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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 September 26, 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.
Class Outstanding at 10/1/98
----- ----------------------
Common Stock, $.01 Par Value 10,656,913
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WHITE CAP INDUSTRIES, INC.
--------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
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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 and Six Months Ended
September 30, 1997 and September 26, 1998.................................3
Condensed Consolidated Balance Sheets at March 31, 1998
and September 26, 1998 (Unaudited)........................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended September 30, 1997 and September 26, 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>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
WHITE CAP INDUSTRIES, INC.
--------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (unaudited)
-------------------------------------------------------------
(In thousands, except per share data)
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 26, September 30, September 26,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $48,695 $79,401 $86,006 $148,038
Cost of sales 33,159 53,475 59,007 100,037
------- ------- ------- --------
Gross profit 15,536 25,926 26,999 48,001
Selling, general &
administrative 11,730 19,331 21,153 36,213
------- ------- ------- --------
Income from operations 3,806 6,595 5,846 11,788
Interest expense, net 1,893 963 3,212 1,844
------- ------- ------- --------
Income before income taxes 1,913 5,632 2,634 9,944
Income tax provision 761 2,231 1,079 3,938
------- ------- ------- --------
Net income $ 1,152 $ 3,401 $ 1,555 $ 6,006
======= ======= ======= ========
Basic income per share:
Income per share $ 0.88 $ 0.32 $ 1.13 $ 0.57
Basic weighted average
shares outstanding 1,136 10,652 1,112 10,627
Diluted income per share:
Income per share $ 0.17 $ 0.31 $ 0.23 $ 0.54
Diluted weighted average
shares outstanding 6,678 11,140 6,654 11,132
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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WHITE CAP INDUSTRIES, INC.
--------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
ASSETS
<TABLE>
<CAPTION>
March 31, September 26,
1998 1998
--------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,720 $ 3,184
Accounts receivable, net of allowance for doubtful
accounts of $1,097 and $1,900 at March 31, 1998
and September 26, 1998, respectively 30,631 47,713
Inventories
33,729 44,456
Prepaid expenses and other
390 550
Deferred income taxes
3,122 2,943
-------- --------
69,592 98,846
-------- --------
PROPERTY AND EQUIPMENT, net 13,806 16,076
INTANGIBLE ASSETS, net 34,667 57,368
OTHER ASSETS 215 288
-------- --------
$118,280 $172,578
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 526 $ 639
Accounts payable 27,783 38,734
Accrued liabilities 6,657 11,104
-------- --------
34,966 50,477
-------- --------
LONG-TERM DEBT, net of current portion 17,080 47,401
-------- --------
DEFERRED INCOME TAXES 180 220
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Convertible Preferred Stock, $.10 par value:
Designated - 1,000,000 shares; issued and
outstanding - 60,000 at March 31, 1998 and
September 26, 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 10,656,568 at September 26, 1998 100 102
Additional paid-in capital 74,763 77,180
Accumulated deficit (8,815) (2,808)
-------- --------
66,054 74,480
-------- --------
$118,280 $172,578
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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WHITE CAP INDUSTRIES, INC.
--------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (unaudited)
-------------------------------------------------------------
(In thousands)
--------------
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30, September 26,
1997 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,555 $ 6,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,231 2,103
Gain on disposition of property and equipment (26) (6)
Changes in assets and liabilities, net of effects
from acquisitions:
Increase in accounts receivable (5,019) (11,841)
Increase in inventories (2,169) (6,419)
Increase in prepaid expenses and other (77) (229)
(Decrease) increase in deferred tax asset (44) 179
Increase in accounts payable 7,302 8,471
Increase in accrued expenses 853 3,104
Increase in deferred tax liability 24 40
-------- --------
Net cash provided by operating activities 3,630 1,407
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,205) (2,404)
Proceeds from sale of property and equipment 86 14
Acquisitions of businesses, net of $206 and $875 in cash
acquired, respectively (19,744) (27,596)
-------- --------
Net cash used in investing activities (20,863) (29,986)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under line of credit agreement 15,512 30,300
Principal payments on notes payable (1,679) (347)
Proceeds received from notes payable 6,194 --
Preferred dividends paid (303) --
Preferred stock sold 6 --
Common stock issued 7 90
Increase in deferred finance costs (62) --
-------- --------
Net cash provided by financing activities 19,675 30,043
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,442 1,464
CASH AND CASH EQUIVALENTS, beginning of period 214 1,720
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,656 $ 3,184
======== ========
</TABLE>
(continued on next page)
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WHITE CAP INDUSTRIES, INC.
--------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (unaudited) (cont.)
---------------------------------------------------------------------
(In thousands)
--------------
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30, September 26,
1997 1998
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 3,191 $ 1,310
======== ========
Income taxes, net of refunds $ 476 $ (40)
======== ========
DETAILS OF ACQUISITIONS:
Fair value of assets $ 23,734 $ 34,892
Liabilities assumed (3,784) (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
======== ========
Equipment acquired under capital lease obligations $ -- $ 384
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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WHITE CAP INDUSTRIES, INC.
--------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
------------------------------------------------------------------
SEPTEMBER 26, 1998
------------------
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 (consisting of only normal recurring
adjustments) 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:
BUSINESS ACQUIRED DATE ACQUIRED
----------------- -------------
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
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 Six Months Ended
------------------ ----------------
September 30, September 26, September 30, September 26,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $71,189 $79,401 $137,015 $152,675
Net Income 2,316 3,401 3,184 6,032
Diluted net income per
share $ 0.35 $ 0.31 $ 0.48 $ 0.54
Diluted weighted average
shares outstanding 6,678 11,140 6,654 11,132
</TABLE>
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The Company announced that it had discontinued negotiations regarding the
acquistions of Valley Construction Supply and Junior's Tools on August 3, 1998
and September 21, 1998, respectively.
3. EARNINGS PER SHARE
------------------
The following is a reconciliation of the Company's net income and weighted
average shares outstanding for the purpose of calculating basic and diluted
earnings per share for all periods presented (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 26, September 30, September 26,
1997 1998 1997 1998
------------- ------------- ------------- -------------
Income Shares Income Shares Income Shares Income Shares
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $1,152 $3,401 $1,555 $6,006
Less: preferred stock
dividends (150) -- (300) --
------ ------ ------ ------
Basic EPS:
Income (loss) allocated
to common
shareholders/weighted
average shares 1,002 1,136 3,401 10,652 1,255 1,112 6,006 10,627
Effect of Dilutive
Securities
Warrants 1,190 -- 1,190 --
Options 558 488 558 505
Convertible preferred
stock 150 3,794 -- 300 3,794 --
------ ----- ------ ------ ------ ----- ------ ------
Diluted EPS $1,152 6,678 $3,401 11,140 $1,555 6,654 $6,006 11,132
====== ===== ====== ====== ====== ===== ====== ======
</TABLE>
4. 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.
5. 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 reflected for all
periods presented.
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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 SEPTEMBER 26, 1998 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. Net sales for the three months ended September 26, 1998 ("second
quarter 1998") increased $30.7 million, or 63%, to $79.4 million compared to
$48.7 million for the three months ended September 30, 1997 ("second 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 Burke, JEF, Sierra, CCS, Watts and Nyco.
Gross Profit. Gross profit for the second quarter 1998 increased $10.4 million,
or 67%, to $25.9 million compared to $15.5 million for the second 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 second quarter of 1998 was
32.7% compared to 31.9% for the second quarter of 1997. The higher gross profit
margin over the prior year is primarily due to a change in product mix, an
increase in rental business and early payment discounts.
Selling, General and Administrative Expense. Selling, general and administrative
expense ("SG&A") increased $7.6 million or 65%, to $19.3 million for the second
quarter 1998 compared to $11.7 million for the second quarter 1997. As a percent
of sales, SG&A was 24.3% for the second quarter 1998 and 24.1% for the second
quarter of 1997.
Selling expenses increased $6.9 million, or 75%, to $15.9 million for the second
quarter 1998 from $9.1 million for the second 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 second
quarter 1998 were 20.1% compared to 18.7% for the second quarter 1997.
General, administrative and distribution center expenses increased $0.7 million,
or 28%, to $3.4 million for the second quarter 1998 from $2.6 million for the
second 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 second quarter 1998 were 4.3%, as compared
to 5.4% for the second quarter 1997. Exclusive of the effects of goodwill and
covenant not to compete amortization of $0.4 million in the second quarter 1998
and $0.2 million in the second quarter 1997, general and administrative expenses
increased 24%.
Income from Operations. Income from operations for the second quarter 1998
increased $2.8 million, or 73%, to $6.6 million compared to $3.8 million for the
second quarter 1997. The increase in operating margin for the second quarter
1998 compared to the second quarter 1997 was primarily the result of the
increase in gross profit margins as a percentage of sales. The operating margin
was 8.3% for the second quarter 1998 compared to 7.8% for the second quarter
1997.
Interest Expense, net. Interest expense, net of interest income, decreased $0.9
million, or 49%, to $1.0 million in the second quarter 1998 from $1.9 million
for the second quarter 1997. This decrease was due to a reduction of outstanding
debt and lower interest cost as a result of the Company's initial public
offering. Additionally, the Company entered into a new credit facility in
October, 1997, which reduced the Company's interest rate. The decrease in
interest expense is partially offset by the increased borrowings to obtain early
payment discounts.
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Net Income. Net income for the second quarter 1998 was $3.4 million versus net
income of $1.2 million for the second 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.
SIX MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. Net sales for the six months ended September 26, 1998 ("first half
1998") increased $62.0 million, or 72%, to $148.0 million compared to $86.0
million for the six months ended September 30, 1997 ("first half 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 half 1998 increased $21.0 million, or
78%, to $48.0 million compared to $27.0 million for the first half 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 half of 1998 was 32.4%
compared to 31.4% for the first half of 1997. The higher gross profit margin
over the prior year is primarily due to a change in product mix, an increase in
rental business, and early payment discounts.
Selling, General and Administrative Expense. Selling, general and administrative
expense ("SG&A") increased $15.0 million or 71%, to $36.2 million for the first
half 1998 compared to $21.2 million for the first half 1997. As a percent of
sales, SG&A was 24.5% for the first half 1998 and 24.6% for the first half 1997.
Selling expenses increased $13.2 million, or 81%, to $29.6 million for the first
half 1998 from $16.4 million for the first half 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
half 1998 were 20.0% compared to 19.1% for the first half 1997.
General, administrative and distribution center expenses increased $1.8 million,
or 38%, to $6.6 million for the first half 1998 from $4.8 million for the first
half 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 half 1998 were 4.4%, as compared to 5.5%
for the first half 1997. Exclusive of the effects of goodwill and covenant not
to compete amortization of $0.8 million in the first half 1998 and $0.3 million
in the first half 1997, general and administrative expenses increased 31%.
Income from Operations. Income from operations for the first half 1998 increased
$6.0 million, or 102%, to $11.8 million compared to $5.8 million for the first
half 1997. The increase in operating margin for the first half 1998 compared to
the first half 1997 was primarily the result of the increase in gross profit
margins as a percentage of sales. The operating margin was 8.0% for the first
half 1998 compared to 6.8% for the first half 1997.
Interest Expense, net. Interest expense, net of interest income, decreased $1.4
million, or 43%, to $1.8 million in the first half 1998 from $3.2 million for
the first half 1997. This decrease was due to a reduction of outstanding debt as
a result of the Company's initial public offering. Additionally, the Company
entered into a new credit facility in October, 1997, which reduced the Company's
interest rate. The decrease in interest expense is partially offset by the
increased borrowings to obtain early payment discounts.
Net Income. Net income for the first half 1998 was $6.0 million versus net
income of $1.6 million for the first half 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.
FINANCIAL CONDITION
Working Capital. During the first half 1998, operating working capital increased
$12.3 million. The change in operating working capital was primarily the result
of increases in accounts receivable of $17.1 million, inventories
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of $10.7 million, and prepaid expenses of $0.2 million, which were partially
offset by increases in accounts payable of $11.0 million and accrued liabilities
of $4.5 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 first half 1998, the Company generated approximately $1.4
million of net cash from operating activities. Net cash used in investing
activities was $30.0 million, including $27.6 million used for acquisitions and
$2.4 million used for additions to property and equipment. Financing activities
during the first half of 1998 provided net cash of $30.0 million, including
$30.3 million borrowed under the Credit Agreement.
Liquidity and Capital Resources. At September 26, 1998, the Company had cash of
$3.2 million and working capital of $48.4 million. The Company's capitalization,
defined as the sum of long-term debt and stockholders' equity, at September 26,
1998, was approximately $121.9 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. During the six months ended September
26, 1998, the Company's primary sources of financing have been cash from
operations and bank borrowings under the Company's revolving and term credit
facility (the "Credit Facility"). In prior years, in addition to the above
sources, the Company accessed financing through 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 last 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 September 26, 1998, the
Company had approximately $55.4 million available under the aforementioned
facilities.
During the six months ended September 26, 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
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<PAGE> 12
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.
Year 2000
- ---------
The Company is currently addressing a universal situation commonly referred to
as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of
certain computer software programs to properly recognize and process
date-sensitive information relative to the Year 2000 and beyond. During Fiscal
1997, the Company developed a plan to devote the necessary resources to: (1)
identify and modify systems impacted by the Year 2000 Problem, (2) implement new
systems to become Year 2000 compliant in a timely manner, (3) contact its major
suppliers seeking information about their internal compliance efforts, (4)
contact its major customers seeking information about their internal compliance
efforts and (5) develop contingency plans in case of supplier or customer
disruptions. The total cost of executing this plan is estimated at $300,000 and,
as of September 26, 1998, the Company was approximately 50% complete with the
execution of this plan. On November 2, 1998, the Company implemented an
application software upgrade that addresses the "Year 2000 Problem" for the
Companies' major internal computer processing function. In addition, the Company
has contacted its major suppliers and vendors seeking information about their
internal compliance efforts. The Company's risks involved with not solving the
Year 2000 issue include, but are not limited to, the following: loss of local or
regional electric power, loss of telecommunication services, delays or
cancellations of shipping or transportation, manufacturing shut-downs, bank
errors and computer errors by vendors. The Company is in the process of
developing contingency plans for those areas which might be affected by the Year
2000 Problem. If the Company, its suppliers or vendors are unable to resolve
issues related to the Year 2000 on a timely basis, it could result in a material
financial risk.
Impact of Inflation and Changing Prices
- ---------------------------------------
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe inflation has had a material effect on
sales or results of operations.
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 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.
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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
The Company's Annual Meeting of Stockholders was held on September 22, 1998.
The stockholders approved the increase in number of shares authorized for
issuance under the 1997 Long-Term Equity Incentive Plan with votes cast as
follows: 4,033,594 shares for; 1,175,452 shares against; and 2,100 shares
abstained. The stockholders approved the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal year ending March
31, 1999, with votes cast as follows: 5,171,759 shares for; 37,337 shares
against; and 2,050 shares abstained.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11.1 Computation of Basic and Diluted Earnings Per Share
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.
November 9, 1998 /s/ Greg Grosch
---------------------------------------------
Greg Grosch
President/Chief Executive Officer
November 9, 1998 /s/ Chris Lane
---------------------------------------------
Chris Lane
Chief Financial Officer
-14-
<PAGE> 15
Sequentially
Exhibit Number Description Numbered Page
- -------------- ----------- -------------
11.1 Computations of Basic and Diluted
Earnings Per Share
27.0 Financial Data Schedule
-15-
<PAGE> 1
EXHIBIT 11.1
The following is a reconciliation of the Company's net income and weighted
average shares outstanding for the purpose of calculating basic and diluted
earnings per share for all periods presented (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
September 30, September 26, September 30, September 26,
1997 1998 1997 1998
--------------- ---------------- ---------------- ----------------
Income Shares Income Shares Income Shares Income Shares
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $1,152 $3,401 $1,555 $6,006
Less: preferred stock dividends (150) -- (300) --
------ ------ ------ ------
Basic EPS:
Income (loss) allocated to
common shareholders/weighted
average shares 1,002 1,136 3,401 10,652 1,255 1,112 6,006 10,627
Effect of Dilutive Securities
Warrants 1,190 -- 1,190 --
Options 558 488 588 505
Convertible preferred stock 150 3,794 -- 300 3,794 --
------ ----- ------ ------ ------ ----- ------ ------
Diluted EPS $1,152 6,678 $3,401 11,140 $1,555 6,654 $6,006 11,132
====== ===== ====== ====== ====== ===== ====== ======
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-27-1999 MAR-27-1999
<PERIOD-START> APR-01-1998 JUN-27-1998
<PERIOD-END> SEP-26-1998 SEP-26-1998
<CASH> 3,184 3,184
<SECURITIES> 0 0
<RECEIVABLES> 47,713 47,713
<ALLOWANCES> 1,900 1,900
<INVENTORY> 44,456 44,456
<CURRENT-ASSETS> 98,846 98,846
<PP&E> 26,393 26,393
<DEPRECIATION> 10,318 10,318
<TOTAL-ASSETS> 172,578 172,578
<CURRENT-LIABILITIES> 50,477 50,477
<BONDS> 0 0
0 0
6 6
<COMMON> 102 102
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 172,578 172,578
<SALES> 148,038 79,401
<TOTAL-REVENUES> 148,038 79,401
<CGS> 100,037 53,475
<TOTAL-COSTS> 36,213 19,331
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,844 963
<INCOME-PRETAX> 9,944 5,632
<INCOME-TAX> 3,938 2,231
<INCOME-CONTINUING> 6,006 3,401
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,006 3,401
<EPS-PRIMARY> 0.57 0.32
<EPS-DILUTED> 0.54 0.31
</TABLE>
