Central States’ ESOP One Key to Success

Revenue for Central States Manufacturing Inc., a metal building supplies producer based in Lowell, has risen 82 percent in the last five years to $139 million, strong enough for the company to land at No. 12 on Northwest Arkansas Business Journal’s list of largest private companies.
Rick Carpenter, president of Central States since the mid-1990s, said the increase in revenue is due to a growing acceptance of metal products in all areas of construction. Central States began under the leadership of Rick’s father, Carl, in 1988 at a small plant in Rogers that produced metal roofing and siding for wood-frame buildings, also called post-frame buildings. Central States later expanded into commercial products for steel-frame buildings.
Having quickly outgrown its original home, Central States moved in 1990 to its current location in Lowell, which was expanded from 15,000 SF to 123,000 SF. Central States opened additional manufacturing facilities in Michigan City, Ind., in 1997; Cedar Hill, Texas, in 2000; and Jasper, Ala., in October.
Central States also has a small retail division, a 32-truck fleet and a self-storage division that sells complete building packages for mini-storage, boat storage and RV storage buildings.
All told, the company now has about 2,000 post-frame, commercial, residential and architectural customers in the central United States. By 2010, Carpenter expects to open two new facilities outside of their current service area, possibly in West Virginia, the Carolinas or New England.

Metal Shop
Builders now are more willing to use metal, according to Carpenter, because it’s often cheaper to build with. Metal is also fire retardant, which is why some insurance companies will give discounts for buildings built with metal products.
Innovations like improved painting systems have also made metal a more attractive building material. Painted metal building products are now more resistant to fading, can have up to 30-year warranties and can lead to energy savings for the finished building.
Cool roof systems, which Carpenter said have evolved in the last five years, include metal panels painted with pigments that reflect enough UV rays to warrant an EnergyStar rating from the federal government. Close to 80 percent of the panels now sold by Central States are painted.
Another innovation is floating roof systems that prevent the leaks that happen when the screw holes on large roof spans expand from heat. Central States’ two floating roof systems, Central-Loc and Central Seam Plus, use sliding clips that attach to the roof panels, allowing them to move as they heat and cool.
Carpenter said Central States’ employees have stepped up to meet rising market demands. The company’s management also deserves some of the credit for setting up incentives for employees to perform.

Share the Wealth
In 1991, Central States started an employee stock ownership plan. In addition to the federal tax advantages for the company’s other owners, the ESOP also gives employees a “larger stake in the outcome of the business and the accumulation of wealth in the company,” according to Carpenter.
“We feel like we have been a lot more productive and effective in serving the customers by sharing the ownership with everybody,” Carpenter said.
All Central States employees come under the ESOP on the first day of January following their first anniversary of employment. The ESOP will borrow money and buy stock from one of the other shareholders in the company. Every year the company makes contributions to the ESOP, paying down those loans. As the loans are paid down and the principal is reduced, the corresponding shares through that principal are allocated to all the participants in the plan.
Central States’ ESOP has a six-year vesting period. The average annual contribution by the company for the last five years is 10 percent of wages. The company’s contribution for 2006 was around 8 percent.
Central States is now 37 percent owned by the company’s 252 employees, 150 of whom are in Arkansas.
Central States also has an open-book management policy. The company’s financial information is made available to all employees at monthly meetings that take place at each location.
“We think it’s important for everybody to know the score. If you are going to win the game, we’ve got to know what the score is and what’s influencing the score,” Carpenter said.
Central States also gives all employees quarterly and annual bonuses that are tied to specific business measurements, like sales goals or quality control. For the quarterly bonuses, employees divide up 6 percent of the company’s net income from operations, depending on the number of hours worked by each employee. Annual bonuses are up to 5 percent of an employee’s salary, depending on the company’s earnings that year.