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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 December 31, 1997
Commission File No. 0-22989
WHITE CAP INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-1380403
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3120 Airway Avenue
Costa Mesa, California 92626
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(Address of principal executive offices)
(714) 850-0900
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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 1/31/98
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Common Stock, $.01 Par Value 10,506,307
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WHITE CAP INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I FINANCIAL INFORMATION
ITEM 1 Condensed Financial Statements............................................3
Condensed Statements of Operations (Unaudited)
for the Three Months and Nine Months Ended
December 31, 1997 and 1996................................................3
Condensed Balance Sheets as of December 31, 1997
(Unaudited), and March 31, 1997...........................................4
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended December 31, 1997 and 1996......................5
Notes to Condensed Financial Statements (Unaudited).......................6
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. FINANCIAL STATEMENTS
In the opinion of WHITE CAP INDUSTRIES, INC.'s (the "Company") management, the
unaudited consolidated financial statements included in this filing on Form 10-Q
reflect all adjustments which are considered necessary for a fair presentation
of financial information for the period presented.
WHITE CAP INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 50,300 $ 22,202 $ 136,306 $ 70,710
Cost of sales 33,909 14,889 92,916 47,836
---------- --------- ---------- ----------
Gross profit 16,391 7,313 43,390 22,874
Selling, general &
administrative 13,183 6,350 34,336 19,037
Non-recurring charge 1,426 -- 1,426 --
---------- --------- ---------- ----------
Income from operations 1,782 963 7,628 3,837
Interest expense, net 897 399 4,109 1,209
---------- --------- ---------- ----------
Income before income taxes
and extraordinary charges 885 564 3,519 2,628
Income tax provision 350 (8) 1,429 1
---------- --------- ---------- ----------
Net income before
extraordinary charges 535 572 2,090 2,627
Extraordinary charges, net of
tax 5,750 -- 5,750 --
---------- --------- ---------- ----------
Net income (loss) $ (5,215) $ 572 $ (3,660) $ 2,627
========== ========= ========== ==========
Pro forma per share data:
Pro forma weighted average
number of common shares and
equivalents outstanding 9,654,000 -- 8,133,000 --
Pro forma basic and diluted
net loss per common share $ (0.54) -- (0.48) --
</TABLE>
The accompanying notes are an integral part of these condensed statements.
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WHITE CAP INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
As of As of
December 31, March 31,
1997 1997
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(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,796 $ 214
Accounts receivable, net 30,831 19,175
Inventories 31,762 20,426
Prepaid expenses and other 1,840 1,179
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Total current assets 66,229 40,994
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Property, plant and equipment, net 12,929 7,961
Intangible assets, net 32,214 13,205
Other assets 346 132
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Total Assets $ 111,718 $ 62,292
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt $ 745 $ 3,156
Accounts payable and accrued liabilities 31,259 20,428
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Total current liabilities 32,004 23,584
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Long-term debt, excluding current maturities 13,837 38,888
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Deferred income taxes 189 200
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Senior redeemable preferred stock $.01 par value:
Designated - 680,000 shares; issued and outstanding --
675,969 at March 31, 1997 and none December 31, 1997 -- 2,650
--------- ---------
Commitments and contingencies -- --
Shareholders' equity (deficit):
Convertible preferred stock, $.01 par value:
Designated -- 2,700,000 shares; issued and outstanding --
6,000 at December 31, 1997 and 2,180,479 at March 31, 1997 6 2,250
1997
Common stock, $.01 par value:
Authorized -- 10,000,000 shares; issued and outstanding --
10,506,307 shares at December 31, 1997 and 1,044,000 at
March 31, 1997 105 6
Additional paid-in capital 74,834 --
Retained earnings (accumulated deficit) (9,256) (5,286)
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65,689 (3,030)
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$ 111,718 $ 62,292
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</TABLE>
The accompanying notes are an integral part of these condensed statements.
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WHITE CAP INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,660) $ 2,627
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 2,022 1,094
Gain on disposition of property and equipment (91) (25)
Interest charge on the conversion of debts and warrants 250 --
Changes in assets and liabilities, net of effects from
acquisitions:
Increase in accounts receivable (2,232) (1,548)
(Increase) decrease in inventories (4,875) 632
Increase in prepaid expenses and other (2,270) (116)
Increase in deferred tax asset (44) --
Increase (decrease) in accounts payable 2,646 (231)
Increase (decrease) in accrued expenses 2,202 (645)
Increase in deferred tax liability 28 --
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Net cash provided by (used in) operating activities (6,024) 1,788
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Cash flows from investing activities:
Capital expenditures (2,146) (637)
Proceeds from sale of property and equipment 321 47
Purchase of Viking Distributing Co., net of $145 cash acquired (16,046) --
Purchase of Stop Supply, Inc., net of $61 cash acquired (3,698) --
Purchase of Burke Concrete Accessories, Inc. (9,248) --
-------- --------
Net cash used in investing activities (30,817) (590)
-------- --------
Cash flows from financing activities:
Net payments under line of credit agreement (3,667) 138
Net payments on notes payable (26,427) (402)
Proceeds from the exercise of warrants 250 --
Preferred dividend payments, net of accretion (711) --
Preferred stock issued 6 --
Stock distribution paid -- (623)
Preferred stock redemption (2,650) --
Net proceeds from initial public offering 71,683 --
Increase in deferred finance costs (61) --
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Net cash provided by (used in) financing activities 38,423 (887)
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Net increase in cash and cash equivalents 1,582 311
Cash and cash equivalents, beginning of period 214 205
-------- --------
Cash and cash equivalents, end of period $ 1,796 $ 516
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</TABLE>
The accompanying notes are an integral part of these condensed statements.
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WHITE CAP INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
1. BASIS OF PRESENTATION:
The condensed 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 registrant's most recent Form S-1 (file number
333-33767) which was filed for the fiscal year ended March 31, 1997.
2. PRO FORMA NET LOSS PER SHARE:
Effective in the quarter ended December 31, 1997, the Company adopted SFAS 128
"Earnings per Share". This statement is effective for both interim and annual
reporting periods ending after December 15, 1997. SFAS No. 128 replaces primary
EPS with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is computed
by dividing reported earnings by weighted average shares outstanding. Diluted
EPS is computed in the same way as fully diluted EPS, except that the
calculation now uses the average share price for the reporting period to compute
dilution from options under the treasury stock method. Pro forma net loss per
share has been computed by dividing pro forma net income, net of Senior
Redeemable Preferred Stock dividends, by the pro forma weighted average number
of shares outstanding. In accordance with a regulation of the Securities and
Exchange Commission (SEC), such computation includes all common equivalent
shares (using the treasury stock method and the initial public offering price)
issued twelve months prior to the filing of the initial public offering as if
they were outstanding for the entire period presented. Additionally, in
accordance with SEC rules, 586,833 shares are included in the pro forma weighted
average shares, representing the number of shares necessary to pay the portion
of the fiscal 1997 stockholders dividend that exceeded the earnings for such
period. Common equivalent shares from convertible stock are included in the
calculation as if they were converted. Historical net income per share has not
been presented because it is not indicative of the ongoing entity.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, 1997 December 31, 1997
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Loss Shares Loss Shares
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(Amount in Thousands)
<S> <C> <C> <C> <C>
Net Loss $(5,215) $(3,660)
Less: preferred stock dividends (25) (275)
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Basic EPS:
Loss allocated to common
shareholders (5,240) 9,654 (3,935) 8,133
------- ------- ------- -------
Effect of Dilutive Securities:
Stock Options -- -- -- --
------- ------- ------- -------
Diluted EPS $(5,240) 9,654 $(3,935) 8,133
======= ======= ======= =======
</TABLE>
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3. RECENT ACQUISITIONS:
In addition to the acquisition of A-Y Supply, Inc. effective January 1, 1997,
the Company recently acquired three additional contractor suppliers for an
aggregate purchase price of approximately $29 million. Effective May 1, 1997,
the Company acquired 100% of the stock of Stop Supply, located in Fresno,
California. In June 1997, the Company acquired 100% of the stock of Viking
Distributing, which has stores located in San Francisco, Dublin and San Jose,
California. Effective November 1, 1997, the Company acquired the assets of Burke
Concrete Accessories, L.P. ("Burke") for approximately $9 million in cash.
Burke, with fiscal 1996 revenues of $25 million, is a full line distributor of
concrete accessories, construction chemicals and rental equipment used in
pour-in-place, precast and tilt-up concrete construction, renovation and
maintenance. Burke operates nine branch locations in the Western United States
(six of which are located in existing White Cap markets and three of which are
located in the Pacific Northwest). All four acquisitions were accounted for
under the purchase method.
Had the acquisitions of A-Y Supply, Stop Supply, Viking Distributing, and Burke
occurred at the beginning of the current and prior fiscal years, pro forma net
sales, net income, net income per share and weighted average number of common
shares and equivalents outstanding would be as follows: (in thousands except net
income per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $53,131 $46,545 $163,704 $144,038
Net income 2,164 943 3,853 2,199
Net income per share $ 0.21 $ 0.13 $ 0.46 $ 0.30
Shares Outstanding 10,136 7,368 8,294 7,368
</TABLE>
4. INCOME TAXES:
Prior to February 1997, the Company was taxed as an S Corporation. Under these
provisions, taxable income or loss was included in the tax return of the
shareholder of the Company. Therefore, no provision for federal or state income
taxes was reflected in the historical financial statements prior to February
1997. As an S Corporation, the Company was subject to a minimum franchise tax of
$800, or 1.5% of taxable income, which is included in the Company's tax
provision for the periods ended December 31, 1996.
Effective February 26, 1997 the Company terminated its S Corporation status and
converted to a C Corporation for both federal and state purposes.
5. NON-RECURRING CHARGES:
The company recognized $1.4 million of non-recurring charges during the quarter
ended December 31, 1997. These charges included a $1 million one time bonus and
$0.4 million of severance and contract termination payments.
6. EXTRAORDINARY ITEM:
In connection with the initial public offering, the Company paid off most of its
outstanding debt (see note 7). The payoffs of debt resulted in prepayment
penalties of approximately $7.9 million, the write-off of deferred loan fees of
approximately $1.2 million and the incurrence of imputed interest charges of
approximately $0.3 million, net of a tax benefit of approximately $3.6 million.
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7. PUBLIC OFFERING:
On October 27, 1997 the Company completed its initial public offering of 4.3
million shares of common stock with net proceeds of approximately $71.5 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. The financial statements have been retroactively
adjusted to reflect the stock split.
8. NEW CREDIT FACILITY:
On October 29, 1997 the Company entered into a new 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
alternatively at bankers' acceptance 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.
9. SUBSEQUENT AND POTENTIAL ACQUISITIONS:
On December 15, 1997, the Company announced that it has entered into a letter of
intent to acquire CCS Supply, Inc. ("CCS"). CCS, located in Denver Colorado is a
full line distributor of concrete accessories, construction chemicals,
waterproofing products and rental equipment used in tilt-up concrete
construction, renovation and maintenance. CCS is expected to generate $5 million
in revenue for its fiscal year ending January 31, 1998. The company expects to
close the acquisition of CCS in February 1998.
On January 6, 1998, the Company announced that it has entered into a definitive
contract to acquire Sierra Supply, Inc. ("Sierra") and JEF Supply, Inc. ("JEF").
JEF, located in Portland, Oregon, is a distributor of concrete accessories,
construction chemicals, and tilt-up products. JEF generated $5 million in
revenue for its fiscal year ended September 30, 1997. JEF was acquired on
January 30, 1998. Sierra, located in Reno, Nevada, is a full-line distributor of
concrete accessories, construction chemicals, structural connectors, fasteners,
waterproofing products and rental equipment used in tilt-up concrete
construction, renovation and maintenance. Sierra generated $11.3 million in
revenue for its fiscal year ended September 30, 1997. White Cap expects to close
the acquisition of Sierra in April 1998.
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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 condensed
financial statements (unaudited) and the notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1996
NET SALES. Net sales for the three months ended December 31, 1997 ("third
quarter 1997") increased $28.1 million, or 126.6%, to $50.3 million compared to
$22.2 million for the three months ended December 31, 1996 ("third quarter
1996"). The growth in net sales for the third quarter of 1997 was the result of
a 21.7% increase in same store sales, the expansion of product lines and the
acquisitions of A-Y Supply, Stop Supply, Viking Distributing and Burke Concrete
Accessories. The recently acquired businesses contributed $23.0 million in net
sales in the third quarter of 1997.
GROSS PROFIT. Gross profit for the third quarter 1997 increased $9.1 million, or
124.7%, to $16.4 million compared to $7.3 million for the third quarter 1996.
The increase in gross profit was the result of increased net sales offset, in
part, by lower gross profit margins. The gross profit margin for the third
quarter of 1997 was 32.6% compared to 32.9% for the third quarter of 1996. The
lower gross profit margin over the prior year is due to the net effect of the
acquired businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense ("SG&A") increased $6.8 million or 106.3%, to $13.2 million for the
third quarter 1997 compared to $6.4 million for the third quarter 1996. As a
percent of sales, SG&A was 26.2% for the third quarter 1997 compared to 28.8%
for the third quarter 1996.
Selling expenses increased $5.2 million, or 133.3%, to $9.1 million in the third
quarter of 1997 from $3.9 million for the third quarter of 1996. Selling
expenses as a percent of net sales for the third quarter of 1997 were 18.0%, as
compared to 17.6% for the third quarter of 1996. The increase was 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.
General, administrative and distribution center expenses increased $1.6 million,
or 64.0%, to $4.1 million for the third quarter of 1997 from $2.5 million for
the third quarter of 1996. The increase in general and administrative expenses
is primarily due to increased distribution costs to process the increased sales
volume and a planned increase in corporate functions to position the Company for
future growth. General, administrative and distribution center expenses as a
percentage of net sales for the third quarter of 1997 were 8.2%, as compared to
11.2% for the third quarter of 1996.
NON-RECURRING CHARGES. The company recorded $1.4 million of non-recurring
charges during the quarter ended December 31, 1997. These charges included a
$1.0 million one-time bonus and $0.4 million of severance and contract
termination payments.
INCOME FROM OPERATIONS. Exclusive of the above non-recurring charges, income
from operations for the third quarter 1997 increased $2.2 million, or 220.0%, to
$3.2 million compared to $1.0 million for the third quarter of 1996. The
adjusted operating margin, derived by dividing operating income by net sales,
was 6.4% for the third quarter 1997 compared to 4.5% for the third quarter 1996.
The increase in operating margin, excluding non-recurring charges, for the third
quarter 1997 compared to the third quarter 1996 was primarily the result of the
reduction in SG&A as a percentage of sales.
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INTEREST EXPENSE, NET. Interest expense, net of interest income, increased $.5
million, or 125.0%, to $.9 million in the third quarter of 1997 from $.4 million
for the third quarter of 1996. This increase was due to increased levels of debt
associated with the recently acquired businesses.
EXTRAORDINARY ITEM. In connection with the initial public offering, the Company
paid off most of its outstanding debt. The payoff of debt resulted in prepayment
penalties of approximately $7.9 million, the write-off of deferred loan fees of
approximately $1.2 million and the incurrence of imputed interest charges of
approximately $0.3 million, net of a tax benefit of approximately $3.6 million.
NET INCOME (LOSS). Net loss for the third quarter of 1997 was $5.2 million
versus net income of $0.6 million for the third quarter of 1996. Net income
decreased due to the non-recurring charges and extraordinary item charges
associated with the Company's IPO in October of 1997. Exclusive of those charges
net income would have been approximately $1.4 million. Prior to February 1997,
the Company was an S Corporation and accordingly did not record a tax provision.
If the Company had been a tax paying Corporation in 1996, net income would have
been approximately $0.4 million.
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
NINE MONTHS ENDED DECEMBER 31, 1996
NET SALES. Net sales for the nine months ended December 31, 1997 increased $65.6
million, or 92.8%, to $136.3 million compared to $70.7 million for the nine
months ended December 31, 1996. The growth in net sales for the first nine
months of 1997 was the result of an 18.2% increase in same store sales, the
expansion of product lines and the acquisition of A-Y Supply, Stop Supply,
Viking Distributing, and Burke Concrete Accessories. The recently acquired
businesses contributed $52.7 million in net sales in the first nine months of
1997.
GROSS PROFIT. Gross profit for the first nine months of 1997 increased $20.5
million, or 89.5%, to $43.4 million compared to $22.9 million for the first nine
months of 1996. The increase in gross profit was the result of increased net
sales offset, in part, by lower gross profit margins. The gross margin was 31.8%
for the first nine months of 1997 compared to 32.4% for the first nine months of
1996. The reduction in the gross margin was primarily due to an aggressive
promotion of certain products, in the first quarter of 1997, in order to
initiate relationships with new customers in the recently acquired businesses in
Northern California. Additionally, the acquired businesses have historically
generated lower margins than the original White Cap locations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A for the first nine months of
1997 increased $15.3 million, or 80.5%, to $34.3 million compared to $19.0
million for the first nine months of 1996. As a percent of sales, SG&A decreased
to 25.2% for the first nine months of 1997 versus 26.9% for the first nine
months of 1996. Selling expenses increased $11.7 million, or 95.9%, to $23.9
million in the first nine months of 1997 from $12.2 million for the first nine
months of 1996. The increase was due to increased advertising and commissions to
the outside sales force to support 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 nine months of 1997 was 17.5%, as
compared to 17.3% for the first nine months of 1996.
General and administrative expenses increased $3.6 million, or 52.9%, to $10.4
million for the first nine months of 1997 from $6.8 million for the first nine
months of 1996. General and administrative expenses as a percentage of net sales
for the first nine months of 1997 was 7.6%, as compared to 9.6% for the first
nine months of 1996.
NON-RECURRING CHARGES. The company recorded $1.4 million of non-recurring
charges during the first nine months of 1997. These charges included a $1.0
million one-time bonus and $0.4 million of severance and contract termination
payments.
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INCOME FROM OPERATIONS. Exclusive of the above non-recurring charges, income
from operations for the first nine months of 1997 increased $5.3 million, or
139.5%, to $9.1 million compared to $3.8 million for the first nine months of
1996. The operating margin, derived by dividing operating income by net sales,
was 6.7% for the first nine months of 1997 compared to 5.4% for the first nine
months of 1996. The increase in operating margin for the first nine months of
1997 compared to the first nine months of 1996 was the result of the reduction
in SG&A as a percentage of sales offset, in part, by the decline in gross profit
margins.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased $2.9
million, or 241.7%, to $4.1 million in the first nine months of 1997 from $1.2
million for the first nine months of 1996. This increase was due to the debt
associated with the recently acquired businesses.
EXTRAORDINARY ITEM. In connection with the initial public offering, the Company
paid off most of its outstanding debt. The payoff of debt resulted in prepayment
penalties of approximately $7.9 million, the write-off of deferred loan fees of
approximately $1.2 million and the incurrence of imputed interest charges of
approximately $0.3 million, net of a tax benefit of approximately $3.6 million.
NET INCOME (LOSS). Net income decreased $6.3 million, to a net loss of $3.7
million for the first nine months of 1997 compared to net income of $2.6 million
for the first nine months of 1996. The decrease in net income was due to
one-time charges of $6.6 million associated with the Company's IPO in October of
1997, including a tax benefit of approximately $4.2 million. In February of
1997, the Company converted from an S Corporation to a C Corporation for both
federal and state purposes.
FINANCIAL CONDITION
WORKING CAPITAL. During the first nine months of 1997, operating working capital
increased $12.8 million. The change in operating working capital was primarily
the result of increases in inventories of $11.3 million, prepaid expenses of
$0.7 million, and accounts receivable of $11.7 million, which were partially
offset by increases in accounts payable of $9.3 million and accrued liabilities
of $1.5 million. The change in operating working capital excludes changes in
cash and cash equivalents and current maturities of long-term debt.
CASH FLOW. The Company generated approximately $3.6 million of net cash from
continuing operating activities during the first nine months of 1997. In
connection with the initial public offering, the Company incurred approximately
$9.6 million of non-recurring and extraordinary payments which resulted in a
reported net cash used in operating activities of $6.0 million. Financing
activities during the first nine months of 1997 provided net cash of $38.4
million, including $71.5 million from the net proceeds from the initial public
offering. The Company expended $2.1 million for fixed assets (other than
acquisitions) during the first nine months of 1997 primarily for office and
computer equipment, and branch related equipment.
LIQUIDITY AND CAPITAL RESOURCES. Based on the current plans, management
anticipates that its cash flow from operations and the available lines of credit
will be adequate to support its estimated working capital requirements,
operations and strategic acquisition plan for the immediate near future. The
Company has an aggressive strategy that has involved, and is expected to
continue to involve, the acquisition of companies in related lines of business.
Acquisitions may involve a number of special risks that could have a material
adverse effect on the Company's operations and financial performance, including
adverse short-term effects on the Company's reported operating results;
diversion of management's attention; difficulties with the retention, hiring and
training of key personnel; risks associated with unanticipated problems or legal
liabilities; and amortization of acquired intangible assets.
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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.
On October 27, 1997 the Company completed its initial public offering of 4.3
million shares of common stock with net proceeds of approximately $71.5 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.
On October 29, 1997 the Company entered into a new 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
alternatively at bankers' acceptance 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.
On January 30, 1998, the Company acquired 100% of the stock of JEF Supply in
Portland, Oregon, for approximately $3.3 million in cash.
The Company has entered into a letter of intent to acquire the stock of a
one-branch contractor supplier, with fiscal revenues of approximately $5
million, which specializes in a full line of concrete accessories, construction
chemicals, waterproofing and rental equipment for tilt-up concrete construction.
The completion of the proposed acquisition is contingent upon satisfactory
completion of due diligence and satisfaction of customary closing conditions.
The Company has also entered into a definitive contract to acquire the stock of
another one-branch contractor supplier with fiscal year revenue of approximately
$11 million, which specializes in distributing concrete accessories,
construction chemicals, structural connectors, fasteners, waterproofing products
and rental equipment used in tilt-up concrete construction, renovation and
maintenance.
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 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
The registration statement with respect to the Company's public offering of
Common Stock, par value $0.01 per share (No. 333-33767), was declared effective
on October 22, 1997. The offering terminated upon the sale of all common stock
registered. Of the 4,600,000 shares registered and sold in the offering, (1)
4,345,000 were sold by the Company for an aggregate offering price of
$78,210,000 and (ii) 225,000 were sold by selling stockholders for an aggregate
offering price of $4,590,000. Underwriting discounts and commissions of
$5,474,700 were incurred for the Company's account, and the Company incurred
estimated expenses of $1,250,000 in connection with the offering. The managing
underwriters of the offering were Donaldson, Lufkin & Jenrette Securities
Corporation and BankAmerica Robertson Stephens. For a discussion of the
Company's use of the net proceeds of the offering, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."
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.
February 9, 1997 /s/ Greg Grosch
---------------------------------
Greg Grosch
President/Chief Executive Officer
February 9, 1997 /s/ Chris Lane
---------------------------------
Chris Lane
Chief Financial Officer
-14-
<PAGE> 15
EXHIBIT INDEX
Sequentially
Exhibit Number Description Numbered Page
- -------------- -------------- -------------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-START> APR-01-1997 OCT-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 1,796 1,796
<SECURITIES> 0 0
<RECEIVABLES> 30,831 30,831
<ALLOWANCES> 1,522 1,522
<INVENTORY> 31,762 31,762
<CURRENT-ASSETS> 66,229 66,229
<PP&E> 12,929 12,929
<DEPRECIATION> 8,894 8,894
<TOTAL-ASSETS> 111,718 111,718
<CURRENT-LIABILITIES> 32,004 32,004
<BONDS> 0 0
0 0
0 0
<COMMON> 105 105
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 111,718 111,718
<SALES> 136,306 50,300
<TOTAL-REVENUES> 136,306 50,300
<CGS> 92,916 33,909
<TOTAL-COSTS> 34,336 13,183
<OTHER-EXPENSES> 1,426 1,426
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,109 897
<INCOME-PRETAX> 3,519 885
<INCOME-TAX> 1,429 350
<INCOME-CONTINUING> 2,092 535
<DISCONTINUED> 0 0
<EXTRAORDINARY> 5,750 5,750
<CHANGES> 0 0
<NET-INCOME> (3,660) (5,215)
<EPS-PRIMARY> (0.54) (0.48)
<EPS-DILUTED> (0.54) (0.48)
</TABLE>
