SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000
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, 2001, 9,711,804 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 2001 was approximately $124,218,000.
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. [ ]
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of Stockholders to be held on May 15, 2001
Part III
EXPLANATORY NOTE: This Amendment No. 1 on Form 10-K/A amends Part II, Item 8,
"Financial Statements and Supplementary Data" to include segment reporting in
Lawson Products, Inc.'s consolidated financial statements. See Note N to the
consolidated financial statements.
-2-
PART II
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, 2000 and 1999.
Consolidated Statements of Income for the Years ended December
31, 2000, 1999 and 1998.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years ended
December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Schedule II
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Lawson Products, Inc.
We have audited the accompanying consolidated balance sheets of Lawson Products,
Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, 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 23, 2001
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------------
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 7,911,710 $ 11,974,611
Marketable securities 29,972,654 12,282,229
Accounts receivable, less allowance for doubtful accounts
(2000-$1,658,585; 1999-$1,601,649) 40,823,141 41,108,121
Inventories 55,228,380 55,484,532
Miscellaneous receivables 2,696,986 2,835,685
Prepaid expenses 6,658,687 5,193,621
Deferred income taxes 1,857,000 1,389,000
----------------- -----------------
Total Current Assets 145,148,558 130,267,799
----------------- -----------------
Property, plant and equipment, at cost, less allowances for
depreciation and amortization
(2000-$41,571,230; 1999-$36,479,611) 39,404,599 41,988,652
----------------- -----------------
Other assets:
Marketable securities 400,832 4,694,776
Investments in real estate 705,000 4,107,664
Cash value of life insurance 15,795,812 14,760,461
Deferred income taxes 9,212,000 8,784,000
Goodwill, less accumulated amortization
(2000-$304,632; 1999-$124,533) 2,431,347 3,611,447
Other 9,623,318 7,776,078
----------------- -----------------
38,168,309 43,734,426
----------------- -----------------
$ 222,721,466 $ 215,990,877
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,730,250 $ 8,248,929
Accrued expenses and other liabilities 24,517,530 25,844,991
Income taxes 2,614,768 4,331,935
----------------- -----------------
Total Current Liabilities 33,862,548 38,425,855
----------------- -----------------
Non-current liabilities and deferred credits:
Accrued liability under security bonus plans 17,968,018 16,494,190
Deferred compensation and other liabilities 10,978,435 11,030,843
----------------- -----------------
28,946,453 27,525,033
----------------- -----------------
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-2000-9,706,404 shares; 1999-10,203,922 shares 9,706,404 10,203,922
Capital in excess of par value 761,725 717,004
Retained earnings 151,065,840 140,200,567
----------------- -----------------
161,533,969 151,121,493
Foreign currency translation adjustment (1,621,504) (1,053,504)
Unrealized (loss) gain on marketable securities -- (28,000)
----------------- -------------------
Accumulated other comprehensive income (1,621,504) (1,081,504)
----------------- -------------------
159,912,465 150,039,989
----------------- -----------------
$ 222,721,466 $ 215,990,877
================= =================
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 1999 1998
---------------- --------------- ---------------
Net sales $ 348,967,486 $ 328,987,099 $ 301,831,128
Cost of goods sold 117,256,150 109,370,225 99,686,906
---------------- --------------- ---------------
Gross profit 231,711,336 219,616,874 202,144,222
Selling, general and administrative expenses 188,468,661 178,210,549 167,608,758
Special charges -- 2,932,365 2,621,124
Provision for doubtful accounts 1,419,120 1,065,811 983,367
---------------- --------------- ---------------
Operating Income 41,823,555 37,408,149 30,930,973
---------------- --------------- ---------------
Interest and dividend income 1,072,730 1,312,312 1,458,548
Interest expense (7,959) (7,351) (47,957)
Gain from sale of partnership interest 3,502,336 -- --
Other income - net 1,175,011 1,556,871 1,248,665
---------------- --------------- ---------------
5,742,118 2,861,832 2,659,256
---------------- --------------- ---------------
Income Before Income Taxes 47,565,673 40,269,981 33,590,229
---------------- --------------- ---------------
Federal and state income taxes (benefit):
Current 20,012,000 18,275,000 16,034,000
Deferred (582,000) (1,933,000) (1,918,000)
---------------- --------------- ---------------
19,430,000 16,342,000 14,116,000
---------------- --------------- ---------------
Net Income $ 28,135,673 $ 23,927,981 $ 19,474,229
================ =============== ==============
Net Income Per share of Common Stock
Basic $ 2.85 $ 2.29 $ 1.77
================ =============== ===============
Diluted $ 2.85 $ 2.29 $ 1.76
================ =============== ===============
See notes to consolidated financial statements
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 INCOME INCOME
------------- ----------- -------------- --------------- ------------
Balance at January 1, 1998 $ 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 (104,376) (104,376)
translation --------------
Other comprehensive loss 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:
Unrealized loss on marketable securities (696,000) (696,000)
Adjustment for foreign currency 301,567 301,567
translation -------------
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 (568,000) (568,000)
translation --------------
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))
============= =========== ============== =================
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 1999 1998
---------------- --------------- ---------------
Operating activities:
Net income $ 28,135,673 $ 23,927,981 $ 19,474,229
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,986,466 5,977,205 5,197,571
Amortization 677,197 550,254 300,814
Provision for allowance for doubtful accounts 1,419,120 1,065,811 983,367
Deferred income taxes (582,000) (1,933,000) (1,918,000)
Deferred compensation and security bonus plans 3,922,781 4,651,635 4,190,541
Payments under deferred compensation
and security bonus plans (2,420,361) (2,263,293) (3,414,210)
Losses/(Gains) from sale of marketable
securities 803 (902,960) (50,776)
Income from investments in real estate (695,000) (544,000) (763,000)
Gain from sale of investment in real estate (3,502,336) - -
Changes in operating assets and liabilities
(Exclusive of effect of acquisition):
Accounts receivable (1,134,140) (4,276,788) (2,524,428)
Inventories 256,152 (2,886,074) (4,881,840)
Prepaid expenses and other assets (3,730,055) (5,757,891) (6,121,144)
Accounts payable and accrued expenses (2,770,387) 4,290,592 4,753,798
Income taxes payable (1,717,167) 1,049,135 1,642,005
Other (961,691) 368,539 (798,019)
----------------- --------------- ----------------
Net Cash Provided by Operating Activities 22,885,055 23,317,146 16,070,908
---------------- --------------- ---------------
Investing activities:
Additions to property, plant and equipment (3,392,458) (6,462,348) (5,377,660)
Purchases of marketable securities (75,344,146) (122,774,913) (196,265,030)
Proceeds from sale of marketable securities 61,987,598 130,451,955 204,848,618
Proceeds from sale of investment in real estate 7,400,000 - -
Proceeds from life insurance policies - - 438,819
Acquisition of business, net of cash
acquired of $4,850 - (10,519,909) -
Other 200,000 490,000 440,000
---------------- --------------- ---------------
Net Cash Provided by (Used In)
Investing Activities (9,149,006) (8,815,215) 4,084,747
----------------- ---------------- ---------------
Financing Activities:
Purchases of common stock (11,932,267) (10,519,700) (10,348,469)
Proceeds from exercise of stock options 84,375 - 13,327
Dividends paid (5,951,058) (5,879,340) (6,196,361)
----------------- ---------------- ----------------
Net Cash Used in Financing Activities (17,798,950) (16,399,040) (16,531,503)
----------------- ---------------- ----------------
Increase (Decrease) in Cash and
Cash Equivalents (4,062,901) (1,897,109) 3,624,152
Cash and Cash Equivalents at Beginning of Year 11,974,611 13,871,720 10,247,568
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 7,911,710 $ 11,974,611 $ 13,871,720
================ =============== ===============
See notes to consolidated financial statements
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 seven operating units with which it conducts its
business; however these operating units have been aggegrated into three
reportable segments. See Note N for details of the Company's reportable segments
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 in the income statement in
the caption selling, general and administrative expenses and totaled
$10,521,000, $10,017,000 and $9,308,000 in 2000, 1999 and 1998, 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 4 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.
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, 2000, 1999 and 1998.
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 1998 and 1999
financial statements to conform with the 2000 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 expects to adopt the new Statement effective
January 1, 2001. Statement No. 133 will require the Company to recognize all
derivatives on the consolidated balance sheet at fair value. The adoption of
Statement No. 133 will not 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 to the original
equipment marketplace. The former business operations of SunSource and Hillman
are being conducted through the Company's new subsidiary, ACS/SIMCO.
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
$1,033,000 and $323,000 were made in 2000 and 1999, respectively.
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
$626,000 and $1,069,000 were made in 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
all classified as available-for-sale:
(IN THOUSANDS) GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
2000 COST GAINS LOSSES FAIR VALUE
- ------------------------------------ -------------- ----------- ------------ --------------
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
========== ======= ===== =========
1999
- ------------------------------------
Obligations of states and $ 10,268 $ 1 $ 44 $ 10,225
political subdivisions
Foreign government securities 6,724 - - 6,724
Other debt securities 28 - - 28
---------- ------- ----- ---------
Total debt securities $ 17,020 $ 1 $ 44 $ 16,977
========== ======= ===== =========
The gross realized gains on sales of marketable securities totaled $1,000,
$992,000 and $52,000 in 2000, 1999 and 1998, respectively, and the gross
realized losses totaled $2,000, $89,000 and $1,000, respectively. The net
adjustment to unrealized holding gains included as a separate component of
stockholders' equity, net of taxes, totaled $28,000 and $105,000 in 2000 and
1998, respectively, while in 1999, the net adjustment to unrealized holding
losses included as a separate component of stockholders' equity, net of taxes,
totaled $696,000.
The amortized cost and estimated fair value of marketable securities at December
31, 2000, 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.
ESTIMATED
(IN THOUSANDS) COST FAIR VALUE
- ---------------------------------------------------------------------- ------------ -------------
Due in one year or less $ 29,970 $ 29,973
Due after one year through five years 403 400
------------ -------------
Total debt securities $ 30,373 $ 30,373
============ =============
NOTE F-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
2000 1999
----------------- -----------------
Land $ 6,649,440 $ 6,683,222
Buildings and improvements 39,145,917 38,863,186
Machinery and equipment 28,955,498 27,363,448
Furniture and fixtures 5,231,947 5,293,762
Vehicles 217,345 260,895
Construction in Progress 775,682 3,750
----------------- -----------------
$ 80,975,829 $ 78,468,263
================= =================
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 interest 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, one of which is an officer
of the Company 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 sale 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:
2000 1999
----------------- -----------------
Salaries, commissions and other compensation $ 7,490,351 $ 8,051,216
Accrued special charges 2,671,088 4,032,000
Accrued and withheld taxes, other than income taxes 2,344,955 2,196,971
Accrued profit sharing contributions 2,606,254 2,646,677
Accrued self-insured health benefits 1,300,000 1,574,878
Cash dividends payable 1,455,961 1,531,713
Other 6,648,921 5,811,536
----------------- -----------------
$ 24,517,530 $ 25,844,991
================= =================
NOTE I-STOCK PLANS
In 2000, the Company granted 71,250 stock appreciation rights (SARs) pursuant to
an incentive plan adopted in 2000. These SARs had a weighted average exercise
price of $26.50 per share, vest at 20% per year and entitle the employee to
receive a cash payment equal to the difference between the SAR price and the
market value of the Company's common stock when the SARs are surrendered. No
SARs are exercisable at December 31, 2000. No compensation expense for the SARs
was incurred in 2000.
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, SARs, stock purchase
agreements and stock awards. 641,027 shares of Common Stock were available for
issuance under the Plan as of December 31, 2000.
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:
0
AVERAGE OPTION
PRICE SHARES
- --------------------------------------------------------------------------------
Outstanding January 1, 1998 $24.38 294,579
Granted 26.75 9,000
Exercised 24.19 (889)
Canceled or expired 26.89 (27,500)
- --------------------------------------------------------------------------------
Outstanding December 31, 1998 23.34 275,190
Granted 22.44 9,000
Exercised - -
Canceled or expired 23.56 (9,700)
- --------------------------------------------------------------------------------
Outstanding December 31, 1999 24.18 274,490
Granted 23.56 11,000
Exercised 22.50 (3,750)
Cancelled or expired 27.50 (97,050)
- --------------------------------------------------------------------------------
Outstanding at December 31, 2000 $22.86 184,690
- --------------------------------------------------------------------------------
Exercisable options at
December 31, 2000 $22.72 162,190
December 31, 1999 $24.42 220,439
December 31, 1998 $24.97 169,488
As of December 31, 2000, the Company had the following outstanding options:
Exercise Price $22.44-$23.56 $26.75 $27.00
------------- ------ ------
Options Outstanding 174,690 9,000 1,000
Weighted Average Exercise Price $22.64 $26.75 $27.00
Weighted Average Remaining Life 5.8 7.3 6.6
Options Exercisable 156,940 4,500 750
Weighted Average Exercise Price $22.58 $26.75 $27.00
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:
2000 1999 1998
---- ---- ----
Risk-free interest rate 5.22% 6.79% 4.97%
Dividend yield 2.00% 2.00% 2.00%
Stock price volatility factor .19 .18 .18
Weighted-average expected life (years) 8 8 8
Weighted-average fair value of options granted $6.25 $6.95 $6.80
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:
2000 1999 1998
---- ---- ----
Net income - as reported $28,135,673 $23,927,981 $19,474,229
Net income - pro forma 27,968,000 23,565,000 19,123,000
Basic earnings per share - as reported 2.85 2.29 1.77
Diluted earnings per share - as reported 2.85 2.29 1.76
Basic earnings per share - pro forma 2.84 2.26 1.73
Diluted earnings per share - pro forma 2.83 2.26 1.73
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 plan also has a 401(k) defined contribution savings 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 $5,222,000,
$5,051,000 and $4,845,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
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:
2000 1999
----------------- -----------------
Deferred Tax Assets:
Compensation and benefits $ 12,257,000 $ 12,327,000
Inventory 1,847,000 1,237,000
Net operating loss carryforwards of subsidiary 4,718,000 4,169,000
Accounts receivable 519,000 486,000
Other 873,000 583,000
----------------- -----------------
Total Deferred Tax Assets 20,214,000 18,802,000
Valuation allowance for deferred tax assets (4,718,000) (4,169,000)
---------------------- -----------------
Net Deferred Tax Assets 15,496,000 14,633,000
----------------- -----------------
Deferred Tax Liabilities:
Property, plant & equipment 883,000 1,060,000
Investment(s) in real estate 1,949,000 3,063,000
Other 1,595,000 337,000
----------------- -----------------
Total Deferred Tax Liabilities 4,427,000 4,460,000
----------------- -----------------
Total Net Deferred Tax Assets $ 11,069,000 $ 10,173,000
================= =================
Net deferred tax assets include the tax impact of items in comprehensive income
of $873,000 and $583,000 at December 31, 2000 and 1999, respectively.
Income before income taxes for the years ended December 31, consisted of the
following:
2000 1999 1998
------------------ ------------------ -----------------
United States $ 49,259,320 $ 41,494,677 $ 36,288,309
Foreign (1,693,647) (1,224,696) (2,698,080)
------------------ ------------------ ------------------
$ 47,565,673 $ 40,269,981 $ 33,590,229
================= ================= =================
The provisions for income taxes for the years ended December 31, consisted of
the following:
2000 1999 1998
---------------- ---------------- ----------------
Current:
Federal $ 16,945,000 $ 15,187,000 $ 13,136,000
State 3,067,000 3,088,000 2,898,000
--------------- ---------------- ----------------
20,012,000 18,275,000 16,034,000
Deferred benefit (582,000) (1,933,000) (1,918,000)
--------------- ---------------- -----------------
$ 19,430,000 $ 16,342,000 $ 14,116,000
=============== ================ ================
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
2000 1999 1998
---- ---- ----
Statutory federal rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State income taxes, net of federal
income tax benefit 4.2 5.0 5.6
Foreign losses 1.5 1.5 2.7
Other items, net .1 (.9) (1.3)
---- ----- -----
Provision for income taxes 40.8% 40.6% 42.0%
===== ===== =====
Income taxes paid for the years ended December 31, 2000, 1999 and 1998 amounted
to $21,212,000, $17,157,000 and $14,359,000, respectively.
NOTE L-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 2000 amounted to approximately
$2,955,000. Such rentals are payable as follows: 2001-$1,834,000; 2002-$788,000;
2003-$228,000 and 2004 and thereafter-$105,000.
Total rental expense for the years ended December 31, 2000, 1999 and 1998
amounted to $2,783,000, $2,203,000 and $1,655,000, respectively.
NOTE M - INCOME PER SHARE
The computation of basic and diluted income per share consisted of the
following:
YEAR ENDED DECEMBER 31
(In thousands, except per share data) 2000 1999 1998
---------------- ---------------- -----------
NUMERATOR:
Net income $ 28,136 $ 23,928 $ 19,474
================ ================ ================
DENOMINATOR:
Denominator for basic income per share -
Weighted average shares 9,860 10,444 11,024
Effect of dilutive securities:
Stock option plans 14 2 18
---------------- ---------------- ----------------
Denominator for diluted income per share -
Adjusted weighted average shares 9,874 10,446 11,042
================ ================ ================
Basic income per share $ 2.85 $ 2.29 $ 1.77
=============== =============== ===============
Diluted income per share $ 2.85 $ 2.29 $ 1.76
=============== =============== ===============
NOTE N - SEGMENT REPORTING
The Company has three reportable segments: Maintenance, Repair and Replacement
(MRO) distribution, OEM distribution and manufacturing (OEM), and international
distribution. The operations of the Company's MRO distribution segment sells and
distributes a wide range of MRO parts and supplies to repair and maintenance
organizations utilizing the Company's force of independent sales agents.
The Company's OEM distribution and manufacturing segment manufactures, sells and
distributes component parts to OEM manufacturers through a network of
independent sales agents as well as internal sales employees.
The international distribution segment consists of the Company's sales and
distribution businesses in Canada, Mexico, and the United Kingdom of principally
MRO parts and supplies utilizing independent sales agents and internal sales
employees.
The Company's reportable segments are distinguished by the nature of products
distributed and sold, types of customers, and geographic location.
The Company evaluates performance and allocates resources to reportable segments
primarily based on operating income. The accounting policies 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:
Year Ended December 31,
------------------------------------------------------------
In thousands 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net sales
MRO distribution $ 283,969,540 $ 274,040,132 $ 258,761,427
OEM distribution 52,001,028 42,435,187 31,345,433
International distribution 12,996,918 12,511,780 11,724,268
------------------------------------------------------------
Consolidated total $ 348,967,486 $ 328,987,099 $ 301,831,128
------------------------------------------------------------
Operating income (loss)
MRO distribution $ 39,336,157 $ 35,084,960 $ 30,813,851
OEM distribution 4,052,210 3,465,508 2,788,260
International distribution (1,564,812) (1,142,319) (2,671,138)
------------------------------------------------------------
Consolidated total $ 41,823,555 $ 37,408,149 $ 30,930,973
------------------------------------------------------------
Capital expenditures
MRO distribution $ 2,761,755 $ 5,681,211 $ 4,415,899
OEM distribution 570,225 520,536 766,878
International distribution 60,478 260,601 194,883
------------------------------------------------------------
Consolidated total $ 3,392,458 $ 6,462,348 $ 5,377,660
------------------------------------------------------------
Depreciation and amortization
MRO distribution $ 5,176,344 $ 5,074,905 $ 4,140,872
OEM distribution
1,130,394 1,011,618 931,181
International distribution 356,925 440,936 426,332
------------------------------------------------------------
Consolidated total $ 6,663,663 $ 6,527,459 $ 5,498,385
------------------------------------------------------------
Total assets
MRO distribution $ 160,169,065 $ 155,376,398 $ 152,127,066
OEM distribution 32,181,862 32,763,599 19,717,369
International distribution 19,301,539 17,677,880 19,134,855
------------------------------------------------------------
Segment total 211,652,466 205,817,877 190,979,290
Corporate 11,069,000 10,173,000 8,003,000
------------------------------------------------------------
Consolidated total $ 222,721,466 $ 215,990,877 $ 198,982,290
------------------------------------------------------------
The reconciliation of segment profit to consolidated income before income taxes
consisted of the following:
Year Ended December 31,
-------------------------------------------------------
In thousands 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Total operating income
for reportable segments $41,823,555 $37,408,149 $30,930,973
Interest and dividend income 1,072,730 1,312,312 1,458,548
Interest expense (7,959) (7,351) (47,957)
Gain from sale of partnership interest 3,502,336 --- ---
Other - net 1,175,011 1,556,871 1,248,665
-------------------------------------------------------
Income before income taxes $47,565,673 $40,269,981 $33,590,229
Financial information related to the Company's operations by geographic area
consisted of the following:
Year Ended December 31,
-------------------------------------------------------
In thousands 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Net sales
United States $335,970,568 $316,475,319 $290,106,860
Canada 7,980,367 7,154,424 6,515,734
Other foreign countries 5,016,551 5,357,356 5,208,534
-------------------------------------------------------
Consolidated total $348,967,486 $328,987,099 $301,831,128
Year Ended December 31,
-------------------------------------------------------
In thousands 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Long-lived assets
United States $ 39,155,963 $ 42,509,070 $ 38,253,420
Canada 2,154,539 2,312,377 2,273,121
Other foreign countries 525,444 778,652 828,518
-------------------------------------------------------
Consolidated total $ 41,835,946 $ 45,600,099 $ 41,355,059
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 O - SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 2000
and 1999 are summarized as follows:
QUARTER ENDED
----------------------------------------------------------------------
2000 MAR. 31 JUN. 30 SEPT. 30 DEC. 31, (1)(2)
- ---- ------- ------- -------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales (3) 86,280 89,632 88,064 84,991
Cost of goods sold (3) 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
QUARTER ENDED
----------------------------------------------------------------------
1999 MAR. 31 JUN. 30, (4)(5) SEPT. 30, DEC. 31, (2)(4)
- ---- ------- --------------- --------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales (3) $76,567 $80,859 $85,028 $86,533
Cost of goods sold (3) 25,877 26,716 29,630 27,147
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
- ------------------
(1) 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.
(2) 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 $1,349,000 and $1,689,000 in 2000 and 1999, respectively.
(3) Net sales and costs of good sold amounts in 2000 and 1999 have been
restated to reflect a shipping revenue reclassification. See Shipping and
Handling Fees and Costs in Note B.
(4) During the second and fourth quarters of 1999, special charges were
recorded related to severance and early retirement benefits, which reduced
net income by $1,236,000, and $524,000, respectively.
(5) The second quarter of 1999 reflects a $554,000 gain, net of income taxes,
on the sale of marketable securities.
NOTE P - SUBSEQUENT EVENT
In January 2001, the Company agreed to purchase certain assets of
Premier Farnell's Cleveland-based North American Industrial Products and Kent
Automotive Divisions for approximately $27,000,000 plus approximately $8,000,000
for related inventories. The all cash transaction is expected to close on March
30, 2001.
Under the agreement, Lawson will acquire the field sales, telephone sales and
customer service professionals, the customer accounts, certain administrative
executives, and use of various intellectual properties, including trade marks
and trade names of the Industrial Products and Kent Automotive divisions in
certain territories. Lawson will combine its existing operations with Premier
Farnell's Premier Fastener, Rotanium Products, Certanium Alloys, CT Engineering,
JI Holcomb and Kent Automotive business units in the United States, Canada,
Mexico, Central America and the Caribbean. This acquisition is not expected to
require a significant investment by the Company in facilities or equipment.
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, 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
Year ended December 31, 1998 1,423,902 983,367 957,202 1,450,067
Note A - Uncollected receivables written off, net of recoveries.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (3) Exhibits.
--------
23 Consent of Ernst & Young LLP.
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: August 29, 2001 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 29th day of August, 2001, 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
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
23 Consent of Ernst & Young LLP.
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 23,
2001, with respect to the consolidated financial statements and schedule of
Lawson Products, Inc. included in the Annual Report (Form 10-K/A), for the year
ended December 31, 2001.
/s/ Ernst & Young LLP
Chicago, Illinois
August 29, 2001