Lawson Products Reports 2012 Second Quarter Results

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, 2012.

Thomas Neri, president and chief executive officer commented, “Over the past 18 months, we have undertaken a series of strategic initiatives to drive the future growth and profitability of our business including the recently announced restructuring to reduce our cost structure and improve our operating efficiency. During the quarter, we recorded approximately $40 million of non-recurring charges which significantly impacted our results. These actions are anticipated to produce annualized savings of approximately $20 million beginning in the third quarter of this year.”

“We have returned to pre-ERP implementation customer service levels despite challenging top-line growth. As we continue to improve upon our operations, we expect to begin realizing benefits from our strategic restructuring initiatives in the second half of 2012.”

Second Quarter Results

Net sales for the second quarter of 2012 were $74.3 million versus $84.2 million in the second quarter of 2011. The decrease was mainly driven by a decline of $3.8 million in government sales primarily due to military bases that support troop deployment, lower freight revenues, increased attrition among smaller customers and a decline in sales representatives from a year ago. This decrease was partially offset by an increase in sales to strategic accounts. Average daily sales declined 2.1% sequentially from the first quarter of 2012 and 11.6% year-over-year.

As part of the restructuring, the Company recorded additional inventory reserves of $3.9 million. Excluding these reserves, gross profit for the second quarter of 2012 was $40.7 million versus $48.3 million a year ago. The gross margin percentage declined from 57.4% to 54.8% which was unchanged from the first quarter. Lower outbound freight recoveries, additional labor to support customer service and a shift toward higher volume strategic customers with lower margins reduced gross margin on a year over year basis.

Excluding the restructuring related severance charge of $6.6 million, total selling, general and administrative expenses decreased $1.2 million from the year ago period. Operating expenses were also impacted by a non-cash goodwill impairment charge of $28.3 million offset by a gain of $2.1 million from the sale of properties. Including the charges and the gain on sale of properties, operating expenses were $78.3 million for the quarter versus $46.7 million in the prior year period.

Excluding the aforementioned charges and the gain on sale of properties, adjusted operating loss for the quarter ended June 30, 2012 was $4.8 million compared to adjusted operating income of $2.1 million for the quarter ended June 30, 2011. Including these items, the operating loss for the quarter was $41.4 million.

Net loss for the second quarter of 2012 was $61.2 million, or $7.12 per diluted share. During the quarter the Company increased the valuation allowance related to the recoverability of its deferred tax assets by $33.5 million which resulted in net tax expense of $19.5 million for the period. Excluding the non-recurring items referred to above as well as the increase in the tax valuation allowance, diluted loss per share was $0.39 compared to earnings of $0.12 per diluted share in the prior year period.

Second Half 2012 Initiatives

As the Company continues to focus on its long-term transformation, the following events are expected to occur in the near future:
  • Sales force transformation – Lawson will continue the transition of its independent agent model to an employee model. This transition is planned to be completed in the United States during the first quarter of 2013. Management anticipates minimal disruption while its sales representatives continue to service their existing customers.
  • Website launch – A redesigned website will be launched in a phased approach. The website will be fully integrated and allow orders to be placed directly on-line as well as enhancing the Company’s visibility to a broader base of customers.
  • Distribution network consolidation – The Company will consolidate distribution operations currently performed at three separate Illinois locations into a new state-of-the-art leased facility in McCook, Illinois. This facility will become the hub of Lawson’s distribution network and will help to improve the Company’s operating efficiency.
  • Credit facility – The Company entered into a new five year $40.0 million credit facility that provides the necessary liquidity to fund its future operations and continue its transformation.

Mr. Neri concluded, “We continue to take the necessary steps to transform the Company. We believe the recently completed restructuring and the implementation of our new ERP system, along with the initiatives scheduled to be completed in the near future, will enable us to better leverage our competitive advantages and reposition the Company for long-term growth and profitability.”

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2012 results at 9:00 a.m. EST on August 9, 2012. The conference call is available by direct dial at 877-317-6789 in the U.S. or 412-317-6789 from outside of the U.S. A replay of the conference call will be available approximately one hour after completion of the call through August 24, 2012. Callers can access the replay by dialing 877-344-7529 in the U.S. or 412-317-0088 outside the U.S. The PIN access number for the replay is 10016326#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson’s Web site through September 9, 2012.

About Lawson Products, Inc.

Founded in 1952, Lawson Products, Inc. (NASDAQ: LAWS) is an industrial distributor of more than 375,000 different maintenance and repair supplies. Lawson Products serves its customers through a dedicated team of sales representatives and employees. The Company services the industrial, institutional, commercial and government markets in all 50 U.S. states, Canada and Puerto Rico. You can learn more about the company on its Web site, www.lawsonproducts.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, 2011, Form 10-K filed on March 1, 2012 and the June 30, 2012 Form 10-Q filed on August 9, 2012. 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.
 
LAWSON PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except per share data)
(Unaudited)
   
Three Months Ended Six months ended
June 30, June 30,
2012   2011 2012   2011
 
Net sales $ 74,348 $ 84,154 $ 150,310 $ 166,733
Cost of goods sold   37,532     35,855     72,160     68,495  
Gross profit 36,816 48,299 78,150 98,238
 
Operating expenses:
Selling, general and administrative expenses 52,069 46,707 96,236 92,901
Goodwill impairment 28,306 - 28,306 -
Gain on sale of assets   (2,122 )   -     (2,122 )   -  
78,253 46,707 122,420 92,901
       
Operating income (loss) (41,437 ) 1,592 (44,270 ) 5,337
 
Other expense, net   (231 )   (8 )   (320 )   (504 )
 
Income (loss) from continuing operations before income taxes (41,668 ) 1,584 (44,590 ) 4,833
 
Income tax expense   19,472     496     18,335     1,695  
 
Income (loss) from continuing operations (61,140 ) 1,088 (62,925 ) 3,138
 
Discontinued operations, net of income tax   (17 )   (22 )   (30 )   (52 )
 
Net income (loss) $ (61,157 ) $ 1,066   $ (62,955 ) $ 3,086  
 
Basic income (loss) per share of common stock:
Continuing operations $ (7.12 ) $ 0.13 $ (7.33 ) $ 0.37
Discontinued operations   (0.00 )   (0.01 )   (0.01 )   (0.01 )
Net income (loss) per share $ (7.12 ) $ 0.12   $ (7.34 ) $ 0.36  
 
Diluted income (loss) per share of common stock:
Continuing operations $ (7.12 ) $ 0.13 $ (7.33 ) $ 0.36
Discontinued operations   (0.00 )   (0.01 )   (0.01 )   (0.00 )
Net income (loss) per share $ (7.12 ) $ 0.12   $ (7.34 ) $ 0.36  
 
Basic weighted average shares outstanding 8,587 8,550 8,581 8,541
Dilutive effect of stock based compensation   -     60     -     67  
Diluted weighted average shares outstanding   8,587     8,610     8,581     8,608  
 
Cash dividends declared per share of common stock $ 0.12   $ 0.12   $ 0.24   $ 0.24  
 
Net comprehensive income (loss) $ (61,395 ) $ 1,100   $ (62,766 ) $ 3,494  
 
LAWSON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
   
June 30, December 31,
2012 2011
(Unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,237 $ 2,116
Accounts receivable, less allowance for doubtful accounts 36,061 43,239
Inventories, net 54,727 55,498
Miscellaneous receivables and prepaid expenses 3,636 7,064
Deferred income taxes - 5,716
Property held for sale 1,869 -
Discontinued operations   385   410
 
Total current assets 97,915 114,043
 
Property, plant and equipment, net 64,495 52,702
 
Cash value of life insurance 14,666 15,490
Deferred income taxes 41 11,864
Goodwill - 28,148
Other assets   535   501
 
Total assets $ 177,652 $ 222,748
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Revolving line of credit $ 14,800 $ -
Accounts payable 15,542 22,967
Accrued expenses and other liabilities 31,679 28,231
Discontinued operations   433   681
 
Total current liabilities   62,454   51,879
 
Security bonus plans 20,773 23,310
Deferred compensation 8,887 9,279
Financing lease obligation 10,726 3,377
Other liabilities   5,067   731
  45,453   36,697
 
Total Stockholders’ Equity   69,745   134,172
 
Total liabilities and stockholders’ equity $ 177,652 $ 222,748
 

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 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 or non-operational items that impact the overall comparability. See the table below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and six months ended June 30, 2012 and 2011. 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 OPERATING INCOME
 
(Amounts in thousands)
(Unaudited)
   
Three Months Ended Six Months Ended
June 30, June 30,
2012   2011 2012   2011
 
Operating income (loss), as reported per GAAP $ (41,437 ) $ 1,592 $ (44,270 ) $ 5,337
 
Goodwill Impairment (1) 28,306 - 28,306 -
Severance expense (2) 6,585 465 6,770 1,210
Inventory rationalization (3) 3,893 - 3,893 -
Gain on sale of assets (4)   (2,122 )   -   (2,122 )   -
 
Adjusted non-GAAP operating income (loss) $ (4,775 ) $ 2,057 $ (7,423 ) $ 6,547
 
(1)   Non-cash $28.3 million goodwill impairment charge.
 
(2) Includes a $6.6 million severance charge for an organizational restructuring plan in the second quarter of 2012.
 
(3) A non-cash $3.9 million charge was recorded as a result of discontinuing certain products.
 
(4) Three properties were sold during the quarter, resulting in a gain of $2.1 million.
 
LAWSON PRODUCTS, INC.
TABLE 2 - QUARTERLY RESULTS
 
  (Dollars in thousands)
Three months ended
Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,   Jun. 30,
2012 2012 2011 2011 2011
 
Average daily net sales $ 1,162 $ 1,187 $ 1,214 $ 1,178 $ 1,315
Sequential quarter increase (decrease) (2.1 )% (2.2 )% 3.1 % (10.4 )% 0.3 %
 
 
Net sales $ 74,348 $ 75,962 $ 72,860 $ 75,366 $ 84,154
Gross profit 36,816 (1) 41,334 38,993 42,546 48,299
 
Gross profit percentage 49.5 % 54.4 % 53.5 % 56.5 % 57.4 %
 
Operating expenses $ 78,253   (2) $ 44,167   $ 46,755   (3) $ 45,617   $ 46,707  
 
Operating income (loss) $ (41,437 ) (4) $ (2,833 ) $ (7,762 )

$
(3,071 ) $ 1,592  
 
(1)   Gross profit for the three months ended June 30, 2012 includes a $3.9 million charge for discontinuing certain products.
 
(2) Operating expense for the three months ended June 30, 2012 includes a $28.3 million goodwill impairment charge, a $6.6 million restructuring charge and a $2.1 million gain on the sale of the properties.
 
(3) Operating expense for the three months ended December 31, 2011 includes a $1.2 million expense for the estimated cost of settling an employment tax matter and a $1.1 million impairment charge related to certain long-lived assets.
 
(4) Excluding items referred to in (1) and (2) above, operating loss for the quarter ended June 30, 2012 was $4.8 million.
 

Copyright Business Wire 2010

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