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 March 31, 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.
11,130,464 Shares, $1 par value, as of April 18, 1997.
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<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
(Amounts in thousands) 1997 1996
<CAPTION> ------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
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Current Assets:
Cash and cash equivalents $ 11,726 $ 14,515
Marketable securities 15,465 14,266
Accounts receivable, less
allowance for doubtful accounts 30,873 30,326
Inventories (Note B) 38,515 37,047
Miscellaneous receivables and
prepaid expenses6,5336,340
Deferred income taxes 668 606
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Total Current Assets 103,780 103,100
Marketable securities 12,875 13,453
Property, plant and equipment, less
allowances for depreciation and
amortization 40,291 40,053
Investments in real estate 3,377 3,305
Deferred income taxes 3,748 3,758
Other assets 12,268 11,493
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Total Assets $176,339 $175,162
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</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C> <C>
Current Liabilities:
Accounts payable $ 6,390 $ 6,007
Accrued expenses and other liabilities 14,864 15,850
Income taxes 4,717 2,493
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Total Current Liabilities 25,971 24,350
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Accrued liability under security
bonus plans 13,101 12,887
Other 9,379 9,179
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22,480 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 - 11,137,464 shares;
1996 - 11,311,464 shares) 11,137 11,311
Capital in excess of par value 504 512
Retained earnings 116,930 117,234
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128,571 129,057
Other (683) (311)
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Total Stockholders' Equity 127,888 128,746
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Total Liabilities and Stockholders'
Equity $176,339 $175,162
==========================
<FN>
See notes to condensed consolidated financial statements.
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</TABLE>
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(Amounts in thousands, except per share data)
<CAPTION>
For the
Three Months Ended
March 31,
1997 1996
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<S> <C> <C>
Net sales $65,883 $56,108
Investment and other income 418 631
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66,301 56,739
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Cost of goods sold (Note B) 22,731 16,678
Selling, general and
administrative expenses 35,621 33,272
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58,352 49,950
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Income before income taxes 7,949 6,789
Provision for income taxes 3,227 2,765
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Net income $ 4,722 $ 4,024
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Net income per share of
common stock $0.42 $0.35
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Cash dividends declared per
share of common stock $0.13 $0.13
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Weighted average shares
outstanding 11,209 11,622
========= =========
<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
Three months ended
March 31,
1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 4,722 $ 4,024
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,111 1,003
Changes in operating assets and liabilities (1,586) 22
Other 478 545
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Net Cash Provided by Operating Activities 4,725 5,594
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Investing activities:
Additions to property, plant and equipment (1,339) (1,079)
Purchases of marketable securities (61,986) (141,305)
Proceeds from sale of marketable securities 61,080 140,409
Other --- 50
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Net Cash Used in Investing Activities (2,245) (1,925)
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Financing activities:
Purchases of treasury stock (3,761) (2,095)
Dividends paid (1,508) (1,519)
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Net Cash Used in Financing Activities (5,269) (3,614)
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Increase/(Decrease) in Cash
and Cash Equivalents (2,789) 55
Cash and Cash Equivalents at Beginning of Period 14,515 10,432
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Cash and Cash Equivalents at End of Period $ 11,726 $ 10,487
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<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 March 31, 1997, the Condensed Consolidated
Statements of Income for the three month periods ended March 31,
1997 and 1996 and the Condensed Consolidated Statements of Cash
Flows for the three month periods ended March 31, 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 quarter ended
March 31, 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 March
31, 1997 and cost of goods sold for the three month periods ended
March 31, 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 quarters ended March 31, 1997 and
March 31, 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 March 31,
1997 and the related condensed consolidated statements of income
and cash flows for the three month periods ended March 31, 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
April 18, 1997
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Part I
April 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 April 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 March 31, 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 three months ended
March 31, 1997 decreased to $4,725,000 from $5,594,000 in the
similar period of the prior year. This decline was due primarily
to an increase in inventory, 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 $1,339,000 and $1,079,000, respectively, for the
three months ended March 31, 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, is expected to
be 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
three months of 1997, the Company expended $3,761,000 to acquire
174,000 shares under the 1996 stock repurchase program. To date,
466,000 shares have been purchased relative to the 1996 stock
repurchase program. During the first quarter 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 March 31, 1997 have been retired.
Net sales for the three month period ended March 31, 1997,
increased 17.4% to $65,883,000 relative to the similar period of
1996. The sales advance is 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 advanced 17.3% to $4,722,000 ($.42 per share) for the
three months ended March 31, 1997 from $4,024,000 ($.35 per
share) for the comparable period of 1996. This increase is
attributable to the gain 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, 4, and 5 are inapplicable and have been omitted
from this report.
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 April 18, 1997 /s/ Bernard Kalish
Bernard Kalish
Chairman of the Board
Dated April 18, 1997 /s/ Joseph L. Pawlick
Joseph L. Pawlick
Vice President and Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,726
<SECURITIES> 28,340
<RECEIVABLES> 30,873
<ALLOWANCES> 0
<INVENTORY> 38,515
<CURRENT-ASSETS> 103,780
<PP&E> 40,291
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,339
<CURRENT-LIABILITIES> 25,971
<BONDS> 0
<COMMON> 11,137
0
0
<OTHER-SE> 116,751
<TOTAL-LIABILITY-AND-EQUITY> 176,339
<SALES> 65,883
<TOTAL-REVENUES> 66,301
<CGS> 22,731
<TOTAL-COSTS> 22,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 259
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 7,949
<INCOME-TAX> 3,227
<INCOME-CONTINUING> 4,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,722
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
