable to various
categories of customers are as follows:

SALES AND MARKETING

In 2001, we restructured our organization from four regions with each having
both sales and operations responsibilities to separate sales and operations
organizations and added the position of Vice President of Sales and Marketing.
We believe our new sales organization has allowed us to expand our focus on
sales and customer service and better positions us to pursue opportunities for
sales growth.

Each of our distribution centers is focused on meeting local market needs and
offering competitive prices. Inventory levels, merchandising and pricing are
tailored to local markets. Our single-platform information system provides each
distribution center manager with real-time pricing, inventory availability and
margin analysis to facilitate this strategy. We also support our distribution
centers with centralized product management, credit and financial controls,
training and marketing programs and human resources expertise.

Our marketing programs center on fostering strong customer relationships and
providing superior service. This strategy is furthered by the high level of
technical knowledge and expertise of our personnel. We have focused marketing
efforts primarily on the residential new housing and remodeling markets, with
slightly less effort directed toward the commercial and industrial markets.
Certain of our suppliers advertise to the trade media and directly to the
individual consumer through nationwide print and other media.

Among our marketing initiatives for 2002 are the development of a national
product catalog, which we believe will provide us with another key tool to meet
our customers' needs. Additionally, we are rolling out our "Partners for Profit"
national campaign, which will focus on converting customers to utilizing our
door hanging operations across the country, exclusively, in consideration for
preferred merchandising, stocking and pricing programs for those customers.

Our distribution center sales organization consists of outside field sales
personnel who serve customers on-site and who report directly to Field Sales
Managers, who report to their respective Regional Sales Managers. Our outside
sales force is supported by inside customer service representatives at each
branch and is compensated by commissions based on return on sales or total
margin on sales.

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We also employ product specialists to drive sales of our branded products,
including Therma Tru(R) and Masonite(R) doors, Weather Shield(R) windows and
Typar(R) housewraps through the distribution channel by focusing on sales to the
end user builder, architect and designer.

PURCHASING

We purchase our products from more than 100 different suppliers and are not
materially dependent upon any single supplier. We believe that alternative
sources of supply are readily available for substantially all of the products we
offer, but we do believe that developing and maintaining key supplier
relationships are important for us to obtain favorable pricing and service
terms. We have developed an effective coordinated purchasing program designed to
allow us to lower costs through volume purchases, and we believe that we have
greater purchasing power than many of our smaller, local independent
competitors. With the implementation of a single, company-wide information
system platform in 2001, we are now positioned to better track and maintain
appropriate levels of products at each of our distribution facilities. We
negotiate with our major vendors on a company-wide basis to obtain favorable
pricing, volume discounts and other beneficial purchase terms. A majority of our
purchases are made from suppliers offering payment, discount and volume purchase
programs. Distribution center managers are responsible for inventory selection
and ordering on terms negotiated centrally. This approach allows the
distribution centers to remain responsive to local market demand, while still
maximizing purchasing leverage through volume orders. Distribution center
managers are also responsible for inventory management at their respective
locations.

We are party to distribution agreements with certain vendors on an exclusive or
non-exclusive basis, depending on the product and the territory involved. These
distributorships generally are terminable at any time by either party, in some
cases without notice, and otherwise on notice ranging up to 60 days.

COMPETITION

Our competition varies by product line, customer classification and geographic
market. We compete with many local and regional building product distributors
and, in certain markets and product categories, with national building product
distributors and dealers. We also compete with major building materials
suppliers with national distribution capability, such as Georgia-Pacific,
Weyerhauser and other product manufacturers that engage in direct sales. We also
act as a distributor of products for some of these manufacturers. We also sell
products to large home center chains such as The Home Depot and Lowe's and, to a
limited extent in certain markets, we compete with them for business from
smaller contractors. Competition from such large home center chains for the
business of larger contractors may increase in the future.

The principal factors on which we compete in the wholesale distribution business
are:

o availability of product;

o service and delivery capabilities;

o ability to assist with problem-solving;

o customer relationships; and

o breadth of product offerings.

Also, financial stability and geographic coverage are important to manufacturers
in choosing distributors for their products. In the builder support business,
our target customers generally select building products distributors on the
basis of service and delivery, ability to assist with problem-solving, customer
relationships and breadth of product offerings. Our relative size and financial
position are advantageous in obtaining and retaining distributorships for
important products. This relative size also permits us to attract experienced
sales and service personnel and gives us the resources to provide company-wide
sales, product and service training programs. By working closely with our
customers and utilizing our information technology, our branches are able to
maintain appropriate inventory levels and are well-positioned to deliver
completed orders on time.

SEASONALITY AND WORKING CAPITAL

In the first quarter and, to a lesser extent, the fourth quarter, our results of
operations are typically adversely affected by winter construction cycles and
weather patterns in colder climates, as the level of activity in both the new
construction and home improvement markets decreases. The effects of winter
weather patterns on our business are generally not experienced in residential

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construction activity during the same period in the deep South, Southwest and
Southern California markets in which we participate. Our working capital
requirements are generally greatest in the second and third quarters, which
reflects the seasonal nature of our business. The second and third quarters are
also typically our strongest operating quarters, largely due to more favorable
weather throughout many of our markets compared to the first and fourth
quarters. We typically generate cash from working capital reductions in the
first and fourth quarters of the year. We also maintain significant inventories
to meet rapid delivery requirements of our customers and to assure us of
favorable pricing, delivery and service terms with our suppliers. At December
31, 2001, inventories constituted approximately 28.5% of our total assets. We
also closely monitor operating expenses and inventory levels during seasonally
affected periods and, to the extent possible, control variable operating costs
to minimize seasonal effects on our profitability.

CREDIT

Huttig's corporate management establishes an overall credit policy for sales to
customers and is responsible for all credit decisions. Our credit policies,
together with daily computer monitoring of customer balances, have resulted in
average bad debt expense of approximately 0.2% of net sales during the last
three years. In addition to credit we extend to customers, we accept third-party
credit cards such as MasterCard, Visa and American Express. Approximately 98% of
our sales in 2001 were made to customers to whom we had extended credit for
those sales. The remaining 2% of sales in 2001 included cash purchases, and
purchases made with third-party credit cards.

BACKLOG

Our customers generally order products on an as-needed basis. As a result,
virtually all product shipments in a given fiscal quarter result from orders
received in that quarter. Consequently, order backlog represents only a very
small percentage of the product sales that we anticipate in a given quarter and
is not indicative of actual sales for any future period.

TRADENAMES

Historically, Huttig has operated under various tradenames in the markets we
serve, retaining the name of an acquired business for a period of time to
preserve local identification. To capitalize on our national presence, we
converted our branch operations to the primary tradename "Huttig Building
Products." Some branches continue to use historical tradenames as secondary
tradenames to maintain local identity. Huttig has no material patents,
trademarks, licenses, franchises, or concessions other than the Huttig Building
Products(R) name and Huttig(R) logos, which are registered trademarks.

ENVIRONMENTAL MATTERS

We are subject to federal, state and local environmental protection laws and
regulations. We believe that we are in compliance, or are taking action aimed at
assuring compliance, with applicable environmental protection laws and
regulations. However, there can be no assurance that future environmental
liabilities will not have a material adverse effect on our financial condition
or results of operations.

We have been identified as a potentially responsible party in connection with
the cleanup of contamination at a formerly owned property in Montana. See Part
I, Item 3 - "Legal Proceedings."

In addition, some of our current and former distribution centers are located in
areas of current or former industrial activity where environmental contamination
may have occurred, and for which we, among others, could be held responsible. We
currently believe that there are no material environmental liabilities at any of
our distribution center locations.

EMPLOYEES

As of December 31, 2001, we employed 2,503 persons, of which approximately 12%
were represented by unions. We have not experienced any strikes or other work
interruptions in recent years and have maintained generally favorable relations
with our employees.

Page 6 of 42

The following table shows the approximate breakdown by job function of our
employees:

Distribution Centers 1,746
Manufacturing 335
Field Sales 309
Corporate Administration 113
--------
Total 2,503
========

ITEM 2--PROPERTIES

Our corporate headquarters are located at 14500 South Outer Forty Road,
Chesterfield, Missouri 63017, in leased facilities. Our manufacturing facility
for softwood mouldings is a 280,000-square foot facility that we own and is
located in Prineville, Oregon. We lease approximately half of our distribution
centers and own the rest. Warehouse space at distribution centers aggregates
approximately 4.2 million square feet. Distribution centers range in size from
12,000 square feet to 160,000 square feet. The types of facilities at these
centers vary by location, from traditional wholesale distribution warehouses,
which may have particular value-added service capabilities such as pre-hung door
operations, to traditional lumberyards and builder support facilities with broad
product offerings and capabilities for a wide range of value-added services. We
believe that our locations are well maintained and adequate for their purposes.

The following table sets forth the geographic location of our distribution
centers as of December 31, 2001:

ITEM 3--LEGAL PROCEEDINGS

We are involved in various lawsuits, claims and proceedings arising in the
ordinary course of business. While the outcome of any lawsuits, claims or
proceedings cannot be predicted, we do not believe that the disposition of any
pending matters will have a material adverse effect on our financial condition,
results of operations or liquidity.

We have been identified as a potentially responsible party in connection with
the cleanup of contamination at a formerly owned property in Montana. We are
voluntarily remediating this property under the oversight of the Montana
Department of Environmental Quality ("DEQ"). When the state agency issues its
final risk assessment of this property, we will conduct a feasibility study to
evaluate alternatives for cleanup, including continuation of our remediation
measures already in place. The DEQ then will select a final remedy, publish a
record of decision and negotiate with us for an administrative order of consent
on the implementation of the final remedy. We currently believe that this
process may take several more years to complete and intend to continue
monitoring and remediating the site, evaluating cleanup alternatives and
reporting regularly to the DEQ during this interim period. Environmental costs
expensed in the income statement during fiscal 2001, 2000, and 1999 were $0.8
million, $0.2 million and $1.2 million, respectively related to this site. Based
on our experience to date in remediating this site, we do not believe that the
scope of remediation that the DEQ ultimately determines will have a materially
adverse effect on our results of operations or financial condition. Until the
DEQ selects a final remedy, however, we can give no assurance as to the scope or
cost to us of the final remediation order.

We are one of many defendants in three pending actions filed in California state
court by three separate claimants against manufacturers, building materials
distributors and retailers, and other defendants by individuals alleging that
they have suffered personal injury as a result of exposure to
asbestos-containing products. The plaintiffs in these cases seek unspecified
damages and allege that they were exposed to asbestos contained in products
distributed by a business acquired in 1994 by Rugby Building Products, Inc.
We believe we are entitled to indemnification of any costs arising from these
cases from The Rugby Group Limited, our principal stockholder, under the

Page 7 of 42

terms of the share exchange agreement pursuant to which we acquired the stock of
Rugby USA, Inc., the parent of Rugby Building Products, Inc., in December 1999.
Rugby Group has denied any obligation to defend or indemnify us for any of these
cases. While we believe that the factual allegations and legal claims asserted
against us in the complaints are without merit, there can be no assurance at
this time that we will recover any costs relating to these claims from insurance
carriers or from Rugby Group or that such costs will not have a material adverse
effect on our business or financial condition.

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our shareholders during the fourth quarter of 2001.

EXECUTIVE OFFICERS OF THE COMPANY

Huttig executive officers as of February 25, 2002 and their respective ages and
positions are set forth below:

Set forth below are the positions held with the company and other principal
occupations and employment of Huttig's executive officers. Mr. Dickens serves in
his capacity pursuant to the terms of an employment agreement with the company.

Barry J. Kulpa has served as the company's President and Chief Executive Officer
since October 1997. Prior to joining Huttig, Mr. Kulpa served as Senior Vice
President and Chief Operating Officer of Dal-Tile International a manufacturer
and distributor of ceramic tile from 1994 to 1997.

Thomas S. McHugh was named Vice President, Finance and Chief Financial Officer
in January 2002. Prior to that, Mr. McHugh served as Corporate Controller and
Treasurer since April 2001 and Corporate Controller since May 2000, when he
joined Huttig. From 1993 until joining Huttig, Mr. McHugh worked at XTRA
Corporation, an international lessor of transportation equipment, most recently
as Corporate Controller.

George M. Dickens, Jr. has served as Vice President, Sales and Marketing since
September 2001. From 1999 to 2001, Mr. Dickens was a Regional Vice President of
the company. From 1997 until 1999, Mr. Dickens was Vice President of Rugby
Building Products Millwork Division. From 1996 to 1997, Mr. Dickens was the
President of Rugby's Midwest Division.

John M. Mullin has served as Vice President, Operations since January 2001. Mr.
Mullin joined Huttig in July 1999 as Director of Operations. From 1997 to 1999,
Mr. Mullin was Director of Logistics for Crane Supply, an industrial plumbing
distributor and a division of Crane Co. From 1995 to 1997, Mr. Mullin was
Logistics Manager for Canwel Distribution, a building products distributor.

Nick H. Varsam has served as Vice President, General Counsel and Corporate
Secretary since May 2001. From January 1999 to May 2001, Mr. Varsam was a
partner with Bryan Cave LLP, a leading international law firm based in St.
Louis, where he focused on securities matters and mergers and acquisitions. From
September 1996 to December 1998, Mr. Varsam was an associate with Bryan Cave
LLP.

PART II

ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on the New York Stock Exchange and trades under the
symbol "HBP."

At February 25, 2002, there were approximately 3,111 holders of record of our
common stock. The following table sets forth the range of high and low sale
prices of the common stock on the New York Stock Exchange Composite Tape during
each fiscal quarter of the fiscal years ended December 31, 2001 and 2000:

Page 8 of 42

We do not anticipate declaring or paying any cash dividends on our common stock
in the foreseeable future in order to make cash generated available for use in
operations, possible acquisitions and debt reduction. Our loan agreements
contain covenants that restrict the payment of dividends and limits the amount
of our common stock that we can repurchase. Under the most restrictive
provisions of our secured revolving credit facility, the amount available to
repurchase our own common stock was limited to $2.6 million at December 31,
2001. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

RECENT SALES OF UNREGISTERED SECURITIES

On January 22, 2001, the Board of Directors approved the grant of options to
purchase 20,000 shares of common stock to each of Messrs. E. Thayer Bigelow,
Jr., Richard S. Forte, Dorsey R. Gardner and James L. L. Tullis, directors of
Huttig. The exercise price of these options is $4.34, which is the average of
the high and low prices of Huttig's common stock on the New York Stock Exchange
for the 10 consecutive trading days ending on January 22, 2001. The options
expire on January 22, 2011 and become exercisable for up to 50% of the shares on
January 22, 2002, 75% on January 22, 2003 and 100% on January 22, 2004. These
option grants were made in reliance upon the exemption from the registration
requirements of the Securities Act of 1933 under Section 4(2) of the Securities
Act.

ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected financial data of Huttig for
each of the five years in the period ended December 31, 2001. The information
contained in the following table may not necessarily be indicative of our past
or future performance as a separate stand-alone company. Such historical data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes thereto included elsewhere in this report.

Page 9 of 42

ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Huttig is one of the largest domestic distributors of building materials used
principally in new residential construction and in home improvement, remodeling
and repair work. We distribute our products through 59 distribution centers
serving 46 states. Our wholesale distribution centers, which sell principally to
building materials dealers and home centers, who, in turn, supply the end-user,
are organized into Northeast, Mid-Atlantic, Southeast, Midwest, Northwest,
Southwest and Industrial regions. Our Builder Resource locations sell directly
to professional builders and large contractors. Our American Pine Products
manufacturing facility in Prineville, Oregon, produces softwood mouldings.
Approximately 38% of American Pine's sales were to Huttig's distribution centers
during fiscal 2001.

During 2000, we completed the integration of Rugby USA, Inc., the parent of
Rugby Building Products, Inc., a residential building materials distributor,
which we acquired in December 1999. In 2001, we turned our focus to expanding
our product line and improving our operating efficiencies. The implementation of
our company-wide, single-platform information system in 2001 has allowed us to
centralize our accounting and procurement functions and improve the quality and
consistency of management reporting and business analysis. We believe our new
information system also will allow us to leverage our size and serve as a
standard foundation for new applications that can be implemented
cost-effectively on a company-wide basis in the future.

During 2002, we intend to continue to:

o expand our product lines and add higher margin products;

o focus on providing efficient, high quality customer service through the
deployment of information technology and implementation of industry
best practices;

o simplify our business processes to make it easier for our customers and
vendors to do business with us;

o leverage our size to negotiate better pricing, delivery and service
terms with our suppliers;

o achieve operating efficiencies by consolidating administrative systems
across the company; and

o pursue opportunities to expand our product lines, service and delivery
capabilities and geographic reach through acquisitions.

Various factors historically have caused our operations to fluctuate from period
to period. These factors include levels of construction, home improvement and
remodeling activity, weather, prices of commodity wood products, interest rates,
availability of credit and other local, regional and economic conditions. All of
these factors are cyclical or seasonal in nature. We anticipate that

Page 10 of 42

fluctuations from period to period will continue in the future. Our first
quarter and, occasionally, our fourth quarter are adversely affected by winter
weather patterns in the Midwest and Northeast, which result in seasonal
decreases in levels of construction activity in these areas.

We believe we have the product offerings, warehouse and builder support
facilities, personnel, systems infrastructure and financial and competitive
resources necessary for continued business success. Our future revenues, costs
and profitability, however, are all influenced by a number of risks and
uncertainties, including those discussed under "Cautionary Statement" below.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the U.S., which require management to make
estimates and assumptions (see Note 1 to the consolidated financial statements).
Management bases these estimates and assumptions on historical results and known
trends as well as our forecasts as to how these might change in the future.
Actual results could differ from these estimates and assumptions. We believe
that of our significant accounting policies, the following may involve a higher
degree of judgment and complexity.

Inventories - Inventories are stated at the lower of cost or market.
Approximately 72% and 78% of inventories were determined by using the LIFO (last
in, first out) method of inventory valuation as of December 31, 2001 and 2000,
respectively; the remainder were determined by the FIFO (first in, first out)
method. During 2001, 2000 and 1999, LIFO inventory quantities were reduced,
resulting in a partial liquidation of the LIFO bases, the effect of which
increased net income by $1.7 million, $1.7 million and $1.6 million,
respectively. An additional allowance for excess and obsolete inventory is
recorded based on our review of quantities on hand compared to estimated future
usage and sales.

Insurance - We carry insurance policies on insurable risks that we believe are
appropriate. We generally have self-insured retention limits and have obtained
fully insured layers of coverage above such self-insured retention limits.
Accruals for self-insurance losses are made based on our claims experience. We
have certain liabilities with respect to existing or unreported claims, and
accrue for these liabilities when it is probable that future costs will be
incurred and such costs can be reasonably estimated.

FISCAL 2001 COMPARED TO FISCAL 2000

Net sales decreased 11.9% from $1,072.9 million in 2000 to $945.1 million in
2001. Excluding sales attributable to branches which were closed or
consolidated, same branch net sales decreased 7.1% from the prior year. The
decrease in net sales was partially attributable to discontinuing the
distribution of Andersen(R) windows, which accounted for $63.8 million of net
sales during the year ended December 31, 2000. Industrial product net sales were
$21.6 million less in 2001 versus 2000. Deflation in the commodity wood market
is estimated to have reduced net sales by $7.0 million in the current year.
Other factors contributing to the decrease in net sales included adverse weather
conditions as compared to 2000, primarily in the first quarter of 2001 and the
general downturn in the economy compared to 2000. The decrease in total net
sales also reflects the closing of five branches during the year, three of which
sold Andersen(R) products. Non-Andersen(R) related net sales at these closed
branches were $22.2 million lower in 2001 than 2000.

Gross profit decreased $19.6 million to $196.1 million in 2001 from $215.7
million in 2000 and as a percentage of sales was 20.7% in 2001 versus 20.1% in
2000. The increase in gross profit as a percentage of net sales resulted from
improved product mix. Net door sales increased from 34% to 36% of our total net
sales while windows declined from 12% to 6% of total net sales during the year.
In 2001, door sales generated a 21% margin compared to a window sales margin of
19%. Gross profit in both 2001 and 2000, was negatively impacted by $1.1 million
of restructuring charges for inventory losses which were recorded as an increase
to costs of sales.

Operating expenses were $166.2 million in 2001 compared to $178.8 million in
2000, a 7.0% decrease. The decrease is partially attributable to lower sales
volume, causing a decrease in selling and delivery expense of $7.7 million.
General and administrative costs were $3.8 million lower primarily due to lower
compensation expense resulting from a reduction in headcount and lower bonus
expense. These decreases were offset by increased warehouse rent and supply
costs at our facilities of approximately $2.2 million and increased provision
for bad debt of $0.4 million. Also included in operating expenses in 2001 were
$1.5 million of costs related to the implementation of our single-platform
information system and $0.8 million related to our on-going environmental
remediation work. Included in operating expenses in 2000 were $6.0 million of
non-recurring costs related to the restructuring of our operations and various
integration costs associated with the Rugby acquisition.

During the fourth quarter of 2001, we recorded $3.2 million of restructuring
charges related to the closure of certain historically under-performing
branches, of which $1.1 million was recorded in cost of sales. The charge was
primarily for severance, inventory

Page 11 of 42

writedowns, vacant facilities and other shutdown-related costs. We expect the
closures to be substantially completed during the first half of 2002.

Gains on disposal of assets were $0.9 million in 2001 compared to $6.5 million
in 2000. The gains in both years resulted primarily from the disposal of
duplicate capital assets in conjunction with our restructuring and branch
consolidation efforts.

Net interest expense decreased by $1.1 million to $10.0 million in 2001 from
$11.1 million in 2000. Our average outstanding debt decreased by $21.9 million
compared to the prior year, resulting in a decrease in interest expense that was
partially offset by an increase in the average interest rate. The higher rates
are attributable to the interest rate swap agreements that we entered into
during the second quarter of 2000 which effectively provide for a fixed rate of
interest.

A total unrealized loss on derivatives of $1.8 million was recorded after
operating profit in 2001. This includes $0.9 million that was amortized from
other comprehensive income ("OCI") and $0.9 million related to the change in
fair value on two interest rate swaps that do not qualify as hedges for
accounting purposes. The interest rate swap that is designated as a cash flow
hedge was determined to be highly effective and substantially all of the change
in the fair value was charged to OCI.

FISCAL 2000 COMPARED TO FISCAL 1999

Net sales increased 34.1% from $800.3 million in 1999 to $1,072.9 million in
2000. Although the 1999 acquisition of Rugby contributed $384.1 million to total
net sales in 2000, this increase was offset by a decrease in same branch net
sales of 14% or $112.0 million. Contributing to the decrease in same branch net
sales was deterioration in commodity wood prices which is believed to have
negatively impacted net sales by $42.0 million versus 1999. Additionally, we
stopped distributing Andersen(R) products in October 2000. In 2000, total net
sales of Andersen(R) products was $63.8 million compared to $79.7 million in
1999.

Gross profit grew 35.8% to $215.7 million in 2000 from $156.8 million in 1999.
The increase resulted primarily from the Rugby acquisition and was offset by a
decrease in same branch results of 11% or $17.0 million and the deterioration in
commodity wood prices which is believed to have negatively impacted gross profit
by $8.0 million. Gross profit as a percentage of sales was 20.1% in 2000 versus
19.8% in 1999. Gross profit in 2000 was also negatively impacted by $1.1 million
of restructuring charges for inventory losses which was recorded as an increase
to cost of sales.

Operating expenses increased by $52.8 million from $126.0 million in 1999 to
$178.8 million in 2000. This increase included approximately $51.0 million
attributable to the acquisition of Rugby and was offset by a decrease in
same branch expenses of $7.0 million. Operating expenses in 2000 include $6.0
million of costs incurred as a result of the restructuring activities described
below. Operating expenses in 1999 include a $5.9 million gain from the
curtailment of a post-retirement health benefit plan which was partially offset
by $3.0 million of other one time costs.

Non-recurring charges, which are included in cost of sales, operating expenses
and restructuring charges on the income statement totaled $9.2 million in 2000.
This includes $3.2 million of restructuring charges related to the termination
of our distribution agreement with Andersen(R) and a strategic plan to
consolidate and integrate various branch and support operations of which $1.1
million was recorded in cost of sales. The charge was primarily for severance,
inventory losses and facility and other shutdown-related costs. We also incurred
$6.0 million of costs that were not chargeable against reserves and are included
in operating expenses.

Gains on disposal of assets were $6.5 million in 2000 compared to a loss on
disposal in 1999 of $0.3 million. The gains in 2000 resulted primarily from the
disposal of duplicate capital assets in conjunction with our restructuring and
branch consolidation efforts.

Interest expense increased $3.3 million primarily as a result of higher average
debt outstanding and other expenses declined $0.6 million.

In 2000, we refinanced our revolving credit facility with Chase Manhattan Bank.
In conjunction with the refinancing of the previously existing facility, we
recorded an extraordinary expense of $0.8 million ($0.5 million net of tax) for
the write-off of unamortized loan fees.

LIQUIDITY AND CAPITAL RESOURCES

We depend on cash flow from operations and funds available under our secured
credit facility to finance seasonal working capital needs, capital expenditures
and acquisitions. Our working capital requirements are generally greatest in the
second and third quarters,

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which reflects the seasonal nature of our business. The second and third
quarters are also typically our strongest operating quarters, largely due to
more favorable weather throughout many of our markets compared to the first and
fourth quarters.

We measure our working capital as the sum of net trade accounts receivable, net
FIFO inventories and trade accounts payable. At December 31, 2001 and 2000, our
working capital was as follows:

For the year ended December 31, 2001, cash and equivalents increased by $2.0
million due principally to cash generated from operating activities.

Changes in operating assets and liabilities provided $9.6 million in cash from
operating activities due to decreases in trade accounts receivable and
inventories and increases in trade accounts payable. In 2000, more cash was
provided by decreases in trade accounts receivable and inventories and more cash
was used by decreases in accrued liabilities than in 2001 due to the liquidation
of accounts receivable, inventories and accrued liabilities acquired in
December 1999 from Rugby.

Cash used in investing activities reflects $3.3 million of capital expenditures
and $1.2 million relating to our purchase of assets from Monarch Manufacturing,
Inc. in Baltimore, Maryland and Hope Lumber and Supply Corporation in Kansas
City, Missouri. These expenditures were offset, in part, by $0.9 million of
proceeds on disposals of assets, as part of our restructuring and branch
consolidation efforts. In 2000, disposals of assets during these branch
consolidation efforts generated $9.2 million which provided cash for capital
expenditures of $5.6 million.

Cash used in financing activities in each of the last two years have been driven
by payments of debt. In 2001, bank debt decreased $10.8 million and $6.7 million
of treasury stock was repurchased.

We have a $200.0 million secured revolving credit facility with Chase Manhattan
Bank as agent. At December 31, 2001, we had three interest rate swap agreements
having a total notional amount of $80.0 million. These swap agreements, in
combination with the revolving credit agreement, effectively provide for a fixed
weighted average rate of 8.9% on up to $80.0 million of our outstanding
revolving credit borrowings. The interest rate on the remainder of the committed
outstanding borrowings under the revolving credit agreement is a floating rate
equal to LIBOR plus 175 basis points, 3.6% at December 31, 2001. When actual
borrowings are less than the total notional amount of the swaps, we incur an
expense equal to the difference between $80.0 million and the actual amount
borrowed, times the difference between the fixed rate on the interest rate swap
agreement and the 90-day LIBOR rate. See Item 7A - "Quantitative and Qualitative
Disclosures About Market Risk." As of February 25, 2002, we had letters of
credit outstanding under the revolving credit facility totaling $6.1 million. As
of February 25, 2002, we had approximately $111.0 million of unused credit
available under our revolving credit facility.

Provisions of the secured revolving credit facility contain various covenants
which, among other things, limit our ability to incur indebtedness, incur liens,
declare or pay dividends or make restricted payments, consolidate, merge or sell
assets and require us to attain certain financial ratios in regards to leverage
(net debt to consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA")), consolidated net worth, and interest expense coverage
(consolidated EBITDA less capital expenditures to consolidated cash interest
expense).

We believe that cash generated from operations and funds available under our
credit facility will provide sufficient funds to meet our currently anticipated
short-term and long-term liquidity and capital expenditure requirements.

Page 13 of 42

STOCK REPURCHASE AUTHORIZATION

In August 2001, our Board of Directors authorized a $15.0 million stock
repurchase program. During 2001, we repurchased 1.1 million shares of our common
stock for $6.7 million. Of these shares, we purchased 790,484 shares from The
Rugby Group Limited, our largest shareholder, for a cash purchase price of $4.7
million, or a per share price of $5.99, the closing price on the New York Stock
Exchange of our common stock on the date of our agreement with Rugby. As part of
our repurchase agreement with Rugby, our repurchase of these shares did not
affect Rugby's existing right to nominate up to three members of our Board of
Directors under our registration rights agreement with Rugby entered into as
part of our acquisition of Rugby Building Products. We hold repurchased shares
as treasury stock and make them available for use in connection with employee
benefit plans and other general corporate purposes. At December 31, 2001, we had
$8.3 million remaining under the stock repurchase authorization.

RESTRUCTURING ACTIVITIES

During the fourth quarter of 2000, we recorded $3.2 million of restructuring
charges related to the termination of our distribution agreement with
Andersen(R) and our adoption of a strategic plan to consolidate and integrate
various branch and support operations of which $1.1 million was included in cost
of sales. The charge was primarily for severance, inventory losses and facility
and other shutdown-related costs. We charged approximately $1.0 million against
this reserve during the fourth quarter of 2000, leaving a balance of $1.1
million at December 31, 2000. We fully utilized the remaining balance during
2001.

During the fourth quarter of 2001, we recorded $3.2 million of restructuring
charges related to the closure of several historically under-performing
branches, of which $1.1 million was recorded in cost of sales for the writedown
of inventory to realizable value. Other components of the charge were $0.8
million for severance related costs and $1.3 million for facility and other
shutdown-related costs. Severance costs relate to approximately 175 employees
primarily at distribution center locations. Included in amounts charged against
this restructuring reserve in 2001 was $0.5 million for inventory losses and
$0.3 million for facility shutdown costs. We expect the closures to be
substantially completed during the first half of 2002.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
Goodwill and Other Intangible Assets, which is required to be adopted in fiscal
years beginning after December 15, 2001. Under the provisions of this statement,
goodwill is no longer subject to amortization over its estimated useful life.
Alternatively, goodwill will be subject to at least an annual assessment for
impairment by applying a fair value based test. Goodwill existing as of January
1, 2002 will be subject to a transitional assessment of any impairment issues
during 2002. Goodwill amortization for the years ended December 31, 2001 and
2000 was $2.4 million per year. We are currently evaluating the impact of this
pronouncement, as it relates to the transitional and annual assessments for
impairment of recorded goodwill on our consolidated financial statements.

In October 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment of Disposal of Long-lived Assets, which is
required to be adopted for fiscal years beginning after December 15, 2001. This
statement establishes a single accounting model for the impairment or disposal
of long-lived assets and broadens the presentation of discontinued operations.
We believe the adoption of Statement No. 144 will not have a material impact on
our consolidated financial statements.

CAUTIONARY STATEMENT

This Annual Report on Form 10-K and our annual report to shareholders contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements present management's
expectations, beliefs, plans and objectives regarding our future business and
financial performance. These forward-looking statements are based on current
projections, estimates, assumptions and judgments, and involve known and unknown
risks and uncertainties. There are a number of factors that could cause our
actual results to differ materially from those expressed or implied in these
forward-looking statements. These factors include, but are not limited to, the
strength of the national and local new residential construction and home
improvement and remodeling markets, which in turn depend on factors such as
interest rates, employment levels, availability of credit, prices of commodity
wood products, consumer confidence, adverse weather conditions, the level of
competition in our industry, our relationships with suppliers of the products we
distribute and our exposure to costs of complying with environmental laws and
regulations. Additional information concerning these and other factors is
included below. We disclaim any obligation to publicly update or revise any of
these forward-looking statements.

Page 14 of 42

OUR SALES AND PROFITABILITY DEPEND SIGNIFICANTLY ON NEW RESIDENTIAL CONSTRUCTION
AND HOME IMPROVEMENT ACTIVITY, WHICH IS HIGHLY CYCLICAL AND SEASONAL.

Our sales depend heavily on the strength of national and local new residential
construction and home improvement and remodeling markets. The strength of these
markets depends on new housing starts and residential renovation projects, which
are a function of many factors beyond our control. Some of these factors include
interest rates, employment levels, availability of credit, prices of commodity
wood products and consumer confidence. Future downturns in the markets that we
serve or in the economy generally could have a material adverse effect on our
operating results and financial condition. Reduced levels of construction
activity may result in intense price competition among building materials
suppliers, which may adversely affect our gross margins.

Our first quarter revenues and, to a lesser extent, our fourth quarter revenues
are typically adversely affected by winter construction cycles and weather
patterns in colder climates as the level of activity in the new construction and
home improvement markets decreases. Because much of our overhead and expense
remains relatively fixed throughout the year, our profits also tend to be lower
during the first and fourth quarters.

THE BUILDING MATERIALS DISTRIBUTION INDUSTRY IS EXTREMELY COMPETITIVE AND WE MAY
NOT BE ABLE TO COMPETE SUCCESSFULLY WITH SOME OF OUR EXISTING COMPETITORS OR NEW
ENTRANTS IN THE MARKETS WE SERVE.

The building materials distribution industry is extremely competitive. Our
competition varies by product line, customer classification and geographic
market. The principal competitive factors in our industry are:

o availability of product;

o service and delivery capabilities;

o ability to assist with problem-solving;

o customer relationships; and

o breadth of product offerings.

Also, financial stability and geographic coverage are important to manufacturers
in choosing distributors for their products.

We compete with many local, regional and, in some markets and product
categories, national building materials distributors and dealers. We also
compete with major integrated product manufacturers with national distribution
capability, such as Georgia-Pacific, Weyerhauser and Boise-Cascade. To a limited
extent in some of our markets, we compete with the large home center chains like
The Home Depot and Lowe's for the business of smaller contractors. Some of our
competitors have greater financial and other resources and may be able to
withstand sales or price decreases better than we can. We can give no assurance
that we will continue to compete effectively with these existing or new
competitors.

THE TERMINATION OF KEY SUPPLIER RELATIONSHIPS MAY HAVE AN IMMEDIATE ADVERSE
EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We distribute building materials that we purchase from a number of major
suppliers. As is customary in our industry, most of our contracts with these
suppliers are terminable without cause on short notice. In October 2000,
Andersen(R) Windows terminated our distribution agreement, at which time we
stopped distributing Andersen(R) windows and were forced to find alternative
window suppliers. Andersen(R) windows sales accounted for $63.8 million and
$79.7 million in 2000 and 1999, respectively. As a result of the termination of
the distribution agreement, sales of windows represented 6% of our total sales
in 2001, compared with 12% and 17% in 2000 and 1999, respectively. Although we
believe that relationships with our existing suppliers are strong and that we
would have access to similar products from competing suppliers, any disruption
in our sources of supply, particularly of our most commonly sold items, could
have a material adverse effect on our financial condition and results of
operations. We also can give no assurance that any supply shortages resulting
from unanticipated demand or production difficulties will not occur from time to
time or have a material adverse effect on our financial condition and results of
operations.

FLUCTUATION IN PRICES OF COMMODITY WOOD PRODUCTS THAT WE BUY AND THEN RESELL MAY
HAVE A SIGNIFICANT IMPACT ON OUR RESULTS OF OPERATIONS.

Parts of our business, such as the softwood moulding manufacturing operation and
our distribution centers that sell directly to home builders and large
contractors, directly face the risk of periodic fluctuations in the prices of
wood commodities. Changes in wood

Page 15 of 42

commodity prices between the time we buy these products and the time we resell
them have occurred in the past and we expect fluctuations to occur again in the
future. There can be no assurance that we will be able to manage these
fluctuations effectively or minimize any impact of these changes on our
financial condition and results of operations.

WE FACE RISKS OF INCURRING SIGNIFICANT COSTS TO COMPLY WITH ENVIRONMENTAL
REGULATIONS.

We are subject to federal, state and local environmental protection laws and
regulations. We can give no assurance that future environmental liabilities will
not have a material adverse effect on our financial condition or results of
operations. We have been identified as a potentially responsible party in
connection with the clean up of contamination at a formerly owned property in
Montana. We are voluntarily remediating this property under the oversight of the
Montana Department of Environmental Quality ("DEQ"). When the state agency
issues its final risk assessment of this property, we will conduct a feasibility
study to evaluate alternatives for cleanup, including continuation of our
remediation measures already in place. The DEQ then will select a final remedy,
publish a record of decision and negotiate with us for an administrative order
of consent on the implementation of the final remedy. We currently believe that
this process may take several more years to complete and intend to continue
monitoring and remediating the site, evaluating cleanup alternatives and
reporting regularly to the DEQ during this interim period. Based on our
experience to date in remediating this site, we do not believe that the scope of
remediation that the DEQ ultimately determines will have a materially adverse
effect on our results of operations or financial condition. Until the DEQ
selects a final remedy, however, we can give no assurance as to the scope or
cost to us of the final remediation order.

In addition, some of our current and former distribution centers are located in
areas of current or former industrial activity where environmental contamination
may have occurred, and for which we, among others, could be held responsible. We
currently believe, but can give no assurance, that there are no material
environmental liabilities at any of our distribution center locations.

WE FACE THE RISKS THAT PRODUCT LIABILITY CLAIMS AND OTHER LEGAL PROCEEDINGS
RELATING TO THE PRODUCTS WE DISTRIBUTE MAY ADVERSELY AFFECT OUR BUSINESS AND
RESULTS OF OPERATIONS.

As is the case with other companies in our industry, we face the risk of product
liability and other claims in the event that the use of products that we have
distributed results in personal injury or other damages. For example, we are
currently defending lawsuits involving plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. See Part I, Item 3 - "Legal Proceedings." Product liability claims in
the future, regardless of their ultimate outcome and whether or not they are
covered under our insurance policies or may be indemnified by our suppliers,
could result in costly litigation and have a material adverse effect on our
business and results of operations.

OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO IDENTIFY ACQUISITION
OPPORTUNITIES, INTEGRATE ACQUIRED BUSINESSES AND REALIZE THE VALUE WE EXPECTED
AT THE TIME OF THEIR ACQUISITION.

As part of our business strategy, we plan to pursue additional acquisitions of
comparable businesses to expand our product offerings and geographic coverage
and for other strategic reasons. We may not be successful in finding desirable
acquisition candidates or acquiring businesses that we do identify. Depending
upon the size of a particular transaction or the magnitude of all of our
acquisition activity, future acquisitions could require additional equity
capital, further borrowings and the consent of our lenders. There can be no
assurances that our lenders will consent to any capital raising or acquisition
transactions. If we are not correct when we assess the value, strengths,
weaknesses, liabilities and potential profitability of acquisition candidates or
if we are not successful in integrating the operations of the acquired
businesses, it could have a material adverse effect on our financial condition
and results of operation.

OUR FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FUTURE SUCCESS.

Our future success depends, to a significant extent, upon the continued service
of our executive officers and other key management and technical personnel and
on our ability to continue to attract, retain and motivate qualified personnel.
The loss of the services of one or more key employees or our failure to attract,
retain and motivate qualified personnel could have a material adverse effect on
our business.

ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Huttig has exposure to market risk as it relates to the effects of changes in
interest rates. We had bank debt outstanding at December 31, 2001 and 2000,
under our revolving credit agreement of $69.8 million and $80.0 million,
respectively. Also at December 31, 2001, we had three interest rate swap
agreements having a total notional principal amount of $80.0 million. These swap
agreements in

Page 16 of 42

combination with the terms of our revolving credit agreement, effectively
provide for a fixed weighted average rate of 8.9% on up to $80.0 million of our
outstanding borrowings. The interest rate on the committed outstanding
borrowings in excess of $80.0 million under the revolving credit agreement is a
floating rate equal to LIBOR plus 175 basis points, 3.6% at December 31, 2001.
When actual borrowings under the revolving credit agreement are less than the
notional amount of the interest rate swaps, we incur an expense equal to the
difference between $80.0 million and the actual amount borrowed, times the
difference between the fixed rate on the interest rate swap agreement and the
90-day LIBOR rate.

Included in the financial results is the impact of adopting SFAS No. 133, which
established accounting and reporting standards for derivative and hedging
activities. We have three interest rate swap agreements that provide for fixed
interest rates on $80.0 million of our outstanding borrowings. Under the
accounting treatment prescribed by SFAS No. 133, our liabilities include the
fair value of these swaps of $4.5 million and shareholders' equity includes $1.7
million, net of tax, which is recorded as other comprehensive income. Fair value
is determined by using discounted cash flows based on estimated forward 90-day
LIBOR rates through the date of maturity, May 2003, on the swaps. Included in
expense, after profit from operations, is $1.8 million of an unrealized loss
related to the portion of our swap agreements, which do not qualify for hedge
accounting treatment according to the SFAS No. 133 criteria. This unrealized
loss resulted in a decrease to net income per share of $0.05 in 2001. There is
no impact on cash flow as a result of the accounting treatment required by SFAS
No. 133.

Effective January 1, 2002, we entered into a price swap agreement to purchase
specified levels of heating oil on a monthly basis at a fixed price, in an
effort to hedge the cost of our diesel fuel consumption for our delivery fleet.
As heating oil rate changes effectively correlate to diesel fuel rate changes,
we intend to account for this agreement as a cash flow hedge under SFAS No. 133.
This swap agreement is intended to hedge approximately 60% of our estimated 2002
consumption of diesel fuel or approximately 1.8 million gallons. As a result of
the agreement, we are subject to commodity price risk for changes in the price
of diesel fuel because we have locked in a fixed rate of $0.585 per gallon of
heating oil.

We are subject to periodic fluctuations in the price of wood commodities.
Profitability is influenced by these changes as prices change between the time
we buy and sell the wood. In addition, to the extent changes in interest rates
affect the housing and remodeling market, we would be affected by such changes.

Page 17 of 42

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Huttig Building Products, Inc.:

We have audited the accompanying consolidated balance sheets of Huttig Building
Products, Inc. and its subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 2001 and 2000, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.

/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 25, 2002

Page 18 of 42

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions)

see notes to consolidated financial statements

Page 19 of 42

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Per Share Data)

see notes to consolidated financial statements

Page 20 of 42

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Millions, Except Share and Per Share Data)

see notes to consolidated financial statements

Page 21 of 42

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN MILLIONS)

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HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)

see notes to consolidated financial statements

Page 23 of 42

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

1. ACCOUNTING POLICIES AND PROCEDURES

ORGANIZATION -- Huttig Building Products, Inc. and subsidiaries (the "Company"
or "Huttig") is a distributor of doors, windows, mouldings, trim and related
building products in the United States and operates one finished lumber
production facility. The Company distributes its products through 59
distribution centers serving 46 states, principally for new residential
construction and renovation. The Company was formerly a wholly owned subsidiary
of Crane Co. ("Crane") through Crane International Holdings, a direct subsidiary
of Crane. On December 16, 1999, Crane distributed all of the outstanding common
stock of the Company to Crane's stockholders. In addition, on December 16, 1999,
the Company acquired the building products and millwork branches of Rugby USA,
Inc. ("Rugby"), a subsidiary of Rugby Group PLC.

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Huttig Building Products, Inc. and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION -- Revenues are generally recorded when title passes to the
customer, which occurs upon delivery of product, or when services are rendered.

USE OF ESTIMATES -- The preparation of the Company's consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America 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. Actual results may differ from these estimates.

RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.

INVENTORIES -- Inventories are stated at the lower of cost or market.
Substantially, all of the Company's inventory is finished goods. Approximately
72% and 78% of inventories were determined by using the LIFO (last in, first
out) method of inventory valuation as of December 31, 2001 and 2000,
respectively; the remainder were determined by the FIFO (first in, first out)
method. Had the Company used the FIFO method of inventory valuation for all
inventories, net income would have decreased by $1.7 million, $1.7 million and
$1.2 million in 2001, 2000 and 1999, respectively. During 2001, 2000 and 1999,
the LIFO inventory quantities were reduced, resulting in a partial liquidation
of the LIFO bases, the effect of which increased net income by $1.7 million,
$1.7 million and $1.6 million, respectively. The replacement cost would be
higher than the LIFO valuation by $7.8 million in 2001 and $10.6 million in
2000.

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 which range from 3 to 25 years.

CASH AND EQUIVALENTS -- The Company considers all liquid interest-earning
investments with a 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.

OTHER ASSETS -- Goodwill is amortized on a straight-line basis over 15 to 40
years. In future periods, goodwill amortization will be affected by the
Company's adoption of Statement of Financial Accounting Standards ("SFAS") No.
142, Goodwill and Other Intangible Assets. See Note 1, "New Accounting
Pronouncements." Other intangible assets are amortized on a straight-line basis
over their estimated useful lives which range from two to five years.

VALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates the
carrying value of its long-lived assets, including goodwill and other tangible
assets, when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than its

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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.

STOCK REPURCHASE AUTHORIZATION - In August 2001, the Company's Board of
Directors authorized a $15.0 million stock repurchase program. During 2001,
Huttig repurchased 1.1 million shares of its common stock for $6.7 million. Of
these shares, the Company purchased 790,484 shares from The Rugby Group Limited,
Huttig's largest shareholder, for a cash purchase price of $4.7 million, or a
per share price of $5.99, the closing price on the New York Stock Exchange of
our common stock on the date of our agreement with Rugby. As part of the
repurchase agreement with Rugby, the repurchase of these shares did not affect
Rugby's existing right to nominate up to three members of the Board of Directors
under the registration rights agreement with Rugby entered into as part of the
acquisition of Rugby Building Products. Repurchased shares are held as treasury
stock and are available for use in connection with employee benefit plans and
other general corporate purposes. At December 31, 2001, the Company had $8.3
million remaining under the stock repurchase authorization.

SERVICES PROVIDED BY CRANE -- Prior to the Spin-off, Crane supplied the Company
certain shared services including insurance, legal, tax and treasury functions.
The costs associated with these services were charged to the Company through an
intercompany account based upon specific identification.

SHIPPING - Costs associated with shipping our products to our customers are
charged to operating expense. Shipping costs were $31.7 million, $33.4 million
and $20.0 million in 2001, 2000 and 1999, respectively.

INCOME TAXES -- Through the date of its Spin-off from Crane, the Company was
included in the federal income tax return of Crane. The Company was charged its
proportionate share of federal income taxes determined as if it filed a separate
federal income tax return. Income tax payments represented payments of
intercompany balances. Subsequent to December 16, 1999, the date of the
Spin-off, Huttig filed stand-alone federal tax returns. Deferred income taxes
reflect the impact of temporary differences between assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes using currently enacted tax rates.

NET INCOME PER SHARE -- Basic net income per share is computed by dividing
income available to common stockholders by weighted average shares outstanding.
Diluted net income per share reflects the effect of all other outstanding common
stock equivalents using the treasury stock method.

ACCOUNTING FOR STOCK-BASED COMPENSATION - SFAS No. 123, Accounting for
Stock-Based Compensation, sets forth a fair value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company has
elected to apply APB No. 25, Accounting for Stock Issued to Employees, to
account for its stock-based compensation plans.

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
economic sector. The Company continuously evaluates its customers' financial
condition but does not generally require collateral. The concentration of credit
risk with respect to trade accounts receivable is limited due to the Company's
large customer base located throughout the United States. The Company maintains
an allowance for doubtful accounts based upon the expected collectibility of its
accounts receivable.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Effective January
1, 2001, Huttig adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments used for hedging activities. All derivative instruments, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income ("OCI") and are recognized in the
statement of income when the hedged item affects earnings. Ineffective portions
of changes in the fair value of cash flow hedges are recognized in earnings. If
the derivative is not designated as a hedge for accounting purposes, changes in
fair value are immediately recognized in earnings.

The Company holds three interest rate swap agreements, with a total notional
amount of $80.0 million, that are used to hedge interest rate risks related to
its variable rate borrowings. Two of the interest rate swap agreements, with
notional amounts totaling

Page 25 of 42

$42.5 million, which management believes are economic hedges and mitigate
exposure to fluctuations in variable interest rates, do not qualify as hedges
for accounting purposes. The remaining interest rate swap, with a notional
amount of $37.5 million, is accounted for as a cash flow hedge.

The adoption of SFAS No. 133 on January 1, 2001 resulted in an increase to
non-current liabilities of $2.8 million and a cumulative pre-tax reduction to
OCI of $2.8 million ($1.8 million after-tax). Of the reduction to OCI at January
1, 2001, $1.4 million is related to the two interest rate swaps that have not
been designated as hedges for accounting purposes. Of this amount, $0.5 million
will be reclassified into earnings during the next twelve months.

For the year ended December 31, 2001, a total unrealized loss on derivatives of
$1.8 million was recorded after operating profit. This includes $0.9 million
that was amortized from OCI and $0.9 million related to the change in fair value
on the two interest rate swaps that do not qualify as hedges for accounting
purposes. The interest rate swap that is designated as a cash flow hedge was
determined to be highly effective and substantially all of the change in the
fair value was charged to OCI. At December 31, 2001, liabilities include the
fair value of these swaps of $4.5 million and shareholders' equity includes $1.7
million net of tax which is recorded as OCI. Fair value was determined by using
discounted cash flows based on estimated forward 90-day LIBOR rates through the
date of maturity, May 2003, on the swaps.

There is no impact on cash flow as a result of the accounting treatment required
by SFAS No. 133 for the three interest rate swap agreements.

NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting Standard
Board issued Statement No. 142, Goodwill and Other Intangible Assets, which is
required to be adopted in fiscal years beginning after December 15, 2001. Under
the provisions of this statement, goodwill is no longer subject to amortization
over its estimated useful life. Alternatively, goodwill will be subject to at
least an annual assessment for impairment by applying a fair value based test.
Goodwill existing as of January 1, 2002 will be subject to a transitional
assessment of any impairment issues during 2002. Goodwill amortization for the
years ended December 31, 2001 and 2000 was $2.4 million per year. The Company is
currently evaluating the impact of this pronouncement as it relates to the
transitional and annual assessments for impairment of recorded goodwill on its
consolidated financial statements.

In October 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment of Disposal of Long-Lived Assets, which is
required to be adopted for fiscal years beginning after December 15, 2001. This
statement establishes a single accounting model for the impairment or disposal
of long-lived assets and broadens the presentation of discontinued operations.
The Company believes that the adoption of Statement No. 144 will not have a
material impact on its consolidated financial statements.

2. SPIN-OFF FROM CRANE

On December 16, 1999, the Company completed its tax-free Spin-off from Crane.
Crane made a capital contribution of $4.5 million to the Company. Then Crane
distributed all issued and outstanding shares of Huttig common stock, together
with accompanying preferred share purchase rights (see Note 7), to holders of
record of Crane common stock as of the close of business on December 8, 1999.
The Spin-off was made on the basis of one share of Huttig common stock for every
4.5 shares of Crane common stock.

3. GOODWILL AND ACQUISITIONS

Goodwill consists of the following at December 31, 2001 and 2000:

During the first half of 2001, the Company acquired certain assets from Monarch
Manufacturing, Inc. in Baltimore, Maryland and Hope Lumber and Supply
Corporation in Kansas City, Missouri, for an aggregate purchase price of $1.2
million. In connection with the acquisition of Monarch Manufacturing, Inc., the
Company recorded $0.1 million of goodwill.

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On December 16, 1999 the Company completed its acquisition of Rugby. Crane,
Huttig and Rugby Group PLC entered into a Share Exchange Agreement which
provided for the transfer to Huttig of all the outstanding capital stock of
Rugby in exchange for 6.5 million newly issued shares of Huttig common stock. As
a result of this exchange, Rugby became a wholly owned subsidiary of Huttig.

The acquisition of Rugby was accounted for under the purchase method of
accounting. The $26.6 million value of the 6.5 million shares of stock
issued in 1999 was allocated to the assets acquired and liabilities assumed
based upon their fair values at the closing date. The relative fair values
of the assets acquired and liabilities assumed were based upon valuations
and other studies. However, the fair value of the net assets acquired
exceeded the purchase price resulting in the write-off of all non-current
assets of Rugby and a deferred credit of $0.8 million was recorded in 1999.
During fiscal year 2000, the Company determined the ultimate costs related
to exit plans adopted as part of the acquisition exceeded the liabilities
that were initially accrued by $2.0 million. Consequently, the acquisition
cost was increased by this amount. In addition, the deferred asset decreased
by $2.2 million and the previously reported income taxes payable of $1.8
million was reduced to zero. As a result, the previously reported deferred
credit balance of $0.8 million at December 31, 1999 was reduced to zero and
assets were increased by $1.6 million.

The following table summarizes the allocation of the stock consideration
paid to the fair value of the assets acquired and the liabilities assumed by
the Company in connection with the acquisition of Rugby:

Accounts receivable $ 42.6
Inventories 39.4
Other current assets 4.7
Deferred income taxes -- non-current 11.5
Property, plant and equipment 1.6
Note payable to Rugby Group PLC (32.0)
Accounts payable (26.5)
Accrued liabilities (14.7)
--------
Stock consideration paid $ 26.6
========

Costs of $2.3 million for professional fees related to the acquisition were
included in accrued liabilities in the allocation of the acquisition cost above.

In December 1999, the Company established a $4.7 million reserve for asset
impairments and costs expected to be incurred to exit certain activities
connected with the acquisition of Rugby. During 2000, this reserve increased by
$2.2 million as a result of a change in estimate of the planned exit costs and
the Company also charged $6.7 million of costs against this reserve. The
remaining balance of $0.2 million was for costs related to remaining facility
shutdowns. The acquisition of Rugby was accounted for by the purchase method
and, accordingly, this reserve was included in the allocation of the acquisition
costs. The remaining balance was fully utilized in the first quarter of 2001.

During 1999, the Company acquired Cherokee Lumber Company and Cherokee Millwork
Company, a manufacturer and distributor of lumber and millwork products in the
Maryville, Tennessee area, for a total cost of $1.9 million. In connection with
the acquisition, the Company recorded approximately $0.6 million of goodwill
which is being amortized on a straight-line basis over 15 years.

All acquisitions were accounted for by the purchase method. The results of
operations for all acquisitions have been included in the consolidated financial
statements from their respective dates of purchase. The following unaudited pro
forma financial information presents the combined results of operations of the
Company and Rugby, if the acquisition of Rugby had taken place at the beginning
of 1999. The pro forma amounts give effect to certain adjustments including the
amortization of goodwill and intangibles, increased interest expense and income
tax effects. This pro forma information does not necessarily reflect the results
of operations as it would have been if the businesses had been managed by the
Company during these periods and is not indicative of results that may be
obtained in the future.

Page 27 of 42

4. BUSINESS RESTRUCTURING

During the fourth quarter of 2001, the Company recorded $3.2 million of
restructuring charges related to the closure of several historically
under-performing branches, of which $1.1 million was recorded in cost of sales
for the writedown of inventory to realizable value. Other components of the
charge were $0.8 million for severance related costs and $1.3 million for
facility and other shutdown-related costs. Severance costs relate to
approximately 175 employees primarily at distribution center locations. Included
in amounts charged against this restructuring reserve in 2001 were $0.5 million
for inventory losses and $0.3 million for facility and other shutdown costs. The
Company expects the closures to be substantially completed during the first half
of 2002.

During the fourth quarter of 2000, the Company recorded $2.1 million as a
restructuring charge related to the termination of the Company's distribution
agreement with Andersen(R), of which $0.8 million was recorded in cost of
sales. The charge was primarily for the downsizing of branch operations that
previously distributed Andersen(R) products. At December 31, 2000, approximately
$1.1 million remained in the reserve. The remaining balance was fully utilized
during the first nine months of 2001.

During the fourth quarter of 1999, the Company established a $5.3 million
reserve for restructuring costs expected to be incurred under a strategic plan
to consolidate and integrate various branch operations and support functions, of
which $2.2 million was included in cost of sales. During the fourth quarter of
2000, the Company increased this reserve by $1.1 million, of which $0.3 million
was included in cost of sales. During 2000, $6.2 million of costs were charged
against the reserve, which included $2.5 million related to inventory losses.
The remaining balance of $0.2 million was primarily for facility shutdown costs
and was fully utilized in early 2001.

5. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful trade accounts receivable as of December 31, 2001,
2000 and 1999 consists of the following:

6. DEBT

Debt as of December 31, 2001 and 2000 consisted of the following:

CREDIT AGREEMENT -- During April 2000, the Company entered into a $200.0 million
secured revolving credit facility (the "Credit Agreement") with Chase Manhattan
Bank. The rate on the facility is LIBOR plus a variable rate based on the
Company's ratio of debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). At December 31, 2001 and 2000, the Company

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had outstanding three interest rate swap contracts having a total notional
amount of principal of $80.0 million. These swap agreements, in combination with
the revolving credit agreement, effectively provide for a fixed weighted average
interest rate of 8.9% on up to $80.0 million outstanding revolving credit
borrowings. The remainder of the outstanding borrowings under the revolving
credit agreement are currently at a floating rate of LIBOR plus 175 basis
points, 3.6% at December 31, 2001. When actual borrowings are less than the
total notional amount of the swap, the Company incurs an expense equal to the
difference between $80.0 million and the actual amount borrowed, times the
difference between the fixed rate on the interest rate swap agreement and the
90-day LIBOR rate. The current revolving credit facility expires in April 2003.
The proceeds from the facility were used to retire the previously existing
$125.0 million credit facility and a $25.0 million term loan. In conjunction
with the refinancing of the previously existing facility, the Company recorded
an extraordinary expense in 2000 of $0.8 million ($0.5 million net of tax) for
the write-off of the unamortized loan fees.

Provisions of the Credit Agreement contain various covenants which, among other
things, limit the Company's ability to incur indebtedness, incur liens, declare
or pay dividends or make restricted payments, consolidate, merge or sell assets
and require the Company to attain certain financial ratios in regards to
leverage, consolidated net worth, and interest expense coverage. Under the most
restrictive provisions of the Company's Credit Agreement, the amount available
to repurchase the Company's common stock was limited to $2.6 million at December
31, 2001.

At December 31, 2001, the Company had letters of credit outstanding under the
Credit Agreement totaling $6.1 million and $124.1 million of unused credit
available.

The Credit Agreement is collateralized by the Company's trade accounts
receivable, inventory and owned facilities.

MATURITIES -- At December 31, 2001, the aggregate scheduled maturities of debt
are as follows:

2002 $ 0.9
2003 70.8
2004 0.8
2005 0.7
2006 0.4
------
Total $ 73.6
======

The estimated fair value of the Company's debt approximates book value since the
interest rates on nearly all of the outstanding borrowings are frequently
adjusted.

7. PREFERRED SHARE PURCHASE RIGHTS

In December 1999, the Company adopted a Shareholder Rights Plan. The Company
distributed one preferred share purchase right for each outstanding share of
common stock at the date of the Spin-off. The preferred rights were not
exercisable when granted and may only become exercisable under certain
circumstances involving actual or potential acquisitions of the Company's common
stock by a person or affiliated persons. Depending upon the circumstances, if
the rights become exercisable, the holder may be entitled to purchase shares of
the Company's Series A Junior Participating Preferred Stock. Preferred shares
purchasable upon exercise of the rights will not be redeemable. Each preferred
share will be entitled to preferential rights regarding dividend and liquidation
payments, voting power, and, in the event of any merger, consolidation or other
transaction in which common shares are exchanged, preferential exchange rate.
The rights will remain in existence until December 6, 2009 unless they are
earlier terminated, exercised or redeemed. The Company has authorized 5 million
shares of $.01 par value preferred stock of which 250 thousand shares have been
designated as Series A Junior Participating Preferred Stock.

8. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its vehicles, equipment and warehouse and
manufacturing facilities under capital and 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
or remaining terms of one year or more consisted of the following at December
31, 2001:

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The weighted average interest rate for capital leases is 6.6%. These obligations
mature in varying amounts through 2016. Rental expense for all operating leases
was $17.7 million, $15.3 million and $8.2 million in 2001, 2000 and 1999,
respectively.

The cost of assets capitalized under leases is as follows at December 31, 2001
and 2000:

The Company carries insurance policies on insurable risks 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 the Company's
claims experience. The Company has certain liabilities with respect to existing
or unreported claims, and accrues for these liabilities when it is probable that
future costs will be incurred and such costs can be reasonably estimated.

The Company is involved in various lawsuits, claims and proceedings arising in
the ordinary course of its business. While the outcome of any lawsuits, claims
or proceedings cannot be predicted, it is the opinion of management that the
disposition of any pending matters will not have a material adverse effect on
our financial condition, results of operations or liquidity.

The Company is subject to federal, state and local environmental protection laws
and regulations. The Company's management believes the Company is in compliance,
or is taking action aimed at assuring compliance, with applicable environmental
protection laws and regulations. However, there can be no assurance that future
environmental liabilities will not have a material adverse effect on the
consolidated financial condition or results of operations. The Company has been
identified as a potentially responsible party in connection with the clean up of
contamination at a formerly owned property in Montana. The Company is
voluntarily remediating this property under the oversight of the Montana
Department of Environmental Quality ("DEQ"). When the state agency issues its
final risk assessment of this property, the Company will conduct a feasibility
study to evaluate alternatives for cleanup, including continuation of our
remediation measures already in place. The DEQ then will select a final remedy,
publish a record of decision and negotiate with us for an administrative order
of consent on the implementation of the final remedy. The Company's management
currently believes that this process may take several more years to complete and
intends to continue monitoring and remediating the site, evaluating cleanup
alternatives and reporting regularly to the DEQ during this interim period.
Based on experience to date in remediating this site, management of the Company
does not believe that the scope of remediation that the DEQ ultimately
determines will have a materially adverse effect on its results of operations or
financial condition.

In addition, some of the Company's current and former distribution centers are
located in areas of current or former industrial activity where environmental
contamination may have occurred, and for which the Company, among others, could
be held responsible. The Company's management currently believes that there are
no material environmental liabilities at any of its distribution center
locations.

Page 30 of 42

Huttig is one of many defendants in three pending actions filed in California
state court by three separate claimants against manufacturers, building
materials distributors and retailers and other defendants by individuals
alleging that they have suffered personal injury as a result of exposure to
asbestos-containing products. The plaintiffs in these cases seek unspecified
damages and allege that they were exposed to asbestos contained in products
distributed by a business acquired in 1994 by Rugby Building Products, Inc.
Huttig believes it is entitled to indemnification of any costs arising from
these cases from The Rugby Group Limited, Huttig's principal stockholder, under
the terms of the share exchange agreement pursuant to which Huttig acquired the
stock of Rugby USA, Inc., the parent of Rugby Building Products, Inc., in
December 1999. Rugby Group has denied any obligation to defend or indemnify
Huttig for any of these cases. While Huttig believes that the factual
allegations and legal claims asserted against Huttig in the complaints are
without merit, there can be no assurance at this time that Huttig will recover
any of its costs relating to these claims from insurance carriers or from Rugby
Group or that such costs will not have a material adverse effect on Huttig's
business or financial condition.

9. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLANS -- Prior to the Spin-off, the Company participated in
Crane's defined benefit pension plans covering substantially all salaried and
hourly employees not covered by collective bargaining agreements. The Company
was charged its proportionate share of the total expense for the plans. Pension
expense related to Crane's defined benefit pension plans was $1.1 million in
1999.

Effective as of the Spin-off, Company employees who had accrued benefits under a
Crane pension plan became fully vested in those benefits and stopped accruing
benefits under the Crane pension plan.

The Company also participates in several multi-employer pension plans that
provide benefits to certain employees under collective bargaining agreements.
Total contributions to these plans were $0.6 million, $0.6 million, and $0.5
million in 2001, 2000 and 1999, respectively.

HEALTH BENEFITS PLANS -- Prior to the Spin-off, employees hired before January
1, 1992 were eligible for post-retirement medical and life insurance benefits if
they met minimum age and service requirements.

Effective with the Spin-off, the Company will pay 50% of any premium or cost of
such coverage for its current retirees between the ages of 55 and 65. All other
employees not currently qualified will not receive post-retirement medical and
life insurance benefits. The reduction in benefits resulted in a curtailment
gain of $5.9 million in 1999.

The following table sets forth the amounts recognized in the Company's balance
sheet at December 31, 2001, 2000 and 1999 for the Company sponsored
post-retirement benefit plan:

Page 31 of 42

In 2001, the cost of covered healthcare benefits was assumed to increase 10%,
and then decrease gradually to 5% by 2007 and remain at that level thereafter.
In 2000, the cost of covered healthcare benefits was assumed to increase 7.5%,
and then to decrease gradually to 5.0% by 2006 and remain at that level
thereafter. In 1999, the cost of covered healthcare benefits was assumed to
increase 7.2%, and then to decrease gradually to 5.0% by 2005 and remain at that
level thereafter. A one percentage point change would not have material effect
on the total service and interest cost components or on the post retirement
benefit obligation.

DEFINED CONTRIBUTION PLANS -- Effective with the Spin-off, the Company
established a new qualified defined contribution plan for its employees that is
substantially similar to the Crane plan.

At the Spin-off date, all of the account balances of employees under the Crane
plan became fully vested and a corresponding amount of assets were transferred
from the Crane plan to one or more of the qualified defined contribution plans
maintained by the Company.

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 contributions were $1.8 million, $1.9 million and $1.5 million in
2001, 2000 and 1999, respectively.

During 2001, the Company established a nonqualified deferred compensation plan
to allow for the deferral of employee voluntary contributions that are limited
under the Company's existing qualified defined contribution plan. The plan
provides for deferral of up to 50% of an employee's total compensation and
matching contributions based upon a percentage of the employee's voluntary
contributions. During 2001, there were no contributions made to this plan.

10. STOCK AND INCENTIVE COMPENSATION PLANS

1999 STOCK INCENTIVE PLAN

The 1999 Stock Incentive Plan authorizes the issuance of the lesser of 7% of the
issued and outstanding stock of the Company or up to 2 million shares of common
stock under the Plan. The Plan allows the Company to grant awards to key
employees including restricted stock awards, stock options and stock
appreciation rights, subject primarily to the requirement of continuing

Page 32 of 42

employment. The awards under this Plan are available for grant over a period of
ten years from the date on which the Plan was adopted, but the grants may vest
beyond the ten-year period. Stock options issued by the Company become
exercisable for up to 50% of the shares one year after grant, 75% two years
after grant, and 100% three years after grant, and expire ten years from the
date of grant. The exercise price of stock options may not be less than the fair
market value of the common stock at the date of grant. In 2001, the Company
granted 371,800 options with exercise prices ranging from $4.34 to $4.85 and in
2000, granted 895,500 options with exercise prices ranging from $4.29 to $4.73.

The Company is authorized to grant shares of restricted stock to employees. No
monetary consideration is paid by employees who receive restricted stock.
Restricted stock can be granted with or without performance restrictions. In
2001, the Company granted 30,000 shares of restricted stock under the 1999 Stock
Incentive Plan at a market value of $4.38 per share. In 2000, the Company
granted 65,000 shares of restricted stock under the 1999 Stock Incentive Plan at
a market value of $4.25 per share. The total market value of the shares granted
were recorded as unearned compensation in the Statement of Shareholders' Equity.
The unearned compensation is being amortized to expense over a five-year vesting
period.

2001 STOCK INCENTIVE PLAN

The 2001 Stock Incentive Plan authorizes the issuance of up to 500,000 shares of
the issued and outstanding common stock of the Company. The 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 under this Plan are available for grant until the Board of Directors
terminates the Plan. Stock options issued by the Company are exercisable for up
to 50 % of the shares one year after grant, 75% two years after grant, and 100%
three years after grant, and expire ten years from the date of grant. The
exercise price of stock options may not be less than the fair market value of
the common stock at the date of grant. As of December 31, 2001, no awards have
been granted under this Plan.

EVA INCENTIVE COMPENSATION PLAN

The Company's EVA Incentive Compensation Plan (the "EVA Plan") is intended to
maximize shareholder value by aligning management's interests with those of
shareholders by rewarding management for sustainable and continuous improvement
in operating results. Participants in the EVA Plan may elect to allocate 50% of
their incentive award to a stock subaccount. Participants who make this election
will have restricted shares granted to them with a two year vesting period, with
the restrictions lapsing evenly each year. The number of restricted shares
issued is calculated by dividing the cash award by the fair market value of the
Company's stock at the date of the allocation. If the participant does not make
this election, 100% of the participant's EVA award is allocated to a cash
account. Each participant with a positive aggregate account balance will receive
an annual payout of a specified percentage of his or her account, with the
standard payout percentage being one-third each year. A participant's entire
cash subaccount balance will become payable and his or her restricted stock will
fully vest upon normal retirement at age 65, death, disability or a change in
control (as defined in the EVA Plan). In 2001, the Company granted 154,938
shares of restricted stock under the EVA Plan at a market value of $4.38 per
share. Expense recorded under the EVA Plan was ($0.2) million, $3.6 million and
$1.6 million in 2001, 2000 and 1999, respectively.

NON-EMPLOYEE DIRECTORS' STOCK

Certain non-employee directors receive shares of restricted stock for the
portion of their annual retainer that exceeds five thousand dollars. The shares
are issued each year after the Company's annual meeting, are forfeitable if the
director ceases to remain a director until the Company's next annual meeting and
may not be sold for a period of five years or until the director leaves the
board. The number of restricted shares issued is determined by dividing the
amount of the retainer that exceeds five thousand dollars by the fair market
value of stock on the date of issuance. In 2001, 9,440 restricted shares were
issued to non-employee directors. Non-employee directors also have received ad
hoc grants of stock options exercisable at the fair market value at the date of
grant. During 2001, 80,000 stock options were issued and become exercisable for
up to 50% of the shares one year after grant, 75% two years after grant, and
100% three years after grant.

ACCOUNTING FOR STOCK-BASED COMPENSATION

SFAS No. 123, Accounting for Stock-Based Compensation, sets forth a fair value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to apply APB No. 25, Accounting for Stock
Issued to Employees, to account for its stock-based compensation plans.

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Had the compensation cost for these plans been determined according to SFAS No.
123, the Company's net income and earnings per share would have been the
following pro forma amounts for the years ended December 31, 2001 and 2000:

(1) There were no stock options outstanding prior to January 1, 2000.

Pro forma disclosures are not likely to be representative of the effects on
reported net income for future years.

For purposes of the pro forma disclosure, the fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:

The following table summarizes the stock option transactions pursuant to the
Company's stock incentive plans for the two years ended December 31, 2001:

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The following table summarizes information about stock options outstanding at
December 31, 2001:

The following table summarizes information about stock options outstanding at
December 31, 2000:

11. INCOME TAXES

A reconciliation between income taxes based on the application of the statutory
federal income tax rate to income taxes as set forth in the consolidated
statements of income follows:

Deferred income taxes at December 31, 2001 and 2000 are comprised of the
following:

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The total deferred income tax assets (liabilities) as presented in the
accompanying consolidated balance sheets are as follows:

The provision for income taxes is composed of the following:

12. SALES BY PRODUCT

The Company operates in one business segment, the distribution of building
materials used principally in new residential construction and in home
improvement, remodeling and repair work. The Company derives substantially all
of its revenues from domestic customers. The following table presents the
Company's net sales by product:

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13. BASIC AND DILUTED NET INCOME PER SHARE

The following table sets forth the computation of net income per basic and
diluted share (net income amounts in millions, share amounts in thousands, per
share amounts in dollars):

14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table provides selected consolidated financial information on a
quarterly basis for each quarter of 2001 and 2000. The Company's business is
seasonal and particularly sensitive to weather conditions. Interim amounts are
therefore subject to significant fluctuations.

ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

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PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 (other than the information regarding
executive officers set forth at the end of Part I of this Form 10-K) will be
contained in the Company's Definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance," and is incorporated herein by
reference.

ITEM 11--EXECUTIVE COMPENSATION

The information required by Item 11 will be contained in the Company's
Definitive Proxy Statement for its 2002 Annual Meeting of Shareholders under the
captions "Election of Directors" and "Executive Compensation," and is
incorporated herein by reference.

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 will be contained in the Company's
Definitive Proxy Statement for its 2002 Annual Meeting of Shareholders under the
caption "Beneficial Ownership of Common Stock by Directors and Management," and
is incorporated herein by reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 will be contained in the Company's
Definitive Proxy Statement for its 2002 Annual Meeting of Shareholders under the
caption "Certain Relationships and Related Transactions," and is incorporated
herein by reference.

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PART IV

ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) (1) (2) (3) Financial statements are included in Item 8--"Financial
Statements and Supplementary Data".

(b) No reports on Form 8-K were filed during the fourth quarter
of 2001.

(c) See Index to Exhibits for the list of exhibits required by
Item 601 of Regulation S-K and by Item 14(c) of this report.

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SIGNATURES

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

HUTTIG BUILDING PRODUCTS, INC.

By:

/s/ BARRY J. KULPA
-------------------------------------
Barry J. Kulpa
President and Chief Executive Officer

Date: February 25, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

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EXHIBIT INDEX

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*10.7 Form of Stock Option Agreement under the company's 1999 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.6 to the 1999 Form 10-K.)

*10.8 Schedule to Stock Option Agreement under the company's 1999 Stock
Incentive Plan.

*10.9 2001 Stock Incentive Plan.

*10.10 Form of Stock Option Agreement under the company's 2001 Stock Incentive
Plan.

*10.11 Schedule to Stock Option Agreement under the company's 2001 Stock
Incentive Plan.

*10.12 Form of Indemnification Agreement for Executive Officers and Directors.
(Incorporated by reference to Exhibit 10.9 to the 1999 Form 10-K.)

*10.13 Schedule to Indemnification Agreement for Executive Officers and
Directors. (Incorporated by reference to Exhibit 10.10 to the company's
Annual Report on Form 10-K for the year ended December 31, 2000
(the "2000 Form 10-K").)

*10.14 Employment/Severance Agreement between the company and Barry J. Kulpa
dated October 18, 1999. (Incorporated by reference to Exhibit 10.7 to
Amendment No. 1 to the Form 10 filed with the Commission on October 29,
1999.)

*10.15 Form of Employment Agreement between the company and certain of its
executive officers. (Incorporated by reference to Exhibit 10.12 to the
1999 Form 10-K.)

*10.16 Schedule to Employment Agreement between the company and certain of its
executive officers. (Incorporated by reference to Exhibit 10.13 to the
2000 Forms 10-K.)

10.17 Registration Rights Agreement by and between The Rugby Group PLC and the
company dated December 16, 1999. (Incorporated by reference to Exhibit
10.14 to the 1999 Form 10-K.)

10.18 Letter Agreement dated August 20, 2001 between the company and The Rugby
Group Limited. (Incorporated by reference to Exhibit 10.1 to the
company's Current Report on Form 8-K dated August 20, 2001).

*10.19 Restricted Stock Agreement dated January 29, 2002 between the company
and Barry J. Kulpa.

*10.20 Restricted Stock Agreement dated January 22, 2001 between the company
and Barry J. Kulpa.

*10.21 Restricted Stock Agreement dated January 24, 2000 between the company
and Barry J. Kulpa. (Incorporated by reference to Exhibit 10.15 to the
1999 Form 10-K.)

*10.22 Restricted Stock Agreement dated December 17, 1999 between the company
and Barry J. Kulpa. (Incorporated by reference to Exhibit 10.16 to the
1999 Form 10-K.)

*10.23 Restricted Stock Agreement dated December 17, 1999 between the company
and Barry J. Kulpa. (Incorporated by reference to Exhibit 10.17 to the
1999 Form 10-K.)

*10.24 Form of Stock Option Agreement dated January 22, 2001 between the company
and each of E. Thayer Bigelow, Jr., Richard S. Forte, Dorsey R. Garduer
and James L.L. Tullis.

*10.25 Form of Restricted Stock Agreement for awards under the company's EVA
Incentive Compensation Plan.

*10.26 Schedule to Restricted Stock Agreement for awards under the company's EVA
Incentive Compensation Plan.

21.1 Subsidiaries. (Incorporated by reference to Exhibit 21.1 to the
2000 Form 10-K.)

23.1 Consent of Deloitte & Touche LLP, independent certified public
accountants.

- ----------

* Management contract or compensatory plan or arrangement.

The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements contained or
incorporated by reference herein.

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