<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999
-------------
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
-----
T H E L A M S O N & S E S S I O N S C O.
------------------------------------------
(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 44122-7313
- ---------------------------------------- ---------------------------------
(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 April 3, 1999 the Registrant had outstanding 13,444,534 common shares.
-1-
<PAGE> 2
PART I
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
----------------------
1999 1998
-------- --------
<S> <C> <C>
NET SALES $ 67,198 $ 64,794
Cost of products sold 51,746 51,421
-------- --------
GROSS PROFIT 15,452 13,373
Operating expenses 12,601 12,562
-------- --------
OPERATING INCOME 2,851 811
Interest 827 1,137
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 2,024 (326)
Income tax benefit 700 --
-------- --------
NET INCOME (LOSS) $ 2,724 $ (326)
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE $ 0.20 $ (0.02)
======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 0.20 $ (0.02)
======== ========
AVERAGE COMMON SHARES 13,445 13,416
======== ========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
-2-
<PAGE> 3
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
ENDED YEAR END ENDED
-----------------------------------
1999 1998 1998
-----------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 703 $ 1,937 $ 773
Accounts receivable 40,237 35,080 38,939
Inventories
Finished goods and work-in-process 38,968 33,873 40,721
Raw materials and supplies 4,625 5,289 5,212
--------- --------- ---------
43,593 39,162 45,933
Deferred tax asset 6,057 6,057 5,357
Prepaid expenses and other 2,616 1,739 5,681
--------- --------- ---------
TOTAL CURRENT ASSETS 93,206 83,975 96,683
PENSION ASSETS 15,748 15,347 11,700
OTHER ASSETS 11,615 10,610 9,740
PROPERTY, PLANT AND EQUIPMENT 115,565 113,842 111,322
Less allowances for depreciation and amortization 64,668 63,107 56,777
--------- --------- ---------
50,897 50,735 54,545
--------- --------- ---------
TOTAL ASSETS $ 171,466 $ 160,667 $ 172,668
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,993 $ 20,077 $ 24,189
Accrued expenses and other liabilities 18,957 19,648 21,981
Taxes 3,586 3,705 3,430
Current maturities of long-term debt 3,886 3,848 3,795
--------- --------- ---------
TOTAL CURRENT LIABILITIES 51,422 47,278 53,395
LONG-TERM DEBT 44,843 40,807 52,666
POST-RETIREMENT BENEFITS AND OTHER LONG-TERM LIABILITIES 28,357 28,451 29,943
SHAREHOLDERS' EQUITY
Common shares 1,344 1,344 1,342
Other capital 73,574 73,574 73,417
Retained earnings (deficit) (27,276) (30,000) (37,005)
Accumulated other comprehensive loss (798) (787) (1,090)
--------- --------- ---------
46,844 44,131 36,664
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 171,466 $ 160,667 $ 172,668
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
-3-
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------
1999 1998
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,724 $ (326)
Adjustments to reconcile net income (loss) to cash used by operations:
Depreciation and amortization 2,507 2,682
Deferred income tax benefit (700) -
Net change in working capital accounts:
Accounts receivable (5,157) (5,988)
Inventories (4,431) (358)
Prepaid expenses and other (877) 593
Current liabilities 4,106 (4,221)
Net change in other long-term items (911) (214)
------- -------
CASH USED BY OPERATING ACTIVITIES (2,739) (7,832)
INVESTING ACTIVITIES
Net purchases of property, plant and equipment (2,569) (804)
------- -------
CASH USED BY INVESTING ACTIVITIES (2,569) (804)
FINANCING ACTIVITIES
Net change in secured credit agreement 4,190 8,081
Net changes in long-term borrowing and capital lease obligations (116) (91)
Exercise of stock options - 9
------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 4,074 7,999
DECREASE IN CASH (1,234) (637)
Cash at beginning of year 1,937 1,410
------- -------
CASH AT END OF THE PERIOD $ 703 $ 773
======= =======
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
-4-
<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
1998 amounts have been reclassified to conform with 1999
classifications.
NOTE B - INCOME TAXES
The difference in the first quarter of 1999 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.
NOTE C - BUSINESS SEGMENTS
The Company's reportable segments are as follows:
CARLON - INDUSTRIAL, RESIDENTIAL, COMMERCIAL, TELECOMMUNICATIONS AND
UTILITY CONSTRUCTION: The major customers served are electrical
contractors and distributors, original equipment manufacturers,
electric power utilities, cable television (CATV), telephone and
telecommunications companies. The principal products sold to this
segment include rigid conduit, electrical and wire raceway systems and
a broad line of nonmetallic enclosures, outlet boxes and electrical
fittings. Examples of the applications for the products included in
this segment are traditional smooth wall communication duct and spacers
used by telecommunication and CATV industries to house
telecommunications cable, multi-cell duct systems designed to protect
underground fiber optic cables allowing future cabling expansion and
flexible conduit used inside buildings to protect communications cable.
LAMSON HOME PRODUCTS - CONSUMER: The major customers served are home
centers and mass merchandisers for the "do-it-yourself" home repair
market. The products included in this segment are light dimmers, fan
speed controls, touch controls, wireless door chimes, motion sensors
and home security systems. In addition, the Company supplies this
market with products such as outlet boxes, electrical conduit,
liquidtight conduit and electrical fittings.
LAMSON VYLON PIPE - ENGINEERED SEWER PRODUCTS: Provides engineered
sewer products to various municipalities and private contractors for
drainage systems and sewer construction and rehabilitation. Principal
products utilized by this segment include closed profile engineered
sewer pipe for new sewer construction and existing sewer line
rehabilitation. The products range in diameter from 4 to 54 inches.
-5-
<PAGE> 6
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE C - BUSINESS SEGMENTS - CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
------------- -------------
1999 1998
------------- -------------
<S> <C> <C>
NET SALES
Carlon $ 47,166 $ 45,902
Lamson Home Products 14,198 14,829
Lamson Vylon Pipe 5,834 4,063
--------- ---------
$ 67,198 $ 64,794
========= =========
OPERATING INCOME (LOSS)
Carlon $ 4,168 $ 3,116
Lamson Home Products 497 (314)
Lamson Vylon Pipe 549 (2)
Corporate Office (2,363) (1,989)
--------- ---------
$ 2,851 $ 811
========= =========
IDENTIFIABLE ASSETS
Carlon $ 86,724 $ 89,498
Lamson Home Products 35,321 37,456
Lamson Vylon Pipe 15,894 15,830
Corporate Office 33,527 29,884
--------- ---------
$ 171,466 $ 172,668
========= =========
DEPRECIATION AND AMORTIZATION
Carlon $ 1,465 $ 1,577
Lamson Home Products 724 764
Lamson Vylon Pipe 318 341
--------- ---------
$ 2,507 $ 2,682
========= =========
</TABLE>
-6-
<PAGE> 7
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income (loss) for the first quarter of 1999 and
1998 are as follows:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
APRIL 3, 1999 APRIL 4, 1998
------------------ -----------------
<S> <C> <C>
Net income (loss) $ 2,724 $ (326)
Foreign currency translation adjustments (11) -
------------------ -----------------
Comprehensive income (loss) $ 2,713 $ (326)
================== =================
</TABLE>
The components of accumulated comprehensive loss, at April 3, 1999 and January
2, 1999, are as follows:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
April 3, 1999 January 2, 1999
------------------ ---------------------
<S> <C> <C>
Foreign currency translation adjustments $ (362) $ (351)
Minimum pension liability adjustments (436) (436)
------------------ ---------------------
Accumulated other comprehensive loss $ (798) $ (787)
================== =====================
</TABLE>
-7-
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales for the quarter increased by 3.7% compared to the prior year quarter. The
largest increase, 43.6%, came from the Lamson Vylon Pipe segment as the unit's
slipliner sewer rehabilitation products enjoyed strong shipments from backlog as
project construction schedules avoided weather delays. The Carlon segment
increased sales by almost 3% led primarily by gains in molded and specialty
extrusion products. Overall rigid pipe volume was up by 2.2% but experienced
lower pricing of 5.3% compared to the prior year quarter. Sales for Lamson Home
Products declined by 4.3% from last year's first quarter. During 1998 several
low-margin product groups were eliminated which lowered the segment revenue
levels but favorably impacted its profitability.
Gross margin improved by 11.4% to 23% in the first quarter 1999 compared to
the first quarter 1998. The 1999 results included a restructuring charge of
$527,000 related to the consolidation of distribution centers. Favorable
product mix, higher utilization of capacity and tight plant and
distribution spending controls contributed to this dramatic improvement.
Operating expenses stayed constant with 1998 levels which resulted in a
decline in their percentage of sales from 19.4% to 18.8%. Higher commission
expenses were offset by reductions in other general and administrative
expenses.
Lower outstanding debt levels resulted in the decrease in interest expense
compared to the first quarter 1998.
CONSOLIDATED BALANCE SHEETS
Accounts receivable increased $5.2 million compared to year-end levels due to
higher sales in the current quarter. Although receivables were higher by $1.3
million compared to the prior year quarter, days sales outstanding improved from
57 days in 1998 to 50 days in the current quarter. Inventory was up $4.4 million
from year-end but $2.3 million lower than the prior year quarter. This reflects
the buildup of inventory heading into the construction season and also improved
inventory control. Accounts payable are higher by $4.9 million from year-end and
approximately equal to the prior year quarter. This increase is attributable to
the funding of the inventory build.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used by operations was $2.7 million in 1999 compared to $7.8 million in the
prior year quarter. The operating cash used was primarily caused by the seasonal
increase in accounts receivable. Operating cash flow improved by $5.1 million
over this same period last year due to improved earnings and lower paydown of
current liabilities required.
Cash used in investing activities increased significantly from the prior year
first quarter as the Company prepared its new South Carolina distribution center
for operations and increased the capacity of its molding operations.
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.
-8-
<PAGE> 9
YEAR 2000 COMPLIANCE
As is the case with most other companies utilizing information technology
systems in their businesses, the Company is in the process of evaluating and
addressing Year 2000 ("Y2K") Compliance of its information technology systems as
set forth below. These efforts are designed to identify, address and resolve
issues that may be created by information technology systems written using two
digits rather than four to define the applicable year. This could result in a
systems failure or miscalculations causing disruption of operations, including,
among other things, a temporary inability to process transactions, invoices or
engage in other normal business activities.
In 1995, the Company began a comprehensive review of the operating systems which
underlie its ability to conduct daily business activity. Over the next three
years, concluding in 1997, the Company spent in excess of $15 million to replace
its core business operations and communications software systems; virtually all
of the computer and telecommunications hardware; and re-engineered or adopted
best practices throughout its business process activities. The primary impetus
for this investment was to support the attainment of strategic business
objectives and to address Y2K concerns concurrently. This investment included a
significant commitment to electronic commerce activities with our customers and
manufacturers sales representative organizations. In addition, the Company has
implemented extensive education and skill development programs to provide for
continued knowledge transfer, ongoing support and functionality development.
During 1998, the Company authorized an independent audit of all software and
facilities equipment at each of its business sites to identify potential areas
of exposure, representing a continuing proactive investment in addressing Y2K
concerns. As a followup to this audit, a Y2K cross-functional team was formed
to monitor and assess official compliance statements from our software and
equipment vendors and to initiate remediation activities at the non-compliant
sites where potentially there could be a material impact on our business. In
addition, the Company has contacted our significant customers and suppliers to
inform them of our compliance status, to determine their state of readiness and
to identify any subsequent actions which may be needed by us.
Current analysis indicates that our core business information system, to the
best of our knowledge, is Y2K compliant. As we address potential areas of
non-compliance, we are evaluating and prioritizing them on the basis of their
materiality to our business. We are utilizing existing staff in the respective
functional areas to assist in this evaluation process and take appropriate
corrective action. We do not expect to incur significant additional costs based
on what has been identified to date. We will continue our compliance
investigation and develop contingency plans where necessary. We plan to complete
the assessment phase by end of second quarter 1999, and expect to achieve Y2K
readiness on our internal computer systems and facilities equipment by end of
third quarter 1999.
While the information we have received regarding third-party systems, on which
the Company's systems rely, indicates that they are or will be Y2K compliant, we
cannot guarantee this, nor can we estimate at this time any material effect on
our Company and its operations if this would not be the case. The Company
continues its aggressive assessment of these potential third-party exposures and
will address the issues accordingly.
-9-
<PAGE> 10
However, our ability to achieve these dates may be impacted by (i) the timely
availability of software patches by existing suppliers of software, (ii) the
Company's ability to employ and retain qualified professionals to handle Year
2000 issues, (iii) the ability of third parties to complete their own Year 2000
compliance remediation efforts on a timely basis and (iv) the Company's ability
to prepare and implement contingency plans.
OUTLOOK
The Company experienced a favorable product mix in the first quarter of
1999. Construction spending, new home sales and retail sales continue to
maintain their strength heading into the 1999 construction season. Resin
prices have experienced a moderate increase throughout the first quarter
and into the second quarter of 1999. In order to continue the improved
margins seen in year-to-date results, the Company will attempt to pass
these price increases on to customers. The Company continues to make
service improvements at its new South Carolina distribution center, with
initial shipments to customers beginning in February. By all indications,
the consolidation of the remaining East Coast distribution centers should
be successfully completed by the end of the second quarter. As previously
disclosed, the Company will incur a pre-tax restructuring charge of $1.2
million to $1.5 million, or 9 to 11 cents per diluted share, related to the
consolidation of these distribution centers in the second quarter of 1999.
The Company has already recorded charges related to this restructuring,
totally $800,000 and $527,000 in the fourth quarter of 1998 and first
quarter of 1999, respectively. If the Company is able to pass on resin
price increases, it is expected to have sales growth and improvement in
gross profit and operating income prior to restructuring charges for the
remainder of 1999 compared to 1998.
The Company announced, on April 19, 1999, the termination by the buyer of the
agreement to acquire its PVC Pipe Business. The PVC business has been performing
well, and the Company intends to operate the business in the best interests of
the shareholders, customers and associates while it continues to pursue the sale
of the business.
The foregoing outlook contains expectations that involve risks and uncertainties
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 polyvinyl chloride resin
pricing, (ii) the ability of the Company to pass through raw material cost
increases to its customers, (iii) maintaining the current level of housing
starts, consumer confidence and general construction trends and (iv) a reversal
in the country's general pattern of economic improvement affecting the markets
for the Company's products.
-10-
<PAGE> 11
PART II
ITEM 1 - LEGAL PROCEEDINGS
The Company is a party to various claims and matters of litigation incidental to
the normal course of its business. Management believes that the final resolution
of these matters will not have a material adverse affect on the Company's
financial position.
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 April 3, 1999.
-11-
<PAGE> 12
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)
James J. Abel
DATE: May 18, 1999 By /s/_____________________________________
James J. Abel
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
-12-
<PAGE> 1
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
EXHIBIT (11) - EARNINGS-PER-SHARE CALCULATION
The following table sets forth the computation of basic and diluted earnings per
share:
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------
1999 1998
-------------------
BASIC EARNINGS (LOSS)-PER-SHARE COMPUTATION
- -------------------------------------------
<S> <C> <C>
Net Income (Loss) $ 2,724 $ (326)
======== ========
Average Common Shares Oustanding 13,445 13,416
======== ========
Basic Earnings (Loss) Per Share $ 0.20 $ (0.02)
======== ========
DILUTED EARNINGS (LOSS)-PER-SHARE COMPUTATION
- ---------------------------------------------
Net Income (Loss) $ 2,724 $ (326)
======== ========
Basic Shares Oustanding 13,445 13,416
Stock Options Calculated Under the Treasury Stock Method 14 -
-------- --------
Total Shares 13,459 13,416
Diluted Earnings (Loss) Per Share $ 0.20 $ (0.02)
======== ========
</TABLE>
-13-
<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-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 703
<SECURITIES> 0
<RECEIVABLES> 40,237
<ALLOWANCES> 0
<INVENTORY> 43,593
<CURRENT-ASSETS> 93,206
<PP&E> 115,565
<DEPRECIATION> 64,668
<TOTAL-ASSETS> 171,466
<CURRENT-LIABILITIES> 51,422
<BONDS> 44,843
0
0
<COMMON> 1,344
<OTHER-SE> 45,500
<TOTAL-LIABILITY-AND-EQUITY> 171,466
<SALES> 67,198
<TOTAL-REVENUES> 67,198
<CGS> 51,746
<TOTAL-COSTS> 51,746
<OTHER-EXPENSES> 12,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827
<INCOME-PRETAX> 2,024
<INCOME-TAX> (700)
<INCOME-CONTINUING> 2,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,724
<EPS-PRIMARY> $0.20
<EPS-DILUTED> $0.20
</TABLE>
