Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):
 
July 21, 2016

LAWSON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)


Delaware
 
0-10546
 
36-2229304
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)


8770 W. Bryn Mawr Ave., Suite 900, Chicago, Illinois
 
60631
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(Registrant's telephone number, including area code)
 
(773) 304-5050
        

Not Applicable
(Former name or former address, if changed since last report)




Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02 Results of Operations and Financial Condition.

On July 21, 2016, Lawson Products, Inc. issued a press release announcing its second quarter 2016 results. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.



Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release issued on
July 21, 2016








SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 

    
 
 
 
LAWSON PRODUCTS, INC.
 
 
 
(Registrant)
 
 
 
 
Date:
July 21, 2016
 
By: /s/ Ronald J. Knutson 
 
 
 
Name:Ronald J. Knutson
 
 
 
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller








EXHIBIT INDEX


Exhibit Number
 
Description
99.1
 
Press Release issued on July 21, 2016





Exhibit


Lawson Products Reports Second Quarter 2016 Results


CHICAGO, July 21, 2016 - Lawson Products, Inc. (NASDAQ:LAWS) (Lawson or the "Company"), a distributor of products and services to the MRO marketplace, today announced results for the second quarter ended June 30, 2016.

Second Quarter Highlights

Net sales of $69.3 million compared to $70.7 million a year ago. On an adjusted basis, net sales were essentially flat (See reconciliation in Table 1)

Net income of $0.2 million for the quarter compared to $2.9 million a year ago reflecting the additional costs associated with the expansion of the sales organization

Ended the quarter with 1,020 sales representatives, a net increase of 83 since year-end

Completed the acquisition of F.B. Feeney Hardware in Ontario, Canada

Ended the quarter with $8.9 million of available cash with additional availability of $31.9 million under its credit facility

“While sales were softer than we would have liked for the quarter, our results were consistent with slower industrial activity impacting the MRO marketplace," said Michael DeCata, president and chief executive officer. “We accelerated investments in our organization primarily through adding new sales representatives, investing in our veteran reps and pursuing acquisitions that fit our business model. As expected, the rapid growth in the sales force has a short-term negative impact on our operating income; it generally takes two to three years for a newly hired sales rep to build a strong book of business. Increasing our sales force and making the right acquisitions will provide us opportunities to expand and increase our geographic coverage in the large, fragmented MRO marketplace.

“We accelerated our rep growth during the quarter adding a net new 60 sales representatives, bringing our total sales force to more than 1,000. Given this acceleration in the first half of the year, we expect rep growth to moderate in the second half of the year as we concentrate on providing the training and support to drive their productivity. Additionally, we completed our third acquisition within the past nine months. These ongoing investments, in conjunction with our strong financial position, provide us with a strong foundation for growth when the market improves and as our newly hired sales reps generate additional sales for the organization.”

Second Quarter Results

Net sales for the second quarter of 2016 were $69.3 million versus $70.7 million a year ago. Sales were negatively impacted by the continued slow-down in the MRO marketplace, ongoing weak demand from customers in the oil and gas industry and a decline in the Canadian dollar from a year ago. This overall decrease was partially offset by continued volume growth in the Kent Automotive Division, the addition of several new strategic customers and growth within our non-federal government business. Excluding the effect of the further decline in the demand from oil and gas customers and the decrease in the Canadian exchange rate, adjusted net sales were $70.5 million or essentially flat with the prior year (See reconciliation in Table 1). Average daily sales decreased 1.9% to $1.084 million from $1.105 million in the previous year quarter. The second quarter of 2016 and 2015 both had 64 selling days.






Gross profit as a percentage of sales was 61.3%, improving sequentially from 60.9% in the first quarter of 2016. Product margin has remained consistent and we continued to see the anticipated benefits, including lower inventory levels, from implementing a new inventory forecasting process that commenced in late 2015. The slight decrease from 61.9% a year ago quarter was due to stable fixed costs on a lower sales base, lower freight recoveries and additional labor costs as we integrated the acquisition.
 
Selling expenses increased to $23.2 million in the second quarter of 2016 from $21.9 million in the prior year quarter and were 33.5% as a percent of sales compared to 31.0% in 2015. This increase was primarily due to our expansion of the sales force. Additionally, we incurred higher performance based compensation due to partially reversing those accruals in 2015. General and administrative expenses increased to $19.3 million in the second quarter of 2016 from $18.6 million in the prior year quarter primarily due to increases in employee and acquisition related costs, partially offset by a decrease in stock-based compensation.

Operating profit in the second quarter of 2016 was break-even compared to the operating income of $3.2 million a year ago. Excluding certain non-operational and non-recurring items, adjusted non-GAAP operating income was $0.7 million in the second quarter of 2016 compared to $4.3 million a year ago (See reconciliation in Table 2). The decrease from a year ago was primarily driven by lower sales and related gross margins, increased selling expenses as we continue to expand our sales force and acquisition related costs.

Net income for the second quarter of 2016 was $0.2 million, or $0.02 per diluted share, as compared to net income of $2.9 million, or $0.33 per diluted share, for the same period a year ago.

Lawson ended the second quarter in a net cash position of $8.7 million, an improvement of $0.9 million from the first quarter. Improved working capital, partially offset by a $1.3 million acquisition, drove the increase in net cash. The Company has additional borrowing capacity of $31.9 million under its credit facility.

"Our continued investment with a view toward growth reflects our confidence in our established growth strategy. The recent sales force expansion over the past several quarters will drive sales as the reps build their book of business. Our stated acquisition strategy with small acquisitions as important first steps in a plan to make increasingly larger acquisitions is proceeding as planned and with good results. Customer service metrics are at record levels, our gross margin and balance sheet are extremely strong and we are continuing to build a foundation for growth. I am confident that we are on the right track and executing as planned despite current difficult economic conditions,” concluded DeCata.

Conference Call

Lawson Products, Inc., will conduct a conference call with investors to discuss second quarter 2016 results at 9:00 a.m. Eastern Time on July 21, 2016. The conference call is available by direct dial at 1-800-862-9098 in the U.S. or 1-785-424-1051 from outside of the U.S. A replay of the conference call will be available approximately two hours after completion of the call through August 31, 2016. Callers can access the replay by dialing 1-877-481-4010 in the U.S. or 1-919-882-2331 outside the U.S. The PIN access number for the replay is 10042#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's website through August 31, 2016.






About Lawson Products, Inc.

Founded in 1952, Lawson Products (NASDAQ: LAWS) is an industrial distributor of maintenance and repair products. Lawson carries a comprehensive line of products and provides inventory management services to the industrial, commercial, institutional and government maintenance, repair and operations (MRO) market. With five strategically located distribution centers in North America, Lawson ships to customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean. Under its Kent Automotive brand, the Company supplies products to collision and mechanical repair shops as well as automotive OEMs. For additional information, please visit https://www.lawsonproducts.com or https://www.kent-automotive.com.

This Release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms "may," "should," "could," "anticipate," "believe," "continues," "estimate," "expect," "intend," "objective," "plan," "potential," "project" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause or contribute to such differences or that might otherwise impact the business and include the risk factors set forth in Item 1A of the December 31, 2015, Form 10-K filed on February 18, 2016. The Company undertakes no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements whether as a result of new information, future events or otherwise.

-TABLES FOLLOW-






Lawson Products, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net sales
$
69,348

 
$
70,726

 
$
139,059

 
$
140,630

Cost of goods sold
26,822

 
26,918

 
54,074

 
53,939

Gross profit
42,526

 
43,808

 
84,985

 
86,691

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Selling expenses
23,204

 
21,949

 
45,957

 
46,350

General & administrative expenses
19,293

 
18,616

 
37,830

 
38,045

Operating expenses
42,497

 
40,565

 
83,787

 
84,395

 
 
 
 
 
 
 
 
Operating income
29

 
3,243

 
1,198

 
2,296

 
 
 
 
 
 
 
 
Interest expense
(153
)
 
(142
)
 
(319
)
 
(278
)
Other income (expense), net
250

 
24

 
373

 
(209
)
 
 
 
 
 
 
 
 
Net income before income taxes
126

 
3,125

 
1,252

 
1,809

Income tax (benefit) expense
(46
)
 
199

 
63

 
254

 
 
 
 
 
 
 
 
Net income
$
172

 
$
2,926

 
$
1,189

 
$
1,555

 
 
 
 
 
 
 
 
Basic income per share of common stock
$
0.02

 
$
0.34

 
$
0.14

 
$
0.18

 
 
 
 
 
 
 
 
Diluted income per share of common stock
$
0.02

 
$
0.33

 
$
0.13

 
$
0.17







Lawson Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
 
June 30,
 
December 31,
 
2016
 
2015
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,866

 
$
10,765

Restricted cash
800

 
800

Accounts receivable, less allowance for doubtful accounts
30,811

 
27,231

Inventories, net
42,671

 
44,095

Miscellaneous receivables and prepaid expenses
4,348

 
3,667

Total current assets
87,496

 
86,558

 
 
 
 
Property, plant and equipment, net
32,923

 
35,487

Cash value of life insurance
8,737

 
10,245

Goodwill
2,773

 
319

Deferred income taxes
51

 
51

Other assets
403

 
434

Total assets
$
132,383

 
$
133,094

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Revolving line of credit
$
175

 
$
925

Accounts payable
10,952

 
9,370

Accrued expenses and other liabilities
21,985

 
26,048

Total current liabilities
33,112

 
36,343

 
 
 
 
Security bonus plan
14,385

 
14,641

Financing lease obligation
8,080

 
8,539

Deferred compensation
4,730

 
4,626

Deferred rent liability
3,930

 
3,912

Other liabilities
4,088

 
3,769

Total liabilities
68,325

 
71,830

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $1 par value:
 
 
 
Authorized - 500,000 shares, issued and outstanding — None

 

Common stock, $1 par value:
 
 
 
Authorized - 35,000,000 shares
Issued - 8,822,419 and 8,796,264 shares, respectively
Outstanding - 8,796,307 and 8,771,120 shares, respectively
8,822

 
8,796

Capital in excess of par value
10,439

 
9,877

Retained earnings
44,761

 
43,572

Treasury stock – 26,112 and 25,144 shares, respectively
(533
)
 
(515
)
Accumulated other comprehensive income
569

 
(466
)
Total stockholders’ equity
64,058

 
61,264

Total liabilities and stockholders’ equity
$
132,383

 
$
133,094








  LAWSON PRODUCTS, INC.
REGULATION G GAAP RECONCILIATIONS
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, the Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability. See Tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months ended June 30, 2016, March 31 2016 and June 30, 2015. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.
TABLE 1 - RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP NET SALES
(Amounts in thousands)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
2016
 
2015
 
 
 
 
Net sales, as reported per GAAP
$
69,348

 
$
70,726

 
 
 
 
Decrease in direct sales to oil and gas customers (1)
861

 

Impact of Canadian exchange rate
284

 

Adjusted non-GAAP net sales
$
70,493

 
$
70,726

 
 
 
 
Percentage decrease in non-GAAP net sales
(0.3
)%
 
 
(1)
Represents net decrease over prior period in sales to direct oil and gas customers as defined by Standard Industry Classification ("SIC") codes

TABLE 2 - RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP OPERATING INCOME
(Amounts in thousands)
(Unaudited)
 
 
 
Three Months Ended
 
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
 
 
 
 
 
Operating income, as reported per GAAP
$
29

 
$
1,169

 
$
3,243

 
 
 
 
 
 
Stock-based compensation (1)
515

 
(1,217
)
 
971

Severance expense
143

 
204

 
50

 
 
 
 
 
 
Adjusted non-GAAP operating income
$
687

 
$
156

 
$
4,264


(1)    Expense for stock-based compensation, of which a portion varies with the Company's stock price






LAWSON PRODUCTS, INC.
TABLE 3 - QUARTERLY RESULTS (UNAUDITED)
 
 
 
(Dollars in thousands)
 
Three Months Ended
 
Jun. 30, 2016
 
Mar. 31, 2016
 
Dec. 31, 2015
 
Sep. 30, 2015
 
Jun. 30, 2015
 
 
 
 
 
 
 
 
 
 
Number of business days
64

 
64

 
61

 
64

 
64

 
 
 
 
 
 
 
 
 
 
Average daily net sales
$
1,084

 
$
1,089

 
$
1,065

 
$
1,098

 
$
1,105

Sequential quarter increase (decrease)
(0.5)%

 
2.3
%
 
(3.0
)%
 
(0.6
)%
 
(0.5
)%
 
 
 
 
 
 
 
 
 
 
Average active sales rep. count (1)
981

 
949

 
931

 
917

 
912

Period-end active sales rep. count
1,020

 
960

 
937

 
925

 
920

 
 
 
 
 
 
 
 
 
 
Sales per rep. per day
$
1.105

 
$
1.148

 
$
1.144

 
$
1.197

 
$
1.212

Sequential quarter increase (decrease)
(3.7)%

 
0.3
%
 
(4.4)%

 
(1.2)%

 
(0.5)%

 
 
 
 
 
 
 
 
 
 
Net sales
$
69,348

 
$
69,711

 
$
64,961

 
$
70,243

 
$
70,726

Gross profit
42,526

 
42,459

 
39,091

 
43,342

 
43,808

 
 
 
 
 
 
 
 
 
 
Gross profit percentage
61.3%

 
60.9%

 
60.2%

 
61.7%

 
61.9%

 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
Selling, general & administrative expenses
$
42,497

 
$
41,290

 
$
41,145

 
$
40,532

 
$
40,565

Other expenses, net (2)

 

 
931

 

 

 
42,497

 
41,290

 
42,076

 
40,532

 
40,565

 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
29

 
$
1,169

 
$
(2,985
)
 
$
2,810

 
$
3,243


(1)
Average active sales representative count represents the average of the month-end sales representative counts.

(2)
The three months ended December 31, 2015 includes $0.9 million related to estimated future remediation of an environmental matter at the Decatur, Alabama facility.



Contact

Investor Relations:
Lawson Products, Inc.
Ronald J. Knutson
Executive Vice President and Chief Financial Officer
773-304-5665