DSG(DSGR) - 2019 Q4 - Annual Report

PART I This section provides an overview of the company's business operations, identifies key risk factors, details its properties, and addresses legal proceedings and mine safety disclosures ITEM 1. BUSINESS Lawson Products, Inc. is an MRO market distributor operating in two segments: Lawson and Bolt, focusing on VMI services and branch sales respectively, with strategic goals for organic growth and operational improvements - Lawson Products, Inc. operates in the industrial, commercial, institutional, and government Maintenance, Repair and Operations (MRO) market[7] - The company operates in two reportable segments: Lawson and Bolt[11] - The Lawson segment provides Vendor Managed Inventory (VMI) services through sales representatives across the U.S. and Canada, focusing on product knowledge and application expertise[12] - The Bolt segment primarily delivers products through 14 branches in Western Canada, generating sales from walk-up business and a sales team, and generally does not offer VMI services[16] 2019 Sales Distribution by Geography and Segment Contribution | Metric | Value | | :----- | :---- | | U.S. Net Sales | ~80% | | Canada Net Sales | ~20% | | Bolt Segment Contribution to 2019 Sales | 11.2% | 2019 Product Category Sales Percentages | Product Category | Percentage | | :-------------------------------- | :--------- | | Fastening systems | 24% | | Fluid power | 15% | | Cutting tools and abrasives | 13% | | Specialty chemicals | 11% | | Electrical | 11% | | Aftermarket automotive supplies | 8% | | Safety | 5% | | Welding and metal repair | 2% | | Other | 11% | - As of December 31, 2019, the company had approximately 1,770 employees, with 1,200 in sales and marketing, 440 in operations and distribution, and 130 in management and administration[26] - The strategic focus for 2020 includes growing sales organically and through acquisitions, and improving operations using a Lean Six Sigma approach to enhance customer experience and efficiency[30][35][36] ITEM 1A. RISK FACTORS The company faces various risks including economic downturns, inventory obsolescence, supply chain disruptions, margin pressures, cybersecurity threats, talent retention, acquisition integration, and regulatory changes - Economic downturns or uncertainty can decrease customer spending, lead to bankruptcies, and impact the ability to collect receivables, potentially increasing bad debt expense[47] - Failure to adequately fund operating and working capital needs through cash from operations or credit agreements could hinder business investment and capital structure maintenance[49][50] - Non-compliance with Credit Agreement covenants could lead to higher financing costs, increased restrictions, or loss of borrowing ability[51][52] - A significant portion of inventory may become obsolete if forecasting is inaccurate or customer demand decreases, leading to increased carrying costs and write-downs[54] - Work stoppages or disruptions at transportation centers or shipping ports could adversely affect inventory acquisition and timely customer deliveries[56][57] - Changes in customer or product mix, pricing strategy, freight costs, or productivity levels could lead to a decline in gross margin percentage[58][59] - Increases in energy costs, tariffs, and raw material costs could impact cost of goods and distribution expenses, reducing operating margins[60][61] - Disruptions to information and communication systems, including cyber attacks, could materially affect operations, financial condition, and reputation[62][63][65] - The inability to successfully recruit, integrate, and retain productive sales representatives and other talented employees could negatively impact operating results[67][68][70] - Failure to successfully integrate acquisitions or manage changes in operating processes could disrupt operations and adversely affect results[72][73] - Exposure to foreign currency changes, intense competition, and changes affecting governmental and tax-supported entities are also significant risks[74][75][76] - Violations of environmental regulations could lead to significant penalties, fines, or remediation costs, as exemplified by an ongoing environmental matter in Decatur, Alabama[78][79][80] - Changes in taxation, including tax rates, audits, or laws, could affect operating results and the ability to realize deferred tax assets[81] - Luther King Capital's significant influence (47.6% beneficial ownership as of December 31, 2019) could delay or deter changes in control or other business combinations[82][83] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[86] ITEM 2. PROPERTIES As of December 31, 2019, Lawson Products, Inc. owned or leased various facilities, including its headquarters, packaging/distribution centers, and multiple distribution and branch locations across the U.S. and Canada Company Facilities as of December 31, 2019 | Location | Segment | Function | Square Footage | Own/Lease | Lease Expiration | | :-------------------------------- | :---------- | :--------------------- | :------------- | :-------- | :--------------- | | United States Chicago, Illinois | Lawson | Headquarters | 86,300 | Lease | March 2023 | | McCook, Illinois | Lawson | Packaging/Distribution | 306,800 | Lease | June 2022 | | Reno, Nevada | Lawson | Distribution | 105,200 | Lease | June 2024 | | Suwanee, Georgia | Lawson | Distribution | 91,200 | Own | | | (1) Decatur, Alabama | Lawson | Lease | 88,200 | Own | | | Dayton, OH | Lawson | Distribution | 4,500 | Lease | Monthly | | Canada Mississauga, Ontario | Lawson | Distribution | 78,000 | Own | | | (2) Calgary, Alberta | Lawson/Bolt | Distribution | 43,700 | Lease | December 2021 | | Calgary, Alberta (Foothills) | Bolt | Branch | 11,200 | Lease | April 2024 | | Calgary, Alberta (South) | Bolt | Branch | 10,300 | Lease | November 2023 | | Calgary, Alberta (North) | Bolt | Branch | 6,900 | Lease | January 2024 | | Edmonton, Alberta (North) | Bolt | Branch | 6,000 | Lease | February 2022 | | Edmonton, Alberta (South) | Bolt | Branch | 5,600 | Lease | September 2023 | | Fort McMurray, Alberta | Bolt | Branch | 7,500 | Lease | February 2024 | | Lethbridge, Alberta | Bolt | Branch | 3,400 | Own | | | Medicine Hat, Alberta | Bolt | Branch | 4,900 | Own | | | Port Kells, British Columbia | Bolt | Branch | 12,000 | Lease | August 2023 | | Prince Albert, Saskatchewan | Bolt | Branch | 4,300 | Lease | October 2020 | | Red Deer, Alberta | Bolt | Branch | 4,100 | Lease | July 2020 | | Regina, Saskatchewan | Bolt | Branch | 4,800 | Lease | December 2029 | | Saskatoon, Saskatchewan | Bolt | Branch | 10,800 | Lease | May 2021 | | Winnipeg, Manitoba | Bolt | Branch | 7,500 | Lease | September 2025 | ITEM 3. LEGAL PROCEEDINGS The company is involved in routine legal actions, but management believes that the resolution of any pending litigation will not materially impact its financial position, results of operations, or cash flows - Management believes that the resolution of any currently pending litigation will not have a material adverse effect on the Company's financial position, results of operations or cash flows[90] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable[91] PART II This section details the market for common equity, selected financial data, management's discussion and analysis, financial statements, and controls and procedures ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Lawson Products' common stock trades on NASDAQ, with no dividends issued in 2018 or 2019, and Q4 2019 share repurchases primarily for tax withholding obligations - Lawson Products' Common Stock is traded on the NASDAQ Global Select Market under the symbol 'LAWS'[93] - As of January 31, 2020, the closing sales price was $47.22, and there were 298 stockholders of record[93] - No dividends were issued in 2019 or 2018, and there are no current plans to issue dividends, subject to Credit Agreement restrictions[93] Common Stock Repurchases for Q4 2019 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased under Publicly Announced Plans or Programs | Maximum Dollar Value Remaining under Plans or Programs | | :------------------------------- | :--------------------- | :--------------------------- | :---------------------------------------------------------- | :----------------------------------------------------- | | October 1 to October 31, 2019 | 333 | $41.08 | — | $6,266,000 | | November 1 to November 30, 2019 | — | — | — | $6,266,000 | | December 1 to December 31, 2019 | 60,451 | $52.10 | — | $6,266,000 | | Three months ended December 31, 2019 | 60,784 | | — | | - Shares repurchased in Q4 2019 were solely to satisfy tax withholding obligations of employees upon vesting of market stock units, not under the $7.5 million repurchase program authorized in Q2 2019[94] ITEM 6. SELECTED FINANCIAL DATA This section provides a five-year summary of selected financial data, highlighting net sales, net income (loss), diluted EPS, total assets, noncurrent liabilities, and stockholders' equity, with notes on key events Selected Financial Data (2015-2019) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :----------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Net sales (in thousands) | $370,785 | $349,637 | $305,907 | $276,573 | $275,834 | | Net income (loss) (in thousands) | $7,221 | $6,214 | $29,688 | $(1,629) | $297 | | Diluted income (loss) per share | $0.77 | $0.67 | $3.25 | $(0.19) | $0.03 | | Total assets (in thousands) | $204,429 | $197,142 | $191,111 | $135,307 | $133,094 | | Noncurrent liabilities (in thousands) | $39,498 | $31,760 | $37,644 | $34,737 | $35,487 | | Stockholders' equity (in thousands) | $108,001 | $99,173 | $93,490 | $61,133 | $61,264 | - 2019 financial data includes Screw Products, Inc. for the full year[99] - 2018 financial data includes Bolt for the full year and a $0.5 million increase in estimated environmental remediation costs[100] - 2017 financial data includes a $19.6 million income tax benefit, primarily from releasing $21.2 million in Deferred Tax Asset valuation reserves, and a $5.4 million gain on the sale of the Fairfield, New Jersey distribution center[101] - 2015 financial data includes a $0.9 million expense related to an increase in estimated environmental remediation costs for the Decatur, Alabama land[102] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an overview of Lawson Products' financial performance and condition, detailing results for 2019 compared to 2018, covering sales, gross profit, operating expenses, liquidity, and critical accounting policies - The North American MRO industry is highly fragmented and influenced by the U.S. manufacturing sector, as indicated by the PMI index (average monthly PMI was 51.2 in 2019 vs. 58.8 in 2018, showing a reduction in growth rate)[105] - Average Daily Sales (ADS) improved to $1.471 million in 2019 from $1.393 million in 2018, with a 2.0% increase in average sales representatives[106][120] - Key 2019 activities included signing a new credit agreement increasing borrowing capacity from $40 million to $100 million, authorizing a $7.5 million share repurchase plan, continuing Lean Six Sigma training for over 100 employees, and improving operational performance and customer service levels[108][109] Results of Operations for 2019 as Compared to 2018 In 2019, consolidated net sales increased by 6.0% to $370.8 million, driven by improved sales productivity and strong Bolt performance, while gross profit margin decreased and adjusted operating income significantly increased Consolidated Statements of Income (2019 vs. 2018) | Metric (in thousands) | 2019 Amount | 2019 % of Net Sales | 2018 Amount | 2018 % of Net Sales | Year-to-Year Change Amount | Year-to-Year Change % | | :-------------------------------- | :---------- | :------------------ | :---------- | :------------------ | :------------------------- | :-------------------- | | Net sales | $370,785 | 100.0% | $349,637 | 100.0% | $21,148 | 6.0% | | Cost of goods sold | $173,431 | 46.8% | $160,097 | 45.8% | $13,334 | 8.3% | | Gross profit | $197,354 | 53.2% | $189,540 | 54.2% | $7,814 | 4.1% | | Selling expenses | $85,342 | 23.0% | $87,642 | 25.1% | $(2,300) | (2.6)% | | General and administrative expenses | $102,946 | 27.8% | $92,688 | 26.5% | $10,258 | 11.1% | | Total operating expenses | $188,288 | 50.8% | $180,330 | 51.6% | $7,958 | 4.4% | | Operating income | $9,066 | 2.4% | $9,210 | 2.6% | $(144) | | | Interest expense | $(603) | (0.1)% | $(1,009) | (0.2)% | $406 | | | Other income (expense), net | $1,211 | 0.3% | $(1,338) | (0.4)% | $2,549 | | | Income before income taxes | $9,674 | 2.6% | $6,863 | 2.0% | $2,811 | | | Income tax expense | $2,453 | 0.7% | $649 | 0.2% | $1,804 | | | Net income | $7,221 | 1.9% | $6,214 | 1.8% | $1,007 | | Reconciliation of GAAP Operating Income to Adjusted Non-GAAP Operating Income (2019 vs. 2018) | Metric (in Thousands) | 2019 | 2018 | | :------------------------------------- | :----- | :----- | | Operating income as reported per GAAP | $9,066 | $9,210 | | Stock-based compensation | $17,788 | $7,508 | | Severance expense | $1,756 | $849 | | Building impairment | — | $231 | | Acquisition related costs | — | $230 | | Discontinued operations accrual | — | $529 | | Real estate gain | — | $(164) | | Adjusted non-GAAP operating Income | $28,610 | $18,393 | Sales and Gross Profits Consolidated net sales increased 6.0% to $370.8 million in 2019, driven by improved sales productivity and acquisitions, but gross profit margin decreased due to higher service-related costs and lower margins from Bolt and Screw Products Sales and Gross Profit by Operating Segment (2019 vs. 2018) | Metric (in thousands) | 2019 Amount | 2018 Amount | Increase (Decrease) Amount | Increase (Decrease) % | | :-------------------- | :---------- | :---------- | :------------------------- | :-------------------- | | Net sales | | | | | | Lawson | $329,367 | $313,095 | $16,272 | 5.2% | | Bolt | $41,418 | $36,542 | $4,876 | 13.3% | | Consolidated | $370,785 | $349,637 | $21,148 | 6.0% | | Gross profit | | | | | | Lawson | $181,567 | $175,517 | $6,050 | 3.4% | | Bolt | $15,787 | $14,023 | $1,764 | 12.6% | | Consolidated | $197,354 | $189,540 | $7,814 | 4.1% | | Gross profit margin | | | | | | Lawson | 55.1% | 56.1% | | | | Bolt | 38.1% | 38.4% | | | - Consolidated sales increased 6.6% year over year, excluding the impact of currency fluctuations of $1.9 million[120] - The decrease in consolidated gross profit margin was primarily due to higher service-related costs and lower gross margins from the Bolt Supply and Screw Products businesses[121] Selling, General and Administrative Expenses Selling expenses decreased by 2.6% to $85.3 million in 2019 due to leveraging over higher sales, while general and administrative expenses increased by 11.1% to $102.9 million, primarily from higher stock-based compensation Selling, General and Administrative Expenses (2019 vs. 2018) | Metric (in thousands) | 2019 Amount | 2018 Amount | Increase (Decrease) Amount | Increase (Decrease) % | | :-------------------------------- | :---------- | :---------- | :------------------------- | :-------------------- | | Selling expenses | | | | | | Lawson | $81,999 | $84,536 | $(2,537) | (3.0)% | | Bolt | $3,343 | $3,106 | $237 | 7.6% | | Consolidated | $85,342 | $87,642 | $(2,300) | (2.6)% | | General and administrative expenses | | | | | | Lawson | $93,085 | $83,480 | $9,605 | 11.5% | | Bolt | $9,861 | $9,208 | $653 | 7.1% | | Consolidated | $102,946 | $92,688 | $10,258 | 11.1% | - The decrease in selling expense as a percent of sales was primarily due to leveraging selling expenses over a higher sales base and higher service-related costs included in gross margins[123] - General and administrative expenses increased primarily due to a $10.3 million increase in stock-based compensation expense and a $0.9 million increase in severance expense[124] Interest Expense Interest expense decreased by $0.4 million in 2019 compared to the prior year, mainly due to lower average outstanding debt balances - Interest expenses decreased $0.4 million in 2019 over the prior year, due primarily to lower average outstanding balances throughout the year[125] Other Income (expense), Net Other income, net, was $1.2 million in 2019, a significant improvement from an other expense, net, of $1.3 million in 2018, with fluctuations primarily driven by Canadian currency exchange rates - Other income, net was $1.2 million in 2019 compared to other expense, net of $1.3 million in 2018, driven by fluctuations in the Canadian currency exchange rate[126] Income Tax Expense Income tax expense increased to $2.5 million in 2019, resulting in a 25.4% effective tax rate, up from $0.6 million and a 9.5% effective tax rate in 2018, with the prior year's lower rate due to tax reform finalization - Income tax expenses were $2.5 million with a 25.4% effective tax rate for 2019, compared to $0.6 million and a 9.5% effective tax rate for 2018[127] - The lower effective tax rate in 2018 was primarily due to the finalization of the calculation for previously untaxed foreign earnings and profits as a result of the 2017 Tax Cuts and Jobs Act[127] Liquidity and Capital Resources Cash provided by operating activities decreased to $9.2 million in 2019, largely due to increased cash paid for stock-based compensation, while a new Credit Agreement enhanced revolving commitments to $100.0 million Cash Flow from Operating Activities (2019 vs. 2018) | Metric | 2019 (in millions) | 2018 (in millions) | | :----------------------------------- | :----------------- | :----------------- | | Cash provided by operating activities | $9.2 | $20.3 | | Cash paid for stock-based compensation | $13.4 | $0.1 | Capital Expenditures and Acquisitions (2019 vs. 2018) | Metric | 2019 (in millions) | 2018 (in millions) | | :------------------- | :----------------- | :----------------- | | Capital expenditures | $2.0 | $2.5 | | Screw Products acquisition | — | $5.3 | - In 2019, the company repurchased 32,362 shares of common stock at an average price of $38.13 under its $7.5 million repurchase program[130] - A new Credit Agreement was entered into in October 2019, providing $100.0 million in revolving commitments maturing October 11, 2024[132] Credit Agreement Status as of December 31, 2019 | Metric | Value | | :-------------------------------- | :---------- | | Borrowings under Credit Agreement | $2.3 million | | Borrowing availability | $96.7 million | | EBITDA to fixed charges ratio (Requirement: 1.15:1.00) | 10.76:1.00 | | Total net leverage ratio (Requirement: 3.25:1.00) | 0.00:1.00 | - The company was in compliance with all covenants of the Credit Agreement as of December 31, 2019[133] - The majority of operating leases were recognized as right-of-use assets and lease liabilities on the balance sheet upon adoption of ASU 2016-02 in Q1 2019[135] - Contractual commitments to purchase product from suppliers and contractors amounted to approximately $10.9 million as of December 31, 2019[135] Critical Accounting Policies The company's critical accounting policies involve significant estimates for allowance for doubtful accounts, inventory reserves, income taxes, goodwill impairment, and revenue recognition, with hypothetical changes impacting financial results - Allowance for Doubtful Accounts: Evaluated based on specific customer inability and historical write-offs. A 1% hypothetical change in the reserve would affect annual doubtful accounts expense by approximately $0.4 million[137] - Inventory Reserves: Recorded for slow-moving and obsolete inventory based on historical experience and monitoring. A 1% hypothetical change in the reserve would affect cost of goods sold by $0.6 million[138][140][141] - Income Taxes: Deferred tax assets/liabilities reflect temporary differences, requiring significant judgment in determining provisions, valuation allowances, and uncertain tax positions[142] - Goodwill Impairment: Tested annually or when circumstances change, using qualitative factors to determine if fair value is below carrying value[143] - Revenue Recognition: Involves two performance obligations (products and VMI services), with revenue allocation based on estimated standalone selling prices and service costs requiring judgment[144] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents the audited consolidated financial statements for Lawson Products, Inc. for 2019 and 2018, including balance sheets, income statements, cash flows, and notes, with a key accounting change being the adoption of ASC 842, Leases - The consolidated financial statements for 2019 and 2018 are presented in conformity with GAAP, as audited by BDO USA, LLP[149] - The company changed its method of accounting for leases during 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases[151] Consolidated Balance Sheets (as of December 31, 2019 and 2018) | ASSETS (in thousands) | 2019 | 2018 | | :--------------------------------------------------------------------------------------------- | :------- | :------- | | Cash and cash equivalents | $5,495 | $11,883 | | Restricted cash | $802 | $800 | | Accounts receivable, less allowance for doubtful accounts | $38,843 | $37,682 | | Inventories, net | $55,905 | $52,887 | | Miscellaneous receivables and prepaid expenses | $5,377 | $3,653 | | Total current assets | $106,422 | $106,905 | | Property, plant and equipment, less accumulated depreciation and amortization | $16,546 | $23,548 | | Deferred income taxes | $21,711 | $20,592 | | Goodwill | $20,923 | $20,079 | | Cash value of life insurance | $14,969 | $12,599 | | Intangible assets, net | $12,335 | $13,112 | | Right of use assets | $11,246 | — | | Other assets | $277 | $307 | | Total assets | $204,429 | $197,142 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | | | | Revolving lines of credit | $— | $10,823 | | Accounts payable | $13,789 | $15,207 | | Lease obligation (current) | $3,830 | — | | Accrued expenses and other liabilities | $39,311 | $40,179 | | Total current liabilities | $56,930 | $66,209 | | Revolving line of credit (non-current) | $2,271 | — | | Security bonus plan | $11,840 | $12,413 | | Lease obligation (non-current) | $9,504 | $5,213 | | Deferred compensation | $6,370 | $5,304 | | Deferred tax liability | $6,188 | $2,761 | | Deferred rent liability | $— | $1,963 | | Other liabilities | $3,325 | $4,106 | | Total liabilities | $96,428 | $97,969 | | Total stockholders' equity | $108,001 | $99,173 | | Total liabilities and stockholders' equity | $204,429 | $197,142 | Consolidated Statements of Income and Comprehensive Income (Years Ended December 31, 2019 and 2018) | Metric (in thousands, except per share data) | 2019 | 2018 | | :------------------------------------------- | :------- | :------- | | Product revenue | $330,695 | $310,204 | | Service revenue | $40,090 | $39,433 | | Total revenue | $370,785 | $349,637 | | Product cost of goods sold | $155,304 | $145,493 | | Service cost | $18,127 | $14,604 | | Gross profit | $197,354 | $189,540 | | Selling expenses | $85,342 | $87,642 | | General and administrative expenses | $102,946 | $92,688 | | Operating expenses | $188,288 | $180,330 | | Operating income | $9,066 | $9,210 | | Interest expense | $(603) | $(1,009) | | Other income (expenses), net | $1,211 | $(1,338) | | Income before income taxes | $9,674 | $6,863 | | Income tax expense | $2,453 | $649 | | Net income | $7,221 | $6,214 | | Basic income per share of common stock | $0.81 | $0.70 | | Diluted income per share of common stock | $0.77 | $0.67 | | Basic weighted average shares outstanding | 8,968 | 8,909 | | Diluted weighted average shares outstanding | 9,376 | 9,273 | | Comprehensive income | $8,780 | $3,832 | Consolidated Statements of Cash Flows (Years Ended December 31, 2019 and 2018) | Cash Flow Activities (in thousands) | 2019 | 2018 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $9,196 | $20,299 | | Net cash used in investing activities | $(2,028) | $(7,831) | | Net cash used in financing activities | $(13,890) | $(4,490) | | Effect of exchange rate changes on cash | $336 | $(511) | | Increase (decrease) in cash and restricted cash | $(6,386) | $7,467 | | Cash, cash equivalents and restricted cash at end of year | $6,297 | $12,683 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure[309] ITEM 9A. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with an unqualified opinion from BDO USA, LLP - The company's disclosure controls and procedures were evaluated as effective as of December 31, 2019[310] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[315] - BDO USA, LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[317] - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[324] ITEM 9B. OTHER INFORMATION The company reported no other information required to be disclosed under this item - There is no other information to report[325] PART III This section provides information on directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accounting fees ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding directors, executive officers, corporate governance, and the Audit Committee is incorporated by reference from the company's definitive proxy statement, along with the Code of Business Conduct - Information on directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement[326][327] - Lee Hillman, a member of the Audit Committee, qualifies as an 'audit committee financial expert' and is independent[328] - The company has a Code of Business Conduct applicable to all employees and senior financial executives, available on its website[329] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement - Information on executive compensation is incorporated by reference from the company's definitive proxy statement[330] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information on security ownership is incorporated by reference from the company's definitive proxy statement, detailing outstanding options, warrants, rights, and securities available for future issuance under equity compensation plans - Information on security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement[332] Equity Compensation Plan Information as of December 31, 2019 | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights (1) (2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | | :--------------------------------------------- | :------------------------------------------------------------------------------ | :---------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 349,027 | $27.70 | 279,407 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 349,027 | $27.70 | 279,407 | - The securities to be issued include 90,909 from restricted stock awards, 178,118 from market stock units, and 80,000 from stock options[335] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the company's definitive proxy statement[337] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the company's definitive proxy statement[338] PART IV This section lists all exhibits and financial statement schedules filed as part of the Form 10-K, including certifications from the CEO and CFO ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists all exhibits and financial statement schedules filed as part of the Form 10-K, including the Index to Financial Statements, Schedule II, and a comprehensive list of corporate and compensation documents, along with CEO and CFO certifications - The report includes an Index to Financial Statements (Item 8) and Schedule II – Valuation and Qualifying Accounts (Item 8)[343][344] - Exhibits include corporate documents (Certificate of Incorporation, By-laws), compensation plans (Executive Deferral Plan, Stock Performance Plan, Equity Compensation Plan), employment agreements, and the Credit Agreement dated October 11, 2019[341][347] - Certifications from the Chief Executive Officer and Chief Financial Officer are included pursuant to 18 U.S.C. Section 1350 and Section 302/906 of the Sarbanes-Oxley Act of 2002[350] SIGNATURES The Form 10-K report is duly signed on behalf of Lawson Products, Inc. by Michael G. DeCata, President, Chief Executive Officer and Director, and Ronald J. Knutson, Executive Vice President, Chief Financial Officer, Treasurer and Controller, as of February 27, 2020 - The report is signed by Michael G. DeCata (President, CEO, and Director) and Ronald J. Knutson (EVP, CFO, Treasurer, and Controller) on February 27, 2020[354] - Additional signatures from the Board of Directors are included[355]