<PAGE> 1
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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 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.
<TABLE>
<CAPTION>
Class Outstanding at 12/31/98
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<S> <C>
Common Stock, $.01 Par Value 10,680,175
</TABLE>
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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 and Nine Months Ended
December 31, 1997 and December 26, 1998...................................3
Condensed Consolidated Balance Sheets at March 31, 1998
and December 26, 1998 (Unaudited).........................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended December 31, 1997 and December 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........................................................14
ITEM 2 Changes in Securities....................................................14
ITEM 3 Defaults upon Senior Securities..........................................14
ITEM 4 Submission of Matters to a Vote of Security Holders......................14
ITEM 5 Other Information........................................................14
ITEM 6 Exhibits and Reports on Form 8-K.........................................14
SIGNATURES .........................................................................15
</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 Nine Months Ended
---------------------------- ----------------------------
December 31, December 26, December 31, December 26,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 50,300 $ 73,813 $ 136,306 $ 221,851
Cost of sales 33,909 49,003 92,916 149,040
--------- --------- --------- ---------
Gross profit 16,391 24,810 43,390 72,811
Selling, general & administrative 13,183 19,701 34,336 55,915
Non-recurring charge 1,426 -- 1,426 --
--------- --------- --------- ---------
Income from operations 1,782 5,109 7,628 16,896
Interest expense, net 897 954 4,109 2,798
--------- --------- --------- ---------
Income before income taxes and
extraordinary charges 885 4,155 3,519 14,098
Income tax provision 350 1,646 1,429 5,583
--------- --------- --------- ---------
Net income before extraordinary
charges 535 2,509 2,090 8,515
Extraordinary charges, net of tax 5,997 -- 5,997 --
--------- --------- --------- ---------
Net income (loss) $ (5,462) $ 2,509 $ (3,907) $ 8,515
========= ========= ========= =========
Basic income (loss) per share:
Income before extraordinary charges $ 0.06 $ 0.24 $ 0.50 $ 0.80
Extraordinary charges (0.75) -- (1.76) --
--------- --------- --------- ---------
Income (loss) per share $ (0.69) $ 0.24 $ (1.26) $ 0.80
========= ========= ========= =========
Basic weighted average shares
outstanding 7,960 10,672 3,403 10,642
========= ========= ========= =========
Diluted income (loss) per share:
Income before extraordinary charges $ 0.05 $ 0.23 $ 0.27 $ 0.76
Extraordinary charges (0.61) -- (0.77) --
--------- --------- --------- ---------
Income (loss) per share $ (0.56) $ 0.23 $ (0.50) $ 0.76
========= ========= ========= =========
Diluted weighted average shares
outstanding 9,832 11,147 7,765 11,182
========= ========= ========= =========
</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, December 26,
1998 1998
--------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,720 $ 1,943
Accounts receivable, net of allowance for doubtful accounts of $1,097
and $1,822 at March 31, 1998 and December 26, 1998, respectively 30,631 45,493
Inventories 33,729 50,161
Prepaid expenses and other 390 698
Deferred income taxes 3,122 2,157
--------- ---------
69,592 100,452
--------- ---------
PROPERTY AND EQUIPMENT, net 13,806 17,992
INTANGIBLE ASSETS, net 34,667 57,278
OTHER ASSETS 215 357
--------- ---------
$ 118,280 $ 176,079
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 526 $ 639
Accounts payable 27,783 35,654
Accrued liabilities 6,657 7,406
--------- ---------
34,966 43,699
--------- ---------
LONG-TERM DEBT, net of current portion 17,080 55,105
--------- ---------
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 December 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 10,679,520 at December 26, 1998 100 103
Additional paid-in capital 74,763 77,246
Accumulated deficit (8,815) (300)
--------- ---------
66,054 77,055
--------- ---------
$ 118,280 $ 176,079
========= =========
</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>
Nine Months Ended
----------------------------
December 31, December 26,
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,907) $ 8,515
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 2,022 3,229
Gain on disposition of property and equipment (91) (8)
Imputed interest on the conversion of debts and warrants 250 --
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable (2,232) (8,766)
Increase in inventories (4,875) (11,115)
Increase in prepaid expenses and other (2,270) (342)
(Increase) decrease in deferred tax asset (44) 965
Increase in accounts payable 2,893 5,046
Increase in accrued expenses 2,202 (594)
Increase in deferred tax liability 28 40
-------- --------
Net cash used in operating activities (6,024) (3,030)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,146) (4,583)
Proceeds from sale of property and equipment 321 16
Acquisitions of businesses, net of $206 and $875 in cash acquired, respectively (28,992) (29,995)
-------- --------
Net cash used in investing activities (30,817) (34,562)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of credit agreement (3,667) 38,100
Principal payments on notes payable (26,427) (442)
Proceeds from the exercise of warrants 250 --
Preferred dividends paid (711) --
Preferred stock sold 6 --
Preferred stock redemption (2,650) --
Common stock issued 71,683 157
Increase in deferred finance costs (61) --
-------- --------
Net cash provided by financing activities 38,423 37,815
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,582 223
CASH AND CASH EQUIVALENTS, beginning of period 214 1,720
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,796 $ 1,943
======== ========
</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>
Nine Months Ended
----------------------------
December 31, December 26,
1997 1998
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 3,218 $ 2,392
======== ========
Income taxes, net of refunds $ 476 $ 2,960
======== ========
DETAILS OF ACQUISITIONS:
Fair value of assets $ 36,406 $ 37,638
Liabilities assumed (7,208) (4,440)
-------- --------
Acquisitions price 29,198 33,198
Less cash acquired (206) (875)
Less common stock issued for acquisition -- (2,328)
-------- --------
Net cash paid for acquisitions $ 28,992 $ 29,995
======== ========
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)
DECEMBER 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
----------------- -------------
Stop Supply May 1, 1997
Viking Distributing June 25, 1997
Burke Concrete Associates L.P. November 1, 1997
JEF Supply February 1, 1998
Sierra Supply April 1, 1998
CCS April 1, 1998
Charles R. Watts Co. May 1, 1998
Nyco May 1, 1998
Sun City December 14, 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. The Company has made a preliminary purchase price
allocation pending additional market information regarding its acquired facility
lease obligations.
Had the acquisitions and initial public offering 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 Nine Months Ended
---------------------------- ---------------------------
December 31, December 26, December 31, December 26,
1997 1998 1997 1998
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<S> <C> <C> <C> <C>
Net Sales $ 65,238 $ 74,818 $203,480 $228,260
Net Income 1,912 2,383 4,930 8,101
Diluted net income per share $ 0.19 $ 0.21 $ 0.63 $ 0.72
Diluted weighted average shares outstanding 9,832 11,147 7,765 11,182
</TABLE>
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3. EARNINGS PER SHARE
The following is a reconciliation of the Company's net income (loss) and
weighted average shares outstanding for the purpose of calculating basic and
diluted earnings (loss) per share for all periods presented (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------- ---------------------------------------------
December 31, 1997 December 26, 1998 December 31, 1997 December 26, 1998
--------------------- -------------------- --------------------- --------------------
Income Income Income Income
(loss) Shares (loss) Shares (loss) Shares (loss) Shares
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) after
extraordinary charges $ (5,462) $ 2,509 $ (3,907) $ 8,515
Less: preferred stock dividends (44) -- (344) --
-------- -------- -------- --------
Basic EPS:
Income (loss) allocated
to common shareholders/weighted
average shares (5,506) 7,960 2,509 10,672 (4,251) 3,403 8,515 10,642
Effect of Dilutive Securities
Warrants 321 -- 932 --
Options 561 475 561 540
Convertible preferred stock 44 990 -- 344 2,869 --
-------- -------- -------- -------- -------- -------- -------- --------
Diluted EPS $ (5,462) 9,832 $ 2,509 11,147 $ (3,907) 7,765 $ 8,515 11,182
======== ======== ======== ======== ======== ======== ======== ========
</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 DECEMBER 26, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997
Net Sales Net sales for the three months ended December 26, 1998 ("third quarter
1998") increased $23.5 million, or 47%, to $73.8 million compared to $50.3
million for the three months ended December 31, 1997 ("third 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, Nyco, and Sun City.
Gross Profit Gross profit for the third quarter 1998 increased $8.4 million, or
51%, to $24.8 million compared to $16.4 million for the third 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 third quarter of 1998 was 33.6%
compared to 32.6% for the third 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 $6.5 million or 49%, to $19.7 million for the third
quarter 1998 compared to $13.2 million for the third quarter 1997. As a percent
of sales, SG&A was 26.7% for the third quarter 1998 and 26.2% for the third
quarter of 1997.
Selling expenses increased $5.9 million, or 56%, to $16.5 million for the third
quarter 1998 from $10.6 million for the third quarter 1997. The increase is due
to the opening of one new branch, the expansion of three branches, the
remodeling of three branches, increased advertising, increased 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 third quarter 1998 were 22.3% compared to 21.0% for
the third quarter 1997.
General, administrative and distribution center expenses increased $0.6 million,
or 23%, to $3.2 million for the third quarter 1998 from $2.6 million for the
third 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 third quarter 1998 were 4.4%, as compared
to 5.2% for the third quarter 1997. Exclusive of the effects of goodwill and
covenant not to compete amortization of $0.4 million in the third quarter 1998
and $0.2 million in the third quarter 1997, general and administrative expenses
increased 19%.
Income from Operations Income from operations for the third quarter 1998
increased $3.3 million, or 183%, to $5.1 million compared to $1.8 million for
the third quarter 1997. The increase in operating income for the third quarter
1998 compared to the third quarter 1997 was primarily the result of a
non-recurring charge in the third quarter 1997, as well as the increase in gross
profit margins as a percentage of sales. Exclusive of the effects of the
non-recurring charge, the operating margin was 6.9% for the third quarter 1998
compared to 6.4% for the third quarter 1997.
Interest Expense, net Interest expense, net of interest income, increased $0.05
million, or 6%, to $0.95 million in the third quarter 1998 from $0.90 million in
the third quarter 1997. The increase in interest expense is primarily the result
of increased borrowing to fund acquisitions and to obtain early payment
discounts.
Net Income Net income for the third quarter 1998 was $2.5 million compared to a
$5.5 million net loss for the third quarter 1997. This increase was primarily
due to extraordinary and non-recurring charges in the third quarter 1997 and the
increase in gross profit partially offset by the increase in SG&A expenses.
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NINE MONTHS ENDED DECEMBER 26, 1998 COMPARED TO
NINE MONTHS ENDED DECEMBER 31, 1997
Net Sales Net sales for the nine months ended December 26, 1998 increased $85.5
million, or 63%, to $221.9 million compared to $136.3 million for the nine
months ended December 31, 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, Nyco, and Sun City.
Gross Profit Gross profit for the first nine months of 1998 increased $29.4
million, or 68%, to $72.8 million compared to $43.4 million for the first nine
months of 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
nine months of 1998 was 32.8% compared to 31.8% for the first nine months 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 $21.6 million or 63%, to $55.9 million for the first
nine months of 1998 compared to $34.3 million for the first nine months of 1997.
As a percent of sales, SG&A was 25.2% for the first nine months of 1998 and
1997.
Selling expenses increased $19.2 million, or 71%, to $46.1 million for the first
nine months of 1998 from $26.9 million for the first nine months of 1997. The
increase is due to the opening of two new branches, the expansion of five
branches, the remodeling of seven branches, increased advertising, increased
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 nine months of 1998 were 20.8%
compared to 19.8% for the first nine months of 1997.
General, administrative and distribution center expenses increased $2.4 million,
or 33%, to $9.8 million for the first nine months of 1998 from $7.4 million for
the first nine months of 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 nine months of 1998
were 4.4%, as compared to 5.4% for the first nine months of 1997. Exclusive of
the effects of goodwill and covenant not to compete amortization of $1.1 million
in the first nine months of 1998 and $0.6 million in the first nine months of
1997, general and administrative expenses increased 27%.
Income from Operations Income from operations for the first nine months of 1998
increased $9.3 million, or 122%, to $16.9 million compared to $7.6 million for
the first nine months of 1997. The increase in income from operations for the
first nine months of 1998 compared to the first nine months of 1997 was
primarily the result of the non-recurring charge in the third quarter 1997, as
well as the increase in gross profit margins as a percentage of sales. Exclusive
of the effects of the non-recurring charge in 1997, the operating margin was
7.6% for the first nine months of 1998 compared to 6.6% for the first nine
months of 1997.
Interest Expense, net Interest expense, net of interest income, decreased $1.3
million, or 32%, to $2.8 million in the first nine months of 1998 from $4.1
million for the first nine months of 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 substantially reduced the Company's interest rate. The decrease in
interest expense is partially offset by the increased borrowings to fund
acquisitions and to obtain early payment discounts.
Net Income Net income for the first nine months of 1998 was $8.5 million
compared to a $3.9 million net loss for the first nine months of 1997. This
increase was primarily due to extraordinary and non-recurring charges in the
third quarter 1997, and also the cumulative effects of the increase in gross
profit and the decrease in interest expense partially offset by the increase in
SG&A expenses.
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FINANCIAL CONDITION
Working Capital During the first nine months of 1998, operating working capital
increased $22.0 million. The change in operating working capital was primarily
the result of increases in accounts receivable of $14.8 million, inventories of
$16.4 million, prepaid expenses of $0.3 million, accounts payable of $7.9
million and accrued liabilities of $0.7 million, and a decrease in deferred
income taxes of $0.9 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 nine months of 1998, the Company used approximately $3.0
million of net cash from operating activities. Net cash used in investing
activities was $34.6 million, including $30.0 million used for acquisitions and
$4.6 million used for additions to property and equipment. Financing activities
during the first nine months of 1998 provided net cash of $37.8 million,
including $38.1 million borrowed under the Credit Facility.
Liquidity and Capital Resources At December 26, 1998, the Company had cash of
$1.9 million and working capital of $56.7 million. The Company's capitalization,
defined as the sum of long-term debt and stockholders' equity, at December 26,
1998, was approximately $132.2 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 nine months ended December
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 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. Accordingly, the Company continuously evaluates its financing
capabilities based on changing market conditions and opportunities.
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 or regional 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 Facility 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). The
Credit Facility expires October 29, 2001, and has a one year option to extend
through October 2002. 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 Facility contains certain
restrictive covenants limiting mergers, use of proceeds, indebtedness, liens,
investments, sale of assets and acquisitions. The Credit Facility 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
December 26, 1998, the Company had approximately $47.6 million available under
the aforementioned facilities.
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<PAGE> 12
During the nine months ended December 26, 1998, the Company completed five
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. Effective
December 14, 1998, the Company acquired certain assets of Sun City, Inc. The
cash portion of the acquisitions was funded from the Company's delayed draw term
loan facility in the amount of approximately $30.0 million net of cash acquired.
Additionally, the Company issued approximately 106,000 shares of common stock
related to the Watts acquisition.
Year 2000
Many existing computer programs use only two digits to identify a year in the
date field. As the century date change occurs, these programs may recognize the
year 2000 as 1900, or not at all. If not corrected, many computer systems and
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue").
The Company has developed plans to address its possible exposures related to the
impact of the Year 2000 Issue on each of its internal systems and those of third
parties. These plans are expected to be implemented primarily with the use of
internal personnel.
The Company's internal systems consist of its central operating and accounting
systems, which handle the majority of its business transactions, and other
remote operating systems, which have resulted from the Company's acquisition
program. Plans to address the Year 2000 Issue with respect to the Company's
internal systems include an assessment phase, a remediation phase and a testing
phase.
The Company has completed an assessment of its central operating and accounting
systems. This assessment has resulted in the identification of certain
modifications which were necessary to bring these systems into year 2000
compliance. These modifications have been made and are in the final testing
phase. Final testing, along with any further remediation efforts necessary to
ensure year 2000 compliance, is scheduled for completion in fiscal 1999. Based
on the results of initial testing, with respect to these two systems, the
Company does not anticipate that the Year 2000 Issue will materially impact its
operations or operating results.
An assessment of the Company's three remote operating systems in place as of
December 26, 1998 is also complete. These systems are not year 2000 compliant.
All such systems are, however, expected to be converted to the Company's central
operating and accounting systems or to be modified to ensure year 2000
compliance using vendor-supplied software. The remediation and testing phases
for these remote operating systems are expected to be completed by July 31,
1999.
Management estimates total pretax costs relating to the Year 2000 Issue to be
approximately $300,000. Approximately 75% of these costs were incurred through
December 26, 1998 and the remaining costs are expected to be incurred through
March 2000. The estimate of $300,000 excludes costs of converting remote
operating systems to the Company's central operating and accounting systems,
because such costs are not expected to be material or the conversion is
scheduled to be performed as part of the Company's normal integration
activities.
The Company believes its planning efforts are adequate to address the Year 2000
Issue and that its greatest risks in this area are primarily those that it
cannot directly control, including the readiness of its major suppliers,
customers and service providers. Failure on the part of any of these entities to
timely remediate their Year 2000 Issues could result in disruptions in the
Company's supply of materials, disruptions in its customers' ability to conduct
business and interruptions to the Company's daily operations. Management
believes that its exposure to third party risk may be minimized to some extent
because it does not rely significantly on any one supplier or customer. There
can be no guarantee, however, that the systems of other third parties on which
the Company's systems and operations rely will be corrected on a timely basis
and will not have a material adverse effect on the Company.
- 12 -
<PAGE> 13
Over the past year, the Company has been contacting its major suppliers,
customers and service providers regarding their Year 2000 Issues. However, the
Company does not currently have adequate information to assess the risk of these
entities not being able to provide goods and services to the Company. However,
because the Company believes this area is among its greatest risks, as
information is received and evaluated, the Company intends to develop
contingency plans, as deemed necessary, to safeguard its ongoing operations.
Such contingency plans may include identifying alternative supplies or service
providers, stockpiling certain inventories if alternative sources of supply are
not available, evaluating the impact and credit worthiness of non-compliant
customers and the addition of lending capacity if deemed necessary to finance
higher levels of inventory or working capital on an interim basis.
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.
- 13 -
<PAGE> 14
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
- 14 -
<PAGE> 15
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 5, 1999 /s/ Greg Grosch
----------------------------------------
Greg Grosch
President/Chief Executive Officer
February 5, 1999 /s/ Chris Lane
----------------------------------------
Chris Lane
Chief Financial Officer
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
- -------------- -------------- -------------
<S> <C> <C>
27.0 Financial Data Schedule
</TABLE>
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-27-1999 MAR-27-1999
<PERIOD-START> APR-01-1998 SEP-27-1998
<PERIOD-END> DEC-26-1998 DEC-26-1998
<CASH> 1,943 1,943
<SECURITIES> 0 0
<RECEIVABLES> 47,315 47,315
<ALLOWANCES> 1,822 1,822
<INVENTORY> 50,161 50,161
<CURRENT-ASSETS> 100,452 100,452
<PP&E> 28,778 28,778
<DEPRECIATION> 10,786 10,786
<TOTAL-ASSETS> 176,079 176,079
<CURRENT-LIABILITIES> 43,699 43,699
<BONDS> 0 0
0 0
6 6
<COMMON> 103 103
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 176,079 176,079
<SALES> 221,851 73,813
<TOTAL-REVENUES> 221,851 73,813
<CGS> 149,040 49,003
<TOTAL-COSTS> 55,914 19,701
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,798 954
<INCOME-PRETAX> 14,099 4,155
<INCOME-TAX> 5,583 1,646
<INCOME-CONTINUING> 8,515 2,509
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,515 2,509
<EPS-PRIMARY> 0.80<F1> 0.24<F1>
<EPS-DILUTED> 0.76 0.23
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
