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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

LESCO, Inc.

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, without par value

      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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      As of June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Shares held by nonaffiliates was approximately $44,425,330.

      Number of Common Shares outstanding on February 28, 2003: 8,523,914.

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DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003 (the “Proxy Statement”) are incorporated by reference in Part III.

Forward-Looking Statements

      This Annual Report on Form 10-K and the documents incorporated by reference herein, the Company’s Annual Report to Shareholders, any Form 10-Q or any Form 8-K of the Company, or any other written or oral statements made by or on behalf of the Company may include or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company’s expectations or beliefs concerning future events, including the following: any statements regarding future sales and gross profit, any statements regarding the continuation of historical trends, any statements regarding the sufficiency of the Company’s cash balances and cash generated from operating and financing activities for the Company’s future liquidity and capital resources, and any statements regarding the Company’s plans to open new Service Centers. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “should,” and similar expressions are intended to identify forward-looking statements. Except to the limited extent required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

      The Company’s actual results could differ materially from those stated or implied in the forward-looking statements as a result of, among other things, the following:

	•	Weather conditions in North America and, to a lesser extent Europe, which could have a significant impact on the timing of sales in the spring selling season and overall annual sales;
	•	Local, state, federal and foreign laws and regulations relating to environmental factors, which could increase the Company’s costs of doing business and limit its ability to introduce new products;
	•	Uncertainties relating to general, economic, business and industry conditions including, but not limited to, continued softness in demand in the golf industry and the economy in general which affects consumers’ willingness to use professional landscapers;
	•	Changes to the presentation of financial results and position resulting from adoption of new accounting principles or from the advice of the Company’s independent auditors or the staff of the Securities and Exchange Commission;
	•	Changes in government regulations or the Company’s failure to comply with those regulations;
	•	The costs and other effects of legal and administrative proceedings;
	•	Injury to person or property resulting from the Company’s manufacture or sale of products;
	•	Competitive factors in the Company’s business, including pricing pressures;
	•	Failure to retain or continue to attract senior management or key personnel;
	•	Difficulties or delay in the development, production, manufacturing and marketing of new products;
	•	Strikes and other labor disruptions;
	•	Labor and employee benefit costs;
	•	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 time it takes new Service Centers to reach profitability and the possibility that new Service Centers will not be as profitable as existing Service Centers or not profitable;

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	•	Fluctuations in the Company’s quarterly operating results which have occurred in the past and may occur in the future because of a variety of factors, including the effects of seasonality, changes in the Company’s product mix and new Service Center openings (with their concurrent pre-opening expenses);
	•	The Company’s credit facility, which contains restrictive covenants that require the Company to maintain specified financial ratios and satisfy other financial condition tests; the Company’s ability to meet those ratios and tests which can be affected by events beyond the Company’s control; and the consequences of a breach of any of these covenants which could result in a default under the Company’s credit facility and as a result of which the lenders could elect to declare the applicable outstanding indebtedness to be immediately due and payable;
	•	Lack of availability or instability in the cost of raw materials, such as urea, which affects the costs of certain products; and
	•	Other factors described in the Company’s Form 10-K or the documents it files with the SEC.

PART I

Item 1.     Business

General

      The Registrant was incorporated in 1962 under the laws of the State of Ohio. As used in this report, the terms “Company,” “LESCO” and “Registrant” refer to LESCO, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

      LESCO®, Inc. (LESCO or The Company) is a specialty provider of products for the professional turf care market, including turf control products, fertilizer and combination products, grass seed, pest control and equipment, to the professional sector of the green industry.

      The Company operates in a single segment. Sales information for the current and prior periods is presented for the Company’s three sales channels and five product lines. The sales channels are defined by type of customer.

Sales Channels

      The Lawn Care sales channel (Lawn Care) operates 227 LESCO Service Centers® and also sells through 68 lawn care sales representatives who market products on a localized basis. The primary products sold by Lawn Care are turf care products, including turf and pest control products, fertilizer, grass seed and equipment. Lawn Care markets and sells products principally to smaller lawn care companies, landscapers, nurseries, municipalities, churches and condominium associations. The Company plans to open 20 to 25 Service Centers in 2003.

      The Golf sales channel (Golf) markets and sells products to private and public golf courses and other customers having large turf areas through Company salespersons who operate a fleet of 77 LESCO Stores-on-Wheels® and through 46 golf sales representatives strategically located in various markets. The primary products sold by Golf are turf care products, including turf and pest control products, fertilizer, grass seed, handheld equipment and golf course accessories. 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. In addition, this sales channel markets its products internationally, principally through foreign distributors.

      The National Accounts sales channel (National Accounts) markets and sells products to large national accounts and regional lawn care customers through a separate group of 18 sales representatives. This sales channel also distributes selected products through Home Depot stores in the South, Southwest, Midwest, Mid-Atlantic and Northeast areas of the country, in addition to selling a consumer line of lawn care products to nationwide retail stores under several brand names, including LESCO, Scenic Green™, Aim™ Lawn Products and Professional Turf Products™. The Company also markets its products by mail order catalog and participates

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      Most of the Company’s salespersons are agronomists or horticultural specialists or have had prior experience with lawn care companies or golf courses. The Company believes that the training and experience of its salespersons promote customer reliance on the Company’s technical expertise with respect to existing turf care products and new product development in the turf care industry.

      Sales by sales channels for the years ended December 31, 2002, 2001, and 2000 are as follows (in thousands):

Products Lines

      The Company sells to the green industry an extensive array of consumable turf care products, including turf control products, fertilizer and grass seed, and turf care hard goods, including equipment, accessories and other related products such as irrigation equipment, protective gear and hand tools. These products are marketed under the LESCO name and LESCO branded names. In addition, the Company sells a diverse line of turf products under other manufacturers’ brand names.

      Sales by product lines for the years ended December 31, 2002, 2001, and 2000 are as follows (in thousands):

      Fertilizer and combination products. The Company sells a broad assortment of standard fertilizers, including combination products that combine fertilizer with turf control products. The Company also custom-blends fertilizer according to customer specifications. The Company’s fertilizers include specialized products for golf course applications including greens, tees and fairways, products for use in the lawn care industry, and products for trees, shrubs and landscape beds. Fertilizers are generally sold in a granular form, although specialized liquid formulations are also available.

      The majority of the fertilizers sold by the Company are formulated with sulfur-coated urea. The Company is one of a few manufacturers of these products in the world. Sulfur coating produces a gradual release of nutrients over time, which reduces the number of required applications and the risk of over fertilization. ELITE®, LESCO branded product, is the Company’s premium brand sulfur-coated urea fertilizer, specially sized and formulated for low-cut turf on golf course greens, tees and fairways.

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      Control products. The Company offers a full line of turf control products including herbicides and fungicides. These products control weed growth and fungal diseases of turf, trees, shrubs and landscape beds. In order to offer its customers a more complete product line, the Company sells turf control products produced by other major manufacturers.

      Equipment, parts and service. The Company purchases a broad assortment of equipment including rotary mowers, spreaders, sprayers, aerators, renovation equipment and aftermarket replacement parts from Commercial Turf Products, Ltd., a joint venture in which the Company owns a 50% interest. The Company believes that the LESCO spreader, first introduced in 1982, is an industry leader in sales to the professional sector of the market. In addition, the Company offers a broad assortment of handheld power tools produced by third parties. Equipment sales are supported by a toll-free hotline staffed by trained technicians and repair facilities in or near Service Centers. Parts support is fully computerized, and the Company is generally able to provide overnight parts delivery nationwide.

      Turfgrass Seed. The Company markets LESCO and other brands of turfgrass seed, most of which are certified by authorities of various states to guarantee the variety purity of the seed. The Company contracts for the production of turfgrass seed with growers in the Pacific Northwest, Western Canada and New Zealand for cool season grasses and in California for warm season grasses. In 2002, the Company has more than 34,136 production acres under contract in these regions. The Company’s seed line includes 32 proprietary varieties as well as 28 standard blends and mixtures.

      Pest control. The Company offers a full line of pest control products. These products control rodent and insect infestation both for residential and commercial uses. The Company’s pest control products are produced by other manufacturers.

      Other. The Company offers underground irrigation equipment, protective gear such as goggles, masks and gloves, and hand tools such as tree pruners, shovels and rakes. The Company also offers a variety of golf course accessories including ball washers, tee markers, sand trap rakes, putting green cups, flags and flagpoles. These products are produced for the Company by third parties.

Intellectual Property

      The Company owns patents, trademarks, copyrights and other intellectual property, and it relies on them to protect its interest in products and technology. LESCO, Elite, Poly Plus and Novex are registered trademarks; Scenic Green is a trademark; and LESCO Service Center and LESCO Store-on-Wheels are registered service marks of LESCO Technologies, LLC. Aim Lawn Products and Professional Turf Products are trademarks licensed to Aim Lawn & Garden Products, Inc.

Product Improvement and Development

      The Company’s research and development efforts focus on improvements to and development of new turf control products and fertilizers, turf care equipment and golf course accessories and new grass seed varieties. The Company also has a number of agreements with state universities which test turf control products, grass seed and fertilizers for the Company.

Manufacturing and Suppliers

      Fertilizers and Combination Products. The Company manufactures most of its fertilizer and combination products, except Novex®. The Company manufactures Poly Plus® sulfur-coated fertilizers by spraying dry fertilizers first with sulfur, then with a polymer sealant to seal the sulfur and retard the release of nutrients. Uncoated fertilizers are blended in accordance with Company or customer specifications. Combination products are processed by impregnating fertilizers with technical grade herbicides, insecticides or fungicides.

      Novex fertilizers are a homogenous, uncoated, controlled release product manufactured by a third party using a patented technology. The primary raw materials used in the manufacture of fertilizer are nitrogen, phosphorus, potash and sulfur.

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      Control Products. In producing both liquid and granular turf protection products, the Company purchases technical-grade or highly concentrated chemicals and blends them with various solvents, emulsifiers and surfactants purchased from various suppliers.

      Turf Care Equipment and Golf Course Accessories. The Company has a 50% investment in Commercial Turf Products, Ltd. (CTP), that is accounted for under the equity method of accounting. The other 50% investment in CTP is owned by MTD Products Inc (MTD).

      CTP manufactures zero-turn riding mowers, walk-behind mowers, spreaders and sprayers. CTP products are manufactured and sold exclusively to its two owners. The owners, LESCO and MTD, distribute, market and sell CTP’s products under the various LESCO and MTD brand names.

      The Company also sells golf course accessories, which are manufactured by various contractors with tooling, dies, and molds owned by the Company. The Company produces under the LESCO brand Southern Golf embroidered and silk-screened flags, which are distributed through the Company’s sales channels.

      Sources of Supply. It is the Company’s policy to identify and use multiple sources of supply or acceptable substitutes for all raw materials used by the Company in manufacturing its products. The only exception to this policy is the Company’s purchase of proprietary products.

Competition

      The Company competes with a number of companies within each of its product lines including national, regional and local distributors, turf care product manufacturers and retailers such as mass merchandisers, local nurseries and hardware stores. Some of these national competitors have greater name brand recognition and greater financial and other resources than the Company. The Company’s principal competitors for its turf control, fertilizer and grass seed product lines include Andersons Inc., J.R. Simplot Company, Lebanon Seaboard, Deere & Company, Scotts Company, ProSource One and United Horticultural Supply. The Company’s principal competitors for equipment are Deere & Company, Textron Inc. (Jacobson), Scag Power Equipment and Toro Company. The Company, however, believes that it is the only national company that supplies and sells a full range of products directly to the commercial user. The Company competes primarily on the basis of service to customers and product quality, selection and price.

Seasonality

      The Company’s business is seasonal because the customers in northern states do not have the same year-round requirements for products as customers in southern states. Nationwide, demand for the Company’s products is generally greatest during the second calendar quarter of the year.

Employees

      As of December 31, 2002, the Company had 1,399 full-time employees, of which 385 were involved in manufacturing and warehouse operations, 760 in sales-related activities and 254 in management and administration. Of the total number of full-time employees, 900 were salaried and 499 were hourly employees. At the Company’s Martins Ferry facility, 137 employees are represented by a union which ratified a new three-year agreement on November 14, 2002.

Environmental Matters

      Turf control products sold by the Company are subject to regulation and registration by the Environmental Protection Agency (the “EPA”) and similar regulatory authorities in various states. The process of obtaining such registration may be lengthy and expensive. The labeling and advertising of turf control products are also subject to EPA regulation. While the Company generally believes its turf control product labels and advertising materials are consistent with EPA and state guidelines, there can be no assurance that EPA or state regulations or interpretations may not change in the future or that the EPA or any state will not challenge the Company’s labeling or advertising materials.

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      Fertilizer products are also regulated by individual state departments of agriculture and must generally be registered or licensed in most states in which they are sold. There can be no assurance that the state regulations or interpretations of those regulations will not change in the future or that the Company’s registration in any state will not be challenged. The Company is also required to obtain licenses/permits from a number of governmental agencies in order to conduct various aspects of its business. These licenses/permits are subject to modification and revocation, which could impair the Company’s ability to conduct its business in the manner in which and at the places at which it is presently conducted.

      Because of the nature of the Company’s business, the Company is subject to various environmental laws and regulations and incurs routine costs in complying with these laws and regulations. It is the Company’s policy to accrue for nonroutine costs relating to environmental matters when a loss is probable and the amount of the loss can be reasonably estimated.

Insurance

      The Company maintains comprehensive general and product liability insurance coverage at levels which the Company believes are prudent and most cost-effective. The Company’s insurance programs include various deductible amounts with respect to such coverages. Certain coverages, including environmental pollution, are restricted or have been excluded under current policies. The level of coverage and deductible maintained generally reflects trends in the liability insurance industry and is not unique to the Company. The Company regularly evaluates the cost-effectiveness as compared to the risks assumed in determining its insurance program.

      The Company leases its executive office building and owns or leases its warehouse and manufacturing facilities. The Company believes these facilities are well-maintained, adequately insured and adequate and suitable for their present and intended uses. Certain of the owned real estate is subject to mortgages. The

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(10)	This facility is subject to a lease, which expires in 2006.

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(11)	These facilities consist of seven buildings. Two buildings are subject to month to month leases. Four buildings are subject to leases expiring on May 31, 2003, 2006 and 2017. The manufacturing facility is owned by the Company, while the land is subject to a lease which expires in 2017 with four five-year renewal options.
(12)	This facility is subject to a lease, which expires in 2009. The lease includes an option to purchase.
(13)	These facilities consist of three buildings, which are owned by the Company. The land is subject to leases, which expire in 2011. The Company has one five-year renewal option.
(14)	This facility is subject to a lease expiring May 31, 2003.
(15)	This facility is subject to a lease expiring in 2016. The Company has two five-year renewal options.
(16)	This facility is subject to a lease, which expires in 2006.

      No legal proceedings are pending to which the Company is a party or to which any of its property is subject other than routine litigation incidental to the conduct of its business and which in the aggregate is not expected to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

      Not Applicable.

Executive Officers of the Registrant

      The following table sets forth certain information with respect to the Company’s executive officers, including their respective positions with the Company.

      Since April 2002, Michael P. DiMino has been President and Chief Executive Officer of the Company. He was elected director in May 2002. Mr. DiMino joined the Company on December 12, 2001, as President and Chief Operating Officer. From 1998 to 2001, Mr. DiMino was President and Chief Operating Officer of Uniforms to You, a division of Cintas Corporation, the world’s largest provider of employee uniforms to a wide range of industries. Prior to the acquisition of Uniforms to You by Cintas Corporation, Mr. DiMino was Chief Operating Officer of Uniforms to You from 1994 to 1998. From 1988 to 1994, he served as Senior Vice President of Sales and Marketing of Uniforms to You.

      Steven E. Cochran joined the Company in June 2002 as Senior Vice President, Marketing and Strategic Sourcing. In October 2002, he was appointed Senior Vice President, Sales. From 1999 to 2001, Mr. Cochran was Director of National Accounts and Vice President of Marketing of Uniforms To You, a division of Cintas Corporation. From 1990 to 1999, he held various sales, marketing and field operation positions at Cintas Corporation.

      Since October 2002, Jeffrey L. Rutherford has been Senior Vice President, Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Rutherford joined the Company as Senior Vice President and Chief Financial Officer on February 18, 2002. Prior to his employment at LESCO, Mr. Rutherford served as Senior Executive Vice President and Chief Financial Officer from 1997 to 2001 of OfficeMax, Inc., retailer of office supplies, and from February 1997 to July 1997 as Senior Vice President and Treasurer of that company.

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      Bruce K. Thorn joined the Company on March 18, 2002 as Senior Vice President, Logistics and Operations. From 2000 to 2002, Mr. Thorn was Senior Director for Global Engineering Services for Gap, Inc., a specialty retailer in the apparel industry. From 1997-2000, he was Director of the Distribution Division for Cintas.

PART II

      The Company’s common shares are traded on the NASDAQ National Market System market under the symbol “LSCO.” The following are high and low closing prices by quarter:

      The Company paid dividends of $.075 per common share in 2001. Certain provisions of the principal credit agreement prohibit the Company from paying dividends. See Note 3 of Notes to Consolidated Financial Statements.

      As of February 28, 2003, there were 1,311 holders of record of the Company’s common shares.

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Five Year Summary

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Critical Accounting Policies and Estimates

      The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company 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, the Company evaluates its estimates, including those related to the allowance for doubtful accounts, inventories, intangible assets, long-lived assets, income taxes, and contingencies and litigation. The Company bases its 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 Finance and Audit Committee and its external auditors. Actual results may differ from these estimates under different assumptions or conditions.

      The Notes to Consolidated Financial Statements and this discussion and analysis of financial condition contain various references and disclosures concerning the Company’s accounting policies. Additionally, the Company has identified the following as a “critical accounting policy,” either because they have the potential to have a significant impact on the Company’s financial statements, because of the significance of the financial item to which they relate, or because they require 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

      The Company recognizes revenue when goods are shipped and title passes to the customer.

Allowance for Doubtful Accounts

      Substantially all of the Company’s accounts receivable are due from companies in the green industry located throughout the United States. Credit is extended based on an evaluation of each customer’s financial condition and, generally, collateral is not required. The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers failing to make required payments. The allowance is based on the Company’s historical experience with approximately 130,000 active customers. The Company’s allowance at December 31, 2002 represents 7.8% of trade receivables. A 1% change in uncollectible accounts would affect the allowance by $637,000.

Inventories

      Inventories are valued principally at the lower of cost (average cost method) or market. Warehousing, transportation and procurement costs as well as rebates earned are capitalized to inventory on hand and expense or rebates are recognized when the inventory is sold. The Company has an inventory life cycle program which requires the identification of all Stock Keeping Unit (“SKU”) into one of five categories: active, watch, phase out, discontinued and liquidated. SKUs identified as discontinued will be progressively marked-down to expected net realizable value over specific periods until the costs are marked down to zero. At that point the products will be liquidated. Estimated net realizable value of 19.2% of cost is based on historical sales of discontinued inventory. At December 31, 2002, a 1% change in net realizable value of current discontinued inventory would

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Accrued Liabilities

      Certain accrued liabilities, principally health care, product warranty and freight, 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. If payments differ from the estimated accrued liability, adjustments to the expense accruals may be needed.

Deferred Taxes

      The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

      Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for a valuation allowance quarterly. The realization of deferred tax assets is principally dependent upon the achievement of projected future taxable income. The Company’s judgments regarding future profitability may change due to future market conditions and other factors.

      At December 31, 2002, the Company has recognized a $3.1 million net deferred tax asset related to the future realization of tax benefits, net of a valuation allowance of $889,000 for state net operating loss carryforwards.

Results of Operations — 2002 Compared to 2001

      Included in the Company’s results of operations for year ended December 31, 2002 are adjusted charges for the inventory markdown of $9.2 million, asset rationalization of $12.1 million and severance expense of $3.5 million.

      In preparation for the conversion to the product life cycle program, twelve thousand existing SKUs were specifically identified as discontinued. The Company recorded a $9.2 million charge, net of the obsolescence reserve, to markdown the cost of these discontinued SKUs to their expected net realizable value. As of December 31, 2002, these discontinued SKUs have been substantially liquidated. Sales of discontinued SKUs were recorded to operating results at historical gross profit margins. Gross profit on these sales that exceeded historical gross profit margins was credited to the reserve.

      During 2002, the Company completed an asset analysis and finalized plans to rationalize under-performing assets. The plan included ceasing operations at and the decision to sell the Company’s manufacturing facilities in Disputanta, Virginia and Stockton, California. The plan also included the sale of properties in Wellington, Ohio and Windsor, New Jersey. The Company recorded a pretax charge totaling $15.6 million, which is included in the Company’s Consolidated Statements of Operations as Asset Rationalization of $12.1 million and Severance Expense of $3.5 million. Major components of the charge for the asset rationalization and severance charges and the related reserves and accruals as of December 31, 2002 are included in Note 2 to the Consolidated Financial Statements.

      During the year the Company finalized the sale of its former corporate offices. The sale resulted in a pretax gain of $185,000.

      As a result of the implementation of SFAS No. 142 (“Goodwill and Other Intangible Assets”), the Company recorded a $4.6 million charge, net of taxes of $2.7 million, as a cumulative effect of accounting change

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      The Company recorded an extraordinary charge related to the early termination of debt of approximately $2.9 million, net of taxes of $1.7 million, in the first quarter of 2002. Refer to Note 3 in the notes to Consolidated Financial Statements.

      The following schedule shows the Company’s reported results of operations for the year ended December 31, 2002, as adjusted for these charges and gain. These adjustments follow the guidelines established by Financial Executives International (FEI) and the National Investor Relations Institute (NIRI) for consistency and analysis in presenting financial results. This disclosure is provided to supplement the Company’s Generally Accepted Accounting Principles (GAAP) results and to clarify the results for the period being reported.

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LESCO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

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     Sales for the year ended December 31, 2002 increased approximately 1.5% to $511.7 million compared with $504.3 million in 2001. Sales rose by approximately $7.4 million due to improved unit volume of $8.8 million offset by a $1.4 million reduction due to slightly lower average selling prices. Sales increased for the Company’s Lawn Care sales channel by $14.4 million to $281.7 million from $267.3 million, while the Golf sales were flat at $152.7 in 2002 compared to $152.6 in 2001 and National Accounts sales channel sales decreased $7.7 million to $79.0 million compared to $86.7 in 2001. Sales of the Company’s combination products, control products and equipment products rose in 2002 over 2001, while sales of fertilizer, seed and other products declined.

      Gross profit in accordance with generally accepted accounting principles in the United States (GAAP) which include the inventory markdown was $161.2 million, or 31.5% of sales in 2002 compared to $155.0 million in 2001. Gross profit, excluding inventory markdown, increased by $15.4 million, for the year ended December 31, 2002 as compared to 2001. Factors positively impacting gross profit dollars in 2002 were better sourcing decisions and favorable raw material pricing totaling approximately $8.6 million, lower manufacturing expense of $2.5 million, improved sales volume impact on gross profit of $2.7 million and a reduction of inventory shrink of $3.0 million. Partially offsetting these increases were lower average selling prices of $1.4 million for the twelve months ended December 31, 2002. As a percent of sales, gross profit, excluding inventory markdown, was 33.3% for the year ended December 31, 2002 compared with 30.7% for 2001.

      For the year ended December 31, 2002, delivery and warehouse expenses decreased by $1.2 million to $44.2 million compared to $45.4 million in 2001. As a percent of sales, delivery and warehouse expense was 8.6% for the year ended December 31, 2002 versus 9.0% for 2001. For the year ended December 31, 2002, selling expenses increased by $3.5 million, a 4.7% increase, to $79.2 million in 2002 compared to $75.6 million in 2001. Selling expense was 15.5% of sales in the twelve months ended December 31, 2002 compared to 15.0% in the year ended December 31, 2001. The increase in selling expense reflects the increase in the direct sales force of 60 associates.

      For the year ended December 31, 2002, general and administrative expenses increased by $0.3 million to $31.5 million compared to $31.2 million in 2001. The increase was due to payroll related expenses, including performance incentives of $1.0 million, an increase in deferred financing fees of $683,000 related to the debt facility and higher insurance expenses of $693,000. These increases were partially offset by cost reductions in consulting and outside labor of $933,000, goodwill amortization of $583,000, travel costs of $208,000 and other expenses of $242,000.

      Results of operations for CTP were income of $164,000 in 2002 compared with a loss of $538,000 in 2001. The improved performance is due to higher sales volume of $10.8 million and improved cost controls.

      Customer finance charges were $1.8 million for the year 2002 compared to $2.4 million for the year 2001. The decrease in customer finance charges is due to more timely accounts receivable collection efforts as evidenced by a lower trade accounts receivable balance of $2.3 million, adjusted for asset securitization, and a decrease in aged receivables over ninety days of $1.3 million.

      Interest expense for the year ended December 31, 2002 was $4.9 million, which was $1.2 million less than 2001 due primarily to lower average borrowing levels. For the year ended December 31, 2002, average borrowing levels were down $16.9 million compared to 2001. Effective interest rates were 6.43% for the year ended December 31, 2002 compared to 6.65% in the prior period.

      The Company’s effective tax rate in 2002 in accordance with GAAP was 31.9% compared to 40.5% in 2001. The effective tax rate after adjustment for the inventory markdown, asset rationalization charges, severance and gain was 37.9%. The change in effective tax rate from year to year is due primarily to a charge of $889,000 for a valuation allowance against state net operating loss deferred assets.

      Net income in accordance with GAAP, which includes the gain and charges, was a loss of $17.5 million. Fully diluted earnings per share, including the gain and charges, was a loss of $2.06 per fully diluted share. The Company’s net income, excluding the inventory markdown, asset rationalization charges, severance charges, extraordinary item and cumulative effect in accounting change, was $6.2 million or $0.70 per fully diluted share in the year ended December 31, 2002 compared with a loss of $2.9 million or $0.34 per fully diluted share in the year ended December 31, 2001.

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Results of Operations — 2001 Compared to 2000

      Sales rose by $4.7 million, or about 1%, to a record $504.3 million in 2001, compared with $499.6 million in 2000. Sales rose by approximately $3.1 million because of improved unit volume. Also slightly higher average selling prices resulted in an increase in sales of approximately $1.6 million. The Lawn Care sales channel operated 227 stores at year end 2001 compared with 232 stores at year end 2000. Store sales declined by 0.3% in 2001 over 2000. The Golf sales channel operated 77 LESCO Stores-On-Wheels at year end 2001 compared with 78 at year end 2000. Sales of the Company’s fertilizers and seed products rose in 2001 over 2000, while sales of equipment were down, as customers impacted by the slowing economy shied away from larger capital purchases.

      Gross profit decreased by $7.0 million in 2001 as compared to 2000. As a percent of sales, gross profit was 30.7% for 2001 compared with 32.4% for 2000. Factors negatively impacting gross profit in 2001 were higher raw material costs of $7.5 million, increased manufacturing costs of $1.2 million and unfavorable inventory adjustments of $0.8 million. The higher raw material costs experienced for the first three-quarters of 2001, were due primarily to higher natural gas prices, which rose significantly in the later half of 2000 and first half of 2001. The increased natural gas prices directly and negatively impacted the cost of urea, the Company’s largest and most widely used raw material. Natural gas prices declined in the second half of 2001 and favorable raw material costs were experienced, primarily in the fourth quarter. Increases in labor, utilities, depreciation and other production expenses resulted in the higher manufacturing costs. The unfavorable inventory adjustments reflect the results of physical inventories performed in the third and fourth quarters and inventory cycle counts performed throughout the year. Partially offsetting the reductions to gross profit were the slightly improved pricing of $1.5 million and the improved volume impact on gross profit of $1.0 million.

      Delivery and warehouse expenses rose by $3.1 million in 2001 compared to 2000. The Company capitalizes to inventory certain transfer costs of warehousing, transportation and procurement. As a result of lower inventory levels and a reduction in transfer costs incurred in 2001, the costs capitalized to inventory were reduced, causing higher expense of $1.4 million in 2001 than in 2000. After adjusting for capitalized costs, delivery and warehouse expenses as a percent of sales decreased slightly to 8.9% for 2001 from 9.0% in 2000. Warehouse costs rose slightly to 2.6% of sales in 2001 from 2.5% of sales in 2000, because of higher payroll related and utilities expenses partially offset by lower rent and depreciation expense. Delivery costs decreased slightly to 6.3% of sales in 2001 from 6.4% of sales in 2000.

      Selling, general and administrative expenses increased by $6.6 million, a 6.4% increase, to $109.9 million in 2001 compared to $103.3 million in 2000. Selling expense increased in 2001 by $0.4 million over 2000, primarily due to higher payroll related and store operating expenses. General and administrative costs increased in 2001 by $6.2 million, primarily due to significantly higher health care insurance costs, as well as higher facility costs, outside professional and consulting services, and payroll related expenses.

      Results of operations for CTP was a loss of $538,000 in 2001 compared to a loss of $33,000 in 2000. The higher loss in 2001 is attributable primarily to lower sales volumes in 2001 compared to 2000.

      Interest expense was $6.1 million in 2001 compared to $6.9 million in 2000. The higher interest expense in 2000 was attributable primarily to a higher average interest rate and increased working capital needs associated with the growth of the business.

      The Company’s effective tax rate was 40.5% in 2001 compared to 39.5% in 2000.

      As a result of the foregoing, the Company reported a net loss of $2.9 million, or $0.34 per diluted share, in 2001 compared to net earnings of $7.4 million, or $0.86 per diluted share, in 2000.

Liquidity and Capital Resources

      On January 14, 2002, the Company’s private placement notes, revolving credit agreement and accounts receivable securitization were refinanced with a $122.3 million senior secured credit facility (Debt Facility). The new Debt Facility includes an amortizing term loan (Term Loan) of approximately $7.3 million and a revolving credit facility (Revolver) of up to $115 million, maturing in January 2005. The variable interest on this Debt facility is based on LIBOR plus 2.75% to 3.00% or prime rates plus .25% to ..50%. The Term Loan is secured by

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      On July 26, 2002, the Company amended its Debt Facility. The amendment addressed the impact of the charges for inventory markdown, asset rationalization and severance expense on the Facility’s covenants. As of December 31, 2002, the Company is in compliance with all of the restrictive covenants in its Debt Facility, as amended.

      In conjunction with the signing of the new credit agreement, the Company entered into a three-year, $40.5 million notional amount interest rate swap agreement (Swap) with a bank expiring in January 2005. The Swap converts existing variable-rate payments (based on LIBOR or prime rates), plus applicable borrowing margins of 2.75% to 3.00%, to 4.2% fixed-rate, plus applicable borrowing margin, payments.

      Total outstanding debt was $68.4 million as of December 31, 2002 compared to $82.3 million as of December 31, 2001, which includes the outstanding balance from the asset securitization of trade accounts receivable of $31.2 million. On January 14, 2002, the asset securitization of trade accounts receivable was terminated under the new Debt Facility.

      The Company’s invested capital (total assets less non-debt related liabilities) as of December 31, 2002 was $145.3 million compared to $176.3 million as of December 31, 2001.

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      The decrease in invested capital of $31.0 million from December 31, 2001 is due primarily to the adjustments for charges totaling $23.6 million, net of taxes and lower of capital spending.

      Return on invested capital, excluding the adjustments for charges, increased to 6.3% for the year ended December 31, 2002 compared with 0.4% for the same period in 2001. The return on invested capital improvement relates to higher earnings before interest and taxes in 2002 and lower invested capital. The lower invested capital was due to the reasons stated in the preceding paragraph.

      Capital expenditures for the year end December 31, 2002 totaled $2.7 million. These expenditures consisted of improvements to manufacturing and hub facilities totaling approximately $1.7 million, improvements to the Company’s information systems totaling $892,000 and remodeling 47 of the 77 Company’s Stores-On-Wheels for a total cost of $105,000.

      The Company plans to open 20 to 25 new Service Centers in 2003. The Service Center buildings will be leased. Capital of approximately $50,000 to $60,000 per Service Center, working capital of approximately $175,000 to $225,000 per Service Center and first year anticipated operating losses of approximately $60,000 to $100,000 per Service Center will be funded by the Company’s cash flow from operations.

      The Company believes its current borrowing capacity together with the cash from operations will be adequate for its operating and capital requirements through the maturity of the revolving credit facility, in January 2005.

Impact of Recently Issued Accounting Standards

      In September 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This Statement is effective for the Company in 2003. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over the asset’s life, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon final payment. This Statement requires that a liability be recognized when an asset retirement obligation is identified and a fair value can be reasonably estimated. The Company has not identified any asset retirement obligations and thus believes there will be no impact of adoption on its consolidated financial position, cash flows or results of operations.

      As of May 15, 2002, FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13 and technical corrections”. The Company is required to adopt this statement for the fiscal year beginning January 1, 2003. At time of adoption in the first quarter of 2003, the Company will be required to reclassify the extraordinary charge of $4.6 million related to the early extinguishment of debt to continuing operations.

      In September 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal Activities”. This Statement is effective for the Company in 2003. The Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred for exit or disposal activities initiated after December 31, 2002. The adoption will only impact its consolidated financial position or results of operations for future periods where exit or disposal activities occur. The Statement does not require previously issued statements to be restated.

      See Item 7 Liquidity and Capital Resources above and Note 3, Debt, in the Notes to Consolidated Financial Statements.

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      The following financial statements of LESCO, Inc. and the report of Ernst & Young LLP, independent auditors, are set forth on the following pages, which are set forth at the end of the report:

      Not Applicable.

PART III

      Reference is made to the information set forth under the captions “Election of Directors” and “Business Experience of Directors and Nominees” in the Proxy Statement, which information is incorporated herein by reference.

      The information required with respect to executive officers is set forth in Part I of this Form 10-K under the heading “Executive Officers of the Registrant.” Officers are elected annually and serve at the pleasure of the Board of Directors.

      Reference is made to the information set forth under the caption “Executive Compensation” in the Proxy Statement, which information is incorporated herein by reference.

      Reference is made to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement, which information is incorporated herein by reference.

Equity Compensation Plan Information

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      Reference is made to the information set forth under the caption “Certain Transactions” in the Proxy Statement, which information is incorporated herein by reference.

      Within 90 days of the date of this report, the Company performed an evaluation under the supervision and with the participation of the Company’s management including the Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Senior Vice President and Chief Financial Officer, concluded that 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 made known to them. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

(a)(1) and (2). Financial Statements and Financial Statement Schedule.

      The following financial statements of LESCO, Inc. are included in Item 8:

      Consolidated Balance Sheets — December 31, 2002 and 2001

      Consolidated Statements of Operations — Years ended December 31, 2002, 2001 and 2000

      Consolidated Statements of Shareholders’ Equity — Years ended December 31, 2002, 2001 and 2000

      Consolidated Statements of Cash Flows — Years ended December 31, 2002, 2001 and 2000

      Notes to Consolidated Financial Statements

      The following financial statement schedule is included herewith:

      Schedule II — Valuation and Qualifying Accounts — December 31, 2002, 2001 and 2000

      All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

      (3) See Exhibit Index following the signature pages to this report.

(b) The Company did not file any report on Form 8-K during the fourth quarter of 2002.

(c) Exhibits — See Exhibit Index.

(d) Financial Statement Schedule

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS