CENTRAL GARDEN & PET CO
CENT 10-Q Quarter ended Dec. 28, 2024
CENTRAL GARDEN & PET CO
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
December 28, 2024
or
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TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number:
001-33268
Central Garden & Pet Company
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
(
925
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948-4000
(Registrant’s telephone number, including area code)
_______________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
ý
Yes
¨
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
ý
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
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ý
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
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No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Common Stock Outstanding as of January 29, 2025
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Class A Common Stock Outstanding as of January 29, 2025
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Class B Stock Outstanding as of January 29, 2025
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2
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PART I. FINANCIAL INFORMATION
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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PART II. OTHER INFORMATION
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Form 10-Q includes “forward-looking statements.” Forward-looking statements include statements concerning our plans,
objectives, goals, strategies, future events, future revenues or performance, projected cost savings, capital expenditures, financing needs,
plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in
the industries and markets in which we operate and other information that is not historical information. When used in this Form 10-Q, the
words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are
intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical
operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed
in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, beliefs and projections will
be realized.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking
statements contained in this Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking
statements we make in this Form 10-Q are set forth in the Form 10-K for the fiscal year ended
September 28, 2024
, including the factors
described in the section entitled “Item 1A – Risk Factors.” If any of these risks or uncertainties materializes, or if any of our underlying
assumptions are incorrect, our actual results may differ significantly from the results that we express in, or imply by, any of our forward-
looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances,
except as required by law. Presently known risk factors include, but are not limited to, the following factors:
•
economic uncertainty and other adverse macroeconomic conditions;
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impacts of tariffs or a trade war;
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risks associated with international sourcing, including from China;
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fluctuations in energy prices, fuel and related petrochemical costs;
3
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declines in consumer spending and the associated increased inventory risk;
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seasonality and fluctuations in our operating results and cash flow;
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adverse weather conditions and climate change;
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the success of our Central to Home strategy and our Cost and Simplicity program;
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fluctuations in market prices for seeds and grains and other raw materials, including the impact of significant declines in
grass seed market prices on our inventory valuation;
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risks associated with new product introductions, including the risk that our new products will not produce sufficient sales
to recoup our investment;
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dependence on a small number of customers for a significant portion of our business;
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consolidation trends in the retail industry;
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supply shortages in pet birds, small animals and fish;
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reductions in demand for our product categories;
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competition in our industries;
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continuing implementation of an enterprise resource planning information technology system;
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regulatory issues;
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potential environmental liabilities;
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access to and cost of additional capital;
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the impact of product recalls;
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risks associated with our acquisition strategy, including our ability to successfully integrate acquisitions and the impact of
purchase accounting on our financial results;
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potential goodwill or intangible asset impairment;
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the potential for significant deficiencies or material weaknesses in internal control over financial reporting, particularly of
acquired companies;
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our dependence upon our key executives;
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our ability to recruit and retain members of our management team and employees to support our businesses;
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potential costs and risks associated with actual or potential cyberattacks;
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our ability to protect our trademarks and other proprietary rights;
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litigation and product liability claims;
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the impact of new accounting regulations and the possibility our effective tax rate will increase as a result of future
changes in the corporate tax rate or other tax law changes;
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potential dilution from issuance of authorized shares; and
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the voting power associated with our Class B stock.
4
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts, unaudited)
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December 28, 2024
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December 30, 2023
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September 28, 2024
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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$
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Restricted cash
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Accounts receivable (less allowances of
$
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Inventories, net
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Prepaid expenses and other
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Total current assets
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Plant, property and equipment, net
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Goodwill
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Other intangible assets, net
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Operating lease right-of-use assets
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Other assets
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Total
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$
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$
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$
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LIABILITIES AND EQUITY
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Current liabilities:
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Accounts payable
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$
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$
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$
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Accrued expenses
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Current lease liabilities
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Current portion of long-term debt
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Total current liabilities
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Long-term debt
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Long-term lease liabilities
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Deferred income taxes and other long-term obligations
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Equity:
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Common stock,
$
shares outstanding at
December 28, 2024
,
December 30, 2023
and
September 28, 2024
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Class A common stock,
$
2023
and
September 28, 2024
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Class B stock,
$
December 28, 2024
,
December 30, 2023
and
September 28, 2024
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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(
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(
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Total Central Garden & Pet Company shareholders’ equity
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Noncontrolling interest
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Total equity
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Total
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$
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$
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$
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See notes to condensed consolidated financial statements.
5
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)
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Three Months Ended
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December 28, 2024
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December 30, 2023
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Net sales
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$
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$
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Cost of goods sold
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Gross profit
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Selling, general and administrative expenses
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Operating income
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Interest expense
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(
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(
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Interest income
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Other income (expense)
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(
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Income (Loss) before income taxes and noncontrolling interest
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(
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Income tax expense (benefit)
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(
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Income including noncontrolling interest
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Net income attributable to noncontrolling interest
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Net income attributable to Central Garden & Pet Company
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$
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$
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Net income per share attributable to Central Garden & Pet Company:
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Basic
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$
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$
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Diluted
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$
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$
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Weighted average shares used in the computation of net income per share:
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Basic
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Diluted
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See notes to condensed consolidated financial statements.
6
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
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Three Months Ended
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December 28, 2024
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December 30, 2023
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Income including noncontrolling interest
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$
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$
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Other comprehensive income (loss):
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Foreign currency translation
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(
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Total comprehensive income
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Comprehensive income attributable to noncontrolling interest
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Comprehensive income attributable to Central Garden & Pet Company
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$
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$
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See notes to condensed consolidated financial statements.
7
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
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Three Months Ended
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December 28, 2024
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December 30, 2023
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Cash flows from operating activities:
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Net income
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$
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$
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Adjustments to reconcile net income to net cash used by operating activities:
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Depreciation and amortization
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Amortization of deferred financing costs
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Non-cash lease expense
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Stock-based compensation
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Deferred income taxes
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Other operating activities
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(
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(
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Change in assets and liabilities (excluding businesses acquired):
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Accounts receivable
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(
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(
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Inventories
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(
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(
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Prepaid expenses and other assets
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(
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(
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Accounts payable
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Accrued expenses
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Other long-term obligations
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(
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Operating lease liabilities
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(
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(
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Net cash used by operating activities
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(
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(
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Cash flows from investing activities:
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Additions to plant, property and equipment
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(
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(
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Payments to acquire companies, net of cash acquired
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(
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(
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Investments
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(
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Net cash used in investing activities
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(
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(
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Cash flows from financing activities:
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Repayments of long-term debt
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(
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(
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Repurchase of common stock, including shares surrendered for tax withholding
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(
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(
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Payment of contingent consideration liability
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(
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Distribution to noncontrolling interest
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(
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(
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Net cash used by financing activities
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(
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(
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Effect of exchange rate changes on cash, cash equivalents and restricted cash
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(
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Net decrease in cash, cash equivalents and restricted cash
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(
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(
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Cash, cash equivalents and restricted cash at beginning of period
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Cash, cash equivalents and restricted cash at end of period
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$
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$
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Supplemental information:
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Cash paid for interest
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$
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$
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Lease liabilities arising from obtaining right-of-use assets
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$
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$
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See notes to condensed consolidated financial statements.
8
CENTRAL GARDEN & PET COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three
Months Ended
December 28, 2024
(Unaudited)
1.
Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of
December 28, 2024
and
December 30, 2023
, the condensed consolidated statements of operations, the condensed consolidated statements
of comprehensive income and the condensed consolidated statements of cash flows for the
three months ended
December 28, 2024
and
December 30, 2023
have been prepared by the Company, without audit. In the opinion of management, the interim financial statements
include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented.
For the Company’s foreign businesses in the United Kingdom and Canada, the local currency is the functional currency. Assets and
liabilities are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average
exchange rate for the period. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of its
foreign subsidiaries to be permanently reinvested. Transaction gains and losses are included in results of operations.
Due to the seasonal nature of the Company’s garden business, the results of operations for the
three
months ended
December 28,
2024
are not necessarily indicative of the operating results that may be expected for the entire fiscal year. These interim financial statements
should be read in conjunction with the annual audited financial statements, accounting policies and financial notes thereto, included in the
Company’s Annual Report on Form 10-K for the fiscal year ended
September 28, 2024
, which has previously been filed with the Securities
and Exchange Commission. The
September 28, 2024
balance sheet presented herein was derived from the audited financial statements.
Stock Dividend
In December 2023, the Board of Directors approved a stock dividend in the form of one share of the Company's Class A Common
Stock for every four outstanding shares of its Common Stock, Class A Common Stock and Class B Stock. Dividend shares of Class A
Common Stock were distributed on February 8, 2024, to stockholders of record as of January 8, 2024.
The stock dividend did not affect the number of the Company's authorized shares, and the par value of each share of stock remained
unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or
vesting of all stock options, restricted stock and performance share units outstanding at January 8, 2024, which resulted in a proportional
increase in the number of vesting stock options, restricted stock and performance share units, and, in the case of stock options, a
proportional decrease in the exercise price of all such stock options.
Unless noted, all Class A Common Stock share and per share amounts contained in the condensed consolidated financial statements
and management's discussion and analysis have been retroactively adjusted to reflect the one-for-four stock dividend. The legal form of the
stock dividend was accounted for as a stock split as the Company concluded that shareholders were not receiving a distribution of earnings.
Noncontrolling interest in the Company’s condensed consolidated financial statements represents the
20
%
interest not owned by
Central in a consolidated subsidiary. Since the Company controls this subsidiary, its financial statements are consolidated with those of the
Company, and the noncontrolling owner’s
20
%
share of the subsidiary’s net assets and results of operations is deducted and reported as
noncontrolling interest on the condensed consolidated balance sheets and as net income attributable to noncontrolling interest in the
The Company considers cash and all highly liquid investments with an original maturity of three months or less at date of purchase to
be cash and cash equivalents. Restricted cash includes cash and highly liquid instruments that are used as collateral for stand-alone letter of
credit agreements related to normal business transactions. These agreements require the Company to maintain specified amounts of cash as
collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash
equivalents. The Company manages the credit risk associated with cash equivalents by investing with high-quality institutions. The
Company maintains cash accounts that exceed federally insured limits. The Company has not experienced any losses from maintaining
cash accounts in excess of such limits. Management believes that it is not exposed to any significant risks on its cash and cash equivalent
accounts.
9
balance sheets to the condensed consolidated statements of cash flows as of
December 28, 2024
,
December 30, 2023
and
September 28,
2024
, respectively
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December 28, 2024
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December 30, 2023
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September 28, 2024
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(in thousands)
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Cash and cash equivalents
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$
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$
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$
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Restricted cash
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Total cash, cash equivalents and restricted cash
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$
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$
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$
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The Company’s trade accounts receivable are recorded at net realizable value, which includes an allowance for estimated credit
losses, as well as allowances for contractual customer deductions accounted for as variable consideration. The Company maintains an
allowance for credit losses related to its trade accounts receivable associated with future expected credit losses resulting from the inability of
its customers to make required payments. The Company estimates the allowance based upon historical bad debts, current customer
receivable balances and the customer’s financial condition. The allowance is adjusted to reflect changes in current and forecasted
Revenue Recognition and Nature of Products and Services
The Company manufactures, markets and distributes a wide variety of pet and garden products to wholesalers, distributors and
retailers, primarily in the United States. The majority of the Company’s revenue is generated from the sale of finished pet and garden
products. The Company also recognizes a minor amount of non-product revenue (approximately
one
percent
of consolidated net sales)
comprising third-party logistics services, merchandising services and royalty income from sales-based licensing arrangements. Product and
non-product revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The
Company recognizes product revenue when control over the finished goods transfers to its customers, which generally occurs upon shipment
to, or receipt at, customers’ locations, as determined by the specific terms of the contract, and when control over the finished goods transfers
to retail consumers in consignment arrangements. These revenue arrangements generally have single performance obligations. Non-product
revenue is recognized as the services are provided to the customer in the case of third-party logistics services and merchandising services,
or as third-party licensee sales occur for royalty income. Revenue, which includes shipping and handling charges billed to the customer, is
reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade
promotion, unsaleable product, consumer coupon redemption and rebates. Shipping and handling costs that occur before the customer
obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.
Key sales terms are established on a frequent basis such that most customer arrangements and related incentives have a one year or
shorter duration. As such, the Company does not capitalize contract inception costs. The Company generally does not have unbilled
receivables at the end of a period. Deferred revenues are not material and primarily include advance payments for services that have yet to
be rendered. The Company does not receive noncash consideration for the sale of goods. Amounts billed and due from our customers are
classified as receivables and require payment on a short-term basis; therefore, the Company does not have any significant financing
components.
Sales Incentives and Other Promotional Programs
The Company routinely offers sales incentives and discounts through various regional and national programs to its customers and
consumers. These programs include product discounts or allowances, product rebates, product returns, one-time or ongoing trade-promotion
programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such
programs. The costs associated with these activities are accounted for as reductions to the transaction price of the Company’s products and
are, therefore, recorded as reductions to gross sales at the time of sale. The Company bases its estimates of incentive costs on historical
trend experience with similar programs, actual incentive terms per customer contractual obligations and expected levels of performance of
trade promotions, utilizing customer and sales organization inputs. The Company maintains liabilities at the end of each period for the
estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are generally not
material and are recognized in earnings in the period such differences are determined. Reserves for product returns, accrued rebates and
promotional accruals are included in the condensed consolidated balance sheets as part of accrued expenses, and the value of inventory
associated with reserves for sales returns is included within prepaid expenses and other current assets on the condensed consolidated
balance sheets.
10
The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to
control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances.
Long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities are presented separately in the
condensed consolidated balance sheets. Finance lease ROU assets are presented in property, plant and equipment, net, and the related
finance liabilities are presented with current and long-term debt in the condensed consolidated balance sheets.
Lease ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the
Company's obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any
lease payments paid to the lessor at or before the commencement date and excludes any lease incentives received from the lessor. Lease
liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's leases
typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its
incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis. Variable lease payments are
expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other
charges included in the lease, as applicable. Non-lease components and the lease components to which they relate are accounted for as a
single lease component, as the Company has elected to combine lease and non-lease components for all classes of underlying assets.
Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales
or selling, general and administrative expenses, depending on the nature of the leased item. Interest expense is recorded over the lease term
and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or
selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on
finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash
flows from financing activities in the condensed consolidated statements of cash flows.
Recently Issued and Adopted Accounting Updates
There were no recently adopted accounting pronouncements that had a material impact on the Company's condensed consolidated
financial statements.
Accounting Standards Not Yet Adopted
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures.
This ASU requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision
maker that are included within each reported measure of segment profit or loss, and also requires all annual disclosures currently required by
Topic 280 to be included in interim periods. ASU No. 2023-07 is to be applied retrospectively for all periods presented in the financial
statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will
have on the Company’s disclosures.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures.
This
ASU primarily requires enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax
reconciliation and quantitative and qualitative disclosures regarding income taxes paid. ASU No. 2023-09 is to be applied prospectively, with
the option to apply the standard retrospectively, effective for fiscal years beginning after December 15, 2024. The Company is currently
evaluating the impact that the adoption of this guidance will have on the Company’s disclosures.
2.
Fair Value Measurements
Generally accepted accounting principles
require financial assets and liabilities to be categorized based on the inputs used to calculate
their fair values as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that
market participants would use in pricing the asset or liability (including assumptions about risk).
11
The Company’s financial instruments include cash and equivalents, short-term investments, accounts receivable and payable, short-
term borrowings, and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In the prior year quarter, the Company's financial assets and liabilities measured at fair value on a recurring basis consisted of
contingent consideration within Level 3 of the fair value hierarchy. Such amounts are not material.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain non-financial assets and liabilities, including long-lived assets, goodwill and intangible assets, at fair
value on a non-recurring basis. Fair value measurements of non-financial assets and non-financial liabilities are used primarily in the
impairment analyses of long-lived assets, goodwill and other intangible assets. During the periods ended
December 28, 2024
and
December
30, 2023
, the Company was not required to measure any significant non-financial assets and liabilities at fair value.
Fair Value of Other Financial Instruments
In April 2021, the Company issued
$
400
million
aggregate principal amount of
4.125
%
senior notes due April 2031 (the "2031 Notes").
The estimated fair value of the Company's 2031 Notes as of
December 28, 2024
,
December 30, 2023
and
September 28, 2024
was
$
353.8
million
,
$
354.7
million
and
$
367.2
million
, respectively, compared to a carrying value of
$
396.2
million
,
$
395.6
million
and
$
396.0
million
, respectively.
In October 2020, the Company issued
$
500
million
aggregate principal amount of
4.125
%
senior notes due October 2030 (the "2030
Notes"). The estimated fair value of the Company's 2030 Notes as of
December 28, 2024
,
December 30, 2023
and
September 28, 2024
was
$
451.2
million
,
$
454.7
million
and
$
465.2
million
, respectively, compared to a carrying value of
$
495.4
million
,
$
494.6
million
and
$
495.2
million
, respectively.
In December 2017, the Company issued
$
300
million
aggregate principal amount of
5.125
%
senior notes due February 2028 (the
"2028 Notes"). The estimated fair value of the Company's 2028 Notes as of
December 28, 2024
,
December 30, 2023
and
September 28,
2024
was
$
291.9
million
,
$
293.5
million
and
$
299.2
million
, respectively, compared to a carrying value of
$
298.6
million
,
$
298.1
million
and
$
298.4
million
, respectively.
The estimated fair value is based on quoted market prices for these notes, which are Level 2 inputs within the fair value hierarchy.
3.
Acquisitions
On November 3, 2023, the Company acquired TDBBS, LLC (“TDBBS”), a provider of premium natural dog chews and treats for
approximately
$
60
million
. The addition of TDBBS expands the Company’s portfolio with bully and collagen sticks, bones and jerky, adds
scale to its dog and cat business and enhances the Company’s eCommerce and direct-to-consumer capabilities. The purchase price
exceeded the estimated fair value of the net tangible assets acquired by approximately
$
45
million
, of which
$
23
million
was allocated to
identified intangible assets and approximately
$
5
million
to goodwill in the Company's condensed consolidated balance sheet as of
December
28, 2024
. Financial results of TDBBS have been
included
in the results of operations within the Pet segment since the date of acquisition.
acquisition date and subsequent adjustments.
|
Amounts Recognized as of
Acquisition Date (1)
|
||
|
Current assets, net of cash and cash equivalents acquired
|
$
|
|
|
Fixed assets
|
|
|
|
Goodwill
|
|
|
|
Operating lease right-of-use assets
|
|
|
|
Deferred tax assets
|
|
|
|
Other intangible assets, net
|
|
|
|
Current liabilities
|
(
|
|
|
Long-term lease liabilities
|
(
|
|
|
Net assets acquired, less cash and cash equivalents
|
$
|
(1) As previously reported in the Company's Form 10-K for the period ended September 28, 2024.
12
4.
Inventories, net
|
December 28, 2024
|
December 30, 2023
|
September 28, 2024
|
||||
|
(in thousands)
|
||||||
|
Raw materials
|
$
|
$
|
$
|
|||
|
Work in progress
|
|
|
|
|||
|
Finished goods
|
|
|
|
|||
|
Supplies
|
|
|
|
|||
|
Total inventories, net
|
$
|
$
|
$
|
|||
5.
Goodwill
The Company tests goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing
qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. The
qualitative assessment evaluates factors including macroeconomic conditions, industry-specific and company-specific considerations, legal
and regulatory environments and historical performance. If it is determined that it is more likely than not that the fair value of the reporting unit
is greater than its carrying amount, it is unnecessary to perform the quantitative goodwill impairment test. If it is determined that it is more
likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative test is performed to identify potential
goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to
performing the quantitative goodwill impairment test, which compares the estimated fair value of our reporting units to their related carrying
values, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than its carrying value, and an
impairment charge is recognized for the differential.
The Company’s goodwill impairment analysis also includes a comparison of the
aggregate estimated fair value of its
two
reporting units to the Company’s total market capitalization.
No
impairment of goodwill was recorded
for the
three
months ended
December 28, 2024
and
December 30, 2023
.
13
6.
Other Intangible Assets
|
Gross
|
Accumulated
Amortization
|
Accumulated
Impairment
|
Net
Carrying
Value
|
|||||
|
|
(in millions)
|
|||||||
|
December 28, 2024
|
||||||||
|
Marketing-related intangible assets – amortizable
|
$
|
$
(
|
$
|
$
|
||||
|
Marketing-related intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Customer-related intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Total other intangible assets, net
|
$
|
$
(
|
$
(
|
$
|
||||
|
|
Gross
|
Accumulated
Amortization
|
Accumulated
Impairment
|
Net
Carrying
Value
|
||||
|
|
(in millions)
|
|||||||
|
December 30, 2023
|
||||||||
|
Marketing-related intangible assets – amortizable
|
$
|
$
(
|
$
|
$
|
||||
|
Marketing-related intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Customer-related intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Total other intangible assets, net
|
$
|
$
(
|
$
(
|
$
|
||||
|
|
Gross
|
Accumulated
Amortization
|
Accumulated
Impairment
|
Net
Carrying
Value
|
||||
|
|
(in millions)
|
|||||||
|
September 28, 2024
|
||||||||
|
Marketing-related intangible assets – amortizable
|
$
|
$
(
|
$
|
$
|
||||
|
Marketing-related intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Customer-related intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – amortizable
|
|
(
|
(
|
|
||||
|
Other acquired intangible assets – nonamortizable
|
|
|
(
|
|
||||
|
Total
|
|
(
|
(
|
|
||||
|
Total other intangible assets, net
|
$
|
$
(
|
$
(
|
$
|
||||
Other acquired intangible assets include contract-based and technology-based intangible assets.
The Company evaluates long-lived assets, including amortizable and indefinite-lived intangible assets, for impairment whenever events
or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates indefinite-lived intangible assets on
an annual basis. Factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not
present in the
three months ended
December 28, 2024
, and accordingly, no impairment testing was performed on these assets.
The Company amortizes its acquired intangible assets with definite lives over periods ranging from
four years
to
25
years
; over
weighted average remaining lives of
nine years
for marketing-related intangibles,
ten years
for customer-related intangibles and
seven years
for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately
$
7.4
million
and
$
8.2
million
for
the three months ended
December 28, 2024
and
December 30, 2023
, respectively, and is classified within selling, general and administrative
expenses in the condensed consolidated statements of operations. Estimated annual amortization expense related to acquired intangible
14
assets in each of the succeeding
five years
is estimated to be approximately
$
25
million
per year from fiscal 2025 through fiscal 2027 and
$
23
million
per year from fiscal
2028 through fiscal 2029.
.
7.
Long-Term Debt
|
December 28, 2024
|
December 30, 2023
|
September 28, 2024
|
||||
|
|
(in thousands)
|
|||||
|
Senior notes, interest at
due February 2028
|
$
|
$
|
$
|
|||
|
Senior notes, interest at
due October 2030
|
|
|
|
|||
|
Senior notes, interest at
due April 2031
|
|
|
|
|||
|
Unamortized debt issuance costs
|
(
|
(
|
(
|
|||
|
Net carrying value
|
|
|
|
|||
|
Asset-based revolving credit facility, interest at SOFR plus a margin
of
maturity December 2026.
|
|
|
|
|||
|
Other notes payable
|
|
|
|
|||
|
Total
|
|
|
|
|||
|
Less current portion
|
(
|
(
|
(
|
|||
|
Long-term portion
|
$
|
$
|
$
|
|||
Senior Notes
$
400
million
4.125
%
Senior Notes due 2031
In April 2021, the Company issued
$
400
million
aggregate principal amount of
4.125
%
senior notes due April 2031 (the "2031 Notes").
The Company used a portion of the net proceeds from the offering to repay all outstanding borrowings under its Credit Facility, with the
remainder used for general corporate purposes.
The Company incurred approximately
$
6
million
of debt issuance costs in conjunction with this issuance, which included underwriter
fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2031 Notes.
The 2031 Notes require semi-annual interest payments on April 30 and October 30. The 2031 Notes are unconditionally guaranteed on
a senior basis by each of the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of the
Company's Credit Facility. The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the
Securities Act of 1933.
The Company may redeem some or all of the 2031 Notes at any time, at its option, prior to April 30, 2026 at the principal amount plus a
"make whole" premium. The Company may redeem some or all of the 2031 Notes at the Company's option, at any time on or after April 30,
2026 for
102.063
%
, on or after April 30, 2027 for
101.375
%
, on or after April 30, 2028 for
100.688
%
and on or after April 30, 2029 for
The holders of the 2031 Notes have the right to require the Company to repurchase all or a portion of the 2031 Notes at a purchase
price equal to
101
%
of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of a change of
control.
The 2031 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. The Company was in compliance with all financial covenants as of
December 28, 2024
.
$
500
million
4.125
%
Senior Notes due 2030
In October 2020, the Company issued
$
500
million
aggregate principal amount of
4.125
%
senior notes due October 2030 (the "2030
Notes"). The Company used a portion of the net proceeds to redeem all of its outstanding
6.125
%
senior notes due November 2023 (the
"2023 Notes") at a redemption price of
101.531
%
plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder
used for general corporate purposes.
The Company incurred approximately
$
8.0
million
of debt issuance costs associated with this transaction, which included underwriter
fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.
15
The 2030 Notes require semiannual interest payments on October 15 and April 15. The 2030 Notes are unconditionally guaranteed on
a senior basis by each of the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of the
Company's Credit Facility.
The Company may redeem some or all of the 2030 Notes at any time, at its option, prior to October 15, 2025 at a price equal to
100
%
of the principal amount plus a “make-whole” premium. The Company may redeem some or all of the 2030 Notes, at its option, in whole or in
part, at any time on or after October 15, 2025 for
102.063
%
, on or after October 15, 2026 for
101.375
%
, on or after October 15, 2027 for
The holders of the 2030 Notes have the right to require the Company to repurchase all or a portion of the 2030 Notes at a purchase
price equal to
101.0
%
of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of
control.
The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. The Company was in compliance with all financial covenants as of
December 28, 2024
.
$
300
million
5.125
%
Senior Notes due 2028
In December 2017, the Company issued
$
300
million
aggregate principal amount of
5.125
%
senior notes due February 2028 (the
"2028 Notes"). The Company used the net proceeds from the offering to finance acquisitions and for general corporate purposes.
The Company incurred approximately
$
4.8
million
of debt issuance costs in conjunction with this transaction, which included
underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028
Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on
a senior basis by the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of the
Company's Credit Facility.
The Company may redeem some or all of the 2028 Notes, at its option, through December 31, 2025 for
100.854
%
, and on or after
January 1, 2026 for
100.0
%
, plus accrued and unpaid interest.
The holders of the 2028 Notes have the right to require the Company to repurchase all or a portion of the 2028 Notes at a purchase
price equal to
101.0
%
of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of
control.
The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. The Company was in compliance with all financial covenants as of
December 28, 2024
.
Asset-Based Loan Facility Amendment
On December 16, 2021, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”). The
Credit Agreement provides for a
$
750
million
principal amount senior secured asset-based revolving credit facility, with up to an additional
$
400
million
principal amount available with the consent of the Lenders, as defined, if the Company exercises the uncommitted accordion
feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 16, 2026. The Company may borrow,
repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility
must be repaid in full.
The Credit Facility is subject to a borrowing base that is calculated using a formula based upon eligible receivables and inventory, and
at the Company's election, eligible real property, minus certain reserves. Proceeds of the Credit Facility will be used for general corporate
purposes. Net availability under the Credit Facility was approximately
$
547
million
as of
December 28, 2024
. The Credit Facility includes a
$
50
million
sublimit for the issuance of standby letters of credit and a
$
75
million
sublimit for swing loan borrowings. As of
December 28,
2024
, there were
no
borrowings outstanding and
no
letters of credit outstanding under the Credit Facility. Outside of the Credit Facility, there
were other letters of credit of
$
3.0
million
outstanding as of
December 28, 2024
.
Borrowings under the Credit Facility bear interest at a rate based on SOFR (which will not be less than
0.00
%
) or, at the option of the
Company, the Base Rate, plus, in either case, an applicable margin based on the Company's usage under the Credit Facility. Base Rate is
defined as the highest of (a) the Truist Bank prime rate, (b) the Federal Funds Rate plus
0.50
%
, (c) one-month SOFR plus
1.00
%
and (d)
the applicable margin for Base Rate borrowings fluctuates between
0.00
%
-
0.50
%
, and was
0.00
%
as of
December 28, 2024
. An unused line
fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments under the Credit Facility. Standby letter of
credit fees at the applicable margin on the average undrawn and unreimbursed amount of standby letters of credit are payable quarterly and
a facing fee of
0.125
%
is payable quarterly for the stated amount of each letter of credit. The Company is also required to pay certain fees to
the administrative agent under the Credit Facility. As of
December 28, 2024
, the interest rate applicable to Base Rate borrowings was
7.5
%
,
and the interest rate applicable to one-month SOFR-based borrowings was
5.4
%
.
16
The Company incurred approximately
$
2.4
million
of debt issuance costs in conjunction with this transaction, which included lender
fees and legal expenses. The debt issuance costs are being amortized over the term of the Credit Facility.
The Credit Facility contains customary covenants, including financial covenants which require the Company to maintain a minimum
fixed charge coverage ratio of
1
:1 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the
agreement), reporting requirements and events of default. The Credit Facility is secured by substantially all assets of the borrowing parties,
including (i) pledges of
100
%
of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii)
exceptions. The Company was in compliance with all financial covenants under the Credit Facility as of
December 28, 2024
.
17
8.
Supplemental Equity Information
noncontrolling interest through the
three months ended
December 28, 2024
and
December 30, 2023
.
|
Controlling Interest
|
||||||||||||||||||
|
Common
Stock
|
Class A
Common
Stock
|
Class
B
Stock
|
Additional
Paid In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total
|
Noncontrolling
Interest
|
Total
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
|
Balance September 28, 2024
|
$
|
$
|
$
|
$
|
$
|
$
(
|
$
|
$
|
$
|
|||||||||
|
Comprehensive income (loss)
|
—
|
—
|
—
|
—
|
|
(
|
|
|
|
|||||||||
|
Amortization of share-based
awards
|
—
|
—
|
—
|
|
—
|
—
|
|
—
|
|
|||||||||
|
Restricted share activity,
including net share settlement
|
—
|
(
|
—
|
(
|
—
|
—
|
(
|
—
|
(
|
|||||||||
|
Issuance of common stock,
including net share settlement
of stock options
|
—
|
|
—
|
|
—
|
—
|
|
—
|
|
|||||||||
|
Repurchase of stock
|
(
|
(
|
—
|
(
|
(
|
—
|
(
|
—
|
(
|
|||||||||
|
Distribution to Noncontrolling
interest
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
|||||||||
|
Balance December 28, 2024
|
$
|
$
|
$
|
$
|
$
|
$
(
|
$
|
$
|
$
|
|||||||||
|
|
Controlling Interest
|
|
|
|||||||||||||||
|
Common
Stock
|
Class A
Common
Stock
|
Class
B
Stock
|
Additional
Paid In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total
|
Noncontrolling
Interest
|
Total
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
|
Balance September 30, 2023
|
$
|
$
|
$
|
$
|
$
|
$
(
|
$
|
$
|
$
|
|||||||||
|
Comprehensive income
|
—
|
—
|
—
|
—
|
|
|
|
|
|
|||||||||
|
Amortization of share-based
awards
|
—
|
—
|
—
|
|
—
|
—
|
|
—
|
|
|||||||||
|
Restricted share activity,
including net share settlement
|
—
|
(
|
—
|
(
|
—
|
—
|
(
|
—
|
(
|
|||||||||
|
Issuance of common stock,
including net share settlement
of stock options
|
—
|
|
—
|
(
|
—
|
—
|
(
|
—
|
(
|
|||||||||
|
Repurchase of stock
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
—
|
(
|
|||||||||
|
Distribution to Noncontrolling
interest
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
|||||||||
|
Balance December 30, 2023
|
$
|
$
|
$
|
$
|
$
|
$
(
|
$
|
$
|
$
|
|||||||||
9.
Stock-Based Compensation
The Company recognized share-based compensation expense of
$
5.5
million
and
$
6.0
million
for the
three months ended
December
28, 2024
and
December 30, 2023
, respectively, as a component of selling, general and administrative expenses. The tax benefit associated
with share-based compensation expense for the
three months ended
December 28, 2024
and
December 30, 2023
was
$
1.3
million
and
$
1.4
million
, respectively.
18
10.
Earnings Per Share
continuing operations.
|
Three Months Ended
|
||||||
|
December 28, 2024
|
||||||
|
Income
|
Shares
|
Per Share
|
||||
|
(in thousands, except per share amounts)
|
||||||
|
Basic EPS:
|
||||||
|
Net income available to common shareholders
|
$
|
|
$
|
|||
|
Effect of dilutive securities:
|
||||||
|
Options to purchase common stock
|
|
|
|
|||
|
Restricted shares
|
|
|
(
|
|||
|
Performance stock units
|
|
|
|
|||
|
Diluted EPS:
|
||||||
|
Net income available to common shareholders
|
$
|
|
$
|
|||
|
Three Months Ended
|
||||||
|
December 30, 2023
|
||||||
|
Income
|
Shares
|
Per Share
|
||||
|
(in thousands, except per share amounts)
|
||||||
|
Basic EPS:
|
||||||
|
Net income available to common shareholders
|
$
|
|
$
|
|||
|
Effect of dilutive securities:
|
||||||
|
Options to purchase common stock
|
|
|
|
|||
|
Restricted shares
|
|
|
|
|||
|
Performance stock units
|
|
|
|
|||
|
Diluted EPS:
|
||||||
|
Net income available to common shareholders
|
$
|
|
$
|
|||
Options to purchase
0.8
million
shares of Class A common stock at prices ranging from
$
20.63
to
$
41.10
per share were outstanding
at
December 28, 2024
, and options to purchase
1.5
million
shares of Class A common stock at prices ranging from
$
20.63
to
$
41.10
per
share were outstanding at
December 30, 2023
.
For the three months ended
December 28, 2024
, approximately
0.3
million
options outstanding were not included in the computation
of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and
therefore, the effect of including these options would be anti-dilutive.
For the three months ended
December 30, 2023
, approximately
0.5
million
options outstanding were not included in the computation
of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and
therefore, the effect of including these options would be anti-dilutive.
19
11.
Segment Information
Management has determined that the Company has
two
operating segments, which are also reportable segments based on the level
at which the Chief Operating Decision Maker reviews the results of operations to make decisions regarding performance assessment and
resource allocation.
These operating segments are the Pet segment and the Garden segment. Substantially all of the Company's assets
and operations relate to its business in the United States.
Financial information relating to the Company's business segments is presented
in the table below.
|
|
Three Months Ended
|
|||
|
|
December 28, 2024
|
December 30, 2023
|
||
|
(in thousands)
|
||||
|
Net sales:
|
||||
|
Pet segment
|
$
|
$
|
||
|
Garden segment
|
|
|
||
|
Total net sales
|
$
|
$
|
||
|
Operating income (loss)
|
||||
|
Pet segment
|
|
|
||
|
Garden segment
|
|
(
|
||
|
Corporate
|
(
|
(
|
||
|
Total operating income
|
|
|
||
|
Interest expense - net
|
(
|
(
|
||
|
Other income (expense)
|
(
|
|
||
|
Income tax expense (benefit)
|
|
(
|
||
|
Income including noncontrolling interest
|
|
|
||
|
Net income attributable to noncontrolling interest
|
|
|
||
|
Net income attributable to Central Garden & Pet Company
|
$
|
$
|
||
|
Depreciation and amortization:
|
||||
|
Pet segment
|
$
|
$
|
||
|
Garden segment
|
|
|
||
|
Corporate
|
|
|
||
|
Total depreciation and amortization
|
$
|
$
|
||
|
December 28, 2024
|
December 30, 2023
|
September 28, 2024
|
||||
|
(in thousands)
|
||||||
|
Assets:
|
||||||
|
Pet segment
|
$
|
$
|
$
|
|||
|
Garden segment
|
|
|
|
|||
|
Corporate
|
|
|
|
|||
|
Total assets
|
$
|
$
|
$
|
|||
|
Goodwill (included in corporate assets above):
|
||||||
|
Pet segment
|
$
|
$
|
$
|
|||
|
Garden segment
|
|
|
|
|||
|
Total goodwill
|
$
|
$
|
$
|
|||
20
The tables below present the Company's disaggregated revenues by segment:
|
Three Months Ended December 28, 2024
|
||||||
|
Pet Segment
|
Garden Segment
|
Total
|
||||
|
(in millions)
|
||||||
|
Other pet products
|
$
|
$
|
$
|
|||
|
Dog and cat products
|
|
|
|
|||
|
Other manufacturers' products
|
|
|
|
|||
|
Wild bird products
|
|
|
|
|||
|
Other garden supplies
|
|
|
|
|||
|
Total
|
$
|
$
|
$
|
|||
|
Three Months Ended December 30, 2023
|
||||||
|
Pet Segment
|
Garden Segment
|
Total
|
||||
|
(in millions)
|
||||||
|
Other pet products
|
$
|
$
|
$
|
|||
|
Dog and cat products
|
|
|
|
|||
|
Other manufacturers' products
|
|
|
|
|||
|
Wild bird products
|
|
|
|
|||
|
Other garden supplies
|
|
|
|
|||
|
Total
|
$
|
$
|
$
|
|||
21
12.
Contingencies
The Company may from time to time become involved in legal proceedings in the ordinary course of business. Currently, the Company
is not a party to any legal proceedings the resolution of which management believes could have a material effect on the Company’s financial
position or results of operations with the exception of the proceeding below.
In 2012, Nite Glow Industries, Inc. and its owner, Marni Markell, (“Nite Glow”) filed suit in the U.S. District Court for New Jersey against
the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products
infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based
on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the
three
claims
and awarded damages of approximately
$
12.6
million
. The court ruled on post-trial motions in early June 2020, reducing the judgment
amount to
$
12.4
million
and denying the plaintiff's request for attorneys' fees. The Company filed its notice of appeal and the plaintiffs cross-
appealed. On July 14, 2021, the Federal Circuit Court of Appeals issued its decision on the appeal. The Federal Circuit concluded that the
Company did not infringe plaintiff's patent and determined that the breach of contract claim raised no non-duplicative damages and should be
dismissed. The court affirmed the jury's liability verdict on the misappropriation of confidential information claim but ordered a new trial on
damages on that single claim limited to the "head start" benefit, if any, generated by the confidential information. The retrial on the "head
start" damages issue concluded in early March 2024, but no decision has been issued by the court. The Company intends to vigorously
pursue its defenses in any future proceedings and believes that it will prevail on the merits as to the head start damages issue. While the
Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial
statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in
excess of management's expectations.
The Company has experienced, and may in the future experience, issues with products that may lead to product liability, recalls,
withdrawals, replacements of products, or regulatory actions by governmental authorities. The Company has not experienced recent issues
with products, the resolution of which, management believes would have a material effect on the Company’s financial position or results of
operations.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Company
Central Garden & Pet Company (“Central”) is a market leader in the pet and garden industries in the United States. For over 45 years,
Central has marketed innovative and trusted solutions helping lawns grow greener, gardens bloom bigger, pets live healthier, and
communities grow stronger. We manage our operations through two reportable segments: Pet and Garden.
Our Pet segment includes dog and cat supplies such as treats and chews, toys, beds and containment, grooming products, waste
management and training pads; supplies for aquatics, small animals, reptiles and pet birds including toys, enclosures and habitats, bedding,
food and supplements; products for equine and livestock, animal and household health and insect control products; live fish and small
animals as well as outdoor cushions. These products are sold under brands such as Aqueon®, Cadet®, C&S®, Comfort Zone®, Farnam®,
Four Paws®, Kaytee®, Nylabone® and Zilla®.
Our Garden segment includes lawn and garden consumables such as grass seed, vegetable, flower and herb packet seed; wild bird
feed, bird houses and other birding accessories; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers and live
plants. These products are sold under brands such as Amdro
®
, Ferry-Morse
®
, Pennington
®
and Sevin
®
.
In fiscal
2024
, our consolidated net sales were $3.2 billion, of which our Pet segment, or Pet, accounted for approximately $1.8 billion
and our Garden segment, or Garden, accounted for approximately $1.4 billion. In fiscal 2024, our operating income was $185 million
consisting of income from our Pet segment of $203 million, income from our Garden segment of $82 million and Corporate expenses of $100
million.
We were incorporated in Delaware in May 1992 as the successor to a California corporation that was formed in 1955. Our executive
offices are located at 1340 Treat Boulevard, Suite 600, Walnut Creek, California 94597, and our telephone number is (925) 948-4000. Our
website is www.central.com. The information on our website is not incorporated by reference in this quarterly report.
Recent Developments
Fiscal
2025
First
Quarter Financial Performance:
•
Net sales increased
$21.9 million
, or
3.5%
, from the prior year quarter to
$656.4 million
. Pet segment sales increased
$18.3 million
, and Garden segment sales increased
$3.6 million
.
•
Gross profit increased
$16.9 million
from the prior year quarter, and gross margin increased
160
basis points to
29.8%
.
22
•
Selling, general and administrative expense decreased
$2.7 million
from the prior year quarter to
$167.7 million
and as a
percentage of net sales decreased
140
basis points to
25.5%
.
•
Operating income increased
$19.6 million
from the prior year quarter to
$28.0 million
.
•
Net Income in the
first
quarter of fiscal
2025
was
$14.0 million
, or
$0.21
per diluted share, compared to
$0.4 million
, or
$0.01
per diluted share, in the
first
quarter of fiscal
2024
.
Results of Operations
Three Months Ended December 28, 2024
Compared with
Three Months Ended December 30, 2023
Net Sales
Net sales for the three months ended
December 28, 2024
, increased
$21.9 million
, or
3.5%
, to
$656.4 million
from
$634.5 million
for
the three months ended
December 30, 2023
. Net sales increased in both segments and was volume-based, benefitting from the timing of
shipments, which was favorably impacted by a shift forward of sales previously expected in our second fiscal quarter and the timing of
promotional activities in our Pet business. Branded product sales increased
$21.6 million
, and sales of other manufacturers’ products
increased
$0.3 million
.
Pet net sales increased
$18.3 million
, or
4.5%
, to
$427.5 million
for the three months
December 28, 2024
, from
$409.2 million
for the
three months ended
December 30, 2023
, due primarily to increased sales in our dog and cat treats and toys business. The increased sales
in Pet were volume-based and benefitted from the favorable timing of shipments. Sales of consumables increased while sales of durable
products declined, though the decline was at a lower rate than in previous quarters. Pet branded product sales increased
$13.6 million
, and
sales of other manufacturers' products increased
$4.7 million
.
Garden net sales increased
$3.6 million
, or
1.6%
, to
$228.9 million
for the three months ended
December 28, 2024
, from
$225.3 million
for the three months ended
December 30, 2023
, benefitting from the timing of shipments supported by favorable weather. The increase in
Garden net sales was due primarily to increased sales in our control and fertilizer businesses. Garden branded sales increased
$8.0 million
,
and sales of other manufacturers' products decreased
$4.4 million
.
Gross Profit
Gross profit for the three months ended
December 28, 2024
, increased
$16.9 million
, or
9.4%
, to
$195.7 million
from
$178.8 million
for
the three months ended
December 30, 2023
. Gross margin increased
160
basis points to
29.8%
for the three months ended
December 28,
2024
, from
28.2%
for the three months ended
December 30, 2023
. Both segments contributed to the gross profit increase due to higher
sales and improved gross margins. The gross margin improvement in both segments was driven by productivity gains resulting from our cost
and simplicity program (e.g., prior year facility consolidations and the exit of lower margin businesses) and moderating inflation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased
$2.7 million
, or
1.6%
, to
$167.7 million
for the three months ended
December
28, 2024
. As a percentage of net sales, selling, general and administrative expenses decreased to
25.5%
for the three months ended
December 28, 2024
, compared to
26.9%
in the comparable prior year quarter. Decreased selling, general and administrative expenses in
both Garden and corporate was partially offset by increased expense in Pet.
Selling and delivery expense increased
$3.4 million
to
$72.7 million
for the three months ended
December 28, 2024
, as compared to
$69.3 million
in the prior year quarter. The increase was in the Pet segment due primarily to higher media and digital marketing spend and
increased delivery costs related to the higher sales volume.
Warehouse and administrative expense declined
$6.1 million
, or
6.0%
, to
$95.0 million
for the three months ended
December 28, 2024
,
from
$101.1 million
for the three months ended
December 30, 2023
. Both Pet and Garden warehouse and administrative expense
decreased due primarily to savings from the recent closure of several facilities and headcount reductions. Corporate expense decreased
$0.4 million
, or
1.5%
, to $25.7 million for the three months ended
December 28, 2024
, due primarily to lower insurance costs partially offset
by increased third-party spend. Corporate expenses are included within administrative expense and relate to the costs of unallocated
executive, administrative, finance, legal, human resources, and information technology functions.
Operating Income
Operating income increased
$19.6 million
to
$28.0 million
for the three months ended
December 28, 2024
. Our operating margin
increased to
4.3%
in the current year quarter from
1.3%
in the prior year quarter. The increase in operating income was due to a
$21.9
million
increase in net sales, a
160
basis point increase in gross margin and a
$2.7 million
decrease in selling, general and administrative
expenses.
23
Pet operating income increased
$7.9 million
, or
18.1%
, to
$51.3 million
for the three months ended
December 28, 2024
, from
$43.4
million
for the three months ended
December 30, 2023
, and Pet operating margin improved
140
basis points to
12.0%
. Pet operating income
and margin increased due to higher net sales and an improved gross margin partially offset by higher selling, general and administrative
expenses.
Garden operating income improved
$11.3 million
to income of
$2.4 million
for the three months ended
December 28, 2024
, from an
operating loss of
$8.9 million
for the three months ended
December 30, 2023
, and Garden operating margin improved to
1.1%
. Garden
operating income increased due to higher net sales, an improved gross margin and lower selling, general and administrative expense.
Corporate operating expense decreased
$0.4 million
, or
1.5%
, from the prior year quarter due primarily to lower insurance costs
partially offset by increased third-party spend.
Net Interest Expense
Net interest expense for the three months ended
December 28, 2024
decreased
$2.0 million
, or
20.4%
, to
$7.7 million
from
$9.7 million
for the three months ended
December 30, 2023
.
The decrease in net interest expense was due to increased interest income resulting from
our higher cash balance during the current quarter
. Debt outstanding on
December 28, 2024
was
$1,190.4 million
compared to
$1,189.6
million
at
December 30, 2023
.
Other Income (Expense)
Other income is comprised of income or losses from investments accounted for under the equity method of accounting and foreign
currency exchange gains and losses. Other income decreased
$2.7 million
to an expense of
$1.7 million
for the quarter ended
December 28,
2024
from income of
$1.0 million
for the quarter ended
December 30, 2023
. The decrease in other income was due primarily to foreign
currency losses in the current year quarter as compared to foreign currency gains in the prior year quarter.
Income Taxes
Our effective income tax rate was
23.5%
for the quarter ended
December 28, 2024
. Income tax expense was
$4.4 million
for the
quarter ended
December 28, 2024
, compared to an income tax benefit of
$0.9 million
for the quarter ended
December 30, 2023
. The
increase in income tax expense for the quarter ended December 28, 2024, compared to the prior year fiscal quarter was due to higher pre-tax
earnings.
Net Income and Earnings Per Share
Net income in the
first
quarter of fiscal
2025
was
$14.0 million
, or
$0.21
per diluted share, compared to
$0.4 million
, or
$0.01
per diluted
share, in the
first
quarter of fiscal
2024
.
The increase in net income and earnings per share was due to a
$19.6 million
increase in operating
income and lower net interest expense partially offset by a decrease in other income (expense).
Use of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles ("GAAP"). However, to supplement the
financial results prepared in accordance with GAAP, we use non-GAAP financial measures including adjusted EBITDA. Management uses
adjusted EBITDA in making financial, operating and planning decisions and in evaluating our performance. Management believes this non-
GAAP financial measure may be useful to investors in their assessment of our ongoing operating performance and provide additional
meaningful comparisons between current results and results in prior operating periods. While Management believes that this non-GAAP
measure is useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read
in conjunction with those GAAP results.
Adjusted EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and
amortization and stock-based compensation expense (or operating income plus depreciation and amortization expense and stock-based
compensation expense). We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplemental measure in
evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. Adjusted
EBITDA is used by our management to perform such evaluations. Adjusted EBITDA should not be considered in isolation or as a substitute
for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe
that adjusted EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many
of which present adjusted EBITDA when reporting their results. Other companies may calculate adjusted EBITDA differently and it may not
be comparable.
The reconciliations of adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance
with GAAP are shown in the tables below.
24
|
Adjusted EBITDA Reconciliation
|
GAAP to Non-GAAP Reconciliation
|
|||||||
|
Three Months Ended December 28, 2024
|
||||||||
|
Pet
|
Garden
|
Corporate
|
Total
|
|||||
|
(in thousands)
|
||||||||
|
Net income attributable to Central Garden & Pet Company
|
$
—
|
$
—
|
$
—
|
$
14,009
|
||||
|
Interest expense, net
|
—
|
—
|
—
|
7,730
|
||||
|
Other expense
|
—
|
—
|
—
|
1,717
|
||||
|
Income tax expense
|
—
|
—
|
—
|
4,364
|
||||
|
Net income attributable to noncontrolling interest
|
—
|
—
|
—
|
172
|
||||
|
Income (loss) from operations
|
51,257
|
2,423
|
(25,688)
|
27,992
|
||||
|
Depreciation & amortization
|
10,080
|
11,131
|
723
|
21,934
|
||||
|
Noncash stock-based compensation
|
—
|
—
|
5,510
|
5,510
|
||||
|
Adjusted EBITDA
|
$
61,337
|
$
13,554
|
$
(19,455)
|
$
55,436
|
||||
|
Adjusted EBITDA Reconciliation
|
GAAP to Non-GAAP Reconciliation
|
|||||||
|
Three Months Ended December 30, 2023
|
||||||||
|
Pet
|
Garden
|
Corporate
|
Total
|
|||||
|
(in thousands)
|
||||||||
|
Net income attributable to Central Garden & Pet Company
|
$
—
|
$
—
|
$
—
|
$
430
|
||||
|
Interest expense, net
|
—
|
—
|
—
|
9,707
|
||||
|
Other income
|
—
|
—
|
—
|
(993)
|
||||
|
Income tax benefit
|
—
|
—
|
—
|
(869)
|
||||
|
Net income attributable to noncontrolling interest
|
—
|
—
|
—
|
137
|
||||
|
Income (loss) from operations
|
43,388
|
(8,886)
|
(26,090)
|
8,412
|
||||
|
Depreciation & amortization
|
10,798
|
11,006
|
741
|
22,545
|
||||
|
Noncash stock-based compensation
|
—
|
—
|
6,021
|
6,021
|
||||
|
Adjusted EBITDA
|
$
54,186
|
$
2,120
|
$
(19,328)
|
$
36,978
|
||||
Inflation
Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, interest rates,
consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of
consumer spending. Inflation moderated in fiscal 2024. This has continued into fiscal 2025, and and we have benefitted from lower cost
inventory and significant productivity gains resulting in improved margins.
Weather and Seasonality
Our sales of lawn and garden products are impacted by weather conditions in the different markets we serve. Our Garden segment’s
business is highly seasonal. In fiscal 2024, approximately
66%
of our Garden segment’s net sales and 59% of our total net sales occurred
during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is typically generated in this period.
Liquidity and Capital Resources
We have financed our growth through a combination of cash generated from operations, bank borrowings, supplier credit, and sales of
equity and debt securities.
Our business is seasonal, and our working capital requirements and capital resources track closely to this seasonal pattern. Generally,
during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin
to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of
inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels
remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during
the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are
substantially reduced through conversion of receivables to cash.
25
We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses have a year round selling
cycle with a slight degree of seasonality. As a result, it is not necessary to maintain large quantities of inventory to meet peak demands. Our
lawn and garden businesses are highly seasonal with approximately
66%
of our Garden segment’s net sales occurring during the second and
third fiscal quarters. This seasonality requires the shipment of large quantities of product well ahead of the peak consumer buying periods. To
encourage retailers and distributors to stock large quantities of inventory, industry practice has been for manufacturers to give extended
credit terms and/or promotional discounts.
Operating Activities
Net cash used by operating activities decreased by
$1.0 million
, from
$69.8 million
for the
three months ended
December 30, 2023
, to
$68.8 million
for the
three months ended
December 28, 2024
. The decrease in cash used by operating activities was due primarily to
changes in our working capital accounts for the period ended
December 28, 2024
, as compared to the prior year period, primarily increased
accounts receivable partially offset by decreased inventories.
Investing Activities
Net cash used in investing activities decreased
$61.1 million
, from
$70.5 million
for the
three months ended
December 30, 2023
to
$9.4
million
during the
three months ended
December 28, 2024
. The decrease in cash used in investing activities was due primarily to greater
acquisition activity in the prior year and decreased capital expenditures in the current year.
Financing Activities
Net cash used by financing activities increased
$47.7 million
, from
$7.8 million
for the
three months ended
December 30, 2023
, to
$55.4 million
for the
three months ended
December 28, 2024
. The increase in cash used by financing activities during the current year was
due primarily to increased open market purchases of our common stock as compared to the prior year. During the
three months ended
December 28, 2024
, we repurchased approximately
1.3 million
shares of our non-voting Class A common stock (CENTA) on the open market
at an aggregate cost of approximately
$39.9 million
and
0.4 million
shares of our voting common stock (CENT) on the open market at an
aggregate cost of approximately
$12.3 million
. During the three months ended
December 30, 2023
, we repurchased approximately
49,000
shares of our non-voting Class A common stock (CENTA) on the open market at an aggregate cost of approximately
$1.4 million
.
We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $750
million Credit Facility. Based on our anticipated cash needs, availability under our Credit Facility and the scheduled maturity of our debt, we
believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the
next 12 months and beyond. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and,
should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.
We believe that cash flows from operating activities, funds available under our Credit Facility, and arrangements with suppliers will be
adequate to fund our presently anticipated working capital and capital expenditure requirements for the foreseeable future. We anticipate that
our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also
investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $70 million in
fiscal
2025
, of which we have invested approximately
$6 million
through
December 28, 2024
.
As part of our growth strategy, we have acquired a number of companies in the past, and we anticipate that we will continue to
evaluate potential acquisition candidates in the future. If one or more potential acquisition opportunities, including those that would be
material, become available in the near future, we may require additional external capital. In addition, such acquisitions would subject us to the
general risks associated with acquiring companies, particularly if the acquisitions are relatively large.
Total Debt
At
December 28, 2024
, our total debt outstanding was
$1,190.4 million
, as compared with
$1,189.6 million
at
December 30, 2023
.
Senior Notes
$400 million
4.125%
Senior Notes due 2031
In April 2021, we issued
$400 million
aggregate principal amount of
4.125%
senior notes due April 2031 (the "2031 Notes"). We used
a portion of the net proceeds from the offering to repay all outstanding borrowings under our Credit Facility, with the remainder used for
general corporate purposes.
We incurred approximately
$6 million
of debt issuance costs in conjunction with this issuance, which included underwriter fees and
legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2031 Notes.
26
The 2031 Notes require semi-annual interest payments on April 30 and October 30. The 2031 Notes are unconditionally guaranteed on
a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Credit
Facility. The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the Securities Act of 1933.
We may redeem some or all of the 2031 Notes at any time, at our option, prior to April 30, 2026 at the principal amount plus a "make
whole" premium. We may redeem some or all of the 2031 Notes at our option, at any time on or after April 30, 2026 for
102.063%
, on or after
April 30, 2027 for 101.375%, on or after April 30, 2028 for
100.688%
and on or after April 30, 2029 for
100.0%
, plus accrued and unpaid
interest.
The holders of the 2031 Notes have the right to require us to repurchase all or a portion of the 2031 Notes at a purchase price equal to
101%
of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of specific kinds of changes
of control.
The 2031 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. We were in compliance with all financial covenants as of
December 28, 2024
.
$500 million
4.125%
Senior Notes due 2030
In October 2020, we issued
$500 million
aggregate principal amount of
4.125%
senior notes due October 2030 (the "2030 Notes"). We
used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a
redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder used for general
corporate purposes.
We incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and
legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.
The 2030 Notes require semiannual interest payments on October 15 and April 15. The 2030 Notes are unconditionally guaranteed on
a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our Credit
Facility.
We may redeem some or all of the 2030 Notes at any time, at our option, prior to October 15, 2025 at a price equal to 100% of the
principal amount plus a “make-whole” premium. We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time
on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or
after October 15, 2028 for 100.0%, plus accrued and unpaid interest.
The holders of the 2030 Notes have the right to require us to repurchase all or a portion of the 2030 Notes at a purchase price equal to
101.0%
of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. We were in compliance with all financial covenants as of
December 28, 2024
.
$300 Million 5.125% Senior Notes due 2028
In December 2017, we issued
$300 million
aggregate principal amount of
5.125%
senior notes due February 2028 (the "2028 Notes").
We used the net proceeds from the offering to finance acquisitions and for general corporate purposes.
We incurred approximately
$4.8 million
of debt issuance costs in conjunction with this transaction, which included underwriter fees and
legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on
a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our Credit Facility.
We may redeem some or all of the 2028 Notes at our option, through December 31, 2025 for
100.854%
and on or after January 1,
2026 for
100.0%
, plus accrued and unpaid interest.
The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 Notes at a purchase price equal to
101.0%
of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject
to certain baskets and exceptions. We were in compliance with all financial covenants as of
December 28, 2024
.
27
Asset-Based Loan Facility Amendment
On December 16, 2021, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit
Agreement provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400
million principal amount available with the consent of the Lenders, as defined, if we exercise the uncommitted accordion feature set forth
therein (collectively, the “Credit Facility”). The Credit Facility matures on December 16, 2026. We may borrow, repay and reborrow amounts
under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.
The Credit Facility is subject to a borrowing base that is calculated using a formula based upon eligible receivables and inventory, and
at our election, eligible real property, minus certain reserves. Proceeds of the Credit Facility will be used for general corporate purposes. Net
availability under the Credit Facility was approximately
$547 million
as of
December 28, 2024
. The Credit Facility includes a
$50 million
sublimit for the issuance of standby letters of credit and a
$75 million
sublimit for swing loan borrowings. As of
December 28, 2024
, there
were
no
borrowings outstanding and
no
letters of credit outstanding under the Credit Facility. Outside of the Credit Facility, there were other
standby and commercial letters of credit of
$3.0 million
outstanding as of
December 28, 2024
.
Borrowings under the Credit Facility bear interest at a rate based on SOFR (which will not be less than 0.00%) or, at our option, the
Base Rate, plus, in either case, an applicable margin based on our usage under the Credit Facility. Base Rate is defined as the highest of (a)
the Truist Bank prime rate, (b) the Federal Funds Rate plus
0.50%
, (c) one-month SOFR plus
1.00%
and (d)
0.00%
. The applicable margin
for SOFR-based borrowings fluctuates between
1.00%
-
1.50%
, and was
1.00%
as of
December 28, 2024
, and the applicable margin for Base
Rate borrowings fluctuates between
0.00%
-
0.50%
, and was
0.00%
as of
December 28, 2024
. An unused line fee shall be payable quarterly
in respect of the total amount of the unutilized Lenders’ commitments under the Credit Facility. Standby letter of credit fees at the applicable
margin on the average undrawn and unreimbursed amount of standby letters of credit are payable quarterly and a facing fee of
0.125%
is
payable quarterly for the stated amount of each letter of credit. We are also required to pay certain fees to the administrative agent under the
Credit Facility. As of
December 28, 2024
, the interest rate applicable to Base Rate borrowings was
7.5%
, and the interest rate applicable to
one-month SOFR-based borrowings was
5.4%
.
We incurred approximately
$2.4 million
of debt issuance costs in conjunction with this transaction, which included lender fees and legal
expenses. The debt issuance costs are being amortized over the term of the Credit Facility.
The Credit Facility contains customary covenants, including financial covenants which require us to maintain a minimum fixed charge
coverage ratio of
1
:1 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement),
reporting requirements and events of default. The Credit Facility is secured by substantially all assets of the borrowing parties, including (i)
pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the
stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions.
We were in compliance with all financial covenants under the Credit Facility as of
December 28, 2024
.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities
Central (the "Parent/Issuer") issued $400 million of 2031 Notes in April 2021,
$500
million of 2030 Notes in October 2020, and
$300
million
of 2028 Notes in December 2017. The 2031 Notes, 2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint
and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are guarantors of our
Credit Facility. The 2031 Notes, 2030 Notes and 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and
future secured debt, including our Credit Facility, to the extent of the value of the collateral securing such indebtedness. There are no
significant restrictions on the ability of the Guarantors to make distributions to the Parent/Issuer. Certain subsidiaries and operating divisions
of the Company do not guarantee the 2031, 2030 or 2028 Notes and are referred to as the Non-Guarantors.
The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and
interest on the 2031, 2030 and 2028 Notes when due, whether at stated maturity of the 2031, 2030 and 2028 Notes, by acceleration, call for
redemption or otherwise, and all other obligations of the Company to the holders of the 2031, 2030 and 2028 Notes and to the trustee under
the indenture governing the 2031, 2030 and 2028 Notes (the "Guarantee"). The Guarantees are senior unsecured obligations of each
Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.
The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as well, after giving effect to all other
contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under
Federal or state law.
The Guarantee of a Guarantor will be released:
(1) upon any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or
consolidation), in accordance with the governing indentures, to any person other than the Company;
(2) if such Guarantor merges with and into the Company, with the Company surviving such merger;
28
(3) if the Guarantor is designated as an Unrestricted Subsidiary; or
(4) if the Company exercises its legal defeasance option or covenant defeasance option or the discharge of the Company's obligations
under the indentures in accordance with the terms of the indentures.
The following tables present summarized financial information of the Parent/Issuer subsidiaries and the Guarantor subsidiaries. All
intercompany balances and transactions between subsidiaries under Parent/Issuer and subsidiaries under the Guarantor have been
eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In
presenting the summarized financial statements, the equity method of accounting has been applied to the Parent/Issuer's interests in the
Guarantor Subsidiaries. The summarized information excludes financial information of the Non-Guarantors, including earnings from and
investments in these entities.
|
Summarized Statements of Operations
|
Three Months Ended
|
Fiscal Year Ended
|
|||||
|
December 28, 2024
|
September 28, 2024
|
||||||
|
Parent/Issuer
|
Guarantors
|
Parent/Issuer
|
Guarantors
|
||||
|
(in thousands)
|
|||||||
|
Net sales
|
$
171,663
|
$
483,634
|
$
694,083
|
$
2,491,748
|
|||
|
Gross profit
|
$
40,673
|
$
153,198
|
$
154,310
|
$
771,737
|
|||
|
Income (loss) from operations
|
$
(572)
|
$
30,200
|
$
(6,164)
|
$
189,406
|
|||
|
Equity in earnings of Guarantor subsidiaries
|
$
27,175
|
$
—
|
$
163,797
|
$
—
|
|||
|
Net income (loss)
|
$
(9,063)
|
$
27,175
|
$
(58,047)
|
$
163,797
|
|||
|
Summarized Balance Sheet Information
|
As of
|
As of
|
|||||
|
December 28, 2024
|
September 28, 2024
|
||||||
|
Parent/Issuer
|
Guarantors
|
Parent/Issuer
|
Guarantors
|
||||
|
(in thousands)
|
|||||||
|
Current assets
|
$
840,292
|
$
996,562
|
$
936,497
|
$
896,476
|
|||
|
Intercompany receivable from Non-guarantor
subsidiaries
|
82,168
|
—
|
76,084
|
—
|
|||
|
Other assets
|
3,824,955
|
3,284,236
|
3,799,521
|
3,330,344
|
|||
|
Total assets
|
$
4,747,415
|
$
4,280,798
|
$
4,812,102
|
$
4,226,820
|
|||
|
Current liabilities
|
$
163,665
|
$
366,666
|
$
164,607
|
$
342,289
|
|||
|
Intercompany payable from Non-guarantor
subsidiaries
|
—
|
1,986
|
—
|
1,003
|
|||
|
Long-term debt
|
1,190,127
|
144
|
1,189,655
|
154
|
|||
|
Other liabilities
|
1,856,056
|
228,761
|
1,888,312
|
234,308
|
|||
|
Total liabilities
|
$
3,209,848
|
$
597,557
|
$
3,242,574
|
$
577,754
|
|||
New Accounting Pronouncements
Refer to Footnote 1 in the notes to the condensed consolidated financial statements for new accounting pronouncements.
Critical Accounting Policies, Estimates and Judgments
There have been no material changes to our critical accounting policies, estimates and assumptions or the judgments affecting the
application of those accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended
September 28, 2024
.
29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our exposure to market risk from that disclosed in our Annual Report on Form 10-K for the fiscal
year ended
September 28, 2024
.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our Principal Executive Officer and Principal Financial Officer, have reviewed, as of the end of the period
covered by this report, the “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) that ensure that information relating to the Company required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported in a timely and proper manner and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. Based upon this review, such officers concluded that our disclosure controls and procedures were
effective as of
December 28, 2024
.
Changes in Internal Control Over Financial Reporting
Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, have evaluated whether
any change in our internal control over financial reporting occurred during the first quarter of fiscal
2025
. There have been no changes in our
internal control over financial reporting during the first quarter of fiscal
2025
that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
In 2012, Nite Glow Industries, Inc. and its owner, Marni Markell, (“Nite Glow”) filed suit in the U.S. District Court for New Jersey against
the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products
infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based
on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the
three
claims
and awarded damages of approximately
$12.6 million
. The court ruled on post-trial motions in early June 2020, reducing the judgment
amount to
$12.4 million
and denying the plaintiff's request for attorneys' fees. The Company filed its notice of appeal and the plaintiffs cross-
appealed. On July 14, 2021, the Federal Circuit Court of Appeals issued its decision on the appeal. The Federal Circuit concluded that the
Company did not infringe plaintiff's patent and determined that the breach of contract claim raised no non-duplicative damages and should be
dismissed. The court affirmed the jury's liability verdict on the misappropriation of confidential information claim but ordered a new trial on
damages on that single claim limited to the "head start" benefit, if any, generated by the confidential information. The retrial on the "head
start" damages issue concluded in early March 2024, but no decision has been issued by the court. The Company intends to vigorously
pursue its defenses in any future proceedings and believes that it will prevail on the merits as to the head start damages issue. While the
Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial
statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in
excess of management's expectations.
From time to time, we are involved in certain legal proceedings in the ordinary course of business. Except as discussed above, we are
not currently a party to any other legal proceedings that management believes would have a material effect on our financial position or results
of operations.
Item 1A.
Risk Factors
There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year
ended
September 28, 2024
.
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the repurchases of any equity securities during the fiscal quarter ended
December 28, 2024
and the dollar
amount of authorized share repurchases remaining under our stock repurchase programs.
|
Period
|
Total Number of
Shares (or Units)
Purchased
|
Average
Price Paid
per Share
(or Units)
|
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs (1)(2)
|
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
(1)(2)
|
|||||||
|
September 29, 2024 - November 2, 2024
|
1,270,368
|
(1) (2) (3)
|
$
30.77
|
1,261,989
|
$
44,329,000
|
||||||
|
November 3, 2024 - November 30, 2024
|
415,643
|
(1) (3)
|
$
32.00
|
415,643
|
$
31,028,000
|
||||||
|
December 1, 2024 - December 28, 2024
|
44,593
|
(3)
|
$
35.03
|
—
|
$
131,028,000
|
||||||
|
Total
|
1,730,604
|
$
31.17
|
1,677,632
|
$
131,028,000
|
(4)
|
(1)
In August 2019, our Board of Directors authorized a share repurchase program to purchase up to $100 million of our common stock
(the "2019 Repurchase Authorization”). The 2019 Repurchase Authorization has no fixed expiration date and expires when the
amount authorized has been used or the Board withdraws its authorization. In December 2024, our Board of Directors authorized a
$100 million increase in the share repurchase program, (the "2024 Repurchase Authorization"). The 2024 Repurchase
Authorization has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its
authorization. The repurchase of shares may be limited by certain financial covenants in our credit facility that restrict our ability to
repurchase our stock. As of
December 28, 2024
, we had $131 million of authorization remaining under our 2024 Repurchase
Authorization and 2019 Repurchase Authorization, collectively.
(2)
In February 2019, our Board of Directors authorized us to make supplemental stock purchases to minimize dilution resulting from
issuances under our equity compensation plans (the “Equity Dilution Authorization”). In addition to our 2019 and 2024 Repurchase
Authorizations, we are permitted to purchase annually a number of shares equal to the number of shares of restricted stock and
stock options granted in the prior fiscal year, to the extent not already repurchased, and the current fiscal year. The Equity Dilution
Authorization has no fixed expiration date and expires when the Board withdraws its authorization.
(3)
Shares purchased during the period indicated include withholding of a portion of shares to cover taxes in connection with the
vesting of restricted stock and do not reduce the dollar value of shares that may be purchased under our stock repurchase plan.
(4)
During the period, we repurchased 1,677,632 shares under the two programs, 1,321,243 CENTA shares and 356,389 CENT
shares, including 37,563 shares repurchased under the Equity Dilution Authorization and 1,640,069 shares repurchased under the
2019 Repurchase Authorization.
Item 3.
Defaults Upon Senior Securities
Not applicable
Item 4.
Mine Safety Disclosures
Not applicable
Item 5.
Other Information
During the quarter ended December 28, 2024, none of our directors or officers informed us of the
adoption
, modification or
termination
of a "Rule 10b5-1 trading arrangement"or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
31
|
Item 6.
|
Exhibits
|
||||||||||||
|
Incorporated by Reference
|
|||||||||||||
|
Exhibit
Number
|
Exhibit
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
Filed
Herewith
|
Furnished,
Not Filed
|
||||||
|
10.23
|
X
|
||||||||||||
|
22
|
X
|
||||||||||||
|
31.1
|
X
|
||||||||||||
|
31.2
|
X
|
||||||||||||
|
32.1
|
X
|
||||||||||||
|
32.2
|
X
|
||||||||||||
|
101
|
The following financial statements from the
Company’s Quarterly Report on Form 10-Q for the
quarter ended December 28, 2024, formatted in
Inline XBRL: (i) Condensed Consolidated
Statements of Cash Flows, (ii) Condensed
Consolidated Statements of Operations, (iii)
Condensed Consolidated Statements of
Comprehensive Income, (iv) Condensed
Consolidated Balance Sheets, and (v) Notes to
Condensed Consolidated Financial Statements,
tagged as blocks of text and including detailed tags.
|
X
|
|||||||||||
|
104
|
The cover page from the Company's Quarterly
Report on Form 10-Q for the quarter ended
December 28, 2024, formatted in Inline XBRL
(included as Exhibit 101)
|
||||||||||||
32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
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CENTRAL GARDEN & PET COMPANY
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Registrant
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Dated: February 6, 2025
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/s/ NICHOLAS LAHANAS
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Nicholas Lahanas
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Chief Executive Officer
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(Principal Executive Officer)
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/s/ BRADLEY G. SMITH
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Bradley G. Smith
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Chief Financial Officer
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(Principal Financial Officer)
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits