SecProbe.io

CORRESP
1
filename1.htm

corresp

March 9, 2010

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street N.E.

Mail Stop 4631

Washington, D.C. 20549

Attn: John Hartz, Senior Assistant Chief Accountant

    RE:

    Lawson Products, Inc.

Form 10-K for Fiscal Year Ended December 31, 2008

Form 10-K/A Filed April 29, 2009

Form 10-Q for the Period Ended September 30, 2009

File No. 0-10546

Dear Mr. Hartz,

     As Senior Vice President and Chief Financial Officer of Lawson Products, Inc. (“Lawson” or the
“Company”), I am responding to the letter from the staff of the Division of Corporation Finance of
the United States Securities and Exchange Commission (“Staff”) dated February 25, 2010, containing
follow-up comments on the above-referenced filings. For your convenience, we have included in this
letter each of the Staff’s comments before providing our response to that comment. As noted in our
responses below, all proposed revisions refer to Lawson’s intended method for complying with the
Staff’s comments in Lawson’s future filings with the Commission, if appropriate, given the then
current facts and circumstances.

FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2008

Prior Comments 2 and 3

    1.

    We note your responses to prior comments 2 and 3 and your proposed disclosures. In future
filings, please expand your proposed disclosures to clarify and explain if and how the “market
approach” you use to estimate the fair value of your reporting unit that includes goodwill
considers your market capitalization relative to your net book value. Please provide us your
proposed revisions supplementally.

Response:

     In future filings we will expand the disclosure of our goodwill critical accounting policy to
clarify and explain how we reconcile our market capitalization relative to the net book value of
the reporting unit that includes goodwill. Following is our proposed goodwill critical accounting
policy with the expanded disclosure included in the third paragraph (expanded proposed supplemental
disclosure is underlined):

     Goodwill Impairment — Goodwill, all of which is included in our Lawson Products business
unit, is tested annually during the fourth quarter, or when events occur or circumstances change
that would more likely than not reduce the fair value of the reporting unit below its carrying
value. Impairment of goodwill is evaluated using a two step process. First the fair value of the
reporting unit is compared with its carrying amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount,

1

goodwill of the reporting unit is not considered impaired, and thus, the second step of the
impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair
value, the second step of the goodwill impairment test is performed to measure the amount of
impairment loss, if any.

     We estimate the fair value of the Lawson Products business unit using a market approach, which
relies on the market value of companies that are engaged in the same line of business. We also
prepare a discounted cash flow (“DCF”) analysis based on the operating plan presented to our Board
of Directors, to determine a range of fair values. The DCF model relies on a number of assumptions
that have a significant affect on the resulting fair value calculation and may change in future
periods. Estimated future cash flows are affected both by future economic conditions outside the
control of management and operating results directly related to management’s execution of our
business strategy. Our DCF model is also affected by our estimate of a discount rate that is
consistent with the weighted average cost of capital that we anticipate a potential market
participant would use.

     We then assess the reasonableness of our estimate of the fair value of the Lawson Products
business unit. This is done by applying the same valuation methodology and estimates described
above to the entire Company and reconciling the resulting estimated fair value of the consolidated
Company to its market capitalization based on the trading range of the Company’s stock near the
measurement date.

     Currently, the calculated fair value of the Lawson business unit exceeds its carrying value by
over [___] million using our most conservative estimate and, therefore, is not considered impaired.
Changes in the assumptions used in our DCF calculation could have a material affect on the fair
value estimate and could change our assessment of impairment. A hypothetical 10% decrease in the
estimated future annual cash flows generated by the Lawson business unit would decrease its
estimated fair value by [___] million. A hypothetical 100 basis point increase in the discount rate
would decrease its estimated fair value by [___] million.

FORM 10K/A FILED APRIL 29, 2009

Compensation Discussion & Analysis, page 5

Elements of Total Compensation, page 7

Annual Incentive Plan (“AIP”), page 8

    2.

    We note your responses to prior comment 6 in our letter dated December 31, 2009. We also note
your disclosure in the first paragraph on page 9 of the Form 10-K/A in which you state that
payout levels for all NEOs (except Mr. Jenkins) were below the target levels for each
executive’s individual performance goals component. With respect to your proposed future
disclosure of the specific weightings for each NEO’s individual performance goals, please also
disclose in future filings whether each NEO achieved each individual performance goal.

Response:

     In future filings we will expand our disclosure of NEO payout levels by stating whether each
NEO achieved his or her individual performance goal and the respective percentage earned.

2

FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2009

Prior Comment 11

    3.

    Based on your response to prior comment 11, it is not clear to us how and why a decline in
inventory reserves through the sale of slower moving items had a favorable impact on FY 2008
gross margins as you disclosed. Please explain your disclosure in light of your response or
tell us how you intend to revise it in future filings.

Response:

     To reduce our inventory to a lower of cost or market value, we record a reserve for
slow-moving and obsolete inventory based on historical experience. The inventory reduction program
that we initiated in 2008 was designed to focus our sales force on selling slower moving items to
customers as well as requesting product returns to our vendors. The program was more successful
than anticipated and resulted in the realization of a higher than normal gross margin as the
inventory sold had a lower cost basis as a result of previously established reserves. We have
included the 2008 results in our on-going evaluation of the recoverability of slow moving, excess
and obsolete inventory.

     Management did not consider the effect of the inventory reduction program on our segmental
gross profit margin to be as significant for the year ended December 31, 2008 as it was for the
third quarter of 2008. Therefore, we did not include a disclosure of the inventory reserve program
in the Management’s Discussion and Analysis in the Forms 10-K for the fiscal years ended December
31, 2009 and 2008. In future filings, if an inventory reduction program significantly affects our
gross margin percentage, we will expand our Management’s Discussion and Analysis to more fully
explain this occurrence.

******

I trust that the foregoing has been responsive to the Staff’s comments. All inquiries, questions,
comments, notices and orders with respect to this letter, should be directed to the undersigned at
(847) 827-9666 x 2665 or via facsimile at (847) 827-0063.

Sincerely,

    /s/ Ronald J. Knutson

    Ronald J. Knutson

    Senior Vice President and

Chief Financial Officer

    cc:

    Anne McConnell, Division of Corporation Finance

Bret Johnson, Division of Corporation Finance

3