##### 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, 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 
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
 Yes þ No o
 Yes o No 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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##### Table of Contents



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
    
    
    11Item 3 Quantitative and Qualitative Disclosures about
Market Risk
    
    
    16Item 4 Controls and Procedures
    
    
    16PART II  OTHER INFORMATIONItem 6 Exhibits
    
    
    16SIGNATURES
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32
   3




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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
 June 30,
    
    
    December 31,(Amounts in thousands, except share data)
    
    2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,968
    
    
    $
    4,300Accounts receivable, less allowance for doubtful accounts
    
    
    41,145
    
    
    
    48,634Inventories
    
    
    79,792
    
    
    
    86,435Miscellaneous receivables and prepaid expenses
    
    
    12,245
    
    
    
    11,812Deferred income taxes
    
    
    5,972
    
    
    
    6,127Property held for sale
    
    
    352
    
    
    
    Discontinued assets
    
    
    385
    
    
    
    296Total current assets
    
    
    150,859
    
    
    
    157,604Property, plant and equipment, less accumulated
depreciation and amortization
    
    
    43,806
    
    
    
    47,783Cash value of life insurance
    
    
    15,938
    
    
    
    17,970Deferred income taxes
    
    
    15,625
    
    
    
    18,159Goodwill
    
    
    27,331
    
    
    
    25,748Other assets
    
    
    3,784
    
    
    
    3,732Total assets
    
    $
    257,343
    
    
    $
    270,996LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    20,161
    
    
    $
    16,334Settlement payable  current
    
    
    10,000
    
    
    
    10,000Accrued expenses and other liabilities
    
    
    33,533
    
    
    
    41,205Discontinued current liabilities
    
    
    
    
    
    
    53Total current liabilities
    
    
    63,694
    
    
    
    67,592Revolving line of credit
    
    
    
    
    
    
    7,700Security bonus plan
    
    
    25,654
    
    
    
    26,218Deferred compensation
    
    
    13,081
    
    
    
    11,301Settlement payable  noncurrent
    
    
    10,000
    
    
    
    10,000Other
    
    
    9,593
    
    
    
    9,44158,328
    
    
    
    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
    
    
    121,545
    
    
    
    126,158Accumulated other comprehensive income (loss)
    
    
    480
    
    
    
    (710
    )Stockholders equity:
    
    
    135,321
    
    
    
    138,744Total liabilities and stockholders equity
    
    $
    257,343
    
    
    $
    270,996
   4




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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Amounts in thousands, except      per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    95,033
    
    
    $
    127,148
    
    
    $
    194,414
    
    
    $
    253,018Cost of goods sold
    
    
    39,164
    
    
    
    53,704
    
    
    
    84,378
    
    
    
    105,446Gross profit
    
    
    55,869
    
    
    
    73,444
    
    
    
    110,036
    
    
    
    147,572Operating expenses:Selling, general and administrative expenses
    
    
    52,890
    
    
    
    66,249
    
    
    
    109,522
    
    
    
    131,119Severance and other
    
    
    (489
    )
    
    
    5,913
    
    
    
    5,963
    
    
    
    6,473Settlement and related costs
    
    
    42
    
    
    
    30,417
    
    
    
    91
    
    
    
    31,168Operating income (loss)
    
    
    3,426
    
    
    
    (29,135
    )
    
    
    (5,540
    )
    
    
    (21,188
    )Other income
    
    
    51
    
    
    
    165
    
    
    
    776
    
    
    
    273Interest expense
    
    
    (268
    )
    
    
    (214
    )
    
    
    (342
    )
    
    
    (443
    )Income (loss) from continuing operations
before income taxes
    
    
    3,209
    
    
    
    (29,184
    )
    
    
    (5,106
    )
    
    
    (21,358
    )Income tax expense (benefit)
    
    
    1,313
    
    
    
    51
    
    
    
    (1,083
    )
    
    
    3,353Income (loss) from continuing operations
    
    
    1,896
    
    
    
    (29,235
    )
    
    
    (4,023
    )
    
    
    (24,711
    )Loss from discontinued operations, net of income
taxes
    
    
    (49
    )
    
    
    (418
    )
    
    
    (78
    )
    
    
    (573
    )Net income (loss)
    
    $
    1,847
    
    
    $
    (29,653
    )
    
    $
    (4,101
    )
    
    $
    (25,284
    )Basic and diluted income (loss) per share of
common stock:Continuing operations
    
    $
    0.22
    
    
    $
    (3.43
    )
    
    $
    (0.47
    )
    
    $
    (2.90
    )Discontinued operations
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.07
    )$
    0.22
    
    
    $
    (3.48
    )
    
    $
    (0.48
    )
    
    $
    (2.97
    )Cash dividends declared per share of common stock
    
    $
    0.03
    
    
    $
    0.20
    
    
    $
    0.06
    
    
    $
    0.40Basic and diluted weighted average shares
outstanding:
    
    
    8,522
    
    
    
    8,522
    
    
    
    8,522
    
    
    
    8,522
   5




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Lawson Products, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended June 30,(Amounts in thousands)
    
    2009
    
    
    2008Operating activities:Net loss
    
    $
    (4,101
    )
    
    $
    (25,284
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,679
    
    
    
    4,353Provision for settlement
    
    
    
    
    
    
    30,000Changes in operating assets and liabilities
    
    
    15,072
    
    
    
    (2,154
    )Other
    
    
    1,725
    
    
    
    (1,529
    )Net cash provided by operating activities
    
    
    16,375
    
    
    
    5,386Investing activities:Additions to property, plant and equipment
    
    
    (1,996
    )
    
    
    (1,664
    )Sale of property, plant and equipment
    
    
    2,179
    
    
    
    Net cash provided by (used for) investing activities
    
    
    183
    
    
    
    (1,664
    )Financing activities:Net (payments) proceeds from revolving line of credit
    
    
    (7,700
    )
    
    
    2,500Dividends paid
    
    
    (1,960
    )
    
    
    (3,409
    )Other
    
    
    (238
    )
    
    
    Net cash used for financing activities
    
    
    (9,898
    )
    
    
    (909
    )Increase in cash and cash equivalents
    
    
    6,660
    
    
    
    2,813Cash and cash equivalents at beginning of period
    
    
    4,581
    
    
    
    2,473Cash and cash equivalents at end of period
    
    
    11,241
    
    
    
    5,286Cash held by discontinued operations
    
    
    (273
    )
    
    
    (216
    )Cash and cash equivalents held by continuing
operations at end of period
    
    $
    10,968
    
    
    $
    5,070
   6




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Lawson Products, Inc. and Subsidiaries
 Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)(Unaudited)
 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
    
    $
    15,938
    
    
    $
    
    
    
    $
    
    
    
    $
    15,938Liabilities:Deferred compensation
    
    $
    13,081
    
    
    $
    
    
    
    $
    
    
    
    $
    13,081
  7




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)(Unaudited)
 Note C  Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008Finished goods
    
    $
    87,305
    
    
    $
    92,565Work in progress
    
    
    1,741
    
    
    
    1,791Raw materials
    
    
    2,163
    
    
    
    2,146Total
    
    
    91,209
    
    
    
    96,502Reserve for obsolete and excess inventory
    
    
    (11,417
    )
    
    
    (10,067
    )$
    79,792
    
    
    $
    86,435
 Note D  Severance and Restructuring
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Severance
    
    $
    44
    
    
    $
    2,313
    
    
    $
    6,033
    
    
    $
    2,915Disposal of property, plant and equipment
    
    
    (395
    )
    
    
    
    
    
    
    16
    
    
    
    Adjustment to prior year reserve
    
    
    (165
    )
    
    
    
    
    
    
    (165
    )
    
    
    (42
    )Unclaimed property
    
    
    
    
    
    
    3,600
    
    
    
    
    
    
    
    3,600Other
    
    
    27
    
    
    
    
    
    
    
    79
    
    
    
    Total severance and other
    
    $
    (489
    )
    
    $
    5,913
    
    
    $
    5,963
    
    
    $
    6,473
   Six Months Ended June 30,2009
    
    
    2008Balance at beginning of year
    
    $
    6,111
    
    
    $
    7,058Charged to earnings
    
    
    6,033
    
    
    
    2,915Cash paid
    
    
    (4,651
    )
    
    
    (2,804
    )Adjustment to prior year reserve
    
    
    (165
    )
    
    
    (42
    )Balance at end of the period
    
    $
    7,328
    
    
    $
    7,127
  8




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)(Unaudited)
 Note E  Comprehensive Income (loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    1,847
    
    
    $
    (29,653
    )
    
    $
    (4,101
    )
    
    $
    (25,284
    )Foreign currency translation adjustment
    
    
    701
    
    
    
    79
    
    
    
    1,190
    
    
    
    (112
    )Comprehensive income (loss)
    
    $
    2,548
    
    
    $
    (29,574
    )
    
    $
    (2,911
    )
    
    $
    (25,396
    )
 Note F  Stock Performance Rights
  Expected volatility
    
    55.0% to 110.7%Risk-free interest rate
    
    0.5% to 2.5%Expected term (in years)
    
    0.7 to 5.7Expected annual dividend
    
    $0.12
  Note G  Segment Reporting
   9




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except per share data)(Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net salesMRO
    
    $
    80,570
    
    
    $
    105,619
    
    
    $
    163,389
    
    
    $
    211,023OEM
    
    
    14,463
    
    
    
    21,529
    
    
    
    31,025
    
    
    
    41,995Consolidated total
    
    $
    95,033
    
    
    $
    127,148
    
    
    $
    194,414
    
    
    $
    253,018Operating income (loss)MRO
    
    $
    3,884
    
    
    $
    6,864
    
    
    $
    2,930
    
    
    $
    15,711OEM
    
    
    (905
    )
    
    
    331
    
    
    
    (2,416
    )
    
    
    742Severance and other
    
    
    489
    
    
    
    (5,913
    )
    
    
    (5,963
    )
    
    
    (6,473
    )Settlement related costs
    
    
    (42
    )
    
    
    (30,417
    )
    
    
    (91
    )
    
    
    (31,168
    )Consolidated total
    
    $
    3,426
    
    
    $
    (29,135
    )
    
    $
    (5,540
    )
    
    $
    (21,188
    )Other income
    
    
    51
    
    
    
    165
    
    
    
    776
    
    
    
    273Interest expense
    
    
    (268
    )
    
    
    (214
    )
    
    
    (342
    )
    
    
    (443
    )Income (loss) from
continuing operations
before income taxes
    
    $
    3,209
    
    
    $
    (29,184
    )
    
    $
    (5,106
    )
    
    $
    (21,358
    )
 Note H  Income Tax Expense
      10




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Quarter ended June 30, 2009 compared to Quarter ended June 30, 2008
  2009
    
    
    2008% of
    
    
    
    
    
    
    % of($ in thousands)
    
    Amount
    
    
    Net Sales
    
    
    Amount
    
    
    Net SalesNet salesMRO
    
    $
    80,570
    
    
    
    84.8
    %
    
    $
    105,619
    
    
    
    83.1
    %OEM
    
    
    14,463
    
    
    
    15.2
    
    
    
    21,529
    
    
    
    16.9Consolidated total
    
    $
    95,033
    
    
    
    100.0
    %
    
    $
    127,148
    
    
    
    100.0
    %Gross profitMRO
    
    $
    53,211
    
    
    
    66.0
    %
    
    $
    68,988
    
    
    
    65.3
    %OEM
    
    
    2,658
    
    
    
    18.4
    
    
    
    4,456
    
    
    
    20.7Consolidated total
    
    
    55,869
    
    
    
    58.8
    
    
    
    73,444
    
    
    
    57.8Operating expenses:Selling, general and administrative
expenses
    
    
    52,890
    
    
    
    55.7
    
    
    
    66,249
    
    
    
    52.1Severance and other
    
    
    (489
    )
    
    
    (0.5
    )
    
    
    5,913
    
    
    
    4.7Settlement and related costs
    
    
    42
    
    
    
    
    
    
    
    30,417
    
    
    
    23.9Operating income (loss)
    
    
    3,426
    
    
    
    3.6
    
    
    
    (29,135
    )
    
    
    (22.9
    )Other, net
    
    
    (217
    )
    
    
    0.2
    
    
    
    (49
    )
    
    
    Income (loss) from continuing
operations before income tax expense
    
    
    3,209
    
    
    
    3.4
    
    
    
    (29,184
    )
    
    
    (22.9
    )Income tax expense
    
    
    1,313
    
    
    
    1.4
    
    
    
    51
    
    
    
    0.1Income (loss) from continuing operations
    
    $
    1,896
    
    
    
    2.0
    %
    
    $
    (29,235
    )
    
    
    (23.0
    )%
 Net Sales
   Gross Profit
   11




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Selling, General and Administrative Expenses (SG&A)
  Severance and Other
  Settlement Related Costs
  Income Tax Expense
   12




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Six Months ended June 30, 2009 compared to Six Months ended June 30, 2008
  2009
    
    
    2008% of
    
    
    
    
    
    
    % of($ in thousands)
    
    Amount
    
    
    Net Sales
    
    
    Amount
    
    
    Net SalesNet salesMRO
    
    $
    163,389
    
    
    
    84.0
    %
    
    $
    211,023
    
    
    
    83.4
    %OEM
    
    
    31,025
    
    
    
    16.0
    
    
    
    41,995
    
    
    
    16.6Consolidated total
    
    $
    194,414
    
    
    
    100.0
    %
    
    $
    253,018
    
    
    
    100.0
    %Gross profitMRO
    
    $
    104,776
    
    
    
    64.1
    %
    
    $
    138,707
    
    
    
    65.7
    %OEM
    
    
    5,260
    
    
    
    17.0
    
    
    
    8,865
    
    
    
    21.1Consolidated total
    
    
    110,036
    
    
    
    56.6
    
    
    
    147,572
    
    
    
    58.3Operating expenses:Selling, general and
administrative expenses
    
    
    109,522
    
    
    
    56.3
    
    
    
    131,119
    
    
    
    51.8Severance and other
    
    
    5,963
    
    
    
    3.1
    
    
    
    6,473
    
    
    
    2.6Settlement and related costs
    
    
    91
    
    
    
    
    
    
    
    31,168
    
    
    
    12.3Operating loss
    
    
    (5,540
    )
    
    
    (2.8
    )
    
    
    (21,188
    )
    
    
    (8.4
    )Other, net
    
    
    434
    
    
    
    0.2
    
    
    
    (170
    )
    
    
    (0.1
    )Loss from continuing operations
before income tax expense
    
    
    (5,106
    )
    
    
    (2.6
    )
    
    
    (21,358
    )
    
    
    (8.5
    )Income tax (benefit) expense
    
    
    (1,083
    )
    
    
    (0.5
    )
    
    
    3,353
    
    
    
    1.3Loss from continuing operations
    
    $
    (4,023
    )
    
    
    (2.1
    )%
    
    $
    (24,711
    )
    
    
    (9.8
    )%
 Net Sales
   Gross Profit
   13




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Selling, General and Administrative Expenses (SG&A)
  Severance and Other
   Settlement Related Costs
  Income Tax (Benefit) Expense
   14




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Liquidity and Capital Resources
     Accounting for Goodwill and Other Intangible
   15




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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 #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 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
  16




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SIGNATURES
  LAWSON PRODUCTS, INC.
(Registrant)Dated July 30, 2009
    /s/ Thomas J. NeriThomas J. NeriChief Executive OfficerDated July 30, 2009
    /s/ F. Terrence BlanchardF. Terrence BlanchardChief Financial Officer  17




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##### Table of Contents



EXHIBIT INDEX
 Exhibit #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 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
  18