1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1997 Commission File Number 0-13147
-------------- -------
LESCO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0904517
- ------------------------------- --------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20005 Lake Road
Rocky River, Ohio 44116
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(216) 333-9250
-------------------------------
(Registrant's telephone number,
including area code)
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 twelve 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practical date.
Outstanding at
Class May 12, 1997
------------------------------- -------------
Common shares without par value 8,101,913 shares
1
2
LESCO, INC.
BALANCE SHEETS
March 31 March 31 December 31
(In Thousands Except Share Data) 1997 1996 1996
-------------- ------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 2,791 $ 3,245 $ 1,900
Accounts receivable -- net 69,877 59,906 57,424
Inventories 87,806 89,903 68,090
Deferred income taxes 4,734 1,194 4,734
Prepaid expenses and other assets 6,804 4,843 4,398
----------- ----------- -----------
TOTAL CURRENT ASSETS 172,012 159,091 136,546
Property, Plant and Equipment 49,264 44,021 47,747
Less allowance for depreciation and amortization (25,471) (22,165) (24,454)
----------- ----------- -----------
23,793 21,856 23,293
Other Assets 5,105 4,883 4,834
----------- ----------- -----------
TOTAL ASSETS $ 200,910 $ 185,830 $ 164,673
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 49,804 $ 44,146 $ 26,786
Other current liabilities 9,386 6,630 9,656
Current portion of long-term debt 200 200 200
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 59,390 50,976 36,642
Long-term debt 78,967 71,315 64,704
Deferred income taxes 1,628 1,132 1,628
SHAREHOLDERS' EQUITY:
Preferred shares-- without par value--
authorized 500,000 shares
Common shares--without par value--
19,500,000 shares authorized; 8,094,167 shares issued
and 8,089,892 outstanding at March 31, 1997, 7,986,088
at March 31, 1996, 8,064,367 at December 31, 1996 809 799 807
Paid-in capital 26,782 25,439 26,549
Retained earnings 33,685 36,206 34,694
Less treasury shares (17) (37) (17)
Unearned compensation (334) (334)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 60,925 62,407 61,699
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 200,910 $ 185,830 $ 164,673
=========== =========== ===========
2
3
LESCO, INC.
STATEMENTS OF INCOME
Three Months Ended March 31
----------------------------
(In Thousands, Except per Share Data) 1997 1996
------------ -----------
Net sales $ 65,267 $ 53,533
Cost of sales 43,014 35,534
-------- --------
GROSS PROFIT ON SALES 22,253 17,999
Selling, general and
administrative expenses 23,204 20,382
-------- --------
LOSS FROM OPERATIONS (951) (2,383)
Other deductions (income):
Interest expense 1,249 985
Other - net (546) (555)
-------- --------
703 430
-------- --------
Loss Before Income Taxes (1,654) (2,813)
Income taxes (645) (1,097)
-------- --------
NET LOSS $ (1,009) $ (1,716)
======== ========
LOSS PER SHARE $ (0.12) $ (0.21)
======== ========
Weighted average number of
common and common equivalent
shares outstanding 8,084 7,982
======== ========
3
4
LESCO, INC.
STATEMENTS OF CASH FLOW
Three Months Ended
March 31
----------------------------
(In Thousands) 1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (1,009) $ (1,716)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,017 855
Increase in accounts receivable (12,905) (12,536)
Provision for uncollectible accounts receivable 452 351
Increase in inventories (19,716) (22,059)
Increase in accounts payable 23,018 20,475
Increase in other current items (2,676) (674)
Other (271) (5)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (12,090) (15,309)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,517) (1,100)
Purchase of Prolawn Division of Agway, Inc. (11,268)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (1,517) (12,368)
FINANCING ACTIVITIES:
Proceeds from borrowings 27,400 43,100
Reduction of borrowings (13,137) (15,043)
Issuance of common shares 235 245
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,498 28,302
-------- --------
Net Increase in Cash 891 625
Cash -- Beginning of the Period 1,900 2,620
-------- --------
CASH - END OF THE PERIOD $ 2,791 $ 3,245
======== ========
4
5
LESCO, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE A - Basis of Presentation
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the requirements of Regulation S-X and Form 10-Q. The statements
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary for a fair presentation of the
results for interim periods. For further information, refer to the audited
financial statements and footnotes thereto for the year ended December 31, 1996.
Operating results for the three months ended March 31 are not necessarily
indicative of the results to be expected for the year due to the seasonal nature
of the Company's business.
5
6
LESCO, INC.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
- ---------------------
The Company's sales growth in the first quarter was $11,734,000, a 21.9%
increase to $65,267,000 compared to $53,533,000 in the first quarter 1996. Both
consumable and hard goods sales volume increased in the first quarter 1997
compared to 1996. During the quarter, the Company opened twenty new Service
Centers which brings the total number of Service Centers in operation to 215 as
of March 31, 1997. Same store sales for the first quarter 1997 compared to 1996
increased 18.7%.
Gross profit as a percent of sales was 34.1% in the first quarter of 1997
compared to 33.6% in 1996. Margins remained relatively constant for both
consumable and hard goods products. The Company continues to focus on margin
improvements through refinements in product purchases and enhancements in sales
pricing strategies.
Selling, general and administrative expenses increased $2,822,000, a 13.8%
increase to $23,204,000 for the first quarter 1997 compared to $20,382,000 in
the first quarter 1996. Delivery and distribution expenses remained relatively
unchanged as a percentage of sales while selling, general and administrative
expenses decreased as a percent of sales to 26.7% in first quarter 1997 compared
to 29.6% of sales for 1996. The largest increase in selling and administrative
expenses was Service Center costs, primarily due to the opening of twenty new
Service Centers.
Interest expense increased to $1,249,000 in the first quarter 1997 from $985,000
in 1996. This increase was due primarily to the increase in outstanding debt in
1997 compared to 1996. Other-net includes customer finance charges and totaled
$541,000 in the first quarter 1997 compared to $538,000 in 1996.
The Company's effective income tax rate for both the first quarter 1997 and 1996
was 39%.
6
7
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
As of March 31, 1997, total assets of the Company were $200,910,000 compared to
$185,830,000 as of March 31, 1996 and $164,673,000 as of December 31, 1996. The
principal reason for the increase in assets as of March 31, 1997 from a year
earlier is the $9,971,000 increase in accounts receivable, an increase of 16.6%
compared to the sales increase of 21.9%. Inventories for the same comparative
dates decreased slightly from $89,903,000 to $87,806,000 as of March 31, 1997.
The decrease in inventory levels is due to the effects of improvements in
inventory management throughout 1996 and 1997. Comparing March 31, 1997 to
December 31, 1996, accounts receivable increased $12,453,000 and inventories
increased $19,716,000 due to the seasonal increase in sales and increases in
inventories in preparation for the spring season.
Funding for the asset changes from March 31, 1996 to 1997 was accomplished by
increases in accounts payable of $5,658,000 and long-term debt of $7,652,000.
The increase from December 31, 1996 to March 31, 1997 was obtained by an
increase in accounts payable of $23,018,000 and long-term debt of $14,263,000.
The increase in accounts payable from March to March was due to inventory
purchases related to year to year sales volume increases while the increase from
December to March reflects seasonal supplier deferred programs which are due in
the second and third quarter of the year. Increases in long-term debt balances
result from increased borrowings under the Company's line of credit.
As of March 31, 1997, the Company had $7,500,000 available under its credit
facility. During the first quarter of 1997, capital expenditures totaled
$1,517,000. The primary expenditures included information system enhancements,
fertilizer production equipment and new Service Centers.
New Accounting Requirements
- ---------------------------
The new requirements for calculating earnings per share under Financial
Accounting Standards Board Statement #128, Earnings Per Share, will be effective
December 31, 1997. Management does not expect the impact of adopting the
statement to be material.
7
8
PART II - OTHER INFORMATION
---------------------------
Except as noted below, the items in Part II are inapplicable or, if applicable,
would be answered in the negative. These items have been omitted and no other
reference is made thereto.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(10) Third Amendment to the Credit Agreement dated
November 1, 1996
(27) Financial Data Schedule
There were no reports on Form 8-K for the quarter ended March 31, 1997.
8
9
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LESCO, INC.
April 12, 1997 By: /s/ Ware H. Grove
-------------------------------------
Ware H. Grove, Vice-President/
Chief Financial Officer
9