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 JUNE 30, 2004 Commission file no. 0-10546
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LAWSON PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2229304
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1666 EAST TOUHY AVENUE, DES PLAINES, ILLINOIS 60018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (847) 827-9666
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NOT APPLICABLE
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. 9,422,987 Shares, $1 par value,
as of July 16, 2004.
TABLE OF CONTENTS
PAGE
NUMBER
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at June 30, 2004
(unaudited) and December 31, 2003 3
Condensed Consolidated Statements of Income for the three
months and six months ended June 30, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2003 (unaudited) 5
Notes to Condensed Consolidated Unaudited Financial Statements 6
Report of Independent Registered Public Accounting Firm 13
Item 2. Management's Discussion and Analysis 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
Part II. OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
(Amounts in thousands, except share data) 2004 2003
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(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 23,818 $ 21,399
Marketable securities 4,419 2,156
Accounts receivable, less allowance for doubtful accounts 47,767 47,972
Inventories 61,716 59,817
Miscellaneous receivables and prepaid expenses 8,621 11,439
Deferred income taxes 1,689 1,975
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Total Current Assets 148,030 144,758
Property, plant and equipment, less allowances for depreciation and
amortization 41,205 42,946
Deferred income taxes 13,627 13,201
Goodwill 28,649 28,649
Other assets 18,536 17,389
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Total Assets $ 250,047 $ 246,943
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Accounts payable $ 9,256 $ 8,240
Accrued expenses and other liabilities 23,488 27,176
Current portion of long term debt 1,516 1,462
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Total Current Liabilities 34,260 36,878
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Accrued liability under security bonus plans 20,739 20,823
Long term debt 801 1,573
Other 14,915 14,318
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36,455 36,714
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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-(2004-9,425,187 shares; 2003-9,493,511 shares) 9,425 9,494
Capital in excess of par value 3,220 2,667
Retained earnings 167,430 161,831
Accumulated other comprehensive income (743) (641)
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Total Stockholders' Equity 179,332 173,351
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Total Liabilities and Stockholders' Equity $ 250,047 $ 246,943
===================== ===================
See notes to condensed consolidated financial statements.
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)
FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ----------------------------------
2004 2003 2004 2003
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Net sales $ 104,443 $ 97,109 $ 205,101 $ 193,184
Cost of goods sold 38,796 35,034 74,057 69,582
-------------- --------------- -------------- ---------------
Gross profit 65,647 62,075 131,044 123,602
Selling, general and administrative
expenses 57,455 54,505 112,790 109,770
Other charges --- 1,246 --- 1,246
-------------- --------------- -------------- ---------------
Operating income 8,192 6,324 18,254 12,586
Investment and other income 582 388 1,110 747
Interest expense 48 7 111 7
-------------- --------------- -------------- ---------------
Income before income taxes 8,726 6,705 19,253 13,326
Provision for income taxes 3,409 2,564 7,410 5,427
-------------- --------------- -------------- ---------------
Net income $ 5,317 $ 4,141 $ 11,843 $ 7,899
============== =============== ============== ===============
Net income per share of common stock:
Basic $ 0.56 $ 0.44 $ 1.25 $ 0.83
============== =============== ============== ===============
Diluted $ 0.56 $ 0.44 $ 1.25 $ 0.83
============== =============== ============== ===============
Cash dividends declared per share of
common stock $ 0.18 $ 0.16 $ 0.36 $ 0.32
============== =============== ============== ===============
Weighted average shares outstanding:
Basic 9,446 9,490 9,466 9,491
============== =============== ============== ===============
Diluted 9,475 9,506 9,493 9,509
============== =============== ============== ===============
See notes to condensed consolidated financial statements.
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LAWSON PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
FOR THE SIX MONTHS ENDED
JUNE 30,
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2004 2003
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Operating activities:
Net income $ 11,843 $ 7,899
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,415 3,255
Changes in operating assets and liabilities (4,403) (8,196)
Other 1,164 1,831
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Net Cash Provided by Operating Activities 12,019 4,789
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Investing activities:
Additions to property, plant and equipment (946) (2,508)
Purchases of marketable securities (4,198) (2,059)
Proceeds from sale of marketable securities 1,935 2,166
Other 100 100
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Net Cash Used in Investing Activities (3,109) (2,301)
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Financing activities:
Purchases of treasury stock (2,964) (127)
Proceeds from revolving line of credit --- 4,000
Payments on revolving line of credit --- (4,000)
Payments on long term debt (718) ---
Dividends paid (3,413) (3,037)
Other 604 (124)
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Net Cash Used in Financing Activities (6,491) (3,288)
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Increase(Decrease) in Cash and Cash Equivalents 2,419 (800)
Cash and Cash Equivalents at Beginning of Period 21,399 7,591
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Cash and Cash Equivalents at End of Period $ 23,818 $ 6,791
================ ================
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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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, 2003. The
Condensed Consolidated Balance Sheet as of June 30, 2004, the Condensed
Consolidated Statements of Income for the three and six month periods ended June
30, 2004 and 2003 and the Condensed Consolidated Statements of Cash Flows for
the six month periods ended June 30, 2004 and 2003 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, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004.
B) Total comprehensive income and its components, net of related tax, for the
first three and six months of 2004 and 2003 are as follows (in thousands):
THREE MONTHS ENDED
JUNE 30
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2004 2003
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Net income $ 5,317 $ 4,141
Foreign currency translation adjustments (184) 750
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Comprehensive income $ 5,133 $ 4,891
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SIX MONTHS ENDED
JUNE 30
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2004 2003
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Net income $ 11,843 $ 7,899
Foreign currency translation adjustments (102) 1,091
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Comprehensive income $ 11,741 $ 8,990
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The components of accumulated other comprehensive income, net of related tax, at
June 30, 2004 and December 31, 2003 are as follows (in thousands):
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2004 2003
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Foreign currency translation adjustments $ (743) $ (641)
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Accumulated other comprehensive income $ (743) $ (641)
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C) Earnings per Share
The calculation of dilutive weighted average shares outstanding for the three
and six months ended June 30, 2004 and 2003 are as follows (in thousands):
THREE MONTHS ENDED
JUNE 30
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2004 2003
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Basic weighted average shares outstanding 9,446 9,490
Dilutive impact of options outstanding 29 16
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Dilutive weighted average shares outstanding 9,475 9,506
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SIX MONTHS ENDED
JUNE 30
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2004 2003
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Basic weighted average shares outstanding 9,466 9,491
Dilutive impact of options outstanding 27 18
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Dilutive weighted average shares outstanding 9,493 9,509
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D) 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 June 30, 2004. The Company had no
borrowings outstanding under the line at June 30, 2004, and December 31, 2003.
E) Other Charges
The table below shows an analysis of the Company's reserves for severance and
related expenses for the first six months of 2004 and 2003:
SIX MONTHS ENDED
JUNE 30
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In thousands 2004 2003
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Balance at beginning of year $ 2,476 $ 876
Charged to earnings - - - 1,246
Cash paid (716) (283)
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Balance at June 30 $ 1,760 $ 1,839
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F) Intangible Assets
Intangible assets subject to amortization, included within other assets, were as
follows (in thousands):
JUNE 30, 2004
---------------------------------------------
NET
GROSS ACCUMULATED CARRYING
BALANCE AMORTIZATION AMOUNT
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Trademarks and tradenames $ 1,747 $ 910 $ 837
Customer Lists 953 384 569
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$ 2,700 $ 1,294 $ 1,406
============= ============ ============
DECEMBER 31, 2003
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NET
GROSS ACCUMULATED CARRYING
BALANCE AMORTIZATION AMOUNT
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Trademarks and tradenames $ 1,747 $ 851 $ 896
Customer Lists 953 368 585
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$ 2,700 $ 1,219 $ 1,481
============= ============ ============
Trademarks and tradenames are being amortized over a weighted average 15.14
years. Customer lists are being amortized over 13.96 years. Amortization expense
for intangible assets is expected to be $116,000 for 2004 and $83,000 for each
of the next four years.
G) 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
JUNE 30
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In thousands 2004 2003
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Net income-as reported $ 5,317 $ 4,141
Deduct: Total stock based employee compensation expense
determined under fair value method, net of tax (1) (9)
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Net income-pro forma 5,316 4,132
Basic and diluted earnings per share -as reported .56 .44
Basic earnings per share-pro forma .56 .44
Diluted earnings per share-pro forma .56 .43
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SIX MONTHS ENDED
JUNE 30
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In thousands 2004 2003
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Net income-as reported $ 11,843 $ 7,899
Deduct: Total stock based employee compensation expense
determined under fair value method, net of tax (4) (16)
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Net income-pro forma 11,839 7,883
Basic and diluted earnings per share - as reported 1.25 .83
Basic and diluted earnings per share - pro forma 1.25 .83
The Company's incentive stock plan provides for the issuance of Stock
Performance Rights (SPRs). These SPRs vest at 20% per year and entitle the
recipient to receive a cash payment equal to the excess of the market value of
the Company's common stock over the SPR price when the SPRs are surrendered. The
Company records an accrued liability based on the number of outstanding vested
SPRs and the market value of the Company's common stock. The compensation
expense accrual increased $443,000 in the first six months of 2004 compared to a
$223,000 reduction in the first six months of 2003. The increase in the
compensation expense accrual for the first six months of 2004 resulted from the
significant increase in the Company's stock price. No additional SPRs were
issued during the first six months of 2004.
H) Segment Reporting
The Company has four reportable segments: Maintenance, Repair and Replacement
distribution in the U.S.(MRO-US); International Maintenance; Repair and
Replacement distribution in Canada(MRO-CAN); Original Equipment Manufacturer
distribution and manufacturing in the U.S.(OEM-US); and, International Original
Equipment Manufacturer distribution in the United Kingdom and Mexico(OEM-INTL).
The operations of the Company's MRO distribution segments distribute a wide
range of MRO parts to repair and maintenance organizations by the Company's
force of independent field sales agents, and inside sales personnel.
The operations of the Company's OEM segments manufacture and distribute
component parts to OEM manufacturers through a network of independent
manufacturers representatives as well as internal sales personnel.
The Company's reportable segments are distinguished by the nature of products
distributed and sold, types of customers, manner of servicing customers, and
geographical location.
The Company evaluates performance and allocates resources to reportable segments
primarily based on operating income.
-9-
Financial information for the Company's reportable segments consisted of the
following:
THREE MONTHS ENDED
JUNE 30
-------------------------------------
In thousands 2004 2003
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Net sales
MRO-US $ 77,983 $ 75,326
MRO-CAN 5,543 4,901
OEM-US 16,326 13,325
OEM-INTL 4,591 3,557
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Consolidated total $ 104,443 $ 97,109
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Operating income(loss)
MRO-US $ 6,885 $ 6,108
MRO-CAN 739 690
OEM-US 623 (332)
OEM-INTL (55) (142)
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Consolidated total $ 8,192 $ 6,324
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The reconciliation of segment profit to consolidated income before income taxes
consisted of the following:
THREE MONTHS ENDED
JUNE 30
------------------------------
In thousands 2004 2003
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Total operating income from reportable segments $ 8,192 $ 6,324
Investment and other income 582 388
Interest expense (48) (7)
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Income before income taxes $ 8,726 $ 6,705
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SIX MONTHS ENDED
JUNE 30
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In thousands 2004 2003
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Net sales
MRO-US $ 154,379 $ 150,373
MRO-CAN 10,595 9,287
OEM-US 31,066 27,596
OEM-INTL 9,061 5,928
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Consolidated total $ 205,101 $ 193,184
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Operating income(loss)
MRO-US $ 16,097 $ 12,212
MRO-CAN 1,139 1,014
OEM-US 1,101 143
OEM-INTL (83) (783)
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Consolidated total $ 18,254 $ 12,586
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-10-
The reconciliation of segment profit to consolidated income before income taxes
consisted of the following:
SIX MONTHS ENDED
JUNE 30
------------------------------
In thousands 2004 2003
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Total operating income from reportable segments $ 18,254 $ 12,586
Investment and other income 1,110 747
Interest expense (111) (7)
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Income before income taxes $ 19,253 $ 13,326
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Asset information related to the Company's reportable segments consisted of the
following:
In thousands JUNE 30, DECEMBER 31,
2004 2003
--------------- --------------
Total assets
MRO-US $ 166,790 $ 168,783
MRO-CAN 18,649 17,137
OEM-US 37,816 36,076
OEM-INTL 11,476 9,771
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Total for reportable segments 234,731 231,767
Corporate 15,316 15,176
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Consolidated total $ 250,047 $ 246,943
=============== ==============
At June 30, 2004 and December 31, 2003, the carrying value of goodwill within
each reportable segment was as follows (in thousands):
MRO-US $ 22,104
MRO-CAN 4,294
OEM-US 2,251
----------------
Consolidated total $ 28,649
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I) Impact of Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board (FASB) 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 $2.3 million at June 30, 2004. The interest rate of the
mortgage payable is 7.315%, with a maturity date of January 1, 2006. The
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building and land have a net carrying value of approximately $4.3 million, which
are included in property, plant and equipment. The remaining assets, none of
which are significant, are recorded in other assets.
-12-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Lawson Products, Inc.
We have reviewed the condensed consolidated balance sheet of Lawson Products,
Inc. and subsidiaries as of June 30, 2004 and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 30,
2004 and 2003, and the condensed consolidated statements of cash flows for the
six-month periods ended June 30, 2004 and 2003. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with auditing
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of 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 condensed consolidated interim financial statements referred to
above for them to be in conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Lawson Products, Inc. as of December 31, 2003, 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, 2004, 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, 2003, 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 16, 2004
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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
REVENUES
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Net sales for the three-month period ended June 30, 2004 increased 7.6% to
$104.4 million, from $97.1 million in the same period of 2003. For the six-month
period ended June 30, 2004, net sales increased 6.2% to $205.1 million, from
$193.2 million in the comparable period of 2003.
Combined Maintenance, Repair and Replacement distribution (MRO-US and MRO-CAN)
net sales rose $3.3 million in the second quarter, to $83.5 million from $80.2
million and $5.3 million for the six-month period, to $165.0 million from $159.7
million. Sales increases were achieved in both the U.S. and Canadian MRO
segments for the three-month and six-month periods. The sales increase in the
U.S. is principally attributable to a higher average order size. In Canada, the
majority of the sales increase is attributable to favorable foreign exchange
fluctuations.
Combined Original Equipment Manufacturer (OEM-US and OEM-INTL) net sales
increased $4.0 million in the second quarter, to $20.9 million from $16.9
million and increased $6.6 million in the first six months, to $40.1 million
from $33.5 million. Sales were higher in the U.S. and internationally for the
combined OEM segment for the three-month and six-month periods. The sales gain
in both the U.S. and OEM-INTL segments is attributable to higher sales from
existing customers and the addition of new customers. The favorable impact of
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foreign exchange fluctuations also accounted for a portion of the sales increase
achieved by the OEM-INTL segment.
OPERATING INCOME
- ----------------
Operating income for the three-month period ended June 30, 2004 increased 29.5%
to $8.2 million, from $6.3 million in the comparable period of 2003. For the
six-month period ended June 30, 2004, operating income increased 45.0% to $18.3
million, from $12.6 million in the similar period of 2003. Results for 2003
include a second quarter charge of $1.2 million ($0.7 million and $0.5 million
in the combined MRO and OEM segments, respectively) for the severance and
retirement of certain management personnel. The increase in consolidated
operating income for the quarter and year-to date periods is also attributable
to the higher net sales noted above and lower selling, general and
administrative (S,G&A) expenses as a percent of sales.
Operating income for the combined MRO segments increased $0.8 million, a 12.2%
gain and $4.0 million, a 30.3% gain for the three-month and six-month periods,
respectively. The increases are primarily attributable to the higher sales noted
above, higher gross margins and the absence of a charge for the severance and
retirement of certain management personnel.
The combined OEM segments had operating income of $0.6 million for the second
quarter of 2004 compared to an operating loss of $0.5 million for the similar
period of 2003. Operating income for the first six months of 2004 was $1.0
million compared to an operating loss of $0.6 million for the similar period of
2003. The improvements are primarily attributable to the higher net sales noted
above, and the absence of a charge for the severance and retirement of certain
management personnel, offset by lower gross margins.
NET INCOME
- ----------
Net income for the second quarter of 2004 increased 28.4%, to $5.3 million ($.56
per diluted share), compared to $4.1 million ($.44 per diluted share) in the
similar period of 2003. For the six-month period ended June 30, 2004, net income
rose 49.9%, to $11.8 million ($1.25 per diluted share), from $7.9 million ($.83
per diluted share) in the similar period of 2003. The increase in net income for
the second quarter resulted from higher sales and the absence of the charge of
$1.2 million ($0.8 million after tax) for severance and retirement programs
noted above, offset by lower gross margins. The year-to-date increase in net
income was principally attributable to higher net sales, the absence of the
charge for severance and retirement programs noted above, and a lower effective
tax rate. The effective tax rate declined principally due to significantly lower
losses internationally for the first six months of 2004. No tax benefit was
provided for the international losses in either year. Per share net income for
2004 and 2003 was positively impacted by the Company's share repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows provided by operations for the six months ended June 30, 2004 and
June 30, 2003 were $12.0 million and $4.8 million, respectively. In 2004, cash
flows provided by operations were positively impacted by higher net income and
negatively impacted by an increase in net operating assets, primarily
inventories, and lower operating liabilities. In 2003, increases in net
-15-
operating assets, primarily accounts receivable and inventories, negatively
impacted cash flows from operations. Working capital at June 30, 2004 was $113.8
million as compared to $107.9 million at December 31, 2003. At June 30, 2004 the
current ratio was 4.3 to 1 as compared to 3.9 to 1 at December 31, 2003.
Additions to property, plant and equipment were $0.9 million and $2.5 million,
respectively, for the six months ended June 30, 2004 and 2003. Capital
expenditures in 2004 were incurred for the purchase of equipment. In 2003,
additions to property, plant and equipment were incurred primarily for
improvement of existing facilities and for the purchase of related equipment.
The Company expects total capital expenditures for 2004 to approximate $2.5
million.
The Company increased the cash dividend to $.18 per share on common shares paid
in the first quarter of 2004. This is a 12.5% increase over the previous $.16
per share on common shares paid each quarter in 2003.
During the first six months of 2004, the Company purchased 91,434 shares of its
own common stock for approximately $2,964,000, pursuant to the 2000 Board
authorization to purchase up to 500,000 shares. In the first six months of 2003,
the Company purchased 4,600 shares of its own common stock for approximately
$127,000 pursuant to the 2000 Board authorization noted above. All shares
purchased as of June 30, 2004 have been retired. Funds to purchase these shares
were provided by investments and cash flows from operations. There is no
expiration date relative to this authorization.
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 June 30, 2004 from that
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of the Company's disclosure controls and procedures as of June
30, 2004. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures were effective to ensure that information we are required to
disclose in reports that we file under the Securities and Exchange Act of 1934
is recorded, processed, summarized and reported within the time period specified
in the SEC rules and forms. There have been no significant changes during the
period covered by this Form 10-Q in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
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PART II
OTHER INFORMATION
Items 1, 3, and 5 are inapplicable and have been omitted from this report.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER
PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
TOTAL TOTAL NUMBER OF SHARES MAXIMUM NUMBER OF SHARES
NUMBER OF AVERAGE PURCHASED AS PART OF THAT MAY YET BE PURCHASED
SHARES PRICE PAID PUBLICLY ANNOUNCED PLANS UNDER THE PLANS OR
PERIOD PURCHASED PER SHARE OR PROGRAMS PROGRAMS
- -------------------------------------------------------------------------------------------------------------------
01/01/04 - 01/31/04 --- --- --- 286,399
02/01/04 - 02/29/04 8,242 29.76 8,242 278,157
03/01/04 - 03/31/04 20,305 30.07 20,305 257,852
04/01/04 - 04/30/04 24,057 32.85 24,057 233,795
05/01/04 - 05/31/04 27,781 33.58 27,781 206,014
06/01/04 - 06/30/04 11,049 34.85 11,049 194,965
- -------------------------------------------------------------------------------------------------------------------
Total 91,434 32.42 91,434 194,965
- -------------------------------------------------------------------------------------------------------------------
On May 16, 2000, the Board of Directors of the Company authorized the purchase
of up to 500,000 shares of its common stock. There is no expiration date
relative to this authorization.
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 11, 2004.
(b) Set forth below is the tabulation of the votes on each nominee for
election as a director.
WITHHELD
FOR AUTHORITY
-------------- --------------
Lee S. Hillman 8,837,236 133,296
Sidney L. Port 8,850,474 120,058
Robert J. Washlow 8,922,798 47,734
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Messrs. Port, Rettig and Smelcer continue to serve as directors of the Company
for terms ending in 2005 and Messrs. Brophy, Saranow and Shaffer continue to
serve as directors of the Company for terms ending in 2006.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
15 Letter from Ernst & Young LLP Regarding Unaudited
Interim Financial Information
31.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K, filed with the Securities and Exchange Commission on
April 21, 2004, regarding the Company's results from operations for the quarter
ended March 31, 2004 (which report was furnished but not filed with the
Securities and Exchange Commission).
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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 August 6, 2004 /s/ Robert J. Washlow
Robert J. Washlow
Chief Executive Officer
and Chairman of the Board
Dated August 6, 2004 /s/ Thomas Neri
Thomas Neri
Executive Vice President,
Chief Financial Officer,
and Treasurer
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