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INTERLINE BRANDS, INC./DE - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
[October 27, 2014]

INTERLINE BRANDS, INC./DE - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.


(Edgar Glimpses Via Acquire Media NewsEdge) 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, the impact of the Merger, as defined in "Recent Developments" below, and amounts that may be paid for resolution of legal matters. 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: • our level of indebtedness, • future cash flows, • the highly competitive nature of the maintenance, repair and operations distribution industry, • general market conditions, • the impact of the current rebranding initiative, • the impact of potential future impairment charges, • apartment vacancy rates and effective rents, • governmental and educational budget constraints, • work stoppages or other business interruptions at transportation centers or shipping ports, • our ability to accurately predict market trends, • adverse publicity, • the impact of the resolution of current or future legal claims, • labor and benefit costs, • the loss of significant customers, • adverse changes in trends in the home improvement and remodeling and home building markets, • health care costs, • product cost and price fluctuations due to inflation and currency exchange rates, • inability 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, • inability to realize expected benefits from acquisitions, • consumer spending and debt levels, • interest rate fluctuations, • credit market contractions, • weather conditions and catastrophic weather events, • material facilities and systems disruptions and shutdowns, • the length of our supply chains, • dependence on key employees, 18-------------------------------------------------------------------------------- Table of Contents Forward-Looking Statements (continued) • changes to tariffs between the countries in which we operate, • our ability to protect trademarks, • changes in governmental regulations related to our product offerings, and • changes in consumer preferences.


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.

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 into the facilities maintenance end-market. We stock approximately 100,000 MRO products in the following categories: janitorial and sanitation ("JanSan"); hardware, tools and fixtures; plumbing; 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 non-industrial and residential facilities.

Our diverse facilities maintenance customer base includes institutions, such as educational, lodging, health care, and government facilities; multi-family housing, such as apartment complexes; and residential, including professional contractors, and 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 currently market and sell our products primarily through thirteen distinct and targeted brands, each of which is recognized in the facilities maintenance markets they serve for providing quality products at competitive prices with reliable same-day or next-day delivery. The AmSan®, JanPak®, CleanSource®, Sexauer®, and Trayco® brands generally serve our institutional facilities customers; the Wilmar® and Maintenance USA® brands generally serve our multi-family housing facilities customers; and the Barnett®, Copperfield®, U.S.

Lock®, Hardware Express®, LeranSM and AF Lighting® brands generally serve our residential facilities 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. During the second quarter of 2014, the Company made a strategic marketing decision to simplify our brand structure within the institutional end-market. This rebranding initiative is designed to consolidate our institutional brands under a single national brand name and increase brand awareness as a market leading institutional platform. We reach our markets using a variety of sales channels, including a field sales force of approximately 1,137 associates, which includes sales management and related associates, approximately 449 inside sales and customer service and support associates, a direct marketing program consisting of catalogs and promotional flyers, brand­specific websites, a national accounts sales program, and other supply chain programs, such as vendor managed inventory.

We deliver our products through our network of 67 distribution centers, 21 professional contractor showrooms located throughout the United States, Canada, and Puerto Rico, 75 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.

19-------------------------------------------------------------------------------- Table of Contents Recent Developments Rebranding Initiative During the second quarter of fiscal year 2014, Company management made a strategic marketing decision to rebrand certain trademark assets under one new national brand name within our institutional customer end market. Management believes the rebranding initiative will provide positive outcomes as it relates to brand recognition and market share. The rebranding is not expected to have a significant impact on operations or the quality of our product offerings.

As a result of the rebranding initiative the Company recorded non-cash charges of $67.5 million related to the impairment of certain indefinite-lived trademark assets due to a change in the expected useful life of the intangible assets. The impairment charges were determined by comparing the fair value of the trademarks, derived using discounted cash flow analyses, to the current carrying value. Prior to the impairment analysis the associated trademarks had a carrying value of $71.1 million, and after the impairment charge the associated trademarks had a remaining carrying value of $3.6 million which will be amortized over a definite life of six months.

Financing Transactions On March 17, 2014, Interline New Jersey completed the following financing transactions: • entered into a first lien term loan under which Interline New Jersey incurred a term loan in an aggregate principal amount of $350.0 million (the "Term Loan Facility"); and • amended the asset-based senior secured revolving credit facility, dated as of September 7, 2012 (the "ABL Facility"), byentering into the First Amendment to Credit Agreement to permit theincurrence of the Term Loan Facility and make other changes in connection with the refinancing (the "First ABL Facility Amendment").

The proceeds from the Term Loan Facility were used to finance the redemption of Interline New Jersey's outstanding 7.50% Notes due 2018 (the "OpCo Notes"), the repayment of a portion of amounts outstanding under the ABL Facility and the payment of related fees, costs and expenses. In connection with the redemption of the OpCo Notes, the Company recorded a loss on early extinguishment of debt in the amount of $4.2 million during the nine months ended September 26, 2014.

The loss was comprised of $18.5 million in consent solicitation, tender premium, call premium and related transaction costs less a non-cash benefit of $14.3 million associated with the write-off of the unamortized fair value premium of $17.8 million less the write-off of the unamortized deferred debt financing costs of $3.5 million.

On April 8, 2014, Interline New Jersey further amended the ABL Facility by entering into the Second Amendment to Credit Agreement to amend certain pricing terms applicable to the ABL Facility and extend the maturity date of the ABL Facility to April 8, 2019, at which date the principal amount outstanding under the ABL Facility will be due and payable in full (the "Second ABL Facility Amendment").

See "-Liquidity and Capital Resources" for further information regarding the financing transactions.

20 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table presents information derived from the consolidated statements of operations expressed as a percentage of net sales for the three and nine months ended September 26, 2014 and September 27, 2013: Three Months Ended Nine Months Ended % of Net Sales % of Net Sales September September % Increase September September % Increase 26, 2014 27, 2013 (Decrease)(1) 26, 2014 27, 2013 (Decrease)(1) Net sales 100.0% 100.0% 5.0% 100.0% 100.0% 4.3% Cost of sales 65.1 65.1 4.9 65.4 65.5 4.3 Gross profit 34.9 34.9 5.0 34.6 34.5 4.5 Operating Expenses: Selling, general and administrative expenses 25.6 30.9 (12.7) 27.1 28.7 (1.6) Depreciation and amortization 3.2 3.0 14.7 3.1 3.1 5.3 Merger related expenses - 0.1 (100.0) - 0.1 (92.0) Total operating expenses 28.9 33.9 (10.5) 30.3 32.0 (1.2) Operating income 6.0 1.0 548.8 4.3 2.6 76.3 Impairment of other intangible assets - - - (5.4) - - Loss on extinguishment of debt, net - - - (0.3) - - Interest expense (3.3) (3.7) (7.8) (3.5) (3.9) (5.6) Interest and other income 0.1 0.1 (35.0) 0.1 0.1 (44.9) Income (loss) before income taxes 2.8 (2.7) (209.9) (4.9) (1.3) 302.1 Income tax expense (benefit) 1.2 (1.0) (227.9) (1.9) (0.6) 208.1 Net income (loss) 1.6% (1.7)% (199.9)% (3.0)% (0.6)% 398.7% ____________________ (1) Percent increase (decrease) represents the actual change as a percentage of the prior year's result.

Comparison of the operating results for the three months ended September 26, 2014 to the three months ended September 27, 2013 Net Sales and Gross Profit Three Months Ended (in thousands) September 26, 2014 September 27, 2013 Net sales $ 442,445 $ 421,541 Cost of sales 288,046 274,563 Gross profit $ 154,399 $ 146,978 Net sales. Net sales increased by $20.9 million, or 5.0%, for the three months ended September 26, 2014 compared to the three months ended September 27, 2013.

Sales to our institutional facilities customers increased by $13.9 million, sales to our multi-family housing facilities customers increased by $6.4 million, and sales to our residential facilities customers increased by $1.3 million. There were 63 shipping days in both the three months ended September 26, 2014 and the three months ended September 27, 2013.

The year-over-year increase in net sales for the three months ended September 26, 2014 and September 27, 2013 primarily reflects continued economic improvements across our facilities maintenance end-market, combined with our continued investments in our sales force and our information technology. Sales to our institutional facilities customers, which comprised 50% of our total sales, increased 6.8% in total. Sales to our multi-family housing facilities customers, which comprised 31% of our total sales, increased 4.8%. Sales to our residential facilities customers, which comprised 19% of our total sales, increased 1.6%. 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. We expect these trends to continue for the remainder of 2014 as we continue our investments in our sales force and other key areas of our business.

21-------------------------------------------------------------------------------- Table of Contents Gross profit. Gross profit increased by $7.4 million, or 5.0%, for the three months ended September 26, 2014 compared to the three months ended September 27, 2013. As a percentage of sales, gross profit margin was consistent year-over-year at 34.9%.

Operating Expenses Three Months Ended (in thousands) September 26, 2014 September 27, 2013 Selling, general and administrative expenses $ 113,480 $ 130,052 Depreciation and amortization 14,369 12,531 Merger related expenses - 303 Total operating expenses $ 127,849 $ 142,886 Selling, general and administrative expenses ("SG&A"). SG&A expenses decreased by $16.6 million, or 12.7%, for the three months ended September 26, 2014 as compared to the same period in prior year. As a percentage of net sales, SG&A expenses decreased 530 basis points to 25.6% for the three months ended September 26, 2014 compared to 30.9% for the three months ended September 27, 2013. The decrease in SG&A expenses as a percentage of net sales was primarily due to $20.5 million in nonrecurring litigation-related charges recorded during the third quarter of 2013, slightly offset by additional expenses related to the continued investments in our sales force during 2014.

Depreciation and amortization. Depreciation and amortization expense increased by $1.8 million, or 14.7%, for the three months ended September 26, 2014 compared to the three months ended September 27, 2013. As a percentage of net sales, depreciation and amortization was 3.2% for the three months ended September 26, 2014 and 3.0% for the three months ended September 27, 2013. The increase was primarily driven by additional amortization of trademarks that were determined to have a definite life during the second quarter of 2014.

Merger related expenses. Merger related expenses incurred for the three months ended September 27, 2013 of $0.3 million consisted of transaction related compensation of $0.1 million and professional fees of $0.1 million all incurred as a direct result of the Merger. There were no merger related expenses incurred during the three months ended September 26, 2014.

Operating Income Three Months Ended (in thousands) September 26, 2014 September 27, 2013 Operating income $ 26,550 $ 4,092 Operating income. As a result of the foregoing, operating income changed by $22.5 million, or 548.8%, to $26.6 million for the three months ended September 26, 2014 from $4.1 million for the three months ended September 27, 2013.

Other Income (Expense) Three Months Ended (in thousands) September 26, 2014 September 27, 2013 Interest expense (14,518 ) (15,753 ) Interest and other income 291 448 Income (loss) before income taxes $ 12,323 $ (11,213 ) 22-------------------------------------------------------------------------------- Table of Contents Interest expense. Interest expense decreased $1.2 million, or 7.8%, during the three months ended September 26, 2014 as compared to the three months ended September 27, 2013. The decrease in interest expense was directly attributable to interest expense savings realized as a result of the financing transactions that occurred in the first quarter of 2014.

Income Tax Benefit and Net Income (Loss) Three Months Ended (in thousands) September 26, 2014 September 27, 2013 Income tax expense (benefit) $ 5,125 $ (4,007 ) Net income (loss) $ 7,198 $ (7,206 ) Income tax expense (benefit). Income tax expense increased $9.1 million to $5.1 million for the three months ended September 26, 2014 from an income tax benefit of $4.0 million for the three months ended September 27, 2013. The increase in income tax expense is primarily related to book income in the three months ended September 26,2014 compared to book loss in the three months ended September 27, 2013.

The effective tax rate for the three months ended September 26, 2014 and September 27, 2013 was 41.6% and 35.7%, respectively. The change in the effective tax rate during the third quarter of 2014 compared to the comparable prior year period is due to higher permanent items in in the third quarter of 2014 compared to third quarter 2013.

Net income (loss). Net income as a percentage of net sales was 1.6% for the three months ended September 26, 2014 compared to net loss of 1.7% for the same period in the prior year primarily due to nonrecurring litigation-related charges recorded during the third quarter of fiscal year 2013.

Comparison of the operating results for the nine months ended September 26, 2014 to the nine months ended September 27, 2013 Net Sales and Gross Profit Nine Months Ended (in thousands) September 26, 2014 September 27, 2013 Net sales $ 1,260,456 $ 1,208,000 Cost of sales 824,697 790,993 Gross profit $ 435,759 $ 417,007 Net sales. Net sales increased by $52.5 million, or 4.3%,for the nine months ended September 26, 2014 compared the nine months ended September 27, 2013.

Sales to our institutional facilities customers increased by $31.3 million, sales to our multi-family housing facilities customers increased by $19.0 million, and sales to our residential facilities customers increased by $3.4 million. There were 191 shipping days in both the nine months ended September 26, 2014 and the nine months ended September 27, 2013.

The year-over-year increase in net sales primarily reflects continued economic improvements across our facilities maintenance end-market, combined with our continued investments in our sales force and our information technology. Sales to our institutional facilities customers, which comprised 50% of our total sales, increased 5.2% in total. Sales to our multi-family housing facilities customers, which comprised 30% of our total sales, increased 5.2%. Sales to our residential facilities customers, which comprised 20% of our total sales, increased 1.4%. 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. We expect these trends to continue for the remainder of 2014 as we continue our investments in our sales force and other key areas of our business.

Gross profit. Gross profit increased by $18.8 million, or 4.5%, to $435.8 million for the nine months ended September 26, 2014 from $417.0 million for the nine months ended September 27, 2013. During the nine months ended September 26, 2014, gross profit margin increased 10 basis points to 34.6% from 34.5% for the same period in the prior year.

23-------------------------------------------------------------------------------- Table of Contents Operating Expenses Nine Months Ended (in thousands) September 26, 2014 September 27, 2013 Selling, general and administrative expenses $ 341,695 $ 347,288 Depreciation and amortization 39,567 37,583 Merger related expenses 102 1,275 Total operating expenses $ 381,364 $ 386,146 Selling, general and administrative expenses ("SG&A"). SG&A expenses decreased by $5.6 million, or 1.6%, for the nine months ended September 26, 2014 as compared to the nine months ended September 27, 2013. As a percentage of net sales, SG&A expenses decreased 160 basis points to 27.1% for the nine months ended September 26, 2014 compared to 28.7% for the nine months ended September 27, 2013. The decrease in SG&A expenses as a percentage of net sales was primarily due to $20.5 million in nonrecurring litigation-related charges recorded during the third quarter of 2013 and overall lower expenses across the majority of our cost structure as a percentage of net sales during the current year. These factors were slightly offset by higher payroll costs and travel and entertainment expenses related to the continued investments in our sales force during 2014.

Depreciation and amortization. Depreciation and amortization expense increased by $2.0 million, or 5.3%, during the nine months ended September 26, 2014 compared to the nine months ended September 27, 2013. The increase was primarily driven by the additional amortization of trademark assets that were determined to have a definite life during the second quarter of 2014. As a percentage of net sales, depreciation and amortization was consistent at 3.1% for the nine months ended September 26, 2014 and September 27, 2013.

Merger related expenses. Merger related expenses incurred during the nine months ended September 26, 2014 of $0.1 million were comprised of transaction related compensation incurred as a direct result of the Merger. Merger related expenses incurred for the nine months ended September 27, 2013 of $1.3 million consisted of transaction related compensation of $0.7 million, professional fees of $0.4 million, and other costs of $0.2 million, all incurred as a direct result of the Merger.

Operating Income Nine Months Ended(in thousands) September 26, 2014 September 27, 2013 Operating income $ 54,395 $ 30,861 Operating income. As a result of the foregoing, operating income increased by $23.5 million, or 76.3%, to $54.4 million for the nine months ended September 26, 2014 from $30.9 million for the nine months ended September 27, 2013.

Other Income (Expense) Nine Months Ended (in thousands) September 26, 2014 September 27, 2013 Impairment of other intangible assets $ (67,500 ) $ - Loss on extinguishment of debt, net (4,172 ) - Interest expense (44,708 ) (47,356 ) Interest and other income 688 1,249 Loss before income tax $ (61,297 ) $ (15,246 ) Impairment of other intangible assets. During the nine months ended September 26, 2014, the Company recorded non-cash charges of $67.5 million related to the impairment of certain indefinite-lived trademark assets. These impairments were primarily due 24-------------------------------------------------------------------------------- Table of Contents to a strategic marketing decision to phase out certain brand names which resulted in a change in the expected useful life of the intangible assets. The impairment charges were determined by comparing the fair value of the trademarks, derived using discounted cash flow analyses, to the current carrying value. There was no impairment charge that occurred during the same period in the prior year.

Loss on extinguishment of debt. In connection with the redemption of the OpCo Notes and the related financing transactions, we recorded a loss on extinguishment of debt, net of $4.2 million which consisted of $18.5 million in consent solicitation, tender premium, call premium and related transaction costs less a non-cash benefit of $14.3 million associated with the write-off of the unamortized fair value premium of $17.8 million and the write-off of the unamortized deferred debt financing costs of $3.5 million. There was no extinguishment of debt that occurred during the same period in the prior year.

Interest expense. Interest expense decreased $2.6 million, or 5.6%, for the nine months ended September 26, 2014 compared to the nine months ended September 27, 2013. The decrease in interest expense was directly attributable to interest expense savings realized as a result of the financing transactions that occurred in the first quarter of 2014.

Income Tax Benefit and Net Loss Nine Months Ended (in thousands) September 26, 2014 September 27, 2013 Income tax benefit $ (23,824 ) $ (7,732 ) Net loss $ (37,473 ) $ (7,514 ) Income tax benefit. Income tax benefit increased by $16.1 million year-over-year with a benefit of $23.8 million for the nine months ended September 26, 2014 compared to $7.7 million for the nine months ended September 27, 2013. The increase in income tax benefit is primarily related to the second quarter impairment charges.

The effective tax rate for the nine months ended September 26, 2014 and September 27, 2013 was 38.9% and 50.7%, respectively. The change in the effective tax rate during the nine months ended September 26, 2014 compared to the comparable prior year period is due to a refinement in the deferred state tax rates estimated during the nine months ended September 27, 2013.

Net loss. Net loss as a percentage of net sales was 3.0% for the nine months ended September 26, 2014 compared to 0.62% in the comparable prior year period due to the impairment of other intangible assets as well as the loss on extinguishment of debt as a result of the current year financing transactions, as more fully discussed in the "-Liquidity and Capital Resources" section below.

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 March 17, 2014, Interline New Jersey completed the following refinancing transactions: • entered into a first lien term loan agreement under which Interline New Jersey incurred a term loan in an aggregate principal amount of $350.0 million (the "Term Loan Facility"); and • amended the asset-based senior secured revolving credit facility, dated as of September 7, 2012 (the "ABL Facility"), byentering into the First Amendment to Credit Agreement to permit theincurrence of the Term Loan Facility and make other changes in connection with the refinancing (the "First ABL Facility Amendment").

The proceeds from the Term Loan Facility were used to finance the redemption of Interline New Jersey's outstanding 7.50% Notes due 2018 (the "OpCo Notes"), the repayment of a portion of amounts outstanding under the ABL Facility and the payment of related fees, costs and expenses. In connection with the redemption of the OpCo Notes, the Company recorded a loss on early extinguishment of debt in the amount of $4.2 million during the nine months ended September 26, 2014.

The loss was comprised of 25-------------------------------------------------------------------------------- Table of Contents $18.5 million in consent solicitation, tender premium, call premium and related transaction costs less a non-cash benefit of $14.3 million associated with the unamortized fair value premium of $17.8 million less unamortized deferred financing costs of $3.5 million.

In addition to making changes that were required in order to permit the incurrence of the Term Loan Facility and the redemption of the OpCo Notes, the First ABL Facility Amendment also made various changes to the ABL Facility that were intended to conform certain covenant baskets and related terms with those contained in the Term Loan Facility (the terms of which are disclosed below under "-Term Loan Facility"). The First ABL Facility Amendment also released the security interest previously granted by the Company to secure the ABL Facility, subject to a requirement that the Company re-pledge its assets to secure the ABL Facility in the event that the Company's 10.00% / 10.75% Senior Notes due 2018 (the "HoldCo Notes") are no longer outstanding. Accordingly, while the Company will guaranty both the Term Loan Facility and the ABL Facility, its assets will not be pledged to secure either such facility so long as the HoldCo Notes remain outstanding.

On April 8, 2014, Interline New Jersey further amended the ABL Facility by entering into the Second Amendment to Credit Agreement to amend certain pricing terms applicable to the ABL Facility and extend the maturity date of the ABL Facility to April 8, 2019 (the "Second ABL Facility Amendment").

The debt instruments of Interline New Jersey, primarily the ABL Facility and the Term Loan, contain significant restrictions on the payment of dividends and distributions to the Company by Interline New Jersey. See "-ABL Facility" and "-Term Loan Facility" for more information on the ABL Facility and the Term Loan Facility, respectively.

Interline New Jersey and the Company were in compliance with all covenants contained in the ABL Facility, the Term Loan Facility, and HoldCo Notes as of September 26, 2014.

Liquidity Historically, our capital requirements have been for debt service obligations, working capital requirements, including inventories, accounts receivable and accounts payable, acquisitions, the expansion and maintenance of our distribution network and upgrades of our information systems. We expect this to continue in the foreseeable future. Historically, we have funded these requirements through cash flow generated from operating activities and funds borrowed under our credit facility. We expect our cash on hand, cash flow from operations and availability under our ABL Facility to be our primary source of funds in the future. From time to time, based on market conditions and other factors, we may repay or refinance all or any of our existing indebtedness, including repurchasing or redeeming our bonds, or incur additional indebtedness.

Letters of credit, which are issued under our ABL Facility, are used to support payment obligations incurred for our general corporate purposes.

As of September 26, 2014, we had $183.8 million of availability under our ABL Facility, net of $10.2 million in letters of credit. We believe that cash and cash equivalents on hand, cash flow from operations and available borrowing capacity under our ABL Facility will be adequate to finance our ongoing operational cash flow needs and debt service obligations for the foreseeable future.

Financial Condition Working capital increased by $17.2 million to $320.9 million as of September 26, 2014 from $303.7 million as of December 27, 2013. The increase in working capital was primarily driven by an increase in accounts receivable-trade due to the increase in net sales, an increase in inventory levels due to build-up for normal seasonal demand, and a reduction of interest accrued on the Company's outstanding debt as a result of the early redemption of the OpCo Notes during the first quarter of 2014.

Cash Flow Operating Activities. Net cash provided by operating activities was $25.0 million and $11.1 million for the nine months ended September 26, 2014 and September 27, 2013, respectively.

Net cash provided by operating activities of $25.0 million for the nine months ended September 26, 2014 primarily consisted of a net loss of $37.5 million, non-cash adjustments of $85.2 million, and net cash used by working capital items of $22.5 million. The non-cash adjustments of $85.2 million primarily consisted of an impairment of other intangible assets of $67.5 million, $39.6 million in depreciation and amortization of property and equipment and intangible assets, $32.8 million in deferred income taxes primarily related to the impairment of intangibles, and loss on early extinguishment of debt in the amount of $4.2 million, which consisted of $18.5 million in consent solicitation, tender premium, call premium and related transaction costs less a non-cash benefit of $14.3 million associated with the write-off of the unamortized fair value premium of $17.8 million less the write-off of the unamortized deferred debt financing costs of $3.5 million. These amounts were partially offset by $0.5 million in net amortization of debt discount/ 26-------------------------------------------------------------------------------- Table of Contents premiums on the OpCo and Term Loan Facility, and $0.6 million of amortization of deferred lease incentive obligations. The net cash used by working capital items primarily consisted of $34.2 million from increased trade receivables, net of changes in provision for doubtful accounts, resulting from increased sales in the current year as compared to the prior year, $11.5 million from an increase in inventory levels due to build-up for normal seasonal demand as well as expected sales growth, a $11.5 million decrease in accrued interest due to the early redemption of the OpCo Notes. The net cash used by working capital items was partially offset by $13.1 million from increased trade payables balances as a result of the timing of purchases and related payments, $4.4 million from increased accrued expenses and other current liabilities as a result of increased accrued sales tax, freight charges and customer rebates due to increased sales, a decrease of $1.8 million in prepaid expenses and other current assets primarily related to timing of collections of rebates from our vendors, and $15.5 million from changes in income taxes due to an increase of $9.0 million in taxes payable and $6.5 million in tax refunds, net of payments.

Net cash provided by operating activities of $11.1 million for the nine months ended September 27, 2013 primarily consisted of a net loss of $7.5 million, adjustments for non-cash items of $29.9 million and net cash used by working capital items of $10.9 million. Adjustments for non-cash items primarily consisted of $37.6 million in depreciation and amortization of property and equipment and intangible assets, $3.9 million in share-based compensation, $2.8 million in amortization of debt financing costs, and $1.8 million in provisions for doubtful accounts. These amounts were partially offset by $13.0 million in deferred income taxes, $2.3 million in amortization of the fair value adjustment recorded to the OpCo Notes in connection with the Merger transactions, $0.6 million of amortization of deferred lease incentive obligations, and $0.3 million of other items. The cash used by working capital items primarily consisted of $30.4 million from increased trade receivables, net of changes in provision for doubtful accounts, resulting from increased sales compared to the prior year, $11.8 million from increased inventory levels due to increased demand, a $2.0 million decrease in accrued interest due to normal timing of accrual and payment activity, and $0.8 million in increased prepaid expenses and other current assets primarily as a result of timing of collections of rebates from our vendors. The cash used by working capital items was partially offset by $17.5 million from an increase in accrued expenses and other current liabilities as a result of the accrual of litigation-related costs, offset in part by lower payroll and incentive compensation accruals as compared to the prior year-end due to timing of payments, timing of promotional spending, and timing of other miscellaneous accrual and payment activity, $10.7 million from increased trade payables balances as a result of the timing of purchases and related payments, and $5.9 million from changes in income taxes.

Investing Activities. Net cash used in investing activities totaled $13.3 million and $14.4 million for the nine months ended September 26, 2014 and September 27, 2013, respectively. The respective cash outflows for each period relate to capital expenditures made in the ordinary course of business.

Financing Activities. Net cash used in financing activities totaled $11.5 million for the nine months ended September 26, 2014. The cash outflows primarily related to $300.0 million used to finance the redemption of the OpCo Notes, $34.0 million in net payments on the ABL Facility, payments of tender premiums and expenses related to redemption of the OpCo Notes of $18.5 million, $8.0 million of payments for debt issuance costs, and payments made on Term Loan Facility of $1.8 million. The cash outflows were partially offset by cash inflows related to proceeds from the issuance of the Term Loan Facility totaling $349.1 million and $1.4 million net increase in purchase card payables.

Net cash used in financing activities totaled $5.5 million for the nine months ended September 27, 2013. The cash outflows were attributable to $7.5 million in net payments on the ABL Facility, $0.4 million of payments on capital lease obligations and $0.2 million of payments on debt financing costs, offset in part by $1.8 million net increase in purchase card payable and $0.8 million of proceeds from the issuance of common stock.

Capital Expenditures Capital expenditures were $13.3 million during the nine months ended September 26, 2014, compared to $14.4 million for the nine months ended September 27, 2013. Capital expenditures as a percentage of net sales were 1.1% for the nine months ended September 26, 2014, and 1.2% for the nine months ended September 27, 2013. Capital expenditures during 2014 and 2013 were driven primarily by the continued consolidation of our distribution center network, including the investments in larger, more efficient distribution centers and enhancements to our information technology systems. We expect our capital expenditures during the remainder of 2014 to be comparable with our historical capital expenditures as a percentage of sales.

27-------------------------------------------------------------------------------- Table of Contents ABL Facility On September 7, 2012, Interline New Jersey entered into an asset-based senior secured revolving credit facility with a syndicate of lenders that permits revolving borrowings in an aggregate principal amount of up to $275.0 million.

The ABL Facility also provides for a sub-limit of borrowings on same-day notice referred to as swingline loans up to $30.0 million and a sub-limit for the issuance of letters of credit up to $45.0 million. Subject to certain conditions, the principal amount of the ABL Facility may be increased from time to time up to an amount which, in the aggregate for all such increases, does not exceed $100.0 million, in $25.0 million increments. There are no scheduled amortization payments due under the ABL Facility. The Second ABL Facility Amendment extended the maturity date of the ABL Facility to April 8, 2019, at which date the principal amount outstanding under the ABL Facility will be due and payable in full.

Advances under the ABL Facility are limited to the lesser of (a) the aggregate commitments under the ABL Facility and (b) the sum of the following: • 85% of the book value of eligible accounts receivable; plus • the lesser of (i) 70% of the lower of cost (net of rebates and discounts) or market value of eligible inventory; and (ii) 85% of the appraised net orderly liquidation value of eligible inventory; • minus certain reserves as may be established under the ABL Facility.

Future borrowings under the ABL Facility are subject to the Company's representation and warranty that no event, change or condition has occurred that has had, or could reasonably be expected to have, a material adverse effect on the Company (as defined in the ABL Facility).

Obligations under the ABL Facility are guaranteed by the Company and each of the wholly-owned material subsidiaries of the co-borrowers under the ABL Facility.

These obligations are primarily secured, subject to certain exceptions, by a security interest in substantially all of the assets of Interline New Jersey and each of its wholly-owned material U.S. subsidiaries. This security interest is comprised of a first-priority lien on generally all of the current assets (including accounts receivable and inventory) of Interline New Jersey and the other grantors, which assets secure the Term Loan on a second-priority basis, and a second-priority lien on generally all of the fixed assets of Interline New Jersey and the other grantors, which assets secure the Term Loan on a first-priority basis. The assets held directly by the Company will not secure the ABL Facility, except that the Company will be required to grant a security interest in these assets in the event that the HoldCo Notes are no longer outstanding.

From the date of the Second ABL Facility Amendment through the end of Interline New Jersey's first fiscal quarter after the closing date thereof, borrowings were subject to an interest rate equal to LIBOR plus 1.50% in the case of Eurodollar revolving loans, and an applicable base rate plus 0.50% in the case of Alternate Base Rate ("ABR") loans.

As of the end of the first fiscal quarter following the closing of the Second ABL Facility Amendment, the interest rates applicable to obligations under the ABL Facility will be determined as of the end of each fiscal quarter in accordance with applicable rates set forth in the table below, which interest rates are generally 0.25% lower than the rates in effect prior to the Second ABL Facility Amendment: Revolver Eurodollar Revolver ABR Spread Spread Category 1 Greater than $150.0 million 0.25% 1.25% Category 2 Greater than $75.0 million but less than or equal to $150.0 million 0.50% 1.50% Category 3 Less than or equal to $75.0 million 0.75% 1.75% The applicable rates for Category 1 will be available starting in the second fiscal quarter of 2015. The applicable rates for Category 2 and Category 3 are subject to a 0.25% step-down from the spread described above if the fixed charge coverage ratio for the period of four consecutive fiscal quarters ending on the last day of the fiscal quarter most recently ended is greater than 1.75:1.00.

This step-down is currently available for Category 3 borrowings and will be available for Category 2 borrowings during the second fiscal quarter of 2015. As of September 26, 2014, the interest rate in effect with respect to the ABL Facility was 1.69% for the Eurodollar revolving loans and 3.75% for the ABR revolving loans.

28-------------------------------------------------------------------------------- Table of Contents The Second ABL Facility Amendment also revised the terms of the commitment fee payable by Interline New Jersey in respect of unutilized commitments, which will be equal to 0.375% per annum for the ABL Facility if utilization is less than 25.0% of the aggregate commitments and 0.25% per annum if the utilization of the ABL Facility exceeds 25.0% of the aggregate commitments.

The ABL Facility requires the Company and its restricted subsidiaries, on a consolidated basis, to maintain a fixed charge coverage ratio (defined as the ratio of EBITDA, as defined in the credit agreement, to the sum of cash interest, principal payments on indebtedness and accrued income taxes, dividends or distributions and repurchases, redemptions or retirement of the equity interest of the Company) of at least 1.00:1.00 when the excess availability is less than or equal to the greater of: (i) 10% of the total commitments under the ABL Facility; and (ii) $25.0 million.

The ABL Facility also contains restrictive covenants (in each case, subject to exclusions) that limit, among other things the ability of Interline New Jersey and its restricted subsidiaries to: • create, incur, assume or suffer to exist, any liens, • create, incur, assume or permit to exist, directly or indirectly, any additional indebtedness, • consolidate, merge, amalgamate, liquidate, wind up or dissolve themselves, • convey, sell, lease, license, assign, transfer or otherwise dispose of their assets, • make certain restricted payments, • make certain investments, • amend or otherwise alter the terms of documents related to certain subordinated indebtedness, • enter into transactions with affiliates, and • prepay certain indebtedness.

The ABL Facility provides that Interline New Jersey and its restricted subsidiaries may incur secured or unsecured indebtedness so long as (i) in the event that the proceeds thereof are used to redeem HoldCo Notes, the pro forma interest coverage ratio of Interline New Jersey and its restricted subsidiaries is at least 2.00:1.00 or (ii) in the event the proceeds thereof are used for another purpose, (A) if such indebtedness is secured on a second-lien or other junior basis or is unsecured, the pro forma total leverage ratio of Interline New Jersey and its restricted subsidiaries is less than or equal to 6.50:1.00 or (B) if such indebtedness is secured on a first-lien basis, the pro forma ratio of (x) consolidated first lien indebtedness of Interline New Jersey and its restricted subsidiaries and (y) consolidated EBITDA of Interline New Jersey and its restricted subsidiaries (such ratio, the "First Lien Leverage Ratio") is less than or equal to 3.75:1.00.

The ABL Facility contains certain customary representations and warranties, affirmative and other covenants and events of default, including, among other things, payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness bankruptcy, certain events under the Employee Retirement Income Security Act ("ERISA"), judgment defaults, actual or asserted failure of any material guaranty or security document supporting the ABL Facility to be in force and effect and a change of control.

If such an event of default occurs the agent under the ABL Facility is entitled to take various actions, including the acceleration of amounts due under the ABL Facility, the termination of all revolver commitments and all other actions that a secured creditor is permitted to take following a default.

Term Loan Facility On March 17, 2014, Interline New Jersey entered into a first lien term loan agreement under which Interline New Jersey incurred a term loan in an aggregate principal amount of $350.0 million. The initial aggregate principal amount of the Term Loan is equal to $350.0 million. The Term Loan Facility allows for incremental increases in an aggregate principal amount of up to (i) $100.0 million plus (ii) the amount as of the date of incurrence that would not cause the First Lien Leverage Ratio to exceed 3.75:1.00. The Term Loan Facility will mature on the earlier of (A) March 17, 2021 and (B) the date which is 91 days prior to the maturity date of the HoldCo Notes.

Obligations under the Term Loan Facility are guaranteed by the Company and each of the wholly-owned material U.S. subsidiaries of Interline New Jersey. These obligations are primarily secured, subject to certain exceptions, by a security interest in substantially all of the assets of Interline New Jersey and each of its wholly-owned material U.S. subsidiaries. This security interest is comprised of a first-priority lien on generally all of the fixed assets of Interline New Jersey and the other grantors, which assets secure the ABL Facility on a second-priority basis, and a second-priority lien on generally all of the current assets (including accounts receivable and inventory) of Interline New Jersey and the other grantors, which assets secure the ABL Facility on a first-priority basis. The assets held directly by the Company will not secure the Term Loan Facility, except that the Company will be required to grant a security interest in these assets in the event that the HoldCo Notes are no longer outstanding.

29-------------------------------------------------------------------------------- Table of Contents The Term Loan Facility will bear interest, at the borrower's option, at (i) LIBOR subject to a minimum floor of 1.0%, plus 300 basis points ("LIBO Rate") or (ii) an ABR subject to a minimum floor of 2.0%, plus 200 basis points. In addition, at the closing of the Term Loan Facility, Interline New Jersey paid (in addition to customary fees) an upfront fee equal to 0.25% of the principal amount thereof. As of September 26, 2014, the interest rate in effect with respect to the Term Loan Facility was 4.00% for LIBO Rate borrowings and 5.25% for ABR borrowings.

Under the Term Loan Facility, Interline New Jersey may voluntarily prepay principal at any time and from time to time without penalty or premium, other than a 1.0% premium during the first six months following the closing date for re-pricing transactions only. The Term Loan Facility is due and payable in quarterly installments equal to 0.25% of the original principal amount, with the balance payable in one final installment at the maturity date. Additional provisions include the requirement to repay the Term Loan Facility with certain asset sale and insurance proceeds, certain debt proceeds and 50% of excess cash flow (reducing to 25% if the First Lien Leverage Ratio is no more than 3.00:1.00 and 0% if the First Lien Leverage Ratio is no more than 2.75:1.00).

The Term Loan Facility does not include any financial covenants; however, it does contain certain restrictive covenants (in each case, subject to exclusions) that limit, among other things, the ability of Interline and the restricted subsidiaries to: • create, incur, assume or suffer to exist, any liens, • create, incur, assume or permit to exist, directly or indirectly, any additional indebtedness, • consolidate, merge, amalgamate, liquidate, wind up or dissolve themselves, • convey, sell, lease, license, assign, transfer or otherwise dispose of their assets, • make certain restricted payments, • make certain investments, • amend or otherwise alter the terms of documents related to certain subordinated indebtedness, • enter into transactions with affiliates, and • prepay certain indebtedness.

The covenants are subject to various baskets and materiality thresholds, with certain of the baskets to the restrictions on the repayment of subordinated indebtedness, restricted payments and investments being available only when the pro forma interest coverage ratio of Interline New Jersey and its restricted subsidiaries is at least 2.00:1.00.

The Term Loan Facility provides that Interline New Jersey and its restricted subsidiaries may incur secured or unsecured indebtedness so long as (i) (A) in the event that the proceeds thereof are used to redeem HoldCo Notes, the pro forma interest coverage ratio of Interline New Jersey and its restricted subsidiaries is at least 2.00:1.00 or (B) in the event the proceeds thereof are used for another purpose, the pro forma total leverage ratio of Interline New Jersey and its restricted subsidiaries is less than or equal to 6.50:1.00 and (ii) in the event any of such indebtedness is secured on a first-lien basis, the First Lien Leverage Ratio is less than or equal to 3.75:1.00.

The Term Loan Facility contains certain customary representations and warranties, affirmative covenants and events of default, including, among other things, payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness (subject to certain restrictions on cross-defaults to the financial covenant contained in the ABL Facility), certain events of bankruptcy, certain events under ERISA, judgment defaults, actual or asserted failure of any material guaranty or security documents supporting the Term Loan Facility to be in full force and effect and change of control. If such an event of default occurs, the Agent under the Term Loan Facility is entitled to take various actions, including the acceleration of amounts due and all other actions that a secured creditor is permitted to take following a default.

HoldCo Notes In connection with the Merger, Interline Delaware issued $365.0 million in aggregate principal amount of the HoldCo Notes due November 15, 2018. Debt financing costs capitalized in connection with the HoldCo Notes were $16.7 million.

The HoldCo Notes are the Company's general senior unsecured obligations; rank pari passu in right of payment with all existing and future indebtedness of the Company, other than subordinated obligations; are senior in right of payment to any future subordinated obligations of the Company; are not guaranteed by any subsidiary of the Company; are effectively subordinated to any existing or future obligations of the Company that are secured by liens on assets of the Company (including the Company's guarantee of the ABL Facility, which is secured by a pledge of the stock of Interline New Jersey) to the extent of the value of such assets, unless the HoldCo Notes are equally and ratably secured by such assets; are structurally subordinated to all existing and future indebtedness (including the OpCo Notes and indebtedness under the ABL Facility) of, and other claims and obligations (including preferred stock) 30-------------------------------------------------------------------------------- Table of Contents of, the subsidiaries of the Company, except to the extent a subsidiary of the Company executes a guaranty agreement in the future. The HoldCo Notes are not guaranteed by any of the Company's subsidiaries.

The HoldCo Notes bear interest at a rate of 10.00% per annum with respect to cash interest and 10.75% per annum with respect to any paid-in-kind ("PIK") interest, payable semi-annually on January 15 and July 15. The Company is required to pay interest on the HoldCo Notes in cash, unless its subsidiaries are restricted from dividending money to it (or have limited ability to do so), subject to certain circumstances.

The Company has the option to redeem the HoldCo Notes prior to November 15, 2014 at a redemption price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest to the date of redemption. At any time on or after November 15, 2014, the Company may redeem some or all of the HoldCo Notes at certain fixed redemption prices expressed as percentages of the principal amount, plus accrued and unpaid interest. At any time prior to November 15, 2014, the Company may, from time to time, redeem up to 35% of the aggregate principal amount of the HoldCo Notes with any funds up to an aggregate amount equal to the net cash proceeds received by the Company from certain equity offerings at a price equal to 110.00% of the principal amount of the HoldCo Notes redeemed, plus accrued and unpaid interest and additional interest, if any, to the redemption date, provided that the redemption occurs within 90 days of the closing date of such equity offering, and at least 65% of the aggregate principal amount of the HoldCo Notes remain outstanding immediately thereafter.

The Indenture governing the HoldCo Notes contains covenants limiting, among other things, the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, create or incur certain liens on assets, pay dividends and make other restricted payments, create restriction on dividend and other payments to the Company from certain of its subsidiaries, sell assets and subsidiary stock, engage in transactions with affiliates, consolidate, merge or transfer all or substantially all of the Company's assets and the assets of its subsidiaries and create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications.

The holders of the HoldCo Notes have the right to require us to repurchase their notes upon certain change of control events.

Critical Accounting Policies In preparing the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S.

GAAP"), we are 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, we evaluate these estimates and assumptions. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable at the time we make the estimates and assumptions. Actual results may differ from these estimates and assumptions under different circumstances or conditions.

Our critical accounting policies are included in our Annual Report on Form 10-K for the year ended December 27, 2013 filed with the SEC. During the nine months ended September 26, 2014, there were no significant changes to any of our critical accounting policies other than as set forth below.

Goodwill, Intangibles and Other Long-Lived Assets Management assesses the recoverability and performs impairment tests of goodwill, intangible and other long-lived assets in accordance with accounting principles generally accepted in the United States. Management assesses the recoverability of goodwill and indefinite-lived intangible assets at least annually, or more frequently if events or circumstances indicate that an asset may be impaired. For certain other long-lived assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value 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) a significant adverse change in the extent or manner in which an assets is being used; (3) significant negative industry or economic trends; (4) a significant increase in competition; and (5) a significant increase in interest rates on debt. If the recoverability of these assets is unlikely because of the existence of one or more of the above-mentioned factors, an impairment analysis is performed by comparing the estimated fair value, calculated in accordance with ASC 820, Fair Value Measurements and Disclosures, to the carrying value. Management's assessment of the recoverability and impairment tests of intangible assets involve critical accounting estimates. These estimates require significant management judgment. Factors that management must estimate include, among others the economic life of the asset, estimated future cash flows, assumed royalty rates and other factors. The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus our accounting estimates may change from period to period and may result in future 31-------------------------------------------------------------------------------- Table of Contents impairment charges. The Company records impairment charges in the statements of operations, and any impairment charge would result in reduced carrying amounts of the related assets on the balance sheet.

During the second quarter of fiscal year 2014, the Company recorded non-cash charges of $67.5 million related to the impairment of certain indefinite-lived trademark assets. These impairments were primarily due to a strategic marketing decision to phase out certain brand names which resulted in a change in the expected useful life of the intangible assets. The charges were determined using a discounted cash flow analysis based on the income approach, relief from royalty method, which requires assumptions related to projected revenues from annual forecasted plans, assumed royalty rates that could be payable if we did not own the trademarks, and an estimated discount rate. Prior to the impairment analysis the associated trademarks had a carrying value of $71.1 million, and after the impairment charge the associated trademarks had a remaining carrying value of $3.6 million which will be amortized over a definite life of six months. Management has evaluated whether other triggering events have occurred, noting no other events that would cause impairment of the other trademark assets or any other long-lived assets including goodwill.

Recently Issued Accounting Guidance In March 2013, the FASB issued ASU No. 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-05"). The amendments contained within this guidance clarify the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter, with early adoption permitted. The amendments should be applied prospectively to derecognition events occurring after the effective date, and prior periods should not be adjusted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.

In May 2014, FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance ("ASU 2014-09"). The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.

Early application is not permitted. The company is currently assessing the impact that this standard will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No.2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, "Compensation - Stock Compensation" ("ASC 718"), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. This ASU is not expected to have a material impact on the Company's consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40)-Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance to U.S. GAAP about management's responsibility to evaluate whether there is a substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management's plan, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for annual periods beginning after December 15, 2016 and interim periods within those reporting periods. Earlier adoption is permitted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.

32-------------------------------------------------------------------------------- Table of Contents Other accounting standards that have been recently issued by the FASB are not expected to have a material impact on the Company's consolidated financial statements.

Recently Adopted Accounting Guidance In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405) - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date ("ASU 2013-04"). The objective of the amendments in this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing U.S. GAAP. Examples of obligations within the scope of this ASU include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement amount its co-obligors, plus any additional amount the entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligations as well as other information about those obligations.

The amendments in ASU 2013-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be retrospectively applied to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU's scope that exist at the beginning of an entity's fiscal year of adoption. An entity may elect to use hindsight for the comparative periods, and should disclose that fact. Early adoption was permitted. Effective December 28, 2013, the Company adopted this ASU, which did not have a material impact on the Company's consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The objective of this ASU is to eliminate the diversity in practice on how entities present unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 will require entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset (with certain exceptions) for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The amendments should be applied prospectively, although retrospective application was permitted. Effective December 28, 2013, the Company adopted this ASU, which did not have a material impact on the Company's consolidated financial statements.

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