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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-313
T H E L A M S O N & S E S S I O N S C O.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-0349210
- --------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25701 Science Park Drive
Cleveland, Ohio 44122-7313
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(Address of principal executive offices) (Zip Code)
216/464-3400
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
- ------------------------------------ --------------------------------------
Common Shares, without par value New York Stock Exchange
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Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
The aggregate market value of the voting stock held as of February 1, 1996 by
non-affiliates of the registrant: $109,596,068.
As of February 1, 1996 the Registrant had outstanding 13,291,751 common shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders are
incorporated by reference into Part III.
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PART I
Item 1. - BUSINESS
The Lamson & Sessions Co. ("Company"), founded in 1866, is a diversified
manufacturer and supplier of a broad line of thermoplastic electrical,
telecommunications and fluid drainage products for major domestic markets. The
markets for thermoplastic conduit, related fittings and accessories, wiring
devices and sewer pipe include: the construction, utility and
telecommunications industries; municipalities, other government agencies, and
contractors; and do-it-yourself home remodelers.
In November 1995, the Company completed the sale of its Valley-Todeco division
which was engaged in the manufacture and sale of fasteners serving the
aerospace industry. (Refer to Note J to the Consolidated Financial Statements.)
Proceeds from the sale were utilized to reduce debt.
PRINCIPAL PRODUCTS AND MARKETS
The Company is engaged in the manufacture and distribution of a broad line of
thermoplastic electrical, telecommunication and engineered sewer products. In
addition, the Company distributes a wide variety of consumer electrical wiring
devices.
All of the Company's thermoplastic products compete with and serve as
substitutes for similar metallic products, and its engineered sewer pipe
products compete with and serve as substitutes for clay, concrete, ductile
iron, asbestos cement and polyethylene products. The Company's thermoplastic
products offer several advantages over these other products. Specifically,
nonmetallic electrical conduit and related fittings and accessories are
generally less expensive, lighter and easier to install than metallic products.
Furthermore, thermoplastic conduit does not rust, corrode or conduct
electricity. Thermoplastic sewer pipe weighs less than substitute products, is
easier and more economical to install, does not degenerate due to sewer gases
as do some competing products, and eliminates avoidable problems which can be
caused by infiltration and exfiltration.
Four markets are served, each of which has unique product and marketing
requirements. These markets are: (i) Industrial, Residential, Commercial and
Utility Construction (served by Carlon Electrical Products, "Electrical") --
contractors engaged in the installation of electrical systems in industrial,
residential and commercial construction, and electric power utility projects;
original equipment manufacturers who use components as subassemblies for their
own products; and industrial companies who maintain or repair their own
facilities; (ii) Consumer (served by Lamson Home Products, "Home") -- retail
consumers of electrical products who perform "do-it-yourself" home repairs; and
small electrical contractors; (iii) Telecommunications (served by Carlon
Telecom Systems, "Telecom") -- cable TV, telephone and telecommunications
companies; and (iv) Engineered Sewer Products (served by Lamson Vylon Pipe,
"Vylon") -- various government and private builders of sewer and drainage
systems.
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A breakdown of revenues as a percent of net sales related to significant
classes of product by major market segment for 1995, 1994 and 1993,
respectively is as follows:
1995 1994 1993
------------------------------ ------------------------------- -----------------------------
(In thousands)
Industrial, Residential,
Commercial & Utility
Construction $ 151,701 51% $ 149,863 52% $ 141,210 55%
Telecommunications 55,456 19% 44,603 16% 39,123 15%
Consumer 51,213 17% 49,463 17% 40,754 16%
Engineered Sewer
Products 21,846 7% 24,878 9% 21,744 8%
Aerospace Fastener 18,950 6% 18,838 6% 16,741 6%
------------- ------------ ------------- ------------ -------------- -----------
$ 299,166 100% $ 287,645 100% $ 259,572 100%
============= ============ ============= ============ ============== ===========
The following summarizes the principal products used in each of the four
markets:
INDUSTRIAL, RESIDENTIAL, COMMERCIAL AND UTILITY CONSTRUCTION. The principal
products sold to this market include rigid conduit, flexible electrical
nonmetallic tubing, fittings and accessories, outlet boxes, and other products.
Other products in this market also include thermoplastic spirally extruded
liquidtight conduit, which is used by industrial companies and original
equipment manufacturers requiring a watertight housing for electrical cable,
and a broad line of industrial nonmetallic enclosures comprised of molded,
non-corrosive boxes designed to enclose and protect devices such as electrical
controls, switches and industrial control panels.
TELECOMMUNICATIONS. The products included in this market are traditional smooth
wall communication duct and spacers used by telecommunication and CATV
industries to house telecommunications cable, multi-cell duct systems designed
to protect underground fiber optic cables and allow future cabling expansion,
and flexible conduit used inside buildings to protect communications cable.
CONSUMER. The products included in this market are products such as light
dimmers, fan speed controls, touch controls, door chimes, motion sensors and
home security systems. In addition, the Company supplies this market with
products such as outlet boxes, electrical conduit, liquidtight conduit and
electrical fittings.
ENGINEERED SEWER PRODUCTS. Principal products utilized by this market include
closed profile engineered sewer pipe used for direct burial and sliplining as
well as traditional solid wall sewer and drain pipe used in residential
construction of sanitary drainage systems, sewer main and highway underdrain
available in diameters ranging from 4 to 48 inches.
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COMPETITION
Each of the four markets in which the Company is presently operating is highly
competitive based on service, price and quality. Most of the competitors are
either national or smaller regional manufacturers who compete with limited
product offerings. Unlike a majority of the Company's competitors, the Company
manufactures a broad line of thermoplastic products, complementary fittings and
accessories, thus enabling it to offer its customers complete and integrated
systems. The company believes that its products will continue to compete
favorably. However, certain of the Company's competitors have greater financial
resources than the Company, which could adversely affect the Company through
price competition strategies.
DISTRIBUTION
The Company distributes its products through a nationwide network of more than
175 manufacturers' representatives. Currently, 10 of these manufacturers'
representatives inventory the Company's products. The Company has reduced the
number of these inventory locations and has developed its own strategically
located distribution centers.
RAW MATERIALS
The Company is a large purchaser of pipe grade polyvinyl chloride resin and has
historically been able to obtain adequate quantities.
PATENTS AND TRADEMARKS
The Company owns various patents, patent applications, licenses, trademarks and
trademark applications relating to its products and processes. While the
Company considers that, in the aggregate, its patents, licenses and trademarks
are of importance in the operation of its business, it does not consider that
any individual patent, license or trademark, or any technically related group,
is of such importance that termination would materially affect its business.
SEASONAL FACTORS
The Company's four business units experience seasonality caused principally by
a decrease in construction activity during the winter months. They are subject
also to the economic cycles affecting the construction industry.
MAJOR CUSTOMERS
Sales to Affiliated Distributors, a buying group not otherwise affiliated with
the Company, totalled approximately 12% of net sales in 1995 and 1994. No
customer exceeded 10% of net sales in 1993.
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BACKLOG
Due to the nature of the Company's business, orders are generally filled within
several weeks of order date. Therefore, statistics relative to order backlog
are not indicative of the status of the Company's business at any point in
time.
RESEARCH AND DEVELOPMENT
The Company is engaged in an aggressive new product development program in an
effort to introduce innovative applications for thermoplastic and consumer
electrical products. The Company maintains a separate research and development
center in Cleveland, Ohio to facilitate the introduction of value-added
products and improved manufacturing processes. The Company sponsored research
and development activity totalled $3.7 million, $3.4 million and $3.2 million
in 1995, 1994 and 1993, respectively.
ENVIRONMENTAL REGULATIONS
The Company believes that its current operations and its use of property, plant
and equipment conform in all material respects to applicable environmental laws
and regulations presently in effect (Refer to Note C to the Consolidated
Financial Statements). The Company has facilities at numerous geographic
locations, which are subject to a range of federal, state and local
environmental laws and regulations. Compliance with these laws has, and will,
require expenditures on a continuing basis.
EMPLOYEES
At fiscal years ended, the Company had the following employees:
1995 1994 1993
---- ---- ----
1,048 1,325 1,425
FOREIGN OPERATIONS
The net sales, operating earnings and assets employed outside the United States
are not significant. Export sales were approximately 2% of consolidated net
sales in 1995 and 1% in each of the two prior fiscal years and were made
principally to countries in North America.
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Item 2. - PROPERTIES
The Company owns or leases manufacturing and distribution facilities which are
suitable and adequate for the production and marketing of its products. The
Company owns executive and administrative offices which are located in
Cleveland, Ohio and occupy 68,000 square feet in a suburban office complex. In
addition, the Company leases 7,000 square feet of administrative offices in an
office building near the Corporate headquarters. The Company also has research
and development offices, located in Cleveland, Ohio, which occupy leased space
of 27,000 square feet. The following is a list of the Company's manufacturing
and distribution center locations:
Approximate
Square Feet
-----------
Manufacturing Facilities (Owned):
- ----------------------------------------
Woodland, California 73,000
High Springs, Florida 113,000
Clinton, Iowa 156,000
Bowling Green and Aurora, Ohio 205,000
(2 facilities)
Oklahoma City, Oklahoma 166,000
Nazareth, Pennsylvania 53,000
Pasadena, Texas 46,000
Distribution Centers (Leased):
- ----------------------------------------
Woodland, California 41,000
Montreal, Canada 20,000
Clinton, Iowa 56,000
Oklahoma City, Oklahoma 90,000
Allentown, Pennsylvania 65,000
The Company presently utilizes substantially all of its facilities and operated
in 1995 at approximately 77% of productive capacity.
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Item 3. - 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.
Item 4. - SUBMISSION OF MATTERS TO SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE
REGISTRANT
JOHN B. SCHULZE
Chairman, President and Chief Executive
Officer
Chairman, President and Chief Executive
Officer since January 1990. Age 58.
JAMES J. ABEL
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer since
September 1994. Previously was
Executive Vice President, Treasurer and
Chief Financial Officer February 1993 -
September 1994. Previously was Senior
Vice President, Treasurer and Chief Finan-
cial Officer December 1990 - February
1993. Age 50.
CHARLES E. ALLEN
Senior Vice President
Senior Vice President since September
1989. Age 55.
MELVIN W. JOHNSON
Vice President
Vice President since February 1991. Pre-
viously was Vice President -- Engineering
January 1985 - January 1991. Age 59.
MARK R. BUCK
Vice President - Carlon Electrical Products
Vice President - Carlon Electrical Products
since October 1983. Age 42.
A. CORYDON MEYER
Vice President - Lamson Home Products
Vice President - Lamson Home Products
since March 1990. Age 41.
NORMAN P. SUTTERER
Vice President - Carlon Telecom Systems
Vice-President - Carlon Telecom Systems
since February 1989. Age 46.
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PART II
Item 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange and Pacific
Stock Exchange. High and low sales prices for the common stock are included in
Note K to the Consolidated Financial Statements. No dividends were paid in
1995, 1994 or 1993. The approximate number of shareholders of record of the
Company's Common Stock at February 1, 1996 was 2,128.
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Item 6. - SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
Fiscal Years Ended
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(Dollars In thousands except per share data, 1995 1994 1993 1992 1991
shareholders and employees)
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Net Sales $ 299,166 $ 287,645 $ 259,572 $ 255,422 $ 284,241
Cost of Products Sold 242,608 235,876 221,405 220,901 251,010
GROSS MARGIN 56,558 51,769 38,167 34,521 33,231
Selling, General and Administrative Expenses 42,520 40,840 35,500 33,404 36,224
Non-Recurring Charges 4,602 6,696
OPERATING EARNINGS (LOSS) 14,038 10,929 2,667 (3,485) (9,689)
Net Interest Expense 5,864 6,673 5,784 5,815 4,864
Gain on Sale of Business 4,362
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND EFFECT OF ACCOUNTING CHANGE 8,174 4,256 (3,117) (9,300) (10,191)
Income Tax Benefit 3,900 800 1,742
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE EFFECT OF
ACCOUNTING CHANGE 12,074 4,256 (3,117) (8,500) (8,449)
Earnings (Loss) on Discontinued Operations (9,930) (2,674) (10,956) (5,448)
Cumulative Effect of Accounting Change (26,860)
NET EARNINGS (LOSS) 12,074 (5,674) (5,791) (46,316) (13,897)
- -----------------------------------------------------------------------------------------------------------------------------
Year-End Financial Position:
Current Assets $ 81,044 $ 87,526 $ 83,842 $ 86,737 $ 86,290
Other Assets 2,680 2,899 9,148 13,131 11,090
Assets Held for Sale 3,742 17,555 16,349 17,783
Property, Plant and Equipment 51,747 53,979 57,841 61,028 64,360
Total Assets 135,471 148,146 168,386 177,245 179,523
Current Liabilities 50,384 52,032 48,268 50,336 42,829
Long-Term Debt 24,842 46,958 62,730 58,579 53,031
Other Long-Term Liabilities 29,326 36,276 41,562 41,886 9,245
Shareholders' Equity 30,919 12,880 15,826 26,444 74,418
Working Capital 30,660 35,494 35,574 36,401 43,461
- -----------------------------------------------------------------------------------------------------------------------------
Statistical Information:
Average Number of Common Shares and
Common Share Equivalents 13,404 13,239 13,210 13,197 13,184
Number of Shareholders of Record 2,162 2,370 2,553 2,531 2,662
Number of Associates 1,048 1,325 1,425 1,510 1,448
Book Value Per Share $ 2.33 $ 0.97 $ 1.20 $ 2.00 $ 5.64
Market Price Per Share $ 7-3/4 $ 6 $ 4-3/4 $ 5-5/8 $ 4-1/8
Market Capitalization $ 103,011 $ 79,673 $ 62,795 $ 74,277 $ 54,394
Long-Term Debt as a % of Market Capitalization 24.1% 58.9% 99.9% 78.9% 97.5%
Total Debt as a % of Market Capitalization 27.8% 64.6% 103.8% 87.6% 100.5%
Operating Cashflow as a % of Total Debt 66.6% 7.3% 5.7% -7.9% 4.4%
Long-Term Debt as a % of Equity 80.3% 364.6% 396.4% 221.5% 71.3%
Return on Average Equity from Continuing Operations 55.1% 29.7% -14.7% -16.9% -10.2%
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
Continuing Operations $ 0.90 $ 0.32 $ (0.24) $ (0.64) $ (0.64)
Discontinued Operations (0.75) (0.20) (0.83) (0.41)
Accounting Change (2.04)
Net Earnings (Loss) $ 0.90 $ (0.43) $ (0.44) $ (3.51) $ (1.05)
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Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Management's Discussion and Analysis
- ------------------------------------
DISCUSSION OF THE CONSOLIDATED STATEMENT OF OPERATIONS
THE CONSOLIDATED STATEMENT OF OPERATIONS summarizes Lamson & Sessions'
operating performance over the last three years. In 1995, the Company reported
the highest net sales, excluding discontinued operations, since 1989. Carlon
Telecom Systems experienced strong demand for products in 1995 leading the
areas of growth experienced by the Company. In late 1995, the Company sold
Valley Todeco, its aerospace fastener business (see Note J - to the
Consolidated Financial Statements). This divestiture allowed the Company to
retire subordinated debt and will enable the Company to focus on growth through
acquisitions and new product development in the electrical products markets
which it serves.
NET SALES of $299 million for 1995 were 4% higher than net sales of $288
million in 1994. 1995 sales, excluding the aerospace fastener business sold
during 1995, were $280 million compared to $269 million in adjusted 1994 sales.
The 1995 adjusted sales increase consisted of a 24% increase for Carlon Telecom
Systems, a 4% increase for Lamson Home Products, a 1% increase for Carlon
Electrical Products, and a 12% decrease for Lamson Vylon Pipe. The sales
increase consisted of overall price increases of nearly 10%, a 15% new product
volume increase for Carlon Telecom Systems, offset by sales volume decreases in
engineered sewer products and electrical fittings. Increased marketing efforts
in engineered sewer products and electrical products are expected to reverse
this negative trend. Net sales for 1994 were 11% higher than net sales of $260
million in 1993. Product mix improvements, resulting in higher average selling
prices, were coupled with strong demand to generate the sales gains. Carlon
Electrical Products and Carlon Telecom Systems emphasis on new products
improved their product mix and achieved higher sales on lower volume in 1994
compared to 1993.
GROSS MARGIN percentage increased 5% to nearly 19% of net sales in 1995,
compared to 18% of net sales in 1994. This improvement reflects the Company's
continuing progress in implementing operating efficiencies and improved product
mix as evidenced by new product introductions in Carlon Telecom Systems and
reduced rigid pipe sales. The Company experienced continued improvement in the
aerospace fastener business prior to its sale in the fourth quarter. Also in
the fourth quarter, gross margin was adversely affected by declining
polyvinylchloride (PVC) resin costs. However, the Company's continued emphasis
on non-commodity products is working to minimize the effect of highly variable
PVC pricing. Gross margin percentage improved by 20% from 15% of net sales
comparing 1994 and 1993. Increased manufacturing efficiencies in the aerospace
fastener business (which was sold during 1995) and reduced rigid pipe sales
improved 1994 margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES held constant at 14% of sales in
1995 and 1994. However, excluding the aerospace fastener business, the Company
experienced an increase in these expenses of nearly 6%, reflecting marketing
efforts and higher sales commissions, as well as staffing costs associated with
new product programs and related support functions. Selling, general and
administrative expenses increased nominally from 1993 to 1994. The 1994
increase related to increased commission rates on higher margin products,
promotional expenses, salary expenses and employee health care.
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INTEREST EXPENSE decreased 12% from 1994 to 1995. The decrease resulted from a
rate reduction due to the restructuring of the Company's secured credit
agreement, refinancing of Industrial Revenue Bonds and debt reduction using
cash generated from operating cash flow and the sale of assets. Interest
expenses increased 15% from 1993 to 1994. During that period, rising interest
rates on the secured credit facility were partially offset by average lower
borrowings resulting from the proceeds from the sale of the Company's truck
frame unit.
INCOME TAX BENEFIT of nearly $4 million was generated from a reduction in the
valuation allowance placed on the Company's deferred tax assets due to
continuing improvement in operating results and the outlook for sustained
profitability. The company has no current income tax provision as it continues
to be in a net operating loss carryforward position. No income tax provision
was recorded in 1994.
Discussion of the Consolidated Statement of Financial Position
THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION shows Lamson & Sessions'
financial position at year end, compared to the previous year end. The
statement provides information to assist in assessing such factors as the
Company's liquidity and financial resources. The 1995 current ratio decreased
4%, mainly due to the sale of the Company's aerospace business. The 1995 debt
to equity ratio decreased significantly, to less than 1 down from 4 in 1994.
Total debt decreased 44%, from $51 million to below $29 million, while equity
increased 140% to nearly $31 million.
ACCOUNTS RECEIVABLE are primarily due from trade customers. Accounts Receivable
declined nominally overall in 1995 from 1994. Excluding the sold aerospace
fastener unit business from 1994, Accounts Receivable increased nearly $2
million due to higher fourth quarter sales, with corresponding 1995 days sales
outstanding dropping nearly 1 day to 45 days compared to December 31, 1994.
INVENTORIES decreased $11 million in 1995 from 1994. These results reflect the
sale of the aerospace fastener business and reduced pricing in the fourth
quarter as raw material costs fell.
PREPAID EXPENSES AND OTHER increased nearly $6 million in 1995 from 1994.
Nearly $4 million of the increase relates to the reduction of the valuation
allowance on the Company's deferred tax asset. The remaining increase in other
current assets relates to the amount receivable on the sale of the aerospace
fastener business, pending resolution of certain contractual conditions, and
increases in other non-trade receivables.
LONG-TERM DEBT decreased $22 million during 1995. The outstanding revolving
line of credit was significantly reduced and the final $11 million in 14%
subordinated debt was retired two years prior to its maturity. Stronger cash
flow from operations, augmented by the sale of the aerospace business and
certain assets remaining from the 1994 sale of the truck frame business,
facilitated the debt reduction.
POST-RETIREMENT BENEFITS AND OTHER LONG-TERM LIABILITIES decreased 19% from $36
million in 1994 to $29 million in 1995. The Company took several steps during
the year to eliminate underfunding relating to several defined benefit pension
plans. As a result, nearly $6 million of additional minimum liability was
eliminated, with a corresponding increase in equity. The Company retained the
pension plan liability, health care benefits for existing retirees and
approximately $1.2 million of other liabilities of its aerospace fastener
business which will be paid out over an extended period of time.
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DISCUSSION OF THE CONSOLIDATED STATEMENT OF CASH FLOWS
THE CONSOLIDATED STATEMENT OF CASH FLOWS shows cash inflows and outflows from
the Company's operating, investing and financing activities. Cash and cash
equivalents remained comparable at year end 1995 compared to 1994. Significantly
improved operating cash flow was generated in 1995 compared to 1994.
CASH FLOWS FROM OPERATING ACTIVITIES - The Company generated over $19 million
in cash from operations in 1995, an increase of 405% over the prior year. The
primary sources of the operating cash increase were the 92% improvement, before
tax benefit, in earnings from continuing operations and nearly $5 million in
cash flow from inventory reductions. The Company generated nearly $4 million in
cash from operations in 1994. 1994 cash flow from operations was approximately
equal to 1993 cash flow from operations as improved continuing operations cash
flow was offset by the loss in the discontinued truck frame business.
CASH FLOWS FROM INVESTING ACTIVITIES - The Company generated $3 million in cash
flow from 1995 investing activities. Cash receipts from the sale of a business
unit exceeded the $11 million capital expenditures made by the Company. 1995
purchases of plant, property and equipment increased over the prior year as the
Company continues to invest in projects which will reduce costs, provide
efficiency in product development and more effectively utilize support
functions. The Company generated over $10 million in cash flow from 1994
investing activities.
CASH FLOWS FROM FINANCING ACTIVITIES - The Company used over $22 million of
cash flow for 1995 financing activities. The Company retired $11 million in 14%
subordinated debt in 1995. In addition, borrowings under the secured credit
agreement were reduced nearly $11 million in 1995. The Company used $13 million
of cash flow for 1994 financing activities. The company reduced borrowings on
the secured credit agreement by $12 million in 1994.
Based upon the Company's past performance and current expectations, management
believes that internally generated cash flows and existing capacity under the
secured credit agreement are adequate to fund the Company's 1996 cash needs for
capital expenditures and general operating requirements.
Outlook
- -------
The Company's strong improvement in 1995 reflects efforts to pursue market and
product opportunities that are expected to provide sustainable revenue and
profit growth. Management believes that this positive trend will continue in
1996 based on current estimates for the year in construction spending, housing
starts, interest rates and general economic improvement. The emphasis on growth
is reflected in the continued investment in product development, improved
business systems to facilitate cost reduction, organizational efficiency,
and strong cash management.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF OPERATIONS
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(in thousands, except per share data)
FISCAL YEARS
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Net sales $ 299,166 $ 287,645 $ 259,572
Cost of products sold 242,608 235,876 221,405
-------------------- ---------------------- ---------------------
GROSS MARGIN 56,558 51,769 38,167
Selling, general and
administrative expenses 42,520 40,840 35,500
-------------------- ---------------------- ---------------------
OPERATING EARNINGS 14,038 10,929 2,667
Interest (5,864) (6,673) (5,784)
-------------------- ---------------------- ---------------------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 8,174 4,256 (3,117)
Income tax benefit 3,900
-------------------- ---------------------- ---------------------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 12,074 4,256 (3,117)
Loss from Discontinued Operations (9,930) (2,674)
-------------------- ---------------------- ---------------------
NET EARNINGS (LOSS) $ 12,074 $ (5,674) $ (5,791)
-------------------- ---------------------- ---------------------
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ .90 $ .32 $ (.24)
Discontinued operations (.75) (.20)
-------------------- ---------------------- ---------------------
Net earnings (loss) $ .90 $ (.43) $ (.44)
-------------------- ---------------------- ---------------------
AVERAGE COMMON SHARES 13,404 13,239 13,210
-------------------- ---------------------- ---------------------
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
FISCAL YEARS
-----------------------------------------------------------------
OPERATING ACTIVITIES 1995 1994 1993
-----------------------------------------------------------------
Earnings (loss) from continuing operations $ 12,074 $ 4,256 $ (3,117)
Adjustments to reconcile earnings (loss) from continuing
operations to cash provided by continuing
operations:
Depreciation and amortization 8,758 8,544 8,126
Deferred income tax-benefit (3,900)
Net change in working capital accounts:
Accounts receivable (1,620) (719) (4,298)
Inventories 4,939 (2,857) 6,644
Prepaid expenses and other (1,302) 589 580
Accounts payable, accrued expenses and other current
liabilities (26) 1,200 1,968
Net change in other long-term items 131 79 (2,290)
---------------- ---------------- -----------------
CASH PROVIDED BY CONTINUING OPERATIONS 19,054 11,092 7,613
Loss from discontinued operations (9,930) (2,674)
Adjustments to reconcile loss from discontinued operations to
cash used by discontinued operations:
Net change in assets held for sale (1,792) (1,206)
Net change in other long-term items 4,403
---------------- -----------------
CASH USED BY DISCONTINUED OPERATIONS (7,319) (3,880)
---------------- ---------------- -----------------
CASH PROVIDED BY OPERATING ACTIVITIES 19,054 3,773 3,733
INVESTING ACTIVITIES
Net proceeds from sale of businesses 14,297 16,430
Purchases of property, plant and equipment (11,019) (6,074) (6,437)
Proceeds from sale of property, plant and equipment 2,550
---------------- ---------------- -----------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,278 10,356 (3,887)
FINANCING ACTIVITIES
Net borrowings under secured credit agreement (10,903) (12,221) 1,602
Payments on long-term borrowings (828) (1,484) (1,487)
Retirement of Subordinated Debt (11,120)
Exercise of stock options 65 273 70
---------------- ---------------- -----------------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES (22,786) (13,432) 185
---------------- ---------------- -----------------
(DECREASE) INCREASE IN CASH (454) 697 31
Cash at beginning of year 1,885 1,188 1,157
---------------- ---------------- -----------------
CASH AT END OF YEAR $ 1,431 $ 1,885 $ 1,188
================ ================ =================
See notes to consolidated financial statements.
-15-
16
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
December 30, 1995 and December 31, 1994
(Dollars in thousands)
1995 1994
------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,431 $ 1,885
Accounts receivable, less allowances:
1995--$1,329 and 1994--$1,653 34,828 35,448
Inventories:
Finished goods and work-in-process 30,491 41,157
Raw materials and supplies 4,527 5,048
------------------ -----------------
35,018 46,205
Prepaid expenses and other 9,767 3,988
------------------ -----------------
TOTAL CURRENT ASSETS 81,044 87,526
ASSETS HELD FOR SALE 3,742
OTHER ASSETS 2,680 2,899
PROPERTY, PLANT AND EQUIPMENT
Land 3,751 4,019
Buildings 23,416 24,350
Machinery and equipment 83,962 87,545
------------------ -----------------
111,129 115,914
Less allowances for depreciation
and amortization 59,382 61,935
------------------ -----------------
51,747 53,979
------------------ -----------------
TOTAL ASSETS $ 135,471 $ 148,146
================== =================
-16-
17
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
December 30, 1995 and December 31, 1994
(Dollars in thousands)
1995 1994
---------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,322 $ 17,354
Accrued expenses and other liabilities 25,420 27,167
Taxes 3,875 3,009
Current maturities of long-term debt 3,767 4,502
------------------- ------------------
TOTAL CURRENT LIABILITIES 50,384 52,032
LONG-TERM DEBT 24,842 46,958
POST-RETIREMENT BENEFITS AND OTHER
LONG-TERM LIABILITIES 29,326 36,276
SHAREHOLDERS' EQUITY
Common shares, without par value, with stated value of $.10 per share,
authorized 20,000,000 shares; outstanding--13,291,751 shares in 1995
and 13,278,784 shares in 1994 1,329 1,328
Other capital 72,743 72,679
Retained earnings (deficit) (40,654) (52,728)
Pension adjustment (2,499) (8,399)
------------------- ------------------
30,919 12,880
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 135,471 $ 148,146
=================== ==================
See notes to consolidated financial statements.
-17-
18
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands)
RETAINED TOTAL
COMMON OTHER EARNINGS PENSION SHAREHOLDERS'
SHARES CAPITAL (DEFICIT) ADJUSTMENT EQUITY
------------ ----------- -------------- ---------------- --------------------
Balance at January 2, 1993 $ 1,320 $ 72,344 $ (41,263) $ (5,957) $ 26,444
Net loss (5,791) (5,791)
Issuance of 15,300 common shares
under stock option plans 2 68 70
Pension adjustment (4,897) (4,897)
------------ ----------- -------------- ---------------- --------------------
Balance at January 1, 1994 $ 1,322 $ 72,412 $ (47,054) $ (10,854) $ 15,826
Net loss (5,674) (5,674)
Issuance of 58,750 common shares
under stock option plans 6 267 273
Pension adjustment 2,455 2,455
------------ ----------- -------------- ---------------- --------------------
Balance at December 31, 1994 $ 1,328 $ 72,679 $ (52,728) $ (8,399) $ 12,880
Net earnings 12,074 12,074
Issuance of 12,967 common shares
under stock option plans 1 64 65
Pension adjustment 5,900 5,900
------------ ----------- -------------- ---------------- --------------------
Balance at December 30, 1995 $ 1,329 $ 72,743 $ (40,654) $ (2,499) $ 30,919
============= =========== ============== ================ ====================
See notes to consolidated financial statements.
-18-
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
Three fiscal years ended December 30, 1995
NOTE A--ACCOUNTING POLICIES
ORGANIZATION: The Company primarily is in one business segment and is engaged
in the manufacture and distribution of a broad line of thermoplastic
electrical, telecommunication and engineered sewer products. In addition, the
Company distributes a wide variety of consumer electrical wiring devices.
Products are sold primarily to national and regional electrical distributors,
power utilities, regional Bell operating companies and other telecommunications
providers, national and regional retailers, and government and private builders
of sewer and drainage systems. Substantially all sales are made within North
America. In 1995 and 1994, sales to a single customer totalled approximately
12% in each year. No customer exceeded 10% of net sales in 1993.
FISCAL YEAR: The Company's fiscal year end is the Saturday closest to December
31.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION: The consolidated financial
statements include the accounts of the Company and all domestic and foreign
subsidiaries after elimination of significant intercompany items and
transactions. Certain 1994 and 1993 items have been reclassified to conform
with 1995 reporting classifications.
INVENTORIES: Inventories are valued at the lower of first-in, first-out (FIFO)
cost or market.
PROPERTY AND DEPRECIATION: Property, plant and equipment are recorded at cost.
For financial reporting purposes, depreciation and amortization are computed
principally by the straight-line method over the estimated useful lives of the
assets. Accelerated methods of depreciation are used for federal income tax
purposes.
INCOME TAXES: The Company accounts for income taxes using the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Investment tax credits are recorded using the flow-through
method.
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common share are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding during the year.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs consist of
company sponsored activities to develop new value-added products. Costs are
expensed as incurred. R&D expenditures were $3,700,000, $3,400,000, and
$3,200,000 in 1995, 1994 and 1993, respectively.
ADVERTISING EXPENDITURES: Advertising costs are expensed as incurred.
Advertising expenditures were $3,200,000, $2,100,000, and $1,900,000 for 1995,
1994 and 1993, respectively.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
-19-
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE B--LONG-TERM DEBT Long-term debt consists of the following:
(In thousands)
1995 1994
-------- -------
Secured Credit Agreement:
Term $ 14,250 $ 9,000
Revolver 2,802 18,955
-------- -------
17,052 27,955
14% Senior Subordinated Notes 11,120
Industrial Revenue Bonds 8,970 9,600
Building mortgage 2,587 2,785
-------- -------
28,609 51,460
Less amounts classified as current 3,767 4,502
-------- -------
$ 24,842 $ 46,958
======== =======
The Company's long-term $65,000,000 secured credit agreement was refinanced
effective July 14, 1995. The agreement is secured by the Company's accounts
receivable, inventory, and property, plant and equipment. The agreement
consists of both term and revolving credit facilities with interest variable on
both portions. The rate paid varies based on the Company's financial
performance and the pricing option chosen. Borrowings under this agreement
carry interest based on any of three pricing options (prime rate, LIBOR or
commercial paper) plus the applicable spread. Interest is paid in accordance
with the maturity of the pricing option selected. The term portion of this
facility carried interest at 3.0% over the commercial paper rate (8.8%) at
December 30, 1995 and requires quarterly principal payments of $750,000. The
remaining revolving credit portion permits borrowings up to $50,000,000 at any
time through December 31, 1999. The agreement provides for the payment of a
commitment fee on the revolving line of credit of .375% per annum on the
average daily unused commitment. In addition to amounts borrowed, letters of
credit related to Industrial Revenue Bond financings and other contractual
obligations total approximately $14,000,000 under the agreement.
The Company's 14% Senior Subordinated Notes were redeemed in full on December
1, 1995.
The Company's Industrial Revenue Bond financings include several issues due in
annual installments from 1996 through 2023 with interest at variable rates
ranging from 4% to 7.5%. The weighted average rate for these bonds in December
1995 was 5.4%. The Company maintains a letter of credit related to one of the
Industrial Revenue Bonds for approximately $1,900,000 with a local bank. The
Company's headquarter facility is subject to a mortgage payable in equal
monthly installments through 2003 with interest at 8.625%.
The Company's credit agreements contain various restrictive covenants
pertaining to maintenance of debt service, tangible net worth and certain other
financial ratios.
-20-
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE B--LONG-TERM DEBT--Continued
The aggregate minimum combined maturities of long-term debt for the years 1997
through 2000 are approximately $4,797,000, $4,041,000, $8,368,000 and
$1,148,000, respectively, with $6,488,000 due thereafter.
Interest expense includes $803,000, $850,000 and $767,000 for amortization of
deferred financing cost in 1995, 1994 and 1993, respectively. Interest paid was
$6,069,000, $6,847,000 and $8,229,000 in 1995, 1994 and 1993, respectively.
Rental expense related to operating leases was $3,470,000, $3,015,000 and
$2,647,000 in 1995, 1994 and 1993, respectively. Aggregate future minimum
payments related to operating leases with initial or remaining terms of one
year or more for the years 1996 through 2000 and thereafter are $2,671,000,
$1,790,000, $1,228,000, $686,000 and $622,000, respectively.
NOTE C--DISCONTINUED OPERATIONS
The results of discontinued operations are reflected on a restated comparative
basis as follows:
(In thousands)
1994 1993
-------- --------
Net Sales $ 23,337 $ 41,884
======== ========
Loss from Operations $ 1,030 $ 2,674
Loss on Disposal 8,900
-------- --------
$ 9,930 $ 2,674
======== ========
During the first quarter of 1994, the Company entered into a definitive
agreement to sell substantially all of the assets and certain liabilities
(including prospective pension and benefit post-retirement obligations) of its
Midland Steel Products Division for $16,430,000 resulting in a loss of
$8,900,000 ($.67 per share) after related costs and expenses. Included in the
loss on disposal is a curtailment loss of $1,140,000 related to net pension
costs and a settlement gain of $650,000 related to post-retirement benefits
other than pensions. The Company believes adequate provision has been made for
all contractual obligations, environmental costs, and other obligations
retained in the sale of the division. Included in 1994 and 1993 losses from
operations is interest of $1,836,000 allocated on the basis of the Company's
incremental borrowing rate applied on the net proceeds from the sale. The
assets held for sale at the end of 1994 are comprised of land and building
pending final resolution of certain contractual conditions. The sale of these
assets was completed in the second quarter of 1995.
-21-
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D--PENSION PLANS
The Company sponsors defined benefit pension and defined contribution savings
plans covering substantially all employees. Plans covering salaried employees
provide benefits that are based on an employee's years of service and
compensation during the five-year period prior to retirement. Plans covering
hourly employees provide benefits of stated amounts for each year of service.
The Company annually contributes amounts to the plans which are actuarially
determined to provide sufficient assets to meet future benefit payment
requirements.
Pension expense from continuing operations is comprised of the following:
(In thousands) 1995 1994 1993
---------------- ---------------- ----------------
Benefits earned $ 1,091 $ 1,694 $ 1,599
Interest on projected
benefit obligations 5,866 5,781 6,090
Actual return on assets (7,799) (1,917) (6,813)
Net amortization and deferral 2,546 (3,310) 1,678
Curtailment gain (759)
Defined contribution and other plans 800 813 620
---------------- ---------------- ----------------
$ 1,745 $ 3,061 $ 3,174
================ ================ ================
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
consolidated statement of financial position:
1995 1994
STATUS OF PLANS STATUS OF PLANS
------------------------------------------ ------------------------------------------
(In thousands) ASSETS BENEFITS ASSETS BENEFITS
EXCEED EXCEED EXCEED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------------- ----------------- ----------------- ------------------
Actuarial present
value of benefit
obligations:
Vested benefit
obligations $ 38,665 $ 36,221 $ 8,849 $ 61,633
================= ================= ================= ==================
Accumulated benefit
obligations $ 39,190 $ 36,253 $ 9,313 $ 61,790
================= ================= ================= ==================
Plan assets at fair
value $ 40,977 $ 26,709 $ 13,235 $ 49,329
Projected benefit
obligations (42,285) (36,671) (12,569) (62,156)
----------------- ----------------- ----------------- ------------------
Plan assets in excess
of (less than)
projected benefit
obligations (1,308) (9,962) 666 (12,827)
Unrecognized prior service cost (55) 574 (30) 346
Unrecognized net loss 10,960 3,690 1,508 10,962
Unrecognized initial
net asset (1,566) (170) (266) (1,561)
Minimum liability (3,677) (9,381)
----------------- ----------------- ----------------- ------------------
Pension assets
(liabilities) $ 8,031 $ (9,545) $ 1,878 $ (12,461)
================= ================= ================= ==================
-22-
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE D--PENSION PLANS--Continued
Accrued expenses and other liabilities include the current portion of pension
liabilities of $2,100,000 and $4,487,000 in 1995 and 1994, respectively. The
discount rates used in determining pension expense were 8.0%, 7.25% and 8.5% in
1995, 1994 and 1993, respectively. The discount rates used for funded status
information were 7.4% in 1995 and 8.0% in 1994. The change in the discount rate
had the effect of increasing the accumulated benefit obligation by
approximately $4,400,000. The long-term rates of return on assets used in
determining the funded status information were 9.5% in 1995 and 1994. Plan
assets consist primarily of fixed income and equity marketable securities,
including Company securities with a fair market value at December 30, 1995 of
$913,000. The salary progression assumption used in determining the funded
status information was 5% in each year.
NOTE E--POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides health care and
life insurance benefits for certain of its retired employees. The Company
accrues the estimated cost of retiree benefit payments, other than pensions,
during the employees' active service period. The Company funds these benefit
costs on a pay-as-you-go basis, with the retiree, in most instances, paying a
portion of the costs.
Summary information for the Company's plans is as follows:
(In thousands)
1995 1994
--------- ---------
Accumulated Post-Retirement Benefit Obligation (APBO):
Retirees $ 14,150 $ 17,036
Active participants eligible to receive benefits 1,330 2,134
Other active plan participants 3,762 5,561
--------- ---------
19,242 24,731
Unamortized gain (loss) 3,182 (960)
--------- ---------
22,424 23,771
Current portion 1,800 2,100
--------- ---------
$ 20,624 $ 21,671
========= =========
The decrease in APBO is principally due to the reduction in the assumed health
care cost trend rate. In addition, the Company remains contingently liable for
post-retirement benefits of certain businesses previously sold.
-23-
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE E--POST-RETIREMENT BENEFITS OTHER THAN PENSIONS--Continued
The components of periodic post-retirement benefit cost reflected in continuing
operations are as follows:
(In thousands)
1995 1994 1993
------------ ------------ ------------
Benefits earned $ 479 $ 698 $ 670
Interest on post-retirement benefit obligation 1,396 1,806 2,073
------------ ------------ ------------
$ 1,875 $ 2,504 $ 2,743
============ ============ ============
The discount rate used in determining the APBO was 7.0% in 1995 and 7.5% in
1994. The assumed health care cost trend rate used in measuring the APBO was an
average of 11% in 1995 and 14% in 1994, declining to an ultimate rate of 5.5%
in 2007 and thereafter.
If the health care cost trend rate assumptions were increased by 1%, the APBO as
of December 30, 1995 would increase by 7.5%. The effect of this change on
periodic post-retirement benefit cost for 1995 would be an increase of 10.7%,
or approximately $200,000.
-24-
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE F--LITIGATION
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.
NOTE G--PREFERRED AND PREFERENCE STOCK
The Company has authorized 1,200,000 and 3,000,000 shares of Serial Preferred
and Preference Stock, respectively, none of which is issued or outstanding at
December 30, 1995.
The Company has reserved for issuance 200,000 shares of Cumulative Redeemable
Serial Preference Stock, Series II, without par value, which is part of
purchase rights related to each outstanding common share. None of these shares
were issued in 1995 or 1994. The right associated with each common share
entitles its holder to purchase from the Company or acquiring company, one
one-hundredth of a share of preference stock at a price of $47 which is subject
to adjustment. The rights become exercisable only if a person or group acquires
beneficial ownership of 15% or more of the Company's common shares or takes
certain other actions. In any such event, a 15% or more owner is prohibited
from exercising the rights. When exercisable, the rights entitle each holder to
purchase, according to the agreement, either the Company's common shares or
stock in the acquiring entity worth twice the value of the then applicable
purchase price. Under certain circumstances, the Company has the authority to
exchange each right for one common share without payment required. Unless
otherwise extended, the Company may redeem the rights in their entirety, at a
price of one cent per right, at any time until the tenth calendar day following
any public announcement that beneficial ownership of 15% or more has occurred
in the Company's common shares, or upon certain other events, including Board
of Directors approval of a merger. The rights expire on September 7, 1998.
-25-
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE H--STOCK OPTIONS
Under the 1994 Nonemployee Directors Stock Option Plan, the Company is
authorized to issue 60,000 non-qualified stock options. The options become
exercisable one year after date of grant and expire at the end of ten years.
Under the 1988 Incentive Equity Performance Plan, the Company is authorized to
issue 1,150,000 incentive stock options (ISO's), non-qualified stock options,
stock appreciation rights (SAR's), and restricted or deferred stock. Options
generally become exercisable in part one year after date of grant and expire at
the end of ten years. Options outstanding under the 1978 Non-Qualified
Incentive Stock Option Plan have been granted for the purchase of common shares
at prices ranging from $4.75 to $5.75 per share. No options are available for
future grant under the 1978 Plan.
A summary of the option transactions follows:
NUMBER OF SHARES
--------------------------------------------
1995 1994
----------------- -------------------
Outstanding, beginning of year 726,300 659,400
Granted at $5.81 to $6.94 per share 235,000 200,500
Exercised at $2.125 to $7.19 per share (12,967) (58,750)
Expired/cancelled at $4.375 to $15.438 per share (14,833) (74,850)
----------------- -------------------
Outstanding, end of year at $3.88 to $12.938 933,500 726,300
================= ===================
Exercisable, end of year 478,335 490,300
================= ===================
At December 30, 1995, there were 210,233 options available for future grant.
-26-
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE I--INCOME TAXES
A deferred federal tax benefit of $3,900,000 was recorded in the fourth quarter
of 1995. There was no income tax expense or benefit recorded in 1994 or 1993.
The Company has available net operating loss carryforwards totalling
approximately $36,100,000 which expire in the years 2000 to 2008. The Company
also has available general business tax credit carryforwards of $1,800,000
which expire through 2010, and alternative minimum tax credit carryforwards of
approximately $900,000 which may be carried forward indefinitely.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below:
(In thousands) 1995 1994
------------------ ------------------
Deferred tax assets:
Net operating loss carryforwards $ 12,600 $ 13,600
Other accruals, credits and reserves 8,900 11,300
General business and alternative minimum tax credits 2,700 2,900
Post-retirement benefits other than pensions 7,900 8,300
------------------ ------------------
32,100 36,100
Less: valuation allowance (23,500) (30,000)
------------------ ------------------
Total net deferred tax assets 8,600 6,100
Deferred tax liabilities:
Tax in excess of book depreciation 4,300 5,900
Pensions 400 200
------------------ ------------------
Total deferred tax liabilities 4,700 6,100
------------------ ------------------
$ 3,900 $ -0-
================== ==================
The valuation allowance for net deferred tax assets decreased by $6,500,000.
The reduction was the result of net changes in temporary differences and the
reversal of $3,900,000 of valuation allowance based on improved operating
results for 1995 and projected operating results for 1996.
-27-
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
NOTE I -- INCOME TAXES -- Continued
The provision for income taxes is different than the amount computed using the
applicable statutory federal income tax rate with the differences summarized
below:
(In thousands)
1995 1994 1993
--------------------- ------------------ ------------------
Tax expense (benefit) at statutory rates $ 2,849 $ (1,995) $ (2,027)
Adjustment due to:
Change in valuation allowance (6,500) 1,964 1,818
Other (249) 31 209
--------------------- ------------------ ------------------
$ (3,900) $ -0- $ -0-
===================== ================== ==================
Income taxes paid in 1995 were $26,000. In 1994 and 1993, the Company received
income tax refunds of $201,000 and $1,626,000, respectively.
NOTE J--DISPOSITION OF BUSINESS
During the fourth quarter, the Company sold its aerospace fastener business for
approximately $11,700,000. Net sales for 1995 through the sale date and 1994
were $18,951,000 and $18,838,000, respectively. Operating results, corporate
costs to prepare the business for sale, and anticipated future costs related to
the business resulted in losses of approximately $3,000,000 in 1995 and
$4,000,000 in 1994, respectively.
-28-
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
THE LAMSON & SESSIONS CO. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
NOTE K--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS--(UNAUDITED)
Earnings
(Loss) From LOSS FROM NET
NET Gross Continuing DISCONTINUED EARNINGS
SALES Margin Operations OPERATIONS (LOSS)
--------------- ------------- ------------------ ----------------- ---------------
Fiscal 1995:
First quarter $ 68,402 $12,299 $ 825 $ 825
Second quarter 75,466 15,321 2,511 2,511
Third quarter 85,716 16,727 3,352 3,352
Fourth quarter 69,582 12,211 5,386 5,386
--------------- ------------- ------------------ ---------------
TOTALS $ 299,166 $56,558 $12,074 $ 12,074
=============== ============= ================== ===============
Fiscal 1994:
First quarter $ 63,889 $10,267 $ (960) $ (9,930) $ (10,890)
Second quarter 74,655 14,016 2,019 2,019
Third quarter 79,048 14,161 2,110 2,110
Fourth quarter 70,053 13,325 1,087 1,087
--------------- ------------- ------------------ ----------------- ---------------
TOTALS $ 287,645 $51,769 $ 4,256 $ (9,930) $ (5,674)
=============== ============= ================== ================= ===============
EARNINGS EARNINGS
(LOSS) PER (LOSS) PER
COMMON COMMON MARKET PRICE
SHARE FROM SHARE FROM NET EARNINGS PER COMMON
CONTINUING DISCONTINUED (LOSS) PER SHARE
OPERATIONS OPERATIONS COMMON SHARE HIGH LOW
------------------ ------------------ ---------------------------
--------------------
Fiscal 1995:
First quarter $ .06 $ .06 $ 6-5/8 $ 5-1/4
Second quarter .19 .19 6-3/4 5-1/2
Third quarter .25 .25 7-3/8 5-3/8
Fourth quarter .40 .40 8 6
------------------ --------------------
TOTALS $ .90 $ .90
================== ====================
Fiscal 1994:
First quarter $ (.07) $ (.75) $ (.82) $ 7-1/2 $ 4-7/8
Second quarter .15 .15 8-1/2 6-1/8
Third quarter .16 .16 8-1/2 6-3/4
Fourth quarter .08 .08 7-1/4 5-1/4
------------------ ------------------ --------------------
TOTALS $ .32 $ (.75) $ (.43)
================== ================== ====================
-29-
30
PART IV
The Lamson & Sessions Co. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS - END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE PERIOD
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 30, 1995
Allowances deducted from assets:
Trade receivable allowances $ 1,653 $ 728 $ 1,052 (B) $ 1,329
Inventory obsolescence reserve 1,030 360 457 (C) 933
Other current and long-term assets 6,866 612 4,721 (E) 2,757
Accounts and loss reserves included in
current and long-term liabilities 7,909 1,486 (F) 6,423
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Allowances deducted from assets:
Trade receivable allowances $ 1,559 $ 805 $ 711 (B) $ 1,653
Inventory obsolescence reserve 1,703 464 1,137 (C) 1,030
Other Assets 3,452 (3,414) (D) 6,866
Accounts and loss reserves included in
current and long-term liabilities 3,027 8,950 (A) 4,068 (A) 7,909
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 1994
Allowances deducted from assets:
Trade receivable allowances $ 1,861 $ 872 $ 1,174 (B) $ 1,559
Inventory obsolescence reserve 2,480 210 987 (C) 1,703
Other Assets 3,606 154 3,452
Accounts and loss reserves included in
current and long-term liabilities 3,337 310 3,027
- -------------------------------------------------------------------------------------------------------------------------------
Note A - Provision for discontinued operations, costs relating to sales of
businesses and non-recurring charges.
Note B - Principally write-off of uncollectible accounts and disputed items, net of recoveries.
Note C - Principally the disposal of obsolete inventory.
Note D - Adjustment to provisions for previously sold business.
Note E - Adjustment of note receivable reserve for previously sold business.
Note F - Principally payments on contractual obligations for previously sold
businesses.
-30-
31
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Lamson & Sessions Co.
We have audited the accompanying consolidated statement of financial position
of The Lamson & Sessions Co. and Subsidiaries as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14 (a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Lamson & Sessions Co. and Subsidiaries at December 30, 1995 and December 31,
1994, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 30, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Cleveland, Ohio
January 18, 1996
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STATEMENT OF MANAGEMENT'S RESPONSIBILITY
----------------------------------------
We have prepared the financial statements and other financial information
contained in this Annual Report.
The management of Lamson & Sessions is primarily responsible for the integrity
of this financial information. The financial statements were prepared in
accordance with generally accepted accounting principles and necessarily
include certain amounts based on management's reasonable best estimates and
judgments, giving due consideration to materiality. Financial information
contained elsewhere in this annual report is consistent with that contained in
the financial statements.
Management is responsible for establishing and maintaining a system of internal
control designed to provide reasonable assurance as to the integrity and
reliability of financial reporting. The concept of reasonable assurance is
based on the recognition that there are inherent limitations in all systems of
internal control, and that the cost of such systems should not exceed the
benefits to be derived therefrom.
To meet management's responsibility for financial reporting, we have
established internal control systems which we believe are adequate to provide
reasonable assurance that our assets are protected from loss. These systems
produce data used for the preparation of published financial information and
provide for appropriate reporting relationships and division of responsibility.
All significant systems and controls are reviewed periodically by our internal
auditors in order to ensure compliance, and by our independent auditors to
support their audit work. It is management's policy to implement a high
proportion of recommendations resulting from these reviews.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets regularly with management, internal auditors, and our
independent auditors to review accounting, auditing and financial matters. Both
the independent auditors and the internal auditors have free access to the
Audit Committee, with or without management, to discuss the scope and results
of their audits and the adequacy of the system of internal controls.
/s/ John B. Schulze
- -------------------------------------
John B. Schulze
Chairman of the Board, President and
Chief Executive Officer
/s/ James J. Abel
- -------------------------------------
James J. Abel
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
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PART II
Item 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
The information set forth under the caption "Election of Directors" in
the Company's definitive proxy statement for its annual meeting of
shareholders to be held April 26, 1996 is hereby incorporated by
reference.
(b) Executive Officers - See Part I
(c) Compliance with Section 16 (a) of the Exchange Act.
The information set forth in the last paragraph under caption
"Election of Directors" in the Company's definitive proxy statement
for its annual meeting of shareholders to be held April 26, 1996 is
hereby incorporated by reference.
Item 11. - EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held April 26, 1996 is hereby incorporated by reference.
Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Ownership of the Company's Common
Shares," "Election of Directors" and "Security Ownership of Management" in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held April 26, 1996 is hereby incorporated by reference.
Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
None.
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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34
(a) The following documents are filed as part of this report:
Consolidated financial statements of The Lamson & Sessions Co. and
Subsidiaries are included in Item 8 of this report:
1. Financial Statements
Consolidated Statement of Operations for Fiscal Years Ended 1995, 1994
and 1993.
Consolidated Statement of Cash Flows for Fiscal Years Ended 1995, 1994
and 1993.
Consolidated Statement of Financial Position at December 30, 1995 and
December 31, 1994.
Consolidated Statement of Shareholders' Equity for Fiscal Years Ended
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been omitted.
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35
Exhibits - Management Contracts and Compensatory Plans are identified with an
asterisk (*).
3(a) Amended Articles of Incorporation of the Company (incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on June
1, 1989).
3(b) Amended Code of Regulations of the Company (incorporated by
reference to Exhibit 3 (b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
4(a) Specimen Certificate of Common Shares, without par value with Rights
legend (incorporated by reference to Exhibit 3 to the Company's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on June 1, 1989).
4(e) Form of Rights Certificate (incorporated by reference to Exhibit
4(oo) to the Company's Registration Statement on Form 8-A filed with
the Securities and Exchange Commission on August 25, 1988).
4(g) Rights Agreement, amended and restated as of February 14, 1990, by
and between the Company and National City Bank filed herewith.
10(a) 1988 Incentive Equity Performance Plan (as amended on September 22,
1988, February 23, 1989, December 20, 1990 and April 24, 1992)
(incorporated by reference to Exhibit 28 of the Company's
Registration Statement, on Form S-8 and Form S-3 (Registration No.
33-54732) filed with the Securities and Exchange Commission on
November 20, 1992).
* 10(b) Form of Three-Year Employment Agreement between the Company and
certain executive officers filed herewith.
* 10(c) Form of Two-Year Employment Agreement between the Company and
certain executive officers (incorporated by reference to Exhibit
10(c) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
* 10(d) Corporate Officers Incentive Compensation Plan (incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
* 10(e) Form of Amended and Restated Supplemental Executive
Retirement Agreement dated as of March 20, 1990 between the
Company and certain of its executive officers filed herewith.
* 10(f) The Company's Deferred Compensation Plan for Nonemployee Directors
filed herewith.
* 10(g) Form of Indemnification Agreement between the Company and the
Directors and certain officers (incorporated by reference to Exhibit
10(g) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
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36
* 10(h) The Company's Long Term Incentive Plan (incorporated by
reference to Exhibit 10(k) to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1991).
* 10(j) Mortgage and Security Agreement, dated October 29, 1993,
between The Lamson & Sessions Co. and PFL Life Insurance Company
(incorporated herein by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended January 1, 1994).
10(k) Asset Purchase Agreement between Iochpe-Maxion Ohio, Inc. and The
Lamson & Sessions Co. dated as of May 4, 1994 (incorporated by
reference to Exhibit 10 to the Company's Current Report on Form 8-K
dated as of May 27, 1994).
10(s) Amended and Restated Loan Agreement dated as of July 14, 1995 by and
between the Company and General Electric Capital Corporation
(incorporated by reference to Exhibit 10(g) to the Company's
Quarterly Report on Form 10-Q for the period ended July 1, 1995, the
"GECC Loan Agreement").
10(t) Amendment No. 1 dated as of October 30, 1995, to the GECC Loan
Agreement, filed herewith.
10(u) Amendment No. 2 and Consent dated as of November 8, 1995, to the
GECC Loan Agreement, filed herewith.
11 Computation of Earnings Per Common Share filed herewith.
21 Subsidiaries of the Registrant filed herewith.
23 Consent of Independent Accountants filed herewith.
24 Powers of Attorney filed herewith.
27 Financial Data Schedule (Submitted for the SEC's Information) filed
herewith.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
December 30, 1995.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item
14 is included in Item 8.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized, on this 11th day of March
1996.
THE LAMSON & SESSIONS CO.
By /s/ James J. Abel
-----------------------------------
James J. Abel
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 11, 1996.
Signature Title
--------- -----
/s/ John B. Schulze Chairman of the Board, President
- ----------------------------- and Chief Executive Officer (Principal
John B. Schulze Executive Officer)
/s/ James J. Abel Executive Vice President, Secretary, James
- ----------------------------- Treasurer and Chief Financial Officer
J. Abel (Principal Financial Officer and Principal
Accounting Officer)
/s/ Francis H. Beam, Jr.* Director
- -----------------------------
Francis H. Beam, Jr.
/s/ Leigh Carter* Director
- -----------------------------
Leigh Carter
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38
/s/ Martin J. Cleary* Director
- -----------------------------
Martin J. Cleary
/s/ John C. Dannemiller* Director
- -----------------------------
John C. Dannemiller
/s/ George R. Hill* Director
- -----------------------------
George R. Hill
/s/ A. Malachi Mixon III* Director
- -----------------------------
A. Malachi Mixon III
/s/ Kevin O'Donnell* Director
- -----------------------------
Kevin O'Donnell
/s/ D. Van Skilling* Director
- -----------------------------
D. Van Skilling
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to a Power of Attorney executed on
behalf of the above named directors of The Lamson & Sessions Co. and filed
herewith as Exhibit 24 on behalf of The Lamson & Sessions Co. and each
such person.
March 11, 1996
By /s/ James J. Abel
-------------------------------------
James J. Abel, Attorney-in-fact
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39
EXHIBIT INDEX
EXHIBIT NO. PAGE
- ----------- -----
Management Contracts and Compensatory Plans are identified with an asterisk (*).
3(a) Amended Articles of Incorporation of the Company (incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on June
1, 1989).
3(b) Amended Code of Regulations of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form
10-K for the year December 31, 1994).
4(a) Specimen Certificate of Common Shares, without par value with Rights
legend (incorporated by reference to Exhibit 3 to the Company's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on June 1, 1989).
4(e) Form of Rights Certificate (incorporated by reference to Exhibit
4(oo) to the Company's Registration Statement on Form 8-A filed with
the Securities and Exchange Commission on August 25, 1988).
4(g) Rights Agreement, amended and restated as of February 14, 1990, by
and between the Company and National City Bank filed herewith.
10(a) 1988 Incentive Equity Performance Plan (as amended on September 22,
1988, February 23, 1989, December 20, 1990 and April 24, 1992)
(incorporated by reference to Exhibit 28 of the Company's
Registration Statement, on Form S-8 and Form S-3 (Registration No.
33-54732) filed with the Securities and Exchange Commission on
November 20, 1992).
* 10(b) Form of Three-Year Employment Agreement between the Company and
certain executive officers filed herewith.
* 10(c) Form of Two-Year Employment Agreement between the Company and
certain executive officers (incorporated by reference to Exhibit
10(c) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
* 10(d) Corporate Officers Incentive Compensation Plan (incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
* 10(e) Form of Amended and Restated Supplemental Executive Retirement
Agreement dated as of March 20, 1990 between the Company and
certain of its executive officers filed herewith.
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40
EXHIBIT INDEX
EXHIBIT NO. PAGE
- ----------- ----
* 10(f) The Company's Deferred Compensation Plan for Nonemployee Directors filed
herewith.
* 10(g) Form of Indemnification Agreement between the Company and the Directors
and certain officers (incorporated by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
* 10(h) The Company's Long Term Incentive Plan (incorporated by reference to
Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1991).
10(j) Mortgage and Security Agreement, dated October 29, 1993, between The
Lamson & Sessions Co. and PFL Life Insurance Company (incorporated
herein by reference to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the year ended January 1, 1994).
10(k) Asset Purchase Agreement between Iochpe-Maxion Ohio, Inc. and The Lamson
& Sessions Co. dated as of May 4, 1994 (incorporated by reference to Exhibit
10 to the Company's Current Report on Form 8-K dated as of May 27, 1994).
10(s) Amended and Restated Loan Agreement dated as of July 14, 1995 by and
between the Company and General Electric Capital Corporation
(incorporated by reference to Exhibit 10(g) to the Company's Quarterly
Report on Form 10-Q for the period ended July 1, 1995, the "GECC
Loan Agreement").
10(t) Amendment No. 1 dated as of October 30, 1995, to the GECC Loan
Agreement, filed herewith.
10(u) Amendment No. 2 and Consent dated as of November 8, 1995 to the GECC
Loan Agreement, filed herewith.
11 Computation of Earnings Per Common Share filed herewith.
21 Subsidiaries of the Registrant filed herewith.
23 Consent of Independent Accountants filed herewith.
24 Powers of Attorney filed herewith.
27 Financial Data Schedule (Submitted for the SEC's Information) filed herewith.
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