Q2 2015 8-K


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 23, 2015

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 23, 2015, Lawson Products, Inc. issued a press release announcing its second quarter 2015 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 23, 2015








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 23, 2015
 
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 23, 2015





Q2 2015 Press Release


Lawson Products Reports Second Quarter 2015 Results

$2.0 million improvement in operating income
$0.33 EPS on net sales of $70.7 million


CHICAGO, July 23, 2015 - 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, 2015. The Company generated $3.2 million of operating income on net sales of $70.7 million.

"We delivered improved operating results,” said Michael DeCata, president and chief executive officer. “Sales continued to be impacted by the weaker Canadian dollar and reduced demand in the energy sector which has contributed to a broader based slow-down across the MRO marketplace. Those factors aside, we realized solid growth within many of our strategic customer relationships while at the same time achieved continued operating metric improvements. Our gross margins, which expanded to 61.9% during the quarter, combined with our effective cost control efforts and increased productivity, yielded a significant improvement in our operating income. These improvements further demonstrate that previous changes to our infrastructure are delivering benefits.

"Our continued improvement in operating results re-confirms that customers value our business model. We ended the quarter with 920 sales representatives. We remain committed to expanding our sales force and refining processes to improve their early success with us,” continued Mr. DeCata.

Financial Highlights

Net sales declined to $70.7 million in the second quarter of 2015, compared to $72.1 million in the second quarter a year ago.

Gross margins continued to increase to 61.9% for the quarter compared to 60.8% a year ago. This improvement continues a trend exceeding 61% of net sales for the third straight quarter.

GAAP operating income was $3.2 million for the quarter, up $2.0 million from $1.2 million a year ago. Non-GAAP adjusted operating income improved $2.2 million to $4.3 million in the second quarter of 2015 compared to $2.1 million in the second quarter of 2014 (See reconciliation in Table 1).

Net income improved to $2.9 million ($0.33 EPS per diluted share) compared to $0.8 million ($0.09 EPS per diluted share) a year ago.

Cash flow from operations was $4.2 million for the second quarter. Lawson ended the quarter with no debt outstanding and $5.4 million of available cash on hand.


Second Quarter Results

Net sales for the second quarter of 2015 decreased 1.9% to $70.7 million from $72.1 million in the second quarter of 2014 impacted by the decrease in the Canadian exchange rate, weak demand from customers associated with the oil and gas industry and a general slow-down in the MRO marketplace. Demand during the quarter from our direct oil and gas customers declined $1.4 million from a year ago quarter; however, has leveled-out from the first quarter. Excluding this decline and the Canadian exchange rate impact of $0.9 million, net sales increased 1.4% from the prior year quarter (See reconciliation in Table 2). This increase was driven primarily by our Kent Automotive Division and growing current strategic account relationships.





Overall, average daily sales decreased to $1.105 million in the second quarter of 2015 compared to $1.126 million in the prior year quarter.

Gross profit for the period improved to 61.9%, compared to 60.8% in the second quarter of 2014 and 61.3% in the first quarter. This increase was due primarily to our continuing efforts to improve distribution efficiencies and lower purchasing costs.

Selling expenses decreased to $21.9 million in the second quarter of 2015 from $23.0 million in the prior year quarter and as a percent of sales, decreased to 31.0% compared to 31.8%. The $1.1 million decrease was primarily driven by reduced performance based compensation, lower commissions on lower net sales and continued cost control efforts, offset partially by higher fixed compensation of newly hired sales representatives. General and administrative expenses decreased to $18.6 million in the second quarter of 2015 from $19.5 million in the prior year quarter due primarily to lower performance based compensation and severance expense, and continued cost control measures.

GAAP operating income improved to $3.2 million from $1.2 million a year ago. Excluding certain non-operational and non-recurring items, adjusted non-GAAP operating income was $4.3 million in the second quarter of 2015 compared to $2.1 million a year ago (See reconciliation in Table 1). On a year-to-date basis, adjusted non-GAAP operating income improved by $3.1 million over a year ago.

Net income for the second quarter of 2015 was $2.9 million, or $0.33 per diluted share compared to $0.8 million, or $0.09 per diluted share, for the same period a year ago.

The Company generated $4.2 million of cash flows from operations in the quarter and ended the quarter with $5.4 million of available cash and no debt.

"In summary, I am pleased with our performance this quarter. We will continue to refine our processes, add sales people in targeted markets and utilize our strong financial position to pursue growth opportunities," concluded Mr. DeCata.


Conference Call

Lawson Products, Inc., will conduct a conference call with investors to discuss second quarter 2015 results at 9:00 a.m. EDT on July 23, 2015. The conference call is available by direct dial at 888-349-0106 in the U.S. or 412-902-0131 from outside of the U.S. A replay of the conference call will be available approximately two hours after the completion of the call through August 24, 2015. 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 10053973#. A streaming audio of the call and an archived replay will also be available through the events calendar on the Investor Relations page of Lawson's website through August 24, 2015.





About Lawson Products, Inc.

Founded in 1952, Lawson Products (NASDAQ: LAWS) is an industrial distributor of approximately 300,000 maintenance and repair products. Lawson Products serves the industrial, commercial, institutional and government maintenance, repair and operations (MRO) market. The Company ships products to customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean from five strategically located distribution centers in North America. 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 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, 2014, Form 10-K filed on February 19, 2015. 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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net sales
$
70,726

 
$
72,080

 
$
140,630

 
$
141,284

Cost of goods sold
26,918

 
28,277

 
53,939

 
56,203

Gross profit
43,808

 
43,803

 
86,691

 
85,081

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Selling expenses
21,949

 
22,950

 
46,350

 
44,230

General & administrative expenses
18,616

 
19,480

 
38,045

 
41,277

Total SG&A
40,565

 
42,430

 
84,395

 
85,507

Impairment loss

 
132

 

 
3,046

Operating expenses
40,565

 
42,562

 
84,395

 
88,553

 
 
 
 
 
 
 
 
Operating income (loss)
3,243

 
1,241

 
2,296

 
(3,472
)
 
 
 
 
 
 
 
 
Interest expense
(142
)
 
(211
)
 
(278
)
 
(455
)
Other income (expenses), net
24

 
81

 
(209
)
 
(67
)
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
3,125

 
1,111

 
1,809

 
(3,994
)
Income tax expense (benefit)
199

 
313

 
254

 
(470
)
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
2,926

 
798

 
1,555

 
(3,524
)
Income and gain from discontinued operations, net of income taxes

 

 

 
1,367

Net income (loss)
$
2,926

 
$
798

 
$
1,555

 
$
(2,157
)
 
 
 
 
 
 
 
 
Basic income (loss) per share of common stock:
 
 
 
 
 
 
 
Continuing operations
$
0.34

 
$
0.09

 
$
0.18

 
$
(0.41
)
Discontinued operations

 

 

 
0.16

Net income (loss) per share
$
0.34

 
$
0.09

 
$
0.18

 
$
(0.25
)
 
 
 
 
 
 
 
 
Diluted income (loss) per share of common stock:
 
 
 
 
 
 
 
Continuing operations
$
0.33

 
$
0.09

 
$
0.17

 
$
(0.41
)
Discontinued operations

 

 

 
0.16

Net income (loss) per share
$
0.33

 
$
0.09

 
$
0.17

 
$
(0.25
)






Lawson Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
 
June 30,
2015
 
December 31, 2014
ASSETS
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
5,353

 
$
4,207

Restricted cash
800

 
800

Accounts receivable, less allowance for doubtful accounts
31,996

 
31,546

Inventories
41,740

 
44,517

Miscellaneous receivables and prepaid expenses
4,758

 
5,433

Total current assets
84,647

 
86,503

 
 
 
 
Property, plant and equipment, net
38,523

 
41,588

Cash value of life insurance
10,531

 
9,188

Deferred income taxes
51

 
51

Other assets
472

 
510

Total assets
$
134,224

 
$
137,840

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
11,499

 
$
7,867

Accrued expenses and other liabilities
23,040

 
30,861

Total current liabilities
34,539

 
38,728

 
 
 
 
Security bonus plan
15,383

 
15,857

Financing lease obligation
8,992

 
9,414

Deferred compensation
4,953

 
5,102

Deferred rent liability
4,141

 
4,361

Other liabilities
2,616

 
2,523

Total liabilities
70,624

 
75,985

 
 
 
 
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 - 8,755,810 and 8,720,350 shares, respectively
Outstanding - 8,740,378 and 8,706,467 shares, respectively
8,756

 
8,720

Capital in excess of par value
9,282

 
8,701

Retained earnings
44,830

 
43,275

Treasury stock – 15,432 and 13,883 shares, respectively
(272
)
 
(267
)
Accumulated other comprehensive income
1,004

 
1,426

Total stockholders’ equity
63,600

 
61,855

Total liabilities and stockholders’ equity
$
134,224

 
$
137,840







  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 non-operational, non-recurring or intermittently recurring items that impact the overall comparability. See Table 1 and 2 below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and six months ended June 30, 2015 and June 30, 2014. 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
(Dollar amounts in thousands)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Operating income, as reported per GAAP
$
3,243

 
$
1,241

 
$
2,296

 
$
(3,472
)
 
 
 
 
 
 
 
 
Stock-based compensation (1)
971

 
408

 
430

 
1,533

Severance expense
50

 
290

 
621

 
1,018

Impairment loss (2)

 
132

 

 
3,046

North American sales meeting expense (3)

 

 
1,889

 

Adjusted non-GAAP operating income
$
4,264

 
$
2,071

 
$
5,236

 
$
2,125


(1)    Expense for stock-based compensation, of which a portion varies with the Company's stock price
(2)    Non-cash impairment charge related to the Reno, Nevada distribution center
(3)    Excludes the effect of sales and gross margin


TABLE 2 - RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP NET SALES
(Dollar amounts in thousands)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net Sales, as reported per GAAP
$
70,726

 
$
72,080

 
$
140,630

 
$
141,284

 
 
 
 
 
 
 
 
Impact of Canadian exchange rate
905

 

 
1,697

 

Decrease in direct sales to oil and gas customers (1)
1,433

 

 
2,344

 

Adjusted non-GAAP net sales
$
73,064

 
$
72,080

 
$
144,671

 
$
141,284

 
 
 
 
 
 
 
 
Percentage increase in non-GAAP net sales
1.4
%
 
 
 
2.4
%
 
 

(1)
Represents decrease in sales to direct oil and gas customers as defined by Standard Industry Classification ("SIC") codes





LAWSON PRODUCTS, INC.
TABLE 3 - QUARTERLY RESULTS (UNAUDITED)
 
 
 
(Dollars in thousands)
 
Three Months Ended
 
Jun. 30, 2015
 
Mar. 31, 2015
 
Dec. 31, 2014
 
Sep. 30, 2014
 
Jun. 30, 2014
 
 
 
 
 
 
 
 
 
 
Number of business days
64

 
63

 
61

 
64

 
64

 
 
 
 
 
 
 
 
 
 
Average daily net sales
$
1,105

 
$
1,110

 
$
1,152

 
$
1,158

 
$
1,126

Sequential quarter increase (decrease)
(0.5)%

 
(3.6
)%
 
(0.5
)%
 
2.8
 %
 
2.6
 %
 
 
 
 
 
 
 
 
 
 
Average active sales rep. count (1)
912

 
911

 
908

 
882

 
854

Period-end active sales rep. count
920

 
917

 
916

 
894

 
878

 
 
 
 
 
 
 
 
 
 
Sales per rep. per day
$
1.212

 
$
1.218

 
$
1.269

 
$
1.313

 
$
1.319

Sequential quarter increase (decrease)
(0.5)%

 
(4.0
)%
 
(3.4)%

 
(0.5)%

 
(1.6)%

 
 
 
 
 
 
 
 
 
 
Net sales
$
70,726

 
$
69,904

 
$
70,281

 
$
74,128

 
$
72,080

Gross profit
43,808

 
42,883

 
42,935

 
44,533

 
43,803

 
 
 
 
 
 
 
 
 
 
Gross profit percentage
61.9%

 
61.3%

 
61.1%

 
60.1%

 
60.8%

 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
Selling, general & administrative expenses
$
40,565

 
$
43,830

 
$
44,719

 
$
43,758

 
$
42,430

Loss on asset disposals

 

 
45

 
97

 

Other expenses, net (2) (3)

 

 
340

 

 
132

 
40,565

 
43,830

 
45,104

 
43,855

 
42,562

 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
3,243

 
$
(947
)
 
$
(2,169
)
 
$
678

 
$
1,241


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

(2)
The three months ended December 31, 2014 includes $0.3 million related to estimated future remediation of an environmental matter at the Decatur, Alabama facility.

(3)
The three months ended June 30 2014 include $0.1 million, related to a non-cash impairment charge of the Reno, Nevada distribution center.


Contact

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