MRO Magazine

MRO distributor Lawson Products announces strategic restructuring

Chicago, IL -- Lawson Products Inc. has announced a strategic restructuring consisting of initiatives to reduce its cost structure, improve operating efficiency, enhance revenues and improve its liquidity position. All of the initiatives are...


Chicago, IL — Lawson Products Inc. has announced a strategic restructuring consisting of initiatives to reduce its cost structure, improve operating efficiency, enhance revenues and improve its liquidity position. All of the initiatives are designed to strengthen the company’s ability to compete in the MRO marketplace and have a positive impact on its operating results.

Lawson Products sells MRO products in all 50 states of the US, Canada , Mexico, and the Caribbean. Founded in 1952 and headquartered in Des Plaines IL., the company had 2010 sales of $316.8 million, selling and distributing specialty products to the industrial, commercial, institutional and government maintenance, repair and operations market (MRO). The Company also manufactures sells and distributes specialized component parts, with services to original equipment manufacturers (OEM’s) through Automatic Screw Machine Products Company (ASMP).

When its restructuring is fully implemented, the company says its actions will create a simplified and flattened organizational structure and are expected to generate net annualized savings of approximately $20.0 million.

In conjunction with these initiatives, the company said it has received a commitment letter from its lender to replace its existing credit facility with a new five-year, $40-million facility, which provides additional flexibility to meet financial covenants going forward. Lawson Products also said it anticipates it will record pre-tax charges for the second quarter of approximately $40.0 million, of which $33.0 million will be non-cash.

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“We have made significant progress over the past 18 months in the transformation of the company, including the implementation of our ERP system, commencing the sales-channel transformation and optimizing our distribution network,” stated Thomas Neri, president and chief executive officer. “At the same time, with an increased focus on MRO, we have consolidated a number of units and sold two non-core operations, which represented approximately $80 million of annual revenue at the time of their sales.

“It is necessary, therefore, that we adjust our cost structure to better balance against our current revenue base in order for us to improve our operating results. Accordingly, the company is taking the steps it believes necessary to build the foundation of operational excellence required to succeed.”

Restructuring Initiatives

• Cost Structure. With an objective of making the company leaner and more cost efficient, Lawson Products is eliminating approximately 100 positions (11%) from its current workforce. As part of this action, it is eliminating several senior executive positions, including the open chief operating officer position. The workforce reduction, which does not include a reduction in the company’s sales force, is expected to result in a one-time severance charge of approximately $7.0 million for the second quarter of 2012.

The company also expects to complete other cost-cutting measures such as a rationalization of inventory and reduction of controllable costs such as travel, marketing and net outbound freight expenses. In total, these cost-cutting measures, when fully implemented, are expected to generate approximately $20.0 million of net annualized savings.

• Operating Efficiency. The company is taking several steps to improve the efficiency of its operations, including simplifying its business processes, flattening the organization (with fewer vertical functions and a streamlined reporting process) and recapturing lost margin opportunities. As previously announced, it is streamlining its customer-fulfillment process and inventory management with its consolidation of three Illinois locations into a single operation in McCook, IlL, which will be the hub for the Midwest.

• Revenue Enhancement. Lawson Products said it expects the cost-saving and efficiency benefits derived from the restructuring to support, and help increase, its focus on several initiatives designed to drive revenue. These include emphasizing target accounts, core products and service delivery (especially vendor-managed inventory), accelerating its sales-transformation process, completing its tier-pricing model and launching its e-commerce site.

• Revised Credit Agreement. The company has received a commitment from its lender to enter into a new five-year, $40.0 million credit facility that will provide greater flexibility for the Company to meet its financial covenants. The facility will replace its existing $55.0 million credit facility. The company said that, in connection with the new facility, it expects to receive a waiver under the existing facility for compliance with the minimum EBITDA covenant for the quarter ended June 30, 2012.

• Anticipated Second Quarter Charges. In addition to the approximate $7.0 million pre-tax severance charge associated with the workforce reductions, the company said it anticipates taking additional pre-tax charges of approximately $33.0 million in one-time non-cash write-offs for the second quarter. These charges primarily consist of an impairment of goodwill of $28.0 million, which was generated from an acquisition in 2001 and was deemed impaired under the required accounting guidance.

As a result of rationalizing inventory, the company will also record additional inventory reserves of approximately $5.0 million for the quarter. The anticipated charges are pre-tax and exclude any potential reserves that may be required on the recoverability of deferred tax balances.

Going forward

Mr. Neri noted that the company’s strategic restructuring builds on earlier activities, including the consolidation of activities aimed at tightening the company’s MRO focus, the implementation of SAP, which went live in August 2011, as well as the network-optimization and sales-transformation initiatives. He added that Lawson Products has begun to realize benefits from the SAP implementation.

The company continues to evaluate and optimize its network, as evidenced by the consolidation in McCook. Additionally, the company continues to move forward with its sales channel transformation actions to further leverage customer purchases.

“Looking to the future, we believe this restructuring will enable the company to better leverage its clear competitive advantages and enhance its operating results,” Mr. Neri said. “Our deep product knowledge and product-application expertise; value-added services, such as inventory management; high penetration of private label products, and broad geographic sales coverage, will continue to highlight Lawson Products’ differentiated positioning in the fragmented MRO industry.”