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 March 30, 2002
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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.
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(Exact name of Registrant as specified in its charter)
Ohio 34-0349210
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25701 Science Park Drive
Cleveland, Ohio 44122-7313
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(Address of principal executive offices) (Zip Code)
216/464-3400
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(Registrant's telephone number, including area code)
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(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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 30, 2002 the Registrant had outstanding 13,777,608 common shares.
PART I
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
FIRST QUARTER ENDED
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2002 2001
---------------------------- -----------------------------
NET SALES $ 68,083 100.0% $ 88,641 100.0%
Cost of products sold 56,604 83.1% 72,305 81.6%
-------------- ---------------
GROSS PROFIT 11,479 16.9% 16,336 18.4%
Operating expenses 10,424 15.4% 14,086 15.9%
Net gain - 0.0% (1,600) -1.8%
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OPERATING INCOME 1,055 1.5% 3,850 4.3%
Interest expense, net 2,411 3.5% 2,650 2.9%
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(LOSS) INCOME BEFORE INCOME TAXES (1,356) -2.0% 1,200 1.4%
Income tax (benefit) provision (600) -0.9% 504 0.6%
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NET (LOSS) INCOME $ (756) -1.1% $ 696 0.8%
============== ===============
BASIC (LOSS) EARNINGS PER COMMON SHARE $ (0.05) $ 0.05
============== ===============
AVERAGE COMMON SHARES OUTSTANDING 13,778 13,716
============== ===============
DILUTED (LOSS) EARNINGS PER COMMON SHARE $ (0.05) $ 0.05
============== ===============
DILUTED AVERAGE COMMON SHARES
OUTSTANDING 13,778 14,088
============== ===============
See notes to Consolidated Financial Statements (Unaudited).
2
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
FIRST QUARTER FIRST QUARTER
ENDED YEAR ENDED ENDED
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2002 2001 2001
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 726 $ 165 $ 1,802
Accounts receivable, net 37,071 39,204 55,357
Inventories, net
Finished goods and work-in-process 35,620 36,623 55,086
Raw materials 4,430 5,460 8,390
--------- --------- ---------
40,050 42,083 63,476
Deferred tax assets 6,500 7,650 13,255
Prepaid expenses and other 4,709 4,983 5,202
--------- --------- ---------
TOTAL CURRENT ASSETS 89,056 94,085 139,092
PROPERTY, PLANT AND EQUIPMENT
Land 3,537 3,537 3,998
Buildings 25,108 24,775 24,939
Machinery and equipment 115,581 116,484 118,937
--------- --------- ---------
144,226 144,796 147,874
Less allowances for depreciation and amortization 88,443 86,925 80,427
--------- --------- ---------
TOTAL NET PROPERTY, PLANT AND EQUIPMENT 55,783 57,871 67,447
GOODWILL 81,666 81,666 85,016
PENSION ASSETS 24,026 24,071 22,173
DEFERRED TAX ASSETS 9,215 7,673 --
OTHER ASSETS 8,913 8,455 9,952
--------- --------- ---------
TOTAL ASSETS $ 268,659 $ 273,821 $ 323,680
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 19,110 $ 21,975 $ 37,649
Accrued compensation and benefits 7,439 7,311 6,953
Other accrued expenses 13,900 17,237 18,497
Taxes 4,127 4,274 4,276
Current maturities of long-term debt 12,098 12,093 10,168
--------- --------- ---------
TOTAL CURRENT LIABILITIES 56,674 62,890 77,543
LONG-TERM DEBT 106,100 104,266 131,653
POST-RETIREMENT BENEFITS AND OTHER
LONG-TERM LIABILITIES 25,116 25,441 27,937
SHAREHOLDERS' EQUITY
Common shares 1,378 1,378 1,372
Other capital 75,499 75,499 75,208
Retained earnings 5,637 6,393 10,932
Accumulated other comprehensive income (loss) (1,745) (2,046) (965)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 80,769 81,224 86,547
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 268,659 $ 273,821 $ 323,680
========= ========= =========
See notes to Consolidated Financial Statements (Unaudited).
3
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
FIRST QUARTER ENDED
--------------------------------
2002 2001
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OPERATING ACTIVITIES
Net (loss) income $ (756) $ 696
Adjustments to reconcile net (loss) income to cash (used) provided
by operating activities:
Depreciation 2,640 2,914
Amortization 400 1,507
Deferred income taxes (600) (44)
Net change in working capital accounts:
Accounts receivable 2,133 1,302
Inventories 2,033 (3,903)
Prepaid expenses and other 274 (1,191)
Accounts payable (2,865) 9,077
Accrued expenses and other current liabilities (2,981) (6,151)
Other long-term items (754) (691)
--------------- ---------------
CASH (USED) PROVIDED BY OPERATING ACTIVITIES (476) 3,516
INVESTING ACTIVITIES
Net additions to property, plant and equipment (552) (2,329)
Acquisitions and related items (250) (4,333)
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CASH USED IN INVESTING ACTIVITIES (802) (6,662)
FINANCING ACTIVITIES
Net borrowings under secured credit agreement 2,000 3,500
Payment on other long-term borrowings (161) (123)
Exercise of stock options - 119
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CASH PROVIDED BY FINANCING ACTIVITIES 1,839 3,496
INCREASE IN CASH AND CASH EQUIVALENTS 561 350
Cash and cash equivalents at beginning of year 165 1,452
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 726 $ 1,802
=============== ===============
See notes to Consolidated Financial Statements (Unaudited).
4
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 have been included.
Certain 2001 amounts have been reclassified to conform with 2002
classifications.
NOTE B - GOODWILL AND INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standard (SFAS) No. 142,
"Goodwill and Other Intangible Assets," on December 30, 2001. Goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to impairment tests at least annually. Other intangible
assets will continue to be amortized over their useful lives. Goodwill
amortization decreased the prior year first quarter net results by approximately
$.9 million. In the second quarter of 2002, the Company expects to complete the
required transitional goodwill impairment tests. Management has not yet
determined the effect on the Company's results of operations or financial
condition of any potential impairment resulting from such tests.
NOTE C - INCOME TAXES
The first quarter 2002 income tax provision was calculated based on management's
estimate of the annual effective tax rate of 44% for the year. The provisions
for 2002 and 2001 are primarily non-cash charges.
NOTE D - 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 telecommunications raceway
systems and a broad line of nonmetallic enclosures, electrical outlet boxes and
fittings. Examples of the applications for the products included in this segment
are multi-cell duct systems and High Density Polyethylene (HDPE) conduit
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 improvement market. The
products included in this segment are electrical outlet boxes, liquidtight
conduit, electrical fittings, chimes and lighting controls.
PVC PIPE: This business segment primarily supplies electrical, power and
communications conduit to the electrical distribution, telecommunications,
consumer and power utility markets. The electrical and telecommunications
conduit is made from polyvinyl chloride (PVC) resin and is used to protect wire
or fiber optic cables supporting the infrastructure of our power or
telecommunications systems.
5
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D - BUSINESS SEGMENTS - CONTINUED
(Dollars in thousands)
FIRST QUARTER ENDED
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2002 2001
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NET SALES
Carlon $ 34,991 $ 47,381
Lamson Home Products 16,292 12,976
PVC Pipe 16,800 28,284
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$ 68,083 $ 88,641
================= =================
OPERATING INCOME (LOSS)
Carlon $ 3,157 $ 5,054
Lamson Home Products 1,993 379
PVC Pipe (2,764) (737)
Corporate Office (1,331) (846)
----------------- -----------------
$ 1,055 $ 3,850
================= =================
DEPRECIATION AND AMORTIZATION
Carlon $ 1,946 $ 3,032
Lamson Home Products 524 588
PVC Pipe 570 801
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$ 3,040 $ 4,421
================= =================
The first quarter 2002 operating income in the Carlon business segment excludes
the amortization of goodwill whereas the first quarter 2001 operating income
includes the amortization of goodwill.
The first quarter 2001 operating loss in the PVC Pipe segment includes a net
gain of $1.6 million from a litigation settlement.
Total assets by business segment at March 30, 2002 and December 29, 2001.
(Dollars in thousands)
MARCH 30, DECEMBER 29,
2002 2001
----------------- -----------------
IDENTIFIABLE ASSETS
Carlon $ 152,170 $ 153,194
Lamson Home Products 28,637 28,157
PVC Pipe 39,574 45,684
Corporate Office (includes deferred taxes and
pension assets) 48,278 46,786
----------------- -----------------
$ 268,659 $ 273,821
================= =================
6
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE E - COMPREHENSIVE INCOME
The components of comprehensive (loss) income for the first quarter of 2002 and
2001 are as follows:
(Dollars in thousands)
FIRST QUARTER ENDED
-------------------------------------------
MARCH 30, MARCH 31,
2002 2001
----------------- ------------------
Net (loss) income $ (756) $ 696
Foreign currency translation adjustments (25) 18
Income (loss) on interest rate swaps, net of tax 326 (410)
----------------- ------------------
Comprehensive (loss) income $ (455) $ 304
================= ==================
The components of accumulated other comprehensive (loss) income, at March 30,
2002, December 29, 2001 and March 31, 2001 are as follows:
(Dollars in thousands)
MARCH 30, DECEMBER 29, MARCH 31,
2002 2001 2001
----------------- ----------------- -----------------
Foreign currency translation
adjustments $ (616) $ (591) $ (512)
Minimum pension liability adjustments (421) (421) (43)
Interest rate swaps, net of tax (708) (1,034) (410)
----------------- ----------------- -----------------
Accumulated other comprehensive
(loss) income $ (1,745) $ (2,046) $ (965)
================= ================= =================
7
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE F - EARNINGS PER SHARE CALCULATION
The following table sets forth the computation of basic and diluted earnings per
share:
(In thousands, except per share amounts)
FIRST QUARTER ENDED
-------------------------------------------
2002 2001
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BASIC EARNINGS-PER-SHARE COMPUTATION
Net (Loss) Income $ (756) $ 696
================= ==================
Average Common Shares Outstanding 13,778 13,716
================= ==================
Basic (Loss) Earnings Per Share $ (0.05) $ 0.05
================= ==================
DILUTED EARNINGS-PER-SHARE COMPUTATION
Net (Loss) Income $ (756) $ 696
================= ==================
Basic Shares Outstanding 13,778 13,716
Stock Options Calculated Under the
Treasury Stock Method 34 372
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Total Shares 13,812 14,088
================= ==================
Diluted (Loss) Earnings Per Share $ (0.05) $ 0.05
================= ==================
In 2002, the weighted average shares issuable upon the exercise of stock options
were excluded from the computation of diluted earnings per share due to their
antidilutive effect.
NOTE G - DERIVATIVES AND HEDGING
Effective as of December 31, 2000, the Company adopted Statement of Financial
Accounting Standards No. (SFAS) 133, "Accounting for Derivative Instruments and
Hedging Activities" which was issued in June 1998 by the Financial Accounting
Standards Board (FASB), as amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of SFAS 133" and
SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities."
As a result of the adoption of SFAS 133, the Company is required to recognize
all derivative financial instruments as either assets or liabilities at fair
value. Derivative instruments that are not hedges must be adjusted to fair value
through net income. Under the provisions of SFAS 133, changes in the fair value
of derivative instruments that are classified as fair value hedges are offset
against changes in the fair value of the hedged assets, liabilities, or firm
commitments, through net income. Changes in the fair value of derivative
instruments that are classified as cash flow hedges are recognized in other
comprehensive income until such time as the hedged items are recognized in net
income.
8
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE G - DERIVATIVES AND HEDGING - CONTINUED
The adoption of SFAS 133 did not result in any transition adjustment as the
Company had no derivative instruments outstanding at December 31, 2000. During
the first quarter of 2001, the Company entered into two interest rate swap
agreements for a total notional amount of $58.5 million which effectively fixes
interest rates on its variable rate debt at 5.41% and 5.48% plus the Company's
risk premium of 1.5% to 4.0%, respectively. These transactions are considered
cash flow hedges and, therefore, the fair market value at the end of the first
quarter 2002 of a $708,000 (net of $452,000 in tax) loss, has been recognized in
other comprehensive income (loss). There is no ineffectiveness on the cash flow
hedges, therefore, all changes in the fair value of these derivatives are
recorded in equity and not included in the current period's income statement.
Approximately a $1,107,000 loss on the fair value of the hedges is classified in
current accrued liabilities, with the remaining $53,000 loss classified as a
long-term liability.
The Company has no derivative instruments that are classified as fair value
hedges.
NOTE H- RESTRUCTURING ACTIVITIES
Restructuring liabilities of $1,932 remained at March 30, 2002 related to
announced 2001 restructuring activities. A movement of the various components of
these items are as follows:
(Dollars in thousands)
WORK FORCE PRODUCT LINE PLANT CAPACITY
REDUCTION RATIONALIZATION CONSOLIDATION
----------------- ----------------- -----------------
Liabilities at December 29, 2001 $ 400 $ 1,094 $ 714
Severance Paid 123 - -
Inventory or Fixed Asset disposal - 153 -
----------------- ----------------- -----------------
Liabilities remaining at March 30, 2002 $ 277 $ 941 $ 714
================= ================= =================
The Company currently anticipates that the remaining liabilities will be
extinguished in 2002. We expect that the Work Force Reduction expenses will be
completed by the end of the second quarter. In addition, the Product Line
Rationalization activities will occur over the second and third quarters.
Finally, approximately 50% of the Plant Capacity Consolidation projects will be
completed in the second quarter and the remainder by the end of 2002.
In addition, the Company continues to classify one of its facilities as an asset
held for sale.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales decreased by 23.2%, or $20.6 million, during the first quarter of 2002
compared with the first quarter of 2001. The Carlon business segment declined by
$12.4 million (26.1%) in net sales this quarter compared with the prior year
comparable period. This decrease was caused primarily by reduction in
telecommunications infrastructure project activity which decreased by over 40%.
Electrical distribution and utility-related sales are fairly stable compared
with the prior year first quarter. Lamson Home Products had a significant
increase in sales of $3.3 million, or 25.6%, during the first quarter of 2002
compared with the prior year period. Existing home sales have been strong, along
with lower interest rates, stimulating the home improvement market. Lastly, the
PVC Pipe business segment experienced a decrease of 27% in pipe pounds sold and
a decline in price-per-pound of approximately 19% compared with the prior year
first quarter. This resulted in lower net sales in the first quarter 2002 of
$11.4 million, or 40.6%, compared with the first quarter of 2001.
Gross margin percentage in the first quarter of 2002 declined to 16.9% from the
18.4% gross margin achieved in the first quarter of 2001. Although product
margins have improved from material and operating cost reductions, the HDPE
conduit production facilities ran at only 35-40% of capacity this quarter
compared with 65-70% in the first quarter of 2001, generating unfavorable
manufacturing variances. In addition, extrusion plant operating rates were
slightly over 60% in the quarter compared with approximately 90% in the first
quarter of 2001. The pricing environment remains very competitive as commercial,
telecommunications infrastructure and industrial construction markets are
reflecting lower activity due to economic and seasonal factors.
Operating income for the first quarter of 2002 totaled $1.1 million, or 1.5% of
net sales, which was lower by $2.8 million, or 72.7% lower than the prior year's
first quarter operating income of $3.9 million, or 4.3% of net sales. The
reduced operating income is a direct result of the lower gross profit in the
quarter, as operating expenses during the first quarter of 2002 actually were
$3.7 million lower than the first quarter of 2001. The improved operating
expense level in the first quarter of 2002 reflects the cessation of $1.1
million of goodwill amortization (see Notes B and D to the Notes of Consolidated
Financial Statements), lower sales expense and the effect of cost-reduction
initiatives implemented during 2001 from the integration of acquisitions, a
reduction in the Company's work force and controlled discretionary spending.
Operating expenses during the first quarter of 2001 also included the impact
($1.6 million gain) of a litigation settlement.
Net interest expense declined by approximately $.2 million compared with the
prior year, as debt has been paid down by $23.6 million from the first quarter
2001, and average borrowing rates declined to 6.6% in the first quarter 2002
compared with 7.2% in the first quarter of 2001.
The income tax provision was recorded using an annualized estimated effective
rate of 44% for 2002 compared with a 42% estimated rate in the first quarter of
2001.
The Company's earnings before interest, taxes, depreciation and amortization
(EBITDA) were $4.1 million for the first quarter of 2002 compared with $8.3
million for the first quarter of 2001.
10
FINANCIAL CONDITION
Working capital was $32.4 million at the end of the quarter, a reduction of
$29.2 million from last year's first quarter, and approximately the same level
as year-end 2001. In a seasonally-weak first quarter, operating activities
consumed $.5 million of cash.
Accounts receivable were $37.1 million at the end of the first quarter of 2002.
This represents a decline of 33%, or $18.3 million, from the prior year first
quarter. Days sales outstanding were approximately 49.7 days in the first
quarter of 2002 compared with 55.1 days in the first quarter 2001. This is
primarily a result of lower sales in the current year and the collection of
several delinquent telecommunications accounts outstanding in the prior year.
At the end of the first quarter of 2002, the Company had approximately $40
million in inventory. The inventory level is down $2.0 million, or 4.8%, from
year-end 2001 and $23.4 million, or 36.9%, from the first quarter of 2001. The
cost per pound of the primary raw material, polyvinyl chloride (PVC) resin, in
inventory is approximately 21.0% lower at the end of the first quarter 2002
compared with the same quarter of 2001 and 4.0% lower than the year-end 2001. In
addition, pounds of PVC resin in inventory at March 30, 2002 were 5.7% lower
than year-end and 22.2% less than March 31, 2001. On an overall basis, inventory
turns were 4.6 times at March 30, 2002 vs. 4.0 times at March 31, 2001.
Accounts payable has continued to decline from year-end and is $18.5 million
lower than the prior year first quarter, as the Company lowered inventory levels
in the current period. The reduction in expense accruals from year-end 2001,
during the first quarter of 2002, reflects the routine payment of annual
customer sales and marketing programs and the term loan interest payment.
Capital expenditures totaled $.6 million for the first quarter of 2002 primarily
to support production improvements, cost savings' initiatives and tooling for
new product line development. The Company plans to spend approximately $9
million on baseline plant and equipment upgrades, enhanced business capabilities
and anticipated new product introductions during 2002.
During the first quarter of 2002, the Company negotiated a third amendment to
its secured credit agreement which resets its financial covenants consistent
with management's expectations for 2002 and 2003. This amendment reflects the
continuing weakness in the telecommunications infrastructure market and the
operating losses emanating from low demand and the persistence of a raw material
supply/demand imbalance affecting the PVC Pipe business segment. The secured
credit facility was reduced to $150 million, from $170 million, of which $110
million represents a revolving credit facility with the remainder in term debt.
The scheduled payments on the term debt were unchanged. The amendment also
increased the current cost of borrowings under this agreement to LIBOR plus 4%.
Interest rates going forward will be LIBOR plus 1.5% to 4.0% depending upon the
ratio of the Company's level of indebtedness to EBITDA. The Company continues to
evaluate changes to its capital structure in order to ensure an appropriate
degree of financial flexibility. Based on current projected operating results
for the year, the Company believes cash flow from operations and its secured
credit facility provide adequate financing for general corporate purposes and
the planned capital expenditures.
OUTLOOK
The following paragraphs contain forward-looking comments. The 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 continuing overall strength of the residential construction market provided
solid support to the Company's business level in the first quarter of 2002.
Housing permits, housing starts, new and existing home sales and consumer
confidence continue to trend favorably overall despite some volatility in the
first quarter and appear to be gaining strength as we enter the spring and
summer construction seasons. These economic indicators bode
11
well for the Carlon business segment's sales to the electrical distribution
market and Lamson Home Products sales to the home improvement market.
As we indicated in our 2001 Form 10-K filing, we expected that lower spending
levels in the industrial and commercial construction markets would have an
adverse effect on the recovery of our PVC Pipe business segment's performance.
Very low unit demand in the first quarter of 2002 and the continuation of the
supply/demand imbalance for PVC resin combined to extend the weakest market
conditions for the PVC Pipe business segment that we have experienced in over a
decade. However, we have begun to see evidence of nominal improvement in the
market conditions for PVC resin as we exit the first quarter - raw material
costs are rising and the export market is strengthening. The key elements for
the next six months will be our ability to pass on these increased raw material
costs and evidence of increased spending in the industrial and commercial
construction markets.
In the telecommunications infrastructure market we anticipated that the first
half of 2002 would be worse than the second half of 2001 and, unfortunately, so
far it has proven to be just that. Throughout the first quarter of 2002, we saw
a steady stream of lower capital spending projections for this market. Numerous
fiber optic cable and telecommunications equipment companies have lowered their
revenue projections for 2002. Our expectations that the beginning of the
recovery in the telecommunications infrastructure market will not begin before
the fourth quarter of 2002 remains unchanged.
We are pleased that through strong vigilance our operations' management was able
to control operating expenditures and working capital levels to mitigate effects
of the exceptionally-weak demand for our pipe and conduit products in the first
quarter and expect this effective oversight to continue.
It is still too early to make specific projections for 2002, especially in light
of the first quarter's results. However, the current trends clearly support the
beginning of a recovery, particularly for our PVC Pipe business segment. Based
on these current trends, we expect to return to profitability in the second
quarter of 2002.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains expectations that are forward-looking statements 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 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,
telecommunications infrastructure spending, consumer confidence and general
construction trends, and (iv) any adverse change in the recovery trend of the
country's general economic condition affecting the markets for the Company's
products.
12
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 ("Intermatic") 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 Company pursued a vigorous appeal
and on December 17, 2001 the United States Court of Appeals ruled that, as a
matter of law, Lamson & Sessions' products did not infringe Intermatic's patent
and that the Company has no liability to Intermatic. The trial jury's earlier
verdict in favor of Intermatic in the amount of $12.5 million, plus pre-judgment
and post-judgment interest estimated to be in excess of $3 million, was
reversed. Intermatic filed for a rehearing of the ruling to the Court of Appeals
en banc, which was denied. Intermatic has informed the Company that it plans to
file a petition for certiorari with the United States Supreme Court.
During the first quarter of 2001, the Company settled its litigation against PW
Eagle and received a payment of $2.05 million, representing a partial recovery
of costs incurred in current and previous quarters, arising out of the failed
sale of the PVC Pipe segment in 1999 and resulted in a net gain of $1.6 million.
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 effect on the
Company's financial position, cash flows or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Third Amendment to the Amended and Restated Credit
Agreement, entered into as of March 27, 2002, among
The Lamson & Sessions Co., the Guarantors party
hereto, the Lenders party hereto, and Harris Trust
and Savings Bank, as Administrative Agent for the
Lenders.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended March 30, 2002.
13
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: April 26, 2002 By /s/ James J. Abel
----------------------------------------
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
14