Exhibit 99.1
| | | | |
 | | News Release | | Zep Inc. 1310 Seaboard Industrial Blvd., NW Atlanta, GA 30318 www.zepinc.com |
Company Contact:
Jill Gilmer
Zep Inc.
404-605-8614
Zep Inc. Reports Improved Fourth Quarter and Fiscal Year Results
Accretive Acquisitions Continue with Third Acquisition in Nine Months;
Three-Year Restructuring Substantially Complete
| | • | | Q4 revenue of $161.4 million increased 20.2% over the prior year period; FY10 revenue of $568.5 million increased 13.5% over prior year |
| | • | | Q4 adjusted net income increased 12.5% over the prior year period; FY10 adjusted net income increased 91.7% over prior year |
| | • | | Q4 adjusted diluted EPS totaled $0.33 – a $0.03 increase over the prior year period; FY10 adjusted diluted EPS totaled $0.98 – a $0.46 increase over prior year |
| | • | | Annual operating cash flow totaled $34.0 million, an 11.8% increase from prior year |
| | • | | Completed acquisition of Waterbury Companies, Inc. and Niagara National, LLC assets in Q1 of FY11; Q4 FY10 acquisition costs totaled $2.2 million |
| | • | | Successful fourth quarter $320 million recapitalization to support growth strategies |
| | • | | Amrep integration nearly complete; Q4 FY10 restructuring charges totaled $6.3 million |
Atlanta, GA, October 11, 2010 – Zep Inc. (NYSE:ZEP), a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions, today announced financial results for the fourth fiscal quarter and fiscal year ended August 31, 2010. Revenue for the fourth quarter increased 20.2% to $161.4 million, compared with $134.3 million in the same period of the prior year, while revenue for fiscal 2010 increased 13.5% to $568.5 million from $501.0 million in fiscal 2009. Fourth quarter fiscal 2010 adjusted net income was $7.4 million, or $0.33 per share on a fully diluted basis, compared with $6.6 million, or $0.30 per share on a fully diluted basis, in the fourth quarter of fiscal 2009. Fiscal 2010 adjusted net income was $21.8 million, or $0.98 per share on a fully diluted basis, compared with $11.3 million, or $0.52 per share on a fully diluted basis, in fiscal 2009. Adjusted net income for the fourth quarter of fiscal 2010 increased by 12.5% and fully diluted adjusted earnings per share increased by 10.0% compared with the fourth quarter of fiscal 2009. Adjusted net income for fiscal 2010 increased by 91.7% and fully diluted adjusted earnings per share increased by 88.5% compared with fiscal 2009.
Fourth quarter and fiscal 2010 net income reflect charges totaling $5.3 million, or $0.24 per share, and $8.3 million, or $0.37 per share, respectively, related to restructuring efforts and acquisition costs. The following table provides a reconciliation of adjusted earnings per diluted share to reported diluted earnings per share:
| | | | | | | | | | | | |
| | | Three Months Ended
August 31, | | Years Ended
August 31, |
| | | 2010 | | 2009 | | 2010 | | 2009 |
Reported (GAAP) Diluted Earnings Per Share | | $ | 0.09 | | $ | 0.29 | | $ | 0.61 | | $ | 0.42 |
Restructuring Charges | | | 0.18 | | | 0.01 | | | 0.25 | | | 0.10 |
One-time Acquisition Costs | | | 0.06 | | | — | | | 0.12 | | | — |
| | | | | | | | | | | | |
Adjusted Diluted Earnings Per Share(a) | | $ | 0.33 | | $ | 0.30 | | $ | 0.98 | | $ | 0.52 |
| | | | | | | | | | | | |
| (a) | Zep provides adjusted results that exclude restructuring charges, acquisition costs and other special items to reflect the impact of its initiatives to transform the Company. Zep provides adjusted information as an addition to, and not as a substitute for, financial measures presented in accordance with GAAP. The Company believes the adjusted presentation is a beneficial supplemental disclosure to investors in analyzing and assessing its past and future performance. |
John K. Morgan, Chairman, President and Chief Executive Officer, stated, “In the last nine months, we completed three acquisitions. The first was Amrep, which was immediately accretive to earnings, expands our access to the retail and distributor channels, and provides significant private label capabilities. We recently completed our acquisition of certain brands and assets of Waterbury Companies, which we expect will enhance Amrep’s leading position as a provider of air care delivery systems and products for facilities maintenance. Our third acquisition, while much smaller than the first two, included the assets of Niagara National and complements our strength in our vehicle wash business, specifically in the high quality truck and fleet washing equipment markets. In addition to our fiscal 2010 acquisition initiatives, we increased our investment spending within our legacy businesses to drive organic growth. Zep generated strong cash flow during the year. We believe our ability to generate consistently strong cash flow coupled with an expanded credit facility will allow us to pursue both organic and acquisitive growth opportunities in the years ahead.”
Mr. Morgan continued, “I am pleased with the continued restructuring progress we were able to achieve during fiscal 2010 in the face of economic pressures that challenged our top-line. We increased adjusted earnings by more than 90% over fiscal 2009 due to the hard work and dedication of our associates. Further, we reduced the breakeven point of our legacy business by almost 30%. While we believe we have substantially completed the restructuring of our legacy operations, we may incur some costs during fiscal 2011 as we finalize our three-year plan to simplify our core. Most importantly, throughout fiscal 2010, we continued to execute transformative initiatives that we believe position the Company for long-term value creation.”
Fourth Quarter Results
Net sales totaled $161.4 million in the fourth quarter of fiscal 2010 compared with $134.3 million in the fourth quarter of fiscal 2009, an increase of $27.1 million or 20.2%. Zep Professional and Amrep have fully integrated their distributor sales and support organizations. Revenue from the Amrep acquisition accounted for $29.7 million of the current quarter’s net sales growth which increased $2.1 million from the same three month period in the prior year. In total, volume in the fourth quarter of fiscal 2010 was $2.7 million lower than the fourth quarter of fiscal 2009 as economic factors and a decline in demand for products used to combat the H1N1 virus more than offset increased sales to customers in the automotive aftermarket. Foreign currency translation on international sales negatively impacted sales by $0.3 million. The adverse impact of volume declines and foreign currency translation was only partially offset by higher selling prices of $2.3 million.
2
Adjusted gross profit increased $6.5 million, or 9.1%, to $78.2 million during the fourth quarter of fiscal 2010, compared with $71.7 million in the year-ago period. Adjusted gross profit margin declined 490 basis points to 48.4% compared with the prior year’s fiscal fourth quarter. The decline was attributable to the impact on sales and product mix resulting from the addition of Amrep and increased raw material costs. The Amrep acquisition significantly altered Zep’s margin structure due to the increased percentage of revenue sold through the lower gross profit margin distribution and retail channels. To mitigate the impact of rising raw material costs, the Company increased prices on the affected products. Zep will continue to evaluate new suppliers in an effort to reduce raw material costs. This negative impact of mix and raw material costs on gross profit margin was partially offset by productivity-related gains in the fourth quarter.
Restructuring charges impacting Zep’s selling, distribution, and administrative expenses totaled $5.9 million during the fourth quarter of fiscal 2010, compared with $0.4 million during the fourth quarter of fiscal 2009. In the fiscal 2010 fourth quarter, management continued to integrate Zep and Amrep’s manufacturing capabilities, the consolidation of Zep’s logistics branch network was substantially completed, and the Company’s organizational structure was further streamlined. Zep’s aerosol production facility has been closed and volumes transferred to Amrep’s Marietta, Georgia manufacturing location. The Company has put up for sale Amrep’s Lancaster, Texas property as manufacturing activities at that location have been transferred to other Zep facilities. The Company also consolidated several logistics branches and outsourced its specialty blending production during the fourth quarter. Non-sales headcount was reduced in connection with these activities along with other opportunities to improve productivity.
Acquisition costs associated with the recently purchased Waterbury Companies and Niagara National totaled $2.2 million during the quarter, which included a one-time $0.4 million acceleration of previously capitalized financing costs that were recorded as interest expense when the Company replaced its credit arrangements with a single, expanded facility. The recapitalization will provide funds to finance Zep’s strategic growth initiatives.
Adjusted operating profit increased 8.6% to $12.4 million in the fourth quarter of fiscal year 2010 compared with $11.4 million in the prior year period. Adjusted operating profit margins were 7.7% in the fourth quarter of fiscal year 2010 compared with 8.5% in the same period a year ago. The decline in adjusted operating profit margins reflects significant continued investments intended to increase organic growth, including $1.5 million in advertising and the expansion of the direct sales force. Zep also incurred increased legal fees of $0.8 million during the fourth quarter related to its previously disclosed lawsuits focused on successful enforcement of non-competition agreements with certain former sales representatives.
Summary of Cash Flow
Net cash provided by the Company’s operating activities totaled $34.0 million during fiscal year 2010, an increase of 11.8% compared with $30.4 million in the same prior year period. The improvement in cash flow generation was driven, in part, by substantial improvement in year-over-year operating results. Capital expenditures totaled $9.8 million in fiscal 2010, and were primarily composed of investments in building improvements, machinery, equipment, and information technology. The Company impaired approximately $1.5 million of fixed assets, namely equipment, in connection with the above mentioned fourth quarter restructuring activities.
3
Mr. Morgan concluded, “During fiscal 2010, we made significant progress on our strategic initiatives that we believe will drive growth over the long term while maintaining a focus on cost containment. We made investments to support our sales force, upgraded our marketing capabilities, enhanced our technology offering, expanded our presence in the retail and distribution markets, recapitalized the Company, and grew through acquisitions. Although we have made significant improvements to our business, we realize there is still work to be done. To this end, we are focused not only on improving organic growth of our existing operations, but also on leveraging our liquidity to pursue further acquisitive growth. We believe our business model, strategy for profitable growth and strong financial position will enable Zep Inc. to achieve its long-term financial objectives.”
* * *
The unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”) are supplemented by a table of adjusted operating results, which includes non-GAAP financial information that may or may not be referenced in this press release, including adjusted gross profit, adjusted operating profit, adjusted net income, and adjusted diluted earnings per share. This non-GAAP financial information is provided to enhance the user’s overall understanding of the Company’s current financial performance and prospects for the future. Specifically, management believes the non-GAAP financial information provides useful information to investors by excluding or adjusting certain items affecting reported operating results that were unusual and not indicative of the Company’s core operating results. This non-GAAP financial information should be considered in addition to, and not as a substitute for, or superior to, results prepared in accordance with GAAP. Moreover, this non-GAAP information may not be comparable to similarly titled measures reported by other companies. The non-GAAP financial information included in this earnings release has been reconciled to the nearest GAAP measure in the tables at the end of this press release.
A full discussion of the Company’s long-term objectives and financial goals may be found in its Forms 10-K and 10-Q filed with the Securities and Exchange Commission. The Forms 10-K and 10-Q are available via the Company’s website atwww.zepinc.com.
Conference Call
As previously announced, the Company will host a conference call to discuss the fourth fiscal quarter’s operating results Tuesday, October 12, 2010 at 9:00 AM ET. The call will be webcast and may be accessed through the Company’s website atwww.zepinc.comor by dialing in at (913) 312-1375, access code: 5191947. A replay of the call will be posted to the website within two hours of completion of the conference call.
About Zep Inc.
Zep Inc., with fiscal 2010 net sales of almost $570 million, is a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions for commercial, industrial, institutional, and consumer end-markets. Zep Inc.’s product portfolio includes anti-bacterial and industrial hand care products, cleaners, degreasers, deodorizers, disinfectants, floor finishes, sanitizers, and pest and weed control products, as well as high performance products and professional grade chemical products for the automotive, fleet maintenance, industrial/MRO supply, institutional supply and motorcycle markets. The Company markets these products and services under well recognized and established brand names, such as Zep®, Zep Commercial®, Zep Professional™, Enforcer®, National Chemical®, Selig™, Misty®, Next Dimension™, Petro®, i-Chem®, TimeMist®, TimeWick, MicrobemaxTM, Country Vet®, Niagara National™ and a number of private labeled brands. Some of Zep’s brands have been in existence for more than 100 years. Zep Inc.’s headquarters are in Atlanta, Georgia. Visit the company’s website atwww.zepinc.com.
4
* * *
This release contains, and other written or oral statements made by or on behalf of Zep may include, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, the Company, or the executive officers on the Company’s behalf, may from time to time make forward-looking statements in reports and other documents that are filed with the SEC or in connection with oral statements made to the press, potential investors or others. Specifically, forward-looking statements may include, but are not limited to statements relating to the Company’s future economic performance, business prospects, revenue, income, and financial condition; and statements preceded by, followed by, or that include the words “expects,” “believes,” “intends,” “will,” “anticipates,” and similar terms that relate to future events, performance, or results of the Company. Examples of forward-looking statements in this press release include, but are not limited to: statements regarding the economic environment and the impact this environment has had or could have on the Company’s current and/or future financial results; statements regarding acquisition-related synergies and benefits that may be realized in the coming months and the next fiscal year; statements regarding investments that may be made in the future to grow the business, either organically or otherwise, in accordance with the Company’s strategic plan, or that may be made for other purposes; statements regarding the stage of completion of the Company’s restructuring efforts; and statements and related estimates concerning the benefits that the execution of the Company’s strategic initiatives are expected to have on future financial results. The Company’s forward-looking statements are subject to certain risks and uncertainties that could cause actual results, expectations, or outcomes to differ materially from its historical experience as well as management’s present expectations or projections. These risks and uncertainties include, but are not limited to:
| | • | | economic conditions in general; |
| | • | | customer and supplier relationships and prices; |
| | • | | ability to realize anticipated benefits from strategic planning initiatives and timing of benefits; |
| | • | | litigation and other contingent liabilities, such as environmental matters. |
A variety of other risks and uncertainties could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. A number of those risks are discussed in Part I, “Item 1A. Risk Factors” of Zep’s Annual Report on Form 10-K for the fiscal year ended August 31, 2009, which is incorporated herein by reference. Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.
* * *
5
Zep Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| | | | | | |
| | | August 31, |
| | | 2010 | | 2009 |
| | | (unaudited) | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 25,257 | | $ | 16,651 |
Accounts receivable, less reserve for doubtful accounts of $4,995 and $4,955 at August 31, 2010 and 2009, respectively | | | 90,827 | | | 85,060 |
Inventories | | | 53,192 | | | 39,618 |
Prepayments and other current assets | | | 9,779 | | | 6,772 |
Deferred income taxes | | | 8,188 | | | 7,859 |
| | | | | | |
Total Current Assets | | | 187,243 | | | 155,960 |
| | | | | | |
Property, Plant, and Equipment, at cost: | | | | | | |
Land | | | 4,504 | | | 3,289 |
Buildings and leasehold improvements | | | 58,224 | | | 56,191 |
Machinery and equipment | | | 94,172 | | | 84,940 |
| | | | | | |
Total Property, Plant, and Equipment | | | 156,900 | | | 144,420 |
Less accumulated depreciation and amortization | | | 90,026 | | | 89,945 |
| | | | | | |
Property, Plant, and Equipment, net | | | 66,874 | | | 54,475 |
| | | | | | |
Other Assets: | | | | | | |
Goodwill | | | 53,764 | | | 31,871 |
Identifiable intangible assets | | | 30,271 | | | 69 |
Deferred income taxes | | | 861 | | | 5,989 |
Other long-term assets | | | 3,835 | | | 1,254 |
| | | | | | |
Total Other Assets | | | 88,731 | | | 39,183 |
| | | | | | |
Total Assets | | $ | 342,848 | | $ | 249,618 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Current maturities of long-term debt | | $ | 15,000 | | $ | 12,000 |
Accounts payable | | | 51,390 | | | 41,062 |
Accrued compensation | | | 21,322 | | | 15,398 |
Other accrued liabilities | | | 29,124 | | | 25,064 |
| | | | | | |
Total Current Liabilities | | | 116,836 | | | 93,524 |
Long-term debt, less current maturities | | | 77,150 | | | 28,650 |
| | | | | | |
Deferred income taxes | | | 2,140 | | | 371 |
| | | | | | |
Self-insurance reserves, less current portion | | | 5,420 | | | 7,262 |
| | | | | | |
Other long-term liabilities | | | 19,129 | | | 10,546 |
| | | | | | |
Stockholders’ Equity: | | | | | | |
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued and outstanding | | | — | | | — |
Common stock, $0.01 par value; 500,000,000 shares authorized; 21,335,922 and 21,159,127 shares issued and outstanding at August 31, 2010 and August 31, 2009, respectively | | | 213 | | | 212 |
Paid-in capital | | | 85,316 | | | 80,034 |
Retained earnings | | | 25,052 | | | 15,061 |
Accumulated other comprehensive income items | | | 11,592 | | | 13,958 |
| | | | | | |
Total Stockholders’ Equity | | | 122,173 | | | 109,265 |
| | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 342,848 | | $ | 249,618 |
| | | | | | |
6
Zep Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
| | | | | | | | | | | | | | |
| | | Three Months Ended
August 31 | | Years Ended
August 31 |
| | | 2010 | | | 2009 | | 2010 | | | 2009 |
| | | (unaudited) | | | (unaudited) | | (unaudited) | | | |
Net Sales | | $ | 161,370 | | | $ | 134,302 | | $ | 568,512 | | | $ | 501,032 |
Cost of Products Sold | | | 83,613 | | | | 62,618 | | | 285,335 | | | | 236,513 |
| | | | | | | | | | | | | | |
Gross Profit | | | 77,757 | | | | 71,684 | | | 283,177 | | | | 264,519 |
Selling, Distribution, and Administrative Expenses | | | 65,793 | | | | 60,274 | | | 247,759 | | | | 243,008 |
Restructuring Charges | | | 5,863 | | | | 413 | | | 8,213 | | | | 3,422 |
Acquisition Costs | | | 1,803 | | | | — | | | 3,353 | | | | — |
| | | | | | | | | | | | | | |
Operating Profit | | | 4,298 | | | | 10,997 | | | 23,852 | | | | 18,089 |
Other Expense: | | | | | | | | | | | | | | |
Interest expense, net | | | 673 | | | | 281 | | | 1,957 | | | | 1,653 |
Accelerated deferred financing costs on debt extinguishment | | | 428 | | | | — | | | 428 | | | | — |
Miscellaneous (income) expense, net | | | (199 | ) | | | 242 | | | (244 | ) | | | 1,252 |
| | | | | | | | | | | | | | |
Total Other Expense | | | 902 | | | | 523 | | | 2,141 | | | | 2,905 |
| | | | | | | | | | | | | | |
Income before Provision for Income Taxes | | | 3,396 | | | | 10,474 | | | 21,711 | | | | 15,184 |
Provision for Income Taxes | | | 1,284 | | | | 4,134 | | | 8,207 | | | | 5,924 |
| | | | | | | | | | | | | | |
Net Income | | $ | 2,112 | | | $ | 6,340 | | $ | 13,504 | | | $ | 9,260 |
| | | | | | | | | | | | | | |
Earnings Per Share: | | | | | | | | | | | | | | |
Basic Earnings per Share | | $ | 0.10 | | | $ | 0.30 | | $ | 0.62 | | | $ | 0.43 |
| | | | | | | | | | | | | | |
Basic Weighted Average Number of Shares Outstanding | | | 21,344 | | | | 21,136 | | | 21,271 | | | | 21,057 |
| | | | | | | | | | | | | | |
Diluted Earnings per Share | | $ | 0.09 | | | $ | 0.29 | | $ | 0.61 | | | $ | 0.42 |
| | | | | | | | | | | | | | |
Diluted Weighted Average Number of Shares Outstanding | | | 21,809 | | | | 21,436 | | | 21,738 | | | | 21,290 |
| | | | | | | | | | | | | | |
Dividends Declared per Share | | $ | 0.04 | | | $ | 0.04 | | $ | 0.16 | | | $ | 0.16 |
| | | | | | | | | | | | | | |
7
Zep Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | |
| | | 2010 | | | 2009 | |
| | | (unaudited) | | | | |
Cash Provided by (Used for) Operating Activities: | | | | | | | | |
Net income | | $ | 13,504 | | | $ | 9,260 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | | | | |
Depreciation and amortization | | | 10,268 | | | | 6,960 | |
Impairment of fixed assets | | | 1,583 | | | | 925 | |
Excess tax benefits from share-based payments | | | (366 | ) | | | (758 | ) |
Other non-cash charges | | | 4,379 | | | | 3,152 | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | 1,304 | | | | 13,295 | |
Inventories | | | 2,532 | | | | 10,854 | |
Deferred income taxes | | | (1,360 | ) | | | 114 | |
Prepayments and other current assets | | | (2,553 | ) | | | 443 | |
Accounts payable | | | 1,616 | | | | (4,851 | ) |
Accrued compensation and other current liabilities | | | 4,691 | | | | (7,904 | ) |
Self insurance reserves and other long-term liabilities | | | (2,971 | ) | | | (2,118 | ) |
Other assets | | | 1,396 | | | | 1,066 | |
| | | | | | | | |
Net Cash Provided by Operating Activities | | | 34,023 | | | | 30,438 | |
| | | | | | | | |
Cash Provided by (Used for) Investing Activities: | | | | | | | | |
Purchases of property, plant, and equipment | | | (9,776 | ) | | | (7,517 | ) |
Acquisitions | | | (63,736 | ) | | | — | |
| | | | | | | | |
Net Cash Used for Investing Activities | | | (73,512 | ) | | | (7,517 | ) |
| | | | | | | | |
Cash Provided by (Used for) Financing Activities: | | | | | | | | |
Proceeds from revolving credit facilities | | | 148,000 | | | | 66,800 | |
Repayment of borrowings from revolving credit facilities | | | (96,500 | ) | | | (85,300 | ) |
Proceeds from Receivables Facility | | | 15,000 | | | | — | |
Repayment of borrowing from Receivables Facility | | | (15,000 | ) | | | — | |
Stock issuances | | | 521 | | | | 709 | |
Excess tax benefits from share-based payments | | | 366 | | | | 758 | |
Dividend payments | | | (3,510 | ) | | | (3,463 | ) |
| | | | | | | | |
Net Cash Used For Financing Activities | | | 48,877 | | | | (20,496 | ) |
| | | | | | | | |
Effect of Exchange Rate Changes on Cash | | | (782 | ) | | | (302 | ) |
| | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 8,606 | | | | 2,123 | |
Cash and Cash Equivalents at Beginning of Period | | | 16,651 | | | | 14,528 | |
| | | | | | | | |
Cash and Cash Equivalents at End of Period | | $ | 25,257 | | | $ | 16,651 | |
| | | | | | | | |
Supplemental Cash Flow Information: | | | | | | | | |
Income taxes paid during the year | | $ | 8,578 | | | $ | 6,243 | |
Interest paid during the period | | $ | 2,299 | | | $ | 1,730 | |
8
Zep Inc.
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited; In thousands, except per-share data)
| | | | | | | | | | | | |
| | | Three Months Ended
August 31, | | Years Ended
August 31, |
| | | 2010 | | 2009 | | 2010 | | 2009 |
Reported (GAAP) Gross Profit | | $ | 77,757 | | $ | 71,684 | | $ | 283,176 | | $ | 264,519 |
Restructuring-related inventory charges(a) | | | 426 | | | — | | | 426 | | | — |
Incremental expense due to increased basis of acquired inventories(b) | | | — | | | — | | | 850 | | | — |
| | | | | | | | | | | | |
Adjusted Gross Profit | | $ | 78,183 | | $ | 71,684 | | $ | 284,452 | | $ | 264,519 |
| | | | | | | | | | | | |
| | |
| | | Three Months Ended
August 31, | | Years Ended
August 31, |
| | | 2010 | | 2009 | | 2010 | | 2009 |
Reported (GAAP) Operating Profit | | $ | 4,298 | | $ | 10,997 | | $ | 23,852 | | $ | 18,089 |
Incremental expense due to increased basis of acquired inventories(b) | | | — | | | — | | | 850 | | | — |
Restructuring charges(c) | | | 6,289 | | | 413 | | | 8,639 | | | 3,422 |
Acquisition costs(d) | | | 1,803 | | | — | | | 3,353 | | | — |
| | | | | | | | | | | | |
Adjusted Operating Profit | | $ | 12,390 | | $ | 11,410 | | $ | 36,694 | | $ | 21,511 |
| | | | | | | | | | | | |
| | |
| | | Three Months Ended
August 31, | | Years Ended
August 31, |
| | | 2010 | | 2009 | | 2010 | | 2009 |
Reported (GAAP) Net Income | | $ | 2,112 | | $ | 6,340 | | $ | 13,504 | | $ | 9,260 |
Restructuring-related inventory charges(a) | | | 264 | | | — | | | 264 | | | — |
Incremental expense due to increased basis of acquired inventories(b) | | | — | | | — | | | 528 | | | — |
Restructuring charges(c) | | | 3,647 | | | 250 | | | 5,108 | | | 2,087 |
Acquisition costs(d) | | | 1,388 | | | — | | | 2,352 | | | — |
| | | | | | | | | | | | |
Adjusted Net Income | | $ | 7,411 | | $ | 6,590 | | $ | 21,756 | | $ | 11,347 |
| | | | | | | | | | | | |
| | |
| | | Three Months Ended
August 31, | | Years Ended
August 31, |
| | | 2010 | | 2009 | | 2010 | | 2009 |
Reported (GAAP) Diluted Earnings Per Share | | $ | 0.09 | | $ | 0.29 | | $ | 0.61 | | $ | 0.42 |
Restructuring-related inventory charges(a) | | | 0.01 | | | — | | | 0.01 | | | — |
Incremental expense due to increased basis of acquired inventories(b) | | | — | | | — | | | 0.02 | | | — |
Restructuring charges(c) | | | 0.17 | | | 0.01 | | | 0.24 | | | 0.10 |
Acquisition costs(d) | | | 0.06 | | | — | | | 0.10 | | | — |
| | | | | | | | | | | | |
Adjusted Diluted Earnings Per Share | | $ | 0.33 | | $ | 0.30 | | $ | 0.98 | | $ | 0.52 |
| | | | | | | | | | | | |
| (a) | During the fourth quarter of fiscal 2010, Zep and Amrep consolidated manufacturing operations among its Atlanta, Georgia and Dallas, Texas-area facilities. The value of certain inventory, primarily raw materials, was written-down or written-off in accordance with these consolidation efforts. |
9
Zep Inc.
RECONCILIATION OF NON-GAAP MEASURES (continued)
(Unaudited; In thousands, except per-share data)
| (b) | Under the purchase method of accounting, the total purchase price for Amrep has been allocated to Amrep’s net tangible and intangible assets based on their estimated fair values as of the January 4, 2010 closing date of the acquisition. The estimated fair value of acquired finished goods inventories exceeded the historical net book value for such goods by $0.9 million. As a result of this step-up in asset basis, the Company recognized an increase of cost of goods sold totaling $0.5 million in the last two months of the second fiscal quarter of 2010, and $0.3 million during the three months ended May 31, 2010. |
| (c) | In the first quarter of fiscal 2010, Zep recorded a pretax restructuring charge of $0.4 million for costs associated with facility consolidations. In the third quarter of fiscal 2010, Zep recorded a pretax restructuring charge of $2.0 million for costs associated with employee severances. In the fourth quarter of fiscal 2010, Zep recorded a pretax restructuring charge of $6.3 million as it consolidated manufacturing operations among its Zep and Amrep production facilities and closed several locations within its legacy branch network. |
Zep recorded a net pretax charge of $1.9 million during the first fiscal quarter of 2009. This charge was entirely composed of severance related costs. In the second quarter of fiscal 2009, the Company recorded a charge of $1.1 million as it exited two facilities, and, in accordance with restructuring-related accounting rules, adjusted sub-lease rental income assumptions associated with a leased facility exited during the third quarter of fiscal 2008.
| (d) | The majority of these amounts include costs associated with advisory, legal and other due diligence-related services incurred in connection with acquisition-related activity. Acquisition costs associated with the recently purchased Waterbury Companies and Niagara National totaled $2.2 million during the fourth quarter of fiscal 2010, which included a one-time $0.4 million acceleration of previously capitalized financing costs that were recorded as interest expense when the Company replaced its credit arrangements with a single, expanded facility. This recapitalization was necessary to finance the Company’s acquisitive growth initiatives. |
10
