##### 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, 2006
 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(State or other jurisdiction of
incorporation or organization)
    
    34-0904517(I.R.S. Employer Identification No.)
 1301 East Ninth Street, Suite 1300
Cleveland, Ohio(Address of principal executive offices)
    
    44114(Zip Code)
 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 2(c) UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 6. EXHIBITSSIGNATURESEX-3(A) Amended Articles of Incorporation  of the RegistrantEX-31(A) Jeffrey L. Rutherford Rule 13A-14(a)/15D-14(A) CertEX-31(B) Michael A. Weisbarth Rule 13A-14(A)/15D-14(A) CertEX-32(A) Jeffrey L. Rutherford Section 1350 CertificationEX-32(B) Michael A. Weisbarth Section 1350 Certification    Table of Contents  
 PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
 For the Three Months Ended March 31,(Dollars in thousands, except per share data)
    
    2006
    
    
    2005Net sales
    
    $
    99,837
    
    
    $
    98,054Cost of product (including distribution costs)
    
    
    (75,906
    )
    
    
    (74,702
    )Gross profit on sales
    
    
    23,931
    
    
    
    23,352Selling expense
    
    
    (25,212
    )
    
    
    (25,222
    )General & administrative expense
    
    
    (6,399
    )
    
    
    (6,382
    )Merchant discounts and provision for doubtful accounts
    
    
    (2,607
    )
    
    
    (2,050
    )Pre-opening expense
    
    
    (288
    )
    
    
    (197
    )Other expense
    
    
    
    
    
    
    (36
    )Other income
    
    
    135
    
    
    
    179Loss before interest and income taxes
    
    
    (10,440
    )
    
    
    (10,356
    )Interest expense, net
    
    
    (175
    )
    
    
    (317
    )Loss before income taxes
    
    
    (10,615
    )
    
    
    (10,673
    )Income tax (provision) benefit:Current
    
    
    
    
    
    
    Deferred
    
    
    4,261
    
    
    
    3,540Change in valuation allowance
    
    
    (4,261
    )
    
    
    (3,540
    )
    
    
    
    Net loss
    
    $
    (10,615
    )
    
    $
    (10,673
    )Loss per common share:Diluted
    
    $
    (1.18
    )
    
    $
    (1.21
    )Basic
    
    $
    (1.18
    )
    
    $
    (1.21
    )Average number of common shares and common share
equivalents outstanding:Diluted
    
    
    9,007,235
    
    
    
    8,818,121Basic
    
    
    9,007,235
    
    
    
    8,818,121
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LESCO, INC.
CONSOLIDATED BALANCE SHEETS  UNAUDITED
 (Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005
    
    
    December 31, 2005CURRENT ASSETS:Cash and cash equivalents
    
    $
    8,413
    
    
    $
    9,150
    
    
    $
    21,030Accounts receivable, net
    
    
    20,204
    
    
    
    9,653
    
    
    
    16,310Inventories
    
    
    99,139
    
    
    
    130,146
    
    
    
    80,346Other
    
    
    1,991
    
    
    
    3,087
    
    
    
    2,667TOTAL CURRENT ASSETS
    
    
    129,747
    
    
    
    152,036
    
    
    
    120,353Property, plant and equipment, net
    
    
    9,253
    
    
    
    25,506
    
    
    
    9,624Other
    
    
    1,031
    
    
    
    1,196
    
    
    
    904$
    140,031
    
    
    $
    178,738
    
    
    $
    130,881CURRENT LIABILITIES:Accounts payable
    
    $
    78,698
    
    
    $
    76,059
    
    
    $
    61,381Accrued liabilities
    
    
    19,720
    
    
    
    19,539
    
    
    
    24,576Revolving credit facility
    
    
    5,187
    
    
    
    24,751
    
    
    
    TOTAL CURRENT LIABILITIES
    
    
    103,605
    
    
    
    120,349
    
    
    
    85,957Deferred  other
    
    
    2,213
    
    
    
    1,741
    
    
    
    2,166TOTAL LIABILITIES
    
    
    105,818
    
    
    
    122,090
    
    
    
    88,123SHAREHOLDERS EQUITY:Common shareswithout par value
19,500,000 shares authorized; 9,171,084 shares issued
and 9,153,924 outstanding at March 31, 2006; 8,872,914
shares issued and outstanding at March 31, 2005 and
8,949,921 shares
issued and outstanding at December 31, 2005
    
    
    916
    
    
    
    887
    
    
    
    894Paid-in capital
    
    
    39,212
    
    
    
    37,235
    
    
    
    38,051Treasury stock; 17,160 at March 31, 2006; none in 2005
    
    
    (255
    )
    
    
    
    
    
    
    Retained (deficit) earnings
    
    
    (5,660
    )
    
    
    20,964
    
    
    
    4,955Unearned compensation
    
    
    
    
    
    
    (2,438
    )
    
    
    (1,142
    )TOTAL SHAREHOLDERS EQUITY
    
    
    34,213
    
    
    
    56,648
    
    
    
    42,758$
    140,031
    
    
    $
    178,738
    
    
    $
    130,881
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LESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 For the Three Months Ended March 31,(Dollars in thousands)
    
    2006
    
    
    2005OPERATING ACTIVITIES:Net loss
    
    $
    (10,615
    )
    
    $
    (10,673
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    883
    
    
    
    1,652(Increase) decrease in accounts receivable
    
    
    (3,392
    )
    
    
    7,278Loss on sale/disposal of property, plant and equipment
    
    
    55
    
    
    
    66Increase in inventories
    
    
    (18,793
    )
    
    
    (29,564
    )Increase in accounts payable
    
    
    17,198
    
    
    
    19,526Decreased in accrued expenses
    
    
    (4,866
    )
    
    
    (4,645
    )Decrease in other items
    
    
    603
    
    
    
    358NET CASH USED IN OPERATING ACTIVITIES
    
    
    (18,927
    )
    
    
    (16,002
    )INVESTING ACTIVITIES:Proceeds on the sale of property, plant and equipment
    
    
    1
    
    
    
    1Purchase of property, plant and equipment:Stores
    
    
    (329
    )
    
    
    (860
    )Other
    
    
    (250
    )
    
    
    (306
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (578
    )
    
    
    (1,165
    )FINANCING ACTIVITIES:Increase in overdraft balances
    
    
    119
    
    
    
    162Proceeds from borrowings, net
    
    
    5,187
    
    
    
    17,448Purchase of treasury shares
    
    
    (255
    )
    
    
    Exercised stock options
    
    
    1,837
    
    
    
    606NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    6,888
    
    
    
    18,216Net change in cash and cash equivalents
    
    
    (12,617
    )
    
    
    1,049Cash and cash equivalents  Beginning of the period
    
    
    21,030
    
    
    
    8,101CASH AND CASH EQUIVALENTS  END OF THE PERIOD
    
    $
    8,413
    
    
    $
    9,150Supplemental disclosure of cash flow information:Interest paid, including letters of credit and unused facility fees
    
    $
    (126
    )
    
    $
    (299
    )Income taxes paid
    
    $
    (34
    )
    
    $
    (32
    )
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business and Segment Information
 ® ®
 Segment Information
   For the Three Months Ended March 31,(Dollars in millions)
    
    2006
    
    
    2005Net salesStores
    
    $
    84,196
    
    
    $
    76,060Direct
    
    
    15,641
    
    
    
    21,994Corporate
    
    
    
    
    
    
    $
    99,837
    
    
    $
    98,054(Loss) earnings before interest and taxesStores
    
    $
    (2,198
    )
    
    $
    607Direct
    
    
    1,440
    
    
    
    (782
    )Corporate
    
    
    (9,682
    )
    
    
    (10,181
    )$
    (10,440
    )
    
    $
    (10,356
    )Capital expendituresStores
    
    $
    329
    
    
    $
    860Direct
    
    
    
    
    
    
    Corporate
    
    
    250
    
    
    
    306$
    579
    
    
    $
    1,166Depreciation expenseStores
    
    $
    421
    
    
    $
    272Direct
    
    
    12
    
    
    
    20Corporate
    
    
    410
    
    
    
    1,320$
    843
    
    
    $
    1,612Intangible asset amortization expenseStores
    
    $
    
    
    
    $
    Direct
    
    
    
    
    
    
    Corporate
    
    
    40
    
    
    
    40$
    40
    
    
    $
    40March 31,2006
    
    
    2005Total assetsStores
    
    $
    92,822
    
    
    $
    88,735Direct
    
    
    1,552
    
    
    
    1,848Corporate
    
    
    45,657
    
    
    
    88,155$
    140,031
    
    
    $
    178,738
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Note 2. Summary of Significant Accounting Policies
 Principles of Consolidation :
 Earnings per Share :
  Stock Options Accounting for Stock-Based Compensation
  :
 (Dollars in thousands, except per share data)
    
    March 31, 2005Net loss as reported
    
    $
    (10,673
    )Add: stock option expense included in reported
net income, net of related tax effects
    
    
    Less: stock option expense, net of related tax effects
    
    
    (74
    )Pro forma net loss
    
    $
    (10,747
    )Loss per diluted shareAs reported
    
    $
    (1.21
    )Pro forma
    
    $
    (1.22
    )Loss per basic shareAs reported
    
    $
    (1.21
    )Pro forma
    
    $
    (1.22
    )
   6




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Note 3. Accounts Receivable
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2005Supplier rebate programs
    
    $
    337
    
    
    $
    3,135
    
    
    $
    4,574Supplier other
    
    
    10,574
    
    
    
    
    
    
    
    4,635Trade receivablesOwned  domestic
    
    
    5,191
    
    
    
    6,679
    
    
    
    3,763Owned  international
    
    
    2,904
    
    
    
    1,735
    
    
    
    3,076Other
    
    
    2,694
    
    
    
    931
    
    
    
    1,879Allowance for doubtful accounts
    
    
    (1,496
    )
    
    
    (2,827
    )
    
    
    (1,617
    )$
    20,204
    
    
    $
    9,653
    
    
    $
    16,310
  
    
    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 the volume
purchased increases over the minimum requirement.
    
    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)
    
    2006
    
    
    2005
    
    
    2005Logistics charges
    
    $
    7,170
    
    
    $
    
    
    
    $
    3,791Grass seed
    
    
    2,456
    
    
    
    
    
    
    
    755Vendor rebates/other
    
    
    948
    
    
    
    
    
    
    
    89$
    10,574
    
    
    $
    
    
    
    $
    4,635
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Note 4. Inventories
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2005Finished goods and purchased inventoriesSelling locations
    
    $
    82,454
    
    
    $
    78,986
    
    
    $
    72,523Non-selling locations
    
    
    11,648
    
    
    
    45,616
    
    
    
    8,377Less: Markdown, shrink and vendor discount reserves
    
    
    (2,025
    )
    
    
    (2,380
    )
    
    
    (3,887
    )Inventory held on consignment
    
    
    (4,332
    )
    
    
    (8,757
    )
    
    
    (3,961
    )87,745
    
    
    
    113,465
    
    
    
    73,052Raw materials
    
    
    
    
    
    
    16,681
    
    
    
    Grass seed
    
    
    11,394
    
    
    
    
    
    
    
    7,294$
    99,139
    
    
    $
    130,146
    
    
    $
    80,346
    8




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##### Table of Contents



Note 5. Property, Plant and Equipment
    March 31, 2006
    
    March 31, 2005
    
    December 31, 2005(Dollars in thousands)
    
    Stores
    
    Direct
    
    Corporate
    
    Total
    
    Stores
    
    Direct
    
    Corporate
    
    Total
    
    Stores
    
    Direct
    
    Corporate
    
    TotalLand
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    600
    
    
    $
    600
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Buildings and improvements
    
    
    1,862
    
    
    
    
    
    
    
    246
    
    
    
    2,108
    
    
    
    2,289
    
    
    
    
    
    
    
    18,892
    
    
    
    21,181
    
    
    
    2,408
    
    
    
    
    
    
    
    669
    
    
    
    3,077Machinery and equipment
    
    
    5,261
    
    
    
    7
    
    
    
    221
    
    
    
    5,489
    
    
    
    4,076
    
    
    
    22
    
    
    
    19,708
    
    
    
    23,806
    
    
    
    5,189
    
    
    
    7
    
    
    
    349
    
    
    
    5,545Furniture and fixtures
    
    
    6,670
    
    
    
    308
    
    
    
    19,118
    
    
    
    26,096
    
    
    
    6,008
    
    
    
    455
    
    
    
    30,278
    
    
    
    36,741
    
    
    
    6,434
    
    
    
    308
    
    
    
    18,656
    
    
    
    25,398Subtotal
    
    
    13,793
    
    
    
    315
    
    
    
    19,585
    
    
    
    33,693
    
    
    
    12,373
    
    
    
    477
    
    
    
    69,478
    
    
    
    82,328
    
    
    
    14,031
    
    
    
    315
    
    
    
    19,674
    
    
    
    34,020Less: Accumulated depreciation
    
    
    (7,623
    )
    
    
    (234
    )
    
    
    (16,583
    )
    
    
    (24,440
    )
    
    
    (7,196
    )
    
    
    (260
    )
    
    
    (49,366
    )
    
    
    (56,822
    )
    
    
    (7,712
    )
    
    
    (222
    )
    
    
    (16,462
    )
    
    
    (24,396
    )Property, plant and equipment, net
    
    $
    6,170
    
    
    $
    81
    
    
    $
    3,002
    
    
    $
    9,253
    
    
    $
    5,177
    
    
    $
    217
    
    
    $
    20,112
    
    
    $
    25,506
    
    
    $
    6,319
    
    
    $
    93
    
    
    $
    3,212
    
    
    $
    9,624
 Note 6. Borrowings:
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2005Current:Revolving credit facility
    
    $
    5,187
    
    
    $
    24,751
    
    
    $
    
 Revolving Credit Facility
  9




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##### Table of Contents



(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005
    
    
    December 31, 2005Supplier contract
    
    $
    10,000
    
    
    $
    
    
    
    $
    10,000Insurance programs
    
    
    2,708
    
    
    
    2,958
    
    
    
    2,708Other
    
    
    400
    
    
    
    320
    
    
    
    320$
    13,108
    
    
    $
    3,278
    
    
    $
    13,028
  Note 7. Asset Rationalization and Severance Expense:
 Asset Rationalization Accrual(Dollars in thousands)
    
    Lease Costs
    
    
    Other Exit Costs
    
    
    Total
    
    
    Severance Accrual
    
    
    TotalAsset rationalization reserves and severance
accruals at December 31, 2005
    
    $
    1,551
    
    
    $
    578
    
    
    $
    2,129
    
    
    $
    840
    
    
    $
    2,9692006 Activity:Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    492
    
    
    
    492Utilized/payments
    
    
    (171
    )
    
    
    (164
    )
    
    
    (335
    )
    
    
    (42
    )
    
    
    (377
    )Asset rationalization reserves and
severance accruals at March 31, 2006
    
    $
    1,380
    
    
    $
    414
    
    
    $
    1,794
    
    
    $
    1,290
    
    
    $
    3,084
   Note 8. Stock Incentive Plans:
  10




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For the Three Months Ended March 31, 2006Weighted AverageShares
    
    
    Exercise PriceOutstanding  beginning of year
    
    
    1,128,908
    
    
    $
    11.74Granted
    
    
    
    
    
    
    Exercised
    
    
    (258,783
    )
    
    
    8.57Canceled/forfeited
    
    
    (114,166
    )
    
    
    14.24Outstanding  end of quarter
    
    
    755,959
    
    
    $
    12.45Exercisable  end of quarter
    
    
    682,155
    
    
    $
    12.41Reserved for future grants
    
    
    821,348
  Weighted
    
    
    WeightedAverage
    
    
    AverageOptions
    
    
    Options
    
    
    Exercise
    
    
    ContractualRange of Exercise Prices
    
    Outstanding
    
    
    Exercisable
    
    
    Price
    
    
    Life$0 to $10.00
    
    
    157,750
    
    
    
    157,750
    
    
    $
    7.45
    
    
    6.2 years$10.01 to $15.00
    
    
    472,909
    
    
    
    399,105
    
    
    
    12.55
    
    
    6.5 years$15.01 to $20.00
    
    
    105,450
    
    
    
    105,450
    
    
    
    16.74
    
    
    3.7 years$20.01 and above
    
    
    19,850
    
    
    
    19,850
    
    
    
    22.33
    
    
    1.9 years755,959
    
    
    
    682,155
    
    
    $
    12.41
    
    
    5.9 years
 (Dollars in thousands)Aggregate intrinsic value
at March 31, 2006
    
    $
    3,524
    
    
    $
    3,205
   For the Three Months Ended March 31, 2006Weighted AverageShares
    
    
    Grant Date Fair ValueNonvested  beginning of year
    
    
    156,220
    
    
    $
    13.38Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Canceled/forfeited
    
    
    (37,620
    )
    
    
    13.59Nonvested  end of quarter
    
    
    118,600
    
    
    $
    13.31
 11




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Note 9. Supply Chain Transaction and Long-Term Supply Agreement with Turf Care Supply Corporation:
  Note 10. Detail of Certain Balance Sheets Accounts
 March 31,
    
    
    December 31,(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2005Other current assets:Other prepaids
    
    $
    874
    
    
    $
    1,860
    
    
    $
    962Prepaid insurance
    
    
    818
    
    
    
    991
    
    
    
    1,424Notes receivable
    
    
    187
    
    
    
    187
    
    
    
    187Assets held for sale
    
    
    112
    
    
    
    49
    
    
    
    94$
    1,991
    
    
    $
    3,087
    
    
    $
    2,667Other non-current assets:Notes receivable
    
    $
    310
    
    
    $
    454
    
    
    $
    302Store deposits
    
    
    532
    
    
    
    539
    
    
    
    532Miscellaneous deposits
    
    
    68
    
    
    
    44
    
    
    
    70Other prepaids
    
    
    121
    
    
    
    159
    
    
    
    $
    1,031
    
    
    $
    1,196
    
    
    $
    904Accounts payable:Accounts payable to TCS
    
    $
    58,046
    
    
    $
    
    
    
    $
    43,702Accounts payable  other trade
    
    
    15,732
    
    
    
    70,035
    
    
    
    12,878Overdraft balances
    
    
    4,920
    
    
    
    6,024
    
    
    
    4,801$
    78,698
    
    
    $
    76,059
    
    
    $
    61,381Accrued liabilities:Accrued non-income taxes
    
    $
    3,073
    
    
    $
    3,182
    
    
    $
    3,314Commissions and management bonuses
    
    
    1,291
    
    
    
    1,747
    
    
    
    5,707Salaries and wages
    
    
    1,670
    
    
    
    1,493
    
    
    
    358Insurance
 hospitalization and workers compensation
    
    
    2,344
    
    
    
    2,387
    
    
    
    2,771Asset rationalization
    
    
    1,794
    
    
    
    356
    
    
    
    2,129Insurance
 property and casualty
    
    
    2,168
    
    
    
    1,580
    
    
    
    2,430Severance
    
    
    1,290
    
    
    
    131
    
    
    
    840Vendor contract termination
    
    
    
    
    
    
    2,849
    
    
    
    Other
    
    
    6,090
    
    
    
    5,814
    
    
    
    7,027$
    19,720
    
    
    $
    19,539
    
    
    $
    24,576Deferred  other:Rent
    
    $
    994
    
    
    $
    841
    
    
    $
    931Letters of credit
    
    
    900
    
    
    
    900
    
    
    
    900Other
    
    
    319
    
    
    
    
    
    
    
    335$
    2,213
    
    
    $
    1,741
    
    
    $
    2,166
 12




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##### Table of Contents



Note 11. Detail of Certain Statements of Operations Accounts
 For the Three Months Ended March 31,(Dollars in thousands)
    
    2006
    
    
    2005Net sales:Gross sales
    
    $
    100,830
    
    
    $
    99,811Freight revenue
    
    
    233
    
    
    
    163Agency
sales, customer discounts, rebates and sales adjustments
    
    
    (1,226
    )
    
    
    (1,920
    )$
    99,837
    
    
    $
    98,054Merchant discounts and provisions for doubtful accounts:Merchant discountsMulti-purpose credit programs
    
    $
    (340
    )
    
    $
    (300
    )Private-label business credit programs
    
    
    (1,238
    )
    
    
    (1,118
    )Private-label promotional discounts
    
    
    (824
    )
    
    
    (574
    )Customer finance revenue
    
    
    99
    
    
    
    85Other
    
    
    (304
    )
    
    
    (143
    )$
    (2,607
    )
    
    $
    (2,050
    )Other income:Vendor payment discounts
    
    $
    72
    
    
    $
    166Other
    
    
    63
    
    
    
    13$
    135
    
    
    $
    179
 13




---



##### 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)
    
    2006
    
    
    2005Lawn Care
    
    $
    85.4
    
    
    $
    82.1Golf
    
    
    15.4
    
    
    
    17.7$
    100.8
    
    
    $
    99.8
    14




---



##### Table of Contents



BUSINESS SEGMENT RESULTS OF OPERATIONS
   Segment Income Statement
 Three Months Ended March 31,Stores
    
    
    Direct Sales
    
    
    Corporate
    
    
    Total(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    84,196
    
    
    $
    76,060
    
    
    $
    15,641
    
    
    $
    21,994
    
    
    $
    
    
    
    $
    
    
    
    $
    99,837
    
    
    $
    98,054Cost of Product (including distribution costs)
    
    
    (63,609
    )
    
    
    (56,100
    )
    
    
    (12,297
    )
    
    
    (18,602
    )
    
    
    
    
    
    
    
    
    
    
    (75,906
    )
    
    
    (74,702
    )Gross profit on sales
    
    
    20,587
    
    
    
    19,960
    
    
    
    3,344
    
    
    
    3,392
    
    
    
    
    
    
    
    
    
    
    
    23,931
    
    
    
    23,352% to Net Sales
    
    
    24.5
    %
    
    
    26.2
    %
    
    
    21.4
    %
    
    
    15.4
    %
    
    
    
    
    
    
    
    
    
    
    24.0
    %
    
    
    23.8
    %Selling expense
    
    
    (21,133
    )
    
    
    (18,305
    )
    
    
    (1,426
    )
    
    
    (3,517
    )
    
    
    (2,653
    )
    
    
    (3,400
    )
    
    
    (25,212
    )
    
    
    (25,222
    )% to Net Sales
    
    
    (25.1
    )%
    
    
    (24.1
    )%
    
    
    (9.1
    )%
    
    
    (16.0
    )%
    
    
    
    
    
    
    
    
    
    
    (25.3
    )%
    
    
    (25.7
    )%Merchant discounts
    
    
    (1,652
    )
    
    
    (1,048
    )
    
    
    (478
    )
    
    
    (657
    )
    
    
    (477
    )
    
    
    (345
    )
    
    
    (2,607
    )
    
    
    (2,050
    )% to Net Sales
    
    
    (2.0
    )%
    
    
    (1.4
    )%
    
    
    (3.1
    )%
    
    
    (3.0
    )%
    
    
    
    
    
    
    
    
    
    
    (2.6
    )%
    
    
    (2.1)
    %Pre-opening expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (288
    )
    
    
    (197
    )
    
    
    (288
    )
    
    
    (197
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )%
    
    
    (0.2)
    %General & administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,399
    )
    
    
    (6,382
    )
    
    
    (6,399
    )
    
    
    (6,382
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.4
    )%
    
    
    (6.5)
    %Other income (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    143
    
    
    
    135
    
    
    
    143% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    %
    
    
    0.1
    %Earnings (loss) before interest and taxes
    
    $
    (2,198
    )
    
    $
    607
    
    
    $
    1,440
    
    
    $
    (782
    )
    
    $
    (9,682
    )
    
    $
    (10,181
    )
    
    $
    (10,440
    )
    
    $
    (10,356
    )% to Net Sales
    
    
    (2.6
    )%
    
    
    0.8
    %
    
    
    9.2
    %
    
    
    (3.6
    )%
    
    
    
    
    
    
    
    
    
    
    (10.5
    )%
    
    
    (10.6
    )%Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    (317
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )%
    
    
    (0.3)
    %Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,615
    )
    
    
    (10,673
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )%
    
    
    (10.9
    )%Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    %Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (10,615
    )
    
    $
    (10,673
    )% to Net Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )%
    
    
    (10.9
    )%
 15




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##### Table of Contents



Sales by Customer Sector and Transacting Selling Locations
  Three Months Ended March 31,2006
    
    
    2005
    
    
    % Change(Dollars in millions)
    
    Stores Segment
    
    
    Direct Segment
    
    
    Total
    
    
    Stores Segment
    
    
    Direct Segment
    
    
    Total
    
    
    Stores Segment
    
    
    Direct Segment
    
    
    TotalLawn care
    
    $
    70.3
    
    
    $
    15.1
    
    
    $
    85.4
    
    
    $
    63.8
    
    
    $
    18.3
    
    
    $
    82.1
    
    
    
    10.2
    %
    
    
    (17.5
    )%
    
    
    4.0
    %Golf
    
    
    14.8
    
    
    
    0.6
    
    
    
    15.4
    
    
    
    13.9
    
    
    
    3.8
    
    
    
    17.7
    
    
    
    6.5
    
    
    
    (84.2
    )
    
    
    (13.0
    )Gross sales
    
    
    85.1
    
    
    
    15.7
    
    
    
    100.8
    
    
    
    77.7
    
    
    
    22.1
    
    
    
    99.8
    
    
    
    9.5
    
    
    
    (29.0
    )
    
    
    1.0Net sales adjustments (a)
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    (1.0
    )
    
    
    (1.6
    )
    
    
    (0.1
    )
    
    
    (1.7
    )
    
    
    43.8
    
    
    
    0.0
    
    
    
    41.2Net sales
    
    $
    84.2
    
    
    $
    15.6
    
    
    $
    99.8
    
    
    $
    76.1
    
    
    $
    22.0
    
    
    $
    98.1
    
    
    
    10.6
    %
    
    
    (29.1
    )%
    
    
    1.7
    %
 
 (a)
    
    Net sales adjustments include freight revenue reduced by agency sales, customer discounts, and customer rebates. Stores Segment
  Sales
 Three Months Ended March 31,2006
    
    
    2005
    
    
    %ChangeService
    
    
    Stores on
    
    
    
    
    
    
    Service
    
    
    Stores on
    
    
    
    
    
    
    
    
    
    
    Service
    
    
    Stores on(Dollars in millions)
    
    Centers
    
    
    Wheels
    
    
    Total
    
    
    Centers
    
    
    Wheels
    
    
    Other
    
    
    Total
    
    
    Centers
    
    
    Wheels
    
    
    Other
    
    
    TotalLawn care
    
    $
    69.7
    
    
    $
    0.6
    
    
    $
    70.3
    
    
    $
    62.7
    
    
    $
    0.2
    
    
    $
    0.9
    
    
    $
    63.8
    
    
    
    11.2
    %
    
    
    200.0
    %
    
    
    (100.0
    )%
    
    
    10.2
    %Golf
    
    
    5.9
    
    
    
    8.9
    
    
    
    14.8
    
    
    
    6.4
    
    
    
    7.3
    
    
    
    0.2
    
    
    
    13.9
    
    
    
    (7.8
    )
    
    
    21.9
    
    
    
    (100.0
    )
    
    
    6.5Gross sales
    
    
    75.6
    
    
    
    9.5
    
    
    
    85.1
    
    
    
    69.1
    
    
    
    7.5
    
    
    
    1.1
    
    
    
    77.7
    
    
    
    9.4
    
    
    
    26.7
    
    
    
    (100.0
    )
    
    
    9.5Net sales adjustments
    
    
    (0.3
    )
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    (1.1
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (1.6
    )
    
    
    72.7
    
    
    
    (20.0
    )
    
    
    0.0
    
    
    
    43.8Net sales
    
    $
    75.3
    
    
    $
    8.9
    
    
    $
    84.2
    
    
    $
    68.0
    
    
    $
    7.0
    
    
    $
    1.1
    
    
    $
    76.1
    
    
    
    10.7
    %
    
    
    27.1
    %
    
    
    (100.0
    )%
    
    
    10.6
    %
 Service Centers
 16




---



##### Table of Contents



For the Three Months Ended March 31,Variance(Dollars in millions)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    %Stores opened:Prior to 2003
    
    $
    63.6
    
    
    $
    61.1
    
    
    $
    2.5
    
    
    
    4.1
    %2003
    
    
    3.7
    
    
    
    3.5
    
    
    
    0.2
    
    
    
    5.72004
    
    
    4.3
    
    
    
    3.4
    
    
    
    0.9
    
    
    
    26.5Comparative stores
    
    
    71.6
    
    
    
    68.0
    
    
    
    3.6
    
    
    
    5.32005
    
    
    3.5
    
    
    
    
    
    
    
    3.5
    
    
    
    100.02006
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    100.0Total
    
    $
    75.3
    
    
    $
    68.0
    
    
    $
    7.3
    
    
    
    10.7
    %
 Stores-on-Wheels:
 Other:
 Net sales adjustments
 Gross Profit on Sales
   17




---



##### Table of Contents



Gross Profit per Square Foot of Service CentersThree Months Ended March 31,2006
    
    2005Gross Profit (Loss)
    
    
    
    
    
    Gross Profit (Loss)# of Stores
    
    per Square Foot
    
    # of Stores
    
    per Square FootClass of 2006
    
    
    6
    
    
    $
    (0.30
    )
    
    
    
    
    
    $
    Class of 2005
    
    
    31
    
    
    $
    3.92
    
    
    
    1
    
    
    $
    (5.27
    )Class of 2004
    
    
    27
    
    
    $
    5.13
    
    
    
    27
    
    
    $
    4.05Class of 2003
    
    
    21
    
    
    $
    7.96
    
    
    
    21
    
    
    $
    7.07Prior to 2003
    
    
    225
    
    
    $
    12.66
    
    
    
    226
    
    
    $
    12.43
  Selling Expense:
  Merchant Discounts and Provision for Doubtful Accounts:
  (Loss) Earnings before Interest and Taxes:
  18




---



##### Table of Contents



Three Months Ended March 31, 2006Class of 2006 (6
    
    
    Class of 2005 (31
    
    
    Class of 2004 (27
    
    
    Class of 2003 (21(Dollars in thousands)
    
    Stores)
    
    
    Stores)
    
    
    Stores)
    
    
    Stores)
    
    
    TotalNet sales
    
    $
    170
    
    
    $
    3,475
    
    
    $
    4,251
    
    
    $
    3,742
    
    
    $
    11,638Cost of product (including
distribution costs)
    
    
    (181
    )
    
    
    (2,763
    )
    
    
    (3,382
    )
    
    
    (2,850
    )
    
    
    (9,176
    )Gross profit on sales
    
    
    (11
    )
    
    
    712
    
    
    
    869
    
    
    
    892
    
    
    
    2,462Selling expense
    
    
    (194
    )
    
    
    (1,526
    )
    
    
    (1,370
    )
    
    
    (955
    )
    
    
    (4,045
    )Merchant discount expense
    
    
    (4
    )
    
    
    (56
    )
    
    
    (101
    )
    
    
    (75
    )
    
    
    (236
    )Loss before interest and taxes
    
    $
    (209
    )
    
    $
    (870
    )
    
    $
    (602
    )
    
    $
    (138
    )
    
    $
    (1,819
    )
 Three Months Ended March 31, 2005Class of 2005 (1
    
    
    Class of 2004 (27
    
    
    Class of 2003 (21(Dollars in thousands)
    
    Store)
    
    
    Stores)
    
    
    Stores)
    
    
    TotalNet sales
    
    $
    40
    
    
    $
    3,392
    
    
    $
    3,611
    
    
    $
    7,043Cost of product (including distribution costs)
    
    
    (34
    )
    
    
    (2,536
    )
    
    
    (2,645
    )
    
    
    (5,215
    )Gross profit on sales
    
    
    6
    
    
    
    856
    
    
    
    966
    
    
    
    1,828Selling expense
    
    
    (74
    )
    
    
    (1,312
    )
    
    
    (1,038
    )
    
    
    (2,424
    )Merchant discount expense
    
    
    (1
    )
    
    
    (40
    )
    
    
    (53
    )
    
    
    (94
    )Loss before interest and taxes
    
    $
    (69
    )
    
    $
    (496
    )
    
    $
    (125
    )
    
    $
    (690
    )
  Direct Segment
  Sales :
  For the Three Months Ended March 31,(Dollars in millions)
    
    2006
    
    
    2005
    
    
    % ChangeLawn care
    
    $
    15.1
    
    
    $
    18.3
    
    
    
    (17.5
    )%Golf
    
    
    0.6
    
    
    
    3.8
    
    
    
    (84.2
    )Gross sales
    
    
    15.7
    
    
    
    22.1
    
    
    
    (29.0
    )Net sales adjustments
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Direct Segment net sales
    
    $
    15.6
    
    
    $
    22.0
    
    
    
    (29.1
    )%
 Direct Segment
 19




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##### Table of Contents



Net sales adjustments
 Gross Profit on Sales:
  Gross ProfitRateFor the Quarter Ended:March 31, 2005
    
    
    15.4
    %December 31, 2005
    
    
    19.2
    %March 31, 2006
    
    
    21.4
    %
 Selling Expense:
  Merchant Discounts and Provision for Doubtful Accounts:
  (Loss) Earnings before Interest and Taxes:
  Corporate
  Selling Expense:
  20




---



##### Table of Contents



Merchant Discounts and Provision for Doubtful Accounts:
  Pre-Opening Expense
  General and Administrative Expense:
  Other Income/(Expense):
  Interest Expense:
  Income Taxes and Net Loss:
 For the Three Months Ended March 31,(Dollars in millions, except per share data)
    
    2006
    
    
    2005
    
    
    ChangeLoss before income taxes
    
    $
    (10.6
    )
    
    $
    (10.7
    )
    
    $
    0.1Income tax (provision) benefit:Current
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    4.3
    
    
    
    3.5
    
    
    
    0.8Change in valuation allowance
    
    
    (4.3
    )
    
    
    (3.5
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    
    Net loss
    
    $
    (10.6
    )
    
    $
    (10.7
    )
    
    $
    0.1Loss per common share:Diluted
    
    $
    (1.18
    )
    
    $
    (1.21
    )Basic
    
    $
    (1.18
    )
    
    $
    (1.21
    )
  21




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##### Table of Contents



Accounting for Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
  For the Three Months Ended March 31,(Dollars in millions)
    
    2006
    
    
    2005Cash used in operations
    
    $
    (18.9
    )
    
    $
    (16.0
    )Cash used in investing activities
    
    
    (0.6
    )
    
    
    (1.2
    )Cash provided by financing activities
    
    
    6.9
    
    
    
    18.2(Decrease) increase in cash and cash equivalents
    
    $
    (12.6
    )
    
    $
    1.0
   March 31,
    
    
    December 31,(Dollars in millions)
    
    2006
    
    
    2005
    
    
    2005Accounts payable
    
    $
    78.7
    
    
    $
    76.1
    
    
    $
    61.4Inventory
    
    $
    99.1
    
    
    $
    130.1
    
    
    $
    80.3Accounts payable leverage
    
    
    79.4
    %
    
    
    58.5
    %
    
    
    76.5
    %
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##### Table of Contents



Capital Expenditures
 For the Three Months Ended March 31,(Dollars in millions)
    
    2006
    
    
    2005StoresNew
    
    $
    0.3
    
    
    $
    0.4Other
    
    
    
    
    
    
    0.5Manufacturing facilities
    
    
    
    
    
    
    0.1Corporate systems
    
    
    0.3
    
    
    
    0.2$
    0.6
    
    
    $
    1.2
   Financing Activities:
      23




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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
  24




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##### Table of Contents



Inventories
  Income Taxes
  Impairment of Long-Lived Assets
  Accrued Liabilities
  FORWARD LOOKING STATEMENTS
  25




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II  OTHER INFORMATION
  
 ITEM 1. LEGAL PROCEEDINGS
 ®
  26




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##### Table of Contents



ITEM 2(c) UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 COL. A
    
    
    COL. B
    
    
    COL. C
    
    
    COL. DMaximumNumber (orApproximateTotal Number of
    
    
    Dollar Value)Shares (or
    
    
    of Shares (orUnits)
    
    
    Units) thatPurchased as
    
    
    May Yet BeTotal Number
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Purchasedof Shares (or
    
    
    Paid per
    
    
    Announced
    
    
    Under theUnits)
    
    
    Share (or
    
    
    Plans or
    
    
    Plans orPeriod
    
    Purchased
    
    
    Unit)
    
    
    Programs)
    
    
    ProgramsJanuary 1-31, 2006
    
    
    3,578
    
    
    $
    15.06
    (1)
    
    
    3,578
    
    
    
    1,496,422
    (2)February 1-28, 2006
    
    
    13,582
    
    
    
    14.83
    (1)
    
    
    13,582
    
    
    
    1,482,840
    (2)March 1-31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,482,840
    (2)Total
    
    
    17,160
    
    
    $
    14.88
    (1)
    
    
    17,160
    
    
    
    1,482,840
    (2)
 
 (1)
    
    Average price paid per share is presented at gross amount, which includes commission and fees paid to the broker.(2)
    
    On October 21, 2005, the Company announced that its Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 1.5 million common shares.
This program does not have a planned expiration date. 
 ITEM 6. EXHIBITS
 Exhibits
    
    Exhibits 3(a)
    
    Amended Articles of Incorporation of the RegistrantExhibit 3(b)
    
    Amended Code of Regulations of the Registrant (included as
an exhibit to the Registrants Annual Report on Form 10-K
for the year ended December 31, 2002 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
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##### Table of Contents



LESCO, INC.By: /s/ Michael A. WeisbarthMichael A. WeisbarthDate: May 10, 2006
    
    Vice President, Chief Financial Officer and
Treasurer
 28