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, 1996
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, 1997, 11,137,464 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 1997 was approximately $167,822,000.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of
Stockholders to be held on May 28, 1997 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. In addition, the Company
distributes 12,000 production components (mostly fasteners) to the O.E.M.
marketplace. It manufactures approximately 1,000 of these items. 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 1996, 1995 and
1994 respectively:
<TABLE>
<CAPTION>
Percentage of
Consolidated
Net Sales
1996 1995 1994
<S> <C> <C> <C>
Fasteners, Fittings and Related Parts . . .
45% 41% 41%
Industrial Supplies . . . . . . . . . . . . 50% 54% 53%
Automotive and Equipment Maintenance Parts
5% 5% 6%
100% 100% 100%
</TABLE>
All of the Company's maintenance 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 maintenance items
which the Company distributes are 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 maintenance 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 6% of the Company's purchases in 1996.
Production components sold to the O.E.M. marketplace may be manufactured to
customers' specification or purchased from other sources.
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 42% of 1996
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 39% of 1996 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 10% of 1996 sales were made to customers in this market.
Original Equipment Manufacturers. This market includes plants engaged
in a broad range of manufacturing and processing activities. The Company
estimates that approximately 7% of 1996 sales were made to customers in this
market.
The Company has approximately 210,000 customers, the largest of which
accounted for less than one percent of net sales during 1996. Sales are made
through a force of approximately 1,841 independent sales representatives of
which 114 serve the O.E.M. marketplace. Included in this group are 223 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 36 regional managers to coordinate regional
marketing efforts. Most 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 1,021 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 and Manufacturing Facilities
Substantially all of the Company's maintenance products are stocked in
and distributed from each of its seven 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.
Production components are stocked in and distributed from five centers located
in Decatur, Alabama; Conway, Arkansas; Burr Ridge, Illinois; Tupelo,
Mississippi; and Memphis, Tennessee. Production components are manufactured in
Decatur, Alabama. In the opinion of the Company, all existing facilities are in
good condition and are well maintained. All are being used substantially to
capacity on a single shift basis, except the manufacturing facility in Decatur,
Alabama which operates three shifts.
Most 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 1996.
United Kingdom Operations
Operations in the United Kingdom are conducted under the name of
Lawson Products Limited from a 19,000 square foot general distribution center in
Bradley Stoke (Bristol) England. These operations constituted approximately 1%
of the Company's net sales during 1996.
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 1996.
Competition
The Company encounters intense competition from several national
distributors and manufacturers 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. Production components are distributed from facilities leased in
Conway, Arkansas (6,500 sq. ft.) Burr Ridge, Illinois (24,000 sq. ft.) Tupelo,
Mississippi, (10,000 sq. ft.) and Memphis, Tennessee, (40,000 sq. ft.). The
Company owns a 54,000 square foot facility in Decatur, Alabama which distributes
and manufactures production components. 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, 1996 was 1,185. 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>
1996 1995
Cash Cash
High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
First Quarter . . . $26 1/4 $22 $.13 $27 3/16 $25 $.12
Second Quarter . . 25 1/4 21 1/2 .13 27 1/2 26 .12
Third Quarter . . . 25 1/8 21 1/2 .13 28 1/2 26 1/2 .13
Fourth Quarter . . 22 1/4 21 .13 27 1/8 23 1/8 .13
</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, 1996,
are derived from the audited Financial Statements of the Company.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $250,289,124 $223,537,182 $213,097,143 $195,735,202 $186,709,454
Income Before Income Taxes 33,884,637 34,815,029 34,031,074 27,767,480 25,379,448
Net Income 19,994,637 21,120,029 20,524,074 18,117,480 15,343,448
Total Assets 175,161,839 160,613,798 168,130,848 171,428,606 158,029,952
Noncurrent Liabilities 22,065,583 19,292,794 17,084,617 15,160,121 13,319,626
Stockholders' Equity 128,746,212 122,810,577 131,230,469 140,649,876 128,755,648
Return on Equity (percent) 15.8% 16.9% 14.7% 13.4% 12.3%
Per Share of common Stock:
Net Income $1.73 $1.75 $1.55 $1.34 $1.13
Stockholders' Equity 11.13 10.17 9.91 10.37 9.49
Cash Dividends Declared .52 .51 .48 .44 .40
Weighted Average Shares
Outstanding 11,563,052 12,072,668 13,237,181 13,556,714 13,564,114
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net sales for 1996 and 1995 advanced 12.0% and 4.9%, respectively, over the
immediately preceding years. The sales gain for 1996 occurred primarily as a
result of an increase in the number of orders shipped and sales generated by our
new subsidiary, Assembly Component Systems, Inc., while the sales advance for
1995 resulted principally from increases in unit sales and the average order
size.
Net income in 1996 declined 5.3% from 1995 to $19,994,637, while net income
per share in 1996 decreased 1.1% to $1.73 from $1.75 in 1995. The decline in
net income for 1996 resulted principally from marketing programs that provided
lower gross margins on selected products, increased costs incurred in our U.K.
subsidiary, and a higher effective tax rate, which more than offset sales
gains.
Net income in 1995 increased 2.9% from 1994 to $21,120,029. The increase
in net income for 1995 over 1994 resulted primarily from sales gains, proceeds
from redemption of life insurance, and cost containment efforts, partially
offset by a decrease in gross margins. Per share net income for 1996 and 1995
was positively affected by the Company's share repurchases discussed below.
Liquidity and Capital Resources
Cash flows provided by operations for 1996, 1995, and 1994 were
$24,552,774, $21,309,287 and $23,041,066, respectively. The 1996 improvement
over 1995 resulted principally from increases in operating liabilities, which
more than offset increases in operating assets and lower net income from 1995
levels. The decrease in 1995 was due primarily to increases in operating assets
and declines in operating liabilities from 1994 levels, which more than offset
the advance in net income noted above. Current investments and cash flows from
operations have continued to be sufficient to fund operating requirements, cash
dividends and capital improvements. Such internally generated funds are also
expected to finance the Company's future growth.
Capital expenditures for 1996, 1995, and 1994, respectively, were
$4,820,724, $3,020,330, and $6,888,262. As in prior years, additions to
property, plant and equipment were incurred primarily for new facilities,
improvement of existing facilities, and for the purchase of related equipment.
During 1996, construction began relative to the facilities expansion of the
Company's specialty chemical subsidiary, Drummond American Corporation. Total
capital expenditures for this project are expected to be approximately
$3,000,000, with completion during the second quarter of 1997. 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.
During the second quarter of 1996, the Company purchased, for cash,
substantially all of the assets and liabilities of Automatic Screw Machine
Products Company (Automatic) headquartered in Decatur, Alabama, at a cost of
approximately $10,746,000. Automatic is a manufacturer and distributor of
production components. The former business operations of Automatic are
conducted by new subsidiaries known as Assembly Component Systems, Inc. and
Automatic Screw Machine Products Company.
In 1996, the Board of Directors authorized the purchase of up to 1,000,000
shares of the Company's common stock, of which 292,000 shares were purchased for
approximately $6,386,000. Also, during 1996, the remaining 86,000 shares
relative to the 1994 authorization noted below, were purchased for $2,095,000.
In 1994, the Board of Directors authorized the purchase of up to a 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 1994 share
authorization. Also, during 1994, the Company expended approximately
$23,105,000 for the purchase of 961,500 shares, consisting of 496,500 shares
relative to the 1,500,000 shares authorized for purchase in 1994 and 465,500
shares relating to 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 be successful in passing higher product costs
on to its customers and, accordingly, gross margins have not been materially
impacted. The impact from inflation has 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 increase 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, 1996 and 1995.
Consolidated Statements of Income for the Years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Schedule II
Report of Independent Auditors
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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 21, 1997
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,515,158 $ 10,432,139
Marketable securities 14,266,412 16,068,113
Accounts receivable, less allowance
for doubtful accounts (1996-
$1,357,662; 1995-$1,111,337) 30,326,067 28,295,687
Inventories 37,047,114 27,082,903
Miscellaneous receivables 2,812,809 2,977,144
Prepaid expenses 3,526,375 2,657,933
Deferred income taxes 606,000 464,000
Total Current Assets 103,099,935 87,977,919
Property, plant and equipment, at
cost, less allowances for
depreciation and amortization
(1996-$24,634,950;
1995-$22,894,444) 40,052,534 35,501,105
Other assets:
Marketable securities 13,452,931 20,847,081
Investments in real estate 3,304,664 3,152,164
Cash value of life insurance 10,361,091 8,790,756
Deferred income taxes 3,758,000 3,201,000
Other 1,132,684 1,143,773
32,009,370 37,134,774
$175,161,839 $160,613,798
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,006,695 $ 3,218,887
Accrued expenses and other
liabilities 15,850,415 14,329,710
Income taxes 2,492,934 961,830
Total Current Liabilities 24,350,044 18,510,427
Noncurrent liabilities and
deferred credits:
Accrued liability under security
bonus plans 12,886,934 11,421,646
Deferred compensation and other liabilities 9,178,649 7,871,148
22,065,583 19,292,794
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-1996-11,311,464 shares;
1995-11,686,614 shares 11,311,464 11,686,614
Capital in excess of par value 512,008 493,783
Retained earnings 117,234,229 111,320,907
129,057,701 123,501,304
Foreign currency translation
adjustment (819,489) (1,160,727)
Unrealized gain on marketable securities 508,000 470,000
128,746,212 122,810,577
$175,161,839 $160,613,798
See notes to consolidated financial statements
</TABLE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales $250,289,124 $223,537,182 $213,097,143
Interest and dividend income 1,499,993 1,671,383 1,725,871
Other income - net 362,282 977,451 18,170
252,151,399 226,186,016 214,841,184
Cost of goods sold 81,116,518 63,535,746 58,559,096
Selling, general and administrative expenses 136,265,322 126,839,711 121,357,853
Interest expense 25,596 10,271 44,831
Provision for doubtful accounts 859,326 985,259 848,330
218,266,762 191,370,987 180,810,110
Income Before Income Taxes 33,884,637 34,815,029 34,031,074
Federal and state income taxes (benefit):
Current 14,610,000 14,472,000 14,100,000
Deferred (720,000) (777,000) (593,000)
13,890,000 13,695,000 13,507,000
Net Income $ 19,994,637 $ 21,120,029 $ 20,524,074
Per share of Common Stock:
Net Income $1.73 $1.75 $1.55
See notes to consolidated financial statements
</TABLE>
<TABLE>
Lawson Products, Inc.
Consolidated Statements of
Changes in Stockholders' Equity
<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, 1994 $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 (73,568)
Unrealized gain on marketable
securities 691,000
Balance at December 31, 1995 11,686,614 493,783 111,320,907 - (1,160,727) 470,000
Net income 19,994,637
Cash dividends declared (5,994,808)
Stock issued under employee
stock plans 2,850 34,718
Purchase of common stock (8,481,000)
Retirement of treasury stock (378,000) (16,493) (8,086,507) 8,481,000
Translation adjustment 341,238
Unrealized gain on marketable
securities 38,000
Balance at December 31, 1996 $11,311,464 $512,008 $117,234,229 $ - $(819,489) $508,000
See notes to consolidated financial statements
</TABLE>
<TABLE> LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 19,994,637 $ 21,120,029 $ 20,524,074
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,014,251 3,349,186 3,085,476
Provision for allowance for
doubtful accounts 859,326 985,259 848,330
Deferred income taxes (720,000) (777,000) (593,000)
Deferred compensation and security
bonus plans 3,734,727 3,739,807 2,767,055
Payments under deferred compensation
and security bonus plans (1,068,542) (1,509,086) (847,666)
Losses from sale of property,
plant and equipment 274,717 18,884 36,058
(Income)/losses from investments in
real estate (232,500) (148,000) 208,500
Changes in operating assets and
liabilities
(Exclusive of effect of acquisition):
Accounts receivable (864,397) (1,961,852) (3,095,661)
Inventories (3,965,081) (243,629) (3,183,058)
Prepaid expenses
and other assets (2,265,095) (2,248,330) (1,383,412)
Accounts payable and
accrued expenses 2,751,842 (256,456) 2,116,976
Income taxes payable 1,531,104 (1,055,180) 2,079,249
Other 507,785 295,655 478,145
Net Cash Provided by Operating Activities 24,552,774 21,309,287 23,041,066
Investing activities:
Additions to property, plant and equipment (4,820,724) (3,020,330) (6,888,262)
Purchases of marketable securities (367,665,946) (293,575,770) (246,580,492)
Proceeds from sale of marketable
securities 376,705,975 305,232,277 251,437,202
Proceeds from sale of property,
plant and equipment 94,421 36,000 5,200
Proceeds from life insurance policies 130,000 668,372 173,297
Acquisition of Automatic Screw Machine
Products, net of cash acquired of
$240,545 (10,506,472) - -
Other 80,000 80,000 80,000
Net Cash (Used In) Provided by
Investing Activities (5,982,746) 9,420,549 (1,773,055)
Financing Activities:
Purchases of common stock (8,481,000) (24,085,282) (23,104,516)
Proceeds from exercise of stock options 37,568 4,851 32,390
Dividends paid (6,043,577) (6,070,121) (6,294,979)
Net Cash Used in Financing Activities (14,487,009) (30,150,552) (29,367,105)
Increase/(Decrease) in Cash and
Cash Equivalents 4,083,019 579,284 (8,099,094)
Cash and Cash Equivalents at
Beginning of Year 10,432,139 9,852,855 17,951,949
Cash and Cash Equivalents at
End of Year $ 14,515,158 $ 10,432,139 $ 9,852,855
See notes to consolidated financial statements
</TABLE>
Lawson Products, Inc. and subsidiaries principally are distributors of
expendable parts and supplies for maintenance, repair and operation 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 inter-company accounts 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 (principally 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, 1996, 1995 and 1994.
Reclassifications: Certain amounts have been reclassified in the 1994 and
1995 financial statements to conform with the 1996 presentation.
NOTE B-BUSINESS COMBINATION
On April 30, 1996, the Company purchased substantially all of the assets and
liabilities of Automatic Screw Machine Products Company (Automatic) for cash of
approximately $10,746,000. This transaction was accounted for as a purchase;
accordingly, the accounts and transactions of the acquired company have been
included in the consolidated financial statements since the date of
acquisition. Automatic manufactures precision machine components and
distributes parts used in the assembly of original equipment. Automatic's
operations are being conducted through the Company's new subsidiaries,
Assembly Component Systems, Inc. and Automatic Screw Machine Products Company.
Pro forma consolidated net sales, assuming the purchase had occurred as of
January 1, 1995, would approximate $257,218,000 and $246,298,000 for 1996 and
1995, respectively; pro forma net income or net income per share would not
differ materially from reported amounts.
NOTE C-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
1996 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of states
and political
subdivisions $25,368 $252 $1 $25,619
Foreign government
securities 1,563 - - 1,563
Total debt securities 26,931 252 1 27,182
Equity securities 6 537 6 537
$26,937 $789 $7 $27,719
1995
Obligations of states
and political
subdivisions $34,472 $287 $2 $34,757
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
</TABLE>
The gross realized gains on sales totaled: $127,603, $116,062, and $11,867
in 1996, 1995, and 1994, respectively, and the gross realized losses totaled
$28,285, $46,186 and $55,050, respectively. The net adjustment to unrealized
holding gains included as a separate component of shareholders' equity, net of
taxes, totaled $38,000 and $691,000 in 1996 and 1995, respectively. In 1996 and
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, 1996, by contractual maturity, are shown below. Expected
maturities may 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 $14,067 $14,266
Due after one year through five years 12,864 12,916
Total debt securities 26,931 27,182
Equity securities 6 537
$26,937 $27,719
</TABLE>
NOTE D-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 6,113,574 $ 5,976,341
Buildings and improvements 33,467,535 32,360,549
Machinery and equipment 18,315,412 14,475,356
Furniture and fixtures 4,962,178 4,618,726
Vehicles 218,593 303,317
Construction in Progress 1,610,192 661,260
$64,687,484 $58,395,549
</TABLE>
NOTE E-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 F-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Salaries, commissions and
other compensation $ 5,940,828 $ 5,416,903
Accrued and withheld taxes,
other than income taxes 1,636,558 1,408,108
Accrued profit sharing
contributions 1,944,232 1,994,328
Accrued self-insured health
benefits 1,300,000 1,300,000
Cash dividends payable 1,471,465 1,519,260
Other 3,557,332 2,691,111
$15,850,415 $14,329,710
</TABLE>
NOTE G-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 currently may be granted under the Plan through December 16,
1996. However, the Board of Directors has approved, subject to ratification
by the Company's shareholders at their 1997 annual meeting, a ten year
extension to the Plan.
Additional information with respect to the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares
1996 1995 1994
<S> <C> <C> <C>
As of December 31:
Options outstanding
(per share:
$12.83 to $29.75) 293,081 126,131 126,431
Available for grant 366,791 536,591 536,591
Options exercisable 123,281 126,131 126,431
For the year ended
December 31:
Options granted
(per share: $22.50) 169,800 - -
Options exercised
(per share: 1996, 1995,
and 1994-$8.78 to $27.50) 2,850 300 3,575
Benefits cancelled - - 750
</TABLE>
As of December 31, 1996, the Company has the following outstanding options:
<TABLE>
<CAPTION>
Weighted Weighted
Options Average Average Options
Exercise Price Outstanding Exercise Price Remaining Life Exercisable
<S> <C> <C> <C> <C>
$12.83-$16.17 1,931 $14.93 .9 years 1,931
27.50-29.75 121,350 27.51 4.1 121,350
22.50 169,800 22.50 9.5 -
</TABLE>
Disclosure of pro forma information regarding net income and net income per
share is required by Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," and has been determined as if the Company had
accounted for its employee stock options granted in 1996 (no options were
granted in 1995) under the fair value method using the Black-Scholes options
pricing model. The following assumptions were utilized in the valuation: risk-
free interest rate of 6.61%; dividend yield of 2.0%; volatility factor of the
expected market price of the Company's Common Stock of .21; and a weighted-
average expected life of the option of 8 years.
The weighted-average fair value of options granted in 1996 was $7.24. Had
compensation cost for the Company's stock options granted in 1996 been
determined based on the fair value at the date of grant, the Company's net
income and net income per share would have been reduced to the pro forma amounts
of $19,801,000 and $1.73, respectively.
The pro forma effect on net income for 1996 is not representative of the pro
forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
At December 31, 1996, 659,872 shares of Common Stock were reserved for issuance
under the Plan.
NOTE H-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
$3,945,825, $3,890,250 and $3,517,052 for the years ended December 31, 1996,
1995 and 1994, 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 I-INCOME TAXES
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: 1996 1995
<S> <C> <C>
Compensation and benefits $8,541,000 $7,630,000
Inventory 492,000 509,000
Net operating loss carryforward
of subsidiary 2,800,000 2,047,000
Accounts receivable 419,000 373,000
Total Deferred Tax Assets 12,252,000 10,559,000
Valuation allowance for
deferred tax assets (2,800,000) (2,047,000)
Net Deferred Tax Assets 9,452,000 8,512,000
Deferred Tax Liabilities:
Property, plant & equipment 1,416,000 1,200,000
Investments in real estate 3,163,000 3,167,000
Marketable securities 274,000 253,000
Other 235,000 227,000
Total Deferred Tax Liabilities 5,088,000 4,847,000
Total Net Deferred Tax
Assets $4,364,000 $3,665,000
</TABLE>
The provisions for income taxes for the years ended December 31, consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $11,733,000 $11,657,000 $11,955,000
State 2,877,000 2,815,000 2,145,000
14,610,000 14,472,000 14,100,000
Deferred benefit (720,000) (777,000) (593,000)
$13,890,000 $13,695,000 $13,507,000
</TABLE>
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<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 5.5 5.3 4.1
Non-taxable dividend
and interest income (1.1) (1.4) (1.5)
Foreign loss 2.2 1.7 1.7
Other items (.6) (1.3) .4
Provision for income taxes 41.0% 39.3% 39.7%
</TABLE>
Income taxes paid for the years ended December 31, 1996, 1995 and 1994 amounted
to $12,944,000 $15,327,000 and $12,098,000, respectively.
NOTE J-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 1996 amounted to approximately
$2,380,000. Such rentals are payable as follows: 1997-$1,145,000; 1998-
$791,000; 1999-$269,000 and 2000 and thereafter-$175,000.
Total rental expense for the years ended December 31, 1996, 1995 and 1994
amounted to $1,401,855, $1,087,271 and $1,188,740.
NOTE K-PER SHARE DATA
Per share data are based on the weighted average number of shares of Common
Stock outstanding during each year: 1996-11,563,052, 1995-12,072,668 and 1994-
13,237,181. Exercise of outstanding stock options would not have a material
dilutive effect on such per share data.
NOTE L SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
Quarter ended
1996 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $56,108 $63,479 $66,303 $64,399
Cost of goods sold 16,678 20,752 22,856 20,831
Income before income
taxes 6,789 8,104 8,271 10,721
Provision for income
taxes 2,765 3,375 3,443 4,307
Net income 4,024 4,729 4,828 6,414
Net income per share
of common stock $.35 $.41 $.42 $.56
Weighted average
shares outstanding 11,622 11,601 11,601 11,457
Quarter ended
1995 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
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
*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 1996, this adjustment increased net income by approximately
$528,000, while in 1995, this adjustment decreased net income by approximately
$354,000. Also, the fourth quarters of 1996 and 1995 reflect adjustments to
certain accrued expenses which increased net income by approximately $514,000
and $908,000, respectively.
</TABLE>
SCHEDULE II
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<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, 1996 $1,111,337 $859,326 $ 613,001 $1,357,662
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
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 28, 1997, are as follows:
<TABLE>
<CAPTION>
Year First Other Offices Held
Name and Present Elected to During the Past
Position with Company Age Present Office Five Years
<S> <C> <C> <C>
Sidney L. Port, 86 1977 *
Chairman of the
Executive Committee
and Director
Bernard Kalish, 59 1989 *
Chief Executive
Officer, Chairman of
the Board and Director
Peter G. Smith, 58 1989 *
President,
Chief Operating
Officer and Director
Jeffrey B. Belford 50 1989 *
Executive Vice
President--Operations
Hugh Allen, 61 1991 *
Senior Executive Vice
President--Sales
and Marketing
James Smith, 56 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, 69 1987 *
Vice President,
Treasurer and Director
Joseph L. Pawlick, 54 1987 *
Vice President and
Controller and Assistant
Secretary
* These persons have held the indicated positions for at least five
years.
</TABLE>
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 28,
1997, 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 28,
1997, 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 28,
1997 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, 1996 and 1995.
Consolidated Statements of Income for the Years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years ended December 31,
1996, 1995 and 1994.
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.
2 Purchase Agreement dated April 30, 1996 among Assembly
Component Systems, Inc., Automatic Screw Machine
Products Company, David E. Norman and James C. Norman,
incorporated herein by reference from Exhibit (2)(a)
to the Company's Current Report on Form 8-K dated
April 30, 1996.
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; 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)(4.1) Second Amendment to Employment Agreement dated as of
August 1, 1996.
*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)(6.1) First Amendment to Employment Agreement dated as of
August 1, 1996.
*10(c)(7) Amended and Restated Executive Deferral Plan,
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, 1995.
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, 1997
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, 1997
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
2 Purchase Agreement dated April 30, 1996
among Assembly Component Systems, Inc.,
Automatic Screw Machine Products Company,
David E. Norman and James C. Norman,
incorporated herein by reference from
Exhibit (2)(a) to the Company's Current
Report on Form 8-K dated April 30, 1996.
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; 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)(4.1) Second Amendment to Employment Agreement
dated as of August 1, 1996.
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)(6.1) First Amendment to Employment Agreement
dated as of August 1, 1996.
10(c)(7) Amended and Restated Executive Deferral
Plan, 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, 1995.
11 Statement regarding computation of per
share earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
Exhibit 10(c)(4.1)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement ("Second Amendment") is made
as of August 1, 1996 by and between LAWSON PRODUCTS, INC., a Delaware
corporation ("Company") and BERNARD KALISH ("Kalish").
U N D E R S T A N D I N G S:
The parties to this Second Amendment previously entered into an Employment
Agreement dated April 1, 1984, as amended by that certain First Amendment to
Employment Agreement dated as of May 27, 1988 ("Employment Agreement"). The
parties desire to further amend the Employment Agreement in certain respects.
NOW, THEREFORE, in consideration of the undertakings of the parties hereto
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, it is agreed:
1. The Employment Agreement is hereby amended by deleting Paragraph A in
its entirety and replacing it with the following:
"A. Kalish has been Chairman of the Board of the Company since
July 5, 1989, presently serves in such capacity and shall continue to
serve the Company in accordance with the Employment Agreement, as
amended hereby.
2. The Employment Agreement is hereby further amended by deleting
Paragraph F in its entirety and replacing it with the following:
"F. The term of Kalish's employment with the Company shall be
through December 31, 2001 (the "Term"). Unless terminated as provided
herein, the Term shall be automatically extended for additional one
year terms. The Employment Agreement, as amended hereby, may be
terminated effective on or after December 31, 2001 by either party
upon at least one year's prior notice to the other. Such notice shall
be deemed to have been given if delivered personally, by facsimile
transmission, or if mailed, postage prepaid, by United States
registered or certified mail, return receipt requested, or if
delivered by a recognized overnight courier, addressed to the regular
mailing address of the party being notified or to such other address
or addresses as the party to be given notice may have furnished in
writing to the party giving the notice, provided that no change in
address shall be effective until seven (7) days after being given to
the other party in the manner provided for above. Any notice given in
accordance with the foregoing shall be deemed given when delivered
personally, or if by facsimile transmission, upon confirmation of
transmittal, or if mailed, five business days after it shall have been
deposited in the United States mail as aforesaid or, if sent by
overnight courier, the business day following the date of delivery to
such courier."
3. The Employment Agreement is hereby further amended by deleting
Paragraph G in its entirety and replacing it with the following:
"G. The basis of compensation shall be no less than the current
amount of Three Hundred Thirty One Thousand, Six Hundred Fifty One
($331,651.00) Dollars per year, subject to increases as from time to
time may be determined by the Compensation Committee of the Board of
Directors of the Company."
4. The Employment Agreement is hereby further amended by deleting the
second paragraph on Page 2 in its entirety and replacing it with the following:
"In addition, Kalish is to receive those benefits as may from time to
time be in effect and on the same terms and conditions as provided to
other key executive officers of the Company."
5. The first sentence of the third paragraph on page 2 of the Employment
Agreement is hereby amended by replacing the word "man" in each place that it
appears with "person."
6. Except as amended by Paragraphs 1 through 5 hereof, the parties agree
that all other terms, conditions and provisions of the Employment Agreement
shall be and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed or caused their duly
authorized representatives to execute this Second Amendment to Employment
Agreement as of the date first above written.
ATTEST: LAWSON PRODUCTS, INC.
/s/ Mary Ann Sturino By: /s/ Sidney L. Port
Its Clerk SIDNEY L. PORT, Chairman of the Executive
Committee
/s/ Bernard Kalish
BERNARD KALISH
Exhibit 10(c)(6.1)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement ("First Amendment") is made as
of August 1, 1996 by and between LAWSON PRODUCTS, INC., a Delaware corporation
("Company") and JEROME SHAFFER ("Shaffer").
U N D E R S T A N D I N G S:
The parties to this First Amendment previously entered into an Employment
Agreement dated December 14, 1972 ("Employment Agreement") . The parties desire
to amend the Employment Agreement in certain respects.
NOW, THEREFORE, in consideration of the undertakings of the parties hereto
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, it is agreed:
1. The Employment Agreement is hereby amended by deleting
Paragraph A in its entirety and replacing it with the following:
"A. Shaffer has been Treasurer and Vice President of the Company
for many years, presently serves in such capacity and shall continue
to serve to serve the Company in accordance with the Employment
Agreement, as amended hereby.
2. The Employment Agreement is hereby further amended by deleting
Paragraph F in its entirety and replacing it with the following:
"F. The term of Shaffer's employment with the Company shall be
through December 31, 1999 (the "Term"). Unless terminated as provided
herein, the Term shall be automatically extended for additional one
year terms. The Employment Agreement, as amended hereby, may be
terminated effective on or after December 31, 1999 by either party
upon at least one year's prior notice to the other. Such notice shall
be deemed to have been given if delivered personally, by facsimile
transmission, or if mailed, postage prepaid, by United States
registered or certified mail, return receipt requested, or if
delivered by a recognized overnight courier, addressed to the regular
mailing address of the party being notified or to such other address
or addresses as the party to be given notice may have furnished in
writing to the party giving the notice, provided that no change in
address shall be effective until seven days after being given to the
other party in the manner provided for above. Any notice given in
accordance with the foregoing shall be deemed given when delivered
personally, or if by facsimile transmission, upon confirmation of
transmittal, or if mailed, five business days after it shall have been
deposited in the United States mail as aforesaid or, if sent by
overnight courier, the business day following the date of delivery to
such courier."
3. The Employment Agreement is hereby further amended by deleting
Paragraph G in its entirety and replacing it with the following:
"G. The basis of compensation shall be no less than the current
amount of Two Hundred Two Thousand, Five Hundred Eighty-Five
($202,585.00) Dollars per year, subject to increases as from time to
time may be recommended to the Chairman of the Executive Committee or
the Chairman of the Board by the Compensation Committee of the Board
of Directors of the Company."
4. The Employment Agreement is hereby further amended by deleting the
second unlettered paragraph on Page 2 thereof in its
entirety and replacing it with the following:
"In addition, Shaffer is to receive those benefits as may from time to
time be in effect and on the same terms and conditions as provided to
other key executive officers of the Company."
5. The last unlettered paragraph on page 2 of the Employment
Agreement is hereby amended by replacing the word "man" in each place that it
appears with "person."
6. Except as amended by Paragraphs 1 through 5 hereof, the parties agree
that all other terms, conditions and provisions of the Employment Agreement
shall be and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed or caused their duly
authorized representatives to execute this First to Employment Agreement as of
the date first above written.
ATTEST: LAWSON PRODUCTS, IN
/s/ Mary Ann Sturino By: /s/ Sidney L. Port
Its SIDNEY L. PORT, Chairman
of the Executive
Committee
/S/ JEROME SHAFFER
JEROME SHAFFER
EXHIBIT 11
<TABLE>
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net income per share of common stock:
Average shares outstanding 11,563,052 12,072,668 13,237,181
Net income $ 19,994,637 $ 21,120,029 $ 20,524,074
Net income per share of common stock $1.73 $1.75 $1.55
Primary:
Average shares outstanding 11,563,052 12,072,668 13,237,181
Net effect of dilutive stock
options-based on the treasury method
using average market price 1,280 1,979 2,843
Total 11,564,332 12,074,647 13,240,024
Net income $ 19,994,637 $ 21,120,029 $ 20,524,074
Net income per share of common stock $1.73 $1.75 $1.55
Fully diluted:
Average shares outstanding 11,563,052 12,072,668 13,237,181
Net effect of dilutive stock
options-based on the treasury stock
method using the year-end market
price, if higher than average market
price 1,280 1,979 2,843
Total 11,564,332 12,074,647 13,240,024
Net income $ 19,994,637 $ 21,120,029 $ 20,524,074
Net income per share of common stock $1.73 $1.75 $1.55
/TABLE
<PAGE>
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 Limited 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
Assembly Component Systems, Inc. Illinois
Automatic Screw Machine
Products Company, Inc.* Alabama
*subsidiary of Assembly Component Systems, Inc.<PAGE>
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 21,
1997, 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, 1996.
Ernst & Young LLP
Chicago, Illinois
March 27, 1997<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Lawson
Products, Inc.'s Form 10-K and is qualified in its entirety by reference to such
Form 10-K filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,515
<SECURITIES> 27,719
<RECEIVABLES> 30,326
<ALLOWANCES> 0
<INVENTORY> 37,047
<CURRENT-ASSETS> 103,100
<PP&E> 40,053
<DEPRECIATION> 0
<TOTAL-ASSETS> 175,162
<CURRENT-LIABILITIES> 24,350
<BONDS> 0
0
0
<COMMON> 11,311
<OTHER-SE> 117,435
<TOTAL-LIABILITY-AND-EQUITY> 175,162
<SALES> 250,289
<TOTAL-REVENUES> 252,151
<CGS> 81,117
<TOTAL-COSTS> 81,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 859
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 33,885
<INCOME-TAX> 13,890
<INCOME-CONTINUING> 19,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,995
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
