Company Quick10K Filing
Quick10K
Central Garden & Pet
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.77 58 $1,680
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-24 Quarter: 2017-06-24
10-Q 2017-03-25 Quarter: 2017-03-25
10-Q 2016-12-24 Quarter: 2016-12-24
10-K 2016-09-24 Annual: 2016-09-24
10-Q 2016-06-25 Quarter: 2016-06-25
10-Q 2016-03-26 Quarter: 2016-03-26
10-Q 2015-12-26 Quarter: 2015-12-26
10-K 2015-09-26 Annual: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-02-08 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2018-11-27 Earnings, Exhibits
8-K 2018-11-02 Officers, Exhibits
8-K 2018-08-06 Enter Agreement, Regulation FD, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-02-12 Officers, Shareholder Vote
8-K 2018-02-07 Earnings, Exhibits
AMGN Amgen 105,440
DOX Amdocs 7,530
HPP Hudson Pacific Properties 5,320
WLDN Willdan Group 411
SPLP Steel Partners Holdings 341
ACRS Aclaris 245
DCAC Danielsorate Advisory Company 0
CLRI Cleartronic 0
CAW CCA Industries 0
NWGI Newgioco Group 0
CENT 2019-03-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
EX-4.1 q22019exhibit41.htm
EX-10.1 q22019exhibit101.htm
EX-31.1 q22019exhibit311.htm
EX-31.2 q22019exhibit312.htm
EX-32.1 q22019exhibit321.htm
EX-32.2 q22019exhibit322.htm

Central Garden & Pet Earnings 2019-03-30

CENT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019-q2x10xq.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________________________ 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019
or
¨
TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-33268
centralgardenlogoa05.jpg
Delaware
 
68-0275553
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1340 Treat Blvd., Suite 600, Walnut Creek, California 94597
(Address of principal executive offices)
(925) 948-4000
(Registrant’s telephone number, including area code)
_______________________________________________________________________ 
(Former name, former address and former fiscal year, if changed since last report)
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.
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
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    ý  No
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock
 
CENT
 
The NASDAQ Stock Market LLC
Class A Common Stock
 
CENTA
 
The NASDAQ Stock Market LLC
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Common Stock Outstanding as of April 29, 2019
12,145,135

 
 
Class A Common Stock Outstanding as of April 29, 2019
44,476,424

 
 
Class B Stock Outstanding as of April 29, 2019
1,652,262

 
 



 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II. OTHER INFORMATION
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
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, capital expenditures, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries 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 future earnings expectations, 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 29, 2018, 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:
 
seasonality and fluctuations in our operating results and cash flow;
fluctuations in market prices for seeds and grains and other raw materials;
our inability to pass through cost increases in a timely manner;

2


the impending retirement of our CEO, the transition to a successor, our dependence upon our key executives and the ability to execute on our succession plan;
risks associated with new product introductions, including the risk that our new products will not produce sufficient sales to recoup our investment;
fluctuations in energy prices, fuel and related petrochemical costs;
declines in consumer spending during economic downturns;
inflation, deflation and other adverse macro-economic conditions;
supply shortages in pet birds, small animals and fish;
adverse weather conditions;
risks associated with our acquisition strategy;
access to and cost of additional capital;
dependence on a small number of customers for a significant portion of our business;
potential impacts of tariffs or trade war;
consolidation trends in the retail industry;
competition in our industries;
potential goodwill or intangible asset impairment;
continuing implementation of an enterprise resource planning information technology system;
our inability to protect our trademarks and other proprietary rights;
potential environmental liabilities;
risk associated with international sourcing;
litigation and product liability claims;
regulatory issues;
the impact of product recalls;
potential costs and risks associated with actual or potential cyber attacks;
the impact of new accounting regulations and the U.S. Tax Cuts and Jobs Act on the Company's tax rate;
the voting power associated with our Class B stock; and
potential dilution from issuance of authorized shares.


3


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)
 
 
March 30,
2019
 
March 31,
2018
 
September 29,
2018
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
329,724

 
$
132,265

 
$
482,106

Restricted cash
16,115

 
13,948

 
10,899

Accounts receivable (less allowance for doubtful accounts of $16,818, $20,976 and $24,125)
456,129

 
395,151

 
275,908

Inventories, net
517,158

 
465,522

 
427,823

Prepaid expenses and other
33,161

 
26,677

 
20,562

Total current assets
1,352,287

 
1,033,563

 
1,217,298

Land, buildings, improvements and equipment—net
217,538

 
210,563

 
217,647

Goodwill
281,177

 
268,243

 
281,177

Other intangible assets—net
142,798

 
141,530

 
152,265

Other assets
52,340

 
50,064

 
38,822

Total
$
2,046,140

 
$
1,703,963

 
$
1,907,209

LIABILITIES AND EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
157,596

 
$
150,975

 
$
110,259

Accrued expenses
136,413

 
116,414

 
102,583

Current portion of long-term debt
5,119

 
20

 
122

Total current liabilities
299,128

 
267,409

 
212,964

Long-term debt
692,646

 
691,084

 
692,031

Deferred taxes and other long-term obligations
55,064

 
40,368

 
49,380

Equity:
 
 
 
 
 
Common stock, $0.01 par value: 12,145,135 shares outstanding at March 30, 2019, March 31, 2018 and September 29, 2018
121

 
121

 
121

Class A common stock, $0.01 par value: 44,386,792, 38,171,595 and 43,953,265 shares outstanding at March 30, 2019, March 31, 2018 and September 29, 2018
444

 
382

 
439

Class B stock, $0.01 par value: 1,652,262 shares outstanding
16

 
16

 
16

Additional paid-in capital
592,331

 
393,852

 
590,168

Accumulated earnings
407,117

 
310,810

 
362,923

Accumulated other comprehensive loss
(1,280
)
 
(673
)
 
(1,218
)
Total Central Garden & Pet Company shareholders’ equity
998,749

 
704,508

 
952,449

Noncontrolling interest
553

 
594

 
385

Total equity
999,302

 
705,102

 
952,834

Total
$
2,046,140

 
$
1,703,963

 
$
1,907,209

See notes to condensed consolidated financial statements.

4


CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
March 30,
2019

March 31,
2018
 
March 30,
2019
 
March 31,
2018
Net sales
$
673,701

 
$
613,094

 
$
1,135,691

 
$
1,055,105

Cost of goods sold and occupancy
467,650

 
418,637

 
799,458

 
728,811

Gross profit
206,051

 
194,457

 
336,233

 
326,294

Selling, general and administrative expenses
143,898

 
128,671

 
263,899

 
237,987

Operating income
62,153

 
65,786

 
72,334

 
88,307

Interest expense
(10,640
)
 
(10,575
)
 
(21,254
)
 
(17,980
)
Interest income
2,255

 
693

 
4,792

 
880

Other income (expense)
500

 
1,505

 
308

 
(1,584
)
Income before income taxes and noncontrolling interest
54,268

 
57,409

 
56,180

 
69,623

Income tax expense (benefit)
11,546

 
11,643

 
11,819

 
(2,593
)
Income including noncontrolling interest
42,722

 
45,766

 
44,361

 
72,216

Net income attributable to noncontrolling interest
331

 
532

 
167

 
735

Net income attributable to Central Garden & Pet Company
$
42,391

 
$
45,234

 
$
44,194

 
$
71,481

Net income per share attributable to Central Garden & Pet Company:
 
 
 
 
 
 
 
Basic
$
0.74

 
$
0.89

 
$
0.78

 
$
1.41

Diluted
$
0.73

 
$
0.86

 
$
0.76

 
$
1.36

Weighted average shares used in the computation of net income per share:
 
 
 
 
 
 
 
Basic
57,050

 
50,871

 
56,976

 
50,816

Diluted
58,026

 
52,658

 
58,013

 
52,693

See notes to condensed consolidated financial statements.


5



CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 
Three Months Ended
Six Months Ended
 
March 30,
2019

March 31,
2018
March 30,
2019
 
March 31,
2018
Income including noncontrolling interest
$
42,722

 
$
45,766

$
44,361

 
$
72,216

Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation
212

 
234

(62
)
 
278

Total comprehensive income
42,934

 
46,000

44,299

 
72,494

Comprehensive income attributable to noncontrolling interest
331

 
532

167

 
735

Comprehensive income attributable to Central Garden & Pet Company
$
42,603

 
$
45,468

$
44,132

 
$
71,759

See notes to condensed consolidated financial statements.


6


CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 
 
Six Months Ended
 
March 30,
2019
 
March 31,
2018
Cash flows from operating activities:
 
 
 
Net income
$
44,361

 
$
72,216

Adjustments to reconcile net income to net cash used by operating activities:
 
 
 
Depreciation and amortization
24,229

 
22,285

Amortization of deferred financing costs
916

 
833

Stock-based compensation
5,907

 
5,536

Deferred income taxes
6,044

 
(14,763
)
Gain on sale of property and equipment
(16
)
 
(11
)
Other
(710
)
 
2,984

Change in assets and liabilities (excluding businesses acquired):
 
 
 
Accounts receivable
(159,933
)
 
(154,712
)
Inventories
(59,630
)
 
(57,965
)
Prepaid expenses and other assets
(2,772
)
 
(10,273
)
Accounts payable
41,332

 
40,712

Accrued expenses
20,818

 
(1,848
)
Other long-term obligations
135

 
1,048

Net cash used by operating activities
(79,319
)
 
(93,958
)
Cash flows from investing activities:
 
 
 
Additions to property and equipment
(14,302
)
 
(17,566
)
Payments to acquire companies, net of cash acquired
(11,137
)
 
(63,372
)
Investments
(1,749
)
 
(6,555
)
Other investing activities
(368
)
 
(2,180
)
Net cash used in investing activities
(27,556
)
 
(89,673
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(36,466
)
 
(360
)
Proceeds from issuance of long-term debt

 
300,000

Borrowings under revolving line of credit

 
23,000

Repayments under revolving line of credit

 
(23,000
)
Repurchase of common stock, including shares surrendered for tax withholding
(3,739
)
 
(8,473
)
Payment of contingent consideration liability
(66
)
 
(123
)
Distribution to noncontrolling interest

 
(1,597
)
Payment of financing costs

 
(4,765
)
Net cash (used) provided by financing activities
(40,271
)
 
284,682

Effect of exchange rate changes on cash and cash equivalents
(20
)
 
120

Net increase (decrease) in cash, cash equivalents and restricted cash
(147,166
)
 
101,171

Cash, cash equivalents and restricted cash at beginning of period
493,005

 
45,042

Cash, cash equivalents and restricted cash at end of period
$
345,839

 
$
146,213

Supplemental information:
 
 
 
Cash paid for interest
$
21,298

 
$
13,397

 
 
 
 
See notes to condensed consolidated financial statements.

7



CENTRAL GARDEN & PET COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended March 30, 2019
(Unaudited)
1.
Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of March 30, 2019 and March 31, 2018, the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three and six months ended March 30, 2019 and March 31, 2018 and the condensed consolidated statements of cash flows for the six months ended March 30, 2019 and March 31, 2018 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 business in the UK, 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 subsidiary 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 and six months ended March 30, 2019 are not 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 2018 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September 29, 2018 balance sheet presented herein was derived from the audited financial statements.
Noncontrolling Interest
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 consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations. See Note 8, Supplemental Equity Information, for additional information.
Cash, Cash Equivalents and Restricted Cash
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 available for other uses. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of March 30, 2019, March 31, 2018 and September 29, 2018, respectively (in thousands).
 
 
March 30, 2019


March 31, 2018


September 29, 2018

Cash and cash equivalents
 
$
329,724


$
132,265


$
482,106

Restricted cash
 
16,115


13,948


10,899

Total Cash, cash equivalents and restricted cash
 
$
345,839


$
146,213


$
493,005

 
 
 
 
 
 
 

Revenue Recognition

Revenue Recognition and Nature of Products and Services

The Company manufactures, markets and distributes a wide variety of branded, private label and third-party 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 (less than 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

8


generally occurs upon shipment to, or receipt at, customers’ locations, as determined by the specific terms of the contract. These revenue contracts 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. Product fulfillment costs are capitalized as a part of inventoriable costs in accordance with US GAAP and our inventory policies. 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 our 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 and other current assets on the condensed consolidated balance sheets.

Practical Expedients

The Company elected the following practical expedients upon its adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606).

Significant financing component - The Company elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Shipping and handling costs - The Company elected to account for shipping and handling activities that occur before the customer has obtained control of a good as fulfillment activities rather than as a promised service.
Measurement of transaction price - The Company has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue-producing transaction and collected by the Company from a customer for sales taxes.
Income Taxes
On December 22, 2017, the U.S. Government enacted the 2017 Tax Act, which was comprehensive new tax legislation. The SEC Staff issued guidance on income tax accounting for the 2017 Tax Act on December 22, 2017, which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the first quarter of fiscal 2019, the Company has not made any measurement period adjustments. The Company's accounting for the impact of the 2017 Tax Act has now been completed as of the period ending December 29, 2018.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") ASC Topic 606, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue

9


from contracts with customers. On September 30, 2018, the beginning of the Company’s fiscal year 2019, the Company adopted the requirements of ASC Topic 606 using the modified retrospective method. Upon completing its implementation assessment of Topic ASC 606, the Company concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has also not been restated and continues to be reported under the accounting standards in effect for those periods. Additional disclosures required by ASC Topic 606 are presented within the Revenue Recognition policy disclosure and in Note 11 Segment Information.
On the Company’s condensed consolidated balance sheets, reserves for customer product returns and return allowances are now included as part of accrued expenses, rather than accounts receivable, net, and the value of inventory associated with reserves for sales returns is included within prepaid and other current assets
Had the Company not adopted the provisions under this ASU, its condensed consolidated balance sheet as of March 31, 2019 would have been presented as follows (in thousands):


As Presented March 31, 2019

Adjustments

Balances without Adoption of ASC 606 March 31, 2019
Current assets





Receivables, less allowance for doubtful accounts
$
456,129


$
(8,280
)

$
447,849

Prepaid expenses and other
$
33,161


$
(4,980
)

$
28,181

Total current assets
$
1,352,287


$
(13,260
)

$
1,339,027







Current liabilities





Accrued expenses
$
136,413


$
(13,260
)

$
123,153

Total current liabilities
$
299,128


$
(13,260
)

$
285,868

 
 
 
 
 
 
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows. The Company adopted the provisions of this guidance as of September 30, 2018 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-18). This ASU clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending cash balances on the statement of cash flows. The Company adopted the provisions under this ASU on September 30, 2018, on a retrospective basis. This resulted in an increase in beginning of period and end of period cash, cash equivalents and restricted cash of $12.6 million and $13.9 million, respectively, and a decrease of $1.3 million of cash used in investing activities to the condensed consolidated statement of cash flows for the six months ended March 31, 2018.
Business Combinations
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (ASU 2017-01), which requires an evaluation of whether substantially all of the fair value of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the transaction does not qualify as a business. The guidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. The Company adopted the provisions of this guidance as of September 30, 2018. The adoption of this ASU had no impact on the Company's condensed consolidated financial statements for the period ended March 30, 2019, but may have an impact on accounting for any future acquisitions the Company may have.

Income Taxes

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other Than Inventory (Topic 740).  ASU 2016-16 amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of taxes when the transfer occurs.  The amendment was effective for us September 30, 2018.  A modified retrospective approach

10


is required for transition to the new guidance, with a cumulative-effect adjustment consisting of the net impact from (1) the write-off of any unamortized expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any valuation allowance.  The new guidance does not include any specific new disclosure requirements.  Adoption of this guidance in the first quarter of fiscal 2019 did not have an impact on the Company’s condensed consolidated financial statements.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The guidance requires equity investments, excluding equity method investments or investees that are consolidated, to be measured at fair value with changes in fair value recognized in net income and enhanced disclosures about those investments. The guidance also simplifies the impairment assessments of equity investments without readily determinable fair value. The Company adopted the ASU in the first quarter of fiscal 2019, and the adoption of the new guidance did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
Leases
In February 2016, the FASB issued ASU 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The Company will adopt ASU 2016-02 on September 29, 2019 and expects to elect certain practical expedients permitted under the transition guidance. The Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The Company is implementing a new lease system in connection with the adoption of this standard and is currently in the implementation phase. The Company currently expects that most of its operating lease commitments will be subject to the new standard, and the Company will record significant long-term operating lease liabilities and long-term right-of-use assets upon the adoption of ASU 2016-02.
Goodwill and Intangible Assets
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021. The amendment should be applied on a prospective basis. Based on the Company's most recent annual goodwill impairment test performed as of July 1, 2018, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value; therefore, this ASU would not currently have an impact on the Company's condensed consolidated financial statements and related disclosures. However, if upon adoption the carrying amount of a reporting unit exceeds its fair value, the Company would be impacted by the amount of impairment recognized.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted, and is effective for the Company in fiscal 2021. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect that ASU 2018-15 will have on its condensed consolidated financial statements and related disclosures.

11


Fair Value Disclosures
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted and is effective for the Company in fiscal 2021. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the effect that ASU 2018-13 will have on its condensed consolidated financial statements and related disclosures.

2.
Fair Value Measurements
ASC 820 establishes a single authoritative definition of fair value, a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 requires 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).
The Company’s financial instruments include cash and equivalents, short term investments consisting of bank certificates of deposit, accounts receivable and payable, derivative instruments, 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
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of March 30, 2019 (in thousands): 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 
 
 
 
 
 
 
 
Liability for contingent consideration (a)
 
$

 
$

 
$
7,729

 
$
7,729

Total liabilities
 
$

 
$

 
$
7,729

 
$
7,729

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of March 31, 2018 (in thousands): 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 
 
 
 
 
 
 
 
Liability for contingent consideration (a)
 
$

 
$

 
$
9,148

 
$
9,148

Total liabilities
 
$

 
$

 
$
9,148

 
$
9,148

The following table presents our financial assets and liabilities at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 29, 2018: 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 
 
 
 
 
 
 
 
Liability for contingent consideration (b)
 
$

 
$

 
$
8,224

 
$
8,224

Total liabilities
 
$

 
$

 
$
8,224

 
$
8,224

 
(a)
The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015 and future performance-based contingent payment for Segrest, Inc., acquired in October 2016. The fair value of the estimated contingent consideration arrangement is determined based

12



on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.
(b)
The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015, future performance-based contingent payment for Segrest, Inc., acquired in October 2016, and future performance-based contingent payments for Bell Nursery, acquired in March 2018. The contingent period for Bell Nursery expired in December 2018. Performance thresholds that would have necessitated payment were not met, and accordingly, no payment was made. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.
The following table provides a summary of the changes in fair value of the Company's Level 3 financial instruments for the periods ended March 30, 2019 and March 31, 2018 (in thousands):
 
Amount
Balance September 29, 2018
$
8,224

Estimated contingent performance-based consideration established at the time of acquisition

Changes in the fair value of contingent performance-based payments established at the time of acquisition
(429
)
Performance-based payments
(66
)
Balance March 30, 2019
$
7,729

 
 
 
Amount
Balance September 30, 2017
$
9,343

Estimated contingent performance-based consideration established at the time of acquisition

Changes in the fair value of contingent performance-based payments established at the time of acquisition
(72
)
Performance-based payments
(123
)
Balance March 31, 2018
$
9,148

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- assets and non-financial liabilities are used primarily in the impairment analyses of long-lived assets, goodwill and other intangible assets. During the period ended March 31, 2018, the Company was not required to measure any significant non-financial assets and liabilities at fair value. As a result of one of our retail customers exiting the live fish business, the carrying value of $2.5 million of amortizable intangible assets were written down to their estimated fair value, resulting in impairment charges of $2.5 million, which were included in selling, general and administrative expenses during the period ended March 30, 2019.
Fair Value of Other Financial Instruments
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 March 30, 2019, March 31, 2018 and September 29, 2018 was $278.2 million, $285.4 million and $285.5 million, respectively, compared to a carrying value of $295.9 million, $295.3 million and $295.6 million, respectively.
In November 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the “2023 Notes”). The estimated fair value of the Company’s 2023 Notes as of March 30, 2019, March 31, 2018 and September 29, 2018 was $417.7 million, $419.0 million and $414.4 million, respectively, compared to a carrying value of $396.3 million, $395.6 million and $396 million, respectively.


13



3.
Acquisitions

Arden Companies
In February 2019, the Company purchased the remaining 55% interest in Arden Companies, a manufacturer of outdoor cushions and pillows, for $13.4 million. Accordingly, the Company remeasured its previously held investment at its acquisition-date fair value and recorded a provisional gain of approximately $3 million as part of selling, general and administrative expenses in the Company's condensed consolidated statements of operations. The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $19 million, which is included in other assets on the Company's condensed consolidated balance sheet as of March 30, 2019. Subsequent to the acquisition, approximately $36 million of cash was used to eliminate most of the acquired long-term debt. The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired. Once the purchase price valuation work is complete, the provisional gain on the Company's previously held interest will be finalized. Financial results of Arden have been included in the results of operations within the Garden segment since the date of acquisition of the remaining 55% interest.

4.
Inventories, net
Inventories, net of allowance for obsolescence, consist of the following (in thousands):
 
 
 
March 30, 2019
 
March 31, 2018
 
September 29, 2018
Raw materials
 
$
136,879

 
$
117,370

 
$
117,539

Work in progress
 
58,529

 
40,491

 
35,691

Finished goods
 
305,569

 
293,988

 
263,845

Supplies
 
16,181

 
13,673

 
10,748

Total inventories, net
 
$
517,158

 
$
465,522

 
$
427,823

 
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. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step 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 two-step 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 first step of the two-step goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values, including goodwill. If the fair value of the reporting unit is less than its carrying value, the Company performs an additional step to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly, the Company recognizes such impairment. 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 six months ended March 30, 2019 and March 31, 2018.


14



6.
Other Intangible Assets

The following table summarizes the components of gross and net acquired intangible assets:
 
 
Gross
 
Accumulated
Amortization
 
Accumulated
Impairment
 
Net
Carrying
Value
 
 
 
 
 
 
(in millions)
 
 
March 30, 2019
 
 
 
 
 
 
 
 
Marketing-related intangible assets – amortizable
 
$
18.6

 
$
(15.2
)
 
$

 
$
3.4

Marketing-related intangible assets – nonamortizable
 
70.6

 

 
(26.0
)
 
44.6

Total
 
89.2

 
(15.2
)
 
(26.0
)
 
48.0

Customer-related intangible assets – amortizable
 
128.3

 
(47.5
)
 
(2.5
)
 
78.3

Other acquired intangible assets – amortizable
 
26.0

 
(15.5
)
 

 
10.5

Other acquired intangible assets – nonamortizable
 
7.2

 

 
(1.2
)
 
6.0

Total
 
33.2

 
(15.5
)
 
(1.2
)
 
16.5

Total other intangible assets
 
$
250.7

 
$
(78.2
)
 
$
(29.7
)
 
$
142.8

 
 
Gross
 
Accumulated
Amortization
 
Accumulated
Impairment
 
Net
Carrying
Value
 
 
 
 
 
 
(in millions)
 
 
March 31, 2018
 
 
 
 
 
 
 
 
Marketing-related intangible assets – amortizable
 
$
16.9

 
$
(13.4
)
 
$

 
$
3.5

Marketing-related intangible assets – nonamortizable
 
70.6

 

 
(26.0
)
 
44.6

Total
 
87.5

 
(13.4
)
 
(26.0
)
 
48.1

Customer-related intangible assets – amortizable
 
115.7

 
(37.5
)
 

 
78.2

Other acquired intangible assets – amortizable
 
22.1

 
(13.5
)
 

 
8.6

Other acquired intangible assets – nonamortizable
 
7.8

 

 
(1.2
)
 
6.6

Total
 
29.9

 
(13.5
)
 
(1.2
)
 
15.2

Total other intangible assets
 
$
233.1

 
$
(64.4
)
 
$
(27.2
)
 
$
141.5

 
 
Gross
 
Accumulated
Amortization
 
Accumulated
Impairment
 
Net
Carrying
Value
 
 
 
 
 
 
(in millions)
 
 
September 29, 2018
 
 
 
 
 
 
 
 
Marketing-related intangible assets – amortizable
 
$
18.6

 
$
(14.2
)
 
$

 
$
4.4

Marketing-related intangible assets – nonamortizable
 
70.6

 

 
(26.0
)
 
44.6

Total
 
89.2

 
(14.2
)
 
(26.0
)
 
49.0

Customer-related intangible assets – amortizable
 
128.3

 
(42.5
)
 

 
85.8

Other acquired intangible assets – amortizable
 
25.4

 
(14.5
)
 

 
10.9

Other acquired intangible assets – nonamortizable
 
7.8

 

 
(1.2
)
 
6.6

Total
 
33.2

 
(14.5
)
 
(1.2
)
 
17.5

Total other intangible assets
 
$
250.7

 
$
(71.2
)
 
$
(27.2
)
 
$
152.3


15



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 fiscal 2018, and accordingly, no impairment testing was performed on these assets. As a result of one of our retail customers exiting the live fish business, factors indicating the carrying value of certain amortizable intangible assets may not be recoverable were present during the quarter ended March 30, 2019. The Company performed impairment testing on these assets, found the carrying value was not recoverable and accordingly, recorded an impairment charge in its Pet segment of approximately $2.5 million as part of selling, general and administrative expenses in the condensed consolidated statements of operations.
The Company amortizes its acquired intangible assets with definite lives over periods ranging from 3 to 25 years; over weighted average remaining lives of 4 years for marketing-related intangibles, 10 years for customer-related intangibles and 11 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $3.4 million and $2.9 million for the three months ended March 30, 2019 and March 31, 2018, respectively, and $6.9 million and $5.7 million for the six months ended March 30, 2019 and March 31, 2018, 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 assets in each of the succeeding five years is estimated to be approximately $10 million per year from fiscal 2019 through fiscal 2023.
.
7.
Long-Term Debt
Long-term debt consists of the following:
 
 
March 30, 2019
 
March 31, 2018
 
September 29, 2018
 
 
(in thousands)
Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023
 
$
400,000

 
$
400,000

 
$
400,000

Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028
 
300,000

 
300,000

 
300,000

Unamortized debt issuance costs
 
(7,791
)
 
(9,053
)
 
(8,425
)
Net carrying value
 
692,209

 
690,947

 
691,575

Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.25% to 1.50% or Base Rate plus a margin of 0.25% to 0.50%, final maturity April 2021
 

 

 

Other notes payable
 
5,556

 
157

 
578

Total
 
697,765

 
691,104

 
692,153

Less current portion
 
(5,119
)
 
(20
)
 
(122
)
Long-term portion
 
$
692,646

 
$
691,084

 
$
692,031

Senior Notes
$300 Million 5.125% Senior Notes
On December 14, 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The Company will use the net proceeds from the offering to finance future 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, commencing August 1, 2018. The 2028 Notes are unconditionally guaranteed on a senior basis by the Company's existing and future domestic restricted subsidiaries who are borrowers under or guarantors of Central's senior secured revolving credit facility or who guarantee the 2023 Notes.
The Company may redeem some or all of the 2028 Notes at any time, at its option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. At any time prior to January 1, 2021, the Company may also redeem, at its option, up to 35% of the original

16



aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 105.125% of the principal amount of the notes. The Company may redeem some or all of the 2028 Notes, at its option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 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% 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 March 30, 2019.
$400 Million 6.125% Senior Notes
On November 9, 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the "2023 Notes"). In December 2015, the Company used the net proceeds from the offering, together with available cash, to redeem its $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 ("2018 Notes") at a price of 102.063% of the principal amount and to pay fees and expenses related to the offering. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.
The Company incurred approximately $6.3 million of debt issuance costs in conjunction with these transactions, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2023 Notes.
The 2023 Notes require semiannual interest payments on May 15 and November 15. The 2023 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 Central’s senior secured revolving credit facility. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.
The Company may redeem some or all of the 2023 Notes at any time, at its option, at any time on or after November 15, 2018 for 104.594%, at any time on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.
The holders of the 2023 Notes have the right to require the Company to repurchase all or a portion of the 2023 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 2023 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 March 30, 2019.
Asset-Based Loan Facility Amendment
On April 22, 2016, the Company entered into an amended and restated credit agreement which provides up to a $400 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if the Company exercises the accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on April 22, 2021. 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. As of March 30, 2019, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $8.2 million outstanding as of March 30, 2019.
The Credit Facility is subject to a borrowing base, calculated using a formula based upon eligible receivables and inventory, minus certain reserves and subject to restrictions. As of March 30, 2019, the borrowing base and remaining borrowing availability was $374.0 million. Borrowings under the Credit Facility bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.5% and (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on the Company’s consolidated senior leverage ratio. Such applicable margin for LIBOR-based borrowings fluctuates between 1.25% - 1.50%, and was 1.25% as of March 30, 2019, and such applicable margin for Base Rate borrowings fluctuates between 0.25%-0.5%, and was 0.25% as of March 30, 2019. As of March 30, 2019, the applicable interest rate related to Base Rate borrowings was 5.8%, and the applicable interest rate related to LIBOR-based borrowings was 3.8%.

17



The Company incurred approximately $1.2 million of debt issuance costs in conjunction with this transaction, which included underwriter fees, legal and accounting expenses. The unamortized debt issuance costs are included in other assets in the condensed consolidated balance sheets and 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 1.00:1.00 upon reaching certain borrowing levels. The Credit Facility is secured by substantially all assets of the Company. The Company was in compliance with all financial covenants under the Credit Facility during the quarter ended March 30, 2019.


18



8.
Supplemental Equity Information
The following table provides a summary of the changes in the carrying amounts of equity attributable to controlling interest and noncontrolling interest through the six months ended March 30, 2019 and March 31, 2018.


Controlling Interest




(in thousands)

Common
Stock

Class A
Common
Stock

Class
B
Stock

Additional
Paid In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Noncontrolling
Interest

Total
September 29, 2018

$
121


$
439


$
16


$
590,168


$
362,923


$
(1,218
)

$
952,449


$
385


$
952,834

Comprehensive income









1,803


(274
)

1,529


(164
)

1,365

Amortization of share-based awards







2,261






2,261




2,261

Restricted share activity, including net share settlement







(386
)





(386
)



(386
)
Issuance of common stock, including net share settlement of stock options



1




408






409




409

Balance December 29, 2018

$
121


$
441


$
16


$
592,451


$
364,726


$
(1,492
)

$
956,263


$
221


$
956,484

Comprehensive income

$


$


$


$


42,391


212


42,603


331


$
42,934

Amortization of share-based awards







2,473






2,473




2,473

Restricted share activity, including net share settlement



2




(1,773
)





(1,771
)



(1,771
)
Issuance of common stock, including net share settlement of stock options



1




(820
)





(819
)



(819
)
Other
 

 

 

 

 

 

 

 
1

 
1

Balance March 30, 2019

$
121


$
444


$
16


$
592,331


$
407,117


$
(1,280
)

$
998,749


$
553


$
999,302




19



 

Controlling Interest

 

 
(in thousands)

Common Stock

Class A Common Stock

Class B Stock

Additional Paid In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total

Noncontrolling Interest

Total
Balance September 30, 2017

$
122


$
380


$
16


$
396,790


$
239,329


$
(951
)

$
635,686


$
1,456


$
637,142

Comprehensive income









26,247


44


26,291


203


26,494

Amortization of share-based awards







2,143






2,143




2,143

Restricted share activity, including net share settlement







(2,397
)





(2,397
)



(2,397
)
Issuance of common stock, including net share settlement of stock options







166






166




166

Distribution to Noncontrolling interest















(1,597
)

(1,597
)
Balance December 30, 2017

$
122


$
380


$
16


$
396,702


$
265,576


$
(907
)

$
661,889


$
62


$
661,951

Comprehensive income

$


$


$


$


45,234


234


45,468


532


46,000

Amortization of share-based awards







2,321






2,321




2,321

Restricted share activity, including net share settlement

(1
)





(3,873
)





(3,874
)



(3,874
)
Issuance of common stock, including net share settlement of stock options



2




(1,298
)





(1,296
)



(1,296
)
Distribution to Noncontrolling interest


















Balance March 31, 2018

$
121


$
382


$
16


$
393,852


$
310,810


$
(673
)

$
704,508


$
594


$
705,102


 
9.
Stock-Based Compensation
The Company recognized share-based compensation expense of $5.9 million and $5.5 million for the six months ended March 30, 2019 and March 31, 2018, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the six months ended March 30, 2019 and March 31, 2018 was $1.4 million and $1.5 million, respectively.
 

20




10.
Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations (in thousands except share and per share amounts).
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 30, 2019
 
 
Income
 
Shares
 
Per Share
 
Income

Shares

Per Share
Basic EPS:
 
 
 
 
 
 
 





Net income available to common shareholders
 
$
42,391

 
57,050

 
$
0.74

 
$
44,194


56,976


$
0.78

Effect of dilutive securities:
 
 
 
 
 
 
 





     Options to purchase common stock
 

 
609

 
(0.01
)
 


639


(0.01
)
     Restricted shares
 

 
367

 

 


398


(0.01
)
Diluted EPS:
 

 

 

 





     Net income available to common shareholders
 
$
42,391

 
58,026

 
$
0.73

 
$
44,194


58,013


$
0.76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
March 31, 2018
 
March 31, 2018
 
 
Income

Shares

Per Share
 
Income

Shares

Per Share
Basic EPS:






 





     Net income available to common shareholders

$
45,234


50,871


$
0.89

 
$
71,481


50,816


$
1.41

Effect of dilutive securities:






 





     Options to purchase common stock



1,092


(0.02
)
 
 

1,120


(0.03
)
     Restricted shares



695


(0.01
)
 
 

757


(0.02
)
Diluted EPS:






 
 




     Net income available to common shareholders

$
45,234


52,658


$
0.86

 
$
71,481


52,693


$
1.36

 
 
 
 
 
 
 
 
 
 
 
 
 

Options to purchase 2.8 million shares of common stock at prices ranging from $8.56 to $38.10 per share were outstanding at March 30, 2019, and options to purchase 2.7 million shares of common stock at prices ranging from $6.43 to $36.94 per share were outstanding at March 31, 2018.

For the three months ended March 30, 2019, 1.8 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 antidilutive. For the three months ended March 31, 2018, all options outstanding were included in the computation of diluted earnings per share.

For the six months ended March 30, 2019, 1.8 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 antidilutive. For the six months ended March 31, 2018, all options outstanding were included in the computation of diluted earnings per share.


21



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 Pet segment and Garden segment and are presented in the table below (in thousands).
 
 
 
Three Months Ended
Six Months Ended
 
 
March 30,
2019
 
March 31,
2018
March 30,
2019
 
March 31,
2018
Net sales:
 
 
 
 
 
 
 
Pet segment
 
$
338,183

 
$
321,653

$
678,599

 
$
646,737

Garden segment
 
335,518

 
291,441

457,092

 
408,368

Total net sales
 
$
673,701

 
$
613,094

$
1,135,691

 
$
1,055,105

Operating Income
 
 
 
 
 
 
 
Pet segment
 
26,984

 
32,784

56,739

 
68,960

Garden segment
 
53,355

 
50,746

48,718

 
53,046

Corporate
 
(18,186
)
 
(17,744
)
(33,123
)
 
(33,699
)
Total operating income
 
62,153

 
65,786

72,334

 
88,307

Interest expense - net
 
(8,385
)
 
(9,882
)
(16,462
)
 
(17,100
)
Other income (expense)
 
500

 
1,505

308

 
(1,584
)
Income tax expense (benefit)
 
11,546

 
11,643

11,819

 
(2,593
)
Income including noncontrolling interest
 
42,722

 
45,766

44,361

 
72,216

Net income attributable to noncontrolling interest
 
331

 
532

167

 
735

Net income attributable to Central Garden & Pet Company
 
$
42,391

 
$
45,234

$
44,194

 
$
71,481

Depreciation and amortization:
 
 
 
 
 
 
 
Pet segment
 
$
8,039

 
$
6,944

$
16,095

 
$
14,089

Garden segment
 
2,312

 
1,707

5,138

 
3,276

Corporate
 
1,526

 
2,471

2,996

 
4,920

Total depreciation and amortization
 
$
11,877

 
$
11,122

$
24,229

 
$
22,285

 
 
 
March 30,
2019
 
March 31,
2018
 
September 29,
2018
Assets:
 
 
 
 
 
 
Pet segment
 
$
700,638

 
$
660,344

 
$
683,938

Garden segment
 
687,951

 
581,105

 
407,483

Corporate
 
657,551

 
462,514

 
815,788

Total assets
 
$
2,046,140

 
$
1,703,963

 
$
1,907,209

Goodwill (included in corporate assets above):
 
 
 
 
 
 
Pet segment
 
$
268,289

 
$
262,770

 
$
268,289

Garden segment
 
12,888

 
5,473

 
12,888

Total goodwill
 
$
281,177

 
$
268,243

 
$
281,177



22



The tables below present the Company's disaggregated revenues by segment (in thousands):


 
Three Months Ended March 30, 2019
 
Six Months Ended March 30, 2019

 
Pet Segment
 
Garden Segment
 
Total
 
Pet Segment
 
Garden Segment
 
Total

 

 

 

 

 

 

Other pet products
 
$
233.0

 
$

 
$
233.0

 
$
442.3

 
$

 
$
442.3

Dog and cat products
 
105.2

 

 
105.2

 
236.3

 

 
236.3

Garden controls and fertilizer products
 

 
113.8

 
113.8

 

 
138.1

 
138.1

Other garden supplies
 

 
221.7

 
221.7

 

 
319.0

 
319.0

     Total
 
$
338.2

 
$
335.5

 
$
673.7

 
$
678.6

 
$
457.1

 
$
1,135.7

 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Three Months Ended March 31, 2018
 
Six Months Ended March 31, 2018
 
 
Pet Segment
 
Garden Segment
 
Total
 
Pet Segment
 
Garden Segment
 
Total
 
 
 
 
 
 
 
 

 

 

Other pet products
 
$
218.8

 
$

 
$
218.8

 
$
413.9

 
$

 
$
413.9

Dog and cat products
 
102.9

 

 
102.9

 
232.8

 

 
232.8

Garden controls and fertilizer products
 

 
112.9

 
112.9

 

 
142.5

 
142.5