References to "us" and "we" are to the Company. 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 and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC").

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") 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, including, without limitation, certain statements in "Results of Operations", "Liquidity and Capital Resources", and Item 3. Quantitative and Qualitative Disclosures About Market Risk. 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 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:

• general market conditions,

• product cost and price fluctuations due to inflation and currency exchange rates,

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

• adverse changes in trends in the home improvement and remodeling and home building markets,

• apartment vacancy rates and effective rents,

• governmental and educational budget constraints,

• our ability to accurately predict market trends,

• the loss of significant customers,

• health care costs,

• labor and benefit costs,

• failure to identify, acquire and successfully integrate acquisition candidates,

• our ability to purchase products from suppliers on favorable terms,

• fluctuations in the cost of commodity-based products and raw materials (such as copper) and fuel prices,

• our customers' ability to pay us,

• credit market contractions,

• failure to realize expected benefits from acquisitions,

• consumer spending and debt levels,

• material facilities and systems disruptions and shutdowns,

• the length of our supply chains,

• work stoppages or other business interruptions at transportation centers or shipping ports,

• dependence on key employees,

• changes to tariffs between the countries in which we operate,

• our ability to protect trademarks,

• adverse publicity and litigation,

• our level of debt,

• interest rate fluctuations,

• future cash flows,

• changes in governmental regulations related to our product offerings,

• weather conditions,

• changes in consumer preferences, and

• other factors described under "Part I. Item 1A-Risk Factors" in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC.

Any forward-looking statements made by us in this report, or elsewhere, speak only as of the date on which we make them. 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, any forward-looking statements made in this report or elsewhere might not occur. Notwithstanding the foregoing, all information contained in this report is materially accurate as of the date of this report.

Overview

We are a leading national distributor and direct marketer of broad-line maintenance, repair and operations ("MRO") products. We have one operating segment, the distribution of MRO products. We stock approximately 100,000 MRO products in the following categories: janitorial and sanitation ("JanSan"); plumbing; hardware, tools and fixtures; heating, ventilation and air conditioning ("HVAC"); electrical and lighting; appliances and parts; security and safety; and other miscellaneous maintenance products. Our products are primarily used for the repair, maintenance, remodeling, and refurbishment of residential properties and non-industrial facilities.

Our highly diverse customer base includes facilities maintenance customers, which consist of multi?family housing facilities, educational institutions, lodging and health care facilities, government properties and building service contractors; professional contractors who are primarily involved in the repair, remodeling and construction of residential and non-industrial facilities; and specialty distributors, including plumbing and hardware retailers. Our customers range in size from individual contractors and independent hardware stores to apartment management companies and national purchasing groups.

We market and sell our products primarily through fourteen distinct and targeted brands, each of which is recognized in the markets they serve for providing quality products at competitive prices with reliable same-day or next-day delivery. The Wilmar®, AmSan®, CleanSource®, Sexauer®, NCP®, Maintenance USA® and Trayco® brands generally serve our facilities maintenance customers; the Barnett®, Copperfield®, U.S. Lock® and SunStar® brands generally serve our professional contractor customers; and the Hardware Express®, LeranSM and AF Lighting® brands generally serve our specialty distributors customers. Our multi-brand operating model, which we believe is unique in the industry, allows us to use a single platform to deliver tailored products and services to meet the individual needs of each respective customer group served. We reach our markets using a variety of sales channels, including a sales force of approximately 665 field sales representatives, approximately 355 inside sales and customer service representatives, a direct marketing program consisting of catalogs and promotional flyers, brand?specific websites and a national accounts sales program.

We deliver our products through our network of 55 distribution centers and 23 professional contractor showrooms located throughout the United States, Canada, and Puerto Rico, 54 vendor-managed inventory locations at large customer locations and a dedicated fleet of trucks and third party carriers. Our broad distribution network enables us to provide reliable, next-day delivery service to approximately 98% of the U.S. population and same-day delivery service to most major metropolitan markets in the U.S.

Our information technology and logistics platforms support our major business functions, allowing us to market and sell our products at varying price points depending on the customer's service requirements. While we market our products under a variety of brands, generally our brands draw from the same inventory within common distribution centers and share associated employee and transportation costs. In addition, we have centralized marketing, purchasing and catalog production operations to support our brands. We believe that our information technology and logistics platforms also benefit our customers by allowing us to offer a broad product selection at highly competitive prices while maintaining the unique customer appeal of each of our targeted brands. Overall, we believe that our common operating platforms have enabled us to improve customer service, maintain lower operating costs, efficiently manage working capital and support our growth initiatives.

Recent Developments

On May 29, 2012, the Company announced that it had entered into an Agreement and Plan of Merger (as it may be amended, the "Merger Agreement"), by and among Isabelle Holding Company Inc., a Delaware corporation ("Parent", which corporation may be converted into a Delaware limited liability company prior to the closing of the Merger (as defined herein)), Isabelle Acquisition Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and the Company, providing for the merger of Merger Sub with and into the Company (the "Merger"), with the Company surviving the merger as a wholly owned subsidiary of Parent. Parent is an affiliate of GS Capital Partners VI L.P. and, at the closing of the transactions contemplated by the Merger Agreement, certain interests of Parent will be owned by one or more investment funds managed by P2 Capital Partners, LLC and certain members of Company management.
Under the Merger Agreement, stockholders of the Company will receive $25.50 in cash for each share of Company common stock. The Merger was unanimously approved by Interline's Board of Directors. The Merger is subject to the approval of Interline's stockholders as of July 26, 2012 (the "Record Date") holding a majority of the outstanding shares of the common stock entitled to vote on the matter at a special meeting that will be held on August 29, 2012. See Note 7. Transactions

included in Part I. Item 1 of this quarterly report for further information about the Merger Agreement.

Results of Operations

The following table presents information derived from the consolidated
statements of earnings expressed as a percentage of net sales for the three and
six months ended June 29, 2012 and July 1, 2011:


                                % of Net Sales              % Increase              % of Net Sales             % Increase
                                                            (Decrease)                                         (Decrease)
                              Three Months Ended               2012                Six Months Ended               2012
                        June 29, 2012      July 1, 2011    vs. 2011 (1)     June 29, 2012     July 1, 2011    vs. 2011 (1)
Net sales                  100.0  %           100.0  %          5.4  %          100.0  %         100.0  %          5.4  %
Cost of sales               63.8               63.4             6.1              63.5             63.1             6.1
Gross profit                36.2               36.6             4.2              36.5             36.9             4.2

Operating Expenses:
Selling, general and
administrative
expenses                    28.1               27.8             6.7              28.6             28.7             5.3
Depreciation and
amortization                 1.9                1.8             8.5               2.0              1.9             9.1
 Total operating
expenses                    30.0               29.6             6.8              30.6             30.6             5.5
Operating income             6.1                6.9            (6.7 )             5.9              6.4            (2.0 )

Interest expense            (1.8 )             (1.9 )          (0.6 )            (1.9 )           (2.0 )          (0.7 )
Interest and other
income                       0.1                0.1             9.9               0.2              0.1            28.3
Income before income
taxes                        4.5                5.1            (8.6 )             4.2              4.5            (1.8 )
Provision for income
taxes                        1.8                2.0            (8.9 )             1.7              1.8            (2.2 )
Net income                   2.7  %             3.1  %         (8.5 )%            2.5  %           2.7  %         (1.5 )%


___________

(1) Percent increase (decrease) represents the actual change as a percentage of the prior year's result.

Overview. During the three months ended June 29, 2012, our sales increased 5.4%, primarily reflecting the impact of continued economic improvements across our facilities maintenance and professional contractor end-markets, combined with our continued investments in our information technology, distribution network, and our sales force, which improved our competitive position and enhanced our market capabilities. Sales to customers in our facilities maintenance end-market, which made up 78% of our total sales and include residential multi-family housing and institutional customers, increased 7.2% in total, mainly as a result of improved economic conditions in these end-markets during the second quarter of 2012 compared to the second quarter of 2011. Sales to our professional contractor customers, which represented 13% of our total sales, increased 2.4% in total. Sales to our specialty distributor customers, which represented 9% of our total sales, decreased 3.7% in total. We believe we are starting to more fully realize the benefits of our efforts to strengthen our business, improve our competitive position, and enhance our market capabilities. As market conditions continue to strengthen, we expect better growth in 2012 compared to 2011.

Operating income as a percentage of net sales was 6.1% in the second quarter of 2012 compared to 6.9% in the comparable prior year period. The decrease in operating income as a percentage of sales is primarily a result of lower gross profit margins related to changes in customer and product mix as well as supplier cost pressures as compared to the prior year, higher selling, general and administrative ("SG&A") expenses as a percentage of sales, mainly driven by costs incurred associated with the Merger Agreement, and higher depreciation and amortization expense.

Net income as a percentage of net sales was 2.7% in the second quarter of 2012 compared to 3.1% in the comparable prior year period as a result of the decrease in operating income as a percentage of sales, offset slightly by lower interest expense and lower income tax expense.

Three Months Ended June 29, 2012 Compared to Three Months Ended July 1, 2011

Net Sales. Net sales increased by $17.1 million, or 5.4%, to $334.8 million in the three months ended June 29, 2012 from $317.7 million in the three months ended July 1, 2011. The increase in sales is primarily attributable to sales of $18.6 million from net

increases in comparable sales to our facilities maintenance and professional contractor customers, partially offset by a comparable sales decrease to our specialty distributor customers of $1.1 million.

Gross Profit. Gross profit increased by $4.9 million, or 4.2%, to $121.1 million in the three months ended June 29, 2012 from $116.1 million in the three months ended July 1, 2011. Our gross profit margin decreased 40 basis points to 36.2% for the three months ended June 29, 2012 compared to 36.6% for the three months ended July 1, 2011. This decrease in gross profit margin was related to changes in customer and product mix as well as supplier cost pressures as compared to the prior year.

Selling, General and Administrative Expenses. SG&A expenses increased by $5.9 million, or 6.7%, to $94.2 million in the three months ended June 29, 2012 from $88.3 million in the three months ended July 1, 2011. As a percentage of net sales, SG&A increased 30 basis points to 28.1% for the three months ended June 29, 2012 compared to 27.8% for the three months ended July 1, 2011. The increase in SG&A expenses as a percentage of sales is primarily due to costs incurred in connection with the Merger Agreement, higher labor costs as a result of the investments in sales force made during the latter part of the prior year, higher at risk compensation, and higher health care costs, offset in part by lower distribution center consolidation costs, lower delivery costs, the impact from our lower bad debt expense, and lower occupancy costs.

Depreciation and Amortization. Depreciation and amortization expense increased by $0.5 million, or 8.5%, to $6.4 million in the three months ended June 29, 2012 from $5.9 million in the three months ended July 1, 2011. As a percentage of net sales, depreciation and amortization was 1.9% and 1.8% for the three months ended June 29, 2012 and July 1, 2011, respectively. The increase in depreciation and amortization expense was due to higher depreciation resulting from our capital spending associated with our information technology infrastructure and distribution center consolidation and integration efforts that occurred during the last three years.

Operating Income. As a result of the foregoing, operating income decreased by $1.5 million, or 6.7%, to $20.5 million in the three months ended June 29, 2012 from $22.0 million in the three months ended July 1, 2011. As a percentage of net sales, operating income decreased to 6.1% in the three months ended June 29, 2012 compared to 6.9% in the three months ended July 1, 2011.

Six Months Ended June 29, 2012 Compared to Six Months Ended July 1, 2011

Net Sales. Net sales increased by $33.3 million, or 5.4%, to $648.4 million in the six months ended June 29, 2012 from $615.1 million in the six months ended July 1, 2011. The increase in sales is primarily attributable to sales of $33.5 million from net increases in comparable sales to our facilities maintenance and professional contractor customers, as well as $3.5 million associated with the NCP acquisition, partially offset by a comparable sales decrease to our specialty distributor customers of $2.9 million.

Gross Profit. Gross profit increased by $9.6 million, or 4.2%, to $236.7 million in the six months ended June 29, 2012 from $227.1 million in the six months ended July 1, 2011. Our gross profit margin decreased 40 basis points to 36.5% for the six months ended June 29, 2012 compared to 36.9% for the six months ended July 1, 2011. This decrease in gross profit margin was related to changes in customer and product mix as well as supplier cost pressures as compared to the prior year, combined with the impact from the NCP acquisition that occurred during the first quarter of the prior year.

Selling, General and Administrative Expenses. SG&A expenses increased by $9.3 million, or 5.3%, to $185.7 million in the six months ended June 29, 2012 from $176.3 million in the six months ended July 1, 2011. As a percentage of net sales, SG&A decreased 10 basis points to 28.6% for the six months ended June 29, 2012 compared to 28.7% for the six months ended July 1, 2011. The decrease in SG&A expenses as a percentage of sales is primarily due to the impact from our lower bad debt expense, lower delivery costs, lower distribution center consolidation costs, lower occupancy costs, and the incremental impact from the NCP acquisition, offset in part by costs incurred in connection with the Merger Agreement, higher labor costs as a result of the investments in sales force made during the latter part of the prior year, higher at risk compensation, and higher health care costs.

Depreciation and Amortization. Depreciation and amortization expense increased by $1.1 million, or 9.1%, to $12.7 million in the six months ended June 29, 2012 from $11.6 million in the six months ended July 1, 2011. As a percentage of net sales, depreciation and amortization was 2.0% and 1.9% for the six months ended June 29, 2012 and July 1, 2011, respectively. The increase in depreciation and amortization expense was due to higher depreciation resulting from our capital spending associated with our information technology infrastructure and distribution center consolidation and integration efforts that occurred during the last three years.

Operating Income. As a result of the foregoing, operating income decreased by $0.8 million, or 2.0%, to $38.3 million in the six months ended June 29, 2012 from $39.1 million in the six months ended July 1, 2011. As a percentage of net sales, operating

income decreased to 5.9% in the six months ended June 29, 2012 compared to 6.4% in the six months ended July 1, 2011.

Liquidity and Capital Resources

Overview

We are a holding company whose only asset is the stock of Interline New Jersey. We conduct virtually all of our business operations through Interline New Jersey. Accordingly, our only material sources of cash are dividends and distributions with respect to our ownership interests in Interline New Jersey that are derived from the earnings and cash flow generated by Interline New Jersey.

On November 16, 2010, Interline New Jersey completed a series of refinancing transactions: (1) an offering of $300.0 million of 7.00% senior subordinated notes due 2018 (the "7.00% Notes") and (2) entering into a $225.0 million asset-based revolving credit facility (the "ABL Facility"). The proceeds from the 7.00% Notes were used to redeem $137.3 million of the 8 1/8% senior subordinated notes due 2014 (the "8 1/8% Notes") and to repay the indebtedness under the prior credit facility of Interline New Jersey. The remaining $13.4 million of the 8 1/8% Notes were redeemed on January 3, 2011. The 8 1/8% Notes were redeemed at an average price of 104.256% of par.

The 7.00% Notes were priced at 100% of their principal amount of $300.0 million. The 7.00% Notes mature on November 15, 2018 and interest is payable on May 15 and November 15 of each year. Debt issuance costs capitalized in connection with the 7.00% Notes were $6.9 million.

The 7.00% Notes are generally unsecured, senior subordinated obligations of Interline New Jersey that rank equal to all of Interline New Jersey's existing and future senior subordinated indebtedness, junior to all of Interline New Jersey's existing and future senior indebtedness, including indebtedness under the ABL Facility, and senior to any of Interline New Jersey's existing and future obligations that are, by their terms, expressly subordinated in right of payment to the 7.00% Notes. The 7.00% Notes are unconditionally guaranteed, jointly and severally, on an unsecured senior subordinated basis by the Company and Interline New Jersey's existing and future domestic subsidiaries that guarantee the ABL Facility (collectively the "Guarantors"). The Guarantors have issued guarantees (each a "Guarantee" and collectively, the "Guarantees") of Interline New Jersey's obligations under the 7.00% Notes and the indenture on an unsecured senior subordinated basis. The Guarantors have issued guarantees (each a "Guarantee" and collectively, the "Guarantees") of Interline New Jersey's obligations under the 7.00% Notes and the indenture on an unsecured senior subordinated basis. Each Guarantee ranks equal in right of payment with all of the Guarantors' existing and future senior subordinated indebtedness, junior to all of the Guarantors' existing and future senior indebtedness, including guarantees of the ABL Facility, and senior to all of the Guarantors' existing and future obligations that are, by their terms, expressly subordinated in right of payment to the Guarantees. The 7.00% Notes are not guaranteed by any of Interline New Jersey's foreign subsidiaries. See Note 7. Transactions in Part I. Item 1. of this quarterly report for further information about the Consent Solicitation and the Bond Amendments.

The debt instruments of Interline New Jersey, primarily the ABL Facility and the indenture governing the terms of the 7.00% Notes, contain significant restrictions on the payment of dividends and distributions to the Company by Interline New Jersey. The ABL facility allows Interline New Jersey to pay dividends or make distributions to the Company for the purpose of funding a repurchase, redemption, or retirement of the Company's equity or declare or pay a dividend to the Company's shareholders in an aggregate amount not to exceed $25.0 million during any 12-month period, so long as there is no default and Interline New Jersey meets certain availability requirements. Only if these conditions are met and, in addition, Interline New Jersey's fixed charge coverage ratio is at least 1.20 to 1.00, then there is no cap on Interline New Jersey's ability to pay dividends or make distributions to fund a share repurchase by the Company. In addition, ordinary course distributions for overhead (up to $3.0 million annually) and taxes are permitted, as are annual payments of up to $7.5 million in respect of our stock option or other benefit plans for management or employees. The indenture for the 7.00% Notes generally restricts the ability of Interline New Jersey to pay distributions to the Company and to make advances to, or investments in, the Company to an amount equal to 50% of the net income of Interline New Jersey, plus an amount equal to the net proceeds from certain equity issuances, subject to compliance with a leverage ratio and no default having occurred and continuing. The indenture also contains certain permitted exceptions, including: (1) allowing the Company to pay our franchise taxes and other fees required to maintain our corporate existence, to pay for general corporate and overhead expenses and to pay expenses incurred in connection with certain financing, acquisition or disposition transactions, in an aggregate amount not to exceed $15.0 million per year; (2) allowing certain tax payments; and (3) allowing other distributions in an aggregate amount not to exceed the greater of $85.0 million and 8.5% of the total assets of Interline New Jersey and its restricted subsidiaries, provided there is no default. For a further description of the ABL Facility, see "Credit Facility" below.

As of June 29, 2012, we had $300.0 million of the 7.00% Notes outstanding and $212.8 million of availability under our ABL Facility, net of $7.2 million in letters of credit.

Financial Condition

Working capital increased by $25.5 million to $351.4 million as of June 29, 2012 from $325.9 million as of December 30, 2011. The increase in working capital was primarily funded by cash flows from operations.

Cash Flow

Operating Activities. Net cash provided by operating activities was $8.5 million in the six months ended June 29, 2012 compared to net cash provided by operating activities of $28.0 million in the six months ended July 1, 2011.

Net cash provided by operating activities of $8.5 million during the six months ended June 29, 2012 primarily consisted of net income of $16.5 million, adjustments for non-cash items of $16.4 million and cash used by working capital items of $24.4 million. Adjustments for non-cash items primarily consisted of $12.7 million in depreciation and amortization of property, equipment and intangible assets, $2.7 million in share-based compensation, $1.6 million in deferred income taxes, $0.7 million in amortization of debt issuance costs, and $0.6 million in provision for doubtful accounts. These amounts were partially . . .