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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, 1996 Commission File Number 0-13147
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LESCO, INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-090517
- -------------------------------- --------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20005 Lake Road
Rocky River, Ohio 44116
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(Address of principal executive offices) (Zip Code)
(216) 333-9250
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(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 8, 1996
- ------------------------------- ----------------
Common shares without par value 7,989,288 shares
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LESCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 March 31 December 31
1996 1995 1995
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 3,244,998 $ 3,418,530 $ 2,619,515
Accounts receivable -- net 59,906,442 50,417,412 47,694,739
Inventories 89,903,077 64,100,215 60,773,248
Prepaid expenses and other assets 3,198,177 3,300,130 4,415,189
------------ ------------ ------------
Total Current Assets 156,252,694 121,236,287 115,502,691
Property, plant and equipment 44,021,331 36,764,027 42,871,750
Less allowance for depreciation
and amortization (22,165,729) (19,655,170) (21,430,906)
------------ ------------ ------------
21,855,602 17,108,857 21,440,844
Other Assets 4,882,821 954,753 877,688
------------ ------------ ------------
TOTAL ASSETS $182,991,117 $139,299,897 $137,821,223
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 44,145,674 $ 35,003,611 $ 23,670,302
Other current liabilities 3,791,214 4,634,937 5,682,717
Current portion of long-term debt 200,000 200,000 200,000
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 48,136,888 39,838,548 29,553,019
Long-Term Debt 71,314,691 40,596,061 43,257,818
Deferred Federal Income Taxes 1,132,000 1,132,000 1,132,000
SHAREHOLDERS' EQUITY:
Preferred shares-- without par value--
authorized 500,000 shares
Common shares--without par value--
19,500,000 shares authorized; outstanding
7,986,088 at March 31, 1996,
7,803,763 at March 31, 1995,
7,949,988 at December 31, 1995 799,283 781,051 795,674
Paid-in capital 25,439,220 23,613,332 25,197,613
Retained earnings 36,206,507 33,376,377 37,922,571
Less treasury shares (6,750 shares) (37,472) (37,472) (37,472)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 62,407,538 57,733,288 63,878,386
------------ ------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $182,991,117 $139,299,897 $137,821,223
============ ============ ============
</TABLE>
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LESCO, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31
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1996 1995
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<S> <C> <C>
Net sales $53,533,207 $ 47,237,127
Cost of sales 35,534,381 31,719,310
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GROSS PROFIT ON SALES 17,998,826 15,517,817
Selling, general and
administrative expenses 20,381,606 16,091,224
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LOSS FROM OPERATIONS (2,382,780) (573,407)
Other deductions (income):
Interest expense 985,172 627,551
Other - net (554,888) (377,077)
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430,284 250,474
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Loss Before Income Taxes (2,813,064) (823,881)
Income taxes (benefit) (1,097,000) (321,000)
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NET LOSS (1,716,064) (502,881)
=========== ============
LOSS PER SHARE $ (0.21) $ (0.06)
=========== ============
Weighted average number of
common and common equivalent
shares outstanding 7,981,538 7,802,536
=========== ============
</TABLE>
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LESCO, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,716,064) $ (502,881)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 855,486 784,541
Increase in accounts receivable (12,536,026) (12,338,009)
Provision for uncollectible accounts receivable 351,133 336,004
Increase in inventories (22,058,813) (12,423,981)
Increase in accounts payable 20,475,372 14,336,262
Increase in other current items (674,491) (387,278)
Other (5,133) (12,027)
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NET CASH USED IN OPERATING ACTIVITIES (15,308,536) (10,207,369)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,100,244) (827,254)
Purchase of Prolawn Division of Agway, Inc. (11,267,826)
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NET CASH USED BY INVESTING ACTIVITIES (12,368,070) (827,254)
FINANCING ACTIVITIES:
Proceeds from borrowings 43,100,000 18,200,000
Reduction of borrowings (15,043,127) (7,145,467)
Issuance of common shares 245,216 61,636
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NET CASH PROVIDED BY FINANCING ACTIVITIES 28,302,089 11,116,169
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Net Increase in Cash 625,483 81,546
Cash -- Beginning of the Period 2,619,515 3,336,984
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CASH - END OF THE PERIOD $ 3,244,998 $ 3,418,530
============= ============
</TABLE>
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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, 1995.
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.
Note B - Acquisition of Pro-Lawn Division of Agway, Inc.
- -------------------------------------------------------
In January 1996, the Company acquired for $11,268,000 certain assets of the
Pro-Lawn Division of Agway, Inc. in a cash transaction. These assets included
inventories ($7,098,000) and fixed assets ($170,000) along with Pro-Lawn's
sales organization, key administrative personnel, customer listings,
licenses/trademarks and supply/distribution agreements. The remaining
$4,000,000 represents goodwill which is being amortized over its useful life.
Pro-Lawn's sales are primarily directed to customers in the northeastern United
States and allows the Company to increase its market penetration, particularly
to the golf course and governmental entity marketplace. The acquisition was
financed by the Company's credit facility.
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LESCO, INC.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
- ---------------------
Sales for the first quarter ended March 31, 1996 increased $6,296,000 to
$53,533,000 from $47,237,000 in 1995, a 13.3% increase. Sales of both
consumable and hard good products reflected a quarter to quarter increase with
sales of hard goods increasing 20.5%. During the quarter, the Company opened 17
new Service Centers, two new concept golf course super stores and two new golf
course "Stores-on-Wheels". While sales increased 13.3% compared to first
quarter 1995, the sales performance was below Company expectations due
principally to unseasonably cold and snow-covered conditions during March in
much of the Company's northern marketplace.
Gross profit as a percentage of sales was 33.6% in the first quarter 1996
compared to 32.9% in 1995. The margin increase reflects a recovery from the
1995 margin pressures in consumable goods related to the Company's increased
cost of fertilizers during 1995. Hard good margins remained relatively constant
in 1996 compared to 1995.
Selling, general and administrative expenses increased to 38.1% of sales in the
first quarter 1996 compared to 34.1% in 1995. Expenses increased $4,290,000 of
which $2,257,000 is due to sales cost increases primarily related to increases
in Service Center expenses. The Service Center expense increase is due
primarily to the number of stores in operation at March 31, 1996 (192) compared
to March 31, 1995 (159), along with existing store expenses increasing as store
sales volumes increase. Remaining elements of the Company's general and
administrative expenses remained relatively stable as a percent of sales.
The Company's interest expense increased $358,000 in the first quarter 1996
compared to 1995 due primarily to the amount of principal outstanding during the
comparative periods which, in 1996, includes $11,268,000 related to the
acquisition of Pro-Lawn. Other deductions-net consist primarily of customer
finance charges which totaled $538,000 in the first quarter 1996 and $341,000
in 1995.
The Company's effective tax rate for both the first quarter of 1996 and 1995 is
39%.
Financial Condition
- -------------------
In January 1996, the Company acquired in a cash purchase certain assets of
Agway, Inc.'s Pro-Lawn Division for $11,268,000. The acquisition included
inventories, fixed assets and Pro-Lawn's sales organization, key administrative
personnel, customer listings, licenses/trademarks and supply/distribution
agreements. The acquisition was financed by the Company's credit facility.
Accounts receivable were $59,906,000 as of March 31, 1996 compared to
$50,417,000 as of March 31, 1995, and $47,695,000 as of December 31, 1995. The
18.8% increase in March 1996 compared to March 1995 is due to the Company's
sales increase and prior quarter early-order sales programs coming due
primarily in the
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second quarter of 1996. The increase as of March 31, 1996 compared to
December 1995 is due to seasonality. Inventories were $89,903,000 as of March
31, 1996 compared to $64,100,000 as of March 31, 1995 and $60,773,000 as of
December 31, 1995. Of the increase, $12,893,000 relates to Pro-Lawn inventories
with the remaining increase due to the Company's pre-season build program and
an increase in the number of Service Centers in operation. Inventory levels
were also adversely affected by the 1996 slower spring sales season due to
weather conditions.
The change in assets were funded by increases in long-term debt of $30,718,000
from March 1995 to March 1996 and $28,057,000 from December 1995 along with
accounts payable increases of $9,142,000 from March 1995 to March 1996 and
$20,475,000 from December 1995. As noted above, the long-term debt increase
includes $11,268,000 in financing the purchase of Pro-Lawn.
In January 1996, the Company increased its maximum available line of credit
from $45,000,000 to $70,000,000 through September 1996. This additional
borrowing capacity is providing for 1996 seasonal needs and the Pro-Lawn
acquisition financing. The Company is currently reviewing various financing
alternatives which address the required borrowing levels beyond 1996. As of
March 31, 1996, the Company had $5,300,000 available under its revolving credit
agreement. Expenditures for capital improvements totaled $1,100,000 during the
first quarter 1996.
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PART II - OTHER INFORMATION
---------------------------
Except to the extent 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:
(27) Financial Data Schedule
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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.
May 8, 1996 By: William A. Foley
----------------------------
William A. Foley, President
By: Kenneth W. Didion
-----------------------------
Kenneth W. Didion, Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,244,998
<SECURITIES> 0
<RECEIVABLES> 62,845,442
<ALLOWANCES> 2,939,000
<INVENTORY> 89,903,077
<CURRENT-ASSETS> 156,252,694
<PP&E> 44,021,331
<DEPRECIATION> 22,165,729
<TOTAL-ASSETS> 182,991,117
<CURRENT-LIABILITIES> 48,136,888
<BONDS> 71,314,691
<COMMON> 799,283
0
0
<OTHER-SE> 61,608,255
<TOTAL-LIABILITY-AND-EQUITY> 182,991,117
<SALES> 53,533,207
<TOTAL-REVENUES> 53,533,207
<CGS> 35,534,381
<TOTAL-COSTS> 35,534,381
<OTHER-EXPENSES> (554,888)
<LOSS-PROVISION> 351,133
<INTEREST-EXPENSE> 985,172
<INCOME-PRETAX> (2,813,064)
<INCOME-TAX> (1,097,000)
<INCOME-CONTINUING> (1,716,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,716,064)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
