CENTRAL GARDEN & PET COMPANY Our CompanyCentral Garden & Pet Company ("Central") is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets inthe United States . We have grown our business through a succession of over 50 acquisitions and created a broad portfolio which allows for economies of scale and market advantages. Our pet supplies include products for dogs and cats like premium edible chews and treats, dog chew toys, dog play toys, natural dog treats and chews, pet dental chews and solutions, pet beds, dog training pads, pet containment, grooming supplies and other accessories; products for birds, small animals and specialty pets, including food, cages and habitats, toys, chews and related accessories; animal and household health and insect control products; live fish and products for fish, reptiles and other aquarium-based pets, including aquariums, 26 -------------------------------------------------------------------------------- furniture and lighting fixtures, pumps, filters, water conditioners, food and supplements, products for horses and livestock, as well as outdoor cushions and pillows. These products are sold under the brands including Aqueon®, Cadet®, Comfort Zone®, Farnam®, Four Paws®, Kaytee®, K&H Pet Products®, Nylabone®, and Zilla® as well as a number of other brands including Adams™, Altosid®, Arden Companies™, Coralife®, C&S Products®, Interpet®, Pet Select®, TFH™, and Zodiac®. Our lawn and garden supplies products include proprietary and non-proprietary grass seed; wild bird feed, bird feeders, bird houses and other birding accessories; seed packets and seed starter products; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle products including pottery, as well as live plants. These products are sold under the brands AMDRO®, Pennington®, and Sevin®, as well as a number of other brand names includingBell Nursery , Ironite®, Ferry-Morse®, Lilly Miller® and Over-N-Out®. In fiscal 2020, our consolidated net sales were$2.7 billion , of which our Pet segment, or Pet, accounted for approximately$1.6 billion and our Garden segment, or Garden, accounted for approximately$1.1 billion . In fiscal 2020, our operating income was$198 million consisting of income from our Pet segment of$154 million , income from our Garden segment of$133 million and corporate expenses of$89 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. Recent Developments Fiscal 2021 Third Quarter Financial Performance: •Net sales increased$203.6 million , or 24.4%, from the prior year quarter to$1,037.1 million due to sales from our three recent acquisitions and an increase in organic sales. Pet segment sales increased$46.2 million , and Garden segment sales increased$157.4 million . •Organic net sales increased 8.7%, comprised of 11.4% in our Pet segment and 5.5% in our Garden segment. •Gross profit increased$58.3 million from the prior year quarter, and gross margin decreased 50 basis points to 30.9%. •Selling, general and administrative expense increased$49.6 million from the prior year quarter to$207.1 million and as a percentage of net sales 110 basis points to 20.0%. •Operating income increased$8.6 million , or 8.2%, from the prior year quarter, to$113.2 million . •Net income in the third quarter of fiscal 2021 was$76.2 million , or$1.37 per diluted share, compared to net income of$68.8 million , or$1.27 per diluted share, in the third quarter of fiscal 2020. Change in Segment Components During the first quarter of fiscal year 2021, we began reporting the results of our outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources. These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment. All prior period segment disclosures have been recast to reflect this segment change. COVID-19 Impact The outbreak of 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 17% for the nine months endedJune 26, 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 current pandemic. Our manufacturing facilities and distribution centers are currently open and fully 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. In our supply chain, we may continue to experience 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 27 -------------------------------------------------------------------------------- may not be able to mitigate such impact. Additionally, we continue to face inflationary pressures stemming from the COVID-19 operating environment, including notable increases in costs for key commodities, 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. Subsequent Event OnJune 30, 2021 , the Company purchasedD&D Commodities, Ltd. ("D&D"), a provider of high-quality, premium bird feed, for approximately$88 million in cash and the assumption of approximately$30 million of long-term debt.. The addition of D&D will expand Central's portfolio in the bird feed category and is expected to deepen the Company's relationship with major retailers.
Results of Operations
Three Months Ended June 26, 2021
Compared with Three Months Ended June 27, 2020
Net Sales
Net sales for the three months ended June 26, 2021 increased $203.6 million , or
24.4%, to $1,037.1 million from $833.5 million for the three months ended June
27, 2020 . Organic net sales, which exclude the impact of acquisitions and
divestitures in the last 12 months, increased $72.2 million , or 8.7%, as
compared to the fiscal 2020 quarter. Our branded product sales increased $160.3
million , and sales of other manufacturers' products increased $43.3 million .
Pet net sales increased $46.2 million , or 10.0%, to $507.8 million for the three
months ended June 26, 2021 from $461.6 million for the three months ended June
27, 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
$51.8 million , or 11.4%, as compared to the prior year quarter. The sales
increase was broad-based across most of our Pet portfolio as we continued to see
increased demand during the pandemic due, among other things, to increased pet
ownership of dogs, cats, small animals and reptiles. Organic sales gains were
most significant in our dog and cat, live fish and aquatic, and pet distribution
businesses. These sales gains were partially offset by a decline in Pet wild
bird feed sales impacted by shipping delays and COVID related challenges in a
facility. Pet branded product sales increased $38.8 million , and sales of other
manufacturers' products increased $7.4 million .
Garden net sales increased $157.4 million , or 42.3%, to $529.3 million for the
three months ended June 26, 2021 from $371.9 million for the three months ended
June 27, 2020 . Sales from our recent acquisitions of DoMyOwn, Hopewell and Green
Garden Products were $137.0 million and organic net sales increased $20.4
million , or 5.5%. The organic sales increase was due primarily to volume-based
gains in live plants and sales of other manufacturers' products and an increase
in our Garden wild bird feed business which was primarily driven by price
increases intended to mitigate the impact of commodity inflation. The increased
demand and sales of our products are believed to be due in significant part to
increased consumer home gardening related to the pandemic and listing gains.
Garden branded sales increased $121.5 million , and sales of other manufacturers'
products increased $35.9 million , both gains driven primarily by recent
acquisitions and secondarily by organic sales growth.
Gross Profit
Gross profit for the three months ended June 26, 2021 increased $58.2 million ,
or 22.2%, to $320.3 million from $262.1 million for the three months ended June
27, 2020 . Gross profit increased in both operating segments. Gross margin
decreased 50 basis points to 30.9% for the three months ended June 26, 2021 from
31.4% for the three months ended June 27, 2020 . The consolidated gross margin
decline was due to the initial inventory-related purchase accounting adjustments
related to the three recent acquisitions in our Garden segment. Overall, our
gross margins are under pressure from the current inflationary environment and
we continue to experience cost increases, primarily in commodities, labor and
freight costs. 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 2021.
In the Pet segment, gross profit increased across the portfolio, with particular
strength in our dog and cat business. The pet segment gross margin improved as
volume-related efficiencies, selective price increases and a mix improvement
were partially offset by cost inflation in commodities, labor and freight.
28
--------------------------------------------------------------------------------
In the Garden segment, gross profit increased due to the three recent
acquisitions, but the Garden gross margin declined due to the initial
inventory-related purchase accounting adjustments related to the acquisitions.
Additionally, the Garden organic gross margins declined due primarily to rising
costs in commodities, labor and freight.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $49.6 million , or 31.5%,
to $207.1 million for the three months ended June 26, 2021 . The increase in
selling, general and administrative expense was primarily in our Garden segment
due to a large extent to the three recent 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 20.0% for the three months ended June 26, 2021 , compared
to 18.9% in the comparable prior year quarter due primarily to increased sales
volumes, wage and freight inflation and increased marketing investment for brand
development and innovation.
Selling and delivery expense increased to $107.7 million for the three months
ended June 26, 2021 as compared to $77.4 million in the prior year quarter. The
increase was due primarily to higher delivery expense, as a result of increased
sales volumes, increased payroll-related costs and the selling and delivery
expenses from the three recent acquisitions in our Garden Segment. Additionally,
selling and delivery expense increased from increased marketing investment for
brand development and innovation.
Warehouse and administrative expense increased $19.4 million , or 24.2%, to $99.4
million for the three months ended June 26, 2021 from $80.0 million for the
three months ended June 27, 2020 . The increase was due primarily to the
warehouse and administrative costs associated with the three recent
acquisitions, including the amortization of intangibles related to purchase
accounting. Additionally, both operating segments experienced increased labor
and payroll-related expense. Corporate expenses increased $0.9 million due
primarily to increased variable compensation and increased equity compensation
expense partially offset by reduced third-party expenses. Corporate expenses are
included within administrative expense and relate to the costs of unallocated
executive, administrative, finance, legal, human resources, and information
technology functions.
Operating Income
Operating income increased $8.6 million , or 8.2%, to $113.2 million for the
three months ended June 26, 2021 . The increase in operating income was
attributable to increased sales and gross profit partially offset by increased
selling, general and administrative expense. Our operating margin decreased from
12.6% in the prior year quarter to 10.9% in the current year quarter due to a 50
basis point decline in gross margin and a 110 basis point increase in selling,
general and administrative expense as a percentage of net sales.
Pet operating income increased $7.4 million , or 11.7%, to $71.0 million for the
three months ended June 26, 2021 from $63.6 million for the three months ended
June 27, 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 20 basis points 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 $2.1 million to $67.0 million for the three
months ended June 26, 2021 from $64.9 million for the three months ended June
27, 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 480 basis points to 12.7% due to a lower gross
margin, which was impacted by inventory-related purchase accounting, and higher
selling, general and administrative expense as a percentage of net sales.
Corporate operating expense increased $0.9 million , or 3.8%, to $24.8 million
for the three months ended June 26, 2021 from $23.9 million for the three months
ended June 27, 2020 . Corporate expense increased due primarily to increased
variable compensation and increased equity compensation expense partially offset
by reduced third-party expenses, but declined as a percentage of consolidated
net sales.
Net Interest Expense
Net interest expense for the three months ended June 26, 2021 increased $1.6
million , or 14.1%, to $13.1 million from $11.5 million for the three months
ended June 27, 2020 due primarily to higher debt balances outstanding during the
quarter. In April 2021 , we issued $400 million aggregate principal amount of
4.125% senior notes due April 2031 . We used a portion of the net proceeds to
repay outstanding amounts under our senior secured revolving credit facility,
with the remainder available for general corporate purposes. Debt outstanding on
June 26, 2021 was $1,183.7 million compared to $694.0 million at June 27, 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 $1.1 million of income for
the quarter ended June 26, 2021 compared to expense of $3.5 million for the
quarter ended June 27, 2020 . The improvement in other income (expense) was due
primarily to the impairment in the prior year quarter of two investments in
private companies impacted by the COVID-19 pandemic.
29
--------------------------------------------------------------------------------
Income Taxes
Our effective income tax rate was 22.5% for the quarter ended June 26, 2021 and
22.6% for the quarter ended June 27, 2020 .
Net Income and Earnings Per Share
Our net income in the third quarter of fiscal 2021 was $76.2 million , or $1.37
per diluted share, compared to a net income of $68.8 million , or $1.27 per
diluted share, in the third quarter of fiscal 2020.
Nine Months Ended June 26, 2021
Compared with Nine Months Ended June 27, 2020
Net Sales
Net sales for the nine months ended June 26, 2021 increased $545.1 million , or
27.0%, to $2,564.6 million from $2,019.5 million for the nine months ended June
27, 2020 . Organic net sales increased $345.1 million , or 17.2%, as compared to
the prior year nine-month period. Our branded product sales increased $422.9
million , and sales of other manufacturers' products increased $122.2 million .
Pet net sales increased $202.5 million , or 16.4%, to $1,436.2 million for the
nine months ended June 26, 2021 from $1,233.7 million for the nine months ended
June 27, 2020 . Net sales in the prior year period include sales from the
Breeder's Choice business unit which we sold in December 2020 . Organic net sales
increased $215.9 million , or 17.7%, as compared to the prior year nine-month
period. The sales increase was broad-based across our entire Pet portfolio and
we continue to see increased demand during the pandemic due, among other things,
to increased pet ownership of dogs, cats, small animals and reptiles. Organic
sales gains were most significant in our dog and cat, pet distribution, aquatics
and outdoor cushion businesses. Pet branded sales increased $170.2 million , and
sales of other manufacturer's products increased $32.3 million .
Garden net sales increased $342.6 million , or 43.6%, to $1,128.4 million for the
nine months ended June 26, 2021 from $785.8 million for the nine months ended
June 27, 2020 . Organic sales increased $129.2 million , or 16.4%, and sales from
our recent acquisitions of DoMyOwn, Hopewell and Green Garden Products
contributed $213.4 million . The increased sales were broad-based across our
entire Garden portfolio, including sales increases in sales of other
manufacturers' products, wild bird feed, live plant and controls and
fertilizers. We believe the sales increase across our Garden portfolio was
driven in significant part by increased consumer home gardening related to the
pandemic and retailer listing gains. Garden branded sales increased $252.7
million , and sales of other manufacturers' products increased $89.9 million .
Gross Profit
Gross profit for the nine months ended June 26, 2021 increased $157.7 million ,
or 26.3%, to $758.1 million from $600.4 million for the nine months ended June
27, 2020 . Gross margin declined 10 basis points to 29.6% for the nine months
ended June 26, 2021 from 29.7% for the nine months ended June 27, 2020 . Both
Garden and Pet contributed to the increase in gross profit, while the gross
margin decrease was due primarily to the decrease in the Garden segment gross
margin. Both segments are being impacted by the rapidly increasing cost
environment. We intend to continue to seek price increases to offset the rising
costs but do not anticipate we will be able to fully offset the cost pressures
in 2021.
In the Pet segment, gross profit increased due to increased sales and a minor
increase in gross margin. Gross margin gains were due primarily to
volume-related efficiencies and increased pricing, which were offset by
increased commodity costs in our wild bird feed business, increased ocean
freight costs and increased labor costs.
In the Garden segment, gross profit increased while there was a slight decline
in gross margin. Although the three recent acquisitions aided in the gross
profit increase, they had a negative impact on gross margin due to the impact of
the initial inventory-related purchase accounting. The Garden gross margin was
also adversely impacted by commodity cost and freight inflation and increased
labor costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $85.6 million , or 20.0%,
to $513.2 million for the nine months ended June 26, 2021 from $427.6 million
for the nine months ended June 27, 2020 . As a percentage of net sales, selling,
general and administrative expenses decreased to 20.0% for the nine months ended
June 26, 2021 from 21.2% for the comparable prior year nine-month period; both
the Pet segment and corporate contributed to the improvement.
Selling and delivery expense increased $45.3 million , or 21.4%, to $257.1
million for the nine months ended June 26, 2021 from $211.8 million for the nine
months ended June 27, 2020 . The increase was due primarily to the addition of
the three recent acquisitions, increased delivery expense as a result of
increased sales volumes and higher shipping costs, wages and marketing
investment for brand development and innovation.
30
--------------------------------------------------------------------------------
Warehouse and administrative expense increased $40.3 million , or 18.7%, to
$256.1 million for the nine months ended June 26, 2021 from $215.8 million for
the nine months ended June 27, 2020 . The increased expense was driven by the
addition of the three recent acquisitions in the Garden segment and a $2.6
million loss in our Pet segment resulting from the sale of the Breeder's Choice
business in our fiscal first quarter. Additionally, both operating segments
experienced increased labor and payroll-related expense. Corporate expenses
increased $5.1 million due primarily to increased variable compensation, payroll
expense and increased non-cash equity compensation expense. Corporate expenses
are included within administrative expense and relate to the costs of
unallocated executive, administrative, finance, legal, human resources, and
information technology functions.
Operating Income
Operating income increased $72.1 million to $244.9 million for the nine months
ended June 26, 2021 from $172.8 million for the nine months ended June 27, 2020 .
Our operating margin increased to 9.5% for the nine months ended June 26, 2021
from 8.6% for the nine months ended June 27, 2020 . Increased sales of $545.1
million and a 120 basis point decrease in selling, general and administrative
expense as a percentage of net sales were partially offset by a 10 basis point
decline in gross margin.
Pet operating income increased $40.8 million , or 30.0%, to $176.6 million for
the nine months ended June 26, 2021 from $135.8 million for the nine months
ended June 27, 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 130 basis points due to increased sales,
an improved gross margin and lower selling, general and administrative expense
as a percentage of net sales.
Garden operating income increased $36.4 million to $137.6 million for the nine
months ended June 26, 2021 from $101.2 million for the nine months ended June
27, 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 70 basis points to 12.2% due to increased
sales, a lower gross margin and higher selling, general and administrative
expense as a percentage of net sales.
Corporate operating expense increased $5.1 million to $69.4 million in the
current nine-month period from $64.2 million in the comparable fiscal 2020
period due primarily to increased variable compensation, payroll expense and
increased non-cash equity compensation expense.
Net Interest Expense
Net interest expense for the nine months ended June 26, 2021 increased $14.6
million , or 49.5%, to $44.0 million from $29.4 million for the nine months ended
June 27, 2020 . In October 2020 , 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 of
approximately $10.0 million in the fiscal 2021 quarter. Also contributing to the
increase in net interest expense was a higher debt balance during the nine-month
period. In April 2021 , we issued $400 million aggregate principal amount of
4.125% senior notes due April 2031 . We used a portion of the net proceeds to
repay outstanding amounts under our senior secured revolving credit facility,
with the remainder available for general corporate purposes.
Debt outstanding on June 26, 2021 was $1,183.7 million compared to $694.0
million as of June 27, 2020 . Our average borrowing rate for the nine months
ended June 26, 2021 decreased to 4.4% from 5.5% for the nine months ended June
27, 2020 .
Other Income
Other income (expense) was income of $0.4 million for the nine-month period
ended June 26, 2021 compared to an expense of $4.2 million for the nine-month
period ended June 27, 2020 . The expense in the prior fiscal nine-month period
was due primarily to the impairment of two investments in private companies
impacted by the COVID-19 pandemic.
Income Taxes
Our effective income tax rate was 22.5% for the nine-month period ended June 26,
2021 compared to 22.4% for the nine-month period ended June 27, 2020 .
Net Income and Earnings Per Share
Our net income for the nine months ended June 26, 2021 was $154.8 million , or
$2.80 per diluted share, compared to $107.1 million , or $1.95 per diluted share,
for the nine months ended June 27, 2020 .
31
--------------------------------------------------------------------------------
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 and depreciation and amortization (or operating income plus
depreciation and amortization 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 in interest expense. 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. (3)During the third quarter of fiscal 2020, we recorded a non-cash impairment charge for two private company investments. The impairment was recorded as part of other income (expense). 32 --------------------------------------------------------------------------------
GAAP to Non-GAAP Reconciliation
For the Three Months Ended For the Nine Months Ended
Net Income and Diluted Net Income Per
Share Reconciliation June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020
(in thousands, except per share amounts)
GAAP net income attributable to
Central Garden & Pet Company $ 76,186 $
68,800
(1) - - 9,952 -
Loss on sale of business (2) 2,611 -
Investment impairments (3) - 3,566 - 3,566
Tax effect of incremental expenses,
loss on sale and impairment $ - $ (807) (2,825) (800)
Non-GAAP net income attributable to
Central Garden & Pet Company $ 76,186 $
71,559
$ 1.37 $ 1.27 $ 2.80 $ 1.95 Non-GAAP diluted net income per share $ 1.37 $
1.32 $ 2.98 $ 2.00
Shares used in GAAP and non-GAAP
diluted net earnings per share
calculation 55,658 54,168 55,236 54,984
33--------------------------------------------------------------------------------
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 June 26, 2021 For the Nine Months Ended June 26, 2021
Effect of Effect of
acquisition & acquisition &
divestitures on divestitures on
increase in net Net sales increase in net Net sales
Net sales (GAAP) sales organic Net sales (GAAP) sales organic
(in millions)
Q3 FY 21 $ 1,037.1 $ 137.0 $ 900.1 $ 2,564.6 $ 213.4 $ 2,351.2
Q3 FY 20 $ 833.5 $ 5.6 $ 827.9 $ 2,019.5 $ 13.4 $ 2,006.1
$ increase $ 203.6 $ 72.2 $ 545.1 $ 345.1
% increase 24.4 % 8.7 % 27.0 % 17.2 %
Pet GAAP to Non-GAAP Reconciliation
For Three Months Ended June 26, 2021 For the Nine Months Ended June 26, 2021
Effect of Effect of
acquisition & acquisition &
divestitures on divestitures on
increase in net Net sales increase in net Net sales
Net sales (GAAP) sales organic Net sales (GAAP) sales organic
(in millions)
Q3 FY 21 $ 507.8 $ - $ 507.8 $ 1,436.2 $ - $ 1,436.2
Q3 FY 20 $ 461.6 $ 5.6 $ 456.0 $ 1,233.7 $ 13.4 $ 1,220.3
$ increase $ 46.2 $ 51.8 $ 202.5 $ 215.9
% increase 10.0 % 11.4 % 16.4 % 17.7 %
Garden GAAP to Non-GAAP Reconciliation
For Three Months Ended June 26, 2021 For the Nine Months Ended June 26, 2021
Effect of Effect of
acquisition & acquisition &
divestitures on divestitures on
Net sales increase in net Net sales increase in net Net sales
(GAAP) sales organic Net sales (GAAP) sales organic
(in millions)
Q3 FY 21 $ 529.3 $ 137.0 $ 392.3 $ 1,128.4 $ 213.4 $ 915.0
Q3 FY 20 $ 371.9 $ - $ 371.9 $ 785.8 $ - $ 785.8
$ increase $ 157.4 $ 20.4 $ 342.6 $ 129.2
% increase 42.3 % 5.5 % 43.6 % 16.4 %
34-------------------------------------------------------------------------------- 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 $ - $ - $ - $ 76,186
Interest expense, net - - - 13,086
Other expense - - - 1,086
Income tax expense - - - 22,315
Net income attributable to
noncontrolling interest - - - 568
Sum of items below operating income - - - 37,055
Income (loss) from operations $ 67,037 $ 71,021 $ (24,817) $ 113,241
Depreciation & amortization 10,808 8,960 1,222 20,990
Adjusted EBITDA $ 77,845 $ 79,981 $ (23,595) $ 134,231
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 $ - $ - $ - $ 68,800
Interest expense, net - - - 11,471
Other expense - - - 3,541
Income tax expense - - - 20,291
Net income attributable to
noncontrolling interest - - - 537
Sum of items below operating income - - - 35,840
Income (loss) from operations $ 64,941 $ 63,606 $ (23,907) $ 104,640
Depreciation & amortization 2,663 9,249 1,371 13,283
Adjusted EBITDA $ 67,604 $ 72,855 $ (22,536) $ 117,923
Adjusted EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
For the
Nine Months Ended
Garden Pet Corp Total
(in thousands)
Net income attributable to Central Garden
& Pet Company $ - $ - $ - $ 154,753
Interest expense, net - - - 44,006
Other income - - - (370)
Income tax expense - - - 45,260
Net income attributable to
noncontrolling interest - - - 1,242
Sum of items below operating income -
- - 90,138
Income (loss) from operations $ 137,650 $ 176,604 $ (69,363) $ 244,891
Depreciation & amortization 22,250 26,927 3,582 52,759
Adjusted EBITDA $ 159,900 $ 203,531 $ (65,781) $ 297,650
35
--------------------------------------------------------------------------------
GAAP to Non-GAAP Reconciliation
Adjusted EBITDA Reconciliation For the
Nine Months Ended
Garden Pet Corp Total
(in thousands)
Net income attributable to Central Garden
& Pet Company $ - $ - $ - $ 107,087
Interest expense, net - - - 29,444
Other expense - - - 4,215
Income tax expense - - - 31,211
Net income attributable to
noncontrolling interest - - - 853
Sum of items below operating income -
- - 65,723
Income (loss) from operations $ 101,219 $ 135,819 $ (64,228) $ 172,810
Depreciation & amortization 7,971 27,491 4,136 39,598
Adjusted EBITDA $ 109,190 $ 163,310 $ (60,092) $ 212,408
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 fertilizer. 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 have experienced increasing inflationary pressure
stemming from the COVID-19 operating environment, including notable increases in
costs for key commodities, labor and freight. In both fiscal 2020 and the first
nine months of fiscal 2021, tariffs had a negative impact in instances where we
were unable to pass through the incremental costs.
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 2020, the weather during the peak gardening season
was particularly favorable. In fiscal 2020, approximately 67% of our Garden
segment's net sales and 57% 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 consumables. 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 67% 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.
36
--------------------------------------------------------------------------------
Operating Activities
Net cash provided by operating activities increased by $89.7 million , from $88.9
million for the nine months ended June 27, 2020 , to $178.6 million for the nine
months ended June 26, 2021 . The increase in cash provided by operating
activities was due primarily to increased operating income resulting from the
overall increased demand for our products, as well as changes in our working
capital accounts for the period ended June 26, 2021 , as compared to the prior
year period.
Investing Activities
Net cash used in investing activities increased $757.1 million , from $31.8
million for the nine months ended June 27, 2020 to $788.9 million during the
nine months ended June 26, 2021 . The increase in cash used in investing
activities was due primarily to acquisition activity and increased capital
expenditures in the current year compared to the prior year, partially offset by
proceeds received from the sale of our Breeder's Choice business during the
first quarter of fiscal 2021 and decreased investments in the current year
compared to the prior year. During the first quarter of fiscal 2021, we acquired
DoMyOwn for approximately $81 million . During the second quarter of fiscal 2021,
we acquired Hopewell Nursery on December 31, 2020 for approximately $81 million
and Green Garden Products on February 11, 2021 for approximately $571 million .
Financing Activities
Net cash provided by financing activities increased $530.1 million , from $59.0
million of cash used for the nine months ended June 27, 2020 , to $471.1 million
of cash provided for the nine months ended June 26, 2021 . The increase in cash
provided by financing activities during the current year was due primarily to
the issuance of $500 million of our 2030 Notes in October 2020 and $400 million
of our 2031 Notes in April 2021 , 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 issuances of the 2030 Notes and 2031 Notes. We
also decreased open market purchases of our common stock during the current year
period as compared to the prior year. During the nine months ended June 26,
2021 , we did not make any open market purchases of our common stock. During the
nine months ended June 27, 2020 , we repurchased approximately 0.2 million shares
of our voting common stock (CENT) on the open market at an aggregate cost of
approximately $6.6 million , or approximately $26.63 per share, and 1.8 million
shares of our non-voting Class A common stock (CENTA) on the open market at an
aggregate cost of approximately $45.7 million , or approximately $25.90 per
share.
We expect that our principal sources of funds will be cash generated from our
operations and, if necessary, borrowings under our $400 million asset backed
revolving 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 $75 million in fiscal 2021, of which we have invested
approximately $57 million through June 26, 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
At June 26, 2021 , our total debt outstanding was $1,183.7 million , as compared
with $694.0 million at June 27, 2020 .
Senior Notes
Issuance of $400 million 4.125% Senior Notes due 2031
In April 2021 , we issued $400 million aggregate principal amount of 4.125%
senior notes due April 2031 (the "2031 Notes"). We used 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.
37
--------------------------------------------------------------------------------
The 2031 Notes require semi-annual interest payments on April 30 and October 30 ,
commencing October 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 to
April 30, 2026 at the principal amount plus a "make whole" premium. At any time
prior to April 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 after April 30, 2026 for 102.063%,
on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688%
and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.
The holders of the 2031 Notes have the right to require us to repurchase all or
a portion of the 2031 Notes at a purchase price equal to 101% of the principal
amount of the notes repurchased, plus accrued and unpaid interest, upon the
occurrence of specific kinds of changes of control.
The 2031 Notes contain customary high yield covenants, including covenants
limiting debt incurrence and restricted payments, subject to certain baskets and
exceptions. We were in compliance with all financial covenants as of June 26,
2021 .
Issuance of $500 million 4.125% Senior Notes due 2030 and Redemption of $400
million 6.125% Senior Notes due 2023
In October 2020 , we issued $500 million aggregate principal amount of 4.125%
senior notes due October 2030 (the "2030 Notes"). In November 2020 , we used a
portion of the net proceeds to redeem all of our outstanding 6.125% senior notes
due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus
accrued and unpaid interest, and to pay related fees and expenses, with the
remainder 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 on October 15 and April 15 ,
commencing April 15, 2021 . 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 to
October 15, 2025 at a price equal to 100% of the principal amount plus a
"make-whole" premium. Prior to October 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 after October 15, 2025 for 102.063%, on or after
October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on
or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.
The holders of the 2030 Notes have the right to require us to repurchase all or
a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal
amount of the notes repurchased, plus accrued and unpaid interest upon the
occurrence of a change of control.
The 2030 Notes contain customary high yield covenants, including covenants
limiting debt incurrence and restricted payments, subject to certain baskets and
exceptions. We were in compliance with all financial covenants as of June 26,
2021 .
$300 Million 5.125% Senior Notes due 2028
In December 2017 , we issued $300 million aggregate principal amount of 5.125%
senior notes due February 2028 (the "2028 Notes"). We used the net proceeds from
the offering to finance acquisitions and for general corporate purposes.
We incurred approximately $4.8 million of debt issuance costs in conjunction
with this transaction, which included underwriter fees and legal, accounting and
rating agency expenses. The debt issuance costs are being amortized over the
term of the 2028 Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1 .
The 2028 Notes are unconditionally guaranteed on a senior basis by our existing
and future domestic restricted subsidiaries who are borrowers under or
guarantors of our 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 to
January 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 after
January 1, 2023 for 102.563%, on or
38
--------------------------------------------------------------------------------
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. We were in compliance with all financial covenants as of June 26,
2021 .
Asset-Based Loan Facility Amendment
On September 27, 2019 , we entered into a Second Amended and Restated Credit
Agreement ("Amended Credit Agreement"). The Amended Credit Agreement amended and
restated the previous credit agreement dated April 22, 2016 and continues to
provide up to a $400.0 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, as defined, if we exercise the
accordion feature set forth therein (collectively, the "Amended Credit
Facility"). The Amended Credit Facility matures on September 27, 2024 . We may
borrow, repay and reborrow amounts under the Amended Credit Facility until its
maturity date, at which time all amounts outstanding under the Credit Facility
must be repaid in full.
The Amended Credit Facility is subject to a borrowing base that is calculated
using a formula initially based upon eligible receivables and inventory minus
certain reserves and adjustments. The Amended Credit Facility also allows us to
add real property to the borrowing base so long as the real property is subject
to a first priority lien in favor of the Administrative Agent for the benefit of
the Lenders. Net availability under the Amended Credit Facility was $400 million
as of June 26, 2021 . The Amended Credit Facility includes a $50 million sublimit
for the issuance of standby letters of credit and an increased $40 million
sublimit for short-notice borrowings. We incurred approximately $1.6 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. As of June 26, 2021 , there were no
borrowings outstanding and no letters of credit outstanding under the Credit
Facility. There were other letters of credit of $1.6 million outstanding as of
June 26, 2021 .
Borrowings under the Amended Credit Facility bear interest at an index based on
LIBOR or, at our option, the Base Rate (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%), plus, in either case, an applicable margin based on our consolidated
senior leverage ratio and (d) 0.00%. Such applicable margin for LIBOR-based
borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of June 26, 2021 ,
and such applicable margin for Base Rate borrowings fluctuates between
0.00%-0.50%, and was 0.00% as of June 26, 2021 . An unused line fee shall be
payable monthly 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 monthly and a facing
fee of 0.125% shall be paid on demand 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. As of June 26, 2021 , the applicable interest
rate related to Base Rate borrowings was 3.3%, and the applicable interest rate
related to LIBOR-based borrowings was 1.1%.
Banks currently reporting information used to set LIBOR will stop doing so after
2021. Various parties, including government agencies, are seeking to identify an
alternative rate to replace LIBOR. We are monitoring their efforts, and we will
likely amend contracts to accommodate any replacement rate where it is not
already provided. Our Amended Credit Facility already anticipates the potential
loss of LIBOR and defines procedures for establishing a replacement rate.
In July 2017 , the Financial Conduct Authority in the United Kingdom , the
governing body responsible for regulating LIBOR, announced that it no longer
will compel or persuade financial institutions and panel banks to make LIBOR
submissions after 2021. This decision is expected to result in the end of the
use of LIBOR as a reference rate for commercial loans and other indebtedness. We
have both LIBOR-denominated and Euro Interbank Offer Rate (EURIBOR)-denominated
indebtedness. The transition to alternatives to LIBOR could be modestly
disruptive to the credit markets, and while we do not believe that the impact
would be material to us, we do not yet have insight into what the impacts might
be.
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. We were in compliance with
all financial covenants under the Credit Facility during the period ended June
26, 2021 .
Summarized Financial Information for Guarantors and the Issuer of Guaranteed
Securities
In April 2021 , Central (the "Parent/Issuer") issued $400 million of 2031 Notes.
In October 2020 , Central issued $500 million of 2030 Notes, and in November
2020 , we redeemed our $400 million of 2023 Notes at price of 101.531% plus
accrued and unpaid interest. In December 2017 , Central issued $300 million of
2028 Notes. 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
39
--------------------------------------------------------------------------------
are borrowers under or 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 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.
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
Nine Months Ended Fiscal Year Ended
June 26, 2021 September 26, 2020
Parent/Issuer Guarantors Parent/Issuer Guarantors
(in thousands)
Net sales $ 704,780 $ 1,672,795 $ 839,425 $ 1,720,279
Gross profit $ 162,165 $ 533,294 $ 195,893 $ 555,616
Income (loss) from operations $ 12,036 $ 209,499 $ 2,724 $ 187,114
Equity in earnings of Guarantor $ 163,858 $ - $ 148,349 $ -
subsidiaries
Net income (loss) $ (26,617) $ 163,858 $ (33,326) $ 148,349
40--------------------------------------------------------------------------------
© Edgar Online, source
