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 March 27, 2009****

**** ****

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 
| Large  accelerated filer o                                            |   | Accelerated  filer x         |
|-----------------------------------------------------------------------|--------|------------------------------|
|                                                                  |   |                         |
| 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 ofthe issuer’s classes of common stock, as of the latest practicable date. As of May 1,2009, there were 32,451,083 shares of the registrant’s common stock outstanding(excluding 111,414 shares held in treasury), par value $0.01.

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

 
| **** ****     | ** **                                                                                                                     | ** **     | ****PAGE****   |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------|----------------|----------------|
|               | **** ****                                                                                                                 |           |           |
| ****ITEM****       | **** ****                                                                                                                 |           |           |
|               | **** ****                                                                                                                 |           |           |
|               | ****PART I. FINANCIAL INFORMATION****                                                                                     |           |           |
|               | **** ****                                                                                                                 |           |           |
| ****1.****         | ****Financial Statements (Unaudited)****                                                                                       |           |           |
| **** ****     | ****Condensed Consolidated Balance Sheets as of March 27, 2009 and December 26, 2008****                             |           | ****1****      |
| **** ****     | ****Condensed Consolidated Statements of Earnings for the Three Months Ended March 27, 2009 and March 28, 2008****   |           | ****2****      |
| **** ****     | ****Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 27, 2009 and March 28, 2008**** |           | ****3****      |
| **** ****     | ****Notes to Condensed Consolidated Financial Statements****                                                                   | **** **** | ****5****      |
| ****2.****         | ****Management’s Discussion and Analysis of Financial Condition and Results of Operations****                             | **** **** | ****17****     |
| ****3.****         | ****Quantitative and Qualitative Disclosures about Market Risk****                                                             | **** **** | ****24****     |
| ****4.****         | ****Controls and Procedures****                                                                                                | **** **** | ****25****     |
| **** ****     | **** ****                                                                                                                 | **** **** | **** **** |
|               | ****PART II. OTHER INFORMATION****                                                                                        |           |           |
|               | **** ****                                                                                                                 |           |           |
| ****1.****         | ****Legal Proceedings****                                                                                                      | **** **** | ****26****     |
| ****1A.****        | ****Risk Factors****                                                                                                           | **** **** | ****26****     |
| ****2.****         | ****Unregistered Sales of Equity Securities and Use of Proceeds****                                                            |           | 26             |
| ****3.****         | ****Defaults Upon Senior Securities****                                                                                        |           | 26             |
| ****4.****         | Submission of Matters to a Vote of Security Holders                                                                            |           | 26             |
| 5.                 | Other Information                                                                                                              |           | 26             |
| ****6.****         | ****Exhibits****                                                                                                               | **** **** | ****26****     |
| **** ****     | **** ****                                                                                                                 | **** **** | **** **** |
| ****SIGNATURES**** |                                                                                                                           | ****27****     |

 

Table of Contents

 

**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. Financial Statements**

 

**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)AS OF MARCH 27, 2009 AND DECEMBER 26, 2008**

**(inthousands, except share and per share data)**

 
| ** **                                                                                                                                                                                                    | ** ** | **March 27,** | ** ** | **December 26,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                                                                                                    | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                                               |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                     |       | $                  | 80,691     |                  | $          | 62,724 |   |
| Accounts receivable - trade (net of allowance for doubtful accounts  of $16,576 and $12,140)                                                                                                                  |       | 126,414            |       | 139,522               |       |
| Inventory                                                                                                                                                                                                     |       | 199,598            |       | 211,200               |       |
| Income tax receivable                                                                                                                                                                                         |       | 2,035              |       | 1,452                 |       |
| Prepaid expenses and other current assets                                                                                                                                                                     |       | 17,595             |       | 22,884                |       |
| Deferred income taxes                                                                                                                                                                                         |       | 18,812             |       | 19,010                |       |
| Total current assets                                                                                                                                                                                          |       | 445,145            |       | 456,792               |       |
|                                                                                                                                                                                                          |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                                                   |       | 47,550             |       | 46,033                |       |
| Goodwill                                                                                                                                                                                                      |       | 317,242            |       | 317,117               |       |
| Other intangible assets, net                                                                                                                                                                                  |       | 130,556            |       | 132,787               |       |
| Other assets                                                                                                                                                                                                  |       | 9,378              |       | 10,119                |       |
| Total assets                                                                                                                                                                                                  |       | $                  | 949,871    |                  | $          | 962,848 |   |
|                                                                                                                                                                                                          |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                                          |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                              |       | $                  | 86,106     |                  | $          | 68,255 |   |
| Accrued expenses and other current liabilities                                                                                                                                                                |       | 36,045             |       | 31,394                |       |
| Accrued interest                                                                                                                                                                                              |       | 3,553              |       | 1,072                 |       |
| Current portion of long-term debt                                                                                                                                                                             |       | —             |       | 1,625                 |       |
| Capital lease - current                                                                                                                                                                                       |       | 246                |       | 239                   |       |
| Total current liabilities                                                                                                                                                                                     |       | 125,950            |       | 102,585               |       |
|                                                                                                                                                                                                          |       |               |       |                  |       |
| Long-Term Liabilities:                                                                                                                                                                                        |       |               |       |                  |       |
| Deferred income taxes                                                                                                                                                                                         |       | 38,273             |       | 37,210                |       |
| Long-term debt, net of current portion                                                                                                                                                                        |       | 360,943            |       | 401,765               |       |
| Capital lease - long term                                                                                                                                                                                     |       | 161                |       | 226                   |       |
| Other liabilities                                                                                                                                                                                             |       | 829                |       | 989                   |       |
| Total liabilities                                                                                                                                                                                             |       | 526,156            |       | 542,775               |       |
| Commitments and contingencies                                                                                                                                                                                 |       |               |       |                  |       |
| Senior preferred stock; $0.01 par value, 20,000,000 shares  authorized;  no shares outstanding as  of March 27, 2009 and December 26, 2008                                                     |       | —             |       | —                |       |
|                                                                                                                                                                                                          |       |               |       |                  |       |
| Shareholders’ Equity:                                                                                                                                                                                    |       |               |       |                  |       |
| Common stock; $0.01 par value, 100,000,000 authorized; 32,562,497  issued and 32,451,083 outstanding as of March 27, 2009 and 32,561,360  issued and 32,449,946 outstanding as of December 26, 2008 |       | 326                |       | 326                   |       |
| Additional paid-in capital                                                                                                                                                                                    |       | 572,691            |       | 571,868               |       |
| Accumulated deficit                                                                                                                                                                                           |       | (147,911           | )          | (150,833              | )          |
| Accumulated other comprehensive income                                                                                                                                                                        |       | 592                |       | 695                   |       |
| Treasury stock, at cost, 111,414 shares as of March 27, 2009 and  December 26, 2008                                                                                                                 |       | (1,983             | )          | (1,983                | )          |
| Total shareholders’ equity                                                                                                                                                                               |       | 423,715            |       | 420,073               |       |
| Total liabilities and shareholders’ equity                                                                                                                                                               |       | $                  | 949,871    |                  | $          | 962,848 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

 

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**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFEARNINGS (UNAUDITED)THREE MONTHS ENDED MARCH 27, 2009 AND MARCH 28, 2008**

**(inthousands, except share and per share data)**

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **March 27,**     | ** ** | **March 28,** | ** ** |
| ** **                                   | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                         |       |                   |       |   |   |
| Net sales                                    |       | $                      | 256,793    |   | $ | 289,146 |   |
| Cost of sales                                |       | 160,197                |       | 179,096 |   |
| Gross profit                                 |       | 96,596                 |       | 110,050 |   |
|                                         |       |                   |       |   |   |
| Operating Expenses:                          |       |                   |       |   |   |
| Selling, general and administrative expenses |       | 83,920                 |       | 85,013 |   |
| Depreciation and amortization                |       | 4,634                  |       | 3,879 |   |
| Total operating expense                      |       | 88,554                 |       | 88,892 |   |
| Operating income                             |       | 8,042                  |       | 21,158 |   |
|                                         |       |                   |       |   |   |
| Gain on extinguishment of debt, net          |       | 1,720                  |       | — |   |
| Interest expense                             |       | (5,379                 | )          | (7,742 | ) |
| Interest and other income                    |       | 290                    |       | 695 |   |
| Income before income taxes                   |       | 4,673                  |       | 14,111 |   |
| Income tax provision                         |       | 1,751                  |       | 5,437 |   |
| Net income                                   |       | $                      | 2,922      |   | $ | 8,674 |   |
|                                         |       |                   |       |   |   |
| Earnings Per Share:                          |       |                   |       |   |   |
| Basic                                        |       | $                      | 0.09       |   | $ | 0.27 |   |
| Diluted                                      |       | $                      | 0.09       |   | $ | 0.27 |   |
|                                         |       |                   |       |   |   |
| Weighted-Average Shares Outstanding:         |       |                   |       |   |   |
| Basic                                        |       | 32,438,989             |       | 32,327,187 |   |
| Diluted                                      |       | 32,552,442             |       | 32,644,551 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

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**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)THREE MONTHS ENDED MARCH 27, 2009 AND MARCH 28, 2008**

**(inthousands)**

**** ****
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **March 27,**          | ** ** | **March 28,** | ** ** |
| ** **                                                                         | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Cash Flows from Operating Activities:                                              |       |                   |       |   |   |
| Net income                                                                         |       | $                      | 2,922      |   | $ | 8,674 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                   |       |   |   |
| Depreciation and amortization                                                      |       | 4,781                  |       | 3,993 |   |
| Gain on extinguishment of debt, net of original issue discount                     |       | (2,165                 | )          | — |   |
| Write-off of debt issuance costs                                                   |       | 445                    |       | — |   |
| Amortization of debt issuance costs                                                |       | 287                    |       | 281 |   |
| Amortization of discount on 81/8% senior subordinated  notes                       |       | 37                     |       | 36 |   |
| Write-off of deferred acquisition costs                                            |       | 672                    |       | — |   |
| Share–based compensation                                                      |       | 823                    |       | 552 |   |
| Excess tax benefits from share–based compensation                             |       | —                 |       | (24 | ) |
| Deferred income taxes                                                              |       | 1,261                  |       | 396 |   |
| Provision for doubtful accounts                                                    |       | 4,992                  |       | 1,077 |   |
| Loss on disposal of property and equipment                                         |       | 1                      |       | — |   |
|                                                                               |       |                   |       |   |   |
| Changes in assets and liabilities which provided (used) cash:                      |       |                   |       |   |   |
| Accounts receivable – trade                                                   |       | 8,082                  |       | 1,341 |   |
| Inventory                                                                          |       | 11,557                 |       | 67 |   |
| Prepaid expenses and other current assets                                          |       | 5,723                  |       | 3,231 |   |
| Other assets                                                                       |       | 70                     |       | 1,865 |   |
| Accounts payable                                                                   |       | 17,858                 |       | 4,943 |   |
| Accrued expenses and other current liabilities                                     |       | 3,487                  |       | (3,284 | ) |
| Accrued interest                                                                   |       | 2,481                  |       | 4,114 |   |
| Income taxes                                                                       |       | (582                   | )          | 1,830 |   |
| Other liabilities                                                                  |       | (157                   | )          | 19 |   |
| Net cash provided by operating activities                                          |       | 62,575                 |       | 29,111 |   |
|                                                                                    |            |                        |            |  |  |  |  |

 

*****(Continued)*****

 

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**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

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

**THREEMONTHS ENDED MARCH 27, 2009 AND MARCH 28, 2008**

**(inthousands)**

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                        | ** ** | **March 27,**          | ** ** | **March 28,** | ** ** |
| ** **                                                        | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Cash Flows from Investing Activities:                             |       |                   |       |   |   |
| Purchase of property and equipment, net                           |       | (2,393                 | )          | (6,500 | ) |
| Purchase of short–term investments                           |       | —                 |       | (35,531 | ) |
| Proceeds from sales and maturities of short–term investments |       | —                 |       | 80,071 |   |
| Purchase of businesses, net of cash acquired                      |       | (126                   | )          | (8 | ) |
| Net cash (used in) provided by investing activities               |       | (2,519                 | )          | 38,032 |   |
| Cash Flows from Financing Activities:                             |       |                   |       |   |   |
| Decrease in purchase card payable, net                            |       | (1,677                 | )          | (841 | ) |
| Repayment of term debt                                            |       | (6,163                 | )          | (1,575 | ) |
| Repayment of 81/8% senior subordinated notes                      |       | (34,157                | )          | — |   |
| Proceeds from stock options exercised                             |       | —                 |       | 505 |   |
| Excess tax benefits from share–based compensation            |       | —                 |       | 141 |   |
| Payments on capital lease obligations                             |       | (58                    | )          | (53 | ) |
| Net cash used in financing activities                             |       | (42,055                | )          | (1,823 | ) |
| Effect of exchange rate changes on cash and cash equivalents      |       | (34                    | )          | (59 | ) |
| Net increase in cash and cash equivalents                         |       | 17,967                 |       | 65,261 |   |
| Cash and cash equivalents at beginning of period                  |       | 62,724                 |       | 4,975 |   |
| Cash and cash equivalents at end of period                        |       | $                      | 80,691     |   | $ | 70,236 |   |
|                                                              |       |                   |       |   |   |
| Supplemental Disclosure of Cash Flow Information:                 |       |                   |       |   |   |
| Cash paid during the period for:                                  |       |                   |       |   |   |
| Interest                                                          |       | $                      | 2,740      |   | $ | 3,706 |   |
| Income taxes, net of refunds                                      |       | $                      | 1,181      |   | $ | 2,990 |   |
|                                                              |       |                   |       |   |   |
| Schedule of Non–Cash Investing Activities:                   |       |                   |       |   |   |
| Property acquired through lease incentives and on account         |       | $                      | 2,412      |   | $ | — |   |

 

*See accompanying notes to condensed consolidated financial statements.*

**** ****

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** **

**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**THREEMONTHS ENDED MARCH 27, 2009 AND MARCH 28, 2008**

** **

** **

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

** **

*Business*

 

Interline Brands, Inc.,a Delaware corporation, and its subsidiaries (“Interline” or the “Company”) isa direct marketer and specialty distributor of maintenance, repair andoperations (“MRO”) products. The Company sells plumbing, electrical, hardware,security, heating, ventilation and air conditioning (“HVAC”), janitorial andsanitary supplies and other MRO products. Interline’s highly diverse customerbase consists of multi-family housing, educational, lodging, government andhealth care facilities, professional contractors and specialty distributors.

 

The Company markets and sells its products primarilythrough twelve 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, two national distribution centers, vendor managedinventory locations at large professional contractor customer locations and itsdedicated fleet of trucks. Through its broad distribution network, the Companyis able to provide same day/next day delivery service to 98% of the U.S.population.

 

*Basis of Presentation*

 

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 26,2008 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 and other intangible assets. Actual resultscould differ from those estimates.

 

*Segment Information*

 

In accordance with Financial Accounting StandardsBoard (“FASB”) Statement No. 131, *Disclosure about Segmentsof an Enterprise and Related Information*, the Company has oneoperating segment and one reportable segment, the distribution of MRO products.

 

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The Company’s net sales for the three months ended March 27,2009 and March 28, 2008 by product category were as follows (inthousands):

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **March 27,**     | ** ** | **March 28,** | ** ** |
| **Product Category**                      | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Plumbing                                  |       | $                      | 75,240     |   | $ | 89,636 |   |
| Janitorial and sanitary                   |       | 71,902                 |       | 69,106 |   |
| Electrical and lighting                   |       | 21,827                 |       | 28,915 |   |
| Heating, ventilation and air conditioning |       | 20,539                 |       | 23,682 |   |
| Appliances and parts                      |       | 15,151                 |       | 15,614 |   |
| Security                                  |       | 13,096                 |       | 15,903 |   |
| Hardware and tools                        |       | 11,299                 |       | 13,012 |   |
| Other                                     |       | 27,739                 |       | 33,278 |   |
| Total                                     |       | $                      | 256,793    |   | $ | 289,146 |   |

 

*Recently Adopted Accounting Standards*

 

Effective December 27, 2008, the Company adoptedFASB Staff Position 157-2, *Effective Date of FASBStatement No. 157*, (“FSP 157-2”). FSP 157-2 amends FASBStatement No. 157, *Fair Value Measurements,*(“FAS 157”) to defer the effective date of FAS 157 for non-financial assets andnon-financial liabilities, except for items that are recognized or disclosed atfair value in the financial statements on a recurring basis (at least annually)until fiscal years beginning after November 15, 2008 and interim periodswithin those fiscal years. The adoption of FSP 157-2 did not have any impact onthe Company’s financial position, results of operations and cash flows.

 

EffectiveDecember 27, 2008, the Company adopted FASB Statement No. 141(revised 2007), *Business Combinations*, (“FAS 141R”),which replaces FASB Statement No. 141, *Business Combinations*.FAS 141R establishes principles and requirements for how an acquirerrecognizes and measures in its financial statements the identifiable assetsacquired, the liabilities assumed, any noncontrolling interest in the acquireeand the goodwill acquired. FAS 141R also establishes disclosure requirementsthat will enable users to evaluate the nature and financial effects of thebusiness combination. As a result of the adoption of, and in accordance withFAS 141R, the Company expensed $0.7 million in deferred acquisition costsduring the three months ended March 27, 2009, which are included as partof selling, general and administrative expense.

 

Effective December 27, 2008, the Company adoptedFASB Statement No. 160, *Noncontrolling Interestsin Consolidated Financial Statements—an amendment of ARB No. 51*,(“FAS 160”). FAS 160 establishes accounting and reporting standards forownership interests in subsidiaries held by parties other than the parent, theamount of consolidated net income attributable to the parent and to thenoncontrolling interest, changes in a parent’s ownership interest, and thevaluation of retained noncontrolling equity investments when a subsidiary isdeconsolidated. FAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the interests of the parent and the interestsof the noncontrolling owners. FAS 160 applies to all entities that prepareconsolidated financial statements, except not-for-profit organizations, but willaffect only those entities that have an outstanding noncontrolling interest inone or more subsidiaries or that deconsolidate a subsidiary. The adoptionof FAS 160 did not have any impact on the Company’s financial position, resultsof operations and cash flows.

 

Effective December 27,2008, the Company adopted FASB Statement No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*, (“FAS 161”).FAS 161 is intended to improve financial reporting about derivative instrumentsand hedging activities by requiring enhanced disclosures to enable investors tobetter understand their effects on an entity’s financial position, financialperformance, and cash flows. The adoption of FAS 161 did not have any impact onthe Company’s financial position, results of operations and cash flows.

 

Effective December 27, 2008, the Company adoptedFASB Statement No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*, (“FAS 162”). FAS 162 isintended to improve financial reporting by identifying a consistent framework,or hierarchy, for selecting accounting principles to be used in preparingfinancial statements that are presented in conformity with generally acceptedaccounting principles (“GAAP”) for nongovernmental entities in the UnitedStates. The adoption of FAS 162 did not have any impact on the Company’sfinancial position, results of operations and cash flows.

 

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**2**.                                      ACCOUNTS RECEIVABLE

** **

The Company’s trade receivables are exposed to creditrisk. The majority of the market served by the Company is comprised of numerousindividual accounts, none of which is individually significant. The Companymonitors the creditworthiness of its customers on an ongoing basis and providesa reserve for estimated bad debt losses. If the financial condition of theCompany’s customers were to deteriorate, increases in its allowance fordoubtful accounts may be needed.

 

The activity in the allowance for doubtful accountsconsisted of the following (in thousands):

 

** **
| **Balance  at  December 26,  2008** | ** ** | **Charged  to  Expense(1)** | ** ** | **Deductions(2)** | ** ** | **Balance  at  March 27,  2009** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-------------------|------------|---------------------------------------|------------|
| $                                        | 12,140     |                        | $          | 4,992             |       | $                                     | (556       | ) | $ | 16,576 |   |
|                                          |            |                             |            |                   |            |                                       |            |  |  |  |  |

 

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(1)          Provision for doubtfulaccounts includes $3.0 million associated with a customer seeking Chapter 11bankruptcy protection in March 2009.

 

(2)          Accounts receivablewritten-off as uncollectible, net of recoveries.

 

**3**.                                      DEBT

** **

During the three months ended March 27, 2009, theCompany repurchased $36.4 million of its 81/8% senior subordinated notes at an average of 93.8% ofpar, or $34.2 million. In connection with the repurchase of the 81/8% seniorsubordinated notes, the Company recorded a gain on extinguishment of debt of$1.8 million net of $0.5 million in original issue discount and deferredfinancing costs written-off. In addition, during the three months ended March 27,2009, the Company repaid $5.2 million of its term loan ahead of schedule. As aresult of the $5.2 million repayment of term debt, the Company is not requiredto make another principal payment until the debt matures in 2013.

 

**4**.                                      SHAREHOLDER RIGHTS PLAN

** **

On March 22, 2009, the Board of Directors of Interline adopted a shareholder rights plan and authorized and declared a dividend distribution of one preferred stock purchase right (a “Right”) for each outstanding share of the Company’s common stock. The Rights are not exercisable unless an entity becomes, or launches a tender offer to become, the beneficial owner of 15% or more of the Company’s outstanding common stock (including derivative positions), subject to certain exceptions. The distribution was paid on April 2, 2009 to shareholders of record as of the close of business on April 2, 2009. Each Right, if and when it becomes exercisable, entitles the holder to buy 1/1000 of a share of our preferred stock, designated as Series A Junior Preferred Stock, par value $0.01 per share, at a price of $30.00 per 1/1000 of a share subject to adjustment (the “Exercise Price”). If any person or group becomes the beneficial owner of 15% or more of the Company’s common stock at any time after the date of the plan (with certain limited exceptions), then each Right not owned by such person or group will entitle its holder to purchase, at the Exercise Price, shares of the Company’s common stock or, in certain circumstances, common stock of the acquiring person, having a market value of twice the Exercise Price. The Rights will expire at the close of business on March 22, 2012, unless earlier redeemed or exchanged by the Company. The description and terms of the Rights are set forth in a rights agreement between the Company and Mellon Investor Services LLC, as the Rights Agent.

 

**5**.                                      RESTRUCTURING AND ACQUISITION ACCRUALS

** **

*Restructuring Accruals*

 

During the three months ended September 26, 2008, the Company began certain significant changes in its cost structure. These operational initiatives focus on reducing the Company’s overall operating cost structure. The Company took the following specific actions during the three months ended March 27, 2009:

 

·                  reduced its workforce; and

·                  closed and consolidated certain facilities.

 

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The restructuring charges related to these various initiatives were $2.4 million during the three months ended March 27, 2009 and are included as part of selling, general and administrative expenses. The following table summarizes the changes to accruals related to the Company’s restructuring, which are included in accrued expenses and other current liabilities (in thousands):

 

 
| ** **                        | ** ** | **Employee  Separation  Costs** | ** ** | **Facility  Closing and  Other Costs** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|---------------------------------|------------|----------------------------------------|------------|-----------|------------|
| Balance at December 26, 2008 |       | $                               | 330        |                                   | $          | 844       |       | $ | 1,174 |   |
| Provisions                        |       | 1,383                           |       | 991                                    |       | 2,374     |       |
| Payments                          |       | (655                            | )          | (491                                   | )          | (1,146    | )          |
| Fixed asset write-offs            |       | —                          |       | (17                                    | )          | (17       | )          |
| Balance at March 27, 2009    |       | $                               | 1,058      |                                   | $          | 1,327     |       | $ | 2,385 |   |

 

Employee separation costs include severance pay and other related benefits. Facility closing and other costs include lease tails, property and equipment disposals and other shut-down expenses.

 

*AcquisitionAccruals*

 

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 26, 2008 |       | $                                       | 95         |                                   | $          | 1,982     |       | $ | 2,077 |   |
| Payments                          |       | —                                  |       | (589                                   | )          | (589      | )          |
| Balance at March 27, 2009    |       | $                                       | 95         |                                   | $          | 1,393     |       | $ | 1,488 |   |

 

**6**.                                      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** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **March 27,**     | ** ** | **March 28,** | ** ** |
| ** **                                    | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Weighted average shares outstanding - basic   |       | 32,438,989             |       | 32,327,187 |   |
| Dilutive shares resulting from:               |       |                   |       |   |   |
| Stock options                                 |       | —                 |       | 211,076 |   |
| Restricted stock                              |       | —                 |       | 4,264 |   |
| Restricted share units                        |       | 71,393                 |       | 77,166 |   |
| Deferred stock units                          |       | 42,060                 |       | 24,858 |   |
| Weighted average shares outstanding - diluted |       | 32,552,442             |       | 32,644,551 |   |

 

During the three months ended March 27, 2009 and March 28,2008, stock options to purchase 3,772,548 shares and 1,768,656 shares of commonstock, respectively, were excluded from the computations of dilutedweighted-average shares outstanding because their effect would beanti-dilutive.

 

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**7.**                                      COMPREHENSIVE INCOME

** **

Comprehensiveincome refers to revenues, expenses, gains and losses that under accountingprinciples generally accepted in the United States are included incomprehensive income but are excluded from net income as these amounts arerecorded directly as an adjustment to shareholders’ equity, net of tax. Thecomponents of comprehensive income for the three months ended March 27,2009 and March 28, 2008 are as follows (in thousands):

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|
| ** **                                             | ** ** | **March 27,**     | ** ** | **March 28,** | ** ** |
| ** **                                             | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Net income                                             |       | $                      | 2,922      |   | $ | 8,674 |   |
| Other comprehensive income (loss):                     |       |                   |       |   |   |
| Amortization of unrecognized gain on employee benefits |       | 3                      |       | 3 |   |
| Foreign currency translation                           |       | (106                   | )          | (216 | ) |
| Total comprehensive income                             |       | $                      | 2,819      |   | $ | 8,461 |   |

 

**8.**                                      SHARE-BASED COMPENSATION

** **

During the threemonths ended March 27, 2009 and March 28, 2008, share-basedcompensation expense was $0.8 million and $0.6 million, respectively. As of March 27,2009, there was $9.0 million of total unrecognized share-based compensationexpense related to unvested share-based equity awards. The expense is expectedto be recognized over a weighted-average period of 3.0 years.

 

During the threemonths ended March 27, 2009 and March 28, 2008, the Company granted450,526 and 396,774 stock options, respectively, with a weighted-average grantdate fair value of $3.15 and $6.74, respectively. As permitted by FASBStatement No. 123 (revised 2004), *Share-Based Compensation*,(“FAS 123R”) the fair values of stock options were estimated using theBlack-Scholes option-pricing model. Expected volatility is based on historicalperformance of the Company’s stock. The Company also considers historical datato estimate the timing and amount of stock option exercises and forfeitures.The expected life represents the period of time that stock options are expectedto remain outstanding and is based on the contractual term of the stock optionsand expected 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** | ** ** |
|--------------------------|------------|------------------------|------------|
| ** **               | ** ** | **March 27,**     | ** ** | **March 28,** | ** ** |
| ** **               | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Expected volatility      |       | 42.6                   | %          | 33.4 | % |
| Expected dividends       |       | 0.0                    | %          | 0.0 | % |
| Risk-free interest rate  |       | 2.1                    | %          | 2.9 | % |
| Expected life (in years) |       | 5.0                    |       | 5.0 |   |

 

There were nostock options exercised during the three months ended March 27, 2009.Stock options exercised during the three months ended March 28, 2008 were33,645 with an intrinsic value of $0.1 million.

 

A summary statusof restricted stock, restricted share units and deferred stock units as of March 27,2009 and changes during the period 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 26, 2008 |       | 19,200               |       | $                          | 23.69      |                     | 254,256    |   | $ | 17.82 |   | 42,060 |   | $ | 21.08 |   |
| Granted                               |       | —               |       | —                     |       | 383,554                  |       | 7.89 |   | — |   | — |   |
| Outstanding at March 27, 2009    |       | 19,200               |       | $                          | 23.69      |                     | 637,810    |   | $ | 11.85 |   | 42,060 |   | $ | 21.08 |   |

 

No restrictedstock or restricted share units vested during the three months ended March 27,2009. During the three months 

 

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ended March 28,2008, 52,082 shares of restricted stock vested. The total fair value ofrestricted stock vested during the three months ended March 28, 2008 was$1.0 million. During the three months ended March 28, 2008, 81,876 sharesof restricted share units vested. The total fair value of restricted shareunits vested during the three months ended March 28, 2008 was $1.6million.

 

**9.**                                      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 March 27, 2009, the Companyreduced the liability for unrecognized tax benefits related to certain stateincome tax matters as a result of favorable resolutions in one state. Of the$0.2 million reduction, substantially all was related to gross unrecognized taxbenefits and less than $0.1 million was related to interest and penalties. Ofthese amounts, $0.1 million reduced the Company’s effective tax rate.

 

Areconciliation of the gross beginning and ending amounts of unrecognized taxbenefits is as follows (in thousands):

 
| Balance at December 26, 2008                    |   | $    | 320    |   |
|------------------------------------------------------|--------|------|--------|--------|
| Additions for tax positions taken during prior years |   | 6    |   |
| Settlements with taxing authorities                  |   | (176 | )      |
| Balance at March 27, 2009                       |   | $    | 150    |   |

 

**10.**                               GUARANTOR SUBSIDIARIES

** **

In June 2006, Interline New Jersey, the Company’sprincipal operating subsidiary, (“Interline New Jersey” or the “SubsidiaryIssuer”) issued $200.0 million of 81/8% seniorsubordinated notes due 2014 and entered into a $330.0 million bank creditfacility. The 81/8%senior subordinated notes and the bank credit facility are fully andunconditionally guaranteed, jointly and severally, on a senior subordinatedbasis by the Company (the “Parent Company”) and all of Interline New Jersey’s100% owned domestic subsidiaries: Wilmar Holdings, Inc., Wilmar Financial, Inc.,Glenwood Acquisition LLC and Eagle Maintenance Supply, Inc. (collectivelythe “Guarantor Subsidiaries”). Effective December 26, 2008, AmSan LLC wasmerged into Interline New Jersey.

 

The guarantees by the Parent Company and the GuarantorSubsidiaries are senior to any of their existing and future subordinatedobligations, equal in right of payment with any of their existing and futuresenior subordinated indebtedness and subordinated to any of their existing andfuture senior indebtedness.

 

The Parent Company is a holding company whose onlyasset is the stock of its subsidiaries. The Company conducts virtually all ofits business 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 March 27,2009, no dividends have been paid.

 

The following tables set forth, on a condensedconsolidating basis, the balance sheets, statements of operations andstatements of cash flows for the Parent Company, Subsidiary Issuer andGuarantor Subsidiaries for all financial statement periods presented in theCompany’s condensed consolidated financial statements. The non-guarantorsubsidiaries are minor and are included in the condensed financial data of theSubsidiary Issuer. The Subsidiary Issuer does not allocate integrationexpenses, corporate overhead or other expenses for shared services to theGuarantor Subsidiaries; therefore, the following tables do not reflect any suchallocation.

 

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** **

**CONDENSED CONSOLIDATING BALANCESHEET (UNAUDITED)**

**AS OF****MARCH 27, 2009**

**(in thousands)**

** **
| ** **                                     | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
|------------------------------------------------|------------|-----------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Company**     | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
| ** **                                     | ** ** | **(Guarantor)** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                     | ** ** | ** **      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Assets:                                |       |            |       |           |       |             |       |              |       |             |       |
| Cash and cash equivalents                      |       | $               | —     |           | $          | 80,474           |       | $                 | 217        |             | $          | — |   | $ | 80,691 |   |
| Accounts receivable - trade                    |       | —          |       | 124,676        |       | 1,738            |       | —            |       | 126,414          |       |
| Inventory                                      |       | —          |       | 198,005        |       | 1,593            |       | —            |       | 199,598          |       |
| Intercompany receivable                        |       | —          |       | —         |       | 122,882          |       | (122,882          | )          | —           |       |
| Other current assets                           |       | —          |       | 38,266         |       | 176              |       | —            |       | 38,442           |       |
| Total current assets                           |       | —          |       | 441,421        |       | 126,606          |       | (122,882          | )          | 445,145          |       |
|                                           |       |            |       |           |       |             |       |              |       |             |       |
| Property and equipment, net                    |       | —          |       | 47,432         |       | 118              |       | —            |       | 47,550           |       |
| Goodwill                                       |       | —          |       | 312,696        |       | 4,546            |       | —            |       | 317,242          |       |
| Other intangible assets, net                   |       | —          |       | 127,771        |       | 2,785            |       | —            |       | 130,556          |       |
| Investment in subsidiaries                     |       | 423,715         |       | 138,400        |       | —           |       | (562,115          | )          | —           |       |
| Other assets                                   |       | —          |       | 2,371          |       | 7,013            |       | (6                | )          | 9,378            |       |
| Total assets                                   |       | $               | 423,715    |           | $          | 1,070,091        |       | $                 | 141,068    |             | $          | (685,003 | ) | $ | 949,871 |   |
|                                           |       |            |       |           |       |             |       |              |       |             |       |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**       | ** ** | ** **      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Liabilities:                           |       |            |       |           |       |             |       |              |       |             |       |
| Accounts payable                               |       | $               | —     |           | $          | 85,186           |       | $                 | 920        |             | $          | — |   | $ | 86,106 |   |
| Accrued expenses and other current liabilities |       | —          |       | 37,788         |       | 1,810            |       | —            |       | 39,598           |       |
| Intercompany payable                           |       | —          |       | 122,882        |       | —           |       | (122,882          | )          | —           |       |
| Debt and capital lease - short-term            |       | —          |       | 246            |       | —           |       | —            |       | 246              |       |
| Total current liabilities                      |       | —          |       | 246,102        |       | 2,730            |       | (122,882          | )          | 125,950          |       |
|                                           |       |            |       |           |       |             |       |              |       |             |       |
| Long-Term Liabilities:                         |       |            |       |           |       |             |       |              |       |             |       |
| Term debt and capital lease - long-term        |       | —          |       | 361,104        |       | —           |       | —            |       | 361,104          |       |
| Other liabilities                              |       | —          |       | 39,108         |       | —           |       | (6                | )          | 39,102           |       |
| Total liabilities                              |       | —          |       | 646,314        |       | 2,730            |       | (122,888          | )          | 526,156          |       |
|                                           |       |            |       |           |       |             |       |              |       |             |       |
| Senior preferred stock                         |       | —          |       | 683,281        |       | —           |       | (683,281          | )          | —           |       |
|                                           |       |            |       |           |       |             |       |              |       |             |       |
| Shareholders' equity (deficit)                 |       | 423,715         |       | (259,504       | )          | 138,338          |       | 121,166           |       | 423,715          |       |
| Total liabilities and shareholders' equity     |       | $               | 423,715    |           | $          | 1,070,091        |       | $                 | 141,068    |             | $          | (685,003 | ) | $ | 949,871 |   |

 

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**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**ASOF****DECEMBER26, 2008**

**(inthousands)**

 
| ** **                                      | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
|-------------------------------------------------|------------|-----------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                      | ** ** | **Company**     | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
| ** **                                      | ** ** | **(Guarantor)** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                      | ** ** | ** **      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Assets:                                 |       |            |       |           |       |             |       |              |       |             |       |
| Cash and cash equivalents                       |       | $               | —     |           | $          | 61,741           |       | $                 | 983        |             | $          | — |   | $ | 62,724 |   |
| Accounts receivable - trade                     |       | —          |       | 110,964        |       | 28,558           |       | —            |       | 139,522          |       |
| Inventory                                       |       | —          |       | 188,622        |       | 22,578           |       | —            |       | 211,200          |       |
| Intercompany receivable                         |       | —          |       | —         |       | 123,615          |       | (123,615          | )          | —           |       |
| Other current assets                            |       | —          |       | 40,448         |       | 2,898            |       | —            |       | 43,346           |       |
| Total current assets                            |       | —          |       | 401,775        |       | 178,632          |       | (123,615          | )          | 456,792          |       |
|                                            |       |            |       |           |       |             |       |              |       |             |       |
| Property and equipment, net                     |       | —          |       | 42,730         |       | 3,303            |       | —            |       | 46,033           |       |
| Goodwill                                        |       | —          |       | 246,657        |       | 70,460           |       | —            |       | 317,117          |       |
| Other intangible assets, net                    |       | —          |       | 90,035         |       | 42,752           |       | —            |       | 132,787          |       |
| Investment in subsidiaries                      |       | 420,073         |       | 294,476        |       | —           |       | (714,549          | )          | —           |       |
| Other assets                                    |       | —          |       | 1,839          |       | 8,280            |       | —            |       | 10,119           |       |
| Total assets                                    |       | $               | 420,073    |           | $          | 1,077,512        |       | $                 | 303,427    |             | $          | (838,164 | ) | $ | 962,848 |   |
|                                            |       |            |       |           |       |             |       |              |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   | ** ** | ** **      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Liabilities:                            |       |            |       |           |       |             |       |              |       |             |       |
| Accounts payable                                |       | $               | —     |           | $          | 68,552           |       | $                 | —     |             | $          | (297 | ) | $ | 68,255 |   |
| Accrued expenses and other current liabilities  |       | —          |       | 26,506         |       | 5,960            |       | —            |       | 32,466           |       |
| Intercompany payable                            |       | —          |       | 123,615        |       | —           |       | (123,615          | )          | —           |       |
| Debt and capital lease - short-term             |       | —          |       | 1,859          |       | 5                |       | —            |       | 1,864            |       |
| Total current liabilities                       |       | —          |       | 220,532        |       | 5,965            |       | (123,912          | )          | 102,585          |       |
|                                            |       |            |       |           |       |             |       |              |       |             |       |
| Long-Term Liabilities:                          |       |            |       |           |       |             |       |              |       |             |       |
| Term debt and capital lease - long-term         |       | —          |       | 399,707        |       | 2,284            |       | —            |       | 401,991          |       |
| Other liabilities                               |       | —          |       | 37,497         |       | 702              |       | —            |       | 38,199           |       |
| Total liabilities                               |       | —          |       | 657,736        |       | 8,951            |       | (123,912          | )          | 542,775          |       |
|                                            |       |            |       |           |       |             |       |              |       |             |       |
| Senior preferred stock                          |       | —          |       | 660,236        |       | —           |       | (660,236          | )          | —           |       |
|                                            |       |            |       |           |       |             |       |              |       |             |       |
| Shareholders’ equity (deficit)             |       | 420,073         |       | (240,460       | )          | 294,476          |       | (54,016           | )          | 420,073          |       |
| Total liabilities and shareholders’ equity |       | $               | 420,073    |           | $          | 1,077,512        |       | $                 | 303,427    |             | $          | (838,164 | ) | $ | 962,848 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**FORTHE THREE MONTHS ENDED MARCH 27, 2009**

**(inthousands)**

 
| ** **                                            | ** ** | **Parent  Company  (Guarantor)** | ** ** | **Subsidiary  Issuer** | ** ** | **Guarantor  Subsidiaries(1)** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|--------------------------------|------------|--------------------------------|------------|------------------|------------|
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Net sales                                             |       | $                                | —     |                   | $          | 252,956                        |       | $                              | 3,837      |             | $          | — |   | $ | 256,793 |   |
| Cost of sales                                         |       | —                           |       | 157,778                |       | 2,419                          |       | —                         |       | 160,197          |       |
| Gross profit                                          |       | —                           |       | 95,178                 |       | 1,418                          |       | —                         |       | 96,596           |       |
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Operating Expenses:                                   |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Selling, general and administrative expenses          |       | —                           |       | 82,777                 |       | 1,143                          |       | —                         |       | 83,920           |       |
| Depreciation and amortization                         |       | —                           |       | 4,469                  |       | 165                            |       | —                         |       | 4,634            |       |
| Equity earnings of subsidiaries                       |       | (4,673                           | )          | (3,012                 | )          | —                         |       | 7,685                          |       | —           |       |
| Total operating expense                               |       | (4,673                           | )          | 84,234                 |       | 1,308                          |       | 7,685                          |       | 88,554           |       |
| Operating income                                      |       | 4,673                            |       | 10,944                 |       | 110                            |       | (7,685                         | )          | 8,042            |       |
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Gain on extinguishment of debt, net                   |       | —                           |       | 1,720                  |       | —                         |       | —                         |       | 1,720            |       |
| Interest and other (expense) income, net              |       | —                           |       | (6,044                 | )          | 4,813                          |       | (3,858                         | )          | (5,089           | )          |
| Income before income taxes                            |       | 4,673                            |       | 6,620                  |       | 4,923                          |       | (11,543                        | )          | 4,673            |       |
| Income tax provision                                  |       | 1,751                            |       | 158                    |       | 1,593                          |       | (1,751                         | )          | 1,751            |       |
| Net income                                            |       | 2,922                            |       | 6,462                  |       | 3,330                          |       | (9,792                         | )          | 2,922            |       |
| Preferred stock dividends                             |       | —                           |       | (23,045                | )          | —                         |       | 23,045                         |       | —           |       |
| Net income (loss) attributable to common stockholders |       | $                                | 2,922      |                   | $          | (16,583                        | )          | $                              | 3,330      |             | $          | 13,253 |   | $ | 2,922 |   |

 

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(1)   The SubsidiaryIssuer does not allocate integration expenses, corporate overhead or otherexpenses for shared services to the Guarantor Subsidiaries; therefore, theresults for the Guarantor Subsidiaries do not reflect any such allocation.

 

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**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**FORTHE THREE MONTHS ENDED MARCH 28, 2008**

**(inthousands)**

 
| ** **                                            | ** ** | **Parent  Company  (Guarantor)** | ** ** | **Subsidiary  Issuer** | ** ** | **Guarantor  Subsidiaries(1)** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|--------------------------------|------------|--------------------------------|------------|------------------|------------|
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Net sales                                             |       | $                                | —     |                   | $          | 224,576                        |       | $                              | 64,570     |             | $          | — |   | $ | 289,146 |   |
| Cost of sales                                         |       | —                           |       | 139,169                |       | 39,927                         |       | —                         |       | 179,096          |       |
| Gross profit                                          |       | —                           |       | 85,407                 |       | 24,643                         |       | —                         |       | 110,050          |       |
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Operating Expenses:                                   |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Selling, general and administrative expenses          |       | —                           |       | 70,644                 |       | 14,369                         |       | —                         |       | 85,013           |       |
| Depreciation and amortization                         |       | —                           |       | 3,216                  |       | 663                            |       | —                         |       | 3,879            |       |
| Equity earnings of subsidiaries                       |       | (14,111                          | )          | (5,360                 | )          | —                         |       | 19,471                         |       | —           |       |
| Total operating expense                               |       | (14,111                          | )          | 68,500                 |       | 15,032                         |       | 19,471                         |       | 88,892           |       |
| Operating income                                      |       | 14,111                           |       | 16,907                 |       | 9,611                          |       | (19,471                        | )          | 21,158           |       |
|                                                  |       |                             |       |                   |       |                           |       |                           |       |             |       |
| Interest and other (expense) income, net              |       | —                           |       | (5,860                 | )          | (904                           | )          | (283                           | )          | (7,047           | )          |
| Income before income taxes                            |       | 14,111                           |       | 11,047                 |       | 8,707                          |       | (19,754                        | )          | 14,111           |       |
| Income tax provision                                  |       | 5,437                            |       | 2,373                  |       | 3,064                          |       | (5,437                         | )          | 5,437            |       |
| Net income                                            |       | 8,674                            |       | 8,674                  |       | 5,643                          |       | (14,317                        | )          | 8,674            |       |
| Preferred stock dividends                             |       | —                           |       | (20,090                | )          | —                         |       | 20,090                         |       | —           |       |
| Net income (loss) attributable to common stockholders |       | $                                | 8,674      |                   | $          | (11,416                        | )          | $                              | 5,643      |             | $          | 5,773 |   | $ | 8,674 |   |
|                                                       |            |                                  |            |                        |            |                                |            |                                |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

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(1)   The SubsidiaryIssuer does not allocate integration expenses, corporate overhead or otherexpenses for shared services to the Guarantor Subsidiaries; therefore, theresults for the Guarantor Subsidiaries do not reflect any such allocation.

 

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**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOW (UNAUDITED)**

**FORTHE THREE MONTHS ENDED MARCH 27, 2009**

**(inthousands)**

 
| ** **                                                   | ** ** | **Parent  Company  (Guarantor)** | ** ** | **Subsidiary  Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|
|                                                         |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Net cash provided by (used in) operating activities          |       | $                                | —     |                   | $          | 63,890                      |       | $                              | (1,315     | )                | $          | — |   | $ | 62,575 |   |
| Cash Flows from Investing Activities:                        |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Purchase of property and equipment, net                      |       | —                           |       | (2,390                 | )          | (3                          | )          | —                         |       | (2,393           | )          |
| Purchase of businesses, net of cash acquired                 |       | —                           |       | (126                   | )          | —                      |       | —                         |       | (126             | )          |
| Other                                                        |       | —                           |       | (1,103                 | )          | —                      |       | 1,103                          |       | —           |       |
| Net cash (used in) provided by investing activities          |       | —                           |       | (3,619                 | )          | (3                          | )          | 1,103                          |       | (2,519           | )          |
| Cash Flows from Financing Activities:                        |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Decrease in purchase card payable, net                       |       | —                           |       | (1,677                 | )          | —                      |       | —                         |       | (1,677           | )          |
| Repayment of debt and capital lease obligations              |       | —                           |       | (6,221                 | )          | —                      |       | —                         |       | (6,221           | )          |
| Repayment of 81/8% senior subordinated  notes                |       | —                           |       | (34,157                | )          | —                      |       | —                         |       | (34,157          | )          |
| Other                                                        |       | —                           |       | —                 |       | 1,103                       |       | (1,103                         | )          | —           |       |
| Net cash (used in) provided by financing activities          |       | —                           |       | (42,055                | )          | 1,103                       |       | (1,103                         | )          | (42,055          | )          |
| Effect of exchange rate changes on cash and cash equivalents |       | —                           |       | (34                    | )          | —                      |       | —                         |       | (34              | )          |
| Net increase in cash and cash equivalents                    |       | —                           |       | 18,182                 |       | (215                        | )          | —                         |       | 17,967           |       |
| Cash and cash equivalents at beginning of period             |       | —                           |       | 62,293                 |       | 431                         |       | —                         |       | 62,724           |       |
| Cash and cash equivalents at end of period                   |       | $                                | —     |                   | $          | 80,475                      |       | $                              | 216        |             | $          | — |   | $ | 80,691 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOW (UNAUDITED)**

**FORTHE THREE MONTHS ENDED MARCH 28, 2008**

**(inthousands)**

 
| ** **                                                   | ** ** | **Parent  Company  (Guarantor)** | ** ** | **Subsidiary  Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|
|                                                         |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Net cash provided by (used in) operating activities          |       | $                                | —     |                   | $          | 37,725                      |       | $                              | (10,132    | )                | $          | 1,518 |   | $ | 29,111 |   |
| Cash Flows from Investing Activities:                        |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Purchase of property and equipment, net                      |       | —                           |       | (6,252                 | )          | (248                        | )          | —                         |       | (6,500           | )          |
| Purchase of short-term investments                           |       | —                           |       | (35,531                | )          | —                      |       | —                         |       | (35,531          | )          |
| Proceeds from sales and maturities of short-term investments |       | —                           |       | 80,071                 |       | —                      |       | —                         |       | 80,071           |       |
| Purchase of businesses, net of cash acquired                 |       | —                           |       | —                 |       | (8                          | )          | —                         |       | (8               | )          |
| Other                                                        |       | —                           |       | (10,407                | )          | —                      |       | 10,407                         |       | —           |       |
| Net cash provided by (used in) investing activities          |       | —                           |       | 27,881                 |       | (256                        | )          | 10,407                         |       | 38,032           |       |
| Cash Flows from Financing Activities:                        |       |                             |       |                   |       |                        |       |                           |       |             |       |
| Decrease in purchase card payable, net                       |       | —                           |       | (841                   | )          | —                      |       | —                         |       | (841             | )          |
| Repayment of debt and capital lease obligations              |       | —                           |       | (1,624                 | )          | (4                          | )          | —                         |       | (1,628           | )          |
| Other                                                        |       | —                           |       | 646                    |       | 10,407                      |       | (10,407                        | )          | 646              |       |
| Net cash (used in) provided by financing activities          |       | —                           |       | (1,819                 | )          | 10,403                      |       | (10,407                        | )          | (1,823           | )          |
| Effect of exchange rate changes on cash and cash equivalents |       | —                           |       | (59                    | )          | —                      |       | —                         |       | (59              | )          |
| Net increase in cash and cash equivalents                    |       | —                           |       | 63,728                 |       | 15                          |       | 1,518                          |       | 65,261           |       |
| Cash and cash equivalents at beginning of period             |       | —                           |       | 7,564                  |       | 18                          |       | (2,607                         | )          | 4,975            |       |
| Cash and cash equivalents at end of period                   |       | $                                | —     |                   | $          | 71,292                      |       | $                              | 33         |             | $          | (1,089 | ) | $ | 70,236 |   |

 

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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-Looking Statements**

 

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,

·                  credit market contractions,

·                  product cost and price fluctuations due to marketconditions,

·                  consumer spending and debt levels,

·                  adverse changes in trends in the home improvement andremodeling and home building markets,

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

·                  material facilities and systems disruptions andshutdowns,

·                  failure to realize expected benefits fromacquisitions,

·                  our ability to purchase products from suppliers onfavorable terms,

·                  the length of our supply chains,

·                  work stoppages or other business interruptions attransportation centers or shipping ports,

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

·                  currency exchange rates,

·                  the loss of significant customers,

·                  our ability to accurately predict market trends,

·                  failure to locate, acquire and successfully integrateacquisition 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. Item1A—Risk Factors” in our Annual Report on Form 10-K filed with the SEC.

 

You should keep in mindthat any forward-looking statement made by us in this report, or elsewhere,speaks only as of the date on which we make it. New risks and uncertaintiesarise from time to time, and it is impossible for us to predict these events orhow they may affect us. In light of these risks and uncertainties, you shouldkeep in mind that any forward-looking statement made in this report orelsewhere might not occur. Notwithstanding the foregoing, all information containedin this report is materially accurate as of the date of this report.

 

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**Overview**

 

We are a leading nationaldistributor and direct marketer of maintenance, repair and operations (“MRO”)products. We have one operating segment, the distribution of MRO products. Westock over 90,000 MRO products in the following categories: plumbing,janitorial and sanitary, electrical, lighting, hardware, security, heating,ventilation and air conditioning and other miscellaneous products. Our productsare primarily used for the repair, maintenance, remodeling and refurbishment ofproperties and non-industrial facilities. We are able to realize high marginsby focusing on repair, maintenance, remodeling and refurbishment customers, whogenerally make smaller, more frequent purchases and require high levels ofservice. Our diverse customer base includes facilities maintenance customers,which consist of multi-family housing facilities, educational institutions,lodging and health care facilities, government properties and building servicecontractors; professional contractors who are primarily involved in the repair,remodeling and construction of residential and non-industrial facilities; andspecialty distributors, including plumbing and hardware retailers. Ourcustomers range in size from individual contractors and independent hardwarestores to apartment management companies and national purchasing groups.

 

We market and sellour products primarily through twelve distinct and targeted brands, each ofwhich is nationally recognized in the markets we serve for providing premiumproducts at competitive prices with reliable same-day and/or next-day delivery.Our Wilmar, AmSan, Sexauer, Maintenance USA and Trayco brands generally serveour facilities maintenance customers; our Barnett, Copperfield, U.S. Lock, SunStar and Leran brands generally serve our professional contractor customers;and our Hardware Express and AF Lighting brands generally serve our specialtydistributors customers. Our multi-brand operating model, which we believe isunique in the industry, allows us to use a single platform to deliver tailoredproducts and services to meet the individual needs of each respective customergroup served. We reach our markets using a variety of sales channels, includinga sales force of over 600 field sales representatives and over 375 telesalesand customer service representatives, a direct marketing program ofapproximately five million pieces annually, brand-specific websites and anational accounts sales program. We deliver our products through our network oftwo national distribution centers (“NDCs”), 65 regional distribution centers,30 professional contractor showrooms located throughout the United States andCanada,  24 vendor-managed inventorylocations at large customer locations and a dedicated fleet of trucks. Ourbroad distribution network allows us the ability to provide reliable, same-dayand/or next-day delivery service to 98% of the U.S. population.

 

Our informationtechnology and logistics platform supports our major business functions,allowing us to market and sell our products at varying price points dependingon the customer’s service requirements. While we market our products under avariety of branded catalogs, generally our brands draw from the same inventorywithin 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**

 

The following tablepresents information derived from the condensed consolidated statements ofearnings expressed as a percentage of revenues for the three months ended March 27,2009 and March 28, 2008:

 
| ** **                                   | ** ** | **% of Net Sales**       | ** ** | **% Increase**           | ** ** |
|----------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                   | ** ** | **Three Months Ended**   | ** ** | **(Decrease)**           | ** ** |
| ** **                                   | ** ** | **March 27,  2009** | ** ** | **March 28,  2008** | ** ** | **2009  vs. 2008 (1)** | ** ** |
|                                         |       |                     |       |                     |       |   |   |
| Net sales                                    |       | 100.0                    | %          | 100.0                    | %          | (11.2 | )% |
| Cost of sales                                |       | 62.4                     |       | 61.9                     |       | (10.6 | ) |
| Gross profit                                 |       | 37.6                     |       | 38.1                     |       | (12.2 | ) |
|                                         |       |                     |       |                     |       |   |   |
| Operating Expenses:                          |       |                     |       |                     |       |   |   |
| Selling, general and administrative expenses |       | 32.7                     |       | 29.4                     |       | (1.3 | ) |
| Depreciation and amortization                |       | 1.8                      |       | 1.3                      |       | 19.5 |   |
| Total operating expense                      |       | 34.5                     |       | 30.7                     |       | (0.4 | ) |
| Operating income                             |       | 3.1                      |       | 7.3                      |       | (62.0 | ) |
|                                         |       |                     |       |                     |       |   |   |
| Gain on extinguishment of debt, net          |       | 0.7                      |       | —                   |       | 100.0 |   |
| Interest expense                             |       | (2.1                     | )          | (2.7                     | )          | (30.5 | ) |
| Interest income and other income             |       | 0.1                      |       | 0.2                      |       | (58.3 | ) |
| Income before income taxes                   |       | 1.8                      |       | 4.9                      |       | (66.9 | ) |
| Income tax provision                         |       | (0.7                     | )          | (1.9                     | )          | (67.8 | ) |
| Net income                                   |       | 1.1                      | %          | 3.0                      | %          | (66.3 | )% |

 

----

(1)          Percent increase(decrease) represents the actual change as a percent of the prior year’sresult.

 

*Overview.*During the three months ended March 27,2009, our sales declined 11.2%. We believe this decline is associated with thewidely reported general economic downturn and credit crisis. Demand fromcustomers in our facilities maintenance end-markets, which make up 72% of ourtotal sales and includes residential multi-family housing and institutional MROcustomers, declined 6.7% during the first quarter of 2009 compared to the firstquarter of 2008. Demand from our professional contractor and specialtydistributor customers, which represent 16% and 12% of our total sales,respectively, declined 27.3% and 9.4%, respectively. Demand from thesecustomers continues to be impacted by the prolonged declines in residential newconstruction activity and renovations activity.

 

Net income as a percentage of sales was 1.1% in thefirst quarter compared to 3.0% in the comparable prior year period. The declinein net income is a result of lower sales, increased bad debt expense primarilyassociated with a customer seeking Chapter 11 bankruptcy protection in March,severance and distribution center closing costs associated with our previouslydiscussed operational initiatives, such as headcount reductions andconsolidation of certain distribution centers, and the write-off of deferredacquisition costs due to the adoption of an accounting standard as well ashigher fixed costs, such as rent expense and other occupancy costs, driven byour Auburn, Massachusetts, and Richmond, Virginia distribution centerconsolidations and our new NDC in Salt Lake City, Utah, which opened during thethird quarter of 2008. These higher costs were offset in part by the net gainfrom the early extinguishment of debt and the lower interest expense associatedwith lower debt balances and a lower interest rate environment as well as thecost savings derived from the closing of underperforming professionalcontractor centers in 2008 and the consolidation of certain distributioncenters as mentioned above. 

 

We are continuing to focus on lowering our operatingcosts in the near term while continuing to invest in our operating platform forthe long term. Accordingly, in addition to the operational initiatives such asheadcount reductions, the closing of underperforming professional contractorshowrooms and the consolidation of distribution centers, some of which havebeen completed, our plans include continued investments in informationtechnology solutions to optimize customer service.

 

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*Three Months Ended March 27, 2009 Compared to ThreeMonths Ended March 28, 2008*

 

*Net Sales.*Our net sales decreased by $32.4 million, or11.2%, to $256.8 million in the three months ended March 27, 2009from $289.1 million in the three months ended March 28, 2008. Thedecline in sales resulted from the net impact of a 6.7% decrease in sales toour facilities maintenance customers and a continued decline in sales to ourprofessional contractor and specialty distributor customers of 27.3% and 9.4%,respectively. We expect sales to our facilities maintenance, professionalcontractor and specialty distributor end-markets to remain weak during theremainder of 2009 as the general economic downturn and credit crisis is expected to continue to affect thehousing market.

 

*GrossProfit.*Grossprofit decreased by $13.5 million, or 12.2%, to $96.6 million in thethree months ended March 27, 2009 from $110.1 million in the threemonths ended March 28, 2008 as a direct result of the decrease in sales.Our gross profit margin decreased 50 basis points to 37.6% for the three monthsended March 27, 2009 compared to 38.1% for the three months ended March 28,2008. The decrease in gross margin is primarily due to a decrease in sellingmargins associated with the decrease in sales demand.

 

*Selling, General and Administrative Expenses.*SG&A expenses decreased by $1.1million, or 1.3%, to $83.9 million in the three months ended March 27,2009 from $85.0 million in the three months ended March 28, 2008. As apercent of sales, SG&A increased to 32.7% for the three months ended March 27,2009 compared to 29.4% for the three months ended March 28, 2008. Theincrease in SG&A expenses as a percent of sales is primarily due to $3.9million in increased bad debt expense primarily associated with a customer seekingChapter 11 bankruptcy protection in March, $2.4 million in severance anddistribution center closing costs associated with our previously discussedoperational initiatives, such as headcount reductions and consolidation ofcertain distribution centers and the write-off of $0.7 million in deferredacquisition costs due to the adoption of Financial Accounting Standard Board (“FASB”)Statement No. 141 (revised 2007), *Business Combinations*. We haveincreased our accounts receivable reserve to adjust for higher levels of riskin our portfolio stemming from an unprecedented market environment. These costswere partially offset by the cost savings derived from the closing of underperformingprofessional contractor centers in 2008 and the consolidation of certaindistribution centers during the quarter.

 

*Depreciationand Amortization.*Depreciation and amortization expense increased by$0.8 million to $4.6 million in the three months ended March 27, 2009from $3.9 million in the three months ended March 28, 2008. As apercentage of sales, depreciation and amortization was 1.8% or 50 basis pointshigher than the 1.3% in the comparable prior year period. These increases weredue to higher depreciation resulting from our higher capital spending during2008 associated with our information systems infrastructure and distributioncenter consolidation and integration efforts.

 

*OperatingIncome.*As aresult of the foregoing, operating income decreased by $13.1 million, or 62.0%,to $8.0 million in the three months ended March 27, 2009 from $21.2million in the three months ended March 28, 2008. As a percent of sales,operating income decreased to 3.1% in the three months ended March 27,2009 compared to 7.3% in the three months ended March 28, 2008.

 

*Gain onExtinguishment of Debt*. Gain on extinguishment of debt was $1.7 million in thethree months ended March 27, 2009. During the three months ended March 27,2009, we repurchased $36.4 million of our 81/8% senior subordinated notes atan average of 93.8% of par, or $34.2 million. In addition, we repaid $5.2million of our term loan ahead of schedule. In connection with the repurchaseof our 81/8% senior subordinated notes and the term loan payment, werecorded a gain on extinguishment of debt of $1.7 million net of $0.5 millionin original issue discount and deferred financing costs written-off. We did not extinguish debt in the threemonths ended March 28, 2008.

 

*InterestExpense.*Interestexpense decreased by $2.4 million in the three months ended March 27, 2009to $5.4 million from $7.7 million in the three months ended March 28,2008. This decrease was primarily due to lower interest rates and lower debtbalances outstanding associated with the repayment of our term loan and therepurchase of our 81/8% senior subordinated notes.

 

*Interest andOther Income.*Interest and other income decreased $0.4 million to $0.3 million in the threemonths ended March 27, 2009 compared to $0.7 million in the three monthsended March 28, 2008. The decrease was primarily attributable to lowerinterest income earned resulting from lower interest rates on cash held inbanks and the decrease in short-term investment balances.

 

*Provisionfor Income Taxes.*Theeffective tax rate for the three months ended March 27, 2009 was 37.5%compared to 38.5% for the three months ended March 28, 2008. The decreasein the effective tax rate was primarily due to the decrease in a liabilityassociated with previously unrecognized tax benefits partially offset by anincrease in state taxes. During the three months ended March 27, 2009,we obtainedresolution related to an uncertain state tax position and accordingly weadjusted the accrual previously established. As such, we made the appropriateadjustments, of which $0.1 million favorably impacted our effective tax ratefor the three-month period.

 

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**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 $150.7 million of 81/8% senior subordinated notes due 2014 and a $330.0million bank credit facility. The 81/8% senior subordinated notes mature on June 15,2014 and interest is payable on June 15 and December 15 of each year.As of March 27, 2009, the 81/8% senior subordinated notes had an estimated fairmarket value of $136.7 million or 903⁄4% of par. The bank credit facilityconsists of a $230.0 million 7-year term loan and a $100.0 million 6-yearrevolving credit facility of which a portion not exceeding $40.0 million isavailable in the form of letters of credit. As of March 27, 2009,Interline New Jersey had $8.7 million of letters of credit issued underthe revolving loan facility and $209.2 million of aggregate principaloutstanding under the term loan facility.

 

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 or employeesand (provided Interline New Jersey is not in default) aggregate payments of upto $40.0 million depending on the pro forma net leverage ratio as of the lastday of the previous quarter. In addition, the indenture for the 81/8% seniorsubordinated notes generally restricts the ability of Interline New Jersey topay distributions to us and to make advances to, or investments in, us to anamount generally equal to 50% of the net income of Interline New Jersey, plusan amount equal to the net proceeds from certain equity issuances, subject tocompliance with a leverage ratio and no default having occurred and continuing.The indenture also contains certain permitted exceptions including (1) allowingus to pay our franchise taxes and other fees required to maintain our corporateexistence, to pay for general corporate and overhead expenses and to payexpenses 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 million. For further description of thecredit facility, see “—Credit Facility” below.

 

*FinancialCondition*

 

Working capital decreased by $35.0 million to $319.2million as of March 27, 2009 from $354.2 million as of December 26,2008. The decrease in working capital was primarily used to generate cash flowsfrom operating activities and pay down debt.

 

*Cash Flow*

 

*OperatingActivities.* Netcash provided by operating activities was $62.6 million in the threemonths ended March 27, 2009 compared to net cash provided by operatingactivities of $29.1 million in the three months ended March 28, 2008.

 

Net cash provided byoperating activities of $62.6 million in the three months ended March 27,2009 primarily consisted of net income of $2.9 million, adjustments fornon-cash items of $11.2 million and cash provided by working capital items of$48.5 million. Adjustments for non-cash items primarily consisted of $4.8million in depreciation and amortization of property, equipment and intangibleassets, $4.9 million in bad debt expense, $1.3 million in deferred incometaxes, $0.8 million in share-based compensation and $0.3 million inamortization of debt issuance costs offset by $1.7 million in net gain from therepurchase of $36.4 million of our 81/8% senior subordinated notes and the repayment of $5.2million of our term debt. The cash provided by working capital items primarilyconsisted of $8.1 million in lower trade receivables resulting from increasedcollections and the decline in sales, $11.6 million from decreased inventorylevels as a result of decreased purchases associated with expected demand, $5.8million from decreased prepaid expenses and other current assets primarily fromthe collection of rebates from vendors, $17.9 million from increased tradepayables balances as a result of the timing of purchases and related payments,$3.5 million from accrued expenses primarily from higher accrued compensationand related benefits at period-end and $2.5 million from accrued interest.These items were partially offset by $0.6 million used for income taxes.

 

Net cash provided byoperating activities of $29.1 million in the three months ended March 28,2008 primarily consisted of net income of $8.7 million, adjustments fornon-cash items of $6.3 million and cash provided by working capital items of$12.2 million. 

 

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Adjustments for non-cashitems primarily consisted of $4.0 million in depreciation and amortization ofproperty, equipment and intangible assets, $1.1 million in bad debt expense,$0.6 million in share-based compensation, $0.4 million in deferred income taxesand $0.3 million in amortization of debt issuance costs. The cash provided byworking capital items primarily consisted of $1.3 million in lower tradereceivables resulting from increased collections and the decline in sales, $3.2million from decreased prepaid expenses and other current assets primarily fromthe collection of rebates from vendors, $4.9 million from increased tradepayables balances as a result of the timing of purchases and related payments,$4.1 million from accrued interest and $1.8 million from the decrease in incometaxes. These items were partially offset by $3.3 million from accrued expensesprimarily from lower accrued compensation and related benefits at period-end.

 

*Investing Activities.* Net cash used in investingactivities was $2.5 million in the three months ended March 27, 2009compared to net cash provided by investing activities of $38.0 million in thethree months ended March 28, 2008.

 

Net cash used in investingactivities in the three months ended March 27, 2009 was primarily attributable to capitalexpenditures made in the ordinary course of business of $2.4 million.

 

Net cash provided byinvesting activities in the three months ended March 28, 2008 wasattributable to net proceeds from sales and maturities of short-terminvestments of $44.5 million offset by capital expenditures made in theordinary course of business of $6.5 million.

 

*FinancingActivities.* Netcash used in financing activities totaled $42.1 million in the threemonths ended March 27, 2009 compared to net cash used in financingactivities of $1.8 million in the three months ended March 28, 2008.

 

Net cash used in financing activities in the threemonths ended March 27, 2009 was attributable to our repurchase of $36.4million of our 81/8%senior subordinated notes at an average of 93.8% of par, or $34.2 million, ourrepayment of $6.2 million of borrowings on our credit facility and capitallease obligations and the net decrease in purchase card payable of $1.7million.

 

Net cash used in financing activities in the threemonths ended March 28, 2008 was attributable to our repayment of $1.6million of borrowings on our credit facility and capital lease obligations andthe net decrease in purchase card payable of $0.8 million offset by $0.6million of proceeds from stock options exercised and excess tax benefits fromshare-based compensation.

 

*CapitalExpenditures*

 

Capitalexpenditures were $2.4 million in the three months ended March 27, 2009compared to $6.5 million in the three months ended March 28, 2008. In addition,during the three months ended March 27, 2009, we acquired $2.4 million ofproperty through lease incentives and on account. Capital expenditures as a percentage of sales were0.9% in the three months ended March 27, 2009 compared to 2.2% in thethree months ended March 28, 2008. The decrease in capital expenditures isthe result of the higher than normal levels of capital expenditures incurredduring the three months ended March 28, 2008 to upgrade ourtelecommunications network, the expansion of our distribution centernetwork, the purchase of warehouse equipment and investments in our informationtechnology systems necessary for the integration of 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 the revolvingcredit facility bear interest, at Interline New Jersey’s option, at eitherLIBOR plus 1.50% or at the alternate base rate plus 0.50%. As of March 27,2009, the interest rate in effect with respect to the term loan and the delayeddraw facility was 2.22% for the LIBOR option and 4.00% 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”), as defined by the credit facility. The term loan and the delayeddraw facility mature on June 23, 2013 and the revolving loan facilitymatures on June 23, 2012. Amounts under the term loan and the delayed drawfacility are due and payable in quarterly installments equal to 1.0% of theoriginal principal amount on an annual basis through June 23, 2013, withthe balance payable in one final installment 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 

 

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InterlineNew Jersey to maintain certain financial ratios as of the last day of eachfiscal quarter, including a minimum ratio based on an adjusted consolidatedEBITDA, as defined by the credit facility, to consolidated cash interest expenseand a maximum ratio of net total indebtedness to an adjusted consolidatedEBITDA, as defined by the credit facility. As of March 27, 2009, themaximum ratio of net total indebtedness to adjusted consolidated EBITDA, asdefined by the credit facility, was 3.5. Interline New Jersey and the Companywere in compliance with all covenants at March 27, 2009.

 

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.

 

*Liquidity*

 

Historically, ourcapital requirements have been for debt service obligations, working capitalrequirements, including inventory, accounts receivable and accounts payable,acquisitions, the expansion and maintenance of our distribution network andupgrades of our information systems. We expect this to continue in the foreseeablefuture. Historically, we have funded these requirements through cash flowgenerated from operating activities and funds borrowed under our creditfacility. 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 creditfacility, are used to support payment obligations incurred for our generalcorporate purposes.

 

As of March 27, 2009, we had $37.9 million of availabilityunder Interline New Jersey’s $100.0 million revolving credit facilityafter the limitation under the bank credit facility’s ratio of net totalindebtedness to adjusted consolidated EBITDA, as defined by the creditfacility. Prior to December 26, 2008, one of the financial institutions thatsupport our revolving credit facility failed, effectively limiting the size ofthe current revolver commitment to $83.0 million. Our effective borrowingcapacity is reduced by the limitation under the bank credit facility’s ratio ofnet total indebtedness to adjusted consolidated EBITDA, as defined by thecredit facility, and by the failure of one of the financial institutions thatsupport our revolving credit facility. Also as of March 27, 2009, we had$80.7 million of total cash on hand (including $25.0 million to be nettedagainst debt for purposes of covenant compliance).

 

We believe thatcash and cash equivalents, cash flow from operations and available borrowingcapacity under our credit facility will be adequate to finance our ongoingoperational cash flow needs and debt service obligations for the next twelvemonths.

 

*ContractualObligations*

 

Our contractualobligations are disclosed in our Annual Report on Form 10-K for the yearended December 26, 2008 filed with the SEC. Except for the repurchase of$36.4 million of our 81/8% senior subordinated notes and repayment of $5.2 million of ourterm debt as discussed above and in Note 3 to our unaudited condensedconsolidated financial statements, there have been no material changes to ourcontractual obligations since December 26, 2008.

 

**Critical Accounting Policies**

 

In preparing theunaudited condensed consolidated financial statements in conformity withaccounting principles generally accepted in the United States of America,management is required to make certain estimates, judgments and assumptions.These estimates, judgments and assumptions affect the reported amounts ofassets and liabilities, including the disclosure of contingent assets andliabilities, at the date of the financial statements and the reported amountsof revenues and expenses during the periods presented. On an ongoing basis,management evaluates these estimates and assumptions. Management bases itsestimates and assumptions on historical experience and on various other factorsthat are believed to be reasonable at the time the estimates and assumptionsare made. Actual results may differ from these estimates and assumptions underdifferent circumstances or conditions.

 

Our critical accountingpolicies are included in our Annual Report on Form 10-K for the year endedDecember 26, 2008 filed with the SEC. During the three months ended March 27,2009, there were no significant changes to any of our critical accountingpolicies.

 

**Recently Adopted Accounting Standards**

 

Effective December 27, 2008, we adopted FASBStaff Position 157-2, *Effective Date of FASBStatement No. 157*, (“FSP 157-2”). FSP 157-2 amends FASBStatement No. 157, *Fair Value Measurements,*(“FAS 157”) to defer the effective date of FAS 157 for non-financial assets andnon-financial liabilities, except for items that are recognized or disclosed atfair value in the financial 

 

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statementson a recurring basis (at least annually) until fiscal years beginning after November 15,2008 and interim periods within those fiscal years. The adoption of FSP 157-2did not have any impact on our financial position, results of operations andcash flows.

 

EffectiveDecember 27, 2008, we adopted FASB Statement No. 141(revised 2007), *Business Combinations*, (“FAS 141R”),which replaces FASB Statement No. 141, *Business Combinations*.FAS 141R establishes principles and requirements for how an acquirerrecognizes and measures in its financial statements the identifiable assetsacquired, the liabilities assumed, any noncontrolling interest in the acquireeand the goodwill acquired. FAS 141R also establishes disclosure requirementsthat will enable users to evaluate the nature and financial effects of thebusiness combination. As a result of the adoption of, and in accordance withFAS 141R, we expensed $0.7 million in deferred acquisition costs during thethree months ended March 27, 2009, which are included as part of selling,general and administrative expense.

 

Effective December 27, 2008,we adopted FASBStatement No. 160, *Noncontrolling Interestsin Consolidated Financial Statements—an amendment of ARB No. 51*,(“FAS 160”). FAS 160 establishes accounting and reporting standards forownership interests in subsidiaries held by parties other than the parent, theamount of consolidated net income attributable to the parent and to thenoncontrolling interest, changes in a parent’s ownership interest, and thevaluation of retained noncontrolling equity investments when a subsidiary isdeconsolidated. FAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the interests of the parent and the interestsof the noncontrolling owners. FAS 160 applies to all entities that prepareconsolidated financial statements, except not-for-profit organizations, butwill affect only those entities that have an outstanding noncontrollinginterest in one or more subsidiaries or that deconsolidate asubsidiary. The adoption of FAS 160 did not have any impact on ourfinancial position, results of operations and cash flows.

 

EffectiveDecember 27, 2008, we adopted FASB Statement No. 161, *Disclosures about Derivative Instruments and Hedging Activities*,(“FAS 161”). FAS 161 is intended to improve financial reporting aboutderivative instruments and hedging activities by requiring enhanced disclosuresto enable investors to better understand their effects on an entity’s financialposition, financial performance, and cash flows. The adoption of FAS 161 didnot have any impact on our financial position, results of operations and cashflows.

 

Effective December 27, 2008, we adopted FASBStatement No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*, (“FAS 162”). FAS 162 isintended to improve financial reporting by identifying a consistent framework,or hierarchy, for selecting accounting principles to be used in preparingfinancial statements that are presented in conformity with generally acceptedaccounting principles (“GAAP”) for nongovernmental entities in the UnitedStates. The adoption of FAS 162 did not have any impact on our financialposition, results of operations and cash flows.

 

**ITEM 3. Quantitative and Qualitative DisclosuresAbout Market Risk**

 

*Commodity Price Risk*

 

We are aware of the potentially unfavorable effectsinflationary pressures may create through higher product and material costs,higher asset replacement costs and related depreciation and higher interestrates. In addition, our operating performance is affected by price fluctuationsin copper, oil, stainless steel, aluminum, zinc, plastic and PVC and othercommodities and raw materials. We seek to minimize the effects of inflation andchanging prices through economies of purchasing and inventory managementresulting in cost reductions and productivity improvements as well as priceincreases to maintain reasonable profit margins. However, such commodity pricefluctuations have from time to time created cyclicality in our financialperformance, and could continue to do so in the future. In addition, our use ofpriced catalogs may not allow us to offset such cost increases quickly,resulting in a decrease in gross margins and profit.

 

*InterestRate Risk*

 

Our variable rate term debt is sensitive to changes inthe general level of interest rates. As of March 27, 2009, the interestrate in effect with respect to our $209.2 million variable rate term debt was2.22% for the LIBOR option and 4.00% 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 March 27, 2009, a 1.0% annualincrease or decrease in current market interest rates would have the effect ofcausing a $0.5 million pre-tax change to our statement of operations for thethree months ended March 27, 2009.

 

The fair market value of ourfixed rate debt is subject to interest rate risk. As of March 27, 2009,the fair market value of our $150.7 million 81/8% senior subordinated notes was approximately $136.7 million or903⁄4% 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 March 27, 2009.

 

*DerivativeFinancial Instruments*

 

As of March 27, 2009, we did not have anyinterest rate 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 paid a fixedrate on the notional amount to our banks and the banks paid 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. Controlsand Procedures**

 

*Evaluation of Disclosure Controlsand Procedures*

 

Our management, with the participation of our ChiefExecutive Officer and Chief Financial Officer (our principal executive officerand principal financial officer), evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of March 27, 2009. Based on this evaluation, ourChief Executive Officer and Chief Financial Officer concluded that, as of March 27,2009, our disclosure controls and procedures were effective to (1) ensurethat material information disclosed by us in the reports that we file or submitunder the Exchange Act is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, to allowtimely decisions regarding required disclosure and (2) ensure thatinformation required to be disclosed by us in the reports that we file orsubmit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms.

 

*Changes in Internal Control overFinancial Reporting*

 

No change in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the quarter ended March 27, 2009 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II. OTHERINFORMATION**

 

**ITEM1. Legal Proceedings**

 

We are involved in variouslegal proceedings that have arisen in the ordinary course of our business andhave not been fully adjudicated. These actions, when ultimately concluded anddetermined, will not, in the opinion of management, have a material effect uponour consolidated financial position, results of operations or liquidity.

 

**ITEM 1A. Risk Factors**

 

For information regarding factors that couldaffect our financial position, results of operations and cash flows, see therisk factors discussion provided in our Annual Report on Form 10-K for theyear ended December 26, 2008 in Part I. Item 1A. Risk Factors. See also “Part I. Item 2—ForwardLooking Statements” above.

 

There have been nomaterial changes from the risk factors previously disclosed in our AnnualReport on Form 10-K for the year ended December 26, 2008.

 

**ITEM2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

*Unregistered Sales of EquitySecurities*

 

None.

 

*Purchases of Equity Securities bythe Issuer*

 

None.

 

**ITEM 3. Defaults Upon Senior Securities**

 

None.

 

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

 

None.

 

**ITEM 5. Other Information**

 

None.

 

**ITEM 6. Exhibits**

 

Thefollowing exhibits are being filed as part 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 ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned hereunto duly authorized.

 
|                   |   | **INTERLINE BRANDS, INC.**                                               |
|------------------------|--------|--------------------------------------------------------------------------|
|                   |   | Registrant                                                               |
|                   |   |                                                                     |
|                   |   |                                                                     |
| Date: May 4, 2009 | By:    | /S/ THOMAS J. TOSSAVAINEN                                                |
|                   |   | Thomas J. Tossavainen                                                    |
|                   |   | Chief Financial Officer                                                  |
|                   |   | (Duly Authorized Signatory, Principal  Financial and Accounting Officer) |

 

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