UNITED STATES
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 quarterly period ended September 30, 2000 Commission file no. 0-10546
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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 incorporation or (I.R.S. Employer
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
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 9,706,404 Shares, $1 par value,
as of October 16, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Amounts in thousands, except share data) September 30, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,014 $ 11,975
Marketable securities 10,981 12,282
Accounts receivable, less allowance for doubtful accounts 42,848 41,108
Inventories (Note B) 52,395 55,485
Miscellaneous receivables and prepaid expenses 8,947 8,029
Deferred income taxes 1,436 1,389
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Total Current Assets 131,621 130,268
Marketable securities 1,590 4,695
Property, plant and equipment, less allowances for depreciation and amortization 39,925 41,989
Investments in real estate 4,548 4,108
Deferred income taxes 9,568 8,784
Other assets 28,878 26,147
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Total Assets $ 216,130 $ 215,991
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,717 $ 8,249
Accrued expenses and other liabilities 21,537 25,845
Income taxes 5,867 4,332
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Total Current Liabilities 34,121 38,426
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Accrued liability under security bonus plans 17,644 16,494
Other 11,651 11,031
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29,295 27,525
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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 and outstanding-(2000-9,706,404 shares; 1999-10,203,922 shares) 9,706 10,204
Capital in excess of par value 762 717
Retained earnings 143,925 140,201
Accumulated other comprehensive income (1,679) (1,082)
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Total Stockholders' Equity 152,714 150,040
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Total Liabilities and Stockholders' Equity $ 216,130 $ 215,991
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See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<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,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 85,424 $ 82,515 $ 256,045 $ 234,910
Cost of goods sold (Note B) 30,071 29,595 90,404 82,104
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Gross Profit 55,353 52,920 165,641 152,806
Selling, general and administrative expenses 45,116 43,678 133,983 125,720
Special charges 0 0 240 2,053
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Operating income 10,237 9,242 31,418 25,033
Investment and other income 499 700 1,606 2,617
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Income before income taxes 10,736 9,942 33,024 27,650
Provision for income taxes 4,358 4,081 13,485 11,386
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Net income $ 6,378 $ 5,861 $ 19,539 $ 16,264
============= ============= ============= =============
Net income per share of common stock:
Basic $ 0.66 $ 0.57 $ 1.97 $ 1.55
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Diluted $ 0.65 $ 0.57 $ 1.97 $ 1.55
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Cash dividends declared per share of common stock $ 0.15 $ 0.14 $ 0.45 $ 0.42
============= ============= ============= =============
Weighted average shares outstanding:
Basic 9,718 10,354 9,906 10,500
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Diluted 9,737 10,360 9,917 10,502
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See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(Amounts in thousands)
For the
Nine Months Ended
September 30,
2000 1999
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<S> <C> <C>
Operating activities:
Net income $ 19,539 $ 16,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,646 4,682
Changes in operating assets and liabilities (7,730) (7,120)
Other 625 44
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Net Cash Provided by Operating Activities 17,080 13,870
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Investing activities:
Additions to property, plant and equipment (2,223) (5,319)
Purchases of marketable securities (46,584) (83,794)
Proceeds from sale of marketable securities 51,012 96,412
Acquisition of SunSource Inventory Management Company, Inc. - (10,192)
Other 99 492
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Net Cash Provided by Investing Activities 2,304 (2,401)
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Financing activities:
Purchases of treasury stock (11,932) (7,094)
Dividends paid (4,497) (4,430)
Other 84 -
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Net Cash Used in Financing Activities (16,345) (11,524)
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Increase/(Decrease) in Cash and Cash Equivalents 3,039 (55)
Cash and Cash Equivalents at Beginning of Period 11,975 13,872
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Cash and Cash Equivalents at End of Period $ 15,014 $ 13,817
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
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 Lawson Products, Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 31, 1999. The
Condensed Consolidated Balance Sheet as of September 30, 2000, the Condensed
Consolidated Statements of Income for the three and nine month periods ended
September 30, 2000 and 1999 and the Condensed Consolidated Statements of Cash
Flows for the nine month periods ended September 30, 2000 and 1999 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, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
B) Inventories (consisting of primarily finished goods) at September 30, 2000
and cost of goods sold for the three and nine month periods ended September 30,
2000 and 1999 were determined through the use of estimated gross profit rates.
The difference between actual and estimated gross profit is adjusted in the
fourth quarter. In 1999, this adjustment increased net income by approximately
$1,689,000.
C) Total comprehensive income and its components, net of related tax, for the
first three and nine months of 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
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<S> <C> <C>
Net income $ 6,378 $ 5,861
Unrealized gain on marketable securities 4 -
Foreign currency translation adjustments (174) 111
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Comprehensive income $ 6,208 $ 5,972
============ ============
Nine Months Ended
September 30,
2000 1999
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Net income $ 19,539 $ 16,264
Unrealized gain (loss) on marketable securities 15 (683)
Foreign currency translation adjustments (612) 262
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Comprehensive income $ 18,942 $ 15,843
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</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
September 30, 2000 and December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Unrealized loss on marketable securities $ (13) $ (28)
Foreign currency translation adjustments (1,666) (1,054)
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Accumulated other comprehensive income $ (1,679) $ (1,082)
============= =============
</TABLE>
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<PAGE>
D) Earnings per Share
The calculation of dilutive weighted average shares outstanding for the three
and nine months ended September 30, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
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<S> <C> <C>
Basic weighted average shares outstanding 9,718 10,354
Dilutive impact of options outstanding 19 6
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Dilutive weighted average shares outstanding 9,737 10,360
============ ============
Nine Months Ended
September 30,
2000 1999
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Basic weighted average shares outstanding 9,906 10,500
Dilutive impact of options outstanding 11 2
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Dilutive weighted average shares outstanding 9,917 10,502
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</TABLE>
(E) In the second quarter of 2000, the Company recorded a special charge of
$145,000, net of income tax benefit of $95,000 for severance benefits, while in
the second quarter of 1999, the Company recorded a special charge of $1,237,000,
net of income tax benefit of $816,000, for severance and early retirement
benefits in connection with previously announced management changes.
Additionally, in the second quarter of 1999, a gain of $554,000, net of income
taxes of $369,000, was recorded on the sale of marketable securities.
F) On July 1, 1999, the Company purchased substantially all of the assets and
liabilities of SunSource Inventory Management Company, Inc. (SunSource) and
Hillman Industrial Division (Hillman), at a cost of approximately $10.5 million
with certain contingent purchase price adjustment features based on future
operating results. This all-cash transaction was accounted for as a purchase.
Accordingly, the accounts and transactions of the acquired company have been
included in the consolidated financial statements since the date of acquisition.
The purchase price exceeded tangible net assets acquired by approximately $3.7
million. This goodwill will be amortized over 15 years using the straight-line
method. SunSource and Hillman are distributors of fasteners in the original
equipment marketplace. The former business operations of SunSource and Hillman
are being conducted through the Company's new subsidiary, ACS/SIMCO.
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<PAGE>
Independent Accountants' Review Report
Board of Directors and Stockholders
Lawson Products, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Lawson
Products, Inc. and subsidiaries as of September 30, 2000 and the related
condensed consolidated statements of income for the three month and nine month
periods ended September 30, 2000 and 1999 and the condensed consolidated
statements of cash flows for the nine month periods ended September 30, 2000 and
1999. 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
auditing standards generally accepted in the United States, 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 accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Lawson
Products, Inc. as of December 31, 1999, 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 25, 2000, 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, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ ERNST & YOUNG LLP
October 16, 2000
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<PAGE>
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
contains certain forward-looking statements pertaining to the ability of the
Company to finance future growth, cash dividends and capital expenditures and
certain other matters. These statements are subject to uncertainties and other
factors which could cause actual events or results to vary materially from those
anticipated. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the three and nine month periods ended September 30, 2000
increased 3.5% to $85,424,000 and 9.0% to $256,045,000, respectively, relative
to the comparable periods of 1999. The sales gains reflect increased
contribution from substantially all Lawson operations and from our new
subsidiary, ACS/SIMCO. See Note F to Notes to Condensed Consolidated Financial
Statements.
Net income for the third quarter rose 8.8% to $6,378,000 ($.65 per diluted
share) from $5,861,000 ($.57 per diluted share) for the similar period of 1999.
Net income for the nine months ended September 30, 2000 advanced 20.1% to
$19,539,000 ($1.97 per diluted share) from $16,264,000 ($1.55 per diluted share)
for the same period of 1999. These increases are primarily attributable to cost
containment efforts and the gains in net sales noted above. Per share net income
for 2000 and 1999 was positively impacted by the Company's share repurchase
program. In the second quarter of 2000, the Company recorded a special charge of
$145,000, net of income tax benefit of $95,000, for severance benefits, while in
the second quarter of 1999, the Company recorded a special charge of $1,237,000,
net of income tax benefit of $816,000, for severance and early retirement
benefits in connection with previously announced management changes.
Additionally, in the second quarter of 1999, an after tax gain of $554,000 was
recorded on the sale of marketable securities. Excluding the effects of these
items, net income for the nine month period ended September 30, 2000, increased
16.2% compared to the nine months ended September 30, 1999.
Cash flows provided by operations for the nine months ended September 30, 2000
advanced to $17,080,000 from $13,870,000 in the comparable period of the prior
year. This increase was due primarily to a gain in net income from the same
period in 1999, noted above. 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 $2,223,000 and $5,319,000,
respectively, for the nine months ended September 30, 2000 and 1999. Capital
expenditures during 2000 primarily reflect purchases of computer related
equipment, while in 1999, additions to property, plant and equipment primarily
reflect costs incurred relative to the construction of a new Lawson outbound
facility in Suwanee, Georgia and purchases of computer related equipment. This
new facility was substantially completed in the third quarter of 1999 at a cost
of approximately $7,000,000, and will be used in place of the Norcross, Georgia
facility, which was disposed of in a tax-free exchange as a component of the
purchase price of the new facility.
In the third quarter of 1999, the Company purchased substantially all of the
assets and liabilities of SunSource Inventory Management Company, Inc.
("SunSource") and Hillman Industrial Division ("Hillman"), at a cost of
approximately $10.5 million with certain contingent purchase price adjustment
features based on future operating results. This all-cash transaction was
accounted for as a purchase. Accordingly, the accounts and transactions of the
acquired company have been included in the consolidated financial statements
since the date of acquisition. SunSource and Hillman are distributors of
fasteners in the original equipment marketplace. The former business operations
of SunSource and Hillman are being conducted through the Company's new
subsidiary, ACS/SIMCO.
During the first nine months of 2000, the Company purchased 501,268 shares of
its own common stock for approximately $11,932,000. Of these purchases, 412,668
shares were acquired relative to the 1999 Board authorization of 500,000 shares
and 88,600 shares represented the remaining shares relative to a 1998 stock
repurchase authorization of 500,000 shares. In the first nine months of 1999,
the Company purchased 310,000 shares of its own common stock for approximately
$7,094,000. Of these purchases, 261,500 shares were acquired relative to the
1998 Board authorization of 500,000 shares and 48,500 shares represented the
remaining shares relative to a 1996 stock repurchase authorization of 1,000,000
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<PAGE>
shares. All shares purchased as of September 30, 2000 have been retired. Funds
to purchase these shares were provided by investments and cash flows from
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at September 30, 2000 from
that reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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<PAGE>
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 a Current Report on
Form 8-K for the most recently completed quarter.
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<PAGE>
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 October 16, 2000 /s/ Robert J. Washlow
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Robert J. Washlow
Chairman of the Board
Dated October 16, 2000 /s/ Joseph L. Pawlick
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Joseph L. Pawlick
Chief Financial Officer
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