##### 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 June 30, 2005
 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
 þ o




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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITSSIGNATURESEX-31(A) CertificationEX-31(B) CertificationEX-32(A) CertificationEX-32(B) Certification    Table of Contents  
 PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LESCO, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS  UNAUDITED
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    190,201
    
    
    $
    182,189
    
    
    $
    288,255
    
    
    $
    284,233Cost of product
    
    
    (122,224
    )
    
    
    (119,928
    )
    
    
    (187,237
    )
    
    
    (188,396
    )Distribution cost
    
    
    (17,061
    )
    
    
    (15,298
    )
    
    
    (26,750
    )
    
    
    (25,268
    )Gross profit on sales
    
    
    50,916
    
    
    
    46,963
    
    
    
    74,268
    
    
    
    70,569Selling expense
    
    
    (24,296
    )
    
    
    (22,911
    )
    
    
    (48,107
    )
    
    
    (44,635
    )General & administrative expense
    
    
    (6,271
    )
    
    
    (6,603
    )
    
    
    (14,039
    )
    
    
    (13,982
    )Merchant discounts and provision for
doubtful accounts
    
    
    (3,803
    )
    
    
    (2,554
    )
    
    
    (5,853
    )
    
    
    (4,181
    )Pre-opening expense
    
    
    (491
    )
    
    
    (597
    )
    
    
    (648
    )
    
    
    (910
    )Vendor contract termination
    
    
    (464
    )
    
    
    
    
    
    
    (464
    )
    
    
    Other expense
    
    
    
    
    
    
    (90
    )
    
    
    (37
    )
    
    
    (78
    )Other income
    
    
    283
    
    
    
    139
    
    
    
    398
    
    
    
    306Earnings before interest and taxes
    
    
    15,874
    
    
    
    14,347
    
    
    
    5,518
    
    
    
    7,089Interest expense, net
    
    
    (124
    )
    
    
    (136
    )
    
    
    (441
    )
    
    
    (491
    )Earnings before taxes
    
    
    15,750
    
    
    
    14,211
    
    
    
    5,077
    
    
    
    6,598Income tax (provision) benefit:Current
    
    
    
    
    
    
    (905
    )
    
    
    
    
    
    
    (1,245
    )Deferred
    
    
    (4,314
    )
    
    
    (4,637
    )
    
    
    (774
    )
    
    
    (1,328
    )Change in valuation allowance
    
    
    4,314
    
    
    
    5,542
    
    
    
    774
    
    
    
    2,233
    
    
    
    
    
    
    
    
    
    
    
    (340
    )Net income
    
    $
    15,750
    
    
    $
    14,211
    
    
    $
    5,077
    
    
    $
    6,258Earnings per common share:Diluted
    
    $
    1.71
    
    
    $
    1.58
    
    
    $
    0.55
    
    
    $
    0.70Basic
    
    $
    1.77
    
    
    $
    1.63
    
    
    $
    0.57
    
    
    $
    0.72Average number of common shares and
common share equivalents outstanding:Diluted
    
    
    9,195,080
    
    
    
    8,975,352
    
    
    
    9,169,482
    
    
    
    8,914,320Basic
    
    
    8,887,944
    
    
    
    8,697,694
    
    
    
    8,853,033
    
    
    
    8,687,601
  2




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LESCO, INC.
 CONSOLIDATED BALANCE SHEETS  UNAUDITED
 (Dollars in thousands)
    
    June 30, 2005
    
    June 30, 2004
    
    December 31, 2004CURRENT ASSETS:Cash and cash equivalents, net
    
    $
    8,495
    
    
    $
    26,914
    
    
    $
    8,101Accounts receivable
    
    
    13,938
    
    
    
    12,839
    
    
    
    16,931Inventories
    
    
    133,859
    
    
    
    118,543
    
    
    
    100,582Other
    
    
    2,546
    
    
    
    2,864
    
    
    
    3,126TOTAL CURRENT ASSETS
    
    
    158,838
    
    
    
    161,160
    
    
    
    128,740Property, plant and equipment, net
    
    
    25,290
    
    
    
    28,192
    
    
    
    26,019Other
    
    
    1,155
    
    
    
    2,374
    
    
    
    1,234$
    185,283
    
    
    $
    191,726
    
    
    $
    155,993CURRENT LIABILITIES:Accounts payable
    
    $
    88,510
    
    
    $
    88,511
    
    
    $
    56,371Accrued liabilities
    
    
    18,087
    
    
    
    18,836
    
    
    
    24,184Revolving credit facility
    
    
    2,979
    
    
    
    
    
    
    
    7,303TOTAL CURRENT LIABILITIES
    
    
    109,576
    
    
    
    107,347
    
    
    
    87,858Long-term debt
    
    
    750
    
    
    
    5,875
    
    
    
    Deferred  other
    
    
    1,804
    
    
    
    509
    
    
    
    1,612SHAREHOLDERS EQUITY:Common shareswithout par value
19,500,000 shares
authorized; 8,873,180
shares issued and
outstanding at June 30,
2005; 8,697,694 shares
issued and outstanding at
June 30, 2004 and
8,697,194 issued and
outstanding at December
31, 2004
    
    
    886
    
    
    
    870
    
    
    
    870Paid-in capital
    
    
    37,384
    
    
    
    34,934
    
    
    
    34,846Retained earnings
    
    
    36,714
    
    
    
    43,521
    
    
    
    31,637Unearned compensation
    
    
    (1,831
    )
    
    
    (1,330
    )
    
    
    (830
    )TOTAL SHAREHOLDERS EQUITY
    
    
    73,153
    
    
    
    77,995
    
    
    
    66,523$
    185,283
    
    
    $
    191,726
    
    
    $
    155,993
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LESCO, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 Six Months Ended June 30,(Dollars in thousands)
    
    2005
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    5,077
    
    
    $
    6,258Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Depreciation
    
    
    3,302
    
    
    
    3,716Amortization of deferred financing fees and other
    
    
    79
    
    
    
    85(Gain) loss on sale/disposal of fixed assets
    
    
    (92
    )
    
    
    76Decrease in accounts receivable
    
    
    2,993
    
    
    
    1,225Sale of accounts receivable
    
    
    
    
    
    
    5,214Increase in inventories
    
    
    (33,277
    )
    
    
    (24,963
    )Increase in accounts payable
    
    
    25,552
    
    
    
    40,755Amortization of unearned compensation
    
    
    395
    
    
    
    324(Increase) decrease in current income tax
    
    
    (150
    )
    
    
    3,984(Decrease) increase in other items
    
    
    (5,236
    )
    
    
    1,311NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (1,357
    )
    
    
    37,985INVESTING ACTIVITIES:Proceeds on the sale of fixed assets
    
    
    235
    
    
    
    1,592Purchase of property, plant and equipment
    
    
    (2,655
    )
    
    
    (2,095
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (2,420
    )
    
    
    (503
    )FINANCING ACTIVITIES:Increase (decrease) in overdraft balances
    
    
    6,587
    
    
    
    (2,675
    )Proceeds from borrowings
    
    
    338,268
    
    
    
    295,059Reduction of borrowings
    
    
    (341,842
    )
    
    
    (310,600
    )Exercised stock options, net of treasury shares
    
    
    1,158
    
    
    
    143NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    4,171
    
    
    
    (18,073
    )Net change in cash and cash equivalents
    
    
    394
    
    
    
    19,409Cash and cash equivalents  Beginning of the period
    
    
    8,101
    
    
    
    7,505CASH AND CASH EQUIVALENTS  END OF THE PERIOD
    
    $
    8,495
    
    
    $
    26,914Supplemental disclosure of cash flow information:Interest paid, including letters of credit and unused facility fees
    
    $
    (507
    )
    
    $
    (479
    )Income taxes refunded
    
    $
    72
    
    
    $
    3,584
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business and Segment Information
  Segment Information
    Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net salesSelling
    
    $
    190,201
    
    
    $
    182,189
    
    
    $
    288,255
    
    
    $
    284,233Support
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    190,201
    
    
    $
    182,189
    
    
    $
    288,255
    
    
    $
    284,233Earnings (loss) before interest and taxesSelling
    
    $
    29,976
    
    
    $
    25,004
    
    
    $
    32,140
    
    
    $
    31,020Support
    
    
    (14,102
    )
    
    
    (10,657
    )
    
    
    (26,622
    )
    
    
    (23,931
    )$
    15,874
    
    
    $
    14,347
    
    
    $
    5,518
    
    
    $
    7,089Capital expendituresSelling
    
    $
    1,277
    
    
    $
    188
    
    
    $
    2,136
    
    
    $
    783Support
    
    
    213
    
    
    
    1,103
    
    
    
    519
    
    
    
    1,312$
    1,490
    
    
    $
    1,291
    
    
    $
    2,655
    
    
    $
    2,095Depreciation expenseSelling
    
    $
    298
    
    
    $
    276
    
    
    $
    597
    
    
    $
    548Support
    
    
    1,391
    
    
    
    1,571
    
    
    
    2,705
    
    
    
    3,168$
    1,689
    
    
    $
    1,847
    
    
    $
    3,302
    
    
    $
    3,716Intangible asset amortization expenseSelling
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Support
    
    
    40
    
    
    
    40
    
    
    
    79
    
    
    
    85$
    40
    
    
    $
    40
    
    
    $
    79
    
    
    $
    85Identifiable assetsSelling
    
    $
    101,337
    
    
    $
    106,908
    
    
    $
    101,337
    
    
    $
    106,908Support
    
    
    83,946
    
    
    
    84,818
    
    
    
    83,946
    
    
    
    84,818$
    185,283
    
    
    $
    191,726
    
    
    $
    185,283
    
    
    $
    191,726
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Note 2. Summary of Significant Accounting Policies
 Principles of Consolidation :
 Earnings per Share :
 Stock Options
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands, except per share data)
    
    2005
    

2004
    

2005
    

2004Net income as reported
    
    $
    15,750
    
    
    $
    14,211
    
    
    $
    5,077
    
    
    $
    6,258Less: stock option expense, net of tax
    
    
    (62
    )
    
    
    (150
    )
    
    
    (134
    )
    
    
    (283
    )Pro forma net income
    
    $
    15,688
    
    
    $
    14,061
    
    
    $
    4,943
    
    
    $
    5,975Earnings per diluted shareAs reported
    
    $
    1.71
    
    
    $
    1.58
    
    
    $
    0.55
    
    
    $
    0.70Pro forma
    
    $
    1.72
    
    
    $
    1.57
    
    
    $
    0.54
    
    
    $
    0.67Earnings per basic shareAs reported
    
    $
    1.77
    
    
    $
    1.63
    
    
    $
    0.57
    
    
    $
    0.72Pro forma
    
    $
    1.77
    
    
    $
    1.62
    
    
    $
    0.56
    
    
    $
    0.69
 Accounts Receivable
  June 30,
    
    December 31,(Dollars in thousands)
    
    2005
    
    2004
    
    2004Supplier rebate programs
    
    $
    7,269
    
    
    $
    6,169
    
    
    $
    12,139Trade receivablesRecourse
    
    
    
    
    
    
    945
    
    
    
    14Owned  domestic
    
    
    6,420
    
    
    
    7,908
    
    
    
    4,477Owned  international
    
    
    2,275
    
    
    
    2,002
    
    
    
    1,848Other
    
    
    1,425
    
    
    
    1,215
    
    
    
    1,283Allowance for doubtful accounts
    
    
    (3,451
    )
    
    
    (5,400
    )
    
    
    (2,830
    )$
    13,938
    
    
    $
    12,839
    
    
    $
    16,931
  6




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##### Table of Contents




    
    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.
      June 30,
    
    December 31,(Dollars in thousands)
    
    2005
    
    2004
    
    2004Total recourse account balances
    
    $
    5,289
    
    
    $
    5,984
    
    
    $
    4,679Accounts owned by GEBCS
    
    
    (5,289
    )
    
    
    (5,039
    )
    
    
    (4,665
    )Recourse receivables owned by LESCO
    
    $
    
    
    
    $
    945
    
    
    $
    14
  7




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##### Table of Contents



Inventories
  June 30,
    
    December 31,(Dollars in thousands)
    
    2005
    
    2004
    
    2004Finished goods and purchased inventoriesSelling locations
    
    $
    78,722
    
    
    $
    67,257
    
    
    $
    52,063Distribution hubs and plants
    
    
    47,583
    
    
    
    48,858
    
    
    
    35,119Capitalized procurement, warehousing and distribution costs
    
    
    9,677
    
    
    
    7,962
    
    
    
    8,512Less: Markdown, shrink and vendor discount reserves
    
    
    (1,685
    )
    
    
    (2,255
    )
    
    
    (3,338
    )Inventory held on consignment
    
    
    (12,437
    )
    
    
    (11,325
    )
    
    
    (6,919
    )121,860
    
    
    
    110,497
    
    
    
    85,437Raw Materials
    
    
    11,999
    
    
    
    8,046
    
    
    
    15,145$
    133,859
    
    
    $
    118,543
    
    
    $
    100,582
  Property, Plant and Equipment
  8




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##### Table of Contents



June 30, 2005
    
    June 30, 2004
    
    December 31, 2004Selling
    
    
    
    
    
    
    
    
    
    Selling
    
    
    
    
    
    
    
    
    
    Selling(Dollars in thousands)
    
    Locations
    
    Support
    
    Total
    
    Locations
    
    Support
    
    Total
    
    Locations
    
    Support
    
    TotalLand
    
    $
    
    
    
    $
    600
    
    
    $
    600
    
    
    $
    
    
    
    $
    600
    
    
    $
    600
    
    
    $
    
    
    
    $
    600
    
    
    $
    600Buildings and improvements
    
    
    2,275
    
    
    
    18,593
    
    
    
    20,868
    
    
    
    1,360
    
    
    
    18,558
    
    
    
    19,918
    
    
    
    1,533
    
    
    
    19,150
    
    
    
    20,683Machinery and equipment
    
    
    5,030
    
    
    
    19,846
    
    
    
    24,876
    
    
    
    3,788
    
    
    
    20,700
    
    
    
    24,488
    
    
    
    4,177
    
    
    
    20,459
    
    
    
    24,636Furniture and fixtures
    
    
    6,821
    
    
    
    30,305
    
    
    
    37,126
    
    
    
    7,071
    
    
    
    29,892
    
    
    
    36,963
    
    
    
    6,783
    
    
    
    29,334
    
    
    
    36,117Subtotal
    
    
    14,126
    
    
    
    69,344
    
    
    
    83,470
    
    
    
    12,219
    
    
    
    69,750
    
    
    
    81,969
    
    
    
    12,493
    
    
    
    69,543
    
    
    
    82,036Less: Accumulated depreciation
    
    
    (7,748
    )
    
    
    (50,432
    )
    
    
    (58,180
    )
    
    
    (7,280
    )
    
    
    (46,497
    )
    
    
    (53,777
    )
    
    
    (7,171
    )
    
    
    (48,846
    )
    
    
    (56,017
    )Property, plant and equipment, net
    
    $
    6,378
    
    
    $
    18,912
    
    
    $
    25,290
    
    
    $
    4,939
    
    
    $
    23,253
    
    
    $
    28,192
    
    
    $
    5,322
    
    
    $
    20,697
    
    
    $
    26,019
  Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Cost of product
    
    $
    489
    
    
    $
    510
    
    
    $
    974
    
    
    $
    1,027Distribution cost
    
    
    165
    
    
    
    222
    
    
    
    333
    
    
    
    464Selling expense
    
    
    298
    
    
    
    276
    
    
    
    597
    
    
    
    548General and administrative expense
    
    
    737
    
    
    
    839
    
    
    
    1,398
    
    
    
    1,677Total
    
    $
    1,689
    
    
    $
    1,847
    
    
    $
    3,302
    
    
    $
    3,716
 Borrowings
  June 30,
    
    December 31,(Dollars in thousands)
    
    2005
    
    2004
    
    2004Current:Revolving credit facility
    
    $
    2,979
    
    
    $
    
    
    
    $
    7,303Long-term:Forgivable note
    
    $
    750
    
    
    $
    
    
    
    $
    Industrial revenue bonds
    
    
    
    
    
    
    5,875
    
    
    
    $
    750
    
    
    $
    5,875
    
    
    $
    
 Revolving Credit Facility
  9




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Asset Rationalization and Severance Expense
  Asset Rationalization AccrualLease
    
    Other Exit
    
    
    
    
    
    Severance(Dollars in thousands)
    
    Costs
    
    Costs
    
    Total
    
    Accrual
    
    TotalAsset rationalization and severance
accruals at December 31, 2004
    
    $
    228
    
    
    $
    222
    
    
    $
    450
    
    
    $
    209
    
    
    $
    6592005 ActivityAdditions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    327Utilized/payments
    
    
    (46
    )
    
    
    (104
    )
    
    
    (150
    )
    
    
    (188
    )
    
    
    (338
    )Asset rationalization reserves and
severance accruals at June 30, 2005
    
    $
    182
    
    
    $
    118
    
    
    $
    300
    
    
    $
    348
    
    
    $
    648
 10




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##### Table of Contents



Detail of Certain Balance Sheets Accounts
 June 30,
    
    December 31,(Dollars in thousands)
    
    2005
    
    2004
    
    2004Other current assets:Other prepaids
    
    $
    1,878
    
    
    $
    1,564
    
    
    $
    1,426Prepaid insurance
    
    
    449
    
    
    
    434
    
    
    
    1,513Notes receivable
    
    
    187
    
    
    
    592
    
    
    
    187Assets held for sale
    
    
    32
    
    
    
    274
    
    
    
    $
    2,546
    
    
    $
    2,864
    
    
    $
    3,126Other non-current assets:Notes receivable
    
    $
    466
    
    
    $
    1,322
    
    
    $
    443Store deposits
    
    
    532
    
    
    
    570
    
    
    
    550Deferred financing charges
    
    
    81
    
    
    
    396
    
    
    
    172Miscellaneous deposits
    
    
    43
    
    
    
    86
    
    
    
    69Other prepaids
    
    
    33
    
    
    
    
    
    
    
    $
    1,155
    
    
    $
    2,374
    
    
    $
    1,234Accounts payable:Accounts payable
    
    $
    75,904
    
    
    $
    78,309
    
    
    $
    50,519Overdraft balances
    
    
    12,606
    
    
    
    9,257
    
    
    
    5,838Accounts payable to GEBCS for recourse accounts receivable
    
    
    
    
    
    
    945
    
    
    
    14$
    88,510
    
    
    $
    88,511
    
    
    $
    56,371Accrued liabilities:Accrued non-income taxes
    
    $
    3,729
    
    
    $
    3,582
    
    
    $
    3,043Commissions and management bonuses
    
    
    2,337
    
    
    
    3,299
    
    
    
    6,008Salaries and wages
    
    
    2,531
    
    
    
    2,122
    
    
    
    469Insurance  hospitalization and workers compensation
    
    
    2,662
    
    
    
    2,609
    
    
    
    2,794Asset rationalization
    
    
    300
    
    
    
    909
    
    
    
    450Insurance  property and casualty
    
    
    902
    
    
    
    991
    
    
    
    1,897Severance
    
    
    348
    
    
    
    106
    
    
    
    209Vendor contract termination
    
    
    
    
    
    
    
    
    
    
    3,287Other
    
    
    5,278
    
    
    
    5,218
    
    
    
    6,027$
    18,087
    
    
    $
    18,836
    
    
    $
    24,184
 11




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##### Table of Contents



Detail of Certain Statements of Operations Accounts
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net sales:Gross sales
    
    $
    192,169
    
    
    $
    183,218
    
    
    $
    291,980
    
    
    $
    286,081Agency sales
    
    
    (716
    )
    
    
    (427
    )
    
    
    (1,038
    )
    
    
    (427
    )Freight revenue
    
    
    446
    
    
    
    514
    
    
    
    610
    
    
    
    820Customer discounts, rebates and sales adjustments
    
    
    (1,698
    )
    
    
    (1,116
    )
    
    
    (3,297
    )
    
    
    (2,241
    )$
    190,201
    
    
    $
    182,189
    
    
    $
    288,255
    
    
    $
    284,233Merchant discounts and provision for doubtful accounts:Merchant discountsMulti-purpose credit programs
    
    $
    (682
    )
    
    $
    (576
    )
    
    $
    (982

    )
    
    $
    (882
    )Private label business credit programs
    
    
    (2,451
    )
    
    
    (1,892
    )
    
    
    (3,855
    )
    
    
    (2,938
    )Private label promotional discounts
    
    
    (505
    )
    
    
    55
    
    
    
    (792
    )
    
    
    (154
    )Provision for doubtful accounts
    
    
    (41
    )
    
    
    
    
    
    
    (71
    )
    
    
    Customer finance revenue
    
    
    68
    
    
    
    98
    
    
    
    152
    
    
    
    202Other
    
    
    (192
    )
    
    
    (239
    )
    
    
    (305
    )
    
    
    (409
    )$
    (3,803
    )
    
    $
    (2,554
    )
    
    $
    (5,853
    )
    
    $
    (4,181
    )Other expense:Loss on sale/disposal of fixed assets
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    (76
    )Other
    
    
    
    
    
    
    (1
    )
    
    
    (37
    )
    
    
    (2
    )$
    
    
    
    $
    (90
    )
    
    $
    (37
    )
    
    $
    (78
    )Other income:Vendor payment discounts
    
    
    121
    
    
    
    138
    
    
    
    288
    
    
    
    267Gain on sales/disposal of fixed assets
    
    
    156
    
    
    
    
    
    
    
    91
    
    
    
    Other
    
    
    6
    
    
    
    1
    
    
    
    19
    
    
    
    39$
    283
    
    
    $
    139
    
    
    $
    398
    
    
    $
    306Interest expense and facility fees:Borrowings on revolver
    
    $
    (46
    )
    
    $
    (37
    )
    
    $
    (295
    )
    
    $
    (306
    )Other revolver fees
    
    
    (72
    )
    
    
    (68
    )
    
    
    (115
    )
    
    
    (112
    )Other debt and letters of credit costs
    
    
    (18
    )
    
    
    (64
    )
    
    
    (54
    )
    
    
    (135
    )Interest income
    
    
    12
    
    
    
    33
    
    
    
    23
    
    
    
    62$
    (124
    )
    
    $
    (136
    )
    
    $
    (441
    )
    
    $
    (491
    )
 Note 3: Subsequent Event
   12




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##### Table of Contents



13




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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
    
    Results of Operations
    
    Business Segment Results
    
    Liquidity and Capital Resources
    
    Critical Accounting Policies and Estimates
    
    Forward Looking Statements
 OVERVIEW
    Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    2005
    
    2004Lawn Care
    
    $
    154.9
    
    
    $
    141.2
    
    
    $
    239.2
    
    
    $
    226.9Golf
    
    
    37.3
    
    
    
    42.0
    
    
    
    52.8
    
    
    
    59.2$
    192.2
    
    
    $
    183.2
    
    
    $
    292.0
    
    
    $
    286.1
   14




---



##### Table of Contents



RESULTS OF OPERATIONS
 Sales
 Three Months Ended June 30,2005
    
    2004
    
    % ChangeOther
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    OtherService
    
    Selling
    
    
    
    
    
    Service
    
    Selling
    
    
    
    
    
    Service
    
    Selling(Dollars in millions)
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    TotalLawn care
    
    $
    129.9
    
    
    $
    25.0
    
    
    $
    154.9
    
    
    $
    116.1
    
    
    $
    25.1
    
    
    $
    141.2
    
    
    
    11.9
    %
    
    
    (0.4
    )%
    
    
    9.7
    %Golf
    
    
    12.1
    
    
    
    25.2
    
    
    
    37.3
    
    
    
    10.6
    
    
    
    31.4
    
    
    
    42.0
    
    
    
    14.2
    
    
    
    (19.7
    )
    
    
    (11.2
    )Gross sales
    
    $
    142.0
    
    
    $
    50.2
    
    
    $
    192.2
    
    
    $
    126.7
    
    
    $
    56.5
    
    
    $
    183.2
    
    
    
    12.1
    %
    
    
    (11.2
    )%
    
    
    4.9
    %Agency sales
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    75.0Freight revenue
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    (20.0
    )Customer discounts, rebates and sales adjustments
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    54.5Net sales
    
    
    
    
    
    
    
    
    
    $
    190.2
    
    
    
    
    
    
    
    
    
    
    $
    182.2
    
    
    
    
    
    
    
    
    
    
    
    4.4
    %
 Six Months Ended June 30,2005
    
    2004
    
    % ChangeOther
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    OtherService
    
    Selling
    
    
    
    
    
    Service
    
    Selling
    
    
    
    
    
    Service
    
    Selling(Dollars in millions)
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    TotalLawn care
    
    $
    194.8
    
    
    $
    44.4
    
    
    $
    239.2
    
    
    $
    181.3
    
    
    $
    45.6
    
    
    $
    226.9
    
    
    
    7.4
    %
    
    
    (2.6
    )%
    
    
    5.4
    %Golf
    
    
    16.3
    
    
    
    36.5
    
    
    
    52.8
    
    
    
    14.4
    
    
    
    44.8
    
    
    
    59.2
    
    
    
    13.2
    
    
    
    (18.5
    )
    
    
    (10.8
    )Gross sales
    
    $
    211.1
    
    
    $
    80.9
    
    
    $
    292.0
    
    
    $
    195.7
    
    
    $
    90.4
    
    
    $
    286.1
    
    
    
    7.9
    %
    
    
    (10.5
    )%
    
    
    2.1
    %Agency sales
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    150.0Freight revenue
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    (25.0
    )Customer discounts, rebates and sales adjustments
    
    
    (3.3
    )
    
    
    
    
    
    
    
    
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    43.5Net sales
    
    
    
    
    
    
    
    
    
    $
    288.3
    
    
    
    
    
    
    
    
    
    
    $
    284.2
    
    
    
    
    
    
    
    
    
    
    
    1.4
    %
 Service Centers
 15




---



##### Table of Contents



For the Three Months Ended June 30,
    
    Variance(Dollars in millions)
    
    2005
    
    2004
    
    Dollars
    
    %Stores opened:Prior to 2003
    
    $
    125.0
    
    
    $
    116.1
    
    
    $
    8.9
    
    
    
    7.7
    %2003
    
    
    7.6
    
    
    
    6.3
    
    
    
    1.3
    
    
    
    20.6Comparative stores
    
    
    132.6
    
    
    
    122.4
    
    
    
    10.2
    
    
    
    8.32004
    
    
    8.6
    
    
    
    4.3
    
    
    
    4.3
    
    
    
    100.02005
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    Total
    
    $
    142.0
    
    
    $
    126.7
    
    
    $
    15.3
    
    
    
    12.1
    %
 For the Six Months Ended June 30,
    
    Variance(Dollars in millions)
    
    2005
    
    2004
    
    Dollars
    
    %Stores opened:Prior to 2003
    
    $
    187.1
    
    
    $
    181.7
    
    
    $
    5.4
    
    
    
    3.0
    %2003
    
    
    11.2
    
    
    
    9.2
    
    
    
    2.0
    
    
    
    21.7Comparative stores
    
    
    198.3
    
    
    
    190.9
    
    
    
    7.4
    
    
    
    3.92004
    
    
    11.9
    
    
    
    4.8
    
    
    
    7.1
    
    
    
    147.92005
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    Total
    
    $
    211.1
    
    
    $
    195.7
    
    
    $
    15.4
    
    
    
    7.9
    %
 Other Selling Locations
 Agency Sales, Freight Revenue and Customer Discounts, Rebates and Sales Adjustments
  16




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##### Table of Contents



Gross Profit on Sales
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004% of Net
    
    
    
    
    
    % of Net
    
    
    
    
    
    % of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    SalesProduct margin
    
    $
    68.0
    
    
    
    35.8
    %
    
    $
    62.3
    
    
    
    34.2
    %
    
    $
    101.0
    
    
    
    35.0
    %
    
    $
    95.9
    
    
    
    33.7
    %Distribution cost
    
    
    (17.1
    )
    
    
    (9.0
    )
    
    
    (15.3
    )
    
    
    (8.4
    )
    
    
    (26.7
    )
    
    
    (9.3
    )
    
    
    (25.3
    )
    
    
    (8.9
    )Gross profit
    
    $
    50.9
    
    
    
    26.8
    %
    
    $
    47.0
    
    
    
    25.8
    %
    
    $
    74.3
    
    
    
    25.8
    %
    
    $
    70.6
    
    
    
    24.8
    %
   Operating Expenses :
 Three Months Ended June 30,2005
    
    2004
    
    Change% of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    %
    
    Basis PointsSelling expense
    
    $
    24.3
    
    
    
    12.8
    %
    
    $
    22.9
    
    
    
    12.6
    %
    
    $
    1.4
    
    
    
    6.1
    %
    
    20 bpsMerchant discounts/provision for doubtful accounts
    
    
    3.8
    
    
    
    2.0
    
    
    
    2.6
    
    
    
    1.4
    
    
    
    1.2
    
    
    
    46.2
    
    
    60 bpsVendor contract termination
    
    
    0.5
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    $
    28.6
    
    
    
    15.1
    %
    
    $
    25.5
    
    
    
    14.0
    %
    
    $
    3.1
    
    
    
    12.2
    %
    
    110 bps
 Six Months Ended June 30,2005
    
    2004
    
    Change% of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    %
    
    Basis PointsSelling expense
    
    $
    48.1
    
    
    
    16.7
    %
    
    $
    44.6
    
    
    
    15.7
    %
    
    $
    3.5
    
    
    
    7.8
    %
    
    100 bpsMerchant discounts/provision for doubtful accounts
    
    
    5.9
    
    
    
    2.0
    
    
    
    4.2
    
    
    
    1.5
    
    
    
    1.7
    
    
    
    40.5
    
    
    50 bpsVendor contract termination
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    $
    54.5
    
    
    
    18.9
    %
    
    $
    48.8
    
    
    
    17.2
    %
    
    $
    5.7
    
    
    
    11.7
    %
    
    170 bps
 Selling Expense
   17




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##### Table of Contents



Merchant Discounts and Provision for Doubtful Accounts
   Vendor Contract Termination
  General and Administrative Expense:
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeGeneral & administrative expense
    
    $
    6.3
    
    
    $
    6.6
    
    
    $
    (0.3
    )
    
    $
    14.0
    
    
    $
    14.0
    
    
    $
    
   Pre-Opening Expense
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangePre-opening expense
    
    $
    0.5
    
    
    $
    0.6
    
    
    $
    (0.1
    )
    
    $
    0.6
    
    
    $
    0.9
    
    
    $
    (0.3
    )Number of Service Centers opened
during the period
    
    
    10
    
    
    
    16
    
    
    
    (6
    )
    
    
    11
    
    
    
    25
    
    
    
    (14
    )
  18




---



##### Table of Contents



Other Expense/(Income):
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeOther expense
    
    $
    
    
    
    $
    0.1
    
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    0.1
    
    
    $
    (0.1
    )Other income
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (0.1
    )$
    (0.3
    )
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    (0.4
    )
    
    $
    (0.2
    )
    
    $
    (0.2
    )
  Interest Expense, Net:
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeInterest expense
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.4
    
    
    $
    0.5
    
    
    $
    (0.1
    )
  Pre-Tax Earnings:
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeEarnings before taxes
    
    $
    15.8
    
    
    $
    14.2
    
    
    $
    1.6
    
    
    $
    5.1
    
    
    $
    6.6
    
    
    $
    (1.5
    )
  For the Three Months Ended June 30,2005
    
    2004(Dollars in thousands)
    
    Class of 2005
    
    Class of 2004
    
    Class of 2003
    
    
    
    
    
    Class of 2004
    
    Class of 2003(11 Stores)
    
    (27 Stores)
    
    (21 Stores)
    
    Total
    
    (25 Stores)
    
    (21 Stores)
    
    TotalSales
    
    $
    822
    
    
    $
    8,562
    
    
    $
    7,594
    
    
    $
    16,978
    
    
    $
    4,318
    
    
    $
    6,283
    
    
    $
    10,601Cost of product
    
    
    (546
    )
    
    
    (5,577
    )
    
    
    (4,961
    )
    
    
    (11,084
    )
    
    
    (2,928
    )
    
    
    (4,253
    )
    
    
    (7,181
    )Distribution cost
    
    
    (89
    )
    
    
    (359
    )
    
    
    (348
    )
    
    
    (796
    )
    
    
    (277
    )
    
    
    (266
    )
    
    
    (543
    )Gross profit on sales
    
    
    187
    
    
    
    2,626
    
    
    
    2,285
    
    
    
    5,098
    
    
    
    1,113
    
    
    
    1,764
    
    
    
    2,877Selling expense
    
    
    (509
    )
    
    
    (1,340
    )
    
    
    (1,122
    )
    
    
    (2,971
    )
    
    
    (1,050
    )
    
    
    (1,080
    )
    
    
    (2,130
    )Merchant discount expense
    
    
    (14
    )
    
    
    (135
    )
    
    
    (121
    )
    
    
    (270
    )
    
    
    (56
    )
    
    
    (83
    )
    
    
    (139
    )Pre-opening expense
    
    
    (491
    )
    
    
    
    
    
    
    
    
    
    
    (491
    )
    
    
    (597
    )
    
    
    
    
    
    
    (597
    )(Loss) income before
interest and taxes
    
    $
    (827
    )
    
    $
    1,151
    
    
    $
    1,042
    
    
    $
    1,366
    
    
    $
    (590
    )
    
    $
    601
    
    
    $
    11
 19




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##### Table of Contents



For the Six Months Ended June 30,2005
    
    2004Class of 2005
    
    Class of 2004
    
    Class of 2003
    
    
    
    
    
    Class of 2004
    
    Class of 2003(Dollars in thousands)
    
    (11 Stores)
    
    (27 Stores)
    
    (21 Stores)
    
    Total
    
    (25 Stores)
    
    (21 Stores)
    
    TotalSales
    
    $
    862
    
    
    $
    11,953
    
    
    $
    11,205
    
    
    $
    24,020
    
    
    $
    4,768
    
    
    $
    9,240
    
    
    $
    14,008Cost of product
    
    
    (574
    )
    
    
    (7,898
    )
    
    
    (7,400
    )
    
    
    (15,872
    )
    
    
    (3,230
    )
    
    
    (6,259
    )
    
    
    (9,489
    )Distribution cost
    
    
    (96
    )
    
    
    (573
    )
    
    
    (553
    )
    
    
    (1,222
    )
    
    
    (376
    )
    
    
    (434
    )
    
    
    (810
    )Gross profit on sales

    
    
    192
    
    
    
    3,482
    
    
    
    3,252
    
    
    
    6,926
    
    
    
    1,162
    
    
    
    2,547
    
    
    
    3,709Selling expense
    
    
    (583
    )
    
    
    (2,652
    )
    
    
    (2,159
    )
    
    
    (5,394
    )
    
    
    (1,279
    )
    
    
    (2,126
    )
    
    
    (3,405
    )Merchant discount expense
    
    
    (15
    )
    
    
    (175
    )
    
    
    (174
    )
    
    
    (364
    )
    
    
    (62
    )
    
    
    (123
    )
    
    
    (185
    )Pre-opening expense
    
    
    (648
    )
    
    
    
    
    
    
    
    
    
    
    (648
    )
    
    
    (910
    )
    
    
    
    
    
    
    (910
    )(Loss) income before
interest and taxes
    
    $
    (1,054
    )
    
    $
    655
    
    
    $
    919
    
    
    $
    520
    
    
    $
    (1,089
    )
    
    $
    298
    
    
    $
    (791
    )
  Income Taxes and Net Loss:
 Three Months Ended June 30,
    
    Six Months Ended June 30,(Dollars in millions, except per share data)
    
    2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeEarnings before income tax (provision) benefit
    
    $
    15.8
    
    
    $
    14.2
    
    
    $
    1.6
    
    
    $
    5.1
    
    
    $
    6.6
    
    
    $
    (1.5
    )Income tax (provision) benefit:Current
    
    
    
    
    
    
    (0.9
    )
    
    
    0.9
    
    
    
    
    
    
    
    (1.2
    )
    
    
    1.2Deferred
    
    
    (4.3
    )
    
    
    (4.6
    )
    
    
    0.3
    
    
    
    (0.8
    )
    
    
    (1.3
    )
    
    
    0.5Change in valuation allowance
    
    
    4.3
    
    
    
    5.5
    
    
    
    (1.2
    )
    
    
    0.8
    
    
    
    2.2
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    0.3Net Income
    
    $
    15.8
    
    
    $
    14.2
    
    
    $
    1.6
    
    
    $
    5.1
    
    
    $
    6.3
    
    
    $
    (1.2
    )Earnings per common share:Diluted
    
    $
    1.71
    
    
    $
    1.58
    
    
    
    
    
    
    $
    0.55
    
    
    $
    0.70Basic
    
    $
    1.77
    
    
    $
    1.63
    
    
    
    
    
    
    $
    0.57
    
    
    $
    0.72
    20




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##### Table of Contents



BUSINESS SEGMENT RESULTS
  Selling Segment
   Selling Segment Operating Results
 For the Three Months Ended June 30,
    
    For the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    190.2
    
    
    $
    182.2
    
    
    $
    288.3
    
    
    $
    284.2Cost of product
    
    
    (125.1
    )
    
    
    (123.8
    )
    
    
    (191.4
    )
    
    
    (192.7
    )Distribution cost
    
    
    (8.3
    )
    
    
    (8.8
    )
    
    
    (13.8
    )
    
    
    (14.0
    )Gross profit on sales
    
    
    56.8
    
    
    
    49.6
    
    
    
    83.1
    
    
    
    77.5Selling expense
    
    
    (22.5
    )
    
    
    (21.4
    )
    
    
    (44.4
    )
    
    
    (41.4
    )Merchant discounts and provision for
doubtful accounts
    
    
    (3.8
    )
    
    
    (2.6
    )
    
    
    (5.9
    )
    
    
    (4.2
    )Pre-opening expense
    
    
    (0.5
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.9
    )Earnings Before Interest and Taxes (EBIT)
    
    $
    30.0
    
    
    $
    25.0
    
    
    $
    32.2
    
    
    $
    31.0
 Support Segment
  21




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##### Table of Contents



Support Segment Operating Results
 For the Three Months Ended June 30,
    
    For the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cost of product (a)
    
    
    2.9
    
    
    
    3.9
    
    
    
    4.1
    
    
    
    4.4Distribution cost (b)
    
    
    (8.7
    )
    
    
    (6.5
    )
    
    
    (12.9
    )
    
    
    (11.3
    )Gross loss on sales
    
    
    (5.8
    )
    
    
    (2.6
    )
    
    
    (8.8
    )
    
    
    (6.9
    )Selling expense (c)
    
    
    (1.8
    )
    
    
    (1.4
    )
    
    
    (3.7
    )
    
    
    (3.3
    )General & administrative expense
    
    
    (6.3
    )
    
    
    (6.7
    )
    
    
    (14.0
    )
    
    
    (14.0
    )Vendor contract termination
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    Other expense (d)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Other income (d)
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.3EBIT
    
    $
    (14.1
    )
    
    $
    (10.7
    )
    
    $
    (26.6
    )
    
    $
    (24.0
    )
 
 (a)
    
    Includes various manufacturing and procurement costs reduced by suppliers rebates.(b)
    
    Reflects warehousing expense and freight costs incurred to transport product from manufacturing facilities to hubs.(c)
    
    Represents corporate costs incurred for marketing, customer service and sales management.(d)
    
    Includes all other non-selling, miscellaneous income and expense items that are not incurred in the ordinary course
of business at the Service Centers, Stores-on-Wheels or direct sales channel. Consolidated Operating Results
 For the Three Months Ended June 30,
    
    For the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    190.2
    
    
    $
    182.2
    
    
    $
    288.3
    
    
    $
    284.2Cost of product
    
    
    (122.2
    )
    
    
    (119.9
    )
    
    
    (187.2
    )
    
    
    (188.4
    )Distribution cost
    
    
    (17.1
    )
    
    
    (15.3
    )
    
    
    (26.8
    )
    
    
    (25.2
    )Gross profit on sales
    
    
    50.9
    
    
    
    47.0
    
    
    
    74.3
    
    
    
    70.6Selling expense
    
    
    (24.3
    )
    
    
    (22.9
    )
    
    
    (48.1
    )
    
    
    (44.6
    )General & administrative expense
    
    
    (6.3
    )
    
    
    (6.6
    )
    
    
    (14.0
    )
    
    
    (14.0
    )Merchant discounts and provision for
doubtful accounts
    
    
    (3.8
    )
    
    
    (2.6
    )
    
    
    (5.9
    )
    
    
    (4.2
    )Pre-opening expense
    
    
    (0.5
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.9
    )Vendor contract termination
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    Other expense
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Other income
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.3EBIT
    
    $
    15.8
    
    
    $
    14.3
    
    
    $
    5.5
    
    
    $
    7.1
 22




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  For
the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004Cash (used in) provided by operations
    
    $
    (1.4
    )
    
    $
    38.0Cash used in investing activities
    
    
    (2.4
    )
    
    
    (0.5
    )Cash provided by (used in) financing activities
    
    
    4.2
    
    
    
    (18.1
    )Increase in cash and cash equivalents
    
    $
    0.4
    
    
    $
    19.4
  For the Six Months Ended June 30,(Dollars in thousands)
    
    2005
    
    2004Cash (used in) provided by operating activities  GAAP
    
    $
    (1.4
    )
    
    $
    38.0Less: Cash received for sale of accounts receivable
    
    
    
    
    
    
    (5.2
    )Adjusted cash (used in) provided by operating activities  non-GAAP
    
    $
    (1.4
    )
    
    $
    32.8
    23




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##### Table of Contents



For the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004Accounts payable
    
    $
    88.5
    
    
    $
    88.5Less: Payable to GEBCS
    
    
    
    
    
    
    (0.9
    )Adjusted accounts payable
    
    $
    88.5
    
    
    $
    87.6Inventory
    
    $
    133.9
    
    
    $
    118.5Accounts payable leverage
    
    
    66.1
    %
    
    
    73.9
    %
   Capital Expenditures
 For the Six Months Ended June 30,(Dollars in millions)
    
    2005
    
    2004New Service Centers
    
    $
    0.8
    
    
    $
    1.0Other Service Centers
    
    
    1.4
    
    
    
    Manufacturing facilities and corporate systems
    
    
    0.5
    
    
    
    1.1$
    2.7
    
    
    $
    2.1
   Financing Activities
  24




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##### Table of Contents



Contractual Obligations, Commitments and Off Balance Sheet Arrangements
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
   25




---



##### Table of Contents



Allowance for Doubtful Accounts
  Inventories
  Income Taxes
  Impairment of Long-Lived Assets
  26




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##### Table of Contents



Accrued Liabilities
  FORWARD LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Controls and Procedures
   27




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##### Table of Contents



PART II  OTHER INFORMATION
  
 ITEM 1. LEGAL PROCEEDINGS
  LESCO vs. KPAC
Holdings, Inc
   28




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    

WithheldMichael P. DiMino
    
    
    8,240,775
    
    
    
    277,727J. Martin Erbaugh
    
    
    8,192,817
    
    
    
    325,685Michael E. Gibbons
    
    
    8,162,282
    
    
    
    356,220Enrique Foster Gittes
    
    
    8,243,911
    
    
    
    274,591Lee C. Howley
    
    
    8,244,180
    
    
    
    274,322Christopher H. B. Mills
    
    
    8,193,963
    
    
    
    324,539R. Lawrence Roth
    
    
    8,194,030
    
    
    
    324,472
 
 ITEM 6. EXHIBITS
 Exhibits
    
    Exhibits 3(a)
    
    Amended Articles of Incorporation of the Registrant
(included as an exhibit to the Registrants Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002
and incorporated herein by reference).Exhibit 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)
    
    Michael P. DiMino Rule 13a-14(a)/15d-14(a) CertificationExhibit 31(b)
    
    Jeffrey L. Rutherford Rule 13a-14(a)/15d-14(a) CertificationExhibit 32(a)
    
    Michael P. DiMino Section 1350 CertificationExhibit 32(b)
    
    Jeffrey L. Rutherford Section 1350 Certification
 29




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##### Table of Contents



LESCO, INC.Date: August 2, 2005
    
    By: /s/ Jeffrey L. RutherfordJeffrey L. RutherfordSenior Vice President, Chief Financial Officer,Treasurer and Secretary
 30