SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
Quarterly Report under Section 13 or 15(d) of
The Securities Exchange Act of 1934
________________________
For Quarter Ended September 30, 1997 Commission file no. 0-10546
LAWSON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2229304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1666 East Touhy Avenue, Des Plaines, Illinois 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (847) 827-9666
Not applicable
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.
11,135,133 Shares, $1 par value, as of November 10, 1997.
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Amounts in thousands) September 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 16,491 $ 14,515
Marketable securities 10,017 14,266
Accounts receivable, less allowance for doubtful
accounts 34,829 30,326
Inventories (Note B) 41,194 37,047
Miscellaneous receivables and prepaid expenses 6,400 6,340
Deferred income taxes 676 606
Total Current Assets 109,607 103,100
Marketable securities 14,870 13,453
Property, plant and equipment, less allowances for
depreciation and amortization 40,144 40,053
Investments in real estate 3,481 3,305
Deferred income taxes 4,238 3,758
Other assets 12,467 11,493
Total Assets $ 184,807 $ 175,162
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,468 $ 6,007
Accrued expenses and other liabilities 16,793 15,850
Income taxes 2,405 2,493
Total Current Liabilities 24,666 24,350
Accrued liability under security bonus plans 13,784 12,887
Other 10,158 9,179
23,942 22,066
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 - 11,124,939 shares;
1996 - 11,311,464 shares) 11,125 11,311
Capital in excess of par value 520 512
Retained earnings 125,167 117,234
136,812 129,057
Other (613) (311)
Total Stockholders' Equity 136,199 128,746
Total Liabilities and Stockholders' Equity $ 184,807 $ 175,162
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
(Amounts in thousands, except per share data)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 71,420 $ 66,303 $207,693 $185,890
Investment and other
income 408 475 1,188 1,525
71,828 66,778 208,881 187,415
Cost of goods sold
(Note B) 24,331 22,856 71,167 60,286
Selling, general and
administrative
expenses 37,453 35,651 110,258 103,965
61,784 58,507 181,425 164,251
Income before income
taxes 10,044 8,271 27,456 23,164
Provision for income
taxes 4,165 3,443 11,206 9,583
Net income $ 5,879 $ 4,828 $ 16,250 $ 13,581
Net income per share of
common stock $ 0.53 $ 0.42 $ 1.46 $ 1.17
Cash dividends declared
per
share of common stock $ 0.14 $ 0.13 $ 0.40 $ 0.39
Weighted average shares
outstanding 11,125 11,601 11,158 11,609
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(Amounts in thousands)
For the
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 16,250 $ 13,581
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,746 2,981
Changes in operating assets and liabilities (10,303) (4,697)
Other 1,875 2,353
Net Cash Provided by Operating Activities 11,568 14,218
Investing activities:
Additions to property, plant and equipment (3,886) (2,774)
Purchases of marketable securities (118,637) (318,335)
Proceeds from sale of marketable securities 121,302 327,600
Acquisition of Automatic Screw Machine Products, - (10,506)
net of cash acquired
Other 40 100
Net Cash Used in Investing Activities (1,181) (3,915)
Financing activities:
Purchases of treasury stock (4,062) (2,095)
Dividends paid (4,366) (4,535)
Other 17 9
Net Cash Used in Financing Activities (8,411) (6,621)
Increase in Cash and Cash Equivalents 1,976 3,682
Cash and Cash Equivalents at Beginning of Period 14,515 10,432
Cash and Cash Equivalents at End of Period $ 16,491 $ 14,114
See notes to condensed consolidated financial statements.
</TABLE>
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 September 30, 1997, the Condensed Consolidated
Statements of Income for the three and nine month periods ended September 30,
1997 and 1996 and the Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 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 nine
month periods ended September 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 September 30, 1997
and cost of goods sold for the three and nine month periods ended September 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 nine months
ended September 30, 1997 and September 30, 1996 is not material.
Part I
Independent Accountants' 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 September 30, 1997 and the related
condensed consolidated statements of income for the three month and nine month
periods ended September 30, 1997 and 1996 and the condensed consolidated
statements of cash flows for the nine month periods ended September 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
October 17, 1997
Part I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales for the three and nine month periods ended September 30, 1997,
increased 7.7% to $71,420,000 and 11.7% to $207,693,000 relative to the similar
periods of 1996. The gains are primarily the result of both a gain in the
number of orders processed and sales related to the business acquired in April,
1996.
Net income for the third quarter rose 21.8% to $5,879,000 ($.53 per share) from
$4,828,000 ($.42 per share) while net income for the nine months ended September
30, 1997 increased 19.6% to $16,250,000 ($1.46 per share) from $13,581,000
($1.17 per share) relative to the similar periods of 1996. The third quarter
increase is attributable to the gains in net sales noted above and cost
containment efforts. The nine month period also benefitted from gains in net
sales 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.
Cash flows provided by operations for the nine months ended September 30, 1997
decreased to $11,568,000 from $14,218,000 in the similar period of the prior
year. This decline was due primarily to an increase in operating assets
(principally accounts receivable and inventory) and a decrease in operating
liabilities, which more than offset the gain in net income from the comparable
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
$3,886,000 and $2,774,000, respectively, for the nine months ended September 30,
1997 and 1996. Capital expenditures during 1997 primarily reflect purchases of
computer related equipment and 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.
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 nine 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 nine 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
September 30, 1997 have been retired.
Part II
OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted from this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) 15 Letter from Ernst & Young LLP Regarding Unaudited Interim
Financial Information
27 Financial Data Schedule
(b) The registrant was not required to file Form 8-K for the most
recently completed quarter.
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 November 13, 1997 /s/ Bernard Kalish
Bernard Kalish
Chairman of the Board
Dated November 13, 1997 /s/ Joseph L. Pawlick
Joseph L. Pawlick
Vice President and Controller
Exhibit 15
Part I
October 17, 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 October 17, 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 September 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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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Lawson
Product's, Inc. Form 10-Q and is qualified in its entirety by reference to such
Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,491
<SECURITIES> 24,887
<RECEIVABLES> 34,829
<ALLOWANCES> 0
<INVENTORY> 41,194
<CURRENT-ASSETS> 109,607
<PP&E> 40,144
<DEPRECIATION> 0
<TOTAL-ASSETS> 184,807
<CURRENT-LIABILITIES> 24,666
<BONDS> 0
0
0
<COMMON> 11,125
<OTHER-SE> 125,074
<TOTAL-LIABILITY-AND-EQUITY> 184,807
<SALES> 207,693
<TOTAL-REVENUES> 1,188
<CGS> 71,167
<TOTAL-COSTS> 71,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 780
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 27,456
<INCOME-TAX> 11,206
<INCOME-CONTINUING> 16,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,250
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
