<PAGE> 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 June 30, 1996 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 August 12, 1996
- ------------------------------- -----------------
Common shares without par value 8,017,813 shares
1
<PAGE> 2
PART I - FINANCIAL STATEMENTS
LESCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 June 30 December 31
ASSETS 1996 1995 1995
- ------ ------- ------- -----------
<S> <C> <C> <C>
Current Assets:
Cash $ 8,848,162 $ 3,221,203 $ 2,619,515
Accounts receivable -- net 70,885,674 48,950,523 47,694,739
Inventories 78,925,751 63,991,220 60,773,248
Prepaid expenses and other assets 2,697,118 2,772,021 4,415,189
------------ ------------- -------------
Total Current Assets 161,356,705 118,934,967 115,502,691
Property, Plant and Equipment 45,076,331 39,429,283 42,871,750
Less allowance for depreciation and amortization (22,868,741) (20,276,536) (21,430,906)
------------ ------------- -------------
22,207,590 19,152,747 21,440,844
Other Assets 4,836,974 947,397 877,688
------------ ------------- -------------
TOTAL ASSETS $188,401,269 $ 139,035,111 $ 137,821,223
============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 44,450,261 $ 25,540,938 $ 23,670,302
Other current liabilities 8,442,294 6,284,419 5,682,717
Current portion of long-term debt 200,000 200,000 200,000
------------ ------------- -------------
Total Current Liabilities 53,092,555 32,025,357 29,553,019
Long-Term Debt 67,578,074 45,050,120 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; 8,015,988 shares issued and 8,012,438
outstanding at June 30, 1996; 7,895,388 shares issued and 7,888,638
outstanding at June 30, 1995; 7,956,738 shares issued and 7,949,988
outstanding at December 31, 1995 801,599 789,539 795,674
Paid-in capital 25,730,368 24,354,789 25,197,613
Retained earnings 40,086,385 35,720,778 37,922,571
Less treasury shares (19,712) $ (37,472) $ (37,472)
------------ ------------- -------------
Total Shareholders' Equity 66,598,640 $ 60,827,634 $ 63,878,386
------------ ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $188,401,269 $ 139,035,111 $ 137,821,223
============ ============= =============
</TABLE>
2
<PAGE> 3
LESCO, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 104,444,043 $ 71,464,682 $ 157,977,250 $ 118,701,809
Cost of sales 71,350,651 47,267,587 106,885,032 78,986,897
------------- ------------ ------------- -------------
GROSS PROFIT ON SALES 33,093,392 24,197,095 51,092,218 39,714,912
Selling, general and
administrative expenses 24,958,681 18,978,038 45,340,287 35,069,262
------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 8,134,711 5,219,057 5,751,931 4,645,650
Other deductions (income):
Interest expense 1,091,437 695,961 2,076,609 1,323,513
Other - net (758,646) (603,791) (1,313,533) (980,869)
------------- ------------ ------------- -------------
332,791 92,170 763,076 342,644
------------- ------------ ------------- -------------
Income Before Income Taxes 7,801,920 5,126,887 4,988,855 4,303,006
Income taxes 3,043,000 1,999,000 1,946,000 1,678,000
------------- ------------ ------------- -------------
NET INCOME $ 4,758,920 $ 3,127,887 $ 3,042,855 $ 2,625,006
============= ============= ============= =============
EARNINGS PER SHARE $ 0.58 $ 0.39 $ 0.37 $ 0.32
============= ============= ============= =============
Weighted average number of
common and common equivalent
shares outstanding 8,255,323 8,120,617 8,218,946 8,096,422
============= ============ ============= =============
</TABLE>
3
<PAGE> 4
LESCO, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,042,855 $ 2,625,006
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 1,725,421 1,575,722
Increase in accounts receivable (24,142,790) (10,881,786)
Provision for uncollectible accounts receivable 978,665 346,670
Increase in inventories (11,081,487) (12,314,986)
Increase in accounts payable 20,779,959 4,873,589
Increase in other current items 4,477,649 1,790,313
Other 40,714 (4,671)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (4,179,014) (11,990,143)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,275,767) (3,662,325)
Purchase of Pro-Lawn Division of Agway, Inc. (11,267,826)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (13,543,593) (3,662,325)
FINANCING ACTIVITIES:
Proceeds from borrowings 63,400,000 46,100,000
Reduction of borrowings (39,079,744) (30,591,408)
Issuance of common shares 510,040 811,581
Cash dividend (879,042) (783,486)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,951,254 15,536,687
------------ ------------
Net Increase (Decrease) in Cash 6,228,647 (115,781)
Cash -- Beginning of the Period 2,619,515 3,336,984
------------ ------------
CASH - END OF THE PERIOD $ 8,848,162 $ 3,221,203
============ ============
</TABLE>
4
<PAGE> 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, 1995.
Operating results for the six months ended June 30 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 intangible assets which are being amortized over their useful lives.
Pro-Lawn's sales are primarily directed to customers in the northeastern United
States and consequently the acquisition 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.
5
<PAGE> 6
LESCO, INC.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
- ---------------------
For the second quarter ended June 30, 1996, sales increased 46.1% to
$104,444,000 from $71,465,000 in 1995. Sales for the first six months of 1996
increased 33.1% to $157,977,000 from $118,702,000 in 1995. Sales volumes for
both consumable and hard goods increased without significant price increases
compared to the previous year periods with Pro-Lawn sales contributing to the
consumable product increase. The Company increased its Service Centers in
operation to 196(which includes three golf Superstores) as of June 30, 1996
compared to 169 Service Centers in operation as of June 30, 1995. The addition
of the 23 Stores in 1996 concludes the 1996 expansion with a similar number of
openings planned in 1997. Same store sales for the second quarter and the first
six months of 1996 compared to 1995 increased 19.8% and 13.9%, respectively.
Gross profit as a percent of sales was 31.7% in second quarter 1996 compared to
33.9% in 1995 with the first six months gross profit as a percent of sales in
1996 being 32.3% compared to 33.5% in 1995. Gross profit margins increased for
fertilizer products which were offset by decreases in margins for turf
protection products for both the quarter and year-to-date. Pro-Lawn sales are
generally lower margin sales with the above periods reflecting the effects of
the lower margins on a year-to-year comparative basis.
Selling, general and administrative expenses decreased to 23.9% of sales in the
second quarter of 1996 compared to 26.6% in second quarter 1995 and 28.7% of
sales for the first six months of 1996 compared to 29.5% in 1995. This decrease
is due to the reduction of Service Center costs as a percent of sales for both
the second quarter and six months ended June 1996. The increase in Service
Center cost was $1,363,000 in the second quarter 1996 compared to 1995 and
$3,086,000 year-to-date 1996 compared to 1995. This reflects the increasing
leverage of Service Center operating costs in 1996 when 23 units were opened
compared to 35 units opened in 1994 and 1995. The remaining selling, general and
administrative expenses of the Company as a percentage of sales remained
relatively unchanged.
Interest expense increased for both the quarter and year-to-date primarily due
to the increased borrowing levels related to the Pro-Lawn acquisition
($11,268,000) and to fund working capital for the Company's sales increase.
Other deductions-net include customer finance charges which total $649,000 in
second quarter 1996 compared to $569,000 in 1995 and year-to-date 1996 of
$1,187,000 compared to $910,000 in 1995.
The Company's effective tax rate for the second quarter and year-to-date 1996
and 1995 is 39%.
6
<PAGE> 7
Financial Condition
- -------------------
Total assets of the Company were $188,401,000 as of June 30, 1996 compared to
$139,035,000 as of June 30, 1995 and $137,821,000 as of December 31, 1995.
Accounts receivable increased to $70,886,000 as of June 30, 1996 from
$48,951,000 as of June 30, 1995 and $47,695,000 as of December 31, 1995. The
increase from June 1995 to June 1996 relates to sales increases while the
increase from December 1995 to June 1996 relates to seasonality. Inventories
increased to $78,926,000 as of June 30, 1996 from $63,991,000 as of June 30,
1995 and $60,773,000 as of December 31, 1995. The 23.3% increase from June 1995
to 1996 relates to sales increases with the primary increase being Pro-Lawn and
Service Center inventories. The increase from December 31, 1995 to June 30, 1996
relates to the Pro-Lawn acquistion and seasonality.
Funding for asset growth and the acquisition was provided by an increase in
long-term debt and accounts payable. The Company's long-term debt increased to
$67,578,000 as of June 1996 compared to $45,050,000 as of June 1995 and
$43,258,000 as of December 1995. The debt increase as of June 1996 includes the
$11,268,000 funding of the Pro-Lawn acquisition. Accounts payable increased to
$44,450,000 as of June 1996 compared to $25,541,000 as of June 1995 and
$23,670,000 as of December 1995. The increase from June 1995 to June 1996
relates to business volume increases as well as a change in vendor terms
delaying payment until the third quarter of 1996. The change from December 1995
to June 1996 is seasonal in nature.
As of June 30, 1996, the Company had $9,000,000 available under its credit
facility. The Company is currently reviewing various financing alternatives
which address required borrowing levels beyond 1996. Capital expenditures in the
first six months of 1996 total $2,276,000 and relate primarily to the opening of
Service Centers as noted above and improvements in the Company's information
systems.
7
<PAGE> 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 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 15, 1996, the Registrant conducted its Annual Meeting of Shareholders.
The following matters were brought before the shareholders for vote at this
meeting.
Election of Directors for a One-Year Term
-----------------------------------------
<TABLE>
<CAPTION>
Votes "For" Votes "Withheld"
----------- ----------------
<S> <C> <C>
Drexel Bunch 6,345,014 388,198
Robert F. Burkhardt 6,365,354 367,858
Paul H. Carleton 6,346,514 386,698
David H. Clark 6,363,604 369,608
J. Martin Erbaugh 6,362,903 370,309
Stanley M. Fisher 6,336,650 396,562
Michael J. FitzGibbon 6,360,376 372,836
William A. Foley 6,364,374 368,838
F. Leon Herron, Jr. 6,342,909 390,303
Lee C. Howley 6,353,008 380,204
Karl E. Ware 6,363,504 369,708
</TABLE>
<TABLE>
<CAPTION>
Amendment to the 1992 Stock Incentive Plan
------------------------------------------
For Against Abstain/Broker Non-Votes
--- ------- ------------------------
<S> <C> <C> <C>
1992 Stock Incentive Plan 5,039,618 1,198,440 495,154
Amendment to the 1987 Stock Option Plan
---------------------------------------
For Against Abstain/Broker Non-Votes
--- ------- ------------------------
<S> <C> <C> <C>
1987 Stock Option Plan 4,121,525 826,927 1,774,760
</TABLE>
No other matters were brought before the shareholders for a vote.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(27) Financial Data Schedule
8
<PAGE> 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.
August 12, 1996 By: /s/ William A. Foley
- --------------- ------------------------------------
William A. Foley, President
By: /s/ Kenneth W. Didion
------------------------------------
Kenneth W. Didion, Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,848,162
<SECURITIES> 0
<RECEIVABLES> 74,551,674
<ALLOWANCES> 3,666,000
<INVENTORY> 78,925,751
<CURRENT-ASSETS> 161,356,705
<PP&E> 45,076,331
<DEPRECIATION> 22,868,741
<TOTAL-ASSETS> 188,401,269
<CURRENT-LIABILITIES> 53,092,555
<BONDS> 67,578,074
<COMMON> 801,599
0
0
<OTHER-SE> 65,797,041
<TOTAL-LIABILITY-AND-EQUITY> 188,401,269
<SALES> 157,977,250
<TOTAL-REVENUES> 157,977,250
<CGS> 106,885,032
<TOTAL-COSTS> 106,885,032
<OTHER-EXPENSES> (1,313,533)
<LOSS-PROVISION> 978,665
<INTEREST-EXPENSE> 2,076,609
<INCOME-PRETAX> 4,988,855
<INCOME-TAX> 1,946,000
<INCOME-CONTINUING> 3,042,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,042,855
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
