##### Table of Contents



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 June 30, 2007
 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.
  Delaware
    
    36-2229304(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1666 East Touhy Avenue, Des Plaines, Illinois
    
    60018(Address of principal executive offices)
    
    (Zip Code)
 (847) 827-9666
  þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of            OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATURESSixth Modification of Credit AgreementLetter from Ernst & Young LLP302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of CEO and CFO    Table of Contents  Safe Harbor Statement under the Securities Litigation Reform Act of 1995:
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    
    December 31,(in thousands, except share data)
    
    2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,861
    
    
    $
    3,391Accounts receivable, less allowance for doubtful accounts
    
    
    60,644
    
    
    
    60,411Inventories
    
    
    90,457
    
    
    
    90,272Miscellaneous receivables and prepaid expenses
    
    
    7,743
    
    
    
    5,529Deferred income taxes
    
    
    3,200
    
    
    
    3,538Discontinued current assets
    
    
    1,750
    
    
    
    2,056Total Current Assets
    
    
    165,655
    
    
    
    165,197Property, plant and equipment, less
allowances for depreciation and amortization
    
    
    49,339
    
    
    
    42,664Deferred income taxes
    
    
    22,979
    
    
    
    20,341Goodwill
    
    
    27,999
    
    
    
    27,999Other assets
    
    
    24,854
    
    
    
    22,679Discontinued non-current assets
    
    
    3
    
    
    
    3Total Assets
    
    $
    290,829
    
    
    $
    278,883LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Revolving line of credit
    
    $
    16,000
    
    
    $
    Accounts payable
    
    
    13,829
    
    
    
    14,055Accrued expenses and other liabilities
    
    
    41,617
    
    
    
    46,746Income taxes
    
    
    
    
    
    
    855Discontinued current liabilities
    
    
    1,720
    
    
    
    1,770Total Current Liabilities
    
    
    73,166
    
    
    
    63,426Accrued liability under security bonus plans
    
    
    26,478
    
    
    
    25,522Other
    
    
    20,787
    
    
    
    19,61847,265
    
    
    
    45,140Stockholders Equity:Preferred Stock, $1 par value:Authorized - 500,000 sharesIssued and outstanding  None
    
    
    
    
    
    
    Common Stock, $1 par value:Authorized - 35,000,000 sharesIssued and outstanding-(2007-8,522,001
shares; 2006-8,521,001 shares)
    
    
    8,522
    
    
    
    8,521Capital in excess of par value
    
    
    4,774
    
    
    
    4,749Retained earnings
    
    
    157,607
    
    
    
    158,008Accumulated other comprehensive loss
    
    
    (505
    )
    
    
    (961
    )Total Stockholders Equity
    
    
    170,398
    
    
    
    170,317Total Liabilities and Stockholders Equity
    
    $
    290,829
    
    
    $
    278,883
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    129,178
    
    
    $
    129,226
    
    
    $
    258,847
    
    
    $
    259,392Cost of goods sold
    
    
    52,481
    
    
    
    52,401
    
    
    
    106,323
    
    
    
    106,188Gross profit
    
    
    76,697
    
    
    
    76,825
    
    
    
    152,524
    
    
    
    153,204Operating expenses:Selling, general and administrative expenses
    
    
    71,449
    
    
    
    70,912
    
    
    
    137,689
    
    
    
    138,880Severance and other charges
    
    
    5,470
    
    
    
    
    
    
    
    6,912
    
    
    
    Loss on sale of equipment
    
    
    
    
    
    
    806
    
    
    
    
    
    
    
    806Operating income (loss)
    
    
    (222
    )
    
    
    5,107
    
    
    
    7,923
    
    
    
    13,518Investment and other income
    
    
    293
    
    
    
    387
    
    
    
    395
    
    
    
    941Interest expense
    
    
    (286
    )
    
    
    
    
    
    
    (367
    )
    
    
    Income (loss) from continuing operations
before income taxes and cumulative effect of
accounting change
    
    
    (215
    )
    
    
    5,494
    
    
    
    7,951
    
    
    
    14,459Provision (benefit) for income taxes
    
    
    (195
    )
    
    
    2,273
    
    
    
    3,245
    
    
    
    5,819Income (loss) from continuing operations
before cumulative effect of accounting change
    
    
    (20
    )
    
    
    3,221
    
    
    
    4,706
    
    
    
    8,640Loss from discontinued operations, net of
income taxes
    
    
    (329
    )
    
    
    (16
    )
    
    
    (485
    )
    
    
    (86
    )Income (loss) before cumulative effect of
accounting change
    
    
    (349
    )
    
    
    3,205
    
    
    
    4,221
    
    
    
    8,554Cumulative effect of accounting change, net
of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )Net income (loss)
    
    $
    (349
    )
    
    $
    3,205
    
    
    $
    4,221
    
    
    $
    8,193Basic income (loss) per share of common stock:Continuing operations before cumulative
effect of accounting change
    
    $
    (0.00
    )
    
    $
    0.36
    
    
    $
    0.55
    
    
    $
    0.96Discontinued operations
    
    
    (0.04
    )
    
    
    (0.00
    )
    
    
    (0.06
    )
    
    
    (0.01
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.04
    )$
    (0.04
    )
    
    $
    0.36
    
    
    $
    0.50
    
    
    $
    0.91Diluted income (loss) per share of common stock:Continuing operations before cumulative effect of accounting change
    
    $
    (0.00
    )
    
    $
    0.36
    
    
    $
    0.55
    
    
    $
    0.96
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Discontinued operations
    
    
    (0.04
    )
    
    
    (0.00
    )
    
    
    (0.06
    )
    
    
    (0.01
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.04
    )$
    (0.04
    )
    
    $
    0.36
    
    
    $
    0.50
    
    
    $
    0.91Cash dividends declared per share of common stock
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.40
    
    
    $
    0.40Weighted average shares outstanding:Basic
    
    
    8,521
    
    
    
    8,989
    
    
    
    8,521
    
    
    
    8,982Diluted
    
    
    8,521
    
    
    
    8,995
    
    
    
    8,523
    
    
    
    8,989
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
  Six Months EndedJune 30,(in thousands)
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    4,221
    
    
    $
    8,193Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    3,890
    
    
    
    4,055Changes in operating assets and liabilities
    
    
    (12,705
    )
    
    
    (13,732
    )Other
    
    
    988
    
    
    
    802Net Cash Used for Operating Activities
    
    
    (3,606
    )
    
    
    (682
    )Investing activities:Additions to property, plant and equipment
    
    
    (10,440
    )
    
    
    (2,268
    )Other
    
    
    
    
    
    
    356Net Cash Used for Investing Activities
    
    
    (10,440
    )
    
    
    (1,912
    )Financing activities:Proceeds from revolving line of credit
    
    
    70,000
    
    
    
    Payments on revolving line of credit
    
    
    (54,000
    )
    
    
    Dividends paid
    
    
    (3,409
    )
    
    
    (3,590
    )Other
    
    
    27
    
    
    
    676Net Cash provided by (Used for) Financing Activities
    
    
    12,618
    
    
    
    (2,914
    )Decrease in Cash and Cash Equivalents
    
    
    (1,428
    )
    
    
    (5,508
    )Cash and Cash Equivalents at Beginning of Period
    
    
    4,320
    (a)
    
    
    16,297Cash and Cash Equivalents at End of Period
    
    
    2,892
    
    
    
    10,789Cash Held by Discontinued Operations
    
    
    (1,031
    )
    
    
    (1,320
    )Cash and Cash Equivalents Held by Continuing Operations
at End of Period
    
    $
    1,861
    
    
    $
    9,469
 
 (a)
    
    Includes $929 of cash and cash equivalents from
discontinued operations  6




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands)
 Note A  Basis of Presentation and Summary of Significant Accounting Policies
     Note B  Comprehensive Income (Loss)
    7




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Note C  Earnings Per Share
  Three months ended June 30(in thousands)
    
    2007
    
    
    2006Basic weighted average shares outstanding
    
    
    8,521
    
    
    
    8,989Dilutive impact of options outstanding
    
    
    
    
    
    
    6Dilutive weighted average shares outstanding
    
    
    8,521
    
    
    
    8,995
 Six months ended June 302007
    
    
    2006Basic weighted average shares outstanding
    
    
    8,521
    
    
    
    8,982Dilutive impact of options outstanding
    
    
    2
    
    
    
    7Dilutive weighted average shares outstanding
    
    
    8,523
    
    
    
    8,989
 Note D  Revolving Line of Credit
   8




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Note E  Reserve for Severance
  (in thousands)
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    962
    
    
    $
    216Charged to earnings
    
    
    5,749
    
    
    
    Cash paid
    
    
    (1,367
    )
    
    
    (63
    )Adjustment to reserves
    
    
    (120
    )
    
    
    (28
    )Balance at June 30
    
    $
    5,224
    
    
    $
    125
  Note F  Intangible Assets
  June 30, 2007Gross
    
    
    Accumulated
    
    
    Net Carrying(in thousands)
    
    Balance
    
    
    Amortization
    
    
    AmountTrademarks and tradenames
    
    $
    1,400
    
    
    $
    712
    
    
    $
    688Non-compete covenant
    
    
    1,000
    
    
    
    300
    
    
    
    700$
    2,400
    
    
    $
    1,012
    
    
    $
    1,388
 December 31, 2006Gross
    
    
    Accumulated
    
    
    Net CarryingBalance
    
    
    Amortization
    
    
    AmountTrademarks and tradenames
    
    $
    1,400
    
    
    $
    687
    
    
    $
    713Non-compete covenant
    
    
    1,000
    
    
    
    200
    
    
    
    800$
    2,400
    
    
    $
    887
    
    
    $
    1,513
 9




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Note G  Stock-Based Compensation
  Stock Performance Rights
  June 30, 2007Expected volatility
    
    36.60% to 41.90
    %Risk-free interest rate
    
    4.87% to 4.94
    %Expected term (in years)
    
    
    1.7 to 5.9Expected dividend yield
    
    
    2.07
    %
   Average SPRExercise Price
    
    # of SPRsOutstanding December 31, 2006 (1)
    
    $
    33.31
    
    
    
    179,500Exercised
    
    
    27.08
    
    
    
    (500
    )Outstanding March 31, 2007 (2)
    
    $
    33.33
    
    
    
    179,000Granted
    
    
    36.71
    
    
    
    40,000Exercised
    
    
    26.93
    
    
    
    (1,950
    )Outstanding June 30, 2007(3)
    
    $
    34.01
    
    
    
    217,050
 
 (1)
    
    Includes 113,500 SPRs vested and exercisable at December 31, 2006
at a weighted average exercise price of $28.88 per SPR.(2)
    
    Includes 113,000 SPRs vested and exercisable at March 31, 2007 at
a weighted average exercise price of $28.89 per SPR.(3)
    
    Includes 133,317 SPRs vested and exercisable at June 30, 2007 at
a weighted average exercise price of $31.21 per SPR. 10




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Stock Options
  Average OptionExercise Price
    
    # of OptionsOutstanding December 31, 2006
    
    $
    23.72
    
    
    
    6,000Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/expired/cancelled
    
    
    
    
    
    
    Outstanding March 31, 2007
    
    $
    23.72
    
    
    
    6,000Granted
    
    
    
    
    
    
    Exercised
    
    
    26.75
    
    
    
    1,000Forfeited/expired/cancelled
    
    
    
    
    
    
    Outstanding June 30, 2007
    
    $
    23.11
    
    
    
    5,000
 WeightedAverageExercisable options at:
    
    Price
    
    Option SharesDecember 31, 2006
    
    $
    23.72
    
    
    
    6,000June 30, 2007
    
    $
    23.11
    
    
    
    5,000
   Exercise price
    
    $
    23.56
    
    
    $
    22.44Options outstanding:
    
    
    3,000
    
    
    
    2,000Weighted average exercise price
    
    $
    23.56
    
    
    $
    22.44Weighted average remaining life (in years)
    
    
    2.9
    
    
    
    2.1Options exercisable:
    
    
    3,000
    
    
    
    2,000Weighted average exercise price
    
    $
    23.56
    
    
    $
    22.44
  Note H  Loss on Sale of Equipment
  11




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Note I  Segment Reporting
      Three Months EndedJune 30(in thousands)
    
    2007
    
    
    2006Net salesMRO
    
    $
    108,875
    
    
    $
    108,058OEM
    
    
    20,303
    
    
    
    21,168Consolidated total
    
    $
    129,178
    
    
    $
    129,226Operating income (loss)MRO
    
    $
    (1,075
    )
    
    $
    4,471OEM
    
    
    853
    
    
    
    636Consolidated total
    
    $
    (222
    )
    
    $
    5,107
 12




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Three Months EndedJune 30(in thousands)
    
    2007
    
    
    2006Total operating income (loss)
from continuing operations from
reportable segments
    
    $
    (222
    )
    
    $
    5,107Investment and other income
    
    
    293
    
    
    
    387Interest expense
    
    
    (286
    )
    
    
    Income (loss) from
continuing operations before
income taxes and cumulative
effect of accounting change
    
    $
    (215
    )
    
    $
    5,494
 Six Months EndedJune 30(in thousands)
    
    2007
    
    
    2006Net salesMRO
    
    $
    215,161
    
    
    $
    216,306OEM
    
    
    43,686
    
    
    
    43,086Consolidated total
    
    $
    258,847
    
    
    $
    259,392Operating incomeMRO
    
    $
    5,198
    
    
    $
    11,323OEM
    
    
    2,725
    
    
    
    2,195Consolidated total
    
    $
    7,923
    
    
    $
    13,518
 13




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Six Months EndedJune 30(in thousands)
    
    2007
    
    
    2006Total operating income from
continuing operations from reportable
segments
    
    $
    7,923
    
    
    $
    13,518Investment and other income
    
    
    395
    
    
    
    941Interest expense
    
    
    (367
    )
    
    
    Income from continuing
operations before income taxes and
cumulative effect of accounting
change
    
    $
    7,951
    
    
    $
    14,459
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Total assetsMRO
    
    $
    213,253
    
    
    $
    203,126OEM
    
    
    49,644
    
    
    
    49,819Total for reportable segments
    
    
    262,897
    
    
    
    252,945Corporate
    
    
    26,179
    
    
    
    23,879Consolidated total
    
    $
    289,076
    
    
    $
    276,824
  MRO
    
    $
    25,748OEM
    
    
    2,251Consolidated total
    
    $
    27,999
 14




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Note J  Income Taxes
 Accounting for Contingencies Accounting
for Income Taxes
    Note K  Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Asset Applying the Conditions in Paragraph 42 of FASB Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to
Report Discontinued Operations.
  15




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    0.9
    
    
    $
    1.8
    
    
    $
    2.4
    
    
    $
    3.5Loss before income taxes
    
    
    (0.3
    )
    
    
    0.0
    
    
    
    (0.5
    )
    
    
    (0.1
    )Income tax
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    (0.0
    )Loss from discontinued operations
    
    $
    (0.3
    )
    
    $
    0.0
    
    
    $
    (0.5
    )
    
    $
    (0.1
    )
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Current assets
    
    $
    0.6
    
    
    $
    1.4Total assets
    
    $
    0.6
    
    
    $
    1.4Current liabilities
    
    $
    0.8
    
    
    $
    0.9Total liabilities
    
    $
    0.8
    
    
    $
    0.9
   Note L  Legal Proceedings
   16




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17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Quarter ended June 30, 2007 compared to Quarter ended June 30, 2006
  % of
    
    
    
    
    
    
    % of(in thousands)
    
    2007
    
    
    Net Sales
    
    
    2006
    
    
    Net SalesNet sales
    
    $
    129,178
    
    
    
    100.0
    
    
    $
    129,226
    
    
    
    100.0Cost of goods sold
    
    
    52,481
    
    
    
    40.6
    
    
    
    52,401
    
    
    
    40.5Gross profit
    
    
    76,697
    
    
    
    59.4
    
    
    
    76,825
    
    
    
    59.5Operating expenses:Selling, general and administrative expenses
    
    
    71,449
    
    
    
    55.3
    
    
    
    70,912
    
    
    
    54.9Severance and other charges
    
    
    5,470
    
    
    
    4.2
    
    
    
    Loss on sale of equipment
    
    
    
    
    
    
    
    
    
    
    806
    
    
    
    0.6Operating income (loss)
    
    
    (222
    )
    
    
    (0.2
    )
    
    
    5,107
    
    
    
    4.0Other, net
    
    
    7
    
    
    
    0.0
    
    
    
    387
    
    
    
    0.3Income (loss) from continuing operations before
income taxes
    
    
    (215
    )
    
    
    (0.2
    )
    
    
    5,494
    
    
    
    4.3Income tax expense
    
    
    (195
    )
    
    
    (0.2
    )
    
    
    2,273
    
    
    
    1.8Income (loss) from continuing operations
    
    
    (20
    )
    
    
    (0.0
    )
    
    
    3,221
    
    
    
    2.5Loss from discontinued operations, net of income taxes
    
    
    (329
    )
    
    
    (0.3
    )
    
    
    (16
    )
    
    
    (0.0
    )Net income (loss)
    
    $
    (349
    )
    
    
    (0.3
    )
    
    $
    3,205
    
    
    
    2.5
 Net Sales and Gross Profit
   (in millions)
    
    2007
    
    
    2006MRO
    
    $
    108.9
    
    
    $
    108.1OEM
    
    
    20.3
    
    
    
    21.1Net sales
    
    $
    129.2
    
    
    $
    129.2
 18




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Operating Expenses and Operating Income
 Selling, General and Administrative Expenses (SG&A)
   Severance and Other Charges
  Loss on Sale of equipment
  Operating
Income (Loss)
  19




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Investment and Other Income
  (in millions)
    
    2007
    
    
    2006Realized foreign exchange gains
    
    $
    0.1
    
    
    $
    0.2Interest and other
    
    
    0.2
    
    
    
    0.2$
    0.3
    
    
    $
    0.4
 Provision for Income Taxes
  Income from Continuing Operations before Cumulative Effect of Accounting Change
  Loss from Discontinued Operations
  20




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##### Table of Contents



Six Months ended June 30, 2007 compared to Six Months ended June 30, 2006
  % of
    
    
    
    
    
    
    % of(in thousands)
    
    2007
    
    
    Net Sales
    
    
    2006
    
    
    Net SalesNet sales
    
    $
    258,847
    
    
    
    100.0
    
    
    $
    259,392
    
    
    
    100.0Cost of goods sold
    
    
    106,323
    
    
    
    41.1
    
    
    
    106,188
    
    
    
    40.9Gross profit
    
    
    152,524
    
    
    
    58.9
    
    
    
    153,204
    
    
    
    59.1Operating expenses:Selling, general and administrative expenses
    
    
    137,689
    
    
    
    53.2
    
    
    
    138,880
    
    
    
    53.5Severance and other charges
    
    
    6,912
    
    
    
    2.7
    
    
    
    Loss on sale of equipment
    
    
    
    
    
    
    
    
    
    
    806
    
    
    
    0.3Operating income
    
    
    7,923
    
    
    
    3.1
    
    
    
    13,518
    
    
    
    5.2Other, net
    
    
    28
    
    
    
    0.0
    
    
    
    941
    
    
    
    0.4Income from continuing operations before income
taxes and cumulative effect of accounting change
    
    
    7,951
    
    
    
    3.1
    
    
    
    14,459
    
    
    
    5.6Income tax expense
    
    
    3,245
    
    
    
    1.3
    
    
    
    5,819
    
    
    
    2.2Income from continuing operations
before cumulative effect of accounting change
    
    
    4,706
    
    
    
    1.8
    
    
    
    8,640
    
    
    
    3.3Loss from discontinued operations, net of income taxes
    
    
    (485
    )
    
    
    (0.2
    )
    
    
    (86
    )
    
    
    (0.0
    )Income before cumulative effect of accounting
change
    
    
    4,221
    
    
    
    1.6
    
    
    
    8,554
    
    
    
    3.3Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (0.1
    )Net income
    
    $
    4,221
    
    
    
    1.6
    
    
    $
    8,193
    
    
    
    3.2
 Net Sales and Gross Profit
   (in millions)
    
    2007
    
    
    2006MRO
    
    $
    215.1
    
    
    $
    216.3OEM
    
    
    43.7
    
    
    
    43.1Net Sales
    
    
    258.8
    
    
    $
    259.4
 21




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##### Table of Contents



Operating Expenses and Operating Income
 Selling, General and Administrative Expenses (SG&A)
  Severance and Other Charges
  Loss on Sale of Equipment
  22




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##### Table of Contents



Operating Income
  Investment and Other Income
  (in millions)
    
    2007
    
    
    2006Realized foreign exchange gains
    
    $
    0.1
    
    
    $
    0.6Interest and other
    
    
    0.3
    
    
    
    0.3$
    0.4
    
    
    $
    0.9
  Provision for Income Taxes
  Income from Continuing Operations before Cumulative Effect of Accounting Change
  Loss from Discontinued Operations
  Cumulative Effect of Accounting Change
  Liquidity and Capital Resources
  23




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##### Table of Contents



Recent Events
  24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  25




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##### Table of Contents



PART II
 OTHER INFORMATION
  
    26




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##### Table of Contents



If the Company is unable to successfully conclude the pending governmental investigation of the
Company, the Companys business, financial condition, results of operations and stock price could
be adversely affected.
   27




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The annual meeting of stockholders of Lawson Products, Inc. was held
on May 8, 2007.(b)
    
    Pursuant to Instruction 3 to Item 4, no response is required to this item.(c)
    
    At the Annual Meeting conducted on May 8, 2007, the stockholders
voted on the election of directors and to ratify the appointment
of Ernst & Young LLP as the independent registered public
accounting firm of Lawson Products, Inc. for the fiscal year
ending December 31, 2007. A summary of the votes is as follows:
 WithheldName
    
    For
    
    
    AuthorityJames S. Errant
    
    
    7,359,410
    
    
    
    57,132Lee S. Hillman
    
    
    7,296,660
    
    
    
    119,882Sidney L. Port
    
    
    7,351,003
    
    
    
    65,539
  For
    
    
    Against
    
    
    AbstainRatify the appointment of Ernst &
Young LLP
    
    
    7,400,786
    
    
    
    12,813
    
    
    
    2,943
 For
    
    
    Against
    
    
    AbstainApproval of the Senior Management
Annual Incentive Plan
    
    
    7,318,398
    
    
    
    83,561
    
    
    
    14,583
 
 Item 6. Exhibits
 10.1
    
    Sixth modification of credit agreement dated June 21, 2007 between
Lawson Products, Inc. and Lasalle Bank National Association, filed
herewith10.2
    
    Separation Agreement and General Release (the Separation
Agreement), dated April 13, 2007, by and between the Company and
Robert J. Washlow,
incorporated herein by reference to Exhibit 10.1 to the Companys
current Report on Form 8-K filed April 19, 200715
    
    Letter from Ernst & Young LLP Regarding Unaudited Interim Financial
Information31.1
    
    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
 28




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##### Table of Contents



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 200232
    
    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
 
 SIGNATURES
  LAWSON PRODUCTS, INC. 
(Registrant)Date: August 3, 2007
    /s/ Thomas J. NeriThomas J. NeriChief Executive Officer Date: August 3, 2007
    /s/ Scott F. StephensScott F. StephensChief Financial Officer 29