EX-99.1 2 a2242037zex-99_1.htm EX-99.1

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Exhibit 99.1

LOGO

3400 Cumberland Boulevard SE
Atlanta, Georgia 30339
United States

              , 2020

Dear Fellow HD Supply Stockholder:

        We are pleased to inform you that the board of directors of HD Supply Holdings, Inc. has approved the spinoff to stockholders of our White Cap Construction & Industrial business unit. White Cap shares will be distributed to HD Supply stockholders on            , 2020 as a distribution intended to be tax-free to our stockholders (except for fractional shares).

        White Cap is a leading distributor of specialty concrete and construction products and services in North America serving professional contractors. Its common stock will be listed on The Nasdaq Stock Market LLC ("NASDAQ") under the symbol "WCAP."

        As a HD Supply stockholder, you will receive            White Cap common shares for every            HD Supply common share you hold as of the record date. Stockholder approval of the distribution is not required, nor are you required to take any action to receive your White Cap common shares.

        Following completion of the spinoff, HD Supply common shares will continue to trade on NASDAQ under the symbol "HDS" and HD Supply will continue to operate its Facilities Maintenance business unit.

        We invite you to learn more about White Cap and the spinoff by reviewing the enclosed information statement, which contains important information about White Cap, including financial information.

        Thank you for your continued support of HD Supply and your future support of White Cap.

    Sincerely,

 

 

Joseph J. DeAngelo
Chairman, President and Chief Executive Officer
HD Supply Holdings, Inc.

Enclosure


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

Subject to Completion, dated July 17, 2020

INFORMATION STATEMENT

White Cap Supply Holdings, Inc.

               Shares of Common Stock



        HD Supply Holdings, Inc. ("HD Supply") is sending this information statement to its stockholders in connection with the distribution of all the outstanding shares of White Cap Supply Holdings, Inc.'s ("White Cap") common stock to holders of HD Supply's common stock. As of the date of this information statement, HD Supply owns all of White Cap's outstanding common stock.

        Holders of HD Supply's common stock will be entitled to receive            share[s] of White Cap common stock for every            share of HD Supply common stock owned as of 5:00 p.m., Atlanta, Georgia time, on the record date,            , 2020. The distribution date for the spinoff will be            , 2020. After the spinoff, White Cap will be an independent, publicly traded company. HD Supply expects that, for U.S. federal income tax purposes, no gain or loss will be recognized by you, and no amount will be included in your income, in connection with the distribution, except to the extent of any cash you receive in lieu of fractional shares.

        You will not be required to pay anything for the White Cap common stock that will be distributed to you or to surrender or exchange your HD Supply common stock to receive White Cap common stock in the spinoff. The spinoff will not affect the number of shares of HD Supply common stock that you hold. White Cap common stock will be issued in book-entry form only, which means that no physical stock certificates will be issued. No approval by HD Supply stockholders of the spinoff is required or is being sought. You are not being asked for a proxy and you are requested not to send a proxy.

        As discussed under "The Spinoff—Trading of HD Supply Common Stock After the Record Date and Prior to the Distribution," if you sell your HD Supply common stock in the "regular way" market after the record date and before or on the distribution date, you will be selling your right to receive White Cap common stock in connection with the spinoff. You are encouraged to consult with your financial advisor regarding the specific implications of selling your HD Supply common stock before or on the distribution date.

        There is no current trading market for White Cap common stock. However, we expect that a limited market, commonly known as a "when-issued" trading market, for White Cap common stock will begin on or about            , 2020, and we expect that "regular way" trading of White Cap common stock will begin the first day of trading after the distribution date. We have applied to list White Cap common stock on The Nasdaq Stock Market LLC under the symbol "WCAP."



        In reviewing this information statement, you should carefully consider the matters described under the caption "Risk Factors" beginning on page 17 of this information statement.

        Neither the Securities and Exchange Commission (the "SEC"), nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

        This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

        HD Supply first mailed this information statement to its stockholders on or about            , 2020.

   

The date of this information statement is            , 2020.


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  Page  

QUESTIONS AND ANSWERS ABOUT THE SPINOFF

    1  

SUMMARY

    7  

RISK FACTORS

    17  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

    39  

THE SPINOFF

    41  

CAPITALIZATION

    51  

DIVIDEND POLICY

    52  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

    53  

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

    56  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    62  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    79  

BUSINESS

    80  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    88  

RELATIONSHIP WITH HD SUPPLY AFTER THE SPINOFF

    89  

MANAGEMENT

    94  

COMPENSATION DISCUSSION AND ANALYSIS

    103  

EXECUTIVE COMPENSATION

    121  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    130  

DESCRIPTION OF CERTAIN INDEBTEDNESS

    133  

DESCRIPTION OF CAPITAL STOCK

    134  

INDEMNIFICATION OF DIRECTORS AND OFFICERS

    137  

WHERE YOU CAN FIND MORE INFORMATION

    139  

INDEX TO COMBINED FINANCIAL STATEMENTS

    F-1  

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Presentation of Information

        Unless we otherwise state or the context otherwise indicates, all references in this information statement to "White Cap," the "Company," "us," "our," or "we" mean White Cap Supply Holdings, Inc. and its subsidiaries, and all references to "HD Supply" mean HD Supply Holdings, Inc. and its subsidiaries, other than, for all periods following the spinoff, White Cap. When referenced individually, HD Supply Holdings, Inc. is referred to as "HDS Holdings" and HD Supply, Inc. is referred to as "HDS." When referenced individually, Construction & Industrial will refer to the business pre-spinoff, and White Cap will refer to the business post-spinoff, unless the context otherwise specifies.

        Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. The fiscal years ending January 31, 2021 ("fiscal 2020") and February 2, 2020 ("fiscal 2019") both include 52 weeks. The three months ended May 3, 2020 ("first quarter 2020") and May 5, 2019 ("first quarter 2019") both include 13 weeks. The fiscal year ended February 3, 2019 ("fiscal 2018") includes 53 weeks. The fiscal years ended January 28, 2018 ("fiscal 2017") and January 29, 2017 ("fiscal 2016") both include 52 weeks.

        The term "GAAP" refers to generally accepted accounting principles in the United States of America (the "U.S.").

        The transaction in which White Cap will be separated from HD Supply (the "separation") and become an independent, publicly traded company is referred to in this information statement as the "spinoff." The distribution of White Cap common stock to stockholders of HD Supply to effect the spinoff is referred to in this information statement as the "distribution."

        This information statement is being sent solely to provide information to HD Supply stockholders who will receive White Cap common stock in connection with the spinoff. It is not provided as an inducement or encouragement to buy or sell any securities. You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information contained in this information statement, unless we are so required by applicable securities laws.


Trademarks

        We use various trademarks, service marks, trade names, and brand names, such as White Cap, Brafasco, Brigade, A.H. Harris, Kenseal, and Contractors' Warehouse, that we deem particularly important to the advertising activities and operation of our business, and some of these marks are registered in the U.S. and, in some cases, other jurisdictions. This information statement also refers to the brand names, trademarks, or service marks of other companies. All brand names and other trademarks or service marks cited in this information statement are the property of their respective holders.


Market and Industry Data

        This information statement includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms, and our own estimates based on our management's knowledge of, and experience in, the markets in which we compete. We have not independently verified market and industry data from third-party sources. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in surveys of market size.

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QUESTIONS AND ANSWERS ABOUT THE SPINOFF

Q:    What is the spinoff?

A:
The spinoff is the method by which White Cap will separate from HD Supply. To complete the spinoff, HD Supply will distribute to its stockholders all of the shares of White Cap common stock that it owns. Following the spinoff, we will be an independent, publicly traded company, and HD Supply will not retain any ownership interest in us. You do not have to pay any consideration or give up any portion of your HD Supply common stock to receive our common stock in the spinoff.

Q:    Why am I receiving this document?

A:
HD Supply is delivering this document to you because you are a holder of HD Supply common stock. This document is intended to help you understand how the spinoff will affect your investment in HD Supply and your investment in White Cap after the spinoff.

Q:    What is the expected date for the completion of the spinoff?

A:
The completion and timing of the spinoff are dependent on a number of conditions, but if the conditions are timely met, we expect the spinoff to be completed on                 , 2020. See "The Spinoff—Spinoff Conditions and Termination."

Q:    What are the reasons for the spinoff?

A:
HD Supply's board of directors and management believe that our separation from HD Supply will provide the following benefits: (i) position ourselves within our industry as a focused, independent company; (ii) pursue both organic growth and acquisition opportunities aligned with our strategic priorities; (iii) create a more optimal capital structure and capital allocation consistent with our own independent financial profile; and (iv) align our incentive compensation with our financial performance.

Q:    What is the Company?

A:
The Company is a Delaware corporation that was formed on January 10, 2020 for the purpose of holding the White Cap businesses following the spinoff. Prior to the transfer by HD Supply to us of these businesses, which will occur in connection with the spinoff, we will have had no operations other than those incidental to our formation or undertaken in preparation for the spinoff.

Q:    Who will manage White Cap after the spinoff?

A:
We will benefit from an experienced leadership team after the spinoff. James A. Rubright, a current independent director of HD Supply, will serve as our independent Board Chairman. Mr. Rubright has significant experience in public company management and board leadership, and a deep understanding of operations, strategy, and risk management. John A. Stegeman, formerly President of the Construction & Industrial reporting segment of HD Supply, will serve as Chief Executive Officer of White Cap bringing his 34+ years of relevant experience to the job. Mr. Stegeman will also serve as a director. Alan W. Sollenberger, formerly Chief Operating Officer of the Construction & Industrial reporting segment of HD Supply, will serve as President of White Cap bringing his 12+ years of industrial distribution experience to the job. Shawn G. Meredith, who has over 12 years of experience as a chief financial officer, and over 13 years of industrial products experience, seven of which have been focused on distribution, will serve as Chief Financial Officer of White Cap. Susan V. Stucker, who has over 30 years of legal experience, including 12 years with HD Supply leading labor and employment law teams, and, since January 2016, has also led HD Supply's litigation, labor and employment law, and risk management teams,

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    will serve as White Cap's General Counsel and Corporate Secretary. Elizabeth H. Malkin, who has nearly 20 years of experience in the human resources field and, since October 2006, has held various roles in the areas of talent acquisition, organizational effectiveness, talent management, and learning at HD Supply, will serve as White Cap's Chief Human Resources Officer. We will also benefit from the knowledge, experience, and skills of our full board of directors. For more information regarding our management team and our board of directors following the spinoff, see "Management."

Q:    What is being distributed in the spinoff?

A:
HD Supply will distribute            share[s] of White Cap common stock for every            share of HD Supply common stock outstanding as of the record date for the spinoff. The number of HD Supply shares you own and your proportionate interest in HD Supply will not change as a result of the spinoff. Immediately following the spinoff, your proportionate interest in White Cap will be identical to your proportionate interest in HD Supply (as adjusted for any fractional shares).

Q:    What is the record date for the spinoff, and when will the spinoff occur?

A:
The record date is              , 2020, and ownership is determined as of 5:00 p.m., Atlanta, Georgia time, on that date. White Cap common stock will be distributed on the distribution date,              , 2020.

Q:    Is a stockholder vote required to approve the distribution or spinoff?

A:
No stockholder vote is required to approve the distribution or spinoff.

Q:    Can HD Supply decide to cancel the spinoff even if all the conditions have been met?

A:
Yes. The spinoff is subject to the satisfaction or waiver by HD Supply, at the direction of its board of directors, of certain conditions, including, among others, approval of the HD Supply board of directors, declaration of the effectiveness of our registration statement on Form 10 of which this information statement is a part, and receipt of an opinion from our tax counsel to the effect that the distribution of all of the shares of White Cap common stock owned by HD Supply to the stockholders of HD Supply will qualify under the Internal Revenue Code of 1986, as amended (the "Code") as a transaction that is generally tax-free to the HD Supply stockholders, except with respect to any cash received in lieu of fractional shares. See "The Spinoff—Spinoff Conditions and Termination." Even if all the conditions are met, HD Supply has the right not to complete the spinoff if, at any time prior to the distribution, the board of directors of HD Supply determines, in its sole and absolute discretion, that the spinoff is not in the best interests of HD Supply or its stockholders or that market conditions or other circumstances are such that it is not advisable to separate the White Cap business from HD Supply at that time. In the event HD Supply, at the direction of its board of directors, waives a material condition or amends, modifies, or abandons the spinoff, HD Supply will notify its stockholders in a manner reasonably calculated to inform them of such modification with a press release, Current Report on Form 8-K, or other similar means.

Q:    As a holder of HD Supply common stock as of the record date, what do I have to do to participate in the spinoff?

A:
You are not required to take any action to participate in the distribution, although you are urged to read this entire document carefully. You will receive               share[s] of White Cap common stock for every              share of HD Supply common stock held as of the record date and retained through the distribution date. You may also participate in the distribution if you purchase HD

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    Supply common stock in the "regular way" market after the record date and retain your HD Supply common stock through the distribution date. See "The Spinoff—Trading of HD Supply Common Stock After the Record Date and Prior to the Distribution."

Q:
If I sell my shares of HD Supply common stock before or on the distribution date, will I still be entitled to receive shares of White Cap common stock in the spinoff?

A:
If you own shares of HD Supply common stock on the record date and hold such shares through the distribution date, you will receive shares of White Cap common stock. However, if you sell your shares of HD Supply common stock after the record date and before or on the distribution date, you will also be selling your right to receive shares of White Cap common stock. See "The Spinoff—Trading of HD Supply Common Stock After the Record Date and Prior to the Distribution." You are encouraged to consult with your financial advisor regarding the specific implications of selling your HD Supply common stock before or on the distribution date.

Q:    How will fractional shares be treated in the spinoff?

A:
Any fractional shares of common stock otherwise issuable to you will be sold on your behalf, and you will receive a cash payment with respect to that fractional share. For an explanation of how the cash payments for fractional shares will be determined, see "The Spinoff—Treatment of Fractional Shares."

Q:    Will the spinoff affect the trading price of my HD Supply common stock?

A:
Yes, the trading price of HD Supply common stock immediately following the spinoff is expected to be lower than immediately prior to the spinoff because the trading price of HD Supply's common stock will no longer reflect the value of White Cap and HD Supply. However, we cannot provide you with any guarantees as to the prices at which the HD Supply common stock or White Cap common stock will trade following the spinoff.

Q:    Will my HD Supply common stock continue to trade on a stock market?

A:
Yes, HD Supply common stock will continue to be listed on The Nasdaq Stock Market LLC ("NASDAQ") under the symbol "HDS."

Q:
What are the U.S. federal income tax consequences to me of the distribution of shares of White Cap common stock pursuant to the spinoff?

A:
The spinoff is conditioned upon the receipt by HD Supply of an opinion of counsel to the effect that the distribution of all of the shares of White Cap common stock owned by HD Supply to the stockholders of HD Supply will qualify under the Code as a distribution that is generally tax-free to the HD Supply stockholders. On the basis that the distribution so qualifies, for U.S. federal income tax purposes, you will not recognize any gain or loss, and no amount will be included in your income in connection with the distribution, except with respect to any cash received in lieu of fractional shares. See "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution."

Q:
When will I receive my shares of White Cap common stock? Will I receive a stock certificate for my shares of White Cap common stock distributed as a result of the spinoff?

A:
Registered holders of HD Supply common stock who are entitled to participate in the spinoff will receive a book-entry account statement reflecting their ownership of White Cap common stock. For additional information, registered stockholders in the U.S., Canada, or Puerto Rico should contact HD Supply's transfer agent, American Stock Transfer & Trust Company, LLC, at (800) 937-5449 or through email at help@astfinancial.com. Stockholders located outside the U.S.,

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    Canada, and Puerto Rico may call (718) 921-8137. If you would like to receive physical certificates evidencing your shares of White Cap common stock, please contact White Cap's transfer agent, American Stock Transfer & Trust Company, LLC, at (800) 937-5449 or through email at help@astfinancial.com. Stockholders located outside the U.S., Canada, and Puerto Rico may call (718) 921-8137. See "The Spinoff—When and How You Will Receive White Cap Shares."

Q:    What if I hold my shares of common stock through a broker, bank, or other nominee?

A:
HD Supply stockholders who hold their shares of common stock through a broker, bank, or other nominee will have their brokerage account credited with shares of White Cap common stock. For additional information, those stockholders should contact their broker, bank, or other nominee directly.

Q:
What if I have stock certificates reflecting my shares of HD Supply common stock? Should I send them to the transfer agent or to HD Supply?

A:
No, you should not send your stock certificates to the transfer agent or to HD Supply. You should retain your HD Supply stock certificates.

Q:    Will White Cap incur any debt prior to or at the time of the spinoff?

A:
As part of the spinoff, we expect to incur approximately $750 million of new debt, which we expect to consist of $150.0 million of borrowings under the $600 million ABL Facility (as defined in "Description of Certain Indebtedness—ABL Facility") providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $600 million and approximately $600 million in aggregate principal amount of senior notes. See "Description of Certain Indebtedness."

Q:    Are there risks to owning common stock of White Cap?

A:
Yes. Ownership of White Cap common stock is subject to both general and specific risks relating to White Cap's business, the industry in which it operates, its ongoing contractual relationships with HD Supply, and its status as a separate, publicly traded company. Ownership of White Cap common stock is also subject to risks relating to the spinoff. See "Risk Factors."

Q:    Does White Cap intend to pay cash dividends?

A:
We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain earnings for use in the operation and expansion of our business. Any future payment of dividends will be at the discretion of our board of directors and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions, and other factors that our board of directors may deem relevant. See "Dividend Policy."

Q:    Will White Cap common stock trade on a stock market?

A:
Yes. Currently, there is no public market for our common stock. We will apply to list our common stock on NASDAQ under the symbol "WCAP." We cannot predict the trading price for our common stock when such trading begins.

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Q:
What will happen to HD Supply stock options, restricted stock, performance awards, restricted stock units, and deferred stock units?

A:
In general, it is currently anticipated that each outstanding HD Supply equity incentive award held by a White Cap employee or White Cap director as of the spinoff will be adjusted or converted into an award with respect to White Cap common stock and each other HD Supply equity incentive award will also be adjusted or converted but will continue to relate to HD Supply common stock. In each case, the award will be equitably adjusted or converted in a manner intended to preserve the aggregate intrinsic value of the original HD Supply equity award and, other than regarding performance awards described below, the terms of the equity awards, such as vesting dates, will generally remain substantially the same. For information regarding the performance awards, see "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives—Performances Awards." For further information regarding the treatment of equity awards in the spinoff, see "The Spinoff—Stock-Based Plans."

Q:    What will the relationship between HD Supply and White Cap be following the spinoff?

A:
In connection with the spinoff, we and HD Supply will enter into a number of short-term agreements that will govern our future relationship. As a result of these agreements, among other things, following the spinoff, (i) we and HD Supply will indemnify the other's affiliates and their respective past and present directors, officers and employees, and each of their successors and assigns, against certain liabilities incurred in connection with the spinoff and our and HD Supply's respective businesses, (ii) we and HD Supply will provide and/or make available various administrative services and assets to each other, and (iii) we and HD Supply will enter into several agreements to govern our relationship following the distribution. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us."

Q:    Will I have appraisal rights in connection with the spinoff?

A:
No. Holders of HD Supply common stock are not entitled to appraisal rights in connection with the spinoff.

Q:    Who is the transfer agent for your shares of common stock?

A:
American Stock Transfer & Trust Company, LLC.

Q:    Who is the distribution agent for the spinoff?

A:
American Stock Transfer & Trust Company, LLC.

Q:    Whom can I contact for more information?

A:
If you have questions relating to the mechanics of the distribution of White Cap common stock, you should contact the distribution agent:

By Mail, Overnight Courier, or Hand-Delivery to:

    American Stock Transfer & Trust Company, LLC
    6201 15th Avenue
    Brooklyn, NY 11219

By Phone or Email:

    Telephone: (800) 937-5449 or (718) 921-8137

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    Outside the U.S., Canada and Puerto Rico: (718) 921-8137
    Email: help@astfinancial.com

Before the distribution, if you have questions relating to the spinoff, you should contact HD Supply at:

    HD Supply
    3400 Cumberland Blvd SE
    Atlanta, Georgia
    Attention: General Counsel and Corporate Secretary
    Telephone: (770) 852-9000

After the distribution, if you have questions relating to White Cap, you should contact White Cap at:

    White Cap
    6250 Brook Hollow Parkway
    Norcross, Georgia 30071
    Attention: General Counsel and Corporate Secretary
    Telephone: (404) 879-7740

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SUMMARY

        The following is a summary of some of the information contained in this information statement. It does not contain all the details concerning White Cap or the spinoff, including information that may be important to you. We urge you to read this entire document carefully, including "Risk Factors," "Selected Historical Combined Financial Data," and "Unaudited Pro Forma Combined Financial Data" and the combined financial statements and the notes to those financial statements included elsewhere in this information statement.

        Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of the spinoff, which includes the separation of White Cap from HD Supply and the related distribution of our common stock.


Our Company

        White Cap is a leading distributor of specialty concrete and construction products and services in North America serving professional contractors across non-residential, residential and other markets. With 269 customer-facing locations across the U.S. and Canada, we have nearly twice the number of locations compared to our direct largest competitor. Non-residential, residential and other markets accounted for approximately 69%, 25% and 6% of our fiscal 2019 Net sales, respectively, with "other markets" including sales in Canada and sales to other non-contractor customers. We believe the markets for our products and services present opportunities for continued significant growth. We aspire to set the standard of excellence in delivering industry-leading products, services, and expertise through our experienced associates and seamless customer experience. This aspiration drives us and is reflected in the customer and market focus, intense teamwork, process excellence, and trusted relationships that define our culture. We believe our long-standing customer relationships, scale and branch footprint, talented associates with deep industry knowledge, extensive product and service offering, strategic supplier relationships, integrated technology platform, and intense focus on the customer distinguish us from other distributors and have driven above-market growth and attractive returns on invested capital.

        Our portfolio of industry-leading products and services provides a unique "one-stop-shop" value proposition of professional products and services, spanning approximately 400,000 stock keeping units ("SKUs"), including concrete accessories and chemicals, engineered materials and fastening systems, steel products, tools and equipment, building envelope, safety and consumables, and wood products. We operate 269 customer-facing locations in 39 U.S. states and six Canadian provinces where our approximately 5,600 experienced associates provide support for our more than 200,000 customers annually. We also directly support our customers with experienced associates and through our fleet of more than 1,200 trucks for critical same day/next day jobsite deliveries. Our products and services span the entire lifecycle of a project from excavation to project completion, and maintenance and repair. We utilize the various brands in our business, including White Cap, Brafasco, and Contractors' Warehouse.

        Our value-add services include project pre-bid assistance, jobsite delivery, two-hour ready will-call, rebar fabrication, tilt-up concrete brace and form rental, value engineering, and product, application, and jobsite safety training. We engage our customers through a variety of sales channels, including professional account managers and an inside sales force, direct marketing and merchandising promotions, programs utilizing market and contractor trade-specific product catalogs, and integration with our digital platform. Our distribution network allows us to provide rapid, reliable, and on-time delivery and customer pickup throughout the U.S. and Canada. We believe that our comprehensive supply chain solutions improve the effectiveness and efficiency of our customers' business. Additionally, our technology infrastructure provides integrated workflow capabilities for our customers, and enables dynamic pricing, budgeting, reporting, and analytical capabilities. We believe customers view us as an integral part of the value chain due to our extensive product knowledge, expansive product availability, and ability to directly integrate with their systems and workflows.

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        We estimate that the aggregate size of the domestic addressable market for specialty concrete and construction products was approximately $42 billion in 2019. We define our domestic addressable market as the total dollars spent in the U.S. for our products and services excluding products sold direct to customers from manufacturers.

        For fiscal 2019, we generated $3.0 billion in Net sales, representing 2.9% growth over fiscal 2018, excluding the impact of acquisitions and the 53rd week of fiscal 2018; $180.9 million of Net income, representing a 4.1% increase over fiscal 2018; $326.7 million of Adjusted EBITDA, representing 1.0% growth over fiscal 2018; and $249.5 million of operating income, representing a 2.1% increase over fiscal 2018. For a reconciliation of Net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA, see "Selected Historical Combined Financial Data—Selected combined financial information."


FY'19 Net Sales by Product Categories

GRAPHIC


FY'19 Net Sales by Market

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Our Competitive Strengths

        We believe that we benefit significantly from the following strengths:

        Leadership positions with significant scale in large, fragmented markets. We are a leading distributor for specialty concrete and construction products in North America. We estimate that we have an approximately 6% share of a competitive $42 billion total domestic addressable market. We define our domestic addressable market as the total dollars spent in the U.S. for our products and services excluding products sold direct to customers from manufacturers. The total addressable market is fragmented, with a number of smaller local and regional competitors that focus on distinct pieces of the total addressable market. The majority of our customers make purchase decisions at a local level while demanding a high level of service and availability of a broad set of complex products from a large number of suppliers. As a result, White Cap competes both with smaller local and regional competitors as well as other national distributors. Because we believe the majority of the total addressable market is served by local or regional competitors, we believe we have an opportunity for long-term profitable growth, particularly given the large number of our customer-facing locations across the U.S. and Canada.

        Strong value proposition for customers as "one-stop-shop" for products and services. We leverage our experienced associates as well as our branch and jobsite presence to better serve our customers. Specifically, we provide specialty concrete and construction products serving professional concrete contractors and self-performing general contractors, as well as all professional contractors who require power tools and accessories, safety equipment, and fastening products in non-residential, residential and other markets. Our comprehensive portfolio of approximately 400,000 SKUs includes concrete accessories and chemicals, engineered materials and fastening systems, steel products, tools and equipment, building envelope, safety and consumables, and wood products.

        We focus on specialized solutions that benefit from a consultative sales process, and we serve the entire lifecycle of a project from excavation to project completion, and maintenance and repair. Our experienced associates serve as trusted resources to our customers. Our products and services are utilized on some of the nation's most visible and challenging multi-year projects including data and distribution centers, corporate headquarters, and state of the art recreational destinations, such as casinos and sports arenas, critical infrastructure, such as airports, water treatment plants, and road and bridge construction and repair.

        We also provide services to our customers including pre-bid assistance, jobsite delivery, two-hour ready will-call, rebar fabrication, tilt-up concrete brace and form rental, value engineering, and product, application, and jobsite safety training. We utilize our fleet of more than 1,200 trucks to provide same day/next day jobsite delivery and provide advice to our customers in our 269 customer-facing locations.

        We believe that our experienced associates and the breadth of our products and services provide us with a significant competitive advantage versus our smaller local and regional competitors, which helps us secure repeat business and earn new business.

        Diversity across customers, suppliers, geographic footprint, and end-markets. We believe that our relationships with a broad set of customers provides visibility into the future needs of our marketplace and diversifies our business across a wide array of project types. Additionally, our broad customer base of more than 200,000 contractors limits customer concentration, as no single customer is responsible for more than 0.7% of our Net sales and our top 10 customers represented only approximately 3.4% of our Net sales during fiscal 2019. We maintain strong and long-tenured relationships with many of our approximately 4,300 suppliers, both domestic and international. We maintain relationships with multiple suppliers for many of our products, so we are able to limit the risk of product shortages and supply chain disruptions while at the same time offering a compelling assortment of product options for our customers. No single supplier is responsible for more than 5.3% of our cost of goods sold and our top

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10 suppliers represented only approximately 23% of our cost of goods sold during fiscal 2019. Our diverse geographic footprint of 269 customer-facing locations throughout 39 U.S. states and six Canadian provinces limits our dependence on any one region, and allows us to better serve large, national customers who benefit from our scale.

        Leadership with significant relevant customer service experience. Our executive management team has an average of 28 years of relevant industry experience across executive and field positions, primarily with HD Supply and its predecessors.

        Our Chief Executive Officer, John Stegeman, has led HD Supply Construction & Industrial since April 2010 and possesses over 34 years of relevant experience. Previously, Mr. Stegeman worked for Ferguson Enterprises, a U.S distributor of plumbing supplies, PVF, waterworks, and fire and fabrication products company, for 24 years, serving as its President and Chief Executive Officer from 2005 to 2009. At Ferguson, Mr. Stegeman oversaw a number of successful acquisitions which provides him with relevant experience that are expected to benefit White Cap as a standalone company.

        Our President, Alan Sollenberger, has over 12 years of industrial distribution experience, most recently serving as President of White Cap since November 2019, Chief Operating Officer from February 2017 to November 2019, Chief Administrative Officer from April 2015 to February 2017, Vice President, Chief Financial Officer from May 2010 to April 2015, and, prior to that, held various finance positions at HD Supply and The Home Depot.

        Our Chief Financial Officer, Shawn Meredith, has over 12 years of experience as a chief financial officer and over 13 years of industrial products experience, seven of which have been focused on distribution, before joining HD Supply Construction & Industrial in May 2019. Her prior roles include serving as CFO for Watsco subsidiary, Gemaire Distributors and CFO for Innovative Therapies.

        Our General Counsel and Corporate Secretary, Susan Stucker, has over 30 years of legal experience, including 13 years with HD Supply. From April 2007 to December 2015, Ms. Stucker was responsible for labor and employment law matters, and, since January 2016, has led HD Supply's litigation, employment law, and risk management teams.

        Our Chief Human Resources Officer, Elizabeth Malkin, has nearly 20 years of experience in the human resources field and, since October 2006, has held various roles in the areas of talent acquisition, organizational effectiveness, talent management, and learning at HD Supply.

        All of our leaders are focused on promoting team chemistry and creating an engaging work environment that incentivizes employees to deliver exceptional service to customers.

        Customer-integrated technology infrastructure. We have an integrated information technology ("IT") infrastructure that enables us to leverage our inventory and data to better service our customers. We have invested in customer-specific applications, enabling us to reduce transactional friction and improve customer connectivity. We intend to continue to invest in integrated technology platforms to improve efficiency and the overall customer experience. We believe these capabilities differentiate White Cap from our smaller competitors.

        Deep preferred supplier relationships. We have developed extensive and long-term relationships with many of our suppliers who, we believe, value our history of close coordination, national scale, and field capabilities. This provides us with access to new products, custom training on specialized products, and early awareness of upcoming projects, making us the distributor of choice for many of our customers.

        Cooperative culture focused on performance and excellence. We believe our focus on customer success, a local market managed sales approach, intense teamwork, process excellence, and trusted relationships drive our approximately 5,600 experienced associates to perform at the highest level. Our

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associates benefit from strong industry experience and participate in ongoing leadership and sales training.

        Strong financial profile with attractive operating cash flows. We benefit from purchasing scale and strategic initiatives that increase our Net income and Adjusted EBITDA. Our low capital requirements and effective capital management result in strong operating cash flows.


Our Business Strategy

        We plan to further strengthen our competitive position, deliver profitable growth, and create stockholder value through our growth initiatives, including:

        Driving sales leadership. We intend to further expand our position as a leading distributor for specialty concrete and construction products by increasing our size and scale across customers, geographies, and products. The key components of this strategy are growing market share with existing customers, acquiring new customers, and enhancing customer connectivity.

        Expanding trades and services. We have identified a number of products and services across key markets that are currently underrepresented or otherwise not offered by us. To capture these opportunities, we plan to work with new and existing suppliers to grow the product and service line for our customers at competitive prices and to add the necessary training to allow our experienced associates to assist with respect to these capabilities. As we continue to grow, we believe adding these incremental products and services will further benefit our strong customer and supplier relationships while also enabling us to expand our market share.

        Pursuing new store openings to enhance strategic positioning in existing markets and to enter new markets. We will continue to invest in new store openings. We intend to pursue new store openings both in our existing markets where we see an opportunity to leverage our expansive product and service capabilities and in other major metropolitan markets across the U.S. and Canada. We believe new store openings provide an attractive path to growing our footprint given easy integration with our existing operations. Since 2011, we have opened 50 new stores. These locations have allowed us to both enhance our market share in previously existing markets and to grow into new geographies.

        Pursuing value-enhancing acquisitions. Acquisitions are core to our strategic business model. We expect the spinoff and our customized post-distribution capital structure to support the active pursuit of potential acquisition targets with financial metrics that align with our financial profile and capital allocation strategy. In this regard, we intend to complement our history of organic growth through select acquisitions that would be expected to broaden our product offering, geographic footprint, and service capabilities. Acquisitions have been an effective way to grow in both existing and new geographies, and White Cap and its management team have a successful track record of sourcing, acquiring, and integrating over 30 acquisitions since 1997. We believe that our scale and reputation make us the acquirer of choice for many smaller industry participants. Most recently, we acquired A.H. Harris Construction Supplies ("A.H. Harris"), which has provided us with access to large, dense, and growing metropolitan areas in the Northeast. A.H. Harris added capabilities in proprietary forming and shoring solutions, waterproofing, and rebar fabrication. In addition, we believe we acquired significant talent through the A.H. Harris acquisition.

        Setting the standard of excellence. Providing industry-leading products, services, and expertise through our experienced associates and exceptional customer experience.

        Focusing on driving customer success. We earn the trust of our valued customers by consistently delivering what is needed, when they need it, and where they need it.

        Committing to meaningful associate, supplier, and community relationships. Our dedication to providing safe work environments, exceptional experiences, and compelling opportunities supports our

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efforts to attract and retain the most qualified and motivated associates in the industry. Similarly, we believe that we maintain excellent relationships with our suppliers and strive to be their first call when choosing a go-to-market partner for their products. Consistent with our local presence and focus, we actively invest in the communities in which we operate, supporting organizations, programs, and events that foster community development both financially and through the volunteer efforts of our associates.

        Continuing to invest in attracting, retaining, and developing world-class talent. We will maintain and expand our already-strong talent base by continuing to develop our employees through leadership programs and workshops, which provide specialized training and learning tools. In addition, we deliver attractive opportunities to our associates while leveraging their knowledge and expertise by redeploying them across our organization. Additionally, the spinoff will allow us to develop our own equity incentive compensation program to retain employees and attract new talent.

        Investing in further integration with our customers. We continue to invest in winning additional business with our existing customers. In particular, we are looking to invest in capabilities that enable customer-facing integrations and digital platform capabilities, which we believe will make White Cap the preferred partner for our customers and enable deeper relationships and create opportunities for outsized growth.

        Continuing to focus on operational excellence. We continue to emphasize and execute on our operational initiatives to leverage our scale for improved profitability, strengthen our pricing and category management capabilities, enhance our supply chain efficiency, and invest in IT solutions to drive productivity throughout the business.


Other Information

        Although the history of the White Cap brand dates back to 1976, White Cap was incorporated as a Delaware corporation on January 10, 2020 as an indirect wholly owned subsidiary of HD Supply. On September 24, 2019, HD Supply announced its intention to separate into two public companies, White Cap and HD Supply. The transaction is expected to be structured as a spinoff of the White Cap business to the stockholders of HD Supply and to be generally tax-free to the HD Supply stockholders for U.S. federal income tax purposes, except to the extent of any cash received in lieu of fractional shares. Upon conclusion of the spinoff, our principal executive offices will be located at 6250 Brook Hollow Parkway, Norcross, Georgia 30071. Our telephone number is (404) 879-7740 and our website address is whitecap.com. Information contained on, or connected to, our website or HD Supply's website does not and will not constitute part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.

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Summary of the Spinoff

        The following is a brief summary of the terms of the spinoff. Please see "The Spinoff" for a more detailed description of the matters described below.

Distributing company

  HD Supply, which is currently the ultimate parent company of White Cap. After the distribution, HD Supply will not retain any shares of White Cap's common stock.

Distributed company

 

White Cap, which is currently an indirect wholly owned subsidiary of HD Supply. After the distribution, White Cap will be an independent, publicly traded company.

Shares to be distributed

 

Approximately             million shares of White Cap common stock. Our common stock to be distributed will constitute all of our outstanding common stock immediately after the spinoff.

Distribution ratio

 

Each holder of HD Supply common stock will receive            share[s] of White Cap common stock for every            share of HD Supply common stock owned by such holder on the record date.

Fractional shares

 

The transfer agent identified below will aggregate fractional shares into whole shares and sell them on behalf of stockholders in the open market, when, how, and through which broker-dealers as determined in its sole discretion without any influence by HD Supply or us, at prevailing market prices and distribute the proceeds pro rata to each HD Supply stockholder who would otherwise have been entitled to receive a fractional share in the spinoff. You will not be entitled to any interest on the amount of payment made to you in lieu of a fractional share. The transfer agent is not an affiliate of HD Supply or us. See "The Spinoff—Treatment of Fractional Shares."

Distribution procedures

 

On or about the distribution date, the distribution agent identified below will distribute our common stock by crediting those shares to book-entry accounts established by the transfer agent for persons who were stockholders of HD Supply as of 5:00 p.m., Atlanta, Georgia, on the record date. You will not be required to make any payment or surrender or exchange your HD Supply common stock or take any other action to receive our common stock. However, as discussed below, if you sell HD Supply common stock in the "regular way" market between the record date and the distribution date, you will be selling your right to receive the associated White Cap common stock in the distribution. Registered stockholders will receive additional information from the transfer agent shortly after the distribution date. Beneficial stockholders will receive information from their brokerage firms.

Distribution agent, transfer agent and registrar for our common stock

 

American Stock Transfer & Trust Company, LLC.

Record date

 

5:00 p.m., Atlanta, Georgia time, on              , 2020.

Distribution date

 

              , 2020.

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Trading before or on the distribution date

 

It is anticipated that, beginning shortly before the record date and continuing up to and through the distribution date, HD Supply common stock will trade in two markets on NASDAQ, a "regular way" market and an "ex-distribution" market. Investors will be able to purchase HD Supply common stock without the right to receive shares of White Cap common stock in the ex-distribution market for HD Supply common stock. Any holder of HD Supply common stock who sells HD Supply common stock in the "regular way" market on or before the distribution date will be selling the right to receive shares of White Cap common stock in the spinoff. You are encouraged to consult with your financial advisor regarding the specific implications of selling HD Supply common stock before or on the distribution date.

Assets and liabilities transferred to the distributed company

 

Before the distribution date, we and HD Supply will enter into a separation and distribution agreement that will contain key provisions relating to the spinoff, including the separation of our business from HD Supply, the transfer of HD Supply's business to us, and the distribution of our common stock. The separation and distribution agreement will identify the assets to be transferred, liabilities to be assumed, and contracts to be assigned to us by HD Supply in the spinoff and describe when and how these transfers, assumptions and assignments will occur. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Separation and Distribution Agreement."

Relationship with HD Supply after the spinoff

 

Before the distribution date, we and HD Supply will enter into several agreements to govern our relationship following the distribution, including a tax matters agreement, an employee matters agreement, a transition services agreement, and other agreements governing ongoing commercial relationships. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us."

Indemnities

 

The separation and distribution agreement to be entered into in connection with the spinoff will provide for cross-indemnification between HD Supply and us. Please see "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Separation and Distribution Agreement." In addition, we will indemnify HD Supply under the tax matters agreement that we will enter into in connection with the spinoff for certain tax matters, including for actions taken by us that cause the spinoff to become taxable to HD Supply. Please see "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution" and "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Tax Matters Agreement."

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Material U.S. federal income tax consequences

 

A condition to the closing of this spinoff is HD Supply's receipt of an opinion of counsel to the effect that the distribution of all of the shares of White Cap common stock owned by HD Supply to the stockholders of HD Supply will qualify under the Code, as a distribution that is generally tax-free to the HD Supply stockholders, except with respect to any cash received in lieu of fractional shares. You should review the section entitled "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution" for a discussion of the material U.S. federal income tax consequences of the distribution.

Conditions to the spinoff

 

We expect that the spinoff will be completed on              , 2020, provided that the HD Supply board of directors, in its sole and absolute discretion, has determined that the conditions set forth under the caption "The Spinoff—Spinoff Conditions and Termination" have been satisfied.

Reasons for the spinoff

 

HD Supply's board of directors and management believe that our separation from HD Supply will provide the following benefits: (i) position ourselves within our industry as a focused, independent company; (ii) pursue both organic growth and acquisition opportunities aligned with our strategic priorities; (iii) create a more optimal capital structure and capital allocation consistent with our own independent financial profile; and (iv) align our incentive compensation with our financial performance.

Stock exchange listing

 

Currently there is no public market for our common stock. We have applied for listing of our common stock on NASDAQ under the symbol "WCAP." We anticipate that trading will commence on a "when-issued" basis approximately two trading days before the record date. When-issued trading refers to a transaction made conditionally because the security has been authorized but not yet issued. Generally, common stock may trade on NASDAQ on a when-issued basis after our common stock has been authorized but not yet formally issued, which is often initiated by NASDAQ prior to the record date relating to the issuance of such common stock. When-issued transactions are settled after our shares of common stock have been issued to HD Supply stockholders. On the first trading day following the distribution date, when-issued trading will end and regular way trading will begin. "Regular way" trading refers to trading after a security has been issued. We cannot predict the trading price for our shares of common stock following the spinoff. In addition, following the spinoff, HD Supply common stock will remain outstanding and will continue to trade on NASDAQ under the symbol "HDS."

Dividend policy

 

We do not anticipate paying any dividends on our common stock in the foreseeable future, and we intend to retain earnings for use in the operation and expansion of our business. The declaration and payment of dividends, if any, will be subject to our board of directors' discretion, and will depend on various factors. See "Dividend Policy."

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Risk factors

 

Ownership of White Cap common stock is subject to both general and specific risks relating to White Cap's business, the industry in which it operates, its ongoing contractual relationships with HD Supply, and its status as a separate, publicly traded company. Ownership of White Cap common stock is also subject to risks relating to the spinoff. These risks are described in the "Risk Factors" section of this information statement. You are encouraged to read that section carefully.

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RISK FACTORS

        The following are certain risk factors that could affect our business, financial condition, results of operations, and cash flows. The risks that are highlighted below are not the only risks that we face. You should carefully consider each of the following risks and all of the other information contained in this information statement. Some of these risks relate principally to our spinoff from HD Supply, while others relate principally to our business and the industry in which we operate or to the securities markets generally and ownership of our common stock. If any of the following risks actually occur, our business, financial condition, results of operations, or cash flows could be negatively affected.

Risks Relating to the Spinoff

We may not realize the potential benefits from the spinoff.

        We may not realize the potential benefits that we expect from our spinoff from HD Supply. We have described those anticipated benefits elsewhere in this information statement. See "The Spinoff—Reasons for the Spinoff." In addition, as described elsewhere in this information statement, we will incur additional costs related to our separation from HD Supply. We also expect to incur additional ongoing costs related to operating as an independent public company and replacing the services previously provided by HD Supply. We currently estimate those additional costs will range from approximately $20 million to $25 million in excess of our fiscal 2019 reported Selling, general, and administrative expenses, excluding items impacting comparability. Our estimate of ongoing costs takes into consideration the benefit that we will receive from the elimination of cost allocations from HD Supply after the spinoff is completed. The costs associated with performing or outsourcing these functions may exceed these amounts. A significant increase in the costs of performing or outsourcing these functions could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We have no history operating as an independent public company. We will incur additional expenses to create the corporate infrastructure necessary to operate as an independent public company and we will experience increased ongoing costs in connection with being an independent public company.

        Our business has historically used HD Supply's corporate infrastructure and services to support our business functions. The expenses related to establishing and maintaining this infrastructure have been spread across each of HD Supply's businesses and charged to us on a cost-allocation basis. Except as described under the caption "Relationship with HD Supply After the Spinoff," after the distribution date we will no longer have access to HD Supply's infrastructure or services and we will need to establish our own. Following the spinoff, HD Supply will continue to provide some services to us on a transitional basis pursuant to a transition services agreement. For more information regarding the transition services agreement, see "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Transition Services Agreement." However, we cannot assure you that all such functions will be successfully executed by HD Supply during the transition period or that we will not have to expend significant efforts or costs materially in excess of those estimated in the transition services agreement. Any interruption in these services could have a material adverse effect on our business, financial condition, results of operations, and cash flows. In addition, at the end of this transition period, we will need to perform these functions ourselves or hire third parties to perform these functions on our behalf.

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Our historical combined and pro forma financial information are not necessarily indicative of our future financial condition, results of operations, or cash flows nor do they reflect what our financial condition, results of operations, or cash flows would have been as an independent public company during the periods presented.

        The historical combined financial information we have included in this information statement does not necessarily reflect what our financial condition, results of operations, or cash flows would have been as an independent public company during the periods presented and is not necessarily indicative of our future financial condition, future results of operations, or future cash flows. This is primarily a result of the following factors:

    our historical combined financial results reflect allocations of expenses for services historically provided by HD Supply, and may not fully reflect the increased costs associated with being an independent public company, including significant changes that will occur in our cost structure, management, financing arrangements, and business operations as a result of our spinoff from HD Supply;

    our working capital and capital expenditure requirements historically have been satisfied as part of HD Supply's corporate-wide capital access, capital allocation, and cash management programs; our debt structure and cost of debt and other capital may be significantly different from that reflected in our historical combined financial statements; and

    the historical combined financial information may not fully reflect the effects of certain liabilities that will be incurred or assumed by us and may not fully reflect the effects of certain assets that will be transferred to, and liabilities that will be assumed by, HD Supply.

        The pro forma adjustments are based on available information and assumptions that we believe are reasonable; however, our assumptions may prove not to be accurate. In addition, our unaudited pro forma combined financial information may not give effect to various ongoing additional costs that we may incur in connection with being an independent public company. Accordingly, our unaudited pro forma combined financial information does not reflect what our financial condition, results of operations, or cash flows would have been as an independent public company and are not necessarily indicative of our future financial condition, future results of operations, or future cash flows. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Unaudited Pro Forma Combined Financial Data" and our combined financial statements and corresponding notes included elsewhere in this information statement.

If the distribution does not qualify as a distribution that is tax-free for U.S. federal income tax purposes, HD Supply and holders of HD Supply common stock could be subject to significant tax liability.

        As described under "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution," it is intended that the distribution will qualify as a tax-free distribution within the meaning of Section 355 of the Code. The distribution is conditioned upon the receipt of an opinion of tax counsel to the effect that such transactions will qualify for its intended tax treatment. An opinion of tax counsel does not preclude the Internal Revenue Service (the "IRS") or the courts from adopting a contrary position. The tax opinion will rely on certain representations, covenants, and assumptions, including those relating to our and HD Supply's past and future conduct; if any of those representations, covenants, or assumptions is inaccurate, tax counsel may not be able to provide the required tax opinion or the tax consequences of the distribution could differ from the intended tax treatment. If the separation and/or certain related transactions fail to qualify for tax-free treatment, for any reason, HD Supply and/or holders of HD Supply common stock would be subject to tax as a result of the separation and certain related transactions, including the distribution. See "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution."

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If the distribution is taxable to HD Supply as a result of a breach by us of any covenant or representation made by us in the tax matters agreement, we will generally be required to indemnify HD Supply; the obligation to make a payment on this indemnification obligation could have a material adverse effect on us.

        As described above, it is intended that the distribution qualify as generally tax-free to HD Supply and tax-free to holders of HD Supply common stock, except with respect to any cash received in lieu of fractional shares. If the distribution is not so treated or is taxable to HD Supply (see "The Spinoff—Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution") due to a breach by us (or any of our subsidiaries) of any covenant or representation made by us in the tax matters agreement, we will generally be required to indemnify HD Supply for all tax-related liabilities incurred by HD Supply in connection with the spinoff. In addition, we will not control the resolution of any tax contest relating to taxes suffered by HD Supply in connection with the spinoff, and we may not control the resolution of tax contests relating to any other taxes for which we may ultimately have an indemnity obligation under the tax matters agreement. In the event that HD Supply suffers tax-related liabilities in connection with the spinoff that must be indemnified by us under the tax matters agreement, the indemnification liability could have a material adverse effect on us.

We may be affected by significant restrictions following the spinoff imposed on us under the tax matters agreement.

        The tax matters agreement generally will prohibit us from taking certain actions that could cause the distribution to fail to qualify as tax-free transactions, including:

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may be prevented from allowing or permitting certain business combinations or transactions to occur;

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not sell or otherwise issue our common stock, other than pursuant to issuances that satisfy certain regulatory safe harbors set forth in U.S. Department of the Treasury ("Treasury") regulations;

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not redeem or otherwise acquire any of our common stock, other than pursuant to certain open-market repurchases of less than 20% of our common stock (in the aggregate);

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not amend our Amended and Restated Certificate of Incorporation (as defined in "Description of Capital Stock") (or other organizational documents) or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of our common stock; and

    more generally, we may not take any action that could reasonably be expected to cause the distribution to fail to qualify as tax-free under Section 355 of the Code.

        If we take any of the actions above and such actions cause tax-related liabilities to be incurred by HD Supply, we generally will be required to indemnify HD Supply for such tax-related liabilities under the tax matters agreement. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Tax Matters Agreement." Due to these restrictions and indemnification obligations under the tax matters agreement, we may be limited in our ability to pursue strategic transactions, equity, or convertible debt financings or other transactions that may otherwise be in our best interests. Also, our potential indemnity obligation to HD Supply might discourage, delay, or prevent a change of control that our stockholders may consider favorable.

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We will be subject to continuing contingent liabilities following the spinoff, including potential indemnification liabilities to HD Supply, and these liabilities could materially and adversely affect our business, financial condition, results of operations, and cash flows.

        We will enter into a separation and distribution agreement with HD Supply that will provide for, among other things, the principal corporate transactions required to effect the spinoff, certain conditions to the spinoff, and provisions governing the relationship between our Company and HD Supply with respect to and resulting from the spinoff. For a description of the separation and distribution agreement, see "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Separation and Distribution Agreement." Among other things, the separation and distribution agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to the White Cap business, whether incurred prior to or after the spinoff, and whether known or unknown at the time of the spinoff, as well as those obligations of HD Supply assumed by us pursuant to the separation and distribution agreement. If we are required to indemnify HD Supply under the circumstances set forth in the separation and distribution agreement, or meaningful unknown liabilities surface, we may be subject to substantial liabilities.

        In addition, under the Code and applicable Treasury regulations, each corporation that was a member of the HD Supply consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the completion of the spinoff is severally liable for the U.S. federal income tax liability of the entire HD Supply consolidated tax reporting group for that taxable period. Similar rules may apply for state, local, and non-U.S. tax purposes. In connection with the spinoff, we will enter into a tax matters agreement with HD Supply that will allocate the responsibility for prior period taxes of any HD Supply consolidated, combined, unitary, or other tax reporting group between us and HD Supply. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Tax Matters Agreement." However, if HD Supply is unable to pay any prior period taxes for which it is responsible under the tax matters agreement, we could be required to pay the entire amount of such taxes.

In connection with the spinoff, HD Supply will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that HD Supply's ability to satisfy its indemnification obligations will not be impaired in the future.

        Pursuant to the separation and distribution agreement, HD Supply will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that HD Supply has agreed to retain, and there can be no assurance that the indemnity from HD Supply will be sufficient to protect us against the full amount of such liabilities, or that HD Supply will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from HD Supply any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. If HD Supply is unable to satisfy its indemnification obligations, the underlying liabilities could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        After the spinoff, HD Supply's insurers may deny coverage to us for liabilities associated with occurrences prior to the spinoff. Even if we ultimately succeed in recovering from such insurance providers, we may be required to temporarily bear such loss of coverage.

The terms of the distribution and the agreements we will enter into with HD Supply in connection with the spinoff were determined solely by HD Supply.

        The agreements that we will enter into with HD Supply in connection with the spinoff were prepared in the context of the spinoff while our business was still operated by and part of HD Supply,

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and the terms were determined by HD Supply as our sole stockholder. Because these agreements were negotiated in the context of a parent-subsidiary relationship prior to the spinoff where actual or perceived conflicts of interest may have been present, the terms of these agreements may be more or less favorable to us than those that would have resulted from arm's-length negotiations between unaffiliated third parties. See "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us."

Our accounting, enterprise resource planning, and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the spinoff. If we are unable to achieve and maintain effective internal controls, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

        Our financial results are currently included within the consolidated results of HD Supply, and we believe that our reporting and control systems are appropriate for a subsidiary of a public company. However, until the spinoff, we will not have been directly subject to the reporting and other requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the spinoff, we will be directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). These reporting and other obligations will place significant demands on our management and administrative and operational resources, including our accounting resources. To comply with these requirements, we anticipate that we will need to upgrade our systems, including IT and enterprise resource planning systems, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting and finance staff. If we are unable to do so in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

HD Supply, at the direction of its board of directors, may abandon the spinoff at any time, and HD Supply, at the direction of its board of directors, may determine to amend or modify any and all terms of the spinoff related agreements at any time prior to the distribution date.

        No assurance can be given that the spinoff will occur or, if it occurs, that it will occur on the terms described in this information statement. In addition to the conditions to the spinoff described herein (certain of which may be waived by HD Supply, at the direction of its board of directors in its sole discretion), HD Supply, at the direction of its board of directors, may abandon the spinoff at any time before the distribution date for any reason or for no reason. In addition, HD Supply, at the direction of its board of directors, may amend or modify any and all terms of the spinoff and the related transactions and agreements at any time prior to the distribution date. If any condition to the spinoff is waived or if any material amendments or modifications are made to the terms of the spinoff or to the ancillary agreements thereto before the distribution date, HD Supply will notify its stockholders in a manner reasonably calculated to inform them of such modifications with a press release, Current Report on Form 8-K, or other similar means.

After the distribution, certain members of management, directors, and stockholders will hold stock in both HD Supply and us, and as a result may face actual or potential conflicts of interest.

        After the distribution, certain members of management and directors of each of HD Supply and us will own both HD Supply common stock and our common stock. See "Security Ownership of Certain Beneficial Owners and Management." This ownership overlap could create, or appear to create, potential conflicts of interest when our management and directors and HD Supply's management and directors face decisions that could have different implications for us and HD Supply. For example,

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potential conflicts of interest could arise in connection with the resolution of any dispute between HD Supply and us regarding the terms of the agreements governing the distribution and our relationship with HD Supply thereafter. Potential conflicts of interest may also arise out of any commercial arrangements that we or HD Supply may enter into in the future.

No vote of HD Supply stockholders is required in connection with the spinoff.

        No vote of HD Supply stockholders is required in connection with the spinoff. Accordingly, if this transaction occurs and you do not want to receive our common stock in the distribution, your only recourse will be to divest yourself of your HD Supply common stock prior to the record date for the distribution or to sell your HD Supply common stock in the "regular way" market in between the record date and the distribution date.

Risks Relating to Our Business

Our results of operations have been and will in the future be adversely impacted by the COVID-19 and other potential pandemics, and the duration and extent to which it will impact our results of operations remains uncertain.

        The global spread of COVID-19 has created significant market volatility, uncertainty, and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations, financial results, and financial condition will depend on numerous evolving factors which are uncertain, including: the duration and scope of the pandemic; governmental, business, and individuals' actions taken in response; the effect on our customers and customers' demand for our services and products; the effect on our suppliers and disruptions to the global supply chain; our ability to sell and provide our services and products, including as a result of travel restrictions and people working from home; disruptions to our operations resulting from the illness of any of our associates, including associates at our branches and distribution centers; restrictions or disruptions to transportation, including reduced availability of ground transport; the ability of our customers to pay for our services and products disruptions to our operations and increased costs resulting from increased cleaning and sanitization and the installation of personal protective barriers; and any closures of our and our suppliers' and customers' facilities. These effects of the COVID-19 pandemic have resulted and will result in lost or delayed revenue to us. In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, commodity and energy prices, and interest rates. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.

We are subject to inherent risks of the non-residential and residential construction markets, including risks related to general economic conditions.

        Demand for our products and services depends to a significant degree on spending in our markets. The level of activity in our markets depends on a variety of factors that we cannot control.

        Historically, both new housing starts and residential remodeling have decreased in slow economic periods. In addition, residential construction activity can impact the level of non-residential construction activity. Other factors impacting the level of activity in the non-residential and residential construction markets include:

    changes in interest rates;

    unemployment rates;

    availability of skilled labor;

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    high foreclosure rates and unsold/foreclosure housing inventory;

    unsold new housing inventory;

    availability of financing (including the impact of disruption in the mortgage markets);

    adverse changes in industrial economic outlook;

    a decrease in the affordability of homes;

    vacancy rates;

    capacity utilization;

    capital spending;

    commercial investment;

    corporate profitability;

    local, state, and federal government regulation (including tax laws); and

    shifts in populations away from the markets that we serve.

        Because our markets are sensitive to changes in the economy, downturns (or lack of substantial improvement) in the economy in any region in which we operate have adversely affected and could again adversely affect our business, financial condition, results of operations, and cash flows, and could require us to close under-performing locations.

        While we operate in many markets in the U.S. and Canada, our business is particularly impacted by changes in California. According to the U.S. Bureau of Economic Analysis, California is the largest construction market in the U.S. based on private construction spending. Our business started in California, which is where the largest number of our customer-facing locations are located. Accordingly, impacts to the non-residential and residential construction markets in California specifically could have a more significant impact on our business.

        In addition, the markets in which we compete are sensitive to general business and economic conditions in the U.S. and worldwide, including availability of credit, changes in interest rates, fluctuations in capital, credit, and mortgage markets, and changes in business and consumer confidence. Adverse developments in global financial markets and general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our business, financial condition, results of operations, and cash flows, including our ability and the ability of our customers and suppliers to access capital. Weakness in the non-residential building construction market and the new residential construction market could have a significant adverse effect on our business, financial condition, results of operations, and cash flows. In addition, because of these factors, there may be fluctuations in our results of operations, and the results for any historical period may not be indicative of results for any future period.

We may be unable to maintain profitability.

        We have set goals to progressively improve our profitability over time by growing our sales, increasing our Gross profit as a percentage of Net sales ("gross margin"), and reducing our expenses as a percentage of sales. There can be no assurance that we will achieve our enhanced profitability goals. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the failure to:

    grow our revenue organically or through acquisitions;

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    improve our revenue mix by investing (including through acquisitions) in businesses that provide higher margins than we have been able to generate historically;

    achieve improvements in purchasing or maintain or increase our rebates from vendors through our vendor consolidation and/or low-cost country initiatives;

    improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings;

    control our overhead and support expenses as we grow;

    effectively evaluate future inventory reserves;

    maintain an appropriate product mix, particularly with respect to our outlook, budgeting, and strategic planning;

    collect monies owed to us from customers; and

    integrate any businesses acquired.

Any of these failures or delays may adversely affect our ability to increase our profitability.

We may be required to take impairment charges relating to our operations which could impact our future operating results.

        As of February 2, 2020, goodwill represented approximately 24% of our total assets. Goodwill is not amortized and is subject to impairment testing at least annually using a fair value based approach. The identification and measurement of impairment involves the estimation of the fair value of reporting units. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment and incorporate management assumptions about expected future cash flows and other valuation techniques. Future cash flows can be affected by changes in industry or market conditions among other things.

        The recoverability of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. Our annual impairment test resulted in no impairment of goodwill during fiscal 2019, fiscal 2018, or fiscal 2017.

        We cannot accurately predict the amount and timing of any impairment of assets, and we may be required to take goodwill or other asset impairment charges relating to certain of our reporting units and asset groups in the event we experience weakness in the non-residential and/or residential construction markets and/or the general U.S. economy. Similarly, certain Company transactions could result in goodwill impairment charges being recorded. Any such non-cash charges would have an adverse effect on our financial results.

We occupy most of our locations under long-term, non-cancelable leases. We may be unable to renew leases on favorable terms or at all. Also, if we close a location, we may remain obligated under the applicable lease.

        Most of our locations are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from three to seven years, with options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. However, there can be no assurance that we will be able to renew our current or future leases on favorable terms or at all which could have an adverse effect on our ability to operate our business and on our results of operations. In addition, if we close a location, we generally remain committed to perform our obligations under the applicable lease, which include, among other things, payment of the base rent for the balance of the lease term. Our obligation

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to continue making rental payments in respect of leases for closed locations could have a material adverse effect on our business and results of operations.

The markets in which we operate are highly competitive and fragmented, and demand for our products and services could decrease if we are not able to compete effectively.

        The markets in which we operate are fragmented and highly competitive. Our competition includes other distributors and manufacturers that sell products directly to their respective customer bases. To a limited extent, retailers of electrical and plumbing fixtures and supplies, building materials, and tools and equipment also compete with us. We also expect that new competitors may develop over time as internet-based enterprises become more reliable and refine their service capabilities. Competition varies depending on product offerings, customer classification, and geographic area.

        We compete with many local, regional, and, in several markets and product categories, other national distributors. No assurance can be given that we will be able to effectively respond to these competitive pressures. Increased competition by existing and future competitors could result in reductions in sales, prices, volumes, and gross margins that could materially adversely affect our business, financial condition, and results of operations. Furthermore, our success will depend, in part, on our ability to maintain our market share and gain market share from competitors.

        Additionally, customers historically have exerted pressure on their outside suppliers to keep prices low in the highly fragmented, competitive bid-based specialty concrete supply industry. If we are unable to generate sufficient cost savings to offset any price reductions, our financial condition, results of operations, and cash flows may be adversely affected.

Our competitors continue to consolidate, which could cause markets to become more competitive and could negatively impact our business.

        Although the markets in which we operate are currently highly fragmented, our competitors in the U.S. and Canada continue to consolidate. This consolidation is being driven by customer needs and supplier capabilities, which could cause markets to become more competitive as greater economies of scale are achieved by distributors, or as competitors with new business models are willing and able to operate with lower gross profits. Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. We believe these customer needs could result in fewer distributors as the remaining distributors become larger and more capable of being consistent sources of supply.

        There can be no assurance that we will be able to take advantage effectively of this trend toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins and could also increase competition for our potential acquisition targets and result in higher purchase price multiples.

The majority of our Net sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the industry and geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our financial condition.

        The majority of our Net sales volume is facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the industry in the areas where they operate. Our business offers credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material used in the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our financial condition, results of operations, and cash flows.

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Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.

        Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of our customers and could adversely affect the collectability of our accounts receivable, bad debt reserves, and Net income.

Future strategic transactions could impact our reputation, business, financial position, results of operations, and cash flows, and we may not achieve the acquisition component of our growth strategy.

        We may pursue strategic transactions in the future, which could involve acquisitions or dispositions of businesses or assets. Any future strategic transaction could involve integration or implementation challenges, business disruption, or other risks, or change our business profile significantly. Any inability on our part to successfully implement strategic transactions could have an adverse impact on our reputation, business, financial position, results of operations, and cash flows. Any acquisition that we make may not provide us with the benefits that were anticipated when entering into such acquisition. Any future disposition transactions could also impact our business and may subject us to various risks, including failure to obtain appropriate value for the disposed operations, post-closing claims being levied against us, and disruption to our continuing operations during the sale process or thereafter.

        In addition, although acquisitions may continue to be a component of our growth strategy, there can be no assurance that we will be able to continue to grow our business through acquisitions as we have done historically or that any businesses acquired will perform in accordance with expectations or that business judgments concerning the value, strengths, and weaknesses of businesses acquired will prove to be correct. Future acquisitions may result in the incurrence of debt and contingent liabilities, an increase in interest expense and amortization expense, and significant charges relative to integration costs. Our strategy could be impeded if we do not identify suitable acquisition candidates, and our financial condition and results of operations will be adversely affected if we overpay for acquisitions.

        Acquisitions involve a number of special risks, including:

    problems implementing disclosure controls and procedures for the newly acquired business;

    unforeseen difficulties extending internal control over financial reporting and performing the required assessment at the newly acquired business;

    potential adverse short-term effects on results of operations through increased costs or otherwise;

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    diversion of management's attention and failure to recruit new, and retain existing, key personnel of the acquired business;

    failure to successfully integrate infrastructure, logistics, and systems;

    our business growth could outpace the capability of our systems; and

    the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        In addition, we may not be able to obtain the financing necessary to complete acquisitions on attractive terms or at all.

The non-residential and residential construction markets are seasonal and cyclical.

        Our highest volume of Net sales historically has occurred in our second and third fiscal quarters. Generally, during the winter months, construction and renovation activity declines due to inclement weather and shorter daylight hours. As a result, our results of operations may vary significantly from period to period as a result of this seasonality. To the extent that hurricanes, forest fires, severe storms, floods, other natural disasters, or similar events occur in the geographic regions in which we operate, our business may be adversely affected. We anticipate that fluctuations from period to period will continue in the future.

        Disruptions at our locations or generally at shipping ports, due to events such as work stoppages, as well as disruptions caused by tornadoes, hurricanes, blizzards and other storms, and natural disasters from time to time, may affect our ability to both maintain key products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations.

        In addition, the non-residential and residential construction markets are subject to cyclical market pressures. The length and magnitude of these cycles have varied over time and by market. Prices of the products we sell are historically volatile and subject to fluctuations arising from changes in supply and demand, national and international economic conditions, labor costs, competition, market speculation, government regulation and trade policies, as well as from periodic delays in the delivery of our products. We have a limited ability to control the timing and amount of changes to prices that we pay for our products. In addition, the supply of our products fluctuates based on available manufacturing capacity. A shortage of capacity, or excess capacity, in the industry can result in significant increases or declines in market prices for those products, respectively, often within a short period of time. Such price fluctuations can adversely affect our financial condition, results of operations, and cash flows.

Fluctuating commodity prices may adversely impact our results of operations.

        The cost of steel and other commodities used in the products we distribute can be volatile, including as a result of international trade policies and tariffs. Although we attempt to pass on cost increases by our suppliers via increased costs to our customers, we are not always able to do so quickly or at all. To date, we have not utilized commodity hedging instruments to manage commodity cost fluctuations. In addition, if prices decrease for commodities used in products we distribute, we may have inventories purchased at higher prices than prevailing market prices. Significant fluctuations in the cost of the commodities used in products we distribute have in the past adversely affected, and in the future may adversely affect, our results of operations, and financial condition.

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If petroleum prices increase, our results of operations could be adversely affected. Conversely, prolonged weakness in the oil and gas industry could negatively impact our financial condition, results of operations, and cash flows.

        Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic, and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. We deliver products to our customers via our own trucks as well as third-party carriers. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have not entered into any hedging arrangements that protect against fuel price increases, and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.

        A number of our locations serve customers that are either direct or indirect participants in the oil and gas industry. Additionally, a number of our locations are also geographically located in or near areas where the oil and gas industry is a significant component of the overall local economy, such as in Texas and in the various shale gas producing regions within the U.S. and Canada. If the prices of oil and gas remain relatively low and our customers are negatively impacted, then our customers' demand for our products and services could also be negatively impacted which would have an adverse effect on our financial condition, results of operations, and cash flows.

Product shortages may impair our results of operations.

        Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. Generally, our products are available from various sources and in sufficient quantities. However, the loss of, or substantial decrease in the availability of, products from our suppliers, or the loss of our key supplier agreements, could adversely impact our financial condition, results of operations, and cash flows. In addition, supply interruptions could arise from shortages of raw materials (including petroleum products), labor disputes, actions taken to combat contagious disease and viral outbreaks, or weather conditions affecting products or shipments, transportation disruptions, adjustments to our inventory levels, or other factors within and beyond our control.

        Short- and long-term disruptions in our supply chain would result in a need to maintain higher inventory levels as we replace similar product, a higher cost of product, and ultimately a decrease in our Net sales and profitability. A disruption in the timely availability of our products by our key suppliers would result in a decrease in our revenues and profitability. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all, would put pressure on our operating margins and have a material adverse effect on our financial condition, results of operations, and cash flows. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Our inability to pass on material price increases to our customers could adversely impact our financial condition, results of operations, and cash flows.

We rely on third-party suppliers and, in some instances, international supply chains due to transportation. If we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if there is a significant interruption in our logistics network and supply chains, our ability to timely and efficiently access products that meet our standards for quality and service our customers could be adversely affected.

        We buy the vast majority of our products and supplies from suppliers located in the U.S. and Canada. These suppliers manufacture and source products from the U.S. and abroad. The products

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sourced by our suppliers are transported by truck, rail, barge or ship by third-party providers. Products sourced internationally by our suppliers require longer supply chains. The length and complexity of these supply chains make those products subject to certain risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products.

        The occurrence of one or more natural disasters or extreme weather such as earthquakes, blizzards, storms, hurricanes, floods, fires, droughts, tornadoes; viral contagions or pandemic diseases, such as the recent outbreak of a novel strain of coronavirus, now known as COVID-19; geopolitical events, such as civil unrest, acts of terrorism or war (including security measures that could disrupt or impede our distribution networks and supply chains) in a country in which we operate or in which our suppliers are located or in which we or our suppliers source products could result in a disruption of our logistics or supply chain network. For example, should the COVID-19 outbreak continue or spread, it could disrupt our operations and those of our customers and suppliers. Any of these or other natural disasters, catastrophic events, or disruptions could cause any of our locations to become non-operational, adversely affect our ability to timely obtain or deliver products and services, impair our ability to meet customer demand for products and services, or result in lost sales, additional costs, or penalties, and/or damage our reputation. Any of these adverse consequences could have a significant impact on our financial condition, results of operations, and cash flows.

        Furthermore, our ability to identify and develop relationships with qualified suppliers who can satisfy our standards for quality and our need to access products and supplies in a timely and efficient manner is a significant challenge. We may be required to replace a supplier if their products do not meet our quality or safety standards. In addition, our suppliers could discontinue selling products at any time for reasons that may or may not be in our control or the suppliers' control. Our results of operations and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or unable to satisfy our requirements with a supplier providing similar products. Our suppliers' ability to deliver products may also be affected by financing constraints caused by credit market conditions, which could negatively impact our revenue and cost of products sold, at least until alternate sources of supply are arranged.

Our suppliers source their products and supplies from around the world, including China.

        We buy our products and supplies from suppliers located in the U.S. and Canada, with limited exceptions. Our suppliers source their products and supplies from around the world, including China, and may assemble their products outside of North America. If any restrictions or significant increases in tariffs are imposed related to such products and supplies sourced from or assembled in China, or elsewhere, as a result of amendments to existing trade agreements, and our product and supply costs consequently increase, we may be required to raise our prices, which may result in decreased margins, the loss of customers, and a material adverse effect on our financial results. The extent to which our margins could decrease in response to any future tariffs is uncertain. We continue to evaluate the impact of the effective tariffs, including potential future retaliatory tariffs, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability, and are actively working through strategies to mitigate such impact, including reviewing sourcing options and working with our suppliers. In addition, COVID-19 has resulted in increased travel restrictions and the extended shutdown of certain businesses throughout the world. The impact of COVID-19 on our business is uncertain at this time and will depend on future developments; however, prolonged closures in China, and elsewhere, may disrupt the operations of certain of our suppliers, which could, in turn, negatively impact our business. Any such impact could be material.

We have substantial fixed costs and, as a result, our operating income is sensitive to changes in our Net sales.

        A significant portion of our expenses are fixed costs (including personnel), which do not fluctuate with Net sales. Consequently, a percentage decline in our Net sales could have a greater percentage effect on our operating income if we do not act to reduce personnel or take other cost reduction

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actions. Any decline in our Net sales would cause our profitability to be adversely affected. Moreover, a key element of our strategy is managing our assets, including our substantial fixed assets, more effectively, including through sales or other disposals of excess assets. Our failure to rationalize our fixed assets in the time, and within the costs, we expect could have an adverse effect on our results of operations and financial condition.

The development of alternatives to distributors in the supply chain could cause a decrease in our sales and results of operations and limit our ability to grow our business.

        Our customers could begin fulfilling more of their product needs directly from manufacturers, which would result in decreases in our Net sales and earnings. Our suppliers could invest in infrastructure to expand their own local sales force and sell more products directly to our customers, which also would negatively impact our business.

        In addition to these factors, our customers may elect to establish their own building products and distribution facilities, or give advantages to manufacturing or distribution intermediaries in which they have an economic stake. These changes in the supply chain could adversely affect our financial condition, results of operations, and cash flows.

Because our business is working capital intensive, we rely on our ability to manage our product purchasing and customer credit policies.

        Our operations are working capital intensive, and our inventories, accounts receivable, and accounts payable are significant components of our net asset base. We manage our inventories and accounts payable through our purchasing policies and our accounts receivable through our customer credit policies. If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial condition may be adversely affected.

The implementation of our technology initiatives could disrupt our operations in the near term, and our technology initiatives might not provide the anticipated benefits or might fail.

        We have made, and will continue to make, significant technology investments in our business, including our administrative functions. Our technology initiatives are designed to streamline our operations to allow our associates to continue to provide high quality service to our customers and to provide our customers with a better experience, while improving the quality of our internal control environment. The cost and potential problems and interruptions associated with the implementation of our technology initiatives could disrupt or reduce the efficiency of our operations in the near term. In addition, our new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the technology might fail altogether.

Interruptions in the proper functioning of our IT systems, including from cybersecurity threats, could disrupt operations and cause unanticipated increases in costs or decreases in revenues, or both.

        We use our information systems to, among other things, manage inventories and accounts receivable, make purchasing decisions, and monitor our results of operations, process, transmit, and store sensitive electronic data, including employee, supplier, and customer records. As a result, the proper functioning of our IT systems is critical to the successful operation of our business. Our IT systems include proprietary systems developed and maintained by us. In addition, we depend on IT systems of third parties, such as suppliers, retailers, and original equipment manufacturers to, among other things, market and distribute products, develop new products and services, operate our website, host and manage our services, store data, process transactions, respond to customer inquiries, and manage inventory and our supply chain. Although our IT systems are protected through physical and software safeguards and remote processing capabilities exist, our IT systems or those of third parties upon whom we depend are still vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures, and other problems. Despite our policies, procedures, and programs

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designed to ensure the integrity of our IT systems, we may not be effective in identifying and mitigating every risk to which we are exposed. Furthermore, from time to time, we rely on IT systems which may be managed, hosted, provided, and/or accessed by third parties or their vendors, to assist in conducting our business. Such relationships and access may create difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after a breach. If critical proprietary or third-party IT systems fail or are otherwise unavailable, including as a result of system upgrades and transitions, our ability to process orders, track credit risk, identify business opportunities, maintain proper levels of inventories, collect accounts receivable, pay expenses, and otherwise manage our business would be adversely affected.

        Cybersecurity incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, collecting ransoms, corrupting data, or causing operational disruption. Cybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data (either directly or through our vendors and customers), denial of service attacks, and other electronic security breaches. Despite our security measures, our IT systems and infrastructure or those of our third parties may be vulnerable to such cybersecurity incidents. The result of these incidents could include, but are not limited to, disrupted operations, misstated or misappropriated financial data, theft of our intellectual property or other confidential information (including of our customers, suppliers, and employees), liability for stolen assets or information, increased cybersecurity protection costs, and reputational damage adversely affecting customer or investor confidence. In addition, if any information about our customers, including payment information, were the subject of a successful cybersecurity attack against us, we could be subject to litigation or other claims by the affected customers or by governments enforcing data privacy regulations. Such claims may result in significant sanctions, monetary costs, or other harm to us. Furthermore, we have incurred costs and may incur significant additional costs in order to implement the security measures we feel are appropriate to protect our IT systems.

Our costs of doing business could increase as a result of changes in U.S. federal, state, or local regulations.

        Our operations are principally affected by various statutes, regulations, and laws in the U.S. states and Canadian provinces in which we operate, as well as federal laws and regulations. While we are not engaged in a regulated industry, we are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices, competition, immigration, and other matters. Additionally, building codes may affect the products our customers are allowed to use, and consequently, changes in building codes may affect the salability of our products. Changes in U.S. federal, state, or local regulations governing the sale of our products could increase our costs of doing business. In addition, changes to U.S. federal, state, and local tax regulations could increase our costs of doing business. We cannot provide assurance that we will not incur material costs or liabilities in connection with regulatory requirements.

        We deliver products to many of our customers through our own fleet of vehicles. The U.S. Department of Transportation (the "DOT") regulates our operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service could increase our costs, which, if we are unable to pass these cost increases on to our customers, would reduce our gross margins, increase our Selling, general, and administrative expenses, and reduce our Net income.

        We cannot predict whether future developments in law and regulations concerning our business will affect our business, financial condition, and results of operations in a negative manner. Similarly, we cannot assess whether our business will be successful in meeting future demands of regulatory

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agencies in a manner which will not materially adversely affect our business, financial condition, or results of operations.

The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.

        We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of the products we distribute. It is possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems or to have caused personal injury, subjecting us to potential claims from customers or third parties. From time to time, we are involved in construction defect and product liability claims relating to the products we distribute and fabricate, among other things. In certain situations, we have undertaken to voluntarily remediate any defects, which can be a costly measure. We also operate a large fleet of trucks and other vehicles and therefore face the risk of traffic accidents.

        While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we seek indemnification against potential liability for product liability claims from relevant parties, including but not limited to manufacturers and suppliers, we cannot guarantee that we will be able to recover under such indemnification agreements. Moreover, if we increase the number of private label products we distribute, our exposure to potential liability for products liability claims may increase. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in profitability. In addition, uncertainties with respect to the Chinese legal system may adversely affect us in resolving claims arising from our proprietary brand products manufactured in China. Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws, regulations, and rules are not always uniform. Finally, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our Company.

        From time to time, we are also involved in government inquiries and investigations, as well as class action, consumer, employment, and tort proceedings, and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including environmental remediation and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management's attention and resources from other matters.

If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.

        We provide workers' compensation, automobile, and product/general liability coverage through a high deductible insurance program. In addition, we are self-insured for our health benefits and maintain per employee stop-loss coverage. Although we believe that we have adequate stop-loss coverage for catastrophic claims to cap the risk of loss, our results of operations, and financial condition may be adversely affected if the number and severity of claims that are not covered by stop-loss insurance increases.

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Our success depends upon our ability to attract, train, and retain highly qualified associates and key personnel.

        To be successful, we must attract, train, and retain a large number of highly qualified associates while controlling related labor costs. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs. We compete with other businesses for these associates and invest significant resources in training and motivating them. There is no assurance that we will be able to attract or retain highly qualified associates in the future, including, in particular, those employed by companies we acquire. A very small proportion of our employees (within our recent acquisition of A.H. Harris) are currently covered by collective bargaining or other similar labor agreements. Historically, the effects of collective bargaining and other similar labor agreements on us have not been significant. However, if our employees were to unionize, including in the wake of any future legislation that makes it easier for employees to unionize, the effect on us may be adverse. Any inability by us to negotiate acceptable new contracts under these collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other employees become represented by a union, we could experience a disruption of our operations and higher labor costs. Labor relations matters affecting our suppliers of products and services could also adversely affect our business from time to time.

        In addition, our business results depend largely upon our chief executive officer and senior management team as well as our branch managers and sales personnel and their experience, knowledge of local market dynamics and specifications, and long-standing customer relationships. We customarily sign employment letters providing for an agreement not to compete with key personnel of companies we acquire in order to maintain key customer relationships and manage the transition of the acquired business. Our inability to retain or hire qualified branch managers or sales personnel at economically reasonable compensation levels would restrict our ability to grow our business, limit our ability to continue to successfully operate our business, and result in lower results of operations and profitability.

Fluctuations in foreign currency exchange rates may reduce our revenues and profitability.

        As an industrial distributor of manufactured products, our profitability is tied to the prices we pay to the manufacturers from which we purchase our products. Some of our suppliers price their products in currencies other than the U.S. dollar or incur costs of production in non-U.S. currencies. Accordingly, depreciation of the U.S. dollar against foreign currencies increases the prices we pay for these products. Even short-term currency fluctuations could adversely impact revenues and profitability if we are unable to pass higher supply costs on to our customers. Our delayed ability to pass on material price increases to our customers could adversely impact our financial condition, results of operations, and cash flows.

If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted.

        Our ability to compete effectively depends, in part, upon our ability to protect and preserve proprietary aspects of our intellectual property, including our trademarks and customer lists. The use of our intellectual property or similar intellectual property by others could adversely impact our ability to compete, cause us to lose Net sales or otherwise harm our business. If it became necessary for us to resort to litigation to protect these rights, any proceedings could be burdensome and costly, and we may not prevail.

        Also, we cannot be certain that the products that we sell do not and will not infringe issued patents or other intellectual property rights of others. Further, we are subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the trademarks, patents, and other intellectual property rights of third parties by us or our customers in connection with their use of the products that we distribute. Should we be found liable for

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infringement, we (or our suppliers) may be required to enter into licensing agreements (if available on acceptable terms or at all) or pay damages and cease making or selling certain products. Moreover, we may need to redesign or sell different products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs, prevent us from selling our products, or negatively impact our ability to compete.

Income tax payments may ultimately differ from amounts currently recorded by us. Future tax law changes may materially increase our prospective income tax expense.

        We are subject to income taxation in many jurisdictions in the U.S., as well as Canada. Judgment is required in determining our worldwide income tax provision and, accordingly, there are many transactions and computations for which our final income tax determination is uncertain. We are routinely audited by income tax authorities in many tax jurisdictions. Although we believe our recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation and/or import tariffs or border adjustment proposals in any jurisdiction to which we are subject may be enacted that could have a material impact on our worldwide income tax provision beginning with the period that such legislation becomes effective.

We may not be able to identify new products and new product lines and integrate them into our distribution network, which may impact our ability to compete.

        Our business depends in part on our ability to identify future products and product lines that complement existing products and product lines and that respond to our customers' needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to integrate new products and product lines into our distribution network could impact our ability to compete. Furthermore, the success of new products and new product lines will depend on market demand and there is a risk that new products and new product lines will not deliver expected results, which could negatively impact our future sales and results of operations. Our expansion into new markets may present competitive, distribution, and regulatory challenges that differ from current ones. We may be less familiar with the target customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations. Growth into new markets may also bring us into direct competition with companies with whom we have little or no past experience as competitors. To the extent we are reliant upon expansion into new geographic, industry, and product markets for growth and do not meet the new challenges posed by such expansion, our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and financial results could be negatively affected.

We could incur significant costs in complying with environmental, health, and safety laws or permits or as a result of satisfying any liability or obligation imposed under such laws or permits.

        Our operations are subject to various federal, state, local, and foreign environmental, health, and safety laws and regulations. Among other things, these laws regulate the emission or discharge of materials into the environment, govern the use, storage, treatment, disposal, and management of hazardous substances and wastes, protect the health and safety of our employees and the end users of our products, regulate the materials used in and the recycling of products and impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances. Violations of these laws and regulations or non-compliance with any conditions contained in any environmental permit can result in substantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil and criminal sanctions, permit

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revocations, and/or facility shutdowns. We could be held liable for the costs to address contamination of any real property we have ever owned, operated, or used as a disposal site. We could also incur fines, penalties, sanctions, or be subject to third-party claims for property damage, personal injury or nuisance, or otherwise as a result of violations of or liabilities under environmental laws in connection with releases of hazardous or other materials. In addition, changes in, or new interpretations of, existing laws, regulations, or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including additional investigation or other obligations with respect to any potential health hazards of our products or business activities, or the imposition of new permit requirements, may lead to additional compliance or other costs that could have material adverse effects on our business, financial condition, or results of operations.

We may be affected by global climate change or by legal, regulatory, or market responses to such potential change.

        Concern over climate change, including the impact of global warming, has led to significant federal, state, and international legislative and regulatory efforts to limit greenhouse gas ("GHG") emissions. For example, over the past several years, the U.S. Congress has considered various bills that would regulate GHG emissions. While these bills have not yet received sufficient Congressional support for enactment, some form of federal climate change legislation could be possible in the future. Even in the absence of such legislation, the Environmental Protection Agency, spurred by judicial interpretation of the Clean Air Act, may regulate GHG emissions, especially diesel engine emissions, and this could impose substantial costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updating or replacing our internal fleet of trucks and other vehicles prematurely. In addition, new laws or future regulation could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) and our business (through the impact on our inventory availability, cost of sales, operations, or demands for the products we sell). Until the timing, scope, and extent of any future regulation becomes known, we cannot predict its effect on our cost structure or our results of operations. Notwithstanding our dedication to being a responsible corporate citizen, it is reasonably possible that such legislation or regulation could impose material costs on us. Moreover, even without such legislation or regulation, increased awareness, and any adverse publicity in the global marketplace about the GHGs emitted by companies involved in the transportation of goods could harm our reputation and reduce customer demand for our products and services.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect us.

        As a public company, we will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and will be required to prepare our financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly, and current reports. Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject us to penalties under federal securities laws, expose us to lawsuits, and restrict our ability to access financing. In addition, the Sarbanes-Oxley Act requires that, among other things, we establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting. While we have been

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adhering to these laws and regulations as a subsidiary of HD Supply, after the distribution we will need to demonstrate our ability to manage our compliance with these corporate governance laws and regulations as an independent, public company.

        Matters affecting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could have a material and adverse effect on us by, for example, leading to a decline in our share price and impairing our ability to raise additional capital.

Our future debt may limit cash flow available to invest in the ongoing needs of our business and could prevent us from fulfilling our debt obligations.

        In connection with the completion of the spinoff, we expect that we will incur debt. Our level of debt could have important consequences. For example, it could:

    require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes;

    increase our vulnerability to adverse economic or industry conditions;

    limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or

    place us at a competitive disadvantage compared to businesses in our industry that have less debt.

        Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the instruments governing our debt, could result in an event of default under the terms of those instruments and a downgrade to our credit ratings. A downgrade in our credit ratings would increase our borrowing costs. In the event of a default, the holders of our debt could elect to declare all the amounts outstanding under such instruments to be due and payable. Any default under the agreements governing our debt and the remedies sought by the holders of such debt could render us unable to pay principal and interest on our debt.


Risks Relating to Ownership of Our Common Stock

Because there has not been any public market for our common stock, the market price and trading volume of our common stock may be volatile and you may not be able to resell your shares at or above the initial market price of our common stock following the spinoff.

        Prior to the spinoff, there will have been no trading market for our common stock. We cannot assure you that an active trading market will develop or be sustained for our common stock after the spinoff, nor can we predict the price at which our common stock will trade after the spinoff. The market price of our common stock could fluctuate significantly due to a number of factors, many of which are beyond our control, including:

    fluctuations in our quarterly or annual earnings results or those of other companies in our industry;

    failures of our results of operations to meet the estimates of securities analysts or the expectations of our stockholders, or changes by securities analysts in their estimates of our future earnings;

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    announcements by us or our customers, suppliers, or competitors;

    changes in laws or regulations which adversely affect our industry or us;

    general economic, industry, and stock market conditions;

    future sales of our common stock by our stockholders;

    future issuances of our common stock by us;

    our ability to pay dividends in the future; and

    the other factors described in these "Risk Factors" and other parts of this information statement.

A large number of shares of our common stock are or will be eligible for future sale, which may cause the market price for our common stock to decline.

        Upon completion of the spinoff, we will have outstanding an aggregate of                        approximately             shares of common stock. Virtually all of those shares will be freely tradable without restriction or registration under the Securities Act of 1933, as amended (the "Securities Act"). We are unable to predict whether large amounts of our common stock will be sold in the open market following the spinoff. We are also unable to predict whether a sufficient number of buyers would be in the market at that time. Certain HD Supply stockholders may be required to sell the shares of White Cap common stock that they receive in the spinoff. For example, index funds currently holding HD Supply common stock may be required to sell the White Cap common stock they receive in the spinoff. In addition, it is possible that other HD Supply stockholders will sell the shares of White Cap common stock they receive in the spinoff for various reasons. For example, such stockholders may not believe that our business profile, capital structure, or level of market capitalization as an independent company fits their investment objectives. We can provide no assurance that there will be sufficient new buying interest to offset the potential sale of common stock of White Cap. Accordingly, our common stock could experience a high level of volatility immediately following the spinoff and, as a result, the price of our common stock could be adversely affected.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay, or prevent a change in control of our Company and may affect the trading price of our common stock.

        Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws (as defined in "Description of Capital Stock") will include a number of provisions that may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. For example, our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws will:

    authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to thwart a takeover attempt;

    for five years following            , provide for the division of our board of directors into three classes serving staggered three-year terms, with one class being elected each year;

    for five years following            , provide that directors may be removed only for cause and then only by the affirmative vote of the holders of at least three-fourths (75%) of the shares then entitled to vote in an election of directors;

    provide that vacancies on our board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office;

    prohibit stockholders from calling special meetings of stockholders;

    prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders;

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    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

    for five years following            , require the approval of holders of at least three-fourths (75%) of the outstanding shares of our common stock, voting together as a single class, to amend our Amended and Restated By-laws and certain provisions of our Amended and Restated Certificate of Incorporation.

        These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future.

        Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult, or prevent a change in our control, which may not be in the best interests of our stockholders.

We may not determine to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

        We may not declare and pay dividends on our common stock in the near future. In the absence of a dividend, the success of an investment in shares of our common stock would depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

        The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of our Company by securities or industry analysts, the trading price for our common stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our common stock price or trading volume to decline.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

        This information statement and other materials we and HD Supply have filed or will file with the SEC include or will include forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates," "anticipates," or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this information statement and include statements regarding our intentions, beliefs, or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects and growth strategies, and the industries in which we operate and include, without limitation, statements relating to our future performance.

        Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this information statement. In addition, even if our results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this information statement, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in "Risk Factors."

        Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, but are not limited to the following, many of which are, and will be, amplified by the COVID-19 pandemic:

    the impact of the COVID-19 pandemic on our sales, operations and supply chain, as well as the impacts on our customers, suppliers, vendors, and business partners;

    if we do not realize some or all of the benefits expected to result from the spinoff, or if such benefits are delayed;

    we have no history operating as an independent public company;

    our ongoing businesses may be adversely affected and subject to certain risks and consequences as a result of pursuing the spinoff;

    HD Supply's ability to successfully complete the spinoff on a tax-free basis, within the expected time frame or at all;

    HD Supply's ability to change the terms of the spinoff and the related transactions and agreements in ways that may be unfavorable to us;

    our accounting, enterprise resource planning, and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the spinoff;

    after the distribution, certain members of management, directors, and stockholders will hold stock in both HD Supply and us, and as a result may face actual or potential conflicts of interest;

    certain contracts that will need to be assigned from HD Supply or its affiliates to us in connection with the spinoff require the consent of the counterparty to such an assignment, and failure to obtain these consents could increase our expenses or otherwise reduce our profitability;

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    our ability to successfully implement our business strategies and execute our long-term value creation strategy;

    inherent risks of the non-residential and residential construction markets;

    our ability to maintain profitability;

    the competitive markets in which we operate and demand for our products and services in highly competitive and fragmented industries (including competitive pricing pressure from our customers);

    the loss of any of our significant customers;

    our ability to identify and acquire suitable acquisition candidates on favorable terms;

    cyclicality and seasonality of the non-residential and residential construction markets;

    our ability to manage fixed costs;

    our ability to identify and develop relationships with a sufficient number of qualified suppliers and to maintain our supply chains;

    the development of alternatives to distributors in the supply chain;

    our ability to manage our working capital through product purchasing and customer credit policies;

    cybersecurity breaches, disruptions, or failures in our IT systems and our failure to protect the security of personal information about our customers;

    potential material liabilities under our self-insured programs;

    our ability to attract, train, and retain highly qualified associates and key personnel;

    laws and governmental regulations increasing our legal and regulatory expenses;

    new and/or proposed trade policies could make sourcing product from foreign countries more difficult and more costly;

    our ability to generate the cash needed to fund our operations and service our debt obligations to be incurred;

    increased borrowing costs due to lowering or withdrawal of the ratings, outlook, or watch assigned to us, our debt securities to be issued, or our credit facilities to be incurred;

    limitations and restrictions in the agreements to be entered into governing our indebtedness; and

    other factors described in this information statement and from time to time in documents that we file with the SEC.

        All forward-looking statements are made only as of the date of this information statement and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

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THE SPINOFF

Reasons for the Spinoff

        On September 24, 2019, HD Supply announced its intention to separate its Facilities Maintenance and Construction & Industrial businesses into two independent, publicly traded companies through a distribution of our common stock to HD Supply's stockholders in a spinoff. The transaction is subject to certain customary conditions, including, among others, the conditions described below under "—Spinoff Conditions and Termination."

        White Cap is currently an indirect wholly owned subsidiary of HD Supply. HD Supply will transfer, or cause its subsidiaries to transfer, to us all the assets and generally all the liabilities relating to HD Supply's Construction & Industrial business, which HD Supply intends to separate from its other operations.

        Based on our audited combined statements of operations and comprehensive income included elsewhere in this information statement: for the fiscal years ended February 2, 2020, February 3, 2019 and January 28, 2018, White Cap's Net sales as a percent of HD Supply's total Net sales was 49.1%, 49.0% and 44.5%, respectively. Based on our audited combined balance sheet as of February 2, 2020 and February 3, 2019 included elsewhere in this information statement, total assets and total liabilities attributable to White Cap as a percent of HD Supply's total assets and total liabilities was 34.4% and 18.5% and 33.1% and 12.5%, respectively.

        HD Supply's Facilities Maintenance and Construction & Industrial businesses operate largely autonomously, although they have benefitted by sharing executive management and some overhead costs. The spinoff will permit each of HD Supply and White Cap to focus exclusively on its individual business and enable investors to obtain and, if they so choose, retain direct exposure to each separate business.

        Among other things, following the spinoff, each of HD Supply and White Cap is expected to be able to:

    position itself within its industry as a focused, independent company;

    pursue both organic growth and acquisition opportunities aligned with its particular strategic priorities;

    create a more optimal capital structure and capital allocation priorities consistent with its own financial profile; and

    align its particular incentive compensation with its financial performance.

        There necessarily can be no assurance that the expected benefits of the spinoff will be realized. See "Risk Factors—Risks Relating to the Spinoff."

Results of the Spinoff

        After the spinoff, we will be an independent, publicly traded company. Immediately after the distribution date, we expect that              million shares of our common stock will be issued and outstanding, based on the distribution of            share [s] of our common stock for every             share of HD Supply common stock outstanding and the anticipated number of shares of HD Supply common stock outstanding as of the record date. The actual number of shares of our common stock to be distributed will be determined based on the number of shares of HD Supply common stock outstanding as of the record date.

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        We and HD Supply will be parties to a number of short-term agreements that will govern the spinoff and our future relationship. For a more detailed description of these agreements, please see "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us."

        You will not be required to make any payment for the shares of White Cap common stock you receive, nor will you be required to surrender or exchange your shares of HD Supply common stock or take any other action in order to receive the White Cap common stock to which you are entitled. The spinoff will not affect the number of outstanding shares of HD Supply common stock or any rights of HD Supply stockholders, although it is expected to affect the market value of the outstanding shares of HD Supply common stock.

Manner of Effecting the Spinoff

        The general terms and conditions relating to the spinoff will be set forth in a separation and distribution agreement between HD Supply and us. For a description of the terms of that agreement, see "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us—Separation and Distribution Agreement." Under the separation and distribution agreement, the distribution will occur on the distribution date. Each holder of HD Supply common stock will be entitled to receive             share[s] of our common stock for every            share of HD Supply common stock owned by such holder as of 5:00 p.m., Atlanta, Georgia time, on the record date. As discussed under "—Trading of HD Supply Common Stock After the Record Date and Prior to the Distribution," if a holder of record of HD Supply common stock sells those shares in the "regular way" market after the record date and before or on the distribution date, that stockholder will be selling the right to receive our common stock in the distribution. The distribution will be made in book-entry form. For registered HD Supply stockholders, our transfer agent will credit their shares of White Cap common stock to book-entry accounts established to hold their White Cap common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own HD Supply common stock through a bank or brokerage firm, their White Cap common stock will be credited to their accounts by the bank or broker. See "—When and How You Will Receive White Cap Shares" below. Each White Cap share of common stock that is distributed will be validly issued, fully paid, and nonassessable.

        Holders of White Cap common stock will not be entitled to preemptive rights. See "Description of Capital Stock." Following the spinoff, stockholders whose shares are held in book-entry form may request the transfer of their White Cap common stock to a brokerage or other account at any time, without charge.

When and How You Will Receive White Cap Shares

        On the distribution date, HD Supply will release its White Cap common stock for distribution by American Stock Transfer & Trust Company, LLC, the distribution agent. The distribution agent will cause the shares of White Cap common stock to which you are entitled to be registered in your name or in the "street name" of your bank or brokerage firm.

        "Street Name" Holders.    Many HD Supply stockholders have HD Supply common stock held in an account with a bank or brokerage firm. If this applies to you, that bank or brokerage firm is the registered holder that holds the shares on your behalf. For stockholders who hold their HD Supply common stock in an account with a bank or brokerage firm, shares of our common stock being distributed will be registered in the "street name" of your bank or broker, who in turn will electronically credit your account with the shares that you are entitled to receive in the distribution. We anticipate that banks and brokers will generally credit their customers' accounts with shares of our common stock on or shortly after the distribution date. We encourage you to contact your bank or

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broker if you have any questions regarding the mechanics of having your shares credited to your account.

        Registered Holders.    If you are the registered holder of HD Supply common stock and hold your HD Supply common stock either in physical form or in book-entry form, the White Cap common stock distributed to you will be registered in your name and you will become the holder of record of that number of shares of our common stock. Our distribution agent will send you a statement reflecting your ownership of our common stock.

        Direct Registration System.    As part of the spinoff, we will be adopting a direct registration system for book-entry share registration and transfer of our common stock. Our common stock to be distributed in the spinoff will be distributed as uncertificated shares registered in book-entry form through the direct registration system. No certificates representing your shares will be mailed to you in connection with the spinoff. Under the direct registration system, instead of receiving stock certificates, you will receive a statement reflecting your ownership interest in our shares. If at any time you want to receive a physical certificate evidencing your shares, you may do so by contacting our transfer agent and registrar. Contact information for our transfer agent and registrar is provided under "Description of Capital Stock—Transfer Agent, Distribution Agent, and Registrar." The distribution agent will begin mailing book-entry account statements reflecting your ownership of shares promptly after the distribution date. You can obtain more information regarding the direct registration system by contacting our transfer agent and registrar.

Treatment of Fractional Shares

        The transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. The transfer agent will determine, in its sole discretion, when, how, and through which broker-dealers such sales will be made without any influence by HD Supply or us. We anticipate that these sales will occur as soon as practicable after the distribution date. Those holders will then receive a cash payment in an amount equal to their pro rata share of the total net proceeds of those sales.

        It is expected that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.

        Neither HD Supply, nor we, nor the transfer agent will guarantee any minimum sale price for any fractional shares. Neither we nor HD Supply will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient stockholders for U.S. federal income tax purposes. See "—Material U.S. Federal Income Tax Consequences of the Distribution" below.

Transferability of Shares You Receive

        Our common stock distributed to HD Supply stockholders will be freely transferable, except for shares received by persons who may be deemed to be our "affiliates" under the Securities Act. Persons who may be deemed to be our affiliates after the spinoff generally include individuals or entities that control, are controlled by, or are under common control with us, and include our directors and certain of our officers. Our affiliates will be permitted to sell their White Cap common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144.

        Under Rule 144, an affiliate may not sell within any three-month period shares of White Cap common stock in excess of the greater of:

    1% of the then outstanding number of shares of White Cap common stock; and

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    the average reported weekly trading volume of shares of White Cap common stock on NASDAQ during the four calendar weeks preceding the filing of a notice with the SEC on Form 144 with respect to such sale or, if no such notice is required, certain other applicable dates.

        Sales under Rule 144 are also subject to certain provisions regarding the manner of sale, notice requirements, the availability of current public information about us, and holding periods.

Stock-Based Plans

Treatment of Equity-Based Compensation

        With respect to HD Supply equity incentive awards held by White Cap employees, including White Cap's named executive officers and White Cap directors, that are outstanding on the distribution date and for which the underlying security is shares of HD Supply's common stock, it is currently anticipated that each outstanding HD Supply stock option, restricted stock, performance award, restricted stock unit, and deferred stock unit award will be equitably adjusted or converted into an award with respect to White Cap common stock. Each other HD Supply equity incentive award will also be equitably adjusted or converted, but will continue to relate to HD Supply common stock. In each case, the award will be equitably adjusted or converted in a manner intended to preserve the aggregate intrinsic value of the original HD Supply equity award, and will be subject to substantially the same terms and conditions after the spinoff as the terms and conditions applicable to the original HD Supply award prior to the distribution date, except:

    with respect to each adjusted or converted stock option award, the per-share exercise price for each White Cap stock option and each HD Supply stock option will be adjusted or established, as applicable, so that each will retain, in the aggregate, the same intrinsic value that the original HD Supply stock option award had immediately prior to the distribution date (subject to rounding);

    with respect to each adjusted or converted award covering White Cap common stock or HD Supply common stock, the number of underlying shares subject to such award will be determined based on application of (1) the ratio of HD Supply's pre-spinoff stock price to (a) the post-spinoff share price of White Cap in the case where the adjusted or converted award covers White Cap common stock or (b) the post-spin-off share price of HD Supply in the case where the adjusted award covers HD Supply common stock to (2) the number of HD Supply common shares subject to the original HD Supply award prior to the distribution date;

    with respect to the performance awards, see "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives—Performances Awards." Further information with respect to the performance awards will be provided in an amendment to this information statement.

        To the extent that an affected employee is employed in a non-U.S. jurisdiction, and the adjustments or grants contemplated above could result in adverse tax consequences or other adverse regulatory consequences, HD Supply may determine that a different equitable adjustment or grant will apply in order to avoid any such adverse consequences.

        We expect that the compensation committee of our board of directors will maintain a program to deliver long-term incentive awards to our executives and other employees that is appropriate for our business needs. However, the types of awards provided, the allocation of grant date values among the mix of awards, and the performance measures to be used may differ from HD Supply's past practice.

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White Cap Omnibus Plan

        We anticipate that we will adopt the White Cap Omnibus Plan as defined in "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives." The White Cap Omnibus Plan will generally be administered by our compensation committee (or the board of directors in the case of non-employee director awards) and will generally enable our compensation committee (or the board of directors, as applicable) to provide equity incentive compensation to our employees, our non-employee directors, and eligible consultants. Pursuant to the White Cap Omnibus Plan, we may grant stock options (including "incentive stock options" as defined in Section 422 of the Code), stock appreciation rights, restricted stock, restricted stock units, performance awards, deferred stock units, and certain other awards based on or related to our common stock, subject to certain share and dollar limitations as described in the White Cap Omnibus Plan.

        The White Cap Omnibus Plan will authorize the grant of "adjusted awards" to certain current holders of HD Supply equity awards under the HD Supply equity compensation plans, as described above. In connection with the distribution of White Cap common stock to HD Supply stockholders, our compensation committee intends to authorize adjusted awards of White Cap stock options, restricted stock, performance awards, restricted stock units, and deferred stock units under the White Cap Omnibus Plan to White Cap employees and directors who hold corresponding awards covering HD Supply equity.

        Subject to adjustment as described in the White Cap Omnibus Plan, total awards under the White Cap Omnibus Plan will be limited to             million shares of White Cap common stock. These shares may be shares of original issuance or treasury shares or a combination of the foregoing.

        The White Cap Omnibus Plan also provides that, subject to adjustment as described in the White Cap Omnibus Plan:

    no participant in any calendar year will be granted stock options, stock appreciation rights, or any other award based solely on an increase in the value of the shares from the grant date in respect of more than                 shares;

    no participant in any calendar year will be granted more than                performance awards to be settled in shares;

    no participant in any calendar year will receive a payment in excess of                in respect of performance awards to be settled in cash; and

    no non-employee director of White Cap will be granted in any board compensation year awards under the White Cap Omnibus Plan having an aggregate maximum value, taken together with any cash fees payable to such non-employee director for such year, in excess of $            .

        All awards and shares that are distributed pursuant to awards are subject to the terms and conditions of any recoupment or clawback policy adopted by our compensation committee, our board of directors or us, including any policy adopted to comply with applicable law.

        Our compensation committee generally will be able to amend the White Cap Omnibus Plan, subject to stockholder approval in certain circumstances.

Cash-Based Incentive Program

        We expect that we will adopt a short-term incentive program that will permit us to provide annual cash-based incentive awards to certain officers and other key employees based on performance against pre-established annual goals. Under the short-term incentive program, we expect that participants will have an annual target award opportunity established by the White Cap Compensation Committee expressed as a percentage of each participants' base salary.

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Material U.S. Federal Income Tax Consequences of the Distribution

        The following is a discussion of the material U.S. federal income tax consequences of the distribution to U.S. Holders (as defined below) of HD Supply common stock. This discussion is based on the Code, applicable Treasury regulations, administrative authorities and court decisions, all as in effect as of the date of this information statement, any of which may change, possibly with retroactive effect. For purposes of this discussion, a "U.S. Holder" is a beneficial owner of HD Supply common stock that is for U.S. federal income tax purposes:

    a citizen or resident of the U.S.;

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the U.S., any state therein or the District of Columbia;

    a trust (1) that is subject to the primary supervision of a court within the U.S. and all the substantial decisions of which are controlled by one or more U.S. persons or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person; or

    an estate the income of which is subject to U.S. federal income taxation regardless of its source.

        This discussion addresses only the consequences of the distribution to U.S. Holders that hold HD Supply common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). It does not address all aspects of U.S. federal income taxation that may be important to a U.S. Holder in light of that stockholder's particular circumstances or to a U.S. Holder subject to special rules, such as:

    banks or other financial institutions, underwriters, or insurance companies;

    traders in securities who elect to apply a mark-to-market method of accounting;

    real estate investment trusts and regulated investment companies;

    tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts;

    expatriates or former long-term residents of the U.S.;

    partnerships or other pass-through entities or investors in such entities;

    dealers or traders in securities, commodities, or currencies;

    grantor trusts;

    persons subject to the alternative minimum tax;

    U.S. persons whose "functional currency" is not the U.S. dollar;

    persons who received HD Supply shares through the issuance of restricted stock under an equity incentive plan or through a tax-qualified retirement plan or otherwise as compensation;

    persons who own (directly or through attribution) 5% or more (by vote or value) of the outstanding HD Supply shares, or, after the distribution, the outstanding White Cap ordinary shares; or

    holdings of HD Supply shares, or, after the spinoff, White Cap ordinary shares, as a position in a "straddle" as part of a "synthetic security" or "hedge" as part of a "conversion transaction" or other integrated investment or risk reduction transaction.

        If a partnership, or any entity treated as a partnership for U.S. federal income tax purposes, holds HD Supply common stock, the tax treatment of a partner in such partnership generally will depend on

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the status of the partners and the activities of the partnership. A partner in a partnership holding HD Supply common stock should consult his, her, or its tax advisor.

        This discussion of material U.S. federal income tax consequences is not a complete analysis or description of all potential U.S. federal income tax consequences of the distribution. This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. In addition, it does not address any U.S. federal, estate, gift, or other non-income tax or any non-U.S. state or local tax consequences of the distribution. Accordingly, each holder of HD Supply common stock should consult his, her, or its tax advisor to determine the particular U.S. federal, state, or local or non-U.S. income or other tax consequences of the distribution to such holder.

Tax Opinions

        The consummation of the distribution is conditioned upon the receipt of an opinion of tax counsel substantially to the effect that the distribution of all of the shares of White Cap common stock owned by HD Supply to the stockholders of HD Supply will qualify as a tax-free distribution to such stockholders within the meaning of Section 355 of the Code (the "Tax Opinion"). In rendering the Tax Opinion to be given as of the date of the distribution of White Cap common stock to the HD Supply stockholders (the "Closing Tax Opinion"), tax counsel will rely, on (i) customary representations, warranties, and covenants made by us and HD Supply, including those contained in certificates of officers of us and HD Supply, and (ii) specified assumptions, including an assumption regarding the completion of the spinoff and certain related transactions in the manner contemplated by the transaction agreements. In addition, tax counsel's ability to provide the Closing Tax Opinion will depend on the absence of changes in existing facts or law between the date of our registration statement on Form 10, of which this information statement is a part, and the closing date of the spinoff. If any of the representations, warranties, covenants, or assumptions on which tax counsel will rely is inaccurate, tax counsel may not be able to provide the Closing Tax Opinion or the tax consequences of the distribution could differ from those described below. An opinion of tax counsel does not preclude the IRS or the courts from adopting a contrary position. HD Supply does not intend to obtain a ruling from the IRS regarding the tax consequences of the distribution.

The Distribution

        Assuming that the distribution of all of the shares of White Cap common stock owned by HD Supply to the stockholders of HD Supply qualifies as a tax-free distribution within the meaning of Section 355 of the Code, in general, for U.S. federal income tax purposes:

    no gain or loss will be recognized by, and no amount will be included in the income of, U.S. Holders of HD Supply common stock upon the receipt of our common stock;

    the aggregate tax basis of the shares of our common stock distributed in the spinoff to a U.S. Holder of HD Supply common stock will be determined by allocating the aggregate tax basis such U.S. Holder has in the shares of HD Supply common stock immediately before such spinoff between such HD Supply common stock and our common stock in proportion to the relative fair market value of each immediately following the spinoff;

    the holding period of any shares of our common stock received by a U.S. Holder of HD Supply common stock in the spinoff will include the holding period of the shares of HD Supply common stock with respect to which the distribution is made; and

    a U.S. Holder of HD Supply common stock that receives cash in lieu of a fractional share of our common stock, if any, will generally recognize capital gain or loss, measured by the difference between the cash received for such fractional share and the U.S. Holder's tax basis in that fractional share, determined as described above, and such gain or loss will be long-term capital

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      gain or loss if the U.S. Holder's holding period for such fractional share is more than one year as of the closing date of the spinoff.

        In general, if the distribution does not qualify as a tax-free distribution within the meaning of Section 355 of the Code, the distribution will be treated as a taxable dividend to holders of HD Supply common stock in an amount equal to the fair market value of our common stock received, to the extent of such holder's ratable share of HD Supply's earnings and profits. In addition, if the spinoff does not qualify as a tax-free distribution within the meaning of Section 355 of the Code, HD Supply will recognize taxable gain, which could result in significant tax liability to HD Supply.

        Even if the distribution were otherwise to qualify as a tax-free distribution within the meaning of Sections 355 of the Code, the distribution will be taxable to HD Supply under Section 355(e) of the Code if 50% or more of either the total voting power or the total fair market value of the stock of HD Supply or our common stock is acquired as part of a plan or series of related transactions that includes the distribution. If Section 355(e) applies as a result of such an acquisition, HD Supply would recognize taxable gain as described above, but the distribution would generally remain tax-free to you. Under some circumstances, the agreement between HD Supply and us related to taxes allocable between HD Supply and us would require us to indemnify HD Supply for the tax liability associated with such taxable gain. Under that agreement, we will generally be required to indemnify HD Supply for the resulting taxes in the event that the distribution fails to qualify for its intended tax treatment due to any action by us or any of our subsidiaries. If the distribution were to be taxable to HD Supply, the liability for payment of such tax by HD Supply or by us under such agreement could have a material adverse effect on HD Supply or us, as the case may be.

Information Reporting and Backup Withholding

        Treasury regulations generally require holders who own at least five percent of the total outstanding stock of HD Supply (by vote or value) and who receive our common stock pursuant to the distribution to attach to their U.S. federal income tax return for the year in which the spinoff occurs a detailed statement setting forth certain information relating to the spinoff. HD Supply and/or we will provide the appropriate information to each holder upon request, and each such holder is required to retain permanent records of this information. In addition, payments of cash to a U.S. Holder of HD Supply common stock in lieu of fractional shares of our common stock in the spinoff may be subject to information reporting, unless the U.S. Holder provides the withholding agent with proof of an applicable exemption. Such payments that are subject to information reporting may also be subject to backup withholding, unless such U.S. Holder provides the withholding agent with a correct taxpayer identification number and otherwise complies with the requirements of the backup withholding rules. Backup withholding does not constitute an additional tax, but merely an advance payment, which may be refunded or credited against a U.S. Holder's U.S. federal income tax liability, provided the required information is timely supplied to the IRS.

Market for Our Common Stock

        There is currently no public market for our common stock. We have applied to list our common stock on NASDAQ under the symbol "WCAP." We anticipate that trading of our common stock will commence on a "when-issued basis" approximately two trading days before the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. Generally, shares of common stock may trade on NASDAQ on a when-issued basis after they have been authorized but not yet formally issued, which is often initiated by NASDAQ prior to the record date relating to the issuance of such common stock. When-issued transactions are settled after shares of our common stock have been issued to HD Supply stockholders. On the first trading day following the distribution date, when-issued trading with respect to our common stock will end and regular way trading will begin. Regular way trading refers to trading after a

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security has been issued. We cannot predict what the trading price for our common stock will be before or after the distribution date. See "Risk Factors—Risks Relating to Ownership of Our Common Stock." In addition, we cannot predict any change that may occur in the trading price of HD Supply's common stock, which will continue to trade on NASDAQ under the symbol "HDS," as a result of the spinoff.

Trading of HD Supply Common Stock After the Record Date and Prior to the Distribution

        Beginning on or shortly before the record date and through the distribution date, we anticipate that there will be two concurrent markets in which to trade shares of HD Supply common stock: a regular way market and an ex-distribution market. Shares of HD Supply common stock that trade in the regular way market will trade with an entitlement to our common stock distributed in connection with the spinoff. Shares that trade in the ex-distribution market will trade without an entitlement to our common stock distributed in connection with the spinoff. Therefore, if you owned HD Supply common stock at 5:00 p.m., Atlanta, Georgia time, on the record date and sell those shares in the regular way market on or prior to the distribution date, you also will be selling your right to receive our common stock that would have been distributed to you in connection with the spinoff. If you sell those shares of HD Supply common stock in the ex-distribution market on or prior to the distribution date, you will still receive shares of our common stock that were to be distributed to you in connection with the spinoff as a result of your ownership of the HD Supply common stock on the record date. You are encouraged to consult with your financial advisor regarding the financial implications of selling your shares of HD Supply common stock before or on the distribution date.

Spinoff Conditions and Termination

        We expect that the spinoff will be completed on            , 2020, provided that, among other things:

    the transactions as contemplated by the separation and distribution agreement will have been completed;

    the HD Supply board of directors will, in its sole and absolute discretion, have authorized and approved the separation and the distribution and will not have withdrawn that authorization and approval;

    the HD Supply board of directors will have declared the distribution of all of our outstanding shares of common stock to HD Supply stockholders;

    HD Supply and we will have executed and delivered the separation and distribution agreement, employee matters agreement, transition services agreements, tax matters agreement, and all other ancillary agreements related to the spinoff;

    the SEC shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, with no stop order in effect with respect to the Form 10, and this information statement shall have been sent to HD Supply stockholders;

    no order, injunction, or decree that would prevent the consummation of the distribution will be threatened, pending or issued (and still in effect) by any governmental entity of competent jurisdiction, no other legal restraint or prohibition preventing the consummation of the distribution will be in effect, and no other event outside the control of HD Supply will have occurred or failed to occur that prevents the consummation of the distribution;

    our common stock shall have been approved for listing on NASDAQ, subject to official notice of issuance;

    HD Supply will have received an opinion of counsel, reasonably satisfactory to HD Supply, to the effect that, for U.S. federal income tax purposes, the distribution of all of the shares of

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      White Cap common stock owned by HD Supply to the stockholders of HD Supply will qualify as a tax-free distribution within the meaning of Section 355 of the Code; and

    prior to the spinoff, our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws, each in substantially the form filed as an exhibit to our registration statement on Form 10, of which this information statement is a part, will be in effect.

        HD Supply may waive one or more of these conditions, at the direction of its board of directors in its sole and absolute discretion, and the determination by the HD Supply board of directors regarding the satisfaction of these conditions will be conclusive. The fulfillment of these conditions will not create any obligation on HD Supply's part to effect the distribution, and HD Supply has reserved the right to amend, modify, or abandon any and all terms of the distribution and the related transactions at any time prior to the distribution date, at the direction of its board of directors. HD Supply does not intend to notify its stockholders of any modifications to the terms or the conditions to the separation that, in the judgment of its board of directors, are not material. To the extent that the HD Supply board of directors determines that any such modifications materially change the terms and conditions of the distribution, HD Supply will notify its stockholders in a manner reasonably calculated to inform them of such modifications with a press release, Current Report on Form 8-K, or other similar means.

Reason for Sending this Information Statement

        This information statement is being sent solely to provide information to HD Supply stockholders who will receive White Cap common stock in the spinoff. It is not to be construed as an inducement or encouragement to buy or sell any of our securities. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither we nor HD Supply undertake any obligation to update the information, except to the extent so required by applicable securities laws.

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CAPITALIZATION

        The following table sets forth White Cap's cash and cash equivalents and capitalization as of May 3, 2020 on a historical basis and on an as adjusted basis to give effect to the pro forma adjustments included in White Cap's unaudited pro forma combined financial information included elsewhere in this information statement. The information below is not necessarily indicative of what White Cap's cash and cash equivalents and capitalization would have been had the spinoff been completed as of May 3, 2020. In addition, this information is not indicative of White Cap's future cash and cash equivalents and capitalization. This table should be read in conjunction with the sections entitled "Selected Historical Combined Financial Data," "Unaudited Pro Forma Combined Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and corresponding notes included elsewhere in this information statement.

 
  As of May 3, 2020
(unaudited)
(dollars in millions)
 
 
  Historical   As Adjusted  

Cash and cash equivalents

  $ 16.5   $ 82.5  

Debt, including current and long-term

             

HDS Senior ABL Credit Facility

    51.3      

Senior ABL Credit Facility(1)

        150.0  

Senior notes(1)

        590.0  

Total debt

  $ 51.3   $ 740.0  

Equity

             

Common stock, par value $0.01 per share

           

Additional paid-in capital

        366.4  

Net parent company equity investment

    985.1      

Accumulated other comprehensive loss

    (9.8 )   (9.8 )

Total stockholders' equity

    975.3     356.6  

Total capitalization

  $ 1,026.6   $ 1,096.6  

(1)
As part of the spinoff, we expect to incur approximately $750.0 million of new debt, which we expect to consist of $150.0 million of borrowings under the $600 million ABL Facility providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $600 million and approximately $600 million in aggregate principal amount of senior notes. The As Adjusted Senior notes are reported net of $10 million of debt issuance costs. See "Description of Certain Indebtedness."

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DIVIDEND POLICY

        We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain earnings for use in the operation and expansion of our business. Any future payment of dividends will be at the discretion of our board of directors and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions, and other factors that our board of directors may deem relevant.

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

        The following table presents White Cap's selected historical combined financial data. The selected historical combined financial data for the three months ended May 3, 2020 and May 5, 2019 and the selected historical balance sheet as of May 3, 2020 are derived from White Cap's unaudited combined financial statements included elsewhere in this information statement. The selected historical combined financial data as of February 2, 2020 and February 3, 2019, and for the years ended February 2, 2020, February 3, 2019, and January 28, 2018, are derived from White Cap's audited combined financial statements included elsewhere in this information statement. The selected historical combined balance sheet as of January 28, 2018 and May 5, 2019 and the selected historical combined financial data as of January 29, 2017 and January 31, 2016 and for the years then ended are derived from White Cap's unaudited combined financial information that are not included in this information statement.

        The selected historical combined financial data include certain expenses related to HD Supply that were allocated to White Cap for certain corporate functions including IT, finance, legal, insurance, compliance, and human resources activities. These costs may not be representative of the future costs White Cap will incur as an independent, publicly traded company. In addition, White Cap's historical financial information does not reflect changes that White Cap expects to experience in the future as a result of the spinoff from HD Supply, including changes in White Cap's cost structure, personnel needs, capital structure, financing, and business operations. Consequently, the financial information included here may not necessarily reflect what White Cap's financial position, results of operations, and cash flows would have been had it been an independent, publicly traded company during the periods presented. Accordingly, these historical results should not be relied upon as an indicator of White Cap's future performance.

        For a better understanding, this section should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Unaudited Pro Forma Combined Financial Data" and corresponding notes and the combined financial statements and accompanying notes included elsewhere in this information statement.

Selected combined financial information

 
  Three Months
Ended
  Fiscal Year Ended  
 
  May 3,
2020
  May 5,
2019
  February 2,
2020
  February 3,
2019
  January 28,
2018
  January 29,
2017
  January 31,
2016
 

(Dollars in millions)

                                           

Statement of income data:

                                           

Net sales

  $ 713.3   $ 721.2   $ 3,019.4   $ 2,961.2   $ 2,276.4   $ 2,064.9   $ 1,931.6  

Operating income

    44.3     51.6     249.5     244.3     174.6     147.4     115.8  

Income before provision for income taxes

    44.0     51.3     248.3     236.5     134.4     107.8     76.2  

Provision for income taxes

    11.9     13.0     67.4     62.8     44.3     44.4     34.4  

Net income

  $ 32.1   $ 38.3   $ 180.9   $ 173.7   $ 90.1   $ 63.4   $ 41.8  

Balance sheet data (end of period):

                                           

Total assets

  $ 1,617.0   $ 1,658.4   $ 1,624.0   $ 1,399.6   $ 916.6   $ 841.7     ^  

Total liabilities

    641.7     643.5     623.4     369.3     323.8     310.4     ^  

Other financial data:

                                           

Working capital(1)

    407.8     430.8     424.5     490.4     355.3     296.7     ^  

Adjusted EBITDA(2)

    64.6     69.5     326.7     323.6     232.4     199.3     161.0  

^
No Balance sheet data as of January 31, 2016 has been provided as no such selected historical combined financial data was prepared for White Cap.

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(1)
We define working capital as current assets (including cash) minus current liabilities.

(2)
Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to Net income as a measure of operating performance. We present Adjusted EBITDA because it is a primary measure used by management to evaluate operating performance. We believe the presentation of Adjusted EBITDA enhances our investors' overall understanding of the financial performance of our business. We believe Adjusted EBITDA is helpful in highlighting operating trends, because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and age and book depreciation of facilities and capital investments.

    We define Adjusted EBITDA as Net income plus (1) interest expense and interest income, net, (2) provision for income taxes, (3) depreciation and amortization, (4) restructuring charges, (5) stock-based compensation expenses, (6) acquisition and integration costs, and (7) certain corporate allocations.

    We believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

    Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt (when incurred);

    Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes;

    Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

    although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

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        The following table presents a reconciliation of Net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented (amounts in millions):

 
  Three Months
Ended
  Fiscal Year Ended  
 
  May 3,
2020
  May 5,
2019
  February 2,
2020
  February 3,
2019
  January 28,
2018
  January 29,
2017
  January 31,
2016
 

Net income

  $ 32.1   $ 38.3   $ 180.9   $ 173.7   $ 90.1   $ 63.4   $ 41.8  

Interest expense, net

    0.3     0.3     1.2     7.8     40.2     39.6     39.6  

Provision for income taxes

    11.9     13.0     67.4     62.8     44.3     44.4     34.4  

Depreciation and amortization(1)

    14.5     14.7     58.9     58.1     45.0     41.4     38.4  

Restructuring and separation charges(2)

    0.6         0.2         0.6          

Stock-based compensation(3)

    1.8     1.8     7.2     6.4     5.1     3.5     2.4  

Acquisition and integration costs(4)

    0.1     0.6     3.6     6.3     1.4          

Corporate allocations(5)

    3.3     0.8     7.2     8.5     5.7     7.0     4.4  

Other

            0.1                  

Adjusted EBITDA

  $ 64.6   $ 69.5   $ 326.7   $ 323.6   $ 232.4   $ 199.3   $ 161.0  

(1)
Depreciation and amortization includes amounts recorded within Cost of sales in the Combined Statements of Operations.

(2)
Represents the costs incurred for separation activities and branch closures or consolidations. These costs include occupancy costs, severance, relocation costs, and other costs incurred to exit a location.

(3)
Represents the stock-based compensation expense directly attributable to White Cap employees.

(4)
Represents the costs incurred in the acquisition and integration of A.H. Harris.

(5)
Represents stock-based compensation and restructuring charges incurred at HD Supply and allocated to us.

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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

        The Unaudited Pro Forma Combined Financial Data of White Cap consist of unaudited pro forma combined statements of income for fiscal 2019 and for the three months ended May 3, 2020, and an unaudited pro forma combined balance sheet as of May 3, 2020. The Unaudited Pro Forma Combined Financial Data reported below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selected Historical Combined Financial Data" and the combined financial statements and corresponding notes included elsewhere in this information statement.

        The following Unaudited Pro Forma Combined Financial Data are subject to assumptions and adjustments described in the accompanying notes. White Cap's management believes these assumptions and adjustments are reasonable under the circumstances and given the information available at this time. However, these adjustments are subject to change as HD Supply and White Cap finalize the terms of the spinoff, including the separation and distribution agreement and related transaction agreements. The Unaudited Pro Forma Combined Financial Data do not purport to represent what White Cap's financial position and results of operations actually would have been had the spinoff occurred on the dates indicated, or to project White Cap's financial performance for any future period following the spinoff.

        The unaudited pro forma combined statements of income give effect to the spinoff as if it had occurred on February 4, 2019 for fiscal 2019 and the three months ended May 3, 2020. The unaudited pro forma combined balance sheet as of May 3, 2020 gives effect to the spinoff as if it had occurred on May 3, 2020. These Unaudited Pro Forma Combined Financial Data include adjustments to reflect the following:

    the contribution by HD Supply to White Cap, pursuant to the separation and distribution agreement, of its ownership of all the assets and liabilities that comprise our business;

    the inclusion of $750 million of debt at an estimated weighted average interest rate of 5%;

    a cash distribution of approximately $670 million to HD Supply;

    the pro-rata distribution of approximately             million shares of common stock of White Cap to HD Supply stockholders; and

    the impact of the separation and distribution agreement, tax matters agreement, employee matters agreement, and other commercial agreements between White Cap and HD Supply, as more fully described in "Relationship with HD Supply After the Spinoff—Agreements Between HD Supply and Us."

        HD Supply expects to incur approximately $50 million to $70 million of non-recurring costs in connection with the spinoff. These amounts are expected to cover matters such as investment advisory, recruiting, consulting, legal, auditing, and IT related services incurred to complete the spinoff. These amounts exclude costs related to White Cap's issuance of debt as part of the spinoff, which have been incorporated in the accompanying Unaudited Pro Forma Combined Financial Data.

        White Cap's combined financial statements include expense allocations for certain support functions that are currently provided on a centralized basis within HD Supply, such as expenses for business shared services, and other Selling, general, and administrative expenses that benefit White Cap. We expect to incur additional ongoing costs after the spinoff related to operating as an independent public company and replacing the services previously provided by HD Supply. We currently estimate those additional costs will range from approximately $20 million to $25 million in excess of fiscal 2019 reported Selling, general, and administrative expenses, excluding items impacting comparability. Our estimate takes into consideration the benefit that we will receive from the elimination of cost allocations from HD Supply after the spinoff is completed. The estimated additional

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costs are not reflected in the accompanying Unaudited Pro Forma Combined Financial Data as they are projected amounts based on estimates and would not be factually supportable.

        Due to the scope and complexity of these activities, the amount of the above-described costs could increase or decrease materially from those as currently estimated.

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Unaudited Pro Forma Combined Balance Sheet
As of May 3, 2020
(in millions)

 
  Historical   Pro Forma
Adjustments
   
  Pro Forma  

ASSETS

                                                                   

Current assets:

                       

Cash and cash equivalents

  $ 16.5   $ 66.0   (A)(B)   $ 82.5  

Receivables

    373.2               373.2  

Inventories

    375.8               375.8  

Other current assets

    9.9               9.9  

Total current assets

    775.4               841.4  

Property and equipment, net

    115.3               115.3  

Goodwill

    386.1               386.1  

Intangible assets, net

    103.0               103.0  

Operating lease right-of-use assets

    231.3               231.3  

Deferred tax assets

    1.1               1.1  

Other assets

    4.8     4.0   (B)     8.8  

Total assets

  $ 1,617.0   $ 70.0       $ 1.687.0  

LIABILITIES AND EQUITY

                       

Current liabilities:

                       

Accounts payable

  $ 219.0             $ 219.0  

Accrued compensation and benefits

    31.3               31.3  

Current lease liabilities

    64.1               64.1  

Other current liabilities

    53.2               53.2  

Total current liabilities

    367.6             367.6  

Long-term debt, excluding current installments

    51.3     688.7   (B)     740.0  

Long-term lease liabilities

    171.0               171.0  

Deferred tax liabilities

    36.2               36.2  

Other liabilities

    15.6               15.6  

Total liabilities

    641.7     688.7         1,330.4  

Equity:

                       

Net Parent Investment

    985.1     (985.1 ) (A)(C)      

Common stock $0.01 par value

            (C)        

Additional paid-in capital

        366.4   (C)     366.4  

Accumulated other comprehensive loss

    (9.8 )             (9.8 )

Total equity

    975.3     (618.7 )       356.6  

Total liabilities and equity

  $ 1,617.0   $ 70.0       $ 1,687.0  

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Unaudited Pro Forma Combined Statement of Income
For the Year Ended February 2, 2020
(in millions, except per share data)

 
  Historical   Pro Forma Adjustments    
  Pro Forma  

Net sales

  $ 3,019.4             $ 3,019.4  

Cost of sales

    1,956.0               1,956.0  

Gross Profit

    1,063.4               1,063.4  

Operating expenses:

                       

Selling, general, and administrative

    762.7     (3.7 ) (D)     759.0  

Depreciation and amortization

    51.0               51.0  

Restructuring and separation

    0.2     (0.2 ) (D)      

Total operating expenses

    813.9     (3.9 )       810.0  

Operating Income

    249.5     3.9         253.4  

Interest expense

    1.2     38.4   (E)     39.6  

Income Before Provision for Income Taxes

    248.3     (34.5 )       213.9  

Provision for income taxes

    67.4     (9.6 ) (F)     57.8  

Net Income

  $ 180.9   $ (24.9 )     $ 156.0  

Weighted Average of Shares of Common Stock Outstanding (thousands)

                       

Basic

              (G)        

Diluted

              (H)        

Net Income Per Share

                       

Basic

                       

Diluted

                       

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Unaudited Pro Forma Combined Statement of Income
For the Three Months Ended May 3, 2020
(in millions, except per share data)

 
  Historical   Pro Forma
Adjustments
   
  Pro Forma  

Net sales

  $ 713.3             $ 713.3  

Cost of sales

    460.4               460.4  

Gross Profit

    252.9               252.9  

Operating expenses:

                       

Selling, general, and administrative

    195.7     (1.8 ) (D)     193.9  

Depreciation and amortization

    12.3               12.3  

Restructuring and separation

    0.6     (0.6 ) (D)      

Total operating expenses

    208.6     (2.4 )       206.2  

Operating Income

    44.3     2.4         46.7  

Interest expense

    0.3     9.6   (E)     9.9  

Income Before Provision for Income Taxes

    44.0     (7.2 )       36.8  

Provision for income taxes

    11.9     (2.0 ) (F)     9.9  

Net Income

  $ 32.1   $ (5.2 )     $ 26.9  

Weighted Average of Shares of Common Stock Outstanding (thousands)

                       

Basic

              (G)        

Diluted

              (H)        

Net Income Per Share

                       

Basic

                       

Diluted

                       

Notes to Unaudited Pro Forma Combined Financial Information

        The following items resulted in adjustments reflected in the unaudited pro forma combined financial information:

    A.
    Reflects a $670 million distribution to HDS prior to the spinoff based on the assumed net proceeds of the debt described in Note (B). The amount of cash proceeds received from debt incurred at the spinoff, and thus the amount of cash distributed to HDS, will depend on market conditions at the time we incur the debt, which is not certain at this time.

    B.
    Reflects indebtedness totaling $750.0 million to be incurred by White Cap in conjunction with the spinoff, consisting of $600.0 million in aggregate principal amount of senior notes, net of $10 million estimated debt issuance costs, and approximately $150.0 million of borrowings under the $600.0 million ABL Facility. Other assets in the pro forma balance sheet reflects $4.0 million of estimated debt issuance costs for the ABL facility. The debt issuance costs will be recognized as a component of interest expense over the life of the two debt instruments.

    C.
    Reflects the pro forma recapitalization of our equity. As of the distribution date, HD Supply's net investment in our business will be exchanged to reflect the distribution of shares of our common stock to HD Supply stockholders. HD Supply stockholders will receive shares of our common stock based on an expected distribution ratio of                   share[s] of White Cap common stock for every                  share of HD Supply common stock.

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    D.
    Reflects the removal of non-recurring separation costs directly related to our separation from HD Supply that were incurred during the historical period, but which are not expected to have a continuing impact on White Cap's results of operations following the completion of the separation. These costs were primarily for legal, tax, accounting and other third-party professional fees associated with the separation. The historical data reflects these costs incurred directly by us within Restructuring and separation costs and these costs allocated to us by HD Supply within Selling, general, and administrative expenses.

    E.
    Represents adjustments to interest expense and amortization of debt issuance costs related to approximately $750 million of debt that we expect to incur as described in Note (B). We expect the weighted-average interest rate on the debt to be approximately 5%. Interest expense may be higher or lower if our actual interest rate or credit ratings change. A 25 basis point increase/decrease in the weighted-average interest rate would increase/decrease annual interest expense by approximately $1.9 million. Also includes the reversal of historical interest expense.

    F.
    Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rate of 26.1% and that substantially all of the spinoff related costs are assumed to be non-deductible for tax purposes. The effective tax rate could be different (either higher or lower) depending on activities subsequent to the spinoff.

    G.
    The number of shares of White Cap common stock used to compute basic earnings per share is based on the weighted average number of shares of HD Supply common stock outstanding for fiscal 2019, assuming a distribution ratio of                  share[s] of White Cap common stock for every                  share of HD Supply common stock, which distribution ratio is subject to change.

    H.
    The unaudited pro forma diluted Net income per share of common stock and pro forma weighted-average diluted shares outstanding give effect to the potential dilution from shares of common stock related to stock-based awards granted to White Cap employees under the HD Supply stock-based compensation programs. This calculation may not be indicative of the dilutive effect that will actually result from the White Cap stock-based awards issued in connection with the adjustment of outstanding HD Supply stock-based awards or the grant of new stock-based awards. The number of dilutive shares of common stock underlying White Cap stock-based awards issued in connection with the adjustment of outstanding HD Supply stock-based awards will not be determined until the distribution date or shortly thereafter. For the purposes of preparing the unaudited pro forma diluted earnings per share of common stock and pro forma weighted-average diluted shares, we believe an estimate based on applying the distribution ratio of                  share[s] of White Cap common stock for every                  share of HD Supply common stock, to the weighted-average HD Supply diluted shares outstanding for fiscal 2019 and first quarter 2020, provides a reasonable approximation of the potential dilutive effect of the stock-based awards. Outstanding options and other stock-based awards will be converted in a manner designed to reflect the intrinsic value of such awards at the time of spinoff, which may result in additional expense incurred by White Cap to the extent the conversion results in a change in fair value of the stock-based awards. The conversion of existing HD Supply awards to White Cap awards will not be known until the distribution date or shortly thereafter, therefore we do not believe we can establish a reasonable estimate of the potential additional expense that may be incurred until such time. A portion of any incremental expense will be recognized on the date of the modification for the vested portions of awards, and the remainder will be amortized over the remaining vesting period.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis is intended to provide a summary of significant factors relevant to the financial performance and condition of the White Cap business, which we refer to in this discussion and analysis as the "Company" or "White Cap," of HD Supply Holdings, Inc., which we refer to in this discussion and analysis as "HD Supply" or "Parent." The discussion and analysis should be read together with White Cap's audited annual combined financial statements and related notes for the fiscal years ended February 2, 2020 ("fiscal 2019), February 3, 2019 ("fiscal 2018"), and January 28, 2018 ("fiscal 2017") and the unaudited quarterly combined financial statements and related notes for the three months ended May 3, 2020 ("first quarter 2020") and May 5, 2019 ("first quarter 2019"). Results for fiscal 2019, fiscal 2018, fiscal 2017, first quarter 2020, and first quarter 2019 are not necessarily indicative of results that may be attained in the future.


White Cap

Overview

        White Cap operates through one segment and is a leading distributor of specialty concrete and construction products and services in North America serving professional contractors across non-residential, residential and other markets. With 269 customer-facing locations across the U.S. and Canada, we have nearly twice the number of locations compared to our direct largest competitor. Non-residential, residential and other markets accounted for approximately 69%, 25% and 6% of our fiscal 2019 Net sales, respectively, with "other markets" including sales in Canada and sales to other non-contractor customers. We believe the markets for our products and services present opportunities for continued significant growth. We aspire to set the standard of excellence in delivering industry-leading products, services, and expertise through our experienced associates and seamless customer experience. This aspiration drives us and is reflected in the customer and market focus, intense teamwork, process excellence, and trusted relationships that define our culture. We believe our long-standing customer relationships, scale and branch footprint, talented associates with deep industry knowledge, extensive product and service offering, strategic supplier relationships, integrated technology platform and intense focus on the customer distinguish us from other distributors and have driven above-market growth and attractive returns on invested capital.

Impact of COVID-19 on our Business

        The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic and the magnitude of the impact of the pandemic on our sales, profitability, operations, and supply chain and on our customers, suppliers, vendors, and business partners.

        White Cap is deemed to be an essential business in all areas in which it operates. As a result, we continue to service our customers. However, our customers have been impacted by various factors related to the pandemic, including the response of governmental and other regulatory authorities to the pandemic, such as "shelter-in-place," "stay-at-home" orders, and travel restrictions. These factors resulted in a slowing of our sales to the affected customers. Our facilities continue to operate, but we have restricted public access to our branches and showrooms, and instead serviced our customers through customer pickup areas in the front of our locations, as well as continued job-site deliveries and direct deliveries.

        With respect to liquidity, we are continuously evaluating our cash positions and have taken prudent actions to reduce costs and spending across our organization. This includes reducing hiring activities, adjusting pay programs, negotiating rent payment deferrals at our leased facilities, and limiting

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discretionary spending. We have also reduced anticipated spending on certain capital investment projects, instead focusing on enhancing our liquidity position. See "—Liquidity and Capital Resources" below for further information.

        We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, and suppliers.

Factors Affecting Our Business and Results of Operations

        Key factors that have influenced our results of operations and may do so in the future include:

Competitive Dynamics

        We operate in a highly fragmented and competitive market and hold a leading distributor position in the specialty concrete and construction products market in North America. The majority of our competition comes from mid-size regional distributors and small, local distributors; however, we also face competition from a number of national distributors for specific products.

        We believe the principal competitive factors for the specialty construction market include local selling capabilities, availability, breadth and cost of materials and supplies, technical knowledge and expertise, value-add service capabilities, customer and supplier relationships, reliability and accuracy of service, effective use of technology, delivery capabilities and timeliness, pricing of products, and the provision of credit. We believe that our key strengths and strategy allow us to compete effectively in our markets.

Customer Relationships

        We benefit from strong relationships with a diverse set of customers, ranging from the largest contractors in North America to sole-proprietor remodelers. Our customers are professional concrete contractors and self-performing general contractors, as well as all professional contractors who require power tools and accessories, safety equipment, and fastening products in non-residential, residential and other markets.

Acquisitions

        We look to complement our organic growth via select acquisitions that allow us to broaden our product offering, geographic footprint, and service capabilities. In accordance with the acquisition method of accounting under Accounting Standards Codification ("ASC") 805, "Business Combinations," the results of the acquisitions we completed are reflected in our combined financial statements from the date of the acquisition forward.

        On March 5, 2018, we acquired A.H. Harris for a purchase price of approximately $359.5 million in cash, net of cash acquired, and the final working capital settlement. We received the final working capital settlement of approximately $2.8 million during fiscal 2019. A.H. Harris is a specialty construction distributor serving the northeast and mid-Atlantic regions. This acquisition expands White Cap's market presence in the northeastern and mid-Atlantic areas of the U.S. For additional detail related to the acquisition of A.H. Harris, see Note 2, Acquisitions, to our audited combined financial statements.

Seasonality

        In a typical year, our results of operations are impacted by seasonality. Historically, sales of our products have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Generally, during the winter months, construction

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and renovation activity declines due to inclement weather and shorter daylight hours. Seasonal variations in results of operations may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects and customer deliveries.

Fiscal Year

        Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal 2019 included 52 weeks, fiscal 2018 included 53 weeks, and fiscal 2017 included 52 weeks. First quarter 2020 and first quarter 2019 both included 13 weeks.

Key Business Metrics

Net Sales

        We earn our Net sales primarily from the sale of concrete accessories and other construction products and related value-add services to more than 200,000 customers. We recognize sales, net of sales tax and allowances for returns and discounts, when an identified performance obligation is satisfied by transfer of the promised goods or services to the customer. Net sales for certain products fluctuate with the price of commodities as we seek to minimize the effects of changing commodity prices by passing such increases in the prices of certain commodity-based products to our customers.

        We ship products to customers by internal fleet and third-party carriers. Net sales are recognized from product sales when control of the product and services are passed to the customer, which generally occurs at the point of destination.

        We include shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are sold. We account for shipping and handling costs associated with outbound freight as a fulfillment cost. Such costs are included in Selling, general, and administrative expenses.

Gross Profit

        Gross profit primarily represents the difference between the product cost from our suppliers (net of earned rebates and discounts) including the cost of inbound freight and the sale price to our customers. The cost of outbound freight, purchasing, receiving, and warehousing are included in Selling, general, and administrative expenses within Operating expenses. Our Gross profits may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in Cost of sales.

Operating Expenses

        Operating expenses are primarily comprised of Selling, general, and administrative expenses, which include payroll expenses (salaries, wages, employee benefits, payroll taxes, and bonuses), rent, insurance, utilities, repair and maintenance, and professional fees. In addition, Operating expenses include depreciation and amortization and restructuring charges.

Adjusted EBITDA and Free Cash Flow

        We supplement our financial results that are determined in accordance with GAAP with non-GAAP financial measures, including Adjusted EBITDA and free cash flow. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements.

        Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to Net income as a measure of operating performance. Free cash flow is also not a recognized term under GAAP and does not purport to be an alternative to operating cash flows as a

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measure of liquidity. We present Adjusted EBITDA and free cash flow because each is a primary measure used by management to evaluate operating performance. We believe the presentation of Adjusted EBITDA and free cash flow enhances investors' overall understanding of the financial performance of our business.

        We define Adjusted EBITDA as Net income plus (1) interest expense and interest income, net, (2) provision for income taxes, (3) depreciation and amortization, (4) restructuring charges, (5) stock-based compensation expenses, (6) acquisition and integration costs, and (7) certain corporate allocations.

        We define free cash flow as the cash provided by operating activities less capital expenditures.

        While we believe that these non-GAAP financial measures are useful in evaluating our performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ from similar measures presented by other companies.

        For additional detail, including a reconciliation of Net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented, see "Selected Historical Combined Financial Data—Selected combined financial information."

Combined Results of Operations—Three Months Ended May 3, 2020 and May 5, 2019

        Our combined financial results include allocations of operating costs from HD Supply. These costs are related to centralized support functions, which are comprised of finance, IT, human resources, legal, supply chain, and other support services.

 
  Three Months Ended  
Dollars in millions
  May 3,
2020
  May 5,
2019
  Percentage
Increase
(Decrease)
 

Net sales

  $ 713.3   $ 721.2     (1.1 )%

Gross profit

    252.9     250.5     1.0 %

Operating expenses:

                   

Selling, general, and administrative

    195.7     186.3     5.0 %

Depreciation and amortization

    12.3     12.6     (2.4 )%

Restructuring and separation

    0.6           *

Total operating expenses

    208.6     198.9     4.9 %

Operating income

    44.3     51.6     (14.1 )%

Interest expense

    0.3     0.3      

Income before provision for income taxes

    44.0     51.3     (14.2 )%

Provision for income taxes

    11.9     13.0     (8.5 )%

Net Income

  $ 32.1   $ 38.3     (16.2 )%

Non-GAAP Financial Data:

                   

Adjusted EBITDA

  $ 64.6   $ 69.5     (7.1 )%

*
not meaningful

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Three Months Ended May 3, 2020 Compared to Three Months Ended May 5, 2019

Highlights

        First quarter 2020 results were negatively impacted by the response of governmental and other regulatory authorities, including "shelter-in-place" and "stay-at-home" orders due to the COVID-19 pandemic. While White Cap was deemed an essential business in all areas in which it operates, the impact to our customers by the various factors related to the pandemic resulted in a slowing of our sales. These economic impacts generally began in mid-March 2020, which is the middle of our first quarter 2020.

        Net sales in first quarter 2020 decreased $7.9 million, or 1.1%, compared to first quarter 2019. Operating income in first quarter 2020 decreased $7.3 ?million, or 14.1%, as compared to first quarter 2019. Net income in first quarter 2020 decreased $6.2 million, or 16.2%, to $32.1 million as compared to first quarter 2019. Adjusted EBITDA in first quarter 2020 decreased $4.9 million, or 7.1%, as compared to first quarter 2019.

Net sales

        Net sales decreased $7.9 million, or 1.1%, in first quarter 2020 as compared to first quarter 2019.

        The Net sales decrease in first quarter 2020 was primarily due to varying state and local government restrictions on construction-related activities to address the COVID-19 pandemic. These restrictions, which were generally introduced in the middle of March 2020, resulted in an uneven impact on Net sales across our markets. Average year-over-year daily sales changes for the fiscal 2020 months of February, March, and April were an increase of 14.2%, an increase of 1.4%, and a decrease of 13.0%, respectively. There were 20 selling days in February, 20 selling days in March and 25 selling days in April of fiscal 2020 and fiscal 2019.

Gross profit

        Gross profit increased $2.4 million, or 1.0%, to $252.9 million during first quarter 2020 as compared to first quarter 2019.

        Gross margin increased approximately 80 basis points to 35.5% in first quarter 2020 as compared to first quarter 2019. The increase in gross margin in first quarter 2020 as compared to first quarter 2019 was primarily due to improved rebar gross margin rates as the cost of rebar declined year over year and an increase in sales of COVID-19 related safety products. The safety products category is a higher margin yielding category for us.

Operating expenses

        Operating expenses increased $9.7 million, or 4.9%, during first quarter 2020 as compared to first quarter 2019.

        Selling, general, and administrative expenses increased $9.4 million, or 5.0%, during first quarter 2020 as compared to first quarter 2019. The increase in Selling, general, and administrative expenses included a charge of $3.0 million for expected credit losses due to uncertainty in customer cash flows. Other increases include, personnel and fixed operating costs related to new branches and marketing expenses. These charges were partially offset by reductions in overtime pay, travel, and other controllable expenses in response to the COVID-19 pandemic. Restructuring and separation expenses in first quarter 2020 were primarily due to professional fees incurred to execute the previously announced spinoff.

        Operating expenses as a percentage of Net sales increased approximately 160 basis points to 29.2% first quarter 2020 as compared to first quarter 2019. The increase was primarily due to increased

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Selling, general, and administrative expenses as a percentage of Net sales, resulting from both increased costs and a decline in Net sales.

Operating income

        Operating income decreased $7.3 million, or 14.1%, to $44.3 million during first quarter 2020 as compared to first quarter 2019, primarily due to the increase in Operating expenses, partially offset by the increase in Gross profit.

        Operating income as a percentage of Net sales decreased approximately 100 basis points to 6.2% in first quarter 2020 as compared to first quarter 2019 The decrease was primarily due to the increase in Operating expenses as a percentage of Net sales, partially offset by the increase in gross margin.

Interest expense

        Interest expense was flat at $0.3 million in first quarter 2020 as compared to first quarter 2019 as there was no change to interest charges from our Parent.

Provision for income taxes

        The provision for income taxes during the period is calculated by applying an estimated annual tax rate for the full fiscal year to pre-tax income for the reported period plus or minus unusual or infrequent discrete items occurring within the period. The provision for income taxes in first quarter 2020 was $11.9 million compared to $13.0 million in first quarter 2019. The effective rate for first quarter 2020 and first quarter 2019 was 27.0% and 25.3%, respectively. The effective rate in both periods was primarily impacted by the geographical mix of where income was generated.

        On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act contains significant business tax provisions, including modifications to the rules limiting the deductibility of net operating losses ("NOLs") and expensing of qualified improvement property and business interest in Internal Revenue Code Sections 172(a) and 163(j), respectively. The effects of the new legislation are recognized upon enactment. The Company did not recognize any significant impact to income tax expense for first quarter 2020 related to the CARES Act.

        As of May 3, 2020, the Company had no tax-effected federal and less than $0.1 million of state NOL carryforwards that can be used to offset cash income taxes due on future earnings.

Net Income

        Net income decreased $6.2 million, or 16.2%, to $32.1 million during first quarter 2020 as compared to first quarter 2019, primarily due to the increase in Operating expenses, partially offset by the increase in Gross profit.

Adjusted EBITDA

        Adjusted EBITDA decreased $4.9 million, or 7.1%, in first quarter 2020 as compared to first quarter 2019.

        The decrease in Adjusted EBITDA was primarily due to the increase in Operating expenses, partially offset by the increase in Gross profit.

        Adjusted EBITDA as a percentage of Net sales decreased approximately 50 basis points in first quarter 2020 as compared to first quarter 2019. The decrease was primarily driven by the increase in Selling, general, and administrative expenses as a percentage of Net sales.

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Combined Results of Operations—Fiscal Years 2019, 2018, 2017

        Our combined financial results include allocations of operating costs from HD Supply. These costs are related to centralized support functions, which are comprised of finance, IT, human resources, legal, supply chain, and other support services.

 
   
   
   
  Percentage
Increase (Decrease)
 
 
  Fiscal Year  
 
  2019 vs. 2018   2018 vs. 2017  
Dollars in millions
  2019   2018   2017  

Net sales

  $ 3,019.4   $ 2,961.2   $ 2,276.4     2.0 %   30.1 %

Gross profit

    1,063.4     1,043.3     816.6     1.9 %   27.8 %

Operating expenses:

                               

Selling, general, and administrative

    762.7     748.0     601.2     2.0 %   24.4 %

Depreciation and amortization

    51.0     51.0     40.2         26.9 %

Restructuring and separation

    0.2         0.6       *     *

Total operating expenses

    813.9     799.0     642.0     1.9 %   24.5 %

Operating income

    249.5     244.3     174.6     2.1 %   39.9 %

Interest expense

    1.2     7.8     40.2     (84.6 )%   (80.6 %)

Income before provision for income taxes

    248.3     236.5     134.4     5.0 %   76.0 %

Provision for income taxes

    67.4     62.8     44.3     7.3 %   41.8 %

Net Income

  $ 180.9   $ 173.7   $ 90.1     4.1 %   92.8 %

Non-GAAP Financial Data:

                               

Adjusted EBITDA

  $ 326.7   $ 323.6   $ 232.4     1.0 %   39.2 %

*
not meaningful

Fiscal 2019 Compared to Fiscal 2018

Highlights

        Net sales in fiscal 2019 increased $58.2 million, or 2.0%, compared to fiscal 2018. Operating income in fiscal 2019 increased $5.2 million, or 2.1%, as compared to fiscal 2018. Net income in fiscal 2019 increased $7.2 million, or 4.1%, to $180.9 million as compared to fiscal 2018. Adjusted EBITDA in fiscal 2019 increased $3.1 million, or 1.0%, as compared to fiscal 2018.

Net sales

        Net sales increased $58.2 million, or 2.0%, in fiscal 2019 as compared to fiscal 2018. On an organic basis, which excludes A.H. Harris sales in fiscal 2019 through March 4, 2019 (the one-year anniversary of the acquisition) and excluding the 53rd week for fiscal 2018, Net sales increased $85.3 million, or 2.9%, in fiscal 2019 as compared to fiscal 2018. The increase in organic sales was primarily due to our growth initiatives as we estimated market growth to be flat for fiscal 2019. The 53rd week in fiscal 2018 contributed approximately $50.9 million in organic Net sales.

Gross profit

        Gross profit increased $20.1 million, or 1.9%, to $1,063.4 million during fiscal 2019 as compared to fiscal 2018.

        The increase in Gross profit in fiscal 2019 as compared to fiscal 2018 was primarily due to Net sales increases as a result of growth initiatives, partially offset by 52 weeks of sales as compared to 53 weeks in fiscal 2018.

        Gross margin was flat at 35.2% in fiscal 2019 as compared to fiscal 2018.

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Operating expenses

        Operating expenses increased $14.9 million, or 1.9%, during fiscal 2019 as compared to fiscal 2018.

        Selling, general, and administrative expenses increased $14.7 million, or 2.0%, during fiscal 2019 as compared to fiscal 2018. The increase was primarily a result of inflation on real estate, equipment lease renewals, employee benefit costs, and other growth investments. Selling, general, and administrative expenses included $3.6 million and $6.3 million of acquisition and integration costs related to A.H. Harris in fiscal 2019 and fiscal 2018, respectively. Restructuring and separation expenses of $0.2 million in fiscal 2019 were primarily due to professional fees incurred to execute the spinoff.

        Operating expenses as a percentage of Net sales of 27.0% in fiscal 2019 were flat as compared to fiscal 2018. Selling, general, and administrative expenses as a percentage of Net sales of 25.3% in fiscal 2019 were flat as compared to fiscal 2018.

Operating income

        Operating income increased $5.2 million, or 2.1%, to $249.5 million during fiscal 2019 as compared to fiscal 2018, primarily due to higher sales volume.

        Operating income as a percentage of Net sales was flat at 8.3% in fiscal 2019 as compared to fiscal 2018.

Interest expense

        Interest expense declined $6.6 million, or 84.6%, in fiscal 2019 as compared to fiscal 2018 due to a reduction of interest charges from our Parent.

Provision for income taxes

        The provision for income taxes in fiscal 2019 was $67.4 million compared to $62.8 million in fiscal 2018. The effective rate for fiscal 2019 and fiscal 2018 was 27.1% and 26.6%, respectively. The effective rate in both periods was primarily impacted by the geographical mix of where income was generated.

        As of February 2, 2020, the Company had no tax-effected federal and less than $0.1 million of state NOL carryforwards that can be used to offset cash income taxes due on future earnings.

Net Income

        Net income increased $7.2 million, or 4.1%, to $180.9 million during fiscal 2019 as compared to fiscal 2018, primarily due to higher sales volume and lower interest expense, partially offset by the increase in Operating expenses.

Adjusted EBITDA

        Adjusted EBITDA increased $3.1 million, or 1.0%, in fiscal 2019 as compared to fiscal 2018.

        The increase in Adjusted EBITDA was primarily due to the increase in sales volume, partially offset by the increase in Operating expenses.

        Adjusted EBITDA as a percentage of Net sales decreased approximately 10 basis points in fiscal 2019 as compared to fiscal 2018. The decrease was primarily due a reduction in Selling, general, and administrative expenses, after adjustments, as a percentage of Net sales in fiscal 2019 as compared to fiscal 2018.

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Fiscal 2018 Compared to Fiscal 2017

Highlights

        Net sales in fiscal 2018 increased $684.8 million, or 30.1%, compared to fiscal 2017. On an organic basis, excluding A.H. Harris sales, Net sales in fiscal 2018 increased $320.4 million, or 14.1%, as compared to fiscal 2017. Operating income in fiscal 2018 increased $69.7 million, or 39.9%, to $244.3 million as compared to fiscal 2017. Net income in fiscal 2018 increased $83.6 million, or 92.8%, to $173.7 million as compared to fiscal 2017. Adjusted EBITDA in fiscal 2018 increased $91.2 million, or 39.2%, as compared to fiscal 2017.

        On March 5, 2018, the Company completed the acquisition of A.H. Harris, a specialty construction distributor. The acquisition expanded White Cap's market presence in the northeastern and mid-Atlantic areas of the U.S.

Net sales

        Net sales increased $684.8 million, or 30.1%, to $2,961.2 million during fiscal 2018 as compared to fiscal 2017.

        The Net sales increase was primarily due to increases in market volume, growth initiatives, and the acquisition of A.H. Harris. The A.H. Harris acquisition generated $364.4 million of Net sales in fiscal 2018. In addition, fiscal 2018 included 53 weeks, as compared to 52 weeks in fiscal 2017, net of a reduction in selling days due to the timing of holidays, resulting in approximately $41.2 million of incremental sales. Organic sales growth, net of change in selling days, was $284.2 million, or 12.5%, during fiscal 2018 as compared to fiscal 2017. We estimate market growth for fiscal 2018 to be in the mid-single digits.

Gross profit

        Gross profit increased $226.7 million, or 27.8%, to $1,043.3 million during fiscal 2018 as compared to fiscal 2017.

        The increase in Gross profit in fiscal 2018 as compared to fiscal 2017 was due to sales growth from increased market volume, growth initiatives, and the acquisition of A.H. Harris.

        Gross margin decreased approximately 70 basis points to 35.2% in fiscal 2018 as compared to 35.9% in fiscal 2017. The acquisition of A.H. Harris and the introduction of their product mix contributed to the decline in gross margin, unfavorably impacting gross margin by approximately 30 basis points during fiscal 2018 as compared to fiscal 2017. In addition, rebar gross margins declined in fiscal 2018 due to an increase in steel costs driven by tariffs and duties. We increased our pricing of rebar to recover the increase in rebar costs, but not enough to maintain our gross margin rate, negatively affecting our overall margin rate by approximately 20 basis points in fiscal 2018 as compared to fiscal 2017.

Operating expenses

        Operating expenses increased $157.0 million, or 24.5%, during fiscal 2018 as compared to fiscal 2017.

        Selling, general, and administrative expenses increased $146.8 million, or 24.4%, during fiscal 2018 as compared to fiscal 2017. The increase was primarily a result of the acquisition of A.H. Harris, increases in variable expenses due to higher sales volume and increased investments in growth initiatives, primarily the hiring of additional personnel to support the expanding business and future growth. Selling, general, and administrative expenses included $6.3 million and $1.4 million of acquisition and integration costs related to A.H. Harris in fiscal 2018 and fiscal 2017, respectively.

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        Depreciation and amortization expense increased $10.8 million, or 26.9%, during fiscal 2018 as compared to fiscal 2017. The increase was primarily due to increased intangible amortization expense as a result of the acquisition of A.H. Harris.

        Operating expenses as a percentage of Net sales decreased approximately 120 basis points to 27.0% in fiscal 2018 as compared to fiscal 2017. Selling, general, and administrative expenses as a percentage of Net sales decreased approximately 110 basis points to 25.3% in fiscal 2018 as compared to fiscal 2017. The decrease was primarily a result of the leverage of fixed costs through sales volume increases, partially offset by increased investments in the growth initiatives noted above.

Operating income

        Operating income increased $69.7 million, or 39.9%, to $244.3 million during fiscal 2018 as compared to fiscal 2017, primarily due to higher sales volume, including the acquisition of A.H. Harris, partially offset by the increase in Operating expenses.

        Operating income as a percentage of Net sales increased approximately 60 basis points to 8.3% in fiscal 2018 as compared to fiscal 2017. The leverage of fixed costs through sales volume increases was partially offset by the decline in gross margin and increased investments in growth initiatives.

Interest expense

        Interest expense declined $32.4 million, or 80.6%, in fiscal 2018 as compared to fiscal 2017 due to a reduction of interest charges from our Parent.

Provision for income taxes

        The provision for income taxes in fiscal 2018 was $62.8 million compared to $44.3 million in fiscal 2017. The effective rate for fiscal 2018 was 26.6% which was primarily impacted by the geographical mix of where income was generated. The effective rate for fiscal 2017 was an expense of 33.0% which was primarily impacted by the enactment of the Tax Cuts and Jobs Act of 2017 ("TCJA") and the geographical mix of where income was generated.

        As of February 3, 2019, the Company had approximately $1.7 million of tax-effected federal and state NOL carryforwards that could be used to offset cash income taxes due on future earnings.

Net Income

        Net income increased $83.6 million, or 92.8%, to $173.7 million during fiscal 2018 as compared to fiscal 2017, primarily due to higher sales volume, including the acquisition of A.H. Harris, and lower interest expense, partially offset by the increase in operating expenses.

Adjusted EBITDA

        Adjusted EBITDA increased $91.2 million, or 39.2%, in fiscal 2018 as compared to fiscal 2017.

        The increase in Adjusted EBITDA was primarily due to the increase in sales volume, partially offset by the increase in Operating expenses.

        Adjusted EBITDA as a percentage of Net sales increased approximately 70 basis points in fiscal 2018 as compared to fiscal 2017. The increase was driven by a decrease in Selling, general, and administrative expenses as percentage of Net sales due to the leverage of fixed costs through sales volume increases, partially offset by a decline in gross margins of approximately 70 basis points.

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Liquidity and Capital Resources

Sources of Liquidity and Capital

        White Cap's liquidity needs are funded primarily by cash flows from its operations and, as needed, from the financial support of HD Supply and as a borrower under HD Supply, Inc.'s ("HDS") asset based lending agreement in Canada.

        HD Supply maintains a centralized approach to managing the cash and the financing of White Cap's business. Under HD Supply's centralized cash management system, cash requirements of White Cap are provided directly by HD Supply, and cash generated by the operations of White Cap are remitted directly to HD Supply on a continuous basis. The resulting receivables and payables are then immediately contributed from, or distributed to, HD Supply as changes to owner's equity.

        White Cap does not maintain separate financing sources with third parties. Historically, HD Supply has had adequate sources of liquidity to provide necessary financial support to White Cap.

        Upon completion of the spinoff, our capital structure and sources of liquidity will change significantly from our historical capital structure. Our businesses will no longer participate in cash management and funding arrangements with HD Supply or as a borrower under HDS's Canadian asset based lending agreement, and we expect to incur debt. As part of the spinoff, we expect to incur approximately $750 million of new debt, which we expect to consist of $150.0 million of borrowings under the $600 million ABL Facility providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $600 million and approximately $600 million in aggregate principal amount of senior notes. See "Description of Certain Indebtedness."

        We have used our internally generated cash flow to invest in growth and operational initiatives and fund working capital requirements. We expect our cash flows from operations to be adequate to support these requirements as well as service any future debt, and fund future acquisitions, if any. Our ability to fund these capital needs will depend on our ongoing ability to generate cash from operations and to access our borrowing facilities and capital markets. We believe that our future cash from operations, together with our access to funds on hand, or available through borrowing facilities and capital markets, will provide adequate resources to fund our operating and financing needs for at least the next twelve months. We are continuously evaluating our cash positions in light of the economic impacts of the COVID-19 pandemic and have taken prudent actions to reduce costs and spending across our organization. This includes reducing certain hiring activities, adjusting pay programs, negotiating rent payment deferrals at our leased facilities, and limiting discretionary spending. We have also reduced anticipated spending on certain capital investment projects.

        Additionally, on April 11, 2020, the Canadian government enacted legislation to implement the Canada Emergency Wage Subsidy ("CEWS"). The CEWS is a temporary wage subsidy to encourage employees to rehire and to retain workers, and to prevent further job losses due to the COVID-19 pandemic. The CEWS applies to qualifying employers for the period March 15, 2020 to June 6, 2020. Generally, the CEWS provides an amount to employers equal to 75% of employees' renumeration paid, up to a weekly, per employee limit. In first quarter 2020, the Company applied for and recognized approximately $0.7 million of pre-tax income benefit related to CEWS.

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Cash Flows

        Information about the White Cap's cash flows, by category, is presented in the Combined Statements of Cash Flows and is summarized as follows:

 
  Three Months Ended    
   
   
 
 
  Fiscal Year  
 
  May 3,
2020
  May 5,
2019
 
 
  2019   2018   2017  
 
  Amounts in millions
 

Net cash provided by (used for):

                               

Operating activities

  $ 69.9   $ 70.4   $ 304.9   $ 212.8   $ 156.6  

Investing activities

    (5.0 )   (9.4 )   (39.3 )   (395.1 )   (34.5 )

Financing activities

    (64.6 )   (60.8 )   (266.1 )   186.4     (120.1 )

Free cash flow:

   
 
   
 
   
 
   
 
   
 
 

Operating activities

  $ 69.9   $ 70.4   $ 304.9   $ 212.8   $ 156.6  

Less: Capital expenditures

    (5.0 )   (9.4 )   (42.7 )   (32.9 )   (34.9 )

Free cash flow

  $ 64.9   $ 61.0   $ 262.2   $ 179.9   $ 121.7  

Working capital

        Working capital, excluding cash and cash equivalents, was $391.3 million as of May 3, 2020, decreasing $22.6 million as compared to $413.9 million as of May 5, 2019. The decrease was primarily driven by a decrease in Receivables due to a decline in sales as a result of the COVID-19 pandemic as well as a decrease in inventory purchases due to a decline in sales.

        Working capital, excluding cash and cash equivalents, was $408.3 million as of February 2, 2020, decreasing $65.4 million as compared to $473.7 million as of February 3, 2019. The decrease was primarily driven by the inclusion of $58.3 million of Current portion of lease liabilities due to the adoption of ASC 842, "Leases," on the first day of fiscal 2019. The decrease was also impacted by an increase in Accounts payable and a decrease in Inventory, partially offset by an increase in Receivables and a decline in Accrued compensation and benefits due to timing of payments.

Operating activities

        During first quarter 2020, cash provided by operating activities was $69.9 million compared to $70.4 million in first quarter 2019. The decrease in operating cash flows is primarily due to a decline in earnings as a result of the COVID-19 pandemic, partially offset by improvement in working capital.

        During fiscal 2019, cash provided by operating activities was $304.9 million compared to $212.8 million in fiscal 2018. The increase in operating cash flows is primarily attributable to growth in earnings. During fiscal 2018, cash provided by operating activities was $212.8 million compared to $156.6 million in fiscal 2017. The increase in operating cash flows is primarily attributable to growth in earnings, partially offset by investments in working capital for business growth.

Investing activities

        During first quarter 2020, cash used in investing activities was $5.0 million, comprised entirely of capital expenditures.

        During first quarter 2019, cash used in investing activities was $9.4 million, comprised entirely of capital expenditures.

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        During fiscal 2019, cash used in investing activities was $39.3 million, comprised primarily of $42.7 million of capital expenditures, partially offset by the receipt of the final working capital settlement of approximately $2.8 million during fiscal 2019 for the acquisition of A.H. Harris.

        During fiscal 2018, cash used in investing activities was $395.1 million, comprised primarily of $362.3 million for the acquisition of A.H. Harris and $32.9 million of capital expenditures.

        During fiscal 2017, cash used in investing activities was $34.5 million, comprised primarily of $34.9 million of capital expenditures.

Financing activities

        During first quarter 2020, cash used in financing activities was $64.6 million, primarily due to a net cash distribution to our Parent.

        During first quarter 2019, cash used in financing activities was $60.8 million, primarily due to a net cash distribution to our Parent.

        During fiscal 2019, cash used in financing activities was $266.1 million, primarily due to a net cash distribution to our Parent.

        During fiscal 2018, cash provided by financing activities was $186.4 million, primarily due to a net cash contribution from our Parent, which included a contribution for the purchase of A.H. Harris.

        During fiscal 2017, cash used in financing activities was $120.1 million, primarily due to a net cash distribution to our Parent.

Commodity Risk

        We are aware of the potentially unfavorable effects inflationary pressures may create through higher asset replacement costs and related depreciation, higher interest rates, and higher material costs. In addition, our operating performance is affected by price fluctuations in the commodity-based products that we purchase and sell, which contain commodities such as steel and other commodities. We are also exposed to fluctuations in petroleum costs as we deliver a substantial portion of the products we sell by truck. We seek to minimize the effects of inflation and changing prices through economies of scale in purchasing and inventory management, resulting in cost reductions and productivity improvements, as well as price increases to maintain reasonable gross margins.

        As discussed above, our results of operations were impacted by fluctuating commodity prices based on our ability or inability to pass increases in the costs of certain commodity-based products to our customers through price increases. Such commodity price fluctuations have from time to time produced volatility in our financial performance and could do so in the future.

Off-Balance Sheet Arrangements

        Prior to our adoption of ASC 842, "Leases," in fiscal 2019, our operating leases were not reflected in our Combined Balance Sheets.

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Contractual Obligations

        The following table discloses aggregate information about our contractual obligations as of February 2, 2020 and the periods in which payments are due (amounts in millions):

 
   
  Payments due by period  
 
  Total   Fiscal
2020
  Fiscal
2021 - 22
  Fiscal
2023 - 24
  Fiscal years
after 2024
 

Long-term debt

  $ 45.7   $   $ 45.7   $   $  

Interest on long-term debt(i)

    3.7     1.7     2.0          

Operating leases

    272.5     66.4     117.7     64.8     23.6  

Purchase obligations(ii)

    36.8     36.8              

Total contractual cash obligations

  $ 358.7   $ 104.9   $ 165.4   $ 64.8   $ 23.6  

(i)
The interest on long-term debt in the table above reflects 100% of the interest obligation on the long-term debt as the outstanding balance is fully allocated to White Cap. A portion of this interest expense is allocated to White Cap's Combined Statements of Operations and Comprehensive Income, based on White Cap's Canadian operating income relative to the operating income of the other HD Supply operating division within HDS Canada, Inc.

(ii)
Purchase obligations include various commitments with vendors entered into in the normal course of business to purchase goods and services, primarily inventory. These purchase obligations are generally cancelable, but White Cap has no intent to cancel.

Critical Accounting Policies

Revenue Recognition

        We recognize revenue, net of allowances for returns and taxes collected from the customer, when an identified performance obligation is satisfied by the transfer of control of promised products or services to the customer. We ship products to customers by internal fleet and third-party carriers. Transfer of control to the customer for products generally occurs at the point of destination (i.e., upon transfer of title and risk of loss of product). Transfer of control to the customer for services occurs when the customer has the right to direct the use of and obtain substantially all of the remaining benefits of the asset that is created or enhanced from the service. We account for shipping and handling costs associated with outbound freight as a fulfillment costs. Such costs are included in Selling, general, and administrative expenses.

Allowance for Credit Losses

        We evaluate the collectability of accounts receivable based on numerous factors, including past transaction history with customers, their credit worthiness, and an assessment of our lien and bond rights. Trade receivables arise primarily from sales to customers. We establish an allowance for credit losses to present the net amount of trade receivables expected to be collected. The allowance is determined using an estimation of loss rates based upon historical experience adjusted for factors that are relevant to determine the expected collectability of trade receivables. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of trade receivables, and credit and liquidity quality indicators for certain industry groups, customer classes, or individual customers. These estimations and factors require assumptions and judgments regarding matters that are inherently uncertain, including the impact that the COVID-19 pandemic may have on the liquidity, credit, and solvency status of our customers or their industries. To the extent historical credit experience is not indicative of future performance or other assumptions used

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by management do not prevail, the allowance for credit losses could differ significantly, resulting in either higher or lower future credit losses.

Inventories

        Inventories consist primarily of finished goods and are carried at the lower of cost or net realizable value. The cost of our inventories is determined by the weighted average cost method. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or net realizable value. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based on inventory aging, and anticipated future demand. Periodically, each location's perpetual inventory records are adjusted to reflect any declines in net realizable value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either favorably or unfavorably, our ability to sell our products or our relationships with certain key vendors, our inventory reserves could differ significantly, resulting in either higher or lower future inventory provisions.

Consideration Received from Vendors

        We enter into agreements with many of our vendors providing for inventory purchase rebates ("vendor rebates") upon achievement of specified volume purchasing levels. We accrue the receipt of vendor rebates as part of our cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. An estimate of vendor rebates is included in the carrying value of inventory at each period end for vendor rebates to be received on products not yet sold. While we believe we will continue to receive consideration from vendors in fiscal 2020 and thereafter, there can be no assurance that vendors will continue to provide comparable amounts of vendor rebates in the future.

Impairment of Long-Lived Assets

        Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, we project undiscounted future cash flows over the remaining life of the asset. If these projected cash flows are less than the carrying amount, an impairment loss is recognized based on the fair value of the asset less any costs of disposition. Our judgment regarding the existence of impairment indicators is based on market and operational performance. Future events could cause us to conclude that impairment indicators exist and that assets are impaired. Evaluating the impairment also requires us to estimate future operating results and cash flows that require judgment by management. If different estimates were used, the amount and timing of asset impairments could be affected.

Business Combinations, Goodwill, and Other Intangible Assets

        We allocate the purchase price paid for business acquisitions to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price paid over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase price paid requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, timing and amounts of future expected cash flows of acquired customers and trade names from a market participant perspective, estimated revenue growth rates, estimates of useful lives, and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition

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date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

        We periodically assess the carrying value of goodwill by reviewing the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis. We assess the recoverability of goodwill in the fourth quarter of each fiscal year.

        We also use judgment in assessing whether we need to test goodwill more frequently for impairment than annually given factors such as unexpected adverse economic conditions, competition, product changes, and other events. If the carrying amount of a reporting unit that contains goodwill exceeds fair value, a possible impairment would be indicated.

        We determine the fair value of a reporting unit using a discounted cash flow ("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation.

        Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market comparable approach. The cash flows employed in the DCF analyses are based on the Company's most recent long-range forecast and, for years beyond the forecast, the Company's estimates, which are based on estimated exit multiples times the final forecasted year earnings before interest, taxes, depreciation, and amortization. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. For the market comparable approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.

        There was no indication of impairment in either of the Company's reporting units in the fiscal 2019, fiscal 2018, or fiscal 2017 annual tests.

        The Company's DCF model is based on our expectation of future market conditions for both of the reporting units, as well as discount rates that would be used by market participants in an arms-length transaction. Future events could cause the Company to conclude that market conditions have declined or discount rates have increased to the extent that the Company's goodwill could be further impaired. It is not possible at this time to determine if any such future impairment charge would result.

Income Taxes

        Income tax expense or benefit is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

        The Company follows the GAAP guidance for uncertain tax positions within ASC 740, "Income Taxes." ASC 740 provides guidance related to the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The standard prescribes the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. Initial recognition, derecognition and measurement is based on management's judgment given the facts, circumstances and information available at the reporting date. We reevaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively

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settled issues under audit, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision.

        For the Global Intangible Low-Tax Income ("GILTI") provisions of the TCJA, the Company has elected GILTI as a period cost if and when incurred.

Self-Insurance

        We have a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile liability, workers' compensation, and we are self-insured for medical claims, while maintaining per employee stop loss coverage, and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. To the extent the projected future development of the losses resulting from environmental, workers' compensation, automobile, general, and product liability claims incurred as of May 3, 2020 differs from the actual development of such losses in future periods, our insurance reserves could differ significantly, resulting in either higher or lower future insurance expense.

Management Estimates

        Management believes the assumptions and other considerations used to estimate amounts reflected in our combined financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our combined financial statements, the resulting changes could have a material adverse effect on our combined results of operations, and in certain situations, could have a material adverse effect on our financial condition.

Stock-Based Compensation

        Our stock option expense is estimated at the grant date based on an award's fair value as calculated by the Black-Scholes option-pricing model and is recognized as an expense over the requisite service period. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we estimate an expected forfeiture rate on all of our stock-based compensation awards and only recognize expense for those awards expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly. See Note 7, Stock-Based Compensation and Employee Benefit Plans, to our audited combined financial statements.

Recent Accounting Pronouncements

        See Note 1, Nature of Business and Summary of Significant Accounting Policies, to our audited combined financial statements and Note 9, Recent Accounting Pronouncements, to our unaudited combined financial statements.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information required by this Item is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations—Commodity Risk."

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BUSINESS

Our Company

        White Cap is a leading distributor of specialty concrete and construction products and services in North America serving professional contractors across non-residential, residential and other markets. With 269 customer-facing locations across the U.S. and Canada, we have nearly twice the number of locations compared to our direct largest competitor. Non-residential, residential and other markets accounted for approximately 69%, 25% and 6% of our fiscal 2019 Net sales, respectively, with "other markets" including sales in Canada and sales to other non-contractor customers. We believe the markets for our products and services present opportunities for continued significant growth. We aspire to set the standard of excellence in delivering industry-leading products, services, and expertise through our experienced associates and seamless customer experience. This aspiration drives us and is reflected in the customer and market focus, intense teamwork, process excellence, and trusted relationships that define our culture. We believe our long-standing customer relationships, scale and branch footprint, talented associates with deep industry knowledge, extensive product and service offering, strategic supplier relationships, integrated technology platform, and intense focus on the customer distinguish us from other distributors and have driven above-market growth and attractive returns on invested capital.

        Our portfolio of industry-leading products and services provides a unique "one-stop-shop" value proposition of professional products and services, spanning approximately 400,000 SKUs, including concrete accessories and chemicals, engineered materials and fastening systems, steel products, tools and equipment, building envelope, safety and consumables, and wood products. We operate 269 customer-facing locations in 39 U.S. states and six Canadian provinces where our approximately 5,600 experienced associates provide support for our more than 200,000 customers annually. We also directly support our customers with experienced associates and through our fleet of more than 1,200 trucks for critical same day/next day jobsite deliveries. Our products and services span the entire lifecycle of a project from excavation to project completion, and maintenance and repair. We utilize the various brands in our business, including White Cap, Brafasco, and Contractors' Warehouse.

        Our value-add services include project pre-bid assistance, jobsite delivery, two-hour ready will-call, rebar fabrication, tilt-up concrete brace and form rental, value engineering, and product, application, and jobsite safety training. We engage our customers through a variety of sales channels, including professional account managers and an inside sales force, direct marketing and merchandising promotions, programs utilizing market and contractor trade-specific product catalogs, and integration with our digital platform. Our distribution network allows us to provide rapid, reliable, and on-time delivery and customer pickup throughout the U.S. and Canada. We believe that our comprehensive supply chain solutions improve the effectiveness and efficiency of our customers' business. Additionally, our technology infrastructure provides integrated workflow capabilities for our customers, and enables dynamic pricing, budgeting, reporting, and analytical capabilities. We believe customers view us as an integral part of the value chain due to our extensive product knowledge, expansive product availability, and ability to directly integrate with their systems and workflows.

        We estimate that the aggregate size of the domestic addressable market for specialty concrete and construction products was approximately $42 billion in 2019. We define our domestic addressable market as the total dollars spent in the U.S. for our products and services excluding products sold direct to customers from manufacturers.

        For fiscal 2019, we generated $3.0 billion in Net sales, representing 2.9% growth over fiscal 2018, excluding the impact of acquisitions and the 53rd week of fiscal 2018; $180.9 million of Net income, representing a 4.1% increase over fiscal 2018; $326.7 million of Adjusted EBITDA, representing 1.0% growth over fiscal 2018; and $249.5 million of operating income, representing a 2.1% increase over fiscal 2018. For a reconciliation of Net income, the most directly comparable financial measure under

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GAAP, to Adjusted EBITDA, see "Selected Historical Combined Financial Data—Selected combined financial information."


Our Competitive Strengths

        We believe that we benefit significantly from the following strengths:

        Leadership positions with significant scale in large, fragmented markets. We are a leading distributor for specialty concrete and construction products in North America. We estimate that we have an approximately 6% share of a competitive $42 billion total domestic addressable market. We define our domestic addressable market as the total dollars spent in the U.S. for our products and services excluding products sold direct to customers from manufacturers. The total addressable market is fragmented, with a number of smaller local and regional competitors that focus on distinct pieces of the total addressable market. The majority of our customers make purchase decisions at a local level while demanding a high level of service and availability of a broad set of complex products from a large number of suppliers. As a result, White Cap competes both with smaller local and regional competitors as well as other national distributors. Because we believe the majority of the total addressable market is served by local or regional competitors, we believe we have an opportunity for long-term profitable growth, particularly given the large number of our customer-facing locations across the U.S. and Canada.

        Strong value proposition for customers as "one-stop-shop" for products and services. We leverage our experienced associates as well as our branch and jobsite presence to better serve our customers. Specifically, we provide specialty concrete and construction products serving professional concrete contractors and self-performing general contractors, as well as all professional contractors who require power tools and accessories, safety equipment, and fastening products in non-residential, residential and other markets. Our comprehensive portfolio of approximately 400,000 SKUs includes concrete accessories and chemicals, engineered materials and fastening systems, steel products, tools and equipment, building envelope, safety and consumables, and wood products.

        We focus on specialized solutions that benefit from a consultative sales process, and we serve the entire lifecycle of a project from excavation to project completion, and maintenance and repair. Our experienced associates serve as trusted resources to our customers. Our products and services are utilized on some of the nation's most visible and challenging multi-year projects including data and distribution centers, corporate headquarters, and state of the art recreational destinations, such as casinos and sports arenas, critical infrastructure, such as airports, water treatment plants, and road and bridge construction and repair.

        We also provide services to our customers including pre-bid assistance, jobsite delivery, two-hour ready will-call, rebar fabrication, tilt-up concrete brace and form rental, value engineering, and product, application, and jobsite safety training. We utilize our fleet of more than 1,200 trucks to provide same day/next day jobsite delivery and provide advice to our customers in our 269 customer-facing locations.

        We believe that our experienced associates and the breadth of our products and services provide us with a significant competitive advantage versus our smaller local and regional competitors, which helps us secure repeat business and earn new business.

        Diversity across customers, suppliers, geographic footprint, and end-markets. We believe that our relationships with a broad set of customers provides visibility into the future needs of our marketplace and diversifies our business across a wide array of project types. Additionally, our broad customer base of more than 200,000 contractors limits customer concentration, as no single customer is responsible for more than 0.7% of our Net sales and our top 10 customers represented only approximately 3.4% of our Net sales during fiscal 2019. We maintain strong and long-tenured relationships with many of our approximately 4,300 suppliers, both domestic and international. We maintain relationships with multiple

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suppliers for many of our products, so we are able to limit the risk of product shortages and supply chain disruptions while at the same time offering a compelling assortment of product options for our customers. No single supplier is responsible for more than 5.3% of our cost of goods sold and our top 10 suppliers represented only approximately 23% of our cost of goods sold during fiscal 2019. Our diverse geographic footprint of 269 customer-facing locations throughout 39 U.S. states and six Canadian provinces limits our dependence on any one region, and allows us to better serve large, national customers who benefit from our scale.

        Leadership with significant relevant customer service experience. Our executive management team has an average of 28 years of relevant industry experience across executive and field positions, primarily with HD Supply and its predecessors.

        Our Chief Executive Officer, John Stegeman, has led HD Supply Construction & Industrial since April 2010 and possesses over 34 years of relevant experience. Previously, Mr. Stegeman worked for Ferguson Enterprises, a U.S distributor of plumbing supplies, PVF, waterworks, and fire and fabrication products company, for 24 years, serving as its President and Chief Executive Officer from 2005 to 2009. At Ferguson, Mr. Stegeman oversaw a number of successful acquisitions which provides him with relevant experience that are expected to benefit White Cap as a standalone company.

        Our President, Alan Sollenberger, has over 12 years of industrial distribution experience, most recently serving as President of White Cap since November 2019, Chief Operating Officer from February 2017 to November 2019, Chief Administrative Officer from April 2015 to February 2017, Vice President, Chief Financial Officer from May 2010 to April 2015, and, prior to that, held various finance positions at HD Supply and The Home Depot.

        Our Chief Financial Officer, Shawn Meredith, has over 12 years of experience as a chief financial officer and over 13 years of industrial products experience, seven of which have been focused on distribution, before joining HD Supply Construction & Industrial in May 2019. Her prior roles include serving as CFO for Watsco subsidiary, Gemaire Distributors and CFO for Innovative Therapies.

        Our General Counsel and Corporate Secretary, Susan Stucker, has over 30 years of legal experience, including 13 years with HD Supply. From April 2007 to December 2015, Ms. Stucker was responsible for labor and employment law matters, and, since January 2016, has led HD Supply's litigation, employment law, and risk management teams.

        Our Chief Human Resources Officer, Elizabeth Malkin, has nearly 20 years of experience in the human resources field and, since October 2006, has held various roles in the areas of talent acquisition, organizational effectiveness, talent management, and learning at HD Supply.

        All of our leaders are focused on promoting team chemistry and creating an engaging work environment that incentivizes employees to deliver exceptional service to customers.

        Customer-integrated technology infrastructure. We have an integrated information technology ("IT") infrastructure that enables us to leverage our inventory and data to better service our customers. We have invested in customer-specific applications, enabling us to reduce transactional friction and improve customer connectivity. We intend to continue to invest in integrated technology platforms to improve efficiency and the overall customer experience. We believe these capabilities differentiate White Cap from our smaller competitors.

        Deep preferred supplier relationships. We have developed extensive and long-term relationships with many of our suppliers who, we believe, value our history of close coordination, national scale, and field capabilities. This provides us with access to new products, custom training on specialized products, and early awareness of upcoming projects, making us the distributor of choice for many of our customers.

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        Cooperative culture focused on performance and excellence. We believe our focus on customer success, a local market managed sales approach, intense teamwork, process excellence, and trusted relationships drive our approximately 5,600 experienced associates to perform at the highest level. Our associates benefit from strong industry experience and participate in ongoing leadership and sales training.

        Strong financial profile with attractive operating cash flows. We benefit from purchasing scale and strategic initiatives that increase our Net income and Adjusted EBITDA. Our low capital requirements and effective capital management result in strong operating cash flows.


Our Business Strategy

        We plan to further strengthen our competitive position, deliver profitable growth, and create stockholder value through our growth initiatives, including:

        Driving sales leadership. We intend to further expand our position as a leading distributor for specialty concrete and construction products by increasing our size and scale across customers, geographies, and products. The key components of this strategy are growing market share with existing customers, acquiring new customers, and enhancing customer connectivity.

        Expanding trades and services. We have identified a number of products and services across key markets that are currently underrepresented or otherwise not offered by us. To capture these opportunities, we plan to work with new and existing suppliers to grow the product and service line for our customers at competitive prices and to add the necessary training to allow our experienced associates to assist with respect to these capabilities. As we continue to grow, we believe adding these incremental products and services will further benefit our strong customer and supplier relationships while also enabling us to expand our market share.

        Pursuing new store openings to enhance strategic positioning in existing markets and to enter new markets. We will continue to invest in new store openings. We intend to pursue new store openings both in our existing markets where we see an opportunity to leverage our expansive product and service capabilities and in other major metropolitan markets across the U.S. and Canada. We believe new store openings provide an attractive path to growing our footprint given easy integration with our existing operations. Since 2011, we have opened 50 new stores. These locations have allowed us to both enhance our market share in previously existing markets and to grow into new geographies.

        Pursuing value-enhancing acquisitions. Acquisitions are core to our strategic business model. We expect the spinoff and our customized post-distribution capital structure to support the active pursuit of potential acquisition targets with financial metrics that align with our financial profile and capital allocation strategy. In this regard, we intend to complement our history of organic growth through select acquisitions that would be expected to broaden our product offering, geographic footprint, and service capabilities. Acquisitions have been an effective way to grow in both existing and new geographies, and White Cap and its management team have a successful track record of sourcing, acquiring, and integrating over 30 acquisitions since 1997. We believe that our scale and reputation make us the acquirer of choice for many smaller industry participants. Most recently, we acquired A.H. Harris, which has provided us with access to large, dense, and growing metropolitan areas in the Northeast. A.H. Harris added capabilities in proprietary forming and shoring solutions, waterproofing, and rebar fabrication. In addition, we believe we acquired significant talent through the A.H. Harris acquisition.

        Setting the standard of excellence. Providing industry-leading products, services, and expertise through our experienced associates and exceptional customer experience.

        Focusing on driving customer success. We earn the trust of our valued customers by consistently delivering what is needed, when they need it, and where they need it.

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        Committing to meaningful associate, supplier, and community relationships. Our dedication to providing safe work environments, exceptional experiences, and compelling opportunities supports our efforts to attract and retain the most qualified and motivated associates in the industry. Similarly, we believe that we maintain excellent relationships with our suppliers and strive to be their first call when choosing a go-to-market partner for their products. Consistent with our local presence and focus, we actively invest in the communities in which we operate, supporting organizations, programs, and events that foster community development both financially and through the volunteer efforts of our associates.

        Continuing to invest in attracting, retaining, and developing world-class talent. We will maintain and expand our already-strong talent base by continuing to develop our employees through leadership programs and workshops, which provide specialized training and learning tools. In addition, we deliver attractive opportunities to our associates while leveraging their knowledge and expertise by redeploying them across our organization. Additionally, the spinoff will allow us to develop our own equity incentive compensation program to retain employees and attract new talent.

        Investing in further integration with our customers. We continue to invest in winning additional business with our existing customers. In particular, we are looking to invest in capabilities that enable customer-facing integrations and digital platform capabilities, which we believe will make White Cap the preferred partner for our customers and enable deeper relationships and create opportunities for outsized growth.

        Continuing to focus on operational excellence. We continue to emphasize and execute on our operational initiatives to leverage our scale for improved profitability, strengthen our pricing and category management capabilities, enhance our supply chain efficiency, and invest in IT solutions to drive productivity throughout the business.

Our Markets

        We offer a diverse range of specialty concrete and construction products and services in North America serving professional contractors across non-residential, residential and other markets. We estimate that the aggregate size of the domestic addressable market for specialty concrete and construction products was approximately $42 billion in 2019, with demand driven primarily by non-residential construction, residential construction, and repair and remodeling construction spending. We define our domestic addressable market as the total dollars spent in the U.S. for our products and services, excluding products sold direct to customers from manufacturers. The total addressable market is fragmented, with a number of smaller local and regional competitors that focus on distinct pieces of the total addressable market. The majority of our customers make purchase decisions at a local level while demanding a high level of service and availability of a broad set of complex products from a large number of suppliers. These market dynamics make the distributor a critical element within the value chain.

        We serve professional contractors and traders in the specialty concrete and construction market by meeting their distinct and customized supply needs in non-residential and residential applications. We serve our customers through our 269 customer-facing locations in 39 U.S. states and six Canadian provinces. Non-residential, residential and other markets accounted for approximately 69%, 25% and 6% of our fiscal 2019 Net sales, respectively, with "other markets" including sales in Canada and sales to other non-contractor customers. We believe the markets for our products and services present opportunities for continued significant growth in the non-residential and residential construction end markets.

Our History

        Although the history of the White Cap brand and related businesses dates back to California in 1976, we have been operating as a reportable segment of HD Supply since it was acquired by three

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private equity firms from The Home Depot, Inc. in 2007. On July 2, 2013, HD Supply completed an initial public offering of its common stock and we have continued as a reportable segment and business unit of HD Supply since that time, and expect to continue as such until the spinoff is completed.

        In March 2018, we completed the acquisition of A.H. Harris, a specialty construction distributor serving the northeast and mid-Atlantic regions, expanding our market presence in the northeastern U.S. For additional information on the acquisition of A.H. Harris, see Note 2, Acquisitions, to our audited combined financial statements.

Customers and Suppliers

        We maintain a customer base of more than 200,000 customers, many of whom represent long-term relationships. We are subject to very low customer concentration with our ten largest customers generating approximately 3.4% of our Net sales in fiscal 2019, reducing our exposure to any single customer.

        We have developed strong and long-tenured relationships with many of our approximately 4,300 suppliers, both domestic and international. These supplier relationships provide us with consistent, reliable access to inventory, volume purchasing benefits, and the ability to deliver a diverse product offering on a cost-effective basis. We buy the vast majority of our products and supplies from suppliers located in the U.S. and Canada. These suppliers manufacture and source products from the U.S. and abroad. The products sourced by our suppliers, are transported by truck, rail, barge, or ship by third-party providers, which can result in longer supply chains. We maintain relationships with multiple suppliers for many of our products, so we are able to limit the risk of product shortages and supply chain disruptions while at the same time offering a compelling assortment of product offerings to our customers. No single supplier is responsible for more than 5.3% of our cost of goods sold and our top 10 suppliers represented approximately 23% of our cost of goods sold during fiscal 2019.

Competition

        We operate in a highly fragmented and competitive market and hold a leading position in the specialty concrete and construction market. The majority of our competition comes from mid-size regional distributors and small, local distributors; however, we also face competition from a number of national distributors for specific products.

        We believe the principal competitive factors for the specialty construction market include local selling capabilities, availability, breadth and cost of materials and supplies, technical knowledge and expertise, value-add service capabilities, customer and supplier relationships, reliability and accuracy of service, effective use of technology, delivery capabilities and timeliness, pricing of products, and the provision of credit. We believe that our key strengths and strategy allow us to compete effectively in our market.

Seasonality

        In a typical year, our results of operations are impacted by seasonality. Historically, sales of our products have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Generally, during the winter months, construction and renovation activity declines due to inclement weather and shorter daylight hours. Seasonal variations in results of operations may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects and customer deliveries.

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Products

        Our portfolio of industry-leading products and services provides a unique "one-stop-shop" value proposition of professional products and services, spanning approximately 400,000 SKUs including concrete accessories and chemicals, engineered materials and fastening systems, steel products, tools and equipment, building envelope, safety and consumables, and wood products.

Intellectual property

        Our trademarks and those of our subsidiaries are registered or otherwise legally protected in the U.S., Canada, and China. We, together with our subsidiaries, own approximately 20 trademarks registered worldwide. We also rely upon trade secrets and know-how to develop and maintain our competitive position. We protect intellectual property rights through a variety of methods, including trademark, patent, copyright, and trade secret laws, in addition to confidentiality agreements with suppliers, employees, consultants, and others who have access to our proprietary information. Generally, registered trademarks have a perpetual life, provided that they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain our material trademark registrations so long as they remain valuable to our business. Other than the trademarks White Cap ®, Brigade ®, Brafasco ®, and A.H. Harris ®, we do not believe our business is dependent to a material degree on trademarks, patents, copyrights, or trade secrets. Other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole. See "Risk Factors—Risks Relating to Our Business—If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted."

Employees

        In domestic and international operations, we had approximately 5,600 employees as of February 2, 2020, consisting of approximately 3,800 hourly personnel and approximately 1,800 salaried employees.

        As of February 2, 2020, less than 1% of our workforce was covered by collective bargaining agreements.

Regulation

        Our operations are affected by various statutes, regulations and laws in the markets in which we operate, which historically have not had a material effect on our business. While we are not engaged in a regulated industry, we are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices, competition, immigration, and other matters. Additionally, building codes may affect the products our customers are allowed to use, and consequently, changes in building codes may affect the salability of our products. The transportation and disposal of many of our products are also subject to federal regulations. The DOT regulates our operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. See "Risk Factors—Risks Relating to Our Business—Our costs of doing business could increase as a result of changes in U.S. federal, state, or local regulations."

Environmental, Health, and Safety Matters

        We are subject to a broad range of foreign, federal, state, and local environmental, health, and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal, and transport of solid and hazardous materials and wastes, the investigation and remediation of contamination, and otherwise relating to health and safety and the protection of the environment

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and natural resources. As our operations, and those of many of the companies we have acquired, to a limited extent involve and have involved the handling, transport, and distribution of materials that are, or could be classified as, toxic or hazardous, there is some risk of contamination and environmental damage inherent in our operations and the products we handle, transport, and distribute. Our environmental, health, and safety liabilities and obligations may result in significant capital expenditures and other costs, which could negatively impact our business, financial condition, and results of operations. We may be fined or penalized by regulators for failing to comply with environmental, health, and safety laws and regulations, or we may be held responsible for such failures by companies we have acquired. In addition, contamination resulting from our current or past operations, and those of many of the companies we have acquired, may trigger investigation or remediation obligations, which may have a material adverse effect on our business, financial condition, and results of operations. See "Risk Factors—Risks Relating to Our Business—We could incur significant costs in complying with environmental, health, and safety laws or permits or as a result of satisfying any liability or obligation imposed under such laws or permits."

Legal Proceedings

        White Cap is involved in various legal proceedings arising in the normal course of its business. White Cap establishes reserves for litigation and similar matters when those matters present loss contingencies that it determines to be both probable and reasonably estimable in accordance with ASC 450, "Contingencies." In the opinion of management, based on current knowledge, all reasonably estimable and probable matters are believed to be adequately reserved for or covered by insurance and are not expected to have a material adverse effect on White Cap's combined financial condition, results of operations, or cash flows. For all other matters management believes the possibility of losses from such matters is not probable, the potential loss from such matters is not reasonably estimable, or such matters are of such kind or involve such amounts that would not have a material adverse effect on the combined financial position, results of operations, or cash flows of White Cap if disposed of unfavorably. For material matters with loss contingencies that are reasonably possible and reasonably estimable, including matters with loss contingencies that are probable and estimable but for which the amount that is reasonably possible is in excess of the amount that White Cap has accrued for, management has estimated the aggregate range of potential loss as $0 million to $5 million. If a material loss is probable or reasonably possible, and in either case estimable, White Cap has considered it in the analysis and disclosed any such matter accordingly.

Properties

        As of February 2, 2020, we had a network of approximately 269 customer-facing locations, of which 263 were leased and six were owned. We generally prefer to lease our locations, as it provides the flexibility to expand or relocate our sites as needed to serve evolving markets. Our leased locations comprise approximately seven million square feet. Our leases typically have an initial term that ranges from three to seven years, and the leases usually provide for the option to renew. In addition, we lease a principal executive office co-located with our branch operations in Norcross, Georgia and support offices in Orlando, Florida.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        We anticipate that the White Cap board of directors will adopt a written related person transactions policy under which related persons, namely our executives, directors, and principal stockholders, and each of their immediate family members, will not be permitted to enter into certain transactions, or materially modify or amend an ongoing transaction, with White Cap in an amount exceeding $120,000, without the consent of our Audit Committee or a designated member of the Audit Committee. Any request for us to enter into or materially modify or amend such transactions would be required to be presented to our Audit Committee for review, consideration, and approval. All of our directors and executive officers would be required to report to our Audit Committee any such related person transaction. In approving or rejecting the proposed transaction, our Audit Committee will take into account, among other factors it deems appropriate, whether the proposed related person transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the related person's interest in the transaction, and, if applicable, the impact on a director's independence. Under any such policy, if we should discover related person transactions that have not been approved, our Audit Committee will be notified and will determine the appropriate action, including ratification, rescission, or amendment of the transaction. The policy will not apply to matters approved by other committees of independent directors, such as compensation.

        We anticipate entering into an indemnification agreement with each of our directors and officers. The indemnification agreements will provide our directors with contractual rights to the indemnification and expense advancement rights provided under our Amended and Restated By-laws, as well as contractual rights to additional indemnification as provided in the indemnification agreement.

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RELATIONSHIP WITH HD SUPPLY AFTER THE SPINOFF

Historical Relationship with HD Supply

        We are currently an indirect wholly owned subsidiary of HD Supply. We were incorporated in Delaware on January 10, 2020. In conjunction with the spinoff, HD Supply will transfer, or cause its subsidiaries to transfer, to us all the assets and generally all the liabilities relating to the White Cap business, which HD Supply intends to separate from its other operations. As a result of the historical relationship between us and HD Supply, in the ordinary course of our business, we and our subsidiaries have received various services provided by HD Supply and some of its other subsidiaries, including treasury and cash management, procurement, IT, general accounting and finance, payroll and human resources, environmental, health and safety, legal, communications, real estate and facilities, and other general and administrative stewardship. Our audited and unaudited combined financial statements include allocations by HD Supply of a portion of its overhead costs related to those services. These cost allocations have been determined on a basis that we and HD Supply consider to provide a reasonable reflection of the use of those services.

HD Supply's Distribution of Our Shares

        HD Supply will be our sole stockholder until completion of the distribution. In the distribution, HD Supply is distributing its entire equity interest in us to its stockholders as described in more detail in the section entitled "The Spinoff." The spinoff will be subject to a number of conditions, some of which are more fully described above under "The Spinoff—Spinoff Conditions and Termination."

Agreements Between HD Supply and Us

        In the discussion that immediately follows, we have summarized the terms of material agreements that we intend to enter into with HD Supply in connection with the spinoff and to govern our ongoing relationship with HD Supply following the spinoff. The summaries of these agreements are not complete and are qualified by reference to the terms of the agreements, the forms of which will be included as exhibits to the registration statement on Form 10, of which this information statement is a part. We encourage you to read the full text of those agreements. The terms of those agreements have not yet been finalized; changes, some of which may be material, may be made prior to the spinoff.

Separation and Distribution Agreement

        The separation and distribution agreement will contain the key provisions relating to the spinoff, including provisions relating to the principal intercompany transactions required to effect the spinoff, the conditions to the spinoff and provisions governing the relationships between HD Supply and us after the spinoff.

        Transfer of Assets and Assumption of Liabilities.    The separation and distribution agreement will provide for those transfers of assets and assumptions of liabilities that are necessary in advance of our separation from HD Supply so that each of White Cap and HD Supply retains the assets necessary to operate its respective business and retains or assumes the liabilities allocated to it in accordance with the reorganization.

        Representations and Warranties.    In general, neither HD Supply nor we will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forth in the separation and distribution agreement, all assets will be transferred on an "as is," "where is" basis.

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        The Distribution. The separation and distribution agreement will govern HD Supply's and our respective rights and obligations regarding the proposed distribution. Prior to the distribution, HD Supply will deliver all of our issued and outstanding shares of common stock to the distribution agent. On the distribution date, HD Supply will instruct the distribution agent to electronically deliver shares of our common stock to HD Supply's stockholders based on the distribution ratio. The HD Supply board of directors will have the sole and absolute discretion to determine the terms of, and whether to proceed with, the distribution.

        Conditions. The separation and distribution agreement will also provide that several conditions must be satisfied or waived by HD Supply, at the direction of its board of directors in its sole and absolute discretion, before the distribution can occur. For further information about these conditions, see "The Spinoff—Spinoff Conditions and Termination." The HD Supply board of directors may, in its sole and absolute discretion, determine the record date, the distribution date, and the terms of the spinoff and may at any time prior to the completion of the spinoff decide to abandon or modify the spinoff.

        Termination. HD Supply, at the direction of its board of directors in its sole and absolute discretion, may terminate the separation and distribution agreement at any time prior to the distribution.

        Release of Claims. HD Supply and we will each agree to release the other and its affiliates and their respective directors, officers, employees, agents, advisors, consultants and other representatives, and the successors and permitted assigns of any of the foregoing, from any claims against any of them that arise out of or relate to acts or events occurring or failing to occur or any conditions existing at or prior to the time of the distribution. These releases will be subject to exceptions set forth in the separation and distribution agreement.

        Indemnification. HD Supply and we will each agree to indemnify the other and each of the other's affiliates and their respective past and present directors, officers, and employees, and each of their successors and assigns, against certain liabilities incurred in connection with the spinoff and our and HD Supply's respective businesses. Neither HD Supply's nor our indemnification obligations are subject to any cap. The amount of either HD Supply's or our indemnification obligations will be reduced by any insurance proceeds the party being indemnified receives. The separation and distribution agreement will also specify procedures regarding claims subject to indemnification.

Tax Matters Agreement

        In connection with the spinoff (together with certain related transactions), we and HD Supply will enter into a tax matters agreement that will govern the parties' respective rights, responsibilities, and obligations with respect to taxes, including taxes arising in the ordinary course of business, and taxes, if any, incurred as a result of any failure of the spinoff (or certain related transactions including the distribution) to qualify as tax-free for U.S. federal income tax purposes. The tax matters agreement will also set forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests, and assistance and cooperation on tax matters.

        In general, the tax matters agreement will govern the rights and obligations that we and HD Supply have after the spinoff with respect to taxes for both pre- and post-closing periods. Under the tax matters agreement, HD Supply generally will be responsible for all of our pre-closing income taxes that are reported on combined tax returns with HD Supply or any of its affiliates. We will generally be responsible for all other income taxes and all non-income taxes primarily related to White Cap that are due and payable after the spinoff.

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        The tax matters agreement will further provide that:

    Without duplication of our indemnification obligations described in the prior paragraph, we will generally indemnify HD Supply against (i) taxes arising in the ordinary course of business for which we are responsible (as described above) and (ii) any liability or damage resulting from a breach by us or any of our affiliates of a covenant or representation made in the tax matters agreement; and

    HD Supply will indemnify us against taxes for which HD Supply is responsible under the tax matters agreement (as described above).

        In addition to the indemnification obligations described above, the indemnifying party will generally be required to indemnify the indemnified party against any interest, penalties, additions to tax, losses, assessments, settlements, or judgments arising out of or incident to the event giving rise to the indemnification obligation, along with costs incurred in any related contest or proceeding. Indemnification obligations of the parties under the tax matters agreement are not subject to any cap.

        Further, the tax matters agreement generally will prohibit us and our affiliates from taking certain actions that could cause the distribution to fail to qualify for their intended tax treatment, including:

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may be prevented from allowing or permitting certain business combinations or transactions to occur;

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not sell or otherwise issue our common stock, other than pursuant to issuances that satisfy certain regulatory safe harbors set forth in Treasury regulations;

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not redeem or otherwise acquire any of our common stock, other than pursuant to certain open-market repurchases of less than 20% of our common stock (in the aggregate);

    during the two-year period following the distribution date (or otherwise pursuant to a "plan" within the meaning of Section 355(e) of the Code), we may not amend our Amended and Restated Certificate of Incorporation (or other organizational documents) or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of our common stock; and

    more generally, we may not take any action that could reasonably be expected to cause the distribution to fail to qualify as a tax-free distribution under Section 355 of the Code.

        In the event that the distribution fails to qualify for its intended tax treatment, in whole or in part, and HD Supply is subject to tax as a result of such failure, the tax matters agreement will determine whether HD Supply must be indemnified for any such tax by us. As a general matter, under the terms of the tax matters agreement, we are required to indemnify HD Supply for any tax-related liabilities incurred in connection with the distribution due to any action by us or any of our subsidiaries following the distribution. Therefore, in the event that the distribution fails to qualify for its intended tax treatment due to any action by us or any of our subsidiaries, we will generally be required to indemnify HD Supply for the resulting taxes.

Employee Matters Agreement

        In connection with the distribution and spinoff, we expect to enter into an employee matters agreement with HD Supply that will govern the respective rights, responsibilities, and obligations of us

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and HD Supply after the spinoff with respect to transferred employees, collective bargaining agreements, incentive plans, group health and welfare plans, defined contribution plans, equity-based awards, and other employment, compensation, and benefit-related matters.

        Liabilities. In general, HD Supply will be responsible for all employment, compensation, and employee benefit liabilities relating to employees of HD Supply and former employees of HD Supply and for all liabilities relating to HD Supply's benefit plans, and White Cap will be responsible for all employment, compensation, and employee benefit liabilities relating to employees of White Cap and former employees of the White Cap business and for all liabilities relating to White Cap's benefit plans, subject to certain exceptions further described in the employee matters agreement.

        Employee Benefits. In general, our employees currently participate in various group health and welfare, retirement, and other employee benefit and compensation plans maintained by HD Supply. Details relating to the benefit plans in which White Cap employees and former employees of the White Cap business will participate after the spinoff are still being discussed between us and HD Supply. However, other than as otherwise provided in the transition services agreement, we expect that White Cap will establish its own group health and welfare plans and retirement plans.

        Equity Compensation. In general, it is currently anticipated that each outstanding HD Supply equity incentive award held by a White Cap employee or White Cap director as of the spinoff will be adjusted or converted into an award with respect to White Cap common stock and each other HD Supply equity award will also be adjusted or converted but will continue to relate to HD Supply common stock. In each case, the award will be equitably adjusted or converted in a manner intended to preserve the aggregate intrinsic value of the original HD Supply equity award and, other than regarding performance awards, the terms of the equity awards, such as vesting dates, will generally remain substantially the same. Information with respect to the performance awards will be provided in an amendment to this information statement.

Transition Services Agreement

        We and HD Supply will enter into a short-term transition services agreement under which HD Supply will provide and/or make available various services to us, and we will provide and/or make available various services to HD Supply. The services to be provided to us by HD Supply primarily include:

    IT and network, security, and applications support;

    accounting and finance;

    operations, marketing and procurement;

    human resources, payroll and benefits;

    treasury;

    insurance accounting and claims processing;

    tax matters; and

    administrative services.

        In consideration for certain services, we will pay fees to HD Supply for the services provided, and those fees will be based on the costs that are specifically attributable and directly related to our business. HD Supply will provide certain services without charge.

        HD Supply will agree to provide the services for various time periods, which generally will not exceed 12 months from the distribution date. We will have the right to extend the time periods during which certain limited services are provided.

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        The services to be provided to HD Supply by us primarily include:

    accounting and finance;

    cash reconciliation;

    tax matters;

    insurance accounting and claims processing; and

    certain IT services.

        In consideration for certain services, HD Supply will pay fees to us for the services provided, and those fees will be based on the costs that are specifically attributable and directly related to HD Supply. We will provide certain services without charge.

        We will agree to provide the services for various time periods, which generally will not exceed eight months from the distribution date.

        The personnel performing services under the transition services agreement on HD Supply's behalf will be employees and/or independent contractors of HD Supply or its subsidiaries and will not be under our direction or control. The personnel performing services under the transition services agreement on our behalf will be our employees and/or independent contractors and will not be under HD Supply's control.

        The transition services agreement will also contain customary mutual indemnification provisions, which will be subject to customary limitations.

Other Arrangements

        Information with respect to any other arrangements between HD Supply and us will be provided in an amendment to this information statement.

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MANAGEMENT

Our Directors Following the Spinoff

        The following table and biographies present information, as of July 17, 2020, concerning the individuals whom we expect to serve as our directors following the spinoff, including their respective business experience. The following also includes information about all public company directorships each individual currently holds or held during the past five years.

Name   Age   Occupation   Board
Committees
  Independent   Other Public
Company Boards
James A. Rubright   73   Retired CEO, Rock-Tenn; Board Chairman, White Cap   Audit; NC&G (Chair)   Yes   2
Peter A. Dorsman   64   Retired EVP, NCR   Audit; NC&G; Compensation (Chair)   Yes   2
Jennifer Graham-Johnson   52   Retired Chief Human Resources Officer, RockTenn/WestRock   NC&G; Compensation   Yes   0
Stephen J. Konenkamp   62   Retired Partner, Ernst & Young   Audit (Chair); NC&G; Compensation   Yes   1
John A. Stegeman   59   CEO, White Cap     No   0

        Mr. Rubright will serve as our independent Board Chairman. He served as Chief Executive Officer of Rock-Tenn Co., a paper and packaging manufacturer, from 1999 until his retirement in October 2013, and served as an executive officer of Sonat, Inc., an energy holding company, from 1994 to 1999 in various capacities, including head of Sonat's interstate natural gas pipeline group and energy marketing businesses. Prior to 1994, he was a partner in the law firm of King & Spalding. Mr. Rubright currently serves on the board of directors for HD Supply. During his tenure as a director of HD Supply since October 2014, he has been independent lead director, and currently is chairman of the nominating and corporate governance committee and a member of the audit committee. Additionally, Mr. Rubright has served as a member of the board of directors of Southern Company Gas, an energy services holding company, since 2016. He previously served as a member of the board of directors of Forestar Group, Inc., a real estate and natural resources company, from 2007 until 2017; AGL Resources, Inc., an energy services holding company (the former Southern Company Gas), from 2001 to 2016; Avondale, Incorporated, the parent company of Avondale Mills, Inc., from 2003 to 2008, and as chairman of Rock-Tenn's board from 2000 until his retirement in October 2013. He holds a bachelor of arts degree from Yale College and a juris doctor degree from the University of Virginia Law School.

        Director Qualifications: Mr. Rubright has significant experience in public company management and board leadership, and a deep understanding of operations, strategy, and risk management that provides valuable insight to our board of directors.

        Mr. Dorsman will serve as an independent director. He retired from NCR Corporation, a global technology company, in April 2014. As executive vice president, global services since July 2012, Mr. Dorsman led NCR Services, a leading global provider of outsourced and managed service offerings. He was also responsible for customer experience, continuous improvement, and quality throughout NCR, serving as chief quality officer during this period. He served as NCR's executive vice

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president, industry solutions group and global operations from November 2011 to July 2012, and, before then, senior vice president, global operations. Prior to rejoining NCR, Mr. Dorsman was executive vice president and chief operating officer of Standard Register, a provider of information solutions, where he was responsible for the day-to-day operations of the company. Before his role at Standard Register, Mr. Dorsman previously served for nearly 20 years at NCR in various global marketing and sales leadership roles including vice president of worldwide industry marketing. Mr. Dorsman currently serves on the board of directors for HD Supply. During his tenure as a director of HD Supply since March 2017, he has served as a member of the compensation committee and the nominating and corporate governance committee. Additionally, Mr. Dorsman currently serves on the board of directors for Applied Industrial Technologies, a global industrial distributor. During his tenure as a director of Applied Industrial Technologies since July 2002, he has been lead independent director, chairman of the corporate governance committee, and currently is chairman of the executive organization and compensation committee and a member of the corporate governance and executive committees. Mr. Dorsman is also currently a member of the board of directors for IDEAL Industries, a diversified manufacturer. Mr. Dorsman joined the board of directors for IDEAL Industries in August 2016. He served on the board of directors of nfrastructure (a Zones subsidiary), a global information technology solutions provider, from October 2016 to March 2019. He earned a bachelor of science degree from Syracuse University in 1977.

        Director Qualifications: Mr. Dorsman is an experienced board member and brings extensive experience in leading large supply chain and customer service organizations. He has broad distribution expertise as both a senior executive and as a board member.

        Ms. Graham-Johnson will serve as an independent director. She held positions of increasing responsibility in risk management and human resources over the course of her 24 years of service with RockTenn/WestRock, a corrugated packaging company. She started her career with RockTenn as a risk analyst in 1993 and assumed responsibility for employee benefits in 1995 and employee services in 2002. She was promoted to Senior Vice President, Employee Services in February 2012, to Executive Vice President, Human Resources in April 2012, and served as Chief Human Resources Officer from July 2015 to December 2017. Prior to joining RockTenn/WestRock, Ms. Graham-Johnson worked as a risk analyst for Deere and Company, a manufacturing company, from June 1990 to May 1993. She received a Bachelor of Business Administration, Risk Management, from the University of Georgia.

        Director Qualifications: Ms. Graham-Johnson brings significant leadership and expertise in the human resource and executive compensation fields, that coupled with her risk management history and expertise and her extensive M&A transactional experience in human resources, provides valuable insight to our board.

        Mr. Konenkamp will serve as an independent director. He retired in June 2019 after 38 years (26 as a partner) with Ernst & Young LLP and its affiliates ("EY"), a professional services firm. Prior to his retirement, he served as EY's Global Deputy Vice Chair, Assurance Services comprising EY's audit, fraud investigation, and accounting advisory services, globally. Prior to this position, he served as EY's Americas Deputy Vice Chair, Assurance from July 2011 to June 2014 and as Assurance Managing Partner of EY's Southeast Region from July 2009 to June 2011. From 1993 until 2010, he served as an audit partner with EY responsible for audits of both public and private companies. Mr. Konenkamp currently serves on the board of directors for HD Supply. During his tenure as a director of HD Supply since October 2019, he has been a member of the audit committee and was designated an audit committee financial expert as defined by the SEC. He received a Bachelor of Business Administration and Master of Accountancy from the University of Georgia and is a Certified Public Accountant.

        Director Qualifications: Mr. Konenkamp brings to the board significant operational and risk management experience, as well as extensive expertise in accounting and auditing, with 38 years of experience leading audits, audit practices, and overseeing teams leading audits.

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        John A. Stegeman will serve as our Chief Executive Officer and a director. Mr. Stegeman joined HD Supply in April 2010 as Executive President and focused on building the specialty construction and safety business as the President of HD Supply Construction & Industrial. Prior to joining HD Supply, Mr. Stegeman was President and Chief Executive Officer of Ferguson Enterprises, a plumbing supplies, pipe, valves and fittings, waterworks, fire and fabrication products distributor, from 2005 to 2009. He began his career with Ferguson in 1985 as a management trainee and advanced through the company holding various management positions in three of Ferguson's five business groups: Waterworks, Plumbing, and Heating and Air Conditioning. As part of the Ferguson Waterworks business group, Mr. Stegeman served as Senior Vice President before being named Chief Operating Officer of Ferguson in May 2005. Mr. Stegeman received a bachelor's degree from Virginia Tech and has attended advanced management programs at the Wharton School of Business, the International Institute for Management Development, Duke University's Fuqua School of Business, University of Virginia's Darden School of Business, and Columbia University.

        Director Qualifications: Mr. Stegeman has led White Cap, as a subsidiary of HD Supply, since April 2010. He has significant experience leading our Company and has a deep understanding of our business, strategy, and strengths.

Classified Board

        Our Amended and Restated Certificate of Incorporation provides for a classified board of directors. Upon completion of the spinoff, the board of directors will initially be divided into three classes. We anticipate that the three classes will be comprised of the following:

    Class I: Mr. Stegeman and Ms. Graham-Johnson

    Class II: Mr. Dorsman and Mr. Konenkamp

    Class III: Mr. Rubright

        The directors designated as Class I directors will have terms expiring at the first annual meeting of stockholders following the spinoff, which White Cap expects to hold in 2021. The directors designated as Class II directors will have terms expiring at the 2022 annual meeting of stockholders, and the directors designated as Class III directors will have terms expiring at the 2023 annual meeting of stockholders. Commencing with the 2021 annual meeting of stockholders, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires. Class I directors will be elected to three-year terms at the 2021 annual meeting of stockholders, Class II directors will be elected to three-year terms at the 2022 annual meeting of stockholders, and Class III directors will be elected to one-year terms at the 2023 annual meeting of stockholders. Commencing with the 2025 annual meeting of stockholders, the board of directors will no longer be classified and directors will no longer be divided into classes.

        Information with respect to the identities and biographies of the balance of our board will be provided in an amendment to this information statement.

Our Executive Officers Following the Spinoff

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business experience. See "—Our Directors Following the Spinoff" for information regarding our Chief Executive Officer, Mr. Stegeman.

Name   Age   Position
John A. Stegeman   59   Chief Executive Officer
Alan W. Sollenberger   50   President
Shawn G. Meredith   50   Chief Financial Officer
Susan V. Stucker   58   General Counsel and Corporate Secretary
Elizabeth H. Malkin   43   Chief Human Resources Officer

        Alan W. Sollenberger will serve as our President. He served as President, HD Supply Construction & Industrial since November 2019, as Chief Operating Officer from February 2017 to November 2019, as Chief Administrative Officer from April 2015 to February 2017, as Vice President, Chief Financial Officer from May 2010 to April 2015, as Vice President, Chief Financial Officer of HD Supply Plumbing and Electrical division from January 2009 to May 2010, and as Director, Strategic Business Development of HD Supply from August 2007 to January 2009. Prior to joining HD Supply, he held positions in strategic business development with The Home Depot from 2004 to 2007, and finance and accounting positions with the Ford Motor Company from 2000 to 2004, General Electric, Industrial Systems from 1998 to 2000, RB&W Logistics from 1996 to 1998, and Ernst & Young, LLP from 1992 to 1996. Mr. Sollenberger received a bachelor of science in business administration from Michigan State University and a master of business administration from Emory University.

        Shawn G. Meredith will serve as our Chief Financial Officer. She served as our Chief Financial Officer since May 2019, with over seven years in industrial products and distribution experience. Prior to joining HD Supply, she served as Senior Vice President, Chief Financial Officer of Gemaire Distributors, a heating, air conditioning, refrigeration equipment, parts, and supplies distributor and wholly-owned subsidiary of Watsco, Inc., from August 2016 to May 2019, and as Vice President, Compliance of Watsco, Inc., an air conditioning, heating and refrigeration equipment, and related parts and supplies distributor, from June 2016 to August 2016. She served as Vice President, Operations of Cardinal Health, a health care services and products company, from September 2014 to May 2016, after a sale and integration of the Innovative Therapies business where she served as Chief Financial Officer from October 2013 to September 2014. She served as Chief Financial Officer at BFG Supply from May 2012 to October 2013, and as Chief Financial Officer of HSW International/Remark Media from May 2008 to May 2012. She served in progressive finance leadership roles at Network Communications, Medical Doctor Associates and PricewaterhouseCoopers from October 2001 to April 2008. Ms. Meredith received a bachelor of science in accounting from the University of Florida and a master in accounting from Florida International University. She is a certified public accountant.

        Elizabeth H. Malkin will serve as our Chief Human Resources Officer. In this role, she will oversee all areas of the human resources function including compensation, benefits, talent acquisition, organizational development and learning, mergers and acquisitions, employee relations, human resources systems and payroll, as well as Corporate Communications. With nearly 20 years in the human resources field, Ms. Malkin has significant experience outlining people strategies and developing leaders at all levels of the organization. She has served as Vice President, Human Resources for HD Supply Construction & Industrial since April 2018. Ms. Malkin joined HD Supply in 2006 and held various roles of increasing responsibility in the areas of talent acquisition, organizational effectiveness, talent management, and learning, including Director of Enterprise Talent Management from May 2014 to March 2017 and Director, Learning and Leadership Development from March 2017 to April 2018. Prior to joining HD Supply, Ms. Malkin served in recruiting positions with Sarnoff Corporation, a division of SRI, International and in various recruiting and project management positions with Capital One Financial Services. Ms. Malkin received a bachelor of arts in psychology from Agnes Scott College and a graduate certificate in human resource management from Southern New Hampshire University.

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        Susan V. Stucker will serve as our General Counsel and Corporate Secretary. She joined HD Supply in April 2007 and was promoted to Vice President, Legal, in November 2010, with responsibility for labor and employment law matters, and, in January 2016, her area of responsibility was expanded to also include the company's litigation, employment law, and risk management teams. Prior to joining HD Supply, she served as Director, Legal for Sprint Telecommunications from October 1991 to April 2007. She holds a bachelor of arts and juris doctor degrees from Florida State University.

Director Independence

        NASDAQ rules require that our board of directors have a majority of independent directors. We currently expect that all of our directors, other than Mr. Stegeman, will qualify as independent according to the rules and regulations of the SEC and NASDAQ as of the distribution date.

Board Leadership Structure

        As noted in our contemplated Corporate Governance Guidelines, the board will have no policy with respect to the separation of the offices of Board Chairman and chief executive officer. As part of its annual self-evaluation process, the board will evaluate whether the board leadership structure provides the optimal structure for the Company.

        Mr. Rubright will serve as our independent Board Chairman. Our contemplated Corporate Governance Guidelines require the Board Chairman either to be independent or, if not, to be complemented by an independent lead director. The respective roles and responsibilities of the Board Chairman and independent lead director are set forth in the Company's contemplated Corporate Governance Guidelines, which will be posted to our website prior to the distribution date.

Committees of the Board

        Upon completion of the spinoff, the committees of our board of directors are expected to consist of an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee. Each of these committees will be required to comply with the requirements of the SEC and NASDAQ. Our board of directors will adopt a written charter for each of these committees, which will be posted to our website prior to the distribution date:

Audit Committee

        Upon completion of the spinoff, the members of the Audit Committee are expected to be Messrs. Dorsman, Konenkamp (Chair) and Rubright. Our Audit Committee will have oversight responsibility for, among other things, assisting the board in reviewing our financial reporting and other internal control processes, our financial statements, the independent auditors' qualifications and independence, the performance of our internal audit function and independent auditors, and our compliance with legal and regulatory requirements and our code of ethics. We expect that all the members of the Audit Committee will be independent under the NASDAQ rules and Exchange Act rules and regulations. We also expect that each committee member will be financially literate under the NASDAQ rules and that Mr. Konenkamp will qualify as an audit committee financial expert.

Nominating and Corporate Governance Committee

        Upon completion of the spinoff, the members of the Nominating and Corporate Governance Committee are expected to be Messrs. Dorsman, Konenkamp and Rubright (Chair) and Ms. Graham-Johnson. Our Nominating and Corporate Governance Committee will have the responsibility of identifying and, as appropriate, recommending candidates for election to the board, reviewing the composition of the board and its committees, developing and recommending to the board corporate governance guidelines that are applicable to us, and overseeing board evaluations. We expect

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that all the members of the Nominating and Corporate Governance Committee will be independent under the NASDAQ rules.

Compensation Committee

        Upon completion of the spinoff, the members of the Compensation Committee are expected to be Messrs. Dorsman (Chair) and Konenkamp and Ms. Graham-Johnson. Our Compensation Committee will have oversight responsibility for, among other things, executive succession planning process, the compensation of our executive officers and directors, approving equity grants and other incentive arrangements, and authorizing employment-related agreements for our executive officers. We expect that all the members of the Compensation Committee will be independent under the NASDAQ rules and Exchange Act rules and regulations.

Director Compensation

        Upon completion of the spinoff, we anticipate that director compensation will be provided pursuant to a board of directors compensation policy that is substantially similar to the HD Supply directors compensation policy. The director compensation year is anticipated to run from the date of each annual stockholders meeting. A director who is a Company employee will not receive any compensation for service as a director.

Equity Compensation

        It is anticipated that, under our directors compensation policy, each non-employee director will receive an annual equity award in the form of restricted stock units under our White Cap Omnibus Plan (which we plan to adopt and which is described in further detail in "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives" below). It is anticipated that the number of restricted stock units will be determined by dividing $             ($            for the independent lead director) by the closing price of our common stock on the grant date, which will be the date of our annual stockholders meeting. Each restricted stock unit represents the contingent right to receive one share of our common stock. The restricted stock units are anticipated to vest on the earliest of: (1) the one-year anniversary of the grant date, (2) the Company's next annual stockholders meeting, or (3) a change in control, and are anticipated to be settled upon vesting unless the director elects to defer settlement until termination of board service. A pro rata portion of the award is anticipated to vest upon termination of the director's service due to death, disability, or age 75 retirement based on the number of days of service during the year of termination. Equity compensation is prorated for directors who serve less than the full compensation year. Except as described above for terminations due to death, disability, or age 75 retirement, it is anticipated that restricted stock units will be forfeited on termination of board service before the awards have vested.

Cash Compensation

        It is anticipated that each non-employee director will be paid an annual cash retainer for board service that will be payable in installments at each quarterly board meeting. In addition, each non-employee director appointed to serve as a member of a standing board committee will receive an annual cash retainer equal to a specified amount based on the committee. In addition to the other cash retainers, any non-employee board chairman and any independent lead director is anticipated to receive another annual cash retainer. Cash fees are prorated for directors who serve less than the full compensation year.

        It is anticipated that directors may elect to convert their cash fees into Company common stock in the form of deferred stock units. Each deferred stock unit represents the right to receive one share of

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our common stock. The deferred stock units are anticipated to be fully vested and settled upon termination of the director's board service.

Travel Expense Reimbursements

        It is anticipated that directors will be reimbursed for their reasonable expenses related to board membership, including first-class airfare on a commercial airline for travel to board meetings or for other Company business.

Stock Ownership Guidelines and Holding Period Requirements

        Our independent directors will be expected to own shares of our common stock valued at five times the annual cash board retainer within five years of their appointment or election to the board, under the terms of our stock ownership guidelines. It is anticipated that directors will be required to hold 50% of their vested stock awards until the ownership guidelines are satisfied and that they may elect to defer settlement of their vested restricted stock units and deferred stock units until termination of board service. These deferred vested stock units are anticipated to be deemed owned for purposes of the stock ownership guidelines.

Director Orientation and Continuing Education

        It is anticipated that we will provide orientation for new directors and provide our directors with materials or briefing sessions on subjects that we believe will assist them in discharging their duties. We anticipate that we will engage third parties to provide either in-boardroom or dinner meeting education to our directors. It is anticipated that to supplement the education we provide, we will encourage our directors to attend external programs and will reimburse (subject to a cap) the costs of attending such programs.

Code of Conduct and Ethics and a Code of Ethics for Senior Executive and Financial Officers

        Prior to the distribution date, we will adopt a written Code of Conduct and Ethics and a written Code of Ethics for Senior Executive and Financial Officers that are designed to reinforce our commitment to high ethical standards and to promote:

    accountability and responsibility for making good decisions and for the outcomes of those decisions;

    responsibility to one another by treating all with dignity and respect;

    responsibility to the public and our stockholders by taking responsibility for our actions;

    responsibility to our business partners by treating our business partners as equals in the quest for high business conduct standards; and

    responsibility to governments and the law by complying with applicable legal and regulatory standards.

        Our Code of Conduct and Ethics will be applicable to all the representatives of our enterprise, including our executive officers and all other employees and agents of our Company and our subsidiary companies, as well as to our directors. A copy of our Code of Conduct and Ethics will be available on our website prior to the distribution date.

        Our Code of Ethics for Senior Executive and Financial Officers, which will also be available on our website prior to the distribution date, applies to our chief executive officer, chief financial officer, chief accounting officer, and any other senior executive or financial officer performing similar functions. Prior to the distribution date, we will also adopt a policy providing procedures by which our in-house

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and outside attorneys are to report material violations of applicable U.S. federal or state laws, or a material breach of a fiduciary duty, as required by SEC rules.

Selecting Nominees for Director

        All of our current directors and those who have been elected prior to the spinoff have been identified and selected by HD Supply.

        Our board will delegate to the Nominating and Corporate Governance Committee (once constituted) the responsibility for reviewing and recommending nominees for director to the board. In accordance with our contemplated Corporate Governance Guidelines, and on recommendation of the Nominating and Corporate Governance Committee, our board will adopt criteria for the selection of new directors based on the strategic needs of the Company and the board. We anticipate that the Nominating and Corporate Governance Committee will periodically review the criteria adopted by the board and, if deemed desirable, recommend changes to the criteria.

        Pursuant to the criteria to be adopted by our board, the board will seek members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. Individuals will be considered for nomination to the board based on their business and professional experience, judgment, oversight roles held, age, skills, and background. The board will also consider the candidate's availability, absence of conflicts, and any applicable independence or experience requirements. The Nominating and Corporate Governance Committee will consider diversity in identifying nominees for director, including personal characteristics such as race and gender, as well as diversity in experience and skills relevant to the board's performance of its responsibilities in the oversight of the business.

        Any stockholder who wishes to recommend a prospective candidate for the board for consideration by the Nominating and Corporate Governance Committee may do so by submitting the name and qualifications of the prospective candidate in writing to the following address: Susan V. Stucker, General Counsel and Corporate Secretary, White Cap Supply Holdings, Inc., 6250 Brook Hollow Parkway, Norcross, Georgia 30071. Any such submission should also describe the experience, qualifications, attributes and skills that make the prospective candidate a suitable nominee for the board. Our Amended and Restated By-laws (as defined below) set forth the requirements for director nomination by a stockholder of persons for election to the board.

Board Refreshment and Diversity

        The Nominating and Corporate Governance Committee will periodically assess the composition of our board, including whether any vacancies are expected on our board due to retirement or otherwise, and may make recommendations to the board for consideration. We will also have a mandatory retirement age of 75 for our directors, absent special circumstances. To provide board continuity, it is anticipated that an exception will be made to our mandatory age retirement policy to allow Mr. Rubright to serve as Board Chairman for at least three years following the spinoff.

Executive Sessions of our Non-Management Directors

        The independent Board Chairman, or the independent lead director if the Board Chairman is not independent, and the full board separately, will have authority to require the board to meet in executive sessions outside the presence of management. We expect the independent directors to meet at regularly scheduled executive sessions without management at least twice per year. In the absence of an independent Board Chairman, the independent lead director will act as chair at such meetings.

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Board's Role in Risk Oversight

        Our board will have overall responsibility for overseeing our risk management. Under its contemplated charter, the Audit Committee (once constituted) will be responsible for reviewing and discussing the Company's risk management practices, including the effectiveness of the systems and policies for risk assessment and risk management, the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, any unusual material transactions, and management, internal auditor and independent auditor reviews of the Company's Foreign Corrupt Practices Act policies, procedures and monitoring. The Audit Committee will also oversee our corporate compliance and ethics programs, as well as the internal audit function (all once established). The board's other committees (once constituted) will oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee (once constituted) will oversee the potential risks associated with our compensation policies and practices.

Corporate Governance Guidelines

        Our board is expected to adopt a set of Corporate Governance Guidelines in connection with the spinoff to assist it in guiding the Company's corporate governance practices. Our Corporate Governance Guidelines will be available on our website prior to the distribution date.

Compensation Committee Interlocks and Insider Participation

        Our Compensation Committee will be established upon completion of the spinoff. During fiscal 2019, we were not an independent company, and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who currently serve as our executive officers were made by HD Supply. See "Executive Compensation."

Communicating with our Board of Directors

        Any stockholder or interested party who wishes to communicate directly with our board, or with any individual director of our board, may do so by writing to Susan V. Stucker, General Counsel and Corporate Secretary, White Cap Supply Holdings, Inc., 6250 Brook Hollow Parkway, Norcross, Georgia 30071 or by email at                        . Please specify to whom your letter should be directed. Once the communication is received and reviewed by the Corporate Secretary, it will be promptly forwarded to the addressee, as appropriate. Communications that are not related to the duties and responsibilities of the board, including advertisements, junk mail and mass mailings, solicitations for business, routine customer service complaints, new product or service suggestions, opinion survey pools, requests for employment, requests for contributions, or other inappropriate material will not be forwarded to our directors.

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction and Background

        For purposes of this Compensation Discussion and Analysis, the persons identified below (and listed in the Fiscal 2019 Summary Compensation Table below) are referred to collectively as our named executive officers, or NEOs:

    John A. Stegeman, Chief Executive Officer;

    Shawn G. Meredith, Chief Financial Officer;

    Alan W. Sollenberger, President;

    Elizabeth H. Malkin, Chief Human Resources Officer; and

    Susan V. Stucker, General Counsel and Corporate Secretary.

        In connection with the spinoff, we describe both the NEOs' historical compensation (to the extent attributable to either us or HD Supply) and the material terms of any compensation arrangements anticipated to be in place after the spinoff.

        The information provided for fiscal 2019 and any prior periods reflects, to the extent applicable, compensation earned at HD Supply for each of the NEOs based on their respective roles with HD Supply during fiscal 2019 and any prior periods reflected and the design and objectives of its executive compensation programs in place prior to the spinoff.

        As discussed above, we are currently a part of HD Supply and not an independent company, and the Compensation Committee of our board of directors (the "White Cap Compensation Committee") has not yet been formed. All executive and director compensation decisions for our NEOs prior to the spinoff were or will be made or overseen by the HD Supply Compensation Committee (referred to hereafter as "Committee") or the HD Supply board of directors. Therefore, except as otherwise indicated, this Compensation Discussion and Analysis focuses on, as applicable, HD Supply compensation earned by each of the NEOs based on their respective roles with HD Supply during HD Supply's fiscal 2019, or for prior periods, as applicable, and the design and objectives of HD Supply's executive and director compensation programs in place prior to the spinoff.

        Because our NEOs, other than Mr. Stegeman, were not executive officers of HD Supply during 2019, their fiscal 2019 compensation decisions were generally not made by the Committee but rather by Mr. Stegeman, subject to approval by Mr. DeAngelo, except in the case of Ms. Stucker, whose compensation decisions were made by HD Supply's General Counsel and Corporate Secretary, with input from HD Supply's Human Resources team. Executive compensation decisions for our NEOs following the spinoff are expected to be made by the White Cap Compensation Committee.

        We currently anticipate that, except as otherwise described in this Compensation Discussion and Analysis, compensation programs for our NEOs immediately following the distribution date will be substantially similar to the programs currently utilized by HD Supply for its executive officers. However, we anticipate that the spinoff will provide the opportunity for us to have a different short-term and long-term incentive plan design that will allow us to better motivate and reward our NEOs and other employees to maximize the growth and success of White Cap as a standalone company than we are currently able to do as part of the HD Supply consolidated group. In addition, having our own equity plan will also allow us to establish eligibility criteria and a long-term equity mix that best serves our goals and objectives as a separate public company.

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Result of Say-on-Pay Vote

        At HD Supply's 2017 annual meeting of stockholders, 97.23% of stockholder votes cast were in favor of HD Supply's executive compensation programs. The Committee considered the results of the say-on-pay vote in its review of HD Supply's compensation programs for fiscal 2019 (as described below).

2019 Executive Compensation

        During fiscal 2018, the Committee initiated a review of the executive compensation program that was led by the Committee's independent consultant, Pearl Meyer, with input from executive leadership. Pearl Meyer annually conducts an external market study to assess the competitiveness of current pay opportunities for the executive officers of HD Supply. Only one of our NEOs, Mr. Stegeman, was an executive officer of HD Supply during 2019 and, therefore, his position is the only one of our NEOs included in the Pearl Meyer study. The Committee approved the following primary changes for Mr. Stegeman for fiscal 2019. Mr. Stegeman approved compensation decisions for our other NEOs for fiscal 2019, other than Ms. Stucker, whose compensation was approved by HD Supply's General Counsel and Corporate Secretary, with market data input from the Human Resources team. Mr. Stegeman did not participate in discussions regarding his compensation.

    Based on the market competitiveness of his base salary, Mr. Stegeman did not receive a merit increase for 2019. Base salaries were increased for our other NEOs to reflect executive performance and in the case of Ms. Malkin and Ms. Stucker, to improve market competitive positioning. Mr. Sollenberger, Ms. Malkin, and Ms. Stucker received merit increases of 4%, 20%, and 3%, respectively. Ms. Meredith did not receive a merit increase for 2019 as she joined White Cap in May 2019. See "Compensation Discussion and Analysis—Components of Compensation—Base Salary" on pages 110 to 111 for additional information regarding base salary changes.

    The Annual Incentive Plan ("AIP") plan design and target opportunities for fiscal 2019 remained unchanged from fiscal 2018. See "Compensation Discussion and Analysis—Components of Compensation—Annual Cash Incentives" on pages 111 to 113 for additional information regarding the AIP.

    The same target long-term incentive grant values were maintained for our NEOs other than Mr. Stegeman whose target increased from 150% to 200% of base salary based on business performance and internal equity considerations. See "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives" on pages 113 to 117 for additional information regarding long-term incentive grants.

    Performance awards, settled in shares, were added to the long-term incentive mix beginning in fiscal 2018 for Mr. Stegeman, increasing the pay-for-performance nature of his long-term incentive awards, while creating additional focus and accountability on achieving and sustaining long-term earnings per share and free cash flow growth. Because our other NEOs were not executive officers, they did not receive performance awards in 2018 or 2019. See "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives—Annual Equity Grants" on pages 116 to 117 for additional information regarding the performance awards.

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        The following charts reflect the target pay mix for our CEO and the other NEOs for fiscal 2019:

GRAPHIC   GRAPHIC

2019 Executive Compensation and Pay-for-Performance Results

        The payouts and potential values for our NEOs under HD Supply's short-term and long-term incentive programs for fiscal 2019 were as follows:

    AIP payouts were earned at 45.37% of target for all NEOs (except Ms. Stucker) based on White Cap performance relative to White Cap targets for fiscal 2019; Ms. Stucker's payout was 40.34% of target based on corporate-wide performance relative to corporate-wide targets (GSC) for fiscal 2019;

    Stock options and restricted stock awards granted in March 2019 decreased in value ($43.23 stock price on grant date and $40.74 at fiscal year end); and

    Performance awards granted to Mr. Stegeman in March 2018 and March 2019 were earned at 121.5% and 83.3% of target, respectively, based on cumulative adjusted earnings per share and cumulative free cash flow results through February 2, 2020 but subject to his continued employment through the end of the respective performance periods. See "Compensation Discussion and Analysis—Components of Compensation—Annual Equity Incentives—Annual Equity Grants" on pages 116 to 117 for additional information regarding the performance awards.

        With respect to CEO pay, the following illustrates target versus realizable pay for fiscal 2019:

GRAPHIC

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        The following definitions were used for realizable pay:

    Base Salary: actual base salary earned during fiscal 2019 (target base salary is based on the 12-month merit cycle that begins in March)

    Annual Incentive: actual short-term incentive paid for fiscal 2019 performance

    Restricted Stock: fiscal year end value of restricted stock awards granted in March 2019 (all unvested at fiscal year end)

    Options: fiscal year end in-the-money value of stock options granted in March 2019 (all unvested at fiscal year end)

    Performance awards: fiscal year end intrinsic value of target level performance award grant in March 2019 (all unvested at fiscal year end)

        None of the equity value shown in the chart above was vested as of fiscal year end, which the Committee believes provides strong ongoing performance and retention strength.

        In evaluating fiscal 2019 performance and pay results, the Committee believes that it reflects strong alignment between pay and performance, while also allowing us to attract and retain talent. It is anticipated that White Cap will continue to have the same sound overall governance processes, practices, and policies as those that were in effect for HD Supply for fiscal 2019, which include the following:


What We Do



executive sessions without management

independent compensation consultant

review of total compensation tally sheets

annual compensation risk assessment

significant amount of pay "at risk"

significant use of equity-based pay

capped incentive opportunities

clawback policy upon a restatement

robust stock ownership requirements

performance-based equity awards


What We Don't Do or Allow



excessive severance

single trigger equity acceleration on a change in control where awards honored or assumed

parachute excise tax gross-ups

option repricing or buyouts

hedging, pledging, or short sales of our securities

Determining Executive Compensation

        It is anticipated that the processes and procedures followed by the White Cap Compensation Committee for determining executive compensation for our NEOs following the spinoff will be substantially similar to the processes and procedures followed by the Committee for determining fiscal 2019 executive compensation decisions, as set forth below.

        The Committee oversees and directs our executive compensation process and plan designs. Working under the guidance and direction of the Committee and its independent compensation consultant, our human resources team develops and implements programs that we believe are aligned with the strategies and philosophies embraced by the Committee and our Company. Our finance team supports the process by providing financial analysis and input and review of program design. Except with respect to his own compensation, our CEO has final management-level review of any

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compensation program before it is sent to the Committee for consideration and approval. The Committee has the task of evaluating and approving our material compensation programs, including our equity compensation program. Management consults with the Committee during the design process to obtain its direction and feedback on how the design of our executive compensation programs support the overall strategy of the Company. Data from the outside consultant is also used during the design process to obtain further insight into the features of our compensation program.

        We consider the cost (including aggregate share usage and dilution) of the various components of our compensation program in evaluating the overall balance and reasonableness of our executives' total direct compensation packages. We review total compensation levels for executive officers at least annually through the use of tally sheets that quantify each element of direct and indirect compensation provided to individual executives and the portion of the executive's total compensation represented by each element of compensation. This annual review of tally sheets also includes information on the value of executives' unexercised stock options and unvested performance awards and outstanding stock awards, as well as an evaluation of the payments and benefits that would be paid to executive officers in the event of termination of employment, including retirement or following a change in control. The tally sheets provide useful context but do not materially impact executive compensation decisions.

        For fiscal 2019, HD Supply's CEO provided the Committee with a performance assessment for Mr. Stegeman. The Committee then approved the amount and form of each element of compensation (including base salary, annual cash incentive compensation, equity-based incentive compensation, benefits, and perquisites) for Mr. Stegeman after considering performance assessments and compensation recommendations made by management. The Committee may not delegate its authority for approval of executive officer compensation. Because our NEOs other than Mr. Stegeman were not executive officers in fiscal 2019, Mr. Stegeman approved compensation decisions for our other NEOs for fiscal 2019, other than Ms. Stucker, whose compensation was approved by HD Supply's General Counsel and Corporate Secretary, with market data input from the Human Resources team.

        None of our NEOs attended Committee meetings during fiscal 2019. It is anticipated that after the spinoff, White Cap's CEO, chief financial officer, chief human resources officer, and general counsel will generally attend regularly scheduled quarterly White Cap Compensation Committee meetings but will not be present for the executive sessions or for any discussion of his or her own compensation.

Philosophy and Objectives

        It is anticipated that White Cap's compensation philosophy and objectives following the spinoff will initially be substantially similar to those followed by HD Supply for fiscal 2019, as set forth below.

        The Committee and our management support a performance culture geared toward customer success and sustainable, long-term profitability. Our compensation programs are designed to reward achievement of these goals, thereby attracting and retaining talent that will contribute to such a culture. In particular, our executive compensation programs are intended to meet the following objectives:

    Balance commitment, long-term financial success, short-term operational excellence, and achievement of short-term goals. This balance includes, but is not limited to, driving profitable growth while aligning our executives' long-term interests with stockholders' interests.

    Attract, retain, motivate, and reward our top executive talent.

    Differentiate rewards based on outstanding individual performance so as to promote a high-performance culture geared toward customer success and sustainable, long-term profitability.

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        In addition, we intend that our compensation programs will be aligned with:

    Our business strategy:  Our compensation programs link pay to our business strategy by rewarding executives upon achievement of profitability, long-term growth, excellence in achievement of short-term operational and financial goals, and by reinforcing the "One Team" philosophy.

    Our stockholders' interests:  Through the strategic use of equity-based compensation, the total compensation of our executives is directly linked to the sustained value they create for our stockholders.

    Our goal of retaining and motivating key talent:  To retain the best executive talent, the total compensation opportunity is designed to provide attractive levels of compensation if performance targets are met and upside opportunity when performance targets are exceeded.

Compensation Consultant and Use of Comparator Data

        It is anticipated that the White Cap Compensation Committee will engage Pearl Meyer, a leading executive compensation advisor, to provide input with respect to White Cap's executive compensation programs after the spinoff, including a market review of the competitiveness of total compensation of executives and a review of the equity program. It is anticipated that a representative from Pearl Meyer will attend White Cap Compensation Committee meetings. It is anticipated that Pearl Meyer's services to the White Cap Compensation Committee and the use of comparator data following the spinoff will be substantially similar to the processes discussed below with respect to HD Supply compensation for fiscal 2019.

        During fiscal 2019, the Committee requested and received information from Pearl Meyer with respect to potential conflicts of interest, including the following factors: (1) other services provided to us by the consultant; (2) fees paid by us as a percentage of the consulting firm's total revenue; (3) policies and procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (5) any Company stock owned by the individual consultants involved in the engagement; (6) any business or personal relationships between executive officers and the consulting firm or the individual consultants involved in the engagement. Based on an assessment of these factors, including information gathered from directors and executive officers addressing business or personal relationships with the consulting firm or the individual consultants, the Committee concluded that the work of Pearl Meyer did not raise any conflict of interest.

        In general, neither the Company nor the Committee has exclusively relied on any of the data or advice received from Pearl Meyer as to the amount of any particular item of compensation. Pearl Meyer provides input which the Company and the Committee take into consideration, as the case may be, on the particular element of compensation under consideration.

        The Committee reviews compensation levels and practices at comparator companies in setting the compensation of our NEOs and when reviewing or establishing the compensation programs for other associates. The information is used to help the Committee better understand the competitive market and how executives are compensated at other companies that are similar in size or industry or with whom we compete for talent.

        We seek comparators that share a similar industrial distribution model or are a direct competitor to a specific business unit. Companies are, therefore, included in the comparator group because they (1) operate in the same business as the Company or one of our business units, (2) operate in a similar business, or (3) operate in a similar business model. The comparator group was developed by Pearl Meyer, with input from management and the Committee, and has been used to provide input into both the value of total compensation for executives as well as the relative value of each component of compensation. We do not rely on percentile rankings of compensation within the comparator group to

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determine specific compensation amounts for the NEOs; rather, the comparator group is used to identify programs and levels of pay which management and the Committee consider when evaluating our own programs.

        For fiscal 2019 compensation decisions for Mr. Stegeman, the following comparator group was used, consisting of companies in the same or similar business or having a similar business model as HD Supply:


Fiscal 2019 Comparator Group

Applied Industrial Technologies, Inc.   LKQ Corp.   WESCO International, Inc.
Beacon Roofing Supply, Inc.   MRC Global, Inc.   W.W. Grainger, Inc.
CDW Corporation   MSC Industrial Direct Co., Inc.   Univar, Inc.
Fastenal Co.   United Rentals, Inc.    
Henry Schein, Inc.   Watsco, Inc.    

        For post-spinoff compensation decisions for our NEOs, the following comparator group was used, consisting of companies in the same or similar business or having a similar business model as White Cap:


Post-Spinoff Compensation Comparator Group

        Information with respect to our comparator group will be provided in an amendment to this information statement.

        It is anticipated that the White Cap Compensation Committee will annually review and approve the compensation comparator group that is used for any external market analysis.

Components of Compensation

        We believe that the compensation programs that we will maintain are important in achieving the compensation goals described above. For fiscal 2019, the principal components of compensation for the NEOs were base salary, annual cash incentives, annual equity incentives, and benefits and perquisites. It is anticipated that these will remain the principal components of compensation for our NEOs following the spinoff.

        While our NEOs will not have employment agreements with White Cap, each of our NEOs will be party to an at-will employment offer letter which may contain certain employment arrangements, including severance payments. Messrs. Stegeman and Sollenberger were also each a party to a change in control agreement with HD Supply for fiscal 2019. The HD Supply change in control agreements with Messrs. Stegeman and Sollenberger will terminate at the time of the spinoff. We anticipate that all our NEOs will enter into similar change in control agreements with White Cap effective at the time of the spinoff. These arrangements are discussed more fully under "Executive Compensation—Potential Payments upon Termination or Change in Control" on pages 125 to 129.

        Each of the components of compensation for the NEOs is discussed below, including a discussion of the factors considered in determining the applicable amount payable or achievable under each

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component. The design of each component of compensation fits into the overall executive pay program and supports the philosophy and objectives previously discussed in the following manner:

Pay Component
  Objective of Pay Component   Key Measures
Base salary  

Provides competitive pay while managing fixed costs

Rewards an executive for exemplary achievements against non-financial goals

 

Individual performance and contribution

Scope of responsibilities

Experience

Achievement of non-financial goals

Annual cash incentives

 

Focuses on short-term operational metrics that drive and support our long-term strategy

Where applicable, creates incentives for performance based on White Cap performance

 

Achievement of agreed upon operating plan goals in profitability and working capital for fiscal 2019

Achievement of agreed upon performance goals of White Cap following the spinoff

Annual equity incentives

 

Aligns executive interests to stockholder interests by rewarding long-term focus on profitability and value creation for the enterprise

Assists in the retention of key talent

Creates an "ownership culture"

 

Growth in stock value

Growth in adjusted earnings per share and free cash flow

Employment retention through the vesting period of equity awards

Benefits and perquisites

 

Benefits provide a safety net of protection in the case of illness, disability, or death

Perquisites generally enable the executive to perform their duties efficiently and minimize distractions

 

Benefits are provided to executives on the same basis as provided to our salaried associates

Perquisites are valued by our executives at minimal cost to us

Change in control benefits

 

Focuses management on acting in the best interests of our stockholders in a change in control context

 

Double trigger—benefits paid upon occurrence of a change in control and involuntary or constructive termination

Base Salary

        It is anticipated that the processes for determining base salary for our NEOs will be substantially similar to the processes discussed below with respect to HD Supply compensation for fiscal 2019.

        Base salaries are established at levels designed to attract and retain top executive talent while managing fixed costs at an appropriate level. The determination of any particular executive's base salary is based on personal performance and contribution, experience in the role, changes to the scope of responsibilities, market rates of pay, and internal equity. The fiscal 2019 salary increases were based on these factors but were primarily focused on bringing base salary closer to market rates of pay and on the executive's performance. Mr. Stegeman did not receive a merit increase for fiscal 2019 based on the

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market competitiveness of his base salary. Fiscal 2019 and fiscal 2020 merit decisions set forth below for Mr. Stegeman were based on input from Pearl Meyer using the fiscal 2019 comparator group and for our other NEOs was based on input from our Human Resources team using market data from Pearl Meyer.

        The following summarizes the salary increases for fiscal 2019 for each NEO. The salary increase (where applicable) is effective for the 12-month period beginning in March of each year; the salary reported in the Summary Compensation Table on page 121 is base salary earned during the relevant fiscal year.

Name
  2018   2019   % Increase  

John A. Stegeman (CEO)

    792,227     792,227      

Shawn G. Meredith (CFO)

        315,000      

Alan W. Sollenberger

    386,000     400,000     4  

Elizabeth H. Malkin

    200,000     240,000     20  

Susan V. Stucker

    254,662     261,272     3  

        Our NEOs received (where applicable) the following salary increases in March 2020 in accordance with the normal merit cycle. The Committee approved Mr. Stegeman's salary and the salary for our other NEOs was approved by Mr. Stegeman, other than Ms. Stucker's salary which was approved by HD Supply's general counsel, with input from our Human Resources team. Due to the COVID-19 pandemic and its related impact on the business, the March 2020 salaries of all White Cap salaried associates, including our NEOs, was temporarily cut by 3% through the end of Q3-fiscal 2020.

Name
  2020   % Increase   % Decrease
(COVID-19)
  2020 Salary
After 3% Cut
 

John A. Stegeman (CEO)

    792,227         3     768,460  

Shawn G. Meredith (CFO)

    350,000     11     3     339,500  

Alan W. Sollenberger

    440,000     10     3     426,800  

Elizabeth H. Malkin

    265,000     10     3     257,050  

Susan V. Stucker

    269,110     3     3     261,036  

        With input from Pearl Meyer using the comparator group set forth above for post-spinoff compensation decisions, the Committee approved the following salary increases for our NEOs to be effective at the time of the spinoff. The salary increases are focused primarily on bringing base salary closer to market rates of pay based on the comparator group benchmarking for the position at the time of the spinoff.

Name
  Effective
at Spinoff

John A. Stegeman (CEO)

  X

Shawn G. Meredith (CFO)

  X

Alan W. Sollenberger

  X

Elizabeth H. Malkin

  X

Susan V. Stucker

  X

Annual Cash Incentives

        It is anticipated that the process for determining the design of annual cash incentives for our NEOs will be substantially similar to the process discussed below with respect to HD Supply annual cash incentives for fiscal 2019. However, the spinoff will provide the opportunity for us to have a different short-term incentive plan design that will allow us to better motivate and reward our NEOs

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and other employees to maximize the growth and success of White Cap as a standalone company than we are currently able to do as part of the HD Supply consolidated group.

        Annual cash incentives are designed to focus the NEOs on producing superior results against key financial metrics. By tying a significant portion of the executive's total annual cash compensation to annual variable pay, we reinforce our "pay for performance" culture and focus our executives on critical short-term financial and operational objectives which also support our long-term financial goals.

        All of our NEOs participate in the AIP, which provides cash-based incentives dependent on annual results against the key financial metrics described below. AIP target payouts to our NEOs are expressed as a percentage of base salary. Annually, these percentage targets are reviewed against comparator data and adjusted, if necessary, based on the Committee's estimation of what level of targeted payouts is necessary to retain, motivate, and reward our executives.

        For fiscal 2019, the AIP performance payout weighting was based 80% on an Adjusted EBITDA target and 20% on an average working capital as a percentage of sales target ("AIP-Working Capital"). Adjusted EBITDA for the fiscal 2019 AIP performance payout is Adjusted EBITDA as defined in HD Supply's fiscal 2019 annual report on Form 10-K. Additional information regarding Adjusted EBITDA referred to herein (including a reconciliation to the most comparable GAAP measure) is included under Management's Discussion and Analysis of Financial Condition and Results of Operations—Key business metrics—Adjusted EBITDA and Adjusted Net Income (Loss) in HD Supply's annual report on Form 10-K for fiscal 2019. AIP-Working Capital is computed by averaging the gross working capital at the end of each fiscal month divided by the fiscal year sales. Gross working capital was selected to focus on operational working capital and to mitigate any incentive to alter results through adjustments to accruals or reserves.

        For fiscal 2019, the Committee viewed Adjusted EBITDA as the key operating metric that would drive consolidated HD Supply business profitability. The AIP-Working Capital measure is intended to increase the focus on cash management across HD Supply, to avoid creating disincentives for investment in growth, and to reward teams for incremental annual improvements in working capital while continuing to grow EBITDA.

        These results were measured at various levels for each NEO based on their role and responsibilities, as follows:

    Stegeman, Meredith, Sollenberger, and Malkin—Construction & Industrial (C&I) (86%); Home Improvement Solutions (HIS) (10%); and Construction & Industrial—Canada (C&I Canada) (4%); and

    Stucker—Consolidated Global Support Center (GSC);

        The following are the performance and payout scales that were approved by the Committee in March 2019 for the fiscal 2019 annual cash incentives for NEOs, as well as the actual performance results for 2019.