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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended: September 27, 2008

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from            
to.

Commission file number: 0-18741





LESLIES POOLMART, INC.

(Exact
name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4620298                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3925 E. Broadway Road, Suite 100

Phoenix, Arizona 85040

(Address of principal executive offices)

Registrants telephone number, including area code: (602) 366-3999





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

Securities registered pursuant to section 12(g) of the Act: None.





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or
Section 15(d).    Yes  x    No   ̈

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  x    No   ̈

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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller business reporting company. See definition of accelerated filer, large accelerated
filer, and smaller business reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-Accelerated Filer  x |  | Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)    Yes   ̈    No  x

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

The number of shares of common stock outstanding as of
December 22, 2008 was 100.









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##### Table of Contents

TABLE OF CONTENTS

For the Fiscal Year Ended September 27, 2008



|         |  |                                                                                                               |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                               |  | Page
|         |  | PART I                                                                                                        |  |     
|         |  |                                                                                                              
|Item 1.  |  | Business                                                                                                      |  | 3   
|         |  |                                                                                                              
|Item 1A. |  | Risk Factors                                                                                                  |  | 7   
|         |  |                                                                                                              
|Item 1B. |  | Unresolved Staff Comments                                                                                     |  | 9   
|         |  |                                                                                                              
|Item 2.  |  | Properties                                                                                                    |  | 9   
|         |  |                                                                                                              
|Item 3.  |  | Legal Proceedings                                                                                             |  | 10  
|         |  |                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                           |  | 10  
|         |  |                                                                                                              
|         |  | PART II                                                                                                       |  |     
|         |  |                                                                                                              
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 11  
|         |  |                                                                                                              
|Item 6.  |  | Selected Financial Data                                                                                       |  | 12  
|         |  |                                                                                                              
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 14  
|         |  |                                                                                                              
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 22  
|         |  |                                                                                                              
|Item 8.  |  | Financial Statements and Supplementary Data                                                                   |  | 23  
|         |  |                                                                                                              
|Item 9.  |  | Changes in and Disagreements with Accountants On Accounting and Financial Disclosure                          |  | 44  
|         |  |                                                                                                              
|Item 9A. |  | Controls and Procedures                                                                                       |  | 44  
|         |  |                                                                                                              
|Item 9B. |  | Other Information                                                                                             |  | 45  
|         |  |                                                                                                              
|         |  | PART III                                                                                                      |  |     
|         |  |                                                                                                              
|Item 10. |  | Directors and Executive Officers of the Registrant                                                            |  | 46  
|         |  |                                                                                                              
|Item 11. |  | Executive Compensation                                                                                        |  | 49  
|         |  |                                                                                                              
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 61  
|         |  |                                                                                                              
|Item 13. |  | Certain Relationships and Related Transactions                                                                |  | 61  
|         |  |                                                                                                              
|Item 14. |  | Principal Accountant Fees and Services                                                                        |  | 63  
|         |  |                                                                                                              
|         |  | PART IV                                                                                                       |  |     
|         |  |                                                                                                              
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                    |  | 64  



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PART I

ITEM 1. BUSINESS

Leslies Poolmart, Inc.
(Leslies or the Company) is the leading national specialty retailer of swimming pool supplies and related products. These products primarily consist of regularly purchased, non-discretionary pool maintenance items such
as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company currently markets its products under the trade name Leslies Swimming Pool Supplies through 604
company-owned retail stores in 35 states, mail order catalogs sent to selected pool owners nationwide, and an internet web store.

The
Company provides its customers a comprehensive selection of high quality products, competitive every day low prices and superior customer service through knowledgeable and responsive sales personnel who offer a high level of technical assistance at
convenient store locations. The typical Leslies store is located in an area with high concentrations of swimming pools and approximates 3,800 square feet of space. The typical store is located either in a strip center or on a freestanding site
in an area of heavy retail activity, and draws its customers primarily from an approximately five-mile trade area. The Company maintains a proprietary mailing list of approximately 7.6 million addresses, including over 90% of the residential
in-ground pools in the U.S. This highly focused list of target customers is central to the Companys direct mail marketing efforts, which supports its retail stores, mail order operations and web store.

The Company is a wholly-owned subsidiary of Leslies Holdings, Inc. (Holdings) and was incorporated as a Delaware corporation in 1997.
The Companys principal executive offices are located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the telephone number at that address is (602) 366-3999. Leslies corporate website address is www.lesliespool.com.

See Item 8, Financial Statements and Supplementary Data, for financial information.

Swimming Pool Supply Industry

We market our products
and services in the estimated $5.0 billion U.S. swimming pool and spa supply industry, which can be divided into four major segments: residential in-ground swimming pools, residential above-ground pools (usually 12 to 24 feet in diameter),
commercial swimming pools and spas or hot tubs. According to market research firm P.K. Data, the installed base of residential in-ground pools, above-ground pools and spas and hot tubs in the United States has grown from just under 9.8 million
in 1995 to over 14.8 million in 2007, and is projected to grow to over 18.2 million by 2012. Both historic and new pool unit growth is highly correlated to macroeconomic housing trends, as approximately 60% of all in-ground swimming pools
are built as part of new home construction.

Regardless of the type or size of a swimming pool, there are numerous ongoing maintenance and
repair requirements associated with pool ownership. In order to keep a pool safe and sanitized, chemical treatment is required to maintain proper chemical balance, particularly in response to variables such as pool usage, precipitation and
temperature. A swimming pool is chemically balanced when the disinfectant, pH, alkalinity, hardness and dissolved solids are at the desired levels. The majority of swimming pool owners use chlorine to disinfect their pools. When the pool is
chemically balanced, problems such as algae, mineral and salt saturation, corrosive water, staining, eye irritation and strong chlorine smell are less likely to occur. A regular testing and maintenance routine will result in a stable and more easily
maintained pool. However, regardless of how well appropriate levels of chlorine are maintained, shocking is periodically required to break up the contaminants which invariably build up in the pool water. To accomplish this, the pool
owner can either super-chlorinate the pool or use a nonchlorinated oxidizing compound. The maintenance of proper chemical balance and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, and filters, as well as safety
equipment, create a non-discretionary demand for pool chemicals and other swimming pool supplies and services. Further,



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non-usage considerations such as a pools appearance and the overall look of a household and yard create an ongoing demand for these maintenance related
supplies. In addition, pool usage creates demand for discretionary items such as floats, games and accessories.

The Companys
historical strategy has been to focus primarily on the residential in-ground pool owner. In recent years, the Company has expanded its activities to more aggressively address the commercial, above-ground and spa markets as well. In the residential
categories, the Company markets its products primarily to the do-it-yourself market as opposed to those pool owners who hire pool servicers. Through its commercial business, products and services are offered to commercial property
managers, non-residential pool installers, as well as to pool service companies which maintain either residential or commercial pools.

Seasonality

The Companys business exhibits substantial seasonality, which the Company believes is typical of the swimming pool supply industry.
In general, sales and net income are highest during the quarters ended June and September that represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the Company typically
incurs net losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather create a need for more pool chemicals and supplies. Unseasonably early or late
warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season will tend to decrease swimming pool use. The likelihood that unusual weather
patterns will severely impact the Companys results is lessened by the geographical diversification of the Companys store locations.

The Company also expects that its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores.
The Company attempts to open its new stores primarily in the quarter ending March in order to position itself for the following peak season.

Products

Leslies offers its customers a comprehensive selection of products necessary to satisfy their swimming pool supply needs. During
2008, the Company stocked approximately 700 items in each store, with more than 30,000 additional items available through its other channels of distribution and special order processes. In 2008, approximately 800 items were displayed in the
Companys residential mail order catalogs, approximately 2,400 items were offered through the Companys web store and 1,200 items were in the commercial catalog, although special order procedures make nearly all Leslies products
available to these customers as well. In fiscal year 2008, Leslies brand name products accounted for 48% of the Companys total sales.

The Companys major product categories are pool chemicals; major equipment; cleaning and testing equipment; safety equipment; pool covers, reels and liners; above-ground pools in a limited number of stores; and recreational items
(which include swimming pool floats, games, lounges, masks, fins, snorkels and other impulse purchase items).

Non-discretionary and regularly consumed products such as pool chemicals, major equipment and parts represented 84% of total sales in fiscal year 2008. The Companys non-discretionary products typically have long shelf lives and are
generally not prone to either obsolescence or shrinkage which could occur from changing technology or consumer buying patterns.



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Channels of Distribution

Retail Store Operations. At the end of fiscal year 2008, Leslies marketed its products through 604 retail stores in 35 states under the trade name Leslies Swimming Pool Supplies. California
represents its single largest concentration of stores with 134 stores, while 108 stores are located in Texas, and over 100 stores are in the northeast/mid-Atlantic states. Leslies retail stores are located in areas with high concentrations of
swimming pools and typically are approximately 3,800 square feet in size. In addition to the store manager, the typical Leslies store employs one assistant manager, who is generally a full-time employee. Additionally, Leslies makes
frequent use of part-time and temporary employees to support its full-time employees during peak seasons. During 2008, the Company had 6 regional vice presidents and 39 district managers. Each district manager was responsible for approximately 15
stores.

Mail Order Catalog and Internet Web Store. Leslies mail order catalogs provide an extension of its service
philosophies and products to those areas not currently served by a retail store and allow the scope of the Companys business to be truly nationwide. The Company also operates a web store (www.lesliespool.com) providing online customers with
thousands of products available for ordering and important information on pool cleaning, equipment, sanitation, and safety advice. The virtual store allows customers an opportunity to shop online and the ability to retrieve relevant information, 24
hours a day, seven days a week. The Company believes that its mail order catalogs and Web Store build awareness of the Leslies name, provide it with buying and direct marketing efficiencies and, when coupled with information from its retail
stores, are instrumental in determining site selection for new stores.

Customer Service

Due to the complicated nature of pool chemistry and equipment maintenance and consistent with its philosophy of being a full service swimming pool supply
retailer, Leslies offers a high level of technical assistance to support its customers. The Company considers its training of store personnel to be an integral part of its service philosophy. Leslies extensive training program for all
full-time and part-time store employees includes courses in water chemistry, water testing, trouble shooting on equipment, equipment sizing and parts replacement.

A significant number of Leslies stores are supported by the Leslies Service Department, which offers poolside equipment installation and repair, leak detection and repair, and seasonal opening and closing
services. The Service Department utilizes both Company employees and subcontractors to perform these services.

Marketing

The majority of the Companys marketing is done on a direct mail basis through its proprietary mailing list of approximately 7.6 million
addresses at which, primarily, residential pools are located. Leslies has found that its ability to mail directly to this highly focused group is an effective and efficient way to conduct its marketing activities to both retail store and mail
order customers. The Company constantly updates its address list through proprietary research techniques and in-store customer sign-ups.

Addresses on the Companys proprietary list that are located within a specified service area of a retail store receive circulars once or twice per month from late March or early April through September or, selectively, through October.
As a regular part of Leslies promotional activities, each mailer highlights specific items which are intended to increase store traffic, and reinforces to the customer the advantages of shopping at Leslies, which include everyday low
pricing, knowledgeable employees, a high level of customer service, and a broad selection of high quality products. Addresses outside the Companys store service areas, and recently active mail order customers within those service areas,
receive the Companys mail order catalogs. The Company also markets through online channels using its proprietary database, search engines and other online media. The Company utilizes local print media when it enters a new market, and does so
regularly in connection with its above-ground pool sales markets. New store openings typically involve additional advertising in the first two to three months of operation.



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Purchasing

Leslies management believes that because it is one of the largest purchasers of swimming pool supplies for retail sales in the United States, the Company is able to obtain very favorable pricing on its purchases from outside
suppliers. Most raw materials and those products not repackaged by the Company are purchased directly from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended dating terms on certain products
to quantity purchasers such as Leslies. These dating terms are typically available to the Company for pre-season or early season purchases.

The Companys principal chemical raw materials and granular chlorine compounds are purchased primarily from three suppliers. At the end of fiscal year 2006, the Company extended a multi-year product purchase agreement with a major
producer of one of the principal chlorine compounds, the chlorinated isocyanurates. The Company believes there are several other reliable suppliers of chlorine products in the marketplace today and termination of supply would not pose any
significant problems because substitute chemicals and alternate shocking techniques are available. The Company believes that reliable alternative sources of supply are available for all of its raw materials and finished products.

Vertical Integration

Leslies operates a plant
in Ontario, California where it converts dry granular chlorine into tablet form and repackages a variety of bulk chemicals into various sized containers suitable for retail sales. Leslies also formulates a variety of specialty liquids,
including water clarifiers, tile cleaners, algaecides and stain preventives. The chemicals the Company processes have a relatively long shelf life. Leslies believes that supplying its stores with chemicals from its own repackaging plant
provides it with cost savings, as well as greater control over product availability and quality, as compared to non-integrated pool supply retailers. It also offers the Company greater flexibility of product sourcing and vital information when
negotiating with third-party repackagers and chemical providers. The Leslies branded product names appear on all products processed at its repackaging plant, and on the majority of its chemical products. The Company believes it is among the
largest processors of chlorine products for the swimming pool supply industry.

In connection with the operation of its four distribution
centers outside of California, the Company has expanded its use of third-party chemical repackagers and its purchase of products already in end-use configurations. These products are also generally packaged under the Leslies brand name. The
Company continually evaluates the cost effectiveness of third-party sourcing versus internal manufacturing in order to minimize its cost of goods. The Company also operates a packaging operation of specialty items at its Hebron, Kentucky
distribution facility. In addition to chemicals, a variety of the Companys other products are packaged under the Leslies brand name.

Distribution

In 2008, the Company distributed its products to its retail stores and to its catalog customers through its
leased distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Hebron, Kentucky; and Orlando, Florida.

The
Company purchases the majority of the chemicals to be distributed from the Dallas, Swedesboro and Hebron distribution centers from outside manufacturers rather than obtaining them through its repackaging facility in Southern California. During the
height of its seasonal activities, each of the Companys retail stores inventory is generally replenished every 5 to 7 days.

The Company utilizes a variety of leased and owned equipment, supplemented by additional equipment leased during the busy season, to transport its goods to stores.



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Competition

Competition within the pool supply industry is highly fragmented and largely populated by local mom and pop stores and regional chains. Based on the number of stores, the Company estimates that the next largest specialty pool
supply retailer is less than one-third of its size. Mass merchant and home improvement chains participate in the category on a seasonal basis. While the ability of these merchants to accept low margins on the limited number of items they offer makes
them aggressive price competitors of the Company, they are not generally priced significantly below Leslies and do not offer the level of customer service or wide selection of swimming pool supplies available at Leslies.

Employees

As of September 27, 2008,
Leslies employed approximately 2,300 persons. During the height of the Companys seasonal activities in 2008, it employed approximately 3,400 persons, including seasonal and part-time store employees who generally are not employed during
the off season. The Company is not subject to any collective bargaining agreements and believes its overall relationship with its employees is good.

Trademarks

In the course of its business, Leslies employs various trademarks, trade names and service marks as well
as its logo in packaging and advertising its products. The Company has registered trademarks and trade names for several of its major products on the Principal Register of the United States Patent and Trademark Office. The Company distinguishes the
products produced in its chemical repackaging operation or by third party repackagers at its direction through the use of the Leslies brand name and logo and the trademarks and trade names of the individual items, none of which is patented,
licensed, or otherwise restricted to or by the Company. The Company believes the strength of its trademarks and trade names has been beneficial to its business and intends to continue to protect and promote its trademarks in appropriate
circumstances.

ITEM 1A. RISK FACTORS

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include the following:

A small group of stockholders in the holding company are able to exercise control over our business.

The Company is a wholly-owned subsidiary of Holdings. The principal stockholders of Holdings are GCP California Fund, L.P. and additional affiliates of
Leonard Green & Partners, L.P. Through their ownership or control of over 75% of the outstanding shares of the Companys common stock, these stockholders have the power to elect a majority of the Leslies Board of Directors.
Accordingly, those stockholders have the power to approve all amendments to the Companys certificate of incorporation and bylaws and to effect fundamental corporate transactions such as mergers, asset sales and public offerings.

Our continued success depends on our successful expansion in new and existing markets.

The Companys continued growth depends to a significant degree on its ability to open new stores in existing and new markets and to operate these
stores on a profitable basis. To a lesser extent, the Companys continued growth depends on increasing comparable store sales. The Company opened 27 net new stores in 2006, 36 net new stores in 2007 and 27 net new stores in 2008. We cannot
assure that we will be able to open new stores in a timely manner; hire, train and integrate employees; continue locating and obtaining favorable store sites; and adapt distribution, management information and other operating systems to the extent
necessary to grow in a successful and profitable manner. Further, we cannot assure that the Companys new stores will achieve historical levels of sales or profitability. Because the Companys new stores generally have lower operating
margins following their opening than mature stores, the opening of a large number of stores could have an adverse effect on total operating margins. Additionally, the Companys expansion plans could be adversely affected by a significant
downturn in the economy and resulting decrease in new home and swimming pool



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construction. We expect that the Companys quarterly results of operations will fluctuate depending on the timing and the amount of revenue contributed
by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores.

Our business is highly seasonal and results of
operations fluctuate as a result of weather conditions.

Our business exhibits substantial seasonality which we believe is typical of
the swimming pool supply industry. In general, sales and earnings are highest during the quarters ending in June and September, which represent the peak months of swimming pool use. Typically, all of the Companys operating income is generated
in these two quarters which offsets the operating losses incurred in each of the other two quarters. Our business is significantly affected by weather patterns. For example, unseasonably late warming trends can decrease the length of the pool
season, and unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season may decrease swimming pool use, resulting in lower maintenance needs and decreased sales.

We may not be able to successfully compete with large volume mass merchants.

Most of the Companys competition comes from local stores or regional chains which do not typically repackage products and which generally buy products in smaller quantities. The chain store competitors include a
large franchise operator of approximately 170 retail outlets in the Florida market and a limited number of other retail chains of approximately 15 to 30 stores. We compete on selected principal products with large-volume mass merchants and home
centers which offer a limited selection of pool supplies as compared to us. Should mass merchants increase the breadth of their pool related product offerings, it would likely have an adverse effect on our business. There are no proprietary
technologies or other significant barriers to prevent other firms from entering the swimming pool supply retail market in the future. Competition could adversely impact the Companys sales and operating margins.

Our business may be adversely affected by an economic downturn.

Consumer demand for swimming pool related products may decline if discretionary spending declines as a result of a downturn in the economy. While spending for maintenance, repairs and replacement by existing pool
owners must occur to maintain existing swimming pools, a portion of the Companys growth depends on the continued expansion of the installed swimming pool base, which may be considered a discretionary expenditure and could be negatively
affected by a difficult economy.

Our business includes the packaging and storage of chemicals and an accident related to those chemicals could subject
us to liability and increased costs.

We operate chemical repackaging facilities in Ontario, California and Hebron, Kentucky and we
store chemicals in our retail stores and in distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Orlando, Florida; and Hebron, Kentucky. Because some of the chemicals we repackage and store are flammable or
combustible compounds, we must comply with various fire and safety ordinances. However, a release at a retail store or a fire at one of the Companys facilities could give rise to liability claims against us. In addition, if an incident
involves a repackaging or distribution facility, we might be required temporarily to use alternate sources of supply that could increase the Companys cost of sales. We believe that we maintain adequate insurance coverage. However, due to
changes in the insurance industry that have led to higher costs, we can not guarantee that we will be able to maintain adequate insurance at reasonable rates or that the Companys insurance coverage will be adequate to cover future claims that
may arise.

Our business is subject to compliance with environmental, health, transportation and safety regulations.

We are subject to various regulations under federal, state and local environmental, health, transportation and safety requirements. These regulations
govern the storage and sale of pool chemicals, as well as packaging, labeling, handling, and transportation of those products. Failure to comply with these laws may result in the



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assessment of civil and criminal penalties. Compliance with such laws in the future may be costly, as the trend in such regulations has been increasingly
restrictive on activities that impact the environment.

We are dependent on key personnel and the loss of their services could adversely affect us.

We believe that the Companys success is largely dependent upon the abilities and experience of its senior management team. The loss
of services of one or more of these senior executives could adversely affect the Companys results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As
of September 27, 2008, the Company operated 604 stores in 35 states. The following table sets forth information concerning the Companys stores:



|               |  |                
|-------------- |  | ---------------
|State          |  | Number ofStores
|Alabama        |  | 6              
|Arizona        |  | 68             
|Arkansas       |  | 2              
|California     |  | 134            
|Connecticut    |  | 9              
|Delaware       |  | 2              
|Florida        |  | 66             
|Georgia        |  | 24             
|Illinois       |  | 6              
|Indiana        |  | 7              
|Iowa           |  | 1              
|Kansas         |  | 3              
|Kentucky       |  | 4              
|Louisiana      |  | 8              
|Maryland       |  | 6              
|Massachusetts  |  | 7              
|Michigan       |  | 7              
|Mississippi    |  | 1              
|Missouri       |  | 8              
|Nebraska       |  | 1              
|Nevada         |  | 17             
|New Hampshire  |  | 2              
|New Jersey     |  | 20             
|New Mexico     |  | 2              
|New York       |  | 22             
|North Carolina |  | 5              
|Ohio           |  | 12             
|Oklahoma       |  | 7              
|Pennsylvania   |  | 19             
|Rhode Island   |  | 1              
|South Carolina |  | 4              
|Tennessee      |  | 7              
|Texas          |  | 108            
|Utah           |  | 1              
|Virginia       |  | 7              
|               |  |                
|Total Stores   |  | 604            
|               |  |                



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Except for 25 owned stores, the Company has leases on the remaining retail stores with lease terms
expiring between 2008 and 2018. The Companys typical lease term is five years, and in many instances, the Company has renewal options at increased rents. Three leases provide for rent contingent on sales exceeding specific amounts. No other
leases require payment based on a percentage rent.

The Companys corporate office is located in Phoenix, Arizona. The 54,000 square
foot office space is leased until June 2014.

The Companys Southern California distribution center is located in a 183,000 square
foot facility in Ontario, California. The Ontario facility is leased, expiring in 2014 and the lease has one five-year renewal option.

The
Companys distribution facility in Dallas, Texas contains 126,000 square feet of space. The lease of this facility was renewed in 2005 and is scheduled to expire in 2015, with one five-year option thereafter. The 130,500 square foot
distribution facility in Swedesboro, New Jersey is leased for a 5-year term, expiring in 2013. The lease includes options to renew for two five-year periods. The 146,000 square foot distribution center in Hebron, Kentucky is leased for a 12-year
term, expiring in 2010 and provides for three five-year renewal options. The 20,500 square foot distribution center in Orlando, Florida is leased for a 5-year term, expiring in 2009 and provides for two five-year renewal options.

ITEM 3. LEGAL PROCEEDINGS

The Company is routinely involved in legal proceedings involving claims related to the ordinary course of its business. While the outcome of any litigation is inherently unpredictable, the Company does not believe that the ultimate
resolution of any of these matters will have a material adverse impact on the Companys financial condition, results of operations or cash flows. The Company is currently not party to any material legal proceedings.

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

None.



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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company became a subsidiary of Holdings during February 2007, pursuant to a tax-free reorganization in which the Companys shareholders became
shareholders of Holdings in the same proportions (the 2007 Reorganization). As a result of the 2007 Reorganization, each share of outstanding common stock of the Company was converted into one share of common stock of Holdings, and each
share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and
preferences, including as to liquidation.

There is no public trading market for the Companys common stock. As of December 21,
2008, all common stock was owned by Holdings.

On July 16, 2007, the Companys board of directors declared a cash dividend of
$15.0 million on the Companys common stock, par value $0.001 per share, to Holdings as its sole common stockholder of record on that date, in an aggregate amount. The cash dividend was paid on August 1, 2007. On January 28, 2008, the
Companys board of directors declared a cash dividend of $7.5 million on the Companys common stock which was paid on February 1, 2008. On July 30, 2008, the Companys board of directors declared a cash dividend of $8.8 million
on the Companys common stock which was paid on August 1, 2008. The payment of dividends is restricted, but not prohibited, by the agreements and instruments governing the Companys indebtedness. The Company contemplates that
dividends may be declared in future periods based upon the liquidity position of the Company.

Equity Compensation Plan Information:

Holdings, the parent of the Company, has reserved 1.3 million shares of nonvoting common stock for issuance under its 2005 Incentive Stock Option
Plan (the 2005 Plan). As of September 27, 2008, there were 438,000 equity awards outstanding under the 2005 Plan, of which the majority were issued to employees of the Company.



11



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##### Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial data of the Company as of and for the fiscal years ended September 27, 2008, September 29, 2007, September 30, 2006, October 1, 2005 and October
2, 2004. The fiscal year ended October 2, 2004 consists of 53 weeks, and all other fiscal years presented consist of 52 weeks. This financial data was derived from the audited historical consolidated financial statements of the Company and
should be read in conjunction with the consolidated financial statements of the Company and Managements Discussion and Analysis of Financial Condition and Results of Operations.



|                                                |  |                    |         |   |                   |   |         |                   |  |   |                |   |  |                |          |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | -------------- | - |  | -------------- | -------- | - |  | - | ------- | -
|                                                |  | Fiscal Years Ended |        
|(Dollar Amounts in Thousands)                   |  | September 27,2008  |         |   | September 29,2007 |   |         | September 30,2006 |  |   | October 1,2005 |   |  | October 2,2004 |         
|Operating Results:                              |  |                    |         |   |                   |   |         |                   |  |   |                |   |  |                |          |   |  |   |         |  
|Sales                                           |  | $                  | 488,818 |   |                   | $ | 468,882 |                   |  | $ | 440,565        |   |  | $              | 388,506  |   |  | $ | 356,041 |  
|Gross profit                                    |  |                    | 253,140 |   |                   |   | 236,133 |                   |  |   | 218,183        |   |  |                | 188,497  |   |  |   | 172,113 |  
|Gross margin                                    |  |                    | 51.8    | % |                   |   | 50.4    | %                 |  |   | 49.5           | % |  |                | 48.5     | % |  |   | 48.3    | %
|Loss on disposition of fixed assets             |  |                    | 385     |   |                   |   | 186     |                   |  |   | 600            |   |  |                | 703      |   |  |   | 440     |  
|Depreciation and amortization                   |  |                    | 12,385  |   |                   |   | 12,619  |                   |  |   | 11,789         |   |  |                | 11,881   |   |  |   | 11,281  |  
|Operating income(1)                             |  |                    | 79,461  |   |                   |   | 69,673  |                   |  |   | 56,800         |   |  |                | 23,905   |   |  |   | 33,792  |  
|Interest expense, net                           |  |                    | 13,058  |   |                   |   | 14,712  |                   |  |   | 19,397         |   |  |                | 18,834   |   |  |   | 7,172   |  
|Net income/(loss)(1)                            |  |                    | 40,476  |   |                   |   | 32,226  |                   |  |   | 20,505         |   |  |                | (4,422   | ) |  |   | 16,246  |  
|                                                |  |                    |         |   |                  
|Balance Sheet Data:                             |  |                    |         |   |                   |   |         |                   |  |   |                |   |  |                |          |   |  |   |         |  
|Working capital                                 |  |                    | 84,459  |   |                   |   | 66,657  |                   |  |   | 43,213         |   |  |                | 23,657   |   |  |   | 33,354  |  
|Total assets                                    |  |                    | 232,993 |   |                   |   | 199,639 |                   |  |   | 178,727        |   |  |                | 142,405  |   |  |   | 141,169 |  
|Long-term debt(2)                               |  |                    | 167,000 |   |                   |   | 169,080 |                   |  |   | 168,946        |   |  |                | 175,954  |   |  |   | 59,495  |  
|Redeemable preferred stock(2)                   |  |                    |        |   |                   |   |        |                   |  |   | 41,000         |   |  |                | 41,000   |   |  |   | 46,316  |  
|Stockholders deficit(2)                        |  |                    | (28,358 | ) |                   |   | (52,611 | )                 |  |   | (122,224       | ) |  |                | (142,557 | ) |  |   | (39,091 | )
|                                                |  |                    |         |   |                  
|Selected Operating Data:                        |  |                    |         |   |                   |   |         |                   |  |   |                |   |  |                |          |   |  |   |         |  
|Capital expenditures                            |  |                    | 17,070  |   |                   |   | 13,122  |                   |  |   | 11,180         |   |  |                | 12,305   |   |  |   | 10,899  |  
|Recapitalization and restructuring charges(1,3) |  |                    |        |   |                   |   |        |                   |  |   |               |   |  |                | 26,869   |   |  |   |        |  
|Adjusted EBITDA(1,3)                            |  |                    | 92,308  |   |                   |   | 82,788  |                   |  |   | 69,189         |   |  |                | 54,477   |   |  |   | 45,513  |  
|Adjusted EBITDA margin(1,2,4)                   |  |                    | 18.9    | % |                   |   | 17.7    | %                 |  |   | 15.7           | % |  |                | 14.0     | % |  |   | 12.8    | %
|Cash flow from operating activities             |  |                    | 41,230  |   |                   |   | 46,321  |                   |  |   | 55,058         |   |  |                | 26,747   |   |  |   | 26,518  |  
|Cash flow used in investing activities          |  |                    | (36,831 | ) |                   |   | (12,626 | )                 |  |   | (10,950        | ) |  |                | (12,168  | ) |  |   | (10,281 | )
|Cash flow used in financing activities(1)       |  |                    | (18,532 | ) |                   |   | (12,918 | )                 |  |   | (7,276         | ) |  |                | (29,174  | ) |  |   | (260    | )
|Number of employees                             |  |                    | 2,289   |   |                   |   | 2,235   |                   |  |   | 2,201          |   |  |                | 2,026    |   |  |   | 1,892   |  
|Number of stores                                |  |                    | 604     |   |                   |   | 577     |                   |  |   | 541            |   |  |                | 514      |   |  |   | 474     |  
|Comparable store sales growth(5)                |  |                    | 1.7     | % |                   |   | 3.1     | %                 |  |   | 9.2            | % |  |                | 6.4      | % |  |   | 3.3     | %



|(1) | During 2005 and as part of the 2005 Recapitalization described in Note 1 to the consolidated financial statements, the Company recognized $26.9 million in unusual charges for the
following costs associated with the transaction:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                           |  |      |       
|------------------------------------------------------------------------------------------ |  | ---- | ------
|(in thousands)                                                                             |  | 2005
|Unusual operating charges (included in sales, general and administrative expense):         |  |      |       
|Stock and other compensation expense                                                       |  | $    | 17,988
|Other unusual operating charges (included in other expense as Recapitalization expense): |  |      |       
|Bond tender consideration and premium                                                      |  |      | 3,246 
|Preferred stock premium                                                                    |  |      | 470   
|Miscellaneous, legal and advisory fees                                                     |  |      | 2,904 
|Unamortized discount on preferred stock                                                    |  |      | 571   
|Write-off debt issuance costs                                                              |  |      | 1,690 
|                                                                                           |  |      |       
|Total                                                                                      |  |      | 8,881 
|                                                                                           | 
|Total unusual charges                                                                      |  | $    | 26,869
|                                                                                           |  |      |       



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|(2) | In the first quarter of 2005 and as part of the 2005 Recapitalization, the Company issued an aggregate of $170.0 million principal amount of its 7.75% Senior Notes due 2013.
Further, $41.0 million of a new series of 10% senior redeemable exchangeable cumulative preferred stock was issued as part of the 2005 Recapitalization.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense, write-off of debt
issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but is used by some investors to determine a Companys ability to service or
incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative
to other companies. Loss/(gain) on disposition of fixed assets and stock compensation expense are eliminated because we believe it enhances investors understanding of the companys results, net of these non-cash charges. Adjusted EBITDA should
not be construed as an indicator of a Companys operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data which are all prepared in
accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent and should not be considered
more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
calculation of Adjusted EBITDA is shown as follows:



|                                 |  |                    |        |   |                   |   |                   |  |                |        |  |                |        |   |  |   |       
|-------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ----------------- |  | -------------- | ------ |  | -------------- | ------ | - |  | - | ------
|                                 |  | Fiscal Years Ended
|(Amounts in Thousands)           |  | September 27,2008  |        |   | September 29,2007 |   | September 30,2006 |  | October 1,2005 |        |  | October 2,2004
|Net income/(loss)                |  | $                  | 40,476 |   |                   | $ | 32,226            |  | $              | 20,505 |  | $              | (4,422 | ) |  | $ | 16,246
|Depreciation and amortization    |  |                    | 12,385 |   |                   |   | 12,619            |  |                | 11,789 |  |                | 11,881 |   |  |   | 11,281
|Stock compensation expense       |  |                    | 77     |   |                   |   | 139               |  |                |       |  |                | 17,988 |   |  |   |      
|Recapitalization expenses        |  |                    |       |   |                   |   | 171               |  |                |       |  |                | 7,191  |   |  |   |      
|Gain on debt extinguishment      |  |                    | (102   | ) |                   |   |                  |  |                |       |  |                |       |   |  |   |      
|Interest expense, net            |  |                    | 13,058 |   |                   |   | 14,712            |  |                | 19,397 |  |                | 18,834 |   |  |   | 7,172 
|Write-off of debt issuance costs |  |                    |       |   |                   |   |                  |  |                |       |  |                | 1,690  |   |  |   |      
|Loss on disposition of assets    |  |                    | 385    |   |                   |   | 186               |  |                | 600    |  |                | 703    |   |  |   | 440   
|Income tax expense               |  |                    | 26,029 |   |                   |   | 22,735            |  |                | 16,898 |  |                | 612    |   |  |   | 10,374
|                                 |  |                    |        |   |                   |   |                   |  |                |        |  |                |        |   |  |   |       
|Adjusted EBITDA                  |  | $                  | 92,308 |   |                   | $ | 82,788            |  | $              | 69,189 |  | $              | 54,477 |   |  | $ | 45,513
|                                 |  |                    |        |   |                   |   |                   |  |                |        |  |                |        |   |  |   |       



|(4) | Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of sales.
|--- | ---------------------------------------------------------------------------

|(5) | The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month
of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not calculated in the same
manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.
Certain information included in this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for
future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the Companys capital structure, weather conditions, domestic economic conditions, activities of competitors,
seasonality, changes in federal or state tax laws and the administration of such laws.

OVERVIEW

Leslies is the leading national specialty retailer of swimming pool supplies and related products. The Company offers a broad range of products that
consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company markets its products through 604
company-owned retail stores in 35 states and through catalogs and other offerings made available to select residential and commercial pool owners nationwide via mail order and Internet channels.

The typical Leslies store approximates 3,800 square feet of space, is located either in a strip center or on a freestanding site in an area of
heavy retail activity, and draws its customers primarily from an approximately five-mile trade area. Of the 604 stores, the Company operates 18 commercial service center formats that average approximately 11,000 square feet of space and are located
primarily in industrial type real estate space. These centers are designed to cater to the Companys existing non-residential commercial and service customers and provide more customized service than is typically available at the other retail
locations.

Results of Operations

The
following table sets forth certain statements of income data expressed as a percentage of sales for the periods indicated.



|                                            |  |                    |   |  |                   |   |  |                   |  
|------------------------------------------- |  | ------------------ | - |  | ----------------- | - |  | ----------------- | -
|                                            |  | Fiscal Years Ended |  
|                                            |  | September 27,2008  |   |  | September 29,2007 |   |  | September 30,2006 |  
|Sales                                       |  | 100.0              | % |  | 100.0             | % |  | 100.0             | %
|Cost of sales                               |  | 48.2               |   |  | 49.6              |   |  | 50.5              |  
|                                            |  |                    |   |  |                   |   |  |                   |  
|Gross margin                                |  | 51.8               |   |  | 50.4              |   |  | 49.5              |  
|Selling, general and administrative expense |  | 35.5               |   |  | 35.5              |   |  | 36.5              |  
|Loss on disposal of fixed assets            |  | 0.1                |   |  | 0.0               |   |  | 0.1               |  
|                                            |  |                    |   |  |                   |   |  |                   |  
|Operating income                            |  | 16.2               |   |  | 14.9              |   |  | 12.9              |  
|Other expense                               |  | 2.6                |   |  | 3.2               |   |  | 4.4               |  
|Income tax expense                          |  | 5.3                |   |  | 4.8               |   |  | 3.8               |  
|                                            |  |                    |   |  |                   |   |  |                   |  
|Net income                                  |  | 8.3                | % |  | 6.9               | % |  | 4.7               | %
|                                            |  |                    |   |  |                   |   |  |                   |  

Fiscal year 2008 compared to fiscal year 2007:

For the 52 weeks ended September 27, 2008, sales increased 4.3% to $488.8 million from $468.9 million in the 52 weeks of 2007. Of the 4.3% increase
in sales, approximately 47% is attributable to an increase in comparable store sales and approximately 53% was due to the addition of 27 new store locations.



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##### Table of Contents

Comparable store sales increased 1.7% on a 52 week basis, as compared to the prior year. The comparable
store sales increase was primarily attributable to favorable weather conditions in many of the Companys markets. For definition purposes, a store is considered a comparable store in the first full month after it has completed 52 weeks of
sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.

Gross profit for the fiscal year ended September 27, 2008 improved to $253.1 million or 51.8% of sales, as compared to $236.1 million or 50.4% in
2007. Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs and related distribution costs. Gross profit dollars improved by $10.1 million due to the increase in sales. Other significant factors
contributing to the increase in gross profit include additional rebates from suppliers, as well as increases due to sales from higher margin products.

In 2008, total operating expenses were $173.7 million, versus $166.5 million during the 52 weeks of 2007, an increase of 4.3%. Operating expenses as a percentage of sales were 35.5% for the 52 weeks of fiscal year
2008 compared to 35.5% for the 52 weeks of fiscal year 2007. The increase in operating expense dollars during fiscal year 2008 was due primarily to increased expenses associated with the increase in store count, as compared to the prior year.

For the fiscal year ended September 27, 2008, the Company recognized losses on the disposition of fixed assets totaling approximately
$0.4 million as compared to $0.2 million in the prior year. These losses were primarily associated with the Companys decision to close or relocate stores that were unproductive or not meeting expectations. In fiscal year 2008 a $0.4 million
charge was recognized for impaired assets compared to a $0.3 million charge in fiscal year 2007.

Adjusted EBITDA in 2008 increased 11.5%
to $92.3 million from $82.8 million in fiscal year 2007. Approximately $3.5 million of the increase was the result of increased sales, with the remaining increase due to improved expense control and continued leveraging of fixed expenses during the
year.

Operating income for 2008 increased 14.0% to $79.5 million from $69.7 million in 2007 as a result of previously noted sales and
gross profit improvements.

Net interest expense was $13.1 million in 2008, as compared to $14.7 million in 2007. The decrease was
primarily due to the decrease in average debt balances throughout the year and the elimination of interest on the Companys preferred stock, which was assumed by Holdings.

The Company recorded income tax expense of $26.0 million in 2008, or an effective tax rate of 39.1%, versus $22.7 million in the prior year, or an
effective tax rate of 41.4%. The effective rate decrease in 2008 was primarily due to nondeductibility of certain elements of the Companys interest expense that were present during the first four months of fiscal 2007 but were eliminated in
February 2007.

Fiscal year 2007 compared to fiscal year 2006:

For the 52 weeks ended September 29, 2007, sales increased 6.4% to $468.9 million from $440.6 million in the 52 weeks of 2006. Of the 6.4% increase in sales, approximately 47% was attributable to an increase in
comparable store sales and approximately 53% was due to the addition of 38 new store locations.

Comparable store sales increased 3.1% on a
52 week basis, as compared to the prior year. The comparable store sales increase was primarily attributable to favorable weather conditions in many of the Companys markets. For definition purposes, a store is considered a comparable store in
the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.



15



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##### Table of Contents

Gross profit for the fiscal year ended September 29, 2007 improved to $236.1 million or 50.4% of
sales, as compared to $218.2 million or 49.5% in 2006. Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs and related distribution costs. Gross profit dollars improved primarily due to the
increase in sales. Other significant factors contributing to the increase in gross profit include additional rebates from suppliers, as well as increases due to sales from higher margin departments, and to a lesser extent, expanded margins on
inventory that had been purchased earlier in the year in anticipation of market increases.

In 2007, total operating expenses were $166.5
million, versus $161.4 million during the 52 weeks of 2006, an increase of 3.1%. Operating expenses as a percentage of sales were 35.5% for the 52 weeks of fiscal year 2007 compared to 36.6% for the 52 weeks of fiscal year 2006. The increase in
operating expense dollars during fiscal year 2007 was due primarily to increased expenses associated with the increase in store count, as compared to the prior year.

For the fiscal year ended September 29, 2007, the Company recognized losses on the disposition of fixed assets totaling approximately $0.2 million as compared to $0.6 million in the prior year. These losses were
primarily associated with the Companys decision to close or relocate stores that were unproductive or not meeting expectations. In fiscal year 2007 a $0.3 million charge was recognized for impaired assets compared to $0.4 million in fiscal
year 2006.

Adjusted EBITDA in 2007 increased 19.7% to $82.8 million from $69.2 million in fiscal year 2006. Approximately $4.4 million of
the increase was the result of increased sales and expanded gross profit, with the remaining increase due to improved expense control and continued leveraging of fixed expenses during the year.

Operating income for 2007 increased 22.7% to $69.7 million from $56.8 million in 2006 as a result of previously noted sales and gross profit
improvements.

Interest expense was $14.7 million in 2007, as compared to $19.4 million in 2006. The decrease was primarily due to the
decrease in average debt balances throughout the year and the elimination of interest on the Companys preferred stock, which was assumed by Holdings.

The Company recorded income tax expense of $22.7 million in 2007, or an effective tax rate of 41.4%, versus $16.9 million in the prior year, or an effective tax rate of 45.2%. The effective rate decrease in 2007 was
primarily due to nondeductibility of certain elements of the Companys interest expense that were present during fiscal 2006 but were eliminated during February 2007.

Liquidity and Capital Resources

Overview

The following table highlights selected cash flow components for fiscal year 2008 and fiscal year 2007, and selected balance sheet components as of
September 27, 2008 and September 29, 2007.



|                                |  |                    |         |   |                   |   |         |              |  |   |               |   |  |       |   
|------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ------------ |  | - | ------------- | - |  | ----- | --
|                                |  | Fiscal Years Ended |         |   |                   |   |         |              | 
|(Dollar amounts in thousands)   |  | September 27,2008  |         |   | September 29,2007 |   |         | DollarChange |  |   | PercentChange |  
|Cash provided by (used in):     |  |                    |         |   |                   |   |         |              |  |   |               |   |  |       |   
|Operating activities            |  | $                  | 41,230  |   |                   | $ | 46,321  |              |  | $ | (5,091        | ) |  | (11.0 | )%
|Investing activities            |  |                    | (36,831 | ) |                   |   | (12,626 | )            |  |   | (24,205       | ) |  | 191.7 |   
|Financing activities            |  |                    | (18,532 | ) |                   |   | (12,918 | )            |  |   | (5,614        | ) |  | 43.5  |   
|                                |  |                    |         |   |                   |   |         |              |  |   |               |   |  |       |   
|Cash & cash equivalents         |  | $                  | 45,648  |   |                   | $ | 59,781  |              |  | $ | (14,133       | ) |  | (23.6 | )%
|Working capital                 |  |                    | 84,459  |   |                   |   | 66,657  |              |  |   | 17,802        |   |  | 26.7  |   
|Other long term liabilities     |  |                    | 7,556   |   |                   |   | 6,031   |              |  |   | 1,525         |   |  | 25.3  |   
|Senior notes and long term debt |  |                    | 167,000 |   |                   |   | 169,080 |              |  |   | (2,080        | ) |  | (1.2  | ) 



16



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##### Table of Contents

Working capital

Working capital as of September 27, 2008 and September 29, 2007 consisted of the following:



|                                          |  |                    |         |                   |   |              |  |   |               |   |  |       |   
|----------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------------ |  | - | ------------- | - |  | ----- | --
|                                          |  | Fiscal Years Ended |         |                   |   |              |  |  
|(Dollar amounts in thousands)             |  | September 27,2008  |         | September 29,2007 |   | DollarChange |  |   | PercentChange |  
|Cash and cash equivalents                 |  | $                  | 45,648  |                   | $ | 59,781       |  | $ | (14,133       | ) |  | (23.6 | )%
|Short term investments                    |  |                    | 19,899  |                   |   |             |  |   | 19,899        |   |  | 100.0 |   
|Accounts and other receivables, net       |  |                    | 11,796  |                   |   | 8,790        |  |   | 3,006         |   |  | 34.2  |   
|Inventories, net                          |  |                    | 86,584  |                   |   | 65,724       |  |   | 20,860        |   |  | 31.7  |   
|Prepaid expenses and other current assets |  |                    | 2,773   |                   |   | 2,562        |  |   | 211           |   |  | 8.2   |   
|Deferred tax assets                       |  |                    | 4,554   |                   |   | 6,939        |  |   | (2,385        | ) |  | (34.4 | ) 
|                                          |  |                    |         |                   |   |              |  |   |               |   |  |       |   
|Total current assets                      |  |                    | 171,254 |                   |   | 143,796      |  |   | 27,458        |   |  | 19.1  |   
|Accounts payable                          |  |                    | 42,117  |                   |   | 29,471       |  |   | 12,646        |   |  | 42.9  |   
|Accrued expenses                          |  |                    | 36,981  |                   |   | 38,385       |  |   | (1,404        | ) |  | (3.7  | ) 
|Income taxes payable                      |  |                    | 7,697   |                   |   | 9,283        |  |   | (1,586        | ) |  | (17.1 | ) 
|                                          |  |                    |         |                   |   |              |  |   |               |   |  |       |   
|Total current liabilities                 |  |                    | 86,795  |                   |   | 77,139       |  |   | 9,656         |   |  | 12.5  |   
|                                          |  |                    |         |                   |   |              |  |   |               |   |  |       |   
|Working capital                           |  | $                  | 84,459  |                   | $ | 66,657       |  | $ | 17,802        |   |  | 26.7  | % 
|                                          |  |                    |         |                   |   |              |  |   |               |   |  |       |   

From September 29, 2007 to September 27, 2008, total current assets increased $27.5
million from $143.8 million to $171.3 million. Approximately $20.9 million of the increase in current assets was the result of the increase in inventory.

From September 29, 2007 to September 27, 2008, total current liabilities increased $9.7 million from $77.1 million to $86.8 million, primarily due to the increase in accounts payable, offset by decreases in
accrued expenses and income taxes payable.

For the fiscal year ended September 27, 2008, cash provided by operating activities was
$41.2 million compared to cash provided by operating activities of $46.3 million in the prior year. The reduction was due primarily to the increase in inventory as compared to the prior year, offset by an increase in accounts payable as compared to
the prior year.

In 2008, cash used in investing activities was $36.8 million compared with cash used in investing activities of $12.6
million in the prior year, primarily due to the purchase of short term investments.

Cash used in financing activities was $18.5 million in
fiscal year 2008 compared with cash used in financing activities of $12.9 million in 2007. The increase in financing activities was due to the cash dividend paid to Holdings and the purchase of senior notes.

The Company had no outstanding borrowings under its secured loan agreement at September 27, 2008 and September 29, 2007. At September 27,
2008 the Company had $75.0 million of borrowing capacity. Funds borrowed under this agreement are used primarily to fund working capital and other general corporate purposes.

From September 29, 2007 to September 27, 2008, other long term liabilities increased by $1.6 million from $6.0 million to $7.6 million.

During February of 2007, the Companys parent, Holdings consummated a privately placed financing transaction. The Company did not
guarantee or pledge support for this financing, nor were any of the proceeds made available to the Company. Holdings issued $310 million in senior notes due in 2017 and $100 million of preferred equity. The interest rate on the senior notes is 10.5%
cash or 11.5% PIK, at Holdings option. The notes



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are non-callable for two years and have other covenants and terms that are customary for high yield issues. The preferred shares have a dividend rate of 11%
and are exchangeable into debt under certain circumstances. The preferred shares have a mandatory redemption date of March 1, 2019. The Company does not expect that Holdings servicing of its debt will affect the Companys liquidity.

The Company believes its internally generated funds, as well as its borrowing capacity, are adequate to meet its working capital needs,
maturing obligations and capital expenditure requirements, including those relating to the opening of new stores.

Seasonality and Quarterly
Fluctuations

The Companys business exhibits substantial seasonality which the Company believes is typical of the swimming pool
supply industry. In general, sales and net income are highest during the quarters ended June and September, which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the
Company will typically incur net losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather create a greater demand for more pool chemicals and supplies.
Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season decrease swimming pool use.

The Company expects its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a
lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending in March in order to position itself for the following peak season.

Contractual Obligations and Commercial Commitments

The following table summarizes the Companys significant contractual obligations as of September 27, 2008, and the effect such obligations are expected to have on the Companys liquidity and cash flows in future periods. This
table excludes amounts already recorded on the Companys balance sheet as current liabilities at September 27, 2008 and certain other purchase obligations as discussed below.



|                              |  |                        |         |                 |   |            |  |            |        |              |   |         |  |   |      
|----------------------------- |  | ---------------------- | ------- | --------------- | - | ---------- |  | ---------- | ------ | ------------ | - | ------- |  | - | -----
|(in thousands)                |  | Payments Due By Period
|Contractual Obligations       |  | Total                  |         | Less than 1Year |   | 1  3years |  | 4  5years |        | After 5years
|Senior notes*                 |  | $                      | 224,027 |                 | $ | 13,002     |  | $          | 26,004 |              | $ | 185,021 |  | $ |     
|Operating leases              |  |                        | 136,448 |                 |   | 40,738     |  |            | 59,536 |              |   | 30,398  |  |   | 5,776
|                              |  |                        |         |                 |   |            |  |            |        |              |   |         |  |   |      
|Total contractual obligations |  | $                      | 360,475 |                 | $ | 53,740     |  | $          | 85,540 |              | $ | 215,419 |  | $ | 5,776
|                              |  |                        |         |                 |   |            |  |            |        |              |   |         |  |   |      



|* | Amounts include estimated interest and dividend payments
|- | --------------------------------------------------------



|                               |  |                                             |       |                 |   |            |  |            |   |              |   |   |  |   |  
|------------------------------ |  | ------------------------------------------- | ----- | --------------- | - | ---------- |  | ---------- | - | ------------ | - | - |  | - | -
|(in thousands)                 |  | Amounts of Commitment Expiration Per Period
|Commercial Commitments         |  | Total AmountsCommitted                      |       | Less than 1Year |   | 1  3years |  | 4  5years |   | After 5years
|Standby letters of credit      |  | $                                           | 5,725 |                 | $ | 5,725      |  | $          |  |              | $ |  |  | $ | 
|                               |  |                                             |       |                 |   |            |  |            |   |              |   |   |  |   |  
|Financial responsibility bonds |  | $                                           | 106   |                 | $ | 106        |  | $          |  |              | $ |  |  | $ | 
|                               |  |                                             |       |                 |   |            |  |            |   |              |   |   |  |   |  

Purchase orders for raw materials, finished goods and other goods and services are not included in
the above table. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purpose of this
table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum



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quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Companys purchase orders
are based on the Companys current manufacturing needs and are fulfilled by the Companys vendors with relatively short timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying
minimum quantities or set prices that exceed the Companys short-term expected requirements.

The expected timing of payment of the
obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

Critical Accounting Policies and Estimates

The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to inventory reserves, allowance for doubtful accounts, valuation allowance for the net deferred income tax asset,
contingencies and litigation liabilities. The Company bases its estimates on historical experience, independent valuations, and 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. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its
consolidated financial statements.

Revenue Recognition

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services, is recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily
FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.

Inventories

Inventories are stated at the lower of cost or market. The Company values inventory using the
weighted average cost method. Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company establishes a reserve for inventory obsolescence and shrinkage, which is
analyzed and reviewed periodically and may require adjustments based on physical inventory counts, the relationship and fluctuation of historical product sales versus inventory on hand and changes in customer preferences. The reserve is intended to
reflect the value of inventory in excess of expected realizable value.

Vendor Rebates

The Company accounts for vendor rebates in accordance with Emerging Issues Task Force Issue 02-16, Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor. The Company recognizes consideration received from vendors at the time its obligations to purchase products or perform services have been completed. These items are recorded as a reduction of
inventory until we sell the product, at which time such rebates reduce cost of goods sold in the statement of operations.

Income Taxes

The Company records deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities using
currently enacted rates and laws that will be in effect when the Company



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expects the differences to reverse. Effective September 30, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109(FIN 48). FIN 48 provides detailed guidance for the financial statement recognition, measurement, and disclosure of uncertain tax positions recognized in
an enterprises financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 establishes financial accounting and
reporting standards for the effects of income taxes that result from an enterprises activities during the current and preceding years. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. We recognize potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.

Due to changing tax laws and state income tax rates, judgment is required to estimate the effective tax rate expected to apply to tax differences which
are expected to reverse in future periods. The Company and its subsidiaries will be included in the consolidated federal income tax return and certain state income tax returns of Holdings. The Companys financial statements recognize the
current and deferred income tax consequences that result from the Companys activities during the current and preceding periods pursuant to the provisions of SFAS 109, as if the Company were a separate taxpayer rather than a member of
Holdings consolidated income tax return group.

Self Insurance

The Company retains self insurance risks for workers compensation, general liability, property and health insurance programs. The Company has limited its exposure by maintaining excess liability coverage. The Company
establishes self insurance reserves based on claims filed and estimates of claims incurred but not reported. The estimates are based upon information provided to the Company by the claims administrators and are periodically revised to reflect
changes in loss trends.

Quarterly Financial Data

Summarized Quarterly Financial Data (Unaudited)

(Dollar Amounts In Thousands)



|                                 |  |                |        |   |          |   |        |         |  |   |          |   |  |   |         |  
|-------------------------------- |  | -------------- | ------ | - | -------- | - | ------ | ------- |  | - | -------- | - |  | - | ------- | -
|                                 |  | 13 Weeks Ended |       
|Fiscal 2008                      |  | Dec. 29        |        |   | March 29 |   |        | June 28 |  |   | Sept. 27 |  
|Sales                            |  | $              | 58,306 |   |          | $ | 56,656 |         |  | $ | 212,929  |   |  | $ | 160,927 |  
|Gross profit                     |  |                | 28,467 |   |          |   | 31,178 |         |  |   | 111,734  |   |  |   | 81,761  |  
|Operating income/(loss)          |  |                | (7,965 | ) |          |   | (7,179 | )       |  |   | 59,628   |   |  |   | 34,977  |  
|Net income/(loss)                |  |                | (6,872 | ) |          |   | (6,373 | )       |  |   | 33,589   |   |  |   | 20,132  |  
|Adjusted EBITDA(1)               |  |                | (4,684 | ) |          |   | (3,662 | )       |  |   | 62,688   |   |  |   | 37,966  |  
|Comparable store sales growth(2) |  |                | 8.0    | % |          |   | (5.9   | )%      |  |   | 2.1      | % |  |   | 1.9     | %
|                                 |  |                |        |  
|Fiscal 2007                      |  | Dec. 30        |        |   | March 30 |   |        | June 30 |  |   | Sept. 29 |  
|Sales                            |  | $              | 52,695 |   |          | $ | 57,393 |         |  | $ | 204,816  |   |  | $ | 153,978 |  
|Gross profit                     |  |                | 25,453 |   |          |   | 29,806 |         |  |   | 104,534  |   |  |   | 76,340  |  
|Operating income/(loss)          |  |                | (8,509 | ) |          |   | (7,184 | )       |  |   | 54,697   |   |  |   | 30,669  |  
|Net income/(loss)                |  |                | (7,257 | ) |          |   | (7,101 | )       |  |   | 30,122   |   |  |   | 16,462  |  
|Adjusted EBITDA(1)               |  |                | (5,370 | ) |          |   | (3,789 | )       |  |   | 57,571   |   |  |   | 34,376  |  
|Comparable store sales growth(2) |  |                | 3.5    | % |          |   | 14.1   | %       |  |   | 0.5      | % |  |   | 3.0     | %



|(1) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense,
write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but is used by some investors to determine a companys
ability to service
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly
entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Loss/(gain) on disposition of fixed assets and stock compensation expense are eliminated because we believe it enhances investors
understanding of the companys results, net of these non-cash charges. Adjusted EBITDA should not be construed as an indicator of a companys operating performance or liquidity, and should not be considered in isolation from or as a
substitute for net income (loss), cash flows from operations or cash flow data, all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete
analysis of results of operations. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month
of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not calculated in the same
manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company expects that the quarterly results of operations will continue to fluctuate depending on the season, weather conditions, and the timing and
amount of revenue contributed by new stores. Due to the seasonal nature of the swimming pool industry, the results of any one or more quarters are not necessarily a good indication of results for an entire year, or of continuing trends.

Recent Accounting Pronouncements

In December
2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised), Business Combinations (SFAS 141R). SFAS 141R relates to business combinations and requires the acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This Statement applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company must adopt this standard for its 2010 fiscal year. The Company is currently
evaluating the impact that adopting this standard will have on its consolidated financial statements.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (SFAS 159), SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective
for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted. The Company must adopt this standard for its 2009 fiscal year. The Company is currently evaluating the impact that adopting this
standard will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies
under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company must adopt this standard for its
2009 fiscal year. The Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys Amended Loan and Security Agreement described in Note 7 to the consolidated financial statements as well as in Managements
Discussion and Analysis, carries interest rate risk. Amounts borrowed under this agreement bear interest at either LIBOR plus 1.75%, or at the Companys choice, the lenders reference rate. Should the lenders base rate change, the
Companys interest expense will increase or decrease accordingly. As of September 27, 2008, there was no borrowing under this facility.

At September 27, 2008, our cash equivalent investments are primarily in money market accounts and are reflected as cash equivalents because all maturities are within 90 days from date of purchase. Our interest rate risk with respect to
existing investments is limited due to the short-term duration of these arrangements and the yields earned, which approximate current interest rates for similar investments.

Our investment portfolio, consisting of fixed income securities, was $19.9 million as of September 27, 2008. These securities, like all fixed income
instruments, are subject to interest rate risk and will decline in value if market interest rates increase. If market rates were to increase immediately and uniformly by 10% from the levels of September 27, 2008, the decline in the fair value of our
investment portfolio would not be material given that our discount notes have fixed rates. Additionally, we have the ability to hold our fixed income investments until maturity and, therefore, we would not expect to recognize any material adverse
impact in income or cash flows.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                   |  |     
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                   |  | Page
|Report of Independent Registered Public Accounting Firm                                                                            |  | 24  
|                                                                                                                                   | 
|Consolidated Balance SheetsSeptember 27, 2008 and September 29, 2007                                                              |  | 25  
|                                                                                                                                   | 
|Consolidated Statements of OperationsFiscal Years Ended September 27, 2008, September 
29, 2007 and September 30, 2006            |  | 26  
|                                                                                                                                   | 
|Consolidated Statements of Stockholders DeficitFiscal Years Ended September 27, 2008, September 
29, 2007 and September 30, 2006 |  | 27  
|                                                                                                                                   | 
|Consolidated Statements of Cash FlowsFiscal Years Ended September 27, 2008, September 
29, 2007 and September 30, 2006            |  | 28  
|                                                                                                                                   | 
|Notes to Consolidated Financial Statements                                                                                         |  | 29  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of Leslies Poolmart, Inc.:

We have audited the accompanying consolidated balance sheets of Leslies Poolmart, Inc. as of September 27, 2008 and September 29, 2007 and the related consolidated statements of operations,
stockholders deficit and cash flows for each of the three years in the period ended September 27, 2008. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the
Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Leslies Poolmart, Inc. at September 27, 2008 and September 29, 2007 and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 27, 2008, in conformity with U.S.
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona

December 17, 2008



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Leslies Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslies Holdings, Inc.)

Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Information)



|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                      |  | September 27,2008 |         |   | September 29,2007 |  
|ASSETS                                                                                                                                |  |                   |         |   |                   |   |         |  
|Current assets:                                                                                                                       |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                             |  | $                 | 45,648  |   |                   | $ | 59,781  |  
|Short term investments                                                                                                                |  |                   | 19,899  |   |                   |   |        |  
|Accounts and other receivables, net                                                                                                   |  |                   | 11,796  |   |                   |   | 8,790   |  
|Inventories, net                                                                                                                      |  |                   | 86,584  |   |                   |   | 65,724  |  
|Deferred tax assets                                                                                                                   |  |                   | 4,554   |   |                   |   | 6,939   |  
|Prepaid expenses and other current assets                                                                                             |  |                   | 2,773   |   |                   |   | 2,562   |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total current assets                                                                                                                  |  |                   | 171,254 |   |                   |   | 143,796 |  
|Property, plant and equipment, net                                                                                                    |  |                   | 42,074  |   |                   |   | 37,933  |  
|Intangible assets                                                                                                                     |  |                   | 8,117   |   |                   |   | 8,096   |  
|Deferred financing costs, net                                                                                                         |  |                   | 4,613   |   |                   |   | 5,653   |  
|Deferred tax assets                                                                                                                   |  |                   | 6,593   |   |                   |   | 3,834   |  
|Other assets                                                                                                                          |  |                   | 342     |   |                   |   | 327     |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total assets                                                                                                                          |  | $                 | 232,993 |   |                   | $ | 199,639 |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                 |  |                   |         |   |                   |   |         |  
|Current liabilities:                                                                                                                  |  |                   |         |   |                   |   |         |  
|Accounts payable                                                                                                                      |  | $                 | 42,117  |   |                   | $ | 29,471  |  
|Accrued expenses                                                                                                                      |  |                   | 36,981  |   |                   |   | 38,385  |  
|Income taxes payable                                                                                                                  |  |                   | 7,697   |   |                   |   | 9,283   |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total current liabilities                                                                                                             |  |                   | 86,795  |   |                   |   | 77,139  |  
|Senior notes, net                                                                                                                     |  |                   | 167,000 |   |                   |   | 169,080 |  
|Other long term liabilities                                                                                                           |  |                   | 7,556   |   |                   |   | 6,031   |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total liabilities                                                                                                                     |  |                   | 261,351 |   |                   |   | 252,250 |  
|Commitments and contingencies                                                                                                         |  |                   |         |   |                   |   |         |  
|Stockholders deficit:                                                                                                                |  |                   |         |   |                   |   |         |  
|Common stock, $0.001 par value, authorized 100 shares, issued and outstanding 100 shares at September 27, 2008 and September 29,
2007 |  |                   |        |   |                   |   |        |  
|Capital deficit                                                                                                                       |  |                   | (91,907 | ) |                   |   | (91,984 | )
|Retained earnings                                                                                                                     |  |                   | 63,549  |   |                   |   | 39,373  |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total stockholders deficit                                                                                                           |  |                   | (28,358 | ) |                   |   | (52,611 | )
|                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total liabilities and stockholders deficit                                                                                           |  | $                 | 232,993 |   |                   | $ | 199,639 |  
|                                                                                                                                      |  |                   |         |   |                   |   |         |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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Leslies Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslies Holdings, Inc.)

Consolidated Statements of Operations

(Dollar Amounts in Thousands)



|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                                                                                      |  | Fiscal Years Ended |        
|                                                                                                                      |  | September 27,2008  |         |   | September 29,2007 |   |         | September 30,2006 | 
|Sales                                                                                                                 |  | $                  | 488,818 |   |                   | $ | 468,882 |                   |  | $ | 440,565 |  
|Cost of merchandise and services sold, including warehousing and transportation expenses, and related occupancy costs |  |                    | 235,678 |   |                   |   | 232,749 |                   |  |   | 222,382 |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Gross profit                                                                                                          |  |                    | 253,140 |   |                   |   | 236,133 |                   |  |   | 218,183 |  
|Selling, general and administrative expenses                                                                          |  |                    | 173,294 |   |                   |   | 166,274 |                   |  |   | 160,783 |  
|Loss on disposition of fixed assets                                                                                   |  |                    | 385     |   |                   |   | 186     |                   |  |   | 600     |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Operating income                                                                                                      |  |                    | 79,461  |   |                   |   | 69,673  |                   |  |   | 56,800  |  
|Other expense (income):                                                                                               |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Interest expense                                                                                                      |  |                    | 14,553  |   |                   |   | 16,102  |                   |  |   | 20,087  |  
|Interest income                                                                                                       |  |                    | (1,495  | ) |                   |   | (1,390  | )                 |  |   | (690    | )
|Gain on debt extinguishment                                                                                           |  |                    | (102    | ) |                   |   |        |                   |  |   |        |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Total other expense                                                                                                   |  |                    | 12,956  |   |                   |   | 14,712  |                   |  |   | 19,397  |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Income before taxes                                                                                                   |  |                    | 66,505  |   |                   |   | 54,961  |                   |  |   | 37,403  |  
|Income tax expense                                                                                                    |  |                    | 26,029  |   |                   |   | 22,735  |                   |  |   | 16,898  |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net income                                                                                                            |  | $                  | 40,476  |   |                   | $ | 32,226  |                   |  | $ | 20,505  |  
|                                                                                                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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##### Table of Contents

Leslies Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslies Holdings, Inc.)

Consolidated Statements of Stockholders Deficit

(Amounts in Thousands, Except Share Amounts)



|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  
|--------------------------------------------------------- | --------------- | ------------ | - | ------ | -------------- | --- | - | ------------- | - | -------- | ---------------- |  | - | ---------------------------------- | - |  | - | ------- | - |  | - | -------- | -
|                                                          |                 | Common Stock |   |        | CapitalDeficit |     |   | TreasuryStock |   |          | RetainedEarnings |  |   | TotalStockholdersEquity/(Deficit) |  
|                                                          | Number ofShares |              |   | Amount |                |     |   |               |  
|Balance, at October 1, 2005                               |                 | 39,975,000   |   |        | $              | 40  |   |               | $ | (144,216 | )                |  | $ | (25                                | ) |  | $ | 1,644   |   |  | $ | (142,557 | )
|Issuance of common stock                                  |                 | 135,000      |   |        |                |    |   |               |   | 135      |                  |  |   |                                   |   |  |   |        |   |  |   | 135      |  
|Repurchase of treasury stock                              |                 | (65,000      | ) |        |                |    |   |               |   |         |                  |  |   | (307                               | ) |  |   |        |   |  |   | (307     | )
|Net income                                                |                 |             |   |        |                |    |   |               |   |         |                  |  |   |                                   |   |  |   | 20,505  |   |  |   | 20,505   |  
|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  
|Balance, at September 30, 2006                            |                 | 40,045,000   |   |        |                | 40  |   |               |   | (144,081 | )                |  |   | (332                               | ) |  |   | 22,149  |   |  |   | (122,224 | )
|Issuance of common stock                                  |                 | 100          |   |        |                | 0   |   |               |   |         |                  |  |   |                                   |   |  |   |        |   |  |   | 0        |  
|Converted common stock in Reorganization                  |                 | (40,045,000  | ) |        |                | (40 | ) |               |   | 40       |                  |  |   |                                   |   |  |   |        |   |  |   | 0        |  
|Contributed redeemable preferred stock in Reorganization  |                 |             |   |        |                |    |   |               |   | 50,305   |                  |  |   |                                   |   |  |   |        |   |  |   | 50,305   |  
|Excess tax benefit from stock-based compensation          |                 |             |   |        |                |    |   |               |   | 2,084    |                  |  |   |                                   |   |  |   |        |   |  |   | 2,084    |  
|Payment of dividend                                       |                 |             |   |        |                |    |   |               |   |         |                  |  |   |                                   |   |  |   | (15,002 | ) |  |   | (15,002  | )
|Repurchase and converted treasury stock in Reorganization |                 |             |   |        |                |    |   |               |   | (332     | )                |  |   | 332                                |   |  |   |        |   |  |   | 0        |  
|Net income                                                |                 |             |   |        |                |    |   |               |   |         |                  |  |   |                                   |   |  |   | 32,226  |   |  |   | 32,226   |  
|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  
|Balance, at September 29, 2007                            |                 | 100          |   |        |                |    |   |               |   | (91,984  | )                |  |   | 0                                  |   |  |   | 39,373  |   |  |   | (52,611  | )
|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  
|Stock option compensation                                 |                 |             |   |        |                |    |   |               |   | 77       |                  |  |   |                                   |   |  |   |        |   |  |   | 77       |  
|Payment of dividend                                       |                 |             |   |        |                |    |   |               |   |         |                  |  |   |                                   |   |  |   | (16,300 | ) |  |   | (16,300  | )
|Net income                                                |                 |             |   |        |                |    |   |               |   |         |                  |  |   |                                   |   |  |   | 40,476  |   |  |   | 40,476   |  
|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  
|Balance, at September 27, 2008                            |                 | 100          |   |        | $              |    |   |               | $ | (91,907  | )                |  | $ | 0                                  |   |  | $ | 63,549  |   |  | $ | (28,358  | )
|                                                          |                 |              |   |        |                |     |   |               |   |          |                  |  |   |                                    |   |  |   |         |   |  |   |          |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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##### Table of Contents

Leslies Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslies Holdings, Inc.)

Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)



|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                                                  |  | Fiscal Years Ended |        
|                                                                                  |  | September 27,2008  |         |   | September 29,2007 |   |         | September 30,2006 | 
|OPERATING ACTIVITIES:                                                             |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net income                                                                        |  | $                  | 40,476  |   |                   | $ | 32,226  |                   |  | $ | 20,505  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Dividends and accretion on preferred stock                                        |  |                    |        |   |                   |   | 1,886   |                   |  |   | 4,554   |  
|Depreciation and amortization                                                     |  |                    | 12,385  |   |                   |   | 12,619  |                   |  |   | 11,789  |  
|Stock option compensation                                                         |  |                    | 77      |   |                   |   |        |                   |  |   |        |  
|Amortization of loan fees                                                         |  |                    | 1,040   |   |                   |   | 515     |                   |  |   | 1,016   |  
|Amortization of loan discounts                                                    |  |                    | 152     |   |                   |   | 134     |                   |  |   | 96      |  
|Provision for doubtful accounts                                                   |  |                    | 97      |   |                   |   | 2       |                   |  |   | 109     |  
|Deferred income taxes                                                             |  |                    | (374    | ) |                   |   | 1,873   |                   |  |   | (2,540  | )
|Loss on disposition of fixed assets                                               |  |                    | 385     |   |                   |   | 186     |                   |  |   | 600     |  
|Changes in operating assets and liabilities:                                      |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Accounts and other receivables                                                    |  |                    | (3,103  | ) |                   |   | (1,477  | )                 |  |   | 4,267   |  
|Inventories                                                                       |  |                    | (20,860 | ) |                   |   | (1,180  | )                 |  |   | (3,619  | )
|Prepaid expenses and other current assets                                         |  |                    | (211    | ) |                   |   | (40     | )                 |  |   | (464    | )
|Other assets                                                                      |  |                    | (15     | ) |                   |   | (7      | )                 |  |   | 192     |  
|Accounts payable and accrued expenses                                             |  |                    | 12,767  |   |                   |   | 1,341   |                   |  |   | 15,252  |  
|Income taxes payable                                                              |  |                    | (1,586  | ) |                   |   | (1,757  | )                 |  |   | 3,301   |  
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net cash provided by operating activities                                         |  |                    | 41,230  |   |                   |   | 46,321  |                   |  |   | 55,058  |  
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|INVESTING ACTIVITIES:                                                             |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Purchase of short term investments                                                |  |                    | (19,899 | ) |                   |   |        |                   |  |   |        |  
|Purchases of property, plant and equipment                                        |  |                    | (16,985 | ) |                   |   | (13,038 | )                 |  |   | (11,105 | )
|Purchases of intangible assets                                                    |  |                    | (85     | ) |                   |   | (84     | )                 |  |   | (75     | )
|Proceeds from disposition of fixed assets                                         |  |                    | 138     |   |                   |   | 496     |                   |  |   | 230     |  
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net cash used in investing activities                                             |  |                    | (36,831 | ) |                   |   | (12,626 | )                 |  |   | (10,950 | )
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|FINANCING ACTIVITIES:                                                             |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Revolving commitment borrowing                                                    |  |                    |        |   |                   |   | 18,400  |                   |  |   | 51,424  |  
|Revolving commitment repayment                                                    |  |                    |        |   |                   |   | (18,400 | )                 |  |   | (58,528 | )
|Excess tax benefit from stock-based compensation                                  |  |                    |        |   |                   |   | 2,084   |                   |  |   |        |  
|Payment of dividend                                                               |  |                    | (16,300 | ) |                   |   | (15,002 | )                 |  |   |        |  
|Proceeds from issuance of common stock, net of fees                               |  |                    |        |   |                   |   |        |                   |  |   | 135     |  
|Repurchase of long-term debt                                                      |  |                    | (2,232  | ) |                   |   |        |                   |  |   |        |  
|Repurchase of treasury stock                                                      |  |                    |        |   |                   |   |        |                   |  |   | (307    | )
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net cash used in financing activities                                             |  |                    | (18,532 | ) |                   |   | (12,918 | )                 |  |   | (7,276  | )
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                    | (14,133 | ) |                   |   | 20,777  |                   |  |   | 36,832  |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                    | 59,781  |   |                   |   | 39,004  |                   |  |   | 2,172   |  
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                  | 45,648  |   |                   | $ | 59,781  |                   |  | $ | 39,004  |  
|                                                                                  |  |                    |         |   |                   |   |         |                   |  |   |         |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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##### Table of Contents

Leslies Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslies Holdings, Inc.)

Notes
to Consolidated Financial Statements

1. Business and Operations

Leslies Poolmart, Inc. (Leslies or the Company) is a specialty retailer of swimming pool supplies and related products. As of September 27, 2008, the Company markets its
products under the trade name Leslies Swimming Pool Supplies through 604 retail stores in 35 states and through mail order catalogs sent to select swimming pool owners nationwide. The Company also repackages certain bulk chemical products for
retail sale. The Companys business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending in June and September.

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131),establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and services,
geographic areas and major customers. The Company has reviewed SFAS 131 and determined that we have a single reportable segment.

Holding Company
Formation

In February 2007 the Company became a subsidiary of Leslies Holdings, Inc. (Holdings) pursuant to a
tax-free reorganization in which the Companys shareholders became shareholders of Holdings in the same proportions (the 2007 Reorganization). As a result of the 2007 Reorganization, each share of outstanding common stock of the
Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable exchangeable
cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation. The conversion of the 10% senior redeemable exchangeable cumulative preferred stock of the Company for similar stock of Holdings
was accounted for as contributed capital to the Company, given that the assumption of the obligation by Holdings without recourse to the Company had the effect of extinguishing the rights of the preferred stockholders and the resulting obligation.

2005 Recapitalization:

During the fiscal year ended October 1, 2005 the Company consummated the following transactions, which the Company refers to collectively as the 2005 Recapitalization:

The Merger

LPM Acquisition LLC (LPM
Acquisition), a newly-formed entity controlled by GCP California Fund, L.P. (GCP), and affiliates of Leonard Green & Partners, L.P. (LGP), merged with and into Leslies on January 25, 2005, with
Leslies continuing as the surviving entity in the merger.

The Tender Offer and Consent Solicitation

On December 23, 2004, the Company commenced a tender offer and solicitation of consents, or
the Tender Offer, to purchase all of the $59.5 million outstanding principal amount of the Companys 103/8% Senior Notes due 2008, and to amend the indenture governing the 103/8% notes to eliminate most of the covenants and certain
events of default. On January 11, 2005, the Company entered into a supplemental indenture with The Bank of New York Trust Company, N.A., as the trustee, supplementing the indenture dated as of May 21, 2003 as contemplated by the terms of
the tender offer.



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##### Table of Contents

Notes to Consolidated Financial Statements (continued)



Note Offering

On January 25, 2005, the Company issued an aggregate of $170.0 million principal amount of the
Senior Notes. The net proceeds from the offering of the 73/4% notes, together with borrowings under an amended credit facility, proceeds from the issuance of equity securities and cash on hand, were used to complete the Recapitalization and repurchase the outstanding
103/8% notes that were
tendered in the Tender Offer. Subsequent to the initial private placement of the 73/4% notes, the notes were exchanged for new registered 73/4% Senior Notes, Series B, in June 2005, pursuant to an exchange offer.

The Amended Credit Facility

On January 25,
2005, the Company amended its existing credit facility with Wells Fargo Retail Finance, LLC to provide for the extension by the lender of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The
Companys obligations under the amended credit facility are secured by a lien on substantially all of the Companys assets.

The
January 2005 Recapitalization was accounted for as a series of equity transactions and there was no change in the accounting basis for the Companys recorded assets and liabilities. Accordingly, no goodwill or other intangible assets were
recorded related to the 2005 Recapitalization.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The
consolidated financial statements of the Company include Leslies Poolmart, Inc., and its wholly owned subsidiaries, LPM Manufacturing Inc., Sandys Pool Supply, Inc. and Blackwood & Simmons, Inc. All significant inter-company
transactions and accounts have been eliminated.

Fiscal Periods

The Companys fiscal year ends on the Saturday closest to September 30. The fiscal years ended on September 27,
2008, September 29, 2007 and September 30, 2006 included 52 weeks.

Cash and Cash Equivalents

The Company considers all investments with a remaining maturity of three months or less when purchased to be cash equivalents.

Short-term Investments

Management determines the
appropriate classification of its investments in marketable debt and equity securities at the time of purchase. Securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale and are
carried at fair value, with the unrealized holding gains and losses, net of tax, reported in a separate component of stockholders equity, if material. On an ongoing basis, the Company evaluates its debt securities to determine if a decline in
fair value is other-than-temporary. When a decline in fair value is determined to be other-than-temporary, an impairment charge would be recorded and a new cost basis in the investment is established. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income or expense. Realized gains and losses and interest and dividends on securities are included in interest
income. The cost of securities sold is based upon the specific identification method. Securities classified as available for sale include both securities due within one year and securities with maturity dates beyond one year.



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##### Table of Contents

Notes to Consolidated Financial Statements (continued)



Fair Value of Financial Instruments

The Company values financial instruments as required by SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS 115).The carrying amounts of cash and cash equivalents approximate fair value due to the short maturity of those instruments. The fair value of marketable securities is determined based on quoted market prices, which
approximate fair value.

The fair value of the Senior Notes due 2013 (the Notes) using quoted market prices as of
September 27, 2008 was $147.2 million and as of September 29, 2007 was $161.5 million. The carrying amounts of other long-term debt approximate fair value because either the interest rate fluctuates based on market rates or interest rates appear to
approximate market rates for similar instruments. The fair value estimates are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect these estimates.

Accounts and other receivables, net

Accounts and other receivables include vendor rebate receivables of $5.7 million and $ 4.4 million as of September 27, 2008 and September 29, 2007, respectively. The Company accounts for vendor rebates in accordance
with Emerging Issues Task Force Issue 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. The Company recognizes consideration received from vendors at the time its obligations to purchase
products or perform services have been completed. These items are recorded as a reduction of inventory until we sell the product, at which time such rebates reduce cost of goods sold in the statement of operations.

Allowance for Doubtful Accounts

Payment terms for
trade receivables generally range from 30 to 90 days depending on the circumstances of each transaction or billing contract. Any payments not received within the agreed upon due date are considered past due.

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
Such allowance is computed based upon a specific customer account review of larger customers and balances past due. The Companys assessment of its customers ability to pay generally includes direct contact with the customer,
investigation into customers financial status, as well as consideration of customers payment history with the Company. If the Company determines, based on its assessment, that it is more likely than not that the Companys customers
will be unable to pay, the Company will charge off the account receivables to the allowance for doubtful accounts.

Accounts and other
receivables include allowances for doubtful accounts of $0.6 million, $0.6 million and $0.8 million at September 27, 2008, September 29, 2007 and September 30, 2006, respectively.

Allowance for doubtful accounts consists of the following:



|                              |  |                              |     |                       |     |            |      |   |                        |   |    
|----------------------------- |  | ---------------------------- | --- | --------------------- | --- | ---------- | ---- | - | ---------------------- | - | ---
|(Dollar amounts in thousands) |  | Balance atbeginning ofperiod |     | Additions             |     | Deductions |      |   | Balance atend ofperiod
|                              |  | Charged to costsand expenses |     | Write-off ofbad debts |     |           
|Balance at September 30, 2006 |  | $                            | 921 |                       | 109 |            | (254 | ) |                        | $ | 776
|Balance at September 29, 2007 |  | $                            | 776 |                       | 2   |            | (188 | ) |                        | $ | 590
|Balance at September 27, 2008 |  | $                            | 590 |                       | 97  |            | (119 | ) |                        | $ | 568



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##### Table of Contents

Notes to Consolidated Financial Statements (continued)



Inventories, Net

Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average method. The Company tests for obsolete inventory and records appropriate reserves. When an inventory item
is sold or disposed, the associated reserve is adjusted at that time.

Inventory reserves consist of the following:



|                              |  |                              |       |                                |     |            |      |   |                        |   |      
|----------------------------- |  | ---------------------------- | ----- | ------------------------------ | --- | ---------- | ---- | - | ---------------------- | - | -----
|(Dollar amounts in thousands) |  | Balance atbeginning ofperiod |       | Additions                      |     | Deductions |      |   | Balance atend ofperiod
|                              |  | Charged to costsand expenses |       | Sale anddisposal ofinventories |     |           
|Balance at September 30, 2006 |  | $                            | 3,131 |                                | 279 |            | (480 | ) |                        | $ | 2,930
|Balance at September 29, 2007 |  | $                            | 2,930 |                                | 561 |            | (159 | ) |                        | $ | 3,332
|Balance at September 27, 2008 |  | $                            | 3,332 |                                | 56  |            | (256 | ) |                        | $ | 3,132

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Costs of normal maintenance and repairs are charged to expense as incurred.

Major replacements or improvements of property, plant and equipment are capitalized. When items are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is included in the statements of operations.

Depreciation and amortization are computed using the straight-line method (considering appropriate salvage values) and leasehold improvements are amortized over the life of the initial lease term. These charges are based on the following
estimated average useful lives:



|                                  |  |                                                                      
|--------------------------------- |  | ---------------------------------------------------------------------
|Buildings and improvements        |  | 5-39 years                                                           
|Vehicles, machinery and equipment |  | 3-10 years                                                           
|Office furniture and equipment    |  | 3-7 years                                                            
|Leasehold improvements            |  | 5-10 years, not to exceed the lease life, including expected renewals

Consistent with SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived
Assets (SFAS 144), the Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of an acquired business over the estimated fair market value of the acquired net assets. The goodwill balance is $7.5 million at September 27, 2008 and September 29, 2007. The Company
tests goodwill for impairment on an annual basis in accordance with SFAS No. 142 Goodwill and Other Intangible Assets (SFAS 142). The Company completed its goodwill impairment test during the fourth quarter of fiscal 2008 and
fiscal 2007 and determined there was no impairment in either year. Other intangibles are comprised of costs associated with acquiring the mailing addresses for the Companys customer database, which is used for purposes of market research, new
store location decisions, customer research and in the Companys ongoing advertising efforts. For the years ending September 27, 2008 and September 29, 2007, the gross amount capitalized on the balance sheet for mailing addresses was
$1.1 million and $1.0 million,



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##### Table of Contents

Notes to Consolidated Financial Statements (continued)



respectively and the accumulated amortization was $0.5 million and $0.4 million, respectively. These other intangibles are amortized over a 15 year period
and the annual amortization for the next five years is expected to be approximately $60,000 each year.

Deferred Financing Costs

In connection with issuing the Senior Notes due 2013 (see Note 8) and entering into a credit agreement in 2005, the Company paid an aggregate of $7.9
million in financing costs that are being deferred and amortized over the lives of the corresponding agreements. The deferred finance cost balance recorded at September 27, 2008 and September 29, 2007 was net of accumulated amortization of
$3.2 million and $2.3 million, respectively.

Income Taxes

The Company provides for deferred income taxes relating to temporary timing differences in the recognition of income and expense items for financial and
tax reporting purposes. The Company and its subsidiaries are included in the consolidated federal income tax return and certain state income tax returns of Holdings. The Companys financial statements recognize the current and deferred income
tax consequences that result from the Companys activities during the current and preceding periods pursuant to the provisions of SFAS No. 109, Accounting for Income Taxes (SFAS 109), as if the Company were a separate
taxpayer rather than a member of Holdings consolidated income tax return group.

Effective September 30, 2007, the Company
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 provides detailed guidance for the financial statement
recognition, measurement, and disclosure of uncertain tax positions recognized in an enterprises financial statements in accordance with SFAS 109. Income tax positions must meet a more-likely-than-not recognition threshold at the effective
date to be recognized upon the adoption of FIN 48 and in subsequent periods. The adoption of FIN 48 did not impact the companys financial position.

Sales

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services is
recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales
returns as they are immaterial.

Cost of Sales

Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company recognizes consideration received from vendors at the time the obligations to purchase products
or perform services have been completed. These items are recorded as a reduction in cost of goods sold in the statement of income. For the years ending September 27, 2008, September 29, 2007 and September 30, 2006, the Companys
recorded advertising expense was shown net of cooperative advertising of $0.8 million, $0.7 million and $0.8 million respectively.

Shipping and Handing
Costs

The Company records shipping and handling costs paid by customers as revenue. The costs for shipping and handling are charged to
cost of sales.



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##### Table of Contents

Notes to Consolidated Financial Statements (continued)



Advertising

The Company expenses advertising costs as incurred. Advertising expense for the years ended September 27, 2008, September 29, 2007 and September 30, 2006, was approximately $8.4 million, $8.7 million,
and $8.1 million, respectively.

Stock Based Compensation

Holdings, and prior to the 2007 Reorganization, the Company, may grant stock options for a fixed number of shares of Holdings to the Companys employees and directors with an exercise price equal to the fair
market value of the shares at the date of grant. As the Company is a nonpublic company under the provisions of SFAS No. 123 (revised), Share-Based Payment (SFAS 123R), we were required to adopt SFAS 123R using the prospective
method which requires the Company to apply the provisions of SFAS 123R prospectively to new awards and to awards modified, repurchased or cancelled after September 30, 2006. Awards granted after September 30, 2006 are valued at fair value
in accordance with the provisions of SFAS 123R and are recognized on a straight line basis over the service periods of each award. Compensation cost for the unvested portion of awards outstanding is recognized as the requisite service is rendered.

As of the 2007 Reorganization, the 2005 Plan and related agreements were assumed by Holdings. All grants from and after the 2007
Reorganization of options under the 2005 Plan are for equity of Holdings and not the Company, but will be recorded as an expense by the Company. During the second quarter of 2007 and pursuant to the 2005 Plan, Holdings board of directors
approved the acceleration of the vesting of all outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the
modification took effect. Accordingly, no compensation expense was recorded under SFAS No. 123R related to the acceleration of the options. All of the options granted prior to 2008 were exercised in February of 2007 after the 2007
Reorganization.

In fiscal 2008, the board of directors of Holdings approved grants of options to a number of key individuals of the
Company. These options to purchase approximately 438,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

We recognized share-based compensation expense of $77,000 during fiscal year 2008. No share-based compensation expense was recorded during fiscal year
2007 and fiscal year 2006.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.

Reclassification of Accounts

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassification had no effect on net income as
previously reported.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised), Business Combinations(SFAS 141R). SFAS 141R relates to business combinations and
requires the acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period



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beginning on or after December 15, 2008. An entity may not apply it before that date. The Company must adopt this standard for its 2010 fiscal year. The
Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (SFAS 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159
is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted. The Company must adopt this standard for its 2009 fiscal year. The Company is currently evaluating the impact that
adopting this standard will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under
other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require
any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company must adopt this standard for its 2009 fiscal
year. The Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.

3. Short-term
Investments

The Companys short-term investments are classified as available-for-sale and recorded at fair value. As of
September 27, 2008 and September 29, 2007, amortized cost of the Companys short-term investments equaled fair value. Accordingly, there were no unrealized gains and losses as of September 27, 2008 and September 29, 2007.

There were no sale of available-for-sale securities for the years ended September 27, 2008, September 29, 2007 and
September 30, 2006.

The Companys short-term investments consisted of the following September 27, 2008 and
September 29, 2007:



|                                           |  |                   |        |                   |   |  
|------------------------------------------ |  | ----------------- | ------ | ----------------- | - | -
|(Dollar amounts in thousands)              |  | September 27,2008 |        | September 29,2007
|U.S. government and agency debt securities |  | $                 | 19,899 |                   | $ | 
|                                           |  |                   |        |                   |   |  
|Total short-term investments               |  | $                 | 19,899 |                   | $ | 
|                                           |  |                   |        |                   |   |  

At September 27, 2008, all of the Companys U.S. government and agency debt securities
mature within fiscal year 2009.

4. Inventories

Inventories consist of the following:



|                              |  |                   |        |                   |   |       
|----------------------------- |  | ----------------- | ------ | ----------------- | - | ------
|(Dollar amounts in thousands) |  | September 27,2008 |        | September 29,2007
|Raw materials and supplies    |  | $                 | 4,579  |                   | $ | 1,232 
|Finished goods                |  |                   | 82,005 |                   |   | 64,492
|                              |  |                   |        |                   |   |       
|Total inventories             |  | $                 | 86,584 |                   | $ | 65,724
|                              |  |                   |        |                   |   |       



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5. Property, Plant and Equipment

Property, plant and equipment consists of the following:



|                                              |  |                   |          |   |                   |   |         |  
|--------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | ------- | -
|(Dollar amounts in thousands)                 |  | September 27,2008 |          |   | September 29,2007 |  
|Land                                          |  | $                 | 5,865    |   |                   | $ | 5,865   |  
|Buildings                                     |  |                   | 8,058    |   |                   |   | 8,106   |  
|Vehicles, machinery and equipment             |  |                   | 7,510    |   |                   |   | 6,428   |  
|Leasehold improvements                        |  |                   | 69,634   |   |                   |   | 63,770  |  
|Office furniture, equipment and other         |  |                   | 48,209   |   |                   |   | 42,900  |  
|Construction-in-process                       |  |                   | 5,407    |   |                   |   | 1,142   |  
|                                              |  |                   |          |   |                   |   |         |  
|                                              |  |                   | 144,683  |   |                   |   | 128,211 |  
|Lessaccumulated deprecation and amortization |  |                   | (102,609 | ) |                   |   | (90,278 | )
|                                              |  |                   |          |   |                   |   |         |  
|Total property, plant and equipment           |  | $                 | 42,074   |   |                   | $ | 37,933  |  
|                                              |  |                   |          |   |                   |   |         |  

6. Accrued expenses

Accrued expenses consist of the following:



|                                      |  |                   |        |                   |   |       
|------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------
|(Dollar amounts in thousands)         |  | September 27,2008 |        | September 29,2007
|Accrued payroll and employee benefits |  | $                 | 8,494  |                   | $ | 10,050
|Self insurance reserves               |  |                   | 8,350  |                   |   | 8,324 
|All other current liabilities         |  |                   | 20,137 |                   |   | 20,011
|                                      |  |                   |        |                   |   |       
|Total accrued expenses                |  | $                 | 36,981 |                   | $ | 38,385
|                                      |  |                   |        |                   |   |       

7. Loan and Security Agreement/Assets Subject to Lien

On January 25, 2005, the Company entered into an Amended and Restated Loan and Security Agreement (the Loan Agreement) with the lenders
noted therein and Wells Fargo Retail Finance LLC as agent for the lenders. The Loan Agreement provides for the extension by the lenders of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The Loan
Agreement was and will be used to refinance the existing credit facility, to provide a portion of the financing required to consummate the 2005 Recapitalization, and for general corporate purposes. A portion of the Loan Agreement is available for
letters of credit. The obligations under the Loan Agreement are secured by a lien on substantially all of the Companys assets.

Borrowings under the Loan Agreement bear interest at the lenders reference rate or at LIBOR plus the applicable LIBOR rate margin. The applicable LIBOR rate margin will be adjusted quarterly based on the Companys EBITDA (as
defined in the Loan Agreement) for the 12 month period ended as of the end of the latest fiscal quarter. The applicable margin for the Loan Agreement is initially 0% with respect to base rate loans and 1.75% with respect to eurodollar loans.

On the closing of the 2005 Recapitalization, the Company paid the lender an upfront fee as well as a commitment fee on the $30.0 million
over-advance facility. In addition, the Company is obligated to pay the lender a commitment fee equal to 1/4 of 1% per annum of the unused portion of the $75.0 million commitment. The Company is also obligated to pay a commission on all
outstanding letters of credit as well as customary administrative, issuance, fronting, amendment, payment and negotiation fees.



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The Loan Agreement contains customary representations and warranties, covenants and conditions to
borrowing. There can be no assurance that the conditions to borrowing under the Loan Agreement will be satisfied.

The Loan Agreement
requires the maintenance of certain quarterly financial and operating ratios and covenants, including minimum calculated EBITDA levels, fixed charge coverage ratio, and senior leverage ratio. Also, the Loan Agreement contains customary events of
default, including default upon the nonpayment of principal, interest, fees or other amounts or the occurrence of a change of control.

During fiscal 2008, no borrowing or repayments occurred on the Loan Agreement. No amounts are outstanding on the Loan Agreement as of September 27, 2008 and September 29, 2007.

To the Companys knowledge, no event of default has occurred under the Loan Agreement.

8. Senior Notes

On January 25, 2005, the
Company sold, through a private placement exempt from the registration requirements under the Securities Act of 1933, as amended, $170 million in aggregate principal amount of its 7.75% Senior Notes due 2013 (the Notes). Interest-only
payments on the Notes are payable semi-annually on February 1 and August 1 of each year, beginning with August 1, 2005. The Notes were sold in the United States only to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to non-U.S. persons in accordance with Regulation S under the Securities Act. The Notes were not registered under the Securities Act and can not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements. The Company used the net proceeds of this offering to finance the 2005 Recapitalization and to redeem $59.5 million of its 10.375% Senior Notes due 2008. In connection with the closing of the Private
Placement, the Company entered into (i) an indenture, dated January 25, 2005 with The Bank of New York Trust Company, N.A., as the trustee, governing the terms and conditions of the Notes (the Indenture) and (ii) a
registration rights agreement, dated January 25, 2005 with the initial purchasers of the Notes in the Private Placement (the Registration Rights Agreement). The Notes were issued at a discount which is being amortized to interest
expense and consist of the following:



|                              |  |                   |         |   |                   |   |         |  
|----------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|(Dollar amounts in thousands) |  | September 27,2008 |         |   | September 29,2007 |  
|Senior Notes                  |  | $                 | 170,000 |   |                   | $ | 170,000 |  
|Unamortized discount          |  | $                 | (768    | ) |                   | $ | (920    | )
|Notes redeemed                |  | $                 | (2,232  | ) |                   | $ |        |  
|                              |  |                   |         |   |                   |   |         |  
|Total Senior Notes, net       |  | $                 | 167,000 |   |                   | $ | 169,080 |  
|                              |  |                   |         |   |                   |   |         |  

Under the Registration Rights Agreement, the Company agreed to use its best efforts to register
notes having substantially identical terms as the Notes with the Securities and Exchange Commission as part of an offer to exchange freely tradeable exchange notes for the Notes initially issued under the Indenture. The Company filed a registration
statement for the exchange notes with the Commission on April 22, 2005 and caused such registration statement for the 7.75% Senior Notes, Series B, due 2013, to be declared effective June 16, 2005. The Indenture contains customary
covenants, including those that will limit the Companys ability to grant liens on assets to secure debt, enter into certain sale and lease-back transactions, and merge or consolidate with another company or sell substantially all assets. To
the Companys knowledge, no event of default has occurred under the Indenture.



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Notes to Consolidated Financial Statements (continued)



9. Leases

The Company leases certain store, office, distribution and manufacturing facilities under operating leases which expire at various dates through 2018. Lease agreements generally provide for increases related to cost of living indices and
require the Company to pay for property taxes, repairs and insurance. Future annual minimum lease payments at September 27, 2008 are as follows:



|                              |  |   |        
|----------------------------- |  | - | -------
|(Dollar amounts in thousands) |  |  
|2009                          |  | $ | 40,738 
|2010                          |  |   | 33,837 
|2011                          |  |   | 25,699 
|2012                          |  |   | 19,104 
|2013                          |  |   | 11,294 
|Thereafter                    |  |   | 5,776  
|                              |  |   |        
|                              |  | $ | 136,448
|                              |  |   |        

Certain leases are renewable at the option of the Company for periods of one to ten years. Rent
expense charged against income totaled $38.4 million, $35.9 million, and $33.7 million in fiscal years 2008, 2007 and 2006 respectively. Only three leases provided for rent contingent on sales exceeding specific amounts.

10. Income Taxes

The provision/(benefit) for income
taxes is comprised of the following:



|                              |  |             |        |             |   |             |  |   |        |  
|----------------------------- |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ | -
|(Dollar amounts in thousands) |  | Fiscal 2008 |        | Fiscal 2007 |   | Fiscal 2006 | 
|Federal:                      |  |             |        |             |   |             |  |   |        |  
|Current                       |  | $           | 21,605 |             | $ | 16,899      |  | $ | 15,637 |  
|Deferred                      |  |             | 314    |             |   | 1,517       |  |   | (2,123 | )
|                              |  |             |        |             |   |             |  |   |        |  
|                              |  | $           | 21,919 |             | $ | 18,416      |  | $ | 13,514 |  
|                              |  |             |        |             |   |             |  |   |        |  
|State:                        |  |             |        |             |   |             |  |   |        |  
|Current                       |  | $           | 4,051  |             | $ | 3,963       |  | $ | 3,916  |  
|Deferred                      |  |             | 59     |             |   | 356         |  |   | (532   | )
|                              |  |             |        |             |   |             |  |   |        |  
|                              |  |             | 4,110  |             |   | 4,319       |  |   | 3,384  |  
|                              |  |             |        |             |   |             |  |   |        |  
|Total                         |  | $           | 26,029 |             | $ | 22,735      |  | $ | 16,898 |  
|                              |  |             |        |             |   |             |  |   |        |  

A reconciliation of the provision for income taxes to the amount computed at the federal statutory
rate is as follows:



|                                     |  |             |        |             |   |        |             |  |   |        |  
|------------------------------------ |  | ----------- | ------ | ----------- | - | ------ | ----------- |  | - | ------ | -
|(Dollar amounts in thousands)        |  | Fiscal 2008 |        | Fiscal 2007 |   |        | Fiscal 2006 | 
|Federal income tax at statutory rate |  | $           | 23,277 |             | $ | 19,236 |             |  | $ | 13,091 |  
|Permanent differences                |  |             | 67     |             |   | 617    |             |  |   | 1,633  |  
|State taxes, net of federal benefit  |  |             | 2,662  |             |   | 2,898  |             |  |   | 2,200  |  
|Other                                |  |             | 23     |             |   | (16    | )           |  |   | (26    | )
|                                     |  |             |        |             |   |        |             |  |   |        |  
|                                     |  | $           | 26,029 |             | $ | 22,735 |             |  | $ | 16,898 |  
|                                     |  |             |        |             |   |        |             |  |   |        |  



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The tax effect of temporary differences which give rise to significant portions of the deferred tax
asset and liability are summarized below.



|                              |  |                    |        |                         |   |                    |  |                         |        |  |   |  
|----------------------------- |  | ------------------ | ------ | ----------------------- | - | ------------------ |  | ----------------------- | ------ |  | - | -
|                              |  | Fiscal 2008        |        | Fiscal 2007            
|(Dollar amounts in thousands) |  | Deferred TaxAssets |        | Deferred TaxLiabilities |   | Deferred TaxAssets |  | Deferred TaxLiabilities
|Depreciation and amortization |  | $                  | 5,234  |                         | $ |                   |  | $                       | 3,833  |  | $ | 
|State income taxes            |  |                    |       |                         |   |                   |  |                         | 210    |  |   | 
|Inventory                     |  |                    | 1,908  |                         |   |                   |  |                         | 1,869  |  |   | 
|Reserves and other accruals   |  |                    | 2,221  |                         |   |                   |  |                         | 2,325  |  |   | 
|Deferred rent                 |  |                    | 1,359  |                         |   |                   |  |                         | 1,824  |  |   | 
|Compensation accruals         |  |                    | 425    |                         |   |                   |  |                         | 712    |  |   | 
|                              |  |                    |        |                         |   |                    |  |                         |        |  |   |  
|                              |  | $                  | 11,147 |                         | $ |                   |  | $                       | 10,773 |  | $ | 
|                              |  |                    |        |                         |   |                    |  |                         |        |  |   |  

The Company files income tax returns in the United States federal jurisdiction and various state
jurisdictions. Our income tax returns are audited by federal and state tax authorities. We are currently under examination by the Internal Revenue Service for the 2005 tax year. There are differing interpretations of tax laws and regulations, and as
a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. While we believe our positions comply with applicable laws, we
periodically evaluate exposures associated with our tax filing positions. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by taxing authorities for years before 2005.

The Company adopted the provisions of FIN 48 effective September 30, 2007. The adoption of FIN 48 did not impact the companys financial
position. The gross amount of unrecognized tax benefit at September 27, 2008 is $1.4 million of which $1.2 million would impact the Companys effective tax rate were it to be recognized. The following table summarizes the activity related
to the Companys unrecognized tax benefits (dollars in thousands):



|                              |  |   |      
|----------------------------- |  | - | -----
|Balance at September 30, 2007 |  | $ | 1,370
|Change during the year        |  |   | 0    
|                              |  |   |      
|Balance at September 27, 2008 |  | $ | 1,370
|                              |  |   |      

As a result of the implementation of FIN 48, the Company had no change to its previously recorded
liability for unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax benefits in the income tax
provision. The Company had approximately $210,000 and $134,000 of accrued interest and penalties at September 27, 2008 and September 29, 2007, respectively.

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next 12 months, however, we do not expect any
potential change to have a material effect on our results of operations or our financial position.

11. Contingencies

The Company is a defendant in lawsuits or potential claims encountered in the normal course of business; such matters are being vigorously defended. In
the opinion of management, the resolutions of these matters will not have a material effect on the Companys financial position or results of operations.

The Companys workers compensation insurance program, general liability insurance program and employee group medical plan have self-insurance retention features of $0.3 million, $0.3 million and



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Notes to Consolidated Financial Statements (continued)



$0.2 million per incident, respectively. As of September 27, 2008 and September 29, 2007, the Company had standby letters of credit
outstanding in the amounts of $5.7 million and $4.7 million, respectively, for the purpose of securing such obligations under its workers compensation self insurance programs.

12. 401(k) Plan

The Company provides for the benefit of its employees a voluntary retirement plan
under Section 401(k) of the Internal Revenue Code. During 2008, the plan covered all eligible employees and provided for a matching contribution by the Company of 50% of each participants contribution up to 4% of the individuals
compensation as defined. The expenses related to this program were $0.6 million, $0.6 million and $0.6 million for fiscal years 2008, 2007 and 2006 respectively.

13. Equity Transactions

Preferred and Common Stock

The Company became a subsidiary of Holdings pursuant to the 2007 Reorganization. As a result of the 2007 Reorganization, each share of outstanding common
stock of the Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable
exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation. The conversion of the 10% senior redeemable exchangeable cumulative preferred stock of the Company for similar stock
of Holdings was accounted for as contributed capital to the Company, given that the assumption of the obligation by Holdings without recourse to the Company had the effect of extinguishing the rights of the preferred stockholders and the resulting
obligation.

14. Related Party Transactions

With the consummation of the 2005 Recapitalization in January 2005, the Company entered into a Management Services Agreement with LGP. The Management Services Agreement provides that the Company will pay LGP an annual fee of $1.0 million
for ongoing management, consulting and financial services. In addition, the Management Services Agreement provides that LGP may provide the Company with financial advisory or investment banking services in connection with major financial
transactions, and LGP will be paid a customary fee for such services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will
automatically extend for one year periods thereafter unless either the Company or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less
of the Companys shares and (c) the consummation of a public offering of the Companys common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Companys shares of common
stock is publicly traded. In the event of the Companys bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of
all amounts due and owing under the indenture governing the notes.

During the fiscal years ended September 27,
2008, September 29, 2007 and September 30, 2006, the Company paid management fees to LGP in the amount of $1.0 million, $1.0 million and $1.0 million respectively.

During February of 2007, the Companys parent, Holdings consummated a privately placed financing transaction. The Company does not guarantee or
pledge support for this financing, nor were any of the proceeds made available to the Company, and therefore, the Companys financial statements do not reflect the debt and its related costs. Holdings issued $310 million in senior notes due in
2017 and $100 million of preferred equity. The



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Notes to Consolidated Financial Statements (continued)



interest rate on the senior notes is 10.5% cash or 11.5% PIK, at Holdings option. The notes are non-callable for two years and have other covenants and
terms that are customary for high yield issues. The preferred shares have a dividend rate of 11% and are exchangeable into debt under certain circumstances. The preferred shares have a mandatory redemption date of March 1, 2019. The Company is
not required to service any obligation of Holdings and the sole source of funds that might be provided by the Company would be in the form of dividends to Holdings.

15. Stock Based Compensation Plans

In November 1998, the Leslies board of directors adopted
its 1998 Incentive Stock Option Plan (the 1998 Plan), and reserved 300,000 shares of nonvoting common stock for issuance thereunder. In January 2000, the Board approved an amendment to the Plan to increase the number of shares of
nonvoting common stock issuable thereunder to 500,000 shares in the aggregate.

All existing options were accelerated and terminated on
January 25, 2005 in connection with the 2005 Recapitalization and each optionholder received with respect to each option held an amount equal to the excess of $15.00 over the exercise price of such option. As a result, the Company recorded a
stock compensation charge of $16.1 million for the year ended September 30, 2006.

In August 2005, Leslies board of directors
adopted its 2005 Incentive Stock Option Plan (the 2005 Plan), and reserved 1,300,000 shares of nonvoting common stock for issuance thereunder. As of the 2007 Reorganization, the 2005 Plan and related agreements were assumed by Holdings.
Any future grants of options subsequent to the 2007 Reorganization will be for equity of Holdings and not the Company. During the second quarter of 2007 and pursuant to the 2005 Plan, Holdings board of directors approved the acceleration of
the vesting of all of the then outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the modification took
effect. Accordingly, no compensation expense was recorded under SFAS 123R related to the acceleration of the options.

All outstanding
options were exercised in February of 2007 after the 2007 Reorganization, which gave rise to a tax benefit of approximately $2.1 million attributed to the Company. Given that the tax benefit meets the realization criteria of SFAS 123R, the benefit
has been recorded as a credit to equity since the entire benefit exceeded the recorded expense of zero. The Company did not otherwise grant or modify any share-based compensation during the 52 weeks ended September 29, 2007.

In fiscal 2008, the board of directors of Holdings approved grants of options to a number of key individuals of the Company. These options to purchase
approximately 438,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model which requires the use of a number of assumptions including expected volatility, risk-free interest
rate, expected dividends, and expected term. Expected volatility is based on the historical volatility of our stock. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of
similar awards, giving consideration to the contractual terms and vesting schedules. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. We have not paid dividends
in the past and do not plan to pay any dividends in the near future to ultimate shareholder who hold the type of security subject to the option arrangement. SFAS 123R also requires us to estimate forfeitures at the time of grant and revise these
estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate forfeitures based on our historical experience. The fair value of stock options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions:



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Notes to Consolidated Financial Statements (continued)



|                                               |  |             |      |   |             |     |             |   |      |  
|---------------------------------------------- |  | ----------- | ---- | - | ----------- | --- | ----------- | - | ---- | -
|                                               |  | Fiscal 2008 |      |   | Fiscal 2007 |     | Fiscal 2006 |  
|Expected volatility                            |  |             | 47.8 | % |             | N/A |             |   | 0.0  | %
|Risk-free interest rate                        |  |             | 3.4  | % |             | N/A |             |   | 4.0  | %
|Dividend yield                                 |  |             | 0.0  | % |             | N/A |             |   | 0.0  | %
|Expected life (in years)                       |  |             | 5.0  |   |             | N/A |             |   | 7.0  |  
|Weighted average fair value per option granted |  | $           | 1.05 |   |             | N/A |             | $ | 0.38 |  

As there were no grants in fiscal 2007, the valuation assumptions are not applicable. Expected
volatility was 0.0% in fiscal 2006 as the Company was accounting for stock-based compensation plans under APB Opinion No. 25 Accounting for Stock Issued to Employees.

A summary of option activities for all plans is as follows:



|                                    |  |             |  |                               |      |             |            |   |                               |   |        |  |           |                               |  |   |     
|----------------------------------- |  | ----------- |  | ----------------------------- | ---- | ----------- | ---------- | - | ----------------------------- | - | ------ |  | --------- | ----------------------------- |  | - | ----
|                                    |  | Fiscal 2008 |  | Fiscal 2007                   |      | Fiscal 2006
|                                    |  | Shares      |  | WeightedAverageExercise Price |      | Shares      |            |   | WeightedAverageExercise Price |   | Shares |  |           | WeightedAverageExercise Price
|Outstanding at beginning of year    |  |            |  | $                             |     |             | 1,233,500  |   |                               | $ | 1.91   |  | 700,000   |                               |  | $ | 1.00
|Granted                             |  | 438,000     |  |                               | 2.30 |             |           |   |                               |   |       |  | 538,500   |                               |  |   | 3.08
|Exercised                           |  |            |  |                               |     |             |           |   |                               |   |       |  |          |                               |  |   |    
|Cancelled                           |  |            |  |                               |     |             |           |   |                               |   |       |  | (5,000    | )                             |  |   | 1.00
|Assigned to Leslies Holdings, Inc. |  |            |  |                               |     |             | (1,233,500 | ) |                               |   | 1.91   |  |          |                               |  |   |    
|                                    |  |             |  |                               |      |             |            |   |                               |   |        |  |           |                               |  |   |     
|Outstanding at end of year          |  | 438,000     |  | $                             | 2.30 |             |           |   |                               | $ |       |  | 1,233,500 |                               |  | $ | 1.91
|                                    |  |             |  |                               |      |             |            |   |                               |   |        |  |           |                               |  |   |     
|Exercisable at end of year          |  |            |  | $                             |     |             |           |   |                               | $ |       |  | 175,000   |                               |  | $ | 1.00
|                                    |  |             |  |                               |      |             |            |   |                               |   |        |  |           |                               |  |   |     

The fair value of the common stock underlying the 2005 Incentive Stock Option Plan options granted
during fiscal year 2006 was determined to be $3.08 per share. As the Companys stock is privately held and has no quoted market price, the Company determined the fair value of options granted during fiscal year 2006 based on managements
estimate of an enterprise value of the Company. In fiscal year 2008, the fair value of the common stock underlying the 2005 Incentive Stock Option Plan options granted was determined to be $2.30 based on managements estimate of an enterprise
value of the Company at the time of grant. No options were granted in fiscal 2007.

The total fair value of shares vested during fiscal
2008, 2007, and 2006 was approximately $0.0 million, $0.0 million and $0.2 million, respectively.

The weighted average remaining
contractual term of options outstanding and exercisable as of September 27, 2008 was 4.2 years and 0 years, respectively. The aggregate intrinsic value of options outstanding and exercisable as of September 27, 2008 was $0.3 million and
$0.0 million, respectively. As of September 27, 2008, there was approximately $384,000 of total unrecognized stock-based compensation expense related to unvested share-based compensation arrangements, which is expected to be recognized over a
weighted average period of 4.2 years.

For the purpose of SFAS 123R, the Company is considered a non-public entity because it
does not have equity securities trading in a public market. For non-public entities the effective date to adopt the complete provisions of SFAS 123R is for fiscal years beginning after December 15, 2005. SFAS 123R was effective for
the Company beginning October 1, 2006. If stock options had been accounted for consistent with SFAS 123, these amounts would be amortized on a straight-line basis as compensation expense over the average vesting period of the options and the
Companys net income would not have been affected for the fiscal year ended 2007, while the Companys net income would have decreased by less than $0.1 million in fiscal year 2006.



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Notes to Consolidated Financial Statements (continued)



16. Supplemental Cash Flow Disclosures

The Company paid interest charges of $13.4 million, $13.6 million and $14.4 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. The Company
paid income taxes of $26.4 million, $20.5 million and $16.1 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Income tax payments made subsequent to the 2007 Reorganization are made to Holdings given that the Company is included in
their consolidated tax return.



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Companys management, including the Companys principal executive officer and principal
financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended, as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, the Companys principal executive officer and principal financial officer concluded as of the Evaluation Date
that the Companys disclosure controls and procedures were effective such that the material information relating to the Company, including its consolidated subsidiaries, required to be disclosed in the Companys Securities and Exchange
Commission (SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and was made known to the Companys principal executive officer and principal accounting officer
during the period when this report was being prepared to allow timely decisions regarding required disclosure.

Managements Report on Internal
Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial
reporting. As defined in the securities laws, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our Board of Directors,
management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of
management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Under the supervision and
with the participation of the Companys management, including the Companys principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of our internal control over financial
reporting as of September 27, 2008 based on the criteria in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, we
concluded that our internal control over financial reporting was effective as of September 27, 2008.

The annual report on internal
control over financial reporting does not include an attestation report of our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only managements report in our annual report on Form
10-K for the year ended September 27, 2008.



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Changes in Internal Control over Financial Reporting

In addition, there were no changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent
to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in the Companys internal controls, and therefore there were no corrective actions taken.

ITEM 9B. OTHER INFORMATION

Not applicable.



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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The
directors, executive officers and significant employees of the Company are as follows:



|                    |  |     |  |                                                               
|------------------- |  | --- |  | --------------------------------------------------------------
|Name                |  | Age |  | Positions                                                     
|Lawrence H. Hayward |  | 54  |  | Chairman of the Board and Chief Executive Officer             
|Steven L. Ortega    |  | 47  |  | Executive Vice President, Chief Financial Officer and Director
|Michael L. Hatch    |  | 55  |  | President, Chief Operating Officer and Director               
|Edward C. Agnew     |  | 69  |  | Director                                                      
|John M. Baumer      |  | 41  |  | Director                                                      
|John G. Danhakl     |  | 52  |  | Director                                                      
|Michael J. Fourticq |  | 64  |  | Director                                                      
|Janet I. McDonald   |  | 51  |  | Senior Vice President, Chief Information Officer              
|Rick D. Carlson     |  | 42  |  | Senior Vice President, Commercial, Service and Logistics      
|Brian P. Agnew      |  | 43  |  | Senior Vice President, Store Operations                       

Lawrence H. Hayward is Chairman of the Board of Directors and Chief Executive Officer. He joined
the Company in January 2000 as President and Chief Executive Officer and assumed the additional role of Chairman of the Board in September 2000. Most recently, Mr. Hayward was the President of ABCO Desert Markets located in Phoenix, Arizona.
From 1995 until 1999, he served as President and Chief Executive Officer of Carr Gottstein Foods Co., Alaskas largest food and drug retailer and wholesale provider. From 1990 to 1995, Mr. Hayward held other senior level positions at
Buttrey Food and Drug Store Company. From 1981 until 1990 he served in various corporate positions at American Stores Company headquartered in Salt Lake City, Utah. Mr. Hayward is also a director of Petco Animal Supplies, Inc.

Steven L. Ortega is Executive Vice President, Chief Financial Officer and Director of the Company and joined the Company in August, 2005. Mr. Ortega
served as Executive Vice President and Chief Financial Officer for BI-LO LLC from 1999 to 2005. Prior to joining BI-LO, Mr. Ortega was with American Stores Company, where he held various positions within their supermarket and drug store
subsidiaries, including Vice PresidentFinance and Administration, and Vice PresidentLogistics. Prior to this period at American Stores, Mr. Ortega held various management positions in finance, accounting, audit and store operations
at Lucky Stores, Inc., where he last held the position of Director of Finance and Accounting.

Michael L. Hatch has been President, Chief
Operating Officer and Director of the Company since September 2006. Prior to that, Mr. Hatch served as Senior Vice President, Merchandising and Marketing of the Company since November 2000. Mr. Hatch has more than 30 years of experience in
the retail industry. Most recently, Mr. Hatch was the President of ABCO Desert Markets, located in Phoenix, Arizona. From 1996 to 1999 he was employed by Smiths Food and Drug where he held various positions including Senior Vice President and
Southwest Manager and Vice President of Sales, Merchandising and Marketing. From 1970 to 1996, Mr. Hatch held various senior management positions at Smittys Super Valu, Inc. located in Phoenix, Arizona, which later merged with
Smiths Food and Drug.

Edward C. Agnew became a director in December 2002. He is a former retail executive with over 36 years of
retail experience. Mr. Agnew held various officer level assignments with Jewel Companies, Inc., Buttrey Food and Drug, Inc., and American Stores/Albertsons, Inc. Mr. Agnew began his career in 1963 with Jewel Food & Drug Stores
where he served in various capacities including General Manager of its Midwest Division. In 1987, Mr. Agnew was appointed President and Chief Executive Officer of Buttrey Food and Drug, Inc. In 1990, Mr. Agnew successfully led a leveraged
buyout of Buttrey Food and Drug Store Company and successfully completed an initial public offering of the Company in early 1993. In 1994, Mr. Agnew returned to American Stores, Inc., where he served as a Senior Vice President and member of the
Companys Executive Committee until his retirement in 1999.



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John M. Baumer became a director of the Company in November 2001. He has been an executive officer and
equity owner of LGP, the firm that manages Green Equity Investors II, L.P. (GEI), since 1999. Mr. Baumer had previously been a Vice President at Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), and had
been with DLJ since 1995. Prior to joining DLJ, Mr. Baumer was at Fidelity Investments and Arthur Andersen. Mr. Baumer is also a director of Intercontinental Art, Inc., VCA Antech, Inc., The Brickman Group, Ltd. and Petco Animal Supplies,
Inc.

John G. Danhakl became a director of the Company in June 1997. He has been an executive officer and an equity owner of LGP, the firm
that manages GEI, since 1995. Mr. Danhakl had previously been a Managing Director at DLJ and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert Incorporated. Mr. Danhakl is
also a director of Arden Group, Inc., Petco Animal Supplies, Inc., The Neiman Marcus Group, Inc., Sagittarius Brands, The Tire Rack, Inc. and Horseshows In The Sun.

Michael J. Fourticq became a director of the Company in June 1997. He also served as Chairman of the Board of Directors from May 1988 until January 2000. Between May 1988 and August 1992, he served as the
Companys Chief Executive Officer. From 1995 to 2001, Mr. Fourticq had been the Chairman and Chief Executive Officer of Brown Jordan International, a leading manufacturer of outdoor and casual furniture products. Since 1985 he has been the
sole general partner of Hancock Park Associates, which is the general partner and affiliate of several investment partnerships. Mr. Fourticq is also on the Boards of Brown Jordan International, Gordon Biersch, FHI dba Body Home Fitness, The
Right Start, Stanton International and Saleen, Inc.

Janet I. McDonald is Senior Vice President, Chief Information Officer of the Company.
She joined the Company in August of 2000. Ms. McDonald has over 29 years of retail experience. Most recently Ms. McDonald owned and operated her own consulting business where she provided project management, management training, marketing,
economic and other business services. From 1990 to 1992 she served as Director Information Technology for Buttrey Food and Drug Store Company. From 1981 to 1990 she held progressive levels of management responsibility in corporate technology for
American Stores Company.

Rick D. Carlson is Senior Vice President of Commercial, Service and Logistics of the Company. Mr. Carlson
has over 16 years of retail experience and has been with the Company since February of 2000 when he joined the team as Vice President of Logistics. Most recently Mr. Carlson was the General Manager of the Alaska Division of Totem Ocean Trailer
Express. From 1995 until 1999, he was the Director of Transportation and Freight Operations of Carr Gottstein Foods Co., Alaskas largest food and drug retailer and wholesale provider. Prior to that time he held several management positions at
Buttrey Food and Drug Co.

Brian P. Agnew became Senior Vice President, Store Operations on September 29, 2005. Brian Agnew is a 15
year retail veteran and was previously the regional Vice President of Operations in the Companys Southeast Region from September 2003 through October 2005. From May 2003 through September 2003 he held the position of District Manager with the
Company. Prior to joining Leslies, Brian Agnew held several management positions in the retail grocery industry with Jewel Foods, American Stores Company and Albertsons, Inc. Brian Agnew is the son of Edward C. Agnew, who has served as a
director of the Company since December 2002.

All executive officers of the Company are chosen by the Board of Directors and serve at the
Boards discretion except as provided in the employment agreements described below under Executive CompensationEmployment Agreements.

No Audit Committee

The Company does not have an audit committee, nor is any member of the Board a financial
expert within the meaning of the regulations of the Securities and Exchange Commission. As a voluntary filer without a public market for our equity securities, we are not required to have an audit committee or a financial expert. We do not
believe that we could recruit a financial expert without unwarranted expense and difficulty.



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Code of Ethics

The Company has adopted a Code of Ethics and a copy may be obtained, without charge, by written request to the Company Attention: Corporate Secretary.

Section 16(a) is Not Applicable

The Company is a voluntary filer without a public market for
its equity securities. Consequently, the executive officers and directors are not required to comply with Section 16(a) of the Exchange Act.



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ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION, DISCUSSION AND ANALYSIS

The Board of
Directors of the Company does not maintain a compensation committee. Our Board of Directors reviews and approves our compensation practices for attracting, retaining and motivating our Named Executive Officers (or NEOs).

The following Compensation Discussion and Analysis details the Companys strategy and practices for compensating our NEOs, who in fiscal 2008 were:



|                    |  |                                                         
|------------------- |  | --------------------------------------------------------
|Name                |  | Title                                                   
|Lawrence H. Hayward |  | Chief Executive Officer and Chairman of the Board       
|Steven L. Ortega    |  | Chief Financial Officer, EVP and Director               
|Michael L. Hatch    |  | President, Chief Operating Officer and Director         
|Janet I. McDonald   |  | Senior Vice President, Chief Information Officer        
|Rick D. Carlson     |  | Senior Vice President, Commercial, Service and Logistics

Objectives of the Executive Compensation Program

Our compensation programs are designed to provide a competitive level of total compensation (base salary, variable pay, and benefits) to attract and
retain talented executives and to motivate our Named Executive Officers to achieve the Companys business objectives, as approved by the Board of Directors. The Board of Directors uses published surveys to determine whether the compensation
provided to NEOs and other executives is competitive. However, the Board does not benchmark against any specific companies. Total compensation is reviewed when the Board of Directors deems it necessary but such review does not typically occur on an
annual basis.

Elements of Executive Compensation

The elements of the Companys compensation are comprised of:



| |  |  | Base salary;
| | - |  | ------------



| |  |  | At risk variable bonuses tied to the Companys performance;
| | - |  | -----------------------------------------------------------



| |  |  | Benefits and other perquisites; and
| | - |  | -----------------------------------



| |  |  | Severance and other post-termination payments as defined in certain of the Named Executive Officers employment agreements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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What the Compensation Element is Designed to Reward and How It Relates to the Objectives

Each pay element is designed to reward different results as shown below:



|                                              |  |                                                                                                                                          |  |                                                                                                                                                
|--------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Compensation Element                          |  | Designed to Reward                                                                                                                       |  | Relationship to the Objectives                                                                                                                 
|Base Salary                                   |  | Experience, knowledge of the Company and industry, dedication to assigned job, and performance by the executive on behalf of the Company |  | Provides competitive pay to attract and retain talented NEOs                                                                                   
|                                              |  |                                                                                                                                         
|Bonus                                         |  | Success in achieving the Companys financial and operational goals                                                                       |  | Motivate and reward executives to achieve the Companys annual business objectives  Provide competitive pay to attract and retain talented NEOs
|                                              |  |                                                                                                                                         
|Benefits and Other Perquisites                |  | Initial and continued employment by the NEOs                                                                                             |  | Provide competitive compensation to attract and retain talented executives                                                                     
|                                              |  |                                                                                                                                         
|Severance and Other Post-Termination Payments |  | Initial and continued employment by the executive                                                                                        |  | Provide competitive compensation to attract and retain talented executives                                                                     

Base Salary

Base salary is paid for on-going employment throughout the year. It is intended to compensate the NEOs for their basic services performed for the Company thorough the year. In setting base salary, the Board of
Directors considers each NEOs experience, role and job responsibilities. The Board or Directors reviews base salary when it deems necessary and such review does not always occur on an annual basis. During fiscal 2008, the base salaries for
NEOs remained unchanged.

Bonus

In the
first quarter of each fiscal year, the Board of Directors meets to review the Companys budget and targeted EBITDA goals for the fiscal year. At that meeting, the Board approves a threshold EBITDA target for the Company before bonuses will be
paid to NEOs. If the EBITDA target is not achieved, bonuses will not be paid. Consequently, all bonuses are at risk.

In fiscal 2008, the
Board of Directors set $84.0 million as the annual EBITDA threshold before bonuses would be paid. Bonuses for NEOs were subject to a cap of 150% of the target bonus and bonuses were targeted in the following amounts:



|                    |  |                   
|------------------- |  | ------------------
|Name                |  | Target Bonus      
|Lawrence H. Hayward |  | 70% of base salary
|Steven L. Ortega    |  | 60% of base salary
|Michael L. Hatch    |  | 60% of base salary
|Janet I. McDonald   |  | 35% of base salary
|Rick D. Carlson     |  | 35% of base salary

The Company exceeded the EBITDA threshold and, consequently, each of the NEOs received more than
their target bonus, as set forth in detail in the Summary Compensation Table below.



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Benefits and Other Perquisites

401(k) Plan

The Company maintains a 401(k) plan that is available for all eligible employees,
including the NEOs. Participants may elect to defer up to 25% of their compensation as pre-tax contributions through regular payroll deductions, subject to the limitations set forth in the Internal Revenue Code. Participants who have attained age 50
before the end of the year are also eligible to make catch-up contributions. The Company currently provides a discretionary matching contribution to each eligible participants account, equal to 50% of an eligible employees elective
contributions, up to 4% of their total compensation.

Welfare Benefits

The NEOs are eligible to participate in any medical, dental, life insurance, disability, 401k or stock option plan made generally available by the Company
to executives.

Cash Allowance

Messrs. Hayward and Ortegas employment agreements provide for the payment by the Company of an annual cash allowance for expenses, including those which may be considered partially or wholly personal in nature. The annual cash
allowance is automatically increased annually by 5% from that paid in the prior year. In addition, Messrs. Hayward and Ortega are each entitled to a tax gross-up for any taxes related to his receipt of the cash allowance. In fiscal 2008,
Mr. Haywards annual cash allowance was $57,880 and his gross-up amount was [$34,900]. In fiscal 2008, Mr. Ortegas annual cash allowance was $17,325 and his gross-up amount was [$11,400].

Separation Arrangements

As described in detail
below, employment agreements for three of the NEOs specify certain severance benefits to be paid in the event of an involuntary termination of such executives employment. The Company provides such separation benefits in order to remain
competitive in attracting and retaining executives.

Mr. Haywards employment agreement also provides for severance payment if he
elects to terminate his employment following a change in control of the Company, as the Board of Directors believes that it is critical to maintain managements business focus in the event of a potential transaction.

For further details, please refer to the section Severance, Termination and Change in Control Payments below.

Stock Option Awards

During fiscal 2008, the Board of
Directors of Holdings approved grants of time based options to a number of employees of the Company, including the NEOs as follows:



|                    |  |                                       
|------------------- |  | --------------------------------------
|Name                |  | Number ofOptionsGranted forFiscal 2008
|Lawrence H. Hayward |  | 40,000                                
|Steven L. Ortega    |  | 20,000                                
|Michael L. Hatch    |  | 20,000                                
|Janet I. McDonald   |  | 10,000                                
|Rick D. Carlson     |  | 10,000                                



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The options vest over a five year period at a rate of 20% annually on each anniversary of the date of
grant and have an exercise price of $2.30 per share. The fair value of the options granted was determined to be $2.30 based on managements estimate of an enterprise value of the Company at the time of grant. These option grants are included in
the compensation tables below.

Additionally, in fiscal 2009, the Board of Directors of Holdings approved grants of time based options to a
number of employees of the Company, including the NEOs as follows:



|                    |  |                                       
|------------------- |  | --------------------------------------
|Name                |  | Number ofOptionsGranted forFiscal 2009
|Lawrence H. Hayward |  | 60,000                                
|Steven L. Ortega    |  | 30,000                                
|Michael L. Hatch    |  | 30,000                                
|Rick D. Carlson     |  | 10,000                                

The options vest over a five year period at a rate of 20% annually on each anniversary of the date
of grant and have an exercise price of $2.90 per share. The fair value of the options granted was determined to be $2.90 based on managements estimate of an enterprise value of the Company at the time of grant. These option grants are not
included in the compensation tables below because they do not relate to compensation for fiscal 2008.

The Board of Directors determined to
issue options to purchase shares of Holdings common stock in order to provide an incentive to the NEOs to remain in the employ of the Company and to align the NEOs interests with the shareholders of Holdings in order to maximize long-term
value.

Compensation of the Named Executive Officers

The following tables show, for fiscal year 2008, compensation awarded or paid to, or earned by, our CEO, CFO, and three most highly compensated executive officers other than the CEO and CFO. We refer to these
executives collectively herein as the Named Executive Officers or NEOs.

SUMMARY COMPENSATION TABLE



|                                                  |  |      |  |           |  |          |  |                |  |                 |  |                                         |  |                                                                        |  |                          |     |  |          
|------------------------------------------------- |  | ---- |  | --------- |  | -------- |  | -------------- |  | --------------- |  | --------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------------------ | --- |  | ---------
|Name and Principal Position                       |  | Year |  | Salary($) |  | Bonus($) |  | StockAwards($) |  | OptionGrants($) |  | Non-EquityIncentive PlanCompensation($) |  | Change inPension Value andNonqualifiedDeferredCompensationEarnings ($) |  | All OtherCompensation($) |     |  | Total ($)
|(a)                                               |  | (b)  |  | (c)       |  | (d)      |  | (e)            |  | (f)(1)          |  | (g)(2)                                  |  | (h)                                                                    |  | (i)                      |     |  | (j)      
|Lawrence H. Hayward                               |  | 2008 |  | 517,000   |  |         |  |               |  | 42,034          |  | 373,480                                 |  |                                                                       |  | 106,993                  | (3) |  | 1,039,507
|Chief Executive Officer and Chairman of the Board |  | 2007 |  | 517,000   |  |         |  |               |  |                |  | 496,521                                 |  |                                                                       |  | 94,558                   | (3) |  | 1,108,079
|                                                  |  |      |  |           |  |          |  |                | 
|Steven L. Ortega                                  |  | 2008 |  | 330,750   |  |         |  |               |  | 21,017          |  | 204,800                                 |  |                                                                       |  | 33,405                   | (4) |  | 589,972  
|Chief Financial Officer, EVP and Director         |  | 2007 |  | 330,750   |  |         |  |               |  |                |  | 272,270                                 |  |                                                                       |  | 31,754                   | (4) |  | 634,774  
|                                                  |  |      |  |           |  |          |  |                | 
|Michael L. Hatch                                  |  | 2008 |  | 320,000   |  |         |  |               |  | 21,017          |  | 198,144                                 |  |                                                                       |  | 4,955                    | (5) |  | 544,116  
|President, Chief Operating Officer and Director   |  | 2007 |  | 320,000   |  |         |  |               |  |                |  | 263,421                                 |  |                                                                       |  | 4,400                    | (5) |  | 587,821  
|                                                  |  |      |  |           |  |          |  |                | 
|Janet I. McDonald                                 |  | 2008 |  | 177,500   |  |         |  |               |  | 10,509          |  | 64,106                                  |  |                                                                       |  | 4,776                    | (5) |  | 256,891  
|SVP, Chief Information Officer                    |  | 2007 |  | 177,500   |  |         |  |               |  |                |  | 84,814                                  |  |                                                                       |  | 4,211                    | (5) |  | 266,525  
|                                                  |  |      |  |           |  |          |  |                | 
|Rick D. Carlson                                   |  | 2008 |  | 170,000   |  |         |  |               |  | 10,509          |  | 61,406                                  |  |                                                                       |  | 4,620                    | (5) |  | 246,535  
|SVP, Commercial, Service and Logistics            |  | 2007 |  | 170,000   |  |         |  |               |  |                |  | 81,273                                  |  |                                                                       |  | 4,400                    | (5) |  | 255,673  



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|(1) | The amounts reflect the dollar amount recognized for financial reporting purposes for the respective period in accordance with SFAS 123R of awards issued pursuant to the 2005 Stock
Option Plan and includes amounts from awards granted in fiscal 2008. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Assumptions used in the calculation of these
amounts for the fiscal years ended September 27, 2008 are included in footnote 15 to our consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Bonuses are attributed to the year earned and are paid out after the conclusion of the fiscal year. For fiscal 2007, certain of the NEOs received their bonuses in November 2007 and
others received their bonuses in January 2008. For fiscal 2008, all of the NEOs received their bonuses in December 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents (i) a cash allowance of $55,125 for 2007 and $57,881 for 2008 for all expenses, including those that may be personal in nature, (ii) a gross up payment of
$33,233 for 2007 and $34,300 for 2008 related to the cash allowance, (iii) legal and accounting expenses paid by the Company and incurred by Mr. Hayward in connection with negotiating his amended employment agreement, and (iv) the
Companys matching contributions to Mr. Haywards 401(k) account.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents (i) a cash allowance of $16,500 for 2007 and $17,325 for 2008 for all expenses, including those that may be personal in nature, (ii) a gross up payment of
$10,854 for 2007 and $11,400 for 2008 related to the cash allowance, and (iii) the Companys matching contributions to Mr. Ortegas 401(k) account.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Represents the Companys matching contributions to each NEOs 401(k) account.
|--- | -----------------------------------------------------------------------------

GRANT OF PLAN-BASED AWARDS



|                    |  |              |  |                                                               |  |                                                                    |  |                                            |  |                                          |  |        |      |     |       
|------------------- |  | ------------ |  | ------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | ------------------------------------------ |  | ---------------------------------------- |  | ------ | ---- | --- | ------
|Name                |  | Grant Date   |  | Estimated Future Payouts UnderNon-Equity Incentive PlanAwards |  | All Other OptionAwards: Number of SecuritiesUnderlying Options ($) |  | Exercise or Base Price of OptionAwards ($) |  | Grant Date FairValue of OptionAwards ($)
|                    |  | Threshold($) |  | Target($)                                                     |  | Maximum($)                                                         |  |                                            | 
|(a)                 |  | (b)          |  | (c)                                                           |  | (d)                                                                |  | (e)                                        |  | (f)                                      |  | (g)(1) |      | (h)
|Lawrence H. Hayward |  | N/A          |  | 180,950                                                       |  | 361,900                                                            |  | 542,850                                    |  | N/A                                      |  |        | N/A  |     | N/A   
|                    |  | 11/5/2007    |  | N/A                                                           |  | N/A                                                                |  | N/A                                        |  | 40,000                                   |  | $      | 2.30 |     | 42,034
|                    |  |              |  |                                                               |  |                                                                    | 
|Steven L. Ortega    |  |              |  | 99,225                                                        |  | 198,450                                                            |  | 297,675                                    |  | N/A                                      |  |        | N/A  |     | N/A   
|                    |  | 11/5/2007    |  | N/A                                                           |  | N/A                                                                |  | N/A                                        |  | 20,000                                   |  | $      | 2.30 |     | 21,017
|                    |  |              |  |                                                               |  |                                                                    | 
|Michael L. Hatch    |  |              |  | 96,000                                                        |  | 192,000                                                            |  | 288,000                                    |  | N/A                                      |  |        | N/A  |     | N/A   
|                    |  | 11/5/2007    |  | N/A                                                           |  | N/A                                                                |  | N/A                                        |  | 20,000                                   |  | $      | 2.30 |     | 21,017
|                    |  |              |  |                                                               |  |                                                                    | 
|Janet I. McDonald   |  |              |  | 31,063                                                        |  | 62,125                                                             |  | 93,188                                     |  | N/A                                      |  |        | N/A  |     | N/A   
|                    |  | 11/5/2007    |  | N/A                                                           |  | N/A                                                                |  | N/A                                        |  | 10,000                                   |  | $      | 2.30 |     | 10,509
|                    |  |              |  |                                                               |  |                                                                    | 
|Rick D. Carlson     |  |              |  | 29,750                                                        |  | 59,500                                                             |  | 89,250                                     |  | N/A                                      |  |        | N/A  |     | N/A   
|                    |  | 11/5/2007    |  | N/A                                                           |  | N/A                                                                |  | N/A                                        |  | 10,000                                   |  | $      | 2.30 |     | 10,509



|(1) | In fiscal year 2008, the fair value of the common stock underlying the 2005 Incentive Stock Option Plan options granted was determined to be $2.30 based on managements
estimate of an enterprise value of the Company at the time of grant.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Agreements

Lawrence H. Hayward

The Company entered into an amended and restated employment agreement with Lawrence Hayward on June 15, 2007, for his employment as Chief Executive
Officer and Chairman of the Board of the Company. On February 8, 2008, the Company restated and supplemented the Amended and Restated Employment Agreement with Mr. Hayward. Certain modifications were made to the agreement, including
changes related to compensation in the event of termination of employment. The employment agreement expires on February 7, 2013 but shall automatically extend for successive one-year periods unless notice is provided in accordance with the
terms of the employment agreement.

Under the employment agreement, the Company shall pay Mr. Hayward a salary at an annual rate of
$517,000. Mr. Hayward shall also be eligible to participate in the Companys bonus plan, with a target bonus for each year of not less than 70% of his base salary in effect at the end of such year. Under the employment agreement, the
Company shall pay Mr. Hayward an annual cash allowance for expenses, which was $57,881 for 2008 (increased annually by 5%), that relates to his employment which might be considered partially or wholly personal in nature, and he is entitled to a
tax gross-up for any taxes related to his receipt of the cash allowance. Mr. Hayward is entitled to receive other benefits such as four (4) weeks of vacation each year, personal and sick leave, insurance and other benefits consistent with
the then-current policies of the Company and equal to those benefits extended to the most senior executives of the Company. Mr. Haywards employment agreement also contains non-solicitation and confidentiality covenants and provides that
Mr. Hayward serves as a Director at the will of the Companys Board of Directors.

Steven L. Ortega

The Company entered into an amended and restated employment agreement with Steven Ortega on June 15, 2007, for his employment as Executive Vice
President and Chief Financial Officer of the Company. The employment agreement provides for a minimum base salary of no less than $330,750 annually. Mr. Ortega is also eligible to participate in the Companys bonus plan with a target bonus
of at least 60% of his base salary in effect for the fiscal year. The bonus plan shall provide for a minimum bonus of 50% of target upon achievement of threshold performance. Mr. Ortega is also entitled to receive prompt reimbursement for all
expenses reasonably and necessarily incurred by him in performing his duties. Under the employment agreement, Mr. Ortega is paid an annual cash allowance for expenses, which was $16,500 for 2007 (increased annually by 5%), that relates to his
employment which might be considered partially or wholly personal in nature, and he is entitled to a tax gross-up for any taxes related to his receipt of the cash allowance. Mr. Ortega is eligible to participate in any medical, dental, life
insurance, disability, retirement, profit-sharing, savings, stock option plan or stock-based compensation plan made generally available by the Company to executives. Additionally, he is eligible to receive vacation (not less than 4 weeks paid
vacation per year) and sick leave. The employment agreement contains non-solicitation and confidentiality covenants and provides that Mr. Ortega will serve as a Director at the will of the Companys Board of Directors. The employment
agreement expires on April 22, 2010 but shall automatically extend for successive one-year periods unless notice is given in accordance with the employment agreement.

Michael L. Hatch

The Company entered into an employment agreement with Michael L. Hatch on
June 15, 2007, for his employment as the President and Chief Operating Officer of the Company. The employment agreement provides for an annual minimum base salary of $320,000, and provides that Mr. Hatch is eligible during each fiscal year
for an annual bonus of 60% of his annual base salary. The employment agreement provides that Mr. Hatch is eligible to participate in the Companys benefit plans consistent with the benefits generally available to executives. Such benefits
include four (4) weeks of vacation each year, personal and sick leave, disability, and medical and life insurance. Under the employment agreement Mr. Hatch is also subject to non-solicitation and confidentiality covenants, and he serves at
the will of the Companys Board of Directors.



54



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2005 Stock Option Plan

As of the 2007 Reorganization, all contractual rights and obligations relating to the Companys 2005 Stock Option Plan (the 2005 Plan) and related agreements were assumed by Holdings. During the
second quarter of 2007 and pursuant to the 2005 Plan, Holdings board of directors approved the acceleration of the vesting of all outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards
immediately before the modification of the vesting was the same value as the fair value after the modification took effect. All of the outstanding options were exercised in February of 2007 after the 2007 Reorganization and all exercises by the NEOs
are reflected in the table below. During fiscal 2007, our Named Executive Officers did not receive any grants of stock options or other stock awards. In November 2008, the Board of Directors of Holdings approved grants of time based options to a
number of employees of the Company, including the NEOs. The options vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

Option Holdings

The following table includes certain information with respect to all options
previously awarded to the executive officers named above that were outstanding as of September 27, 2008.

OUTSTANDING EQUITY AWARDS
AT SEPTEMBER 27, 2008



|                    |  |                                                        |  |                        |  |                       |      |  |         
|------------------- |  | ------------------------------------------------------ |  | ---------------------- |  | --------------------- | ---- |  | --------
|                    |  | Number of Securities UnderlyingUnexercised Options (#) |  | OptionExercisePrice($) |  | OptionExpiration Date
|Name                |  | Exercisable                                            |  | Unexercisable(1)       |  |                      
|Lawrence H. Hayward |  |                                                       |  | 40,000                 |  | $                     | 2.30 |  | 11/04/17
|Steven L. Ortega    |  |                                                       |  | 20,000                 |  | $                     | 2.30 |  | 11/04/17
|Michael L. Hatch    |  |                                                       |  | 20,000                 |  | $                     | 2.30 |  | 11/04/17
|Janet I. McDonald   |  |                                                       |  | 10,000                 |  | $                     | 2.30 |  | 11/04/17
|Rick D. Carlson     |  |                                                       |  | 10,000                 |  | $                     | 2.30 |  | 11/04/17



|(1) | These options were granted on November 5, 2007 and vest over a five-year period at a rate of 20% annually on each anniversary of the date of the grant.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

Severance, Termination and Change in Control Payments

Lawrence H. Hayward

Pursuant to Mr. Haywards employment agreement, if the Company
terminates Mr. Haywards employment for any reason other than his death, disability, Just Cause, or pursuant to the Companys retirement policy or if Mr. Hayward terminates his employment for Good Reason, the Company shall pay
him a lump sum cash amount equal to 200% of the sum of (i) his base salary in effect at the time of the termination, and (ii) the greater of his target bonus for such year and the average of his bonuses for the prior two years. Also, the
Company shall continue to provide, and pay the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Haywards
dependents until they each reach the age of 21 years old. In addition, Mr. Hayward is entitled to a tax gross-up if excise taxes are imposed as a result of any payments made under the agreement. The amount of the gross-up will be sufficient to
cover all such taxes, interests and penalties.

If Mr. Haywards employment is terminated by the Company or himself as a result
of Mr. Haywards disability or in the case of his death, LPM shall pay Mr. Hayward or his estate a lump-sum cash amount equal to 200% of the sum of: (i) his base salary in effect at the time of termination plus (ii) the
greater of (x) his target bonus for such year or (y) the average of his bonuses paid with respect to the prior five years. Additionally, upon such termination for disability, the Company shall continue to provide, and pay the corporate and
individual



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##### Table of Contents

premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for
Mr. Haywards dependents until they each reach the age of 21 years old. In addition, Mr. Hayward or his estate shall be entitled to (a) a pro rata portion of his cash allowance for the year in which his employment terminated,
(b) any outstanding reimbursements to which he is entitled; (c) compensation for unused vacation and (d) any other amounts or benefits due after the termination of employment under the terms of any other applicable agreements, awards,
plans, policies or programs of the Company.

In addition to the foregoing, in the event Mr. Hayward holds any options to purchase
Holdings securities at time of termination of his employment for death or disability, such options shall accelerate and become fully vested. Moreover, the Companies and the Green Parties (as defined in the employment agreement) agree not to exercise
the Call Option (as defined in the employment agreement), to the extent such option is exercisable at the time of termination of Mr. Haywards employment for death or disability within the meaning of the Amended and Restated Stockholders
Agreement dated as of February 20, 2007 among the Company, Holdings and certain stockholders of Holdings. The Company and Holdings further agree that in such event, at any time between the fourth and fifth anniversary of the date of such
termination of employment, Mr. Hayward or his estate shall be entitled to notify the Company to repurchase, for cash, within 60 days of receipt of such notice, all of his shares of Holdings stock then held (whether by Mr. Hayward or any
Individual Related Party, within the meaning of the Stockholders Agreement) at the Fair Market Value thereof (as defined in the Stockholders Agreement), provided that such repurchase, (i) would not result in a violation of any material
agreement to which the Company is then party, (ii) complies with the applicable provisions of state law and (iii) would not result in a violation of the fiduciary duties of the Boards of Directors of the Company and Holdings.

Just Cause is defined in the employment agreement as termination of employment for any of the following reasons:
(i) Mr. Haywards conviction of a felony, without the right of further appeal, which has an adverse impact on the Company or which involves the material misappropriation of the Companys assets, (ii) an intentional or
grossly negligent violation by Mr. Hayward of any reasonable policy of the Board of Directors of the Company that results in material damage to the Company and which, if such violation is curable, after notice to do so, Mr. Hayward fails
to correct within a reasonable time, or (iii) the performance of services by Mr. Hayward for any other company, entity, or person which directly competes with the Company during the time Mr. Hayward is employed by the Company, without
the written approval of the Companys Board of Directors.

Good Reason is described in the employment agreement as
(i) relocation of Mr. Haywards home due to the relocation of the corporate office beyond a 25-mile radius of the current office located in Phoenix, Arizona, or (ii) the consummation of a Change in Control.

Change in Control is defined as any of the following: (i) GCP California Fund, L.P. and its affiliates cease to beneficially own,
directly or indirectly, a majority of the voting securities of the Company, (ii) a merger or consolidation of Holdings or the Company, or (iii) the sale of substantially all of the assets of the Company, in each case in a transaction or
series of transactions as a result of which a majority of the voting securities of the Company cease to be beneficially owned, directly or indirectly, by GCP California Fund, L.P. or any of its affiliates.

Steven L. Ortega

Pursuant to Mr. Ortegas
employment agreement, if the Company terminates Mr. Ortegas employment for any reason other than Cause or Mr. Ortega terminates his employment for Good Reason, Mr. Ortega will receive the following: (i) any unpaid base
salary that has been earned at the time of such termination, (ii) a pro-rata portion of the cash allowance of the year less any amount previously disbursed in that year, (iii) any reimbursements to which he was entitled,
(iv) compensation for accrued but unused vacation, (v) any other amounts or benefits due after the termination of employment under the terms of other agreements, (vi) 200% percent of (A) his base salary in effect at the time of
the termination, plus (B) his target bonus for the year of



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termination to be paid in accordance with the Companys normal payroll procedures, (vii) reimbursement for the premium payable by Mr. Ortega
for health and medical-care insurance coverage under COBRA for a period of 18 months after termination, and (viii) independent, offsite, executive career transition and outplacement services. If Mr. Ortegas employment is terminated
due to death, his estate will receive an amount equal to his target bonus for the fiscal year.

Cause is defined in the
employment agreement as any of the following: (i) Mr. Ortegas breach of the employment agreement or a material Company policy, (ii) the engaging by Mr. Ortega in willful, reckless or grossly negligent misconduct, or
(iii) Mr. Ortega failing or refusing to perform any material obligation or to carry out the reasonable directives of his supervisor consistent with his duties, and Mr. Ortega fails to cure the same within a period of 10 days after
written notice of such failure is provided to him by the Company.

Good Reason is deemed to exists if (i) there is a
material diminution in the title and/or duties, responsibilities or authority of Mr. Ortega, (ii) the Company requires Mr. Ortega to move to another location of the Company or any affiliate and the distance between the new job site is
at least 50 miles away from metropolitan Phoenix, Arizona, (iii) there is a willful failure or refusal by the Company to perform any material obligation under the employment agreement, or (iv) there is a reduction in Mr. Ortegas
base salary or annual bonus target amount.

Michael L. Hatch

Pursuant to Mr. Hatchs employment agreement, if the Company terminates Mr. Hatchs employment for any reason other than (i) under its retirement policy, (ii) upon Mr. Hatchs
death or disability, or (iii) for Just Cause, then the Company shall pay him a lump sum amount equal to his current annual salary and target bonus, less normal withholdings and will reimburse Mr. Hatch for a period of twelve
(12) months after termination for his health and medical-care insurance coverage.

Just Cause is defined in the employment
agreement as termination of employment for any of the following reasons: (i) Mr. Hatchs breach of the employment agreement or of a material policy of the Board of Directors of the Company, (ii) the engaging by Mr. Hatch in
willful, reckless or grossly negligent misconduct, (iii) Mr. Hatchs indictment, charge, conviction or guilty pleas (or plea of nolo contendere) with respect of an offense involving moral turpitude or a felony,
(iv) Mr. Hatchs failing or refusing to perform any material obligation or to carry out the reasonable directives of Mr. Hatchs supervisor consistent with his duties, and Mr. Hatch fails to cure the same within a
period of 10 days after written notice of such failure is provided to Mr. Hatch, or (v) the performance of services by Mr. Hatch for any other company, entity, or person which directly competes with the Company during the time
Mr. Hatch is employed by the Company, without the written approval of the Board of the Company.

We did not execute employment
agreements with any other Named Executive Officers.



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##### Table of Contents

Potential Payments Upon Termination or Change in Control

The following table sets forth potential payments for each Named Executive Officer in the event of various termination circumstances. This presentation
assumes termination has occurred on the last business day of fiscal 2008. Due to uncertainties inherent in this estimation process, it is possible actual payments may vary from these estimates.



|                    |  |                                                                |           |     |                                     |   |           |                               |  |            |  |       |  |   |            |     |  |                                          |           |     |  |   |           |    
|------------------- |  | -------------------------------------------------------------- | --------- | --- | ----------------------------------- | - | --------- | ----------------------------- |  | ---------- |  | ----- |  | - | ---------- | --- |  | ---------------------------------------- | --------- | --- |  | - | --------- | ---
|Name                |  | Terminationby theCompanyother thanfor Death,Disability orCause |           |     | Resignationby the NEOfor GoodReason |   |           | VoluntaryResignationby theNEO |  | Retirement |  | Death |  |   | Disability |     |  | Terminationby NEOafter aChange inControl |          
|Lawrence H. Hayward |  | $                                                              | 2,215,000 | (1) |                                     | $ | 2,215,000 | (1)                           |  |           |  |      |  | $ | 2,256,000  | (2) |  | $                                        | 2,315,000 | (2) |  | $ | 2,215,000 | (3)
|Steven L. Ortega    |  | $                                                              | 1,093,381 | (4) |                                     | $ | 1,093,381 | (4)                           |  |           |  |      |  |   | 198,450    | (5) |  |                                          |          |     |  |   |          |    
|Michael L. Hatch    |  | $                                                              | 523,537   | (6) |                                     |   |          |                               |  |           |  |      |  |   |           |     |  |                                          |          |     |  |   |          |    
|Janet I. McDonald   |  |                                                                |          |     |                                     |   |          |                               |  |           |  |      |  |   |           |     |  |                                          |          |     |  |   |          |    
|Rick D. Carlson     |  |                                                                |          |     |                                     |   |          |                               |  |           |  |      |  |   |           |     |  |                                          |          |     |  |   |          |    



|(1) | Comprised of (i) 200% of (x) Mr. Haywards base salary in effect at the time of termination and (y) the greater of his target bonus for such year and the
average of his bonuses for the prior five years, (ii) an amount equal to the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and
for Mr. Haywards dependents until they each reach the age of 21 years old.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Comprised of (i) 200% of the sum of: (x) Mr. Haywards base salary in effect at the time of termination plus (y) the greater of his target bonus for such
year or the average of his bonuses paid with respect to the prior five years and (ii) the aggregate value (based upon the spread) of Mr. Haywards outstanding options that would vest as a result of his termination. In the case of
disability, this amount also includes the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Haywards dependents
until they each reach the age of 21 years old.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Comprised of all amounts set forth in footnote (1) above. In addition, Mr. Hayward is entitled to a tax gross-up if excise taxes are imposed as a result of any payment made
under the agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Comprised of (i) 200% of Mr. Ortegas base salary in effect at the time of termination, (ii) 200% of his target bonus for such year, (iii) an amount equal
to the monthly premium payable by Mr. Ortega for health and medical insurance coverage for him and his dependents for eighteen months, and (iv) an estimate of the costs of providing Mr. Ortega with the career transition and
outplacement services set forth in his employment agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | If Mr. Ortegas employment terminates on account of death, he will receive his target bonus for the fiscal year in which he died.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(6) | Comprised of (i) Mr. Hatchs annual salary at the time of termination, (ii) his target bonus for such year, and (iii) an amount equal to the monthly premium
payable by Mr. Hatch for health and medical insurance coverage for him and his dependents for twelve months.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Directors
Compensation

The following table lists each of our directors, who is not also an NEO. Generally, Directors do not receive any
compensation for their service on the Companys Board of Directors other than reimbursement for reasonable out-of-pocket expenses incurred in connection with attending meetings. However, during fiscal 2008, Mr. Edward Agnew received $4,000
for each quarterly meeting of the Companys Board of Directors.

Non-employee directors also are eligible to receive grants of stock
options pursuant to the discretion of the Board of Directors. During 2008, Mr. Edward Agnew was granted an option to purchase 15,000 shares of Leslies Holdings Inc. common stock at a price equal to the fair market value at the time
of the award of $2.30 per share. This option award vests 20% each year over a period of five years.



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##### Table of Contents

DIRECTOR COMPENSATION

For Fiscal Year Ended 2008



|                    |  |                                |  |                      |  |                    |  |                                            |  |                                                                         |  |                             |  |            
|------------------- |  | ------------------------------ |  | -------------------- |  | ------------------ |  | ------------------------------------------ |  | ----------------------------------------------------------------------- |  | --------------------------- |  | -----------
|Name (a)            |  | FeesEarned orPaid inCash($)(b) |  | StockAwards($)(c)(1) |  | OptionAwards($)(d) |  | Non-EquityIncentive PlanCompensation($)(e) |  | Change inPensionValue
andNonqualifiedDeferredCompensationEarnings($)(f) |  | All OtherCompensation($)(g) |  | Total($)(h)
|Edward C. Agnew     |  | 16,000                         |  | 15,763               |  |                   |  |                                           |  |                                                                        |  |                            |  | 31,763     
|John M. Baumer      |  |                               |  |                     |  |                   |  |                                           |  |                                                                        |  |                            |  | 0          
|John G. Danhakl     |  |                               |  |                     |  |                   |  |                                           |  |                                                                        |  |                            |  | 0          
|Michael J. Fourticq |  |                               |  |                     |  |                   |  |                                           |  |                                                                        |  |                            |  | 0          



|(1) | On May 20, 2008, Mr. Agnew was granted an option to purchase 15,000 shares of Leslies Holdings Inc. common stock. All 15,000 shares were outstanding and
unexerciseable as of September 27, 2008. The amount reflects the dollar amount recognized for financial reporting purposes for the respective period in accordance with SFAS 123R of awards issued pursuant to the 2005 Stock Option Plan and
includes amounts from awards granted in fiscal 2008. Assumptions used in the calculation of these amounts for the fiscal years ended September 27, 2008 are included in footnote 15 to our consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation Committee Interlocks and Insider Participation

The Board of Directors of the Company does not have a compensation committee. The independent members of the Companys Board of Directors sets
compensation in executive session. None of our Named Executive Officers participated in discussions of the Board of Directors related to executive compensation in fiscal 2008.



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##### Table of Contents

Compensation Committee Report

The Companys Board of Directors does not have a compensation committee. The Board of Directors of the Company reviewed and discussed with management the Compensation Discussion and Analysis set forth above for
the 2008 fiscal year. As a result of this review and discussion, the Board of Directors approved the Compensation Discussion and Analysis for inclusion in this annual report.



|                    |  |                               
|------------------- |  | ------------------------------
|BOARD OF DIRECTORS: |  | Lawrence H. Hayward (Chairman)
|                    |  | Steven L. Ortega              
|                    |  | Michael L. Hatch              
|                    |  | Edward C. Agnew               
|                    |  | John M. Baumer                
|                    |  | John G. Danhakl               
|                    |  | Michael J. Fourticq           



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##### Table of Contents

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

Holdings beneficially owned 100% of the Companys common stock as of September 27, 2008. Accordingly,
Holdings owned 100% of the economic and voting power in the Company. The following table sets forth information as of September 27, 2008 with respect to (i) all persons known by us to be the beneficial owner of more than 5% of
Holdings common stock; (ii) all executive officers; (iii) all directors; and (iv) all directors and executive officers as a group.



|                                                             |  |                                                         |  |                               
|------------------------------------------------------------ |  | ------------------------------------------------------- |  | ------------------------------
|Name and Address of Beneficial Owner(1)                      |  | Amount and Nature ofBeneficial Ownershipof Common Stock |  | Percentage ofSharesOutstanding
|Leslies Coinvestment, LLC(2)                                |  | 9,152,403                                               |  | 21.0                          
|John M. Baumer(2)(3)                                         |  | 33,867,730                                              |  | 77.6                          
|John G. Danhakl(2)(3)                                        |  | 33,867,730                                              |  | 77.6                          
|GCP California Fund, L.P.(3)                                 |  | 24,715,327                                              |  | 56.6                          
|Michael J. Fourticq                                          |  | 732,270                                                 |  | 1.7                           
|Edward C. Agnew                                              |  |                                                        |  |                              
|Lawrence H. Hayward                                          |  | 3,050,000                                               |  | 7.0                           
|Steven L. Ortega                                             |  | 920,000                                                 |  | 2.1                           
|Michael L. Hatch                                             |  | 420,000                                                 |  | 1.0                           
|Janet I. McDonald                                            |  | 235,000                                                 |  | 0.5                           
|Rick D. Carlson                                              |  | 270,000                                                 |  | 0.6                           
|All executive officers and directors as a group (10 persons) |  | 39,495,000                                              |  | 90.4                          



|(1) | The address of Messrs. Fourticq, Hayward, Ortega, Hatch and Carlson and Ms. McDonald is 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040. The address of Leslies
Coinvestment, LLC, GCP and Messrs. Baumer and Danhakl is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California 90025. The address of Mr. Agnew is 22294 N. 79th Place Scottsdale, AZ 85255.(2) Leslies Coinvestment, LLC is a
Delaware limited liability company managed by LGP. Each of Messrs. Jonathan D. Sokoloff, Peter J. Nolan, John D. Danhakl, Jonathan A. Seiffer, John M. Baumer and Timothy J. Flynn, either directly (whether through ownership interest or position) or
through one or more intermediaries, may be deemed to control LGP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn may be deemed to be beneficial owners of the shares of the Companys common stock
held or controlled by LGP. However, such individuals disclaim beneficial ownership of the securities held by LGP, except to the extent of their respective pecuniary interests therein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | GCP is a Delaware limited partnership managed by an affiliate of LGP, which is an affiliate of the general partner of GCP. Each of Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer
and Flynn either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control the affiliate of LGP and such general partner. The affiliate of LGP and such general partner may be deemed to
control the voting and disposition of the shares of the Companys common stock owned by GCP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn may be deemed to be beneficial owners of the shares of
the Companys common stock held by GCP. However, such individuals disclaim beneficial ownership of the securities held by GCP, except to the extent of their respective pecuniary interests therein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Management Services Agreement

We entered into a
Management Services Agreement with LGP concurrent with the consummation of the 2005 Recapitalization. The Management Services Agreement provides that we will pay LGP an annual fee of $1.0 million for ongoing management, consulting and financial
services. In addition, the Management Services



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Agreement provides that LGP may provide us with financial advisory or investment banking services in connection with major financial transactions, and LGP
will be paid a customary fee for such services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will automatically extend for
one year periods thereafter unless either we or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less of the Companys shares and
(c) the consummation of a public offering of the Companys common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Companys shares of common stock is publicly traded. In the
event of the Companys bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of all amounts due and owing under
the indenture governing the notes.

Stockholders Agreement

We entered into a Stockholders Agreement with GCP and each of the Companys other stockholders concurrent with the consummation of the 2005 Recapitalization. The Stockholders Agreement generally restricts the
transferability of the Companys stock and gives GCP and its affiliates a right of first refusal in the event any other stockholder seeks to transfer any of the Companys stock to a third party. In addition, GCP and its affiliates have
certain drag-along rights and if GCP and its affiliates desire to sell any of the Companys stock, other stockholders will have certain tag-along rights to participate in such sale. We and certain of the non-management
stockholders have certain rights to repurchase a portion of the stock held by management upon their ceasing to provide services to us. The Stockholders Agreement also grants demand registration rights to the non-management stockholders and piggyback
registration rights for all stockholders. Finally, Mr. Fourticq has certain rights to be elected as a director of Leslies.

On
October 25, 2005, certain provisions of the Stockholders Agreement were amended dealing with termination of employment and in February 2007, the Stockholders Agreement was amended further reflecting the certain modifications related to the 2007
Reorganization.

Indemnification

We
have agreed that we will indemnify all of the Companys current and former directors and officers after the consummation of the 2005 Recapitalization for all costs and expenses incurred in proceedings arising out of or pertaining to the 2005
Recapitalization.

Director Independence

We are a corporation with public debt (not listed on any exchange) whose equity is privately held by Holdings, a private holding company. Although our Board has not made a formal determination on the matter, under current New York Stock
Exchange listing standards (which we are not currently subject to) and taking into account any applicable committee standards, we believe that Messrs. Hayward, Ortega and Hatch would not be considered independent under any general listing standards
or those applicable to any particular committee due to their employment relationship with the Company, Mr. Edward Agnew would not be considered independent under any general listing standards or those applicable to any particular committee due
to his sons employment with the Company as Senior Vice President of Operations, and Messrs. Danhakl and Baumer may not be considered independent under any general listing standards or those applicable to any particular committee, due to their
direct relationship with LGP and GCP, our largest shareholders.



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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The firm of Ernst & Young LLP, an independent registered public accounting firm, has audited the financial statements of our company for the
fiscal years 2007 and 2008. The Board of Directors of the Company approve all engagements and fees prior to any services being rendered by our principle accountants.

Aggregate fees billed to our company for the fiscal years ended September 27, 2008 and September 29, 2007 by Ernst & Young LLP, are as follows:



|                      |  |            |         |            |   |        
|--------------------- |  | ---------- | ------- | ---------- | - | -------
|                      |  | Fiscal2008 |         | Fiscal2007
|Audit Fees(1)         |  | $          | 398,300 |            | $ | 361,100
|Audit-Related Fees(2) |  |            | 37,200  |            |   | 67,500 
|                      |  |            |         |            |   |        
|Total                 |  | $          | 435,500 |            | $ | 428,600
|                      |  |            |         |            |   |        



|(1) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes fees and expenses for various services rendered from October through September of the fiscal year, notwithstanding when the fees and expenses were billed.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1),
(2) The following financial statements and financial statement schedules are included herewith and are filed as part of this annual report.



|                                                                                                                        |  |   
|----------------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                                                 |  | 24
|                                                                                                                        | 
|Consolidated Balance SheetsSeptember 27, 2008 and September 29, 2007                                                   |  | 25
|                                                                                                                        | 
|Consolidated Statements of OperationsYears Ended September 27, 2008, September 29, 2007 and October 1,
2005            |  | 26
|                                                                                                                        | 
|Consolidated Statements of Stockholders DeficitYears Ended September 27, 2008, September 29, 2007 and October
1, 2005 |  | 27
|                                                                                                                        | 
|Consolidated Statements of Cash Flows Years Ended September 27, 2008, September 29, 2007 and October 1,
2005           |  | 28
|                                                                                                                        | 
|Notes to Consolidated Financial Statements                                                                              |  | 29

(a)(3) The following exhibits set forth below are filed as part of this annual report or are
incorporated herein by reference.



|              |  |                                                                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                     
|2.1*          |  | Agreement and Plan of Merger dated as of January 7, 2005 between the Company and LPM Acquisition LLC (previously filed as Exhibit 2.1 to the Current
Report on Form 8-K filed on January 11, 2005)                                                                                              
|              | 
|2.2*          |  | Agreement and Plan of Merger to Form Holding Company (previously filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)                                                                                                                                           
|              | 
|3.1*          |  | Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on January 25, 2005 (previously filed as Exhibit 3.1 to the Registration Statement on Form S-4 filed
on April 22, 2005)                                                                            
|              | 
|3.2*          |  | Bylaws of the Company (previously filed as Exhibit 3.5 to the Registration Statement on Form S-1 filed on June 27, 1997)                                                                                                                                                                        
|              | 
|3.3*          |  | Form of Certificate of Incorporation of Surviving Corporation (previously filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)                                                                                                                                  
|              | 
|4.1*          |  | Indenture dated as of May 21, 2003 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 4.1 to the Registration Statement on Form S-4 filed on July 18,
2003)                                                                                          
|              | 
|4.2*          |  | Supplemental Indenture dated as of January 11, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.01 to the Current Report on Form 8-K filed on
January 25, 2005)                                                                            
|              | 
|4.3*          |  | Indenture dated as of January 25, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.2 to the
Current Report on Form 8-K filed on January 28, 2005)                                                                                          
|              | 
|10.1*         |  | Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the stockholders identified on the signature pages thereto
(previously filed as Exhibit 10.1 to the Registration Statement on Form S-4 filed on April 22, 2005)



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|              |  |                                                                                                                                                                                                                                                                                                                                          
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                              
|10.2*         |  | Amendment dated as of October 25, 2005 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the
stockholders identified on the signature pages thereto (previously filed as Exhibit 10.3 to the Annual Report on Form 10-K filed on December 20, 2005)
|              | 
|10.3*         |  | Management Services Agreement dated as of January 25, 2005 between the Company and Leonard Green & Partners, L.P. (previously filed as Exhibit 10.2 to the Registration Statement on Form S-4 filed on April 22, 2005)                                                                                                                   
|              | 
|10.4*         |  | Lease Agreement dated as of August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.7 to the Registration Statement on Form S-1/A filed on
July 21, 1997)                                                                                                                               
|              | 
|10.5*         |  | First Amendment dated as of June 21, 1996 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.4 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                                     
|              | 
|10.6*         |  | Second Amendment dated as of September 30, 1999 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.5 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                               
|              | 
|10.7*         |  | Third Amendment dated as of April 14, 2000 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.6 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                                    
|              | 
|10.8*         |  | Fourth Amendment dated as of November 1, 2004 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.9 to the
Annual Report on Form 10-K filed on December 20, 2005)                                                                                      
|              | 
|10.9*         |  | Lease dated as of November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to Registration Statement on Form S-1/A filed on July 21,
1997)                                                                                                                                    
|              | 
|10.10*        |  | Addendum dated as of November 1996 to the Lease dated November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to the Registration
Statement on Form S-4 filed on April 22, 2005)                                                                                             
|              | 
|10.11*        |  | Lease Agreement dated as of December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.8
to the Registration Statement on Form S-1/A filed on July 21, 1997)                                                                                                                  
|              | 
|10.12*        |  | First Amendment dated as of June 3, 1999 to the Lease Agreement dated December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.10 to
the Registration Statement on Form S-4 filed on April 22, 2005)                                                                        
|              | 
|10.13*        |  | Lease dated as of April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.11 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                                                                                   
|              | 
|10.14*        |  | First Addendum dated as of July 21, 1999 to the Lease dated April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.12 to the Registration Statement on Form S-4 filed on April 22,
2005)                                                                                         
|              | 
|10.15*        |  | Lease Agreement dated as of March 30, 2004 between ProLogis and the Company (previously filed as Exhibit 10.13 to the Registration Statement on Form S-4 filed on April 22, 2005)                                                                                                                                                        



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|              |  |                                                                                                                                                                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                      
|10.16*        |  | Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.14 to the Registration Statement on Form S-4 filed on April 22,
2005)                                                                                                                                                    
|              | 
|10.17*        |  | First Amendment dated as of November 30, 2000 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.15 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                                               
|              | 
|10.18*        |  | Second Amendment dated as of June 26, 2001 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.16 to the Registration
Statement on Form S-4 filed on April 22, 2005)                                                                                                  
|              | 
|10.19*        |  | Third Amendment dated as of May 31, 2002 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.17 to the Registration
Statement on Form S-4 filed on April 22, 2005)                                                                                                    
|              | 
|10.20*        |  | Fourth Amendment dated as of April 9, 2004 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.18 to the Registration
Statement on Form S-4 filed on April 22, 2005)                                                                                                  
|              | 
|10.21*        |  | Form of Directors and Officers Indemnification Agreement dated as of January 1, 2000 between the Company and certain members of management (previously filed as Exhibit 10.19 to
the Registration Statement on Form S-4 filed on April 22, 2005)                                                                                               
|              | 
|10.22*        |  | 2005 Stock Option Plan (previously filed as Exhibit 10.23 to the Annual Report on Form 10-K filed on December 20, 2005)                                                                                                                                                                                                                          
|              | 
|10.23*        |  | Amended and Restated Employment Agreement dated February 8, 2008 between the Company and Lawrence H. Hayward (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on
February 12, 2008)                                                                                                                                  
|              | 
|10.24*        |  | Amended and Restated Executive Employment Agreement dated as of June 15, 2007 between the Company and Steven L. Ortega (previously filed as Exhibit
10.24 to the Annual Report on Form 10-K filed on December 17, 2007)                                                                                                                          
|              | 
|10.25*        |  | Employment Agreement dated as of June 15, 2007 between the Company and Michael L. Hatch (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 19, 2007)                                                                                                                                                              
|              | 
|10.26*        |  | Amended and Restated Loan and Security Agreement dated as of January 25, 2005 between the Company, LPM Manufacturing, Inc., Wells Fargo Retail Finance LLC and the other lenders parties thereto
(previously filed as Exhibit 10.3 to the Current Report on Form 8-K filed on January 28, 2005)                                                  
|              | 
|10.27*        |  | Registration Rights Agreement, dated as of January 25, 2005, between the Company and certain holders of the Companys 7.75% Senior Notes due 2013 (previously filed as Exhibit 10.01 to the
Current Report on Form 8-K filed on January 28, 2005)                                                                                                
|              | 
|10.28*        |  | First Amendment dated as of July 26, 2007 to the Lease dated November 26, 2006 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.24 to the Annual
Report on Form 10-K filed on December 17, 2007)                                                                                                  
|              | 
|10.29*        |  | Amendment No. 2 dated as of June 15, 2006 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the
stockholders identified on the signature pages thereto (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)   
|              | 
|10.30*        |  | Amendment No. 3 dated as of February 7, 2007 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the stockholders identified on the signature pages thereto (previously filed as Exhibit 10.2 to the Quarterly Report
on Form 10-Q filed on February 9, 2007)



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|              |  |                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                          
|10.31         |  | Third Amendment dated as of January 15, 2008 to the Lease Agreement dated December 30, 1997 by and between Liberty Property Limited Partnership and
the Company (previously filed as Exhibit 10.10 to the Registration Statement on Form S-4 filed on April 22, 2005)
|              | 
|21.1*         |  | Subsidiaries (previously filed as Exhibit 21.1 to the Annual Report on Form 10-K405 filed on December 22, 1999)                                                                                                                                                      
|              | 
|24.1          |  | Power of Attorney (included on signature page)                                                                                                                                                                                                                       
|              | 
|31.1          |  | Certification of Lawrence H. Hayward                                                                                                                                                                                                                                 
|              | 
|31.2          |  | Certification of Steven L. Ortega                                                                                                                                                                                                                                    
|              | 
|32.1          |  | Certification of Lawrence H. Hayward and Steven L. Ortega                                                                                                                                                                                                            



|* | Previously filed
|- | ----------------

| | Management contract or compensatory plan
|- | ----------------------------------------



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COPIES OF THIS FORM 10-K MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN

REQUEST TO THE COMPANY AT THE FOLLOWING ADDRESS:

LESLIES POOLMART, INC.

3925 E. BROADWAY RD., SUITE #100

PHOENIX, ARIZONA 85040

ATTN:
CORPORATE SECRETARY

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in
the City of Phoenix, State of Arizona, on December 22, 2008.



LESLIES POOLMART, INC. (Registrant)By:

/s/ STEVEN L. ORTEGASteven L. Ortega Chief Financial
Officer


KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Lawrence H. Hayward, Steven L. Ortega, and each of them, his true and lawful attorney or attorneys-in-fact and agent or agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including pre-or post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.



|                                            |  |                                                                |  |                  
|------------------------------------------- |  | -------------------------------------------------------------- |  | -----------------
|Signature                                   |  | Capacity                                                       |  | Date             
|                                            |  |                                                               
|/S/ LAWRENCE H. HAYWARD Lawrence H. Hayward |  | Chairman of the Board of Directors and Chief Executive Officer |  | December 22, 2008
|                                            |  |                                                               
|/S/ EDWARD C. AGNEW Edward C. Agnew         |  | Director                                                       |  | December 22, 2008
|                                            |  |                                                               
|/S/ JOHN M. BAUMER John M. Baumer           |  | Director                                                       |  | December 22, 2008
|                                            |  |                                                               
|/S/ JOHN G. DANHAKL John G. Danhakl         |  | Director                                                       |  | December 22, 2008
|                                            |  |                                                               
|/S/ MICHAEL J. FOURTICQ Michael J. Fourticq |  | Director                                                       |  | December 22, 2008



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|                                      |  |                                                                    |  |                  
|------------------------------------- |  | ------------------------------------------------------------------ |  | -----------------
|Signature                             |  | Capacity                                                           |  | Date             
|                                      |  |                                                                   
|/S/ MICHAEL L. HATCH Michael L. Hatch |  | President, Chief Operating Officer and Director                    |  | December 22, 2008
|                                      |  |                                                                   
|/S/ STEVEN L. ORTEGA Steven L. Ortega |  | Chief Financial Officer, Director and Principal Accounting Officer |  | December 22, 2008



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