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, 1997
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, 1998, 11,135,533 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 1998 was approximately $212,406,659.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of
Stockholders to be held on May 12, 1998 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 34,000 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 1997, 1996 and
1995 respectively:
Percentage of
Consolidated
Net Sales
1997 1996 1995
Fasteners, Fittings and Related Parts . . . 46% 45% 41%
Industrial Supplies . . . . . . . . . . . . 49 50 54
Automotive and Equipment Maintenance Parts
5 5 5
100% 100% 100%
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 7.3% of the Company's purchases in 1997.
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 40% of 1997
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 1997 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 9% of 1997 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 10% of 1997 sales were made to customers in this
market.
The Company has approximately 213,000 customers, the largest of which
accounted for less than one percent of net sales during 1997. Sales are made
through a force of approximately 1,850 independent sales representatives of
which 116 serve the O.E.M. marketplace. Included in this group are 218 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.
The Company employs 35 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 1,103 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. 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 six centers located in
Decatur, Alabama; Conway, Arkansas; Cairo, Georgia; 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 1997.
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 1997.
Mexican Operations
Operations in Mexico are conducted under the name of Lawson Products
de Mexico S.A. de C.V. from a 10,000 square foot facility in Guadalajara,
Mexico. These operations constituted less than 1% of the Company's net sales
during 1997.
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.
The Company plans to construct a new warehouse in Georgia and has
estimated the cost of land and buildings will be $4 million. In addition, the
Company is adding 25,000 square feet to its Addison facility at a cost of $1.1
million.
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, 1997 was 1,108. 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>
1997 1996
<CAPTION>
Cash Cash
High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
First Quarter . . . . . . . $22 5/8 $21 1/8 $.13 $26 1/4 $22 $.13
Second Quarter . . . . . . 27 1/8 22 1/8 .13 25 1/4 21 1/2 .13
Third Quarter . . . . . . . 30 1/8 25 3/8 .13 25 1/8 21 1/2 .13
Fourth Quarter . . . . . . 31 1/2 27 5/16 .14 22 1/4 21 .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, 1997,
are derived from the audited Financial Statements of the Company.
<TABLE>
1997 1996 1995 1994 1993
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Sales $278,144,321 $250,289,124 $223,537,182 $213,097,143 $195,735,202
Income Before Income Taxes 35,723,277 33,884,637 34,815,029 34,031,074 27,767,480
Net Income 21,350,277 19,994,637 21,120,029 20,524,074 18,117,480
Total Assets 188,974,415 175,161,839 160,613,798 168,130,848 171,428,606
Noncurrent Liabilities 24,577,547 22,065,583 19,292,794 17,084,617 15,160,121
Stockholders' Equity 139,925,387 128,746,212 122,810,577 131,230,469 140,649,876
Return on Equity (percent) 16.0% 15.8% 16.9% 14.7% 13.4%
Per Share of Common Stock:*
Basic Net Income $1.91 $1.73 $1.75 $1.55 $1.34
Diluted Net Income 1.91 1.73 1.75 1.55 1.34
Stockholders' Equity** 12.55 11.13 10.17 9.91 10.37
Cash Dividends Declared** .54 .52 .51 .48 .44
Basic Weighted Average Shares
Outstanding* 11,153,091 11,563,052 12,072,668 13,237,181 13,556,714
Diluted Weighted Average
Shares Outstanding* 11,175,232 11,563,715 12,074,647 13,240,024 13,563,658
* All share and per share amounts have been adjusted to retroactively
reflect stock splits effected in previous years. Additionally, net
income per share amounts and weighted average share amounts for all
periods presented have been restated to conform with the requirements
of Statement of Financial Accounting Standard No. 128, "Earnings Per
Share," issued in February 1997.
** These per share amounts were computed using basic weighted average
shares outstanding for all periods presented.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Net sales for 1997 and 1996 increased 11.1% and 12.0%, respectively, over the
immediately preceding years. The sales advances for 1997 and 1996 reflect
increased contribution from substantially all Lawson operations. Our new
subsidiary, Assembly Component Systems, Inc. ("ACS"), the business and
assets of which were acquired in April 1996, contributed significantly to the
sales improvement in both years.
Net income in 1997 rose 6.8% over 1996 to $21,350,277, while basic and
diluted net income per share in 1997 increased 10.4% to $1.91 from $1.73 in
1996. Sales gains, partially offset by a decrease in gross margins, were
primarily responsible for the increase in net income in 1997 over 1996.
Net income in 1996 declined 5.3% from 1995 to $19,994,637. The decrease in
net income for 1996 resulted principally from marketing programs that
provided lower gross margins on selected products, increased costs of our
U.K. subsidiary, and a higher effective tax rate, which more than offset
sales gains. Per share net income for 1997 and 1996 was positively impacted
by the Company's share repurchases discussed below.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for 1997, 1996, and 1995 were $16,979,646,
$24,552,774 and $21,309,287, respectively. The decrease in 1997 resulted
principally from increases in operating assets over 1996 levels, which more
than offset the advance in net income noted above. The 1996 improvement over
1995 was due primarily to increases in operating liabilities, which more than
offset increases in operating assets and lower net income from 1995 levels.
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 improvements.
Additions to property, plant and equipment for 1997, 1996, and 1995,
respectively, were $5,894,656, $4,820,724 and $3,020,330. Consistent with
prior years, capital expenditures were incurred primarily for new facilities,
improvement of existing facilities, and for the purchase of related
equipment. During 1997, construction was substantially completed 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. Also, during the first quarter
of 1998, the Company purchased land in Atlanta, Georgia and intends to
construct a new Lawson outbound facility on the site. This facility will be
used in place of the Norcross, Georgia facility which will be closed.
The business and net assets of ACS were acquired in the second quarter of
1996 at a cost of approximately $10,746,000. ACS is a manufacturer and
distributor of production components and is headquartered in Decatur, Alabama.
In 1996, the Board of Directors authorized the purchase of up to 1,000,000
shares of the Company's common stock, of which 187,500 shares were purchased
for approximately $4,062,000 during 1997 and 292,000 shares were purchased
for approximately $6,386,000 in 1996.
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 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. Funds to purchase
these shares were provided by investments and cash flows from operations.
The Company has developed a plan to modify its information technology to
recognize the year 2000 issue. The year 2000 issue involves computer
programs which are unable to distinguish between the year 1900 and the year
2000. The Company has begun converting its critical data processing systems
and expects the project to be completed by early 1999 at a cost of $200,000
to $300,000. This estimate includes internal costs, but excludes the costs
to upgrade and replace systems in the normal course of business. This project
is not expected to have a significant impact on operations. As of December 31,
1997, approximately $100,000 of expense had been incurred.
IMPACT OF INFLATION AND CHANGING PRICES
The Company has continued to pass most increases in product costs on to its
customers and, accordingly, such increases have not materially impacted gross
margins. 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, 1997 and 1996.
Consolidated Statements of Income for the Years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity
for the Years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Schedule II
Report of Independent Auditors
To the Shareholders 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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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 27, 1998
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,247,568 $ 14,515,158
Marketable securities 11,637,521 14,266,412
Accounts receivable, less allowance
for doubtful accounts (1997-$1,423,902;
1996-$1,357,662) 33,714,165 30,326,067
Inventories 41,788,322 37,047,114
Miscellaneous receivables 2,972,544 2,812,809
Prepaid expenses 2,788,143 3,526,375
Deferred income taxes 836,000 606,000
Total Current Assets 103,984,263 103,099,935
Property, plant and equipment, at
cost, less allowances for
depreciation and amortization
(1997-$27,862,855; 1996-$24,634,950) 40,963,035 40,052,534
Other assets:
Marketable securities 21,713,267 13,452,931
Investments in real estate 3,730,664 3,304,664
Cash value of life insurance 12,054,380 10,361,091
Deferred income taxes 4,447,000 3,758,000
Other 2,081,806 1,132,684
44,027,117 32,009,370
$188,974,415 $175,161,839
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,928,689 $ 6,006,695
Accrued expenses and other
liabilities 17,901,997 15,850,415
Income taxes 1,640,795 2,492,934
Total Current Liabilities 24,471,481 24,350,044
Noncurrent liabilities and
deferred credits:
Accrued liability under security
bonus plans 14,000,016 12,886,934
Deferred compensation and other liabilities 10,577,531 9,178,649
24,577,547 22,065,583
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-1997-11,135,233 shares;
1996-11,311,464 shares 11,135,233 11,311,464
Capital in excess of par value 769,738 512,008
Retained earnings 128,708,111 117,234,229
140,613,082 129,057,701
Foreign currency translation
adjustment (1,250,695) (819,489)
Unrealized gain on marketable securities 563,000 508,000
139,925,387 128,746,212
$188,974,415 $175,161,839
See notes to consolidated financial statements
</TABLE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales $278,144,321 $250,289,124 $223,537,182
Interest and dividend income 1,285,809 1,499,993 1,671,383
Other income - net 573,747 362,282 977,451
280,003,877 252,151,399 226,186,016
Cost of goods sold 95,985,602 81,116,518 63,535,746
Selling, general and administrative expenses 147,235,497 136,265,322 126,839,711
Interest expense 31,280 25,596 10,271
Provision for doubtful accounts 1,028,221 859,326 985,259
244,280,600 218,266,762 191,370,987
Income Before Income Taxes 35,723,277 33,884,637 34,815,029
Federal and state income taxes (benefit):
Current 15,306,000 14,610,000 14,472,000
Deferred (933,000) (720,000) (777,000)
14,373,000 13,890,000 13,695,000
Net Income $ 21,350,277 $ 19,994,637 $ 21,120,029
Basic and Diluted Net Income
Per share of Common Stock $1.91 $1.73 $1.75
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, 1995 $ 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
Net income 21,350,277
Cash dividends declared (6,010,507)
Stock issued under employee
stock plans 11,269 266,217
Purchase of common stock (4,061,875)
Retirement of treasury stock (187,500) (8,487) (3,865,888) 4,061,875
Translation adjustment (431,206)
Unrealized gain on marketable
securities 55,000
Balance at December 31, 1997 $ 11,135,233 $ 769,738 $ 128,708,111 $ - $ (1,250,695) $ 563,000
See notes to consolidated financial statements
</TABLE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $ 21,350,277 $ 19,994,637 $ 21,120,029
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,019,437 4,014,251 3,349,186
Provision for allowance for
doubtful accounts 1,028,221 859,326 985,259
Deferred income taxes (933,000) (720,000) (777,000)
Deferred compensation and security
bonus plans 4,214,100 3,734,727 3,739,807
Payments under deferred compensation
and security bonus plans (1,604,352) (1,068,542) (1,509,086)
Losses from sale of property,
plant and equipment 108,079 274,717 18,884
Income from investments in real estate (506,000) (232,500) (148,000)
Changes in operating assets and
liabilities
(Exclusive of effect of acquisition):
Accounts receivable (4,416,319) (864,397) (1,961,852)
Inventories (4,741,208) (3,965,081) (243,629)
Prepaid expenses
and other assets (2,224,583) (2,265,095) (2,248,330)
Accounts payable and
accrued expenses 886,109 2,751,842 (256,456)
Income taxes payable (852,139) 1,531,104 (1,055,180)
Other (348,976) 507,785 295,655
Net Cash Provided by Operating Activities 16,979,646 24,552,774 21,309,287
Investing activities:
Additions to property, plant and equipment (5,894,656) (4,820,724) (3,020,330)
Purchases of marketable securities (143,028,547) (367,665,946) (293,575,770)
Proceeds from sale of marketable
securities 137,301,088 376,705,975 305,232,277
Proceeds from sale of property,
plant and equipment 2,308 94,421 36,000
Proceeds from life insurance policies - 130,000 668,372
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 (11,539,807) (5,982,746) 9,420,549
Financing Activities:
Purchases of common stock (4,061,875) (8,481,000) (24,085,282)
Proceeds from exercise of stock options 277,486 37,568 4,851
Dividends paid (5,923,040) (6,043,577) (6,070,121)
Net Cash Used in Financing Activities (9,707,429) (14,487,009) (30,150,552)
Increase/(Decrease) in Cash and
Cash Equivalents (4,267,590) 4,083,019 579,284
Cash and Cash Equivalents at
Beginning of Year 14,515,158 10,432,139 9,852,855
Cash and Cash Equivalents at
End of Year $ 10,247,568 $ 14,515,158 $ 10,432,139
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 stockholders' 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, 1997, 1996 and 1995.
Income Per Share: In 1997, the Company adopted FASB Statement No. 128,
"Earnings per Share," requiring dual presentation of basic and diluted income
per share ("EPS") on the face of the income statement. Basic EPS is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock options.
All EPS amounts for all periods have been presented to conform to Statement 128
requirements. For all periods presented there was no difference between basic
and diluted EPS.
Reclassifications: Certain amounts have been reclassified in the 1995 and
1996 financial statements to conform with the 1997 presentation.
NOTE B-BUSINESS COMBINATION
Substantially all of the business and net assets of Assembly Component Systems,
Inc. (ACS) were purchased by the Company on April 30, 1996 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.
ACS manufactures precision machine components and distributes parts used in the
assembly of original equipment.
Pro forma consolidated net sales for 1996, assuming the purchase had occurred as
of January 1, 1996, would approximate $257,218,000. 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
1997 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions
$28,343 $ 56 $1 $28,398
Foreign government securities
4,092 - - 4,092
Other debt securities 44 - - 44
Total debt securities 32,479 56 1 32,534
Equity securities 6 817 6 817
$32,485 $873 $7 $33,351
1996
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
</TABLE>
The gross realized gains on sales totaled: $52,000, $128,000, and $116,000 in
1997, 1996 and 1995, respectively, and the gross realized losses totaled $7,000,
$28,000 and $46,000, respectively. The net adjustment to unrealized holding
gains included as a separate component of stockholders' equity, net of taxes,
totaled $55,000 and $38,000 in 1997 and 1996, respectively.
In 1996, 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, 1997, 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 $11,169 $11,638
Due after one year through five years 20,850 20,896
Total debt securities 32,479 32,534
Equity securities 6 817
$32,485 $33,351
</TABLE>
NOTE D-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 6,072,718 $ 6,113,574
Buildings and improvements 34,162,854 33,467,535
Machinery and equipment 19,855,003 18,315,412
Furniture and fixtures 5,053,931 4,962,178
Vehicles 239,740 218,593
Construction in Progress 3,441,644 1,610,192
$68,825,890 $64,687,484
</TABLE>
NOTE E-INVESTMENTS IN REAL ESTATE
The Company is a limited partner in two real estate limited partnerships. An
affiliate of the Company has a 1.5% interest and 5% interest, respectively, as a
general partner in 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>
1997 1996
<S> <C> <C>
Salaries, commissions and
other compensation $ 7,051,691 $ 5,940,828
Accrued and withheld taxes,
other than income taxes 2,002,092 1,636,558
Accrued profit sharing
contributions 2,337,319 1,944,232
Accrued self-insured health
benefits 1,300,000 1,300,000
Cash dividends payable 1,558,933 1,471,465
Other 3,651,962 3,557,332
$17,901,997 $15,850,415
</TABLE>
NOTE G-STOCK PLAN
The Company's Incentive Stock Plan, As Amended (Plan), provides for the issuance
of shares of Common Stock to officers and key employees pursuant to stock
options, stock appreciation rights, stock purchase agreements and stock awards.
At December 31, 1997, 648,666 shares of Common Stock were available for issuance
under the Plan.
The Plan permits the grant of incentive stock options, subject to certain
limitations, with substantially the same terms as non-qualified stock options.
Stock options are not exercisable within six months from date of grant and may
not be granted at prices less than the fair market value of the shares at the
dates of grant.
Benefits may be granted under the Plan through December 16, 2006.
Additional information with respect to the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares
1997 1996 1995
<S> <C> <C> <C>
As of December 31:
Options outstanding
(per share:
$22.50 to $29.75) 290,279 310,285 126,131
Available for grant 348,587 349,587 536,591
Options exercisable 149,026 123,281 126,131
For the year ended
December 31:
Options granted
(per share: 1997-$27.00;
1996-$22.50 to $23.25) 1,000 187,004 -
Options exercised
(per share: 1997, 1996
and 1995-$16.17 to $27.50) 11,269 2,850 300
Benefits cancelled/forfeited 9,737 - -
</TABLE>
As of December 31, 1997, the Company has the following outstanding options:
<TABLE>
Weighted Weighted
Options Average Average Options
Exercise Price Outstanding Exercise Price Remaining Life Exercisable
<CAPTION>
<S> <C> <C> <C> <C>
$22.50-$23.25 182,129 $22.55 8.5 years 41,876
27.00-29.75 108,150 27.57 2.3 107,150
</TABLE>
Disclosure of pro forma information regarding net income and net income per
share is required by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the Black-
Scholes options pricing model with the following assumptions for 1997 and 1996,
respectively: risk-free interest rates of 5.81% and 6.61%; dividend yields of
2.0% and 2.0%; volatility factors of the expected market price of the Company's
common stock of 0.19 and 0.21; and a weighted-average expected life of the
options of 8 years.
The weighted-average fair value of options granted was $7.77 for options granted
in 1997 and $7.26 for options granted in 1996. Had compensation cost for the
Company's stock options granted been determined based on the fair value at the
date of grant, the Company's net income and basic and diluted net income per
share would have been reduced to the pro forma amounts for 1997 and 1996,
respectively, as follows: net income of $21,010,000 and $19,779,000; net income
per share of $1.88 and $1.71.
The pro forma effect on net income for 1997 and 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 and an increased vesting period for grants made in 1996 and later.
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
$4,387,000, $3,946,000 and $3,890,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
The Company sponsors 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>
1997 1996
<S> <C> <C>
Deferred Tax Assets:
Compensation and benefits $ 9,399,000 $ 8,541,000
Inventory 642,000 492,000
Net operating loss carryforwards
of subsidiary 3,270,000 2,800,000
Accounts receivable 428,000 419,000
Total Deferred Tax Assets 13,739,000 12,252,000
Valuation allowance for
deferred tax assets (3,270,000) (2,800,000)
Net Deferred Tax Assets 10,469,000 9,452,000
Deferred Tax Liabilities:
Property, plant & equipment 1,489,000 1,416,000
Investments in real estate 3,163,000 3,163,000
Marketable securities 303,000 274,000
Other 231,000 235,000
Total Deferred Tax Liabilities 5,186,000 5,088,000
Total Net Deferred Tax
Assets $ 5,283,000 $ 4,364,000
</TABLE>
The provisions for income taxes for the years ended December 31, consist of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $12,568,000 $11,733,000 $11,657,000
State 2,738,000 2,877,000 2,815,000
15,306,000 14,610,000 14,472,000
Deferred benefit (933,000) (720,000) (777,000)
$14,373,000 $13,890,000 $13,695,000
</TABLE>
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<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 5.0 5.5 5.3
Non-taxable dividend
and interest income (1.6) (1.1) (1.4)
Foreign loss 1.9 2.2 1.7
Other items (.1) (.6) (1.3)
Provision for income taxes 40.2% 41.0% 39.3%
</TABLE>
Income taxes paid for the years ended December 31, 1997, 1996 and 1995 amounted
to $16,078,000, $12,944,000 and $15,327,000, respectively.
NOTE J-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 1997 amounted to approximately
$2,762,000. Such rentals are payable as follows: 1998-$1,074,000; 1999-
$916,000; 2000-$520,000 and 2001 and thereafter-$252,000.
Total rental expense for the years ended December 31, 1997, 1996 and 1995
amounted to $1,647,000, $1,402,000 and $1,087,000.
NOTE K SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1997
and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Quarter ended
1997 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $65,883 $70,390 $71,420 $70,451
Cost of goods sold 22,731 24,105 24,331 24,818
Income before income
taxes 7,949 9,463 10,044 8,268
Provision for income
taxes 3,227 3,814 4,165 3,167
Net income 4,722 5,649 5,879 5,101
Basic and diluted net
income per share
of common stock $.42 $.51 $.53 $.46
Diluted weighted average
shares outstanding 11,209 11,140 11,157 11,181
Quarter ended
1996 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
(In thousands, except per share data)
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
Basic and diluted net
income per share
of common stock $.35 $.41 $.42 $.56
Diluted weighted average
shares outstanding 11,623 11,601 11,602 11,458
*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 1997, this adjustment decreased net income by approximately
$438,000, while in 1996, this adjustment increased net income by approximately
$528,000. Also, the fourth quarter of 1996 reflects adjustments to certain
accrued expenses which increased net income by $514,000.
</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
Allowance deducted from assets to
which it applies:
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997 $1,357,662 $1,028,221 $961,981 $1,423,902
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
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 12, 1998, 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, 87 1977 *
Chairman of the
Executive Committee
and Director
Bernard Kalish, 60 1989 *
Chief Executive
Officer, Chairman of
the Board and Director
Peter G. Smith, 59 1989 *
President,
Chief Operating
Officer and Director
Jeffrey B. Belford 51 1989 *
Executive Vice
President--Operations
Hugh Allen, 62 1997 Executive Vice
Senior Executive Vice President - - Sales
President--Sales and Marketing from
and Marketing 1991 to 1997.
Roger Cannon 49 1997 Vice President - -
Executive Vice President Central Field Sales
Sales Marketing from 1991 to 1997.
James Smith, 57 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, 70 1987 *
Vice President,
Treasurer and Director
Joseph L. Pawlick, 55 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 12,
1998, 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 12,
1998, 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 12,
1998 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.
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 12,
1998 under the caption "Election of Directors," which information is
incorporated herein by reference.
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, 1997 and 1996.
Consolidated Statements of Income for the Years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years ended December 31,
1997, 1996 and 1995.
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, incorporated herein by reference to Exhibit
10(c)(4.1) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 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, incorporated herein by reference from Exhibit
10(c)(6.1) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 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.
* Indicates management employment contracts or compensatory plans or
arrangements.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
(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 25, 1998
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 25, 1998
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
/s/ Robert J. Washlow Director and Secretary
Robert J. Washlow
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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, incorporated herein by reference to
Exhibit 10(c)(4.1) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 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, incorporated herein by reference from
Exhibit 10(c)(6.1) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
Exhibit
Number Description of Exhibit
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 11
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income per share of common stock:
Basic:
Average shares outstanding 11,153,091 11,563,052 12,072,668
Net income $ 21,350,277 $ 19,994,637 $21,120,029
Basic net income per share of common stock $1.91 $1.73 $1.75
Diluted:
Average shares outstanding 11,153,091 11,563,052 12,072,668
Net effect of dilutive stock
options-based on the treasury stock
method using the average market
price 22,141 663 1,979
Total 11,175,232 11,563,715 12,074,647
Net income $ 21,350,277 $ 19,994,637 $21,120,029
Diluted net income per share of common stock $1.91 $1.73 $1.75
</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 Limited England
LPI Holdings, Inc. Illinois
Lawson Products de
Mexico S.A. de C.V. Mexico
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.
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 27,
1998, 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, 1997
/s/ Ernst & Young LLP
Chicago, Illinois
March 25, 1998
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,248
<SECURITIES> 33,351
<RECEIVABLES> 35,138
<ALLOWANCES> 1,424
<INVENTORY> 41,788
<CURRENT-ASSETS> 103,984
<PP&E> 68,826
<DEPRECIATION> 27,863
<TOTAL-ASSETS> 188,974
<CURRENT-LIABILITIES> 24,471
<BONDS> 0
0
0
<COMMON> 11,135
<OTHER-SE> 128,790
<TOTAL-LIABILITY-AND-EQUITY> 188,974
<SALES> 278,144
<TOTAL-REVENUES> 280,004
<CGS> 95,986
<TOTAL-COSTS> 95,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,028
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 35,723
<INCOME-TAX> 14,373
<INCOME-CONTINUING> 21,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,350
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
</TABLE>
