Table of Contents

 

 

 

**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 June 27, 2008**** |
|----------------|----------------|-----------------------------------------------------------|

 
| ** ** | ** ** | ****or****                                                                                            |
|------------|------------|-------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | **** ****                                                                                        |
| **o**      | ** ** | ****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: 001-32380****

 

**INTERLINE BRANDS, INC.**

(Exact name of registrant as specified in its charter)

 

| ****Delaware****                                 | **** **** | ****03-0542659****          |
|--------------------------------------------------|----------------|-----------------------------|
| ****(State or other jurisdiction of****          | **** **** | ****(I.R.S. Employer****    |
| ****incorporation or organization)****           | **** **** | ****Identification No.)**** |
|                                             |           |                        |
| ****801 West Bay Street****                      |           |                        |
| ****Jacksonville, Florida****                    | **** **** | ****32204****               |
| ****(Address of principal executive offices)**** | **** **** | ****(Zip code)****          |

 

**(904) 421-1400**

(Registrant’s telephone number, including area code)

 

**Not Applicable**

(Former name, former address and former fiscal year, if changed since last report)

 

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 o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
|   | Large  accelerated filer x                                           | Accelerated  filer o         |
|--------|----------------------------------------------------------------------|------------------------------|
|   |                                                                 |                         |
|   | Non-accelerated  filer o (Do not check if smaller reporting company) | Smaller  reporting company o |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes o     No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 5, 2008, there were 32,388,966 shares of the registrant’s common stock outstanding (excluding 81,693 shares held in treasury), par value $0.01.

 

 

 

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**TABLE OF CONTENTS**

 
| ****ITEM****                               | **** ****                                                                                                                     | ****PAGE****   |
|--------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|----------------|
| **** ****                             | **** ****                                                                                                                     | **** **** |
| ****PART I. FINANCIAL INFORMATION**** |                                                                                                                               |
| **** ****                             |                                                                                                                               |
| ****1.****                                 | ****Financial Statements (Unaudited)****                                                                                           |           |
| **** ****                             | ****Condensed Consolidated Balance Sheets as of June 27, 2008 and December 28, 2007****                                  | ****1****      |
| **** ****                             | ****Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 27, 2008 and June 29, 2007**** | ****2****      |
| **** ****                             | ****Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 27, 2008 and June 29, 2007****         | ****3****      |
| **** ****                             | ****Notes to Condensed Consolidated Financial Statements****                                                                       | ****5****      |
| ****2.****                                 | ****Management’s Discussion and Analysis of Financial Condition and Results of Operations****                                 | ****20****     |
| ****3.****                                 | ****Quantitative and Qualitative Disclosures about Market Risk****                                                                 | ****28****     |
| ****4.****                                 | ****Controls and Procedures****                                                                                                    | ****29****     |
| **** ****                             | **** ****                                                                                                                     | **** **** |
| ****PART II. OTHER INFORMATION****    |                                                                                                                               |
| **** ****                             |                                                                                                                               |
| ****1.****                                 | ****Legal Proceedings****                                                                                                          | ****30****     |
| ****1A.****                                | ****Risk Factors****                                                                                                               | ****30****     |
| ****2.****                                 | ****Unregistered Sales of Equity Securities and Use of Proceeds****                                                                | 30             |
| ****3.****                                 | ****Defaults Upon Senior Securities****                                                                                            | 30             |
| ****4.****                                 | Submission of Matters to a Vote of Security Holders                                                                                | 30             |
| 5.                                         | Other Information                                                                                                                  | 31             |
| ****6.****                                 | ****Exhibits****                                                                                                                   | ****31****     |
| **** ****                             | **** ****                                                                                                                     | **** **** |
| ****SIGNATURES****                         | ****32****                                                                                                                         |
|                                            |                                                                                                                                    |                |  |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. Financial Statements**

 

**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**AS OF JUNE27, 2008 AND DECEMBER 28, 2007**

**(in thousands, except share and per share data)**

 
| ** **                                                                                                                                                                                                    | ** ** | **June 27,** | ** ** | **December 28,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                                                                                                    |       |              |       |                  |       |
| Current Assets:                                                                                                                                                                                               |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                     |       | $                 | 59,683     |                  | $          | 4,975 |   |
| Short-term investments                                                                                                                                                                                        |       | 3,950             |       | 48,540                |       |
| Accounts receivable - trade (net of  allowance for doubtful accounts of $8,677 and $7,268)                                                                                                                    |       | 167,732           |       | 154,571               |       |
| Inventory                                                                                                                                                                                                     |       | 210,737           |       | 190,974               |       |
| Prepaid expenses and other current assets                                                                                                                                                                     |       | 21,997            |       | 23,664                |       |
| Deferred income taxes                                                                                                                                                                                         |       | 17,702            |       | 15,359                |       |
| Total current assets                                                                                                                                                                                          |       | 481,801           |       | 438,083               |       |
|                                                                                                                                                                                                          |       |              |       |                  |       |
| Property and equipment, net                                                                                                                                                                                   |       | 45,287            |       | 37,131                |       |
| Goodwill                                                                                                                                                                                                      |       | 313,638           |       | 313,462               |       |
| Other intangible assets, net                                                                                                                                                                                  |       | 133,346           |       | 136,734               |       |
| Other assets                                                                                                                                                                                                  |       | 9,851             |       | 11,424                |       |
| Total assets                                                                                                                                                                                                  |       | $                 | 983,923    |                  | $          | 936,834 |   |
|                                                                                                                                                                                                          |       |              |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                 |       |              |       |                  |       |
| Current Liabilities:                                                                                                                                                                                          |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                              |       | $                 | 91,212     |                  | $          | 60,159 |   |
| Accrued expenses and other current  liabilities                                                                                                                                                               |       | 37,767            |       | 42,175                |       |
| Accrued interest                                                                                                                                                                                              |       | 845               |       | 838                   |       |
| Income taxes payable                                                                                                                                                                                          |       | 1,861             |       | 1,173                 |       |
| Current portion of long-term debt                                                                                                                                                                             |       | 2,300             |       | 2,300                 |       |
| Capital lease - current                                                                                                                                                                                       |       | 221               |       | 218                   |       |
| Total current liabilities                                                                                                                                                                                     |       | 134,206           |       | 106,863               |       |
|                                                                                                                                                                                                          |       |              |       |                  |       |
| Long-Term Liabilities:                                                                                                                                                                                        |       |              |       |                  |       |
| Deferred income taxes                                                                                                                                                                                         |       | 34,808            |       | 33,351                |       |
| Long-term debt, net of current portion                                                                                                                                                                        |       | 414,212           |       | 416,290               |       |
| Capital lease - long term                                                                                                                                                                                     |       | 354               |       | 464                   |       |
| Other liabilities                                                                                                                                                                                             |       | 1,045             |       | 2,452                 |       |
| Total liabilities                                                                                                                                                                                             |       | 584,625           |       | 559,420               |       |
| Commitments and contingencies                                                                                                                                                                                 |       |              |       |                  |       |
| Senior preferred stock; $0.01 par value,  20,000,000 shares authorized; no shares outstanding as of June 27, 2008  and December 28, 2007                                                            |       | —            |       | —                |       |
|                                                                                                                                                                                                          |       |              |       |                  |       |
| Shareholders’ Equity:                                                                                                                                                                                    |       |              |       |                  |       |
| Common stock; $0.01 par value, 100,000,000  authorized; 32,470,659 issued and 32,388,966 outstanding as of June 27,  2008 and 32,350,188 issued and 32,308,105 outstanding as of December 28,  2007 |       | 325               |       | 324                   |       |
| Additional paid-in capital                                                                                                                                                                                    |       | 570,827           |       | 567,860               |       |
| Accumulated deficit                                                                                                                                                                                           |       | (171,817          | )          | (191,666              | )          |
| Accumulated other comprehensive income                                                                                                                                                                        |       | 1,598             |       | 1,751                 |       |
| Treasury stock, at cost, 81,693 shares as  of June 27, 2008 and 42,083 shares as of December 28, 2007                                                                                               |       | (1,635            | )          | (855                  | )          |
| Total shareholders’ equity                                                                                                                                                                               |       | 399,298           |       | 377,414               |       |
| Total liabilities and shareholders’ equity                                                                                                                                                               |       | $                 | 983,923    |                  | $          | 936,834 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(UNAUDITED)**

**THREE ANDSIX MONTHS ENDED JUNE 27, 2008 AND JUNE 29, 2007**

**(in thousands, except share and per share data)**

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **June 27,**                | ** ** | **June 29,**              | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
| ** **                                    | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $                                | 311,429    |                           | $          | 313,247 |   | $ | 600,575 |   | $ | 608,650 |   |
| Cost of sales                                 |       | 195,629                          |       | 195,280                        |       | 374,725 |   | 378,389 |   |
| Gross profit                                  |       | 115,800                          |       | 117,967                        |       | 225,850 |   | 230,261 |   |
|                                          |       |                             |       |                           |       |   |   |   |   |
| Operating Expenses:                           |       |                             |       |                           |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 88,585                           |       | 86,935                         |       | 173,598 |   | 172,240 |   |
| Depreciation and amortization                 |       | 4,102                            |       | 3,667                          |       | 7,981 |   | 7,218 |   |
| Total operating expense                       |       | 92,687                           |       | 90,602                         |       | 181,579 |   | 179,458 |   |
| Operating income                              |       | 23,113                           |       | 27,365                         |       | 44,271 |   | 50,803 |   |
|                                          |       |                             |       |                           |       |   |   |   |   |
| Interest expense                              |       | (7,004                           | )          | (8,487                         | )          | (14,746 | ) | (17,047 | ) |
| Interest and other income                     |       | 708                              |       | 743                            |       | 1,403 |   | 1,348 |   |
| Income before income taxes                    |       | 16,817                           |       | 19,621                         |       | 30,928 |   | 35,104 |   |
| Income tax provision                          |       | 5,642                            |       | 7,646                          |       | 11,079 |   | 13,689 |   |
| Net income                                    |       | $                                | 11,175     |                           | $          | 11,975 |   | $ | 19,849 |   | $ | 21,415 |   |
|                                          |       |                             |       |                           |       |   |   |   |   |
| Earnings Per Share:                           |       |                             |       |                           |       |   |   |   |   |
| Basic                                         |       | $                                | 0.35       |                           | $          | 0.37 |   | $ | 0.61 |   | $ | 0.66 |   |
| Diluted                                       |       | $                                | 0.34       |                           | $          | 0.37 |   | $ | 0.61 |   | $ | 0.66 |   |
|                                          |       |                             |       |                           |       |   |   |   |   |
| Weighted-Average Shares Outstanding:          |       |                             |       |                           |       |   |   |   |   |
| Basic                                         |       | 32,369,031                       |       | 32,226,176                     |       | 32,348,109 |   | 32,219,593 |   |
| Diluted                                       |       | 32,657,047                       |       | 32,704,448                     |       | 32,650,806 |   | 32,651,384 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

**SIX MONTHSENDED JUNE 27, 2008 AND JUNE 29, 2007**

**(in thousands)**

**** ****
| ** **                                                                               | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                               | ** ** | **June 27,**              | ** ** | **June 29,** | ** ** |
| ** **                                                                               | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| Cash Flows from Operating Activities:                                                    |       |                           |       |   |   |
| Net income                                                                               |       | $                              | 19,849     |   | $ | 21,415 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:       |       |                           |       |   |   |
| Depreciation and amortization                                                            |       | 8,238                          |       | 7,644 |   |
| Amortization of debt issuance costs                                                      |       | 565                            |       | 541 |   |
| Amortization of discount on 81/8% senior subordinated notes                              |       | 72                             |       | 66 |   |
| Share-based compensation                                                                 |       | 2,353                          |       | 3,193 |   |
| Excess tax benefits from share-based  compensation                                       |       | (147                           | )          | (196 | ) |
| Deferred income taxes                                                                    |       | (1,003                         | )          | (965 | ) |
| Provision for doubtful accounts                                                          |       | 2,255                          |       | 1,753 |   |
| Loss (Gain) on disposal of property and  equipment                                       |       | 19                             |       | (12 | ) |
|                                                                                     |       |                           |       |   |   |
| Changes in assets and liabilities which  provided (used) cash, net of business acquired: |       |                           |       |   |   |
| Accounts receivable - trade                                                              |       | (15,480                        | )          | (25,383 | ) |
| Inventory                                                                                |       | (19,533                        | )          | (3,327 | ) |
| Prepaid expenses and other current assets                                                |       | 1,663                          |       | 2,764 |   |
| Other assets                                                                             |       | 1,573                          |       | (326 | ) |
| Accounts payable                                                                         |       | 31,071                         |       | 27,904 |   |
| Accrued expenses and other current  liabilities                                          |       | (3,758                         | )          | (1,237 | ) |
| Accrued interest                                                                         |       | 7                              |       | (2,790 | ) |
| Income taxes payable                                                                     |       | 832                            |       | 11 |   |
| Other liabilities                                                                        |       | (1,402                         | )          | 55 |   |
| Net cash provided by operating activities                                                |       | 27,174                         |       | 31,110 |   |
|                                                                                          |            |                                |            |  |  |  |  |

 

*(Continued)*

* *

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**** ****

****INTERLINEBRANDS, INC. AND SUBSIDIARIES****

****CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)-Continued****

****SIXMONTHS ENDED JUNE 27, 2008 AND JUNE 29, 2007****

****(inthousands)****

**** ****
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **June 27,**              | ** ** | **June 29,** | ** ** |
| ** **                                                                         | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| Cash Flows from Investing Activities:                                              |       |                           |       |   |   |
| Purchase of property and equipment, net                                            |       | (13,540                        | )          | (7,978 | ) |
| Purchase of short-term investments                                                 |       | (35,531                        | )          | — |   |
| Proceeds from sales and maturities of  short-term investments                      |       | 80,121                         |       | — |   |
| Purchase of businesses, net of cash  acquired                                      |       | (536                           | )          | (3 | ) |
| Net cash provided by (used in) investing  activities                               |       | 30,514                         |       | (7,981 | ) |
| Cash Flows from Financing Activities:                                              |       |                           |       |   |   |
| (Decrease) Increase in purchase card  payable, net                                 |       | (643                           | )          | 4,291 |   |
| Repayment of term debt                                                             |       | (2,150                         | )          | (1,208 | ) |
| Payment of debt issuance costs                                                     |       | —                         |       | (34 | ) |
| Proceeds from stock options exercised                                              |       | 586                            |       | 349 |   |
| Excess tax benefits from share-based  compensation                                 |       | 147                            |       | 196 |   |
| Treasury stock acquired to satisfy minimum  statutory tax withholding requirements |       | (772                           | )          | — |   |
| Payments on capital lease obligations                                              |       | (108                           | )          | (205 | ) |
| Net cash (used in) provided by financing  activities                               |       | (2,940                         | )          | 3,389 |   |
| Effect of exchange rate changes on cash and  cash equivalents                      |       | (40                            | )          | 67 |   |
| Net increase in cash and cash equivalents                                          |       | 54,708                         |       | 26,585 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 4,975                          |       | 6,852 |   |
| Cash and cash equivalents at end of period                                         |       | $                              | 59,683     |   | $ | 33,437 |   |
|                                                                               |       |                           |       |   |   |
| Supplemental Disclosure of Cash Flow  Information:                                 |       |                           |       |   |   |
| Cash paid during the period for:                                                   |       |                           |       |   |   |
| Interest                                                                           |       | $                              | 14,431     |   | $ | 19,562 |   |
| Income taxes, net of refunds                                                       |       | $                              | 12,315     |   | $ | 14,942 |   |
|                                                                               |       |                           |       |   |   |
| Schedule of Non-Cash Investing and Financing  Activities:                          |       |                           |       |   |   |
| Adjustments to liabilities assumed and  goodwill on businesses acquired            |       | $                              | —     |   | $ | 1,298 |   |
|                                                                                    |            |                                |            |  |  |  |  |  |  |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**                                      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

** **

*Business*

* *

Interline Brands, Inc., a Delaware corporation,and its subsidiaries (“Interline” or the “Company”) is a direct marketer andspecialty distributor of maintenance, repair and operations (“MRO”) products.The Company sells plumbing, electrical, hardware, security, heating,ventilation and air conditioning (“HVAC”), janitorial and sanitary supplies andother MRO products. Interline’s highly diverse customer base consists ofmulti-family housing, educational, lodging, government and health carefacilities, professional contractors and specialty distributors.

 

The Company markets and sells its products primarilythrough ten distinct and targeted brands. The Company utilizes a variety ofsales channels, including a direct sales force, telesales representatives, adirect marketing program, brand-specific websites and a national accounts salesprogram. The Company delivers its products through its network of regionaldistribution centers and professional contractor showrooms located throughoutthe United States and Canada, a national distribution center in Nashville,Tennessee, vendor managed inventory locations at large professional contractorcustomer locations and its dedicated fleet of trucks. Through its broaddistribution network, the Company provides same day/next day delivery serviceto 98% of the U.S. population.

 

During December 2004,the Company completed its initial public offering (“IPO”). Immediately prior tothe closing of the IPO, a reincorporation merger occurred and the Companybecame the parent company of its principal operating subsidiary, InterlineBrands, Inc., a New Jersey corporation (“Interline New Jersey”).

 

*Basis ofPresentation*

* *

The accompanying unaudited interim condensedconsolidated financial statements of Interline have been prepared in accordancewith accounting principles generally accepted in the United States of Americaand instructions to the Quarterly Report on Form 10-Q and Article 10of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).Accordingly, certain information and footnote disclosures normally included infinancial statements included in the Company’s Annual Report on Form 10-Khave been condensed or omitted. The accompanying unaudited interim condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and related notes included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 28,2007 filed with the SEC.

 

All adjustments, consisting of normal recurringadjustments, which are, in the opinion of management, necessary for a fairstatement of the results for the interim periods presented have been recorded.The results of operations for the interim periods presented are not necessarilyindicative of the results to be expected for the full year.

 

The preparation of condensed consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the condensed consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Significant estimates include valuation reserves foraccounts receivable, inventory and income taxes, reserves for self-insuranceprograms and valuation of goodwill. Actual results could differ from thoseestimates.

 

*PriorPeriod Correction*

* *

Subsequent to the filing of the interim condensedconsolidated financial statements for the six months ended June 29, 2007,the Company corrected its balance sheet and statement of cash flowspresentation for certain activity under a purchase card agreement. Previously,payments under this agreement made by a third-party intermediary on the Company’sbehalf and outstanding at the end of a reporting period, were classified asaccounts payable in the balance sheet and related cash flows were classified ascash flows from operating activities in the statement of cash flows. TheCompany determined that the appropriate accounting treatment was to presentoutstanding amounts as accrued expenses and other liabilities on its balancesheet and as cash flows from financing activities, net of payments to thethird-party intermediary. As a result, the Company has corrected the condensedconsolidated statement of cash flows

 

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forthe six months ended June 29, 2007 to properly present these activities.The Company does not believe this constitutes a material misstatement to thecondensed consolidated statement of cash flows for the six months ended June 29,2007.

 

The corrections made to the interim condensedconsolidated statement of cash flows for the six months ended June 29,2007 are as follows (in thousands):

 
| ** **                                        | ** ** | **As Reported** | ** ** | **Adjustment** | ** ** | **As Corrected** | ** ** |
|---------------------------------------------------|------------|----------------------|------------|----------------|------------|-----------------------|------------|
| Net change in accounts payable                    |       | $                    | 32,195     |           | $          | (4,291                | )          | $ | 27,904 |   |
| Net cash provided by operating activities         |       | $                    | 35,401     |           | $          | (4,291                | )          | $ | 31,110 |   |
| Increase in purchase card payable, net            |       | $                    | —     |           | $          | 4,291                 |       | $ | 4,291 |   |
| Net cash (used) provided by financing  activities |       | $                    | (902       | )              | $          | 4,291                 |       | $ | 3,389 |   |

 

*SegmentInformation*

* *

In accordance with Financial Accounting StandardsBoard (“FASB”) Statement No. 131, *Disclosure about Segmentsof an Enterprise and Related Information*, the Company has twooperating segments: Interline Brands and AmSan. These segments are aggregatedinto one reportable segment, the distribution of MRO products, because theypossess similar economic characteristics and have common products, customersand methods of distribution. During 2007 and 2008, the Company has and willcontinue to undertake significant integration activities to consolidate AmSan’soperations onto the Company’s information systems platform.

 

Our net sales for the three and six months ended June 27,2008 and June 29, 2007 by product category were as follows (in thousands):

 
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 27,**                | ** ** | **June 29,**              | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
| **Product Category**                 | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Plumbing                                  |       | $                                | 87,511     |                           | $          | 95,854 |   | $ | 177,147 |   | $ | 191,860 |   |
| Janitorial and sanitary                   |       | 75,989                           |       | 72,674                         |       | 145,095 |   | 140,321 |   |
| Heating, ventilation and air conditioning |       | 36,126                           |       | 29,759                         |       | 59,808 |   | 54,300 |   |
| Electrical and lighting                   |       | 28,963                           |       | 25,373                         |       | 57,878 |   | 57,572 |   |
| Appliances and parts                      |       | 18,374                           |       | 18,168                         |       | 33,988 |   | 33,529 |   |
| Security                                  |       | 15,571                           |       | 15,662                         |       | 31,474 |   | 30,728 |   |
| Hardware and tools                        |       | 14,014                           |       | 14,722                         |       | 27,026 |   | 27,720 |   |
| Other                                     |       | 34,881                           |       | 41,035                         |       | 68,159 |   | 72,620 |   |
| Total                                     |       | $                                | 311,429    |                           | $          | 313,247 |   | $ | 600,575 |   | $ | 608,650 |   |

 

*RecentlyAdopted Accounting Standards*

* *

Effective December 29, 2007, the Company adoptedFASB Statement No. 157, *Fair Value Measurements*,(“FAS 157”) as amended by FASB Staff Position No. 157-1, *Application of FASB Statement No. 157 to FASB Statement No. 13and Other Accounting Pronouncements That Address Fair Value Measurements forPurposes of Lease Classification or Measurement under Statement 13*,(“FSP 157-1”) and FASB Staff Position No. 157-2, *EffectiveDate of FASB Statement No. 157*, (“FSP 157-2”). FAS 157 appliesprospectively to all other accounting pronouncements that require or permitfair value measurements. FAS 157 defines fair value as “the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.” FAS 157 alsorequires disclosure about how fair value is determined for assets andliabilities and establishes a hierarchy for which these assets and liabilitiesmust be grouped, based on significant levels of inputs as follows:

 
| **Level 1** | quoted prices in active  markets for identical assets or liabilities;                                                              |
|-------------|------------------------------------------------------------------------------------------------------------------------------------|
| **Level 2** | quoted prices in active  markets for similar assets and liabilities and inputs that are observable for  the asset or liability; or |
| **Level 3** | unobservable inputs,  such as discounted cash flow models or valuations.                                                           |

 

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The determination of where assets and liabilities fallwithin this hierarchy is based upon the lowest level of input that issignificant to the fair value measurement. The following is a listing of theCompany’s assets required to be measured at fair value on a recurring basis andwhere they are classified within the hierarchy as of June 27, 2008 (inthousands):

 
| ** **                 | ** ** | **Significant**    | ** ** | ** **                  | ** ** |
|----------------------------|------------|--------------------|------------|-----------------------------|------------|
| ** **                 | ** ** | **Unobservable**   | ** ** | **Fair Value at** | ** ** |
| ** **                 | ** ** | **Inputs**         | ** ** | **June 27,**           | ** ** |
| ** **                 | ** ** | **(Level 3)** | ** ** | **2008**                    | ** ** |
| Auction rate securities(1) |       | $                  | 3,950      |                        | $          | 3,950 |   |
| Total                      |       | $                  | 3,950      |                        | $          | 3,950 |   |

 

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(1)          The fair valuesof auction rate securities held by the Company have been estimated based onvarious factors, including the strong credit quality of the auction ratesecurities, rate of interest received since failed auctions began, yields ofsecurities similar to the underlying auction rate securities, limited inputfrom the issuers and broker-dealers, and the Company’s ability and intent tohold these securities until an orderly market returns or develops. Thesecurities have been classified within Level 3 as their valuation requiressubstantial judgment and estimation of factors that are not currentlyobservable in the market due to the lack of trading in the securities. Thevaluation may be revised in future periods as market conditions evolve. SeeNote 2. Short-Term Investments.

 

The table below includes a rollforward of the Company’sinvestments in auction rate securities from December 28, 2007 to June 27,2008 and a reclassification of these investments from Level 1 to Level 3 in thevaluation hierarchy (in thousands):

 
| ** **                           | ** ** | **Quoted **   | ** ** | **Significant**    | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                           | ** ** | **Prices in** | ** ** | **Unobservable**   | ** ** |
| ** **                           | ** ** | **Active**         | ** ** | **Inputs**         | ** ** |
| ** **                           | ** ** | **(Level 1)** | ** ** | **(Level 3)** | ** ** |
| Fair value at December 28, 2007 |       | $                  | 48,540     |               | $          | — |   |
| Purchase                             |       | 35,531             |       | —             |       |
| Sales                                |       | (78,071            | )          | (2,050             | )          |
| Transfers (out) in                   |       | (6,000             | )          | 6,000              |       |
| Fair value at June 27, 2008     |       | $                  | —     |               | $          | 3,950 |   |

 

The adoption of FAS 157 did not have any impact on theCompany’s financial position, results of operations and cash flows.

 

FSP 157-1 amends FAS 157 to exclude from the scope ofFAS 157 certain leasing transactions accounted for under FASB Statement No. 13,*Accounting for Leases*. The adoption ofFAS 157 on the Company’s leasing transactions did not have a material impact onthe Company’s financial position, results of operations and cash flows and didnot result in additional disclosures.

 

FSP 157-2 amends FAS 157 to defer the effective dateof FAS 157 for non-financial assets and non-financial liabilities, except foritems that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) until fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscalyears. The Company is currently evaluating the impact the provisions of FAS 157will have on its non-financial assets and non-financial liabilities since theapplication of FAS 157 for such items was deferred.

 

Effective December 29, 2007, the Company adoptedFASB Statement No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115*, (“FAS 159”). FAS 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The objective of FAS 159 is to improve financial reporting by providingentities with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. The adoption of FAS 159 did nothave any impact on the Company’s financial position, results of operations andcash flows since the Company did not elect to apply the fair value option forany of its eligible financial instruments or other items as of the December 29,2007 effective date.

 

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*RecentlyIssued Accounting Pronouncements*

* *

In March 2008, the FASB issued FASB Statement No. 161,*Disclosures about Derivative Instruments andHedging Activities*, (“FAS 161”). FAS 161 is intended to improvefinancial reporting about derivative instruments and hedging activities byrequiring enhanced disclosures to enable investors to better understand theireffects on an entity’s financial position, financial performance, and cashflows. The provisions of FAS 161 are effective for financial statements issuedfor fiscal years and interim period beginning after November 15, 2008 withearly application encouraged. The Company is currently evaluating the impactthe provisions of FAS 161 will have on its financial position, results ofoperations and cash flows.

 

In May 2008, the FASB issued FASB Statement No. 162,*The Hierarchy of Generally Accepted AccountingPrinciples*, (“FAS 162”). FAS 162 is intended to improvefinancial reporting by identifying a consistent framework, or hierarchy, forselecting accounting principles to be used in preparing financial statementsthat are presented in conformity with generally accepted accounting principles(“GAAP”) for nongovernmental entities in the United States. FAS 162 iseffective 60 days following SEC approval of the Public Company AccountingOversight Board amendments to AU Section 411, *The Meaningof Present Fairly in Conformity with Generally Accepted Accounting Principles*.The provisions of FAS 162 will not have any impact on the Company’s financialposition, results of operations and cash flows.

 

**2**.                                      SHORT-TERM INVESTMENTS

 

Short-term investments consist of investments inauction rate securities, which are debt instruments with long-term scheduledmaturities and periodic interest rate reset dates. The interest rates on thesesecurities are typically reset to market prevailing rates every 35 days orless, and in some cases every 7 days or less. Short-term investments arerecorded at fair value based on current market rates and are classified asavailable-for-sale. Changes in the fair value, if any, are included in accumulatedother comprehensive income, net of applicable taxes.

 

Due to the liquidity provided by the interest ratereset mechanism and the short-term nature of the Company’s investment in thesesecurities, they have been classified as current assets. The Company believes,based on discussions with the issuers and related public announcements made bycertain issuers of their intent to refinance the underlying securities, thatthese investment securities are short-term in nature and as such are classifiedas short-term investments.

 

Recent uncertainties in the credit markets haveprevented the Company, and other investors, from liquidating some of itsholdings in auction rate securities. There is no assurance that currentlysuccessful auctions on the other auction rate securities in the Company’sinvestment portfolio will continue to succeed and as a result the Company’sability to liquidate its investment and fully recover the carrying value of itsinvestment in the near term may be limited or not exist. An auction failure meansthat the parties wishing to sell securities could not. All of the Company’sauction rate securities, including those subject to the failure, are currentlyrated AAA, the highest rating, by a rating agency. If the issuers are unable tosuccessfully close future auctions and their credit ratings deteriorate, theCompany may in the future be required to record an impairment charge on theseinvestments. Based upon various observable market data, the Company believes itwill be able to liquidate its investments within the next year, and the Companycurrently believes these securities are not impaired as they are collateralizedby the bonds and credit rating of the underlying issuer and insured againstloss of principal and interest by bond insurers with AAA ratings. However, itcould take until the final maturity of the underlying notes (over 30 years) torealize the Company’s investments’ recorded value. Based on the Company’sexpected operating cash flows, and its other sources of cash, it does notanticipate the potential lack of liquidity on these investments will affect itsability to execute its current business plan.

 

**3.**                                      ACQUISITION ACCRUALS

** **

The following table summarizes the changes to accruals assumed in connection with the Company’s business combinations, which are included in accrued expenses and other current liabilities, (in thousands):

 
| ** **                        | ** ** | **Employee  Severance and  Relocation** | ** ** | **Facility  Closing and  Other Costs** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|-----------|------------|
| Balance at December 28, 2007 |       | $                                            | 268        |                                             | $          | 4,177     |       | $ | 4,445 |   |
| Payments                          |       | (108                                         | )          | (539                                             | )          | (647      | )          |
| Balance at June 27, 2008     |       | $                                            | 160        |                                             | $          | 3,638     |       | $ | 3,798 |   |

 

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**4**.                                      EARNINGS PER SHARE

** **

Earnings per share for all periods has been computedin accordance with FASB Statement No. 128, *Earnings perShare*, (“FAS 128”). Basic earnings per share is computed by dividingnet income by the weighted-average number of shares of common stock outstandingduring the period. Diluted earnings per share is computed by dividing netincome by the weighted-average number of shares of common stock outstandingduring the period as adjusted for the potential dilutive effect of stockoptions and non-vested shares of restricted stock, restricted share units anddeferred stock units using the treasury stock method.

 

The following summarizes the shares of common stockused to calculate earnings per share including the potentially dilutive impactof stock options, restricted stock, restricted share units and deferred stockunits, calculated using the treasury stock method, as included in thecalculation of diluted weighted-average shares:

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                     | ** ** | **June 27,**                | ** ** | **June 29,**              | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
| ** **                                     | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted average shares outstanding - basic    |       | 32,369,031                       |       | 32,226,176                     |       | 32,348,109 |   | 32,219,593 |   |
| Dilutive shares resulting from:                |       |                             |       |                           |       |   |   |   |   |
| Stock options                                  |       | 152,420                          |       | 370,042                        |       | 181,750 |   | 341,106 |   |
| Restricted stock                               |       | 2,869                            |       | 21,794                         |       | 3,568 |   | 24,786 |   |
| Restricted share units                         |       | 102,486                          |       | 84,143                         |       | 89,829 |   | 64,330 |   |
| Deferred stock units                           |       | 30,241                           |       | 2,293                          |       | 27,550 |   | 1,569 |   |
| Weighted average shares outstanding -  diluted |       | 32,657,047                       |       | 32,704,448                     |       | 32,650,806 |   | 32,651,384 |   |

 

During the three months ended June 27, 2008 and June 29,2007, stock options to purchase 1,863,328 shares and 1,150,516 shares of commonstock, respectively, were excluded from the computations of dilutedweighted-average shares outstanding because their effect would beanti-dilutive. During the six months ended June 27, 2008 and June 29,2007, stock options to purchase 1,815,992 shares and 909,591 shares of commonstock, respectively, were excluded from the computations of dilutedweighted-average shares outstanding because their effect would beanti-dilutive.

 

**5.**                                      COMPREHENSIVE INCOME

** **

Comprehensive income refers to revenues, expenses,gains and losses that under accounting principles generally accepted in theUnited States are included in comprehensive income but are excluded from netincome as these amounts are recorded directly as an adjustment to shareholders’equity, net of tax. The components of comprehensive income for the three andsix months ended June 27, 2008 and June 29, 2007 are as follows (inthousands):

 
| ** **                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **June 27,**                | ** ** | **June 29,**              | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
| ** **                                              | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                              |       | $                                | 11,175     |                           | $          | 11,975 |   | $ | 19,849 |   | $ | 21,415 |   |
| Other comprehensive income (loss):                      |       |                             |       |                           |       |   |   |   |   |
| Amortization of unrecognized gain on  employee benefits |       | 3                                |       | (1                             | )          | 6 |   | (78 | ) |
| Foreign currency translation                            |       | 57                               |       | 359                            |       | (159 | ) | 398 |   |
| Total comprehensive income                              |       | $                                | 11,235     |                           | $          | 12,333 |   | $ | 19,696 |   | $ | 21,735 |   |

 

**6.**                                      SHARE-BASED COMPENSATION

** **

During the three months ended June 27, 2008 and June 29,2007, share-based compensation expense was $1.8 million and $1.7 million,respectively. During the six months ended June 27, 2008 and June 29,2007, share-based compensation expense was $2.4 million and $3.2 million,respectively. As of June 27, 2008, there was $7.1 million of total unrecognizedshare-based compensation expense related to unvested share-based equity awards.The expense is expected to be recognized over a weighted-average period of 2.7years.

 

During the three months ended June 27, 2008 and June 29,2007, the Company granted 52,500 and 82,500 stock options, respectively, with aweighted-average grant date fair value of $5.89 and $7.38, respectively. Duringthe six months ended June 27, 2008 and June 29, 2007, the Companygranted 451,274 and 485,346 stock options, respectively, with aweighted-average grant date

 

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fair value of$6.65 and $6.88, respectively. As permitted by FASB Statement No. 123(revised 2004), *Share-Based Compensation*, (“FAS123R”) the fair values of stock options were estimated using the Black-Scholesoption-pricing model. Expected volatility is based on historical performance ofthe Company’s stock. The Company also uses historical data to estimate thetiming and amount of stock option exercises and forfeitures. The expected liferepresents the period of time that stock options are expected to remainoutstanding and is based on the contractual term of the stock options andexpected exercise behavior. The risk-free interest rate is based on U.S.Treasury zero-coupon issues with a remaining term equal to the expected optionlife assumed at the date of grant. The Black-Scholes weighted-averageassumptions were as follows:

 
| ** **               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **June 27,**                | ** ** | **June 29,**              | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Expected volatility      |       | 35.0                             | %          | 26.8                           | %          | 33.6 | % | 27.0 | % |
| Expected dividends       |       | 0.0                              | %          | 0.0                            | %          | 0.0 | % | 0.0 | % |
| Risk-free interest rate  |       | 3.0                              | %          | 4.5                            | %          | 2.9 | % | 4.5 | % |
| Expected life (in years) |       | 5.0                              |       | 5.0                            |       | 5.0 |   | 5.0 |   |

 

Stock options exercised during the three months ended June 27,2008 and June 29, 2007 were 4,950 and 10,902, respectively, with anintrinsic value of less than $0.1 million and $0.1 million, respectively. Stockoptions exercised during the six months ended June 27, 2008 and June 29,2007 were 38,595 and 23,363, respectively, with an intrinsic value of $0.1million and $0.2 million, respectively.

 

A summary status of restricted stock, restricted shareunits and deferred stock units as of June 27, 2008 and changes during theperiod then ended is presented below:

 
| ** **                            | ** ** | **Restricted Stock** | ** ** | **Restricted Share Units** | ** ** | **Deferred Stock Units** | ** ** |
|---------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | ** **                | ** ** | **Weighted-**                        | ** ** | ** **                         | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| ** **                            | ** ** | ** **                | ** ** | **Average**                          | ** ** | ** **                         | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                            | ** ** | ** **                | ** ** | **Grant Date**                  | ** ** | ** **                         | ** ** | **Grant Date** | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                            | ** ** | **Shares**                | ** ** | **Fair Value**                  | ** ** | **Shares**                         | ** ** | **Fair Value** | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding at December 28, 2007 |       | 79,482                    |       | $                                    | 17.73      |                               | 369,252    |   | $ | 22.22 |   | 27,283 |   | $ | 24.10 |   |
| Granted                               |       | —                    |       | —                               |       | 186,759                            |       | 19.63 |   | 11,334 |   | 16.49 |   |
| Vested                                |       | (52,082                   | )          | 15.00                                |       | (81,876                            | )          | 23.32 |   | — |   | — |   |
| Forfeited                             |       | (300                      | )          | 25.04                                |       | (3,776                             | )          | 22.97 |   | — |   | — |   |
| Outstanding at June 27, 2008     |       | 27,100                    |       | $                                    | 22.90      |                               | 470,359    |   | $ | 20.99 |   | 38,617 |   | $ | 21.86 |   |

 

During the six months ended June 27, 2008 and June 29,2007, 52,082 and 54,770 shares of restricted stock vested, respectively. Thetotal fair value of restricted stock vested during the six months ended June 27,2008 and June 29, 2007 was $1.0 million and $1.1 million, respectively.During the six months ended June 27, 2008, 81,876 shares of restrictedshare units vested. The total fair value of restricted share units vestedduring the six months ended June 27, 2008 was $1.6 million. No restrictedshare units vested during the six months ended June 29, 2007.

 

**7.**                                      INCOME TAXES

** **

The Company accounts for uncertainty in income taxesin accordance with FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109*,(“FIN 48”). During the three months ended June 27, 2008, the Companyreduced the liability for unrecognized tax benefits related to certain stateincome tax matters as a result of favorable resolutions in two states.  Of the $2.1 million reduction, $1.5 millionwas related to gross unrecognized tax benefits and $0.3 million and $0.3million was related to interest and penalties, respectively. Of these amounts,$0.8 million reduced the Company’s effective tax rate.

 

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A reconciliation of the gross beginning and endingamounts of unrecognized tax benefits is as follows (in thousands):

 
| Balance at December 28, 2007                     |   | $      | 1,785  |   |
|-------------------------------------------------------|--------|--------|--------|--------|
| Additions for tax positions taken during  prior years |   | 24     |   |
| Settlements with taxing authorities                   |   | (1,508 | )      |
| Balance at June 27, 2008                         |   | $      | 301    |   |

 

**8.**                                      GUARANTOR SUBSIDIARIES

** **

In June 2006, Interline New Jersey (the “SubsidiaryIssuer”) issued $200.0 million of 81/8% senior subordinated notes due 2014 and entered intoa $330.0 million bank credit facility. The 81/8% senior subordinated notes and the bank creditfacility are fully and unconditionally guaranteed, jointly and severally, on asenior subordinated basis by the Company (the “Parent Company”) and all ofInterline New Jersey’s 100% owned domestic subsidiaries: Wilmar Holdings, Inc.,Wilmar Financial, Inc., Glenwood Acquisition LLC and AmSan LLC(collectively the “Guarantor Subsidiaries”). The guarantees by the ParentCompany and the Guarantor Subsidiaries are senior to any of their existing andfuture subordinated obligations, equal in right of payment with any of theirexisting and future senior subordinated indebtedness and subordinated to any oftheir existing and future senior indebtedness.

 

The Company is a holding company whose only asset isthe stock of its subsidiaries. The Company conducts virtually all of itsbusiness operations through Interline New Jersey. Accordingly, the Company’sonly material sources of cash are dividends and distributions with respect toits ownership interests in Interline New Jersey that are derived from theearnings and cash flow generated by Interline New Jersey. Through June 27,2008, no dividends have been paid.

 

The following tables set forth, on a condensed consolidatingbasis, the balance sheets, statements of operations and statements of cashflows for the Parent Company, Subsidiary Issuer and Guarantor Subsidiaries forall financial statement periods presented in the Company’s consolidatedfinancial statements. The non-guarantor subsidiaries are minor and are includedin the condensed financial data of the Subsidiary Issuer. The Subsidiary Issuerdoes not allocate integration expenses, corporate overhead or other expensesfor shared services to the Guarantor Subsidiaries; therefore, the followingtables do not reflect any such allocation.

 

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**CONDENSED CONSOLIDATING BALANCE SHEET(UNAUDITED)**

**AS OF JUNE 27, 2008**

**(in thousands)**

 
| ** **                                      | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                      | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                      |       |        |       |           |       |             |       |              |       |             |       |
| Current Assets:                                 |       |        |       |           |       |             |       |              |       |             |       |
| Cash and cash equivalents                       |       | $           | —     |           | $          | 60,694           |       | $                 | 36         |             | $          | (1,047 | ) | $ | 59,683 |   |
| Short-term investments                          |       | —      |       | 3,950          |       | —           |       | —            |       | 3,950            |       |
| Accounts receivable - trade                     |       | —      |       | 137,235        |       | 30,497           |       | —            |       | 167,732          |       |
| Inventory                                       |       | —      |       | 188,830        |       | 21,907           |       | —            |       | 210,737          |       |
| Intercompany receivable                         |       | —      |       | —         |       | 117,849          |       | (117,849          | )          | —           |       |
| Other current assets                            |       | —      |       | 36,803         |       | 2,896            |       | —            |       | 39,699           |       |
| Total current assets                            |       | —      |       | 427,512        |       | 173,185          |       | (118,896          | )          | 481,801          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Property and equipment, net                     |       | —      |       | 42,158         |       | 3,129            |       | —            |       | 45,287           |       |
| Goodwill                                        |       | —      |       | 247,374        |       | 66,264           |       | —            |       | 313,638          |       |
| Other intangible assets, net                    |       | —      |       | 92,771         |       | 40,575           |       | —            |       | 133,346          |       |
| Investment in subsidiaries                      |       | 399,298     |       | 271,304        |       | —           |       | (670,602          | )          | —           |       |
| Other assets                                    |       | —      |       | 1,834          |       | 8,017            |       | —            |       | 9,851            |       |
| Total assets                                    |       | $           | 399,298    |           | $          | 1,082,953        |       | $                 | 291,170    |             | $          | (789,498 | ) | $ | 983,923 |   |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   |       |        |       |           |       |             |       |              |       |             |       |
| Current Liabilities:                            |       |        |       |           |       |             |       |              |       |             |       |
| Accounts payable                                |       | $           | —     |           | $          | 81,681           |       | $                 | 10,578     |             | $          | (1,047 | ) | $ | 91,212 |   |
| Accrued expenses and other current  liabilities |       | —      |       | 34,261         |       | 6,212            |       | —            |       | 40,473           |       |
| Intercompany payable                            |       | —      |       | 117,849        |       | —           |       | (117,849          | )          | —           |       |
| Debt and capital lease - short-term             |       | —      |       | 2,515          |       | 6                |       | —            |       | 2,521            |       |
| Total current liabilities                       |       | —      |       | 236,306        |       | 16,796           |       | (118,896          | )          | 134,206          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Long-Term Liabilities:                          |       |        |       |           |       |             |       |              |       |             |       |
| Term debt and capital lease - long-term         |       | —      |       | 412,280        |       | 2,286            |       | —            |       | 414,566          |       |
| Other liabilities                               |       | —      |       | 35,069         |       | 784              |       | —            |       | 35,853           |       |
| Total liabilities                               |       | —      |       | 683,655        |       | 19,866           |       | (118,896          | )          | 584,625          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Senior preferred stock                          |       | —      |       | 616,451        |       | —           |       | (616,451          | )          | —           |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Shareholders’ equity (deficit)             |       | 399,298     |       | (217,153       | )          | 271,304          |       | (54,151           | )          | 399,298          |       |
| Total liabilities and shareholders’ equity |       | $           | 399,298    |           | $          | 1,082,953        |       | $                 | 291,170    |             | $          | (789,498 | ) | $ | 983,923 |   |

 

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**CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)**

**AS OF DECEMBER 28, 2007**

**(in thousands)**

 
| ** **                                      | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                      | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                      |       |        |       |           |       |             |       |              |       |             |       |
| Current Assets:                                 |       |        |       |           |       |             |       |              |       |             |       |
| Cash and cash equivalents                       |       | $           | —     |           | $          | 7,564            |       | $                 | 18         |             | $          | (2,607 | ) | $ | 4,975 |   |
| Short-term investments                          |       | —      |       | 48,540         |       | —           |       | —            |       | 48,540           |       |
| Accounts receivable - trade                     |       | —      |       | 127,482        |       | 27,089           |       | —            |       | 154,571          |       |
| Inventory                                       |       | —      |       | 172,431        |       | 18,543           |       | —            |       | 190,974          |       |
| Intercompany receivable                         |       | —      |       | —         |       | 113,867          |       | (113,867          | )          | —           |       |
| Other current assets                            |       | —      |       | 34,612         |       | 4,411            |       | —            |       | 39,023           |       |
| Total current assets                            |       | —      |       | 390,629        |       | 163,928          |       | (116,474          | )          | 438,083          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Property and equipment, net                     |       | —      |       | 34,188         |       | 2,943            |       | —            |       | 37,131           |       |
| Goodwill                                        |       | —      |       | 247,198        |       | 66,264           |       | —            |       | 313,462          |       |
| Other intangible assets, net                    |       | —      |       | 95,403         |       | 41,331           |       | —            |       | 136,734          |       |
| Investment in subsidiaries                      |       | 377,414     |       | 260,200        |       | —           |       | (637,614          | )          | —           |       |
| Other assets                                    |       | —      |       | 1,710          |       | 9,714            |       | —            |       | 11,424           |       |
| Total assets                                    |       | $           | 377,414    |           | $          | 1,029,328        |       | $                 | 284,180    |             | $          | (754,088 | ) | $ | 936,834 |   |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   |       |        |       |           |       |             |       |              |       |             |       |
| Current Liabilities:                            |       |        |       |           |       |             |       |              |       |             |       |
| Accounts payable                                |       | $           | —     |           | $          | 49,770           |       | $                 | 12,996     |             | $          | (2,607 | ) | $ | 60,159 |   |
| Accrued expenses and other current  liabilities |       | —      |       | 37,281         |       | 6,905            |       | —            |       | 44,186           |       |
| Intercompany payable                            |       | —      |       | 113,867        |       | —           |       | (113,867          | )          | —           |       |
| Debt and capital lease - short-term             |       | —      |       | 2,508          |       | 10               |       | —            |       | 2,518            |       |
| Total current liabilities                       |       | —      |       | 203,426        |       | 19,911           |       | (116,474          | )          | 106,863          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Long-Term Liabilities:                          |       |        |       |           |       |             |       |              |       |             |       |
| Term debt and capital lease - long-term         |       | —      |       | 413,465        |       | 3,289            |       | —            |       | 416,754          |       |
| Other liabilities                               |       | —      |       | 35,023         |       | 780              |       | —            |       | 35,803           |       |
| Total liabilities                               |       | —      |       | 651,914        |       | 23,980           |       | (116,474          | )          | 559,420          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Senior preferred stock                          |       | —      |       | 575,571        |       | —           |       | (575,571          | )          | —           |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Shareholders’ equity (deficit)             |       | 377,414     |       | (198,157       | )          | 260,200          |       | (62,043           | )          | 377,414          |       |
| Total liabilities and shareholders’ equity |       | $           | 377,414    |           | $          | 1,029,328        |       | $                 | 284,180    |             | $          | (754,088 | ) | $ | 936,834 |   |

 

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**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(UNAUDITED)**

**FOR THE THREE MONTHS ENDED JUNE 27, 2008**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 240,320             |       | $                 | 71,109     |             | $          | — |   | $ | 311,429 |   |
| Cost of sales                                          |       | —      |       | 150,685        |       | 44,944              |       | —            |       | 195,629          |       |
| Gross profit                                           |       | —      |       | 89,635         |       | 26,165              |       | —            |       | 115,800          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 73,969         |       | 14,616              |       | —            |       | 88,585           |       |
| Depreciation and amortization                          |       | —      |       | 3,437          |       | 665                 |       | —            |       | 4,102            |       |
| Equity earnings of subsidiaries                        |       | (16,817     | )          | (3,600         | )          | —              |       | 20,417            |       | —           |       |
| Total operating expense                                |       | (16,817     | )          | 73,806         |       | 15,281              |       | 20,417            |       | 92,687           |       |
| Operating income                                       |       | 16,817      |       | 15,829         |       | 10,884              |       | (20,417           | )          | 23,113           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (5,150         | )          | (799                | )          | (347              | )          | (6,296           | )          |
| Income before income taxes                             |       | 16,817      |       | 10,679         |       | 10,085              |       | (20,764           | )          | 16,817           |       |
| Income tax provision                                   |       | 5,642       |       | 1,781          |       | 3,861               |       | (5,642            | )          | 5,642            |       |
| Net income                                             |       | 11,175      |       | 8,898          |       | 6,224               |       | (15,122           | )          | 11,175           |       |
| Preferred stock dividends                              |       | —      |       | (20,791        | )          | —              |       | 20,791            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 11,175     |           | $          | (11,893             | )          | $                 | 6,224      |             | $          | 5,669 |   | $ | 11,175 |   |

 

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(1)               The Subsidiary Issuer doesnot allocate integration expenses, corporate overhead or other expenses forshared services to the Guarantor Subsidiaries; therefore, the results for theGuarantor Subsidiaries do not reflect any such allocation.

 

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**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(UNAUDITED)**

**FOR THE THREE MONTHS ENDED JUNE 29, 2007**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 245,189             |       | $                 | 68,058     |             | $          | — |   | $ | 313,247 |   |
| Cost of sales                                          |       | —      |       | 152,694        |       | 42,586              |       | —            |       | 195,280          |       |
| Gross profit                                           |       | —      |       | 92,495         |       | 25,472              |       | —            |       | 117,967          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 72,359         |       | 14,576              |       | —            |       | 86,935           |       |
| Depreciation and amortization                          |       | —      |       | 2,998          |       | 669                 |       | —            |       | 3,667            |       |
| Equity earnings of subsidiaries                        |       | (19,621     | )          | (4,442         | )          | —              |       | 24,063            |       | —           |       |
| Total operating expense                                |       | (19,621     | )          | 70,915         |       | 15,245              |       | 24,063            |       | 90,602           |       |
| Operating income                                       |       | 19,621      |       | 21,580         |       | 10,227              |       | (24,063           | )          | 27,365           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (10,855        | )          | 3,260               |       | (149              | )          | (7,744           | )          |
| Income before income taxes                             |       | 19,621      |       | 10,725         |       | 13,487              |       | (24,212           | )          | 19,621           |       |
| Income tax provision                                   |       | 7,646       |       | 3,443          |       | 4,203               |       | (7,646            | )          | 7,646            |       |
| Net income                                             |       | 11,975      |       | 7,282          |       | 9,284               |       | (16,566           | )          | 11,975           |       |
| Preferred stock dividends                              |       | —      |       | (18,125        | )          | —              |       | 18,125            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 11,975     |           | $          | (10,843             | )          | $                 | 9,284      |             | $          | 1,559 |   | $ | 11,975 |   |

 

----

(1)               The Subsidiary Issuer doesnot allocate integration expenses, corporate overhead or other expenses forshared services to the Guarantor Subsidiaries; therefore, the results for theGuarantor Subsidiaries do not reflect any such allocation.

 

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**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(UNAUDITED)**

**FOR THE SIX MONTHS ENDED JUNE 27, 2008**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 464,896             |       | $                 | 135,679    |             | $          | — |   | $ | 600,575 |   |
| Cost of sales                                          |       | —      |       | 289,854        |       | 84,871              |       | —            |       | 374,725          |       |
| Gross profit                                           |       | —      |       | 175,042        |       | 50,808              |       | —            |       | 225,850          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 144,613        |       | 28,985              |       | —            |       | 173,598          |       |
| Depreciation and amortization                          |       | —      |       | 6,653          |       | 1,328               |       | —            |       | 7,981            |       |
| Equity earnings of subsidiaries                        |       | (30,928     | )          | (8,960         | )          | —              |       | 39,888            |       | —           |       |
| Total operating expense                                |       | (30,928     | )          | 142,306        |       | 30,313              |       | 39,888            |       | 181,579          |       |
| Operating income                                       |       | 30,928      |       | 32,736         |       | 20,495              |       | (39,888           | )          | 44,271           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (11,010        | )          | (1,703              | )          | (630              | )          | (13,343          | )          |
| Income before income taxes                             |       | 30,928      |       | 21,726         |       | 18,792              |       | (40,518           | )          | 30,928           |       |
| Income tax provision                                   |       | 11,079      |       | 4,154          |       | 6,925               |       | (11,079           | )          | 11,079           |       |
| Net income                                             |       | 19,849      |       | 17,572         |       | 11,867              |       | (29,439           | )          | 19,849           |       |
| Preferred stock dividends                              |       | —      |       | (40,881        | )          | —              |       | 40,881            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 19,849     |           | $          | (23,309             | )          | $                 | 11,867     |             | $          | 11,442 |   | $ | 19,849 |   |

 

----

(1)               The Subsidiary Issuer doesnot allocate integration expenses, corporate overhead or other expenses forshared services to the Guarantor Subsidiaries; therefore, the results for theGuarantor Subsidiaries do not reflect any such allocation.

 

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**CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS (UNAUDITED)**

**FOR THE SIX MONTHS ENDED JUNE 29, 2007**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 477,045             |       | $                 | 131,605    |             | $          | — |   | $ | 608,650 |   |
| Cost of sales                                          |       | —      |       | 297,068        |       | 81,321              |       | —            |       | 378,389          |       |
| Gross profit                                           |       | —      |       | 179,977        |       | 50,284              |       | —            |       | 230,261          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 143,138        |       | 29,102              |       | —            |       | 172,240          |       |
| Depreciation and amortization                          |       | —      |       | 5,882          |       | 1,336               |       | —            |       | 7,218            |       |
| Equity earnings of subsidiaries                        |       | (35,104     | )          | (9,430         | )          | —              |       | 44,534            |       | —           |       |
| Total operating expense                                |       | (35,104     | )          | 139,590        |       | 30,438              |       | 44,534            |       | 179,458          |       |
| Operating income                                       |       | 35,104      |       | 40,387         |       | 19,846              |       | (44,534           | )          | 50,803           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (21,627        | )          | 6,296               |       | (368              | )          | (15,699          | )          |
| Income before income taxes                             |       | 35,104      |       | 18,760         |       | 26,142              |       | (44,902           | )          | 35,104           |       |
| Income tax provision                                   |       | 13,689      |       | 6,471          |       | 7,218               |       | (13,689           | )          | 13,689           |       |
| Net income                                             |       | 21,415      |       | 12,289         |       | 18,924              |       | (31,213           | )          | 21,415           |       |
| Preferred stock dividends                              |       | —      |       | (35,638        | )          | —              |       | 35,638            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 21,415     |           | $          | (23,349             | )          | $                 | 18,924     |             | $          | 4,425 |   | $ | 21,415 |   |

 

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| (1) |   | The Subsidiary Issuer does not allocate  integration expenses, corporate overhead or other expenses for shared  services to the Guarantor Subsidiaries; therefore, the results for the  Guarantor Subsidiaries do not reflect any such allocation. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW(UNAUDITED)**

**FOR THE SIX MONTHS ENDED JUNE 27, 2008**

**(in thousands)**

 
| ** **                                                    | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating  activities          |       | $           | —     |           | $          | 35,598           |       | $                 | (9,984     | )                | $          | 1,560 |   | $ | 27,174 |   |
| Cash Flows from Investing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Purchase of property and equipment, net                       |       | —      |       | (12,782        | )          | (758             | )          | —            |       | (13,540          | )          |
| Purchase of short-term investments                            |       | —      |       | (35,531        | )          | —           |       | —            |       | (35,531          | )          |
| Proceeds from sales and maturities of  short-term investments |       | —      |       | 80,121         |       | —           |       | —            |       | 80,121           |       |
| Purchase of businesses, net of cash  acquired                 |       | —      |       | (528           | )          | (8               | )          | —            |       | (536             | )          |
| Other                                                         |       | —      |       | (10,775        | )          | —           |       | 10,775            |       | —           |       |
| Net cash provided by (used in) investing  activities          |       | —      |       | 20,505         |       | (766             | )          | 10,775            |       | 30,514           |       |
| Cash Flows from Financing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Decrease in purchase card payable, net                        |       | —      |       | (643           | )          | —           |       | —            |       | (643             | )          |
| Repayment of debt and capital lease  obligations              |       | —      |       | (2,251         | )          | (7               | )          | —            |       | (2,258           | )          |
| Other                                                         |       | —      |       | (39            | )          | 10,775           |       | (10,775           | )          | (39              | )          |
| Net cash (used in) provided by financing  activities          |       | —      |       | (2,933         | )          | 10,768           |       | (10,775           | )          | (2,940           | )          |
| Effect of exchange rate changes on cash and  cash equivalents |       | —      |       | (40            | )          | —           |       | —            |       | (40              | )          |
| Net increase in cash and cash equivalents                     |       | —      |       | 53,130         |       | 18               |       | 1,560             |       | 54,708           |       |
| Cash and cash equivalents at beginning of  period             |       | —      |       | 7,564          |       | 18               |       | (2,607            | )          | 4,975            |       |
| Cash and cash equivalents at end of period                    |       | $           | —     |           | $          | 60,694           |       | $                 | 36         |             | $          | (1,047 | ) | $ | 59,683 |   |

 

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**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW(UNAUDITED)**

**FOR THE SIX MONTHS ENDED JUNE 29, 2007**

**(in thousands)**

 
| ** **                                                    | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net cash provided by operating activities                     |       | $           | —     |           | $          | 28,201           |       | $                 | 2,007      |             | $          | 902 |   | $ | 31,110 |   |
| Cash Flows from Investing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Purchase of property and equipment, net                       |       | —      |       | (7,295         | )          | (683             | )          | —            |       | (7,978           | )          |
| Purchase of businesses, net of cash  acquired                 |       | —      |       | 1,261          |       | 209              |       | (1,473            | )          | (3               | )          |
| Net cash used in investing activities                         |       | —      |       | (6,034         | )          | (474             | )          | (1,473            | )          | (7,981           | )          |
| Cash Flows from Financing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Increase in purchase card payable, net                        |       | —      |       | 4,291          |       | —           |       | —            |       | 4,291            |       |
| Repayment of debt and capital lease  obligations              |       | —      |       | (1,349         | )          | (64              | )          | —            |       | (1,413           | )          |
| Other                                                         |       | —      |       | 511            |       | (1,473           | )          | 1,473             |       | 511              |       |
| Net cash provided by (used in) financing  activities          |       | —      |       | 3,453          |       | (1,537           | )          | 1,473             |       | 3,389            |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —      |       | 67             |       | —           |       | —            |       | 67               |       |
| Net increase in cash and cash equivalents                     |       | —      |       | 25,687         |       | (4               | )          | 902               |       | 26,585           |       |
| Cash and cash equivalents at beginning of  period             |       | —      |       | 8,783          |       | 15               |       | (1,946            | )          | 6,852            |       |
| Cash and cash equivalents at end of period                    |       | $           | —     |           | $          | 34,470           |       | $                 | 11         |             | $          | (1,044 | ) | $ | 33,437 |   |

 

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**ITEM 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*References to “us” and “we” are to the Company. Youshould read the following discussion in conjunction with our unauditedcondensed consolidated financial statements and related notes included in thisquarterly report, and our audited consolidated financial statements and relatednotes and Management’s Discussion and Analysis of Financial Condition andResults of Operations included in our Annual Report on Form 10-K filedwith the Securities and Exchange Commission (“SEC”).*

 

**Forward-LookingStatements**

 

This report contains forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934 (the “Exchange Act”) that are subject torisks and uncertainties. You should not place undue reliance on thosestatements because they are subject to numerous uncertainties and factorsrelating to our operations and business environment, all of which are difficultto predict and many of which are beyond our control. Forward-looking statementsinclude information concerning our possible or assumed future results ofoperations, including descriptions of our business strategy. These statementsoften include words such as “may,” “believe,” “expect,” “anticipate,” “intend,”“plan,” “estimate” or similar expressions. These statements are based onassumptions that we have made in light of our experience in the industry aswell as our perceptions of historical trends, current conditions, expectedfuture developments and other factors we believe are appropriate under thecircumstances. As you read and consider this report, you should understand thatthese statements are not guarantees of performance or results. They involverisks, uncertainties and assumptions. Although we believe that theseforward-looking statements are based on reasonable assumptions, you should beaware that many factors could affect our actual financial results or results ofoperations and could cause actual results to differ materially from those inthe forward-looking statements. These factors include:

 

·                  economic slowdowns,

·                  general market conditions,

·                  product cost and price fluctuations due tomarket conditions,

·                  consumer spending and debt levels,

·                  adverse changes in trends in the homeimprovement and remodeling and home building markets,

·                  the highly competitive nature of themaintenance, repair and operations distribution industry,

·                  material facilities and systems disruptionsand shutdowns,

·                  failure to realize expected benefits fromacquisitions,

·                  our ability to purchase products fromsuppliers on favorable terms,

·                  the length of our supply chains,

·                  work stoppages or other businessinterruptions at transportation centers or shipping ports,

·                  fluctuations in the cost of commodity-basedproducts, raw materials and fuel prices,

·                  currency exchange rates,

·                  the loss of significant customers,

·                  our ability to accurately predict markettrends,

·                  failure to locate, acquire and successfullyintegrate acquisition candidates,

·                  dependence on key employees,

·                  our inability to protect trademarks,

·                  adverse publicity and litigation,

·                  our level of debt,

·                  interest rate fluctuations,

·                  future cash flows,

·                  changes in consumer preferences,

·                  labor and benefit costs,

·                  weather conditions, and

·                  the other factors described under “Part I.Item 1A—Risk Factors” in our Annual Report on Form 10-K filed with theSEC.

 

Youshould keep in mind that any forward-looking statement made by us in thisreport, or elsewhere, speaks only as of the date on which we make it. New risksand uncertainties arise from time to time, and it is impossible for us topredict these events or how they may affect us. In light of these risks anduncertainties, you should keep in mind that any forward-looking statement madein this report or elsewhere might not occur. Notwithstanding the foregoing, allinformation contained in this report is materially accurate as of the date ofthis report.

 

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**Overview**

 

Wearealeadingnationaldistributoranddirectmarketerofmaintenance,repairandoperations(“MRO”)products.Westockover90,000plumbing,electrical,hardware,security,heating,ventilationandairconditioning(“HVAC”),janitorialandsanitaryandotherMROproductsandselltoadiversifiedcustomerbasemadeupofprofessionalcontractors,facilitiesmaintenanceprofessionalsandspecialtydistributors.Ourproductsareprimarilyusedfortherepair,maintenance,remodelingandrefurbishmentofpropertiesandnon-industrialfacilities.Weareabletorealizehighoperatingmarginsbyfocusingonrepair,maintenance,remodelingandrefurbishmentcustomers,whogenerallymakesmaller,morefrequentpurchasesandrequirehighlevelsofservice.Ourdiversecustomerbaseincludesfacilitiesmaintenancecustomers,whichconsistofmulti-familyhousingfacilities,educationalinstitutions,lodgingandhealthcarefacilities,governmentpropertiesandbuildingservicecontractors;professionalcontractorswhoareprimarilyinvolvedintherepair,remodelingandconstructionofresidentialandnon-industrialfacilities;andspecialtydistributors,includingplumbingandhardwareretailers.Ourcustomersrangeinsizefromindividualcontractorsandindependenthardwarestorestoapartmentmanagementcompaniesandnationalpurchasinggroups.

 

Wemarket and sell our products primarily through ten distinct and targetedbrands, each of which is nationally recognized in the markets we serve forproviding premium products at competitive prices with reliable same-day and/ornext-day delivery. Our Wilmar, Sexauer, Maintenance USA and AmSan brandsgenerally serve our facilities maintenance customers; our Barnett, U.S. Lock,Sun Star and Copperfield brands generally serve our professional contractorcustomers; and our Hardware Express and AF Lighting brands generally serve ourspecialty distributors customers. Our multi-brand operating model, which webelieve is unique in the industry, allows us to use a single platform todeliver tailored products and services to meet the individual needs of eachrespective customer group served. We reach our markets using a variety of saleschannels, including a sales force of over 650 field sales representatives andover 450 telesales and customer service representatives, a direct marketingprogram of approximately five million pieces annually, brand-specific websitesand a national accounts sales program. We deliver our products through ournetwork of 73 regional distribution centers, 41 professional contractorshowrooms located throughout the United States and Canada, a nationaldistribution center, or NDC, in Nashville, Tennessee, 22 vendor-managedinventory locations at large customer locations and a dedicated fleet oftrucks. Our broad distribution network allows us the ability to providereliable, same-day and/or next-day delivery service to 98% of the U.S.population.

 

Ourinformation technology and logistics platform supports our major businessfunctions, allowing us to market and sell our products at varying price pointsdepending on the customer’s service requirements. While we market our productsunder a variety of branded catalogs, generally our brands draw from the sameinventory within common distribution centers and share associated employee andtransportation costs. In addition, we have centralized marketing, purchasingand catalog production operations to support our brands. We believe that ourinformation technology and logistics platform also benefits our customers byallowing us to offer a broad product selection at highly competitive priceswhile maintaining the unique customer appeal of each of our targeted brands.Overall, our common operating platform has enabled us to improve customerservice, maintain lower operating costs, efficiently manage working capital andsupport our growth initiatives.

 

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**Resultsof Operations**

 

Thefollowing table presents information derived from the condensed consolidatedstatements of earnings expressed as a percentage of revenues for the three andsix months ended June 27, 2008 and June 29, 2007:

 
| ** **                                    | ** ** | **% of Net Sales** | ** ** | **% Increase** | ** ** | **% of Net Sales** | ** ** | **% Increase** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|---------------------|------------|-----------------------------------|------------|---------------------|------------|
| ** **                                    | ** ** | **Three Months Ended**  | ** ** | **(Decrease)**      | ** ** | **Six Months Ended**    | ** ** | **(Decrease)**      | ** ** |
| ** **                                    | ** ** | **June 27,**                 | ** ** | **June 29,**   | ** ** | **2008**                          | ** ** | **June 27,**   | ** ** | **June 29,** | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **2008**                          | ** ** | **2007**            | ** ** | **vs. 2007 (1)**        | ** ** | **2008**            | ** ** | **2007** | ** ** | **vs. 2007 (1)** | ** ** |
|                                          |       |                              |       |                |       |                              |       |                |       |   |   |   |   |
| Net sales                                     |       | 100.0                             | %          | 100.0               | %          | (0.6                              | )%         | 100.0               | %          | 100.0 | % | (1.3 | )% |
| Cost of sales                                 |       | 62.8                              |       | 62.3                |       | 0.2                               |       | 62.4                |       | 62.2 |   | (1.0 | ) |
| Gross profit                                  |       | 37.2                              |       | 37.7                |       | (1.8                              | )          | 37.6                |       | 37.8 |   | (1.9 | ) |
|                                          |       |                              |       |                |       |                              |       |                |       |   |   |   |   |
| Operating Expenses:                           |       |                              |       |                |       |                              |       |                |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 28.4                              |       | 27.8                |       | 1.9                               |       | 28.9                |       | 28.3 |   | 0.8 |   |
| Depreciation and amortization                 |       | 1.3                               |       | 1.2                 |       | 11.9                              |       | 1.3                 |       | 1.2 |   | 10.6 |   |
| Total operating expense                       |       | 29.8                              |       | 28.9                |       | 2.3                               |       | 30.2                |       | 29.5 |   | 1.2 |   |
| Operating income                              |       | 7.4                               |       | 8.7                 |       | (15.5                             | )          | 7.4                 |       | 8.3 |   | (12.9 | ) |
|                                          |       |                              |       |                |       |                              |       |                |       |   |   |   |   |
| Interest expense                              |       | (2.2                              | )          | (2.7                | )          | (17.5                             | )          | (2.5                | )          | (2.8 | ) | (13.5 | ) |
| Interest income and other income              |       | 0.2                               |       | 0.2                 |       | (4.7                              | )          | 0.2                 |       | 0.2 |   | 4.1 |   |
| Income before income taxes                    |       | 5.4                               |       | 6.3                 |       | (14.3                             | )          | 5.1                 |       | 5.8 |   | (11.9 | ) |
| Income tax provision                          |       | (1.8                              | )          | (2.4                | )          | (26.2                             | )          | (1.8                | )          | (2.2 | ) | (19.1 | ) |
| Net income                                    |       | 3.6                               | %          | 3.8                 | %          | (6.7                              | )%         | 3.3                 | %          | 3.5 | % | (7.3 | )% |

 

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(1)          Percent increase (decrease) represents the actual change as apercent of the prior year’s result.

 

*Overview.*During the three months ended June 27,2008, our sales declined 0.6%. We believe that this decline is associated withthe net impact of slower economic conditions in the general housing marketoffset in part by demand in the facilities maintenance end-markets,specifically our multi-family housing customers. Demand from customers in ourfacilities maintenance end-markets, which make up 70% of our total sales andincludes residential multi-family housing and institutional MRO customers, grew2.5% during the second quarter of 2008 compared to the second quarter of 2007.This sales growth was offset by a continued slow down in demand from ourprofessional contractor and specialty distributor customers. Sales to thesecustomers, which represent 19% and 11% of our total sales, respectively,declined 8.7% and 4.5%, respectively. Demand from these customers was impactedby a combination of national declines in residential new construction activityand renovations activity. Net income as a percentage of sales was 3.6% in thesecond quarter compared to 3.8% in the comparable prior year period. Thisdecline in net income is associated with lower gross margins resulting fromchanges in product mix sales, costs related to our Auburn, Massachusetts, SaltLake City, Utah, and Richmond, Virginia, distribution center consolidations andinvestments, as well as costs associated with a previously announcedexecutive’s transition. These higher costs were offset in part by lowerinterest expense associated with a lower interest rate environment and lowerincome tax expense resulting from favorable tax settlements of uncertain taxpositions due to the settlement with two states. We have taken recent steps tolower our operating costs in the near term while continuing to invest in ouroperating platform for the long term. Our plans include headcount reductions and the closing of underperformingprofessional contractor showrooms as well as the continuation of distributioncenter consolidations and investments in information technology solutions tooptimize our customer service as well as our credit and collectionscapabilities.

 

*Three Months Ended June 27, 2008 Compared to ThreeMonths Ended June 29, 2007*

 

*Net Sales.*Our net sales decreased by $1.8 million,or 0.6%, to $311.4 million in the three months ended June 27, 2008from $313.2 million in the three months ended June 29, 2007. Thedecline in sales resulted from the net impact of a 2.5% increase in sales toour facilities maintenance customers offset by a decline in sales to ourprofessional contractor and specialty distributor customers of 8.7% and 4.5%,respectively. We expect sales to our professional contractor and specialtydistributor end-markets to remain weak during the remainder of 2008 as thehousing market continues to be challenged.

 

*Gross Profit.*Gross profit decreased by $2.2 million, or 1.8%, to$115.8 million in the three months ended June 27, 2008 from$118.0 million in the three months ended June 29, 2007 as a directresult of the decrease in sales as well as the deterioration of gross profitmargin during the period. Our gross profit margin decreased 50 basis points to37.2% for the three months ended June 27, 2008 compared to 37.7% for thethree months ended June 28, 2007. The decrease in gross margin isprimarily due to an increase in 

 

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salesof lower margin products, such as HVAC products. 

 

*Selling, General and Administrative Expenses.*SG&Aexpenses increased by $1.7 million, or 1.9% to $88.6 million in the threemonths ended June 27, 2008 from $86.9 million in the three months ended June 29,2007. As a percent of sales, SG&A increased 60 basis points to 28.4% forthe three months ended June 27, 2008 compared to 27.8% for the threemonths ended June 29, 2007. The increase in SG&A expenses is primarilydue to project expenses associated with the consolidation of distributionoperations in Auburn, Massachusetts, and Richmond, Virginia, as well asinvestment in a west coast national distribution center in Salt Lake City,Utah, and costs associated with a previously announced executive’s transition.

 

*Depreciation and Amortization.*Depreciation and amortizationexpense increased by $0.4 million to $4.1 million in the three monthsended June 27, 2008 from $3.7 million in the three months ended June 29,2007. As a percentage of sales, depreciation and amortization was 1.3% or 10basis points higher than the 1.2% in the comparable prior year period. Theseincreases were due to higher depreciation resulting from our higher capitalspending associated with our information systems infrastructure anddistribution center consolidation and integration efforts.

 

*Operating Income.*As a result of the foregoing, operating income decreased by$4.3 million, or 15.5%, to $23.1 million in the three months ended June 27,2008 from $27.4 million in the three months ended June 29, 2007. As apercent of sales, operating income decreased to 7.4% in the three months ended June 27,2008 compared to 8.7% in the three months ended June 29, 2007.

 

*Interest Expense.*Interest expense decreased by $1.5 million in the threemonths ended June 27, 2008 to $7.0 million from $8.5 million inthe three months ended June 29, 2007. This decrease was primarily due tolower interest rates as well as scheduled reductions in the principal balanceof our term-debt.

 

*Interest and Other Income.* Interest and other income of $0.7 million did not change inthe three months ended June 27, 2008 compared to the three months ended June 29,2007.

 

*Provision for Income Taxes.*The effective tax rate for the three monthsended June 27, 2008 was 33.5% compared to 39.0% for the three months endedJune 27, 2007. The decrease in the effective tax rate was primarily due tothe decrease in a liability associated with previously unrecognized taxbenefits. During the three months ended June 27, 2008, we obtainedresolutions on the uncertain tax positions that we took for two states anddetermined that we no longer needed the full amount of the accruals that we hadestablished. As such, we made the appropriate adjustments, of which $0.8million favorably impacted our effective tax rate this quarter.

 

*Six Months Ended June 27, 2008 Compared to Six MonthsEnded June 29, 2007*

 

*Net Sales.*Our net sales decreased by $8.1 million,or 1.3%, to $600.6 million in the six months ended June 27, 2008 from$608.7 million in the six months ended June 29, 2007. The decline insales resulted from the net impact of a 3.6% increase in sales to ourfacilities maintenance customers offset by a decline in sales to ourprofessional contractor and specialty distributor customers of 12.0% and 8.7%,respectively. We expect sales to our professional contractor and specialtydistributor end-markets to remain weak during the remainder of 2008 as thehousing market continues to be challenged.

 

*Gross Profit.*Gross profit decreased by $4.4 million, or 1.9%, to$225.9 million in the six months ended June 27, 2008 from$230.3 million in the six months ended June 29, 2007 as a directresult of the decrease in sales as well as the deterioration of gross profitmargin during the period. Our gross profit margin decreased 20 basis points to37.6% for the six months ended June 27, 2008 compared to 37.8% for the sixmonths ended June 28, 2007. The decrease in gross margin is due to anincrease in sales of lower margin products, such as HVAC products, offset bycontinued operating efficiencies at our national distribution center. 

 

*Selling, General and Administrative Expenses.*SG&Aexpenses increased by $1.4 million, or 0.8% to $173.6 million in the sixmonths ended June 27, 2008 from $172.2 million in the six months ended June 29,2007. As a percent of sales, SG&A increased 60 basis points to 28.9% forthe six months ended June 27, 2008 compared to 28.3% for the six monthsended June 29, 2007. The increase in SG&A expenses is primarily due toproject expenses associated with the consolidation of distribution operationsin Auburn, Massachusetts, and Richmond, Virginia, as well as investment in awest coast national distribution center in Salt Lake City, Utah, costsassociated with a previously announced executive’s transition and higher fixedcosts, such as rent expense and other occupancy costs. 

 

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fixedcosts, such as rent expense and other occupancy costs, offset by certainexpenses within SG&A, such as the costs of running regional distributioncenters, delivery expenses and selling expenses, which fluctuate with salesvolume.

 

*Depreciation and Amortization.*Depreciation and amortizationexpense increased by $0.8 million to $8.0 million in the six months ended June 27,2008 from $7.2 million in the six months ended June 29, 2007. As apercentage of sales, depreciation and amortization was 1.3% or 10 basis pointshigher than the 1.2% in the comparable prior year period. These increases weredue to higher depreciation resulting from our higher capital spendingassociated with our information systems infrastructure and distribution centerconsolidation and integration efforts.

 

*Operating Income.*As a result of the foregoing, operating income decreased by$6.5 million, or 12.9%, to $44.3 million in the six months ended June 27,2008 from $50.8 million in the six months ended June 29, 2007. As apercent of sales, operating income decreased to 7.4% in the six months ended June 27,2008 compared to 8.3% in the six months ended June 29, 2007.

 

*Interest Expense.*Interest expense decreased by $2.3 million in the six monthsended June 27, 2008 to $14.7 million from $17.0 million in thesix months ended June 29, 2007. This decrease was primarily due to lowerinterest rates as well as scheduled reductions in the principal balance of ourterm-debt.

 

*Interest and Other Income.* Interest and other income increased by $0.1 million in thesix months ended June 27, 2008 to $1.4 million from $1.3 million in thesix months ended June 29, 2007. The increase was primarily attributable tohigher interest income earned on higher total cash, cash equivalent and short-terminvestment balances.

 

*Provision for Income Taxes.*The effective tax rate for the six monthsended June 27, 2008 was 35.8% compared to 39.0% for the six months ended June 29,2007. The decrease in the effective tax rate was primarily due to the decreasein a liability associated with previously unrecognized tax benefits as well ashigher year over year tax-free interest income generated from the investment ofexcess cash balances. During the six months ended June 27, 2008, weobtained resolutions on the uncertain tax positions that we took for two statesand determined that we no longer needed the full amount of the accruals that wehad established. As such, we made the appropriate adjustments, of which $0.8million favorably impacted our effective tax rate for the six-month period.

 

**Liquidityand Capital Resources**

 

*Overview*

 

We are a holding company whose only asset is the stockof our subsidiaries. We conduct virtually all of our business operationsthrough Interline New Jersey. Accordingly, our only material sources of cashare dividends and distributions with respect to our ownership interests inInterline New Jersey that are derived from the earnings and cash flow generatedby Interline New Jersey.

 

We have $200.0 million of 81/8% senior subordinated notes due 2014 and a $330.0million bank credit facility. The bank credit facility consists of a $230.0million 7-year term loan and a $100.0 million 6-year revolving credit facilityof which a portion not exceeding $40.0 million is available in the form ofletters of credit.

 

The 81/8% senior subordinated notes were priced at 99.3%, or$198.6 million, of their principal amount, representing a yield to maturity of81/4%.We are amortizing the discount of $1.4 million over the term of the 81/8% senior subordinatednotes. As of June 27, 2008, the 81/8% senior subordinated notes had a fair market value of$193.0 million or 96.5% of par. The 81/8% senior subordinated notes mature on June 15,2014 and interest is payable on June 15 and December 15 of each year.

 

The debt instruments of Interline New Jersey,primarily the credit facility entered into on June 23, 2006 and theindenture governing the terms of the 81/8% senior subordinated notes, contain significantrestrictions on the payment of dividends and distributions to us by InterlineNew Jersey. Interline New Jersey’s credit facility allows it to pay dividends,make distributions to us or make investments in us in an aggregate amount notto exceed $2.0 million during any fiscal year, so long as Interline New Jerseyis not in default or would be in default as a result of such payments. Inaddition, ordinary course distributions for overhead (up to $3.0 millionannually) and taxes are permitted, as are annual payments of up to $7.5 millionin respect of our stock option or other benefit plans for management oremployees and (provided Interline New Jersey is not in default) aggregatepayments of up to $40.0 million depending on the pro forma net leverage ratioas of the last day of the previous quarter. In addition, the indenture for the81/8%senior subordinated notes generally restricts the ability of Interline NewJersey to pay distributions to us and to make advances to, or investments in,us to an amount generally equal to 50% of the net income of Interline NewJersey, plus an amount equal to the net proceeds from certain equity issuances,subject to compliance with a leverage ratio and no default having occurred andcontinuing. The indenture also contains certain permitted exceptions including (1) allowingus to pay our franchise taxes and other fees required to 

 

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maintainour corporate existence, to pay for general corporate and overhead expenses andto pay expenses incurred in connection with certain financing, acquisition ordisposition transactions, in an aggregate amount not to exceed $10.0 millionper year; (2) allowing certain tax payments; and (3) allowing certainpermitted distributions up to $75.0 million. For a further description of thecredit facility, see “—Credit Facility” below.

 

*FinancialCondition*

 

Working capital increased by $16.4 million to $347.6million as of June 27, 2008 from $331.2 million as of December 28,2007. The increase in working capital was primarily funded by cash flows fromoperating activities.

 

*Cash Flow*

 

Netcashprovidedbyoperatingactivitieswas$27.2millioninthesixmonthsendedJune27,2008comparedtonetcashprovidedbyoperatingactivitiesof$31.1millioninthesixmonthsendedJune29,2007.Thedecreaseof$3.9millioninnetcashprovidedbyoperatingactivitieswasprimarilyaresultofloweroperatingperformancecomparedtothecomparableprioryearperiodandanincreaseintheworkingcapitalneedsofthebusiness.Changesinourmainworkingcapitalcomponents,whichincludeaccountsreceivable,inventoryandaccountspayable,used$3.9millionduringthesixmonthsendedJune27,2008comparedto$0.8millionduringthesixmonthsendedJune29,2007.Changesinourmainworkingcapitalcomponentsforthecomparablesix-monthperiodincludestheincreaseofpurchasesofinventoryas we increased inventory levels to stock$7.0 million of inventory in our new west coast NDC in Salt Lake City, Utah,and temporarily increased general inventory levels by another $9.2 million toprepare for the busier summer months as well as prepare against the possibilityof a potential west coast port strike,reflective ofa$3.2millionincreaseintradeaccountspayablebalancesaswellasloweroutstandingtradereceivablebalanceof$9.9millionassociatedwithlowersalesdemandfromourcustomers.

 

Net cash provided by investing activities was $30.5million in the six months ended June 27, 2008 compared to net cash used ininvesting activities of $8.0 million in the six months ended June 29,2007. Net cash provided by investing activities in the six months ended June 27,2008 was attributable to our investment of our excess cash balances whichprovided net proceeds from sales and maturities of short-term investments of$44.6 million offset by capital expenditures made in the ordinary course ofbusiness of $13.5 million and $0.5 million in costs related to purchases ofbusinesses, net of cash. Net cash used in investing activities in the sixmonths ended June 29, 2007 was attributable to capital expenditures madein the ordinary course of business.

 

Netcash used in financing activities totaled $2.9 million in the six months endedJune 27, 2008 compared to net cash provided by financing activities of$3.4 million in the six months ended June 29, 2007. Net cash used infinancing activities in the six months ended June 27, 2008 wasattributable to the net decrease in the purchase card payable of $0.6 million,our repayment of $2.3 million of borrowings on our credit facility and capitallease obligations and $0.8 million in treasury stock acquired via payments tosatisfy minimum statutory tax withholding requirements offset by $0.7 millionof proceeds from stock options exercised and excess tax benefits fromshare-based compensation. Net cash provided by financing activities in the sixmonths ended June 28, 2007 was attributable to the net increase in thepurchase card payable of $4.3 million and $0.5 million in proceeds from stockoptions exercised and excess tax benefits from share-based compensation offsetby our repayment of borrowings on our credit facility and capital leaseobligations of $1.4 million.

 

*PriorPeriod Correction*

 

Subsequent to the filing of the interim condensedconsolidated financial statements for the six months ended June 29, 2007,we corrected our balance sheet and statement of cash flows presentation forcertain activity under a purchase card agreement. Previously, payments underthis agreement made by a third-party intermediary on our behalf, andoutstanding at the end of a reporting period, were classified as accountspayable in the balance sheet and related cash flows were classified as cashflows from operating activities in the statement of cash flows. We determinedthat the appropriate accounting treatment was to present outstanding amounts asaccrued expenses and other liabilities on our balance sheet and as cash flowsfrom financing activities, net of payments to the third-party intermediary. Asa result, we have corrected the condensed consolidated statement of cash flowsfor the six months ended June 29, 2007 to properly present theseactivities. The corrections made to the condensed consolidated statement ofcash flows for the six months ended June 29, 2007 include areclassification of $4.3 million from net change in accounts payable and netcash provided by operating activities to increase in purchase card payable,net, and net cash provided by financing activities. We do not believe thisconstitutes a material misstatement to the statement of condensed consolidatedcash flows for the six months ended June 29, 2007.

 

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*Capital Expenditures*

 

Capital expenditures were $13.5 million in the sixmonths ended June 27, 2008 compared to $8.0 million in the six monthsended June 29, 2007. Capital expenditures as a percentage of sales were2.3% in the six months ended June 27, 2008 compared to 1.3% in the sixmonths ended June 29, 2007. The increases in capital expenditures are dueto the upgrade of our telecommunications network, the expansion of ourdistribution center network, the purchase of warehouse equipment andinvestments in our information technology systems necessary for the integrationof our AmSan acquisition.

 

*Credit Facility*

 

Borrowings under the term loan and the delayed drawfacility bear interest, at Interline New Jersey’s option, at either LIBOR plus1.75% or at the alternate base rate, which is the greater of the Prime Rate orthe Federal Funds Effective Rate plus 0.50%, plus 0.75%. Borrowings under therevolving credit facility bear interest, at Interline New Jersey’s option, ateither LIBOR plus 1.50% or at the alternate base rate plus 0.50%. As of June 27,2008, the interest rate in effect with respect to the term loan and the delayeddraw facility was 4.23% for the LIBOR option and 5.75% for the alternate baserate option. Outstanding letters of credit under the revolving credit facilityare subject to a per annum fee equal to the applicable margin under therevolving credit facility. The interest rate margin is subject to pricingadjustments at the end of each fiscal quarter based on net total indebtednessto consolidated earnings before interest, taxes, depreciation and amortization(“EBITDA”). The term loan and the delayed draw facility mature on June 23,2013 and the revolving loan facility matures on June 23, 2012. Amountsunder the term loan and the delayed draw facility are due and payable inquarterly installments equal to 1.0% of the original principal amount on anannual basis through June 23, 2013, with the balance payable in one finalinstallment at the maturity date.

 

The bank credit facility, which is secured bysubstantially all of the assets of Interline New Jersey and is guaranteed by usand by the domestic subsidiaries of Interline New Jersey, contains affirmative,negative and financial covenants that limit Interline New Jersey’s ability toincur additional indebtedness, pay dividends on its common stock or redeem,repurchase or retire its common stock or subordinated indebtedness, makecertain investments, sell assets, and consolidate, merge or transfer assets,and that require Interline New Jersey to maintain certain financial ratios asof the last day of each fiscal quarter, including a minimum ratio based on anadjusted and consolidated EBITDA to consolidated cash interest expense and amaximum ratio of net total indebtedness to an adjusted consolidated EBITDA. Asof June 27, 2008, the maximum ratio of net total indebtedness to adjustedconsolidated EBITDA was 4.0. Under the terms of the bank credit facility,effective December 26, 2008, the maximum ratio of net total indebtednessto adjusted consolidated EBITDA will be 3.5. Interline New Jersey and theCompany were in compliance with all covenants at June 27, 2008.

 

In connection with the bank credit facility, InterlineNew Jersey is required to pay administrative fees, commitment fees, letter ofcredit issuance and administration fees and certain expenses and to providecertain indemnities, all of which are customary for financings of this type.The bank credit facility also allows for certain incremental term loans andincremental commitments under the revolving credit facility which are availableto Interline New Jersey to repay indebtedness and make acquisitions if certainconditions, including various financial ratios are met.

 

As of June 27, 2008, Interline New Jersey had$10.4 million of letters of credit issued under the revolving loanfacility and $215.4 million of aggregate principal outstanding under theterm loan facility.

 

*Liquidity*

 

Historically, ourcapital requirements have been for debt service obligations, working capitalrequirements, including for inventory, accounts receivable and accountspayable, acquisitions, the expansion and maintenance of our distributionnetwork and upgrades of our information systems. We expect this to continue inthe foreseeable future. Historically, we have funded these requirements throughcash flow generated from operating activities and funds borrowed under ourcredit facility. We expect our cash on hand, cash flow from operations and loanavailability under our credit facility to be our primary source of funds in thefuture. Letters of credit, which are issued under the revolving loan facilityunder our credit facility, are used to support payment obligations incurred forour general corporate purposes.

 

As of June 27, 2008, we had$89.6 million of availability under Interline New Jersey’s$100.0 million revolving credit facility.

 

We believe that cash and short-term investments onhand, cash flow from operations and available borrowing capacity under our newcredit facility will be adequate to finance our ongoing operational cash flowneeds and debt service obligations for the next twelve months.

 

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*Contractual Obligations*

 

Our contractual obligations are disclosed in ourAnnual Report on Form 10-K for the year ended December 28, 2007 filedwith the SEC. Except for the derecognition of uncertain tax positions asdiscussed above and in Note 7 to our condensed consolidated financialstatements, there have been no material changes to our contractual obligationssince December 28, 2007.

 

**Critical Accounting Policies**

 

In preparing the unaudited condensed consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the United States of America, management is required to makecertain estimates, judgments and assumptions. These estimates, judgments andassumptions affect the reported amounts of assets and liabilities, includingthe disclosure of contingent assets and liabilities, at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe periods presented. On an ongoing basis, management evaluates theseestimates and assumptions. Management bases its estimates and assumptions onhistorical experience and on various other factors that are believed to bereasonable at the time the estimates and assumptions are made. Actual resultsmay differ from these estimates and assumptions under different circumstancesor conditions.

 

Our critical accounting policies are included in ourAnnual Report on Form 10-K for the year ended December 28, 2007 filedwith the SEC. During the six months ended June 27, 2008, there were nosignificant changes to any of our critical accounting policies.

 

**Recently Adopted Accounting Standards**

 

Effective December 29, 2007, we adopted FinancialAccounting Standards Board (“FASB”) Statement No. 157, *Fair Value Measurements*, (“FAS 157”) as amended by FASBStaff Position No. 157-1, *Application of FASBStatement No. 157 to FASB Statement No. 13 and Other AccountingPronouncements That Address Fair Value Measurements for Purposes of Lease Classificationor Measurement under Statement 13*, (“FSP 157-1”) and FASB StaffPosition No. 157-2, *Effective Date of FASBStatement No. 157*, (“FSP 157-2”). FAS 157 applies prospectivelyto all other accounting pronouncements that require or permit fair valuemeasurements. FAS 157 defines fair value as “the price that would be receivedto sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date.” FAS 157 also requiresdisclosure about how fair value is determined for assets and liabilities andestablishes a hierarchy for which these assets and liabilities must be grouped,based on significant levels of inputs. The adoption of FAS 157 did not have anyimpact on our financial position, results of operations and cash flows. SeeNote 1. Description of Business and Basis of Presentation to the unauditedcondensed consolidated financial statements included in this report.

 

FSP 157-1 amends FAS 157 to exclude from the scope ofFAS 157 certain leasing transactions accounted for under FASB Statement No. 13,*Accounting for Leases*. The adoption ofFAS 157 on our leasing transactions did not have a material impact on ourfinancial position, results of operations and cash flows and did not result inadditional disclosures.

 

FSP 157-2 amends FAS 157 to defer the effective dateof FAS 157 for non-financial assets and non-financial liabilities, except foritems that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) until fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscalyears. We are currently evaluating the impact the provisions of FAS 157 willhave on our non-financial assets and non-financial liabilities since the applicationof FAS 157 for such items was deferred.

 

Effective December 29, 2007, we adopted FASBStatement No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115*, (“FAS 159”). FAS 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The objective of FAS 159 is to improve financial reporting by providingentities with the opportunity to mitigate volatility in reported earnings causedby measuring related assets and liabilities differently without having to applycomplex hedge accounting provisions. The adoption of FAS 159 did not have anyimpact on our financial position, results of operations and cash flows since wedid not elect to apply the fair value option for any of our eligible financialinstruments or other items as of the December 29, 2007 effective date.

 

**Recently Issued Accounting Pronouncements**

 

In March 2008, the FASB issued FASBStatement No. 161, *Disclosures about DerivativeInstruments and Hedging Activities*, (“FAS 161”). FAS 161 is intendedto improve financial reporting about derivative instruments and hedgingactivities by requiring enhanced disclosures to enable investors to betterunderstand their effects on an entity’s financial position, financialperformance, and cash flows. The provisions of FAS 161 are effective forfinancial statements issued for fiscal years and interim 

 

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period beginning after November 15, 2008 with early applicationencouraged. We are currently evaluating the impact the provisions of FAS 161will have on our financial position, results of operations and cash flows.

 

In May 2008, the FASB issued FASB Statement No. 162,*The Hierarchy of Generally Accepted AccountingPrinciples*, (“FAS 162”). FAS 162 is intended to improvefinancial reporting by identifying a consistent framework, or hierarchy, forselecting accounting principles to be used in preparing financial statementsthat are presented in conformity with generally accepted accounting principles(“GAAP”) for nongovernmental entities in the United States. FAS 162 iseffective 60 days following SEC approval of the Public Company AccountingOversight Board amendments to AU Section 411, *The Meaningof Present Fairly in Conformity with Generally Accepted Accounting Principles*.The provisions of FAS 162 will not have any impact on our financial position,results of operations and cash flows.

 

**ITEM 3. Quantitative andQualitative Disclosures About Market Risk**

 

*Commodity Price Risk*

 

Weare aware of the potentially unfavorable effects inflationary pressures maycreate through higher product and material costs, higher asset replacementcosts and related depreciation and higher interest rates. In addition, ouroperating performance is affected by price fluctuations in copper, oil,stainless steel, aluminum, zinc, plastic and PVC and other commodities and rawmaterials. We seek to minimize the effects of inflation and changing pricesthrough economies of purchasing and inventory management resulting in costreductions and productivity improvements as well as price increases to maintainreasonable profit margins. However, such commodity price fluctuations have fromtime to time created cyclicality in our financial performance, and couldcontinue to do so in the future. In addition, our use of priced catalogs maynot allow us to offset such cost increases quickly, resulting in a decrease ingross margins and profit.

 

*Interest Rate Risk*

 

Our short-term investments portfolio iscomprised of high-grade tax exempt auction rate securities, which are debtinstruments, such as municipal bonds, with long-term scheduled maturities andperiodic interest rate reset dates. As of June 27, 2008, we had $4.0million in short-term investments. The values of these investments are subjectto changes in interest rates. However, because the interest rates on thesesecurities are typically reset to market prevailing rates every 35 days orless, and in some cases every 7 days or less, we do not believe the interestrate risk inherent in our portfolio was material as of June 27, 2008.Although our auction rate securities have been readily marketable, if anauction were to fail, we may not be able to sell these securities on theplanned reset date thereby increasing our holding period.

 

Subsequent to June 27, 2008, $2.0 of ourauction rate securities was called at par. However, recent uncertaintiesin the credit markets have prevented us and other investors from liquidatingour holdings in auction rate securities. There is no assurance that currentlysuccessful auctions on the other auction rate securities in our investmentportfolio will continue to succeed and as a result our ability to liquidate ourinvestment and fully recover the carrying value of our investment in the nearterm may be limited or not exist. An auction failure means that the partieswishing to sell securities could not. All of our auction rate securities arecurrently rated AAA, the highest rating, by a rating agency. If the issuers areunable to successfully close future auctions and their credit ratingsdeteriorate, we may in the future be required to record an impairment charge onthese investments. Based upon various observable market data, we believe we will be able to liquidate ourinvestments within the next year, and we currently believe these securities arenot impaired as they are collateralized by the bonds and credit rating of theunderlying issuer and insured against loss of principal and interest by bondinsurers with AAA ratings. However, it could take until the final maturity ofthe underlying notes (over 30 years) to realize our investments’ recordedvalue. Based on our expected operating cash flows, and our other sources ofcash, we do not anticipate the potential lack of liquidity on these investmentswill affect our ability to execute our current business plan.

 

Our variable rate term debt is sensitive to changes inthe general level of interest rates. As of June 27, 2008, the interestrate in effect with respect to our $215.4 million variable rate term debt was4.23% for the LIBOR option and 5.75% for the alternate base rate option. Whileour variable rate term debt obligations expose us to the risk of risinginterest rates, we do not believe that the potential exposure is material toour overall financial performance or results of operations. Based on theoutstanding variable rate term debt as of June 27, 2008, a 1.0% annualincrease or decrease in current market interest rates would have the effect ofcausing a $1.1 million pre-tax change to our statement of operations for thesix months ended June 27, 2008.

 

The fair market value of our fixed rate debt is subject to interestrate risk. As of June 27, 2008, the fair market value of our $200.0million 81/8 % senior subordinated notes was $193.0 millionor 96.5% of par.

 

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*ForeignCurrency Exchange Risk*

 

The majority of our purchases from foreign-basedsuppliers are from China and other countries in Asia and are transacted in U.S.dollars. Accordingly, our risk to foreign currency exchange rates was notmaterial as of June 27, 2008.

 

*Derivative Financial Instruments*

 

As of June 27, 2008, we did not have any interestrate swap exchange agreements, or swaps. Historically, we entered intoderivative financial instruments from time to time, including interest rateexchange agreements, or swaps, to manage our exposure to fluctuations ininterest rates on our debt. Under our former swap agreements, we pay a fixedrate on the notional amount to our banks and the banks pay us a variable rateon the notional amount equal to a base LIBOR rate.

 

We periodically evaluate the costs and benefits of anychanges in our interest rate risk. Based on such evaluation, we may enter intonew interest rate swaps to manage our interest rate exposure. Our derivativeactivities, all of which are for purposes other than trading, are initiatedwithin the guidelines of corporate risk-management policies.

 

**ITEM 4. Controls and Procedures**

 

*Evaluationof Disclosure Controls and Procedures*

 

Ourmanagement, with the participation of our Chief Executive Officer and ChiefFinancial Officer (our principal executive officer and principal financialofficer), evaluated the effectiveness of our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct) as of June 27, 2008. Based on this evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that, as of June 27, 2008,our disclosure controls and procedures were effective to (1) ensure thatmaterial information disclosed by in the reports that we file or submit underthe Exchange Act is accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, to allow timelydecisions regarding required disclosure and (2) ensure that informationrequired to be disclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms.

 

*Changes inInternal Control over Financial Reporting*

 

Nochange in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the quarter ended June 27,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**ITEM 1. Legal Proceedings**

 

We are involved in various legal proceedings that have arisenin the ordinary course of our business and have not been fully adjudicated.These actions, when ultimately concluded and determined, will not, in theopinion of management, have a material effect upon our consolidated financialposition, results of operations or liquidity.

 

**ITEM1A. Risk Factors**

 

For information regarding factors that could affectour financial position, results of operations and cash flows, see the riskfactors discussion provided in our Annual Report on Form 10-K for the yearended December 28, 2007 in Part I. Item 1A. Risk Factors. See also “Part I. Item 2—Forward LookingStatements” above.

 

There have been no material changes from the riskfactors previously disclosed in our Annual Report on Form 10-K for theyear ended December 28, 2007.

 

**ITEM 2. Unregistered Sales of Equity Securitiesand Use of Proceeds**

 

*Unregistered Sales of Equity Securities*

 

None.

 

*Purchases of Equity Securities by the Issuer*

 

The following table summarizes repurchases of ourstock, comprising entirely of shares of unvested forfeited restricted stockawards returned to us, during the three months ended June 27, 2008:

 
| **Period**                           | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average Price  Paid per  Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|--------------------------------------|------------|-----------------------------------------|------------|------------------------------------|------------|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| April 2008                      |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (March 29 – April 25) |       | —                                  |       | $                                  | —     |                                                                                     | —     |                                                                                  | —     |   |
| May 2008                        |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (April 26 – May 23)   |       | —                                  |       | —                             |       | —                                                                                   |       | —                                                                                |       |
| June 2008                       |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (May 24 – June 27)    |       | 300                                     |       | 25.04                              |       | —                                                                                   |       | —                                                                                |       |
| Total                                |       | 300                                     |       | $                                  | 25.04      |                                                                                     | —     |                                                                                  | —     |   |

 

**ITEM 3. Defaults Upon Senior Securities**

 

None.

 

**ITEM 4. Submission of Matters to a Vote ofSecurity Holders**

 

Our 2008 Annual Meeting of Shareholders (the “2008 AnnualMeeting”) was held on Thursday, May 8, 2008. The matters submitted to ourshareholders for approval at the 2008 Annual Meeting included (1) theelection of three Class I members of the Board of Directors for aterm of three years; (2) a proposal to approve amendments to theCompany’s 2004 Equity Incentive Plan, including to increase the number ofshares of common stock reserved for issuance and available for grantsthereunder to 3,800,000 as of January 1, 2008 and to change the method bywhich shares subject to full value awards granted thereunder are countedagainst the 2004 Equity Incentive Plan’s share limit; and (3) a proposalto ratify the selection of Deloitte & Touche, LLP as independentregistered public accounting firm for the fiscal year ending December 26,2008.

 

As of March 11, 2008, the record date for the 2008Annual Meeting, there were 32,465,709 shares issued, 32,384,316 sharesoutstanding and 32,356,916 shares entitled to vote at the 2008 Annual Meeting.There were 31,024,473 shares present in person or by proxy, which constitutesapproximately 96 percent of the shares entitled to vote at the 2008 AnnualMeeting.

 

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The tabulation of the votes present in person or by proxy atthe 2008 Annual Meeting with respect to the above matters was as follows:

 

*Director Elections*

 
| **Nominee**           | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|-----------------------|------------|------------|------------|--------------|------------|
| Michael E. DeDomenico |       | 29,844,947 |       | 1,179,526    |       |
| John J. Gavin         |       | 29,043,999 |       | 1,980,474    |       |
| Ernest K. Jacquet     |       | 29,149,151 |       | 1,875,322    |       |

 

The nominees for election to the board were elected to serveuntil the annual meeting in 2011, and until their respective successors areelected and qualified.

 

Those directors whose term of office continued after theAnnual Meeting were as follows: Gideon Argov, Barry J. Goldstein, Michael J.Grebe, Charles W. Santoro and Drew T. Sawyer.

 

*Approval of amendments to the Company’s 2004 EquityIncentive Plan*

 
| **For**    | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|---------------|------------|---------------------------|------------|
| 24,515,034 |       | 5,457,149   |       | 626,200       |       | 426,090                   |       |

 

*Approval to ratify the selection of Deloitte &Touche LLP*

 
| **For**    | ** ** | **Against** | ** ** | **Abstained** | ** ** |   |   |
|------------|------------|-------------|------------|---------------|------------|--------|--------|
| 30,979,256 |       | 36,742      |       | 8,475         |       |   |   |

 

**ITEM 5. Other Information**

 

None.

 

**ITEM 6. Exhibits**

 

The following exhibits are being filed aspart of this Quarterly Report on Form 10-Q:

 
| 31.1   | Certification of the Chief Executive Officer of Interline  Brands, Inc., pursuant to Rule 13a-14 of the Exchange Act, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  (furnished herewith).         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                      |
| 31.2   | Certification of the Chief Financial Officer of Interline  Brands, Inc., pursuant to Rule 13a-14 of the Exchange Act, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  (furnished herewith).         |
|   |                                                                                                                                                                                                                                      |
| 32.1   | Certification of the Chief Executive Officer pursuant to  Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (furnished herewith). |
|   |                                                                                                                                                                                                                                      |
| 32.2   | Certification of the Chief Financial Officer pursuant to  Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (furnished herewith). |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned hereunto duly authorized.

 
| ** **                 |       | **INTERLINE  BRANDS, INC.**                                               |
|----------------------------|------------|---------------------------------------------------------------------------|
|                       | Registrant |
|                       |       |
|                       |       |                                                                      |
| Date:  August 5, 2008 | By:        | /S/  THOMAS J. TOSSAVAINEN                                                |
|                       |       | Thomas  J. Tossavainen                                                    |
|                       |       | Chief  Financial Officer                                                  |
|                       |       | (Duly Authorized  Signatory, Principal Financial and  Accounting Officer) |
|                            |            |                                                                           |  |

 

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