laws-20220331

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 March 31, 2022


			☐			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 class

Trading Symbol

Name of each exchange on which registered

Common stock, $1.00 par value

LAWS

NASDAQ 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 every Interactive Data File required to be submitted 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 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 April 15, 2022 was 19,420,167.

TABLE OF CONTENTS


		Page #
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	5

	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021	5

	Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31 , 202 2 and 20 2 1 (Unaudited)	6

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31 , 202 2 and 20 2 1 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1 , 202 2 and 20 2 1 (Unaudited)	9

	Notes to Condensed Consolidated Financial Statements (Unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30

Item 4.	Controls and Procedures	30

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Shares of Equity Securities and Use of Proceeds	38

Item 6.	Exhibits	38

	SIGNATURES	41

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 “aim,” “anticipate,” “believe,” “contemplates,” “continues,” “could,” “ensure,” “estimate,” “expect,” “forecasts,” “if,” “intend,” “likely,” “may,” “might,” “objective,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “probable,” “project,” “shall,” “should,” “strategy,” “will,” “would,” and other words and terms of similar meaning and expression are intended to identify forward-looking statements. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. 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 our business, financial condition and results of operations:

•inventory obsolescence;

•work stoppages and other disruptions at transportation centers or shipping ports;

•TestEquity’s reliance on a significant supplier for a significant amount of its product inventory;

•changes in our customers, product mix and pricing strategy;

•disruptions of our information and communication systems;

•cyber attacks or other information security incidents;

•the inability to successfully recruit, integrate and retain productive sales representatives;

•failure to retain talented employees, managers and executives;

•the inability of management to successfully implement changes in operating processes;

•the inability to successfully integrate acquisitions into our organization;

•competition in the markets in which we operate;

•changes that affect government and other tax-supported entities;

•our significant amount of indebtedness;

•failure to adequately fund our operating and working capital needs through cash generated from operations and cash available through our credit facility;

•failure to meet the covenant requirements of our credit facility;

•declines in the market price of our common stock;

•Luther King Capital Management Corporation’s significant influence over the Company in light of its ownership percentage;

•violations of environmental protection regulations;

•changes in tax matters;

•the COVID-19 pandemic;

•the issuance of additional shares of Lawson common stock to entities affiliated with Luther King Capital Management Corporation in connection with the Mergers;

•any difficulties in combining certain operations of TestEquity’s and Gexpro Services’ respective businesses with our legacy operations, and/or the failure to successfully combine those operations within our expected timetable;

•business uncertainties as a result of the Mergers;

•incurrence of additional transaction costs in connection with the Mergers;

•any inaccuracies in Lawson’s estimates and judgments related to the acquisition accounting models used to record the purchase price allocation in connection with the Mergers;

•potential impairment charges for goodwill and other intangible assets;

•risks arising from TestEquity’s and Gexpro Services’ international operations subjecting us to new and additional legal and regulatory regimes;

•stockholder litigation relating to the Mergers;

•limitations on our ability to use our net operating losses and certain other tax attributes generated prior to the Mergers;

•the risk that TestEquity and/or Gexpro Services may not have in place the financial organization, reporting and internal controls necessary for a public company;

•a downturn in the economy or in certain sectors of the economy;

•changes in energy costs, tariffs and the cost of raw materials used in our products;

•supply chain constraints, inflationary pressure and labor shortages;

•foreign currency exchange rate changes; and

•all other factors discussed in the Company’s “Risk Factors” set forth in this Quarterly Report on Form 10-Q for the period ended March 31, 2022.

Table of Contents

The Company undertakes no obligation to update any such factors, assumptions and uncertainties 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.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)


	March 31,		December 31,
	2022		2021
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	5,534	$	4,181
Restricted cash	200		198
Accounts receivable, less allowance for doubtful accounts of $830 and $798, respectively	54,940		47,031
Inventories, net	77,297		73,849
Miscellaneous receivables and prepaid expenses	7,954		7,517
Total current assets	145,925		132,776

Property, plant and equipment, less accumulated depreciation and amortization	19,165		18,828
Goodwill	35,510		35,313
Deferred income taxes	18,556		20,111
Intangible assets, net	15,613		16,165
Cash value of life insurance	18,025		18,573
Right of use assets	17,571		14,045
Other assets	348		346
Total assets	$	270,713	$	256,157

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable	$	31,726	$	21,089
Lease obligation	4,855		4,467
Accrued expenses and other liabilities	34,516		46,688
Total current liabilities	71,097		72,244

Revolving line of credit	15,566		11,900
Security bonus plan	10,353		10,578
Deferred compensation	11,321		11,962
Lease obligation	13,908		10,841
Deferred tax liability	1,689		1,671
Other liabilities	4,047		3,954
Total liabilities	127,981		123,150

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 - 9,368,463 and 9,363,093 shares, respectively Outstanding - 9,120,167 and 9,115,584 shares, respectively	9,368		9,363
Capital in excess of par value	22,424		22,118
Retained earnings	120,001		111,015
Treasury stock – 248,296 and 247,509 shares, respectively	(10,066)		(10,033)
Accumulated other comprehensive income	1,005		544
Total stockholders’ equity	142,732		133,007
Total liabilities and stockholders’ equity	$	270,713	$	256,157

See notes to Condensed Consolidated Financial Statements

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 March 31,
	2022		2021



Revenue	$	117,877	$	103,556



Cost of goods sold	57,379		48,996
Gross profit	60,498		54,560

Operating expenses:
Selling expenses	26,310		23,802
General and administrative expenses	22,112		25,948
Operating expenses	48,422		49,750

Operating income	12,076		4,810

Interest expense	(95)		(323)
Other income, net	204		372

Income before income taxes	12,185		4,859
Income tax expense	3,199		1,263

Net income	$	8,986	$	3,596

Basic income per share of common stock	$	0.99	$	0.40

Diluted income per share of common stock	$	0.96	$	0.39

Weighted average shares outstanding:
Basic weighted average shares outstanding	9,121		9,063
Effect of dilutive securities outstanding	236		265
Diluted weighted average shares outstanding	9,357		9,328

Comprehensive income
Net income	$	8,986	$	3,596
Other comprehensive income, net of tax:
Adjustment for foreign currency translation	461		631
Comprehensive income	$	9,447	$	4,227

See notes to Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)


	Common Stock			Capital in Excess of Par Value						Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Outstanding Shares	$1 Par Value				Retained Earnings		Treasury Stock
Balance at December 31, 2021	9,115,584	$	9,363	$	22,118	$	111,015	$	(10,033)	$	544	$	133,007

Net income	—	—		—		8,986		—		—		8,986
Adjustment for foreign currency translation	—	—		—		—		—		461		461
Stock-based compensation	—	—		311		—		—		—		311
Shares issued	4,583	5		(5)		—		—		—		—
Shares repurchased held in treasury	—	—		—		—		(33)		—		(33)
Balance at March 31, 2022	9,120,167	$	9,368	$	22,424	$	120,001	$	(10,066)	$	1,005	$	142,732

See notes to Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)


	Common Stock			Capital in Excess of Par Value						Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Outstanding Shares	$1 Par Value				Retained Earnings		Treasury Stock
Balance at December 31, 2020	9,061,039	$	9,288	$	19,841	$	101,609	$	(9,015)	$	699	$	122,422

Net income	—	—		—		3,596		—		—		3,596
Adjustment for foreign currency translation	—	—		—		—		—		631		631
Stock-based compensation	—	—		422		—		—		—		422
Shares issued	5,776	5		(5)		—		—		—		—
Shares repurchased held in treasury	(268)			—		—		(13)		—		(13)
Balance at March 31, 2021	9,066,547	$	9,293	$	20,258	$	105,205	$	(9,028)	$	1,330	$	127,058

See notes to Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021

Operating activities
Net income	$	8,986	$	3,596

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	2,089		1,935
Stock-based compensation	(8,623)		944
Deferred income taxes	1,565		(320)
Reserve for obsolete and excess inventory	438		1,224

Changes in operating assets and liabilities
Accounts receivable	(7,915)		(4,426)
Inventories	(3,665)		91
Miscellaneous receivables, prepaid expenses and other assets	96		(1,148)
Accounts payable and other liabilities	6,886		(3,733)
Other	(68)		361
Net cash used in operating activities	(211)		(1,476)

Investing activities
Purchases of property, plant and equipment	(2,057)		(849)
Business acquisition, net of acquired cash	—		188
Net cash used in investing activities	(2,057)		(661)

Financing activities
Net proceeds on revolving lines of credit	3,666		—
Shares repurchased held in treasury	(

SEC Form 10-Q filed by Lawson Products Inc.