Attached files
| file | filename |
|---|---|
| 8-K/A - FORM 8-K/A - Zep Inc. | d8ka.htm |
| EX-23.1 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - Zep Inc. | dex231.htm |
| EX-99.1 - AUDITED CONSOLIDATED FINANCIALS - Zep Inc. | dex991.htm |
Exhibit 99.2
Zep Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per-share data and as indicated)
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of November 30, 2009 and the following Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended August 31, 2009 and for the three months ended November 30, 2009 are based on the historical financial statements of Zep Inc. (“Zep” or the “Company”) and Amrep, Inc. (“Amrep”) after giving effect to the acquisition of Amrep by Zep (as discussed in Note 1) as if it had occurred at the beginning of the periods presented, and after applying the assumptions and adjustments described in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements. This acquisition became effective on January 4, 2010 (the “Closing Date”).
The Unaudited Pro Forma Condensed Combined Financial Statements were prepared using the purchase method of accounting with Zep treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by Zep to complete the acquisition will be allocated to the assets acquired and liabilities assumed from Amrep based upon their estimated fair values on the Closing Date. As of the date of this Form 8-K/A, Zep has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from Amrep and the related allocations of purchase price, nor has Zep identified all adjustments necessary to conform Amrep’s accounting policies to Zep’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed from Amrep will be based on the actual net tangible and intangible assets and liabilities of Amrep that existed as of the Closing Date. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may not reflect any final purchase price adjustments made. These pro forma purchase price adjustments have been made solely for the purpose of providing the Unaudited Pro Forma Condensed Combined Financial Statements required pursuant to Item 9.01 of Form 8-K. Zep estimated the fair value of Amrep’s assets and liabilities based on discussions with Amrep’s management, due diligence and preliminary work performed by third-party valuation specialists. As the final valuations are being performed, increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments, which may result in material differences from the information presented herein.
These Unaudited Pro Forma Condensed Combined Financial Statements have been developed from, and should be read in conjunction with, (1) the unaudited interim consolidated financial statements of Zep contained in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2009, (2) the audited consolidated financial statements of Zep contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2009, and (3) the audited consolidated financial statements of Amrep for the fiscal year ended December 31, 2009 contained in Exhibit 99.1 to this Current Report on Form 8-K/A. Prior to the acquisition, Amrep was a privately held company whose fiscal year ended at the close of each calendar year, and the historical financial statements of Amrep included within the Unaudited Pro Forma Condensed Combined Financial Statements have been subjected to neither audit nor review procedures conducted by an independent registered public accounting firm. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for informational purposes only and do not purport to represent Zep’s actual consolidated results of operations or consolidated financial position had the acquisition occurred on the dates assumed, nor are these financial statements necessarily indicative of Zep’s future consolidated results of operations or consolidated financial position.
Zep expects to incur costs and realize benefits associated with integrating the operations of Zep and Amrep. The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.
Zep Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
November 30, 2009
| Historical | Pro Forma | |||||||||||||
| Zep Inc. | Amrep, Inc. | Pro Forma Adjustments |
Condensed Combined | |||||||||||
| ASSETS |
||||||||||||||
| Current Assets: |
||||||||||||||
| Cash and cash equivalents |
$ | 16,111 | $ | 5 | $ | — | $ | 16,116 | ||||||
| Accounts receivable, net |
79,338 | 10,348 | — | 89,686 | ||||||||||
| Inventories |
43,240 | 15,969 | 850 | (a) | 60,059 | |||||||||
| Deferred income taxes |
7,853 | — | 6,353 | (b) | 14,206 | |||||||||
| Prepayments and other current assets |
7,348 | 625 | — | 7,973 | ||||||||||
| Total Current Assets |
153,890 | 26,947 | 7,203 | 188,040 | ||||||||||
| Property, Plant, and Equipment, net |
54,053 | 11,920 | 4,447 | (c) | 70,420 | |||||||||
| Other Assets: |
||||||||||||||
| Intangible assets |
65 | 151 | 31,149 | (d) | 31,365 | |||||||||
| Goodwill |
32,121 | — | 22,016 | (e) | 54,137 | |||||||||
| Deferred income taxes |
6,007 | — | — | 6,007 | ||||||||||
| Other long-term assets |
1,373 | — | — | 1,373 | ||||||||||
| Total Other Assets |
39,566 | 151 | 53,165 | 92,882 | ||||||||||
| Total Assets |
$ | 247,509 | $ | 39,018 | $ | 64,815 | $ | 351,342 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||
| Current Liabilities: |
||||||||||||||
| Accounts payable |
$ | 37,566 | $ | 10,330 | $ | — | $ | 47,896 | ||||||
| Current maturities of long-term debt |
10,500 | 10,485 | (10,485 | ) (f) | 25,500 | |||||||||
| 15,000 | (g) | |||||||||||||
| Accrued environmental remediation |
980 | 2,500 | — | 3,480 | ||||||||||
| Accrued management fees due to owners |
— | 1,833 | (1,833 | ) (f) | — | |||||||||
| Accrued compensation |
17,412 | 994 | — | 18,406 | ||||||||||
| Other accrued liabilities, current |
22,165 | 2,291 | (887 | ) (f) | 23,569 | |||||||||
| Total Current Liabilities |
88,623 | 28,433 | 1,795 | 118,851 | ||||||||||
| Long-term Debt |
23,650 | 10,358 | (10,358 | ) (f) | 73,098 | |||||||||
| 49,448 | (g) | |||||||||||||
| Deferred Income Taxes |
389 | — | 14,281 | (b) | 14,670 | |||||||||
| Self-Insurance Reserves, less current portion |
7,656 | — | — | 7,656 | ||||||||||
| Other Long-term Liabilities |
||||||||||||||
| Accrued environmental remediation, long-term |
2,699 | 9,876 | — | 12,575 | ||||||||||
| Other accrued liabilities, long-term |
7,614 | — | — | 7,614 | ||||||||||
| Stockholders’ Equity |
116,878 | (9,649 | ) | 9,649 | (h) | 116,878 | ||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 247,509 | $ | 39,018 | $ | 64,815 | $ | 351,342 | ||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined
Financial Statements.
Zep Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the year ended August 31, 2009
(in thousands except for per share data)
| Historical | Pro Forma | |||||||||||||
| Zep Inc. | Amrep, Inc. | Pro Forma Adjustments |
Condensed Combined | |||||||||||
| Net Sales |
$ | 501,032 | $ | 105,265 | $ | — | $ | 606,297 | ||||||
| Cost of Products Sold |
236,513 | 80,259 | — | 316,772 | ||||||||||
| Gross Profit |
264,519 | 25,006 | — | 289,525 | ||||||||||
| Selling, Distribution, and Administrative Expenses |
243,008 | 17,923 | 468 | (c) | 263,151 | |||||||||
| 1,752 | (d) | |||||||||||||
| Restructuring Charges |
3,422 | — | — | 3,422 | ||||||||||
| Environmental Charge |
— | 10,210 | — | 10,210 | ||||||||||
| Operating Profit (Loss) |
18,089 | (3,127 | ) | (2,220 | ) | 12,742 | ||||||||
| Other Expense (Income): |
||||||||||||||
| Interest expense (income), net |
1,653 | 2,507 | (2,507 | ) (f) | 2,437 | |||||||||
| 784 | (g) | |||||||||||||
| Miscellaneous expense, net |
1,252 | 309 | — | 1,561 | ||||||||||
| Total Other Expense (Income) |
2,905 | 2,816 | (1,723 | ) | 3,998 | |||||||||
| Income (Loss) before Provision for Income Taxes |
15,184 | (5,943 | ) | (497 | ) | 8,744 | ||||||||
| Provision for Income Taxes |
5,924 | 437 | (182 | ) (j) | 6,179 | |||||||||
| Net Income (Loss) |
$ | 9,260 | ($ | 6,380 | ) | ($ | 315 | ) | $ | 2,565 | ||||
| Earnings Per Share: |
||||||||||||||
| Basic Earnings per Share |
$ | 0.43 | $ | 0.11 | ||||||||||
| Basic Weighted Average Number of Shares Outstanding |
21,057 | 21,057 | ||||||||||||
| Diluted Earnings per Share |
$ | 0.43 | $ | 0.11 | ||||||||||
| Diluted Weighted Average Number of Shares Outstanding |
21,290 | 21,290 | ||||||||||||
| Dividends Declared per Share |
$ | 0.16 | $ | 0.16 | ||||||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined
Financial Statements.
Zep Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the three months ended November 30, 2009
(in thousands except for per share data)
| Historical | Pro Forma | ||||||||||||||
| Zep Inc. | Amrep, Inc. | Pro Forma Adjustments |
Condensed Combined |
||||||||||||
| Net Sales |
$ | 126,751 | $ | 26,721 | $ | — | $ | 153,472 | |||||||
| Cost of Products Sold |
56,859 | 19,857 | — | 76,716 | |||||||||||
| Gross Profit |
69,892 | 6,864 | — | 76,756 | |||||||||||
| Selling, Distribution, and Administrative Expenses |
60,285 | 4,840 | 117 | (c) | 65,680 | ||||||||||
| 438 | (d) | ||||||||||||||
| Restructuring Charges |
399 | — | — | 399 | |||||||||||
| Acquisition Costs |
366 | 70 | (436 | ) (i) | — | ||||||||||
| Operating Profit |
8,842 | 1,954 | (119 | ) | 10,677 | ||||||||||
| Other Expense (Income): |
|||||||||||||||
| Interest expense (income), net |
269 | 555 | (555 | ) (f) | 465 | ||||||||||
| 196 | (g) | ||||||||||||||
| Miscellaneous (income) expense, net |
(134 | ) | 100 | — | (34 | ) | |||||||||
| Total Other Expense (Income) |
135 | 655 | (359 | ) | 431 | ||||||||||
| Income before Provision for Income Taxes |
8,707 | 1,299 | 240 | 10,246 | |||||||||||
| Provision for Income Taxes |
3,287 | 156 | 91 | (j) | 3,534 | ||||||||||
| Net Income |
$ | 5,420 | $ | 1,143 | $ | 149 | $ | 6,712 | |||||||
| Earnings Per Share: |
|||||||||||||||
| Basic Earnings per Share |
$ | 0.25 | $ | 0.31 | |||||||||||
| Basic Weighted Average Number of Shares Outstanding |
21,175 | 21,175 | |||||||||||||
| Diluted Earnings per Share |
$ | 0.25 | $ | 0.31 | |||||||||||
| Diluted Weighted Average Number of Shares Outstanding |
21,400 | 21,400 | |||||||||||||
| Dividends Declared per Share |
$ | 0.04 | $ | 0.04 | |||||||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined
Financial Statements.
Zep Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 1: Basis of Pro Forma Presentation
On the Closing Date, Zep acquired Amrep in accordance with the Agreement and Plan of Merger, dated as of January 4, 2010. As a result of the transaction, Amrep became a wholly-owned subsidiary of Zep.
Amrep was acquired for a cash purchase price (the “Closing Purchase Price”) of approximately $64.4 million. Borrowings of $49.4 million and $15.0 million were drawn from Zep’s Revolving Credit Facility and Receivables Facility, respectively, in order to finance the Closing Purchase Price, which is subject to adjustment depending upon the final closing working capital of Amrep.
The accompanying Unaudited Pro Forma Condensed Combined Financial Statements were prepared in accordance with Financial Accounting Standards Board Statement No. 141(R), Business Combinations (codified in ASC Topic 805, Business Combinations). Under the purchase method of accounting, the total purchase price will be allocated to Amrep’s net tangible and intangible assets based on their estimated fair values as of the Closing Date of the acquisition. The excess of the purchase price over the net tangible and intangible assets will be recorded as goodwill. Zep has made a preliminary allocation of the estimated purchase price using estimates described in the introduction to these Unaudited Pro Forma Condensed Combined Financial Statements as follows:
| Cash and cash equivalents |
$ | 21 | ||
| Inventory |
16,632 | |||
| Other current assets |
10,049 | |||
| Property, plant and equipment |
16,528 | |||
| Net deferred tax liabilities |
(7,928 | ) | ||
| Accrued environmental remediation costs |
(12,200 | ) | ||
| Other liabilities assumed |
(12,776 | ) | ||
| Total net tangible assets: |
$ | 10,326 | ||
| Amortizable intangible assets |
||||
| Customer relationships |
23,800 | |||
| Patents and formulations |
5,200 | |||
| Trademarks |
2,300 | |||
| Goodwill |
22,822 | |||
| Total preliminary estimated purchase price allocation |
$ | 64,448 | ||
Of the total purchase price, a preliminary estimate of approximately $31.3 million has been allocated to amortizable intangible assets acquired and a preliminary estimate of approximately $10.3 million has been allocated to tangible net assets assumed in connection with the acquisition. The depreciation effect of the fair value adjustment to certain tangible assets and the amortization related to the amortizable intangible assets are reflected as pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations as described in
Zep Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 2 to these Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the acquisition as if it had occurred on November 30, 2009 and includes estimated pro forma adjustments for the preliminary valuations of net assets acquired and liabilities assumed. These adjustments may be subject to further revision should additional information become available and pending the outcome of additional analyses currently underway. The Unaudited Pro Forma Condensed Combined Statements of Operations gives effect to the acquisition as if it had occurred at the beginning of the periods presented. The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities or benefits that may result from operating efficiencies or revenue synergies expected to result from the deal.
Note 2: Pro Forma Adjustments
The Unaudited Pro Forma Condensed Combined Statements of Operations do not include any material non-recurring charges that will result from the acquisition. The Unaudited Pro Forma Condensed Combined Financial Statements reflect the following:
| (a) | An adjustment of $0.9 million to record the difference between the estimated fair value and the historical amount of Amrep’s inventories. The impact of this adjustment is not reflected in the Unaudited Pro Forma Condensed Combined Statements of Operations because this adjustment will not have a continuing impact; however, the inventory adjustment will result in an increase in cost of goods sold in periods subsequent to the acquisition when and as the related inventories are sold. |
| (b) | A $6.4 million adjustment to Deferred income tax assets made necessary by the acquisition of Amrep. A $14.3 million adjustment to Deferred income tax liabilities made necessary by the fair value-related adjustments to Inventories; Property, plant, and equipment, net; and identifiable intangible assets that were recorded pursuant to purchase accounting rules. |
| (c) | A $4.4 million adjustment to record the difference between the estimated fair value and the historical amount of Amrep’s Property, plant and equipment, net. As a result of this adjustment, incremental depreciation expense for the year ended August 31, 2009 and the three months ended November 30, 2009 is estimated to approximate $0.5 million and $0.1 million, respectively. The estimated fair values and useful lives of Amrep’s property, plant and equipment are as follows: |
| Estimated | |||||
| Estimated Fair Value |
Useful Life (Years) | ||||
| Land |
$ | 1,750 | — | ||
| Building |
4,500 | 20 | |||
| Leasehold improvements |
108 | 9 | |||
| Machinery and equipment |
7,874 | 6 | |||
| Software |
409 | 5 | |||
| Construction in Process |
1,726 | — | |||
| $ | 16,367 | ||||
Zep Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
| (d) | An adjustment of $31.1 million to record the estimated fair value of identifiable intangible assets acquired in the purchase. As a result of this adjustment, incremental amortization expense on a straight-line basis for the year ended August 31, 2009 and the three months ended November 30, 2009 is estimated to approximate $1.8 million and $0.4 million, respectively. The total estimated fair values and useful lives of Amrep’s identifiable intangible assets are as follows: |
| Estimated | |||||
| Estimated Fair Value |
Useful Life (Years) | ||||
| Customer relationships |
$ | 23,800 | 18 | ||
| Patents and formulations |
5,200 | 17 | |||
| Trade names |
2,300 | Indefinite | |||
| $ | 31,300 | ||||
| (e) | A $22.0 million adjustment to record Goodwill as part of purchase accounting. |
| (f) | Adjustments reflecting the pay off of debt, which was a condition precedent to the closing of the acquisition. Related management fees, accrued interest and deferred debt issuance costs also required pro forma adjustment as a result of the assumed repayment and termination of underlying historical debt obligations. All of Amrep’s historical debt, interest, and amounts due to owners were paid in full upon the Closing Date. |
| (g) | Adjustments to Current maturities of long-term debt and Long-term debt reflect borrowings undertaken by Zep Inc. in order to finance the $64.4 million cash purchase price of the acquisition. Purchase consideration was entirely funded using proceeds from borrowings made on Zep Inc.’s debt instruments as discussed in Note 1. Zep utilized its Receivables Facility to finance the $15.0 million in borrowings presented within Current maturities of long-term debt on the balance sheet. The interest rate on the Receivables Facility is 2.485% and is based on a LIBOR Index Rate plus an applicable margin of 2.25%. Zep utilized its Revolving Credit Facility to finance the remainder of the cash purchase price. The interest rate on the Revolving Credit Facility is 0.831% and is based on a LIBOR Index Rate plus an applicable margin of 0.50%. A 1/8% increase to each of the aforementioned interest rates used to calculate pro forma interest expense during the twelve months ended August 31, 2009 and three months ended November 30, 2009 would have resulted in a nominal increase of interest expense in each of those respective periods. |
| (h) | A $9.6 million adjustment to eliminate Amrep’s entire common stock and accumulated deficit pursuant to purchase accounting. |
| (i) | A $0.4 million adjustment to eliminate advisory, legal, and other costs directly attributable to the acquisition, but that are not expected to have a continuing impact on the combined results. |
| (j) | Adjustments reflect the tax effect of the aggregated pro forma adjustments using the appropriate statutory tax rates. |