SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

For quarterly period ended ~~March 31,~~September 30, 2021

Commission file Number: 0-10546

(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)

(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~~October 15, 2021 was ~~9,066,547~~9,078,347.

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~~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, 2020 and in this Quarterly Report on Form 10-Q for the period ended ~~March 31,~~September 30, 2021.

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.

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,
2021 2020
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 26,293 $ 28,393
Restricted cash 1,001 998
Accounts receivable, less allowance for doubtful accounts of $773 and $654, respectively 48,707 44,515
Inventories, net 60,758 61,867
Miscellaneous receivables and prepaid expenses 8,187 7,289
Total current assets 144,946 143,062
Property, plant and equipment, net 15,603 15,800
Goodwill 35,426 35,176
Deferred income taxes 19,457 18,482
Intangible assets, net 18,070 18,503
Cash value of life insurance 16,423 16,185
Right of use assets 14,453 8,764
Other assets 331 332
Total assets $ 264,709 $ 256,304
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued acquisition liability $ 32,871 $ 32,673
Accounts payable 19,841 22,262
Lease obligation 4,602 4,568
Accrued expenses and other liabilities 37,672 38,492
Total current liabilities 94,986 97,995
Security bonus plan 11,159 11,262
Deferred compensation 10,820 10,461
Lease obligation 11,505 5,738
Deferred tax liability 3,523 2,841
Other liabilities 5,658 5,585
Total liabilities 137,651 133,882
Stockholders’ equity:
Preferred stock, $1 par value:
Authorized - 500,000 shares, Issued and outstanding — NaN 0 0
Common stock, $1 par value:
Authorized - 35,000,000 shares
Issued - 9,293,401 and 9,287,625 shares, respectively
Outstanding - 9,066,547 and 9,061,039 shares, respectively
9,293 9,288
Capital in excess of par value 20,258 19,841
Retained earnings 105,205 101,609
Treasury stock – 226,854 and 226,586 shares, respectively (9,028) (9,015)
Accumulated other comprehensive income 1,330 699
Total stockholders’ equity 127,058 122,422
Total liabilities and stockholders’ equity $ 264,709 $ 256,304


	September 30,		December 31,
	2021		2020
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	7,460	$	28,393
Restricted cash	197		998
Accounts receivable, less allowance for doubtful accounts of $771 and $654, respectively	50,779		44,515
Inventories, net	67,452		61,867
Miscellaneous receivables and prepaid expenses	8,629		7,289
Total current assets	134,517		143,062

Property, plant and equipment, net	17,794		15,800
Goodwill	35,253		35,176
Deferred income taxes	18,877		18,482
Intangible assets, net	16,796		18,503
Cash value of life insurance	18,240		16,185
Right of use assets	12,702		8,764
Other assets	318		332
Total assets	$	254,497	$	256,304

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued acquisition liability	$	—	$	32,673
Accounts payable	25,585		22,262
Lease obligation	4,348		4,568
Accrued expenses and other liabilities	39,083		38,492
Total current liabilities	69,016		97,995

Revolving line of credit	10,900		—
Security bonus plan	10,853		11,262
Deferred compensation	11,821		10,461
Lease obligation	9,744		5,738
Deferred tax liability	2,945		2,841
Other liabilities	4,862		5,585
Total liabilities	120,141		133,882

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 - 9,305,566 and 9,287,625 shares, respectively Outstanding - 9,078,347 and 9,061,039 shares, respectively	9,306		9,288
Capital in excess of par value	21,546		19,841
Retained earnings	111,796		101,609
Treasury stock – 227,219 and 226,586 shares, respectively	(9,048)		(9,015)
Accumulated other comprehensive income	756		699
Total stockholders’ equity	134,356		122,422
Total liabilities and stockholders’ equity	$	254,497	$	256,304

See notes to condensed consolidated financial statements.

Lawson Products, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Dollars in thousands, except per share data)

See notes to condensed consolidated financial statements.

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

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 Loss Total Stockholders' Equity
Outstanding Shares $1 Par Value Retained Earnings Treasury Stock
Balance at December 31, 2019 9,043,771 $ 9,190 $ 18,077 $ 86,496 $ (5,761) $ (1) $ 108,001
Net income — — — 12,533 — — 12,533
Shares repurchased held in treasury (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

See notes to condensed consolidated financial statements.

Lawson Products, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

See notes to condensed consolidated financial statements.

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 Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. 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 nine month ~~period~~periods ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The Company has 2 operating segments. 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 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 ~~first~~third quarter 2021. See Note 2 of the 2020 Consolidated Financial Statements included in the Company's Annual Report on Form ~~10K~~10-K for further details of the significant accounting policies of the Company.

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 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 purchase price was $35.3 million in cash plus the assumption of certain liabilities. The Company paid $2.3 million of the purchase price in cash at closing and ~~will pay~~paid the remaining $33.0 million in May 2021. The payment obligation ~~has been~~was discounted to present value and is recognized as an accrued acquisition liability of $32.7 million ~~and $32.9 million~~ as of December 31, 2020 ~~and March 31, 2021, respectively,~~ in the Company's condensed consolidated balance sheet. Interest expense of ~~$0.2~~$0.3 million was recorded in the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Payment ~~has been~~was guaranteed under the Purchase Agreement, and ~~includes~~included the issuance of a $33.0 million irrevocable standby letter of credit. The ~~Company~~ ~~will satisfy~~letter of credit was released upon payment of the ~~payment obligation with cash on hand with any remaining portion using its existing credit facility.~~acquisition liability in May 2021.

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 was 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 $15.8 million allocated to goodwill reflects the purchase price less the fair market value of the identifiable net assets. The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after Lawson's acquisition of Partsmaster. The entire amount of goodwill is expected to be deductible for tax purposes.

The ~~appropriate fair values~~accounting for this acquisition was complete as of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions. The Company continues to review preliminary estimates of various assets and liabilities including, but not limited to, pre-acquisition employee compensation liabilities and potential adjustments of certain accounts receivable balances as defined under the purchase agreement. These preliminary estimates and assumptions could change during the purchase price measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed. The Company recorded the fair value of accounts receivable after consideration of an estimate of cash flows not expected to be collected which was ~~$0.4 million~~June 30, 2021.

Partsmaster contributed ~~$15.7~~$13.6 million of revenue and ~~$0.7~~an operating loss of $0.8 million in the third quarter of 2021 and $44.6 million of revenue and $0.4 million of operating income in the first nine months of 2021, compared to $5.4 million of revenue and $0.4 million of operating income in the third quarter ~~of 2021.~~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~~	$	34,523
Accounts payable and accrued expenses	4,086
Deferred compensation	2,938
Lease obligation	620
	$	42,167
Fair value of assets acquired
Goodwill	$	15,816
Inventories	7,797
Accounts receivable	7,706
Customer relationships	4,961
Trade names	2,775
Property, plant and equipment	2,121
Right of use asset	620
Other assets	371
	$	42,167

The unaudited pro forma revenue and net income for the Company for the three months ended ~~March 31,~~September 30, 2020, assuming the Partsmaster acquisition closed on January 1, 2019, was ~~$106.2~~$101.2 million and ~~$12.9~~$2.0 million, respectively. The unaudited pro forma revenue and net income for the Company for the nine months ended September 30, 2020, assuming the Partsmaster acquisition closed on January 1, 2019, was $298.5 million and $16.3 million, respectively.

The pro forma disclosures 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.

As part of the Company's revenue recognition analysis, it concluded that it has ~~two~~2 separate performance obligations, and accordingly, two separate revenue streams: products and services. Under the definition of a contract as defined by Accounting Standards Codification 606, Revenue From Contracts With Customers ("ASC ~~606,~~606"), the Company considers contracts to be created at the time an order to purchase product and services is agreed upon regardless of whether or not there is a written contract.

Performance Obligations

The Company has 2 operating segments; the Lawson segment and the Bolt Supply segment.

The Lawson segment has two distinct performance obligations ~~offered to~~from contracts with its customers: a product performance obligation and a service performance obligation. While the Company offers both a product and a service obligation, customers receive one invoice per transaction with no price breakout between these obligations. The Company does not separately price performance obligations.

The Lawson segment generates revenue primarily from the sale of MRO products to its customers. Revenues 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, 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. 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 provides product sales and does not provide VMI services or other services. 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 with the customer.

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 revenue. 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. For the three months ended March 31, 2020, service revenue of~~ ~~$9.7 million~~ ~~was reported as service revenue which has now been combined and reported within total revenue.~~

Disaggregated revenue by geographic area follows:

Three Months Ended March 31,
(Dollars in thousands) 2021 2020
United States $ 84,985 $ 73,584
Canada 18,571 17,451
Consolidated total $ 103,556 $ 91,035


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		2021		2020

United States	$	85,343	$	72,030	$	256,577	$	202,709
Canada	20,227		18,247		59,089		50,749
Consolidated total	$	105,570	$	90,277	$	315,666	$	253,458

Disaggregated revenue by product type follows:

Three Months Ended March 31,
2021 2020
Fastening Systems 21.0 % 22.8 %
Cutting Tools and Abrasives 14.9 % 13.3 %
Fluid Power 13.4 % 14.2 %
Electrical 10.6 % 10.8 %
Specialty Chemicals 9.7 % 11.2 %
Aftermarket Automotive Supplies 6.8 % 8.2 %
Safety 4.9 % 6.3 %
Welding and Metal Repair 1.7 % 1.4 %
Other 17.0 % 11.8 %
Consolidated Total 100.0% 100.0%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Fastening Systems	22.2	%	22.3	%	21.4	%	22.7	%
Cutting Tools and Abrasives	15.0	%	12.2	%	14.8	%	13.1	%
Fluid Power	13.0	%	12.6	%	13.2	%	13.2	%
Specialty Chemicals	10.5	%	13.3	%	10.1	%	11.7	%
Electrical	10.4	%	10.0	%	10.4	%	10.2	%
Aftermarket Automotive Supplies	7.6	%	7.0	%	7.2	%	7.1	%
Safety	5.1	%	7.0	%	5.0	%	6.4	%
Welding and Metal Repair	1.4	%	1.4	%	1.6	%	1.4	%
Other	14.8	%	14.2	%	16.3	%	14.2	%
Consolidated Total	100.0%		100.0%		100.0%		100.0%

Activities as lessor

Prior to acquisition, Partsmaster leased parts washer machines to customers through its Torrents leasing program. The Torrents leasing program comprised a minor portion of the Partsmaster business. The Company will continue the leasing program for the foreseeable future. These leases are classified as operating leases. The leased machines are recognized as fixed assets on the Company's consolidated balance sheet and the leasing revenue is recognized on a straight line ~~basis.~~basis over the leasing term. The Torrents machine leasing program generated ~~$0.7~~$0.8 million and $2.2 million of revenue in the ~~first~~ three and nine months ended September 30, 2021. The carrying value of ~~2021.~~the Torrents leasing assets as of September 30, 2021 is $1.0 million. The Company has adopted the practical expedient not to separate non-lease components that would be within the scope of ASC 606 from the associated lease components as the relevant criteria under ASC 842 are met.

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 has also agreed to maintain~~ $0.2 million in a guaranteed investment certificate as collateral for an outside party that is providing certain commercial credit card services for Bolt. The Company is restricted from withdrawing this balance without the prior consent of the outside party during the term of the agreement. The Company previously agreed to maintain $0.8 million in a money market account as collateral for an outside party that provided certain commercial card processing services for the Company, however this agreement ended in the third quarter 2021 and the $0.8 million is now unrestricted.

Inventories, net, consisting primarily of purchased goods offered for resale, were as follows:

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company increased its reserve for obsolete and excess inventory by ~~$0.2~~$0.9 million for which its cost exceeded its estimated selling price and ~~$0.6~~$1.0 million for rationalization of inventory related to ~~the Partsmaster acquisition.~~Partsmaster.

Goodwill activity for the first ~~three~~nine months of 2021 is included in the table below:

(Dollars in Thousands)
Goodwill By Reportable Segment
Lawson Bolt Total
Beginning balance December 31, 2020 $ 21,352 $ 13,824 $ 35,176
Impact of foreign exchange 215 35 250
Balance at March 31, 2021 $ 21,567 $ 13,859 $ 35,426

~~Goodwill activity for the first three months of 2020 is included in the table below:~~

(Dollars in Thousands)
Goodwill By Reportable Segment
Lawson Bolt Total
Beginning balance December 31, 2019 $ 7,369 $ 13,554 $ 20,923
Impact of foreign exchange (194) (1,174) (1,368)
Balance at March 31, 2020 $ 7,175 $ 12,380 $ 19,555


	(Dollars in Thousands)
	Goodwill By Reportable Segment
	Lawson		Bolt		Total
Beginning balance December 31, 2020	$	21,352	$	13,824	$	35,176
Impact of foreign exchange rates	18		59		77
Balance at September 30, 2021	$	21,370	$	13,883	$	35,253

Note 7 - Intangible Assets

The gross carrying amount and accumulated amortization by intangible asset class were as follows:

(Dollars in thousands)
March 31, 2021 December 31, 2020
Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value
Trade names $ 11,432 $ (3,079) $ 8,353 $ 11,289 $ (2,733) $ 8,556
Customer relationships 12,456 (2,739) 9,717 12,349 (2,402) 9,947
$ 23,888 $ (5,818) $ 18,070 $ 23,638 $ (5,135) $ 18,503


	(Dollars in thousands)
	September 30, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Trade names	$	11,364	$	(3,593)	$	7,771	$	11,289	$	(2,733)	$	8,556
Customer relationships	12,410		(3,385)		9,025		12,349		(2,402)		9,947
	$	23,774	$	(6,978)	$	16,796	$	23,638	$	(5,135)	$	18,503

Amortization expense of $0.6 million and $0.4 million related to intangible assets was recorded in General and administrative expense for the three months ended September 30, 2021 and 2020, respectively. Amortization expense of $~~0.6~~1.8 million and ~~$0.3~~$1.1 million related to intangible assets was recorded in General and administrative expenses for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

Activities as Lessee

The Company leases equipment, distribution centers, office space, and branch locations throughout the US and Canada.

Expenses related to leasing activities for the three months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 are as follows (Dollars in thousands):


		Three Months Ended September 30,
Lease Type	Classification	2021		2020

Operating Lease Expense	Operating expenses	$	1,500	$	1,262

Financing Lease Amortization	Operating expenses	44		$	63

Financing Lease Interest	Interest expense	2		8

Financing Lease Expense		46		71

Net Lease Cost		$	1,546	$	1,333

Expenses related to leasing activities for the nine months ended September 30, 2021 and September 30, 2020 are as follows (Dollars in thousands):

Three Months Ended March 31,
Lease Type Classification 2021 2020
Operating Lease Expense Operating expenses $ 1,493 $ 1,187
Financing Lease Amortization Operating expenses 58 $ 52
Financing Lease Interest Interest expense 5 7
Financing Lease Expense 63 59
Net Lease Cost $ 1,556 $ 1,246


		Nine Months Ended September 30,
Lease Type	Classification	2021		2020

Operating Lease Expense	Operating expenses	$	4,429	$	3,630

Financing Lease Amortization	Operating expenses	179		$	165

Financing Lease Interest	Interest expense	12		22

Financing Lease Expense		191		187

Net Lease Cost		$	4,620	$	3,817

Net assets and liabilities related to leasing activities as of ~~March 31,~~September 30, 2021 and December 31, 2020 are as follows (Dollars in thousands):

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

Total ROU financing lease assets (2)

Total current operating lease obligation

Total current financing lease obligation

Total long term operating lease obligation

Total long term financing lease obligation

(1) Operating lease assets are recorded net of accumulated amortization of ~~$6.8~~$8.7 million and $5.9 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively

(2) Financing lease assets are recorded net of accumulated amortization of ~~$0.5~~$0.6 million and $0.4 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively

Liabilities generated by leasing activities as of ~~March 31,~~September 30, 2021 were as follows (Dollars in thousands):

Maturity Date of Lease Liabilities Operating Leases Financing Leases Total
Year one $ 4,829 $ 196 $ 5,025
Year two 4,250 132 4,382
Year three 3,178 64 3,242
Year four 2,418 13 2,431
Year five 809 0 809
Subsequent years 1,416 0 1,416
Total lease payments 16,900 405 17,305
Less: Interest 1,176 22 1,198
Present value of lease liabilities $ 15,724 $ 383 $ 16,107


Maturity Date of Lease Liabilities	Operating Leases		Financing Leases		Total

Year one	$	4,535	$	166	$	4,701
Year two	3,841		114		3,955
Year three	2,865		39		2,904
Year four	1,870		14		1,884
Year five	345		—		345
Subsequent years	1,265		—		1,265
Total lease payments	14,721		333		15,054
Less: Interest	947		15		962
Present value of lease liabilities	$	13,774	$	318	$	14,092

(1) Minimum lease payments exclude payments to landlord for real estate taxes and common area maintenance ~~$0.7~~$0.6 million

The weighted average lease terms and interest rates of the leases held by Lawson as of ~~March 31,~~September 30, 2021 are as follows:

Lease Type Weighted Average Term in Years Weighted Average Interest Rate
Operating Leases 3.0 3.72%
Financing Leases 2.4 5.24%


Lease Type	Weighted Average Term in Years	Weighted Average Interest Rate

Operating Leases	4.0	3.53%
Financing Leases	2.2	4.99%

The cash outflows of the leasing activity for the three months ending ~~March 31,~~September 30, 2021 are as follows (Dollars in thousands):

Cash Flow Source

Classification

Amount

Operating cash flows from operating leases

Operating activities

~~1,137~~3,549

Operating cash flows from financing leases

Operating activities

512

Financing cash flows from financing leases

Financing activities

58179

~~Activities as lessor~~In March 2021 the Company signed a three year extension for their lease at the McCook distribution center ("McCook"). The lease extension created a right of use asset of $5.3 million and a lease liability of $5.3 million.

~~Prior~~Refer to ~~acquisition, Partsmaster leased parts washer machines to customers through its Torrents leasing program. The Torrents leasing program comprised~~Note 3 - Revenue Recognition for a ~~minor portion of the Partsmaster business. The Company will continue the leasing program for the foreseeable future. These leases are classified~~discussion on Lawson activities as operating leases. The leased machines are recognized as fixed assets on the Company's consolidated balance sheet and the leasing revenue is recognized on a straight line basis. The Torrents machine leasing program generated $0.7 million of revenue in the first three months of 2021. The Company has adopted the practical expedient not to separate non-lease components that would be within the scope of ASC 606 from the associated lease components as the relevant criteria under ASC 842 are met.

The Revolving Credit Facility matures on October 11, 2024 and provides $100.0 million of revolving commitments. ~~The facility is primarily for general corporate purposes. The~~Net of outstanding letters of credit, the Company had ~~$64.4~~$87.4 million of borrowing availability under ~~its~~the Revolving Credit Facility as of ~~March 31,~~September 30, 2021 and $66.0 million as of ~~December 31, 2020.There were no balances outstanding for the three months ended March 31, 2021 and as of~~ December 31, 2020. Weighted average interest rates for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and September 30, 2020 ~~was 4.04%~~were 2.88% and 2.64%,. respectively.

Fees are reported as interest expense and include customary charges relating to letters of credit and an ~~unutilized~~unused commitment fee ranging from 0.15% to 0.30%, depending on the Total Net Leverage Ratio as defined in the Credit Agreement. Fees for both the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 were $0.1 ~~million.~~million governing the Revolving Credit Facility.

In connection with the Revolving Credit Facility originated in 2019, deferred financing costs of $0.6 million were incurred. Deferred financing costs are amortized over the life of the debt instrument and reported as interest ~~expense.~~expense. As of ~~March 31,~~September 30, 2021 and December 31, 2020 deferred financing costs net of accumulated amortization were $0.3 million and $0.4 million, respectively, and are included in Other assets.

Borrowings are designed as alternate base rate loans, Canadian prime rate loans, Eurodollar loans, and Canadian dollar offered rate loans. Interest rates vary by the type of borrowing and Total Net Leverage Ratio as defined in the Credit Agreement of the most recent fiscal quarter.

The Revolving Credit Facility includes customary financial covenants representations and warranties. The Company was in compliance with all financial covenants as of ~~March 31,~~September 30, 2021.

In the third quarter of 2020, the Company entered into an amendment to the Credit Agreement which among other items temporarily increased the allowed letter of credits from $15.0 million to $40.0 million until August 31, 2021 and authorized indebtedness not to exceed $36.0 million for the acquisition of Partsmaster.

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~~was discounted to present value using an implied interest rate of 1.8% ~~and is recognized as a~~. A discounted current liability of $32.7 million ~~and~~ ~~$32.9 million~~was recognized as of December 31, 2020 ~~and~~ ~~March 31, 2021, respectively,~~in the Company's ~~condensed~~ consolidated balance sheet. ~~Interest expense of $0.2~~In May 2021, the Company paid the outstanding $33.0 million ~~was recorded in the three months ended March 31, 2021. The increase in~~ accrued acquisition ~~liability has been recognized as interest expense. P~~liability.

Payment was guaranteed under the Purchase Agreement which ~~includes~~included the issuance of a ~~$33.0~~$33.0 million irrevocable standby letter of credit. The letter of credit was released in June 2021 subsequent to payment of the liability in May 2021.

Interest expense of $0.3 million on the accrued acquisition liability ~~is included as outstanding debt~~was recorded in the ~~quarterly financial covenant calculations.~~nine months ended September 30, 2021, with all interest expense recorded prior to the payment of the accrued acquisition liability.

Note 11 - Stock Repurchase Program

In the second quarter of 2019, the Board of Directors authorized a program in which the Company may repurchase up to $7.5 million of the Company's common stock from time to time in open market transactions, privately negotiated transactions or by other methods. The Company had $4.5 million remaining under its repurchase plan as of ~~March 31,~~September 30, 2021. No shares were repurchased in ~~the first quarter of~~ 2021 under the Company stock repurchase plan. The Company purchased 47,504 of common stock at an average price of $36.93 under the repurchase program in the first quarter of 2020.

Changes in the Company’s reserve for severance included in Accrued expenses and other liabilities, as of ~~March 31,~~September 30, 2021 and 2020 were as follows:

Note 13 —- Stock-Based Compensation

The Company recorded stock-based compensation benefit of $1.2 million and expense of $4.7 million for the three months ending September 30, 2021 and 2020, respectively, and expense of ~~$1.0~~$1.4 million and benefit of ~~$10.7~~$2.8 million for the ~~first three~~nine months ofending September 30, 2021 and 2020, 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 ~~$15.0~~$14.0 million as of ~~March 31,~~September 30, 2021 and $14.4 million as of December 31, 2020 is included in Accrued expenses and other liabilities.

A summary of stock-based awards issued during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 follows:

Restricted Stock Units ("RSUs")

The Company issued ~~7,300~~7,862 RSUs to key employees that cliff vest on December 31, 2023. The Company issued 2,000 RSUs to one key employee that vest ratably through June 15, 2023 and 5,000 RSUs to one key employee that cliff vest on April 15, 2024. Additionally the Company issued ~~26,850~~28,600 RSUs to various employees that vest ratably through ~~December 31,~~May 16, 2024. The Company issued 6,995 RSUs to certain members of the Company's Board of Directors with a vesting date of May 11, 2022. Each RSU is exchangeable for 1 share of the Company's common stock at the end of the vesting period.

Market Stock Units ("MSUs")

The Company issued ~~18,373~~19,688 MSUs to key employees that cliff vest on December 31, 2023. MSUs are exchangeable for the Company's common stock at the end of the vesting period. The number of shares of common stock that will be issued upon vesting, ranging from 0zero to ~~27,560~~29,532 shares, will be determined based upon the trailing sixty-day average closing price of the Company's common stock on December 31, 2023.

Performance Awards ("PAs")

The Company issued ~~14,600~~15,723 PAs to key employees that cliff vest on December 31, 2023. PAs are exchangeable for shares of the Company's common stock ranging from 0zero to ~~21,900~~23,585 shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics.

Note 14 — Income Taxes

The Company recorded income tax expense of ~~$1.3~~$2.7 million, a ~~26.0%~~21.1% effective tax rate for the ~~three~~nine months ended ~~March 31,~~September 30, 2021. The effective tax rate ~~is higher than~~approximates the U.S. statutory tax rate ~~due primarily to~~as state taxes and other permanent ~~items.~~items are offset by the reversal of uncertain tax positions. Income tax expense of ~~$4.9~~$6.0 million, a ~~28.0%~~28.7% effective tax rate was recorded for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The effective tax rate is higher than the U.S. statutory rate due primarily to state taxes, ~~and the~~ recording of reserves for uncertain tax ~~positions.~~positions, and an inclusion for Global Intangible Low Tax Income.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as income tax of multiple state and foreign jurisdictions. As of ~~March 31,~~September 30, 2021, 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~~2014 through 2019.

Earnings from the Company’s foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise may subject the Company to foreign withholding taxes and U.S. federal and state taxes.

Note 15 — Contingent Liabilities

In 2012, it was determined a Company owned site in Decatur, Alabama, contained hazardous substances in the soil and groundwater as a result of historical operations prior to the Company's ownership. The Company retained an environmental consulting firm to further investigate the contamination, prepare a remediation plan, and enroll the site in the Alabama Department of Environmental Management (“ADEM") voluntary cleanup program.

The remediation plan, approved by ADEM in 2018, consists of chemical injections throughout the affected area and subsequent monitoring. The injection process was completed in the first quarter of 2019 and monitoring is ongoing pending certification by ADEM. At ~~March 31,~~September 30, 2021 estimated costs for future monitoring are not significant and have been fully accrued. The Company does not expect to capitalize any amounts related to the remediation plan.

Note 16 — Related Party Transaction

During the nine months ended September 30, 2021, the Company purchased approximately $0.1 million of inventory from a company owned by an immediate relative of a Board member at fair market value. No remaining liabilities exist with respect to this purchase as of September 30, 2021.

Note 1617 – Segment Information

The Company's operating segments, Lawson and Bolt, also represent its reportable segments because of differences in the businesses' financial characteristics and the methods they employ to deliver product to customers. The results of the Company's operating segments are reviewed by the Company’s chief operating decision maker responsible for reviewing operating performance and allocating resources. The Lawson segment primarily relies on its large network of sales representatives to visit the customer at the customers' location and produce sales orders for product that is then shipped to the customer and it also provides VMI services. The Bolt segment primarily sells product to customers when the customers visit one of Bolt's 14 branch locations and the product is delivered to the customers at the point of sale. The Bolt segment total assets include the value of the acquired intangibles and the related amortization within its operating income.

Financial information for the Company's reportable segments follows:

Note 1718 - COVID-19 Risks and Uncertainties

There is substantial uncertainty as to the effect the COVID-19 pandemic will have on the future results of the Company. Various events related to COVID-19 may impact revenue, product sourcing, sales functions, and customers' ability to pay timely.

The government of the State of Illinois defines Lawson Products as an essential business. A change in this status could result in the temporary closure of our ~~business.~~business if the COVID-19 pandemic worsens, and government restrictions are reimposed to require business shutdowns. The COVID-19 pandemic could result in a temporary closure of any or all of our office space, distribution facilities, or Bolt branch locations, as well as disruptions to our supply chain and interactions with our suppliers and customers. The pandemic may have a material adverse impact on future financial results, liquidity, and overall performance of the Company. It is reasonably possible that estimates made in the financial statements may be materially and adversely impacted as a result of these conditions, including delay in payment of receivables, impairment losses related to goodwill and other long-lived assets, and inability to utilize deferred tax assets.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act to provide certain relief as a result of the COVID-19 outbreak. The Company has elected to defer the employer side social security payments in accordance with the CARES Act. The total amount deferred is $3.5 million, with $1.7 million expected to be paid in the fourth quarter of 2021 and the remainder in 2022. The Company will continue to evaluate how the provisions of the CARES Act will impact its financial position, results of operations and cash flows.

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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Partsmaster Acquisition

In August 2020, we acquired Partsmaster, a leading Maintenance, Repair and Operations ("MRO") distributor from NCH Corporation, with approximately 200 sales representatives and approximately 16,000 customers throughout the United States and Canada. The purchase price of the acquisition was $35.3 million in cash and the ~~assumption~~assumption of certain liabilities. We paid $2.3 million at the time of the acquisition and ~~we will pay~~paid the remaining $33.0 million in May 2021. ~~We plan to pay the remaining portion of the purchase price with cash and our existing credit facility.~~ Partsmaster contributed ~~$15.7~~$13.6 million of revenue and ~~$0.7~~an operating loss of $0.8 million in the third quarter of 2021 and $44.6 million of revenue and $0.4 million of operating income in the first ~~quarter~~nine months of 2021.

Additional information related to the Partsmaster acquisition is provided in Note 2 - Acquisition in the notes to the condensed consolidated financial statements.

COVID-19 Pandemic

The government of the State of Illinois ~~defines~~continues to define Lawson Products as an essential business. A change in this status could result in the temporary closure of our business. The COVID-19 pandemic could result in a temporary closure of any or all of our office space, distribution facilities, or Bolt branch locations, as well as disruptions to our supply chain and interactions with customers. The pandemic may have a material adverse impact on future financial results, liquidity, and overall performance of the Company. It is ~~reasonably~~ possible that estimates made in the financial statements may be materially and adversely impacted as a result of ~~these conditions,~~COVID's future path, including delay in payment of receivables, impairment losses related to goodwill and other long-lived assets, and inability to utilize deferred tax assets.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act to provide certain relief as a result of the COVID-19 outbreak. The Company has elected to defer the employer side social security payments in accordance with the CARES Act. The total amount deferred is ~~$3.5~~$3.5 million, with ~~$1.7~~$1.7 million expected to be paid in 2021 and the remainder in 2022. The Company will continue to evaluate how the provisions of the CARES Act will impact its financial position, results of operations and cash flows.

The onset of the COVID-19 pandemic occurred in March 2020. This resulted in widespread closures of businesses, decreased travel and other substantial restrictions on economic activity beginning in the first ~~quarter.~~quarter of 2020. The most severe restrictions were effective in the second quarter of 2020, particularly the month of April. These restrictions began to be relaxed subsequent to April 2020, which led to an improved business climate and increased economic activity throughout the remainder of the year. The relaxed restrictions continued in the first ~~quarter~~nine months of 2021, which led to increased business activity and contributed to improved operating results compared to the first ~~quarter~~nine months of 2020.

We will continue to closely monitor the overall economic and operating environment and we will take appropriate actions to protect the safety of our employees, customers and suppliers. While we believe that COVID-19 ~~continues~~and supply chain disruptions continue to negatively impact our sales and cost control measures, ~~and~~our ability to effectively service our customers we have continued to generate positive cash flow that has enabled us to maintain a strong financial position. We plan to continue to respond to pandemic developments in a prompt and disciplined manner with an emphasis on maintaining our strong financial position.

Sales Drivers

The MRO distribution industry is highly fragmented. We compete for business with several national distributors as well as a large number of regional and local distributors. The MRO business is significantly impacted by the overall strength of the manufacturing sector of the U.S. economy which ~~has been~~was significantly affected by the COVID-19 pandemic. One measure used to evaluate the strength of the industrial products market is the PMI index published by the Institute for Supply Management, which is considered by many economists to be a reliable near-term economic barometer of the manufacturing sector. A measure

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above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally

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represents contraction. The average monthly PMI was ~~61.4~~60.2 in the ~~first~~third quarter of 2021 compared to ~~50.0~~55.2 in the ~~first~~third quarter of 2020.

Our sales are also ~~affected~~influenced by the number of sales representatives and their productivity. ~~Including the Partsmaster sales representatives, the~~Our average sales rep headcount for the ~~quarter was 1,083 sales representatives in the first~~third quarter of 2021 was 1,076 sales representatives, inclusive of the Partsmaster sales representatives. This is compared to ~~998~~the average sales ~~representatives during~~rep headcount of 993 sales reps in the ~~first~~third quarter of 2020, which only included Partsmaster sales reps for the one-month post-acquisition period of the month of September 2020. Lawson segment sales representative productivity, measured as sales per rep per day and including ~~the~~ Partsmaster sales reps, increased ~~7.3%~~8.2% to ~~$1,360~~$1.352 in the ~~first~~third quarter of 2021 ~~from $1,268~~compared to $1.249 in the ~~first quarter of 2020.~~prior year quarter. Partsmaster contributed ~~$15.7~~$13.6 million in sales in the ~~first quarter.~~third quarter of 2021 compared to $5.4 million in sales in the third quarter of 2020 for one-month post-acquisition. Excluding the impact of Partsmaster, sales rep productivity measured as average sales per rep per day increased ~~7.6%~~19.9% compared to the year ago quarter, primarily driven by the improved business conditions and fewer pandemic-related restrictions in the third quarter of 2021 compared to the year ago quarter. This was partially offset by the negative impacts of supply chain issues that have affected the broader economy throughout this year. We have instituted various price increases during 2021 in response to rising supplier, transportation and labor costs. We plan to continue ~~to concentrate~~concentrating our efforts on increasing the productivity of our sales representatives.

Supply Chain Disruptions

Along with the broader economy, we are experiencing additional pressure in our supply chain, labor shortages and inflation. This results in challenges in acquiring and receiving inventory in a timely fashion, fulfilling customer orders and increased product costs. Further discussion in included within the financial discussion of the Management's Discussion and Analysis of Financial Condition and Results of Operations.

Non-GAAP Financial Measure - Adjusted Non-GAAP Operating Income

We believe that certain non-GAAP financial measures ~~may provide users of this financial information with~~provides additional meaningful comparisons between current results and results in prior operating periods. We believe that these non-GAAP financial measures can ~~provide additional meaningful reflection of~~help identify underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability. These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

Adjusted operating income is defined by us as GAAP operating income excluding stock-based compensation, severance expenses, acquisition costs, and other non-recurring items in the period in which these items are incurred. Operating income was ~~$4.8~~$4.6 million for the ~~first~~third quarter of 2021 compared to ~~$18.6~~$2.0 million for the ~~first~~third quarter of 2020. Excluding stock-based compensation, severance expense, acquisition costs and other non-recurring ~~costs,~~items, adjusted non-GAAP operating income was ~~$7.2~~$7.3 million in the ~~first~~third quarter of 2021 compared to ~~$7.9~~$7.7 million in the ~~first~~third quarter of ~~2020.~~ 2020 and $21.4 million for the first nine months of 2021 compared to $20.5 million for the prior year period.

The decrease in adjusted non-GAAP operating income in the third quarter 2021 compared to the prior year quarter was ~~primarily~~driven by increased supplier costs, higher selling expenses due to ~~lower organic~~higher sales, ~~from~~and restored salary and compensation costs compared to the ~~pre-pandemic levels, partially offset by inclusion of Partsmaster~~prior year quarter. The increase in adjusted non-GAAP operating income ~~of $1.3 million during~~for the ~~three~~nine months ended ~~March 31, 2021.~~September 2021 compared to the prior year period is driven by increased sales year to date in 2021 compared to the prior year as the overall business environment improved and pandemic-related restrictions were relaxed in the first nine months of 2021 compared to the prior year. Additionally, the inclusion of Partsmaster for the full year contributed $1.2 million of adjusted non-GAAP operating income in the first nine months of 2021 compared to $0.4 million of adjusted non-GAAP operating income contributed in the one-month post-acquisition period of September 2020. This was partially offset by the negative impacts of supply chain issues impacting the Company and the broader economy.

Reconciliation of GAAP Operating Income to Adjusted Non-GAAP Operating Income (Unaudited)
Three Months Ended
March 31,
(Dollars in Thousands) 2021 2020
Operating income as reported by GAAP $ 4,810 $ 18,638
   Stock based compensation (1)
1,000 (10,700)
   Inventory reserves (2)
825 —
   Severance expense and employee acquisition costs 576 7
Adjusted non-GAAP operating income $ 7,211 $ 7,945

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Reconciliation of GAAP Operating Income to Adjusted Non-GAAP Operating Income (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in Thousands)	2021		2020		2021		2020

Operating income as reported by GAAP	$	4,620	$	2,001	$	12,812	$	21,208
Stock based compensation (1)	(1,171)		4,746		1,403		(2,767)
Inventory reserves (2)	425		—		1,750		—
Severance expense and employee acquisition costs	241		961		846		2,075
Costs related to potential acquisitions (3)	3,222		—		4,576		—
Adjusted non-GAAP operating income	$	7,337	$	7,708	$	21,387	$	20,516

(1) Expense for stock-based compensation, of which a portion varies with the Company's stock price

(2) Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment (PPE) to net

realizable ~~value.~~value

(3) Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed on

May 17, 2021

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~~Quarter~~

Three months ended ~~March 31,~~September 30, 2021 compared to ~~quarter~~three months ended ~~March 31,~~September 30, 2020

2021 2020
(Dollars in thousands) Amount % of
Net Sales Amount % of
Net Sales
Revenue $ 103,556 100.0 % $ 91,035 100.0 %
Cost of goods sold 48,996 47.3 % 42,114 46.3 %
Gross profit 54,560 52.7 % 48,921 53.7 %
Operating expenses:
Selling expenses 23,802 23.0 % 19,984 22.0 %
General and administrative expenses 25,948 25.0 % 10,299 11.3 %
Total operating expenses 49,750 48.0 % 30,283 33.3 %
Operating income 4,810 4.6 % 18,638 20.5 %
Interest expense (323) (0.3) % (115) (0.1) %
Other income (expenses), net 372 0.4 % (1,111) (1.3) %
Income before income taxes 4,859 4.7 % 17,412 19.1 %
Income tax expense 1,263 1.2 % 4,879 5.3 %
Net income $ 3,596 3.5 % $ 12,533 13.8 %


	2021				2020
(Dollars in thousands)	Amount		% of Net Sales		Amount		% of Net Sales

Revenue	$	105,570	100.0	%	$	90,277	100.0	%
Cost of goods sold	49,524		46.9	%	43,052		47.7	%
Gross profit	56,046		53.1	%	47,225		52.3	%

Operating expenses:
Selling expenses	24,908		23.6	%	19,155		21.2	%
General and administrative expenses	26,518		25.1	%	26,069		28.9	%
Total operating expenses	51,426		48.7	%	45,224		50.1	%

Operating income	4,620		4.4	%	2,001		2.2	%

Interest expense	(119)		(0.1)	%	(142)		(0.2)	%
Other income (expenses), net	(209)		(0.2)	%	615		0.7	%

Income before income taxes	4,292		4.1	%	2,474		2.7	%

Income tax expense	636		0.6	%	736		0.8	%

Net income	$	3,656	3.5	%	$	1,738	1.9	%

Revenue and Gross Profits

Three Months Ended
March 31, Increase
(Dollars in thousands) 2021 2020 Amount %
Revenue
Lawson $ 93,330 $ 81,491 $ 11,839 14.5%
Bolt Supply 10,226 9,544 682 7.1%
Consolidated $ 103,556 $ 91,035 $ 12,521 13.8%
Gross profit
Lawson $ 50,408 $ 45,120 $ 5,288 11.7%
Bolt Supply 4,152 3,801 351 9.2%
Consolidated $ 54,560 $ 48,921 $ 5,639 11.5%
Gross profit margin
Lawson 54.0 % 55.4 %
Bolt Supply 40.6 % 39.8 %
Consolidated 52.7 % 53.7 %


	Three Months Ended September 30,						Increase
(Dollars in thousands)	2021			2020			Amount		%

Revenue
Lawson	$	93,686		$	79,806		$	13,880	17.4%
Bolt Supply	11,884			10,471			1,413		13.5%
Consolidated	$	105,570		$	90,277		$	15,293	16.9%

Gross profit
Lawson	$	51,127		$	43,038		$	8,089	18.8%
Bolt Supply	4,919			4,187			732		17.5%
Consolidated	$	56,046		$	47,225		$	8,821	18.7%

Gross profit margin
Lawson	54.6		%	53.9		%
Bolt Supply	41.4		%	40.0		%
Consolidated	53.1		%	52.3		%

~~Revenue~~

Total sales increased 13.8% to $103.6 million in the first quarter of 2021 compared to $91.0 million in the first quarter of 2020. Sales benefited from the inclusion of $15.7 million of sales from Partsmaster in the first quarter of 2021, offset by a decrease in organic Lawson sales compared to the prior year due to the impact of the COVID-19 pandemic. Sales productivity, measured as sales per rep per day, increased 7.3% in the first quarter of 2021 compared to the same quarter of 2020. Bolt Supply sales also improved by 7.1% compared to the prior year quarter. Average daily sales increased 15.6% to $1.644 million in the first quarter of 2021 compared to $1.422 million in the prior year quarter. Partsmaster contributed $0.250 million of average daily sales in the first quarter 2021. The first quarter of 2021 had 63 selling days compared to 64 selling days in the first quarter of 2020. Excluding the impact of foreign currency, average daily sales increased 14.6% in the first quarter of 2021.

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Revenue

Total sales increased 16.9% to $105.6 million in the third quarter of 2021 compared to $90.3 million in the third quarter of 2020. The increase was primarily driven by the inclusion of $13.6 million of Partsmaster sales in 2021 compared to $5.4 million of Partsmaster sales in the third quarter 2020 one-month post-acquisition period and improved business conditions from a year ago. Overall, business conditions improved in the third quarter of 2021 compared to the third quarter of 2020, which led to greater business activity and increased sales. Excluding the impact of the Partsmaster acquisition, sales grew 8.4% over the third quarter of 2020. Bolt Supply sales improved 13.5% compared to the prior year quarter. Excluding the impact of foreign currency, total sales increased 15.7% in the third quarter of 2021. Both the third quarter of 2021 and 2020 had 64 selling days.

Gross Profit

~~Driven by increased sales, reported~~Reported gross profit increased ~~$5.6~~$8.8 million to ~~$54.6~~$56.0 million in the ~~first~~third quarter of 2021 compared to ~~$48.9~~$47.2 million ~~driven by~~in the prior year quarter primarily as a result of increased sales. Partsmaster contributed ~~$10.1~~$8.3 million to reported gross profit in the ~~first~~third quarter of 2021 before ~~giving effect~~the classification of certain service-related costs in gross profit compared to ~~service costs.~~$3.6 million in the one-month post-acquisition period in 2020. Consolidated gross profit as a percent of sales was ~~52.7%~~53.1% in the ~~first~~third quarter of 2021 compared to ~~53.7%~~52.3% in the prior year quarter. Gross margin percentage for the third quarter 2021 was impacted by the sustained supply chain constraints affecting the broader economy, which resulted in product shortages and increased supplier, transportation and labor costs. The organic Lawson MRO ~~segment~~ gross margin, defined as margin generated by Lawson MRO excluding Partsmaster, as a percent of sales ~~declined to 58.2%~~was 58.7% in the ~~first~~third quarter of 2021 compared to ~~60.8%~~58.8% a year ago quarter before ~~giving effect to~~ the classification of certain service-related costs ~~primarily as a result of a shift to lower margin products~~ in ~~the quarter compared to the prior year quarter, higher net transportation costs~~gross profit. Actions taken on pricing, product sourcing and ~~additional inventory reserves related to the rationalization of inventory related to the Partsmaster acquisition~~labor allocation offset increased freight and ~~a shift in selling prices below cost on personal protective equipment inventory.~~inflation pressure.

Selling, General and Administrative Expenses

Three Months Ended March 31, Increase
(Dollars in thousands) 2021 2020 Amount %
Selling expenses
Lawson $ 22,891 $ 19,187 $ 3,704 19.3%
Bolt Supply 911 797 114 14.3%
Consolidated $ 23,802 $ 19,984 $ 3,818 19.1%
General and administrative expenses
Lawson $ 23,261 $ 7,839 $ 15,422 196.7%
Bolt Supply 2,687 2,460 227 9.2%
Consolidated $ 25,948 $ 10,299 $ 15,649 151.9%


	Three Months Ended September 30,				Increase
(Dollars in thousands)	2021		2020		Amount		%

Selling expenses
Lawson	$	23,922	$	18,373	$	5,549	30.2%
Bolt Supply	986		782		204		26.1%
Consolidated	$	24,908	$	19,155	$	5,753	30.0%

General and administrative expenses
Lawson	$	23,717	$	23,553	$	164	0.7%
Bolt Supply	2,801		2,516		285		11.3%
Consolidated	$	26,518	$	26,069	$	449	1.7%

Selling expenses consist of compensation and support for our sales representatives. Selling expenses increased to ~~$23.8~~$24.9 million in the ~~first~~third quarter of 2021 compared to ~~$20.0~~$19.2 million in the prior year quarter. The increase in selling expense is primarily driven by increased sales, along with the inclusion of ~~$5.5~~$5.6 million in ~~first~~selling expense in the third quarter of 2021 from the Partsmaster business ~~acquisition, offset by lower commission and travel expenses.~~compared to $1.7 million of selling expense from Partsmaster in the one-month post-acquisition period of September 2020. As a percent of sales, selling expenses increased to ~~23.0%~~23.6% from ~~22.0%~~21.2% in the ~~first~~third quarter of 2020 ~~on a lower sales base,~~driven by the reinstatement of normalized selling activities including sales rep travel not incurred during the pandemic and higher Partsmaster selling expenses as a percent of sales.

General and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business. General and administrative expenses increased to ~~$25.9~~$26.5 million in the ~~first~~third quarter of 2021 from ~~$10.3~~$26.1 million in the prior year quarter. The increased General and administrative expense was driven by ~~an increase in stock-based compensation expense of $11.7 million,~~the inclusion of Partsmaster ~~operating~~general and administrative expenses of ~~$3.9~~$3.5 million ~~and increased severance and employee acquisition costs~~compared to $1.5 million included from the one-month post-acquisition period of ~~$0.6 million. Excluding these items, General~~September 2020, offset by a stock-based compensation benefit from the third quarter 2021 of $1.2 million compared to expense of $4.7 million for the third quarter 2020. Costs of $3.2 million related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed on May 17, 2021 are also in general and administrative ~~expense~~expenses for the ~~first quarter of 2021 was $21.0 million flat with the year ago~~ quarter.

Interest Expense

Interest expense was ~~$0.3~~$0.1 million in the ~~first~~third quarter of 2021, ~~an increase of $0.2 million compared to~~in line with the ~~first quarter of 2020 primarily due to interest on the accrued acquisition liability.~~prior year quarter.

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Other Income, Net

Other income, net ~~increased $1.5~~decreased $0.8 million in the ~~first~~third quarter of 2021 over the prior year quarter primarily due to Canadian currency exchange rate effect.

Income Tax Expense

Income tax expense was ~~$1.3~~$0.6 million, resulting in a ~~26.0%~~14.8% effective tax rate for the three months ended ~~March 31,~~September 30, 2021 compared to an income tax expense of ~~$4.9~~$0.7 million and an effective tax rate of ~~28.0%~~29.7% for the three months ended ~~March 31,~~September 30, 2020. The tax rate is higher than the statutory rate due mainly to discrete items recorded in the quarter.

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Nine months ended September 30, 2021 compared to September 30, 2020


	2021				2020
(Dollars in thousands)	Amount		% of Net Sales		Amount		% of Net Sales

Revenue	$	315,666	100.0	%	$	253,458	100.0	%
Cost of goods sold	150,440		47.7	%	118,999		47.0	%
Gross profit	165,226		52.3	%	134,459		53.0	%

Operating expenses:
Selling expenses	72,945		23.1	%	55,445		21.9	%
General and administrative expenses	79,469		25.2	%	57,806		22.8	%
Total operating expenses	152,414		48.2	%	113,251		44.6	%

Operating income	12,812		4.1	%	21,208		8.4	%

Interest expense	(710)		(0.2)	%	(329)		(0.1)	%
Other income (expense), net	802		0.2	%	15		(0.1)	%

Income before income taxes	12,904		4.1	%	20,894		8.2	%

Income tax expense	2,717		0.9	%	6,004		2.3	%

Net income	$	10,187	3.2	%	$	14,890	5.9	%

Revenue and Gross Profit


	Nine Months Ended September 30,						Increase/(Decrease)
(Dollars in thousands)	2021			2020			Amount		%

Revenue
Lawson	$	281,877		$	224,511		$	57,366	25.6%
Bolt Supply	33,789			28,947			4,842		16.7%
Consolidated	$	315,666		$	253,458		$	62,208	24.5%

Gross profit
Lawson	$	151,436		$	123,031		$	28,405	23.1%
Bolt Supply	13,790			11,428			2,362		20.7%
Consolidated	$	165,226		$	134,459		$	30,767	22.9%

Gross profit margin
Lawson	53.7		%	54.8		%
Bolt Supply	40.8		%	39.5		%
Consolidated	52.3		%	53.0		%

Revenue

Revenue for the nine months ended September 30, 2021 increased 24.5% to $315.7 million from $253.5 million for the nine months ended September 30, 2020. Business conditions continued to improve in the first nine months of 2021 over 2020, which led to greater business activity and increased sales. Partsmaster contributed $44.6 million in sales in the first nine months of 2021 compared to $5.4 million in September 2020 one-month post-acquisition. Excluding the impact of the Partsmaster acquisition, sales grew 9.3% in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. On a year-to-date basis, Bolt sales have increased 16.7% as business conditions improved in western Canada. Excluding the impact of foreign currency, total sales increased 23.2% in the first nine months of 2021. There is one less selling day in the nine month period 2021 compared to 2020.

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Gross Profit

Gross profit increased to $165.2 million in the first nine months of 2021 compared to $134.5 million in the first nine months of 2020, primarily driven by increased sales and the inclusion of the Partsmaster acquisition for the full year, partially offset by the negative impacts of sustained supply chain constraints affecting the broader economy. Consolidated gross profit as a percent of sales was 52.3% compared to 53.0% a year ago. The organic Lawson MRO segment gross profit before the classification of certain service-related costs in gross profit as a percent of sales was 58.1% in the first nine months of 2021 compared to 59.8% a year ago. The decrease was primarily related to increased freight and supply chain costs, increased reserves established for which the costs exceed the selling price on PPE items as well as changes in product and customer sales mix.

Selling, General and Administrative Expenses


	Nine Months Ended September 30,				Decrease
(Dollars in thousands)	2021		2020		Amount		%

Selling expenses
Lawson	$	70,006	$	53,222	$	16,784	31.5%
Bolt Supply	2,939		2,223		716		32.2%
Consolidated	$	72,945	$	55,445	$	17,500	31.6%

General and administrative expenses
Lawson	$	71,242	$	50,816	$	20,426	40.2%
Bolt Supply	8,227		6,990		1,237		17.7%
Consolidated	$	79,469	$	57,806	$	21,663	37.5%

Selling expenses increased to $72.9 million for the first nine months of 2021 compared to $55.4 million in the same period a year ago and, as a percent of sales, increased to 23.1% in the first nine months of 2021 from 21.9% a year ago. The increase in selling expense is primarily related to increased sales compensation from higher sales, and the inclusion of $16.9 million of selling expenses from the Partsmaster business compared to $1.7 million in the post-acquisition period in 2020.

General and administrative expenses increased to $79.5 million in the first nine months of 2021 from $57.8 million in the prior year period. This was primarily driven by the inclusion of $10.7 million of general and administrative expenses from the Partsmaster business for the first nine months of 2021 compared to the inclusion of $1.5 million of general and administrative expenses in the one-month post-acquisition period of September 2020, an increase in stock-based compensation expense of $4.2, and restored expenses over 2020 on normalized sales. Costs of $4.6 million related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed on May 17, 2021 are included in general and administrative expense in 2021.

Interest Expense

Interest expenses increased $0.4 million in the first nine months of 2021, due primarily to interest on the accrued acquisition liability.

Other Income (Expense), Net

Other income (expense), net increased $0.8 million in the first nine months of 2021, primarily due to Canadian currency exchange rate effect.

Income Tax Expense

Income tax expenses were $2.7 million resulting in a 21.1% effective tax rate for the first nine months of 2021 compared to income tax expense of $6.0 million and a 28.7% effective tax rate for the first nine months of 2020.

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Liquidity and Capital Resources

Available cash and cash equivalents were ~~$26.3~~$7.5 million on ~~March 31,~~September 30, 2021 compared to $28.4 million on December 31, 2020. The decrease in available cash is primarily due to the payment of the acquisition liability related to the purchase of Partsmaster for $33.0 million in May 2021.

Net cash ~~used in~~provided by operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was ~~$1.5~~$6.2 million, primarily ~~due to lower~~driven by reported operating earnings and ~~funding additional~~partially offset by increased net working capital ~~needs.~~from increases in accounts receivable related to higher sales and increased inventories associated with the global supply chain disruptions.

Capital expenditures were ~~$0.8~~$5.7 million and ~~$0.6~~$1.3 million for the ~~three~~nine month period ended ~~March 31,~~September 30, 2021 and 2020, respectively, primarily for improvements to our distribution centers and information technology.

~~We used $0.1 million of cash in~~Cash provided by financing activities inwas $10.7 million for the first ~~three~~nine months of 2021, ~~for payment~~primarily due to a net drawdown of ~~financing leases.~~$10.9 million of our Revolving Credit Facility partially driven by the final Partsmaster payment.

In 2019, our Board of Directors authorized a program in which we may repurchase up to $7.5 million of our common stock from time to time in open market transactions, privately negotiated transactions or by other methods. We did not repurchase any shares of stock in the first ~~quarter~~nine months of 2021 under this plan.

The Company anticipates that outstanding stock performance rights with a value of $8.4 million ~~$9.2 million~~ at ~~March 31,~~September 30, 2021 will be paid out within the next twelve months prior to expiration.

Revolving Credit Facility

On ~~March 31,~~September 30, 2021, we had ~~$64.4~~$10.9 million in outstanding borrowings and $87.4 million of borrowing availability remaining, net of outstanding letters of credit, under our Revolving Credit Facility.. Our outstanding letters of credit include a $33.0 million letter of credit to secure the remaining payment for the Partsmaster acquisition. We had no outstanding borrowing under our Credit Agreement as of March 31, 2021.Facility.

Along with certain standard terms and conditions of our Credit Agreement governing our Revolving Credit Facility, we are able to borrow up to 3.25 times our EBITDA, as defined, and maintain a minimum fixed charge ratio, as defined, of 1.15. As of ~~March 31,~~September 30, 2021, we were in compliance with all financial covenants.

While we were in compliance with our financial covenants included in our Credit Agreement for the quarter ended ~~March 31,~~September 30, 2021, ~~Failure~~failure to meet the covenant requirements of the Credit Agreement in future quarters could lead to higher financing costs, increased restrictions, or reduce or eliminate our ability to borrow funds and could have a material adverse effect on our business, financial condition and results of operations.

~~Partsmaster Acquisition Liability~~

~~As a part of the Partsmaster acquisition, payment of $33.0 million is due to the sellers in May 2021. The payment has been guaranteed under the Purchase Agreement, which includes the issuance of a $33.0 million irrevocable standby letter of credit. P~~ayment will be made with cash on hand with any remaining portion using our existing Revolving Credit Facility. The $33.0 million obligation has been discounted to present value and is recognized as a current liability of $32.9 million in our condensed consolidated balance sheet as of March 31, 2021.

We believe cash provided by operations and funds available under our Credit Agreement are sufficient to fund our operating requirements, strategic initiatives and capital improvements, ~~including the potential impact of COVID-19 over the next twelve months~~ although we cannot provide assurance that events beyond our control will not have a material adverse impact on our liquidity.

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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

Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to Lawson, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) includes, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2021 that materially affected or are reasonably likely to materially offset our internal control over financial reporting. We ~~are in~~substantially completed the ~~process~~integration of ~~integrating~~ the internal control procedures of Partsmaster into our existing internal control structure. ~~Partsmaster constituted approximately 16% of total assets as of March 31, 2021 and approximately 15% of revenue and approximately 15% of operating income in the first three months of 2021.~~

PART II

OTHER INFORMATION

ITEMS 1, 1A, 3, 4 and 5 of Part II are inapplicable and have been omitted from this report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~The following table summarizes the repurchases of the Company's common stock for the three months ended March 31, 2021.~~

(a) (b) (c) (d)
Period
Total Number of Shares
Purchased (1)
Average Price
Paid per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (2)
January 1 to January 31, 2021 — $ — — $ 4,512,000
February 1 to February 28, 2021 268 49.59 — 4,512,000
March 1 to March 31, 2021 — — — 4,512,000
Total 268 —
None

~~(1) These shares were purchased for the purpose of satisfying tax withholding obligations of certain employees upon the exercise of market stock units granted to them by the Company.~~

(2) In 2019, the Company's Board of Directors authorized a program in which up to $7.5 million of the Company's common stock may be repurchased from time to time in open market transactions, privately negotiated transactions or by other methods. No shares were repurchased in the open market during the first quarter of 2021 under this program.

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ITEM 6. EXHIBITS


Exhibit #
3.1			Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated May 18, 2020.
3.2			Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K (File No. 000-10546) dated May 18, 2020.
10.1			Credit Agreement dated October 11, 2019 among the Company and JP Morgan Chase Bank, N.A. as administrative agent, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated October 16, 2019.
10.2			First Amendment to Credit Agreement dated August 31, 2020, between the Company and JP Morgan Chase Bank, N.A. as administrative agent, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated September 2, 2020.
10.3			Agreement of Lease dated June 30, 2014 between the Company and KTR Property Trust III incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated July 2, 2014.
10.4			Lawson Products, Inc. Executive Deferral Plan (as Amended and Restated Effective November 1, 2015).
10.5			Lawson Products, Inc. Amended Stock Performance Plan (as Amended and Restated Effective January 24, 2017).

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10.6			Amendment of the Lawson Products, Inc. Amended Stock Performance Plan (as Amended and Restated Effective January 24, 2017), dated December 23, 2020, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2020.
10.7			Form Letter regarding Stock Performance Rights, incorporated by reference to Exhibit 10(c)(16) to the Company's Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2004.
10.8			Lawson Products, Inc. 2009 Equity Compensation Plan (as Amended and Restated Effective May 14, 2019), incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated May 3, 2019.
10.9			First Amendment to the Lawson Products, Inc. 2009 Equity Compensation Plan (as Amended and Restated Effective May 14, 2019), incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 000-10546) dated May 3, 2019.
10.10			Amendment to the Lawson Products, Inc. 2009 Equity Compensation Plan (as Amended and Restated Effective May 14, 2019), dated December 23, 2020, incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2020.
10.11			Form of Award Agreement under the 2009 Equity Compensation Plan (Target Units, SPRs and Restricted Units).
10.12			Form of Award Agreement under the 2009 Equity Compensation Plan (MSU Target Units, ROIC Target Units and Restricted Units).
10.13			Form of Award Agreement under the 2009 Equity Compensation Plan (MSU Target Units, ROIC Target Units and Restricted Units).
10.14			Lawson Products, Inc. 2021 Annual Incentive Plan Summary.
10.15			Form of Indemnification Agreement for Directors and Officers incorporated by reference to Exhibit 10.01 to the Company's Current Report on Form 8-K (File No. 000-10546) dated September 15, 2008.
10.16			Form of Change in Control Agreement for Officers.
10.17			Employment Agreement dated as of August 14, 2017 by and between Lawson Products, Inc., an Illinois corporation, and Michael G. DeCata, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated August 14, 2017.
10.18			Amendment No.1 to the Employment Agreement entered into on April 11, 2018 between the Company and Michael G. DeCata, incorporated herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K (File No. 000-10546) dated April 11, 2018.
10.19			Employment Agreement dated as of August 29, 2012 by and between Lawson Products, Inc., an Illinois corporation, and Ron Knutson, incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K (File No. 000-10546) dated August 29, 2012.
10.20			Retirement and Consulting Agreement, dated as of March 2, 2021, by and between the Company and Neil Jenkins, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) dated March 5, 2021.
31.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
101			The ~~followi~~ngfollowing financial statements from the Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statement of Income and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.
104			The cover page from the Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2021, formatted in Inline XBRL
101.INS			XBRL Instance Document

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101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LAWSON PRODUCTS, INC.
		(Registrant)

Dated:	~~April 29,~~October 28, 2021	/s/ Michael G. DeCata
		Michael G. DeCata President and Chief Executive Officer (principal executive officer)


Dated:	~~April 29,~~October 28, 2021	/s/ Ronald J. Knutson
		Ronald J. Knutson Executive Vice President, Chief Financial Officer ~~Treasurer~~ and ~~Controller~~Treasurer (principal financial officer)


Dated:	October 28, 2021	/s/ David Lambert
		David Lambert Vice President, Controller and Chief Accounting Officer (principal accounting officer)

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		Page #
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~Mar~~September ~~ch 31,~~ 30, 2021 (Unaudited) and December 31, 2020	4

	Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 20 20 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 20 20 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the TN ~~hree~~ i ne Months Ended ~~March 31,~~September 30, 2021 and 20 20 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	2529

Item 4.	Controls and Procedures	2529

PART II - OTHER INFORMATION

Item 2.	Unregistered Shares of Equity Securities and Use of Proceeds	2529

Item 6.	Exhibits Index	2629

	SIGNATURES	2732


		Three Months Ended March 31,					Nine Months Ended September 30,
		2021		2020			2021		2020

Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	3,596	$	12,533	Net income	$	10,187	$	14,890

Adjustments to reconcile net income to net cash used in operating activities:	Adjustments to reconcile net income to net cash used in operating activities:					Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	1,935		1,509		Depreciation and amortization	5,990		4,660
Stock-based compensation	Stock-based compensation	944		(10,700)		Stock-based compensation	1,403		(2,767)
Deferred income taxes	Deferred income taxes	(320)		3,196		Deferred income taxes	(298)		1,454
Changes in operating assets and liabilities, net of acquisition	Changes in operating assets and liabilities, net of acquisition					Changes in operating assets and liabilities, net of acquisition
Accounts receivable	Accounts receivable	(4,426)		(3,528)		Accounts receivable	(6,582)		(2,128)
Inventories	Inventories	1,315		(1,500)		Inventories	(5,554)		1,101
Miscellaneous receivables, prepaid expenses and other assets	Miscellaneous receivables, prepaid expenses and other assets	(1,148)		(223)		Miscellaneous receivables, prepaid expenses and other assets	(3,443)		(725)
Accounts payable and other liabilities	Accounts payable and other liabilities	(3,733)		(8,486)		Accounts payable and other liabilities	3,790		3,097
Other	Other	361		311		Other	672		441
Net cash used in operating activities		$	(1,476)	$	(6,888)
Net cash provided by operating activities						Net cash provided by operating activities	$	6,165	$	20,023

Investing activities:	Investing activities:					Investing activities:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	$	(849)	$	(551)	Purchases of property, plant and equipment	$	(5,664)	$	(1,311)
Cash receipt related to acquisition		188		0
Business acquisition						Business acquisition	(33,000)		(2,300)
Net cash used in investing activities	Net cash used in investing activities	$	(661)	$	(551)	Net cash used in investing activities	$	(38,664)	$	(3,611)

Financing activities:	Financing activities:					Financing activities:
Net proceeds from revolving line of credit	Net proceeds from revolving line of credit	$	0	$	8,189	Net proceeds from revolving line of credit	$	10,900	$	(2,271)
Repurchase treasury shares	Repurchase treasury shares	(13)		(1,756)		Repurchase treasury shares	(33)		(2,192)
Payment of financing lease principal	Payment of financing lease principal	(58)		(67)		Payment of financing lease principal	(179)		(192)
Proceeds from stock option exercise						Proceeds from stock option exercise	—		15
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	(71)	$	6,366	Net cash provided by (used in) financing activities	$	10,688	$	(4,640)

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	$	111	$	(327)	Effect of exchange rate changes on cash and cash equivalents	$	77	$	(74)

Decrease in cash, cash equivalents and restricted cash		(2,097)		(1,400)
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	(21,734)		11,698

Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	29,391		6,297		Cash, cash equivalents and restricted cash at beginning of period	29,391		6,297

Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	27,294	$	4,897	Cash, cash equivalents and restricted cash at end of period	$	7,657	$	17,995

Cash and cash equivalents	Cash and cash equivalents	$	26,293	$	4,095	Cash and cash equivalents	$	7,460	$	17,193
Restricted cash	Restricted cash	1,001		802		Restricted cash	197		802
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	27,294	$	4,897	Cash, cash equivalents and restricted cash	$	7,657	$	17,995

Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Net cash paid for income taxes	Net cash paid for income taxes	$	378	$	198	Net cash paid for income taxes	$	4,044	$	3,733
Net cash paid for interest	Net cash paid for interest	$	134	$	147	Net cash paid for interest	$	834	$	295
Additions of property, plant and equipment included in accounts payable						Additions of property, plant and equipment included in accounts payable	$	47	$	78


		(Dollars in thousands)					(Dollars in thousands)
		Three Months Ended March 31,					Nine Months Ended September 30,
		2021		2020			2021		2020
Balance at beginning of period	Balance at beginning of period	$	1,251	$	909	Balance at beginning of period	$	1,251	$	909
Charged to earnings	Charged to earnings	404		7		Charged to earnings	328		1,520
Payments	Payments	(340)		(365)		Payments	(1,085)		(1,239)
Balance at end of period	Balance at end of period	$	1,315	$	551	Balance at end of period	$	494	$	1,190


			☒			Quarterly Report under Section 13 ORor 15(d) of the Securities Exchange Act of 1934


			☐			Transition Report under Section 13 ORor 15(d) of the Securities Exchange Act of 1934


	March 31,		December 31,
	2021		2020
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	26,293	$	28,393
Restricted cash	1,001		998
Accounts receivable, less allowance for doubtful accounts of $773 and $654, respectively	48,707		44,515
Inventories, net	60,758		61,867
Miscellaneous receivables and prepaid expenses	8,187		7,289
Total current assets	144,946		143,062

Property, plant and equipment, net	15,603		15,800
Goodwill	35,426		35,176
Deferred income taxes	19,457		18,482
Intangible assets, net	18,070		18,503
Cash value of life insurance	16,423		16,185
Right of use assets	14,453		8,764
Other assets	331		332
Total assets	$	264,709	$	256,304

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued acquisition liability	$	32,871	$	32,673
Accounts payable	19,841		22,262
Lease obligation	4,602		4,568
Accrued expenses and other liabilities	37,672		38,492
Total current liabilities	94,986		97,995


Security bonus plan	11,159		11,262
Deferred compensation	10,820		10,461
Lease obligation	11,505		5,738
Deferred tax liability	3,523		2,841
Other liabilities	5,658		5,585
Total liabilities	137,651		133,882

Stockholders’ equity:
Preferred stock, $1 par value:
Authorized - 500,000 shares, Issued and outstanding — NaN	0		0
Common stock, $1 par value:
Authorized - 35,000,000 shares Issued - 9,293,401 and 9,287,625 shares, respectively Outstanding - 9,066,547 and 9,061,039 shares, respectively	9,293		9,288
Capital in excess of par value	20,258		19,841
Retained earnings	105,205		101,609
Treasury stock – 226,854 and 226,586 shares, respectively	(9,028)		(9,015)
Accumulated other comprehensive income	1,330		699
Total stockholders’ equity	127,058		122,422
Total liabilities and stockholders’ equity	$	264,709	$	256,304


	Three Months Ended March 31,
	2021		2020



Total revenue	$	103,556	$	91,035



Cost of goods sold	48,996		42,114
Gross profit	54,560		48,921

Operating expenses:
Selling expenses	23,802		19,984
General and administrative expenses	25,948		10,299
Operating expenses	49,750		30,283

Operating income	4,810		18,638

Interest expense	(323)		(115)
Other income (expense), net	372		(1,111)

Income before income taxes	4,859		17,412
Income tax expense	1,263		4,879

Net income	$	3,596	$	12,533

Basic income per share of common stock	$	0.40	$	1.39

Diluted income per share of common stock	$	0.39	$	1.34

Weighted average shares outstanding:
Basic weighted average shares outstanding	9,063		9,032
Effect of dilutive securities outstanding	265		302
Diluted weighted average shares outstanding	9,328		9,334

Comprehensive income:
Net income	$	3,596	$	12,533
Other comprehensive income (expense), net of tax
Adjustment for foreign currency translation	631		(2,494)
Net comprehensive income	$	4,227	$	10,039


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

Net income	Net income	—	—		—				3,596				—				—					3,596		Net income	—				—				—		3,596		—		—		3,596
Adjustment for foreign currency translation	Adjustment for foreign currency translation	—	—		—				—				—				631					631		Adjustment for foreign currency translation	—				—				—		—		—		631		631
Stock-based compensation	Stock-based compensation	—	—		422				—				—				—					422		Stock-based compensation	—				—				422		—		—		—		422
Shares issued	Shares issued	5,776	5		(5)				—				—				—					0		Shares issued	5,776				5				(5)		—		—		—		—
Shares repurchased held in treasury	Shares repurchased held in treasury	(268)	—		—				—				(13)				—					(13)		Shares repurchased held in treasury	(268)				—				—		—		(13)		—		(13)
Balance at March 31, 2021	Balance at March 31, 2021	9,066,547	$	9,293	$	20,258			$	105,205			$	(9,028)			$	1,330				$	127,058	Balance at March 31, 2021	9,066,547				$	9,293			$	20,258	$	105,205	$	(9,028)	$	1,330	$	127,058

Net income																								Net income	—				—				—		2,935		—		—		2,935
Adjustment for foreign currency translation																								Adjustment for foreign currency translation	—				—				—		—		—		354		354
Stock-based compensation																								Stock-based compensation	—				—				551		—		—		—		551
Shares issued																								Shares issued	10,965				11				(11)		—		—		—		—
Balance at June 30, 2021																								Balance at June 30, 2021	9,077,512				$	9,304			$	20,798	$	108,140	$	(9,028)	$	1,684	$	130,898

Net income																								Net income	—				—				—		3,656		—		—		3,656
Adjustment for foreign currency translation																								Adjustment for foreign currency translation	—				—				—		—		—		(928)		(928)
Stock-based compensation																								Stock-based compensation	—				—				750		—		—		—		750
Shares issued																								Shares issued	1,200				2				(2)		—		—		—		—
Shares repurchased held in treasury																								Shares repurchased held in treasury	(365)				—				—		—		(20)		—		(20)
Balance at September 30, 2021																								Balance at September 30, 2021	9,078,347				$	9,306			$	21,546	$	111,796	$	(9,048)	$	756	$	134,356


	Common Stock			Capital in Excess of Par Value						Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Outstanding Shares	$1 Par Value				Retained Earnings		Treasury Stock
Balance at December 31, 2019	9,043,771	$	9,190	$	18,077	$	86,496	$	(5,761)	$	(1)	$	108,001

Net income	—	—		—		12,533		—		—		12,533
Shares repurchased held in treasury	(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


	(Dollars in thousands)
	March 31, 2021		December 31, 2020
Inventories, gross	$	67,252	$	67,137
Reserve for obsolete and excess inventory	(6,494)		(5,270)
Inventories, net	$	60,758	$	61,867


	(a)	(b)		(c)	(d)
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1 to January 31, 2021	—	$	—	—	$	4,512,000
February 1 to February 28, 2021	268	49.59		—	4,512,000
March 1 to March 31, 2021	—	—		—	4,512,000
Total	268			—