<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 September 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 November 12, 1996
------------------------------- ----------------------
Common shares without par value 8,024,338 shares
1
<PAGE> 2
PART I - FINANCIAL STATEMENTS
LESCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 September 30 December 31
ASSETS 1996 1995 1995
- ------ ------------- ------------- -------------
<S> <C> <C> <C>
Current Assets:
Cash $ 5,297,933 $ 3,053,589 $ 2,619,515
Accounts receivable -- net 69,269,243 53,463,438 47,694,739
Inventories 75,639,717 62,008,535 60,773,248
Prepaid expenses and other assets 3,036,352 2,741,467 4,415,189
------------- ------------- -------------
Total Current Assets 153,243,245 121,267,029 115,502,691
Property, Plant and Equipment 46,054,028 41,002,857 42,871,750
Less allowance for depreciation and amortization (23,737,603) (20,912,105) (21,430,906)
------------- ------------- -------------
22,316,425 20,090,752 21,440,844
Other Assets 4,747,803 970,897 877,688
------------- ------------- -------------
TOTAL ASSETS $ 180,307,473 $ 142,328,678 $ 137,821,223
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 39,362,126 $ 28,273,190 $ 23,670,302
Other current liabilities 9,877,591 6,821,120 5,682,717
Current portion of long-term debt 200,000 200,000 200,000
------------- ------------- -------------
Total Current Liabilities 49,439,717 35,294,310 29,553,019
Long-Term Debt 59,441,222 42,204,082 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; 8,022,488 shares issued
and 8,019,338 outstanding at September 30, 1996; 7,952,838
shares issued and 7,946,088 outstanding at September 30, 1995;
7,956,738 shares issued and 7,949,988 outstanding at
December 31, 1995 802,249 795,284 795,674
Paid-in capital 25,822,177 24,820,473 25,197,613
Retained earnings 43,687,600 38,120,001 37,922,571
Less treasury shares (17,492) (37,472) (37,472)
------------- ------------- -------------
Total Shareholders' Equity 70,294,534 63,698,286 63,878,386
------------- ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 180,307,473 $ 142,328,678 $ 137,821,223
============= ============= =============
</TABLE>
2
<PAGE> 3
LESCO, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales 91,315,803 $ 69,429,264 $ 249,293,053 $ 188,131,073
Cost of sales 62,069,164 46,891,580 168,954,196 125,878,477
------------ ------------ ------------- -------------
GROSS PROFIT ON SALES 29,246,639 22,537,684 80,338,857 62,252,596
Selling, general and
administrative expenses 23,311,849 18,644,137 68,652,136 53,713,399
------------ ------------ ------------- -------------
INCOME FROM OPERATIONS 5,934,790 3,893,547 11,686,721 8,539,197
Other deductions (income):
Interest expense 1,012,400 731,396 3,089,009 2,054,909
Other - net (981,826) (771,073) (2,295,359) (1,751,942)
------------ ------------ ------------- -------------
30,574 (39,677) 793,650 302,967
------------ ------------ ------------- -------------
Income Before Income Taxes 5,904,216 3,933,224 10,893,071 8,236,230
Income taxes 2,303,000 1,534,000 4,249,000 3,212,000
------------ ------------ ------------- -------------
NET INCOME $ 3,601,216 $ 2,399,224 $ 6,644,071 $ 5,024,230
============ ============ ============= =============
EARNINGS PER SHARE $ 0.43 $ .30 $ 0.81 $ 0.62
============ ============ ============= =============
Weighted average number of
common and common equivalent
shares outstanding 8,278,680 8,105,317 8,238,857 8,099,388
============ ============ ============= =============
</TABLE>
3
<PAGE> 4
LESCO, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,644,071 $ 5,024,230
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 2,597,617 2,406,431
Increase in accounts receivable (22,651,436) (15,885,402)
Provision for uncollectible accounts receivable 1,103,742 837,371
Increase in inventories (7,795,453) (10,332,301)
Increase in accounts payable 15,691,824 7,605,841
Increase in other current items 5,573,711 2,357,568
Other 129,885 (28,171)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,293,961 (8,014,433)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,256,798) (5,431,039)
Purchase of Pro-Lawn Division of Agway, Inc. (11,267,826)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (14,524,624) (5,431,039)
FINANCING ACTIVITIES:
Proceeds from borrowings 79,500,000 59,800,000
Reduction of borrowings (63,316,596) (47,137,446)
Issuance of common shares 604,719 1,283,009
Cash dividend (879,042) (783,486)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,909,081 13,162,077
------------ ------------
Net Increase (Decrease) in Cash 2,678,418 (283,395)
Cash -- Beginning of the Period 2,619,515 3,336,984
------------ ------------
CASH - END OF THE PERIOD $ 5,297,933 $ 3,053,589
============ ============
</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 nine months ended September 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.
Note C - Subsequent Event--Joint Venture Agreement
- --------------------------------------------------
On October 15, 1996, the Company announced an agreement with MTD Products, Inc.
to create a joint venture which will manufacture commercial turf care equipment.
The joint venture will operate independent of each parent and will be
responsible for the engineering, product development and manufacturing of
commercial equipment which will be marketed exclusively by each parent. As a
part of the formation of the joint venture, the Company is repositioning its
entire equipment business and anticipates taking an estimated one-time pre-tax
charge of $6 million in the fourth quarter of 1996.
5
<PAGE> 6
LESCO, INC.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
- ---------------------
Third quarter 1996 sales increased $21,887,000 to $91,316,000, a 31.5% increase
from 1995 sales of $69,429,000. Year to date 1996 sales totaled $249,293,000, a
32.5% increase from 1995 sales of $188,131,000. Sales increases were recognized
in both consumable goods and hard goods with a larger increase in consumable
goods due principally to the Pro-Lawn acquisition in January 1996. Sales
increases for both the quarter and year-to-date reflect the increase in Service
Centers to 196 in operation as of September 30, 1996 from 173 in operation as of
the January 1996. Same store sales for 1996 compared to 1995 increased 18.0% for
the quarter while year-to-date comparative sales increased 15.3%. The Company
has concluded its 1996 Service Center expansion program and is planning an
expansion of a similar number of stores in 1997.
Gross profit as a percent of sales was 32.0% in the third quarter 1996 compared
to 32.5% in 1995 and 32.2% year-to-date 1996 compared to 33.1% in 1995. The
Company's year to year comparative margins decreased slightly as a result of
Pro-Lawn sales generating lower margins.
Selling, general and administrative expenses were 25.5% of sales for the third
quarter 1996 compared to 26.9% in 1995 and 27.5% of sales for year-to-date 1996
compared to 28.6% in 1995. Selling, general and administrative expenses as a
percent of sales decreased primarily due to leverage abilities as the Company's
sales increase. This is particularly evident in the reduction of Service
Centers' costs and general and administrative expenses as a percent of sales.
This reduction of expenses as a percent of sales for Service Centers occurred in
spite of the 23 store expansion, an increase of 13% in the Service Center chain.
The Company's cost of warehousing and delivery remained relatively constant for
both the quarter and year-to-date.
Interest expense was $1,012,000 in the third quarter 1996 compared to $731,000
in 1995 and $3,089,000 year-to-date 1996 compared to $2,055,000 in 1995. This
increase is primarily due to increased borrowings to acquire
Pro-Lawn($11,268,000) and working capital requirements for sales expansion.
Other deductions-net include customer finance charges which total $938,000 for
the third quarter 1996 compared to $710,000 in 1995 and $2,125,000 year-to-date
1996 compared to $1,619,000 in 1995.
The Company's effective tax rate for the third quarter and year-to-date 1996 and
1995 is 39%.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
As of September 30, 1996, the Company's total assets were $180,307,000 compared
to $142,329,000 as of September 30, 1995 and $137,821,000 as of December 31,
1995. Accounts receivable were $69,269,000 as of September 30, 1996 compared to
$53,463,000 as of September 30, 1995, a 29.6% increase, and $47,695,000 as of
December 31, 1995. The increase from September 1995 to 1996 is less than the
sales increase of 32.5% while the increase from December 31, 1995 relates to
seasonality. Inventories were $75,640,000 as of
<PAGE> 7
September 30, 1996 compared to $62,009,000 as of September 30, 1995, a 22.0%
increase, and $60,773,000 as of December 31, 1995. The increase from September
1995 to 1996 is also slightly less than the Company's sales increase over the
same period. The principal areas of inventory increase related to the Pro-Lawn
acquisition and the increase in the number of Service Centers.
The funding for growth was principally provided by an increase in long-term debt
along with increases in accounts payable and funds from operations. The
Company's long-term debt increased to $59,441,000 as of September 30, 1996
through additional borrowings under the Company's credit facility. Accounts
payable increased to $39,362,000 as of September 30, 1996 from $28,273,000 as of
September 30, 1995 and $23,670,000 as of December 31, 1995. The increase from
September 30, 1995 relates to the 1996 sales volume increase and increases in
inventories as noted above while the increase from December 31, 1995 is
primarily related to seasonality.
Outstanding debt under the Company's credit facility was $52,900,000 as of
September 30, 1996 compared to $35,500,000 as of September 30, 1995 and
$36,600,000 as of December 31, 1995. In October 1996 the Company amended its
credit agreement with its banks to extend the due date of the agreement from
September 30, 1998 to April 30, 2000 and increased the available limit under the
agreement from $70,000,000 to $80,000,000. All other terms under the agreement
remain unchanged. Management believes the credit facility will be sufficient to
fund future growth currently contemplated by the Company.
Capital expenditures for the first nine months of 1996 totaled $3,257,000 and
relates primarily to the opening of Services Centers and improvements in the
Company's information systems.
On October 15, 1996, the Company entered into an agreement with MTD Products,
Inc. creating a joint venture to manufacture commercial turf care equipment
which the Company currently manufactures internally. As part of the joint
venture formation, the Company is restructuring/repositioning its entire
equipment business and anticipates taking an estimated one-time pre-tax charge
of $6 million in the fourth quarter of 1996.
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 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.
November 12, 1996 By: /s/ Ware H. Grove
- ----------------- --------------------------------
Ware H. Grove, Vice-President/
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,297,933
<SECURITIES> 0
<RECEIVABLES> 73,164,243
<ALLOWANCES> 3,895,000
<INVENTORY> 75,639,717
<CURRENT-ASSETS> 153,243,245
<PP&E> 46,054,028
<DEPRECIATION> 23,737,603
<TOTAL-ASSETS> 180,307,473
<CURRENT-LIABILITIES> 49,439,717
<BONDS> 59,441,222
<COMMON> 802,249
0
0
<OTHER-SE> 69,492,285
<TOTAL-LIABILITY-AND-EQUITY> 180,307,473
<SALES> 249,293,053
<TOTAL-REVENUES> 249,293,053
<CGS> 168,954,196
<TOTAL-COSTS> 168,954,196
<OTHER-EXPENSES> (2,295,359)
<LOSS-PROVISION> 1,103,742
<INTEREST-EXPENSE> 3,089,009
<INCOME-PRETAX> 10,893,071
<INCOME-TAX> 4,249,000
<INCOME-CONTINUING> 6,644,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,644,071
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
