- Same-Store Service Center Sales Increase 5.9% - CLEVELAND, Oct.
26 /PRNewswire-FirstCall/ -- LESCO, Inc. (NASDAQ:LSCO), a leading
provider of products for the professional green and pest control
industries, today announced third quarter and nine month results
for the period ending September 30, 2005. Additionally, on October
21, 2005, the Company announced that Jeffrey Rutherford was
appointed President and Chief Executive Officer and that the Board
of Directors had approved a share repurchase program of up to 1.5
million shares. Also as previously announced, the Company has
completed the sale of its supply chain assets and consumable
products inventory and, concurrent with the sale, entered into a
long-term supply agreement with Turf Care Supply Corp. (TCS), an
affiliate of Platinum Equity LLC. Third Quarter 2005 Results Net
sales for the three months ended September 30, 2005, increased 4.1%
to $158.9 million from $152.7 million in the comparable period a
year ago. Lawn Care gross sales grew 8.5% to $122.2 million from
$112.6 million in the third quarter of 2004, while Golf gross sales
were down 6.4% to $38.2 million versus $40.8 million in the same
quarter last year. Mr. Rutherford stated, "With the sale of the
supply chain assets complete, LESCO has transitioned from a
vertically integrated business model to a company that is now
focused on the profitable growth of our Store Segment composed of
Service Centers and Stores-on-Wheels. I strongly believe that we
have the right team in place to execute on this revised model as
our senior management team has significant retail experience and
the proper skill sets to capitalize on the opportunity to grow our
Store Segment profitably over time." Gross profit on sales (defined
as product margin less distribution costs) decreased to 23.5% of
net sales, or $37.3 million, compared to 26.7% of net sales, or
$40.7 million, in the third quarter of 2004. Gross profit in the
current quarter was negatively impacted by $3.8 million, or 2.4% of
net sales, due to $3.0 million of inventory markdowns related to
the Company's decision to outsource parts distribution and $0.8
million of disposed inventory in conjunction with the supply chain
transaction . Product margin was $50.2 million, or 31.6% of net
sales, versus $53.0 million, or 34.7% of net sales, in the same
quarter last year. In addition to the 2.4% decline due to the above
mentioned inventory markdown, product margins further declined
versus the year ago quarter primarily due to higher customer
rebates stemming from an effort to drive sales in LESCO-branded
products and price markdowns related to the elimination of certain
under- performing SKUs. Distribution expense increased to $13.0
million, or 8.2% of net sales, from $12.4 million, or 8.1% of net
sales, in the comparable period in 2004. The increase in
distribution expense was primarily related to higher fuel costs on
a year-over-year basis. Selling expense was $24.1 million, or 15.2%
of net sales, versus $23.3 million, or 15.3% of net sales, in the
third quarter of 2004. Selling expense declined slightly as a
percentage of sales despite higher fuel costs, approximately $1.0
million in incremental operating costs for Service Centers opened
in 2004 and 2005, and an incremental $0.1 million related to new
direct marketing initiatives. General and administrative expense
declined to $6.1 million, or 3.8% of net sales, versus $7.2
million, or 4.7% of net sales, in the same quarter last year due to
lower expenses related to the Company's corporate headquarters
lease and related costs, in addition to reduced management
incentive costs, insurance claims and lower payroll tax expenses.
In the third quarter of 2005, the Company also recorded an
additional $19.0 million charge related to the supply chain
transaction, which consisted primarily of the impairment of certain
assets. For the third quarter of 2005, the Company reported on a
generally accepted accounting principles (GAAP) basis a net loss of
$16.2 million, or $1.82 per diluted share, compared to net income
of $1.1 million, or $0.12 per diluted share last year. Third
quarter 2005 operating results were reduced by $19.8 million, or
$2.23 per diluted share, related to costs of the supply chain
transaction, and $3.0 million, or $0.34 per diluted share, for the
markdown charge to restructure the parts sourcing model and product
offering. For third quarter 2004, operating results were reduced by
$4.9 million, or $0.55 per diluted share, for costs related to the
Company's headquarters relocation and by $1.4 million, or $0.15 per
diluted share, for costs related to hurricane and flood damage. The
Company's GAAP results do not reflect a tax provision related to
the Company's third quarter 2005 loss and third quarter 2004
earnings before income tax because of the required accounting
treatment for LESCO's deferred tax assets. Management believes
adjusted results more appropriately reflect its assessment of the
Company's results from on-going operations. Assuming a 39% tax
rate, which LESCO typically utilizes to evaluate year-over-year
performance, and excluding charges totaling $22.8 million related
to the sale of the Company's supply chain assets and its
outsourcing of parts merchandise, the Company would have reported
third quarter 2005 results of $0.44 per diluted share. This
compares to $0.50 per diluted share in the third quarter 2004,
excluding charges of $6.3 million related to corporate relocation
expense and hurricane and flood damage and assuming a 39% tax rate.
See the attached Consolidated Statements of Operations GAAP to
non-GAAP reconciliation. First Nine Months 2005 Results Net sales
for the nine months ended September 30, 2005, increased 2.3% to
$447.1 million from $436.9 million in the comparable period a year
ago. For the first nine months of 2005, Lawn Care gross sales
expanded 6.5% to $361.4 million from $339.5 million for the same
period of 2004, while Golf gross sales declined 9.0% to $91.0
million versus $100.0 million for the first nine months in 2004.
Gross profit increased to $111.6 million, or 24.9% of net sales,
from $111.2 million, or 25.5% of net sales, in the first nine
months of 2004. Gross profit was negatively impacted by $3.8
million, or 0.8% of net sales, for the first nine months of 2005
due to inventory markdowns related to the Company's decision to
outsource parts distribution and discontinue manufacturing and
warehousing activities. For the first nine months of 2005, the
Company reported a GAAP basis net loss of $11.1 million, or $1.25
per diluted share, compared to net income of $7.4 million, or $0.82
per diluted share, last year. The first nine months of 2005,
results were reduced by $20.1 million, or $2.27 per diluted share,
for costs related to the supply chain transaction, by $3.0 million,
or $0.34 per diluted share, for the markdown charge to restructure
the parts sourcing model and product offering, and by $0.5 million,
or $0.05 per diluted share, for settlement costs paid to KPAC
Holdings, Inc. The first nine months of 2004 results were reduced
by $4.9 million, or $0.55 per diluted share, for costs related to
the Company's headquarters relocation and $1.4 million, or $0.15
per diluted share, for costs related to hurricane and flood damage.
The Company would have reported net income of $0.83 per diluted
share for the first nine months of 2005 compared to $0.95 per
diluted share for the first nine months of 2004, excluding these
charges and assuming a 39% tax rate. See the attached Consolidated
Statements of Operations GAAP to non-GAAP reconciliation. Segment
Operating Results Concurrent with the sale of its supply chain
assets, the Company revised its segment reporting. The Company will
now report on its two operating segments - Stores and Direct Sales.
Store Segment Operating Results - Store segment net sales, which
include both Service Centers and Stores-on-Wheels, for the three
months ended September 30, 2005, increased 10.4% to $142.6 million
from $129.1 million in the comparable period a year ago. Service
Center gross sales increased 10% and Stores-on-Wheels gross sales
increased 18.3%. Comparable Service Center sales increased 5.9%.
Gross profit as a percentage of sales decreased 120 basis points to
27.8% from 29.0% due to the timing of the recognition of vendor
rebate income, incremental product markdowns and higher customer
rebates to enhance customer loyalty in LESCO-Branded products.
Store Segment selling expense increased $2.8 million on a
quarter-over-quarter basis. This increase is directly attributable
to the 21 new Service Centers and 38 new Stores-on-Wheels opened
during the past twelve months. For third quarter 2005, earnings
before interest and taxes declined to $16.1 million versus $16.9
million for the same period last year. Store Segment net sales for
the nine months ended September 30, 2005, increased 8.2% to $383.9
million. Same-store Service Center sales results rose 4.6%. Service
Center gross sales increased 8.6% and Stores-on-Wheels gross sales
increased 11.3%. Gross profit as a percentage of sales increased 40
basis points to 28.4%. The $9.9 million increase in selling expense
is directly attributable to the new store openings during the past
twelve months discussed above. For the first nine months of 2005,
earnings before interest and taxes declined to $40.6 million versus
$41.5 million for the same period last year. Direct Segment
Operating Results - Direct segment net sales declined to $16.2
million for the three months ended September 30, 2005 from $23.6 in
the comparable period a year ago. The decline is directly
attributable to the Company's decision to discontinue its golf
sales representative program in March. Earnings before interest and
taxes were $0.1 million in the third quarter of the current year
versus a $0.7 million loss for the same period in the prior year.
Direct segment net sales for the nine months ended September 30,
2005 declined to $63.2 million from $82.2 million for the first
nine months of 2004. The year-to-date loss before interest and
taxes was $0.3 million in 2005 versus income of $0.2 million for
the same period in the prior year. New Service Centers LESCO opened
nine new Service Centers during the third quarter of 2005, in areas
where the Company already had a market presence. On September 30,
2005, there were 294 Service Centers in operation, versus 273 at
the end of the third quarter of 2004. The 68 Service Centers opened
from 2003 through the third quarter of 2005 generated net sales of
$16.7 million for the quarter and four-wall, pre-tax income of $0.8
million. These 68 Service Centers generated net sales of $40.7
million for the first nine months of 2005 and four-wall, pre-tax
income of $1.3 million. The four-wall profit and loss results
include the sales, cost of sales and operating expenses (including
payroll, benefits, rent, utilities, in-bound freight to selling
locations and out-bound to customers) necessary to operate the
individual selling locations. These results exclude allocations of
vendor rebates, warehouse costs, indirect delivery costs, sales
commissions, and other non-direct expenses. Sale of Supply Chain
Assets On October 11, 2005, the Company announced that it had
completed the sale of its supply chain assets and consumable
products inventory, including fertilizer, seed, control products,
combination products, and related products, to TCS. The supply
chain assets sold included all four of LESCO's blending facilities
and the majority of the Company's warehouse and distribution
centers. At closing, the Company received $15 million in cash and
$19 million in accounts receivable from TCS. Ultimately, the
Company expects to harvest $25 million in cash after settling all
requirements associated with the transaction including the accounts
payable due to vendors for the inventory sold to TCS. Share
Repurchase Program With the sale of the supply chain assets
complete, the Company announced on October 21, 2005, that its Board
of Directors had authorized the repurchase of up to 1.5 million
common shares. Repurchases under the Company's share buy back
program will be made in the open market or through privately
negotiated transactions. The timing, manner and amount of
repurchases will be based on the Company's evaluation of market
conditions, applicable legal requirements and other factors.
Operating Cash Flow and Balance Sheet As of September 30, 2005,
LESCO's total debt was $14.2 million and consisted of $13.4 million
in revolving bank debt along with a $0.8 million interest free,
forgivable loan from the City of Cleveland, Ohio. This compares to
total debt of $5.9 million as of September 30, 2004. The Company
also reported a September 30, 2005 cash and cash equivalent balance
of $7.3 million versus $8.0 million at the same time last year. The
inventory balance at September 30, 2005, does not reflect the
effect of the supply chain transaction and the related reduction of
approximately $34 million of consumable inventory. Fourth Quarter
Charges Subsequent to quarter end, certain events occurred which
will result in the Company recording charges in the fourth quarter.
As previously discussed, on October 7, 2005, the Company completed
its sale of its supply chain assets to TCS. Additional charges of
approximately $4 million are expected in the fourth quarter related
to the closing of three distribution hubs not assumed by TCS in the
transaction along with costs for legal services and system
enhancements. The Company plans to further rationalize its product
offering and accelerate merchandise markdowns resulting in an
approximate $4 million markdown charge in the fourth quarter. Also,
in conjunction with the previously discussed management changes,
the Company will record a $1.5 million severance expense in fourth
quarter. Full Year 2005 Guidance The Company updated guidance for
fiscal 2005 is for revenue growth expected to range from 1.0% to
1.5%, with an 8.0% increase in Service Center sales. The sales of
the Direct Segment are expected to decline approximately $22.0 to
$25.0 million as a result of the acceleration of the Company's
strategy to reduce its sales representative model and to
concentrate on the higher profit Service Center and
Stores-on-Wheels models. For the full year, diluted earnings per
share on a GAAP basis are expected to be a loss in the range of
$2.77 to $2.93. Excluding the $32.0 to $34.0 million in expected
charges associated with the supply chain transaction, the parts
merchandise strategy, severance, the acceleration of merchandise
markdowns and the settlement to KPAC and assuming a 39% tax rate,
the Company estimates a diluted earnings per share range of $0.45
to $0.48. See attached 2005 diluted earnings per share guidance
GAAP to non-GAAP reconciliation. Mr. Rutherford concluded, "We
remain committed to investing capital in our high-growth,
high-return Stores Segment. Based on the consistent increase in our
year-over-year sales performance, we are confident that over time
the cash flow and profitability of the business will improve,
resulting in improved value for our shareholders." As part of the
Company's refined strategy of opening new Service Centers
throughout the entire year, the Company expects to open
approximately 32 Service Centers in 2005, with approximately 12
openings in the fourth quarter 2005. This outlook is based upon
various assumptions, which include industry trends and internal
expectations, including but not limited to the following, all of
which exclude the costs associated with the supply chain
transaction, parts merchandise strategy, severance, accelerated
merchandise markdowns, and KPAC settlement: 1) the opening of up to
32 new Service Centers in 2005; 2) gross profit, including
distribution costs, of 25.0% to 25.3%; 3) selling expense
continuing to increase to approximately 17.0% of net sales due to
new Service Centers and Stores-on-Wheels; 4) merchant discount
expense of approximately 2.3% of net sales; 5) general and
administrative expenses down $2.5 to $3.0 million on a comparable
basis; 6) average borrowings of $10.0 million at an effective
interest rate cost of approximately 7%; 7) an income tax rate of
39%; 8) no material adverse results from any litigation or
regulatory proceedings against the Company, either currently
existing or that may arise in the future; and 9) the smooth
transition of supply chain functions to TCS. Conference Call The
Company will host a conference call and webcast with investors,
analysts and other interested parties today at 4:30 p.m. (Eastern).
Hosting the call will be Jeffrey L. Rutherford, President and Chief
Executive Officer, and Michael A. Weisbarth, Chief Financial
Officer, Controller and Treasurer. The live call can be accessed by
dialing 1-866-761-0749, passcode 45528309. Participants should
register at least fifteen minutes prior to the commencement of the
call. The conference call will also include a question and answer
session. Management's slide presentation will be available for
downloading beginning today at 4:00 p.m. at LESCO's web site,
http://www.lesco.com/. Additionally, a live webcast will be
available at http://www.lesco.com/. Participants should allow at
least fifteen minutes prior to the commencement of the call to
register, download and install necessary audio software. Questions
can be submitted either in advance or during the webcast via email
to or through the Company's corporate web site where a link will be
provided on the "Home" page. LESCO's culture demands the highest of
ethical standards and accountability manifested in full and fair
financial disclosure to our shareholders. LESCO management
encourages the participation of our shareholders and other
interested parties in our conference calls and live webcasts. For
those who cannot participate in the conference call or the live
webcast, a replay will be available beginning approximately one
hour after the conclusion of the event on LESCO's web site. About
LESCO, Inc. LESCO currently serves more than 130,000 customers
worldwide, through 296 LESCO Service Center(R) locations, 111 LESCO
Stores-on-Wheels vehicles, the Internet, and other direct sales
efforts. Additional information about LESCO can be found on the
Internet at http://www.lesco.com/. Statements in this news release
under the heading 2005 Guidance and other statements relating to
sales and earnings expectations, new Service Center openings and
profitability, and other statements that are not historical
information are forward-looking statements and, as such, reflect
only the Company's best assessment at this time. Investors are
cautioned that forward- looking statements involve risks and
uncertainties that may cause actual results to differ materially
from such statements and that investors should not place undue
reliance on such statements. Factors that may cause actual results
to differ materially from those projected or implied in the
forward- looking statements include, but are not limited to, the
final resolution of certain contingencies relative to the
collection of identified accounts receivable; 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; the Company's ability to transition quickly and
effectively from a golf sales representative model to a
Stores-on-Wheels model; 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 successful and uninterrupted performance of
supply chain services by Turf Care Supply Corp.; the Company's
ability to impose price increases on customers without a
significant loss in revenues; potential rate increases by
third-party carriers which affect the cost of delivery of products;
changes in existing law; the Company's ability to effectively
market and distribute new products; the success of the Company's
operating plans; any litigation or regulatory proceedings against
the Company; 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 its Form 10-K for
the year ended December 31, 2004. Contact: Jeffrey L. Rutherford
President and Chief Executive Officer LESCO, Inc. (216) 706-9250
LESCO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED Three
Months Ended Nine Months Ended September 30, September 30, (Dollars
in thousands, except per share data) 2005 2004 2005 2004 Net sales
$158,867 $152,655 $447,121 $436,888 Cost of product: Merchandise
(104,834) (99,632) (292,070) (288,028) Supply chain transaction
(802) - (802) - Markdown parts merchandise (2,983) - (2,983) -
Distribution cost (12,962) (12,367) (39,711) (37,635) Gross profit
on sales 37,286 40,656 111,555 111,225 Selling expense (24,083)
(23,285) (72,190) (67,920) General & administrative expense
(6,095) (7,171) (19,852) (21,153) Merchant discounts and provision
for doubtful accounts (3,458) (2,678) (9,311) (6,859) Pre-opening
expense (459) (55) (1,108) (964) Corporate relocation - (4,928) -
(4,928) Hurricane/flood - (1,350) - (1,350) Vendor contract
termination (11) - (474) - Supply chain transaction expense
(19,041) - (19,323) - Other expense (168) (26) (114) (104) Other
income 139 51 444 357 (Loss) earnings before interest and taxes
(15,890) 1,214 (10,373) 8,304 Interest expense, net (301) (104)
(741) (595) (Loss) earnings before taxes (16,191) 1,110 (11,114)
7,709 Income tax (provision) benefit: Current - (1,919) - (3,165)
Deferred (7,294) 1,486 (6,520) 158 Change in valuation allowance
7,294 433 6,520 2,667 - - - (340) Net (loss) income $(16,191)
$1,110 $(11,114) $7,369 (Loss) earnings per share of common stock:
Diluted $(1.82) $0.12 $(1.25) $0.82 Basic $(1.82) $0.13 $(1.25)
$0.85 Average number of common shares and common share equivalents
outstanding: Diluted 8,901,528 9,001,687 8,869,198 8,943,441 Basic
8,901,528 8,704,694 8,869,198 8,693,298 LESCO, INC. CONSOLIDATED
BALANCE SHEETS Sept. 30, Sept. 30, Dec. 31, (Dollars in thousands)
2005 2004 2004 (unaudited) (unaudited) (audited) CURRENT ASSETS:
Cash and cash equivalents $7,286 $8,007 $8,101 Accounts receivable
15,082 14,306 16,931 Inventories 126,915 110,931 100,582 Other
3,305 3,818 3,126 TOTAL CURRENT ASSETS 152,588 137,062 128,740
Property, plant and equipment, net 10,409 27,310 26,019 Other 1,138
2,245 1,234 $164,135 $166,617 $155,993 CURRENT LIABILITIES:
Accounts payable $66,825 $63,484 $56,371 Accrued liabilities 23,672
17,356 24,184 Revolving credit facility 13,454 - 7,303 TOTAL
CURRENT LIABILITIES 103,951 80,840 87,858 Long-term debt 750 5,875
- Deferred - other 1,881 555 1,612 SHAREHOLDERS' EQUITY: Common
shares--without par value-- 19,500,000 shares authorized; 8,925,844
shares issued and outstanding at September 30, 2005; 8,704,694
shares issued and outstanding at September 30, 2004 and 8,697,194
issued and outstanding December 31, 2004 892 871 870 Paid-in
capital 37,957 34,970 34,846 Retained earnings 20,523 44,631 31,637
Unearned compensation (1,819) (1,125) (830) TOTAL SHAREHOLDERS'
EQUITY 57,553 79,347 66,523 $164,135 $166,617 $155,993 LESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended
September 30, (Dollars in thousands) 2005 2004 OPERATING
ACTIVITIES: Net (loss) income $(11,114) $7,369 Adjustments to
reconcile net (loss) income to net cash (used in) provided by
operating activities: Depreciation 5,019 5,536 Amortization of
deferred financing fees and other 118 129 Decrease (increase) in
accounts receivable 1,849 (974) Sale of accounts receivable - 5,946
Increase in inventories (26,333) (17,351) (Gain) loss on sale of
fixed assets (47) 96 Impairment of fixed assets 14,118 - (Decrease)
increase in accounts payable (1,838) 16,464 Amortization of
unearned compensation 619 492 (Increase) decrease in current income
tax 706 4,005 (Decrease) increase in other current items (1,211)
1,714 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (18,114)
23,426 INVESTING ACTIVITIES: Proceeds on the sale of fixed assets
255 1,597 Purchase of property, plant and equipment (3,674) (3,096)
NET CASH USED IN INVESTING ACTIVITIES (3,419) (1,499) FINANCING
ACTIVITIES: Increase (decrease) in overdraft balances 12,292
(6,100) Proceeds from borrowings 527,149 487,541 Reduction of
borrowings (520,248) (503,082) Exercised stock options, net of
treasury shares 1,525 216 NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 20,718 (21,425) Net change in cash and cash equivalents
(815) 502 Cash and cash equivalents - Beginning of the period 8,101
7,505 CASH AND CASH EQUIVALENTS - END OF THE PERIOD $7,286 $8,007
Supplemental disclosure of cash flow information: Interest paid,
including letters of credit and unused facility fees $(761) $(608)
Income taxes (paid) refunded $(98) $3,576 LESCO, Inc. SEGMENT
INCOME STATEMENT Three Months Ended September 30, 2005 Direct
(Dollars in thousands) Stores Sales Corporate Total Net sales
$142.7 $16.2 $- $158.9 Cost of product (including distribution
costs) (103.0) (14.8) (3.8) (121.6) Gross profit on sales $39.7
$1.4 $(3.8) $37.3 Selling expense (21.1) (1.0) (2.0) (24.1)
Merchant discounts (2.5) (0.3) (0.6) (3.4) Pre-opening expense - -
(0.5) (0.5) General & administrative expense - - (6.1) (6.1)
Supply chain transaction expense - - (19.1) (19.1) Corporate
relocation expense - - - - Hurricane/flood expense - - - - Earnings
(loss) before interest and taxes $16.1 $0.1 $(32.1) $(15.9) Nine
Months Ended September 30, 2005 Direct (Dollars in thousands)
Stores Sales Corporate Total Net sales $383.9 $63.2 $- $447.1 Cost
of product (including distribution costs) (274.9) (56.8) (3.8)
(335.5) Gross profit on sales $109.0 $6.4 $(3.8) $111.6 Selling
expense (62.4) (5.2) (5.0) (72.6) Merchant discounts (6.0) (1.5)
(1.4) (8.9) Pre-opening expense - - (1.1) (1.1) General &
administrative expense - - (19.8) (19.8) Supply chain transaction
expense - - (19.4) (19.4) Corporate relocation expense - - - -
Vendor contract termination - - (0.5) (0.5) Hurricane/flood expense
- - - - Other income - - 0.3 0.3 Earnings (loss) before interest
and taxes $40.6 $(0.3) $(50.7) $(10.4) LESCO, Inc. SEGMENT INCOME
STATEMENT Three Months Ended September 30, 2004 Direct (Dollars in
thousands) Stores Sales Corporate Total Net sales $129.1 $23.6 $-
$152.7 Cost of product (including distribution costs) (91.6) (20.5)
- (112.1) Gross profit on sales $37.5 $3.1 $- $40.6 Selling expense
(18.5) (3.4) (1.4) (23.3) Merchant discounts (2.1) (0.4) (0.2)
(2.7) Pre-opening expense - - (0.1) (0.1) General &
administrative expense - - (7.1) (7.1) Supply chain transaction
expense - - - - Corporate relocation expense - - (4.9) (4.9)
Hurricane/flood expense - - (1.3) (1.3) Earnings (loss) before
interest and taxes $16.9 $(0.7) $(15.0) $1.2 Nine Months Ended
September 30, 2004 Direct (Dollars in thousands) Stores Sales
Corporate Total Net sales $354.7 $82.2 $- $436.9 Cost of product
(including distribution costs) (255.3) (70.4) - (325.7) Gross
profit on sales $99.4 $11.8 $- $111.2 Selling expense (52.5) (10.3)
(5.1) (67.9) Merchant discounts (5.4) (1.3) (0.2) (6.9) Pre-opening
expense - - (1.0) (1.0) General & administrative expense - -
(21.2) (21.2) Supply chain transaction expense - - - - Corporate
relocation expense - - (4.9) (4.9) Vendor contract termination - -
- - Hurricane/flood expense - - (1.3) (1.3) Other income - - 0.3
0.3 Earnings (loss) before interest and taxes $41.5 $0.2 $(33.4)
$8.3 LESCO, Inc. SALES BY CUSTOMER SECTOR AND TRANSACTING SELLING
LOCATIONS Three Months Ended September 30, 2005 Stores Other
Service on Selling (Dollars in millions) Centers Wheels Locations
Total Lawn care $105.9 $1.3 $15.0 $122.2 Golf 12.2 24.5 1.5 38.2
Gross sales $118.1 $25.8 $16.5 $160.4 Agency sales (0.8) Freight
revenue 0.4 Customer discounts, rebates and sales adjustments (1.1)
Net sales $158.9 Three Months Ended September 30, 2004 Stores Other
Service on Selling (Dollars in millions) Centers Wheels Locations
Total Lawn care $95.0 $0.6 $17.0 $112.6 Golf 12.4 21.2 7.2 40.8
Gross sales $107.4 $21.8 $24.2 $153.4 Agency sales (0.6) Freight
revenue 0.4 Customer discounts, rebates and sales adjustments (0.5)
Net sales $152.7 Three Months Ended September 30, % Change Stores
Other Service on Selling (Dollars in millions) Centers Wheels
Locations Total Lawn care 11.5 % 116.7 % (11.8)% 8.5 % Golf (1.6)
15.6 (79.2) (6.4) Gross sales 10.0 % 18.3 % (31.8)% 4.6 % Agency
sales 33.3 Freight revenue 0.0 Customer discounts, rebates and
sales adjustments 120.0 Net sales 4.1 % Nine Months Ended September
30, 2005 Stores Other Service on Selling (Dollars in millions)
Centers Wheels Locations Total Lawn care $300.7 $2.6 $58.1 $361.4
Golf 28.5 55.4 7.1 91.0 Gross sales $329.2 $58.0 $65.2 $452.4
Agency sales (1.9) Freight revenue 1.0 Customer discounts, rebates
and sales adjustments (4.4) Net sales $447.1 Nine Months Ended
September 30, 2004 Stores Other Service on Selling (Dollars in
millions) Centers Wheels Locations Total Lawn care $276.4 $2.0
$61.1 $339.5 Golf 26.7 50.1 23.2 100.0 Gross sales $303.1 $52.1
$84.3 $439.5 Agency sales (1.0) Freight revenue 1.2 Customer
discounts, rebates and sales adjustments (2.8) Net sales $436.9
Nine Months Ended September 30, % Change Stores Other Service on
Selling (Dollars in millions) Centers Wheels Locations Total Lawn
care 8.8 % 30.0 % (4.9)% 6.5 % Golf 6.7 10.6 (69.4) (9.0) Gross
sales 8.6 % 11.3 % (22.7)% 2.9 % Agency sales 90.0 Freight revenue
(16.7) Customer discounts, rebates and sales adjustments 57.1 Net
sales 2.3 % LESCO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS GAAP
to Non-GAAP Reconciliation (Dollars in thousands, except per share
amounts Three Months Ended September 30, 2005 Results Including
GAAP (a)(b) Adjustments Results Adjustments (Non-GAAP) Net sales
$158,867 $- $158,867 Cost of product: Merchandise (104,834) -
(104,834) Supply chain transaction (802) 802 - Markdown parts
merchandise (2,983) 2,983 - Distribution cost (12,962) - (12,962)
Gross profit on sales 37,286 3,785 41,071 Selling expense (24,083)
- (24,083) General & administrative expense (6,095) - (6,095)
Merchant discounts and provision for doubtful accounts (3,458) -
(3,458) Pre-opening expense (459) - (459) Corporate relocation - -
- Hurricane/flood expense - - - Vendor contract termination (11) 11
- Supply chain transaction expense (19,041) 19,041 - Other expense
(168) - (168) Other income 139 - 139 (Loss) income before interest
and taxes (15,890) 22,837 6,947 Interest expense, net (301) (301)
(Loss) income before taxes (16,191) 22,837 6,646 Income tax
(provision) benefit: Current - - - Deferred (7,294) - (7,294)
Change in valuation allowance 7,294 (2,592) 4,702 - (2,592) (2,592)
Net (loss) income $(16,191) $20,245 $4,054 (Loss) earnings per
share of common stock: Diluted $(1.82) $0.44 Basic $(1.82) $0.46
Average number of common shares and common share equivalents
outstanding Diluted 8,901,528 9,194,131 Basic 8,901,528 8,901,528
Three Months Ended September 30, 2004 Results Including GAAP (b)(c)
Adjustments Results Adjustments (Non-GAAP) Net sales $152,655 $-
$152,655 Cost of product: Merchandise (99,632) - (99,632) Supply
chain transaction - - - Markdown parts merchandise - - -
Distribution cost (12,367) - (12,367) Gross profit on sales 40,656
- 40,656 Selling expense (23,285) - (23,285) General &
administrative expense (7,171) - (7,171) Merchant discounts and
provision for doubtful accounts (2,678) - (2,678) Pre-opening
expense (55) - (55) Corporate relocation (4,928) 4,928 -
Hurricane/flood expense (1,350) 1,350 - Vendor contract termination
- - - Supply chain transaction expense - - - Other expense (26) -
(26) Other income 51 - 51 (Loss) income before interest and taxes
1,214 6,278 7,492 Interest expense, net (104) (104) (Loss) income
before taxes 1,110 6,278 7,388 Income tax (provision) benefit:
Current (1,919) - (1,919) Deferred 1,486 - 1,486 Change in
valuation allowance 433 (2,881) (2,448) - (2,881) (2,881) Net
(loss) income $1,110 $3,397 $4,507 (Loss) earnings per share of
common stock: Diluted $0.12 $0.50 Basic $0.13 $0.52 Average number
of common shares and common share equivalents outstanding Diluted
9,001,687 8,943,441 Basic 8,704,694 8,693,298 (a) 2005 adjustments
include $19.8 million for the supply chain transaction, and $3.0
million for parts merchandise strategy. Management believes that an
assessment of the Company's ongoing operating results for its third
quarter 2005 excluding charges for its supply chain transaction and
parts merchandise strategy is useful to investors as these events
are not anticipated to recur in the future. (b) On a generally
accepted accounting principles (GAAP) basis, LESCO cannot recognize
the benefit of establishing a deferred tax asset to be realized in
a future period, because of the required accounting treatment for
its current tax position. Management believes that in order to
present a meaningful comparison to historical Company results, a
tax expense (benefit) should be reflected based on the operating
income (loss) recorded in the third quarter of 2005 and 2004. This
assumes that LESCO will realize benefits in the future from its
deferred tax assets. The adjusted results reflect a tax benefit
calculated assuming a tax rate of 39%. (c) 2004 adjustments include
$4.9 million for corporate relocation and $1.4 million for
hurricane/flood expense. Management believes that an assessment of
the Company's ongoing operating results for its third quarter 2004
excluding charges for its relocation of corporate offices and
hurricane/flood expense is useful to investors as these events are
not anticipated to recur on an annual basis. LESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS GAAP to Non-GAAP
Reconciliation (Dollars in thousands, except per share data) Nine
Months Ended September 30, 2005 Results Including GAAP (a)(b)
Adjustments Results Adjustments (Non-GAAP) Net sales $447,121 $-
$447,121 Cost of product: Merchandise (292,070) - (292,070) Supply
chain transaction (802) 802 - Markdown parts merchandise (2,983)
2,983 - Distribution cost (39,711) - (39,711) Gross profit on sales
111,555 3,785 115,340 Selling expense (72,190) - (72,190) General
& administrative expense (19,852) - (19,852) Merchant discounts
and provision for doubtful accounts (9,311) - (9,311) Pre-opening
expense (1,108) - (1,108) Corporate relocation - - -
Hurricane/flood expense - - - Vendor contract termination (474) 474
- Supply chain transaction expense (19,323) 19,323 - Other expense
(114) - (114) Other income 444 - 444 (Loss) income before interest
and taxes (10,373) 23,582 13,209 Interest expense, net (741) (741)
(Loss) income before taxes (11,114) 23,582 12,468 Income tax
(provision) benefit: Current - - - Deferred (6,520) - (6,520)
Change in valuation allowance 6,520 (4,863) 1,657 - (4,863) (4,863)
Net (loss) income $(11,114) $18,719 $7,605 (Loss) earnings per
share of common stock: Diluted $(1.25) $0.83 Basic $(1.25) $0.86
Average number of common shares and common share equivalents
outstanding Diluted 8,869,198 9,177,698 Basic 8,869,198 8,869,198
Nine Months Ended September 30, 2004 Results Including GAAP (b)(c)
Adjustments Results Adjustments (Non-GAAP) Net sales $436,888 $-
$436,888 Cost of product: Merchandise (288,028) - (288,028) Supply
chain transaction - - - Markdown parts merchandise - - -
Distribution cost (37,635) - (37,635) Gross profit on sales 111,225
- 111,225 Selling expense (67,920) - (67,920) General &
administrative expense (21,153) - (21,153) Merchant discounts and
provision for doubtful accounts (6,859) - (6,859) Pre-opening
expense (964) - (964) Corporate relocation (4,928) 4,928 -
Hurricane/flood expense (1,350) 1,350 - Vendor contract termination
- - - Supply chain transaction expense - - - Other expense (104) -
(104) Other income 357 - 357 - (Loss) income before interest and
taxes 8,304 6,278 14,582 Interest expense, net (595) (595) (Loss)
income before taxes 7,709 6,278 13,987 Income tax (provision)
benefit: Current (3,165) - (3,165) Deferred 158 - 158 Change in
valuation allowance 2,667 (5,115) (2,448) (340) (5,115) (5,455) Net
(loss) income $7,369 $1,163 $8,532 (Loss) earnings per share of
common stock: Diluted $0.82 $0.95 Basic $0.85 $0.98 Average number
of common shares and common share equivalents outstanding Diluted
8,943,441 8,943,441 Basic 8,693,298 8,693,298 (a) 2005 adjustments
include $20.1 million for the supply chain transaction, $3.0
million for parts merchandise strategy, and $.5 million for vendor
contract termination. Management believes that an assessment of the
Company's ongoing operating results for the nine months ended
September 30, 2005 excluding charges for its supply chain
transaction, parts merchandise strategy and settlement costs to
KPAC is useful to investors as these events are not anticipated to
recur in the future. (b) On a generally accepted accounting
principles (GAAP) basis, LESCO cannot recognize the benefit of
establishing a deferred tax asset to be realized in a future
period, because of the required accounting treatment for its
current tax position. Management believes that in order to present
a meaningful comparison to historical Company results, a tax
expense (benefit) should be reflected based on the operating income
(loss) recorded in the first nine months of 2005 and 2004. This
assumes that LESCO will realize benefits in the future from its
deferred tax assets. The adjusted results reflect a tax benefit
calculated assuming a tax rate of 39%. (c) 2004 adjustments include
$4.9 million for corporate relocation and $1.4 million for
hurricane/flood expense. Management believes that an assessment of
the Company's ongoing operating results for its third quarter 2004
excluding charges for its relocation of corporate offices and
hurricane/flood expense is useful to investors as these events are
not anticipated to recur on an annual basis. LESCO, INC 2005 EPS
Guidance GAAP to Non-GAAP Reconciliation ($ in millions) EPS Net
Loss-GAAP ($25.2) to ($26.7) ($2.77) to ($2.93) Less Adjustments:
Supply Chain Transaction Cost, Merchandise Markdowns, and Severance
($28.6) to ($30.6) KPAC Settlement ($0.5) Parts Merchandise
Strategy ($2.9) Sub Total Adjustments ($32.0) to ($34.0) Earnings
before taxes excluding charges (Non GAAP) $6.8 to $7.3 Income Tax
Provision @ 39% ($2.7) to ($2.8) Adjusted Earnings (Non GAAP) $4.1
to $4.5 $0.45 to $0.48 DATASOURCE: LESCO, Inc. CONTACT: Jeffrey L.
Rutherford, President and Chief Executive Officer of LESCO, Inc.,
+1-216-706-9250 Web site: http://www.lesco.com/
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