Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report under Section 13 OR 15(d) of the Securities Exchange Act of 1934 |
For quarterly period ended March 31, 2010
or
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o |
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Transition Report under Section 13 OR 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file Number: 0-10546
LAWSON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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36-2229304 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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1666 East Touhy Avenue, Des Plaines, Illinois
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60018 |
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(Address of principal executive offices)
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(Zip Code) |
(847) 827-9666
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock, $1 par value, as of April
23, 2010 was 8,522,001.
Safe Harbor Statement under the Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-Q 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 managements current expectations, intentions or beliefs and are subject to
a number of factors, assumptions and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. Factors that could cause or
contribute to such differences or that might otherwise impact the business include the effect of
general economic and market conditions; increases in commodity prices; work stoppages and other
disruptions at transportation centers or shipping ports; disruptions of the Companys information
and communication systems; competition and competitive pricing pressures; changes in customer
demand; the influence of controlling stockholders; the inability of management to successfully
implement strategic initiatives and, all of the factors discussed in the Companys Risk Factors
set forth in its Annual Report on Form 10-K for the year ended December 31, 2009 and in this
Quarterly Report on Form 10-Q.
The Company undertakes no obligation to update any such factor or to publicly announce the
results of any revisions to any forward-looking statements contained herein whether as a result of
new information, future events or otherwise.
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
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March 31, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
8,831 |
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$ |
8,787 |
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Accounts receivable, less allowance for doubtful accounts |
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44,091 |
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39,804 |
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Inventories |
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75,101 |
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73,696 |
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Miscellaneous receivables and prepaid expenses |
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12,524 |
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10,423 |
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Deferred income taxes |
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4,035 |
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4,819 |
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Property held for sale |
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332 |
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Discontinued assets |
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485 |
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459 |
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Total current assets |
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145,067 |
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138,320 |
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Property, plant and equipment, less accumulated
depreciation and amortization |
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41,622 |
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40,576 |
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Cash value of life insurance |
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17,089 |
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17,021 |
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Deferred income taxes |
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12,858 |
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15,249 |
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Goodwill |
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28,185 |
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27,957 |
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Other assets |
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2,525 |
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2,524 |
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Total assets |
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$ |
247,346 |
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$ |
241,647 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
29,723 |
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$ |
19,968 |
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Settlement payable |
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10,000 |
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10,000 |
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Accrued expenses and other liabilities |
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28,924 |
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33,272 |
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Total current liabilities |
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68,647 |
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63,240 |
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Security bonus plan |
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25,810 |
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25,931 |
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Deferred compensation |
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10,988 |
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10,374 |
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Other |
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3,025 |
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5,456 |
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39,823 |
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41,761 |
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Stockholders equity: |
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Preferred stock, $1 par value: |
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Authorized 500,000 shares, Issued and outstanding None |
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Common stock, $1 par value: |
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Authorized
35,000,000 shares, Issued and outstanding
8,522,001 shares |
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8,522 |
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8,522 |
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Capital in excess of par value |
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4,837 |
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4,780 |
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Retained earnings |
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123,709 |
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121,888 |
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Accumulated other comprehensive income |
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1,808 |
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1,456 |
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Stockholders equity |
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138,876 |
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136,646 |
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Total liabilities and stockholders equity |
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$ |
247,346 |
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$ |
241,647 |
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See notes to condensed consolidated financial statements.
4
Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
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Three Months Ended March 31, |
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2010 |
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2009 |
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Net sales |
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$ |
95,073 |
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$ |
99,381 |
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Cost of goods sold |
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39,591 |
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45,214 |
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Gross profit |
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55,482 |
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54,167 |
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Operating (income) expenses: |
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Selling, general and administrative expenses |
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52,108 |
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56,681 |
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Loss (gain) on disposal of property, plant and equipment |
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(1,701 |
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411 |
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Severance and other restructuring charges |
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475 |
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6,041 |
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Operating income (loss) |
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4,600 |
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(8,966 |
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Other income |
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50 |
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725 |
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Interest expense |
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(85 |
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(74 |
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Income (loss) from continuing operations before income taxes |
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4,565 |
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(8,315 |
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Income tax expense (benefit) |
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2,223 |
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(2,396 |
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Income (loss) from continuing operations |
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2,342 |
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(5,919 |
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Loss from discontinued operations, net of income taxes |
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(10 |
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(29 |
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Net income (loss) |
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$ |
2,332 |
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$ |
(5,948 |
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Basic and diluted income (loss) per share of common stock: |
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Continuing operations |
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$ |
0.27 |
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$ |
(0.70 |
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Discontinued operations |
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$ |
0.27 |
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$ |
(0.70 |
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Cash dividends declared per share of common stock |
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$ |
0.06 |
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$ |
0.03 |
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Basic and diluted weighted average shares outstanding: |
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8,522 |
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8,522 |
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See notes to condensed consolidated financial statements.
5
Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited and in thousands)
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Three Months Ended March 31, |
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2010 |
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2009 |
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Operating activities: |
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Net income (loss) |
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$ |
2,332 |
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$ |
(5,948 |
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Loss from discontinued operations |
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10 |
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29 |
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Income (loss) from continuing operations |
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2,342 |
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(5,919 |
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Adjustments to reconcile to net cash provided by operating
activities: |
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Depreciation and amortization |
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1,515 |
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1,864 |
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Deferred income taxes |
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2,957 |
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(569 |
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Loss (gain) from disposal of property, plant and equipment |
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(1,701 |
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411 |
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Changes in operating assets and liabilities |
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Accounts receivable |
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(4,419 |
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4,499 |
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Inventories |
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(1,255 |
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3,839 |
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Prepaid expenses and other assets |
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(2,136 |
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(437 |
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Accounts payable and accrued expenses |
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2,645 |
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(957 |
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Other |
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(1,053 |
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(1,038 |
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Net cash (used in) provided by operating activities |
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(1,105 |
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1,693 |
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Investing activities: |
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Additions to property, plant and equipment |
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(299 |
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(1,150 |
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Proceeds from sale of property |
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2,027 |
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Net cash used provided by (used in) investing activities |
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1,728 |
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(1,150 |
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Financing activities: |
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Dividends paid |
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(511 |
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(1,704 |
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Net proceeds from revolving line of credit |
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5,350 |
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Other |
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(32 |
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(178 |
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Net cash (used in) provided by financing activities |
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(543 |
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3,468 |
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Discontinued operations: |
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Operating cash flows |
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(36 |
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(56 |
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Net cash used for discontinued operations |
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(36 |
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(56 |
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Increase in cash and cash equivalents |
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44 |
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3,955 |
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Cash and cash equivalents at beginning of period |
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8,787 |
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4,300 |
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Cash and cash equivalents at end of period |
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$ |
8,831 |
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$ |
8,255 |
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See notes to condensed consolidated financial statements.
6
Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements of Lawson Products, Inc. (the
Company) have been prepared in accordance with U.S. generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not contain all disclosures required by U.S. generally accepted accounting
principles. Reference should be made to the Companys Annual Report on Form 10-K for the year ended
December 31, 2009. The Condensed Consolidated Balance Sheet as of March 31, 2010, the Condensed
Consolidated Statements of Operations for the three month periods ended March 31, 2010 and 2009 and
the Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31,
2010 and 2009 are unaudited. In the opinion of the Company, all normal recurring adjustments have
been made, that are necessary to present fairly the results of operations for the interim periods.
Operating results for the three month period ended March 31, 2010 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2010.
There have been no material changes in our significant accounting policies during the three
months ended March 31, 2010 as compared to the significant accounting policies described in our
Annual Report on Form 10-K for the year ended December 31, 2009. The Company has evaluated
subsequent events through April 29, 2010, the filing date of this Form 10-Q, and has determined
that there were no subsequent events to recognize or disclose in these financial statements.
Certain prior year amounts have been reclassified to conform to current year presentation.
Note 2 Inventories
Components of inventories were as follows:
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(Amounts in thousands) |
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March 31, |
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December 31, |
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2010 |
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2009 |
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Finished goods |
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$ |
83,584 |
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$ |
81,621 |
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Work in progress |
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1,247 |
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1,227 |
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Raw materials |
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1,632 |
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1,759 |
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Total |
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86,463 |
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84,607 |
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Reserve for obsolete and excess inventory |
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(11,362 |
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(10,911 |
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$ |
75,101 |
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$ |
73,696 |
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Note
3 Severance Reserve
The table below shows the changes in the Companys reserves for severance and related
payments, included in accrued expenses and other liabilities on the Condensed Consolidated Balance
Sheets as of March 31, 2010 and 2009:
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(Amounts in thousands) |
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Three Months Ended March 31, |
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2010 |
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2009 |
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Balance at beginning of year |
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$ |
4,145 |
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$ |
6,111 |
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Charged to earnings |
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480 |
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5,989 |
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Cash paid |
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(1,177 |
) |
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(1,849 |
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Adjustment to prior reserve |
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(5 |
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Balance at end of the period |
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$ |
3,443 |
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$ |
10,251 |
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During the first quarter of 2009 the Company incurred a charge of $6.0 million reflecting a
reduction of approximately 11% of the Companys workforce in response to the onset of the economic
recession.
7
Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 Loss (Gain) on Disposal of Property, Plant and Equipment
In the first quarter of 2010, the Company received cash proceeds of $2.0 million from the sale
of its Dallas, Texas distribution center, resulting in a gain of $1.7 million. The $0.4 million
loss recorded in 2009 was due to a write-down in the value of equipment.
Note 5 Stock Based Compensation
A benefit of $0.3 million and $0.7 million related to stock based compensation was included in
selling, general and administrative expenses for the first quarters of 2010 and 2009, respectively.
At March 31, 2010, the Company had 39,100 shares of unvested restricted stock awards outstanding
and 375,150 Stock Performance Rights (SPRs) outstanding with a weighted average exercise price of
$28.47. The fair value of outstanding SPRs was remeasured on March 31, 2010 using the Black-Scholes
valuation model. This model requires the input of the following subjective assumptions that may
have a significant impact on the fair value estimate:
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Expected volatility |
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47.5% to 89.6% |
Risk-free interest rate |
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0.2% to 2.5% |
Expected term (in years) |
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0.4 to 4.9 |
Expected annual dividend |
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$0.24 |
Note 6 Income Tax Expense (Benefit)
Income tax as a percentage of pre-tax income (loss) for the three months ended March 31, 2010
was 48.7% compared to 28.8% for the three months ended March 31, 2009. The primary reason for the
lower tax rate in 2009 was due to non-deductible expenses, which reduced the effective tax rate on
loss.
At March 31, 2010, the Company had $1.1 million in unrecognized tax benefits, the recognition
of which would have a favorable effect on the effective tax rate. Due to the uncertainty of both
timing and resolution of income tax examinations, the Company is unable to determine whether any
amounts included in the March 31, 2010 balance of unrecognized tax benefits represent tax positions
that could significantly change during the next twelve months. The Company recognizes interest and
penalties related to unrecognized tax benefits in income tax expense (benefit).
The Company and its subsidiaries are subject to U.S. Federal income tax as well as income tax
of multiple state and international jurisdictions. As of March 31, 2010, the Company is subject to
U.S. Federal and non-U.S. income tax examinations for the years 2006 through 2008.
Note 7 Earnings Per Share
Restricted stock awards outstanding for the three months ended March 31, 2010 and stock
options outstanding for the three months ended March 31, 2010 and 2009 would have been
anti-dilutive and therefore were excluded from the computation of diluted earnings per share. Both
basic and diluted earnings (loss) per share were $0.27 and $(0.70) for the three months ended March
31, 2010 and 2009, respectively.
8
Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 Comprehensive Income (Loss)
Components of comprehensive income (loss) for the three months ended March 31, 2010 and
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
2,332 |
|
|
$ |
(5,948 |
) |
Foreign currency translation adjustment |
|
|
352 |
|
|
|
489 |
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
2,684 |
|
|
$ |
(5,459 |
) |
|
|
|
|
|
|
|
Note 9 Segment Reporting
The Companys operating units have been aggregated into two reportable segments: MRO and OEM.
The Companys MRO segment is a distributor of products and services to the industrial, commercial,
institutional, and governmental maintenance repair and operations marketplace. The Companys OEM
segment manufactures and distributes production and specialized component parts to the original
equipment marketplace. The Companys two reportable segments are distinguished by the nature of
products distributed and sold, types of customers and manner of servicing them. The Company
evaluates performance and allocates resources to reportable segments primarily based on operating
income.
The following table presents summary financial information for the Companys reportable
segments:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net sales |
|
|
|
|
|
|
|
|
MRO |
|
$ |
79,616 |
|
|
$ |
82,819 |
|
OEM |
|
|
15,457 |
|
|
|
16,562 |
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
95,073 |
|
|
$ |
99,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
MRO |
|
$ |
3,172 |
|
|
$ |
(1,002 |
) |
OEM |
|
|
202 |
|
|
|
(1,512 |
) |
Gain (loss) from disposal of property,
plant and equipment |
|
|
1,701 |
|
|
|
(411 |
) |
Severance and other restructuring charges |
|
|
(475 |
) |
|
|
(6,041 |
) |
|
|
|
|
|
|
|
Consolidated total |
|
|
4,600 |
|
|
|
(8,966 |
) |
|
|
|
|
|
|
|
|
|
Other income |
|
|
50 |
|
|
|
725 |
|
Interest expense |
|
|
(85 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
$ |
4,565 |
|
|
$ |
(8,315 |
) |
|
|
|
|
|
|
|
Note 10 Non-Cash Transaction
During the first quarter of 2010, the Company purchased $2.1 million of property, plant and
equipment that was financed through accounts payable. The cash was subsequently paid in April 2010.
9
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents a summary of our financial performance for the first quarter
of 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Net Sales |
|
|
Amount |
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO |
|
$ |
79,616 |
|
|
|
83.7 |
% |
|
$ |
82,819 |
|
|
|
83.3 |
% |
OEM |
|
|
15,457 |
|
|
|
16.3 |
|
|
|
16,562 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
95,073 |
|
|
|
100.0 |
|
|
$ |
99,381 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRO |
|
$ |
51,748 |
|
|
|
65.0 |
% |
|
$ |
51,565 |
|
|
|
62.3 |
% |
OEM |
|
|
3,734 |
|
|
|
24.2 |
|
|
|
2,602 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
|
55,482 |
|
|
|
58.4 |
|
|
|
54,167 |
|
|
|
54.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses |
|
|
52,108 |
|
|
|
54.8 |
|
|
|
56,681 |
|
|
|
57.0 |
|
Loss (gain) on disposal of property |
|
|
(1,701 |
) |
|
|
(1.7 |
) |
|
|
411 |
|
|
|
0.4 |
|
Severance and other charges |
|
|
475 |
|
|
|
0.5 |
|
|
|
6,041 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
4,600 |
|
|
|
4.8 |
|
|
|
(8,966 |
) |
|
|
(9.0 |
) |
Other, net |
|
|
(35 |
) |
|
|
|
|
|
|
651 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income tax
expense |
|
|
4,565 |
|
|
|
4.8 |
|
|
|
(8,315 |
) |
|
|
(8.4 |
) |
Income tax (benefit) expense |
|
|
2,223 |
|
|
|
(2.0 |
) |
|
|
(2,396 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
2,342 |
|
|
|
2.8 |
% |
|
$ |
(5,919 |
) |
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net
sales for the first quarter of 2010 decreased 4.3% to $95.1 million,
from $99.4 million in the first quarter of 2009 and
increased 6.5% compared to net sales of $89.3 million for
the fourth quarter of 2009.
MRO net sales decreased $3.2 million or 3.9% in the first quarter of 2010, to $79.6 million
from $82.8 million in the prior year period. OEM net sales decreased $1.1 million or 6.7% in the
first quarter of 2010, to $15.5 million from $16.6 million in the prior year period.
Gross Profit
Gross profit increased $1.3 million in the first quarter of 2010, to $55.5 million from
$54.2 million in the prior year period. The gross profit margin for the first quarter of 2010
increased to 58.4%, 3.9 percentage points higher than the 54.5% achieved in the first quarter of
2009. Although the gross profit margin improved significantly from the prior year period, it is
comparable to the 57.5% gross margin realized in the fourth quarter of 2009.
MRO gross profit increased slightly to $51.7 million from $51.6 million in the prior year
period. MRO gross profit as a percent of net sales increased 2.7 percentage points to 65.0% for
the first quarter of 2010 from 62.3% in the first quarter of 2009 and was 0.8 percentage points
better than the 64.2% gross margin realized in the fourth quarter of 2009. The first quarter of
2009 MRO gross margin was negatively affected by a $1.5 million increase in excess and obsolete
inventory reserve, as forecasts of future sales were reduced.
10
OEM gross profit increased $1.1 million in the first quarter of 2010, to $3.7 million from
$2.6 million in the prior year period. Gross profit as a percent of net sales increased to 24.2%
for the first quarter of 2010, 8.5 percentage points higher than 15.7% achieved in the first
quarter of 2009. The improved margin was due primarily to renegotiating customer contracts to
provide an acceptable rate of return and not renewing contracts with low rates of return.
Selling, General and Administrative Expenses (SG&A)
SG&A expenses were $52.1 million or 54.8% of net sales and $56.7 million or 57.0% of net sales
for the quarters ended March 31, 2010 and 2009, respectively. SG&A as a percent of net sales
decreased 2.2 percentage points in the first quarter of 2010 compared to the first quarter of 2009
as we realized certain efficiencies from steps taken in 2009 to streamline our cost structure.
Loss (Gain) on Disposal of Property, Plant and Equipment
In the first quarter of 2010, we received cash proceeds of $2.0 million from the sale of our
Dallas, Texas distribution center, resulting in a gain of $1.7 million. The $0.4 million loss
recorded in 2009 was due to a write-down in the value of equipment.
Severance and Other Restructuring Charges
Severance expense was $0.5 million and $6.0 million in the first quarter of 2010 and 2009,
respectively. During the first quarter of 2009, primarily in response to the economic recession,
we reduced the size our work force across the organization by approximately 150 employees.
Income Tax Expense (Benefit)
Income
tax expense of $2.2 million was recorded based on pre-tax income
of $4.6 million for the
three months ended March 31, 2010, resulting in an effective tax rate of 48.7%. For the three
months ended March 31, 2009, the Company recorded $2.4 million income tax benefit, based on a
pre-tax loss from continuing operations of $8.3 million, resulting in an effective tax rate of
28.8%. The primary reason for the lower tax rate in 2009 was due to non-deductible expenses, which
reduced the effective tax rate on the loss.
11
Liquidity and Capital Resources
Cash on hand remained relatively unchanged at $8.8 million from December 31, 2009 through
March 31, 2010 and we continued to have no borrowings outstanding on our revolving line of credit.
Working capital, including cash and cash equivalents, at March 31, 2010, increased to $76.4 million
as compared to $75.1 million at December 31, 2009.
Net cash used in continuing operations was $1.1 million for the first three months of 2010
compared to $1.7 million provided by continuing operations in the first three months of 2009. In
2010, accounts receivable and inventory increased $4.4 million and $1.3 million, respectively, as a
result of increased sales in the first quarter of 2010 compared to the fourth quarter of 2009.
Cash provided from operations in the first quarter of 2009 reflected a lower operating profit
offset by a decrease in accounts receivable and lower inventory levels.
Cash flows from investing activities in the first quarter of 2010 benefited from the receipt
of $2.0 million from the sale of our Dallas, Texas distribution center. Capital expenditures were
$0.3 million for the first three months of 2010 compared to $1.2 million in 2009. During the first
quarter of 2010, we selected our Enterprise Resource Planning (ERP) system provider and we
anticipate that the total cost, including hardware, software, data
conversion and other implementation expenditures, will
range from $15 million to $20 million and will commence in the second quarter of 2010 and continue
through 2011.
Net cash used to support financing activities in the first three months of 2010 was
$0.5 million compared to $3.5 million provided by financing activities in the first three months of
2009. The $4.0 change was primarily due to net borrowings of $5.3 million on our revolving line of
credit in the first quarter of 2009 partially offset by a lower dividend payment of $0.06 per share
in the first quarter of 2010 compared to the dividend payment of $0.20 per share in 2009.
We announced a cash dividend of $.06 per common share in the first quarter of 2010 to be paid
in April 2010, compared to the cash dividend of $.03 per share announced in the first quarter of
2009 that was paid in April 2009.
At March 31, 2010 we were in compliance with all covenants related to our revolving line of
credit as detailed below:
|
|
|
|
|
|
|
|
|
Covenant |
|
Requirement |
|
|
Actual |
|
Minimum EBITDA, as defined in the amended Credit
Agreement |
|
$9.5 million |
|
|
$17.6 million |
|
Cash plus accounts receivable and inventory to debt ratio |
|
1.75:1.00 |
|
|
40.20:1.00 |
|
Minimum tangible net worth |
|
$55.0 million |
|
|
$78.4 million |
|
We believe that cash provided by operations and our $55.0 million revolving line of credit
will be sufficient to fund our operating requirements, ERP implementation, capital improvements and
other commitments and obligations for the upcoming fiscal year.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at March 31, 2010 from that reported in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our senior management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the
end of the period covered by this report (the Evaluation Date). Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that (i) the information relating to Lawson,
including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and
(ii) include, without limitation, controls and procedures designed to ensure that information
required to be disclosed is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
There was no change in the Companys internal control over financial reporting during the
quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART II
OTHER INFORMATION
ITEMS 1, 1A, 2, 3 and 5 of Part II are inapplicable and have been omitted from this report.
ITEM 6. EXHIBITS
|
|
|
|
|
Exhibit # |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32 |
|
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
13
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
LAWSON PRODUCTS, INC.
(Registrant)
|
|
Dated April 29, 2010 |
/s/ Thomas J. Neri
|
|
|
Thomas J. Neri |
|
|
President and Chief Executive Officer
(principal executive officer) |
|
|
|
|
Dated April 29, 2010 |
/s/ Ronald J. Knutson
|
|
|
Ronald J. Knutson |
|
|
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer) |
|
14
Exhibit 31.1
Exhibit 31.1
CERTIFICATIONS
I, Thomas J. Neri, certify that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of Lawson Products, Inc. (the
registrant); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting. |
Date: April 29, 2010
|
|
|
/s/ Thomas J. Neri
Thomas J. Neri
|
|
|
President and Chief Executive Officer |
|
|
(principal executive officer) |
|
|
Exhibit 31.2
Exhibit 31.2
CERTIFICATIONS
I, Ronald J. Knutson, certify that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of Lawson Products, Inc. (the
registrant); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting. |
Date: April 29, 2010
|
|
|
/s/ Ronald J. Knutson
Ronald J. Knutson
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
(principal financial and accounting officer) |
|
|
Exhibit 32
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lawson Products, Inc. (the Company) on Form
10-Q for the period ending March 31, 2010 as filed with the Securities and Exchange Commission on
the date hereof (the Report), the undersigned Chief Executive Officer and Chief Financial Officer
of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002 that based on their knowledge: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of and for the periods covered in the Report.
|
|
|
|
|
April 29, 2010 |
/s/ Thomas J. Neri
|
|
|
Thomas J. Neri |
|
|
Lawson Products, Inc.
President and Chief Executive Officer
(principal executive officer) |
|
|
|
|
|
/s/ Ronald J. Knutson
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Ronald J. Knutson |
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Lawson Products, Inc.
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer) |
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