ZEP INC (ZEP, Financial) filed Quarterly Report for the period ended 2010-11-30.
Zep Inc has a market cap of $432.7 million; its shares were traded at around $19.89 with a P/E ratio of 20.3 and P/S ratio of 0.8. The dividend yield of Zep Inc stocks is 0.8%.ZEP is in the portfolios of John Keeley of Keeley Fund Management, Mario Gabelli of GAMCO Investors, Paul Tudor Jones of The Tudor Group, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC.
We have three principal sources of near-term liquidity: (1) existing cash and cash equivalents; (2) cash generated by operations; and (3) available borrowing capacity under our five-year senior, secured credit facility (the 2010 Credit Facility), which provides for a maximum borrowing capacity of $320 million. We have issued outstanding letters of credit totaling $11.5 million primarily for the purpose of providing credit support for our industrial revenue bonds, securing collateral requirements under our casualty insurance programs as well as supporting certain environmental obligations. These letters of credit were issued under the 2010 Credit Facility as of August 31, 2010, thereby reducing the total availability under the facility by such amount. As of November 30, 2010, we had $14.7 million in cash and cash equivalents and approximately $162.6 million available under the 2010 Credit Facility. We believe that our liquidity and capital resources are sufficient to meet our working capital, capital expenditure and other anticipated cash requirements, excluding acquisitions, over the next twelve months. In addition, during January 2010, the Securities and Exchange Commission declared our shelf registration statement effective. The shelf registration statement provides for the issuance of up to an aggregate of $200 million of equity, debt, and certain other types of securities through one or more future offerings. The net proceeds from the sale of any securities registered thereunder may be used for general corporate purposes, which may include funding capital expenditures, pursuing growth initiatives, whether through acquisitions, joint ventures or otherwise, repaying or refinancing indebtedness or other obligations, and financing working capital.
We use available cash and cash flow provided by operating activities primarily to fund operations and capital expenditures. Net cash provided by our operating activities totaled $4.5 million during the first three months of fiscal year 2011, compared with $7.1 million in the prior year period. Cash flow from operations was reduced by approximately $2.0 million in the first quarter of fiscal 2011 as prior accrued professional fees associated with the Waterbury acquisition were paid. Also, sales incentives that were accrued in fiscal 2010 were paid in the first quarter of fiscal 2011. Cash used to fund acquisitions during the first quarter of fiscal 2011 totaled $74.3 million. Excluding borrowing and payment activity associated with acquisitions, debt, net of cash, was reduced during the first quarter of fiscal 2011 by $5 million. Management believes that investing in assets and programs that will over time increase the return on our invested capital is a key factor in creating stockholder value. We invested $1.6 million and $1.1 million in the first three months of fiscal year 2011 and 2010, respectively, primarily for building improvements, machinery, equipment, and information technology. We expect to make capital expenditures of approximately $10.0 million to $12.0 million in fiscal year 2011.
Net sales totaled $157.4 million in the first quarter of fiscal 2011 compared with $126.8 million in the first quarter of fiscal 2010, an increase of $30.7 million or 24%. Our first quarter fiscal 2011 sales performance benefited from $37 million of acquisition-related revenue. Organic growth through sales to customers in the automotive and food end markets was more than offset by volume declines in certain of our other end markets. For example, sales to customers accessed through the retail channel were down from the same period in the prior year for two reasons. First, sales in the retail channel in the first quarter of fiscal 2010 benefited from promotions that were not expected to and did not recur. Second, during fiscal 2010, the retail channel benefited from demand for sanitizer products in response to concerns regarding the H1N1 virus. Also, customers accessed through Zeps industrial and institutional end markets most notably manufacturing, schools, and government customers continue to be negatively impacted by sustained high rates of unemployment and reduced government spending.
As previously stated, since January 2010, we have executed three acquisitions resulting in the recording of approximately $62.5 million of finite-lived intangible assets (namely customer relationships and intellectual property). On an annual basis, amortization of these assets will result in $3.7 million of incremental amortization expense. We incurred acquisition costs during the first quarter of fiscal 2010 associated with the purchase of Amrep totaling $0.4 million. We did not incur material acquisition costs in the first quarter of fiscal 2011.
Operating profit increased $0.8 million in the first quarter of fiscal year 2011 to a profit of $9.7 million compared with $8.8 million reported in the first quarter of fiscal year 2010. Operating margins were 6.1% in the first quarter of fiscal year 2011 compared with 7.0% in the comparative prior year period.
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Zep Inc has a market cap of $432.7 million; its shares were traded at around $19.89 with a P/E ratio of 20.3 and P/S ratio of 0.8. The dividend yield of Zep Inc stocks is 0.8%.ZEP is in the portfolios of John Keeley of Keeley Fund Management, Mario Gabelli of GAMCO Investors, Paul Tudor Jones of The Tudor Group, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
On September 2, 2010 (the Waterbury Closing Date), Amrep and certain other of our subsidiaries acquired certain brands and assets and assumed certain liabilities of the North American operations of Waterbury Companies, Inc. (Waterbury), a provider of air-care delivery systems and products for facility maintenance. Waterburys products are marketed under recognized and established brand names such as TimeMist(R), TimeWick, MicrobeMax(TM), Country Vet(R), and Konk(TM). We did not acquire Waterburys manufacturing facility. Waterbury entered into a transition services agreement with us pursuant to which it is continuing to make products for us until we have completed the transfer of related manufacturing operations to our facilities and have obtained certain regulatory permits and approvals. We acquired the Waterbury brands and assets for a cash purchase price of $66 million (the Waterbury Closing Purchase Price), subject to post-closing working capital adjustments. Of the $66 million purchase price, $62 million was funded through borrowings pursuant to our 2010 Credit Facility (discussed further in Note 4 of Notes to Consolidated Financial Statements), and the remaining $4.0 million was funded through available cash.We have three principal sources of near-term liquidity: (1) existing cash and cash equivalents; (2) cash generated by operations; and (3) available borrowing capacity under our five-year senior, secured credit facility (the 2010 Credit Facility), which provides for a maximum borrowing capacity of $320 million. We have issued outstanding letters of credit totaling $11.5 million primarily for the purpose of providing credit support for our industrial revenue bonds, securing collateral requirements under our casualty insurance programs as well as supporting certain environmental obligations. These letters of credit were issued under the 2010 Credit Facility as of August 31, 2010, thereby reducing the total availability under the facility by such amount. As of November 30, 2010, we had $14.7 million in cash and cash equivalents and approximately $162.6 million available under the 2010 Credit Facility. We believe that our liquidity and capital resources are sufficient to meet our working capital, capital expenditure and other anticipated cash requirements, excluding acquisitions, over the next twelve months. In addition, during January 2010, the Securities and Exchange Commission declared our shelf registration statement effective. The shelf registration statement provides for the issuance of up to an aggregate of $200 million of equity, debt, and certain other types of securities through one or more future offerings. The net proceeds from the sale of any securities registered thereunder may be used for general corporate purposes, which may include funding capital expenditures, pursuing growth initiatives, whether through acquisitions, joint ventures or otherwise, repaying or refinancing indebtedness or other obligations, and financing working capital.
We use available cash and cash flow provided by operating activities primarily to fund operations and capital expenditures. Net cash provided by our operating activities totaled $4.5 million during the first three months of fiscal year 2011, compared with $7.1 million in the prior year period. Cash flow from operations was reduced by approximately $2.0 million in the first quarter of fiscal 2011 as prior accrued professional fees associated with the Waterbury acquisition were paid. Also, sales incentives that were accrued in fiscal 2010 were paid in the first quarter of fiscal 2011. Cash used to fund acquisitions during the first quarter of fiscal 2011 totaled $74.3 million. Excluding borrowing and payment activity associated with acquisitions, debt, net of cash, was reduced during the first quarter of fiscal 2011 by $5 million. Management believes that investing in assets and programs that will over time increase the return on our invested capital is a key factor in creating stockholder value. We invested $1.6 million and $1.1 million in the first three months of fiscal year 2011 and 2010, respectively, primarily for building improvements, machinery, equipment, and information technology. We expect to make capital expenditures of approximately $10.0 million to $12.0 million in fiscal year 2011.
Net sales totaled $157.4 million in the first quarter of fiscal 2011 compared with $126.8 million in the first quarter of fiscal 2010, an increase of $30.7 million or 24%. Our first quarter fiscal 2011 sales performance benefited from $37 million of acquisition-related revenue. Organic growth through sales to customers in the automotive and food end markets was more than offset by volume declines in certain of our other end markets. For example, sales to customers accessed through the retail channel were down from the same period in the prior year for two reasons. First, sales in the retail channel in the first quarter of fiscal 2010 benefited from promotions that were not expected to and did not recur. Second, during fiscal 2010, the retail channel benefited from demand for sanitizer products in response to concerns regarding the H1N1 virus. Also, customers accessed through Zeps industrial and institutional end markets most notably manufacturing, schools, and government customers continue to be negatively impacted by sustained high rates of unemployment and reduced government spending.
As previously stated, since January 2010, we have executed three acquisitions resulting in the recording of approximately $62.5 million of finite-lived intangible assets (namely customer relationships and intellectual property). On an annual basis, amortization of these assets will result in $3.7 million of incremental amortization expense. We incurred acquisition costs during the first quarter of fiscal 2010 associated with the purchase of Amrep totaling $0.4 million. We did not incur material acquisition costs in the first quarter of fiscal 2011.
Operating profit increased $0.8 million in the first quarter of fiscal year 2011 to a profit of $9.7 million compared with $8.8 million reported in the first quarter of fiscal year 2010. Operating margins were 6.1% in the first quarter of fiscal year 2011 compared with 7.0% in the comparative prior year period.
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