UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


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

For quarterly period ended ~~September 30, 2021~~March 31, 2022


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

For the transition period from to

Commission file Number: 0-10546

LAWSON PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

Delaware

36-2229304

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

8770 W. Bryn Mawr Avenue, Suite 900,

Chicago,

Illinois

60631

(Address of principal executive offices)

(Zip Code)

(773) 304-5050

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $1.00 par value

LAWS

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	☒
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares outstanding of the registrant’s common stock, $1 par value, as of ~~October~~April 15, ~~2021~~2022 was ~~9,078,347~~.19,420,167.

TABLE OF CONTENTS


		Page #
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	45

	Condensed Consolidated Balance Sheets as of ~~September~~ ~~30, 2021~~March 31, 2022 (Unaudited) and December 31, 202021	45

	Condensed Consolidated Statements of Income and Comprehensive Income for the Three ~~and~~ ~~Nine~~ Months Ended ~~September~~March 31 ~~30, 2021~~, 202 2 and 20 202 1 (Unaudited)	56

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~March 31 ~~30, 2021~~, 202 2 and 20 202 1 (Unaudited)	67

	Condensed Consolidated Statements of Cash Flows for the N i neThree Months Ended ~~September~~March ~~30, 2021~~3 1 , 202 2 and 20 202 1 (Unaudited)	89

	Notes to Condensed Consolidated Financial Statements (Unaudited)	911

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	2930

Item 4.	Controls and Procedures	2930

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Shares of Equity Securities and Use of Proceeds	2938

Item 6.	Exhibits ~~Index~~	2938

	SIGNATURES	3241

Table of Contents

“Safe Harbor” Statement under the Securities Litigation Reform Act of 1995:

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms ~~“may,” “should,” “could,~~“aim,” “anticipate,” “believe,” “contemplates,” “continues,” “could,” “ensure,” “estimate,” “expect,” “forecasts,” “if,” “intend,” “likely,” “may,” “might,” “objective,” “outlook,” “plan,” “positioned,” “potential,” ~~“project”~~“predict,” “probable,” “project,” “shall,” “should,” “strategy,” “will,” “would,” and other words and terms of similar ~~expressions~~meaning and expression are intended to identify forward-looking statements. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact ~~the~~our business, ~~include:~~financial condition and results of operations:

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

•~~increases~~changes in ~~energy costs, tariffs~~our customers, product mix and ~~the cost of raw materials, including commodity prices;~~

•~~decreases in demand from oil and gas customers due to lower oil prices;~~pricing strategy;

•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;~~incidents;

•the inability to successfully ~~make or~~recruit, integrate ~~acquisitions into the organization;~~

•~~foreign currency fluctuations;~~and retain productive sales representatives;

•failure to ~~manage change within~~ retain talented employees, managers and executives;

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

•the inability to successfully integrate acquisitions into our organization;

•~~highly competitive market;~~competition in the markets in which we operate;

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

•our significant amount of indebtedness;

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

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

•declines in the market price of our common stock;

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

•violations of environmental protection ~~or other governmental~~ regulations;

•~~negative~~ changes ~~related to~~in tax matters;

•the COVID-19 pandemic;

•the issuance of additional shares of Lawson common stock to entities affiliated with Luther King ~~Capital's significant influence over~~Capital Management Corporation in connection with the ~~Company given its ownership percentage;~~Mergers;

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

•business uncertainties as a result of the Mergers;

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

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

•potential impairment charges for goodwill and other intangible assets;

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

•stockholder litigation relating to the Mergers;

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

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

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

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

•supply chain constraints, inflationary pressure and labor shortages;

•foreign currency exchange rate changes; and

•all other factors discussed in the Company’s “Risk Factors” set forth in ~~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 ~~September 30, 2021.~~March 31, 2022.

Table of Contents

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

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)


		September 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
ASSETS	ASSETS	(Unaudited)				ASSETS	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	7,460	$	28,393	Cash and cash equivalents	$	5,534	$	4,181
Restricted cash	Restricted cash	197		998		Restricted cash	200		198
Accounts receivable, less allowance for doubtful accounts of $771 and $654, respectively		50,779		44,515
Accounts receivable, less allowance for doubtful accounts of $830 and $798, respectively						Accounts receivable, less allowance for doubtful accounts of $830 and $798, respectively	54,940		47,031
Inventories, net	Inventories, net	67,452		61,867		Inventories, net	77,297		73,849
Miscellaneous receivables and prepaid expenses	Miscellaneous receivables and prepaid expenses	8,629		7,289		Miscellaneous receivables and prepaid expenses	7,954		7,517
Total current assets	Total current assets	134,517		143,062		Total current assets	145,925		132,776

Property, plant and equipment, net		17,794		15,800
Property, plant and equipment, less accumulated depreciation and amortization						Property, plant and equipment, less accumulated depreciation and amortization	19,165		18,828
Goodwill	Goodwill	35,253		35,176		Goodwill	35,510		35,313
Deferred income taxes	Deferred income taxes	18,877		18,482		Deferred income taxes	18,556		20,111
Intangible assets, net	Intangible assets, net	16,796		18,503		Intangible assets, net	15,613		16,165
Cash value of life insurance	Cash value of life insurance	18,240		16,185		Cash value of life insurance	18,025		18,573
Right of use assets	Right of use assets	12,702		8,764		Right of use assets	17,571		14,045
Other assets	Other assets	318		332		Other assets	348		346
Total assets	Total assets	$	254,497	$	256,304	Total assets	$	270,713	$	256,157

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accrued acquisition liability		$	—	$	32,673

Accounts payable	Accounts payable	25,585		22,262		Accounts payable	$	31,726	$	21,089
Lease obligation	Lease obligation	4,348		4,568		Lease obligation	4,855		4,467
Accrued expenses and other liabilities	Accrued expenses and other liabilities	39,083		38,492		Accrued expenses and other liabilities	34,516		46,688
Total current liabilities	Total current liabilities	69,016		97,995		Total current liabilities	71,097		72,244

Revolving line of credit	Revolving line of credit	10,900		—		Revolving line of credit	15,566		11,900
Security bonus plan	Security bonus plan	10,853		11,262		Security bonus plan	10,353		10,578
Deferred compensation	Deferred compensation	11,821		10,461		Deferred compensation	11,321		11,962
Lease obligation	Lease obligation	9,744		5,738		Lease obligation	13,908		10,841
Deferred tax liability	Deferred tax liability	2,945		2,841		Deferred tax liability	1,689		1,671
Other liabilities	Other liabilities	4,862		5,585		Other liabilities	4,047		3,954
Total liabilities	Total liabilities	120,141		133,882		Total liabilities	127,981		123,150

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $1 par value:	Preferred stock, $1 par value:					Preferred stock, $1 par value:
Authorized - 500,000 shares, Issued and outstanding — None		—		—
Authorized - 500,000 shares, issued and outstanding — None						Authorized - 500,000 shares, issued and outstanding — None	—		—
Common stock, $1 par value:	Common stock, $1 par value:					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
Authorized - 35,000,000 shares Issued - 9,368,463 and 9,363,093 shares, respectively Outstanding - 9,120,167 and 9,115,584 shares, respectively						Authorized - 35,000,000 shares Issued - 9,368,463 and 9,363,093 shares, respectively Outstanding - 9,120,167 and 9,115,584 shares, respectively	9,368		9,363
Capital in excess of par value	Capital in excess of par value	21,546		19,841		Capital in excess of par value	22,424		22,118
Retained earnings	Retained earnings	111,796		101,609		Retained earnings	120,001		111,015
Treasury stock – 227,219 and 226,586 shares, respectively		(9,048)		(9,015)
Treasury stock – 248,296 and 247,509 shares, respectively						Treasury stock – 248,296 and 247,509 shares, respectively	(10,066)		(10,033)
Accumulated other comprehensive income	Accumulated other comprehensive income	756		699		Accumulated other comprehensive income	1,005		544
Total stockholders’ equity	Total stockholders’ equity	134,356		122,422		Total stockholders’ equity	142,732		133,007
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	254,497	$	256,304	Total liabilities and stockholders’ equity	$	270,713	$	256,157

See notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Dollars in thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021

Revenue	Revenue	$	105,570	$	90,277	$	315,666	$	253,458	Revenue	$	117,877	$	103,556

Cost of goods sold	Cost of goods sold	49,524		43,052		150,440		118,999		Cost of goods sold	57,379		48,996
Gross profit	Gross profit	56,046		47,225		165,226		134,459		Gross profit	60,498		54,560

Operating expenses:	Operating expenses:									Operating expenses:
Selling expenses	Selling expenses	24,908		19,155		72,945		55,445		Selling expenses	26,310		23,802
General and administrative expenses	General and administrative expenses	26,518		26,069		79,469		57,806		General and administrative expenses	22,112		25,948
Operating expenses	Operating expenses	51,426		45,224		152,414		113,251		Operating expenses	48,422		49,750

Operating income	Operating income	4,620		2,001		12,812		21,208		Operating income	12,076		4,810

Interest expense	Interest expense	(119)		(142)		(710)		(329)		Interest expense	(95)		(323)
Other income (expense), net		(209)		615		802		15
Other income, net										Other income, net	204		372

Income before income taxes	Income before income taxes	4,292		2,474		12,904		20,894		Income before income taxes	12,185		4,859
Income tax expense	Income tax expense	636		736		2,717		6,004		Income tax expense	3,199		1,263

Net income	Net income	$	3,656	$	1,738	$	10,187	$	14,890	Net income	$	8,986	$	3,596

Basic income per share of common stock	Basic income per share of common stock	$	0.40	$	0.19	$	1.12	$	1.65	Basic income per share of common stock	$	0.99	$	0.40

Diluted income per share of common stock	Diluted income per share of common stock	$	0.39	$	0.19	$	1.09	$	1.60	Diluted income per share of common stock	$	0.96	$	0.39

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic weighted average shares outstanding	Basic weighted average shares outstanding	9,078		9,017		9,073		9,017		Basic weighted average shares outstanding	9,121		9,063
Effect of dilutive securities outstanding	Effect of dilutive securities outstanding	279		313		273		312		Effect of dilutive securities outstanding	236		265
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	9,357		9,330		9,346		9,329		Diluted weighted average shares outstanding	9,357		9,328

Comprehensive income:
Comprehensive income										Comprehensive income
Net income	Net income	$	3,656	$	1,738	$	10,187	$	14,890	Net income	$	8,986	$	3,596
Other comprehensive income (expense), net of tax
Other comprehensive income, net of tax:										Other comprehensive income, net of tax:
Adjustment for foreign currency translation	Adjustment for foreign currency translation	(928)		398		57		(918)		Adjustment for foreign currency translation	461		631
Net comprehensive income		$	2,728	$	2,136	$	10,244	$	13,972
Comprehensive income										Comprehensive income	$	9,447	$	4,227

See notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)


		Common Stock			Capital in Excess of Par Value												Accumulated Other Comprehensive Income					Total Stockholders' Equity			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		9,061,039	$	9,288			$	19,841			$	101,609			$	(9,015)			$	699					$	122,422
Balance at December 31, 2021																								Balance at December 31, 2021	9,115,584		$	9,363			$	22,118		$	111,015		$	(10,033)		$	544		$	133,007

Net income	Net income	—	—		—				3,596				—				—					3,596		Net income	—		—			—			8,986			—			—			8,986
Adjustment for foreign currency translation	Adjustment for foreign currency translation	—	—		—				—				—				631					631		Adjustment for foreign currency translation	—		—			—			—			—			461			461
Stock-based compensation	Stock-based compensation	—	—		422				—				—				—					422		Stock-based compensation	—		—			311			—			—			—			311
Shares issued	Shares issued	5,776	5		(5)				—				—				—					—		Shares issued	4,583		5			(5)			—			—			—			—
Shares repurchased held in treasury	Shares repurchased held in treasury	(268)	—		—				—				(13)				—					(13)		Shares repurchased held in treasury	—		—			—			—			(33)			—			(33)
Balance at March 31, 2021		9,066,547	$	9,293	$	20,258			$	105,205			$	(9,028)			$	1,330				$	127,058

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

Net income		—	—		—				3,656				—				—					3,656
Adjustment for foreign currency translation		—	—		—				—				—				(928)					(928)
Stock-based compensation		—	—		750				—				—				—					750
Shares issued		1,200	2		(2)				—				—				—					—
Shares repurchased held in treasury		(365)	—		—				—				(20)				—					(20)
Balance at September 30, 2021		9,078,347	$	9,306	$	21,546			$	111,796			$	(9,048)			$	756				$	134,356
Balance at March 31, 2022																								Balance at March 31, 2022	9,120,167		$	9,368		$	22,424		$	120,001		$	(10,066)		$	1,005		$	142,732

See notes to Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)


		Common Stock			Capital in Excess of Par Value												Accumulated Other Comprehensive Loss					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, 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
Balance at December 31, 2020																								Balance at December 31, 2020	9,061,039		$	9,288			$	19,841		$	101,609		$	(9,015)		$	699		$	122,422

Net income	Net income	—	$	—	$	—			$	619			$	—			$	—				619		Net income	—		—			—			3,596			—			—			3,596
Adjustment for foreign currency translation	Adjustment for foreign currency translation	—	—		—				—				—				1,178					1,178		Adjustment for foreign currency translation	—		—			—			—			—			631			631
Stock-based compensation	Stock-based compensation	—	—		498				—				—				—					498		Stock-based compensation	—		—			422			—			—			—			422
Shares issued	Shares issued	11,144	11		3				—				—				—					14		Shares issued	5,776		5			(5)			—			—			—			—
Balance at June 30, 2020		9,007,411	$	9,201	$	19,029			$	99,648			$	(7,517)			$	(1,317)				$	119,044

Net income		—	$	—	$	—			$	1,738			$	—			$	—				1,738
Treasury stock repurchase		(12,077)	—		—				—				(436)				—					(436)
Adjustment for foreign currency translation		—	—		—				—				—				398					398
Stock-based compensation		—	—		510				—				—				—					510
Shares issued		30,283	31		(31)				—				—				—					—
Balance at September 30, 2020		9,025,617	$	9,232	$	19,508			$	101,386			$	(7,953)			$	(919)				$	121,254
Shares repurchased held in treasury																								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

See notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements

Table of Contents

Lawson Products, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021

Operating activities:
Operating activities						Operating activities
Net income	Net income	$	10,187	$	14,890	Net income	$	8,986	$	3,596

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	5,990		4,660		Depreciation and amortization	2,089		1,935
Stock-based compensation	Stock-based compensation	1,403		(2,767)		Stock-based compensation	(8,623)		944
Deferred income taxes	Deferred income taxes	(298)		1,454		Deferred income taxes	1,565		(320)
Changes in operating assets and liabilities, net of acquisition
Reserve for obsolete and excess inventory						Reserve for obsolete and excess inventory	438		1,224

Changes in operating assets and liabilities						Changes in operating assets and liabilities
Accounts receivable	Accounts receivable	(6,582)		(2,128)		Accounts receivable	(7,915)		(4,426)
Inventories	Inventories	(5,554)		1,101		Inventories	(3,665)		91
Miscellaneous receivables, prepaid expenses and other assets	Miscellaneous receivables, prepaid expenses and other assets	(3,443)		(725)		Miscellaneous receivables, prepaid expenses and other assets	96		(1,148)
Accounts payable and other liabilities	Accounts payable and other liabilities	3,790		3,097		Accounts payable and other liabilities	6,886		(3,733)
Other	Other	672		441		Other	(68)		361
Net cash provided by operating activities		$	6,165	$	20,023
Net cash used in operating activities						Net cash used in operating activities	(211)		(1,476)

Investing activities:
Investing activities						Investing activities
Purchases of property, plant and equipment	Purchases of property, plant and equipment	$	(5,664)	$	(1,311)	Purchases of property, plant and equipment	(2,057)		(849)
Business acquisition		(33,000)		(2,300)
Business acquisition, net of acquired cash						Business acquisition, net of acquired cash	—		188
Net cash used in investing activities	Net cash used in investing activities	$	(38,664)	$	(3,611)	Net cash used in investing activities	(2,057)		(661)

Financing activities:
Net proceeds from revolving line of credit		$	10,900	$	(2,271)
Repurchase treasury shares		(33)		(2,192)
Financing activities						Financing activities
Net proceeds on revolving lines of credit						Net proceeds on revolving lines of credit	3,666		—
Shares repurchased held in treasury						Shares repurchased held in treasury	(33)		(13)
Payment of financing lease principal	Payment of financing lease principal	(179)		(192)		Payment of financing lease principal	(43)		(58)
Proceeds from stock option exercise		—		15

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	10,688	$	(4,640)	Net cash provided by (used in) financing activities	3,590		(71)

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	$	77	$	(74)	Effect of exchange rate changes on cash and cash equivalents	33		111

Increase (decrease) in cash, cash equivalents and restricted cash	Increase (decrease) in cash, cash equivalents and restricted cash	(21,734)		11,698		Increase (decrease) in cash, cash equivalents and restricted cash	1,355		(2,097)

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	4,379		29,391

Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	7,657	$	17,995	Cash, cash equivalents and restricted cash at end of period	$	5,734	$	27,294

Cash and cash equivalents	Cash and cash equivalents	$	7,460	$	17,193	Cash and cash equivalents	$	5,534	$	26,293
Restricted cash	Restricted cash	197		802		Restricted cash	200		1,001
Cash, cash equivalents and restricted cash		$	7,657	$	17,995
Total cash, cash equivalents and restricted cash						Total cash, cash equivalents and restricted cash	$	5,734	$	27,294

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	$	4,044	$	3,733	Net cash paid for income taxes	680		378
Net cash paid for interest	Net cash paid for interest	$	834	$	295	Net cash paid for interest	98		134
Additions of property, plant and equipment included in accounts payable	Additions of property, plant and equipment included in accounts payable	$	47	$	78	Additions of property, plant and equipment included in accounts payable	149		70

Table of Contents

See notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

Note 1 — ~~Basis of Presentation and~~ Summary of Significant Accounting Policies and Other Information

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of Lawson Products, Inc. ~~(the~~(“Lawson” or 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.~~2021. 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 ~~periods~~period ended ~~September 30, 2021 are~~March 31, 2022 is not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

The Company has 2 ~~operating~~reportable segments. The Lawson ~~operating~~reportable segment distributes maintenance, repair and operations ~~("MRO"~~(“MRO”) products to customers primarily through a network of sales representatives offering vendor managed inventory ~~("VMI"~~(“VMI”) service to customers throughout the United States and Canada. The Bolt Supply House Ltd. ("(“Bolt ~~Supply"~~Supply” or “Bolt”) ~~operating~~reportable segment distributes MRO products primarily through its 14 branches located in Western Canada. ~~Bolt Supply had~~

~~14 b~~
~~ranches in operation at the end~~

Summary of ~~the third quarter 2021.~~ Significant Accounting Policies

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

Recent Events

On December 29, 2021, Lawson entered into:

• an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the TestEquity Equityholder (“TestEquity”), (iii) Lawson and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Lawson (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of Lawson (the “TestEquity Merger”); and

• an Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) 301 HW Opus Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Gexpro Services Stockholder (“Gexpro Services”), (iii) Lawson and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Lawson (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of Lawson (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

Completion of the TestEquity Merger

On April 1, 2022, (the “Closing Date”), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of Lawson. TestEquity is a distributor of parts and services to the industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market. TestEquity operates through three brands, TestEquity, Jensen Tools and Techni-Tool.

In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Closing Date, Lawson: (i) issued to the TestEquity Equityholder 3,300,000 shares of Lawson common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity.

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~~Note~~The TestEquity Merger Agreement provides that an additional 700,000 shares of Lawson common stock (the “TestEquity Holdback Shares”) (which were not issued at the closing of the TestEquity Merger) shall be held by Lawson until released to the TestEquity Equityholder or forfeited in accordance with 2 ~~- Acquisition~~earnout provisions of the TestEquity Merger Agreement. The amount of TestEquity Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of a certain additional acquisition by TestEquity during the period beginning after December 29, 2021 and ending 90 days after the closing of the TestEquity Merger. If any TestEquity Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in TestEquity EBITDA (as defined in the TestEquity Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the TestEquity Merger Agreement.

Completion of the Gexpro Services Merger

On ~~August 31, 2020,~~April 1, 2022, (the “Closing Date”), the ~~Company acquired Partsmaster from NCH Corporation. Partsmaster~~Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement. In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of Lawson. Gexpro Services is a ~~leading maintenance, MRO~~provider of supply chain solutions, ~~provider that serves approximately 16,000~~specializing in developing and implementing Vendor Managed Inventory (VMI) and kitting programs to high-specification manufacturing customers. Gexpro Services provides critical products and services to customers ~~with approximately 200 sales representatives. The acquisition was made primarily to expand~~throughout the ~~Company's sales coverage, expand product lines, add experienced sales representatives, and leverage the Company's infrastructure.~~lifecycle of highly technical Original Equipment Manufacturer (OEM) products.

~~The purchase price was $35.3 million in cash plus~~In accordance with and under the ~~assumption of certain liabilities. The Company paid $2.3 million~~terms of the ~~purchase price~~Gexpro Services Merger Agreement, in ~~cash at~~connection with the closing and paid the remaining $33.0 million in May 2021. The payment obligation was discounted to present value and recognized as an accrued acquisition liability of $32.7 million as of December 31, 2020 in the Company's condensed consolidated balance sheet. Interest expense of ~~$0.3 million~~ ~~was recorded in the nine months ended September 30, 2021. Payment was guaranteed under the Purchase Agreement, and included the issuance of a $33.0 million irrevocable standby letter of credit. The letter of credit was released upon payment~~ of the ~~acquisition liability in May 2021.~~Gexpro Services Merger on the Closing Date, Lawson: (i) issued to the Gexpro Services Stockholder 7,000,000 shares of Lawson common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.

The ~~purchase price~~Gexpro Services Merger Agreement provides that an additional 1,000,000 shares of Lawson common stock (the “Gexpro Services Holdback Shares”) (which were not issued at the closing of the ~~acquisition was allocated~~Gexpro Services Merger) shall be held by Lawson until released to the ~~fair value of Partsmaster’s assets and liabilities on the acquisition date. The fair market value appraisals~~Gexpro Services Stockholder or forfeited in accordance with 2 earnout provisions of the ~~majority~~Gexpro Services Merger Agreement. The amount of Gexpro Services Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of one or more of three certain additional acquisitions by Gexpro Services during the period beginning after December 29, 2021 and ending 90 days after the closing 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 reflectsGexpro Services Merger. If any Gexpro Services Holdback Shares remain after the ~~purchase price less the fair market value~~calculation of the ~~identifiable net assets. The goodwill~~first earnout opportunity, there is ~~attributable~~a second earnout opportunity based on, among other factors, the increase in Gexpro Services EBITDA (as defined in the Gexpro Services Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the ~~workforce of~~calculations within 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 accounting for this acquisition was complete as of~~ ~~June 30, 2021~~. Partsmaster contributed $13.6 million of revenue and 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 2020 post acquisition.Gexpro Services Merger Agreement.

~~A summary of the purchase price allocation of the acquisition is as follows (Dollars in thousands):~~Note 2 - Business Combinations


~~Cash paid and payable and liabilities assumed~~
~~Cash paid~~	$	~~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~~

Subsequent to quarter end, on April 1, 2022, the Company completed its business combination with TestEquity and Gexpro Services in all-stock merger transactions. Pursuant to the Merger Agreements, Lawson issued an aggregate of 10.3 million shares of Lawson common stock to the former owners of TestEquity and Gexpro Services. An additional 1.7 million shares of Lawson common stock remain potentially issuable upon meeting the conditions of certain earnout provisions. Refer to Note 1 - Summary of Significant Accounting Policies and Other Information, for further information on the Mergers.

~~The unaudited pro forma revenue~~TestEquity is a distributor of parts and ~~net income for~~services to the ~~Company for~~industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market. TestEquity operates through 3 brands, TestEquity, Jensen Tools and Techni-Tool.

Gexpro Services is a provider of supply chain solutions, specializing in developing and implementing Vendor Managed Inventory (VMI) and kitting programs to high-specification manufacturing customers. Gexpro Services provides critical products and services to customers throughout the ~~three months ended September 30, 2020, assuming the Partsmaster acquisition closed on January 1, 2019, was~~ ~~$101.2 million~~ ~~and~~ ~~$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.~~lifecycle of highly technical Original Equipment Manufacturer (OEM) products.

The ~~pro forma disclosures include adjustments~~combination of Lawson, TestEquity and Gexpro Services is intended to bring together three complementary distribution businesses under a holding company structure.

Due to the timing of the consummation of the Mergers on April 1, 2022, the initial accounting for ~~amortization~~the Mergers is incomplete. As such, the Company is not able to disclose certain information relating to the Mergers, including the preliminary fair value of ~~intangible~~ assets ~~implied interest expense~~acquired and ~~acquisition costs to reflect~~liabilities assumed. In addition, the financial results ~~as if the acquisition~~ of ~~Partsmaster had closed on January 1, 2019 rather than on the actual~~TestEquity and Gexpro Services are not

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~~acquisition date. This pro forma information utilizes certain estimates, is presented for illustrative purposes only and is not intended to be indicative of~~included in the ~~actual~~reported results of ~~operation. In addition, future results may vary significantly from~~Lawson Products for 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, suchthree months ended March 31, 2022 as ~~anticipated cost savings from operating synergies.~~it would be impracticable to do so.

Note 3 - Revenue Recognition

As part of the Company's revenue recognition analysis, it concluded that it has 2 separate performance obligations, and accordingly, ~~two~~2 separate revenue streams: products and services. Under the definition of a contract as defined by ~~Accounting Standards Codification~~ASC 606, ~~Revenue From Contracts With Customers ("ASC 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~~Lawson has 2 operating segments; the Lawson segment and the Bolt Supply segment.

The Lawson segment has ~~two~~2 distinct performance obligations ~~from contracts with~~offered to its customers: a product performance obligation and a service performance obligation. ~~While~~Although the Company has identified that it offers its customers both a product and a service obligation, ~~customers receive~~the customer only receives one invoice per transaction with no price ~~breakout~~allocation between these obligations. The Company does not ~~separately~~ price ~~performance~~its offerings based on any allocation between these obligations.

~~The~~ Lawson ~~segment~~ generates revenue primarily from the sale of MRO products to its customers. ~~Revenues~~Revenue related to product sales is recognized at the time that control of the product has been transferred to the ~~customer,~~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")~~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 for its customers or ~~other services.~~provide services in addition to product sales to customers. Revenue is recognized at the time that control of the product has been transferred to the customer which is either upon delivery or shipment depending on the terms ~~with~~of the ~~customer.~~contract.

The Company has elected not to disclose the disaggregated components of revenue and cost of sales in its Consolidated Statements of Income and Comprehensive Income and in the related notes to the consolidated financial statements.

Disaggregated revenue by geographic area follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021

United States	United States	$	85,343	$	72,030	$	256,577	$	202,709	United States	$	95,684	$	84,985
Canada	Canada	20,227		18,247		59,089		50,749		Canada	22,193		18,571
Consolidated total	Consolidated total	$	105,570	$	90,277	$	315,666	$	253,458	Consolidated total	$	117,877	$	103,556

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Disaggregated revenue by product type follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020
Product Category										Product Category	2022		2021

Fastening Systems	Fastening Systems	22.2	%	22.3	%	21.4	%	22.7	%	Fastening Systems	23.5	%	21.0	%
Cutting Tools and Abrasives	Cutting Tools and Abrasives	15.0	%	12.2	%	14.8	%	13.1	%	Cutting Tools and Abrasives	14.2	%	14.9	%
Fluid Power	Fluid Power	13.0	%	12.6	%	13.2	%	13.2	%	Fluid Power	13.8	%	13.4	%
Electrical										Electrical	10.5	%	10.6	%
Specialty Chemicals	Specialty Chemicals	10.5	%	13.3	%	10.1	%	11.7	%	Specialty Chemicals	9.3	%	9.7	%
Electrical		10.4	%	10.0	%	10.4	%	10.2	%
Aftermarket Automotive Supplies	Aftermarket Automotive Supplies	7.6	%	7.0	%	7.2	%	7.1	%	Aftermarket Automotive Supplies	8.1	%	6.8	%
Safety	Safety	5.1	%	7.0	%	5.0	%	6.4	%	Safety	4.8	%	4.9	%
Welding and Metal Repair	Welding and Metal Repair	1.4	%	1.4	%	1.6	%	1.4	%	Welding and Metal Repair	1.5	%	1.7	%
Other	Other	14.8	%	14.2	%	16.3	%	14.2	%	Other	14.3	%	17.0	%
Consolidated Total	Consolidated Total	100.0%		100.0%		100.0%		100.0%		Consolidated Total	100.0%		100.0%

Activities as lessor

~~Prior to acquisition, Partsmaster leased~~Lawson leases 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~~a component of Property, plant, and equipment in the ~~Company's consolidated balance sheet~~Condensed Consolidated Balance Sheet and the leasing revenue is recognized on a straight line ~~basis over the leasing term.~~basis. The Torrents machine leasing program generated ~~$0.8~~$1.2 million and ~~$2.2~~$0.7 million of revenue infor the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022 and 2021, respectively. The carrying value of the Torrents leasing assets as of ~~September 30, 2021~~March 31, 2022 is ~~$1.0~~$1.2 million. The Company has adopted the practical expedient not to separate the non-lease components that would be within the scope of ASC 606 from the associated lease ~~components~~component as the relevant criteria under ASC 842 are met.

Note 4 — Restricted Cash

The Company has 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.

Note 5 — Inventories

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


		(Dollars in thousands)					(Dollars in thousands)
		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Inventories, gross	Inventories, gross	$	75,632	$	67,137	Inventories, gross	$	85,455	$	81,569
Reserve for obsolete and excess inventory	Reserve for obsolete and excess inventory	(8,180)		(5,270)		Reserve for obsolete and excess inventory	(8,158)		(7,720)
Inventories, net	Inventories, net	$	67,452	$	61,867	Inventories, net	$	77,297	$	73,849

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

~~Table of Contents~~

Note 6 - Goodwill

Goodwill activity for the first ~~nine~~three months of ~~2021~~2022 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 rates 18 59 77
Balance at September 30, 2021 $ 21,370 $ 13,883 $ 35,253


	(Dollars in thousands)
	Goodwill By Reportable Segment
	Lawson		Bolt		Total
Beginning balance December 31, 2021	$	21,384	$	13,929	$	35,313
Impact of foreign exchange rates	48		149		197
Balance at March 31, 2022	$	21,432	$	14,078	$	35,510

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Note 7 - Intangible Assets

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


		(Dollars in thousands)													(Dollars in thousands)
		September 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Trade names	Trade names	$	11,364	$	(3,593)	$	7,771	$	11,289	$	(2,733)	$	8,556	Trade names	$	10,465	$	(3,155)	$	7,310	$	11,388	$	(3,866)	$	7,522
Customer relationships	Customer relationships	12,410		(3,385)		9,025		12,349		(2,402)		9,947		Customer relationships	11,714		(3,411)		8,303		12,427		(3,784)		8,643
		$	23,774	$	(6,978)	$	16,796	$	23,638	$	(5,135)	$	18,503		$	22,179	$	(6,566)	$	15,613	$	23,815	$	(7,650)	$	16,165

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 $~~1.8~~0.6 million ~~and $1.1 million~~ related to intangible assets was recorded in General and administrative expenses for both the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Note 8 - Leases

Activities as Lessee

The Company leases ~~equipment,~~property used for distribution centers, office space, and Bolt Supply branch locations throughout the USU.S. and ~~Canada.~~Canada, along with various equipment located in distribution centers and corporate headquarters.

~~Expenses related to~~The expenses generated by the leasing ~~activities~~activity of Lawson for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and September 30, 2020 are~~were as ~~follows (Dollars in thousands):~~follows:
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


		(Dollars in thousands)
		Three Months Ended March 31,
Lease Type	Classification	2022		2021

Consolidated Operating Lease Expense (1)	Operating expenses	$	1,556	$	1,493

Consolidated Financing Lease Amortization	Operating expenses	33		58

Consolidated Financing Lease Interest	Interest expense	1		5

Consolidated Financing Lease Expense		34		63

Net Lease Cost		$	1,590	$	1,556

(1) Includes short term lease expense, which is immaterial

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

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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~~The value of the net assets and liabilities ~~related to~~generated by the leasing ~~activities~~activity of Lawson as lessee as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are as ~~follows (Dollars in thousands):~~follows:
Lease Type September 30, 2021 December 31,
2020
Total Right Of Use ("ROU") operating lease assets (1)
$ 12,292 $ 8,246
Total ROU financing lease assets (2)
410 518
Total lease assets $ 12,702 $ 8,764
Total current operating lease obligation
$ 4,187 $ 4,360
Total current financing lease obligation
161 208
Total current lease obligations $ 4,348 $ 4,568
Total long term operating lease obligation
$ 9,587 $ 5,498
Total long term financing lease obligation
157 240
Total long term lease obligation $ 9,744 $ 5,738


	(Dollars in thousands)
Lease Type	March 31, 2022		December 31, 2021

Total Right Of Use (“ROU”) operating lease assets (1)	$	17,221	$	13,662
Total ROU financing lease assets (2)	350		383
Total lease assets	$	17,571	$	14,045

Total current operating lease obligation	$	4,712	$	4,313
Total current financing lease obligation	143		154
Total current lease obligations	$	4,855	$	4,467

Total long term operating lease obligation	$	13,814	$	10,713
Total long term financing lease obligation	94		128
Total long term lease obligation	$	13,908	$	10,841

(1) Operating lease assets are recorded net of accumulated amortization of ~~$8.7~~$9.0 million and ~~$5.9~~$8.0 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively

(2) Financing lease assets are recorded net of accumulated amortization of $0.6 million and ~~$0.4~~$0.6 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively

~~Liabilities~~The value of the lease liabilities generated by the leasing activities of Lawson as lessee as of ~~September 30, 2021~~March 31, 2022 were as follows (Dollars in thousands):


Maturity Date of Lease Liabilities	Maturity Date of Lease Liabilities	Operating Leases		Financing Leases		Total		Maturity Date of Lease Liabilities	Operating Leases		Financing Leases		Total

Year one	Year one	$	4,535	$	166	$	4,701	Year one	$	5,273	$	146	$	5,419
Year two	Year two	3,841		114		3,955		Year two	4,152		78		4,230
Year three	Year three	2,865		39		2,904		Year three	3,392		18		3,410
Year four	Year four	1,870		14		1,884		Year four	1,790		3		1,793
Year five	Year five	345		—		345		Year five	1,276		2		1,278
Subsequent years	Subsequent years	1,265		—		1,265		Subsequent years	4,708		—		4,708
Total lease payments(1)	Total lease payments(1)	14,721		333		15,054		Total lease payments(1)	20,591		247		20,838
Less: Interest	Less: Interest	947		15		962		Less: Interest	2,065		10		2,075
Present value of lease liabilities	Present value of lease liabilities	$	13,774	$	318	$	14,092	Present value of lease liabilities	$	18,526	$	237	$	18,763

(1) Minimum lease payments exclude payments to landlord for real estate taxes and common area maintenance ~~$0.6~~$0.4 million

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The weighted average lease terms and interest rates of the leases held by Lawson as of ~~September 30, 2021~~March 31, 2022 are as follows:

Lease Type

Weighted Average Term in Years

Weighted Average Interest Rate

Lease Type

Weighted Average Term in Years

Weighted Average Interest Rate

Operating Leases

4.0

3.53%

Operating Leases

5.8

4.18%

Financing Leases

2.2

4.99%

Financing Leases

1.9

4.78%

The cash outflows of the leasing activity for the three months ~~ending September 30, 2021~~ended March 31, 2022 are as follows (Dollars in thousands):

Cash Flow Source

Classification

Amount

Operating cash flows from operating leases

Operating activities

~~3,549~~1,169

Operating cash flows from financing leases

Operating activities

121

Financing cash flows from financing leases

Financing activities

~~179~~43

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In March ~~2021~~2022 the Company signed a ~~three year extension~~new lease for ~~their lease at~~ the ~~McCook~~Calgary distribution ~~center ("McCook").~~center. The lease ~~extension~~ created a right of use asset of ~~$5.3~~$4.5 million and a lease liability of ~~$5.3~~$4.5 million.

Refer to Note 3 - Revenue Recognition for a discussion on Lawson activities as lessor.

Note 9 — ~~Revolving~~ Credit ~~Facility~~Agreement

2019 Credit Agreement

In October 2019, Lawson entered into a Credit Agreement (as amended through March 31, 2022, the “2019 Credit Agreement”) by and among Lawson, certain subsidiaries of Lawson, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The 2019 Credit Agreement provided for a revolving credit facility (the “Old Revolving Credit ~~Facility matures on~~Facility”) with a maturity date of October 11, 2024 and ~~provides~~with $100.0 million of revolving commitments. Net of outstanding letters of credit, the Company had ~~$87.4~~$83.4 million of borrowing availability under the Old Revolving Credit Facility as of ~~September 30, 2021~~March 31, 2022 and ~~$66.0~~$87.1 million as of December 31, ~~2020. Weighted~~2021. The weighted average interest ~~rates~~rate for the ~~nine~~three months ended ~~September 30, 2021 and September 30, 2020~~March 31, 2022 was 2.23%. There were ~~2.88% and 2.64%, respectively.~~no balances outstanding for the three months ended March 31, 2021.

Fees are reported as interest expense and include customary charges relating to letters of credit and an unused commitment fee ranging from 0.15% to 0.30%, depending on the Total Net Leverage Ratio as defined in the 2019 Credit Agreement. Fees for both the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ were less than $0.1 million ~~governing the Revolving Credit Facility.~~and $0.1 million, respectively.

In connection with the Old 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. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 deferred financing costs net of accumulated amortization were $0.3 million, ~~and $0.4 million,~~ respectively, and are included in Other ~~assets.~~assets in the Condensed Consolidated Balance Sheets.

Borrowings ~~are designed~~were designated as alternate base rate loans, Canadian prime rate loans, Eurodollar loans, and Canadian dollar offered rate loans. Interest rates ~~vary~~varied by the type of borrowing and Total Net Leverage Ratio as defined in the 2019 Credit Agreement of the most recent fiscal quarter.

The ~~Revolving~~2019 Credit ~~Facility includes~~Agreement included customary financial covenants, representations and warranties. The Company was in compliance with all financial covenants as of ~~September 30, 2021.~~March 31, 2022.

~~In the third~~Amended and Restated Credit Agreement - April 1, 2022

Subsequent to quarter end, on April 1, 2022 (the “Closing Date”), Lawson and certain of ~~2020, the Company~~its subsidiaries entered into an ~~amendment~~Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), by and among Lawson, certain subsidiaries of Lawson as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. Pursuant to the Amended and Restated 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~~2019 Credit Agreement was amended and ~~authorized indebtedness not to exceed $36.0 million for the acquisition of Partsmaster.~~restated in its entirety.

The Amended and Restated Credit Agreement provides for (i) a $200 million senior secured revolving credit facility, with a $25 million letter of credit subfacility and a $10 million swingline loan subfacility, (ii) a $250 million senior secured initial term loan facility and (iii) a $50 million senior secured delayed draw term loan facility. In addition, the Amended and Restated Credit Agreement permits Lawson to increase the commitments under the Amended and Restated Credit Agreement from time to time by up to $200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the Amended and Restated Credit Agreement. The revolving credit facility is available to be drawn in U.S. dollars, Canadian dollars and any other additional currencies that may be agreed.

~~Note 10 - Accrued Acquisition Liability~~

~~On August 31, 2020, Lawson acquired Partsmaster from NCH Corporation.~~ As ~~part~~ of the ~~purchase price,~~Closing Date, there were $250 million of initial term loan facility loans outstanding and approximately $86 million of revolving credit facility loans outstanding under the ~~Company agreed~~Amended and Restated Credit Agreement. These borrowings were used, among other things, to repay certain existing indebtedness of TestEquity and Gexpro Services and their respective subsidiaries and to pay ~~$33.0 million~~fees and expenses in ~~May 2021.~~ connection with the Mergers and the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement requires that the proceeds of any revolving credit facility loans be used for working capital and general corporate purposes (including, without limitation, permitted acquisitions). The Amended and Restated Credit Facility requires that the proceeds of any delayed draw term loan facility be used solely to finance the payment ~~obligation was discounted~~of consideration for (i) the potential acquisition by TestEquity of a certain business that had been previously identified to ~~present value using an implied interest rate~~Lawson as a potential acquisition candidate by TestEquity prior to the date of ~~1.8%. A discounted current liability of $32.7 million was recognized as of~~ ~~December 31, 2020 in~~ the ~~Company's consolidated balance sheet. In May 2021, the Company paid the outstanding $33.0 million accrued acquisition liability.~~

TestEquity Merger Agreement and (ii)

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~~Payment was guaranteed~~other acquisitions permitted under the ~~Purchase~~Amended and Restated Credit Agreement, ~~which included~~and for any fees, costs and expenses incurred in connection therewith.

The loans under the ~~issuance~~Amended and Restated Credit Agreement bear interest, at Lawson’s option, at a rate equal to (i) the Alternate Base Rate or the Canadian Prime Rate (each as defined in the Amended and Restated Credit Agreement), plus, in each case, an additional margin ranging from 0.0% to 1.75% per annum, depending on the total net leverage ratio of a ~~$33.0 million irrevocable standby letter~~Lawson and its restricted subsidiaries as of ~~credit.~~the most recent determination date under the Amended and Restated Credit Agreement or (ii) the Adjusted Term SOFR Rate or the CDOR Rate (each as defined in the Amended and Restated Credit Agreement), plus, in each case, an additional margin ranging from 1.0% to 2.75% per annum, depending on the total net leverage ratio of Lawson and its restricted subsidiaries as of the most recent determination date under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement further provides that the additional margin for the period from the Closing Date until Lawson’s delivery of its financial statements and compliance certificate for the first full quarter ending after the Closing Date shall be 1.5% per annum for Alternate Base Rate or Canadian Prime Rate loans and 2.5% per annum for all other loans.

Certain closing fees, arrangement fees, administration fees, commitment fees and letter of credit ~~was released in June 2021 subsequent~~fees are payable to ~~payment~~the lenders and the agents under the Amended and Restated Credit Agreement, including a commitment fee on the daily unused amount of the ~~liability in May 2021.~~revolving credit facility that will accrue at a rate ranging from 0.15% to 0.35% per annum, depending on the total net leverage ratio of Lawson and its restricted subsidiaries as of the most recent determination date under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement further provides that such commitment fee for the period from the Closing Date until Lawson’s delivery of its financial statements and compliance certificate for the first full quarter ending after the Closing Date shall accrue at a rate of 0.3% per annum.

~~Interest expense of~~ ~~$0.3 million~~In addition, the delayed draw term loan facility shall accrue a ticking fee at a rate ranging from 0.15% to 0.35% per annum, depending on the total net leverage ratio of Lawson and its restricted subsidiaries as of the most recent determination date under the Amended and Restated Credit Agreement, which ticking fee shall be payable during the period from the Closing Date to the date on which the lenders’ delayed draw term loan facility commitments terminate. The Amended and Restated Credit Agreement further provides that the ticking fee for the period from the Closing Date until Lawson’s delivery of its financial statements and compliance certificate for the first full quarter after the Closing Date shall accrue at a rate of 0.3% per annum.

Each of the loans under the Amended and Restated Credit Agreement mature on April 1, 2027, at which time all outstanding loans, together with all accrued ~~acquisition liability was recorded~~and unpaid interest, must be repaid and the revolving credit facility commitments will terminate. In addition, the lenders’ commitments under the delayed draw term loan facility expire on October 1, 2022, and no additional delayed draw term loans may be made on or after such date. Lawson is required to repay principal on the term loans each quarter in the ~~nine months ended September 30, 2021, with all interest expense recorded prior~~following amounts (subject to potential adjustment): (i) $3,125,000, in the ~~payment~~case of the ~~accrued acquisition liability.~~initial term loan facility, and (ii) an amount equal to 1.25% of the funded delayed draw term loan facility, in the case of the delayed draw term loan facility. Lawson is also required to prepay the term loans with the net cash proceeds from any disposition of certain assets (subject to reinvestment rights) or from the incurrence of any unpermitted debt. Lawson may borrow, repay and reborrow the revolving loans until April 1, 2027, prepay any of the term loans, and terminate any of the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions and the reimbursement of certain lender costs in the case of prepayments of certain types of loans.

Subject to certain exceptions as set forth in the Amended and Restated Credit Agreement, the obligations of Lawson and its U.S. subsidiaries under the Amended and Restated Credit Agreement are guaranteed by Lawson and certain of Lawson’s U.S. subsidiaries and the obligations of each of Lawson’s Canadian subsidiaries under the Amended and Restated Credit Agreement are guaranteed by Lawson and certain of its U.S. and Canadian subsidiaries.

Subject to certain exceptions as set forth in the Amended and Restated Credit Agreement, the obligations under the Amended and Restated Credit Agreement are secured by a first priority security interest in and lien on substantially all assets of Lawson, each other borrower and each guarantor.

The Amended and Restated Credit Agreement contains various affirmative covenants, including financial maintenance covenants requiring Lawson to maintain compliance with a consolidated minimum interest coverage ratio and a maximum total net leverage ratio, each determined in accordance with the terms of the Amended and Restated Credit Agreement.

The Amended and Restated Credit Agreement contains various events of default (subject to exceptions, thresholds and grace periods as set forth in the Amended and Restated Credit Agreement). Under certain circumstances, a default interest rate will apply on all obligations at a rate equal to 2.0% per annum above the applicable interest rate.

Note 1110 - Stock Repurchase Program

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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,~~transactions, privately negotiated transactions or by other methods. The Company had $4.5 million remaining under its repurchase plan as of ~~September 30, 2021.~~March 31, 2022. No shares were repurchased in the first three months of 2022 or 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.~~

Note 1211 - Severance Reserve

Changes in the Company’s reserve for severance included in Accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets, as of ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


		(Dollars in thousands)					(Dollars in thousands)
		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Balance at beginning of period	Balance at beginning of period	$	1,251	$	909	Balance at beginning of period	$	192	$	1,251
Charged to earnings	Charged to earnings	328		1,520		Charged to earnings	626		404
Payments		(1,085)		(1,239)
Cash paid						Cash paid	(368)		(340)
Balance at end of period	Balance at end of period	$	494	$	1,190	Balance at end of period	$	450	$	1,315

Note 1312 - Stock-Based Compensation

The Company recorded stock-based compensation benefit of ~~$1.2~~$8.6 million and expense of ~~$4.7~~$1.0 million for the three months ending ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and expense~~ ~~of $1.4 million and benefit of $2.8 million for~~ ~~the nine months ending 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~~liability of ~~$14.0~~$7.6 million as of ~~September 30, 2021~~March 31, 2022 and ~~$14.4~~$16.7 million as of December 31, ~~2020~~2021 is included in Accrued expenses and other ~~liabilities.~~liabilities in the Condensed Consolidated Balance Sheets. No stock-based awards were issued during the three months ended March 31, 2022.

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

~~Restricted Stock Units ("RSUs")~~

~~The Company i~~ssued 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 28,600 RSUs to various employees that vest ratably through 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 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 zero to 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 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 zero to 23,585 shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics.

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Note 1413 — Income Taxes

The Company recorded income tax expense of ~~$2.7~~$3.2 million, a ~~21.1%~~26.3% effective tax rate for the ~~nine~~three months ended ~~September 30, 2021. The effective tax rate approximates the U.S. statutory tax rate as state taxes and other permanent items are offset by the reversal of uncertain tax positions.~~March 31, 2022. Income tax expense of ~~$6.0~~$1.3 million, a ~~28.7%~~26.0% effective tax rate was recorded for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The 2022 and 2021 effective tax ~~rate is~~rates are higher than the U.S. statutory rate primarily due ~~primarily~~ to state taxes ~~recording of reserves for uncertain tax positions,~~ and ~~an inclusion for Global Intangible Low Tax Income.~~other permanent items.

The Company and its subsidiaries are subject to U.S. ~~Federal~~federal income tax, as well as income tax of multiple state and foreign jurisdictions. As of ~~September 30, 2021,~~March 31, 2022, the Company is subject to U.S. ~~Federal~~federal income tax examinations for the years ~~2017~~2018 through ~~2019~~2020 and income tax examinations from various other jurisdictions for the years 2014 through ~~2019.~~2020.

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 14 — Commitments and Contingencies

Shareholder lawsuits

On January 25, 2022, a lawsuit entitled Shiva Stein v. Lawson Products, Inc. et al., Case No. 1:22-cv-00639, was filed in the United States District Court for the Southern District of New York against Lawson and the members of the Lawson board of directors (the “Stein Action”). On January 27, 2022, a lawsuit entitled Matthew Hopkins v. Lawson Products, Inc. et al, Case No. 1:22-cv-00724, was filed in the United States District Court for the Southern District of New York against Lawson and the members of the Lawson board of directors (the “Hopkins Action”). On February 7, 2022, a lawsuit entitled Ema Bell v. Lawson Products, Inc. et al, Case No. 1:22-cv-01056, was filed in the United States District Court for the Southern District of New York against Lawson, the members of the Lawson board of directors, LKCM TE Investors, LLC (the “TestEquity Equityholder”), TestEquity, Tide Sub, LLC, a wholly-owned subsidiary of Lawson (“Merger Sub 1”), 301 HW Opus Investors, LLC, (the “Gexpro Services Stockholder”), Gexpro Services and Gulf Sub, Inc., a wholly-owned subsidiary of Lawson (“Merger Sub 2”) (the “Bell Action”). On February 11, 2022, a lawsuit entitled John Yurco v. Lawson Products, Inc. et al.,

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Case No. 1:22-cv-01201, was filed in the United States District Court for the Southern District of New York against Lawson and the members of the Lawson board of directors (the “Yurco Action”). On February 24, 2022, the Yurco Action was voluntarily dismissed by the plaintiff. On March 3, 2022, a lawsuit entitled Katherine Finger v. Lawson Products, Inc. et al., Case No. 1:22-cv-00287, was filed in the United States District Court for the District of Delaware against Lawson and the members of the Lawson board of directors (the “Finger Action”). On March 5, 2022, a lawsuit entitled John Kelly v. Lawson Products, Inc. et al., Case No. 1:22-cv-01894, was filed in the United States District Court for the Southern District of New York against Lawson and the members of the Lawson board of directors (the “Kelly Action”). On March 7, 2022, a lawsuit entitled Lewis D. Baker v. Lawson Products, Inc. et al., Case No. 2:22-cv-00842, was filed in the United States District Court for the Eastern District of Pennsylvania against Lawson and the members of the Lawson board of directors (the “Baker Action”). On March 10, 2022, the Stein Action and the Kelly Action were voluntarily dismissed by the respective plaintiffs. On March 17, 2022, the Hopkins Action and the Baker Action were voluntarily dismissed by the respective plaintiffs. On March 24, 2022, the Bell Action was voluntarily dismissed by the plaintiff. The Finger Action alleges that the defendants violated Sections 14(a) (and Rule 14a-9 promulgated thereunder) and 20(a) of the Exchange Act by, among other things, omitting certain allegedly material information with respect to the Mergers (as defined in Note 1) in the Company's proxy statement. The Finger Action seeks, among other things, injunctive relief, money damages and the costs of the Finger Action, including reasonable attorneys’ and experts’ fees.

Lawson and the members of its board of directors disagree with and intend to vigorously defend against the Finger Action. If the Finger Action is not resolved favorably, the Finger Action could result in additional costs to Lawson, including costs associated with the indemnification of directors. Additional plaintiffs may file lawsuits against Lawson and/or its directors and officers in connection with the Mergers. For example, on March 9, 2022, purported Lawson stockholder Keith Butler sent a letter to Lawson demanding that Lawson amend or supplement the Company’s proxy statement with information with respect to the Mergers. At this time, the Company is unable to estimate the ultimate outcome of the Finger Action or meaningfully quantify how the final resolution of the Finger Action may impact on its business, financial condition and results of operations.

In addition, on each of February 2, 2022, February 14, 2022 and February 15, ~~— Contingent Liabilities~~2022, purported Lawson stockholders made demands pursuant to Section 220 of the Delaware General Corporation Law to inspect certain books and records of Lawson (collectively, the “Books and Records Demands”). One stated purpose of the Books and Records Demands is to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the Lawson board of directors’ approval of the Mergers. In addition, on March 16, 2022, one of the purported Lawson stockholders who previously made a Books and Records Demand filed a lawsuit entitled Robert Garfield v. Lawson Products, Inc., Case No. 2022-0252, in the Court of Chancery of the State of Delaware against Lawson (the “Garfield Action”). On March 22, 2022, another of the purported Lawson stockholders who previously made a Books and Records Demand filed a lawsuit entitled Jeffrey Edelman v. Lawson Products, Inc., Case No. 2022-0270, in the Court of Chancery of the State of Delaware against Lawson (the “Edelman Action”). The Garfield Action and the Edelman Action are collectively referred to as the “Books and Records Actions.” The Books and Records Actions seek to compel inspection of certain books and records of Lawson to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the Lawson board of directors’ approval of the Mergers. Pursuant to a stipulation approved by Delaware Court of Chancery on March 24, 2022, the Books and Records Actions are being held in abeyance until May 23, 2022. Lawson and the members of its board of directors disagree with and intend to vigorously defend against the Books and Records Actions and any claim, if asserted, arising from the other Books and Records Demands. Due to the inherent uncertainties of these demands, the Company is not able to predict either the outcome of these demands on its business, financial condition and results of operations, or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the condensed consolidated financial statements for these matters.

Environmental matter

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"~~ADEM”) voluntary cleanup program.

~~The~~A remediation plan was approved by ADEM in ~~2018,~~2018. The plan consists of chemical injections throughout the affected area, ~~and~~as well as subsequent ~~monitoring.~~monitoring of the area. The injection process was completed in the first quarter of 2019 and the environmental consulting firm is monitoring ~~is ongoing pending certification by ADEM.~~the affected area. At ~~September 30, 2021 estimated~~March 31, 2022 the Company had less than $0.1 million accrued for potential monitoring costs. The 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.

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Note 15 — Related Party Transactions

During the three months ended March 31, 2022, the Company purchased approximately $0.5 million of inventory from a company owned by Luther King Capital Management Corporation (“LKCM”) at fair market value. The entire value of the purchase was prepaid per the terms of the purchase agreement. Approximately $0.2 million of the inventory was received by the end of the first quarter 2022, with the remaining amount scheduled to be received in the second quarter 2022. No liabilities exist with respect to this transaction as of March 31, 2022. The Company believes that this transaction is on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

TestEquity and Gexpro Services Mergers

As of April 1, 2022, the Closing Date of the TestEquity Merger and Gexpro Services Merger, entities affiliated with Luther King Capital Management Corporation (“LKCM”) and J. Bryan King (the Chairman of the Lawson board of directors), including private investment partnerships for which LKCM serves as investment manager, beneficially owned a majority of the ownership interests in the TestEquity Equityholder (which in turn owned all of the outstanding equity interests of TestEquity as of immediately prior to the completion of the TestEquity Merger). As of the Closing Date, Mr. King was a director of the TestEquity Equityholder. In addition, as of the Closing Date, Mark F. Moon (a member of the Lawson board of directors) was a director of, and held a direct or indirect equity interest in, the TestEquity Equityholder.

As of the Closing Date of the Mergers, entities affiliated with LKCM and Mr. King, including private investment partnerships for which LKCM serves as investment manager, beneficially owned a majority of the ownership interests in the Gexpro Services Stockholder (which in turn owned all of the outstanding stock of Gexpro Services as of immediately prior to the completion of the Gexpro Services Merger).

As of the day immediately preceding the Closing Date, entities affiliated with LKCM and Mr. King beneficially owned approximately 48% of the shares of Lawson common stock outstanding as of the day immediately preceding the Closing Date.

As a result of and after the consummation of the Mergers, entities affiliated with LKCM and J. Bryan King (the Chairman of the Lawson board of directors) beneficially owned in the aggregate approximately 14,640,000 shares of Lawson common stock as of the Closing Date, which shares represented approximately 75% of the shares of Lawson common stock outstanding as of the Closing Date after giving effect to the issuance of shares as of the Closing Date in connection with the consummation of the Mergers. Such aggregate share amount does not include any of the up to 700,000 additional shares of Lawson common stock or any of the up to 1,000,000 additional shares of Lawson common stock potentially issuable to the TestEquity Equityholder and the Gexpro Services Stockholder, respectively, in accordance with the earnout provisions of the TestEquity Merger Agreement and the Gexpro Services Merger Agreement, respectively, summarized in Note 1 - Summary of Significant Accounting Policies and Other Information.

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Note 1716 – Segment Information

The Company's operating segments, Lawson and Bolt Supply, 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 Supply 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 Supply 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:


											(Dollars in thousands)
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue									Revenue

Lawson	Lawson	$	93,686	$	79,806	$	281,877	$	224,511	Lawson	$	104,902	$	93,330
Bolt Supply	Bolt Supply	11,884		10,471		33,789		28,947		Bolt Supply	12,975		10,226
Consolidated total	Consolidated total	$	105,570	$	90,277	$	315,666	$	253,458	Consolidated total	$	117,877	$	103,556

Gross profit	Gross profit									Gross profit

Lawson	Lawson	$	51,127	$	43,038	$	151,436	$	123,031	Lawson	$	55,531	$	50,408
Bolt Supply	Bolt Supply	4,919		4,187		13,790		11,428		Bolt Supply	4,967		4,152
Consolidated total	Consolidated total	$	56,046	$	47,225	$	165,226	$	134,459	Consolidated total	$	60,498	$	54,560

Operating income	Operating income									Operating income
Lawson	Lawson	$	3,488	$	1,112	$	10,188	$	19,003	Lawson	$	11,096	$	4,256
Bolt Supply	Bolt Supply	1,132		889		2,624		2,205		Bolt Supply	980		554
Consolidated total	Consolidated total	4,620		2,001		12,812		21,208		Consolidated total	12,076		4,810

Interest expense	Interest expense	(119)		(142)		(710)		(329)		Interest expense	(95)		(323)
Other income (expense), net		(209)		615		802		15
Other income, net										Other income, net	204		372
Income before income taxes	Income before income taxes	$	4,292	$	2,474	$	12,904	$	20,894	Income before income taxes	$	12,185	$	4,859

Note 1817 - 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 continue to 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 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 has had and may in the future 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"~~(“CARES”) Act to provide certain relief as a result of the COVID-19 outbreak. The Company ~~has~~ elected to defer ~~the~~a total of $3.5 million of employer side social security payments in accordance with the CARES Act. The ~~total amount~~Company paid $1.7 million of accrued deferred ~~is $3.5~~payroll taxes in the fourth quarter of 2021, and the remaining balance of $1.8 million ~~with $1.7 million~~is 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.

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The Company will continue to closely monitor the operating environment and will take appropriate actions to protect the safety ~~for~~of its employees, customers and suppliers.

Note 18 - Subsequent Events

TestEquity and Gexpro Services Mergers

Refer to Note 1 - Summary of Significant Accounting Policies and Other Information, for a description of the TestEquity Merger and the Gexpro Services Merger consummated on April 1, 2022.

Amended and Restated Credit Agreement

In connection with the TestEquity Merger and Gexpro Services Merger, Lawson entered into an Amended and Restated Credit Agreement. Refer to Note 9 - Credit Agreement, for a description of the agreement.

Retirement of CEO

On April 4, 2022, Michael G. DeCata, entered into an agreement pursuant to which he agreed to retire from his positions as President and Chief Executive Officer and as a member of the Board of Directors of Lawson, effective May 1, 2022. In connection with Mr. DeCata’s retirement, a Lawson subsidiary and Mr. DeCata entered into a Retirement and Consulting Agreement, dated as of April 4, 2022, pursuant to which Mr. DeCata agreed to provide consulting and advisory services from time to time through May 1, 2026. As part of the succession plan, Cesar Lanuza was appointed as President and Chief Executive Officer of the Lawson subsidiary that operates Lawson's business operations other than TestEquity and Gexpro Services, effective April 4, 2022.

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

~~Partsmaster Acquisition~~Sales Drivers

~~In August 2020, we acquired Partsmaster,~~The North American MRO market is highly fragmented. We compete for business with several national distributors as well as a ~~leading Maintenance, Repair~~large number of regional and ~~Operations ("MRO") distributor from NCH Corporation, with approximately 200 sales representatives and approximately 16,000 customers throughout~~local distributors. The MRO business is significantly impacted by the overall strength of the manufacturing sector of the U.S. economy which has been significantly affected by the COVID-19 pandemic. One measure used to evaluate the strength of the industrial products market is the Purchasing Managers Index (PMI) published by the Institute for Supply Management. The PMI is a composite index of economic activity in the United States ~~and Canada. The purchase price~~manufacturing sector. A measure of that index above 50 generally indicates expansion of the ~~acquisition~~manufacturing sector while a measure below 50 generally represents contraction. The average monthly PMI was ~~$35.3 million in cash and the assu~~mption of certain liabilities. We paid $2.3 million at the time of the acquisition and paid the remaining $33.0 million in May 2021. Partsmaster contributed $13.6 million of revenue and 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 income57.8 in the first ~~nine months~~quarter of 2022 compared to 61.4 in the first quarter of 2021.

~~Additional information related~~Our sales are also influenced by the number of sales representatives and their productivity. Our average sales rep headcount for the first quarter of 2022 was 1,026 sales representatives. This is compared to the ~~Partsmaster acquisition is provided~~average sales representative headcount of 1,083 sales representatives in the first quarter of 2021. Lawson segment sales representative productivity, measured as sales per rep per business day, increased 16.4% to $1.583 thousand in the first quarter of 2022 compared to $1.360 thousand in the prior year quarter. The increase in sales rep productivity was primarily driven by the realization of price increases instituted throughout 2021 and in the first quarter of 2022 and increased sales with fewer sales reps. These price increases were enacted to primarily offset rising supplier costs caused by inflation and increased transportation and labor costs. We plan to continue concentrating our efforts on increasing the productivity and size of our sales team.

Supply Chain Disruptions

Along with the broader economy, we continue to be affected by rising supplier costs caused by inflation and increased transportation and labor costs. This results in challenges in acquiring and receiving inventory in a timely fashion and fulfilling customer orders, which has offset some of the sales gains we recorded in 2022 compared to 2021. The supply chain disruptions have also led to higher product costs which have contributed to lower gross margins as a percentage of sales compared to the prior year. We have instituted various price increases during 2021 and 2022 in response to rising supplier costs, as well as increased transportation and labor costs. Further discussion in included within the financial discussion of the Management's Discussion and Analysis of Financial Condition and Results of Operations.

TestEquity and Gexpro Services Mergers

Refer to the section entitled "Recent Events" in Note 21 - ~~Acquisition~~Summary of Significant Accounting Policies and Other Information included in Part I. Item 1. Financial Statements, which section is incorporated herein by reference, for a description of the TestEquity Merger and Gexpro Services Merger consummated on April 1, 2022.

Cyber Security Incident

In February 2022, Lawson became aware that its computer network was the subject of a cyber incident potentially involving unauthorized access. It is possible that certain confidential business information and personnel records may have been compromised in the ~~notes~~past. Lawson has engaged a cybersecurity forensics firm to assist in the ~~condensed consolidated financial statements.~~investigation of the incident and to assist in securing its computer network.

Depending on the nature of any information that may have been compromised, Lawson may be required to notify the parties whose information was compromised of the incident as well as various governmental agencies and may be required to take other actions in the future, such as offering credit monitoring services. Lawson is continuing to investigate the incident as well as potential corrective and remedial actions to take in respect of the incident. The Company has not incurred material costs and at this time, is unable to estimate the total cost of any remediation that may be required.

COVID-19 Pandemic

~~There is substantial uncertainty as to the effect the COVID-19 pandemic will have on the future results~~

Table of ~~the Company.~~ Contents

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 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 possible that estimates made in the financial statements may be materially and adversely impacted as a result of 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 million, with~~ ~~$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 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 nine months of 2021, which led to increased business activity and contributed to improved operating results compared to the first 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 and supply chain disruptions continue to negatively impact our sales and cost control measures, our ability to effectively service our customers ~~have~~has 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~~Critical Accounting Policies and Use of Estimates

The ~~MRO distribution industry is highly fragmented. We compete for business~~condensed consolidated financial statements were prepared in accordance 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 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.GAAP. A ~~measure~~

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~~above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction.~~ ~~The average monthly PMI was 60.2 in the third quarter of 2021 compared to 55.2 in the third quarter of 2020.~~

Our sales are also influenced by the number of sales representatives and their productivity. Our average sales rep headcount for the third quarter of 2021 was 1,076 sales representatives, inclusive of the Partsmaster sales representatives. This is compared to the average sales rep headcount of 993 sales reps in the 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 Partsmaster sales reps, increased 8.2% to $1.352 in the third quarter of 2021 compared to $1.249 in the prior year quarter. Partsmaster contributed $13.6 million in sales in the 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 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 concentrating our efforts on increasing the productivitydiscussion of our ~~sales representatives.~~

~~Supply Chain Disruptions~~

~~Along with the broader economy, we are experiencing additional pressure~~critical accounting policies and estimates is contained in our ~~supply chain, labor shortages~~2021 annual report on Form 10-K within Part II, Item 7 and ~~inflation. This results in challenges in acquiring~~Item 8, Note 2. Please refer to these disclosures for further information regarding our critical accounting polices and ~~receiving inventory in a timely fashion, fulfilling customer orders~~use of estimates. There have been no significant changes to our previously disclosed critical accounting polices and ~~increased product costs. Further discussion in included within the financial discussion~~use of ~~the~~ ~~Management's Discussion and Analysis of Financial Condition and Results of Operations.~~estimates.

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

~~We believe~~The Company's management believes that certain non-GAAP financial measures ~~provides~~may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. ~~We believe~~Management believes that these non-GAAP financial measures can ~~help identify~~provide additional meaningful reflection of 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~~the Company's 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,~~expense, and other non-recurring items in the period in which these items are incurred. Operating income was ~~$4.6~~$12.1 million for the ~~third~~first quarter of ~~2021~~2022 compared to ~~$2.0~~$4.8 million for the ~~third~~first quarter of ~~2020.~~2021. Excluding stock-based compensation, severance expense, acquisition costs and other non-recurring items, adjusted non-GAAP operating income was ~~$7.3~~$7.1 million in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$7.7~~$7.2 million in the ~~third~~first quarter of ~~2020 and $21.4 million for the first nine months of 2021 compared to $20.5 million for the prior year period.~~2021.

The decrease in non-GAAP adjusted ~~non-GAAP~~ operating income in the ~~third~~first quarter ~~2021~~2022 compared to the prior year quarter was driven by increased supplier costs, higher selling expenses due to higher sales, and ~~restored salary and compensation~~higher health insurance costs compared to the prior ~~year~~ quarter. ~~The increase in adjusted non-GAAP operating income for~~These items were partially offset by higher sales driven primarily by the ~~nine months ended September~~realization of price increases instituted throughout 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~~quarter of ~~2021 compared~~2022 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.~~rising costs.

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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


Reconciliation of GAAP Operating Income to Non-GAAP Adjusted Operating Income (Unaudited)
	Three Months Ended March 31,
(Dollars in thousands)	2022		2021

Operating income as reported per GAAP	$	12,076	$	4,810
Stock-based compensation (benefit) expense (1)	(8,595)		1,000
Severance expense (2)	626		404
Costs related to merger agreements (3)	2,974		—
Employee acquisition costs (4)	—		172
Inventory reserves (5)	—		825
Non-GAAP adjusted operating income	$	7,081	$	7,211

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

(2) ~~Expense~~Includes severance expense from actions taken in 2022 and 2021.

(3) Primarily costs related to the negotiation, review and execution of the merger agreements relating to Lawson’s business combination with TestEquity and Gexpro Services consummated on April 1, 2022.

(4) Includes retention costs for actions taken in 2021 related to the Partsmaster acquisition.

(5) Includes expense for 2021 Partsmaster inventory rationalization plan and write-down of personal protective equipment ~~(PPE)~~inventory to net

realizable ~~value~~

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

~~May 17, 2021~~value.

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Three months ended ~~September 30, 2021~~March 31, 2022 compared to three months ended ~~September 30, 2020~~March 31, 2021


		2021				2020					2022				2021
(Dollars in thousands)	(Dollars in thousands)	Amount		% of Net Sales		Amount		% of Net Sales		(Dollars in thousands)	Amount		% of Net Sales		Amount		% of Net Sales

Revenue	Revenue	$	105,570	100.0	%	$	90,277	100.0	%	Revenue	$	117,877	100.0	%	$	103,556	100.0	%
Cost of goods sold	Cost of goods sold	49,524		46.9	%	43,052		47.7	%	Cost of goods sold	57,379		48.7	%	48,996		47.3	%
Gross profit	Gross profit	56,046		53.1	%	47,225		52.3	%	Gross profit	60,498		51.3	%	54,560		52.7	%

Operating expenses:	Operating expenses:									Operating expenses:
Selling expenses	Selling expenses	24,908		23.6	%	19,155		21.2	%	Selling expenses	26,310		22.3	%	23,802		23.0	%
General and administrative expenses	General and administrative expenses	26,518		25.1	%	26,069		28.9	%	General and administrative expenses	22,112		18.8	%	25,948		25.0	%
Total operating expenses		51,426		48.7	%	45,224		50.1	%
Operating expenses										Operating expenses	48,422		41.1	%	49,750		48.0	%

Operating income	Operating income	4,620		4.4	%	2,001		2.2	%	Operating income	12,076		10.2	%	4,810		4.6	%

Interest expense	Interest expense	(119)		(0.1)	%	(142)		(0.2)	%	Interest expense	(95)		(0.1)	%	(323)		(0.3)	%
Other income (expenses), net		(209)		(0.2)	%	615		0.7	%
Other income, net										Other income, net	204		0.2	%	372		0.4	%

Income before income taxes	Income before income taxes	4,292		4.1	%	2,474		2.7	%	Income before income taxes	12,185		10.3	%	4,859		4.7	%

Income tax expense	Income tax expense	636		0.6	%	736		0.8	%	Income tax expense	3,199		2.7	%	1,263		1.2	%

Net income	Net income	$	3,656	3.5	%	$	1,738	1.9	%	Net income	$	8,986	7.6	%	$	3,596	3.5	%

Revenue and Gross Profits


		Three Months Ended September 30,						Increase				Three Months Ended March 31,						Increase
(Dollars in thousands)	(Dollars in thousands)	2021			2020			Amount		%	(Dollars in thousands)	2022			2021			Amount		%

Revenue	Revenue										Revenue
Lawson	Lawson	$	93,686		$	79,806		$	13,880	17.4%	Lawson	$	104,902		$	93,330		$	11,572	12.4%
Bolt Supply	Bolt Supply	11,884			10,471			1,413		13.5%	Bolt Supply	12,975			10,226			2,749		26.9%
Consolidated	Consolidated	$	105,570		$	90,277		$	15,293	16.9%	Consolidated	$	117,877		$	103,556		$	14,321	13.8%

Gross profit	Gross profit										Gross profit
Lawson	Lawson	$	51,127		$	43,038		$	8,089	18.8%	Lawson	$	55,531		$	50,408		$	5,123	10.2%
Bolt Supply	Bolt Supply	4,919			4,187			732		17.5%	Bolt Supply	4,967			4,152			815		19.6%
Consolidated	Consolidated	$	56,046		$	47,225		$	8,821	18.7%	Consolidated	$	60,498		$	54,560		$	5,938	10.9%

Gross profit margin	Gross profit margin										Gross profit margin
Lawson	Lawson	54.6		%	53.9		%				Lawson	52.9		%	54.0		%
Bolt Supply	Bolt Supply	41.4		%	40.0		%				Bolt Supply	38.3		%	40.6		%
Consolidated	Consolidated	53.1		%	52.3		%				Consolidated	51.3		%	52.7		%

Revenue

Total sales increased 13.8% to $117.9 million in the first quarter of 2022 compared to $103.6 million in the first quarter of 2021. The increase in sales compared to the prior year quarter was primarily driven by the realization of price increases enacted throughout 2021 and in the first quarter of 2022 to offset rising supplier costs and one additional selling day in 2022. Bolt Supply sales improved 26.9% compared to the prior year quarter driven by realization of prior period price increases enacted to offset rising supplier costs, continued strength in branch location sales and a recovery of direct sales to oil and gas customers. The first quarter 2022 had one more selling day than the prior year quarter.

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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

Reported gross profit increased ~~$8.8~~$5.9 million to ~~$56.0~~$60.5 million in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$47.2~~$54.6 million in the prior year quarter primarily as a result of increased sales. Partsmaster contributed $8.3 million to reported gross profit in the third quarter of 2021 before the classification of certain service-related costs in gross profit compared to $3.6 million in the one-month post-acquisition period in 2020. Consolidated gross profit as a percent of sales was ~~53.1%~~51.3% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~52.3%~~52.7% in the prior year quarter. Gross margin percentage for the ~~third~~first quarter ~~2021~~2022 was impacted by ~~the sustained~~increased supplier costs from inflation, supply chain ~~constraints affecting~~disruptions and a sales shift toward lower margin customers. Price increases enacted throughout 2021 and the ~~broader economy, which resulted in product shortages and increased supplier, transportation and labor~~first quarter of 2022 have partially offset the negative impacts of these higher costs.

The ~~organic~~ Lawson ~~MRO~~segment gross margin, defined as margin generated by Lawson MRO ~~excluding Partsmaster,~~ as a percent of sales was ~~58.7%~~52.9% in the ~~third~~first quarter ~~of 2021~~2022 compared to ~~58.8%~~54.0% a year ago ~~quarter before the classification~~quarter. The realization of ~~certain service-related costs in gross profit. Actions taken on pricing,~~customer price increases, along with product sourcing and labor allocation, partially offset increased ~~freight~~supplier costs in the current year quarter. The decrease in Bolt Supply gross margin as a percent of sales compared to the prior year quarter was also driven by increased sales to lower margin customers in the oil and ~~inflation pressure.~~gas industry.

Selling, General and Administrative Expenses


		Three Months Ended September 30,				Increase				Three Months Ended March 31,				Increase
(Dollars in thousands)	(Dollars in thousands)	2021		2020		Amount		%	(Dollars in thousands)	2022		2021		Amount		%

Selling expenses	Selling expenses								Selling expenses
Lawson	Lawson	$	23,922	$	18,373	$	5,549	30.2%	Lawson	$	25,370	$	22,891	$	2,479	10.8%
Bolt Supply	Bolt Supply	986		782		204		26.1%	Bolt Supply	940		911		29		3.2%
Consolidated	Consolidated	$	24,908	$	19,155	$	5,753	30.0%	Consolidated	$	26,310	$	23,802	$	2,508	10.5%

General and administrative expenses	General and administrative expenses								General and administrative expenses
Lawson	Lawson	$	23,717	$	23,553	$	164	0.7%	Lawson	$	19,065	$	23,261	$	(4,196)	(18.0)%
Bolt Supply	Bolt Supply	2,801		2,516		285		11.3%	Bolt Supply	3,047		2,687		360		13.4%
Consolidated	Consolidated	$	26,518	$	26,069	$	449	1.7%	Consolidated	$	22,112	$	25,948	$	(3,836)	(14.8)%

Selling expenses consist of compensation and support for our sales representatives. Selling expenses increased to ~~$24.9~~$26.3 million in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$19.2~~$23.8 million in the prior year quarter. ~~The increase in selling expense is primarily driven by increased sales, along with the inclusion of $5.6 million in~~Higher selling expense in the ~~third~~first quarter ~~of 2021 from the Partsmaster business~~2022 compared to ~~$1.7 million of selling expense from Partsmaster in~~ the ~~one-month post-acquisition period of September 2020.~~prior year quarter was primarily driven by costs incurred to support the increased sales and increased health insurance costs. As a percent of sales, selling expenses ~~increased~~decreased to ~~23.6%~~22.3% from ~~21.2%~~23.0% in the ~~third~~first quarter of ~~2020~~2021 driven by ~~the reinstatement of normalized selling activities including~~expenses allocated over a larger sales ~~rep travel not incurred during the pandemic and higher Partsmaster selling expenses as a percent of sales.~~base.

General and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business. General and administrative expenses ~~increased~~decreased to ~~$26.5~~$22.1 million in the ~~third~~first quarter of ~~2021~~2022 from ~~$26.1~~$25.9 million in the prior year quarter. The ~~increased General and administrative expense was driven by the inclusion of Partsmaster~~decrease in general and administrative expenses ~~of $3.5 million compared to $1.5 million included from the one-month post-acquisition period of September 2020, offset~~was driven by a stock-based compensation benefit ~~from~~of $8.6 million in the ~~third~~first quarter ~~2021 of~~ ~~$1.2 million~~2022 compared to expense of ~~$4.7~~$1.0 million ~~for~~in the ~~third~~prior year quarter. A portion of our stock based compensation fluctuates with our stock price. This benefit was partially offset by costs of $3.0 million incurred in the first quarter ~~2020. Costs~~ of ~~$3.2 million~~2022 related to the ~~evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed~~Mergers with TestEquity and Gexpro Services, which were consummated on ~~May 17, 2021 are also in~~April 1, 2022. Excluding stock-based compensation, severance and acquisition related costs, general and administrative ~~expenses for~~expense increased by $2.7 million compared to the prior year quarter. This increase was driven primarily by higher employee related costs including additional health insurance claims of approximately $1.5 million.

Interest Expense

Interest expense was $0.1 million in the ~~third~~first quarter of ~~2021,~~2022 compared to $0.3 million of interest expense in ~~line with~~ the prior year quarter.

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Other Income, Net

Other income, net decreased $~~0.8~~0.2 million in the ~~third~~first quarter of ~~2021~~2022 over the prior year quarter primarily due to Canadian currency exchange rate effect.

~~Income Tax Expense~~

Income tax expense was $0.6 million, resulting in a 14.8% effective tax rate for the three months ended September 30, 2021 compared to an income tax expense of $0.7 million and an effective tax rate of 29.7% for the three months ended 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~~expense was $3.2 million, resulting in a ~~21.1%~~26.3% effective tax rate for the ~~first nine~~three months ~~of 2021~~ended March 31, 2022 compared to income tax expense of ~~$6.0~~$1.3 million and ~~a 28.7%~~an effective tax rate of 26.0% for the ~~first nine~~three months ~~of 2020.~~ended March 31, 2021. The effective tax rate in both periods is higher than the U.S. statutory rate primarily due to state taxes and other permanent items.

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Liquidity and Capital Resources

Available cash and cash equivalents were ~~$7.5~~$5.5 million on ~~September 30, 2021~~March 31, 2022 compared to ~~$28.4~~$4.2 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 ~~provided~~used by operations for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$6.2~~$0.2 million, primarily due to increased accounts receivables driven by ~~reported operating earnings and partially offset by increased net working capital from increases in accounts receivable related to~~ higher sales and increased inventories ~~associated with the~~due to increased supplier costs driven by inflation and global supply chain disruptions. The increased operating cash outflows were partially offset by operating cash inflows generated by realization of pricing actions taken to offset increased supplier costs.

Capital expenditures were ~~$5.7~~$2.1 million and ~~$1.3~~$0.8 million for the ~~nine~~three month period ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, primarily for improvements to our distribution centers and information technology.

Cash provided by financing activities was ~~$10.7~~$3.6 million for the first ~~nine~~three months of ~~2021,~~2022, primarily due to a net drawdown of ~~$10.9~~$3.7 million ofon our Old Revolving Credit Facility ~~partially driven by~~due to increased working capital requirements and costs associated with the ~~final Partsmaster payment.~~TestEquity Merger and Gexpro Services Merger.

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 ~~nine~~three months of ~~2021~~2022 under this plan.

The Company anticipates that outstanding stock performance rights with a value of ~~$8.4~~$4.2 million at ~~September 30, 2021~~March 31, 2022 will be paid out within the next twelve months prior to expiration.

Old Revolving Credit Facility

On ~~September 30, 2021,~~March 31, 2022, we had $~~10.9~~15.6 million in outstanding borrowings and $~~87.4~~83.4 million of borrowing availability remaining, net of outstanding letters of credit, under our Old Revolving Credit Facility.

Along with certain standard terms and conditions of our 2019 Credit Agreement governing our Old Revolving Credit Facility, we ~~are~~were able to borrow up to 3.25 times our EBITDA, as defined, and required to maintain a minimum fixed charge ratio, as defined, of 1.15. As of ~~September 30, 2021,~~March 31, 2022, we were in compliance with all financial covenants.

While we were in compliance with our financial covenants included in our 2019 Credit Agreement for the quarter ended ~~September 30, 2021,~~March 31, 2022, failure to meet the covenant requirements of the Amended and Restated 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.

We believe cash provided by operations and funds available under our Amended and Restated Credit Agreement are sufficient to fund our operating requirements, strategic initiatives and capital improvements, although we cannot provide assurance that events beyond our control will not have a material adverse impact on our liquidity.

Amended and Restated Credit Agreement

Subsequent to quarter end, on April 1, 2022, in connection with the TestEquity Merger and Gexpro Services Merger, Lawson entered into an Amended and Restated Credit Agreement. Refer to Note 9 - Credit Agreement which is incorporated herein by reference, for a description of the agreement.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3 of Part I has been omitted from this report.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of 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 ~~September 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially ~~offset~~affect, our internal control over financial reporting. ~~We substantially completed the integration of the internal control procedures of Partsmaster into our existing internal control structure.~~

PART II

OTHER INFORMATION

ITEMS ~~1, 1A,~~ 3, 4 and 5 of Part II are ~~inapplicable~~not applicable and have been omitted from this report.

ITEM 1. LEGAL PROCEEDINGS

See Note 14 - Commitments and Contingencies to our condensed consolidated financial statements, included in Part I. Item 1. Financial Information, which is incorporated herein by reference, for a description of certain of our pending legal proceedings. In addition, the Company is involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any currently pending litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

Our operating results depend upon many factors and are subject to various risks and uncertainties, including those discussed below. The material risks and uncertainties known to us and described below may negatively affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair or otherwise adversely affect our business, financial condition and results of operations, and may give rise to or amplify many of the risks discussed below.

Business Risks

A significant portion of our inventory may become obsolete.

Our business strategy requires us to carry a significant amount of inventory to meet rapid processing of customer orders. If our inventory forecasting and production planning processes result in inventory levels exceeding the levels demanded by customers or should our customers decrease their orders with us, our operating results could be adversely affected due to costs of carrying the inventory and additional inventory write-downs for excess and obsolete inventory.

Work stoppages and other disruptions at transportation centers or shipping ports, along with other supply chain disruptions, may adversely affect our ability to obtain inventory and make deliveries to our customers.

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Our ability to rapidly process customer orders is an integral component of our overall business strategy. Interruptions at our company operated facilities or disruptions at a major transportation center or shipping port, due to events such as severe weather, labor interruptions, natural disasters, acts of terrorism or other events, could affect our ability to maintain core products in inventory, deliver products to our customers on a timely basis or adversely affect demand for our products, which may in turn adversely affect our business, financial condition and results of operations. Similarly, other supply chain disruptions have impacted our ability to maintain certain core products in inventory and deliver products to customers on a timely basis, and may continue to impact our ability to do so. Such supply chain disruptions may adversely affect our business, financial condition and results of operations.

TestEquity relies on a single supplier for a significant amount of its product inventory, and any disruptions in such supplier’s business, operations or financial condition, or TestEquity’s relationship with such supplier, could have a material adverse effect on our business, financial condition and results of operations.

TestEquity relies on a single supplier for a significant amount of its product inventory, including electronic test and measurement equipment. Any disruptions in that particular supplier’s business, operations or financial condition, or TestEquity’s relationship with this significant supplier, could have a material adverse effect on our business, financial condition and results of operations.

Changes in our customers, product mix and pricing strategy could cause our gross margin percentage to decline in the future.

From time to time, our businesses have experienced overall changes in the product mix demand of customers. When customers or product mix changes, there can be no assurance that we will be able to maintain our gross profit margins. Changes in our customers, product mix, volume of orders or prices charged, along with additional freight costs or lower productivity levels, could cause our gross profit margin percentage to decline. Our gross margin percentage may also come under pressure in the future if we increase the percentage of national accounts in our customer base, as sales to these customers are generally at lower margins.

Disruptions of our information and communication systems could adversely affect the Company.

We depend on our information and communication systems to process orders, purchase and manage inventory, maintain cost-effective operations, sell and ship products, manage accounts receivable collections and serve our customers. Disruptions in the operation of information and communication systems can occur due to a variety of factors including power outages, hardware failure, programming faults and human error. Disruptions in the operation of our information and communication systems, whether over a short or an extended period of time or affecting one or multiple distribution centers, could have a material adverse effect on our business, financial condition and results of operations.

Cyber attacks or other information security incidents could have a material adverse effect on our operating results and financial condition, subject us to additional legal costs and damage our reputation in the marketplace.

We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employees and business partners. During the normal course of business we receive, retain and transmit certain confidential information that our customers provide to purchase products or services or to otherwise communicate with us.

Our technologies, systems and networks (and those of our business partners) have been and may in the future be the target of cyber attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations. For example, in February 2022, Lawson became aware that its computer network was the subject of a cyber incident potentially involving unauthorized access. It is possible that certain confidential business information and personnel records may have been compromised in the past, and may be compromised in the future. Depending on the nature of any information that may have been or may in the future be compromised, we may be required to notify the parties whose information was compromised of the incident as well as various governmental agencies and may be required to take other actions in the future, such as offering credit monitoring services.

Such attacks or incidents could have a material adverse effect on our operating results and financial condition, subject us to additional legal costs and damage our reputation in the marketplace. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and fix any information security vulnerabilities.

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The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business and operating results.

We have committed to a plan to increase the size of our sales force. A successful expansion in our sales force requires us to identify under-served territories that offer the greatest potential growth opportunity, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization. This expansion will require significant investment in capital and resources. The failure to identify the optimal sales territories, recruit and retain quality sales representatives and provide them with sufficient support could adversely affect our business, financial condition and results of operations.

It is also critical to retain the experienced and productive sales representatives that have historically contributed to the successes of our businesses. Failure to retain a sufficient number of talented, experienced and productive sales representatives could adversely affect our business, financial condition and results of operations.

Failure to retain talented employees, managers and executives could negatively impact our business and operating results.

Our success depends on, among other things, our ability to attract, develop and retain talented employees, including executives and other key managers. The loss of certain key executives and managers or the failure to attract and develop talented employees could have a material adverse effect on our business.

The inability of management to successfully implement changes in operating processes could lead to disruptions in our operations.

We strive to improve operational efficiencies throughout our organization and to identify and initiate changes intended to improve our internal operations. The implementation of changes to our current operations involve a risk that the changes may not work as intended, may disrupt related processes, may not be properly applied or may not result in accomplishing the intended efficiencies. Failure to successfully manage the implementation of these changes could lead to disruptions in our operations.

The inability to successfully integrate additional acquisitions into our organization could adversely affect our operations and operating results.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model. However, there are risks associated with pursuing acquisitions, which include the incurrence of significant transaction costs without the guarantee that such transactions will be completed. Further, we may fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of Lawson, which could adversely affect our business, financial condition and results of operations. See also the section entitled “Item 1A. Risk Factors – TestEquity Merger and Gexpro Services Merger Risks” for a discussion of various additional risk factors relating to our completed business combination with TestEquity and Gexpro Services.

We operate in highly competitive markets.

The marketplaces in which we operate are highly competitive. Our competitors include large and small companies with similar or greater market presence, name recognition, and financial, marketing, and other resources. We believe the competition will continue to challenge our business with their product selection, financial resources and services.

Changes that affect governmental and other tax-supported entities could negatively impact our sales and earnings.

A portion of our sales are derived from the United States military and other governmental and tax-supported entities. These entities are largely dependent upon government budgets and require adherence to certain laws and regulations. A decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight, could lead to reduced sales or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.

Debt Financing Risks

We have a significant amount of indebtedness, and our significant indebtedness could adversely affect our business, financial condition and results of operations.

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We incurred a significant amount of indebtedness in connection with the Mergers, and our significant indebtedness includes a significant amount of indebtedness under our credit agreement.In addition, we may be able to incur a significant amount of additional indebtedness, subject to the terms and restrictions of our credit agreement. Our indebtedness could have significant consequences on our future operations, including:

•events of default if we fail to comply with the financial and other covenants contained in the credit agreement and/or other agreements governing our debt instruments, which could result in all of the debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;

•reducing the availability of our cash flow to fund working capital, capital expenditures, investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;

•limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;

•limiting our ability to buy back common stock or pay dividends;

•placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged; and

•increasing our vulnerability to the impact of adverse economic and industry conditions.

Our ability to meet our payment and other obligations under our debt instruments will depend on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure that we will generate cash flow from operations, or that future borrowings will be available to us, in an amount sufficient to enable us to meet our indebtedness obligations and to fund other liquidity needs.

Failure to adequately fund our operating and working capital needs through cash generated from operations and cash available through our credit agreement could negatively impact our ability to invest in our business and maintain our capital structure.

Our business requires investment in working capital and fixed assets. We expect to fund these investments from cash generated from operations and funds available from our credit agreement. Failure to generate sufficient cash flow from operations or from our credit agreement could cause us to have insufficient funds to operate our business. Adequate funds may not be available when needed or may not be available on favorable terms.

Failure to meet the covenant requirements of our credit agreement could lead to higher financing costs and increased restrictions and reduce or eliminate our ability to borrow funds.

Our credit agreement contains financial and other restrictive covenants. These covenants could adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions and to meet our capital needs. Failure to meet these covenant requirements could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, or accelerate the payment of our indebtedness. In addition, prior to the closing of the TestEquity Merger, TestEquity was in default of certain debt covenants of its term loan and revolving line of credit agreements. In connection therewith, on September 6, 2019, February 28, 2020, March 27, 2020, October 9, 2020 and June 30, 2021, TestEquity entered into forbearance agreements with its lender. Such term loan and revolving line of credit agreements were terminated in connection with the closing of the TestEquity Merger.

If we require more liquidity than is available to us under our credit agreement, we may need to raise additional funds through debt or equity offerings which may not be available when needed or may not be available on terms favorable to us. Should funding be insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Common Stock Risks

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The market price of our common stock may decline.

The price of our common stock could decrease if our financial performance is inadequate or does not meet investors' expectations, if there is deterioration in the overall market for equities, if large amounts of shares are sold in the market, if there is index trading, or if investors have concerns that our business, financial condition, results of operations and capital requirements are negatively impacted by an economic downturn or any other adverse development.

Entities affiliated with Luther King Capital Management Corporation and J. Bryan King beneficially own a significant majority of the outstanding shares of Lawson common stock and therefore have significant influence over our company, and this influence could delay or deter a change in control or other business combination or otherwise cause us to take actions with which you may disagree.

As of April 1, 2022, after giving effect to the issuance of shares of Lawson common stock on such date in connection with the Mergers, entities affiliated with Luther King Capital Management Corporation ("LKCM") beneficially owned in the aggregate approximately 75% of the outstanding shares of Lawson common stock as of such date. J. Bryan King, a director of the Company, is the Principal of LKCM. As a result, LKCM has significant influence over the outcome of matters requiring a stockholder vote, including the election of directors and the approval of other significant matters, and LKCM’s interests may not align with the interests of other stockholders. This concentration of ownership could also have the effect of delaying or preventing a change of control or other business combination that might be beneficial to our stockholders.

In addition, as a result of this concentrated ownership interest, Lawson believes that it qualifies as a “controlled company,” as that term is defined by Rule 5615(c) of the NASDAQ Listing Rules and, accordingly, Lawson believes that, if it so desired, it would be generally exempt from the requirements of Rule 5615(c) of the NASDAQ Listing Rules that would otherwise require Lawson to have:

•a majority of the Lawson board of directors comprised of independent directors;

•a compensation committee comprised solely of independent directors; and

•director nominees selected, or recommended for the Lawson board of directors’ selection, either by (1) independent directors constituting a majority of the Lawson board of directors’ independent directors in a vote in which only independent directors participate or (2) a nominating committee comprised solely of independent directors.

Legal and Regulatory Risks

A violation of federal, state or local environmental protection regulations could lead to significant penalties and fines or other remediation costs.

Our product offerings include a wide variety of industrial chemicals and other products which are subject to a multitude of federal, state and local regulations. These environmental protection laws change frequently and affect the composition, handling, transportation, storage and disposal of these products. Failure to comply with these regulations could lead to severe penalties and fines for each violation.

Additionally, a facility we own in Decatur, Alabama, was found to contain hazardous substances in the soil and groundwater as a result of historical operations prior to our ownership. We retained an environmental consulting firm to further investigate the contamination, including measurement and monitoring of the site. The Company concluded that further remediation was required, and accordingly, has made an accrual for the estimated cost of this environmental matter. A remediation plan was approved by the Alabama Department of Environmental Management and the remediation of the affected area is ongoing. Additional procedures may be required that could negatively impact our business, financial condition and results of operations.

Our results of operations could be affected by changes in taxation.

Our results of operations could be affected by changes in tax rates, audits by taxing authorities or changes in laws, regulations and their interpretation. Changes in applicable tax laws and regulations could affect our ability to realize our deferred tax assets, which could adversely affect our results of operations.

COVID-19 and Other Infectious Disease Risks

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The coronavirus strain that began to spread in 2020 ("COVID-19") has created a worldwide pandemic which has continued to affect our business and could have further undetermined material adverse effects on our revenues, operating results and financial condition.

The COVID-19 pandemic has resulted in lost revenue to our company, limitations on our ability to source high demand product, limitations on our sales force to perform certain functions due to state or federal stay-at-home orders, a slow-down of customer demand for our products and limitations on the ability of some customers to pay us on a timely basis. The impact of the COVID-19 pandemic on our operational and financial performance includes affecting our ability to execute our business strategies and initiatives in the expected time frame. The extent of the effect of the COVID-19 pandemic on us will depend on future developments, including the duration and spread of the COVID-19 pandemic and related restrictions on travel, transports and person to person contact, all of which are uncertain and cannot be predicted at the present time. On a broader scale, the COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our sales, workforce, supply chains, results of operations, and financial condition.

If the COVID-19 pandemic worsens, some or all of our facilities (including distribution facilities and/or branch locations) could be required to temporarily close, which would negatively impact our operations. Other disruptions to our supply chain such as reduced capacity or temporary shutdowns of freight carriers could also negatively impact Company performance.

Our sales results may be negatively impacted in the future by any social distancing guidelines and government mandated shelter in place orders that would prevent our sales representatives from visiting customers in person, or that would otherwise reduce customer visits to our branch locations. The reduction of operations and temporary shut down by many of our customers in response to COVID-19 has also negatively impacted our sales and ability to collect on existing credit balances, and we may continue to be impacted by those reductions and shut downs until the pandemic ends.

Further, vendors who are negatively impacted by COVID-19 may temporarily shut down operations or have difficulty obtaining inventory, which could negatively impact our ability to fulfill customer orders. As a result, the Company may be negatively impacted by the COVID-19 pandemic and the various federal, state and local restrictions enacted to combat the pandemic.

Certain items on our balance sheet require judgments on their valuation, including intangible assets and goodwill. These valuations are based on assumptions that take future financial performance into account. COVID-19 may have a negative impact to our future financial performance that would require us to revise assumptions about future financial performance and impair the value of these assets. It is reasonably possible that estimates made based on future operating results and cash flows of the Company may be materially and adversely impacted in the near term as a result of the COVID-19 pandemic, including impairment losses related to goodwill.

In addition, the increased number of employees working remotely as a result of COVID-19 can exacerbate the risks mentioned in regards to internal controls and cybersecurity.

TestEquity Merger and Gexpro Services Merger Risks

Completion of the Mergers resulted in the issuance of a significant number of shares of Lawson common stock, and may result in the issuance of a significant number of additional shares of Lawson common stock, which could have a negative effect on the price of Lawson common stock.

We issued an aggregate of 10.3 million shares of Lawson common stock on April 1, 2022 in connection with the closing of the Mergers. In addition, we could be obligated to issue up to an aggregate of 1.7 million additional shares of Lawson common stock in accordance with the earnout provisions of the Merger Agreements. The issuance of such a significant number of shares of Lawson common stock could have a negative effect on the market price of Lawson common stock. Such downward pressure could also encourage short sales by certain investors, which could place further downward pressure on the market price of Lawson common stock.

In addition, in accordance with the Merger Agreements, Lawson granted to certain entities affiliated with LKCM certain registration rights with respect to the shares of Lawson common stock that Lawson has issued, and would be required to issue, in connection with the Mergers. Any sales of those shares, or the anticipation of the possibility of such sales, could create downward pressure on the market price of Lawson common stock.

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There may be difficulties in combining certain operations of TestEquity’s and Gexpro Services’ respective businesses with our legacy operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock.

The Mergers involve the combination of businesses that previously operated as independent businesses. We have been devoting, and will continue to need to devote, significant management attention and resources to combining certain business operations of TestEquity and Gexpro Services with our legacy business operations and attending to other post-closing matters. This may decrease the time our management team will have to manage our businesses, service existing customers, attract new customers and develop new products, services and strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to us.

If our management is not able to effectively manage the process following the closing of the Mergers, or if any significant business activities are interrupted as a result of the process, our businesses could suffer.

Furthermore, it is possible that the Mergers could result in the loss of key employees. If we are not able to fully realize the anticipated savings and synergies in a timely manner, or the cost to achieve these synergies is greater than expected, we may not fully realize the anticipated benefits (or any benefits) of the Mergers, or it may take longer than expected to realize any benefits. The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of Lawson common stock.

We are subject to business uncertainties as a result of the Mergers that could materially and adversely affect our businesses.

Uncertainty about the effect of the Mergers on employees, customers, suppliers and others having business relationships with our company may have a material and adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel for a period of time after the closing of the Mergers. These uncertainties could also cause our customers and suppliers and others that deal with us to seek to change existing business relationships with us. Employee retention and recruitment may be challenging for the combined company as employees and prospective employees may experience uncertainty about their future roles with the combined company. Furthermore, no assurance can be given that after the Mergers we will be able to attract or retain key management personnel or other key employees to the same extent that legacy Lawson, TestEquity and Gexpro Services had been previously able to attract or retain their own employees. The departure of existing key employees or the failure of potential key employees to accept employment with the combined company, despite our retention and recruiting efforts, could have a material adverse impact on our business, financial condition and operating results.

We have incurred and may continue to incur significant transaction costs in connection with the Mergers.

We have incurred and may continue to incur significant, non-recurring costs in connection with consummating the Mergers. Non-recurring transaction costs include, but are not limited to, fees paid to legal, accounting and financial advisors, filing fees and other costs. Additional unanticipated costs may be incurred in the combination process.

Lawson’s estimates and judgments related to the acquisition accounting models used to record the purchase price allocation in connection with the Mergers may be inaccurate.

Lawson’s management will make significant accounting judgments and estimates for the application of acquisition accounting under GAAP and the underlying valuation models in connection with the Mergers. Our business, financial condition and results of operations could be materially and adversely impacted in future periods if our accounting judgments and estimates related to these models prove to be inaccurate.

We may be required to recognize impairment charges for goodwill and other intangible assets.

As a result of the closing of the Mergers on April 1, 2022, we expect to have an amount of goodwill and other intangible assets on our future balance sheets that is significantly greater than the amount of goodwill and other intangible assets on Lawson’s March 31, 2022 consolidated balance sheet. In accordance with GAAP, our management periodically assesses our goodwill and other intangible assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, an inability to effectively integrate acquired businesses, unexpected significant changes, planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments could materially and adversely affect our results of operations in the periods recognized, which could result in an adverse effect on the market price of Lawson common stock.

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TestEquity’s and Gexpro Services’ international operations subject us to additional legal and regulatory regimes.

TestEquity has business operations and/or sales in a number of foreign countries, including Canada, Mexico and the United Kingdom, and Gexpro Services has business operations and/or sales in a number of foreign countries, including Hungary and China. As a result of the completion of the Mergers, we are subject to a wider array of foreign legal and regulatory regimes (including tax regimes) than those to which we were subject prior to the completion of the Mergers. Compliance with diverse legal and regulatory requirements, including in connection with the movement or repatriation of cash, may be costly, time-consuming and require significant resources. Violations could result in significant fines or monetary damages, sanctions, prohibitions or restrictions on doing business and damage to our reputation. In addition, operating in foreign countries requires us to manage the potential conflicts between locally accepted business practices in any given jurisdiction and our obligations to comply with laws and regulations with respect to such jurisdictions, including anti-corruption laws or regulations applicable to Lawson, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”) and the UK Bribery Act 2010 (the “UKBA”). The U.S., U.K. and other foreign agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the FCPA, the UKBA, and other laws, rules, sanctions, embargoes and regulations, including those established by the Office of Foreign Assets Control (“OFAC”). Any violation of these legal requirements, even if prohibited by our policies, procedures and controls, could subject us to criminal or civil enforcement actions, penalties for non-compliance or otherwise have an adverse effect on our business and reputation.

Litigation relating to the Mergers could result in the payment of damages following the closing of the Mergers.

Lawson and members of the Lawson board of directors are and may in the future be parties, among others, to litigation related to the Merger Agreements and the Mergers. Among other remedies, the stockholders in the pending litigation seek, and other stockholders could seek, damages. The outcome of any legal proceedings are difficult to predict and any such lawsuits could result in substantial costs to us. The existence of litigation relating to the Mergers may also be costly and distracting to management. Further, the defense or settlement of any lawsuit or claim may adversely affect our business, financial condition, results of operations and cash flows. See Note 14 - Commitments and Contingencies to our condensed consolidated financial statements, included in Part I. Item 1. Financial Statements, for a description of certain of our pending legal proceedings relating to the Mergers, which are incorporated herein by reference.

As a result of the Mergers, Lawson’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitation.

TestEquity and Gexpro Services are private companies and may not have in place the financial organization, reporting and internal controls necessary for a public company.

TestEquity and Gexpro Services are private companies and may not have in place the financial organization, reporting and controls which are required for a U.S. public company. The cost of implementing this type of financial organization, reporting and controls in respect of TestEquity and Gexpro Services and integrating their financial reporting processes with our financial reporting processes may be significant. Furthermore, if the limitations in TestEquity’s or Gexpro Services’ financial organization, reporting and controls, or any failure to effectively integrate their financial reporting processes with our financial reporting processes, cause us to miss an SEC reporting deadline or otherwise not comply with an applicable law or regulation, we might, among other things, have a material weakness in our internal controls or violate our indebtedness covenants.

General Risks

Our results of operations may be adversely impacted by a downturn in the economy or in certain sectors of the economy.

Any decline or uncertainty in the strength of the economy may lead to a decrease in customer spending and may cause certain customers to cancel or delay placing orders. In the first quarter of 2020, the economy experienced a significant decline due to the response of businesses and state governments to the onset of the COVID-19 pandemic. Subsequently, the economy partially recovered from the initial downturn. Some of our customers may file for bankruptcy protection, preventing us from collecting on accounts receivable and may result in our stocking excess inventory. Contractions in the credit markets may also cause some of our customers to experience difficulties in obtaining financing, leading to lower sales, delays in the collection of receivables and result in an increase in bad debt expense.

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Adverse economic conditions could also affect our key suppliers and contractors. This could lead to us incurring additional expenses or result in delays in shipping products to our customers. Economic uncertainty can make it difficult to accurately predict future order activity and affect our ability to effectively manage inventory levels. There are no assurances that we would be able to establish alternative financing or obtain financing with terms similar to our existing financing arrangements, including our credit agreement.

Changes in energy costs, tariffs and the cost of raw materials used in our products could impact our cost of goods and distribution and occupancy expenses, which may result in lower operating margins.

Increases in the cost of raw materials used in our products (e.g., steel, brass, copper), increases in tariffs and increases in energy costs will raise the production costs of our vendors. Those vendors have typically looked to pass the higher costs along to us through price increases. If we are unable to fully pass such increased prices and costs through to our customers or to modify our activities, the impact would have an adverse effect on our operating profit margins and financial condition. On the other hand, a decrease in oil prices may result in weaker demand from oil and gas customers in the future, resulting in lower net sales. Changes in trade policies could affect our sourcing of product and ability to secure sufficient product and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.

Supply chain constraints, inflationary pressure, and labor shortages could impact our cost of goods, which may result in lower gross margins.

Our businesses have been and may continue to be impacted by supply chain constraints, resulting in inflationary pressure on material costs, longer lead times, port congestion, and increased freight costs. This results in challenges in acquiring and receiving inventory in a timely fashion and fulfilling customer orders. In addition, we have been and may continue to be impacted by labor shortages. This results in challenges in fulfilling customer orders and can have a negative impact on our operating results as we may be required to utilize higher-cost temporary labor. While we have instituted various price increases during 2022 in response to rising supplier costs, as well as increased transportation and labor costs, there can be no assurance that future cost increases can be partially or fully passed on to customers, or that the timing of such sales price increases will match our supplier cost increases. As a result, we are unable to predict the impact of these constraints on our business, financial condition and results of operations.

The Company is exposed to the risk of foreign currency changes.

A number of our subsidiaries are located and operate in Canada using the Canadian dollar as their functional currency. We also have business operations and/or sales in a number of other foreign countries, including China, Hungary, Mexico and the United Kingdom. Operating results denominated in foreign currencies are translated into U.S. dollars when consolidated into our financial statements. Therefore, we are exposed to market risk relating to the change in the value of such foreign currencies (including the Canadian dollar, the Mexican peso, the British pound sterling, the Euro, the Danish krone, the Brazil real, the Chinese renminbi, and the Turkish lira) relative to the U.S. dollar that could adversely affect our financial condition and operating results.

In addition, the revolving credit facility under our credit agreement is available to be drawn in U.S. dollars, Canadian dollars and any other additional currencies that may be agreed between us and our lenders.Any borrowings in Canadian dollars or any other foreign currency would expose us to market risk relating to the change in the value of such foreign currency in relation to the U.S. dollar.

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

None

ITEM 6. EXHIBITS


Exhibit #
2.1†			Agreement and Plan of Merger, dated as of December 29, 2021, by and among LKCM TE Investors, LLC, TestEquity Acquisition, LLC, the Company and Tide Sub, LLC, incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.

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2.2†			Agreement and Plan of Merger, dated as of December 29, 2021, by and among 301 HW Opus Investors, LLC, 301 HW Opus Holdings, Inc., the Company and Gulf Sub, Inc., incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.
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~~filed 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~~filed 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~~filed 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~~filed 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~~10.3*			Lawson Products, Inc. Executive Deferral Plan (as Amended and Restated Effective November 1, 2015)., incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.5~~10.4*			Lawson Products, Inc. Amended Stock Performance Plan (as Amended and Restated Effective January 24, 2017)., incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.

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~~10.6~~10.5*			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~~10.6*			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~~10.7*			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~~filed May 3, 2019.
~~10.9~~10.8*			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~~filed May 3, 2019.
~~10.10~~10.9*			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~~10.10*			Form of Award Agreement under the 2009 Equity Compensation Plan (Target Units, SPRs and Restricted Units)., incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.12~~10.11*			Form of Award Agreement under the 2009 Equity Compensation Plan (MSU Target Units, ROIC Target Units and Restricted Units)., incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.13~~10.12*			Form of Award Agreement under the 2009 Equity Compensation Plan (MSU Target Units, ROIC Target Units and Restricted Units)., incorporated by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.14~~10.13*			Lawson Products, Inc. 2021 Annual Incentive Plan ~~Summary.~~Summary, incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.15~~10.14*			Form of Indemnification Agreement for Directors and Officers, incorporated by reference to Exhibit ~~10.01~~10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) ~~dated~~filed September ~~15,~~19, 2008.
~~10.16~~10.15*			Form of Change in Control Agreement for ~~Officers.~~Officers, incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
~~10.17~~10.16*			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~~filed August ~~14,~~17, 2017.
~~10.18~~10.17*			Amendment No.1 to the Employment Agreement entered into on April 11, 2018 between ~~the Company~~Lawson Products, Inc., an Illinois corporation, 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~~filed April 11, 2018.

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~~10.19~~10.18*			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,~~filed September 4, 2012.
~~10.20~~10.19*			Retirement and Consulting Agreement, dated as of March 2, 2021, by and between ~~the Company~~Lawson Products, Inc., an Illinois corporation, 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~~filed March 5, 2021.
~~31.1~~10.20			Voting Agreement, dated as of December 29, 2021, by and among the Company and Luther King Capital Management Corporation, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.
10.21†			Amended and Restated Credit Agreement, dated as of April 1, 2022, by and among Lawson Products, Inc., the subsidiaries of Lawson Products, Inc. party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent , incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 4, 2022 .
10.22			Registration Rights Agreement, dated as of April 1, 2022, by and among Lawson Products, Inc., 301 HW Opus Investors, LLC and LKCM TE Investors, LLC , i ncorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 4, 2022 .
10.23*			Retirement and Consulting Agreement, dated as of April 4, 2022, by and between Lawson Products, Inc., an Illinois corporation, and Michael G. DeCata ,incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 8, 2022 .
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~~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
3232***			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section ~~302~~906 of the Sarbanes-Oxley Act of 2002
101			The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, 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.
101.INS			XBRL Instance Document
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
104			The cover page from the Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 30, ~~2021,~~2022, 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~~

† Certain schedules and/or similar attachments omitted pursuant to Item 601(a)(5) of Regulation S-K promulgated by the U.S. Securities and Exchange Commission. The Company agrees to furnish supplementally a copy of any omitted schedule or similar attachment to the SEC upon request.

* Indicates management employment contracts or compensatory plans or arrangements.

**Filed herewith.

***Furnished herewith.

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SIGNATURES

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


		LAWSON PRODUCTS, INC.
		(Registrant)

Dated:	~~October~~April 28, ~~2021~~2022	/s/ Michael G. DeCata
		Michael G. DeCata President, ~~and~~ Chief Executive Officer, and Director (principal executive officer)


Dated:	~~October~~April 28, ~~2021~~2022	/s/ Ronald J. Knutson
		Ronald J. Knutson Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer)


Dated:	~~October~~April 28, ~~2021~~2022	/s/ David Lambert
		David Lambert Vice President, Controller and Chief Accounting Officer (principal accounting officer)

3241


Lease Type	September 30, 2021		December 31, 2020

Total Right Of Use ("ROU") operating lease assets (1)	$	12,292	$	8,246
Total ROU financing lease assets (2)	410		518
Total lease assets	$	12,702	$	8,764

Total current operating lease obligation	$	4,187	$	4,360
Total current financing lease obligation	161		208
Total current lease obligations	$	4,348	$	4,568

Total long term operating lease obligation	$	9,587	$	5,498
Total long term financing lease obligation	157		240
Total long term lease obligation	$	9,744	$	5,738


	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		%


	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%