Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our final prospectus for our initial public offering
filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended,
or the Securities Act, with the Securities and Exchange Commission, or SEC, on
April 26, 2021 (the "Prospectus").

Cautionary Note Regarding Forward-Looking Statements



This discussion contains forward-looking statements that involve risk,
assumptions and uncertainties, such as statements of our plans, objectives,
expectations, intentions and forecasts. These forward-looking statements are
generally identified by the use of forward-looking terminology, including the
terms "anticipate," "believe," "confident," "continue," "could," "estimate,"
"expect," "intend," "likely," "may," "plan," "possible," "potential," "predict,"
"project," "should," "target," "will," "would" and, in each case, their negative
or other various or comparable terminology. Our actual results and the timing of
selected events could differ materially from those discussed in these
forward-looking statements as a result of several factors, including those set
forth under the section of this Quarterly Report on Form 10-Q titled "Risk
Factors" and elsewhere in this Quarterly Report on Form 10-Q. These statements
involve known and unknown risks, uncertainties and other important factors that
may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that could cause
our results to vary from expectations include, but are not limited to secular
shifts in consumer demand for swimming pools and spending on outdoor living
spaces; slow pace of material conversion from concrete pools to fiberglass pools
in the pool industry; general economic conditions and uncertainties affecting
markets in which we operate and economic volatility that could adversely impact
our business, including the COVID-19 pandemic; changes in access to consumer
credit or increases in interest rates impacting consumers' ability to finance
their purchases of pools; the impact of weather on our business; our ability to
attract new customers and retain existing customers; our ability to sustain
further growth and to manage it effectively; the ability of our suppliers to
continue to deliver the quantity or quality of materials sufficient to meet our
needs to manufacture our products; the availability and cost of third-party
transportation services for our products and raw materials; product quality
issues; our ability to successfully defend litigation brought against us; our
ability to adequately obtain, maintain, protect and enforce our intellectual
property and proprietary rights and claims of intellectual property and
proprietary right infringement, misappropriation or other violation by
competitors and third parties; failure to hire and retain qualified employees
and personnel; exposure to risks associated with international sales and
operations, including foreign currency exchange rates, corruption and
instability; security breaches, cyber-attacks and other interruptions to our and
our third-party service providers' technological and physical infrastructures;
catastrophic events, including war, terrorism and other international conflicts,
public health issues or natural catastrophes and accidents; risk of increased
regulation of our operations, particularly related to environmental laws;
fluctuations in our operating results; inability to compete successfully against
current and future competitors; and other risks, uncertainties and factors set
forth in this Quarterly Report on Form 10-Q, including those set forth under
section titled "Risk Factors." These forward-looking statements reflect our
views with respect to future events as of the date of this Quarterly Report on
Form 10-Q and are based on assumptions and subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements represent our
estimates and assumptions only as of the date of this Quarterly Report on Form
10-Q and, except as required by law, we undertake no obligation to update or
review publicly any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this Quarterly Report
on Form 10-Q. We anticipate that subsequent events and developments will cause
our views to change. You should read this Quarterly Report on Form 10-Q
completely and with the understanding that our actual future results may be
materially different from what we expect. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, merger, dispositions,
joint ventures or investments we may undertake. We qualify all of our
forward-looking statements by these cautionary statements.

Overview



We are the largest designer, manufacturer and marketer of in-ground residential
swimming pools in North America, Australia and New Zealand. We hold the #1
market position in North America in every product category in which we compete.
We believe that we are the most sought-after brand in the pool industry and the
only pool company that has established a direct relationship with the homeowner.
We are Latham, The Pool Company.

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With an operating history that spans over 65 years, we offer the industry's broadest portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers.



We have a heritage of innovation. In an industry that has traditionally marketed
on a business-to-business basis (pool manufacturer to dealer), we pioneered the
first "direct-to-homeowner" digital and social marketing strategy that has
transformed the homeowner's purchase journey. Through this marketing strategy,
we are able to create demand for our pools and generate and provide high
quality, purchase-ready consumer leads to our dealer partners.

Partnership with our dealers is integral to our collective success, and we have
enjoyed long-tenured relationships averaging over 14 years. In 2020, we sold to
over 6,000 dealers; we also entered into a new and exclusive long-term strategic
partnership with the nation's largest franchised dealer network. We support our
dealer network with business development tools, co-branded marketing programs
and in-house training, as well as a coast-to-coast operations platform
consisting of over 2,000 employees across 32 facilities. The broad geographic
reach of our manufacturing and distribution network allows us to deliver a
fiberglass pool in a cost-effective manner to approximately 95% of the U.S.
population in two days. No other competitor in the residential in-ground
swimming pool industry has more than three manufacturing facilities.

The full resources of our company are dedicated to designing and manufacturing
high-quality pool products with the homeowner in mind, and positioning ourselves
as a value-added partner to our dealers.

We conduct our business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

Recent Developments

Highlights for the fiscal quarter ended July 3, 2021

Increase in net sales of 60.3%, or $68.1 million, to $180.9 million for the

? fiscal quarter ended July 3, 2021, compared to $112.8 million for the fiscal

quarter ended June 27, 2020.

Increase in net loss of $70.0 million, to $53.6 million for the fiscal quarter

? ended July 3, 2021, compared to a net income of $16.4 million for the fiscal

quarter ended June 27, 2020, representing a (29.6)% net loss margin for the

fiscal quarter ended July 3, 2021.

Increase in Adjusted EBITDA (as defined below) of $9.7 million, to $42.8

? million for the fiscal quarter ended July 3, 2021, compared to $33.1 million

for the fiscal quarter ended June 27, 2020.

Highlights for the two fiscal quarters ended July 3, 2021

Increase in net sales of 101.1%, or $165.6 million, to $329.6 million for the

? two fiscal quarters ended July 3, 2021, compared to $164.0 million for the two

fiscal quarters ended June 27, 2020.

Increase in net loss of $46.1 million, to $45.1 million for the fiscal quarter

? ended July 3, 2021, compared to a net income of $1.0 million for the fiscal

quarter ended June 27, 2020, representing a (13.7)% net loss margin for the two

fiscal quarters ended July 3, 2021.

Increase in Adjusted EBITDA (as defined below) of $45.2 million, to $76.4

? million for the fiscal quarter ended July 3, 2021, compared to $31.2 million

for the fiscal quarter ended June 27, 2020.

Initial Public Offering


On April 27, 2021, we completed our initial public offering (the "IPO") in which
we sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by
us pursuant to the full exercise of the underwriters' option to purchase
additional shares. The aggregate net proceeds received by us from the IPO were
$399.3 million, after deducting underwriting discounts and commissions and other
offering costs. We used the net proceeds to (i) pay down $152.7 million of the
Amended Term Loan (as defined below) under

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the Credit Agreement (as defined below), (ii) repay the $16.0 million outstanding on the Revolving Credit Facility (as defined below), (iii) repurchase 12,264,438 shares of common stock from certain existing shareholders for $216.7 million and (iv) fund general corporate requirements, including working capital, for $13.9 million.



Contemporaneously with the pricing of the IPO, on April 22, 2021, we have put in
place our Omnibus Incentive Plan, pursuant to which we granted to certain of our
employees restricted stock awards, restricted stock units and option awards

(the
"Omnibus Plan").

Reorganization

Prior to the closing of the IPO, our parent entity, Latham Investment Holdings,
LP ("Parent") merged with and into Latham Group, Inc., with Latham Group, Inc.
surviving the merger (the "Reorganization"). The purpose of the Reorganization
was to reorganize our structure so that our existing investors would own only
common stock rather than limited partnership interests in our Parent. In
connection with the Reorganization, 194,207,115 Class A units of our Parent
("Class A units") were converted into 97,187,596 shares of our common stock and
26,158,894 Class B units of our Parent were converted into 4,145,987 shares of
common stock and 8,340,126 shares of restricted stock. The Reorganization was
accounted for as a transaction between entities under common control and
retrospectively applied starting December 2018, the earliest period in which
common control existed.

Stock Split

On April 13, 2021, our Board of Directors approved a 109,673.709-for-one stock
split of our common stock, par value $0.0001. Accordingly, all share and per
share data for all periods presented have been adjusted retroactively to reflect
the impact of the amended certificate of incorporation and the stock split.

Charter Amendment



On April 13, 2021, our certificate of incorporation was amended, which amended
and restated certain terms of the certificate of incorporation. Under the
amended certificate of incorporation, we had the authority to issue 500,000,000
shares of common stock, par value $0.0001 per share.

On April 22, 2021, as part of the Reorganization, our certificate of incorporation was further amended and restated to, among other things, increase the authorized shares to 1,000,000,000, of which 900,000,000 are shares of common stock, par value $0.0001 per share and 100,000,000 are shares of preferred stock, par value 0.0001 per share.

Key Performance Indicators

Net Sales



We derive our revenue from the design, manufacture and sale of in-ground
swimming pools, pool covers and liners. We sell fiberglass pools, which are
one-piece manufactured fiberglass pools that are ready to be installed in a
consumer's backyard and custom vinyl pools, which are manufactured pools that
are made out of non-corrosive steel or composite polymer frame, on top of which
a vinyl liner is installed. We sell liners for the interior surface of vinyl
pools (including pools that were not manufactured by us). We also sell
all-season covers, which are winterizing mesh and solid pool covers that protect
pools against debris and cold or inclement weather and automatic safety covers
for pools that can be operated with a switch.

Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.



Each product shipped is considered to be one performance obligation. With the
exception of our extended service warranties and our custom product contracts,
we recognize our revenue when control of our promised goods is transferred to
our customers, either upon shipment or arrival at our customer's destination
depending upon the terms of the purchase order. Sales are recognized net of any
estimated rebates, cash discounts or other sales incentives. Revenue that is
derived from our extended service warranties, which are separately priced and
sold, is recognized over the term of the contracts. Revenue from custom products
is recognized over time utilizing an input method that compares the cost of
cumulative work-in-process to date to the most current estimates for the entire
cost

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of the performance obligation. Custom products are generally delivered to the customer within three days of receipt of the purchase order.

Gross Margin


Gross margin is gross profit as a percentage of our net sales. Gross margin is
dependent upon several factors, such as changes in prices of raw materials, the
volume and relative sales mix among product lines, the average price of our
products sold and plant performance, among other factors. Gross margin is also
impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in net
sales. The components of our cost of sales may not be comparable to the
components of cost of sales or similar measures of other companies. As a result,
our gross profit and gross margin may not be comparable to similar data made
available by other companies.

Adjusted EBITDA and Adjusted EBITDA Margin



We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of
performance to evaluate the effectiveness of our business strategies, to make
budgeting decisions, to establish our annual management incentive bonus plan
compensation and to compare our performance against that of other peer companies
using similar measures. We define Adjusted EBITDA as net income (loss) plus (i)
depreciation and amortization, (ii) interest expense, (iii) income tax (benefit)
expense, (iv) loss on sale and disposal of property and equipment, (v)
restructuring charges, , (vi) stock-based compensation expense, (vii) unrealized
(gains) losses on foreign currency transactions, (viii) other non-cash items,
(ix) strategic initiative costs, (x) acquisition and integration related costs,
(xi) other, (xii) IPO costs, and (xiii) COVID-19-related expenses (income). We
believe excluding these items allows for better comparison of our financial
results across reporting periods.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Our
definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable
to similarly titled measures of other companies.

For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see "-Non-GAAP Financial Measures" below.



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Results of Operations

Fiscal Quarter Ended July 3, 2021 Compared to Fiscal Quarter Ended June 27, 2020

The following table summarizes our results of operations for the fiscal quarters ended July 3, 2021 and June 27, 2020:



                                                                                Fiscal Quarter Ended
                                                                 % of Net                       % of Net     Change        Change %
                                                July 3, 2021      Sales       June 27, 2020      Sales        Amount      of Net Sales

                                                                               (dollars in thousands)

Net sales                                      $      180,889       100.0 %  $       112,822       100.0 %  $   68,067             0.0 %
Cost of sales                                         122,534        67.7 %           68,460        60.7 %      54,074             7.0 %
Gross profit                                           58,355        32.3 %           44,362        39.3 %      13,993           (7.0) %

Selling, general and administrative expense            95,288        52.7 %           15,360        13.6 %      79,928            39.1 %
Amortization                                            5,479         3.0 %            4,063         3.6 %       1,416           (0.6) %
(Loss) income from operations                        (42,412)        23.4 %           24,939        22.1 %    (67,351)             1.3 %
Other expense (income):
Interest expense                                        7,516         4.2 %            4,308         3.8 %       3,208             0.4 %
Other (income) expense, net                             (794)         0.4 %          (1,242)         1.1 %         448           (0.7) %
Total other expense (income), net                       6,722         3.7 %            3,066         2.7 %       3,656             1.0 %
Earnings from equity method investment                    754         0.4 %                -         0.0 %         754             0.4 %
(Loss) income before income taxes                    (48,380)        26.7 %           21,873        19.4 %    (70,253)             7.3 %
Income tax expense                                      5,218         2.9 %            5,459         4.8 %       (241)           (1.9) %
Net (loss) income                              $     (53,598)        29.6 %  $        16,414        14.5 %  $ (70,012)            15.1 %
Adjusted EBITDA(a)                             $       42,848        23.7 %  $        33,095        29.3 %  $    9,753           (5.6) %


(a)Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to net income (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

Net Sales



Net sales was $180.9 million for the fiscal quarter ended July 3, 2021, compared
to $112.8 million for the fiscal quarter ended June 27, 2020. The $68.1 million,
or 60.3%, increase in net sales was due to a $54.1 million increase from volume
and a $14.0 million increase from pricing. The $54.1 million volume increase
stemming from strong consumer demand for our products and continued growth in
the number of new exclusive Latham Dealers and includes $18.2 million due to
having three months of GLI's net sales in our net sales in the fiscal quarter
ended July 3, 2021. The increase in total net sales of $68.1 million across our
product lines was $45.9 million for in-ground swimming pools, $12.8 million for
liners and $9.4 million for covers.

Cost of Sales and Gross Margin


Cost of sales was $122.5 million for the fiscal quarter ended July 3, 2021,
compared to $68.5 million for the fiscal quarter ended June 27, 2020. Gross
margin decreased by 7.0% to 32.3% of net sales for the fiscal quarter ended July
3, 2021 compared to 39.3% of net sales for the fiscal quarter ended June 27,
2020. The $54.0 million, or 79.0% increase in cost of sales was primarily due to
an increase in net sales, partially offset by the addition of non-cash
stock-based compensation expense of $4.9 million. The 7.0% decrease in gross
margin was due to, temporary cost-savings initiatives implemented in response to
the COVID-19 pandemic and lower rebates and incentive plan accruals in the
fiscal quarter ended June 27, 2020, which reflected modest sales volumes, as
compared to the fiscal quarter ended July 3, 2021, which was impacted by the
inclusion of non-cash stock-based compensation, expense, higher growth-related
rebates from sales growth and challenges in the supply chain, including
constrained raw material supply that has resulted in intermittent manufacturing
inefficiencies, and cost inflation. These factors were not fully offset by the
timing of price increases and benefits of positive mix shift dynamics.

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Selling, General and Administrative Expense



Selling, general and administrative expense was $95.3 million for the fiscal
quarter ended July 3, 2021, compared to $15.4 million for the fiscal quarter
ended June 27, 2020, and increased as a percentage of net sales by 39.1%. The
$79.9 million, or 520.4% increase in selling, general and administrative expense
was primarily due to $70.4 million increase in stock-based compensation expense,
$2.8 million increase in wages from an increase in headcount, particularly for
customer-facing activities to support growth of the business, and as a result of
the increase in the number of employees following the acquisition of GLI, $1.1
million increase due to legal, accounting and professional fees incurred in
connection with our IPO that were not capitalizable and $0.6 million increase in
incentive plan accruals reflecting strong sales performance.

Amortization

Amortization was $5.5 million for the fiscal quarter ended July 3, 2021, compared to $4.1 million for the fiscal quarter ended June 27, 2020. The $1.4 million, or 34.9% increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI International, LLC ("GLI") in October 2020.

Interest Expense



Interest expense was $7.5 million for the fiscal quarter ended July 3, 2021,
compared to $4.3 million for the fiscal quarter ended June 27, 2020. The $3.2
million, or 74.5% increase in interest expense was primarily due to an increase
in the outstanding balance of long-term debt and amortization from increased
deferred financing fees from entering into an amendment to the Term Loan,
compared to the fiscal quarter ended June 27, 2020.

Other (Income) Expense, Net


Other (income) expense, net was $(0.8) million for the fiscal quarter ended July
3, 2021, compared to $(1.2) million for the fiscal quarter ended June 27, 2020.
The $0.4 million decrease in other (income) expense, net was due to a $0.4
million unfavorable change in net foreign currency transaction gains and losses
associated with our international subsidiaries, compared to the fiscal quarter
ended June 27, 2020.

Earnings from Equity Method Investment



Earnings from equity method investment of Premier Pools & Spa was $0.8 million
for the fiscal quarter ended July 3, 2021, compared to no equity in net earnings
of Premier Pools & Spa for the fiscal quarter ended June 27, 2020 as the equity
method investment was made in October 2020.

Income Tax Expense



Income tax expense was $5.2 million for the fiscal quarter ended July 3, 2021,
compared to $5.5 million for the fiscal quarter ended June 27, 2020. Our
effective tax rate was (10.8)% for the fiscal quarter ended July 3, 2021,
compared to 25.0% for the fiscal quarter ended June 27, 2020. The difference
between the U.S. federal statutory income tax rate and our effective income tax
rate for the fiscal quarter ended July 3, 2021 was primarily attributable to the
impact of stock compensation expense pursuant to the Reorganization. The results
for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation
expense of $73.5 million related to the Reorganization for which there is no
associated tax benefit. The difference between the U.S. federal statutory income
tax rate and our effective income tax rate for the fiscal quarter ended June 27,
2020 was primarily impacted by our switching to an income position for the
fiscal quarter ended June 27, 2020.

Net (Loss) Income


Net (loss) income was $(53.6) million for the fiscal quarter ended July 3, 2021,
compared to $16.4 million of net income for the fiscal quarter ended June 27,
2020. The $70.0 million, or 426.5% increase in net loss was primarily due to the
factors described above.

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Net (Loss) Income Margin

Net loss margin was (29.6)% for the fiscal quarter ended July 3, 2021, compared
to net income margin of 14.5% for the fiscal quarter ended June 27, 2021. The
(44.1)% increase in net (loss) income margin was due to a $70.0 million increase
in net loss and an $68.1 million increase in net sales, compared to the fiscal
quarter ended June 27, 2020 due to the factors described above.

Adjusted EBITDA



Adjusted EBITDA was $42.8 million for the fiscal quarter ended July 3, 2021,
compared to $33.1 million for the fiscal quarter ended June 27, 2020. The $9.7
million, or 29.5%, increase in Adjusted EBITDA was primarily due to a $10.1
million increase in earnings before depreciation and amortization, interest
expense, income tax (benefit) expense and stock based compensation expense, as
well as a $1.1 million increase in legal, accounting and professional fees
incurred in connection with our IPO that are not capitalizable.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.7% for the fiscal quarter ended July 3, 2021, compared to 29.3% for the fiscal quarter ended June 27, 2020. The 5.6% decrease in Adjusted EBITDA margin was primarily due to a $9.7 million increase in Adjusted EBITDA and a $68.1 million increase in net sales, compared to the fiscal quarter ended June 27, 2020.

Two Fiscal Quarters Ended July 3, 2021 Compared to Two Fiscal Quarters Ended June 27, 2020

The following table summarizes our results of operations for the two fiscal quarters ended July 3, 2021 and June 27, 2020:




                                                                               Two Fiscal Quarters Ended
                                                                 % of Net                        % of Net      Change        Change %
                                                July 3, 2021       Sales       June 27, 2020       Sales        Amount      of Net Sales

                                                                                (dollars in thousands)
Net sales                                      $      329,635        100.0 %  $       163,956        100.0 %  $  165,679             0.0 %
Cost of sales                                         218,840         66.4 %          109,495         66.8 %     109,345           (0.4) %
Gross profit                                          110,795         33.6 %           54,461         33.2 %      56,334             0.4 %

Selling, general and administrative expense           122,460         37.2 %           30,792         18.8 %      91,668            18.4 %
Amortization                                           11,074          3.4 %            8,126          5.0 %       2,948           (1.6) %
(Loss) income from operations                        (22,739)          6.9 %           15,543          9.5 %    (38,282)           (2.6) %
Other expense (income):
Interest expense                                       16,572          5.0 %            9,641          5.9 %       6,931           (0.9) %
Other (income) expense, net                           (1,349)          0.4 %            2,499          1.5 %     (3,848)           (1.1) %
Total other expense (income), net                      15,223          4.6 %           12,140          7.4 %       3,083           (2.8) %
Earnings from equity method investment                    998          0.3 %                -          0.0 %         998             0.3 %
(Loss) income before income taxes                    (36,964)         11.2

%            3,403          2.1 %    (40,367)             9.1 %
Income tax expense                                      8,101          2.5 %            2,440          1.6 %       5,661             0.9 %
Net (loss) income                              $     (45,065)         13.7 %  $           963          0.6 %  $ (46,028)            13.1 %
Adjusted EBITDA(a)                             $       76,368         23.2 %  $        31,210         19.0 %  $   45,158             4.2 %

(a)Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to net income (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.



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Net Sales

Net sales was $329.6 million for the two fiscal quarters ended July 3, 2021,
compared to $164.0 million for the two fiscal quarters ended June 27, 2020. The
$165.6 million, or 101.1%, increase in net sales was due to a $143.7 million
increase from volume and a $21.9 million increase from pricing. The $143.7
million volume increase across our product lines primarily attributable to
continued strong consumer demand and order volumes across the Company's product
portfolio, expanded strategic partnerships with Latham's exclusive dealers, and
includes $34.1 million due to having six months of GLI's net sales in our net
sales in the two fiscal quarters ended July 3, 2021. The increase in total net
sales of $165.6 million across our product lines was $110.0 million for
in-ground swimming pools, $33.2 million for liners and $22.4 million for covers.

Cost of Sales and Gross Margin


Cost of sales was $218.8 million for the two fiscal quarters ended July 3, 2021,
compared to $109.5 million for the two fiscal quarters ended June 27, 2020.
Gross margin increased by 0.4% to 33.6% of net sales for the two fiscal quarters
ended July 3, 2021 compared to 33.2% of net sales for the two fiscal quarters
ended June 27, 2020. The $109.3 million, or 99.9% increase in cost of sales was
primarily the result of the overall increase in sales volume, inflation in the
cost of our raw materials and $4.9 million of non-cash stock-based compensation
expense. The 0.4% increase in gross margin was primarily due to price increases,
higher utilization of fixed cost structure, and a mix shift towards in-ground
pools, partially offset by supply chain headwinds and inflation, higher
growth-related rebates driven by strong sales growth, and stock-based
compensation expense.

Selling, General and Administrative Expense


Selling, general and administrative expense was $122.5 million for the two
fiscal quarters ended July 3, 2021, compared to $30.8 million for the two fiscal
quarters ended June 27, 2020, and increased as a percentage of net sales by
18.4%. The $91.7 million, or 297.7% increase in selling, general and
administrative expense was primarily due to $71.6 million increase in
stock-based compensation expense, $5.7 million increase in wages from an
increase in headcount particularly for customer-facing activities to support
growth of the business and as a result of the increase in the number of
employees following the acquisition of GLI, $4.0 million increase due to legal,
accounting and professional fees incurred in connection with our IPO that were
not capitalizable; and $2.8 million increase in incentive plan accruals
reflecting strong sales performance.

Amortization



Amortization was $11.1 million for the two fiscal quarters ended July 3, 2021,
compared to $8.1 million for the two fiscal quarters ended June 27, 2020. The
$3.0 million, or 36.3%, increase in amortization was due to the increase in our
definite-lived intangible assets resulting from our acquisition of GLI in
October 2020.

Interest Expense



Interest expense was $16.6 million for the two fiscal quarters ended July 3,
2021, compared to $9.6 million for the two fiscal quarters ended June 27, 2020.
The $7.0 million, or 71.9%, increase in interest expense was primarily due to an
increase in the outstanding balance of long-term debt and amortization from
increased deferred financing fees from entering into an amendment to the Term
Loan (as defined below), compared to the two fiscal quarters ended June 27,
2020.

Other (Income) Expense, Net


Other (income) expense, net was $(1.3) million for the two fiscal quarters ended
July 3, 2021, compared to $2.5 million for the two fiscal quarters ended June
27, 2020. The $3.8 million increase in other (income) expense, net was due to a
$3.8 million favorable change in net foreign currency transaction gains and
losses associated with our international subsidiaries, compared to the two
fiscal quarters ended June 27, 2020.

Earnings from Equity Method Investment



Earnings from equity method investment of Premier Pools & Spa was $1.0 million
for the two fiscal quarters ended July 3, 2021, compared to no equity in net
earnings of Premier Pools & Spa for the two fiscal quarters ended June 27, 2020
as the equity method investment was made in October 2020.

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Income Tax Expense

Income tax expense was $8.1 million for the two fiscal quarters ended July 3,
2021, compared to $2.4 million for the two fiscal quarters ended June 27, 2020.
Our effective tax rate was (21.9)% for the two fiscal quarters ended July 3,
2021, compared to 71.7% for the two fiscal quarters ended June 27, 2020. The
difference between the U.S. federal statutory income tax rate and our effective
income tax rate for the fiscal quarter ended July 3, 2021 was primarily
attributable to the impact of stock compensation expense pursuant to the
Reorganization. The results for the fiscal quarter ended July 3, 2021 include
pre-tax stock compensation expense of $73.5 million related to the
Reorganization for which there is no associated tax benefit. The difference
between the U.S. federal statutory income tax rate and our effective income tax
rate for the fiscal quarter ended April 3, 2021 was impacted primarily by state
income tax expense. The difference between the U.S. federal statutory income tax
rate and our effective income tax rate for the fiscal quarter and two fiscal
quarters ended June 27, 2020 was primarily impacted by our switching to an
income position for the fiscal quarter ended June 27, 2020. The pre-tax income
for the two fiscal quarters included losses in tax jurisdictions for which we
did not record a tax benefit, which increased the effective income tax rate for
the fiscal quarter ended June 27, 2020.

Net (Loss) Income



Net loss was $(45.1) million for the two fiscal quarters ended July 3, 2021,
compared to $1.0 million of net income for the two fiscal quarters ended June
27, 2020. The $46.1 million, or 4,779.6% increase in net loss was primarily due
to the factors described above.

Net (Loss) Income Margin

Net loss margin was (13.7)% for the two fiscal quarters ended July 3, 2021, compared to net income margin of 0.6% for the two fiscal quarters ended June 27, 2021. The (14.3)% increase in net (loss) income margin was due to a $45.1 million increase in net loss and an $165.6 million increase in net sales, compared to the two fiscal quarters ended June 27, 2020 due to the factors described above.

Adjusted EBITDA


Adjusted EBITDA was $76.4 million for the two fiscal quarters ended July 3,
2021, compared to $31.2 million for the two fiscal quarters ended June 27, 2020.
The $45.2 million, or 144.7%, increase in Adjusted EBITDA was primarily due to a
$47.1 million increase in earnings before depreciation and amortization,
interest expense, income tax (benefit) expense and stock based compensation
expense, as well as a $4.0 million increase in legal, accounting and
professional fees incurred in connection with our IPO that are not
capitalizable, partially offset by a $3.4 million decrease in unrealized (gains)
losses on foreign currency transactions, which included changes in the fair
value of the contingent consideration recorded in connection with the
acquisition of Narellan Group Pty Limited and its subsidiaries, which was
settled in September 2020.

Adjusted EBITDA Margin


Adjusted EBITDA margin was 23.2% for the two fiscal quarters ended July 3, 2021,
compared to 19.0% for the two fiscal quarters ended June 27, 2020. The 4.2%
increase in Adjusted EBITDA margin was primarily due to a $45.2 million increase
in Adjusted EBITDA and an $165.6 million increase in net sales, compared to the
fiscal quarter ended June 27, 2020.

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Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin



Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management
and our board of directors to assess our financial performance. Adjusted EBITDA
and Adjusted EBITDA margin are also frequently used by analysts, investors and
other interested parties to evaluate companies in our industry, when considered
alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin
to supplement GAAP measures of performance to evaluate the effectiveness of our
business strategies, to make budgeting decisions and to compare our performance
against that of other companies using similar measures. We have presented
Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures
because we believe they allow for a more complete analysis of results of
operations and assist investors and analysts in comparing our operating
performance across reporting periods on a consistent basis by excluding items
that we do not believe are indicative of our core operating performance, such as
(i) depreciation and amortization, (ii) interest expense, (iii) income tax
(benefit) expense, (iv) loss on sale and disposal of property and equipment, (v)
restructuring charges, (vi) stock-based compensation expense, (vii) unrealized
(gains) losses on foreign currency transactions, (viii) strategic initiative
costs, (ix) acquisition and integration related costs, (x) other, and (xi) IPO
costs.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and
should not be considered as alternatives to net income as a measure of financial
performance or any other performance measure derived in accordance with GAAP,
and they should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. You are encouraged to evaluate
these adjustments and the reasons we consider them appropriate for supplemental
analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should
be aware that in the future we may incur expenses that are the same as or
similar to some of the adjustments in this presentation. There can be no
assurance that we will not modify the presentation of Adjusted EBITDA and
Adjusted EBITDA margin following this offering, and any such modification may be
material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should
not be construed to imply that our future results will be unaffected by any such
adjustments. In addition, other companies, including companies in our industry,
may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may
calculate Adjusted EBITDA and Adjusted EBITDA margin differently and
accordingly, are not necessarily comparable to similarly entitled measures of
other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted
EBITDA margin as tools for comparison.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical
tools, and you should not consider them in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these limitations are
that Adjusted EBITDA and Adjusted EBITDA margin:

? do not reflect every expenditure, future requirements for capital expenditures

or contractual commitments;

? do not reflect changes in our working capital needs;

? do not reflect the interest expense, or the amounts necessary to service

interest or principal payments, on our outstanding debt;

do not reflect income tax (benefit) expense, and because the payment of taxes

? is part of our operations, tax expense is a necessary element of our costs and

ability to operate;

? do not reflect non-cash equity compensation, which will remain a key element of

our overall equity-based compensation package; and

? do not reflect the impact of earnings or charges resulting from matters we

consider not to be indicative of our ongoing operations.


Although depreciation and amortization are eliminated in the calculation of
Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and
amortized will often have to be replaced in the future, and Adjusted EBITDA and
Adjusted EBITDA margin do not reflect any costs of such replacements.

Management compensates for these limitations by primarily relying on our GAAP
results, while using Adjusted EBITDA and Adjusted EBITDA margin as supplements
to the corresponding GAAP financial measures.

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The following table provides a reconciliation of our net income to Adjusted
EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:


                                                        Fiscal Quarter Ended               Two Fiscal Quarters Ended
                                                   July 3, 2021      June 27, 2020      July 3, 2021       June 27, 2020

                                                                          (dollars in thousands)
Net (loss) income                                 $     (53,598)    $        16,414    $     (45,065)     $           963

Depreciation and amortization                              7,770           

  5,854            15,670              11,609
Interest expense                                           7,516              4,308            16,572               9,641
Income tax expense                                         5,218              5,459             8,101               2,440
Loss on sale and disposal of property and
equipment                                                     22                (3)               187                   -
Restructuring charges(a)                                      36                347               407                 633
Stock-based compensation(b)                               75,511                240            76,975                 464
Unrealized gains (losses) on foreign currency
transactions(c)                                            (731)            (1,176)             (792)               2,565
Strategic initiative costs(d)                                376              1,457               376               2,549
Acquisition and integration related costs(e)                   4           

    126                72                 238
Other(f)                                                   (355)                 69              (91)                 108
IPO Costs(g)                                               1,079                  -             3,956                   -

Adjusted EBITDA                                   $       42,848    $        33,095    $       76,368     $        31,210
Net sales                                         $      180,889    $       112,822    $      329,635     $       163,956
Net (loss) income margin                                  (29.6) %             14.5 %          (13.7) %               0.6 %
Adjusted EBITDA margin                                      23.7 %             29.3 %            23.2 %              19.0 %


(a) Represents severance and other costs for our executive management changes.



(b) Represents non-cash stock-based compensation expense. Of the expense
recorded during the fiscal quarter ended July 3, 2021, $0.5 million was due to
the accelerated vesting of restricted stock and $49.0 million was due to the
modification as a result of the Reorganization.

(c) Represents foreign currency transaction (gains) and losses associated with
our international subsidiaries and changes in the fair value of the contingent
consideration recorded in connection with the acquisition of Narellan Group Pty
Limited and its subsidiaries, which was settled in September 2020.

(d) Represents fees paid to external consultants for our strategic initiatives, including our rebranding initiative.

(e) Represents acquisition and integration costs primarily related to the acquisition of GLI, the equity investment in Premier Pools & Spas, as well as other costs related to a transaction that was abandoned.



(f) Other costs consist of other discrete items as determined by management,
including (i) fees paid to external consultants for tax restructuring, (ii) the
cost for legal defense of a specified matter, (iii) the cost incurred and
insurance proceeds related to our production facility fire in Picton, Australia
in 2020, (iv) temporary cleaning, equipment and salary costs incurred in
response to the COVID-19 pandemic, offset by government grants received in the
United States, Canada and New Zealand and (v) non-cash adjustments to record the
step-up in the fair value of inventory related to the acquisition of GLI, which
are amortized through cost of sales in the condensed consolidated statements of
operations.

(g) Represents items management believes are not indicative of ongoing operating
performance. These expenses are primarily composed of legal, accounting and
professional fees incurred in connection with the IPO that are not
capitalizable, which are included within selling, general and administrative
expense.

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Liquidity and Capital Resources

Overview



Our primary sources of liquidity are net cash provided by operating activities
and availability under our Revolving Credit Facility. Historically, we have
funded working capital requirements, capital expenditures, payments related to
acquisitions, and debt service requirements with internally generated cash on
hand and through our Amended Term Loan and Revolving Credit Facility (each as
defined below under "-Our Indebtedness") and through the issuance of shares of
our common stock. Our primary cash needs are to fund working capital, capital
expenditures, debt service requirements and any acquisitions we may undertake.
As of July 3, 2021, we had $76.5 million of cash, $237.3 million of outstanding
borrowings and an additional $30.0 million of availability under our Revolving
Credit Facility, which was undrawn. In April 2021, we completed our IPO,
pursuant to which we issued and sold 23,000,000 shares of common stock,
inclusive of 3,000,000 shares sold by us pursuant to the full exercise of the
underwriters' option to purchase additional shares. We received net proceeds of
$399.3 million.

Our primary working capital requirements are for the purchase of inventory,
payroll, rent, facility costs and other selling, general and administrative
costs. Our working capital requirements fluctuate during the year, driven
primarily by seasonality and the timing of raw material purchases. Our capital
expenditures are primarily related to growth, including production capacity,
storage and delivery equipment. We are in the midst of a multi-year capital plan
to invest in our facilities, technology and systems, including investments to
expand our fiberglass manufacturing capacity. We expect to fund these capital
expenditures from net cash provided by operating activities.

We believe that our existing cash, cash generated from operations and
availability under our Revolving Credit Facility, will be adequate to fund our
operating expenses and capital expenditure requirements over the next 12 months.
We have based this estimate on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect.

Our Indebtedness

Revolving Credit Facility



On December 18, 2018, Latham Pool Products entered into an agreement (the
"Credit Agreement") with Nomura Corporate Funding Americas, LLC ("Nomura") that
included a revolving line of credit (the "Revolver") and letters of credit
("Letters of Credit" or collectively with the Revolver, the "Revolving Credit
Facility"), as well as a Term Loan (as described and defined below). The
Revolving Credit Facility is utilized to finance ongoing general corporate and
working capital needs with the Revolver of up to $30.0 million. The Revolving
Credit Facility matures on December 18, 2023.

The Revolving Credit Facility allows for either Eurocurrency borrowings, which
bear interest ranging from 4.50% to 4.75%, or U.S. dollar base rate borrowings,
which bear interest ranging from 3.50% to 3.75% depending on the First Lien Net
Leverage Ratio, as defined in the Credit Agreement. A commitment fee accrues on
any unused portion of the commitments under the Revolving Credit Facility. The
commitment fee is due and payable quarterly in arrears and is equal to the
applicable margin times the actual daily amount by which the $30.0 million
initial commitment exceeds the sum of the outstanding borrowings under our
Revolving Credit Facility. The applicable margin ranges from 0.375% to 0.500% as
determined by our First Lien Net Leverage Ratio as defined in the Credit
Agreement.

We are required to meet certain financial covenants, including maintaining
specific liquidity measurements. There are also negative covenants, including
certain restrictions on our ability to incur additional indebtedness, create
liens, make investments, consolidate or merge with other entities, enter into
transactions with affiliates and make prepayments.

As of July 3, 2021 we had no outstanding borrowings under the Revolving Credit
Facility.

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Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $215.0
million in term loans (the "Term Loan"). The Term Loan was amended in May 2019
and October 2020 to provide additional borrowings (the "Amended Term Loan"). The
Term Loan was further amended on January 25, 2021, to provide an additional
incremental term loan of $175.0 million (the "Third Amendment"). We accounted
for $165.0 million of the borrowings under the Third Amendment as new debt and
$10.0 million of the borrowings under the Third Amendment as a debt
modification. We recorded an aggregate of $1.2 million of debt issuance costs as
a direct reduction to the carrying amount of long-term debt on the condensed
consolidated balance sheets. On January 25, 2021, Latham Pool Products borrowed
the incremental term loan, and the proceeds were used on February 2, 2021 to
repurchase and retire treasury stock in the amount of $64.9 million and to make
a $110.0 million dividend to Class A unitholders. The Term Loan, together with
the Third Amendment, are referred to as the "Amended Term Loan."

The Amended Term Loan bears interest at (1) a base rate equal to the highest of
(i) the Federal Funds Rate, as defined in the Credit Agreement, plus 1/2 of
1.00%, (ii) the "prime rate" published in the Money Rates section of the Wall
Street Journal and (iii) LIBOR plus 1.00% (2) plus a Loan Margin, as defined in
the Credit Agreement, of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00%
for Base Rate Loans, as defined in the Credit Agreement. The Amended Term Loan
has a maturity date of June 18, 2025. Interest and principal payments are due
quarterly.

In accordance with the terms of the Amended Term Loan, we elected to change the
terms of the prepayment schedule from an inverse application to a pro rata
application and as a result we are required to repay the outstanding principal
balance of the Amended Term Loan in fixed quarterly payments of $3.6 million,
commencing June 30, 2021. In connection with the Amended Term Loan, we are
subject to various financial reporting, financial and other covenants, including
maintaining specific liquidity measurements.

The obligations under the Credit Agreement are guaranteed by certain of our
wholly owned subsidiaries as defined in the security agreement. The obligations
under the Credit Agreement are secured by substantially all of the guarantors'
tangible and intangible assets, including, but not limited to, their accounts
receivables, equipment, intellectual property, inventory, cash and cash
equivalents, deposit accounts and security accounts. The Credit Agreement also
restricts payments and other distributions unless certain conditions are met,
which could restrict our ability to pay dividends.

As of July 3, 2021, we were in compliance with all covenants under the Revolving Credit Facility and the Amended Term Loan.



As of July 3, 2021 we had $237.3 million of outstanding borrowings under the
Amended Term Loan. On April 27, 2021, we used a portion of the net proceeds of
our IPO to repay $152.7 million of the Amended Term Loan.

Cash Flows



The following table summarizes our sources and uses of cash for each of the
periods presented:


                                                                   Two Fiscal Quarters Ended
                                                                July 3, 2021       June 27, 2020

                                                                         (in thousands)
Net cash provided by operating activities                      $       14,167     $        10,239
Net cash used in investing activities                                (12,843)             (6,205)
Net cash provided by (used in) financing activities                    17,852             (5,001)
Effect of exchange rate changes on cash                               (1,969)               1,857
Net increase in cash                                           $       17,207     $           890




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Operating Activities

During the two fiscal quarters ended July 3, 2021, operating activities provided
$14.2 million of cash. Net income, after adjustments for non-cash items,
provided cash of $54.3 million. Cash provided by operating activities was
further driven by changes in our operating assets and liabilities of $(40.2)
million. Net cash used in changes in our operating assets and liabilities for
the two fiscal quarters ended July 3, 2021 consisted primarily of a $44.5
million increase in trade receivables, a $9.5 million increase in inventories, a
$3.7 increase in prepaid expenses and other current assets, and a $0.1 increase
in income tax receivable, partially offset by an $11.0 million increase in
accounts payable, a $5.6 increase in accrued expenses and other current
liabilities, a $0.8 million decrease in other assets and a $0.1 million increase
in other long-term liabilities. The change in trade receivables was primarily
due to the timing of and increase in net sales, and the increase in inventories
was primarily due to increased production and inventory build in response to
existing and anticipated customer demand. The changes in accrued expenses and
other current liabilities and accounts payable were primarily due to timing of
payments.

During the two fiscal quarters ended June 27, 2020, operating activities
provided $10.2 million of cash. Net income, after adjustments for non-cash
items, provided cash of $15.2 million. Cash used in operating activities was
further driven by changes in our operating assets and liabilities of $(4.9)
million. Net cash used in changes in our operating assets and liabilities for
the two fiscal quarters ended June 27, 2020 consisted primarily of a $25.7
million increase in trade receivables, a $0.8 million increase in inventories,
partially offset by a $10.7 million increase in accounts payable, $9.5 increase
in accrued expenses and other current liabilities, and a $0.9 decrease in
prepaid expenses and other current assets. The change in trade receivables was
primarily due to the timing of net sales, and the increase in inventories was
primarily due to increased production in response to customer demand. The
changes in accrued expenses and other current liabilities and accounts payable
were primarily due to timing of payments.

Investing Activities



During the two fiscal quarters ended July 3, 2021, investing activities used
$12.8 million of cash, primarily consisting of purchases of property and
equipment for $13.0 million. The purchase of property and equipment was to
expand capacity for inventory production in order to meet increasing customer
demand.

During the fiscal quarter ended June 27, 2020, investing activities used $6.2 million of cash, consisting of purchases of property and equipment of $6.2 million.

Financing Activities



During the two fiscal quarters ended July 3, 2021, financing activities provided
$17.9 million of cash, primarily consisting of proceeds from our IPO, net of
underwriting discounts, commissions and offering costs of $399.3 million,
proceeds from borrowings on the Amended Term Loan of $172.8 million and
borrowings on the Revolving Credit Facility of $16.0 million, partially offset
by the repurchase of treasury stock of $281.6 million, payments on long-term
debt borrowings of $161.3 million, dividends to Class A unitholders of $110.0
million, and payments on Revolving Credit Facility borrowings of $16.0 million.

During the two fiscal quarters ended June 27, 2020, financing activities used
$5.0 million of cash, consisting of payments on long-term debt borrowings of
$4.4 million and repurchase and retirement of treasury stock of $0.6 million.

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Contractual Obligations

Long-term indebtedness and interest on long-term indebtedness changed materially
due to the Third Amendment dated January 25, 2021, which increased the
outstanding principal balance of the Term Loan by $175.0 million. A portion of
these proceeds were used to repurchase and retire treasury stock in the amount
of $64.9 million on February 2, 2021. The Third Amendment did not change the
Term Loan's maturity date of June 18, 2025, at which time the remaining
principal is due. The Third Amendment increased the fixed quarterly principal
payments from $3.3 million under the Second Amendment to $5.8 million. Upon
completion of the IPO we used $152.7 million of the net proceeds from the IPO to
repay $152.7 million of the Amended Term Loan. During the fiscal quarter ended
July 3, 2021, in accordance with the terms of the Amended Term Loan, we elected
to change the terms of the prepayment schedule from an inverse application to a
pro rata application and as a result we are required to repay the outstanding
principal balance of the Amended Term Loan in fixed quarterly payments of $3.6
million, commencing June 30, 2021. Due to the revised principal payments under
the Amended Term Loan, the required principal payments are $7.1 million in the
next year, $28.5 million in the next one to three years, and $206.3 million in
the next four to five years. At the new assumed interest rate of 7.73% as of
January 25, 2021, the interest payments are $10.5 million in the next year,
$38.9 million in the next one to three years, and $25.9 million in the next four
to five years.

There have been no other material changes, outside of the ordinary course of
business, to these contractual obligations during the quarter ended July 3, 2021
from those described under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Contractual Obligations" in our
Prospectus with the exception of long-term indebtedness. See "-Our
Indebtedness."

Critical Accounting Policies and Estimates


Our condensed consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States. Throughout the
preparation of these financial statements, we have made estimates and
assumptions that impact the reported amounts of assets, liabilities and the
disclosure of contingent liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Our critical accounting
policies are described under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Critical Accounting Policies
and Estimates" in our Prospectus. These estimates are based on historical
results, trends and other assumptions we believe to be reasonable. We evaluate
these estimates on an ongoing basis. Actual results may differ from estimates.
For additional information about our critical accounting policies and estimates,
see the disclosure included in our Prospectus as well as Note 2 - Summary of
Significant Accounting Policies in the notes to the condensed consolidated
financial statements included in Part I, Item 1, of this Quarterly Report on
Form 10-Q.

Off-Balance Sheet Arrangements


We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.

Recently Issued and Adopted Accounting Pronouncements



A description of recently issued accounting pronouncements that may potentially
impact our financial position, results of operations or cash flows is disclosed
in Note 2 to our condensed consolidated financial statements appearing elsewhere
in this Quarterly Report on Form 10-Q.

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