Revenue Recognition

6 Months Ended

Jun. 30, 2020

Deferred Revenue Disclosure [Abstract]

As part of the Company's revenue recognition analysis, it concluded that it has two separate performance obligations, and accordingly, two separate revenue streams: products and services. As a result, the Company reports two separate revenue streams and two separate costs of revenues. Under the definition of a contract as defined by ASC 606, the Company considers contracts to be created at the time an order to purchase product is agreed upon regardless of whether or not there is a written contract.

Performance Obligations

Lawson has two operating segments; the Lawson segment and the Bolt Supply segment.

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

Lawson generates revenue primarily from the sale of MRO products to its customers. Revenue related to product sales is recognized at the time that control of the product has been transferred to the customer; either at the time the product is shipped or the time the product has been received by the customer. The Company does not commit to long-term contracts to sell customers a certain minimum quantity of products.

The Lawson segment offers a vendor managed inventory ("VMI") service proposition to its customers. A portion of these services, primarily related to stocking of product and maintenance of the MRO inventory, is provided a short period of time after control of the purchased product has been transferred to the customer. Since some components of VMI service have not been provided at the time the control of the product transfers to the customer, that portion of expected consideration is deferred until the time that those services have been provided.

The Bolt Supply segment does not provide VMI services for its customers or 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 of the contract.

Accounting Policy Elections

The Company has elected to treat shipping and handling costs after the control of the product has been transferred to the customer as a fulfillment cost.

Sales taxes that are imposed on our sales and collected from customers are excluded from revenues.

The Company expenses sales commissions when incurred as the amortization period is one year or less.

Certain Judgments

The Company employs certain judgments to estimate the dollar amount of revenue, and related expenses, allocated to the sale of product and service. These judgments include, among others, the percentage of customers that take advantage of the VMI services offered, the amount of revenue to be allocated to the VMI service based on the value of the service to its customers, and the amount of time after control of the product passes to the customer that the VMI service obligation is completed. It is assumed that any customer who averages placing orders at a frequency of longer than 30 days does not take advantage of the available VMI services offered. The estimate of the cost of sales is based on expenses directly related to sales representatives that provide direct VMI services to the customer.

The onset of the COVID-19 pandemic impacted the ability of the Lawson sales representatives to call on their customers in person, particularly in the first half of the second quarter of 2020. As a result, Lawson sales representatives were not able to perform VMI services with the same frequency in the second quarter of 2020 as they were in prior quarters. As a result, the amount of revenue allocated to the service revenue component is lower in the second quarter of 2020 than in previous quarters. Additionally the amount of service costs allocated to gross margin from selling expense is lower than in prior quarters. The Company expects the COVID-19 pandemic to continue to impact the allocation of service revenue and service related costs for the foreseeable future, though the Company is unable to determine the extent of the impact at this time.

At June 30, 2020, the Company had a deferred revenue liability of $0.5 million and a deferred expense of $0.2 million for related expenses associated with the deferred service performance obligations, respectively. The decrease in deferred revenues and related expenses associated with the deferred service performance obligations is driven by the effects of the COVID-19 pandemic.

The deferral of revenue and expenses does not affect the amount, timing and any uncertainty of cash flows generated from operations.

Disaggregated revenue by geographic area follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020		2019

United States	$	57,096	$	76,119	$	130,679	$	150,167
Canada	15,050		19,978		32,502		37,273
Consolidated total	$	72,146	$	96,097	$	163,181	$	187,440

Disaggregated revenue by product type follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

Fastening Systems	23.8	%	24.3	%	23.3	%	23.9	%
Fluid Power	13.2	%	15.2	%	13.8	%	15.2	%
Specialty Chemicals	12.8	%	11.7	%	11.9	%	11.5	%
Cutting Tools and Abrasives	12.5	%	13.0	%	12.9	%	13.1	%
Electrical	10.0	%	10.7	%	10.4	%	11.1	%
Safety	6.1	%	4.7	%	6.2	%	4.7	%
Aftermarket Automotive Supplies	6.0	%	7.6	%	7.2	%	8.0	%
Welding and Metal Repair	1.5	%	1.6	%	1.5	%	1.7	%
Other	14.1	%	11.2	%	12.8	%	10.8	%
Consolidated Total	100.0	%	100.0	%	100.0	%	100.0	%