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, 2001 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
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
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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. 9,711,804 Shares, $1 par value,
as of April 16, 2001.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data) March 31, December 31,
2001 2000
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(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,643 $ 7,912
Marketable securities 8,907 29,973
Accounts receivable, less allowance for
doubtful accounts 40,500 40,823
Inventories (Note B) 62,822 55,228
Miscellaneous receivables and prepaid
expenses 7,964 9,356
Deferred income taxes 1,892 1,857
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Total Current Assets 124,728 145,149
Marketable securities --- 401
Property, plant and equipment, less
allowances for depreciation and
amortization 40,168 39,405
Investments in real estate 825 705
Deferred income taxes 9,760 9,212
Goodwill, less accumulated amortization 30,929 2,431
Other assets 28,016 25,418
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Total Assets $ 234,426 $ 222,721
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 7,000 $ ---
Accounts payable 13,520 6,730
Accrued expenses and other liabilities 18,330 24,518
Income taxes 4,603 2,615
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Total Current Liabilities 43,453 33,863
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Accrued liability under security bonus plans 18,555 17,968
Other 11,274 10,978
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29,829 28,946
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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 - (2001- 9,711,804 shares; 2000 -
9,706,404 shares) 9,712 9,706
Capital in excess of par value 878 762
Retained earnings 152,750 151,066
Accumulated other comprehensive income (2,196) (1,622)
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Total Stockholders' Equity 161,144 159,912
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Total Liabilities and Stockholders' $ 234,426 $ 222,721
Equity =================== =================
See notes to condensed consolidated financial statements.
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Amounts in thousands, except per share data)
For the
Three Months Ended
March 31,
2001 2000
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Net sales $ 83,650 $ 86,280
Cost of goods sold (Note B) 29,937 29,946
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Gross Profit 53,713 56,334
Selling, general and administrative expenses 48,631 45,992
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Operating income 5,082 10,342
Investment and other income 743 566
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Income before income taxes 5,825 10,908
Provision for income taxes 2,587 4,463
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Net income $ 3,238 $ 6,445
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Net income per share of common stock:
Basic $ 0.33 $ 0.64
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Diluted $ 0.33 $ 0.64
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Cash dividends declared per share of common stock $ 0.16 $ 0.15
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Weighted average shares outstanding:
Basic 9,710 10,093
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Diluted 9,730 10,098
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See notes to condensed consolidated financial statements.
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
For the
Three Months Ended
March 31,
2001 2000
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Operating activities:
Net income $ 3,238 $ 6,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,764 1,560
Changes in operating assets and liabilities (7,077) (37)
Other 222 553
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Net Cash Provided by (Used in) Operating Activities (1,853) 8,521
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Investing activities:
Additions to property, plant and equipment (2,191) (871)
Purchases of marketable securities (7,257) (14,460)
Proceeds from sale of marketable securities 28,735 14,298
Acquisition of IPD and Kent Automotive (28,369) ---
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Net Cash Used in Investing Activities (9,082) (1,033)
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Financing activities:
Purchases of treasury stock --- (4,404)
Proceeds from revolving line of credit 7,000 ---
Dividends paid (1,456) (1,532)
Other 122 ---
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Net Cash Provided by (Used in) Financing Activities
5,666 (5,936)
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Increase (Decrease) in Cash and Cash
Equivalents (5,269) 1,552
Cash and Cash Equivalents at Beginning of
Period 7,912 11,975
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Cash and Cash Equivalents at End of Period $ 2,643 $ 13,527
=============== ===============
See notes to condensed consolidated financial statements.
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
on Form 10-K for the year ended December 31, 2000. The Condensed Consolidated
Balance Sheet as of March 31, 2001, the Condensed Consolidated Statements of
Income for the three month periods ended March 31, 2001 and 2000 and the
Condensed Consolidated Statements of Cash Flows for the three month periods
ended March 31, 2001 and 2000 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, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
B) Inventories (consisting of primarily finished goods) at March 31, 2001 and
cost of goods sold for the three month periods ended March 31, 2001 and 2000
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
2000, this adjustment increased net income by approximately $1,349,000.
C) Total comprehensive income and its components, net of related tax, for the
first quarter of 2001 and 2000 are as follows (in thousands):
2001 2000
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Net income $3,238 $6,445
Unrealized losses on securities --- (4)
Foreign currency translation
adjustments (574) (119)
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Comprehensive income $2,664 $6,322
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The components of accumulated other comprehensive income, net of related tax, at
March 31, 2001 and December 31, 2000 are as follows (in thousands):
2001 2000
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Foreign currency translation
adjustments $(2,196) $(1,622)
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Accumulated other
comprehensive income $(2,196) $(1,622)
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D) Earnings per Share
The calculation of dilutive weighted average shares outstanding at March 31,
2001 and 2000 are as follows (in thousands):
2001 2000
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Basic weighted average shares
outstanding 9,710 10,093
Dilutive impact of options
outstanding 20 5
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Dilutive weighted average
shares outstanding 9,730 10,098
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E) Revolving Line of Credit
In March 2001 the Company entered into a $50 million revolving line of credit.
The revolving line of credit matures five years from the closing date and
carries an interest rate of prime minus 150 basis points floating or LIBOR plus
75 basis points, at the Company's option. Interest is payable quarterly on prime
borrowings and at the earlier of quarterly or maturity with respect to LIBOR
contracts. The line of credit contains certain financial covenants regarding
interest coverage, minimum stockholders' equity and working capital, all of
which the Company was in compliance with at March 31, 2001.
F) On March 30, 2001, the Company purchased certain assets of Premier Farnell's
Cleveland based North American Industrial Products (IPD) and Kent Automotive
(Kent) Divisions for approximately $28.4 million plus approximately $8.0 million
for related inventories. This all-cash transaction was accounted for as a
purchase; accordingly, the accounts and transactions of the acquired business
have been included in the consolidated financial statements since the date of
acquisition. Under the agreement, the Company acquired the field sales,
telephone sales and customer service professionals, the customer accounts,
certain administrative executives, and use of various intellectual properties,
including trademarks and trade names of the IPD and Kent divisions in certain
territories. The assets acquired were recorded at estimated fair values as
determined by the Company's management based on information currently available.
Accordingly, the allocation of the purchase price is subject to revision. The
Company will combine its existing operations with Premier Farnell's Premier
Fastener, Rotanium Products, Certanium Alloys, CT Engineering, JI Holcomb and
Kent Automotive business units in the United States, Canada, Mexico, Central
America and the Caribbean.
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 March 31, 2001 and the related condensed
consolidated statements of income and cash flows for the three month periods
ended March 31, 2001 and 2000. 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, 2000, 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 23, 2001, 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, 2000, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/S/ ERNST & YOUNG LLP
April 16, 2001
This Quarterly Report on Form 10-Q for the quarter ended March 31, 2001,
contains certain forward-looking statements pertaining to the ability of the
Company to finance future growth, cash dividends and capital expenditures, the
ability to successfully integrate acquired businesses 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
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CONDITION AND RESULTS OF OPERATIONS
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Net sales for the three month period ended March 31, 2001 decreased 3.0% to
$83,650,000 relative to the similar period of 2000. The sales decline reflects
reduced contribution from substantially all Lawson operations.
Net income declined 49.7% to $3,238,000 ($.33 per diluted share) for the three
months ended March 31, 2001 from $6,445,000 ($.64 per share) for the comparable
period of 2000. This decrease is attributable to higher operating expenses,
partially attributable to preparatory costs incurred in connection with the
acquisition of the North American Industrial Products (IPD) and Kent Automotive
(Kent) Divisions of Premier Farnell which was completed on March 30, 2001, lower
gross margins and the decrease in net sales noted above. Per share net income
for 2001 and 2000 was positively impacted by the Company's share repurchase
program.
The Company used $1,853,000 of cash in operations for the three months ended
March 31, 2001 compared to cash provided from operations of $8,521,000 in the
similar period of the prior year. This decline was due primarily to the decrease
in net income noted above and a decrease in accrued expenses. Current
investments, cash flows from operations and a new $50,000,000 unsecured line of
credit are expected to be sufficient to finance the Company's future growth,
cash dividends and capital expenditures. Additions to property, plant and
equipment were $2,191,000 and $871,000, respectively, for the three months ended
March 31, 2001 and 2000. Capital expenditures during 2001 primarily reflect
purchases of computer related and warehouse equipment and building improvements,
while 2000 additions to property, plant and equipment primarily reflect
purchases of computer related equipment.
On March 30, 2001, the Company purchased certain assets of Premier Farnell's
Cleveland based North American Industrial
Products (IPD) and Kent Automotive (Kent) Divisions for approximately $28.4
million plus approximately $8.0 million for related inventories. This all-cash
transaction was accounted for as a purchase; accordingly, the accounts and
transactions of the acquired business have been included in the consolidated
financial statements since the date of acquisition. Under the agreement, the
Company acquired the field sales, telephone sales and customer service
professionals, the customer accounts, certain administrative executives, and use
of various intellectual properties, including trademarks and trade names of the
IPD and Kent divisions in certain territories. The assets acquired were recorded
at estimated fair values as determined by the Company's management based on
information currently available. Accordingly, the allocation of the purchase
price is subject to revision.
During the first quarter of 2000, the Company purchased 187,000 shares of its
own common stock for approximately $4,404,000. Of these purchases, 98,400 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. No shares were purchased during the
first quarter of 2001. All shares purchased as of March 31, 2001 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 March 31, 2001 from that
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
Part II
OTHER INFORMATION
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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) 4 Credit Agreement dated March 27, 2001 by and
between the Company and LaSalle Bank National
Association
15 Letter from Ernst & Young LLP regarding
Unaudited Interim Financial Information
(b) The registrant filed a Current Report on Form 8-K January
31, 2001.
SIGNATURES
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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 16, 2001 /s/ Robert J. Washlow
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Robert J. Washlow
Chairman of the Board
(principal executive officer)
Dated April 16, 2001 /s/ Joseph L. Pawlick
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Joseph L. Pawlick
Chief Financial Officer
(principal financial officer)