OUTLOOK

We believe that the following factors will contribute to net sales growth in 2006:

• sales from acquired service centers, including Horizon;
• expansion of our existing service centers through continued execution of our sales, marketing and service programs;
• the anticipated opening of 6 to 10 new service centers in 2006;
• continued growth of the installed base of swimming pools;
• growth in complementary product sales; and
• expected product price increases passed through the supply chain.

We believe that complementary products will continue to grow at a faster rate than our overall sales growth, with an acceleration of the complementary products growth rate in the first three quarters of 2006, compared to the same period in 2005, due to the addition of Horizon’s products to our complementary product offerings. Including Horizon’s sales, complementary products should comprise approximately 20% of net sales for the full year 2006.

We expect to continue to increase our focus on supply chain management initiatives, including expansion of international sourcing and private label opportunities, particularly where margin expansion opportunities exist. We also plan to make further advances in working capital management to achieve continued operational improvements in 2006 and beyond.

We expect a positive contribution from equity earnings from our investment in LAC in 2006. LAC’s business is highly seasonal and more heavily weighted to northern markets, with the first and fourth quarters being the slowest parts of the year and the second and third quarters being the busiest.

We plan to use the modified-retrospective transition method under SFAS 123(R), Share-Based Payment. As such, we will adjust prior period financial statements beginning in the first quarter of 2006 to reflect the impact of stock option expense for amounts previously reported in our pro-forma footnote disclosures required by SFAS 123, Accounting for Stock-Based Compensation. Our 2005 fully diluted earnings per share was $1.50 as reported, or $1.45 after adjusting for the impact of stock option expense.We believe that 2006 earnings per share will be in the range of $1.70 to $1.75 per diluted share, including an expected $0.06 impact from stock option expensing.

We believe that over the long term, we will generate sufficient cash flow and have adequate access to capital to both fund our business objectives and provide a direct return to our shareholders in the form of dividend payments.

Our business is subject to significant risks, including weather, competition, general economic conditions and other risks as detailed in the Risk Factors below.

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

• those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and
• those for which changes in the estimate or assumptions, or the use of different estimates and assumptions, could have a material impact on our consolidated results of operations or financial condition.

Management has discussed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board. We believe the following critical accounting estimates require us to make the most difficult, subjective or complex judgments.