What changed in this filing

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Item 1. Business

2021-02-26 compared with 2020-02-27 · 73 added, 35 removed, 97 unchanged (53% of the section changed)

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Industry and Competition

The MRO industrial distribution industry is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis.

The customer benefits from our knowledge and the convenience of ordering smaller quantities maintained by MRO suppliers.

We estimate that total annual revenue generated by the North American MRO marketplace exceeds $130 billion .

The MRO market is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis.

The customer benefits from our knowledge and the convenience of ordering smaller quantities maintained by us.

We estimate that total current annual revenue generated by the North American MRO marketplace exceeds $150 billion.

There is a significant amount of competitive fragmentation by geography and product within the industry.

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As orders are received, product is picked, packed and shipped to our customers.

Many factors affect the efficiency of this process including the physical design of the distribution centers, routing logistics, the number of times the product needs to be handled, transportation costs and the flexibility to meet the specific requirements of our customers.

Many factors affect the efficiency of this process including the physical design of the distribution centers, the extent of automation, routing logistics, the number of times the product needs to be handled, transportation costs and the flexibility to meet the specific requirements of our customers.

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 and approximately 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 Bolt operating segment primarily delivers products to its customers through 14 branches located in Alberta, Saskatchewan, Manitoba, and British Columbia, Canada.

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Sales generated via its sales team or through phone, fax or Internet orders are primarily shipped from one of the branch locations to the customer.

The majority of Bolt's customers are located in the geographic vicinity of the retail branches.

Bolt generally does not offer VMI service to its customers.

The majority of Bolt's customers are located in the geographic vicin ity of the branches.

Bolt generally does not offer VMI services to its customers.

Bolt generated 11.0% of the Company's annual 2020 sales.

Bolt product offerings are listed on the Bolt website and are available in each of the retail branch locations.

Purchased inventory is delivered to the packaging and distribution center in Calgary, Alberta.

Based on forecasted demand, product is picked, packed and shipped to the branch locations where the product is available for sale to customers.

During 2019 , the Lawson segment sold products to over 68,000 identified customers and the Bolt segment sold products to over 12,000 identified customers in addition to the walk up customers at its 14 branch locations.

Bolt product offerings are listed on the Bolt website and are available in each of the branch locations.

During 2020, the Lawson segment sold products to over 84,000 identified customers and the Bolt segment sold products to approximately 12,000 identified customers in addition to the walk up customers at i ts 14 branch locations.

Our largest customer accounted for approximately three percent of net sales.

In 2020, approximately 81% of our net sales were generated in the United States and approximately 19% in Canada.

The percentage of sales in Canada slightly increased in 2019 compared to 2018 primarily due to increased sales in the Bolt segment.

The percentage of sales in Canada slightly decreased in 2020 compared to 2019 primarily due to the inclusion of Partsmaster sales, the majority of which occurred in the US.

Our customers operate in a variety of industries including automotive repair, commercial vehicle maintenance, government, manufacturing, food processing, distribution, construction, oil and gas, mining, wholesale, service and others.

Although seasonality is not significant in our business, due to fewer selling days during the holiday season, net sales in the fourth quarter are historically lower than the first three quarters of the year.

Although seasonality is not significant in our business, due to fewer selling days and less activity during the holiday season, net sales in the fourth quarter are historically lower than the first three quarters of the year.

Our customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts.

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Sales percentages by broad product categories of our product mix in 2020 were as follows:

Product Category

Product Category Percentage

Fastening systems 22%

Cutting tools and abrasives 14%

Fluid power 13%

Specialty chemicals 11%

Electrical 10%

Aftermarket automotive supplies 7%

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The Lawson segment offers over 357,000 different products for sale of which over 89,000 products are maintained in our distribution centers.

The Partsmaster acquisition contributed approximately 201,000 different products for sale including items not stored in their distribution center.

We strive to carry sufficient inventory to ensure product availability and rapid processing of customer orders.

Accurate forecasting of customer demand is essential to establish the proper level of inventory for each product.

Accurate for ecasting of customer demand is essential to establish the proper level of inventory for each product.

Inventory levels need to be sufficient to meet customer demand while avoiding the costs of stocking excess items.

During 2019 , our Lawson segment purchased products from approximately 2,300 suppliers and no single supplier accounted for more than five percent of our purchases.

During 2020, our Lawson segment purchased products from approximately 3,100 suppliers and no single supplier accounted for more than four percent of our purchases.

The loss of one of our core suppliers could affect our operations by hindering our ability to provide full service to our customers.

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We recommend solutions to help customers maximize product performance and avoid costly product failures.

Our engineering department provides technical support for our products and offers on-site problem solutions.

It also develops and presents product safety and technical

training seminars tailored to meet our customers' needs.

Our engineering

department provides technical support for our products and offers on-site problem solutions.

It also develops and presents product safety and technical training seminars tailored to meet our customers' needs.

Safety Data Sheets are maintained electronically and are available to our customers on our website.

Bolt offers over 37,000 different core products for sale of which over 18,000 products are maintained in the Calgary distribution center.

The majority of inventory is kept in the Calgary distribution center, with each retail branch maintaining appropriate inventory levels for their business needs.

Bolt offers approximately 40,000 different core products for sale of which approximately 19,000 products are maintained in the Calgary distribution center.

The majority of inventory is kept in the Calgary distribution center, with each branch maintaining appropriate inventory levels for their business needs.

Human Capital Resources

General Employee Information

Our organization supports a culture of continuous improvement and emphasizes the importance of addressing the needs of our customers.

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The national accounts are comprised of multi-location customers with a national scope.

Sales force growth is a driver of our business.

Increased sales coverage throughout the United States and Canada directly impacts our success as an organization.

The Company is focused on identifying and recruiting individuals who are a good fit for our sales organization and providing them the tools needed to succeed.

When these employees are hired, they participate in a training program to learn the products and processes of Lawson and also the history, values and culture of the Company.

This sales training program allows the new sales representatives to assimilate into the Company and learn the most successful ways to call on potential customers, maintain relationships with existing customers, and provide the proper products and VMI services to ensure that the customers needs are met.

The Lawson sales team receives education in the best uses of products, enabling them to provide customized solutions to address customers' needs including technical expertise and on-site problem resolution.

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Additionally, Lawson sales representatives offer customized storage systems for improved organization and a more efficient work-flow.

The majority of Bolt sales are made from its 14 branch locations.

While recruitment of new sales representatives is important, the goal of this process is to ensure the sales representatives who are brought on board will be members of the Lawson team for the long term.

Our experience has proven that a sales representative becomes more successful and generates more sales for the Company the longer they are a part of Lawson.

Longer tenured sales representatives form deeper relationships with customers, which results in customers relying on the Lawson sales representative for a larger share of their MRO needs.

Reducing sales force churn and ensuring sales representatives can grow and reach their full potential over the long term is a focus of the Lawson leadership team.

The sales leadership team is in regular contact with Regional Sales Directors, District Sales Managers and experienced sales representatives to discuss the challenges our sales representatives face in generating sales and how the Company can support them.

The Company regularly reviews the performance of sales representatives and determines how to manage underperforming sales representatives and territories.

In August 2020, we acquired Partsmaster, a leading MRO distributor from NCH Corporation ("NCH").

At the time of acquisition Partsmaster had approximately 200 sales representatives throughout the United States and Canada.

Partsmaster is an example of the acquisition strategy pursued by Lawson in recent years.

Our acquisition strategy targets companies who are a good cultural fit and include organizations whose sales representatives will improve our sales coverage in underserved territories and allow us to generate additional sales by leveraging their existing customer relationships.

The majority of Bolt sales are made from its 14 bran ch locations.

Bolt has approximately 23 sales territory managers who serve companies and professional tradespeople throughout Western Canada.

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All newly-hired sales team members are required to receive and maintain the same certification.

COVID-19 Impact on Human Capital

The Company’s response to the COVID-19 pandemic is evidence that the Company can take the necessary steps to ensure the safety of our employees and still fulfill the needs of its customers and other stakeholders.

The unique circumstances of the COVID-19 pandemic negatively impacted the ability of Lawson MRO sales reps and the Bolt branch locations to fulfill their duties during 2020.

The second quarter 2020 performance of the Company was 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.

The Lawson MRO business model relies upon customer interaction as well as a consistent schedule of onsite visits by our sales representatives to customer locations.

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 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.

A large portion of Lawson corporate employees began to work remotely at the onset of the pandemic in March 2020 to limit exposure to the virus.

Many of these employees continue to work from home.

In response to the onset of the COVID-19 pandemic, sales representatives contacted customers via phone, e-mail and other electronic means, who were deemed essential businesses and therefore allowed to remain open during this time.

As COVID-19 related restrictions were relaxed, Lawson MRO sales representatives began to safely visit customers and call on new customers, while following social distancing guidelines and limiting potential exposure to the virus.

In addition, Bolt branch locations began to offer curbside pickup in the second quarter of 2020 and continue to do so.

As COVID-19 restrictions were relaxed, the Company was able to operate in a more stable environment.

Lawson MRO sales representatives have continued to safely visit customer locations, develop strong relationships and provide excellent service to existing customers, and generate new customer relationships while following COVID-19 related restrictions and social distancing guidelines.

Bolt branch locations continue to safely operate while following social distancing guidelines and allowing customers into stores.

The Company will continue to navigate through the COVID-19 pandemic with a focus on the safety of its team members.

Strategic Focus

In 2020, we intend to grow our sales organically and through acquisitions and further improve our operations to make Lawson our customers' first choice for products, services and solutions that improve their operating performance.

In 2021, we intend to grow our sales organically, pursue acquisitions and further improve our operations to make Lawson our customers' first choice for products, services and solutions that improve their operating performance.

Our sales are impacted by the size of our sales team, their productivity and their territorial coverage.

Our plan to expand the sales force is designed to identify under-served territories that offer the greatest growth potential, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization.

Our plan to expand the sales force is designed by identifying under-served territories that offer the greatest growth potential, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization.

To acquire the best new sales talent and prepare them for success, we have developed an extensive talent acquisition strategy.

We use both internal and external resources to identify and recruit the best available sales talent.

Our training program is intended to provide new sales representatives with the tools they need to maximize their sales potential.

As we increase our sales coverage, we anticipate a short-term decrease in average sales per day per sales representative, as new representatives build up customer relationships in their territories.

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We strive to empower our sales representatives with the training, technology and support they need to maximize their sales potential while providing our customers with superior service and making it easy for them to do business with us.

In addition to organic growth, we plan to continue to actively pursue acquisition opportunities that we believe are financially accretive to our organization.

Lawson continues to explore growth opportunities in the MRO space that provide different channels to reach customers, increase sales and generate positive results.

In addition to organic growth, we plan to continue to actively pursue acquisition opportunities that we believe will be financially accretive to our organization.

Lawson plans to continue to explore growth opportunities in the MRO space that provide different channels to reach customers, increase sales and generate positive results.

In order to improve our operations, we utilize a Lean Six Sigma approach, which is a set of tools that allow a project team to analyze and improve selected business processes.

and effect of current operations, design and implement new ways to improve performance and then measure the results for effectiveness.

The Lean Six Sigma process is ingrained in our culture as we have had over 100 employees complete Lean Six Sigma training over the past four years and plan to continue this training program in the years to come.

The project teams work with the process owners to develop statistical measures to evaluate the effectiveness of the process, document the current components and process flow, examine the root cause of defects and effect of current operations, design and implement new ways to improve performance and then measure the results for effectiveness.

The Lean Six Sigma process is ingrained in our culture as we have had over 100 employees complete Lean Six Sigma training over the past five years and plan to continue this training program in the years to come.

We believe our emphasis on continuous improvement will lead to further reductions in error rates, increased processing speed, reduction in cycle times, standardization of procedures and elimination of waste.

This will enable us to become a more efficient and effective organization which provides our customers with the best purchasing experience possible.

The acquisition of Partsmaster represents an important step in our acquisition strategy.

Partsmaster is a strong strategic fit with a successful VMI business model and product offerings complementary to the Company.

The addition of the Partsmaster sales force has increased our coverage throughout the United States and Canada and will offer potential for combined company sales, and continue to leverage the existing customer relationships in order to grow our business.

Available Information

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The executive officers of Lawson as of February 1, 2021 were as follows:

Year First Named to Present Office

President and Chief Executive Officer

Executive Vice President, Secretary and General Counsel

Executive Vice President, Chief Financial Officer, Treasurer and Controller

Senior Vice President, Sales

Senior Vice President, Supply Chain, Product Management and Marketing

Name Age Year First Named to Present Office Position

DeCata 63 2012 President and Chief Executive Officer

Jenkins 71 2004 Executive Vice President, Secretary and General Counsel

Knutson 57 2014 Executive Vice President, Chief Financial Officer, Treasurer and Controller

Brown 57 2017 Senior Vice President, Sales

McCarthy 52 2019 Senior Vice President, Supply Chain, Product Management and Marketing

Biographical information for the past five years relating to each of our executive officers is set forth below.

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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-K

Item 1. Business