Company Quick10K Filing
Lawson Products
Price34.50 EPS1
Shares9 P/E32
MCap324 P/FCF40
Net Debt-9 EBIT14
TEV314 TEV/EBIT22
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-07-30
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-24
10-Q 2019-06-30 Filed 2019-07-25
10-Q 2019-03-31 Filed 2019-04-18
10-K 2018-12-31 Filed 2019-03-04
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-20
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-20
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-20
10-Q 2016-06-30 Filed 2016-07-21
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-18
10-Q 2015-09-30 Filed 2015-10-22
10-Q 2015-06-30 Filed 2015-07-23
10-Q 2015-03-31 Filed 2015-04-30
10-K 2015-02-19 Filed 2015-02-19
10-Q 2014-09-30 Filed 2014-10-23
10-Q 2014-06-30 Filed 2014-07-24
10-Q 2014-03-31 Filed 2014-04-24
10-K 2013-12-31 Filed 2014-02-20
10-Q 2013-09-30 Filed 2013-10-24
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-04-25
10-K 2012-12-31 Filed 2013-02-26
10-Q 2012-09-30 Filed 2012-10-25
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-04-26
10-K 2011-12-31 Filed 2012-03-01
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-07-28
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-17
10-Q 2010-09-30 Filed 2010-10-28
10-Q 2010-06-30 Filed 2010-07-28
10-Q 2010-03-31 Filed 2010-04-29
10-K 2009-12-31 Filed 2010-02-25
8-K 2020-08-31 Enter Agreement, M&A, Off-BS Arrangement, Other Events, Exhibits
8-K 2020-08-05 Regulation FD, Exhibits
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-05-21
8-K 2020-05-18
8-K 2020-05-12
8-K 2020-04-30
8-K 2020-04-10
8-K 2020-02-27
8-K 2019-11-07
8-K 2019-10-11
8-K 2019-09-30
8-K 2019-08-05
8-K 2019-07-25
8-K 2019-05-23
8-K 2019-05-14
8-K 2019-05-03
8-K 2019-04-17
8-K 2019-03-31
8-K 2019-03-18
8-K 2019-02-28
8-K 2019-01-21
8-K 2018-11-08
8-K 2018-10-01
8-K 2018-08-07
8-K 2018-05-31
8-K 2018-05-15
8-K 2018-04-19
8-K 2018-04-09
8-K 2018-02-22

LAWS 10Q Quarterly Report

Part I - Financial Information
Item 1 - Financial Statements
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Note 2 - Revenue Recognition
Note 3 - Restricted Cash
Note 4 - Inventories, Net
Note 5 - Goodwill
Note 6 - Intangible Assets
Note 7 - Leases
Note 8 - Credit Agreement
Note 9 - Stock Repurchase Program
Note 10 - Severance Reserve
Note 11 - Stock - Based Compensation
Note 12 - Income Taxes
Note 13 - Contingent Liabilities
Note 14 - Related Party Transaction
Note 15 - Segment Information
Note 16 - Covid - 19 Risks and Uncertainties
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3 of Part I Is Inapplicable and Has Been Omitted From This Report.
Item 4. Controls and Procedures
Part II
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 a2020q2ex311.htm
EX-31.2 a2020q2ex312.htm
EX-32 a2020q2ex32.htm

Lawson Products Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
210168126844202012201420172020
Assets, Equity
10079583716-42012201420172020
Rev, G Profit, Net Income
155-5-15-25-352012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
 
(Mark One)
 Quarterly Report under Section 13 OR 15(d) of the Securities Exchange Act of 1934
For quarterly period ended June 30, 2020
or
 Transition Report under Section 13 OR 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             

Commission file Number: 0-10546 
LAWSON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)

Delaware 36-2229304
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
8770 W. Bryn Mawr Avenue, Suite 900,Chicago,Illinois 60631
(Address of principal executive offices) (Zip Code)
(773) 304-5050
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $1.00 par valueLAWSNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares outstanding of the registrant’s common stock, $1 par value, as of July 15, 2020 was 9,008,254.
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Table of Contents
“Safe Harbor” Statement under the Securities Litigation Reform Act of 1995:

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms “may,” “should,” “could,” “anticipate,” “believe,” “continues,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential,” “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include:

the effect of the COVID-19 virus on the overall economy, demand for our products, our supply chain, our employees and our operating results;
the effect of general economic and market conditions;
the ability to generate sufficient cash to fund our operating requirements;
the ability to meet the covenant requirements of our line of credit;
the market price of our common stock may decline;
inventory obsolescence;
work stoppages and other disruptions at transportation centers or shipping ports;
changing customer demand and product mixes;
increases in energy costs, tariffs and the cost of raw materials, including commodity prices;
decreases in demand from oil and gas customers due to lower oil prices;
disruptions of our information and communication systems;
cyber attacks or other information security breaches;
failure to recruit, integrate and retain a talented workforce including productive sales representatives;
the inability to successfully make or integrate acquisitions into the organization;
foreign currency fluctuations
failure to manage change within the organization;
highly competitive market;
changes that affect governmental and other tax-supported entities;
violations of environmental protection or other governmental regulations;
negative changes related to tax matters;
Luther King Capital's significant influence over the Company given its ownership percentage; and
all other factors discussed in the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 31, 2019 and in this Quarterly Report on Form 10-Q for the period ended June 30, 2020.

The Company undertakes no obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
Lawson Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data)
June 30,December 31,
20202019
ASSETS(Unaudited)
Current assets:
Cash and cash equivalents$10,012  $5,495  
Restricted cash802  802  
Accounts receivable, less allowance for doubtful accounts of $961 and $593, respectively
33,968  38,843  
Inventories, net54,910  55,905  
Miscellaneous receivables and prepaid expenses6,046  5,377  
Total current assets105,738  106,422  
Property, plant and equipment, net14,872  16,546  
Deferred income taxes19,218  21,711  
Goodwill20,150  20,923  
Cash value of life insurance14,716  14,969  
Intangible assets, net11,250  12,335  
Right of use assets9,507  11,246  
Other assets256  277  
Total assets$195,707  $204,429  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$11,492  $13,789  
Lease obligation3,921  3,830  
Accrued expenses and other liabilities24,195  39,311  
Total current liabilities39,608  56,930  
Revolving line of credit1,712  2,271  
Security bonus plan11,832  11,840  
Lease obligation7,427  9,504  
Deferred compensation6,186  6,370  
Deferred tax liability6,094  6,188  
Other liabilities3,804  3,325  
Total liabilities76,663  96,428  
Stockholders’ equity:
Preferred stock, $1 par value:
Authorized - 500,000 shares, Issued and outstanding — None
    
Common stock, $1 par value:
Authorized - 35,000,000 shares
Issued - 9,201,315 and 9,190,171 shares, respectively
Outstanding -9,007,411 and 9,043,771 shares, respectively
9,201  9,190  
Capital in excess of par value19,029  18,077  
Retained earnings99,648  86,496  
Treasury stock – 193,904 and 146,400 shares, respectively
(7,517) (5,761) 
Accumulated other comprehensive loss(1,317) (1) 
Total stockholders’ equity119,044  108,001  
Total liabilities and stockholders’ equity$195,707  $204,429  

See notes to condensed consolidated financial statements.
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Table of Contents
Lawson Products, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Product revenue$64,571  $85,996  $145,906  $167,911  
Service revenue7,575  10,101  17,275  19,529  
Total revenue72,146  96,097  163,181  187,440  
Product cost of goods sold31,063  40,580  68,868  78,587  
Service costs2,770  4,474  7,079  8,887  
Gross profit
38,313  51,043  87,234  99,966  
Operating expenses:
Selling expenses16,306  21,867  36,290  43,609  
General and administrative expenses21,438  27,553  31,737  49,190  
Operating expenses37,744  49,420  68,027  92,799  
Operating income569  1,623  19,207  7,167  
Interest expense(72) (146) (187) (343) 
Other income (expense), net511  339  (600) 811  
Income before income taxes
1,008  1,816  18,420  7,635  
Income tax expense389  509  5,268  2,182  
Net income$619  $1,307  $13,152  $5,453  
Basic income per share of common stock
$0.07  $0.15  $1.46  $0.61  
Diluted income per share of common stock
$0.07  $0.14  $1.41  $0.58  
Weighted average shares outstanding:
Basic weighted average shares outstanding9,002  8,976  9,017  8,969  
Effect of dilutive securities outstanding296  405  310  379  
Diluted weighted average shares outstanding
9,298  9,381  9,327  9,348  
Comprehensive income:
Net income$619  $1,307  $13,152  $5,453  
Other comprehensive income, net of tax
Adjustment for foreign currency translation1,178  717  (1,316) 1,392  
Net comprehensive income$1,797  $2,024  $11,836  $6,845  




See notes to condensed consolidated financial statements.
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Table of Contents
Lawson Products, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)

Common StockCapital in Excess of Par ValueAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Outstanding Shares$1 Par ValueRetained EarningsTreasury Stock
Balance at January 1, 2020
9,043,771  $9,190  $18,077  $86,496  $(5,761) $(1) $108,001  
Net income
—  —  —  12,533  —  —  12,533  
Treasury shares repurchased(47,504) —  —  —  (1,756) —  (1,756) 
Adjustment for foreign currency translation
—  —  —  —  —  (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  
Net income
—  —  —  619  —  —  619  
Adjustment for foreign currency translation
—  —  —  —  —  1,178  1,178  
Stock-based compensation
—  —  498  —  —  —  498  
Shares issued
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  



Common StockCapital in Excess of Par ValueAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Outstanding Shares$1 Par ValueRetained EarningsTreasury Stock
Balance at January 1, 2019
8,955,930  $9,006  $15,623  $77,338  $(1,234) $(1,560) $99,173  
Change in accounting principle (1)
—  —  —  1,937  —  —  1,937  
Net income
—  —  —  4,146  —  —  4,146  
Adjustment for foreign currency translation
—  —  —  —  —  675  675  
Stock-based compensation
—  —  666  —  —  —  666  
Shares issued
6,520  6  (6) —  —  —    
Balance at March 31, 2019
8,962,450  9,012  16,283  83,421  (1,234) (885) 106,597  
Net income
—  —  —  1,307  —  —  1,307  
Adjustment for foreign currency translation
—  —  —  —  —  717  717  
Stock-based compensation
—  —  711  —  —  —  711  
Shares issued
20,712  21  (21) —  —  —    
Balance at June 30, 2019
8,983,162  $9,033  $16,973  $84,728  $(1,234) $(168) $109,332  

(1) The Company adopted the ASC No.842, Leases (ASC 842) on January 1, 2019 using the modified retrospective approach. See Note 7 - Leases for further details.


See notes to condensed consolidated financial statements.
6


Table of Contents
Lawson Products, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

 Six Months Ended June 30,
 20202019
Operating activities:
Net income$13,152  $5,453  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization3,020  2,933  
Stock-based compensation(7,513) 5,247  
Deferred income taxes2,514  1,591  
Changes in operating assets and liabilities:
Accounts receivable3,887  (7,974) 
Inventories311  (1,882) 
Prepaid expenses and other assets(499) (1,629) 
Accounts payable and other liabilities(7,527) (6,406) 
Other492  434  
Net cash provided by (used in) operating activities$7,837  $(2,233) 
Investing activities:
Purchases of property, plant and equipment$(720) $(944) 
Net cash used in investing activities$(720) $(944) 
Financing activities:
Net payments on revolving lines of credit$(559) $(2,000) 
Repurchase treasury shares(1,756)   
Payment of financing lease principal(135) (123) 
Proceeds from stock option exercises15  16  
Net cash used in financing activities$(2,435) $(2,107) 
Effect of exchange rate changes on cash and cash equivalents$(165) $316  
Increase (decrease) in cash, cash equivalents and restricted cash4,517  (4,968) 
Cash, cash equivalents and restricted cash at beginning of period6,297  12,683  
Cash, cash equivalents and restricted cash at end of period$10,814  $7,715  
Cash and cash equivalents$10,012  $6,915  
Restricted cash802  800  
Cash, cash equivalents and restricted cash$10,814  $7,715  
Supplemental disclosure of cash flow information
Net cash paid for income taxes207  259  
Net cash paid for interest247  358  
See notes to condensed consolidated financial statements.
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Table of Contents
Notes to Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Lawson Products, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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.

The Company has two operating segments. The first segment, the Lawson operating segment, distributes maintenance, repair and operations ("MRO") products to customers primarily through a network of sales representatives offering vendor managed inventory ("VMI") service to customers throughout the United States and Canada. The second segment, The Bolt Supply House Ltd. ("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.

Note 2 - Revenue Recognition

As part of the Company's revenue recognition analysis, it concluded that it has two separate performance obligations, and accordingly, two separate revenue streams: 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.

Performance Obligations

Lawson has two operating segments; the Lawson segment and the Bolt Supply segment.

The Lawson segment has two distinct performance obligations offered to its customers: a product performance obligation and a service performance obligation. Although the Company has identified that it offers its customers both a product and a service obligation, the customer only receives one invoice per transaction with no price breakout between these obligations. 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. 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. Since some components of VMI service have not been provided at the time the control of the product transfers to the customer, that portion of expected consideration is deferred until the time that those services have been provided.

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.
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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.

Disaggregated revenue by geographic area follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2020201920202019
United States$57,096  $76,119  $130,679  $150,167  
Canada15,050  19,978  32,502  37,273  
Consolidated total$72,146  $96,097  $163,181  $187,440  

Disaggregated revenue by product type follows:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Fastening Systems23.8 %24.3 %23.3 %23.9 %
Fluid Power13.2 %15.2 %13.8 %15.2 %
Specialty Chemicals12.8 %11.7 %11.9 %11.5 %
Cutting Tools and Abrasives12.5 %13.0 %12.9 %13.1 %
Electrical10.0 %10.7 %10.4 %11.1 %
Safety6.1 %4.7 %6.2 %4.7 %
Aftermarket Automotive Supplies6.0 %7.6 %7.2 %8.0 %
Welding and Metal Repair1.5 %1.6 %1.5 %1.7 %
Other14.1 %11.2 %12.8 %10.8 %
Consolidated Total100.0 %100.0 %100.0 %100.0 %

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Note 3 — Restricted Cash

The Company has agreed to maintain $0.8 million in a money market account as collateral for an outside party that is providing certain commercial card processing services for the Company. The Company is restricted from withdrawing this balance without the prior consent of the outside party during the term of the agreement.
Note 4 — Inventories, Net

Inventories, net, consisting primarily of purchased goods which are offered for resale, were as follows:
 (Dollars in thousands)
 June 30, 2020December 31, 2019
Inventories, gross$59,467  $60,500  
Reserve for obsolete and excess inventory(4,557) (4,595) 
Inventories, net$54,910  $55,905  

Note 5 - Goodwill

Goodwill activity for the first six months of 2020 and 2019 is included in the table below:
 (Dollars in thousands)
Six Months Ended June 30,
20202019
Beginning balance$20,923  $20,079  
Adjustment to original acquisition allocation  2  
Impact of foreign exchange(773) 713  
Ending balance$20,150  $20,794  

The Company performed a quantitative impairment test on the Bolt goodwill as of March 31, 3020 and June 30, 2020. 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. 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.

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.

Note 6 - Intangible Assets

The gross carrying amount and accumulated amortization by intangible asset class were as follows:
 (Dollars in thousands)
June 30, 2020December 31, 2019
Gross Carrying AmountAccumulated AmortizationNet Carrying ValueGross Carrying AmountAccumulated AmortizationNet Carrying Value
Trade names$8,121  $(2,237) $5,884  $8,422  $(2,020) $6,402  
Customer relationships7,135  (1,769) 5,366  7,337  (1,404) 5,933  
$15,256  $(4,006) $11,250  $15,759  $(3,424) $12,335  

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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.

Note 7 - Leases

The Company leases property used for distribution centers, office space, and Bolt branch locations throughout the US and Canada, along with various equipment located in distribution centers and corporate headquarters. 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 TypeClassificationThree Months Ended June 30, 2020Three Months Ended June 30, 2019
Consolidated Operating Lease Expense (1)
Operating expenses$1,183  $1,227