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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
     
þ   Quarterly Report under Section 13 OR 15(d) of the Securities Exchange Act of 1934
For quarterly period ended September 30, 2008
or
     
o   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)
     
Delaware   36-2229304
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1666 East Touhy Avenue, Des Plaines, Illinois   60018
     
(Address of principal executive offices)   (Zip Code)
(847) 827-9666
(Registrant’s 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 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. (Check one):
Large accelerated filer oAccelerated filer þ Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
     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 registrant’s common stock, $1 par value, as of October 31, 2008 was 8,522,001.
 
 

 


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“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 management’s 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 any breach of the terms and conditions of the Deferred Prosecution Agreement with U.S. Attorney’s Office for the Northern District of Illinois; excess and obsolete inventory; disruptions of the Company’s information systems; risks of rescheduled or cancelled orders; increases in commodity prices; the influence of controlling stockholders; competition and competitive pricing pressures; the effect of general economic conditions and market conditions in the markets and industries the Company serves; the risks of war, terrorism, and similar hostilities; and, all of the factors discussed in the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 31, 2007 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.

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TABLE OF CONTENTS
             
        Page #  
PART I — FINANCIAL INFORMATION        
  Condensed Consolidated Financial Statements     4  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     14  
  Quantitative and Qualitative Disclosures about Market Risk     19  
  Controls and Procedures     19  
 
           
PART II — OTHER INFORMATION        
  Legal Proceedings     20  
  Risk Factors     20  
  Exhibits     21  
 
           
SIGNATURES     22  
 EX-15
 EX-31.1
 EX-31.2
 EX-32

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PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
                 
    September 30,     December 31,  
(Amounts in thousands, except share data)   2008     2007  
    (Unaudited)          
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 6,651     $ 1,671  
Accounts receivable, less allowance for doubtful accounts
    56,372       58,882  
Inventories
    88,806       96,785  
Miscellaneous receivables and prepaid expenses
    10,032       10,303  
Deferred income taxes
    5,417       3,226  
Discontinued current assets
    509       1,064  
 
           
Total current assets
    167,787       171,931  
 
               
Property, plant and equipment, less accumulated depreciation and amortization
    49,481       53,031  
Deferred income taxes
    19,044       21,344  
Goodwill
    27,999       27,999  
Other assets
    23,636       25,558  
 
           
 
               
Total assets
  $ 287,947     $ 299,863  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 21,797     $ 16,266  
Revolving line of credit
    10,500       11,000  
Settlement payable — current (Note J)
    10,000        
Accrued expenses and other liabilities
    41,865       45,254  
Discontinued current liabilities
    87       322  
 
           
Total current liabilities
    84,249       72,842  
 
           
 
               
Accrued liability under security bonus plans
    26,311       25,491  
Settlement payable — noncurrent (Note J)
    10,000        
Other
    20,767       27,169  
 
           
 
    57,078       52,660  
 
           
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 and outstanding — 8,522,001 shares
    8,522       8,522  
Capital in excess of par value
    4,774       4,774  
Retained earnings
    133,287       160,606  
Accumulated other comprehensive income
    37       459  
 
           
Stockholders’ equity:
    146,620       174,361  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 287,947     $ 299,863  
 
           
See notes to condensed consolidated financial statements.

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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Amounts in thousands, except per share data)   2008     2007     2008     2007  
 
                               
Net sales
  $ 124,567     $ 127,913     $ 375,881     $ 386,760  
Cost of goods sold
    54,275       51,456       159,721       157,779  
 
                       
Gross profit
    70,292       76,457       216,160       228,981  
 
                               
Operating expenses:
                               
Selling, general and administrative expenses
    62,994       66,251       192,367       199,714  
Settlement and related costs (Note J)
    394       1,172       31,562       4,947  
Severance and other charges
    1,144       3,671       7,659       11,034  
 
                       
Operating income (loss)
    5,760       5,363       (15,428 )     13,286  
 
                               
Other income
    55       160       328       555  
Interest expense
    (247 )     (295 )     (690 )     (662 )
 
                       
 
                               
Income (loss) from continuing operations before income taxes
    5,568       5,228       (15,790 )     13,179  
 
                               
Provision for income taxes
    2,500       2,818       5,853       6,063  
 
                       
 
                               
Income (loss) from continuing operations
    3,068       2,410       (21,643 )     7,116  
 
                               
Income (loss) from discontinued operations, net of income taxes
    10       (11 )     (563 )     (496 )
 
                       
 
                               
Net income (loss)
  $ 3,078     $ 2,399     $ (22,206 )   $ 6,620  
 
                       
 
                               
Basic income (loss) income per share of common stock:
                               
Continuing operations
  $ 0.36     $ 0.28     $ (2.54 )   $ 0.84  
Discontinued operations
                (0.07 )     (0.06 )
 
                       
 
  $ 0.36     $ 0.28     $ (2.61 )   $ 0.78  
 
                       
 
                               
Diluted income (loss) income per share of common stock:
                               
Continuing operations
  $ 0.36     $ 0.28     $ (2.54 )   $ 0.83  
Discontinued operations
                (0.07 )     (0.06 )
 
                       
 
  $ 0.36     $ 0.28     $ (2.61 )   $ 0.78  
 
                       
 
                               
Cash dividends declared per share of common stock
  $ 0.20     $ 0.20     $ 0.60     $ 0.60  
 
                       
 
                               
Weighted average shares outstanding:
                               
Basic
    8,522       8,522       8,522       8,522  
 
                       
 
Diluted
    8,523       8,524       8,522       8,524  
 
                       
See notes to condensed consolidated financial statements.

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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                 
    Nine Months Ended September 30,  
(Amounts in thousands)   2008     2007  
 
               
Operating activities:
               
Net (loss) income
  $ (22,206 )   $ 6,620  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Depreciation and amortization
    6,474       6,003  
Provision for settlement
    30,000        
Settlement payment
    (10,000 )      
Changes in operating assets and liabilities
    14,951       (10,117 )
Other
    (6,261 )     1,610  
 
           
 
               
Net cash provided by operating activities
    12,958       4,116  
 
           
 
               
Investing activities:
               
Additions to property, plant and equipment
    (2,736 )     (13,805 )
 
           
 
               
Net cash used for investing activities
    (2,736 )     (13,805 )
 
           
 
               
Financing activities:
               
Net (payments) proceeds from revolving line of credit
    (500 )     13,000  
Dividends paid
    (5,113 )     (5,113 )
Other
          27  
 
           
 
               
Net cash (used for) provided by financing activities
    (5,613 )     7,914  
 
           
 
               
Increase (decrease) in cash and cash equivalents
    4,609       (1,775 )
 
               
Cash and cash equivalents at beginning of period
    2,473       4,320  
 
           
 
               
Cash and cash equivalents at end of period
    7,082       2,545  
 
               
Cash held by discontinued operations
    (431 )     (881 )
 
           
 
               
Cash and cash equivalents held by continuing operations at end of period
  $ 6,651     $ 1,664  
 
           
See notes to condensed consolidated financial statements.

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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)
Note A — 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 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 generally accepted accounting principles. Reference should be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The Condensed Consolidated Balance Sheet as of September 30, 2008, the Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2008 and 2007 and the Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2008 and 2007 are unaudited. In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) have been made, that are necessary to present fairly the results of operations for the interim periods. Operating results for the three and nine-month period ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
     There have been no material changes in our significant accounting policies during the nine months ended September 30, 2008 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2007.
     Certain severance and settlement costs have been reclassified from selling, general and administrative expenses to separate line items within the Condensed Consolidated Statements of Operations.
Note B — Comprehensive Income (loss)
     Components of comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2007 are as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Net income (loss)
  $ 3,078     $ 2,399     $ (22,206 )   $ 6,620  
Foreign currency translation adjustment
    (310 )     466       (422 )     922  
 
                       
Comprehensive income (loss)
  $ 2,768     $ 2,865     $ (22,628 )   $ 7,542  
 
                       
Note C — Earnings Per Share
     The calculations of dilutive weighted average shares outstanding for the three and nine months ended September 30, 2008 and 2007 were as follows:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2008   2007   2008   2007
 
Basic weighted average shares outstanding
    8,522       8,522       8,522       8,522  
Dilutive impact of stock options outstanding
    1       2             2  
 
                               
Dilutive weighted average shares outstanding
    8,523       8,524       8,522       8,524  
 
                               
     Stock options for the nine months ended September 30, 2008, would have been anti-dilutive and therefore were excluded from the computation of diluted earnings per share.

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Note D — Revolving Line of Credit
     The revolving line of credit has a maximum borrowing capacity of $75 million and a maturity date of March 27, 2009. The revolving line of credit carries a floating interest rate of prime minus 1.5% or LIBOR plus 0.75%, at the Company’s option. Interest is payable quarterly on prime rate borrowings and at contract expirations for LIBOR borrowings. The Company had $10.5 million of borrowings under the line of credit with an effective interest rate of 3.5% at September 30, 2008.
     The line of credit contains certain financial covenants regarding interest coverage, minimum stockholders’ equity and working capital. The revolving credit agreement was amended in the third quarter of 2008 to modify certain covenant calculations relating to the $30,000 provision made in connection with the settlement of the investigation by the U.S. Attorney’s Office (see Note J). The Company was in compliance with all covenants at September 30, 2008.
Note E — Severance and Other Charges
     Components of severance and other charges for the three and nine months ended September 30, 2008 and 2007 were as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Severance
  $ 809     $ 3,671     $ 3,724     $ 11,034  
Unclaimed Property
    335             3,935        
 
                       
Total Severance and Other Charges
  $ 1,144     $ 3,671     $ 7,659     $ 11,034  
 
                       
     Unclaimed property charges relate primarily to years prior to 2003.
     The table below shows the changes in the Company’s reserves for severance and related payments, included in accrued expenses and other liabilities on the balance sheet as of September 30, 2008 and 2007:
                 
    2008     2007  
 
Balance at beginning of year
  $ 7,058     $ 962  
Charged to earnings
    3,724       11,034  
Cash paid
    (4,655 )     (3,924 )
Adjustment to reserves
    (42 )     (120 )
 
           
Balance at September 30
  $ 6,085     $ 7,952  
 
           
Note F — Intangible Assets
     Intangible assets subject to amortization, included within other assets, were as follows on September 30, 2008 and December 31, 2007:
                                                 
    September 30, 2008     December 31, 2007  
                    Net                     Net  
    Gross     Accumulated     Carrying     Gross     Accumulated     Carrying  
    Balance     Amortization     Amount     Balance     Amortization     Amount  
 
Trademarks and tradenames
  $ 1,400     $ 775     $ 625     $ 1,400     $ 737     $ 663  
Non-compete covenant
    1,000       550       450       1,000       400       600  
 
                                   
 
  $ 2,400     $ 1,325     $ 1,075     $ 2,400     $ 1,137     $ 1,263  
 
                                   
     Trademarks and tradenames are amortized over 20 years. The non-compete covenant associated with the 2005 acquisition of Rutland is being amortized over 5 years. Amortization expense, all of which is included in the MRO distribution segment, for these intangible assets is expected to be $250 per year for 2008, 2009 and 2010 and $50 per year thereafter until the trademarks and tradenames are fully amortized.

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Note G — Stock-Based Compensation
     The Stock Performance Plan (the “Plan”) provides for the issuance of incentive compensation to non-employee directors, officers and key employees in the form of stock performance rights (“SPRs”).
Stock Performance Rights
     SPRs vest at 20 percent or 33 percent per year and entitle the recipient to receive a cash payment equal to the excess of the market value of the Company’s common stock over the SPR exercise price when the SPRs are surrendered. The Company estimates the fair value of SPRs using the Black-Scholes valuation model each quarter. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The weighted-average estimated fair value of SPRs outstanding at September 30, 2008 was $5.54 per SPR with the following assumptions:
         
Expected volatility
  30.9% to 44.0%
Risk-free interest rate
  1.8% to 3.1%
Expected term (in years)
  1.1 to 5.6
Expected dividend yield
  2.9%
     Compensation expense of $71 and a benefit of $860 was recorded for outstanding SPRs in selling, general and administrative expenses in the third quarters of 2008 and 2007, respectively. Compensation income of $1,060 and $1,035 was recorded for outstanding SPRs in the first nine months of 2008 and 2007, respectively.
     Activity related to the Company’s SPRs during the first three quarters of 2008 was as follows:
                 
    Number   Average SPR
    of SPRs   Exercise Price
 
Outstanding on December 31, 2007
    209,250     $ 34.17  
 
Granted
    151,500       25.82  
Exercised
    (28,250 )     27.14  
Forfeited
    (24,100 )     25.53  
 
               
 
               
Outstanding on September 30, 2008
    308,400     $ 31.39  
 
               
 
               
Exercisable on September 30, 2008
    140,067     $ 34.38  
 
               
     The aggregate intrinsic value of SPRs outstanding was $266 as of September 30, 2008.
     As of September 30, 2008, there was $684 of unrecognized compensation cost related to non-vested SPRs, which will be recognized over a weighted average period of 1.7 years.
Stock Options
     There were no stock options granted, exercised or cancelled in the first nine months of 2008. As of September 30, 2008, the Company had 5,000 outstanding stock options at a weighted average exercise price of $23.11 and a weighted average remaining life of 1.3 years.
     As of December 31, 2007, all outstanding stock options were fully vested, and no remaining unrecognized compensation expense is to be recorded in 2008.
Note H — Segment Reporting
     The Company has two reportable segments: Maintenance, Repair and Operations distribution in North America (MRO), and Original Equipment Manufacturer distribution and manufacturing in North America

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(OEM). The Company’s reportable segments are distinguished by the nature of products, types of customers, and manner of servicing customers.
     The Company’s MRO distribution segment supplies a wide range of MRO parts to repair and maintenance organizations primarily through the Company’s force of independent field sales agents, as well as inside sales personnel.
     The Company’s OEM segment manufactures and distributes component parts to OEM manufacturers through a network of independent manufacturers’ representatives as well as internal sales personnel.
     The Company evaluates performance and allocates resources to reportable segments primarily based on operating income.
     The following table presents summary financial information for the Company’s reportable segments:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Net sales
                               
MRO
  $ 102,692     $ 108,183     $ 312,011     $ 323,344  
OEM
    21,875       19,730       63,870       63,416  
 
                       
Consolidated total
  $ 124,567     $ 127,913     $ 375,881     $ 386,760  
 
                       
 
                               
Operating income (loss)
                               
MRO
  $ 8,547     $ 5,065     $ (13,425 )   $ 10,263  
OEM
    (2,787 )     298       (2,003 )     3,023  
 
                       
Consolidated total
  $ 5,760     $ 5,363     $ (15,428 )   $ 13,286  
 
                               
Investment and other income
    55       160       328       555  
Interest expense
    (247 )     (295 )     (690 )     (662 )
 
                       
 
                               
Income (loss) from continuing operations before income taxes
  $ 5,568     $ 5,228     $ (15,790 )   $ 13,179  
 
                       
     Asset information for continuing operations related to the Company’s reportable segments consisted of the following:
                 
    September 30,     December 31,  
    2008     2007  
 
               
Total assets
               
MRO
  $ 211,523     $ 221,274  
OEM
    51,454       52,995  
 
           
 
               
Segment total
    262,977       274,229  
Corporate
    24,461       24,570  
 
           
 
               
Consolidated total
  $ 287,438     $ 298,799  
 
           
     At September 30, 2008 and December 31, 2007, the carrying value of goodwill within each reportable segment was as follows:
         
MRO
  $ 25,748  
OEM
    2,251  
 
     
Consolidated total
  $ 27,999  
 
     

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Note I — Income Tax Expense
     The income tax provision recorded for the nine months ended September 30, 2008 of $5,853 was affected by approximately $29,200 of the $30,000 provision related to the settlement of the investigation by the U.S. Attorney’s Office for the Northern District of Illinois, which was non-deductible. Excluding the effect of the non-deductible settlement, the income tax as a percentage of pre-tax income for the nine months ended September 30, 2008 was 43.6% compared to 46.0% for the nine months ended September 30, 2007. Income tax as a percentage of pre-tax income for the third quarter of 2008 was 44.9% compared to 53.9% for the third quarter of 2007. The higher rate for 2007 was related to the exclusion of tax deductions for expenses related to the Company’s customer loyalty programs.
     At September 30, 2008, the Company had $923 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 September 30, 2008 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months.
     The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $1,529 accrued for interest and penalties at September 2008.
     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 September 30, 2008, the Company is subject to U.S. Federal income tax examinations for the years 2000 through 2007 and to non-U.S. income tax examinations for the tax years of 2000 through 2007. In addition, the Company is subject to state and local income tax examinations for the tax years 2000 through 2007.
Note J — Legal Proceedings
     In December 2005, the FBI executed a search warrant for records at the Company’s offices and informed the Company that it was conducting an investigation as to whether any of the Company’s representatives improperly provided gifts or awards to purchasing agents (including government purchasing agents) through the Company’s customer loyalty programs (the “investigation”). The U.S. Attorney’s Office for the Northern District of Illinois (the “U.S. Attorney’s Office”) subsequently issued a subpoena for documents in connection with the investigation.
     In April 2007, thirteen people, including seven former sales agents of the Company, were indicted on federal criminal charges, including mail fraud, in connection with the investigation. These indictments alleged that, under the Company’s customer loyalty programs, sales agents would provide cash gift certificates to individuals purchasing Company merchandise on behalf of their employers as a way to increase their commissions and prices paid by customers. All of the cases involved commissioned sales agents of the Company. All seven of the indicted former sales agents have entered guilty pleas to federal criminal charges.
     On August 11, 2008, in connection with the investigation, the Company entered into a Deferred Prosecution Agreement (the “DPA”) with the U.S. Attorney’s Office. An additional three people, including a former sales manager and a former sales agent were indicted on August 11, 2008 and have since pled guilty. Under the terms of the DPA, the U.S. Attorney’s Office filed a one-count criminal Information charging the Company with mail fraud in the U.S. District Court for the Northern District of Illinois, but will defer prosecution of such charge for three years. If the Company abides by the terms and conditions of the DPA, the U.S. Attorney’s Office will seek dismissal with prejudice of the Information within 30 days of the expiration of the three-year period.
     Pursuant to the DPA, the Company agreed to a $30,000 penalty, which includes $806 of restitution, and recorded a charge of $30,000 in the second quarter of 2008. The penalty is payable in three equal installments. The first $10,000 payment was made in August 2008. The second $10,000 payment is due

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August 2009, and the final $10,000 payment is due August 2010. If a controlling interest in the Company is sold, any unpaid amounts shall be accelerated and due at the closing of the sale.
     Under the DPA, the Company agreed to make restitution payments to those customers that employed individuals who received over $10 in payments through the Winners Choice incentive program, or that employed individuals who have been or later are convicted of mail fraud as a result of Winners Choice payments, or that purchased Company merchandise from sales agents who have been or later are convicted of mail fraud for providing checks to the customer’s employees. Restitution payments made to these customers will be paid from the Company’s first installment payment.
     In conjunction with the Company’s internal investigation, several customer loyalty programs were terminated because the Company believes that these programs provided or had the potential of providing promotional considerations, such as gifts and awards, to purchasing agents that the Company has deemed inappropriate. The Company has modified another customer loyalty program to limit the amount and nature of customer gifts distributed under the program. In addition, twenty-three independent agents have been terminated, a number have resigned and the Company has terminated four employees. The Company has also implemented a compliance and ethics program to prevent future abuses. Under the terms of the DPA, the Company agreed to continue to implement its compliance and ethics program.

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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lawson Products, Inc.
     We have reviewed the condensed consolidated balance sheet of Lawson Products, Inc. and subsidiaries as of September 30, 2008 and the related condensed consolidated statements of operations for the three and nine month periods ended September 30, 2008 and 2007 and the related condensed consolidated statements of cash flows for the nine month periods ended September 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management.
     We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
     Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
     We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Lawson Products, Inc. and subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended, not presented herein, and in our report dated March 10, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Chicago, Illinois
November 4, 2008

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended September 30, 2008 compared to Quarter ended September 30, 2007
     The following table presents a summary of the Company’s financial performance for the third quarters of 2008 and 2007:
                                 
    2008     2007  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
 
                               
Net sales
                               
MRO
  $ 102,692       82.4 %   $ 108,183       84.6 %
OEM
    21,875       17.6       19,730       15.4  
 
                       
Consolidated total
  $ 124,567       100.0     $ 127,913       100.0  
 
                               
Gross profit
                               
MRO
  $ 68,833       67.0 %   $ 72,154       66.7 %
OEM
    1,459       6.7       4,302       21.8  
 
                           
Consolidated total
    70,292       56.4       76,456       59.8  
 
                               
Operating expenses:
                               
Selling, general and administrative expenses
    62,994       50.6       66,251       51.8  
Settlement related costs
    394       0.3       1,172       0.9  
Severance and other charges
    1,144       0.9       3,671       2.9  
 
                       
 
                               
Operating income
    5,760       4.6       5,363       4.2  
Other, net
    (192 )     (0.1 )     (135 )     (0.1 )
 
                       
Income from continuing operations before income tax expense
    5,568       4.5       5,228       4.1  
Income tax expense
    2,500       2.0       2,818       2.2  
 
                       
 
                               
Income from continuing operations
  $ 3,068       2.5 %   $ 2,410       1.9 %
 
                       
Net Sales
     Net sales for the three-month period ended September 30, 2008 decreased 2.6% to $124.6 million, from $127.9 million in the same period of 2007.
     MRO net sales decreased $5.5 million or 5.1% in the third quarter of 2008, to $102.7 million from $108.2 million in the prior year period. MRO net sales declined primarily as a result of lower sales in metal working products and chemicals which were negatively impacted by a net reduction of approximately 100 sales agents from September 30, 2007 to September 30, 2008.
     OEM net sales increased $2.2 million in the third quarter of 2008, to $21.9 million from $19.7 million in the prior year period. The sales increase experienced during the third quarter was primarily attributable to expanding the volume of sales generated from our current customers.
Gross Profit
     The gross profit margin for the third quarter of 2008 was 56.4%, 3.4 percentage points lower than the 59.8% achieved in the third quarter of 2007. The decline in gross profit margin is primarily attributable to a change in sales mix and increased product and commodity costs.
     MRO gross profit decreased $3.3 million or 4.6% in the third quarter of 2008, to $68.8 million from $72.2 million in the prior year period. However, gross profit as a percent of net sales increased slightly to 67.0% for the third quarter of 2008 from 66.7% in the third quarter of 2007. The 2008 gross margin

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includes a $2.4 million favorable inventory reserve adjustment. Excluding the inventory adjustment, gross profit as a percent of net sales declined to 64.7% for the third quarter of 2008, reflecting increased product and commodity costs. Additional price increases will be implemented in the fourth quarter period to offset these increased costs.
     OEM gross profit decreased $2.8 million in the third quarter of 2008, to $1.5 million from $4.3 million in the prior year period. The decrease was primarily due to a $2.7 million inventory reserve adjustment and increased product and commodity costs. Price increases to cover the increased product and commodity costs have not yet been fully implemented due to existing contractual obligations. Excluding the inventory adjustment, gross profit as a percent of net sales decreased to 18.8% for the third quarter of 2008 from 21.8% in the third quarter of 2007
Selling, General and Administrative Expenses (“SG&A”)
     SG&A expenses were $63.0 million and 50.6% of net sales and $66.3 million and 51.8% of net sales for the quarters ended September 30, 2008 and 2007, respectively. The $3.3 million reduction in third quarter 2008 SG&A expenses primarily reflects lower sales commission and employee compensation costs.
Settlement Related Costs
     The Company incurred costs of $0.4 million and $1.2 million in the third quarter of 2008 and 2007, respectively, related to the investigation by the U.S. Attorney’s Office for the Northern District of Illinois as to whether Company sales representatives provided improper gifts or awards to purchasing agents (including government purchasing agents) through the Company’s customer loyalty programs. See Note J in the Condensed Consolidated Financial Statements for further information.
Severance and Other Charges
     In the third quarter of 2008, the Company recorded $1.1 million of severance and other charges. Of this amount, $0.8 million related to severance costs associated with the departure of certain executives and operational efficiency improvement initiatives implemented in 2008 and $0.3 million related to unclaimed property liabilities relating primarily to years prior to 2003. In the third quarter of 2007, the Company recorded $3.7 million of severance costs.
Income Tax Expense
     For the three months ended September 30, 2008, the Company recorded $2.5 million of income tax expense, based on a pre-tax income from continuing operations of $5.6 million, resulting in an effective tax rate of 44.9%. For the three months ended September 30, 2007, income tax expense of $2.8 million was recorded based on pre-tax income of $5.2 million, resulting in an effective tax rate of 53.9%. The higher rate for 2007 was related to the exclusion of tax deductions for expenses related to the Company’s customer loyalty programs.

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Nine Months ended September 30, 2008 compared to Nine Months ended September 30, 2007
     The following table presents a summary of the Company’s financial performance for the nine months ended September 30, 2008 and 2007:
                                 
    2008     2007  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
 
                               
Net sales
                               
MRO
  $ 312,011       83.0 %   $ 323,344       83.6 %
OEM
    63,870       17.0       63,416       16.4  
 
                       
Consolidated total
  $ 375,881       100.0     $ 386,760       100.0  
 
                               
Gross profit
                               
MRO
  $ 205,836       66.0 %   $ 214,216       66.3 %
OEM
    10,324       16.2       14,764       23.3  
 
                           
Consolidated total
    216,160       57.5       228,980       59.2  
 
                               
Operating expenses:
                               
Selling, general and administrative expenses
    192,367       51.2       199,714       51.6  
Settlement and related costs
    31,562       8.4       4,947       1.3  
Severance and other charges
    7,659       2.0       11,034       2.9  
 
                       
 
                               
Operating (loss) income
    (15,428 )     (4.1 )     13,286       3.4  
Other, net
    (362 )     (0.1 )     (107 )      
 
                       
(Loss) income from continuing operations before income tax expense
    (15,790 )     (4.2 )     13,179       3.4  
Income tax expense
    5,853       1.6       6,063       1.6  
 
                       
 
                               
(Loss) income from continuing operations
  $ (21,643 )     5.8 %   $ 7,116       1.8 %
 
                       
Net Sales
     Net sales for the nine-month period ended September 30, 2008 decreased 2.8% to $375.9 million, from $386.8 million in the same period of 2007.
     MRO net sales decreased $11.3 million or 3.5% in the first nine months of 2008, to $312.0 million from $323.4 million in the prior year period. MRO net sales declined primarily as a result of lower sales in metal working products and chemicals which were negatively impacted by a net reduction of approximately 100 sales agents from September 30, 2007 to September 30, 2008.
     OEM net sales increased $0.5 million in the first nine months of 2008, to $63.9 million from $63.4 million in the prior year period. The sales increase was primarily attributable to expanding the volume of sales generated from our current customers partially offset by customer losses.
Gross Profit
     Gross profit margins for the first nine months of 2008 were 57.5% down 1.7 percentage points from 59.2% in the first nine months of 2007. The decline in gross profit margin is primarily attributable to a change in sales mix and increased product and commodity costs.
     MRO gross profit decreased $8.4 million or 3.9% in the first nine months of 2008, to $205.8 million from $214.2 million in the prior year period. Gross profit as a percent of net sales decreased slightly to 66.0% for the first nine months of 2008 from 66.3% in the prior year period. Excluding a favorable $2.4 million inventory reserve adjustment, gross profit as a percent of net sales was 65.2% for the 2008 period.

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     OEM gross profit decreased $4.5 million in the first nine months of 2008, to $10.3 million from $14.8 million in the prior year period. The decrease was partially due to a $2.7 million inventory reserve adjustment and increased product and commodity costs. Excluding the inventory adjustment, gross profit as a percent of net sales decreased to 20.3% for the first nine months of 2008 from 23.3% in the first nine months of 2007 reflecting increased product and commodity costs.
Selling, General and Administrative Expenses
     SG&A expenses were $192.4 million and 51.2% of net sales and $199.7 million and 51.6% of net sales for the nine-months ended September 30, 2008 and 2007, respectively. The $7.3 million reduction in SG&A expenses reflects lower sales commission and employee compensation costs, offset partially by higher supplies expense and consulting fees.
Settlement and Related Costs
     The Company incurred penalties and related costs of $31.6 million in the first nine-months of 2008 and investigation costs of $4.9 million in the first nine-months of 2007 in conjunction with the investigation by the U.S. Attorney’s Office for the Northern District of Illinois related to whether Company sales representatives provided improper gifts or awards to purchasing agents (including government purchasing agents) through the Company’s customer loyalty programs. See Note J in the Condensed Consolidated Financial Statements for further information.
Severance and Other Charges
     In the first nine-months of 2008, the Company recorded $7.6 million of severance and other charges. Of this amount, $3.7 million related to severance costs associated with the departure of certain executives and operational efficiency improvement initiatives implemented in 2008 and $3.9 million related to unclaimed property liabilities relating primarily to years prior to 2003. In the first nine-months of 2007, the Company recorded $11.0 million of severance and other charges.
Income Tax Expense
     The income tax provision recorded for the nine months ended September 30, 2008 of $5.9 million was affected by approximately $29.2 million of the $30 million provision related to the settlement of the investigation by the U.S. Attorney’s Office for the Northern District of Illinois, which was non-deductible. Excluding the effect of the non-deductible settlement, the income tax as a percentage of pre-tax income for the nine months ended September 30, 2008 was 43.6% compared to 46.0% for the nine months ended September 30, 2007.

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Liquidity and Capital Resources
     Net cash provided by operations was $13.0 million for the first nine months of 2008 compared to $4.1 million in the first nine months of 2007. The $8.9 million increase is primarily due to improved working capital utilization.
     Working capital, including cash and cash equivalents, at September 30, 2008, was $83.5 million as compared to $99.1 million at December 31, 2007. The $15.6 million decrease in working capital is primarily attributable to the $10.0 million current liability relating to settlement of the investigation by the U.S. Attorney’s Office for the Northern District of Illinois and an $8.0 million reduction in inventory resulting from initiatives taken to improve the inventory management process.
     Net cash used for investing activities was $2.7 million for the nine-month period ended September 30, 2008 compared to $13.8 million for the prior year period, reflecting lower capital expenditures in the first nine months of 2008. Capital expenditures in 2008 were principally related to improvement of existing facilities and the purchase of related equipment. For the 2007 period, capital expenditures were principally related to the Reno, Nevada facility expansion, which was completed in 2007.
     Net cash used in financing activities in the first nine months of 2008 was $5.6 million compared to net cash provided by financing activities of $7.9 million in the first nine months of 2007, primarily reflecting borrowings and payments on the Company’s revolving line of credit.
     The Company announced a cash dividend of $.20 per common share in the third quarter of 2008, equal to the cash dividend of $.20 per share announced in the third quarter of 2007.
     Cash from operations and a $75.0 million unsecured revolving line of credit have been sufficient to fund operating requirements, cash dividends and capital expenditures. The Company had $10.5 million outstanding as of September 30, 2008 under its revolving line of credit. The line of credit contains certain financial covenants regarding interest coverage, minimum stockholders’ equity and working capital. The revolving credit agreement was amended in the third quarter of 2008, to modify certain covenant calculations relating to the $30 million provision made in connection with the settlement of the investigation by the U.S. Attorney’s Office. The Company was in compliance with all covenants at September 30, 2008.
     Cash from operations and the revolving line of credit are expected to be adequate to finance the Company’s future operations including the remaining settlement payments and costs related to the investigation with the U.S. Attorney’s Office. However, if market and other conditions change from those we anticipate due to a prolonged economic slowdown, our liquidity may be adversely affected.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at September 30, 2008 from that reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
     The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding financial disclosures.
     There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION
ITEMS 2, 3, 4 and 5 of Part II are inapplicable and have been omitted from this report.
ITEM 1. LEGAL PROCEEDINGS
     The information under Note J to the Condensed Consolidated Financial Statements is incorporated herein by reference. The description of the DPA is qualified in its entirety by the actual agreement, which is filed as Exhibit 10.1 with the Company’s Form 10-Q for the quarter ended June 30, 2008 and was incorporated herein by reference.
ITEM 1A. RISK FACTORS
     There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, except as described below. The description of these material changes does not represent a comprehensive list of risk factors that could cause our results to differ from those that are currently anticipated and, therefore, should be read in conjunction with the risk factors and other information disclosed in our Annual Report.
The signing of a Deferred Prosecution Agreement with the U.S. Attorney’s Office for the Northern District of Illinois, and any potential breach of such agreement, may adversely affect our business, financial condition, results of operations and stock price.
     We have entered into a Deferred Prosecution Agreement (the “DPA”) with the U.S. Attorney’s Office for the Northern District of Illinois (the “U.S. Attorney’s Office), which provides for the payment of $30,000,000 in penalties to resolve our liability for the actions of our representatives in improperly providing gifts or awards to purchasing agents through our then-existing customer loyalty programs. The DPA may impact our balance sheet and our ability to borrow funds to pay the penalty. The signing of the DPA may also negatively affect our ability to do business with certain customers (both government and non-government customers). We cannot predict the impact, if any, of the signing of the DPA on our business, financial condition, results of operations, and stock price.
     In addition, under the terms of the DPA, if it is determined that we deliberately gave false, incomplete or misleading information under the DPA or have committed any federal crimes subsequent to the DPA, or otherwise knowingly, intentionally, and materially violated any provision of the DPA, we may be subject to prosecution for any federal criminal violation of which the U.S. Attorney’s Office has knowledge. For more information on the DPA, see Note J to the Condensed Consolidated Financial Statements included in this Form 10-Q.
Our results of operations may be adversely impacted by a worldwide macroeconomic downturn. As a result, the market price of our common stock may decline.
     In 2008, general worldwide economic conditions have experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, increased commodity costs, volatile energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. These conditions make it difficult for our customers and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products, which would adversely impact our revenues and our ability to manage inventory levels, collect customer receivables and ultimately our profitability. We cannot predict the timing or duration of any economic slowdown or the timing or strength of a subsequent economic recovery. Additionally, our stock price could decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a worldwide macroeconomic downturn.

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ITEM 6. EXHIBITS
     
Exhibit #    
 
   
15
  Letter from Ernst & Young LLP Regarding Unaudited Interim Financial Information
 
   
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

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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 November 5, 2008  /s/ Thomas J. Neri    
  Thomas J. Neri   
  Chief Executive Officer   
 
     
Dated November 5, 2008  /s/ F. Terrence Blanchard    
  F. Terrence Blanchard   
  Chief Financial Officer   

22

exv15
         
Exhibit 15
November 4, 2008
Board of Directors
Lawson Products, Inc.
We are aware of the incorporation by reference in the Registration Statement (Form S-8 no. 33-17912 dated November 4, 1987) of Lawson Products, Inc. and subsidiaries of our report dated November 6, 2008 relating to the review of the condensed consolidated balance sheet of Lawson Products, Inc. and subsidiaries as of September 30, 2008, and the related condensed consolidated statements of operations for the three and nine month periods ended September 30, 2008 and 2007 and the condensed consolidated statements of cash flows for the nine month period ended September 30, 2008 and 2007, which are included in the Form 10-Q for the quarter ended September 30, 2008.
Pursuant to Rule 4369(c) of the Securities Act of 1933 our report is not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933.
         
     
/s/ ERNST & YOUNG LLP      
Chicago, Illinois     
     

 

exv31w1
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
Date: November 5, 2008
         
     
/s/ Thomas J. Neri      
Thomas J. Neri     
Chief Executive Officer     

 

exv31w2
Exhibit 31.2
CERTIFICATIONS
I, F. Terrence Blanchard, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  (b)   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 registrant’s 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 registrant’s internal control over financial reporting.
Date: November 5, 2008
         
     
/s/ F. Terrence Blanchard      
F. Terrence Blanchard     
Chief Financial Officer     

 

exv32
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 September 30, 2008 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.
         
November 5, 2008     
  /s/ Thomas J. Neri    
  Thomas J. Neri   
  Chief Executive Officer   
 
         
  /s/ Terrence Blanchard    
  F. Terrence Blanchard    
  Chief Financial Officer