10-K405

TABLE OF CONTENTS

PART I
	Item 1. Business.
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Shareholders’ Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosure about Market Risk
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10. Directors and Executive Officers of the Registrant.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management.
	Item 13. Certain Relationships and Related Transactions.
PART IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form 10-K	Commission File No. 000-26991
	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
X	EXCHANGE ACT OF 1934 (Fee Required)
	For the fiscal year ended December 31, 1999
	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
[_]	EXCHANGE ACT OF 1934 (No Fee Required)
	For the transition period from ______________ to ________________

Anthony & Sylvan Pools Corporation

(Exact name of registrant as specified in its charter)

Ohio	31-1522456
(State of Incorporation)	(I.R.S. Employer
	Identification No.)

6690 Beta Drive, Mayfield Village, Ohio	44143
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (440) 720-3301

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

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

Title of Each Class	Name of Each Exchange on which Registered
Common Shares, No	The Company’s common stock trades on the Nasdaq
Par Value.	SmallCap Stock Market under the symbol: SWIM

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, as amended, during the preceding 12 months, 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 ]

The aggregate market value of the Registrant’s Common Shares held by non-affiliates of the Registrant on March 24, 2000 was $7,283,654

Indicate the number of shares outstanding of each of the issuer’s classes of common shares, as of the latest practicable date.

Class	Outstanding at March 24, 2000
Common Shares, no par value	2,652,539 Shares

Portions of the following documents are incorporated by reference:

(1)	1999 Annual Report to Shareholders	Part II
(2)	Definitive Proxy Statement for the Annual Meeting
	of Shareholders to be held May 2, 2000	Part III

ANTHONY AND SYLVAN POOLS CORPORATION
1999 FORM 10-K ANNUAL REPORT

Table of Contents

		Begins
PART I		On
		Page
Item 1.	Business	3
Item 2.	Properties	5
Item 3.	Legal Proceedings	5
Item 4.	Submission of Matters to a Vote of Security Holders	5
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Shareholders’ Matters	6
Item 6.	Selected Financial Data	6
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item 8.	Financial Statements and Supplementary Data	7
Item 9.	Disagreements on Accounting and Financial Disclosure	7
PART III
Item 10.	Directors and Executive Officers of the Registrant	8
Item 11.	Executive Compensation	9
Item 12.	Security Ownership of Certain Beneficial Owners and
	Management	9
Item 13.	Certain Relationships and Related Transactions	9
PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	10

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PART I

Item 1. Business.

(a) General development of business.

      Anthony and Sylvan Pools Corporation (“The Company”) was formed in 1997 to acquire the assets and business of a predecessor corporation. That predecessor corporation was the successor to the pool installation businesses of Pennsylvania-based Sylvan Pools and California-based Anthony Pools. Sylvan Pools was founded by Herman Silverman in 1946 and grew to become the leading pool installer in the Northeast, with operations stretching out to the Southeast, Texas and Nevada. Anthony Pools was founded by Phil Anthony in 1947 and eventually established itself as one of the largest pool companies in the United States. In 1996, the parent Company of Sylvan Pools purchased Anthony Pools and combined the two businesses under the name “Anthony & Sylvan.” Anthony & Sylvan has built over 300,000 pools in its history.

      The Company is among the largest installers of residential in-ground concrete swimming pools in the United States with a network of 44 sales offices serving 26 geographic markets in 16 states. The majority of the Company’s pools range in price from $15,000 to $40,000. Historically, its sales have been seasonally strongest in the second and third quarters and weakest in the first and fourth quarters. The Company built approximately 6,000 pools (using on an “equivalent completed unit” basis) in 1999. In addition to installing residential pools, the Company:

• Provides pool renovation services in selected markets; and

• Operates 18 retail locations that sell chemicals, replacement parts, accessories, equipment and inflatables; and

• Operates a field service operation that offers post-installation services such as pool openings and weekly maintenance.

(b) Swimming Pool Sales and Installation Industry.

      The Company estimates that the installation of residential in-ground swimming pools is a $3.5 billion per year industry in the United States. According to the National Spa & Pool Institute, the number of residential in-ground pools installed annually in the United States has grown from 121,000 in 1994 to 172,000 in 1998. In each of these years, the percentage of residential in-ground swimming pools installed using formative structures made of concrete, vinyl liners and pre-molded fiberglass has remained fairly consistent and in 1998 represented 68.8%, 28.8% and 2.6%, respectively, of total residential in-ground swimming pools installed. While other sectors of the residential in-ground swimming pool business, such as manufacturing, distribution and retailing of pool products and equipment, have undergone significant consolidation in recent years, the sales and installation industry has remained highly fragmented.

(c) Sales and Marketing

      The Company sells its products to a large number of customers, primarily residential homeowners. A dedicated sales force of approximately 170 employees who have responsibility for developing and maintaining customer relationships conducts its principal sales activities. Sales visits are conducted in the customer’s home or at an Anthony & Sylvan sales office near the customer’s home. The introduction of the laptop computer as a selling tool in recent years has significantly enhanced the quality and professionalism of the Company’s sales presentations and reinforced its image as an expert installer. As a service to its customers, the Company maintains relationships with lenders that provide financing to its customers.

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      The Company does most of its advertising in local newspapers and Yellow Pages. It also advertises, to a lesser extent, through radio, television, billboards and direct mail and has attracted buyers as a result of referrals from previous customers and realtors, among others. The Company also operates an Internet site – WWW.Anthony-Sylvan.com.

(d) Competition

      The Company faces competition primarily from regional and local installers. The Company believes that there are a small number of swimming pool companies that compete with Anthony & Sylvan on a national basis. Barriers to entry in the swimming pool sales and installation industry are relatively low.

      The Company believes that the principal competitive factors in the pool installation business are the quality and level of customer service, product pricing, breadth and quality of products offered, ability to procure labor and materials on a market by market basis from local and regional sources, financial integrity and stability, and consistency of business relationships with customers. The Company believes it compares favorably with respect to each of these factors.

(e) Principal Suppliers and Subcontractors

      The Company regularly evaluates supplier relationships and considers alternate sourcing as appropriate to assure competitive costs and quality standards. The Company currently does not have long-term contracts with its suppliers. It also believes there are currently a number of other suppliers of that equipment on comparable terms.

      The Company utilizes both company employees as well as subcontractors to install pools; however, the majority of its installation labor base consists of subcontractors. The Company’s personnel act as field supervisors to oversee all aspects of the installation process and as schedulers to coordinate the activities of the subcontractors and communicate with the customer.

(f) Backlog

      As of December 31, 1999, the Company had approximately $28,000,000 of contracts for swimming pool installations that had not been started and $16,700,000 of remaining revenue to be recognized on contracts currently under installation. The Company believes based on past experience that the December 31, 1999 backlog will be completed in 2000.

(g) Employees

      At February 29, 2000, the Company employed approximately 634 persons, on a full-time basis of which approximately 100 were management personnel. During the peak swimming pool sales and installation season the Company will employ additional operations personnel who will primarily be involved in the installation of swimming pools.

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      No employees are covered by collective bargaining agreements and the Company believes it has satisfactory relations with its employees.

Item 2. Properties.

      The Company currently operates 44 sales offices and 18 retail stores. In addition it has a number of warehouses at which it stores inventory used in pool installations. Its executive offices are located in Mayfield Village, Ohio. The Company believes that no single property is material to its operations and that alternate sites are presently available at market rates.

Item 3. Legal Proceedings.

      From time to time, the Company is involved in litigation and proceedings arising in the ordinary course of business. Although the outcome of litigation and claims is uncertain, the Company does not believe that there are any pending proceedings which could be expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year covered by this report.

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Shareholders’ Matters.

      The Company’s Common Shares are listed on the NASDAQ SmallCap Stock Market under the symbol SWIM. At March 24, 2000 2,648,311 outstanding common shares were held by 236 shareholders of record. There were no cash dividends declared or paid for the year ended December 31, 1999, as the Company’s policy is to retain earnings and cash for future expansion of the business. For information on the market price range see page 22 of Anthony & Sylvan Pools 1999 Annual Report to Shareholders incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

Item 6. Selected Financial Data.

      Information with respect to selected financial data for each of the last five fiscal years contained on page 22 of Anthony & Sylvan Pools 1999 Annual Report to Shareholders is incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      The Management’s Discussion and Analysis of Financial Condition and Results of Operations contained on pages 19 through 21 of Anthony & Sylvan Pools 1999 Annual Report to Shareholders is incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

      The Company is exposed to various market risks, including changes in pricing of raw materials and sourced components and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as commodity prices and interest rates. The Company does not enter into financial instruments to manage and reduce the impact of some of these risks. Further, the Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

      The Company is exposed to cash flow and fair value risk arising out of changes in interest rates with respect to its long-term debt. Information with respect to the Company’s principal cash flows and it’s weighted average interest rates on long-term debt at December 31, 1999 is included in Note 6 of the Consolidated Financial Statements on page 15 of Anthony & Sylvan Pools 1999 Annual Report to Shareholders incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

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Item 8. Financial Statements and Supplementary Data.

      The consolidated financial statements and accompanying notes of Anthony & Sylvan Pools contained on pages 9 through 17, inclusive, of Anthony & Sylvan Pools 1999 Annual Report to Shareholders, together with the report of Independent Public Accountants relating thereto contained on page 18 thereof, and the unaudited quarterly financial data under the heading “Quarterly Financial Information” on page 22 of such Annual Report, are incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

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PART III

Item 10. Directors and Executive Officers of the Registrant.

(a) Identification of Directors

The identity of directors including age, business experience, positions held and other relevant information is contained in the Company’s Proxy Statement dated March 31, 2000; (filed with the Commission pursuant to Regulation 14A) under the headings DIRECTORS, on pages 2-3 and DIRECTORS’ COMMITTEES, MEETINGS AND FEES on pages 3-4 is incorporated herein by this reference.

(b) Identification of Executive Officers

The persons named below are the executive officers of the Company at the date hereof.

Name	Age	Position
Stuart D. Neidus	49	Chairman and Chief Executive Officer, Director
Howard P. Wertman	55	President
Richard M. Kelso	51	Executive Vice President and Chief Operating Officer
William J. Evanson	49	Executive Vice President and Chief Financial Officer
Martin J. Degnan	54	Vice President, Secretary and General Counsel

      Stuart D. Neidus has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since September 1998. He served as Chief Financial Officer of the Company from September 1998 through April 1999. Mr. Neidus also served as Executive Vice President and Chief Financial Officer of Essef Corporation from September 1996 to August 1999. Prior to that, from 1992 to 1996 Mr. Neidus served with Premier Farnell plc, successor to Premier Industrial Corporation, most recently as Executive Vice President. Prior to joining Premier Farnell plc, Mr. Neidus spent 19 years as an independent public accountant with KPMG LLP, including eight years as a partner.

      Howard P. Wertman has served as President of Anthony & Sylvan Pools since October 1995. He previously served as Divisional Vice President of Sylvan Pools from 1990 to 1995. Mr. Wertman’s career in the swimming pool industry began in 1973, and since then he has served in various management positions with both Anthony Pools and Sylvan Pools.

      Richard M. Kelso has served as Executive Vice President and Chief Operating Officer of Anthony & Sylvan Pools since 1996. His experience in the pool industry includes service as Vice President of Anthony Pools from 1989 to 1996. Prior to that, Mr. Kelso was the General Manager of the Washington, D.C. division of Anthony Pools. His career includes 24 years of pool service, all in management positions with Anthony Pools.

8

      William J. Evanson joined Anthony & Sylvan as Executive Vice President and Chief Financial Officer on March 20, 2000. From 1978 to 2000, Mr. Evanson served with Premier Farnell plc, successor to Premier Industrial Corporation, most recently as Vice President — North America Finance. Since Mr. Evanson joined the Company after the end of the fiscal year, Martin A. Iles has acted as Interim Principal Financial Officer.

      Martin J. Degnan has served as Vice President, Secretary and General Counsel of Anthony & Sylvan Pools since October, 1999. Prior to joining the Company Mr. Degnan served with Rubbermaid, Inc. for over 20 years most recently as Vice President and Associate General Counsel.

Item 11. Executive Compensation.

      Information relating to compensation of executive officers and directors is contained in the Company’s Proxy Statement dated March 31, 2000 under the headings DIRECTORS’ COMMITEES, MEETINGS AND FEES on pages 3-4, and EXECUTIVE COMPENSATION on page 5, incorporated herein by this reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      Information relating to security ownership of certain beneficial owners and management is contained in the Company’s Proxy Statement dated March 31, 2000 under the heading BENEFICIAL OWNERSHIP OF SHARES appearing on pages 11-12, incorporated herein by this reference.

Item 13. Certain Relationships and Related Transactions.

      Information with respect to related transactions is included in the Company’s Proxy Statement dated March 31, 2000 under the headings REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION on page 9 and BENEFICIAL OWNERSHIP OF SHARES on pages 11-12, incorporated herein by this reference.

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PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Documents filed as part of this report:

(1) The following consolidated financial statements of Anthony & Sylvan Pools Corporation and Subsidiary, together with the independent auditors’ report relating thereto, contained on pages 9 through 18, inclusive of Anthony & Sylvan’s 1999 Annual Report to its shareholders, and the unaudited quarterly financial data set forth under the heading “Quarterly Financial Information” on page 22 of such Annual Report, are incorporated herein by reference to Exhibit 13 of this filing [1999 Annual Report to Shareholders].

Consolidated Balance Sheets at December 31, 1999 and 1998

Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 and the eight months ended December 31, 1997 and four months ended April 30, 1997

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 1999 and 1998 and the eight months ended December 31, 1997

Consolidated Statement of Cash Flows for the years ended December 31, 1999 and 1998 and the eight months ended December 31, 1997 and four months ended April 30, 1997

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

Quarterly Financial Information (unaudited)

(2) All financial statement schedules are omitted because they are not required, not applicable, or the information is given in the consolidated financial statements or the notes thereto.

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(3) Exhibits Required to be Filed by Item 601 of Regulation S-K

Current Form 10-K	Document/Data
Exhibit Number	Required
3.1	Form of Amended and Restated Articles of Incorporation of Anthony & Sylvan Pools (Reference is made to Exhibit 3.1 to the report on form 10-Q for the quarter ended June 30, 1999, herein incorporated by reference)
3.2	Form of Amended and Restated Regulations of Anthony & Sylvan Pools (Reference is made to Exhibit 3.4 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
4.1	See exhibit 3.1 and 3.2 for provisions of the Articles of Incorporation and Regulations of Anthony & Sylvan Pools defining the rights of holders of Anthony & Sylvan common shares.
10.1	1999 Long-Term Incentive Plan. (Reference is made to Exhibit 10.1 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference).
10.2	Anthony & Sylvan Pools 1999 Leveraged Stock Purchase Plan dated December 28, 1999.
10.3	Employment Agreement – Stuart D. Neidus, Chairman and Chief Executive Officer. (Reference is made to Exhibit 10.2 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
10.4	Employment Agreement – Howard P. Wertman, President. (Reference is made to Exhibit 10.3 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
10.4	Employment Agreement – Richard M. Kelso, Executive Vice President. (Reference is made to Exhibit 10.4 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)

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Current Form 10-K	Document/Data
Exhibit Number	Required
10.5	Credit Agreement among Anthony & Sylvan Pools Corporation and the Lending Institutions — National City Bank, Huntington National Bank and Firstar Bank, N.A. dated July 8, 1999 (Reference is made to Exhibit 10.10 to the report on form 10-Q for the quarter ended June 30, 1999, which exhibit is herein incorporated by reference)
13	1999 Annual Report to Shareholders.
27.1	Financial Data Schedule.

(b) The were no reports filed on Form 8-K during the last quarter of fiscal year ended 1999.

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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.

Anthony & Sylvan Pools Corporation
By	STUART D. NEIDUS
	Stuart D. Neidus
	Chairman and Chief Executive Officer

March 24, 2000

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 and in the capacities and on the date indicated.

Signature	Title
STUART D. NEIDUS	Chairman, Chief Executive Officer
STUART D. NEIDUS	and Director
	(Principal Executive Officer)
MARTIN A. ILES	Vice President, Treasurer and Controller
Martin A. Iles	(Principal Accounting Officer
	and Interim Principal Financial
	Officer)

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ROGER D. BLACKWELL	Director
Roger Blackwell
MARY ANN JORGENSON	Director
Mary Ann Jorgenson
THOMAS B. WALDIN	Director
Thomas B. Waldin
Date: March 24, 2000

14 EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT 10.2 ------------ ANTHONY & SYLVAN POOLS CORPORATION ---------------------------------- 1999 LEVERAGED STOCK PURCHASE PLAN ---------------------------------- 1. PURPOSE The purpose of this Plan is to advance the long-term interests of Anthony & Sylvan Pools Corporation by (i) motivating directors and executive personnel by means of long-term incentive compensation, (ii) furthering the identity of interests of participants with those of the shareholders of the Corporation through the ownership and performance of the Stock of the Corporation and (iii) permitting the Corporation to attract and retain directors and executive personnel upon whose judgment the successful conduct of the business of the Corporation largely depends. Toward this objective, the Committee may grant selected executives and directors (i) the right to purchase Stock of the Corporation financed by loans arranged by, and guaranteed by, the Corporation, (ii) long-term incentive awards payable in cash in amounts sufficient to repay said loans, and (iii) stock options under the Anthony & Sylvan Pools Corporation 1999 Long-Term Incentive Plan (the "Long-Term Incentive Plan") contingent on participation in said leveraged stock purchase plan, on the terms and subject to the conditions set forth in the Plan. 2. DEFINITIONS 2.1 "Administrative Policies" means the administrative policies and procedures adopted and amended from time to time by the Committee to administer the Plan. 2.2 "Award" means any form of Stock Purchase Opportunity (as defined in Section 8) or long-term incentive award granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise. 2.3 "Award Agreement" means a written agreement with respect to an Award between the Corporation and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder. 2.4 "Board" means the Board of Directors of the Corporation. 2.5 "Change in Control" shall mean the first to occur of the following events: (i) when any "person" as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding the Corporation and any employee benefit plan sponsored or maintained by the Corporation (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Corporation representing more than fifty percent (50%) of the combined voting power of the Corporation's then outstanding securities; or (ii) the completion of a transaction requiring shareholder approval for the acquisition of substantially all of the stock or assets of the Corporation by an entity other than the Corporation or any merger of the Corporation into another company and the Corporation is not the surviving company. Notwithstanding anything else in this Plan, "Change in Control" shall not include any change for reasons of bankruptcy, insolvency or otherwise for the benefit of the Corporation's creditors 15 2 2.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.7 "Committee" means the Compensation Committee of the Board, or such other committee designated by the Board, authorized to administer the Plan under Section 3 hereof. 2.8 "Corporation" means Anthony & Sylvan Pools Corporation, an Ohio corporation. 2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.10 "Interest Loan" means a loan pursuant to Section 8(c) hereof. 2.11 "Key Employee" means an employee of the Corporation who holds a position of corporate vice-president or higher. 2.12 "LTI Award" means a Long-Term Incentive Award granted pursuant to Section 8(d) hereof. 2.13 "Participant" means any individual to whom an Award has been granted by the Committee under this Plan. 2.14 "Plan" means the Anthony & Sylvan Pools Corporation 1999 Leveraged Stock Purchase Plan. 2.15 "Stock" means Common Stock, no par value, of the Corporation. 2.16 "Stock Exchange" means the Nasdaq SmallCap Market or, if the Stock is no longer traded on the Nasdaq SmallCap Market, then such other market price reporting system on which the Stock is traded or quoted designated by the Committee after it determines that such other exchange is both reliable and reasonably accessible. 2.17 "Stock Purchase Opportunity" means an opportunity to purchase Stock of the Corporation as set forth in Section 8 hereof. 3. ADMINISTRATION The Plan shall be administered under the supervision of a Committee composed of not less than three individuals selected by the Board. Members of the Committee shall serve at the pleasure of the Board, and may resign by written notice filed with the Chief Executive Officer or the Secretary of the Corporation. A vacancy in the membership of the Committee shall be filled by the appointment of a successor member by the Board. Until such vacancy is filled, the remaining members shall constitute a quorum and the action at any meeting of a majority of the entire Committee, or an action unanimously approved in writing, shall constitute action of the Committee. Subject to the express provisions of this Plan, the Committee shall have conclusive authority to construe and interpret the Plan, any Award Agreement entered into hereunder and to establish, amend and rescind Administrative Policies for the administration of this Plan and shall have such additional authority as the Board may from time to time determine to be necessary or desirable. 4. ELIGIBILITY 16 3 Any Key Employee or Director of the Corporation is eligible to become a Participant in the Plan. 5. SHARES AVAILABLE Shares of Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares. The maximum number of shares of Stock available for grant of Awards under the Plan of Stock Purchase Opportunities shall be equal to the aggregate of the Stock Purchase Opportunities granted to each Participant determined in accordance with Section 8(b) of this Plan. 6. TERM The Plan shall become effective as of December 28, 1999 and shall continue in effect until terminated by the Board, at which time all outstanding Awards shall remain outstanding in accordance with their applicable terms and conditions. 7. PARTICIPATION The Committee shall select Participants from those Key Employees and Directors of the Corporation who, in the opinion of the Committee, can further the Plan's purposes and the Committee shall determine the type or types of Awards to be made to the Participant. The terms, conditions, and restrictions of each Award shall be set forth in an Award Agreement. 8. STOCK PURCHASE OPPORTUNITIES (a) Grants. Awards may be granted in the form of Stock Purchase Opportunities. Stock Purchase Opportunities shall represent the right of a Participant to acquire Stock of the Corporation, which right shall expire on December 28, 1999 (the "Acceptance Date"). The Stock to be acquired will be sold by the Corporation to the Participant and may represent Treasury shares of the Corporation or shares acquired by the Corporation on the open market. (b) Terms and Conditions of Stock Purchase Opportunities The maximum amount of a Stock Purchase Opportunity that may be granted to a Participant shall be equal to that amount of Stock of the Corporation having a fair market value equal to (i) in the case of a Participant who is a Key Employee, 200% of the base salary of such Participant and (ii) in the case of a Participant who is a Director, 400% of the annual retainer of such Director. A Stock Purchase Opportunity shall be exercisable by the Participant only on the Acceptance Date. The exercise price of such Stock Purchase Opportunity shall be equal to the average of the closing prices for the Corporation's Stock for the 20 business days preceding the Acceptance Date. A Participant shall inform the Corporation on the Acceptance Date whether, and to what extent, the Participant will purchase Stock under the Stock Purchase Opportunity. (c) Loans Relating to Stock Purchase Opportunities. If a Participant shall decide to incur a loan to acquire Stock under the Stock Purchase Opportunity, and if such loan shall be provided by National City Bank (or any affiliate thereof), the Corporation shall guarantee such loan. The terms of such loan shall be determined by the Participant and the lender. The Corporation shall loan to the Participant sufficient amounts to pay any interest accruing on the loan during the first five years of the loan ("Interest Loans"). Such Interest Loans shall accrue interest at the "applicable federal rate" as established under the Code and the principal amount of the Interest Loan (plus all accrued interest) shall be due and payable by the Participant five years from the Acceptance Date. 17 4 (d) Long-Term Incentive Award. (i) The Corporation shall make a Long-Term Incentive Award ("LTI Award") to any Participant who exercises a Stock Purchase Opportunity. The LTI Award shall be equal to the value of the Stock acquired by the Participant under the Stock Purchase Opportunity, plus the amount of any Interest Loan (including, for this purpose, any accrued interest on the Interest Loan). In the event that a Participant acquires Stock under the Stock Purchase Opportunity but does not incur a loan in connection therewith, the amount of the LTI Award shall be equal to the value of the Stock acquired by the Participant under the Stock Purchase Opportunity, plus the amount of interest that would have been incurred by such Participant had a loan been incurred for such acquisition (assuming for this purpose that the interest rate on any such loan would have been at the Prime Rate established from time to time by National City Bank). In all cases where interest is taken into account for purposes of an LTI Award, such interest shall be calculated through the date that the LTI Award is paid. (ii) The LTI Award shall be payable in cash (if the Stock price targets set forth herein are achieved), shall be subject to all applicable withholding, and shall be used first by the Participant to repay any National City Bank loan that is guaranteed by the Corporation, and then to reduce the balance of any Interest Loan (unless the Participant shall have otherwise arranged to repay such loans). To the extent the LTI Award exceeds the principal and any accrued interest on such loans, the Participant shall be entitled to retain such LTI Award. (iii) The terms of the LTI Award shall provide that (i) no payment shall be made pursuant to such Award during the two years following the Award, (ii) one-third of the LTI Award shall be paid during the period commencing 24 months after the Acceptance Date and ending 36 months after such Date if the Stock price achieves an average of $20 for a twenty-business-day period during such period, (iii) if the Stock price achieves an average of $24 for a twenty-business-day period during the period commencing 36 months after the Acceptance Date and ending 48 months after such Date, either one-third of the LTI Award shall be paid at such time (if a payment was made under clause (ii) of this paragraph) or two-thirds of the LTI Award shall be paid at such time (if a payment was not made under clause (ii) of this paragraph), and (iv) if the Stock price achieves an average of $28 for a twenty-business-day period during the period commencing 48 months after the Acceptance Date and ending 60 months after such Date, the full LTI Award shall be paid out to the Participant, less any prior payments under clauses (ii) or (iii) of this paragraph. Any payments of the LTI Award shall be made within 15 days after achievement of the Stock price targets set forth herein. (e) Special Loans and Additional LTI Awards. In the event (i) a Participant purchased Stock (other than pursuant to this Plan or the Long-Term Incentive Plan) subsequent to August 11, 1999, and prior to the Acceptance Date, and (ii) elects to have such purchase counted as a purchase of stock for purposes of this subsection (e), the Corporation shall make an Additional LTI Award to such Participant with respect to such prior purchase on terms and conditions similar to those set forth in paragraph (d), provided that (i) such Additional LTI Award will be made only to the extent such Participant otherwise acquires Stock in connection with a Stock Purchase Opportunity granted hereunder. and (ii) the aggregate of the values of the LTI Award and Additional LTI Award granted to any Participant may not exceed the dollar limits set forth in Section 8(b) of this Plan. The operation of this Section 8(e) shall be illustrated by the following example. Assume the Participant acquired $60,000 of Stock in September, 1999 at a price of $6 per share. Assume the Participant is granted a Stock Purchase Opportunity with respect to $240,000 of Stock in December, 1999. If the Participant acquires no shares under the Stock Purchase Opportunity, he will be granted no LTI Award and no Additional LTI Award. If the Participant acquires $30,000 of Stock under the Stock Purchase Opportunity, he will be granted (i) an LTI Award with a value of $30,000, (ii) an Additional LTI Award with a value of $30,000 and (iii) an interest factor with respect to the $30,000 Additional LTI Award. If the Participant acquires $100,000 of Stock under the Stock Purchase Opportunity, he will be granted (i) an LTI award with a value of $100,000, (ii) an Additional LTI Award with a value of $60,000, and (iii) an interest factor with respect to the $60,000 18 5 Additional LTI Award. The interest factor with respect to an Additional LTI Award shall be based on the prime rate established from time to time by National City Bank. (f) Deferral of LTI Awards. In the event an LTI Award exceeds the amount of Participant loans required to be repaid, or in the event the Participant otherwise arranges for the repayment of such loans, the Participant may elect to defer such LTI Award pursuant to the terms of the Corporation's Deferred Compensation Plan for Employees and Directors. 9. STOCK OPTIONS (a) Grants. Stock options under the Long-Term Incentive Plan will be granted to any Participant who exercises a Stock Purchase Opportunity. Stock options will be non-statutory stock options (i.e., stock options that are not incentive stock options under section 422 of the Code). The amount of Stock covered by such stock options will be equal to one-half of the number of shares acquired by the Participant pursuant to the Stock Purchase Opportunity (or acquired otherwise by the Participant subsequent to August 11, 1999 to the extent such shares are taken into account in determining an Additional LTI Award under Section 8(e)), provided that no more than 175,000 shares of Stock shall be subject to options granted in connection with this Section 9(a). In the event that application of the "one-half formula" would result in more than 175,000 shares being subject to options hereunder, the number of options shall be reduced pro-rata for all Participants. Such options shall be granted simultaneously with the purchase of shares pursuant to the Opportunity. (b) Terms and Conditions of Options. An option granted under paragraph (a) shall be exercisable to the extent of 40% of the number of covered shares after two years from the grant of such option; 60% after three years from the date of such grant; 80% after four years from the date of such grant; and 100% after five years from the date of such grant; provided, however, that no stock option shall be exercisable more than ten years after the date of grant thereof. The option exercise price shall be established by the Committee, and shall be equal to the greater of the price paid by the Participant for the Stock pursuant to the Stock Purchase Opportunity or the closing price of the Stock on the Acceptance Date. (c) Cancellation of Option. In the event a Participant sells any Stock that was acquired upon exercise of a Stock Purchase Opportunity before holding such Stock for five years, the Corporation shall cancel a pro-rata portion (as provided in the subsequent sentence) of any vested or unvested stock option granted pursuant to this Section. The number of shares as to which such option shall be cancelled shall equal one-half of the number of shares of Stock sold by the Participant (or, in the event a pro-ration of options was required under Section 9(a), such lesser number as would be appropriate to reflect such pro-ration in the determination of the Committee). (d) Additional Terms and Conditions. The Committee may establish such other terms, conditions, restrictions and/or limitations, if any, on any stock option, provided they are not inconsistent with the Plan or the Long-Term Incentive Plan. 10. TERMINATION OF EMPLOYMENT If a Participant ceases employment with (or ceases to render services as a director to) the Corporation on account of the Participant's death, the LTI Award (which, for purposes of this section, shall include any Additional LTI 19 6 Award) shall continue in effect and any amounts that subsequently become payable thereunder shall be paid to the beneficiary designated by the Participant. If a Participant ceases employment with (or ceases to render services as a director to) the Corporation for any reason other than death, all rights to any LTI Award awarded to such Participant shall terminate, the Corporation's guarantee of any loans related to such Participant described in Section 8(c) (or Section 8(e)) shall terminate, and the Interest Loans to such Participant described in Section 8(d) (or Section 8(e)) shall be immediately due and payable by the Participant. 11. ASSIGNMENT AND TRANSFER The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. 12. WITHHOLDING TAXES The Corporation shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment tax required by law to be withheld with respect to such payment or may require the Participant to pay to it such tax prior to and as a condition of the making of such payment. In accordance with any applicable Administrative Policies it establishes, the Committee may allow a Participant to pay the amount of taxes required by law to be withheld from an Award by withholding from any payment of Stock due as a result of such Award, or by permitting the Participant to deliver to the Corporation shares of Stock having a fair market value, as determined by the Committee, equal to the amount of such required withholding taxes. 13. REGULATORY APPROVALS AND LISTINGS Notwithstanding anything contained in this Plan to the contrary, the Corporation shall have no obligation to issue or deliver certificates of Stock pursuant to any stock option or Stock Purchase Opportunity prior to (a) the obtaining of any approval from any governmental agency which the Corporation shall, in its sole discretion, determine to be necessary or advisable, (b) the admission of such shares to listing on the Stock Exchange and (c) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. 14. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS Participation in the Plan shall not give any Key Employee any right to remain in the employ of the Corporation. The Corporation reserves the right to terminate the employment of any Key Employee at any time. The adoption of this Plan shall not be deemed to give any Key Employee or any other individual any right to be selected as a Participant, to be granted any Awards hereunder or if granted an Award in any year, to receive Awards in any subsequent year. 15. AMENDMENT 20 7 The Committee may suspend or terminate the Plan at any time. In addition, the Committee may, from time to time, amend the Plan in any manner, provided that no such amendment shall adversely affect any outstanding Award 16. GOVERNING LAW The Plan shall be governed by and construed in accordance with the laws of the State of Ohio, except as preempted by applicable Federal law. 17. CHANGE IN CONTROL In the event of a Change In Control, all restrictions and conditions, if any, previously established with respect to LTI Awards and Additional LTI Awards will conclusively be deemed to have been satisfied and fulfilled and Participants shall be entitled to receive cash payments in the full amount of such Awards (subject to applicable withholding) pursuant to the procedures set forth in Section 8(d). 18. NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS To the extent any person acquires a right to receive payments from the Corporation under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Corporation. 19. TREATMENT OF DIVIDENDS To the extent any dividends are paid to a Participant in connection with Stock acquired pursuant to a Stock Purchase Opportunity (or in connection with Stock acquired pursuant to a stock option granted under Section 9 hereof), the Participant shall be obligated to use such dividends to repay any loans that the Corporation has guaranteed pursuant to Section 8(c) hereof. In the event the Participant fails to make such repayment, the Corporation shall be entitled to take appropriate steps including, but not limited to, withholding an equivalent amount from the Participant's salary or retainer payments and utilizing such amounts to repay the Participant's loans or any Interest Loans. 21 EX-13 3 EXHIBIT 13 1 ANTHONY & SYLVAN POOLS SWIM [PHOTOS] 1999 ANNUAL REPORT 2 [PHOTOGRAPHS] DESIGN: DIX & EATON, INC. 3 [PHOTOGRAPH] FINANCIAL HIGHLIGHTS

- -------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1999 1998 change - -------------------------------------------------------------------------------------------------------------- Net sales $184,713 $155,765 $+28,948 Gross profit 47,743 41,892 +5,851 Income from operations 3,453 5,538 -2,085 Net income 1,017 2,188 -1,171 Net income per share diluted 0.27 0.58 -0.31 Cash flow from operations 6,200 1,019 +5,181 Total assets 55,507 54,273 +1,234 Total debt 4,764 29,865 -25,101 Shareholders' equity 30,572 6,741 +23,831 Debt to total capital 13% 82% -- - --------------------------------------------------------------------------------------------------------------

[LOGO] ANTHONY & SYLVAN POOLS We are a company rich in tradition with a 54-year legacy of satisfied pool and spa customers. Our goal is to be the leading in-ground concrete residential pool sales and installation company in the nation. We will grow by opening new offices, acquisitions, internal start-ups in new markets, increased retail sales, and expanded renovation services. [PHOTO OF LOGO] The Anthony & Sylvan tile Seal of distinction appears on each pool we design and build. CONTENTS financial highlights 1 letter to shareholders 2 where america swims 3 opportunity for growth 6 customer service building loyalty 8 financial review 9 locations map 24 1 4 A LETTER TO SHAREHOLDERS [PHOTO] STUART D. NEIDUS Chairman and Chief Executive Officer Dear Fellow Shareholders: I am very pleased to be writing to our shareholders in our first Annual Report as a public company. Anthony & Sylvan Pools ("A&S"), founded in 1946 and having installed more than 330,000 in-ground concrete swimming pools, is a company rich in tradition. We are among the largest sellers and installers of in-ground concrete swimming pools in the country and the only publicly traded company providing such services. 1999 was an exciting year in which A&S began a new chapter in a distinguished history. Going forward, we see many opportunities for exciting growth, creating value-added benefits for our customers, establishing stronger ties with our vendors and business partners, providing greater opportunities for personal growth and financial gain for our dedicated employees, and enhancing shareholder value. FINANCIAL POSITION In August 1999, our former parent merged with another company, and we split off into a stand-alone public company with a healthy $7 million in cash, $35 million in equity and virtually no debt. Based on our financial strength, we established a $35 million revolving credit facility with a group of banks. With little need for fixed assets or additional working capital other than for seasonal fluctuations, this facility will enable us to make strategic investments we deem appropriate. The split-off made 1999 a year of transition for A&S. Our revenues increased to a record $184.7 million from $155.8 million in 1998, an increase of 18.5 percent. Much of the increase in 1999 revenues resulted from the Pools By Andrews acquisition in August 1998. That acquisition established A&S in eight new markets in Florida and added critical mass in the large Orlando market. Transition matters, though, and rising labor costs in tight labor markets that were not offset by price increases, hurt our profits. Income from operations was $3.5 million versus $5.5 million, and net income was $1.0 million versus $2.2 million in 1999 and 1998, respectively. GROWTH STRATEGIES Anthony & Sylvan's primary objective is to be the leading, most innovative and quality-focused in-ground concrete residential pool sales and installation company in the nation and in each market we serve. Today, we operate in 26 markets through 44 sales offices. Estimates are that the 10 largest companies in our industry together account for less than 15 percent of the total market. Our primary strategies for growth consist of two key elements: - - Increasing our market share in existing markets by opening new offices, hiring additional sales designers and increasing our marketing efforts. - - Expanding into markets not currently served by Anthony & Sylvan (see map on page 24) through acquisition or internal start-up. Our industry is consolidating, and we are routinely contacted by owners of pool companies expressing an interest in selling to A&S. In discussions with these owners, they see the many operating benefits that come from joining a national company, as well as the value of our depth of financial and human resources to serve customers better. Our goal is to identify and acquire the very best businesses with outstanding reputations and successful leadership with the desire to remain involved in growing the business. Although growth is somewhat slower with a start-up versus an acquisition, the capital required is minimal. If we are unable to acquire companies within the financial parameters we have established, we will not sacrifice long-term profits for faster short-term growth. 2 5 [PHOTO] There are two other facets to our business: we operate 18 retail stores that sell consumables, replacement parts, equipment and pool supplies; and we provide renovation services for customers wanting to update their pools and spas. Today, both of these businesses are focused mostly in the Northeast and are very modest in size. Our plan is to diversify into additional geographic markets that enable us to leverage the relationships we have with customers in products that we understand, are synergistic and provide leadership opportunities. Accordingly, we have undertaken a review of these businesses including a possible Internet-based strategy. AN ALIGNED AND INVESTED MANAGEMENT TEAM In December 1999, we announced that A&S repurchased a block of 1,037,000 common shares in a private transaction primarily from a group of related family trusts. The purchase of this large block of shares, representing approximately 32 percent of the Company's 3.3 million outstanding shares, reflects management's confidence in the Company's long-term growth prospects and profitability. Simultaneous with the buyback, the Company announced the establishment of the executive and director Leveraged Stock Purchase Plan. Under this plan, the more A&S stock purchased by executives and directors, the greater the potential long-term incentive award and stock option grant. The financial upside from buying shares, the long-term incentive program and the stock option grant are all directly tied to the Company's stock performance. I am pleased to report that 100 percent of the eligible participants purchased shares in the program. In total, since we became a public company in August 1999, our officers and directors have purchased approximately 1 million shares, investing $6.7 million in the Company. As further evidence of the importance we place on aligning management's interests with those of our shareholders, the compensation of our Board is paid entirely in Company stock. As large shareholders, we are personally motivated to enhance shareholder value. PEOPLE AND ORGANIZATION We believe that our key to success is people. To that end, we have committed to a level of professionalism that will put the A&S organization on par with the opportunities we perceive. Among the most noteworthy additions to the A&S team in the last several months are four new corporate vice presidents. They are: Marty Degnan, who joined us from Rubbermaid Inc. as our general counsel; Jim Francis, who joined us from BFGoodrich to lead human resources; Rick Mills, who heads up development, joined us from Essef Corporation; and Tony Pizzelanti, who comes to us from M.A. Hanna Company, where he directed technology and was chief information officer. In addition, as most recently announced, Bill Evanson joined us as executive vice president and chief financial officer, coming from Premier Farnell plc. To further support our commitment to customer service, we have created a structure that combines the benefits of the national support network with the success of our local entrepreneurial roots. Unique in our industry, this national support network focuses on new products, techniques and technologies, while our strong local leadership teams are empowered to make decisions and are compensated based on customer satisfaction and financial results. OUTLOOK We are optimistic about the outlook for A&S as we go into 2000. There are numerous opportunities for growth. The positions that we have built in our markets give us the confidence that we can continue to increase our market share. Our national infrastructure is in place to support expansion. We have the financial capacity to fund our investments. And we have a strong, committed, passionate group of employees whose efforts have made us the industry leader - quantitatively and qualitatively speaking. I am grateful to our shareholders for expressing confidence in us and to our employees for their hard work and dedication. I would also like to express a special thanks to the thousands of customers, who each year demonstrate their satisfaction by referring us to their neighbors, friends and relatives. The joy we see on the faces of our customers living their backyard dreams provides the fuel that drives us to be the best. Sincerely, /s/ Stuart D. Neidus Stuart D. Neidus Chairman and Chief Executive Officer 3 6 [PHOTO] WHERE AMERICA SWIMS(TM) More than 50 years ago, America's two greatest swimming pool companies were founded - Sylvan Pools (founded in Pennsylvania in 1946) and Anthony Pools (founded in California in 1947). From the beginning, these two companies were different from other swimming pool builders. Both were innovators in design and construction, excelled in their field and expanded throughout the country. Over the years, both companies grew to become nationally prominent names within the industry. Their names appear on more than 330,000 swimming pools from New York to Hollywood and many places in between. In 1996, these two swimming pool giants joined forces as Anthony & Sylvan Pools Corporation, which is currently one of the largest installers of concrete in-ground residential swimming pools and spas in the United States. We offer customers from coast to coast unmatched quality and value in our custom-designed pools and spas, our renovation services and our retail stores. [PHOTO] In 1997, Anthony & Sylvan became a division of Essef Corporation, a manufacturer and distributor of swimming pool and spa equipment and other products used in the treatment, movement, storage and enjoyment of water. As a division of Essef, Anthony & Sylvan experienced significant growth through acquisitions. The August 1998 acquisition of Pools by Andrews was particularly significant in that it established Anthony & Sylvan in eight new Florida markets and added strength in Orlando. The latest chapter in Anthony & Sylvan's rich history began on August 10, 1999. In conjunction with Essef's merger with another company, Anthony & Sylvan split off into a stand-alone public company. Anthony & Sylvan common shares began trading on the Nasdaq SmallCap Market on August 11, 1999, under the symbol SWIM. Coming out of the split-off with virtually no debt, $7 million in cash, $35 million in equity, and a $35 million credit agreement makes Anthony & Sylvan one of the strongest companies in the industry. Our trademark, Where America Swims(TM), clearly represents our base of more than 330,000 pools installed to date and a reputation that is synonymous with quality and integrity. Every year, we fulfill the backyard dreams of thousands of families through a network of 44 sales and design offices, serving 26 metropolitan markets in 16 states. In 1999, Anthony & Sylvan sold and installed approximately 6,000 pools - among the highest total of any company in the growing U.S. market. 4 7 [PHOTOGRAPHS] The backyard pool is a lifelong oasis for fun and relaxation. 8 [PHOTO] OPPORTUNITY FOR GROWTH Our customers' backyard dreams are limited only by their imagination, lifestyle and property size. Americans are investing in leisure activities involving the entire family and circle of friends, as well as in improved health and fitness activities. A new pool can be a haven for children to play volleyball or "Marco Polo"; a private oasis to sit by a waterfall or soak in a spa with that special someone; a personal training site for an Olympic swimmer or a senior citizen participating in water aerobics; or the perfect site for entertaining family, friends and co-workers. Our sales designers can create an unlimited variety of pool designs to provide homeowners with the perfect venue for fun, relaxation and entertainment. [PHOTO] Accessories and features such as fiber optic underwater lighting systems, spas, sheer descent edges and waterfalls can complement a homeowner's landscaping and create that personal touch. The latest innovations in operating and purification systems, automatic pool cleaners and computerized remote controls to turn on filters or warm up a spa make a pool practically maintenance-free. Our plan for growth calls for us to expand our pool and spa sales and installation business in two primary ways: - - First, increase our market share within existing markets where we have strong name recognition. Our plans for 2000 include opening 8 to 12 new offices, hiring additional professional sales designers and increasing our marketing efforts. - - Second, expand into new markets through acquisition or internal start-up. There are countless new market opportunities throughout the country for A&S. This potential for geographic expansion, combined with industry fragmentation, offers outstanding growth opportunities for a national organization like A&S. In some markets, we also offer renovation and modernization services to update existing pools. Our growth plans include expanding our renovation services into other markets beyond those we currently serve and targeting all in-ground pools. National Spa & Pool Institute (NSPI) statistics indicate there are more than 3 million in-ground pools in use today. Expanding into geographies where we can perform this type of work during the pool building "off-season" will further reduce the seasonality of our operations. Eighteen of our sales design centers include adjacent retail outlets. These outlets offer a complete line of complementary products, from the necessities such as heaters, filters, lights and chemicals, to the "extras" such as flotation devices and water sports accessories. The aftermarket sale of pool chemicals allows us to build strong customer relationships long after a pool is installed. With an expanding sales and installation business, growth in renovation and modernization services, and higher revenue opportunities from retail sales, Anthony & Sylvan has the opportunity, and the financial means, to grow. 6 9 ANTHONY & SYLVAN POOLS CAN MAKE EVERY DAY SEEM LIKE A VACATION [PHOTOGRAPHS] SUMMER BY THE POOL. 10 [PHOTO] CUSTOMER SERVICE BUILDS LOYALTY At Anthony & Sylvan, customer service means offering the latest products, building with the best techniques, communication, responsiveness and high-quality work. This focus on the customer enables us to sustain the success of the past 50 years and continue to deliver a quality product that will provide families with years of enjoyment and relaxation. We welcome the challenge of customers who expect and even demand quality customer service, and we have implemented systems to gauge our ability to meet their expectations. For example, we survey every customer at the completion of the installation. This program provides us with feedback to improve processes, management and delivery time. In return, they exhibit a great degree of loyalty toward Anthony & Sylvan, as they contact us to build not only their second pool, but also their third and fourth. In our newly opened Ohio office, for example, such loyalty became apparent when a customer asked us to re-create a pool we had installed years before at his previous home in New Jersey. Every employee understands that customer service means referrals, and referrals mean success. Our customer base is continually expanding through referrals from satisfied customers and because of our reputation for high-quality work. Anthony & Sylvan leads the industry with innovative programs and sales and marketing techniques. Our Solid Gold Warranty program covers the pool structure, filter tank, heater and other integral components. Selecting Anthony & Sylvan gives homeowners peace of mind in knowing that their installer will still be in business if their pool needs maintenance or renovation. [PHOTO] We arm our sales designers with laptop computers and an interactive multimedia presentation to help customers understand the installation process. Our CD-ROM and Web site also give potential customers ideas on the wide variety of custom-designed swimming pools and spas that we offer. Also through our Web site, we offer customers an online credit application through our financial partner that provides quick responses on financing options. Our commitment to customer satisfaction would be hollow without the efforts of our dedicated employees. We are committed to maintaining strong local leadership teams in each market. We empower those teams to make decisions that are in the best interests of their customers, with local incentives based on customer satisfaction and financial results. At the same time, we are unique among pool companies in having a group of professionals at the national level who have responsibility for core functions such as sales, marketing, procurement, information technology, finance and human resources. Having a strong national support system enables us to make investments in the latest products, techniques and technologies that will benefit our customers. The combination of our national support system and our local focus on serving customers is what makes Anthony & Sylvan a special company to work for, do business with, and invest in. 8 11 CONSOLIDATED BALANCE SHEETS

Anthony & Sylvan Pools Corporation and Subsidiary December 31, 1999 and 1998 - ----------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 533 $ -- Contract receivables, net of allowance for doubtful accounts of $1,191 and $1,085, respectively 8,101 10,307 Inventories 5,282 4,336 Prepayments and other 2,488 2,052 Deferred income taxes 2,584 1,948 - ----------------------------------------------------------------------------------------- Total current assets 18,988 18,643 Property, Plant and Equipment, at cost: Land 1,160 1,160 Buildings and leasehold improvements 2,387 2,180 Machinery and equipment 7,671 5,948 - ----------------------------------------------------------------------------------------- Total 11,218 9,288 Less accumulated depreciation 3,111 2,030 - ----------------------------------------------------------------------------------------- Net property, plant and equipment 8,107 7,258 Other Assets: Goodwill, net of accumulated amortization 27,386 28,052 Other 1,026 320 - ----------------------------------------------------------------------------------------- Total other assets 28,412 28,372 - ----------------------------------------------------------------------------------------- TOTAL ASSETS $ 55,507 $ 54,273 ========================================================================================= Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt $ 171 $ 244 Payable to Essef Corporation -- 29,361 Accounts payable 5,782 6,160 Accrued expenses 11,695 10,307 Accrued income taxes 451 -- - ----------------------------------------------------------------------------------------- Total current liabilities 18,099 46,072 Long-Term Debt 4,593 260 Other Long-Term Liabilities 2,243 1,200 Commitments and Contingencies -- -- Shareholders' Equity: Serial preferred shares, no par value; 1,000,000 shares authorized, none issued -- -- Common shares, no par value; 29,000,000 shares authorized, 3,341,421 shares issued and 2,608,422 outstanding 27,395 -- Treasury shares at cost, 732,999 shares (4,581) -- Retained earnings 7,758 6,741 - ----------------------------------------------------------------------------------------- Total shareholders' equity 30,572 6,741 - ----------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 55,507 $ 54,273 =========================================================================================

See notes to consolidated financial statements. 9 12 CONSOLIDATED STATEMENTS OF OPERATIONS Anthony & Sylvan Pools Corporation and Subsidiary For the Years Ended December 31, 1999 and 1998, the Eight Months Ended December 31, 1997 and the Four Months Ended April 30, 1997

- ---------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Eight Months Four Months Ended Ended December 31, April 30, 1999 1998 1997 1997 - --------------------------------------------------------------------------------------------------------------------------- Net sales $184,713 $155,765 $98,829 $28,883 Cost of sales 136,970 113,873 70,814 22,291 - --------------------------------------------------------------------------------------------------------------------------- Gross profit 47,743 41,892 28,015 6,592 Operating expenses: Selling 28,382 23,342 13,578 6,073 Administrative 15,908 13,012 5,598 3,980 - --------------------------------------------------------------------------------------------------------------------------- Total operating expenses 44,290 36,354 19,176 10,053 - --------------------------------------------------------------------------------------------------------------------------- Income/(loss) from operations 3,453 5,538 8,839 (3,461) Interest and other expense 1,804 1,916 1,637 303 - --------------------------------------------------------------------------------------------------------------------------- Income/(loss) before income taxes 1,649 3,622 7,202 (3,764) Provision/(benefit) for income taxes 632 1,434 2,649 (1,350) - --------------------------------------------------------------------------------------------------------------------------- Net income/(loss) $ 1,017 $ 2,188 $ 4,553 $ (2,414) =========================================================================================================================== Basic earnings per share $ 0.31 $ 0.65 $ 1.35 -- =========================================================================================================================== Diluted earnings per share $ 0.27 $ 0.58 $ 1.20 -- =========================================================================================================================== Weighted average basic shares outstanding 3,327 3,357 3,382 -- =========================================================================================================================== Weighted average diluted shares outstanding 3,748 3,772 3,797 -- ===========================================================================================================================

See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Anthony & Sylvan Pools Corporation and Subsidiary For the Years Ended December 31, 1999 and 1998, and the Eight Months Ended December 31, 1997

- --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Common Treasury Retained Shares Shares Earnings Total - --------------------------------------------------------------------------------------------------------------------------- Balance - May 1, 1997 $ -- $ -- $ -- $ -- Net Income -- -- 4,553 4,553 - --------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1997 -- -- 4,553 4,553 Net Income -- -- 2,188 2,188 - --------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1998 -- -- 6,741 6,741 Net Income -- -- 1,017 1,017 Payable to Essef Corporation contributed to capital at split-off 27,241 -- -- 27,241 Purchase of common shares for treasury (1,109,146 shares) -- (6,973) -- (6,973) Issuance of shares under leveraged stock purchase plan (376,147 shares) 154 2,392 -- 2,546 - --------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1999 $27,395 $(4,581) $7,758 $ 30,572 ===========================================================================================================================

See notes to consolidated financial statements. 10 13 CONSOLIDATED STATEMENTS OF CASH FLOWS Anthony & Sylvan Pools Corporation and Subsidiary For the Years Ended December 31, 1999 and 1998, the Eight Months Ended December 31, 1997 and the Four Months Ended April 30, 1997

- ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Eight Months Four Months Ended Ended December 31, April 30, 1999 1998 1997 1997 - ------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net income/(loss) $ 1,017 $ 2,188 $ 4,553 $(2,414) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation and amortization 2,627 2,254 1,070 470 Deferred income taxes (636) 964 32 (631) Other 154 -- -- 116 Changes in operating assets and liabilities net of assets acquired: Contract receivables 2,206 (2,202) (1,931) 491 Inventories (946) 100 1,671 (1,031) Prepayments and other 262 (1,468) (158) 218 Accounts payable (378) (520) (2,079) 3,251 Accrued expenses 1,894 (297) (3,845) 1,551 - ------------------------------------------------------------------------------------------------------------------------ Cash provided by/(used in) operating activities 6,200 1,019 (687) 2,021 - ------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Additions to property, plant and equipment (2,971) (2,407) (1,019) (259) Acquisition of the Company -- -- (21,065) -- Acquisition payments -- $(4,747) -- -- Other (409) 1,404 -- -- - ------------------------------------------------------------------------------------------------------------------------ Cash used in investing activities (3,380) (5,750) (22,084) (259) - ------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Net transactions with Essef Corporation/ General Aquatics (2,120) 4,382 23,780 (7,224) Proceeds/(repayments) of long-term debt 4,260 (354) (351) 3,675 Purchase of treasury shares (6,973) -- -- Proceeds from sale of treasury shares 2,546 -- -- -- - ------------------------------------------------------------------------------------------------------------------------ Cash (used in)/provided by financing activities (2,287) 4,028 23,429 (3,549) - ------------------------------------------------------------------------------------------------------------------------ Increase/(Decrease) in Cash and Cash Equivalents 533 (703) 658 (1,787) Cash and Cash Equivalents: Beginning of period -- 703 45 1,832 End of period $ 533 $ -- $ 703 $ 45 ========================================================================================================================= Supplemental Cash Flow Information: Interest paid $ 1,723 $ 1,860 $ 1,615 $ 272 Income taxes paid $ 996 $ 1,073 $ 2,617 $ -- Non-Cash Financing and Investing Activities: Business acquisitions with Essef Corporation shares charged through intercompany payable $ -- $ 1,199 $ -- $ -- Payable to Essef Corporation contributed to capital at split-off $27,241 $ -- $ -- $ -- =========================================================================================================================

See notes to consolidated financial statements. 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Anthony & Sylvan Pools Corporation and Subsidiary (the "Company") is among the largest residential in-ground concrete pool sales and installation businesses in the United States and operates in one business segment. 0n August 10, 1999, a third party (the "Acquiring Party") acquired Essef Corporation ("Essef"), the Company's former parent, in a merger transaction that included the Company being split-off to Essef's common shareholders through a taxable distribution of 100% of the Company's shares as part of the merger consideration. The split-off was accomplished through the distribution of 0.25 shares of common stock for every share of Essef common stock held at the time of the distribution. Immediately prior to the split-off, the Company amended its articles of incorporation to provide for the issuance of up to 1,000,000 serial preferred shares and 29,000,000 shares of common stock. [PHOTO] The Company, Essef and the Acquiring Party have entered into various agreements that provide for administrative services, tax sharing and indemnification (the "Agreements"). Among other things, these Agreements provided for the Company to pay a dividend of $17,000,000, subject to certain adjustments, to Essef with the balance of the intercompany payable being contributed to capital retroactive to the split-off date. The potential adjustments to the $17,000,000 primarily related to the net tax benefit, as defined in the Agreements, realized by Essef from the exercise of employee stock options net of the corporate tax payable from the split-off. Pursuant to the Agreements, the calculation of adjustments has been completed and the Company was not required to pay Essef any of the $17,000,000. As such all of the Company's debt to Essef, which totaled $27,241,000 at the date of the split-off, was contributed to the Company's capital, increasing shareholder's equity to approximately $34,700,000 at the date of the split-off. On May 1, 1997, substantially all of the Company's operating assets were acquired and certain of its liabilities were assumed by Essef as part of its acquisition of General Aquatics, Inc., of which the Company's predecessor Anthony & Sylvan, Inc. (the "Predecessor") was a subsidiary. The financial statements presented herein for the four months ended April 30, 1997 have been presented under the Predecessor's historical basis of accounting and do not reflect any adjustments that would be required as a result of the acquisition by Essef. The separate financial statements issued for the periods after the acquisition contemplate the adjustments required under the purchase method of accounting. Company management believes that the results of operations for the Company from the date of acquisition through August 10, 1999, the date of the split-off, reflect all material expenses of the Company assuming it were organized as a stand-alone legal entity including specifically identifiable costs incurred by Essef on behalf of, and charged to, the Company. 12 15 CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid short-term investments with initial maturities of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS The Company has financial instruments that consist primarily of cash and cash equivalents, receivables, payables and debt instruments. The Company has determined that the estimated fair value of its financial instruments approximates carrying value. The Company's credit risk is limited due to the large number of customers comprising the Company's customer base and their geographical dispersion. INVENTORIES Inventories consist of materials and equipment purchased for installation in pools and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. At December 31, 1999 and 1998, the Company has a reserve on these inventories of $157,000 and $234,000, respectively. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed using the straight-line method for financial reporting purposes. Accelerated methods are used for tax reporting purposes. Assets, valued at cost, are generally being depreciated over their useful lives as follows: buildings, 30 years; and machinery and equipment, 3 to 15 years. [PHOTO] GOODWILL Goodwill arising from the acquisition of the Company by Essef and from subsequent business acquisitions is amortized using the straight-line method over forty years. Accumulated amortization at December 31, 1999 and 1998, was $1,742,000 and $1,043,000, respectively. The Company continually evaluates the recoverability of goodwill by comparing the book value of such assets to expected future cash flows of the acquired businesses on an undiscounted basis, over the remaining amortization period of the asset. At December 31, 1999, no impairment has been recorded. WARRANTY The Company accrues an estimate of warranty claims based on its estimate of the aggregate liability for claims based on the Company's historical experience. The portion of claims the Company estimates will not be paid within one year is included in other long-term liabilities. INCOME TAXES The provision for income taxes includes federal, state and local taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets. Until August 10, 1999, the Company was included in the consolidated federal income tax return of Essef. All tax amounts were recorded prior to the split-off as if the Company filed separate federal and state tax returns as a stand-alone entity for those periods. REVENUE RECOGNITION Revenue from pool installation contracts is recognized on the percentage-of-completion accounting method based on the proportion of total costs incurred on the contract as a percentage of total estimated contract costs. Revisions in cost and revenue estimates are reflected in the period in which the facts requiring such revisions become known. Provision is made currently for estimated losses on uncompleted installations. The majority of the Company's contracts call for progress payments to be made while completing individual phases of the installation until the final phases of installation, at which time the remaining portion is recognized as a contract receivable. Progress payments in excess of revenue recognized are classified as billings in excess of costs and estimated earnings on uncompleted contracts and are included in accrued expenses. Unbilled contract receivables are not material at any point in time. Contract costs include direct material, labor, subcontract costs and overheads. Selling and administrative expenses are charged to income as incurred. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 13 16 RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and 1997 consolidated financial statements to make the presentation consistent with the current period. 2 EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is based on the combined weighted average number of shares outstanding including the assumed exercise or conversion of options. The treasury stock method is used in computing diluted earnings per share. For the periods prior to the split-off and subsequent to the Company's acquisition by Essef, earnings per share is calculated based on the number of shares that would have been outstanding assuming the split-off had occurred at the beginning of the period shown. Earnings per share information is not presented for the periods prior to the Company's acquisition by Essef as such information would not be meaningful. The calculations are as follows:

- ----------------------------------------------------------------------------- (In thousands, except per share data) Eight Months Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------- Numerator: Net income available to common shareholders $1,017 $2,188 $4,553 ============================================================================= Denominator: Weighted average common shares outstanding 3,327 3,357 3,382 Dilutive effect of stock options 421 415 415 - ----------------------------------------------------------------------------- Denominator for net income per diluted share 3,748 3,772 3,797 ============================================================================= Earnings per share: Basic $ 0.31 $ 0.65 $ 1.35 Diluted $ 0.27 $ 0.58 $ 1.20 =============================================================================

3 RELATED PARTY TRANSACTIONS With the exception of certain capitalized lease obligations, from May 1, 1997 to June 30, 1999, the Company did not have external sources of borrowings, and, as such relied upon Essef as its primary source of funding. There was no interest charged on the intercompany account between June 30, 1999 and the date of the split-off, August 10, 1999. Interest was charged at an average rate of 10.6% for the six-month period ended June 30, 1999. Total interest charges on the intercompany account for the six months ended June 30, 1999, the year ended December 31, 1998 and the eight months ended December 31, 1997 were $1,683,000, $1,860,000 and $1,601,000, respectively. At the date of the split-off, the balance of the intercompany account was contributed to capital (see Note 1). For the period prior to May 1, 1997, the Predecessor relied upon General Aquatics as its primary source of funding and for cash management activities. From May 1, 1997 through August 10, 1999, the Company purchased swimming pool and spa equipment used in its swimming pool installations from other companies who were also wholly owned subsidiaries of Essef. These purchases were made on an arm's length basis, on terms similar to which those companies sell to their other customers, and were not subject to any long-term supply agreements. Total purchases from these related companies for the period from January 1, 1999 through August 10, 1999, the year ended December 31, 1998, and the eight months ended December 31, 1997 were approximately $9,816,000, $10,546,000 and $2,030,000, respectively. Amounts payable by the Company to related companies of $488,000 were included in accounts payable at December 31, 1998. Prior to April 30, 1997, the Predecessor purchased swimming pool and spa equipment used in its swimming pool installations from other companies who were also wholly owned subsidiaries of General Aquatics. Total purchases from these related companies for the four months ended April 30, 1997 were approximately $1,558,000. 4 BUSINESS ACQUISITIONS In January 1998, the Company acquired the net operating assets of Tango Pools, an installer of swimming pools in Las Vegas, Nevada, and in August 1998, it acquired Pools by Andrews, Inc., an installer of swimming pools in Florida. Consideration for these transactions of $5,946,000, including transaction costs, was paid in a combination of cash and the Parent's common stock. These acquisitions were accounted for as purchases, and thus, the purchase 14 17 price has been allocated to the assets and liabilities based on their estimated fair value. The results of operations for each of the acquired entities have been included in the Company's results since the date of acquisition. The following table is a summary of these transactions: - --------------------------------------------------------------------------- (Dollars in thousands) - --------------------------------------------------------------------------- Fair value of identifiable assets acquired $ 3,808 Costs in excess of net assets acquired 7,193 Less liabilities assumed (5,055) - -------------------------------------------------------------------------- Net consideration paid for acquisitions $ 5,946 =========================================================================== On May 1, 1997, substantially all of the Company's operating assets were acquired and certain of its liabilities were assumed by Essef as part of an acquisition transaction with General Aquatics, Inc. The acquisition was accounted for as a purchase and the results of operations shown in these statements reflect the Company's results since the date of acquisition. The following unaudited pro forma combined results of operations give effect to the Tango Pools and Pools by Andrews acquisitions as if they were completed at the beginning of 1998, and the acquisition of the Company as if it was completed at the beginning of 1997. The pro forma information has been presented for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisitions occurred at the beginning of the periods shown, or of the results which may occur in the future:

- ----------------------------------------------------------------------------- (Dollars in thousands) 1998 1997 - ----------------------------------------------------------------------------- Net Sales $173,550 $127,712 Net Income 2,574 1,697 =============================================================================

5 ACCRUED EXPENSES Accrued expenses consists of the following at December 31:

- ----------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------------- Billings in excess of costs and estimated earnings on uncompleted contracts $ 5,631 $ 5,196 Warranty 1,966 1,543 Accrued compensation 2,038 1,796 Other 2,060 1,772 - ----------------------------------------------------------------------------- Total $11,695 $10,307 =============================================================================

6 LONG-TERM DEBT Long-Term Debt Consists of the Following at December 31:

- ---------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------- Revolving credit facility $4,500 $ Capital lease obligations 264 504 Less current maturities (171) (244) - ----------------------------------------------------------------------------- Total $4,593 $ 260 =============================================================================

On August 10, 1999, the Company entered into a $35 million revolving credit facility ("Credit Facility") with a group of banks. The Credit Facility, secured by the assets of the Company, matures August 10, 2002 and may be extended in one-year increments with the approval of the bank group. The Company's borrowing capacity and interest rates under the Credit Facility are based on its profitability and leverage. Interest rates are charged at increments over either Prime or LIBOR rates. In addition, a 37.5 basis points commitment fee is payable on the total amount of the unused commitment. As of December 31, 1999, the effective interest rate on all outstanding borrowings under the Credit Facility was 8.875% and the available borrowings were $13.7 million. The Company is in compliance with all of its debt covenants under the Credit Facility. The Company has capital leases for the purchase of service vehicles and other equipment with a net book value of approximately $182,000 at December 31, 1999. The leases are collateralized by the service vehicles and the equipment purchased. At December 31, 1999, the total future minimum payments under these leases were $333,000, with $69,000 representing payments for future interest. Aggregate maturities of long-term debt are the following: 2000, $171,000; 2001, $86,000; and 2002, $4,507,000. 15 18 7 INCOME TAXES The significant components of the provision/(benefit) for income taxes are as follows:

- ---------------------------------------------------------------------- (Dollars in thousands) Eight Four Months Months Ended Ended December 31, April 30, 1999 1998 1997 1997 - --------------------------------------------------------------------- Current: Federal $598 $ 836 $2,397 $ (658) State 136 190 220 (61) - --------------------------------------------------------------------- Total current 734 1,026 2,617 (719) - --------------------------------------------------------------------- Deferred: Federal (97) 386 30 (578) State (5) 22 2 (53) - --------------------------------------------------------------------- Total deferred (102) 408 32 (631) - -------------------------------------------------------------------- Total $632 $ 1,434 $2,649 $(1,350) =====================================================================

The Company's deferred tax assets at December 31, 1999 and 1998 are comprised primarily of nondeductible accruals for doubtful accounts, warranty and inventory obsolescence and the book basis of fixed assets in excess of tax basis. The consolidated tax provision/(benefit) differs from that computed at the statutory United States tax rate of 34% as follows:

- ----------------------------------------------------------------------------- (Dollars in thousands) Eight Four Months Months Ended Ended December 31, April 30, 1999 1998 1997 1997 - ------------------------------------------------------------------------------ Tax provision/(benefit) at statutory Federal rate $561 $1,231 $2,449 $(1,280) State income taxes 66 140 147 (75) Other items, net 5 63 53 5 - ------------------------------------------------------------------------------ Provision/(benefit) for income taxes $632 $1,434 $2,649 $(1,350) =============================================================================

8 CAPITAL STOCK AND STOCK OPTION PLANS Based on authorizations of the Board of Directors between October 27 and December 31, 1999, the Company purchased 72,100 shares of its common stock on the open market at an average price of $6.82 per share and on December 28, 1999, the Company purchased a block of 1,037,046 common shares or approximately 32% of the outstanding shares in a private transaction at $6.25 per share. At the time of the split-off from Essef (see Note 1), stock options held by persons who became officers or directors of the Company were also split off so that the potential ownership these persons had in Essef would remain consistent with that in the Company. This resulted in the allocation to the Company of 741,557 fully vested options. Of these options, 6,050 will expire in April 2000, 646,733 in October 2000, 5,587 in January 2004 and 83,187 in September 2006. The exercise price for these options was determined based on a formula that included the Company's first day's trading price following the split-off and the original exercise price. The following table summarizes information about the Company's split-off options:

- ---------------------------------------------------------------- Exercise Number Weighted Average Weighted Average Price of Options Remaining Life Exercise Price - ---------------------------------------------------------------- $0.20 646,733 0.83 $0.20 $1.62 5,587 4.08 $1.62 $1.72 83,187 6.75 $1.72 $3.37 6,050 0.25 $3.37 - ---------------------------------------------------------------- 741,557 1.51 $0.40 - ----------------------------------------------------------------

[PHOTO] Also at the time of the split-off, the Company established a long-term incentive plan (the "Long-Term Incentive Plan") for employees and directors providing for 10-year options for the purchase of up to 500,000 shares of the Company's common stock. Under this plan, 278,500 initial options with an exercise price of $16 per share were granted to certain officers and directors of the Company. These options vest over periods ranging from one to five years from the date of the grant. On December 28, 1999, as part of the Company's compensation plans, certain officers and directors of the Company were given the opportunity to purchase shares of the Company's common stock under a Leveraged Stock Purchase Plan for an amount generally up to two times their base compensation at fair market value. Under this plan, the officers and directors purchased 376,147 shares of the Company's common stock, issued from treasury, at an average price of $6.77 per share. For every share of common stock purchased under the Plan, participants received .40 of a stock 16 19 option representing in total 175,000 stock options. These options have an exercise price of $6.81 and vest over periods ranging from two to five years. At the election of each officer or director, these purchases could be financed through full recourse external borrowings guaranteed by the Company and secured by the stock. The Company has agreed to advance to the participant the interest on the obligation. At December 31, 1999, the Company has guaranteed total borrowings of $2,486,000 under the Plan. If the common stock reaches levels ranging from $20 to $28 per share during certain periods over the next five years, a long-term cash incentive will be awarded to participants equal to the initial amount of the stock purchase plus any interest advanced to the participant. The following table summarizes the activity in the Long-Term Incentive Plan from the date of the split-off.

- ----------------------------------------------------------------------------- Number Price of Options Per Share - ----------------------------------------------------------------------------- Outstanding August 10, 1999 -- -- Initial Grants 278,500 $16.00 Subsequent Grants 175,000 $ 6.81 - ----------------------------------------------------------------------------- Outstanding December 31, 1999 453,500 $6.81-$16.00 =============================================================================

None of these options were exercisable at December 31, 1999. The Company applies APB Opinion No. 25 and related interpretations in accounting for stock-based compensation arrangements. Accordingly, because the options were granted at no less than fair market value, through December 31, 1999, no compensation expense has been recognized on options granted. Had compensation cost for the Company's stock options been determined based on the fair value at the grant date for awards under the Long-Term Incentive Plan consistent with the methods of SFAS No. 123, there would not have been a material impact on the Company's reported amount of net income or diluted earnings per share. 9 OPERATING LEASES The Company leases certain of its facilities and equipment. Total rental expenses under operating leases for the years ended December 31, 1999 and 1998, the eight months ended December 31, 1997, and the four months ended April 30, 1997 were $2,391,000, $1,975,000, $1,046,000 and $536,000 respectively. Minimum annual rental commitments for the next five years under non-cancelable operating leases are the following: 2000, $1,983,000; 2001, $1,482,000; 2002, $1,180,000; 2003, $808,000; and 2004, $529,000. 10 RETIREMENT PLANS The Company maintains a 401(k) retirement plan covering substantially all of its employees. Participants are permitted to make pretax contributions to the plan as a percentage of compensation. The Company matches participant contributions, up to specified limits. Total Company contributions for the years ended December 31, 1999 and 1998, the eight months ended December 31, 1997, and the four months ended April 30, 1997 were $925,000, $791,000, $422,000 and $177,000, respectively. 11 LITIGATION Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, the results of all such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 12 ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities," which was to be effective for the Company no later than January 1, 2000. In June 1999, the FASB issued SFAS No. 137, which delayed the required effective date for the Company until January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is currently evaluating the requirements of SFAS 133 but, based on its limited use of derivative financial instruments, does not expect it to have a material effect on the financial position and results of operations of the Company when adopted. 17 20 REPORT OF MANAGEMENT Management is responsible for the preparation and accuracy of the financial statements and other information included in this report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles using, where appropriate, management's best estimates and judgment. [PHOTO] In meeting its responsibility for the reliability of the financial statements, the Company depends upon its system of internal controls. The system is supported by policies and guidelines, and by careful selection and training of financial management personnel. Management believes that the Company's internal control systems provide reasonable assurance that assets are safeguarded against losses from unauthorized use or disposition, that transactions are executed in accordance with management's authorization, and accounting records are reliable as a basis for preparing financial statements. The Board of Directors through its Audit Committee, which is composed entirely of Directors who are neither officers nor employees of the Company, is responsible for determining that management fulfills its responsibilities. The Audit Committee meets periodically with management and with the independent public accountants to review and assess the activities of each in meeting their respective responsibilities. The annual audit by the independent accountants provides an objective, independent review of management's discharge of its responsibilities as they relate to the fairness of reported operating results and financial condition. The auditors obtain and maintain an understanding of the Company's accounting and financial controls and conduct such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the Company's consolidated financial statements. The independent accountants have full access to the Audit Committee to discuss, with and without management present, the results of their audit work, the adequacy of internal accounting controls, and the quality of financial reporting. /s/ Stuart D. Neidus Stuart D. Neidus Chairman and Chief Executive Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders, Anthony & Sylvan Pools Corporation We have audited the accompanying consolidated balance sheets of Anthony & Sylvan Pools Corporation and Subsidiary (the "Company") as of December 31, 1999 and 1998 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1999 and 1998 and the eight months ended December 31, 1997. We have also audited the statements of operations and cash flows of Anthony & Sylvan Pools, Inc. (the "Predecessor") for the four-month period ended April 30, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, the results of the Company's operations and cash flows for the years ended December 31, 1999 and 1998 and the eight months ended December 31, 1997, and the results of the Predecessor's operations and cash flows for the four months ended April 30, 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Cleveland, Ohio February 18, 2000 18 21 [PHOTO] MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS 1999 COMPARED WITH 1998 Net sales in 1999 of $184.7 million increased 18.5% from 1998 net sales of $155.8 million. Approximately 71% of the increase was attributable to the acquisition of Pools by Andrews in Florida completed in August 1998. The remainder of the increase came from increases in average selling prices. Gross profit increased to $47.7 million in 1999 from $41.9 million in 1998. As a percentage of sales, gross profit decreased from 26.9% in 1998 to 25.8% in 1999. The decrease was attributable to a combination of mix, as the additional units produced in Florida are smaller and at a gross profit margin lower than the Company's historical rate, and material and labor cost increases that outpaced the Company's ability to increase prices. Operating expenses consisting of selling and administrative expenses increased by $7.9 million to $44.3 million in 1999 from $36.4 million in 1998. As a percentage of sales, operating expenses increased slightly from 23.4% in 1998 to 24.0% in the current period. The dollar increase was attributable to a combination of the operating expenses incurred within the operations acquired with Pools by Andrews, increased spending for sales and lead generating activities, and legal fees associated with certain acquisition- related activities. Interest and other expense decreased $0.1 million from $1.9 million in 1998 to $1.8 million in the current period. Interest was paid to the Company's former Parent, Essef Corporation, through an intercompany borrowing arrangement. The intercompany borrowings were used by the Company to finance operations and acquisitions. [PHOTO] The Company's effective tax rate was 38.3% in 1999 compared with 39.6% in 1998. As a result of the above items, net income decreased $1.2 million to $1.0 million and earnings per diluted share decreased $0.31 per share from $0.58 per share in 1998 to $0.27 per share in 1999. 1998 Compared with 1997 Anthony & Sylvan's predecessor was a wholly owned subsidiary of General Aquatics, Inc. during the four months ended April 30, 1997. Periodic references have been made to the combined results of operations for the 12 months ended December 31, 1997 throughout this discussion and analysis. These references are made without giving effect to any pro forma adjustments, which may be required to present combined results on a consistent basis of accounting. Net sales in 1998 of $155.8 million increased 22.0% from 1997 net sales of $127.7 million, consisting of $98.8 million for the eight months ended December 31, 1997 and $28.9 million for the four months ended April 30, 1997. The increase was attributable to a combination of increased volume within existing markets, the acquisitions 19 22 of Tango Pools in January 1998 and Pools by Andrews in August 1998, and to increases in average selling prices. Gross profit increased to $41.9 million in 1998 from $34.6 million for the year ended December 31, 1997 as a result of the increase in net sales. Gross profit as a percentage of net sales decreased slightly from 27.1% in 1997, comprised of 28.3% for the eight-month period ended December 31, 1997 and 22.8% for the four-month period ended April 30, 1997, to 26.9% in 1998. The gross profit percentage differences among the year ended December 31, 1998, the four-month period ended April 30, 1997 and the eight-month period ended December 31, 1997 were primarily related to the seasonality of the Company's business. Operating expenses consisting of selling and administrative expenses increased by $7.2 million to $36.4 million in 1998 from $29.2 million in 1997. The expense in 1998 consisted of $19.2 million for the eight-month period ended December 31, 1997 and $10 million for the four-month period ended April 30, 1997. Operating expenses as a percentage of sales were 23.4% in 1998 compared to 19.4% in the eight-month period ended December 31, 1997 and 34.6% for the four-month period ended April 30, 1997. The percentage decrease in 1998 compared to the four-month period ended April 30, 1997 is due to the fact that this period of the year is a seasonally slow period of sales and the majority of the company's operating expenses are relatively constant. The higher percentage in 1998 compared to the eight-month period ended December 31, 1997 is primarily attributable to the inclusion of the lower-sales first four months of 1998. [PHOTO] Interest and other expense of $1.9 million was consistent with 1997. Interest of $0.3 million for the four-month period ended April 30, 1997 was charged by the Company's predecessor. Interest for the eight-month period ended December 31, 1997 of $1.6 million and for the year ended December 31, 1998 of $1.9 million was charged by Essef based on the average outstanding payable to Essef. Increased borrowings in 1998 were offset by a lower average borrowing rate than that charged in the eight-month period ended December 31, 1997. The effective tax rate increased from 36.8% in the eight-month period ended December 31, 1997 to 39.6% for the year ended December 31, 1998. the Company's predecessor's effective tax rate was 35.9% for the four months ended April 30, 1997. As a result of the above items, net income in 1998 was $2.2 million compared to $4.6 million for the eight-month period ended December 31, 1997 and a loss of $2.4 million for the four months ended April 30, 1997. LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 1999, cash flow from operating activities was $6.2 million compared with $1.0 million in 1998. The increase came principally from a reduction in contract receivables and increases in accrued expenses including excess progress payments. Capital expenditures in 1999 were $3.0 million compared with $2.4 million in 1998. 1998 also includes acquisition payments of $4.7 million related to the purchases of Tango Pools and Pools by Andrews. In 1999, the Company expended $7.0 million under its Board-approved stock repurchase programs that were financed from existing cash resources and external bank borrowings. Additionally, the Company raised $2.5 million through the issuance of stock to certain officers and directors under various long-term plans. On August 10, 1999, a third party acquired the Company's former Parent, Essef Corporation ("Essef"), in a merger transaction that included the Company being split off to Essef's common shareholders as part of the merger consideration. In accordance with the terms of the merger agreement, subsequent to June 30, 1999, the Company separated its cash management activities from Essef. Therefore, the Company could no longer be advanced funds from Essef while retaining its after-tax cash flow after such date. Additionally, the Company was not required to pay to Essef any of the $17,000,000 that might have been due under certain adjustment mechanisms related to the Company's split-off from Essef. As such, all of the Company's debt to Essef, which totaled $27.2 million at the date of the split-off, was contributed to the Company's capital at the date of the split-off. On August 10, 1999, the Company entered into a $35 million revolving credit facility ("Credit Facility") with a 20 23 group of banks secured by the assets of the Company. The Credit Facility matures August 10, 2002 and may be extended in one-year increments with the approval of the bank group. The Company's borrowing capacity and interest rate under the Credit Facility are based on its profitability and leverage. Interest rates are charged at increments over either Prime or LIBOR rates. In addition, a 37.5 basis points commitment fee is payable on the total amount of the unused commitment. As of December 31, 1999, the effective interest rate on all outstanding borrowings under the Credit Facility was 8.875% and the available borrowings were $13.7 million. The Company is in compliance with all of its debt covenants under the Credit Facility. The Company believes that existing cash and cash equivalents, internally generated funds, and funds available under its line of credit will be sufficient to meet its needs. CYCLICALITY AND SEASONALITY The Company believes that the in-ground swimming pool industry is strongly influenced by general economic conditions and tends to experience periods of decline during economic downturns. Because the majority of the Company's swimming pool installation purchases are financed, pool sales are particularly sensitive to interest rate fluctuations and the availability of credit. A sustained period of high interest rates could result in declining sales, which could have a material adverse effect on the Company's financial condition and results of operations. Historically, approximately 70% of the Company's revenues have been generated in the second and third quarters of the year, the peak season for swimming pool installation and use. Conversely, the Company typically incurs net losses during the first and fourth quarters of the year. Unseasonably cold weather or extraordinary amounts of rainfall during the peak sales season can significantly reduce pool purchases. In addition, unseasonably early or late warming trends can increase or decrease the length of the swimming pool season, significantly affecting sales and operating profit. [PHOTO] YEAR 2000 MATTERS The Company did not experience any significant malfunction or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change has not been fully recognized. In addition, the Company is not aware of any significant Year 2000 or similar problems that have arisen for its current suppliers or service providers, and does not believe it would have any difficulty securing alternate sources of supply in the event that any of its current suppliers or service providers do experience Year 2000 or similar problems. The Company's expenditure on Year 2000 readiness efforts was not material. These efforts included replacing or upgrading outdated, noncompliant hardware and software as well as identifying and remediating Year 2000 problems. PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this report and other materials filed with the Securities and Exchange Commission (as well as information included in oral or other written statements made or to be made by the Company) contains statements that are forward-looking. All forward-looking statements are based on current expectations regarding important risk factors, including but not limited to: the costs of integrating acquired businesses; dependence on existing management; consumer spending and market conditions; weather; and year 2000 issues. Accordingly, actual results may differ from those expressed in any forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed herein will be achieved. 21 24 SELECTED FINANCIAL DATA Anthony & Sylvan Pools Corporation and Subsidiary

- --------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Anthony & Sylvan Predecessor - --------------------------------------------------------------------------------------------------------------------------- Eight Four Year Ended Year Ended Months Ended Months Ended Year Ended Year Ended December 31, December 31, December 31, April 30, December 31, December 31, - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1997 1996(1) 1995 - --------------------------------------------------------------------------------------------------------------------------- OPERATING DATA Net Sales $ 184,713 $ 155,765 $ 98,829 $28,883 $ 112,167 $ 58,569 Cost of Sales 136,970 113,873 70,814 22,291 82,018 42,454 Gross Profit 47,743 41,892 28,015 6,592 30,149 16,115 Gross Profit % 25.8% 26.9% 28.3% 22.8% 26.9% 27.5% Income from Operations 3,453 5,538 8,839 (3,461) 2,225 1,047 Net Income 1,017 2,188 4,553 (2,414) 1,167 604 Net Income Per Diluted Share $ 0.27 $ 0.58 $ 1.20 N/A N/A N/A BALANCE SHEET DATA Total Assets $ 55,507 $ 54,273 $ 42,620 N/A $ 20,658 $ 8,721 Working Capital(2) 889 (27,429) (23,217) N/A (3,636) (156) Total Debt 4,764 29,865 24,638 N/A 9,790 949 Shareholders' Equity 30,572 6,741 4,553 N/A N/A N/A Debt to Total Capital 13% 82% 84% N/A N/A N/A OTHER DATA Cash Flow from Operations $ 6,200 $ 1,019 $ (687) $ 2,021 $ 5,461 $ 5,461 Capital Expenditures 2,971 2,407 1,019 259 329 186 Depreciation and Amortization 2,627 2,254 1,070 470 1,066 176 EBITDA 5,999 7,736 9,887 (3,022) 3,291 1,223 Average Shares Outstanding Basic 3,327 3,357 3,382 N/A N/A N/A Diluted 3,748 3,772 3,797 N/A N/A N/A Market Price of Stock High $ 8.06 N/A N/A N/A N/A N/A Low $ 4.00 N/A N/A N/A N/A N/A Period End $ 6.94 N/A N/A N/A N/A N/A Market Capitalization at December 31 $ 18,371 N/A N/A N/A N/A N/A ===========================================================================================================================

(1) On March 6, 1996, the predecessor acquired Anthony Pools, whose results have been included herein since the date of acquisition. (2) 1998 and 1997 working capital includes $29,361 and $23,780, respectively, for amounts payable to former parent. UNAUDITED QUARTERLY FINANCIAL INFORMATION

- --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- Net sales $26,422 $18,040 $62,154 $52,415 $58,483 $53,038 $37,654 $32,272 - --------------------------------------------------------------------------------------------------------------------------- Gross profit 5,703 4,371 17,721 15,487 15,849 14,499 8,470 7,535 Income from operations (3,802) (2,006) 5,299 4,793 3,349 4,271 (1,393) (1,520) Net income (2,958) (1,501) 2,850 2,587 1,972 2,248 (847) (1,146) Net income per basic share $ (0.88) $ (0.45) $ 0.85 $ 0.77 $ 0.59 $ 0.67 $ (0.25) $ (0.34) Net income per diluted share $ (0.88) $ (0.45) $ 0.76 $ 0.69 $ 0.52 $ 0.60 $ (0.25) $ (0.34) ===========================================================================================================================

The sum of the quarterly net income per share does not equal the annual amount reported. Net income per share is calculated independently for each quarter and the full year based on respective weighted average common shares outstanding. Additionally, due to the net loss reported in the first and fourth quarters of both years, the share base used in calculating net income per diluted share does not include the effect of common share equivalents as its effect would be anti-dilutive. 22 25 [PHOTO] CORPOPRATE INFORMATION Directors: STUART D. NEIDUS (1) Chairman of the Board and Chief Executive Officer, Anthony & Sylvan Pools Corporation ROGER D. BLACKWELL (2,3) Professor of Marketing, The Ohio State University; President, Blackwell Associates, Inc. MARY ANN JORGENSON, ESQ. (1,2,3) Partner, Squire, Sanders & Dempsey LLP THOMAS B. WALDIN (1,2,3) Former Chief Executive Officer, Essef Corporation; Private Investor Committees of the Board: 1. Executive Committee 2. Audit Committee 3. Compensation Committee Corporate Officers: STUART D. NEIDUS Chief Executive Officer HOWARD P. WERTMAN President RICHARD M. KELSO Executive Vice President and Chief Operating Officer WILLIAM J. EVANSON Executive Vice President and Chief Financial Officer EDWARD W. ANDREWS Vice President, Florida Division THOMAS J. CASEY Vice President, Sales MARTIN J. DEGNAN Vice President, General Counsel and Secretary JAMES L. FRANCIS Vice President, Human Resources MARTIN A. ILES Vice President, Treasurer and Controller LAWRENCE M. MAZZENGA Vice President, Operations RICHARD E. MILLS Vice President, Corporate Development and General Manager, Cleveland Division PHILIP A. PASCUCCI Vice President, Western Division ANTHONY F. PIZZELANTI Vice President, Management Information Systems Corporate Headquarters: Mt. Vernon Square - Suite 300 6690 Beta Drive Mayfield Village, Ohio 44143 (440) 720-3301 (877) 307-SWIM (7946) (440) 720-3303 FAX General Information: ANNUAL MEETING The Annual Meeting of Shareholders of Anthony & Sylvan Pools Corpora- tion will be held at the Holiday Inn-Mayfield at 780 Beta Drive, Mayfield Village, Ohio, on May 2, 2000, at 10 a.m. TRANSFER AGENT AND REGISTRAR National City Bank Corporate Trust Operations P.O. Box 92301 Cleveland, Ohio 44193-0900 (800) 622-6757 INVESTOR INQUIRIES Copies of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commis- sion will be provided upon written request to: Chief Financial Officer Anthony & Sylvan Pools Corporation Mt. Vernon Square - Suite 300 6690 Beta Drive Mayfield Village, Ohio 44143 STOCK EXCHANGE LISTING Anthony & Sylvan Corporation Common Shares are listed on the Nasdaq SmallCap Stock Market under the symbol SWIM. WEB SITE Company information is available on our Web site at www.anthonysylvan.com 23 26 ANTHONY & SYLVAN POOLS SALES DESIGN CENTERS AND RETAIL STORES [PHOTOGRAPH]

- - Denotes sales design centers - - Denotes sales design centers and retail stores serving the area 1 Mayfield Village, OH 16 Fairfax, VA 31 Pompano, FL 2 Allentown, PA 17 Fredricksburg, VA 32 Miami, FL 3 Doylestown, PA 18 Charlotte, NC 33 Houston, TX (1) 4 Lancaster, PA 19 Atlanta, GA 34 Houston, TX (2) 5 Montgomeryville, PA 20 Marietta, GA 35 Clear Lake, TX 6 West Chester, PA 21 Jacksonville, FL 36 Sienna Plantation, TX 7 Orange County, NY 22 Ocala, FL 37 Frisco, TX 8 Darien, CT 23 Orlando, FL (1) 38 Dallas, TX 9 Cherry Hill, NJ 24 Orlando, FL (2) 39 Grapevine, TX 10 Fairfield, NJ 25 Orange City/Deltona, FL 40 Arlington, TX 11 Freehold, NJ 26 Tampa, FL 41 Henderson, NV 12 Green Brook, NJ 27 Valrico, FL 42 Las Vegas, NV 13 Newark, DE 28 Stuart, FL 43 Orange, CA 14 Baltimore, MD 29 Riviera Beach, FL 44 Dublin, CA 15 Severna Park, MD 30 Ft. Myers, FL

Visit our Web site at www.anthonysylvan.com for addresses and phone numbers for our sales design centers and retail stores 24 27 [PHOTOGRAPHS] Anthony & Sylvan Pools Corporation Mt. Vernon Square - Suite 300 6690 Beta Drive Mayfield Village, Ohio 44143 (440) 720-3301 www.anthonysylvan.com 28 [PHOTOGRAPHS] SWIM Our stock symbol - SWIM reflects the enjoyment that Anthony & Sylvan brings to its customers. Our pools and spas make backyard dreams come true for thousands of families every year. EX-27.1 4 EXHIBIT 27.1

<ARTICLE> 5 <MULTIPLIER> 1,000 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-START> JAN-01-1999 <PERIOD-END> DEC-31-1999 <CASH> 533 <SECURITIES> 0 <RECEIVABLES> 9,292 <ALLOWANCES> (1,191) <INVENTORY> 5,282 <CURRENT-ASSETS> 18,988 <PP&E> 11,218 <DEPRECIATION> (3,111) <TOTAL-ASSETS> 55,507 <CURRENT-LIABILITIES> 18,099 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 27,395 <OTHER-SE> 3,177 <TOTAL-LIABILITY-AND-EQUITY> 55,507 <SALES> 184,713 <TOTAL-REVENUES> 184,713 <CGS> 136,970 <TOTAL-COSTS> 181,260 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 1,804 <INCOME-PRETAX> 1,649 <INCOME-TAX> 632 <INCOME-CONTINUING> 1,017 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,017 <EPS-BASIC> 0.31 <EPS-DILUTED> 0.27

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EX-10.2

   1

                                                                    EXHIBIT 10.2
                                                                    ------------


                       ANTHONY & SYLVAN POOLS CORPORATION
                       ----------------------------------
                       1999 LEVERAGED STOCK PURCHASE PLAN
                       ----------------------------------


1.       PURPOSE

         The purpose of this Plan is to advance the long-term interests of
Anthony & Sylvan Pools Corporation by (i) motivating directors and executive
personnel by means of long-term incentive compensation, (ii) furthering the
identity of interests of participants with those of the shareholders of the
Corporation through the ownership and performance of the Stock of the
Corporation and (iii) permitting the Corporation to attract and retain directors
and executive personnel upon whose judgment the successful conduct of the
business of the Corporation largely depends. Toward this objective, the
Committee may grant selected executives and directors (i) the right to purchase
Stock of the Corporation financed by loans arranged by, and guaranteed by, the
Corporation, (ii) long-term incentive awards payable in cash in amounts
sufficient to repay said loans, and (iii) stock options under the Anthony &
Sylvan Pools Corporation 1999 Long-Term Incentive Plan (the "Long-Term Incentive
Plan") contingent on participation in said leveraged stock purchase plan, on the
terms and subject to the conditions set forth in the Plan.


2.       DEFINITIONS

         2.1 "Administrative Policies" means the administrative policies and
procedures adopted and amended from time to time by the Committee to administer
the Plan.

         2.2 "Award" means any form of Stock Purchase Opportunity (as defined in
Section 8) or long-term incentive award granted under the Plan, whether singly,
in combination, or in tandem, to a Participant by the Committee pursuant to such
terms, conditions, restrictions and limitations, if any, as the Committee may
establish by the Award Agreement or otherwise.

         2.3 "Award Agreement" means a written agreement with respect to an
Award between the Corporation and a Participant establishing the terms,
conditions, restrictions and limitations applicable to an Award. To the extent
an Award Agreement is inconsistent with the terms of the Plan, the Plan shall
govern the rights of the Participant thereunder.

         2.4      "Board" means the Board of Directors of the Corporation.

         2.5 "Change in Control" shall mean the first to occur of the following
events: (i) when any "person" as defined in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined
in Section 13(d) of the Exchange Act, but excluding the Corporation and any
employee benefit plan sponsored or maintained by the Corporation (including any
trustee of such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended
from time to time), of securities of the Corporation representing more than
fifty percent (50%) of the combined voting power of the Corporation's then
outstanding securities; or (ii) the completion of a transaction requiring
shareholder approval for the acquisition of substantially all of the stock or
assets of the Corporation by an entity other than the Corporation or any merger
of the Corporation into another company and the Corporation is not the surviving
company. Notwithstanding anything else in this Plan, "Change in Control" shall
not include any change for reasons of bankruptcy, insolvency or otherwise for
the benefit of the Corporation's creditors

                                       15
   2

         2.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

         2.7 "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board, authorized to administer the Plan under
Section 3 hereof.

         2.8 "Corporation" means Anthony & Sylvan Pools Corporation, an Ohio
corporation.

         2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

         2.10 "Interest Loan" means a loan pursuant to Section 8(c) hereof.

         2.11 "Key Employee" means an employee of the Corporation who holds a
position of corporate vice-president or higher.

         2.12 "LTI Award" means a Long-Term Incentive Award granted pursuant to
Section 8(d) hereof.

         2.13 "Participant" means any individual to whom an Award has been
granted by the Committee under this Plan.

         2.14 "Plan" means the Anthony & Sylvan Pools Corporation 1999 Leveraged
Stock Purchase Plan.

         2.15 "Stock" means Common Stock, no par value, of the Corporation.

         2.16 "Stock Exchange" means the Nasdaq SmallCap Market or, if the Stock
is no longer traded on the Nasdaq SmallCap Market, then such other market price
reporting system on which the Stock is traded or quoted designated by the
Committee after it determines that such other exchange is both reliable and
reasonably accessible.

         2.17 "Stock Purchase Opportunity" means an opportunity to purchase
Stock of the Corporation as set forth in Section 8 hereof.


3.       ADMINISTRATION

         The Plan shall be administered under the supervision of a Committee
composed of not less than three individuals selected by the Board. Members of
the Committee shall serve at the pleasure of the Board, and may resign by
written notice filed with the Chief Executive Officer or the Secretary of the
Corporation.

         A vacancy in the membership of the Committee shall be filled by the
appointment of a successor member by the Board. Until such vacancy is filled,
the remaining members shall constitute a quorum and the action at any meeting of
a majority of the entire Committee, or an action unanimously approved in
writing, shall constitute action of the Committee. Subject to the express
provisions of this Plan, the Committee shall have conclusive authority to
construe and interpret the Plan, any Award Agreement entered into hereunder and
to establish, amend and rescind Administrative Policies for the administration
of this Plan and shall have such additional authority as the Board may from time
to time determine to be necessary or desirable.


4.       ELIGIBILITY



                                       16
   3

         Any Key Employee or Director of the Corporation is eligible to become a
Participant in the Plan.


5.       SHARES AVAILABLE

         Shares of Stock available for issuance under the Plan may be authorized
and unissued shares or treasury shares. The maximum number of shares of Stock
available for grant of Awards under the Plan of Stock Purchase Opportunities
shall be equal to the aggregate of the Stock Purchase Opportunities granted to
each Participant determined in accordance with Section 8(b) of this Plan.

6.       TERM

         The Plan shall become effective as of December 28, 1999 and shall
continue in effect until terminated by the Board, at which time all outstanding
Awards shall remain outstanding in accordance with their applicable terms and
conditions.


7.       PARTICIPATION

         The Committee shall select Participants from those Key Employees and
Directors of the Corporation who, in the opinion of the Committee, can further
the Plan's purposes and the Committee shall determine the type or types of
Awards to be made to the Participant. The terms, conditions, and restrictions of
each Award shall be set forth in an Award Agreement.


8.       STOCK PURCHASE OPPORTUNITIES

         (a) Grants. Awards may be granted in the form of Stock Purchase
Opportunities. Stock Purchase Opportunities shall represent the right of a
Participant to acquire Stock of the Corporation, which right shall expire on
December 28, 1999 (the "Acceptance Date"). The Stock to be acquired will be sold
by the Corporation to the Participant and may represent Treasury shares of the
Corporation or shares acquired by the Corporation on the open market.

         (b) Terms and Conditions of Stock Purchase Opportunities The maximum
amount of a Stock Purchase Opportunity that may be granted to a Participant
shall be equal to that amount of Stock of the Corporation having a fair market
value equal to (i) in the case of a Participant who is a Key Employee, 200% of
the base salary of such Participant and (ii) in the case of a Participant who is
a Director, 400% of the annual retainer of such Director. A Stock Purchase
Opportunity shall be exercisable by the Participant only on the Acceptance Date.
The exercise price of such Stock Purchase Opportunity shall be equal to the
average of the closing prices for the Corporation's Stock for the 20 business
days preceding the Acceptance Date. A Participant shall inform the Corporation
on the Acceptance Date whether, and to what extent, the Participant will
purchase Stock under the Stock Purchase Opportunity.

         (c) Loans Relating to Stock Purchase Opportunities. If a Participant
shall decide to incur a loan to acquire Stock under the Stock Purchase
Opportunity, and if such loan shall be provided by National City Bank (or any
affiliate thereof), the Corporation shall guarantee such loan. The terms of such
loan shall be determined by the Participant and the lender. The Corporation
shall loan to the Participant sufficient amounts to pay any interest accruing on
the loan during the first five years of the loan ("Interest Loans"). Such
Interest Loans shall accrue interest at the "applicable federal rate" as
established under the Code and the principal amount of the Interest Loan (plus
all accrued interest) shall be due and payable by the Participant five years
from the Acceptance Date.



                                       17
   4

         (d) Long-Term Incentive Award.

                  (i) The Corporation shall make a Long-Term Incentive Award
("LTI Award") to any Participant who exercises a Stock Purchase Opportunity. The
LTI Award shall be equal to the value of the Stock acquired by the Participant
under the Stock Purchase Opportunity, plus the amount of any Interest Loan
(including, for this purpose, any accrued interest on the Interest Loan). In the
event that a Participant acquires Stock under the Stock Purchase Opportunity but
does not incur a loan in connection therewith, the amount of the LTI Award shall
be equal to the value of the Stock acquired by the Participant under the Stock
Purchase Opportunity, plus the amount of interest that would have been incurred
by such Participant had a loan been incurred for such acquisition (assuming for
this purpose that the interest rate on any such loan would have been at the
Prime Rate established from time to time by National City Bank). In all cases
where interest is taken into account for purposes of an LTI Award, such interest
shall be calculated through the date that the LTI Award is paid.

                  (ii) The LTI Award shall be payable in cash (if the Stock
price targets set forth herein are achieved), shall be subject to all applicable
withholding, and shall be used first by the Participant to repay any National
City Bank loan that is guaranteed by the Corporation, and then to reduce the
balance of any Interest Loan (unless the Participant shall have otherwise
arranged to repay such loans). To the extent the LTI Award exceeds the principal
and any accrued interest on such loans, the Participant shall be entitled to
retain such LTI Award.

                  (iii) The terms of the LTI Award shall provide that (i) no
payment shall be made pursuant to such Award during the two years following the
Award, (ii) one-third of the LTI Award shall be paid during the period
commencing 24 months after the Acceptance Date and ending 36 months after such
Date if the Stock price achieves an average of $20 for a twenty-business-day
period during such period, (iii) if the Stock price achieves an average of $24
for a twenty-business-day period during the period commencing 36 months after
the Acceptance Date and ending 48 months after such Date, either one-third of
the LTI Award shall be paid at such time (if a payment was made under clause
(ii) of this paragraph) or two-thirds of the LTI Award shall be paid at such
time (if a payment was not made under clause (ii) of this paragraph), and (iv)
if the Stock price achieves an average of $28 for a twenty-business-day period
during the period commencing 48 months after the Acceptance Date and ending 60
months after such Date, the full LTI Award shall be paid out to the Participant,
less any prior payments under clauses (ii) or (iii) of this paragraph. Any
payments of the LTI Award shall be made within 15 days after achievement of the
Stock price targets set forth herein.

         (e) Special Loans and Additional LTI Awards. In the event (i) a
Participant purchased Stock (other than pursuant to this Plan or the Long-Term
Incentive Plan) subsequent to August 11, 1999, and prior to the Acceptance Date,
and (ii) elects to have such purchase counted as a purchase of stock for
purposes of this subsection (e), the Corporation shall make an Additional LTI
Award to such Participant with respect to such prior purchase on terms and
conditions similar to those set forth in paragraph (d), provided that (i) such
Additional LTI Award will be made only to the extent such Participant otherwise
acquires Stock in connection with a Stock Purchase Opportunity granted
hereunder. and (ii) the aggregate of the values of the LTI Award and Additional
LTI Award granted to any Participant may not exceed the dollar limits set forth
in Section 8(b) of this Plan. The operation of this Section 8(e) shall be
illustrated by the following example. Assume the Participant acquired $60,000 of
Stock in September, 1999 at a price of $6 per share. Assume the Participant is
granted a Stock Purchase Opportunity with respect to $240,000 of Stock in
December, 1999. If the Participant acquires no shares under the Stock Purchase
Opportunity, he will be granted no LTI Award and no Additional LTI Award. If the
Participant acquires $30,000 of Stock under the Stock Purchase Opportunity, he
will be granted (i) an LTI Award with a value of $30,000, (ii) an Additional LTI
Award with a value of $30,000 and (iii) an interest factor with respect to the
$30,000 Additional LTI Award. If the Participant acquires $100,000 of Stock
under the Stock Purchase Opportunity, he will be granted (i) an LTI award with a
value of $100,000, (ii) an Additional LTI Award with a value of $60,000, and
(iii) an interest factor with respect to the $60,000



                                       18
   5

Additional LTI Award. The interest factor with respect to an Additional LTI
Award shall be based on the prime rate established from time to time by National
City Bank.

         (f) Deferral of LTI Awards. In the event an LTI Award exceeds the
amount of Participant loans required to be repaid, or in the event the
Participant otherwise arranges for the repayment of such loans, the Participant
may elect to defer such LTI Award pursuant to the terms of the Corporation's
Deferred Compensation Plan for Employees and Directors.


9.       STOCK OPTIONS

         (a) Grants. Stock options under the Long-Term Incentive Plan will be
granted to any Participant who exercises a Stock Purchase Opportunity. Stock
options will be non-statutory stock options (i.e., stock options that are not
incentive stock options under section 422 of the Code). The amount of Stock
covered by such stock options will be equal to one-half of the number of shares
acquired by the Participant pursuant to the Stock Purchase Opportunity (or
acquired otherwise by the Participant subsequent to August 11, 1999 to the
extent such shares are taken into account in determining an Additional LTI Award
under Section 8(e)), provided that no more than 175,000 shares of Stock shall be
subject to options granted in connection with this Section 9(a). In the event
that application of the "one-half formula" would result in more than 175,000
shares being subject to options hereunder, the number of options shall be
reduced pro-rata for all Participants. Such options shall be granted
simultaneously with the purchase of shares pursuant to the Opportunity.

         (b) Terms and Conditions of Options. An option granted under paragraph
(a) shall be exercisable to the extent of 40% of the number of covered shares
after two years from the grant of such option; 60% after three years from the
date of such grant; 80% after four years from the date of such grant; and 100%
after five years from the date of such grant; provided, however, that no stock
option shall be exercisable more than ten years after the date of grant thereof.
The option exercise price shall be established by the Committee, and shall be
equal to the greater of the price paid by the Participant for the Stock pursuant
to the Stock Purchase Opportunity or the closing price of the Stock on the
Acceptance Date.

         (c) Cancellation of Option. In the event a Participant sells any Stock
that was acquired upon exercise of a Stock Purchase Opportunity before holding
such Stock for five years, the Corporation shall cancel a pro-rata portion (as
provided in the subsequent sentence) of any vested or unvested stock option
granted pursuant to this Section. The number of shares as to which such option
shall be cancelled shall equal one-half of the number of shares of Stock sold by
the Participant (or, in the event a pro-ration of options was required under
Section 9(a), such lesser number as would be appropriate to reflect such
pro-ration in the determination of the Committee).

         (d) Additional Terms and Conditions. The Committee may establish such
other terms, conditions, restrictions and/or limitations, if any, on any stock
option, provided they are not inconsistent with the Plan or the Long-Term
Incentive Plan.




10.      TERMINATION OF EMPLOYMENT

         If a Participant ceases employment with (or ceases to render services
as a director to) the Corporation on account of the Participant's death, the LTI
Award (which, for purposes of this section, shall include any Additional LTI


                                       19
   6

Award) shall continue in effect and any amounts that subsequently become payable
thereunder shall be paid to the beneficiary designated by the Participant.

         If a Participant ceases employment with (or ceases to render services
as a director to) the Corporation for any reason other than death, all rights to
any LTI Award awarded to such Participant shall terminate, the Corporation's
guarantee of any loans related to such Participant described in Section 8(c) (or
Section 8(e)) shall terminate, and the Interest Loans to such Participant
described in Section 8(d) (or Section 8(e)) shall be immediately due and payable
by the Participant.


11.      ASSIGNMENT AND TRANSFER

         The rights and interests of a Participant under the Plan may not be
assigned, encumbered or transferred except, in the event of the death of a
Participant, by will or the laws of descent and distribution.


12.      WITHHOLDING TAXES

         The Corporation shall be entitled to deduct from any payment under the
Plan, regardless of the form of such payment, the amount of all applicable
income and employment tax required by law to be withheld with respect to such
payment or may require the Participant to pay to it such tax prior to and as a
condition of the making of such payment. In accordance with any applicable
Administrative Policies it establishes, the Committee may allow a Participant to
pay the amount of taxes required by law to be withheld from an Award by
withholding from any payment of Stock due as a result of such Award, or by
permitting the Participant to deliver to the Corporation shares of Stock having
a fair market value, as determined by the Committee, equal to the amount of such
required withholding taxes.


13.      REGULATORY APPROVALS AND LISTINGS

         Notwithstanding anything contained in this Plan to the contrary, the
Corporation shall have no obligation to issue or deliver certificates of Stock
pursuant to any stock option or Stock Purchase Opportunity prior to (a) the
obtaining of any approval from any governmental agency which the Corporation
shall, in its sole discretion, determine to be necessary or advisable, (b) the
admission of such shares to listing on the Stock Exchange and (c) the completion
of any registration or other qualification of said shares under any state or
federal law or ruling of any governmental body which the Corporation shall, in
its sole discretion, determine to be necessary or advisable.


14.      NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS

         Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Corporation. The Corporation reserves the right to
terminate the employment of any Key Employee at any time. The adoption of this
Plan shall not be deemed to give any Key Employee or any other individual any
right to be selected as a Participant, to be granted any Awards hereunder or if
granted an Award in any year, to receive Awards in any subsequent year.


15.      AMENDMENT



                                       20
   7

         The Committee may suspend or terminate the Plan at any time. In
addition, the Committee may, from time to time, amend the Plan in any manner,
provided that no such amendment shall adversely affect any outstanding Award


16.      GOVERNING LAW

         The Plan shall be governed by and construed in accordance with the laws
of the State of Ohio, except as preempted by applicable Federal law.


17.      CHANGE IN CONTROL

         In the event of a Change In Control, all restrictions and conditions,
if any, previously established with respect to LTI Awards and Additional LTI
Awards will conclusively be deemed to have been satisfied and fulfilled and
Participants shall be entitled to receive cash payments in the full amount of
such Awards (subject to applicable withholding) pursuant to the procedures set
forth in Section 8(d).


18.      NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS

         To the extent any person acquires a right to receive payments from the
Corporation under this Plan, such rights shall be no greater than the rights of
an unsecured creditor of the Corporation.


19.      TREATMENT OF DIVIDENDS

         To the extent any dividends are paid to a Participant in connection
with Stock acquired pursuant to a Stock Purchase Opportunity (or in connection
with Stock acquired pursuant to a stock option granted under Section 9 hereof),
the Participant shall be obligated to use such dividends to repay any loans that
the Corporation has guaranteed pursuant to Section 8(c) hereof. In the event the
Participant fails to make such repayment, the Corporation shall be entitled to
take appropriate steps including, but not limited to, withholding an equivalent
amount from the Participant's salary or retainer payments and utilizing such
amounts to repay the Participant's loans or any Interest Loans.



                                       21

EX-13

   1
                             ANTHONY & SYLVAN POOLS


                                      SWIM


                                    [PHOTOS]
                               1999 ANNUAL REPORT

   2

                                 [PHOTOGRAPHS]
                           DESIGN: DIX & EATON, INC.




   3

                                  [PHOTOGRAPH]



                              FINANCIAL HIGHLIGHTS



- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)       1999                  1998                 change
- --------------------------------------------------------------------------------------------------------------
                                                                                 
Net sales                                        $184,713              $155,765             $+28,948

Gross profit                                       47,743                41,892               +5,851

Income from operations                              3,453                 5,538               -2,085

Net income                                          1,017                 2,188               -1,171

Net income per share diluted                         0.27                  0.58                -0.31

Cash flow from operations                           6,200                 1,019               +5,181

Total assets                                       55,507                54,273               +1,234

Total debt                                          4,764                29,865              -25,101

Shareholders' equity                               30,572                 6,741              +23,831

Debt to total capital                                 13%                   82%                   --
- --------------------------------------------------------------------------------------------------------------


[LOGO]

ANTHONY & SYLVAN POOLS

We are a company rich in tradition with a 54-year legacy of satisfied pool and
spa customers. Our goal is to be the leading in-ground concrete residential pool
sales and installation company in the nation. We will grow by opening new
offices, acquisitions, internal start-ups in new markets, increased retail
sales, and expanded renovation services.


                                [PHOTO OF LOGO]
                      The Anthony & Sylvan tile Seal of
                      distinction appears on each pool we
                      design and build.




CONTENTS

financial highlights                              1

letter to shareholders                            2

where america swims                               3

opportunity for growth                            6

customer service building loyalty                 8

financial review                                  9

locations map                                    24



                                       1


   4

                            A LETTER TO SHAREHOLDERS


[PHOTO]
STUART D. NEIDUS
Chairman and Chief
Executive Officer



Dear Fellow Shareholders:



I am very pleased to be writing to our shareholders in our first Annual Report
as a public company. Anthony & Sylvan Pools ("A&S"), founded in 1946 and having
installed more than 330,000 in-ground concrete swimming pools, is a company rich
in tradition. We are among the largest sellers and installers of in-ground
concrete swimming pools in the country and the only publicly traded company
providing such services.

1999 was an exciting year in which A&S began a new chapter in a distinguished
history. Going forward, we see many opportunities for exciting growth, creating
value-added benefits for our customers, establishing stronger ties with our
vendors and business partners, providing greater opportunities for personal
growth and financial gain for our dedicated employees, and enhancing shareholder
value.

FINANCIAL POSITION In August 1999, our former parent merged with another
company, and we split off into a stand-alone public company with a healthy $7
million in cash, $35 million in equity and virtually no debt. Based on our
financial strength, we established a $35 million revolving credit facility with
a group of banks. With little need for fixed assets or additional working
capital other than for seasonal fluctuations, this facility will enable us to
make strategic investments we deem appropriate.

         The split-off made 1999 a year of transition for A&S. Our revenues
increased to a record $184.7 million from $155.8 million in 1998, an increase of
18.5 percent. Much of the increase in 1999 revenues resulted from the Pools By
Andrews acquisition in August 1998. That acquisition established A&S in eight
new markets in Florida and added critical mass in the large Orlando market.
Transition matters, though, and rising labor costs in tight labor markets that
were not offset by price increases, hurt our profits. Income from operations was
$3.5 million versus $5.5 million, and net income was $1.0 million versus $2.2
million in 1999 and 1998, respectively.

GROWTH STRATEGIES Anthony & Sylvan's primary objective is to be the leading,
most innovative and quality-focused in-ground concrete residential pool sales
and installation company in the nation and in each market we serve. Today, we
operate in 26 markets through 44 sales offices. Estimates are that the 10
largest companies in our industry together account for less than 15 percent of
the total market. Our primary strategies for growth consist of two key elements:

- -        Increasing our market share in existing markets by opening new offices,
         hiring additional sales designers and increasing our marketing efforts.

- -        Expanding into markets not currently served by Anthony & Sylvan (see
         map on page 24) through acquisition or internal start-up.

         Our industry is consolidating, and we are routinely contacted by owners
of pool companies expressing an interest in selling to A&S. In discussions with
these owners, they see the many operating benefits that come from joining a
national company, as well as the value of our depth of financial and human
resources to serve customers better. Our goal is to identify and acquire the
very best businesses with outstanding reputations and successful leadership with
the desire to remain involved in growing the business.

         Although growth is somewhat slower with a start-up versus an
acquisition, the capital required is minimal. If we are unable to acquire
companies within the financial parameters we have established, we will not
sacrifice long-term profits for faster short-term growth.

                                       2


   5

[PHOTO]




         There are two other facets to our business: we operate 18 retail stores
that sell consumables, replacement parts, equipment and pool supplies; and we
provide renovation services for customers wanting to update their pools and
spas. Today, both of these businesses are focused mostly in the Northeast and
are very modest in size. Our plan is to diversify into additional geographic
markets that enable us to leverage the relationships we have with customers in
products that we understand, are synergistic and provide leadership
opportunities. Accordingly, we have undertaken a review of these businesses
including a possible Internet-based strategy.

AN ALIGNED AND INVESTED MANAGEMENT TEAM In December 1999, we announced that A&S
repurchased a block of 1,037,000 common shares in a private transaction
primarily from a group of related family trusts. The purchase of this large
block of shares, representing approximately 32 percent of the Company's 3.3
million outstanding shares, reflects management's confidence in the Company's
long-term growth prospects and profitability.

         Simultaneous with the buyback, the Company announced the establishment
of the executive and director Leveraged Stock Purchase Plan. Under this plan,
the more A&S stock purchased by executives and directors, the greater the
potential long-term incentive award and stock option grant. The financial upside
from buying shares, the long-term incentive program and the stock option grant
are all directly tied to the Company's stock performance. I am pleased to report
that 100 percent of the eligible participants purchased shares in the program.

         In total, since we became a public company in August 1999, our officers
and directors have purchased approximately 1 million shares, investing $6.7
million in the Company. As further evidence of the importance we place on
aligning management's interests with those of our shareholders, the compensation
of our Board is paid entirely in Company stock. As large shareholders, we are
personally motivated to enhance shareholder value.

PEOPLE AND ORGANIZATION We believe that our key to success is people. To that
end, we have committed to a level of professionalism that will put the A&S
organization on par with the opportunities we perceive. Among the most
noteworthy additions to the A&S team in the last several months are four new
corporate vice presidents. They are: Marty Degnan, who joined us from Rubbermaid
Inc. as our general counsel; Jim Francis, who joined us from BFGoodrich to lead
human resources; Rick Mills, who heads up development, joined us from Essef
Corporation; and Tony Pizzelanti, who comes to us from M.A. Hanna Company, where
he directed technology and was chief information officer. In addition, as most
recently announced, Bill Evanson joined us as executive vice president and chief
financial officer, coming from Premier Farnell plc.

         To further support our commitment to customer service, we have created
a structure that combines the benefits of the national support network with the
success of our local entrepreneurial roots. Unique in our industry, this
national support network focuses on new products, techniques and technologies,
while our strong local leadership teams are empowered to make decisions and are
compensated based on customer satisfaction and financial results.

OUTLOOK We are optimistic about the outlook for A&S as we go into 2000. There
are numerous opportunities for growth. The positions that we have built in our
markets give us the confidence that we can continue to increase our market
share. Our national infrastructure is in place to support expansion. We have the
financial capacity to fund our investments. And we have a strong, committed,
passionate group of employees whose efforts have made us the industry leader -
quantitatively and qualitatively speaking.

         I am grateful to our shareholders for expressing confidence in us and
to our employees for their hard work and dedication. I would also like to
express a special thanks to the thousands of customers, who each year
demonstrate their satisfaction by referring us to their neighbors, friends and
relatives. The joy we see on the faces of our customers living their backyard
dreams provides the fuel that drives us to be the best.

                                   Sincerely,

                              /s/ Stuart D. Neidus
                                Stuart D. Neidus
                      Chairman and Chief Executive Officer

                                       3
   6
                                    [PHOTO]

                            WHERE AMERICA SWIMS(TM)

More than 50 years ago, America's two greatest swimming pool companies were
founded - Sylvan Pools (founded in Pennsylvania in 1946) and Anthony Pools
(founded in California in 1947). From the beginning, these two companies were
different from other swimming pool builders. Both were innovators in design and
construction, excelled in their field and expanded throughout the country. Over
the years, both companies grew to become nationally prominent names within the
industry. Their names appear on more than 330,000 swimming pools from New York
to Hollywood and many places in between.


In 1996, these two swimming pool giants joined forces as Anthony & Sylvan Pools
Corporation, which is currently one of the largest installers of concrete
in-ground residential swimming pools and spas in the United States. We offer
customers from coast to coast unmatched quality and value in our custom-designed
pools and spas, our renovation services and our retail stores.

[PHOTO]

In 1997, Anthony & Sylvan became a division of Essef Corporation, a manufacturer
and distributor of swimming pool and spa equipment and other products used in
the treatment, movement, storage and enjoyment of water. As a division of Essef,
Anthony & Sylvan experienced significant growth through acquisitions. The August
1998 acquisition of Pools by Andrews was particularly significant in that it
established Anthony & Sylvan in eight new Florida markets and added strength in
Orlando.

The latest chapter in Anthony & Sylvan's rich history began on August 10, 1999.
In conjunction with Essef's merger with another company, Anthony & Sylvan split
off into a stand-alone public company. Anthony & Sylvan common shares began
trading on the Nasdaq SmallCap Market on August 11, 1999, under the symbol SWIM.
Coming out of the split-off with virtually no debt, $7 million in cash, $35
million in equity, and a $35 million credit agreement makes Anthony & Sylvan one
of the strongest companies in the industry.

Our trademark, Where America Swims(TM), clearly represents our base of more than
330,000 pools installed to date and a reputation that is synonymous with quality
and integrity. Every year, we fulfill the backyard dreams of thousands of
families through a network of 44 sales and design offices, serving 26
metropolitan markets in 16 states. In 1999, Anthony & Sylvan sold and installed
approximately 6,000 pools - among the highest total of any company in the
growing U.S. market.

                                       4
   7


                                 [PHOTOGRAPHS]















         The backyard pool is a lifelong oasis for fun and relaxation.








   8

                                    [PHOTO]

                            OPPORTUNITY FOR GROWTH

Our customers' backyard dreams are limited only by their imagination, lifestyle
and property size. Americans are investing in leisure activities involving the
entire family and circle of friends, as well as in improved health and fitness
activities. A new pool can be a haven for children to play volleyball or "Marco
Polo"; a private oasis to sit by a waterfall or soak in a spa with that special
someone; a personal training site for an Olympic swimmer or a senior citizen
participating in water aerobics; or the perfect site for entertaining family,
friends and co-workers. Our sales designers can create an unlimited variety of
pool designs to provide homeowners with the perfect venue for fun, relaxation
and entertainment.

[PHOTO]

Accessories and features such as fiber optic underwater lighting systems, spas,
sheer descent edges and waterfalls can complement a homeowner's landscaping and
create that personal touch. The latest innovations in operating and purification
systems, automatic pool cleaners and computerized remote controls to turn on
filters or warm up a spa make a pool practically maintenance-free.

Our plan for growth calls for us to expand our pool and spa sales and
installation business in two primary ways:

- -        First, increase our market share within existing markets where we have
         strong name recognition. Our plans for 2000 include opening 8 to 12 new
         offices, hiring additional professional sales designers and increasing
         our marketing efforts.


- -        Second, expand into new markets through acquisition or internal
         start-up. There are countless new market opportunities throughout the
         country for A&S. This potential for geographic expansion, combined with
         industry fragmentation, offers outstanding growth opportunities for a
         national organization like A&S.

In some markets, we also offer renovation and modernization services to update
existing pools. Our growth plans include expanding our renovation services into
other markets beyond those we currently serve and targeting all in-ground pools.
National Spa & Pool Institute (NSPI) statistics indicate there are more than 3
million in-ground pools in use today. Expanding into geographies where we can
perform this type of work during the pool building "off-season" will further
reduce the seasonality of our operations.

Eighteen of our sales design centers include adjacent retail outlets. These
outlets offer a complete line of complementary products, from the necessities
such as heaters, filters, lights and chemicals, to the "extras" such as
flotation devices and water sports accessories. The aftermarket sale of pool
chemicals allows us to build strong customer relationships long after a pool is
installed.

With an expanding sales and installation business, growth in renovation and
modernization services, and higher revenue opportunities from retail sales,
Anthony & Sylvan has the opportunity, and the financial means, to grow.


                                       6

   9

         ANTHONY & SYLVAN POOLS CAN MAKE EVERY DAY SEEM LIKE A VACATION




                                 [PHOTOGRAPHS]

                              SUMMER BY THE POOL.




   10

                                    [PHOTO]
                        CUSTOMER SERVICE BUILDS LOYALTY


At Anthony & Sylvan, customer service means offering the latest products,
building with the best techniques, communication, responsiveness and
high-quality work. This focus on the customer enables us to sustain the success
of the past 50 years and continue to deliver a quality product that will provide
families with years of enjoyment and relaxation.

We welcome the challenge of customers who expect and even demand quality
customer service, and we have implemented systems to gauge our ability to meet
their expectations. For example, we survey every customer at the completion of
the installation. This program provides us with feedback to improve processes,
management and delivery time.

In return, they exhibit a great degree of loyalty toward Anthony & Sylvan, as
they contact us to build not only their second pool, but also their third and
fourth. In our newly opened Ohio office, for example, such loyalty became
apparent when a customer asked us to re-create a pool we had installed years
before at his previous home in New Jersey.

Every employee understands that customer service means referrals, and referrals
mean success. Our customer base is continually expanding through referrals from
satisfied customers and because of our reputation for high-quality work.

Anthony & Sylvan leads the industry with innovative programs and sales and
marketing techniques. Our Solid Gold Warranty program covers the pool structure,
filter tank, heater and other integral components. Selecting Anthony & Sylvan
gives homeowners peace of mind in knowing that their installer will still be in
business if their pool needs maintenance or renovation.



[PHOTO]



We arm our sales designers with laptop computers and an interactive multimedia
presentation to help customers understand the installation process. Our CD-ROM
and Web site also give potential customers ideas on the wide variety of
custom-designed swimming pools and spas that we offer. Also through our Web
site, we offer customers an online credit application through our financial
partner that provides quick responses on financing options.

Our commitment to customer satisfaction would be hollow without the efforts of
our dedicated employees. We are committed to maintaining strong local leadership
teams in each market. We empower those teams to make decisions that are in the
best interests of their customers, with local incentives based on customer
satisfaction and financial results.

At the same time, we are unique among pool companies in having a group of
professionals at the national level who have responsibility for core functions
such as sales, marketing, procurement, information technology, finance and human
resources. Having a strong national support system enables us to make
investments in the latest products, techniques and technologies that will
benefit our customers. The combination of our national support system and our
local focus on serving customers is what makes Anthony & Sylvan a special
company to work for, do business with, and invest in.





                                       8
   11

                           CONSOLIDATED BALANCE SHEETS





Anthony & Sylvan Pools Corporation and Subsidiary

December 31, 1999 and 1998
- -----------------------------------------------------------------------------------------
(Dollars in thousands)                                               1999         1998
- -----------------------------------------------------------------------------------------
                                                                          
Assets
Current Assets:
   Cash and cash equivalents                                       $    533     $     --
   Contract receivables, net of allowance for doubtful accounts
     of $1,191 and $1,085, respectively                               8,101       10,307
   Inventories                                                        5,282        4,336
   Prepayments and other                                              2,488        2,052
   Deferred income taxes                                              2,584        1,948
- -----------------------------------------------------------------------------------------
       Total current assets                                          18,988       18,643
Property, Plant and Equipment, at cost:
   Land                                                               1,160        1,160
   Buildings and leasehold improvements                               2,387        2,180
   Machinery and equipment                                            7,671        5,948
- -----------------------------------------------------------------------------------------
       Total                                                         11,218        9,288
   Less accumulated depreciation                                      3,111        2,030
- -----------------------------------------------------------------------------------------
       Net property, plant and equipment                              8,107        7,258
Other Assets:
   Goodwill, net of accumulated amortization                         27,386       28,052
   Other                                                              1,026          320
- -----------------------------------------------------------------------------------------
       Total other assets                                            28,412       28,372
- -----------------------------------------------------------------------------------------
       TOTAL ASSETS                                                $ 55,507     $ 54,273
=========================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
   Current maturities of long-term debt                            $    171     $    244
   Payable to Essef Corporation                                          --       29,361
   Accounts payable                                                   5,782        6,160
   Accrued expenses                                                  11,695       10,307
   Accrued income taxes                                                 451           --
- -----------------------------------------------------------------------------------------
       Total current liabilities                                     18,099       46,072
Long-Term Debt                                                        4,593          260
Other Long-Term Liabilities                                           2,243        1,200
Commitments and Contingencies                                            --          --
Shareholders' Equity:
   Serial preferred shares, no par value;
     1,000,000 shares authorized, none issued                            --          --
   Common shares, no par value; 29,000,000 shares authorized,
     3,341,421 shares issued and 2,608,422 outstanding               27,395          --
   Treasury shares at cost, 732,999 shares                           (4,581)         --
   Retained earnings                                                  7,758        6,741
- -----------------------------------------------------------------------------------------
       Total shareholders' equity                                    30,572        6,741
- -----------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 55,507     $ 54,273
=========================================================================================





                 See notes to consolidated financial statements.

                                       9
   12

                      CONSOLIDATED STATEMENTS OF OPERATIONS



Anthony & Sylvan Pools Corporation and Subsidiary

For the Years Ended December 31, 1999 and 1998, the Eight Months Ended December
31, 1997 and the Four Months Ended April 30, 1997



- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                                                 Eight Months     Four Months
                                                                                          Ended           Ended
                                                                                       December 31,     April 30,
                                                       1999              1998             1997             1997
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                              
Net sales                                            $184,713          $155,765          $98,829          $28,883
Cost of sales                                         136,970           113,873           70,814           22,291
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit                                           47,743            41,892           28,015            6,592
Operating expenses:
   Selling                                             28,382            23,342           13,578            6,073
   Administrative                                      15,908            13,012            5,598            3,980
- ---------------------------------------------------------------------------------------------------------------------------
     Total operating expenses                          44,290            36,354           19,176           10,053
- ---------------------------------------------------------------------------------------------------------------------------
Income/(loss) from operations                           3,453             5,538            8,839           (3,461)
Interest and other expense                              1,804             1,916            1,637              303
- ---------------------------------------------------------------------------------------------------------------------------
Income/(loss) before income taxes                       1,649             3,622            7,202           (3,764)
Provision/(benefit) for income taxes                      632             1,434            2,649           (1,350)
- ---------------------------------------------------------------------------------------------------------------------------
Net income/(loss)                                     $ 1,017           $ 2,188          $ 4,553         $ (2,414)
===========================================================================================================================
Basic earnings per share                               $ 0.31            $ 0.65           $ 1.35              --
===========================================================================================================================
Diluted earnings per share                             $ 0.27            $ 0.58           $ 1.20              --
===========================================================================================================================
Weighted average basic shares outstanding               3,327             3,357            3,382              --
===========================================================================================================================
Weighted average diluted shares outstanding             3,748             3,772            3,797              --
===========================================================================================================================



                 See notes to consolidated financial statements.



                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



Anthony & Sylvan Pools Corporation and Subsidiary

For the Years Ended December 31, 1999 and 1998, and the Eight Months Ended
December 31, 1997



- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                  Common            Treasury        Retained
                                                         Shares            Shares         Earnings           Total
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
Balance - May 1, 1997                                 $    --           $    --            $   --          $     --
   Net Income                                              --                --             4,553             4,553
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997                                --                --             4,553             4,553
   Net Income                                              --                --             2,188             2,188
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998                                --                --             6,741             6,741
   Net Income                                              --                --             1,017             1,017
   Payable to Essef Corporation contributed to
     capital at split-off                              27,241                --                --            27,241
   Purchase of common shares for treasury
     (1,109,146 shares)                                    --            (6,973)               --            (6,973)
   Issuance of shares under leveraged
     stock purchase plan (376,147 shares)                 154             2,392                --             2,546
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999                           $27,395           $(4,581)           $7,758          $ 30,572
===========================================================================================================================



                 See notes to consolidated financial statements.

                                       10
   13


                      CONSOLIDATED STATEMENTS OF CASH FLOWS



Anthony & Sylvan Pools Corporation and Subsidiary

For the Years Ended December 31, 1999 and 1998, the Eight Months
Ended December 31, 1997 and the Four Months Ended April 30, 1997


- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                                               Eight Months      Four Months
                                                                                        Ended            Ended
                                                                                     December 31,      April 30,
                                                        1999           1998            1997              1997
- ------------------------------------------------------------------------------------------------------------------------
                                                                                            
Cash Flows from Operating Activities:
   Net income/(loss)                                  $ 1,017         $ 2,188         $  4,553          $(2,414)
   Adjustments to reconcile net income/(loss) to net
     cash provided by/(used in) operating activities:
       Depreciation and amortization                    2,627           2,254            1,070              470
       Deferred income taxes                             (636)            964               32             (631)
       Other                                              154              --               --              116
   Changes in operating assets and liabilities net
     of assets acquired:
       Contract receivables                             2,206          (2,202)          (1,931)             491
       Inventories                                       (946)            100            1,671           (1,031)
       Prepayments and other                              262          (1,468)            (158)             218
       Accounts payable                                  (378)           (520)          (2,079)           3,251
       Accrued expenses                                 1,894            (297)          (3,845)           1,551
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by/(used in) operating activities         6,200           1,019             (687)           2,021
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
   Additions to property, plant and equipment          (2,971)         (2,407)          (1,019)            (259)
   Acquisition of the Company                              --              --          (21,065)              --
   Acquisition payments                                    --         $(4,747)              --               --
   Other                                                 (409)          1,404               --               --
- ------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities                      (3,380)         (5,750)         (22,084)            (259)
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
   Net transactions with Essef Corporation/
     General Aquatics                                  (2,120)          4,382           23,780           (7,224)
   Proceeds/(repayments) of long-term debt              4,260            (354)            (351)           3,675
   Purchase of treasury shares                         (6,973)             --              --
   Proceeds from sale of treasury shares                2,546              --              --                --
- ------------------------------------------------------------------------------------------------------------------------
Cash (used in)/provided by financing activities        (2,287)          4,028           23,429           (3,549)
- ------------------------------------------------------------------------------------------------------------------------
Increase/(Decrease) in Cash and
   Cash Equivalents                                       533            (703)             658           (1,787)
Cash and Cash Equivalents:
   Beginning of period                                     --              703               45           1,832
   End of period                                      $   533         $   --          $    703          $    45
=========================================================================================================================
Supplemental Cash Flow Information:
   Interest paid                                      $ 1,723         $ 1,860         $  1,615          $   272
   Income taxes paid                                  $   996         $ 1,073         $  2,617          $   --
Non-Cash Financing and Investing Activities:
   Business acquisitions with Essef Corporation
     shares charged through intercompany payable      $   --          $ 1,199         $    --           $   --
   Payable to Essef Corporation contributed to
     capital at split-off                             $27,241         $   --          $    --           $   --
=========================================================================================================================



                See notes to consolidated financial statements.
   14

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

BASIS OF PRESENTATION Anthony & Sylvan Pools Corporation and Subsidiary (the
"Company") is among the largest residential in-ground concrete pool sales and
installation businesses in the United States and operates in one business
segment.

0n August 10, 1999, a third party (the "Acquiring Party") acquired Essef
Corporation ("Essef"), the Company's former parent, in a merger transaction that
included the Company being split-off to Essef's common shareholders through a
taxable distribution of 100% of the Company's shares as part of the merger
consideration. The split-off was accomplished through the distribution of 0.25
shares of common stock for every share of Essef common stock held at the time of
the distribution. Immediately prior to the split-off, the Company amended its
articles of incorporation to provide for the issuance of up to 1,000,000 serial
preferred shares and 29,000,000 shares of common stock.

                                    [PHOTO]

The Company, Essef and the Acquiring Party have entered into various agreements
that provide for administrative services, tax sharing and indemnification (the
"Agreements"). Among other things, these Agreements provided for the Company to
pay a dividend of $17,000,000, subject to certain adjustments, to Essef with the
balance of the intercompany payable being contributed to capital retroactive to
the split-off date. The potential adjustments to the $17,000,000 primarily
related to the net tax benefit, as defined in the Agreements, realized by Essef
from the exercise of employee stock options net of the corporate tax payable
from the split-off. Pursuant to the Agreements, the calculation of adjustments
has been completed and the Company was not required to pay Essef any of the
$17,000,000. As such all of the Company's debt to Essef, which totaled
$27,241,000 at the date of the split-off, was contributed to the Company's
capital, increasing shareholder's equity to approximately $34,700,000 at the
date of the split-off.

On May 1, 1997, substantially all of the Company's operating assets were
acquired and certain of its liabilities were assumed by Essef as part of its
acquisition of General Aquatics, Inc., of which the Company's predecessor
Anthony & Sylvan, Inc. (the "Predecessor") was a subsidiary. The financial
statements presented herein for the four months ended April 30, 1997 have been
presented under the Predecessor's historical basis of accounting and do not
reflect any adjustments that would be required as a result of the acquisition by
Essef. The separate financial statements issued for the periods after the
acquisition contemplate the adjustments required under the purchase method of
accounting. Company management believes that the results of operations for the
Company from the date of acquisition through August 10, 1999, the date of the
split-off, reflect all material expenses of the Company assuming it were
organized as a stand-alone legal entity including specifically identifiable
costs incurred by Essef on behalf of, and charged to, the Company.

                                       12
   15


CONSOLIDATION The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS The Company considers all highly liquid short-term
investments with initial maturities of three months or less to be cash
equivalents.

FINANCIAL INSTRUMENTS The Company has financial instruments that consist
primarily of cash and cash equivalents, receivables, payables and debt
instruments. The Company has determined that the estimated fair value of its
financial instruments approximates carrying value.

The Company's credit risk is limited due to the large number of customers
comprising the Company's customer base and their geographical dispersion.

INVENTORIES Inventories consist of materials and equipment purchased for
installation in pools and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. At December 31, 1999 and 1998,
the Company has a reserve on these inventories of $157,000 and $234,000,
respectively.

PROPERTY, PLANT AND EQUIPMENT Depreciation is computed using the straight-line
method for financial reporting purposes. Accelerated methods are used for tax
reporting purposes. Assets, valued at cost, are generally being depreciated over
their useful lives as follows: buildings, 30 years; and machinery and equipment,
3 to 15 years.

                                    [PHOTO]

GOODWILL Goodwill arising from the acquisition of the Company by Essef and from
subsequent business acquisitions is amortized using the straight-line method
over forty years. Accumulated amortization at December 31, 1999 and 1998, was
$1,742,000 and $1,043,000, respectively. The Company continually evaluates the
recoverability of goodwill by comparing the book value of such assets to
expected future cash flows of the acquired businesses on an undiscounted basis,
over the remaining amortization period of the asset. At December 31, 1999, no
impairment has been recorded.

WARRANTY The Company accrues an estimate of warranty claims based on its
estimate of the aggregate liability for claims based on the Company's historical
experience. The portion of claims the Company estimates will not be paid within
one year is included in other long-term liabilities.

INCOME TAXES The provision for income taxes includes federal, state and local
taxes currently payable and those deferred because of temporary differences
between the financial statement and tax basis of assets. Until August 10, 1999,
the Company was included in the consolidated federal income tax return of Essef.
All tax amounts were recorded prior to the split-off as if the Company filed
separate federal and state tax returns as a stand-alone entity for those
periods.

REVENUE RECOGNITION Revenue from pool installation contracts is recognized on
the percentage-of-completion accounting method based on the proportion of total
costs incurred on the contract as a percentage of total estimated contract
costs. Revisions in cost and revenue estimates are reflected in the period in
which the facts requiring such revisions become known. Provision is made
currently for estimated losses on uncompleted installations. The majority of the
Company's contracts call for progress payments to be made while completing
individual phases of the installation until the final phases of installation, at
which time the remaining portion is recognized as a contract receivable.
Progress payments in excess of revenue recognized are classified as billings in
excess of costs and estimated earnings on uncompleted contracts and are included
in accrued expenses. Unbilled contract receivables are not material at any point
in time. Contract costs include direct material, labor, subcontract costs and
overheads. Selling and administrative expenses are charged to income as
incurred.

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

                                       13
   16

RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and 1997
consolidated financial statements to make the presentation consistent with the
current period.

2
EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is based
on the combined weighted average number of shares outstanding including the
assumed exercise or conversion of options. The treasury stock method is used in
computing diluted earnings per share. For the periods prior to the split-off and
subsequent to the Company's acquisition by Essef, earnings per share is
calculated based on the number of shares that would have been outstanding
assuming the split-off had occurred at the beginning of the period shown.
Earnings per share information is not presented for the periods prior to the
Company's acquisition by Essef as such information would not be meaningful. The
calculations are as follows:






- -----------------------------------------------------------------------------
(In thousands, except per share data)            Eight Months
                                                    Ended
                                                  December 31,
                                  1999      1998      1997
- -----------------------------------------------------------------------------
                                             
Numerator:
   Net income available to
     common shareholders        $1,017     $2,188     $4,553
=============================================================================
Denominator:
    Weighted average common
      shares outstanding         3,327      3,357       3,382
   Dilutive effect of
     stock options                 421        415        415
- -----------------------------------------------------------------------------
Denominator for net income
   per diluted share             3,748      3,772      3,797
=============================================================================
Earnings per share:
   Basic                        $ 0.31     $ 0.65     $ 1.35
   Diluted                      $ 0.27     $ 0.58     $ 1.20
=============================================================================



3
RELATED PARTY TRANSACTIONS

With the exception of certain capitalized lease obligations, from May 1, 1997 to
June 30, 1999, the Company did not have external sources of borrowings, and, as
such relied upon Essef as its primary source of funding. There was no interest
charged on the intercompany account between June 30, 1999 and the date of the
split-off, August 10, 1999. Interest was charged at an average rate of 10.6% for
the six-month period ended June 30, 1999. Total interest charges on the
intercompany account for the six months ended June 30, 1999, the year ended
December 31, 1998 and the eight months ended December 31, 1997 were $1,683,000,
$1,860,000 and $1,601,000, respectively. At the date of the split-off, the
balance of the intercompany account was contributed to capital (see Note 1). For
the period prior to May 1, 1997, the Predecessor relied upon General Aquatics as
its primary source of funding and for cash management activities.

From May 1, 1997 through August 10, 1999, the Company purchased swimming pool
and spa equipment used in its swimming pool installations from other companies
who were also wholly owned subsidiaries of Essef. These purchases were made on
an arm's length basis, on terms similar to which those companies sell to their
other customers, and were not subject to any long-term supply agreements. Total
purchases from these related companies for the period from January 1, 1999
through August 10, 1999, the year ended December 31, 1998, and the eight months
ended December 31, 1997 were approximately $9,816,000, $10,546,000 and
$2,030,000, respectively. Amounts payable by the Company to related companies of
$488,000 were included in accounts payable at December 31, 1998. Prior to April
30, 1997, the Predecessor purchased swimming pool and spa equipment used in its
swimming pool installations from other companies who were also wholly owned
subsidiaries of General Aquatics. Total purchases from these related companies
for the four months ended April 30, 1997 were approximately $1,558,000.

4
BUSINESS ACQUISITIONS

In January 1998, the Company acquired the net operating assets of Tango Pools,
an installer of swimming pools in Las Vegas, Nevada, and in August 1998, it
acquired Pools by Andrews, Inc., an installer of swimming pools in Florida.
Consideration for these transactions of $5,946,000, including transaction costs,
was paid in a combination of cash and the Parent's common stock. These
acquisitions were accounted for as purchases, and thus, the purchase


                                       14
   17

price has been allocated to the assets and liabilities based on their estimated
fair value. The results of operations for each of the acquired entities have
been included in the Company's results since the date of acquisition. The
following table is a summary of these transactions:


- ---------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------

Fair value of identifiable assets acquired                      $ 3,808
Costs in excess of net assets acquired                            7,193
Less liabilities assumed                                         (5,055)
- --------------------------------------------------------------------------
Net consideration paid for acquisitions                         $ 5,946
===========================================================================


On May 1, 1997, substantially all of the Company's operating assets were
acquired and certain of its liabilities were assumed by Essef as part of an
acquisition transaction with General Aquatics, Inc. The acquisition was
accounted for as a purchase and the results of operations shown in these
statements reflect the Company's results since the date of acquisition.

The following unaudited pro forma combined results of operations give effect to
the Tango Pools and Pools by Andrews acquisitions as if they were completed at
the beginning of 1998, and the acquisition of the Company as if it was completed
at the beginning of 1997. The pro forma information has been presented for
comparative purposes only and does not purport to be indicative of what would
have occurred had the acquisitions occurred at the beginning of the periods
shown, or of the results which may occur in the future:



- -----------------------------------------------------------------------------
(Dollars in thousands)                 1998               1997
- -----------------------------------------------------------------------------
                                                 
Net Sales                           $173,550            $127,712
Net Income                             2,574               1,697
=============================================================================


5
ACCRUED EXPENSES

Accrued expenses consists of the following at December 31:



- -----------------------------------------------------------------------------
(Dollars in thousands)                 1999               1998
- -----------------------------------------------------------------------------
                                                  
Billings in excess of costs and
   estimated earnings on
   uncompleted contracts             $ 5,631            $ 5,196
Warranty                               1,966              1,543
Accrued compensation                   2,038              1,796
Other                                  2,060              1,772
- -----------------------------------------------------------------------------
Total                                $11,695            $10,307
=============================================================================



6
LONG-TERM DEBT

Long-Term Debt Consists of the Following at December 31:



- ----------------------------------------------------------------------------
(Dollars in thousands)                 1999                   1998
- ----------------------------------------------------------------------------
                                                    
Revolving credit facility             $4,500              $
Capital lease obligations                264                504
Less current maturities                 (171)              (244)
- -----------------------------------------------------------------------------
Total                                 $4,593              $ 260
=============================================================================


On August 10, 1999, the Company entered into a $35 million revolving credit
facility ("Credit Facility") with a group of banks. The Credit Facility, secured
by the assets of the Company, matures August 10, 2002 and may be extended in
one-year increments with the approval of the bank group. The Company's borrowing
capacity and interest rates under the Credit Facility are based on its
profitability and leverage. Interest rates are charged at increments over either
Prime or LIBOR rates. In addition, a 37.5 basis points commitment fee is payable
on the total amount of the unused commitment. As of December 31, 1999, the
effective interest rate on all outstanding borrowings under the Credit Facility
was 8.875% and the available borrowings were $13.7 million. The Company is in
compliance with all of its debt covenants under the Credit Facility.

The Company has capital leases for the purchase of service vehicles and other
equipment with a net book value of approximately $182,000 at December 31, 1999.
The leases are collateralized by the service vehicles and the equipment
purchased. At December 31, 1999, the total future minimum payments under these
leases were $333,000, with $69,000 representing payments for future interest.

Aggregate maturities of long-term debt are the following: 2000, $171,000; 2001,
$86,000; and 2002, $4,507,000.


                                       15
   18


7
INCOME TAXES

The significant components of the provision/(benefit) for income taxes are as
follows:



- ----------------------------------------------------------------------
(Dollars in thousands)                           Eight        Four
                                                 Months       Months
                                                  Ended       Ended
                                                December 31, April 30,
                                 1999      1998    1997        1997
- ---------------------------------------------------------------------
                                                
Current:
   Federal                       $598   $   836   $2,397    $   (658)
   State                          136       190      220         (61)
- ---------------------------------------------------------------------
     Total current                734     1,026    2,617        (719)
- ---------------------------------------------------------------------
Deferred:
   Federal                       (97)       386       30        (578)
   State                          (5)        22        2         (53)
- ---------------------------------------------------------------------
     Total deferred             (102)       408       32        (631)
- --------------------------------------------------------------------
     Total                      $632   $  1,434   $2,649     $(1,350)
=====================================================================



The Company's deferred tax assets at December 31, 1999 and 1998 are comprised
primarily of nondeductible accruals for doubtful accounts, warranty and
inventory obsolescence and the book basis of fixed assets in excess of tax
basis.

The consolidated tax provision/(benefit) differs from that computed at the
statutory United States tax rate of 34% as follows:



- -----------------------------------------------------------------------------
(Dollars in thousands)                           Eight         Four
                                                 Months        Months
                                                  Ended        Ended
                                               December 31,   April 30,
                           1999       1998         1997         1997
- ------------------------------------------------------------------------------
                                                  
Tax provision/(benefit)
   at statutory
   Federal rate            $561       $1,231      $2,449      $(1,280)
State income taxes           66          140         147          (75)
Other items, net              5           63          53            5
- ------------------------------------------------------------------------------
Provision/(benefit)
   for income taxes        $632       $1,434      $2,649      $(1,350)
=============================================================================



8
CAPITAL STOCK AND STOCK OPTION PLANS

Based on authorizations of the Board of Directors between October 27 and
December 31, 1999, the Company purchased 72,100 shares of its common stock on
the open market at an average price of $6.82 per share and on December 28, 1999,
the Company purchased a block of 1,037,046 common shares or approximately 32% of
the outstanding shares in a private transaction at $6.25 per share.

At the time of the split-off from Essef (see Note 1), stock options held by
persons who became officers or directors of the Company were also split off so
that the potential ownership these persons had in Essef would remain consistent
with that in the Company. This resulted in the allocation to the Company of
741,557 fully vested options. Of these options, 6,050 will expire in April 2000,
646,733 in October 2000, 5,587 in January 2004 and 83,187 in September 2006. The
exercise price for these options was determined based on a formula that included
the Company's first day's trading price following the split-off and the original
exercise price. The following table summarizes information about the Company's
split-off options:




- ----------------------------------------------------------------
  Exercise        Number   Weighted Average Weighted Average
   Price        of Options   Remaining Life  Exercise Price
- ----------------------------------------------------------------
                                     
    $0.20        646,733         0.83           $0.20
    $1.62          5,587         4.08           $1.62
    $1.72         83,187         6.75           $1.72
    $3.37          6,050         0.25           $3.37
- ----------------------------------------------------------------
                 741,557         1.51         $0.40
- ----------------------------------------------------------------



                                    [PHOTO]


Also at the time of the split-off, the Company established a long-term incentive
plan (the "Long-Term Incentive Plan") for employees and directors providing for
10-year options for the purchase of up to 500,000 shares of the Company's common
stock. Under this plan, 278,500 initial options with an exercise price of $16
per share were granted to certain officers and directors of the Company. These
options vest over periods ranging from one to five years from the date of the
grant.

On December 28, 1999, as part of the Company's compensation plans, certain
officers and directors of the Company were given the opportunity to purchase
shares of the Company's common stock under a Leveraged Stock Purchase Plan for
an amount generally up to two times their base compensation at fair market
value. Under this plan, the officers and directors purchased 376,147 shares of
the Company's common stock, issued from treasury, at an average price of $6.77
per share. For every share of common stock purchased under the Plan,
participants received .40 of a stock


                                       16
   19


option representing in total 175,000 stock options. These options have an
exercise price of $6.81 and vest over periods ranging from two to five years. At
the election of each officer or director, these purchases could be financed
through full recourse external borrowings guaranteed by the Company and secured
by the stock. The Company has agreed to advance to the participant the interest
on the obligation. At December 31, 1999, the Company has guaranteed total
borrowings of $2,486,000 under the Plan. If the common stock reaches levels
ranging from $20 to $28 per share during certain periods over the next five
years, a long-term cash incentive will be awarded to participants equal to the
initial amount of the stock purchase plus any interest advanced to the
participant.

The following table summarizes the activity in the Long-Term Incentive Plan from
the date of the split-off.



- -----------------------------------------------------------------------------
                                 Number                Price
                               of Options           Per Share
- -----------------------------------------------------------------------------
                                                 
Outstanding August 10, 1999          --                      --
Initial Grants                  278,500                  $16.00
Subsequent Grants               175,000                  $ 6.81
- -----------------------------------------------------------------------------
Outstanding December 31, 1999   453,500            $6.81-$16.00
=============================================================================


None of these options were exercisable at December 31, 1999.

The Company applies APB Opinion No. 25 and related interpretations in accounting
for stock-based compensation arrangements. Accordingly, because the options were
granted at no less than fair market value, through December 31, 1999, no
compensation expense has been recognized on options granted. Had compensation
cost for the Company's stock options been determined based on the fair value at
the grant date for awards under the Long-Term Incentive Plan consistent with the
methods of SFAS No. 123, there would not have been a material impact on the
Company's reported amount of net income or diluted earnings per share.

9
OPERATING LEASES

The Company leases certain of its facilities and equipment. Total rental
expenses under operating leases for the years ended December 31, 1999 and 1998,
the eight months ended December 31, 1997, and the four months ended April 30,
1997 were $2,391,000, $1,975,000, $1,046,000 and $536,000 respectively. Minimum
annual rental commitments for the next five years under non-cancelable
operating leases are the following: 2000, $1,983,000; 2001, $1,482,000; 2002,
$1,180,000; 2003, $808,000; and 2004, $529,000.

10
RETIREMENT PLANS

The Company maintains a 401(k) retirement plan covering substantially all of its
employees. Participants are permitted to make pretax contributions to the plan
as a percentage of compensation. The Company matches participant contributions,
up to specified limits. Total Company contributions for the years ended December
31, 1999 and 1998, the eight months ended December 31, 1997, and the four months
ended April 30, 1997 were $925,000, $791,000, $422,000 and $177,000,
respectively.

11
LITIGATION

Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Company. In the opinion of
management, the results of all such matters will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.



12
ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Financial Instruments and Hedging Activities,"
which was to be effective for the Company no later than January 1, 2000. In June
1999, the FASB issued SFAS No. 137, which delayed the required effective date
for the Company until January 1, 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The Company is currently evaluating the requirements of SFAS 133 but,
based on its limited use of derivative financial instruments, does not expect it
to have a material effect on the financial position and results of operations of
the Company when adopted.

                                       17
   20


                              REPORT OF MANAGEMENT

Management is responsible for the preparation and accuracy of the financial
statements and other information included in this report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles using, where appropriate, management's best estimates and
judgment.

                                    [PHOTO]

In meeting its responsibility for the reliability of the financial statements,
the Company depends upon its system of internal controls. The system is
supported by policies and guidelines, and by careful selection and training of
financial management personnel. Management believes that the Company's internal
control systems provide reasonable assurance that assets are safeguarded against
losses from unauthorized use or disposition, that transactions are executed in
accordance with management's authorization, and accounting records are reliable
as a basis for preparing financial statements.

The Board of Directors through its Audit Committee, which is composed entirely
of Directors who are neither officers nor employees of the Company, is
responsible for determining that management fulfills its responsibilities. The
Audit Committee meets periodically with management and with the independent
public accountants to review and assess the activities of each in meeting their
respective responsibilities.

The annual audit by the independent accountants provides an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The auditors obtain and maintain an understanding of the Company's accounting
and financial controls and conduct such tests and related procedures as they
deem necessary to arrive at an opinion on the fairness of the Company's
consolidated financial statements. The independent accountants have full access
to the Audit Committee to discuss, with and without management present, the
results of their audit work, the adequacy of internal accounting controls, and
the quality of financial reporting.




/s/ Stuart D. Neidus
Stuart D. Neidus
Chairman and Chief Executive Officer



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

 To the Board of Directors and Shareholders, Anthony & Sylvan Pools Corporation

We have audited the accompanying consolidated balance sheets of Anthony & Sylvan
Pools Corporation and Subsidiary (the "Company") as of December 31, 1999 and
1998 and the related consolidated statements of operations, shareholders' equity
and cash flows for the years ended December 31, 1999 and 1998 and the eight
months ended December 31, 1997. We have also audited the statements of
operations and cash flows of Anthony & Sylvan Pools, Inc. (the "Predecessor")
for the four-month period ended April 30, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, the results of the Company's operations and cash flows for the years ended
December 31, 1999 and 1998 and the eight months ended December 31, 1997, and the
results of the Predecessor's operations and cash flows for the four months ended
April 30, 1997 in conformity with generally accepted accounting principles.




/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Cleveland, Ohio
February 18, 2000



                                       18
   21
                                    [PHOTO]


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

1999 COMPARED WITH 1998 Net sales in 1999 of $184.7 million increased 18.5% from
1998 net sales of $155.8 million. Approximately 71% of the increase was
attributable to the acquisition of Pools by Andrews in Florida completed in
August 1998. The remainder of the increase came from increases in average
selling prices.

Gross profit increased to $47.7 million in 1999 from $41.9 million in 1998. As a
percentage of sales, gross profit decreased from 26.9% in 1998 to 25.8% in 1999.
The decrease was attributable to a combination of mix, as the additional units
produced in Florida are smaller and at a gross profit margin lower than the
Company's historical rate, and material and labor cost increases that outpaced
the Company's ability to increase prices.

Operating expenses consisting of selling and administrative expenses increased
by $7.9 million to $44.3 million in 1999 from $36.4 million in 1998. As a
percentage of sales, operating expenses increased slightly from 23.4% in 1998 to
24.0% in the current period. The dollar increase was attributable to a
combination of the operating expenses incurred within the operations acquired
with Pools by Andrews, increased spending for sales and lead generating
activities, and legal fees associated with certain acquisition- related
activities.

Interest and other expense decreased $0.1 million from $1.9 million in 1998 to
$1.8 million in the current period. Interest was paid to the Company's former
Parent, Essef Corporation, through an intercompany borrowing arrangement. The
intercompany borrowings were used by the Company to finance operations and
acquisitions.

                                    [PHOTO]

The Company's effective tax rate was 38.3% in 1999 compared with 39.6% in 1998.

As a result of the above items, net income decreased $1.2 million to $1.0
million and earnings per diluted share decreased $0.31 per share from $0.58 per
share in 1998 to $0.27 per share in 1999.

1998 Compared with 1997 Anthony & Sylvan's predecessor was a wholly owned
subsidiary of General Aquatics, Inc. during the four months ended April 30,
1997. Periodic references have been made to the combined results of operations
for the 12 months ended December 31, 1997 throughout this discussion and
analysis. These references are made without giving effect to any pro forma
adjustments, which may be required to present combined results on a consistent
basis of accounting.

Net sales in 1998 of $155.8 million increased 22.0% from 1997 net sales of
$127.7 million, consisting of $98.8 million for the eight months ended December
31, 1997 and $28.9 million for the four months ended April 30, 1997. The
increase was attributable to a combination of increased volume within existing
markets, the acquisitions

                                       19
   22


of Tango Pools in January 1998 and Pools by Andrews in August 1998, and to
increases in average selling prices.

Gross profit increased to $41.9 million in 1998 from $34.6 million for the year
ended December 31, 1997 as a result of the increase in net sales. Gross profit
as a percentage of net sales decreased slightly from 27.1% in 1997, comprised of
28.3% for the eight-month period ended December 31, 1997 and 22.8% for the
four-month period ended April 30, 1997, to 26.9% in 1998. The gross profit
percentage differences among the year ended December 31, 1998, the four-month
period ended April 30, 1997 and the eight-month period ended December 31, 1997
were primarily related to the seasonality of the Company's business.

Operating expenses consisting of selling and administrative expenses increased
by $7.2 million to $36.4 million in 1998 from $29.2 million in 1997. The expense
in 1998 consisted of $19.2 million for the eight-month period ended December 31,
1997 and $10 million for the four-month period ended April 30, 1997. Operating
expenses as a percentage of sales were 23.4% in 1998 compared to 19.4% in the
eight-month period ended December 31, 1997 and 34.6% for the four-month period
ended April 30, 1997. The percentage decrease in 1998 compared to the four-month
period ended April 30, 1997 is due to the fact that this period of the year is a
seasonally slow period of sales and the majority of the company's operating
expenses are relatively constant. The higher percentage in 1998 compared to the
eight-month period ended December 31, 1997 is primarily attributable to the
inclusion of the lower-sales first four months of 1998.

                                    [PHOTO]

Interest and other expense of $1.9 million was consistent with 1997. Interest of
$0.3 million for the four-month period ended April 30, 1997 was charged by the
Company's predecessor. Interest for the eight-month period ended December 31,
1997 of $1.6 million and for the year ended December 31, 1998 of $1.9 million
was charged by Essef based on the average outstanding payable to Essef.
Increased borrowings in 1998 were offset by a lower average borrowing rate than
that charged in the eight-month period ended December 31, 1997.

The effective tax rate increased from 36.8% in the eight-month period ended
December 31, 1997 to 39.6% for the year ended December 31, 1998. the Company's
predecessor's effective tax rate was 35.9% for the four months ended April 30,
1997.

As a result of the above items, net income in 1998 was $2.2 million compared to
$4.6 million for the eight-month period ended December 31, 1997 and a loss of
$2.4 million for the four months ended April 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 1999, cash flow
from operating activities was $6.2 million compared with $1.0 million in 1998.
The increase came principally from a reduction in contract receivables and
increases in accrued expenses including excess progress payments. Capital
expenditures in 1999 were $3.0 million compared with $2.4 million in 1998. 1998
also includes acquisition payments of $4.7 million related to the purchases of
Tango Pools and Pools by Andrews. In 1999, the Company expended $7.0 million
under its Board-approved stock repurchase programs that were financed from
existing cash resources and external bank borrowings. Additionally, the Company
raised $2.5 million through the issuance of stock to certain officers and
directors under various long-term plans.

On August 10, 1999, a third party acquired the Company's former Parent, Essef
Corporation ("Essef"), in a merger transaction that included the Company being
split off to Essef's common shareholders as part of the merger consideration. In
accordance with the terms of the merger agreement, subsequent to June 30, 1999,
the Company separated its cash management activities from Essef. Therefore, the
Company could no longer be advanced funds from Essef while retaining its
after-tax cash flow after such date. Additionally, the Company was not required
to pay to Essef any of the $17,000,000 that might have been due under certain
adjustment mechanisms related to the Company's split-off from Essef. As such,
all of the Company's debt to Essef, which totaled $27.2 million at the date of
the split-off, was contributed to the Company's capital at the date of the
split-off.

On August 10, 1999, the Company entered into a $35 million revolving credit
facility ("Credit Facility") with a

                                       20
   23

group of banks secured by the assets of the Company. The Credit Facility matures
August 10, 2002 and may be extended in one-year increments with the approval of
the bank group. The Company's borrowing capacity and interest rate under the
Credit Facility are based on its profitability and leverage. Interest rates are
charged at increments over either Prime or LIBOR rates. In addition, a 37.5
basis points commitment fee is payable on the total amount of the unused
commitment. As of December 31, 1999, the effective interest rate on all
outstanding borrowings under the Credit Facility was 8.875% and the available
borrowings were $13.7 million. The Company is in compliance with all of its debt
covenants under the Credit Facility.

The Company believes that existing cash and cash equivalents, internally
generated funds, and funds available under its line of credit will be sufficient
to meet its needs.

CYCLICALITY AND SEASONALITY

The Company believes that the in-ground swimming pool industry is strongly
influenced by general economic conditions and tends to experience periods of
decline during economic downturns. Because the majority of the Company's
swimming pool installation purchases are financed, pool sales are particularly
sensitive to interest rate fluctuations and the availability of credit. A
sustained period of high interest rates could result in declining sales, which
could have a material adverse effect on the Company's financial condition and
results of operations.

Historically, approximately 70% of the Company's revenues have been generated in
the second and third quarters of the year, the peak season for swimming pool
installation and use. Conversely, the Company typically incurs net losses during
the first and fourth quarters of the year. Unseasonably cold weather or
extraordinary amounts of rainfall during the peak sales season can significantly
reduce pool purchases. In addition, unseasonably early or late warming trends
can increase or decrease the length of the swimming pool season, significantly
affecting sales and operating profit.

[PHOTO]

YEAR 2000 MATTERS

The Company did not experience any significant malfunction or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the "Year 2000 issue." However, it
is possible that the full impact of the date change has not been fully
recognized. In addition, the Company is not aware of any significant Year 2000
or similar problems that have arisen for its current suppliers or service
providers, and does not believe it would have any difficulty securing alternate
sources of supply in the event that any of its current suppliers or service
providers do experience Year 2000 or similar problems.

The Company's expenditure on Year 2000 readiness efforts was not material. These
efforts included replacing or upgrading outdated, noncompliant hardware and
software as well as identifying and remediating Year 2000 problems.

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this report and
other materials filed with the Securities and Exchange Commission (as well as
information included in oral or other written statements made or to be made by
the Company) contains statements that are forward-looking. All forward-looking
statements are based on current expectations regarding important risk factors,
including but not limited to: the costs of integrating acquired businesses;
dependence on existing management; consumer spending and market conditions;
weather; and year 2000 issues. Accordingly, actual results may differ from those
expressed in any forward-looking statements, and the making of such statements
should not be regarded as a representation by the Company or any other person
that the results expressed herein will be achieved.

                                       21
   24

SELECTED FINANCIAL DATA



Anthony & Sylvan Pools Corporation and Subsidiary



- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)        Anthony & Sylvan                               Predecessor
- ---------------------------------------------------------------------------------------------------------------------------
                                                                   Eight           Four
                                  Year Ended      Year Ended     Months Ended   Months Ended Year Ended      Year Ended
                                 December 31,    December 31,     December 31,   April 30,   December 31,    December 31,
- ---------------------------------------------------------------------------------------------------------------------------
                                     1999            1998             1997         1997         1996(1)          1995
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                           
OPERATING DATA
Net Sales                         $ 184,713      $ 155,765       $  98,829       $28,883     $ 112,167       $  58,569
Cost of Sales                       136,970        113,873          70,814        22,291        82,018          42,454
Gross Profit                         47,743         41,892          28,015         6,592        30,149          16,115
Gross Profit %                         25.8%          26.9%           28.3%         22.8%         26.9%           27.5%
Income from Operations                3,453          5,538           8,839        (3,461)        2,225           1,047
Net Income                            1,017          2,188           4,553        (2,414)        1,167             604
Net Income Per Diluted Share      $    0.27      $    0.58       $    1.20           N/A           N/A             N/A

BALANCE SHEET DATA
Total Assets                      $  55,507      $  54,273       $  42,620           N/A     $  20,658       $   8,721
Working Capital(2)                      889        (27,429)        (23,217)          N/A        (3,636)           (156)
Total Debt                            4,764         29,865          24,638           N/A         9,790             949
Shareholders' Equity                 30,572          6,741           4,553           N/A           N/A             N/A
Debt to Total Capital                    13%            82%             84%          N/A           N/A             N/A


OTHER DATA
Cash Flow from Operations         $   6,200      $   1,019       $    (687)      $ 2,021     $   5,461       $   5,461
Capital Expenditures                  2,971          2,407           1,019           259           329             186
Depreciation and Amortization         2,627          2,254           1,070           470         1,066             176

EBITDA                                5,999          7,736           9,887        (3,022)        3,291           1,223
Average Shares Outstanding
   Basic                              3,327          3,357           3,382           N/A           N/A             N/A
   Diluted                            3,748          3,772           3,797           N/A           N/A             N/A
Market Price of Stock
   High                           $    8.06            N/A             N/A           N/A           N/A             N/A
   Low                            $    4.00            N/A             N/A           N/A           N/A             N/A
   Period End                     $    6.94            N/A             N/A           N/A           N/A             N/A

Market Capitalization at
December 31                       $  18,371            N/A             N/A           N/A           N/A             N/A
===========================================================================================================================



(1)  On March 6, 1996, the predecessor acquired Anthony Pools, whose results
     have been included herein since the date of acquisition.
(2)  1998 and 1997 working capital includes $29,361 and $23,780,
     respectively, for amounts payable to former parent.


                    UNAUDITED QUARTERLY FINANCIAL INFORMATION



- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
                                1st Quarter             2nd Quarter           3rd Quarter              4th Quarter
- ---------------------------------------------------------------------------------------------------------------------------
                               1999       1998         1999      1998         1999     1998          1999       1998
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                      
Net sales                    $26,422    $18,040      $62,154   $52,415      $58,483   $53,038       $37,654   $32,272
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit                   5,703      4,371       17,721    15,487       15,849    14,499         8,470     7,535
Income from operations        (3,802)    (2,006)       5,299     4,793        3,349     4,271        (1,393)   (1,520)
Net income                    (2,958)    (1,501)       2,850     2,587        1,972     2,248          (847)   (1,146)
Net income per basic share   $ (0.88)  $  (0.45)      $ 0.85    $ 0.77       $ 0.59    $ 0.67      $  (0.25) $  (0.34)
Net income per diluted share $ (0.88)  $  (0.45)      $ 0.76    $ 0.69       $ 0.52    $ 0.60      $  (0.25) $  (0.34)
===========================================================================================================================


The sum of the quarterly net income per share does not equal the annual amount
reported. Net income per share is calculated independently for each quarter and
the full year based on respective weighted average common shares outstanding.
Additionally, due to the net loss reported in the first and fourth quarters of
both years, the share base used in calculating net income per diluted share does
not include the effect of common share equivalents as its effect would be
anti-dilutive.

                                       22
   25
                                     [PHOTO]

                             CORPOPRATE INFORMATION



Directors:

STUART D. NEIDUS (1)
Chairman of the Board and
Chief Executive Officer,
Anthony & Sylvan Pools Corporation

ROGER D. BLACKWELL (2,3)
Professor of Marketing,
The Ohio State University;
President,
Blackwell Associates, Inc.

MARY ANN JORGENSON, ESQ. (1,2,3)
Partner,
Squire, Sanders & Dempsey LLP

THOMAS B. WALDIN (1,2,3)
Former Chief Executive Officer,
Essef Corporation;
Private Investor

     Committees of the Board:
     1.  Executive Committee
     2.  Audit Committee
     3.  Compensation Committee

Corporate Officers:

STUART D. NEIDUS
Chief Executive Officer

HOWARD P. WERTMAN
President

RICHARD M. KELSO
Executive Vice President and
Chief Operating Officer

WILLIAM J. EVANSON
Executive Vice President and
Chief Financial Officer

EDWARD W. ANDREWS
Vice President, Florida Division

THOMAS J. CASEY
Vice President, Sales

MARTIN J. DEGNAN
Vice President, General Counsel
and Secretary

JAMES L. FRANCIS
Vice President, Human Resources

MARTIN A. ILES
Vice President, Treasurer
and Controller

LAWRENCE M. MAZZENGA
Vice President, Operations

RICHARD E. MILLS
Vice President, Corporate
Development and
General Manager, Cleveland Division

PHILIP A. PASCUCCI
Vice President, Western Division

ANTHONY F. PIZZELANTI
Vice President, Management
Information Systems

Corporate Headquarters:

Mt. Vernon Square - Suite 300
6690 Beta Drive
Mayfield Village, Ohio  44143
(440) 720-3301
(877) 307-SWIM (7946)
(440) 720-3303 FAX

General Information:

ANNUAL MEETING
The Annual Meeting of Shareholders
of Anthony & Sylvan Pools Corpora-
tion will be held at the
Holiday Inn-Mayfield at
780 Beta Drive, Mayfield Village, Ohio,
on May 2, 2000, at 10 a.m.

TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations
P.O. Box 92301
Cleveland, Ohio 44193-0900
(800) 622-6757

INVESTOR INQUIRIES
Copies of the Company's Annual
Report on Form 10-K as filed with
the Securities and Exchange Commis-
sion will be provided upon written
request to:

Chief Financial Officer
Anthony & Sylvan Pools Corporation
Mt. Vernon Square - Suite 300
6690 Beta Drive
Mayfield Village, Ohio  44143

STOCK EXCHANGE LISTING
Anthony & Sylvan Corporation
Common Shares are listed on
the Nasdaq SmallCap Stock Market
under the symbol SWIM.

WEB SITE
Company information is
available on our Web site at
www.anthonysylvan.com



                                       23
   26


                             ANTHONY & SYLVAN POOLS
                     SALES DESIGN CENTERS AND RETAIL STORES



                                  [PHOTOGRAPH]






- -  Denotes sales design centers

- -  Denotes sales design centers and
   retail stores serving the area
                                                    
1  Mayfield Village, OH    16 Fairfax, VA                  31 Pompano, FL
2  Allentown, PA           17 Fredricksburg, VA            32 Miami, FL
3  Doylestown, PA          18 Charlotte, NC                33 Houston, TX (1)
4  Lancaster, PA           19 Atlanta, GA                  34 Houston, TX (2)
5  Montgomeryville, PA     20 Marietta, GA                 35 Clear Lake, TX
6  West Chester, PA        21 Jacksonville, FL             36 Sienna Plantation, TX
7  Orange County, NY       22 Ocala, FL                    37 Frisco, TX
8  Darien, CT              23 Orlando, FL (1)              38 Dallas, TX
9  Cherry Hill, NJ         24 Orlando, FL (2)              39 Grapevine, TX
10 Fairfield, NJ           25 Orange City/Deltona, FL      40 Arlington, TX
11 Freehold, NJ            26 Tampa, FL                    41 Henderson, NV
12 Green Brook, NJ         27 Valrico, FL                  42 Las Vegas, NV
13 Newark, DE              28 Stuart, FL                   43 Orange, CA
14 Baltimore, MD           29 Riviera Beach, FL            44 Dublin, CA
15 Severna Park, MD        30 Ft. Myers, FL


                   Visit our Web site at www.anthonysylvan.com
                     for addresses and phone numbers for our
                     sales design centers and retail stores


                                     24
   27
[PHOTOGRAPHS]



Anthony & Sylvan Pools Corporation
Mt. Vernon Square - Suite 300
6690 Beta Drive
Mayfield Village, Ohio 44143

(440) 720-3301

www.anthonysylvan.com




   28
[PHOTOGRAPHS]

SWIM

Our stock symbol - SWIM reflects the enjoyment that Anthony & Sylvan brings to
its customers.  Our pools and spas make backyard dreams come true for thousands
of families every year.

EX-27.1

 

<ARTICLE> 5
<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                             533
<SECURITIES>                                         0
<RECEIVABLES>                                    9,292
<ALLOWANCES>                                   (1,191)
<INVENTORY>                                      5,282
<CURRENT-ASSETS>                                18,988
<PP&E>                                          11,218
<DEPRECIATION>                                 (3,111)
<TOTAL-ASSETS>                                  55,507
<CURRENT-LIABILITIES>                           18,099
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<COMMON>                                        27,395
<OTHER-SE>                                       3,177
<TOTAL-LIABILITY-AND-EQUITY>                    55,507
<SALES>                                        184,713
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<CGS>                                          136,970
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<OTHER-EXPENSES>                                     0
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<INTEREST-EXPENSE>                               1,804
<INCOME-PRETAX>                                  1,649
<INCOME-TAX>                                       632
<INCOME-CONTINUING>                              1,017
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
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<EPS-BASIC>                                       0.31
<EPS-DILUTED>                                     0.27


 

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