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, 2001
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, 2002, 9,629,707 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 2002 was approximately $137,080,000.
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 14, 2002
Part III
PART I
"SAFE HARBOR" STATEMENT UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995: This
Annual Report on Form 10-K contains certain forward-looking statements. These
statements are based on management's current expectations, intentions or beliefs
and are subject to a number of factors, assumptions and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. The factors that could cause actual results to
differ materially from those described in the forward-looking statements include
increased competition, seasonality, an economic downturn and the ability to
integrate successfully newly acquired businesses. The Company undertakes no
obligation to update any such factor or to publicly announce the results of any
revisions to any forward-looking statements contained herein to reflect future
events or developments.
ITEM 1. BUSINESS.
Lawson Products, Inc. was incorporated in Illinois in 1952 and
reincorporated in Delaware in 1982. During 2001, the Company significantly
increased net sales through an acquisition completed on March 30, 2001. We refer
you to "Management's Discussion and Analysis of Results of Operations and
Financial Condition-Liquidity and Capital Resources".
PRODUCTS
The Company is a seller and distributor of systems, services and
products. The Company also manufactures and distributes production and
specialized component parts to the OEM marketplace. The Company offers to
customers over 400,000 expendable maintenance, repair and replacement products.
These products may be divided into three broad categories: Fasteners, Fittings
and Related Parts, such as screws, nuts, rivets and other fasteners; Industrial
Supplies, such as hoses and hose fittings, lubricants, cleansers, adhesives and
other chemicals, as well as files, drills, welding products and other shop
supplies; and Automotive and Equipment Maintenance Parts, such as primary
wiring, connectors and other electrical supplies, exhaust and other automotive
parts. The Company estimates that these categories of products accounted for the
indicated percentages of its total consolidated net sales for 2001, 2000 and
1999 respectively:
PERCENTAGE OF
CONSOLIDATED
NET SALES
-------------------
2001 2000 1999
---- ---- ----
Fasteners, Fittings and Related Parts..................... 45% 47% 46%
Industrial Supplies....................................... 47 49 50
Automotive and Equipment Maintenance Parts................ 8 4 4
-- -- --
100% 100% 100%
Substantially 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 3.3% of the Company's
purchases in 2001.
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 27% of 2001
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 43% of 2001 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 16%
of 2001 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 14% of 2001 sales were made to customers in this
market.
At December 31, 2001, the Company had approximately 319,000 customers,
the largest of which accounted for less than one percent of net sales during
2001. Sales were made through a force of approximately 2,000 independent sales
representatives at December 31, 2001. Included in this group were 255 district
and zone managers, each of whom, in addition to his or her own sales activities,
acted in an advisory capacity to other sales representatives in a designated
area. At December 31, 2001, the Company also employed 38 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 had approximately 1,410 employees
at December 31, 2001.
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 stocked 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 has historically funded its working capital requirements internally.
Such internally generated funds, along with a $50 million unsecured revolving
line of credit, are expected to finance the Company's future growth and working
capital requirements.
DISTRIBUTION AND MANUFACTURING FACILITIES
Substantially all of the Company's maintenance products are stocked in
and distributed from each of its eight general distribution centers in; Addison,
Illinois; Reno, Nevada; Farmers Branch, Texas; Suwanee, Georgia; Fairfield, New
Jersey; Mississauga, Ontario, Canada, Bradley Stoke (Bristol) England and
Guadalajara, Mexico. 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 or expanded warehouses, some of which may
be located in new geographical areas.
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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 4% of the Company's net sales during 2001.
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 2001.
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
2001.
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, all of whose terms of office
expire on May 14, 2002, are as follows:
YEAR FIRST
NAME AND PRESENT ELECTED TO OTHER OFFICES HELD
POSITION WITH COMPANY AGE PRESENT OFFICE DURING THE PAST FIVE YEARS
--------------------- --- -------------- --------------------------
Sidney L. Port 91 1977 *
Chairman of the Executive
Committee and Director
Robert J. Washlow 57 1999 Mr. Washlow has been Chairman of the Board and Chief
Chairman of the Board, Chief Executive Officer since August 1999. Prior thereto,
Executive Officer and Director 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.
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Jeffrey B. Belford 55 1999 Mr. Belford became Chief Operating Officer and a
Office of the President and Chief member of the Office of the President effective
Operating Officer January 1, 1999. Prior to 1999, Mr. Belford was
Executive Vice President - Operations, Chief
Operating Officer since 1989.
Roger Cannon 53 1999 Mr. Cannon has been a member of the Office of the
Office of the President and Chief President since January 1, 1999. Prior to 1999,
Sales Officer Mr. Cannon was Executive Vice President, Sales -
Marketing from 1997-1999, and Vice President
- - Central Field Sales from 1991 to 1997.
Jerome Shaffer, 74 1987 *
Vice President, Treasurer and
Director
James Smith 61 1996 Mr. Smith was Vice President, Personnel from 1995 to
Vice President-- Human Resources 1996. Prior to 1995, Mr. Smith was Manager, Human
Resources since he joined the Company in 1993.
Joseph L. Pawlick, 59 1999 Prior to 1999, Mr. Pawlick was Vice President,
Chief Financial Officer Controller and Assistant Secretary of the Company
since 1987.
Victor G. Galvez 45 1999 Mr. Galvez was Assistant Controller of the Company
Controller from 1994 to 1999.
Neil Jenkins 52 2000 From 1996 to 2000, Mr. Jenkins operated a golf
Secretary travel business and was a business consultant.
Prior thereto, Mr. Jenkins was executive vice
president, secretary and a member of the Board of
Directors of Bally Gaming, International, Inc., a
publicly held manufacturer and distributor of gaming
equipment and systems.
* Held position for more than five years.
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). The Company also
leases administrative office space (12,600 square feet) in Independence, Ohio.
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 (23,400 sq. ft.) Memphis, Tennessee, (33,800 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
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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.
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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, 2001 was 908. 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.
2001 2000
----------------------------------- ------------------------------------
CASH CASH
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
First Quarter $28.69 $23.38 $.16 $24.50 $21.50 $.15
Second Quarter 29.30 24.64 .16 24.88 22.00 .15
Third Quarter 29.47 22.79 .16 25.88 23.75 .15
Fourth Quarter 27.80 22.55 .16 27.75 22.88 .15
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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 Annual 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, 2001, are derived from the audited Financial Statements of the
Company.
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net Sales (1) $379,407,075 $348,967,486 $328,987,099 $301,831,128 $286,638,316
Income Before Income Taxes 17,142,193 47,565,673 40,269,981 33,590,229 35,723,277
Net Income (2) 8,787,193 28,135,673 23,927,981 19,474,229 21,350,277
Total Assets 232,780,365 222,721,466 215,990,877 198,982,290 188,974,415
Return on Assets (percent) 3.8% 12.6% 11.1% 9.8% 11.3%
Noncurrent Liabilities 40,520,140 28,946,453 27,525,033 25,246,269 24,577,547
Stockholders' Equity 159,898.075 159,912,465 150,039,989 142,934,735 139,925,387
Return on Average
Equity (percent) 5.4% 18.6% 16.5% 13.5% 16.0%
Per Share of Common Stock:
Basic Net Income $0.91 $2.85 $2.29 $1.77 $1.91
Diluted Net Income 0.91 2.85 2.29 1.76 1.91
Stockholders' Equity (3) 16.51 16.22 14.37 12.97 12.55
Cash Dividends Declared .64 .60 .57 .56 .54
Basic Weighted Average
Shares Outstanding 9,684,510 9,859,610 10,444,076 11,023,934 11,153,091
Diluted Weighted Average
Shares Outstanding 9,708,299 9,873,680 10,445,836 11,041,819 11,175,232
(1) Net sales for the years 2001, 2000 and 1999 were positively impacted by the
acquisition of ACS/SIMCO in the third quarter of 1999. In addition, net
sales for 2001 were also positively impacted by the acquisition of the
North American Industrial Products and Kent Automotive Divisions in March
2001.
(2) In 2001, the Company recorded non-recurring charges for the write-off of
capitalized software and implementation costs related to an enterprise
information system project which the Company decided to discontinue as well
as a promotional program related to the acquisition of Premier operations.
These charges reduced net income by $5,138,000 and $2,021,000,
respectively. During 2000, the Company recorded a gain of $2,136,000 as a
result of the sale of the Company's interest in a real estate investment.
In 1999 and 1998, the Company recorded special charges for compensation
arrangements related to management personnel reductions and retirements
which reduced net income by $1,760,000 and $1,520,000, respectively.
Additionally, in 1999, a gain of $554,000 was recorded on the sale of
marketable securities.
(3) These per share amounts were computed using basic weighted average shares
outstanding for all periods presented.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Net sales for 2001 and 2000 increased 8.7% and 6.1 %, respectively,
over the immediately preceding years. In 2001, Maintenance, Repair and
Replacement (MRO) distribution net sales increased by $22.9 million, including
$34.9 million in sales generated by the addition of the field and inside sales
representatives from the Industrial Products Division (IPD) and Kent Automotive
Division (Kent), of the North American business of Premier Farnell (Premier),
acquired March 30, 2001. These sales gains more than offset reduced
contributions by other MRO units. International distribution sales were also
positively impacted by the sales of IPD and Kent, representing $6.3 million of
the segment increase of $7.1 million. Lawson's Original Equipment Manufacturer
(OEM) distribution net sales were relatively flat for 2001.
The sales gains realized by our MRO and OEM distribution segments for
2000 resulted from the addition of new customers, a higher average order size
throughout Lawson's businesses and from the full year impact of the mid-year
1999 acquisition of our subsidiary, ACS/SIMCO, now combined with Assembly
Component Systems (ACS).
Operating income for 2001 decreased $25.6 million, or 61%. The year and
MRO results were adversely impacted by the $8.5 million write-off of an
enterprise information system which the Company discontinued. Also impacting
2001 was the $3.4 million non-recurring promotional program put in place to
support the newly acquired Premier business. Excluding these amounts, the MRO
segment's 2001 operating profit was approximately $27.1 million compared to
$39.3 million in 2000. The decrease, excluding special items, was due to
slightly lower gross margins due to pricing inconsistencies on certain Premier
product lines and higher selling, general and administrative expenses (S,G&A).
In 2001, the Company incurred significantly higher S,G&A costs to expand the
Company's national sales group, integrated approximately 400 sales
professionals; incurred over $1 million of transition costs to integrate
acquired inventory, realign existing warehouses and upgrade information systems
and also had $1 million of additional goodwill amortization expense. OEM
operating income was down due to lower gross margins resulting from significant
pricing pressures.
Operating income for 2000 was up approximately $4.4 million, or 11.8%
over 1999. The MRO segment drove the operating income growth due to higher sales
and cost containment efforts. OEM distribution also contributed to the earnings
improvement.
Net income for 2001 declined 68.8% from 2000 to $8.8 million, while
diluted net income per share in 2001 decreased 68.1 % to $.91 from $2.85 in
2000. Results for 2001 were negatively impacted by the special charges and
increased S,G&A expenses discussed above. Net income for 2000 increased 17.6%
over 1999 to $28.1 million, while diluted net income per share in 2000 advanced
24.5 % to $2.85 from $2.29 in 1999. Sales gains from our MRO distribution
segment discussed above, the after tax gain of $2.1 million on the sale of the
Company's interest in a real estate investment, and cost containment efforts
were primarily responsible for the increase in net income in 2000 over 1999.
Excluding the $2.1 million gain noted above, net income for 2000 was
approximately $26.0 million ($2.63 per diluted share), an advance of 3.4% over
1999 net income, exclusive of a $1.8 million special charge, for compensation
arrangements related to management personnel retirements and a gain of $600,000
from the sale of marketable securities. Per share net income for 2001, 2000 and
1999 was positively affected by the Company's share repurchases discussed below.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for 2001, 2000 and 1999 were $6.4
million, $22.9 million and $23.3 million, respectively. The decline in 2001 was
due primarily to the decrease in net income noted above, as well as the impact
of increases in accounts receivable and inventories largely associated with
additional sales generated by the outside sales representatives of IPD and Kent,
and lower operating liabilities. The slight decrease in 2000 was due primarily
to the impact of lower operating liabilities which more than offset the gain in
net income noted above. Current investments, cash flows from operations and the
new $50 million unsecured line of credit have continued to
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be sufficient to fund operating requirements, cash dividends and capital
improvements. Such internally generated funds and the new line of credit are
also expected to finance the Company's future growth.
Capital expenditures for 2001, 2000 and 1999, respectively, were $5.2
million, $3.4 million and $6.5 million. Consistent with prior years, capital
expenditures were incurred primarily for new facilities, improvement of existing
facilities and for the purchase of related equipment. Capital expenditures
during 2001 primarily reflect purchases of computer related equipment and
improvement of existing facilities and for the purchase of related equipment.
Capital expenditures during 2000 primarily reflect purchases of computer related
equipment, while in 1999, reflected costs incurred relative to the construction
of a new Lawson outbound facility in Suwanee, Georgia and purchases of computer
related equipment.
Future obligations and commitments to make future payments under contracts
consisted of the following as of December 31, 2001.
(AMOUNTS IN THOUSANDS) 2007 AND
2002 2003 2004 2005 2006 THEREAFTER TOTAL
---------------------------------------------------------------------------------------------
Revolving line of credit $ 4,000 $ 0 $ 0 $ 0 $ 10,000 $ 0 $ 14,000
Rental commitments 2,658 1,871 1,624 1,312 933 5,092 13,490
----------------------------------------------------------------------------------------------------------------------
Total contractual cash
obligations $ 6,658 $ 1,871 $ 1,624 $ 1,312 $ 10,933 $ 5,092 $ 27,490
On March 30, 2001, the Company purchased certain assets of Premier
Farnell's Cleveland based North American Industrial Products and Kent Automotive
Divisions for approximately $28.4 million plus approximately $7.2 million for
related inventories. The all-cash transaction was accounted for as a purchase;
accordingly the accounts and transactions of the acquired business have been
included in the consolidated financial statements since the date of acquisition.
Under the agreement, the Company acquired the field sales, inside sales and
customer service professionals, the customer accounts, certain administrative
executives, and various intellectual properties, including trademarks and trade
names of the divisions in certain territories. The Company incorporated into its
existing operations, Premier Farnell's Premier Fastener, Rotanium Products,
Certainium Alloys, CT Engineering, JI Holcomb and Kent Automotive business units
in the United States, Canada, Mexico, Central America and the Caribbean.
The assets acquired were recorded at fair values based on actual
purchase cost of inventories and valuations of various intellectual properties,
including trademarks and trade names of the IPD and Kent divisions. This
acquisition did not require a significant investment by the Company in
facilities or equipment. The acquisition generated approximately $41.2 million
of incremental sales. As the Company only acquired portions of the inventory and
sales professionals of the IPD and Kent businesses, the Company is unable to
provide any meaningful pro forma information of operating results for 2001 or
sales and operating results from the prior period.
In 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 are distributors of fasteners to the original equipment
marketplace. The former business operations of SunSource and Hillman are
conducted by ACS.
During 2001, the Company purchased 84,497 shares of its own common
stock for approximately $2.2 million. These shares were acquired pursuant to the
1999 Board authorization to purchase up to 500,000 shares. During 2000, the
Company purchased 501,268 shares of its own common stock for approximately $11.9
million. Of these purchases, 412,668 shares were acquired pursuant to the 1999
Board authorization and 88,600 shares represented the remaining shares
authorized for purchase under the 1998 Board authorization to purchase up to
500,000 shares. During 1999, the Company purchased 459,900 shares of its own
common stock for approximately $10.5 million. Of these purchases, 411,400 shares
were acquired pursuant to the 1998 Board authorization and
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48,500 shares represented the remaining shares authorized for purchase under the
1996 Board authorization to purchase up to 1,000,000 shares. At December 31,
2001, 502,835 shares were available for purchase pursuant to Board
authorizations in 2000 and 1999. No shares have been purchased pursuant to the
2000 Board authorization of 500,000 shares and 2,835 shares remain, relative to
the 1999 Board authorization. Funds to purchase these shares were provided by
investments and cash flows from operations.
CRITICAL ACCOUNTING POLICIES
The Company has disclosed its accounting policies in Note B to the
consolidated financial statements. The following provides supplemental
information to these accounting policies as well as information on the accounts
requiring more significant estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS METHODOLOGY
We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware of a specific
customer's inability to meet its financial obligations to us (e.g., bankruptcy
filings, substantial down-grading of credit ratings), we record a specific
reserve for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected. For all other
customers, we recognize reserves for bad debts based on our historical
experience of bad debt write-offs as a percent of outstanding accounts
receivable. If circumstances change (i.e., higher than expected defaults or an
unexpected material adverse change in a major customer's ability to meet its
financial obligations to us), our estimates of the recoverability of amounts due
us could be revised by a material amount.
INVENTORIES -- SLOW MOVING AND OBSOLESCENCE
The Company carries a significant amount of inventories, which provides
a competitive advantage in the Company's ability to fulfill the vast majority of
its customers' orders the same day received. However, this strategy also
increases the risk that portions of the inventory have decreased in value below
their carrying cost. To reduce inventory to a lower of cost, or market value,
the Company records a reserve for slow-moving and obsolete inventory. The
Company defines obsolete as those inventory parts on hand which the Company
plans to discontinue to offer to its customers. Slow-moving inventory is
monitored by examining reports of parts which have not been sold for extended
periods. The Company records the reserve needed based on its historical
experience of how much the selling prices must be reduced to dispose of such
obsolete or slow-moving products. If experience or market conditions change,
estimates of the reserves needed could be revised by a material amount.
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. A hypothetical 10% adverse movement in exchange rates would decrease
income by $238,000 in 2001.
The Company also has $14 million outstanding as of December 31, 2001
under a revolving line of credit. As a result, the Company is exposed to market
risk relating to interest rate movements. A hypothetical 10% adverse movement in
interest rates would have increased interest expense by $68,000 in 2001.
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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. A hypothetical 10% adverse
movement in interest rates would have no material impact on net income of the
Company in 2001.
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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, 2001 and 2000.
Consolidated Statements of Income for the Years ended December
31, 2001, 2000 and 1999.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years ended
December 31, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
Schedule II
-12-
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Lawson Products, Inc.
We have audited the accompanying consolidated balance sheets of Lawson Products,
Inc. as of December 31, 2001 and 2000, 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, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and schedule
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. at December 31, 2001 and 2000, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, 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 28, 2002
-13-
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 6,986,556 $ 7,911,710
Marketable securities 1,737,129 29,972,654
Accounts receivable, less allowance for doubtful accounts
(2001-$1,803,179; 2000-$1,658,585) 44,314,400 40,823,141
Inventories 65,542,890 55,228,380
Miscellaneous receivables 2,981,961 2,696,986
Prepaid expenses 9,027,089 6,658,687
Deferred income taxes 2,471,000 1,857,000
----------------- -----------------
Total Current Assets 133,061,025 145,148,558
----------------- -----------------
Property, plant and equipment, at cost, less allowances for
depreciation and amortization
(2001-$45,931,265; 2000-$41,571,230) 39,059,470 39,404,599
----------------- -----------------
Other assets:
Marketable securities - 400,832
Investments in real estate 945,000 705,000
Cash value of life insurance 16,390,758 15,795,812
Deferred income taxes 10,679,000 9,212,000
Goodwill, less accumulated amortization
(2001-$1,674,529; 2000-$304,632) 28,809,722 2,431,347
Other 3,835,390 9,623,318
----------------- -----------------
60,659,870 38,168,309
----------------- -----------------
$ 232,780,365 $ 222,721,466
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 4,000,000 $ -
Accounts payable 6,947,987 6,730,250
Accrued expenses and other liabilities 21,414,163 24,517,530
Income taxes - 2,614,768
----------------- -----------------
Total Current Liabilities 32,362,150 33,862,548
----------------- -----------------
Non-current liabilities and deferred credits:
Accrued liability under security bonus plans 19,296,652 17,968,018
Revolving line of credit 10,000,000 -
Deferred compensation and other liabilities 11,223,488 10,978,435
----------------- -----------------
40,520,140 28,946,453
----------------- -----------------
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-2001-9,629,307; 2000-9,706,404 shares 9,629,307 9,706,404
Capital in excess of par value 912,921 761,725
Retained earnings 151,553,577 151,065,840
----------------- -----------------
162,095,805 161,533,969
Foreign currency translation adjustment (2,197,730) (1,621,504)
----------------- -----------------
Accumulated other comprehensive loss (2,197,730) (1,621,504)
----------------- ------------------
159,898,075 159,912,465
----------------- -----------------
$ 232,780,365 $ 222,721,466
================= =================
See notes to consolidated financial statements
-14-
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
---------------- --------------- ---------------
Net sales $ 379,407,075 $ 348,967,486 $ 328,987,099
Cost of goods sold 131,064,519 117,256,150 109,370,225
---------------- --------------- ---------------
Gross profit 248,342,556 231,711,336 219,616,874
Selling, general and administrative expenses 221,712,271 188,468,661 178,210,549
Special charges 8,527,101 - 2,932,365
Provision for doubtful accounts 1,901,379 1,419,120 1,065,811
---------------- --------------- ---------------
Operating Income 16,201,805 41,823,555 37,408,149
---------------- --------------- ---------------
Interest and dividend income 654,257 1,072,730 1,312,312
Interest expense (705,756) (7,959) (7,351)
Gain from sale of partnership interest - 3,502,336 -
Other income - net 991,887 1,175,011 1,556,871
---------------- --------------- ---------------
940,388 5,742,118 2,861,832
Income Before Income Taxes 17,142,193 47,565,673 40,269,981
---------------- --------------- ---------------
Federal and state income taxes (benefit):
Current 10,126,000 20,012,000 18,275,000
Deferred (1,771,000) (582,000) (1,933,000)
---------------- --------------- ---------------
8,355,000 19,430,000 16,342,000
---------------- --------------- ---------------
Net Income $ 8,787,193 $ 28,135,673 $ 23,927,981
================ =============== ==============
Net Income Per share of Common Stock
Basic $ 0.91 $ 2.85 $ 2.29
================ =============== ===============
Diluted $ 0.91 $ 2.85 $ 2.29
================ =============== ===============
See notes to consolidated financial statements
-15-
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
COMMON CAPITAL ACCUMULATED
STOCK, IN EXCESS OF OTHER
$1 PAR PAR RETAINED COMPREHENSIVE COMPREHENSIVE
VALUE VALUE EARNINGS LOSS INCOME
----- ----- -------- ---- ------
Balance at January 1, 1999 $ 10,663,822 $ 749,320 $ 132,208,644 $ (687,071) $ -
Net income 23,927,981 23,927,981
Other comprehensive income, net of tax:
Unrealized loss on marketable securities (696,000) (696,000)
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)
------------- ----------- -------------- ----------------
Net income 28,135,673 $ 28,135,673
Other comprehensive income, net of tax:
Unrealized gain on marketable securities 28,000 28,000
Adjustment for foreign currency translation (568,000) (568,000)
--------------
Other comprehensive loss for the year (540,000)
--------------
Comprehensive income for the year $ 27,595,673
=============
Cash dividends declared (5,875,305)
Stock issued under employee stock plans 3,750 80,625
Purchase and retirement of common stock (501,268) (35,904) (11,395,095)
-------------- ------------ ---------------
Balance at December 31, 2000 9,706,404 761,725 151,065,840 (1,621,504))
============= =========== ============== =================
Net income 8,787,193 $ 8,787,193
Other comprehensive income, net of tax:
Adjustment for foreign currency translation (576,226) (576,226)
--------------
Other comprehensive loss for the year (576,226)
--------------
Comprehensive income for the year $ 8,210,967
=============
Cash dividends declared (6,190,716)
Stock issued under employee stock plans 7,400 159,100
Purchase and retirement of common stock (84,497) (7,904) (2,108,740)
-------------- ------------ ---------------
Balance at December 31, 2001 $ 9,629,307 $ 912,921 $ 151,553,577 $ (2,197,730)
============= =========== ============== ================
See notes to consolidated financial statements
-16-
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
----------------- ---------------- ---------------
Operating activities:
Net income $ 8,787,193 $ 28,135,673 $ 23,927,981
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,740,752 5,986,466 5,977,205
Amortization 2,405,261 677,197 550,254
Provision for allowance for doubtful accounts 1,901,379 1,419,120 1,065,811
Deferred income taxes (1,771,000) (582,000) (1,933,000)
Deferred compensation and security bonus plans 3,399,366 3,922,781 4,651,635
Payments under deferred compensation
and security bonus plans (2,395,036) (2,420,361) (2,263,293)
Losses (Gains) from sale of marketable securities (13,276) 803 (902,960)
Income from investments in real estate (480,000) (695,000) (544,000)
Gain from sale of investment in real estate - (3,502,336) -
Changes in operating assets and liabilities
(Exclusive of effect of acquisition):
Accounts receivable (5,392,638) (1,134,140) (4,276,788)
Inventories (3,093,011) 256,152 (2,886,074)
Prepaid expenses and other assets 3,258,709 (3,730,055) (5,757,891)
Accounts payable and accrued expenses (2,970,360) (2,770,387) 4,290,592
Income taxes payable (2,614,768) (1,717,167) 1,049,135
Other (315,698) (961,691) 368,539
----------------- ---------------- ---------------
Net Cash Provided by Operating Activities 6,446,873 22,885,055 23,317,146
---------------- --------------- ---------------
Investing activities:
Additions to property, plant and equipment (5,228,929) (3,392,458) (6,462,348)
Purchases of marketable securities (13,267,926) (75,344,146) (122,774,913)
Proceeds from sale of marketable securities 41,916,388 61,987,598 130,451,955
Proceeds from sale of investment in real estate - 7,400,000 -
Acquisition of businesses, net of cash
acquired (36,890,933) - (10,519,909)
Other 240,000 200,000 490,000
---------------- --------------- ---------------
Net Cash Used In Investing Activities (13,231,400) (9,149,006) (8,815,215)
----------------- ---------------- ----------------
Financing Activities:
Proceeds from revolving line of credit 71,800,000 - -
Payments on revolving line of credit (57,800,000) - -
Purchases of common stock (2,201,140) (11,932,267) (10,519,700)
Proceeds from exercise of stock options 166,500 84,375 -
Dividends paid (6,105,987) (5,951,058) (5,879,340)
----------------- ---------------- ----------------
Net Cash Provided by (Used in)
Financing Activities 5,859,373 (17,798,950) (16,399,040)
---------------- ---------------- ----------------
Decrease in Cash and Cash Equivalents (925,154) (4,062,901) (1,897,109)
Cash and Cash Equivalents at Beginning of Year 7,911,710 11,974,611 13,871,720
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 6,986,556 $ 7,911,710 $ 11,974,611
================ =============== ===============
See notes to consolidated financial statements
-17-
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.
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 and title passes to customers.
Shipping and Handling Fees and Costs. In the fourth quarter of 2000,
the Company adopted Emerging Issues Task Force (EITF) No. 00-10 "Accounting for
Shipping and Handling Fees and Costs." EITF No. 00-10 requires companies to
reflect all amounts billed to customers in sales transactions as part of net
sales. Costs related to shipping and handling fees are included on the Income
Statement in the caption Selling, general and administrative expenses and
totaled $11,460,000, $10,521,000, and $10,017,000 in 2001, 2000 and 1999,
respectively.
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.
Investment in Real Estate. The Company's investment in real estate
representing a limited partnership interest is 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 3 to 10
years.
Investment Tax Credits. Investment tax credits on assets leased to
others (see Investment 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 (APB) 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.
-18-
Goodwill. Goodwill represents the cost of business acquisitions in
excess of the fair value of identifiable net tangible assets acquired. Goodwill
is amortized over 20 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. (See New Accounting Standards)
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, 2001, 2000 and 1999.
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 2000
and 1999 financial statements to conform with the 2001 presentation.
New Accounting Standards. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted the new Statement
effective January 1, 2001. Statement No. 133 required the Company to recognize
all derivatives on the consolidated balance sheet at fair value. The adoption of
Statement No. 133 did not have a significant effect on its results of operations
or financial position.
In June 2001, the FASB issued Statement No. 141, "Business
Combinations" and Statement No. 142 "Goodwill and Other Intangibles," effective
for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but subject to annual impairment tests. The Company will apply the new
rules of accounting for goodwill and other intangible assets beginning in the
first quarter of 2002. Application of the nonamortization provisions of the
statement is expected to result in an increase in operating income of
approximately $1.3 million for 2002. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not determined what the
effect of these tests will be on earnings and the financial position of the
Company.
NOTE C -- BUSINESS COMBINATION
On March 30, 2001, the Company purchased certain assets of Premier
Farnell's Cleveland based North American Industrial Products (IPD) and Kent
Automotive (Kent) Divisions for approximately $28.4 million plus approximately
$7.2 million for related inventories. This all-cash transaction was accounted
for as a purchase; accordingly, the accounts and transactions of the acquired
business have been included in the consolidated financial statements since the
date of acquisition. Under the agreement, the Company acquired the field sales,
inside sales and customer service professionals, the customer accounts, certain
administrative executives, and various intellectual properties, including
trademarks and trade names of the divisions in certain territories.
The identifiable intangibles acquired in the acquisitions were recorded
at an independent appraised value of approximately $1.4 million, which is
recorded as a component of other assets. These intangibles are being amortized
over a weighted average estimated life of 15.1 years. The remaining excess of
purchase price over net assets acquired of approximately $27 million represents
goodwill. The assets acquired were recorded at estimated fair values as
determined by the Company's management based on information currently available.
Accordingly, the allocation of the purchase price is subject to revision. As the
Company only acquired inventory and sales professionals of the IPD and Kent
businesses, the Company is unable to provide any meaningful pro forma
information of prior period results. Net sales attributed to the acquired
division represented approximately $41,252,000 for 2001.
-19-
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 was being amortized over 20 years using the straight-line
method. SunSource and Hillman are distributors of fasteners to the original
equipment marketplace. The former business operations of SunSource and Hillman
are being conducted by Assembly Component Systems.
NOTE D -- SPECIAL CHARGES
In the fourth quarter of 2001, the Company wrote-off capitalized
software and implementation costs of a discontinued enterprise information
system project. This write-off represents a non-cash charge of $8,527,000
($5,138,000 net of tax benefits).
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 $575,000, $1,033,000 and $323,000 were made in 2001, 2000 and
1999, respectively. In addition, an adjustment to reduce the accrual for
approximately $31,000 was made in 2001 to reflect a change in the estimated
total severance payments required.
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
$309,000, $626,000 and $1,069,000 were made in 2001, 2000 and 1999 against this
accrual, respectively. 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.
NOTE E -- MARKETABLE SECURITIES
The following is a summary of the Company's investments at December 31
which are classified as available-for-sale. The contractual maturity of all
marketable securities at December 31, 2001 is less than one year.
Gross Gross Estimated
Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
2001
--------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $ - $- $ - $ -
Foreign government securities 1,737 - - 1,737
Other debt securities - - - -
--------------------------------------------------------------------------------------------------------------
Total debt securities $1,737 $- $ - $1,737
==============================================================================================================
2000
--------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $ 3,454 $5 $ 5 $ 3,454
Foreign government securities 7,797 - - 7,797
Other debt securities 19,122 - - 19,122
--------------------------------------------------------------------------------------------------------------
Total debt securities $30,373 $5 $ 5 $30,373
==============================================================================================================
The gross realized gains on sales of marketable securities totaled:
$13,000, $1,000 and $992,000 in 2001, 2000 and 1999, respectively, and the gross
realized losses totaled $0, $2,000 and $89,000, respectively. The net adjustment
to unrealized holding gains included as a separate component of stockholders'
equity, net of taxes, totaled $28,000 in 2000 while in 1999, the net adjustment
to unrealized holding losses included as a separate component of stockholders'
equity, net of taxes, totaled $696,000.
-20-
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
2001 2000
-------------------------------------------------------------------------------
Land $6,597,182 $6,649,440
Buildings and improvements 40,905,512 39,145, 917
Machinery and equipment 31,214,970 28,955,498
Furniture and fixtures 5,557,969 5,231,947
Vehicles 252,251 217,345
Construction in Progress 462,851 775,682
-------------------------------------------------------------------------------
$84,990,735 $80,975,829
================================================================================
NOTE G -- INVESTMENT IN REAL ESTATE
The Company is a limited partner in one real estate limited
partnership. An officer and member of the Board of Directors of the Company has
a 1.5% interest as a general partner in this partnership. This interest is
subordinated to the Company's interests in distributable cash.
In the fourth quarter of 2000, the Company sold its interest in a real
estate partnership for $7,400,000 to the general partners, of which one is an
officer and member of the Board of Directors, resulting in an after-tax gain to
the Company of $2,136,000. A special committee of outside directors of the Board
of Directors approved the sales price after receiving independent appraisals of
the property sold.
NOTE H -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
2001 2000
--------------------------------------------------------------------------------
Salaries, commissions and other compensation $ 5,547,617 $ 7,490,351
Accrued special charges 1,458,054 2,671,088
Accrued and withheld taxes, other than income taxes 2,607,879 2,344,955
Accrued profit sharing contributions 2,843,621 2,606,254
Accrued self-insured health benefits 1,300,000 1,300,000
Cash dividends payable 1,540,689 1,455,961
Other 6,116,303 6,648,921
--------------------------------------------------------------------------------
$21,414,163 $24,517,530
================================================================================
NOTE I-- LINE OF CREDIT
On February 21, 2001, the Company entered into a $50 million unsecured
multi-currency line of credit. The Company had $14 million outstanding under the
line at December 31, 2001 at an interest rate of 3.06 percent. Amounts
outstanding under the line carried interest at 1.5% below the prime rate or .75%
over the LIBOR rate as determined by the Company. The line matures on February
21, 2006. Since the line's interest rate floats on a variable basis with either
prime or LIBOR, the carrying value of the debt approximates fair value. The
Company has classified $4 million of the amount outstanding as current based on
the Company's ability and intent to satisfy this portion of the line amount
within the next year. The line requires the Company to meet certain covenants,
all of which were met on December 31, 2001. The Company paid interest of
$605,000 in 2001.
NOTE J -- STOCK PLANS
In 2001 and 2000, the Company granted Stock Performance Rights (SPRs)
pursuant to an incentive plan adopted in 2000. These SPRs have an exercise price
ranging from $24.60 to $28.50 per share. These SPRs vest at 20% per year and
entitle the recipient to receive a cash payment equal to the difference between
the SPR price and
-21-
the market value of the Company's common stock when the SPRs are surrendered. No
significant compensation expense for the SPRs was incurred in 2001 and 2000.
Additional information with respect to SPRs is summarized as follows:
Average SPR
Exercise Price # of SPRs
--------------------------------------------------------------------------------
Outstanding January 1, 2000 $-- --
Granted 26.50 71,250*
--------------------------------------------------------------------------------
Outstanding December 31, 2000 26.50 71,250
Granted 27.08 149,000
--------------------------------------------------------------------------------
Outstanding December 31, 2001 $26.90 220,250
================================================================================
* Includes 14,250 SPRs vested at December 31, 2001
The Company also has an Incentive Stock Plan As Amended (Plan), which
provides for the issuance of shares of Common Stock to non-employee directors,
officers and key employees pursuant to stock options, SPRs, stock purchase
agreements and stock awards. 636,627 shares of Common Stock were available for
issuance under the Plan as of December 31, 2001.
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.
Additional information with respect to the Plan is summarized as
follows:
Average Price Option Shares
--------------------------------------------------------------------------------
Outstanding January 1,1999 $23.34 270,890
Granted 22.44 9,000
Exercised -- --
Canceled or expired 23.56 (9,700)
--------------------------------------------------------------------------------
Outstanding December 31,1999 24.18 270,190
Granted 23.56 11,000
Exercised 22.50 (3,750)
Canceled or expired 27.50 (97,050)
--------------------------------------------------------------------------------
Outstanding December 31, 2000 22.86 180,390
Granted -- --
Exercised 22.50 (7,400)
Canceled or expired -- --
--------------------------------------------------------------------------------
Outstanding December 31, 2001 $22.87 172,990
================================================================================
Exercisable options at
December 31, 2001 $22.79 157,990
December 31, 2000 $22.71 157,890
December 31,1999 $24.44 216,139
As of December 31, 2001, the Company had the following outstanding
options:
Exercise Price $22.44-$23.56 $26.75 $27.00
--------------------------------------------------------------------------------
Options Outstanding 162,990 9,000 1,000
Weighted Average Exercise Price $23.24 $26.75 $27.00
Weighted Average Remaining Life 4.6 6.3 5.6
Options Exercisable 150,240 6,750 1,000
Weighted Average Exercise Price $23.52 $26.75 $27.00
-22-
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:
2001 2000 1999
--------------------------------------------------------------------------------
Risk-free interest rate - 5.22% 6.79%
Dividend yield - 2.00% 2.00%
Stock price volatility factor - .19 .18
Weighted average expected life (years) - 8 8
Weighted average fair value of options granted - $6.25 $6.95
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:
2001 2000 1999
-----------------------------------------------------------------------------------------
Net income - as reported $8,787,193 $28,135,673 $23,927,981
Net income - pro forma 8,738,000 27,968,000 23,565,000
Basic earnings per share - as reported .91 2.85 2.29
Diluted earnings per share - as reported .91 2.85 2.29
Basic earnings per share - pro forma .90 2.84 2.26
Diluted earnings per share - pro forma .90 2.83 2.26
NOTE K -- 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 plan also has a 401 (k) defined contribution saving feature. This
feature, available to all participants, was provided to give employees a pre-tax
investment vehicle to save for retirement. The Company does not match the
contributions made by plan participants.
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
$5,363,000, $5,222,000 and $5,051,000 for the years ended December 31, 2001,
2000 and 1999, respectively.
NOTE L -- 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
-23-
carryforwards will be realized. Significant components of the Company's deferred
tax assets and liabilities as of December 31 are as follows:
Deferred Tax Assets: 2001 2000
--------------------------------------------------------------------------------
Compensation and benefits $11,938,000 $12,257,000
Inventory 2,363,000 1,847,000
Net operating loss carryforwards of subsidiary 5,106,000 4,718,000
Accounts receivable 557,000 519,000
Other 1,183,000 873,000
--------------------------------------------------------------------------------
Total Deferred Tax Assets 21,147,000 20,214,000
Valuation allowance for deferred tax assets (5,106,000) (4,718,000)
--------------------------------------------------------------------------------
Net Deferred Tax Assets 16,041,000 15,496,000
--------------------------------------------------------------------------------
Deferred Tax Liabilities:
--------------------------------------------------------------------------------
Property, plant & equipment 675,000 883,000
Investment in real estate 1,767,000 1,949,000
Other 449,000 1,595,000
--------------------------------------------------------------------------------
Total Deferred Tax Liabilities 2,891,000 4,427,000
--------------------------------------------------------------------------------
Total Net Deferred Tax Assets $13,150,000 $11,069,000
================================================================================
Net deferred tax assets include the tax impact of items in
comprehensive income of $1,183,000 and $873,000 at December 31, 2001 and 2000,
respectively.
Income (loss) before income taxes for the years ended December 31,
consisted of the following:
2001 2000 1999
--------------------------------------------------------------------------------
United States $18,522,707 $49,259,320 $41,494,677
Foreign (1,380,514) (1,693,647) (1,224,696)
--------------------------------------------------------------------------------
$17,142,193 $47,565,673 $40,269,981
================================================================================
The provisions for income taxes for the years ended December 31,
consisted of the following:
2001 2000 1999
--------------------------------------------------------------------------------
Current
Federal $8,348,000 $16,945,000 $15,187,000
State 1,778,000 3,067,000 3,088,000
--------------------------------------------------------------------------------
10,126,000 20,012,000 18,275,000
Deferred benefit (1,771,000) (582,000) (1,933,000)
--------------------------------------------------------------------------------
$8,355,000 $19,430,000 $16,342,000
================================================================================
The reconciliation between the effective income tax rate and the
statutory federal rate is as follows:
2001 2000 1999
--------------------------------------------------------------------------------
Statutory federal rate 35.0% 35.0% 35.0%
Increase (decrease)
resulting from:
State income taxes, net of
federal income tax benefit 6.7 4.2 5.0
Foreign losses 5.1 1.5 1.5
Other items, net 1.9 .1 (.9)
--------------------------------------------------------------------------------
Provision for income taxes 48.7% 40.8% 40.6%
================================================================================
Income taxes paid for the years ended December 31, 2001, 2000, and 1999
amounted to $13,399,000, $21,212,000 and $17,157,000, respectively.
-24-
NOTE M -- COMMITMENTS
The Company's minimum rental commitments, principally for equipment,
under noncancelable leases in effect at December 31, 2001, amounted to
approximately $13,490,177. Such rentals are payable as follows: 2002 -
$2,657,673; 2003 - $1,871,082; 2004 - $1,624,366; 2005 - $1,312,326; 2006 -
$932,460; and 2007 and thereafter- $5,092,270.
Total rental expense for the years ended December 31, 2001, 2000 and
1999 amounted to $3,090,000, $2,783,000 and $2,203,000, respectively.
NOTE N -- INCOME PER SHARE
The computation of basic and diluted earnings per share consisted of
the following:
Year ended December 31
(In thousands, except per share data) 2001 2000 1999
--------------------------------------------------------------------------------
Numerator:
Net income $8,787 $28,136 $23,928
================================================================================
Denominator:
Denominator for basic income per
share - weighted average shares 9,684 9,860 10,444
Effect of dilutive securities:
Stock option plans 25 14 2
--------------------------------------------------------------------------------
Denominator for diluted
income per share -
adjusted weighted average shares 9,709 9,874 10,446
================================================================================
Basic income per share $0.91 $2.85 $2.29
================================================================================
Diluted income per share $0.91 $2.85 $2.29
================================================================================
NOTE 0 -- SEGMENT REPORTING
The Company has three reportable segments: Maintenance, Repair and
Replacement (MRO) distribution, Original Equipment Manufacturer (OEM)
distribution and manufacturing, and international distribution. The operations
of the Company's MRO distribution segment distribute a wide range of MRO parts
to repair and maintenance organizations by the Company's force of independent
sales agents.
The operations of the Company's OEM segment manufacture and distribute
component parts to large OEM manufacturers through a network of independent
sales agents as well as internal sales employees.
The international distribution segment consists of the Company's
distribution businesses in Canada, Mexico, and the United Kingdom of principally
MRO parts.
The Company's reportable segments are distinguished by the nature of
products distributed and sold, types of customers, and geographical location.
The Company evaluates performance and allocates resources to reportable
segments primarily based on operating income. The accounting polices of the
reportable segments are the same as those described in the summary of
significant policies except that the Company records its federal and state
deferred tax assets and liabilities at corporate. Intersegment sales are not
significant.
Financial information for the Company's reportable segments consisted
of the following:
-25-
Year ended December 31
2001 2000 1999
-------------------------------------------------------------------------------------------
Net sales
MRO distribution $306,917,045 $283,969,540 $274,040,132
OEM distribution 52,350,227 52,001,028 42,435,187
International distribution 20,139,803 12,996,918 12,511,780
-------------------------------------------------------------------------------------------
Consolidated total $379,407,075 $348,967,486 $328,987,099
-------------------------------------------------------------------------------------------
Operating Income (loss)
MRO distribution $15,167,119 $39,336,157 $35,084,960
OEM distribution 2,165,731 4,052,210 3,465,508
International distribution (1,131,045) (1,564,812) (1,142,319)
-------------------------------------------------------------------------------------------
Consolidated total $16,201,805 $41,823,555 $37,408,149
-------------------------------------------------------------------------------------------
Capital expenditures
MRO distribution $4,496,163 $2,761,755 $5,681,211
OEM distribution 683,937 570,225 520,536
International distribution 48,829 60,478 260,601
-------------------------------------------------------------------------------------------
Consolidated total $5,228,929 $3,392,458 $6,462,348
-------------------------------------------------------------------------------------------
Depreciation and amortization
MRO distribution $6,553,422 $5,176,344 $5,074,905
OEM distribution 1,060,392 1,130,394 1,011,618
International distribution 532,199 356,925 440,936
-------------------------------------------------------------------------------------------
Consolidated total $8,146,013 $6,663,663 $6,527,459
-------------------------------------------------------------------------------------------
Total assets
MRO distribution $165,126,824 $160,169,065 $155,376,398
OEM distribution 34,183,609 32,181,862 32,763,599
International distribution 20,319,932 19,301,539 17,677,880
-------------------------------------------------------------------------------------------
Segment total 219,630,365 211,652,466 205,817,877
-------------------------------------------------------------------------------------------
Corporate 13,150,000 11,069,000 10,173,000
-------------------------------------------------------------------------------------------
Consolidated total $232,780,365 $222,721,466 $215,990,877
===========================================================================================
The reconciliation of segment profit to consolidated income before
income taxes consisted of the following:
Year ended December 31
2001 2000 1999
-----------------------------------------------------------------------------------------
Total operating income for reportable segments $16,201,805 $41,823,555 $37,408,149
Interest and dividend income 654,257 1,072,730 1,312,312
Interest expense (705,756) (7,959) (7,351)
Gain from sale of partnership interest -- 3,502,336 --
Other - net 991,887 1,175,011 1,556,871
-----------------------------------------------------------------------------------------
Income before income taxes $17,142,193 $47,565,673 $40,269,981
========================================================================================
Financial information related to the Company's operations by geographic
area consisted of the following:
Year ended December 31
2001 2000 1999
--------------------------------------------------------------------------------
Net sales
United States $359,267,272 $335,970,568 $316,475,319
Canada 13,998,416 7,980,367 7,154,424
Other foreign countries 6,141,387 5,016,551 5,357,356
--------------------------------------------------------------------------------
Consolidated total $379,407,075 $348,967,486 $328,987,099
================================================================================
-26-
December 31
2001 2000 1999
--------------------------------------------------------------------------------
Long-lived assets
United States $61,173,006 $39,155,963 $42,509,070
Canada 6,300,247 2,154,539 2,312,377
Other foreign countries 395,939 525,444 778,652
--------------------------------------------------------------------------------
Consolidated total $67,869,192 $41,835,946 $45,600,099
================================================================================
Net sales are attributed to countries based on the location of
customers. Long-lived assets consist of total property, plant and equipment and
intangible assets such as goodwill.
NOTE P -- SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December
31, 2001 and 2000 are summarized as follows:
Quarter ended
2001 Mar. 31 Jun. 30 Sept. 30 Dec. 31(1,2)
----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net sales (3) $83,650 $98,980 $100,000 $96,777
Cost of goods sold(3) 29,937 33,888 35,256 31,984
Income (loss) before income taxes(3) 5,825 6,927 5,838 (1,448)
Provision for income taxes 2,587 2,939 2,525 304
Net income (loss) 3,238 3,988 3,313 (1,752)
Net income (loss) per share of common stock
Basic .33 .41 .34 (.18)
Diluted .33 .41 .34 (.18)
Diluted weighted average shares outstanding
9,730 9,740 9,715 9,652
Quarter ended
2000 Mar. 31 Jun. 30 Sept. 30 Dec. 31(1,4)
----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net sales $86,280 $89,632 $88,064 $84,991
Cost of goods sold 29,946 30,458 30,094 26,758
Income before income taxes 10,908 11,381 10,736 14,541
Provision for income taxes 4,463 4,664 4,358 5,945
Net income 6,445 6,717 6,378 8,596
Net income per share of common stock
Basic .64 .68 .66 .89
Diluted .64 .68 .65 .88
Diluted weighted average shares outstanding
10,093 9,895 9,718 9,729
1 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 interim periods is
adjusted in the fourth quarter. This adjustment increased net income by
approximately $2,055,000 and $1,349,000 in 2001 and 2000, respectively.
2 The fourth quarter included non-recurring charges for the write-off of
capitalized software and implementation costs of an enterprise information
system project which the Company decided to discontinue as well as a
non-recurring promotional program related to the acquisition of Premier
operations. These charges reduced net income by $5,138,000 and $2,021,000,
respectively.
3 The Company acquired the business of Premier as of March 30, 2001. The
results of the acquisition are included in the quarterly results since the
date of the acquisition.
4 The fourth quarter includes a gain of $2,136,000, net of income taxes,
relative to the sale of the Company's interest in a real estate investment.
-27-
SCHEDULE II
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
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:
Allowance for doubtful accounts:
Year ended December 31, 2001 $1,658,585 $1,901,379 $1,756,785 $1,803,179
Year ended December 31, 2000 1,601,649 1,419,120 1,362,184 1,658,585
Year ended December 31, 1999 1,450,067 1,065,811 914,229 1,601,649
Note A - Uncollected receivables written off, net of recoveries.
-28-
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 14,
2002, under the caption "Election of Directors," which information is
incorporated herein by reference.
b Executive Officers
------------------
The information required by this Item is set forth in Item 1 - Business
under "Executive Officers of the Registrant."
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 14,
2002, 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 14,
2002 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 14,
2002 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, 2001 and 2000.
Consolidated Statements of Income for the Years ended December
31, 2001, 2000 and 1999.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years ended
December 31, 2001, 2000 and 1999.
-29-
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule
----------------------------
The following consolidated financial statement schedule of Lawson
Products, Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts is submitted with this report.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not submitted because
they are not applicable or are not required under Regulation S-X or because the
required information is included in the financial statements or notes thereto.
(a) (3) Exhibits.
--------
3(a) Certificate of Incorporation of the Company, as amended,
incorporated herein by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988.
3(b) Amended and Restated By-laws of the Company.
*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. 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)(3.1)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)(4) Employment Agreement between the Company and Jeffrey B.
Belford dated March 10, 1983, incorporated herein by
reference from Exhibit 10(c)(5) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999.
*10(c)(5) 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)(6) 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)(7) Agreement between the Company and Bernard Kalish dated July
31, 1999, incorporated herein by reference from Exhibit
10(c)(8) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
--------
*Indicates management employment contracts or compensatory plans or
arrangements.
-30-
10(c)(8) Lawson Products, Inc. Stock Performance Plan, incorporated
herein by reference from Exhibit 10(c)(8) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
(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.
-31-
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 21, 2002 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 21st day of March, 2002, 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/ Robert M. Melzer Director
---------------------------------
Robert M. Melzer
/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
-32-
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
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) Amended and Restated By-laws of the Company.
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. 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)(3.1) 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)(4) Employment Agreement between the Company and Jeffrey B. Belford
dated March 10, 1983, incorporated herein by reference to
Exhibit 10(c)(5) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
10(c)(5) 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)(6) 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)(7) Agreement between the Company and Bernard Kalish dated July 31,
1999, incorporated herein by reference from Exhibit 10(c)(8) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
10(c)(8) Lawson Products, Inc. Stock Performance Plan, incorporated
herein by reference from Exhibit 10(c)(8) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2000.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
-33-