UNITED STATES
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 2, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-313
THE LAMSON & SESSIONS CO.
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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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 2, 2005 the Registrant had outstanding 14,204,324 common shares.
PART I
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
SECOND QUARTER ENDED FIRST HALF ENDED
----------------------------------------- ----------------------------------------
2005 2004 2005 2004
------------------ ------------------- ------------------ ------------------
NET SALES $ 124,010 100.0% $ 102,148 100.0% $ 222,802 100.0% $ 185,143 100.0%
Cost of products sold 100,995 81.4% 83,870 82.1% 182,810 82.1% 153,547 82.9%
---------- ----------- ---------- ----------
GROSS PROFIT 23,015 18.6% 18,278 17.9% 39,992 17.9% 31,596 17.1%
Selling and marketing expenses 7,528 6.1% 7,141 7.0% 14,602 6.5% 12,942 7.0%
General and administrative expenses 4,326 3.5% 3,769 3.7% 8,138 3.7% 7,563 4.1%
Research and development expenses 462 0.4% 549 0.5% 938 0.4% 1,076 0.6%
---------- ----------- ---------- ----------
Total operating expenses 12,316 10.0% 11,459 11.2% 23,678 10.6% 21,581 11.7%
Other expense (income), net - 0.0% 298 0.3% - 0.0% (626) -0.3%
---------- ----------- ---------- ----------
OPERATING INCOME 10,699 8.6% 6,521 6.4% 16,314 7.3% 10,641 5.7%
Interest expense, net 2,211 1.8% 1,950 1.9% 4,213 1.9% 3,905 2.1%
---------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 8,488 6.8% 4,571 4.5% 12,101 5.4% 6,736 3.6%
Income tax provision 3,261 2.6% 1,826 1.8% 4,670 2.1% 2,692 1.4%
---------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 5,227 4.2% 2,745 2.7% 7,431 3.3% 4,044 2.2%
Income from discontinued
operations, net of
income tax of $256 - 0.0% - 0.0% - 0.0% 401 0.2%
---------- ----------- ---------- ----------
NET INCOME $ 5,227 4.2% $ 2,745 2.7% $ 7,431 3.3% $ 4,445 2.4%
========== =========== ========== ==========
BASIC EARNINGS PER COMMON SHARE:
Earnings from continuing operations $ 0.37 $ 0.20 $ 0.53 $ 0.29
Earnings from discontinued
operations, net of tax - - - 0.03
---------- ----------- ---------- ----------
NET EARNINGS $ 0.37 $ 0.20 $ 0.53 $ 0.32
========== =========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Earnings from continuing operations $ 0.35 $ 0.19 $ 0.51 $ 0.29
Earnings from discontinued
operations, net of tax - - - 0.03
---------- ----------- ---------- ----------
NET EARNINGS $ 0.35 $ 0.19 $ 0.51 $ 0.32
========== =========== ========== ==========
See notes to Consolidated Financial Statements (Unaudited).
2
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
SECOND QUARTER SECOND QUARTER
ENDED YEAR ENDED ENDED
----------------------------------------------
2005 2004 2004
-------------- ---------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,422 $ 683 $ 1,032
Accounts receivable, net of allowances of
$1,883, $1,522 and $1,772, respectively 64,388 48,391 57,232
Inventories, net
Raw materials 4,170 3,504 3,753
Work-in-process 5,635 5,160 4,616
Finished goods 33,401 28,196 32,384
-------------- ---------- --------------
43,206 36,860 40,753
Deferred tax assets 8,171 9,683 8,961
Prepaid expenses and other 5,034 5,128 5,576
-------------- ---------- --------------
TOTAL CURRENT ASSETS 122,221 100,745 113,554
PROPERTY, PLANT AND EQUIPMENT
Land 3,320 3,320 3,320
Buildings 25,182 25,130 24,884
Machinery and equipment 123,282 119,622 117,271
-------------- ---------- --------------
151,784 148,072 145,475
Less allowances for depreciation and amortization 104,233 100,111 98,089
-------------- ---------- --------------
TOTAL NET PROPERTY, PLANT AND EQUIPMENT 47,551 47,961 47,386
GOODWILL 21,480 21,480 21,519
PENSION ASSETS 30,873 30,513 30,264
DEFERRED TAX ASSETS 11,901 12,255 13,848
OTHER ASSETS 5,152 5,548 6,109
-------------- ---------- --------------
TOTAL ASSETS $ 239,178 $ 218,502 $ 232,680
============== ========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 28,766 $ 24,213 $ 35,528
Accrued compensation and benefits 11,332 12,595 13,147
Customer volume & promotional accrued expenses 4,704 6,648 6,254
Other accrued expenses 7,929 8,509 9,729
Taxes 4,930 3,272 3,772
Secured credit agreement - current 5,000 75,000 8,705
Current maturities of long-term debt 875 875 760
-------------- ---------- --------------
TOTAL CURRENT LIABILITIES 63,536 131,112 77,895
LONG-TERM DEBT 90,562 11,876 84,066
POST-RETIREMENT BENEFITS AND OTHER
LONG-TERM LIABILITIES 29,762 30,138 27,507
SHAREHOLDERS' EQUITY
Common shares 1,420 1,389 1,378
Other capital 78,514 76,130 75,400
Retained earnings (deficit) (19,849) (27,280) (29,384)
Accumulated other comprehensive income (loss) (4,767) (4,863) (4,182)
-------------- ---------- --------------
TOTAL SHAREHOLDERS' EQUITY 55,318 45,376 43,212
-------------- ---------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 239,178 $ 218,502 $ 232,680
============== ========== ==============
See notes to Consolidated Financial Statements (Unaudited).
3
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
FIRST HALF ENDED
------------------------
2005 2004
---------- ----------
OPERATING ACTIVITIES
Net income $ 7,431 $ 4,445
Adjustments to reconcile net income to cash (used) provided by
operating activities:
Depreciation 4,485 4,638
Amortization 806 800
Gain on sale of property, plant and equipment - (933)
Deferred income taxes 2,298 2,548
Net change in working capital accounts:
Accounts receivable (15,997) (19,036)
Inventories (6,346) (10,610)
Prepaid expenses and other 94 (599)
Accounts payable 4,553 18,600
Accrued expenses and other current liabilities (1,697) 3,303
Pension plan contributions (697) (809)
Other long-term items (501) (593)
---------- ----------
CASH (USED) PROVIDED BY OPERATING ACTIVITIES (5,571) 1,754
INVESTING ACTIVITIES
Net additions to property, plant and equipment (4,075) (1,293)
Proceeds from sale of property, plant and equipment - 1,595
Acquisitions and related items (124) (125)
---------- ----------
CASH (USED) PROVIDED BY INVESTING ACTIVITIES (4,199) 177
FINANCING ACTIVITIES
Net borrowings (payments) under secured credit agreement 8,900 (1,009)
Payments on other long-term borrowings (214) (210)
Purchase and retirement of treasury stock - (205)
Exercise of stock options (310,650 and 12,375 shares issued, respectively) 1,823 57
---------- ----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 10,509 (1,367)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 739 564
Cash and cash equivalents at beginning of year 683 468
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,422 $ 1,032
========== ==========
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 accounting principles generally
accepted in the United States 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 2004 amounts have been reclassified to conform with
2005 classifications. In particular, the Company has reclassified certain
co-operative advertising allowances and service commissions in the Lamson Home
Products business segment, reducing net sales and selling and marketing expenses
by $1.3 million and $2.6 million in the second quarter and first half of 2004,
respectively.
NOTE B - INCOME TAXES
The year-to-date 2005 income tax provision was calculated based on management's
estimate of the annual effective tax rate of 38.6% for the year. The provision
for 2004 is primarily non-cash charges. The Company anticipates having to pay
(cash) approximately 40.0% of the 2005 income tax provision due to alternative
minimum tax requirements.
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 telecommunications raceway
systems and a broad line of 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" (DIY) home improvement market. The
products included in this segment are electrical outlet boxes, liquidtight
conduit, electrical fittings, door chimes and lighting controls.
PVC Pipe: This business segment primarily supplies electrical, power and
communications conduit to the electrical distribution, telecommunications,
consumer, power utility and sewer 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 power or
telecommunications systems.
5
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE C - BUSINESS SEGMENTS - CONTINUED
(Dollars in thousands)
SECOND QUARTER ENDED FIRST HALF ENDED
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
NET SALES
Carlon $ 59,004 $ 49,467 $ 106,207 $ 87,630
Lamson Home Products 26,375 20,673 50,346 40,427
PVC Pipe 38,631 32,008 66,249 57,086
---------- ---------- ---------- ----------
$ 124,010 $ 102,148 $ 222,802 $ 185,143
========== ========== ========== ==========
OPERATING INCOME (LOSS)
Carlon $ 7,829 $ 4,608 $ 11,453 $ 8,247
Lamson Home Products 4,570 2,468 8,113 4,852
PVC Pipe 349 1,019 362 (168)
Corporate Office (2,049) (1,276) (3,614) (2,916)
Other (Expense) Income (see Note I) - (298) - 626
---------- ---------- ---------- ----------
$ 10,699 $ 6,521 $ 16,314 $ 10,641
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
Carlon $ 1,229 $ 1,368 $ 2,498 $ 2,765
Lamson Home Products 454 465 916 935
PVC Pipe 935 877 1,877 1,738
---------- ---------- ---------- ----------
$ 2,618 $ 2,710 $ 5,291 $ 5,438
========== ========== ========== ==========
Total assets by business segment at July 2, 2005, January 1, 2005 and July 3,
2004 are as follows:
(Dollars in thousands)
JULY 2, JANUARY 1, JULY 3,
2005 2005 2004
---------- ---------- ----------
IDENTIFIABLE ASSETS
Carlon $ 86,499 $ 77,473 $ 84,703
Lamson Home Products 36,405 34,190 33,806
PVC Pipe 54,535 44,650 50,595
Corporate Office (includes deferred tax and
pension assets) 61,739 62,189 63,576
---------- ---------- ----------
$ 239,178 $ 218,502 $ 232,680
========== ========== ==========
6
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income for the second quarter and the first half
of 2005 and 2004 are as follows:
(Dollars in thousands)
SECOND QUARTER ENDED FIRST HALF ENDED
-------------------------- --------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income $ 5,227 $ 2,745 $ 7,431 $ 4,445
Foreign currency translation adjustments (41) 3 (52) (22)
Interest rate swaps, net of tax 59 292 148 409
----------- ----------- ----------- -----------
Comprehensive income $ 5,245 $ 3,040 $ 7,527 $ 4,832
=========== =========== =========== ===========
The components of accumulated other comprehensive income (loss), at July 2,
2005, January 1, 2005 and July 3, 2004 are as follows:
(Dollars in thousands)
JULY 2, JANUARY 1, JULY 3,
2005 2005 2004
----------- ----------- -----------
Foreign currency translation adjustments $ (423) $ (371) $ (463)
Minimum pension liability adjustments,
net of tax (4,323) (4,323) (3,289)
Interest rate swaps, net of tax (21) (169) (430)
----------- ----------- -----------
Accumulated other comprehensive income (loss) $ (4,767) $ (4,863) $ (4,182)
=========== =========== ===========
7
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:
(Dollars and shares in thousands, except per share amounts)
SECOND QUARTER ENDED FIRST HALF ENDED
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
BASIC EARNINGS-PER-SHARE COMPUTATION
Net Income $ 5,227 $ 2,745 $ 7,431 $ 4,445
========== ========== ========== ==========
Average Common Shares Outstanding 14,146 13,784 14,073 13,786
========== ========== ========== ==========
Basic Earnings Per Share $ 0.37 $ 0.20 $ 0.53 $ 0.32
========== ========== ========== ==========
DILUTED EARNINGS-PER-SHARE COMPUTATION
Net Income $ 5,227 $ 2,745 $ 7,431 $ 4,445
========== ========== ========== ==========
Basic Shares Outstanding 14,146 13,784 14,073 13,786
Stock Options Calculated Under
the Treasury Stock Method 601 315 574 242
---------- ---------- ---------- ----------
Total Shares 14,747 14,099 14,647 14,028
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.35 $ 0.19 $ 0.51 $ 0.32
========== ========== ========== ==========
NOTE F - DERIVATIVES AND HEDGING
The Company recognizes all derivative financial instruments as either assets or
liabilities at fair value. Derivative instruments that are not hedges are
adjusted to fair value through net income. 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.
During the first quarter of 2001, the Company entered into two interest rate
swap agreements for a total notional amount of $58.5 million, $16.8 million of
which is outstanding at July 2, 2005. The agreements expire in August 2005. The
swap agreements effectively fix the interest rate on its variable rate debt at
5.41% and 5.48% plus the Company's risk premium of 0.875% to 2.0%, respectively.
These transactions are considered cash flow hedges and, therefore, the fair
market value at the end of the second quarter of 2005 of $21,000 (net of $14,000
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. The entire $35,000 of pretax loss on the fair
value of the hedges is classified in current accrued liabilities.
The Company has no derivative instruments that are classified as fair value
hedges.
8
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE G - DISCONTINUED OPERATIONS
As of the end of the first quarter of 2004 the Company was informed that YSD
Industries Inc. ("YSDI"), a business which the Company sold in 1988, was selling
the assets of the business and would be unable to fund (defaulted on its
obligations) certain post-retirement medical and life insurance benefits, for
which the Company was contingently liable. The Company had recorded a net charge
($2.7 million) in 2003 reflecting the actuarial calculation of this estimated
liability for payments to certain eligible participants through February 2011
when the Company's obligation will end and to write-off notes (cash advances) to
YSDI in 2003. As a result of YSDI's asset sale in 2004, the Company was able to
realize payment of $668,000 for these notes receivable that had been previously
written off as uncollectible in 2003. The net impact of this recovery, $401,000
(net of tax), has been recorded as income from discontinued operations in the
first quarter of 2004.
NOTE H - STOCK COMPENSATION PLANS
The Company currently has three stock compensation plans. The Company accounts
for those plans under the recognition and measurement principles of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
No stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. In accordance with
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," the following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.
(Dollars in thousands, except per share data)
SECOND QUARTER ENDED FIRST HALF ENDED
------------------------ ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income As reported $ 5,227 $ 2,745 $ 7,431 $ 4,445
Total stock-based employee
compensation, net of tax (145) (119) (261) (239)
---------- ---------- ---------- ----------
Net income Pro forma $ 5,082 $ 2,626 $ 7,170 $ 4,206
========== ========== ========== ==========
Basic earnings per share As reported $ 0.37 $ 0.20 $ 0.53 $ 0.32
Pro forma 0.36 0.19 0.51 0.31
Diluted earnings per share As reported $ 0.35 $ 0.19 $ 0.51 $ 0.32
Pro forma 0.34 0.19 0.49 0.30
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision
of FASB Statement No. 123, "Accounting for Stock-Based Compensation," Statement
123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and amends FASB Statement No. 95, "Statement of Cash Flows."
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. Statement 123(R) must be adopted no later than the beginning of
fiscal year 2006. Early adoption will be permitted in periods in which financial
statements have not yet been issued. The Company will adopt Statement 123(R) on
January 1, 2006 and is still in the process of determining the impact on
operating results.
9
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE H - STOCK COMPENSATION PLANS - CONTINUED
The impact of adoption of Statement 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
Statement 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot estimate what those
amounts will be in the future (because they depend on, among other things, when
employees exercise stock options), the amount of operating cash flows recognized
in prior periods for such excess tax deductions was not material.
NOTE I - SALE OF ASSETS
At the end of 2003, the Company intended to vacate one of its manufacturing
facilities and proceed with its efforts to sell the property during 2004. The
asset had been written down in 2001 to its then estimated fair value. In the
first quarter of 2004, the Company sold the manufacturing facility located in
Pasadena, Texas for net proceeds of $1.5 million, realizing a gain on the sale
of $924,000 included as other income in the Consolidated Income Statement. The
Company relocated production equipment at this facility to other Lamson &
Sessions facilities in 2004 and incurred approximately $1.1 million in
severance, training, moving and other costs as detailed below. As of July 2,
2005 all severance payments have been made. This plant sale affected 40
employees, all of whom left the Company by December 31, 2004.
(Dollars in thousands)
TRAINING, MOVING
SEVERANCE AND OTHER COSTS TOTAL
--------- ----------------- ---------
2004 charges $ 587 $ 550 $ 1,137
Payments in 2004 (151) (550) (701)
--------- ----------------- ---------
Balance at January 1, 2005 $ 436 $ - $ 436
Payments in first quarter 2005 (312) - (312)
--------- ----------------- ---------
Balance at April 2, 2005 $ 124 $ - $ 124
Payments in second quarter 2005 (124) - (124)
--------- ----------------- ---------
Balance at July 2, 2005 $ - $ - $ -
========= ================= =========
NOTE J - PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company sponsors several qualified and non-qualified pension plans and other
post-retirement benefit plans for its current and former employees. As of
January 1, 2003 the Company eliminated the salary defined benefit pension plan
for future employees. This action makes all defined benefit pension and other
post-retirement benefit plans closed to new entrants and will reduce future
service costs.
10
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE J - PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS - CONTINUED
The components of net periodic benefit cost (income) are as follows:
(Dollars in thousands)
SECOND QUARTER ENDED FIRST HALF ENDED
-------------------------------------------- --------------------------------------------
PENSION BENEFITS OTHER BENEFITS PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------- -------------------- --------------------
2005 2004 2005 2004 2005 2004 2005 2004
-------- -------- -------- -------- -------- -------- -------- --------
Service cost $ 374 $ 298 $ (1) $ 1 $ 748 $ 596 $ 1 $ 4
Interest cost 1,212 1,219 37 130 2,424 2,438 347 451
Expected return on assets (1,563) (1,486) - - (3,126) (2,972) - -
Net amortization and deferral 478 388 (132) (165) 957 776 (232) (114)
Defined contribution plans 268 280 - - 499 565 - -
-------- -------- -------- -------- -------- -------- -------- --------
$ 769 $ 699 $ (96) $ (34) $ 1,502 $ 1,403 $ 116 $ 341
======== ======== ======== ======== ======== ======== ======== ========
The above information includes the effect of YSDI's other post-retirement
benefit costs which were assumed in April 2004 (see Note G).
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D) as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. In accordance with
FSP No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," the effects of
the subsidy resulted in a $0.6 million reduction in 2004 of the accumulated
post-retirement benefit obligation with an annual reduction in other benefit
costs of approximately $0.1 million.
NOTE K - REFINANCING
On June 29, 2005 the Company entered into a Second Amended and Restated Credit
Agreement ("Credit Facility") with a consortium of banks led by Harris N.A. The
Credit Facility is for a total of $125.0 million, $40.0 million in term debt
(payable $1,250,000 quarterly) and an $85.0 million revolver and replaces the
$110.0 million secured revolving credit facility which was due in August 2005.
The Credit Facility is a five-year secured agreement with LIBOR-based pricing
plus a spread ranging from 0.875% to 2.0%, depending on the Company's
performance. It contains various restrictive covenants pertaining to maintenance
of net worth, certain financial ratios and limitations on the payment of
dividends or distributions. The agreement requires the prepayment of 50.0% of
excess cash flow at each year-end if the Company has not achieved a leverage
ratio of less than 2.0 to 1.0. The Company currently does not anticipate having
to prepay term debt. The Company, at its own discretion, may increase the
revolver by up to $25.0 million. Total availability at July 2, 2005, under the
Credit Facility, approximates $30.0 million.
NOTE L - SHAREHOLDER RIGHTS AGREEMENT
The Company's Board of Directors approved an amendment to the Company's
shareholder rights agreement effective as of May 5, 2005. The amendment
provides that any person may own up to 20% (an increase from the previous limit
of 15%) of the Company's outstanding common stock before any "Triggering Event"
(as defined in the Company's rights agreement) will be deemed to have occurred.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the Consolidated Financial Statements.
EXECUTIVE OVERVIEW
In the second quarter 2005, the Company repeated its record net sales from the
first quarter 2005 as it saw telecom product demand grow by another 20.0% in the
current quarter as major telecom service providers continue to invest in their
infrastructure to support Fiber-to-the-Premise projects.
PVC and HDPE resin costs have stabilized in the second quarter 2005 at
historically high levels. These resin costs have, for the most part, been
reflected in higher average selling prices in the first half of 2005. High oil
and natural gas demand worldwide have helped to justify the higher resin costs
and have driven freight, mainly fuel, costs up over 15.0% from the prior year.
The Company is focused on continual improvement of its supply chain to produce
and distribute the increased sales volume, sustaining its record of meeting
customer service requirements including 98.0% order fill rates and continuing
high inventory turn rates. Several initiatives are underway to address these
challenges including improving our ability to work with customers to anticipate
more accurately their demand for our products, evaluating additional low cost,
reliable suppliers to supplement our manufacturing capabilities and performing
logistics studies to determine how best to expand and improve our distribution
capabilities.
With the rise in demand and, therefore, net sales levels in the first half of
2005, the Company has been able to leverage its fixed investments especially in
its SAP enterprise information system. Due to its continued investment in state
of the art technology, the Company continues to improve its productivity measure
of net sales per associate.
Finally, this quarter the Company was able to renew its Secured Credit Agreement
for an additional five years. As part of the Amended and Restated Agreement
availability of credit for potential growth opportunities has been expanded
while the effective interest rates have been lowered by over 100 basis points
(see Note K).
12
2005 COMPARED WITH 2004
RESULTS OF CONTINUING OPERATIONS
The following table sets forth, for the periods indicated, items from the
Consolidated Income Statements as a percentage of net sales for the second
quarter and first half of 2005 and 2004 ended:
(Dollars in thousands)
SECOND QUARTER ENDED FIRST HALF ENDED
------------------------------------------ ------------------------------------------
2005 2004 2005 2004
------------------ ------------------ ------------------ ------------------
Net Sales $ 124,010 100.0% $ 102,148 100.0% $ 222,802 100.0% $ 185,143 100.0%
Cost of products sold 100,995 81.4% 83,870 82.1% 182,810 82.1% 153,547 82.9%
--------- --------- --------- ---------
Gross profit 23,015 18.6% 18,278 17.9% 39,992 17.9% 31,596 17.1%
Total operating expenses 12,316 10.0% 11,459 11.2% 23,678 10.6% 21,581 11.7%
Other expense (income) - 0.0% 298 0.3% - 0.0% (626) -0.3%
--------- --------- --------- ---------
Operating income 10,699 8.6% 6,521 6.4% 16,314 7.3% 10,641 5.7%
Interest expense, net 2,211 1.8% 1,950 1.9% 4,213 1.9% 3,905 2.1%
--------- --------- --------- ---------
Income from continuing operations
before income taxes 8,488 6.8% 4,571 4.5% 12,101 5.4% 6,736 3.6%
Income tax provision 3,261 2.6% 1,826 1.8% 4,670 2.1% 2,692 1.4%
--------- --------- --------- ---------
Income from continuing operations $ 5,227 4.2% $ 2,745 2.7% $ 7,431 3.3% $ 4,044 2.2%
========= ========= ========= =========
Net sales for the second quarter of 2005 climbed 21.4%, or $21.9 million, to
$124.0 million compared with $102.1 million in the second quarter of 2004. The
Company experienced strong demand in all business segments led again by the
telecom infrastructure, residential construction and the home improvement
markets. Shipments of PVC Pipe also grew from the slow first quarter of 2005 as
commercial and industrial construction activity began to modestly expand.
Year-to-date 2005, net sales reached $222.8 million, an increase of $37.7
million, or 20.3% over the $185.1 million in net sales recorded in the first
half of 2004. Each business segment participated in this expansion with growth
rates of at least 16.0%.
Gross profit in the second quarter of 2005 was $23.0 million, or 18.6% of net
sales, compared with $18.3 million, or 17.9% of net sales, in the second quarter
of 2004. Price increases were realized in the current quarter which helped to
offset some of the raw material cost increases that have occurred since the
beginning of 2004. Profit margins are also benefiting from the leverage of our
distribution operations, the cost of which increased by approximately inflation
despite the higher sales growth. Freight costs are being unfavorably impacted
(15.0% increase) by higher fuel costs and equipment shortages. Finally, lower
medical costs have favorably impacted gross profit by approximately $500,000 due
to improved experience and cost control plans. For the first half of 2005, gross
profit was $40.0 million, 17.9% of net sales, an $8.4 million, or 26.6%,
increase over the $31.6 million, or 17.1% of net sales, earned during the first
half of 2004. These results benefited from the same elements as the current
quarter described above.
Operating income for the second quarter of 2005 was $10.7 million, or 8.6% of
net sales, an increase of $4.2 million or 64.1%, over the $6.5 million, or 6.4%
of net sales, earned in the second quarter of 2004. Operating expenses were
$12.3 million in the current quarter, only $0.8 million higher than the $11.5
million incurred in the prior year second quarter. The majority of these higher
expenses are from variable selling expenses ($500,000). In addition, higher
incentive compensation costs ($500,000) were partially offset by lower medical
costs for active employees ($400,000). The first half of 2005 operating expenses
at $23.7 million, or 10.6% of net sales, were $2.1 million higher than the first
half of 2004 operating expenses of $21.6 million, or 11.7% of net sales.
Consistent with the second quarter, variable selling expenses and incentive
compensation were $1.0 million and $1.2 million
13
higher in year-to-date 2005 compared with the same period in 2004, while medical
costs for active employees are approximately $500,000 less than year-to-date
compared with the prior year-to-date. In addition, the 2004 operating expenses
were favorably impacted by a $300,000 recovery of a previous bankruptcy claim.
Operating income for the first half of 2005 was $16.3 million, or 7.3% of net
sales, compared with $10.6 million, or 5.7% of net sales, for the first half of
2004. Included in the 2004 results is the impact of the sale of the Company's
Pasadena, Texas facility during the first quarter of 2004. In the prior year
second quarter, $0.3 million of expenses were incurred primarily for severance
costs which reduced the net gain on the sale, net of closure costs, to $0.6
million in the first half of 2004.
Interest expense for the second quarter and first half of 2005 was $261,000 and
$308,000 higher than the respective periods in 2004. Over two-thirds of this
increase is caused by higher amortization of deferred fees while average
borrowings are lower by about $1.2 million for the first half of 2005 compared
with the first half of 2004. Average interest rates paid were higher in 2005 at
6.10% compared with 5.62% in 2004.
The year-to-date income tax provisions are based on an annual effective tax rate
of 38.6% in 2005 compared with 40.0% in 2004.
BUSINESS SEGMENTS
CARLON
Carlon, the Company's largest business segment, had net sales of $59.0 million
in the second quarter 2005 and $106.2 million in the first half of 2005,
reflecting growth rates of 19.3%, ($9.5 million) and 21.2%, ($18.6 million) over
the $49.5 million and $87.6 million recorded in the second quarter and first
half of 2004, respectively. Approximately two-thirds of this growth ($5.7
million in the second quarter of 2005 and $12.3 million in the first half of
2005) for each period has come from expanded demand for telecom products,
primarily HDPE conduit, to support the industry's rollout of
Fiber-to-the-Premise projects. Net sales for these products grew by over 20.0%
in the second quarter 2005 and over 25.0% in the first half of 2005. Electrical
product sales also had modest growth in the second quarter 2005, while the price
increases implemented throughout the first quarter improved the second quarter
of 2005 net sales by about $1.9 million and 2005 first half net sales by
approximately $4.2 million.
Gross profit for Carlon is about $4.0 million better in the second quarter 2005
compared with the prior year second quarter due to the higher sales volume which
increased manufacturing utilization and leveraged the fixed cost nature of the
distribution operations. In addition, margins were favorably improved by the
realization of selling price increases that helped to offset material cost
increases that have been incurred over the last year and a half. Gross profit
for the first half of 2005 is $5.2 million higher than the first half of 2004,
mostly from the contribution coming from the higher net sales levels in the
current year. After incurring transitional expenses related to the transfer of
production from Pasadena, Texas and expansion costs to support increased demand
for corrugated flexible conduit ($300,000) in the first quarter of 2005, the
business segment has begun to realize savings from the Pasadena, Texas closure
and consolidation of operations of approximately $400,000, primarily in the
current quarter.
Operating income for this business segment rose 69.9%, or $3.2 million, in the
second quarter 2005 to $7.8 million, or 13.3% of net sales, compared with $4.6
million, or 9.3% of net sales, in the second quarter of 2004. The largest reason
for this higher operating income comes from the improved gross profit described
above. Carlon operating expenses were increased only by about $400,000 for
higher variable selling and marketing expenses and incentive compensation
expenses, offset partially by lower medical expenses. Carlon realized $11.5
million, or 10.8% of net sales, in operating income in the first half 2005
compared with $8.2 million, or 9.4% of net sales, in the first half of 2004.
Year-to-date operating expenses are up $1.6 million in 2005 compared with the
first two quarters of 2004. In addition to increased variable selling and
marketing and incentive compensation expenses and lower medical costs described
above, which impact the 2005 expense levels, Carlon's 2004 operating expenses
were favorably impacted by the partial recovery ($300,000) of an account
receivable that was previously written-off.
14
LAMSON HOME PRODUCTS
Net sales in the Lamson Home Products business segment grew at a rate of 27.6%,
or $5.7 million, to $26.4 million in the second quarter 2005 compared with $20.7
million in the second quarter of 2004. The primary growth in this segment comes
from across the board volume expansion with the business segment customers as
the residential construction and home improvement markets remain strong. In
addition, approximately $1.0 million of this net sales increase was the result
of price increases implemented in the first quarter 2005 in response to the
significant cost increases for PVC resin and other raw materials. Net sales for
the first half of 2005 reached $50.3 million, an increase of $9.9 million, or
24.5%, over net sales of $40.4 million in the first half of 2004. Price
increases accounted for $2.0 million of this higher net sales level, gains from
product line expansions at several customers were impacted by $1.3 million and
the remainder was due to continued market expansions from customer demand
growth.
Gross margin for Lamson Home Products in the second quarter and first half of
2005 are about 2.0 percentage points better than the second quarter and first
half of 2004. Current year price increases have stabilized the negative impact
of rising resin costs, while higher volume has increased the injection molding
plant utilization this quarter and distribution operations are being
successfully leveraged.
Operating income was $4.6 million, or 17.3% of net sales in the second quarter
of 2005, an improvement of 85.2%, or $2.1 million over the $2.5 million, or
11.9% of net sales, earned in the second quarter 2004. These results brought
operating income up to $8.1 million, or 16.1% of net sales, for the first half
of 2005 compared with $4.9 million, 12.0% of net sales in the first half of
2004. Operating expenses in both the second quarter of 2005 and year-to-date
2005 approximated the same levels of the prior year periods as higher incentive
compensation was offset by medical and other cost containment.
PVC PIPE
Net sales for the PVC Pipe segment in the second quarter 2005 rebounded from a
weather-impacted, slow first quarter to increase by $6.6 million, or 20.7%, to
$38.6 million from the $32.0 million net sales level in the second quarter of
2004. PVC Pipe pounds shipped were approximately the same as the prior year
second quarter while pricing was higher by about 16.0% in the second quarter
2005 compared with the second quarter 2004 reflecting solid end market demand
and the higher PVC cost levels in the current year. This segment also continues
to see strong demand for large diameter PVC sewer pipe with several sewer
infrastructure projects increasing this quarter's net sales by $1.6 million.
Year-to-date 2005 net sales were $66.2 million, an increase of $9.1 million, or
16.1%, over the $57.1 million in net sales in the first half of 2004. The volume
of PVC Pipe pounds shipped are down 6.5% in 2005 compared with the first half of
2004, as January and February sales were negatively impacted by widespread
inclement weather. The Company was able to recoup much of the PVC resin cost
increases of around 24.0% as average selling prices are up 22.1% during the
first half of 2005 compared with the first half of 2004. Finally, sales of large
diameter PVC sewer pipe are $1.9 million higher in year-to-date 2005 compared
with 2004 for the same period.
Gross margin for the second quarter 2005 is down by a few points from the
second quarter of 2004 despite selling prices offsetting the 16.0% increase in
resin costs compared with the second quarter 2004. The business segment was
negatively impacted by an 18.0% rise in outbound freight costs caused by higher
fuel prices and flatbed equipment shortages. In addition, utilization of the
manufacturing operations were 7.0 percentage points lower than the comparative
period of 2004, as inventory levels were brought down after weak demand early in
the year.
Operating income for the PVC Pipe segment reached $0.3 million in the second
quarter of 2005 compared with $1.0 million in the second quarter of 2004. Most
of this decline is at the gross margin line as operating expenses are
approximately the same as 2004. Operating results for the first half of 2005 and
2004 are essentially breakeven.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity and capital resources is cash
generated from operating activities and availability under its Secured Credit
Agreement.
Cash used by operating activities was $5.6 million in the first half of 2005
compared with cash provided by operating activities of $1.8 million in the first
half of 2004. In general, the Company has used more cash this year to fund the
sharp increase in net sales and related operations. At the end of the second
quarter 2005, accounts receivable were $64.4 million, a 33.0% or $16.0 million,
increase from year-end 2004 and 12.5%, or $7.2 million more than the end of
second quarter 2004. This increase is entirely due to the more than 20.0% rise
in net sales in the first half of 2005, as days sales outstanding calculated
using a 3-month rolling average, has actually declined to 46.6 days at July 2,
2005 compared with 49.3 days at July 3, 2004.
The Company continued its progress of improving inventory turns and, therefore,
limiting its exposure to resin cost fluctuations. At the end of the second
quarter 2005, inventory investment was $43.2 million, up only $2.5 million from
second quarter 2004 and higher by $6.3 million from year-end 2004. This resulted
in inventory turns improving to 8.1 times, a new quarter-end high, compared with
7.6 times at the end of second quarter 2004. Pounds of PVC resin in inventory at
July 2, 2005 were 7.0% less than at July 3, 2004, but 15.4% more than at 2004
year-end, while the average cost of PVC resin in inventory has increased 4.0%
from the end of second quarter 2004 and remains about the same as 2004 year-end.
Accounts payable at July 2, 2005 were $28.8 million, an increase of $4.6 million
since the 2004 year-end, but $6.8 million less than the second quarter 2004
ending balance of $35.5 million. The current year increase is primarily due to
higher inventory levels since 2004 year-end.
Accrued expenses have declined by a total of $1.7 million since the 2004
year-end as the Company has paid incentive compensation ($4.0 million), and the
final cash payment of $1.0 million related to a 2004 litigation settlement
during the first half of 2005. Accrued compensation and benefits balance of
$11.3 million is lower by $1.8 million at July 2, 2005 compared with $13.1
million accrued at July 3, 2004 primarily from lower anticipated pension
contributions due in the next 12 months, and lower estimated retiree and active
healthcare payments currently due, offset slightly by higher anticipated
incentive compensation from the 2005 performance.
The Company's cash used in investing activities totaled $4.2 million in the
first half of 2005 compared with $0.2 million provided by investing activities
in the same period of 2004. Capital expenditures in 2005 of $4.1 million
included investments to improve molding and extrusion productivity, tooling to
support product line extensions and selective capacity expansion for telecom
related products. In 2004, the Company received $1.5 million proceeds from the
sale of its Pasadena, Texas facility and capital expenditures were only $1.3
million.
Cash provided by financing activities totaled $10.5 million in the first half of
2005, compared with a use of $1.4 million in the first half of 2004.
Year-to-date, the Company has borrowed $8.9 million on its Credit Facility to
support the growing operational needs and to fund required capital expenditures.
As discussed in Note K, the Company has signed a new Amended and Restated Credit
Facility on June 29, 2005, which expands credit availability. The Company has
met all debt covenants at the end of the second quarter of 2005. Finally, in the
first half of 2005 the Company received $1.8 million from the issuance of
310,650 shares of stock from the exercise of stock options.
CRITICAL ACCOUNTING ESTIMATES
We have no material changes to the disclosure on this matter since the end of
our most recent fiscal year, January 1, 2005.
16
OUTLOOK FOR 2005
The second quarter of 2005 represents the fifth consecutive quarter of
year-over-year growth in net sales of telecom products to support announced
rollouts of (primarily Verizon's) Fiber-to-the-Premise projects. In addition to
Verizon, other customers have announced major anticipated investments expected
to begin later this year. Carlon is a primary supplier to these telecom
customers, as the Company is the largest supplier of HDPE conduit in North
America for this market segment. Carlon also supplies PVC Pipe to these
customers and has developed specialized applications to assist in connecting
individual premises to the operator's infrastructure system. The build-out of
these last mile access networks may be extended over a longer period of time due
to the difficulty of obtaining local rights-of-way and implementation delays
related to engineering and project execution.
Residential construction and existing home sales activity continue to support
electrical product sales, as housing starts remained at around the 2.0 million
unit level and affordable mortgage rates are sustaining healthy home sales
levels. It is still expected that residential construction will moderate in the
second half of 2005 at a healthy 1.7 to 1.8 million units.
Conversely, non-residential construction (commercial and industrial) have shown
very little growth in the first half of 2005 as the improving economy has only
begun to generate some capacity expansion needs. Based on the review of various
industry forecasts, management believes non-residential construction activity
should grow 2.0% to 3.0% for the remainder of 2005. This has the potential to
generate additional sales growth for both Carlon and PVC Pipe segments.
Despite higher oil and gas prices this past quarter, PVC and HDPE resin cost
increases have moderated in the second quarter of 2005. The primary reason for
the stabilizing of these costs, albeit at high historical levels, is the decline
in export demand primarily driven by China. Resin producers maintained operating
rates this quarter at over 90.0% of capacity. There are mixed forecasts of resin
cost expectations in the third and fourth quarters with several producers
announcing small PVC resin price increases and relatively high ($0.5 to $0.10
cents) increases in HDPE costs. Other indexes show PVC resin staying flat to
down a couple of cents per pound. The Company's strategy to manage these
unpredictable resin fluctuations is to lower the resin pounds kept in inventory
to a little more that a month's demand, thereby matching more closely selling
prices and resin costs.
As mentioned earlier, the Company has worked through, in the first half of this
year, much of the transition issues related to the closure and realization of
its Pasadena, Texas operations and expects to realize about $0.6 million to $0.8
million in savings over the remainder of 2005.
After using $5.6 million in cash flow to support the growing net sales and
operations during the first half of 2005, the Company is poised to generate
substantial positive cash flow in the second half of 2005. Inventory turns ended
the second quarter at record levels. It is management's challenge to maintain
these levels and continue the excellent fill rate history expected by our
customers as demand increases. Capital spending is expected to be in the range
of $7.0 million to $9.0 million for 2005, focused on molding and extrusion
productivity improvements, telecom product capacity increases and new products.
With the implementation of the new Credit Facility and the improving Company
performance, management expects to lower its effective interest rate paid on
debt by at least 100 basis points. Additionally, with the expiration of the
prior debt agreement, substantial deferred financing fee amortization will be
lower by about $1.0 million annually.
In summary, based on the current strength in demand and operating results in the
first half of 2005 and expected sustainability of this activity through the
second half of 2005, the Company is anticipating net sales for the third quarter
between $118.0 million to $121.0 million, 12.0% to 15.0%, over the third quarter
of 2004, which is expected to generate $5.2 million to $5.7 million, or $0.35 to
$0.38 cents per diluted share. For the full year 2005, we expect net sales will
be between $430.0 million and $440.0 million, an increase of 11.0% to 14.0% over
2004 levels. If the Company's end market demand remains strong and these net
sales levels are achieved, current
17
operating margins are maintained and, given the favorable impact of the new
Credit Facility, the Company projects net income to be $15.0 million to $15.75
million, or $1.00 to $1.05 per diluted share in 2005, up from its previous
estimate of $0.80 to $0.90 cents. This new estimated earnings level represents
an increase of 130.0% to 140.0% over the $6.5 million, or $0.46 cents per
diluted share reported in 2004.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain 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, (iv) maintaining a consistent level of power availability
for the Company's plants and distribution facilities (v) the continued
availability and reasonable terms of bank financing and (vi) any adverse change
in the trend of the country's general economic condition affecting the markets
for the Company's products. Because forward-looking statements are based on a
number of beliefs, estimates and assumptions by management that could ultimately
prove to be inaccurate, there is no assurance that any forward-looking statement
will prove to be accurate.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material changes to the disclosure on this matter since the end of
our most recent fiscal year, January 1, 2005.
ITEM 4 - CONTROLS AND PROCEDURES
As of July 2, 2005, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
Chief Financial Officer, concluded that the Company's disclosure controls and
procedures were effective. During the Company's second quarter 2005, there have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to their
evaluation.
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 effect on the Company's
financial position, cash flows or results of operations.
18
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29, 2005, the Company held its Annual Meeting of Shareholders. At P.E.
the meeting 13,354,650 Common Shares (94.98%) of the Common Shares outstanding
were voted.
The following three directors were elected to Class III and received the votes
indicated next to their names.
CLASS III FOR WITHHELD AUTHORITY
--------- ---------- ------------------
James J. Abel 12,948,197 406,453
A. Malachi Mixon, III 12,890,210 464,440
John B. Schulze 12,877,015 477,635
ITEM 6 - EXHIBITS
(a) Exhibits:
10(a) Second Amended and Restated Credit Agreement, dated June 29,
2005, by and among the Company, the Company's subsidiaries, the
lenders party thereto, National City Bank and JPMorgan Chase Bank,
N.A., as co-syndication agents, LaSalle Bank National Association,
as documentation agent and Harris N.A., as administrative agent
(incorporated by reference to Exhibit 10(a) to the Company's Form
8-K, filed July 5, 2005).
31.1 Certification of John B. Schulze, Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of James J. Abel, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of John B. Schulze, Chief Executive Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of James J. Abel, Chief Financial Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19
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)
July 27, 2005 By: /s/ James J. Abel
------------------------------------------
James J. Abel
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
20