NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended June 27, 2020
(Unaudited)
1. Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of June 27, 2020 and June 29, 2019, the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended June 27, 2020 and June 29, 2019 and the condensed consolidated statements of cash flows for the nine months ended June 27, 2020 and June 29, 2019 have been prepared by the Company, without audit. In the opinion of management, the interim financial statements include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented.
For the Company’s foreign business in the UK, the local currency is the functional currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the period. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of its foreign subsidiary to be permanently reinvested. Transaction gains and losses are included in results of operations.
Due to the seasonal nature of the Company’s garden business, the results of operations for the three and nine months ended June 27, 2020 are not indicative of the operating results that may be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes thereto, included in the Company’s 2019 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September 28, 2019 balance sheet presented herein was derived from the audited financial statements.
Noncontrolling Interest
Noncontrolling interest in the Company’s condensed consolidated financial statements represents the 20% interest not owned by Central in a consolidated subsidiary. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 20% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interest on the consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations. See Note 9, Supplemental Equity Information, for additional information.
Cash, Cash Equivalents and Restricted Cash
The Company considers cash and all highly liquid investments with an original maturity of three months or less at date of purchase to be cash and cash equivalents. Restricted cash includes cash and highly liquid instruments that are used as collateral for stand-alone letter of credit agreements related to normal business transactions. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has available for other uses. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of June 27, 2020, June 29, 2019 and September 28, 2019, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
June 29, 2019
|
|
September 28, 2019
|
Cash and cash equivalents
|
|
$
|
495,339
|
|
|
$
|
445,632
|
|
|
$
|
497,749
|
|
Restricted cash
|
|
13,536
|
|
|
10,924
|
|
|
12,952
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
508,875
|
|
|
$
|
456,556
|
|
|
$
|
510,701
|
|
Allowance for Doubtful Accounts
Trade accounts receivable are regularly evaluated for collectability based on past credit history with customers, their current financial condition and their expected deductions.
Revenue Recognition
Revenue Recognition and Nature of Products and Services
The Company manufactures, markets and distributes a wide variety of branded, private label and third-party pet and garden products to wholesalers, distributors and retailers, primarily in the United States. The majority of the Company’s revenue is generated from the sale of finished pet and garden products. The Company also recognizes a minor amount of non-product revenue (less than one percent of consolidated net sales) comprising third-party logistics services, merchandising services and royalty income from sales-based licensing
arrangements. Product and non-product revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company recognizes product revenue when control over the finished goods transfers to its customers, which generally occurs upon shipment to, or receipt at, customers’ locations, as determined by the specific terms of the contract. These revenue arrangements generally have single performance obligations. Non-product revenue is recognized as the services are provided to the customer in the case of third-party logistics services and merchandising services, or as third-party licensee sales occur for royalty income. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, unsaleable product, consumer coupon redemption and rebates. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.
Key sales terms are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, the Company does not capitalize contract inception costs. Product fulfillment costs are capitalized as a part of inventoriable costs in accordance with our inventory policies. The Company generally does not have unbilled receivables at the end of a period. Deferred revenues are not material and primarily include advance payments for services that have yet to be rendered. The Company does not receive noncash consideration for the sale of goods. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis; therefore, the Company does not have any significant financing components.
Sales Incentives and Other Promotional Programs
The Company routinely offers sales incentives and discounts through various regional and national programs to our customers and consumers. These programs include product discounts or allowances, product rebates, product returns, one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. The costs associated with these activities are accounted for as reductions to the transaction price of the Company’s products and are, therefore, recorded as reductions to gross sales at the time of sale. The Company bases its estimates of incentive costs on historical trend experience with similar programs, actual incentive terms per customer contractual obligations and expected levels of performance of trade promotions, utilizing customer and sales organization inputs. The Company maintains liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are generally not material and are recognized in earnings in the period such differences are determined. Reserves for product returns, accrued rebates and promotional accruals are included in the condensed consolidated balance sheets as part of accrued expenses, and the value of inventory associated with reserves for sales returns is included within prepaid expenses and other current assets on the condensed consolidated balance sheets.
Leases
Effective September 29, 2019, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842"). Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. On September 29, 2019, the Company began to record operating leases on its condensed consolidated balance sheet. As of December 28, 2019, long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities were presented separately in the condensed consolidated balance sheets. Finance lease ROU assets continue to be presented in property, plant and equipment, net, and the related finance liabilities have been presented with current and long-term debt in the condensed consolidated balance sheets.
Lease ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. Non-lease components and the lease components to which they relate are accounted for as a single lease component, as the Company has elected to combine lease and non-lease components for all classes of underlying assets.
Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales or selling, general and administrative expenses, depending on the nature of the leased item. Interest expense is recorded over the lease term and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash flows from financing activities in the condensed consolidated statements of cash flows.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
Leases
In February 2016, the FASB issued ASU 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires companies to recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets and disclose key information about leasing information. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The Company adopted the new standard in the first quarter of fiscal year 2020, on a modified retrospective basis using the optional transition method, and accordingly, has not restated comparative periods. Fiscal year 2019 balances and related disclosures supporting those comparative period balances continue to be presented under ASC 840, "Leases." The new standard provides a number of optional practical expedients in transition. The Company elected the 'package of practical expedients,' which permit it to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company elected not to recognize ROU assets and lease liabilities for short-term operating leases with terms of 12 months or less. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable. Upon adoption, the Company recorded operating lease right-of-use assets and lease liabilities of approximately $111 million and $115 million, respectively, in the condensed consolidated balance sheet, which included the reclassifications of amounts presented in comparative periods as deferred rent as a reduction of the ROU assets. The Company did not record an adjustment to beginning retained earnings associated with the adoption of this standard. See Note 7. Leases for more information.
Guarantor Financial Information
In March 2020, the Securities Exchange Commission (SEC) amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. The guidance is effective for filings on or after January 4, 2021, with early adoption permitted. The Company early adopted these amendments for the quarter ended June 27, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the Parent Issuer subsidiaries and Guarantor subsidiaries, as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, and a reconciliation to the consolidated results. Accordingly, summarized financial information has been presented for the Parent/Issuer subsidiaries and Guarantors on our senior notes for the most recent fiscal year and the year-to-date interim period, and the location of the required disclosures has been removed from the Notes to the Condensed Consolidated Financial Statements and moved to Part 1. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Accounting Standards Not Yet Adopted
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021. The Company is currently evaluating the effect that ASU 2016-13 will have on its condensed consolidated financial statements and related disclosures.
Goodwill and Intangible Assets
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021. The amendment should be applied on a prospective basis. Based on the Company's most recent annual goodwill impairment test performed as of July 1, 2019, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value; therefore, this ASU would not currently have an impact on the Company's condensed consolidated financial statements and related disclosures. However, if upon adoption the carrying amount of a reporting unit exceeds its fair value, the Company would be impacted by the amount of impairment recognized.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted, and is effective for the Company in fiscal 2021. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect that ASU 2018-15 will have on its condensed consolidated financial statements and related disclosures.
Fair Value Disclosures
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted and is effective for the Company in fiscal 2021. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the effect that ASU 2018-13 will have on its condensed consolidated financial statements and related disclosures.
Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company in its first quarter of fiscal 2022 and would require the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings, if applicable. The Company is currently evaluating the impact that ASU 2019-12 may have on its consolidated financial statements.
2. Fair Value Measurements
ASC 820 establishes a single authoritative definition of fair value, a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 requires financial assets and liabilities to be categorized based on the inputs used to calculate their fair values as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The Company’s financial instruments include cash and equivalents, short term investments consisting of bank certificates of deposit, accounts receivable and payable, derivative instruments, short-term borrowings, and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of June 27, 2020 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability for contingent consideration (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,246
|
|
|
$
|
1,246
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,246
|
|
|
$
|
1,246
|
|
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of June 29, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Short term investments (b)
|
|
$
|
119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119
|
|
Total assets
|
|
$
|
119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability for contingent consideration (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,824
|
|
|
$
|
7,824
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,824
|
|
|
$
|
7,824
|
|
The following table presents our financial assets and liabilities at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 28, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability for contingent consideration (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,369
|
|
|
$
|
7,369
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,369
|
|
|
$
|
7,369
|
|
(a)The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015 and future performance-based contingent payments for Segrest, Inc., acquired in October 2016. In December 2019, performance-based criteria associated with the $6 million contingent consideration liability related to Segrest, Inc. were met and accordingly, the entire amount was released out of an independent escrow account to the former owners as of December 28, 2019. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.
(b) The fair value of short-term investments are based on quoted prices in active markets for identical assets.
The following table provides a summary of the changes in fair value of the Company's Level 3 financial instruments for the periods ended June 27, 2020 and June 29, 2019 (in thousands):
|
|
|
|
|
|
|
Amount
|
Balance September 28, 2019
|
$
|
7,369
|
|
Estimated contingent performance-based consideration established at the time of acquisition
|
—
|
|
Changes in the fair value of contingent performance-based payments established at the time of acquisition
|
31
|
|
Performance-based payments
|
(6,154)
|
|
Balance June 27, 2020
|
$
|
1,246
|
|
|
|
|
Amount
|
Balance September 29, 2018
|
$
|
8,224
|
|
Estimated contingent performance-based consideration established at the time of acquisition
|
—
|
|
Changes in the fair value of contingent performance-based payments established at the time of acquisition
|
(296)
|
|
Performance-based payments
|
(104)
|
|
Balance June 29, 2019
|
$
|
7,824
|
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain non-financial assets and liabilities, including long-lived assets, goodwill and intangible assets, at fair value on a non-recurring basis. Fair value measurements of non-financial assets and non-financial liabilities are used primarily in the impairment analyses of long-lived assets, goodwill and other intangible assets. During the periods ended June 27, 2020 and June 29, 2019, the Company was not required to measure any significant non-financial assets and liabilities at fair value.
Fair Value of Other Financial Instruments
In December 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The estimated fair value of the Company's 2028 Notes as of June 27, 2020, June 29, 2019 and September 28, 2019 was $310.9 million, $295.0 million and $307.1 million, respectively, compared to a carrying value of $296.5 million, $296 million and $296.1 million, respectively.
In November 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the “2023 Notes”). The estimated fair value of the Company’s 2023 Notes as of June 27, 2020, June 29, 2019 and September 28, 2019 was $409.5 million, $415.8 million and $414.6 million, respectively, compared to a carrying value of $397.3 million, $396.5 million and $396.7 million, respectively.
3. Acquisitions
C&S Products
In May 2019, the Company purchased C&S Products, a manufacturer of suet and other wild bird feed products, to complement our existing wild bird feed business for approximately $30.0 million. Subsequent to the acquisition, approximately $4.7 million of cash was used to eliminate the acquired long-term debt. The financial results of C&S Products have been included in the results of operations within the Pet segment since the date of acquisition. The following table summarizes the purchase price and recording of fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
9,794
|
|
|
$
|
441
|
|
|
$
|
10,235
|
|
Fixed assets
|
23,743
|
|
|
(3,786)
|
|
|
19,957
|
|
Goodwill
|
—
|
|
|
3,777
|
|
|
3,777
|
|
Other assets
|
5,081
|
|
|
(3,242)
|
|
|
1,839
|
|
Other intangible assets, net
|
—
|
|
|
2,810
|
|
|
2,810
|
|
Current liabilities
|
(2,137)
|
|
|
—
|
|
|
(2,137)
|
|
Long-term obligations
|
(6,457)
|
|
|
$
|
—
|
|
|
(6,457)
|
|
Net assets acquired, less cash and cash equivalents
|
$
|
30,024
|
|
|
$
|
—
|
|
|
$
|
30,024
|
|
(1) As previously reported in the Company's Form 10-K for the period ended September 28, 2019.
The impact to the consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets for C&S Products during the quarter ended December 28, 2019 was immaterial.
4. Inventories, net
Inventories, net of allowance for obsolescence, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
June 29, 2019
|
|
September 28, 2019
|
Raw materials
|
|
$
|
151,412
|
|
|
$
|
138,073
|
|
|
$
|
145,331
|
|
Work in progress
|
|
42,185
|
|
|
36,355
|
|
|
51,154
|
|
Finished goods
|
|
218,542
|
|
|
275,286
|
|
|
255,870
|
|
Supplies
|
|
13,780
|
|
|
15,203
|
|
|
13,842
|
|
Total inventories, net
|
|
$
|
425,919
|
|
|
$
|
464,917
|
|
|
$
|
466,197
|
|
5. Goodwill
The Company tests goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the two-step test is performed to identify potential goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values, including goodwill. If the fair value of the reporting unit is less than its carrying value, the Company performs an additional step to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and accordingly, the Company recognizes such impairment. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of its two reporting units to the Company’s total market capitalization. No impairment of goodwill was recorded for the three and nine months ended June 27, 2020 and June 29, 2019. The Company recorded approximately $3.8 million of goodwill in its Pet segment during the three months ended December 28, 2019 as part of its finalization of the purchase price allocation of C&S Products.
6. Other Intangible Assets
The following table summarizes the components of gross and net acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Accumulated
Impairment
|
|
Net
Carrying
Value
|
|
|
(in millions)
|
|
|
|
|
|
|
June 27, 2020
|
|
|
|
|
|
|
|
|
Marketing-related intangible assets – amortizable
|
|
$
|
20.6
|
|
|
$
|
(17.3)
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
Marketing-related intangible assets – nonamortizable
|
|
70.6
|
|
|
—
|
|
|
(26.0)
|
|
|
44.6
|
|
Total
|
|
91.2
|
|
|
(17.3)
|
|
|
(26.0)
|
|
|
47.9
|
|
Customer-related intangible assets – amortizable
|
|
140.3
|
|
|
(61.4)
|
|
|
(2.5)
|
|
|
76.3
|
|
Other acquired intangible assets – amortizable
|
|
26.0
|
|
|
(17.8)
|
|
|
—
|
|
|
8.2
|
|
Other acquired intangible assets – nonamortizable
|
|
7.1
|
|
|
—
|
|
|
(1.2)
|
|
|
5.9
|
|
Total
|
|
33.0
|
|
|
(17.8)
|
|
|
(1.2)
|
|
|
14.1
|
|
Total other intangible assets
|
|
$
|
264.6
|
|
|
$
|
(96.5)
|
|
|
$
|
(29.7)
|
|
|
$
|
138.3
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Accumulated
Impairment
|
|
Net
Carrying
Value
|
|
|
(in millions)
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
|
|
|
|
|
Marketing-related intangible assets – amortizable
|
|
$
|
18.6
|
|
|
$
|
(15.7)
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
Marketing-related intangible assets – nonamortizable
|
|
70.6
|
|
|
—
|
|
|
(26.0)
|
|
|
44.6
|
|
Total
|
|
89.2
|
|
|
(15.7)
|
|
|
(26.0)
|
|
|
47.5
|
|
Customer-related intangible assets – amortizable
|
|
128.3
|
|
|
(50.0)
|
|
|
(2.5)
|
|
|
75.8
|
|
Other acquired intangible assets – amortizable
|
|
26.0
|
|
|
(15.9)
|
|
|
—
|
|
|
10.1
|
|
Other acquired intangible assets – nonamortizable
|
|
7.2
|
|
|
—
|
|
|
(1.2)
|
|
|
6.0
|
|
Total
|
|
33.2
|
|
|
(15.9)
|
|
|
(1.2)
|
|
|
16.1
|
|
Total other intangible assets
|
|
$
|
250.7
|
|
|
$
|
(81.6)
|
|
|
$
|
(29.7)
|
|
|
$
|
139.4
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Accumulated
Impairment
|
|
Net
Carrying
Value
|
|
|
(in millions)
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
Marketing-related intangible assets – amortizable
|
|
$
|
19.7
|
|
|
$
|
(16.3)
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
Marketing-related intangible assets – nonamortizable
|
|
70.6
|
|
|
—
|
|
|
(26.0)
|
|
|
44.6
|
|
Total
|
|
90.3
|
|
|
(16.3)
|
|
|
(26.0)
|
|
|
48.0
|
|
Customer-related intangible assets – amortizable
|
|
138.4
|
|
|
(53.3)
|
|
|
(2.5)
|
|
|
82.6
|
|
Other acquired intangible assets – amortizable
|
|
26.0
|
|
|
(16.4)
|
|
|
—
|
|
|
9.6
|
|
Other acquired intangible assets – nonamortizable
|
|
7.1
|
|
|
—
|
|
|
(1.2)
|
|
|
5.9
|
|
Total
|
|
33.1
|
|
|
(16.4)
|
|
|
(1.2)
|
|
|
15.5
|
|
Total other intangible assets
|
|
$
|
261.8
|
|
|
$
|
(86.0)
|
|
|
$
|
(29.7)
|
|
|
$
|
146.1
|
|
Other acquired intangible assets include contract-based and technology-based intangible assets.
As part of its acquisition of C&S Products in the third quarter of fiscal 2019, the Company acquired approximately $0.9 million of amortizable marketing-related intangible assets and approximately $1.9 million of customer-related intangible assets.
The Company evaluates long-lived assets, including amortizable and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates indefinite-lived intangible assets on an annual basis. Factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not present in the three or nine months ended June 27, 2020, and accordingly, no impairment testing was performed on these assets. As a result of one of our retail customers exiting the live fish business, factors indicating the carrying value of certain amortizable intangible assets may not be recoverable were present during the quarter ended March 30, 2019. The Company performed impairment testing on these assets, found the carrying value was not recoverable and accordingly, recorded an impairment charge in its Pet segment of approximately $2.5 million as part of selling, general and administrative expenses in the condensed consolidated statements of operations for the nine-month period ended June 29, 2019.
The Company amortizes its acquired intangible assets with definite lives over periods ranging from 3 years to 25 years; over weighted average remaining lives of 4 years for marketing-related intangibles, 9 years for customer-related intangibles and 10 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $3.4 million and $3.4 million for the three months ended June 27, 2020 and June 29, 2019, respectively, and $10.6 million and $10.3 million for the nine months ended June 27, 2020 and June 29, 2019, respectively, and is classified within selling, general and administrative expenses in the condensed consolidated statements of operations. Estimated annual amortization expense related to acquired intangible assets in each of the succeeding five years is estimated to be approximately $12 million per year from fiscal 2020 through fiscal 2024 and thereafter.
.
7. Leases
The Company has operating and finance leases for manufacturing and distribution facilities, vehicles, equipment and office space. The Company's leases have remaining lease terms of one to 10 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company does not include significant restrictions or covenants in its lease agreements, and residual value guarantees are not included within its operating leases. Some of the Company's leasing arrangements require variable payments that are dependent on usage or output or may vary for other reasons, such as product costs, insurance and tax payments. These variable payments are not included in the Company's recorded lease assets and liabilities and are expensed as incurred. Certain leases are tied to a variable index or rate and are included in lease assets and liabilities based on the indices or rates as of lease commencement. See Note 1. Basis of Presentation, Leases, for more information about the Company's lease accounting policies.
Supplemental balance sheet information related to the Company's leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
As of
June 27, 2020
(in millions)
|
Operating leases
|
|
|
|
|
Right-of-use assets
|
|
Operating lease right-of-use assets
|
|
$
|
99.1
|
|
Current lease liabilities
|
|
Current operating lease liabilities
|
|
$
|
31.6
|
|
Non-current lease liabilities
|
|
Long-term operating lease liabilities
|
|
71.5
|
|
Total operating lease liabilities
|
|
|
|
$
|
103.1
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
Right-of-use assets
|
|
Property, plant and equipment, net
|
|
$
|
0.3
|
|
Current lease liabilities
|
|
Current portion of long-term debt
|
|
$
|
0.1
|
|
Non-current lease liabilities
|
|
Long-term debt
|
|
0.1
|
|
Total finance lease liabilities
|
|
|
|
$
|
0.2
|
|
Components of lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 27, 2020
(in millions)
|
|
Nine Months Ended
June 27, 2020
(in millions)
|
|
|
Operating lease cost
|
|
$
|
9.7
|
|
|
$
|
29.0
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
|
Interest on lease liabilities
|
|
—
|
|
|
—
|
|
|
|
Total finance lease cost
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Short-term lease cost
|
|
$
|
1.0
|
|
|
$
|
2.7
|
|
|
|
Variable lease cost
|
|
$
|
1.6
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
12.3
|
|
|
$
|
36.9
|
|
|
|
Supplemental cash flow information and non-cash activity related to the Company's leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 27, 2020
(in millions)
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
|
$
|
26.8
|
|
|
|
Operating cash flows from finance leases
|
|
|
|
$
|
—
|
|
|
|
Financing cash flows from finance leases
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
Operating leases
|
|
|
|
$
|
13.7
|
|
|
|
Finance leases
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term and discount rate for the Company's leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 27, 2020
|
|
|
Weighted-average remaining lease term (in years):
|
|
|
|
|
Operating leases
|
|
4.8
|
|
|
Finance leases
|
|
2.2
|
|
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
|
Operating leases
|
|
3.84
|
%
|
|
|
Finance leases
|
|
4.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Future non-cancelable lease payments under prior lease accounting rules (ASC 840) and under the new lease accounting rules (ASC 842) that went into effect September 29, 2019 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 27, 2020
|
|
|
|
As of September 28, 2019
|
|
|
ASC 842
|
|
|
|
ASC 840
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Operating Leases
|
Fiscal Year
|
|
|
|
|
|
|
2020 (excluding the nine months ended June 27, 2020)
|
|
$
|
9.6
|
|
|
$
|
—
|
|
|
|
2020
|
|
|
|
|
|
$
|
38.0
|
|
2021
|
|
32.4
|
|
|
0.1
|
|
|
29.3
|
|
2022
|
|
25.1
|
|
|
0.1
|
|
|
21.8
|
|
2023
|
|
14.7
|
|
|
—
|
|
|
11.3
|
|
2024
|
|
10.0
|
|
|
—
|
|
|
7.9
|
|
Thereafter
|
|
21.9
|
|
|
—
|
|
|
20.7
|
|
Total future undiscounted lease payments
|
|
$
|
113.7
|
|
|
$
|
0.2
|
|
|
$
|
129.0
|
|
Less imputed interest
|
|
(10.6)
|
|
|
—
|
|
|
|
Total reported lease liability
|
|
$
|
103.1
|
|
|
$
|
0.2
|
|
|
|
8. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
June 29, 2019
|
|
September 28, 2019
|
|
|
(in thousands)
|
|
|
|
|
Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028
|
|
300,000
|
|
|
300,000
|
|
|
300,000
|
|
Unamortized debt issuance costs
|
|
(6,207)
|
|
|
(7,475)
|
|
|
(7,158)
|
|
Net carrying value
|
|
693,793
|
|
|
692,525
|
|
|
692,842
|
|
Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.00% to 1.50% or Base Rate plus a margin of 0.0% to 0.50%, final maturity September 2024.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Other notes payable
|
|
220
|
|
|
539
|
|
|
308
|
|
Total
|
|
694,013
|
|
|
693,064
|
|
|
693,150
|
|
Less current portion
|
|
(98)
|
|
|
(116)
|
|
|
(113)
|
|
Long-term portion
|
|
$
|
693,915
|
|
|
$
|
692,948
|
|
|
$
|
693,037
|
|
Senior Notes
$300 million 5.125% Senior Notes
On December 14, 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The Company will use the net proceeds from the offering to finance future acquisitions and for general corporate purposes.
The Company incurred approximately $4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on a senior basis by the Company's existing and future domestic restricted subsidiaries who are borrowers under or guarantors of Central's senior secured revolving credit facility, or who guarantee the 2023 Notes.
The Company may redeem some or all of the 2028 Notes at any time, at its option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. At any time prior to January 1, 2021, the Company may also redeem, at its option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 105.125% of the principal amount of the notes. The Company may redeem some or all of the 2028 Notes, at its option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854%, and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.
The holders of the 2028 Notes have the right to require the Company to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of June 27, 2020.
$400 million 6.125% Senior Notes
On November 9, 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the "2023 Notes"). In December 2015, the Company used the net proceeds from the offering, together with available cash, to redeem its $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 ("2018 Notes") at a price of 102.063% of the principal amount and to pay fees and expenses related to the offering. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.
The Company incurred approximately $6.3 million of debt issuance costs in conjunction with these transactions, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2023 Notes.
The 2023 Notes require semiannual interest payments on May 15 and November 15. The 2023 Notes are unconditionally guaranteed on a senior basis by each of the Company’s existing and future domestic restricted subsidiaries which are borrowers under or guarantors of Central’s senior secured revolving credit facility. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.
The Company may redeem some or all of the 2023 Notes at any time, at its option, at any time on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.
The holders of the 2023 Notes have the right to require the Company to repurchase all or a portion of the 2023 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2023 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of June 27, 2020.
Asset-Based Loan Facility Amendment
On September 27, 2019, the Company entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement dated April 22, 2016 and continues to provide up to a $400.0 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200.0 million principal amount available with the consent of the Lenders, as defined, if the Company exercises the accordion feature set forth therein (collectively, the “Amended Credit Facility”). The Amended Credit Facility matures on September 27, 2024. 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.
The Amended Credit Facility is subject to a borrowing base, reduced capacity due to reserves and certain other restrictions. The borrowing base is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves, and was $400.0 million as of June 27, 2020. The Amended Credit Facility also allows the Company to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders. The Company did not draw down any commitments under the Amended Credit Facility upon closing. Proceeds of the Amended Credit Facility will be used for general corporate purposes. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and an increased $40 million sublimit for short-notice borrowings. As of June 27, 2020, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $3.2 million outstanding as of June 27, 2020.
Borrowings under the Amended Credit Facility will 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 0.50%, (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on the Company’s consolidated senior leverage ratio and (d) 0.00%. Such applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of June 27, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0% as of June 27, 2020. An unused line fee shall be payable monthly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable monthly and a facing fee of 0.125% shall be paid on demand for the stated amount of each letter of credit. The Company is also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of June 27, 2020, the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to LIBOR-based borrowings was 1.2%.
The Company incurred approximately $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility.
The Amended Credit Facility continues to contain customary covenants, including financial covenants which require the Company to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity. The Company was in compliance with all financial covenants under the Amended Credit Facility during the period ended June 27, 2020.
9. Supplemental Equity Information
The following table provides a summary of the changes in the carrying amounts of equity attributable to controlling interest and noncontrolling interest through the nine months ended June 27, 2020 and June 29, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Common
Stock
|
|
Class A
Common
Stock
|
|
Class
B
Stock
|
|
Additional
Paid In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
Noncontrolling
Interest
|
|
Total
|
Balance September 28, 2019
|
|
$
|
115
|
|
|
$
|
430
|
|
|
$
|
16
|
|
|
$
|
575,380
|
|
|
$
|
421,742
|
|
|
$
|
(1,676)
|
|
|
$
|
996,007
|
|
|
$
|
170
|
|
|
$
|
996,177
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,417)
|
|
|
436
|
|
|
(3,981)
|
|
|
(122)
|
|
|
(4,103)
|
|
Amortization of share-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,804
|
|
|
—
|
|
|
—
|
|
|
2,804
|
|
|
—
|
|
|
2,804
|
|
Restricted share activity, including net share settlement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(318)
|
|
|
—
|
|
|
—
|
|
|
(318)
|
|
|
—
|
|
|
(318)
|
|
Repurchase of stock
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
(8,488)
|
|
|
(13,632)
|
|
|
—
|
|
|
(22,128)
|
|
|
—
|
|
|
(22,128)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
—
|
|
|
1
|
|
|
—
|
|
|
739
|
|
|
—
|
|
|
—
|
|
|
740
|
|
|
—
|
|
|
740
|
|
Balance December 28, 2019
|
|
$
|
115
|
|
|
$
|
423
|
|
|
$
|
16
|
|
|
$
|
570,117
|
|
|
$
|
403,693
|
|
|
$
|
(1,240)
|
|
|
$
|
973,124
|
|
|
$
|
48
|
|
|
$
|
973,172
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,704
|
|
|
(405)
|
|
|
42,299
|
|
|
438
|
|
|
42,737
|
|
Amortization of share-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,923
|
|
|
—
|
|
|
—
|
|
|
2,923
|
|
|
—
|
|
|
2,923
|
|
Restricted share activity, including net share settlement
|
|
—
|
|
|
3
|
|
|
—
|
|
|
(807)
|
|
|
—
|
|
|
—
|
|
|
(804)
|
|
|
—
|
|
|
(804)
|
|
Repurchase of stock
|
|
(2)
|
|
|
(8)
|
|
|
—
|
|
|
(10,121)
|
|
|
(14,911)
|
|
|
—
|
|
|
(25,042)
|
|
|
—
|
|
|
(25,042)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
513
|
|
Distribution to Noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(57)
|
|
|
(57)
|
|
Balance March 28, 2020
|
|
$
|
113
|
|
|
$
|
418
|
|
|
$
|
16
|
|
|
$
|
562,625
|
|
|
$
|
431,486
|
|
|
$
|
(1,645)
|
|
|
$
|
993,013
|
|
|
$
|
429
|
|
|
$
|
993,442
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68,800
|
|
|
(39)
|
|
|
68,761
|
|
|
537
|
|
|
69,298
|
|
Amortization of share-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
|
—
|
|
|
3,754
|
|
Restricted share activity, including net share settlement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,425)
|
|
|
—
|
|
|
—
|
|
|
(1,425)
|
|
|
—
|
|
|
(1,425)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
—
|
|
|
1
|
|
|
—
|
|
|
405
|
|
|
—
|
|
|
—
|
|
|
406
|
|
|
—
|
|
|
406
|
|
Repurchase of common stock
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
(1,988)
|
|
|
(3,094)
|
|
|
—
|
|
|
(5,084)
|
|
|
—
|
|
|
(5,084)
|
|
Distribution to Noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39)
|
|
|
(39)
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Balance June 27, 2020
|
|
$
|
113
|
|
|
$
|
417
|
|
|
$
|
16
|
|
|
$
|
563,371
|
|
|
$
|
497,192
|
|
|
$
|
(1,684)
|
|
|
$
|
1,059,425
|
|
|
$
|
927
|
|
|
$
|
1,060,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Common Stock
|
|
Class A Common Stock
|
|
Class B Stock
|
|
Additional Paid In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
|
Noncontrolling Interest
|
|
Total
|
Balance September 29, 2018
|
|
$
|
121
|
|
|
$
|
439
|
|
|
$
|
16
|
|
|
$
|
590,168
|
|
|
$
|
362,923
|
|
|
$
|
(1,218)
|
|
|
$
|
952,449
|
|
|
$
|
385
|
|
|
$
|
952,834
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,803
|
|
|
(274)
|
|
|
1,529
|
|
|
(164)
|
|
|
1,365
|
|
Amortization of share-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,261
|
|
|
—
|
|
|
—
|
|
|
2,261
|
|
|
—
|
|
|
2,261
|
|
Restricted share activity, including net share settlement
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(386)
|
|
|
—
|
|
|
—
|
|
|
(385)
|
|
|
—
|
|
|
(385)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
—
|
|
|
1
|
|
|
—
|
|
|
408
|
|
|
—
|
|
|
—
|
|
|
409
|
|
|
—
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 29, 2018
|
|
$
|
121
|
|
|
$
|
441
|
|
|
$
|
16
|
|
|
$
|
592,451
|
|
|
$
|
364,726
|
|
|
$
|
(1,492)
|
|
|
$
|
956,263
|
|
|
$
|
221
|
|
|
$
|
956,484
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,391
|
|
|
212
|
|
|
42,603
|
|
|
331
|
|
|
42,934
|
|
Amortization of share-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,473
|
|
|
—
|
|
|
—
|
|
|
2,473
|
|
|
—
|
|
|
2,473
|
|
Restricted share activity, including net share settlement
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(1,773)
|
|
|
—
|
|
|
—
|
|
|
(1,771)
|
|
|
—
|
|
|
(1,771)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(820)
|
|
|
—
|
|
|
—
|
|
|
(819)
|
|
|
—
|
|
|
(819)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Balance March 28, 2020
|
|
$
|
121
|
|
|
$
|
444
|
|
|
$
|
16
|
|
|
$
|
592,331
|
|
|
$
|
407,117
|
|
|
$
|
(1,280)
|
|
|
$
|
998,749
|
|
|
$
|
553
|
|
|
$
|
999,302
|
|
Comprehensive income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,152
|
|
|
$
|
(146)
|
|
|
$
|
46,006
|
|
|
$
|
189
|
|
|
$
|
46,195
|
|
Amortization of share-based awards
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,965
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,965
|
|
|
$
|
—
|
|
|
$
|
2,965
|
|
Restricted share activity, including net share settlement
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(641)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(640)
|
|
|
$
|
—
|
|
|
$
|
(640)
|
|
Issuance of common stock, including net share settlement of stock options
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
871
|
|
|
$
|
—
|
|
|
$
|
871
|
|
Repurchase of common stock
|
|
|
|
$
|
(6)
|
|
|
|
|
$
|
(5,676)
|
|
|
$
|
(8,624)
|
|
|
|
|
$
|
(14,306)
|
|
|
|
|
$
|
(14,306)
|
|
Distribution to Noncontrolling interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(64)
|
|
|
$
|
(64)
|
|
Balance June 29, 2019
|
|
$
|
121
|
|
|
$
|
440
|
|
|
$
|
16
|
|
|
$
|
589,849
|
|
|
$
|
444,645
|
|
|
$
|
(1,426)
|
|
|
$
|
1,033,645
|
|
|
$
|
678
|
|
|
$
|
1,034,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Stock-Based Compensation
The Company recognized share-based compensation expense of $14.0 million and $10.4 million for the nine months ended June 27, 2020 and June 29, 2019, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the nine months ended June 27, 2020 and June 29, 2019 was $3.4 million and $2.5 million, respectively.
11. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations (in thousands except share and per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
June 27, 2020
|
|
|
|
|
|
June 27, 2020
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
Income
|
|
Shares
|
|
Per Share
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
68,800
|
|
|
53,441
|
|
|
$
|
1.29
|
|
|
$
|
107,087
|
|
|
54,261
|
|
|
$
|
1.97
|
|
Effect of dilutive securities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
—
|
|
|
278
|
|
|
(0.01)
|
|
|
—
|
|
|
339
|
|
|
(0.01)
|
|
Restricted shares
|
|
—
|
|
|
449
|
|
|
(0.01)
|
|
|
—
|
|
|
384
|
|
|
(0.01)
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
68,800
|
|
|
54,168
|
|
|
$
|
1.27
|
|
|
$
|
107,087
|
|
|
54,984
|
|
|
$
|
1.95
|
|
(1) The potential effects of stock awards were excluded from the diluted earnings per share calculation for the three months ended December 28, 2019, because their inclusion in a net loss period would be anti-dilutive to the earnings per share calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
|
|
June 29, 2019
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
Income
|
|
Shares
|
|
Per Share
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
46,152
|
|
|
57,319
|
|
|
$
|
0.81
|
|
|
$
|
90,346
|
|
|
57,021
|
|
|
$
|
1.58
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
—
|
|
|
412
|
|
|
(0.01)
|
|
|
—
|
|
|
559
|
|
|
(0.01)
|
|
Restricted shares
|
|
—
|
|
|
254
|
|
|
—
|
|
|
—
|
|
|
357
|
|
|
(0.01)
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
46,152
|
|
|
57,985
|
|
|
$
|
0.80
|
|
|
$
|
90,346
|
|
|
57,937
|
|
|
$
|
1.56
|
|
Options to purchase 3.1 million shares of common stock at prices ranging from $10.63 to $38.10 per share were outstanding at June 27, 2020, and options to purchase 2.6 million shares of common stock at prices ranging from $8.56 to $38.10 per share were outstanding at June 29, 2019.
For the three months ended June 27, 2020 and June 29, 2019, 0.5 million and 1.8 million options outstanding were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options would be antidilutive.
For the nine months ended June 27, 2020 and June 29, 2019, 1.0 million and 1.1 million options outstanding were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options would be antidilutive.
12. Segment Information
Management has determined that the Company has two operating segments, which are also reportable segments based on the level at which the Chief Operating Decision Maker reviews the results of operations to make decisions regarding performance assessment and resource allocation. These operating segments are Pet segment and Garden segment and are presented in the table below (in thousands).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
June 27, 2020
|
|
June 29, 2019
|
|
June 27, 2020
|
|
June 29, 2019
|
Net sales:
|
|
|
|
|
|
|
|
|
Pet segment
|
|
$
|
413,260
|
|
|
$
|
350,155
|
|
|
$
|
1,128,073
|
|
|
$
|
1,028,754
|
|
Garden segment
|
|
420,223
|
|
|
356,420
|
|
|
891,467
|
|
|
813,512
|
|
Total net sales
|
|
$
|
833,483
|
|
|
$
|
706,575
|
|
|
$
|
2,019,540
|
|
|
$
|
1,842,266
|
|
Operating Income (loss)
|
|
|
|
|
|
|
|
|
Pet segment
|
|
50,760
|
|
|
35,066
|
|
|
114,599
|
|
|
91,805
|
|
Garden segment
|
|
77,787
|
|
|
53,103
|
|
|
122,439
|
|
|
101,821
|
|
Corporate
|
|
(23,907)
|
|
|
(19,298)
|
|
|
(64,228)
|
|
|
(52,421)
|
|
Total operating income
|
|
104,640
|
|
|
68,871
|
|
|
172,810
|
|
|
141,205
|
|
Interest expense - net
|
|
(11,471)
|
|
|
(8,498)
|
|
|
(29,444)
|
|
|
(24,960)
|
|
Other income (expense)
|
|
(3,541)
|
|
|
180
|
|
|
(4,215)
|
|
|
488
|
|
Income tax expense
|
|
20,291
|
|
|
14,212
|
|
|
31,211
|
|
|
26,031
|
|
Income including noncontrolling interest
|
|
69,337
|
|
|
46,341
|
|
|
107,940
|
|
|
90,702
|
|
Net income attributable to noncontrolling interest
|
|
537
|
|
|
189
|
|
|
853
|
|
|
356
|
|
Net income attributable to Central Garden & Pet Company
|
|
$
|
68,800
|
|
|
$
|
46,152
|
|
|
$
|
107,087
|
|
|
$
|
90,346
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Pet segment
|
|
$
|
8,374
|
|
|
$
|
8,083
|
|
|
$
|
25,305
|
|
|
$
|
24,178
|
|
Garden segment
|
|
3,538
|
|
|
3,497
|
|
|
10,157
|
|
|
8,635
|
|
Corporate
|
|
1,371
|
|
|
1,502
|
|
|
4,136
|
|
|
4,498
|
|
Total depreciation and amortization
|
|
$
|
13,283
|
|
|
$
|
13,082
|
|
|
$
|
39,598
|
|
|
$
|
37,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
June 29, 2019
|
|
September 28, 2019
|
Assets:
|
|
|
|
|
|
|
Pet segment
|
|
$
|
810,524
|
|
|
$
|
742,938
|
|
|
$
|
734,380
|
|
Garden segment
|
|
635,671
|
|
|
558,260
|
|
|
463,889
|
|
Corporate
|
|
817,774
|
|
|
763,720
|
|
|
826,751
|
|
Total assets
|
|
$
|
2,263,969
|
|
|
$
|
2,064,918
|
|
|
$
|
2,025,020
|
|
Goodwill (included in corporate assets above):
|
|
|
|
|
|
|
Pet segment
|
|
$
|
272,066
|
|
|
$
|
268,289
|
|
|
$
|
268,289
|
|
Garden segment
|
|
17,788
|
|
|
12,888
|
|
|
17,788
|
|
Total goodwill
|
|
$
|
289,854
|
|
|
$
|
281,177
|
|
|
$
|
286,077
|
|
The tables below presents the Company's disaggregated revenues by segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 27, 2020
|
|
|
|
|
|
Nine Months Ended June 27, 2020
|
|
|
|
|
|
|
Pet Segment
|
|
Garden Segment
|
|
Total
|
|
Pet Segment
|
|
Garden Segment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other pet products
|
|
$
|
206.3
|
|
|
$
|
—
|
|
|
$
|
206.3
|
|
|
$
|
508.3
|
|
|
$
|
—
|
|
|
$
|
508.3
|
|
Dog and cat products
|
|
117.0
|
|
|
—
|
|
|
117.0
|
|
|
358.8
|
|
|
—
|
|
|
358.8
|
|
Other manufacturers' products
|
|
90.0
|
|
|
90.1
|
|
|
180.1
|
|
|
261.0
|
|
|
182.2
|
|
|
443.2
|
|
Garden controls and fertilizer products
|
|
—
|
|
|
100.3
|
|
|
100.3
|
|
|
—
|
|
|
234.2
|
|
|
234.2
|
|
Other garden supplies
|
|
—
|
|
|
229.8
|
|
|
229.8
|
|
|
—
|
|
|
475.0
|
|
|
475.0
|
|
Total
|
|
$
|
413.3
|
|
|
$
|
420.2
|
|
|
$
|
833.5
|
|
|
$
|
1,128.1
|
|
|
$
|
891.5
|
|
|
$
|
2,019.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 29, 2019
|
|
|
|
|
|
Nine Months Ended June 29, 2019
|
|
|
|
|
|
|
Pet Segment
|
|
Garden Segment
|
|
Total
|
|
Pet Segment
|
|
Garden Segment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other pet products
|
|
$
|
171.1
|
|
|
$
|
—
|
|
|
$
|
171.1
|
|
|
$
|
457.0
|
|
|
$
|
—
|
|
|
$
|
457.0
|
|
Dog and cat products
|
|
99.9
|
|
|
—
|
|
|
99.9
|
|
|
336.2
|
|
|
—
|
|
|
336.2
|
|
Other manufacturers' products
|
|
79.2
|
|
|
61.8
|
|
|
141.0
|
|
|
235.6
|
|
|
143.3
|
|
|
378.9
|
|
Garden controls and fertilizer products
|
|
—
|
|
|
80.9
|
|
|
80.9
|
|
|
—
|
|
|
219.0
|
|
|
219.0
|
|
Other garden supplies
|
|
—
|
|
|
213.7
|
|
|
213.7
|
|
|
—
|
|
|
451.2
|
|
|
451.2
|
|
Total
|
|
$
|
350.2
|
|
|
$
|
356.4
|
|
|
$
|
706.6
|
|
|
$
|
1,028.8
|
|
|
$
|
813.5
|
|
|
$
|
1,842.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Contingencies
The Company may from time to time become involved in legal proceedings in the ordinary course of business. Currently, the Company is not a party to any legal proceedings that management believes are likely to have a material effect on the Company’s financial position or results of operations with the potential exception of the proceeding below.
In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the United States District Court for New Jersey against the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the three claims and awarded damages of approximately $12.6 million. The court ruled on post-trial motions in early June 2020, reducing the judgment amount to $12.4 million and denying the plaintiff's request for attorneys' fees. The Company has filed its notice of appeal and the plaintiffs have cross-appealed. The Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.
During fiscal 2013, the Company received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking unclaimed property subject to escheat laws, the states may seek interest, penalties and other relief. The examinations are at an early stage and, as such, management is unable to determine the impact, if any, on the Company’s financial position or results of operations.
In November 2019, the DMC business unit in the Company's Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 - $40 million. In April 2020, DMC experienced an additional fire in the same leased property in Athens, Texas, which resulted in inventory and property-related losses estimated to be approximately $11 million.
As of June 27, 2020, the Company had approximately $18 million of cost in excess of insurance proceeds related to these losses recorded on its balance sheet. Subsequent to June 27, 2020, the Company received insurance proceeds of approximately $9 million related
to these losses. The Company currently believes its insurance coverage is sufficient to cover the remaining asset-related losses as well as the business interruption loss associated with this event.
The Company has experienced, and may in the future experience, issues with products that may lead to product liability, recalls, withdrawals, replacements of products, or regulatory actions by governmental authorities. The Company has not experienced recent issues with products, the resolution of which management believes would have a material effect on the Company’s financial position or results of operations.