SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
Quarterly Report under Section 13 or 15(d) of
The Securities Exchange Act of 1934
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For Quarter Ended June 30, 1997 Commission file no. 0-10546
LAWSON PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-2229304
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1666 East Touhy Avenue, Des Plaines, Illinois 60018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (847) 827-9666
Not applicable
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Former name, former address and former fiscal year, if changed
since last report.
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
11,124,714 Shares, $1 par value, as of July 18, 1997.
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<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
(Amounts in thousands) 1997 1996
<CAPTION> ------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
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Current Assets:
Cash and cash equivalents $ 11,537 $ 14,515
Marketable securities 11,305 14,266
Accounts receivable, less
allowance for doubtful accounts 32,890 30,326
Inventories (Note B) 41,144 37,047
Miscellaneous receivables and
prepaid expenses 6,342 6,340
Deferred income taxes 680 606
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Total Current Assets 103,898 103,100
Marketable securities 12,623 13,453
Property, plant and equipment, less
allowances for depreciation and
amortization 40,216 40,053
Investments in real estate 3,409 3,305
Deferred income taxes 3,973 3,758
Other assets 12,451 11,493
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Total Assets $176,570 $175,162
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</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C> <C>
Current Liabilities:
Accounts payable $ 5,909 $ 6,007
Accrued expenses and other liabilities 14,001 15,850
Income taxes 1,777 2,493
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Total Current Liabilities 21,687 24,350
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Accrued liability under security
bonus plans 13,365 12,887
Other 9,610 9,179
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22,975 22,066
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Stockholders' Equity:
Preferred Stock, $1 par value:
Authorized - 500,000 shares
Issued and outstanding - None --- ---
Common Stock, $1 par value:
Authorized - 35,000,000 shares
Issued - (1997 - 11,124,714 shares;
1996 - 11,311,464 shares) 11,125 11,311
Capital in excess of par value 515 512
Retained earnings 120,845 117,234
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132,485 129,057
Other (577) (311)
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Total Stockholders' Equity 131,908 128,746
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Total Liabilities and Stockholders'
Equity$176,570$175, 162
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<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Amounts in thousands, except per share data)
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30 , June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $70,390 $63,479 $136,273 $119,587
Investment and other income 362 419 780 1,050
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70,752 63,898 137,053 120,637
--------- --------- --------- ---------
Cost of goods sold (Note B) 24,105 20,752 46,836 37,430
Selling, general and
administrative expenses 37,184 35,042 72,805 68,314
--------- --------- --------- ---------
61,289 55,794 119,641 105,744
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Income before income taxes 9,463 8,104 17,412 14,893
Provision for income taxes 3,814 3,375 7,041 6,140
--------- --------- --------- ---------
Net income $ 5,649 $ 4,729 $ 10,371 $ 8,753
========= ========= ========= =========
Net income per share of
common stock $0.51 $0.41 $0.93 $0.75
===== ===== ===== =====
Cash dividends declared per
share of common stock $0.13 $0.13 $0.26 $0.26
===== ===== ===== =====
Weighted average shares
outstanding 11,128 11,601 11,173 11,613
========= ========= ========= =========
<FN>
See notes to condensed consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<CAPTION>
For the
Six months ended
June 30,
1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 10,371 $ 8,753
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,463 1,942
Changes in operating assets and liabilities (10,814) (7,098)
Other 1,072 1,276
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Net Cash Provided by Operating Activities 3,092 4,873
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Investing activities:
Additions to property, plant and equipment (2,711) (1,841)
Purchases of marketable securities (91,284) (239,963)
Proceeds from sale of marketable securities 94,854 252,279
Acquisition of Automatic Screw Machine Products,
net of cash acquired --- (10,506)
Other 40 90
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Net Cash Provided by Investing Activities 899 59
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Financing activities:
Purchases of treasury stock (4,062) (2,095)
Dividends paid (2,919) (3,027)
Other 12 ---
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Net Cash Used in Financing Activities (6,969) (5,122)
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Decrease in Cash
and Cash Equivalents (2,978) (190)
Cash and Cash Equivalents at Beginning of Period 14,515 10,432
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Cash and Cash Equivalents at End of Period $ 11,537 $ 10,242
========= =========
<FN>
See notes to condensed consolidated financial statements.
/TABLE
<PAGE>
Part I
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
A) As contemplated by the Securities and Exchange Commission, the
accompanying consolidated financial statements and footnotes have
been condensed and therefore, do not contain all disclosures
required by generally accepted accounting principles. Reference
should be made to the Company's Annual Report to Stockholders for
the year ended December 31, 1996. The Condensed Consolidated
Balance Sheet as of June 30, 1997, the Condensed Consolidated
Statements of Income for the three and six month periods ended
June 30, 1997 and 1996 and the Condensed Consolidated Statements
of Cash Flows for the six month periods ended June 30, 1997 and
1996 are unaudited. In the opinion of the Company, all
adjustments (consisting only of normal recurring accruals) have
been made, which are necessary to present fairly the results of
operations for the interim periods. Operating results for the
three and six month periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
B) Inventories (consisting of primarily finished goods) at June
30, 1997 and cost of goods sold for the six month periods ended
June 30, 1997 and 1996 were determined through the use of
estimated gross profit rates.
C) On April 30, 1996 the Company purchased substantially all of
the assets and liabilities of Automatic Screw Machine Products
Company (Automatic) for cash of approximately $10,746,000. This
transaction was accounted for as a purchase, accordingly, the
accounts and transactions of Automatic have been included in the
consolidated financial statements since the date of acquisition.
D) In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share," which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary and fully diluted
earnings per share for the six months ended June 30, 1997 and
June 30, 1996 is not expected to be material.
The following exhibits are attached to Part I:
1. Letter from independent accountants furnished
pursuant to Rule 10.01 (d) of regulation S-X.
2. Letter from independent accountants furnished
pursuant to Item 601, #15 of regulation S-K.
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Part I
Independent Accountant's Review Report
Board of Directors
Lawson Products, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of Lawson Products, Inc. and subsidiaries as of June 30,
1997 and the related condensed consolidated statements of income
for the three month and six month periods ended June 30, 1997 and
1996 and the condensed consolidated statements of cash flows for
the six month periods ended June 30, 1997 and 1996. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Lawson
Products, Inc. as of December 31, 1996, and the related
consolidated statements of income, changes in stockholders'
equity and cash flows for the year then ended, not presented
herein, and in our report dated February 21, 1997, we expressed
an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
July 18, 1997
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Part I
July 18, 1997
Board of Directors
Lawson Products, Inc.
We are aware of the incorporation by reference in the
Registration Statement (Form S-8 No. 33-17912 dated November 4,
1987) of Lawson Products, Inc. of our report dated July 18, 1997
relating to the unaudited condensed consolidated interim
financial statements of Lawson Products, Inc. which are included
in its Form 10-Q for the quarter ended June 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report
is not part of the registration statement prepared or certified
by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG LLP
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Part I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Cash flows provided by operations for the six months ended June
30, 1997 decreased to $3,092,000 from $4,873,000 in the
comparable period of the prior year. This decline was due
primarily to an increase in operating assets and a decrease in
operating liabilities, which more than offset the gain in net
income from the similar period of 1996. Current investments and
cash flows from operations are expected to be sufficient to
finance the Company's future growth, cash dividends and capital
expenditures. Additions to property, plant and equipment were
$2,711,000 and $1,841,000, respectively, for the six months ended
June 30, 1997 and 1996. Capital expenditures during 1997
primarily reflect costs incurred for the completion of the
facilities expansion at the Company's specialty chemical
subsidiary, Drummond American Corporation. This project, the
total cost of which is approximately $3,000,000, was completed
during the second quarter of 1997. Capital expenditures during
1996 primarily reflect purchases of computer related equipment.
During the second quarter of 1996, the Company purchased
substantially all of the assets and liabilities of Automatic
Screw Machine Products Company (Automatic), headquartered in
Decatur, Alabama, at a cost of approximately $10,746,000.
Automatic is a manufacturer and distributor of production
components. The former business operations of Automatic are
conducted by new subsidiaries known as Assembly Component
Systems, Inc. and Automatic Screw Machine Products Company.
In 1996, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's common stock. During the first
six months of 1997, the Company expended $4,062,000 to acquire
187,500 shares under the 1996 stock repurchase program. To date,
479,500 shares have been purchased relative to the 1996 stock
repurchase program. During the first six months of 1996, the
Company spent $2,095,000 to acquire the remaining 86,000 shares
authorized under the 1994 stock repurchase program. All treasury
shares purchased as of June 30, 1997 have been retired.
Net sales for the three and six month periods ended June 30,
1997, advanced 10.9% to $70,390,000 and 14.0% to $136,273,000
relative to the comparable periods of 1996. The sales gains are
principally the result of both an increase in the number of
orders processed and sales related to the business acquired in April, 1996.
Net income for the second quarter advanced 19.5% to $5,649,000
($.51 per share) from $4,729,000 ($.41 per share) for the similar
period of 1996. Net income for the six months ended June 30,
1997 increased 18.5% to $10,371,000 ($.93 per share) from
$8,753,000 ($.75 per share) for the comparable period of 1996.
These increases are attributable to the gains in net sales noted
above and cost containment efforts, which more than offset lower
gross margins. Per share net income for 1997 and 1996 was
positively impacted by the Company's share repurchase program.
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Part II
OTHER INFORMATION
Items 1, 2, 3, and 5 are inapplicable and have been omitted
from this report.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of stockholders of Lawson
Products, Inc. was held on May 28, 1997.
(b) Not applicable.
(c1) Set forth below is the tabulation of the votes on
each nominee for election as a director:
For Withheld
Authority
Hugh Allen 10,116,937 126,469
James T. Brophy 10,118,160 125,246
Jerome Shaffer 10,117,934 125,472
(c2) Set forth below is the tabulation of the votes on
the proposal to amend the Company's Incentive
Stock Plan:
For Against Abstain
9,835,824 384,087 23,495
(c3) Set forth below is the tabulation of the votes on
the stockholder proposal concerning the sale or
merger of the Company:
For Against Abstain
566,836 8,990,671 58,810
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Not applicable.
(b) The registrant was not required to file Form 8-K
for the most recently completed quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
LAWSON PRODUCTS, INC.
(Registrant)
Dated July 18, 1997 /s/ Bernard Kalish
Bernard Kalish
Chairman of the Board
Dated July 18, 1997 /s/ Joseph L. Pawlick
Joseph L. Pawlick
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,537
<SECURITIES> 23,928
<RECEIVABLES> 32,890
<ALLOWANCES> 0
<INVENTORY> 41,144
<CURRENT-ASSETS> 103,898
<PP&E> 40,216
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,570
<CURRENT-LIABILITIES> 21,687
<BONDS> 0
<COMMON> 11,125
0
0
<OTHER-SE> 120,783
<TOTAL-LIABILITY-AND-EQUITY> 176,570
<SALES> 136,273
<TOTAL-REVENUES> 137,053
<CGS> 46,836
<TOTAL-COSTS> 46,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 520
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 17,412
<INCOME-TAX> 7,041
<INCOME-CONTINUING> 10,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,371
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
