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, 1999
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, 2000, 10,041,922 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 2000 was approximately $112,629,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.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]
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of Stockholders
to be held on May 16, 2000 Part III
<PAGE>
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 70,000
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 1999, 1998 and
1997 respectively:
<TABLE>
<CAPTION>
Percentage of
Consolidated
Net Sales
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fasteners, Fittings and Related Parts........................................... 46% 45% 46%
Industrial Supplies............................................................. 50 51 49
Automotive and Equipment Maintenance Parts...................................... 4 4 5
------- --- -----
100% 100% 100%
</TABLE>
All of the Company's maintenance and repair 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 and repair 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 and repair 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 4.8% of the Company's
purchases in 1999.
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 31% of 1999
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 45% of 1999 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 12% of 1999 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 12% of 1999 sales were made to customers in this
market.
The Company has approximately 222,000 customers, the largest
of which accounted for less than one percent of net sales during 1999. Sales are
made through a force of approximately 1,750 independent sales representatives of
which 81 serve the O.E.M. marketplace. Included in this group are 196 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 40 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 approximately 1,190 employees.
The Company's products are sold in all 50 states, Mexico,
Puerto Rico, the District of Columbia, Canada and the United Kingdom. The
Company believes that an important factor in its success is its ability to
service customers promptly. During the past five years, more than 99.5% 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; Suwanee, 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; Burr Ridge, Illinois; Memphis, Tennessee;
Lenexa, Kansas and Cincinnati, Ohio. 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 two shifts and the inbound facility in Des Plaines,
Illinois, which operates two shifts. 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 1999.
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 less than 1% of
the Company's net sales during 1999.
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 1999.
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, its response time and its delivery systems.
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 all Lawson
distribution facilities. Additional administrative, warehouse and distribution
facilities owned by the Company are located in Addison, Illinois (90,000 square
feet); Fairfield, New Jersey (61,000 square feet); Reno, Nevada (97,000 square
feet); Suwanee, Georgia (105,000 square feet); Farmers Branch, Texas (54,500
square feet); and Mississauga, Ontario, Canada (40,000 square feet). Chemical
products are distributed from a 105,400 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 (10,000 square feet) are leased by the Company. Production
components are distributed from leased facilities in Burr Ridge, Illinois
(24,000 sq. ft.) Memphis, Tennessee, (40,000 sq. ft.), Lenexa, Kansas (40,500
sq. ft.) and Cincinnati, Ohio (16,800 sq. ft.). The Company owns a 54,000 square
foot facility in Decatur, Alabama which manufacturers and distributes 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.
<PAGE>
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, 1999 was 1,005. 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>
1999 1998
----------------------------------- ------------------------------------
Cash Cash
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $23 1/8 $20 1/2 $.14 $31 1/4 $24 1/2 $.14
Second Quarter 27 1/4 20 7/8 .14 28 1/4 25 1/4 .14
Third Quarter 27 21 5/8 .14 27 1/4 20 9/16 .14
Fourth Quarter 23 3/4 22 .14 24 3/4 21 1/2 .14
</TABLE>
<PAGE>
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 is
for and as of the end of each of the years in the five-year period ended
December 31, 1999, are derived from the audited Financial Statements of the
Company.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales $318,970,113 $292,523,475 $278,144,321 $250,289,124 $223,537,182
Income Before Income Taxes 40,269,981 33,590,229 35,723,277 33,884,637 34,815,029
Net Income - As Reported 23,927,981 19,474,229 21,350,277 19,994,637 21,120,029
Net Income, Exclusive
of Special Items (1) 25,133,981 20,994,229 21,350,277 19,994,637 21,120,029
Total Assets 215,990,877 198,982,290 188,974,415 175,161,839 160,613,798
Return on Assets (percent) 11.1 9.8 11.3 11.4 13.1
Noncurrent Liabilities 27,525,033 25,246,269 24,577,547 22,065,583 19,292,794
Stockholders' Equity 150,039,989 142,934,735 139,925,387 128,746,212 122,810,577
Return on Equity (percent) 16.5% 13.5% 16.0% 15.8% 16.9%
Per Share of Common Stock:
Basic Net Income $2.29 $1.77 $1.91 $1.73 $1.75
Diluted Net Income 2.29 1.76 1.91 1.73 1.75
Stockholders' Equity (2) 14.37 12.97 12.55 11.13 10.17
Cash Dividends Declared (2) .57 .56 .54 .52 .51
Basic Weighted Average
Shares Outstanding 10,444,076 11,023,934 11,153,091 11,563,052 12,072,668
Diluted Weighted Average
Shares Outstanding 10,445,836 11,041,819 11,175,232 11,563,715 12,074,647
(1) In 1999 and 1998, the Company recorded special charges for compensation
arrangements related to management personnel reductions and
retirements. These charges reduced net income by $1,760,000 and
$1,520,000 for 1999 and 1998, respectively. Additionally, in 1999, a
gain of $554,000, net of income taxes, was recorded on the sale of
marketable securities.
(2) These per share amounts were computed using basic weighted average
shares outstanding for all periods presented.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of
Results of Operation and Financial Condition
--------------------------------------------
RESULTS OF OPERATIONS
Net sales for 1999 and 1998 increased 9.0% and 5.2%, respectively, over the
immediately preceding years. The sales gains for 1999 resulted from the addition
of new customers, increased orders, a higher average order size throughout
Lawson's businesses and from the acquisition of our newest subsidiary,
ACS/SIMCO. The advance for 1998 reflected increased contribution from
substantially all Lawson operations with our specialty chemical subsidiary
spearheading the 1998 increase.
Net income for 1999 rose 22.9% from 1998 to $23.9 million, while diluted net
income per share in 1999 increased 30.1% to $2.29 from $1.76 in 1998. Sales
gains, cost containment efforts and improved performance by our international
subsidiaries were primarily responsible for the increase in net income in 1999
over 1998. Excluding a $1.8 million special charge, net of taxes, for
compensation arrangements related to management personnel reductions and a gain
of $600,000, net of income taxes, from the sale of marketable securities, net
income was approximately $25.1 million ($2.41 per diluted share), an improvement
of 19.7% over 1998 net income, exclusive of a special charge of $1.5 million,
net of taxes. Net income in 1998 declined 8.8% from 1997 to $19.5 million, while
diluted net income per share in 1998 decreased 7.9% to $1.76 from $1.91 in 1997.
The decrease in net income from 1997 is primarily due to a $1.5 million special
charge, net of taxes, for compensation arrangements related to management
personnel reductions and retirements. Costs arising from the realignment of
management in Lawson's domestic sales organization, as well as increased losses
from our foreign operations and a higher effective tax rate also contributed to
the decline in net income for 1998. These items more than offset the sales gains
and gross profit improvements in 1998. Excluding the effect of the restructuring
charge, 1998 net income was approximately $21 million ($1.90 per diluted share).
Per share net income for 1999, 1998 and 1997 was positively affected by the
Company's share repurchases discussed below.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for 1999, 1998 and 1997 were $23.3 million,
$16.1 million and $17.0 million, respectively. The increase in 1999 was due
primarily to the gain in net income noted above, lower payments made under
deferred compensation and security bonus plans and higher depreciation and
amortization levels. The decline in 1998 resulted principally from the decrease
in net income noted above, and increased payments made under deferred
compensation and security bonus plans which more than offset the positive impact
from higher operating liabilities. 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.
Capital expenditures for 1999, 1998 and 1997, respectively, were $6.5 million,
$5.4 million and $5.9 million. Consistent with prior years, capital expenditures
were incurred primarily for new facilities, improvement of existing facilities,
and for the purchase of related equipment. During the third quarter of 1999,
construction of a new Lawson outbound facility in Suwanee, Georgia was
substantially completed at a cost of approximately $7 million. The new facility
will be used in place of the Norcross, Georgia facility, which was disposed of
in a tax-free exchange as a component of the purchase price of the Suwanee
facility. In 1998, construction was completed relative to the facilities
expansion of the Company's specialty chemical subsidiary, at a cost of
approximately $3 million.
During the third quarter of 1999, the Company purchased, for cash, substantially
all of the assets and liabilities of SunSource Inventory Management Company,
Inc. (SunSource) and Hillman Industrial Division (Hillman), headquartered in
Lenexa, Kansas, at a cost of approximately $10.5 million. SunSource and Hillman
were distributors of fasteners in the original equipment marketplace. The former
business operations of SunSource and Hillman are conducted by the Company's new
subsidiary, ACS/SIMCO.
During the fourth quarter of 1999, the Board of Directors authorized the
purchase of up to 500,000 shares of the Company's common stock. As of December
31, 1999, no shares have been purchased relative to this authorization. In 1998,
the Board of Directors authorized the purchase of up to 500,000 shares of the
Company's common stock, of which 411,500 were purchased in 1999 for
approximately $9.5 million. Additionally, during 1999, the remaining 48,500
shares relative to the 1996 stock repurchase authorization of up to 1,000,000
shares, were purchased for approximately $1 million. Relative to the 1996 stock
repurchase authorization, 472,000 shares were purchased for approximately $10.3
million in 1998 and 187,500 shares were purchased for approximately $4.1 million
in 1997. Funds to purchase these shares were provided by investments and cash
flows from operations.
IMPACT OF THE YEAR 2000
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the year changed from 1999 to 2000. Based
upon operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the "Year 2000 issue."
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized. The Company believes that such
problems, if any, are likely to be minor and correctable.
The Company could also still be negatively affected if its customers or
suppliers are adversely impacted by the Year 2000 or similar issue. The Company
is not currently aware of any significant Year 2000 or similar problems that
have arisen for its customers or suppliers.
The Company expended $600,000 on Year 2000 readiness efforts from 1997 to 1999.
Those efforts included identifying and remediating Year 2000 problems and
modification of Year 2000 non-complaint software.
IMPACT OF INFLATION AND CHANGING PRICES
The Company has continued to pass on to its customers most increases in product
costs 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 rise due to inflation, such higher costs are not
anticipated to have a material effect on future earnings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, through its foreign subsidiaries, distributes products in the
United Kingdom, Canada and Mexico. As a result, the Company is from time to time
exposed to market risk relating to the impact of foreign currency exchange
rates; however, this exposure is minimal.
In addition, the Company maintains a portfolio of marketable securities, the
majority of which are debt securities. As a result, the Company is exposed to
market risk relating to interest rate movements; however, a hypothetical 10%
adverse movement in interest rates would have no material impact on net income
of the Company.
<PAGE>
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, 1999 and 1998.
Consolidated Statements of Income for the Years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Schedule II
<PAGE>
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, 1999 and 1998, 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, 1999. 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 based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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.
/s/Ernst & Young LLP
Chicago, Illinois
February 25, 2000
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,974,611 $ 13,871,720
Marketable securities 12,282,229 13,815,692
Accounts receivable, less allowance for doubtful accounts
(1999-$1,601,649; 1998-$1,450,067) 41,108,121 35,255,226
Inventories 55,484,532 46,670,162
Miscellaneous receivables 2,835,685 2,894,636
Prepaid expenses 5,193,621 4,638,406
Deferred income taxes 1,389,000 1,256,000
----------------- -----------------
Total Current Assets 130,267,799 118,401,842
----------------- -----------------
Property, plant and equipment, at cost, less allowances for
depreciation and amortization
(1999-$36,479,611; 1998-$32,450,023) 41,988,652 41,142,497
----------------- -----------------
Other assets:
Marketable securities 4,694,776 11,019,945
Investments in real estate 4,107,664 4,053,664
Cash value of life insurance 14,760,461 12,876,120
Deferred income taxes 8,784,000 6,747,000
Goodwill, less accumulated amortization
(1999-$124,533) 3,611,447 --
Other 7,776,078 4,741,222
----------------- -----------------
43,734,426 39,437,951
----------------- -----------------
$ 215,990,877 $ 198,982,290
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,248,929 $ 5,112,982
Accrued expenses and other liabilities 25,844,991 22,405,504
Income taxes 4,331,935 3,282,800
----------------- -----------------
Total Current Liabilities 38,425,855 30,801,286
----------------- -----------------
Non-current liabilities and deferred credits:
Accrued liability under security bonus plans 16,494,190 15,314,813
Deferred compensation and other liabilities 11,030,843 9,931,456
----------------- -----------------
27,525,033 25,246,269
----------------- -----------------
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-1999-10,203,922 shares; 1998-10,663,822 shares 10,203,922 10,663,822
Capital in excess of par value 717,004 749,320
Retained earnings 140,200,567 132,208,664
----------------- -----------------
151,121,493 143,621,806
Foreign currency translation adjustment (1,053,504) (1,355,071)
Unrealized (loss) gain on marketable securities (28,000) 668,000
----------------- -----------------
Accumulated other comprehensive income (1,081,504) (687,071)
----------------- ------------------
150,039,989 142,934,735
----------------- -----------------
$ 215,990,877 $ 198,982,290
================= =================
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Net sales $ 318,970,113 $ 292,523,475 $ 278,144,321
Cost of goods sold 109,224,791 99,554,363 95,985,602
---------------- --------------- ---------------
Gross profit 209,745,322 192,969,112 182,158,719
Selling, general and administrative expenses 168,338,997 158,433,648 147,235,497
Special charges 2,932,365 2,621,124 -
Provision for doubtful accounts 1,065,811 983,367 1,028,221
---------------- --------------- ---------------
Operating Income 37,408,149 30,930,973 33,895,001
---------------- --------------- ---------------
Interest and dividend income 1,312,312 1,458,548 1,285,809
Interest expense (7,351) (47,957) (31,280)
Other income - net 1,556,871 1,248,665 573,747
---------------- --------------- ---------------
2,861,832 2,659,256 1,828,276
Income Before Income Taxes 40,269,981 33,590,229 35,723,277
---------------- --------------- ---------------
Federal and state income taxes (benefit):
Current 18,275,000 16,034,000 15,306,000
Deferred (1,933,000) (1,918,000) (933,000)
---------------- --------------- ---------------
16,342,000 14,116,000 14,373,000
---------------- --------------- ---------------
Net Income $ 23,927,981 $ 19,474,229 $ 21,350,277
================ =============== ===============
Net Income Per share of Common Stock
Basic $ 2.29 $ 1.77 $ 1.91
================ =============== ===============
Diluted $ 2.29 $ 1.76 $ 1.91
================ =============== ===============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Lawson Products, Inc.
Consolidated Statements of
Changes in Stockholders' Equity
<CAPTION>
Common Capital Accumulated
Stock, in excess of Other
$1 par par Retained Comprehensive Comprehensive
value value Earnings Income Income
--------------- ------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 11,311,464 $ 512,008 $ 117,234,229 $ (311,489) $ -
Net income 21,350,277 21,350,277
Other comprehensive income, net of tax:
Unrealized gain on marketable securities 55,000 55,000
Adjustment for foreign currency translation (431,206) (431,206)
--------------
Other comprehensive loss for the year (376,206)
--------------
Comprehensive income for the year $ 20,974,071
=============
Cash dividends declared (6,010,507)
Stock issued under employee stock plans 11,269 266,217
Purchase and retirement of common stock (187,500) (8,487) (3,865,888)
-------------- ------------ --------------- ---------------
Balance at December 31, 1997 11,135,233 769,738 128,708,111 (687,695)
------------- ----------- -------------- ----------------
Net income 19,474,229 $ 19,474,229
Other comprehensive income, net of tax:
Unrealized gain on marketable securities 105,000 105,000
Adjustment for foreign currency translation (104,376) (104,376)
--------------
Other comprehensive income for the year 624
-------------
Comprehensive income for the year $19,474,853
=============
Cash dividends declared (6,130,363)
Stock issued under employee stock plans 589 12,738
Purchase and retirement of common stock (472,000) (33,156) (9,843,313)
-------------- ------------ --------------- ---------------
Balance at December 31, 1998 10,663,822 749,320 132,208,664 (687,071)
------------- ----------- -------------- ----------------
Net income 23,927,981 $ 23,927,981
Other comprehensive income, net of tax: (696,000) (696,000)
Unrealized loss on marketable securities
Adjustment for foreign currency translation 301,567 301,567
-------------
Other comprehensive loss for the year (394,433)
--------------
Comprehensive income for the year $ 23,533,548
=============
Cash dividends declared (5,908,594)
Purchase and retirement of common stock (459,900) (32,316) (10,027,484)
-------------- ------------ --------------- ----------------
Balance at December 31, 1999 $ 10,203,922 $ 717,004 $ 140,200,567 $ (1,081,504)
============= =========== ============== ================
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
---------------------------------------------------
1999 1998 1997
---------------- --------------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 23,927,981 $ 19,474,229 $ 21,350,277
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,527,459 5,498,385 5,019,437
Provision for allowance for doubtful accounts 1,065,811 983,367 1,028,221
Deferred income taxes (1,933,000) (1,918,000) (933,000)
Deferred compensation and security bonus plans 4,651,635 4,190,541 4,214,100
Payments under deferred compensation
and security bonus plans (2,263,293) (3,414,210) (1,604,352)
Losses from sale of property, plant and equipment - 627 108,079
Gains from sale of marketable securities (902,960) (50,776) (45,470)
Income from investments in real estate (544,000) (763,000) (506,000)
Changes in operating assets and liabilities
(Exclusive of effect of acquisition):
Accounts receivable (4,276,788) (2,524,428) (4,416,319)
Inventories (2,886,074) (4,881,840) (4,741,208)
Prepaid expenses and other assets (5,757,891) (6,121,144) (2,224,583)
Accounts payable and accrued expenses 4,290,592 4,753,798 886,109
Income taxes payable 1,049,135 1,642,005 (852,139)
Other 368,539 (798,646) (303,506)
---------------- ---------------- ---------------
Net Cash Provided by Operating Activities 23,317,146 16,070,908 16,979,646
---------------- --------------- ---------------
Investing activities:
Additions to property, plant and equipment (6,462,348) (5,378,660) (5,894,656)
Purchases of marketable securities (122,774,913) (196,265,030) (143,028,547)
Proceeds from sale of marketable securities 130,451,955 204,848,618 137,301,088
Proceeds from sale of property, plant
and equipment - 1,000 2,308
Proceeds from life insurance policies - 438,819 -
Acquisition of business, net of cash
acquired of $4,850 (10,519,909) - -
Other 490,000 440,000 80,000
---------------- --------------- ---------------
Net Cash Provided by (Used In)
Investing Activities (8,815,215) 4,084,747 (11,539,807)
----------------- --------------- ---------------
Financing Activities:
Purchases of common stock (10,519,700) (10,348,469) (4,061,875)
Proceeds from exercise of stock options - 13,327 277,486
Dividends paid (5,879,340) (6,196,361) (5,923,040)
----------------- ---------------- ---------------
Net Cash Used in Financing Activities (16,399,040) (16,531,503) (9,707,429)
----------------- ---------------- ---------------
Increase (Decrease) in Cash and
Cash Equivalents (1,897,109) 3,624,152 (4,267,590)
Cash and Cash Equivalents at Beginning of Year 13,871,720 10,247,568 14,515,158
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 11,974,611 $ 13,871,720 $ 10,247,568
================ =============== ===============
See notes to consolidated financial statements
</TABLE>
<PAGE>
LAWSON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF BUSINESS
Lawson Products, Inc. and subsidiaries principally are distributors of
expendable parts and supplies for maintenance, repair and operation of
equipment. The Company has six operating units with which it conducts its
business, however these units have been aggegrated into one reportable segment.
The Company's principle operations are in the United States, however the Company
does have foreign operations as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Canada $6,967 $6,324 $6,212
United Kingdom 3,001 2,872 3,018
Mexico 2,335 2,276 1,912
Long-lived Assets:
Canada 2,312 2,273 2,553
United Kingdom 693 693 714
Mexico 86 135 220
</TABLE>
NOTE B-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 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.
Goodwill: Goodwill represents the cost of business acquisitions in excess of the
fair value of identifiable net tangible assets acquired. Goodwill is amortized
over 15 years using the straight-line method and the carrying value is reviewed
for impairment annually. If this review indicates that goodwill is not expected
to be recoverable based on the undiscounted cash flows of the entity acquired
over the remaining amortization period, the Company's carrying value of the
goodwill will be reduced.
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, 1999, 1998 and 1997.
Income Per Share: 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.
Reclassifications: Certain amounts have been reclassified in the 1997 and 1998
financial statements to conform with the 1999 presentation.
New Accounting Standards: In June 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company
expects to adopt the new Statement effective January 1, 2001. Statement 133 will
require the Company to recognize all derivatives on the consolidated balance
sheet at fair value. The Company does not anticipate that the adoption of
Statement 133 will have a significant effect on its results of operations or
financial position.
NOTE C-BUSINESS COMBINATION
On July 1, 1999, the Company purchased substantially all of the assets and
liabilities of SunSource Inventory Management Company, Inc. (SunSource) and
Hillman Industrial Division (Hillman), at a cost of approximately $10.5 million
with certain contingent purchase price adjustment features based on future
operating results. This all-cash 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.
The purchase price exceeded tangible net assets acquired by approximately $3.7
million. This goodwill will be amortized over 15 years using the straight-line
method. SunSource and Hillman are distributors of fasteners in the original
equipment marketplace. The former business operations of SunSource and Hillman
are being conducted through the Company's new subsidiary, ACS/SIMCO.
Pro forma consolidated net sales, assuming the purchase had occurred as of
January 1, 1998 would approximate $329.9 million and $315.4 million for 1999 and
1998, respectively; pro forma net income or net income per share would not
differ materially from reported amounts.
NOTE D-SPECIAL CHARGES
In the second and fourth quarter of 1999, the Company recorded special charges
of $2,053,000 and $879,000, respectively. These charges were for severance and
early retirement benefits to several members of management. These benefits will
be paid through 2004. Payments against these accruals of approximately $323,000
were made in 1999.
In the fourth quarter of 1998, the Company recorded a special charge of
$2,621,000 for severance and early retirement benefits for several members of
management. These benefits will be paid through 2003. Payments of approximately
$1,069,000 were made in 1999 against this accrual. In addition, an adjustment to
reduce the accrual for approximately $129,000 was made in 1999 to reflect a
change in the estimated total severance payments required.
<PAGE>
NOTE E-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
1999 Cost Gains Losses Fair Value
- ---------------------------------- ---------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 10,268 $ 1 $ 44 $ 10,225
Foreign government securities 6,724 - - 6,724
Other debt securities 28 - - 28
---------- ------- ----- ---------
Total debt securities $ 17,020 $ 1 $ 44 $ 16,977
========== ======= ===== =========
1998
- ----------------------------------
Obligations of states and
political subdivisions $ 16,723 $ 90 $ 4 $ 16,809
Foreign government securities 7,007 - - 7,007
Other debt securities 73 - - 73
---------- ------- ----- ---------
Total debt securities 23,803 90 4 23,889
Equity securities 6 947 6 947
---------- ------- ----- ---------
$ 23,809 $ 1,037 $ 10 $ 24,836
========== ======= ===== =========
</TABLE>
The gross realized gains on sales of marketable securities totaled: $992,000,
$52,000 and $52,000 in 1999, 1998 and 1997, respectively, and the gross realized
losses totaled $89,000, $1,000 and $7,000, respectively. The net adjustment to
unrealized holding losses included as a separate component of stockholders'
equity, net of taxes, totaled $696,000 in 1999, while in 1998 and 1997, the net
adjustment to unrealized holding gains included as a separate component of
stockholders' equity, net of taxes, totaled $105,000 and $55,000, respectively.
<PAGE>
The amortized cost and estimated fair value of marketable securities at December
31, 1999, 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 $ 12,291 $ 12,282
Due after one year through five years 4,729 4,695
------------ -------------
Total debt securities $ 17,020 $ 16,977
============ =============
</TABLE>
NOTE F-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Land $ 6,683,222 $ 6,011,531
Buildings and improvements 38,863,186 38,290,080
Machinery and equipment 27,363,448 22,216,024
Furniture and fixtures 5,293,762 5,014,995
Vehicles 260,895 272,829
Construction in Progress 3,750 1,787,061
----------------- -----------------
$ 78,468,263 $ 73,592,520
================= =================
</TABLE>
NOTE G-INVESTMENTS IN REAL ESTATE
The Company is a limited partner in two real estate limited partnerships. An
officer and member of the Board of Directors of the Company has a 1.5% interest
and 5.5% interest, respectively, as a general partner in these partnerships,
which interests are subordinated to the Company's interests in distributable
cash.
NOTE H-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Salaries, commissions and other compensation $ 8,051,216 $ 7,567,449
Accrued special charges 4,032,000 2,621,000
Accrued and withheld taxes, other than income taxes 2,196,971 2,080,204
Accrued profit sharing contributions 2,646,677 2,443,289
Accrued self-insured health benefits 1,574,878 1,318,356
Cash dividends payable 1,531,713 1,492,935
Other 5,811,536 4,882,271
----------------- -----------------
$ 25,844,991 $ 22,405,504
================= =================
</TABLE>
NOTE I-STOCK PLAN
The Company's Incentive Stock Plan, As Amended ("Plan"), provides for the
issuance of shares of Common Stock to non-employee directors, officers and key
employees pursuant to stock options, stock appreciation rights, stock purchase
agreements and stock awards. At December 31, 1999, 647,777 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.
Non-employee directors are not eligible to receive incentive 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.
<PAGE>
Additional information with respect to the Plan is summarized as follows:
<TABLE>
<CAPTION>
Average Option
Price Shares
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding January 1, 1997 24.48 310,285
Granted 27.00 1,000
Exercised 24.62 (11,269)
Canceled or expired 27.07 (9,737)
- ----------------------------------------------------------------------------------------------------------------
Outstanding December 31, 1997 24.40 290,279
Granted 26.75 9,000
Exercised 24.19 (889)
Canceled or expired 26.89 (27,500)
- ----------------------------------------------------------------------------------------------------------------
Outstanding December 31, 1998 23.34 270,890
Granted 22.44 9,000
Exercised - -
Cancelled or expired 23.63 (9,700)
- ----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 24.19 270,190
- ----------------------------------------------------------------------------------------------------------------
Exercisable options at
December 31, 1999 $24.42 220,439
December 31, 1998 24.97 169,488
December 31, 1997 26.10 149,026
</TABLE>
As of December 31, 1999, the Company had the following outstanding options:
<TABLE>
<CAPTION>
Exercise Price $22.44-$23.25 $26.75 $27.00-$29.75
------------- ------ -------------
<S> <C> <C> <C>
Options Outstanding 179,440 9,000 81,750
Weighted Average Exercise Price $22.55 $26.75 $27.49
Weighted Average Remaining Life 6.5 8.4 .5
Options Exercisable 136,939 2,250 81,250
Weighted Average Exercise Price $22.56 $26.75 $27.50
</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.
The Company's weighted average fair value of options granted and assumptions
used were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.79% 4.97% 5.81%
Dividend yield 2.00% 2.00% 2.00%
Stock price volatility factor .18 .18 .19
Weighted-average expected life (years) 8 8 8
Weighted-average fair value of options granted $6.95 $6.80 $7.77
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
granted is amortized to expense over the option's vesting period. The pro forma
effect on net income is not representative of the pro forma effect on net income
in future years because grants made in 1996 and later years have an increasing
vesting period.
The Company's pro forma information consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income - as reported $23,927,981 $19,474,229 $21,350,277
Net income - pro forma 23,565,000 19,123,000 21,010,000
Basic earnings per share - as reported 2.29 1.77 1.91
Diluted earnings per share - as reported 2.29 1.76 1.91
Basic earnings per share - pro forma 2.26 1.73 1.88
Diluted earnings per share - pro forma 2.26 1.73 1.88
</TABLE>
NOTE J-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 $5,051,000,
$4,845,000 and $4,387,000 for the years ended December 31, 1999, 1998 and 1997,
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 K-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: 1999 1998
----------------- -----------------
<S> <C> <C>
Compensation and benefits $ 12,327,000 $ 10,850,000
Inventory 1,237,000 1,037,000
Net operating loss carryforwards of subsidiary 4,169,000 3,877,000
Accounts receivable 486,000 446,000
Other 583,000 730,000
----------------- -----------------
Total Deferred Tax Assets 18,802,000 16,940,000
Valuation allowance for deferred tax assets (4,169,000) (3,877,000)
----------------- -----------------
Net Deferred Tax Assets 14,633,000 13,063,000
----------------- -----------------
Deferred Tax Liabilities:
Property, plant & equipment 1,060,000 1,318,000
Investments in real estate 3,063,000 3,169,000
Marketable securities - 359,000
Other 337,000 214,000
----------------- -----------------
Total Deferred Tax Liabilities 4,460,000 5,060,000
----------------- -----------------
Total Net Deferred Tax Assets $ 10,173,000 $ 8,003,000
================= =================
</TABLE>
Net deferred tax assets include the tax impact of items in comprehensive income
of $583,000 and $371,000 at December 31, 1999 and 1998, respectively.
Income before income taxes for the years ended December 31, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $41,671,677 $36,288,309 $37,303,959
Foreign (1,401,696) (2,698,080) (1,580,682)
------------ ----------- -----------
$40,269,981 $33,590,229 $35,723,277
=========== =========== ===========
</TABLE>
<PAGE>
The provisions for income taxes for the years ended December 31, consisted of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current:
Federal $ 15,187,000 $ 13,136,000 $ 12,568,000
State 3,088,000 2,898,000 2,738,000
--------------- ---------------- ----------------
18,275,000 16,034,000 15,306,000
Deferred benefit (1,933,000) (1,918,000) (933,000)
--------------- ---------------- ---------------
$ 16,342,000 $ 14,116,000 $ 14,373,000
=============== ================ ================
</TABLE>
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<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 5.6 5.0
Non-taxable dividend and interest income (.1) (.7) (1.6)
Foreign losses 1.5 2.7 1.9
Other items (.8) (.6) (.1)
---- ------ -------
Provision for income taxes 40.6% 42.0% 40.2%
===== ===== =====
</TABLE>
Income taxes paid for the years ended December 31, 1999, 1998 and 1997 amounted
to $17,157,000, $14,359,000 and $16,078,000, respectively.
NOTE L-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 1999 amounted to approximately
$5,333,000. Such rentals are payable as follows: 2000-$2,551,000;
2001-$1,786,000; 2002-$735,000 and 2003 and thereafter-$261,000.
Total rental expense for the years ended December 31, 1999, 1998 and 1997
amounted to $2,203,000, $1,655,000 and $1,647,000, respectively.
<PAGE>
NOTE M - INCOME PER SHARE
The computation of basic and diluted income per share consisted of the
following:
<TABLE>
<CAPTION>
Year ended December 31
(In thousands, except per share data) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NUMERATOR:
Net income $ 23,928 $ 19,474 $ 21,350
============= ============= =============
DENOMINATOR:
Denominator for basic income per share -
Weighted average shares 10,444 11,024 11,153
Effect of dilutive securities:
Stock option plans 2 18 22
------------- ------------- -------------
Denominator for diluted income per share -
Adjusted weighted average shares 10,446 11,042 11,175
============= ============= =============
Basic income per share $ 2.29 $ 1.77 $ 1.91
============= ============= =============
Diluted income per share $ 2.29 $ 1.76 $ 1.91
============= ============= =============
</TABLE>
<PAGE>
NOTE N - SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1999
and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Quarter ended
1999 Mar. 31 Jun. 30, (1)(2) Sept. 30, (3) Dec. 31, (1)(4)
- ---- ------- --------------- ------------- ---------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $74,148 $78,247 $82,515 $84,060
Cost of goods sold 25,837 26,672 29,595 27,121
Income before income taxes 8,992 8,716 9,942 12,620
Provision for income taxes 3,715 3,590 4,081 4,956
Net income 5,277 5,126 5,861 7,664
Net income per
share of common stock
Basic .50 .49 .57 .75
Diluted .50 .49 .57 .75
Diluted weighted average
shares outstanding 10,651 10,495 10,360 10,282
Quarter ended
1998 Mar. 31 Jun. 30 Sept. 30 Dec. 31, (1)(4)
- ---- ------- ------- -------- ---------------
(In thousands, except per share data)
Net sales $70,363 $72,535 $75,530 $74,095
Cost of goods sold 24,828 24,876 25,941 23,909
Income before income taxes 7,728 8,267 9,138 8,458
Provision for income taxes 3,205 3,538 3,884 3,489
Net income 4,523 4,729 5,254 4,969
Net income per
share of common stock:
Basic .41 .42 .48 .46
Diluted .40 .42 .48 .46
Diluted weighted average
shares outstanding 11,175 11,161 11,057 10,785
(1) During the second quarter of 1999 and the fourth quarter of 1999 and
1998, special charges were recorded related to severance and early
retirement benefits, which reduced net income by $1,236,000, $524,000
and $1,520,000, respectively.
(2) The quarter reflects a $554,000 gain, net of income taxes, on the sale
of marketable securities.
(3) The Company purchased substantially all the assets and assumed
liabilities of the businesses now known as ACS/SIMCO on July 1, 1999.
The transaction was accounted for as a purchase, and, therefore the
results of ACS/SIMCO have been included with the Company's results
since that date.
(4) 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. This adjustment
increased net income by approximately $1,689,000 and $1,146,000 in 1999
and 1998, respectively.
</TABLE>
<PAGE>
SCHEDULE II
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 1999 $1,450,067 $1,065,811 $914,229 $1,601,649
Year ended December 31, 1998 1,423,902 983,367 957,202 1,450,067
Year ended December 31, 1997 1,357,662 1,028,221 961,981 1,423,902
Note A - Uncollected receivables written off, net of recoveries.
</TABLE>
<PAGE>
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. 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 16, 2000, under the caption "Election of Directors," which information is
incorporated herein by reference.
b. Executive Officers
------------------
The executive officers of the Company, all of whose terms of
office expire on May 16, 2000, are as follows:
Year First Other Offices Held
Name and Present Elected to During the Past
Position with Company Age Present Office Five Years
- --------------------- --- -------------- ----------
Sidney L. Port 89 1977 *
Chairman of the
Executive Committee
and Director
Robert J. Washlow 55 1999 Mr. Washlow has been
Chairman of the Board, Chairman of the Board and
Chief Executive Officer Chief Executive Officer since
and Director August 1999. Prior thereto,
Mr. Washlow was Executive
Vice President-Corporate
Affairs beginning in 1998,
Secretary beginning in 1985
and a member of the Office of
the President beginning in
January 1999.
Bernard Kalish 62 1989 Mr. Kalish retired as Chairman
Retired Chief Executive of the Board and Chief
Officer, Chairman of the Executive Officer of the
Board and Director Company in August 1999.
Jeffrey B. Belford 53 1999 Mr. Belford became Chief
Office of the President and Operating Officer and a
Chief Operating Officer member of the Office of the
President effective January
1, 1999. Prior to 1999, Mr.
Belford was Executive Vice
President - Operations, Chief
Operating Officer since 1989.
Roger Cannon 51 1999 Mr. Cannon has been a member
Office of the President and of the Office of the President
Chief Sales Officer since January 1, 1999. Prior
to 1999, Mr. Cannon was
Executive Vice President,
Sales - Marketing from
1997-1999, and Vice President
- - Central Field Sales from
1991 to 1997.
Jerome Shaffer, 72 1987 *
Vice President,
Treasurer and Director
James Smith 59 1996 Mr. Smith was Vice President,
Vice President-- Personnel from 1995 to 1996.
Human Resources Prior to 1995, Mr. Smith was
Manager, Human Resources
since he joined the Company
in 1993.
Joseph L. Pawlick, 57 1999 Prior to 1999, Mr. Pawlick was
Chief Financial Officer Vice President, Controller and
and Secretary Assistant Secretary of the
Company since 1987.
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 16, 2000, 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 16, 2000 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 16, 2000 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, 1999 and 1998.
Consolidated Statements of Income for the Years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999, 1998 and 1997.
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, as amended, incorporated
herein by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*10(c)(1) Lawson Products, Inc. Incentive Stock Plan,
incorporated herein by reference to Appendix A to the
Company's Proxy Statement for the Annual Meeting of
Stockholders held on May 11, 1999.
*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.
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)(3.1) Second Amendment to Employment Agreement between the
Company and Bernard Kalish 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)(4) 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)(4.1) 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)5) Employment Agreement between the Company and Jeffrey
B. Belford dated March 10, 1983.
*10(c)(6) 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.
*10(c)(7) Employment Agreement dated July 21, 1994 between the
Company and Roger F. Cannon, incorporated herein by
reference to Exhibit 10(c)(8) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1998.
*10(c)(8) Agreement between the Company and Bernard Kalish
dated July 31, 1999.
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.
<PAGE>
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 20, 2000 By /s/ Robert J. Washlow
---------------------
Robert J. Washlow, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below this 20th day of March, 2000, by the
following persons on behalf of the registrant and in the capacities indicated.
Signature Title
/s/ Robert J. Washlow Chairman of the Board, Chief Executive
- --------------------------------- Officer and Director
Robert J. Washlow (principal executive officer)
/s/ Joseph L. Pawlick Chief Financial Officer
- --------------------------------- (principal financial officer)
Joseph L. Pawlick
/s/ Victor G. Galvez Controller
- --------------------------------- (principal accounting officer)
Victor G. Galvez
/s/ Jerome Shaffer Vice President, Treasurer and Director
- ---------------------------------
Jerome Shaffer
/s/ James T. Brophy Director
- ---------------------------------
James T. Brophy
/s/ Bernard Kalish Director
- ---------------------------------
Bernard Kalish
/s/ Ronald B. Port Director
- ---------------------------------
Ronald B. Port
/s/ Sidney L. Port Director
- ---------------------------------
Sidney L. Port
/s/ Robert G. Rettig Director
- ---------------------------------
Robert G. Rettig
/s/ Mitchell H. Saranow Director
- ---------------------------------
Mitchell H. Saranow
/s/ Peter G. Smith Director
- ---------------------------------
Peter G. Smith
<PAGE>
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, as amended, incorporated herein by
reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
10(c)(1) Lawson Products, Inc. Incentive Stock Plan, incorporated
herein by reference to Appendix A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May
11, 1999.
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. 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)(3.1) Second Amendment to Employment Agreement between the Company
and Bernard Kalish 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)(4) 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)(4.1) 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)(5) Employment Agreement between the Company and Jeffrey B.
Belford dated March 10, 1983.
10(c)(6) 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.
10(c)(7) Employment Agreement dated July 21, 1994 between the Company
and Roger F. Cannon, incorporated herein by reference to
Exhibit 10(c)(8) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
10(c)(8) Agreement between the Company and Bernard Kalish dated July
31, 1999.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
EXHIBIT 10(C)(5)
EMPLOYMENT AGREEMENT
--------------------
This Agreement, made this 10th day of March A.D., 1983, effective as of
January 1st, 1983, by and between Lawson Products, Inc., a corporation organized
and existing under the Laws of Delaware, hereinafter called the "Company" of one
part, and of Jeffrey Belford of Roselle, Illinois, hereinafter called "Belford"
of the other part.
WITNESSETH:
Whereas Belford has been affiliated with the Company since December 29,
1980, and presently occupies the position of Director of Fastener Engineering;
and
Whereas, due to the uncertainty of life and understandable desire of
Belford to provide as best he can for the future security of himself and his
family, and, therefore, to put into writing for the permanent record various
matter which heretofore have been unwritten but understood between the Company
and Belford;
Now, therefore, it is agreed that:
A. Belford shall presently continue as Director of Fastener
Engineering and perform such other functions as may be
assigned and accept, with all rights and privileges
appertaining thereto;
B. During his employment, Belford shall actively devote the whole
of his time, as required by the Company, to the business of
the Company, and shall use his best efforts and endeavors to
promote the interest and Welfare of the Company at all times;
C. Belford shall, at all times, conduct himself in a manner
reflecting credit upon himself and the Company and he will
refrain from any conduct which would cause disparagement of
himself or the Company;
D. He will not, during his employment, and for a period' of one
(1) year after the termination of his employment, discuss to
any person whatsoever any information relating to the Company
or its customers or any trade secrets of which he shall become
possessed while acting for the Company in any capacity:
E. He will not, during the period referred to in D, without the
written permission of the Board of Directors, directly or
indirectly, individually or in combination with others with
respect to any other company carrying on a business similar to
that of the Company or its parent or any direct or indirect
subsidiary of the parent ("Affiliated Company"):
(a) Hold or deal in the shares of any such company which is
privately owned, or
(b) Hold or deal in (except for investment purposes only, and
not to the extent in the aggregate of a controlling
interest) the shares of any such company which is
publicly owned;
B. The basis of compensation shall be no less than $62,500 . and,
starting with January 1, 1984, an increase of no less than 8%
annually for three (3) years and thereafter, as determined by
the Company, subject to such increases being permissible under
the existing laws and regulations.
C. Belford covenants that, during and within one (1) year
following termination of his employment for whatever reason,
he will not directly or indirectly carry on for himself or be
associated in any capacity with any business, whether it be
corporation, partnership, or individual operation, which
business competes with that of the Company or any Affiliated
Company, with respect to the products handled or the customers
sold or both and he will not engage in any activities which
will be detrimental or contrary to the best interest of the
Company or any Affiliated Company.
These hereinabove recited covenants (A through G, inclusive) are of the
essence of this Agreement and the breach of any or all shall give rise to a
cause of action or defense, either in law or equity, for the aggrieved party,
and for the immediate termination of employment.
Belford further covenants and agrees that, in the event of a breach or
violation on his part of the above covenants, a suit in equity may be instituted
to obtain an injunction and that a temporary restraining order or injunction may
be granted immediately upon the commencement of any such suit without notice.
This remedy is in addition to any other remedies, legal or equitable, available
to the Company.
Each party shall be entitled to two (2) years notice by registered or
certified mail directed to the regular mailing address in the event termination
shall be required by either party, except that in the event of breach by Belford
of any of the covenants, A to G, inclusive, advance notice of termination by the
Company shall not be required.
In addition, Belford is to receive a paid vacation of two (2) weeks
annually, for five (5) years and thereafter three (3) weeks annually, plus the
following benefits as presently in effect; Hospitalization and Major Medical,
Long Term Disability, Profit Sharing, Life Insurance Policy, in the amount of
$50,000 with Double Indemnity. In addition, an Accidental Death Policy is
carried by the Company whereby the sum of $100,000 is paid to the family of
Belford in the event of accidental death. This coverage will continue as long as
this Accident Policy is carried by the Company.
This is a contract for personal services and , in the event Belford
shall become incapacitated in accordance with the terms of his Long Term
Disability Policy provided by the Company, and unable to perform his normal
duties and it becomes necessary to have another man act in the place of Belford,
Belford shall be paid 100% of his salary for a period not to exceed six (6)
months and one-half of his salary for the ensuing two and one-half (2-1/2)
years. In every instance, under this Agreement, the amounts payable under the
Long Term Disability Policy are to be applied as credits for the Company against
the amounts to be received by Belford whether for a short term or a long term
incapacity.
In the event Belford should suffer a premature demise while in the
employ of the Company, and prior to his having given notice of termination of
services, as provided above, Lawson Products, Inc., will continue to pay to his
designated beneficiary, or if none, to the personal representative of his
estate, an amount equal to one-half (1/2) his annual salary for a period of one
(1) year, in equal semi-monthly installments, payable on the 10th and 25th
respectively. This additional payment is agreed to in consideration of the
services rendered over and above that which is called for in the ordinary
performance of one's duties, and for which Belford has not been and will not be
compensated for during his lifetime, and the Company makes this provision for
payment covering such services.
The Agreement constitutes and expresses the whole agreement of said
parties hereto in reference to any employment of Belford by the Company and-in
reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned, in reference to such employment--all representations and
understandings relative hereto having been merged herein.
This Agreement is to be construed in accordance with the Laws of the
State of Illinois and, in the event any portion of it is or shall be deemed
invalid or unenforceable in any State, such invalidity or lack of enforceability
shall not render the remaining portion of this Agreement invalid or
unenforceable in said State or elsewhere.
In witness whereof the parties have hereto set their hands and seals
the day and year first herein above written.
LAWSON PRODUCTS, INC.
By:
------------------------
---------------------------
EXHIBIT 10(C)(8)
AGREEMENT
This Agreement made this 31st day of July, 1999, between Bernard Kalish
("Kalish") and Lawson Products, Inc., a Delaware corporation ("Company") at Des
Plaines Illinois.
The Company desires to accept the proposal for part-time employment
effective with the close of business on July 31, 1999, on the terms, conditions
and in accordance with the provisions as set forth herein. Kalish has since
February 1, 1956, served the Company in various capacities including, but not
limited to Director, corporate officer, Chairman of the Board, and Chief
Executive Officer, and has been directly involved in the creation, acquisition
and operation of many aspects of the business of the Company and of its
subsidiaries within the United Sates and in foreign countries.
In consideration of the premises hereof and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereby agree as follows:
1. Effective August 1, 1999 ("Resignation Date"), Kalish will
relinquish his duties and responsibilities and resign from the offices of
Chairman of the Board and Chief Executive Officer of Lawson Products, Inc.
(Delaware), as a member of the Executive Committee of Lawson Products, Inc.
(Delaware), and as an officer of those of its subsidiaries of which he is an
officer and as a director of those subsidiaries of which he is a director.
Kalish will continue to serve as a member of the Board of Directors of Company
until otherwise determined by himself, the Board of Directors or the
shareholders of Company. Kalish will remain, during the Salary Continuation
Period (defined below), a part-time employee of Company to be available at the
request of its Chairman not to exceed twenty (20) hours during any calendar
month, subject to his availability.
2. Salary. Kalish will be paid $1,491,000 as compensation over a period
of three years, from August 1, 1999 until July 31, 2002 (Salary Continuation
Period), subject to normal withholdings and deductions as required by law.
3. Health Insurance. During the Salary Continuation Period, Kalish
shall be entitled to continue his participation in the group health insurance
program under which he was covered immediately prior to the Resignation Date if
in effect and if not, he may participate in any such plan then in effect in
accordance with its terms: provided, however, that to continue his participation
in any such program, Kalish shall be responsible throughout the Salary
Continuation Period for paying the same monthly premiums and costs as he would
otherwise have been responsible for had he remained in Lawson's employ during
such period.
4. Medicare Coverage. On August 2, 2002, Kalish will become Medicare
eligible and all coverage under the Company's medical plan (as may be in force
from time to time) will cease. Effective that date, Kalish will have the option
of enrolling in the Medicare Supplement and Prescription Plan as may then be in
effect and in accordance with its terms. If Kalish enrolls in the Medicare
Supplement and Prescription Plan, Kalish will pay the premium cost to the
insurance company as long as he participates in the Plan.
5. Dental Insurance. During the Salary Continuation Period, Kalish
shall be entitled to continue his participation in the dental insurance program
under which he was covered immediately prior to the Resignation Date if in
effect and if not, he may participate in any such plan then in effect in
accordance with its terms; provided however, that to continue his participation
in such program, Kalish shall be responsible throughout the Salary Continuation
Period for paying the same monthly premiums and costs as he would otherwise have
been responsible for had he remained in the Company's employ during such period.
6. Retiree Spouse Coverage. During the Salary Continuation Period,
Kalish's spouse will be permitted to participate in the health and dental
insurance programs under which she was covered immediately prior to Kalish's
Resignation Date if in effect and if not, in any such programs as may then be in
effect in accordance with the terms of any such plan. On the date Kalish reaches
the age of 65 and is Medicare eligible, his spouse, if not yet 65, will be
entitled to participate in continued coverage of any such plan then in effect,
if any, until the earlier of (a) the expiration of a period of five (5) years or
(b) until she attains the age if 65. The Company will contribute its portion (as
provided in such program then in effect, if any) of the cost of the premium at
the rate in effect at the time coverage is elected. Kalish will have the
election of adding his spouse to the Medicare supplement insurance, at his cost,
when his spouse attains the age of sixty-five (65) to the extent permitted by
such insurance, if any.
7. Executive Deferral Plan. During the Salary Continuation Period,
Kalish may continue, at his election, to remain a participant in the Company's
Executive Salary Deferral Plan. If Kalish elects not to continue as a plan
participant during the Salary Continuation Period, the distribution of benefits
will begin at the time of such election; otherwise, the distribution of benefits
will commence after August 1, 2002 in accordance the payment options permitted
by the Plan as they may exist at such time.
8. Profit Sharing. From and after August 1, 1999, Kalish will not be
considered an active plan participant for any purpose and any amounts remaining
in his Profit Sharing Plan Account will be treated as provided in the Profit
Sharing Plan, as amended from time to time. Distributions of funds from Kalish's
Profit Sharing Plan Account shall be in conformance with IRS regulations and the
provisions of the Profit Sharing Plan, as amended from time to time.
9. Life Insurance. Subject to the last sentence of this paragraph,
during the Salary Continuation Period, Kalish will be entitled to the Company
paid Life Insurance benefit of $50,000 and the Travel & Accident Insurance
benefit of $300,000 limited to the extent such benefits are offered by the
Company from time to time. Additionally and subject to the last sentence of this
paragraph, Kalish may continue participation in the Supplemental Life Insurance
and Spouse Life Insurance benefit programs limited to the extent such benefits
are offered by the Company from time to time. Kalish shall be responsible
throughout the Salary Continuation Period for paying the same monthly premiums
for himself and his wife as he would otherwise have been responsible for had he
remained in the Company's employ during such period.
10. Executive Physical. Until the expiration of the Salary Continuation
Period, Kalish will be entitled to the Company paid Executive Physical, annually
until August 1, 2002.
11. This Agreement supersedes that certain Employment Agreement between
Kalish and Lawson Products, Inc. and is intended to survive any management
change or any sale or divestiture of the Company.
12. Any stock options Kalish has through the Lawson Products, Inc.,
Incentive Stock Option Plan shall be administered in accordance with the terms
of Stock Option Plan.
LAWSON PRODUCTS, INC.
A Delaware corporation
By:
--------------------------------- ----------------------------------
Bernard Kalish
Its:
--------------------------------
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
LP Service Co. Illinois
C.B. Lynn Company Illinois
ACS/SIMCO, Inc.* Illinois
*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 25,
2000, 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, 1999.
/s/ Ernst & Young LLP
Chicago, Illinois
March 21, 2000
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<PERIOD-START> Jan-1-1999
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