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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 March 31, 2009
 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 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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Safe Harbor Statement under the Securities Litigation Reform Act of 1995:
    2




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TABLE OF CONTENTS
 Page #PART I  FINANCIAL INFORMATIONItem 1 Condensed Consolidated Financial
Statements
    
    
    4Item 2 Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    12Item 3 Quantitative and Qualitative Disclosures about
Market Risk
    
    
    14Item 4 Controls and Procedures
    
    
    14PART II  OTHER INFORMATIONItem 6 Exhibits
    
    
    14SIGNATURES
    
    
    15Exhibit 15Exhibit 31.1Exhibit 31.2Exhibit 32
   3




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PART I  FINANCIAL INFORMATION
 
 ITEM 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,(Amounts in thousands, except share data)
    
    2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,255
    
    
    $
    4,300Accounts receivable, less allowance for doubtful accounts
    
    
    43,423
    
    
    
    48,634Inventories
    
    
    82,389
    
    
    
    86,435Miscellaneous receivables and prepaid expenses
    
    
    13,383
    
    
    
    11,812Deferred income taxes
    
    
    6,454
    
    
    
    6,127Property held for sale
    
    
    1,799
    
    
    
    Discontinued assets
    
    
    329
    
    
    
    296Total current assets
    
    
    156,032
    
    
    
    157,604Property, plant and equipment, less accumulated
depreciation and amortization
    
    
    44,812
    
    
    
    47,783Cash value of life insurance
    
    
    16,840
    
    
    
    17,970Deferred income taxes
    
    
    18,154
    
    
    
    18,159Goodwill
    
    
    26,876
    
    
    
    25,748Other assets
    
    
    3,831
    
    
    
    3,732Total assets
    
    $
    266,545
    
    
    $
    270,996LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,988
    
    
    $
    16,334Settlement payable  current
    
    
    10,000
    
    
    
    10,000Accrued expenses and other liabilities
    
    
    33,418
    
    
    
    41,205Discontinued current liabilities
    
    
    59
    
    
    
    53Total current liabilities
    
    
    62,465
    
    
    
    67,592Revolving line of credit
    
    
    13,050
    
    
    
    7,700Security bonus plan
    
    
    25,832
    
    
    
    26,218Deferred compensation
    
    
    11,837
    
    
    
    11,301Settlement payable  noncurrent
    
    
    10,000
    
    
    
    10,000Other
    
    
    10,332
    
    
    
    9,44171,051
    
    
    
    64,660Stockholders 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
    
    
    
    8,522Capital in excess of par value
    
    
    4,774
    
    
    
    4,774Retained earnings
    
    
    119,954
    
    
    
    126,158Accumulated other comprehensive loss
    
    
    (221
    )
    
    
    (710
    )Stockholders equity:
    
    
    133,029
    
    
    
    138,744Total liabilities and stockholders equity
    
    $
    266,545
    
    
    $
    270,996
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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended March 31,(Amounts in thousands, except per share data)
    
    2009
    
    
    2008Net sales
    
    $
    99,381
    
    
    $
    125,870Cost of goods sold
    
    
    45,214
    
    
    
    51,742Gross profit
    
    
    54,167
    
    
    
    74,128Operating expenses:Selling, general and administrative expenses
    
    
    56,632
    
    
    
    64,828Severance and other charges
    
    
    6,452
    
    
    
    602Settlement related costs
    
    
    49
    
    
    
    751Operating (loss) income
    
    
    (8,966
    )
    
    
    7,947Other income
    
    
    725
    
    
    
    108Interest expense
    
    
    (74
    )
    
    
    (229
    )(Loss) income from continuing operations before income taxes
    
    
    (8,315
    )
    
    
    7,826Income tax (benefit) provision
    
    
    (2,396
    )
    
    
    3,302(Loss) income from continuing operations
    
    
    (5,919
    )
    
    
    4,524Loss from discontinued operations, net of income taxes
    
    
    (29
    )
    
    
    (155
    )Net (loss) income
    
    $
    (5,948
    )
    
    $
    4,369Basic (loss) income per share of common stock:Continuing operations
    
    $
    (0.70
    )
    
    $
    0.53Discontinued operations
    
    
    
    
    
    
    (0.02
    )$
    (0.70
    )
    
    $
    0.51Diluted (loss) income per share of common stock:Continuing operations
    
    $
    (0.70
    )
    
    $
    0.53Discontinued operations
    
    
    
    
    
    
    (0.02
    )$
    (0.70
    )
    
    $
    0.51Cash dividends declared per share of common stock
    
    $
    0.03
    
    
    $
    0.20Weighted average shares outstanding:Basic
    
    
    8,522
    
    
    
    8,522Diluted
    
    
    8,522
    
    
    
    8,523
   5




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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended March 31,(Amounts in thousands)
    
    2009
    
    
    2008Operating activities:Net (loss) income
    
    $
    (5,948
    )
    
    $
    4,369Adjustments to reconcile net (loss) income to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,864
    
    
    
    2,142Loss from write-down of property, plant and equipment
    
    
    411
    
    
    
    Changes in operating assets and liabilities
    
    
    6,944
    
    
    
    (5,006
    )Other
    
    
    (1,612
    )
    
    
    (2,234
    )Net cash provided by (used for) operating activities
    
    
    1,659
    
    
    
    (729
    )Investing activities:Additions to property, plant and equipment
    
    
    (1,150
    )
    
    
    (1,206
    )Net cash used for investing activities
    
    
    (1,150
    )
    
    
    (1,206
    )Financing activities:Net proceeds from revolving line of credit
    
    
    5,350
    
    
    
    4,500Dividends paid
    
    
    (1,704
    )
    
    
    (1,704
    )Other
    
    
    (178
    )
    
    
    Net cash provided by financing activities
    
    
    3,468
    
    
    
    2,796Increase in cash and cash equivalents
    
    
    3,977
    
    
    
    861Cash and cash equivalents at beginning of period
    
    
    4,581
    
    
    
    2,473Cash and cash equivalents at end of period
    
    
    8,558
    
    
    
    3,334Cash held by discontinued operations
    
    
    (303
    )
    
    
    (785
    )Cash and cash equivalents held by continuing
operations at end of period
    
    $
    8,255
    
    
    $
    2,549
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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
   Note B  Fair Value Measurements
 Fair Value Measurements
 Level 1 
    
    Financial assets and liabilities valued based on unadjusted quoted market prices for
identical assets and liabilities in an active market that the company has the ability to
access.Level 2 
    
    Financial assets and liabilities valued based on quoted prices in markets that are
not active or model inputs that are observable for substantially the full term of the
asset or liability.Level 3 
    
    Financial assets and liabilities valued based on prices or valuation techniques that
require inputs that are both unobservable and significant to the overall fair value
measurement.
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Cash value of life insurance
    
    $
    16,840
    
    
    $
    
    
    
    $
    
    
    
    $
    16,840Liabilities:Deferred compensation
    
    $
    11,837
    
    
    $
    
    
    
    $
    
    
    
    $
    11,837
  7




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)
 Note C  Inventories
  March 31,
    
    
    December 31,(Amounts in thousands)
    
    2009
    
    
    2008Finished goods
    
    $
    90,216
    
    
    $
    92,565Work in progress
    
    
    2,024
    
    
    
    1,791Raw materials
    
    
    2,082
    
    
    
    2,146Total
    
    
    94,322
    
    
    
    96,502Reserve for obsolete and excess inventory
    
    
    (11,933
    )
    
    
    (10,067
    )$
    82,389
    
    
    $
    86,435
 Note D  Property Held for Sale
  Note E  Reserve for Severance and Restructuring
   Three Months Ended March 31,(Amounts in thousands)
    
    2009
    
    
    2008Balance at beginning of year
    
    $
    6,111
    
    
    $
    7,058Charged to earnings
    
    
    5,989
    
    
    
    602Cash paid
    
    
    (1,849
    )
    
    
    (1,315
    )Adjustment to reserve
    
    
    
    
    
    
    (42
    )Balance at end of year
    
    $
    10,251
    
    
    $
    6,303
  8




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)
 Note F  Comprehensive (Loss) Income
  Three Months Ended March 31,(Amounts in thousands)
    
    2009
    
    
    2008Net (loss) income
    
    $
    (5,948
    )
    
    $
    4,369Foreign currency translation adjustment
    
    
    489
    
    
    
    (191
    )Comprehensive (loss) income
    
    $
    (5,459
    )
    
    $
    4,178
 Note G  Stock Performance Rights
  Expected volatility
    
    52.7% to 101.7%Risk-free interest rate
    
    0.6% to 1.8%Expected term (in years)
    
    0.9 to 5.9Expected annual dividend
    
    $0.12
 Note H  Earnings Per Share
  Three Months Ended March 31,(Amounts in thousands)
    
    2009
    
    
    2008Basic weighted average shares outstanding
    
    $
    8,522
    
    
    $
    8,522Dilutive impact of stock options outstanding
    
    
    
    
    
    
    1Dilutive weighted average shares outstanding
    
    $
    8,522
    
    
    $
    8,523
   9




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)
 Note I  Segment Reporting
   Three Months Ended March 31,(Amounts in thousands)
    
    2009
    
    
    2008Net salesMRO
    
    $
    82,819
    
    
    $
    105,404OEM
    
    
    16,562
    
    
    
    20,466Consolidated total
    
    $
    99,381
    
    
    $
    125,870Operating (loss) incomeMRO
    
    $
    (953
    )
    
    $
    8,847OEM
    
    
    (1,512
    )
    
    
    453Severance and other charges
    
    
    (6,452
    )
    
    
    (602
    )Settlement related costs
    
    
    (49
    )
    
    
    (751
    )Consolidated total
    
    
    (8,966
    )
    
    
    7,947Other income
    
    
    725
    
    
    
    108Interest expense
    
    
    (74
    )
    
    
    (229
    )(Loss) income from continuing
operations before income taxes
    
    $
    (8,315
    )
    
    $
    7,826
 Note J  Income Tax (Benefit) Expense
      10




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Report of Independent Registered Public Accounting Firm
 
     
  11




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  2009
    
    
    2008% of
    
    
    
    
    
    
    % ofAmount
    
    
    Net Sales
    
    
    Amount
    
    
    Net SalesNet salesMRO
    
    $
    82,819
    
    
    
    83.3
    %
    
    $
    105,404
    
    
    
    83.7
    %OEM
    
    
    16,562
    
    
    
    16.7
    
    
    
    20,466
    
    
    
    16.3Consolidated total
    
    $
    99,381
    
    
    
    100.0
    
    
    $
    125,870
    
    
    
    100.0Gross profitMRO
    
    $
    51,565
    
    
    
    62.3
    %
    
    $
    69,719
    
    
    
    66.1
    %OEM
    
    
    2,602
    
    
    
    15.7
    
    
    
    4,409
    
    
    
    21.5Consolidated total
    
    
    54,167
    
    
    
    54.5
    
    
    
    74,128
    
    
    
    58.9Operating expenses:Selling, general and administrative
expenses
    
    
    56,632
    
    
    
    57.0
    
    
    
    64,828
    
    
    
    51.5Severance and other charges
    
    
    6,452
    
    
    
    6.5
    
    
    
    602
    
    
    
    0.5Settlement related costs
    
    
    49
    
    
    
    
    
    
    
    751
    
    
    
    0.6Operating (loss) income
    
    
    (8,966
    )
    
    
    (9.0
    )
    
    
    7,947
    
    
    
    6.3Other, net
    
    
    651
    
    
    
    0.6
    
    
    
    (121
    )
    
    
    (0.1
    )(Loss) income from continuing
operations before income tax
expense
    
    
    (8,315
    )
    
    
    (8.4
    )
    
    
    7,826
    
    
    
    6.2Income tax (benefit) expense
    
    
    (2,396
    )
    
    
    (2.4
    )
    
    
    3,302
    
    
    
    2.6Loss (income) from continuing operations
    
    $
    (5,919
    )
    
    
    (6.0
    )%
    
    $
    4,524
    
    
    
    3.6
    %
 Net Sales
   Gross Profit
   12




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Selling, General and Administrative Expenses (SG&A)
  Severance and Other Charges
  Income Tax Expense
  Liquidity and Capital Resources
       13




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II
OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit #15
    
    
    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 200231.2
    
    
    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
  14




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SIGNATURES
  LAWSON PRODUCTS, INC.(Registrant)Dated April 30, 2009
    /s/ Thomas J. NeriThomas J. NeriChief Executive OfficerDated April 30, 2009
    /s/ F. Terrence BlanchardF. Terrence BlanchardChief Financial Officer  15