EX-99.1 2 l22803aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1
FOR IMMEDIATE RELEASE
LAMSON & SESSIONS REPORTS STRONG GROWTH IN THIRD QUARTER
  •   Net Sales Rose 15.8 Percent to a Record $148.2 Million in the Third Quarter of 2006
 
  •   Diluted Earnings Per Share More than Doubled to a Record 74 Cents in the Third Quarter of 2006 Versus 35 Cents in the Third Quarter of 2005
 
  •   Debt Was Reduced by $16 Million in Third Quarter Due to Strong Operating Cash Flow
 
  •   Company Estimates Fourth Quarter and Full Year 2006 Earnings of 32-35 Cents Per Share and $2.50-2.53 Per Share, Respectively
     CLEVELAND, Ohio, October 26, 2006 — Lamson & Sessions (NYSE:LMS) today announced that the Company’s net sales rose to $148.2 million, a 15.8 percent increase over the $128.1 million reported in the third quarter of 2005. All three of the Company’s business segments realized double-digit net sales growth in the quarter as sales order activity in the commercial and utility construction markets offset moderation in the residential and telecom construction markets.
     As a result of the strong sales performance, the Company’s net income rose to a record $11.9 million, or 74 cents per diluted share in the third quarter of 2006, which is more than double the $5.4 million, or 35 cents per diluted share reported in the third quarter of 2005.
     “Strong demand in the commercial and utility construction markets allowed our PVC Pipe extrusion plants to run at high capacity utilization rates,” said John B. Schulze, Chairman, President and Chief Executive Officer. “We anticipate that these end markets will continue to display relatively strong activity in the fourth quarter, despite seasonal factors.”
     Gross profit in the third quarter of 2006 was $32.8 million, or 22.1 percent of net sales, as the Company benefited from higher capacity utilization and reduced material scrap and quality issues. In the third quarter of 2005, the Company reported gross profit of $22.9 million, or 17.9 percent of net sales.
     Operating expenses were virtually unchanged from the prior year quarter, but declined to 8.4 percent of net sales in the third quarter of 2006, compared with 9.8 percent a year earlier, due to the rise in net sales. Higher variable selling expenses were offset by lower retiree medical costs.

 

 

     Interest expense was reduced to $1.1 million in the third quarter of 2006 from $1.4 million in the third quarter of 2005, reflecting a combination of lower debt outstanding and smaller interest rate spreads in the Company’s secured credit facility.
     For the first nine months of 2006, the Company’s net sales rose to a record $446.0 million, or 27.1 percent higher than the $350.9 million reported in the first nine months of 2005. All three business segments experienced growth as a result of continuing stable demand patterns in most of the Company’s key markets.
Business Segments
     The Carlon business segment reported net sales of $65.8 million in the third quarter of 2006, an increase of 11.9 percent over the $58.8 million reported in the third quarter of 2005, primarily due to the continued expansion of the commercial and industrial construction markets. For the first nine months of 2006, net sales grew 25.5 percent to $207.2 million compared with $165.0 million in net sales reported for the similar period in 2005. Operating income for Carlon totaled $10.6 million, or 16.1 percent of net sales in the third quarter of 2006. This represents a 21.4 percent improvement over the $8.7 million in operating income reported in the third quarter of 2005. For the year-to-date 2006, Carlon earned $32.1 million, or 15.5 percent of sales, which is an improvement of $11.9 million, or 59.0 percent over the $20.2 million reported in the third quarter of 2005.
     The Lamson Home Products business segment reported net sales of $31.7 million in the third quarter of 2006, which is an 11.8 percent increase over the $28.3 million reported in the third quarter of 2005. Virtually all of the net sales increase resulted from price increases as this segment experienced moderate demand in the third quarter due to lower housing starts and lower sales of existing homes. This trend will likely continue for several more quarters as these market conditions are expected to persist. For the first nine months of 2006, net sales rose to $85.5 million, or 8.7 percent higher than the $78.7 million reported in the similar period in 2005. Operating income increased to $5.2 million in the third quarter of 2006, an increase of 20.9 percent over the $4.3 million reported in last year’s third quarter. For the year-to-date 2006, Lamson Home Products’ operating income was $11.8 million compared with $12.4 million in the similar period in 2005. The 2006 performance reflects higher marketing expense investments, which are intended to improve product mix and market share in future periods.
     The PVC Pipe business segment reported net sales of $50.7 million in the third quarter of 2006, an increase of 24.0 percent over the $40.9 million in net sales reported in the third quarter of 2005. For the year-to-date 2006, net sales grew significantly to $153.2 million, an increase of 43.0 percent over the $107.2 million in net sales reported for the first three quarters of 2005. Operating income for the third quarter of 2006 totaled $5.8 million and compares favorably with an operating loss of $0.9 million reported in the third quarter of 2005. For the year-to-date in 2006, operating income for this segment totaled $24.3 million versus an operating loss of $0.5 million in the similar period in 2005.

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Financial Highlights
     Accounts receivable totaled $80.9 million at September 30, 2006, which is 15.9 percent higher than the $69.8 million at October 1, 2005, reflecting the higher net sales level. The days sales outstanding rose to 51.7 days, reflecting some temporary inefficiencies in the collection process, as certain customers are converting to new systems and some final contract payments have not yet been released.
     Inventories rose to $55.8 million, or 7.4 turns, to support customer product reset rollouts, which were delayed and holiday season product sales anticipated in the fourth quarter of 2006. Raw material costs were stable throughout the third quarter of 2006.
     Operating cash flow totaled $22.5 million in the first nine months of 2006. The Company’s continuing ability to generate cash resulted in debt reduction of approximately $20 million in the first nine months and a reduction of $16 million during the third quarter of 2006.
Outlook
     During the third quarter of 2006, the Company’s key end markets of commercial and utility construction continued to display positive demand trends. The telecom infrastructure market demand was essentially flat overall. Consistent with the past two year’s third quarter order activity, Verizon conducted a reassessment of its inventory levels and construction budgets reducing demand for the Company’s products in the third quarter. Order rates should begin to return to a more normal activity level in the fourth quarter of 2006. Verizon also announced a recommitment to its fiber-optic installation program to pass 3.0 million homes annually through 2010, which should contribute positively to the demand for the Company’s telecom products. The residential construction market has moderated with housing starts declining to the 1.7 million annual unit level. While monthly fluctuations will still likely occur, the Company anticipates that the market will stabilize near this level through 2007 before recovering.
     The Company expects a reduction in PVC Pipe selling prices and margins in line with industry forecasts, which is a normal seasonal occurrence in the fourth quarter of the year. This will result in lower shipments and capacity utilization during the fourth quarter of 2006 and early first quarter of 2007.
     Despite these moderating market conditions, the Company anticipates the second strongest operating performance in the fourth quarter in its history with net sales of $115 million to $120 million and net income of $5.2 million to $5.6 million, or 32 to 35 cents per diluted share.
     For the full year 2006, the Company anticipates net sales of $560 million to $565 million, which is a record level and a 13 to 14 percent increase over the $494 million reported in 2005. If this net sales level is achieved, the Company anticipates that net income will also reach a record level of $40.3 million to $40.7 million, or $2.50 to $2.53 per diluted share.
     This strong earnings performance should result in operating cash flow of nearly $50 million, which will substantially reduce the Company’s remaining bank debt and positions the Company to pursue growth opportunities and other shareholder value enhancements.

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Conference Call
     A live Internet broadcast of the Company’s conference call regarding its third quarter 2006 financial performance can be accessed via the investor relations page on the Company’s Web site (www.lamson-sessions.com) at 2:00 p.m. Eastern Time on Thursday, October 26, 2006.
     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.
     This press release contains 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) the continued availability of raw materials and consistent electrical power supplies, (iv) maintaining a stable level of housing starts, telecommunications infrastructure spending, consumer confidence and general construction trends, (v) any adverse change in the country’s general economic condition affecting the markets for the Company’s products and (vi) the ability of the Company to identify and complete acquisitions that would complement its business, including the possibility of needing additional debt and equity financing to complete such acquisitions. 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.
FOR FURTHER INFORMATION, PLEASE CONTACT:

James J. Abel
Executive Vice President and
Chief Financial Officer
Lamson & Sessions
(216) 766-6557

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THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
                                                                 
    Third Quarter Ended     Nine Months Ended  
    2006             2005             2006             2005          
 
                                                                
NET SALES
   $ 148,239       100.0 %   $ 128,052       100.0 %   $ 445,953       100.0 %   $ 350,854       100.0 %
 
                                                                
COST OF PRODUCTS SOLD
     115,453       77.9 %     105,144       82.1 %     342,112       76.7 %     287,954       82.1 %
 
                                                        
 
                                                                
GROSS PROFIT
     32,786       22.1 %     22,908       17.9 %     103,841       23.3 %     62,900       17.9 %
 
                                                                
SELLING AND MARKETING EXPENSES
     8,061       5.4 %     7,825       6.1 %     26,374       5.9 %     22,428       6.4 %
 
                                                                
GENERAL AND ADMINISTRATIVE EXPENSES
     4,000       2.7 %     4,269       3.3 %     16,100       3.6 %     12,406       3.5 %
 
                                                                
RESEARCH AND DEVELOPMENT
     435       0.3 %     467       0.4 %     1,582       0.4 %     1,405       0.4 %
 
                                                        
 
                                                                
OPERATING EXPENSES
     12,496       8.4 %     12,561       9.8 %     44,056       9.9 %     36,239       10.3 %
 
                                                        
 
                                                                
OPERATING INCOME
     20,290       13.7 %     10,347       8.1 %     59,785       13.4 %     26,661       7.6 %
 
                                                                
INTEREST
     1,087       0.7 %     1,419       1.1 %     3,335       0.7 %     5,632       1.6 %
 
                                                        
 
                                                                
INCOME BEFORE INCOME TAXES
     19,203       13.0 %     8,928       7.0 %     56,450       12.7 %     21,029       6.0 %
 
                                                                
INCOME TAX PROVISION
     7,264       4.9 %     3,575       2.8 %     21,302       4.8 %     8,245       2.4 %
 
                                                        
 
                                                                
NET INCOME
   $ 11,939       8.1 %   $ 5,353       4.2 %   $ 35,148       7.9 %   $ 12,784       3.6 %
 
                                                        
 
                                                                
BASIC EARNINGS PER SHARE
   $ 0.76             $ 0.37             $ 2.27             $ 0.90          
 
                                                        
 
                                                                
AVERAGE SHARES OUTSTANDING
     15,649               14,364               15,495               14,170          
 
                                                        
 
                                                                
DILUTED EARNINGS PER SHARE
   $ 0.74             $ 0.35             $ 2.18             $ 0.86          
 
                                                        
 
                                                                
DILUTED AVERAGE SHARES OUTSTANDING
     16,186               15,225               16,098               14,846          
 
                                                        

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THE LAMSON & SESSIONS CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
                         
    Quarter Ended     Year Ended     Quarter Ended  
    September 30, 2006     December 31, 2005     October 1, 2005  
 
                        
ACCOUNTS RECEIVABLE, NET
   $ 80,945     $ 68,507     $ 69,812  
 
                        
INVENTORIES, NET
     55,840       43,987       39,918  
 
                        
OTHER CURRENT ASSETS
     14,188       16,703       14,523  
 
                        
PROPERTY, PLANT AND EQUIPMENT, NET
     51,608       48,833       47,330  
 
                        
GOODWILL
     21,441       21,441       21,480  
 
                        
PENSION ASSETS
     35,146       34,369       31,053  
 
                        
OTHER ASSETS
     6,076       6,167       14,685  
 
                  
 
                        
TOTAL ASSETS
   $ 265,244     $ 240,007     $ 238,801  
 
                  
 
                        
ACCOUNTS PAYABLE
   $ 33,607     $ 30,943     $ 34,732  
 
                        
OTHER CURRENT LIABILITIES
     39,283       41,035       38,825  
 
                        
LONG-TERM DEBT
     35,218       55,026       72,390  
 
                        
OTHER LONG-TERM LIABILITIES
     20,589       22,704       29,226  
 
                        
SHAREHOLDERS’ EQUITY
     136,547       90,299       63,628  
 
                  
 
                        
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
   $ 265,244     $ 240,007     $ 238,801  
 
                  

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THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
                 
    Nine Months Ended  
    2006     2005  
OPERATING ACTIVITIES
                
NET INCOME
   $ 35,148     $ 12,784  
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
                
DEPRECIATION
     6,719       6,732  
AMORTIZATION
     142       1,182  
STOCK-BASED COMPENSATION
     2,145       -  
DEFERRED INCOME TAXES
     7,677       5,016  
CHANGES IN OPERATING ASSETS AND LIABILITIES
                
ACCOUNTS RECEIVABLE
     (12,438 )     (21,421 )
INVENTORIES
     (11,853 )     (3,058 )
PREPAID EXPENSES AND OTHER
     (1,492 )     499  
ACCOUNTS PAYABLE
     2,664       10,519  
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
     (3,330 )     958  
TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS
     —       1,598  
PENSION PLAN CONTRIBUTIONS
     (1,804 )     (1,361 )
OTHER LONG-TERM ITEMS
     (1,057 )     (109 )
 
            
CASH PROVIDED BY OPERATING ACTIVITIES
     22,521       13,339  
 
                
INVESTING ACTIVITIES
                
NET ADDITIONS TO PROPERTY, PLANT, AND EQUIPMENT
     (9,494 )     (6,101 )
ACQUISITIONS AND RELATED ITEMS
     —       (187 )
 
            
CASH USED IN INVESTING ACTIVITIES
     (9,494 )     (6,288 )
 
                
FINANCING ACTIVITIES
                
NET PAYMENTS UNDER SECURED CREDIT AGREEMENT
     (15,150 )     (8,750 )
PAYMENTS ON OTHER LONG-TERM BORROWINGS
     (4,658 )     (836 )
PURCHASE AND RETIREMENT OF TREASURY STOCK
     (421 )     -  
EXERCISE OF STOCK OPTIONS
     3,529       3,575  
TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS
     5,753       -  
 
            
CASH USED IN FINANCING ACTIVITIES
     (10,947 )     (6,011 )
 
            
 
                
INCREASE IN CASH AND CASH EQUIVALENTS
     2,080       1,040  
 
                
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
     1,210       683  
 
            
 
                
CASH AND CASH EQUIVALENTS AT END OF PERIOD
   $ 3,290     $ 1,723  
 
            

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THE LAMSON & SESSIONS CO.
BUSINESS SEGMENTS
(In thousands)
                                 
    Third Quarter Ended     Nine Months Ended  
    2006     2005     2006     2005  
NET SALES
                                
CARLON
   $ 65,833     $ 58,836     $ 207,184     $ 165,043  
LAMSON HOME PRODUCTS
     31,658       28,305       85,530       78,651  
PVC PIPE
     50,748       40,911       153,239       107,160  
 
                        
 
   $ 148,239     $ 128,052     $ 445,953     $ 350,854  
 
                        
 
                                
OPERATING INCOME (LOSS)
                                
CARLON
   $ 10,573     $ 8,712     $ 32,056     $ 20,165  
LAMSON HOME PRODUCTS
     5,155       4,332       11,823       12,445  
PVC PIPE
     5,809       (892 )     24,325       (530 )
CORPORATE OFFICE
     (1,247 )     (1,805 )     (8,419 )     (5,419 )
 
                        
 
   $ 20,290     $ 10,347     $ 59,785     $ 26,661  
 
                        
 
                                
DEPRECIATION AND AMORTIZATION
                                
CARLON
   $ 856     $ 1,206     $ 2,555     $ 3,704  
LAMSON HOME PRODUCTS
     454       474       1,312       1,390  
PVC PIPE
     1,060       943       2,994       2,820  
 
                        
 
   $ 2,370     $ 2,623     $ 6,861     $ 7,914  
 
                        
TOTAL ASSETS BY BUSINESS SEGMENT AT SEPTEMBER 30, 2006, DECEMBER 31, 2005, AND OCTOBER 1, 2005
                         
    September 30, 2006     December 31, 2005     October 1, 2005  
IDENTIFIABLE ASSETS
                        
CARLON
   $ 94,119     $ 86,858     $ 87,290  
LAMSON HOME PRODUCTS
     50,133       38,286       38,966  
PVC PIPE
     65,800       57,985       52,721  
CORPORATE OFFICE (INCLUDES CASH, DEFERRED TAX, AND PENSION ASSETS)
     55,192       56,878       59,824  
 
                  
 
   $ 265,244     $ 240,007     $ 238,801  
 
                  

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