<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
Commission File No. 0-22989
WHITE CAP INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1380403
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3120 Airway Avenue
Costa Mesa, California 92626
(Address of principal executive offices)
(714) 850-0900
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at 7/1/98
----- ---------------------
<S> <C>
Common Stock, $.01 Par Value 10,647,917
</TABLE>
<PAGE> 2
WHITE CAP INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Financial Statements.................................3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended
June 30, 1997 and June 27, 1998.............................................3
Condensed Consolidated Balance Sheets at March 31, 1998
and June 27, 1998 (Unaudited)...............................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended June 30, 1997 and June 27, 1998..................5
Notes to Condensed Consolidated Financial Statements (Unaudited)............7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................9
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings..........................................................13
ITEM 2 Changes in Securities......................................................13
ITEM 3 Defaults upon Senior Securities............................................13
ITEM 4 Submission of Matters to a Vote of Security Holders........................13
ITEM 5 Other Information..........................................................13
ITEM 6 Exhibits and Reports on Form 8-K...........................................13
SIGNATURES ...........................................................................14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
WHITE CAP INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 30, June 27,
1997 1998
------- -------
(unaudited)
<S> <C> <C>
Net sales $37,311 $68,637
Cost of sales 25,848 46,563
------- -------
Gross profit 11,463 22,074
Selling, general & administrative 9,423 16,882
------- -------
Income from operations 2,040 5,192
Interest expense, net 1,319 881
------- -------
Income before income taxes 721 4,311
Income tax provision 318 1,707
------- -------
Net income $ 403 $ 2,604
======= =======
Basic income per share:
Income per share $ 0.23 $ 0.25
Basic weighted average shares outstanding 1,089 10,601
Diluted income per share:
Income per share $ 0.04 $ 0.23
Diluted weighted average shares outstanding 6,781 11,112
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
-3-
<PAGE> 4
WHITE CAP INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
March 31, June 27,
1998 1998
--------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,720 $ 1,851
Accounts receivable, net of allowance for doubtful accounts of $1,097
and $1,336 at March 31, 1998 and June 27, 1998, respectively 30,631 44,045
Inventories 33,729 40,558
Prepaid expenses and other 390 664
Deferred income taxes 3,122 2,943
--------- ---------
69,592 90,061
--------- ---------
PROPERTY AND EQUIPMENT, net 13,806 15,324
INTANGIBLE ASSETS, net 34,667 58,262
OTHER ASSETS 215 273
--------- ---------
$ 118,280 $ 163,920
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 526 $ 639
Accounts payable 27,783 34,925
Accrued liabilities 6,657 8,319
--------- ---------
34,966 43,883
--------- ---------
LONG-TERM DEBT, net of current portion 17,080 48,773
--------- ---------
DEFERRED INCOME TAXES 180 220
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series B Convertible Preferred Stock, $.10 par value:
Designated - 1,000,000 shares; issued and outstanding -
60,000 at March 31, 1998 and June 27, 1998, respectively 6 6
Common Stock, $.01 par value:
Authorized - 20,000,000 shares; issued and outstanding -
10,383,341 at March 31, 1998 and 10,647,917 at June 27, 1998 100 101
Additional paid-in capital 74,763 77,148
Accumulated deficit (8,815) (6,211)
--------- ---------
66,054 71,044
--------- ---------
$ 118,280 $ 163,920
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE> 5
WHITE CAP INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 30, June 27,
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 403 $ 2,604
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 687 1,033
Gain on disposition of property and equipment (1) (6)
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable (3,437) (8,173)
Decrease (increase) in inventories 2,674 (2,522)
Increase in prepaid expenses and other (75) (853)
(Increase) decrease in deferred tax asset (9) 179
Increase in accounts payable 2,606 4,664
(Decrease) increase in accrued expenses (406) 318
(Decrease) increase in deferred tax liability (11) 40
-------- --------
Net cash provided by (used in) operating activities 2,431 (2,716)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (653) (1,335)
Proceeds from sale of property and equipment 10 10
Acquisitions of businesses, net of $206 and $875 in cash acquired, respectively (19,744) (27,596)
-------- --------
Net cash used in investing activities (20,387) (28,921)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under line of credit agreement 14,197 31,500
Principal payments on notes payable (14,173) (173)
Proceeds received from notes payable 20,739 384
Preferred dividends paid (150) --
Preferred stock sold and repurchased 6 --
Common stock issued 5 57
-------- --------
Net cash provided by financing activities 20,624 31,768
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,668 131
CASH AND CASH EQUIVALENTS, beginning of period 214 1,720
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,882 $ 1,851
======== ========
</TABLE>
(continued on next page)
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<PAGE> 6
WHITE CAP INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (cont.)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 30, June 27,
1997 1998
-------- --------
(unaudited)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 1,290 $ 159
======== ========
Income taxes $ 100 $ --
======== ========
DETAILS OF ACQUISITIONS:
Fair value of assets $ 23,385 $ 34,892
Liabilities assumed (3,435) (4,093)
-------- --------
Acquisitions price 19,950 30,799
Less cash acquired (206) (875)
Less common stock issued for acquisition -- (2,328)
-------- --------
Net cash paid for acquisitions $ 19,744 $ 27,596
======== ========
NON CASH FINANCING ACTIVITIES:
Common stock issued for acquisition $ -- $ 2,328
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 7
WHITE CAP INDUSTRIES, INC.
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements presented herein are unaudited.
Accordingly, information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been either
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Although the registrant believes that all adjustments
necessary for a fair presentation have been made, interim period results are not
necessarily indicative of the results of operations for a full year. As such,
these financial statements should be read in conjunction with the financial
statements and notes thereto included in the most recent Form 10-K which was
filed for the year ended March 31, 1998.
2. RECENT ACQUISITIONS:
During 1997 and 1998, the Company acquired the following businesses:
<TABLE>
<CAPTION>
BUSINESS ACQUIRED DATE ACQUIRED
----------------- -------------
<S> <C>
A-Y Supply January 1, 1997
Stop Supply May 1, 1997
Viking Distributing June 25, 1997
Burke Concrete Associates L.P. November 1, 1997
JEF Supply February 1, 1997
Sierra Supply April 1, 1998
CCS April 1, 1998
Charles R. Watts Co. May 1, 1998
Nyco May 1, 1998
</TABLE>
The acquisitions described above were accounted for as purchases and the
purchase prices were allocated based on management's estimate of the fair value
of the assets acquired and liabilities assumed with respect to each acquisition
at the dates of acquisition.
Had the acquisitions occurred at the beginning of the current and prior fiscal
years, the unaudited and pro forma net sales, net income, diluted net income per
share and diluted weighted average number of common shares outstanding would be
as follows (in thousands except net income per share data):
<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 30, June 27,
1997 1998
------- -------
<S> <C> <C>
Net Sales $64,926 $73,274
Net Income $ 840 $ 2,630
Diluted net income per share $ 0.12 $ 0.24
Diluted weighted average shares outstanding 6,781 11,112
</TABLE>
3. INCOME TAXES:
The company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109. The statement
requires an asset and liability approach for financial accounting and reporting
of income taxes. Deferred taxes are determined based on the estimated future tax
effects of differences between the financial and tax basis of assets and
liabilities given the provisions of the enacted tax laws.
-7-
<PAGE> 8
4. PUBLIC OFFERING:
In October, 1997 the Company completed its initial public offering of 4.3
million shares of common stock with net proceeds of approximately $71.4 million.
The net proceeds were used to retire all outstanding bank and subordinated
interest bearing indebtedness and associated prepayment penalties, redeem
Redeemable Preferred Stock and pay preferred stock dividends.
Immediately prior to the consummation of the offering, the Company effected a
1.74 for 1 stock split of the common stock, which has been retroactively
reflected for all periods presented.
5. SUBSEQUENT AND POTENTIAL ACQUISITIONS:
On June 19, 1998, the Company announced that it has entered into a merger
agreement to acquire Junior's Tools ("Junior's"). Junior's, located in Santa
Ana, California, has 12 branches and specializes in a full line of specialty
tools and equipment. Junior's generated $24.3 million in revenue for its fiscal
year ended November 1, 1997. White Cap expects to close the acquisition of
Junior's in September 1998.
On August 3, 1998, the Company announced that it had discontinued negotiations
regarding the acquisition of Valley Construction Supply.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis of the Company's results of operations and
financial condition should be read in conjunction with the Company's unaudited
condensed consolidated financial statements and the notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997
Net Sales Net sales for the three months ended June 27, 1998 ("first quarter
1998") increased $31.3 million, or 84%, to $68.6 million compared to $37.3
million for the three months ended June 30, 1997 ("first quarter 1997"). The
growth in net sales compared to the prior year was the result of a 13% increase
in same store sales, the expansion of product lines and the acquisitions of
Stop, Viking, Burke, JEF, Sierra, CCS, Watts and Nyco.
Gross Profit Gross profit for the first quarter 1998 increased $10.6 million, or
93%, to $22.1 million compared to $11.5 million for the first quarter 1997. The
increase in gross profit was the result of increased net sales and higher gross
profit margins. The gross profit margin for the first quarter of 1998 was 32.2%
compared to 30.7% for the first quarter of 1997. The higher gross profit margin
over the prior year is primarily due to an increase in rental business, and a
change in product mix.
Selling, General and Administrative Expense Selling, general and administrative
expense ("SG&A") increased $7.5 million or 79%, to $16.9 million for the first
quarter 1998 compared to $9.4 million for the first quarter 1997. As a percent
of sales, SG&A was 24.6% for the first quarter 1998 compared to 25.3% for the
first quarter 1997.
Selling expenses increased $6.4 million, or 88%, to $13.7 million for the first
quarter 1998 from $7.3 million for the first quarter 1997. The increase is due
to increased advertising and commissions to the outside sales force due to the
sales growth, and increased costs of customer service, principally the addition
of branch personnel. Selling expenses as a percent of net sales for the first
quarter 1998 were 20.0% compared to 19.6% for the first quarter 1997.
General, administrative and distribution center expenses increased $1.1 million,
or 52%, to $3.2 million for the first quarter 1998 from $2.1 million for the
first quarter 1997. The increase in general and administrative expenses is
primarily due to increased distribution and administration costs to process the
increased sales volume. General, administrative and distribution center expenses
as a percentage of net sales for the first quarter 1998 were 4.7%, as compared
to 5.6% for the first quarter 1997. Exclusive of the effects of goodwill and
covenant not to compete amortization of $0.4 million in the first quarter 1998
and $0.1 million in the first quarter 1997, general and administrative expenses
increased 40%.
Income from Operations Income from operations for the first quarter 1998
increased $3.2 million, or 155%, to $5.2 million compared to $2.0 million for
the first quarter 1997. The increase in operating margin for the first quarter
1998 compared to the first quarter 1997 was primarily the result of the increase
in gross profit margins and the reduction in SG&A as a percentage of sales. The
operating margin was 7.6% for the first quarter 1998 compared to 5.5% for the
first quarter 1997.
Interest Expense, net Interest expense, net of interest income, decreased $0.4
million, or 33%, to $0.9 million in the first quarter 1998 from $1.3 million for
the first quarter 1997. This decrease was due to a reduction of outstanding debt
as a result of the Company's initial public offering.
Net Income Net income for the first quarter 1998 was $2.6 million versus net
income of $0.4 million for the first quarter 1997. This increase reflects the
cumulative effects of the increase in gross profit and the decrease in interest
expense offset, in part, by the increase in SG&A expenses.
-9-
<PAGE> 10
FINANCIAL CONDITION
Working Capital: During the first quarter 1998, operating working capital
increased $11.5 million. The change in operating working capital was primarily
the result of increases in accounts receivable of $13.4 million, inventories of
$6.8 million, and prepaid expenses of $0.3 million, which were partially offset
by a $0.2 million decrease in deferred taxes and increases in accounts payable
of $7.1 million and accrued liabilities of $1.7 million. The change in operating
working capital excludes changes in cash and cash equivalents and current
maturities of long-term debt.
Cash Flow: For the quarter ended June 27, 1998, the Company used approximately
$2.7 million of net cash from operating activities. Net cash used in investing
activities was $28.9 million, including $27.6 million used for acquisitions and
$1.3 million used for additions to property and equipment. Financing activities
during the first quarter of 1998 provided net cash of $31.8 million, including
$31.5 million borrowed under the Credit Agreement.
Liquidity and Capital Resources: At June 27, 1998, the Company had cash of $1.9
million and working capital of $46.2 million. The Company's capitalization,
defined as the sum of long-term debt and stockholders' equity, at June 27, 1998,
was approximately $120 million.
The Company's primary capital needs have been for acquisitions and to fund the
working capital requirements necessitated by its sales growth, acquisitions,
facilities and product line expansions. The Company's primary sources of
financing have been cash from operations, bank borrowings under the Company's
revolving and term credit facility (the "Credit Facility"), senior and
subordinated debt, the sale of preferred equity, and a portion of the proceeds
from the initial public offering.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Credit Facility will be sufficient
to meet the Company's liquidity requirements for its operations through the
remainder of the fiscal year ended March 27, 1999. However, the Company is
currently, and intends to continue, pursuing additional acquisitions, which are
expected to be funded through a combination of cash and common stock. There can
be no assurances that additional sources of financing will not be required
during the next twelve months or thereafter to fund the Company's acquisition
program.
The Company's business is subject to seasonal influences. The Company's
historical revenues and profitability have been lower in the second two quarters
of its fiscal year. As the Company's mix of businesses evolves through future
acquisitions, those seasonal fluctuations may change. In addition, quarterly
results also may be materially affected by the timing of acquisitions, the
timing and magnitude of costs related to such acquisitions, variations in the
prices paid by the Company for the products it sells, the mix of products sold,
and general economic conditions. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
In October, 1997 the Company completed its initial public offering of 4.3
million shares of common stock with net proceeds of approximately $71.4 million.
The net proceeds were used to retire all outstanding bank and subordinated
interest bearing indebtedness and associated prepayment penalties, Convertible
Preferred Stock, Redeemable Preferred Stock and related accrued dividends.
In October, 1997 the Company entered into a Credit Agreement with available
borrowings of up to $100 million (including a $75 million delayed draw term
facility for acquisitions and a $25 million revolving credit facility). Interest
on the amounts borrowed may be paid at the option of the Company at a rate per
annum equal to the lead bank's prime or reference rate or LIBOR rate plus
margins, in each case based upon the Company's ratio of total debt to operating
cash flow. The Credit Agreement contains certain restrictive covenants limiting
mergers, use of proceeds, indebtedness, liens, investments, sale of assets and
acquisitions. The Credit Agreement also contains financial covenants which
require the Company to maintain a minimum net worth, leverage ratio, fixed
charge coverage ratio and asset coverage ratio. At June 27, 1998, the Company
had approximately $54 million available under the aforementioned facilities.
-10-
<PAGE> 11
During the quarter ended June 27, 1998, the Company completed four acquisitions.
Effective April 1, 1998, the Company acquired 100% of the stock of Sierra
Supply, Inc. and CCS Supply, Inc. Effective May 1, 1998, the Company acquired
100% of the stock of NYCO, Inc. and Charles R. Watts Co. The cash portion of the
acquisitions was funded from the Company's delayed draw term loan facility in
the amount of approximately $27.6 million net of cash acquired. Additionally,
the Company issued approximately 106,000 shares of common stock related to the
Watts acquisition.
-11-
<PAGE> 12
FORWARD-LOOKING STATEMENTS -- Under the Private Securities Litigation Act of
1995
Certain statements in this quarterly report are forward-looking statements.
These statements are subject to various risks and uncertainties, many of which
are outside the control of the Company, including the level of market demand for
the Company's products, competitive pressures, the ability to achieve reductions
in operating costs and management's ability to continue to integrate
acquisitions, dependence on systems, environmental matters and other specific
factors discussed in the Company's Form 10-K for the fiscal year ended March 31,
1998 and the Prospectus, dated October 22, 1997, and other Securities and
Exchange Commission filings. The information contained herein represents
management's best judgment as of the date hereof based on information currently
available; however, the Company does not intend to update this information to
reflect developments or information obtained after the date hereof and disclaims
any legal obligation to the contrary.
-12-
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.0 Financial Data Schedule
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITE CAP INDUSTRIES, INC.
August 10, 1998 /s/ Greg Grosch
----------------------------------------
Greg Grosch
President/Chief Executive Officer
August 10, 1998 /s/ Chris Lane
----------------------------------------
Chris Lane
Chief Financial Officer
-14-
<PAGE> 15
Exhibit Index
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
- -------------- -------------- --------------
<S> <C> <C>
27.0 Financial Data Schedule
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-27-1999 MAR-27-1999
<PERIOD-START> APR-01-1998 APR-01-1998
<PERIOD-END> JUN-27-1998 JUN-27-1998
<CASH> 1,851 1,851
<SECURITIES> 0 0
<RECEIVABLES> 44,045 44,045
<ALLOWANCES> 1,336 1,336
<INVENTORY> 40,558 40,558
<CURRENT-ASSETS> 90,061 90,061
<PP&E> 15,324 15,324
<DEPRECIATION> 9,634 9,634
<TOTAL-ASSETS> 163,920 163,920
<CURRENT-LIABILITIES> 43,883 43,883
<BONDS> 0 0
0 0
0 0
<COMMON> 101 101
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 163,920 163,920
<SALES> 68,637 68,637
<TOTAL-REVENUES> 68,637 68,637
<CGS> 46,563 46,563
<TOTAL-COSTS> 16,882 16,882
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 881 881
<INCOME-PRETAX> 4,311 4,311
<INCOME-TAX> 1,707 1,707
<INCOME-CONTINUING> 2,604 2,604
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,604 2,604
<EPS-PRIMARY> 0.25 0.25<F1>
<EPS-DILUTED> 0.23 0.23
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
