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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 31,1998 Commission File Number 0-13147
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LESCO, INC.
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(Exact name of registrant as specified in its charter)
OHIO 34-0904517
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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)
(440) 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 7, 1998
-------------------------------- ----------------
Common shares, without par value 8,352,541 shares
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LESCO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 March 31 December 31
(In thousands except share data) 1998 1997 1997
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,961 $ 2,791 $ 3,403
Accounts receivable -- net 74,327 69,877 65,869
Inventories 99,800 87,806 82,174
Deferred income taxes 2,680 4,734 2,680
Prepaid expenses and other assets 4,264 6,804 5,989
--------- --------- ---------
TOTAL CURRENT ASSETS 189,032 172,012 160,115
Property, Plant and Equipment 64,147 49,264 58,454
Less allowance for depreciation and amortization (28,484) (25,471) (27,238)
--------- --------- ---------
35,663 23,793 31,216
Bond proceeds held for construction 1,825 - 4,761
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37,488 23,793 35,977
Other Assets 9,097 5,105 4,226
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TOTAL ASSETS $ 235,617 $ 200,910 $ 200,318
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 55,648 $ 49,804 $ 34,002
Other current liabilities 5,617 9,386 8,202
Current portion of debt 6,900 200 200
--------- --------- ---------
TOTAL CURRENT LIABILITIES 68,165 59,390 42,404
Long-term debt 93,819 78,967 83,353
Deferred income taxes 2,268 1,628 2,268
SHAREHOLDERS' EQUITY:
Preferred shares-- without par value--
authorized 500,000 shares
Common shares--without par value--
19,500,000 shares authorized; 8,304,762 shares issued
and 8,299,034 outstanding at March 31, 1998, 8,089,892
at March 31, 1997, 8,250,356 at December 31, 1997 830 809 825
Paid-in capital 29,858 26,782 29,268
Retained earnings 40,824 33,685 42,347
Less treasury shares (59) (17) (59)
Unearned compensation (88) (334) (88)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 71,365 60,925 72,293
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 235,617 $ 200,910 $ 200,318
========= ========= =========
</TABLE>
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LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31
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(In Thousands, Except per Share Data) 1998 1997
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(unaudited)
<S> <C> <C>
Net sales $ 72,690 $ 65,267
Cost of sales 48,174 43,014
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GROSS PROFIT ON SALES 24,516 22,253
Selling, general and
administrative expenses 25,914 23,204
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LOSS FROM OPERATIONS (1,398) (951)
Other deductions (income):
Interest expense 1,725 1,249
Other - net (627) (546)
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1,098 703
-------- --------
Loss Before Income Taxes (2,496) (1,654)
Income taxes (974) (645)
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NET LOSS $ (1,522) $ (1,009)
======== ========
BASIC AND DILUTED LOSS PER SHARE $ (0.18) $ (0.13)
======== ========
</TABLE>
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LESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
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(In Thousands) 1998 1997
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(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,522) $ (1,009)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,322 1,017
Increase in accounts receivable (8,591) (12,905)
Provision for uncollectible accounts receivable 383 452
Increase in inventories (16,432) (19,716)
Increase in accounts payable 21,426 23,018
Increase in other current items (840) (2,676)
Other 55 (271)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,199) (12,090)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (3,766) (1,517)
Acquisition of businesses (8,174) -
Bond proceeds held for construction 2,936 -
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (9,004) (1,517)
FINANCING ACTIVITIES:
Proceeds from borrowings 44,200 27,400
Reduction of borrowings (27,034) (13,137)
Issuance of common shares 594 235
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,760 14,498
-------- --------
Net Increase in Cash 4,558 891
Cash -- Beginning of the Period 3,403 1,900
-------- --------
CASH - END OF THE PERIOD $ 7,961 $ 2,791
======== ========
</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, 1997
included in the Company's Form 10-K.
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 - Earnings per Share
- ---------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(In thousands except share data) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (1,522) $ (1,009)
Denominator:
Denominator for basic
earnings per share -
weighted average shares 8,258,993 8,060,863
Effect of dilutive securities:
Employee stock options - -
Performance shares - -
----------- -----------
Diluted potential common
shares - -
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed
conversions 8,258,993 8,060,863
Loss per share
Basic $ (0.18) $ (0.13)
Diluted $ (0.18) $ (0.13)
</TABLE>
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NOTE C - Acquisitions
- ---------------------
On January 30,1998, the Company acquired certain assets of Agriturf, Inc. and
Cadwell & Jones, Inc. for $6.0 million in cash, plus the assumption of $2.2
million of debt. The asset purchase included land, a fertilizer manufacturing
facility and related warehouse, working capital and manufacturing equipment. The
asset purchase 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
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Sales for the first quarter ended March 31, 1998 increased $7.4 million to $72.7
million from $65.3 million in 1997, a 11.4% increase. The increase in sales from
quarter to quarter was due primarily to volume. During the quarter, the Company
opened twenty new Service Centers which brings the total number of Service
Centers in operation to 235 as of March 31, 1998. Same store sales for the first
quarter 1998 compared to 1997 increased 7.5%.
Gross profit as a percentage of sales was 33.7% compared to 34.1% in 1997. The
margin decrease was primarily due to the change in product mix in the first
quarter 1998 compared to 1997.
Selling, general and administrative expenses increased by $2.7 million , an
11.7% increase to $25.9 million for the first quarter 1998 compared to $23.2
million in the first quarter 1997. The expense increases were primarily related
to increases in the number of Service Centers and Stores-on-Wheels, plus
additional salaries for sales associates added to support the west coast market.
The Company opened twenty new Service Centers and three Stores-on-Wheels in the
first quarter 1998. Additional expenses included in the first quarter 1998
related to the Agriturf and Cadwell & Jones asset purchases that were finalized
on January 30, 1998.
Interest expense increased to $1.7 million in the first quarter 1998 from $1.2
million in 1997. This increase was primarily due to the increase in outstanding
debt in 1998 compared to 1997 which in 1998 includes $8.2 million related to the
Agriturf and Cadwell & Jones asset purchases. Other deductions-net consist
primarily of customer finance charges which totaled $652,000 in the first
quarter 1998 and $541,000 in 1997.
The company's effective tax rate for both the first quarter of 1998 and 1997 is
39%.
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Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
On January 30,1998, the Company acquired certain assets of Agriturf, Inc. and
Cadwell & Jones, Inc. for $6.0 million in cash, plus the assumption of $2.2
million of debt. The asset purchase included land, a fertilizer manufacturing
facility and related warehouse, working capital and manufacturing equipment. The
asset purchase was financed by the extension of Company's credit facilities.
As of March 31, 1998, total assets of the Company were $235.6 million compared
to $200.9 million as of March 31, 1997 and $200.3 million as of December 31,
1997. The asset increase from March 31, 1998 to March 31, 1997 is primarily
related to working capital increases, while the increase from December 31, 1997
is due primarily to seasonality. Accounts Receivable were $74.3 million as of
March 31, 1998 compared to $69.9 million as of March 31, 1997, a 6.4% increase
compared to an 11.4 % sales increase, and $65.9 million as of December 31, 1997.
Inventories were $99.8 million as of March 31, 1998 compared to $87.8 million as
of March 31, 1997, and $82.2 million as of December 31, 1997. The increase is
due primarily to the Company's seasonal inventory build combined with an
increase in the number of Service Centers in operation.
Funding for the asset changes was provided primarily by an increase in long-term
and short-term debt along with an increase in accounts payable. The Company's
long-term debt increased to $93.8 million as of March 31, 1998 through
additional borrowings under the Company's credit facility. The Company's
short-term debt increased $6.7 million since December 31,1997 through additional
borrowings under a seasonal money market line of credit. Accounts payable
increased to $55.6 million as of March 31, 1998 from $49.8 million as of March
31, 1997 and $34.0 million as of December 31, 1997. The increase in accounts
payable from March to March was due to inventory purchases related to year to
year sales volume increases while the December to March increase reflects
seasonal supplier deferred payment programs which are due in the second and
third quarter of the year.
Outstanding debt under the Company's credit facility was $80.0 million as of
March 31, 1998 compared to $72.5 million as of March 31, 1997 and $69.5 million
as of December 31, 1997. As of March 31, 1998 the Company had no additional
funds available under its credit facility. Outstanding debt under the money
market line of credit was $6.7 million as of March 31, 1998 compared to none
outstanding as of March 31, 1997 and December 31, 1997. As of March 31, 1998 the
Company had $3.3 million available under its money market line of credit. The
Company experiences peak seasonal working capital needs which will reduce in the
second and third quarters and believes its current borrowing capacity is
adequate for the foreseeable future.
Capital expenditures for the first three months of 1998 totaled $5.8 million of
which $2.0 million related to property, plant and equipment purchased in the
Agriturf, Inc. and Cadwell & Jones, Inc. asset purchases. The primary
expenditures of the remaining $3.8 million included improvements in the
Company's information systems, the opening of twenty Service Centers and the
initial construction costs of the Company's new fertilizer plant in Sebring,
Florida.
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New Accounting Requirements
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In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
statement requires a "management" approach to reporting financial and
descriptive information about a Company's operating segments. Management
continues to study the potential effect of adopting this statement.
As of January 1, 1998 the Company adopted FAS No. 130, "Reporting Comprehensive
Income." The statement establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this statement had no
impact on the Company's net income or shareholders' equity and the Company has
no elements of other comprehensive income in any period presented.
Forward-Looking Statements
- --------------------------
Certain statements included in the report are forward-looking statements that
are based on management's current belief, assumptions and expectations. These
forward-looking statements can be identified by the use of predictive or future
tense terms such as "anticipate," "estimate," "project," "may," "will" or
similar terms. These statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's actual
future performance may differ materially from that anticipated in
forward-looking statements. Risk factors that would cause or contribute to such
differences include, but are not limited to:
- regional weather conditions which have an impact on both timing and
volume of sales;
- the Company's successful execution of its operating plans;
- the Company's ability to integrate business acquisitions successfully;
- general economic and business conditions;
- changes in market demographics; and
- changes in the regulation of the Company's products, including
applicable environmental regulations.
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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
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SIGNATURES
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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, 1998 By: /s/ Ware H. Grove
- ----------- ---------------------------------
Ware H. Grove, Vice-President/
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,961
<SECURITIES> 0
<RECEIVABLES> 77,915
<ALLOWANCES> 3,588
<INVENTORY> 99,800
<CURRENT-ASSETS> 189,032
<PP&E> 65,972
<DEPRECIATION> 28,484
<TOTAL-ASSETS> 235,617
<CURRENT-LIABILITIES> 68,165
<BONDS> 93,819
0
0
<COMMON> 830
<OTHER-SE> 70,535
<TOTAL-LIABILITY-AND-EQUITY> 235,617
<SALES> 72,690
<TOTAL-REVENUES> 72,690
<CGS> 48,174
<TOTAL-COSTS> 48,174
<OTHER-EXPENSES> (627)
<LOSS-PROVISION> 383
<INTEREST-EXPENSE> 1,725
<INCOME-PRETAX> (2,496)
<INCOME-TAX> (974)
<INCOME-CONTINUING> (1,522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,522)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
