<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 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
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LESCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 March 31 December 31
(In Thousands Except Share Data) 1997 1996 1996
-------------- ------------- ---------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
2
<PAGE> 3
LESCO, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
(In Thousands, Except per Share Data) 1997 1996
------------ -----------
<S> <C> <C>
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
======== ========
</TABLE>
3
<PAGE> 4
LESCO, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
(In Thousands) 1997 1996
------------ ------------
<S> <C> <C>
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
======== ========
</TABLE>
4
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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, 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
<PAGE> 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
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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
<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:
(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
<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.
April 12, 1997 By: /s/ Ware H. Grove
-------------------------------------
Ware H. Grove, Vice-President/
Chief Financial Officer
9
<PAGE> 1
Exhibit 10
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "AMENDMENT") is made as of
February 14, 1997 by and among Lesco, Inc. ("BORROWER"), an Ohio corporation,
National City Bank, NBD Bank, and PNC Bank, National Association (the three
financial institutions hereinbefore mentioned each a "BANK" and, collectively,
the "BANKS") and National City Bank as agent (in that capacity, "NCB-AGENT") of
the banks for the purposes of the Existing Credit Agreement (as defined below),
this Amendment and the related writings:
INTRODUCTION:
WHEREAS, I. Borrower, the Banks and NCB-Agent are parties to a Credit
Agreement (the "EXISTING CREDIT AGREEMENT") made as of September 30, 1994, as
amended by a First Amendment to Credit Agreement made as of January 18, 1996,
and as further amended by a Second Amendment to Credit Agreement made as of
November 1, 1996, setting forth, among, other things, the terms and conditions
of each Bank's several agreement (its "REVOLVING COMMITMENT") to make loans
(each a "REVOLVING LOAN") to Borrower until April 30, 2000 (or such later
"Expiration Date", if any, as may be established from time to time pursuant to
the Existing Credit Agreement, subject in each case to certain terms and
conditions, one such condition being that the aggregate unpaid principal balance
of the Revolving Loans shall not at any time exceed an amount equal to eighty
million dollars ($80,000,000); and
II. Borrower, the Banks, and NCB-Agent desire, subject to the
terms and conditions of this Amendment, to amend the Existing Credit Agreement
in certain material respects;
THEREFORE, in consideration of the premises, the mutual agreements herein
contained, and other valuable considerations, and in the case of the Banks and
NCB-Agent, in reliance on the representations and warranties of Borrower
hereinafter set forth, Borrower, the Banks and NCB-Agent hereby agree as
follows:
A. DEFINED TERMS. Each term used in this Amendment that is defined in
the Existing Credit Agreement shall have the meaning in this Amendment that is
ascribed to that term in the Existing Credit Agreement.
B. AMENDMENT TO SUBSECTION 3B. 04 - INTEREST COVERAGE. Subject to
Borrower's satisfaction of the conditions precedent set forth in paragraph E,
subsection 3D.04 (captioned "INTEREST COVERAGE") of the Existing Credit
Agreement shall be deemed to have been deleted as of December 30, 1996 (the
"RETROACTIVE EFFECTIVE DATE"), and the following, subsection 3B.04 shall be
deemed to have been inserted, as of the Retroactive Effective Date, in lieu of
the subsection so deleted:
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"3B.04 INTEREST COVERAGE -- Borrower will not, as of the end of any period (each
such period a FOUR-QUARTER PERIOD) of four consecutive quarter-annual fiscal
periods of Borrower (commencing with the Four-Quarter Period ending December 31,
1996), suffer or permit the ratio of the aggregate of
(a) the Adjusted Net Income of the Companies for that Four-Quarter
Period, plus
(b) the aggregate interest expense of the Companies for that
Four-Quarter Period, plus
(c) the aggregate federal, state and local income taxes of the
Companies for that Four-Quarter Period
to the aggregate interest expense of the Companies for that Four-Quarter Period
to be less than one and one-half to one (1.5:1) at any time, all as determined
on a consolidated basis. For purposes of this subsection 3B.04, the ADJUSTED NET
INCOME for any Four-Quarter Period shall be the Net Income for that Four-Quarter
Period, plus in the case of, but only in the case of, the Four-Quarter Periods
ending December 31, 1996, March 31, 1997, June 3O, 1997, September 30, 1997, and
December 31, 1997, respectively, an amount, in no case greater than ten million
five hundred thousand dollars ($10,500,000), equal to the aggregate, if and to
the extent subtracted in the computation of Net Income, of
(i) the amount of plant relocation costs recognized by Borrower for the
quarter-annual fiscal periods of Borrower ending December 31, 1996 and
March 31, 1997, respectively, as a result of the relocation of
Borrower's Sebring, Florida, manufacturing operations, plus
(ii) the amount of the reduction in the historical cost of Borrower's
inventory recognized by Borrower for the quarter-annual fiscal periods
of Borrower ending December 31, 1996 and March 31, 1997,, respectively,
as a result of Borrower's comprehensive product evaluation, plus
(iii) the amount of the incremental valuation reserve established by
Borrower for the quarter-annual fiscal periods of Borrower ending
December 31, 1996 and March 31, 1997, respectively, as result of
Borrower's review of its accounts receivable in order to evaluate the
collectibility of amounts outstanding for more than one (1) year.
all as described in Note 9 (captioned "Other Costs and Expenses") of the
February 10, 1997 draft of Borrower's annual audit report for its fiscal year
ending December 1, 1996."
-page 2 of 5-
<PAGE> 3
C. AMENDMENT TO SUBSECTION 3D.02 - CREDIT EXTENSIONS. Subject to
Borrower's satisfaction of the conditions precedent set forth in paragraph E,
subsection ')D.02 (captioned "CREDIT EXTENSIONS") of the Existing Credit
Agreement is hereby amended. as of the date of this Amendment, by deleting
the word "or" from the end of clause (iv) of that subsection, deleting the
period from the end of clause (v) of that subsection and inserting the
expression ", or" in lieu of the period so deleted, and inserting, immediately
after clause (v) of that subsection and immediately before subsection 3D.03
(captioned "BORROWINGS") of the Existing Credit Agreement the following
clause (vi)
"(vi) any Guaranty by Borrower of the obligations of Commercial Turf
Products, Ltd. (COMMERCIAL TURF PRODUCTS), an Ohio limited liability
company, but only if and to the extent that Borrower's aggregate
liability for those obligations (exclusive of Borrower's liability for
interest, premiums, charges, expenses, and fees) under all Guaranties
does not at any one time exceed an aggregate amount equal to twenty
million dollars ($20,000,000)."
D. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks and
NCB-Agent to enter into this Amendment, Borrower hereby represents and warrants
to the Banks and NCB-Agent as follows:
(i) after giving effect to Borrower's satisfaction of the
conditions precedent set forth in paragraph E, no Default Under This
Agreement shall exist, nor will any thereupon begin to exist;
(ii) no representation, warranty, or other statement made in or
pursuant to the Existing Credit Agreement or any Related Writing will be
untrue or incomplete in any material respect;
(iii) EXHIBIT A to this Amendment sets forth a true and
complete copy of Note 9 (captioned "Other Costs and Expenses") of the
February 10, 1997 draft of Borrower's annual audit report for its fiscal
year ending December 31, 1996; and
(iv) there has not occurred any material adverse change in
Borrower's financial condition, properties or business since the date of
Borrower's Most Recent 4A.04 Financial Statements or in its then most
recent financial statements, if any, furnished to the Banks pursuant to
subsection 3A.01 of the Existing, Credit Agreement.
The representations and warranties made in or pursuant to this paragraph D shall
survive the execution and delivery of this Amendment.
E. Conditions Precedent. It is a condition precedent to the effectiveness
of paragraphs B and C that, on or before the date of this Amendment, Borrower
shall have complied with or caused compliance with each of the following:
-page 3 of 5-
<PAGE> 4
(i) Borrower shall have executed and delivered this Amendment
to NCB-Agent; and
(ii) each Bank and NCB-Agent shall have executed and delivered
this Amendment.
F. EXECUTION AND DELIVERY. This Amendment may be executed in one or more
counterparts. Any party to the Existing Credit Agreement may deliver an executed
counterpart of this Amendment by transmitting a facsimile thereof to NCB-Agent
at (216) 575-9396, and any party so delivering a counterpart of this Amendment
party shall be deemed to have executed and delivered that counterpart with the
intent to be bound by this Amendment. Each party to this Amendment shall, on
NCB-Agent's request, deliver to NCB-Agent such number of counterparts bearing
the original signature of that party as NCB-Agent may request in order that each
party may ultimately have a counterpart bearing the original signature of each
party to this Amendment. Each party to this Amendment hereby assents to the
foregoing, procedure for executing and delivering this Amendment and agrees that
all such counterparts taken together shall constitute but one agreement, which
agreement constitutes the entire agreement between the parties to this Amendment
in respect of its subject matter.
G. RATIFICATION AND CONFIRMATION. Borrower, the banks and NCB-Agent do
hereby ratify and confirm all of the terms and conditions of the Existing Credit
Agreement not specifically amended by this Amendment and all such terms and
conditions remain in full force and effect.
IN WITNESS WHEREOF, this Amendment is executed and delivered at
Cleveland, Ohio as of the date first hereinabove set forth.
Address: Lesco, Inc.
20005 Road
Rocky River, Ohio 44116 By: /s/ Kenneth W. Didion
-------------------------------
Title: Treas.
-----------------------------
Address: National City Bank, Agent
1900 East Ninth Street
Attn: Multinational Division By: /s/ Timothy J. Lathe
Cleveland, Ohio 44114-3484 -------------------------------
Title: SVP
-----------------------------
-page 4 of 5-
<PAGE> 5
Address: National City Bank, Agent
1900 East Ninth Street
Attn: Multinational Division By: /s/ Timothy J. Lathe
Cleveland, Ohio 44114-3484 --------------------------------
Title: SVP
-----------------------------
Address: PNC Bank, National Association
1801 E. 9th St., #715
Cleveland, Ohio 44114-3103 By: /s/ David J. Williams
--------------------------------
Title: Vice President
-----------------------------
Address: NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226 By /s/ Paul R. Demelo
---------------------------------
Title: V.P.
-----------------------------
-page 5 of 5-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,791
<SECURITIES> 0
<RECEIVABLES> 74,525
<ALLOWANCES> 4,648
<INVENTORY> 87,806
<CURRENT-ASSETS> 172,012
<PP&E> 49,264
<DEPRECIATION> 25,471
<TOTAL-ASSETS> 200,910
<CURRENT-LIABILITIES> 59,390
<BONDS> 78,967
<COMMON> 809
0
0
<OTHER-SE> 60,116
<TOTAL-LIABILITY-AND-EQUITY> 200,910
<SALES> 65,267
<TOTAL-REVENUES> 65,267
<CGS> 43,014
<TOTAL-COSTS> 43,014
<OTHER-EXPENSES> (546)
<LOSS-PROVISION> 452
<INTEREST-EXPENSE> 1,249
<INCOME-PRETAX> (1,654)
<INCOME-TAX> (645)
<INCOME-CONTINUING> (1,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,009)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
