EX-99.1 2 l27161aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1
FOR IMMEDIATE RELEASE
LAMSON & SESSIONS REPORTS SECOND QUARTER 2007 EARNINGS IN LINE WITH EXPECTATIONS
 
  •   Company Expects Earnings of 52-62 Cents Per Diluted Share for the Third Quarter and $1.70-1.90 for Full Year 2007
 
  •   Lamson Home Products Strong Performance Continues Due to Increased Demand for Remodeling and Market Share Gains
     CLEVELAND, Ohio, July 27, 2007 — Lamson & Sessions (NYSE:LMS) announced today that net sales for the second quarter of 2007 were $138.1 million, compared with a record $162.3 million in the second quarter of 2006. Net income for the quarter was $9.3 million, or 57 cents per diluted share, compared with $14.0 million, or 87 cents per diluted share, in the prior year quarter, and in line with the Company's prior estimate of 55 to 65 cents per diluted share for the second quarter of 2007.
     “These results represent the second-best second quarter in our Company’s history, despite the impact of declines in polyvinyl chloride (PVC) and high density polyethylene (HDPE) resin prices and a slowdown in the residential construction market,” said Michael J. Merriman, Jr., President and Chief Executive Officer. “It is important to remember that our results in the first half of 2006 were affected by historically high selling prices in the aftermath of the tragic hurricane season at the end of 2005, as well as a more robust housing market. The cost of PVC and HDPE resins have fallen significantly since the very high levels in the first half of 2006. Meanwhile, net sales for our Lamson Home Products business segment have increased due to increased demand for remodeling, market share gains and the replenishment of customers’ inventory.”
     Gross profit in the second quarter of 2007 was $30.0 million, or 21.7 percent of net sales, compared with $40.0 million, or 24.7 percent of net sales, in the second quarter of 2006. This decline was principally due to soft markets in the Company’s Carlon and PVC Pipe business segments. Operating income for the second quarter was $15.5 million, or 11.2 percent of net sales, compared with $23.6 million, or 14.5 percent of net sales, in the second quarter of 2006.
     Operating expenses declined to $14.5 million in the current quarter, compared with $16.5 million in the prior year quarter, due primarily to a decrease in variable selling and marketing expenses and lower incentive compensation costs.
     For the first six months of 2007, net sales were $254.1 million, compared with $297.7 million in the first half of 2006. Net income was $13.8 million in the first half of 2007, or 85 cents per diluted share, compared with $23.2 million, or $1.45 per diluted share, for the prior year period.

 

 

     Gross profit for the six month period was $51.8 million, or 20.4 percent of net sales, compared with $71.1 million, or 23.9 percent of net sales, for the first half of 2006. Operating income for the first half of 2007 was $23.3 million, or 9.2 percent of net sales, compared with $39.5 million, or 13.3 percent of net sales, for the first half of 2006. Operating expenses declined to $28.5 million for the first six months of 2007, compared with $31.6 million a year earlier.
Business Segment Performance
     Net sales for the Company’s Carlon business segment were $65.0 million in the second quarter, compared with $77.3 million in the prior year period. The decrease reflects lower HDPE conduit selling prices, a downturn in residential construction activity, and reduced shipments of telecom and utility infrastructure products as projects are being spread out more evenly throughout this year than in 2006, when they were concentrated in the first half. Operating income for the quarter was $10.0 million, compared with $13.8 million a year earlier. For the first six months of 2007, Carlon’s net sales were $120.2 million, compared with $141.4 million in the first half of 2006. Operating income was $16.8 million in the first half of 2007, compared with $21.5 million a year ago.
     The Lamson Home Products business segment recorded net sales of $36.4 million in the second quarter of 2007, up from $26.9 million in the year earlier period. Approximately 25 percent of the net sales growth was due to increased demand for remodeling products, with the balance of the increase resulting from market share growth at several major retail customers and the replenishment of customers’ inventories that had been depleted in 2006. Gross profit and product margins improved primarily due to a more profitable product mix and slightly lower compound costs. In addition, the segment was able to leverage fixed support costs because of the substantial increase in net sales. Operating income for the quarter was $8.6 million, compared with $4.1 million a year ago. For the first half of 2007, net sales were $67.4 million for the segment, compared with $53.9 million in the first half of 2006. Operating income for the six month period was $15.1 million, compared with $6.7 million in the first half of 2006.
     Net sales for the PVC Pipe segment were $36.7 million, compared with $58.1 million in the second quarter 2006. As the Company had previously anticipated, lower resin costs have resulted in substantially lower selling prices for this segment in 2007. Although prices in the second quarter increased by 8 percent from the first quarter of 2007, they were still almost 29 percent less than a year ago, and prices in the first half of 2007 averaged 37 percent lower than in the first half of 2006. Operating loss for the PVC Pipe segment was $0.4 million for the second quarter, compared with the record operating income of $9.6 million in the second quarter of 2006. For the first six months of 2007, net sales were $66.6 million, compared with $102.5 million in the first half of 2006. Operating loss for the segment was $3.4 million for the first half, compared with the record operating income of $18.5 million in the first half of 2006. Due to the Company’s investment in improved extrusion equipment, the

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segment’s manufacturing variances, including scrap, were $0.6 million less in the second quarter compared with a year earlier, and $2.0 million less in the first half of 2007 compared with the first half of 2006.
Other Financial Highlights
     Interest expense was $0.7 million for the second quarter and $1.2 million for the first six months of 2007 — approximately half what was incurred in the comparable periods of 2006 — due to lower average borrowings and lower average interest rates during the first half of 2007.
     Cash provided by operating activities was $1.2 million in the first half of 2007, compared with $5.8 million in the first half of 2006. At the end of the second quarter, accounts receivable were $76.2 million, a $21.1 million increase from year-end 2006, but $12.5 million less than a year ago, due to the lower net sales levels. Days sales outstanding increased only slightly to 49.7 days at June 30, 2007, compared with 48.0 days at July 1, 2006. Inventory turns were 6.9 times at the end of the second quarter, compared with 8.1 times at the end of the 2006 second quarter, reflecting the increase in pounds of PVC resin in inventory, as well as higher inventory levels to support the market share gains with retail customers.
Outlook
     The Company expects continued non-residential construction activity to support increased demand for its electrical products which are used in commercial facilities and industrial capacity expansion. Telecom infrastructure product demand is expected to continue at similar rates as the first half of 2007 to support Fiber-to-the-Premise and other infrastructure projects.
     We generally agree with the consensus of economic forecasts anticipating that new housing starts will remain at a lower activity level, of approximately 1.4 to 1.5 million units, throughout 2007, an average decline of around 15 percent. This will affect the sales levels of some of the Company’s products mainly sold through the Carlon and Lamson Home Products business segments. However, many of these products that service the residential construction market are also used for remodeling of existing homes, which is generally counter-cyclical to new home construction. This is expected to mitigate some of the residential market softness.

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     Higher feedstock costs have resulted in PVC resin cost increases throughout the second quarter of 2007. The Company continues to pass through a portion of the cost increases with selling price increases in the PVC Pipe business. Overall, the Company still expects PVC pipe resin costs to be about 15 percent lower in 2007 compared with 2006 which, in turn, generally leads to lower PVC conduit prices and margins. Although the loss was reduced for the PVC Pipe business in the second quarter of 2007 compared with the first quarter of 2007, based on current market conditions, the Company does not anticipate a significant turnaround in this segment in the second half of 2007.
     Based on these expectations for its key markets, the Company anticipates net sales of between $130 million and $140 million for the third quarter, which represents a decline of 4 to 11 percent from last year’s third quarter. Net income for the third quarter is expected to be in the range of $8.5 million to $10.0 million, or 52 to 62 cents per diluted share. For the full year, net sales are expected to range from $500 million to $530 million, a decline of 6 to 11 percent from a year ago, reflecting the lower PVC pipe and HDPE conduit selling prices and the effect of the softer residential construction market. If this net sales level is achieved, the Company projects net income of $27.5 million to $31.0 million for the full year, or $1.70 to $1.90 per diluted share in 2007.
Conference Call
     A live Internet broadcast of the Company’s conference call regarding its second quarter 2007 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 Friday, July 27, 2007.
     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, (vi) the impact, outcome and effects of the Company’s exploration of strategic alternatives and (vii) the ability of the Company to identify and complete a strategic transaction. Because forward-looking statements are based on a number of beliefs, estimates and

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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)
                                                                 
    Second Quarter Ended     First Half Ended  
    2007             2006             2007             2006          
 
NET SALES
   $ 138,112       100.0 %   $ 162,313       100.0 %   $ 254,119       100.0 %   $ 297,714       100.0 %
COST OF PRODUCTS SOLD
     108,128       78.3 %     122,241       75.3 %     202,306       79.6 %     226,659       76.1 %
 
                                                        
GROSS PROFIT
     29,984       21.7 %     40,072       24.7 %     51,813       20.4 %     71,055       23.9 %
SELLING AND MARKETING EXPENSES
     8,762       6.3 %     9,564       6.0 %     17,191       6.8 %     18,311       6.1 %
GENERAL AND ADMINISTRATIVE EXPENSES
     5,217       3.8 %     6,396       3.9 %     10,216       4.0 %     12,101       4.1 %
RESEARCH AND DEVELOPMENT
     529       0.4 %     562       0.3 %     1,060       0.4 %     1,148       0.4 %
 
                                                        
OPERATING EXPENSES
     14,508       10.5 %     16,522       10.2 %     28,467       11.2 %     31,560       10.6 %
 
                                                        
OPERATING INCOME
     15,476       11.2 %     23,550       14.5 %     23,346       9.2 %     39,495       13.3 %
INTEREST
     670       0.5 %     1,131       0.7 %     1,237       0.5 %     2,248       0.8 %
 
                                                        
INCOME BEFORE INCOME TAXES
     14,806       10.7 %     22,419       13.8 %     22,109       8.7 %     37,247       12.5 %
INCOME TAX PROVISION
     5,555       4.0 %     8,430       5.2 %     8,306       3.3 %     14,038       4.7 %
 
                                                        
NET INCOME
   $ 9,251       6.7 %   $ 13,989       8.6 %   $ 13,803       5.4 %   $ 23,209       7.8 %
 
                                                        
 
BASIC EARNINGS PER SHARE
   $ 0.59             $ 0.90             $ 0.88             $ 1.51          
 
                                                        
AVERAGE SHARES OUTSTANDING
     15,734               15,519               15,729               15,419          
 
                                                        
 
DILUTED EARNINGS PER SHARE
   $ 0.57             $ 0.87             $ 0.85             $ 1.45          
 
                                                        
DILUTED AVERAGE SHARES OUTSTANDING
     16,253               16,106               16,247               16,054          
 
                                                        

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THE LAMSON & SESSIONS CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
                         
    Quarter Ended     Year Ended     Quarter Ended  
    June 30, 2007     December 30, 2006     July 1, 2006  
 
                        
ACCOUNTS RECEIVABLE, NET
   $ 76,246     $ 55,111     $ 88,712  
INVENTORIES, NET
     56,683       48,491       53,586  
OTHER CURRENT ASSETS
     13,017       14,723       14,088  
PROPERTY, PLANT AND EQUIPMENT, NET
     52,513       53,576       51,767  
GOODWILL
     21,402       21,402       21,441  
PENSION ASSETS
     14,091       13,605       34,921  
OTHER ASSETS
     8,429       8,702       6,348  
 
                  
 
                        
TOTAL ASSETS
   $ 242,381     $ 215,610     $ 270,863  
 
                  
 
                        
ACCOUNTS PAYABLE
   $ 32,127     $ 19,885     $ 36,359  
OTHER CURRENT LIABILITIES
     42,263       42,861       39,694  
LONG-TERM DEBT
     6,870       7,131       50,816  
OTHER LONG-TERM LIABILITIES
     17,464       17,481       22,293  
SHAREHOLDERS’ EQUITY
     143,657       128,252       121,701  
 
                  
 
                        
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
   $ 242,381     $ 215,610     $ 270,863  
 
                  

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THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
                 
    First Half Ended  
    2007     2006  
 
                
OPERATING ACTIVITIES
                
NET INCOME
   $ 13,803     $ 23,209  
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
                
DEPRECIATION AND AMORTIZATION
     4,620       4,491  
STOCK-BASED COMPENSATION
     1,386       1,816  
DEFERRED INCOME TAXES
     1,813       5,103  
CHANGES IN OPERATING ASSETS AND LIABILITIES
                
ACCOUNTS RECEIVABLE
     (21,135 )     (20,205 )
INVENTORIES
     (8,192 )     (9,599 )
PREPAID EXPENSES AND OTHER
     (1,126 )     (446 )
ACCOUNTS PAYABLE
     12,242       5,416  
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
     (1,873 )     (3,179 )
PENSION PLAN CONTRIBUTIONS
     (155 )     (650 )
OTHER LONG-TERM ITEMS
     (147 )     (206 )
 
            
CASH PROVIDED BY OPERATING ACTIVITIES
     1,236       5,750  
 
                
INVESTING ACTIVITIES
                
NET ADDITIONS TO PROPERTY, PLANT, AND EQUIPMENT
     (3,666 )     (7,319 )
 
            
CASH USED IN INVESTING ACTIVITIES
     (3,666 )     (7,319 )
 
                
FINANCING ACTIVITIES
                
NET BORROWINGS (PAYMENTS) UNDER SECURED CREDIT AGREEMENT
     1,400       (4,000 )
PAYMENTS ON OTHER LONG-TERM BORROWINGS
     (170 )     (210 )
PURCHASE AND RETIREMENT OF TREASURY STOCK
     (459 )     (421 )
EXERCISE OF STOCK OPTIONS
     314       2,376  
TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS
     326       4,276  
 
            
CASH PROVIDED BY FINANCING ACTIVITIES
     1,411       2,021  
 
            
 
                
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
     (1,019 )     452  
 
                
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
     3,324       1,210  
 
            
CASH AND CASH EQUIVALENTS AT END OF YEAR
   $ 2,305     $ 1,662  
 
            

 

THE LAMSON & SESSIONS CO.
BUSINESS SEGMENTS
(In thousands)
                                 
    Second Quarter Ended     First Half Ended  
    2007     2006     2007     2006  
NET SALES
                                
CARLON
   $ 64,955     $ 77,295     $ 120,168     $ 141,351  
LAMSON HOME PRODUCTS
     36,425       26,893       67,365       53,872  
PVC PIPE
     36,732       58,125       66,586       102,491  
 
                        
 
   $ 138,112     $ 162,313     $ 254,119     $ 297,714  
 
                        
 
                                
OPERATING INCOME (LOSS)
                                
CARLON
   $ 9,994     $ 13,793     $ 16,831     $ 21,483  
LAMSON HOME PRODUCTS
     8,607       4,100       15,132       6,668  
PVC PIPE
     (363 )     9,564       (3,353 )     18,516  
CORPORATE OFFICE
     (2,762 )     (3,907 )     (5,264 )     (7,172 )
 
                        
 
   $ 15,476     $ 23,550     $ 23,346     $ 39,495  
 
                        
 
                                
DEPRECIATION AND AMORTIZATION
                                
CARLON
   $ 796     $ 852     $ 1,601     $ 1,699  
LAMSON HOME PRODUCTS
     485       430       955       858  
PVC PIPE
     1,019       964       2,064       1,934  
 
                        
 
   $ 2,300     $ 2,246     $ 4,620     $ 4,491  
 
                        
TOTAL ASSETS BY BUSINESS SEGMENT AT JUNE 30, 2007, DECEMBER 30, 2006, AND JULY 1, 2006
                         
    June 30, 2007     December 30, 2006     July 1, 2006  
IDENTIFIABLE ASSETS
                       
CARLON
   $ 93,473     $ 81,833     $ 100,094  
LAMSON HOME PRODUCTS
     50,487       44,019       47,774  
PVC PIPE
     63,063       52,911       67,893  
CORPORATE OFFICE (INCLUDES CASH, DEFERRED TAX, AND PENSION ASSETS)
     35,358       36,847       55,102  
 
                  
 
   $ 242,381     $ 215,610     $ 270,863  
 
                  

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