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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, 2010
 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
 þ 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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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 Financial StatementsCondensed Consolidated Balance Sheets as of
March 31, 2010 (Unaudited) and December 31, 2009
    
    
    4Condensed Consolidated Statements of
Operations for the Three Months Ended March
31, 2010 and 2009
(Unaudited)
    
    
    5Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
2010 and 2009 (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial
Statements (Unaudited)
    
    
    7Item 2 Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    10Item 3 Quantitative and Qualitative Disclosures about
Market Risk
    
    
    13Item 4 Controls and Procedures
    
    
    13PART II  OTHER INFORMATIONItem 6 Exhibits
    
    
    13SIGNATURES
    
    
    14Exhibit 31.1Exhibit 31.2Exhibit 32
   3




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PART I  FINANCIAL INFORMATION
 
 ITEM 1   FINANCIAL STATEMENTS
 Lawson Products, Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets
 (Dollars in thousands, except per share data)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,831
    
    
    $
    8,787Accounts receivable, less allowance for doubtful accounts
    
    
    44,091
    
    
    
    39,804Inventories
    
    
    75,101
    
    
    
    73,696Miscellaneous receivables and prepaid expenses
    
    
    12,524
    
    
    
    10,423Deferred income taxes
    
    
    4,035
    
    
    
    4,819Property held for sale
    
    
    
    
    
    
    332Discontinued assets
    
    
    485
    
    
    
    459Total current assets
    
    
    145,067
    
    
    
    138,320Property, plant and equipment, less accumulated
depreciation and amortization
    
    
    41,622
    
    
    
    40,576Cash value of life insurance
    
    
    17,089
    
    
    
    17,021Deferred income taxes
    
    
    12,858
    
    
    
    15,249Goodwill
    
    
    28,185
    
    
    
    27,957Other assets
    
    
    2,525
    
    
    
    2,524Total assets
    
    $
    247,346
    
    
    $
    241,647LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    29,723
    
    
    $
    19,968Settlement payable
    
    
    10,000
    
    
    
    10,000Accrued expenses and other liabilities
    
    
    28,924
    
    
    
    33,272Total current liabilities
    
    
    68,647
    
    
    
    63,240Security bonus plan
    
    
    25,810
    
    
    
    25,931Deferred compensation
    
    
    10,988
    
    
    
    10,374Other
    
    
    3,025
    
    
    
    5,45639,823
    
    
    
    41,761Stockholders 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
    
    
    4,837
    
    
    
    4,780Retained earnings
    
    
    123,709
    
    
    
    121,888Accumulated other comprehensive income
    
    
    1,808
    
    
    
    1,456Stockholders equity
    
    
    138,876
    
    
    
    136,646Total liabilities and stockholders equity
    
    $
    247,346
    
    
    $
    241,647
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Lawson Products, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Operations
 (Unaudited and in thousands, except per share amounts)
 Three Months Ended March 31,2010
    
    
    2009Net sales
    
    $
    95,073
    
    
    $
    99,381Cost of goods sold
    
    
    39,591
    
    
    
    45,214Gross profit
    
    
    55,482
    
    
    
    54,167Operating (income) expenses:Selling, general and administrative expenses
    
    
    52,108
    
    
    
    56,681Loss (gain) on disposal of property, plant and equipment
    
    
    (1,701
    )
    
    
    411Severance and other restructuring charges
    
    
    475
    
    
    
    6,041Operating income (loss)
    
    
    4,600
    
    
    
    (8,966
    )Other income
    
    
    50
    
    
    
    725Interest expense
    
    
    (85
    )
    
    
    (74
    )Income (loss) from continuing operations before income taxes
    
    
    4,565
    
    
    
    (8,315
    )Income tax expense (benefit)
    
    
    2,223
    
    
    
    (2,396
    )Income (loss) from continuing operations
    
    
    2,342
    
    
    
    (5,919
    )Loss from discontinued operations, net of income taxes
    
    
    (10
    )
    
    
    (29
    )Net income (loss)
    
    $
    2,332
    
    
    $
    (5,948
    )Basic and diluted income (loss) per share of common stock:Continuing operations
    
    $
    0.27
    
    
    $
    (0.70
    )Discontinued operations
    
    
    
    
    
    
    $
    0.27
    
    
    $
    (0.70
    )Cash dividends declared per share of common stock
    
    $
    0.06
    
    
    $
    0.03Basic and diluted weighted average shares outstanding:
    
    
    8,522
    
    
    
    8,522
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Lawson Products, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited and in thousands)
 Three Months Ended March 31,2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    2,332
    
    
    $
    (5,948
    )Loss from discontinued operations
    
    
    10
    
    
    
    29Income (loss) from continuing operations
    
    
    2,342
    
    
    
    (5,919
    )Adjustments to reconcile to net cash provided by operating
activities:Depreciation and amortization
    
    
    1,515
    
    
    
    1,864Deferred income taxes
    
    
    2,957
    
    
    
    (569
    )Loss (gain) from disposal of property, plant and equipment
    
    
    (1,701
    )
    
    
    411Changes in operating assets and liabilitiesAccounts receivable
    
    
    (4,419
    )
    
    
    4,499Inventories
    
    
    (1,255
    )
    
    
    3,839Prepaid expenses and other assets
    
    
    (2,136
    )
    
    
    (437
    )Accounts payable and accrued expenses
    
    
    2,645
    
    
    
    (957
    )Other
    
    
    (1,053
    )
    
    
    (1,038
    )Net cash (used in) provided by operating activities
    
    
    (1,105
    )
    
    
    1,693Investing activities:Additions to property, plant and equipment
    
    
    (299
    )
    
    
    (1,150
    )Proceeds from sale of property
    
    
    2,027
    
    
    
    Net cash used provided by (used in) investing activities
    
    
    1,728
    
    
    
    (1,150
    )Financing activities:Dividends paid
    
    
    (511
    )
    
    
    (1,704
    )Net proceeds from revolving line of credit
    
    
    
    
    
    
    5,350Other
    
    
    (32
    )
    
    
    (178
    )Net cash (used in) provided by financing activities
    
    
    (543
    )
    
    
    3,468Discontinued operations:Operating cash flows
    
    
    (36
    )
    
    
    (56
    )Net cash used for discontinued operations
    
    
    (36
    )
    
    
    (56
    )Increase in cash and cash equivalents
    
    
    44
    
    
    
    3,955Cash and cash equivalents at beginning of period
    
    
    8,787
    
    
    
    4,300Cash and cash equivalents at end of period
    
    $
    8,831
    
    
    $
    8,255
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Lawson Products, Inc. and Subsidiaries
 
 Notes to Condensed Consolidated Financial Statements
  Note 1  Basis of Presentation and Summary of Significant Accounting Policies
    Note 2  Inventories
  (Amounts in thousands)March 31,
    
    
    December 31,2010
    
    
    2009Finished goods
    
    $
    83,584
    
    
    $
    81,621Work in progress
    
    
    1,247
    
    
    
    1,227Raw materials
    
    
    1,632
    
    
    
    1,759Total
    
    
    86,463
    
    
    
    84,607Reserve for obsolete and excess inventory
    
    
    (11,362
    )
    
    
    (10,911
    )$
    75,101
    
    
    $
    73,696
 Note
3  Severance Reserve
  (Amounts in thousands)Three Months Ended March 31,2010
    
    
    2009Balance at beginning of year
    
    $
    4,145
    
    
    $
    6,111Charged to earnings
    
    
    480
    
    
    
    5,989Cash paid
    
    
    (1,177
    )
    
    
    (1,849
    )Adjustment to prior reserve
    
    
    (5
    )
    
    
    Balance at end of the period
    
    $
    3,443
    
    
    $
    10,251
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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
 Note 4  Loss (Gain) on Disposal of Property, Plant and Equipment
  Note 5  Stock Based Compensation
  Expected volatility
    
    47.5% to 89.6%Risk-free interest rate
    
    0.2% to 2.5%Expected term (in years)
    
    0.4 to 4.9Expected annual dividend
    
    $0.24
 Note 6  Income Tax Expense (Benefit)
    Note 7  Earnings Per Share
   8




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Lawson Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
 Note 8  Comprehensive Income (Loss)
  (Amounts in thousands)Three Months Ended March 31,2010
    
    
    2009Net income (loss)
    
    $
    2,332
    
    
    $
    (5,948
    )Foreign currency translation adjustment
    
    
    352
    
    
    
    489Comprehensive income (loss)
    
    $
    2,684
    
    
    $
    (5,459
    )
 Note 9  Segment Reporting
   (Amounts in thousands)Three Months Ended March 31,2010
    
    
    2009Net salesMRO
    
    $
    79,616
    
    
    $
    82,819OEM
    
    
    15,457
    
    
    
    16,562Consolidated total
    
    $
    95,073
    
    
    $
    99,381Operating income (loss)MRO
    
    $
    3,172
    
    
    $
    (1,002
    )OEM
    
    
    202
    
    
    
    (1,512
    )Gain (loss) from disposal of property,
plant and equipment
    
    
    1,701
    
    
    
    (411
    )Severance and other restructuring charges
    
    
    (475
    )
    
    
    (6,041
    )Consolidated total
    
    
    4,600
    
    
    
    (8,966
    )Other income
    
    
    50
    
    
    
    725Interest expense
    
    
    (85
    )
    
    
    (74
    )Income (loss) from continuing operations
before income taxes
    
    $
    4,565
    
    
    $
    (8,315
    )
 Note 10  Non-Cash Transaction
   9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  2010
    
    
    2009% of
    
    
    
    
    
    
    % ofAmount
    
    
    Net Sales
    
    
    Amount
    
    
    Net SalesNet salesMRO
    
    $
    79,616
    
    
    
    83.7
    %
    
    $
    82,819
    
    
    
    83.3
    %OEM
    
    
    15,457
    
    
    
    16.3
    
    
    
    16,562
    
    
    
    16.7Consolidated total
    
    $
    95,073
    
    
    
    100.0
    
    
    $
    99,381
    
    
    
    100.0Gross profitMRO
    
    $
    51,748
    
    
    
    65.0
    %
    
    $
    51,565
    
    
    
    62.3
    %OEM
    
    
    3,734
    
    
    
    24.2
    
    
    
    2,602
    
    
    
    15.7Consolidated total
    
    
    55,482
    
    
    
    58.4
    
    
    
    54,167
    
    
    
    54.5Operating expenses:Selling, general and administrative
expenses
    
    
    52,108
    
    
    
    54.8
    
    
    
    56,681
    
    
    
    57.0Loss (gain) on disposal of property
    
    
    (1,701
    )
    
    
    (1.7
    )
    
    
    411
    
    
    
    0.4Severance and other charges
    
    
    475
    
    
    
    0.5
    
    
    
    6,041
    
    
    
    6.1Operating income (loss)
    
    
    4,600
    
    
    
    4.8
    
    
    
    (8,966
    )
    
    
    (9.0
    )Other, net
    
    
    (35
    )
    
    
    
    
    
    
    651
    
    
    
    0.6Income (loss) from continuing
operations before income tax
expense
    
    
    4,565
    
    
    
    4.8
    
    
    
    (8,315
    )
    
    
    (8.4
    )Income tax (benefit) expense
    
    
    2,223
    
    
    
    (2.0
    )
    
    
    (2,396
    )
    
    
    (2.4
    )Income (loss) from continuing operations
    
    $
    2,342
    
    
    
    2.8
    %
    
    $
    (5,919
    )
    
    
    (6.0
    )%
 Net Sales
   Gross Profit
    10




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Selling, General and Administrative Expenses (SG&A)
  Loss (Gain) on Disposal of Property, Plant and Equipment
  Severance and Other Restructuring Charges
  Income Tax Expense (Benefit)
   11




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Liquidity and Capital Resources
       Covenant
    
    Requirement
    
    
    ActualMinimum EBITDA, as defined in the amended Credit
Agreement
    
    $9.5 million
    
    
    $17.6 millionCash plus accounts receivable and inventory to debt ratio
    
    1.75:1.00
    
    
    40.20:1.00Minimum tangible net worth
    
    $55.0 million
    
    
    $78.4 million
   12




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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
  13




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SIGNATURES
  LAWSON PRODUCTS, INC.
(Registrant)Dated April 29, 2010
    /s/ Thomas J. NeriThomas J. NeriPresident and Chief Executive Officer
(principal executive officer)Dated April 29, 2010
    /s/ Ronald J. KnutsonRonald J. KnutsonSenior Vice President and Chief Financial Officer
(principal financial and accounting officer)  14