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, 1998 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.
11,135,533 Shares, $1 par value, as of April 17, 1998.
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in thousands) March 31, December 31,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,135 $ 10,248
Marketable securities 13,720 11,638
Accounts receivable, less allowance for
doubtful accounts 33,933 33,714
Inventories (Note B) 43,005 41,788
Miscellaneous receivables and prepaid
expenses 6,195 5,760
Deferred income taxes 843 836
Total Current Assets 113,831 103,984
Marketable securities 17,656 21,713
Property, plant and equipment, less
allowances for depreciation and
amortization 42,233 40,963
Investments in real estate 3,843 3,731
Deferred income taxes 4,942 4,447
Other assets 14,895 14,136
Total Assets $ 197,400 $ 188,974
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,255 $ 4,928
Accrued expenses and other liabilities 17,686 17,902
Income taxes 4,934 1,641
Total Current Liabilities 28,875 24,471
Accrued liability under security bonus plans 14,233 14,000
Other 10,799 10,578
25,032 24,578
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 - (1998 - 11,135,533 shares;
1997 - 11,135,233 shares) 11,136 11,135
Capital in excess of par value 777 770
Retained earnings 131,672 128,708
Accumulated other comprehensive income (92) (688)
Total Stockholders' Equity 143,493 139,925
Total Liabilities and Stockholders'
Equity $ 197,400 $ 188,974
See notes to condensed consolidated financial statements.
</TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE> For the
<CAPTION> Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Net sales $ 70,363 $ 65,883
Investment and other income 641 418
71,004 66,301
Cost of goods sold (Note B) 24,828 22,731
Selling, general and administrative expenses 38,448 35,621
63,276 58,352
Income before income taxes 7,728 7,949
Provision for income taxes 3,205 3,227
Net income $ 4,523 $ 4,722
Net income per share of common stock:
Basic $ 0.41 $ 0.42
Diluted $ 0.40 $ 0.42
Cash dividends declared per share of common stock $ 0.14 $ 0.13
Weighted average shares outstanding:
Basic 11,135 11,209
Diluted 11,175 11,209
See notes to condensed consolidated financial statements.
</TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands)
For the
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Operating activities:
Net income $ 4,523 $ 4,722
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,403 1,111
Changes in operating assets and liabilities 1,330 (1,586)
Other 517 478
Net Cash Provided by Operating Activities 7,773 4,725
Investing activities:
Additions to property, plant and equipment (2,601) (1,339)
Purchases of marketable securities (59,005) (61,986)
Proceeds from sale of marketable securities 61,171 61,080
Other 100 ---
Net Cash Used in Investing Activities (335) (2,245)
Financing activities:
Purchases of treasury stock --- (3,761)
Dividends paid (1,559) (1,508)
Other 8 ---
Net Cash Used in Financing Activities (1,551) (5,269)
Increase/(Decrease) in Cash and Cash 5,887 (2,789)
Equivalents
Cash and Cash Equivalents at Beginning of
Period 10,248 14,515
Cash and Cash Equivalents at End of Period $ 16,135 $ 11,726
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, 1997. The Condensed
Consolidated Balance Sheet as of March 31, 1998, the Condensed Consolidated
Statements of Income for the three month periods ended March 31, 1998 and 1997
and the Condensed Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1998 and 1997 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, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
B) Inventories (consisting of primarily finished goods) at March 31, 1998 and
cost of goods sold for the three month periods ended March 31, 1998 and 1997
were determined through the use of estimated gross profit rates.
C) As of January 1, 1998, the Company adopted FASB Statement 130, Reporting
Comprehensive Income, (SFAS 130). SFAS 130 establishes new rules for reporting
and display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company s net income or stockholders
equity. SFAS 130 requires unrealized gains or losses on the Company s
available-for-sale securities and foreign currency translation adjustments to be
included in other comprehensive income, which prior to adoption were reported
separately in stockholders equity.
Total comprehensive income and its components, net of related tax, for the first
quarter of 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income $4,522,749 $4,722,157
Unrealized gains(losses) on securities 148,000 (130,000)
Foreign currency translation
adjustments 447,858 (241,921)
Comprehensive income $5,118,607 $4,350,236
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
March 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unrealized gain on securities $ 711,000 $ 563,000
Foreign currency translation
adjustments (802,837) (1,250,695)
Accumulated other
comprehensive income $ (91,837) $ (687,695)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 131, Disclosure about Segments of an Enterprise and
Related Information (SFAS 131), which is effective for years beginning after
December 15, 1997. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements retroactively in 1998. Management has
not completed its review of SFAS 131, but does not anticipate that the adoption
of the statement will have a significant effect on the Company s reported
financial disclosures.
D) Earnings per Share
The calculation of dilutive weighted average shares outstanding at March 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Basic weighted average shares
outstanding 11,135,383 11,209,214
Dilutive impact of options
outstanding 39,388 ---
Dilutive weighted average
shares outstanding 11,174,771 11,209,214
</TABLE>
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 March 31, 1998 and the related condensed
consolidated statements of income and cash flows for the three month periods
ended March 31, 1998 and 1997. 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 review, 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, 1997, 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 27, 1998, 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, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
April 17, 1998
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales for the three month period ended March 31, 1998 increased 6.8% to
$70,363,000 relative to the similar period of 1997. The sales gain reflects
increased contribution from substantially all Lawson operations.
Net income declined 4.8% to $4,523,000 ($.40 per diluted share) for the three
months ended March 31, 1998 from $4,723,000 ($.42 per share) for the comparable
period of 1997. This decrease is primarily attributable to lower gross margins
and higher selling costs due to a restructuring of the sales force in the first
quarter, which more than offset the gains in net sales noted above. Per share
net income for 1998 and 1997 was positively impacted by the Company s share
repurchase program.
Cash flows provided by operations for the three months ended March 31, 1998
increased to $7,773,000 from $4,725,000 in the similar period of the prior year.
This increase was due primarily to an increase in operating liabilities
(principally accounts payable and income taxes payable), which more than offset
the decline in net income from the comparable period of 1997. 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 $2,601,000 and $1,339,000,
respectively, for the three months ended March 31, 1998 and 1997. Capital
expenditures during 1998 primarily reflect costs incurred relative to the
construction of a new Lawson outbound facility in Atlanta, Georgia and purchases
of computer related equipment. The new facility, expected to be completed
during 1999 at a cost of approximately $7,000,000, will be used in place of the
Norcross, Georgia facility, which will be closed. 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 was completed at a cost of approximately $3,000,000.
In 1996, the Board of Directors authorized the purchase of up to 1,000,000
shares of the Company s common stock. No shares were purchased during 1998,
while 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,
479,500 shares have been purchased relative to the 1996 stock repurchase
program. All treasury shares purchased as of March 31, 1998 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 April 17, 1998 /s/ Bernard Kalish
Bernard Kalish
Chairman of the Board
Dated April 17, 1998 /s/ Joseph L. Pawlick
Joseph L. Pawlick
Vice President and Controller
Exhibit 15
April 17, 1998
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 17, 1998 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, 1998.
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,135
<SECURITIES> 31,376
<RECEIVABLES> 35,616
<ALLOWANCES> 1,683
<INVENTORY> 43,005
<CURRENT-ASSETS> 113,831
<PP&E> 71,429
<DEPRECIATION> 29,196
<TOTAL-ASSETS> 197,400
<CURRENT-LIABILITIES> 28,875
<BONDS> 0
0
0
<COMMON> 11,136
<OTHER-SE> 132,357
<TOTAL-LIABILITY-AND-EQUITY> 197,400
<SALES> 70,363
<TOTAL-REVENUES> 71,004
<CGS> 24,828
<TOTAL-COSTS> 24,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 273
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 7,728
<INCOME-TAX> 3,205
<INCOME-CONTINUING> 4,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,523
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
