**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

**FORM 10-Q**
| ****(Mark One)****                                          |                                                                                                       |
|-------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
| ****x****                                                   | ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**** |
|                                                        |                                                                                                       |
| ****FOR  THE QUARTERLY PERIOD ENDED MARCH 31, 2006**** |
|                                                        | **** ****                                                                                             |
| ****OR****                                                  |
| **** ****                                              | **** ****                                                                                             |
| ****o****                                                   | ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934****     |

**** ****

****FORTHE 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, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o         Accelerated Filer x         Non-accelerated Filer o

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

Yes o      No x

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date:  As of April 28, 2006, there were32,204,192 shares of the registrant’s common stock outstanding (excluding16,477 shares held in treasury), par value $0.01.

 

----

**TABLE OF CONTENTS**
| ****ITEM****                               | ** **     | ** **                                                                                                                                            |
|--------------------------------------------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| ****PART I. FINANCIAL INFORMATION**** |           |                                                                                                                                                  |
| ****1.****                                 | **** **** | ****Financial  Statements****                                                                                                                         |   |   |
| ** **                                 |           | ** **                                                                                                                                            |   |   |
| **** ****                             | **** **** | ****Condensed Consolidated Balance Sheets (Unaudited)  as of March 31, 2006 and December 30, 2005****                                       |   |   |
| **** ****                             | **** **** | ****Condensed Consolidated Statements of Earnings  (Unaudited)  for the Three Months Ended March 31, 2006 and April 1, 2005****             |   |   |
| **** ****                             | **** **** | ****Condensed Consolidated Statements of Comprehensive  Income (Unaudited)  for the Three Months Ended March 31, 2006 and April 1, 2005**** |   |   |
| **** ****                             | **** **** | ****Condensed Consolidated Statements of Cash Flows  (Unaudited)  for the Three Months Ended March 31, 2006 and April 1, 2005****           |   |   |
| **** ****                             | **** **** | ****Notes to Unaudited Condensed Consolidated Financial  Statements****                                                                               |   |   |
| ****2.****                                 | **** **** | ****Management’s Discussions and Analysis of Financial  Condition and Results of Operations****                                                  | **** **** | ** ** |
| ****3.****                                 | **** **** | ****Quantitative  and Qualitative Disclosures about Market Risk****                                                                                   | **** **** | ** ** |
| ****4.****                                 | **** **** | ****Controls and  Procedures****                                                                                                                      | **** **** | ** ** |
| **** ****                             |           |                                                                                                                                                  |
| ****PART II. OTHER INFORMATION****    |           |                                                                                                                                                  |
| **** ****                             |           |                                                                                                                                                  |
| ****1.****                                 | **** **** | ****Legal Proceedings****                                                                                                                             | **** **** | ** ** |
| ****1A.****                                | **** **** | ****Risk Factors****                                                                                                                                  | **** **** | ** ** |
| ****2.****                                 | **** **** | ****Unregistered  Sales of Equity Securities and Use of Proceeds****                                                                                  |   |   |
| ****3.****                                 | **** **** | ****Defaults Upon Senior Securities****                                                                                                               |   |   |
| ****4.****                                 |           | Submission of  Matters to a Vote of Security Holders                                                                                                  |   |   |
| 5.                                         |           | Other  Information                                                                                                                                    |   |   |
| ****6.****                                 | **** **** | ****Exhibits****                                                                                                                                      | **** **** | ** ** |
| **** ****                             |           |                                                                                                                                                  |
| ****SIGNATURES****                         |           |                                                                                                                                                  |

----

**PART I. FINANCIAL INFORMATION**

**ITEM 1. Financial Statements**

**INTERLINE BRANDS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)AS OF MARCH 31, 2006 AND DECEMBER 30, 2005(in thousands, except share and per share data)**
| ** **                                                                                                                                                                                         | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                                                                                         | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                                    |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $                  | 16,712     |                  | $          | 2,958 |   |
| Accounts  receivable - trade (net of allowance for                                                                                                                                                 |       |               |       |                  |       |
| doubtful accounts of $8,475 and $8,150)                                                                                                                                                            |       | 116,704            |       | 113,271               |       |
| Accounts receivable - other                                                                                                                                                                        |       | 9,068              |       | 12,163                |       |
| Inventory                                                                                                                                                                                          |       | 164,621            |       | 165,282               |       |
| Prepaid expenses and other current assets                                                                                                                                                          |       | 6,905              |       | 5,498                 |       |
| Deferred income taxes                                                                                                                                                                              |       | 14,537             |       | 13,945                |       |
| Total current assets                                                                                                                                                                               |       | 328,547            |       | 313,117               |       |
| Property and  equipment, net                                                                                                                                                                       |       | 29,159             |       | 29,865                |       |
| Goodwill                                                                                                                                                                                           |       | 249,554            |       | 249,574               |       |
| Other intangible  assets, net                                                                                                                                                                      |       | 102,527            |       | 104,244               |       |
| Other assets                                                                                                                                                                                       |       | 9,175              |       | 8,969                 |       |
| Total assets                                                                                                                                                                                       |       | $                  | 718,962    |                  | $          | 705,769 |   |
| ** **                                                                                                                                                                                         | ** ** | ** **         | ** ** | ** **            | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                               |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                   |       | $                  | 68,902     |                  | $          | 69,182 |   |
| Accrued expenses and other current liabilities                                                                                                                                                     |       | 22,484             |       | 21,574                |       |
| Accrued merger expenses                                                                                                                                                                            |       | 5,064              |       | 5,408                 |       |
| Accrued interest                                                                                                                                                                                   |       | 5,989              |       | 2,152                 |       |
| Income taxes payable                                                                                                                                                                               |       | 5,916              |       | 1,780                 |       |
| Revolver                                                                                                                                                                                           |       | —             |       | 3,000                 |       |
| Current portion of long-term debt                                                                                                                                                                  |       | 1,400              |       | 1,400                 |       |
| Capital lease - current                                                                                                                                                                            |       | 452                |       | 452                   |       |
| Total current liabilities                                                                                                                                                                          |       | 110,207            |       | 104,948               |       |
| Long-Term Liabilities:                                                                                                                                                                             |       |               |       |                  |       |
| Deferred income  taxes                                                                                                                                                                             |       | 34,101             |       | 34,646                |       |
| Long-term debt,  net of current portion                                                                                                                                                            |       | 280,325            |       | 280,675               |       |
| Capital lease -  long term                                                                                                                                                                         |       | 875                |       | 958                   |       |
| Total liabilities                                                                                                                                                                                  |       | 425,508            |       | 421,227               |       |
| Commitments and  contingencies                                                                                                                                                                     |       |               |       |                  |       |
| Senior preferred  stock, $0.01 par value, 20,000,000 shares authorized, no shares outstanding  as of March 31, 2006 and December 30, 2005                                                |       | —             |       | —                |       |
|                                                                                                                                                                                               |       |               |       |                  |       |
| Stockholders’ equity:                                                                                                                                                                         |       |               |       |                  |       |
| Common stock; $0.01 par value, 100,000,000  authorized; 32,220,669 issued and 32,204,192 outstanding as of March 31,  2006 and 32,220,669 issued and outstanding as of December 30, 2005 |       | 322                |       | 322                   |       |
| Additional paid-in capital                                                                                                                                                                         |       | 557,136            |       | 558,183               |       |
| Accumulated deficit                                                                                                                                                                                |       | (264,596           | )          | (273,037              | )          |
| Accumulated other comprehensive income                                                                                                                                                             |       | 975                |       | 992                   |       |
| Deferred compensation                                                                                                                                                                              |       | —             |       | (1,918                | )          |
| Treasury stock, at cost, 16,477 shares as of  March 31, 2006                                                                                                                                  |       | (383               | )          | —                |       |
| Total stockholders’ equity                                                                                                                                                                    |       | 293,454            |       | 284,542               |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                   |       | $                  | 718,962    |                  | $          | 705,769 |   |

 

*See accompanying notes to unauditedcondensed consolidated financial statements.*

1

----

**INTERLINE BRANDS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)THREE MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005(in thousands, except share and per share data)**
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                   | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                         |       |                             |       |   |   |
| Net sales                                    |       | $                                | 224,674    |   | $ | 196,491 |   |
| Cost of sales                                |       | 138,966                          |       | 121,005 |   |
| Gross profit                                 |       | 85,708                           |       | 75,486 |   |
|                                         |       |                             |       |   |   |
| Operating Expenses:                          |       |                             |       |   |   |
| Selling, general and administrative expenses |       | 61,678                           |       | 53,740 |   |
| Depreciation and amortization                |       | 3,445                            |       | 3,117 |   |
| Total operating expense                      |       | 65,123                           |       | 56,857 |   |
| Operating income                             |       | 20,585                           |       | 18,629 |   |
|                                         |       |                             |       |   |   |
| Loss on  extinguishment of debt              |       | —                           |       | (10,340 | ) |
| Interest expense                             |       | (6,952                           | )          | (6,270 | ) |
| Interest income                              |       | 60                               |       | 120 |   |
| Other income                                 |       | 126                              |       | 168 |   |
| Income before income taxes                   |       | 13,819                           |       | 2,307 |   |
| Provision for  income taxes                  |       | 5,378                            |       | 914 |   |
| Net income                                   |       | 8,441                            |       | 1,393 |   |
|                                         |       |                             |       |   |   |
| Earnings Per Share:                          |       |                             |       |   |   |
| Basic                                        |       | $                                | 0.26       |   | $ | 0.04 |   |
| Diluted                                      |       | $                                | 0.26       |   | $ | 0.04 |   |
|                                         |       |                             |       |   |   |
| Weighted-Average Shares  Outstanding:        |       |                             |       |   |   |
| Basic                                        |       | 32,091,133                       |       | 31,917,175 |   |
| Diluted                                      |       | 32,584,503                       |       | 32,313,188 |   |

* *

*See accompanying notes tounaudited condensed consolidated financial statements.*

2

----

**INTERLINE BRANDS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)THREE MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005(in thousands)**
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                          | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                |       |                             |       |   |   |
| Net income                          |       | $                                | 8,441      |   | $ | 1,393 |   |
|                                |       |                             |       |   |   |
| Other comprehensive  income (loss): |       |                             |       |   |   |
| Foreign currency translation        |       | (17                              | )          | (38 | ) |
|                                |       |                             |       |   |   |
| Total  comprehensive income         |       | $                                | 8,424      |   | $ | 1,355 |   |
|                                |       |                             |       |   |   |

* *

*See accompanying notes tounaudited condensed consolidated financial statements.*

3

----

**INTERLINE BRANDS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)THREE MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005(in thousands)**
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                                                   | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Cash Flows from  Operating Activities:                                                       |       |                             |       |   |   |
| Net income                                                                                   |       | $                                | 8,441      |   | $ | 1,393 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                                |       | 3,445                            |       | 3,117 |   |
| Amortization and write-off of debt issuance costs                                            |       | 418                              |       | 2,685 |   |
| Redemption premium on 11.5% senior subordinated  notes                                       |       | —                           |       | 8,050 |   |
| Stock based compensation                                                                     |       | 716                              |       | 238 |   |
| Deferred income taxes                                                                        |       | (1,117                           | )          | 356 |   |
| Provision for doubtful accounts                                                              |       | 836                              |       | 354 |   |
|                                                                                         |       |                             |       |   |   |
| Changes in  assets and liabilities, net of business acquired:                                |       |                             |       |   |   |
| Accounts receivable - trade                                                                  |       | (4,269                           | )          | (7,528 | ) |
| Accounts receivable - other                                                                  |       | 3,095                            |       | 1,536 |   |
| Inventory                                                                                    |       | 661                              |       | (468 | ) |
| Prepaid expenses and other current assets                                                    |       | (1,407                           | )          | (1,888 | ) |
| Other assets                                                                                 |       | (206                             | )          | (543 | ) |
| Accounts payable                                                                             |       | (280                             | )          | 665 |   |
| Accrued expenses and other current liabilities                                               |       | 527                              |       | (1,478 | ) |
| Accrued merger expenses                                                                      |       | (64                              | )          | (111 | ) |
| Accrued interest                                                                             |       | 3,837                            |       | 2,810 |   |
| Income taxes payable                                                                         |       | 4,136                            |       | (6,033 | ) |
| Net cash provided by operating activities                                                    |       | 18,769                           |       | 3,155 |   |
| Cash Flows from  Investing Activities:                                                       |       |                             |       |   |   |
| Purchase of property and equipment, net                                                      |       | (1,527                           | )          | (1,543 | ) |
| Purchase of businesses, net of cash acquired                                                 |       | (193                             | )          | (1,009 | ) |
| Net cash used in investing activities                                                        |       | (1,720                           | )          | (2,552 | ) |
| Cash Flows from  Financing Activities:                                                       |       |                             |       |   |   |
| (Decrease) increase in revolver, net                                                         |       | (3,000                           | )          | 17,000 |   |
| Repayment of long-term debt                                                                  |       | (350                             | )          | (70,250 | ) |
| Payment of redemption premium on 11.5% senior  subordinated notes                            |       | —                           |       | (8,050 | ) |
| Initial public offering costs                                                                |       | —                           |       | (578 | ) |
| Proceeds from exercise of underwriters  over-allotment options                               |       | —                           |       | 2,333 |   |
| Excess tax benefits from stock-based compensation                                            |       | 155                              |       | — |   |
| Payments on capital lease obligations                                                        |       | (83                              | )          | — |   |
| Net cash used in financing activities                                                        |       | (3,278                           | )          | (59,545 | ) |
| Effect of  exchange rate changes on cash and cash equivalents                                |       | (17                              | )          | (38 | ) |
| Net increase  (decrease) in cash and cash equivalents                                        |       | 13,754                           |       | (58,980 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 2,958                            |       | 69,178 |   |
| Cash and cash  equivalents at end of period                                                  |       | $                                | 16,712     |   | $ | 10,198 |   |
|                                                                                         |       |                             |       |   |   |
| Supplemental Disclosure  of Cash Flow Information:                                           |       |                             |       |   |   |
| Cash paid during  the period for :                                                           |       |                             |       |   |   |
| Interest                                                                                     |       | $                                | 2,697      |   | $ | 1,611 |   |
| Income taxes (net of refunds)                                                                |       | $                                | 2,246      |   | $ | 6,595 |   |
|                                                                                         |       |                             |       |   |   |
| Schedule of Non-Cash  Investing and Financing Activities:                                    |       |                             |       |   |   |
| Treasury stock acquired with accrued expenses and  other current liabilities                 |       | $                                | 383        |   | $ | — |   |
| Adjustments to  liabilities assumed and goodwill on businesses acquired                      |       | $                                | 20         |   | $ | — |   |

 

*See accompanying notes tounaudited condensed consolidated financial statements.*

4

----

**INTERLINEBRANDS, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

** **

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

*Business*

Interline Brands, Inc.,a Delaware corporation, and its subsidiaries (“Interline” or the “Company”) isa direct marketer and specialty distributor of maintenance, repair andoperations (“MRO”) products. The Company sells plumbing, electrical, hardware,security, heating, ventilation and air conditioning (“HVAC”) and other MROproducts. Interline’s highly diverse customer base consists of multi-familyhousing, educational, lodging and health care facilities, professional contractorsand specialty distributors.

The Company markets and sells its products primarilythrough nine 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 located throughout the United States and Canada, anational distribution center in Nashville, Tennessee, vendor managed inventorylocations at large professional contractor customer locations and its dedicatedfleet of trucks. Through its broad distribution network, the Company providessame day/next day delivery service to 98% of the U.S. population.

During December 2004, the Company completed itsinitial public offering (“IPO”). Immediately prior to the closing of the IPO, areincorporation merger occurred and the Company became the parent company ofits principal operating subsidiary, Interline Brands, Inc., a New Jerseycorporation (“Interline New Jersey”). In the reincorporation merger, theholders of the preferred stock of Interline New Jersey received an aggregate of$55 million in cash and 19,183,321 shares of the Company’s common stock and theholders of the common stock of Interline New Jersey received 0.01218 shares ofthe Company’s common stock per share of Interline New Jersey common stock, or66,667 shares of the Company’s common stock in total. In addition, options topurchase shares of the common stock of Interline New Jersey were converted intooptions to purchase shares of the Company’s common stock.

*Basis ofPresentation*

The accompanying unaudited interim condensedconsolidated financial statements of Interline have been prepared in accordancewith accounting principles generally accepted in the United States of Americaand instructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, certain information and footnote disclosures normally included infinancial statements included in our Annual Report on Form 10-K havebeen condensed or omitted. The accompanying unaudited interim condensedconsolidated financial statements should be read in conjunction with Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in this report and the audited consolidated financial statements andrelated notes included in our Annual Report on Form 10-K for thefiscal year ended December 30, 2005 filed with the Securities and ExchangeCommission (“SEC”).

All adjustments which are, in the opinion ofmanagement, necessary for a fair statement of the results for the interimperiods presented have been recorded. The results of operations for the interimperiods presented are not necessarily indicative of the results to be expectedfor 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, valuation of goodwill and valuation of assets and liabilities assumedin the acquisition of Copperfield. Actual results could differ from thoseestimates.

*Reclassifications*

Certain prior year amounts in the unaudited condensedconsolidated financial statements and the notes thereto have been reclassifiedto conform to the current year presentation. These reclassifications had noeffect on total stockholders’ equity or net income.

5

----

*Segment Information*

The Company is inone industry, the distribution of maintenance, repair and operations, or MRO,products. In accordance with Statement of Financial Accounting Standards (“SFAS”)No. 131, *Disclosure about Segments of an Enterpriseand Related Information*, the Company has one operating segment. Ournet sales for the three-month periods ended March 31, 2006 and April 1,2005 by product category were (in thousands):
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| **Product Category**                  | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| ** **                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Plumbing                                   |       | $                                | 95,486     |   | $ | 90,386 |   |
| Electrical                                 |       | 30,106                           |       | 29,474 |   |
| Heating,  Ventilation and Air Conditioning |       | 26,363                           |       | 13,625 |   |
| Security                                   |       | 13,705                           |       | 13,754 |   |
| Appliances                                 |       | 12,582                           |       | 11,789 |   |
| Hardware                                   |       | 12,357                           |       | 11,789 |   |
| Other                                      |       | 34,075                           |       | 25,674 |   |
|                                       |       |                             |       |   |   |
| Total                                      |       | $                                | 224,674    |   | $ | 196,491 |   |

 

**2.     STOCK-BASED COMPENSATION**

Effective December 31, 2005, the Company adoptedthe provisions of SFAS No. 123R, *Share-Based Payment*,using the modified prospective application transition method. Under thismethod, the share-based compensation cost recognized beginning December 31,2005 includes compensation cost for (i) all share-based payments grantedprior to, but not vested as of December 31, 2005, based on the grant datefair value originally estimated in accordance with the provisions of SFAS No. 123,*Accounting for Stock-Based Compensation*,and (ii) all share-based payments granted subsequent to December 30,2005, based on the grant date fair value estimated in accordance with theprovisions of SFAS No. 123R. Compensation cost under SFAS No. 123R isrecognized ratably using the straight-line attribution method over the expectedvesting period or to the retirement eligibility date, if less than the vestingperiod when vesting is not contingent upon any future performance. In addition,pursuant to SFAS No. 123, the Company is required to estimate the amountof expected forfeitures when calculating the compensation costs, instead ofaccounting for forfeitures as incurred, which was the method previously used bythe Company. As of December 31, 2005, the cumulative effect of adoptingthe estimated forfeiture method was not significant. Prior periods are notrestated under this transition method.

SFAS No. 123R also requires the Company toreflect the tax benefit from the exercise of stock options in the statement ofcash flows as a cash inflow from financing activities. Prior to the adoption ofSFAS No. 123R, these tax benefits have been reflected as a cash inflowfrom operating activities. The prior year statement of cash flows has not beenrestated. There were no stock options exercised during the three months ended March 31,2006 and April 1, 2005.

The effect of adopting SFAS No. 123R was notmaterial to the Company’s results of operations for the three months ended March 31,2006.

6

----

Prior to December 31,2005, the Company accounted for stock-based compensation plans in accordancewith the provisions of Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees*,as permitted by SFAS No. 123. The Company elected to use the intrinsicvalue method of accounting for employee and director stock-based compensationexpense for its nonqualified employee and director stock option awards and didnot recognize compensation expense for the issuance of options with an exerciseprice equal to or greater than the market price of the underlying common stockat the date of grant. Had the Company elected to adopt the fair value approachas prescribed by SFAS No. 123, which charges earnings for the estimatedfair value of stock options, the pro forma net income and pro forma earningsper share for the three months ended April 1, 2005 would have been asfollows (in thousands, except per share amounts):
| Net income as  reported                                                                                                                  |   | $      | 1,393  |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                                                                     |   |   |   |
| Add: Stock-based  compensation expense included in reported net income, net of related tax  effects                                      |   | 144    |   |
|                                                                                                                                     |   |   |   |
| Deduct: Total  stock-based compensation expense determined under the fair value-based method  for all awards, net of related tax effects |   | (144   | )      |
|                                                                                                                                     |   |   |   |
| Pro forma net  income                                                                                                                    |   | $      | 1,393  |   |
|                                                                                                                                     |   |   |   |
| Earnings per share:                                                                                                                      |   |   |   |
| Basic-as reported                                                                                                                        |   | $      | 0.04   |   |
| Basic-pro forma                                                                                                                          |   | $      | 0.04   |   |
|                                                                                                                                     |   |   |   |
| Diluted-as reported                                                                                                                      |   | $      | 0.04   |   |
| Diluted-pro  forma                                                                                                                       |   | $      | 0.04   |   |

 

*Stock Incentive Plans*

During 2000, Interline New Jersey established a StockAward Plan (the “2000 Plan”), under which Interline New Jersey may award atotal of 6,395 shares of common stock in the form of incentive stock options(which may be awarded to key employees only), nonqualified stock options, stockappreciation rights (“SARs”) and restricted stock awards, all of which may beawarded to directors, officers, key employees and consultants. The Company’scompensation committee will determine in its sole discretion whether a SAR issettled in cash, shares or a combination of cash and shares. In connection withour IPO in December 2004, options to purchase shares of the common stockof Interline New Jersey were converted into options to purchase shares of theCompany’s common stock.

During 2004, the Company adopted the 2004 EquityIncentive Plan, (the “2004 Plan”), under which the Company may award 3,175,000shares in the form of incentive stock options, nonqualified stock options,stock appreciation rights, or SARs, restricted stock units (“RSUs”), restrictedstock and stock bonus awards, all of which may be awarded to any employee,director, officer or consultant of the Company.

These plans allow the Company to fulfill its incentivestock options, nonqualified stock options, SARs, RSUs, and restricted stock andstock bonus awards obligations using unissued or treasury shares. The totalstock-based compensation expense, which is included in the unaudited condensedconsolidated statement of earnings, was $0.7 million for the three months endedMarch 31, 2006.

*Stock Options*

Under the terms of the 2000 Plan, the exercise priceper share for an incentive stock option may not be less than 100% of the fairmarket value of a share of common stock on the grant date. The exercise priceper share for an incentive stock option granted to a person owning stockpossessing more than 10% of the total combined voting power of all classes ofstock may not be less than 110% of the fair market value of a share of commonstock on the grant date. These incentive stock options vest in 25% incrementsover four years and may not be exercisable after the expiration of ten yearsfrom the date of grant.

Under the terms of the 2004 plan and unless thecompensation committee of the Company determines otherwise, the exercise priceof the options will not be less than the fair market value of the common stockat the time of grant, vest in 25% increments over four years and may not beexercisable after the expiration of seven or ten years from the date of grant.

7

----

As permitted bySFAS No. 123R, the fair values of stock options were estimated using theBlack-Scholes option-pricing model. Expected volatility is based on historicalperformance of the Company’s stock. The Company also uses historical data toestimate the timing and amount of stock option exercises and forfeitures. Theexpected life represents the period of time that stock options are expected toremain unvested and is based on the contractual term of the stock options andexpected exercise behavior. The risk-free interest rate is based on U.S.Treasury zero-coupon issues with a remaining term equal to the expected optionlife assumed at the date of grant. The Black-Scholes weighted-averageassumptions for the three months ended March 31, 2006 were as follows:

| Expected volatility       |   | 26.0   | %      |
|---------------------------|--------|--------|--------|
|                      |   |   |   |
| Expected  dividends       |   | 0.0    | %      |
|                      |   |   |   |
| Expected life  (in years) |   | 5.0    |   |
|                      |   |   |   |
| Risk-free interest rate   |   | 4.8    | %      |

 

The weightedaverage fair value of stock options granted during the three months ended March 31,2006 was $7.56 per option. There were no stock options granted during the threemonths ended April 1, 2005.

A summary of stock option activity as of March 31,2006, and changes during the three-months then ended is presented below:
|                                        | ** ** | ** ** | ** ** | ** **    | ** ** | **Weighted-**       | ** ** | ** **              | ** ** |
|----------------------------------------|------------|------------|------------|---------------|------------|---------------------|------------|-------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **Weighted-** | ** ** | **Average**         | ** ** | ** **              | ** ** |
| ** **                             | ** ** | ** ** | ** ** | **Average**   | ** ** | **Remaining**       | ** ** | **Aggregate**           | ** ** |
| ** **                             | ** ** | ** ** | ** ** | **Exercise**  | ** ** | **Contractual**     | ** ** | **Intrinsic**           | ** ** |
| **Options**                            | ** ** | **Shares** | ** ** | **Price**     | ** ** | **Term**            | ** ** | **Value (a)**      | ** ** |
| ** **                             | ** ** | ** ** | ** ** | ** **    | ** ** | **(in years)** | ** ** | **(in thousands)** | ** ** |
|                                   |       |       |       |          |       |                |       |                    |       |
| Outstanding at  December 30, 2005 |       | 2,274,027  |       | $             | 17.42      |                |       |                    |       |   |
|                                   |       |       |       |          |       |                |       |                    |       |
| Granted                                |       | 345,202    |       | 23.31         |       |                |       |                    |       |
|                                   |       |       |       |          |       |                |       |                    |       |
| Forfeited or  expired                  |       | (51        | )          | 41.05         |       |                |       |                    |       |
|                                   |       |       |       |          |       |                |       |                    |       |
| Outstanding at  March 31, 2006    |       | 2,619,178  |       | $             | 18.20      |                | 8.5        |                    | $          | 19,751 |   |
|                                   |       |       |       |          |       |                |       |                    |       |
| Exercisable at  March 31, 2006    |       | 2,238,945  |       | $             | 17.25      |                | 8.8        |                    | $          | 18,913 |   |

 

(a)**         **The aggregate intrinsic value representsthe amount by which the fair value of the underlying stock at period end exceedsthe stock option exercise price.

As of March 31,2006, there was $2.8 million of total unrecognized compensation cost related tounvested stock options. The cost is expected to be recognized over aweighted-average period of 3.9 years.

*Restricted Stock and Restricted Stock Units*

Shares ofrestricted stock granted under the 2004 Plan to senior management do not havean exercise price. The stock-based compensation expense associated with therestricted stock is based on the quoted market price of the Company’s shares ofcommon stock on the date of grant. The restricted stock awards will vest(depending on the grant) either (i) on an accelerated basis contingent upon theexecutive’s continued employment in one-third installments over three yearsprovided that certain pre-established annual percentage increases in ourearnings per share are attained or on the seventh anniversary of the date ofgrant if the executive remains in our employ for seven years; (ii) evenly overtwo years; or (iii) at the end of three years.

RSUs granted underthe 2004 Plan do not have an exercise price. The stock-based compensationexpense associated with the RSUs is based on the quoted market price of theCompany’s shares of common stock on the date of grant. One half of the RSUswill vest on an accelerated basis contingent upon the executive’s continuedemployment in two installments over two years provided that certainpre-established annual percentage increases in our earnings per share areattained and one half will vest evenly over three years.

8

----

 

In prior periods,unearned stock compensation was recorded as deferred compensation within stockholders’equity at the date of award based on the quoted market price of the Company’scommon stock on the date of grant and amortized to expense using thestraight-line method from the grant date through the vesting date. Uponadoption of SFAS No. 123R, the $1.9 million of deferred compensation as ofDecember 30, 2005 was required to be charged against additional paid-incapital.

A summary statusof restricted stock and RSUs as of March 31, 2006, and changes during thethree-months then ended is presented below:

 
|                                     | ** ** | **Restricted Stock** | ** ** | **Restricted Stock Units** | ** ** |
|-------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | ** **                | ** ** | **Weighted-**                        | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| ** **                          | ** ** | ** **                | ** ** | **Average**                          | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                          | ** ** | ** **                | ** ** | **Grant Date**                  | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                          | ** ** | **Shares**                | ** ** | **Fair Value**                  | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| ** **                          | ** ** | ** **                | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Unvested at  December 30, 2005 |       | 190,820                   |       | $                                    | 15.11      |   | — |   | $ | — |   |
|                                |       |                      |       |                                 |       |   |   |   |   |
| Granted                             |       | —                    |       | —                               |       | 173,345 |   | 23.32 |   |
|                                |       |                      |       |                                 |       |   |   |   |   |
| Vested                              |       | (63,607                   | )          | 15.00                                |       | — |   | — |   |
|                                |       |                      |       |                                 |       |   |   |   |   |
| Unvested at  March 31, 2006    |       | 127,213                   |       | $                                    | 15.17      |   | 173,345 |   | $ | 23.32 |   |

 

As of March 31,2006, there was $5.3 million of total unrecognized compensation cost related tononvested restricted stock and RSUs. The cost is expected to be recognized overa weighted-average period of 1.5 years. The total fair value of restrictedstock vested during the three months ended March 31, 2006 was $1.5million. No restricted stock vested during the three months ended April 1,2005.

**3.     EARNINGS PER SHARE**

Earnings per sharefor all periods has been computed in accordance with SFAS No. 128, *Earnings per Share*. Basic earnings per share is computed bydividing net income applicable to common stockholders by the weighted-averagenumber of shares of common stock outstanding during the period. Dilutedearnings per share is computed by dividing net income applicable to commonstockholders by the weighted-average number of shares of common stockoutstanding during the period as adjusted for the potential dilutive effect ofstock options and unvested shares of restricted stock and restricted stockunits using the treasury stock method. The following summarizes the shares ofcommon stock used to calculate earnings per share including the potentiallydilutive impact of stock options, restricted stock and restricted stock units,calculated using the treasury stock method, as included in the calculation ofdiluted weighted-average shares:
|                                                | ** ** | **Three months ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                     | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                           |       |                             |       |   |   |
| Weighted average  shares outstanding - basic   |       | 32,091,133                       |       | 31,917,175 |   |
|                                           |       |                             |       |   |   |
| Dilutive shares  resulting from:               |       |                             |       |   |   |
| Stock options                                  |       | 416,735                          |       | 311,668 |   |
| Restricted stock                               |       | 65,494                           |       | 84,345 |   |
| Restricted stock  units                        |       | 11,141                           |       | — |   |
|                                           |       |                             |       |   |   |
| Weighted average  shares outstanding - diluted |       | 32,584,503                       |       | 32,313,188 |   |

 

During the threemonths ended March 31, 2006 and April 1, 2005, options to purchase 226,507shares and 592,792 shares of common stock, respectively, were excluded from thecomputations of diluted weighted-average shares outstanding because theexercise prices of those options are great than the average market value ofcommon stock and the effect would be anti-dilutive.

9

----

**4.         DEBT**

Long-term debt at March 31,2006 and December 30, 2005 consists of the following (in thousands):

|                                 | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|---------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
|                            |       |               |       |                  |       |
| Term loans                      |       | $                  | 148,450    |                  | $          | 148,800 |   |
| Note payable                    |       | 3,275              |       | 3,275                 |       |
| Senior  Subordinated Noes-11.5% |       | 130,000            |       | 130,000               |       |
|                            |       |               |       |                  |       |
|                            |       | 281,725            |       | 282,075               |       |
| Less current  portion           |       | (1,400             | )          | (1,400                | )          |
|                            |       |               |       |                  |       |
|                            |       | $                  | 280,325    |                  | $          | 280,675 |   |

 

In May 2003,Interline New Jersey completed an offering of $200 million of 11.5% seniorsubordinated notes due 2011 and entered into a $205.0 million senior securedcredit facility.

Interline NewJersey elected to redeem $70.0 million of the 11.5% senior subordinated notesusing proceeds from the Company’s IPO and gave the 30-day notice,required by the indenture, on December 20, 2004. In January 2005, theCompany recorded a loss on extinguishment of debt of $10.3 million, consistingof the write-off of deferred financing costs of $2.3 million and the premium of$8.1 million on the $70.0 million redemption of 11.5% senior subordinatednotes.

In December 2004,Interline New Jersey amended its term loan facility and revolving loanfacility. The term loan was reduced to $100.0 million from $140.0 million andthe revolving loan facility was increased to $100.0 million from $65.0 million.As part of the amendment in December 2004, Interline New Jersey paid down$31.3 million of the term loan using proceeds from the Company’s IPO. InterlineNew Jersey also amended its credit facility on July 7, 2005, to permit theincurrence of an additional $50.0 million term loan, having substantially thesame terms as the existing term loan in connection with the acquisition ofCopperfield. On August 8, 2005, Interline New Jersey again amended itscredit facility to lower the interest rate spreads applicable to the additional$50.0 million term loan. The amended credit facility provides for aggregatecommitments of $250.0 million, consisting of (1) a revolving loan facilityof $100.0 million, of which a portion not exceeding $20.0 million will beavailable in the form of letters of credit, and (2) a term loan facilityof $150.0 million.

Borrowings underthe amended term loan facility and revolving loan facility bear interest, atInterline New Jersey’s option, at either LIBOR or at the alternate base rateplus a spread. The indebtedness under the amended credit facility is guaranteedby the Company and by the domestic subsidiaries of Interline New Jersey.Interest rates in effect on borrowings under the term loan facilities at March 31,2006 ranged from 7.25% for LIBOR based borrowings and 9.00% for prime basedborrowings under the $100.0 million tranche B-1 term loan and 6.75% forLIBOR based borrowings and 8.75% for prime based borrowings under the $50.0 milliontranche B-2 term loan. Outstanding letters of credit under the revolvingloan facility are subject to a per annum fee equal to the applicable spreadover the adjusted LIBOR for revolving loans. The term loan facility matures on December 31,2010 and the revolving loan facility matures on May 31, 2008. Debtissuance costs capitalized in connection with the amended credit facility wereapproximately $1.1 million.

As of March 31,2006, Interline New Jersey had $89.7 million available under its revolving loanfacility. Total letters of credit issued under this facility as of March 31,2006 were $10.3 million. There were no borrowings under the revolving loanfacility at March 31, 2006. The credit facility is secured bysubstantially all of the assets of Interline New Jersey.

The creditfacility contains customary affirmative and negative covenants that limitInterline New Jersey’s ability to incur additional indebtedness, pay dividendson its common stock or redeem, repurchase or retire its common stock orsubordinated indebtedness, make certain investments, sell assets, andconsolidate, merge or transfer assets, and that require Interline New Jersey tomaintain a maximum debt to cash flow ratio and a minimum interest expensecoverage ratio. The Company and Interline New Jersey were in compliance withall covenants at March 31, 2006.

The Company is aholding company whose only asset is the stock of our subsidiaries. The Companyconducts virtually all of its business operations through Interline New Jersey.Accordingly, the Company’s only material sources of cash are dividends anddistributions with respect to its ownership interests in Interline New Jerseythat are derived from the earnings and cash flow generated by Interline NewJersey. The debt instruments of Interline New Jersey, primarily the creditfacility and the indenture governing the

10

----

terms of the 11.5% notes,contain significant restrictions on the payment of dividends and distributionsto the Company by Interline New Jersey. In particular, Interline New Jersey’scredit facility prevents it from paying dividends, making distributions to theCompany or making investments in the Company. However, ordinary coursedistributions for overhead and taxes are permitted, as are (provided InterlineNew Jersey is not in default) annual payments of up to $7.5 million in respectof the Company ‘s stock option plans and aggregate payments of up to $40.0million depending on the pro forma net leverage ratio of the previous quarter.In addition, the indenture for the 11.5% notes restricts the ability ofInterline New Jersey to pay distributions or dividends to the Company and tomake advances to, or investments in, the Company. Dividends, distributions andinvestments are permitted in an amount generally limited to 50% of the netincome of Interline New Jersey, plus an amount equal to the net proceeds fromcertain equity issuances if Interline New Jersey is in compliance with aleverage ratio and is not in default. In addition, there are certain otherpermitted payments, including an ability to make distributions of up to $10.0million.

In April 2003,Interline New Jersey issued a non-recourse note payable in the principal amountof $3.3 million for the purchase of an investment. This note, which is securedonly by the investment, bears interest at a rate of 4.0% per annum, withprincipal due in full in April 2010.

11

----

**ITEM 2. Management’s Discussion and Analysis of Financial Condition andResults 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 included  in our Annual Report on Form 10-Kfiled with the SEC.*

**Forward-Looking Statements**

This report contains forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934 (the “Exchange Act’’) that are subjectto risks 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:

·                  materialfacilities and systems disruptions and shutdowns,

·                  the highlycompetitive nature of the maintenance, repair and operations distributionindustry,

·                  economic slowdowns,

·                  general marketconditions,

·                  our ability topurchase products from suppliers on favorable terms,

·                  the length ofour supply chains,

·                  fluctuations inthe cost of raw materials and fuel prices,

·                  currencyexchange rates,

·                  the loss ofsignificant customers,

·                  our ability toaccurately predict market trends,

·                  product cost andprice fluctuations due to market conditions,

·                  failure tolocate, acquire and successfully integrate acquisition candidates,

·                  dependence onkey employees,

·                  our inability toprotect trademarks,

·                  adversepublicity and litigation,

·                  our level ofdebt,

·                  interest ratefluctuations,

·                  future cashflows,

·                  changes inconsumer preferences,

·                  labor andbenefit costs, and

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

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

**Overview**

Weare a leading national distributor and direct marketer of specialty MROproducts. We stock over 50,000 plumbing, electrical, hardware, securityhardware, heating, ventilation and air conditioning and other MRO products andsell to approximately 160,000 active customer accounts. Our products areprimarily used for the repair, maintenance, remodeling and refurbishment ofproperties and non-industrial facilities. We are able to realize higheroperating margins by focusing on repair, maintenance, remodeling andrefurbishment customers, who generally make smaller, more frequent purchasesand require high levels of service. Our diverse customer base includesfacilities maintenance customers, which consist of multi-family housing,educational, lodging and health care facilities; professional

12

----

contractors who primarily repairand maintain properties and non-industrial facilities; and specialty distributors,including plumbing and hardware retailers. Our customers range in size fromindividual contractors and independent hardware stores to apartment managementcompanies and national purchasing groups.

Wemarket and sell our products primarily through nine distinct and targetedbrands, each of which is nationally recognized in the markets we serve forproviding premium products at competitive prices with reliable same-day ornext-day delivery. Wilmar, Sexauer and Maintenance USA brands generally serveour facilities maintenance customers; Barnett, U.S. Lock, Sun Star andCopperfield brands generally serve our professional contractor customers;Hardware Express and AF Lighting brands generally serve our specialtydistributors customers. Our multi-brand operating model, which we believe isunique in the industry, allows us to use a single platform to deliver tailoredproducts and services to meet the individual needs of each respective customergroup served. We reach our markets using a variety of sales channels, includinga sales force of approximately 400 field sales representatives, over 370telesales 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 of53 regional distribution centers, 22 professional contractor showrooms locatedthroughout the United States and Canada, a national distribution center, orNDC, in Nashville, Tennessee, 15 vendor managed inventory locations at largeprofessional contractor customer locations and a dedicated fleet of trucks. Ourbroad distribution network allows us the ability to provide reliable, same-dayor next-day delivery service to 98% of the U.S. population.

Our common information technologyand logistics platform supports our major business functions, allowing us tomarket and sell our products at varying price points depending on the customer’sservice requirements. While we market our products under a variety of brandedcatalogs, generally our brands draw from the same inventory within commondistribution centers and share associated employee and transportation costs. Inaddition, we have centralized marketing, purchasing and catalog productionoperations to support our brands. We believe that our common informationtechnology and logistics platform also benefits our customers by allowing us tooffer a broad product selection at highly competitive prices while maintainingthe unique customer appeal of each of our targeted brands. Overall, our commonoperating platform has enabled us to improve customer service, maintain loweroperating costs, efficiently manage working capital and support our growthinitiatives.

**Critical Accounting Policies**

In preparing the unauditedcondensed consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America, management isrequired to make certain estimates, judgments and assumptions. These estimates,judgments and assumptions affect the reported amounts of assets andliabilities, including the disclosure of contingent assets and liabilities, atthe date of the financial statements and the reported amounts of revenues andexpenses during the periods presented. On an ongoing basis, managementevaluates these estimates and assumptions. Management bases its estimates andassumptions on historical experience and on various other factors that arebelieved to be reasonable at the time the estimates and assumptions are made. Actualresults may differ from these estimates and assumptions under differentcircumstances or conditions. The significant accounting policies thatmanagement believes are the most critical in order to fully understand andevaluate our financial position and results of operations include the followingpolicies.

*Revenue Recognition*

While our recognition of revenue is predominantlyderived from routine transactions and does not involve significant judgment,revenue recognition represents an important accounting policy for us. Werecognize a sale when the product has been shipped and risk of loss has passedto the customer, collection of the resulting receivable is probable, persuasiveevidence of an arrangement exists, and the price is fixed or determinable. Salesare recorded net of estimated discounts, rebates and returns. A portion of oursales is delivered directly from the supplier to our customers. Thesedirect-shipment sales are recorded on a gross basis, with the correspondingcost of goods sold, in accordance with the guidance in Emerging Issues TaskForce (“EITF”) No. 99-19, *Reporting Revenues Grossas a Principal versus Net as an Agent*. We provide limited productreturn and protection rights to certain customers. We accrue product returnreserves and warranty obligations. A provision is made for estimated productreturns based on sales volumes and our experience. Actual returns have notvaried materially from amounts provided historically.

*Allowancesfor Doubtful Accounts*

Wemaintain allowances for doubtful accounts for estimated losses resulting fromthe inability to collect outstanding amounts from customers. The allowancesinclude specific amounts for those accounts that are likely to beuncollectible, such as accounts of customers in bankruptcy and generalallowances for those accounts that management currently believes to becollectible but may later become uncollectible. Estimates are used to determinethe allowances for bad debts and are based on historical collection experience,current economic trends, credit worthiness of customers and changes in customerpayment terms. Adjustments to credit limits are made

13

----

based upon payment history andour customers’ current credit worthiness. If the financial condition of ourcustomers were to deteriorate, allowances may be needed that will increaseselling, general and administrative expenses and decrease accounts receivable.

*Excess andObsolete Inventory*

Inventories are valued at the lower ofcost or market. We determine inventory cost using the average cost method. Weadjust inventory for excess and obsolete inventory and for the difference bywhich the cost of the inventory exceeds the estimated market value. In order todetermine the adjustments, management reviews inventory quantities on hand,slow movement reports and sales history reports. Management estimates therequired adjustment based on estimated demand for products and marketconditions. To the extent historicalresults are not indicative of future results and if events occur that affectour relationships with suppliers or the salability of our products, additionalwrite-offs may be needed that will increase our cost of sales and decreaseinventory.

*Goodwill, Intangibles andOther Long-Lived Assets*

Management assesses therecoverability of our goodwill, identifiable intangibles and other long-livedassets on an annual basis or whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. The following factors,if present, may trigger an impairment review: (1) significantunderperformance relative to expected historical or projected future operatingresults; (2) significant negative industry or economic trends; (3) asignificant increase in competition; and (4) a significant increase ininterest rates on debt. If the recoverability of these assets is unlikelybecause of the existence of one or more of the above-mentioned factors,an impairment analysis is performed using a projected discounted cash flowmethod. Management must make assumptions regarding estimated future cash flowsand other factors to determine the fair value of these respective assets. Ifthese estimates or related assumptions change in the future, we may be requiredto record an impairment charge. Impairment charges would be included in our statementsof operations, and would result in reduced carrying amounts of the relatedassets in our balance sheets.

*LegalContingencies*

Fromtime to time, in the course of our business, we become involved in legalproceedings. In accordance with SFAS No. 5, *Accountingfor Contingencies*, if it is probable that, as a result of a pendinglegal claim, an asset had been impaired or a liability had been incurred at thedate of the financial statements and the amount of the loss is estimable, anaccrual for the costs to resolve the claim is recorded in accrued expenses inour balance sheets. Professional fees related to legal claims are included ingeneral and administrative expenses in our statements of operations.Management, with the assistance of outside counsel, determines whether it isprobable that a liability from a legal claim has been incurred and estimatesthe amount of loss. The analysis is based upon potential results, assuming acombination of litigation and settlement strategies. Management does not believethat currently pending proceedings will have a material adverse effect on ourconsolidated financial position. It is possible, however, that future resultsof operations for any particular period could be materially affected by changesin our assumptions related to these proceedings.

**Accounting and DisclosureChanges**

Effective December 31,2005, we adopted the provisions of SFAS No. 123R, *Share-BasedPayment*, using the modified prospective application transitionmethod. Under this method, the share-based compensation cost recognizedbeginning December 31, 2005 includes compensation cost for (i) allshare-based payments granted prior to, but not vested as of December 31,2005, based on the grant date fair value originally estimated in accordancewith the provisions of SFAS No. 123, *Accounting for Stock-BasedCompensation*, and (ii) all share-based payments grantedsubsequent to December 30, 2005, based on the grant date fair valueestimated in accordance with the provisions of SFAS No. 123R. Compensationcost under SFAS No. 123R is recognized ratably using the straight-lineattribution method over the expected vesting period or to the retirementeligibility date, if less than the vesting period when vesting is notcontingent upon any future performance. In addition, pursuant to SFAS No. 123,we are required to estimate the amount of expected forfeitures when calculatingthe compensation costs, instead of accounting for forfeitures as incurred,which was the method previously used by us. As of December 31, 2005, thecumulative effect of adopting the estimated forfeiture method was notsignificant. Prior periods are not restated under this transition method

SFAS No. 123Ralso requires us to reflect the tax benefit from the exercise of stock optionsin the statement of cash flows as a cash inflow from financing activities.Prior to the adoption of SFAS No. 123R, these tax benefits have beenreflected as a cash inflow from operating activities. The prior year statementof cash flows has not been restated. There were no stock options exercisedduring the three months ended March 31, 2006 and April 1, 2005.

As of March 31,2006, there was $8.1 million of total unrecognized compensation cost related tounvested stock awards. The cost is expected to be recognized over a weighted-averageperiod of 3.5 years.

14

----

Prior to December 31,2005, we accounted for stock-based compensation plans in accordance with theprovisions of Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*, as permitted bySFAS No. 123. We elected to use the intrinsic value method of accountingfor employee and director stock-based compensation expense for itsnon-compensatory employee and director stock option awards and did notrecognize compensation expense for the issuance of options with an exerciseprice equal to or greater than the market price of the underlying common stockat the date of grant. Had we elected to adopt the fair value approach asprescribed by SFAS No. 123, which charges earnings for the estimated fairvalue of stock options, our net income and earnings per share for the threemonths ended April 1, 2005 would not have been materially affected.

**Results of Operations**

The following discussion includes references to the term average dailysales and average organic daily sales. Average daily sales are defined as salesfor a period of time divided by the number of shipping days in that period oftime. Average organic daily sales are defined as sales from a period oftime divided by the number of shipping days in that period of time excludingany sales from acquisitions made subsequent to the beginning of the prior yearperiod.

*Overview.*We ended thefirst quarter on strong top line growth in each of our three customer endmarkets: facilities maintenance, professional contractors and specialtydistributors. Average daily sales grew 16.1% in the first quarter including$11.0 million in sales from our July 2005 acquisition of Copperfield.Excluding Copperfield, sales grew 10.5% on an average organic daily salesbasis. We continue to invest in organic growth initiatives at a rate ofapproximately $1.5 million per quarter including the expansion of our nationalaccounts program, the addition of field sales and telesales professionals, theaddition of new products and geographic expansions such as the addition ofprofession contractor showrooms and vendor managed inventory sites. Asignificant component of our sales growth in the first quarterincluded an increase of over 35% in the sale of “big ticket” or larger thanaverage sales price products such as HVAC equipment, appliances and waterheaters. These products typically carry lower gross margin percentages butenable better sales penetration with existing and new customers alike. Theeffect of this continued change in sales mix on consolidated gross margins wasa decline in the quarter of 40 basis points. This decline was offset by highergross margins on Copperfield sales of approximately 10 basis points resultingin a net decline in gross margin percentages of 30 basis points in the threemonths ended March 31, 2006 compared to the three months ended April 1,2005. We continue to see operating expense leverage, specifically in the areaof freight and distribution center labor.

*Three Months Ended March 31,2006 Compared to Three Months Ended April 1, 2005*

*NetSales.*Our net sales increased by $28.2 million, or14.3%, to $224.7 million in the three months ended March 31, 2006from $196.5 million in the three months ended April 1, 2005, with oneless shipping day than the comparable prior year period. The sales increase wasattributable to $11.0 million from our Copperfield acquisition with theremaining increase driven by continued strong demand for our products, newsales and growth initiatives and approximately 4% from price increases.

*GrossProfit.*Gross profit increased by $10.2 million, or13.5%, to $85.7 million in the three months ended March 31, 2006 from$75.5 million in the three months ended April 1, 2005. Gross profitmargins decreased 30 basis points to 38.1% for the three months ended March 31,2006 compared to 38.4% for the three months ended April 1, 2005. Thisdecline in our gross profit margins is primarily a result of a change in salesmix related to our increase of over 35% in the sale of big ticket items such asHVAC equipment, appliances and water heaters offset in part by higher grossmargins on Copperfield sales.

*Selling,General and Administrative Expenses.*SG&A expensesincreased by $7.9 million, or 14.8%, to $61.7 million in the threemonths ended March 31, 2006 from $53.7 million in the three monthsended April 1, 2005. Increased SG&A expenses related to ourCopperfield acquisition accounted for $1.2 million of the $7.9 millionincrease. Excluding these expenses, SG&A expenses increased 12.5% in thethree months ended March 31, 2006. Certain expenses within SG&A, suchas the costs of running regional distribution centers, delivery expenses andselling expenses fluctuate with sales volume. The increase in SG&A expensesincluded these increases as well as increased investment in new sales andmarketing initiatives and additional stock-based compensation associated withgrants of restricted stock units and stock options during the three monthsended March 31, 2006. SG&A expenses as a percentage of sales was 27.5%in the three months ended March 31, 2006 and 27.3% in the three monthsended April 1, 2005. This increase was due to the additional stock-basedcompensation associated with grants of restricted stock units and stock optionsduring the three months ended March 31, 2006.

*Depreciation and Amortization.*Depreciation and amortization expense increased by$0.3 million, or 10.5%, to $3.4 million in the three months ended March 31,2006 from $3.1 million in the three months ended April 1, 2005. Thisincrease was due to our Copperfield acquisition.

15

----

*             OperatingIncome.*As a result of theforegoing, operating income increased by $2.0 million, or 10.5%, to$20.6 million in the three months ended March 31, 2006 from $18.6million in the three months ended April 1, 2005. As a percent of sales,operating income decreased to 9.2% in the current quarter from 9.5% in thecomparable prior year period. This decrease was primarily due to $0.5 millionin additional stock-based compensation associated with grants of restrictedstock units and stock options during the three months ended March 31,2006.

*Interest Expense.*Interestexpense increased by $0.7 million in the three months ended March 31, 2006to $7.0 million from $6.3 million in the three months ended April 1,2005. The net increase was attributed to the overall higher debt balancesresulting from the additional $50.0 million term loan incurred during the threemonths ended September 30, 2005 offset by the early extinguishment of$70.0 million of the 11.5% senior subordinated notes of Interline New Jerseyduring the three months ended April 1, 2005.

*Provisionfor Income Taxes.*The effective tax rate for the three monthsended March 31, 2006 was 38.9% compared to 39.6% in the three months endedApril 1, 2005. The decrease in the effective tax rate was due primarily tolower state income taxes and lower non-deductible expenses partially offset bythe phase-out of the extraterritorial income exclusions used in 2005.

**Liquidity and Capital Resources**

As of March 31, 2006, we had approximately$89.7 million of availability under Interline New Jersey’s$100.0 million revolving credit facility. Historically, our capitalrequirements have been for debt service obligations, working capitalrequirements, acquisitions, the expansion and maintenance of our distributionnetwork, and upgrades of our proprietary information systems. We expect this tocontinue in the foreseeable future. Historically, we have funded theserequirements through internally generated cash flow and funds borrowed underour credit facility. We expect our cash flow from operations and the loanavailability under our credit facility to be our primary source of funds in thefuture. Letters of credit, which are issued under the revolving loan facilityunder our credit facility, are used to support payment obligations incurred forour general corporate purposes. As of March 31, 2006, we had$10.3 million of letters of credit issued under the credit facility.Interest on Interline New Jersey’s 11.5% senior subordinated notes due 2011 ispayable each May 15 and November 15. With respect to borrowings underour credit facility, we have the option to borrow at an adjusted LIBOR or analternative base rate. Interest on the credit facility is generally payablequarterly, and with respect to any LIBOR borrowings, on the last day of theinterest period applicable to the term of the borrowing.

We are a holding companywhose only asset is the stock of our subsidiaries. We conduct virtually all ofour business operations through Interline New Jersey. Accordingly, our onlymaterial sources of cash are dividends and distributions with respect to ourownership interests in Interline New Jersey that are derived from the earningsand cash flow generated by Interline New Jersey. The debt instruments ofInterline New Jersey, primarily the credit facility and the indenture governingthe terms of the 11.5% notes, contain significant restrictions on the paymentof dividends and distributions to us by Interline New Jersey. In particular,Interline New Jersey’s credit facility prevents it from paying dividends,making distributions to us or making investments in us. However, ordinarycourse distributions for overhead and taxes are permitted, as are (providedInterline New Jersey is not in default) annual payments of up to $7.5 millionin respect of our stock option plans and aggregate payments of up to $40.0million depending on the pro forma net leverage ratio of the previous quarter.In addition, the indenture for the 11.5% notes restricts the ability ofInterline New Jersey to pay distributions or dividends to us and to makeadvances to, or investments in, us. Dividends, distributions and investmentsare permitted in an amount generally limited to 50.0% of the net income ofInterline New Jersey, plus an amount equal to the net proceeds from certainequity issuances if Interline New Jersey is in compliance with a leverage ratioand is not in default. In addition, there are certain other permitted payments,including an ability to make distributions of up to $10.0 million.

Net cash provided by operatingactivities was $18.8 million for the three months ended March 31,2006 compared to net cash provided by operating activities of $3.2 millionin the three months ended April 1, 2005. Net cash provided by operating activities for the three months ended March 31,2006 was higher than the prior year period primarily as a result of ourincrease in net income of $7.0 million, changes in our accounts receivable-trade,inventory and accounts payable of $3.4 million, and changes in all other assetsand liabilities of $15.6 million, mostly related to the change in accruedincome taxes of $10.2 million. These increases were partially offset by thepayment of the early redemption premium of $8.1 million in the three monthsended April 1, 2005 related to the pay-down of a portion of Interline NewJersey’s senior subordinated notes in January 2005, which payment was notrepeated in the three months ended March 31, 2006. In addition, we hadhigher cash interest expense of $1.1 million, resulting from incurrence of anadditional $50.0 million term loan, which we used for our Copperfieldacquisition in July 2005, and lower cash taxes of $4.3 million, due to thetiming of income tax payments.

Net cash used ininvesting activities was $1.7 million in the three months ended March 31,2005 compared to $2.6 million in the three months ended April 1, 2005. Netcash used in investing activities in the three months ended March 31, 2006and the three months ended April 1, 2005 were primarily attributable tocapital expenditures made in the ordinary course of business and costs relatedto purchases of businesses in prior periods.

16

----

Net cash used in financingactivities totaled $3.3 million for the three months ended March 31,2006 compared to net cash provided byfinancing activities of $59.5 million in the three monthsended  April 1, 2005. Net cash used in financing activities for thethree months ended March 31, 2006 was primarily attributable to ourrepayment of $3.0 million of borrowings on our revolving credit facility. Netcash used in financing activities for the three months ending April 1,2005 was primarily due to the early redemption of $70.0 million of InterlineNew Jersey’s senior subordinated notes and $8.1 million in related redemptionpremiums, partially offset by revolving credit facility borrowings of $17.0million.

As of March 31, 2006, ourcontractual obligations and other contractual commitments have not changedmaterially outside the ordinary course of business since December 30,2005.

*Our Initial Public Offering andRelated Transactions*

In December 2004, wesuccessfully completed our initial public offering, or IPO, and amendedInterline New Jersey’s senior credit facility. A total of 14,375,000 shares ofour common stock were sold, of which 12,667,000 were sold by us and 1,708,000were sold by our shareholders. We sold 12,500,000 shares of our common stock inDecember 2004 and 167,000 shares in January 2005 following theexercise of the underwriters’ over-allotment option. We received $171.8 millionin net proceeds including the exercise of the underwriters’ over-allotmentoption, representing $176.9 million of proceeds from the sale of stock net ofunderwriting discounts and commissions, less $4.1 million of initial publicoffering costs and $1.1 million of debt issuance costs.

Immediately prior to the closingof the IPO, a reincorporation merger occurred and we became the holding companyof the Interline group of businesses with Interline New Jersey as our whollyowned operating subsidiary. In the reincorporation merger, the holders of thepreferred stock of Interline New Jersey received an aggregate of $55 million incash and 19,183,321 shares of our common stock and the holders of the commonstock of Interline New Jersey received 0.01218 shares of our common stock pershare of Interline New Jersey common stock, or 66,667 shares of our commonstock in total. In addition, holders of options to purchase shares of thecommon stock of Interline New Jersey were converted into options to purchaseshares of our common stock.

We used $31.3 million of theproceeds to partially repay the term loan under Interline New Jersey’s creditfacility. We amended Interline New Jersey’s senior credit facility to allow forthe IPO and reduce our applicable rate in respect to any term loans from LIBORplus 3.50% to LIBOR plus 2.25%. In conjunction with this amendment, we incurred$1.1 million of debt issuance costs. In December 2004 we also used $4.6million of the proceeds to terminate the interest rate swap agreements. In January 2005we used $70.0 million of the proceeds from the IPO transaction to partiallyredeem Interline New Jersey’s 11.5% senior subordinated notes. In connectionwith the redemption, in January 2005 we paid $8.1 million of premiums forearly redemption of the 11.5% senior subordinated notes and recorded a $10.3million loss on the early extinguishment of debt, which included a charge forwrite-off of unamortized debt issuance costs in the amount of $2.3 million.

*Capital Expenditures*

Capital expenditures were $1.5million in the three months ended March 31, 2006 and April 1,2005. Capital expenditures as a percentage ofsales were 0.7% in the three months ended March 31, 2006 and 0.8% in thethree months ended April 1, 2005.

*Liquidity*

Our principal working capitalneed is for inventory and trade accounts receivable, which have generallyincreased with the growth in our business. Our principal sources of cash tofund our working capital needs are cash generated from operating activities andborrowings under our revolving credit facility.

*CreditFacility*

Interline New Jersey entered intoa credit facility on May 29, 2003, which was amended as of December 19,2003, and amended again on December 21, 2004 in connection with the IPO.Interline New Jersey also amended its credit facility on July 7, 2005, topermit the incurrence of an additional $50.0 million term loan, having substantiallythe same terms as the existing term loan in connection with the Copperfieldacquisition. On August 8, 2005, Interline New Jersey again amended itscredit facility to lower the interest rate spreads applicable to the additional$50.0 million term loan. The amended credit facility provides for aggregatecommitments of $250.0 million, consisting of (1) a revolving loanfacility of $100.0 million, of which a portion not exceeding $20.0 millionwill be available in the form of letters of credit, and (2) a term loanfacility of $150.0 million. Borrowings under the amended term loanfacility and revolving loan 

17

----

facility bear interest, atInterline New Jersey’s option, at either adjusted LIBOR or at the alternatebase rate plus a spread. Outstanding letters of credit under the revolving loanfacility are subject to a per annum fee equal to the applicable spread overadjusted LIBOR for revolving loans. The indebtedness under the amended creditfacility is guaranteed by us and by the domestic subsidiaries of Interline NewJersey. The amended term loan facility has a maturity of December 31,2010, and the revolving loan facility has a maturity of May 31, 2008.

On July 7, 2005, we used theproceeds from the additional $50.0 million term loan and $20.0 million ofborrowings under the revolving loan facility to fund the Copperfieldacquisition. As of March 31, 2006, the Company had paid down theincremental $20.0 million borrowed for the acquisition.

During the three months ended March 31,2006, we borrowed periodically on our revolving credit facility to accommodateour daily working capital needs. The weighted average daily outstanding balanceduring the three-month period was $0.7 million, with ordinary courseborrowings ranging from $0.0 million to $3.5 million. As of March 31,2006, Interline New Jersey had $10.3 million of letters of credit issuedunder the revolving loan facility and $148.5 million aggregate principaloutstanding under the term loan facility.

We believe that cash flow fromoperations and available borrowing capacity under our new credit facility willbe adequate to finance our ongoing operational cash flow needs and debt serviceobligations for the next twelve months.

**ITEM 3.Quantitative and Qualitative Disclosures About Market Risk**

*Commodity Price Risk*

We are aware of the potentially unfavorable effectsinflationary pressures may create through higher asset replacement costs andrelated depreciation, higher interest rates and higher product and materialcosts. In addition, our operating performance is affected by price fluctuationsin copper, oil, stainless steel, aluminum, plastic and other commodities andraw materials. We seek to minimize the effects of inflation and changing pricesthrough economies of purchasing and inventory management resulting in costreductions and productivity improvements as well as price increases to maintainreasonable profit margins.

Our results of operations in the three months ended March 31,2006 and April 1, 2005 were favorably impacted by increases in the pricingof certain commodity-based products. Such commodity price fluctuations havefrom time to time created cyclicality in our financial performance, and couldcontinue to do so in the future. In addition, our use of priced catalogs maynot allow us to offset such cost increases quickly, resulting in a decrease ingross margins and profit.

*Foreign Currency Exchange Risk*

The majority of ourpurchases from foreign-based suppliers are from China and other countries inAsia and are transacted in U.S. dollars.

*Interest Rate Risk*

The fair value oflong-term debt is subject to interest rate risk. While changes in marketinterest rates may affect the fair value of our fixed-rate long-term debt, webelieve a change in interest rates would not have a material impact on ourfinancial condition, future results of operations or cash flows.

*Derivative Financial Instruments*

Historically, we enteredinto derivative financial instruments from time to time, including interestrate exchange agreements, or swaps, to manage our exposure to fluctuations ininterest rates on our debt. As of March 31, 2006, we did not have anyinterest rate swap exchange agreements, or swaps. Under our former swapagreements, we pay a fixed rate on the notional amount to our banks and thebanks pay us a variable rate on the notional amount equal to a base LIBOR rate.Our derivative activities, all of which are for purposes other than trading,are initiated within the guidelines of corporate risk-management policies.

We periodically evaluatethe costs and benefits of any changes in our interest rate risk. Based on suchevaluation, we may enter into new interest rate swaps to manage our interestrate exposure.

18

----

**ITEM 4. Controls and Procedures**

*Evaluation of Disclosure Controlsand 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 March 31, 2006. Basedon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that, as of March 31, 2006, our disclosure controls andprocedures were (1) designed to ensure that material information relatingto us, including our consolidated subsidiaries, is made known to our ChiefExecutive Officer and Chief Financial Officer by others within those entities,particularly during the period in which this report was being prepared and (2) effective,in that they provide reasonable assurance 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 in Internal Control overFinancial Reporting*

No change in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the quarter ended March 31,2006 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

19

----

**PART II.OTHER INFORMATION**

**ITEM 1. Legal Proceedings**

We areinvolved in various legal proceedings that have arisen in the ordinary course ofour business and have not been fully adjudicated. These actions, whenultimately concluded and determined, will not, in the opinion of management,have a material effect upon our consolidated financial position, results ofoperations or liquidity.

**ITEM 1A. Risk Factors**

For information regarding factors that could affectour results of operations, financial position and liquidity, see the riskfactors discussion provided in Item 1A of our Annual Report on Form 10-Kfor the fiscal year ended December 30, 2005. See also “Part I. Item2—Forward Looking Statements” above.

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

*Unregistered Sales of EquitySecurities*

None

*Purchases of Equity Securities bythe Issuer*

The followingtable summarizes repurchases of our stock, comprising entirely of sharesreturned to us to satisfy employee tax withholding obligations that arose uponthe vesting of restricted stock awards, during the three months ended March 31,2006:

 
| **Period**                                | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|-------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 2006                         |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (December 31 — January 27) |       | —                                       |       | $                                            | —     |                                                                                                                             | —     |                                                                                                                                    | —     |   |
| February 2006                        |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (January 28 — February 24) |       | —                                       |       | —                                       |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| March 2006                           |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                    |       |
| (February 25 — March 31)   |       | 16,477                                       |       | 23.25                                        |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| Total                                     |       | 16,477                                       |       | $                                            | 23.25      |                                                                                                                             | —     |                                                                                                                                    | —     |   |

 

**ITEM 3. DefaultsUpon Senior Securities**

None

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

None

**ITEM 5. OtherInformation**

None

20

----

**ITEM6. 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). |

 

21

----

 

**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: May 9, 2006 | By:        | /S/ THOMAS J. TOSSAVAINEN                       |
|                   |       | Thomas J. Tossavainen                           |
|                   |       | Chief Financial Officer                         |
|                   |       | (Duly Authorized Signatory, Principal Financial |
|                   |       | and Accounting Officer)                         |

 

 

22

----