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 July 3, 2010

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	x	Smaller business reporting company	¨

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

The number of shares of common stock outstanding as of August 11, 2010 was 100.

LESLIE’S POOLMART, INC.

AND SUBSIDIARIES

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

FORM 10-Q

For the Quarterly Period Ended July 3, 2010

INDEX

	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Consolidated Balance Sheets as of July 3, 2010 (unaudited) and October 3, 2009	3
Consolidated Statements of Operations for the 13 weeks and 39 weeks ended July  3, 2010 (unaudited) and June 27, 2009 (unaudited)	4
Consolidated Statements of Cash Flows for the 39 weeks ended July 3, 2010 (unaudited) and June  27, 2009 (unaudited)	5
Notes to Consolidated Financial Statements (unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3. Quantitative and Qualitative Disclosures about Market Risk	10
Item 4. Controls and Procedures	10
Part II. Other Information	10
Item 1. Legal Proceedings	10
Item 1A. Risk Factors	10
Item 2. Unregistered Sales of Securities and Use of Proceeds	10
Item 5. Other Information	10
Item 6. Exhibits	11
Signatures	12

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)

	July 3, 2010			October 3, 2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	124,282		$	96,981
Accounts and other receivables, net		17,614			12,688
Inventories, net		96,449			68,934
Deferred tax assets		7,986			4,237
Prepaid expenses and other current assets		4,237			6,763
Total current assets		250,568			189,603
Property, plant and equipment, net		50,265			48,711
Intangible assets		8,064			8,074
Deferred financing costs, net		3,265			4,092
Deferred tax assets		7,305			7,305
Other assets		518			477
Total assets	$	319,985		$	258,262
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	69,767		$	31,307
Accrued expenses		44,314			40,515
Income taxes payable		22,604			8,963
Total current liabilities		136,685			80,785
Other long term liabilities		5,743			5,581
Senior notes, net		163,364			163,243
Total liabilities		305,792			249,609
Commitments and contingencies
Stockholder’s equity:
Common stock, $0.001 par value, authorized 100 shares, issued and outstanding 100 shares at July 3, 2010 and at October 3, 2009		—			—
Capital deficit		(91,513	)		(91,730	)
Retained earnings		105,706			100,383
Total stockholder’s equity		14,193			8,653
Total liabilities and stockholder’s equity	$	319,985		$	258,262

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						39 Weeks Ended
	July 3, 2010			June 27, 2009			July 3, 2010			June 27, 2009
Sales	$	236,600		$	213,765		$	356,515		$	331,036
Cost of merchandise and services sold, including warehousing, transportation expenses and store occupancy costs		122,839			114,347			208,342			198,990
Gross profit		113,761			99,418			148,173			132,046
Selling, general and administrative expenses		41,010			37,202			89,583			84,325
Loss on disposition of fixed assets		51			25			242			215
Operating income		72,700			62,191			58,348			47,506
Other expenses (income):
Interest expense		3,625			3,485			10,868			10,485
Interest income		(28	)		(4	)		(51	)		(226	)
Gain on debt extinguishment		—			—			—			(359	)
Total other expense		3,597			3,481			10,817			9,900
Income before income taxes		69,103			58,710			47,531			37,606
Income tax expense		27,209			22,964			18,708			13,460
Net income	$	41,894		$	35,746		$	28,823		$	24,146

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)

	39 Weeks Ended
	July 3, 2010			June 27, 2009
Operating activities:
Net income	$	28,823		$	24,146
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,838			9,524
Stock-based compensation		217			129
Amortization of loan fees and discounts		948			965
Allowance for doubtful accounts		22			66
Loss on disposition of assets		242			215
Gain on debt extinguishment		—			(359	)
Deferred income taxes		—			80
Changes in operating assets and liabilities:
Accounts and other receivables		(4,948	)		(5,514	)
Inventories		(27,515	)		(10,622	)
Prepaid expenses and other current assets		(1,223	)		(1,962	)
Other assets		(41	)		(15	)
Accounts payable and accrued expenses		42,421			34,673
Income taxes payable		13,641			5,129
Net cash provided by operating activities		63,425			56,455
Investing activities:
Sale of short term investments		—			19,899
Purchase of property, equipment and intangibles		(12,629	)		(9,322	)
Proceeds from disposition of property		5			9
Net cash (used in) provided by investing activities		(12,624	)		10,586
Financing activities:
Revolving commitment borrowings		—			4,988
Revolving commitment payments		—			(4,988	)
Repurchase of long-term debt		—			(3,571	)
Payment of dividends		(23,500	)		(3,900	)
Net cash used in financing activities		(23,500	)		(7,471	)
Net increase in cash and cash equivalents		27,301			59,570
Cash and cash equivalents at beginning of period		96,981			45,648
Cash and cash equivalents at end of period	$	124,282		$	105,218

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 and 39-week periods ended July 3, 2010 are not necessarily indicative of the results that may be expected for the 52-week year ending October 2, 2010.

The balance sheet at October 3, 2009 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 October 3, 2009.

(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 645 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.

In February 2007 the Company became a subsidiary of Leslie’s Holdings, Inc. (“Holdings”) pursuant to a tax-free reorganization in which the Company’s shareholders became shareholders of Holdings in the same proportions.

(3) Stock-based Compensation

The Company may grant stock options for a fixed number of shares of Holdings to the Company’s employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. Awards granted are valued at fair value 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.

At July 3, 2010, 1.4 million stock options were outstanding and 242,600 of the stock options were vested or exercisable. 35,000 stock options were cancelled during the 39-week period ended July 3, 2010.

Stock-based compensation expense recognized during the 13-week and 39-week periods ended July 3, 2010 was approximately $.1 million and $0.2 million respectively, compared to $.1 million for the 13-week and 39-week periods ended June 27, 2009. As of July 3, 2010, total unrecognized compensation cost related to stock-based options and awards was $1.2 million and the related weighted-average period over which it is expected to be recognized is approximately 3.5 years. The weighted average fair value of stock option awards granted during the 39-week period ended July 3, 2010 was $1.33 and the key weighted average assumptions used in the Black-Scholes valuation model to calculate the fair value are as follows: a risk-free interest rate of 2.22%; an expected life of the options of 5 years; an expected stock price volatility of 44.6% and an expected dividend yield of 0%. The Black-Scholes option valuation model is used to estimate the fair value of traded options. 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 are included in the consolidated Federal income tax return and certain state income tax returns of Holdings. The Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities during the current and preceding periods, as if the Company were a separate taxpayer rather than a member of Holding’s consolidated income tax return group. This policy requires the Company to pay tax liabilities to Holdings in cash, based upon the Company’s taxable income.

6

Leslie’s Poolmart, Inc.

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

Notes to Consolidated Financial Statements (unaudited)—(Continued)

(5) Income Taxes

Income tax expense was $27.2 million and $18.7 million for the 13-week and 39-week periods ended July 3, 2010 respectively, compared to $23.0 million and $13.5 million for the 13-week and 39-week periods ended June 27, 2009. The Company’s consolidated effective tax rate for the 13-week and 39-week periods ended July 3, 2010 was 39.4%, compared to 39.1% and 35.8% for the 13-week and 39-week periods ended June 27, 2010.

The gross amount of unrecognized tax benefits at July 3, 2010 was $0.2 million. The gross amount of unrecognized tax benefits as a result of tax positions taken during prior years did not change during the 39-weeks ended July 3, 2010. The total amount of the unrecognized tax benefits that, if recognized, would affect the effective rate is $0.2 million as of July 3, 2010. The Company had accrued approximately $30,000 for payment of interest and penalties at July 3, 2010 and June 27, 2009.

As of July 3, 2010, all of the federal income tax returns filed since 2008 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.

(6) Inventories

Inventories consist of the following:

(Amounts in thousands)	July 3, 2010		October 3, 2009
Raw materials and supplies	$	2,486	$	1,411
Finished goods		93,963		67,523
Total inventories	$	96,449	$	68,934

(7) Recently Issued Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures that are effective for annual periods beginning after December 15, 2010 and for interim periods within those annual periods. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

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 October 3, 2009.

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 645 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.

7

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 creates 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.

Results of Operations

Net Sales. Net sales for the 13 weeks ended July 3, 2010 were $236.6 million compared to $213.8 million for the 13 weeks ended June 27, 2009. The 10.7 % increase was primarily due to sales generated from comparable stores and new store openings. During the quarter ended July 3, 2010, the Company opened 7 new stores and closed no stores. Net sales for the 39 weeks ended July 3, 2010 were $356.5 million compared to $331.0 million for the 39 weeks ended June 27, 2009. The 7.7% increase was primarily due to the 25 additional new stores which were operated during the 39-week period ended July 3, 2010.

Comparable store sales for the 13 weeks ended July 3, 2010 increased 8.7% as compared to the 13 weeks ended June 27, 2009, while comparable store sales for the 39 weeks ended July 3, 2010 increased 5.8% as compared to the 39 weeks ended June 27, 2009. 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 July 3, 2010 was $113.8 million compared to $99.4 million for the 13 weeks ended June 27, 2009. As a percentage of sales, gross profit was 48.1% for the third quarter of fiscal 2010 compared to 46.5% for the third quarter of fiscal 2009. For the 39 weeks ended July 3, 2010, gross profit was $148.2 million compared to $132.0 million for the 39 weeks ended June 27, 2009. As a percentage of sales, gross profit for the 39 weeks ended July 3, 2010 was 41.6% compared to 39.9% for the 39 weeks ended June 27, 2009. Gross profit dollars improved primarily due to the recognition of vendor promotional rebates during the quarter and improved efficiencies in manufacturing and distribution.

Selling, General and Administrative Expense. Selling, general and administrative expense for the 13 weeks ended July 3, 2010 was $41.0 million compared to $37.2 million for the 13 weeks ended June 27, 2009. Operating expense increased during the third quarter of 2010 due primarily to increases in costs associated with the increased store count, as compared to the third quarter of 2009. For the 39 weeks ended July 3, 2010, operating expenses were $89.6 million, as compared to $84.3 million in the prior year with the increases primarily related to the increased store count.

Operating Income. Operating income during the 13 weeks ended July 3, 2010 improved by $10.5 million, from $62.2 million during the 13 weeks ended June 27, 2009 to $72.7 million for the 13 weeks ended July 3, 2010. Operating income for the 39 weeks ended June 27, 2009 improved by $10.8 million, from $47.5 million during the 39 weeks ended June 27, 2009 to $58.3 million for the 39 weeks ended July 3, 2010.

Other Income and Expense. Net interest expense was $3.6 million for the 13 weeks ended July 3, 2010 compared to $3.5 million for the 13 weeks ended June 27, 2009. For the 39 weeks ended July 3, 2010, net interest expense was $10.8 million versus $9.9 million in the prior year. The 39 week results of 2009 include a $0.4 million gain on debt extinguishment related to the purchase and retirement of $3.9 million of the Company’s 7 ³/4% Senior Notes due 2013.

8

Income Taxes. The Company’s income tax expense for the 13 weeks ended July 3, 2010 was $27.2 million, or an effective rate of 39.4%, as compared to a $23.0 million expense, or an effective rate of 39.1% for the 13 weeks ended June 27, 2009. For the 39 weeks ended July 3, 2010, the income tax expense was $18.7 million, or an effective rate of 39.4% versus $13.5 million, or an effective rate of 35.8% in the prior year. The increase in the effective rate is attributed to the $1.2 million benefit for a reduction in estimated taxes payable based upon information received during the year which indicated that the amount would not be payable.

Adjusted EBITDA. The Adjusted EBITDA for the 13 weeks ended July 3, 2010 was $76.7 million compared to an Adjusted EBITDA of $65.4 million for the 13 weeks ended June 27, 2009. For the 39 weeks ended July 3, 2010, Adjusted EBITDA was $69.6 million compared to an Adjusted EBITDA of $57.4 million for the 39 weeks ended June 27, 2009, or an improvement of $12.2 million. The improvement in Adjusted EBITDA was primarily due to the expanded gross profit achieved during the period, which more than offset higher occupancy and other expenses related to the additional store count.

Adjusted EBITDA is determined as follows (1):

	13 Weeks Ended				39 Weeks Ended
Amounts in thousands	July 3, 2010		June 27, 2009		July 3, 2010		June 27, 2009
Net income as reported	$	41,894	$	35,746	$	28,823	$	24,146
Depreciation and amortization		3,878		3,165		10,838		9,524
Interest expense, net		3,597		3,481		10,817		10,259
Loss on disposition of assets		51		25		242		215
Income tax expense		27,209		22,964		18,708		13,460
Unusual items		83		48		217		(230	)
Adjusted EBITDA	$	76,712	$	65,429	$	69,645	$	57,374

(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 39 weeks between October 3, 2009 and July 3, 2010, total current assets increased by $61.0 million, primarily due to higher cash positions related to working capital changes and inventories increased by $27.5 million during the period, reflecting the effects of inventory purchased during the 39 weeks of 2010 as the Company accelerated its purchases of certain products for the peak-selling season.

During the same period, current liabilities increased by $55.9 million due to the increase in accounts payable as a result of the increase in inventories and in income tax payable of $38.5 million and $13.6 million, respectively.

Liquidity and Capital Resources.

Net cash provided by operating activities was $63.4 million for the 39 weeks ended July 3, 2010 compared to net cash provided by operating activities of $56.5 million for the same 39 week period in the prior year, primarily due to an increase in accounts payable for certain products for the peak-selling season.

Capital expenditures for the 39 weeks ended July 3, 2010 were $12.6 million compared to $9.3 million for the 39 weeks ended June 27, 2009. The Company expects to incur capital expenditures between $14.0 and $16.0 million in fiscal 2010, primarily for the purpose of opening new stores. It is anticipated that the balance of 2010 capital expenditures will be funded out of cash provided by operations.

Cash used in financing activities for the 39 weeks ended July 3, 2010 was $23.5 million compared to $7.5 million cash used in financing activities in the prior year, reflecting the effect of an upstream dividend paid to Holdings.

9

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, for the next twelve months.

The Company was in compliance with all debt covenants as of July 3, 2010.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures that are effective for annual periods beginning after December 15, 2010 and for the interim periods within those annual periods. We do not expect the adoption of this guidance to have a material impact on our 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 October 3, 2009. Borrowings under the Loan Agreement bear interest at the lender’s Base Rate (as defined in the Loan Agreement) or at the Eurodollar Rate (as defined in the Loan Agreement), in each case plus the applicable margin rate. The applicable margin rate will be adjusted quarterly based on the Company’s Leverage Ratio (as defined in the Loan Agreement). The applicable margin for the Loan Agreement is initially 2.25% with respect to Base Rate loans and 3.25% with respect to Eurodollar Rate loans. As of July 3, 2010, 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 July 3, 2010 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.

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 October 3, 2009.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

Item 5. Other Information

None.

10

Item 6. Exhibits

Exhibit Number	Description
10.1	Lease Addendum dated as of April 1, 2010 to the Lease dated April 30, 1998 by and between CABOT II-KY1M01, LLC, and the Company.
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: August 11, 2010
By:	/S/    STEVEN L. ORTEGA
	Steven L. Ortega
	Chief Financial Officer
	Date: August 11, 2010

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EX-10.1

EXHIBIT 10.1

AMENDMENT TO LEASE AGREEMENT

This Amendment to Lease Agreement (the “Amendment”) is entered as of April 1, 2010, by and between CABOT II-KY1M01, LLC, a Delaware limited liability company (“Landlord”), successor in interest to Paul Hemmer Development Co., III, a Kentucky corporation (“Original Landlord”), and LESLIE’S POOLMART, INC., a Delaware corporation (“Tenant”), with reference to the following.

RECITALS:

A. Landlord and Tenant are parties to a certain Lease Agreement dated April 30, 1998 (the “Original Lease”) pursuant to which Landlord now leases to Tenant approximately 146,000 square feet of space in the Building (the “Building”) commonly known as 1231 Aviation Boulevard, Hebron, Kentucky (the “Premises”).

B. The parties desire to amend the Original Lease to provide for the extension of the Lease Term.

NOW THEREFORE, In consideration of the premises, and of the agreements of the parties herein, the parties agree as follows.

1. DEFINITIONS. Each term used but not defined in this Amendment shall mean what the Original Lease provides. Henceforth, each term in the Original Lease defined in this Amendment shall mean what this Amendment provides. The Original Lease, as this Amendment amends it, is the “Lease.”

2. EXTENSION OF TERM. The Term is extended so that it ends on May 31, 2018, rather than November 30, 2010. Tenant shall accept the Premises in as is condition on April 1, 2010. No options to extend the Term or end the term in the Original Lease are effective. No agreements by Landlord in the Original Lease to improve or expand the Premises or pay for the improvement or expansion of the Premises are effective.

3. RENT. (a) From and after December 1, 2010, Tenant shall pay Landlord as annual base rent in advance in equal monthly installments on the first day of each month during the Term as this Amendment extends it and as Section 6(a) of the Original Lease otherwise provides in the following amounts:

December 1, 2010-May 31, 2011:	$	0.00
June 1, 2011-May 31, 2012	$	29,808.00
June 1, 2012-May 31, 2013	$	31,025.00
June 1, 2013-May 31, 2014	$	32,242.00
June 1, 2014-May 31, 2015	$	33,458.00
June 1, 2015-May 31, 2016	$	34,657.00
June 1, 2016-May 31, 2017	$	35,892.00
June 1, 2017-May 31, 2018	$	37,108.00

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(b) During the term as so extended, Tenant shall continue to pay all other amounts that the Original Lease, including Section 6 thereof, requires.

5. OPTIONS TO EXTEND TERM. (a) Provided that the following conditions are satisfied, the Lease Term shall extend from and after June 1, 2018 to and through May 31, 2023 (such extension of the Term is the “First Extension Term”), unless this Lease provides that the Term should end earlier:

(i) No event of default (as defined in Section 23(a) of the Original Lease) beyond any applicable cure period shall have occurred and be continuing;

(ii) Tenant is Leslie’s Poolmart, Inc., a Delaware corporation, or other approved assignee;

(iii) Tenant is actually occupying the Premises; and

(iv) Tenant notifies Landlord by September 1, 2017 that Tenant is exercising its option to extend the Lease Term for the First Extension Term.

(b) Provided that the following conditions are satisfied, the Lease Term shall extend from and after June 1, 2023 to and through May 31, 2028 (such extension of the Term is the “Second Extension Term”), unless this Lease provides that the Term should end earlier:

(i) No event of default (as defined in Section 23(a) of the Original Lease) beyond any applicable cure period shall have occurred and be continuing;

(ii) Tenant is Leslie’s Poolmart, Inc., a Delaware corporation, or other approved assignee;

(iii) Tenant is actually occupying the Premises;

(iv) Tenant shall have exercised its option to extend the Lease Term for the First Extension Term; and

(v) Tenant notifies Landlord by September 1, 2022 that Tenant is exercising its option to extend the Lease Term for the First Extension Term.

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(b) (i) If Tenant exercises its option to extend the Lease Term for the First Extension Term from and after June 1, 2018, Tenant shall pay Landlord annual base rent in advance on the first day of each calendar month during the First Extension Term, in the amount of Fair Market Rental determined hereunder. If Tenant exercises its option to extend the Lease Term for the Second Extension Term from and after June 1, 2023, Tenant shall pay Landlord Base Rent in advance on the first day of each calendar month during the Second Extension Term, in the amount of Fair Market Rental determined hereunder. Leslie’s Poolmart, Inc., a Delaware corporation, shall remain absolutely liable for the performance of the Tenant’s obligations during either the First Extension Term or the Second Extension Term unless it shall have obtained a release from landlord of such liability.

(ii) The “Fair Market Rental” during the First Extension Term or the Second Extension Term, as the case may, shall mean a rental rate per rentable square foot in the Premises per year equal to the prevailing rental rate then being obtained by landlords (including Landlord) and the allowances and concessions then being granted by landlords (including Landlord) for comparable space in comparable buildings (including the Building) within five miles of the Premises at the time that Tenant exercises is option to extend the Term for the First Extension Term or the Second Extension Term, as the case may be. The Fair Market Rental shall be determined taking into account the following factors: (i) the location, quality, age, parking delivery area, layout, and “as is” condition of the Building; (ii) the free rent, if any, that Landlord would have granted to secure a new tenant of the Premises at such prevailing rental rate; (iii) the take-over and assumption costs Landlord would have incurred to secure a new tenant for the Premises; (iv) the standard brokerage commission Landlord would have incurred to secure a new tenant for the Premises at such prevailing rental rate; (v) the tenant improvement allowance Landlord would have incurred to secure a new tenant for the Premises at such prevailing rental rate; and (vi) the amount of Operating Expenses and Taxes per rentable square foot per year that Landlord would be required to absorb at such prevailing rental rate to secure a new tenant of the Premises at such prevailing rental rate.

(iii) Landlord and Tenant shall, for a period of thirty (30) days from and after the date of Tenant’s notice to extend the Term (the “Negotiation Period”), meet with each other and negotiate in good faith the Fair Market Rental applicable to the Premises, using the criteria set forth in Section 5 (b) (ii) hereof. If the parties are unable to agree upon the Fair Market Rental during the Negotiation Period, then Landlord shall, within fifteen (15) days after the expiration of such Negotiation Period, deliver to Tenant a written determination of the Fair Market Rental as determined by Landlord (“Landlord’s Determination”). Tenant shall have fifteen (15) days from the date of delivery of Landlord’s Determination to notify Landlord in writing of Tenant’s acceptance of Landlord’s Determination or to deliver to Landlord Tenant’s written determination of the Fair Market Rental (“Tenant’s Determination”). If Tenant does not deliver Tenant’s Determination to Landlord within such fifteen (15)-day period, Tenant shall be deemed to have accepted Landlord’s Determination, and Landlord’s Determination shall be the Fair Market Rental. If Tenant does deliver Tenant’s Determination within such fifteen (15)-day period, then the determination of Fair Market Rental will be settled at arbitration in accordance with the provisions of this Section 5 (b). Landlord’s failure to provide the Landlord’s Determination shall not be deemed to be a default by Landlord under this Lease.

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(iv) If the Fair Market Rental is to be determined by arbitration, within 45 days after Tenant gives Tenant’s Determination to Landlord, Tenant and Landlord will each appoint an appraiser who is a member of the American Institute of Real Estate Appraisers and who has had a minimum of ten years of experience in office leasing in the metropolitan Cincinnati, Ohio marketplace, and shall deliver written notice of the name of such appraiser to the other party. If only one of Tenant or Landlord so delivers such written notice of the name of such an appraiser, then such appraiser will be deemed to be a mutually acceptable appraiser who will act as the third appraiser described below. If neither Tenant nor Landlord so delivers such written notice of the name of an appraiser to the other party, then the first name of such an appraiser delivered by one party to the other will be deemed to a mutually acceptable appraiser who will act as the third appraiser described below.

(v) If two appraisers are so named by the parties, then the parties shall direct the two appraisers to meet within 15 days after the date on which the notice of the second of such appraisers is so given, to select a third appraiser, who also meets the qualification requirements of the first two appraisers, and who has not acted previously in any capacity for either Landlord or Tenant, and to deliver written notice of the name of such third appraiser to the parties within such 15 day period. If such two appraisers have not so delivered written notice of such third appraiser within such 15 day period, then either party may petition the appropriate court of general jurisdiction sitting in the City of Cincinnati, Ohio to appoint such third appraiser.

(vi) Within ten days after such third appraiser is so named or appointed (including a sole appraiser deemed to be the third appraiser as provided above), Landlord and Tenant will each deliver to the third appraiser Landlord’s and Tenant’s respective estimates of the Fair Market Rental. Such estimates will be delivered to such third appraiser in sealed packages. Such package may contain such supporting data as the party delivering such estimate desires. Landlord will not be bound by Landlord’s Determination when submitting Landlord’s estimate to the third appraiser. Tenant will not be bound by Tenant’s Determination when submitting Tenant’s estimate to the third appraiser.

(vii) If only one of Landlord or Tenant so delivers such estimate to the third appraiser within such time, then the estimate so delivered will be deemed to be the Fair Market Rental, If neither Landlord nor Tenant delivers such estimate to the third appraiser within such time, then the estimate first delivered to the third appraiser thereafter will be deemed to be the Fair Market Rental. Within ten days after the delivery of such estimates by Landlord and Tenant, the third appraiser will make a determination as to which of the Landlord’s or Tenant’s estimate of Fair Market Rental is the closest to the Fair Market Rental.

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(viii) The third appraiser must determine either (I) that Landlord’s estimate of the Fair Market Rental is the closest to the Fair Market Rental, or (II) that Tenant’s estimate of the Fair Market Rental is the closest to the Fair Market Rental. The Fair Market Rental identified as the closest by the third appraiser will be the agreed upon Fair Market Rental. The third appraiser may not substitute any other estimate of Fair Market Rental, may not average the estimates of Fair Market Rental estimated by Landlord and Tenant, and may not alter in any manner the estimate of Fair Market Rental made by either Landlord or Tenant (the parties intend that arbitration under this section 5 (b) will be a so called “baseball” arbitration under which the third arbitrator must select either the Landlord estimate of Fair Market Rental or the Tenant’s estimate of Fair Market Rental, as such estimates are submitted to the third arbitrator by the parties).

(ix) Landlord and Tenant will pay (i) the fee of each appraiser that each has chosen, and (ii) half the fee of the third appraiser.

(c) All other provisions of the Lease shall apply during each of the First Extension Term and the Second Extension Term, except that (i) Landlord need not pay any amounts to Tenant for demolition or improvements to the Premises, and (ii) Tenant shall have no further right to extend the Term.

6. TENANT FINISH ALLOWANCE. Landlord shall provide a tenant finish allowance to Tenant in the amount of $100,000 (the “Allowance”). Landlord shall disburse an amount not in excess of the Allowance on or before May 31, 2011 to pay for costs that Tenant incurs at Tenant’s election to repair the heating, ventilation, and air conditioning systems at the Premises, repair or replace warehouse light fixtures that have bad ballasts, replace metal halide light fixtures with T5 or T8 energy efficient fluorescent fixtures, re-carpeting, painting, or any other repair or improvement of the Premises. If Tenant wishes to improve the Premises at any time after execution of this Amendment, Tenant must comply with Section 18 of the Original Lease. Landlord shall disburse the Allowance from time to time, but not more often than once per month, within ten days after Tenant provides evidence to Landlord reasonably substantiating Tenant’s incurring of such costs in a manner that will not result in any claim of a mechanic’s lien against the Premises.

7. BROKERS. Tenant represents and warrants to Landlord that Tenant has not dealt with any real estate broker who or which may be entitled to a commission as a result of the entering of this Amendment except (i) Cassidy Turley (“CT”) and (ii) Cushman & Wakefield (“CW”). Tenant shall indemnify Landlord, hold Landlord harmless from, and defend Landlord with counsel satisfactory to Landlord with regard to the claim of any broker other than CT or CW who or which claims a commission on account of the entering of this Amendment on the basis of having dealt with Tenant. Landlord shall pay CT and CW in accordance with Landlord’s separate agreements with each. Neither CT nor CW has any rights to enforce this Amendment.

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8. RATIFICATION. All provisions of the Original Lease not amended hereby shall remain in effect. By this reference, Landlord and Tenant incorporate such remaining effective provisions in the Original Lease herein. Landlord and Tenant hereby ratify the Original Lease, as this Amendment amends it. Tenant acknowledges that Landlord has fully performed all obligations that the Original Lease required Landlord to perform before to Tenant’s signature hereof.

IN WITNESS WHEREOF, each party has caused its duly authorized representative to execute this Amendment.

CABOT II-KY1M01, LLC
By:	Cabot Industrial Value Fund II Operating Partnership, L.P., a Delaware limited partnership, sole member
By:	/s/ Kelly J. Stevens
Name:	Kelly J. Stevens
Title:	VP Asset Management & 5/17/10
LESLIE’S POOLMART, INC.
By:	/s/ Steven L. Ortega
Name:	Steven L. Ortega
Title:	EVP/CFO

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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: August 11, 2010

/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: August 11, 2010

/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 July 3, 2010 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: August 11, 2010

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 July 3, 2010 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: August 11, 2010

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