Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - LAWSON PRODUCTS INC/NEW/DE/ | boltsupplyaug2017fs.htm |
| EX-99.1 - EXHIBIT 99.1 - LAWSON PRODUCTS INC/NEW/DE/ | boltsupplyfeb2017fs.htm |
| EX-23 - EXHIBIT 23 - LAWSON PRODUCTS INC/NEW/DE/ | mnpconsent.htm |
| 8-K/A - 8-K/A - LAWSON PRODUCTS INC/NEW/DE/ | boltproforma8ka.htm |
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 3, 2017, Lawson Products Inc. (Ontario), a fully owned subsidiary of Lawson Products, Inc. ("Lawson" or the "Company") completed the acquisition of all of the issued and outstanding shares of The Bolt Supply House Ltd. ("Bolt Supply") pursuant to an Agreement and Plan of Merger dated as of October 3, 2017 among the Company and Bolt Supply. The following unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations are presented to reflect the effects of this acquisition.
The unaudited pro forma condensed combined balance sheet has been prepared to combine the September 30, 2017 unaudited balance sheet of Lawson with the August 31, 2017 unaudited balance sheet of Bolt Supply, originally prepared in accordance with Canadian Accounting Standards for Private Enterprises ("Canadian ASPE"), adjusted to be in accordance with Generally Accepted Accounting Principles in the United States (“US GAAP”), to reflect the transaction as if it had occurred on September 30, 2017.
The year ended December 31, 2016 unaudited pro forma condensed combined statements of operations combines the fiscal year end December 31, 2016 results of Lawson with the fiscal year end February 28, 2017 results of operations of Bolt Supply, originally prepared in accordance with Canadian ASPE, adjusted to be in accordance with US GAAP, as if the transaction had occurred on January 1, 2016. The nine months ended September 30, 2017 unaudited pro forma condensed combined statements of operations combines the nine months ended September 30, 2017 results of Lawson with the nine months ended August 31, 2017 results of operations of Bolt Supply, originally prepared in accordance with Canadian ASPE, adjusted to be in accordance with US GAAP, as if the transaction had occurred on January 1, 2016.
The pro forma information was prepared based on the historical financial statements and related notes of Lawson and Bolt Supply, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with US GAAP and adjusting the historical financial statements of Bolt Supply to be in accordance with US GAAP. The pro forma adjustments are based upon available information and assumptions that Company management believes are factually supportable and are expected to have a continuing impact on the results of the Company after the acquisition. The allocation of the purchase price of the Bolt Supply acquisition reflected in these unaudited pro forma condensed combined financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The pro forma adjustments are therefore preliminary and have been prepared to illustrate the estimated effect of the acquisition.
The Company estimated the preliminary fair value of Bolt Supply's assets and liabilities based on discussions with Bolt Supply's management, due diligence and work performed by third-party valuation specialists. Additionally, management has not completed a full evaluation of Bolt Supply’s accounting and business practices, and any changes identified may impact the future combined operating results. As the Company further reviews the transaction, increases or decreases in the fair value of relevant balance sheet amounts may result in adjustments, which may result in material differences from the information presented in this Form 8-K/A.
In addition to U.S. GAAP accounting adjustments, certain items have been reclassified from Bolt Supply’s historical financial statement information to align the presentation of those financial statements with Lawson’s financial statement presentation.
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The Company translated the Bolt Supply financial results from Canadian dollars to U.S. dollars using the following historical exchange rates.
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 | |||
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been achieved had Lawson and Bolt Supply been a combined company during the respective periods presented.
The assumptions and estimates underlying the unaudited adjustments to the unaudited pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company's historical financial statements, which are included in the Company's latest annual report on Form 10-K and quarterly report on Form 10-Q, and Bolt Supply's historical information included in this Form 8-K/A.
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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 | ||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands, except per share amounts)
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 | ||||||||||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(In thousands, except per share amounts)
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 | ||||||||||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
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Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1 - Description of the Transaction
On October 3, 2017, Lawson Products Inc. (Ontario), a fully owned subsidiary of Lawson, purchased all of the issued and outstanding shares of The Bolt Supply House Ltd. ("Bolt Supply"). Bolt Supply is a wholesale and retail supplier of fasteners, power tools, safety equipment, shop supplies and accessories across Western Canada.
The aggregate purchase price for the shares of Bolt Supply was approximately $32.4 million, consisting of cash on hand and borrowings of $16.3 million from the Company's existing revolving line of credit.
Note 2 - Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet has been prepared to combine the September 30, 2017 unaudited balance sheet of Lawson with the August 31, 2017 unaudited balance sheet of Bolt Supply to reflect the transaction as if it had occurred on September 30, 2017. The year ended December 31, 2016 unaudited pro forma condensed combined statements of operations combines the fiscal year end December 31, 2016 results of Lawson with the fiscal year end February 28, 2017 results of Bolt Supply as if the transaction had occurred on January 1, 2016. The nine months ended September 30, 2017 unaudited pro forma condensed combined statement of operations combines the nine months ended September 30, 2017 results of Lawson with the nine months ended August 31, 2017 results of Bolt Supply as if the transaction had occurred on January 1, 2016.
Due to the difference in the fiscal year end of Lawson and Bolt Supply, net sales and net income of $6.3 million and $0.2 million, respectively, for the three month period ended February 28, 2017 have been included in both the pro forma combined statement of operations for the year ended December 31, 2016 and also for the pro forma combined nine month period ended September 30, 2017.
Certain reclassifications have been made to the Bolt Supply financial statements to conform to Lawson's presentation. Such reclassifications have no effect on the net income recorded. The Bolt Supply historical financial information were prepared in accordance with Canadian Accounting Standards for Private Enterprises ("Canadian ASPE") in Canadian dollars. The results have been translated into U.S. dollars and adjustments have been made to conform with US GAAP.
The unaudited pro forma condensed combined financial statements should be read in conjunction with Lawson's historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission on February 23, 2017 and the Quarterly Report on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on October 26, 2017; as well as Bolt Supply's historical consolidated financial statements and related notes included as exhibits 99.1 and 99.2 to this Current Report Form 8-K/A.
The unaudited pro forma condensed combined financial statements have been prepared for informational and illustrative purposes in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), including Article 11 of Regulation S-X under the Securities Act. Such information is preliminary and based on currently available information, assumptions and adjustments that the Company believes are reasonable, however the ultimate amounts recorded may be different. The Company's historical condensed consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the Bolt Supply acquisition (2) factually supportable and (3) with respect to the statement of operations expected to have a continuing impact on the consolidated financial results. These financial statements are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been achieved had Lawson and Bolt Supply been a combined company during the respective periods presented.
The Company expects to incur costs and realize benefits associated with integrating the operations of Lawson and
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Bolt Supply. The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities, future anticipated synergies or any non-recurring charges directly related to the acquisition that the combined Company may incur upon completion of the transaction.
Note 3 - Estimated Preliminary Purchase Price Consideration
On October 3, 2017, the Company acquired Bolt Supply for total consideration of approximately $32.4 million. The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Bolt Supply based on management’s best estimates of fair value. The excess of the aggregate cost of the acquisition over the estimated fair market value of the acquired identifiable net assets has been recorded as goodwill. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.
The following table summarizes the preliminary allocation of the purchase price for Bolt Supply as to the acquired identifiable assets, liabilities assumed and pro forma goodwill:
(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 | ||
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Note 4 - US GAAP Adjustments
Certain reclassifications have been made to the historical presentation of the Bolt Supply results to conform to the presentation used in the unaudited pro forma condensed combined financial statements. They include the following:
(a) Under Canadian ASPE, Bolt expenses rental payments on operating leases as incurred. Under US GAAP, operating lease costs are recognized on a straight-line basis over the term of the lease. The adjustment to deferred rent expense for this difference was $177 thousand.
(b) In accordance with Canadian ASPE, Bolt Supply originally recorded income taxes using the taxes payable method in which only current income tax assets and liabilities are recorded to the extent they are unpaid or recoverable. Under US GAAP, deferred tax asset and liabilities are established on the balance sheet to reflect the tax effect of temporary differences between the book and tax basis of the underlying assets and liabilities. The adjustment to deferred tax liabilities for this difference was $86 thousand.
(c) Bolt Supply originally recorded expenses related to operating leases as incurred in accordance with Canadian ASPE. Under US GAAP, operating lease costs are recognized on a straight-line basis over the term of the lease. This adjustment reflects the additional expense that Bolt Supply would incur under US GAAP of $36 thousand and $103 thousand for the year ended December 31, 2016 and the nine months ended September 30, 2017, respectively.
(d) Income tax expense has been reduced by $15 thousand and $42 thousand for the year ended December 31, 2016 and the nine months ended September 30, 2017 which approximates the effective tax rate.
Note 5 - Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unadjusted pro forma condensed combined financial information:
(a) The pro forma adjustments to cash and cash equivalents reflects the amount paid for the acquisition as follows (amounts in thousands):
Total funds used for the acquisition | $ | 32,419 | ||
Proceeds from revolving line of credit | (16,300 | ) | ||
Cash portion of purchase consideration | $ | 16,119 | ||
(b) The pro forma adjustments to property, plant and equipment to reflect their fair market value, based on independent appraisals of the properties, were as follows (amounts in thousands):
Land | $ | 100 | ||
Buildings | 159 | |||
Total property, plant and equipment adjustment | $ | 259 | ||
The related depreciation is considered immaterial for inclusion in the pro forma financial statements.
(c) The pro forma adjustment to goodwill of $14.1 million reflects the purchase price of the acquisition less the fair market value of the acquired identifiable net assets.
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(d) The fair market value of the acquired intangible assets and their estimated useful lives was calculated by a third-party valuation firm. The pro forma adjustments to intangible assets are as follows:
Estimated useful life (in years) | (Amounts in thousands) | |||||
Trade names | 15 | $ | 7,234 | |||
Customer relations | 12 | 4,182 | ||||
Total intangible assets adjustment | $ | 11,416 | ||||
(e) The pro form adjustment to revolving line of credit consists of proceeds received by Lawson as a part of the payment for the acquisition and the pay down of the line of credit at Bolt Supply as follows (amounts in thousands):
Proceeds from Lawson revolving line of credit | $ | 16,300 | ||
Paydown of Bolt Supply revolving line of credit | (2,360 | ) | ||
Total adjustments | $ | 13,940 | ||
(f) The pro forma adjustment of $203 thousand to deferred rent liability reflects the fair market value adjustment to Bolt Supply's operating leases for branch locations. The amount was determined by a third-party review of Bolt Supply's operating leases.
(g) The $3.1 million pro forma adjustment to deferred income tax liabilities was calculated on the book tax differences created by the purchase price allocation using a 27% statutory tax rate which approximates the effective tax rate.
(h) The pro forma adjustments to eliminate Bolt Supply's historical equity include the following (amounts in thousands):
Preferred shares | $ | 1,838 | ||
Retained earnings | 5,680 | |||
Total stockholders' equity | $ | 7,518 | ||
(i) The pro forma adjustment for amortization of acquired intangible assets are as follows (amounts in thousands):
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 | ||||
(j) Pro forma operating expenses were reduced by management fees of $1.1 million and $0.8 million for the year ended December 31, 2016 and the nine months ended September 30, 2017, respectively, which consist of payments made to the previous owners that were discontinued as a part of the acquisition.
(k) A Pro Forma adjustment has been made to remove the acquisition related expenses of $286 thousand which were originally recorded in the Company's September 30, 2017 results.
(l) The additional net interest expense was calculated based on the $16.3 million borrowing on Lawson's revolving line of credit in relation to the acquisition, using the current interest rate of 4.25%, and assuming that the revolver balance was reduced by $0.7 million each month.
(m) The additional income tax benefit is based on the pro forma adjustments using a 27% statutory income tax rate.
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