COVID-19 Risks and Uncertainties

6 Months Ended

Jun. 30, 2020

Risks and Uncertainties [Abstract]

COVID-19 Risks and Uncertainties

COVID-19 Risks and Uncertainties

There is substantial uncertainty as to the overall effect the COVID-19 pandemic will have on the results of the Company for 2020 and beyond. Various events related to COVID-19 have resulted in lost revenue to our Company, limitations on our ability to source high demand products, limitations on our sales force to perform certain functions due to state or federal stay-at-home orders, slow-down of customer demand for our products and limitations of some customers to pay us on a timely basis.

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 Company will continue to evaluate how the provisions of the CARES Act will impact its financial position, results of operations and cash flows. The Company has utilized the Canadian Emergency Wage Subsidy (CEWS) Act for both Lawson Canada and Bolt for assistance with hourly employee costs. The CEWS is a program that provides a subsidy of 75% of eligible wages for up to 24 weeks, retroactive from March 15, 2020 to August 29, 2020 subject to meeting certain criteria. During the three months ended June 30, 2020 the Company recorded $0.9 million in subsidies from the CEWS program which is recognized as a reduction to selling, general and administrative expenses in the consolidated statement of income and comprehensive income.

In the first quarter of 2020, the government of the state of Illinois defined essential businesses, allowing Lawson to operate during the pandemic. A change in this status could result in the temporary closure of our business. Additionally the COVID-19 pandemic could result in a temporary closure of any or all of our distribution facilities or the Bolt branch locations, 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. The pandemic is negatively impacting sales and operations currently and may negatively impact future financial results, liquidity and overall performance of the Company. Additionally, it is reasonably possible that estimates made in the financial statements may be materially and adversely impacted in the near term 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.

The Lawson MRO business model relies upon customer interaction as well as a consistent schedule of onsite visits by our sales representatives to customer locations. The Bolt business model relies on foot traffic in its branch locations. The onset of the COVID-19 pandemic, as well as social distancing guidelines and government mandated shelter in place orders, have negatively impacted our business.

The Company has taken several steps to mitigate the potential negative impacts of COVID-19. While sales reps representatives continued to call on current and prospective customers via phone, fax and electronic methods, the lack of physically visiting customer sites along with the closure of customer locations across North America in response to the pandemic led to a decrease in sales compared to April 2019. The Bolt Supply House also saw a decline in sales in April 2020 compared to April 2019 as the ability of customers to visit branch locations was restricted and certain customers temporarily closed. As certain restrictions were lifted by states toward the end of the second quarter developed, Lawson sales representatives were able to visit additional customers and Bolt was able to allow customers inside their branch locations again on a limited basis, as well as continue to offer curbside pickup. This led to improved sales activity in May and June on a sequential basis.

The Company took additional actions in the second quarter, including, but not limited to furloughing approximately 100 employees, reducing base salaries, canceling travel and award trips, temporarily consolidating its Suwanee distribution center operations into the McCook facility, and eliminating non-critical capital expenditures. The Company continues to monitor its balance sheet and liquidity position and is taking actions to protect cash flows from operations, while at the same time managing its operating expenses in relation to current sales trends. At June 30, 2020, the Company had $10.0 million of unrestricted cash and cash equivalents and an additional $97.3 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility.

The Company will continue to closely monitor the operating environment and will take appropriate actions to protect the safety for its employees, customers and suppliers while continuing to meet its working capital needs and remain in compliance with its debt covenants.