ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
CENTRAL GARDEN & PET COMPANY
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seasonality and fluctuations in our operating results and cash flow; •fluctuations in market prices for seeds and grains and other raw materials; •our inability to pass through cost increases in a timely manner; our dependence upon key executives; fluctuations in energy prices, fuel and related petrochemical costs; •declines in consumer spending during economic downturns; •dependence on a small number of customers for a significant portion of our business; •consolidation trends in the retail industry; •competition in our industries; •potential goodwill or intangible asset impairment; •continuing implementation of •our •potential environmental liabilities; •litigation and product liability claims; •regulatory issues; •the impact of product recalls; •potential costs and risks associated with actual or •the impact of the corporate tax reform being considered by the U.S. Congress and Trump administration; •potential dilution from issuance of authorized shares. We cannot guarantee the accuracy or completeness of such information contained herein. Net sales for fiscal Gross profit for fiscal 2017 increased $79.8 million, or 14.4%, to $632.8 million from $553.0 million in fiscal 2016. Gross margin increased Our operating Net income was Our net cash provided by operating activities was strategy, including the following: We plan to continue to utilize our team of dedicated sales people and our sales and logistics networks to expand sales of our branded products. model which is of significant value to many of our customers is that in addition to our branded manufactured products, we also produce private label products and distribute products produced by third-party manufacturers. This enables us to provide a wide variety of products across multiple categories for our customers. We are also expanding our category management capabilities to provide direction fueled by consumer insights and specific customer understanding to grow our retail partners’ category sales and profits. We are expanding this capability across the Company to make recommendations around merchandising, assortment, pricing and shelving to grow our customers’ categories. Category Pet supplies (excluding wild bird feed) Garden controls and fertilizer products Wild bird feed Other garden supplies Grass seed Total was $131.6 million. 51-54% since 2011. treats and chews. For example, as many as 82% of dog owners and 65% of cat owners regularly purchase some type of treat. IMS is a manufacturer and supplier of a full-line of quality rawhide and other natural dog chews, and treats. DMC, the industry-leading dog & cat bed company and supplier to many of the largest retailers for private label and branded bedding. products, including Frontline Plus. In addition, through our Farnam operations, we are a leading manufacturer and marketer of innovative health care products for horses. Farnam’s portfolio of industry leading brands includes the Farnam umbrella brand, IverCare®, Bronco® customers. a sales organization operating by category and channel; dedicated account teams servicing our largest customers; a group of account managers focused on regional chains; a geographic based group of territory managers dedicated to the independent retailer; and a specialized group of account managers dedicated to the professional and equine markets. was $87.3 million. slow rate. requirements dedicated sales forces represent our combined brand groups; retail sales and logistics network, which provides in-store training and merchandising for our customers, especially during the prime spring and summer seasons; dedicated account-managers and sales teams located near and dedicated to serve several of our largest customers; and selected independent distributors who sell our brands. strong competitor in yard and household insecticides. Our Garden segment competes primarily on the basis of its strong premium and value brands, quality, service, price and low cost manufacturing. Our Garden segment’s sales and logistics operations also compete with a large number of distributors, with competition based on price, service and personal relationships. 2015. all regulatory requirements going forward. Name Position William E. Brown Michael A. Reed George Yuhas seasonality and adverse weather conditions; shifts in demand for lawn and garden and pet products; changes in product mix, service levels, marketing and pricing by us and our competitors; the effect of acquisitions; and economic stability of and strength of our relationships with key retailers. prices for commodity seeds and grains have fluctuated in response to a number of factors, including changes in United States government farm support programs, changes in international agricultural and trading policies and weather conditions during the growing and harvesting seasons. spending could reduce our sales and harm our business. These economic and market conditions, combined with continuing difficulties in the credit markets and the resulting pressures on liquidity, may also place a number of our key retail customers under financial stress, which would increase our credit risk and potential bad debt exposure. Additionally, some retailers are increasing their emphasis on private label products. While we view private label as an opportunity and supply many private label products to retailers, we could lose sales in the event that key retailers replace our branded products with private label product manufactured by others. and have substantially greater revenue and resources than we do. Our products compete against national and regional products and private label products produced by various suppliers. Our largest competitors in the Pet segment are Spectrum Brands and Hartz Mountain, and our largest competitors in the Garden segment are Scotts and Spectrum Brands. develop and grow brands with leading market positions; grow market share; maintain and expand our relationships with key retailers; continually develop innovative new products that appeal to consumers; implement effective marketing and sales promotion programs; maintain strict quality standards; deliver products on a reliable basis at competitive prices; and effectively integrate acquired companies. failure of the acquired business to achieve expected results, as well as the potential impairment of the acquired assets if operating results decline after an acquisition; diversion of management’s attention; failure to retain key personnel of the acquired business; the potential negative effect on our financial statements from the increase in goodwill and other intangibles; the high cost and expenses of identifying, negotiating and completing acquisitions; and risks associated with unanticipated events or liabilities. acquired businesses into our existing business without substantial costs, delays or other operational or financial difficulties. In future acquisitions, we also could incur additional indebtedness or pay consideration in excess of fair value, which could have a material adverse effect on our business, results of operations and financial condition. system. manufacturing of public health and contamination risks in China; quality control issues; social and political disturbances and instability; export duties, import controls, tariffs, quotas and other trade barriers; shipping and transportation problems; and fluctuations in currency values. These risks may be heightened by changes in the United States government's trade policies. Because we rely on Chinese make it more difficult for us to satisfy our obligations with respect to the terms of our indebtedness; require us to dedicate a large portion of our cash flow to pay principal and interest on our indebtedness, which would reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other business activities; increase our vulnerability to adverse industry conditions, including unfavorable weather conditions or commodity price increases; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; restrict us from making strategic acquisitions or exploiting business opportunities; place us at a competitive disadvantage compared to competitors that have less debt; and limit our ability to borrow additional funds at reasonable rates, if at all. breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation. Class A common stock would not dilute the voting rights of the existing stockholders, it would have a dilutive effect on the economic interest of currently outstanding shares of common stock and Class B common stock similar to the dilutive effect of subsequent issuances of ordinary common stock. The issuance of Location Type of Facility Owned or Leased Phoenix, AZ (2) Irwindale, CA Sacramento, CA Santa Fe Springs, CA Aurora, CO Shanghai, China Location Type of Facility Owned or Leased Cullman, AL Eatonton, GA Madison, GA (2) Madison, GA Taunton, MA Laurel, MD Greenfield, MO (2) Greenfield, MO Neosho, MO Charlotte, NC Sidney, NE Fairfield, OH Peebles, OH Albany, OR Lebanon, OR Portland, OR Kenbridge, VA Fiscal 2013 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Central Garden & Pet Company NASDAQ Composite Dow Jones US Nondurable Household Products Period June 29, 2014 – August 2, 2014 August 3, 2014 – August 30, 2014 August 31, 2014 – September 27, 2014 Total Statement of Operations Data (1): Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Goodwill and other impairments (2) Income (loss) from operations (3) Interest expense, net Other income (expense) Income (loss) before income taxes and noncontrolling interest Income tax expense (benefit) Income (loss) including noncontrolling interest Net income attributable to noncontrolling interest Net income (loss) attributable to Central Garden & Pet Net income (loss) per share attributable to Central Garden & Pet: Basic Diluted Weighted average shares used in the computation of income (loss) per share: Basic Diluted Other Data: Depreciation and amortization Capital expenditures Cash provided (used) by operating activities Cash used in investing activities Cash provided (used) by financing activities Ratio of earnings to fixed charges (4) Balance Sheet Data: Cash and short term investments Working capital Total assets Total debt Equity Net sales for fiscal Gross profit for fiscal 2017 increased $79.8 million, or 14.4%, to $632.8 million from $553.0 million in fiscal 2016. Gross margin increased Our operating Our net cash provided by operating activities was Measures these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Income from operations Net income Net loss per share attributable to Central Garden & Pet Co.: Earnings per share – Diluted Weighted shares outstanding Gross margin Selling, general and administrative expenses as a percentage of sales Operating margin Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses & impairment Income from operations Net income (loss) Earnings per share – Diluted Weighted shares outstanding Gross margin Selling, general and administrative expenses as a percentage of sales Operating margin Adjusted net sales Adjusted gross profit Adjusted gross margin Adjusted selling, general and administrative expenses Adjusted selling, general and administrative as a percentage of sales Adjusted income from operations Adjusted operating margin Adjusted EPS – diluted Fiscal year as reported (GAAP) Garden charge (A) Fiscal year as adjusted Fiscal year as reported (GAAP) Garden charge (A) Gain on sale of plant assets (B) Goodwill impairment charge (C) Fiscal year as adjusted Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative Goodwill impairment Income from operations Interest expense, net Other income Income taxes Noncontrolling interest Net income (loss) 2016. Fiscal 2017 included 53 weeks while fiscal 2016 included 52 weeks. We estimate the impact of the extra week in fiscal 2017 to be approximately $35 million on total net sales, $32.8 million of which is the impact on organic sales. Private label sales represented 10% to 15% of our consolidated net sales. Category Pet supplies (excluding wild bird feed) Garden controls and fertilizers Wild bird feed Other garden supplies Grass seed Total 3.0%. 2015 due primarily to increased distribution to existing customers. our exit from the holiday decor business. animal health category and increased delivery expenses in our distribution business to support its sales gains. our Pet segment related to certain indefinite-lived intangible assets as a result of increased competition and an expected decline in the volume of sales. percentage of net sales. 26, 2015. Our average borrowing rate for fiscal 2016 decreased to 6.3% from 8.1% for fiscal 2015. (expense). Category Pet supplies (excluding wild bird feed) Garden Controls and fertilizers Wild bird feed Other garden supplies Grass seed Total 2016. 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. working capital, as well as stronger operating performance. more efficient. In December 2015, we purchased the pet bedding business and certain other assets of National Consumer Outdoors Corp., formerly known as Dallas Manufacturing Company ("DMC") for approximately $61 million. Additionally, our capital expenditures increased to approximately $28 million, from $22 million in fiscal 2015, as we improve our existing infrastructure for planned growth and make our manufacturing facilities more efficient. 2016. Net cash provided by operations Less: capital expenditures Free cash flow Free cash flow as a percentage of net sales - Non-GAAP Financial Measure stronger operating performance. 24, 2016. collateral securing such indebtedness. 30, 2017. 30, 2017. Contractual Obligations Long-term debt, including current maturities (1) Interest payment obligations (2) Operating leases Purchase commitments (3) Performance-based payments (4) Total then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly,we recognize such impairment. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of In fiscal 2016, we recognized a $1.8 million non-cash impairment charge related to certain indefinite-lived intangible assets as a result of a decline in the volume of sales. In fiscal 2015, we recognized a $7.3 million non-cash impairment charge related to certain indefinite-lived intangible assets as a result of increased competition in the marketplace and an expected decline in the volume of sales. available on our website at https://www.central.com/about-us/responsibility#values-and-ethics. CENTRAL GARDEN & PET COMPANY Chief Executive Officer and President Signature s/ William E. Brown s/ John B. Balousek s/ Brooks M. Pennington, III s/ Alfred A. Piergallini Central Garden & Pet Company Company Current assets: Cash and cash equivalents Restricted cash Short term investments Accounts receivable, net Inventories Prepaid expenses, deferred income taxes and other Total current assets Plant, property and equipment, net Goodwill Other intangible assets, net Other assets Total Current liabilities: Accounts payable Accrued expenses Current portion of long-term debt Total current liabilities Long-term debt Deferred income taxes and other long-term obligations Commitments and contingencies (Note 12) Equity: Common stock Class A common stock Class B stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Total Central Garden & Pet shareholders’ equity Noncontrolling interest Total equity Total Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Goodwill impairment Income from operations Interest expense Interest income Other income (expense) Income (loss) before income taxes and noncontrolling interest Income tax expense (benefit) Net income (loss) including noncontrolling interest Net income attributable to noncontrolling interest Net income (loss) attributable to Central Garden & Pet Company Net income (loss) per share attributable to Central Garden & Pet Company: Basic Diluted Weighted average shares used in the computation of net income per share: Basic Diluted Net income (loss) Other comprehensive income (loss): Foreign currency translation Unrealized loss on securities Total comprehensive income (loss) Comprehensive income attributable to noncontrolling interests Comprehensive income (loss) attributable to Central Garden & Pet Company Balance, September 24, 2011 Stock-based compensation Tax benefit on exercise of stock options Restricted share activity Issuance of common stock Repurchase of common stock Other comprehensive income. Net income Balance, September 29, 2012 Stock-based compensation Tax deficiency on exercise of stock options, net of tax benefit Restricted share activity Issuance of common stock Repurchase of common stock Distribution to noncontrolling interest Other comprehensive loss Net loss Balance, September 28, 2013 Stock-based compensation Tax deficiency on exercise of stock options, net of tax benefit Restricted share activity Issuance of common stock Repurchase of common stock Distribution to noncontrolling interest Other comprehensive loss Net income Balance, September 27, 2014 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Stock-based compensation Excess tax benefits from stock-based awards Deferred income taxes Gain on sale of property and equipment Loss on disposal of property, plant and equipment Write-off of deferred financing costs Other long-lived asset impairments Unrealized (gains) losses on derivative financial instruments Goodwill impairment Other Changes in assets and liabilities (excluding businesses acquired): Receivables Inventories Prepaid expenses and other assets Accounts payable Accrued expenses Other long-term obligations Net cash provided (used) by operating activities Cash flows from investing activities: Additions to property, plant and equipment Businesses acquired, net of cash acquired Proceeds from disposals of land, buildings, etc. Change in restricted cash and cash equivalents. Maturities of short-term investments. Investment in short-term investments Net cash used in investing activities Cash flows from financing activities: Repayments on revolving line of credit Borrowings on revolving line of credit Repayments of long-term debt Issuance of long-term debt Proceeds from issuance of common stock Excess tax benefits from stock-based awards Repurchase of common stock, including shares surrendered for tax withholding Distribution to noncontrolling interest Payment of financing costs Net cash provided (used) by financing activities Effect of exchange rate changes on cash and equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental information: Cash paid for interest Cash paid for income taxes – net of refunds Non-cash investing and financing activities: Capital expenditures incurred but not paid Liability for contingent performance based payments Restricted share stock bonus 30, 2017, Accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are past due. for indefinite-lived intangible assets. An impairment loss would be recognized for amortizable intangible assets and property, plant and equipment when estimated undiscounted future cash flows expected to result from the use of the asset are less than its carrying amount. An impairment loss would be recognized for an intangible asset with an indefinite useful life if its carrying value exceeds its fair value. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Assets. Stock-Based Compensation – Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is expensed ratably over the service period of the award. Total compensation costs recognized under all share-based arrangements in fiscal Not Yet Adopted Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets: Short-term investments (a) Total assets Liabilities: Liability for contingent consideration (b) Total liabilities Assets: Certificates of deposit (c) Total assets Liabilities: Liability for contingent consideration (b) Total liabilities Balance as of September 28, 2013 Changes in the fair value of contingent performance-based payments established at the time of acquisition Balance as of September 27, 2014 There were no impairment losses recorded in fiscal 2017. Other Intangible Assets Derivatives Not Designated as Hedging Instruments Commodity contracts Total derivative instruments to bring the carrying value of these investments to zero. intangible assets acquired. The following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments: (In thousands) Current assets, net of cash and cash equivalents acquired Fixed assets Goodwill Intangible assets Current liabilities Net assets acquired, less cash and cash equivalents disputes regarding shipments, fees, merchandise condition or related matters, or the Company’s inability to collect accounts receivable from any major customer could also have a material adverse impact on the Company’s business and financial results. As of September Description Fiscal year ended September 29, 2012 Fiscal year ended September 28, 2013 Fiscal year ended September 27, 2014 Raw materials Work in progress Finished goods Supplies Total inventories, net Land Buildings and improvements Transportation equipment Machine and warehouse equipment Capitalized software Office furniture and equipment Accumulated depreciation and amortization Changes in the carrying amount of goodwill for the fiscal years ended September Balance as of September 24, 2011 Goodwill Accumulated impairment losses Balance as of September 29, 2012 Goodwill Accumulated impairment losses Additions in fiscal 2013 Impairment losses in fiscal 2013 Balance as of September 28, 2013 Goodwill Accumulated impairment losses Additions in fiscal 2014 Balance as of September 27, 2014 Goodwill Accumulated impairment losses and (iii) projected revenue and operating profit growth rates September 27, 2014 Marketing-related intangible assets – amortizable Marketing-related intangible assets – nonamortizable Total Customer-related intangible assets – amortizable Other acquired intangible assets – amortizable Other acquired intangible assets – nonamortizable Total Total other intangible assets September 28, 2013 Marketing-related intangible assets – amortizable Marketing-related intangible assets – nonamortizable Total Customer-related intangible assets – amortizable Other acquired intangible assets – amortizable Other acquired intangible assets – nonamortizable Total Total other intangible assets Acquisitions Senior subordinated notes, net of unamortized discount of $471 and $583, interest at 8.25%, payable semi-annually, principal due March 2018 Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.25% to 1.75% or Base Rate plus a margin of 0.25% to 0.75%, final maturity December 2018 Revolving credit facility, interest at Alternate Base Rate plus a margin of 0.75% to 1.75%, or LIBOR plus a margin of 1.75% to 2.75%, final maturity June 2016 Other notes payable Total Less current portion Long-term portion 2023 Notes. unconditionally guaranteed on a senior value of the collateral securing such indebtedness. Amendment 30, 2017. 30, 2017. Fiscal year: 2015 2016 2017 2018 2019 Thereafter Total Letters of credit –The Company had Fiscal year: 2015 2016 2017 2018 2019 Thereafter Total Current: Federal. State. Foreign. Total Deferred: Federal. State. Foreign. Total Total Statutory federal income tax rate State income taxes, net of federal benefit Other permanent differences Adjustment of prior year accruals Uncertain tax positions Credits Change in valuation allowances Foreign rate differential Effective income tax rate (benefit) Current: Allowance for doubtful accounts . Inventory write-downs Prepaid expenses. Nondeductible reserves State taxes. Employee benefits Other. Total Noncurrent: Depreciation and amortization. Equity income. State net operating loss carryforward Stock based compensation State credits Other. Valuation allowance Total. Total. Balance as of September 29, 2012 Increases related to prior year tax positions Increases related to current year tax positions Settlements Decreases related to lapse of statute of limitations Balance as of September 28, 2013 Increases related to prior year tax positions Increases related to current year tax positions Decreases related to prior year tax positions Settlements Decreases related to lapse of statute of limitations Balance as of September 27, 2014 The following table summarizes option activity for the period ended September Outstanding at September 28, 2013 Granted Exercised Cancelled or expired Outstanding at September 27, 2014 Exercisable at September 29, 2012 Exercisable at September 28, 2013 Exercisable at September 27, 2014 Expected to vest after September 27, 2014 30, 2017: Nonvested at September 24, 2011 Granted Vested Forfeited Nonvested at September 29, 2012 Granted Vested Forfeited Nonvested at September 28, 2013 Granted Vested Forfeited Nonvested at September 27, 2014 Basic EPS: Net income (loss) available to common shareholders Effect of dilutive securities: Options to purchase common stock Restricted shares Diluted EPS: Net income (loss) available to common shareholders Net sales Gross profit Net income (loss) attributable to Central Garden & Pet Company Net income (loss) per share: Basic Diluted Weighted average common shares outstanding: Basic Diluted Net sales Gross profit Net income (loss) attributable to Central Garden & Pet Company Net income (loss) per share: Basic Diluted Weighted average common shares outstanding: Basic Diluted Category Pet supplies (excluding wild bird feed) Garden controls and fertilizer products Wild bird feed Other garden supplies Grass seed Total See Note Net sales: Pet segment Garden segment Total Income (loss) from operations: Pet segment Garden segment Corporate Total Interest expense Interest income Other income (expense) Income (loss) before income taxes and noncontrolling interest Income tax expense (benefit) Net income (loss) including noncontrolling interest Net income attributable to noncontrolling interest Net income (loss) attributable to Central Garden & Pet Company Assets: Pet segment Garden segment Corporate and eliminations Total Depreciation and amortization: Pet segment Garden segment Corporate Total Expenditures for long-lived assets: Pet segment Garden segment Corporate Total Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Income (loss) from operations Other (income) expense Interest expense Interest income Income (loss) before taxes and equity in earnings of affiliates Income tax expense (benefit) Equity in earnings of affiliates Net income (loss) including noncontrolling interest Noncontrolling interest Net income attributable to Central Garden & Pet Company Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Income (loss) from operations Other (income) expense Interest expense Interest income Income (loss) before taxes and equity in earnings of affiliates Income tax expense (benefit) Equity in earnings of affiliates Net income (loss) including noncontrolling interest Noncontrolling interest Net income (loss) attributable to Central Garden & Pet Company Net sales Cost of goods sold and occupancy Gross profit Selling, general and administrative expenses Income (loss) from operations Other (income) expense Interest expense Interest income Income (loss) before taxes and equity in earnings of affiliates Income tax expense (benefit) Equity in earnings of affiliates Net income (loss) including noncontrolling interest Noncontrolling interest Net income attributable to Central Garden & Pet Company Net income Other comprehensive loss: Foreign currency translation Unrealized loss on securities Total comprehensive income Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Central Garden &Pet Company Net income (loss) Other comprehensive loss: Foreign currency translation Total comprehensive income (loss) Comprehensive income attributable to noncontrolling interests Comprehensive loss attributable to Central Garden &Pet Company Net income Other comprehensive income: Foreign currency translation Total comprehensive income Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Central Garden & Pet Company Cash and cash equivalents Restricted cash Short term investments Accounts receivable, net Inventories Prepaid expenses and other assets Total current assets Land, buildings, improvements and equipment, net Goodwill Other long term assets Intercompany receivable Investment in subsidiaries Total LIABILITIES AND EQUITY Accounts payable Accrued expenses and other liabilities Total current liabilities Long-term debt Intercompany payable Losses in excess of investment in subsidiaries Other long-term obligations Shareholders’ equity attributable to Central Garden & Pet Noncontrolling interest Total equity Total ASSETS Cash and cash equivalents Short term investments Accounts receivable, net Inventories Prepaid expenses and other assets Total current assets Land, buildings, improvements and equipment, net Goodwill Other long term assets Intercompany receivable Investment in subsidiaries Total LIABILITIES AND EQUITY Accounts payable Accrued expenses and other liabilities Total current liabilities Long-term debt Intercompany payable Losses in excess of investments in subsidiaries Other long-term obligations Shareholders’ equity attributable to Central Garden & Pet Noncontrolling interest Total equity Total Net cash (used) provided by operating activities Additions to property, plant and equipment Businesses acquired, net of cash acquired Proceeds from disposal of plant and equipment Change in restricted cash and cash equivalents Maturities of short term investments Investment in short term investments Intercompany investing activities Net cash (used) provided by investing activities Repayments on revolving line of credit Borrowings on revolving line of credit Repayments of long-term debt Proceeds from issuance of common stock Excess tax benefits from stock-based awards Repurchase of common stock Payment of deferred financing costs Distribution to parent Distribution to noncontrolling interest Intercompany financing activities Net cash provided (used) by financing activities Effect of exchange rates on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Net cash (used) provided by operating activities Additions to property, plant and equipment Businesses acquired, net of cash acquired Sale of short term investments Intercompany investing activities Net cash (used) provided by investing activities Repayments on revolving line of credit Borrowings on revolving line of credit Repayments of long-term debt Proceeds from issuance of common stock Excess tax benefits from stock-based awards Repurchase of common stock Distribution to parent Distribution to noncontrolling interest Intercompany financing activities Net cash provided (used) by financing activities Effect of exchange rates on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Net cash provided by operating activities Additions to property, plant and equipment Investment in short term investments Intercompany investing activities Net cash provided (used) by investing activities Repayments on revolving line of credit Borrowings on revolving line of credit Repayments of long-term debt Proceeds from the issuance of long-term debt Proceeds from issuance of common stock Excess tax benefits from stock-based awards Repurchase of common stock Payment of deferred financing costs Intercompany financing activities Net cash used in financing activities Effect of exchange rates on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Income (loss) from operations Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net income (loss) attributable to Central Garden & Pet Company Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Income (loss) from operations Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net income attributable to Central Garden & Pet Company Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net income (loss) Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Total comprehensive income (loss) Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Comprehensive income (loss) attributable to Central Garden & Pet Company Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net income (loss) Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Total comprehensive income (loss) Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Comprehensive income attributable to Central Garden & Pet Company Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Total Current assets Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Total assets Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Current liabilities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Total equity Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) operating activities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) investing activities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) financing activities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) operating activities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) investing activities Parent Non-guarantor subsidiaries Guarantor subsidiaries Eliminations Net cash provided by (used in) financing activities Exhibit Number Exhibit Exhibit Number Exhibitindustryindustries and economiesmarkets in which we operate and other information that is not historical information. When used in this Form 10-K, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, beliefs and projections will be realized.materialize,materializes, or if any of our underlying assumptions areis incorrect, our actual results may differ significantly from the results that we express in or imply by any of our forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances.circumstances, except as required by law. Presently known risk factors include, but are not limited to, the following factors:the impact on our financial results of costs incurred to consider and respond to the unsolicited Harbinger proposals, and the impact of the Harbinger proposals on our business, employees and customer relationships;declines in consumer spending during economic downturns;inflation, deflation and other adverse macro-economic conditions;supply shortages in small animals and pet birds;adverse weather conditions;disruptions in our business arising from the implementation of our change initiatives and the resulting consequences to our business and results of operations;increased costs and expenses associated with our change initiatives;iirisks associated with our acquisition strategy;dependence upon our key executives;a newan enterprise resource planning information technology system;abilityinability to protect our intellectual propertytrademarks and other proprietary rights;anticipatedpotential cyber attacks;July 2014;- Custom Update (2017); The Freedonia Group Landscaping Products in the U.S., 5th Edition (2017); 2017 National Gardening Survey; Packaged Facts U.S. Pet Market Outlook, 2014-2015; Simmons Fall 2013 National Consumer Survey;2017-2018 May 2017; Packaged Facts Pet Treats and Chews in the U.S., 2nd Edition August 2017; Packaged Facts Durable Dog and Cat Petcare Products in the U.S. December 2016; Packaged Facts Pet Litter, Clean Up, and Odor Products: U.S. Market Trends May 2016; Packaged Facts Pet Medications in the U.S., 5th Edition August 2017; American Pet Products Association (APPA) National Pet Owners Survey 2013-2014;2017-2018; U.S. Census Bureau, and our estimates based on management’s knowledge and experience in the markets in which we operate. Our estimates have been based on information provided by customers, suppliers, trade and business organizations and other contacts in the markets in which we operate. We believe theseWhile we are not aware of any misstatements regarding our market and ranking data presented herein, our estimates involve risks and uncertainties and are subject to be accurate as ofchange based on various factors, including those discussed under the date ofheading “Risk factors” in this Form 10-K. However, thisThis information may prove to be inaccurate because of the method by which we obtained some of the data for our estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in a survey of market size. As a result, you should be aware that market, ranking and other similar data included in this Form 10-K,herein, and estimates and beliefs based on that data, may not be reliable.BUSINESSmarketer and producer of quality branded products and distributor of third-partybranded and private label products infor the lawn & garden and pet and lawn and garden supplies industriesmarkets in the United States. The total pet food, treats and supplies industry in 20132016 was estimated by Packaged Facts and the pet industry to have been over $42.0approximately $55.9 billion in annual retail sales. We estimate the annual retail sales of the pet supplies, live animal, and super premiumconsumables and natural pet food markets in the categories in which we participate to be approximately $25.4$28.0 billion. According to The Freedonia Group, the total lawn and garden consumables and decorative products industry in the United States wasis estimated to be approximately $17.2$27.6 billion in 2013 in annual retail sales, including fertilizer, pesticides, growing media, seeds, mulch, other consumables and other consumables.decorative products. We estimate the annual retail sales of the lawn and garden consumables and decorative products markets in the categories in which we participate to be approximately $10.2$18.9 billion. In addition, we participate in the pottery and seasonal décor markets.master brands including AdamsTM™, Aqueon®, Avoderm®, Bio Spot Active CareTM™, Cadet®, Farnam®, Four Paws®, Kaytee®, NylaboneK&H Pet Products®, PinnacleNylabone®, Pinnacle®, TFHTM™, Zilla® as well as a number of other brands including Altosid Comfort Zone®, CoralifeComfort Zone®, Interpet, Kent MarineCoralife®, Oceanic SystemsInterpet®, Kent Marine®, Pet Select®, Pre-StrikeSuper Pet®, Super Petand Zodiac®, and Zodiac®.ant and other herbicide,herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle and lighting products including pottery, trellises and other wood products and holiday lighting.products. These products are sold under the master brands AMDRO®, GKI/Bethlehem LightingIronite®, IronitePennington®, Penningtonand Sevin®, and Sevin®, as well as a number of other brand names including Lilly Miller®, Over-N-Out®, Smart Seed® and The Rebels®.2014,2017, our consolidated net sales were $1.6 billion,$2,054 million, of which our Pet segment, or Pet, accounted for approximately $846$1,246 million and our Lawn and Garden segment, or Garden, accounted for approximately $759$808 million. In fiscal 2014,2017, our operating income was $156 million consisting of income from operations beforeour Pet segment of $132 million, income from our Garden segment of $87 million and corporate expenses and eliminations of $72.9 million was $129.1 million, of which the Pet segment accounted for $88.1 million and the Garden segment accounted for $41.0$63 million. See Note 1918 to our consolidated financial statements for financial information about our two operating segments.JuneMay 1992 as the successor to a California corporation that was formed in 1955. Our executive offices are located at 1340 Treat Boulevard, Suite 600, Walnut Creek, California 94597, and our telephone number is (925) 948-4000. Our website iswww.central.com. The information on our website is not incorporated by reference in this annual report.Fiscal 2014 Operating Performance. $0.22$0.65 per share to $1.52 per share, and our operating earningsincome increased 40% as$26.8 million to $156.1 million compared to fiscal 20132016, due primarily to increased earnings in both our Garden segment. The Garden segment was impacted in bothsegments. Certain charges and gains impacting fiscal 20142017 and 2013 by individually significant items (i.e., charges infiscal 2014 and 2013 related to the discontinuance of certain products introduced in 2013, the gain on sale of manufacturing plant assets in 2014 and the impairment of goodwill in 2013) which2016 are excluded for purposes of the non-GAAP presentation elsewhere in this Form 10-K.2014 decreased $49.22017 increased $225.5 million, or 3.0%12.3%, to $1,604.4$2,054.5 million. Our Pet segment sales decreased 4.8%increased 15.2%, and our Garden segment sales decreased 0.8%increased 8.2%.2060 basis points in fiscal 20142017 to 28.3%30.8%, from 28.1%30.2% in 2013.earningsincome increased $16.0$26.8 million, or 40.0%20.7%, to $56.2$156.1 million in fiscal 2014,2017, and increased as a percentage of net sales to 3.5%7.6% from 2.4%7.1%.$8.8$78.8 million, or $0.18 per share on a diluted basis compared to a net loss in fiscal 2013 of $1.9 million, or $0.04$1.52 per share on a fully diluted basis, compared to net income in fiscal 2016 of $44.5 million, or $0.87 per share on a fully diluted basis.$126.5 million, an increase of $154.8$114.3 million in fiscal 2014. 2017 compared to $151.4 million in fiscal 2016.fiscal 2013,April 2017, we had $28.3purchased K&H Manufacturing, a producer of premium pet supplies and the largest marketer of heated pet products in the country. K&H sells brands under the K&H and K&H Pet brands. The acquisition is expected to complement our existing dog and cat business.cash used in operating activities. Our cashwhich $6 million is contingent upon future events. Segrest is the leading wholesaler of aquarium fish and short term investments at September 27, 2014 were approximately $88.7 million, compared with approximately $33.0 million at September 28, 2013.Organizational Change. In fiscal 2011 and 2012, we were focused on transforming the company from a portfolio of separately run businesses into an integrated, multi-brand company. During fiscal 2013 and fiscal 2014, we adopted a balanced approachis expected to improving profitability through a focus on increasing sales and improving margins, providing superior customer service and delivering innovative new products. We expect to continue this balanced approachstrengthen our position in the futureaquatics category and to continue to focus on eliminating inefficiencies and on increasing consumer take-awayprovide the opportunity for synergies with our existing aquatics business.our products.Harbinger Proposals. In June 2014, we received an unsolicited letter from Harbinger Group Inc. requesting that we discuss with Harbinger a possible acquisition by Harbinger of all outstanding shares of Central’s common stock at $10 per share in cash or, alternatively, the acquisition of our Pet segment for $750$8.6 million in cash, subject to due diligence. Our Board retained independent financial and legal advisors to assist it in its review offiscal 2016. The business was not profitable over the two proposals. With the assistance of its advisors, the Board of Directors engaged in a comprehensive review which included consideration of current and expected operations, capital structure, and market opportunities. In addition, the financial advisor and our outside legal counsel met with Harbinger representatives to provide an opportunity to supplement or clarify their proposal. After this extensive review, the Board of Directors unanimously concluded in October that it would not pursue either of the two proposals received from Harbinger Group Inc. We incurred significant legal expenses and advisory fees during fiscal 2014 in connection with the review and expect to incur significant additional fees and expenses in the future. In addition, the uncertainty created by the proposals could cause current and prospective employees to experience uncertainty about their future roles with us, which may materially adversely affect our ability to attract and retain key employees and could continue to have a negative impact on our customer relationships, which could adversely impact our sales and financial results.last several years.the followinga number of competitive strengths, which serve as the foundation of our business strategy:•Market Leadership Positions Built on a Strong Brand Portfolio. We are one of the leaders in the premium branded U.S. pet supplies market and in the U.S. consumer lawn and garden supplies market. We have a diversified portfolio of brands, many of which we believe are among the leading brands in their respective U.S. market categories. The majority of our brands have been marketed and sold for more than 25 years. brands have been marketed and sold for more than 25 years.•History of Innovative New Products and Customer Service. We continuously seek to introduce new products at a reasonable cost, both as complementary extensions of existing product lines and as new product categories. Over the last three years, we have received a number of awards for innovation, customer service and marketing. For innovation, the Pet segment received back to back Product of the Year awards in 2014 for the Adams Flea and Tick Home Spray and in 2013 for the Adams Smartshield innovation. For customer service, in 2013, we received awards for PetSmart Vendor of the Year in Canada for Specialty (Aquatics, Small Animal, Pet Bird), PETCO’s 2013 Best Business Performance Award for Aqueon & Zilla brands, Wal*Mart’s Outdoor Living Supplier of the Year and Wal*Mart’s People Award for its home division. In 2012, we were named the Wal*Mart Home Division Replenishment Team of the Year. For marketing, in 2013, the National Agri-Marketing Association (NAMA) recognized our professional products group for outstanding marketing communications for the new product introduction of Centynal as well as a W3 Award, in the Consumer Goods category, for the Adams website.•Strong Relationships with Retailers. We have developed strong relationships with major and independent retailers through product innovation, premium brands, broad product offerings, private label programs, proprietary sales and logistics capabilities and a high level of customer service. Major retailers value the efficiency of dealing with suppliers with national scope and strong brands. Our ability to meet their unique needs for packaging and point of sale displays provides us with a competitive advantage. Independent retailers value our high level of customer service and broad array of premium branded products. We believe these strengths have assisted us in becoming one of the largest pet supplies vendors to PetSmart, PETCO and Wal*Mart and among the largest lawn and garden supplies vendors to Wal*Mart, Home Depot and Lowe’s, as well as a leading supplier to independent pet and garden supplies retailers in the United States.◦ acquisition and maintenance of premium branded products. These strengths have made us oneshelf placement;◦ prompt product replenishment; ◦ customization of the largest pet supplies vendorsretailer programs;◦ quick responses to PetSmart, PETCOchanging customer and Wal*Martretailer preferences;◦ rapid deployment and among the largest lawnfeedback for new products; and garden supplies vendors to Wal*Mart, Home Depot and Lowe’s, as well as a leading supplier to independent pet and garden supplies retailers in the United States.•◦ Favorable Long-Term Industry Characteristics. The petimmediate exposure for new internally developed and lawn and garden supplies markets in the U.S. are expected to grow over the long-term due to favorable demographic and leisure trends. The key demographics bolstering our markets are the growth rates in the number of children under 18 and the number of adults over age 55. Households with children tend to own more pets, and adults over 55 are more likely to be “empty nesters” that keep pets as companions and have more disposable income and leisure time available for both pets and garden activities. According to the 2013-2014 APPA National Pet Owners Survey, the number of U.S. pet owners in recent years has reached record highs, with 82.5 million households, or 68%, owning a pet.•Sales and Logistics Networks. We are a leading supplier to independent specialty retailers for the pet and lawn and garden supplies markets through our sales and logistics networks. We believe our sales and logistics networks give us a significant competitive advantage over other suppliers. These networks provide us with key access to independent pet specialty retail stores and retail lawn and garden customers that require two-step distribution for our branded products facilitating:acquisition and maintenance of premium shelf placement;prompt product replenishment;customization of retailer programs;quick responses to changing customer and retailer preferences;rapid deployment and feedback for new products; andimmediate exposure for new internally developed and acquired brands.•Experienced and Incentivized Management Team. Our senior management team has significant experience in the consumer goods, pet, and lawn and garden supplies industries. John R. Ranelli, ourPresident, Chief Executive Officer and President – Pet Segment, has extensive experience leading mid- to large-sized consumer companies. William E. Brown, our Chairman, has over 30 years of industry experience. Mr. Brown also owns approximately 12% of our outstanding stock.increase market share, revenue,grow revenues, profits, and cash flow by enhancing our position as one of the leading companies in the U.S. pet supplies and lawn and garden supplies industries. We seek to do so by developing new products, increasing market share, and working in partnership with our customers to grow the categories in which we participate. To achieve our objective, we plan to capitalize on our strengths and favorable industry trends by implementingexecuting on the following five key elementsstrategic pillars to drive our growth:strategy:•Balanced Organizational Change. We have adopted a balanced approach to improving profitability through a focus on increasing sales and improving margins, providing superior customer service and innovative new products while improving our operations and reducing costs. We expect to continue this balanced approach in the future and to continue to focus on profit, our customers, and eliminating inefficiencies.•Build Existing Brands. With our broad product assortment, strong brand names, strong sell-through and innovative products and packaging, we believe we can further strengthen our relationships with existing retailers to increase shelf space and sales. Under our master branding strategy, we have consolidated certain brands and expanded others. At the same time, we are developing private label programs for key retailers to complement our proprietary brands, strengthen our relationships with key retailers and increase sales and profits. We believe that the strength of our major customers provides us with a solid foundation for future growth. We intend to gain market share in the home centers, mass market, grocery, specialty pet store and independent channels. We intend to add new retailers through marketing and sales personnel dedicated to these channels, as well as our innovative product introductions and packaging. We will continue to focus on using our sales and logistics network to emphasize sales of our higher margin, proprietary brands and to use efficient supply chain capabilities that enable us to provide retailers with high service levels and consistent in-stock positions.•Continue New Product and Packaging Innovation. We will continue to build and leverage the strength of our leading brand names by introducing innovative new products and packaging, extending existing product lines and entering new product categories. Our product strategy seeks to capitalize on fulfilling consumer needs, leveraging our strong brand names, utilizing our established customer relationships and continuing our history of product innovation.•Improve Margins. We believe there are opportunities to improve our gross and operating margins through increased sales of our higher margin, innovative branded products, timely price increases and cost reductions and leveraging our existing infrastructure. Although gross margins improved from fiscal 2004 through fiscal 2010, they have declined significantly since then as we continued to experience fluctuations in the costs of raw materials and incurred costs in our Garden segment in fiscal 2014 and 2013 related to the discontinuance of certain products introduced in 2013. During fiscal 2013, we conducted a systematic review of pricing in our Pet segment and selectively raised prices consistent with market conditions. We will continue to work with our key retail partners to implement appropriate price increases on our products as we strive to strike the right balance between pricing and delivering value to the consumer.•Pursue Strategic Acquisitions. We plan to continue to make selected strategic acquisitions of companies that complement our existing brands and product offerings. By leveraging our marketing, manufacturing and sales and logistics capabilities, we believe we can increase the sales and improve the operating efficiencies of acquired companies. We look for companies with the potential to have the top one or two brands in their respective categories. The characteristics we generally seek when evaluating target companies are strong brand names, high quality and innovative product offerings, an experienced management team and a history of organic earnings growth.•Reduce Our Investment In Working Capital. We believe there are opportunities to reduce our investment in working capital over the long term by focusing on specific balance sheet metrics. In particular, we believe that the improvement in our fill rates as a result of tighter linkage between our businesses and supply chain will enable us to substantially reduce our investment in inventory without compromising the level of the service we provide to our customers. During fiscal 2014, we reduced our inventory level from $391.9 million to $326.4 million while maintaining high fill rates. than 10% of our consolidated net sales in the fiscal years presented (in millions). 2014 2013 2012 $ 774.2 $ 807.4 $ 847.1 262.5 274.9 281.7 202.1 210.8 205.1 182.5 183.5 185.7 183.1 177.0 180.4 $ 1,604.4 $ 1,653.6 $ 1,700.0 Category 2017 2016 2015 Other pet products $ 841.4 $ 689.3 $ 594.7 Other garden supplies 464.9 331.3 343.5 Dog and cat products 405.0 326.0 233.0 Garden controls and fertilizer products 343.2 298.8 286.3 Wild bird feed — 183.6 193.2 Total $ 2,054.5 $ 1,829.0 $ 1,650.7 premium branded pet supplies in the United States. In addition, our Pet segment operates one of the largest sales and logistics networks in the industry strategically supporting itsour brands. In fiscal 2014, the2017, Pet segment accounted for $846 million of our consolidated net sales were $1,246.4 million and $88 million of our consolidatedoperating income from operations before corporate expenses and eliminations.Simmons Fall 2013 National Consumer Survey,Packaged Facts U.S. Pet Market Outlook, 2017 - 2018, the number of U.S. households with dogs or cats hitin 2016 increased to nearly 55% from a new high in 2013previous range of 53.3%, up from 51.3% from the prior year. and services and live animals. We operate primarily in the pet supplies segment of the industry. This segment includes: products for dogs and cats, including edible bones, premium healthy edible and non-edible chews, rawhide, toys, pet beds, pet carriers, 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; products for fish, reptiles and other aquarium-based pets, including aquariums, furniture and lighting fixtures, pumps, filters, water conditioners and supplements, and information and knowledge resources; and products for horses and livestock. According to Packaged Facts estimates the pet supplies segment was $14.1$16.5 billion in revenue in 2013, up 4.2% from 2012 with dogs accounting for 61%; cats at 31% and 8% all other animals.2016. We also operate in the super premiumnatural category of dog and cat food and treats.this industry growth isthe U.S. pet supplies market will grow over the long-term due in significant part to favorable demographic and leisure trends, which we expect to continue, albeit potentially at a slower rate due to recessionary pressures in the broader U.S. economy.trends. The key demographics bolstering the U.S. pet supplies marketour markets are the growth rates in the number of children under 18millennials who now account for 35% of pet owners and account for more than half of small animal, reptile and saltwater fish owners. According to the 2017 - 2018 APPA National Pet Owners Survey, the number of adults over age 55. According to 2010 U.S. census data, approximately 40% of the population is 45pet owners in recent years has reached record highs, with 84.6 million households, or older. Households with children tend to own more pets, and adults over 55 are more likely to be “empty nesters” who keep pets as companions and have more disposable income and leisure time available for pets.68%, owning a pet. In addition, many pet supplies products (e.g., dog and cat food, dog chews, bird food, grooming supplies, pest control, etc.) are routinely consumed and replenished.are up 14 percent over the last five years.increased 24% from 2012 to 2016. Sales are expected to increase an additional 13%19% to $19.6 billion by 2018,2021, indicating the strength of this category.6,8007,800 independent pet supply stores in the United States and only two national specialty retailers, PetSmart and PETCO. TheseAccording to Packaged Facts, these two “pet superstores” have grown rapidly,declined from 24% in 2014 and 2015 to 23% of overall pet product sales in 2016, and are expected to decline to 21% by 2017. Pet products have also become a growing category in mass merchandisers, discounters, grocery outlets and grocery outlets. PetSmart and PETCO typically offer the broadest product selection with competitive prices and a growing array of pet services.e-commerce channel. Mass merchandisers, supermarkets and discounters have historically carried a limited product assortment that features primarily pet food, but we believe these retailers are devoting more shelf space to meet increased consumer demand for premium pet supplies. Independent pet stores typically have a relatively broad product selection and attempt to differentiate themselves by offering premier brands and knowledgeable service.foodwild bird feed and animal health products.division,category, featuring the brands Nylabone, Four Paws, Cadet, Dallas Manufacturing Company (DMC), K&H Pet Products, TFH Publications, Pet Select, Pet Love and Mikki®, is an industry leader in manufacturing and marketing premium edible and non-edible chews, interactive toys, super premium dog and cat food, grooming supplies and pet-care print and digital content.• • , AvoDerm®, Simply Natural® and Active Care® brands, is a manufacturer of super premium natural pet food and treats.food.Oceanic Systems, Kent Marine, Coralife and Blagdon. In October 2016, we purchased Segrest Inc., the leading supplier of aquarium fish.specialtysupplies and pet food for pet birds, small animals and wild birdsbirds. We offer a full range of products including species specific diets, treats, habitats, bedding, hay and small animals, vitamins and nutritional supplements, bird and small animal cages, habitats, transportation devices, toys and other accessories designed forunder the small animal marketplace featuring the brands Kaytee®, Super PetForti-Diet and Critter Trail®, Critter Trail® brands. Many of our branded Kaytee wild bird mixes are treated with a proprietary blend of vitamins and Canopy Scientific®.minerals. Kaytee is one of the largest producers of specialty bird feed.most widely recognized and trusted brands for birds and small animals. flea, tick, mosquito and other insect control products produced by Wellmark International and sold primarily under the Bio Spot Active CareTM™, Adams, Altosid, Comfort Zone® , Pre Strike and Extinguish® brand names. Wellmark is the only domestic producer of (S)-Methoprene, which is an active ingredient to control mosquitoes, fleas, ticks, ants and mites in many professional and consumer insect control applications. We also sell (S)-Methoprene to manufacturers of other insect controle,, Super Mask® II, Endure®, Horseshoer’s Secret® and Vetrolin®.primarily to promote both our proprietary brands and third party partner brands. It provides value-added service to approximately 4,3006,000 customers, the majority of which are independent specialty retail stores for our branded products.with fewer than 10 locations. This includes acquisition and maintenance of premium shelf placement, prompt product replenishment, customization of retailer programs, quick response to changing customer and retailer preferences, rapid deployment and feedback for new products and immediate exposure for acquired brands. The combination of brands in the network also sells many other manufacturers’ brands of pet supplies and combines these products with our branded products intosupplied in single shipments enablingenables our independent customers to dealwork with us on a cost effective basis to meet their pet supplies requirements. We also operate a sales and logistics facility in the United Kingdom.stores.stores, as well as the e-commerce channel. In addition, we also serve the professional market with insect control and health and wellness products for use by veterinarians, municipalities, farmers and equine product suppliers. PetSmartCostco Wholesale accounted for approximately 10%11% of our Pet segment’ssegment's net sales in fiscal 2014, 11% in fiscal 20132017. PetSmart, PETCO and 12% in fiscal 2012. PETCO isWal*Mart are also a significant customer.mostthe product categories we participate in are Spectrum Brands and Hartz Mountain. The Pet segment competes primarily on the basis of brand recognition, innovation, upscale packaging, quality and service. Our Pet segment’s sales and logistics operations compete with Animal Supply Co., Phillips Pet Food & Supplies and a number of smaller local and regional distributors, with competition based on product selection, price, value-added services and personal relationships.Over-N-Out, and GKI/Bethlehem Lighting.Over-N-Out. We also produce value brands at lower prices, including numerous private label brands. In addition, our Garden segment operates a sales and logistics network that strategically supports its brands. In fiscal 2014, the2017, Garden segment accounted for $759 million of our consolidated net sales were $808.1 million and $41 million of our consolidatedoperating income from operations before corporate expenses and eliminations.States, although in recent years our garden segment has been adversely impacted by fluctuations in input costs and weather. The Freedonia Group predicts that household participationStates. According to the National Gardening Survey, 74% of U.S. households participate in lawn and garden activities will rebound slightly through 2018. The keyactivities. Participation is highest amongst married households, people aged 55 and older, and those with no children. This demographic bolstering our lawn and garden market is the growth rateexpected to increase from 89 million in the number of adults over age 55, who are more likely2015 to be “empty nesters” and have more disposable income and leisure time available for garden activities.99 million in 2020. As the baby boom generation ages, this segment is expected to grow faster than the total population. According to 2010 U.S. census data, approximately 40% of the population is 45 years or older. We believe that this demographic shouldwill result in an increase in the number of lawn and garden product users. With more people gardening in their yards and the potential trends of food gardening and organic gardening, we perceive this market as staying intact and showing slow positive growth. Although in the past, the Garden segment has been adversely impacted by fluctuations in input costs and weather, more recently the impact has been negligible. We estimate the retail sales of the lawn and garden supplies industry in the categories in which we participate to be approximately $10.2 billion. In addition, we participate in the pottery and seasonal décor markets.$18.9 billion. We believe that the industry will continue to grow, albeit at a slower rate in the near term due to industry dynamics.in the last 15 years, the concentration of purchasing power for the lawn and garden category has increased dramatically. We expect the growth of home and garden centers, such as Home Depot and Lowe’s, and mass merchants, such as Wal*Mart, to continue to concentrate industry distribution.products and Christmas products and lighting.products. Our Pennington brand is one of the largest in grass seed, pottery and wild bird feed, and our Amdro brand is a leading portfolio of ant control products. ™,TM, Tournament Quality CM, MasterTurf®, The Rebels and Smart Seed® brand names. We also produce numerous private label brands of grass seed. The Pennington grass seed manufacturing facilities are some of the largest and most modern seed coating and conditioning facilities in the industry.athe leading marketer, producer and distributor of wild bird feed, bird feeders, bird houses and other birding accessories in the United States. These products are sold primarily under the Pennington brand name. MostMany of our branded Pennington wild bird feed ismixes are treated with a proprietary blend of vitamins and minerals. An example is our Pennington brand mixes which are enriched with Bird-Kote®, our exclusive process which literally seals each seed with a a nutritious coating made up of vegetable oil fortified with oil-solublecontaining vitamins and elements needed byminerals that are beneficial to the health of wild birds.., Knockout®, Strike® brand names, and the Eliminator private label for Wal*Mart.Mart and the Sta-Green brand for Lowe's. We manufacture several lines of lawn and garden fertilizers and soil supplements, in granular and liquid form, under the Pennington, Alaska Fish Fertilizer®,, Pro Care, Green Care, Green Charm, Ironite and other private and controlled labels.Outdoor & Seasonal Decor. We are a leading marketer and distributor of decorative indoor and outdoor pottery products in the United States. These products, sold under the Pennington name, include terra cotta, stoneware, ceramic and porcelain pots. We also market seasonal Christmas products and lighting under the brand name GKI/Bethlehem Lighting, and manufacture a complete line of wooden garden products, including planters, barrel fountains, arbors and trellises under the Pennington brand name.requirements.30%31% and 30%31%, sales to Lowe’s represented approximately 21%, 20% and 18%, and sales to Home Depot represented approximately 17%20%, 18%19% and 16%, and sales to Lowe’s represented approximately 15%, 17% and 20%, of our Garden segment’s net sales in fiscal 2014, 20132017, 2016 and 2012,2015, respectively.Scotts’ dominant position in the lawn and garden industry is a significant competitive disadvantage for our garden products. In addition, Spectrum Brands is a3135 manufacturing facilities, located primarily in the United States. In addition, certain of our proprietary branded products are manufactured by contract manufacturers. We have also entered into an exclusive arrangement with a third party to manufacture one of our registered active ingredients, (S)-Methoprene,‑Methoprene, for use in that third party’s flea and tick control products.-Methoprene‑Methoprene from a single source of supply. We maintain an inventory of this raw material (in addition to our (S)-Methoprene‑Methoprene inventory) to reduce the possibility of any interruption in the availability of (S)-Methoprene,‑Methoprene, but a prolonged delay in obtaining (S)-Methoprene‑Methoprene or this raw material could result in a temporary delay in product shipments and have an adverse effect on our Pet segment’s financial results.phosphates, urea, potash, phosphates, herbicides, insecticides and fungicides.theour wild bird feed operations are bulk commodity grains, including millet, milo and sunflower seeds, which are generally purchased from large national commodity companies and local grain cooperatives. In order to ensure an adequate supply of grains and seed to satisfy expected production volume, we enter into contracts to purchase a portion of our expected grain and seed requirements at future dates by fixing the quantity, and often the price, at the commitment date. Although we have never experienced a severe interruption of supply, we are exposed to price risk with respect to the portion of our supply which is not covered by contracts with a fixed price.2012, prices for some of our key inputs increased substantially. In fiscal 2013, prices continued to increase due in part to drought conditions throughout much ofyears, the United States. Although by the end of the year, prices began to decline for certain commodities. In fiscal 2014, prices decreased substantially compared to fiscal 2013. Our weighted average cost per pound for our primary bird feed grains has decreased approximately 32% for fiscal year 2014 compared to fiscal 2013.slightly. The decreasedecreases in commodity costs isgenerally are reflected in decreased salelower prices to our retailers.2637 facilities strategically placed across the United States, and one facility in the United Kingdom, one facility in Canada and one facility in China to allow us to service both our mass market customers as well as our independent specialty retail stores for our branded products. This network also supports distribution of many other manufacturers’ brands and combines these products with our branded products into single shipments, enabling us to serve our customers in an effective and cost efficient manner.17%16%, 16%15% and 17%16% of our total company net sales in fiscal 2014, 20132017, 2016 and 2012, respectively,2015, respectively. In addition, Lowe's, Home Depot, Costco and representedPetSmart are also significant customers, and together with Wal*Mart, accounted for approximately 31%44% of our Garden segment’s net sales in fiscal 2014 and 30% in both fiscal 2013 and 2012. Sales to Home Depot represented approximately8% of our total company net sales2017, 42% in fiscal 20142016 and 2013 and 7%40% in fiscal 2012, and represented approximately 17%, 18% and 16% of our Garden segment’s net sales in fiscal 2014, 2013 and 2012, respectively. Sales to Lowe’s represented approximately 7%, 8% and 9% of our total company net sales in fiscal 2014, 2013 and 2012, respectively, and represented approximately 15%, 17% and 20% of our Garden segment’s net sales in fiscal 2014, 2013 and 2012, respectively. PetSmart represented approximately 10% of our Pet segment’s net sales in fiscal 2014, 11% in fiscal 2013 and 12% in fiscal 2012. PETCO is also a significant customer.Wellmarkanimal health operations, partly depends on our ability to27, 2014,30, 2017, we had approximately 3,3004,100 employees, of which approximately 3,1004,000 were full-time employees and 200100 were temporary or part-time employees. We also hire substantial numbers of additional temporary employees for the peak lawn and garden shipping season of February through June to meet the increased demand experienced during the spring and summer months. The majority of our temporary employees are paid on an hourly basis. NoneExcept for 49 employees at a facility in Puebla, Mexico, none of our employees isare represented by a labor union. We consider our relationships with our employees to be good.(FQPA),("FQPA") establishes a standard for food-use pesticides, which is a reasonable certainty that no harm will result from the cumulative effect of pesticide exposures. Under this Act, the EPA is evaluating the cumulative risks from dietary and non-dietary exposures to pesticides. The pesticides in our products, which are also used on foods, will be evaluated by the EPA as part of this non-dietary exposure risk assessment.orwith all currently effective requirements and are taking steps to ensure that we are in compliance with these provisions.December 1, 2014.November 28, 2017. Age John R. Ranelli 56 68 President & Chief Executive Officer and President – Pet Segment 76 73 Chairman of the Board Nicholas Lahanas 49 Chief Financial Officer 69 66 Executive Vice President Lori A. Varlas 64 53 SeniorExecutive Vice President Chief Financial Officer and Secretary 65 62 General Counsel and Secretary John R. RanelliGeorge C. Roeth. Mr. Ranelli has beenRoth became our President and Chief Executive Officer since February 2013. Since Marchin June 2016. Mr. Roeth is a 27-year veteran of The Clorox Company, most recently, from 2013 to 2014, serving as Chief Operating Officer and Executive Vice President. Previously Mr. Ranelli has also been our President – Pet Segment. From 2011 to 2012, Mr. Ranelli wasRoeth served as Senior Vice President and CEOGeneral Manager, during which time he was also Chairman of Woolrich Inc., an outdoor clothing company. From 2008the Board for the Clorox and Proctor & Gamble Joint Venture. Prior to 2011,that, Mr. Ranelli was an advisor to a number of companiesRoeth served in senior-level marketing and private equity firms. From 2007 to 2008, Mr. Ranelli wasoperating roles at Clorox, including Vice President and CEO of Mikasa Inc., a global dinnerware, crystal and home accessories company. From 1999 to 2006, Mr. Ranelli was Chairman, Chief Executive Officer andGeneral Manager, Vice President of FGX International, a global opticalGrowth and jewelry company. Previously, he served in senior executive capacities with Stride Rite Corporation, Deckers Outdoor Corporation, TLC BeatriceMarketing, and The Timberland Company. Mr. Ranelli is a directorVice President of Woolrich, Inc. and serves as its non-executive Chairman.Brand Development among others.2012.2012 and from January 2014 to September 2016. Mr. Reed served as President of the Pet Products division from 2003 to 2004. Previously, Mr. Reed served as President and CEO of PM Ag Products, Inc., a wholly owned subsidiary of global agri-business Tate & Lyle, PLC.Lori A. Varlas.Kay M. Schwichtenberg. Ms. Varlas has been SeniorSchwichtenberg became our Executive Vice President, Chief Financial Officer and Secretary since December 2010. From 2006Animal & Public Health in April 2014. Prior to 2010, Ms. Varlas served asbecoming Executive Vice President, Finance at Sun Microsystems. Prior to joining Sun,she held several positions for Central including Special Projects Advisor, President & CEO of Central Life Sciences and President of Wellmark International. Ms. VarlasSchwichtenberg joined Central in the acquisition of the Consumer and Animal Health Division from Sandoz Agro, Inc., a worldwide leader in pharmaceuticals where she was the Vice President of Finance at PeopleSoft and heldGeneral Manager. She has also served in a variety of senior finance positions from 1998 to 2005. Ms. Varlas also held positions at Chironsales and marketing capacities for Brunswick Corporation, Specialty FoodsSkokie, Illinois, and Price Waterhouse.Market Facts, Inc., Chicago, Illinois.2011.2011 and our Secretary since September 2015. From 1984 to March 2011, he was a partner specializing in litigation at Orrick, Herrington & Sutcliffe LLP.web site,website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing or furnishing such reports with the Securities and Exchange Commission. Information contained on our web site is not part of this report.The implementation of our change initiatives has resulted in increased expenses during the last few years that could continue.In fiscal 2011 and 2012, we were engaged in a process of transformational change which was focused on transforming the Company from a portfolio of separately run businesses into an integrated, multi-brand company.During fiscal 2013 and 2014, we adopted a more balanced approach to improving profitability through a focus on increasing sales and improving margins, providing superior customer service, and innovative new products all while improving our operations and reducing costs. We expect to continue this balanced approach in the future and to continue to focus on profitability, our customers and eliminating inefficiencies.During fiscal 2012 and 2013, we closed 15 distribution and manufacturing facilities, while opening and upgrading others, leaving us with a net reduction of eight facilities at the end of fiscal year 2013. The operational issues associated with the closures, along with other supply chain issues, resulted in significant disruptions and adversely affected our revenues and operating earnings. We may experience other operational issues as we continue to implement our change initiatives. These operational issues could have a material adverse effect on our performance and financial results.There can be no assurance that we will be able to successfully execute our change initiatives or that we will be able to do so within the anticipated time period or without incurring substantial transitional costs. We anticipate that these investments and transitional costs will adversely affect our operating results.seasonality and adverse weather conditions;costs or operational problems arising from our change initiatives;We have experienced a significant increase in legal and other third party costs relating to unsolicited proposals received from Harbinger and could experience additional fees in the future, and the proposals could have an adverse impact on our employees and customers.In June 2014, we received an unsolicited letter from Harbinger Group Inc. requesting that we discuss with Harbinger a possible acquisition by Harbinger of all outstanding shares of Central’s common stock at $10 per share in cash or, alternatively, the acquisition of our Pet segment for $750 million in cash, subject to due diligence. Our Board retained independent financial and legal advisors to assist it in its review of the two proposals. Our Board announced in October 2014 that it will not pursue the Harbinger proposals. We incurred significant legal expenses and advisory fees as part of the review and expect to incur additional fees and expenses in the future. In addition, the uncertainty created by the proposals could cause current and prospective employees to experience uncertainty about their future roles with us, which may materially adversely affect our ability to attract and retain key employees, and could have a negative impact on our customer relationships, which could adversely impact our sales and financial results.In2012, prices for some of our key crops increased substantially. In fiscal 2013, ouryears, the weighted average cost per pound for our primary bird feed grains increased approximately 15% for fiscal year 2013 comparedhas decreased slightly. The decreases in commodity costs generally are reflected in lower prices to fiscal 2012. In fiscal 2014, our weighted average cost per pound for our primary bird feed grains decreased approximately 32% compared with fiscal year 2013. retailers.During fiscal 2013,introducedinvested $16 million in cash for a 50% interest in two new Garden products. Despite enthusiastic support from our retailersnewly formed entities that own rights to commercialize products, covered by certain patents, technology and substantial marketing spend,associated intellectual property rights in the new products did not sell through as expected,fields of animal health and we took a significant charge related to inventory and product and packaging changes at the end ofpesticide applications. During the fourth quarter of fiscal 2013 relating2016, we recognized a non-cash impairment charge of $16.6 million related to our investment in these two joint ventures as a result of changes in marketplace conditions, which impacted the new products. Despite a concerted effort to improve consumer takeawayexpected cash flows and recoverability of the products through product, packaging and placement changes, as well as aggressive promotions, we continued to experience weak consumer sales of the products in their second season and late in the third quarter major retailers indicated that they would not support the products going forward. Consequently, we made the decision to discontinue the two products at the end of the 2014 garden season. As a result, we recorded a $16.9 million charge to operating income in fiscal 2014, to write off the remaining inventory of these products and to account for product returns, promotional allowances and other costs related to the discontinuance of the products. investment.levels of consumer spending. In recent years, we have experienced a significant increase in raw material input costs. Although we increased prices for many of our products, our price increases did not fully offset the increases in our costs, and our margins and profitability suffered as a result. If we are unable to pass through rising input costs and raise the price of our products, or consumer confidence continues to weaken,weakens, we may experience gross margin declines.and small animals and fish may negatively impact our sales.2014,2017, approximately 65%66% of our Garden segment’s net sales and 59%56% of our total net sales occurred during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is generated in this period. Our working capital needs and our borrowingsDuring fiscal 2012,These substantial increases did not recur in 2013 or 2014. RisingAlthough energy prices have declined significantly since then, rising energy prices in the future could adversely affect consumer spending and demand for our products and increase our operating costs, both of which would reduce our sales and operating income.accounted forrepresented approximately 17%16%, 15% and 16% of our total company net sales in fiscal 2014, 16% in fiscal 20132017, 2016 and 17% in fiscal 2012.2015, respectively. In addition, Lowe's, Home Depot, accounted for approximately 8% of our net sales in fiscal 2014, 8% in fiscal 2013Costco, and 7% in fiscal year 2012. Lowe’s accounted for approximately 7% of our net sales in fiscal 2014, 8% in fiscal 2013 and 9% in fiscal 2012. In addition, PetSmart and PETCO are also significant customers, and together with Wal*Mart, Lowe’s and Home Depot, accounted for approximately 41%44% of our net sales in fiscal 2014, 43%2017, 42% in fiscal 20132016 and 45%40% in fiscal 2012.2015. The market shares of many of these key retailers have increased and may continue to increase in future years. from operations and cash flow to decline. The loss of, or reduction in, orders from any significant customer, losses arising from customer disputes regarding shipments, fees, merchandise condition or related matters, or our inability to collect accounts receivable from any major customer could reduce our operating income from operations and cash flow.as a result of the desire of retailers continue to more closely manage inventory levels there is a growing trend among retailers toand make purchases on a “just-in-time” basis. This requires us to shorten our lead time for production in certain cases and to more closely anticipate demand, which could in the future require the carrying of additional inventories and an increase in our working capital and related financing requirements. This shift to “just-in-time” can also cause retailers to delay purchase orders, which can cause a shift in sales from quarter to quarter. Decisions to move in or out of a market category by leading retailers can also have a significant impact on our business.We have completed numerous acquisitions and intend further growth through the acquisition of additional companies.pricevalue of our assets; a significant adverse change in the extent or manner in which our assets are used; a significant adverse change in the business climate that could affect our assets; and significant changes in the cash flows associated with an asset. As a result of such circumstances, we may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill, indefinite-lived intangible assets or other long-term assets is determined. Any such impairment charges could have a material adverse effect on our results of operations and financial condition.one of the reporting units within our Pet segment. During fiscal 2014, the reporting unit’s operating income declined approximately 50% from the comparable fiscal 2013 period. In connection with our annual goodwill impairment testing performed during fiscal 2014,2017 and fiscal 2016, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of its reporting units under the two-step goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment and it was determined that it was more likely than not the fair values of our reporting units were greater than their carrying amounts, and accordingly, no further testing of goodwill was required. During fiscal 2015, the first step of such testing indicated that the fair value of our reporting segmentsunits exceeded their carrying value by more than 10%, and accordingly, no further testing of goodwill was required. If the decline in income of the reporting unit continues in fiscal 2015, and our forecast of future operating performance further declines, there is the potential for goodwill impairment relatedour Pet segment’s reporting unit.Our success depends upon our retaining key personnel.Our future performance is substantially dependent upon the continued services of John R. Ranelli, our President, Chief Executive Officer and President – Pet Segment, William E. Brown, our Chairman, and our other senior officers. The loss of the services of any of these persons could have a material adverse effect on our business. In addition, our future performance depends on our ability to attract and retain skilled employees. We cannot assure you that we will be able to retain our existing personnel or attract additional qualified employees in the future.We are implementing a newimplement an enterprise resource planning information technology system. new company-wide enterprise resource planning (ERP) software system with the objective of gradually migrating to the newUpon completion, thisThis new system will replacereplaces numerous existing accounting and financial reporting systems, most of which were obtained in connection with business acquisitions. To date, we have reduced the number of ERP systems from 2631 to 6.8. Capital expenditures for our new enterprise resource planning software system for fiscal 20152018 and beyond will depend upon the pace of conversion for those remaining legacy systems. If the balance of the implementation is not executed successfully,third-partythird party manufacturers for a substantial portion of our product needs, any disruption in our relationships with these manufacturers could adversely affect our operations.such coverage iswill be adequate or that we will be able to maintain such insurance on acceptable terms. A successful product liability claim in excess of our insurance coverage could have a material adverse effect on us and could prevent us from obtaining adequate product liability insurance in the future on commercially reasonable terms.a significant amount of indebtedness. As of September 27, 2014,30, 2017, we had total indebtedness of approximately $450$400 million. This level of indebtedness and our future borrowing needs could have material adverse consequences for our business, including:theour credit agreement will create higher debt service requirements, which would adversely affect our cash flow.third-partythird party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of non-technical issues, includingand Series B preferred stock have no voting rights, except as required by Delaware law.NovemberSeptember 30, 2014,2017, William E. Brown, our Chairman, beneficially owned 1,600,459 shares of our Class B common stock (out of a total of 1,652,262 outstanding shares), 1,418,063 shares of our common stock and 3,102,717 shares of our Class A common stock and thereby controlled approximately 55% of the voting power of our capital stock. Accordingly, except to the extent that a class vote of the common stock is required by applicable law or our charter, he can effectively control all matters requiring stockholder approval, including the election of our directors, and can exert substantial control over our management and policies. The disproportionate voting rights of our common stock and Class B common stock and Mr. Brown’s substantial holdings of Class B common stock could have an adverse effect on the market price of our common stock and Class A common stock. Also, such disproportionate voting rights and Mr. Brown’s controlling interest may make us a less attractive target for a takeover than we otherwise might be, or render more difficult or discourage a merger proposal, tender offer or proxy contest, even if such actions were favored by our other stockholders, which could thereby deprive holders of common stock or Class A common stock of an opportunity to sell their shares for a “take-over” premium. the preferred stock could, depending on the rights and privileges designated by the board with respect to any particular series, have a dilutive effect on the voting interests of the common stock and Class B common stock and the economic interests of our common stock, Class A common stock and Class B common stock. In addition, the disproportionate voting rights of our common stock, preferred stock, Class B common stock and Class A common stock, and the ability of the board to issue stock to persons friendly to current management, may make us a less attractive target for a takeover than we otherwise might be or render more difficult or discourage a merger proposal, tender offer or proxy contest, even if such actions were favored by our common stockholders, which could thereby deprive holders of common stock of an opportunity to sell their shares for a “take-over” premium.3135 manufacturing facilities totaling approximately 3.54.0 million square feet and 2740 sales and logistics facilities totaling approximately 3.44.4 million square feet. Most sales and logistics centers consist of office and warehouse space, and several large bays for loading and unloading. Each sales and logistics center provides warehouse, distribution, sales and support functions for its geographic area. Our executive offices are located in Walnut Creek, California. Sales and Logistics Owned Manufacturing Leased Sales and Logistics Leased Sales and Logistics Leased Sales and Logistics Leased Tampa, FL Sales and Logistics Leased Council Bluffs, IASales and Logistics Owned Lakeland, FL (2) Manufacturing OwnedLeasedJamesburg, NJManufacturing Leased Ruskin, FL Manufacturing Leased Ruskin, FL Sales and Logistics Leased Neptune City, NJManufacturingOwnedNeptune City, NJManufacturingLeasedBend, ORManufacturingLeasedCressona, PAManufacturingOwnedPottsville, PA Sales and Logistics Leased Dallas, TXManufacturingOwnedDallas, TX Sales and Logistics Leased Algona, WASales and Logistics Owned Council Bluffs, IA Manufacturing Owned Hamilton, NJ Sales and Logistics Leased Chilton, WI Manufacturing Owned Franklin, WI Manufacturing Leased Franklin, WIManufacturingOwnedMenasha, WI Sales and Logistics Leased Guelph, Ontario, CanadaSales and Logistics Leased Cressona, PA Manufacturing Owned Pottsville, PA Sales and Logistics Leased Athens, TX Manufacturing Leased Guangzhou, ChinaSales and Logistics Leased Dallas, TX Manufacturing Owned Dallas, TX Sales and Logistics Leased Algona, WA Sales and Logistics Leased Chilton, WI Manufacturing Owned Franklin, WI Manufacturing Leased Dorking, Surrey, UKManufacturing Owned Guelph, Ontario, Canada Sales and Logistics Leased Guangzhou, China Manufacturing Leased Sales and Logistics Leased Atlixco, Puebla, Mexico Manufacturing Owned Dorking, Surrey, UK Manufacturing Leased Taunton, Somerset, UK Sales and Logistics Leased Sales and Logistics Owned Roll, AZManufacturingOwnedYuma, AZManufacturingLeasedEl Centro, CAManufacturingOwnedOntario, CA Sales and Logistics Leased Longmont, CO Manufacturing Owned Covington, GAManufacturing Leased El Centro, CA Manufacturing Owned Ontario, CA Sales and Logistics Leased Eatonton, GA Manufacturing Owned Eatonton,Covington, GA Sales and Logistics Leased Manufacturing Owned Eatonton, GA Sales and Logistics Leased Madison, GA (2) Manufacturing Leased Manufacturing Owned Sales and Logistics Owned St. Charles, IL Sales and Logistics Leased Sales and Logistics Leased Sales and Logistics Leased Manufacturing Owned Sales and Logistics Owned Manufacturing Owned Sales and Logistics Leased Manufacturing Owned Sales and Logistics Leased Manufacturing Owned Piketon,Peebles, OH Manufacturing Leased Manufacturing Owned Manufacturing Owned Sales and Logistics Leased Columbia, SCSales and LogisticsOwnedGrand Prairie, TX Sales and Logistics Leased Kenbridge, VA Sales and Logistics Leased Sales and Logistics Leased Northbend, WA Manufacturing Leased are reviewingcontinually review the number, location and size of our manufacturing facilities and expect to make changes over time in order to optimize our manufacturing footprint. We lease 1215 of our manufacturing facilities and 2133 of our sales and logistics facilities. These leases generally expire between 20152018 and 2020.2029. Substantially all of the leases contain renewal provisions with automatic rent escalation clauses. The facilities we own are subject to major encumbrances under our principal credit facility. In addition to the facilities that are owned, our fixed assets are comprised primarily of machinery and equipment, trucks and warehousing, transportation and computer equipment.Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Class A
Common Stock High Low High Low $ 12.18 $ 9.19 $ 12.37 $ 9.61 10.12 8.55 10.71 8.18 9.10 7.10 9.14 6.90 8.04 6.27 7.81 6.09 $ 7.80 $ 6.16 $ 7.93 $ 6.18 8.01 6.08 8.15 6.04 9.58 7.40 9.58 7.64 9.19 7.66 9.43 8.04 Common Stock High Low High Low Fiscal 2017 First Quarter $ 34.25 $ 23.21 $ 31.97 $ 22.27 Second Quarter 37.67 31.86 35.16 30.00 Third Quarter 39.09 29.50 36.55 28.51 Fourth Quarter 38.84 30.71 37.19 29.29 Fiscal 2016 First Quarter $ 17.93 $ 13.35 $ 18.54 $ 13.65 Second Quarter 16.21 12.05 16.14 12.02 Third Quarter 22.54 14.82 21.29 14.80 Fourth Quarter 27.62 21.21 25.51 20.12 30, 2014,17, 2017, there were approximately 11195 holders of record of our common stock, approximately 176315 holders of record of our Class A nonvoting common stock and 5 holders of record of our Class B stock. subordinated notes restrict our ability to pay dividends. See Note 1110 to our consolidated financial statements.26, 200929, 2012 to September 27, 201430, 2017 with the cumulative total return of the NASDAQ Composite (U.S.) Index and the Dow Jones Non-Durable Household Products Index, a peer group index consisting of approximately 30 manufacturers and distributors of household products.
9/26/09 9/25/10 9/24/11 9/29/12 9/28/13 9/27/14 100.00 85.88 56.89 101.11 59.78 65.39 100.00 114.91 120.98 153.63 189.10 228.38 100.00 110.27 113.82 132.88 153.16 174.64 9/29/2012 9/28/2013 9/27/2014 9/26/2015 9/24/2016 9/30/2017 Central Garden & Pet Company 100.00 59.13 64.68 137.85 213.37 326.66 NASDAQ Composite 100.00 123.09 148.66 156.18 179.05 221.75 Dow Jones US Nondurable Household Products 100.00 115.26 131.43 121.32 150.01 159.45 27, 201430, 2017 and the dollar amount of authorized share repurchases, remaining under our stock repurchase program. Total Number
of Shares
(or Units)
Purchased Average
Price Paid
per Share
(or Unit) Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs (1) 64,218 (2) $ 7.42 — $ 50,091,000 1,645 (2) 8.87 — 50,091,000 — (2) — — 50,091,000 65,863 $ 7.46 — $ 50,091,000 Period June 25, 2017 - July 29, 2017 — $ — — $ 34,968,000 July 30, 2017 - August 26, 2017 4,897 (2) 31.75 — 34,968,000 August 27, 2017 - September 30, 2017 3,485 (2) 34.33 — 34,968,000 Total 8,382 $ 32.82 — $ 34,968,000 (1) During the third quarter of fiscal 2011, our Board of Directors authorized a $100 million share repurchase program. The program has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its authorization. The repurchase of shares may be limited by certain financial covenants in our credit facility that restrict our ability to repurchase our stock. (2) Shares purchased during the period indicated represent withholding of a portion of shares to cover taxes in connection with the vesting of restricted stock.stock and do not reduce the dollar value of shares that may be purchased under our stock repurchase plan.27, 201430, 2017 have been derived from our audited consolidated financial statements. The financial data set forth below should be read in conjunction with our consolidated financial statements and related notes thereto in “Item 8 – Financial Statements and Supplementary Data” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 September 24,
2011 September 25,
2010 (in thousands, except per share amounts) $ 1,604,357 $ 1,653,633 $ 1,700,013 $ 1,628,652 $ 1,523,648 1,150,333 1,189,731 1,185,855 1,134,733 1,008,482 454,024 463,902 514,158 493,919 515,166 397,811 416,038 439,737 408,744 394,092 — 7,709 — — 12,000 56,213 40,155 74,421 85,175 109,074 (42,750 ) (42,970 ) (40,170 ) (37,748 ) (33,587 ) 403 (677 ) 678 550 419 13,866 (3,492 ) 34,929 47,977 75,906 4,045 (2,592 ) 12,816 19,595 28,110 9,821 (900 ) 22,113 28,382 47,796 1,017 1,029 940 59 1,963 $ 8,804 $ (1,929 ) $ 21,173 $ 28,323 $ 45,833 $ 0.18 $ (0.04 ) $ 0.44 $ 0.50 $ 0.71 $ 0.18 $ (0.04 ) $ 0.44 $ 0.50 $ 0.70 48,880 48,094 47,622 56,217 64,272 49,397 48,094 48,374 56,645 65,091 $ 35,781 $ 32,968 $ 30,425 $ 28,566 $ 28,869 $ 17,173 $ 25,172 $ 39,592 $ 31,563 $ 24,190 $ 126,467 $ (28,282 ) $ 89,169 $ 51,008 $ 135,229 $ (35,181 ) $ (25,122 ) $ (44,477 ) $ (56,237 ) $ (41,266 ) $ (27,759 ) $ 20,309 $ (8,575 ) $ (73,997 ) $ (88,167 ) 1.32 — 1.84 2.23 3.20 September 27,
2014 September 28,
2013 September 29,
2012 September 24,
2011 September 25,
2010 $ 88,666 $ 32,976 $ 71,180 $ 29,851 $ 106,780 498,454 490,325 445,299 410,655 433,705 1,148,727 1,161,160 1,149,547 1,093,003 1,130,884 450,239 472,587 449,814 435,609 400,271 486,453 470,024 464,883 456,782 532,143 Fiscal Year Ended September 30, 2017 September 24, 2016 September 26, 2015 September 27, 2014 September 28, 2013 (in thousands, except per share amounts) Statement of Operations Data (1): Net sales $ 2,054,478 $ 1,829,017 $ 1,650,737 $ 1,604,357 $ 1,653,633 Cost of goods sold and occupancy 1,421,670 1,275,967 1,162,685 1,150,333 1,189,731 Gross profit 632,808 553,050 488,052 454,024 463,902 Selling, general and administrative expenses 476,696 421,864 389,345 397,811 416,038 Intangible asset and goodwill impairments (2) — 1,828 7,272 — 7,709 Operating income (3) 156,112 129,358 91,435 56,213 40,155 Interest expense, net (4) (28,062 ) (42,707 ) (39,898 ) (42,750 ) (42,970 ) Other income (expense) (5) (1,621 ) (17,013 ) 13 403 (677 ) Income (loss) before income taxes and noncontrolling interest 126,429 69,638 51,550 13,866 (3,492 ) Income tax expense (benefit) 46,699 24,053 18,535 4,045 (2,592 ) Income (loss) including noncontrolling interest 79,730 45,585 33,015 9,821 (900 ) Net income attributable to noncontrolling interest 902 1,071 1,044 1,017 1,029 Net income (loss) attributable to Central Garden & Pet $ 78,828 $ 44,514 $ 31,971 $ 8,804 $ (1,929 ) Net income (loss) per share attributable to Central Garden & Pet: Basic $ 1.57 $ 0.91 $ 0.66 $ 0.18 $ (0.04 ) Diluted $ 1.52 $ 0.87 $ 0.64 $ 0.18 $ (0.04 ) Weighted average shares used in the computation of income (loss) per share: Basic 50,230 48,964 48,562 48,880 48,094 Diluted 51,820 51,075 49,638 49,397 48,094 Other Data: Depreciation and amortization $ 42,719 $ 40,001 $ 33,703 $ 35,781 $ 32,968 Capital expenditures $ 44,659 $ 27,622 $ 22,030 $ 17,173 $ 25,172 Cash provided (used) by operating activities $ 114,309 $ 151,426 $ 87,449 $ 126,467 $ (28,282 ) Cash used in investing activities $ (164,577 ) $ (91,195 ) $ (49,854 ) $ (35,181 ) $ (25,122 ) Cash provided (used) by financing activities $ (10,392 ) $ (14,165 ) $ (68,370 ) $ (27,759 ) $ 20,309 Ratio of earnings to fixed charges (6) 5.4x 2.6x 2.3x 1.3x — Fiscal Year Ended September 30, 2017 September 24, 2016 September 26, 2015 September 27, 2014 September 28, 2013 (in thousands) Balance Sheet Data: Cash and short term investments $ 32,397 $ 92,982 $ 47,584 $ 88,666 $ 32,976 Working capital (8) 462,849 481,077 446,431 464,050 455,296 Total assets (7)(8) 1,306,906 1,180,683 1,101,112 1,157,715 1,167,774 Total debt (7) 395,653 395,269 396,982 445,214 467,333 Equity 637,142 554,587 506,380 486,453 470,024 (1) Fiscal years 2010, 2011, 2013, 2014, 2015 and 20142016 included 52 weeks. Fiscal year 20122017 included 53 weeks.(2) During fiscal 2010,2016, we recognized a non-cash charge of $12.0$1.8 million related to the impairment of ana certain indefinite-lived intangible asset in our Pet segment. During fiscal 2015, we recognized a non-cash charge of $7.3 million related to the impairment of certain indefinite-lived intangible assets in our Pet segment. During fiscal 2013, we recognized a non-cash charge of $7.7 million related to impairment of goodwill in our Garden segment.(3) During fiscal 2013, we recognized an $11.2 million charge related to certain products introduced in fiscal 2013 in our Garden segment. During fiscal 2014, we recognized a $16.9 million charge related to certain products introduced in fiscal 2013 in our garden segment.these products. We recognized a $4.9 million gain in fiscal 2014 as a gain from the sale of manufacturing plant assets. During fiscal 2016, we recognized a $2.4 million gain in our Pet segment from the sale of a manufacturing plant. During fiscal 2017, we recognized a $2.0 million gain in our Garden segment from the sale of a distribution facility.(4) During fiscal 2016, we incurred incremental expenses of $14.3 million, comprised of a call premium payment of $8.3 million, a $2.7 million payment of overlapping interest expense for 30 days and a $3.3 million non-cash charge for the write-off of unamortized deferred financing costs and discount on our 2018 Notes, as a result of the redemption of our 2018 Notes and issuance of our 2023 Notes. (5) During fiscal 2016, we recognized a non-cash impairment charge of $16.6 million related to our investment in two joint ventures as a result of changes in marketplace conditions, which impacted expected cash flows and the recoverability of the investment. (6) For the purposes of determining the ratio of earnings to fixed charges, earnings consist of income (loss) before income taxes and noncontrolling interest and after eliminating undistributed earnings of equity method investees and before fixed charges. Fixed charges consist of interest expense incurred, the portion of rental expense under operating leases deemed by management to be representative of the interest factor and amortization of deferred financing costs. For the fiscal year ended September 28, 2013, earnings were insufficient to cover fixed charges by approximately $3.2 million, and the ratio is not meaningful. (7) In fiscal 2016, we retrospectively adopted new accounting guidance, which requires classification of debt issuance costs as a reduction of the carrying value of the debt. In doing so, $3.2 million, $5.0 million and $5.3 million of deferred issuance costs have been reclassified from Other assets to Long-term debt in our Consolidated Balance Sheets for fiscal 2015, 2014 and 2013, respectively. (8) On September 30, 2017, we retrospectively adopted new accounting guidance (Accounting Standards Update 2015-17) which requires classification of deferred tax assets as non-current assets and non-current liabilities. In doing so, $31.5 million and $30.5 million of net current deferred tax assets have been reclassified to deferred taxes and other long term liabilities in our Consolidated Balance Sheets for fiscal 2016 and 2015, respectively. $34.4 million and $35.0 million of net current deferred tax assets have been partially offset by deferred tax liabilities and reclassified to other assets in our Consolidated Balance Sheets for fiscal 2014 and 2013, respectively. Working capital amounts have been changed by the amounts above for the respective years. marketer and producer of quality branded products and distributor of third-partybranded and private label products infor the lawn & garden and pet and lawn and garden supplies industriesmarkets in the United States. The total pet food, treats and supplies industry in 20132016 was estimated by Packaged Facts and the pet industry to have been over $42.0approximately $55.9 billion in annual retail sales. We estimate the annual retail sales of the pet supplies, live animal, and super premiumconsumables and natural pet food markets in the categories in which we participate to be approximately $25.4$28.0 billion. According to The Freedonia Group, the total lawn and garden consumables and decorative products industry in the United States is estimated to be approximately $17.2$27.6 billion in annual retail sales, including fertilizer, pesticides, growing media, seeds, mulch, other consumables and other consumables.decorative products. We estimate the annual retail sales of the lawn and garden consumables and decorative products markets in the categories in which we participate to be approximately $10.2$18.9 billion. In addition, we participate in the pottery and seasonal décor markets.master brands including AdamsTM™, Aqueon®, Avoderm®, Bio Spot Active CareTM™, Cadet®, Farnam®, Four Paws®, Kaytee®, NylaboneK&H Pet Products®, PinnacleNylabone®, Pinnacle®, TFHTM™, Zilla® as well as a number of other brands including Altosid Comfort Zone®, CoralifeComfort Zone®, Interpet, Kent MarineCoralife®, Oceanic SystemsInterpet®, Kent Marine®, Pet Select®, Pre-StrikeSuper Pet®, Super Petand Zodiac®, and Zodiac®.ant and other herbicide,herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle and lighting products including pottery, trellises and other wood products and holiday lighting.products. These products are sold under the master brands AMDRO®, GKI/Bethlehem LightingIronite®, IronitePennington®, Penningtonand Sevin®, and Sevin®, as well as a number of other brand names including Lilly Miller®, Over-N-Out®, Smart Seed® and The Rebels®.2014,2017, our consolidated net sales were $1.6 billion,$2,054 million, of which our Pet segment, or Pet, accounted for approximately $846$1,246 million and our Lawn and Garden segment, or Garden, accounted for approximately $759$808 million. In fiscal 2014,2017, our operating income was $156 million consisting of income from operations beforeour Pet segment of $132 million, income from our Garden segment of $87 million and corporate expenses and eliminations of $72.9 million was $129.1 million, of which the Pet segment accounted for $88.1 million and the Garden segment accounted for $41.0$63 million.20142017 Financial Highlights$0.22$0.65 per share to $1.52 per share, and our operating earningsincome increased 40% as$26.8 million to $156.1 million compared to fiscal 20132016, due primarily to increased earnings in both our Garden segment. The Garden segment was impacted in bothoperating segments. Certain charges and gains impacting fiscal 20142017 and 2013 by individually significant items (i.e., charges in fiscal 2014 and 2013 related to the discontinuance of certain products introduced in 2013, the gain on sale of manufacturing plant assets in 2014 and the impairment of goodwill in 2013) which2016 are excluded for purposes of the non-GAAP presentation elsewhere in this Form 10-K.2014 decreased $49.22017 increased $225.5 million, or 3.0%12.3%, to $1,604.4$2,054.5 million. Our Pet segment sales decreased 4.8%increased 15.2%, and our Garden segment sales decreased 0.8%increased 8.2%.2060 basis points in fiscal 20142017 to 28.3%30.8%, from 28.1%30.2% in 2013.earningsincome increased $16.0$26.8 million, or 40.0%20.7%, to $56.2$156.1 million in fiscal 2014,2017, and increased as a percentage of net sales to 3.5%7.6% from 2.4%7.1%.$8.8$78.8 million, or $0.18 per share on a diluted basis compared to a net loss in fiscal 2013 of $1.9 million, or $0.04$1.52 per share on a fully diluted basis, compared to net income in fiscal 2016 of $44.5 million, or $0.87 per share on a fully diluted basis. Non-GAAP net income increased to $77.5 million, or $1.50 per share, in fiscal 2017 from $64.4 million, or $1.26 per share, in fiscal 2016.$126.5 million, an increase of $154.8$114.3 million in fiscal 2014. 2017 compared to $151.4 million in fiscal 2016.fiscal 2013,April 2017, we had $28.3purchased K&H Manufacturing, a producer of premium pet supplies and the largest marketer of heated pet products in the country. K&H sells brands under the K&H and K&H Pet brands. The acquisition is expected to complement our existing dog and cat business.cash used in operating activities. Our cashwhich $6 million is contingent upon future events. Segrest is the leading wholesaler of aquarium fish and short term investments at September 27, 2014 were approximately $88.7 million, compared with approximately $33.0 million at September 28, 2013.Recent DevelopmentsOrganizational Change. In fiscal 2011 and 2012, we were focused on transforming the company from a portfolio of separately run businesses into an integrated, multi-brand company. During fiscal 2013 and fiscal 2014, we adopted a balanced approachis expected to improving profitability through a focus on increasing sales and improving margins, providing superior customer service and delivering innovative new products. We expect to continue this balanced approachstrengthen our position in the futureaquatics category and to continue to focus on eliminating inefficiencies and on increasing consumer take-awayprovide the opportunity for synergies with our existing aquatics business.our products.Harbinger Proposals. In June 2014, we received an unsolicited letter from Harbinger Group Inc. requesting that we discuss with Harbinger a possible acquisition by Harbinger of all outstanding shares of Central’s common stock at $10 per share in cash or, alternatively, the acquisition of our Pet segment for $750$8.6 million in cash, subject to due diligence. Our Board retained independent financial and legal advisors to assist it in its review offiscal 2016. The business was not profitable over the two proposals. With the assistance of its advisors, the Board of Directors engaged in a comprehensive review which included consideration of current and expected operations, capital structure, and market opportunities. In addition, the financial advisor and our outside legal counsel met with Harbinger representatives to provide an opportunity to supplement or clarify their proposal. After this extensive review, the Board of Directors unanimously concluded in October that it would not pursue either of the two proposals received from Harbinger Group Inc. We incurred significant legal expenses and advisory fees during fiscal 2014 in connection with the review and expect to incur significant additional fees and expenses in the future. In addition, the uncertainty created by the proposals could cause current and prospective employees to experience uncertainty about their future roles with us, which may materially adversely affect our ability to attract and retain key employees and could continue to have a negative impact on our customer relationships, which could adversely impact our sales and financial results.last several years.Measures.managementto supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net sales on a consolidated and segment basis, non-GAAP selling, general and administrative (SG&A) expense, non-GAAP operating income on a consolidated and segment basis, non-GAAP interest expense, non-GAAP other income (expense) and non-GAAP net income and diluted net income per share. Management believes that certainthese non-GAAP financial measures that exclude the impact of garden charges in fiscal 2014 and 2013, the gain from the sale of manufacturing plant assets in 2014 and the goodwill impairment in the garden segment in 2013specific items (described below) may be useful to investors in certain instances totheir assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods that should be considered when assessing our ongoing performance. Additionally, we have provided a comparisonperiods.our free cash flow which can be used as a measure of our operating performance on page 40. Free cash flow does not represent cash available only for discretionary expenditures, since we have mandatory debt service requirementsthese non-GAAP measures to the most directly comparable financial measures calculated and other contractual and non-discretionary expenditures.presented in accordance with GAAP are shown in the tables below. We believe that thesethe non-GAAP financial measures provide useful information to investors and other users of itsour financial statements, such as lenders.by allowing for greater transparency in the review of our financial and operating performance. Management also usesperformance.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.Garden Segment Discontinued Product ChargeNon-GAAP financial measures reflect adjustments based on the following items:During fiscal 2013,introduced two new Garden products. Despite enthusiastic supporthave excluded the impact of asset impairments on intangible assets and equity method investments as such non-cash amounts are inconsistent in amount and frequency. We believe that the adjustment of these charges supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.our retailers and substantial marketing spend,non-GAAP net income. The tax impact of the new products did not sell through as expected, and we recorded an $11.2 million charge (“2013 garden charge”) to operating income relatingnon-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the new products. Despitenon-GAAP adjustments, unless the underlying item has a concerted effortmaterially different tax treatment.improve consumer takeawaybetter understand the performance of our historical business without the impact of recent acquisitions or dispositions. For fiscal 2017, we have also adjusted our organic net sales for our estimate of the products through product, packaging and placement changes, as well as aggressive promotions, we continued to experience weak consumer salesimpact of the products in their second season. Lateextra week on our 2017 fiscal year net sales. third quarterfuture, there may be other items that we may exclude if we believe that doing so is consistent with the goal of fiscal 2014, major retailers indicated that they would not supportproviding useful information to investors and management.products going forward. Consequently, we made the decision to discontinue the two products at the end of the 2014 garden season. As a result, we recorded a $16.9 million charge (“2014 garden charge”) to operating income in the quarter ended June 28, 2014 to write off the remaining inventory of these products and to account for product returns, promotional allowances and other costs related to the discontinuance of the products. The 2013 and 2014 garden charges are collectively referred to as “the garden charges”. We may incur additional disposal costs which would be reflected in future quarters.Gain on Sale of Manufacturing Plant Assetsfollowing:During fiscal 2014, we recorded a $4.9(1) (2) ($2.0 million recognized in the quarter ended June 28, 2014 and $2.9 million recognized in the quarter ended September 27, 2014) in our Garden segment from the sale of manufacturing plant assets related to a seasonal product we intend to purchase rather than produce.Goodwill ImpairmentDuring the fourth quarter of fiscal 2013, we recognized a non-cash charge of $7.7 million related to the impairment of goodwill within our Garden segment due to its continuing poor performance. GAAP to Non-GAAP Reconciliation
(unaudited, in thousands, except per share amounts) For
the Year Ended September 27, 2014 Fiscal 2014
GAAP Garden
Charge (A) Gain on Sale
of Plant
Assets (B) Fiscal 2014
As Adjusted $ 1,604,357 $ 7,035 $ 1,611,392 1,150,333 (9,873 ) 1,140,460 454,024 16,908 470,932 397,811 4,875 402,686 $ 56,213 $ 16,908 $ (4,875 ) $ 68,246 $ 8,804 $ 10,652 $ (3,071 ) $ 16,385 $ 0.18 $ 0.33 49,397 49,397 28.3 % 29.2 % 24.8 % 25.0 % 3.5 % 4.2 % GAAP to Non-GAAP Reconciliation
(unaudited, in thousands, except per share amounts)
For the Year Ended September 28, 2013 Fiscal 2013
GAAP Garden
Charge (A) Goodwill
Impairment Fiscal 2013
As Adjusted $ 1,653,633 $ 3,204 $ — $ 1,656,837 1,189,731 (7,956 ) — 1,181,775 $ 463,902 $ 11,160 $ — $ 475,062 423,747 — (7,710 ) 416,037 $ 40,155 $ 11,160 $ 7,710 $ 59,025 $ (1,929 ) $ 7,031 $ 4,857 $ 9,959 $ (0.04 ) $ 0.20 48,094 48,781 28.1 % 28.7 % 25.6 % 25.1 % 2.4 % 3.6 % Non-GAAP Consolidated Comparative Summary
(unaudited, $ in thousands) Fiscal 2014 Fiscal 2013 $ 1,611,392 $ 1,656,837 $ 470,932 $ 475,062 29.2 % 28.7 % $ 402,686 $ 416,037 25.0 % 25.1 % $ 68,246 $ 59,025 4.2 % 3.6 % $ 0.33 $ 0.20 Garden Segment: Fiscal 2014
Net Sales Fiscal 2013
Net Sales $ 758,852 $ 765,405 7,035 3,204 $ 765,887 $ 768,609 Income from
Operations Operating
Margin Income from
Operations Operating
Margin $ 41,020 5.4 % $ 8,286 1.1 % 16,908 11,160 (4,875 ) 7,710 $ 53,053 6.9 % $ 27,156 3.5 % (A)The garden charges reflect the impact of Garden segment charges in fiscal 2014 and 2013 related to the discontinuance of certain products introduced in 2013.(B)In fiscal 2014, we recognized a gain from the sale of a distribution facility. During fiscal 2016, we recorded a $2.4 million gain in our Pet segment from the sale of a manufacturing plant assets relatedresulting from rationalizing our facilities to a product the Garden segment will now purchase rather than produce.reduce excess capacity. These adjustments were recorded as part of selling, general and administrative costs.(C)In(3) 2013,2016, we redeemed our 2018 Notes and issued senior notes due November 2023. As a result of the bond redemption, we incurred incremental expenses of $14.3 million, comprised of a call premium payment of $8.3 million, a $2.7 million payment of overlapping interest expense for 30 days and a $3.3 million non-cash charge for the write off of unamortized deferred financing costs and discount related to the 2018 Notes. These amounts are included in Interest expense in the consolidated statements of operations.(4) goodwillnon-cash impairment charge of $16.6 million related to our investment in two joint ventures as a result of changes in marketplace conditions, which impacted the expected cash flows and recoverability of the investment. The impairment is included within our Garden segment.other income (expense).GAAP to Non-GAAP Reconciliation
(in thousands)
For the Fiscal Year Ended SeptemberNon-GAAP Adjustments 2017 2016 2015 Impairments of intangible assets $ — $ 1,828 $ 7,272 (Gain)/loss on disposal of plant assets (2,050 ) (2,363 ) Incremental expenses from note redemption and issuance — 14,339 Impairment of equity method investments — 16,572 Total non-GAAP adjustments (2,050 ) 30,376 7,272 Tax effects of non-GAAP adjustments (757 ) (10,492 ) (2,618 ) Total net income impact from non-GAAP adjustments $ (1,293 ) $ 19,884 $ 4,654 SG&A Expense Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands)
For the Fiscal Year Ended September2017 2016 2015 GAAP SG&A expense $ 476,696 $ 421,864 $ 389,345 SG&A expense impact from non-GAAP adjustments 2,050 2,363 — Non-GAAP SG&A expense $ 478,746 $ 424,227 $ 389,345 GAAP SG&A expense as a percentage of net sales 23.2 % 23.1 % 24.0 % Non-GAAP SG&A expense as a percentage of net sales 23.3 % 23.2 % 24.0 % Operating Income Reconciliation GAAP operating income $ 156,112 $ 129,358 $ 91,435 Total operating income impact from non-GAAP adjustments (2,050 ) (535 ) 7,272 Non-GAAP operating income $ 154,062 $ 128,823 $ 98,707 GAAP operating margin 7.6 % 7.1 % 5.5 % Non-GAAP operating margin 7.5 % 7.0 % 6.0 % Pet Segment Operating Income Reconciliation GAAP Pet segment operating income $ 131,622 $ 119,930 $ 98,798 Total operating income impact from non-GAAP adjustments N/A (535 ) 7,272 Non-GAAP Pet segment operating income N/A $ 119,395 $ 106,070 GAAP Pet segment operating margin 11.1 % 11.0 % Non-GAAP Pet operating margin 11.0 % 11.9 % Garden Segment Operating Income Reconciliation GAAP Garden segment operating income $ 87,298 $ 70,317 $ 60,145 Total operating income impact from non-GAAP adjustments (2,050 ) N/A N/A Non-GAAP Garden segment operating income $ 85,248 N/A N/A GAAP Garden segment operating margin 10.8 % Non-GAAP Garden segment operating margin 10.5 % Interest Expense Reconciliation GAAP interest expense $ (28,209 ) $ (42,847 ) $ (40,027 ) Impact from non-GAAP adjustment N/A 14,339 N/A Non-GAAP interest expense N/A $ (28,508 ) N/A GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Fiscal Year Ended SeptemberOther Income (Expense) Reconciliation 2017 2016 2015 GAAP other income (expense) $ (1,621 ) $ (17,013 ) $ 13 Impact from non-GAAP adjustment N/A 16,572 N/A Non-GAAP other income (expense) N/A $ (441 ) N/A Net Income and Diluted Net Income Per Share Reconciliation GAAP net income attributable to Central Garden & Pet $ 78,828 $ 44,514 $ 31,971 Total non-GAAP adjustments (2,050 ) 30,376 7,272 Tax effects of non-GAAP adjustments 757 (10,492 ) (2,618 ) Total net income impact from non-GAAP adjustments (1,293 ) 19,884 4,654 Non-GAAP net income attributable to Central Garden & Pet $ 77,535 $ 64,398 $ 36,625 GAAP diluted net income per share $ 1.52 $ 0.87 $ 0.64 Non-GAAP diluted net income per share $ 1.50 $ 1.26 $ 0.74 Shares used in GAAP and non-GAAP diluted net earnings per share calculation 51,820 51,075 49,638 GAAP to Non-GAAP Reconciliation
For the Fiscal Year Ended September 30, 2017Consolidated Pet Segment Garden Segment Percent Change Percent Change Percent Change Reported net sales FY 2017 (GAAP) $ 2,054.5 $ 1,246.4 $ 808.1 Reported net sales FY 2016 (GAAP) 1,829.0 1,081.8 747.2 Increase in net sales 225.5 12.3% 164.6 15.2% 60.9 8.2% Effect of acquisitions and dispositions on increase in net sales 104.7 110.3 (5.6 ) Increase in organic net sales 120.8 6.6% 54.3 5.0% 66.5 8.9% Estimated impact of extra week in fiscal 2017 on organic sales 32.8 21.4 11.4 Organic net sales adjusted for extra week $ 88.0 4.8% $ 32.9 3.0% $ 55.1 7.4% Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 100.0 % 100.0 % 100.0 % 71.7 71.9 69.8 28.3 28.1 30.2 24.8 25.2 25.9 — 0.5 — 3.5 2.4 4.3 (2.7 ) (2.6 ) (2.4 ) — — 0.1 0.3 (0.2 ) (0.7 ) 0.1 0.1 (0.1 ) 0.5 % (0.1 )% 1.2 % Fiscal Year Ended September 30, 2017 September 24, 2016 September 26, 2015 Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold and occupancy 69.2 69.8 70.4 Gross profit 30.8 30.2 29.6 Selling, general and administrative 23.2 23.1 23.6 Intangible asset impairment — — 0.5 Operating income 7.6 7.1 5.5 Interest expense, net (1.4 ) (2.3 ) (2.4 ) Other income (expense) (0.1 ) (0.9 ) — Income taxes 2.3 1.3 1.1 Noncontrolling interest — 0.2 0.1 Net income (loss) 3.8 % 2.4 % 1.9 % 20142017 Compared to Fiscal 201320162014 decreased $49.22017 increased $225.5 million, or 3.0%12.3%, to $1,604.4$2,054.5 million from $1,653.6$1,829.0 million in fiscal 2013.2016. Our branded product sales decreased $70.7increased $203.5 million, and sales of other manufacturers’ products increased $21.5$22.0 million. Branded product sales include products we manufactureproduce under Central brand names and products we manufactureproduce under third-partythird party brands. Sales of our branded products represented 81.3%80.1% of our total sales in fiscal 20142017 compared with 83.2%78.9% in fiscal 2013. than 10% of our consolidated net sales in the fiscal years presented (in millions): 2014 2013 2012 $ 774.2 $ 807.4 $ 847.1 262.5 274.9 281.7 202.1 210.8 205.1 182.5 183.5 185.7 183.1 177.0 180.4 $ 1,604.4 $ 1,653.6 $ 1,700.0 Category 2017 2016 2015 Other pet products $ 841.4 $ 689.3 $ 594.7 Other garden supplies 464.9 331.3 343.5 Dog and cat products 405.0 326.0 233.0 Garden controls and fertilizer products 343.2 298.8 286.3 Wild bird feed — (1) 183.6 193.2 Total $ 2,054.5 $ 1,829.0 $ 1,650.7 2014 decreased $42.72017 increased $164.6 million, or 4.8%15.2%, to $845.5$1,246.4 million from $888.2$1,081.8 million in fiscal 2013. The decline in pet sales was due principally to industry weakness, lost shelf space and increased competition in the categories in which we participate.2016. Pet branded product sales decreased $63.4increased $161.6 million from fiscal 20132016. The impact of acquisitions and dispositions was $110.3 million due to two fiscal 2017 acquisitions, two months of a fiscal 2016 acquisition and a business we exited in fiscal 2016. Organic net sales increaseda $20.2 million decreasevolume-based increased sales in our dog & cat category, driven by increased sales of toys, treats and pet beds, and our animal health category, an $18.0 million decreasebusiness. Adjusting for the extra week in our bird and small animal category and a $15.4 million decrease in our aquatics category; all of these decreases were primarily volume driven. Our animal health category was impacted by lowerfiscal 2017, organic net sales in the flea and tick category, which resulted from a weak flea and tick season, lost shelf space, rebranding and repackaging resulting in return of the superceded product and increased competition. Sales of other manufacturers’ products increased approximately $20.7 million benefitting from expanded distribution.2014 decreased $6.52017 increased $60.9 million, or 0.9%8.2%, to $758.9$808.1 million from $765.4$747.2 million in fiscal 2013.2016. Garden branded product sales increased $41.9 million and sales of other manufacturer's products increased $19.0 million as compared to fiscal 2016. Organic net sales increased $66.5 million, or 8.9%, due primarily to volume-based increased sales in our controls and fertilizer category, favorably impacted by new listings of branded and private label products with existing customers, higher sales of other manufacturer's products and increased revenue in our grass seed business. Adjusting for the extra week in fiscal 2017, organic net sales increased approximately 7.4%.$7.3$40.8 million due primarily to a $12.4$28.2 million decrease due to our exit from the holiday decor business in January 2016, a $12.7 million decrease in our controls and fertilizer category which was impacted by reduced volumesdue primarily to our exit from a private label relationship in the fertilizer category and increasedcharges related to returns and promotional allowances for two discontinued garden products introduced in 2013. Thean $8.6 million decrease in controls and fertilizers waswild bird feed due primarily to lower prices precipitated by lower raw material costs. These decreases were partially offset by an $18.0 million increase in grass seed salesdue primarily due to increased pricing.the comparison to a weather related weak fiscal 2015. Sales of other manufacturers’ products increased approximately $0.8$31.8 million compared to fiscal 2013.decreased $9.9for fiscal 2016 increased $65.0 million, or 2.1%13.3%, to $454.0$553.0 million from $463.9$488.0 million in fiscal 2013.2015. Both our operating segments contributed to the increase in gross profit, primarily the Pet segment. Gross profit as a percentage of net salesmargin increased 60 basis points to 30.2% in fiscal28.1%29.6% in fiscal 2013 to 28.3% for fiscal 2014, with both the Pet segment and the Garden segment, including the garden charge, contributing to the small increase. Adjusting for the charges and gains reflected in the adjusted results,2015. While our gross profit for fiscal 2014 decreased $4.1 million, or 0.9%, to $470.9 million from fiscal 2013. Adjusted gross margin increased from 28.7% for fiscal 2013 to 29.2% for fiscal 2014.Gross profit decreasedincrease was primarily in the Pet segment, in fiscal 2014 due to a $42.7 million decrease in sales, partially offset by improvedour gross margin. Most of our pet businesses had increased gross margins. The largest contributor to the margin increase was our bird and small animal business which benefitted from operational improvements in small animal and from lower commodity costs in bird feed. These grossdue to an improved Garden segment margin, increases were partially offset by a lower gross margin in the Pet segment.animal health category which wasrecently acquired businesses favorably impacted byour gross profit, as expected, they had a mix shift in professional and anegative impact on our gross margin, as these businesses historically have lower gross margins than our historical segment average. The gross margin in our flea and tick categoryPet segment would have improved absent the impact of the recent acquisitions compared to fiscal 2015 due primarily to the rebranding and packaging efforts undertakenpositive impact of increased sales in fiscal 2014.In theour professional business.gross profit remained relatively constant as the 0.9% decrease in net sales was offset by increased gross margin. The Garden segment gross profit and gross margin were impacted in both fiscal 2014 and fiscal 2013 by the garden charges. The Garden segment gross margin improved slightly due primarily to an improved gross margin in wild bird feed, which benefitted from lower commodity costs and seasonal décor, due primarily to the elimination of less profitable products. These improvements to gross margin wereimprovement which was partially offset by a decreased$9.0 million decrease in net sales. The gross margin in grass seed,improvement was due primarily to higher costs,increased grass seed sales, a favorable product mix change in our grass seed and in controls and fertilizers, impacted by lower sales volumes,fertilizer businesses and a sales mix shift adversely affected gross profit and gross margin.decreased $18.2increased $32.6 million, or 4.4%8.4%, from $416.0$389.3 million in fiscal 20132015 to $397.8$421.9 million in fiscal 2014.2016. As a percentage of net sales, selling, general and administrative expenses decreased from 25.2%23.6% in fiscal 20132015 to 24.8%23.1% in fiscal 2014.2016. The changeincrease in selling, general and administrative expenses discussed further below, was due primarily to decreasedincreases in both selling and delivery expense and warehouse and administrative expense. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and information technology functions.decreased $17.6increased $17.8 million, or 7.5%8.5%, from $234.0$210.2 million in fiscal 20132015 to $216.4$228.0 million in fiscal 2014. Selling2016 and delivery expense as a percentage of net sales decreased from 14.2%12.7% in fiscal 20132015 to 13.5%12.5% in fiscal 2014.2016. The decreaseexpense increase was principally in our Pet segment due primarily to decreasedtwo recent acquisitions, increased selling and marketing expenses, primarily advertising, associated with the controls and fertilizers and grass seed categoriesexpense in our Garden segment.decreased $0.6increased $14.8 million, or 0.3%8.2%, from $182.0$179.1 million in fiscal 20132015 to $181.4$193.9 million in fiscal 2014. Decreased costs2016. As a percentage of net sales, warehouse and administrative expense decreased from 10.9% in bothfiscal 2015 to 10.6% in fiscal 2016. The expense increase was principally in our operating segments werePet segment, due primarily to two recent acquisitions and increased administrative and warehouse spending to support growth in our business units, including spending on new facilities and equipment impairment and depreciation amounts on equipment we do not intend to use going forward. The increased expense was partially offset by a $9.3$4.9 million increasedecrease in corporate costs.expense. Corporate administrative expense decreased due primarily to a decrease in third party provider costs and lower employee related costs principally related to temporary management vacancies, including our CFO position.the prior year warehouse consolidations are now yielding savings, and in our Garden segment, we recorded a $4.9 million gain from the sale of manufacturing plant assets related to a seasonal product we intend to purchase rather than produce. Corporate operating expense increased $9.3 millionan indefinite-lived intangible asset as a result of $5.9 million of software costs expensed (due primarily to changesdeclining sales and a change in management strategy. No amount remains on our operations and related plans for future SAP implementations), increased medical insurance program costs and information technology third party provider costsbooks related to our SAP implementation.ImpairmentWe perform an annual goodwill test for impairment. An impairment loss is recognized for goodwill if its carrying value exceeds its fair value. The goodwill fair values are estimated using the discounted cash flow related to the assets. During the fourth quarter ofthis intangible asset.2013,2015, we recognized a non-cash charge of $7.7$7.3 million related to the impairment of goodwill within our Garden segment due to its continuing poor performance. We did not have an impairment charge in fiscal 2014.$16.0$37.9 million in fiscal 2014,2016, or 40.0%,41.5% to $56.2$129.4 million. Increased sales of $178.3 million and a 60 basis point gross margin improvement contributed to the improved operating income, partially offset by a $32.6 million increase in selling, general and administrative costs. Our operating margin improved to 7.1% for fiscal 2016 from $40.2 million in5.5% for fiscal 2013. Lower2015 due primarily to the improved gross margin and lower selling, general and administrative expenses as a percentage of net sales. The Pet and increased gross margin were partially offset byGarden segments and lower sales andcorporate expenses all contributed to the $16.9 million garden charge. Operating margin was 3.5% for fiscal 2014 and 2.4% for fiscal 2013. Excluding the garden charges, the gain on the sale of manufacturing plant assets and the goodwill impairmentincrease in the Garden segment, adjustedoperating income.was $68.2 million, as compared to $59.0 million in the prior year, and operating margin improved to 4.2% as compared to 3.6% in the prior year.Pet segment operating income decreased $7.3increased $21.1 million, or 7.7%21.4%, to $88.1$119.9 million for fiscal 20142016 from $95.4$98.8 million for fiscal 2013.2015. The decreaseincrease was due primarily to decreasedincreased sales which drove lower gross profit, partially offset by decreaseda lower gross margin and higher selling, general and administrative expenses. Pet operating margin decreased from 10.7%increased to 11.1% for fiscal 2013 to 10.4%2016 from 11.0% for fiscal 2014. 2015.$32.7$10.2 million, or 395%16.9%, to $41.0$70.3 million for fiscal 20142016 from $8.3$60.1 million for fiscal 2013. Adjusted operating income2015 as an improvement in Garden increased $25.9 million to $53.1 million for fiscal 2014 from $27.2 million in fiscal 2013, and the adjusted operatinggross margin was 6.9% as compared to 3.5% in fiscal 2013. Garden adjusted operating income increased due primarily topartially offset by lower sales and a $20.1 million decreaseminor increase in selling, general and administrative expenses. CorporateGarden operating margin increased to 9.4% for fiscal 2016 from 8.0% for fiscal 2015 due to the improved gross margin which was only partially offset by higher selling, general and administrative expenses increased $9.3 million due primarily toas a $5.9 million long-lived software charge, increased medical insurance program costs and information technology third party provider costs.decreased $0.2increased $2.8 million, or 0.5%7.0%, from $43.0$39.9 million in fiscal 20132015 to $42.8$42.7 million in fiscal 2014. The decrease was2016. In November 2015, we issued $400 million aggregate principal amount of 2023 Notes. We used the net proceeds from the offering, together with available cash, to redeem our outstanding 2018 Notes and pay fees and expenses related to the offering. As a result of our redemption of the 2018 Notes, we recognized incremental interest expense of approximately $14.3 million comprised of an $8.3 million call premium, $2.7 million related to the 30 days of overlapping interest expense and a $3.3 million non-cash charge for the write-off of unamortized financing costs in interest expense. In March 2015, we redeemed $50.0 million of our 2018 Notes. As a result of the $50.0 million redemption, we recognized incremental interest expense of approximately $1.6 million in the second quarter of fiscal 2015.expense due primarily torate on our 2023 Notes and lower average debt outstanding during fiscal 20142016 as compared to fiscal 2013 partially offset bya result of the write-offredemption of unamortized deferred financing costs related to$50.0 million of our prior revolving credit facility resulting2018 Notes in a non-cash charge of $1.7 million in the first quarter of fiscal 2014.March 2015. Debt outstanding on September 27, 201424, 2016 was $450.2$395.3 million compared to $472.6$397.0 million as of September 28, 2013.incomeexpense increased $1.1$17.0 million from $0.7fiscal 2015. During the fourth quarter of fiscal 2016, we recognized a non-cash impairment charge of $16.6 million related to our investment in two joint ventures as a result of expensechanges in fiscal 2013 to $0.4 millionmarketplace conditions, which impacted the expected cash flows and the recoverability of the investment. The impairment is included within Other income in fiscal 2014. The improvement was due primarily to realized and unrealized losses incurred in fiscal 2013 from derivative contracts used to economically hedge anticipated commodity purchases that did not reoccur in fiscal 2014.29.2%34.5% for fiscal 20142016 compared to a 74.2% benefit36.0% for fiscal 2013. Our 2014 tax rate benefited from the removal of valuation allowances on international deferred tax assets, and our 2013 tax rate benefited primarily from additional tax credits available in 2013.Fiscal 2013 Compared to Fiscal 2012Net SalesNet sales for fiscal 2013 decreased $46.4 million, or 2.7%, to $1,653.6 million from $1,700.0 million in fiscal 2012. Fiscal 2013, which was a 52-week year, included one less week than fiscal 2012. Our branded product sales decreased $44.6 million, and sales of other manufacturers’ products decreased $1.8 million. Branded product sales include products we manufacture under Central brand names and products we manufacture under third-party brands. Sales of our branded products represented 83.2% of our total sales in fiscal 2013 compared with 83.5% in fiscal 2012.The following table indicates each class of similar products which represented more than 10% of our consolidated net sales in the fiscal years presented (in millions): 2013 2012 2011 $ 807.4 $ 847.1 $ 773.1 274.9 281.7 260.0 210.8 205.1 197.5 183.5 185.7 212.1 177.0 180.4 185.9 $ 1,653.6 $ 1,700.0 $ 1,628.6 Our Pet segment’s net sales for fiscal 2013 decreased $42.5 million, or 4.6%, to $888.2 million from $930.7 million in fiscal 2012. The absence of the extra week impacted Pet segment sales in fiscal 2013 by approximately $16.9 million. Pet branded product sales declined due primarily to decreased sales of $13.3 million in our animal health category, and $7.6 million in our pet nutrition category.2015. The decrease in animal health sales reflected lower direct advertising and promotional spending as well as the non-recurrence of the prior year initial sell-in to a new channel, while the decrease in pet nutrition sales was principally due to lost distribution. Sales of other manufacturers’ products decreased approximately $2.8 million as compared with fiscal 2012.Our Garden segment’s net sales for fiscal 2013 decreased $3.9 million, or 0.5%, to $765.4 million from $769.3 million in fiscal 2012. The absence of the extra week impacted Garden segment sales in fiscal 2013 by approximately $11.4 million. Garden branded product sales increased, after taking into account the $11.4 million attributable to the extra week in the prior fiscal year, due primarily to an $8.5 million increase in wild bird feed attributable to both volume and price gains. Sales of other manufacturers’ products increased approximately $1.0 million compared to fiscal 2012.Gross ProfitGross profit decreased $50.2 million, or 9.8%, to $463.9 million from $514.1 million in fiscal 2012. Gross profit as a percentage of net sales declined from 30.2% in fiscal 2012 to 28.1% for fiscal 2013.Gross profit decreased in the Pet segment for fiscal 2013 due to decreased sales and a lower gross margin than in fiscal 2012. The largest contributor to the lower gross profit and gross margin was our animal health products, which were impacted primarily by decreased sales volume of our flea and tick products and small animal products. Flea and tick product sales in the prior year included the initial sell-in to a new channel and our small animal category was impacted by increased competition and product manufacturing issues related to the closure and relocation of a production facility.Gross profit and gross margin declined in the Garden segment due primarily to the lower profitability in our controls and fertilizer category. This category was impacted by a decline in margin, including an $11.2 million charge in the fourth quarter of fiscal 2013 related to products introduced in fiscal 2013. The fourth quarter charge related to the costs associated with inventory and product and packaging changes to certain products introduced in fiscal 2013.Selling, General and AdministrativeSelling, general and administrative expenses decreased $23.7 million, or 5.4%, from $439.7 million in fiscal 2012 to $416.0 million in fiscal 2013. As a percentage of net sales, selling, general and administrative expenses decreased from 25.9% in fiscal 2012 to 25.2% in fiscal 2013. Fiscal 2012 included an extra week, which impacted selling, general and administrative expenses by approximately $8.0 million. The change in selling, general and administrative expenses, discussed further below, was due primarily to decreased selling and delivery expense. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and information technology functions.Selling and delivery expense decreased $22.0 million, or 8.6%, from $256.0 million in fiscal 2012 to $234.0 million in fiscal 2013. Selling and delivery expense as a percentage of net sales decreased from 15.1% in fiscal 2012 to 14.2% in fiscal 2013. The decrease was due to decreased advertising and promotional expenditures in our Pet segment, headcount reductions and lower selling and delivery expense resulting from our lower sales volume.Warehouse and administrative expense decreased $1.7 million, or 0.9%, from $183.7 million in fiscal 2012 to $182.0 million in fiscal 2013. The decrease was due primarily to payroll related and third party provider costs, partially offset by higher corporate expenses, due primarily to insurance program, information technology and payroll related costs. Increased information technology costs were primarily related to increased payroll and amortization expense related to our SAP implementation.ImpairmentWe reviewed our goodwill for impairment. An impairment loss is recognized for goodwill if its carrying value exceeds its fair value. The goodwill fair values are estimated using the discounted cash flow related to the assets. During the fourth quarter of fiscal 2013, we recognized a non-cash charge of $7.7 million related to the impairment of goodwill within our Garden segment due to its continuing poor performance.Operating IncomeOperating income decreased $34.2 million in fiscal 2013, or 46.0%, to $40.2 million from $74.4 million in fiscal 2012, due to a decrease in gross profit, as the impact of the decrease in sales was amplified by a decline in gross margin, partially offset by a decrease in selling, general and administrative expenses. Pet operating income increased $7.8 million, or 8.9%, in fiscal 2013 to $95.4 million, as a decrease in selling, general and administrative costs, more than offset the impact of decreased net sales and a 50 basis point decline in gross margin. Garden operating income decreased $32.0 million, or 79.2%, in fiscal 2013 to $8.4 million due primarily to the decline in gross margin. Garden operating income was impacted by an $11.2 million charge in the fourth quarter of fiscal 2013 related to new control and fertilizer products introduced in fiscal 2013 and a $7.7 million noncash goodwill impairment charge. Corporate operating expense increased $10.0 million in fiscal 2013, or 18.7%, due primarily to an increase in insurance program costs and increased information technology expenses.Net Interest ExpenseNet interest expense increased $2.8 million, or 7.2%, from $40.2 million in fiscal 2012 to $43.0 million in fiscal 2013. Interest expense increased due to an increase in the average debt outstanding to $506 million in fiscal 2013 compared to $474 million in fiscal 2012. Our average interest rates for fiscal 2013 and 2012 were 8.1% and 8.2%, respectively. Debt outstanding on September 28, 2013 was $472.6 million compared to $499.8 million as of September 29, 2012.Other Income (Expense)Other income decreased $1.4 million from $0.7 million of income in fiscal 2012 to $0.7 million of expense in fiscal 2013. The decrease was due primarily to realized and unrealized gains and losses from derivative contracts used to economically hedge anticipated commodity purchases for use in our products. Other income(expense) is comprised of income from investments accounted for under the equity method of accounting, foreign currency exchange gains and losses, and realized and unrealized gains and losses from derivative contracts used to economically hedge anticipated commodity purchases for use in our products.Income TaxesOur effective income tax rate in fiscal 2013 was a 74.3% benefit,2016 as compared to 36.7% expensefiscal 2015 was due primarily to the availability and usage of additional tax credits and incentives in fiscal 2012. The tax rate in fiscal 2013 was impacted by tax credits available in the current year applied to the fiscal 2013 loss.In recentour business was negatively2015 through 2017, commodity costs generally declined, but in past years we have been impacted by low consumer confidence, as well as other macro-economic factors. Throughout mostvolatility in a number of fiscal 2013, commodity costs continued to increase. In fiscal 2014, commodity costs declined overall, although we were impacted by increases in ourcommodities, including grass seed costs.and wild bird feed grains. We continue to monitor commodity prices in order to be in a position to take action to mitigate the impact of increasing raw material costs.2014,2017, approximately 65%66% of our Garden segment’s net sales and 59%56% 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.On the other hand, ourOur lawn and garden businesses are highly seasonal with approximately 65%66% of our Garden segment’s net sales occurring$154.8$64.0 million, from $28.3$87.4 million of cash used in operating activities in fiscal 20132015 to $126.5$151.4 million of cash provided by operating activities in fiscal 2014.2016. The increase in cash provided by operating activities was due primarily to decreased working capital investment, specifically our decreased investment in inventory. In fiscal 2013, we built safety stock to ensure our ability to service our customers would not be disrupted. In fiscal 2014, we managed our inventory to lower levels. We continue to focus on bringing our investment in inventory down over time, while maintaining high fill rates and service levels to our customers.Cash used in operating activities increased $117.5 million from $89.2 million of cash provided by operating activities in fiscal 2012 to $28.3 million of cash used in operating activities in fiscal 2013. Thean increase in cash used in operating activities was due primarily to increases in ourflows from working capital accounts, principally inventory. Inventory balances increased over the prior yearprimarily receivables, as we built safety stockcompared to ensure we could meet the anticipated needsfiscal 2015, due to better management of our customers. Higher inventory levels also reflected a weaker than anticipated Garden season and poor sell-through of our two newly introduced garden products. Additionally, strategic purchases and cost inflation impacted our inventory levels.$10.1$73.4 million from $25.1$91.2 million in fiscal 20132016 to $35.2$164.6 million in fiscal 2014.2017. The increase in cash used in investing activities was due primarily to ourincreased acquisition of certain assets of Envincio LLCand investment activity in April 2014 for approximately $20 millionthe current year compared to the prior year and an increase in amounts invested in restricted cash and short term investments. These increases werecapital expenditures during the current year, partially offset by an increase in proceeds received from the sale of thea small veterinary division and a distribution facility in our Garden segment manufacturing plant assetsduring the first fiscal quarter of 2017. During fiscal 2017, we acquired Segrest Inc., a supplier of aquarium fish, and lowerK&H Manufacturing, a producer of premium pet supplies and the largest marketer of heated pet products in the country, for total aggregate consideration of $109.9 million. During fiscal 2017, we also made investments in two strategic joint ventures for $12.5 million. Additionally, our capital expenditures increased to approximately $45 million from $28 million in fiscal 2014 compared to fiscal 2013 due to reduced expenditures related to2016, as we improve our existing infrastructure for planned growth and make our manufacturing facilities and our SAP implementation.decreased $19.4increased $41.3 million from approximately $44.5$49.9 million in fiscal 20122015 to approximately $25.1$91.2 million in fiscal 2013.2016. The decreaseincrease in cash used in investing activities in fiscal 2013 was due primarily to a decrease in capital expenditures. The amount invested in facility consolidation and our ERP implementation intwo acquisitions during the first quarter of fiscal 2012 was below the amount invested in fiscal 2013. During fiscal 2013, we received proceeds from the sale of short term investments, which were offset by payments made related to the acquisition of FourStar Microbial Products, LLC (“Four Star Microbial”). In December 2012,2016. On September 30, 2015, we acquired the remaining majority interest in FourStar MicrobialHydro-Organics Wholesale, Inc, an organic fertilizer company, for approximately $4.8$7.8 million in cash with possibleand approximately $2.6 million of estimated contingent future performance-based payments.increased $48.1decreased $3.8 million from $20.3$14.2 million ofin fiscal 2016 to $10.4 million in fiscal 2017. The decrease in cash providedused by financing activities was due primarily to an increase in fiscal 2013 to $27.8 millioncash flows from the excess tax benefits associated with the increase in stock option exercise activity during the current year period, partially offset by taxes paid for shares withheld in connection with the net share settlement of vested restricted stock and exercised options during the current year, as well as the payment of financing costs associated with the issuance of our 2023 Notes and amendment of our asset backed loan facility during the prior year period.2014.2015 to $14.2 million in fiscal 2016. The increasedecrease in cash used was due primarily to net repayments under our revolving credit facilityredemption of $50 million aggregate principal of our 2018 Notes during fiscal 2014 compared to net borrowingsthe prior year period at 102.063%, as well as increased purchases of our common stock in fiscal 2013.Net cash provided by financing activities increased $28.9 million from $8.6 million of cash used in financing activities in fiscal 2012 to $20.3 million of cash provided by financing activities in fiscal 2013. The increase in cash provided was due primarily to increased net borrowings under our revolving credit facility in fiscal 20132015 compared to fiscal 2012. The higher net borrowings in fiscal 20132016. These uses of cash were partially offset by lower repurchasesthe payment of financing costs associated with the issuance of our common stock. During fiscal 2013, our repurchases2023 Notes, subsequent redemption of our common stock totaled $1.5 million, compared to $36.2 million in2018 Notes and amendment of our asset backed loan facility during fiscal 2012.$390$400 million asset backed loan facility. Based on our anticipated cash needs, availability under our asset backed loan 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.not exceed $30be approximately $40 million forover the next 12 months. We are investing in this information technology platform to improve existing operations, support future growth and enable us to take advantage of new applications and technologies. We have invested approximately $83 million from fiscal 2005 through fiscal 2014 in this initiative. Capital expenditures for fiscal 2015 and beyond will depend upon the pace of conversion of those remaining legacy systems. This initiative, when complete, will combine our numerous information systems and create a common business model and common data, which should create greater efficiency and effectiveness. 2014 2013 2012 $ 126,467 $ (28,282 ) $ 89,169 (17,173 ) (25,172 ) (39,592 ) $ 109,294 $ (53,454 ) $ 49,577 6.8 % (3.2 %) 2.9 % 2017 2016 2015 Net cash provided by operations $ 114,309 $ 151,426 $ 87,449 Less: capital expenditures (44,659 ) (27,622 ) (22,030 ) Free cash flow $ 69,650 $ 123,804 $ 65,419 Free cash flow as a percentage of net sales 3.4 % 6.8 % 4.0 % year 2014,2016, primarily due to favorable changes inbetter working capital management and increased earnings. Free cash flow as a percentage of net sales decreased in fiscal year 2013, primarily due to unfavorable changes in working capital and decreased earnings.2014,2017, we repurchased 300 shares ofdid not repurchase our non-voting Class A common stock (CENTA) pursuant to our share repurchase program at an aggregate cost of approximately $2,000 , or approximately $7.26 per share, as compared to fiscal 2013 when we repurchased 0.2 million shares of CENTA at an aggregate cost of approximately $1.5 million, or approximately $9.06 per share. During the third quarter ofstock. In fiscal 2011, our Board of Directors authorized a $100 million share repurchase program, under which approximately $50.1$35.0 million remains available for repurchases in fiscal 20152017 and thereafter.27, 2014,30, 2017, our total debt outstanding was $450.2$395.7 million versus $472.6$395.3 million at September 28, 2013.On March 8, 2010,(the “2018 Notes”). On February 13, 2012, we issued an additional $50 million aggregate principal amount of our 2018 Notes at a price of 98.501%, plus accrued interest from September 1, 2011, in a private placement. We used102.063% of the net proceeds from the offeringprincipal amount and to pay a portionfees and expenses related to the offering.outstanding balance under our Old Credit Facility.The estimated fair value2023 Notes.$450 millionredemption of the 2018 Notes, aswe incurred a call premium payment of September 27, 2014 was$8.3 million, overlapping interest expense for 30 days of approximately $459.5 million. $2.7 million and a $3.3 million non-cash charge for the write off of unamortized deferred financing costs and discount related to the 2018 Notes. These amounts are included in interest expense in the consolidated statements of operations.estimated fair value is based on quoted market prices for these notes.The 20182023 Notes require semiannual interest payments, which commenced on September 1, 2010.May 15, 2016. The 20182023 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. The 2023 Notes are unsecured senior subordinated obligations and are subordinated to all of our existing and future seniorsecured debt, including our Credit Facility. The obligations underFacility, to the 2018 Notes are fully and unconditionally guaranteed on a senior subordinated basis by each of our existing and future domestic restricted subsidiaries with certain exceptions. The guarantees are general unsecured senior subordinated obligationsextent of the guarantors and are subordinated to all existing and future senior debtvalue of the guarantors.March 1, 2014November 15, 2018 for 104.125%104.594%, on or after March 1, 2015November 15, 2019 for 102.063%103.063%, on or after November 15, 2020 for 101.531% and on or after March 1, 2016November 15, 2021 for 100%, plus accrued and unpaid interest.20182023 Notes have the right to require us to repurchase all or a portion of the 20182023 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.20182023 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 September 27, 2014.In November 2014, our Board of Directors authorized the purchase from time to time of up to $50 million principal amount of the Company’s 8.25% senior subordinated notes due March 2018.Asset Backed30, 2017.On December 5, 2013, Amendmentaan amended and restated credit agreement which provides up to a $390$400 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if we exercise the accordion feature set forth therein (collectively, the “Credit“Amended Credit Facility”). The Amended Credit Facility matures on December 5, 2018 and replaced our prior revolving credit facility.April 22, 2021. 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. As of September 27, 2014,30, 2017, there were no borrowings oroutstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $12.6$1.8 million outstanding as of September 27, 2014.TheAs of September 30, 2017, the borrowing base and remaining borrowing availability as of September 27, 2014 was $330$368.9 million. Borrowings under the Amended Credit Facility bear interest at an index based on LIBOR or, at ourthe option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.5% and (c) one-month LIBOR plus 1.00%1.0%), plus, in either case, an applicable margin based on our total outstanding borrowings.consolidated senior leverage ratio. Such applicable margin for LIBOR-based borrowings fluctuates between 1.25%-1.75% (1.25% at - 1.5% and was 1.25% as of September 27, 2014)30, 2017, and such applicable margin for Base Rate borrowings fluctuates between 0.25%-0.75% (0.25% at-0.5% and was 0.25% as of September 27, 2014).30, 2017. As of September 27, 2014,30, 2017, the applicable interest rate related to Base Rate borrowings was 3.5%4.5%, and the applicable interest rate related to LIBOR-based borrowings was 1.4%2.5%.1.00:1.00 :1.00 upon reaching certain borrowing levels. The Amended Credit Facility is secured by substantially all of our assets. We were in compliance with all financial covenants under the Amended Credit Facility during the period ended September 27, 2014.We incurred approximately $3.1 million of costs in conjunction with this transaction, which included banking fees and legal expenses. These costs will be amortized over the term of the Credit Facility.We recorded a non-cash charge of $1.7 million for the three month period ended December 28, 2013 as part of interest expense, related to the write-off of unamortized deferred financing costs under the prior revolving credit facility. Fiscal
2015 Fiscal
2016 Fiscal
2017 Fiscal
2018 Fiscal
2019 Thereafter Total (in millions) $ 0.3 $ 0.3 $ 0.1 $ 450.0 $ 0 $ — $ 450.7 37.1 37.1 37.1 18.6 0 — 129.9 17.6 14.1 10.9 5.4 4.0 1.5 53.5 98.5 35.0 20.5 13.4 7.4 1.9 176.7 — — — — — — — $ 153.5 $ 86.5 $ 68.6 $ 487.4 $ 11.4 $ 3.4 $ 810.8 Contractual Obligations Thereafter Total (in millions) Long-term debt, including current maturities (1) $ 0.4 $ — $ 0.1 $ — $ — $ 400.0 $ 400.5 Interest payment obligations (2) 24.5 24.5 24.5 24.5 24.5 2.0 124.5 Operating leases 26.5 21.4 16.6 12.2 8.8 25.9 111.4 Purchase commitments (3) 104.4 31.3 18.9 11.4 4.3 0.8 171.1 Performance-based payments (4) — — — — — — — Total $ 155.8 $ 77.2 $ 60.1 $ 48.1 $ 37.6 $ 428.7 $ 807.5 (1) $12.6$1.8 million of outstanding letters of credit related to normal business transactions. Excludes the unamortized discountportion of $0.5deferred financing costs associated with the 2023 Notes of $4.8 million related toas of September 30, 2017, which is amortizable until November 2023 and is included in the 2018 Notes.carrying value of long-term debt. See Note 1110 to the consolidated financial statements for further discussion of long-term debt.(2) long-term debt.2023 Notes. See Note 1110 to the consolidated financial statements for description of interest rate terms.(3) Contracts for purchases of grains, grass seed and pet food ingredients, used primarily to mitigate risk associated with increases in market prices and commodity availability. (4) Possible performance-based payments associated with prior acquisitions of businesses are not included in the above table, because they are based on future performance of the businesses acquired, which is not yet known. Performance-based payments of approximately $1.3 million were not owed or made in fiscal 2014,2017 related to B2E, acquired in fiscal 2013, and 2012.Hydro-Organics Wholesale, Inc., acquired in fiscal 2016. Potential performance-based periods extend through 2020. In addition, we may be obligated2020 for B2E and 2025 for Hydro-Organics Wholesale, Inc. Payments are capped at $1.0 million per year related to pay up to $5.1 million in future performance payments if and when certain revenue and performance targets are achieved.Hydro-Organics Wholesale, Inc.27, 2014,30, 2017, we had unrecognized tax benefits of $0.1$0.3 million. These amounts have been excluded from the contractual obligations table because a reasonably reliable estimate of the timing of future tax settlements cannot be determined.Comprehensive IncomeIn February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). This guidance requires entities to disclose, either in the notesRefer to the consolidated financial statements or parenthetically on the face of the statement that reports comprehensive income (loss), items reclassified out of accumulated other comprehensive income (loss) and into net earnings in their entirety and the effect of the reclassification on each affected statement of operations line item. In addition, for accumulated other comprehensive income (loss) reclassification items that are not reclassified in their entirety into net earnings, a cross referencediscussion under Part II, Item 8, Notes to other required accounting standard disclosures is required. This guidance became effective for the Company on September 29, 2013. This new guidance did not have a material impact on the Company’s consolidated financial statements.Discontinued OperationsIn April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08),Presentation ofConsolidated Financial Statements, (Topic 205)Note 1 - Organization and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and DisclosuresSignificant Accounting Policies for a summary of Disposals of Components of an Entity. ASU 2014-08 provides amended guidance for reporting discontinued operations and disclosures of disposals of components. The amended guidance raises the threshold for disposals to qualify as discontinued operations and permits significant continuing involvement and continuing cash flows with the discontinued operation. In addition, the amended guidance requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The amended guidance is effective for the Company prospectively commencing in the first quarter of fiscal 2015. Early adoption is permitted. The adoption of the applicable sections of this ASC may have an impact on therecent accounting for any future discontinued operations the Company may have.pronouncements.Revenue RecognitionIn May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. This update was issued as Accounting Standards Codification Topic 606. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption not permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.Stock Based CompensationIn June 2014, the FASB issued ASU No. 2014-12 (ASU 2014-12),Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the effect that the adoption of this standard will have on its financial statements.65 to our consolidated financial statements.and pet supplies, raw materials and finished goods, is stated at the lower of first-in first-out (“FIFO”) cost or market. Cost includes certain indirect purchasing, merchandise handling and storage costs incurred to acquire or manufacture inventory, costs to unload, process and put away shipments received to prepare them to be picked for orders, and certain overhead costs. We compute the amount of such costs capitalized to inventory based on an estimate of costs related to the procurement and processing of inventory to prepare it for sale compared to total product purchases. When necessary, we have reduced the carrying value of our inventory if market conditions indicate that we will not recover the carrying cost upon sale. Future adverse changes in market conditions related to our products could result in an additional charge to income in the period in which such conditions occur.(on(as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by initially comparingfirst assessing qualitative factors to determine whether it is more likely than not the fair value of eachthe reporting unit is less than its carrying amount. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the two-step test is performed to identify potential goodwill impairment. Based on certain circumstances, we may elect to bypass the qualitative four reporting units to their related carrying values.values, including goodwill. If the fair value of the reporting unit is less than its carrying value, we perform an additional step to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities andall fourits two reporting units to ourthe Company’s total market capitalization.Ourone of the reporting units within our Pet segment. During fiscal 2014, the reporting unit’s operating income declined approximately 50% from the comparable fiscal 2013 period. In connection with our annual goodwill impairment testing performed during fiscal 2014,2017 and 2016, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of its reporting units under the two-step goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment and it was determined that it was more likely than not the fair values of our reporting units were greater than their carrying amounts, and accordingly, no further testing of goodwill was required. If the decline in income of the reporting unit continues in fiscal 2015, and our forecast of future operating performance further declines, there is the potential for goodwill impairment related to our Pet segment’s reporting unit.In connection with our annual goodwill impairment testing performed during fiscal 2013, the first step of such testing indicated that the fair value of our Pet segment reporting units exceeded their carrying value, and accordingly, no further testing of goodwill was required for the Pet segment. However, the carrying value of our Garden segment reporting units exceeded their estimated fair value, indicating potential impairment. Based on further analysis, it was determined that the entire carrying value of our Garden segment goodwill was impaired, resulting in a non-cash goodwill impairment charge of $7.7 million in fiscal 2013.rate,rates, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in additional impairment of goodwill.2014, 20132017, 2016 and 2012,2015, we performed an evaluationevaluations of the fair value of our indefinite-lived trade names and trademarks. Our expected revenues were based on our future operating plan and market growth or decline estimates for future years. No impairment was indicated during our fiscal 2014, 2013 or 20122017 analysis of our indefinite-lived trade names and trademarks.2014,2017, fiscal 2016 and fiscal 2015, respectively, and accordingly, no impairment testing was performed on these assets. No factors indicating the carrying value of our long-lived assets may not be recoverable were present in fiscal 2013, and accordingly, no impairment testing was performed on these assets. However, due to changes in our operations and related plans for future SAP implementations, we determined that certain software costs previously incurred had no future value and accordingly, a charge of $5.9 million was recorded in the fourth quarter of fiscal 2014. Should market conditions or the assumptions used by us in determining the fair value of assets change, or management change plans regarding the future usage of certain assets, additional charges to operations may be required in the period in which such conditions occur.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred income taxes result primarily from bad debt allowances, inventory and goodwill write-downs, depreciation and nondeductible reserves. We establish a valuation allowance for deferred tax assets when management believes it is more likely than not a deferred tax asset will not be realized. As of fiscal 2014 and 2013, we had valuation allowances related to various state net deferred tax assets of $6.2 million and $7.0 million, respectively.United States income taxes have not been provided on undistributed earnings (approximately $2.1 million at September 27, 2014) of our foreign subsidiary since all such earnings are considered indefinitely reinvested overseas. The potential deferred tax liability associated with these earnings, net of foreign tax credits associated with the earnings, is approximately $0.3 million.third-partythird party actuary, based on claims filed and actuarial estimates of the ultimate loss amount inherent in the claims, including losses for claims incurred but not reported. Any actuarial projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insurance liabilities. However, any differences in estimates and assumptions could result in accrual requirements materially different from the calculated accruals.27, 201430, 2017 under our Credit Facility. We had average variable rate debt outstanding during fiscal 2014 of approximately $28 million. If interest rates on our average variable rate debt outstanding during fiscal 20142017 had changed by 100 basis points compared to actual rates, interest expense would have increased or decreased by approximately $0.3$0.4 million. In addition, we have investments consisting of cash equivalents and short-term investments, which are also affected by changes in market interest rates.27, 2014,30, 2017, we had entered into fixed purchase commitments for commodities totaling approximately $176.7$171.1 million. A 10% change in the market price for these commodities would result in an additional pretax gain or loss of $17.7$17.1 million as the related inventory containing those inputs is sold.ChiefPrincipal Financial Officer have reviewed, as of the end of the period covered by this report, the “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) that ensure that information relating to the Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported in a timely and proper manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ChiefPrincipal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon this review, such officers concluded that our disclosure controls and procedures were effective as of September 27, 2014.30, 2017.ChiefPrincipal Financial Officer, has evaluated whether any change in our internal control over financial reporting occurred during the fourth quarter of fiscal 2014.2017. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the fourth quarter of fiscal 20142017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.filed as Exhibit 14.20152018 Annual Meeting of Stockholders under the captions “Election of Directors,” “Further Information Concerning the Board of Directors – Committees of the Board”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics.” See also Item 1 – Business above.20152018 Annual Meeting of Stockholders under the captions “Executive Compensation” and “Further Information Concerning the Board of Directors – Compensation Committee Interlocks and Insider Participation.”Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters20152018 Annual Meeting of Stockholders under the captions “Ownership of Management and Principal Stockholders” and Executive Compensation – “Equity Compensation Plan Information.”20152018 Annual Meeting of Stockholders under the captions “Further Information Concerning the Board of Directors – Board Independence” and “Transactions with the Company.”20152018 Annual Meeting of Stockholders under the caption “Independent Registered Public Accounting Firm.”(a) The following documents are filed as part of this report: (1)(i) Consolidated Financial Statements of Central Garden & Pet Company are attached to this Form 10-K beginning on page F-1: (2) Exhibits: See attached Exhibit Index. Incorporated by Reference Exhibit Form Exhibit 10-K 001-33268 3.1 12/14/2006 10-K 001-33268 3.2 12/10/2015 X X Exhibit Form Exhibit 8-K 001-33268 4.2 3/8/2010 10-K 001-33268 4.6 12/10/2015 10-K 001-33268 4.5 12/2/2016 10-Q 001-33268 4.1 2/2/2017 10-Q 001-33268 4.1 8/3/2017 X 10-Q 001-33268 10.1 5/5/2016 8-K 001-33268 10.2 2/15/2012 10-K 000-20242 10/5/2001 12/9/2004 10-K 000-20242 10/5/2002 12/9/2004 10-K 001-33268 10/4/2003 11/19/2010 10-Q 001-33268 10.1 5/4/2017 10-Q 000-20242 10/6/2001 2/3/2005 10-Q 000-20242 10/6/2002 2/3/2005 10-K/A 000-20242 10.20 1/20/1999 10-Q 000-20242 10/7/2001 8/8/2003 8-K 000-20242 10.1 4/14/2006 Exhibit Form Exhibit 10-K 001-33268 10/7/2002 11/26/2008 10-Q 001-33268 10.1 2/7/2013 10-Q 001-33268 10.1 2/5/2015 X 8-K 000-20242 10.1 10/14/2005 8-K 000-20242 10.2 10/14/2005 10-Q 001-33268 10.3 2/7/2013 8-K 001-33268 10.1 7/27/2015 10-K 001-33268 10.24 12/10/2015 8-K 011-33268 10.25 5/6/2016 X X X X X X X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Extension Label Linkbase Document X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X * Management contract or compensatory plan or arrangement. December 11, 2014November 29, 2017By /s/ George C. Roeth /S/ JOHN R. RANELLI John R. RanelliSignature Capacity DateCapacity Date / S/ JOHN R. RANELLIJohn R. Ranelli Director, Chief Executive Officer and President (Principal Executive Officer) December 11, 2014November 29, 2017/S/ LORI A. VARLASLori A. Varlas Senior Vice President and/s/ Nicholas Lahanas Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) December 11, 2014November 29, 2017Nicholas Lahanas / Ss/ Howard A. MachekNovember 29, 2017 Howard A. Machek / WILLIAM E. BROWN Chairman December 11, 2014November 29, 2017William E. Brown / S/ JOHN B. BALOUSEK Director December 11, 2014November 29, 2017John B. Balousek / S/ DAVID N. CHICHESTERDavid N. Chichester Director December 11, 2014November 29, 2017Thomas J. Colligan / S/ BROOKS M. PENNINGTON, III Director December 11, 2014November 29, 2017Brooks M. Pennington, III / S/ ALFRED A. PIERGALLINI Director December 11, 2014November 29, 2017Alfred A. Piergallini / S/ M. BETH SPRINGERM. Beth Springer Director December 11, 2014November 29, 2017John R. Ranelli /s/ Mary Beth Springer Director November 29, 2017 Mary Beth Springer /s/ Andrew K. Woeber Director November 29, 2017 Andrew K. Woeber Central Garden & Pet Company F-2 F-3 F-4 F-5 F-6 F-7 F-8 F-9ChiefPrincipal Financial Officer, is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Management evaluated the effectiveness of Central’s internal control over financial reporting based on the framework inInternalControl –Integrated Framework (1992) (2013) issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. The scope of management's assessment of the effectiveness of our internal control over financial reporting included all of our consolidated operations except for the operations of Segrest Inc, which we acquired on October 21, 2016 and K&H Manufacturing LLC, which we acquired on April 28, 2017. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition. Segrest Inc. and K&H Manufacturing LLC combined constituted six percent of the total assets and four percent of total net sales of the consolidated financial statements of the Company as of and for the fiscal year ended September 30, 2017. (1992) (2013), management concluded that our internal control over financial reporting was effective as of September 27, 2014.30, 2017.Company:27, 201430, 2017 and September 28, 2013,24, 2016, and the related consolidated statements of operations, comprehensive income, (loss), equity and cash flows for each of the three fiscal years in the period ended September 27, 2014.30, 2017. We also have audited the Company’s internal control over financial reporting as of September 27, 2014,30, 2017, based on criteria established inInternal Control –- Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in “Management’s Report on Internal Control over Financial Reporting,” management excluded from its assessment the internal control over financial reporting at Segrest, Inc. and K&H Manufacturing, LLC which were acquired during fiscal 2017, and whose combined financial statements constitute six percent of total assets and four percent of net sales of the consolidated financial statement amounts as of and for the year ended September 30, 2017. Accordingly, our audit did not include the internal control over financial reporting at Segrest, Inc. or K&H Manufacturing, LLC.The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’scompany's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.27, 201430, 2017 and September 28, 2013,24, 2016, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 27, 2014,30, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2014,30, 2017, based on the criteria established inInternal Control –- Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.December 11, 2014 September 27,
2014 September 28,
2013 (in thousands) ASSETS $ 78,676 $ 15,156 14,283 0 9,990 17,820 193,729 194,260 326,386 391,934 48,488 53,484 671,552 672,654 166,849 188,913 208,233 205,756 87,997 79,868 14,096 13,969 $ 1,148,727 $ 1,161,160 LIABILITIES AND EQUITY $ 88,428 $ 103,569 84,379 78,618 291 142 173,098 182,329 449,948 472,445 39,228 36,362 124 122 369 353 16 16 396,586 389,153 86,396 77,592 1,232 1,442 484,723 468,678 1,730 1,346 486,453 470,024 $ 1,148,727 $ 1,161,160 September 30,
2017 September 24,
2016 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 32,397 $ 92,982 Restricted cash 12,645 10,910 Accounts receivable, net 237,868 201,151 Inventories 382,101 362,004 Prepaid expenses and other 18,045 16,249 Total current assets 683,056 683,296 Plant, property and equipment, net 180,913 158,224 Goodwill 256,275 231,385 Other intangible assets, net 116,067 95,865 Other assets 70,595 11,913 Total $ 1,306,906 $ 1,180,683 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 103,283 $ 102,413 Accrued expenses 116,549 99,343 Current portion of long-term debt 375 463 Total current liabilities 220,207 202,219 Long-term debt 395,278 394,806 Deferred income taxes and other long-term obligations 54,279 29,071 Equity: Common stock 122 120 Class A common stock 380 374 Class B stock 16 16 Additional paid-in capital 396,790 393,297 Retained earnings 239,329 160,501 Accumulated other comprehensive loss (951 ) (1,294 ) Total Central Garden & Pet shareholders’ equity 635,686 553,014 Noncontrolling interest 1,456 1,573 Total equity 637,142 554,587 Total $ 1,306,906 $ 1,180,683 Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 (in thousands, except per share amounts) $ 1,604,357 $ 1,653,633 $ 1,700,013 1,150,333 1,189,731 1,185,855 454,024 463,902 514,158 397,811 416,038 439,737 0 7,709 0 56,213 40,155 74,421 (42,844 ) (43,112 ) (40,315 ) 94 142 145 403 (677 ) 678 13,866 (3,492 ) 34,929 4,045 (2,592 ) 12,816 9,821 (900 ) 22,113 1,017 1,029 940 $ 8,804 $ (1,929 ) $ 21,173 $ 0.18 $ (0.04 ) $ 0.44 $ 0.18 $ (0.04 ) $ 0.44 48,880 48,094 47,622 49,397 48,094 48,374 Fiscal Year Ended September 30,
2017 September 24,
2016 September 26,
2015 (in thousands, except per share amounts) Net sales $ 2,054,478 $ 1,829,017 $ 1,650,737 Cost of goods sold and occupancy 1,421,670 1,275,967 1,162,685 Gross profit 632,808 553,050 488,052 Selling, general and administrative expenses 476,696 421,864 389,345 Intangible asset impairment — 1,828 7,272 Operating income 156,112 129,358 91,435 Interest expense (28,209 ) (42,847 ) (40,027 ) Interest income 147 140 129 Other income (expense) (1,621 ) (17,013 ) 13 Income before income taxes and noncontrolling interest 126,429 69,638 51,550 Income tax expense 46,699 24,053 18,535 Net income including noncontrolling interest 79,730 45,585 33,015 Net income attributable to noncontrolling interest 902 1,071 1,044 Net income attributable to Central Garden & Pet Company $ 78,828 $ 44,514 $ 31,971 Net income per share attributable to Central Garden & Pet Company: Basic $ 1.57 $ 0.91 $ 0.66 Diluted $ 1.52 $ 0.87 $ 0.64 Weighted average shares used in the computation of net income per share: Basic 50,230 48,964 48,562 Diluted 51,820 51,075 49,638 (LOSS) Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 $ 9,821 $ (900 ) $ 22,113 (200 ) (97 ) 520 (10 ) 0 0 9,611 (997 ) 22,633 1,017 1,029 940 $ 8,594 $ (2,026 ) $ 21,693 Fiscal Year Ended September 30,
2017 September 24,
2016 September 26,
2015Net income $ 79,730 $ 45,585 $ 33,015 Other comprehensive income (loss): Foreign currency translation 343 (1,458 ) (1,078 ) Unrealized loss on securities — — (10 ) Reclassification of loss on available for sale securities to net income — — 20 Total comprehensive income 80,073 44,127 31,947 Comprehensive income attributable to noncontrolling interests 902 1,071 1,044 Comprehensive income attributable to Central Garden & Pet Company $ 79,171 $ 43,056 $ 30,903 Central Garden & Pet Company Common Stock Class A Common
Stock Class B Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Total Noncontrolling
Interest Total Shares Amount Shares Amount Shares Amount 12,949,593 $ 129 35,941,360 $ 359 1,652,262 $ 16 $ 396,208 $ 59,045 $ 1,019 $ 456,776 6 $ 456,782 0 0 0 0 0 0 5,449 0 0 5,449 0 5,449 0 0 0 0 0 0 56 0 0 56 0 56 (9,722 ) (0 ) 90,540 1 369 370 370 0 0 579,702 6 0 0 471 0 0 477 0 477 (692,300 ) (7 ) (1,904,700 ) (19 ) 0 0 (20,358 ) (500 ) 0 (20,884 ) 0 (20,884 ) 0 0 0 0 0 0 0 0 520 520 0 520 0 0 0 0 0 0 0 21,173 0 21,173 940 22,113 12,247,571 122 34,706,902 347 1,652,262 16 382,195 79,718 1,539 463,937 946 464,883 0 0 0 0 0 0 4,210 0 0 4,210 0 4,210 0 0 0 0 0 0 (90 ) 0 0 (90 ) 0 (90 ) (820 ) 0 442,238 4 2,460 2,464 2,464 0 0 307,761 3 0 0 1,683 0 0 1,686 0 1,686 0 0 (165,900 ) (1 ) 0 0 (1,305 ) (197 ) 0 (1,503 ) 0 (1,503 ) (629 ) (629 ) 0 0 0 0 0 0 0 0 (97 ) (97 ) 0 (97 ) 0 0 0 0 0 0 0 (1,929 ) 0 (1,929 ) 1,029 (900 ) 12,246,751 122 35,291,001 353 1,652,262 16 389,153 77,592 1,442 468,678 1,346 470,024 0 0 0 0 0 0 4,572 0 0 4,572 0 4,572 0 0 0 0 0 0 (1,973 ) 0 0 (1,973 ) 0 (1,973 ) 190,556 2 1,232,105 12 0 0 3,446 3,460 3,460 0 0 364,505 4 0 0 1,390 0 0 1,394 0 1,394 0 0 (300 ) 0 0 0 (2 ) (0 ) 0 (2 ) 0 (2 ) (633 ) (633 ) 0 0 0 0 0 0 0 0 (210 ) (210 ) 0 (210 ) 0 0 0 0 0 0 0 8,804 0 8,804 1,017 9,821 12,437,307 $ 124 36,887,311 $ 369 1,652,262 $ 16 $ 396,586 $ 86,396 $ 1,232 $ 484,723 $ 1,730 $ 486,453 Central Garden & Pet Company Common Stock Class A Common
Stock Class B Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total Non-controlling
Interest Total Shares Amount Shares Amount Shares Amount Balance,
September 27, 201412,437,307 $ 124 36,887,311 $ 369 1,652,262 $ 16 $ 396,586 $ 86,396 $ 1,232 $ 484,723 $ 1,730 $ 486,453 Amortization of share-based awards — — — — — — 6,378 — — 6,378 — 6,378 Tax deficiency on exercise of stock options, net of tax benefit — — — — — — (358 ) — — (358 ) — (358 ) Restricted share activity (12,073 ) — 156,477 2 (1,233 ) (1,231 ) (1,231 ) Issuance of common stock 641 — 536,827 5 — — (10 ) — — (5 ) — (5 ) Repurchase of common stock (517,558 ) (5 ) (1,118,316 ) (12 ) — — (12,727 ) (2,380 ) — (15,124 ) — (15,124 ) Distribution to noncontrolling interest (1,680 ) (1,680 ) Other comprehensive loss — — — — — — — — (1,068 ) (1,068 ) — (1,068 ) Net income — — — — — — — 31,971 — 31,971 1,044 33,015 Balance,
September 26, 201511,908,317 119 36,462,299 364 1,652,262 16 388,636 115,987 164 505,286 1,094 506,380 Amortization of share-based awards — — — — — — 6,552 — — 6,552 — 6,552 Tax benefit on exercise of stock options, net of tax deficiency — — — — — — 6,865 — — 6,865 — 6,865 Restricted share activity — 202,916 2 — — (1,341 ) (1,339 ) (1,339 ) Issuance of common stock 90,155 1 753,357 8 — — (7,415 ) — — (7,406 ) — (7,406 ) Distribution to noncontrolling interest (592 ) (592 ) Other comprehensive loss — — — — — — — — (1,458 ) (1,458 ) — (1,458 ) Net income — — — — — — — 44,514 — 44,514 1,071 45,585 Balance,
September 24, 201611,998,472 120 37,418,572 374 1,652,262 16 393,297 160,501 (1,294 ) 553,014 1,573 554,587 Amortization of share-based awards — — — — — — 8,700 — — 8,700 — 8,700 Tax benefit on exercise of stock options, net of tax deficiency — — — — — — 19,942 — — 19,942 — 19,942 Restricted share activity (16,764 ) — (79,362 ) — — — (7,765 ) — — (7,765 ) — (7,765 ) Issuance of common stock 178,315 2 680,526 6 — — (17,384 ) — — (17,376 ) — (17,376 ) Distribution to noncontrolling interest — — — — — — — — — — (1,019 ) (1,019 ) Other comprehensive income — — — — — — — — 343 343 — 343 Net income — — — — — — — 78,828 — 78,828 902 79,730 Balance,
September 30, 201712,160,023 $ 122 38,019,736 $ 380 1,652,262 $ 16 $ 396,790 $ 239,329 $ (951 ) $ 635,686 $ 1,456 $ 637,142 Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 (in thousands) $ 9,821 $ (900 ) $ 22,113 35,781 32,968 30,425 7,678 15,892 7,510 (498 ) (388 ) (1,881 ) 5,548 (3,233 ) 14,411 (4,875 ) 0 0 1,063 547 180 1,731 0 0 5,870 0 0 0 0 (83 ) 0 7,709 0 249 370 0 2,655 8,185 (6,841 ) 69,698 (61,697 ) (164 ) 1,931 4,798 7,549 (16,321 ) (23,866 ) 9,805 8,442 (7,781 ) 4,955 (2,306 ) (886 ) 1,190 126,467 (28,282 ) 89,169 (17,173 ) (25,172 ) (39,592 ) (20,282 ) (4,835 ) 0 8,737 0 0 (14,283 ) 0 0 17,820 4,885 0 (10,000 ) 0 (4,885 ) (35,181 ) (25,122 ) (44,477 ) (301,000 ) (368,000 ) (339,000 ) 278,000 391,000 304,000 (367 ) (332 ) (353 ) 0 0 49,312 1,165 613 2,129 498 388 1,881 (2,332 ) (2,731 ) (24,829 ) (633 ) (629 ) 0 (3,090 ) 0 (1,715 ) (27,759 ) 20,309 (8,575 ) (7 ) (224 ) 327 63,520 (33,319 ) 36,444 15,156 48,475 12,031 $ 78,676 $ 15,156 $ 48,475 $ 41,549 $ 42,960 $ 40,930 826 (2,493 ) (8,048 ) 238 926 1,677 249 4,165 0 4,086 9,579 948 Fiscal Year Ended September 30,
2017 September 24,
2016 September 26,
2015 (in thousands) Cash flows from operating activities: Net income $ 79,730 $ 45,585 $ 33,015 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,719 40,001 33,703 Amortization of deferred financing costs 1,361 1,504 1,996 Stock-based compensation 11,115 8,356 8,315 Excess tax benefits from stock-based awards (19,946 ) (6,869 ) (2,154 ) Deferred income taxes 10,789 3,189 15,566 Gain on sale of property and equipment (2,050 ) (2,544 ) — Loss on disposal of property, plant and equipment 65 1,163 702 Write-off of deferred financing costs — 3,337 537 Asset impairments — 19,367 7,272 Other 3,999 987 (69 ) Changes in assets and liabilities (excluding businesses acquired): Receivables (32,419 ) 27,444 (9,093 ) Inventories (15,885 ) (6,519 ) 4,403 Prepaid expenses and other assets 2,845 6,901 (4,325 ) Accounts payable (2,143 ) (2,793 ) (4,757 ) Accrued expenses 35,018 11,234 1,485 Other long-term obligations (889 ) 1,083 853 Net cash provided by operating activities 114,309 151,426 87,449 Cash flows from investing activities: Additions to property, plant and equipment (44,659 ) (27,622 ) (22,030 ) Businesses acquired, net of cash acquired (103,880 ) (69,001 ) (38,384 ) Escrow deposit for acquisition-related contingent consideration (6,000 ) — — Proceeds from asset sales 8,547 3,911 — Change in restricted cash and cash equivalents. (1,735 ) 2,247 1,126 Investment in equity method investees (12,495 ) — — Proceeds from short-term investments. — — 9,997 Investment in short-term investments — — (17 ) Other investing activities (4,355 ) (730 ) (546 ) Net cash used in investing activities (164,577 ) (91,195 ) (49,854 ) Cash flows from financing activities: Repayments on revolving line of credit (552,000 ) (419,000 ) (312,000 ) Borrowings on revolving line of credit 552,000 419,000 312,000 Repayments of long-term debt (463 ) (400,307 ) (50,289 ) Issuance of long-term debt — 400,000 — Proceeds from issuance of common stock — 324 200 Excess tax benefits from stock-based awards 19,946 6,869 2,154 Repurchase of common stock, including shares surrendered for tax withholding (27,556 ) (10,873 ) (18,497 ) Payments of contingent consideration (1,300 ) (2,026 ) — Distribution to noncontrolling interest (1,019 ) (592 ) (1,680 ) Payment of financing costs — (7,560 ) (258 ) Net cash used by financing activities (10,392 ) (14,165 ) (68,370 ) Effect of exchange rate changes on cash and equivalents 75 (668 ) (317 ) Net (decrease) increase in cash and cash equivalents (60,585 ) 45,398 (31,092 ) Cash and cash equivalents at beginning of year 92,982 47,584 78,676 Cash and cash equivalents at end of year $ 32,397 $ 92,982 $ 47,584 Supplemental information: Cash paid for interest $ 27,878 $ 32,995 $ 39,855 Cash paid for income taxes – net of refunds 10,560 10,399 3,192 Non-cash investing and financing activities: Capital expenditures incurred but not paid 3,106 2,743 2,087 Liability for contingent performance based payments 2,830 2,590 (101 ) 27, 2014,28, 2013,24, 2016, and September 29, 201226, 2015Organization – Central Garden & Pet Company (“Central”), a Delaware corporation, and subsidiaries (the “Company”), is a leading marketer and producer of quality branded products forand distributor of third party products in the pet and lawn and garden supplies markets.27, 2014,24, 2016 and September 28, 201326, 2015 each included 52 weeks; the fiscal year ended September 29, 2012 included 53 weeks.(loss) attributable to noncontrolling interest in the consolidated statements of operations.27, 2014,30, 2017, September 28, 2013,24, 2016 and September 29, 201226, 2015 was $8.0$9.4 million, $6.9$3.8 million and $4.8$5.4 million, respectively.27, 2014,30, 2017, September 28, 2013,24, 2016 and September 29, 201226, 2015 was $45.6$59.3 million, $47.7$48.9 million and $54.6$44.4 million, respectively.$30.9$34.5 million, $44.5$30.0 million and $54.4$25.0 million in fiscal 2014, 2013,2017, 2016 and 2012,2015, respectively.year 2014, and $2.1CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)million for fiscal years 2013 and 2012.2015. In fiscal 2014, 2013,2017, 2016 and 2012,2015, the Company’s matching contributions made in the Company’s Class A common stock resulted in the issuance of approximately 245,000, 229,000,81,000, 99,000 and 230,000195,000 shares, respectively.2014,2017 and 2013,2016, the Company had valuation allowances related to various state and foreign net deferred tax assets of $6.2$6.5 million and $7.0$6.6 million, respectively.United States$2.1$2.0 million at September 27, 2014)30, 2017) of our foreign subsidiary since all such earnings are considered indefinitely reinvested overseas. The potential deferred tax liability associated with these earnings, net of foreign tax credits associated with the earnings, is approximately $0.3 million.Short term investments include investments with original maturities greater than three months and remaining maturities of one year or less.cost.cost. Depreciation is computed by the straight-line method over thirty30 years for buildings. Improvements are amortized on a straight-line basis over the shorter of the useful life of the asset or the terms of the related leases. Depreciation on equipment and capitalized software is computed by the straight-line and accelerated methods over the estimated useful lives of 3three to 10 years. See CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)DueThere were no impairment losses recorded in fiscal 2017. In fiscal 2016, the Company recognized non-cash asset impairment charges of approximately $1.8 million related to certain indefinite-lived intangible assets due to changes in the Company’s operationsCompany's operational strategy and related plans for future SAP implementations,declining volume of sales. In fiscal 2015, the Company determined thatrecognized a non-cash $7.3 million impairment charge to certain software costs previously capitalized had no future value, and accordingly, wrote off capitalized costsindefinite-lived intangible assets as a result of $5.9 millionincreased competition in the fourth quartermarketplace and declining volume of fiscal 2014.sales. Should market conditions or the assumptions used by the Company in determining the fair value of assets change, or management changes plans regarding the future use of certain assets, additional charges to operations may be required in the period in which such conditions occur. See Note 109 – Other Intangible Assets.9 – Goodwill.8– Goodwill.approximating 50%ranging from 30%-50% in twosix unconsolidated companies. The Company accounts for its interest in these entities using the equity method. Equity incomemethod losses of $0.6 million in 2014, $0.9 million in fiscal 2013,2017, and $0.7equity method income of $0.4 million in both fiscal 2012 is2016 and fiscal 2015 are included in other income (expense) in the consolidated statements of operations. The Company’s investment in these entities was $0.6$9.2 million at September 27, 2014,30, 2017 and $0.8$0.5 million at September 28, 2013.24, 2016 and is included in Other assets in the Company's consolidated balance sheets. On a combined basis, the assets, liabilities, revenues and expenses of these entities are not significant. During the fourth quarter of fiscal 2016, the Company determined that its equity method investments in two unconsolidated companies were impaired as a result of changes in marketplace conditions, which impacted the expected cash flows and the recoverability of the investment. Accordingly, the Company recorded a non cash charge of approximately $16.6 million in fiscal 2016 to bring the carrying value of these investments to zero. The impairment charge is included in other income (expense) in the Company's consolidated statements of operations. See 27, 201430, 2017 and September 28, 2013,24, 2016, the carrying amount of cash and cash equivalents, short term investments, accounts receivable and payable, short term borrowings and accrued liabilities approximates fair value because of the short term nature of these instruments. The estimated fair value of the Company’s senior subordinated notes is based on quoted market prices for these instruments. See Note 2 - Fair Value Measurements for further information regarding the fair value of the Company’s financial instruments.Derivative Financial Instruments – The Company reports all derivative financial instruments on the balance sheet at fair value. Changes in fair value are recognized in earnings, or are deferred, depending on the nature of the underlying exposure being hedged and how effective the derivative is at offsetting a change in the underlying exposure.The Company principally uses a combination of purchase orders and various short and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities. The Company also enters into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of corn, which impacts the cost of raw materials. The Company’s primary objective when entering into theseCENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)derivative contracts is to achieve greater certainty with regard to the future price of commodities purchased for use in its supply chain. These derivative contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into derivative contracts for speculative purposes and does not use leveraged instruments.As of September 27, 2014 and September 28, 2013, the Company had no outstanding derivative instruments.20142017 was $7.7$11.1 million ($4.97.0 million after tax), fiscal 20132016 was $15.9$8.4 million ($10.05.3 million after tax), and in fiscal 20122015 was $7.5$8.3 million ($4.75.3 million after tax). See Note 1413 - Stock-Based Compensation for further information.and unrealized gains and losses on investments classified as available for sale.sale, as well as the reclassification of realized gains and losses on investments classified as available for sale to net income. –Comprehensive Income.February 2013,November 2015, the FASB issued Accounting Standards Update No. 2013-02,Comprehensive Income (Topic 220) – ReportingASU 2015-17 (ASU 2015-17), Balance Sheet Classification of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02)Deferred Taxes. This guidance requiresASU eliminates the current requirement for entities to disclose, eitherpresent deferred tax liabilities and assets as current and noncurrent in the notes to the consolidated financial statements or parenthetically on the face of the statement that reports comprehensive income (loss), items reclassified out of accumulated other comprehensive income (loss) and into net earnings in their entirety and the effect of the reclassification on each affecteda classified statement of operations line item. In addition, for accumulated other comprehensivefinancial position and instead requires that deferred income (loss) reclassification items that aretax liabilities and assets be classified as noncurrent in a classified statement of financial position. Although ASU 2015-17 is not reclassified in their entirety into net earnings, a cross reference to other required accounting standard disclosures is required. This guidance became effective for the Company until October 1, 2018, the Company adopted the standard on September 29, 2013. This guidance did not have a material impact30, 2017. As of September 30, 2017, the Company has classified all deferred tax assets and liabilities as noncurrent on the Company’sCompany's consolidated financial statements.balance sheetsDiscontinued Operationsand retrospectively adjusted prior periods. Upon adoption, current deferred tax assets of $31.5 million in our September 24, 2016 consolidated balance sheet were reclassified as non-current.In April 2014, the FASB issued Update No. 2014-08 (ASU 2014-08),Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 provides amended guidance for reporting discontinued operations and disclosures of disposals of components. The amended guidance raises the threshold for disposals to qualify as discontinued operations and permits significant continuing involvement and continuing cash flows with the discontinued operation. In addition, the amended guidance requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The amended guidance is effective for the Company prospectively commencing in the first quarter of fiscal 2015. Early adoption is permitted. The adoption of the applicable sections of this ASC may have an impact on the accounting for any future discontinued operations the Company may have.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)2016, including interim periods within that reporting period, with earlier adoption not permitted.2016. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is still in the early stages of assessing the adoption method and analyzing the impact of the adoption of this guidance is not expected to have a significant impactupdate on its consolidated financial statements. As part of its assessment work to-date, the Company has formed an implementation work team and conducted training sessions on the Company’snew ASU’s revenue recognition model and begun the process of scoping of revenue streams under the new ASU. Additionally, the Company is also analyzing the impact of the new standard on its current accounting policies and internal controls. Upon completion of these and other assessments, the Company will evaluate the impact of adopting the new standard on its consolidated financial statements.Stock Based CompensationJune 2014,February 2016, the FASB issued ASU No. 2014-122016-02 (ASU 2014-12)2016-02),Leases (Topic 842). ASU 2016-02 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 is effective for the Company in its first quarter of fiscal 2020 on a modified retrospective basis and earlier adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements, and it currently expects that most of its operating lease commitments will be subject to the new standard and the Company will record material operating lease liabilities and right-of-use assets upon the adoption of ASU 2016-02. Information on our current operating leases can be found in Note 11 - Commitments and Contingencies.–- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for Share-Based Payments Whenshare-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the Termsstatement of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.cash flows. ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-122016-09 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption2016, or the Company's first quarter of fiscal 2018. The Company will adopt the guidance effective October 1, 2017. The ASU is permitted.expected to result in increased volatility to the Company’s income tax expense in future periods dependent upon, among other variables, the price of its common stock and the timing and volume of share-based payment award activity, such as employee exercises of stock options and vesting of restricted stock awards.effect thatimpact of the adoption of this standard but does not anticipate it will have a material impact on its consolidated financial statements.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)27, 201430, 2017 (in thousands): Level 1 Level 2 Level 3 Total $ 9,990 $ 0 $ 0 $ 9,990 $ 9,990 $ 0 $ 0 $ 9,990 $ 0 $ 0 $ 4,414 $ 4,414 $ 0 $ 0 $ 4,414 $ 4,414 Level 1 Level 2 Level 3 Total Liabilities: Liability for contingent consideration (a) $ — $ — $ 9,343 $ 9,343 Total liabilities $ — $ — $ 9,343 $ 9,343 28, 201324, 2016 (in thousands): Level 1 Level 2 Level 3 Total $ 0 $ 17,820 $ 0 $ 17,820 $ 0 $ 17,820 $ 0 $ 17,820 $ 0 $ 0 $ 4,165 $ 4,165 $ 0 $ 0 $ 4,165 $ 4,165 Level 1 Level 2 Level 3 Total Liabilities: Liability for contingent consideration (a) $ — $ — $ 5,113 $ 5,113 Total liabilities $ — $ — $ 5,113 $ 5,113 (a)The fair value of short-term investments are based on quoted prices in active markets for identical assets.(b)(a)The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, – See Note 4.future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015, and future performance-based contingent payment for Segrest, Inc., acquired in October 2016. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in ourthe Company's consolidated balance sheets.(c)The fair value of the Company’s time deposits is based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable. These are presented as short term investments in the Company’s consolidated balance sheets.ourthe Company's Level 3 financial instruments for the years ended September 27, 201430, 2017 and September 28, 201324, 2016 (in thousands): Amount $ 4,165 249 $ 4,414 Amount Balance as of September 24, 2016 $ 5,113 Estimated contingent performance-based consideration established at the time of acquisition 2,700 Changes in the fair value of contingent performance-based payments 2,830 Performance-based payments made (1,300 ) Balance as of September 30, 2017 $ 9,343 STATEMENTS—STATEMENTS (Continued)28, 2013, the Company recognized a non-cash charge of $7.7 million, as24, 2016, the carrying value of $1.8 million of indefinite-lived intangible assets was written down to its Garden segment goodwill exceeded the impliedestimated fair value, resulting in impairment charges of $1.8 million, which were included in selling, general and administrative expenses for the goodwill. The fair market value of these non-financial assets was determined using an income approach and Level 3 inputs, which required management to make significant estimates about future cash flows.period. See Note 9 – Goodwill.valuevalues of the Company’s $450.02023 Notes were $427.9 million 8.25% senior subordinated notes due 2018 as of September 27, 2014 was $459.530, 2017 and $430.3 million compared to avaluevalues were $395.2 million as of $449.5 million.September 30, 2017 and $394.4 million as of September 24, 2016. The estimated fair value isvalues are based on quoted market prices for these notes, which are Level 1 inputs within the fair value hierarchy.Derivative InstrumentsOurAcquisitions and Investments in Joint Ventures Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted) Purchase Price Cash paid, net of cash acquired $ 54,043 $ — $ 54,043 Contingent consideration 6,000 (3,300 ) 2,700 $ 60,043 $ (3,300 ) $ 56,743 Allocation Current assets, net of cash and cash equivalents acquired $ 7,403 $ (300 ) $ 7,103 Fixed assets 7,011 2,242 9,253 Other assets 47,704 (47,704 ) — Goodwill 25,890 25,890 Other intangible assets 27,650 27,650 Current liabilities (2,075 ) (2,075 ) Deferred Tax Liability (11,078 ) (11,078 ) $ 60,043 $ (3,300 ) $ 56,743 exposedaccounted for under the equity method of accounting.market risks from adverseidentified intangible assets and $5.5 million is included in goodwill in the Company’s consolidated balance sheet as of September 24, 2016. Financial results for Hydro-Organics Wholesale Inc. have been included in the results of operations within the Garden segment since the date of acquisition.In thousands Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted) Current assets, net of cash and cash equivalents acquired $ 41,170 $ 156 $ 41,326 Fixed assets 521 17 538 Goodwill — 15,058 15,058 Other assets 33,810 (33,790 ) 20 Other intangible assets, net — 18,700 18,700 Current liabilities (14,586 ) (40 ) (14,626 ) Net assets acquired, less cash and cash equivalents $ 60,915 $ 101 $ 61,016 In thousands (unaudited) Fiscal Year Ended September 24, 2016 September 26, 2015 Pro forma net sales $ 1,856,691 $ 1,815,997 commodity prices affectingmarketplace conditions, which impacted the cost of raw materials. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives. The utilization of these financial transactions is governed by policies covering acceptable counterparty exposure, instrument types and other practices. The Company does not enter into derivative contracts for speculative purposes. The Company performs assessments of its counterparty credit risk regularly, including a review of credit ratings and potential nonperformancetime line of the counterparty,expected cash flows and minimizes counterparty concentrations.Commodity and commodity index futures, swaps and option contracts are used to economically hedge commodity input prices on grains and proteins. These derivative contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions independentrecoverability of those exposures. Generally,the investment. Accordingly, the Company economically hedgesrecorded a portionnon-cash charge of its anticipated consumption of commodity inputs for periods of up to 12 months. As of September 27, 2014 and September 28, 2013, the Company had no outstanding derivative instruments. As of September 29, 2012, the Company had economically hedged certain portions of its anticipated consumption of commodity inputs using derivative instruments with expiration dates through February 2013.The Company recognizes all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheets, with the exception of normal purchases and normal sales expected to result in physical delivery. The Company’s derivative financial instruments have not been designated as hedging instruments for accounting purposes. The Company recognizes realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumptionapproximately $16.6 million, included in other income (expense) on the consolidated statement of operations.The following table presents the effect of derivative instruments recorded in other income (expense) on the consolidated statements of operations, (in thousands): Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 $ 0 $ (958 ) $ 111 $ 0 $ (958 ) $ 111 STATEMENTS—STATEMENTS (Continued)4. AcquisitionsFiscal 2014EnvincioApril 1, 2014,July 31, 2015, the Company purchased certainsubstantially all of the assets of Envincio LLC, including brands, EPA registrations, inventory and trade receivables,IMS Trading Corp. for approximately $20.3$23.2 million. IMS Trading Corp was a manufacturer, importer and distributor of rawhide, natural dog treats and pet products throughout the United States and internationally. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by approximately $2.5$1.4 million, which is recordedincluded in goodwill. The operating resultsgoodwill in our consolidated balance sheet as of this acquisition did not have a material impact on the Company’s consolidated financial statements.September 24, 2016. Financial results for EnvincioIMS Trading Corp. have been included in the results of operations within the Pet segment since the date of acquisition. This acquisition is expected to enablebe a key supplierthe fair value of the tangible and product innovator in the growing natural insecticides product market, often characterized as EPA-exempt products, and expand its offerings in traditional pesticides. Amounts
Recognized as of
Acquisition Date $ 6,650 20 2,477 12,306 (1,170 ) $ 20,283 In thousands Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted) Current assets, net of cash and cash equivalents acquired $ 20,458 $ 315 $ 20,773 Fixed assets 1,670 — 1,670 Goodwill — 1,365 1,365 Other assets 5,356 (5,356 ) — Other intangible assets, net — 4,510 4,510 Current liabilities (5,100 ) — (5,100 ) Net assets acquired, less cash and cash equivalents $ 22,384 $ 834 $ 23,218 Fiscal 2013(1)InAs previously reported in the Company's Form 10-K for the period ended September 26, 2015 and the Company's Form 10-Q for the period ended December 2012, the Company acquired the remaining majority interest in FourStar Microbial Products, LLC (Four Star Microbial) for approximately $4.8 million in cash and approximately $4.2 million of contingent future performance-based payments. The purchase price exceeded the estimated fair value of the tangible and intangible assets acquired by $3.2 million, which was recorded as goodwill. The operating results of FourStar Microbial had no material impact on the consolidated financial statements. In the future, the Company expects the acquisition will enhance its capability to service professional providers of mosquito abatement.Fiscal 201226, 2015The Company made no acquisitions during fiscal 2012.5.41%44% of the Company’s net sales for fiscal 2014, 43%2017, 42% for fiscal 20132016 and 45%40% for fiscal 20122015 were derived from sales to the Company’s top five customers. The Company’s largest customer accounted for approximately 17%, 16%, 15% and 17%16% of the Company’s net sales in fiscal years 2014, 2013,2017, 2016 and 2012,2015, respectively. The Company’s second largest customer in 20142017 accounted for approximately 8% of the Company’s net sales in both 2014the fiscal years 2017, 2016 and 2013 and 7% in 2012.2015, respectively. The Company’s third largest customer in 2017 accounted for approximately 7%8%, 8%, and 9%7% of the Company’s net sales in fiscal years 2014, 2013,2017, 2016 and 2012,2015, respectively. The loss of, or significant adverse change in, the relationship between the Company and any of these three customers could have a material adverse effect on the Company’s business and financial results. The loss of or reduction in orders from any significant customer, losses arising from customerCENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)27, 201430, 2017 and September 28, 2013,24, 2016, accounts receivable from the Company’s top five customers comprised approximately 37%44% and 35%41% of the Company’s total accounts receivable, including 11%10% and 9%11% from the Company’s largest customer.10%9%, 11%,9% and 9%11% of the Company’s cost of goods sold in fiscal years 2014, 2013,2017, 2016 and 2012,2015, respectively, were derived from products purchased from the Company’s five largest suppliers.6. Balances at
Beginning
of Period Charged/
(Credited) to
Costs and
Expenses Asset
Write-Offs,
Less
Recoveries Balances
at End of
Period $ 15,590 $ 5,291 $ (2,307 ) $ 18,574 18,574 4,373 (1,789 ) 21,158 21,158 8,988 (4,934 ) 25,212 7.Description Fiscal Year Ended September 26, 2015 25,212 741 (6,657 ) 19,296 Fiscal Year Ended September 24, 2016 19,296 6,041 (4,268 ) 21,069 Fiscal Year Ended September 30, 2017 21,069 2,921 (2,554 ) 21,436 September 27,
2014 September 28,
2013 $ 93,678 $ 121,695 13,397 19,856 207,818 236,322 11,493 14,060 $ 326,386 $ 391,934 8. September 30,
2017 September 24,
2016Raw materials $ 116,591 $ 120,786 Work in progress 16,394 17,378 Finished goods 241,420 217,788 Supplies 7,696 6,052 Total inventories, net $ 382,101 $ 362,004 September 27,
2014 September 28,
2013 $ 8,678 $ 9,504 109,618 112,882 5,388 5,646 163,783 179,723 107,271 104,034 25,091 25,248 419,829 437,037 (252,980 ) (248,124 ) $ 166,849 $ 188,913 September 30,
2017 September 24,
2016Land $ 8,942 $ 8,825 Buildings and improvements 131,280 115,965 Transportation equipment 7,141 5,574 Machine and warehouse equipment 221,329 193,525 Capitalized software 117,360 109,641 Office furniture and equipment 27,355 25,282 513,407 458,812 Accumulated depreciation and amortization (332,494 ) (300,588 ) $ 180,913 $ 158,224 $35.8$42.7 million, $33.0$40.0 million and $30.4$33.7 million for fiscal 2014, 2013,2017, 2016 and 2012,2015, respectively.STATEMENTS—STATEMENTS (Continued)9. Goodwill27, 2014,30, 2017, September 28, 201324, 2016 and September 29, 201226, 2015 (in thousands): Garden Products
Segment Pet Products
Segment Total $ 213,583 $ 398,492 $ 612,075 (205,874 ) (195,978 ) (401,852 ) 7,709 202,514 210,223 213,583 398,492 612,075 (205,874 ) (195,978 ) (401,852 ) 7,709 202,514 210,223 0 3,242 3,242 (7,709 ) 0 (7,709 ) 213,583 401,734 615,317 (213,583 ) (195,978 ) (409,561 ) 0 205,756 205,756 0 2,477 2,477 213,583 404,211 617,794 (213,583 ) (195,978 ) (409,561 ) $ 0 $ 208,233 $ 208,233 Total Balance as of September 27, 2014 Goodwill $ 213,583 $ 404,211 $ 617,794 Accumulated impairment losses (213,583 ) (195,978 ) (409,561 ) — 208,233 208,233 Additions in fiscal 2015 — 856 856 Balance as of September 26, 2015 Goodwill 213,583 405,067 618,650 Accumulated impairment losses (213,583 ) (195,978 ) (409,561 ) — 209,089 209,089 Additions in fiscal 2016 5,473 16,823 22,296 Balance as of September 24, 2016 Goodwill 219,056 421,890 640,946 Accumulated impairment losses (213,583 ) (195,978 ) (409,561 ) 5,473 225,912 231,385 Additions in fiscal 2017 25,890 25,890 (1,000 ) (1,000 ) Balance as of September 30, 2017 Goodwill 219,056 446,780 665,836 Accumulated impairment losses (213,583 ) (195,978 ) (409,561 ) $ 5,473 $ 250,802 $ 256,275 (on(as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by initially comparingfirst assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the two-step test is performed to identify potential goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values.values, including goodwill. If the fair value of the reporting unit is less than its carrying value, the Company performs an additional step to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly, the Company recognizes such impairment. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of all fourits two reporting units to the Company’s total market capitalization.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)2014,2017 and fiscal 2016, the first stepCompany made a qualitative evaluation about the likelihood of such testing indicated thatgoodwill impairment to determine whether it was necessary to calculate the fair valuevalues of its reporting units under the two-step goodwill impairment test. The Company completed its qualitative assessment of potential goodwill impairment in each fiscal year and it was determined that it was more likely than not the fair values of the Company’sCompany's reporting segments exceededunits were greater than their carrying value by more than 10%, and accordingly, no further testing of goodwill was required.In connection with the Company’s annual goodwill impairment testing performed duringamounts in each fiscal 2013, the first step of such testing indicated that the fair value of the Company’s Pet segment reporting units exceeded their carrying value,year, and accordingly, no further testing of goodwill was required for the Pet segment. However, the carrying value of the Company’s Garden segment reporting units exceeded their fair value, indicating potential impairment. Based on further analysis, it was determined that the entire carrying value of the Company’s Garden segment goodwill was impaired, resulting in a non-cash goodwill impairment charge of $7.7 million.In connection with the Company’s annual goodwill impairment testing performed during fiscal 2012, the first step of such testing indicated that the fair value of the Company’s reporting segments exceeded their carrying value by more than 10%,2017 and accordingly, no further testing of goodwill was required.Changes in the judgments and estimates underlying the Company’s analysis of goodwill for possible impairment, including expected future cash flows and discount rate, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in additional impairment of goodwill.10.2016. Gross Accumulated
Amortization Impairment Net
Carrying
Value (in millions) $ 15.5 $ (9.9 ) $ 0 $ 5.6 59.6 0 (16.9 ) 42.7 75.1 (9.9 ) (16.9 ) 48.3 42.8 (20.2 ) 0 22.6 19.4 (8.8 ) 0 10.6 7.7 0 (1.2 ) 6.5 27.1 (8.8 ) (1.2 ) 17.1 $ 145.0 $ (38.9 ) $ (18.1 ) $ 88.0 $ 12.5 $ (8.9 ) $ 0 $ 3.6 59.6 0 (16.9 ) 42.7 72.1 (8.9 ) (16.9 ) 46.3 42.8 (17.9 ) 0 24.9 16.6 (7.9 ) 0 8.7 1.2 0 (1.2 ) 0 17.8 (7.9 ) (1.2 ) 8.7 $ 132.7 $ (34.7 ) $ (18.1 ) $ 79.9 CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Gross (in millions) September 30, 2017 Marketing-related intangible assets – amortizable $ 16.9 $ (12.7 ) $ — $ 4.2 Marketing-related intangible assets – nonamortizable 62.7 — (26.0 ) 36.7 Total 79.6 (12.7 ) (26.0 ) 40.9 Customer-related intangible assets – amortizable 91.6 (32.2 ) — 59.4 Other acquired intangible assets – amortizable 22.1 (12.9 ) — 9.2 Other acquired intangible assets – nonamortizable 7.8 — (1.2 ) 6.6 Total 29.9 (12.9 ) (1.2 ) 15.8 Total other intangible assets $ 201.1 $ (57.8 ) $ (27.2 ) $ 116.1 September 24, 2016 Marketing-related intangible assets – amortizable $ 14.9 $ (11.3 ) $ — $ 3.6 Marketing-related intangible assets – nonamortizable 63.0 — (26.0 ) 37.0 Total 77.9 (11.3 ) (26.0 ) 40.6 Customer-related intangible assets – amortizable 65.6 (26.1 ) — 39.5 Other acquired intangible assets – amortizable 20.8 (11.6 ) — 9.2 Other acquired intangible assets – nonamortizable 7.8 — (1.2 ) 6.6 Total 28.6 (11.6 ) (1.2 ) 15.8 Total other intangible assets $ 172.1 $ (49.0 ) $ (27.2 ) $ 95.9 September 26, 2015 Marketing-related intangible assets – amortizable $ 14.1 $ (10.4 ) $ — $ 3.7 Marketing-related intangible assets – nonamortizable 59.6 — (24.2 ) 35.4 Total 73.7 (10.4 ) (24.2 ) 39.1 Customer-related intangible assets – amortizable 43.3 (22.3 ) — 21.0 Other acquired intangible assets – amortizable 19.3 (10.5 ) — 8.8 Other acquired intangible assets – nonamortizable 7.8 — (1.2 ) 6.6 Total 27.1 (10.5 ) (1.2 ) 15.4 Total other intangible assets $ 144.1 $ (43.2 ) $ (25.4 ) $ 75.5 acquired include contract-based and technology-based intangible assets.Envincio, LLC duringSegrest, Inc. in the thirdfirst quarter of fiscal 2014,2017, the Company acquired approximately $3.0$2.0 million of marketing related intangible assets, $27.3 million of customer related intangible assets and $9.3$1.3 million of other intangible assets. See Note 43 – Acquisitions.1three years to 25 years; over weighted average remaining lives of eightfour years for marketing-related intangibles, 1510 years for customer-related intangibles and 1411 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $4.3$8.8 million, $5.1$5.8 million and $5.6$4.3 million, for fiscal 2014, 2013,2017, 2016 and 2012,2015, respectively, and is classified within operating expenses in the consolidated statements of operations. Estimated annual amortization expense related to acquired intangible assets in each of the succeeding five years is estimated to be approximately $4 million – $5$8 million per year from fiscal 20152018 through fiscal 2019.The Company evaluates long-lived assets, including amortizable and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates indefinite-lived intangible assets on an annual basis. For fiscal 2014, 2013 and 2012, the Company tested its indefinite-lived intangible assets and no impairment was indicated. Other factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not present in fiscal 2014, and accordingly, no impairment testing was performed on these assets.11.2022. September 27,
2014 September 28
2013 (in thousands) $ 449,529 $ 449,417 0 0 0 23,000 710 170 450,239 472,587 (291 ) (142 ) $ 449,948 $ 472,445 September 30,
2017September 24,
2016 (in thousands) Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023 $ 400,000 $ 400,000 Unamortized debt issuance costs (4,840 ) (5,635 ) Net carrying value 395,160 394,365 Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.25% to 1.75% or Base Rate plus a margin of 0.25% to 0.75%, amended in April 2016 — — Other notes payable 493 904 Total 395,653 395,269 Less current portion (375 ) (463 ) Long-term portion $ 395,278 $ 394,806 March 8, 2010,November 9, 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023. In December 2015, the Company used the net proceeds from the offering, together with available cash, to redeem its $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 (the “2018 Notes”). On February 13, 2012, the Company issued an additional $50 million aggregate principal amount of its( 2018 NotesNotes) at a price of 98.501%, plus accrued interest from September 1, 2011, in a private placement. 102.063% of the principal amount and to pay fees and expenses related to the offering.usedincurred approximately $6.3 million of debt issuance costs in conjunction with these transactions, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs will be amortized over the net proceeds from the offering to pay a portionterm of the outstanding balance under its prior revolving credit facility.20182023 Notes require semiannual interest payments which commenced on September 1, 2010.May 15 and November 15. The 20182023 Notes are unsecured senior subordinated obligations and are subordinated to all of the Company’s existing and future senior debt, including the Company’s Credit Facility. The obligations under the 2018 Notes are fully andCENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) subordinated basis by each of the Company’s existing and future domestic restricted subsidiaries with certain exceptions.which are borrowers under or guarantors of Central’s senior secured revolving credit facility. The guarantees2023 Notes are general unsecured senior subordinated obligations of the guarantors and are subordinated to all ofseniorsecured debt, including the Company’s Credit Facility, to the extent of the guarantors.20182023 Notes at any time, at its option, prior to November 15, 2018 at the principal amount plus a “make whole” premium. At any time prior to November 15, 2018, the Company may also redeem, at its option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 106.125% of the principal amount of the notes. The Company may redeem some or all of the 2023 Notes, at its option, at any time on or after March 1, 2014November 15, 2018 for 104.125%104.594%, on or after March 1, 2015November 15, 2019 for 102.063%103.063%, on or after November 15, 2020 for 101.531% and on or after March 1, 2016November 15, 2021 for 100%, plus accrued and unpaid interest.20182023 Notes have the right to require the Company to repurchase all or a portion of the 20182023 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.20182023 Notes contain customary high yield covenants, including financial covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants in the 2018 Notes indenture as of September 27, 2014.Asset Backed30, 2017.December 5, 2013,April 22, 2016, the Company entered into aan amended and restated credit agreement which provides up to a $390$400 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if the Company exercises the accordion feature set forth therein (collectively, the “Credit“Amended Credit Facility”). The Amended Credit Facility matures on December 5, 2018 and replaced the Company’s prior revolving credit facility.April 22, 2021. The Company 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. As of September 27, 2014,30, 2017, there were no borrowings outstanding under the Credit Facility. There wereand no letters of credit outstanding under the Credit Facility as of September 27, 2014.Facility. There were other letters of credit of $12.6$1.8 million outstanding as of September 27, 2014.TheAs of September 30, 2017, the borrowing base and remaining borrowing availability as of September 27, 2014 was $330$368.9 million. 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 SunTrust prime rate, (b) the Federal Funds Rate plus 0.5% and (c) one-month LIBOR plus 1.00%1.0%), plus, in either case, an applicable margin based on the Company’s total outstanding borrowings.consolidated senior leverage ratio. Such applicable margin for LIBOR-based borrowings fluctuates between 1.25%-1.75% (and - 1.5% and was 1.25% atas of September 27, 2014)30, 2017, and such applicable margin for Base Rate borrowings fluctuates between 0.25%-0.75% (and-0.5% and was 0.25% atas of September 27, 2014).30, 2017. As of September 27, 2014,30, 2017, the applicable interest rate related to Base Rate borrowings was 3.5%4.5%, and the applicable interest rate related to LIBOR-based borrowings was 1.4%2.5%.1.00:1.00 :1.00 upon reaching certain borrowing levels. The Amended Credit Facility is secured by substantially all assets of the Company. The Company was in compliance with all financial covenants under the Amended Credit Facility during the fiscal yearperiod ended September 27, 2014.The Company incurred approximately $3.1 million of costs in conjunction with this transaction, which included banking fees and legal expenses. These costs will be amortized over the term of the Credit Facility.The Company recorded a non-cash charge of $1.7 million for the three month period ended December 28, 2013 as part of interest expense, related to the write-off of unamortized deferred financing costs under the prior revolving credit facility.STATEMENTS—STATEMENTS (Continued)27, 201430, 2017 are as follows: (in thousands) $ 291 287 122 450,030 3 0 $ 450,733 (1) (in thousands) Fiscal year: 2018 $ 375 2019 5 2020 113 2021 — 2022 — Thereafter 400,000 Total $ 400,493 (1) (1) Debt repayments include an amount in excess of the carrying value of debt anddo not reflect the unamortized portion of deferred financing costs associated with the original issue discount on the Senior Subordinated2023 Notes of $0.5$4.8 million as of September 27, 2014,30, 2017, which is amortizable until March 2018.November 2023 and is included in the carrying value.12.Commitments$12.6$1.8 million of outstanding letters of credit related to normal business transactions at September 27, 2014.30, 2017. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has available for other uses. The amount of cash collateral in these segregated accounts was $14.3$12.6 million and $ 10.9 million as of September 30, 2017 and September 24, 2016, respectively, and is reflected in “Restricted cash and cash equivalents”cash” on the Consolidated Balance Sheets.27, 2014,30, 2017, estimated annual purchase commitments were $98.5 million for fiscal 2015, $35.0 million for fiscal 2016, $20.5 million for fiscal 2017, $13.4$104.4 million for fiscal 2018, $7.4$31.3 million for fiscal 2019, $18.9 million for fiscal 2020, $11.4 million for fiscal 2021, $4.3 million for fiscal 2022 and $1.9$0.8 million thereafter.1one to 7 years.12 years . Rental expense was $21.3$31.7 million for fiscal 2014, $22.42017, $25.0 million for fiscal 20132016 and $23.6$23.1 million for fiscal 2012.2015 and is included in cost of goods sold and occupancy or selling, general and administrative expenses in the Company's consolidated statements of operations.27, 201430, 2017 are as follows: (in thousands) $ 17,553 14,088 10,963 5,458 3,979 1,507 $ 53,548 (in thousands) Fiscal year: 2018 $ 26,461 2019 21,393 2020 16,658 2021 12,222 2022 8,812 Thereafter 25,885 Total $ 111,431 STATEMENTS—STATEMENTS (Continued)13. Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 (in thousands) $ (329 ) $ 52 $ (1,003 ) 873 958 603 0 0 35 544 1,010 (365 ) 4,171 (2,915 ) 12,671 177 (687 ) 198 (847 ) 0 312 3,501 (3,602 ) 13,181 $ 4,045 $ (2,592 ) $ 12,816 Fiscal Year Ended September 30,
2017 September 24,
2016 September 26,
2015 (in thousands) Current: Federal $ 32,755 $ 18,592 $ 2,301 State 3,034 2,140 643 Foreign 121 110 25 Total 35,910 20,842 2,969 Deferred: Federal 11,227 2,796 14,843 State (1,038 ) 463 625 Foreign 600 (48 ) 98 Total 10,789 3,211 15,566 Total $ 46,699 $ 24,053 $ 18,535 Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 35.0 % (35.0 )% 35.0 % 2.1 (5.2 ) 2.3 0.2 2.4 0.6 (0.2 ) 1.8 0.2 0.4 3.7 0.0 (1.6 ) (29.3 ) (1.2 ) (5.4 ) (9.0 ) (0.1 ) (1.3 ) (3.6 ) (0.1 ) 29.2 % (74.2 %) 36.7 % Fiscal Year Ended September 30,
2017 September 24,
2016 September 26,
2015Statutory federal income tax rate 35.0 % 35.0 % 35.0 % State income taxes, net of federal benefit 2.4 2.1 2.4 Other permanent differences 0.3 (1.6 ) (0.5 ) Adjustment of prior year accruals (0.3 ) (0.6 ) (0.5 ) Credits (0.6 ) (1.0 ) (0.3 ) Change in valuation allowances — 0.5 — Foreign rate differential 0.1 0.1 (0.1 ) Effective income tax rate (benefit) 36.9 % 34.5 % 36.0 % STATEMENTS—STATEMENTS (Continued) September 27, 2014 September 28, 2013 Deferred
Tax
Assets Deferred
Tax
Liabilities Deferred
Tax
Assets Deferred
Tax
Liabilities $ 9,262 $ 0 $ 7,758 $ 0 12,018 0 14,983 0 820 0 620 0 1,420 0 2,782 0 0 165 0 188 7,816 0 6,062 0 3,233 0 3,012 0 34,569 165 35,218 188 0 46,458 0 39,100 0 127 0 393 5,167 0 4,816 0 5,263 0 6,061 0 2,352 0 2,421 0 7,281 0 5,349 0 (6,215 ) 0 (6,968 ) 0 13,848 46,585 11,679 39,493 $ 48,417 $ 46,750 $ 46,897 $ 39,681 September 30, 2017 September 24, 2016 (in thousands) Allowance for doubtful accounts $ 7,790 $ — $ 7,634 $ — Inventory write-downs 10,406 — 9,869 — Prepaid expenses — 1,740 — 1,188 Nondeductible reserves 1,485 — 1,632 — State taxes 276 — 19 — Employee benefits 10,007 — 10,544 — Depreciation and amortization — 84,059 — 62,778 Equity loss 4,243 — 5,070 — State net operating loss carryforward 5,182 — 4,939 — Stock based compensation 3,097 — 2,642 — State credits 2,403 — 2,317 — Other 5,768 — 5,303 — Valuation allowance (6,527 ) — (6,583 ) — Total $ 44,130 $ 85,799 $ 43,386 $ 63,966 federal tax net operating losses of $6.6 million which begin to expire in 2033, state tax net operating losses of $102.6$109.1 million, which expire at various times between 20142017 and 2034,2037, and foreign losses of $1.5$3.0 million, which do not expire. Pursuant to authoritative guidance, the benefit of stock options will only be recorded to stockholders’ equity when cash taxes payable are reduced. As of September 27, 2014, the portion of net operating loss carryforwards related to stock options is approximately $1.2 million, the benefit of which will be credited to additional paid-in capital when realized. has federal income tax credits of $1.4 million which expire between 2024 and 2034. The Company also has state income tax credits of $3.6$3.7 million, which expire at various times beginning in 20142017 through 2030.2033. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence including past operating results, future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against any deferred tax assets. The Company has determined there will be insufficient future separate state taxable income for the separate parent company to realize its deferred tax assets. Therefore, valuation allowances of $6.2$6.5 million and $7.0$6.6 million (net of federal impact) at September 27, 201430, 2017 and September 28, 2013,24, 2016, respectively, have been provided to reduce state deferred tax assets to amounts considered recoverable.year.year. The Company recognizes interest and/or penalties related to income tax matters as a component of pretax income. As of September 27, 201430, 2017 and September 28, 2013,24, 2016, accrued interest was less than $0.1 million and no penalties were accrued related to uncertain tax positions.STATEMENTS—STATEMENTS (Continued)27, 201430, 2017 and September 28, 201324, 2016 (in thousands): $ 262 247 60 (202 ) (3 ) $ 364 264 14 (166 ) (388 ) (1 ) $ 87 Balance as of September 26, 2015 $ 138 Increases related to prior year tax positions 51 Increases related to current year tax positions 66 Decreases related to prior year tax positions — Settlements (1 ) Decreases related to lapse of statute of limitations — Balance as of September 24, 2016 $ 254 Increases related to prior year tax positions 4 Increases related to current year tax positions 67 Decreases related to prior year tax positions — Settlements — Decreases related to lapse of statute of limitations — Balance as of September 30, 2017 $ 325 27, 2014,30, 2017, unrecognized income tax benefits totaled approximately $0.1$0.3 million and all of the unrecognized tax benefits would, if recognized, impact the Company’s effective income tax rate.20112014 forward and in various state taxing authorities generally from fiscal year ended 20102013 forward.14. of the Company up to an aggregate of 5.8 million shares of common stock of the Company. The 2003 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised only of independent directors, and which must approve individual awards to be granted, vesting and exercise of share conditions.In connection with a dividend payable in the form of two shares of the Class A Common Stock for each outstanding share of Common Stock and Class B Common Stock on February 5, 2007, the 2003 Plan was amended to include 9,734,982 shares of Class A Common Stock authorized for issuance. As a result of recent amendments, there5,800,0005.8 million shares of Common Stock, 19,734,98219.7 million shares of Class A Common Stock and 500,000 shares of Preferred Stock authorized under the 2003 Plan. If and when the Company issues any shares of Preferred Stock under the 2003 Plan, it will reduce the amount of Class A Common Stock available for future issuance in an amount equal to the number of shares of Class A Common Stock that are issuable upon conversion of such Preferred Stock.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)27, 2014,30, 2017, there were approximately 2.3 million32.1 thousand shares of Common Stock, 8.63.6 million shares of Class A Common Stock and no shares of Preferred Stock reserved for outstanding equity awards, and there were approximately 2.74.6 million shares of Common Stock, 8.511.7 million shares of Class A Common Stock and 0.5 million shares of Preferred Stock remaining for future awards.$7.7$11.1 million, $15.9$8.4 million, and $7.5$8.3 million for the years ended September 27, 2014,30, 2017, September 28, 201324, 2016 and September 29, 2012,26, 2015, respectively, as a component of selling, general and administrative expenses. Share-based compensation expense in fiscal 2014, 20132017, 2016 and 2012,2015 consisted of $2.8$2.9 million, $2.7$2.2 million, and $3.8$3.3 million, respectively, for stock options, and $3.0$5.8 million, $11.2$4.5 million and $1.7$3.1 million, respectively, for stock awards. Share-based compensation2014, 20132017, 2016 and 20122015 also includes $2.4 million, $1.7 million and $1.9 million, $2.0 million and $2.0 millionrespectively, for the Company’s 401(k) matching contributions.From fiscal 2008 to fiscal 2011, the Company granted stock options under its 2003 Plan that included performance targets and time-based vesting to key employees and executives. In March 2012, the Company eliminated all of the past and future performance goals relating to stock options granted from fiscal 2008 to fiscal 2011, except for the performance goals relating to the overall Company performance. The Company took this action because, as a result of the Company’s reorganization around functional lines during 2011, the extent to which cumulative performance targets for segments or business units have been or may be achieved became difficult or impossible to measure and the changes underway within the Company were not contemplated when the Company granted the options. After the amendment, 20% of the shares covered by each award continue to be performance-based. The time vested component of the options did not change. Approximately 250 employees were affected by the modification, and no additional compensation cost was recorded.The performance-based component of the options granted in fiscal 2008 was achieved and 60% of the performance-based component of the options granted in fiscal 2009 was achieved and the related expense was recorded over the estimated service period. The Company currently estimates the performance-based component of the options granted in fiscal 2010 and 2011 is not probable of achievement and are not recording related expense. As of September 27, 2014, there were 4 million of unvested options, of which approximately 0.7 million are subject to performance based vesting criteria. To the extent Company goals are or are not achieved, the amount of stock-based compensation recognized in the future will be adjusted.2014,2017, the Company granted time-based stock options with an exercise price based on the closing fair market value on the date of the grant. The majority of the options granted in fiscal 20142017 vest in four annual installments commencing approximately one year from the date of grant and expire approximately six years after the grant date.3.53.7 years in fiscal 2014, 3.52017 and fiscal 2016 and 3.6 years in fiscal 2013 and 3.5 years in fiscal 2012;2015; stock price volatility, 34.3%31.5% in fiscal 2014, 34.8%2017, 30.8% in fiscal 20132016, and 37.9%30.3% in fiscal 2012;2015; risk free interest rates, 1.6%2.0% in fiscal 2014, 1.2%2017, 1.3% in fiscal 20132016 and 0.9% in fiscal 2012;2015; and no dividends during the expected term.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)27, 2014: Number of
Shares
(in thousands) Weighted
Average Exercise
Price per Share Weighted Average
Remaining
Contractual Life Aggregate
Intrinsic Value
(in thousands) 12,571 $ 10.57 3 years $ 1,166 248 $ 7.72 (705 ) $ 6.14 (2,901 ) $ 12.09 9,213 $ 10.35 3 years $ 1,895 4,601 $ 11.34 2 years $ 6,708 6,409 $ 11.21 2 years 770 5,205 $ 10.81 2 years 390 3,390 $ 9.77 3 years $ 1,272 Outstanding at September 24, 2016 4,169 $ 11.64 3 years $ 53,705 Granted 639 $ 31.02 Exercised (2,234 ) $ 11.51 Canceled or expired (103 ) $ 11.33 Outstanding at September 30, 2017 2,471 $ 16.79 4 years $ 50,420 Exercisable at September 26, 2015 2,910 $ 10.74 2 years 17,226 Exercisable at September 24, 2016 1,732 $ 11.46 2 years 22,954 Exercisable at September 30, 2017 458 $ 10.80 2 years 12,097 Expected to vest after September 30, 2017 1,767 $ 18.15 4 years $ 33,644 27, 2014,30, 2017, September 28, 201324, 2016 and September 29, 201226, 2015 was $1.93, $1.72$8.14, $3.04 and $2.72.$2.51, respectively. The total intrinsic value of options exercised during the fiscal years ended September 27, 2014,30, 2017, September 28, 201324, 2016 and September 29, 201226, 2015 was $1.4$44.0 million, $1.1$22.6 million, and $5.1$5.9 million, respectively.27, 2014,30, 2017, there was $5.1$7.4 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted average vesting period of 2three years.27, 201430, 2017 and September 28, 2013,24, 2016, there were approximately 1.61.1 million and 0.91.5 million, shares, respectively, of restricted stock awards outstanding. The awardsAwards granted in fiscal 20142017 and 2016 generally vest inwithin four annual installments commencing approximately one yearor five years from the date of grant. In fiscal 2014, approximately $6.4 million of bonus amounts earned in fiscal 2013 were paid by granting approximately 570,000 restricted shares that vested immediately.three fiscal years in the period ended September 27, 201430, 2017 is summarized as follows: Number of
Shares Weighted Average
Grant Date
Fair Value per
Share (in thousands) 804 $ 9.79 159 $ 9.16 (98 ) $ 12.12 (80 ) $ 8.32 785 $ 9.53 552 $ 9.26 (354 ) $ 9.60 (89 ) $ 9.37 894 $ 9.35 1,021 $ 7.98 (226 ) $ 9.92 (80 ) $ 8.93 1,609 $ 8.43 STATEMENTS—STATEMENTS (Continued)The weighted average grant date fair value of restricted stock awards granted during the fiscal years ended September 27, 2014, September 28, 2013 and September 29, 2012 was $7.98, $9.26 and $9.16, respectively. The aggregate fair value as of the vesting date of restricted shares that vested was $1.7 million, $3.4 million and $0.9 million for fiscal 2014, 2013 and 2012, respectively. (in thousands) Nonvested at September 24, 2016 1,540 $ 10.68 Granted 196 $ 29.30 Vested (567 ) $ 9.94 Forfeited (32 ) $ 9.81 Nonvested at September 30, 2017 1,137 $ 14.34 27, 2014,30, 2017, there was $10.1$11.1 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of twothree years.15.27, 2014,30, 2017 and September 24, 2016, there were 80,000,000 shares of common stock ($0.01 par value) authorized, of which 12,437,30712,160,023 and 11,998,472, respectively, were outstanding, and 100,000,000 shares of non-voting Class A common stock ($0.01 par value) authorized, of which 36,887,31138,019,736 and 37,418,572, respectively, were outstanding. The preferences and relative rights of the Class A common stock are identical to common stock in all respects, except that the Class A common stock generally will have no voting rights unless otherwise required by Delaware law.27, 201430, 2017 and September 28, 2013.24, 2016. The voting powers, preferences and relative rights of the Class B stock are identical to common stock in all respects except that (i) the holders of common stock are entitled to one vote per share and the holders of Class B stock are entitled to the lesser of ten votes per share or 49% of the total votes cast, (ii) stock dividends on common stock may be paid only in shares of common stock and stock dividends on Class B stock may be paid only in shares of Class B stock and (iii) shares of Class B stock have certain conversion rights and are subject to certain restrictions on ownership and transfer. Each share of Class B stock is convertible into one share of common stock, at the option of the holder. Additional shares of Class B stock may only be issued with majority approval of the holders of the common stock and Class B stock, voting as separate classes. the third fiscal quarter of fiscal 2011, the Company’s Board of Directors authorized a $100 million share repurchase program, in part, to minimize the dilutive impact of the Company’s stock-based equity compensation programs over time. During the fiscal year ended September 27, 2014,30, 2017, the Company made no material stock repurchases.did not repurchase any of its stock. In total, as of September 27, 2014,30, 2017, the Company had repurchased approximately 6.37.9 million shares for an aggregate price of approximately $49.9$65.0 million under the share repurchase program.16. Fiscal Year Ended
September 27, 2014 Fiscal Year Ended
September 28, 2013 Fiscal Year Ended
September 29, 2012 Net
Income
(Loss) Shares Per
Share Net
Income Shares Per
Share Net
Income Shares Per
Share (in thousands, except per share amounts) $ 8,804 48,880 $ 0.18 $ (1,929 ) 48,094 $ (0.04 ) $ 21,173 47,622 $ 0.44 69 0 0 0 497 0 448 0 0 0 255 0 $ 8,804 49,397 $ 0.18 $ (1,929 ) 48,094 $ (0.04 ) $ 21,173 48,374 $ 0.44 CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)The Fiscal Year Ended
September 30, 2017 Fiscal Year Ended
September 24, 2016 Fiscal Year Ended
September 26, 2015 Shares Shares Shares (in thousands, except per share amounts) Basic EPS: Net income (loss) available to common shareholders $ 78,828 50,230 $ 1.57 $ 44,514 48,964 $ 0.91 $ 31,971 48,562 $ 0.66 Effect of dilutive securities: Options to purchase common stock 992 (0.03 ) 1,335 (0.02 ) 520 (0.01 ) Restricted shares 598 (0.02 ) 776 (0.02 ) 556 (0.01 ) Diluted EPS: Net income (loss) available to common shareholders $ 78,828 51,820 $ 1.52 $ 44,514 51,075 $ 0.87 $ 31,971 49,638 $ 0.64 to purchase shareswould be anti-dilutive.common stock and Class A common stock outstanding at September 27, 2014 range from $6.43 to $16.23diluted earnings per share.2014, 9.72015, 3.2 million options were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect of including these options would be anti-dilutive.The price of options to purchase shares of common stock and Class A common stock outstanding at September 28, 2013 range from $4.60 to $16.23 per share. For fiscal 2013, 10.4 million options were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect of including these options would be anti-dilutive. Regardless of exercise price, all outstanding stock options were excluded in the calculation due to the net loss recorded for the period ended September 28, 2013. In periods where net earnings are reported, these options may become dilutive if the average market price of our common stock exceeds the exercise price of the outstanding options.The price of options to purchase shares of common stock and Class A common stock outstanding at September 29, 2012 range from $4.60 to $16.23 per share. For fiscal 2012, 6.1 million options were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect of including these options would be anti-dilutive.17. Fiscal 2017 (in thousands, except per share amounts) Net sales $ 419,498 $ 569,924 $ 574,592 $ 490,464 Gross profit 120,678 183,529 183,273 145,328 Net income attributable to Central Garden & Pet Company 7,637 (1 ) 34,684 32,248 4,259 Net income per share: Basic $ 0.15 $ 0.69 $ 0.64 $ 0.08 Diluted $ 0.15 $ 0.67 $ 0.62 $ 0.08 Weighted average common shares outstanding: Basic 49,665 50,079 50,507 50,654 Diluted 51,810 51,983 51,825 51,935 Fiscal 2014 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (in thousands, except per share amounts) $ 290,521 $ 501,611 $ 437,987 $ 374,238 79,741 147,596 119,131 107,556 (12,708 ) 20,895 4,687 (1) (4,070 ) (1) $ (0.26 ) $ 0.43 $ 0.10 $ (0.08 ) $ (0.26 ) $ 0.43 $ 0.09 $ (0.08 ) 48,368 48,688 49,148 49,324 48,368 49,116 49,841 49,324 Fiscal 2013 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (in thousands, except per share amounts) $ 292,497 $ 498,169 $ 494,130 $ 368,837 76,959 153,170 152,466 81,307 (15,269 ) 22,196 13,725 (22,581 ) (2) $ (0.32 ) $ 0.46 $ 0.28 $ (0.47 ) $ (0.32 ) $ 0.46 $ 0.28 $ (0.47 ) 47,871 48,064 48,173 48,264 47,871 48,740 48,822 48,264 Fiscal 2016 (in thousands, except per share amounts) Net sales $ 359,812 $ 541,249 $ 514,544 $ 413,412 Gross profit 99,786 169,339 163,745 120,180 Net income (loss) attributable to Central Garden & Pet Company (8,602 ) (1 ) 32,697 26,030 (2 ) (5,611 ) (3) Net income (loss) per share: Basic $ (0.18 ) $ 0.67 $ 0.53 $ (0.11 ) Diluted $ (0.18 ) $ 0.65 $ 0.51 $ (0.11 ) Weighted average common shares outstanding: Basic 48,566 48,717 49,120 49,453 Diluted 48,566 50,445 51,063 49,453 (1) During the first quarter of fiscal 2016, the Company redeemed its 2018 Notes and issued senior notes due November 2023. As a result of the bond redemption, the Company incurred incremental expenses of $14.3 million, comprised of a call premium payment of $8.3 million, a $2.7 million payment of overlapping interest expense for 30 days and a $3.3 million non-cash charge for the write off of unamortized deferred financing costs and discount related to the 2018 Notes. (2) The Company recognized a $16.9 million charge related to certain products introduced in fiscal 2013 and a $2.0$2.4 million gain onin its Pet segment from the sale of a manufacturing plant assets inresulting from rationalizing its Garden segmentfacilities to reduce excess capacity during the third quarter of fiscal 2014, as well as a $2.9 million gain on the sale of manufacturing plant assets in its Garden segment in the fourth quarter of fiscal 2014.2016.(2)(3) The Company recognized a $7.7 million goodwillnon-cash impairment charge and an $11.2of $16.6 million charge related to certain products introducedits investment in fiscal 2013two joint ventures as a result of changes in marketplace conditions, and a non-cash impairment charge in its GardenPet segment of $1.8 million related to the impairment of certain indefinite-lived intangible assets due to declining sales volume during the fourth quarter of fiscal 2013.2016.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)18.During each of the fiscal years 2013 and 2012, subsidiaries of the Company purchased approximately $1.0 million of products from Bio Plus, Inc., a company that produces granular peanut hulls. As of September 28, 2013, the amounts owed to BioPlus, Inc. for such purchases were not material. A director of the Company was a minority shareholder and a director of Bio Plus, Inc until May 2013.2014, 20132017, 2016 and 2012,2015, Tech Pac, a subsidiary of the Company, made purchases from Contract Packaging, Inc, (“CPI”), Tech Pac’s principal supplier and a minority 20% shareholder in Tech Pac. Tech Pac’s total purchases from CPI were approximately $30.8$37.0 million, $32.5$36.5 million and $39.3$35.2 million for fiscal years 2014, 20132017, 2016 and 2012,2015, respectively. Amounts due to CPI as of September 27, 201430, 2017 and September 28, 201324, 2016 were $0.6 million and $0.5$1.5 million, respectively.19.profitoperating income or loss from operations.loss. The Company’s Corporate division is included in the following presentation since certain expenses of this division are not allocated separately to the two operating segments. Segment assets exclude cash equivalents, short-term investments, goodwill, and deferred taxes.Life Sciences.K&H Manufacturing. These businesses are engaged in the manufacturing, purchase, sale and delivery of internally and externally produced pet supplies, books , food, live fish and foodsmall animals principally to independent pet distributors, national and regional retail chains, grocery stores, mass merchants and bookstores. The Garden segment consists of Pennington Seed, Matthews Four Seasons, Grant’s,Hydro Organics, AMBRANDS, Lilly Miller, the Pottery Group Gulfstream and GKI/Bethlehem Lighting.Gulfstream. Products manufactured, designed and sourced, or distributed are products found typically in the lawn and garden sections of mass merchandisers, warehouse-type clubs, home improvement centers and than 10% of the Company’s consolidated net sales in the fiscal years presented (in millions). 2014 2013 2012 $ 774.2 $ 807.4 $ 847.1 262.5 274.9 281.7 202.1 210.8 205.1 182.5 183.5 185.7 183.1 177.0 180.4 $ 1,604.4 $ 1,653.6 $ 1,700.0 Category 2017 2016 2015 Other pet products $ 841.4 $ 689.3 $ 594.7 Other garden supplies 464.9 331.3 343.5 Dog and cat products 405.0 326.0 233.0 Garden controls and fertilizer products 343.2 298.8 286.3 Wild bird feed — (1) 183.6 193.2 Total $ 2,054.5 $ 1,829.0 $ 1,650.7 CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)5 – Concentrations4 - Concentration of Credit Risk and Significant Customers and Suppliers for the Company’s largest customers by segment. Fiscal Year Ended September 27,
2014 September 28,
2013 September 29,
2012 $ 845,505 $ 888,228 $ 930,753 758,852 765,405 769,260 $ 1,604,357 $ 1,653,633 $ 1,700,013 $ 88,077 $ 95,451 $ 87,650 41,020 (1) 8,286 (2) 40,376 (72,884 ) (63,582 ) (53,605 ) 56,213 40,155 74,421 (42,844 ) (43,112 ) (40,315 ) 94 142 145 403 (677 ) 678 13,866 (3,492 ) 34,929 4,045 (2,592 ) 12,816 9,821 (900 ) 22,113 1,017 1,029 940 $ 8,804 $ (1,929 ) $ 21,173 $ 414,279 $ 425,988 $ 411,059 337,461 388,581 341,716 396,987 346,591 396,772 $ 1,148,727 $ 1,161,160 $ 1,149,547 $ 17,256 $ 15,753 $ 14,507 6,793 6,410 6,213 11,732 10,805 9,705 $ 35,781 $ 32,968 $ 30,425 $ 8,561 $ 9,694 $ 15,540 5,541 7,496 4,138 3,071 7,982 19,914 $ 17,173 $ 25,172 $ 39,592 Fiscal Year Ended September 30, 2017 September 24, 2016 September 26, 2015 Net sales: Pet segment $ 1,246,354 $ 1,081,853 $ 894,549 Garden segment 808,124 747,164 756,188 Total $ 2,054,478 $ 1,829,017 $ 1,650,737 Operating income (loss): Pet segment $ 131,622 $ 119,930 (1) $ 98,798 (1) Garden segment 87,298 70,317 60,145 Corporate (62,808 ) (60,889 ) (67,508 ) Total 156,112 129,358 91,435 Interest expense (28,209 ) (42,847 ) (40,027 ) Interest income 147 140 129 Other income (expense) (1,621 ) (17,013 ) (2) 13 Income (loss) before income taxes and noncontrolling interest 126,429 69,638 51,550 Income tax expense (benefit) 46,699 24,053 18,535 Net income (loss) including noncontrolling interest 79,730 45,585 33,015 Net income attributable to noncontrolling interest 902 1,071 1,044 Net income (loss) attributable to Central Garden & Pet Company $ 78,828 $ 44,514 $ 31,971 Assets: Pet segment $ 612,337 $ 508,879 $ 465,171 Garden segment 311,026 304,901 310,981 Corporate and eliminations 383,543 366,903 324,960 Total $ 1,306,906 $ 1,180,683 $ 1,101,112 Depreciation and amortization: Pet segment $ 26,044 $ 22,556 $ 15,885 Garden segment 6,267 6,098 5,988 Corporate 10,408 11,347 11,830 Total $ 42,719 $ 40,001 $ 33,703 Expenditures for long-lived assets: Pet segment $ 38,970 $ 18,939 $ 17,060 Garden segment 4,948 4,750 2,432 Corporate 741 3,933 2,538 Total $ 44,659 $ 27,622 $ 22,030 (1) Includes a $16.9$1.8 million impairment charge in fiscal 2016 and a $7.3 million impairment charge in fiscal 2015 to indefinite-lived intangible assets as a result of increased competition and declining sales volume.(2) Includes a $16.6 million impairment charge related to certain products introduced in fiscal and a $4.9 million gain from the sale of manufacturing plant assets.two equity method investments.(2)Includes goodwill impairment of $7.7 million and an $11.2 million charge related to certain products introduced in fiscal 2013.STATEMENTS—STATEMENTS (Continued)20.$450 million 8.25% Senior Subordinated Notes (the “Notes”) due March 1, 2018.2023 Notes. Certain subsidiaries and operating divisions are not guarantors of the Notes. Those subsidiaries that are guarantors and co-obligors of the Notes are as follows: CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Fiscal Year Ended September 27, 2014
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 460,781 $ 109,453 $ 1,103,926 $ (69,803 ) $ 1,604,357 370,492 87,028 757,217 (64,404 ) 1,150,333 90,289 22,425 346,709 (5,399 ) 454,024 117,240 18,230 267,740 (5,399 ) 397,811 (26,951 ) 4,195 78,969 0 56,213 (186 ) (583 ) 366 0 (403 ) 42,742 218 (116 ) 0 42,844 92 2 0 0 94 (69,415 ) 4,562 78,719 0 13,866 (26,962 ) 756 30,251 0 4,045 51,257 0 1,506 (52,763 ) 0 8,804 3,806 49,974 (52,763 ) 9,821 0 1,017 0 0 1,017 $ 8,804 $ 2,789 $ 49,974 $ (52,763 ) $ 8,804 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Fiscal Year Ended September 30, 2017 (in thousands) Parent Eliminations Consolidated Net sales $ 685,998 $ 79,681 $ 1,370,335 $ (81,536 ) $ 2,054,478 Cost of goods sold and occupancy 534,682 60,788 901,959 (75,759 ) 1,421,670 Gross profit 151,316 18,893 468,376 (5,777 ) 632,808 Selling, general and administrative expenses 154,267 18,416 309,790 (5,777 ) 476,696 Operating income (loss) (2,951 ) 477 158,586 — 156,112 Interest expense (28,051 ) (294 ) 136 — (28,209 ) Interest income 146 1 — — 147 Other income (expense) (2,379 ) 844 (86 ) — (1,621 ) Income (loss) before taxes and equity in earnings of affiliates (33,235 ) 1,028 158,636 — 126,429 Income tax expense (benefit) (11,981 ) 1,466 57,214 — 46,699 Equity in earnings of affiliates 100,082 — 420 (100,502 ) — Net income (loss) including noncontrolling interest 78,828 (438 ) 101,842 (100,502 ) 79,730 Noncontrolling interest — 902 — — 902 Net income (loss) attributable to Central Garden & Pet Company $ 78,828 $ (1,340 ) $ 101,842 $ (100,502 ) $ 78,828 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Fiscal Year Ended September 28, 2013 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 453,001 $ 88,822 $ 1,186,328 $ (74,518 ) $ 1,653,633 364,120 73,068 821,524 (68,981 ) 1,189,731 88,881 15,754 364,804 (5,537 ) 463,902 127,644 19,340 282,300 (5,537 ) 423,747 (38,763 ) (3,586 ) 82,504 0 40,155 250 (398 ) 825 0 677 42,925 263 (76 ) 0 43,112 140 2 0 0 142 (81,798 ) (3,449 ) 81,755 0 (3,492 ) (46,789 ) (2,567 ) 46,764 0 (2,592 ) 33,080 0 (2,561 ) (30,519 ) 0 (1,929 ) (882 ) 32,430 (30,519 ) (900 ) 0 1,029 0 0 1,029 $ (1,929 ) $ (1,911 ) $ 32,430 $ (30,519 ) $ (1,929 ) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Fiscal Year Ended September 29, 2012 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 483,337 $ 97,804 $ 1,218,521 $ (99,649 ) $ 1,700,013 360,236 72,058 847,889 (94,328 ) 1,185,855 123,101 25,746 370,632 (5,321 ) 514,158 130,360 22,564 292,134 (5,321 ) 439,737 (7,259 ) 3,182 78,498 0 74,421 (108 ) 3 (573 ) 0 (678 ) 40,071 396 (152 ) 0 40,315 142 2 1 0 145 (47,080 ) 2,785 79,224 0 34,929 (16,607 ) 1,477 27,946 0 12,816 51,646 0 1,579 (53,225 ) 0 21,173 1,308 52,857 (53,225 ) 22,113 0 940 0 0 940 $ 21,173 $ 368 $ 52,857 $ (53,225 ) $ 21,173 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Fiscal Year Ended September 24, 2016 (in thousands) Parent Eliminations Consolidated Net sales $ 587,579 $ 82,567 $ 1,238,339 $ (79,468 ) $ 1,829,017 Cost of goods sold and occupancy 466,543 62,727 820,573 (73,876 ) 1,275,967 Gross profit 121,036 19,840 417,766 (5,592 ) 553,050 Selling, general and administrative expenses 138,556 18,077 272,651 (5,592 ) 423,692 Operating income (loss) (17,520 ) 1,763 145,115 — 129,358 Interest expense (42,700 ) (266 ) 119 — (42,847 ) Interest income 136 4 — — 140 Other income (expense) (16,925 ) (113 ) 25 — (17,013 ) Income (loss) before taxes and equity in earnings of affiliates (77,009 ) 1,388 145,259 — 69,638 Income tax expense (benefit) (26,422 ) 923 49,552 — 24,053 Equity in earnings of affiliates 95,101 — 624 (95,725 ) — Net income including noncontrolling interest 44,514 465 96,331 (95,725 ) 45,585 Noncontrolling interest — 1,071 — — 1,071 Net income (loss) attributable to Central Garden & Pet Company $ 44,514 $ (606 ) $ 96,331 $ (95,725 ) $ 44,514 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Fiscal Year Ended September 26, 2015 (in thousands) Parent Eliminations Consolidated Net sales $ 484,310 $ 100,127 $ 1,146,821 $ (80,521 ) $ 1,650,737 Cost of goods sold and occupancy 379,235 76,597 781,797 (74,944 ) 1,162,685 Gross profit 105,075 23,530 365,024 (5,577 ) 488,052 Selling, general and administrative expenses 124,613 18,329 259,252 (5,577 ) 396,617 Operating income (loss) (19,538 ) 5,201 105,772 — 91,435 Interest expense (39,893 ) (268 ) 134 — (40,027 ) Interest income 126 3 — — 129 Other income (expense) (372 ) 407 (22 ) — 13 Income (loss) before taxes and equity in earnings of affiliates (59,677 ) 5,343 105,884 — 51,550 Income tax expense (benefit) (21,500 ) 2,089 37,946 — 18,535 Equity in earnings of affiliates 70,148 — 2,445 (72,593 ) — Net income including noncontrolling interest 31,971 3,254 70,383 (72,593 ) 33,015 Noncontrolling interest — 1,044 — — 1,044 Net income attributable to Central Garden & Pet Company $ 31,971 $ 2,210 $ 70,383 $ (72,593 ) $ 31,971 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended September 27, 2014
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 8,804 $ 3,806 $ 49,974 $ (52,763 ) $ 9,821 0 (200 ) 0 0 (200 ) (10 ) 0 0 0 (10 ) 8,794 3,606 49,974 (52,763 ) 9,611 0 1,017 0 0 1,017 $ 8,794 $ 2,589 $ 49,974 $ (52,763 ) $ 8,594 CONSOLIDATING CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended September 28, 2013 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ (1,929 ) $ (882 ) $ 32,430 $ (30,519 ) $ (900 ) 0 (97 ) 0 0 (97 ) (1,929 ) (979 ) 32,430 (30,519 ) (997 ) 0 1,029 0 0 1,029 $ (1,929 ) $ (2,008 ) $ 32,430 $ (30,519 ) $ (2,026 ) CONSOLIDATING CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
Fiscal Ended September 29, 2012 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 21,173 $ 1,308 $ 52,857 $ (53,225 ) $ 22,113 0 520 0 0 520 21,173 1,828 52,857 (53,225 ) 22,633 0 940 0 0 940 $ 21,173 $ 888 $ 52,857 $ (53,225 ) $ 21,693 Fiscal Year Ended September 30, 2017 (in thousands) Parent Eliminations Consolidated Net income (loss) $ 78,828 $ (438 ) $ 101,842 $ (100,502 ) $ 79,730 Other comprehensive income (loss): Foreign currency translation 343 169 108 (277 ) 343 Total comprehensive income (loss) 79,171 (269 ) 101,950 (100,779 ) 80,073 Comprehensive income attributable to noncontrolling interests — 902 — — 902 Comprehensive income (loss) attributable to Central Garden & Pet Company $ 79,171 $ (1,171 ) $ 101,950 $ (100,779 ) $ 79,171 Fiscal Year Ended September 24, 2016 (in thousands) Parent Eliminations Consolidated Net income $ 44,514 $ 465 $ 96,331 $ (95,725 ) $ 45,585 Other comprehensive income (loss): Foreign currency translation (1,458 ) (1,132 ) 8 1,124 (1,458 ) Total comprehensive income (loss) 43,056 (667 ) 96,339 (94,601 ) 44,127 Comprehensive income attributable to noncontrolling interests — 1,071 — — 1,071 Comprehensive income (loss) attributable to Central Garden & Pet Company $ 43,056 $ (1,738 ) $ 96,339 $ (94,601 ) $ 43,056 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED BALANCE SHEET
September 27, 2014
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated ASSETS $ 63,471 $ 12,806 $ 2,399 $ 0 $ 78,676 14,283 0 0 0 14,283 9,990 0 0 0 9,990 41,235 8,268 144,226 0 193,729 79,199 15,210 231,977 0 326,386 26,092 816 21,580 0 48,488 234,270 37,100 400,182 0 671,552 63,059 3,649 100,141 0 166,849 0 0 208,233 0 208,233 25,230 4,244 83,713 (11,094 ) 102,093 16,906 0 351,423 (368,329 ) 0 983,413 0 0 (983,413 ) 0 $ 1,322,878 $ 44,993 $ 1,143,692 $ (1,362,836 ) $ 1,148,727 $ 28,937 $ 3,542 $ 55,949 $ 0 $ 88,428 34,412 1,868 48,390 0 84,670 63,349 5,410 104,339 0 173,098 449,855 0 93 0 449,948 323,315 45,014 0 (368,329 ) 0 0 0 7,594 (7,594 ) 0 1,636 0 48,686 (11,094 ) 39,228 484,723 (7,161 ) 982,980 (975,819 ) 484,723 0 1,730 0 0 1,730 484,723 (5,431 ) 982,980 (975,819 ) 486,453 $ 1,322,878 $ 44,993 $ 1,143,692 $ (1,362,836 ) $ 1,148,727 Fiscal Year Ended September 26, 2015 (in thousands) Parent Eliminations Consolidated Net income $ 31,971 $ 3,254 $ 70,383 $ (72,593 ) $ 33,015 Other comprehensive loss: Unrealized loss on securities (10 ) — (10 ) Reclassification of realized loss on securities included in net income 20 — — — 20 Foreign currency translation (1,078 ) (537 ) (380 ) 917 (1,078 ) Total comprehensive income 30,903 2,717 70,003 (71,676 ) 31,947 Comprehensive income attributable to noncontrolling interests — 1,044 — — 1,044 Comprehensive income attributable to Central Garden & Pet Company $ 30,903 $ 1,673 $ 70,003 $ (71,676 ) $ 30,903 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED BALANCE SHEET
September 28, 2013 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 5,438 $ 7,003 $ 2,715 $ 0 $ 15,156 17,820 0 0 0 17,820 35,685 7,672 150,903 0 194,260 95,025 19,225 277,684 0 391,934 24,032 887 28,565 0 53,484 178,000 34,787 459,867 0 672,654 76,385 2,276 110,252 0 188,913 0 0 205,756 0 205,756 26,130 3,859 75,348 (11,500 ) 93,837 10,180 0 246,497 (256,677 ) 0 932,156 0 0 (932,156 ) 0 $ 1,222,851 $ 40,922 $ 1,097,720 $ (1,200,333 ) $ 1,161,160 $ 33,538 $ 2,794 $ 67,237 $ 0 $ 103,569 31,886 1,778 45,096 0 78,760 65,424 4,572 112,333 0 182,329 472,418 0 27 0 472,445 214,258 42,419 0 (256,677 ) 0 0 0 6,565 (6,565 ) 0 2,073 0 45,789 (11,500 ) 36,362 468,678 (7,415 ) 933,006 (925,591 ) 468,678 0 1,346 0 0 1,346 468,678 (6,069 ) 933,006 (925,591 ) 470,024 $ 1,222,851 $ 40,922 $ 1,097,720 $ (1,200,333 ) $ 1,161,160 CONSOLIDATING CONDENSED BALANCE SHEET September 30, 2017 (in thousands) Parent Eliminations Consolidated ASSETS Cash and cash equivalents $ 19,238 $ 11,693 $ 1,466 $ — $ 32,397 Restricted cash 12,645 — — — 12,645 Accounts receivable, net 78,692 5,586 153,590 — 237,868 Inventories 125,797 9,493 246,811 — 382,101 Prepaid expenses and other assets 6,059 811 11,175 — 18,045 Total current assets 242,431 27,583 413,042 — 683,056 Land, buildings, improvements and equipment, net 38,170 4,225 138,518 — 180,913 Goodwill 15,058 — 241,217 — 256,275 Other long term assets 61,715 2,376 146,372 (23,801 ) 186,662 Intercompany receivable 36,606 — 662,137 (698,743 ) — Investment in subsidiaries 1,383,633 — — (1,383,633 ) — Total $ 1,777,613 $ 34,184 $ 1,601,286 $ (2,106,177 ) $ 1,306,906 LIABILITIES AND EQUITY Accounts payable $ 36,760 $ 3,076 $ 63,447 $ — $ 103,283 Accrued expenses and other liabilities 54,909 2,391 59,249 — 116,549 Current portion of long term debt — — 375 — 375 Total current liabilities 91,669 5,467 123,071 — 220,207 Long-term debt 395,160 — 118 — 395,278 Intercompany payable 647,409 51,334 — (698,743 ) — Losses in excess of investment in subsidiaries — — 19,782 (19,782 ) — Other long-term obligations 7,689 — 70,391 (23,801 ) 54,279 Shareholders’ equity attributable to Central Garden & Pet 635,686 (24,073 ) 1,387,924 (1,363,851 ) 635,686 Noncontrolling interest — 1,456 — — 1,456 Total equity 635,686 (22,617 ) 1,387,924 (1,363,851 ) 637,142 Total $ 1,777,613 $ 34,184 $ 1,601,286 $ (2,106,177 ) $ 1,306,906 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Fiscal Year Ended September 27, 2014
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ (4,139 ) $ 7,420 $ 125,720 $ (2,534 ) $ 126,467 (6,721 ) (1,027 ) (9,425 ) 0 (17,173 ) 0 0 (20,282 ) 0 (20,282 ) 0 0 8,737 0 8,737 (14,283 ) 0 0 0 (14,283 ) 17,820 0 0 0 17,820 (10,000 ) 0 0 0 (10,000 ) (6,726 ) 0 (104,926 ) 111,652 0 (19,910 ) (1,027 ) (125,896 ) 111,652 (35,181 ) (301,000 ) 0 0 0 (301,000 ) 278,000 0 0 0 278,000 (243 ) 0 (124 ) 0 (367 ) 1,165 0 0 0 1,165 498 0 0 0 498 (2,332 ) 0 0 0 (2,332 ) (3,090 ) 0 0 0 (3,090 ) 0 (2,534 ) 0 2,534 0 0 (633 ) 0 0 (633 ) 109,057 2,595 0 (111,652 ) 0 82,055 (572 ) (124 ) (109,118 ) (27,759 ) 27 (18 ) (16 ) 0 (7 ) 58,033 5,803 (316 ) 0 63,520 5,438 7,003 2,715 0 15,156 $ 63,471 $ 12,806 $ 2,399 $ 0 $ 78,676 CONSOLIDATING CONDENSED BALANCE SHEET September 24, 2016 (in thousands) Parent Eliminations Consolidated ASSETS Cash and cash equivalents $ 82,158 $ 9,695 $ 1,129 $ — $ 92,982 Restricted cash 10,910 — — — 10,910 Accounts receivable, net 59,617 5,156 136,378 — 201,151 Inventories 113,317 11,752 236,935 — 362,004 Prepaid expenses and other assets 5,700 800 9,749 — 16,249 Total current assets 271,702 27,403 384,191 — 683,296 Land, buildings, improvements and equipment, net 41,083 3,897 113,244 — 158,224 Goodwill 15,058 — 216,327 — 231,385 Other long term assets 45,832 2,998 85,701 (26,753 ) 107,778 Intercompany receivable 32,778 — 567,374 (600,152 ) — Investment in subsidiaries 1,176,990 — — (1,176,990 ) — Total $ 1,583,443 $ 34,298 $ 1,366,837 $ (1,803,895 ) $ 1,180,683 LIABILITIES AND EQUITY Accounts payable $ 34,096 $ 3,953 $ 64,364 $ — $ 102,413 Accrued expenses and other liabilities 47,861 1,411 50,071 — 99,343 Current portion of long term debt 88 — 375 — 463 Total current liabilities 82,045 5,364 114,810 — 202,219 Long-term debt 394,364 — 442 — 394,806 Intercompany payable 553,964 46,188 — (600,152 ) — Losses in excess of investment in subsidiaries — — 16,126 (16,126 ) — Other long-term obligations 56 — 55,768 (26,753 ) 29,071 Shareholders’ equity attributable to Central Garden & Pet 553,014 (18,827 ) 1,179,691 (1,160,864 ) 553,014 Noncontrolling interest — 1,573 — — 1,573 Total equity 553,014 (17,254 ) 1,179,691 (1,160,864 ) 554,587 Total $ 1,583,443 $ 34,298 $ 1,366,837 $ (1,803,895 ) $ 1,180,683 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Fiscal Year Ended September 28, 2013 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ (31,250 ) $ (11,632 ) $ 17,116 $ (2,516 ) $ (28,282 ) (8,656 ) (337 ) (16,179 ) 0 (25,172 ) 0 0 (4,835 ) 0 (4,835 ) 4,885 0 0 0 4,885 8,986 0 2,923 (11,909 ) 0 5,215 (337 ) (18,091 ) (11,909 ) (25,122 ) (368,000 ) 0 0 0 (368,000 ) 391,000 0 0 0 391,000 (206 ) 0 (126 ) 0 (332 ) 613 0 0 0 613 388 0 0 0 388 (2,731 ) 0 0 0 (2,731 ) 0 (2,516 ) 0 2,516 0 0 (629 ) 0 0 (629 ) (28,896 ) 16,987 0 11,909 0 (7,832 ) 13,842 (126 ) 14,425 20,309 36 (263 ) 3 0 (224 ) (33,831 ) 1,610 (1,098 ) 0 (33,319 ) 39,269 5,393 3,813 0 48,475 $ 5,438 $ 7,003 $ 2,715 $ 0 $ 15,156 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Fiscal Year Ended September 30, 2017 (in thousands) Parent Eliminations Consolidated Net cash provided (used) by operating activities $ (7,418 ) $ 2,846 $ 122,957 $ (4,076 ) $ 114,309 Additions to property, plant and equipment (9,419 ) (805 ) (34,435 ) — (44,659 ) Businesses acquired, net of cash acquired, and investments in joint ventures (103,880 ) — — — (103,880 ) Proceeds from asset sales 229 — 8,318 — 8,547 Escrow deposit for acquisition-related contingent consideration (6,000 ) (6,000 ) Change in restricted cash and cash equivalents (1,735 ) — — — (1,735 ) Investment in equity method investee (12,495 ) (12,495 ) Other investing activities (4,355 ) — — — (4,355 ) Intercompany investing activities (3,828 ) — (94,763 ) 98,591 — Net cash used by investing activities (141,483 ) (805 ) (120,880 ) 98,591 (164,577 ) Repayments on revolving line of credit (552,000 ) — — — (552,000 ) Borrowings on revolving line of credit 552,000 — — — 552,000 Repayments of long-term debt (89 ) — (374 ) — (463 ) Excess tax benefits from stock-based awards 19,946 — — — 19,946 Repurchase of common stock (27,556 ) — — — (27,556 ) Payments of contingent consideration — — (1,300 ) — (1,300 ) Distribution to parent — (4,076 ) — 4,076 — Distribution to noncontrolling interest — (1,019 ) — — (1,019 ) Intercompany financing activities 93,445 5,146 — (98,591 ) — Net cash provided (used) by financing activities 85,746 51 (1,674 ) (94,515 ) (10,392 ) Effect of exchange rates on cash 235 (94 ) (66 ) — 75 Net increase (decrease) in cash and cash equivalents (62,920 ) 1,998 337 — (60,585 ) Cash and cash equivalents at beginning of year 82,158 9,695 1,129 — 92,982 Cash and cash equivalents at end of year $ 19,238 $ 11,693 $ 1,466 $ — $ 32,397 STATEMENTS—STATEMENTS (Continued) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Fiscal Year Ended September 29, 2012 (As Revised)
(in thousands) Parent Non-Guarantor
Subsidiaries Guarantor
Subsidiaries Eliminations Consolidated $ 7,978 $ 16,008 $ 65,183 $ 0 $ 89,169 (20,357 ) (378 ) (18,857 ) 0 (39,592 ) (4,885 ) 0 0 0 (4,885 ) 5,153 0 (43,681 ) 38,528 0 (20,089 ) (378 ) (62,538 ) 38,528 (44,477 ) (339,000 ) 0 0 0 (339,000 ) 304,000 0 0 0 304,000 (231 ) 0 (122 ) 0 (353 ) 49,312 0 0 0 49,312 2,129 0 0 0 2,129 1,881 0 0 0 1,881 (24,829 ) 0 0 0 (24,829 ) (1,715 ) 0 0 0 (1,715 ) 50,750 (12,222 ) 0 (38,528 ) 0 42,297 (12,222 ) (122 ) (38,528 ) (8,575 ) 374 61 (108 ) 0 327 30,560 3,469 2,415 0 36,444 8,709 1,924 1,398 0 12,031 $ 39,269 $ 5,393 $ 3,813 $ 0 $ 48,475 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Fiscal Year Ended September 24, 2016 (in thousands) Parent Eliminations Consolidated Net cash (used) provided by operating activities $ 3,906 $ 2,654 $ 149,749 $ (4,883 ) $ 151,426 Additions to property, plant and equipment (4,513 ) (717 ) (22,392 ) — (27,622 ) Payments to acquire companies, net of expenses (69,001 ) — — — (69,001 ) Proceeds from asset sales — — 3,911 — 3,911 Change in restricted cash and cash equivalents 2,247 — — — 2,247 Other investing activities (730 ) — — — (730 ) Intercompany investing activities (83 ) — (129,708 ) 129,791 — Net cash used by investing activities (72,080 ) (717 ) (148,189 ) 129,791 (91,195 ) Repayments on revolving line of credit (419,000 ) — — — (419,000 ) Borrowings on revolving line of credit 419,000 — — — 419,000 Repayments of long-term debt (400,286 ) — (21 ) — (400,307 ) Issuance of long-term debt 400,000 400,000 Proceeds from issuance of common stock 324 — — — 324 Excess tax benefits from stock-based awards 6,869 — — — 6,869 Repurchase of common stock (10,873 ) — — — (10,873 ) Payments of contingent consideration (2,026 ) (2,026 ) Payment of deferred financing costs (7,560 ) — — — (7,560 ) Distribution to parent — (4,883 ) — 4,883 — Distribution to noncontrolling interest — (592 ) — — (592 ) Intercompany financing activities 127,044 2,747 — (129,791 ) — Net cash provided (used) by financing activities 115,518 (2,728 ) (2,047 ) (124,908 ) (14,165 ) Effect of exchange rates on cash (1,466 ) 464 334 — (668 ) Net increase (decrease) in cash and cash equivalents 45,878 (327 ) (153 ) — 45,398 Cash and cash equivalents at beginning of year 36,280 10,022 1,282 — 47,584 Cash and cash equivalents at end of year $ 82,158 $ 9,695 $ 1,129 $ — $ 92,982 STATEMENTS—STATEMENTS (Continued)Subsequent to the issuance of the Form 10-Q for the quarterly period ended June 28, 2014, management identified certain corrections that were needed in the presentation of the Consolidating Condensed Financial Statements. The Company revised its Consolidating Condensed Financial Statements to correct the presentation of intercompany activities and other classification items between the Parent, Guarantors and Non-Guarantor subsidiaries for intercompany activities. The Company has also included a new column in its Consolidating Condensed Financial Statements to present separate results for Non-Guarantor subsidiaries. There were no changes to any of the Company’s Consolidated Financial Statements. The Company assessed the materiality of these items on previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108, and concluded that the revisions were not material to the Consolidating Condensed Financial Statements. The impact of these revisions are shown in the following tables: CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS As previously reported
2013 Adjustments
2013 As revised
2013 $ (41,937 ) $ 3,174 $ (38,763 ) 0 (3,586 ) (3,586 ) 82,092 412 82,504 0 0 0 40,155 0 40,155 (1,929 ) 0 (1,929 ) 0 (1,911 ) (1,911 ) 40,072 (7,642 ) 32,430 (40,072 ) 9,553 (30,519 ) $ (1,929 ) $ 0 $ (1,929 ) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS As previously reported
2012 Adjustments
2012 As revised
2012 $ (260 ) $ (6,999 ) $ (7,259 ) 0 3,182 3,182 74,681 3,817 78,498 0 0 0 74,421 0 74,421 21,173 0 21,173 0 368 368 50,763 2,094 52,857 (50,763 ) (2,462 ) (53,225 ) $ 21,173 $ 0 $ 21,173 In the Consolidating Condensed Statement of Operations, we now present the Non-Guarantor subsidiaries separate from the Parent. We also recorded the equity in earnings of Non-Guarantor subsidiaries, which are owned by Guarantor subsidiaries, within the Guarantor subsidiary column, and have appropriately eliminated intercompany earnings between Non-Guarantor and Guarantor subsidiaries.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CONSOLIDATING CONDENSED
STATEMENT OF COMPREHENSIVE INCOME (LOSS) As previously reported
2013 Adjustments
2013 As revised
2013 $ (40,972 ) $ 39,043 $ (1,929 ) 0 (882 ) (882 ) 40,072 (7,642 ) 32,430 0 (30,519 ) (30,519 ) (900 ) 0 (900 ) (41,069 ) 39,140 (1,929 ) 0 (979 ) (979 ) 40,072 (7,642 ) 32,430 0 (30,519 ) (30,519 ) (997 ) 0 (997 ) (42,098 ) 40,169 (1,929 ) 0 (2,008 ) (2,008 ) 40,072 (7,642 ) 32,430 0 (30,519 ) (30,519 ) $ (2,026 ) $ 0 $ (2,026 ) CONSOLIDATING CONDENSED
STATEMENT OF COMPREHENSIVE INCOME (LOSS) As previously reported
2012 Adjustments
2012 As revised
2012 $ (28,650 ) $ 49,823 $ 21,173 0 1,308 1,308 50,763 2,094 52,857 0 (53,225 ) (53,225 ) 22,113 0 22,113 (28,130 ) 49,303 21,173 0 1,828 1,828 50,763 2,094 52,857 0 (53,225 ) (53,225 ) 22,633 0 22,633 (29,070 ) 50,243 21,173 0 888 888 50,763 2,094 52,857 0 (53,225 ) (53,225 ) $ 21,693 $ 0 $ 21,693 In the Consolidating Condensed Statement of Comprehensive Income, we now present the Non-Guarantor subsidiaries separate from the Parent. We also recorded an adjustment to correct the beginning net income of the Parent to reflect the equity in earnings from affiliates.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CONSOLIDATING CONDENSED BALANCE SHEET As previously reported
2013 Adjustments
2013 As revised
2013 $ 213,330 $ (35,330 ) $ 178,000 0 34,787 34,787 462,458 (2,591 ) 459,867 (3,134 ) 3,134 0 672,654 0 672,654 1,042,862 179,989 1,222,851 0 40,922 40,922 815,047 282,673 1,097,720 (696,749 ) (503,584 ) (1,200,333 ) $ 1,161,160 $ 0 $ 1,161,160 $ 70,533 $ (5,109 ) $ 65,424 0 4,572 4,572 114,930 (2,597 ) 112,333 (3,134 ) 3,134 0 182,329 0 182,329 470,024 (1,346 ) 468,678 0 (6,069 ) (6,069 ) 693,615 239,391 933,006 (693,615 ) (231,976 ) (925,591 ) $ 470,024 $ 0 $ 470,024 In the Consolidating Condensed Balance Sheet, we now present the Non-Guarantor subsidiaries separate from the Parent. We also recorded adjustments to present intercompany receivables and payables between legal entities of the Guarantor, Non-Guarantor and Parent on a gross basis instead of net. These adjustments impacted the Parent’s total long term assets and liabilities and the Guarantor subsidiaries’ total long term assets and equity. We also corrected the presentation of certain deferred tax balances to present on a gross basis by legal entity.CENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS As previously reported
2013 Adjustments
2013 As revised
2013 $ (9,068 ) $ (22,182 ) $ (31,250 ) 0 (11,632 ) (11,632 ) 20,858 (3,742 ) 17,116 (40,072 ) 37,556 (2,516 ) (28,282 ) 0 (28,282 ) (43,361 ) 48,576 5,215 0 (337 ) (337 ) (21,833 ) 3,742 (18,091 ) 40,072 (51,981 ) (11,909 ) (25,122 ) 0 (25,122 ) 20,435 (28,267 ) (7,832 ) 0 13,842 13,842 (126 ) 0 (126 ) 0 14,425 14,425 $ 20,309 $ 0 $ 20,309 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS As previously reported
2012 Adjustments
2012 As revised
2012 $ 74,405 $ (66,427 ) $ 7,978 0 16,008 16,008 65,527 (344 ) 65,183 (50,763 ) 50,763 0 89,169 0 89,169 (32,357 ) 12,268 (20,089 ) 0 (378 ) (378 ) (62,883 ) 345 (62,538 ) 50,763 (12,235 ) 38,528 (44,477 ) 0 (44,477 ) (8,453 ) 50,750 42,297 0 (12,222 ) (12,222 ) (122 ) 0 (122 ) 0 (38,528 ) (38,528 ) $ (8,575 ) $ 0 $ (8,575 ) In the Consolidating Condensed Statement of Cash Flows, we now present the Non-Guarantor subsidiaries separate from the Parent. We also present changes in receivable balances between affiliates as investing activitiesCENTRAL GARDEN & PET COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)and changes in payable balances between affiliates as financing activities because these changes are a result of subsidiaries’ deposits to or borrowings from the Parent’s cash account under a cash pooling arrangement. We also corrected the presentation of the Parent’s cash flows from operating activities to reflect equity in earnings of affiliates as a non-cash operating activity. We previously presented changes of intercompany receivables and payables in investing activities.21. Subsequent EventIn November 2014, the Board of Directors authorized the purchase of up to $50 million principal amount of the Company’s 8.25% senior subordinated notes due March 2018.EXHIBIT INDEXSet forth below is a list of exhibits that are being filed or incorporated by reference into this Form 10-K: Incorporated by Reference Form File
No. Exhibit Filing
Date Filed
Herewith 3.1 Fourth Amended and Restated Certificate of Incorporation, including the Certificate of Designation – Series A Convertible Preferred Stock and Certificate of Designation – Series B Convertible Preferred Stock. 10-K 001-33268 3.1 12/14/06 3.2 Amended and Restated By-laws of Central Garden & Pet Company, effective February 10, 2009. 10-Q 001-33268 3.2 5/7/09 4.1 Specimen Common Stock Certificate. S-1 33-48070 4.1 5/21/92 4.2 Specimen Class A Common Stock Certificate. 8-A 001-33268 1 1/24/07 4.4 Indenture, dated as of March 8, 2010, by and between the Company and Wells Fargo Bank, National Association, as trustee. 8-K 001-33268 4.2 3/8/10 4.5 First Supplemental Indenture, dated as of March 8, 2010, by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to 8.25% Senior Subordinated Notes due 2018. 8-K 001-33268 4.3 3/8/10 4.6 Second Supplemental Indenture, dated as of February 13, 2012, by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to 8.25% Senior Subordinated Notes due 2018. 8-K 001-33268 4.1 2/13/12 10.1* Form of Indemnification Agreement between the Company and Executive Officers and Directors. S-1 33-48070 10.18 5/21/92 10.2 Credit Agreement dated December 5, 2013 among the Company, certain of the Company’s domestic subsidiaries, as borrowers and guarantors, a syndicate of financial institutions party thereto, SunTrust Bank, as administrative agent and swingline lender, and SunTrust Robinson Humphrey, Inc., U.S. Bank National Association and Harris Bank as joint lead arrangers and bookrunners. 10-Q 001-33268 10.1 2/6/14 10.3* 2003 Omnibus Equity Incentive Plan, as amended and restated effective February 13, 2012. 8-K 001-33268 10.2 2/15/12 10.4* Form of Nonstatutory Stock Option Agreement for 2003 Omnibus Equity Incentive Plan. 10-K 000-20242 10.5.1 12/9/04 10.5* Form of Restricted Stock Agreement for 2003 Omnibus Equity Incentive Plan. 10-K 000-20242 10.5.2 12/9/04 Incorporated by ReferenceExhibitNumberExhibitFormFileNo.ExhibitFilingDateFiledHerewith10.6*Form of Performance-Based Non-Statutory Stock Option Agreement for 2003 Omnibus Equity Incentive Plan10-K001-3326810.4.311/19/1010.7*Nonemployee Director Equity Incentive Plan, as amended and restated effective December 10, 2008 (Incorporated by reference from Exhibit 10.5 to the Company’s Form 10-Q for the fiscal quarter ended March 28, 2009).10-Q001-3326810.55/7/0910.8*Form of Nonstatutory Stock Option Agreement for Nonemployee Director Equity Incentive Plan.10-Q000-2024210.6.12/3/0510.9*Form of Restricted Stock Agreement for Nonemployee Director Equity Incentive Plan.10-Q000-2024210.6.22/3/0510.10*Employment Agreement dated as of February 27, 1998 between Pennington Seed, Inc. of Delaware and Brooks Pennington III.10-K/A000-2024210.201/20/9910.11*Modification and Extension of Employment Agreement dated as of February 27, 1998 between Pennington Seed, Inc. of Delaware and Brooks Pennington III, dated as of May 6, 2003.10-Q000-2024210.7.18/8/0310.12*Modification and Extension of Employment Agreement and Noncompetition Agreement, dated as of April 10, 2006, between the Company and Brooks M. Pennington III.8-K000-2024210.14/14/0610.13*Modification and Extension of Employment Agreement and Noncompetition Agreement, dated as of July 1, 2008, between the Company and Brooks M. Pennington III.10-K001-3326810.7.211/26/0810.14*Amendment of Employment Agreement and Non-Competition Agreement between the Company and Brooks M. Pennington III, dated March 20, 2012.10-Q001-3326810.12/7/201310.15*Form of Agreement to Protect Confidential Information, Intellectual Property and Business Relationships.8-K000-2024210.110/14/0510.16*Form of Post-Termination Consulting Agreement.8-K000-2024210.210/14/0510.17*Employment Offer Letter between the Company and Lori Varlas dated November 5, 2010.8-K001-3326810.112/1/1010.19*Consulting Services Agreement between the Company and Gus Halas, dated January 15, 2013.10-Q001-3326810.22/7/201310.20*Consulting Services Agreement between the Company and Frank P. Palantoni, dated March 7, 2013.8-K001-3326810.13/8/2013 Incorporated by Reference Form File
No. Exhibit Filing
Date Filed
Herewith 10.21* Employment Agreement between the Company and John Ranelli, dated January 9, 2013. 10-Q 001-33268 10.3 2/7/2013 10.22* Election for Additional Compensation and Release Agreement between the Company and Steven LaMonte, effective April 19, 2014. X 12 Statement re Computation of Ratios of Earnings to Fixed Charges. X 14 Code of Ethics, updated May 2009 10-K 001-33268 14 12/13/2012 21 List of Subsidiaries. X 23 Consent of Independent Registered Public Accounting Firm. X 31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14(a). X 31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14(a). X 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350. X 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Extension Label Linkbase Document X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X *Management contract or compensatory plan or arrangement. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Fiscal Year Ended September 26, 2015 (in thousands) Parent Eliminations Consolidated Net cash (used) provided by operating activities $ (16,823 ) $ 7,372 $ 103,619 $ (6,719 ) $ 87,449 Additions to property, plant and equipment (2,721 ) (405 ) (18,904 ) — (22,030 ) Businesses acquired, net of cash acquired (38,384 ) — — — (38,384 ) Change in restricted cash and cash equivalents 1,126 — — — 1,126 Maturities of short term investments 9,997 — — — 9,997 Investment in short term investments (17 ) — — — (17 ) Other investing activities (546 ) — — — (546 ) Intercompany investing activities (15,789 ) — (85,963 ) 101,752 — Net cash used by investing activities (46,334 ) (405 ) (104,867 ) 101,752 (49,854 ) Repayments on revolving line of credit (312,000 ) — — — (312,000 ) Borrowings on revolving line of credit 312,000 — — — 312,000 Repayments of long-term debt (50,262 ) — (27 ) — (50,289 ) Proceeds from issuance of common stock 200 — — — 200 Excess tax benefits from stock-based awards 2,154 — — — 2,154 Repurchase of common stock (18,497 ) — — — (18,497 ) Payment of deferred financing costs (258 ) — — — (258 ) Distribution to parent — (6,719 ) — 6,719 — Distribution to noncontrolling interest — (1,680 ) — — (1,680 ) Intercompany financing activities 103,326 (1,574 ) — (101,752 ) — Net cash provided (used) by financing activities 36,663 (9,973 ) (27 ) (95,033 ) (68,370 ) Effect of exchange rates on cash (697 ) 222 158 — (317 ) Net increase (decrease) in cash and cash equivalents (27,191 ) (2,784 ) (1,117 ) — (31,092 ) Cash and cash equivalents at beginning of year 63,471 12,806 2,399 — 78,676 Cash and cash equivalents at end of year $ 36,280 $ 10,022 $ 1,282 $ — $ 47,584