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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 September 30, 2004                         Commission File No. 0-13147 or o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from        to
   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.)15885 Sprague Road
Strongsville, Ohio(Address of principal executive offices)
    
    44136(Zip Code)
 Registrants telephone number, including area code
(440) 783-9250 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes þ     No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).   Yes o     No þ Number of Common Shares
outstanding as of November 1, 2004: 8,709,694    -1-




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITEDCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDNOTES TO CONSOLIDATED 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 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESEX-10(A) Assignment and Assumption of LeaseEX-10(B) Consent of Landlord's LenderEX-31(A) Michael DiMino CertificationEX-31(B) Jeffrey Rutherford CertificationEX-32(A) Michael DiMino CertificationEX-32(B) Jeffrey Rutherford Certification    Table of Contents  
 PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS LESCO, INC. 
 CONSOLIDATED STATEMENTS
OF OPERATIONS - UNAUDITED Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    152,655
    
    
    $
    147,721
    
    
    $
    436,888
    
    
    $
    414,731Cost of product
    
    
    (99,893
    )
    
    
    (97,120
    )
    
    
    (289,374
    )
    
    
    (275,561
    )Distribution cost
    
    
    (12,106
    )
    
    
    (11,891
    )
    
    
    (36,205
    )
    
    
    (37,144
    )Gross profit on sales
    
    
    40,656
    
    
    
    38,710
    
    
    
    111,309
    
    
    
    102,026Selling expense
    
    
    (23,450
    )
    
    
    (20,455
    )
    
    
    (68,361
    )
    
    
    (63,456
    )General & administrative expense
    
    
    (7,085
    )
    
    
    (7,301
    )
    
    
    (20,946
    )
    
    
    (21,874
    )Corporate relocation expense
    
    
    (4,940
    )
    
    
    
    
    
    
    (4,940
    )
    
    
    Hurricane/flood expense
    
    
    (1,350
    )
    
    
    
    
    
    
    (1,350
    )
    
    
    Merchant discounts and provision for
doubtful accounts
    
    
    (2,678
    )
    
    
    (684
    )
    
    
    (6,859
    )
    
    
    (2,425
    )Pre-opening expense
    
    
    62
    
    
    
    (130
    )
    
    
    (663
    )
    
    
    (420
    )Other expense
    
    
    (50
    )
    
    
    (33
    )
    
    
    (242
    )
    
    
    (637
    )Other income
    
    
    94
    
    
    
    192
    
    
    
    464
    
    
    
    1,258Earnings before interest and taxes
    
    
    1,259
    
    
    
    10,299
    
    
    
    8,412
    
    
    
    14,472Interest expense, net
    
    
    (149
    )
    
    
    (1,105
    )
    
    
    (703
    )
    
    
    (3,683
    )Earnings before taxes
    
    
    1,110
    
    
    
    9,194
    
    
    
    7,709
    
    
    
    10,789Income tax (provision) benefit:Current
    
    
    (1,919
    )
    
    
    
    
    
    
    (3,165
    )
    
    
    Deferred
    
    
    1,486
    
    
    
    (3,476
    )
    
    
    158
    
    
    
    (4,080
    )Change in valuation allowance
    
    
    433
    
    
    
    
    
    
    
    2,667
    
    
    
    
    
    
    
    (3,476
    )
    
    
    (340
    )
    
    
    (4,080
    )Net income
    
    $
    1,110
    
    
    $
    5,718
    
    
    $
    7,369
    
    
    $
    6,709Earnings per share of common stock:Diluted
    
    $
    0.12
    
    
    $
    0.66
    
    
    $
    0.82
    
    
    $
    0.77Basic
    
    $
    0.13
    
    
    $
    0.67
    
    
    $
    0.85
    
    
    $
    0.78Average number of common shares and
common share equivalents outstanding:Diluted
    
    
    9,001,687
    
    
    
    8,629,016
    
    
    
    8,943,441
    
    
    
    8,655,892Basic
    
    
    8,704,694
    
    
    
    8,526,914
    
    
    
    8,693,298
    
    
    
    8,525,358
 See Notes to Consolidated Financial Statements. -2-




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LESCO, INC. 
 CONSOLIDATED BALANCE SHEETS September 30, 2004
    
    September 30, 2003
    
    December 31, 2003(Dollars in thousands)
    
    (unaudited)
    
    (unaudited)
    
    (audited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    8,007
    
    
    $
    2,906
    
    
    $
    7,505Accounts receivable
    
    
    14,306
    
    
    
    81,569
    
    
    
    19,278Inventories
    
    
    110,931
    
    
    
    105,320
    
    
    
    93,580Deferred income taxes
    
    
    
    
    
    
    3,269
    
    
    
    Other
    
    
    3,818
    
    
    
    1,927
    
    
    
    6,980TOTAL CURRENT ASSETS
    
    
    137,062
    
    
    
    194,991
    
    
    
    127,343Property, plant and equipment, net
    
    
    27,310
    
    
    
    32,843
    
    
    
    31,481Other
    
    
    2,245
    
    
    
    5,285
    
    
    
    2,541$
    166,617
    
    
    $
    233,119
    
    
    $
    161,365CURRENT LIABILITIES:Accounts payable
    
    $
    63,484
    
    
    $
    63,467
    
    
    $
    53,874Accrued liabilities
    
    
    17,356
    
    
    
    17,465
    
    
    
    14,626Revolving credit facility
    
    
    
    
    
    
    57,860
    
    
    
    15,513Current portion of debt
    
    
    
    
    
    
    1,096
    
    
    
    28TOTAL CURRENT LIABILITIES
    
    
    80,840
    
    
    
    139,888
    
    
    
    84,041Long-term debt
    
    
    5,875
    
    
    
    9,194
    
    
    
    5,875Deferred  other
    
    
    555
    
    
    
    129
    
    
    
    179SHAREHOLDERS EQUITY:Preferred shareswithout par value500,000 shares
authorized; 1,713 shares
issued and outstanding at
September 30, 2003,
liquidation value $1,000
per share
    
    
    
    
    
    
    1,713
    
    
    
    Common shareswithout par value19,500,000 shares
authorized; 8,704,694
shares issued and
outstanding at September 30, 2004; 8,642,563
shares issued and
8,528,914 outstanding at
September 30, 2003 and
8,668,914 shares issued
and outstanding at
December 31, 2003
    
    
    871
    
    
    
    864
    
    
    
    867Paid-in capital
    
    
    34,970
    
    
    
    34,938
    
    
    
    34,619Retained earnings
    
    
    44,631
    
    
    
    49,268
    
    
    
    37,262Unearned compensation
    
    
    (1,125
    )
    
    
    
    
    
    
    (1,478
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (920
    )
    
    
    Less: Treasury shares, 113,649 at September 30, 2003
    
    
    
    
    
    
    (1,955
    )
    
    
    TOTAL SHAREHOLDERS EQUITY
    
    
    79,347
    
    
    
    83,908
    
    
    
    71,270$
    166,617
    
    
    $
    233,119
    
    
    $
    161,365
 See Notes to Consolidated Financial Statements. -3-




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LESCO, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003OPERATING ACTIVITIES:Net income
    
    $
    7,369
    
    
    $
    6,709Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation
    
    
    5,536
    
    
    
    5,740Amortization of unearned compensation
    
    
    492
    
    
    
    Amortization of deferred financing fees and other
    
    
    129
    
    
    
    782Loss on sale of assets
    
    
    96
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (328
    )Increase in accounts receivable
    
    
    (974
    )
    
    
    (15,403
    )Provision for uncollectible accounts receivable
    
    
    
    
    
    
    1,656Decrease in current income tax
    
    
    4,005
    
    
    
    5,709Increase in inventories
    
    
    (17,351
    )
    
    
    (18,483
    )Increase in accounts payable
    
    
    15,710
    
    
    
    18,149Increase (decrease) in other items
    
    
    2,468
    
    
    
    (5,339
    )NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    17,480
    
    
    
    (808
    )INVESTING ACTIVITIES:Proceeds on the sale of fixed assets
    
    
    1,597
    
    
    
    Purchase of property, plant and equipment
    
    
    (3,096
    )
    
    
    (4,645
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,499
    )
    
    
    (4,645
    )FINANCING ACTIVITIES:Sale of accounts receivable
    
    
    5,946
    
    
    
    (Decrease) increase in overdraft balances
    
    
    (6,100
    )
    
    
    6,879Proceeds from borrowings
    
    
    487,541
    
    
    
    456,208Reduction of borrowings
    
    
    (503,082
    )
    
    
    (456,485
    )Exercised stock options, net of treasury shares
    
    
    216
    
    
    
    37NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (15,479
    )
    
    
    6,639Net change in cash and cash equivalents
    
    
    502
    
    
    
    1,186Cash and cash equivalents  Beginning of the period
    
    
    7,505
    
    
    
    1,720CASH AND CASH EQUIVALENTS  END OF THE PERIOD
    
    $
    8,007
    
    
    $
    2,906Supplemental disclosure of cash flow information:Interest paid, including letters of credit and unused facility fees
    
    $
    (608
    )
    
    $
    (3,687
    )Income taxes refunded
    
    $
    3,576
    
    
    $
    69
 See Notes to Consolidated Financial Statements. -4-




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Segment Information LESCO, Inc. (LESCO or the Company) is the largest provider of products for
the professional turf care segment of the green industry. Products distributed
include turf control products, fertilizer, combination fertilizer and control
products (combination products), grass seed and equipment. The Company sells
products through 273 Service Centers, 72 Stores-on-Wheels, the Internet, 76
direct sales representatives and other direct sales efforts. The Company
operates eight distribution hubs, three fertilizer blending facilities and a
grass seed processing plant. Segment Information: The Selling and Support segments reported below are
the segments of the Company for which separate information is available and for
which operating results are evaluated regularly by the Chief Executive Officer
in deciding how to allocate resources and in assessing performance. The Company maintains separate operating statements (Four-Wall P&Ls) for
each selling location. These Four-Wall P&Ls include the sales and operating
expenses necessary to operate the individual selling locations. The Selling
segment operating results reflect the aggregate Four-Wall P&Ls of the selling
locations adjusted for costs of zone and regional management, sales commission
expense, working capital interest charge and the portion of merchant discounts
and provision for doubtful accounts not previously charged to the Four-Wall
P&Ls. The Support segment represents the operating results and invested
capital of all non-selling locations including manufacturing facilities
(blending facilities and seed processing plant), distribution hubs and the
corporate office. Below are the unaudited results for the Selling and Support segments for
the three months and nine months ended September 30, 2004 and 2003: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net salesSelling
    
    $
    152,655
    
    
    $
    147,721
    
    
    $
    436,888
    
    
    $
    414,731Support
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    152,655
    
    
    $
    147,721
    
    
    $
    436,888
    
    
    $
    414,731Earnings (loss) before interest and taxesSelling
    
    $
    36,156
    
    
    $
    41,133
    
    
    $
    68,208
    
    
    $
    72,151Support
    
    
    (34,897
    )
    
    
    (30,834
    )
    
    
    (59,796
    )
    
    
    (57,679
    )$
    1,259
    
    
    $
    10,299
    
    
    $
    8,412
    
    
    $
    14,472Capital expendituresSelling
    
    $
    283
    
    
    $
    313
    
    
    $
    1,066
    
    
    $
    3,065Support
    
    
    718
    
    
    
    249
    
    
    
    2,030
    
    
    
    1,580$
    1,001
    
    
    $
    562
    
    
    $
    3,096
    
    
    $
    4,645Depreciation expenseSelling
    
    $
    282
    
    
    $
    205
    
    
    $
    831
    
    
    $
    497Support
    
    
    1,539
    
    
    
    1,778
    
    
    
    4,705
    
    
    
    5,243$
    1,821
    
    
    $
    1,983
    
    
    $
    5,536
    
    
    $
    5,740Intangible asset amortization expenseSelling
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Support
    
    
    44
    
    
    
    261
    
    
    
    129
    
    
    
    782$
    44
    
    
    $
    261
    
    
    $
    129
    
    
    $
    782Identifiable assetsSelling
    
    $
    83,503
    
    
    $
    140,094
    
    
    $
    83,503
    
    
    $
    140,094Support
    
    
    83,114
    
    
    
    93,025
    
    
    
    83,114
    
    
    
    93,025$
    166,617
    
    
    $
    233,119
    
    
    $
    166,617
    
    
    $
    233,119
 -5-




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Note 2. Summary of Significant Accounting and Reporting Policies 1. Principles of Consolidation:The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and pursuant to rules and regulations of the Securities and
Exchange Commission. The statements reflect all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. For
further information, refer to the audited financial statements and footnotes
thereto for the year ended December 31, 2003 included in the Companys Annual
Report on Form 10-K. The Companys consolidated financial statements for the three and nine
months ended September 30, 2004 and 2003 included in this Quarterly Report on
Form 10-Q have been prepared in accordance with the accounting policies
described in the Notes to Consolidated Financial Statements for the year ended
December 31, 2003 which were included in the Companys Annual Report on Form
10-K filed with the Securities and Exchange Commission (File No. 0-13147) on
March 29, 2004. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Form 10-K
referred to above. Certain reclassifications have been made to prior year
amounts to conform to the current presentation. Operating results for the
three and nine months ended September 30, 2004 are not necessarily indicative
of the results to be expected for the year due to the seasonal nature of the
Companys business. 2. Earnings Per Share: The Company presents both basic and diluted
earnings per share (EPS) amounts. Basic EPS is calculated by dividing net
income, less the preferred dividend in 2003, by the weighted average number of
common shares outstanding during the three months and nine months ended
September 30. Diluted EPS is based upon the weighted average number of common
and common equivalent shares outstanding during the quarter utilizing the
treasury stock method for stock options. Common equivalent shares are excluded
from the computation in periods in which they have an anti-dilutive effect,
such as when the exercise price of stock options exceeds the average market
price for the period or when the Company incurs a net loss for the period
reported. A reconciliation of net income applicable to common shares and the
weighted average number of common and common equivalent shares outstanding is
as follows: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    1,110
    
    
    $
    5,718
    
    
    $
    7,369
    
    
    $
    6,709Preferred shares dividend
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (84
    )Net income applicable to common shares
    
    $
    1,110
    
    
    $
    5,688
    
    
    $
    7,369
    
    
    $
    6,625Weighted average number of common shares
outstanding (basic)
    
    
    8,704,694
    
    
    
    8,526,914
    
    
    
    8,693,298
    
    
    
    8,525,358Weighted average dilutive stock options
    
    
    296,993
    
    
    
    102,102
    
    
    
    250,143
    
    
    
    130,534Weighted average number of common and common equivalent
shares outstanding (diluted)
    
    
    9,001,687
    
    
    
    8,629,016
    
    
    
    8,943,441
    
    
    
    8,655,892Diluted earnings per share
    
    $
    0.12
    
    
    $
    0.66
    
    
    $
    0.82
    
    
    $
    0.77Basic earnings per share
    
    $
    0.13
    
    
    $
    0.67
    
    
    $
    0.85
    
    
    $
    0.78
 3. Stock Based Compensation:The Company uses the intrinsic-value method
of accounting for stock-based awards granted to employees and, accordingly,
does not recognize compensation expense for its stock-based awards to employees
in the Consolidated Statements of Operations. -6-




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The following table reflects pro forma net income and earnings per share
had the Company elected to adopt the fair value approach of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Net income as reported
    
    $
    1,110
    
    
    $
    5,718
    
    
    $
    7,369
    
    
    $
    6,709Less: stock option expense, net of tax
    
    
    (137
    )
    
    
    (151
    )
    
    
    (420
    )
    
    
    (460
    )Pro forma net income
    
    $
    973
    
    
    $
    5,567
    
    
    $
    6,949
    
    
    $
    6,249Earnings per diluted shareAs reported
    
    $
    0.12
    
    
    $
    0.66
    
    
    $
    0.82
    
    
    $
    0.77Pro forma
    
    $
    0.11
    
    
    $
    0.64
    
    
    $
    0.78
    
    
    $
    0.72Earnings per basic shareAs reported
    
    $
    0.13
    
    
    $
    0.67
    
    
    $
    0.85
    
    
    $
    0.78Pro forma
    
    $
    0.11
    
    
    $
    0.65
    
    
    $
    0.80
    
    
    $
    0.73
 These pro forma amounts may not be representative of future disclosures
because the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future periods. 4. Accounts Receivable Accounts receivable consist of the following: September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Supplier rebate programs
    
    $
    8,958
    
    
    $
    9,006
    
    
    $
    9,328Trade receivablesOwned  domestic
    
    
    6,238
    
    
    
    75,912
    
    
    
    6,798Owned  international
    
    
    1,642
    
    
    
    1,728
    
    
    
    1,578Recourse
    
    
    79
    
    
    
    
    
    
    
    5,751Other
    
    
    966
    
    
    
    841
    
    
    
    709Allowance for doubtful accounts
    
    
    (3,577
    )
    
    
    (5,918
    )
    
    
    (4,886
    )$
    14,306
    
    
    $
    81,569
    
    
    $
    19,278
 The Company earns product discounts under various supplier rebate
programs, which are recorded as accounts receivable and a reduction to the cost
of inventory when earned. When the related inventory is sold, the inventory
valuation reserves are recognized as reductions to cost of sales. On December 30, 2003, the Company sold a majority of its trade accounts
receivable portfolio to GE Capital Financial Inc., dba GE Business Credit
Services (GEBCS), for cash proceeds of approximately $57 million resulting in a
pre-tax charge of $4.6 million in the fourth quarter of 2003. In the first
nine months of 2004, the Company sold additional accounts for cash proceeds of
approximately $6 million and recognized no gain or loss on the transactions. Concurrent
with the December 30, 2003 sale, the Company and GEBCS entered a private label
business credit program agreement (Credit Agreement). Under the Credit
Agreement, GEBCS extends commercial credit to qualified customers of LESCO and
funds the program sales, less program fees and discounts, within three business
days. The Credit Agreement also provides the Company the
option of extending deferred payment terms to customers through the payment of
incremental promotional discounts. The in-transit funds are recognized by the
Company as cash equivalents. The program fees and discounts and promotional
discounts are recognized as merchant discounts in the Consolidated Statements
of Operations. GEBCS is the exclusive owner of the program accounts and,
except for the recourse account portfolio discussed below, bears all credit
losses. -7-




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##### Table of Contents



The owned domestic credit accounts are accounts that did not qualify for
sale to GEBCS or for the credit recourse portfolio. LESCO has retained the
ownership and management of the owned domestic credit accounts. The Credit Agreement does not allow for the ownership of international
credit accounts by GEBCS. As such, LESCO has retained the ownership and
management of international accounts. All international accounts are
denominated in U.S. dollars. GEBCS has sole discretion under the Credit Agreement to approve or decline
prospective account holders. LESCO may request GEBCS to include declined
accounts in a portfolio of credit recourse accounts. LESCO bears all credit
losses on credit recourse accounts and pays a fee to GEBCS to manage the credit
recourse portfolio. LESCO did not recognize the initial sale of recourse
accounts to GEBCS as of December 30, 2003. Therefore, all recourse receivable
balances that existed at December 30, 2003 (the date of the GEBCS transaction)
continue to be recognized as accounts receivable by the Company, along with a
corresponding borrowing from GEBCS. Sales activity on recourse accounts
subsequent to December 30, 2003 is not recognized on the Companys balance
sheet. A reconciliation of total recourse account balances to the receivable
portion owned by the Company and recorded in the balance sheets is as follows: September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Total recourse account balances
    
    $
    4,799
    
    
    $
    
    
    
    $
    5,751Accounts owned by GEBCS
    
    
    (4,720
    )
    
    
    
    
    
    
    Recourse receivables owned by LESCO
    
    $
    79
    
    
    $
    
    
    
    $
    5,751
 In the allowance for doubtful accounts, the Company provides for expected
losses from all owned receivables and GEBCS-owned recourse accounts. Expected
losses are estimated based upon the number of days the accounts are past due,
historical loss experience of the Company, historical loss experience of credit
portfolios with characteristics similar to the Companys portfolio and the
current business environment. 5. Inventories Inventories consist of the following: September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Finished goods and purchased inventoriesSelling locations
    
    $
    64,307
    
    
    $
    60,256
    
    
    $
    46,858Distribution hubs and plants
    
    
    41,501
    
    
    
    40,159
    
    
    
    37,664Capitalized procurement, warehousing and distribution costs
    
    
    7,193
    
    
    
    7,330
    
    
    
    6,681Less: Markdown, shrink and vendor discount reserves
    
    
    (1,528
    )
    
    
    (2,976
    )
    
    
    (1,563
    )Inventory held on consignment
    
    
    (8,856
    )
    
    
    (7,725
    )
    
    
    (5,832
    )102,617
    
    
    
    97,044
    
    
    
    83,808Raw Materials
    
    
    8,314
    
    
    
    8,276
    
    
    
    9,772$
    110,931
    
    
    $
    105,320
    
    
    $
    93,580
 Inventories are valued at the lower of cost (average cost method) or
market. Consignment inventory is considered purchased and cost of product is
recognized at the time of sale. Procurement, warehousing and distribution
costs are capitalized to inventory on hand and expensed to distribution cost
when the inventory is sold. Markdown, shrink and vendor discount reserves are
provided for markdown of inventory to net realizable value, expected inventory
shrink and earned supplier discounts of inventory remaining on hand. -8-




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6. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the respective
assets. Buildings are depreciated over 15 to 20 years, and machinery,
equipment and other depreciable assets are depreciated over three to 12 years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Additions and improvements are capitalized. During the second quarter of 2004, the Company sold its Avon Lake, Ohio
distribution facility for $1.5 million in cash. Based on the remaining net book
value of the assets sold, this resulted in a loss on sale of less than $0.1
million. The distribution operations for customer orders previously fulfilled
from the Avon Lake facility have been transferred to a third party logistics
provider based in Columbus, Ohio. Property, plant and equipment, net consists of the following: September 30, 2004
    
    September 30, 2003
    
    December 31, 2003Selling
    
    
    
    
    
    
    
    
    
    Selling
    
    
    
    
    
    
    
    
    
    Selling(Dollars in thousands)
    
    Locations
    
    Support
    
    Total
    
    Locations
    
    Support
    
    Total
    
    Locations
    
    Support
    
    TotalLand
    
    $
    
    
    
    $
    600
    
    
    $
    600
    
    
    $
    
    
    
    $
    934
    
    
    $
    934
    
    
    $
    
    
    
    $
    834
    
    
    $
    834Buildings and improvements
    
    
    1,441
    
    
    
    18,527
    
    
    
    19,968
    
    
    
    1,322
    
    
    
    21,515
    
    
    
    22,837
    
    
    
    1,391
    
    
    
    21,174
    
    
    
    22,565Machinery and equipment
    
    
    3,905
    
    
    
    20,797
    
    
    
    24,702
    
    
    
    3,901
    
    
    
    21,734
    
    
    
    25,635
    
    
    
    3,746
    
    
    
    20,549
    
    
    
    24,295Furniture and fixtures
    
    
    6,601
    
    
    
    30,633
    
    
    
    37,234
    
    
    
    4,558
    
    
    
    31,153
    
    
    
    35,711
    
    
    
    6,262
    
    
    
    29,636
    
    
    
    35,898Subtotal
    
    
    11,947
    
    
    
    70,557
    
    
    
    82,504
    
    
    
    9,781
    
    
    
    75,336
    
    
    
    85,117
    
    
    
    11,399
    
    
    
    72,193
    
    
    
    83,592Less: Accumulated depreciation
    
    
    (7,039
    )
    
    
    (48,155
    )
    
    
    (55,194
    )
    
    
    (6,363
    )
    
    
    (45,911
    )
    
    
    (52,274
    )
    
    
    (6,324
    )
    
    
    (45,787
    )
    
    
    (52,111
    )Property, plant and equipment, net
    
    $
    4,908
    
    
    $
    22,402
    
    
    $
    27,310
    
    
    $
    3,418
    
    
    $
    29,425
    
    
    $
    32,843
    
    
    $
    5,075
    
    
    $
    26,406
    
    
    $
    31,481
 Depreciation expense is included in the following: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Cost of product
    
    $
    504
    
    
    $
    635
    
    
    $
    1,530
    
    
    $
    2,012Distribution cost
    
    
    191
    
    
    
    168
    
    
    
    655
    
    
    
    414Selling expense
    
    
    282
    
    
    
    205
    
    
    
    831
    
    
    
    497General and administrative expense
    
    
    844
    
    
    
    975
    
    
    
    2,520
    
    
    
    2,817Total
    
    $
    1,821
    
    
    $
    1,983
    
    
    $
    5,536
    
    
    $
    5,740
 -9-




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7. Borrowings Borrowings consist of the following: September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Current:Revolving credit facility
    
    $
    
    
    
    $
    57,860
    
    
    $
    15,513Current portion of long-term debt
    
    
    
    
    
    
    1,096
    
    
    
    28$
    
    
    
    $
    58,956
    
    
    $
    15,541Long-term:Term loan
    
    $
    
    
    
    $
    3,319
    
    
    $
    Industrial revenue bonds
    
    
    5,875
    
    
    
    5,875
    
    
    
    5,875Other debt
    
    
    
    
    
    
    
    
    
    
    28Less: current portion
    
    
    
    
    
    
    
    
    
    
    (28
    )$
    5,875
    
    
    $
    9,194
    
    
    $
    5,875
 Revolving Credit Facility On December 30, 2003, the Company entered into a $50 million Revolving
Credit Facility (the Facility) which replaced a prior credit facility.
Borrowings under the Facility were used to retire the prior credit facility,
including a term loan, buy-out an interest rate swap agreement and buy-back
outstanding preferred stock. The Facility matures December 30, 2006 and is secured by inventory, owned
receivables, equipment, investment interests, real property interests, and
general intangibles, including intellectual property. The Facility bears
interest at LIBOR plus 2.0% to 2.5% per annum, based on the level of
borrowings, and requires the payment of a facility fee ranging from 0.4% to
0.5% per annum on the unused portion of availability. The availability under
the Facility is determined by a borrowing base formula calculated on eligible
inventory. As of September 30, 2004, there was $46.9 million available, with
unused capacity of $36.3 million. Letters of credit, up to a maximum of $20
million, are also available under the Facility and are considered outstanding
borrowings when calculating the unused portion of availability. Letters of
credit in the aggregate amount of $10.6 million were outstanding as of
September 30, 2004. Letter of credit fees range from 2.0% to 2.5% with an
issuance fee ranging from 0.125% to 0.150%. The Facility requires the maintenance of certain covenants, with the only
financial covenant being a fixed charge coverage ratio. The Company was in
compliance with the Facility covenants as of September 30, 2004. 8. Asset Rationalization and Severance Expense Major components of the remaining reserves and accruals for asset
rationalization and severance expense as of September 30, 2004 and December 31,
2003 are as follows: Asset Rationalization AccrualLease
    
    Other Exit
    
    
    
    
    
    Severance(Dollars in thousands)
    
    Costs
    
    Costs
    
    Total
    
    Accrual
    
    TotalAsset rationalization and severance
accruals at December 31, 2003
    
    $
    220
    
    
    $
    830
    
    
    $
    1,050
    
    
    $
    532
    
    
    $
    1,5822004 ActivityAdditions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    138Utilized/payments
    
    
    (32
    )
    
    
    (219
    )
    
    
    (251
    )
    
    
    (644
    )
    
    
    (895
    )Asset rationalization reserves and
severance accruals at September 30, 2004
    
    $
    188
    
    
    $
    611
    
    
    $
    799
    
    
    $
    26
    
    
    $
    825
 The Company anticipates utilizing the remaining asset rationalization
accrual by the end of 2004. -10-




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9. Detail of Certain Balance Sheets Accounts September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Other current assets:Income tax refund receivable
    
    $
    
    
    
    $
    
    
    
    $
    3,740Other prepaids
    
    
    1,272
    
    
    
    1,115
    
    
    
    1,548Prepaid insurance
    
    
    1,680
    
    
    
    817
    
    
    
    1,033Notes receivable
    
    
    592
    
    
    
    (5
    )
    
    
    385Assets held for sale
    
    
    274
    
    
    
    
    
    
    
    274$
    3,818
    
    
    $
    1,927
    
    
    $
    6,980Other non-current assets:Notes receivable
    
    $
    1,350
    
    
    $
    1,089
    
    
    $
    1,466Store deposits
    
    
    562
    
    
    
    607
    
    
    
    572Deferred financing charges
    
    
    210
    
    
    
    1,345
    
    
    
    416Assets held for sale
    
    
    
    
    
    
    274
    
    
    
    Miscellaneous deposits
    
    
    86
    
    
    
    86
    
    
    
    87Other prepaids
    
    
    37
    
    
    
    
    
    
    
    Deferred federal income tax
    
    
    
    
    
    
    1,142
    
    
    
    Investment  joint venture
    
    
    
    
    
    
    742
    
    
    
    $
    2,245
    
    
    $
    5,285
    
    
    $
    2,541Accounts payable:Accounts payable
    
    $
    57,292
    
    
    $
    54,241
    
    
    $
    35,910Overdraft balances
    
    
    6,113
    
    
    
    9,226
    
    
    
    12,213Accounts payable to GEBCS for recourse accounts receivable
    
    
    79
    
    
    
    
    
    
    
    5,751$
    63,484
    
    
    $
    63,467
    
    
    $
    53,874Accrued liabilities:Accrued non-income taxes
    
    $
    3,126
    
    
    $
    3,140
    
    
    $
    3,510Commissions and management bonuses
    
    
    4,914
    
    
    
    2,077
    
    
    
    2,650Salaries and wages
    
    
    1,498
    
    
    
    793
    
    
    
    1,918Insurance  hospitalization and workers compensation
    
    
    2,816
    
    
    
    2,576
    
    
    
    2,383Asset rationalization
    
    
    799
    
    
    
    1,232
    
    
    
    1,050Insurance  property and casualty
    
    
    1,092
    
    
    
    868
    
    
    
    1,028Severance
    
    
    26
    
    
    
    595
    
    
    
    532Interest rate swap
    
    
    
    
    
    
    1,509
    
    
    
    Other
    
    
    3,085
    
    
    
    4,675
    
    
    
    1,555$
    17,356
    
    
    $
    17,465
    
    
    $
    14,626
 -11-




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10. Detail of Certain Statements of Operations Accounts Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net sales:Gross sales
    
    $
    153,388
    
    
    $
    148,150
    
    
    $
    439,469
    
    
    $
    416,994Agency sales
    
    
    (622
    )
    
    
    
    
    
    
    (1,049
    )
    
    
    Freight revenue
    
    
    431
    
    
    
    423
    
    
    
    1,251
    
    
    
    1,242Customer discounts and rebates
    
    
    (542
    )
    
    
    (852
    )
    
    
    (2,783
    )
    
    
    (3,505
    )$
    152,655
    
    
    $
    147,721
    
    
    $
    436,888
    
    
    $
    414,731Merchant discounts and provision for doubtful accounts:Merchant discountsMulti-purpose credit programs
    
    $
    (531
    )
    
    $
    (421
    )
    
    $
    (1,413
    )
    
    $
    (1,204
    )Private label business credit programs
    
    
    (1,743
    )
    
    
    
    
    
    
    (4,682
    )
    
    
    Private label promotional discounts
    
    
    (225
    )
    
    
    
    
    
    
    (378
    )
    
    
    Provision for doubtful accounts
    
    
    
    
    
    
    (552
    )
    
    
    
    
    
    
    (1,656
    )Customer finance revenue
    
    
    62
    
    
    
    553
    
    
    
    264
    
    
    
    1,201Other
    
    
    (241
    )
    
    
    (264
    )
    
    
    (650
    )
    
    
    (766
    )$
    (2,678
    )
    
    $
    (684
    )
    
    $
    (6,859
    )
    
    $
    (2,425
    )Other expense:Severance
    
    $
    (24
    )
    
    $
    (34
    )
    
    $
    (138
    )
    
    $
    (487
    )Loss on sale/disposal of fixed assets
    
    
    (20
    )
    
    
    
    
    
    
    (96
    )
    
    
    (139
    )Other
    
    
    (6
    )
    
    
    1
    
    
    
    (8
    )
    
    
    (11
    )$
    (50
    )
    
    $
    (33
    )
    
    $
    (242
    )
    
    $
    (637
    )Other income:Joint venture income
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    590Payment discounts
    
    
    47
    
    
    
    172
    
    
    
    314
    
    
    
    593Other
    
    
    47
    
    
    
    20
    
    
    
    150
    
    
    
    75$
    94
    
    
    $
    192
    
    
    $
    464
    
    
    $
    1,258Interest expense and facility fees:Borrowings on revolver
    
    $
    (25
    )
    
    $
    (596
    )
    
    $
    (332
    )
    
    $
    (2,269
    )Other revolver fees
    
    
    (56
    )
    
    
    (78
    )
    
    
    (168
    )
    
    
    (191
    )Interest rate swap
    
    
    
    
    
    
    (317
    )
    
    
    
    
    
    
    (895
    )Other debt and letters of credit costs
    
    
    (68
    )
    
    
    (114
    )
    
    
    (203
    )
    
    
    (328
    )$
    (149
    )
    
    $
    (1,105
    )
    
    $
    (703
    )
    
    $
    (3,683
    )
 Note 3. Relocation of Corporate Headquarters During the third quarter of 2004, LESCO entered into agreements to
relocate its corporate headquarters from its current approximately 94,000
square foot facility in Strongsville, Ohio to an approximately 40,000 square
foot facility in downtown Cleveland, Ohio. The term of the Companys new lease
is five and a half years, and the Company expects to complete the relocation
this year. A division of a public company (the Assignee) will assume the
remaining 11 years of LESCOs current lease at the Strongsville location. -12-




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##### Table of Contents



Relocation costs are estimated at approximately $7.5 million including
$4.8 million in tenant and landlord inducements, and $2.7 million in broker
commissions, legal fees, letter of credit costs, move costs and fixed-asset
write offs. During the third quarter, the Company recorded $4.9 million of
expense related to this relocation. Beginning in 2005, the financial effect of
the relocation is expected to be accretive to earnings on an annual pre-tax
basis by approximately $1.0 million. The return on the cost to relocate is
estimated at greater than 7%. LESCO remains liable under the lease if the Assignee fails to perform. The Assignee will be obligated to secure a $4.4 million letter of
credit backing its performance under the lease, and LESCO will pay the Assignee
approximately $100,000 annually for the remaining term of the lease to defray
the cost of the letter of credit. Note 4. Subsequent Events Subsequent to the balance sheet date, LESCO notified its supplier of
methylene urea fertilizer that the Company will no longer operate under the
terms of a supply agreement with the supplier. The five-year supply agreement
between LESCO and its supplier was entered into in November 2002 and requires
the Company to purchase annually 8,000 tons of methylene urea fertilizer from
the supplier at a fixed conversion cost of $500 per ton plus the prevailing
commodities market prices which were approximately $270 per ton for the first
nine months of 2004. Management believes that it is advantageous to operating
results to exit the supply agreement and currently estimates that the
corresponding savings over the remaining term of the agreement will exceed the
cost to exit the supply agreement. It is the Companys intent to source
methylene urea fertilizer from other available market sources. Subsequent to the balance sheet date, LESCO notified the issuer of
industrial development revenue bonds related to the Companys Martins Ferry,
Ohio facility that LESCO is electing to call for its optional redemption of the
bonds prior to their maturity date. There is no prepayment penalty for the
early extinguishment of the $5.9 million debt. The Company expects to redeem
these bonds during the fourth quarter of 2004. -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 This discussion provides a narrative on the Companys financial
performance and condition that should be read in conjunction with the
accompanying consolidated financial statements. It includes the following
sections:  
    
    Overview
    
    Consolidated Results
    
    Business Segments
    
    Liquidity and Capital Resources
    
    Critical Accounting Policies and Estimates
    
    Forward Looking Statements OVERVIEW LESCO is the largest provider of products to the professional turf care
segment of the green industry. The professional users of our products include
lawn care and landscape firms and the employees of a variety of commercial,
governmental, institutional and industrial establishments, including golf
courses, sod farms, airports, cemeteries, professional sports organizations,
universities, schools, commercial properties and numerous other organizations
that use in-house employees to maintain lawns and gardens. We track our customers through two customer sectors: Lawn Care and Golf. Gross sales for these sectors for the three months and nine months ended
September 30 were as follows: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    2004
    
    2003Lawn Care
    
    $
    112.6
    
    
    $
    105.2
    
    
    $
    339.5
    
    
    $
    314.6Golf
    
    
    40.8
    
    
    
    42.9
    
    
    
    100.0
    
    
    
    102.4$
    153.4
    
    
    $
    148.1
    
    
    $
    439.5
    
    
    $
    417.0
 The separation of our customers into these two sectors is important as
distribution to the sectors is markedly different and their growth prospects
vary significantly. Our Lawn Care sector includes all non-golf related customers and is
dominated by lawn care and landscape firms. Historically, the distribution of
products into this sector has been fragmented and inefficient. We believe that
our model of Service Centers and direct sales provides efficiency to the
sectors distribution channels through easily accessible, strategically
positioned real estate where we provide agronomic expertise through our 273
Service Centers and direct sales associates with products specifically targeted
to the Lawn Care sector. We estimate the market for our Lawn Care products at
$4.6 billion, and independent research indicates that organic growth in the
sector is expected to be 5% annually for the next several years due to the
aging of the baby boomers and their increasing desire to contract lawn care
professionals, the higher number of two-income families and continued time
constraints on consumers. The golf industry is a smaller market (estimated at $1.4 billion) and is
not expected to grow significantly in the near future, nor do we believe our
opportunities are as great in this sector as those in the Lawn Care sector.
Additionally, the industry has experienced a decline in annual rounds of golf
being played, which has decreased the budgets of golf course superintendents;
however, that trend appears to be moderating in the first nine months of 2004.
The ability to capture incremental market share in this industry is limited as
distribution of our products to the industry is dominated by a few national and
regional distributors. We anticipate that we will be able
to expand our presence in under-serviced markets, but we are not planning
any major expansion of Stores-on-Wheels or direct golf sales in the near
future. -14-




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##### Table of Contents



RESULTS OF OPERATIONS LESCO, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    152,655
    
    
    $
    147,721
    
    
    $
    436,888
    
    
    $
    414,731Cost of product
    
    
    (99,893
    )
    
    
    (97,120
    )
    
    
    (289,374
    )
    
    
    (275,561
    )Distribution cost
    
    
    (12,106
    )
    
    
    (11,891
    )
    
    
    (36,205
    )
    
    
    (37,144
    )Gross profit on sales
    
    
    40,656
    
    
    
    38,710
    
    
    
    111,309
    
    
    
    102,026Selling expense
    
    
    (23,450
    )
    
    
    (20,455
    )
    
    
    (68,361
    )
    
    
    (63,456
    )General & administrative expense
    
    
    (7,085
    )
    
    
    (7,301
    )
    
    
    (20,946
    )
    
    
    (21,874
    )Corporate relocation expense
    
    
    (4,940
    )
    
    
    
    
    
    
    (4,940
    )
    
    
    Hurricane/flood expense
    
    
    (1,350
    )
    
    
    
    
    
    
    (1,350
    )
    
    
    Merchant discounts and provision for doubtful accounts
    
    
    (2,678
    )
    
    
    (684
    )
    
    
    (6,859
    )
    
    
    (2,425
    )Pre-opening expense
    
    
    62
    
    
    
    (130
    )
    
    
    (663
    )
    
    
    (420
    )Other expense
    
    
    (50
    )
    
    
    (33
    )
    
    
    (242
    )
    
    
    (637
    )Other income
    
    
    94
    
    
    
    192
    
    
    
    464
    
    
    
    1,258Earnings before interest and taxes
    
    
    1,259
    
    
    
    10,299
    
    
    
    8,412
    
    
    
    14,472Interest
expense, net
    
    
    (149
    )
    
    
    (1,105
    )
    
    
    (703
    )
    
    
    (3,683
    )Earnings before taxes
    
    $
    1,110
    
    
    $
    9,194
    
    
    $
    7,709
    
    
    $
    10,789
 Sales: Service Centers:Gross sales for LESCO Service Centers® of $107.4 million
for the third quarter of 2004 reflect sales transacted through our 273 Service
Centers in operation as of September 30, 2004, including 26 new Service Centers
opened in the first nine months of 2004 (of which one opened in the third
quarter) and 21 new Service Centers opened during 2003. The total increase of
6% over the prior year third quarter results of $101.1 million reflects a
decline of nearly 1% in same-store sales (excluding the 47 new units) and an
increase of 7% from incremental new Service Centers of $7.1 million.
Comparable-store sales were affected by inclement weather conditions in the
Southeast region caused by increased hurricane activity compared to the same
period last year . Management estimates that the negative effect of weather conditions
on comparable-store sales was 2% for the third quarter and 1% year to date.
The sales growth for the quarter was predominantly generated in the fertilizer
and combination product categories. For the first nine months, Service Center
sales expanded 7% to $303.1 million from $282.5 million for the same period in
2003. The increase in sales revenues was produced from a 1% same-store sales
advance coupled with a 6% sales lift, or $17.6 million, from incremental new
store revenues. Similar to the third quarter sales growth, fertilizer and
combination products provided the vast majority of the sales increase for the
first nine months of 2004 compared to the same period in 2003. The primary
products sold through Service Centers are turf care products, including turf
and pest control products, fertilizer, grass seed and equipment. The Service
Centers market and sell products principally to lawn care companies,
landscapers, public and private golf courses, nurseries, municipalities,
churches and condominium associations. The Company plans to open 27 Service
Centers during 2004 of which 26 were opened in the first nine months of the
year. Other Selling Locations:The Company also markets and sells products to
private and public golf courses and other customers having large turf areas
through direct sales programs and our fleet of LESCO Stores-on-Wheels®.
Through these selling channels, the
Company generated sales of $46.0 million for the third quarter of 2004, a
2% decline from the $47.0 million in sales for the third quarter of 2003. The
inclement weather conditions in the Southeast region impacted third quarter
sales as the Companys other selling channels produced sales growth of 3%
through the first half of 2004. For the first nine months of 2004, these other
selling channels produced a 1% increase, led by fertilizer and combination
products, to $136.4 million from $134.5 million for the same period in 2003.
The Companys direct channel markets and sells products to large national and
regional lawn care customers utilizing sales representatives, markets products
by mail order catalog, transacts orders through the Internet and participates
in national and regional lawn care trade shows. A telemarketing sales group
calls on inactive accounts and contacts customers not currently serviced by the -15-




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##### Table of Contents



Companys outside sales forces. In addition, products are marketed
internationally, principally through foreign distributors. The
Stores-on-Wheels are well stocked with a wide variety of turf care products and
golf course accessories, which are sold directly from the trucks. The Company
operated 72 LESCO Stores-on-Wheels in the third quarters of 2004 and 2003. The
primary products sold through this channel are turf care products, including
turf and pest control, fertilizer, grass seed, hand held equipment and golf
course accessories. The following table provides supplemental detail of sales by customer
sector and selling locations for the third quarter and first nine months of
each respective year: Three Months Ended September 30,2004
    
    2003
    
    % ChangeOther
    
    
    
    
    
    
    
    
    
    OtherService
    
    Selling
    
    
    
    
    
    Service
    
    Selling
    
    
    
    
    
    Service
    
    Other Selling(Dollars in millions)
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    TotalLawn care
    
    $
    95.0
    
    
    $
    17.6
    
    
    $
    112.6
    
    
    $
    89.5
    
    
    $
    15.7
    
    
    $
    105.2
    
    
    
    6.1
    %
    
    
    12.1
    %
    
    
    7.0
    %Golf
    
    
    12.4
    
    
    
    28.4
    
    
    
    40.8
    
    
    
    11.6
    
    
    
    31.3
    
    
    
    42.9
    
    
    
    6.9
    
    
    
    (9.3
    )
    
    
    (4.9
    )Gross sales
    
    $
    107.4
    
    
    $
    46.0
    
    
    $
    153.4
    
    
    $
    101.1
    
    
    $
    47.0
    
    
    $
    148.1
    
    
    
    6.2
    %
    
    
    (2.1
    )%
    
    
    3.6
    %Agency sales
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Freight revenue
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    Customer discounts and rebates
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (37.5
    )Net sales
    
    
    
    
    
    
    
    
    
    $
    152.7
    
    
    
    
    
    
    
    
    
    
    $
    147.7
    
    
    
    
    
    
    
    
    
    
    
    3.4
    %
 Nine Months Ended September 30,2004
    
    2003
    
    % ChangeOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherService
    
    Selling
    
    
    
    
    
    Service
    
    Other Selling
    
    
    
    
    
    Service
    
    Selling(Dollars in millions)
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    Total
    
    Centers
    
    Locations
    
    TotalLawn care
    
    $
    276.4
    
    
    $
    63.1
    
    
    $
    339.5
    
    
    $
    259.6
    
    
    $
    55.0
    
    
    $
    314.6
    
    
    
    6.5
    %
    
    
    14.7
    %
    
    
    7.9
    %Golf
    
    
    26.7
    
    
    
    73.3
    
    
    
    100.0
    
    
    
    22.9
    
    
    
    79.5
    
    
    
    102.4
    
    
    
    16.6
    
    
    
    (7.8
    )
    
    
    (2.3
    )Gross sales
    
    $
    303.1
    
    
    $
    136.4
    
    
    $
    439.5
    
    
    $
    282.5
    
    
    $
    134.5
    
    
    $
    417.0
    
    
    
    7.3
    %
    
    
    1.4
    %
    
    
    5.4
    %Agency sales
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Freight revenue
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    Customer discounts and rebates
    
    
    
    
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.5
    )
    
    
    
    
    
    
    
    
    
    
    (20.0
    )Net sales
    
    
    
    
    
    
    
    
    
    $
    436.9
    
    
    
    
    
    
    
    
    
    
    $
    414.7
    
    
    
    
    
    
    
    
    
    
    
    5.4
    %
 Agency Sales, Freight Revenue and Customer Discounts and Rebates: The
Company has entered into agency agreements with certain of its suppliers
whereby the Company operates as a sales agent of those suppliers. The
suppliers retain title to their merchandise until it is sold by the Company and
determine the prices at which LESCO can sell the suppliers merchandise. As
such, the Company recognizes sales on a net basis and records only its product
margin as revenue. Therefore, the $0.6 million of agency sales for the third
quarter, and $1.0 million for the first nine months of 2004, represent the
portion of revenue that exceeds the
Companys net product margin. Freight revenue, which represents fees
charged to customers in sales transactions for shipping and handling, remained
flat year over year for the quarter and on a year-to-date basis. Customer
discounts and rebates declined slightly from the prior year in both the
quarter, a $0.3 million decline, and the first nine months, a $0.7 million
reduction, as the number of customer rebate programs has been reduced. -16-




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##### Table of Contents



Gross Profit on Sales: Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003% of Net
    
    
    
    
    
    % of Net
    
    
    
    
    
    % of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    SalesProduct margin
    
    $
    52.8
    
    
    
    34.6
    %
    
    $
    50.6
    
    
    
    34.3
    %
    
    $
    147.5
    
    
    
    33.8
    %
    
    $
    139.2
    
    
    
    33.6
    %Distribution cost
    
    
    (12.1
    )
    
    
    (7.9
    )
    
    
    (11.9
    )
    
    
    (8.1
    )
    
    
    (36.2
    )
    
    
    (8.3
    )
    
    
    (37.2
    )
    
    
    (9.0
    )Gross profit
    
    $
    40.7
    
    
    
    26.7
    %
    
    $
    38.7
    
    
    
    26.2
    %
    
    $
    111.3
    
    
    
    25.5
    %
    
    $
    102.0
    
    
    
    24.6
    %
 Product margin improved 30 basis points in the third quarter of 2004
compared to the like period in 2003 and improved 20 basis points on a
year-over-year basis for the first nine months. The product margin improvement
was achieved through expanding margins in the Companys combination, control
and pest control product categories. This expansion in product margin is
despite a year-over-year comparative price increase for urea of approximately
10% for the third quarter and nearly 20% for the first nine months of 2004.
Urea is our largest single purchased product or raw material, which is used as
the nitrogen source for blended fertilizers and combination products. Urea is
a second derivative of natural gas and its cost has increased with the
increased cost of natural gas. Urea can represent approximately 7% to 9% of
our cost of sales. For 2004, we entered into a contract with our urea supplier
to fix the cost of a majority of our urea needs at a price reflecting the
prevailing market. During the third quarter of 2004, the Company entered into another
contract with its urea supplier to fix LESCOs cost for a majority of its urea
needs from December 2004 to December 2005. The new contract rate for urea
purchases increased approximately 14% over the existing contract rate. Additionally, during the third quarter, LESCO entered into a purchase
agreement to satisfy the majority of its potash requirements for 2005. The
contract period is from January 1, 2005 to December 31, 2005 at a rate that
will increase approximately 24% over the Companys current purchase price. Operating Expenses: Three Months Ended September 30,2004
    
    2003
    
    Change% of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    %
    
    Basis PointsSelling expense
    
    $
    23.5
    
    
    
    15.4
    %
    
    $
    20.5
    
    
    
    13.9
    %
    
    $
    3.0
    
    
    
    14.6
    %
    
    
    150
    bpsCorporate relocation expense
    
    
    4.9
    
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    
    
    
    
    Hurricane/flood expense
    
    
    1.4
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    Merchant
discounts/provision for
doubtful accounts
    
    
    2.7
    
    
    
    1.8
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    2.0
    
    
    
    285.7
    
    
    
    130
    bps$
    32.5
    
    
    
    21.3
    %
    
    $
    21.2
    
    
    
    14.4
    %
    
    $
    11.3
    
    
    
    53.3
    %
    
    
    690
    bps
 Nine Months Ended September 30,2004
    
    2003
    
    Change% of Net
    
    
    
    
    
    % of Net(Dollars in millions)
    
    Dollars
    
    Sales
    
    Dollars
    
    Sales
    
    Dollars
    
    %
    
    Basis PointsSelling expense
    
    $
    68.4
    
    
    
    15.7
    %
    
    $
    63.5
    
    
    
    15.3
    %
    
    $
    4.9
    
    
    
    7.7
    %
    
    
    40
    bpsCorporate relocation expense
    
    
    4.9
    
    
    
    1.1
    
    
    
    
    
    
    
    0.0
    
    
    
    4.9
    
    
    
    
    
    
    
    Hurricane/flood expense
    
    
    1.4
    
    
    
    0.3
    
    
    
    
    
    
    
    0.0
    
    
    
    1.4
    
    
    
    
    
    
    
    Merchant
discounts/provision for
doubtful accounts
    
    
    6.9
    
    
    
    1.6
    
    
    
    2.4
    
    
    
    0.6
    
    
    
    4.5
    
    
    
    187.5
    
    
    
    100
    bps$
    81.6
    
    
    
    18.7
    %
    
    $
    65.9
    
    
    
    15.9
    %
    
    $
    15.7
    
    
    
    23.8
    %
    
    
    280
    bps
 -17-




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##### Table of Contents



Selling Expense Selling expense includes all operating expenses of Service Centers and
Stores-on-Wheels and direct sales, sales management, customer service and
marketing expenses. The third quarter 2004 selling expense increased $3.0
million over the same period last year. Incremental costs from new Service
Centers represented approximately $1.5 million of the expense increase. The
majority of the remaining increase year-over-year was expected and budgeted for
service center payroll and benefits. New Service Center expense for the first
nine months of 2004 was $5.6 million compared to $1.9 million for the like
period in 2003. Corporate Relocation Expense During the third quarter of 2004, LESCO entered into agreements to
relocate its corporate headquarters from its current approximately 94,000
square foot facility in Strongsville, Ohio to an approximately 40,000 square
foot facility in downtown Cleveland, Ohio. Relocation costs incurred during
the third quarter were $4.9 million primarily related to tenant and landlord
inducements along with broker commissions and legal fees. The Company
previously disclosed that total relocation costs are estimated at approximately
$7.5 million and that the majority of the remaining estimated costs are
expected to be incurred during the fourth quarter of 2004. Hurricane/Flood Expense During the third quarter of 2004, the Company incurred losses at its
Sebring, FL and Martins Ferry, OH manufacturing facilities due to hurricane
activity in Florida and the related rainfall and flooding activity in Ohio. The
total estimated damages are $1.4 million primarily resulting from the loss of
approximately $1.0 million of bulk urea and sulfur coated urea that was stored
at a third party terminal located adjacent to the Ohio River. Additionally,
there was roof and siding damage sustained at the Sebring facility. LESCO is
evaluating its claims against the warehouse and other possible avenues of
assistance and intends to pursue all means available to recoup this loss. Any
future recovery will be reported in the period in which the recovery is
reasonably certain. Merchant Discounts and Provision for Doubtful Accounts As a percentage of net sales, merchant discounts and provision for
doubtful accounts expense increased 130 basis points year-over-year for the
third quarter. On December 30, 2003, we sold our trade accounts receivable
portfolio to General Electric Business Credit Services (GEBCS) for $57 million
and entered a private label business credit program agreement with GEBCS. In
2004, we sold an additional $6 million of trade accounts receivable to GEBCS.
In the third quarter and first nine months of 2004, this arrangement has
resulted in increased merchant discounts as we pay program fees and discounts
to GEBCS of approximately 1.2% of sales; however, interest expense, provision
for doubtful accounts, the general and administrative costs to service the
previous in-house program and customer finance revenue have been significantly
reduced as compared to the same periods in 2003. General & Administrative Expense: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeGeneral & administrative expense
    
    $
    7.1
    
    
    $
    7.3
    
    
    $
    (0.2
    )
    
    $
    20.9
    
    
    $
    21.9
    
    
    $
    (1.0
    )
 We reduced general & administrative expense in the third quarter of 2004
by $0.2 million as compared to the same period in 2003 while we have reduced
our year-to-date expense $1.0 million from the same period a year ago. For the
quarter and nine months ended September 30, 2004, the cost savings recognized
from tightened expense controls along with the strategic outsourcing of
customer financing to GEBCS have virtually offset the increase in expense
related to more stringent governance guidelines as well as management bonus and
employee insurance/benefits. -18-




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##### Table of Contents



Pre-Opening Expense Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangePre-opening expense
    
    $
    (0.1
    )
    
    $
    0.1
    
    

    $
    (0.2
    )
    
    $
    0.7
    
    
    $
    0.4
    
    
    $
    0.3Number of Service Centers opened
during the period
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    26
    
    
    
    21
    
    
    
    5
 Pre-opening expense declined $0.2 million in the third quarter of 2004
compared to the same period last year as the Company opened one new Service
Center in the third quarter of 2004 and had no additional openings in the third
quarter of 2003. Pre-opening expense, which consists primarily of grand
opening advertising, payroll, supplies and distribution, and storage costs, is
expensed as incurred. The Company overestimated pre-opening costs incurred as
of June 30, 2004 and thus reported a negative expense for its third quarter
results. Other (Expense)/Income: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeOther expense
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    (0.2
    )
    
    $
    (0.6
    )
    
    $
    0.4Other income
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.5
    
    
    
    1.3
    
    
    
    (0.8
    )$
    
    
    
    $
    0.2
    
    
    $
    (0.2
    )
    
    $
    0.3
    
    
    $
    0.7
    
    
    $
    (0.4
    )
 The decrease in other expense/income, net for the third quarter compared
to the same period in 2003 was due to the reduction in payment discounts as
there were not as many discounts available in the third quarter 2004 as
compared to the same period in 2003. The decrease for the first nine months of
2004 primarily relates to our former joint venture. No income or loss was
recorded in the first nine months of 2004 related to the joint venture, as we
sold our ownership in it in the fourth quarter of 2003, and $0.6 million of
income was recognized in the first nine months of 2003. Additionally, on a
year-over-year basis, the decline in payment discounts was essentially offset
by the decline in severance expense. Interest Expense: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeInterest Expense
    
    $
    0.1
    
    
    $
    1.1
    
    
    $
    (1.0
    )
    
    $
    0.7
    
    
    $
    3.7
    
    
    $
    (3.0
    )
 Interest expense declined $1.0 million in the third quarter 2004 and $3.0
million for the first nine months versus the same periods in 2003, which was
directly related to the sale of the Companys accounts receivable portfolio to
GEBCS. The sale of the portfolio has reduced the year-over-year outstanding
borrowings on the revolving credit facility during the third quarter and first
nine months, and eliminated the interest rate swap agreement that was in place
during 2003. Pre-Tax Earnings: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeEarnings before taxes
    
    $
    1.1
    
    
    $
    9.2
    
    
    $
    (8.1
    )
    
    $
    7.7
    
    
    $
    10.8
    
    
    $
    (3.1
    )
 In the third quarter of 2004, the Company opened one Service Center
location bringing the year-to-date total openings to 26 Service Centers. The
Company did not open any new Service Centers in the third quarter of 2003 and
opened 21 Service Centers for -19-




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##### Table of Contents



the full year in 2003. Management views new Service Centers as the primary
method to leverage our cost base and grow earnings consistently over time.
Below are the operating results for the three months and nine months ended
September 30, 2004 and 2003 for the classes of 2003 and 2004 Service Centers: Three Months Ended September 30,2004
    
    2003Class of 2004
    
    Class of 2003
    
    
    
    
    
    Class of 2003(Dollars in thousands)
    
    (26 Stores)
    
    (21 Stores)
    
    Total
    
    (19 Stores)Sales
    
    $
    5,136
    
    
    $
    5,619
    
    
    $
    10,755
    
    
    $
    3,699Cost of product
    
    
    (3,449
    )
    
    
    (3,856
    )
    
    
    (7,305
    )
    
    
    (2,497
    )Distribution cost
    
    
    (210
    )
    
    
    (199
    )
    
    
    (409
    )
    
    
    (139
    )Gross profit on sales
    
    
    1,477
    
    
    
    1,564
    
    
    
    3,041
    
    
    
    1,063Selling expense
    
    
    (1,269
    )
    
    
    (1,007
    )
    
    
    (2,276
    )
    
    
    (809
    )Pre-opening expense
    
    
    62
    
    
    
    
    
    
    
    62
    
    
    
    (130
    )Merchant discount expense
    
    
    (70
    )
    
    
    (79
    )
    
    
    (149
    )
    
    
    (10
    )Earnings before interest
and taxes
    
    $
    200
    
    
    $
    478
    
    
    $
    678
    
    
    $
    114
 Nine Months Ended September 30,2004
    
    2003Class of 2004
    
    Class of 2003
    
    
    
    
    
    Class of 2003(Dollars in thousands)
    
    (26 Stores)
    
    (21 Stores)
    
    Total
    
    (19 Stores)Sales
    
    $
    9,904
    
    
    $
    14,860
    
    
    $
    24,764
    
    
    $
    7,134Cost of product
    
    
    (6,680
    )
    
    
    (10,099
    )
    
    
    (16,779
    )
    
    
    (4,914
    )Distribution cost
    
    
    (568
    )
    
    
    (598
    )
    
    
    (1,166
    )
    
    
    (328
    )Gross profit on sales
    
    
    2,656
    
    
    
    4,163
    
    
    
    6,819
    
    
    
    1,892Selling expense
    
    
    (2,581
    )
    
    
    (2,999
    )
    
    
    (5,580
    )
    
    
    (1,861
    )Pre-opening expense
    
    
    (663
    )
    
    
    
    
    
    
    (663
    )
    
    
    (420
    )Merchant discount expense
    
    
    (133
    )
    
    
    (202
    )
    
    
    (335
    )
    
    
    (19
    )Earnings (loss) before interest
and taxes
    
    $
    (721
    )
    
    $
    962
    
    
    $
    241
    
    
    $
    (408
    )
 As a result of the foregoing factors, including the operating results of
new Service Centers, the Company had pre-tax income of $1.1 million for the
quarter ended September 30, 2004 compared to pre-tax income of $9.2 million for
the comparable period last year. Management believes that a more appropriate
assessment of LESCOs operating results for comparative analysis should exclude
the expenses associated with the corporate relocation costs along
with the charges
incurred for hurricane and flood damages. Excluding these charges, the
Companys pre-tax income for the third quarter of 2004 was $7.4 million. -20-




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For the nine months ended September 30, 2004, the Company generated $7.7
million of pre-tax income compared to $10.8 million for the same period in
2003. When excluding costs associated with the corporate relocation and storm
damages, LESCOs year-to-date pre-tax income for 2004 was $14.0 million. Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Pre-tax earnings
    
    $
    1,110
    
    
    $
    9,194
    
    
    $
    7,709
    
    
    $
    10,789Corporate relocation expense
    
    
    4,940
    
    
    
    
    
    
    
    4,940
    
    
    
    Hurricane/flood expense
    
    
    1,350
    
    
    
    
    
    
    
    1,350
    
    
    
    Pre-tax earnings before
coporate relocation,
hurricane and flood related
expenses
    
    $
    7,400
    
    
    $
    9,194
    
    
    $
    13,999
    
    
    $
    10,789
 Income Taxes and Net Income: Three Months Ended September 30,
    
    Nine Months Ended September 30,(Dollars in millions, except per share data)
    
    2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeEarnings before income tax (provision) benefit
    
    $
    1.1
    
    
    $
    9.2
    
    
    $
    (8.1
    )
    
    $
    7.7
    
    
    $
    10.8
    
    
    $
    (3.1
    )Income tax (provision) benefit:Current
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.2
    )Deferred
    
    
    1.5
    
    
    
    (3.5
    )
    
    
    5.0
    
    
    
    0.2
    
    
    
    (4.1
    )
    
    
    4.3Change in valuation allowance
    
    
    0.4
    
    
    
    
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    
    
    
    
    2.7
    
    
    
    (3.5
    )
    
    
    3.5
    
    
    
    (0.3
    )
    
    
    (4.1
    )
    
    
    3.8Net Income
    
    $
    1.1
    
    
    $
    5.7
    
    
    $
    (4.6
    )
    
    $
    7.4
    
    
    $
    6.7
    
    
    $
    0.7Earnings per share of common stock:Diluted
    
    $
    0.12
    
    
    $
    0.66
    
    
    
    
    
    
    $
    0.82
    
    
    $
    0.77Basic
    
    $
    0.13
    
    
    $
    0.67
    
    
    
    
    
    
    $
    0.85
    
    
    $
    0.78
 Net income was $1.1 million, or $0.12 per diluted share, in the third
quarter of 2004 and $5.7 million, or $0.66 per diluted share, in third quarter
2003. For the first nine months of 2004, net income was $7.4 million, or $0.82
per diluted share, compared to $6.7 million, or $0.77 per diluted share, for
the like period in 2003. In accordance with the provisions of FAS 109, in the fourth quarter of
2003, the Company recorded a charge to establish a valuation allowance for its
net deferred tax assets, including amounts related to its net operating loss
carryforwards. The Company intends to maintain a full valuation allowance for
its net deferred tax assets and net operating loss carryforwards until
sufficient positive evidence exists to support reversal of some portion or the
remainder of the allowance. Until such time, except for minor state and local
provisions and adjustments to federal tax refunds, the Company expects to have
no reported tax provision or benefit, net of valuation allowance adjustments.
In the first nine months of 2004, the Company adjusted previously estimated
federal tax refunds by $0.3 million. The impact of the valuation allowance increased the Companys income tax
benefit, and net income, by $0.4 million and increased the earnings per diluted
share by $0.05 for the third quarter of 2004. For the first nine months 2004,
the valuation allowance enhanced the tax benefit $2.7 million and earnings per
diluted share by $0.30. -21-




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##### Table of Contents



BUSINESS SEGMENTS We manage LESCOs business utilizing two business segments  Selling and
Support. Selling Segment We maintain Four-Wall P&Ls for each of our selling locations (Service
Centers, Stores-on-Wheels, direct sales representatives and all other direct
selling efforts). These Four-Wall P&Ls include sales, cost of product,
distribution cost (freight in-bound to selling locations and out-bound to
customers) and operating expenses (including payroll, benefits, rent and
utilities) necessary to operate the individual selling locations. The Selling
segment operating results reflect the aggregate Four-Wall P&Ls of selling
locations adjusted for costs of zone and regional management, sales commission
expense, working capital interest charge and the portion of merchant discounts
and provision for doubtful accounts not previously charged to the Four-Wall
P&Ls. We allocate resources, including working, fixed and leased capital, to
existing and potential selling locations based upon projected sales and return
on invested capital (ROIC). We define ROIC as a percentage calculated by
dividing net operating profit after tax (NOPAT) by invested capital. Certain
members of LESCO management have incentive compensation based on the
Companys consolidated
ROIC. For the Selling segment we calculate ROIC as follows: ROIC =
    
    NOPAT / Invested CapitalNOPAT =
    
    Selling Segment Operating ResultsX 61% (1  effective tax rate)Invested Capital =
    
    Accounts Receivable (excluding rebate receivable, see Note 2
to Consolidated Financial Statements); plusInventory (excluding capitalized distribution and procurement
costs, markdown and shrink reserves and credit for inventory
held on consignment  see Note 2 to Consolidated Financial
Statements); plusFixed Capital (see Note 2 to Consolidated Financial Statements)
 Our measures of ROIC may not be similar to other similarly titled captions
used by other companies. For example, we do not capitalize operating leases or
utilize average invested capital over given periods. -22-




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##### Table of Contents



Selling Segment Operating Results Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003Net sales
    
    $
    436.9
    
    
    $
    414.7Cost of product
    
    
    (280.1
    )
    
    
    (266.1
    )Distribution cost
    
    
    (18.9
    )
    
    
    (15.8
    )Gross profit on sales
    
    
    137.9
    
    
    
    132.8Selling expense
    
    
    (62.1
    )
    
    
    (57.8
    )Merchant discounts and provision for doubtful accounts
    
    
    (6.9
    )
    
    
    (2.4
    )Pre-opening expense
    
    
    (0.7
    )
    
    
    (0.4
    )EBIT
    
    $
    68.2
    
    
    $
    72.2NOPAT  Nine months ended September 30, 2004 and 2003
    
    $
    41.6
    
    
    $
    44.0NOPAT  Three months ended December 31, 2003 and 2002
    
    $
    4.3
    
    
    $
    4.9NOPAT  Rolling 12 months ended September 30, 2004 and 2003
    
    $
    45.9
    
    
    $
    48.9Invested capital at period endAccounts receivable
    
    $
    5.3
    
    
    $
    72.6Inventory
    
    
    64.3
    
    
    
    60.3Property, plant and equipment, net
    
    
    4.9
    
    
    
    3.4$
    74.5
    
    
    $
    136.3ROIC
    
    
    61.6
    %
    
    
    35.9
    %
 Support Segment The Support segment includes the operating results and invested capital of
all non-selling locations including manufacturing (blending facilities and seed
processing plant), distribution hubs (including in-bound freight costs to the
distribution hubs), and corporate costs (including corporate management of
sales, marketing, customer service, accounting and finance, human resources,
information systems, etc.). We believe that these costs are essential to
managing the selling locations and to managing a public company, but are not
costs that directly translate into incremental sales or positive ROIC.
Therefore, resources are only allocated to the Support segment if the result is
a net reduction in expenses or the allocation is necessary for the maintenance
of facilities, the support of the expansion of selling locations, the
maintaining of the corporate structure or is mandated by law or governmental
order. -23-




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##### Table of Contents



Support Segment Operating Results Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003Net sales
    
    $
    
    
    
    $
    Cost of product
    
    
    (9.2
    )
    
    
    (9.4
    )Distribution cost
    
    
    (17.3
    )
    
    
    (21.4
    )Gross loss on sales
    
    
    (26.5
    )
    
    
    (30.8
    )Selling expense
    
    
    (6.3
    )
    
    
    (5.6
    )General & administrative expense
    
    
    (21.0
    )
    
    
    (21.9
    )Corporate relocation expense
    
    
    (4.9
    )
    
    
    Hurricane/flood expense
    
    
    (1.4
    )
    
    
    Other expense
    
    
    (0.2
    )
    
    
    (0.6
    )Other income
    
    
    0.5
    
    
    
    1.2EBIT
    
    $
    (59.8
    )
    
    $
    (57.7
    )Adjustments:Corporate relocation expense
    
    $
    4.9
    
    
    $
    Hurricane/flood expense
    
    
    1.4
    
    
    
    Adjusted EBIT (a)
    
    $
    (53.5
    )
    
    $
    (57.7
    )NOPAT  Nine months ended September 30, 2004 and 2003 (b)
    
    $
    (32.6
    )
    
    $
    (35.2
    )NOPAT  Three months ended December 31, 2003 and 2002 (c)
    
    $
    (8.2
    )
    
    $
    (7.2
    )NOPAT  Rolling 12 months ended September 30, 2004 and 2003
    
    $
    (40.8
    )
    
    $
    (42.4
    )Invested capital
    
    $
    85.2
    
    
    $
    152.1Less: Selling segment invested capital
    
    
    (74.5
    )
    
    
    (136.3
    )Total support segment invested capital
    
    $
    10.7
    
    
    $
    15.8ROIC
    
    
    (381.6
    )%
    
    
    (268.3
    )%
  (a)
    
    Adjusted EBIT for the nine months ended September 30, 2004 excludes
charges for corporate relocation and expenses related to hurricane and
flood damage.(b)
    
    NOPAT for the nine months ended September 30, 2004 excludes charges for
corporate relocation and expenses related to hurricane and flood damage.(c)
    
    NOPAT for the three months ended December 31, 2003 excludes the charge
incurred for the sale of the Companys accounts receivable portfolio to
GEBCS in December 2003. As the Support segment operates at a negative ROIC, the Selling segment
must provide an adequate return in order for the Consolidated Company results
to generate a positive ROIC. The Selling segments results continue to be
sufficient to support a positive ROIC on a Consolidated basis as reflected
below: -24-




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##### Table of Contents



Consolidated Operating Results Nine Months Ended September 30,(Dollars in millions)
    
    2004
    
    2003Net sales
    
    $
    436.9
    
    
    $
    414.7Cost of product
    
    
    (289.4
    )
    
    
    (275.6
    )Distribution cost
    
    
    (36.2
    )
    
    
    (37.1
    )Gross profit on sales
    
    
    111.3
    
    
    
    102.0Selling expense
    
    
    (68.4
    )
    
    
    (63.5
    )General & administrative expense
    
    
    (20.9
    )
    
    
    (21.9
    )Corporate relocation expense
    
    
    (4.9
    )
    
    
    Hurricane/flood expense
    
    
    (1.4
    )
    
    
    Merchant discounts and provision for doubtful accounts
    
    
    (6.9
    )
    
    
    (2.4
    )Pre-opening expense
    
    
    (0.7
    )
    
    
    (0.4
    )Other expense
    
    
    (0.2
    )
    
    
    (0.6
    )Other income
    
    
    0.5
    
    
    
    1.3EBIT
    
    $
    8.4
    
    
    $
    14.5Adjustments:Corporate relocation expense
    
    $
    4.9
    
    
    $
    Hurricane/flood expense
    
    
    1.4
    
    
    
    Adjusted EBIT (a)
    
    $
    14.7
    
    
    $
    14.5NOPAT  Nine months ended September 30, 2004 and 2003 (b)
    
    $
    9.0
    
    
    $
    8.8NOPAT  Three months ended December 31, 2003 and 2002 (c)
    
    $
    (3.9
    )
    
    $
    (2.3
    )NOPAT  Rolling 12 months ended September 30, 2004 and 2003
    
    $
    5.1
    
    
    $
    6.5Invested capitalDebt
    
    $
    5.9
    
    
    $
    68.2Equity
    
    
    79.3
    
    
    
    83.9Total invested capital
    
    $
    85.2
    
    
    $
    152.1ROIC
    
    
    5.9
    %
    
    
    4.3
    %
  (a)
    
    Adjusted EBIT for the nine months ended September 30, 2004 excludes
charges for corporate relocation and expenses related to hurricane and
flood damage.(b)
    
    NOPAT for the nine months ended September 30, 2004 excludes charges for
corporate relocation and expenses related to hurricane and flood damage.(c)
    
    NOPAT for the three months ended December 31, 2003 excludes the charge
incurred for the sale of the Companys accounts receivable portfolio to
GEBCS in December 2003. The
improvement on a year-over-year basis in the Companys ROIC for the Selling Segment and
Consolidated Company results is due to LESCOs sale of its accounts receivable
portfolio to GEBCS in December 2003, which enabled the Company to reduce its
invested capital. -25-




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES A summary of the change in cash and cash equivalents (see Statement of
Cash Flows included in the accompanying Consolidated Financial Statements) is
as follows: Nine Months EndedSeptember 30,(Dollars in millions)
    
    2004
    
    2003Cash
provided by (used in) operations
    
    $
    17.5
    
    
    $
    (0.8
    )Cash used in investing activities
    
    
    (1.5
    )
    
    
    (4.6
    )Cash (used in) provided by financing activities
    
    
    (15.5
    )
    
    
    6.6Increase in cash and cash equivalents
    
    $
    0.5
    
    
    $
    1.2
 The cash provided by operations in the first nine months of 2004 was
generated predominantly through continued strong leverage of our accounts
payable relative to our inventory balance. Additionally, we did not experience
an increase in accounts receivable during the first nine months of 2004 even
though sales have increased 5% over the same period in the prior year. Accounts payable leverage is summarized as follows: September 30,(Dollars in millions)
    
    2004
    
    2003Accounts payable
    
    $
    63.5
    
    
    $
    63.5Less: Payable to GEBCS
    
    
    (0.1
    )
    
    
    Adjusted accounts payable
    
    $
    63.4
    
    
    $
    63.5Inventory
    
    $
    110.9
    
    
    $
    105.3Accounts payable leverage
    
    
    57.2
    %
    
    
    60.3
    %
 Payable to GEBCS represents the portion of the receivable portfolio sold
to GEBCS on December 30, 2003 that remains uncollected by GEBCS and secured by
the Company. Capital Expenditures: Our first nine months capital expenditures can be
summarized as follows: (Dollars in millions)
    
    2004
    
    2003New Service Centers
    
    $
    1.0
    
    
    $
    1.1Manufacturing facilities and corporate systems
    
    
    2.1
    
    
    
    3.5$
    3.1
    
    
    $
    4.6
 Our capital needs going forward will be predominantly related to new
Service Centers and maintaining information systems and manufacturing
facilities. Financing Activities In the fourth quarter of 2003, the Company entered into a $50 million
Revolving Credit Facility (the Facility) which replaced a prior credit
facility. Borrowings under the Facility were used to retire the prior credit
facility, including a term loan, buy-out an interest rate swap agreement and
buy-back outstanding preferred stock, including accrued dividends, all of which
were outstanding at September 30, 2003. -26-




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##### Table of Contents



The Facility matures December 30, 2006 and is secured by inventory, owned
receivables, equipment, investment interests, real property interests, and
general intangibles, including intellectual property. The Facility bears
interest at LIBOR plus 2.0% to 2.5% per annum, based on the level of
borrowings, and requires the payment of a facility fee ranging from 0.4% to
0.5% per annum on the unused portion of availability. Availability under the
Facility is determined by a borrowing base formula calculated on eligible
inventory. As of September 30, 2004, there was $46.9 million available, with
unused capacity of $36.3 million. Letters of credit, up to a maximum of $20
million, are also available under the Facility and are considered outstanding
borrowings when calculating the unused portion of availability. Letters of
credit in the aggregate amount of $10.6 million were outstanding as of
September 30, 2004. Letter of credit fees range from 2.0% to 2.5% with an
issuance fee ranging from 0.125% to 0.150%. The interest rate, facility fee, letter of credit fee and letter of credit
issuance fee are determined based on the Companys fixed charge coverage ratio.
The Facility requires the maintenance of certain covenants, with the only
financial covenant being the fixed charge coverage ratio. The Company was in
compliance with the Facility covenants as of September 30, 2004. We believe that the Companys financial condition is strong and that its
cash balances, other liquid assets, operating cash flows, access to debt and
equity capital markets and borrowing capacity, collectively, provide adequate
resources to fund short-term and long-term operating requirements and future
capital expenditures related to Service Center expansion and other projects.
However, the Companys operating cash flow and access to the capital markets
can be impacted by factors outside of its control. Contractual Obligations, Commitments and Off Balance Sheet Arrangements During the third quarter of 2004, LESCO entered into agreements to
relocate its corporate headquarters from its current approximately 94,000
square foot facility in Strongsville, Ohio to an approximately 40,000 square
foot facility in downtown Cleveland, Ohio. The term of the Companys new lease
is five and a half years, and the Company expects to complete the relocation
this year. A division of a public company (the Assignee) will assume the
remaining 11 years of LESCOs current lease at the Strongsville location. Relocation costs are estimated at approximately $7.5 million including
$4.8 million in tenant and landlord inducements, and $2.7 million in broker
commissions, legal fees, letter of credit costs, move costs and fixed-asset
write offs. During the third quarter, the Company recorded $4.9 million of
expense related to this relocation. Beginning in 2005, the financial effect of
the relocation is expected to be accretive to earnings on an annual pre-tax
basis by approximately $1.0 million. The return on the cost to relocate is
estimated at greater than 7%. LESCO remains liable under the lease if the Assignee fails to perform. The Assignee will be obligated to secure a $4.4 million letter of
credit backing its performance under the lease, and LESCO will pay the Assignee
approximately $100,000 annually for the remaining term of the lease to defray
the cost of the letter of credit. Subsequent to the balance sheet date, LESCO notified its supplier of
methylene urea fertilizer that the Company will no longer operate under the
terms of a supply agreement with the supplier. The five-year supply agreement
between LESCO and its supplier was entered into in November 2002 and requires
the Company to purchase annually 8,000 tons of methylene urea fertilizer from
the supplier at a fixed conversion cost of $500 per ton plus the prevailing
commodities market prices which were approximately $270 per ton for the first
nine months of 2004. Management believes that it is advantageous to operating
results to exit the supply agreement and currently estimates that the
corresponding savings over the remaining term of the agreement will exceed the
cost to exit the supply agreement. It is the Companys intent to source
methylene urea fertilizer from other available market sources. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to the allowance for
doubtful accounts, inventories, intangible assets, long-lived assets, income
taxes, and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Management has discussed the development
and selection of the critical accounting estimates, and the disclosures made
herein, with the Audit Committee of the Board of Directors and its external
auditors. Actual results may differ from these estimates under different
assumptions or conditions. -27-




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##### Table of Contents



The Companys significant accounting policies are described in the Notes
to Consolidated Financial Statements included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2003. The discussion and analysis
of financial condition contains various references and disclosures concerning
our accounting policies. Additionally, we have identified each of the
following as a critical accounting policy, because (i) it has the potential
to have a significant impact on our consolidated financial statements, (ii) of
the significance of the financial item to which it relates, or (iii) it
requires judgment and estimation due to the uncertainty involved in measuring
at a specific point in time events which will be settled in the future. Revenue Recognition We recognize revenue when goods are shipped to the customer and title and
risk of loss passes to the customer. We have consigned inventory agreements on
certain products. We report gross revenue from sales of consigned inventory in
accordance with Emerging Issues Task Force 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent. Additionally, we have agency agreements
with vendors for which we recognize sales net as an agent. Sales of
consigned inventory were $10.4 million for the quarters ended September 30,
2004 and 2003, and $26.7 million and $26.3 million for the corresponding nine
month periods. Allowance for Doubtful Accounts Accounts receivable consists primarily of amounts due from vendors under
purchase rebate, cooperative advertising and other contractual programs and
trade receivables not financed through outside programs. The Company earns
product discounts under various supplier rebate programs, which are recorded as
accounts receivable and credited to inventory valuation reserves when earned.
The Company provides for expected losses from all owned and recourse accounts
in the allowance for doubtful accounts. Expected losses are estimated based
upon the number of days the accounts are past due, historical loss experience
of the Company, historical loss experience of credit portfolios with
characteristics similar to the Companys portfolio and the current business
environment. Inventories Inventories are valued principally at the lower of cost (average cost
method) or market. Procurement, warehousing and distribution costs are
capitalized to inventory on hand and expensed to distribution cost when the
inventory is sold. Vendor rebates earned on purchases are recorded as a
reduction to inventory on hand and recognized when the inventory is sold. We
have an inventory life cycle program that requires the classification of all
Stock Keeping Units (SKUs) into one of five categories: active, watch, phase
out, discontinued and liquidated. SKUs identified as discontinued are
progressively marked-down to expected net realizable value over specific
periods until the costs are marked down to zero. At that point, the products
are liquidated. Estimated net realizable value of 20% of cost is based on
historical sales of discontinued inventory. We maintain a reserve for
inventory shrink, based on historical experience of 0.2% of sales. Actual
shrink is charged against the reserve. Income Taxes The Company uses the liability method whereby income taxes are recognized
during the fiscal year in which transactions enter into the determination of
financial statement income. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between
financial statement and tax bases of assets and liabilities. The Company
assesses the recoverability of its deferred tax assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). In accordance with that standard, the Company
has provided a $2.7 million valuation allowance equal to its net deferred tax
assets. The Company intends to maintain a full valuation allowance for its net
deferred tax assets until sufficient positive evidence exists to support the
reversal of some portion or the remainder of the allowance. Until such time,
the Company will have no reported tax provision, net of valuation allowance
adjustments. Any future decision to reverse a portion or all of the remaining
valuation allowance will be based on consideration of several factors
including, but not limited to, the Companys expectations regarding future
taxable income and the Companys cumulative income or loss in the then most
recent three-year period. In the event the Company was to determine, based on
the existence of sufficient positive evidence, that it would be able to realize
its deferred tax assets in the future in excess of its net recorded amount, a
reduction of the valuation allowance would increase income in the period such
determination was made. Impairment of Long-Lived and Intangible Assets The Company assesses the recoverability of its long-lived and intangible
assets by determining whether the amortization of the remaining balance over
its remaining useful life can be recovered through undiscounted future
operating cash flows. If impairment exists, the carrying amount of the related
asset is reduced to fair value. In September 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and
Other Intangible Assets. SFAS 142 provides that goodwill and indefinite-lived
intangible assets are -28-




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no longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives (but with no maximum life). The Company adopted SFAS No.
142 effective January 1, 2002. Upon adoption, the Company determined that
goodwill impairment existed. The impairment loss was measured by evaluating the
fair value of the goodwill using discounted cash flow appraisal models. These
models indicated that the goodwill of $7.3 million was fully impaired. Upon
the adoption of SFAS 142, the Company wrote off all of its goodwill and there
is no amortization expense for goodwill recorded in the operating results for
the quarters and nine months ended September 30, 2004 and 2003. Accrued Liabilities Certain accrued liabilities, including employee health insurance and
workers compensation, are estimated based on historical experience and lag
analysis due to the difference between the time the expense is incurred and
when the expense is paid. A valuation analysis is performed to estimate the
accrual required for property and casualty insurance claims expense. FORWARD LOOKING STATEMENTS Certain statements included in this report are forward-looking statements
that involve a number of risks and uncertainties and which are based on
managements current beliefs, assumptions and expectations. These
forward-looking statements can be identified by the use of predictive or future
tense terms such as anticipate, estimate, expect, believe, project,
may, will or similar terms. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Companys actual results may differ materially from those stated, implied or
anticipated in the forward-looking statements, as a result of a number of
factors that include, but are not limited to, the Companys ability to add new
Service Centers in accordance with its plans, which can be affected by local
zoning and other governmental regulations and its ability to find favorable
store locations, to negotiate favorable leases, to hire qualified individuals
to operate the Service Centers, and to integrate new Service Centers into the
Companys systems; competitive factors in the Companys business, including
pricing pressures; lack of availability or instability in the cost of raw
materials which affects the costs of certain products; the Companys ability to
impose price increases on customers without a significant loss in revenues;
potential rate increases by third-party carriers which affects the cost of
delivery of products; potential regulations; the Companys ability to
effectively manufacture, market and distribute new products; the success of the
Companys operating plans; regional weather conditions; and the condition of
the industry and the economy. For a further discussion of risk factors,
investors should refer to the Companys Securities and Exchange Commission
reports, including but not limited to the Companys Annual Report on Form 10-K
for the year ended December 31, 2003. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, principally interest rate risk.
Market risk can be measured as the potential negative impact on earnings, cash
flows or fair values resulting from a hypothetical change in interest rates
over time. Interest paid on its debt is sensitive to changes in interest rates.
The interest rate for the Companys revolving credit facility is variable,
while the Companys long-term debt and the interest component of its operating
leases is generally fixed. The Company believes its potential exposure to interest rate risk is not
material to the Companys financial position or the results of its operations.
As of September 30, 2004, there had not been a material change in any of the
market risk information disclosed by the Company in its Annual Report on Form
10-K for the year ended December 31, 2003. See Item 7A. Quantitative and
Qualitative Disclosures About Market Risk on page 28 of the Companys Annual
Report on Form 10-K for the year ended December 31, 2003, filed with the
Securities and Exchange Commission on March 29, 2004, for more detailed
information regarding market risk. 
 ITEM 4. CONTROLS AND PROCEDURES The Company performed an evaluation under the supervision, and with the
participation, of the Companys management, including the President and Chief
Executive Officer and Senior Vice President and Chief Financial Officer, of the
effectiveness of the Companys disclosure controls and procedures as of the end
of the period covered by this report. Based on that evaluation, the Companys
management, including the Chief Executive Officer and Senior Vice President and
Chief Financial Officer, concluded that -29-




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the Companys disclosure controls and procedures were effective in
ensuring that material information relating to the Company with respect to the
period covered by this report was recorded, processed, summarized and reported
on a timely basis. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. During the quarter, there have been no significant changes in the
Companys internal controls that have materially affected, or are reasonably
likely to materially affect, these controls. 
 PART II  OTHER INFORMATION Except as noted below, the items in Part II are inapplicable or, if
applicable, would be answered in the negative. These items have been omitted
and no other reference is made thereto. 
 ITEM 1. LEGAL PROCEEDINGS On July 14, 2003, an administrative complaint was filed against the
Company by the State of New York Department of Environmental Conservation
(NYSDEC) alleging violation of state law regarding the registration of
pesticides. The complaint alleges that the Company distributed 3,440 bags of
the Companys Dimension® Crabgrass Pre-emergent Plus Fertilizer to one of its
retail customers in New York State without having proper registration therefor.
The complaint seeks a civil penalty of $3,440,000. NYSDEC filed a similar
complaint against the retail customer seeking a civil penalty of $3,440,000.
The Company intends to indemnify the retail customer for such claim pursuant to
a vendor agreement between the parties. The Company is in discussions with the
NYSDEC relative to a settlement. There are other legal actions, governmental investigations and proceedings
pending to which the Company is a party or to which its property is subject.
In the opinion of our management, after reviewing the information that is
currently available with respect to these matters and consulting with counsel,
any liability that may be ultimately incurred with respect to these matters is
not expected to materially affect our consolidated financial condition. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)
    
    Exhibits
    
    Exhibit 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 10 (a)
    
    Assignment and Assumption of LeaseExhibit 10 (b)
    
    Consent of Landlords LenderExhibit 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(b)
    
    Reports on Form 8-K:
 On August 5, 2004, the Company filed a report on Form 8-K relating to the Companys
announcement of its decision to relocate its corporate offices and to the Companys Earnings
Release for the second quarter ended June 30, 2004. -30-




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. LESCO, INC.Date: November 3, 2004
    
    By: /s/ Jeffrey L. RutherfordJeffrey L. RutherfordSenior Vice President, Chief Financial Officer,Treasurer and Secretary
 -31-