CENTRAL GARDEN & PET COMPANY Our CompanyCentral Garden & Pet Company ("Central") is a market leader in the garden and pet industries inthe United States . For over 40 years, Central has proudly nurtured happy and healthy homes by bringing innovative and trusted solutions to consumers and its customers. We manage our operations through two reportable segments: Pet and Garden. Our pet segment includes dog and cat supplies such as dog treats and chews, toys, pet beds and grooming products, waste management and training pads, pet containment, supplies for aquatics, small animals, reptiles and pet birds including toys, cages 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®, Comfort Zone®, Farnam®, Four Paws®, K&H Pet Products® ("K&H"), Kaytee®, Nylabone® and Zilla®. Our garden segment includes lawn and garden consumables such as grass, vegetable, flower and herb 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 2021, our consolidated net sales were$3.3 billion , of which our Pet segment, or Pet, accounted for approximately$1.9 billion and our Garden segment, or Garden, accounted for approximately$1.4 billion . In fiscal 2021, our operating income was$254 million consisting of income from our Pet segment of$208 million , income from our Garden segment of$139 million and corporate expenses of$93 million . We were incorporated inDelaware inMay 1992 as the successor to aCalifornia corporation that was formed in 1955. Our executive offices are located at1340 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. 22 -------------------------------------------------------------------------------- Recent Developments Fiscal 2022 First Quarter Financial Performance: •Net sales increased$69.2 million , or 11.7%, from the prior year quarter to$661.4 million due primarily to sales from our four fiscal 2021 acquisitions. Pet segment sales decreased$0.4 million , and Garden segment sales increased$69.6 million . •Organic net sales increased 0.5%, comprised of 0.8% in our Pet segment partially offset by a decline of 0.3% in our Garden segment. •Gross profit increased$32.8 million from the prior year quarter, and gross margin increased 210 basis points to 30.0%. •Selling, general and administrative expense increased$33.6 million from the prior year quarter to$172.0 million and as a percentage of net sales 260 basis points to 26.0%. •Operating income decreased$0.8 million , or 3.1%, from the prior year quarter, to$26.2 million . •Net income in the first quarter of fiscal 2022 was$9.0 million , or$0.16 per diluted share, compared to net income of$5.6 million , or$0.10 per diluted share, in the first quarter of fiscal 2021. Asset Backed Loan Facility Amendment OnDecember 16, 2021 , we entered into an amended and restated credit agreement which provides up to 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 if we exercise the accordion feature set forth therein (collectively, the "Amended Credit Facility"). The Amended Credit Facility matures onDecember 16, 2026 . We may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full. The Amended 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. We did not draw down any commitments under the Amended Credit Facility upon closing. Borrowings under the Amended 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 Truist 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 1.00%-1.50% and was 1.00% at the time of closing, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50% and was 0.00% at the time of closing. COVID-19 Impact COVID-19 has led to adverse impacts on human health, the global economy and society at large. From the beginning, our priority has been the safety of our employees, customers and consumers. Central has been impacted by COVID-19 in a number of ways, including increased demand evidenced by our organic net sales increase of 13% in fiscal year 2021. The increased demand for our products continues to challenge our supply chain and our ability to procure and manufacture enough product to meet the continued high levels of demand. At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the balance of the pandemic. Our manufacturing facilities and distribution centers are currently open and operational. We have incurred and will continue to incur additional costs including personal protective equipment and sanitation costs. We have hosted mobile vaccination clinics at some of our larger manufacturing and distribution sites, in order to make vaccines available to our employees. The pandemic and related increase in demand have created operational challenges, which have impacted our service and fill rates. Our supply chain has experienced disruptions and delays which have resulted in increased operational and logistics costs. We may also experience additional disruptions in our supply chain as the pandemic continues, although we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact. We continue to face supply constraints for commodities, materials and freight and the limited availability of labor. Inflationary pressures stemming from the COVID-19 operating environment are continuing to result in significant increases in costs for key commodities, materials, labor and freight. We believe we have sufficient liquidity to satisfy our cash needs with our cash and revolving credit facility as we manage through the current economic and health environment. The volatility in demand, changing consumer consumption patterns, uncertainty regarding vaccination efforts and new variants of the virus make it difficult to predict when more normal order patterns may return. Forecasting and planning remain challenging in the current environment and will continue to be challenging as the pandemic eases in the future. In the current uncertain environment, our employees, customers and consumers will continue to be our priority as we manage our business to deliver long-term growth. 23 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended December 25, 2021
Compared with Three Months Ended December 26, 2020
Net Sales
Net sales for the three months ended December 25, 2021 increased $69.2 million ,
or 11.7%, to $661.4 million from $592.2 million for the three months ended
December 26, 2020 . Organic net sales, which exclude the impact of acquisitions
and divestitures in the last 12 months, increased $3.1 million , or 0.5%, as
compared to the fiscal 2021 quarter. Our branded product sales increased $58.0
million , and sales of other manufacturers' products increased $11.2 million .
Pet net sales decreased $0.4 million , or 0.1%, to $436.0 million for the three
months ended December 25, 2021 from $436.4 million for the three months ended
December 26, 2020 . Net sales in the prior year quarter included sales from the
Breeder's Choice business unit, which we sold in December 2020 . Organic net
sales increased $3.5 million , or 0.8%, as compared to the prior year quarter.
The organic sales increase was due primarily to increased sales in our animal
health and pet distribution businesses, both favorably impacted by a shift in
order timing and in pet distribution by increased pricing. These increases were
partially offset by lower sales in our dog bed business, which was unfavorably
impacted by a shift in order timing and COVID related challenges. Pet branded
product sales declined $6.2 million , and sales of other manufacturers' products
increased $5.8 million .
Garden net sales increased $69.6 million , or 44.7%, to $225.4 million for the
three months ended December 25, 2021 from $155.8 million for the three months
ended December 26, 2020 . Sales from our four fiscal 2021 acquisitions were $70.0
million and organic net sales decreased $0.4 million , or 0.3%. The slight
reduction in organic sales was due primarily to decreased sales in our grass
seed business, impacted by an unfavorable order timing shift, and in our garden
distribution business from reduced listings of third-party products. These
decreases were offset for the most part by increased sales in wild bird feed,
principally as a result of increased prices taken to offset recent commodity
inflation. Garden branded sales increased $64.2 million , and sales of other
manufacturers' products increased $5.4 million , both gains driven by the fiscal
2021 acquisitions.
Gross Profit
Gross profit for the three months ended December 25, 2021 increased $32.8
million , or 19.8%, to $198.2 million from $165.4 million for the three months
ended December 26, 2020 . Gross profit increased in both operating segments.
Gross margin increased 210 basis points to 30.0% for the three months ended
December 25, 2021 from 27.9% for the three months ended December 26, 2020 . The
increases in gross profit and gross margin were due primarily to the impact of
our fiscal 2021 acquisitions and to pricing actions which were partially offset
by significant cost inflation in key commodities, labor and freight. Overall,
our gross margins continue to be under pressure from the current inflationary
environment and we continue to experience cost increases, primarily in
commodities, labor and freight. We intend to continue to seek price increases to
offset the rising costs but do not anticipate that we will be able to fully
offset the cost pressures in fiscal 2022.
In the Pet segment, both gross profit and gross margin improved as price
increases and a mix improvement were only partially offset by cost inflation in
commodities, labor and freight. In the Garden segment, gross profit and gross
margin improved due to the four fiscal 2021 acquisitions, which were partially
offset by rising costs in commodities, labor and freight.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $33.6 million , or 24.3%,
to $172.0 million for the three months ended December 25, 2021 . The increase in
selling, general and administrative expense was primarily in our Garden segment
due to a large extent to the four fiscal 2021 acquisitions, although selling,
general and administrative expense increased in both operating segments and in
corporate. As a percentage of net sales, selling, general and administrative
expenses increased to 26.0% for the three months ended December 25, 2021 ,
compared to 23.4% in the comparable prior year quarter due primarily to expense
from our four fiscal 2021 acquisitions, wage and freight inflation and increased
marketing investment for brand development and innovation.
Selling and delivery expense increased to $79.1 million for the three months
ended December 25, 2021 as compared to $66.4 million in the prior year quarter.
The increase was due primarily to the four fiscal 2021 acquisitions in our
Garden segment and secondarily to increased marketing investment for brand
development and innovation as well as freight and wage inflation.
Warehouse and administrative expense increased $20.9 million , or 29.0%, to $92.9
million for the three months ended December 25, 2021 from $72.0 million for the
three months ended December 26, 2020 . The increase was due primarily to the
warehouse and administrative costs associated with our four fiscal 2021
acquisitions, including the amortization of intangibles related to purchase
accounting. Additionally, both operating segments experienced increased labor
and payroll-related expense. Corporate expenses increased $4.0 million due
primarily
24
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to increased payroll related costs, including variable and equity compensation,
and medical insurance costs. 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 decreased $0.8 million , or 3.1%, to $26.2 million for the three
months ended December 25, 2021 . The decrease in operating income was due to
higher selling, general and administrative expense which more than offset the
impact of increased sales and gross profit. Our operating margin decreased from
4.6% in the prior year quarter to 4.0% in the current year quarter due to a 260
basis point increase in selling, general and administrative expense as a
percentage of net sales partially offset by a 210 basis point increase in gross
margin.
Pet operating income increased $1.8 million , or 4.0%, to $45.3 million for the
three months ended December 25, 2021 from $43.5 million for the three months
ended December 26, 2020 . Pet operating income increased due to increased sales
and gross profit partially offset by higher selling, general and administrative
expense. Pet operating margin improved 40 basis points to 10.4% due to increased
sales and an improved gross margin partially offset by higher selling, general
and administrative expense as a percentage of net sales.
Garden operating income increased $1.4 million to $6.1 million for the three
months ended December 25, 2021 from $4.7 million for the three months ended
December 26, 2020 . Garden operating income increased due to increased sales and
gross profit partially offset by higher selling, general and administrative
expense. Garden operating margin declined 30 basis points to 2.7% due primarily
to cost inflation and increased investment spend partially offset by pricing
actions.
Corporate operating expense increased $4.0 million , or 18.7%, to $25.1 million
for the three months ended December 25, 2021 from $21.1 million for the three
months ended December 26, 2020 . Corporate expense increased due primarily to
payroll related costs, including variable and equity compensation, and medical
insurance costs, and increased 20 basis points as a percentage of consolidated
net sales.
Net Interest Expense
Net interest expense for the three months ended December 25, 2021 decreased $6.4
million , or 30.6%, to $14.4 million from $20.8 million for the three months
ended December 26, 2020 . In the prior year quarter, we issued $500 million
aggregate principal amount of 4.125% senior notes due October 2030 and used the
proceeds to redeem all of our outstanding aggregate principal amount 6.125%
senior notes due 2023 with the remainder available for general corporate
purposes. As a result of our redemption of the 2023 Notes, we recognized
incremental interest expense in the prior year quarter of approximately $10.0
million . Partially offsetting the reduction from the prior year quarter's
incremental interest expense was increased interest expense in the current year
quarter related to our issuance in April 2021 of $400 million aggregate
principal amount of 4.125% senior notes due April 2031 . Debt outstanding on
December 25, 2021 was $1,185.5 million compared to $789.0 million at December
26, 2020 .
Other Income (Expense)
Other income (expense) 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 (expense) was $0.2 million of expense
for the quarter ended December 25, 2021 compared to income of $0.8 million for
the quarter ended December 26, 2020 , due primarily to foreign currency losses in
the current year quarter as compared to gains in the prior year quarter.
Income Taxes
Our effective income tax rate was 20.7% for the quarter ended December 25, 2021
and 19.7% for the quarter ended December 26, 2020 . The increase in our effective
income tax rate was due primarily to increased foreign earnings which are in
higher tax rate jurisdictions.
Net Income and Earnings Per Share
Our net income in the first quarter of fiscal 2022 was $9.0 million , or $0.16
per diluted share, compared to a net income of $5.6 million , or $0.10 per
diluted share, in the first quarter of fiscal 2021.
25
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Use of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles
generally accepted in the United States (GAAP). However, to supplement the
financial results prepared in accordance with GAAP, we use non-GAAP financial
measures including non-GAAP net income and diluted net income per share,
adjusted EBITDA and organic sales. Management believes these non-GAAP financial
measures that exclude the impact of specific items (described below) 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.
Adjusted EBITDA is defined by us as income before income tax, net other expense,
net interest expense, depreciation and amortization and stock-based compensation
(or operating income plus depreciation and amortization 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
evaluation. 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.
We have also provided organic net sales, a non-GAAP measure that excludes the
impact of businesses purchased or exited in the prior 12 months, because we
believe it permits investors to better understand the performance of our
historical business without the impact of recent acquisitions or dispositions.
The reconciliations of these non-GAAP measures to the most directly comparable
financial measures calculated and presented in accordance with GAAP are shown in
the tables below. We believe that the non-GAAP financial measures provide useful
information to investors and other users of our financial statements by allowing
for greater transparency in the review of our financial and operating
performance. Management also uses these non-GAAP financial measures in making
financial, operating and planning decisions and in evaluating our performance,
and we believe these measures similarly may be useful to investors in evaluating
our financial and operating performance and the trends in our business from
management's point of view. While our management believes that non-GAAP
measurements are 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.
Non-GAAP financial measures reflect adjustments based on the following items:
•Incremental expenses from note redemption and issuance: we have excluded the
impact of the incremental expenses incurred from the note redemption and
issuance as they represent an infrequent transaction that occurs in limited
circumstances that impacts the comparability between operating periods. We
believe the adjustment of these expenses supplements the GAAP information with a
measure that may be used to assess the sustainability of our operating
performance.
•Loss on sale of business: we have excluded the impact of the loss on the sale
of a business as it represents an infrequent transaction that occurs in limited
circumstances that impacts the comparability between operating periods. We
believe the adjustment of this loss supplements the GAAP information with a
measure that may be used to assess the sustainability of our operating
performance.
From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.
The non-GAAP adjustments reflect the following: (1)During the first quarter of fiscal 2021, we issued$500 million aggregate principal amount of 4.125% senior notes dueOctober 2030 . We used a portion of the proceeds to redeem all of our outstanding 6.125% senior notes due 2023. As a result of our redemption of the 2023 Notes, we incurred incremental expenses of approximately$10.0 million , comprised of a call premium payment of$6.1 million , overlapping interest expense of approximately$1.4 million and a$2.5 million non-cash charge for the write-off of unamortized financing costs. These amounts are included in Interest expense in the condensed consolidated statements of operations. (2)During the first quarter of fiscal 2021, we recognized a loss of$2.6 million , included in selling, general and administrative expense in the consolidated statement of operations, from the sale of our Breeder's Choice business unit after concluding it was not a strategic business for our Pet segment. 26 --------------------------------------------------------------------------------
GAAP to Non-GAAP Reconciliation
For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
(in
thousands, except per share amounts)
GAAP net income attributable to
$ 9,009 $ 5,613
Incremental expenses from note redemption and issuance (1) - 9,952
Loss on sale of business (2) - 2,611
Tax effect of incremental expenses, loss on sale and impairment
$ - $ (2,470)
Non-GAAP net income attributable to
$ 9,009 $ 15,706
GAAP diluted net income per share $ 0.16 $ 0.10
Non-GAAP diluted net income per share $ 0.16 $ 0.29
Shares used in GAAP and non-GAAP diluted net earnings per
share calculation 54,909 54,686
Organic Net Sales Reconciliation
We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical business. We define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months. After an acquired business has been part of our consolidated results for 12 months, the change in net sales thereafter is considered part of the increase or decrease in organic net sales. Consolidated GAAP
to Non-GAAP Reconciliation
For
Three Months Ended
Effect of
acquisition &
divestitures on
increase in net
Net sales (GAAP) sales Net sales organic
(in millions)
Q1 FY 22 $ 661.4 $ 70.0 $ 591.4
Q1 FY 21 592.2 3.9 588.3
$ increase $ 69.2 $ 66.1 $ 3.1
% increase 11.7 % 0.5 %
Pet GAAP to Non-GAAP Reconciliation
For Three Months Ended
Effect of
acquisition &
divestitures on
increase in net
Net sales (GAAP) sales Net sales organic
(in millions)
Q1 FY 22 $ 436.0 $ - $ 436.0
Q1 FY 21 436.4 3.9 432.5
$ increase (decrease) $ (0.4) $ (3.9) $ 3.5
% increase (decrease) (0.1) % 0.8 %
27-------------------------------------------------------------------------------- Garden
GAAP to Non-GAAP Reconciliation
For Three Months Ended
Effect of
acquisition &
divestitures on
increase in net
Net sales (GAAP) sales Net sales organic
(in millions)
Q1 FY 22 $ 225.4 $ 70.0 $ 155.4
Q1 FY 21 155.8 - 155.8
$ increase (decrease) $ 69.6 $ 70.0 $ (0.4)
% increase (decrease) 44.7 % (0.3) %
Adjusted EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
For the Three
Months Ended
Garden Pet Corp Total
(in thousands)
Net income attributable to Central Garden
& Pet Company $ - $ - $ - $ 9,009
Interest expense, net - - - 14,408
Other expense - - - 209
Income tax expense - - - 2,401
Net income attributable to
noncontrolling interest - - - 187
Sum of items below operating income - - - 17,205 Income (loss) from operations$ 6,057 $ 45,251 $ (25,094) $ 26,214 Depreciation & amortization 9,620 9,549 1,033 20,202 Noncash stock-based compensation - - 5,187 5,187 Adjusted EBITDA$ 15,677 $ 54,800 $ (18,874) $ 51,603 GAAP to Non-GAAP Reconciliation Adjusted EBITDA Reconciliation For the Three
Months Ended
Garden Pet Corp Total
(in thousands)
Net income attributable to Central Garden
& Pet Company $ - $ - $ - $ 5,613
Interest expense, net - - - 20,769
Other expense - - - (752)
Income tax expense - - - 1,381
Net income attributable to
noncontrolling interest - - - 29
Sum of items below operating income -
- - 21,427
Income (loss) from operations $ 4,651 $ 43,525 $ (21,136) $ 27,040
Depreciation & amortization 2,638 9,085 1,192 12,915
Noncash stock-based compensation - - 4,669 4,669
Adjusted EBITDA $ 7,289 $ 52,610 $ (15,275) $ 44,624
28--------------------------------------------------------------------------------
Inflation
Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, consumer behavior toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending. In certain fiscal periods, we have been adversely impacted by rising input costs related to domestic inflation, particularly relating to grain and seed prices, fuel prices and the ingredients used in our garden controls and fertilizers. Rising costs in those periods have made it difficult for us to increase prices to our retail customers at a pace sufficient to enable us to maintain margins. During fiscal 2021, we experienced and continue to experience in fiscal 2022, increasing inflationary pressure stemming from the COVID-19 operating environment, including notable increases in costs for key commodities, labor and freight. Weather and Seasonality Our sales of lawn and garden products are influenced by weather and climate conditions in the different markets we serve. Our Garden segment's business is highly seasonal. In fiscal 2021, approximately 69% of our Garden segment's net sales and 60% 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, which has historically offset the operating loss incurred during the first fiscal quarter of the year. Liquidity and Capital Resources We have financed our growth through a combination of internally generated funds, bank borrowings, supplier credit, and sales of equity and debt securities to the public. 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. We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses involve products that 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 69% 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 increased by$56.4 million , from$36.1 million for the three months endedDecember 26, 2020 , to$92.5 million for the three months endedDecember 25, 2021 . The increase in cash used by operating activities was due primarily to changes in our working capital accounts for the period endedDecember 25, 2021 , as compared to the prior year period, predominantly an increase in inventory resulting from the three acquisitions made in fiscal 2021 subsequent to our quarter endedDecember 26, 2020 , as well as intentional build-up in inventory due to the overall increased demand for our products. Investing Activities Net cash used in investing activities decreased$67.3 million , from$93.4 million for the three months endedDecember 26, 2020 to$26.1 million during the three months endedDecember 25, 2021 . The decrease in cash used in investing activities was due primarily to the lack of acquisitions in the current year, partially offset by an increase in capital expenditures of$9.5 million in the current year compared to the prior year. During the first quarter of fiscal 2021, we acquired DoMyOwn for approximately$81 million . 29 -------------------------------------------------------------------------------- Financing Activities Net cash used by financing activities increased$96.0 million , from$84.4 million of cash provided for the three months endedDecember 26, 2020 , to$11.6 million of cash used for the three months endedDecember 25, 2021 . The increase in cash used by financing activities during the current year was due primarily to the issuance of$500 million of our 2030 Notes inOctober 2020 , partially offset by the repayment of our 2023 Notes and the corresponding premium paid on extinguishment as well as debt issuance costs incurred on the issuance of the 2030 Notes. We also increased open market purchases of our common stock during the current year period as compared to the prior year. During the three months endedDecember 25, 2021 , we repurchased approximately 0.2 million shares of our non-voting Class A common stock (CENTA) on the open market at an aggregate cost of approximately$6.7 million , or approximately$43.44 per share. During the three months endedDecember 26, 2020 , we did not make any open market purchases of our common stock. We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our$750 million Amended Credit Facility. Based on our anticipated cash needs, availability under our asset backed revolving 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. 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 asset backed loan 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$80 million to$90 million in fiscal 2022, of which we have invested approximately$24 million throughDecember 25, 2021 . 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 AtDecember 25, 2021 , our total debt outstanding was$1,185.5 million , as compared with$789.0 million atDecember 26, 2020 . Senior Notes Issuance of$400 million 4.125% Senior Notes due 2031 InApril 2021 , we issued$400 million aggregate principal amount of 4.125% senior notes dueApril 2031 (the "2031 Notes"). We used the net proceeds from the offering to repay all outstanding borrowings under our Amended Credit Facility, with the remainder to be 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. The 2031 Notes require semi-annual interest payments onApril 30 andOctober 30 , which commencedOctober 30, 2021 . 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 Amended 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 toApril 30, 2026 at the principal amount plus a "make whole" premium. At any time prior toApril 30, 2024 , we may also redeem, at our option, up to 40% of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. We may redeem some or all of the 2031 Notes at our option, at any time on or afterApril 30, 2026 for 102.063%, on or afterApril 30, 2027 for 101.375%, on or afterApril 30, 2028 for 100.688% and on or afterApril 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 ofDecember 25, 2021 . 30 -------------------------------------------------------------------------------- Issuance of$500 million 4.125% Senior Notes due 2030 InOctober 2020 , we issued$500 million aggregate principal amount of 4.125% senior notes dueOctober 2030 (the "2030 Notes"). InNovember 2020 , we used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes dueNovember 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 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. As a result of our redemption of the 2023 Notes, we incurred a call premium payment of$6.1 million , overlapping interest expense for 30 days of approximately$1.4 million and a$2.5 million non-cash charge for the write-off of unamortized deferred financing costs related to the 2023 Notes. These amounts are included in interest expense in the condensed consolidated statements of operations. The 2030 Notes require semiannual interest payments onOctober 15 andApril 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 senior secured revolving credit facility or guarantee our other debt. We may redeem some or all of the 2030 Notes at any time, at our option, prior toOctober 15, 2025 at a price equal to 100% of the principal amount plus a "make-whole" premium. Prior toOctober 15, 2023 , we may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time on or afterOctober 15, 2025 for 102.063%, on or afterOctober 15, 2026 for 101.375%, on or afterOctober 15, 2027 for 100.688% and on or afterOctober 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 ofDecember 25, 2021 .$300 Million 5.125% Senior Notes due 2028 InDecember 2017 , we issued$300 million aggregate principal amount of 5.125% senior notes dueFebruary 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 onFebruary 1 andAugust 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 senior secured revolving credit facility or who guarantee the 2030 Notes. We may redeem some or all of the 2028 Notes at any time, at our option, prior toJanuary 1, 2023 at the principal amount plus a "make whole" premium. We may redeem some or all of the 2028 Notes, at our option, at any time on or afterJanuary 1, 2023 for 102.563%, on or afterJanuary 1, 2024 for 101.708%, on or afterJanuary 1, 2025 for 100.854% and on or afterJanuary 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. We were in compliance with all financial covenants as ofDecember 25, 2021 . Asset-Based Loan Facility Amendment OnDecember 16, 2021 , we entered into a Third Amended and Restated Credit Agreement ("Amended Credit Agreement"). The Amended Credit Agreement amended and restated the previous credit agreement datedSeptember 27, 2019 (the "Predecessor Credit Agreement"), and has been increased to provide 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 "Amended Credit Facility"). The Amended Credit Facility matures onDecember 16, 2026 . We may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full. The Amended 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. We did not draw down any commitments under the Amended 31 -------------------------------------------------------------------------------- Credit Facility upon closing. Proceeds of the Amended Credit Facility will be used for general corporate purposes. Net availability under the Amended Credit Facility was approximately$414 million as ofDecember 25, 2021 . The Amended Credit Facility includes a$50 million sublimit for the issuance of standby letters of credit and a$75 million sublimit for short-notice borrowings. As ofDecember 25, 2021 , there were no borrowings outstanding and no letters of credit outstanding under the Amended Credit Facility. There were other letters of credit of$1.5 million outstanding as ofDecember 25, 2021 . Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR (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 prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month LIBOR plus 1.00% and (d) 0.00%. The applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as ofDecember 25, 2021 , and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0% as ofDecember 25, 2021 . An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders' commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable quarterly and a facing fee of 0.125% shall be 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 Amended Credit Facility. The Amended Credit Facility provides for the transition from LIBOR to SOFR and does not require an amendment in connection with such transition. As ofDecember 25, 2021 , the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to one-month LIBOR-based borrowings was 1.1%. We incurred approximately$2.2 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility. The Amended Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Amended 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 Amended Credit Facility during the period endedDecember 25, 2021 . Summarized Financial Information for Guarantors and the Issuer ofGuaranteed Securities Central (the "Parent/Issuer") issued$400 million of 2031 Notes inApril 2021 ,$500 million of 2030 Notes inOctober 2020 , and$300 million of 2028 Notes inDecember 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 senior secured revolving credit facility ("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 Amended 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; (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. 32 -------------------------------------------------------------------------------- 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 25, 2021 September 25, 2021 Parent/Issuer Guarantors Parent/Issuer Guarantors (in thousands) Net sales$ 185,406 $ 427,511 $ 908,599 $ 2,142,925 Gross profit$ 42,619 $ 143,599 $ 205,837 $ 686,332 Income (loss) from operations$ (6,196) $ 37,039 $ 4,382 $ 229,961 Equity in earnings of Guarantor$ 29,530 $ -$ 183,122 $ - subsidiaries Net income (loss)$ (16,353) $ 29,530
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