SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number: 0-10546
LAWSON PRODUCTS, INC.
(Exact Name of Registrant as Specified in 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)
Registrant's telephone number, including area code: (847) 827-9666
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
(Title of class)
Indicate by check mark whether the Registrant (l) 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
As of March 1, 1996, 11,600,614 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 1996 was approximately $189,118,000.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of
Stockholders to be held on May 7, 1996 Part III
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
PART I
Item 1. Business.
Lawson Products, Inc. was incorporated in Illinois in 1952 and
reincorporated in Delaware in 1982.
Products
The Company is a distributor of approximately 33,000 expendable
maintenance, repair and replacement products. These products may be divided
into three broad categories: Fasteners, Fittings and Related Parts, such as
screws, nuts, rivets and other fasteners; Industrial Supplies, such as hoses and
hose fittings, lubricants, cleansers, adhesives and other chemicals, as well as
files, drills, welding products and other shop supplies; and Automotive and
Equipment Maintenance Parts, such as primary wiring, connectors and other
electrical supplies, exhaust and other automotive parts. The Company estimates
that these categories of products accounted for the indicated percentages of its
total consolidated net sales for 1995, 1994 and 1993 respectively:
Percentage of
Consolidated
Net Sales
1995 1994 1993
Fasteners, Fittings and Related Parts . . . 41% 41% 42%
Industrial Supplies . . . . . . . . . . . . 54% 53% 52%
Automotive and Equipment Maintenance Parts 5% 6% 6%
100% 100% 100%
All of the Company's products are manufactured by others and must meet
the Company's specifications. Approximately 90% of the Company's products are
sold under the Company label. Substantially all merchandise which the Company
distributes is purchased by the Company in bulk and subsequently repackaged in
smaller quantities. The Company regularly uses a large number of suppliers but
has no long-term or fixed price contracts with any of them. Most items which
the Company distributes are purchased from several sources, and the Company
believes that the loss of any single supplier would not significantly affect its
operations. No single supplier accounted for more than 8% of the Company's
purchases in 1995.
Marketing
The Company's principal markets are as follows:
Heavy Duty Equipment Maintenance. Customers in this market include
operators of trucks, buses, agricultural implements, construction and road
building equipment, mining, logging and drilling equipment and other
off-the-road equipment. The Company estimates that approximately 45% of 1995
sales were made to customers in this market.
In-Plant and Building Maintenance. This market includes plants
engaged in a broad range of manufacturing and processing activities, as well as
institutions such as hospitals, universities, school districts and government
units. The Company estimates that approximately 42% of 1995 sales were made to
customers in this market.
Passenger Car Maintenance. Customers in this market include
automobile service center chains, independent garages, automobile dealers, car
rental agencies and other fleet operators. The Company estimates that
approximately 11% of 1995 sales were made to customers in this market.
The Company has approximately 200,000 customers, the largest of which
accounted for less than one percent of net sales during 1995. Sales are made
through a force of approximately 1,675 independent sales representatives.
Included in this group are 207 district and zone managers, each of whom, in
addition to his own sales activities, acts in an advisory capacity to other
sales representatives in a designated area of the country. The Company employs
35 regional managers to coordinate regional marketing efforts. Sales
representatives, including district and zone managers, are compensated on a
commission basis and are responsible for repayment of commissions on their
respective uncollectible accounts. In addition to the sales representatives and
district, zone and regional managers discussed above, the Company has 801
employees.
The Company's products are sold in all 50 states, Mexico, Puerto Rico,
the District of Columbia, Canada and England. The Company believes that an
important factor in its success is its ability to service customers promptly.
During the past five years, more than 99% of all items were shipped to the
customer within 24 hours after an order was received by the Company. This rapid
delivery is facilitated by computer controlled order entry and inventory control
systems in each general distribution center. In addition, the receipt of
customer orders at Lawson distribution facilities has been accelerated by
portable facsimile transmission equipment and personal computer systems used by
sales representatives operating in certain areas of the country. Customer
orders are delivered by common carriers.
The Company is required to carry significant amounts of inventory in
order to meet its high standards of rapid processing of customer orders. The
Company funds its working capital requirements internally.
Distribution Facilities
Substantially all of the Company's products are stocked in and
distributed from each of its nine general distribution centers in; Addison,
Illinois; Reno, Nevada; Farmers Branch, Texas; Norcross, Georgia; Fairfield, New
Jersey; Mississauga, Ontario, Canada and Bradley Stoke (Bristol) England.
Chemical products are distributed from a facility in Vernon Hills, Illinois and
welding products are distributed from a facility in Charlotte, North Carolina.
Each warehouse and distribution facility orders and maintains its own inventory.
In the opinion of the Company, all existing facilities are in good condition,
are well maintained and are being used substantially to capacity on a single
shift basis.
All of the Company's facilities are relatively new. Further expansion
of warehousing capacity may require new warehouses, some of which may be located
in new geographical areas.
Canadian Operations
Canadian operations are conducted at the Company's 40,000 square foot
general distribution center in Mississauga, Ontario, a suburb of Toronto. These
operations constituted less than 3% of the Company's net sales during 1995.
United Kingdom Operations
Operations in the United Kingdom are conducted under the name of
Lawson Products Ltd. from a 19,000 square foot general distribution center in
Bradley Stoke (Bristol) England. These operations constituted less than 1% of
the Company's net sales during 1995.
Mexican Operations
Operations in Mexico are conducted under the name of Lawson Products
de Mexico S.A. de C.V. from a 5,000 square foot facility in Guadalajara, Mexico.
These operations constituted less than 1% of the Company's net sales during
1995.
Competition
The Company encounters intense competition from several national
distributors and a large number of regional and local distributors. Due to the
nature of its business and the absence of reliable trade statistics, the Company
cannot estimate its position in relation to its competitors. However, the
Company recognizes that some competitors may have greater financial and
personnel resources, handle more extensive lines of merchandise, operate larger
facilities and price some merchandise more competitively than the Company.
Although the Company believes that the prices of its products are competitive,
it endeavors to meet competition primarily through the quality of its product
line and its service.
Item 2. Properties.
The Company owns two facilities located in Des Plaines, Illinois,
(152,600 and 27,000 square feet, respectively). These buildings contain the
Company's main administrative activities and an inbound warehouse facility that
principally supports the Addison, Illinois facility and other distribution
facilities to a lesser degree. Additional administrative, warehouse and
distribution facilities owned by the Company are located in Addison, Illinois
(65,000 square feet); Fairfield, New Jersey (61,000 square feet); Reno, Nevada
(97,000 square feet); Norcross, Georgia (61,300 square feet); Farmers Branch,
Texas (54,500 square feet); and Mississauga, Ontario, Canada (40,000 square
feet). Chemical products are distributed from a 56,300 square foot owned
facility in Vernon Hills, Illinois and welding products are distributed from a
40,000 square foot owned facility located in Charlotte, North Carolina.
Administrative, warehouse and distribution facilities in Bradley Stoke (Bristol)
England (19,000 square feet) are leased by the Company. Administrative and
distribution facilities in Guadalajara, Mexico (5,000 square feet) are leased by
the Company. From time to time, the Company leases additional warehouse space
near its present facilities. See Item 1, "Business - Distribution Facilities"
for further information regarding the Company's properties.
Item 3. Legal Proceedings.
There is no material pending litigation to which the Company, or any
of its subsidiaries, is a party or to which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded on the NASDAQ National Market
System under the symbol of "LAWS." The approximate number of stockholders of
record at December 31, 1995 was 1,267. The following table sets forth the high
and low closing sale prices as reported on the NASDAQ National Market System
during the last two years. The table also indicates the cash dividends paid by
the Company during such periods.
<TABLE>
<CAPTION>
1995 1994
Cash Cash
High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
First Quarter . . . . . . . $27 3/16 $25 $.12 $31 $25 1/4 $.12
Second Quarter . . . . . . 27 1/2 26 .12 24 1/2 21 3/4 .12
Third Quarter . . . . . . . 28 1/2 26 1/2 .13 25 3/4 22 1/2 .12
Fourth Quarter . . . . . . 27 1/8 23 1/8 .13 27 1/4 24 3/4 .12
</TABLE>
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with
the Financial Statements of the Company and notes thereto included elsewhere in
this Report. The income statement data and balance sheet data for and as of the
end of each of the fiscal years in the five-year period ended December 31, 1995,
are derived from the audited Financial Statements of the Company.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $223,537,182 $213,097,143 $195,735,202 $186,709,454 $181,729,132
Income Before Income Taxes 34,815,029 34,031,074 27,767,480 25,379,448 26,406,527
Net Income 21,120,029 20,524,074 18,117,480 15,343,448 16,646,527
Total Assets 160,613,798 168,130,848 171,428,606 158,029,952 150,348,539
Noncurrent Liabilities 19,292,794 17,084,617 15,160,121 13,319,626 11,550,482
Stockholders' Equity 122,810,577 131,230,469 140,649,876 128,755,648 120,425,296
Return on Equity (percent) 16.9% 14.7% 13.4% 12.3% 14.4%
Per Share of common Stock:
Net Income $1.75 $1.55 $1.34 $1.13 $1.23
Stockholders' Equity 10.17 9.91 10.37 9.49 8.87
Cash Dividends Declared .51 .48 .44 .40 .40
Weighted Average Shares
Outstanding 12,072,668 13,237,181 13,556,714 13,564,114 13,569,716
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net sales for 1995 and 1994 increased 4.9% and 8.9%, respectively, over the
immediately preceding years. The sales advance for 1995 occurred primarily as a
result of increases in unit sales and the average order size, while the gain in
sales for 1994 resulted principally from the number of orders shipped and a
larger customer base.
Net income in 1995 advanced 2.9% over 1994 to $21,120,029, while net income
per share in 1995 increased 12.9% to $1.75 from $1.55 in 1994. Sales gains and
cost containment efforts, partially offset by a decrease in gross margins, were
primarily responsible for the increase in net income for 1995. Per share net
income for 1995 and 1994 was positively impacted by the Company s share
repurchases discussed below. The gain in net income for 1994 over 1993 resulted
principally from sales advances, improved gross margins, and cost containment
efforts. Excluding the effect of the nonrecurring items during 1993, noted
below, net income for 1994 rose approximately 20.6 percent. Results for 1993
include an after tax gain of approximately $740,000 realized from the sale of
the Compton, California facility and a $352,000 cumulative adjustment to reflect
the adoption of FASB Statement No. 109, "Accounting for Income Taxes."
Liquidity and Capital Resources
Cash flows provided by operations for 1995, 1994, and 1993 were
$21,309,287, $23,041,066 and $16,989,688, respectively. The decrease in 1995
resulted principally from increases in operating assets and decreases in
operating liabilities from 1994 levels, which more than offset the gain in net
income noted above. The 1994 improvement over 1993 was due primarily to the
increase in net income and smaller increases in net operating assets and
liabilities than in 1993. In addition to satisfying operating requirements,
current investments and cash flows from operations are expected to finance the
Company s future growth, cash dividends and capital expenditures.
Additions to property, plant and equipment for 1995, 1994, and 1993,
respectively, were $3,020,330, $6,888,262 and $1,431,004. Consistent with prior
years, capital expenditures were incurred primarily for new facilities,
improvement of existing facilities, and for the purchase of related equipment.
The construction of Lawson s outbound facility in Addison, Illinois was
substantially completed by the end of 1994, at a cost of approximately
$5,600,000, and opened during the first quarter of 1995. In addition, during
the first quarter of 1994, the Company established a new Lawson subsidiary in
Guadalajara, Mexico, which operates out of a leased facility.
In 1994, the Board of Directors authorized the purchase of up to 1,500,000
shares of the Company s Common Stock. During 1995, 917,500 shares were
purchased for approximately $24,085,000, relative to the share authorization
noted above. Also, during 1994, 961,500 shares were purchased for approximately
$23,105,000, consisting of 496,500 shares relative to the 1,500,000 shares
authorized for purchase in 1994 and 465,500 shares relating the share purchases
previously authorized during 1990. Funds to purchase these shares were provided
by investments and cash flows from operations.
Impact of Inflation and Changing Prices
The Company has continued to pass most increases in product costs on to its
customers and, accordingly, gross margins have not been materially impacted.
The effects from inflation have been more significant on the Company's fixed and
semi-variable operating expenses, primarily wages and benefits, although to a
lesser degree in recent years due to moderate inflation levels.
Although the Company expects that future costs of replacing warehouse and
distribution facilities will rise due to inflation, such higher costs are not
anticipated to have a material effect on future earnings.
Item 8. Financial Statements and Supplementary Data.
The following information is presented in this report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the Years ended December 31,
1995, 1994 and 1993.
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Schedule II
Report of Independent Auditors
To the Stockholders and Board of Directors
Lawson Products, Inc.
We have audited the accompanying consolidated balance sheets of Lawson Products,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
item 14(a). These financial statements and related schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and related schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lawson Products,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
February 26, 1996
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,432,139 $ 9,852,855
Marketable securities 16,068,113 21,797,808
Accounts receivable, less allowance
for doubtful accounts (1995-
$1,111,337; 1994-$1,127,017) 28,295,687 27,319,094
Inventories 27,082,903 26,839,274
Miscellaneous receivables 2,977,144 3,184,610
Prepaid expenses 2,657,933 2,440,629
Deferred income taxes 464,000 815,000
Total Current Assets 87,977,919 92,249,270
Property, plant and equipment, at
cost, less allowances for
depreciation and amortization
(1995-$22,894,444;
1994-$20,105,709) 35,501,105 35,858,457
Other assets:
Marketable securities 20,847,081 26,101,660
Investments in real estate 3,152,164 3,084,164
Cash value of life insurance 8,790,756 7,245,823
Deferred income taxes 3,201,000 2,461,000
Other 1,143,773 1,129,974
37,134,774 40,022,621
$160,613,798 $168,130,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,218,887 $ 3,274,004
Accrued expenses and other
liabilities 14,329,710 14,524,248
Income taxes 961,830 2,017,010
Total Current Liabilities 18,510,427 19,815,262
Noncurrent liabilities and
deferred credits:
Accrued liability under security
bonus plans 11,421,646 10,163,098
Deferred compensation and other
liabilities 7,871,148 6,921,519
19,292,794 17,084,617
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-1995-11,686,614 shares;
1994-17,097,490 shares 11,686,614 17,097,490
Capital in excess of par value 493,783 716,111
Retained earnings 111,320,907 195,609,232
Cost of common stock in treasury:
1994-4,493,676 - (80,884,205)
123,501,304 132,538,628
Foreign currency translation
adjustment (823,727) (1,087,159)
Unrealized gain (loss) on marketable
securities 133,000 (221,000)
122,810,577 131,230,469
$160,613,798 $168,130,348
See notes to consolidated financial statements
</TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net sales $223,537,182 $213,097,143 $195,735,202
Interest and dividend income 1,671,383 1,725,871 2,162,002
Other income - net 977,451 18,170 1,067,137
226,186,016 214,841,184 198,964,341
Cost of goods sold 63,535,746 58,559,096 54,783,721
Selling, general and administrative expenses 126,839,711 121,357,853 115,504,641
Interest expense 10,271 44,831 19,300
Provision for doubtful accounts 985,259 848,330 889,199
191,370,987 180,810,110 171,196,861
Income Before Income Taxes 34,815,029 34,031,074 27,767,480
Federal and state income taxes (credit):
Current 14,472,000 14,100,000 10,989,000
Deferred (777,000) (593,000) (987,000)
13,695,000 13,507,000 10,002,000
Income before cumulative effect of change
in accounting principle 21,120,029 20,524,074 17,765,480
Cumulative effect-change in accounting
for income taxes - - 352,000
Net Income $ 21,120,029 $ 20,524,074 $ 18,117,480
Per share of Common Stock:
Income before cumulative effect of
change in accounting principle $1.75 $1.55 $1.32
Cumulative effect-change in accounting
for income taxes - - .02
Net Income $1.75 $1.55 $1.34
See notes to consolidated financial statements
</TABLE>
Lawson Products, Inc.
Consolidated Statements of
Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
Common Capital Cost of Foreign Gain (Loss)
Stock, in excess of Common Currency on
$1 par par Retained Stock in Translation Marketable
value value Earnings Treasury Adjustment Securities
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 17,081,561 $ 553,195 $ 169,228,919 $ (57,779,689) $ (328,338) $ -
Net income 18,117,480
Cash dividends declared (5,965,834)
Stock issued under
employee stock plans 12,354 134,101
Translation adjustment (403,873)
Balance at December 31, 1993 17,093,915 687,296 181,380,565 (57,779,689) (732,211) -
Net income 20,524,074
Cash dividends declared (6,295,407)
Stock issued under employee
stock plans 3,575 28,815
Purchase of common stock (23,104,516)
Translation adjustment (354,948)
Unrealized loss on marketable
securities (221,000)
Balance at December 31, 1994 17,097,490 716,111 195,609,232 (80,884,205) (1,087,159) (221,000)
Net income 21,120,029
Cash dividends declared (6,076,922)
Stock issued under employee
stock plans 300 4,551
Purchase of common stock (24,085,282)
Retirement of treasury stock (5,411,176) (226,879) (99,331,432) 104,969,487
Translation adjustment 263,432
Unrealized gain on marketable
securities 354,000
Balance at December 31, 1995 $ 11,686,614 $ 493,783 $ 111,320,907 $ - $ (823,727) $ 133,000
</TABLE>
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income $21,120,029 $20,524,074 $18,117,480
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,349,186 3,085,476 3,195,714
Provision for allowance for
doubtful accounts 985,259 848,330 889,199
Deferred income taxes (777,000) (593,000) (1,339,000)
Deferred compensation and security
bonus plans 3,739,807 2,767,055 2,604,346
Payments under deferred compensation
and security bonus plans (1,509,086) (847,666) (769,274)
(Gains)/losses from sale of property,
plant and equipment 18,884 36,058 (1,216,919)
(Income)/losses from investments in
real estate (148,000) 208,500 392,000
Changes in operating assets and
liabilities:
Increase in accounts receivable (1,961,852) (3,095,661) (602,393)
Increase in inventories (243,629) (3,183,058) (1,772,046)
Increase in prepaid expenses
and other assets (2,248,330) (1,383,412) (1,452,659)
Increase/(decrease) in accounts
payable and accrued expenses (256,456) 2,116,976 901,343
Increase/(decrease) in income
taxes payable (1,055,180) 2,079,249 (1,509,882)
Other 295,655 478,145 (448,221)
Net Cash Provided by Operating Activities 21,309,287 23,041,066 16,989,688
Investing activities:
Additions to property, plant and equipment (3,020,330) (6,888,262) (1,431,004)
Purchases of marketable securities (293,575,770) (246,580,492) (120,239,385)
Proceeds from sale of marketable
securities 305,232,277 251,437,202 111,600,275
Proceeds from sale of property,
plant and equipment 36,000 5,200 2,135,475
Proceeds from life insurance policies 668,372 173,297 15,000
Other 80,000 80,000 60,000
Net Cash Provided by (Used in)
Investing Activities 9,420,549 (1,773,055) (7,859,639)
Financing Activities:
Purchases of common stock (24,085,282) (23,104,516) -
Proceeds from exercise of stock options 4,851 32,390 146,455
Dividends paid (6,070,121) (6,294,979) (5,693,364)
Net Cash Used in Financing Activities (30,150,552) (29,367,105) (5,546,909)
Increase/(Decrease) in Cash and
Cash Equivalents 579,284 (8,099,094) 3,583,140
Cash and Cash Equivalents at
Beginning of Year 9,852,855 17,951,949 14,368,809
Cash and Cash Equivalents at
End of Year $ 10,432,139 $ 9,852,855 $ 17,951,949
See notes to consolidated financial statements
</TABLE>
Lawson Products, Inc. and subsidiaries are distributors of expendable parts and
supplies for maintenance, repair and operations of equipment. The Company's
operations are principally conducted in North America.
NOTE A-SUMMARY OF MAJOR ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, each of
which is wholly owned. All intercompany items and transactions have been
eliminated in consolidation.
Revenue Recognition: Sales and associated cost of goods sold are
recognized when products are shipped to customers.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Investments in Real Estate: The Company's investments in real estate
representing limited partnership interests are carried on the basis of the
equity method.
Marketable Securities: Marketable equity securities and debt securities
are classified as available-for-sale and are carried at fair value, with the
unrealized gains and losses, net of tax, recorded in shareholders' equity.
Realized gains and losses, declines in value judged to be other-than-temporary,
and interest and dividends are included in investment income. The cost of
securities sold is based on the specific identification method.
Inventories: Inventories (comprising finished goods) are stated at the
lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment: Provisions for depreciation and
amortization are computed by the straight-line method for buildings using useful
lives of 20 to 30 years and by the double declining balance method for machinery
and equipment, furniture and fixtures and vehicles using useful lives of 4 to 10
years.
Investment Tax Credits: Investment tax credits on assets leased to others
(see Investments in Real Estate) are deferred and amortized over the useful life
of the related asset.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Stock Options: Stock options are accounted for under Accounting Principles
Board Opinion No. 25, Accounting For Stock Issued to Employees. Under APB 25,
no compensation expense is recognized because the exercise price of the stock
options granted equals the market price of the underlying stock at the date of
grant.
Foreign Currency Translation: The financial statements of foreign entities
have been translated in accordance with Statement of Financial Accounting
Standards No. 52 and, accordingly, unrealized foreign currency translation
adjustments are reflected as a component of stockholders equity. Realized
foreign currency transaction gains and losses were not significant for the years
ended December 31, 1995, 1994 and 1993.
Reclassifications: Certain amounts have been reclassified in the 1993 and
1994 financial statements to conform with the 1995 presentation.
NOTE B- MARKETABLE SECURITIES
The following is a summary of the Company's investments at December 31 which are
all classified as available-for-sale:
<TABLE>
<CAPTION>
(In Thousands) Gross Gross
Unrealized Unrealized Estimated
1995 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of states and $34,472 $287 $2 $34,757
political subdivisions
Foreign government securities 1,516 - - 1,516
Other debt securities 204 - - 204
Total debt securities 36,192 287 2 36,477
Equity securities - 438 - 438
$36,192 $725 $2 $36,915
1994
Obligations of states and $44,896 $82 $425 $44,553
political subdivisions
Foreign government securities 1,226 - - 1,226
Other debt securities 2,118 8 6 2,120
$48,240 $90 $431 $47,899
</TABLE>
The gross realized gains on sales totaled: $116,062, $11,867, and $141,861
in 1995, 1994, and 1993, respectively, and the gross realized losses totaled
$46,186, $55,050, and $83,530, respectively. The net adjustment to unrealized
holding gains (losses) included as a separate component of shareholders' equity,
net of taxes, totaled $354,000 and ($221,000) in 1995 and 1994, respectively.
In 1995 the Company received equity shares on the conversion of certain mutual
insurance companies from, which the Company held policies, to stock companies.
These shares carry no cost.
The amortized cost and estimated fair value of marketable securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers of
certain securities have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
(In Thousands) Cost Fair Value
<S> <C> <C>
Due in one year or less $16,024 $16,068
Due after one year through five years 10,397 10,505
Due after five years through ten years 1,611 1,642
Due after ten years 8,160 8,262
Total debt securities 36,192 36,477
Equity securities - 438
$36,192 $36,915
</TABLE>
NOTE C-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 5,976,341 $ 5,209,858
Buildings and improvements 32,360,549 29,221,123
Machinery and equipment 14,475,356 11,204,980
Furniture and fixtures 4,618,726 4,383,001
Vehicles 303,317 287,550
Construction in Progress 661,260 5,657,654
$58,395,549 $55,964,166
</TABLE>
NOTE D-INVESTMENTS IN REAL ESTATE
The Company is a limited partner in three real estate limited partnerships. An
affiliate of the Company has a 1.5% interest and 5% interest, respectively, as a
general partner in two of the partnerships, which interests are subordinated to
the Company's interests in distributable cash.
NOTE E-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Salaries, commissions and
other compensation $ 5,416,903 $ 5,643,685
Accrued and withheld taxes,
other than income taxes 1,408,108 1,154,584
Accrued profit sharing
contributions 1,994,328 1,810,562
Accrued self-insured health
benefits 1,300,000 1,300,000
Cash dividends payable 1,519,260 1,627,838
Other 2,691,111 2,987,579
$14,329,710 $14,524,248
</TABLE>
NOTE F-STOCK PLAN
The Company's Incentive Stock Plan (Plan), as amended, provides for the issuance
of up to 750,000 shares of Common Stock to officers and key employees pursuant
to stock options, stock appreciation rights, stock purchase agreements and stock
awards.
The Plan permits the grant of incentive stock options, subject to certain
annual limitations, with substantially the same terms as non-qualified stock
options, except that incentive stock options are not exercisable within six
months from date of grant and may not be exercisable while an optionee holds a
prior incentive stock option. Incentive stock options may be granted at prices
not less than the fair market value of the shares at the dates of grant.
Benefits may be granted under the Plan through December 16, 1996 and the
allowable duration of the stock options is twelve years.
Additional information with respect to the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares
1995 1994 1993
<S> <C> <C> <C>
As of December 31:
Options outstanding
(per share:
$12.83 to $29.75) 126,131 126,431 130,756
Available for grant 536,591 536,591 535,841
Options exercisable 126,131 126,431 103,550
For the year ended
December 31:
Options exercised
(per share: 1995, 1994,
and 1993-$8.78 to $27.50) 300 3,575 12,354
Benefits cancelled - 750 5,886
</TABLE>
As of December 31, 1995, 93 persons held outstanding options for an
aggregate of 126,131 shares of Common Stock with an average per share option
price of $27.06. Such options expire on various dates through May 24, 2000.
At December 31, 1995, 662,722 shares of Common Stock were reserved for
issuance under the Plan.
NOTE G-PROFIT SHARING AND SECURITY BONUS PLANS
The Company and certain subsidiaries have a profit sharing plan for office and
warehouse personnel. The amounts of the companies' annual contributions are
determined by the respective boards of directors subject to limitations based
upon current operating profits (as defined) or participants' compensation (as
defined).
The Company and its subsidiaries also have in effect security bonus plans
for the benefit of their regional managers and independent sales
representatives, under the terms of which participants are credited with a
percentage of their yearly earnings (as defined). Of the aggregate amounts
credited to participants' accounts, 25% vests after five years and an additional
5% vests each year thereafter. For financial reporting purposes, amounts are
charged to operations over the vesting period.
Provisions for profit sharing and security bonus plans aggregated
$3,890,250, $3,517,052 and $3,067,199 for the years ended December 31, 1995,
1994 and 1993, respectively.
In 1994 the Company established a 401(k) defined contribution savings plan.
The plan, which is available to all employees, was provided to give employees a
pre-tax investment vehicle to save for retirement. All contributions to the
plan are made by plan participants.
NOTE H-INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires
recognition of deferred tax liabilities and receivables for future taxes to be
calculated using a balance sheet approach. The cumulative effect of adopting
SFAS 109 was to increase 1993 net income by $352,000 ($.02 per share).
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In addition, deferred
income taxes include net operating loss carryforwards of a foreign subsidiary
which do not expire. The valuation allowance has been provided
since there is no assurance that the benefit of the net operating loss
carryforwards will be realized. Significant components of the Company's
deferred tax assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: 1995 1994
<S> <C> <C>
Compensation and benefits $ 7,630,000 $ 6,822,000
Inventory 509,000 514,000
Net operating loss carryforward
of subsidiary 2,047,000 1,572,000
Accounts receivable 373,000 376,000
Marketable securities - 120,000
Total Deferred Tax Assets 10,559,000 9,404,000
Valuation allowance for
deferred tax assets (2,047,000) (1,572,000)
Net Deferred Tax Assets 8,512,000 7,832,000
Deferred Tax Liabilities:
Property, plant & equipment 1,200,000 1,166,000
Investments in real estate 3,167,000 3,195,000
Marketable securities 253,000 -
Other 227,000 195,000
Total Deferred Tax Liabilities 4,847,000 4,556,000
Total Net Deferred Tax
Assets $ 3,665,000 $ 3,276,000
</TABLE>
The provisions for income taxes for the years ended December 31, consist of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $11,657,000 $11,955,000 $ 9,194,000
State 2,815,000 2,145,000 1,795,000
14,472,000 14,100,000 10,989,000
Deferred benefit (777,000) (593,000) (987,000)
$13,695,000 $13,507,000 $10,002,000
</TABLE>
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory federal rate 35.0% 35.0% 35.0%
Increase (decrease)
resulting from:
State income taxes,
net of federal income
tax benefit 5.3 4.1 3.9
Non-taxable dividend
and interest income (1.4) (1.5) (2.6)
Foreign loss 1.7 1.7 1.2
Other items (1.3) .4 (1.5)
Provision for income taxes 39.3% 39.7% 36.0%
</TABLE>
Income taxes paid for the years ended December 31, 1995, 1994 and 1993 amounted
to $15,327,000, $12,098,000 and $12,554,000, respectively.
NOTE I-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 1995 amounted to approximately
$1,802,000. Such rentals are payable as follows: 1996-$854,000; 1997-$583,000;
1998-$362,000 and 1999-$3,000.
Total rental expense for the years ended December 31, 1995, 1994 and 1993
amounted to $1,087,271, $1,188,740 and $1,297,159.
NOTE J-PER SHARE DATA
Per share data are based on the weighted average number of shares of Common
Stock outstanding during each year: 1995-12,072,668; 1994-13,237,181 and 1993-
13,556,714. Exercise of outstanding stock options would not have a material
dilutive effect on such per share data.
NOTE K SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1995
and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Selected Quarterly Financial Information
Quarter ended
1995 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $54,845 $56,095 $56,177 $56,420
Cost of goods sold 15,421 15,822 15,832 16,461
Income before income
taxes 8,238 8,482 8,439 9,655
Provision for income
taxes 3,214 3,205 3,348 3,928
Net income 5,024 5,277 5,091 5,727
Net income per share
of common stock $.40 $.43 $.43 $.49
Weighted average
shares outstanding 12,454 12,217 11,826 11,742
Quarter ended
1994 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
Net sales $49,772 $53,749 $55,539 $54,038
Cost of goods sold 14,252 15,302 15,847 13,157
Income before income
taxes 6,550 8,227 8,690 10,565
Provision for income
taxes 2,482 3,068 3,443 4,514
Net income 4,068 5,159 5,247 6,051
Net income per share
of common stock $.30 $.38 $.40 $.47
Weighted average
shares outstanding 13,562 13,480 13,107 12,837
*Inventories and cost of goods sold during interim periods are determined
through the use of estimated gross profit rates. The difference between actual
and estimated gross profit rates used for the interim periods is adjusted in the
fourth quarter. In 1995, this adjustment decreased net income by approximately
$354,000, while in 1994, this adjustment increased net income by approximately
$1,445,000. Also, the fourth quarter of 1995 reflects adjustments to certain
accrued expenses which increased net income by approximately $908,000.
</TABLE>
SCHEDULE II
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to
Beginning of Costs and Deductions- Balance at End
Description Period Expenses Describe(A) of Period
<S> <C> <C> <C> <C>
Allowance deducted from assets to
which it applies:
Allowance for doubtful accounts:
Year ended December 31, 1995 $ 1,127,017 $ 985,259 $ 1,000,939 $ 1,111,337
Year ended December 31, 1994 1,067,754 848,330 789,067 1,127,017
Year ended December 31, 1993 1,059,087 889,199 880,532 1,067,075
Note A - Uncollected receivables written off, net of recoveries.
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
a. Executive Officers
The executive officers of the Company, all of whose terms of office
expire on May 7, 1996, are as follows:
Year First Other Offices Held
Name and Present Elected to During the Past
Position with Company Age Present Office Five Years
Sidney L. Port, 85 1977 *
Chairman of the
Executive Committee
and Director
Bernard Kalish, 58 1989 *
Chief Executive
Officer, Chairman of
the Board and Director
Peter G. Smith, 57 1989 *
President,
Chief Operating
Officer and Director
Jeffrey B. Belford 49 1989 *
Executive Vice
President--Operations
Hugh Allen, 60 1991 Prior to 1991,
Executive Vice Mr. Allen was Vice
President--Sales and President-Sales/
Marketing Marketing.
James Smith, 55 1996 Mr. Smith was Vice
Vice President-- President, Personnel
Human Resources from 1995 to 1996. Prior to 1995,
Mr. Smith was Manager, Human
Resources since he joined the
Company in 1993.
Jerome Shaffer, 68 1987 *
Vice President,
Treasurer and Director
Joseph L. Pawlick, 53 1987 *
Vice President and
Controller and Assistant
Secretary
_______________
These persons have held the indicated positions for at least five
years.
b. Directors
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 7,
1996, under the caption "Election of Directors," which information is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 7,
1996, under the caption "Remuneration of Executive Officers," which information
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 1996
under the caption "Securities Beneficially Owned by Principal Stockholders and
Management," which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) (1) Financial Statements
The following information is presented in this report:
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the Years ended December 31,
1995, 1994 and 1993.
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule
The following consolidated financial statement schedule of Lawson Products,
Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts is submitted with this report.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not submitted because
they are not applicable or are not required under Regulation S-X or because the
required information is included in the financial statements or notes thereto.
(a) (3) Exhibits.
3(a) Certificate of Incorporation of the Company, as amended,
incorporated herein by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988.
3(b) By-laws of the Company, dated May 7, 1991, incorporated
herein by reference to Exhibit 6(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1991.
*10(c)(1) Lawson Products, Inc. Incentive Stock Plan, incorporated
herein by reference from Exhibit 4 to the Company's
Registration Statement on Form S-8 (File No. 33-17912).
*10(c)(2) Salary Continuation Agreement between the Company and Mr.
Sidney L. Port dated January 7, 1980 incorporated herein by
reference from Exhibit 10(c)(2) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.
*10(c)(3) Employment Agreement between the Company and Mr. Peter G.
Smith dated July 17, 1972 incorporated herein by reference
from Exhibit 10(c)(6) to the Company's Annual Report on Form
10-K for the year ended December 31, 1981.
*10(c)(4) Employment Agreement between the Company and Mr. Bernard
Kalish, incorporated herein by reference from Exhibit
10(c)(6) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985; and First Amendment to
Employment Agreement dated as of May 27, 1988 incorporated
herein by reference from Exhibit 10(c)(6) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
*10(c)(5) Employment Agreement between the Company and Mr. Hugh Allen,
incorporated herein by reference from Exhibit 10(c)(7) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1985.
*10(c)(6) Employment Agreement between the Company and Mr. Jerome
Shaffer, incorporated herein by reference from Exhibit
10(c)(9) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985.
*10(c)(7) Amended and Restated Executive Deferral Plan.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
* Indicates management employment contracts or compensatory plans or
arrangements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year covered by this Report.
(c) Exhibits
See item 14(a)(3) above for a list of exhibits to this report.
(d) Schedules
See item 14(a)(2) above for a list of schedules filed with this
report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 1996
By /s/ Bernard Kalish
Bernard Kalish, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Chairman, Chief Executive
Officer and Director
/s/ Bernard Kalish (principal executive officer)
Bernard Kalish
Vice President, Treasurer
and Director
/s/ Jerome Shaffer (principal financial officer)
Jerome Shaffer
Vice President and Controller
/s/ Joseph L. Pawlick (principal accounting officer)
Joseph L. Pawlick
/s/ James T. Brophy Director March 27, 1996
James T. Brophy
/s/ Hugh Allen Director
Hugh Allen
/s/ Ronald B. Port, M.D. Director
Ronald B. Port, M.D.
/s/ Sidney L. Port Director
Sidney L. Port
/s/ Robert G. Rettig Director
Robert G. Rettig
/s/ Peter G. Smith Director
Peter G. Smith
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3(a) Certificate of Incorporation of the
Company, as amended, incorporated herein
by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
3(b) By-laws of the Company, dated May 7, 1991,
incorporated herein by reference to
Exhibit 6(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1991.
10(c)(1) Lawson Products, Inc. Incentive Stock
Plan, incorporated herein by reference
from Exhibit 4 to the Company's
Registration Statement on Form S-8 (File
No. 33-17912).
10(c)(2) Salary Continuation Agreement between the
Company and Mr. Sidney L. Port, dated
January 7, 1980, incorporated herein by
reference from Exhibit 10(c)(2) to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
10(c)(3) Employment Agreement between the Company
and Mr. Peter G. Smith, dated January 17,
1972 incorporated herein by reference from
Exhibit 10(c)(6) to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1981.
10(c)(4) Employment Agreement between the Company
and Mr. Bernard Kalish, incorporated
herein by reference from Exhibit 10(c)(6)
to the Company's Annual Report on Form
10-K for the fiscal year ended
December 31, 1985; and First Amendment to
Employment Agreement dated as of May 27,
1988 incorporated herein by reference from
Exhibit 10(c)(6) to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1988.
10(c)(5) Employment Agreement between the Company
and Mr. Hugh Allen, incorporated herein by
reference from Exhibit 10(c)(7) to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1985.
10(c)(6) Employment Agreement between the Company
and Mr. Jerome Shaffer, incorporated
herein by reference from Exhibit 10(c)(9)
to the Company's Annual Report on Form
10-K for the fiscal year ended
December 31, 1985.
10(c)(7) Amended and Restated Executive Deferral
Plan.
11 Statement regarding computation of per
share earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
EXECUTIVE DEFERRAL PLAN
FOR
LAWSON PRODUCTS, INC. AND CERTAIN AFFILIATES
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1994
Table of Contents
Page
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Adoption by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Participant Compensation Deferral . . . . . . . . . . . . . . . . . . 4
5.1 Deferral and Reduction of Compensation . . . . . . . . . . . . . 4
5.2 Election to Defer Irrevocable . . . . . . . . . . . . . . . . . . 5
5.3 Amount of Supplemental Benefits . . . . . . . . . . . . . . . . . 5
6. Deferred Benefit Account . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Establishment of Account . . . . . . . . . . . . . . . . . . . . 6
6.2 Determination of Account . . . . . . . . . . . . . . . . . . . . 6
6.3 Statement of Account . . . . . . . . . . . . . . . . . . . . . . 7
7. Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Distribution of Benefits . . . . . . . . . . . . . . . . . . . . 7
7.2 Benefits Upon Disability . . . . . . . . . . . . . . . . . . . . 7
7.3 Benefits Upon Other Termination of Employment . . . . . . . . . . 8
7.4 Survivorship Benefits . . . . . . . . . . . . . . . . . . . . . . 8
7.5 Hardship Distribution . . . . . . . . . . . . . . . . . . . . . . 9
7.6 Recipients of Payments; Designation of Beneficiary . . . . . . . 9
8. Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Appointment of Committee . . . . . . . . . . . . . . . . . . . . 11
9.2 Powers and Duties of Administrative Committee . . . . . . . . . . 11
9.3 Indemnification of Committee . . . . . . . . . . . . . . . . . . 13
9.4 Consultation with Advisors . . . . . . . . . . . . . . . . . . . 13
9.5 Committee Members as Participants . . . . . . . . . . . . . . . . 13
10. Life Insurance and Funding . . . . . . . . . . . . . . . . . . . . . . 13
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Unsecured Creditor . . . . . . . . . . . . . . . . . . . . . . . 13
10.3 Grantor Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. Assignment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Employment Not Guaranteed by Plan . . . . . . . . . . . . . . . . . . 14
13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . 14
15. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Form of Communication . . . . . . . . . . . . . . . . . . . . . . . . 14
17. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
18. Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Merger, Consolidation, etc . . . . . . . . . . . . . . . . . . . . . . 15
20. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1. Purpose. Lawson Products, Inc., a Delaware corporation (the "Company"),
originally established this Executive Deferral Plan (the "Plan"), effective as
of October 1, 1987 for the purpose of promoting in its Executive Employees the
strongest interest in the successful operation of the Company and its
Affiliates, as well as to provide supplemental income in the future. The Plan
is maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees.
To further the intention of maintaining appropriate levels of benefits for
Executive Employees, the Plan has been amended and restated effective January 1,
1994, to provide benefits to Executive Employees and their beneficiaries in such
a manner as to maintain the level of benefits which, but for the limitations on
contributions imposed by Section 401(a)(17) of the Code, otherwise would be
payable under the Profit Sharing Plan.
2. Effective Date. The provisions of the Plan as herein restated shall be
effective as of January 1, 1994. Except as may be required by law, the rights
of any person whose status as an Executive Employee of the Employer has
terminated shall be determined pursuant to the terms of the Plan in effect on
the date his participation terminated, unless a subsequently adopted provision
of the Plan is made specifically applicable to such person.
3. Adoption by Affiliates. The following Affiliates have adopted the Plan for
the benefit of their eligible employees and shall be considered "Employers"
under the Plan:
Lawson Products, Inc. (a Texas corporation)
Lawson Products, Inc. (a New Jersey corporation)
Lawson Products, Inc. (a Georgia corporation)
Lawson Products, Inc. (a Nevada corporation)
Drummond American Corporation (an Illinois corporation)
Cronatron Welding Systems, Inc. (a North Carolina corporation)
Subject to consent of the Company, any other Affiliate may adopt the Plan for
the benefit of its eligible employees. Upon such adoption, such Affiliate shall
become an "Employer."
4. Definitions.
A. Administrative Committee - "Administrative Committee" shall mean
the committee appointed as provided in Section 9 of the Plan.
B. Affiliate - "Affiliate" shall mean any corporation or enterprise,
other than the Company, which, as of a given date, is a member of the same
controlled group of corporations, the same group of trades or businesses
under common control, or the same affiliated service group, determined in
accordance with Sections 414(b), (c), (m) and (o) of the Code, as is the
Company.
C. Board of Directors - "Board of Directors" shall mean the Board of
Directors of the Company or such person or committee as shall be appointed
by the Board of Directors to carry out its duties and obligations under the
Plan.
D. Beneficiary - "Beneficiary" shall mean any person named by the
Participant who is eligible to receive benefits under the Plan in
accordance with Section 7.6 of the Plan.
E. Code - "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
F. Company - shall mean Lawson Products, Inc. (a Delaware
corporation).
G. Compensation - "Compensation" shall mean a Participant's salary
as declared at the beginning of a calendar year, together with the
Participant's commissions, bonuses, over-rites and other payments for
personal services rendered by a Participant to the Employer during a
calendar year.
H. Deferral Period - "Deferral Period" shall mean the period during
which Compensation is being deferred as provided in the Participant's
Executive Participation Agreement and Section 5, below.
I. Deferred Benefit Account - "Deferred Benefit Account" shall mean
the account maintained on the books of the Employer for each Participant as
provided in Section 6.1 hereof.
J. Determination Date - "Determination Date" shall mean the date on
which the amount of a Participant's Deferred Benefit Account is determined
as provided in Section 6.2 hereof. In general, the last day of each
calendar month shall be a Determination Date.
K. Disability - "Disability" shall mean, if the Participant is
insured under a group disability policy the premiums for which are paid by
the Employer, the definition of total disability contained in the group
insurance contract. If the Participant is not insured under such a group
disability policy, "disability" shall mean the definition of disability
under the Profit Sharing Plan and such definition shall control.
L. Distribution Date - "Distribution Date" shall mean, subject to
such conditions and limitations as shall be prescribed by the
Administrative Committee: (i) the first day of the calendar quarter or
calendar year (whichever is elected in the Executive Participation
Agreement) next following retirement, or (ii) the date indicated in the
Executive Participation Agreement, whichever is earlier.
M. Distribution Period - "Distribution Period" shall mean the period
set forth in the Executive Participation Agreement, subject to such
conditions and procedures set forth in this Plan or as shall be prescribed
by the Administrative Committee.
N. Employer - "Employer" means the Company and any Affiliate which
the Company permits to adopt the Plan for the benefit of its eligible
employees, or any one or more of all the adopting Employers, as the context
indicates.
O. Executive Employees - "Executive Employees" shall mean all
employees of the Employer who are designated as Executive Employees by the
Administrative Committee. A person designated as an Executive Employee
shall remain so until such designation is revoked by the Administrative
Committee, in its sole discretion.
P. Executive Participation Agreement - "Executive Participation
Agreement" shall mean a written agreement between a Participant and the
Company, whereby a Participant agrees to defer a portion of his
Compensation pursuant to the provisions of the Plan, and the Company agrees
to make benefit payments in accordance with the provisions of the Plan.
Q. Net Asset Value - "Net Asset Value" shall mean the value per
share of any Separate Accounts Value as provided in Section 4-Y.
R. Participant - "Participant" shall mean an Executive Employee of
the Company who is eligible to receive benefits under the Plan by reason of
his active service with the Employer.
S. Profit Sharing Plan - "Profit Sharing Plan" shall mean either the
Lawson Products, Inc. Employees' Profit Sharing Plan or the Retirement Plan
Program for Certain Affiliated Corporations of Lawson Products, Inc.,
whichever is applicable.
T. Section 401(a)(17) Limits - "Section 401(a)(17) limits" shall
mean the limitations on benefits imposed by Section 401(a)(17) of the Code.
U. Separate Accounts - "Separate Accounts" shall mean any investment
funds and subaccounts available under the Variable Appreciable Life Policy.
V. Stated Deferral - "Stated Deferral" shall mean the amount of
compensation the Participant agrees to defer in the Executive Participation
Agreement.
W. Supplemental Benefit - "Supplemental Benefit" shall mean the
benefit described in Section 5.3.
X. Termination of Employment - "Termination of Employment" shall
mean the Participant's ceasing to be employed by the Employer and all
Affiliates for any reason whatsoever, voluntary or involuntary, including
by reason of death or disability.
Y. Valuation of Account - "Valuation of Account" shall mean, with
respect to any calendar month, the value of the Participant's Deferred
Benefit Account as indexed to the performance or the yield of the selected
Separate Account or Accounts available under the Variable Appreciable Life
Policy then in effect. Performance shall be measured by the net change in
the account's net asset values (if applicable) or the net asset value plus
interest credited thereon (if applicable). Subject to any conditions and
procedures prescribed by the Administrative Committee, each Participant may
select which combination of Separate Accounts he wishes his Deferred
Benefit Account to be indexed to and change his Separate Account indexing.
Any change in the Separate Accounts for indexing purposes must be submitted
by the Participant in writing to the Administrative Committee.
Z. Variable Appreciable Life Policy - "Variable Appreciable Life
Policy" shall mean the Variable Appreciable Life Policy offered by Pruco
Life Insurance Company, a wholly-owned subsidiary of the Prudential Life
Insurance Company of America, or any other replacement or successor
policies or investments chosen by the Administrative Committee.
5. Participant Compensation Deferral.
5.1 Deferral and Reduction of Compensation.
A. Initial Deferrals. Subject to such limitations and conditions as
shall be prescribed by the Administrative Committee, an Executive Employee
wishing to defer a portion of his Compensation shall be entitled to
participate in the Plan commencing the first day of the calendar quarter
immediately following such Employee's attainment of Executive Employee
status. In order to do so, the Executive Employee shall execute an
Executive Participation Agreement at least thirty days prior to the first
day of said calendar quarter. The new Executive Employee shall be bound by
all the terms and conditions of the Plan.
B. Subsequent Deferrals. Subject to such conditions and limitations
as shall be prescribed by the Administrative Committee, an Executive
Employee may also make subsequent elections to defer compensation. The
Executive Employee shall execute an Executive Participation Agreement prior
to the first day of each calendar year. Such elections shall be effective
for the following calendar year or such longer period as elected in the
Executive Participation Agreement.
C. Procedure for Deferral. The Executive Employee shall make the
election provided for in subparagraphs A and B by executing an Executive
Participation Agreement in the form provided by the Administrative
Committee. The amount deferred shall be subtracted from Compensation
otherwise payable to the Participant during the period of deferral. Unless
otherwise permitted by the Administrative Committee under Section 5.2 of
the Plan, the amount specified in the Executive Participation Agreement
shall be deferred, and the Participant's Compensation shall be
correspondingly reduced.
5.2 Election to Defer Irrevocable. Except as otherwise provided herein, a
Participant's election to defer Compensation shall be irrevocable. The
Administrative Committee, in its sole discretion, upon demonstration of
substantial hardship by the Participant, may permit subsequent alteration of a
Participant's deferral election. A request to alter the amount of compensation
deferred shall be submitted by a Participant in writing to the Administrative
Committee at least one month prior to when such modification is to take effect,
setting forth in detail the reasons for the requested reduction. If a
modification of the deferral is granted, it shall be effective thereafter until
a valid election is made with respect to a subsequent calendar year pursuant to
Section 5.1B.
5.3 Amount of Supplemental Benefits.
A. Supplemental Benefits Attributable to Participant Deferrals. In
addition to a Participant's deferral under Section 5.1 of the Plan, the
following amount shall be credited to the Account established hereunder for
such Participant with respect to each Plan Year:
(i) The amount of the Participant's deferral under Section 5.1
of the Plan for the calendar year, times
(ii) The rate of Employer Contributions under the Profit Sharing
Plan with respect to such calendar year.
B. Supplemental Benefits Attributable to Section 401(a)(17) Limits.
If the application of the Section 401(a)(17) limits in any calendar year
results in a reduction in the amount of the Employer Contributions
otherwise allocable to a Participant under the Profit Sharing Plan, then
the following amount shall be credited to the Account established hereunder
for such Participant with respect to such calendar year:
(i) the amount of Employer Contributions the Participant would
be entitled to receive with respect to such calendar year under the
Profit Sharing Plan without giving effect to the Section 401(a)(17)
limits; less
(ii) the amount of Employer Contributions the Participant was
entitled to receive under the Profit Sharing Plan with respect to such
calendar year after application of the Section 401(a)(17) limits.
6. Deferred Benefit Account.
6.1 Establishment of Account. The Company shall establish a Deferred
Benefit Account on its books for each Participant, and shall credit or debit to
each Participant's Deferred Benefit Account the following amounts at the times
specified:
A. The amount of Compensation that the Participant elects to defer
in his Executive Participation Agreement, credited each Determination Date
in the month the Participant would otherwise have received the Compensation
(the "Participant Deferral Subaccount"). The Company shall deduct any
amounts it is required to withhold under any state, federal or local law
for taxes or other charges from the Participant's non-deferred
Compensation.
B. The amount of Supplemental Benefits allocable to such Participant
pursuant to Section 5.3A., credited as of the last day of each calendar
year, or such other time as determined by the Administrative Committee (the
"Supplemental Profit Sharing Subaccount").
C. The amount of Supplemental Benefits allocable to such Participant
pursuant to Section 5.3B., credited within two and one-half months after
the last day of the calendar year to which such contributions relate, or
such other time as determined by the Administrative Committee (the
"Supplemental 401(a)(17) Subaccount").
D. As of each Determination Date, an amount equal to the percentage
change in the net asset value of each selected Separate Account since the
preceding Determination Date, multiplied by the portion of the
Participant's Deferred Benefit Account as of such preceding Determination
Date (less any distributions made since such date) attributable to each
such selected Separate Account.
E. As of each Determination Date, an amount of interest equal to the
rate earned by the selected Separate Accounts since the preceding
Determination Date, multiplied by the portion of the Participant's Deferred
Benefit Account as of such preceding Determination Date (less any
distributions made since such date) attributable to such selected Separate
Account.
A Participant's Deferred Benefit Account shall be utilized solely as a
device for the measurement and determination of the amounts to be paid to the
Participant pursuant to this Plan.
6.2 Determination of Account. Each Participant's Deferred Benefit Account
as of each Determination Date shall consist of the balance of the Participant's
Deferred Benefit Account as of the immediately preceding Determination Date plus
the amounts required to be credited or debited to such account by the Company as
provided in Section 6, less the amount of all distributions, if any, made from
such Deferred Benefit Account since the immediately preceding Determination
Date.
6.3 Statement of Account. The Administrative Committee shall provide to
each Participant, within 30 days after the close of each calendar quarter, a
statement in such form as the Administrative Committee deems desirable setting
forth the balance in his Deferred Benefit Account as of the last day of the
preceding calendar quarter.
7. Payment of Benefits.
7.1 Distribution of Benefits. Upon reaching the Distribution Date, the
Employer shall pay to the Participant, as compensation for services rendered
prior to such date, a benefit equal to the amount of his Deferred Benefit
Account determined as of the Determination Date coincident with or next
following the date of his Termination of Employment, or if the Distribution Date
is prior to his Termination of Employment, the immediately preceding
Determination Date. If the Participant has pre-elected a form of benefit other
than a lump sum, annual installments of up to 15 years (the "Distribution
Period") shall commence on the Distribution Date and continue to be paid on the
same day each year thereafter until the entire amount of the Deferred Benefit
Account has been paid to the Participant. The Account will continue to be
valued by indexing in the same manner as prior to the Distribution Date, as
provided in Section 4-Y. The interest rate used in calculating the amount of
each year's installment payment shall be the Prudential Life Insurance Company's
Fixed Interest Rate, as declared during each installment year, which applies to
its Variable Appreciable Life Policy. If said rate is no longer published, a
substantially similar rate selected by the Administrative Committee shall be
used. At the end of each installment year a new Distribution Benefit will be
recalculated based on the remaining years left in the Distribution Period.
7.2 Benefits Upon Disability. Upon a Participant's Termination of
Employment prior to the Distribution Date due to Disability, the Company shall
pay to the Participant a Disability Benefit equal to the amount of his Deferred
Benefit Account determined as of the Determination Date immediately preceding
the date of Termination of Employment. If the Participant has pre-elected a
form of benefit other than a lump sum, annual installments of up to 15 years
(the "Distribution Period") shall commence on the first day of the next calendar
quarter following the Determination Date and continue to be paid on the same
date each year thereafter until the Participant's Disability ceases or until the
entire amount of the Deferred Benefit Account has been paid to the Participant.
Disability Benefits shall constitute distributions from the Participant's
Deferred Benefit Account. The Deferred Benefit Account Balance will continue to
be valued by indexing in the same manner as prior to disability, as provided in
Section 4-Y. The interest rate used in calculating each year's installment
payment shall be the Prudential Life Insurance Company's Fixed Interest Rate as
declared during each installment year, which applies to its Variable Appreciable
Life Policy. If said rate is no longer published, a substantially similar rate
selected by the Administrative Committee shall be used. At the end of each
installment year a new Distribution Benefit will be recalculated based on the
remaining years left in the Distribution Period.
7.3 Benefits Upon Other Termination of Employment. Upon a Participant's
Termination of Employment prior to reaching the Distribution Date, for reasons
other than Death or Disability, the Company shall pay to the Participant, as
compensation for services rendered prior to the date of Termination of
Employment, a benefit equal to the amount of his Deferred Benefit Account
determined as of the Determination Date immediately preceding the date of
Termination of Employment. The benefit shall be payable in a single lump sum
payment within ninety days of the date of Termination of Employment. However,
if the Participant has pre-elected a form of benefit other than a lump sum
payment, annual installments of up to 5 years (the "Distribution Period") shall
commence on the first day of the next calendar quarter following the
Determination Date and continue to be paid on the same day each year thereafter
until the entire amount of the Deferred Benefit Account has been paid to the
Participant. The Account will continue to be valued by indexing in the same
manner as prior to the Distribution Date, as provided in Section 4-Y. The
interest rate used in calculating the amount of each year's installment shall be
the Prudential Life Insurance Company's Fixed Interest Rate, as declared during
each installment year, which applies to its Variable Appreciable Life Policy.
If said rate is no longer published, a substantially similar rate selected by
the Administrative Committee shall be used. At the end of each installment
year, a new Distribution Benefit will be recalculated based on the remaining
years left in the Distribution Period.
7.4 Survivorship Benefits.
A. Prior to Commencement of Distribution Benefits.
(i) If the Company applies for and procures life insurance on
the life of the Participant as provided in Section 9, and if the
Participant does not commit or omit any action which has the effect of
voiding the insurance, and the Participant dies prior to commencement
of the Distribution Benefits payable under the Plan, the Company shall
pay to the Participant's beneficiary a pre-distribution Survivorship
Benefit of an amount equal to the greater of: (a) the sum of (1) his
Supplemental Profit Sharing Subaccount, plus (2) his Supplemental
401(a)(17) Subaccount, plus (3) the present value of two hundred
percent (200%) of the Participant's average annual deferral, payable
over each of the following ten years, discounted by the Prudential
Life Insurance Company's Fixed Interest Rate as declared in the year
of death which applies to its Variable Appreciable Life Policy (if
said rate is no longer published, a substantially similar rate
selected by the Administrative Committee shall be used) or (b) his
Deferred Benefit Account Value, as of the Determination Date
coincident or next following the date of death. The benefit shall be
payable in a single lump sum payment as soon as practicable after the
date of the Participant's death. However, if the Participant has pre-
elected a form of benefit other than a lump sum payment, annual
installments of up to 15 years shall commence on the first day of the
next calendar quarter and continue to be paid on the same day each
year thereafter until the entire amount has been paid to the
Participant. The interest rate credited on any unpaid balance shall
be the Prudential Life Insurance Company's Fixed Interest Rate as
declared effective January 1 of the year of death which applies to its
Variable Appreciable Life Policy. If said rate is no longer
published, a substantially similar rate selected by the Administrative
Committee shall be used.
(ii) If the Employer does not procure life insurance on the life
of the Participant as provided in Section 9 and the Participant dies
prior to commencement of the Distribution Benefits payable under the
Plan, the Company shall pay to the Participant's beneficiary a pre-
distribution Survivorship Benefit based solely on his Deferred Benefit
Account Value.
(iii) If the initial purchase of life insurance results in a
first year charge to the Company's earnings (for accounting purposes)
in excess of thirty three cents per each dollar of executive deferral
(based on a deposit into the Variable Appreciable Life Policy,
assuming it is designed with a death benefit sufficient to pay the
Company an amount equal to the present value of two hundred percent
(200%) of the Participant's average annual deferral, payable over each
of the following ten years, discounted by the Prudential Life
Insurance Company's fixed interest account as declared in the year of
purchase, plus the premium deposit, all multiplied by a factor of .6
(representing the corporation's net after tax cost) and assuming that
the corporation's premium deposit is equal to the maximum "seven pay
premium"), the Participant shall have the option of either: (1)
annually having his compensation reduced by an amount equal to 166
percent of the additional charge to corporate earnings or (2)
receiving a survivorship benefit determined solely on the basis of his
deferred benefit account.
B. After Commencement of Benefits. If a Participant dies after
benefit payments have commenced under an installment period, but prior to
receiving all of the scheduled annual payments, the Company shall continue
to pay the Participant's beneficiary, over the remaining period, the
Participant's Deferred Benefit Account. The account will earn interest at
the Prudential Life Insurance Company's Fixed Interest Rate as declared in
the year of death which applies to its Variable Appreciable Life Policy.
If said rate is no longer published, a substantially similar rate selected
by the Administrative Committee shall be used. Notwithstanding anything to
the contrary above, and effective as of the date this Plan is formally
amended and restated, the Participant may elect that his beneficiary will
receive a lump sum amount equal to the remaining balance of his Deferred
Benefit Account.
7.5 Hardship Distribution. The Administrative Committee may, in its sole
discretion, upon the finding that the failure to make such distribution would
create or continue an urgent and severe financial hardship for the Participant,
distribute to such Participant any portion of his Deferred Benefit Account as of
that date.
7.6 Recipients of Payments; Designation of Beneficiary. All payments to
be made by the Company shall be made to the Participant, if living. In the
event of a Participant's death prior to the receipt of all benefit payments,
subsequent payments to be made under the Plan shall be made to the beneficiary
or beneficiaries of the Participant. In the event a beneficiary dies before
receiving the payments due to such beneficiary pursuant to this Plan, the
remaining payments shall be paid to the legal representatives of the
beneficiary's estate. The Participant shall designate a beneficiary by filing a
written notice of such designation with the Company in such form as the Company
may prescribe. The Participant may revoke or modify said designation at any
time by a further written designation. The Participant's Beneficiary
Designation shall be deemed automatically revoked in the event of the death of
the beneficiary or, if the beneficiary is the Participant's spouse, in the event
of dissolution of marriage. If the Participant's Compensation constitutes
community property, and to the extent required by law, then any Beneficiary
Designation made by the Participant other than a designation of such
Participant's spouse shall not be effective if any such beneficiary or
beneficiaries are to receive more than fifty percent (50%) of the aggregate
benefits payable hereunder unless such spouse shall approve such designation in
writing. If no such Beneficiary Designation shall be in effect at the time when
any benefits payable under this Plan shall become due, the beneficiary shall be
the spouse of the Participant, of if no spouse is then living, to the
Participant's children and their issue by right of representation, or, if none,
to the legal representatives of the Participant's estate.
In the event a benefit is payable to a minor or person declared incompetent
or to a person incapable of handling the disposition of his property, the
Administrative Committee may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
or person. The Administrative Committee may require proof of incompetency,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit. Such distribution shall completely discharge the Administrative
Committee and the Employer from all liability with respect to such benefit.
8. Claims Procedure.
A. Any person who believes that he is entitled to receive a benefit
under the Plan, including one greater than that initially determined by the
Administrative Committee, may file a claim in writing with the
Administrative Committee.
B. The Administrative Committee shall within 90 days of the receipt
of a claim either allow or deny the claim in writing. A denial of a claim
shall be written in a manner calculated to be understood by the claimant
and shall include:
(i) the specific reason or reasons for the denial;
(ii) specific references to pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of
why such material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
C. A claimant whose claim is denied (or his duly authorized
representative) may, within 60 days after receipt of denial of his claim:
(i) submit a written request for review to the Administrative
Committee;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
D. The Administrative Committee shall notify the claimant of its
decision on review within 60 days of receipt of a request for review. The
decision on review shall be written in a manner calculated to be understood
by the claimant and shall include specific reasons for the decision and
specific references to the pertinent Plan provisions on which the decision
is based. The decision of the Administrative Committee shall be final and
binding upon the Participant and Beneficiary.
E. The 90-day and 60-day periods described in subsections (b) and
(c), respectively, may be extended at the discretion of the Administrative
Committee for a second 90-day or 60-day period, as the case may be,
provided that written notice of the extension is furnished to the claimant
prior to the termination of the initial period, indicating the special
circumstances requiring such extension of time and the date by which a
final decision is expected.
9. Administration of the Plan.
9.1 Appointment of Committee. The Chief Executive Officer of the of the
Company shall appoint an Administrative Committee consisting of two (2) or more
persons to administer and interpret the Plan. Interpretation by the
Administrative Committee shall be final and binding upon a Participant. The
Administrative Committee may adopt rules and regulations relating to the Plan as
it may deem necessary or advisable for the administration of the Plan. Any
action by the Administrative Committee shall require the affirmative vote of a
majority of its members, or in the absence of a meeting, the express consent of
a majority of its members, which may be orally given, but which shall be con-
firmed in writing by each member so consenting.
9.2 Powers and Duties of Administrative Committee. Except as otherwise
provided in the Plan, the Administrative Committee shall have final and binding
discretionary authority to control and manage the operation and administration
of the Plan, including all rights and powers necessary or convenient to carrying
out its functions hereunder, whether or not such rights or powers are
specifically enumerated herein. The Administrative Committee shall be
responsible for administering the Plan and in this connection shall have the
following powers and duties:
A. to approve, consent to, or make determinations in respect to all
matters requiring such Administrative Committee actions under the
provisions of the Plan;
B. to construe or interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any
benefits hereunder and to adopt such uniform rules or regulations as it
deems necessary, desirable or appropriate for these purposes;
C. to fix and determine the respective amounts payable by any
Employer;
D. to exercise such authority and responsibility as it deems
appropriate in order to comply with any governmental regulations on records
or reports relating to the Plan;
E. to prescribe forms on which applications, notices and other
communications filed with or delivered to the Administrative Committee
shall be made or given and to require the use of such forms as a
prerequisite to the effectiveness of any such applications, notices and
other communications;
F. to prepare and distribute, in such manner as it determines to be
appropriate, information explaining the Plan;
G. to appoint or employ individuals to assist in the administration
of the Plan and any other agents it deems advisable, including actuarial
advisors and legal counsel;
H. to receive from the Employers, Participants and Beneficiaries
such information as shall be necessary for the proper administration of the
Plan;
I. to furnish the Company upon request such annual and other reports
with respect to the administration of the Plan as are reasonable and
appropriate;
J. to amend or terminate the Plan as more fully described in Article
14; and
K. to take such other action as may be needed to carry out the
orderly administration of the Plan.
In exercising its responsibilities hereunder, the Administrative Committee
may manage and administer the Plan through the use of agents who may include
employees of the Employer.
9.3 Indemnification of Committee. To the full extent it shall have power
under applicable law to do so, the Company shall indemnify the Board of
Directors, the Administrative Committee and each of its members against any
liability imposed and expenses or losses actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of their
service under the Plan.
9.4 Consultation with Advisors. The Administrative Committee may employ
or consult with counsel, actuaries, accountants, physicians or other advisors
(who may be counsel, actuaries, accountants, physicians or other advisors for
the Employer).
9.5 Committee Members as Participants. The Chief Executive Officer or
Administrative Committee member may also be a Participant, but no such person
shall have the power to take part in any discretionary decision or action
affecting his own interest as a Participant under the Plan unless such decision
or action is upon a matter which affects all other Participants similarly
situated and confers no special right, benefit or privilege not simultaneously
conferred upon all other such Participants.
10. Life Insurance and Funding.
10.1 General. The Employer, in its discretion, may apply for and procure
as owner and for its own benefit, insurance on the life of a Participant, in
such amounts and in such forms as the Employer may choose. The Participant
shall have no interest whatsoever in any such policy or policies, but at the
request of the Employer shall submit to medical examinations and supply such
information and execute such documents as may be required by the insurance
company or companies to whom the Employer has applied for insurance.
10.2 Unsecured Creditor. The rights of the Participant, or his
beneficiary, or estate, to benefits under the Plan shall be solely those of an
unsecured creditor of the Employer. Other than as an unsecured general creditor
of the Employer, no Participant Beneficiary or estate shall have any claim to
any insurance policy or other assets of the Employer in connection with the
liabilities assumed by the Employer pursuant to the Plan.
10.3 Grantor Trust. Notwithstanding any other provision or interpretation
of this Plan, the Employer may establish a trust in which to hold cash,
insurance policies or other assets to be used to make or reimburse the Employer
for payments to the Participants of the benefits under this Plan; provided,
however, that the trust assets shall at all times remain subject to the claims
of general creditors of the Employer in the event of the Employer's insolvency.
The Employer and not the trust shall be liable for paying the benefits under the
Plan. Any payment of benefits made by the trust shall satisfy the Employer's
obligation to make such payment to the affected Participant.
11. Assignment of Benefits.
Except as may be contrary to the laws of any state having jurisdiction in
the premises, a Participant or Beneficiary shall have no right to assign,
transfer, hypothecate, encumber, commute or anticipate his interest in any pay-
ments under this Plan and such payments shall not in any way be subject to any
legal process to levy upon or attach the same for payment of any claim against
any Participant or Beneficiary.
12. Employment Not Guaranteed by Plan.
Neither this Plan nor any action taken hereunder shall be construed as
giving a Participant the right to be retained as an Executive Employee or as an
employee of the Employer for any period.
13. Taxes.
The Employer shall deduct from all payments made hereunder all applicable
federal or state taxes required by law to be withheld from such payments.
14. Amendment and Termination.
The Chief Executive Officer or the Executive Committee of the Board of
Directors may, at any time, amend or terminate the Plan, provided that he may
not reduce or modify any benefit payable to a Participant and based on deferrals
already made, without the prior consent of the Participant.
15. Construction.
The Plan shall be constructed according to the laws of the state of
Illinois.
16. Form of Communication.
Any election, application, claim, notice or other communication required or
permitted to be made by a Participant to the Company shall be made in writing
and in such form as the Company shall prescribe. Such communication shall be
effective upon mailing, if sent by first class mail, postage prepaid, and
addressed to the Company's offices at 1666 East Touhy Avenue, Des Plaines,
Illinois 60018.
17. Captions.
The captions at the head of a section or a paragraph of this Plan are
designed for convenience of reference only and are not to be resorted to for the
purpose of interpreting any provision of this Plan.
18. Binding Agreement.
The provisions of this Plan shall be binding upon the Participant and the
Company and their successors, assigns, heirs, executors and beneficiaries.
19. Merger, Consolidation, etc.
The Company and any Affiliate shall not merge or consolidate with any other
corporation, and will not liquidate or dissolve without making suitable
arrangements as the case may be, for the maintenance or continuation of the Plan
or for the payment of any benefits then accrued under the Plan.
20. Severability.
If any provisions of the Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts of
the Plan, but the Plan shall be construed and enforced as if said illegal and
invalid provisions had never been included herein.
ADOPTED pursuant to resolution of the Board of Directors of the Company
this ______ day of ____________, Nineteen hundred ______________.
By:
For: Lawson Products, Inc.
EXHIBIT 11
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net income per share of common stock:
Average shares outstanding 12,072,668 13,237,181 13,556,714
Net income $ 21,120,029 $20,524,074 $ 18,117,480
Net income per share of common stock $1.75 $1.55 $1.34
Primary:
Average shares outstanding 12,072,668 13,237,181 13,556,714
Net effect of dilutive stock 1,979 2,843 6,944
options-based on the treasury method
using average market price
Total 12,074,647 13,240,024 13,563,658
Net income $ 21,120,029 $20,524,074 $ 18,117,480
Net income per share of common stock $1.75 $1.55 $1.34
Fully diluted:
Average shares outstanding 12,072,668 13,237,181 13,556,714
Net effect of dilutive stock 1,979 2,788 7,249
options-based on the treasury stock
method using the year-end market
price, if higher than average market
price
Total 12,074,647 13,239,969 13,563,963
Net income $ 21,120,029 $20,524,074 $ 18,117,480
Net income per share of common stock $1.75 $1.55 $1.34
Note A - All share and per share amounts have been restated to reflect the
effects of stock splits paid in previous years.
</TABLE>
EXHIBIT 21
Subsidiaries of the Company
Jurisdiction of
Name Incorporation
Lawson Products, Inc. New Jersey
Lawson Products, Inc. Texas
Lawson Products, Inc. Georgia
Lawson Products, Inc. Nevada
Lawson Products, Inc. (Ontario) Ontario, Canada
Lawson Products Ltd. England
LPI Holdings, Inc. Illinois
Lawson Products de Mexico
Mexico S.A. de C.V.
Drummond American Corporation Illinois
Cronatron Welding Systems, Inc. North Carolina
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-17912) pertaining to the Lawson Products, Inc. Employees' Profit
Sharing Trust, and in the related Prospectus of our report dated February 26,
1996, with respect to the consolidated financial statements and schedule of
Lawson Products, Inc. included in the Annual Report (Form 10-K), for the year
ended December 31, 1995.
Ernst & Young L.L.P.
Chicago, Illinois
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,432
<SECURITIES> 36,915
<RECEIVABLES> 28,296
<ALLOWANCES> 0
<INVENTORY> 27,083
<CURRENT-ASSETS> 87,978
<PP&E> 35,501
<DEPRECIATION> 0
<TOTAL-ASSETS> 160,614
<CURRENT-LIABILITIES> 18,510
<BONDS> 0
11,687
0
<COMMON> 0
<OTHER-SE> 111,124
<TOTAL-LIABILITY-AND-EQUITY> 160,614
<SALES> 223,537
<TOTAL-REVENUES> 226,186
<CGS> 63,536
<TOTAL-COSTS> 63,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 985
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 34,815
<INCOME-TAX> 13,695
<INCOME-CONTINUING> 21,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,120
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
