**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 28, 2008****                                                |

 

****or****

 
| **o**                                                                      | ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934****                                                                                                |
|----------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                 | **** ****                                                                                                                                                                                       |
| ****           **** | ****For the transition period from                          to**** |

 

****Commission File Number: 001-32380****

 

**INTERLINE BRANDS, INC.**

(Exact name of registrant as specified in its charter)

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

 

**(904) 421-1400**

(Registrant’s telephone number, including area code)

 

**Not Applicable**

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x     No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act. 

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

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

Yes o     No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 5, 2008, there were 32,384,316 shares of the registrant’s common stock outstanding (excluding 81,393 shares held in treasury), par value $0.01.

 

 

 

**TABLE OF CONTENTS**

 
| ****ITEM****                               | **** ****                                                                                                                 | ** **     | ****PAGE**** |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|----------------|--------------|
| **** ****                             | ** **                                                                                                                     | **** **** |
| ****PART I. FINANCIAL INFORMATION**** |
| **** ****                             |
| ****1.****                                 | ****Financial Statements (Unaudited)****                                                                                       |           |         |
|                                       | ****Condensed Consolidated Balance Sheetsas of March 28, 2008 and December 28, 2007****                              | ****1****      |
|                                       | ****Condensed Consolidated Statements of Earnings for the Three Months Ended March 28, 2008 and March 30, 2007****   | ****2****      |
|                                       | ****Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 28, 2008 and March 30, 2007**** | ****3****      |
| **** ****                             | ****Notes to Condensed Consolidated Financial Statements****                                                                   | ****5****      |
| ****2.****                                 | ****Management’s Discussion and Analysis of Financial Condition and Results of Operations****                             | ****18****     |
| ****3.****                                 | ****Quantitative and Qualitative Disclosures about Market Risk****                                                             | ****25****     |
| ****4.****                                 | ****Controls and Procedures****                                                                                                | ****26****     |
| ****PART II. OTHER INFORMATION****    |
| ****1.****                                 | ****Legal Proceedings****                                                                                                      | ****27****     |
| ****1A.****                                | ****Risk Factors****                                                                                                           | ****27****     |
| ****2.****                                 | ****Unregistered Sales of Equity Securities and Use of Proceeds****                                                            | 27             |
| ****3.****                                 | ****Defaults Upon Senior Securities****                                                                                        | 27             |
| 4.                                         | Submission of Matters to a Vote of Security Holders                                                                            | 27             |
| 5.                                         | Other Information                                                                                                              | 27             |
| ****6.****                                 | ****Exhibits****                                                                                                               | ****28****     |
| **** ****                             | **** ****                                                                                                                 | **** **** |
| ****SIGNATURES****                         | ****29****                                                                                                                     |
|                                            |                                                                                                                                |                |              |  |  |

 

 

**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. Financial Statements**

** **

**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**AS OFMARCH 28, 2008 AND DECEMBER 28, 2007**

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

 
| ** **                                                                                                                                                                                                     | ** ** | **March 28,** | ** ** | **December 28,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                     | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                                                                                                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                                                |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                      |       | $                  | 70,236     |                  | $          | 4,975 |   |
| Short-term investments                                                                                                                                                                                         |       | 4,000              |       | 48,540                |       |
| Accounts receivable - trade (net of  allowance for doubtful accounts of $7,978 and $7,268)                                                                                                                     |       | 152,072            |       | 154,571               |       |
| Inventory                                                                                                                                                                                                      |       | 190,813            |       | 190,974               |       |
| Prepaid expenses and other current assets                                                                                                                                                                      |       | 20,429             |       | 23,664                |       |
| Deferred income taxes                                                                                                                                                                                          |       | 15,920             |       | 15,359                |       |
| Total current assets                                                                                                                                                                                           |       | 453,470            |       | 438,083               |       |
|                                                                                                                                                                                                           |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                                                    |       | 41,036             |       | 37,131                |       |
| Goodwill                                                                                                                                                                                                       |       | 313,470            |       | 313,462               |       |
| Other intangible assets, net                                                                                                                                                                                   |       | 135,042            |       | 136,734               |       |
| Other assets                                                                                                                                                                                                   |       | 9,559              |       | 11,424                |       |
| Total assets                                                                                                                                                                                                   |       | $                  | 952,577    |                  | $          | 936,834 |   |
|                                                                                                                                                                                                           |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                  | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                                           |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                               |       | $                  | 65,080     |                  | $          | 60,159 |   |
| Accrued expenses and other current  liabilities                                                                                                                                                                |       | 38,805             |       | 42,175                |       |
| Accrued interest                                                                                                                                                                                               |       | 4,952              |       | 838                   |       |
| Income taxes payable                                                                                                                                                                                           |       | 2,982              |       | 1,173                 |       |
| Current portion of long-term debt                                                                                                                                                                              |       | 2,300              |       | 2,300                 |       |
| Capital lease - current                                                                                                                                                                                        |       | 222                |       | 218                   |       |
| Total current liabilities                                                                                                                                                                                      |       | 114,341            |       | 106,863               |       |
|                                                                                                                                                                                                           |       |               |       |                  |       |
| Long-Term Liabilities:                                                                                                                                                                                         |       |               |       |                  |       |
| Deferred income taxes                                                                                                                                                                                          |       | 34,426             |       | 33,351                |       |
| Long-term debt, net of current portion                                                                                                                                                                         |       | 414,750            |       | 416,290               |       |
| Capital lease - long term                                                                                                                                                                                      |       | 407                |       | 464                   |       |
| Other liabilities                                                                                                                                                                                              |       | 2,469              |       | 2,452                 |       |
| Total liabilities                                                                                                                                                                                              |       | 566,393            |       | 559,420               |       |
| Commitments and contingencies                                                                                                                                                                                  |       |               |       |                  |       |
| Senior preferred stock; $0.01 par value,  20,000,000 shares authorized;  no shares outstanding as of March 28, 2008 and December 28, 2007                                                            |       | —             |       | —                |       |
|                                                                                                                                                                                                           |       |               |       |                  |       |
| Shareholders’ Equity:                                                                                                                                                                                     |       |               |       |                  |       |
| Common stock; $0.01 par value, 100,000,000  authorized; 32,465,709 issued and 32,384,316 outstanding as of March 28,  2008 and 32,350,188 issued and 32,308,105 outstanding as of December 28,  2007 |       | 325                |       | 324                   |       |
| Additional paid-in capital                                                                                                                                                                                     |       | 568,940            |       | 567,860               |       |
| Accumulated deficit                                                                                                                                                                                            |       | (182,992           | )          | (191,666              | )          |
| Accumulated other comprehensive income                                                                                                                                                                         |       | 1,538              |       | 1,751                 |       |
| Treasury stock, at cost, 81,393 shares as  of March 28, 2008 and 42,083 shares as of December 28, 2007                                                                                               |       | (1,627             | )          | (855                  | )          |
| Total shareholders’ equity                                                                                                                                                                                |       | 386,184            |       | 377,414               |       |
| Total liabilities and shareholders’ equity                                                                                                                                                                |       | $                  | 952,577    |                  | $          | 936,834 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

1

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**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)**

**THREEMONTHS ENDED MARCH 28, 2008 AND MARCH 30, 2007**

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

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **March 28,**     | ** ** | **March 30,** | ** ** |
| ** **                                    | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Net sales                                     |       | $                      | 289,146    |   | $ | 295,403 |   |
| Cost of sales                                 |       | 179,096                |       | 183,109 |   |
| Gross profit                                  |       | 110,050                |       | 112,294 |   |
|                                          |       |                   |       |   |   |
| Operating Expenses:                           |       |                   |       |   |   |
| Selling, general and administrative  expenses |       | 85,013                 |       | 85,305 |   |
| Depreciation and amortization                 |       | 3,879                  |       | 3,551 |   |
| Total operating expense                       |       | 88,892                 |       | 88,856 |   |
| Operating income                              |       | 21,158                 |       | 23,438 |   |
|                                          |       |                   |       |   |   |
| Interest expense                              |       | (7,742                 | )          | (8,560 | ) |
| Interest and other income                     |       | 695                    |       | 605 |   |
| Income before income taxes                    |       | 14,111                 |       | 15,483 |   |
| Income tax provision                          |       | 5,437                  |       | 6,043 |   |
| Net income                                    |       | $                      | 8,674      |   | $ | 9,440 |   |
|                                          |       |                   |       |   |   |
| Earnings Per Share:                           |       |                   |       |   |   |
| Basic                                         |       | $                      | 0.27       |   | $ | 0.29 |   |
| Diluted                                       |       | $                      | 0.27       |   | $ | 0.29 |   |
|                                          |       |                   |       |   |   |
| Weighted-Average Shares Outstanding:          |       |                   |       |   |   |
| Basic                                         |       | 32,327,187             |       | 32,217,839 |   |
| Diluted                                       |       | 32,644,551             |       | 32,603,148 |   |

 
| *See accompanying notes to condensed  consolidated financial statements.* |
|---------------------------------------------------------------------------|

 

2

 

**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

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

**THREEMONTHS ENDED MARCH 28, 2008 AND MARCH 30, 2007**

**(inthousands)**

**** ****
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                               | ** ** | **March 28,**     | ** ** | **March 30,** | ** ** |
| ** **                                                                               | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Cash Flows from Operating Activities:                                                    |       |                   |       |   |   |
| Net income                                                                               |       | $                      | 8,674      |   | $ | 9,440 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:       |       |                   |       |   |   |
| Depreciation and amortization                                                            |       | 3,993                  |       | 3,761 |   |
| Amortization of debt issuance costs                                                      |       | 281                    |       | 271 |   |
| Amortization of discount on 81/8% senior subordinated notes                              |       | 36                     |       | 33 |   |
| Share-based compensation                                                                 |       | 552                    |       | 1,496 |   |
| Excess tax benefits from share-based  compensation                                       |       | (24                    | )          | (158 | ) |
| Deferred income taxes                                                                    |       | 396                    |       | (299 | ) |
| Provision for doubtful accounts                                                          |       | 1,077                  |       | 824 |   |
| Gain on disposal of property and equipment                                               |       | —                 |       | (6 | ) |
|                                                                                     |       |                   |       |   |   |
| Changes in assets and liabilities which  provided (used) cash, net of business acquired: |       |                   |       |   |   |
| Accounts receivable - trade                                                              |       | 1,341                  |       | (10,570 | ) |
| Inventory                                                                                |       | 67                     |       | 6,301 |   |
| Prepaid expenses and other current assets                                                |       | 3,231                  |       | 6,177 |   |
| Other assets                                                                             |       | 1,865                  |       | (270 | ) |
| Accounts payable                                                                         |       | 4,943                  |       | 11,544 |   |
| Accrued expenses and other current  liabilities                                          |       | (3,284                 | )          | (2,475 | ) |
| Accrued interest                                                                         |       | 4,114                  |       | 1,606 |   |
| Income taxes payable                                                                     |       | 1,830                  |       | 2,715 |   |
| Other liabilities                                                                        |       | 19                     |       | 57 |   |
| Net cash provided by operating activities                                                |       | 29,111                 |       | 30,447 |   |
|                                                                                          |            |                        |            |  |  |  |  |

 

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

**** ****

****3****

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**INTERLINE BRANDS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)-ContinuedTHREE MONTHS ENDED MARCH 28, 2008 AND MARCH 30, 2007(in thousands)**

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **March 28,**     | ** ** | **March 30,** | ** ** |
| ** **                                                                   | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Cash Flows from Investing Activities:                                        |       |                   |       |   |   |
| Purchase of property and equipment, net                                      |       | (6,500                 | )          | (3,517 | ) |
| 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                                |       | (8                     | )          | (3 | ) |
| Net cash provided by (used in) investing  activities                         |       | 38,032                 |       | (3,520 | ) |
| Cash Flows from Financing Activities:                                        |       |                   |       |   |   |
| Increase in purchase card payable, net                                       |       | (841                   | )          | 1,580 |   |
| Repayment of term debt                                                       |       | (1,575                 | )          | (604 | ) |
| Payment of debt issuance costs                                               |       | —                 |       | (34 | ) |
| Proceeds from stock options exercised                                        |       | 505                    |       | 187 |   |
| Excess tax benefits from share-based  compensation                           |       | 141                    |       | 158 |   |
| Payments on capital lease obligations                                        |       | (53                    | )          | (129 | ) |
| Net cash (used in) provided by financing  activities                         |       | (1,823                 | )          | 1,158 |   |
| Effect of exchange rate changes on cash and  cash equivalents                |       | (59                    | )          | 7 |   |
| Net increase in cash and cash equivalents                                    |       | 65,261                 |       | 28,092 |   |
| Cash and cash equivalents at beginning of  period                            |       | 4,975                  |       | 6,852 |   |
| Cash and cash equivalents at end of period                                   |       | $                      | 70,236     |   | $ | 34,944 |   |
|                                                                         |       |                   |       |   |   |
| Supplemental Disclosure of Cash Flow  Information:                           |       |                   |       |   |   |
| Cash paid during the period for:                                             |       |                   |       |   |   |
| Interest                                                                     |       | $                      | 3,706      |   | $ | 7,139 |   |
| Income taxes, net of refunds                                                 |       | $                      | 2,990      |   | $ | 3,905 |   |
|                                                                         |       |                   |       |   |   |
| Schedule of Non-Cash Investing and  Financing Activities:                    |       |                   |       |   |   |
| Adjustments to liabilities assumed and  goodwill on businesses acquired      |       | $                      | —     |   | $ | 154 |   |
| Treasury stock acquired with accrued  expenses and other current liabilities |       | $                      | 772        |   | $ | 317 |   |
|                                                                              |            |                        |            |  |  |  |  |  |

 

*See accompanying notes to condensed consolidated financial statements.*

 

4

 

**INTERLINEBRANDS, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

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

 

***Business***

 

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

 

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

 

DuringDecember 2004, the Company completed its initial public offering (“IPO”).Immediately prior to the closing of the IPO, a reincorporation merger occurredand the Company became the parent company of its principal operatingsubsidiary, Interline Brands, Inc., a New Jersey corporation (“InterlineNew Jersey”).

 

*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 Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in this report and the audited consolidated financial statements andrelated notes included in the Company’s Annual Report on Form 10-K for thefiscal year ended December 28, 2007 filed with the SEC.

 

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

 

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

 

*Prior Period Correction*

 

Subsequent to the filing of the interim condensedconsolidated financial statements for the three months ended March 30,2007, the Company corrected its balance sheet and statement of cash flowspresentation for certain activity under a purchase card agreement. Previously,payments under this agreement made by a third-party intermediary on the Company’sbehalf and outstanding at the end of a reporting period, were classified asaccounts payable in the balance sheet and related cash flows were classified ascash flows from operating activities in the statement of cash flows. TheCompany determined that the appropriate accounting treatment was to presentoutstanding amounts as accrued expenses and other liabilities on its balancesheet and as cash flows from financing activities, net of payments to thethird-party intermediary. As a result, the Company has corrected the condensed

 

5

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consolidated statement of cash flows for the threemonths ended March 30, 2007 to properly present these activities. TheCompany does not believe this constitutes a material misstatement to the condensedconsolidated statement of cash flows for the three months ended March 30,2007.

 

The corrections made to the interim condensedconsolidated statement of cash flows for the three months ended March 30,2007 are as follows (in thousands):

 
| ** **                                        | ** ** | **As Reported** | ** ** | **Adjustment** | ** ** | **As Corrected** | ** ** |
|---------------------------------------------------|------------|-----------------|------------|----------------|------------|------------------|------------|
| Net change  in accounts payable                   |       | $               | 13,124     |           | $          | (1,580           | )          | $ | 11,544 |   |
| Net cash  provided by operating activities        |       | $               | 32,027     |           | $          | (1,580           | )          | $ | 30,447 |   |
| Increase in  purchase card payable, net           |       | $               | —     |           | $          | 1,580            |       | $ | 1,580 |   |
| Net cash  (used) provided by financing activities |       | $               | (422       | )              | $          | 1,580            |       | $ | 1,158 |   |

 

*Segment Information*

 

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

 

Our net sales for the three months ended March 28,2008 and March 30, 2007 by product category were as follows (inthousands):

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **March 28,**     | ** ** | **March 30,** | ** ** |
| **Product Category**                       | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Plumbing                                   |       | $                      | 89,636     |   | $ | 96,006 |   |
| Janitorial  and sanitary                   |       | 69,106                 |       | 67,647 |   |
| Electrical  and lighting                   |       | 28,915                 |       | 32,199 |   |
| Heating,  ventilation and air conditioning |       | 23,682                 |       | 24,541 |   |
| Security                                   |       | 15,903                 |       | 15,066 |   |
| Appliances  and parts                      |       | 15,614                 |       | 15,361 |   |
| Hardware and  tools                        |       | 13,012                 |       | 12,998 |   |
| Other                                      |       | 33,278                 |       | 31,585 |   |
| Total                                      |       | $                      | 289,146    |   | $ | 295,403 |   |

 

*Recently Adopted Accounting Standards*

 

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

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

 

6

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The determination of where assets and liabilities fallwithin this hierarchy is based upon the lowest level of input that issignificant to the fair value measurement. The following is a listing of ourassets required to be measured at fair value on a recurring basis and wherethey are classified within the hierarchy as of March 28, 2008 (inthousands):

 
| ** **                 | ** ** | **Significant  Unobservable  Inputs   (Level 3)** | ** ** | **Fair Value at  March 28,  2008** | ** ** |
|----------------------------|------------|---------------------------------------------------|------------|-----------------------------------------|------------|
| Auction rate securities(1) |       | $                                                 | 4,000      |                                    | $          | 4,000 |   |
| Total                      |       | $                                                 | 4,000      |                                    | $          | 4,000 |   |

 

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(1)          The fair values of auctionrate securities held by the Company have been estimated based on variousfactors, including the strong credit quality of the auction rate securities,rate of interest received since failed auctions began, yields of securitiessimilar to the underlying auction rate securities, limited input from the issuersand broker-dealers, and the Company’s ability and intent to hold thesesecurities until an orderly market returns or develops. The securities havebeen classified within level 3 as their valuation requires substantial judgmentand estimation of factors that are not currently observable in the market dueto the lack of trading in the securities. The valuation may be revised infuture periods as market conditions evolve. See Note 2. Short-Term Investments.

 

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

 
| ** **                           | ** ** | **Quoted  Prices in  Active  (Level 1)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------|------------|
| Fair value at December 28, 2007 |       | $                                        | 48,540     |                                             | $          | — |   |
| Purchase                             |       | 35,531                                   |       | —                                           |       |
| Sales                                |       | (78,071                                  | )          | (2,000                                           | )          |
| Transfers (out) in                   |       | (6,000                                   | )          | 6,000                                            |       |
| Fair value at March 28, 2008    |       | $                                        | —     |                                             | $          | 4,000 |   |

 

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

 

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

 

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

 

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

 

7

----

 

*Recently Issued Accounting Pronouncements*

 

In March 2008, the Financial Accounting StandardsBoard issued FASB Statement No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities*, (“FAS 161”). FAS 161is intended to improve financial reporting about derivative instruments andhedging activities by requiring enhanced disclosures to enable investors tobetter understand their effects on an entity’s financial position, financialperformance, and cash flows. The provisions of FAS 161 are effective forfinancial statements issued for fiscal years and interim period beginning afterNovember 15, 2008 with early application encouraged. The Company iscurrently evaluating the impact the provisions of FAS 161 will have on itsfinancial position, results of operations and cash flows.

 

**2**.             SHORT-TERM INVESTMENTS

** **

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

 

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

 

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

 

**3.             ACQUISITIONACCRUALS**

** **

The following table summarizes the changes to accruals assumed in connection with the Company’s business combinations (in thousands):

 
| ** **                        | ** ** | **Employee  Severance and  Relocation** | ** ** | **Facility  Closing and  Other Costs** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------|------------|
| Balance at December 28, 2007 |       | $                                       | 268        |                                   | $          | 4,177     |       | $ | 4,445 |   |
| Payments                          |       | (48                                     | )          | (153                                   | )          | (201      | )          |
| Balance at March 28, 2008    |       | $                                       | 220        |                                   | $          | 4,024     |       | $ | 4,244 |   |

 

**4**.             EARNINGS PER  SHARE

** **

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

 

8

----

 

 

Thefollowing summarizes the shares of common stock used to calculate earnings pershare including the potentially dilutive impact of stock options, restrictedstock, restricted share units and deferred stock units, calculated using thetreasury stock method, as included in the calculation of dilutedweighted-average shares:

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 28,**               | ** ** | **March 30,** | ** ** |
| ** **                                                                   | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Weighted average shares outstanding - basic Dilutive shares resulting  from: |       | 32,327,187                       |       | 32,217,839 |   |
| Stock options                                                                |       | 211,076                          |       | 312,170 |   |
| Restricted stock                                                             |       | 4,264                            |       | 27,778 |   |
| Restricted share units                                                       |       | 77,166                           |       | 44,516 |   |
| Deferred stock units                                                         |       | 24,858                           |       | 845 |   |
| Weighted average shares outstanding - diluted                                |       | 32,644,551                       |       | 32,603,148 |   |

 

Duringthe three months ended March 28, 2008 and March 30, 2007, stockoptions to purchase 1,768,656 shares and 668,665 shares of common stock,respectively, were excluded from the computations of diluted weighted-averageshares outstanding because their effect would be anti-dilutive.

 

**5.**             COMPREHENSIVEINCOME

** **

Comprehensive incomerefers to revenues, expenses, gains and losses that under accounting principlesgenerally accepted in the United States are included in comprehensive incomebut are excluded from net income as these amounts are recorded directly as anadjustment to shareholders’ equity, net of tax. The components of comprehensiveincome for the three months ended March 28, 2008 and March 30, 2007are as follows (in thousands):

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **March 28,**               | ** ** | **March 30,** | ** ** |
| ** **                                             | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Net income                                             |       | $                                | 8,674      |   | $ | 9,440 |   |
| Other comprehensive income (loss):                     |       |                             |       |   |   |
| Amortization of unrecognized gain on employee benefits |       | 3                                |       | (77 | ) |
| Foreign currency translation                           |       | (216                             | )          | 39 |   |
| Total comprehensive income                             |       | $                                | 8,461      |   | $ | 9,402 |   |

 

**6.**             SHARE-BASEDCOMPENSATION

** **

During the three monthsended March 28, 2008 and March 30, 2007, share-based compensationexpense was $0.6 million and $1.5 million, respectively. As of March 28,2008, there was $7.6 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 2.8 years.

 

9

----

 

During the three monthsended March 28, 2008 and March 30, 2007, the Company granted 396,774and 402,851 stock options, respectively, with a weighted-average grant datefair value of $6.74 and $6.78, respectively. As permitted by FASB Statement No. 123(revised 2004), *Share-Based Compensation*, (“FAS123R”) the fair values of stock options were estimated using the Black-Scholesoption-pricing model. Expected volatility is based on historical performance ofthe Company’s stock. The Company also uses historical data to estimate thetiming and amount of stock option exercises and forfeitures. The expected liferepresents the period of time that stock options are expected to remainoutstanding and is based on the contractual term of the stock options andexpected exercise behavior. The risk-free interest rate is based on U.S. Treasuryzero-coupon issues with a remaining term equal to the expected option lifeassumed at the date of grant. The Black-Scholes weighted-average assumptionswere as follows:

 
| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **March 28,**               | ** ** | **March 30,** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Expected volatility      |       | 33.4                             | %          | 27.0 | % |
| Expected dividends       |       | 0.0                              | %          | 0.0 | % |
| Risk-free interest rate  |       | 2.9                              | %          | 4.5 | % |
| Expected life (in years) |       | 5.0                              |       | 5.0 |   |

 

Stock options exercisedduring the three months ended March 28, 2008 and March 30, 2007 were33,645 and 12,461, respectively, with an intrinsic value of $0.1 million and$0.1 million, respectively.

 

A summary status ofrestricted stock, restricted share units and deferred stock units as of March 28,2008, and changes during the year is presented below:

 
| ** **                            | ** ** | **Restricted Stock** | ** ** | **Restricted Share Units** | ** ** | **Deferred Stock Units** | ** ** |
|---------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | ** **                | ** ** | **Weighted-**                        | ** ** | ** **                         | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| ** **                            | ** ** | ** **                | ** ** | **Average**                          | ** ** | ** **                         | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                            | ** ** | ** **                | ** ** | **Grant Date**                  | ** ** | ** **                         | ** ** | **Grant Date** | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                            | ** ** | **Shares**                | ** ** | **Fair Value**                  | ** ** | **Shares**                         | ** ** | **Fair Value** | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding at December 28, 2007 |       | 79,482                    |       | $                                    | 17.73      |                               | 369,252    |   | $ | 22.22 |   | 27,283 |   | $ | 24.10 |   |
| Granted                               |       | —                    |       | —                               |       | 186,759                            |       | 19.63 |   | 1,158 |   | 18.33 |   |
| Vested                                |       | (52,082                   | )          | 15.00                                |       | (81,876                            | )          | 23.32 |   | — |   | — |   |
| Forfeited                             |       | —                    |       | —                               |       | (1,594                             | )          | 23.32 |   | — |   | — |   |
| Outstanding at March 28, 2008    |       | 27,400                    |       | $                                    | 22.92      |                               | 472,541    |   | $ | 21.00 |   | 28,441 |   | $ | 23.86 |   |

 

During the three monthsended March 28, 2008 and March 30, 2007, 52,082 and 54,770 shares of restrictedstock vested, respectively. The total fair value of restricted stock vestedduring the three months ended March 28, 2008 and March 30, 2007 was $1.0million and $1.1 million, respectively. During the three months ended March 28,2008, 81,876 shares of restricted share units vested. The total fair value ofrestricted share units vested during the three months ended March 28, 2008 was$1.6 million. No restricted share units vested during the three months endedMarch 30, 2007.

 

**7.**             GUARANTORSUBSIDIARIES

** **

In June 2006, Interline New Jersey (the “SubsidiaryIssuer”) issued $200.0 million of 81/8% senior subordinated notes due 2014 andentered into a $330.0 million bank credit facility. The 81/8% seniorsubordinated notes and the bank credit facility are fully and unconditionallyguaranteed, jointly and severally, on a senior subordinated basis by theCompany (the “Parent Company”) and all of Interline New Jersey’s 100% owneddomestic subsidiaries: Wilmar Holdings, Inc., Wilmar Financial, Inc., GlenwoodAcquisition LLC and AmSan LLC (collectively the “Guarantor Subsidiaries”). Theguarantees by the Parent Company and the Guarantor Subsidiaries are senior toany of their existing and future subordinated obligations, equal in right ofpayment with any of their existing and future senior subordinated indebtednessand subordinated to any of their existing and future senior indebtedness.

 

The Company is a holding company whose only asset isthe stock of its subsidiaries. The Company conducts virtually all of itsbusiness operations through Interline New Jersey. Accordingly, the Company’sonly material sources of cash are dividends and distributions with respect toits ownership interests in Interline New Jersey that are derived from theearnings and cash flow generated by Interline New Jersey. Through March 28,2008, 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 

 

10

----

 

presentedin the Company’s 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.

 

11

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**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**AS OF MARCH 28,2008**

**(inthousands)**

 
| ** **                                      | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                      | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Assets:                                 | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Cash and cash equivalents                       |       | $           | —     |           | $          | 71,292           |       | $                 | 33         |             | $          | (1,089 | ) | $ | 70,236 |   |
| Short-term investments                          |       | —      |       | 4,000          |       | —           |       | —            |       | 4,000            |       |
| Accounts receivable - trade                     |       | —      |       | 125,435        |       | 26,637           |       | —            |       | 152,072          |       |
| Inventory                                       |       | —      |       | 170,558        |       | 20,255           |       | —            |       | 190,813          |       |
| Intercompany receivable                         |       | —      |       | —         |       | 114,586          |       | (114,586          | )          | —           |       |
| Other current assets                            |       | —      |       | 34,279         |       | 2,070            |       | —            |       | 36,349           |       |
| Total current assets                            |       | —      |       | 405,564        |       | 163,581          |       | (115,675          | )          | 453,470          |       |
| ** **                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Property and equipment, net                     |       | —      |       | 38,130         |       | 2,906            |       | —            |       | 41,036           |       |
| Goodwill                                        |       | —      |       | 247,206        |       | 66,264           |       | —            |       | 313,470          |       |
| Other intangible assets, net                    |       | —      |       | 94,089         |       | 40,953           |       | —            |       | 135,042          |       |
| Investment in subsidiaries                      |       | 386,184     |       | 264,787        |       | —           |       | (650,971          | )          | —           |       |
| Other assets                                    |       | —      |       | 1,739          |       | 7,820            |       | —            |       | 9,559            |       |
| Total assets                                    |       | $           | 386,184    |           | $          | 1,051,515        |       | $                 | 281,524    |             | $          | (766,646 | ) | $ | 952,577 |   |
| ** **                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Current Liabilities:                            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Accounts payable                                |       | $           | —     |           | $          | 58,370           |       | $                 | 7,799      |             | $          | (1,089 | ) | $ | 65,080 |   |
| Accrued expenses and other current liabilities  |       | —      |       | 40,864         |       | 5,875            |       | —            |       | 46,739           |       |
| Intercompany payable                            |       | —      |       | 114,586        |       | —           |       | (114,586          | )          | —           |       |
| Debt and capital lease - short-term             |       | —      |       | 2,514          |       | 8                |       | —            |       | 2,522            |       |
| Total current liabilities                       |       | —      |       | 216,334        |       | 13,682           |       | (115,675          | )          | 114,341          |       |
| ** **                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Long-Term Liabilities:                          | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Term debt and capital lease - long-term         |       | —      |       | 412,870        |       | 2,287            |       | —            |       | 415,157          |       |
| Other liabilities                               |       | —      |       | 36,127         |       | 768              |       | —            |       | 36,895           |       |
| Total liabilities                               |       | —      |       | 665,331        |       | 16,737           |       | (115,675          | )          | 566,393          |       |
| ** **                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Senior preferred stock                          |       | —      |       | 595,660        |       | —           |       | (595,660          | )          | —           |       |
| ** **                                      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Shareholders’ equity (deficit)             |       | 386,184     |       | (209,476       | )          | 264,787          |       | (55,311           | )          | 386,184          |       |
| Total liabilities and shareholders’ equity |       | $           | 386,184    |           | $          | 1,051,515        |       | $                 | 281,524    |             | $          | (766,646 | ) | $ | 952,577 |   |

 

12

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**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**AS OFDECEMBER 28, 2007**

**(inthousands)**

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

 

13

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**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**FOR THETHREE MONTHS ENDED MARCH 28, 2008**

**(inthousands)**

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

 

14

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**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**FOR THETHREE MONTHS ENDED MARCH 30, 2007**

**(inthousands)**

 
| ** **                                            | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
|                                                  |       |        |       |           |       |                |       |              |       |             |       |
| Net sales                                             |       | $           | —     |           | $          | 231,856             |       | $                 | 63,547     |             | $          | — |   | $ | 295,403 |   |
| Cost of sales                                         |       | —      |       | 144,374        |       | 38,735              |       | —            |       | 183,109          |       |
| Gross profit                                          |       | —      |       | 87,482         |       | 24,812              |       | —            |       | 112,294          |       |
|                                                  |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                   |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative expenses          |       | —      |       | 70,779         |       | 14,526              |       | —            |       | 85,305           |       |
| Depreciation and amortization                         |       | —      |       | 2,884          |       | 667                 |       | —            |       | 3,551            |       |
| Equity earnings of subsidiaries                       |       | (15,483     | )          | (4,988         | )          | —              |       | 20,471            |       | —           |       |
| Total operating expense                               |       | (15,483     | )          | 68,675         |       | 15,193              |       | 20,471            |       | 88,856           |       |
| Operating income                                      |       | 15,483      |       | 18,807         |       | 9,619               |       | (20,471           | )          | 23,438           |       |
|                                                  |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net              |       | —      |       | (6,339         | )          | (1,397              | )          | (219              | )          | (7,955           | )          |
| Income before income taxes                            |       | 15,483      |       | 12,468         |       | 8,222               |       | (20,690           | )          | 15,483           |       |
| Income tax provision                                  |       | 6,043       |       | 3,028          |       | 3,015               |       | (6,043            | )          | 6,043            |       |
| Net income                                            |       | 9,440       |       | 9,440          |       | 5,207               |       | (14,647           | )          | 9,440            |       |
| Preferred stock dividends                             |       | —      |       | (17,513        | )          | —              |       | 17,513            |       | —           |       |
| Net income (loss) attributable to common stockholders |       | $           | 9,440      |           | $          | (8,073              | )          | $                 | 5,207      |             | $          | 2,866 |   | $ | 9,440 |   |

 

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

 

15

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

**FOR THETHREE MONTHS ENDED MARCH 28, 2008**

**(inthousands)**

 
| ** **                                                   | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **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 |   |

 

16

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

**FOR THETHREE MONTHS ENDED MARCH 30, 2007**

**(inthousands)**

 
| ** **                                                   | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                                   | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net cash provided by operating activities                    |       | $           | —     |           | $          | 28,567           |       | $                 | 1,110      |             | $          | 770 |   | $ | 30,447 |   |
| Cash Flows from Investing Activities:                        |       |        |       |           |       |             |       |              |       |             |       |
| Purchase of property and equipment, net                      |       | —      |       | (3,210         | )          | (307             | )          | —            |       | (3,517           | )          |
| Purchase of businesses, net of cash acquired                 |       | —      |       | 767            |       | 209              |       | (979              | )          | (3               | )          |
| Net cash used in investing activities                        |       | —      |       | (2,443         | )          | (98              | )          | (979              | )          | (3,520           | )          |
| Cash Flows from Financing Activities:                        |       |        |       |           |       |             |       |              |       |             |       |
| Increase in purchase card payable, net                       |       | —      |       | 1,580          |       | —           |       | —            |       | 1,580            |       |
| Repayment of debt and capital lease obligations              |       | —      |       | (701           | )          | (32              | )          | —            |       | (733             | )          |
| Other                                                        |       | —      |       | 311            |       | (979             | )          | 979               |       | 311              |       |
| Net cash provided by (used in) financing activities          |       | —      |       | 1,190          |       | (1,011           | )          | 979               |       | 1,158            |       |
| Effect of exchange rate changes on cash and cash equivalents |       | —      |       | 7              |       | —           |       | —            |       | 7                |       |
| Net increase in cash and cash equivalents                    |       | —      |       | 27,321         |       | 1                |       | 770               |       | 28,092           |       |
| Cash and cash equivalents at beginning of period             |       | —      |       | 8,783          |       | 15               |       | (1,946            | )          | 6,852            |       |
| Cash and cash equivalents at end of period                   |       | $           | —     |           | $          | 36,104           |       | $                 | 16         |             | $          | (1,176 | ) | $ | 34,944 |   |

 

17

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

 

*Referencesto “us” and “we” are to the Company. You should read the following discussionin conjunction with our unaudited condensed consolidated financial statementsand related notes included in this quarterly report, and our auditedconsolidated financial statements and related notes and Management’s Discussionand Analysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K filed with the Securities and ExchangeCommission (“SEC”).*

 

**Forward-LookingStatements**

 

Thisreport contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 (the “Exchange Act”) that are subject to risks and uncertainties.You should not place undue reliance on those statements because they aresubject to numerous uncertainties and factors relating to our operations andbusiness environment, all of which are difficult to predict and many of whichare beyond our control. Forward-looking statements include informationconcerning our possible or assumed future results of operations, includingdescriptions of our business strategy. These statements often include wordssuch as “may,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate”or similar expressions. These statements are based on assumptions that we havemade in light of our experience in the industry as well as our perceptions ofhistorical trends, current conditions, expected future developments and otherfactors we believe are appropriate under the circumstances. As you read andconsider this report, you should understand that these statements are notguarantees of performance or results. They involve risks, uncertainties andassumptions. Although we believe that these forward-looking statements arebased on reasonable assumptions, you should be aware that many factors couldaffect our actual financial results or results of operations and could causeactual results to differ materially from those in the forward-lookingstatements. These factors include:

 

·      economicslowdowns,

·      generalmarket conditions,

·      consumerspending and debt levels,

·      adversechanges in trends in the home improvement and remodeling and home buildingmarkets,

·      thehighly competitive nature of the maintenance, repair and operationsdistribution industry,

·      materialfacilities and systems disruptions and shutdowns,

·      failureto realize expected benefits from acquisitions,

·      ourability to purchase products from suppliers on favorable terms,

·      thelength of our supply chains,

·      workstoppages or other business interruptions at transportation centers orshipping ports,

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

·      currencyexchange rates,

·      theloss of significant customers,

·      ourability to accurately predict market trends,

·      productcost and price fluctuations due to market conditions,

·      failureto locate, acquire and successfully integrate acquisition candidates,

·      dependenceon key employees,

·      ourinability to protect trademarks,

·      adversepublicity and litigation,

·      ourlevel of debt,

·      interestrate fluctuations,

·      futurecash flows,

·      changesin consumer preferences,

·      laborand benefit costs,

·      weatherconditions, and

·      theother factors described under “Part I. Item 1A—Risk Factors” in our AnnualReport on Form 10-K filed with the SEC.

 

You should keep in mind that any forward-lookingstatement made by us in this report, or elsewhere, speaks only as of the dateon which we make it. New risks and uncertainties arise from time to time, andit is impossible for us to predict these events or how they may affect us. Inlight of these risks and uncertainties, you should keep in mind that anyforward-looking statement made in this report or elsewhere might not occur.Notwithstanding the foregoing, all information contained in this report ismaterially accurate as of the date of this report.

 

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**Overview**

 

Weare a leading national distributor and direct marketer of maintenance, repairand operations (“MRO”) products. We stock over 85,000 plumbing, electrical,hardware, security, heating, ventilation and air conditioning (“HVAC”),janitorial and sanitary and other MRO products and sell to a diversifiedcustomer base made up of professional contractors, facilities maintenanceprofessionals and specialty distributors. Our products are primarily used forthe repair, maintenance, remodeling and refurbishment of properties andnon-industrial facilities. We are able to realize high operating margins byfocusing 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.

 

Wemarket and sell our products primarily through ten distinct and targetedbrands, each of which is nationally recognized in the markets we serve forproviding premium products at competitive prices with reliable same-day and/ornext-day delivery. Our Wilmar, Sexauer, Maintenance USA and AmSan brandsgenerally serve our facilities maintenance customers; our Barnett, U.S. Lock,Sun Star and Copperfield brands generally serve our professional contractorcustomers; and our Hardware Express and AF Lighting brands generally serve ourspecialty distributors customers. Our multi-brand operating model, which webelieve is unique in the industry, allows us to use a single platform todeliver tailored products and services to meet the individual needs of eachrespective customer group served. We reach our markets using a variety of saleschannels, including a sales force of over 660 field sales representatives andover 480 telesales and customer service representatives, a direct marketingprogram of approximately five million pieces annually, brand-specific websitesand a national accounts sales program. We deliver our products through ournetwork of 74 regional distribution centers, 39 professional contractorshowrooms located throughout the United States and Canada, a nationaldistribution center, or NDC, in Nashville, Tennessee, 21 vendor-managedinventory locations at large customer locations and a dedicated fleet oftrucks. Our broad distribution network allows us the ability to providereliable, same-day and/or next-day delivery service to 98% of the U.S.population.

 

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

 

19

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**Resultsof Operations**

 

The following table presentsinformation derived from the condensed consolidated statements of earningsexpressed as a percentage of revenues for the three months ended March 28,2008 and March 30, 2007:

 
| ** **                                    | ** ** | **% of Net Sales** | ** ** | **% Increase** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|---------------------|------------|
| ** **                                    | ** ** | **Three Months Ended**  | ** ** | **(Decrease)**      | ** ** |
| ** **                                    | ** ** | **March 28,**                | ** ** | **March 30,**  | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **2008**                          | ** ** | **2007**            | ** ** | **vs. 2007 (1)** | ** ** |
|                                          |       |                              |       |                |       |   |   |
| Net sales                                     |       | 100.0                             | %          | 100.0               | %          | (2.1 | )% |
| Cost of sales                                 |       | 61.9                              |       | 62.0                |       | (2.2 | ) |
| Gross profit                                  |       | 38.1                              |       | 38.0                |       | (2.0 | ) |
|                                          |       |                              |       |                |       |   |   |
| Operating Expenses:                           |       |                              |       |                |       |   |   |
| Selling, general and administrative  expenses |       | 29.4                              |       | 28.9                |       | (0.3 | ) |
| Depreciation and amortization                 |       | 1.3                               |       | 1.2                 |       | 9.2 |   |
| Total operating expense                       |       | 30.7                              |       | 30.1                |       | 0.0 |   |
| Operating income                              |       | 7.3                               |       | 7.9                 |       | (9.7 | ) |
|                                          |       |                              |       |                |       |   |   |
| Interest expense                              |       | (2.7                              | )          | (2.9                | )          | (9.6 | ) |
| Interest income and other income              |       | 0.2                               |       | 0.2                 |       | 14.9 |   |
| Income before income taxes                    |       | 4.9                               |       | 5.2                 |       | (8.9 | ) |
| Income tax provision                          |       | (1.9                              | )          | (2.0                | )          | (10.0 | ) |
| Net income                                    |       | 3.0                               | %          | 3.2                 | %          | (8.1 | )% |

 

----

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

 

*Overview.*During the three months ended March 28,2008, our sales declined 2.1%. We believe that this decline is associated withthe net impact of slower economic conditions in the general housing marketoffset in part by demand in the facilities maintenance end-markets,specifically our multi-family housing customers. Demand from customers in ourfacilities maintenance end-markets, which make up 68% of our total sales andincludes residential multi-family housing and institutional MRO customers, grew4.5% during the first quarter of 2008 compared to the first quarter of 2007.This sales growth was offset by a continued slow down in demand from ourprofessional contractor and specialty distributor customers. Sales to these customers,which represent 20% and 12% of our total sales, respectively, declined 15.2%and 12.6%, respectively. Demand from these customers was impacted by acombination of national declines in residential new construction activity and renovationsactivity. Net income as a percentage of sales was 3.0% in the first quartercompared to 3.2% in the comparable prior year period. This decline in netincome is associated with higher fixed operating expenses relative to salesvolumes, such as rent and other occupancy-related expenses, partially offset bythe favorable impact of slightly higher gross profit margins and the effect ofa lower interest rate environment which has resulted in lower interest expenseon our debt.

 

*ThreeMonths Ended March 28, 2008 Compared to Three Months Ended March 30,2007*

 

*Net Sales.*Our net sales decreased by $6.3 million,or 2.1%, to $289.1 million in the three months ended March 28, 2008from $295.4 million in the three months ended March 30, 2007. Thedecline in sales resulted from the net impact of a 4.5% increase in sales toour facilities maintenance customers offset by a decline in sales to ourprofessional contractor and specialty distributor customers of 15.2% and 12.6%respectively. We expect sales to our professional contractor and specialtydistributor end-markets to remain weak during the remainder of 2008 as thehousing market continues to be challenged.

 

*Gross Profit.*Gross profit decreased by $2.2 million, or 2.0%, to$110.1 million in the three months ended March 28, 2008 from$112.3 million in the three months ended March 30, 2007 as a directresult of the decrease in sales. Our gross profit margin increased 10 basispoints to 38.1% for the three months ended March 28, 2008 compared to38.0% for the three months ended March 30, 2007. The slight increase ingross margin is due to improvements in vendor rebate programs and continuedefficiencies at our national distribution center offset in part by lowerpurchase discounts realized.

 

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*Selling, General and Administrative Expenses.*SG&Aexpenses decreased by $0.3 million, or 0.3% to $85.0 million in the threemonths ended March 28, 2008 from $85.3 million in the three months ended March 30,2007. As a percent of sales, SG&A increased 50 basis points to 29.4% forthe three months ended March 28, 2008 compared to 28.9% for the threemonths ended March 30, 2007. The increase in SG&A as a percent ofsales is primarily due to certain fixed costs, such as rent expense and otheroccupancy costs, offset by certain expenses within SG&A, such as the costsof running regional distribution centers, delivery expenses and sellingexpenses, which fluctuate with sales volume.

 

*Depreciationand Amortization.*Depreciationand amortization expense increased by $0.3 million to $3.9 million in thethree months ended March 28, 2008 from $3.6 million in the threemonths ended March 30, 2007. As a percentage of sales, depreciation andamortization was 1.3% or 10 basis points higher than the 1.2% than in thecomparable prior year period. These increases were due to higher depreciationresulting from our higher capital spending associated with our informationsystems infrastructure and distribution center consolidation and integrationefforts.

 

*OperatingIncome.*Asa result of the foregoing, operating income decreased by $2.3 million, or 9.7%,to $21.2 million in the three months ended March 28, 2008 from $23.4million in the three months ended March 30, 2007. As a percent of sales,operating income decreased to 7.3% in the three months ended March 28,2008 compared to 7.9% in the three months ended March 30, 2007.

 

*InterestExpense.*Interestexpense decreased by $0.8 million in the three months ended March 28, 2008to $7.7 million from $8.6 million in the three months ended March 30,2007. This decrease was primarily due to lower interest rates as well asscheduled reductions in the principal balance of our term-debt.

 

*Interest and Other Income.* Interest and other income increased by $0.1 million in the threemonths ended March 28, 2008 to $0.7 million from $0.6 million in the threemonths ended March 30, 2007. The increase was primarily attributable tohigher interest income earned on higher total cash, cash equivalent andshort-term investment balances.

 

*Provision for Income Taxes.*The effective tax rate for the three monthsended March 28, 2008 was 38.5% compared to 39.0% for the three monthsended March 30, 2007. The decrease in the effective tax rate was primarilydue to higher year over year tax-free interest income generated from theinvestment of excess cash balances.

 

**Liquidityand Capital Resources**

 

*Overview*

 

We area holding company whose only asset is the stock of our subsidiaries. We conductvirtually all of our business operations through Interline New Jersey.Accordingly, our only material sources of cash are dividends and distributionswith respect to our ownership interests in Interline New Jersey that arederived from the earnings and cash flow generated by Interline New Jersey.

 

Wehave $200.0 million of 81/8% senior subordinated notes due 2014 anda $330.0 million bank credit facility. The bank credit facility consists of a$230.0 million 7-year term loan and a $100.0 million 6-year revolving creditfacility of which a portion not exceeding $40.0 million is available in theform of letters of credit.

 

The 81/8% seniorsubordinated notes were priced at 99.3%, or $198.6 million, of their principalamount, representing a yield to maturity of 81/4%. We will amortize the discount of $1.4million over the term of the 81/8% senior subordinated notes. As of March 28,2008, the 81/8% senior subordinated notes had a fairmarket value of $192.0 million or 96.0% of par. The 81/8% seniorsubordinated notes mature on June 15, 2014 and interest is payable on June 15and December 15 of each year.

 

Thedebt instruments of Interline New Jersey, primarily the credit facility enteredinto on June 23, 2006 and the indenture governing the terms of the 81/8% seniorsubordinated notes, contain significant restrictions on the payment ofdividends and distributions to us by Interline New Jersey. Interline New Jersey’scredit facility allows it to pay dividends, make distributions to us or makeinvestments in us in an aggregate amount not to exceed $2.0 million during anyfiscal year, so long as Interline New Jersey is not in default or would be indefault as a result of such payments. In addition, ordinary coursedistributions for overhead (up to $3.0 million annually) and taxes arepermitted, as are annual payments of up to $7.5 million in respect of our stockoption or other benefit plans for management or employees and (providedInterline New Jersey is not in default) aggregate payments of up to $40.0million depending on the pro forma net leverage ratio as of the last day of theprevious 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 

 

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

 

*FinancialCondition*

 

Workingcapital increased by $7.9 million to $339.1 million as of March 28, 2008from $331.2 million as of December 28, 2007. The increase in workingcapital was primarily funded by cash flows from operating activities.

 

*Cash Flow*

 

Net cash provided by operating activities was$29.1 million in the three months ended March 28, 2008 compared tonet cash provided by operating activities of $30.4 million in the three months ended March 30, 2007. The decrease of $1.3 million in net cashprovided by operating activities was primarily a result of loweroperating performance compared to the comparable prior year period and a slightdecrease in the working capital needs of the business. Changes in our mainworking capital components, which includes accounts receivable, inventory andaccounts payable, provided $6.3 million during the three months ended March 28,2008 compared to providing $7.3 million during the three months ended March 30,2007. Changes in our working capital for the comparable three-month periodincludes the timing of certain purchases of inventory which are not due andpayable as of the end of the quarter, reflective of a $4.9 million increase intrade accounts payable balances as well as lower outstanding trade receivableand inventory balances of $1.4 million associated with lower sales demand fromour customers.

 

Netcash provided by investing activities was $38.0 million in the threemonths ended March 28, 2008 compared to net cash used in investingactivities of $3.5 million in the three months ended March 30, 2007. Netcash provided by investing activities in the three months ended March 28,2008 was attributable to our investment of our excess cash balances whichprovided net proceeds from sales and maturities of short-term investments of$44.5 million offset by capital expenditures made in the ordinary course ofbusiness of $6.5 million. Net cash used in investing activities in the threemonths ended March 30, 2007 was attributable to capital expenditures madein the ordinary course of business.

 

Net cash used in financing activities totaled$1.8 million in the threemonths ended March 28, 2008 compared tonet cash provided by financing activities of $1.2 million in the threemonths ended March 30, 2007. Net cashused in financing activities in the three months ended March 28, 2008 wasattributable to the net decrease in the purchase card payable of $0.8 millionand our repayment of $1.6 million of borrowings on our credit facilityand capital lease obligations offset by $0.6million of proceeds from stock options exercised and excess tax benefits fromshare-based compensation. Net cash provided by financing activities in thethree months ended March 30, 2007 was attributable to the net increase inthe purchase card payable of $1.6 million and our repayment of borrowings onour credit facility and capital lease obligations of $0.7 million partiallyoffset by $0.3 million in proceeds from stock options exercised and excess taxbenefits from share-based compensation.

 

*PriorPeriod Correction*

 

Subsequent to the filing of the interim condensedconsolidated financial statements for the three months ended March 30,2007, we corrected our balance sheet and statement of cash flows presentationfor certain activity under a purchase card agreement. Previously, paymentsunder this agreement made by a third-party intermediary on our behalf, andoutstanding at the end of a reporting period, were classified as accounts payablein the balance sheet and related cash flows were classified as cash flows fromoperating activities in the statement of cash flows. We determined that theappropriate accounting treatment was to present outstanding amounts as accruedexpenses and other liabilities on our balance sheet and as cash flows fromfinancing activities, net of payments to the third-party intermediary. As aresult, we have corrected the condensed consolidated statement of cash flowsfor the three months ended March 30, 2007 to properly present theseactivities. The corrections made to the condensed consolidated statement ofcash flows for the three months ended March 30, 2007 include areclassification of $1.6 million from net change in accounts payable and netcash provided by operating activities to increase in purchasing card payable,net, and net cash provided by financing activities. We do not believe thisconstitutes a material misstatement to the condensed consolidated statement ofcash flows for the three months ended March 30, 2007.

 

*CapitalExpenditures*

 

Capital expenditures were $6.5 million in the threemonths ended March 28, 2008 compared to $3.5 million in the three months ended March 30,2007. Capital expenditures as a percentageof sales were 2.2% in the three months ended March 28, 2008 compared to1.2% in the three months ended March 30, 2007. The increases in capitalexpenditures are due to the upgrade of our telecommunications network, the

 

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expansion ofour distribution center network, the purchase of warehouse equipment andinvestments in our information technology systems necessary for the integrationof our AmSan acquisition.

 

*Credit Facility*

 

Borrowingsunder the term loan, the delayed draw facility and the revolving creditfacility 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%. As of March 28,2008, the interest rate in effect with respect to the term loan and the delayeddraw facility was 4.55% for the LIBOR option and 6.00% 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”). The term loan and the delayed draw facility mature on June 23,2013 and the revolving loan facility matures on June 23, 2012. Amountsunder the term loan and the delayed draw facility are due and payable inquarterly installments equal to 1.0% of the original principal amount on anannual basis through June 23, 2013, with the balance payable in one finalinstallment at the maturity date.

 

Thebank credit facility, which is secured by substantially all of the assets ofInterline New Jersey and is guaranteed by us and by the domestic subsidiariesof Interline New Jersey, contains affirmative, negative and financial covenantsthat limit Interline New Jersey’s ability to incur additional indebtedness, paydividends on its common stock or redeem, repurchase or retire its common stockor subordinated indebtedness, make certain investments, sell assets, andconsolidate, merge or transfer assets, and that require Interline New Jersey tomaintain certain financial ratios as of the last day of each fiscal quarter,including a minimum ratio based on an adjusted and consolidated EBITDA toconsolidated cash interest expense and a maximum ratio of net totalindebtedness to an adjusted consolidated EBITDA. Interline New Jersey and theCompany were in compliance with all covenants at March 28, 2008.

 

Inconnection with the bank credit facility, Interline New Jersey is required topay administrative fees, commitment fees, letter of credit issuance andadministration fees and certain expenses and to provide certain indemnities,all of which are customary for financings of this type. The bank creditfacility also allows for certain incremental term loans and incrementalcommitments under the revolving credit facility which are available to InterlineNew Jersey to repay indebtedness and make acquisitions if certain conditions,including various financial ratios are met.

 

As of March 28, 2008, Interline New Jersey had$8.2 million of letters of credit issued under the revolving loan facilityand $216.0 million of aggregate principal outstanding under the term loanfacility.

 

*Liquidity*

 

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

 

As of March 28, 2008, we had approximately $91.8 million ofavailability under Interline New Jersey’s $100.0 million revolving creditfacility.

 

We believe that cash and short-term investments on hand,cash flow from operations and available borrowing capacity under our new creditfacility will be adequate to finance our ongoing operational cash flow needsand debt service obligations for the next twelve months.

 

*ContractualObligations*

 

Ourcontractual obligations are disclosed in our Annual Report on Form 10-Kfor the year ended December 28, 2007 filed with the SEC. There have been no material changes to ourcontractual obligations since December 28, 2007.

 

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**CriticalAccounting Policies**

 

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

 

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

 

**Recently Adopted Accounting Standards**

 

Effective December 29, 2007, we adopted FinancialAccounting Standards Board (“FASB”) Statement No. 157, *Fair Value Measurements*, (“FAS 157”) as amended by FASBStaff Position No. 157-1, *Application of FASB StatementNo. 157 to FASB Statement No. 13 and Other Accounting PronouncementsThat Address Fair Value Measurements for Purposes of Lease Classification orMeasurement under Statement 13*, (“FSP 157-1”) and FASB StaffPosition No. 157-2, *Effective Date of FASB StatementNo. 157*, (“FSP 157-2”). FAS 157 applies prospectively to allother accounting pronouncements that require or permit fair value measurements.FAS 157 defines fair value as “the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date.” FAS 157 also requires disclosure abouthow fair value is determined for assets and liabilities and establishes ahierarchy for which these assets and liabilities must be grouped, based onsignificant levels of inputs. The adoption of FAS 157 did not have any impacton our financial position, results of operations and cash flows. See Note 1.Description of Business and Basis of Presentation to the unaudited condensedconsolidated financial statements included in this report.

 

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

 

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

 

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

 

**Recently Issued Accounting Pronouncements**

 

In March 2008,the FASB issued 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 provisions of FAS 161 are effective forfinancial statements issued for fiscal years and interim period beginning afterNovember 15, 2008 with early application encouraged. We are currentlyevaluating the impact the provisions of FAS 161 will have on our financialposition, results of operations and cash flows.

 

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

 

*Commodity Price Risk*

 

We are awareof the potentially unfavorable effects inflationary pressures may createthrough higher product and material costs, higher asset replacement costs andrelated depreciation and higher interest rates. In addition, our operatingperformance is affected by price fluctuations in copper, oil, stainless steel,aluminum, zinc, plastic and PVC and other commodities and raw materials. Weseek to minimize the effects of inflation and changing prices through economiesof purchasing and inventory management resulting in cost reductions andproductivity improvements as well as price increases to maintain reasonableprofit margins. However, such commodity price fluctuations have from time totime created cyclicality in our financial performance, and could continue to doso in the future. In addition, our use of priced catalogs may not allow us tooffset such cost increases quickly, resulting in a decrease in gross marginsand profit.

 

*InterestRate Risk*

 

Our short-terminvestments portfolio is comprised of high-grade tax exempt auction ratesecurities, which are debt instruments, such as municipal bonds, with long-termscheduled maturities and periodic interest rate reset dates. As of March 28,2008, we had $4.0 million in short-term investments. The values of theseinvestments are subject to changes in interest rates. However, because theinterest rates on these securities are typically reset to market prevailingrates every 35 days or less, and in some cases every 7 days or less, we do notbelieve the interest rate risk inherent in our portfolio was material as of March 28,2008. Although our auction rate securities have been readily marketable, if anauction were to fail, we may not be able to sell these securities on theplanned reset date thereby increasing our holding period. Recentuncertainties in the credit markets have prevented us and other investors fromliquidating our holdings in auction rate securities. There is no assurance thatcurrently successful auctions on the other auction rate securities in ourinvestment portfolio will continue to succeed and as a result our ability toliquidate our investment and fully recover the carrying value of our investmentin the near term may be limited or not exist. An auction failure means that theparties wishing to sell securities could not. All of our auction ratesecurities are currently rated AAA, the highest rating, by a rating agency. Ifthe issuers are unable to successfully close future auctions and their creditratings deteriorate, we may in the future be required to record an impairmentcharge on these investments. Based upon various observable market data, we believe we will be able to liquidate ourinvestments within the next year, and we currently believe these securities arenot impaired as they are collateralized by the bonds and credit rating of theunderlying issuer and insured against loss of principal and interest by bondinsurers with AAA ratings. However, it could take until the final maturity ofthe underlying notes (over 30 years) to realize our investments’ recordedvalue. Based on our expected operating cash flows, and our other sources ofcash, we do not anticipate the potential lack of liquidity on these investmentswill affect our ability to execute our current business plan.

 

Ourvariable rate term debt is sensitive to changes in the general level ofinterest rates. As of March 28, 2008, the interest rate in effect withrespect to our $216.0 million variable rate term debt was 4.55% for the LIBORoption and 6.00% for the alternate base rate option. While our variable rateterm debt obligations expose us to the risk of rising interest rates, we do notbelieve that the potential exposure is material to our overall financialperformance or results of operations. Based on the outstanding variable rateterm debt as of March 28, 2008, a 1.0% annual increase or decrease incurrent market interest rates would have the effect of causing a $0.5 millionpre-tax change to our statement of operations for the three months ended March 28,2008.

 

The fairmarket value of our fixed rate debt is subject to interest rate risk. As of March 28,2008, the fair market value of our $200.0 million 81/8%senior subordinated notes was $192.0 million or 96.0% of par.

 

*Foreign Currency Exchange Risk*

 

Themajority of our purchases from foreign-based suppliers are from China and othercountries in Asia and are transacted in U.S. dollars. Accordingly, our risk toforeign currency exchange rates was not material as of March 28, 2008.

 

*DerivativeFinancial Instruments*

 

As of March 28,2008, we did not have any interest rate swap exchange agreements, or swaps.Historically, we entered into derivative financial instruments from time totime, including interest rate exchange agreements, or swaps, to manage ourexposure to fluctuations in interest rates on our debt. Under our former swapagreements, we pay a fixed rate on the notional amount to our banks and thebanks pay us a variable rate on the notional amount equal to a base LIBOR rate.

 

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Weperiodically evaluate the costs and benefits of any changes in our interestrate risk. Based on such evaluation, we may enter into new interest rate swapsto manage our interest rate exposure. Our derivative activities, all of whichare for purposes other than trading, are initiated within the guidelines ofcorporate risk-management policies.

 

**ITEM 4. Controls and Procedures**

 

*Evaluation of Disclosure Controls and Procedures*

 

Our management, with theparticipation of our Chief Executive Officer and Chief Financial Officer (ourprincipal executive officer and principal financial officer), evaluated the effectivenessof our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 28, 2008. Based on thisevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat, as of March 28, 2008, our disclosure controls and procedures wereeffective to (1) ensure that material information disclosed by in thereports that we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure and (2) ensurethat information 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 over Financial Reporting*

 

No change in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the quarter ended March 28,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**ITEM 1. Legal Proceedings**

 

We are involved invarious legal proceedings that have arisen in the ordinary course of ourbusiness and have not been fully adjudicated. These actions, when ultimatelyconcluded and determined, will not, in the opinion of management, have amaterial effect upon our consolidated financial position, results of operationsor liquidity.

 

**ITEM 1A. Risk Factors**

 

For information regardingfactors that could affect our financial position, results of operations andcash flows, see the risk factors discussion provided in our Annual Report on Form 10-Kfor the year ended December 28, 2007 in Part I. Item 1A. RiskFactors. See also “Part I.Item 2—Forward Looking 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 28, 2007.

 

**ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

*Unregistered Sales of EquitySecurities*

 

None.

 

*Purchases of Equity Securities bythe Issuer*

 

The following tablesummarizes repurchases of our stock, comprising entirely of shares returned tous to satisfy employee tax withholding obligations that arose upon the vestingof restricted stock awards and restricted share units, during the three monthsended March 28, 2008:

 
| **Period**                                | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|-------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 2007                         |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (December 30 – January 26) |       | —                                       |       | $—                                      |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| February 2007                        |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (January 27 – February 23) |       | 39,310                                       |       | 19.63                                        |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| March 2007                           |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (February 24 – March 30)   |       | —                                       |       | —                                       |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| Total                                     |       | 39,310                                       |       | $19.63                                       |       | —                                                                                                                           |       | —                                                                                                                                  |       |

 

**ITEM 3. Defaults Upon Senior Securities**

 

                                                None.

 

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

 

                                                None.

 

**ITEM 5. Other Information**

 

                                                None.

 

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**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 therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 
| ** **             | ** ** | **INTERLINE BRANDS, INC.** |
|------------------------|------------|----------------------------|
|                   |       | Registrant                 |
|                   |       |                       |
|                   |       |                       |
| Date: May 7, 2008 |       | By:                        |   /S/ THOMAS J.  TOSSAVAINEN |
|                   |       |                       | Thomas J. Tossavainen |
|                   |       |                       | Chief Financial Officer |
|                   |       |                       | (Duly Authorized Signatory,  Principal Financial and Accounting Officer) |
|                        |            |                            |  |  |

 

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