Central Garden & Pet(CENTA) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three and six months ended March 27, 2021, and March 28, 2020, including balance sheets, statements of operations, comprehensive income, and cash flows Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended Mar 27, 2021 ($M) | Three Months Ended Mar 28, 2020 ($M) | Six Months Ended Mar 27, 2021 ($M) | Six Months Ended Mar 28, 2020 ($M) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $935.3 | $703.2 | $1,527.5 | $1,186.1 | | Operating income | $104.6 | $66.1 | $131.7 | $68.2 | | Net income attributable to Central Garden & Pet | $73.0 | $42.7 | $78.6 | $38.3 | | Diluted EPS | $1.32 | $0.78 | $1.43 | $0.69 | Condensed Consolidated Balance Sheets Highlights | Metric | March 27, 2021 ($M) | March 28, 2020 ($M) | September 26, 2020 ($M) | | :--- | :--- | :--- | :--- | | Total current assets | $1,407.2 | $1,358.9 | $1,525.3 | | Total assets | $2,847.1 | $2,167.4 | $2,339.4 | | Total current liabilities | $536.8 | $357.1 | $440.3 | | Total liabilities | $1,685.5 | $1,174.0 | $1,261.7 | | Total equity | $1,161.6 | $993.4 | $1,077.7 | Condensed Consolidated Statements of Cash Flows Highlights | Metric | Six Months Ended Mar 27, 2021 ($M) | Six Months Ended Mar 28, 2020 ($M) | | :--- | :--- | :--- | | Net cash used by operating activities | ($120.2) | ($92.7) | | Net cash used in investing activities | ($765.4) | ($24.4) | | Net cash provided (used) by financing activities | $270.5 | ($49.2) | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial statement items, including segment reporting changes, recent acquisitions, debt activities, and legal contingencies - The company's outdoor cushion operations were reclassified from the Garden segment to the Pet segment to align with internal management reporting, with all prior period segment disclosures recast to reflect this change[29][115] - The company completed three acquisitions: DoMyOwn for ~$81 million, Hopewell Nursery for ~$81 million, and Green Garden Products for ~$571 million[55][56][57] - In October 2020, the company issued $500 million of 4.125% senior notes due 2030 and used a portion of the proceeds to redeem all of its outstanding 6.125% senior notes due 2023[76] Segment Performance for Six Months Ended | Segment | Net Sales (Mar 27, 2021) ($ thousands) | Net Sales (Mar 28, 2020) ($ thousands) | Operating Income (Mar 27, 2021) ($ thousands) | Operating Income (Mar 28, 2020) ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Pet | $928,382 | $772,119 | $105,583 | $72,213 | | Garden | $599,100 | $413,938 | $70,613 | $36,278 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion provides an overview of the company's financial performance, highlighting significant sales growth driven by strong organic demand and recent acquisitions, covering segment performance, COVID-19 impacts, liquidity, and debt financing - The company is a leading producer and distributor in the U.S. lawn & garden and pet supplies markets, with a strategy of growth through acquisition, having completed over 50 to date[124] - The COVID-19 pandemic has positively impacted demand, with organic net sales increasing 23.2% for the six months ended March 27, 2021, while also challenging the supply chain and increasing operational costs[131] - Subsequent to the quarter's end, in April 2021, the company issued an additional $400 million in 4.125% senior notes due 2031 to repay outstanding credit facility amounts and for general corporate purposes[132][187] Results of Operations This subsection analyzes financial results for the three and six-month periods ending March 27, 2021, showing significant growth in net sales, operating income, and net income across both Pet and Garden segments Q2 FY2021 vs Q2 FY2020 Performance | Metric | Q2 FY2021 ($M) | Q2 FY2020 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $935.3 | $703.2 | +33.0% | | Organic Net Sales | - | - | +23.2% | | Operating Income | $104.6 | $66.1 | +58.2% | | Net Income | $73.0 | $42.7 | +70.9% | | Diluted EPS | $1.32 | $0.78 | +69.2% | Six Months FY2021 vs Six Months FY2020 Performance | Metric | H1 FY2021 ($M) | H1 FY2020 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,527.5 | $1,186.1 | +28.8% | | Organic Net Sales | - | - | +23.2% | | Operating Income | $131.7 | $68.2 | +93.1% | | Net Income | $78.6 | $38.3 | +105.2% | | Diluted EPS | $1.43 | $0.69 | +107.2% | - Pet segment Q2 net sales increased 21.3% (23.1% organic), driven by broad-based demand and increased pet ownership during the pandemic[136] - Garden segment Q2 net sales increased 48.9% (23.3% organic), with recent acquisitions contributing $76.1 million, boosted by increased consumer home gardening[136] Liquidity and Capital Resources This section details the company's financial liquidity, capital structure, and cash flow activities, highlighting increased net cash used in operating and investing activities, and significant financing from new debt issuance - Net cash used in investing activities was $765.4 million for the six months, primarily due to payments for acquisitions of DoMyOwn, Hopewell Nursery, and Green Garden Products totaling $733.7 million[179][23] - Financing activities included issuing $500 million in 2030 Notes, borrowing a net $190 million on the revolving credit facility, and repaying $400 million of 2023 Notes[180][23] - Total debt outstanding was $979.0 million at March 27, 2021, an increase from $693.7 million at March 28, 2020[181] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its exposure to market risk since its last Annual Report on Form 10-K for the fiscal year ended September 26, 2020 - No material change in market risk exposure was reported compared to the fiscal year-end 2020 Form 10-K[201] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 27, 2021, with recent acquisitions excluded from the internal control assessment during integration - Disclosure controls and procedures were deemed effective as of the end of the period covered by the report[202] - The three recent acquisitions (DoMyOwn, Hopewell Nursery, Green Garden Products) were excluded from the evaluation of internal control over financial reporting for the period, as they are still in the process of being integrated[203] PART II. OTHER INFORMATION Legal Proceedings The company is involved in a patent infringement lawsuit with Nite Glow Industries, Inc., resulting in a $12.4 million judgment that the company is appealing, not expecting a material financial impact - The company is appealing a $12.4 million judgment in a patent infringement and breach of contract case brought by Nite Glow Industries, Inc. Management intends to vigorously pursue the appeal and believes the ultimate resolution will not have a material impact[206][208][120] Risk Factors The company reports no material changes from the risk factors previously disclosed in its Form 10-K for the fiscal year ended September 26, 2020 - There have been no material changes to the risk factors disclosed in the company's Form 10-K for the fiscal year ended September 26, 2020[209] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, noting that while 16,157 shares were purchased for tax purposes, no shares were repurchased under the publicly announced program, which retains its full $100 million authorization - As of March 27, 2021, the company had $100 million of authorization remaining under its 2019 share repurchase program[211] - No shares were repurchased during the quarter as part of the publicly announced program. 16,157 shares were withheld to cover taxes in connection with vesting of restricted stock[211] Exhibits This section lists the exhibits filed with the Form 10-Q, including supplemental indentures, credit agreement amendments, guarantor subsidiary lists, and CEO/CFO certifications - Exhibits filed with this report include supplemental indentures, a first amendment to the credit agreement, a list of guarantor subsidiaries, and certifications from the Principal Executive Officer and Principal Financial Officer[216][217][218]