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 June 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 9,738,972 Shares, $1 par value,
as of July 18, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 FINANCIAL STATEMENTS
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Amounts in thousands, except share data) June 30, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,939 $ 11,975
Marketable securities 10,357 12,282
Accounts receivable, less allowance for doubtful accounts 40,860 41,108
Inventories (Note B) 53,043 55,485
Miscellaneous receivables and prepaid expenses 7,998 8,029
Deferred income taxes 1,419 1,389
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Total Current Assets 121,616 130,268
Marketable securities 3,500 4,695
Property, plant and equipment, less allowances for depreciation and amortization 40,901 41,989
Investments in real estate 4,368 4,108
Deferred income taxes 9,385 8,784
Other assets 28,210 26,147
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Total Assets $ 207,980 $ 215,991
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,240 $ 8,249
Accrued expenses and other liabilities 20,609 25,845
Income taxes 2,191 4,332
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Total Current Liabilities 30,040 38,426
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Accrued liability under security bonus plans 17,181 16,494
Other 11,616 11,031
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28,797 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: 9,754 10,204
Authorized - 35,000,000 shares
Issued and outstanding - (2000- 9,753,972 shares; 1999 - 10,203,922 shares)
Capital in excess of par value 765 717
Retained earnings 140,133 140,201
Accumulated other comprehensive income (1,509) (1,082)
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Total Stockholders' Equity 149,143 150,040
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Total Liabilities and Stockholders' Equity $ 207,980 $ 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)
(Amounts in thousands, except per share data)
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 86,911 $ 78,247 $ 170,621 $ 152,395
Cost of goods sold (Note B) 30,419 26,672 60,333 52,509
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Gross Profit 56,492 51,575 110,288 99,886
Selling, general and administrative expenses 45,412 42,117 88,866 82,042
Special charges 240 2,053 240 2,053
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Operating income 10,840 7,405 21,182 15,791
Investment and other income 541 1,311 1,107 1,917
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Income before income taxes 11,381 8,716 22,289 17,708
Provision for income taxes 4,664 3,590 9,127 7,305
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Net income $ 6,717 $ 5,126 $ 13,162 $ 10,403
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Net income per share of common stock:
Basic $ 0.68 $ 0.49 $ 1.32 $ 0.98
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Diluted $ 0.68 $ 0.49 $ 1.32 $ 0.98
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Cash dividends declared per share of common stock $ 0.15 $ 0.14 $ 0.30 $ 0.28
============= ============= ============= =============
Weighted average shares outstanding:
Basic 9,895 10,490 9,991 10,563
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Diluted 9,908 10,495 10,000 10,564
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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)
(Amounts in thousands)
<CAPTION>
For the
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Operating activities:
Net income $ 13,162 $ 10,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,091 3,121
Changes in operating assets and liabilities (8,533) (5,623)
Other 404 (702)
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Net Cash Provided by Operating Activities 8,124 7,199
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Investing activities:
Additions to property, plant and equipment (1,764) (4,890)
Purchases of marketable securities (24,769) (57,613)
Proceeds from sale of marketable securities 27,904 71,560
Other 100 231
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Net Cash Provided by Investing Activities 1,471 9,288
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Financing activities:
Purchases of treasury stock (10,752) (7,094)
Dividends paid (2,963) (2,928)
Other 84 -
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Net Cash Used in Financing Activities (13,631) (10,022)
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Increase/(Decrease) in Cash and Cash Equivalents (4,036) 6,465
Cash and Cash Equivalents at Beginning of Period 11,975 13,872
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Cash and Cash Equivalents at End of Period $ 7,939 $ 20,337
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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 June 30, 2000, the Condensed
Consolidated Statements of Income for the three and six month periods ended June
30, 2000 and 1999 and the Condensed Consolidated Statements of Cash Flows for
the six month periods ended June 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 six month periods
ended June 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 June 30, 2000 and
cost of goods sold for the three and six month periods ended June 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 six months of 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
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<S> <C> <C>
Net income $ 6,717 $ 5,126
Unrealized gain (loss) on marketable securities 15 (629)
Foreign currency translation adjustments (319) 120
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Comprehensive income $ 6,413 $ 4,617
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Six Months Ended
June 30,
2000 1999
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Net income $ 13,162 $ 10,403
Unrealized gain (loss) on marketable securities 11 (683)
Foreign currency translation adjustments (438) 150
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Comprehensive income $ 12,735 $ 9,870
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</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
June 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 $ (17) $ (28)
Foreign currency translation adjustments (1,492) (1,054)
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Accumulated other comprehensive income $ (1,509) $ (1,082)
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</TABLE>
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<PAGE>
D) Earnings per Share
The calculation of dilutive weighted average shares outstanding for the three
and six months ended June 30, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
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<S> <C> <C>
Basic weighted average shares outstanding 9,895 10,490
Dilutive impact of options outstanding 13 5
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Dilutive weighted average shares outstanding 9,908 10,495
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Six Months Ended
June 30,
2000 1999
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Basic weighted average shares outstanding 9,991 10,563
Dilutive impact of options outstanding 9 1
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Dilutive weighted average shares outstanding 10,000 10,564
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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 June 30, 2000 and the related condensed
consolidated statements of income for the three month and six month periods
ended June 30, 2000 and 1999 and the condensed consolidated statements of cash
flows for the six month periods ended June 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
July 18, 2000
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<PAGE>
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, contains
certain forward-looking statements. These statements are subject to
uncertainties and other factors which could cause actual events or results to
vary materially from those anticipated.
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the three and six month periods ended June 30, 2000 advanced 11.1%
to $86,911,000 and 12.0% to $170,621,000, 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 second quarter increased 31.1% to $6,717,000 ($.68 per
diluted share) from $5,126,000 ($.49 per diluted share) for the similar period
of 1999. Net income for the six months ended June 30, 2000 rose 26.5% to
$13,162,000 ($1.32 per diluted share) from $10,403,000 ($.98 per diluted share)
for the same period of 1999. These increases are primarily attributable to cost
containment efforts, slightly higher gross margins 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 in the second
quarter of 2000 was $6,862,000 ($.69 per diluted share), an increase of 18.1%.
For the six month period ended June 30, 2000, excluding the items noted above,
net income was $13,307,000 ($1.33 per diluted share), an increase of 20.0%.
Cash flows provided by operations for the six months ended June 30, 2000
advanced to $8,124,000 from $7,199,000 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, offset by a larger decrease in operating liabilities
(principally accrued expenses and income taxes) as compared to the decrease in
operating liabilities from the same period of 1999. 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 $1,764,000 and $4,890,000,
respectively, for the six months ended June 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 six months of 2000, the Company purchased 453,700 shares of its
own common stock for approximately $10,752,000. Of these purchases, 365,100
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 six 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
shares. All shares purchased as of June 30, 2000 have been retired. Funds to
purchase these shares were provided by investments and cash flows from
operations.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at June 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, 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 16, 2000.
(b) Not applicable.
(c) Set forth below is the tabulation of the votes on each nominee for
election as a director:
Withheld
For Authority
James T. Brophy 8,604,042 1,005,806
Mitchell H. Saranow 8,633,080 976,768
Jerome Shaffer 8,616,349 993,499
(d) Not applicable.
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 July 18, 2000 /s/ Robert J. Washlow
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Robert J. Washlow
Chairman of the Board
Dated July 18, 2000 /s/ Joseph L. Pawlick
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Joseph L. Pawlick
Chief Financial Officer
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