Date of Report (Date of earliest event reported): | October 3, 2017 |
LAWSON PRODUCTS, INC. |
(Exact name of registrant as specified in its charter) |
Delaware | 0-10546 | 36-2229304 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
8770 W. Bryn Mawr Ave., Suite 900, Chicago, Illinois | 60631 | |
(Address of principal executive offices) | (Zip Code) | |
(Registrant's telephone number, including area code) | (773) 304-5050 |
Not Applicable |
(Former name or former address, if changed since last report) |
23 | Consent of MNP LLP |
99.1 | The Bolt Supply House Ltd. Audited Financial Statements as of and for the Years Ended February 28, 2017 and February 29, 2016 |
99.2 | The Bolt Supply House Ltd. Unaudited Financial Statements as of and for the Six Months Ended August 31, 2017 and 2016 |
99.3 | Unaudited pro forma condensed combined statements of operations of Lawson Products, Inc. and The Bolt Supply House Ltd. for the year ended December 31, 2016 and for the nine months ended September 31, 2017, the unaudited pro forma condensed combined balance sheet as of September 30, 2017 and the notes related thereto |
LAWSON PRODUCTS, INC. | |||
(Registrant) | |||
Date: | December 20, 2017 | By: /s/ Ronald J. Knutson | |
Name: Ronald J. Knutson | |||
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller |
Exhibit Number | Description | |
Calgary, Alberta | MNP LLP |
December 20, 2017 | Chartered Professional Accountants |
Calgary, Alberta | MNP LLP |
April 24, 2017, except for Note 11 and 12 which are of December 20, 2017 | Chartered Professional Accountants |
February 28 | February 29 | ||
2017 | 2016 | ||
Assets | |||
Current | |||
Cash | 161,827 | 216,157 | |
Accounts receivable | 3,518,383 | 3,278,322 | |
Income taxes recoverable | 283,430 | 188,157 | |
Inventory (Note 3) | 7,231,182 | 7,077,080 | |
Prepaid expenses and deposits | 519,291 | 615,083 | |
11,714,113 | 11,374,799 | ||
Property and equipment (Note 4) | 1,968,776 | 1,919,900 | |
Total Assets | 13,682,889 | 13,294,699 | |
Liabilities | |||
Current | |||
Bank indebtedness (Note 5) | 3,523,390 | 3,198,195 | |
Accounts payable and accruals | 1,763,603 | 2,323,721 | |
Goods and services and sales taxes payable | 99,704 | 89,380 | |
Management bonus and consulting fees payable (Note 7) | 110,250 | 110,250 | |
Rental deposits | - | 11,477 | |
5,496,947 | 5,733,023 | ||
Commitments (Note 9) | |||
Subsequent events (Note 11) | |||
Shareholders' Equity | |||
Share capital (Note 8) | |||
Common shares | 20 | 20 | |
Preferred shares (redeemable at $17,200,000) | 2,293,377 | 2,293,377 | |
Retained earnings | 5,892,545 | 5,268,279 | |
8,185,942 | 7,561,676 | ||
Total Liabilities and Shareholders' Equity | 13,682,889 | 13,294,699 | |
Approved on behalf of the Board of Directors: |
/s/ Michal G. DeCata | /s/ Kurt Mario | |
The accompanying notes are an integral part of these financial statements |
February 28 | February 29 | ||
2017 | 2016 | ||
Sales | 37,636,535 | 40,576,418 |
Cost of sales | 20,954,623 | 22,493,153 | ||
Gross margin | 16,681,912 | 18,083,265 | ||
Selling costs (Schedule 1) | 3,650,086 | 4,003,260 | ||
Operating expenses (Schedule 2) | 9,722,959 | 9,337,278 | ||
Administrative expenses (Schedule 3) | 1,050,371 | 994,569 | ||
14,423,416 | 14,335,107 | |||
Earnings from operations | 2,258,496 | 3,748,158 | ||
Other expenses | ||||
Foreign exchange gain | 32,534 | 30,271 | ||
Loss on disposal of property and equipment | (435) | (5,709) | ||
Management bonus and consulting fees (Note 7) | (816,000) | (816,000) | ||
Earnings before income taxes | 1,474,595 | 2,956,720 |
Provision for income taxes ‑ current (Note 6) | 350,329 | 752,994 | |
Net earnings | 1,124,266 | 2,203,726 |
Retained earnings, beginning of year | 5,268,279 | 5,064,553 | |
Dividends | (500,000) | (2,000,000) | |
Retained earnings, end of year | 5,892,545 | 5,268,279 | |
The accompanying notes are an integral part of these financial statements |
February 28 | February 29 | ||
2017 | 2016 | ||
Operating | |||
Cash received from customers | 37,316,157 | 41,724,785 | |
Cash paid to suppliers | (26,787,903) | (27,392,649) | |
Cash paid to employees | (8,567,490) | (9,007,258) | |
Income taxes paid | (445,602) | (912,150) | |
Interest paid | (99,183) | (100,666) | |
Management bonus and consulting fees paid | (816,000) | (816,000) | |
Cash provided by operating activities | 599,979 | 3,496,062 | |
Financing | |||
Dividends paid | (500,000) | (2,000,000) | |
Repayment of operating loan, net of advances | - | (993,215) | |
Advances from operating loan, net or repayment | 325,195 | - | |
Cash used in financing activities | (174,805) | (2,993,215) | |
Investing | |||
Purchases of property and equipment | (538,347) | (508,176) | |
Proceeds on disposal of property and equipment | 26,309 | 3,776 | |
Cash used in investing activities | (512,038) | (504,400) | |
Net effect of translation on foreign currency cash | 32,534 | 30,271 | |
(Decrease) increase in cash | (54,330) | 28,718 |
Cash, beginning of year | 216,157 | 187,439 | |
Cash, end of year | 161,827 | 216,157 | |
The accompanying notes are an integral part of these financial statements |
Method | Rate | |||
Buildings | declining balance | 5 | % | |
Computer hardware | declining balance | 30 | % | |
Computer software | straight‑line | 3 | years | |
Equipment and tools | declining balance | 30 | % | |
Furniture and fixtures | declining balance | 20 | % | |
Leasehold improvements | straight‑line | 5 | years | |
Paving | declining balance | 4 | % | |
Vehicle and trailers | declining balance | 30 | % |
February 28 | February 29 | |||
2017 | 2016 | |||
Accumulated | Net book | Net book | ||
Cost | amortization | value | value |
Land | 177,320 | - | 177,320 | 177,320 | |
Buildings | 538,660 | 161,852 | 376,808 | 396,640 | |
Computer hardware | 2,661,470 | 2,277,168 | 384,302 | 446,329 | |
Computer software | 743,280 | 696,144 | 47,136 | 92,277 | |
Equipment and tools | 248,876 | 191,034 | 57,842 | 79,216 | |
Furniture and fixtures | 1,878,308 | 1,393,396 | 484,912 | 516,698 | |
Leasehold improvements | 1,072,923 | 706,891 | 366,032 | 177,879 | |
Paving | 6,400 | 3,516 | 2,884 | 3,004 | |
Vehicle and trailers | 107,632 | 36,092 | 71,540 | 30,537 | |
7,434,869 | 5,466,093 | 1,968,776 | 1,919,900 | ||
February 28 | February 29 | |
2017 | 2016 |
Expected tax expense at 27% (2016 ‑ 26.66%) | 398,141 | 788,312 | |
Increase (decrease) in income tax expense resulting from: | |||
Small business deduction | (55,835) | (45,087) | |
Impact of difference between amortization and CCA | 8,384 | 9,925 | |
Change in tax rate | 1,012 | - | |
Loss on disposal | 116 | 1,523 | |
Non‑deductible expenses and other | (1,489) | (1,679) | |
Actual tax expense | 350,329 | 752,994 | |
February 28 | February 29 | |||
2017 | 2016 | |||
Issued | ||||
Common shares | ||||
625 Class "A" common shares (2016 ‑ 625 Class "A" shares) | 6 | 6 | ||
625 Class "B" common shares (2016 ‑ 625 Class "B" shares) | 6 | 6 | ||
375 Class "D" common shares (2016 ‑ 375 Class "D" shares) | 4 | 4 | ||
375 Class "E" common shares (2016 ‑ 375 Class "E" shares) | 4 | 4 | ||
20 | 20 | |||
Preferred shares | ||||
11,199,865 Class C Series I preferred shares, redemption price $1 per share | 2 | 2 | ||
3,750,083 Class C Series II preferred shares, redemption price $1 per share | 43,323 | 43,323 | ||
2,250,052 Class C Series III preferred shares, redemption price $1 per share | 2,250,052 | 2,250,052 | ||
2,293,377 | 2,293,377 | |||
2,293,397 | 2,293,397 | |||
February 28 | February 29 | |||
2017 | 2016 |
Common shares | Number | Amount | Number | Amount | |
Opening balance | 2,000 | 20 | 2,000 | 20 | |
Closing balance | 2,000 | 20 | 2,000 | 20 | |
2018 | 1,291,704 | ||
2019 | 963,143 | ||
2020 | 792,352 | ||
2021 | 668,504 | ||
2022 | 471,203 | ||
Thereafter | 217,354 | ||
4,404,260 | |||
February 28 | February 29 | |
2017 | 2016 | |
CAD$ | CAD$ |
Cash | 128,350 | 177,508 |
Accounts payable | 116,854 | 68,816 |
11. | Subsequent events |
11. | Subsequent events |
12. | Reconciliation of the Financial Statements to Accounting Principles Generally Accepted in the United States |
February 28, 2017 | February 29, 2016 | ||||
Canadian | U.S. | Canadian | U.S. | ||
ASPE | GAAP | ASPE | GAAP | ||
Assets | |||||
Current | |||||
Cash | 161,827 | 161,827 | 216,157 | 216,157 | |
Accounts receivable | 3,518,383 | 3,518,383 | 3,278,322 | 3,278,322 | |
Income taxes recoverable | 283,430 | 283,430 | 188,157 | 188,157 | |
Inventory | 7,231,182 | 7,231,182 | 7,077,080 | 7,077,080 | |
Prepaid expenses and deposits | 519,291 | 519,291 | 615,083 | 615,083 | |
11,714,113 | 11,714,113 | 11,374,799 | 11,374,799 | ||
Property and equipment | 1,968,776 | 1,968,776 | 1,919,900 | 1,919,900 | |
Total Assets | 13,682,889 | 13,682,889 | 13,294,699 | 13,294,699 | |
Liabilities | |||||
Current | |||||
Bank indebtedness | 3,523,390 | 3,523,390 | 3,198,195 | 3,198,195 | |
Accounts payable and accruals | 1,763,603 | 1,763,603 | 2,323,721 | 2,323,721 | |
Goods and services and sales taxes payable | 99,704 | 99,704 | 89,380 | 89,380 | |
Management bonus and consulting fees payable | 110,250 | 110,250 | 110,250 | 110,250 | |
Rental deposits | - | - | 11,477 | 11,477 | |
Deferred tax liability (Note a ) | - | 144,622 | - | 164,944 | |
Deferred rent liability (Note b) | 129,672 | - | 82,085 | ||
5,496,947 | 5,771,241 | 5,733,023 | 5,980,052 | ||
Shareholders' Equity | |||||
Share capital | |||||
Common shares | 20 | 20 | 20 | 20 | |
Preferred shares (redeemable at $17,200,000) | 2,293,377 | 2,293,377 | 2,293,377 | 2,293,377 | |
Retained earnings | 5,892,545 | 5,618,251 | 5,268,279 | 5,021,250 | |
8,185,942 | 7,911,648 | 7,561,676 | 7,314,647 | ||
Total Liabilities and Shareholders' Equity | 13,682,889 | 13,682,889 | 13,294,699 | 13,294,699 |
February 28, 2017 | February 29, 2016 | |||||
Canadian | U.S. | Canadian | U.S. | |||
ASPE | GAAP | ASPE | GAAP | |||
Sales | 37,636,535 | 37,636,535 | 40,576,418 | 40,576,418 | ||
Cost of sales | 20,954,623 | 20,954,623 | 22,493,153 | 22,493,153 | ||
Gross margin | 16,681,912 | 16,681,912 | 18,083,265 | 18,083,265 | ||
Selling costs | 3,650,086 | 3,650,086 | 4,003,260 | 4,003,260 | ||
Operating expenses (Note b) | 9,722,959 | 9,770,546 | 9,337,278 | 9,392,904 | ||
Administrative expenses | 1,050,371 | 1,050,371 | 994,569 | 994,569 | ||
14,423,416 | 14,471,003 | 14,335,107 | 14,390,733 | |||
Earnings from operations | 2,258,496 | 2,210,909 | 3,748,158 | 3,692,532 | ||
Other expenses | ||||||
Foreign exchange gain | 32,534 | 32,534 | 30,271 | 30,271 | ||
Loss on disposal of property and equipment | (435) | (435) | (5,709) | (5,709) | ||
Management bonus and consulting fees | (816,000) | (816,000) | (816,000) | (816,000) | ||
Earnings before income taxes | 1,474,595 | 1,427,008 | 2,956,720 | 2,901,094 | ||
Provision for income taxes ‑ current | 350,329 | 350,329 | 752,994 | 752,994 | ||
Provision for income taxes ‑ deferred | - | (20,322) | - | (20,044) | ||
Net earnings | 1,124,266 | 1,097,001 | 2,203,726 | 2,168,144 | ||
Retained earnings, beginning of year | 5,268,279 | 5,268,279 | 5,064,553 | 5,064,553 | ||
Dividends | (500,000) | (500,000) | (2,000,000) | (2,000,000) | ||
Deferred taxes adjustment (Note a) | - | (164,944) | - | (184,988) | ||
Deferred rent liability adjustment (Note b) | - | (82,085) | - | (26,459) | ||
Retained earnings, end of year | 5,892,545 | 5,618,251 | 5,268,279 | 5,021,250 | ||
(a) | Under Canadian accounting standards for private enterprises, section 3465 Income taxes, the Company had selected to account for income taxes using the taxes payable method (current taxes). U.S. GAAP ASC 740, Income taxes, requires that financial statements should reflect the current and deferred tax consequences of all events that have been recognized in the financial statements or tax returns. Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not (i.e. greater than 50% likely) that some or all of the deferred tax assets will not be realized. This resulted in recognition of deferred tax liability, attributable to temporary differences arising from the differences in tax and accounting bases for property and equipment and deferred rent liability of $144,622 (2016 - $164,944, 2015 - $184,988). During the year, the company recorded deferred income tax recovery of $20,322 (2016 - $20,044) and a reduction to opening retaining earnings of $164,944 (2016 - $ 184,988). |
(b) | Under Canadian accounting standards for private enterprises, section 3065 Leases, the Company had selected to account for operating leases based on rental payments. U.S. GAAP ACS 840, Leases, requires that scheduled rent increases shall be recognized by the lessee on a straight-live basis over the lease term. This resulted in an additional rent expense of $47,587 (2016 - $55,626) and an reduction to opening retained earnings of $82,085 (2016 - $26,459). |
February 28 | February 29 | ||
2017 | 2016 | ||
Selling costs | |||
Commissions | 3,259,497 | 3,635,483 | |
Freight | 151,052 | 115,313 | |
Automotive | 102,415 | 89,007 | |
Advertising and promotion | 73,052 | 99,933 | |
Customer rebates and allowances | 47,735 | 43,271 | |
Meals and entertainment | 8,501 | 11,581 | |
Other items | 7,834 | 8,672 | |
3,650,086 | 4,003,260 | ||
February 28 | February 29 | ||
2017 | 2016 | ||
Operating expenses | |||
Personnel | 6,038,760 | 6,185,729 | |
Occupancy | 2,158,238 | 1,889,483 | |
Communications | 618,906 | 571,571 | |
Other operating expenses | 442,156 | 335,034 | |
Travel | 170,949 | 141,075 | |
Training and education | 155,345 | 61,534 | |
Office | 138,605 | 152,852 | |
9,722,959 | 9,337,278 | ||
February 28 | February 29 | ||
2017 | 2016 | ||
Administrative expenses | |||
Amortization | 462,727 | 455,254 | |
Bank charges | 252,527 | 258,000 | |
Other items | 148,789 | 128,940 | |
Interest on bank indebtedness | 99,183 | 100,666 | |
Bad debt expense | 87,145 | 51,709 | |
1,050,371 | 994,569 | ||
August 31 | February 29 | ||
2017 | 2017 | ||
(Unaudited) | (Audited) | ||
Assets | |||
Current | |||
Cash | 217,148 | 161,827 | |
Accounts receivable | 4,316,272 | 3,518,383 | |
Income taxes recoverable | - | 283,430 | |
Inventory (Note 3) | 8,152,879 | 7,231,182 | |
Prepaid expenses and deposits | 423,400 | 519,291 | |
13,109,699 | 11,714,113 | ||
Property and equipment (Note 4) | 1,962,536 | 1,968,776 | |
Total Assets | 15,072,235 | 13,682,889 | |
Liabilities | |||
Current | |||
Bank indebtedness (Note 5) | 2,945,733 | 3,523,390 | |
Accounts payable and accruals | 1,890,293 | 1,763,603 | |
Goods and services and sales taxes payable | 114,592 | 99,704 | |
Management bonus and consulting fees payable (Note 7) | 110,250 | 110,250 | |
Income tax payable | 298,499 | - | |
5,359,367 | 5,496,947 | ||
Commitments (Note 9) | |||
Subsequent events (Note 11) |
Shareholders' Equity | |||
Share capital (Note 8) | |||
Common shares | 20 | 20 | |
Preferred shares (redeemable at $17,200,000) | 2,293,377 | 2,293,377 | |
Retained earnings | 7,419,471 | 5,892,545 | |
9,712,868 | 8,185,942 | ||
Total Liabilities and Shareholders' Equity | 15,072,235 | 13,682,889 | |
Approved on behalf of the Board of Directors: | |||
/s/ Michael G. DeCata | /s/ Kurt Mario | |
The accompanying notes are an integral part of these interim financial statements |
August 31 | August 31 | ||
2017 | 2016 | ||
Sales | 23,891,446 | 18,978,895 |
Cost of sales | 13,873,832 | 9,934,374 | |
Gross margin | 10,017,614 | 9,044,521 | |
Selling costs (Schedule 1) | 2,087,945 | 1,831,223 | |
Operating expenses (Schedule 2) | 4,980,036 | 5,153,483 | |
Administrative expenses (Schedule 3) | 562,689 | 561,723 | |
7,630,670 | 7,546,429 | ||
Earnings from operations | 2,386,944 | 1,498,092 | |
Other expenses | |||
Foreign exchange gain | 40,594 | 20,433 | |
Gain (loss) on disposal of property and equipment | 8,750 | (284) | |
Management bonus and consulting fees (Note 7) | (408,000) | (408,000) | |
Earnings before income taxes | 2,028,288 | 1,110,241 |
Provision for income taxes ‑ current (Note 6) | 501,362 | 233,872 | |
Net earnings | 1,526,926 | 876,369 |
Retained earnings, beginning of period | 5,892,545 | 5,268,279 | |
Retained earnings, end of period | 7,419,471 | 6,144,648 | |
The accompanying notes are an integral part of these interim financial statements |
August 31 | August 31 | ||
2017 | 2016 | ||
Operating | |||
Cash received from customers | 23,012,812 | 18,451,288 | |
Cash paid to suppliers | (17,416,362) | (13,108,576) | |
Cash paid to employees | (4,423,380) | (4,510,999) | |
Income taxes received (paid) | 80,567 | (207,127) | |
Interest paid | (47,825) | (52,040) | |
Management bonus and consulting fees paid | (408,000) | (408,000) | |
Cash provided by operating activities | 797,812 | 164,546 | |
Financing | |||
Dividends paid | - | (500,000) | |
Repayment of operating loan, net of advances | (577,657) | - | |
Advances from operating loan, net or repayment | - | 463,105 | |
Cash used in financing activities | (577,657) | (36,895) | |
Investing | |||
Purchases of property and equipment | (214,998) | (263,091) | |
Proceeds on disposal of property and equipment | 9,570 | - | |
Cash used in investing activities | (205,428) | (263,091) | |
Net effect of translation on foreign currency cash | 40,594 | 20,433 | |
Increase (decrease) in cash | 55,321 | (115,007) |
Cash, beginning of period | 161,827 | 216,157 | |
Cash, end of period | 217,148 | 101,150 | |
The accompanying notes are an integral part of these interim financial statements |
Method | Rate | |||
Buildings | declining balance | 5 | % | |
Computer hardware | declining balance | 30 | % | |
Computer software | straight‑line | 3 | years | |
Equipment and tools | declining balance | 30 | % | |
Furniture and fixtures | declining balance | 20 | % | |
Leasehold improvements | straight‑line | 5 | years | |
Paving | declining balance | 4 | % | |
Vehicle and trailers | declining balance | 30 | % |
August 31 | February 28 | |||
2017 | 2017 | |||
Accumulated | Net book | Net book | ||
Cost | amortization | value | value |
Land | 177,320 | - | 177,320 | 177,320 | |
Buildings | 546,291 | 171,299 | 374,992 | 376,808 | |
Computer hardware | 2,712,054 | 2,338,608 | 373,446 | 384,302 | |
Computer software | 766,896 | 719,789 | 47,107 | 47,136 | |
Equipment and tools | 252,746 | 199,955 | 52,791 | 57,842 | |
Furniture and fixtures | 1,952,483 | 1,445,596 | 506,887 | 484,912 | |
Leasehold improvements | 1,127,223 | 760,866 | 366,357 | 366,032 | |
Paving | 6,400 | 3,572 | 2,828 | 2,884 | |
Vehicle and trailers | 107,631 | 46,823 | 60,808 | 71,540 | |
7,649,044 | 5,686,508 | 1,962,536 | 1,968,776 | ||
August 31 | August 31 | |
2017 | 2016 |
Expected tax expense at 27% (2016 ‑ 26.66%) | 547,639 | 295,990 | |
Increase (decrease) in income tax expense resulting from: | |||
Small business deduction | (79,825) | (65,800) | |
Impact of difference between amortization and CCA | 12,325 | - | |
Loss on disposal | (2,363) | - | |
Non‑deductible expenses and other | 23,586 | 3,682 | |
Actual tax expense | 501,362 | 233,872 | |
August 31 | February 28 | |||
2017 | 2017 | |||
Issued | ||||
Common shares | ||||
625 Class "A" common shares (2016 ‑ 625 Class "A" shares) | 6 | 6 | ||
625 Class "B" common shares (2016 ‑ 625 Class "B" shares) | 6 | 6 | ||
375 Class "D" common shares (2016 ‑ 375 Class "D" shares) | 4 | 4 | ||
375 Class "E" common shares (2016 ‑ 375 Class "E" shares) | 4 | 4 | ||
20 | 20 | |||
Preferred shares | ||||
11,199,865 Class C Series I preferred shares, redemption price $1 per share | 2 | 2 | ||
3,750,083 Class C Series II preferred shares, redemption price $1 per share | 43,323 | 43,323 | ||
2,250,052 Class C Series III preferred shares, redemption price $1 per share | 2,250,052 | 2,250,052 | ||
2,293,377 | 2,293,377 | |||
2,293,397 | 2,293,397 | |||
August 31 | February 28 | |||
2017 | 2017 |
Common shares | Number | Amount | Number | Amount | |
Opening balance | 2,000 | 20 | 2,000 | 20 | |
Closing balance | 2,000 | 20 | 2,000 | 20 | |
2018 | 555,236 | ||
2019 | 963,143 | ||
2020 | 792,352 | ||
2021 | 668,504 | ||
2022 | 471,203 | ||
Thereafter | 217,354 | ||
4,404,260 | |||
August 31 | February 28 | |
2017 | 2017 | |
CAD$ | CAD$ |
Cash | 183,762 | 128,350 |
Accounts payable | 114,305 | 116,854 |
11. | Subsequent events |
12. | Reconciliation of the Financial Statements to United States Generally Accepted Accounting Principles |
August 31, 2017 | February 28, 2017 | ||||||||
Canadian | U.S. | Canadian | U.S. | ||||||
ASPE | GAAP | ASPE | GAAP | ||||||
Assets | |||||||||
Current | |||||||||
Cash | 217,148 | 217,148 | 161,827 | 161,827 | |||||
Accounts receivable | 4,316,272 | 4,316,272 | 3,518,383 | 3,518,383 | |||||
Income taxes recoverable | - | - | 283,430 | 283,430 | |||||
Inventory | 8,152,879 | 8,152,879 | 7,231,182 | 7,231,182 | |||||
Prepaid expenses and deposits | 423,400 | 423,400 | 519,291 | 519,291 | |||||
13,109,699 | 13,109,699 | 11,714,113 | 11,714,113 | ||||||
Property and equipment | 1,962,536 | 1,962,536 | 1,968,776 | 1,968,776 | |||||
Total Assets | 15,072,235 | 15,072,235 | 13,682,889 | 13,682,889 | |||||
Liabilities | |||||||||
Current | |||||||||
Bank indebtedness | 2,945,733 | 2,945,733 | 3,523,390 | 3,523,390 | |||||
Accounts payable and accruals | 1,890,293 | 1,890,293 | 1,763,603 | 1,763,603 | |||||
Goods and services and sales taxes payable | 114,592 | 114,592 | 99,704 | 99,704 | |||||
Management bonus and consulting fees payable | 110,250 | 110,250 | 110,250 | 110,250 | |||||
Income tax payable | 298,499 | 298,499 | - | - | |||||
Deferred tax liability (Note a) | - | 107,679 | - | 144,622 | |||||
Deferred rent liability (Note b) | - | 220,847 | - | 129,672 | |||||
5,359,367 | 5,687,893 | 5,496,947 | 5,771,241 | ||||||
Shareholders' Equity | |||||||||
Share capital | |||||||||
Common shares | 20 | 20 | 20 | 20 | |||||
Preferred shares (redeemable at $17,200,000) | 2,293,377 | 2,293,377 | 2,293,377 | 2,293,377 | |||||
Retained earnings | 7,419,471 | 7,090,945 | 5,892,545 | 5,618,251 | |||||
9,712,868 | 9,384,342 | 8,185,942 | 7,911,648 | ||||||
Total Liabilities and Shareholders' Equity | 15,072,235 | 15,072,235 | 13,682,889 | 13,682,889 |
August 31, 2017 | August 31, 2016 | |||||
Canadian | U.S. | Canadian | U.S. | |||
ASPE | GAAP | ASPE | GAAP | |||
Sales | 23,891,446 | 23,891,446 | 18,978,895 | 18,978,895 | ||
Cost of sales | 13,873,832 | 13,873,832 | 9,934,374 | 9,934,374 | ||
Gross margin | 10,017,614 | 10,017,614 | 9,044,521 | 9,044,521 | ||
Selling costs | 2,087,945 | 2,087,945 | 1,831,223 | 1,831,223 | ||
Operating expenses (Note b) | 4,980,036 | 5,071,210 | 5,153,483 | 5,166,690 | ||
Administrative expenses | 562,689 | 562,689 | 561,723 | 561,723 | ||
7,630,670 | 7,721,844 | 7,546,429 | 7,559,636 | |||
Earnings from operations | 2,386,944 | 2,295,770 | 1,498,092 | 1,484,885 | ||
Other expenses | ||||||
Foreign exchange gain | 40,594 | 40,594 | 20,433 | 20,433 | ||
Gain (loss) on disposal of property and equipment | 8,750 | 8,750 | (284) | (284) | ||
Management bonus and consulting fees | (408,000) | (408,000) | (408,000) | (408,000) | ||
Earnings before income taxes | 2,028,288 | 1,937,114 | 1,110,241 | 1,097,034 | ||
Provision for income taxes ‑ current | 501,362 | 501,362 | 233,872 | 233,872 | ||
Provision for income taxes ‑ deferred (Note a) | - | (36,942) | - | (7,248) | ||
Net earnings | 1,526,926 | 1,472,694 | 876,369 | 870,410 | ||
Retained earnings, beginning of period | 5,892,545 | 5,892,545 | 5,268,279 | 5,268,279 | ||
Dividends | - | - | (500,000) | (500,000) | ||
Deferred taxes adjustment (Note a) | - | (144,622) | - | (164,944) | ||
Deferred rent liability adjustment (Note b) | - | (129,672) | - | (82,085) | ||
Retained earnings, end of period | 7,419,471 | 7,090,945 | 5,644,648 | 5,391,660 | ||
(a) | Under Canadian accounting standards for private enterprises, section 3465 Income taxes,, the Company had selected to account for income taxes using the taxes payable method (current taxes). U.S. GAAP ASC 740, Income taxes, requires that financial statements should reflect the current and deferred tax consequences of all events that have been recognized in the financial statements or tax returns. Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not (i.e. greater than 50% likely) that some or all of the deferred tax assets will not be realized. This resulted in an deferred income tax recovery of $36,942 (2016 - $7,248) and a reduction to opening retaining earnings of $144,622 (2016 - $ 164,944). The deferred tax liability is attributed to temporary differences with property and equipment and deferred rent liability. |
(b) | Under Canadian accounting standards for private enterprises, section 3065 Leases, the Company had selected to account for operating leases based on rental payments. U.S. GAAP ACS 840, Leases, requires that scheduled rent increases shall be recognized by the lessee on a straight-live basis over the lease term. This resulted in an additional rent expense of $91,174 (2016 - $13,207) and an reduction to opening retained earnings of $129,672 (2016 - $82,085). |
August 31 | August 31 | ||
2017 | 2016 | ||
Selling costs | |||
Commissions | 1,768,661 | 1,650,586 | |
Freight | 152,946 | 83,354 | |
Automotive | 34,101 | 48,342 | |
Advertising and promotion | 51,698 | 26,865 | |
Customer rebates and allowances | 61,496 | 10,178 | |
Meals and entertainment | 5,357 | 5,072 | |
Other items | 13,686 | 6,826 | |
2,087,945 | 1,831,223 | ||
August 31 | August 31 | ||
2017 | 2016 | ||
Operating expenses | |||
Personnel | 3,112,809 | 3,207,431 | |
Occupancy | 1,138,803 | 1,148,172 | |
Communications | 342,233 | 300,203 | |
Other operating expenses | 166,571 | 204,835 | |
Travel | 102,897 | 87,350 | |
Training and education | 50,742 | 129,458 | |
Office | 65,981 | 76,034 | |
4,980,036 | 5,153,483 | ||
August 31 | August 31 | ||
2017 | 2016 | ||
Administrative expenses | |||
Amortization | 220,418 | 227,854 | |
Bank charges | 128,861 | 122,514 | |
Other items | 84,839 | 68,262 | |
Interest on bank indebtedness | 47,826 | 52,040 | |
Bad debt expense | 80,745 | 91,053 | |
562,689 | 561,723 | ||
Rate Type | Time Period | Canadian to U.S. Exchange Rate | |||
Average | Year ended February 28, 2017 | 0.761730 | |||
Average | Nine months ended August 31, 2017 | 0.757696 | |||
Period end | August 31, 2017 | 0.801089 |
LAWSON PRODUCTS, INC. | ||||||||||||||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS | ||||||||||||||||||||||||||||
AT SEPTEMBER 30, 2017 | ||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Lawson | Bolt Supply Historical | US GAAP | Pro Forma | |||||||||||||||||||||||||
Historical | Canadian ASPE | Adjustments | Adjustments | Pro Forma | ||||||||||||||||||||||||
US $ | Cdn $ | US $ | (Note 4) | Note | (Note 5) | Note | Combined | |||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 19,043 | $ | 217 | $ | 174 | $ | — | $ | (16,119 | ) | 5(a) | $ | 3,098 | ||||||||||||||
Restricted cash | 800 | — | — | — | — | 800 | ||||||||||||||||||||||
Accounts receivable, net | 37,290 | 4,316 | 3,458 | — | — | 40,748 | ||||||||||||||||||||||
Inventories, net | 43,341 | 8,153 | 6,531 | — | — | 49,872 | ||||||||||||||||||||||
Miscellaneous receivables and prepaid expenses | 3,755 | 423 | 339 | — | — | 4,094 | ||||||||||||||||||||||
Total current assets | 104,229 | 13,109 | 10,502 | — | (16,119 | ) | 98,612 | |||||||||||||||||||||
Property, plant and equipment, net | 26,844 | 1,963 | 1,572 | — | 259 | 5(b) | 28,675 | |||||||||||||||||||||
Cash value of life insurance | 11,623 | — | — | — | — | 11,623 | ||||||||||||||||||||||
Goodwill | 5,789 | — | — | — | 14,131 | 5(c) | 19,920 | |||||||||||||||||||||
Deferred income taxes | 20 | — | — | — | — | 20 | ||||||||||||||||||||||
Other assets | 905 | — | — | — | 11,416 | 5(d) | 12,321 | |||||||||||||||||||||
Total assets | $ | 149,410 | $ | 15,072 | $ | 12,074 | $ | — | $ | 9,687 | $ | 171,171 | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Revolving line of credit | $ | — | $ | 2,946 | $ | 2,360 | $ | — | $ | 13,940 | 5(e) | $ | 16,300 | |||||||||||||||
Accounts payable | 12,207 | 1,890 | 1,514 | — | — | 13,721 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 30,831 | 523 | 419 | — | — | 31,250 | ||||||||||||||||||||||
Total current liabilities | 43,038 | 5,359 | 4,293 | — | 13,940 | 61,271 | ||||||||||||||||||||||
Security bonus plan | 13,347 | — | — | — | — | 13,347 | ||||||||||||||||||||||
Financing lease obligation | 6,710 | — | — | — | — | 6,710 | ||||||||||||||||||||||
Deferred compensation | 5,108 | — | — | — | — | 5,108 | ||||||||||||||||||||||
Deferred rent liability | 3,473 | — | — | 177 | 4(a) | 203 | 5(f) | 3,853 | ||||||||||||||||||||
Deferred income tax liabilities | — | — | — | 86 | 4(b) | 3,062 | 5(g) | 3,148 | ||||||||||||||||||||
Other liabilities | 5,071 | — | — | — | — | 5,071 | ||||||||||||||||||||||
Total liabilities | 76,747 | 5,359 | 4,293 | 263 | 17,205 | 98,508 | ||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||||||
Preferred shares | — | 2,294 | 1,838 | — | (1,838 | ) | 5(h) | — | ||||||||||||||||||||
Common stock par value | 8,921 | — | — | — | — | 8,921 | ||||||||||||||||||||||
Capital in excess of par value | 12,335 | — | — | — | — | 12,335 | ||||||||||||||||||||||
Retained earnings | 51,216 | 7,419 | 5,943 | (263 | ) | (5,680 | ) | 5(h) | 51,216 | |||||||||||||||||||
Treasury stock | (711 | ) | — | — | — | — | (711 | ) | ||||||||||||||||||||
Accumulated other comprehensive income | 902 | — | — | — | — | 902 | ||||||||||||||||||||||
Total Stockholders’ equity | 72,663 | 9,713 | 7,781 | (263 | ) | (7,518 | ) | 72,663 | ||||||||||||||||||||
Total liabilities, preferred shares and stockholders’ equity | $ | 149,410 | $ | 15,072 | $ | 12,074 | $ | — | $ | 9,687 | $ | 171,171 |
Lawson | Bolt Supply Historical | US GAAP | Pro Forma | |||||||||||||||||||||||||
Historical | Canadian ASPE | Adjustments | Adjustments | Pro Forma | ||||||||||||||||||||||||
US $ | Cdn $ | US $ | (Note 4) | Note | (Note 5) | Note | Combined | |||||||||||||||||||||
Net sales | $ | 276,573 | $ | 37,637 | $ | 28,669 | $ | — | $ | — | $ | 305,242 | ||||||||||||||||
Cost of goods sold | 108,511 | 20,955 | 15,962 | — | — | 124,473 | ||||||||||||||||||||||
Gross profit | 168,062 | 16,682 | 12,707 | — | — | 180,769 | ||||||||||||||||||||||
Operating expenses | 169,519 | 15,241 | 11,609 | 36 | 4(c) | 790 | 5(i) | 180,843 | ||||||||||||||||||||
(1,111 | ) | 5(j) | ||||||||||||||||||||||||||
Operating income (loss) | (1,457 | ) | 1,441 | 1,098 | (36 | ) | 321 | (74 | ) | |||||||||||||||||||
Interest and other expenses, net | (74 | ) | 33 | 25 | — | (515 | ) | 5(l) | (564 | ) | ||||||||||||||||||
Income (loss) from operations before income taxes | (1,531 | ) | 1,474 | 1,123 | (36 | ) | (194 | ) | (638 | ) | ||||||||||||||||||
Income taxes | 98 | 350 | 267 | (15 | ) | 4(d) | (52 | ) | 5(m) | 298 | ||||||||||||||||||
Net income (loss) | $ | (1,629 | ) | $ | 1,124 | $ | 856 | $ | (21 | ) | $ | (142 | ) | $ | (936 | ) | ||||||||||||
Basic and diluted loss per share of common stock | $ | (0.19 | ) | $ | (0.11 | ) | ||||||||||||||||||||||
Basic and diluted weighted average shares outstanding | 8,780 | 8,780 |
Lawson | Bolt Supply Historical | US GAAP | Pro Forma | |||||||||||||||||||||||||
Historical | Canadian ASPE | Adjustments | Adjustments | Pro Forma | ||||||||||||||||||||||||
US $ | Cdn $ | US $ | (Note 4) | Note | (Note 5) | Note | Combined | |||||||||||||||||||||
Net sales | $ | 225,274 | $ | 32,178 | $ | 24,381 | $ | — | $ | — | $ | 249,655 | ||||||||||||||||
Cost of goods sold | 89,249 | 18,838 | 14,273 | — | — | 103,522 | ||||||||||||||||||||||
Gross profit | 136,025 | 13,340 | 10,108 | — | — | 146,133 | ||||||||||||||||||||||
Selling, general and administrative expenses | 131,754 | 10,913 | 8,268 | 103 | 4(c) | 590 | 5(i) | 139,659 | ||||||||||||||||||||
(770 | ) | 5(j) | ||||||||||||||||||||||||||
(286 | ) | 5(k) | ||||||||||||||||||||||||||
Gain on sale of property | (5,422 | ) | — | — | — | — | (5,422 | ) | ||||||||||||||||||||
Total operating expenses | 126,332 | 10,913 | 8,268 | 103 | (466 | ) | 134,237 | |||||||||||||||||||||
Operating income (loss) | 9,693 | 2,427 | 1,840 | (103 | ) | 466 | 11,896 | |||||||||||||||||||||
Interest and other expenses, net | 560 | (13 | ) | (10 | ) | — | (151 | ) | 5(l) | 399 | ||||||||||||||||||
Income (loss) from operations before taxes | 10,253 | 2,414 | 1,830 | (103 | ) | 315 | 12,295 | |||||||||||||||||||||
Income taxes | 802 | 605 | 458 | (42 | ) | 4(d) | 85 | 5(m) | 1,303 | |||||||||||||||||||
Net income (loss) | $ | 9,451 | $ | 1,809 | $ | 1,372 | $ | (61 | ) | $ | 230 | $ | 10,992 | |||||||||||||||
Basic income per share of common stock | $ | 1.07 | $ | 1.24 | ||||||||||||||||||||||||
Diluted income per share of common stock | $ | 1.04 | $ | 1.21 | ||||||||||||||||||||||||
Basic weighted average shares outstanding | 8,856 | 8,856 | ||||||||||||||||||||||||||
Diluted weighted average shares outstanding | 9,112 | 9,112 |
(Amounts in thousands) | ||||
Cash paid at closing | $ | 32,419 | ||
Cash | 174 | |||
Receivables | 3,458 | |||
Inventories | 6,531 | |||
Other current assets | 339 | |||
Property, plant and equipment | 1,831 | |||
Intangible assets | 11,416 | |||
Goodwill | 14,131 | |||
Accounts payable | (1,514 | ) | ||
Accrued expenses | (419 | ) | ||
Deferred rent liabilities | (380 | ) | ||
Deferred tax liabilities | (3,148 | ) | ||
Total | $ | 32,419 |
Total funds used for the acquisition | $ | 32,419 | ||
Proceeds from revolving line of credit | (16,300 | ) | ||
Cash portion of purchase consideration | $ | 16,119 |
Land | $ | 100 | ||
Buildings | 159 | |||
Total property, plant and equipment adjustment | $ | 259 |
Estimated useful life (in years) | (Amounts in thousands) | |||||
Trade names | 15 | $ | 7,234 | |||
Customer relations | 12 | 4,182 | ||||
Total intangible assets adjustment | $ | 11,416 |
Proceeds from Lawson revolving line of credit | $ | 16,300 | ||
Paydown of Bolt Supply revolving line of credit | (2,360 | ) | ||
Total adjustments | $ | 13,940 |
Preferred shares | $ | 1,838 | ||
Retained earnings | 5,680 | |||
Total stockholders' equity | $ | 7,518 |
Year Ended | Nine Months Ended | |||||||
December 31, 2016 | September 30, 2017 | |||||||
Trade names | $ | 459 | $ | 343 | ||||
Customer relations | 331 | 247 | ||||||
Total intangible assets adjustment | $ | 790 | $ | 590 |