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, 2003 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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 9,494,911 Shares, $1.00 par
value, as of October 14, 2003.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31,
(Amounts in thousands, except share data) 2003 2002
----------------- ----------------
(UNAUDITED)
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 15,372 $ 7,591
Marketable securities 1,256 696
Accounts receivable, less allowance for doubtful accounts 47,367 42,990
Inventories 62,533 63,851
Miscellaneous receivables and prepaid expenses 9,130 11,170
Deferred income taxes 3,209 3,463
----------------- ----------------
Total Current Assets 138,867 129,761
Property, plant and equipment, less allowances for depreciation and amortization 43,254 39,519
Investments in real estate --- 1,305
Deferred income taxes 12,821 11,987
Goodwill, less accumulated amortization 28,649 28,649
Other assets 15,364 14,610
----------------- ----------------
Total Assets $238,955 $225,831
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 8,261 $ 8,085
Accrued expenses and other liabilities 21,848 23,638
Income taxes 1,459 ---
Current portion of long term debt 1,427 ---
----------------- ----------------
Total Current Liabilities 32,995 31,723
----------------- ----------------
Accrued liability under security bonus plans 20,868 20,614
Long term debt 2,072 ---
Other 12,025 11,151
----------------- ----------------
34,965 31,765
----------------- ----------------
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-(2003-9,493,312
shares; 2002-9,494,011 shares) 9,493 9,494
Capital in excess of par value 2,331 2,387
Retained earnings 160,081 152,495
Accumulated other comprehensive income (910) (2,033)
----------------- ----------------
Total Stockholders' Equity 170,995 162,343
Total Liabilities and Stockholders'
Equity $238,955 $225,831
================= ================
-2-
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 For the
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $99,301 $98,474 $292,485 $294,110
Cost of goods sold (Note B) 35,349 35,211 104,931 104,258
---------------- -------------- --------------- ---------------
Gross profit 63,952 63,263 187,554 189,852
Selling, general and
administrative expenses 56,661 56,883 166,431 169,920
Special charges 398 --- 1,644 ---
---------------- -------------- --------------- ---------------
Operating income 6,893 6,380 19,479 19,932
Investment and other income 660 293 1,407 1,311
Interest expense 65 45 72 149
---------------- -------------- --------------- ---------------
Income before income taxes 7,488 6,628 20,814 21,094
Provision for income taxes 3,124 2,869 8,551 8,807
---------------- -------------- --------------- ---------------
Net income $ 4,364 $ 3,759 $ 12,263 $ 12,287
================ ============== =============== ===============
Net income per share of common stock:
Basic $0.46 $0.39 $1.29 $1.28
================ ============== =============== ===============
Diluted $0.46 $0.39 $1.29 $1.28
================ ============== =============== ===============
Cash dividends declared per
share of common stock $0.16 $0.16 $0.48 $0.48
================ ============== =============== ===============
Weighted average shares Outstanding:
Basic 9,492 9,551 9,492 9,593
================ ============== =============== ===============
Diluted 9,511 9,576 9,510 9,619
================ ============== =============== ===============
See notes to condensed consolidated financial statements.
-3-
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
For the
Nine Months Ended
September 30,
-----------------------------------------
2003 2002
---- ----
Operating activities:
Net income $12,263 $12,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,041 5,054
Changes in operating assets and liabilities (3,723) (88)
Other 2,813 2,427
--------------- ---------------
Net Cash Provided by Operating Activities 16,394 19,680
=============== ===============
Investing activities:
Additions to property, plant and equipment (3,124) (5,099)
Purchases of marketable securities (3,418) (6,264)
Proceeds from sale of marketable securities 2,858 7,139
Other 146 356
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Net Cash Used in Investing Activities (3,538) (3,868)
--------------- ---------------
Financing activities:
Purchases of treasury stock (127) (5,041)
Proceeds from revolving line of credit 4,000 34,000
Payments on revolving line of credit (4,000) (45,000)
Payments on long term debt (341) ---
Dividends paid (4,555) (4,616)
Other (52) 1,349
--------------- ---------------
Net Cash Used in Financing Activities (5,075) (19,308)
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents 7,781 (3,496)
Cash and Cash Equivalents at Beginning of Period 7,591 6,987
--------------- ---------------
Cash and Cash Equivalents at End of Period $15,372 $ 3,491
=============== ===============
See notes to condensed consolidated financial statements.
-4-
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, 2002. The
Condensed Consolidated Balance Sheet as of September 30, 2003, the Condensed
Consolidated Statements of Income for the three and nine month periods ended
September 30, 2003 and 2002 and the Condensed Consolidated Statements of Cash
Flows for the nine month periods ended September 30, 2003 and 2002 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, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003.
B) Inventories (consisting of primarily finished goods) at September 30, 2003
and cost of goods sold for the three and nine month periods ended September 30,
2003 were based on perpetual inventory records. Inventories (consisting of
primarily finished goods) at September 30, 2002 and cost of goods sold for the
three and nine month periods ended September 30, 2002 were determined through
the use of estimated gross profit rates. The difference between actual and
estimated gross profit in 2002 was adjusted in the fourth quarter. In 2002, this
adjustment increased net income by approximately $1,955,000.
C) Total comprehensive income and its components, net of related tax, for the
third quarter and nine months of 2003 and 2002 are as follows (in thousands):
Three months ended September 30,
2003 2002
---- ----
Net income $4,364 $3,759
Foreign currency translation adjustments 32 (102)
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Comprehensive income $4,396 $3,657
====== ======
Nine months ended September 30,
2003 2002
---- ----
Net income $12,263 $12,287
Foreign currency translation adjustments 1,123 123
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Comprehensive income $13,386 $12,410
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The components of accumulated other comprehensive income, net of related tax, at
September 30, 2003 and December 31, 2002 are as follows (in thousands):
2003 2002
---- ----
Foreign currency translation adjustments $(910) $(2,033)
------ --------
Accumulated other comprehensive income $(910) $(2,033)
====== ========
D) Earnings per Share
The calculation of dilutive weighted average shares outstanding for the three
and nine months ended September 30, 2003 and 2002 are as follows (in thousands):
Three months ended September 30,
2003 2002
---- ----
Basic weighted average shares outstanding 9,492 9,551
Dilutive impact of options outstanding 19 25
----- -----
Dilutive weighted average shares outstanding 9,511 9,576
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-5-
Nine months ended September 30,
2003 2002
---- ----
Basic weighted average shares outstanding 9,492 9,593
Dilutive impact of options outstanding 18 26
----- -----
Dilutive weighted average shares outstanding 9,510 9,619
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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 the 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 September 30, 2003. The Company had
no borrowings outstanding under the line at September 30, 2003, and December 31,
2002.
F) Special Charges
The Company recorded a $1.6 million charge for termination benefits of four
executives in the second quarter and another executive in the third quarter of
2003. The table below shows an analysis of the Company's reserves for severance
and related expenses for the first nine months of 2003 and 2002 (in thousands):
Nine Months Ended September 30,
2003 2002
---- ----
Balance at beginning of year $ 876 $1,458
Charged to earnings 1,644 ---
Cash paid (504) (617)
Adjustment to reserves --- (228)
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Balance at September 30 $2,016 $ 613
====== =======
G) Intangible Assets
Intangible assets subject to amortization, included within other assets, were as
follows (in thousands):
September 30, 2003
Gross Accumulated Net Carrying
Balance Amortization Amount
------- ------------ ------
Trademarks and tradenames $1,747 $ 805 $ 942
Customer Lists 953 148 805
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$2,700 $ 953 $1,747
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December 31, 2002
Gross Accumulated Net Carrying
Balance Amortization Amount
------- ------------ ------
Trademarks and tradenames $1,747 $668 $1,079
Customer Lists 953 33 920
------ ----- ------
$2,700 $701 $1,999
------ ---- ------
-6-
Trademarks and tradenames are being amortized over a weighted average 15.1
years. Customer lists are being amortized over 15.2 years. Amortization expense
for intangible assets is expected to be $322,000, $176,000, $143,000, $143,000
and $98,000 for 2003 and the next four years, respectively.
H) Accounting for Stock-Based Compensation
The Company adopted FASB Statement No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure." This Statement requires additional
disclosure within interim financial statements. The following tables show the
effect on net income and earnings per share as required by FASB Statement No.
123, "Accounting for Stock-Based Compensation."
Three Months Ended September 30,
--------------------------------
In thousands 2003 2002
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Net income-as reported $4,364 $3,759
Deduct: Total stock based employee
compensation expense determined under
Fair value method, net of tax (6) (8)
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Net income-pro forma 4,358 3,751
Basic and diluted earnings per share -as reported .46 .39
Basic and diluted earnings per share -pro forma .46 .39
Nine Months Ended September 30,
-------------------------------
In thousands 2003 2002
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Net income-as reported $12,263 $12,287
Deduct: Total stock based employee
compensation expense determined under
Fair value method, net of tax (16) (30)
- -------------------------------------------------------------------------------------------------------
Net income-pro forma 12,247 12,257
Basic earnings per share-as reported 1.29 1.28
Diluted earnings per share-as reported 1.29 1.28
Basic earnings per share-pro forma 1.29 1.28
Diluted earnings per share-pro forma 1.29 1.27
A $136,000 reversal of a compensation expense accrual relative to stock
performance rights was recorded in net income in the first nine months of 2003.
Net income in the first nine months of 2002 includes $41,000 in compensation
expense relative to stock performance rights.
I) Segment Reporting
The Company has four reportable segments: Maintenance, Repair and Replacement
(MRO) distribution; Original Equipment Manufacturer (OEM) distribution and
manufacturing; International Maintenance, Repair and Replacement (INTLMRO)
distribution in Canada; and International Original Equipment Manufacturer
(INTLOEM) distribution in Mexico and the United Kingdom.
-7-
Financial information for the Company's reportable segments consisted of the
following:
Three Months Ended September 30,
--------------------------------
In thousands 2003 2002
- --------------------------------------------------------------------------------------------------------
Net sales
MRO distribution $ 77,488 $ 78,268
OEM distribution & manufacturing 13,403 13,914
International MRO distribution 4,651 3,995
International OEM distribution 3,759 2,297
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Consolidated total $ 99,301 $ 98,474
--------- ----------
Operating income(loss)
MRO distribution $ 6,626 $ 6,549
OEM distribution & manufacturing 336 675
International MRO distribution 434 271
International OEM distribution (503) (1,115)
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Consolidated total $ 6,893 $ 6,380
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The reconciliation of segment profit to consolidated income before income taxes
consisted of the following:
Three Months Ended
September 30,
----------------------
In thousands 2003 2002
- -------------------------------------------------------------------------------------------------
Total operating income from reportable segments $ 6,893 $ 6,380
Investment and other income 660 293
Interest expense (65) (45)
----------------------------
Income before income taxes $ 7,488 $ 6,628
----------------------------
Nine Months Ended
September 30,
----------------------
In thousands 2003 2002
- -------------------------------------------------------------------------------------------------
Net sales
MRO distribution $ 227,861 $ 232,927
OEM distribution & manufacturing 40,999 42,974
International MRO distribution 13,938 12,296
International OEM distribution 9,687 5,913
---------------------------
Consolidated total $ 292,485 $ 294,110
---------------------------
Operating income(loss)
MRO distribution $ 18,838 $ 18,863
OEM distribution & manufacturing 479 2,797
International MRO distribution 1,448 701
International OEM distribution (1,286) (2,429)
----------------------------
Consolidated total $ 19,479 $ 19,932
----------------------------
-8-
The reconciliation of segment profit to consolidated income before income taxes
consisted of the following:
Nine Months Ended
September 30
----------------------
In thousands 2003 2002
- -------------------------------------------------------------------------------------------------
Total operating income
from reportable segments $ 19,479 $ 19,932
Investment and other income 1,407 1,311
Interest expense (72) (149)
-----------------------------
Income before income taxes $ 20,814 $ 21,094
-----------------------------
Asset information related to the Company's reportable segments consisted of the
following:
September 30, December 31,
In thousands 2003 2002
- -------------------------------------------------------------------------------------------------
Total assets
MRO distribution $ 160,663 $ 155,439
OEM distribution & manufacturing 35,123 32,574
International MRO distribution 16,435 13,989
International OEM distribution 10,704 8,379
---------------------------
Total for reportable segments $ 222,925 $ 210,381
Corporate 16,030 15,450
---------------------------
Consolidated total $ 238,955 $ 225,831
---------------------------
At December 31, 2002, the carrying value of goodwill within each reportable
segment was as follows (in thousands):
MRO distribution $ 22,104
OEM distribution & manufacturing 2,251
International MRO distribution 4,294
International OEM distribution ---
----------
Consolidated total $ 28,649
----------
J) Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued Interpretation
No. 46, "Consolidation of Variable Interest Entities (FIN 46)." FIN 46 explains
how to identify variable interest entities (VIE) and how an enterprise assesses
its interest in a VIE to decide whether to consolidate the VIE. It requires
existing unconsolidated VIEs to be consolidated if the Company is the primary
beneficiary. The Company adopted FIN 46 as of July 1, 2003, which has resulted
in the consolidation of the Company's investment in a limited partnership, which
owns an office building in Chicago, Illinois. In conjunction with the
consolidation of its investment, the Company has recorded the long-term debt of
the VIE, which represents a mortgage payable relative to the building, of
approximately $3.5 million at September 30, 2003. The interest rate of the
mortgage payable is 7.315%, with a maturity date of January 1, 2006. The
building and land have a net carrying value of approximately $4.4 million, which
are included in property, plant and equipment. The remaining assets, none of
which are significant, are recorded in other assets.
-9-
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, 2003 and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended September 30, 2003 and 2002 and the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2003 and
2002. 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, 2002, 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 20, 2003, 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, 2002, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
October 14, 2003
-10-
"Safe Harbor" Statement under the Securities Litigation Reform Act of 1995: This
Quarterly Report on Form 10-Q contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties. The terms "may," "should," "could," "anticipate,"
"believe," "continues", "estimate," "expect," "intend," "objective," "plan,"
"potential," "project" and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. These statements are based on management's current expectations,
intentions or beliefs and are subject to a number of factors, assumptions and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those related to
general economic conditions and market conditions in the original equipment
manufacturers and maintenance, repair and replacement distribution industries in
North America and to a lesser extent, the United Kingdom, the Company's ability
to obtain new customers and manage growth, material or labor cost increases,
competition in the Company's business, operating margin risk due to competitive
pricing and operating efficiencies, successful integration of acquisitions, the
Company's dependence on key personnel and the length of economic downturns in
the Company's markets. In the event of continued economic downturn, the Company
could experience additional customer bankruptcies, reduced volume of business
from its existing customers and lost volume due to plant shutdowns or
consolidations by the Company's customers other factors that may be referred to
or noted in the Company's reports filed with the Securities and Exchange
Commission from time to time. The Company undertakes no obligation to update any
such factor or to publicly announce the results of any revisions to any
forward-looking statements contained herein whether as a result of new
information, future events or otherwise.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenues
- --------
Net sales for the three-month period ended September 30, 2003 increased 0.8%, to
$99.3 million from $98.5 million in the comparable period of 2002. For the
nine-month period ended September 30, 2003, net sales declined 0.6%, from $294.1
million to $292.5 million in the similar period of 2002. Combined Maintenance,
Repair and Replacement (MRO and INTLMRO) distribution net sales decreased $0.2
million in the third quarter to $82.1 million from $82.3 million and $3.4
million for the nine-month period to $241.8 million from $245.2 million. Higher
sales in the INTLMRO segment for the three and nine months periods were more
than offset by decreases in the domestic MRO segment. Consistent with previously
reported 2003 results, the year-to-date decrease is principally attributable to
continuing difficult market conditions in the United States.
Combined Original Equipment Manufacturer (OEM and INTLOEM) net sales rose $1.0
million in the third quarter to $17.2 million from $16.2 million and $1.8
million in the first nine months to $50.7 million from $48.9 million. Sales
growth in the INTLOEM segment for the three and nine-month periods, resulting
principally from increased penetration of existing accounts and the addition of
new accounts, more than offset sales decreases in the domestic OEM segment.
Operating Income
- ----------------
Including special charges of $0.4 million, consolidated operating income for the
third quarter increased 8.0%, to $6.9 million from $6.4 million in the same
period last year. For the nine-month period ended September 30, 2003,
consolidated operating income declined 2.3%, to $19.5 million from $19.9 million
in the first nine months of 2002. The 2003 year-to-date results include special
charges of $1.6 million. In the three and nine-month periods, operating income
for the combined MRO segments increased by $0.3 million and $0.7 million,
respectively, compared to the similar periods of 2002. These increases were
primarily attributable to the Company's continuing efforts to contain and reduce
MRO costs, which more than offset special charges of $0.4 million in the third
quarter and $1.1 million for the nine months of 2003. The special charges were
incurred in connection with the severance and retirement of certain management
personnel.
-11-
The combined OEM segments had an operating loss of $0.2 million for the quarter
ended September 30, 2003 compared to an operating loss of $0.4 million for the
same period of 2002. For the nine-month period ended September 30, 2003, the
combined OEM segments had an operating loss of $0.8 million compared to
operating income of $0.4 million for the similar period of 2002. The slight
improvement for the quarter was primarily due to higher sales in the
international OEM segment, which more than offset lower sales and gross margins
experienced by the domestic OEM segment. The decline for the nine-month period
is primarily attributable to lower sales and gross margins and a $0.5 million
special charge for the severance and retirement of certain management personnel
in the domestic OEM segment, which more than offset the international OEM
segment sales gains noted above.
Net Income
- ----------
For the third quarter of 2003, net income increased 16.1%, to $4.4 million ($.46
per diluted share), compared to $3.8 million ($.39 per diluted share) in the
similar period of 2002. The increase in net income resulted from higher sales, a
decline in the effective tax rate, and the Company's efforts to contain costs,
which more than offset the special charges of $0.4 million ($0.2 million after
tax) for severance and retirement programs noted above.
Net income for the nine-month period ended September 30, 2003 was $12.3 million
($1.29 per diluted share). For the same period of 2002, net income was also
$12.3 million ($1.28 per diluted share). Cost containment efforts and a decrease
in the effective tax rate during the 2003 period were offset by the special
charges of $1.6 million ($1.0 million after tax) for severance and retirement
programs noted above. The effective tax rate declined principally due to lower
international losses. The Company has not provided for benefits related to these
losses. Per share net income for 2003 and 2002 was positively impacted by the
Company's share repurchase program.
Liquidity and Capital Resources
- -------------------------------
Cash flows provided by operations for the nine months ended September 30, 2003
and September 30, 2002 were $16.4 million and $19.7 million, respectively. In
2003, cash flows provided by operations were negatively impacted by an increase
in net operating assets and slightly lower operating liabilities. Higher
accounts receivable more than offset decreases in inventories and other
operating assets. In 2002, net operating assets and liabilities remained level
compared to balances at the previous year-end. Additions to property, plant and
equipment were $3.1 million and $5.1 million, respectively, for the nine months
ended September 30, 2003 and 2002. Capital expenditures for 2003 and 2002 were
incurred primarily for expansion and improvement of existing facilities owned by
the Company and for the purchase of related equipment. In 2002, capital
expenditures also included improvements of new leased facilities.
During the first nine months of 2003, the Company purchased 4,600 shares of its
own common stock for approximately $127,000 pursuant to the 2000 Board
authorization to purchase up to 500,000 shares. In the first nine months of
2002, the Company purchased 175,950 shares of its own common stock for
approximately $5,041,000. Of these purchases, a total of 173,115 shares were
acquired pursuant to the 2000 Board authorization to purchase up to 500,000
shares and 2,835 shares represented the remaining shares authorized for purchase
under the 1999 Board authorization to purchase up to 500,000 shares. All shares
purchased as of September 30, 2003 have been retired. Funds to purchase these
shares were provided by investments and cash flows from operations.
Current investments, cash flows from operations and the $50,000,000 unsecured
line of credit are expected to be sufficient to finance the Company's future
growth, cash dividends and capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at September 30, 2003 from
that reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
-12-
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Executive Vice President-
Finance and Corporate Planning (chief financial officer) have concluded, based
on their evaluation as of the end of the period covered by this report, that the
Company's disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. There were no changes in the Company's
internal control over financial reporting during the quarter ended September 30,
2003 that have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting.
-13-
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) Exhibits
--------
15 Letter from Ernst & Young LLP Regarding Unaudited
Interim Financial Information
31 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the
Sarbanes-OxleyAct of 2002
32 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the
Sarbanes-OxleyAct of 2002
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K, filed with the Securities and
Exchange Commission on July 22, 2003, regarding the Company's results
from operations for the quarter ended June 30, 2003.
-14-
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: November 10, 2003 /s/ Robert J. Washlow
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Robert J. Washlow
Chief Executive Officer and
Chairman of the Board
Dated: November 10, 2003 /s/ Thomas Neri
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Thomas Neri
Executive Vice President -Finance and
Corporate Planning
(Principal Financial Officer)
Dated: November 10, 2003 /s/ Joseph L Pawlick
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Joseph L. Pawlick
Senior Vice President -Accounting
(Principal Accounting Officer)
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