10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 29, 2007

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 0-18741

LESLIE’S POOLMART, INC.

(Exact name of registrant as specified in its charter)

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

3925 E. Broadway Road

Phoenix, Arizona 85040

(Address of principal executive offices)

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

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

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

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

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

The number of shares of the registrant’s Common Stock outstanding at February 11, 2008 was 100 shares.

LESLIE’S POOLMART, INC.

AND SUBSIDIARIES

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

FORM 10-Q

For the Quarterly Period Ended December 29, 2007

INDEX

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of December 29, 2007 (unaudited) and September 29, 2007	3
	Consolidated Statements of Operations for the 13 weeks ended December 29, 2007 (unaudited) and December 30, 2006 (unaudited)	4
	Consolidated Statements of Cash Flows for the 13 weeks ended December 29, 2007 (unaudited) and December 30, 2006 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	12
Item 4.	Controls and Procedures	12
Part II. Other Information
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Securities and Use of Proceeds	13
Item 5.	Other Information	13
Item 6.	Exhibits	14
Signatures		15

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Leslie’s Poolmart, Inc.

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

Consolidated Balance Sheets

(Amounts in thousands, except share information)

	December 29, 2007			September 29, 2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	34,113		$	59,781
Accounts and other receivables, net		6,036			8,790
Inventories, net		74,420			65,724
Prepaid expenses and other current assets		2,895			2,562
Deferred tax assets		8,224			6,939
Total current assets		125,688			143,796
Property, plant and equipment, net		35,458			37,933
Intangible assets		8,080			8,096
Deferred financing costs, net		5,413			5,653
Deferred tax assets		3,834			3,834
Other assets		311			327
Total assets	$	178,784		$	199,639
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	29,789		$	29,471
Accrued expenses		33,061			38,385
Income taxes payable		—			9,283
Total current liabilities		62,850			77,139
Other long term liabilities		6,290			6,031
Senior notes, net		169,114			169,080
Total liabilities		238,254			252,250
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value, authorized 50,000,000 shares, issued and outstanding 100 shares at December 29, 2007 and at September 29, 2007		—			—
Capital deficit		(91,971	)		(91,984	)
Retained earnings		32,501			39,373
Total stockholders’ deficit		(59,470	)		(52,611	)
Total liabilities and stockholders’ deficit	$	178,784		$	199,639

See accompanying notes to consolidated financial statements.

3

Leslie’s Poolmart, Inc.

Consolidated Statements of Operations (unaudited)

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

(Amounts in thousands)

	13 Weeks Ended
	December 29, 2007			December 30, 2006
	(unaudited)			(unaudited)
Sales	$	58,306		$	52,695
Cost of merchandise sold and services sold, including warehousing and transportation expenses		29,839			27,242
Gross profit		28,467			25,453
Selling, general and administrative expenses		36,422			33,927
Loss on disposition of fixed assets		10			35
Operating loss		(7,965	)		(8,509	)
Other expenses (income):
Interest expense		3,633			4,861
Interest income		(702	)		(283	)
Total other expense		2,931			4,578
Loss before income taxes		(10,896	)		(13,087	)
Income tax benefit		(4,024	)		(5,830	)
Net loss	$	(6,872	)	$	(7,257	)

See accompanying notes to consolidated financial statements.

4

Leslie’s Poolmart, Inc.

Consolidated Statements of Cash Flows (unaudited)

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

(Amounts in thousands)

	13 Weeks Ended
	December 29, 2007			December 30, 2006
	(unaudited)			(unaudited)
Operating activities:
Net loss	$	(6,872	)	$	(7,257	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,258			3,045
Stock compensation		13			—
Preferred stock dividend and accretion		—			1,211
Amortization of loan fees and discounts		274			286
Allowance for doubtful accounts		25			77
Loss on disposition of assets		10			35
Deferred income taxes		(1,285	)		—
Changes in operating assets and liabilities:
Accounts and other receivables		2,729			2,109
Inventories		(8,696	)		(14,698	)
Prepaid expenses and other current assets		(333	)		(318	)
Other assets		16			(38	)
Accounts payable and accrued expenses		(4,747	)		(970	)
Income taxes payable		(9,283	)		(10,815	)
Net cash used in operating activities		(24,891	)		(27,333	)
Investing activities:
Purchase of property, equipment and intangibles		(777	)		(1,283	)
Net cash used in investing activities		(777	)		(1,283	)
Financing activities:
None		—			—
Net cash used in financing activities		—			—
Net decrease in cash and cash equivalents		(25,668	)		(28,616	)
Cash and cash equivalents at beginning of period		59,781			39,004
Cash and cash equivalents at end of period	$	34,113		$	10,388

See accompanying notes to consolidated financial statements.

5

Leslie’s Poolmart, Inc.

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

Notes to Consolidated Financial Statements (unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 13-week period ended December 29, 2007 are not necessarily indicative of the results that may be expected for the year ending September 27, 2008.

The balance sheet at September 29, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, refer to the Consolidated Financial Statements and Notes thereto included in Leslie’s Poolmart, Inc.’s Annual Report on Form 10-K for the year ended September 29, 2007.

(2) Organization and Operation

Leslie’s Poolmart, Inc., which is sometimes referred to as the “Company” or “Leslie’s” in this report, is a specialty retailer of swimming pool supplies and related products. The Company markets its products under the trade name Leslie’s Swimming Pool Supplies through 573 stores in 35 states, a nationwide mail order catalog, and web store. The Company also operates five distribution facilities and repackages certain bulk chemical products for retail sale. The Company’s business is highly seasonal as the majority of its sales and all of its operating profits are generated in the third and fourth fiscal quarters.

The Company became a wholly-owned subsidiary of Leslie’s Holdings, Inc (“Holdings”) during February 2007, pursuant to a tax-free reorganization in which the Company’s shareholders became shareholders of Holdings in the same proportions (the “2007 Reorganization”). As a result of the 2007 Reorganization, each share of outstanding common stock of the Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was effectively assumed by Holdings and extinguished, with it being accounted for as contributed capital to the Company.

(3) Stock-based Compensation

As the Company is a nonpublic company under the provisions of SFAS No. 123R “Share-Based Payment”, we were required to adopt SFAS No. 123R using the prospective method which requires the Company to apply the provisions of SFAS No. 123R prospectively to new awards and to awards modified, repurchased or cancelled after September 30, 2006. Awards granted after September 30, 2006 are valued at fair value in accordance with the provisions of SFAS No. 123R and recognized on a straight line basis over the service periods of each award. Compensation cost for the unvested portion of awards outstanding is recognized as the requisite service is rendered.

All outstanding options were exercised in February of 2007 after the 2007 Reorganization, which gave rise to a tax benefit of approximately $2.1 million attributed to the Company. Given that the tax benefit meets the realization criteria of SFAS 123(R), the benefit has been recorded as a credit to equity since the entire benefit exceeded the recorded expense of zero.

In November of 2008, the board of directors of Holdings approved grants of options to a number of key individuals of the Company. These options to purchase approximately 373,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant. At December 29, 2007, 373,000 options were outstanding and none of the options were vested or exercisable. No options were cancelled or exercised during the 13-week period ended December 29, 2007.

Share-based compensation expense recognized in accordance with SFAS 123R during the 13-week period ended December 29, 2007 was approximately $0.1 million. As of December 29, 2007, total unrecognized compensation cost related to stock-based options and awards was $0.4 million and the related weighted-average period over which it is expected to be recognized is approximately 4.8 years.

6

Leslie’s Poolmart, Inc.

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

Notes to Consolidated Financial Statements (unaudited)

(3) Stock-based Compensation (continued)

The weighted average fair value of stock option awards granted was $1.05 and the key assumptions used in the Black-Scholes valuation model to calculate the fair value are as follows: a risk free interest rate of 3.44%; an expected life of the options of 5 years; an expected stock price volatility of 47.6% and an expected dividend yield of 0%.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The expected lives of options are based on historical data of the Company. The Company calculated expected volatility based on historical volatility.

(4) Taxation of the Company and Holdings

The Company and its subsidiaries will be included in the consolidated Federal income tax return and certain state income tax returns of Holdings. The Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities during the current and preceding periods pursuant to the provisions of SFAS 109, as if the Company were a separate taxpayer rather than a member of Holding’s consolidated income tax return group. This policy requires us to pay our tax liabilities to Holdings in cash, based upon separate return taxable income.

Our income tax returns are audited by federal and state tax authorities. We are currently under examination by the Internal Revenue Service for the 2005 tax year. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. While we believe our positions comply with applicable laws, we periodically evaluate exposures associated with our tax filing positions.

(5) Adoption of FIN 48

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The validity of any tax position is a matter of tax law, and generally there is no controversy about recognizing the benefit of a tax position in a company’s financial statements. The tax law is, however, subject to varied interpretations, and whether a tax position will ultimately be sustained may be uncertain. Effective September 30, 2007, we adopted FIN 48.

As permitted under the provisions of FIN 48 and in accordance with our accounting policy, interest expense and penalties related to income taxes are included in the income tax provision of our consolidated statement of operations. As of the date of adoption, accrued interest relating to unrecognized tax benefits was not significant. As of September 30, 2007, we had unrecognized tax benefits that were not material, most of which would impact the effective tax rate were they to be recognized. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next 12 months, however, we do not expect any potential change to have a significant effect on our results of operations or our financial position.

As of September 30, 2007, all of the federal income tax returns filed since 2004 are still subject to adjustment upon audit. The Company also files income tax returns in many states, and these returns remain open for adjustments to its federal income tax returns. In addition, certain state income tax returns filed within the past four years are still open for state specific adjustments.

7

Leslie’s Poolmart, Inc.

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

Notes to Consolidated Financial Statements (unaudited)

(6) Inventories

Inventories consist of the following:

(Dollar amounts in thousands)	December 29, 2007			September 29, 2007
Raw materials and supplies	$	1,083		$	1,232
Finished goods		76,533			67,824
Reserve		(3,196	)		(3,332	)
Total inventories	$	74,420		$	65,724

(7) Subsequent Events

On January 28, 2008, the Company’s board of directors declared a cash dividend of $7.5 million on the Company’s common stock, par value $0.001 per share, to Leslie’s Holdings, Inc., as its sole common stockholder of record on that date, in an aggregate amount. The cash dividend was paid on February 1, 2008.

(8) Recently Issued Accounting Pronouncements

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

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

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

8

Leslie’s Poolmart, Inc.

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

This discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with its unaudited consolidated financial statements and disclosures included elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of the Company’s Annual Report on Form 10-K for the year ended September 29, 2007.

General

Leslie’s Poolmart, Inc. (the “Company” or “Leslie’s”) is the leading specialty retailer of swimming pool supplies and related products in the United States. The Company markets its products through 573 Company-owned stores in 35 states; a nationwide mail order catalog; and the Internet. Leslie’s is vertically integrated, operating a chemical repackaging facility in Ontario, California and a specialty chemical repackaging facility in Hebron, Kentucky. The Company supplies its retail stores from distribution facilities located in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Hebron, Kentucky; and Orlando, Florida.

The Company was incorporated as a Delaware corporation in 1997 and became a wholly-owned subsidiary of Leslie’s Holdings Inc. in February 2007 through a reorganization. The Company’s principal executive offices are located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the telephone number at that address is (602) 366-3999. Leslie’s corporate website address is www.lesliespool.com.

Seasonality and Quarterly Fluctuations

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

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

9

Leslie’s Poolmart, Inc.

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

Results of Operations

Net Sales. Net sales for the 13 weeks ended December 29, 2007 were $58.3 million compared to $52.7 million for the 13 weeks ended December 30, 2006. The 10.6% increase was due to improved comparable store sales coupled with an increase in store count, with 573 stores in the first quarter of fiscal 2008 versus 540 stores in fiscal 2007. During the quarter, the Company opened no new stores and closed four stores.

Comparable store sales for the 13 weeks ended December 29, 2007 increased 8.0% as compared to the 13 weeks ended December 30, 2006. The comparable store sales increase was primarily due to favorable weather conditions in most of the Company’s markets. The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.

Comparable store sales is not a recognized measure of financial performance under accounting principles generally accepted in the United States (“GAAP”). Comparable store sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

Gross Profit. Gross profit for the 13 weeks ended December 29, 2007 was $28.5 million compared to $25.5 million for the 13 weeks ended December 30, 2006. As a percentage of sales, gross profit was 48.8% for the first quarter of fiscal 2008 compared to 48.3% for the first quarter of fiscal 2007. Gross profit dollars improved primarily due to the increase in sales associated with the increased store count.

Operating and Administrative Expense. Operating and administrative expense for the 13 weeks ended December 29, 2007, was $36.4 million compared to $33.9 million for the 13 weeks ended December 30, 2006. Operating expense dollars increased during the first quarter of 2008 due primarily to increases in occupancy and other related costs associated with the increased store count as compared to the first quarter of 2007.

Operating loss. Operating loss for the 13 weeks ended December 30, 2006 improved by $0.5 million, from $8.5 million during the 13 weeks ended December 30, 2006 to $8.0 million for the 13 weeks ended December 29, 2007. Operating results improved primarily due to the increases in sales and related gross profit achieved during the quarter.

Other Income and Expense. Net interest expense was $2.9 million for the 13 weeks ended December 29, 2007 compared to $4.6 million for the 13 weeks ended December 30, 2006. The decrease in interest expense was due to the decrease in average debt balances in the year to date and the elimination of the dividend accrual on the redeemed preferred stock.

Income Taxes. The Company’s income tax benefit for the 13 weeks ended December 29, 2007 was $4.0 million, or an effective rate of 36.9%, as compared to a $5.8 million benefit, or an effective rate of 44.5% for the 13 weeks ended December 30, 2006.

Adjusted EBITDA. The Adjusted EBITDA loss for the 13 weeks ended December 29, 2007 was $4.6 million compared to an Adjusted EBITDA loss of $5.4 million for the 13 weeks ended December 30, 2006. The improvement in Adjusted EBITDA was primarily due to the increases in sales and related gross profit achieved during the quarter.

10

Leslie’s Poolmart, Inc.

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

Results of Operations (continued)

Adjusted EBITDA is determined as follows (1):

	13 Weeks Ended
Amounts in thousands	December 29, 2007			December 30, 2006
Net loss as reported	$	(6,872	)	$	(7,257	)
Depreciation and amortization		3,258			3,045
Interest expense, net		2,931			4,578
Loss on disposition of assets		10			35
Unusual item		13			59
Income tax benefit		(4,024	)		(5,830	)
Adjusted EBITDA	$	(4,684	)	$	(5,370	)

(1) Adjusted EBITDA is defined as earnings before interest (including amortization of debt costs), taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, and unusual charges. Adjusted EBITDA is not a recognized measure of financial performance under GAAP, but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data all of which are prepared in accordance with GAAP. The Company has presented Adjusted EBITDA solely as supplemental disclosure because the Company believes it allows for a more complete analysis of results of operations and may present a better measure of liquidity for those charges that are not anticipated to be incurred in the future. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.

Financial Condition, Liquidity and Capital Resources

Changes in Financial Condition.

During the 13 weeks between September 30, 2007 and December 29, 2007, total current assets decreased by $18.1 million, primarily due to lower cash positions related to working capital changes. Inventories increased by $8.7 million during the period as the Company accelerated its purchases of certain products for the upcoming peak-selling season to take advantage of available discounting.

During the same period, current liabilities decreased by $14.3 million due primarily to the decrease in income taxes payable of $9.3 million during the period, due to the actual payment of taxes.

Liquidity and Capital Resources.

Net cash used in operating activities was $24.9 million for the 13 weeks ended December 29, 2007 compared to net cash used in operating activities of $27.3 million for the same 13 week period in the prior year, primarily due to a less rapid buildup of inventory compared to the prior year and a lower balance for income taxes payable.

Capital expenditures for the 13 weeks ended December 29, 2007 were $.8 million. The Company expects to incur capital expenditures between $13.0 and $13.5 million in fiscal 2008, primarily for the purpose of opening new stores. It is anticipated that the balance of 2008 capital expenditures will be funded out of cash provided by operations with some possible temporary borrowings from its credit facility.

The Company had no net cash used in financing activities for the 13 weeks ended December 29, 2007, compared to no net cash provided by financing activities in the prior year.

11

Leslie’s Poolmart, Inc.

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

Financial Condition, Liquidity and Capital Resources (continued)

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

Recently Issued Accounting Pronouncements

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s Amended Loan and Security Agreement carries interest rate risk as described in the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2007. Amounts borrowed under this Agreement bear interest at either LIBOR plus 1.75%, or at the Company’s choice, the lender’s reference rate. Should the lenders’ base rate change, the Company’s interest expense will increase or decrease accordingly. As of December 29, 2007, the Company had no borrowings outstanding under this facility.

Item 4. Controls and Procedures

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

In addition, there were no changes in the Company’s internal control over financial reporting during the quarter ended December 29, 2007 or in other factors that has materially affected, or is likely to materially affect the Company’s internal control over financial reporting. The Company has not identified any significant deficiencies or material weaknesses in the Company’s internal control over financial reporting, and therefore there were no corrective actions taken.

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Leslie’s Poolmart, Inc.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is routinely involved in legal proceedings involving claims related to the ordinary course of its business. The Company is currently not party to any legal proceedings that it considers to be material.

Item 1A. Risk Factors

Certain factors exist which may affect Leslie’s business and could cause actual results to differ materially from those expressed in any forward-looking statements. The Company has not experienced any material changes from those risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2007.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

Item 5. Other Information

On February 8, 2008, the Company restated and supplemented the Amended and Restated Employment Agreement with Lawrence H. Hayward, the Company’s Chief Executive Officer and Chairman of the Board of Directors. Certain modifications were made to the agreement, including changes related to compensation in the event of termination of employment. The employment agreement is filed as exhibit 10.1 of this Form 10-Q and is incorporated herein by reference.

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Item 6. Exhibits

Exhibit Number	Description
10.1	Amended and Restated Employment Agreement of Lawrence H. Hayward dated February 8, 2008.
31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LESLIE’S POOLMART, INC.
By:	/s/ Lawrence H. Hayward
	Lawrence H. Hayward
	Chief Executive Officer
Date: February 12, 2008
	/s/ Steven L. Ortega
	Steven L. Ortega
	Chief Financial Officer
Date: February 12, 2008

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Leslie’s Poolmart, Inc.

Lawrence H. Hayward

This Amended and Restated Employment Agreement (“Agreement”) is made as of February 8th, 2008, by and among LESLIE’S POOLMART, INC., a Delaware corporation (“LPM”), LESLIE’S HOLDINGS, INC., a Delaware corporation (“Holdings” and together with LPM, the “Companies”) and LAWRENCE H. HAYWARD (“Mr. Hayward”).

R E C I T A L S

A. LPM is a corporation organized under the laws of Delaware. It is engaged in the business of marketing pool supplies and related pool equipment and products.

B. Holdings was formed in February 2007 and owns 100% of the voting stock of LPM.

C. LPM and Mr. Hayward are parties to that certain Amended and Restated Employment Agreement November 21, 2003 and amended January 24, 2005 and June 15, 2007 governing LPM’s employment of Mr. Hayward. LPM, Holdings and Mr. Hayward wish to supplement and restate the foregoing Agreement in its entirety.

D. LPM wishes to continue the employment of Mr. Hayward as Chief Executive Officer AND Chairman of the Board of LPM and Holdings wishes Mr. Hayward to serve as its Chief Executive Officer and Chairman of the Board, and Mr. Hayward desires to be so employed by LPM and to act in such capacities.

A G R E E M E N T

Accordingly, the parties agree as follows:

1. Employment. LPM agrees to continue to employ Mr. Hayward on the terms set forth herein and Mr. Hayward accepts such employment. Mr. Hayward will serve as the Chief Executive Officer and Chairman of the Board of each of Holdings and LPM. Mr. Hayward will serve at the will of the Boards of Directors of the Companies. Mr. Hayward shall be accorded the authority by the Boards of Directors of the Companies commensurate with his position as Chief Executive Officer, and he shall make a good faith effort to act in the best interests of LPM and Holdings and to perform those duties reasonably assigned to him by the Boards of Directors of the Companies. Mr. Hayward will devote himself full-time to the interests of the Companies and shall not accept other employment except with the consent of the Boards of Directors of the Companies, although he may serve on boards and committees of other businesses or industrial groups, attend to personal investments, and engage in civic and charitable endeavors, provided that such activities are not competitive with the business of the Company and do not unduly interfere with Mr. Hayward’s attention to his responsibilities under this Agreement. During the Term, the Companies will nominate and recommend Mr. Hayward as a member of their respective Boards of Directors and Mr. Hayward agrees to serve on each such Board of Directors.

2. Location of Employment. Mr. Hayward’s principal place of employment shall be at the executive offices of LPM or at such other location as mutually agreed upon by the parties; provided that Mr. Hayward may also provide his services and/or perform his duties from his residence or other off-site locations via telephone, computer or electronically, provided that such methods do not unduly disrupt or interfere with his performance under this Agreement.

3. Term. The term of employment for Mr. Hayward hereunder will last for five years (the “Term of Employment”) from the date of this Agreement and the Term of Employment will automatically extend for successive one-year periods following the fifth anniversary of such date unless:

(a) each of LPM, on the one hand, or Mr. Hayward, on the other hand, delivers written notice to the other party no later than ninety (90) days prior to the fifth anniversary of the foregoing date or any subsequent anniversary thereof, as the case may be, of intent not to renew; or

(b) Mr. Hayward’s employment is terminated in accordance with Section 4(e) or 4(f).

4. Compensation.

(a) Salary. LPM shall pay Mr. Hayward a salary at the annual rate of $517,000.00, less normal withholdings, for each calendar year, prorated for any portion thereof, payable in substantially equal installments in accordance with LPM’s usual payroll practice, but in no event less frequently than monthly.

(b) Bonus. Mr. Hayward shall participate in LPM’s bonus plan applicable to top executives, with a target bonus for each year (a “performance year”) of not less than 70% of his base salary in effect at the end of such performance year. The bonus shall be paid promptly upon completion of LPM’s year-end audit for such performance year, but in any event the bonus will be paid in the calendar year next following the calendar year in which the performance year ends.

(c) Cash Allowances. LPM shall pay Mr. Hayward an annual cash allowance for expenses that relate to his employment but which might be considered partially or wholly personal in nature. The allowance shall be $57,881.25 for 2008, increased annually by 5%, plus the amount necessary to gross Mr. Hayward up for any and all tax liabilities incurred by Mr. Hayward as result of the allowance (so that Mr. Hayward receives, in 2008 for example, $57,881.25 after payment of applicable taxes). In addition, LPM shall pay all expenses relating to Mr. Hayward’s reasonable out-of-pocket legal and accounting expenses incurred in connection with the preparation and negotiation of this Agreement, also grossed up for any taxes that may apply, with such reimbursement and tax gross-up payment to be made promptly upon Mr. Hayward’s notice to the Company of the amount of expenses incurred, but in no event shall the payment be made later than the end of the calendar year following the year in which the expense was incurred.

(d) Other Benefits. Mr. Hayward shall receive other benefits such as four (4) weeks of vacation each year (accruing pursuant to LPM’s company policy), personal and sick leave, insurance and other benefits consistent with the then-current policies of LPM and equal to those benefits extended to the most senior executives of LPM. Mr. Hayward will be provided with

office facilities (including reasonable home office facilities and the ability to communicate electronically), secretarial support, and business expense reimbursement consistent with the policies of LPM with respect to its most senior executives.

(e) Severance. If Mr. Hayward’s employment is terminated by LPM for any reason other than Mr. Hayward’s death, disability, Just Cause (as defined below), or pursuant to LPM’s retirement policy, and not withstanding any remaining portion of the Term, LPM shall pay him a lump-sum cash amount equal to 200% of the sum of (x) his base salary in effect at the time of termination plus (y) the greater of his target bonus for such year and the average of his bonuses for the prior two years. Such payments shall be made at the time Mr. Hayward’s employment terminates or at such later time as the amount of such payment becomes reasonably determinable (but not later than 60 days after termination).

Additionally, upon such termination, LPM shall continue to provide, and pay the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old, in each case at the same scope and level of coverage (to the extent available, and if not available, then equivalent compensation or other arrangements reasonably acceptable to Mr. Hayward shall be provided to him) as currently in effect and without cost, deductible, co-pay or premium to Mr. Hayward, his spouse or his dependents. If such health and medical-care insurance is provided pursuant to a plan subject to the provisions of Internal Revenue Code Section 105(h), the Company shall, if necessary, amend such plan after the expiration of the COBRA period to provide that reimbursements of eligible expenses shall be made no later than the end of the calendar year following the year in which the expense was incurred, and to provide that the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, except that limits on benefit payments shall be permitted.

For the purpose of this section, a termination for “Just Cause” shall mean a termination of employment for any of the following reasons:

(i) Mr. Hayward’s conviction of a felony, without the right of further appeal, which has an adverse impact on LPM or which involves the material misappropriation of LPM’s assets;

(ii) an intentional or grossly negligent violation by Mr. Hayward of any reasonable policy of the Board of Directors of LPM that results in material damage to LPM and which, if such violation is curable, after notice to do so, Mr. Hayward fails to correct within a reasonable time;

(iii) the performance of services by Mr. Hayward for any other company, entity, or person which directly competes with LPM during the time Mr. Hayward is employed by LPM, without the written approval of the Board of Directors of LPM.

Further, Mr. Hayward shall be entitled to all of the severance set forth in this Section 4(e) if Mr. Hayward terminates his employment with LPM for “Good Reason.” Mr. Hayward shall be entitled to terminate his employment for “Good Reason” only upon:

(i) written notice of such termination to LPM, effective within 30 days after being notified that Mr. Hayward is required by LPM to relocate from his existing home due to the relocation of the corporate office beyond a 25-mile radius of the current office location in Phoenix, AZ; or

(ii) written notice of such termination to LPM, provided such notice is given no later than 15 days from the earlier of (1) the date of execution of a definitive agreement for or the consummation of a Change of Control (provided that the termination will only be effective upon consummation of the Change of Control) and (2) the consummation of a Change of Control. “Change of Control” shall mean (i) GCP California Fund, L.P. (“GCP”) and its Affiliates (which term shall mean any entity that is controlled by the same individuals who control Leonard Green & Partners, L.P.) shall cease to beneficially own, directly or indirectly, a majority of the voting securities of LPM, (ii) a merger or

consolidation of Holdings or LPM or (iii) the sale of substantially all of the assets of LPM, in each case in a transaction or series of related transactions as a result of which a majority of the voting securities of LPM cease to be beneficially owned (directly or indirectly) by GCP or any of its Affiliates.

(f) Disability or Death. For purposes of this Agreement, Mr. Hayward will be considered “disabled” when Mr. Hayward is unable to perform the essential functions of Mr. Hayward’s job, with or without reasonable accommodation, for a period of 60 days in any consecutive 120-day period. Mr. Hayward acknowledges that, given Mr. Hayward’s position, it would be unreasonable and/or an undue hardship for LPM to be without an individual able to perform the essential functions of Mr. Hayward’s position for any longer period of time. If Mr. Hayward’s employment is terminated by LPM or himself as a result of Mr. Hayward’s disability or in the case of his death, LPM shall pay Mr. Hayward or his estate a lump-sum cash amount equal to 200% of the sum of: (i) his base salary that in effect at the time of termination plus (ii) the greater of (x) his target bonus for such year or (y) the average of his bonuses paid with respect to the prior five years. Additionally, upon such termination for disability, LPM shall continue to provide, and pay the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old, in each case at the same scope and level of coverage (to the extent available, and if not available, then equivalent compensation or other arrangements reasonably acceptable to Mr. Hayward shall be provided to him) as currently in effect and without cost, deductible, co-pay or premium to Mr. Hayward, his spouse or his dependents. If such health and medical-care insurance is provided pursuant to a plan subject to the provisions of Internal Revenue Code Section 105(h), the Company shall, if necessary, amend such plan after the expiration of the COBRA period to provide that reimbursements of eligible expenses shall be made no later than the end of the calendar year following the year in which the expense was incurred, and to provide that the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, except that limits on benefit payments shall be permitted. In addition, Mr. Hayward or his estate shall be entitled to (a) a pro rata portion of his cash allowance for the year in which his employment terminated, (b) any outstanding reimbursements to which he is entitled; (c) compensation for unused vacation and (d) any other amounts or benefits due after the termination of employment under the terms of any other applicable agreements, awards, plans, policies or programs of the Companies. Such payments shall be made at the time Mr. Hayward’s employment terminates (except as to the continuing insurance benefits and the amounts described in clause (d), which shall be paid in accordance with the applicable plans, policies or programs).

(g) In addition to the foregoing, in the event Mr. Hayward holds any options to purchase Holdings securities at time of termination of his employment for death or disability (as defined above), such options shall accelerate and become fully vested. Moreover, the Companies and the Green Parties agree not to exercise the Call Option, to the extent such option is exercisable at the time of termination of Mr. Hayward’s employment for death or disability within the meaning of the Amended and Restated Stockholders Agreement dated as of February 20, 2007 among the Companies and certain stockholders of Holdings. The Companies further agree that in such event, at any time between the fourth and fifth anniversary of the date of such termination of employment, Mr. Hayward or his estate shall be entitled to notify the Companies to repurchase, for cash, within 60 days of receipt of such notice, all of his shares of Holdings stock then held (whether by Mr. Hayward or any Individual Related Party, within the meaning of the

Stockholders Agreement) at the Fair Market Value thereof (as defined in the Stockholders Agreement). Upon receipt of such notice, the Companies shall determine the Fair Market Value of such shares and shall repurchase for cash all or as many of them as the Companies are able to repurchase, provided that such repurchase, in the judgment of the Boards of Directors of the Companies, (i) would not result in a violation of any material agreement to which the Companies are then party, (ii) complies with the applicable provisions of state law and (iii) would not result in a violation of the fiduciary duties of the Boards of Directors of the Companies. The Companies will be entitled to assign all or any portion of such right to repurchase to any one or more Affiliates of the Companies.

5. Reimbursement for Expenses. During the term of this Agreement, if LPM’s executive offices are relocated to a location beyond a 25 mile radius of metropolitan Phoenix, Arizona, LPM shall reimburse Mr. Hayward for his increase in travel, housing and living expenses incurred as a result of such relocation, in addition to the reimbursement of those business expenses set forth in Section 3 above. Such reimbursement shall be made promptly upon Mr. Hayward’s notice to the Company of the amount of expense incurred, but in no event shall the payment be later than the end of the calendar year following the year in which the expense was incurred.

6. Representation of Mr. Hayward. Mr. Hayward represents and warrants that execution or delivery of this Agreement, or his performance hereunder will conflict with, or result in a breach of, any obligation, contract, agreement, covenant or instrument to which he is a party.

7. Dispute Resolution. This Agreement shall be governed and construed in accordance with the laws of the state of Mr. Hayward’s principal place of employment. Mr. Hayward and LPM agree that any and all disputes, controversies or claims of any nature between them including, without limitation, any disputes arising out of or concerning this Agreement, Mr. Hayward’s employment or his termination shall be determined exclusively by final and binding arbitration before a single arbitrator located in the same county as Mr. Hayward’s principal place of employment, administered by the American Arbitration Association (“AAA”) under the National Rules For Resolution Of Employment Disputes of the AAA, and that judgment upon the award of the arbitrator may be rendered in any court of competent jurisdiction. This includes any claims Mr. Hayward may have against LPM or against LPM’s officers, directors, employees or agents in their capacity as such or otherwise. The arbitrator shall be a former jurist or an attorney with substantial experience in employment matters and mutually agreed to by the parties in their reasonable discretion. This agreement to arbitrate does not include claims covered by unemployment insurance and workers’ compensation statutes.

The arbitrator’s authority and jurisdiction shall be limited to determining the dispute in arbitration in conformity with law to the same extent as if such dispute were determined as to liability and remedy by a court without a jury. The arbitrator shall render an award which shall include a written statement of opinion setting forth the arbitrator’s findings of fact and conclusions of law. MR. HAYWARD AND LPM EXPRESSLY WAIVE ALL RIGHTS TO A JURY TRIAL IN COURT ON ALL STATUTORY OR OTHER CLAIMS.

8. Golden Parachute Tax Gross-up

(a) Application of Gross-up. All payments and benefits provided to Mr. Hayward by LPM are intended to be reasonable compensation for services by Mr. Hayward, and LPM intends that Mr. Hayward receive the full economic benefit of such payments and benefits. In the event that it is determined that any payment or benefit provided by LPM to or for the benefit of Mr. Hayward, either under this Agreement or otherwise, and regardless of under what plan or

arrangement it was made, will be subject to the excise tax imposed by section 4999 of the Code or any successor provision (“section 4999”), LPM will make an additional lump-sum payment (the “gross-up payment”) to Mr. Hayward. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make Mr. Hayward whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. The gross-up payment, if any, will be paid within 90 days following Mr. Hayward’s termination of employment.

Notwithstanding the foregoing, if Mr. Hayward is required to pay the excise tax imposed under section 4999 of the Code prior to the payment date for the gross-up payment described hereinabove (such as, for instance, because other payments due to Mr. Hayward without regard to this Agreement cause the excise tax to be due), then the Company shall promptly reimburse Mr. Hayward for the amount of excise taxes paid by him under section 4999 of the Code, plus an amount equal to the additional taxes imposed on him due to the Company’s reimbursement of the excise tax and such additional taxes. In no event shall the payment described in this paragraph be paid to Mr. Hayward later than the end of the calendar year following the year in which he remits such taxes. In such event, the gross-up payment, if and when paid, shall be reduced by the payment previously made to Mr. Hayward under this paragraph.

(b) Determinations. Determinations under this Section will be made by LPM’s tax accountants unless Mr. Hayward has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Mr. Hayward after consultation with LPM mutually acceptable to both parties (the firm making the determinations to be referred to as the “Firm”). The determinations of the Firm will be binding upon LPM and Mr. Hayward except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. LPM will pay all fees and expenses of the Firm.

(c) Controversy with IRS. If the Internal Revenue Service asserts a claim that, if successful, would require LPM to make a gross-up payment or an additional gross-up payment, LPM and Mr. Hayward will cooperate fully in resolving the controversy with the Internal Revenue Service. If such a gross-up payment is due, then the Company shall promptly reimburse Mr. Hayward for the amount of excise taxes paid by him under section 4999 of the Code, plus an amount equal to the additional taxes imposed on him due to the Company’s reimbursement of the excise tax and such additional taxes. In no event shall the payment described in this paragraph be paid to Mr. Hayward later than the end of the calendar year following the year in which he remits such taxes. LPM will bear all expenses of the controversy and will gross Mr. Hayward up for any additional taxes that may be imposed upon Mr. Hayward as a result of its payment of such expenses. Such payment for any additional taxes shall be made promptly following the date the expenses are incurred, but in no event later than the end of the calendar year following the year in which the taxes that are subject to the controversy are remitted to the Internal Revenue Service, or if no taxes are required to be remitted, then no later than the end of the calendar year following the year in which the controversy is completed and there is a final and nonappealable settlement or other resolution of the controversy.

(d) Cooperation with LPM. Mr. Hayward shall notify LPM promptly (in any event no less than 10 days following receipt thereof) and in writing of any proposed or final claim by the Internal Revenue Service that, if successful, would require the payment by LPM of any amount under this Section 7. Mr. Hayward shall not pay such claim prior to the expiration of the thirty

(30) calendar day period following the date on which Mr. Hayward gives such notice to LPM (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If LPM notifies Mr. Hayward in writing prior to the expiration of such period that LPM desires to contest such claim (or if Mr. Hayward pays the related taxes within such shorter period and LPM requests, within such thirty (30)-day period, that Mr. Hayward claim a refund of some or all of such taxes), then Mr. Hayward shall:

(i) give LPM any information reasonably requested by LPM relating to such claim,

(ii) take such action in connection with contesting such claim or claiming such refund as LPM shall reasonably request in writing from time to time, including accepting legal representation with respect to such claim by an attorney reasonably selected by LPM,

(iii) cooperate with LPM in good faith in order effectively to contest such claim or pursue such refund, and

(iv) permit LPM to participate in any proceedings relating to such claim; provided, however, that LPM shall bear and pay directly all costs and expenses incurred in connection with such contest or refund claim (including, but only to the extent reasonably incurred, out-of-pocket costs and expenses incurred by Mr. Hayward), and shall indemnify and hold Mr. Hayward harmless, on an after-tax basis, for any excise tax or income tax imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subsection 7(d), LPM shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct Mr. Hayward to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Mr. Hayward agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as LPM shall determine. If the advancement described below is permitted under applicable law and would not cause an additional tax to be due under section 409A of the Code, LPM may direct Mr. Hayward to pay such claim and sue for a refund, and shall advance the amount of such payment to Mr. Hayward, on an interest-free basis, and shall indemnify and hold Mr. Hayward harmless, on an after-tax basis, from any excise tax or income tax imposed with respect to such advance or with respect to any imputed income in connection with such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Mr. Hayward with respect to which such contested amount is claimed to be due (other than any such extension arising by operation of law) is limited solely to such contested amount or issues. Furthermore, LPM’s control of the contest shall be limited to issues with respect to which the payment under this Section 7 would be payable hereunder, and Mr. Hayward shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(e) If, after the receipt by Mr. Hayward of a payment under this Section 7 or an amount advanced by LPM pursuant to subsection 7(d), Mr. Hayward becomes entitled to receive any refund with respect to the excise tax to which such payment relates or with respect to such claim, Mr. Hayward shall promptly pay to LPM the amount of such refund (together with any interest paid or credited thereon after Taxes applicable thereto), less any taxes required to be paid by

Mr. Hayward with respect to the receipt thereof. If, after the receipt by Mr. Hayward of an amount advanced by LPM pursuant to this Section 7 a determination is made that Mr. Hayward shall not be entitled to any refund with respect to such claim and LPM does not notify Mr. Hayward in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) calendar days after LPM’s receipt of notice of such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, against the amount of payment required to be paid. LPM may request that Mr. Hayward pursue a refund of any payment under this Section 7, and in such case the provisions of subsection 7(d) and this subsection 7(e) shall govern the pursuit of such refund.

(f) Notwithstanding any other provision of this Section 7, LPM may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of Mr. Hayward, all or any portion of any payment and Mr. Hayward hereby consents to such withholding.

(g) LPM’s obligations under this Section 7 will survive the termination of the Employment Period and any termination of this Agreement. Mr. Hayward shall cooperate as reasonably requested by LPM in order to reduce the amount of any payments or benefits to Mr. Hayward that would be subject to the tax imposed by section 4999.

9. Entire Agreement/Modifications. This Agreement constitutes the entire agreement of the parties with respect to Mr. Hayward’s employment with LPM. It supersedes any prior agreement, statement or representation. It may be modified only by written instrument executed by the party against which the modification is asserted. Failure to require performance of any provision shall not affect the right at a later time to enforce the same. No waiver by either party of a breach, whether by conduct or otherwise, shall be construed as a further or continuing waiver of any such breach. Termination of Mr. Hayward’s employment at any time will not terminate those provisions of this Agreement imposing obligations that, by character or design must be performed after such termination of the employment.

10. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

11. Assignability; Third Party Beneficiary.

(a) Subject to the provisions of Section 3(e) above, in the event LPM shall merge or consolidate with any other partnership, limited liability company, corporation, or business entity or all or substantially all LPM’s business or assets shall be transferred in any manner to any other partnership, limited liability company, corporation or business entity, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties, obligations of, and shall thereafter be deemed for all purposes hereof to be, LPM hereunder.

(b) This Agreement is personal in nature and none of the parties hereto shall, without the written consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of Section 11(a) above.

(c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof.

12. Confidentiality and Non-Solicitation. The parties recognize that Mr. Hayward will have access to trade secrets and proprietary information of Holdings and LPM, and they recognize that should such information be revealed to a competitor, Holdings and LPM would be materially damaged in an amount difficult to calculate. During the term of this Agreement and thereafter, Mr. Hayward promises not to disclose or use or induce or assist in the disclosure or use any of the above information except for the benefit of Holdings and LPM. Accordingly, Mr. Hayward agrees that for one (1) year after termination of his employment with Holdings and LPM, regardless of the reason for such termination, he shall not, directly or indirectly, on his behalf or the behalf of any other person or entity, solicit any customers of LPM to cease to do business or to reduce the amount of business with LPM or to do business with another company that is a competitor of LPM or solicit any person who is an employee of Holdings or LPM to terminate such employment.

13. Withholding. All amounts or benefits payable hereunder shall be subject to applicable tax withholding, and the withholding of any such amounts shall be treated as payment thereof to Mr. Hayward for purposes of determining whether all amounts required hereunder to be paid have been paid. Withholding of tax from any non-cash amounts or benefits that are subject to withholding may be made from cash amounts otherwise payable to Mr. Hayward.

14. Application of Section 409A of the Code. The Company and Mr. Hayward intend the terms of this Agreement to be in compliance with section 409A of the Code to the extent applicable. To the maximum extent permissible, any ambiguous terms of this Agreement shall be interpreted in a manner which avoids a violation of section 409A of the Code. With regard to the timing of payments that are subject to section 409A of the Code, Mr. Hayward’s termination of employment shall be interpreted to mean a “separation from service” within the meaning of the final regulations promulgated under section 409A of the Code, applying the default rules thereof. Mr. Hayward acknowledges that to avoid an additional tax on payments that may be payable or benefits that may be provided under this Agreement and that constitute deferred compensation that is not exempt from section 409A of the Code, if such payments or benefits are not timely made, Mr. Hayward must make a reasonable, good faith effort to collect any payment or benefit to which he believes he is entitled hereunder no later than ninety (90) days after the latest date upon which the payment could have been made or benefit provided under this Agreement, and if not paid or provided after such initial collection effort, Mr. Hayward must take further enforcement measures within one hundred eighty (180) days after such latest date.

(Signature Page Follows)

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first written above.

LESLIE’S POOLMART, INC
By:	/s/ STEVEN L. ORTEGA
Name:	Steven L. Ortega
Title:	Executive Vice President
LESLIE’S HOLDINGS, INC.
By:	/s/ STEVEN L. ORTEGA
Name:	Steven L. Ortega
Title:	Executive Vice President
/s/ LAWRENCE H. HAYWARD
Lawrence H. Hayward

For the sole purpose of confirming the agreement of the undersigned pursuant to the second sentence of Section 4(g):

GCP CALIFORNIA FUND, L.P.
By:	GCP California Capital, LLC Its General Partner
	By:	/s/ JOHN M. BAUMER
	Name:	John M. Baumer
	Title:	Senior Vice President

LESLIE’S COINVESTMENT LLC
By:	LEONARD GREEN & PARTNERS, L.P. Its Manager
	By:	LGP Management, Inc. Its General Partner
		By:	/s/ JOHN M. BAUMER
		Name:	John M. Baumer
		Title:	Senior Vice President

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Lawrence H. Hayward, certify that:

1. I have reviewed this quarterly report on Form 10-Q, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 12, 2008

/s/ LAWRENCE H. HAYWARD

Lawrence H. Hayward

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Steven L. Ortega certify that:

1. I have reviewed this quarterly report on Form 10-Q, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 12, 2008

/s/ Steven L. Ortega

Steven L. Ortega

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence H. Hayward, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Leslie’s Poolmart, Inc. on Form 10-Q for the fiscal quarter ended December 29, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Dated: February 12, 2008

By:	/s/ Lawrence H. Hayward
Name:	Lawrence H. Hayward
Title:	Chief Executive Officer

I, Steven L. Ortega, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Leslie’s Poolmart, Inc. on Form 10-Q for the fiscal quarter ended December 29, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Date: February 12, 2008

By:	/s/ Steven L. Ortega
Name:	Steven L. Ortega
Title:	Executive Vice-President and Chief Financial Officer