SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------------------------- FORM 10-Q Quarterly Report under Section 13 or 15(d) of The Securities Exchange Act of 1934 ---------------------------------- For Quarter Ended March 31, 2001 Commission file no. 0-10546 -------------- ------- LAWSON PRODUCTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-2229304 - ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1666 East Touhy Avenue, Des Plaines, Illinois 60018 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code: (847) 827-9666 -------------- Not applicable - -------------------------------------------------------------------------------- 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. 9,711,804 Shares, $1 par value, as of April 16, 2001.
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) March 31, December 31, 2001 2000 -------------------- ----------------- (unaudited) <S> <C> <C> 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 ------------------- ----------------- 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 ------------------- ----------------- Total Assets $ 234,426 $ 222,721 =================== ================= 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 -------------------- ----------------- Total Current Liabilities 43,453 33,863 ------------------- ----------------- Accrued liability under security bonus plans 18,555 17,968 Other 11,274 10,978 ------------------- ----------------- 29,829 28,946 ------------------- ----------------- 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) -------------------- ------------------- Total Stockholders' Equity 161,144 159,912 ------------------- ----------------- Total Liabilities and Stockholders' $ 234,426 $ 222,721 Equity =================== ================= See notes to condensed consolidated financial statements. </TABLE>
<TABLE> LAWSON PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME <CAPTION> (UNAUDITED) (Amounts in thousands, except per share data) For the Three Months Ended March 31, 2001 2000 --------------- --------------- <S> <C> <C> Net sales $ 83,650 $ 86,280 Cost of goods sold (Note B) 29,937 29,946 --------------- --------------- Gross Profit 53,713 56,334 Selling, general and administrative expenses 48,631 45,992 --------------- --------------- Operating income 5,082 10,342 Investment and other income 743 566 --------------- --------------- Income before income taxes 5,825 10,908 Provision for income taxes 2,587 4,463 --------------- --------------- Net income $ 3,238 $ 6,445 =============== =============== Net income per share of common stock: Basic $ 0.33 $ 0.64 =============== =============== Diluted $ 0.33 $ 0.64 =============== =============== Cash dividends declared per share of common stock $ 0.16 $ 0.15 =============== =============== Weighted average shares outstanding: Basic 9,710 10,093 =============== =============== Diluted 9,730 10,098 =============== =============== See notes to condensed consolidated financial statements. </TABLE>
<TABLE> LAWSON PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> (UNAUDITED) (Amounts in thousands) For the Three Months Ended March 31, 2001 2000 ---------------- -------- <S> <C> <C> 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 --------------- ---------------- Net Cash Provided by (Used in) Operating Activities (1,853) 8,521 --------------- ---------------- 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) --- --------------- --------------- Net Cash Used in Investing Activities (9,082) (1,033) ---------------- ---------------- Financing activities: Purchases of treasury stock --- (4,404) Proceeds from revolving line of credit 7,000 --- Dividends paid (1,456) (1,532) Other 122 --- ---------------- --------------- Net Cash Provided by (Used in) Financing Activities 5,666 (5,936) ---------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents (5,269) 1,552 Cash and Cash Equivalents at Beginning of Period 7,912 11,975 --------------- --------------- Cash and Cash Equivalents at End of Period $ 2,643 $ 13,527 =============== =============== 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 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 ---- ---- Net income $3,238 $6,445 Unrealized losses on securities --- (4) Foreign currency translation adjustments (574) (119) ------------------ Comprehensive income $2,664 $6,322 ================== 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 ---- ---- Foreign currency translation adjustments $(2,196) $(1,622) --------------------- Accumulated other comprehensive income $(2,196) $(1,622) =====================
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 ---- ---- Basic weighted average shares outstanding 9,710 10,093 Dilutive impact of options outstanding 20 5 ------------------- Dilutive weighted average shares outstanding 9,730 10,098 =================== 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 ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- 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 ----------------- 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 ---------- 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 --------------- ---------------------------------- Robert J. Washlow Chairman of the Board (principal executive officer) Dated April 16, 2001 /s/ Joseph L. Pawlick --------------- ---------------------------------- Joseph L. Pawlick Chief Financial Officer (principal financial officer)