<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 September 30, 2000
------------------
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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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 September 30, 2000 the Registrant had outstanding 13,694,527 common
shares.
<PAGE> 2
PART I
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ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
-------------------------------------- ----------------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $88,291 100.0% $75,436 100.0% $259,930 100.0% $217,116 100.0%
Cost of products sold 65,424 74.1% 59,309 78.6% 188,835 72.6% 171,407 78.9%
----------- ----------- ------------ ------------
GROSS PROFIT 22,867 25.9% 16,127 21.4% 71,095 27.4% 45,709 21.1%
Operating expenses 12,462 14.1% 12,162 16.1% 41,161 15.9% 36,879 17.0%
----------- ----------- ------------ ------------
OPERATING INCOME 10,405 11.8% 3,965 5.3% 29,934 11.5% 8,830 4.1%
Net interest expense 995 1.1% 898 1.2% 2,541 1.0% 2,652 1.3%
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 9,410 10.7% 3,067 4.1% 27,393 10.5% 6,178 2.8%
Income tax provision (benefit) 2,434 2.8% (700) -0.9% 8,588 3.3% (2,100) -1.0%
----------- ----------- ------------ ------------
NET INCOME $ 6,976 7.9% $ 3,767 5.0% $ 18,805 7.2% $ 8,278 3.8%
=========== =========== ============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.51 $ 0.28 $ 1.39 $ 0.62
=========== =========== ============ ============
AVERAGE COMMON SHARES OUTSTANDING 13,638 13,450 13,529 13,446
=========== =========== ============ ============
DILUTED EARNINGS PER COMMON SHARE $ 0.48 $ 0.28 $ 1.35 $ 0.61
=========== =========== ============ ============
DILUTED AVERAGE COMMON SHARES
OUTSTANDING 14,426 13,492 13,944 13,489
=========== =========== ============ ============
</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>
THIRD QUARTER THIRD QUARTER
ENDED YEAR ENDED ENDED
------------------------------------------------------------
2000 1999 1999
------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,754 $ 2,724 $ 1,124
Accounts receivable, net 53,958 40,676 46,949
Inventories, net
Finished goods and work-in-process 54,338 36,778 35,868
Raw materials 6,628 5,783 5,067
--------- ---------- ---------
60,966 42,561 40,935
Deferred tax assets 10,501 4,963 6,381
Prepaid expenses and other 3,385 3,780 3,642
--------- ---------- ---------
TOTAL CURRENT ASSETS 135,564 94,704 99,031
PENSION ASSETS 20,928 19,046 18,645
DEFERRED TAX ASSETS 4,500 15,787 7,469
PROPERTY, PLANT AND EQUIPMENT
Land 3,588 3,588 3,588
Buildings 22,349 22,251 22,423
Machinery and equipment 105,077 92,893 92,019
--------- ---------- ---------
131,014 118,732 118,030
Less allowances for depreciation and amortization 75,125 70,639 68,637
--------- ---------- ---------
TOTAL NET PROPERTY, PLANT, AND EQUIPMENT 55,889 48,093 49,393
GOODWILL 35,277 2,141 2,101
OTHER ASSETS 9,221 3,548 4,015
--------- ---------- ---------
TOTAL ASSETS $ 261,379 $ 183,319 $ 180,654
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 34,875 $ 28,237 $ 29,350
Accrued compensation and benefits 10,252 9,184 7,973
Other accrued expenses 21,451 11,269 14,197
Taxes 5,850 3,645 3,575
Current maturities of long-term debt 938 3,888 3,863
--------- ---------- ---------
TOTAL CURRENT LIABILITIES 73,366 56,223 58,958
LONG-TERM DEBT 77,722 36,919 43,370
POST-RETIREMENT BENEFITS AND OTHER
LONG-TERM LIABILITIES 26,905 26,808 25,917
SHAREHOLDERS' EQUITY
Common shares 1,369 1,345 1,344
Other capital 74,964 73,616 73,574
Retained earnings (deficit) 7,593 (11,212) (21,722)
Accumulated other comprehensive income (loss) (540) (380) (787)
--------- ---------- ---------
TOTAL SHAREHOLDERS' EQUITY 83,386 63,369 52,409
--------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 261,379 $ 183,319 $ 180,654
========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,805 $ 8,278
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 7,329 7,498
Deferred income taxes 5,955 (2,100)
Net change in working capital accounts:
Accounts receivable (4,914) (11,869)
Inventories (15,572) (1,773)
Prepaid expenses and other 1,811 (1,903)
Accounts payable, accrued expenses and other current liabilities 11,190 10,011
Other long-term items (5,305) (5,083)
--------------- ---------------
CASH PROVIDED BY OPERATING ACTIVITIES 19,299 3,059
INVESTING ACTIVITIES
Acquisition (47,313) -
Net additions to property, plant and equipment (7,141) (6,450)
--------------- ---------------
CASH USED BY INVESTING ACTIVITIES (54,454) (6,450)
FINANCING ACTIVITIES
Net borrowings under secured credit agreement 38,656 3,371
Net changes in long-term borrowings and capital lease obligations (803) (793)
Exercise of stock options 1,332 -
--------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES 39,185 2,578
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,030 (813)
Cash and cash equivalents at beginning of year 2,724 1,937
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,754 $ 1,124
=============== ===============
</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 1999 amounts have been reclassified to conform with 2000
classifications.
NOTE B - INCOME TAXES
The difference in the third quarter of 1999 between the income tax provision and
the applicable statutory tax rate is due to changes in the valuation allowance
related to the tax benefits arising from prior year federal net operating loss
carryforwards.
Effective in the fourth quarter of 1999, the Company recognized the full benefit
of its federal net operating loss carryforwards (i.e. by reducing a substantial
portion of its valuation allowance on its deferred tax assets).
The third quarter 2000 income tax provision was calculated based on management's
current estimate of the effective tax rate for the year. The effective tax rate
for the year reflects the impact of the reversal of the remainder of the
Company's valuation allowance on its net deferred tax assets of approximately
$1.7 million as a result of anticipated utilization of state net operating loss
and tax credits 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 by this segment include 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
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 outlet boxes, liquidtight conduit and electrical
fittings. In addition, this segment supplies its market with products such as
light dimmers, fan speed controls, touch controls, wireless door chimes, motion
sensors and home security systems.
PVC PIPE: This business segment supplies electrical, power and communications
conduit to the electrical distribution, telecommunications, consumer and power
utility markets. In addition, it provides engineered sewer products to various
municipalities and private contractors for drainage systems in new construction
and rehabilitation markets. Principal products utilized by the waste water
market include closed profile engineered sewer pipe for new sewer construction
and existing sewer line rehabilitation. The products range in diameter from 4
inches to 60 inches for sewer products and 1/2 inch to 6 inches for electrical
and telecommunications conduit.
5
<PAGE> 6
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE C - BUSINESS SEGMENTS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
-------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES
Carlon $ 35,185 $ 32,136 $ 100,019 $ 91,355
Lamson Home Products 16,939 13,318 47,834 39,102
PVC Pipe 36,167 29,982 112,077 86,659
----------------- ---------------- ---------------- ----------------
$ 88,291 $ 75,436 $ 259,930 $ 217,116
================= ================ ================ ================
OPERATING INCOME (LOSS)
Carlon $ 5,504 $ 3,935 $ 15,667 $ 11,854
Lamson Home Products 995 855 1,914 1,753
PVC Pipe 5,178 1,047 20,118 2,556
Corporate Office (1,272) (1,872) (7,765) (7,333)
----------------- ---------------- ---------------- ----------------
$ 10,405 $ 3,965 $ 29,934 $ 8,830
================= ================ ================ ================
DEPRECIATION AND AMORTIZATION
Carlon $ 1,142 $ 981 $ 2,797 $ 2,745
Lamson Home Products 568 728 1,885 2,065
PVC Pipe 760 863 2,647 2,688
----------------- ---------------- ---------------- ----------------
$ 2,470 $ 2,572 $ 7,329 $ 7,498
================= ================ ================ ================
Total assets by business segment at September 30, 2000, January 1, 2000 and
October 2, 1999 are as follows:
SEPTEMBER 30, JANUARY 1, OCTOBER 2,
2000 2000 1999
----------------- ---------------- ----------------
IDENTIFIABLE ASSETS
Carlon $ 114,688 $ 52,326 $ 56,536
Lamson Home Products 32,552 30,658 32,798
PVC Pipe 66,826 51,393 50,983
Corporate Office (includes
deferred tax and pension assets) 47,313 48,942 40,337
----------------- ---------------- ----------------
$ 261,379 $ 183,319 $ 180,654
================= ================ ================
</TABLE>
6
<PAGE> 7
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income for the third quarter and first nine
months of 2000 and 1999 are as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------------- ----------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------------ -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 6,976 $ 3,767 $ 18,805 $ 8,278
Foreign currency translation adjustments 12 (2) (160) -
------------------ -------------- ----------------- ---------------
Comprehensive income $ 6,988 $ 3,765 $ 18,645 $ 8,278
================== ============== ================= ===============
</TABLE>
The components of accumulated other comprehensive loss, at September 30, 2000,
January 1, 2000 and October 2, 1999 are as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1, OCTOBER 2,
2000 2000 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Foreign currency translation adjustments $ (483) $ (323) $ (351)
Minimum pension liability adjustments (57) (57) (436)
----------------- ----------------- -----------------
Accumulated other comprehensive loss $ (540) $ (380) $ (787)
================= ================= =================
</TABLE>
7
<PAGE> 8
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE E - EARNINGS PER SHARE CALCULATION
The following table sets forth the computation of basic and diluted earnings per
share:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
BASIC EARNINGS-PER-SHARE COMPUTATION
Net Income $ 6,976 $ 3,767 $ 18,805 $ 8,278
============== =============== =============== ==============
Average Common Shares Outstanding 13,638 13,450 13,529 13,446
============== =============== =============== ==============
Basic Earnings Per Share $ 0.51 $ 0.28 $ 1.39 $ 0.62
============== =============== =============== ==============
DILUTED EARNINGS-PER-SHARE COMPUTATION
Net Income $ 6,976 $ 3,767 $ 18,805 $ 8,278
============== =============== =============== ==============
Basic Shares Outstanding 13,638 13,450 13,529 13,446
Stock Options calculated under
the Treasury Stock Method 788 42 415 43
-------------- --------------- --------------- --------------
Total Shares 14,426 13,492 13,944 13,489
============== =============== =============== ==============
Diluted Earnings Per Share $ 0.48 $ 0.28 $ 1.35 $ 0.61
============== =============== =============== ==============
</TABLE>
8
<PAGE> 9
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE F - ACQUISITION OF PYRAMID INDUSTRIES, INC.
On September 22, 2000, the Company completed its acquisition of Pyramid
Industries, Inc. ("Pyramid") for a cash purchase price of $45.4 million plus
transaction costs. In addition, pursuant to terms of non-competition agreements,
Lamson will pay three former shareholders $6.5 million over a five year period,
including $1.5 million which was paid at closing. The purchase was funded
through the Company's secured revolving credit agreement. Pyramid is a leading
manufacturer of high-density polyethylene (HDPE) conduit used in building
telecommunication and utility infrastructure.
The acquisition has been accounted for by the purchase method and, accordingly,
the operating results have been included in the Company's consolidated financial
statements and the Carlon business segment since the date of acquisition. The
assets acquired and liabilities assumed were recorded at estimated fair values.
For financial statement purposes, goodwill relating to this acquisition is being
amortized by the straight-line method over 20 years. The following summary of
the assets acquired and liabilities assumed is based upon a preliminary purchase
price allocation.
(Dollars in thousands)
Estimated fair values
Assets acquired $ 26,333
Liabilities assumed (11,632)
Goodwill 32,734
------------------
Purchase price paid 47,435
Less cash acquired (122)
------------------
Net cash paid $ 47,313
==================
Unaudited pro forma results of operations as if the acquisition occurred as of
January 2, 2000 and January 1, 1999 follows. The pro forma results include
estimates and assumptions, which the Company's management believes are
reasonable. However, the pro forma results do not include any cost savings,
revenue enhancements or other effects of the planned integration of the Company
and Pyramid and are not necessarily indicative of the results which would have
occurred if the business combination had been in effect on the dates indicated,
or which may result in the future.
(Dollars in thousands)
(Unaudited)
Pro forma Nine Months Ended
2000 1999
--------- ---------
Net Sales $ 302,390 $ 248,488
Net Income $ 20,086 $ 7,052
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales increased for the third quarter of 2000 by $12.9 million or 17.0% over
the third quarter of 1999. This sales increase included a $1.3 million
contribution from Pyramid Industries, Inc. ("Pyramid"), which was acquired on
September 22, 2000. The PVC Pipe business net sales grew $6.2 million (20.6%)
over the previous year's quarter. This reflects approximately 50% higher sales
prices this year compared with the third quarter 1999 as significant raw
material cost increases have been passed through to customers. Sales volume,
especially in electrical conduit, declined by almost 20%, which was partially
offset by increases in telecommunication duct. Lamson Home Products had strong
sales growth of $3.6 million (27.2%) in the current quarter compared with the
prior year quarter. This is due to increased volume with its second largest
customer. Carlon continued its steady growth of 5.4% (excluding Pyramid) this
quarter compared with the same period in 1999. This business segment has seen
moderate volume growth while pricing improved slightly versus the third quarter
of 1999.
For the first three quarters of 2000, sales increased by $42.8 million or 19.7%
from the same period in 1999. PVC Pipe continues to be the segment with the
highest growth rate year to date at 29.3% or $25.4 million, followed by Lamson
Home Products at 22.3% or $8.7 million and Carlon (excluding Pyramid) at 8.1% or
$7.4 million. Selling prices in the PVC Pipe segment are approximately 80%
higher, and volume is 25% lower, for the first three quarters of 2000 compared
with the same period in 1999. Lamson Home Products growth is almost all volume
related with strong double-digit growth in outlet boxes, electrical fittings,
weatherproof products and flexible nonmetallic conduit. Most of Carlon's growth
is coming from telecom product market share gains and modest price increases in
the core electrical products.
Gross margin percentage in the third quarter of 2000 was 25.9%, a 21%
improvement over the third quarter of 1999. Cumulative year to date the
improvement was approximately 30%, with gross margins increasing to 27.4% for
the first three quarters of 2000. In the prior year third quarter Lamson
experienced a negative impact on gross margin from raw material shortages. This
change, coupled with better management of the selling price versus cost spread
in the PVC Pipe business, higher unit volume in Lamson Home Products, higher
prices and improved product mix in Carlon and the realization of operating
efficiencies in our distribution centers drove the improvement in margins for
both the current quarter and year to date. The impact of these items was
partially offset by manufacturing volume variances of about $1.3 million this
quarter as the Company reduced production schedules to lower certain inventory
levels.
Operating income for the third quarter totaled $10.4 million (11.8% of sales).
This was more than two and a half times the $4 million in operating income
earned in the third quarter of 1999. The first three quarters generated almost
$30 million of operating income(11.5% of sales) compared with $8.8 million (4.1%
of sales) during the same period in 1999. Operating expenses remained virtually
the same this quarter as the prior year quarter resulting in a decline as a
percentage of sales as the Company continues to leverage the organization's
technology and human resource investments.
Despite additional acquisition debt, the Company reduced its average borrowings
during the current quarter in excess of 10% compared with the prior year, which
offset slightly higher interest rates (7.8% in the third quarter of 2000 vs.
7.3% in the third quarter of 1999) resulting in only a $100,000 increase in
interest expense.
The Company's earnings before interest, taxes, depreciation and amortization
(EBITDA) was $12.9 million for the third quarter of 2000 and $37.3 million for
the first three quarters of 2000 compared with $6.5 million and $16.3 million
for the respective periods in 1999.
10
<PAGE> 11
FINANCIAL CONDITION
-------------------
Working capital reached $62.4 million at the end of the current quarter, which
included $4 million from Pyramid. Consequently, the level of working capital has
remained about the same as it was at the end of the second quarter but $22.3
million greater than the third quarter of 1999. This quarter's cash flow was
strong with the Company generating almost $11 million from operating activities
($19.3 million for the first three quarters of 2000). These quarterly results
were more than double the prior year quarter when $4.8 million in operating
cash flow was generated. Strong net income offset the net increase in working
capital.
Accounts receivable were $54 million at the end of the third quarter of 2000
which includes $8 million from the Pyramid acquisition. Days sales outstanding
were about 49 days this quarter which is consistent with first half results and
slightly better than 1999.
At the end of the third quarter the Company had almost $61 million in inventory.
Excluding Pyramid, the inventory level is up $2.9 million from second quarter
2000 and $17.4 million (a 42.5% increase) from the third quarter of 1999. Almost
all of this increase over the prior year has occurred in the PVC Pipe business.
In the third quarter of 1999 the Company was experiencing the effects of a raw
material shortage, and, as a result, the inventory level was abnormally low.
Currently the Company has approximately two months of conduit inventory on hand.
In addition, the cost per pound of our primary raw material, polyvinylchloride
(PVC) resin in inventory is approximately 15% higher at the end of the third
quarter 2000 compared with the same quarter of 1999. The year to date increase
in inventory is substantially offset by an increase in current liabilities.
The Company completed a refinancing of its credit line during the quarter and
now has a $125 million five-year revolving credit agreement with a nine bank
consortium available to accommodate its working capital and internal growth
needs. This new facility was utilized to complete the acquisition of Pyramid
during the quarter for which $47.5 million is reflected in the increase in
long-term debt. Excluding this event the Company's long-term debt would have
been only $30 million. The long-term debt-to-equity ratio is 93% after the
acquisition.
Capital expenditures totaled $7.1 million for the first three quarters of 2000
primarily for PVC and polyethylene extrusion line capacity and productivity and
quality enhancements.
OUTLOOK
-------
The following paragraphs contain forward-looking comments. These comments are
subject to, and the actual future results may be impacted by, the cautionary
limitations and factors outlined in the following narrative comments.
The demand for the Company's products follows several macroeconomic indicators
such as new housing starts, telecom market construction spending, general
construction spending, consumer confidence and consumer spending. Actions taken
by the Federal Reserve Board in the first half of 2000 which were intended to
moderate the growth rate of the U.S. economy have clearly begun to have an
effect on the strength of our markets. In the third quarter, sales order rates
grew but at a lower rate than that experienced in the first half of 2000, and
we expect this moderating trend to continue in the fourth quarter and in the
first quarter of 2001.
The Company remains confident that all three of its business segments will
experience sales growth over 1999. However, normal seasonal demand trends down
in the fourth quarter and this will result in a very modest growth rate
compared with that experienced in the first nine months of the year, exclusive
of acquisitions. If the previously mentioned moderation in key indicators
continues and does not accelerate, the Company should perform generally in line
with the expectations presented in its third quarter earnings release and
conference call. Interested parties can access this information via the
Company's Web site: www.lamson-sessions.com.
11
<PAGE> 12
The Company anticipates that its supply chain dependencies will operate normally
in the fourth quarter as its primary raw materials appear to be readily
available and in good supply for the next three to six months. New capacity
additions implemented by major raw material suppliers will increase industry
capacity in 2001 and alleviate the tightness of supply experienced over the
past serveral quarters.
The Company has previously provided an earnings range of 25 cents to 35 cents
per diluted share for the fourth quarter and $1.60 to $1.70 per diluted share
for the full year. This range considers the potential effect of seasonal
trends. However, if moderation of sales/order rates in key markets accelerate
in the forth quarter, then, the Company's earnings performance will likely
trend down to the low end of the range. A decline in sales order rates will
result in lower capacity utilization in the Company's operating facilities,
which will have a dampening affect on the Company's short-term earnings
expectations. The Company anticipates achieving its long-term growth goals of
10-12% for sales and 15-20% for earnings in 2001 based upon preliminary
evaluation of its business segments' plans.
Lamson & Sessions is a leading producer of thermoplastic enclosures, fittings,
wiring outlet boxes and conduit for the electrical, telecommunications,
consumer, power and wastewater markets. For additional information, please visit
our Web site at: www.lamson-sessions.com.
The above statements contain expectations that are forward-looking 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 resin
availability and pricing, (ii) the ability of the Company to pass through raw
material cost increases to its customers, (iii) maintaining a stable level of
housing starts, telecom infrastructure spending, 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.
PART II
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
On September 23, 1999, the Company announced that a United States District Court
jury in the Northern District of Illinois found that the Company willfully
infringed on a patent held by Intermatic Incorporated of Spring Grove, Illinois,
relating to the design of an in-use weatherproof electrical outlet cover, and
awarded Intermatic $12.5 million in damages plus pre-judgment interest of
approximately $1.5 million. The court declined to increase the damages with
respect to the willfulness finding. The Company is pursing a vigorous appeal and
believes it has meritorious positions that will substantially reduce or
eliminate the jury award. If, however, the appeal process is not successful, the
final resolution of the matter could have a material adverse affect on the
Company's financial position, cash flows and results of operations. It is the
Company's understanding that the appeal process may require a one-to-two year
period to run its course.
The Company has filed suit to recover damages related to the termination of the
agreement to sell its PVC Pipe business. It is premature to estimate the timing
for a resolution of this suit.
The Company is also a party to various other 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, cash flows and results of operations.
12
<PAGE> 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
2 Share Purchase Agreement, dated as of August 20, 2000, by and
among The Lamson and Sessions Co., Pyramid Industries, Inc. and
the shareholders of Pyramid Industries, Inc. (incorporated by
reference to Exhibit 2 of the Company's Current Report on Form
8-K dated October 6, 2000).
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter
ended September 30, 2000: The Company's Current Report on Form
8-K, dated October 6, 2000 relating to the Company's acquisition
of the outstanding capital stock of Pyramid Industries, Inc.
13
<PAGE> 14
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: November 14, 2000 By /s/ James J. Abel
-------------------------------------
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
14
<PAGE> 15
FOR FURTHER INFORMATION, PLEASE CONTACT:
JAMES J. ABEL
EXECUTIVE VICE PRESIDENT, SECRETARY,
TREASURER AND CHIEF FINANCIAL OFFICER
THE LAMSON & SESSIONS CO.
(216) 766-6557
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