<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission File Number 1-313
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THE LAMSON & SESSIONS CO.
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(Exact name of Registrant as specified in its charter)
Ohio 34-0349210
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25701 Science Park Drive
Cleveland, Ohio 44122-9803
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
216/464-3400
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
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 X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 4, 1998 the Registrant had outstanding 13,444,484 common shares.
<PAGE> 2
PART I
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECOND QUARTER FIRST HALF
ENDED ENDED
--------------------- ---------------------
1998 1997 1998 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
NET SALES $71,168 $72,439 $135,962 $141,283
Cost of products sold 56,794 59,667 109,330 113,618
------- ------- -------- --------
GROSS PROFIT 14,374 12,772 26,632 27,665
Selling, general and
administrative expenses 11,481 10,664 22,928 23,293
------- ------- -------- --------
OPERATING INCOME 2,893 2,108 3,704 4,372
Interest 1,242 833 2,379 1,640
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 1,651 1,275 1,325 2,732
Income tax benefit 700 700 700 1,400
------- ------- -------- --------
NET INCOME $ 2,351 $ 1,975 $ 2,025 $ 4,132
======= ======= ======== ========
BASIC EARNINGS PER COMMON SHARE $ 0.18 $ 0.15 $ 0.15 $ 0.31
======= ======= ======== ========
DILUTED EARNINGS PER COMMON SHARE $ 0.17 $ 0.15 $ 0.15 $ 0.31
======= ======= ======== ========
AVERAGE COMMON SHARES 13,538 13,542 13,531 13,544
======= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
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<PAGE> 3
CONSOLIDATED BALANCE SHEET (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SECOND QUARTER SECOND QUARTER
ENDED YEAR END ENDED
--------------------- ----------------- ------------------
1998 1997 1997
--------------------- ----------------- ------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 848 $ 1,410 $ 556
Accounts receivable 43,197 32,951 48,701
Inventories
Finished goods and work-in-process 35,015 39,532 38,549
Raw materials and supplies 4,854 6,043 5,544
-------- -------- --------
39,869 45,575 44,093
Prepaid expenses and other 9,679 11,631 10,939
-------- -------- --------
TOTAL CURRENT ASSETS 93,593 91,567 104,289
OTHER ASSETS 15,373 14,598 10,403
PROPERTY, PLANT AND EQUIPMENT 112,486 111,211 119,860
Less allowance for depreciation and
amortization 58,936 54,882 56,654
-------- -------- --------
53,550 56,329 63,206
-------- -------- --------
TOTAL ASSETS $162,516 $162,494 $177,898
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,264 $ 27,734 $ 25,086
Accrued expenses and other liabilities 22,791 22,272 20,406
Taxes 3,640 3,815 3,724
Current maturities of long-term debt 3,799 3,759 3,626
-------- -------- --------
TOTAL CURRENT LIABILITIES 51,494 57,580 52,842
LONG-TERM DEBT 49,951 44,712 51,379
POST-RETIREMENT BENEFITS AND OTHER LONG-TERM
LIABILITIES 21,897 23,221 24,405
SHAREHOLDERS' EQUITY
Common shares 1,344 1,341 1,332
Other capital 73,574 73,409 72,864
Retained earnings (deficit) (34,654) (36,679) (22,894)
Pension adjustment (1,090) (1,090) (2,030)
-------- -------- --------
39,174 36,981 49,272
-------- -------- --------
TOTAL LIABILITY AND
SHAREHOLDERS' EQUITY $162,516 $162,494 $177,898
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
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<PAGE> 4
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST HALF ENDED
------------------------------------------
1998 1997
------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,025 $ 4,132
Adjustments to reconcile net income to cash (used) provided by
operations:
Depreciation and amortization 5,038 3,771
Deferred income tax benefit (700) (1,450)
Net change in working capital accounts:
Accounts receivable (10,246) (12,075)
Inventories 5,706 (1,271)
Prepaid expenses and other 1,952 526
Current liabilities (5,776) 1,686
Net change in other long-term items (1,946) (3,004)
--------- ---------
CASH USED BY OPERATING ACTIVITIES (3,947) (7,685)
INVESTING ACTIVITIES
Net purchases of property, plant and equipment (2,062) (6,309)
--------- ---------
CASH USED BY INVESTING ACTIVITIES (2,062) (6,309)
FINANCING ACTIVITIES
Net change in secured credit agreement 5,435 13,924
Net changes in long-term borrowing and capital lease obligations (156) (206)
Exercise of stock options 168 74
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 5,447 13,792
DECREASE IN CASH (562) (202)
Cash at beginning of year 1,410 758
--------- ---------
CASH AT END OF THE PERIOD $ 848 $ 556
========= =========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
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<PAGE> 5
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals
and changes in accounting estimates) considered necessary for a fair
presentation of the results of operations have been included. Certain
1997 amounts have been reclassified to conform with 1998
classifications.
NOTE B - ACCOUNTING POLICIES
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement No.
131, "Disclosures and Segments of an Enterprise and Related
Information" (SFAS 131). Both statements are required to be adopted in
1998. Currently, the Company's only elements of comprehensive income
are cumulative translation and pension minimum liability adjustments.
The Company plans to provide the SFAS 130 required disclosures in its
1998 Consolidated Statement of Shareholders' Equity, however, in the
second quarter and first half of 1998 and 1997 the components of
comprehensive income (loss), other than net income (loss), were
immaterial and accordingly were not reported herein. SFAS 131 requires
that disclosure of annual and interim financial and descriptive
information about reportable operating segments be reported on the same
basis used internally for evaluating segment performance and the
allocation of resources. SFAS 131 will be adopted in the year-end
fiscal 1998 financial statements.
NOTE C - INCOME TAXES
The difference in the second quarter and first half of 1998 between the
tax provision and the applicable statutory tax rate is due to changes
in the valuation allowance related to the tax benefit arising from
prior year net operating loss carryforwards.
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<PAGE> 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 4, 1998
AND COMPARABLE PERIODS ENDED JULY 5, 1997
CONSOLIDATED STATEMENT OF INCOME
Net sales in the second quarter of 1998 decreased by $1.3 million, or 1.8%,
compared to the second quarter of 1997. The decline reflects an approximate 4%
reduction in average selling prices of commodity rigid pipe products with a
slight volume increase compared to second quarter 1997. The price reduction was
a result of polyvinylchloride (PVC) resin material cost decreases experienced
during the first half of 1998. This impact was offset by a 20% increase in
priority telecommunication product sales and an 18% increase in the large
diameter sewer pipe sales. Finally, the Company's wireless electrical products
business generated $1.2 million of sales in the second quarter of 1998 after
being immaterial in the same period of 1997 due to the Brighton, Michigan fire.
These additional sales helped to offset reductions from discontinued product
lines. Sales for the first half decreased by $5.3 million or 3.8% from the same
period last year.
Gross profit increased $1.6 million in the second quarter of 1998 compared to
the second quarter of 1997. This improvement was a result of reduced PVC resin
costs referred to above, increased utilization of the Company's manufacturing
plants, improved cost controls in both plants and distribution centers and a
shift in product mix to higher margin items. As a result, the gross margin
ncreased by 14.8% to 20.2% in the second quarter and compared favorably to
17.6% for the same period in 1997.
Selling, general and administrative expenses at 16.1% of sales were nearly $.8
million above year-ago levels in the second quarter. Increased selling expenses
were due to higher commissions paid as a result of increasing sales of priority
products. For the six-month period, selling, general and administrative costs
fell $.4 million compared to a year ago, attributable to the decreased first
half sales level. The Company recorded an income tax benefit of $.7 million in
the second quarter, consistent with the prior-year period.
CONSOLIDATED BALANCE SHEET
Accounts receivable increased approximately $10.2 million compared to year-end
levels due to a seasonally higher concentration of sales in the second quarter
period. Accounts receivable decreased by $5.5 million compared to the second
quarter in 1997 due to improved collection processes. Inventories for the
current quarter decreased $5.7 million from year-end levels, and $4.2 million
from second quarter of 1997. These reductions are a result of lower PVC resin
prices and better inventory control. Prepaid expenses and other assets were
reduced by $2.0 million primarily due to the settlement of an insurance claim
and receipt of proceeds from the 1997 fire at Dimango Products. Accounts payable
decreased $6.5 million from year-end primarily due to lower PVC resin prices and
improved cost control.
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<PAGE> 7
Long-term debt increased $5.2 million in the first half due to seasonal working
capital requirements primarily attributable to an increase in accounts
receivable and a reduction of payables. The debt level is down by $1.4 million
from the same period in the prior year as the Company returned to profitability
and experienced better working capital turn over.
The Company believes that it has sufficient credit available to support the
operating needs of the business and also fund capital projects. Alternative
financing opportunities continue to be evaluated consistent with the Company's
growth requirements.
OUTLOOK
The Company experienced better product mix in the second quarter of 1998 as it
returned to profitability. Construction spending, new home sales and retail
sales trends appear to be steady heading into the second half of 1998. The
Company continues to make progress at recovering business lost due to internal
operating performance difficulties in 1997 as well as attracting new customers,
improving operating efficiencies in its distribution network and increasing
utilization of manufacturing facilities. Based on these factors, and continued
moderation in PVC resin costs, the Company expects improvement in gross profit
and net earnings in the second half of 1998 compared to the similar period in
1997.
The Company expects a strong operating cash flow and lower debt levels in the
third quarter due to anticipated profitability and strong working capital
management. Increased capital spending is expected in the second half of 1998 to
support additional capacity requirements and improved manufacturing and
distribution efficiency.
As previously announced, the Company is conducting an evaluation of the
strategic alternatives available to reduce its exposure to highly volatile raw
material pricing. This evaluation process is continuing.
The foregoing outlook contains expectations that are forward-looking statements
within the meaning of the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those expected as a result of a
variety of factors such as (i) the volatility of polyvinylchloride resin
pricing, (ii) changes in the pattern of construction spending in both the new
construction, and repair and rehabilitation markets, (iii) changes in the number
and distribution of housing starts, (iv) fluctuations in the interest rate
affecting housing starts, (v) unpredictable technological innovations that could
make the Company's products comparatively less attractive, (vi) changes in
local, state and federal regulations relating to building codes and the
environment (in each case as they may affect the attractiveness of the Company's
products and manufacturing costs), (vii) the ability of the Company to pass
through raw material cost increases to its customers and (viii) recovering the
confidence of key customers, (ix) resolution of the Union Pacific rail logistics
problems, and (x) a reversal in the country's general pattern of economic
improvement affecting the markets for the Company's products.
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<PAGE> 8
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 24, 1998, the Company held its Annual Meeting of Shareholders. At the
meeting, 13,415,684 Common Shares (90.01% of the Common Shares outstanding) were
voted. An increase in the number of Common Shares covered by The Lamson &
Sessions Co. 1998 Incentive Equity Plan was approved by a vote of 11,596,319
shares For, 354,651 shares Against, and 124,615 shares Abstained. The following
directors were elected to Class I and received the votes indicated next to their
names:
WITHHELD
CLASS I FOR AUTHORITY
---------------------- ---------- ----------
James T. Bartlett 11,870,686 204,899
Francis H. Beam, Jr. 11,870,986 204,599
Martin J. Cleary 11,871,296 204,289
William H. Coquillette 11,870,878 204,707
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K. There were no reports on Form
8-K filed for the three months ended July 4, 1998.
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<PAGE> 9
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.
THE LAMSON & SESSIONS CO.
-------------------------
(Registrant)
DATE:________________ By /s/ JAMES J. ABEL
--------------------------------------------
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
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<PAGE> 10
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Second Quarter Ended First Half Ended
----------------------------- ------------------------------
1998 1997 1998 1997
----------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Basic Earnings-Per-Share Computation
Net Income $ 2,351 $ 1,975 $ 2,025 $ 4,132
======= ======= ======= =======
Average Common Shares Outstanding 13,425 13,310 13,420 13,308
======= ======= ======= =======
Basic Earnings Per Share $ 0.18 $ 0.15 $ 0.15 $ 0.31
======= ======= ======= =======
Diluted Earnings-Per-Share Computation
Net Income $ 2,351 $ 1,975 $ 2,025 $ 4,132
======= ======= ======= =======
Basic Shares Outstanding 13,425 13,310 13,420 13,308
Stock Options calculated under the Treasury Stock Method 113 232 111 230
------- ------- ------- -------
Total Shares 13,538 13,542 13,531 13,540
======= ======= ======= =======
Dilluted Earnings Per Share $ 0.17 $ 0.15 $ 0.15 $ 0.31
======= ======= ======= =======
</TABLE>
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<PAGE> 11
FOR FURTHER INFORMATION, PLEASE CONTACT:
JAMES J. ABEL
EXECUTIVE VICE PRESIDENT, SECRETARY,
TREASURER AND CHIEF FINANCIAL OFFICER
THE LAMSON & SESSIONS CO.
(216) 766-6557
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000057497
<NAME> THE LAMSON & SESSIONS CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> APR-05-1998
<PERIOD-END> JUL-04-1998
<CASH> 848
<SECURITIES> 0
<RECEIVABLES> 43,197
<ALLOWANCES> 0
<INVENTORY> 39,869
<CURRENT-ASSETS> 93,593
<PP&E> 112,486
<DEPRECIATION> 58,936
<TOTAL-ASSETS> 162,516
<CURRENT-LIABILITIES> 51,494
<BONDS> 49,951
0
0
<COMMON> 1,344
<OTHER-SE> 37,830
<TOTAL-LIABILITY-AND-EQUITY> 162,516
<SALES> 71,168
<TOTAL-REVENUES> 71,168
<CGS> 56,794
<TOTAL-COSTS> 56,794
<OTHER-EXPENSES> 11,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,242
<INCOME-PRETAX> 1,651
<INCOME-TAX> (700)
<INCOME-CONTINUING> 2,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,351
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
