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Exhibit 99.1

 

News Release

Zep Inc.

 

 

 

1310 Seaboard Industrial Blvd., NW

Atlanta, GA 30318

 

 

 

www.zepinc.com

 

Zep Inc. Reports Fiscal Fourth Quarter & Full Year 2013 Results

 

Fiscal Fourth Quarter and Full Year 2013 Highlights:

 

·                  Net sales grew 6.1% to $182.2 million during the quarter and 5.5% to $689.6 million during 2013

 

·                  Generated $28.5 million of free cash flow during the quarter

 

·                  Net debt reduced by $29.2 million during the quarter, improving debt to EBITDA ratio to 3.3 times

 

·                  Adjusted EBITDA grew 8.2% to $16.9 million during the quarter and 6.5% to $57.1 million for the full year

 

·                  Adjusted earnings per diluted share was $0.28 during the quarter, excluding restructuring charges

 

·                  Zep Vehicle Care integration performing as expected and accretive to earnings by $0.02 per diluted share in fiscal 2013

 

·                  On track to realize $9 million of restructuring-related savings in fiscal 2014

 

(ATLANTA — October 9, 2013) — Zep Inc. (NYSE: ZEP), a leading consumable chemical packaged goods company that manufactures a wide variety of high-performance maintenance and cleaning chemicals, today reported financial results for the three-month and twelve-month periods ended August 31, 2013.

 

“This quarter was about delivering on near-term commitments while laying the foundation for future growth,” said John K. Morgan, Chairman, President and Chief Executive Officer of Zep Inc.  “We achieved our sales projections for the fourth quarter, generated significant free cash flow and de-levered the balance sheet following our most recent acquisition.  We achieved all of this while progressing with a restructuring program that we believe will significantly enhance both the abilities of our selling organizations and the efficiency of our supply chain operations,” continued Mr. Morgan.

 

Net Sales grew 6.1% in the fourth fiscal quarter of 2013 to $182.2 million, due to better than expected promotional activity at retailers and the inclusion of Zep Vehicle Care, which added $16.2 million to net sales.  Gross profit margin in the fourth fiscal quarter of 2013 increased 130 basis points to 46.8% compared to the prior year, primarily due to improved channel mix resulting from the inclusion of Zep Vehicle Care in the current year results.  EBITDA decreased $3.9 million to $11.8 million primarily due to the $5.2 million restructuring charge, partially offset by the inclusion of Zep Vehicle Care EBITDA in the current year.  Adjusted EBITDA, which excludes the fourth quarter restructuring charge, increased $1.3 million to $16.9 million, representing an Adjusted EBITDA margin of 9.3%.  In the fourth fiscal quarter, the company generated $28.5 million of free cash flow and was able to reduce net debt by $29.2 million to $207.5 million and to reduce its leverage ratio to 3.31x, which is consistent with managements’ fiscal year-end goals.

 



 

We continue to execute plans for a variety of complexity-reduction activities, including facilities consolidation, process simplification, product-line and customer rationalization and headcount reductions related to such activities.  During the fourth quarter of fiscal 2013, we recorded a $5.2 million restructuring charge in connection with these efforts and expect to record $1 million to $2 million in additional charges during the next few quarters.  We continue to believe these actions will result in annualized cost savings ranging from $8 million to $12 million, and that we remain on target to realize approximately $9 million of these savings during fiscal 2014.

 

Net Sales in fiscal 2013 increased 5.5% to $689.6 million, finishing at the high end of our previously announced range of $685-$690 million.  Net sales growth was driven primarily by $55.2 million of acquisition-related revenue and $5.4 million of price, partially offset by $19.4 million of organic volume declines and $5.2 million as a result of two fewer selling days in fiscal 2013.  Gross profit margin for fiscal 2013 increased 110 basis points to 47.1% primarily due to favorable channel mix resulting from the inclusion of Zep Vehicle Care in the current year.  Adjusted EBITDA increased $3.5 million to $57.1 million for an Adjusted EBITDA margin of 8.3%.  Free cash flow increased $33.7 million to $38.0 million, producing $1.69 of free cash flow per diluted share.

 

“Fiscal 2013 was filled with both opportunities and challenges.  I’m proud of the way our associates have risen to the occasion and created numerous prospects for growth.  Over the next several quarters, execution against our near-term strategies will be absolutely critical,” said Mr. Morgan.  “In 2014, we will improve profitability by focusing on cost-control, complexity reduction and completing the integration of Zep Vehicle Care while continuing to invest in product innovation and our sales pipeline.  In doing so, I’m confident we will continue to reduce debt and position the business for profitable growth,” Mr. Morgan concluded.

 

A more detailed discussion of the Company’s long-term objectives and financial goals may be found in our Forms 10-K and 10-Q filed with the Securities and Exchange Commission (“SEC”). The Forms 10-K and 10-Q are available via the Company’s website at www.zepinc.com.

 

Conference Call

 

The Company will host a conference call to discuss fourth quarter and full year 2013 operating results on Wednesday, October 9, 2013 at 8:30 a.m. EDT. The call and accompanying presentation will be webcast and may be accessed through the Company’s website at www.zepinc.com or by dialing in at 412-317-6789. 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 year 2013 net sales of approximately $690 million, is a leading consumable chemical packaged goods company selling a wide variety of high-performance chemicals that help professionals and prosumers clean, maintain and protect their assets.  We are focused on the attractive industry dynamics of the transportation market and the industrial maintenance and repair operation (“MRO”) market, which together now comprise approximately 60% of our revenue with the balance derived from sales into the facilities maintenance vertical.  We market 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™, MicrobeMax®, Country Vet®, Konk®, Original Bike Spirits®, Blue Coral®, Black Magic®, Rain-X®, Niagara National™, FC Forward Chemicals®, Rexodan®, Mykal™, and a number of private label brands. Founded in 1937, some of Zep Inc.’s brands have been in existence since 1896.  Zep Inc. is headquartered in Atlanta, Georgia.  Visit our website at www.zepinc.com.

 



 

Forward Looking Statements and use of Non-GAAP Information

 

This release contains, and other written or oral statements made by or on behalf of Zep Inc. may include, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we or our executive officers on our 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 our 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 our results. Examples of forward-looking statements in this press release include, but are not limited, to statements about the impact that our restructuring program will have on our sales force and supply chain, the statement that we expect to record additional restructuring charges during fiscal 2014, and statements about our ability to: take the necessary actions to reduce costs and complexity, generate free cash flow and achieve debt reduction in fiscal 2014, achieve the amount of cost savings expected from various complexity-reduction activities and to improve profitability as a result, forecast the total amount of our restructuring charges and the total amount of expected savings and the periods during which the cost savings will be realized.

 

Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results, expectations, or outcomes to differ materially from our 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;

·                  competition;

·                  ability to realize anticipated benefits from strategic planning and restructuring initiatives and the timing of the benefits of such actions;

·                  market demand; and

·                  litigation and other contingent liabilities, such as environmental matters.

 

A variety of other risks and uncertainties could cause our actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. A number of those risks are discussed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended August 31, 2012. 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.

 

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 is referenced in this press release, which includes EBITDA, adjusted EBITDA and free cash flow and free cash flow per share.  This non-GAAP financial information is provided to enhance the user’s overall understanding of our financial performance. Specifically, management believes that EBITDA, adjusted EBITDA and free cash flow may provide additional information with respect to our performance or ability to meet our future debt service obligations, capital expenditures and working capital requirements.  Free cash flow per share is provided to facilitate the comparison of our financial results to other companies on a per share basis.  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 EBITDA, adjusted EBITDA, free cash flow or free cash flow per share reported by other companies because the items that affect net earnings that we exclude when calculating EBITDA and adjusted EBITDA or because items that we add to reported net cash provided by operating activities in computing free cash flow and free cash flow per share may differ from the items taken into consideration 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.

 



 

Zep Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per-share data)

 

 

 

August 31, 2013

 

August 31, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

2,402

 

$

3,513

 

Accounts receivable, less reserve for doubtful accounts of $3,941 at August 31, 2013, and $3,595 at August 31, 2012

 

104,476

 

93,522

 

Inventories

 

68,633

 

71,451

 

Deferred income taxes

 

8,002

 

6,702

 

Prepayments and other current assets

 

13,051

 

22,333

 

Total Current Assets

 

196,564

 

197,521

 

Property, Plant, and Equipment, at cost:

 

 

 

 

 

Land

 

5,444

 

5,680

 

Buildings and leasehold improvements

 

60,686

 

62,208

 

Machinery and equipment

 

124,230

 

114,310

 

Total Property, Plant, and Equipment

 

190,360

 

182,198

 

Less - Accumulated depreciation and amortization

 

108,032

 

101,277

 

Property, Plant, and Equipment, net

 

82,328

 

80,921

 

Other Assets:

 

 

 

 

 

Goodwill

 

121,102

 

84,604

 

Identifiable intangible assets

 

129,929

 

65,707

 

Deferred income taxes

 

875

 

979

 

Other long-term assets

 

16,960

 

5,555

 

Total Other Assets

 

268,866

 

156,845

 

Total Assets

 

$

547,758

 

$

435,287

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

25,000

 

$

15,000

 

Accounts payable

 

56,366

 

53,461

 

Accrued compensation

 

25,226

 

17,334

 

Other accrued liabilities

 

41,167

 

27,947

 

Total Current Liabilities

 

147,759

 

113,742

 

Long-term debt, less current maturities

 

184,908

 

124,250

 

Deferred Income Taxes

 

12,782

 

8,574

 

Self-Insurance Reserves, less current portion

 

3,267

 

2,954

 

Other Long-Term Liabilities

 

15,073

 

17,850

 

Commitments and Contingencies

 

 

 

 

 

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; 22,065,059 issued and outstanding at August 31, 2013, and 21,832,328 issued and outstanding at August 31, 2012

 

221

 

218

 

Paid-in capital

 

102,573

 

97,481

 

Retained earnings

 

69,023

 

57,367

 

Accumulated other comprehensive income

 

12,152

 

12,851

 

Total Stockholders’ Equity

 

183,969

 

167,917

 

Total Liabilities and Stockholders’ Equity

 

$

547,758

 

$

435,287

 

 



 

Zep Inc.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per-share data)

 

 

 

Three Months Ended
August 31,

 

Years Ended
August 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

182,176

 

$

171,695

 

$

689,576

 

$

653,533

 

Cost of Products Sold

 

96,929

 

93,553

 

365,034

 

352,737

 

Gross Profit

 

85,247

 

78,142

 

324,542

 

300,796

 

Selling, Distribution, and Administrative Expenses

 

72,643

 

66,585

 

283,075

 

260,806

 

Restructuring Charges

 

5,159

 

 

5,159

 

 

Loss on Assets Held for Sale and Disposal of Fixed Assets

 

433

 

500

 

433

 

500

 

Acquisition and Integration Costs

 

148

 

192

 

3,086

 

1,210

 

Operating Profit

 

6,864

 

10,865

 

32,789

 

38,280

 

Other Expense (Income):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

2,475

 

1,350

 

8,958

 

5,493

 

(Gain) loss on foreign currency transactions

 

175

 

(45

)

316

 

331

 

Bargain purchase gain from business combination

 

 

(1,482

)

 

(2,095

)

Miscellaneous expense (income), net

 

378

 

484

 

428

 

715

 

Total Other Expense

 

3,028

 

307

 

9,702

 

4,444

 

Income before Provision for Income Taxes

 

3,836

 

10,558

 

23,087

 

33,836

 

Provision for Income Taxes

 

1,171

 

3,284

 

7,895

 

11,927

 

Net Income

 

$

2,665

 

$

7,274

 

$

15,192

 

$

21,909

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings per Share

 

$

0.12

 

$

0.33

 

$

0.69

 

$

1.00

 

 

 

 

 

 

 

 

 

 

 

Basic Weighted Average Number of Shares Outstanding

 

22,054

 

21,817

 

21,969

 

21,768

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings per Share

 

$

0.12

 

$

0.33

 

$

0.68

 

$

0.98

 

Diluted Weighted Average Number of Shares Outstanding

 

22,531

 

22,201

 

22,435

 

22,166

 

 

 

 

 

 

 

 

 

 

 

Dividends Declared per Share

 

$

0.04

 

$

0.04

 

$

0.16

 

$

0.16

 

 



 

Zep Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

 

 

Years Ended
August 31,

 

 

 

2013

 

2012

 

Cash Provided by Operating Activities:

 

 

 

 

 

Net income

 

$

15,192

 

$

21,909

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

19,931

 

14,330

 

Loss on assets held for sale and disposal of fixed assets

 

433

 

706

 

Excess tax benefits from share-based payments

 

124

 

5

 

Bargain purchase gains from business combinations

 

 

(2,095

)

Other non-cash charges

 

4,010

 

3,816

 

Change in assets and liabilities, net of effect of acquisitions and divestitures:

 

 

 

 

 

Accounts receivable

 

(4,355

)

2,097

 

Inventories

 

2,885

 

(9,141

)

Deferred income taxes

 

3,011

 

3,509

 

Prepayments and other current assets

 

(2,493

)

(55

)

Accounts payable

 

2,782

 

(3,897

)

Accrued compensation and other current liabilities

 

11,066

 

(736

)

Self insurance and other long-term liabilities

 

(2,765

)

(5,271

)

Other assets

 

195

 

(2,570

)

Net Cash Provided by Operating Activities

 

50,016

 

22,607

 

Cash Used for Investing Activities:

 

 

 

 

 

Purchases of property, plant, and equipment

 

(12,068

)

(18,356

)

Acquisitions, net of cash acquired

 

(116,692

)

(11,923

)

Loan to Innovation Partner

 

 

(12,500

)

Proceeds from sale of property, plant, and equipment

 

21

 

 

Net Cash Used for Investing Activities

 

(128,739

)

(42,779

)

Cash Provided by Financing Activities:

 

 

 

 

 

Proceeds from credit facility borrowings

 

409,808

 

312,800

 

Repayments of borrowings from credit facility

 

(339,150

)

(293,200

)

Proceeds from secured borrowings

 

9,304

 

 

Employee stock issuances

 

1,207

 

738

 

Excess tax benefits from share-based payments

 

(124

)

(5

)

Dividend payments

 

(3,536

)

(3,512

)

Net Cash Provided by Financing Activities

 

77,509

 

16,821

 

Effect of Exchange Rate Changes on Cash

 

103

 

(355

)

Net Change in Cash and Cash Equivalents

 

(1,111

)

(3,706

)

Cash and Cash Equivalents at Beginning of Period

 

3,513

 

7,219

 

Cash and Cash Equivalents at End of Period

 

$

2,402

 

$

3,513

 

 



 

Zep Inc.

RECONCILIATION OF NON-GAAP MEASURES

(Unaudited; In thousands)

 

 

 

Three Months Ended
August 31,

 

Years Ended
August 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Reported (GAAP) Net Income

 

$

2,665

 

$

7,274

 

$

15,192

 

$

21,909

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

2,475

 

1,350

 

8,958

 

5,493

 

Provision for Income Taxes

 

1,171

 

3,284

 

7,895

 

11,927

 

Depreciation and Amortization

 

5,456

 

3,735

 

19,931

 

14,330

 

EBITDA

 

$

11,767

 

$

15,643

 

$

51,976

 

$

53,659

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges*

 

5,159

 

 

5,159

 

 

Adjusted EBITDA

 

$

16,926

 

$

15,643

 

$

57,135

 

$

53,659

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Margin

 

9.3

%

9.1

%

8.3

%

8.2

%

 

 

 

Three Months Ended
August 31,

 

Years Ended
August 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Reported (GAAP) Net Income

 

$

2,665

 

$

7,274

 

$

15,192

 

$

21,909

 

Restructuring charges*

 

3,584

 

 

3,395

 

 

Adjusted Net Income

 

$

6,249

 

$

7,274

 

$

18,587

 

$

21,909

 

 

 

 

Three Months Ended
August 31,

 

Years Ended
August 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Reported (GAAP) Diluted Earnings Per Share

 

$

0.12

 

$

0.33

 

$

0.68

 

$

0.98

 

Restructuring charges*

 

0.16

 

 

0.15

 

 

Adjusted Diluted Earnings Per Share

 

$

0.28

 

$

0.33

 

$

0.83

 

$

0.98

 

 


* We continue to execute plans for a variety of complexity-reduction activities, including facilities consolidation, process simplification, product-line and customer rationalization and headcount reductions related to such activities.  During the fourth quarter of fiscal 2013, we recorded a $5.2 million restructuring charge in connection with these efforts.

 



 

 

 

Year Ended
August 31, 2013

 

Nine Months
Ended

May 31, 2013

 

Three Months
Ended

August 31,
2013

 

 

 

 

 

 

 

 

 

Reported (GAAP) Net Cash Provided by (Used for) Operating Activities

 

$

50,016

 

$

18,014

 

$

32,002

 

Purchases of property, plant and equipment

 

(12,068

)

(8,534

)

(3,534

)

Proceeds from the sale of property, plant and equipment

 

21

 

22

 

(1

)

 

 

 

 

 

 

 

 

Free Cash Flow

 

$

37,969

 

$

9,502

 

$

28,467

 

 

 

 

 

 

 

 

 

Diluted Weighted Average Number of Shares Outstanding

 

22,435

 

 

 

22,531

 

 

 

 

 

 

 

 

 

Free Cash Flow per Share

 

$

1.69

 

 

 

$

1.26

 

 

 

 

Year Ended
August 31, 2012

 

Nine Months
Ended

May 31, 2012

 

Three Months
Ended

August 31,
2012

 

 

 

 

 

 

 

 

 

Reported (GAAP) Net Cash Provided by (Used for) Operating Activities

 

$

22,607

 

$

15,442

 

$

7,165

 

Purchases of property, plant and equipment

 

(18,356

)

(12,864

)

(5,492

)

Proceeds from the sale of property, plant and equipment

 

0

 

37

 

(37

)

 

 

 

 

 

 

 

 

Free Cash Flow

 

$

4,251

 

$

2,615

 

$

1,636

 

 

 

 

 

 

 

 

 

Diluted Weighted Average Number of Shares Outstanding

 

22,166

 

 

 

22,201

 

 

 

 

 

 

 

 

 

Free Cash Flow per Share

 

$

0.19

 

 

 

$

0.07

 

 

Investor Contact:

 

Don De Laria

VP, Investor Relations & Communications

404-350-6266

don.delaria@zep.com