LESCO Announces Third Quarter 2002 Operating Results.Business Editors CLEVELAND--(BUSINESS WIRE)--Oct. 29, 2002 LESCO LESCO Lahore Electric Supply Company (Pakistan) LESCO Logistics & Environmental Support Services Corporation (Huntsville, Alabama) , Inc. (Nasdaq:LSCO LSCO Lamar State College Orange (Texas) LSCO Lanthanum Strontium Cobalt Oxide ) -- Third Quarter Earnings per Share (Excluding One-Time Gain) Increased to $0.57 from $0.04 in 2001; Third Quarter Earnings per Share with One-Time Gain Increased to $0.58 -- Total Third Quarter Sales were Flat in Comparison to Prior Year; 1.3% Increase for First Half -- One-Time Gain of $0.2 Million Recorded for the Sale of Former Headquarters LESCO, Inc. (Nasdaq:LSCO), the leading provider of products for the professional turf turf: see lawn. turf In horticulture, the surface layer of soil with its matted, dense vegetation, usually grasses grown for ornamental or recreational use. care market, today announced third quarter operating results, which included a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta gain for the sale of the Company's former headquarters of $0.2 million. Third Quarter Results (excluding total one-time pre-tax gain for the sale of the Company's former headquarters of $0.2 million) Sales for the third quarter were $144.0 million which is flat with sales from 2001 of $144.1 million. Lawn Care sales for the quarter increased to $77.0 million, up 3.6% from the comparable period of 2001 ($74.3 million). Golf sales increased 2.0% and National Account sales declined 16.2% during the third quarter. "We are not satisfied with flat sales. As previously announced, we have made the necessary changes in the leadership and structure of the sales organization to get us back to the sales growth we expect," stated Mr. Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. P. DiMino, President and Chief Executive Officer. "We will be opening between 15 to 25 new Service Centers in 2003 and with these new stores and the structural changes we have made, our model can and should produce 6% to 8% annual sales growth." Gross profit increased to $48.6 million or 33.78% of sales from $41.6 million or 28.85% of sales for the third quarter 2001. With this continued improvement, LESCO remains on course for achieving its guidance of 150 basis point improvement in gross profit for 2002. Earnings before interest and taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) (excluding one-time gain) increased to $9.1 million from $2.0 million for the third quarter 2001. This $7.1 million increase was due to the $7.1 million increase in gross profit and a $1.0 million decline in general and administrative expenses, offset by a $1.0 million increase in selling expenses. "While sales didn't did·n't Contraction of did not. didn't did not didn't do meet our expectations, EBIT for the quarter exceeded our Plan," added Mr. DiMino. "We have instituted the expense, product sourcing and capital disciplines we have promised, while continuing to invest in our future, as demonstrated by our increased investment in selling expenses. During the third quarter, we added 54 new sales representative positions and we are beginning to see positive results from these additions." Net income (excluding one-time gain) increased to $5.0 million from $0.3 million for the third quarter 2001. This $4.7 million increase reflects the $7.1 million increase in EBIT and a $0.4 million reduction of interest expense, less income taxes. Fully diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of (excluding one-time gain) increased to $.57 per share from $0.04 per share of third quarter 2001. Fully diluted earnings per share including one-time gain was $0.58 a share. First Nine Months Results (excluding third quarter one-time pre-tax gain for sale of the Company's former headquarters of $0.2 million; second quarter total one-time charges of $23.4 million comprised of inventory markdown Markdown The difference between the highest current bid price among broker-dealers in the market and the lower price that a dealer charges a customer. Notes: The broker offers a lower price to try stimulate trading in hopes that they will make the money back on the extra of $9.6 million, manufacturing rationalization rationalization, in psychology: see defense mechanism. of $12.0 million, and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when expense of $1.8 million; and first quarter charges of severance expense of $2.0 million, extraordinary charge for debt refinancing Refinancing An extension and/or increase in amount of existing debt. of $4.6 million, $2.9 million net of tax, and cumulative effect of accounting change for goodwill charge of $7.3 million, $4.6 million net of tax) Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the nine months ended September September: see month. 30, 2002 increased 1.3% to a record $404.0 million, compared with net sales of $398.9 million in the comparable period a year ago. For the nine months, Lawn Care sales increased 5.1%, while Golf and National Accounts decreased 0.7% and 7.5%, respectively. Gross profit (excluding one-time charges) increased to $135.7 million or 33.59% of sales from $123.8 million or 31.03% of sales for the first nine months of 2001. Net income (excluding one-time charges and gain) increased $7.3 million to $9.6 million, or $1.10 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with net income of $2.3 million, or $0.26 per diluted share, in the first nine months of 2001. Fully diluted earnings per share including one-time charges and gain, extraordinary charge and cumulating effect of accounting change was a loss of $1.61 a share. Novex Plant Disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of On October October: see month. 24, 2002, the Company completed the sale of its Novex plant to KPAC KPAC Knowsley's Parents Adults Carers (UK) Holdings, Inc. The Company has entered into a supply agreement with KPAC to source its Novex fertilizer fertilizer, organic or inorganic material containing one or more of the nutrients—mainly nitrogen, phosphorus, and potassium, and other essential elements required for plant growth. product. In the second quarter of 2002, the Company recorded a $12.0 million pre-tax charge for the planned sales of the Novex plant and other facilities. Conference Call and Webcast The Company will host a conference call and webcast with investors, analysts and other interested parties today at 11:00 a.m. (ET). The live call can be accessed by dialing 1-800-388-8975. The conference call will include a question and answer session. The slide presentation will be available for downloading downloading - download beginning today at 8:30 a.m. at LESCO's web site, www.lesco.com., on the "Corporate Overview" page located under "About LESCO" and "Investor Relations Investor relations The process by which the corporation communicates with its investors. ." Additionally, a live webcast will be available to interested parties at www.lesco.com. Participants should allow at least fifteen minutes prior to the commencement of the call to register, download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary audio software. Questions can be submitted either in advance or during the webcast via email to ir@lesco.com or through the Company's corporate web site where a link will be provided on the "Corporate Overview" page. LESCO's culture demands the highest of ethical eth·i·cal adj. 1. Of, relating to, or dealing with ethics. 2. Being in accordance with the accepted principles of right and wrong that govern the conduct of a profession. standards and accountability The traceability of actions performed on a system to a specific system entity (user, process, device). For example, the use of unique user identification and authentication supports accountability; the use of shared user IDs and passwords destroys accountability. manifested in full and fair financial disclosure to our shareholders. LESCO management encourages the participation of our shareholders and other interested parties in our conference calls and live webcasts. For those who cannot participate in the conference call or the live webcast, a replay will be available beginning approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. one hour after the event on LESCO's web site. About LESCO, Inc. LESCO is a specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. provider of products for the professional turf care market. Serving more than 130,000 customers worldwide, LESCO distributes through 227 LESCO Service Centers(R), 77 LESCO Stores-on-Wheels(R), 62 lawn care sales representatives, 40 golf sales representatives and other direct sales efforts. Sales in 2001 totaled $504.3 million. Additional information about LESCO can be found on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.lesco.com. Certain of the above information is forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and, as such, reflects only the Company's best assessment at this time. Investors are cautioned that forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. involve risks and uncertainty, that actual results may differ materially from such statements and that investors should not place undue reliance on such statements. Factors that may affect actual results include, but are not limited to potential regulations; the Company's ability to effectively manufacture, market and distribute new products; the success of the Company's operating plans; regional weather conditions; and the condition of the industry and the economy. For a further discussion of risk factors, investors should refer to the Company's Securities and Exchange Commission reports, including, but not limited to, Form 10-Q Form 10-Q See 10-Q. for the quarter ended June June: see month. 30, 2002.
LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
Three Months Ended September 30, 2002
-------------------------------------
Reported Results Three Months
(GAAP) One Time Excluding Ended
(In thousands, Results Gain Charges September
except per share data) 30, 2001
--------- --------- --------- ---------
Net sales $ 144,009 $ - $ 144,009 $ 144,084
Cost of Sales 95,362 - 95,362 102,521
Inventory markdown
- cost of sales - - - -
--------- --------- --------- ---------
Gross profit on sales 48,647 - 48,647 41,563
Warehouse & delivery
expense 11,798 - 11,798 11,924
Selling expense 19,402 - 19,402 18,386
General &
administrative expense 8,787 - 8,787 9,742
Asset rationalization - - - -
Severance expense - - - 139
--------- --------- --------- ---------
39,987 - 39,987 40,191
Income (loss)
from operations 8,660 - 8,660 1,372
Joint venture results (20) - (20) 148
Customer finance charges (494) - (494) (738)
Gain on sale of fixed
assets (185) 185 (a) - -
Other income (170) - (170) (131)
Other expense 244 - 244 99
--------- --------- --------- ---------
(625) 185 (440) (622)
Earnings (loss) before
interest and taxes 9,285 (185) 9,100 1,994
Interest expense 1,122 - 1,122 1,493
--------- --------- --------- ---------
Income (loss)
before taxes 8,163 (185) 7,978 501
Income taxes (benefit) 3,069 (69) 3,000 164
--------- --------- --------- ---------
Net income (loss) $ 5,094 $ (116) $ 4,978 $ 337
========= ======== ========= =========
Basic earnings
(loss) per share $ 0.59 $ (0.01) $ 0.58 $ 0.04
========= ======== ========= =========
Fully diluted earnings
(loss) per share $ 0.58 $ (0.01) $ 0.57 $ 0.04
========= ======== ========= =========
(a) Gain on sale of former corporate offices
LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
Nine Months Ended September 30, 2002
------------------------------------
Reported Results Nine Months
(GAAP) One Time Excluding Ended
(In thousands, Results Charges Charges(a) September
except per share data) 30, 2001
--------- --------- --------- ---------
Net sales $ 403,981 $ - $ 403,981 $ 398,941
Cost of Sales 268,283 - 268,283 275,135
Inventory markdown -
cost of sales 9,581 (9,581)(b) - -
--------- --------- --------- ---------
Gross profit on sales 126,117 (9,581) 135,698 123,806
Warehouse & delivery
expense 34,589 - 34,589 35,247
Selling expense 57,369 - 57,369 56,123
General &
administrative expense 25,525 - 25,525 24,985
Asset rationalization 12,044 (12,044)(c) - -
Severance expense 3,866 (3,866)(d) - 636
--------- --------- --------- ---------
133,393 (15,910) 117,483 116,991
Income (Loss) from
operations (7,276) 25,491 18,215 6,815
Joint venture results (48) - (48) (36)
Customer finance
charges (1,274) - (1,274) (1,692)
Gain on sale of
fixed assets (185) 185 (g) - -
Other income (439) - (439) (537)
Other expense 782 - 782 472
--------- --------- --------- ---------
(1,164) 185 (979) (1,793)
Earnings (loss) before
interest and taxes (6,112) 25,306 19,194 8,608
Interest expense 3,779 - 3,779 5,061
--------- --------- --------- ---------
Income (Loss) before
taxes, extraordinary
charge and cumulative
effect of accounting
change (9,891) 25,306 15,415 3,547
Income taxes (benefit) (3,719) 9,515 5,796 1,277
--------- --------- --------- ---------
Income (Loss) before
extraordinary charge
and cumulative effect
of accounting change (6,172) 15,791 9,619 2,270
Extraordinary charge,
net of taxes 2,853 (2,853)(e) - -
Cumulative effect
of accounting change 4,597 (4,597)(f) - -
--------- --------- --------- ---------
Net income (loss) $ (13,622) $ 23,241 $ 9,619 $ 2,270
========= ========= ========= =========
Basic earnings
(loss) per share $ (0.73) $ 1.85 $ 1.12 $ 0.27
========= ======== ========= =========
Fully diluted EPS
before extraordinary
charge and cumulative
effect of
accounting change $ (0.73) $ 1.83 $ 1.10 $ 0.26
========= ======== ========= =========
Extraordinary charge,
net of taxes (0.34) 0.34 - -
Cumulative effect
of accounting change (0.54) 0.54 - -
--------- --------- --------- ---------
Fully diluted earnings
(loss) per share $ (1.61) $ 2.71 $ 1.10 $ 0.26
========= ======== ========= =========
(a) Users of this information are advised to read the Securities
Exchange Commission report "Pro Forma Financial Information: Tips
for investors" available at
www.sec.gov/investor/pubs/proforma12-4.htm.
(b) The Company decided to markdown and liquidate its discontinued
SKUs resulting in a $9.6 million pre-tax charge.
(c) During the second quarter, the Company completed a review of its
invested capital resulting in the decision to sell certain
under-performing assets. In conjunction with this decision, a $12
million pre-tax charge was recorded.
(d) During the first quarter, the Company recorded a $2.0 million
pre-tax charge relative to executive management changes. During
the second quarter the Company recognized severance expenses of
$1.8 million related to changes in senior and middle management
(e) The Company recorded an extraordinary charge related to the early
termination of debt of approximately $2.9 million, net of taxes,
in the first quarter of 2002.
(f) The Company wrote off all its goodwill in accordance with SFAS No.
142 taking a $4.6 million charge, net of taxes, as a cumulative
effect of accounting change as of January 1, 2002.
(g) Gain on sale of former corporate offices.
LESCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30 September 30 December 31
2002 2001 2001
------------ ------------ -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 5,782 $ 4,521 $ 5,035
Accounts receivable - net 80,402 51,503 37,571
Inventories 97,401 110,104 92,996
Other current assets 8,003 4,407 8,086
-------- --------- ---------
TOTAL CURRENT ASSETS 191,588 170,535 143,688
Net property, plant and equipment 34,459 48,700 49,260
Other assets 6,422 10,476 11,648
-------- --------- ---------
TOTAL ASSETS $ 232,469 $ 229,711 $ 204,596
========= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 68,320 $ 67,045 $ 46,847
Other current liabilities 18,093 9,305 9,181
Current portion of debt 1,140 50,974 970
-------- --------- ---------
TOTAL CURRENT LIABILITIES 87,553 127,324 56,998
Long-term debt 64,102 161 50,141
Deferred income taxes - 3,176 3,541
Shareholders' equity 80,814 99,050 93,916
-------- --------- ---------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 232,469 $ 229,711 $ 204,596
========= ========= =========
LESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended September 30
------------------------------
2002 2001
-------- --------
(Unaudited)
OPERATING ACTIVITIES:
Net income (loss) before extraordinary
charge and cumulative effect
of accounting change $ (6,172) $ 2,270
Depreciation and amortization 7,284 7,151
Asset rationalization 12,044 -
Provision for inventory markdown 9,581 -
Net change in working capital 108 14,996
Other - net (1,835) (1,195)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,010 23,222
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,296) (7,144)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,296) (7,144)
FINANCING ACTIVITIES:
Borrowings - net reduction (17,067) (11,672)
Cash dividends - (639)
Deferred financing and other (1,900) (95)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (18,967) (12,406)
-------- --------
Net Increase in Cash 747 3,672
Cash -- Beginning of the Period 5,035 849
-------- --------
CASH - END OF THE PERIOD $ 5,782 $ 4,521
======== ========
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