Table of Contents

** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

****(Mark One)****

| ****x**** | ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****                                                                                                                                                                   |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      | ****EXCHANGE ACT OF 1934****                                                                                                                                                                                                                           |
|      |                                                                                                                                                                                                                                                   |
|      | ****For the quarterly period ended September 26, 2008****                                                                                                                                                                                         |
|      |                                                                                                                                                                                                                                                   |
|      | ****or****                                                                                                                                                                                                                                             |
|      |                                                                                                                                                                                                                                                   |
| o         | ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****                                                                                                                                                                       |
|      | ****EXCHANGE ACT OF 1934****                                                                                                                                                                                                                           |
|      | **** ****                                                                                                                                                                                                                                         |
|      | ****For the transition period from                  to                  **** |

 

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

 

**INTERLINE BRANDS, INC.**

(Exact name of registrant as specified in its charter)

 

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

 

**(904) 421-1400**

(Registrant’s telephone number, including area code)

 

**Not Applicable**

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

 

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

 

Yes x     No o

 

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

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

 

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

Yes o     No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 4, 2008, there were 32,397,233 shares of the registrant’s common stock outstanding (excluding 84,926 shares held in treasury), par value $0.01.

 

 

 

Table of Contents

 

**TABLE OF CONTENTS**

 
| ****ITEM****       | **** ****                                                                                                                                | ****PAGE**** |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------------|
|               |                                                                                                                                          |         |
|               | ****PART I. FINANCIAL INFORMATION****                                                                                                    |         |
|               |                                                                                                                                          |         |
| ****1.****         | ****Financial Statements (Unaudited)****                                                                                                      |         |
| **** ****     | ****Condensed Consolidated Balance Sheets as of September 26, 2008 and December 28, 2007****                                        | ****1****    |
| **** ****     | ****Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 26, 2008 and September 28, 2007**** | ****2****    |
| **** ****     | ****Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 26, 2008 and September 28, 2007****         | ****3****    |
| **** ****     | ****Notes to Condensed Consolidated Financial Statements****                                                                                  | ****5****    |
| ****2.****         | ****Management’s Discussion and Analysis of Financial Condition and Results of Operations****                                            | ****21****   |
| ****3.****         | ****Quantitative and Qualitative Disclosures about Market Risk****                                                                            | ****29****   |
| ****4.****         | ****Controls and Procedures****                                                                                                               | ****30****   |
|               |                                                                                                                                          |         |
|               | ****PART II. OTHER INFORMATION****                                                                                                       |         |
|               |                                                                                                                                          |         |
| ****1.****         | ****Legal Proceedings****                                                                                                                     | ****31****   |
| ****1A.****        | ****Risk Factors****                                                                                                                          | ****31****   |
| ****2.****         | ****Unregistered Sales of Equity Securities and Use of Proceeds****                                                                           | 32           |
| ****3.****         | ****Defaults Upon Senior Securities****                                                                                                       | 32           |
| ****4.****         | Submission of Matters to a Vote of Security Holders                                                                                           | 32           |
| 5.                 | Other Information                                                                                                                             | 32           |
| ****6.****         | ****Exhibits****                                                                                                                              | ****33****   |
|               |                                                                                                                                          |         |
| ****SIGNATURES**** | ****34****                                                                                                                                    |

 

Table of Contents

 

**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. Financial Statements**

 

**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**AS OF SEPTEMBER 26, 2008 AND DECEMBER 28, 2007**

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

 
| ** **                                                                                                                                                                                                         | ** ** | **September 26,** | ** ** | **December 28,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                                                                                                         |       |                   |       |                  |       |
| Current Assets:                                                                                                                                                                                                    |       |                   |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                          |       | $                      | 36,112     |                  | $          | 4,975 |   |
| Short-term investments                                                                                                                                                                                             |       | 1,950                  |       | 48,540                |       |
| Accounts receivable - trade (net of  allowance for doubtful accounts of $9,728 and $7,268)                                                                                                                         |       | 169,468                |       | 154,571               |       |
| Inventory                                                                                                                                                                                                          |       | 231,361                |       | 190,974               |       |
| Prepaid expenses and other current assets                                                                                                                                                                          |       | 21,987                 |       | 23,664                |       |
| Deferred income taxes                                                                                                                                                                                              |       | 19,178                 |       | 15,359                |       |
| Total current assets                                                                                                                                                                                               |       | 480,056                |       | 438,083               |       |
|                                                                                                                                                                                                               |       |                   |       |                  |       |
| Property and equipment, net                                                                                                                                                                                        |       | 47,470                 |       | 37,131                |       |
| Goodwill                                                                                                                                                                                                           |       | 319,287                |       | 313,462               |       |
| Other intangible assets, net                                                                                                                                                                                       |       | 133,665                |       | 136,734               |       |
| Other assets                                                                                                                                                                                                       |       | 10,837                 |       | 11,424                |       |
| Total assets                                                                                                                                                                                                       |       | $                      | 991,315    |                  | $          | 936,834 |   |
|                                                                                                                                                                                                               |       |                   |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                      |       |                   |       |                  |       |
| Current Liabilities:                                                                                                                                                                                               |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                                                                   |       | $                      | 69,926     |                  | $          | 60,159 |   |
| Accrued expenses and other current  liabilities                                                                                                                                                                    |       | 46,894                 |       | 42,175                |       |
| Accrued interest                                                                                                                                                                                                   |       | 4,982                  |       | 838                   |       |
| Income taxes payable                                                                                                                                                                                               |       | 1,581                  |       | 1,173                 |       |
| Current portion of long-term debt                                                                                                                                                                                  |       | 1,300                  |       | 2,300                 |       |
| Capital lease - current                                                                                                                                                                                            |       | 232                    |       | 218                   |       |
| Total current liabilities                                                                                                                                                                                          |       | 124,915                |       | 106,863               |       |
|                                                                                                                                                                                                               |       |                   |       |                  |       |
| Long-Term Liabilities:                                                                                                                                                                                             |       |                   |       |                  |       |
| Deferred income taxes                                                                                                                                                                                              |       | 36,653                 |       | 33,351                |       |
| Long-term debt, net of current portion                                                                                                                                                                             |       | 414,924                |       | 416,290               |       |
| Capital lease - long term                                                                                                                                                                                          |       | 287                    |       | 464                   |       |
| Other liabilities                                                                                                                                                                                                  |       | 1,050                  |       | 2,452                 |       |
| Total liabilities                                                                                                                                                                                                  |       | 577,829                |       | 559,420               |       |
| Commitments and contingencies Senior  preferred stock; $0.01 par value, 20,000,000 shares authorized; no shares  outstanding as of September 26, 2008 and December 28, 2007                              |       | —                 |       | —                |       |
|                                                                                                                                                                                                               |       |                   |       |                  |       |
| Shareholders’ Equity:                                                                                                                                                                                         |       |                   |       |                  |       |
| Common stock; $0.01 par value, 100,000,000  authorized; 32,482,159 issued and 32,397,233 outstanding as of  September 26, 2008 and 32,350,188 issued and 32,308,105 outstanding as  of December 28, 2007 |       | 325                    |       | 324                   |       |
| Additional paid-in capital                                                                                                                                                                                         |       | 571,453                |       | 567,860               |       |
| Accumulated deficit                                                                                                                                                                                                |       | (158,081               | )          | (191,666              | )          |
| Accumulated other comprehensive income                                                                                                                                                                             |       | 1,485                  |       | 1,751                 |       |
| Treasury stock, at cost, 84,926 shares as  of September 26, 2008 and 42,083 shares as of December 28, 2007                                                                                               |       | (1,696                 | )          | (855                  | )          |
| Total shareholders’ equity                                                                                                                                                                                    |       | 413,486                |       | 377,414               |       |
| Total liabilities and shareholders’ equity                                                                                                                                                                    |       | $                      | 991,315    |                  | $          | 936,834 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)**

**THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2008 ANDSEPTEMBER 28, 2007**

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

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **September 26,**           | ** ** | **September 28,**          | ** ** | **September 26,** | ** ** | **September 28,** | ** ** |
| ** **                                    | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $                                | 317,504    |                            | $          | 330,193 |   | $ | 918,079 |   | $ | 938,843 |   |
| Cost of sales                                 |       | 196,568                          |       | 204,765                         |       | 571,293 |   | 583,154 |   |
| Gross profit                                  |       | 120,936                          |       | 125,428                         |       | 346,786 |   | 355,689 |   |
|                                          |       |                             |       |                            |       |   |   |   |   |
| Operating Expenses:                           |       |                             |       |                            |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 87,828                           |       | 88,105                          |       | 261,426 |   | 260,345 |   |
| Depreciation and amortization                 |       | 4,319                            |       | 3,540                           |       | 12,300 |   | 10,758 |   |
| Total operating expense                       |       | 92,147                           |       | 91,645                          |       | 273,726 |   | 271,103 |   |
| Operating income                              |       | 28,789                           |       | 33,783                          |       | 73,060 |   | 84,586 |   |
|                                          |       |                             |       |                            |       |   |   |   |   |
| Interest expense                              |       | (7,054                           | )          | (8,589                          | )          | (21,800 | ) | (25,636 | ) |
| Interest and other income                     |       | 710                              |       | 823                             |       | 2,113 |   | 2,171 |   |
| Income before income taxes                    |       | 22,445                           |       | 26,017                          |       | 53,373 |   | 61,121 |   |
| Income tax provision                          |       | 8,709                            |       | 10,029                          |       | 19,788 |   | 23,718 |   |
| Net income                                    |       | $                                | 13,736     |                            | $          | 15,988 |   | $ | 33,585 |   | $ | 37,403 |   |
|                                          |       |                             |       |                            |       |   |   |   |   |
| Earnings Per Share:                           |       |                             |       |                            |       |   |   |   |   |
| Basic                                         |       | $                                | 0.42       |                            | $          | 0.50 |   | $ | 1.04 |   | $ | 1.16 |   |
| Diluted                                       |       | $                                | 0.42       |                            | $          | 0.49 |   | $ | 1.03 |   | $ | 1.15 |   |
|                                          |       |                             |       |                            |       |   |   |   |   |
| Weighted-Average Shares Outstanding:          |       |                             |       |                            |       |   |   |   |   |
| Basic                                         |       | 32,376,966                       |       | 32,253,728                      |       | 32,357,728 |   | 32,230,971 |   |
| Diluted                                       |       | 32,553,518                       |       | 32,694,550                      |       | 32,618,370 |   | 32,665,772 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

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

**NINE MONTHS ENDED SEPTEMBER 26, 2008 AND SEPTEMBER 28,2007**

**(in thousands)**

**** ****
| ** **                                                                               | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                               | ** ** | **September 26,**          | ** ** | **September 28,** | ** ** |
| ** **                                                                               | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| Cash Flows from Operating Activities:                                                    |       |                            |       |   |   |
| Net income                                                                               |       | $                               | 33,585     |   | $ | 37,403 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:       |       |                            |       |   |   |
| Depreciation and amortization                                                            |       | 12,695                          |       | 11,281 |   |
| Amortization of debt issuance costs                                                      |       | 852                             |       | 816 |   |
| Amortization of discount on 81/8%  senior subordinated notes                             |       | 109                             |       | 100 |   |
| Share-based compensation                                                                 |       | 2,994                           |       | 4,857 |   |
| Excess tax benefits from share-based  compensation                                       |       | (140                            | )          | (235 | ) |
| Deferred income taxes                                                                    |       | (667                            | )          | 402 |   |
| Provision for doubtful accounts                                                          |       | 3,571                           |       | 2,798 |   |
| Loss (Gain) on disposal of property and  equipment                                       |       | 79                              |       | (6 | ) |
|                                                                                     |       |                            |       |   |   |
| Changes in assets and liabilities which  provided (used) cash, net of business acquired: |       |                            |       |   |   |
| Accounts receivable - trade                                                              |       | (16,230                         | )          | (37,530 | ) |
| Inventory                                                                                |       | (38,971                         | )          | (112 | ) |
| Prepaid expenses and other current assets                                                |       | 1,703                           |       | 1,669 |   |
| Other assets                                                                             |       | 615                             |       | (837 | ) |
| Accounts payable                                                                         |       | 8,428                           |       | 19,501 |   |
| Accrued expenses and other current  liabilities                                          |       | 2,159                           |       | 2,076 |   |
| Accrued interest                                                                         |       | 4,144                           |       | 1,350 |   |
| Income taxes payable                                                                     |       | 513                             |       | 1,872 |   |
| Other liabilities                                                                        |       | (1,394                          | )          | 119 |   |
| Net cash provided by operating activities                                                |       | 14,045                          |       | 45,524 |   |
|                                                                                          |            |                                 |            |  |  |  |  |

 

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

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

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

**NINE MONTHS ENDED SEPTEMBER 26, 2008 AND SEPTEMBER 28,2007**

**(in thousands)**

**** ****
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **September 26,**          | ** ** | **September 28,** | ** ** |
| ** **                                                                         | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| Cash Flows from Investing Activities:                                              |       |                            |       |   |   |
| Purchase of property and equipment, net                                            |       | (18,712                         | )          | (11,500 | ) |
| Purchase of short-term investments                                                 |       | (35,531                         | )          | (75,572 | ) |
| Proceeds from sales and maturities of  short-term investments                      |       | 82,121                          |       | 47,347 |   |
| Purchase of businesses, net of cash  acquired                                      |       | (10,330                         | )          | (3 | ) |
| Net cash provided by (used in) investing  activities                               |       | 17,548                          |       | (39,728 | ) |
| Cash Flows from Financing Activities:                                              |       |                            |       |   |   |
| Increase in purchase card payable, net                                             |       | 2,324                           |       | 4,877 |   |
| Repayment of term debt                                                             |       | (2,489                          | )          | (1,813 | ) |
| Payment of debt issuance costs                                                     |       | —                          |       | (34 | ) |
| Proceeds from stock options exercised                                              |       | 611                             |       | 485 |   |
| Excess tax benefits from share-based  compensation                                 |       | 140                             |       | 235 |   |
| Treasury stock acquired to satisfy minimum  statutory tax withholding requirements |       | (808                            | )          | — |   |
| Payments on capital lease obligations                                              |       | (164                            | )          | (255 | ) |
| Net cash (used in) provided by financing  activities                               |       | (386                            | )          | 3,495 |   |
| Effect of exchange rate changes on cash and  cash equivalents                      |       | (70                             | )          | 142 |   |
| Net increase in cash and cash equivalents                                          |       | 31,137                          |       | 9,433 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 4,975                           |       | 6,852 |   |
| Cash and cash equivalents at end of period                                         |       | $                               | 36,112     |   | $ | 16,285 |   |
|                                                                               |       |                            |       |   |   |
| Supplemental Disclosure of Cash Flow  Information:                                 |       |                            |       |   |   |
| Cash paid during the period for:                                                   |       |                            |       |   |   |
| Interest                                                                           |       | $                               | 16,823     |   | $ | 23,653 |   |
| Income taxes, net of refunds                                                       |       | $                               | 21,124     |   | $ | 21,691 |   |
|                                                                               |       |                            |       |   |   |
| Schedule of Non-Cash Investing and  Financing Activities:                          |       |                            |       |   |   |
| Adjustments to liabilities assumed and  goodwill on businesses acquired            |       | $                               | —     |   | $ | 2,137 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

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**INTERLINE BRANDS, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

** **

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

 

*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, two national distribution centers, vendor managedinventory locations at large professional contractor customer locations and itsdedicated fleet of trucks. Through its broad distribution network, the Company isable to provide same day/next day delivery service to 98% of the U.S.population.

 

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

 

*Basis of Presentation*

 

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

 

All adjustments, consisting of normal recurring adjustments,which are, in the opinion of management, necessary for a fair statement of theresults for the interim periods presented have been recorded. The results ofoperations for the interim periods presented are not necessarily indicative ofthe 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 nine months ended September 28,2007, the Company corrected its balance sheet and statement of cash flowspresentation for certain activity under a purchase card agreement. Previously,payments under this agreement made by a third-party intermediary on the Company’sbehalf, and outstanding at the end of a reporting period, were classified asaccounts payable in the balance sheet and related cash flows were classified ascash flows from operating activities in the statement of cash flows. TheCompany determined that the appropriate accounting treatment was to presentoutstanding amounts as accrued expenses and other liabilities on its balancesheet and as cash flows from financing activities, net of payments to thethird-party intermediary. As a result, the Company has corrected the condensedconsolidated statement of cash flows for the nine months ended September 28,2007 to properly present these activities. The Company does not

 

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believe this constitutes a material misstatement tothe condensed consolidated statement of cash flows for the nine months ended September 28,2007.

 

The corrections made to the interim condensedconsolidated statement of cash flows for the nine months ended September 28,2007 are as follows (in thousands):

 
| ** **                                        | ** ** | **As Reported** | ** ** | **Adjustment** | ** ** | **As Corrected** | ** ** |
|---------------------------------------------------|------------|----------------------|------------|----------------|------------|-----------------------|------------|
| Net change in accounts payable                    |       | $                    | 24,378     |           | $          | (4,877                | )          | $ | 19,501 |   |
| Net cash provided by operating activities         |       | $                    | 50,401     |           | $          | (4,877                | )          | $ | 45,524 |   |
| Increase in purchase card payable, net            |       | $                    | —     |           | $          | 4,877                 |       | $ | 4,877 |   |
| Net cash (used) provided by financing  activities |       | $                    | (1,382     | )              | $          | 4,877                 |       | $ | 3,495 |   |

 

*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 and nine months ended September 26,2008 and September 28, 2007 by product category were as follows (inthousands):

 

| ** **                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **September 26,**           | ** ** | **September 28,**          | ** ** | **September 26,** | ** ** | **September 28,** | ** ** |
| **Product Category**                 | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Plumbing                                  |       | $                                | 86,361     |                            | $          | 97,407 |   | $ | 263,508 |   | $ | 289,267 |   |
| Janitorial and sanitary                   |       | 80,328                           |       | 74,954                          |       | 225,423 |   | 215,275 |   |
| Heating, ventilation and air conditioning |       | 36,830                           |       | 34,941                          |       | 96,638 |   | 89,241 |   |
| Electrical and lighting                   |       | 28,575                           |       | 39,928                          |       | 86,453 |   | 97,500 |   |
| Appliances and parts                      |       | 18,733                           |       | 20,472                          |       | 52,721 |   | 54,001 |   |
| Security                                  |       | 15,876                           |       | 16,510                          |       | 47,350 |   | 47,238 |   |
| Hardware and tools                        |       | 13,970                           |       | 15,519                          |       | 40,996 |   | 43,239 |   |
| Other                                     |       | 36,831                           |       | 30,462                          |       | 104,990 |   | 103,082 |   |
| Total                                     |       | $                                | 317,504    |                            | $          | 330,193 |   | $ | 918,079 |   | $ | 938,843 |   |

 

*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.                                                           |

 

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The determination of where assets and liabilities fallwithin this hierarchy is based upon the lowest level of input that issignificant to the fair value measurement. The following is a listing of theCompany’s assets required to be measured at fair value on a recurring basis andwhere they are classified within the hierarchy as of September 26, 2008(in thousands):

 
| ** **                 | ** ** | **Significant**    | ** ** | ** **                  | ** ** |
|----------------------------|------------|--------------------|------------|-----------------------------|------------|
| ** **                 | ** ** | **Unobservable**   | ** ** | **Fair Value at** | ** ** |
| ** **                 | ** ** | **Inputs**         | ** ** | **September 26,**      | ** ** |
| ** **                 | ** ** | **(Level 3)** | ** ** | **2008**                    | ** ** |
| Auction rate securities(1) |       | $                  | 1,950      |                        | $          | 1,950 |   |
| Total                      |       | $                  | 1,950      |                        | $          | 1,950 |   |

 

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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 September 26,2008 and a reclassification of these investments from Level 1 to Level 3 in thevaluation hierarchy (in thousands):

 
| ** **                            | ** ** | **Quoted**         | ** ** | **Significant**    | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                            | ** ** | **Prices in** | ** ** | **Unobservable**   | ** ** |
| ** **                            | ** ** | **Active**         | ** ** | **Inputs**         | ** ** |
| ** **                            | ** ** | **(Level 1)** | ** ** | **(Level 3)** | ** ** |
| Fair value at December 28, 2007  |       | $                  | 48,540     |               | $          | — |   |
| Purchase                              |       | 35,531             |       | —             |       |
| Sales                                 |       | (78,071            | )          | (4,050             | )          |
| Transfers (out) in                    |       | (6,000             | )          | 6,000              |       |
| Fair value at September 26, 2008 |       | $                  | —     |               | $          | 1,950 |   |

 

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

 

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

 

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

 

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

 

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*Recently Issued Accounting Pronouncements*

 

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

 

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

 

In October 2008, the FASB issued Staff Position157-3, *Determining the Fair Value of a Financial AssetWhen the Market for That Asset is Not Active*, (“FAS 157-3”).FSP 157-3 clarifies the application of FAS 157 in a market that is not active.The Company considered the guidance provided by FSP 157-3 in its determinationof estimated fair values as of September 26, 2008, and the impact was notmaterial to the Company’s financial position, results of operations and cashflows.

 

**2**.                                      SHORT-TERM INVESTMENTS

 

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

 

**3**.                                      ACQUISITION

 

On August 21, 2008, Interline New Jerseycompleted the acquisition of Eagle Maintenance Supply, Inc. (“Eagle”) fora purchase price of $9.7 million in cash, including transaction fees of $0.1million. Eagle is a distributor of janitorial and sanitary supplies to theinstitutional marketplace. This acquisition represents an expansion of theCompany’s institutional facilities maintenance business. The acquisition wasaccounted for in accordance with FASB Statement No. 141, *Business Combinations* (“FAS 141”). The results of Eagle havebeen included in the Company’s condensed consolidated financial statementssince August 22, 2008.

 

Given the recent acquisition date, the Company has notcompleted its allocation of the purchase price; therefore, the final fair valueassessment is not yet complete. Currently, of the $9.7 million purchase price,$2.1 million was allocated to the net assets, $0.1 million was allocated tonon-compete agreements and have a weighted-average useful life of 18 months,$1.9 million was allocated to customer relationships and have aweighted-average useful life of approximately 10 years and the remaining $5.6million was allocated to goodwill. This acquisition was treated as a purchaseand sale of assets for federal income tax purposes. Accordingly, the $5.6million allocated to goodwill is expected to be deductible for tax purposes.The Company expects to complete the allocation process during the secondquarter of fiscal 2009.

 

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**4.**                                      RESTRUCTURING AND ACQUISITION ACCRUALS

 

*Restructuring Accruals*

 

During the three months ended September 26, 2008, the Company has undertaken significant changes in its cost structure. These operational initiatives focus on reducing the Company’s overall operating cost structure. We took the following specific actions during the three months ended September 26, 2008:

 

·                            reduced our workforce; and

·                            closed and consolidated certain facilities.

 

The restructuring charges related to these various initiatives were $1.7 million during the three months ended September 26, 2008 and are included as part of selling, general and administrative expenses in the Company’s statement of earnings. The following table summarizes the changes to accruals assumed in connection with the Company’s restructuring, which are included in accrued expenses and other current liabilities (in thousands):

 
| ** **                         | ** ** | **Employee  Separation  Costs** | ** ** | **Facility  Closing and  Other Costs** | ** ** | **Total** | ** ** |
|------------------------------------|------------|---------------------------------|------------|--------------------------------------------------|------------|-----------|------------|
| Balance at December 28, 2007  |       | $                               | —     |                                             | $          | —    |       | $ | — |   |
| Provisions                         |       | 1,128                           |       | 576                                              |       | 1,704     |       |
| Payments                           |       | (334                            | )          | —                                           |       | (334      | )          |
| Write-offs                         |       | —                          |       | (67                                              | )          | (67       | )          |
| Balance at September 26, 2008 |       | $                               | 794        |                                             | $          | 509       |       | $ | 1,303 |   |

 

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

 

*Acquisition Accruals*

 

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

 
| ** **                         | ** ** | **Employee  Severance and  Relocation** | ** ** | **Facility  Closing and  Other Costs** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|-----------|------------|
| Balance at December 28, 2007  |       | $                                            | 268        |                                             | $          | 4,177     |       | $ | 4,445 |   |
| Payments                           |       | (108                                         | )          | (688                                             | )          | (796      | )          |
| Balance at September 26, 2008 |       | $                                            | 160        |                                             | $          | 3,489     |       | $ | 3,649 |   |

 

**5**.                                      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.

 

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

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **September 26,**           | ** ** | **September 28,**          | ** ** | **September 26,** | ** ** | **September 28,** | ** ** |
| ** **                                     | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted average shares outstanding - basic    |       | 32,376,966                       |       | 32,253,728                      |       | 32,357,728 |   | 32,230,971 |   |
| Dilutive shares resulting from:                |       |                             |       |                            |       |   |   |   |   |
| Stock options                                  |       | 46,038                           |       | 396,751                         |       | 136,512 |   | 359,654 |   |
| Restricted stock                               |       | 1,214                            |       | 15,368                          |       | 2,782 |   | 21,647 |   |
| Restricted share units                         |       | 93,986                           |       | 9,677                           |       | 91,211 |   | 46,112 |   |
| Deferred stock units                           |       | 35,314                           |       | 19,026                          |       | 30,137 |   | 7,388 |   |
| Weighted average shares outstanding -  diluted |       | 32,553,518                       |       | 32,694,550                      |       | 32,618,370 |   | 32,665,772 |   |

 

During the three months ended September 26, 2008and September 28, 2007, stock options to purchase 1,837,313 shares and1,145,427 shares of common stock, respectively, were excluded from thecomputations of diluted weighted-average shares outstanding because theireffect would be anti-dilutive. During the nine months ended September 26,2008 and September 28, 2007, stock options to purchase 1,823,099 sharesand 988,202 shares of common stock, respectively, were excluded from thecomputations of diluted weighted-average shares outstanding because theireffect would be anti-dilutive.

** **

**6.**                                      COMPREHENSIVE INCOME

 

Comprehensiveincome refers to revenues, expenses, gains and losses that under accountingprinciples generally accepted in the United States are included incomprehensive income but are excluded from net income as these amounts arerecorded directly as an adjustment to shareholders’ equity, net of tax. Thecomponents of comprehensive income for the three and nine months ended September 26,2008 and September 28, 2007 are as follows (in thousands):

 
| ** **                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                              | ** ** | **September 26,**           | ** ** | **September 28,**          | ** ** | **September 26,** | ** ** | **September 28,** | ** ** |
| ** **                                              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                              |       | $                                | 13,736     |                            | $          | 15,988 |   | $ | 33,585 |   | $ | 37,403 |   |
| Other comprehensive income (loss):                      |       |                             |       |                            |       |   |   |   |   |
| Amortization of unrecognized gain on  employee benefits |       | 3                                |       | (49                             | )          | 9 |   | (127 | ) |
| Foreign currency translation                            |       | (116                             | )          | 332                             |       | (275 | ) | 730 |   |
| Total comprehensive income                              |       | $                                | 13,623     |                            | $          | 16,271 |   | $ | 33,319 |   | $ | 38,006 |   |

 

**7.**                                      SHARE-BASED COMPENSATION

 

During the threemonths ended September 26, 2008 and September 28, 2007, share-basedcompensation expense was $0.6 million and $1.7 million, respectively. Duringthe nine months ended September 26, 2008 and September 28, 2007,share-based compensation expense was $3.0 million and $4.9 million,respectively. As of September 26, 2008, there was $6.2 million of totalunrecognized share-based compensation expense related to unvested share-basedequity awards. The expense is expected to be recognized over a weighted-averageperiod of 2.6 years.

 

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During the threemonths ended September 26, 2008 and September 28, 2007, the Company did not grant any stock options.During the nine months ended September 26, 2008 and September 28,2007, the Company granted 451,274 and 485,346 stock options, respectively, witha weighted-average grant date fair value of $6.65 and $6.88, respectively. Aspermitted by FASB Statement No. 123 (revised 2004), *Share-BasedCompensation*, (“FAS 123R”) the fair values of stock options wereestimated using the Black-Scholes option-pricing model. Expected volatility isbased on historical performance of the Company’s stock. The Company also useshistorical data to estimate the timing and amount of stock option exercises andforfeitures. The expected life represents the period of time that stock optionsare expected to remain outstanding and is based on the contractual term of thestock options and expected exercise behavior. The risk-free interest rate isbased on U.S. Treasury zero-coupon issues with a remaining term equal to theexpected option life assumed at the date of grant. The Black-Scholesweighted-average assumptions were as follows:

 
| ** **               | ** ** | **Nine Months Ended** | ** ** |
|--------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **September 26,**          | ** ** | **September 28,** | ** ** |
| ** **               | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| Expected volatility      |       | 33.6                            | %          | 27.0 | % |
| Expected dividends       |       | 0.0                             | %          | 0.0 | % |
| Risk-free interest rate  |       | 2.9                             | %          | 4.5 | % |
| Expected life (in years) |       | 5.0                             |       | 5.0 |   |

 

There were nostock options exercised during the three months ended September 26, 2008.Stock options exercised during the three months ended  September 28, 2007 were 8,704 with anintrinsic value of $0.1 million. Stock options exercised during the nine monthsended September 26, 2008 and September 28, 2007 were 38,595 and32,067, respectively, with an intrinsic value of $0.1 million and $0.3 million,respectively.

 

A summary statusof restricted stock, restricted share units and deferred stock units as of September 26,2008 and changes during the period then ended is presented below:

 
| ** **                             | ** ** | **Restricted Stock** | ** ** | **Restricted Share Units** | ** ** | **Deferred Stock Units** | ** ** |
|----------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | ** **                | ** ** | **Weighted-**                        | ** ** | ** **                         | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| ** **                             | ** ** | ** **                | ** ** | **Average**                          | ** ** | ** **                         | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                             | ** ** | ** **                | ** ** | **Grant Date**                  | ** ** | ** **                         | ** ** | **Grant Date** | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                             | ** ** | **Shares**                | ** ** | **Fair Value**                  | ** ** | **Shares**                         | ** ** | **Fair Value** | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding at December 28, 2007  |       | 79,482                    |       | $                                    | 17.73      |                               | 369,252    |   | $ | 22.22 |   | 27,283 |   | $ | 24.10 |   |
| Granted                                |       | —                    |       | —                               |       | 188,159                            |       | 19.61 |   | 12,620 |   | 16.49 |   |
| Vested                                 |       | (57,082                   | )          | 15.37                                |       | (93,376                            | )          | 23.35 |   | — |   | — |   |
| Forfeited                              |       | (1,300                    | )          | 25.04                                |       | (12,677                            | )          | 21.88 |   | — |   | — |   |
| Outstanding at September 26, 2008 |       | 21,100                    |       | $                                    | 23.67      |                               | 451,358    |   | $ | 20.91 |   | 39,903 |   | $ | 21.69 |   |

 

During the ninemonths ended September 26, 2008 and September 28, 2007, 57,082 and54,770 shares of restricted stock vested, respectively. The total fair value ofrestricted stock vested during the nine months ended September 26, 2008and September 28, 2007 was $1.1 million and $1.1 million, respectively.During the nine months ended September 26, 2008, 93,376 shares ofrestricted share units vested. The total fair value of restricted share unitsvested during the nine months ended September 26, 2008 was $1.8 million.No restricted share units vested during the nine months ended September 28,2007.

 

**8.**                                      INCOME TAXES

 

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

 

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

 
| Balance at December 28, 2007                     |   | $      | 1,785  |   |
|-------------------------------------------------------|--------|--------|--------|--------|
| Additions for tax positions taken during  prior years |   | 35     |   |
| Settlements with taxing authorities                   |   | (1,508 | )      |
| Balance at September 26, 2008                    |   | $      | 312    |   |

 

**9.**                                      GUARANTOR SUBSIDIARIES

 

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

 

The Company is a holding company whose only asset isthe stock of its subsidiaries. The Company conducts virtually all of itsbusiness operations through Interline New Jersey. Accordingly, the Company’sonly material sources of cash are dividends and distributions with respect toits ownership interests in Interline New Jersey that are derived from theearnings and cash flow generated by Interline New Jersey. Through September 26,2008, 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 presented in theCompany’s consolidated financial statements. The non-guarantor subsidiaries areminor and are included in the condensed financial data of the SubsidiaryIssuer. The Subsidiary Issuer does not allocate integration expenses, corporateoverhead or other expenses for shared services to the Guarantor Subsidiaries;therefore, the following tables do not reflect any such allocation.

 

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**CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)**

**AS OF SEPTEMBER 26, 2008**

**(in thousands)**

 
| ** **                                      | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                      | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                      |       |        |       |           |       |             |       |              |       |             |       |
| Current Assets:                                 |       |        |       |           |       |             |       |              |       |             |       |
| Cash and cash equivalents                       |       | $           | —     |           | $          | 35,813           |       | $                 | 299        |             | $          | — |   | $ | 36,112 |   |
| Short-term investments                          |       | —      |       | 1,950          |       | —           |       | —            |       | 1,950            |       |
| Accounts receivable - trade                     |       | —      |       | 135,845        |       | 33,623           |       | —            |       | 169,468          |       |
| Inventory                                       |       | —      |       | 205,276        |       | 26,085           |       | —            |       | 231,361          |       |
| Intercompany receivable                         |       | —      |       | —         |       | 114,144          |       | (114,144          | )          | —           |       |
| Other current assets                            |       | —      |       | 38,286         |       | 2,879            |       | —            |       | 41,165           |       |
| Total current assets                            |       | —      |       | 417,170        |       | 177,030          |       | (114,144          | )          | 480,056          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Property and equipment, net                     |       | —      |       | 44,169         |       | 3,301            |       | —            |       | 47,470           |       |
| Goodwill                                        |       | —      |       | 247,442        |       | 71,845           |       | —            |       | 319,287          |       |
| Other intangible assets, net                    |       | —      |       | 91,461         |       | 42,204           |       | —            |       | 133,665          |       |
| Investment in subsidiaries                      |       | 413,486     |       | 288,182        |       | —           |       | (701,668          | )          | —           |       |
| Other assets                                    |       | —      |       | 2,421          |       | 8,416            |       | —            |       | 10,837           |       |
| Total assets                                    |       | $           | 413,486    |           | $          | 1,090,845        |       | $                 | 302,796    |             | $          | (815,812 | ) | $ | 991,315 |   |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   |       |        |       |           |       |             |       |              |       |             |       |
| Current Liabilities:                            |       |        |       |           |       |             |       |              |       |             |       |
| Accounts payable                                |       | $           | —     |           | $          | 66,059           |       | $                 | 3,867      |             | $          | — |   | $ | 69,926 |   |
| Accrued expenses and other current liabilities  |       | —      |       | 45,777         |       | 7,680            |       | —            |       | 53,457           |       |
| Intercompany payable                            |       | —      |       | 114,144        |       | —           |       | (114,144          | )          | —           |       |
| Debt and capital lease - short-term             |       | —      |       | 1,527          |       | 5                |       | —            |       | 1,532            |       |
| Total current liabilities                       |       | —      |       | 227,507        |       | 11,552           |       | (114,144          | )          | 124,915          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Long-Term Liabilities:                          |       |        |       |           |       |             |       |              |       |             |       |
| Term debt and capital lease - long-term         |       | —      |       | 412,927        |       | 2,284            |       | —            |       | 415,211          |       |
| Other liabilities                               |       | —      |       | 36,925         |       | 778              |       | —            |       | 37,703           |       |
| Total liabilities                               |       | —      |       | 677,359        |       | 14,614           |       | (114,144          | )          | 577,829          |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Senior preferred stock                          |       | —      |       | 637,968        |       | —           |       | (637,968          | )          | —           |       |
|                                            |       |        |       |           |       |             |       |              |       |             |       |
| Shareholders’ equity (deficit)             |       | 413,486     |       | (224,482       | )          | 288,182          |       | (63,700           | )          | 413,486          |       |
| Total liabilities and shareholders’ equity |       | $           | 413,486    |           | $          | 1,090,845        |       | $                 | 302,796    |             | $          | (815,812 | ) | $ | 991,315 |   |

 

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**CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)**

**AS OF DECEMBER 28, 2007**

**(in thousands)**

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

 

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

**FOR THE THREE MONTHS ENDED SEPTEMBER 26, 2008**

**(in thousands)**

 
| ** **                                            | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|-------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                             |       | $           | —     |           | $          | 242,807             |       | $                 | 74,697     |             | $          | — |   | $ | 317,504 |   |
| Cost of sales                                         |       | —      |       | 149,412        |       | 47,156              |       | —            |       | 196,568          |       |
| Gross profit                                          |       | —      |       | 93,395         |       | 27,541              |       | —            |       | 120,936          |       |
|                                                  |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                   |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative expenses          |       | —      |       | 73,055         |       | 14,773              |       | —            |       | 87,828           |       |
| Depreciation and amortization                         |       | —      |       | 3,642          |       | 677                 |       | —            |       | 4,319            |       |
| Equity earnings of subsidiaries                       |       | (22,445     | )          | (9,168         | )          | —              |       | 31,613            |       | —           |       |
| Total operating expense                               |       | (22,445     | )          | 67,529         |       | 15,450              |       | 31,613            |       | 92,147           |       |
| Operating income                                      |       | 22,445      |       | 25,866         |       | 12,091              |       | (31,613           | )          | 28,789           |       |
|                                                  |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net              |       | —      |       | (5,252         | )          | (533                | )          | (559              | )          | (6,344           | )          |
| Income before income taxes                            |       | 22,445      |       | 20,614         |       | 11,558              |       | (32,172           | )          | 22,445           |       |
| Income tax provision                                  |       | 8,709       |       | 4,601          |       | 4,108               |       | (8,709            | )          | 8,709            |       |
| Net income                                            |       | 13,736      |       | 16,013         |       | 7,450               |       | (23,463           | )          | 13,736           |       |
| Preferred stock dividends                             |       | —      |       | (21,516        | )          | —              |       | 21,516            |       | —           |       |
| Net income (loss) attributable to common stockholders |       | $           | 13,736     |           | $          | (5,503              | )          | $                 | 7,450      |             | $          | (1,947 | ) | $ | 13,736 |   |

 

----

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

 

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

**FOR THE THREE MONTHS ENDED SEPTEMBER 28, 2007**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 260,828             |       | $                 | 69,365     |             | $          | — |   | $ | 330,193 |   |
| Cost of sales                                          |       | —      |       | 161,728        |       | 43,037              |       | —            |       | 204,765          |       |
| Gross profit                                           |       | —      |       | 99,100         |       | 26,328              |       | —            |       | 125,428          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative expenses           |       | —      |       | 73,495         |       | 14,610              |       | —            |       | 88,105           |       |
| Depreciation and amortization                          |       | —      |       | 2,881          |       | 659                 |       | —            |       | 3,540            |       |
| Equity earnings of subsidiaries                        |       | (26,017     | )          | (21,169        | )          | —              |       | 47,186            |       | —           |       |
| Total operating expense                                |       | (26,017     | )          | 55,207         |       | 15,269              |       | 47,186            |       | 91,645           |       |
| Operating income                                       |       | 26,017      |       | 43,893         |       | 11,059              |       | (47,186           | )          | 33,783           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (11,094        | )          | 3,747               |       | (419              | )          | (7,766           | )          |
| Income before income taxes                             |       | 26,017      |       | 32,799         |       | 14,806              |       | (47,605           | )          | 26,017           |       |
| Income tax provision                                   |       | 10,029      |       | 7,685          |       | 2,344               |       | (10,029           | )          | 10,029           |       |
| Net income                                             |       | 15,988      |       | 25,114         |       | 12,462              |       | (37,576           | )          | 15,988           |       |
| Preferred stock dividends                              |       | —      |       | (18,758        | )          | —              |       | 18,758            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 15,988     |           | $          | 6,356               |       | $                 | 12,462     |             | $          | (18,818 | ) | $ | 15,988 |   |

 

----

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

 

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

**FOR THE NINE MONTHS ENDED SEPTEMBER 26, 2008**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 707,703             |       | $                 | 210,376    |             | $          | — |   | $ | 918,079 |   |
| Cost of sales                                          |       | —      |       | 439,266        |       | 132,027             |       | —            |       | 571,293          |       |
| Gross profit                                           |       | —      |       | 268,437        |       | 78,349              |       | —            |       | 346,786          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 217,668        |       | 43,758              |       | —            |       | 261,426          |       |
| Depreciation and amortization                          |       | —      |       | 10,295         |       | 2,005               |       | —            |       | 12,300           |       |
| Equity earnings of subsidiaries                        |       | (53,373     | )          | (18,128        | )          | —              |       | 71,501            |       | —           |       |
| Total operating expense                                |       | (53,373     | )          | 209,835        |       | 45,763              |       | 71,501            |       | 273,726          |       |
| Operating income                                       |       | 53,373      |       | 58,602         |       | 32,586              |       | (71,501           | )          | 73,060           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (16,262        | )          | (2,236              | )          | (1,189            | )          | (19,687          | )          |
| Income before income taxes                             |       | 53,373      |       | 42,340         |       | 30,350              |       | (72,690           | )          | 53,373           |       |
| Income tax provision                                   |       | 19,788      |       | 8,755          |       | 11,033              |       | (19,788           | )          | 19,788           |       |
| Net income                                             |       | 33,585      |       | 33,585         |       | 19,317              |       | (52,902           | )          | 33,585           |       |
| Preferred stock dividends                              |       | —      |       | (62,397        | )          | —              |       | 62,397            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 33,585     |           | $          | (28,812             | )          | $                 | 19,317     |             | $          | 9,495 |   | $ | 33,585 |   |

 

----

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

 

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

**FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2007**

**(in thousands)**

 
| ** **                                             | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**       | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries(1)** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                             | ** ** | ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net sales                                              |       | $           | —     |           | $          | 737,873             |       | $                 | 200,970    |             | $          | — |   | $ | 938,843 |   |
| Cost of sales                                          |       | —      |       | 458,796        |       | 124,358             |       | —            |       | 583,154          |       |
| Gross profit                                           |       | —      |       | 279,077        |       | 76,612              |       | —            |       | 355,689          |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Operating Expenses:                                    |       |        |       |           |       |                |       |              |       |             |       |
| Selling, general and administrative  expenses          |       | —      |       | 216,633        |       | 43,712              |       | —            |       | 260,345          |       |
| Depreciation and amortization                          |       | —      |       | 8,763          |       | 1,995               |       | —            |       | 10,758           |       |
| Equity earnings of subsidiaries                        |       | (61,121     | )          | (30,599        | )          | —              |       | 91,720            |       | —           |       |
| Total operating expense                                |       | (61,121     | )          | 194,797        |       | 45,707              |       | 91,720            |       | 271,103          |       |
| Operating income                                       |       | 61,121      |       | 84,280         |       | 30,905              |       | (91,720           | )          | 84,586           |       |
|                                                   |       |        |       |           |       |                |       |              |       |             |       |
| Interest and other (expense) income, net               |       | —      |       | (32,721        | )          | 10,043              |       | (787              | )          | (23,465          | )          |
| Income before income taxes                             |       | 61,121      |       | 51,559         |       | 40,948              |       | (92,507           | )          | 61,121           |       |
| Income tax provision                                   |       | 23,718      |       | 14,156         |       | 9,562               |       | (23,718           | )          | 23,718           |       |
| Net income                                             |       | 37,403      |       | 37,403         |       | 31,386              |       | (68,789           | )          | 37,403           |       |
| Preferred stock dividends                              |       | —      |       | (54,396        | )          | —              |       | 54,396            |       | —           |       |
| Net income (loss) attributable to common  stockholders |       | $           | 37,403     |           | $          | (16,993             | )          | $                 | 31,386     |             | $          | (14,393 | ) | $ | 37,403 |   |

 

----

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

 

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

**FOR THE NINE MONTHS ENDED SEPTEMBER 26, 2008**

**(in thousands)**

 
| ** **                                                    | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating  activities          |       | $           | —     |           | $          | 32,239           |       | $                 | (18,194    | )                | $          | — |   | $ | 14,045 |   |
| Cash Flows from Investing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Purchase of property and equipment, net                       |       | —      |       | (17,506        | )          | (1,206           | )          | —            |       | (18,712          | )          |
| Purchase of short-term investments                            |       | —      |       | (35,531        | )          | —           |       | —            |       | (35,531          | )          |
| Proceeds from sales and maturities of  short-term investments |       | —      |       | 82,121         |       | —           |       | —            |       | 82,121           |       |
| Purchase of businesses, net of cash  acquired                 |       | —      |       | (10,306        | )          | (24              | )          | —            |       | (10,330          | )          |
| Other                                                         |       | —      |       | (19,708        | )          | —           |       | 19,708            |       | —           |       |
| Net cash provided by (used in) investing  activities          |       | —      |       | (930           | )          | (1,230           | )          | 19,708            |       | 17,548           |       |
| Cash Flows from Financing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Increase in purchase card payable, net                        |       | —      |       | 2,324          |       | —           |       | —            |       | 2,324            |       |
| Repayment of debt and capital lease  obligations              |       | —      |       | (2,650         | )          | (3               | )          | —            |       | (2,653           | )          |
| Other                                                         |       | —      |       | (57            | )          | 19,708           |       | (19,708           | )          | (57              | )          |
| Net cash (used in) provided by financing  activities          |       | —      |       | (383           | )          | 19,705           |       | (19,708           | )          | (386             | )          |
| Effect of exchange rate changes on cash and  cash equivalents |       | —      |       | (70            | )          | —           |       | —            |       | (70              | )          |
| Net increase in cash and cash equivalents                     |       | —      |       | 30,856         |       | 281              |       | —            |       | 31,137           |       |
| Cash and cash equivalents at beginning of  period             |       | —      |       | 7,564          |       | 18               |       | (2,607            | )          | 4,975            |       |
| Cash and cash equivalents at end of period                    |       | $           | —     |           | $          | 38,420           |       | $                 | 299        |             | $          | (2,607 | ) | $ | 36,112 |   |

 

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

**FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2007**

**(in thousands)**

 
| ** **                                                    | ** ** | **Parent**  | ** ** | **Subsidiary** | ** ** | **Guarantor**    | ** ** | **Consolidating** | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Company** | ** ** | **Issuer**     | ** ** | **Subsidiaries** | ** ** | **Adjustments**   | ** ** | **Consolidated** | ** ** |
| ** **                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating  activities          |       | $           | —     |           | $          | 43,997           |       | $                 | 1,232      |             | $          | 295 |   | $ | 45,524 |   |
| Cash Flows from Investing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Purchase of property and equipment, net                       |       | —      |       | (10,374        | )          | (1,126           | )          | —            |       | (11,500          | )          |
| Purchase of short-term investments                            |       | —      |       | (75,572        | )          | —           |       | —            |       | (75,572          | )          |
| Proceeds from sales and maturities of  short-term investments |       | —      |       | 47,347         |       | —           |       | —            |       | 47,347           |       |
| Purchase of businesses, net of cash  acquired                 |       | —      |       | 3              |       | 209              |       | (215              | )          | (3               | )          |
| Net cash provided by (used in) investing  activities          |       | —      |       | (38,596        | )          | (917             | )          | (215              | )          | (39,728          | )          |
| Cash Flows from Financing Activities:                         |       |        |       |           |       |             |       |              |       |             |       |
| Increase in purchase card payable, net                        |       | —      |       | 4,877          |       | —           |       | —            |       | 4,877            |       |
| Repayment of debt and capital lease  obligations              |       | —      |       | (1,970         | )          | (98              | )          | —            |       | (2,068           | )          |
| Other                                                         |       | —      |       | 686            |       | (215             | )          | 215               |       | 686              |       |
| Net cash (used in) provided by financing  activities          |       | —      |       | 3,593          |       | (313             | )          | 215               |       | 3,495            |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —      |       | 142            |       | —           |       | —            |       | 142              |       |
| Net increase in cash and cash equivalents                     |       | —      |       | 9,136          |       | 2                |       | 295               |       | 9,433            |       |
| Cash and cash equivalents at beginning of  period             |       | —      |       | 8,783          |       | 15               |       | (1,946            | )          | 6,852            |       |
| Cash and cash equivalents at end of period                    |       | $           | —     |           | $          | 17,919           |       | $                 | 17         |             | $          | (1,651 | ) | $ | 16,285 |   |

 

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

* *

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

 

**Forward-LookingStatements**

 

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

 

·                  economic slowdowns,

·                  general market conditions,

·                  credit market contractions,

·                  product cost and price fluctuations due tomarket conditions,

·                  consumer spending and debt levels,

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

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

·                  material facilities and systems disruptionsand shutdowns,

·                  failure to realize expected benefits fromacquisitions,

·                  our ability to purchase products fromsuppliers on favorable terms,

·                  the length of our supply chains,

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

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

·                  currency exchange rates,

·                  the loss of significant customers,

·                  our ability to accurately predict markettrends,

·                  failure to locate, acquire and successfullyintegrate acquisition candidates,

·                  dependence on key employees,

·                  our inability to protect trademarks,

·                  adverse publicity and litigation,

·                  our level of debt,

·                  interest rate fluctuations,

·                  future cash flows,

·                  changes in consumer preferences,

·                  labor and benefit costs,

·                  weather conditions,

·                  the other factors described under “Part II.Item 1A—Risk Factors” in this Quarterly Report on Form 10-Q, and

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

 

You should keep in mind thatany forward-looking statement made by us in this report, or elsewhere, speaksonly as of the date on which we make it. New risks and uncertainties arise fromtime to time, and it is impossible for us to predict these events or how theymay affect us. In light of these risks and uncertainties, you should keep inmind that any forward-looking statement made in this report or elsewhere mightnot occur. Notwithstanding the foregoing, all information contained in thisreport is materially 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 approximately 100,000 plumbing,electrical, hardware, security, heating, ventilation and air conditioning (“HVAC”),janitorial and sanitary and other MRO products and sell toa diversified customer base made up ofprofessional contractors, facilities maintenance professionals and specialtydistributors. Our products are primarily used for the repair, maintenance,remodeling and refurbishment of properties and non-industrial facilities. Weare able to realize high margins by focusing on repair, maintenance, remodelingand refurbishment customers, who generally make smaller, more frequentpurchases and require high levels of service. Our diverse customer baseincludes facilities maintenance customers, which consist of multi-familyhousing facilities, educational institutions, lodging and health carefacilities, government properties and building service contractors;professional contractors who are primarily involved in the repair, remodelingand construction of residential and non-industrial facilities; and specialtydistributors, including plumbing and hardware retailers. Our customers range insize from individual contractors and independent hardware stores to apartmentmanagement 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 to delivertailored products and services to meet the individual needs of each respectivecustomer group served. We reach our markets using a variety of sales channels,including a sales force of over 625 field sales representatives and over 450telesales and customer service representatives, a direct marketing program ofapproximately five million pieces annually, brand-specific websites and anational accounts sales program. We deliver our products through our network oftwo national distribution centers (“NDCs”), 71 regional distribution centers,36 professional contractor showrooms located throughout the United States andCanada,  24 vendor-managed inventorylocations at large customer locations and a dedicated fleet of trucks. Ourbroad distribution network allows us the ability to provide reliable, same-dayand/or next-day delivery service to 98% of the U.S. population.

 

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

 

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**Resultsof Operations**

 

Thefollowing table presents information derived from the condensed consolidatedstatements of earnings expressed as a percentage of revenues for the three andnine months ended September 26, 2008 and September 28, 2007:

 
|                                          |   | **% of Net Sales** | ** ** | **% Increase**    | ** ** | **% of Net Sales** | ** ** | **% Increase**    |       |
|-----------------------------------------------|--------|-----------------------------------|------------|------------------------|------------|-----------------------------------|------------|------------------------|------------|
|                                          |   | **Three Months Ended**  | ** ** | **(Decrease)**         | ** ** | **Nine Months Ended**   | ** ** | **(Decrease)**         |       |
|                                          |   | **September 26,**            | ** ** | **September 28,** | ** ** | **2008**                          | ** ** | **September 26,** | ** ** | **September 28,** | ** ** | **2008** |   |
|                                          |   | **2008**                          | ** ** | **2007**               | ** ** | **vs. 2007 (1)**        | ** ** | **2008**               | ** ** | **2007** | ** ** | **vs. 2007 (1)** |   |
| Net sales                                     |   | 100.0                             | %          | 100.0                  | %          | (3.8                              | )%         | 100.0                  | %          | 100.0 | % | (2.2 | )% |
| Cost of sales                                 |   | 61.9                              |       | 62.0                   |       | (4.0                              | )          | 62.2                   |       | 62.1 |   | (2.0 | ) |
| Gross profit                                  |   | 38.1                              |       | 38.0                   |       | (3.6                              | )          | 37.8                   |       | 37.9 |   | (2.5 | ) |
|                                          |   |                              |       |                   |       |                              |       |                   |       |   |   |   |   |
| Operating Expenses:                           |   |                              |       |                   |       |                              |       |                   |       |   |   |   |   |
| Selling, general and administrative  expenses |   | 27.7                              |       | 26.7                   |       | (0.3                              | )          | 28.5                   |       | 27.7 |   | 0.4 |   |
| Depreciation and amortization                 |   | 1.4                               |       | 1.1                    |       | 22.0                              |       | 1.3                    |       | 1.1 |   | 14.3 |   |
| Total operating expense                       |   | 29.0                              |       | 27.8                   |       | 0.5                               |       | 29.8                   |       | 28.9 |   | 1.0 |   |
| Operating income                              |   | 9.1                               |       | 10.2                   |       | (14.8                             | )          | 8.0                    |       | 9.0 |   | (13.6 | ) |
|                                          |   |                              |       |                   |       |                              |       |                   |       |   |   |   |   |
| Interest expense                              |   | (2.2                              | )          | (2.6                   | )          | (17.9                             | )          | (2.4                   | )          | (2.7 | ) | (15.0 | ) |
| Interest income and other income              |   | 0.2                               |       | 0.2                    |       | (13.7                             | )          | 0.2                    |       | 0.2 |   | (2.7 | ) |
| Income before income taxes                    |   | 7.1                               |       | 7.9                    |       | (13.7                             | )          | 5.8                    |       | 6.5 |   | (12.7 | ) |
| Income tax provision                          |   | (2.7                              | )          | (3.0                   | )          | (13.2                             | )          | (2.2                   | )          | (2.5 | ) | (16.6 | ) |
| Net income                                    |   | 4.3                               | %          | 4.8                    | %          | (14.1                             | )%         | 3.7                    | %          | 4.0 | % | (10.2 | )% |

 

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

 

*Overview.*During the three months ended September 26,2008, our sales declined 3.8%. We believe this decline is associated with thewidely reported general economic downturn and credit crisis. Demand from customersin our facilities maintenance end-markets, which make up 70% of our total salesand includes residential multi-family housing and institutional MRO customers,declined 2.4% during the third quarter of 2008 compared to the third quarter of2007. Demand from our professional contractor and specialty distributorcustomers, which represent 19% and 11% of our total sales, respectively,declined 10.1% and 3.6%, respectively. Demand from these customers continues tobe impacted by the prolonged declines in residential new construction activityand renovations activity. Net income as a percentage of sales was 4.3% in thethird quarter compared to 4.8% in the comparable prior year period. The declinein net income is a result of lower sales, costs associated with our previouslydiscussed operational initiatives, such as headcount reductions and closingunderperforming professional contractor showrooms as well as higher fixedcosts, such as rent expense and other occupancy costs, driven by our Auburn,Massachusetts, and Richmond, Virginia distribution center consolidations andour new NDC in Salt Lake City, Utah, which opened during the third quarter.These higher costs were offset in part by decreases in performance-based bonusand share-based compensation expense and lower interest expense associated witha lower interest rate environment. We will continue to work on lowering ouroperating costs in the near term while continuing to invest in our operatingplatform for the long term.

 

*Three Months Ended September 26, 2008 Compared to ThreeMonths Ended September 28, 2007*

 

*Net Sales.*Our net sales decreased by$12.7 million, or 3.8%, to $317.5 million in the three months ended September 26,2008 from $330.2 million in the three months ended September 28,2007. The decline in sales resulted from the net impact of a 2.4% decrease insales to our facilities maintenance customers and a continued decline in salesto our professional contractor and specialty distributor customers of 10.1% and3.6%, respectively. We expect sales to our facilities maintenance, professionalcontractor and specialty distributor end-markets to remain weak during theremainder of 2008 as the general economic downturn and credit crisis is expected to continue to affect thehousing market.

 

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*Gross Profit.*Gross profit decreased by $4.5 million, or 3.6%, to$120.9 million in the three months ended September 26, 2008 from$125.4 million in the three months ended September 28, 2007 as adirect result of the decrease in sales. Our gross profit margin increased 10basis points to 38.1% for the three months ended September 26, 2008compared to 38.0% for the three months ended September 28, 2007. Theincrease in gross margin is primarily due to a change in sales mix as well asan increase in freight revenue, as we continue to manage the increase in risingfuel costs.

 

*Selling, General and Administrative Expenses.*SG&Aexpenses decreased by $0.3 million, or 0.3% to $87.8 million in the threemonths ended September 26, 2008 from $88.1 million in the three monthsended September 28, 2007. As a percent of sales, SG&A increased to27.7% for the three months ended September 26, 2008 compared to 26.7% forthe three months ended September 28, 2007. The increase in SG&Aexpenses is primarily due to costs associated with our previously discussedoperational initiatives, such as headcount reductions and closingunderperforming professional-contractor showrooms as well as project expensesassociated with the consolidation of certain distribution centers into ourAuburn, Massachusetts, and Richmond, Virginia, locations and our investment ina west coast NDC in Salt Lake City, Utah, offset by lowerperformance-based bonus and share-based compensation expense.

 

*Depreciationand Amortization.*Depreciationand amortization expense increased by $0.8 million to $4.3 million in thethree months ended September 26, 2008 from $3.5 million in the threemonths ended September 28, 2007. As a percentage of sales, depreciationand amortization was 1.4% or 30 basis points higher than the 1.1% 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 $5.0 million, or14.8%, to $28.8 million in the three months ended September 26, 2008from $33.8 million in the three months ended September 28, 2007. As apercent of sales, operating income decreased to 9.1% in the three months ended September 26,2008 compared to 10.2% in the three months ended September 28, 2007.

 

*Interest Expense.*Interest expense decreased by $1.5 million in the threemonths ended September 26, 2008 to $7.1 million from$8.6 million in the three months ended September 28, 2007. Thisdecrease was primarily due to lower interest rates as well as scheduledreductions in the principal balance of our term-debt.

 

*Interest and Other Income.* Interest and other income decreased $0.1 million to $0.7million in the three months ended September 26, 2008 compared to $0.8million in the three months ended September 28, 2007. The decrease wasprimarily attributable to lower interest income earned on lower short-terminvestment balances.

 

*Provision for Income Taxes.*The effective tax rate for the three monthsended September 26, 2008 was 38.8% compared to 38.5% for the three monthsended September 28, 2007. The decrease in the effective tax rate wasprimarily due to lower tax-free interest income.

 

*Nine Months Ended September 26, 2008 Compared to NineMonths Ended September 28, 2007*

 

*Net Sales.*Our net sales decreased by$20.8 million, or 2.2%, to $918.1 million in the nine months ended September 26,2008 from $938.8 million in the nine months ended September 28, 2007.The decline in sales resulted from the net impact of a 1.4% increase in salesto our facilities maintenance customers offset by a decline in sales to ourprofessional contractor and specialty distributor customers of 11.4% and 7.0%,respectively. We expect sales to our facilities maintenance, professionalcontractor and specialty distributor end-markets to remain weak during theremainder of 2008 as the general economic downturn and credit crisis is expected to continue specifically withrespect to the housing market.

 

*Gross Profit.*Gross profit decreased by $8.9 million, or 2.5%, to$346.8 million in the nine months ended September 26, 2008 from$355.7 million in the nine months ended September 28, 2007 as adirect result of the decrease in sales as well as the slightly lower grossprofit margin on those sales during the period. Our gross profit margindecreased 10 basis points to 37.8% for the nine months ended September 26,2008 compared to 37.9% for the nine months ended September 28, 2007. Thedecrease in gross margin is due to an increase in sales of lower marginproducts, such as HVAC products, offset by continued operating efficiencies atour Nashville NDC.

 

*Selling, General and Administrative Expenses.*SG&Aexpenses increased by $1.1 million, or 0.4% to $261.4 million in the ninemonths ended September 26, 2008 from $260.3 million in the nine monthsended September 28, 2007. As a percent of sales, SG&A increased 80basis points to 28.5% for the nine months ended September 26, 2008compared to 27.7% for the nine months ended September 28, 2007. Theincrease in SG&A expenses is primarily due to project expenses associatedwith the consolidation of distribution operations in Auburn, Massachusetts, andRichmond, Virginia, as well as investment in a west coast NDC in Salt Lake

 

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City, Utah, and costs associated withour previously discussed operational initiatives, such as headcount reductionand closing underperforming professional-contractor showrooms, costs associated with a previously announced executive’s transitionand higher fixed costs, such as rentexpense and other occupancy costs. These costs were offset in part by lowerperformance-based bonus and share-based compensation expense.

 

*Depreciationand Amortization.*Depreciationand amortization expense increased by $1.5 million to $12.3 million in thenine months ended September 26, 2008 from $10.8 million in the ninemonths ended September 28, 2007. As a percentage of sales, depreciationand amortization was 1.3% or 20 basis points higher than the 1.1% 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 $11.5 million, or13.6%, to $73.1 million in the nine months ended September 26, 2008from $84.6 million in the nine months ended September 28, 2007. As apercent of sales, operating income decreased to 8.0% in the nine months ended September 26,2008 compared to 9.0% in the nine months ended September 28, 2007.

 

*InterestExpense.*Interestexpense decreased by $3.8 million in the nine months ended September 26,2008 to $21.8 million from $25.6 million in the nine months ended September 28,2007. 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 decreased by $0.1 million in thenine months ended September 26, 2008 to $2.1 million from $2.2 million inthe nine months ended September 28, 2007. The decrease was primarilyattributable to lower interest income earned on lower short-term investmentbalances.

 

*Provision for Income Taxes.*The effective tax rate for the nine monthsended September 26, 2008 was 37.1% compared to 38.8% for the nine monthsended September 28, 2007. The decrease in the effective tax rate wasprimarily due to the decrease in a liability associated with previouslyunrecognized tax benefits. During the nine months ended September 26,2008, we obtained resolutions on theuncertain tax positions that we took for two states and determined that we nolonger needed the full amount of the accruals that we had established. As such,we made the appropriate adjustments, of which $0.8 million favorably impactedour effective tax rate for the nine-month period.

 

**Liquidity and Capital Resources**

 

*Overview*

 

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

 

We have $200.0 million of 81/8% senior subordinated notes due 2014 and a $330.0million bank credit facility. The bank credit facility consists of a $230.0million 7-year term loan and a $100.0 million 6-year revolving credit facilityof which a portion not exceeding $40.0 million is available in the form ofletters of credit. As of September 26, 2008, Interline New Jersey had$9.6 million of letters of credit issued under the revolving loan facilityand $215.1 million of aggregate principal outstanding under the term loanfacility.

 

The 81/8% senior subordinated notes were priced at 99.3%, or$198.6 million, of their principal amount, representing a yield to maturity of81⁄4%. We are amortizing the discount of $1.4 million over the term of the 81/8% senior subordinated notes. As of September 26,2008, the 81/8%senior subordinated notes had a fair market value of $184.0 million or 92.0% ofpar. The 81/8%senior subordinated notes mature on June 15, 2014 and interest is payableon June 15 and December 15 of each year.

 

The debt instruments of Interline New Jersey,primarily the credit facility entered into on June 23, 2006 and theindenture governing the terms of the 81/8% senior subordinated notes, contain significantrestrictions on the payment of dividends and distributions to us by InterlineNew Jersey. Interline New Jersey’s credit facility allows it to pay dividends,make distributions to us or make investments in us in an aggregate amount notto exceed $2.0 million during any fiscal year, so long as Interline New Jerseyis not in default or would be in default as a result of such payments. The indenturealso permits 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% senior subordinated notes generallyrestricts the ability of Interline New Jersey to pay distributions to us and tomake advances to, or investments in, us to an amount generally equal to 50% ofthe net income of Interline New Jersey, plus an amount equal to the net 

 

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proceeds fromcertain equity issuances, subject to compliance with a leverage ratio and nodefault having occurred and continuing. The indenture also contains certainpermitted exceptions including (1) allowing us to pay our franchise taxesand other fees required to maintain our corporate existence, to pay for generalcorporate and overhead expenses (up to $3.0 million annually) and to payexpenses incurred in connection with certain financing, acquisition ordisposition transactions, in an aggregate amount not to exceed $10.0 millionper year; (2) allowing certain other tax payments; and (3) allowingcertain permitted distributions up to $75.0 million. For a further descriptionof the credit facility, see “—Credit Facility” below.

 

*FinancialCondition*

 

Workingcapital increased by $23.9 million to $355.1 million as of September 26,2008 from $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 byoperating activities was $14.0 million in the nine months ended September 26,2008 compared to net cash provided by operating activities of$45.5 million in the nine months ended September 28, 2007. Thedecrease of $31.5 million in net cash provided by operating activities wasprimarily a result of lower operating performance compared to the comparableprior year period and an increase in the working capital of the business.Changes in our main working capital components, which include accounts receivable,inventory and accounts payable, used $46.8 million during the nine months endedSeptember 26, 2008 compared to $18.1 million during the nine months ended September 28,2007. Changes in our main working capital components for the comparablenine-month period includes the increase of inventory of $38.9 million, anincrease in trade accounts payable of $11.1 million and a decrease in tradeaccounts receivable of $21.3 million. The change in inventory is primarily aresult of the increased inventory levels to stock $12.7 million of inventory inour new west coast NDC in Salt Lake City, Utah,****$7.0 millionto support our growing janitorial and sanitary product group and $2.9 millionin other new MRO product offerings. The increase in trade accounts payable is reflectiveof higher year over year purchases of inventory and the decrease in tradeaccounts receivable is reflective of lower relative sales demand from ourcustomers.

 

Net cashprovided by investing activities was $17.5 million in the nine months ended September 26,2008 compared to net cash used in investing activities of $39.7 million in thenine months ended September 28, 2007. Net cash provided by investingactivities in the nine months ended September 26, 2008 was attributable toour investment of our excess cash balances which provided net proceeds fromsales and maturities of short-term investments of $46.6 million offset bycapital expenditures made in the ordinary course of business of $18.7 millionand $10.3 million in costs related to purchases of businesses, net of cash. Netcash used in investing activities in the nine months ended September 28,2007 was attributable to capital expenditures made in the ordinarycourse of business of $11.5 million and $28.2 million in net investments inshort-term investments comprised of tax-exempt auction rate securities andvariable-rate demand notes.

 

Net cash used in financingactivities totaled $0.4 million in the nine months ended September 26,2008 compared to net cash provided by financing activities of $3.5 millionin the nine months ended September 28, 2007. Net cash used in financingactivities in the nine months ended September 26, 2008 was attributable toour repayment of $2.7 million of borrowings on our credit facility and capitallease obligations and $0.8 million in treasury stock acquired via payments tosatisfy minimum statutory tax withholding requirements offset by the netincrease in purchase card payable of $2.3 million and $0.8 million of proceedsfrom stock options exercised and excess tax benefits from share-basedcompensation. Net cash provided by financing activities in the nine monthsended September 28, 2007 was attributable to the net increase in purchasecard payable of $4.9 million and $0.7 million of proceeds from stock optionsexercised and excess tax benefits from share-based compensation offset by ourrepayment of $2.1 million of borrowings on our credit facility and capitallease obligations.

 

*Prior Period Correction*

 

Subsequent to the filing of the interim condensedconsolidated financial statements for the nine months ended September 28,2007, 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 accountspayable in the balance sheet and related cash flows were classified as cashflows from operating activities in the statement of cash flows. We determinedthat the appropriate accounting treatment was to present outstanding amounts asaccrued expenses and other liabilities on our balance sheet and as cash flowsfrom financing activities, net of payments to the third-party intermediary. Asa result, we have corrected the condensed consolidated statement of cash flowsfor the nine months ended 

September 28, 2007 to properly present theseactivities. The corrections made to the condensed consolidated statement ofcash flows for the nine months ended September 28, 2007 include areclassification of $4.9 million from net change in accounts payable and netcash provided by operating activities to increase in purchase card payable,net, and net cash provided by financing activities. We do 

 

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not believe this constitutes a material misstatementto the statement of condensed consolidated cash flows for the nine months endedSeptember 28, 2007.

 

*Capital Expenditures*

 

Capitalexpenditures were $18.7 million in the nine months ended September 26,2008 compared to $11.5 million in the nine months ended September 28,2007. Capital expenditures as a percentage of sales were 2.0% in the ninemonths ended September 26, 2008 compared to 1.2% in the nine months ended September 28,2007. The increases in capital expenditures are due to the upgrade of ourtelecommunications network, the expansion of our distribution centernetwork, the purchase of warehouse equipment and investments in our informationtechnology systems necessary for the integration of our AmSan acquisition.

 

*Credit Facility*

 

Borrowings under the term loan and the delayed drawfacility bear interest, at Interline New Jersey’s option, at either LIBOR plus1.75% or at the alternate base rate, which is the greater of the Prime Rate orthe Federal Funds Effective Rate plus 0.50%, plus 0.75%. Borrowings under therevolving credit facility bear interest, at Interline New Jersey’s option, ateither LIBOR plus 1.50% or at the alternate base rate plus 0.50%. As of September 26,2008, the interest rate in effect with respect to the term loan and the delayeddraw facility was 5.18% for the LIBOR option and 5.75% for the alternate baserate option. Outstanding letters of credit under the revolving credit facilityare subject to a per annum fee equal to the applicable margin under therevolving credit facility. The interest rate margin is subject to pricingadjustments at the end of each fiscal quarter based on net total indebtednessto consolidated earnings before interest, taxes, depreciation and amortization(“EBITDA”). The term loan and the delayed draw facility mature on June 23,2013 and the revolving loan facility matures on June 23, 2012. Amountsunder the term loan and the delayed draw facility are due and payable inquarterly installments equal to 1.0% of the original principal amount on anannual basis through June 23, 2013, with the balance payable in one finalinstallment at the maturity date.

 

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

 

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

 

As of September 26, 2008, Interline New Jerseyhad $9.6 million of letters of credit issued under the revolving loanfacility and $215.1 million of aggregate principal outstanding under theterm loan facility.

 

*Liquidity*

 

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

 

As of September 26, 2008, we had $90.4 million ofavailability under Interline New Jersey’s $100.0 million revolving creditfacility. However, subsequent to September 26, 2008, one of the financialinstitutions that support our revolving credit facility failed. As a result, ifwe do not find a replacement, our ability to borrow under our revolving creditfacility may be reduced by $17.0 million.

 

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Webelieve that cash and short-term investments on hand, cash flow from operationsand available borrowing capacity under our credit facility will be adequate tofinance our ongoing operational cash flow needs and debt service obligationsfor the next twelve months.

 

*Contractual Obligations*

 

Our contractual obligationsare disclosed in our Annual Report on Form 10-K for the year ended December 28,2007 filed with the SEC. Except for the derecognition of uncertain taxpositions as discussed above and in Note 8 to our condensed consolidatedfinancial statements, there have been no material changes to our contractualobligations since December 28, 2007.

 

**Critical Accounting Policies**

 

Inpreparing the unaudited condensed consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America, management is required to make certain estimates, judgments andassumptions. These estimates, judgments and assumptions affect the reportedamounts of assets and liabilities, including the disclosure of contingentassets and liabilities, at the date of the financial statements and thereported amounts of revenues and expenses during the periods presented. On anongoing basis, management evaluates these estimates and assumptions. Managementbases its estimates and assumptions on historical experience and on variousother factors that are believed to be reasonable at the time the estimates andassumptions are made. Actual results may differ from these estimates andassumptions under different circumstances or conditions.

 

Ourcritical accounting policies are included in our Annual Report on Form 10-Kfor the year ended December 28, 2007 filed with the SEC. During the ninemonths ended September 26, 2008, there were no significant changes to anyof our critical accounting policies.

 

**Recently Adopted Accounting Standards**

 

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

 

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

 

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

 

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**Recently Issued Accounting Pronouncements**

 

In March 2008, the FASB issued FASB Statement No. 161, *Disclosures about Derivative Instruments and Hedging Activities*,(“FAS 161”). FAS 161 is intended to improve financial reporting aboutderivative instruments and hedging activities by requiring enhanced disclosuresto enable investors to better understand their effects on an entity’s financialposition, financial performance, and cash flows. The provisions of FAS 161 areeffective for financial statements issued for fiscal years and interim periodsbeginning after November 15, 2008 with early application encouraged. Weare currently evaluating the impact the provisions of FAS 161 will have on ourfinancial position, results of operations and cash flows.

** **

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

 

In October 2008, the FASB issued Staff Position157-3, *Determining the Fair Value of a Financial AssetWhen the Market for That Asset is Not Active*, (“FAS 157-3”).FSP 157-3 clarifies the application of FAS 157 in a market that is not active.The Company considered the guidance provided by FSP 157-3 in its determinationof estimated fair values as of September 26, 2008, and the impact was notmaterial to our financial position, results of operations and cash flows.

** **

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

 

*Commodity Price Risk*

 

We are aware of thepotentially unfavorable effects inflationary pressures may create throughhigher product and material costs, higher asset replacement costs and relateddepreciation and higher interest rates. In addition, our operating performanceis affected by price fluctuations in copper, oil, stainless steel, aluminum,zinc, plastic and PVC and other commodities and raw materials. We seek tominimize the effects of inflation and changing prices through economies ofpurchasing 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-term investments portfolio is comprised of high-grade taxexempt auction rate securities, which are debt instruments, such as municipalbonds, with long-term scheduled maturities and periodic interest rate resetdates. As of September 26, 2008, we had $2.0 million in short-terminvestments. The values of these investments are subject to changes in interestrates. However, because the interest rates on these securities are typicallyreset to market prevailing rates every 35 days or less, and in some cases every7 days or less, we do not believe the interest rate risk inherent in ourportfolio was material as of September 26, 2008. Although our auction ratesecurities have been readily marketable, if an auction were to fail, we may notbe able to sell these securities on the planned reset date thereby increasingour holding period. Subsequent to September 26, 2008, our auction ratesecurities were sold at par.

 

Our variable rate term debt is sensitive to changes inthe general level of interest rates. As of September 26, 2008, theinterest rate in effect with respect to our $215.1 million variable rate termdebt was 5.18% for the LIBOR option and 5.75% for the alternate base rateoption. While our variable rate term debt obligations expose us to the risk ofrising interest rates, we do not believe that the potential exposure ismaterial to our overall financial performance or results of operations. Based onthe outstanding variable rate term debt as of September 26, 2008, a 1.0%annual increase or decrease in current market interest rates would have theeffect of causing a $1.6 million pre-tax change to our statement of operationsfor the nine months ended September 26, 2008.

 

The fairmarket value of our fixed rate debt is subject to interest rate risk. As of September 26,2008, the fair market value of our $200.0 million 81/8%senior subordinated notes was $184.0 million or 92.0% of par.

 

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* *

*ForeignCurrency 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 September 26, 2008.

 

*DerivativeFinancial Instruments*

 

As of September 26, 2008, we did not have anyinterest rate swap exchange agreements, or swaps. Historically, we entered intoderivative financial instruments from time to time, including interest rateexchange agreements, or swaps, to manage our exposure to fluctuations ininterest rates on our debt. Under our former swap agreements, we pay a fixedrate on the notional amount to our banks and the banks pay us a variable rateon the notional amount equal to a base LIBOR rate.

 

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**

 

*Evaluationof 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 theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of September 26, 2008. Based onthis evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that, as of September 26, 2008, our disclosure controls andprocedures were effective to (1) ensure that material informationdisclosed by us in the reports that we file or submit under the Exchange Act isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, to allow timely decisions regardingrequired disclosure and (2) ensure that information required to bedisclosed by us in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

*Changes inInternal 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 September 26,2008 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**

 

***Adverse changes in global economicconditions may negatively affect our industry, business and results ofoperations.***

*** ***

Financial marketsin the United States, Europe and Asia have experienced substantial disruptionin recent months, including, among other things, extreme volatility in securityprices, severely diminished liquidity and credit availability, ratingdowngrades of certain investments and declining valuations of others.Governments have taken unprecedented actions intended to address these marketconditions and it remains unclear whether such government actions will proveeffective. The United States economy is currently undergoing a period ofslowdown, which some observers view as a possible recession, and the futureeconomic environment may continue to worsen.

 

The MRO productdistribution industry is affected by changes in economic conditions outside ourcontrol, which can result in increased vacancies in the residential rentalhousing market and a general decrease in product demand from professionalcontractors and specialty distributors. Such economic developments may affectour business in a number of ways. Reduced demand may drive us and ourcompetitors to offer products at promotional prices, which would have anegative impact on our profitability. In addition, the current tightening ofcredit in financial markets adversely affects the ability of customers andsuppliers to obtain financing for significant purchases and operations andcould result in a decrease in or cancellation of orders for our products. If demandfor our products continues to slow down or decrease, we will not be able toimprove our revenues and we may run the risk of failing to satisfy thefinancial and other restrictive covenants to which we are subject under ourexisting indebtedness. Reduced revenues as a result of decreased demand mayalso reduce our working capital for planned growth and otherwise hinder ourability to improve our performance in connection with our long term strategy.

*** ***

***The volatility and disruption of thecapital and credit markets may impair our access to sufficient capital.***

*** ***

The United Statescredit markets are currently experiencing an unprecedented contraction. As aresult of the tightening credit markets, we may not be able to obtainadditional financing on favorable terms, or at all. While we intend to financeour operational cash flow, capital expenditures, debt service obligations andgrowth projects with existing cash and cash flow from operations, we mayrequire accessing our credit facility. However, due to the existing uncertaintyin the capital and credit markets, access to our credit facility may not beavailable. For example, one of the financial institutions that supports ourrevolving credit facility has failed and we may not be able to find areplacement, which could negatively impact our ability to borrow under ourrevolving credit facility. In addition, if the current pressures on creditcontinue or worsen, we may not be able to refinance our outstanding debt whendue, which could have a material adverse effect on our business. Decreasedaccess to the credit markets and other financing sources could also restrictour ability to make acquisitions and grow our business.

 

Furthermore, ifour operating results, cash flow or capital resources prove inadequate, or ifinterest rates increase significantly, we could face substantial liquidityproblems and might be required to dispose of material assets or operations tomeet our debt and other obligations. If we are unable to service our debt wecould be forced to reduce or delay planned capital expenditures, sell assets,restructure or refinance our debt or seek additional equity capital, and we maybe unable to take any of the actions on satisfactory terms or in a timelymanner. Further, any of these actions may not be sufficient to allow us toservice our debt obligations or may have an adverse impact on our business. Ourexisting debt agreements limit our ability to take certain of these actions.Our failure to generate sufficient operating cash flow to pay our debts, torefinance our indebtedness or to successfully undertake any of these otheractions could have a material adverse effect on us.

*** ***

***The trading price of our commonstock may be volatile.***

 

The market priceof our common stock could be subject to wide fluctuations in response to, amongother things, the risk factors described in this and other periodic reports,and other factors beyond our control, such as fluctuations in the valuation ofcompanies perceived by investors to be comparable to us. Furthermore, the stockmarkets have experienced price and volume fluctuations that have affected andcontinue to affect the market prices of equity securities of many companies.These fluctuations often have been unrelated or disproportionate to theoperating performance of those companies. These broad market and industry 

 

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fluctuations, as well as general economic,political, and market conditions, such as recessions, interest rate changes orinternational currency fluctuations, may negatively affect the market price ofour common stock. In the past, many companies that have experienced volatilityin the market price of their stock have been subject to securities class actionlitigation. We may be the target of this type of litigation in the future.Securities litigation against us could result in substantial costs and divertour management’s attention from other business concerns, which could seriouslyharm our business.

 

For furtherinformation regarding factors that could affect our financial position, resultsof operations and cash flows, see the risk factors discussion provided in ourAnnual Report on Form 10-K for the year ended December 28, 2007 in Part I.Item 1A. Risk Factors. Seealso “Part I. Item 2—Forward Looking Statements” above.

 

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

 

*UnregisteredSales of Equity Securities*

 

None.

 

*Purchasesof Equity Securities by the Issuer*

 

The followingtable summarizes repurchases of our stock, comprising entirely of shares ofunvested forfeited restricted stock awards returned to us, during the threemonths ended September 26, 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** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|------------------------------------|------------|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| July 2008                            |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (June 28 – July 25)        |       | —                                  |       | $                                  | —     |                                                                                     | —     |                                                                                  | —     |   |
| August 2008                          |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (July 26 – August 22)      |       | —                                  |       | —                             |       | —                                                                                   |       | —                                                                                |       |
| September 2008                       |       |                                    |       |                               |       |                                                                                     |       |                                                                                  |       |
| (August 23 – September 26) |       | 3,233                                   |       | 18.96                              |       | —                                                                                   |       | —                                                                                |       |
| Total                                     |       | 3,233                                   |       | $                                  | 18.96      |                                                                                     | —     |                                                                                  | —     |   |

 

**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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned hereuntoduly authorized.

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

 

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