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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2004
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 333-106801
INTERLINE BRANDS, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2232386
(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 [_]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
As of the close of business on November 8, 2004, there were 5,399,736
shares outstanding of the registrant's common stock, no par value.
TABLE OF CONTENTS
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September 24, 2004
and December 26, 2003...................................................1
Unaudited Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended September 24, 2004 and
September 26, 2003......................................................2
Unaudited Condensed Consolidated Statement of Stockholders'
Equity (Deficiency) for the Nine Months Ended September 24, 2004.................3
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 24, 2004 and September 26, 2003..............4
Notes to Unaudited Condensed Consolidated Financial
Statements.......................................................................5
Item 2. Management's Discussions and Analysis of Financial Condition
and Results of Operations............................................................18
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................24
Item 4. Controls and Procedures..............................................................25
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings....................................................................25
Item 5. Other Information....................................................................26
Item 6. Exhibits.............................................................................26
SIGNATURES......................................................................................27
ii
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 24, 2004 AND DECEMBER 26, 2003 (In thousands,
except share and per share data)
SEPTEMBER 24, DECEMBER 26,
2004 2003
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,494 $ 1,612
Cash - restricted 1,001 1,000
Accounts receivable - trade (net of allowance for
doubtful accounts of $6,731 and $6,316) 107,792 83,684
Accounts receivable - other 11,497 12,932
Inventory 137,926 119,301
Prepaid expenses and other current assets 3,911 4,260
Deferred income taxes 10,946 10,318
--------- ---------
Total current assets 277,567 233,107
PROPERTY AND EQUIPMENT, net 29,556 30,605
GOODWILL 202,544 202,227
OTHER INTANGIBLE ASSETS, net 86,500 90,632
OTHER ASSETS 9,280 8,711
--------- ---------
TOTAL ASSETS $ 605,447 $ 565,282
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Revolver $ 7,000 $ --
Current portion of long-term debt 7,000 7,000
Accounts payable 54,958 43,180
Accrued expenses and other current liabilities 19,982 19,623
Current portion of interest rate swaps 2,409 --
Accrued interest payable 11,057 5,803
Accrued merger expenses 4,323 4,739
Income taxes payable 6,064 --
--------- ---------
Total current liabilities 112,793 80,345
LONG-TERM LIABILITIES:
Deferred Income Taxes 26,924 22,543
Interest Rate Swaps 4,185 12,793
Long-Term Debt, Net of Current Portion 329,275 334,525
--------- ---------
TOTAL LIABILITIES 473,177 450,206
========= =========
COMMITMENTS AND CONTINGENCIES
SENIOR PREFERRED STOCK, $0.01 par value, 27,000,000 shares
authorized; 23,600,014 shares issued and outstanding;
at liquidation value 420,767 379,612
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 7,500,000 shares
authorized; 5,399,736 and 5,334,546 shares issued
and outstanding 1,994 1,994
Accumulated deficit (289,568) (265,548)
Stockholder loans (1,575) (1,545)
Accumulated other comprehensive income 652 563
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (288,497) (264,536)
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 605,447 $ 565,282
========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 24, 2004 AND SEPTEMBER 26, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2004 2003 2004 2003
------------- ------------- ------------- -------------
NET SALES $ 190,400 $ 166,676 $ 548,383 $ 481,235
COST OF SALES 117,214 103,308 338,529 298,241
------------- ------------- ------------- -------------
Gross profit 73,186 63,368 209,854 182,994
------------- ------------- ------------- -------------
OPERATING EXPENSES :
Selling, general and administrative expenses 49,724 43,693 148,062 126,678
Depreciation and amortization 2,988 3,134 9,414 8,759
Special costs and expenses -- 132 -- 510
------------- ------------- ------------- -------------
Total operating expense 52,712 46,959 157,476 135,947
------------- ------------- ------------- -------------
OPERATING INCOME 20,474 16,409 52,378 47,047
CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS 1,503 2,201 6,201 3,284
LOSS ON EXTINGUISHMENT OF DEBT -- -- -- (14,893)
INTEREST EXPENSE (10,269) (10,320) (30,563) (30,146)
INTEREST INCOME 32 23 65 100
OTHER INCOME (EXPENSE) 119 54 300 46
------------- ------------- ------------- -------------
Income before income taxes 11,859 8,367 28,381 5,438
PROVISION FOR INCOME TAXES 4,932 3,563 11,246 2,565
------------- ------------- ------------- -------------
NET INCOME 6,927 4,804 17,135 2,873
PREFERRED STOCK DIVIDENDS (14,170) (12,381) (41,155) (35,905)
------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (7,243) $ (7,577) $ (24,020) $ (33,032)
============= ============= ============= =============
LOSS PER COMMON SHARE - BASIC $ (1.34) $ (1.41) $ (4.45) $ (6.13)
============= ============= ============= =============
LOSS PER COMMON SHARE - DILUTED $ (1.34) $ (1.41) $ (4.45) $ (6.13)
============= ============= ============= =============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
INTERLINE BRANDS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 24, 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED ACCUMULATED
EARNINGS OTHER TOTAL
COMMON STOCK STOCKHOLDER (ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT LOANS DEFICIT) INCOME (DEFICIENCY) EQUITY
--------- --------- ------------ ------------ ------------- --------------------
BALANCE, DECEMBER 26, 2003 5,334,546 $ 1,994 $ (1,545) $(265,548) $ 563 $ (264,536)
Preferred dividends -- -- -- (41,155) -- (41,155)
Interest on shareholder notes -- -- (30) -- -- (30)
Issuance of restricted stock 65,190 -- -- -- -- --
Comprehensive income:
Net income -- -- -- 17,135 -- --
Foreign currency translation -- -- -- -- 89 --
Total comprehensive income -- -- -- -- -- 17,224
--------- --------- --------- --------- --------- ------------------
BALANCE, SEPTEMBER 24, 2004 5,399,736 $ 1,994 $ (1,575) $(289,568) $ 652 $ (288,497)
========= ========= ========= ========= ========= ==================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
INTERLINE BRANDS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 24, 2004 AND SEPTEMBER 26, 2003
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 24, 2004 SEPTEMBER 26, 2003
------------------ ------------------
OPERATING ACTIVITIES :
Net income $ 17,135 $ 2,873
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,414 8,759
Amortization and write-off of debt issuance costs 1,428 7,855
Accretion and write-off of discount on 16% senior subordinated notes -- 4,410
Redemption premium on 16% senior subordinated notes -- 3,879
Change in fair value of interest rate swaps (6,201) (3,284)
Loss on disposal of property and equipment -- 3
Interest income on stockholder notes (30) (78)
Deferred income taxes 3,754 423
16% senior subordinated notes issued for interest due -- 1,674
Changes in assets and liabilities, net of effects of acquisition:
Cash - restricted (1) 329
Accounts receivable - trade (24,108) (10,375)
Accounts receivable - other 1,435 2,590
Inventory (18,625) 12,576
Prepaid expenses and other current assets 350 (450)
Other assets (210) (73)
Accrued interest payable 5,254 6,792
Accounts payable 11,778 (3,187)
Accrued expenses and other current liabilities 477 (1,778)
Accrued merger expenses (416) (1,210)
Income taxes payable 6,064 --
------------------ -----------------
Net cash provided by operating activities 7,498 31,728
------------------ -----------------
INVESTING ACTIVITIES :
Purchase of property and equipment (5,359) (3,495)
Purchase of businesses, net of cash acquired (509) (3,747)
------------------ -----------------
Net cash used in investing activities (5,868) (7,242)
------------------ -----------------
FINANCING ACTIVITIES :
Increase (decrease) in revolver and swingline, net 7,000 (18,500)
Repayment of debt (5,250) (317,487)
Proceeds from refinancing transactions -- 340,000
Payment of debt issuance and offering costs (587) (12,020)
------------------ -----------------
Net cash provided by (used in) financing activities 1,163 (8,007)
------------------ -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 89 666
------------------ -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,882 17,145
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,612 5,557
------------------ -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,494 $ 22,702
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for :
Interest $ 23,853 $ 18,082
================== =================
Income taxes (net of refunds) $ 457 $ 1,404
================== =================
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Dividends on preferred stock $ 41,155 $ 35,905
================== =================
Note issued for purchase of investment $ -- $ 3,275
================== =================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Interline
Brands, Inc. and its susidiaries ("Interline" or the "Company") have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities
and Exchange Commission, which apply to interim financial statements. These
unaudited consolidated financial statements do not include all disclosures
provided in the annual financial statements and notes thereto contained in
the Annual Report on Form 10-K for Interline Brands, Inc. for the year
ended December 26, 2003 as filed with the Securities and Exchange
Commission on March 25, 2004. All adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented have been recorded. The results of operations for the
interim periods presented are not necessarily indicative of the results to
be expected for the full year.
The Company is in one 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
Enterprise and Related Information", the Company has one operating segment.
Our net sales for the nine month periods ended September 24, 2004 and
September 26, 2003 by product category were approximately (in millions):
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 24, SEPTEMBER 26,
PRODUCT CATEGORY 2004 2003
---------------- ------------- -------------
Plumbing................................ $241.3 $226.2
Electrical.............................. 82.3 52.9
Security Hardware....................... 38.4 38.5
Hardware................................ 38.4 33.7
HVAC.................................... 38.3 28.9
Appliances and Parts ................... 32.9 33.7
Other................................... 76.8 67.3
------ ------
Total................................... $548.4 $481.2
====== ======
2. EARNINGS PER SHARE
Net income per share for all periods has been computed in accordance with
SFAS No. 128, "Earnings per Share". Basic net income(loss) per share is
computed by dividing net income(loss) applicable to common stockholders by
the weighted-average number of shares outstanding during the year. Diluted
net income per share is computed by dividing net income attributable to
common stockholders by the weighted-average number of shares outstanding
during the year, assuming dilution.
5
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
The amounts used in calculating net income (loss) per share data are as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2004 2003 2004 2003
------------ ------------ ------------- -------------
Net income $ 6,927 $ 4,804 $ 17,135 $ 2,873
Preferred stock dividends (14,170) (12,381) (41,155) (35,905)
-------- -------- --------- ---------
Net loss applicable to common stockholders $ (7,243) $ (7,577) $ (24,020) $ (33,032)
======== ======== ========= =========
Weighted average shares outstanding - basic 5,400 5,385 5,400 5,385
Effect of dilutive stock options -- -- -- --
-------- -------- --------- ---------
Weighted average shares outstanding - diluted 5,400 5,385 5,400 5,385
======== ======== ========= =========
Options to purchase 191,052 and 177,532 shares of common stock which were
outstanding at September 24, 2004 and September 26, 2003, respectively,
were not included in the computation of weighted average shares
outstanding-diluted because the exercise prices of the options are greater
than the average fair market value of common stock and the effect would be
antidilutive.
3. DEBT
Long-term debt at September 24, 2004 and December 26, 2003 consists of the
following:
SEPTEMBER 24, DECEMBER 26,
2004 2003
------------- ------------
Term Loan $ 133,000 $ 138,2500
Note payable 3,275 3,275
11.5% Senior Subordinated Notes 200,000 200,000
------------- ------------
336,275 341,525
Less current portion (7,000) (7,000)
------------- ------------
$ 329,275 $ 334,525
============= ============
6
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
In May 2003, the Company completed an offering of $200.0 million principal
amount of 11.5% senior subordinated notes due 2011 and entered into a new
$205.0 million senior secured credit facility which consists of a $140.0
million term loan facility and a $65.0 million revolving loan facility, a
portion of which is available in the form of letters of credit. The net
proceeds from the offering of senior subordinated notes and the refinancing
of the former credit facility with the new credit facility were used to:
(1) repay all outstanding indebtedness under our former credit facility,
(2) redeem all of the 16% senior subordinated notes, (3) pay accrued
interest and related redemption premiums on our former debt and (4) pay
transaction fees and expenses related to the offering and new credit
facility. These transactions are referred to collectively as the
"Refinancing Transactions".
The $200.0 million principal amount 11.5% senior subordinated notes due
2011, pay interest each May 15 and November 15. Prior to May 15, 2006, the
Company may redeem up to 35% of the senior subordinated notes using
proceeds of certain equity offerings. The Company may redeem all or a
portion of the notes after May 15, 2007, subject to redemption premiums
unless redeemed after May 15, 2009.
Borrowings under the term loan facility and revolving loan facility bear
interest, at the Company's option, at either LIBOR plus a spread, currently
3.5%, or at an alternate base rate plus a spread, currently 2.75%. Interest
rates in effect on borrowings under the term loan facility at September 24,
2004 ranged from 5.46% for LIBOR based borrowings to 7.25% for prime based
borrowings. Outstanding letters of credit under the revolving loan facility
are subject to a per annum fee equal to the applicable spread over the
adjusted LIBOR for revolving loans. The term loan facility matures on
November 30, 2009 and the revolving loan facility matures on May 31, 2008.
As of September 24, 2004, the Company had $9.0 million of letters of credit
issued and $49.0 million available under the revolving loan facility. There
was $7.0 million in borrowings outstanding under the revolving loan
facility at September 24, 2004. The credit facility is secured by
substantially all of the assets of the Company.
Periodically, the Company enters into derivative financial instruments,
including interest rate exchange agreements, to manage its exposure to
fluctuations in interest rates on its debt. At September 24, 2004, the
Company had interest rate exchange agreements, or swaps, outstanding with a
total notional amount of $151.0 million. These agreements, which mature
between April and October of 2005, effectively fix the interest rate on the
Company's variable rate borrowings under the term loan facility at a
weighted average rate of 6.56%. The market value of the outstanding
interest rate exchange agreements of $6.6 million has been recorded as
current portion of interest rate swaps of $2.4 million and long-term
liability of $4.2 million at September 24, 2004. The Company's derivative
activities are for purposes other than trading.
The credit facility contains customary affirmative and negative covenants
that limit the Company's ability to incur additional indebtedness, pay
dividends on its common stock or redeem, repurchase or retire its common
stock or subordinated indebtedness, make certain investments, sell assets,
and consolidate, merge or transfer assets, and that require the Company to
maintain certain debt to cash flow and interest expense coverage ratios.
The Company was in compliance with all covenants at September 24, 2004.
In April 2003, the Company issued a non-recourse note payable in the
principal amount of $3.3 million for the purchase of an investment. This
note, which is secured only by the investment, bears interest at a rate of
4% per annum, with principal due in full in April 2010.
7
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
The maturities of long-term debt subsequent to September 24, 2004 are as
follows:
2004 $ 3,500
2005 6,125
2006 11,375
2007 14,000
2008 15,750
Thereafter 285,525
-----------
$ 336,275
===========
4. STOCK OPTION PLANS
During 2000, the Company established a Stock Award Plan, (the "2000 Plan"),
under which the Company may award a total of 525,000 shares of common stock
in the form of incentive stock options, nonqualified stock options, stock
appreciation rights, or SARs, and restricted stock awards, all of which may
be awarded to directors, officers, key employees and consultants. The
exercise price per share for an incentive stock option may not be less than
100% of the estimated fair market value of a share of common stock on the
grant date. The exercise price per share for an incentive stock option
granted to a person owning stock possessing more than 10% of the total
combined voting power of all classes of stock may not be less than 110% of
the estimated fair market value of a share of common stock on the grant
date, and may not be exercisable after the expiration of five years from
the date of grant. The options generally vest ratably over a five-year
period and may not be exercisable after the expiration of 10 years from the
date of grant. The Company's compensation committee will determine in its
sole discretion whether a SAR is settled in cash, shares or a combination
of cash and shares.
A summary of the status of the Company's stock option plans is as follows:
WEIGHTED
NUMBER EXERCISE PRICE AVERAGE EXERCISE
OF SHARES PER SHARE PRICE PER SHARE
--------- -------------- ----------------
Outstanding at December 26, 2003 187,532 $ 0.50 - $ 20.33 $ 6.17
2004:
Granted 4,694 0.50 0.50
Cancelled (1,174) 0.50 0.50
-------
Outstanding at September 24, 2004 191,052 $ 0.50 - $ 20.33 $ 6.10
=======
The Company accounts for stock-based compensation using the intrinsic
value based method under Accounting Principles Board Opinion No. 25 (APB
No. 25), "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in
net income, as all options granted under the 2000 Plan had an exercise
price no less than the estimated market value of the underlying common
stock on the date of grant. The effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") Statement No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation was immaterial. The fair value of each option was estimated on
the date of grant using the Black-Scholes option pricing model, with the
following assumptions used for options granted in 2003 and 2004: dividend
yield of 0%, expected volatility of 0%, risk-free rate of 3.48% and 4.05%,
respectively, and expected life of 5 years.
8
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE PER SHARE DATA)
- --------------------------------------------------------------------------------
5. SUBSIDIARY GUARANTORS
The Company completed an offering of $200 million principal amount of
senior subordinated notes in connection with its Refinancing Transactions.
The Company filed a registration statement with the Securities and Exchange
Commission with respect to an exchange offer for the senior subordinated
notes and with respect to resales of the senior subordinated notes by an
affiliate of the Company for market-making purposes. The registration
statement has been declared effective by the SEC. The Company's new senior
subordinated notes are fully and unconditionally guaranteed, jointly and
severally, on a subordinated basis by Wilmar Holdings, Inc., Wilmar
Financial, Inc., and Glenwood Acquisition LLC (wholly-owned subsidiaries of
Interline). The guarantees by these subsidiary guarantors (the "Subsidiary
Guarantors") will be senior to any of their existing and future
subordinated obligations, equal in right of payment with any of their
existing and future senior subordinated indebtedness and subordinated to
any of their existing and future senior indebtedness. These guarantor
subsidiaries constitute all of the Company's direct and indirect
subsidiaries and the separate financial statements of the guarantor
subsidiaries are not presented because management determined they would be
immaterial to investors. Accordingly, condensed consolidating financial
statements for Interline Brands, Inc. and the Subsidiary Guarantors are
presented below.
9
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
As of September 24, 2004
- --------------------------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
(In thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,426 $ 68 $ -- $ 4,494
Cash-restricted 1,001 -- -- 1,001
Accounts receivable - trade, net 107,792 -- -- 107,792
Accounts receivable - other 11,497 -- -- 11,497
Inventory 137,926 -- -- 137,926
Prepaid expenses and other current assets 3,908 3 -- 3,911
Deferred income taxes 10,946 -- -- 10,946
Due from Parent -- 75,740 (75,740) --
Investment in subsidiaries 37,777 -- (37,777) --
--------- --------- ----------- -----------
Total current assets 315,273 75,811 (113,517) 277,567
PROPERTY AND EQUIPMENT, net 29,556 -- -- 29,556
GOODWILL 202,544 -- -- 202,544
OTHER INTANGIBLE ASSETS, net 86,500 -- -- 86,500
OTHER ASSETS 5,981 6,914 (3,615) 9,280
--------- --------- ----------- -----------
TOTAL ASSETS $ 639,854 $ 82,725 $ (117,132) $ 605,447
========= ========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Revolver $ 7,000 $ -- $ -- $ 7,000
Current portion of long-term debt 7,000 -- -- 7,000
Accounts payable 54,957 1 -- 54,958
Accrued expenses and other current liabilities 19,982 -- -- 19,982
Current portion of interest rate swaps 2,409 -- -- 2,409
Accrued interest payable 11,057 -- -- 11,057
Accrued merger expenses 4,323 -- -- 4,323
Income taxes payable 564 5,500 -- 6,064
Due to subsidiaries 43,183 -- (43,183) --
--------- --------- ----------- -----------
Total current liabilities 150,475 5,501 (43,183) 112,793
LONG-TERM LIABILITIES:
Deferred income taxes 26,924 -- -- 26,924
Interest rate swaps 4,185 -- -- 4,185
Long-term debt, net of current portion 326,000 3,275 -- 329,275
--------- --------- ----------- -----------
TOTAL LIABILITIES 507,584 8,776 (43,183) 473,177
--------- --------- ----------- -----------
SENIOR PREFERRED STOCK, $0.01 par value, 27,000,000
shares authorized; 23,600,014 shares issued and outstanding 420,767 -- -- 420,767
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 7,500,000 shares authorized,
5,399,736 shares issued and outstanding 1,994 -- -- 1,994
Additional paid-in-capital -- 43,285 (43,285) --
Accumulated deficit (289,568) 30,664 (30,664) (289,568)
Stockholder loans (1,575) -- -- (1,575)
Dividends -- -- -- --
Accumulated other comprehensive loss 652 -- -- 652
--------- --------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (288,497) 73,949 (73,949) (288,497)
--------- --------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 639,854 $ 82,725 $ (117,132) $ 605,447
========= ========= =========== ===========
10
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
As of December 26, 2003
- --------------------------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
(In thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,527 $ 85 $ -- $ 1,612
Cash-restricted 1,000 -- -- 1,000
Accounts receivable - trade, net 83,684 -- -- 83,684
Accounts receivable - other 12,932 -- -- 12,932
Inventory 119,301 -- -- 119,301
Prepaid expenses and other current assets 4,255 5 -- 4,260
Deferred income taxes 10,318 -- -- 10,318
Due from Parent -- 66,586 (66,586) --
Investment in subsidiaries 41,003 -- (41,003) --
--------- --------- ------------ ------------
Total current assets 274,020 66,676 (107,589) 233,107
PROPERTY AND EQUIPMENT, net 30,605 -- -- 30,605
GOODWILL 202,227 -- -- 202,227
OTHER INTANGIBLE ASSETS, net 90,632 -- -- 90,632
OTHER ASSETS 5,412 6,614 (3,315) 8,711
--------- --------- ------------ ------------
TOTAL ASSETS $ 602,896 $ 73,290 $ (110,904) $ 565,282
========= ========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,000 $ -- $ -- $ 7,000
Accounts payable 43,170 10 -- 43,180
Accrued expenses and other current liabilities 19,623 -- -- 19,623
Accrued interest payable 5,803 -- -- 5,803
Accrued merger expenses 4,739 -- -- 4,739
Income taxes payable (2,400) 2,400 -- --
Due to subsidiaries 43,299 -- (43,299) --
--------- --------- ------------ ------------
Total current liabilities 121,234 2,410 (43,299) 80,345
LONG-TERM LIABILITIES:
Deferred income taxes 22,543 -- -- 22,543
Interest rate swaps 12,793 -- -- 12,793
Long-term debt, net of current portion 331,250 3,275 -- 334,525
--------- --------- ------------ ------------
TOTAL LIABILITIES 487,820 5,685 (43,299) 450,206
--------- --------- ------------ ------------
SENIOR PREFERRED STOCK, $0.01 par value, 27,000,000
shares authorized; 23,600,014 shares issued and outstanding 379,612 -- -- 379,612
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 7,500,000 shares authorized,
5,334,546 shares issued and outstanding 1,994 -- -- 1,994
Additional paid-in-capital -- 43,285 (43,285) --
Accumulated deficit (265,548) 24,320 (24,320) (265,548)
Stockholder loans (1,545) -- -- (1,545)
Dividends -- -- -- --
Accumulated other comprehensive loss 563 -- -- 563
--------- --------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (264,536) 67,605 (67,605) (264,536)
--------- --------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 602,896 $ 73,290 $ (110,904) $ 565,282
========= ========= ============ ============
11
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 24, 2004
- ----------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands, except share and per share data)
NET SALES $ 190,400 $ -- $ -- $ 190,400
COST OF SALES 117,214 -- -- 117,214
--------- ---------- ------------ ------------
Gross profit 73,186 -- -- 73,186
OPERATING EXPENSES:
Selling, general and administrative expenses 49,720 4 -- 49,724
Depreciation and amortization 2,988 -- -- 2,988
--------- ---------- ------------ ------------
Total operating expenses 52,708 4 -- 52,712
--------- ---------- ------------ ------------
OPERATING INCOME (LOSS) 20,478 (4) -- 20,474
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS 1,503 -- -- 1,503
INTEREST EXPENSE (13,449) -- 3,180 (10,269)
INTEREST INCOME 32 3,180 (3,180) 32
OTHER INCOME 119 119 (119) 119
EQUITY IN EARNINGS OF SUSIDIARIES 2,076 -- (2,076) --
--------- ---------- ------------ ------------
Income before income taxes 10,759 3,295 (2,195) 11,859
PROVISION FOR INCOME TAXES 3,832 1,100 -- 4,932
--------- ---------- ------------ ------------
NET INCOME 6,927 2,195 (2,195) 6,927
PREFERRED STOCK DIVIDENDS (14,170) -- -- (14,170)
--------- ---------- ------------ ------------
NET (LOSS) INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ (7,243) $ 2,195 $ (2,195) $ (7,243)
========= ========== =========== ============
12
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 26, 2003
- ----------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands, except share and per share data)
NET SALES $ 166,676 $ -- $ -- $ 166,676
COST OF SALES 103,308 -- -- 103,308
--------- ---------- ------------ ------------
Gross profit 63,368 -- -- 63,368
OPERATING EXPENSES:
Selling, general and administrative expenses 43,689 4 -- 43,693
Depreciation and amortization 3,134 -- -- 3,134
Special costs and expenses 132 -- -- 132
--------- ---------- ------------ ------------
Total operating expenses 46,955 4 -- 46,959
--------- ---------- ------------ ------------
OPERATING INCOME (LOSS) 16,413 (4) -- 16,409
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS 2,201 -- -- 2,201
EARLY EXTINGUISHMENT OF DEBT -- -- --
INTEREST EXPENSE (14,006) -- 3,686 (10,320)
INTEREST INCOME 23 3,686 (3,686) 23
OTHER INCOME 54 -- -- 54
EQUITY IN EARNINGS OF SUSIDIARIES 2,482 -- (2,482) --
--------- ---------- ------------ ------------
Income before income taxes 7,167 3,682 (2,482) 8,367
PROVISION FOR INCOME TAXES 2,363 1,200 -- 3,563
--------- ---------- ------------ ------------
NET INCOME 4,804 2,482 (2,482) 4,804
PREFERRED STOCK DIVIDENDS (12,381) -- -- (12,381)
--------- ---------- ------------ ------------
NET (LOSS) INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ (7,577) $ 2,482 $ (2,482) $ (7,577)
========= ========== ============ ============
13
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended September 24, 2004
- ----------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands, except share and per share data)
NET SALES $ 548,383 $ -- $ -- $ 548,383
COST OF SALES 338,529 -- -- 338,529
--------- ---------- ------------ ------------
Gross profit 209,854 -- -- 209,854
OPERATING EXPENSES:
Selling, general and administrative expenses 148,050 12 -- 148,062
Depreciation and amortization 9,414 -- -- 9,414
--------- ---------- ------------ ------------
Total operating expenses 157,464 12 -- 157,476
--------- ---------- ------------ ------------
OPERATING INCOME (LOSS) 52,390 (12) -- 52,378
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS 6,201 -- -- 6,201
INTEREST EXPENSE (39,719) -- 9,156 (30,563)
INTEREST INCOME 65 9,156 (9,156) 65
OTHER INCOME 300 300 (300) 300
EQUITY IN EARNINGS OF SUSIDIARIES 6,044 -- (6,044) --
--------- ---------- ------------ ------------
Income before income taxes 25,281 9,444 (6,344) 28,381
PROVISION FOR INCOME TAXES 8,146 3,100 -- 11,246
--------- ---------- ------------ ------------
NET INCOME 17,135 6,344 (6,344) 17,135
PREFERRED STOCK DIVIDENDS (41,155) -- -- (41,155)
--------- ---------- ------------ ------------
NET (LOSS) INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ (24,020) $ 6,344 $ (6,344) $ (24,020)
========= ========== ============ ============
14
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended September 26, 2003
- ----------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands, except share and per share data)
NET SALES $ 481,235 $ -- $ -- $ 481,235
COST OF SALES 298,241 -- -- 298,241
--------- ---------- ------------ ------------
Gross profit 182,994 -- -- 182,994
OPERATING EXPENSES:
Selling, general and administrative expenses 126,651 27 -- 126,678
Depreciation and amortization 8,759 -- -- 8,759
Special costs and expenses 510 -- -- 510
--------- ---------- ------------ ------------
Total operating expenses 135,920 27 -- 135,947
--------- ---------- ------------ ------------
OPERATING INCOME (LOSS) 47,074 (27) -- 47,047
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS 3,284 -- -- 3,284
EARLY EXTINGUISHMENT OF DEBT (14,893) -- -- (14,893)
INTEREST EXPENSE (41,055) -- 10,909 (30,146)
INTEREST INCOME 100 10,909 (10,909) 100
OTHER INCOME 46 46 (46) 46
EQUITY IN EARNINGS OF SUSIDIARIES 7,182 -- (7,182) --
--------- ---------- ------------ ------------
Income before income taxes 1,738 10,928 (7,228) 5,438
(BENEFIT) PROVISION FOR INCOME TAXES (1,135) 3,700 -- 2,565
--------- ---------- ------------ ------------
NET INCOME 2,873 7,228 (7,228) 2,873
PREFERRED STOCK DIVIDENDS (35,905) -- -- (35,905)
--------- ---------- ------------ ------------
NET (LOSS) INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ (33,032) $ 7,228 $ (7,228) $ (33,032)
========= ========== ============ ============
15
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 24, 2004
- -------------------------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 17,135 $ 6,344 $ (6,344) $ 17,135
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,414 -- -- 9,414
Amortization of debt issuance costs 1,428 -- -- 1,428
Change in fair value of interest rate swaps (6,201) -- -- (6,201)
Interest on shareholder loans (30) -- -- (30)
Deferred income taxes 3,754 -- -- 3,754
Equity in earnings of subsidiaries (6,344) -- 6,344 --
Changes in assets and liabilities, net of effects
of acquisition:
Cash - restricted (1) -- -- (1)
Accounts receivable - trade (24,108) -- -- (24,108)
Accounts receivable - other 1,435 -- -- 1,435
Inventory (18,625) -- -- (18,625)
Prepaid expenses and other current assets 347 3 -- 350
Due from parent -- (9,156) 9,156 --
Other assets 90 (300) -- (210)
Accrued interest payable 5,254 -- -- 5,254
Accounts payable 11,786 (8) -- 11,778
Accrued expenses and other current liabilities 477 -- -- 477
Accrued merger expenses (416) -- -- (416)
Income taxes payable 2,964 3,100 -- 6,064
Due to subsidiaries 9,156 -- (9,156) --
--------- ---------- ------------ ------------
Net cash provided by (used in) operating activities 7,515 (17) -- 7,498
--------- ---------- ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (5,359) -- -- (5,359)
Purchase of business, net of assets acquired (509) -- -- (509)
--------- ---------- ------------ ------------
Net cash used in investing activities (5,868) -- -- (5,868)
--------- ---------- ------------ ------------
FINANCING ACTIVITIES:
Increase in revolver and swingline, net 7,000 -- -- 7,000
Repayment of debt (5,250) -- -- (5,250)
Payment of debt issuance and offering costs (587) -- -- (587)
--------- ---------- ------------ ------------
Net cash provided by financing activities 1,163 -- -- 1,163
--------- ---------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 89 -- -- 89
--------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,899 (17) -- 2,882
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,527 85 -- 1,612
--------- ---------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,426 $ 68 $ -- $ 4,494
======== ========== ============ ============
16
5. SUBSIDIARY GUARANTORS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 26, 2003
- -------------------------------------------------------------------------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 2,873 $ 7,228 $ (7,228) $ 2,873
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,759 -- -- 8,759
Amortization and write-off of debt issuance costs 7,855 -- -- 7,855
Accretion and write off of discount on 16% senior
subordinated notes 4,410 -- -- 4,410
Redemption premium on 16% senior subordinated notes 3,879 -- -- 3,879
Change in fair value of interest rate swaps (3,284) -- -- (3,284)
Loss on disposal of property and equipment 3 -- -- 3
Interest on shareholder loans (78) -- -- (78)
Deferred income taxes 423 -- -- 423
16% senior subordinated notes issued for interest dues 1,674 -- -- 1,674
Equity in earnings of subsidiaries (7,228) -- 7,228 --
Changes in assets and liabilities, net of effects of
acquisition:
Cash - restricted 329 -- -- 329
Accounts receivable - trade (10,375) -- -- (10,375)
Accounts receivable - other 2,590 -- -- 2,590
Inventory 12,576 -- -- 12,576
Prepaid expenses and other current assets (455) 5 -- (450)
Other assets (3) (70) -- (73)
Accrued interest payable 6,792 -- -- 6,792
Accounts payable (3,187) -- -- (3,187)
Accrued expenses and other current liabilities (1,778) -- -- (1,778)
Accrued merger expenses (1,210) -- -- (1,210)
Income taxes payable (1,200) 1,200 -- --
Due to subsidiaries (11,280) -- 11,280 --
Due from parent -- 11,280 (11,280) --
--------- ---------- ------------ ------------
Net cash provided by operating activities 12,085 19,643 -- 31,728
--------- ---------- ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,495) -- -- (3,495)
Purchase of businesses, net of cash acquired (472) (3,275) -- (3,747)
--------- ---------- ------------ ------------
Net cash used in investing activities (3,967) (3,275) -- (7,242)
--------- ---------- ------------ ------------
FINANCING ACTIVITIES:
Decrease in revolver and swingline, net (18,500) -- -- (18,500)
Repayment of long-term borrowing (317,487) -- -- (317,487)
Proceeds from refinancing transactions 340,000 -- -- 340,000
Payment of debt issuance costs (12,020) -- -- (12,020)
Dividends Paid 19,647 (19,647) -- --
Contribution from Parent (3,275) 3,275 -- --
--------- ---------- ------------ ------------
Net cash provided by (used in) financing activities 8,365 (16,372) -- (8,007)
--------- ---------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 666 -- -- 666
--------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,149 (4) -- 17,145
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,459 98 -- 5,557
--------- ---------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,608 $ 94 $ -- $ 22,702
========= ========== ============ ============
17
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS QUARTERLY
REPORT, AND OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SEC.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report contains forward-looking statements that are
subject to risks and uncertainties. You should not place undue reliance on those
statements because they are subject to numerous uncertainties and factors
relating to our operations and business environment, all of which are difficult
to predict and many of which are beyond our control. Forward-looking statements
include information concerning our possible or assumed future results of
operations, including descriptions of our business strategy. These statements
often include words such as "may," "believe," "expect," "anticipate," "intend,"
"plan," "estimate" or similar expressions. These statements are based on
assumptions that we have made in light of our experience in the industry as well
as our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the
circumstances. As you read and consider this quarterly report, you should
understand that these statements are not guarantees of performance or results.
They involve risks, uncertainties and assumptions. Although we believe that
these forward-looking statements are based on reasonable assumptions, you should
be aware that many factors could affect our actual financial results or results
of operations and could cause actual results to differ materially from those in
the forward-looking statements. These factors include:
o material facilities and systems disruptions and shutdowns,
o our ability to purchase products from suppliers on favorable terms,
o product cost and price fluctuations due to market conditions,
o failure to locate and acquire acquisition candidates,
o dependence on key employees,
o our level of debt,
o interest rate fluctuations,
o future cash flows,
o the highly competitive nature of the maintenance, repair and
operations distribution industry,
o general market conditions,
o changes in consumer preferences,
o adverse publicity and litigation, and
o labor and benefit costs and
o the other factors listed under "Risk Factors" in our Annual Report
on Form 10-K filed with the SEC.
All information contained in this quarterly report is materially
accurate as of the date of this report. New risks and uncertainties arise from
time to time, and it is impossible for us to predict these events or how they
may affect us. In light of these risks and uncertainties, you should keep in
mind that any forward-looking statement made in this quarterly report might not
occur. We assume no obligation to update any forward-looking statements after
the date of this quarterly report as a result of new information, future events
or developments, except as required by federal securities law.
OVERVIEW
We are a leading direct marketer and specialty distributor of
maintenance, repair and operations, or MRO, products, according to recent
industry publications. We sell plumbing, electrical, hardware, security
hardware, heating, ventilation and air conditioning, or HVAC, and other MRO
products. Our customer base includes multi-family housing, educational, lodging
and health care facilities, professional contractors and other distributors. Our
customers range in size from individual contractors and independent hardware
stores to large institutional real estate owners.
18
We market and sell our products primarily through eight distinct and
targeted brands. The product and service offerings of each brand are tailored to
the unique needs of the customer groups it serves. We reach our markets using a
variety of sales channels, including a direct sales force of field sales
representatives, telesales representatives, a direct mail program,
brand-specific e-commerce websites and a national accounts sales program.
On June 15, 2004, Interline Brands, Inc., a Delaware corporation
("Interline Delaware"), filed a registration statement on Form S-1 with the
Securities and Exchange Commission (File No. 333-116482) in connection with a
proposed initial public offering of shares of its common stock. Interline
Delaware filed amendments to this registration statement on August 3, 2004 and
September 27, 2004. Upon completion of certain proposed reorganization
transactions to be effected in connection with and immediately prior to the
initial public offering, Interline Delaware will be our parent corporation.
Interline Delaware intends to use the proceeds of the offering to repay a
portion of our indebtedness, make cash payments in respect of our preferred
stock, terminate our interest rate swap agreements and for other general
corporate purposes.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America,
management is required to make certain estimates, judgments and assumptions.
These estimates, judgments and assumptions affect the reported amounts of assets
and liabilities, including the disclosure of contingent assets and liabilities,
at the date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. On an ongoing basis, management evaluates
these estimates and assumptions. Management bases its estimates and assumptions
on historical experience and on various other factors that are believed to be
reasonable at the time the estimates and assumptions are made. Actual results
may differ from these estimates and assumptions under different circumstances or
conditions. Following are significant accounting policies that management
believes are the most critical in order to fully understand and evaluate our
financial position and results of operations.
ESTIMATING ALLOWANCES FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability to collect outstanding amounts from customers. The
allowances include specific amounts for those accounts that are likely to be
uncollectible, such as accounts of customers in bankruptcy and general
allowances for those accounts that management currently believes to be
collectible but later become uncollectible. Estimates are used to determine the
allowances for bad debts and are based on historical collection experience,
current economic trends, credit-worthiness of customers and changes in customer
payment trends. Adjustments to credit limits are made based upon payment history
and our customers' estimated credit-worthiness. If the financial condition of
our customers were to deteriorate, allowances may be needed which will increase
selling, general and administrative expenses and decrease accounts receivable.
At September 24, 2004, the allowance for doubtful accounts totaled $6.7 million.
INVENTORY
Inventories are valued at the lower of cost or market. All products are valued
on an average cost basis. In order to determine if an inventory provision for
excess or obsolete inventory is necessary, management reviews inventory
quantities on hand, slow movement reports and sales history reports. Management
estimates the provision based on estimated demand for products and market
conditions. If actual market conditions are less favorable than those estimated
by management and if there is a decrease in demand for certain products,
additional write-downs may be required which would increase cost of sales and
decrease inventory values. To the extent historical results are not indicative
of future results and if events occur that affect our relationships with vendors
or the salability of our products, additional write-downs may be needed that
will increase our cost of sales and decrease inventory values. This inventory
provision establishes a new cost basis for such inventory. For the period ended
September 24, 2004, the provision for excess and obsolete inventory totaled $4.1
million.
19
LONG-LIVED ASSETS
The Company periodically evaluates the period of depreciation or amortization
for long-lived assets to determine whether current circumstances warrant revised
estimates of useful lives. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value of an asset may not be recoverable. The following factors, if present, may
trigger an impairment review: (1) significant underperformance relative to
expected historical or projected future operating results; (2) significant
negative industry or economic trends; (3) a significant increase in competition;
and (4) a significant increase in interest rates on debt. Recoverability is
measured by a comparison of the carrying amount to the net undiscounted cash
flows expected to be generated by the asset. An impairment loss would be
recorded for the excess of net carrying value over the fair value of the asset
impaired. The fair value is estimated based on expected discounted future cash
flows.
Management must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of these respective assets. If these
estimates or related assumptions change in the future, we may be required to
record an impairment charge. Impairment charges would be included in corporate
general and administrative expenses in our statements of operations, and would
result in reduced carrying amounts of the related assets in our balance sheets.
INTANGIBLE ASSETS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets." SFAS 142 requires companies to cease amortizing goodwill
that existed at the time of adoption and establish a new method for testing
goodwill for impairment on an annual basis at the reporting unit level (or an
interim basis if an event occurs that might reduce the fair value of a reporting
unit below its carrying value). The Company has determined that it has one
reporting unit and an annual impairment test is performed for this reporting
unit. SFAS 142 also requires that the carrying value of an identifiable
intangible asset that has an indefinite life be determined by using a fair value
based approach.
The valuation of goodwill and intangibles with indefinite useful lives for
impairment requires management to use significant judgments and estimates
including, but not limited to, projected future revenue and cash flows. Future
cash flows can be affected by changes in industry or market conditions or the
rate and extent to which anticipated synergies or cost savings are realized with
newly acquired entities. Although no goodwill impairment has been recorded to
date, there can be no assurances that future goodwill impairments will not
occur.
LEGAL CONTINGENCIES
From time to time, in the course of our business, we become involved in legal
proceedings. In accordance with SFAS 5 "Accounting for Contingencies," if it is
probable that, as a result of a pending legal claim, an asset had been impaired
or a liability had been incurred at the date of the financial statements and the
amount of the loss is estimable, an accrual for the costs to resolve the claim
is recorded in accrued expenses in our balance sheets. Professional fees related
to legal claims are included in selling, general and administrative expenses in
our statements of operations. Management, with the assistance of counsel,
determines whether it is probable that a liability from a legal claim has been
incurred and estimates the amount of loss. The analysis is based upon potential
results, assuming a combination of litigation and settlement strategies.
Management does not believe that currently pending proceedings will have a
material adverse effect on our consolidated financial position. It is possible,
however, that future results of operations for any particular period could be
materially affected by changes in our assumptions related to these proceedings.
DERIVATIVE FINANCIAL INSTRUMENTS
We periodically enter into derivative financial instruments, including interest
rate exchange agreements, or swaps, to manage exposure to fluctuations in
interest rates on our debt. Under our current swap agreements, we pay a fixed
rate on the notional amount to a bank and the bank pays us a variable rate on
the notional amount equal to a base LIBOR rate. Our existing interest rate swaps
do not qualify for hedge accounting under SFAS 133 "Accounting for Derivative
Statements and Hedging Activities," and are recorded at fair value in our
balance sheet with changes in the fair value reflected in non-operating expense.
The fair market value of these instruments is
20
determined by quotes obtained from the related counter parties. The valuation of
these derivative instruments is a significant estimate that is largely affected
by changes in interest rates and market volatility. If interest rates
significantly increase or decrease or interest rate volatility increases or
decreases, the value of these instruments will significantly change, resulting
in an impact on our earnings.
Periodically, we perform an analysis to determine the effect on interest expense
of instantaneous and sustained parallel shifts in interest rates of plus or
minus 100 basis points over a period of twelve months. As of September 24, 2004,
this analysis reflected that a 100 basis point change in interest rates would
have resulted in a change in the fair value of the interest rate swaps of
approximately $1.3 million. While this simulation is a useful measure of our
sensitivity to changing rates, it is not a forecast of the future results and is
based on many assumptions that, if changed, could cause a different outcome. In
addition, a change in U.S. Treasury rates in the designated amounts accompanied
by a change in the shape of the Treasury yield curve would cause significantly
different changes to the fair value of these instruments.
RESULTS OF OPERATIONS
The following discussion includes references to the term daily sales.
Daily sales are defined as sales for a period of time divided by the number of
shipping days in that period of time.
THREE MONTHS ENDED SEPTEMBER 24, 2004 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 26, 2003
OVERVIEW. Continued targeted investment during the third quarter of the
year in our organic growth initiatives, improved overall market conditions and
acquisition growth associated with our November 2003 Florida Lighting
acquisition resulted in net sales growth of $23.7 million in the third quarter
of the year, a 14.2% increase over the comparable prior year period on the same
number of shipping days. Gross margins continued in excess of 38% and we
realized leverage in operating expenses on the higher sales as the operating
income margin improved to 10.8% from 9.8% for the comparable prior year period.
NET SALES. Our net sales increased by $23.7 million, or 14.2%, to
$190.4 million in the three months ended September 2004 from $166.7 million in
the three months ended September 2003. Daily sales were $3.0 million in the
three months ended September 2004 and $2.6 million in the three months ended
September 2003. The $23.7 million sales increase was attributable to $8.8
million from our Florida Lighting acquisition referenced above and the remaining
increase resulted from a combination of the new sales and growth initiatives and
improved demand for our products.
GROSS PROFIT. Gross profit increased by $9.8 million, or 15.5%, to
$73.2 million in the three months ended September 2004 from $63.4 million in the
three months ended September 2003. Gross profit margins increased to 38.4% for
the three months ended September 2004 from 38.0% for the three months ended
September 2003. The increase in gross profit percent was a result of improved
operating efficiencies at our national distribution center, higher gross margins
realized from our Florida Lighting acquisition, offset in part by a change in
product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, or SG&A expenses, increased by $6.0 million, or 13.8%,
to $49.7 million in the three months ended September 2004 from $43.7 million in
the three months ended September 2003. Increased SG&A expenses related to our
Florida Lighting acquisition accounted for $2.9 million of the $6.0 million
increase. Approximately $1.5 million of the increase was attributable to
increased investments in new marketing initiatives. In addition, certain
expenses within SG&A, such as the costs of running distribution centers,
delivery expenses and selling expenses, fluctuate with sales volume, and most of
the remaining increase in SG&A expenses related to these items. As a percentage
of sales, SG&A expenses improved slightly to 26.1% of net sales from 26.2% of
net sales as we leveraged some operating expenses over higher net sales numbers.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased by $0.1 million, or 4.7%, to $3.0 million in the three months ended
September 2004 from $3.1 million in the three months ended September 2003.
SPECIAL COSTS AND EXPENSES. There were no special costs and expenses
during the three months ended September 2004 and $0.1 million in the three
months ended September 2003. Special costs and expenses
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consisted of non-recurring costs incurred in connection with our acquisition of
Barnett Inc., the "Barnett Acquisition", in September 2000. This decrease was
due to the fact that the consolidation of the Barnett Acquisition is complete.
OPERATING INCOME. As a result of the foregoing, operating income
increased by $4.1 million, or 24.8%, to $20.5 million in the three months ended
September 2004 from $16.4 million in the three months ended September 2003.
CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS. We recorded a gain of $1.5
million in the three months ended September 2004 and $2.2 million in the three
months ended September 2003 related to changes in the market value of our
interest rate swap instruments. The non-cash gains were attributable to changes
in market conditions, including but not limited to fluctuations in interest
rates, general market volatility, and the remaining tenor of our instruments.
INTEREST EXPENSE. Interest expense was $10.3 million in the three
months ended September 2004 and September 2003. This was mostly attributable to
our total indebtedness, which remained relatively unchanged period over period.
PROVISION FOR INCOME TAXES. The provision for income taxes was $4.9
million in the three months ended September 2004 compared to $3.6 million in the
three months ended September 2003. The effective tax rate was 41.6% for the
three months ended September 2004 and 42.6% for the three months ended September
2003.
NINE MONTHS ENDED SEPTEMBER 24, 2004 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 26, 2003
OVERVIEW. Improvement in current market conditions, our organic growth
initiatives, and the success of our recent strategic acquisition of Florida
Lighting resulted in net sales growth of $67.1 million in the first nine months
of the year, a 14.0% increase over the comparable prior year period on the same
number of shipping days. During the first nine months of the year we invested
approximately $4.0 million in growth initiatives directed at increasing sales
volume in each of the three markets that we serve - the facilities maintenance,
professional contractor and distributor markets. Our organic growth initiatives
include the expansion of our national accounts program, the opening of new
contractor showrooms, product line expansion (specifically our appliance and
HVAC product lines), and geographic expansion through the addition of telesales
representatives. Strong net sales growth of 11.5% in the first quarter, 16.1% in
the second quarter and 14.2% in the third quarter has been supported by our
investment of approximately $19 million in inventory and $24 million in trade
receivables. Our continued focus on working capital during this period of strong
sales growth has allowed us to maintain our inventory and trade accounts
receivable turnover rates at appropriate levels, resulting in the minimal use of
our revolving credit facility as we use current period cash generation to fund
our growth.
NET SALES. Our net sales increased by $67.1 million, or 14.0%, to
$548.4 million in the nine months ended September 2004 from $481.2 million in
the nine months ended September 2003. Daily sales were $2.9 million in the nine
months ended September 2004 and $2.5 million in the nine months ended September
2003. The $67.1 million sales increase was attributable to $26.1 million from
our Florida Lighting acquisition referenced above and $2.7 million in
reclassified freight revenues and costs. Prior July 2003, freight revenue was
recorded as a reduction of freight costs. The remaining increase was
attributable to new sales and growth initiatives and improved demand for our
products as discussed above. During the third quarter of 2003, we reclassified
freight revenue from selling, general and administrative expenses to net sales,
in order to more properly reflect that these amounts are revenues earned for our
products provided. This reclassification did not have an effect on operating
income. However, on a prospective basis it increases both net sales and selling,
general and administrative costs and reduces our operating margin percent.
GROSS PROFIT. Gross profit increased by $26.9 million, or 14.7%, to
$209.9 million in the nine months ended September 2004 from $183.0 million in
the nine months ended September 2003. Gross profit margins increased to 38.3%
for the nine months ended September 2004 from 38.0% for the nine months ended
September 2003. After adjusting for the effect of the $2.7 million
reclassification of freight revenue, gross margin for the nine months ended
September 2004 would have been 38.0%.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
by $21.4 million, or 16.9%, to $148.1 million in the nine months ended September
2004 from $126.7 million in the nine months ended September 2003. Increased SG&A
expenses related to our Florida Lighting acquisition accounted for $8.5 million
of the $21.4 million increase, and $2.7 million of the increase was attributable
to the freight revenue reclassification previously discussed. Certain expenses
within SG&A, such as the costs of running distribution centers, delivery
expenses and selling expenses, fluctuate with sales volume, and these items
along with increased investment in new sales and marketing initiatives accounted
for the remainder of the increase.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $0.7 million, or 7.5%, to $9.4 million in the nine months ended
September 2004 from $8.8 million in the nine months ended September 2003. This
was primarily due to a change in accounting estimate made in the third quarter
of 2003 to change the estimated useful life of certain acquired customer lists
to 17 years, and the amortization associated with our Florida Lighting
acquisition.
SPECIAL COSTS AND EXPENSES. There were no special costs and expenses
during the nine months ended September 2004 and $0.5 million in the nine months
ended September 2003. Special costs and expenses consisted of non-recurring
costs incurred in connection with the Barnett Acquisition. This decrease was due
to the fact that the consolidation of the Barnett Acquisition is complete.
OPERATING INCOME. As a result of the foregoing, operating income
increased by $5.3 million, or 11.3%, to $52.4 million in the nine months ended
September 2004 from $47.0 million in the nine months ended September 2003.
CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS. We recorded a gain of $6.2
million in the nine months ended September 2004 and $3.3 million in the nine
months ended September 2003 related to changes in the market value of our
interest rate swap instruments. The non-cash gains were attributable to changes
in market conditions, including but not limited to fluctuations in interest
rates, general market volatility, and the remaining tenor of our instruments.
INTEREST EXPENSE. Interest expense increased by $0.4 million in the
nine months ended September 2004 to $30.6 million from $30.1 million in the nine
months ended September 2003. This increase was attributable to higher average
debt balances and incrementally higher interest costs associated with our entry
into a new credit facility, and our issuance of $200 million aggregate principal
amount 11.5% senior subordinated notes due 2011, or the 11.5% notes, in May 2003
as part of the Refinancing Transactions (described below in Liquidity and
Capital Resources).
PROVISION FOR INCOME TAXES. The provision for income taxes was $11.2
million in the nine months ended September 2004 compared to a provision of $2.6
million in the nine months ended September 2003. The effective tax rate for the
nine months ended September 2004 was 39.6% compared to 47.2% in the nine months
ended September 2003. The decrease in the effective tax rate was due primarily
to changes in foreign income taxes and non-deductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of September 24, 2004, we had approximately $49.0 million of
availability under our $65.0 million revolving credit facility. Historically,
our capital requirements have been for debt service obligations, strategic
acquisitions, the expansion and maintenance of our distribution network,
upgrades of our proprietary information systems software and working capital
requirements. We expect this to continue in the foreseeable future.
Historically, we have funded these requirements through internally generated
cash flow and funds borrowed under our credit facility. We expect our cash flow
from operations and the loan availability under our credit facility to be our
primary source of funds in the future. Letters of credit, which are issued under
the revolving credit facility, will be used to support payment obligations
incurred for our general corporate purposes. As of September 24, 2004, we had
$9.0 million of letters of credit issued under the credit facility. With respect
to borrowings under our credit facility, we have the option to borrow at either
LIBOR plus 3.5% or prime plus 2.75%. Interest on the credit facility is payable
quarterly, and with respect to any LIBOR borrowings, on the last day of the
interest period applicable to the term of the borrowing.
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Net cash provided by operating activities was $7.5 million in the nine
months ended September 2004 compared to $31.7 million in the comparable period
for the prior year. Net cash provided by operating activities in the nine months
ended September 2004 was lower than the prior year period as a result of our
increased investment in inventory and trade accounts receivable associated with
our sales growth. In the first nine months of the prior year period, sales were
relatively flat and we reduced our inventory investments to appropriately match
our sales trends. During the first nine months of 2004, our sales grew 14.0% and
accordingly our inventory levels increased $18.6 million in the nine months
ended September 2004 compared to a decrease of $12.6 million in the nine months
ended September 2003. The increase for the period ending September 2004 was
approximately 15.6% and was in line with our sales growth.
Net cash used in investing activities was $5.9 million in the nine
months ended September 2004 compared to $7.2 million in the nine months ended
September 2003. Net cash used in investing activities in the nine months ended
September 2004 was primarily attributable to capital expenditures made in the
ordinary course of business. For the nine months ended September 2003, cash used
in investing activities was attributable to purchases of businesses of $3.8
million and capital expenditures made in the ordinary course of business.
Net cash provided by financing activities totaled $1.2 million in the
nine months ended September 2004 compared to net cash used in financing
activities of $8.0 million in the nine months ended September 2003. Net cash
provided by financing activities in the nine months ended September 2004 was
primarily attributable to net borrowings under our revolving credit facility.
Net cash used in financing activities in the nine months ended September 2003
was attributable to the Refinancing Transactions described below.
We issued $200 million aggregate principal amount of our 11.5% notes in
May 2003 as part of the Refinancing Transactions as follows. On May 29, 2003, we
entered into a new $205 million senior secured credit facility which consists of
a $140 million term loan facility and a $65.0 million revolving loan facility.
The net proceeds from the offering of the 11.5% notes and the refinancing of our
former credit facility with a new credit facility were used to: (1) repay all
outstanding indebtedness under our former credit facility, (2) redeem all of our
outstanding 16% senior subordinated notes due 2008, (3) pay accrued interest and
related redemption premiums on our former debt and (4) pay transaction fees and
expenses related to the offering and the new credit facility. We refer to these
transactions collectively as the "Refinancing Transactions". As of September 24,
2004, our total indebtedness was $352.3 million (of which $9.0 million was
outstanding in the form of letters of credit), and our senior indebtedness was
$149.0 million. On December 19, 2003 we amended our senior credit facility such
that with respect to any term loans, the applicable rate was reduced from LIBOR
plus 4.5% to LIBOR plus 3.5% or prime plus 2.75%.
Capital expenditures were $5.4 million in the nine months ended
September 2004 compared to $3.5 million in the nine months ended September 2003.
Capital expenditures as a percentage of sales were 1.0% in the nine months ended
September 2004 and 0.7% in the nine months ended September 2003.
Our principal working capital need is for inventory and trade accounts
receivable, which have generally increased with the growth in our business. Our
principal sources of cash to fund our working capital needs are cash generated
from operating activities and borrowings under our revolving credit facility.
We believe that cash flow from operations and available borrowing
capacity under our credit facility will be adequate to finance our ongoing
operational cash flow needs and debt service obligations for the next twelve
months and over the long term.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are aware of the potentially unfavorable effects inflationary
pressures may create through higher asset replacement costs and related
depreciation, higher interest rates and higher product and material costs. We
seek to minimize the effects of inflation and changing prices through economies
of purchasing and inventory management resulting in cost reductions and
productivity improvements as well as price increases to maintain reasonable
profit margins. Management believes that inflation (which has been moderate over
the past few
24
years) did not significantly affect our operating results or markets in fiscal
2003 or the nine months ended September 2004.
The majority of our purchases from foreign-based suppliers, are from
China and other countries in Asia and are transacted in U.S. dollars.
Accordingly, we have minimal foreign currency risk related to suppliers.
Periodically, we enter into derivative financial instruments, including
interest rate exchange agreements, or swaps, to manage our exposure to
fluctuations in interest rates on our debt. Under our existing swaps, we pay a
fixed rate on the notional amount to our banks and the banks pay us a variable
rate on the notional amount equal to a base LIBOR rate. The total notional
amount of these transactions was $151.0 million at September 24, 2004. These
agreements, which mature between April and October of 2005, effectively fix the
interest at a weighted average rate of 6.56%. In the nine months ended September
24, 2004 we have recognized a non-cash gain of $6.2 million from the change in
value of our interest rate swaps. This increase in value of the interest rate
swaps is attributable to changes in market conditions including, but not limited
to, fluctuations in interest rates, general market volatility, and the remaining
tenor of our instruments.
Periodically, we perform an analysis to determine the effect on
interest expense of instantaneous and sustained parallel shifts in interest
rates of plus or minus 100 basis points over a period of twelve months. As of
September 24, 2004, this analysis reflected that a 100 basis point change in
interest rates would have resulted in a change in the fair value of the interest
rate swaps of approximately $1.3 million. While this simulation is a useful
measure of our sensitivity to changing rates, it is not a forecast of the future
results and is based on many assumptions that, if changed, could cause a
different outcome. In addition, a change in U.S. Treasury rates in the
designated amounts accompanied by a change in the shape of the Treasury yield
curve would cause significantly different changes to the fair value of these
instruments.
ITEM 4. CONTROLS AND PROCEDURES.
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer (our principal executive officer and principal
financial officer), evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of September 24, 2004. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, as of September 24, 2004, our
disclosure controls and procedures were (1) designed to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to our Chief Executive 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 be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended September 24, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved in various legal proceedings that have arisen in the
ordinary course of our business and have not been fully adjudicated. These
actions, when ultimately concluded and determined, will not, in the opinion of
management, have a material effect upon our consolidated financial position,
results of operations or liquidity.
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ITEM 5. OTHER INFORMATION
We are not required to file this Quarterly Report on Form 10-Q pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing is
required, however, pursuant to the terms of the indenture governing our 11.5%
senior subordinated notes due 2011.
ITEM 6. EXHIBITS .
EXHIBITS
The following exhibits are being filed as part of this Quarterly Report
on Form 10-Q:
31.1 Certification of Michael J. Grebe as President and Chief Executive
Officer of Interline Brands, Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Charles Blackmon as Vice President and Chief Financial
Officer of Interline Brands, Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
10.30 Employment Agreement, dated as of June 18, 2004, by and between
Interline Brands, Inc. and Charles Blackmon.
10.31 Employment Agreement, dated as of August 13, 2004, by and between
Interline Brands, Inc. and William E. Sanford. (Incorporated by
reference to the exhibit filed with the registration statement Form S-1
of Interline Brands, Inc. (a Delaware Corporation) and the amendments
thereto (File No. 333-116482)).
10.32 Employment Agreement, dated as of August 13, 2004, by and between
Interline Brands, Inc. and Michael J. Grebe. (Incorporated by reference
to the exhibit filed with the registration statement Form S-1 of
Interline Brands, Inc. (a Delaware Corporation) and the amendments
thereto (File No. 333-116482)).
10.33 Employment Agreement, dated as of September 23, 2004, by and between
Interline Brands, Inc. and William R. Pray. (Incorporated by reference
to the exhibit filed with the registration statement Form S-1 of
Interline Brands, Inc. (a Delaware Corporation) and the amendments
thereto (File No. 333-116482)).
10.34 Employment Agreement, dated as of September 27, 2004, by and between
Interline Brands, Inc. and Fred Bravo. (Incorporated by reference to
the exhibit filed with the registration statement Form S-1 of Interline
Brands, Inc. (a Delaware Corporation) and the amendments thereto (File
No. 333-116482)).
10.35 Employment Agreement, dated as of September 27, 2004, by and between
Interline Brands, Inc. and Laurence W. Howard.
10.36 Employment Agreement, dated as of September 27, 2004, by and between
Interline Brands, Inc. and Pamela L. Maxwell. (Incorporated by
reference to the exhibit filed with the registration statement Form S-1
of Interline Brands, Inc. (a Delaware Corporation) and the amendments
thereto (File No. 333-116482)).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERLINE BRANDS, INC.
BY: /s/ Charles Blackmon
------------------------------------------
Charles Blackmon
Vice President and Chief Financial Officer
(Duly Authorized Signatory and Principal
Financial Officer)
Date: November 8, 2004
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