What changed in this filing

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Item 1. Financial Statements

2020-10-29 compared with 2020-07-30 · 153 added, 129 removed, 367 unchanged (43% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

June 30, December 31,

September 30, December 31,

ASSETS (Unaudited)

8 unchanged sentences

Property, plant and equipment, net 16,596 16,546

Deferred income taxes 19,218 21,711

Goodwill 36,428 20,923

Cash value of life insurance 14,716 14,969

Deferred income taxes 20,289 21,711

Intangible assets, net 18,727 12,335

Cash value of life insurance 15,400 14,969

Right of use assets 9,513 11,246

3 unchanged sentences

Current liabilities:

Accrued acquisition liability $ 32,476 $ —

Accounts payable 22,466 13,789

4 unchanged sentences

Security bonus plan 11,540 11,840

Lease obligation 7,427 9,504

Deferred compensation 9,847 6,370

Lease obligation 6,693 9,504

Deferred tax liability 6,154 6,188

19 unchanged sentences

(Dollars in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Product revenue $ 64,571 $ 85,996 $ 145,906 $ 167,911

Service revenue 7,575 10,101 17,275 19,529

Total revenue $ 90,277 $ 94,779 $ 253,458 $ 282,219

Product cost of goods sold 31,063 40,580 68,868 78,587

Service costs 2,770 4,474 7,079 8,887

38,313 51,043 87,234 99,966

Cost of goods sold 43,052 44,205 118,999 131,679

Gross profit 47,225 50,574 134,459 150,540

Operating expenses:

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Balance at January 1, 2020 9,043,771 $ 9,190 $ 18,077 $ 86,496 $ ( 5,761 ) $ ( 1 ) $ 108,001

9,043,771 $ 9,190 $ 18,077 $ 86,496 $ ( 5,761 ) $ ( 1 ) $ 108,001

— — — 12,533 — — 12,533

Net income — — — 12,533 — — 12,533

Treasury shares repurchased ( 47,504 ) — — — ( 1,756 ) — ( 1,756 )

Adjustment for foreign currency translation — — — — — ( 2,494 ) ( 2,494 )

— — — — — ( 2,494 ) ( 2,494 )

Stock-based compensation — — 451 — — — 451

Balance at March 31, 2020 8,996,267 9,190 18,528 99,029 ( 7,517 ) ( 2,495 ) 116,735

8,996,267 9,190 18,528 99,029 ( 7,517 ) ( 2,495 ) 116,735

— — — 619 — — 619

Net income — — — 619 — — 619

Adjustment for foreign currency translation — — — — — 1,178 1,178

— — — — — 1,178 1,178

Stock-based compensation — — 498 — — — 498

— — 498 — — — 498

Shares issued 11,144 11 3 — — — 14

11,144 11 3 — — — 14

Balance at June 30, 2020 9,007,411 $ 9,201 $ 19,029 $ 99,648 $ ( 7,517 ) $ ( 1,317 ) $ 119,044

9,007,411 $ 9,201 $ 19,029 $ 99,648 $ ( 7,517 ) $ ( 1,317 ) $ 119,044

Net income — $ — $ — $ 1,738 $ — $ — $ 1,738

Treasury shares repurchased ( 12,077 ) — — — ( 436 ) — ( 436 )

Adjustment for foreign currency translation — — — — — 398 398

Stock-based compensation — — 510 — — — 510

Shares issued 30,283 31 ( 31 ) — — — —

Balance at September 30, 2020 9,025,617 $ 9,232 $ 19,508 $ 101,386 $ ( 7,953 ) $ ( 919 ) $ 121,254

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

Common Stock Capital in Excess of Par Value Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

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Adjustment for foreign currency translation — — — — — 717 717

— — — — — 717 717

Stock-based compensation

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8,983,162 $ 9,033 $ 16,973 $ 84,728 $ ( 1,234 ) $ ( 168 ) $ 109,332

Net income — $ — $ — $ 4,774 $ — $ — $ 4,774

Treasury shares repurchased ( 35,830 ) — — — ( 1,361 ) — ( 1,361 )

Adjustment for foreign currency translation

— — — — — ( 427 ) ( 427 )

Stock-based compensation — — 663 — — — 663

Shares issued 9,649 10 ( 10 ) — — — —

Balance at September 30, 2019 8,956,981 $ 9,043 $ 17,626 $ 89,502 $ ( 2,595 ) $ ( 595 ) $ 112,981

(1) The Company adopted the ASC No.842, Leases (ASC 842) on January 1, 2019 using the modified retrospective approach.

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(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

Net income $ 14,890 $ 10,227

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 4,660 4,401

1 unchanged sentence

Deferred income taxes 1,454 3,252

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of acquisition

Accounts receivable ( 2,128 ) ( 7,785 )

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Other 441 544

Net cash provided by (used in) operating activities $ 7,837 $ ( 2,233 )

Net cash provided by operating activities $ 20,023 $ 8,041

Investing activities:

Purchases of property, plant and equipment $ ( 1,311 ) $ ( 1,392 )

Cash paid for acquisition ( 2,300 ) —

Net cash used in investing activities $ ( 3,611 ) $ ( 1,392 )

Financing activities:

Net payments on revolving lines of credit $ ( 559 ) $ ( 2,000 )

Net payments on revolving line of credit $ ( 2,271 ) $ ( 8,628 )

Repurchase treasury shares ( 2,192 ) ( 1,361 )

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In the opinion of the Company, all normal recurring adjustments have been made that are necessary to present fairly the results of operations for the interim periods.

Operating results for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The Company has two operating segments.

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("Bolt Supply") operating segment, distributes MRO products primarily through its branches located in Western Canada.

Bolt Supply had 14 branches in operation at the end of the second quarter 2020.

Bolt Supply had 14 branches in operation at the end of the third quarter 2020.

Note 2 - Acquisition

On August 31, 2020, the Company acquired Partsmaster from NCH Corporation.

Partsmaster is a leading maintenance, MRO solutions provider that serves approximately 16,000 customers with over 200 sales representatives.

The acquisition was made primarily to expand the Company's sales coverage, expand product lines, add experienced sales representatives, and leverage the Company's infrastructure.

The purchase price was $ 35.3 million in cash and the assumption of certain liabilities.

The Company paid $ 2.3 million of the purchase price in cash at closing and will pay the remaining $ 33.0 million in May 2021.

The payment obligation has been discounted to present value and is recognized as an accrued acquisition liability of $ 32.5 million in the Company's condensed consolidated balance sheet.

P ayment has been guaranteed under the Purchase Agreement, and includes the issuance of a $ 33.0 million irrevocable standby letter of credit.

The Company will satisfy the payment obligation with cash on hand and, to the extent necessary, any remaining portion using its existing credit facility.

The purchase price of the acquisition was allocated to the fair value of Partsmaster’s assets and liabilities on the acquisition date.

The fair market value appraisals of the majority of the assets and liabilities were determined by a third party valuation firm using management estimates and assumptions including intangible assets of $ 5.0 million for customer relationships and $ 2.8 million for trade names, and their estimated useful lives of 10 and 5 years, respectively.

The $16.0 million allocated to goodwill reflects the purchase price less the fair market value of the identifiable net assets.

The appropriate fair values of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions.

These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed.

Partsmaster contributed $ 5.4 million of revenue and $ 0.4 million of operating income in the third quarter 2020 post-acquisition.

A summary of the initial purchase price allocation of the acquisition is as follows (Dollars in thousands):

Cash paid and payable and liabilities assumed

Cash paid and payable $ 34,711

Accounts payable and accrued expenses 4,076

Deferred compensation 2,938

Fair value of assets acquired

Goodwill $ 15,952

Inventories 7,809

Accounts receivable 7,656

Customer relationships 4,961

Trade names 2,775

Property, plant and equipment 2,201

Other assets 371

The following table contains unaudited pro forma revenue and net income for Lawson Products assuming the Partsmaster acquisition closed on January 1, 2019.

(Dollars in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Actual $ 90,277 $ 94,779 $ 253,458 $ 282,219

Pro forma 101,222 109,174 298,546 332,234

Actual $ 1,738 $ 4,774 $ 14,890 $ 10,227

Pro forma 1,982 4,598 16,312 10,166

The pro forma disclosures in the table above include adjustments for amortization of intangible assets, implied interest expense and acquisition costs to reflect results as if the acquisition of Partsmaster had closed on January 1, 2019 rather than on the actual acquisition date.

This pro forma information utilizes certain estimates, is presented for illustrative purposes only and is not intended to be indicative of the actual results of operation.

In addition, future results may vary significantly from the results reflected in the pro forma information.

The unaudited pro forma financial information does not reflect the impact of future positive or negative events that may occur after the acquisition, such as anticipated cost savings from operating synergies.

Note 3 - Revenue Recognition

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products and services.

As a result, the Company reports two separate revenue streams and two separate costs of revenues.

Under the definition of a contract as defined by ASC 606, the Company considers contracts to be created at the time an order to purchase product is agreed upon regardless of whether or not there is a written contract.

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The Company does not price its offerings based on any breakout between these obligations.

Lawson generates revenue primarily from the sale of MRO products to its customers.

Revenue related to product sales is recognized at the time that control of the product has been transferred to the customer;

either at the time the product is shipped or the time the product has been received by the customer.

The Company does not commit to long-term contracts to sell customers a certain minimum quantity of products.

The Lawson segment offers a vendor managed inventory ("VMI") service proposition to its customers.

The Lawson segment, including the recent Partsmaster acquisition, offers a vendor managed inventory ("VMI") service proposition to its customers.

A portion of these services, primarily related to stocking of product and maintenance of the MRO inventory, is provided a short period of time after control of the purchased product has been transferred to the customer.

1 unchanged sentence

The Bolt Supply segment does not provide VMI services for its customers or provide services in addition to product sales to customers.

Revenue is recognized at the time that control of the product has been transferred to the customer which is either upon delivery or shipment depending on the terms of the contract.

Accounting Policy Elections

The Company has elected to treat shipping and handling costs after the control of the product has been transferred to the customer as a fulfillment cost.

Sales taxes that are imposed on our sales and collected from customers are excluded from revenues.

The Company expenses sales commissions when incurred as the amortization period is one year or less.

Certain Judgments

The Company employs certain judgments to estimate the dollar amount of revenue, and related expenses, allocated to the sale of product and service.

These judgments include, among others, the percentage of customers that take advantage of the VMI services offered, the amount of revenue to be allocated to the VMI service based on the value of the service to its customers, and the amount of time after control of the product passes to the customer that the VMI service obligation is completed.

It is assumed that any customer who averages placing orders at a frequency of longer than 30 days does not take advantage of the available VMI services offered.

The estimate of the cost of sales is based on expenses directly related to sales representatives that provide direct VMI services to the customer.

The onset of the COVID-19 pandemic impacted the ability of the Lawson sales representatives to call on their customers in person, particularly in the first half of the second quarter of 2020.

As a result, Lawson sales representatives were not able to perform VMI services with the same frequency in the second quarter of 2020 as they were in prior quarters.

As a result, the amount of revenue allocated to the service revenue component is lower in the second quarter of 2020 than in previous quarters.

Additionally the amount of service costs allocated to gross margin from selling expense is lower than in prior quarters.

The Company expects the COVID-19 pandemic to continue to impact the allocation of service revenue and service related costs for the foreseeable future, though the Company is unable to determine the extent of the impact at this time.

At June 30, 2020, the Company had a deferred revenue liability of $ 0.5 million and a deferred expense of $ 0.2 million for related expenses associated with the deferred service performance obligations, respectively.

The decrease in deferred revenues and related expenses associated with the deferred service performance obligations is driven by the effects of the COVID-19 pandemic.

The deferral of revenue and expenses does not affect the amount, timing and any uncertainty of cash flows generated from operations.

In previous financial statements, the Company presented the disaggregated components of total revenue:

product revenue and service revenue, along with the cost of sales associated with each of these revenue streams as the service revenues exceeded 10% of consolidated sales.

Since the Company qualifies as a smaller reporting company, the Company has elected to discontinue disclosure of the disaggregated components of revenue and cost of sales in its c ondensed consolidated statements of income and comprehensive income and in the related notes to the condensed consolidated financial statements.

This presentation decision is effective beginning with this Quarterly Report on Form 10-Q for the period ended September 30, 2020.

For the three and nine months ended September 30, 2019, service revenue of $ 10.3 million and $ 29.9 million, respectively, were reported as service revenue which have now been combined as reported within total revenue.

Disaggregated revenue by geographic area follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in thousands) 2020 2019 2020 2019

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Disaggregated revenue by product type follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Fastening Systems 22.3 % 24.1 % 22.7 % 24.0 %

Fluid Power 13.2 % 15.2 % 13.8 % 15.2 %

Specialty Chemicals 13.3 % 11.7 % 11.7 % 11.6 %

Fluid Power 12.6 % 15.1 % 13.2 % 15.2 %

Cutting Tools and Abrasives 12.2 % 13.1 % 13.1 % 13.1 %

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(Dollars in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Inventories, gross $ 67,083 $ 60,500

2 unchanged sentences

Note 6 - Goodwill

Goodwill activity for the first six months of 2020 and 2019 is included in the table below:

Goodwill activity for the first nine months of 2020 and 2019 is included in the table below:

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Beginning balance $ 20,923 $ 20,079

Acquisition 15,952 —

Adjustment to original acquisition allocation — ( 12 )

3 unchanged sentences

As of June 30, 2020 the Bolt reporting unit's fair value exceeded its carrying value by approximately $5.4 million or 16%.

As of June 30, 2020 goodwill allocated to the Bolt operating unit was $12.8 million.

June 30, 2020 goodwill allocated to the Bolt operating unit was $12.8 million.

Related to the Lawson reporting unit, the Company performed a qualitative assessment as of March 31, 2020 and June 30, 2020 and determined that it was more likely than not the fair value of the reporting unit exceeded the carrying value of the reporting unit.

The Company determined that no triggering event occurred in the third quarter.

Although the Company believes the projected future operating results and cash flows and related estimates regarding the values were based on reasonable assumptions, it is reasonably possible that estimates made may be materially and adversely impacted in the near term as a result of the COVID-19 pandemic, including impairment losses related to goodwill.

2 unchanged sentences

(Dollars in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

2 unchanged sentences

$ 23,203 $ ( 4,476 ) $ 18,727 $ 15,759 $ ( 3,424 ) $ 12,335

Amortization expense of $ 0.7 million and $ 0.3 million related to intangible assets was recorded in General and administrative expenses for the six months ended June 30, 2020 and 2019, respectively.

The Company identified a "trigger event" as of March 31, 2020 due to adverse changes in the business climate related to COVID-19.

In accordance with ASC 350, the Company tested the definite life intangible assets considering the factors in ASC 360 and determined that the undiscounted future cash flows exceeded the net carrying value of the intangible assets.

As of June 30, 2020, there were no events or circumstances that indicate the carrying value may not be recoverable and thus no recoverability test was required.

Amortization expense of $ 1.1 million and $ 1.0 million related to intangible assets was recorded in General and administrative expenses for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, there were no events or circumstances that indicate the carrying value may not be recoverable and thus no recoverability test was required.

Note 8 - Leases

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The Company is also a lessor of its Decatur, Alabama property previously used in conjunction with a discontinued operation.

Lawson Operating Leases

Lawson MRO primarily has two types of leases:

leases for real estate and leases for equipment.

Operating real estate leases that have a material impact on the operations of the Company are related to the Company's distribution network and headquarters.

The Company possesses several additional property leases that are month to month basis and are not material in nature.

Lawson MRO does not possess any leases that have residual value guarantees.

Several property leases include renewal clauses which vary in length and may not include specific rent renewal amounts.

The Company will revise the value of the right of use assets and associated lease liabilities when the Company is reasonably certain it will renew a lease.

The value of the Right Of Use ("ROU") assets and associated lease liabilities is calculated using the total cash payments over the course of the lease, discounted to the present value using the appropriate incremental borrowing rate.

The right of use asset will be amortized over its useful life.

The lease liability is reduced in conjunction with the lease payments made, with adjustments made to the lease liability in order to account for non-straight line cash payments through the life of the lease.

Bolt primarily leases the real estate for its branch locations as well as its distribution center in Calgary, Alberta.

Bolt possesses additional property leases that are month to month and not material in nature.

Bolt property leases include renewal clauses which vary in length and may not include specific rent renewal amounts.

The Company will revise the value of the right of use asset and associated lease liability when the Company is reasonably certain it will renew a lease.

Significant Assumptions

The Company is required to determine a discount rate for the present value of lease payments.

If the rate is not included in the lease or cannot be readily determined, the Company must estimate the incremental borrowing rate to be used for the discount rate.

The discount rate of Lawson MRO and Bolt will be reviewed on a periodic basis and updated as needed.

The expenses and income generated by the leasing activity of Lawson as lessee for the three months ended June 30, 2020 and June 30, 2019 are as follows (Dollars in thousands):

Lease Type Classification Three Months Ended June 30, 2020 Three Months Ended June 30, 2019

The expenses and income generated by the leasing activity of Lawson as lessee for the three months ended September 30, 2020 and September 30, 2019 are as follows (Dollars in thousands):

Lease Type Classification Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

Consolidated Operating Lease Expense (1)

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The sublease was terminated in June 2019 and the Company has no other subleases.

The expenses and income generated by the leasing activity of Lawson as lessee for the six months ended June 30, 2020 and June 30, 2019 are as follows (Dollars in thousands):

Lease Type Classification Six Months Ended June 30, 2020 Six Months Ended June 30, 2019

The expenses and income generated by the leasing activity of Lawson as lessee for the nine months ended September 30, 2020 and September 30, 2019 are as follows (Dollars in thousands):

Lease Type Classification Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019

Consolidated Operating Lease Expense (1)

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The sublease was terminated in June 2019 and the Company has no other subleases.

The value of the net assets and liabilities generated by the leasing activity of Lawson as lessee as of June 30, 2020 and December 31, 2019 are as follows (Dollars in thousands):

Lease Type June 30,

The value of the net assets and liabilities generated by the leasing activity of Lawson as lessee as of September 30, 2020 and December 31, 2019 are as follows (Dollars in thousands):

Lease Type September 30,

2020 December 31,

Total ROU operating lease assets (1)

Total Right Of Use ("ROU") operating lease assets (1)

$ 8,938 $ 10,592

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Total long term lease obligation $ 6,693 $ 9,504

(1) Operating lease assets are recorded net of accumulated amortization of $ 4.5 million and $ 2.4 million as of June 30, 2020 and December 31, 2019, respectively

(2) Financing lease assets are recorded net of accumulated amortization of $ 0.3 million and $ 0.2 million as of June 30, 2020 and December 31, 2019, respectively

The value of the lease liabilities generated by the leasing activities of Lawson as lessee as of June 30, 2020 were as follows (Dollars in thousands):

(1) Operating lease assets are recorded net of accumulated amortization of $ 5.1 million and $ 2.4 million as of September 30, 2020 and December 31, 2019, respectively

(2) Financing lease assets are recorded net of accumulated amortization of $ 0.4 million and $ 0.2 million as of September 30, 2020 and December 31, 2019, respectively

The value of the lease liabilities generated by the leasing activities of Lawson as lessee as of September 30, 2020 were as follows (Dollars in thousands):

Maturity Date of Lease Liabilities Operating Leases Financing Leases Total

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(1) Minimum lease payments exclude payments to landlord for real estate taxes and common area maintenance $ 0.7 million

The weighted average lease terms and interest rates of the leases held by Lawson as of June 30, 2020 are as follows:

The weighted average lease terms and interest rates of the leases held by Lawson as of September 30, 2020 are as follows:

Lease Type Weighted Average Term in Years Weighted Average Interest Rate

1 unchanged sentence

Financing Leases 2.7 5.37 %

The cash outflows of the leasing activity of Lawson as lessee for the six months ending June 30, 2020 are as follows (Dollars in thousands):

The cash outflows of the leasing activity of Lawson as lessee for the nine months ending September 30, 2020 are as follows (Dollars in thousands):

Cash Flow Source Classification Amount

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Total net leverage ratio 3.25 :

The Company was in compliance with all covenants as of June 30, 2020.

At June 30, 2020, the Company had $ 1.7 million of borrowings and $ 97.3 million of availability under its revolving line of credit facility.

The weighted average interest rate was 2.64 % and 3.82 % for the six months ended June 30, 2020 and 2019, respectively.

The Company was in compliance with all covenants as of September 30, 2020.

During the third quarter of 2020 the Company entered into an amendment to the Credit Agreement which among other items increased the letter of credit basket from $ 15.0 million to $ 40.0 million until August 31, 2021 and authorized the Company to incur indebtedness in an amount up to $ 36.0 million for the acquisition of Partsmaster.

The Company had no outstanding borrowings under its Credit Agreement and $ 66.0 million of availability under its revolving line of credit facility.

The weighted average interest rate was 2.64 % and 4.54 % for the nine months ended September 30, 2020 and 2019, respectively.

Note 10 - Accrued Acquisition Liability

On August 31, 2020, Lawson acquired Partsmaster from NCH Corporation.

As part of the purchase price the Company agreed to pay $ 33.0 million in May 2021.

The payment obligation has been discounted to present value using an implied interest rate of 1.8% and is recognized as a current liability of $ 32.5 million in the Company's condensed consolidated balance sheet.

P ayment has been guaranteed under the Purchase Agreement which includes the issuance of a $ 33.0 million irrevocable standby letter of credit.

The accrued acquisition liability is included as outstanding debt in the quarterly financial covenant calculations.

Note 11 - Stock Repurchase Program

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In the first quarter of 2020 the Company purchased 47,504 shares of common stock at an average purchase price of $ 36.93 under the repurchase program.

No shares were repurchased in the second quarter of 2020.

No shares were repurchased in the second or third quarters of 2020 under the Company stock repurchase plan.

Note 12 — Severance Reserve

Changes in the Company’s reserve for severance as of June 30, 2020 and 2019 were as follows:

Changes in the Company’s reserve for severance as of September 30, 2020 and 2019 were as follows:

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Balance at beginning of period $ 909 $ 359

3 unchanged sentences

Note 13 — Stock-Based Compensation

The Company recorded stock-based compensation income of $ 7.5 million and expense of $ 5.2 million for the first six months of 2020 and 2019, respectively.

The Company recorded stock-based compensation inc ome of $ 2.8 million and expense of $ 7.6 million for the first nine months of 2020 and 2019, respectively.

A portion of stock-based compensation is related to the change in the market value of the Company's common stock.

Stock-based compensation liability of $ 6.3 million as of June 30, 2020 and $ 14.9 million as of December 31, 2019 is included in Accrued expenses and other liabilities.

A summary of stock-based awards issued during the six months ended June 30, 2020 follows:

Stock-based compensation lia bility of $ 10.4 million as of September 30, 2020 and $ 14.9 million as of December 31, 2019 is included in Accrued expenses and other liabilities.

A summary of stock-based awards issued during the nine months ended September 30, 2020 follows:

Restricted Stock Units ("RSUs")

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PAs are exchangeable for the Company's common stock ranging from zero to 16,278 , or the equivalent amount in cash, based upon the achievement of certain financial performance metrics.

For the three months ended June 30, 2020, stock options to purchase approximately 19,000 shares of the Company's common stock were excluded from the computation of diluted earnings per share because they were anti-dilutive.

No stock options were excluded from the computation of diluted earnings per share for the three months ended June 30, 2019 or the six months ended June 30, 2020 and June 30, 2019.

No stock options were excluded from the computation of diluted earnings per share for the three months ended September 30, 2020 or the nine months ended September 30, 2019.

Note 14 — Income Taxes

The Company recorded income tax expense of $ 5.3 million, a 28.6 % effective tax rate for the six months ended June 30, 2020.

The Company recorded income tax expense of $ 6.0 million, a 28.7 % effective tax rate for the nine months ended September 30, 2020.

The effective tax rate is higher than the U.S.

statutory tax rate due primarily to state taxes, recording of reserves for uncertain tax positions, and an inclusion for Global Intangible Low Taxed Income.

Income tax expense of $ 2.2 million, a 28.6 % effective tax rate was recorded for the six months ended June 30, 2019.

Income tax expense of $ 3.7 million, a 26.6 % effective tax rate was recorded for the nine months ended September 30, 2019.

This effective tax rate was higher than the U.S.

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Federal income tax, as well as income tax of multiple state and foreign jurisdictions.

As of June 30, 2020, the Company is subject to U.S.

As of September 30, 2020, the Company is subject to U.S.

Federal income tax examinations for the years 2017 through 2019 and income tax examinations from various other jurisdictions for the years 2013 through 2019.

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The injection process was completed in the first quarter of 2019 and the environmental consulting firm is monitoring the affected area.

The Company believes the remaining environmental remediation liability of approximately $ 0.1 million, classified within Accrued expenses and other liabilities on the accompanying Consolidated Balance Sheet, will be sufficient to cover the remaining cost of the plan.

The Company utilized its remaining liability balance in the third quarter of 2020.

there may be some additional nominal filing fees that are charged to the Company by the environmental consulting firm and ADEM, however these amounts are expected to be immaterial and will be expensed as incurred.

The Company does not expect to capitalize any amounts related to the remediation plan.

Note 16 — Related Party Transaction

During the second quarter of 2020 the Company purchased approximately $ 0.2 million of inventory from a company owned by an immediate relative of a Board member at fair market value.

The Company paid the amount owed in the second quarter and therefore no remaining liabilities exist as of June 30, 2020.

During the three and nine months ended September 30, 2020 the Company purchased approximately $ 0.7 million and $ 0.9 million, respectively, of inventory from a company owned by an immediate relative of a Board member at fair market value.

The Company paid substantially all of the amount owed in the third quarter and therefore immaterial remaining liabilities exist as of September 30, 2020.

Note 17 – Segment Information

3 unchanged sentences

The Lawson segment primarily relies on its large network of sales representatives to visit the customer at the customers' work location and provide VMI service and produce sales orders for product that is then shipped to the customer.

Given the nature of the acquired Partsmaster business, it is included in the Lawson segment for reporting purposes.

The Bolt Supply segment primarily sells product to customers through its branch locations.

Bolt Supply had 14 branches in operation at the end of the second quarter of 2020.

Bolt Supply had 14 branches in operation at the end of the third quarter of 2020.

Financial information for the Company's reportable segments follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Lawson product revenue $ 55,639 $ 74,866 $ 127,430 $ 147,905

Lawson service revenue 7,575 10,101 17,275 19,529

Total Lawson revenue 63,214 84,967 144,705 167,434

Lawson $ 79,806 $ 83,461 $ 224,511 $ 250,895

Bolt Supply 10,471 11,318 28,947 31,324

Consolidated total $ 90,277 $ 94,779 $ 253,458 $ 282,219

Lawson product gross profit $ 30,068 $ 41,130 $ 69,797 $ 81,734

Lawson service gross profit 4,805 5,627 10,196 10,642

Total Lawson gross profit 34,873 46,757 79,993 92,376

Lawson $ 43,038 $ 46,148 $ 123,031 $ 138,524

Bolt Supply 4,187 4,426 11,428 12,016

14 unchanged sentences

The Company has utilized the Canadian Emergency Wage Subsidy ("CEWS") Act for both Lawson Canada and Bolt for assistance with hourly employee costs.

The CEWS is a program that provides a subsidy of 75% of eligible wages for up to 24 weeks, retroactive from March 15, 2020 to August 29, 2020 subject to meeting certain criteria.

During the three months ended June 30, 2020 the Company recorded $ 0.9 million in subsidies from the CEWS program which is recognized as a reduction to selling, general and administrative expenses in the consolidated statement of income and comprehensive income.

The CEWS is a program that provides a subsidy of certain eligible wages commencing March 15, 2020 through December 31, 2020 subject to meeting certain criteria.

During the second quarter of 2020 the Company recorded $ 0.9 million in subsidies from the CEWS program which is recognized as a reduction to selling, general and administrative expenses in the consolidated statement of income and comprehensive income.

No subsidies were recognized in the three months ended September 30, 2020.

In the first quarter of 2020, the government of the state of Illinois defined essential businesses, allowing Lawson to operate during the pandemic.

1 unchanged sentence

Additionally the COVID-19 pandemic could result in a temporary closure of any or all of our distribution facilities or the Bolt branch locations, which would negatively impact our operations.

Other disruptions to our supply chain such as reduced capacity or temporary shutdowns of freight carriers could also negatively impact Company performance.

Other disruptions to our supply chain such as reduced capacity or temporary

shutdowns of freight carriers could also negatively impact Company performance.

The pandemic is negatively impacting sales and operations currently and may negatively impact future financial results, liquidity and overall performance of the Company.

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The Bolt business model relies on foot traffic in its branch locations.

The onset of the COVID-19 pandemic, as well as social distancing guidelines and government mandated shelter in place orders, have negatively impacted our business.

The onset of the COVID-19 pandemic, as well as social distancing guidelines and government mandated shelter in place orders, have negatively impacted the ability of our sales reps to visit our customers and for foot traffic to return to our Bolt branch locations, resulting in an overall negative impact on our business.

The second quarter 2020 financial performance of the Company was substantially negatively impacted as state and local governments throughout the United States and Canada imposed strict COVID-19 related restrictions, including shutdowns of nonessential businesses and stay-at-home orders, particularly in April.

These restrictions were relaxed in May and June, and were further relaxed throughout the third quarter.

The economic climate in the third quarter improved as non-essential businesses reopened in both limited capacity and full capacity.

The relaxed restrictions resulted in increased customer contact and more consistent customer visits for Lawson MRO sales representatives, as well as increased customer visits to Bolt branch locations.

The improved economic climate and increased activity of the Lawson MRO and Bolt segments led to a sequential improvement in financial results in the third quarter 2020 compared to the second quarter 2020.

The Company has taken several steps to mitigate the potential negative impacts of COVID-19.

While sales reps representatives continued to call on current and prospective customers via phone, fax and electronic methods, the lack of physically visiting customer sites along with the closure of customer locations across North America in response to the pandemic led to a decrease in sales compared to April 2019.

The Bolt Supply House also saw a decline in sales in April 2020 compared to April 2019 as the ability of customers to visit branch locations was restricted and certain customers temporarily closed.

As certain restrictions were lifted by states toward the end of the second quarter developed, Lawson sales representatives were able to visit additional customers and Bolt was able to allow customers inside their branch locations again on a limited basis, as well as continue to offer curbside pickup.

This led to improved sales activity in May and June on a sequential basis.

The Company took additional actions in the second quarter, including, but not limited to furloughing approximately 100 employees, reducing base salaries, canceling travel and award trips, temporarily consolidating its Suwanee distribution center operations into the McCook facility, and eliminating non-critical capital expenditures.

The actions taken included, but are not limited to, furloughing employees, reducing base salaries for a period of time, canceling travel and award trips, temporarily consolidating its Suwanee distribution center operations into the McCook facility, eliminating non-critical capital expenditures and eliminating various positions throughout the Company.

In the third quarter the Company brought back approximately 70% of the previously furloughed employees.

The Company reopened the Suwanee distribution center in a reduced capacity in the third quarter as overall business activity increased.

The Company continues to monitor its balance sheet and liquidity position and is taking actions to protect cash flows from operations, while at the same time managing its operating expenses in relation to current sales trends.

At June 30, 2020, the Company had $ 10.0 million of unrestricted cash and cash equivalents and an additional $ 97.3 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility.

At September 30, 2020, the Company had $ 17.2 million of unrestricted cash and cash equivalents and an additional $ 66.0 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility.

The Company recorded a liability of $ 32.5 million in relation to the acquisition of Partsmaster.

The Company will continue to closely monitor the operating environment and will take appropriate actions to protect the safety for its employees, customers and suppliers while continuing to meet its working capital needs and remain in compliance with its debt covenants.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements