##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 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 Identification No.)incorporation or organization)1301 East Ninth Street, Suite 1300
    
    44114Cleveland, Ohio
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code
(216) 706-9250
 þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1(a). RISK FACTORSITEM 6. EXHIBITSSIGNATURESEX-31AEX-31BEX-32AEX-32B    Table of Contents  
 PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
 Three Months Ended March 31,(Dollars in thousands, except per share data)
    
    2007
    
    
    2006Net sales
    
    $
    130,405
    
    
    $
    99,837Cost of product (including distribution costs)
    
    
    (111,006
    )
    
    
    (75,906
    )Gross profit on sales
    
    
    19,399
    
    
    
    23,931Selling expense
    
    
    (27,731
    )
    
    
    (25,212
    )General & administrative expense
    
    
    (5,445
    )
    
    
    (6,399
    )Merchant discounts and provision for doubtful accounts
    
    
    (3,397
    )
    
    
    (2,607
    )Pre-opening expense
    
    
    (287
    )
    
    
    (288
    )Other expense
    
    
    (2
    )
    
    
    Other income
    
    
    28
    
    
    
    135Loss before interest and taxes
    
    
    (17,435
    )
    
    
    (10,440
    )Interest expense, net
    
    
    (640
    )
    
    
    (175
    )Loss before taxes
    
    
    (18,075
    )
    
    
    (10,615
    )Income taxes:Current
    
    
    
    
    
    
    Deferred
    
    
    6,205
    
    
    
    4,261Change in valuation allowance
    
    
    (6,205
    )
    
    
    (4,261
    )
    
    
    
    Net loss
    
    $
    (18,075
    )
    
    $
    (10,615
    )Loss per common share:Diluted
    
    $
    (1.98
    )
    
    $
    (1.18
    )Basic
    
    $
    (1.98
    )
    
    $
    (1.18
    )Average number of common shares and common share
equivalents outstanding:Diluted
    
    
    9,147,068
    
    
    
    9,007,235Basic
    
    
    9,147,068
    
    
    
    9,007,235
  2




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LESCO, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
 March 31, 2007
    
    
    March 31, 2006
    
    
    December 31, 2006(Dollars in thousands)CURRENT ASSETS:Cash and cash equivalents
    
    $
    13,263
    
    
    $
    8,413
    
    
    $
    4,009Accounts receivable, net
    
    
    9,363
    
    
    
    20,204
    
    
    
    12,727Inventories
    
    
    107,405
    
    
    
    99,139
    
    
    
    92,647Other
    
    
    2,379
    
    
    
    1,991
    
    
    
    2,989TOTAL CURRENT ASSETS
    
    
    132,410
    
    
    
    129,747
    
    
    
    112,372Property, plant and equipment, net
    
    
    9,637
    
    
    
    9,253
    
    
    
    9,623Other
    
    
    1,064
    
    
    
    1,031
    
    
    
    1,205$
    143,111
    
    
    $
    140,031
    
    
    $
    123,200CURRENT LIABILITIES:Accounts payable
    
    $
    88,335
    
    
    $
    78,698
    
    
    $
    48,832Accrued liabilities
    
    
    17,775
    
    
    
    19,720
    
    
    
    17,059Revolving credit facility
    
    
    27,810
    
    
    
    5,187
    
    
    
    29,959TOTAL CURRENT LIABILITIES
    
    
    133,920
    
    
    
    103,605
    
    
    
    95,850Deferred  other
    
    
    2,004
    
    
    
    2,213
    
    
    
    2,172TOTAL LIABILITIES
    
    
    135,924
    
    
    
    105,818
    
    
    
    98,022SHAREHOLDERS EQUITY:Common shareswithout par value19,500,000 shares
authorized; 9,242,415
shares issued and
9,147,068 outstanding at
March 31, 2007 and
December 31, 2006;
9,171,084 shares issued
and 9,153,924 outstanding
at March 31, 2006
    
    
    924
    
    
    
    916
    
    
    
    924Paid-in capital
    
    
    40,590
    
    
    
    39,212
    
    
    
    40,506Treasury shares95,347 at March 31, 2007
and December 31, 2006;
17,160 at March 31, 2006
    
    
    (1,478
    )
    
    
    (255
    )
    
    
    (1,478
    )Retained deficit
    
    
    (32,849
    )
    
    
    (5,660
    )
    
    
    (14,774
    )TOTAL SHAREHOLDERS EQUITY
    
    
    7,187
    
    
    
    34,213
    
    
    
    25,178$
    143,111
    
    
    $
    140,031
    
    
    $
    123,200
  3




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LESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 For the Three Months Ended March 31,(Dollars in thousands)
    
    2007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (18,075
    )
    
    $
    (10,615
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    884
    
    
    
    883Decrease (increase) in accounts receivable
    
    
    3,364
    
    
    
    (3,392
    )Increase in inventories
    
    
    (14,758
    )
    
    
    (18,793
    )Increase in accounts payable
    
    
    38,253
    
    
    
    17,198Increase (decrease) in accrued expenses
    
    
    686
    
    
    
    (4,866
    )Other
    
    
    678
    
    
    
    658NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    11,032
    
    
    
    (18,927
    )INVESTING ACTIVITIES:Proceeds on the sale of property, plant and equipment
    
    
    3
    
    
    
    1Purchase of property, plant and equipment:Stores
    
    
    (819
    )
    
    
    (329
    )Other
    
    
    (63
    )
    
    
    (250
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (879
    )
    
    
    (578
    )FINANCING ACTIVITIES:Increase in overdraft balances
    
    
    1,250
    
    
    
    119(Reduction of) proceeds from borrowings, net
    
    
    (2,149
    )
    
    
    5,187Purchase of treasury shares
    
    
    
    
    
    
    (255
    )Exercised stock options
    
    
    
    
    
    
    1,837NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (899
    )
    
    
    6,888Net change in cash and cash equivalents
    
    
    9,254
    
    
    
    (12,617
    )Cash and cash equivalents  Beginning of the period
    
    
    4,009
    
    
    
    21,030CASH AND CASH EQUIVALENTS  END OF THE PERIOD
    
    $
    13,263
    
    
    $
    8,413Supplemental disclosure of cash flow information:Interest paid, including letters of credit and unused facility fees
    
    $
    (635
    )
    
    $
    (126
    )Income taxes
refunded (paid)
    
    $
    6
    
    
    $
    (34
    )
  4




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business and Segment Information
 ® ®
  Segment Information
   Three Months Ended March 31,(Dollars in thousands)
    
    2007
    
    
    2006Net salesStores
    
    $
    114,543
    
    
    $
    84,196Direct
    
    
    15,862
    
    
    
    15,641$
    130,405
    
    
    $
    99,837(Loss) earnings before interest and taxesStores
    
    $
    (7,483
    )
    
    $
    (2,198
    )Direct
    
    
    (1,220
    )
    
    
    1,440Corporate
    
    
    (8,732
    )
    
    
    (9,682
    )$
    (17,435
    )
    
    $
    (10,440
    )Capital expendituresStores
    
    $
    819
    
    
    $
    329Corporate
    
    
    63
    
    
    
    250$
    882
    
    
    $
    579Depreciation expenseStores
    
    $
    542
    
    
    $
    421Direct
    
    
    8
    
    
    
    12Corporate
    
    
    294
    
    
    
    410$
    844
    
    
    $
    843Intangible asset amortization expenseCorporate
    
    
    40
    
    
    
    40$
    40
    
    
    $
    40
 March 31,2007
    
    
    2006Total assetsStores
    
    $
    110,128
    
    
    $
    92,822Direct
    
    
    993
    
    
    
    1,552Corporate
    
    
    31,990
    
    
    
    45,657$
    143,111
    
    
    $
    140,031
 5




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Note 2. Summary of Significant Accounting Policies
 Principles of Consolidation
 Use of Estimates
 Earnings per Share
  Stock Options Accounting for Stock-Based
Compensation
   Note 3. Accounts Receivable
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Supplier rebate programs
    
    $
    945
    
    
    $
    337
    
    
    $
    1,757Supplier other
    
    
    1,170
    
    
    
    10,574
    
    
    
    6,361Trade receivablesOwned  domestic
    
    
    6,947
    
    
    
    6,018
    
    
    
    2,940Owned  international
    
    
    1,392
    
    
    
    2,904
    
    
    
    1,964Other
    
    
    207
    
    
    
    1,867
    
    
    
    1,362Allowance for doubtful accounts
    
    
    (1,298
    )
    
    
    (1,496
    )
    
    
    (1,657
    )$
    9,363
    
    
    $
    20,204
    
    
    $
    12,727
  
    
    Rebates calculated on a percentage of the value of merchandise purchased over a
definitive period of time, generally one year or less. Usually, there is a minimum
purchase requirement, and the rebate percentage may be tiered, increasing as purchases
increase over the minimum requirement.
 6




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
    
    Rebates calculated on a percentage of the purchased cost of merchandise sold by the
Company over a definitive period of time, generally one year or less.
   March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Vendor rebates/other
    
    $
    879
    
    
    $
    973
    
    
    $
    3,890Grass seed
    
    
    190
    
    
    
    4,771
    
    
    
    2,442Logistics charges
    
    
    101
    
    
    
    4,830
    
    
    
    29Supplier other
    
    $
    1,170
    
    
    $
    10,574
    
    
    $
    6,361
      7




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Note 4. Inventories
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Finished goods and purchased inventoriesSelling locations
    
    $
    96,499
    
    
    $
    82,454
    
    
    $
    85,582Non-selling locations
    
    
    10,411
    
    
    
    11,648
    
    
    
    9,148Less: Markdown, shrink and vendor discount reserves
    
    
    (1,271
    )
    
    
    (2,025
    )
    
    
    (1,793
    )Inventory held on consignment
    
    
    (4,820
    )
    
    
    (4,332
    )
    
    
    (5,187
    )100,819
    
    
    
    87,745
    
    
    
    87,750Grass seed
    
    
    6,586
    
    
    
    11,394
    
    
    
    4,897$
    107,405
    
    
    $
    99,139
    
    
    $
    92,647
     Note 5. Property, Plant and Equipment
  8




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March 31,
    
    December 31,2007
    
    2006
    
    2006(Dollars in thousands)
    
    Stores
    
    Direct
    
    Corp.
    
    Total
    
    Stores
    
    Direct
    
    Corp.
    
    Total
    
    Stores
    
    Direct
    
    Corp.
    
    TotalBuildings and improvements
    
    $
    2,921
    
    
    $
    6
    
    
    $
    259
    
    
    $
    3,186
    
    
    $
    1,862
    
    
    $
    
    
    
    $
    246
    
    
    $
    2,108
    
    
    $
    2,608
    
    
    $
    
    
    
    $
    255
    
    
    $
    2,863Machinery and equipment
    
    
    6,483
    
    
    
    17
    
    
    
    221
    
    
    
    6,721
    
    
    
    5,261
    
    
    
    7
    
    
    
    221
    
    
    
    5,489
    
    
    
    6,407
    
    
    
    17
    
    
    
    221
    
    
    
    6,645Furniture and fixtures
    
    
    7,801
    
    
    
    352
    
    
    
    19,298
    
    
    
    27,451
    
    
    
    6,670
    
    
    
    308
    
    
    
    19,118
    
    
    
    26,096
    
    
    
    7,466
    
    
    
    387
    
    
    
    19,184
    
    
    
    27,037Subtotal
    
    
    17,205
    
    
    
    375
    
    
    
    19,778
    
    
    
    37,358
    
    
    
    13,793
    
    
    
    315
    
    
    
    19,585
    
    
    
    33,693
    
    
    
    16,481
    
    
    
    404
    
    
    
    19,660
    
    
    
    36,545Less: Accumulated depreciation
    
    
    (9,539
    )
    
    
    (348
    )
    
    
    (17,834
    )
    
    
    (27,721
    )
    
    
    (7,623
    )
    
    
    (234
    )
    
    
    (16,583
    )
    
    
    (24,440
    )
    
    
    (9,050
    )
    
    
    (329
    )
    
    
    (17,543
    )
    
    
    (26,922
    )Property, plant and equipment, net
    
    $
    7,666
    
    
    $
    27
    
    
    $
    1,944
    
    
    $
    9,637
    
    
    $
    6,170
    
    
    $
    81
    
    
    $
    3,002
    
    
    $
    9,253
    
    
    $
    7,431
    
    
    $
    75
    
    
    $
    2,117
    
    
    $
    9,623
 Note 6. Borrowings:
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Current:Revolving credit facility
    
    $
    27,810
    
    
    $
    5,187
    
    
    $
    29,959
 Revolving Credit Facility
       9




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March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Supplier contract
    
    $
    15,000
    
    
    $
    10,000
    
    
    $
    15,000Insurance programs
    
    
    2,164
    
    
    
    2,708
    
    
    
    2,250Other
    
    
    195
    
    
    
    400
    
    
    
    195$
    17,359
    
    
    $
    13,108
    
    
    $
    17,445
  Note 7. Asset Rationalization and Severance Expense:
 Asset Rationalization AccrualOther Exit
    
    
    
    
    
    
    Severance(Dollars in thousands)
    
    Lease Costs
    
    
    Costs
    
    
    Total
    
    
    Accrual
    
    
    TotalAsset rationalization reserves and severance
accruals at December 31, 2006
    
    $
    907
    
    
    $
    146
    
    
    $
    1,053
    
    
    $
    5
    
    
    $
    1,0582007 Activity:Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Reduction
    
    
    (444
    )
    
    
    (36
    )
    
    
    (480
    )
    
    
    
    
    
    
    (480
    )Utilized/payments
    
    
    (72
    )
    
    
    (11
    )
    
    
    (83
    )
    
    
    (6
    )
    
    
    (89
    )Asset rationalization reserves and
severance accruals at March 31, 2007
    
    $
    391
    
    
    $
    99
    
    
    $
    490
    
    
    $
    2
    
    
    $
    492
   Note 8. Stock Incentive Plans:
 10




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Three Months Ended March 31, 2007Weighted AverageShares
    
    
    Exercise PriceOutstanding  beginning of year
    
    
    642,743
    
    
    $
    12.36Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled/forfeited
    
    
    (30,266
    )
    
    
    15.24Outstanding  end of quarter
    
    
    612,477
    
    
    $
    12.22Exercisable  end of quarter
    
    
    592,976
    
    
    $
    12.22Reserved for future grants
    
    
    829,899
   Outstanding Options
    
    
    Exercisable OptionsWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    Number of
    
    
    Exercise
    
    
    ContractualRange of Exercise Prices
    
    Options
    
    
    Price
    
    
    Life
    
    
    Options
    
    
    Price
    
    
    Life$0 to $10.00
    
    
    156,750
    
    
    $
    7.45
    
    
    4.9 years
    
    
    156,750
    
    
    $
    7.45
    
    
    4.9 years$10.01 to $15.00
    
    
    352,227
    
    
    
    12.69
    
    
    5.4 years
    
    
    332,726
    
    
    
    12.71
    
    
    5.0 years$15.01 to $20.00
    
    
    83,650
    
    
    
    16.78
    
    
    3.3 years
    
    
    83,650
    
    
    
    16.78
    
    
    3.3 years$20.01 and above
    
    
    19,850
    
    
    
    22.33
    
    
    1.0 years
    
    
    19,850
    
    
    
    22.33
    
    
    1.0 years612,477
    
    
    $
    12.22
    
    
    4.8 years
    
    
    592,976
    
    
    $
    12.22
    
    
    4.6 years(Dollars in thousands)Aggregate intrinsic value (a)
at March 31, 2007
    
    $
    1,736
    
    
    
    
    
    
    
    
    
    
    $
    1,695
 
 (a)
    
    Aggregate intrinsic value at March 31, 2007 is calculated based on stock options for which the market price exceeds the option exercise
price.   11




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Three Months Ended March 31, 2007Weighted AverageShares
    
    
    Grant Date Fair ValueNonvested  beginning of year
    
    
    64,600
    
    
    $
    14.38Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    Nonvested  end of quarter
    
    
    64,600
    
    
    $
    14.38
  Note 9. Long-Term Supply Agreement with Turf Care Supply Corp.:
 Note
10. Income
Taxes:
 12




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##### Table of Contents



Note 11. Detail of Certain Balance Sheets Accounts
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2006Other current assets:Prepaid insurance
    
    $
    728
    
    
    $
    818
    
    
    $
    1,132Product registration fees
    
    
    896
    
    
    
    542
    
    
    
    965Assets held for sale
    
    
    102
    
    
    
    112
    
    
    
    102Notes receivable
    
    
    
    
    
    
    187
    
    
    
    Other
    
    
    653
    
    
    
    332
    
    
    
    790$
    2,379
    
    
    $
    1,991
    
    
    $
    2,989Other non-current assets:Store and miscellaneous deposits
    
    $
    622
    
    
    $
    721
    
    
    $
    596Notes receivable
    
    
    
    
    
    
    310
    
    
    
    Deferred financing charges
    
    
    442
    
    
    
    
    
    
    
    609$
    1,064
    
    
    $
    1,031
    
    
    $
    1,205Accounts payable:Accounts payable to TCS
    
    $
    63,892
    
    
    $
    58,046
    
    
    $
    23,583Accounts payable  other trade
    
    
    17,204
    
    
    
    15,732
    
    
    
    19,260Overdraft balances
    
    
    7,239
    
    
    
    4,920
    
    
    
    5,989$
    88,335
    
    
    $
    78,698
    
    
    $
    48,832Accrued liabilities:Accrued non-income taxes
    
    $
    3,201
    
    
    $
    3,073
    
    
    $
    1,506Commissions and management bonuses
    
    
    3,860
    
    
    
    1,291
    
    
    
    4,367Salaries and wages
    
    
    1,540
    
    
    
    1,670
    
    
    
    407Insurance  hospitalization and workers compensation
    
    
    2,007
    
    
    
    2,344
    
    
    
    2,021Asset rationalization
    
    
    490
    
    
    
    1,794
    
    
    
    1,053Insurance  property and casualty
    
    
    1,756
    
    
    
    2,168
    
    
    
    1,742Severance
    
    
    2
    
    
    
    1,290
    
    
    
    5Customer rebates
    
    
    1,918
    
    
    
    2,912
    
    
    
    2,661Other
    
    
    3,001
    
    
    
    3,178
    
    
    
    3,297$
    17,775
    
    
    $
    19,720
    
    
    $
    17,059Deferred  other:Rent
    
    $
    1,297
    
    
    $
    994
    
    
    $
    1,264Other
    
    
    707
    
    
    
    1,219
    
    
    
    908$
    2,004
    
    
    $
    2,213
    
    
    $
    2,172
 13




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##### Table of Contents



Note 12. Detail of Certain Statements of Operations Accounts
 Three Months Ended March 31,(Dollars in thousands)
    
    2007
    
    
    2006Net sales:Gross sales
    
    $
    131,716
    
    
    $
    100,830Agency sales
    
    
    (166
    )
    
    
    (330
    )Freight revenue
    
    
    255
    
    
    
    233Customer discounts and rebates & sales adjustments
    
    
    (1,400
    )
    
    
    (896
    )$
    130,405
    
    
    $
    99,837Merchant discounts and provision for doubtful accounts:Merchant discountsMulti-purpose credit programs
    
    $
    (522
    )
    
    $
    (340
    )Private-label business credit programs
    
    
    (1,620
    )
    
    
    (1,238
    )Private-label promotional discounts
    
    
    (1,064
    )
    
    
    (824
    )Customer finance revenue
    
    
    54
    
    
    
    99Other
    
    
    (245
    )
    
    
    (304
    )$
    (3,397
    )
    
    $
    (2,607
    )
 Note 13. Subsequent Event:
 14




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##### Table of Contents



LESCO, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Organization of Information
  
    
    Overview
    
    Business Segment Results of Operation
    
    Liquidity and Capital Resources
    
    Critical Accounting Policies and Estimates
    
    Forward Looking Statements
 OVERVIEW
     (Dollars in millions)
    
    2007
    
    
    2006Lawn and landscape
    
    $
    111.0
    
    
    $
    85.4Golf
    
    
    20.7
    
    
    
    15.4$
    131.7
    
    
    $
    100.8
    15




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##### Table of Contents



BUSINESS SEGMENT RESULTS OF OPERATIONS
   16




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##### Table of Contents



Segment Statements of Operations
 Three Months Ended March 31,Stores
    
    
    Direct
    
    
    Corporate
    
    
    Total(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    114,543
    
    
    $
    84,196
    
    
    $
    15,862
    
    
    $
    15,641
    
    
    $
    
    
    
    $
    
    
    
    $
    130,405
    
    
    $
    99,837Cost of product (including
distribution costs)
    
    
    (97,138
    )
    
    
    (63,609
    )
    
    
    (13,868
    )
    
    
    (12,297
    )
    
    
    
    
    
    
    
    
    
    
    (111,006
    )
    
    
    (75,906
    )% to Net Sales
    
    
    (84.8
    %)
    
    
    (75.6
    %)
    
    
    (87.4
    %)
    
    
    (78.6
    %)
    
    
    
    
    
    
    
    
    
    
    (85.1
    %)
    
    
    (76.0
    %)Gross profit on sales
    
    
    17,405
    
    
    
    20,587
    
    
    
    1,994
    
    
    
    3,344
    
    
    
    
    
    
    
    
    
    
    
    19,399
    
    
    
    23,931% to Net Sales
    
    
    15.2
    %
    
    
    24.5
    %
    
    
    12.6
    %
    
    
    21.4
    %
    
    
    
    
    
    
    
    
    
    
    14.9
    %
    
    
    24.0
    %Selling expense
    
    
    (22,313
    )
    
    
    (21,133
    )
    
    
    (2,632
    )
    
    
    (1,426
    )
    
    
    (2,786
    )
    
    
    (2,653
    )
    
    
    (27,731
    )
    
    
    (25,212
    )% to Net Sales
    
    
    (19.4
    %)
    
    
    (25.1
    %)
    
    
    (16.6
    %)
    
    
    (9.1
    %)
    
    
    
    
    
    
    
    
    
    
    (21.3
    %)
    
    
    (25.3
    %)Merchant discounts and provision
for doubtful accounts
    
    
    (2,575
    )
    
    
    (1,652
    )
    
    
    (582
    )
    
    
    (478
    )
    
    
    (240
    )
    
    
    (477
    )
    
    
    (3,397
    )
    
    
    (2,607
    )% to Net Sales
    
    
    (2.2
    %)
    
    
    (2.0
    %)
    
    
    (3.7
    %)
    
    
    (3.1
    %)
    
    
    
    
    
    
    
    
    
    
    (2.6
    %)
    
    
    (2.6
    %)Pre-opening expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (287
    )
    
    
    (288
    )
    
    
    (287
    )
    
    
    (288
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    %)
    
    
    (0.3
    %)General & administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,445
    )
    
    
    (6,399
    )
    
    
    (5,445
    )
    
    
    (6,399
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.3
    %)
    
    
    (6.4
    %)Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    135
    
    
    
    26
    
    
    
    135% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.1
    %Earnings (loss) before interest and taxes
    
    $
    (7,483
    )
    
    $
    (2,198
    )
    
    $
    (1,220
    )
    
    $
    1,440
    
    
    $
    (8,732
    )
    
    $
    (9,682
    )
    
    $
    (17,435
    )
    
    $
    (10,440
    )% to Net Sales
    
    
    (6.4
    %)
    
    
    (2.6
    %)
    
    
    (7.7
    %)
    
    
    9.2
    %
    
    
    
    
    
    
    
    
    
    
    (13.5
    %)
    
    
    (10.5
    %)Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (640
    )
    
    
    (175
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    %)
    
    
    (0.2
    %)Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,075
    )
    
    
    (10,615
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.9
    %)
    
    
    (10.6
    %)Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (18,075
    )
    
    $
    (10,615
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.9
    %)
    
    
    (10.6
    %)
 Sales by Customer Sector and Transacting Selling Locations
  Three Months Ended March 31,2007
    
    
    2006
    
    
    % ChangeStores
    
    
    Direct
    
    
    
    
    
    
    Stores
    
    
    Direct
    
    
    
    
    
    
    Stores
    
    
    Direct(Dollars in millions)
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    TotalLawn and landscape
    
    $
    98.1
    
    
    $
    12.9
    
    
    $
    111.0
    
    
    $
    70.3
    
    
    $
    15.1
    
    
    $
    85.4
    
    
    
    39.5
    %
    
    
    (14.6
    %)
    
    
    30.0
    %Golf
    
    
    17.4
    
    
    
    3.3
    
    
    
    20.7
    
    
    
    14.8
    
    
    
    0.6
    
    
    
    15.4
    
    
    
    17.6
    %
    
    
    450.0
    %
    
    
    34.4
    %Gross sales
    
    
    115.5
    
    
    
    16.2
    
    
    
    131.7
    
    
    
    85.1
    
    
    
    15.7
    
    
    
    100.8
    
    
    
    35.7
    %
    
    
    3.2
    %
    
    
    30.7
    %Net sales adjustments (a)
    
    
    (1.0
    )
    
    
    (0.3
    )
    
    
    (1.3
    )
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    (1.0
    )
    
    
    (11.1
    %)
    
    
    (200.0
    %)
    
    
    (30.0
    %)Net sales
    
    $
    114.5
    
    
    $
    15.9
    
    
    $
    130.4
    
    
    $
    84.2
    
    
    $
    15.6
    
    
    $
    99.8
    
    
    
    36.0
    %
    
    
    1.9
    %
    
    
    30.7
    %
 
 (a)
    
    Net sales adjustments include freight revenue reduced by
agency sales, customer discounts, and customer rebates. Stores Segment
  17




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##### Table of Contents



Sales
 Three Months Ended March 31,2007
    
    
    2006
    
    
    % ChangeService
    
    
    Stores on
    
    
    
    
    
    
    Service
    
    
    Stores on
    
    
    
    
    
    
    Service
    
    
    Stores on(Dollars in millions)
    
    Centers
    
    
    Wheels
    
    
    Total
    
    
    Centers
    
    
    Wheels
    
    
    Total
    
    
    Centers
    
    
    Wheels
    
    
    TotalLawn and landscape
    
    $
    97.2
    
    
    $
    0.9
    
    
    $
    98.1
    
    
    $
    69.7
    
    
    $
    0.6
    
    
    $
    70.3
    
    
    
    39.5
    %
    
    
    50.0
    %
    
    
    39.5
    %Golf
    
    
    6.4
    
    
    
    11.0
    
    
    
    17.4
    
    
    
    5.9
    
    
    
    8.9
    
    
    
    14.8
    
    
    
    8.5
    %
    
    
    23.6
    %
    
    
    17.6
    %Gross sales
    
    
    103.6
    
    
    
    11.9
    
    
    
    115.5
    
    
    
    75.6
    
    
    
    9.5
    
    
    
    85.1
    
    
    
    37.0
    %
    
    
    25.3
    %
    
    
    35.7
    %Net sales adjustments
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (1.0
    )
    
    
    (0.3
    )
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    (133.3
    %)
    
    
    50.0
    %
    
    
    (11.1
    %)Net sales
    
    $
    102.9
    
    
    $
    11.6
    
    
    $
    114.5
    
    
    $
    75.3
    
    
    $
    8.9
    
    
    $
    84.2
    
    
    
    36.7
    %
    
    
    30.3
    %
    
    
    36.0
    %
 Service Centers
 Stores-on-Wheels:
 Net sales adjustments
 Gross Profit on Sales
  18




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##### Table of Contents



Selling Expense:
  Merchant Discounts and Provision for Doubtful Accounts:
  (Loss) Earnings before Interest and Taxes:
   Direct Segment
  Sales :
 Three Months Ended March 31,(Dollars in millions)
    
    2007
    
    
    2006
    
    
    % ChangeLawn and landscape
    
    $
    12.9
    
    
    $
    15.1
    
    
    
    (14.6
    %)Golf
    
    
    3.3
    
    
    
    0.6
    
    
    
    450.0
    %Gross sales
    
    
    16.2
    
    
    
    15.7
    
    
    
    3.2
    %Net sales adjustments
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    200.0Direct Segment net sales
    
    $
    15.9
    
    
    $
    15.6
    
    
    
    1.9
    %
 Direct Segment
 Net sales adjustments
 19




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##### Table of Contents



Gross Profit on Sales:
  Selling Expense:
  Merchant Discounts and Provision for Doubtful Accounts:
  (Loss) Earnings before Interest and Taxes:
  Corporate
  Selling Expense:
  Merchant Discounts and Provision for Doubtful Accounts:
  Pre-Opening Expense:
  20




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##### Table of Contents



General and Administrative Expense:
  Other Income, Net:
  Interest Expense:
  Income Taxes and Net Loss:
 Three Months Ended March 31,(Dollars in millions, except per share data)
    
    2007
    
    
    2006
    
    
    ChangeLoss before income taxes
    
    $
    (18.1
    )
    
    $
    (10.6
    )
    
    $
    (7.5
    )Income taxes:Current
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    6.2
    
    
    
    4.3
    
    
    
    1.9Change in valuation allowance
    
    
    (6.2
    )
    
    
    (4.3
    )
    
    
    (1.9
    )
    
    
    
    
    
    
    
    Net loss
    
    $
    (18.1
    )
    
    $
    (10.6
    )
    
    $
    (7.5
    )Loss per common share:Diluted
    
    $
    (1.98
    )
    
    $
    (1.18
    )Basic
    
    $
    (1.98
    )
    
    $
    (1.18
    )
  Accounting for Income Taxes
  21




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Three Months Ended March 31,(Dollars in millions)
    
    2007
    
    
    2006Cash provided by (used in) in operations
    
    $
    11.0
    
    
    $
    (18.9
    )Cash used in investing activities
    
    
    (0.8
    )
    
    
    (0.6
    )Cash (used in) provided by financing activities
    
    
    (0.9
    )
    
    
    6.9Increase (decrease) in cash and cash equivalents
    
    $
    9.3
    
    
    $
    (12.6
    )
   March 31,
    
    
    December 31,(Dollars in millions)
    
    2007
    
    
    2006
    
    
    2006Accounts payable
    
    $
    88.3
    
    
    $
    78.7
    
    
    $
    48.8Inventory
    
    $
    107.4
    
    
    $
    99.1
    
    
    $
    92.6Accounts payable leverage
    
    
    82.2
    %
    
    
    79.4
    %
    
    
    52.7
    %
 Capital Expenditures
 Three Months Ended March 31,(Dollars in millions)
    
    2007
    
    
    2006New stores
    
    $
    0.8
    
    
    $
    0.3Corporate systems & miscellaneous
    
    
    0.1
    
    
    
    0.3$
    0.9
    
    
    $
    0.6
   Financing Activities:
  22




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##### Table of Contents



Contractual Obligations, Commitments and Off Balance Sheet Arrangements
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
   Allowance for Doubtful Accounts
  23




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##### Table of Contents



Inventories
  Income Taxes
  Impairment of Long-Lived Assets
  Accrued Liabilities
  24




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##### Table of Contents



FORWARD LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
  25




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##### Table of Contents



PART II  OTHER INFORMATION
  
 ITEM 1. LEGAL PROCEEDINGS
 ®
  
 ITEM 1(a). RISK FACTORS
  26




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit 2(a)
    
    Agreement and Plan of Merger among Deere & Company, Deere Merger Sub, Inc. and LESCO, Inc. dated as
of February 19, 2007 (included as an exhibit to Registrants Form 8-K dated February 19, 2007 and
incorporated herein by reference).Exhibit 10(a)
    
    LESCO, Inc. Employment Retention Plan (included as an
exhibit to Registrants Form 8-K dated February 19, 2007 and
incorporated herein by reference).Exhibit 10(b)
    
    Employment Retention Agreement, dated February 19, 2007,
between the Company and Jeffrey L. Rutherford (included as
an exhibit to Registrants Form 8-K dated February 19, 2007
and incorporated herein by reference).Exhibit 10(c)
    
    Employment Retention Agreement, dated February 19, 2007,
between the Company and Bruce K. Thorn (included as an
exhibit to Registrants Form 8-K dated February 19, 2007 and
incorporated herein by reference).Exhibit 10(d)
    
    Employment Retention Agreement, dated February 19, 2007,
between the Company and Michael A. Weisbarth (included as an
exhibit to Registrants Form 8-K dated February 19, 2007 and
incorporated herein by reference).Exhibit 10(e)
    
    Employment Retention Agreement, dated February 19, 2007,
between the Company and Kathleen M. Minahan (included as an
exhibit to Registrants Form 8-K dated February 19, 2007 and
incorporated herein by reference).Exhibit 31(a)
    
    Jeffrey L. Rutherford Rule 13a-14(a)/15d-14(a) CertificationExhibit 31(b)
    
    Michael A. Weisbarth Rule 13a-14(a)/15d-14(a) CertificationExhibit 32(a)
    
    Jeffrey L. Rutherford Section 1350 CertificationExhibit 32(b)
    
    Michael A. Weisbarth Section 1350 Certification
 27




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##### Table of Contents



LESCO, INC.Date:
May 31, 2007
    
    By: /s/ Michael A. WeisbarthMichael A. Weisbarth
Chief Financial Officer
 28