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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997 Commission File No. 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
incorporation or organization) Identification No.)
20005 Lake Road, 44116
Rocky River, Ohio (Zip Code)
(Address of principal executive offices)
(440) 333-9250
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not Applicable
------------------- --------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
--------------------------------
(Title of class)
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 12 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Common Shares held by nonaffiliates on March 20, 1998:
approximately $155,500,000.
Number of Common Shares outstanding on March 20, 1998: 8,287,062.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report are incorporated by reference in
Parts II, III and IV and portions of the Registrant's Proxy Statement for the
Annual Meeting of Shareholders to be held in 1998 (the "Proxy Statement") are
incorporated by reference in Part III.
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PART I
Item 1. Business
--------
General
- -------
The Registrant was incorporated in 1962 under the laws of the State of
Ohio. As used in this report, the terms "Company," "LESCO" and "Registrant"
refer to LESCO, Inc.
The Company is engaged in the manufacture and sale of an extensive
array of golf course and lawn care products which are marketed throughout the
United States, primarily under the LESCO name. These products include
fertilizers, turf protection products, grass seed, turf care equipment and
replacement parts and golf course accessories. The Company's customers include
golf courses, lawn care companies, landscapers, municipalities, theme parks and
industrial concerns. Products are marketed directly through the Company's sales
organization, which includes localized service centers and a fleet of LESCO
tractor trailers operated by salesmen trained in turf care management. The
Company's operations constitute a single industry segment.
Products
- --------
The Company manufactures and sells to the green industry an extensive
array of turf care products, comprising two major lines: (1) consumable goods,
including turf control products, fertilizer and grass seed, and (2) hard goods,
including equipment, accessories and other related products such as irrigation
equipment, protective gear and hand tools. These products are marketed under the
names "LESCOO," "LESCO Products" and "Pro-Lawn Products." In addition, the
Company sells a diverse line of turf products under the manufacturer's brand
name.
Sales by product line for the years ended December 31, 1997, 1996 and
1995 are as follows:
Year Ended December 31
--------------------------------------------------------------------------------
(Net sales in thousands)
1997 1996 1995
---------------------- ---------------------- ----------------------
Net Sales Percent Net Sales Percent Net Sales Percent
-------- -------- -------- -------- -------- --------
Consumable goods $290,502 81.4% $247,454 79.3% $184,545 76.4%
Hard goods 66,339 18.6% 64,577 20.7% 57,122 23.6%
-------- -------- -------- -------- -------- --------
Total $356,841 100.0% $312,031 100.0% $241,667 100.0%
======== ======== ======== ======== ======== ========
Consumable Goods
- ----------------
TURF CONTROL PRODUCTS. The Company offers a full line of turf control
products including herbicides, insecticides and fungicides. These products
control weed growth, insect infestation and fungal diseases of turf, trees,
shrubs and landscape beds. The Company's turf control products include its LESCO
BioChoiceO alternative product line. In addition, in order to offer its
customers a more complete product line, the Company sells turf control products
produced by other major manufacturers.
FERTILIZER. The Company sells a broad assortment of standard
fertilizers, including combination products that combine fertilizer with turf
control products. The Company also custom-blends fertilizer according to its
customers' specifications. The Company's fertilizers include specialized
products for golf course applications including greens, tees and fairways,
products for use in the lawn care industry, and products for trees, shrubs and
landscape beds. Fertilizers are generally sold in a granular form, although
specialized liquid formulations are also available.
The majority of the fertilizers sold by the Company are formulated with
sulfur-coated urea fertilizer. The Company is one of a few manufacturers of
these products in the world. Sulfur coating produces a gradual release of
nutrients over time, which reduces the number of required applications and the
risk of overfertilization.
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ELITE(R) is the Company's premium brand sulfur-coated urea fertilizer, specially
sized and formulated for low-cut turf on golf course greens, tees and fairways.
TURFGRASS SEED. The Company markets LESCO and other brands of turfgrass
seed, most of which are certified by authorities of various states to guarantee
the varietal purity of the seed. The Company contracts for the production of
turfgrass seed with growers in the Pacific Northwest and Western Canada for cool
season grasses and in California for warm season grasses. The Company has more
than 35,000 production acres under contract in these regions. The Company's seed
line includes 34 proprietary varieties as well as 28 standard blends and
mixtures.
Hard Goods
- ----------
EQUIPMENT AND ACCESSORIES. The Company purchases a broad assortment of
equipment including rotary mowers, spreaders, sprayers, aerators, renovation
equipment and aftermarket replacement parts from Commercial Turf Products, Ltd.
the Company's 50-50 joint venture. The Company believes that the LESCO spreader,
first introduced in 1982, is an industry leader in sales to the professional
sector of the market. In addition, the Company offers a broad assortment of
handheld power tools and a variety of golf course accessories including ball
washers, tee markers, sand trap rakes, putting green cups and flagpoles.
Equipment sales are supported by field equipment specialists, a toll-free
hotline staffed by trained technicians and repair facilities in the Service
Centers. Parts support is fully computerized, and the Company is generally able
to provide overnight parts delivery nationwide.
OTHER. The Company offers underground irrigation equipment and systems,
protective gear such as goggles, masks and gloves, and hand tools such as tree
pruners, shovels and rakes. These products are produced for the Company by third
parties.
Product Improvement and Development
- -----------------------------------
The Company's research and development efforts focus on improvements to
and development of new turf control products and fertilizers, turf care
equipment and golf course accessories and new grass seed varieties. The Company
also has a number of agreements with state universities which test turf control
products, grass seed and fertilizers for the Company.
Marketing and Distribution
- --------------------------
LESCO SERVICE CENTERS(R). The Company operates Service Centers which
enable the Company to market its products on a localized basis. The Service
Centers are generally established in easily accessible industrial parks which
allow for sales directly to commercial users. The Company opened 20 new Service
Centers in 1997, and had 215 Service Centers in operation as of December 31,
1997. The Company plans to open 20 Service Centers in 1998. The Service Centers
market products principally to smaller lawn care companies, landscapers,
nurseries, municipalities, churches and condominium associations.
LESCO STORES-ON-WHEELS(R). The Company markets its products to private
and public golf courses and other customers having large turf areas through
salesmen who operate a fleet of Stores-on-Wheels consisting of 66 tractor
trailers. These trucks are well-stocked with a wide variety of turf care
products, all of which are sold directly from the trucks.
CONVENTIONAL SALES FORCE. The Company's conventional sales
representatives are strategically located in the various markets served by the
Company and sell to large customers such as national and regional lawn care
companies. Sales through this distribution channel, which typically generate
lower gross margins than the Service Centers and Stores-on-Wheels, have declined
as a percentage of total net sales as the number of Service Centers and
Stores-on-Wheels has increased.
OTHER. The Company also markets its products by mail order catalog and
participates in national and regional lawn care and golf course trade shows. A
telemarketing sales group calls on inactive accounts and contacts customers not
currently serviced by the Company's outside sales forces. The Company
distributes selected
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products through Home Depot stores in the South, Mid-Atlantic and Northeast
areas of the country. In addition, the Company markets its products
internationally principally through foreign distributors.
TECHNICAL EXPERIENCE OF SALES PERSONNEL. Most of the Company's
salespersons are agronomists or horticultural specialists or have had prior
experience with lawn care companies or golf courses. The Company believes that
the training and experience of its salespersons have helped promote customer
reliance on the Company's technical expertise with respect to existing turf care
products and new product development in the turf care industry.
Manufacturing and Suppliers
- ---------------------------
FERTILIZERS AND COMBINATION PRODUCTS. Poly Plus(R) sulfur-coated
fertilizers are manufactured by spraying dry fertilizers first with sulfur, then
with a polymer sealant to seal the sulfur and retard the release of nutrients.
Uncoated fertilizers are blended in accordance with Company or customer
specifications. Combination products are processed by impregnating fertilizers
with technical grade herbicides, insecticides or fungicides. Raw materials used
in the manufacture of fertilizer are nitrogen, phosphorus, potash and sulfur.
TURF PROTECTION PRODUCTS. In producing both liquid and granular turf
protection products, the Company purchases technical-grade or highly
concentrated chemicals and blends them with various solvents, emulsifiers and
surfactants purchased from various suppliers.
TURF CARE EQUIPMENT, REPLACEMENT PARTS AND GOLF COURSE ACCESSORIES. In
October 1996, the Company announced the formation of a 50-50 joint venture,
Commercial Turf Products, Ltd. (CTP), with MTD Products Inc for the manufacture
of commercial equipment. Located in Streetsboro, Ohio, the joint venture
manufactures commercial lawn care equipment to be sold to both partners. The
joint venture commenced operations in May 1997, and began to manufacture
equipment in the second half of 1997. As a result, the Company transitioned its
equipment manufacturing operations from Sebring, Florida to the joint venture,
and transferred much of its manufacturing equipment, parts, and work in process
to the joint venture during the second half of 1997. The remainder of the
Company's equipment manufacturing assets not transferred to the joint venture
are expected to be liquidated in the first half of 1998.
The joint venture manufactures and assembles certain turf care
equipment and related replacement parts in its Streetsboro location. CTP
purchases metal components and performs manufacturing processes such as
stamping, cutting, bending, welding, grinding, and punching of many component
parts. Using these manufactured components, together with some components
purchased from a variety of third party suppliers, CTP assembles rotary mowers,
spreaders, sprayers, aerators, and turf renovators for sale to each partner. The
Company distributes and sells commercial equipment supplied by CTP under the
LESCO name primarily through its LESCO Service Centers.
The Company also sells golf course accessories which are manufactured
by various contractors with tooling, dies, and molds owned by the Company.
SOURCES OF SUPPLY. It is the Company's policy to have multiple sources
of supply or acceptable substitutes for all raw materials and metal components
which the Company uses in manufacturing or assembling its products. The only
exception to this policy is the Company's purchase of proprietary products.
COMPETITION
- -----------
The Company competes with a number of companies within each of its
product lines including national, regional and local distributors, turf care
product manufacturers and retailers such as mass merchandisers, local nurseries
and hardware stores. Some of these national competitors have greater name brand
recognition than the Company. The Company's principal competitors for its turf
control, fertilizer and grass seed product lines include Andersons, Lebanon,
Scott's, Terra, United Horticultural Supply and Vigoro. The Company's principal
competitors for equipment are Jacobsen, John Deere, Ransomes, Scag and Toro. The
Company, however, believes that it is the only national company that supplies a
full range of products and sells directly to the commercial user. The Company
competes primarily on the basis of service to customers and product quality,
selection and price.
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Seasonality and Backlog
- -----------------------
The Company's business is seasonal because the customers in northern
states do not have the same year-round requirements for products as do customers
in southern states. Demand for the Company's products is generally greatest
during the second quarter of its fiscal year.
The Company offers an early order program to lessen the second quarter
demand on its manufacturing and distribution facilities. This program allows the
Company to schedule manufacturing and distribution of products prior to the time
when customers need such products. This has reduced variations in sales and
earnings from quarter to quarter. The Company's backlog as of December 31, 1997
and 1996 was $7,186,000 and $5,315,000, respectively.
Employees
- ---------
As of December 31, 1997, the Company had 1,157 full-time employees, of
which 306 were involved in manufacturing, assembly and warehouse operations, 562
in sales-related activities and 289 in management and administration. Of the
total number of full-time employees, 746 are salaried and 411 are hourly
employees. At the Company's Martins Ferry facility, 111 employees are
represented by a union. The Company has not experienced any strikes or work
stoppages by employees and generally considers its employee relations to be
good.
Environmental Matters
- ---------------------
Turf control products sold by the Company are subject to registration
by the Environmental Protection Agency (the "EPA") and similar regulatory
authorities in various states. The process of obtaining such registration may be
lengthy and expensive. The labeling and advertising of turf control products are
also subject to EPA regulation. While the Company's turf control product labels
and advertising materials are consistent with EPA and state guidelines, there
can be no assurance that EPA or state regulations or interpretations may not
change in the future or that the EPA or any state will not challenge the
Company's advertising materials.
Fertilizer products are currently regulated by individual state
departments of agriculture and must generally be registered or licensed in most
states in which they are sold. There can be no assurance that the state
regulations or interpretations of those regulations will not change in the
future or that the Company's registration in any state will not be challenged.
The Company is also required to obtain permits from a number of governmental
agencies in order to conduct various aspects of its business. These permits are
subject to modification and revocation, which could impair the Company's ability
to conduct its business in the manner in which and at the places at which it is
presently conducted.
Because of the nature of the Company's business, the Company is subject
to various environmental laws and regulations and incurs routine costs in
complying with these laws and regulations. It is the Company's policy to provide
for nonroutine costs relating to environmental matters when a loss is probable
and the amount of the loss can be reasonably estimated. There are no such
reserves for environmental matters at December 31, 1997.
Insurance
- ---------
The Company maintains comprehensive general liability insurance
coverage (which includes product liability insurance coverage) at levels which
the Company believes are prudent and most cost-effective. The Company's
insurance program includes significant deductible amounts with respect to such
coverages. Certain coverages, including environmental pollution, are restricted
or have been excluded under current policies. The level of coverage and
deductible maintained generally reflects trends in the liability insurance
industry and is not unique to the Company. The Company regularly evaluates the
cost-effectiveness as compared to the risks assumed in determining its insurance
program.
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Item 2. Properties
----------
The Company owns its principal executive office building and owns or
leases its warehouse and manufacturing facilities. The Company believes these
facilities are well-maintained, adequately insured and adequate and suitable for
their present and intended uses. In addition, the Company leases facilities for
temporary storage of inventory products during its peak seasonal demand. The
Company maintains sales offices at each of the following locations, except its
executive offices. Detail by location as of December 31, 1997 is as follows:
Location (1) Principal Use Square Feet Status
- ------------ ------------- ----------- ------
Rocky River, OH Executive offices 41,000 Owned
Avon Lake, OH Blending of grass seed and distribution center 139,000 Owned
Charlotte, NC Distribution center for various products 57,600 Leased(2)
Lawrenceville, NJ Distribution center for various products 100,500 Leased(3)
Martins Ferry, OH Manufacturing facility and distribution center for 234,000 Owned(4)
fertilizers, including sulfur-coated fertilizers, and
turf control products
Pittsburgh, PA Distribution center for various products 131,000 Leased(5)
Sebring, FL Manufacturing facility for fertilizers and distribution 277,000 Leased(6)
center for principal products
Stockton, CA Manufacturing facility and distribution center for 19,503 Owned/
fertilizers and turf control products Leased(7)
Silverton, OR Blending of grass seed and distribution center 66,200 Leased(8)
Wellington, OH Manufacturing facility for turf control products and 60,000 Owned
distribution center for principal products
Windsor, NJ Distribution center for principal products 37,000 Owned(9)
(1) Does not include Service Centers or Stores-on-Wheels. As of December 31, 1997, the Company operated
Service Centers in 215 facilities of which three are owned, and 212 are leased, by the Company. These
facilities range in size from 2,500 to 7,200 square feet. The Company owns or leases 66
tractor-trailers for its Stores-on-Wheels.
(2) This facility is subject to a lease expiring in October 31, 1998. The Company has an option to renew
the lease for an additional three-year term.
(3) This facility is subject to a lease which expired December 31, 1997. The Company moved to a new
facility in Hamilton, New Jersey in January 1998.
(4) These facilities are subject to mortgages in the aggregate amount of $6,470,000 as of December 31,
1997.
(5) This facility is subject to a lease expiring in 2001. The Company has two five-year renewal options.
(6) These facilities consist of nine buildings subject to leases expiring in 1998, 2000 and 2001. It is the
Company's intent to renew these leases upon their expiration.
(7) These facilities consist of three buildings which are owned by the Company. The land is subject to
leases which expire in 2011. The Company has one five year renewal option.
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(8) This facility is subject to a lease which expires in 2009. The lease
includes an option to purchase.
(9) The facility is subject to a mortgage in the amount of $84,000 as of
December 31, 1997.
In January 1996, the Company completed the purchase of certain assets of the
Pro-Lawn Division of Agway, Inc. The Company distributes Pro-Lawn products from
five Agway distribution centers which were used by Pro-Lawn prior to the
acquisition and which total approximately 100,000 square feet.
In January 1998, the Company completed the purchase of certain assets of
Agriturf, Inc. and Cadwell & Jones, Inc. The Company manufactures and
distributes fertilizer and turf seed from the acquired facility which includes
three buildings totaling approximately 77,000 square feet.
Item 3. Legal Proceedings
-----------------
No legal proceedings are pending to which the Company is a party or to
which any of its property is subject other than litigation incidental to the
conduct of its business and which in the aggregate is not material to the
operations of the Company as a whole.
Item 4. Submission Of Matters To A Vote Of Security Holders
---------------------------------------------------
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers, including their respective positions with the
Company.
Name Age Position
- ---- --- --------
William A. Foley 50 Chairman of the Board, President and Chief Executive Officer
John M. Freise 51 Vice President, Sales
Philip R. Gardner 54 Vice President, International and Key Accounts
Ware H. Grove 47 Vice President, Chief Financial Officer
C. Thomas Smith 49 Vice President, Operations
Kenneth S. Sekley 39 Vice President, Marketing
Michael A. Sotak 42 Vice President, Marketing
William A. Foley joined the Company in July 1993 as President, Chief
Executive Officer and a director. He was elected Chairman of the Board of
Directors in October 1994 following the death of James I. FitzGibbon. Mr. Foley
was President and Chief Executive Officer of Imperial Wallcoverings, Inc., a
wallpaper producer and a subsidiary of Collins & Aikman, Inc., from October 1990
until February 1993. From January 1988 to October 1990, Mr. Foley was Vice
President and General Manager of The Scotts Company Consumer Business Group, a
producer and marketer of turf care products. Mr. Foley was Vice President and
General Manager of Rubbermaid Specialty Products Division from 1984 to 1988, and
was Vice President - Sales and Marketing for Anchor Hocking Corporation from
1970 to 1984, a producer of glass products. Mr. Foley is also a director of
Alltrista Corporation, a consumer and industrial products manufacturing company,
and Libbey, Inc., a producer of glass products.
John M. Freise was employed by the Company from October 27, 1995 to
December 12, 1997 as Vice President, Sales. From 1991 to 1995, Mr. Freise was a
Regional Vice President Store Operations and Vice President/General
Merchandise/Hardlines for Roses Stores, a regional discount store chain. Mr.
Freise was District Manager (Director Level) from 1990 to 1991, and from 1987 to
1990 was District Manager of Target Stores, a national discount retailer.
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Philip R. Gardner is Vice President Lawn, International and Key
Accounts. He served as Executive Vice President, Sales of the Company from March
1991 until February 1995, and as Vice President-Sales from January 1985 until
March 1991. Mr. Gardner joined the Company in September 1976, was promoted to
Regional Sales Manager in 1979 and Southeast Sales Manager in 1983.
Ware H. Grove joined the Company in June 1996 as Vice President, Chief
Financial Officer. From 1994 to 1996, Mr. Grove was Vice President and Treasurer
at Revco D.S. Inc., a national drugstore chain. From 1991 to 1994, Mr. Grove was
Vice President and Treasurer at Vanstar (formerly Computerland Corporation), a
global distributor and reseller of personal computers and related products. From
1983 to 1991, Mr. Grove was the Assistant to the President at Manville
Corporation, a global building materials manufacturing company; and from 1977 to
1983, Mr. Grove was Cash Manager at The Upjohn Company, a multinational
pharmaceutical company.
C. Thomas Smith joined the Company is 1994 as Vice President,
Operations. From 1979 to 1994, Mr. Smith was Group Director, Advanced
Manufacturing at Frigidaire Co., a manufacturer of household major appliances.
From 1978 to 1979, Mr. Smith was Manager, Materials and Production at Anderson
IBEC, a manufacturer of food processing equipment. From 1970 to 1977, Mr. Smith
was a Senior Buyer, Mfg. & Capital Equipment at Babcock & Wilcox Co., a
manufacturer of power operation equipment.
Kenneth S. Sekley joined the Company in December 1997 as Vice
President, Marketing. Just prior to his employment with the Company, Mr. Sekley
was General Manager/Vice President, U.S. Crop Protection for American Cyanamid
Company, a $2.5 billion subsidiary of American Home Products, which is a leading
manufacturer of crop protection and lawn-and-garden chemicals. From 1990 to
1997, Mr. Sekley held the following positions with American Cyanamid: from 1995
to 1997, Vice President of Marketing; from 1994 to 1995, Business Manager,
Retail Distribution/Database Marketing; from 1993, District Sales Manager; from
1991 to 1993, Product Manager; and from 1990 to 1991, Manager, Business
Development. Prior to his employment with American Cyanamid, from 1980 to 1990,
Mr. Sekley held positions with Quantum Associates, Alliance Consulting, and
Exxon Corporation.
Michael A. Sotak was employed by the Company from March 1994 to January
9, 1997 as Vice President, Marketing. From 1991 to 1993, Mr. Sotak was a
Director of Marketing at Pitman-Moore, Inc., now known as Mallinckrodt
Veterinary, Inc., Division of Mallinckrodt, Inc. Mr. Sotak also held the
following positions with Pitman-Moore, Inc.: 1989 to 1991, Director of Business
Management; 1988 to 1989, Director, International Marketing; and, 1987 to 1988,
National Sales Manager. From 1978 to 1987, Mr. Sotak was Senior Product Manager
of Schering-Plough Corporation, a pharmaceutical manufacturer and marketer.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
---------------------------------------------------------------------
The Company's Common Shares are traded in the National Market System
over-the-counter market under the NASDAQ symbol "LSCO." The following are high
and low market prices by quarter:
1997 1996
--------------------- ------------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31 17-1/2 15-7/8 15-3/4 12
June 30 18-5/8 14 18-5/8 13-3/4
September 30 23-1/2 18-1/4 19-3/4 14-1/2
December 31 25-1/2 20 18 14-1/2
The Company paid an annual dividend of $.12 per Common Share in 1997
and $.11 in 1996. Certain provisions of the principal credit agreement of the
Company restrict the right of the Company to pay dividends. See Note 4 of Notes
to Financial Statements.
As of March 3, 1998 there were 1,265 holders of record of the Company's
Common Shares.
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Item 6. Selected Financial Data
-----------------------
Five Year Summary
(Amounts in Thousands Except Per Share Data)
Year Ended December 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Statement of Operating Data:
Net sales $356,841 $312,031 $241,667 $204,523 $166,203
Cost of sales 238,392 211,825 160,576 133,826 108,703
Other cost of sales -- 6,771 -- -- --
-------------------------------------------------------------------
Gross Profit on Sales 118,449 93,435 81,091 70,697 57,500
Selling, general and
administrative expenses 101,548 91,065 71,635 60,175 47,868
Other expenses 818 4,745 1,035 1,071 1,918
-------------------------------------------------------------------
Income (loss) from Operations 16,083 (2,375) 8,421 9,451 7,714
Other deductions-net 1,943 1,177 585 71 189
-------------------------------------------------------------------
Income (loss) before Income Taxes
and cumulative effect of
change in accounting principle 14,140 (3,552) 7,836 9,380 7,525
Income tax (benefit) expense 5,515 (1,203) 3,009 3,608 2,765
-------------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting
principle 8,625 (2,349) 4,827 5,772 4,760
Cumulative effect on prior years of
changing the method of capitalizing
certain inventory costs -- -- -- 1,149 --
-------------------------------------------------------------------
Net Income (Loss) $ 8,625 $ (2,349) $ 4,827 $ 6,921 $ 4,760
-------------------------------------------------------------------
Earnings (Loss) Per Share:
Income (loss) before cumulative effect
of change in accounting principle
Basic $ 1.06 ($ .29) $ .61 $ .74 $ .70
Diluted $ 1.02 ($ .29) $ .59 $ .72 $ .68
Cumulative effect on prior years of
changing the method of
capitalizing certain
inventory costs
Basic -- -- -- .15 --
-------------------------------------------------------------------
Diluted -- -- -- .14 --
-------------------------------------------------------------------
Earnings (Loss) Per Share:
Basic $ 1.06 ($ .29) $ .61 $ .89 $ .70
==================================================================
Diluted $ 1.02 ($ .29) $ .59 $ .86 $ .68
==================================================================
Cash dividends declared and paid
per common share $ .12 $ .11 $ .10 $ .09 $ .08
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Year Ended December 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $ 117,711 $ 99,904 $ 85,950 $ 70,839 $ 65,414
Total assets $ 200,318 $164,673 $137,821 $114,612 $104,471
Long-term debt, net
of current portion $ 83,353 $ 64,704 $ 43,258 $ 29,542 $ 33,122
Shareholders' equity $ 72,293 $ 61,699 $ 63,878 $ 58,175 $ 50,883
Note:
A. Effective January 1, 1994, the Company changed its method of
accounting for inventory costs to include the capitalization
of certain warehousing, transportation and procurement costs
which were previously expensed.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Incorporated by reference to pages 15 and 16 of the Registrant's 1997
Annual Report.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Incorporated by reference to pages 18 through 24 of the Registrant's
1997 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Reference is made to the information set forth under the captions
"Election of Directors" and "Business Experience of Directors and Nominees" in
the Proxy Statement, which information is incorporated herein by reference.
The information required with respect to executive officers is set
forth in Part I of this Form 10-K under the heading "Executive Officers of the
Registrant." All officers serve at the discretion of the Board of Directors.
Item 11. Executive Compensation
----------------------
Reference is made to the information set forth under the caption
"Executive Compensation" in the Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Reference is made to the information set forth under the caption
"Certain Transactions" in the Proxy Statement, which information is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)(1) and (2). Financial Statements and Financial Statement Schedule.
The following financial statements of LESCO, Inc. included in the
Registrant's 1997 Annual Report are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Operations--Years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity--Years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
The following financial statement schedule is included herewith:
Schedule II--Valuation and Qualifying Accounts--December 31, 1997
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(3) See Exhibit Index.
(b) The Registrant has not filed any current report on Form 8-K during the
quarter ended December 31, 1997.
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report.
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(d) Financial Statement Schedule
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
LESCO, INC.
DECEMBER 31, 1997
================================================================================================================================
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
DESCRIPTION BALANCE AT DEDUCTIONS BALANCE AT
BEGINNING OF ------------------------------------------------------ END OF PERIOD
PERIOD
CHARGED TO COSTS CHARGED TO OTHER COSTS INCURRED
AND EXPENSES ACCOUNTS--DESCRIBE
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997:
Deducted from assets accounts-
Reserve for inventory obsolescence $7,134,000 $ 457,000 ($3,342,000) (1) $4,249,000
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996:
Deducted from assets accounts-
Reserve for inventory obsolescence $ 250,000 $6,884,000 $7,134,000
================================================================================================================================
(1) Reserves relieved as obsolete inventory is sold or is otherwise disposed.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ William A. Foley
---------------------
William A. Foley
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ William A. Foley President, Chairman, Chief March 25, 1998
- ------------------------------ Executive Officer and Director
William A. Foley
/s/ Ware H. Grove Chief Financial Officer March 25, 1998
- ------------------------------
Ware H. Grove
/s/ Ronald Best Director March 25, 1998
- ------------------------------
Ronald Best
/s/ Drexel Bunch Director March 25, 1998
- ------------------------------
Drexel Bunch
/s/ Robert F. Burkhardt Director March 25, 1998
- ------------------------------
Robert F. Burkhardt
/s/ Paul H. Carleton Director March 25, 1998
- ------------------------------
Paul H. Carleton
/s/ David H. Clark Director March 25, 1998
- ------------------------------
David H. Clark
/s/ J. Martin Erbaugh Director March 25, 1998
- ------------------------------
J. Martin Erbaugh
/s/ Stanley M. Fisher Director March 25, 1998
- ------------------------------
Stanley M. Fisher
/s/ Michael FitzGibbon Director March 25, 1998
- ------------------------------
Michael FitzGibbon
/s/ F. Leon Herron Director March 25, 1998
- ------------------------------
F. Leon Herron
/s/ Lee Howley Director March 25, 1998
- ------------------------------
Lee Howley
14
LESCO, INC.
FORM 10-K
EXHIBIT INDEX
Exhibit
Number Description Of Document
- ------ -----------------------
3(a) (1) Amended Articles of Incorporation of the Registrant.
3(b) (1) Amended Code of Regulations of the Registrant.
4(a) (2) Specimen certificate for the Registrant's Common Shares.
4(c) (3) Reimbursement Agreement dated March 1, 1993, between Pittsburgh National Bank and the Registrant.
4(d) (1) Loan Agreement dated as of January 1, 1988 between County of Belmont, Ohio, and the Registrant ($5,875,000 County of
Belmont, Ohio Industrial Development Revenue Bonds).
4(e) (1) Loan Agreement dated as of January 28, 1988 between the Director of Development of the State of Ohio and the
Registrant.
4(f) Amended Articles of Incorporation of the Registrant (appears as Exhibit 3(a) above).
4(g) Amended Code of Regulations of the Registrant (appears as Exhibit 3(b) above).
4(h) (8) Loan Agreement dated as of November 1, 1997 between Highlands County Industrial Development Authority and the
Registrant.
10(a) (4) LESCO, Inc. Stock Investment and Salary Savings Plan and Trust, as amended and restated.
10(e) (3) Reimbursement Agreement dated March 1, 1993, between Pittsburgh National Bank and the Registrant (appears as Exhibit
4(c) above).
10(g) (1) Loan Agreement dated as of January 28, 1988 between the Director of Development of the State of Ohio and the
Registrant (appears as Exhibit 4(e) above).
10(k) (3) 1992 Stock Incentive Plan.
10(l) (5) Stock Bonus Plan (appears as Exhibit 4(d) to Registrant's Form S-8).
10(o) (1) Loan Agreement dated as of January 1, 1988 between County of Belmont, Ohio, and the Registrant ($5,875,000 County of
Belmont, Ohio Industrial Development Revenue Bonds) (appears as Exhibit 4(d) to Registrant's Form 10-K for fiscal
year 1987).
10(p) (6) Employment Agreement by and between the Registrant and William A. Foley.
10(q) (7) Second Amendment to the Credit Agreement dated November 1, 1996.
10(r)(1) (4) Credit Agreement dated September 30, 1994 among National City Bank, PNC Bank, National Association, NBD Bank, N.A.,
National City Bank, as agent, and the Registrant (the "Credit Agreement")(appears as Exhibit 10(r) to Registrant's
Form 10-K for fiscal year 1994).
10(r)(2) (8) Third amendment to the Credit Agreement dated February 14, 1997
10(r)(3) (8) Fourth amendment to the Credit Agreement dated August 1, 1997
10(r)(4) (8) Fifth Amendment to the Credit Agreement dated January 28, 1998
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10(s) (4) Consulting Agreement by and between the Registrant and Robert F. Burkhardt (appears as Exhibit 10(s) to Registrant's
Form 10-K for fiscal year 1994).
10(t) (8) Letter of Credit Agreement dated as of November 1, 1997 between PNC Bank, National Association and the Registrant
13 (8) The following portions of the 1997 Annual Report: Financial Review, Consolidated Financial Statements, Report of
Ernst & Young LLP, Independent Auditors and Notes to Consolidated Financial Statements
21 (8) Subsidiaries of the registrant
23 (8) Consent of Ernst & Young LLP, Independent Auditors.
27(a) (8) Financial Data Schedule for 1997.
27(b) (8) Restated Financial Data Schedule for 1997.
27(c) (8) Restated Financial Data Schedule for 1996.
27(d) (8) Restated Financial Data Schedule for 1995.
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Exhibit
- -------
1 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending November 30, 1987 (File No. 0-13147).
2 Incorporated by reference to exhibits, with the corresponding exhibit numbers, filed by Registrant with its Registration
Statement on Form S-l (File No. 2-90900).
3 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending December 31, 1992.
4 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending December 31, 1994.
5 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Registration Statement on Form S-8 (File No. 33-22685).
6 Incorporated by reference to exhibits, with the corresponding exhibit numbers, filed by Registrant with its Registration
Statement on Form S-2 (File No. 33-67348).
7 Filed as an exhibit with the 1996 Form 10-K.
8 Filed herewith.
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EXECUTIVE COMPENSATION PLANS
AND ARRANGEMENTS
----------------------------
Exhibits 10(a), 10(k), 10(1) and 10(p) are compensation plans in which
executive officers participate.
Exhibit 21 Subsidiaries Of The Registrant
------------------------------
Tri Delta Fertilizer, Inc.
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