CENTRAL GARDEN & PET CO - Quarter Report: 2013 June (Form 10-Q)

CENTRAL GARDEN & PET CO - Quarter Report: 2013 June (Form 10-Q)

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2013

¨	TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33268

CENTRAL GARDEN & PET COMPANY

Delaware

68-0275553

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1340 Treat Blvd., Suite 600, Walnut Creek, California 94597

(Address of principle executive offices)

(925) 948-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Stock Outstanding as of July 28, 2013			12,246,751
Class A Common Stock Outstanding as of July 28, 2013			35,311,838
Class B Stock Outstanding as of July 28, 2013			1,652,262


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of June 29, 2013, June 23, 2012 and September 29, 2012	4

	Condensed Consolidated Statements of Operations Three and Nine Months Ended June 29, 2013 and June 23, 2012	5

	Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended June 29, 2013 and June 23, 2012	6

	Condensed Consolidated Statements of Cash Flows Nine Months Ended June 29, 2013 and June 23, 2012	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Form 10-Q includes ‘‘forward-looking statements.’’ Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, projected cost savings, capital expenditures, financing needs, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industry and economies in which we operate and other information that is not historical information. When used in this Form 10-Q, 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.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q are set forth in the Form 10-K for the fiscal year ended September 29, 2012, including the factors described in the section entitled ‘‘Item 1A – Risk Factors.’’ If any of these risks or uncertainties materialize, or if any of our underlying assumptions are 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. Presently known risk factors include, but are not limited to, the following factors:

•

the success of our transformational change initiatives;

•

disruptions in our business as we implement our transformational change initiatives and the resulting consequences to our business and results of operations;

•

increased costs and expenses associated with our transformational change initiatives;

•

seasonality and fluctuations in our operating results and cash flow;

•

fluctuations in market prices for seeds and grains and other raw materials;

•

our ability to pass through cost increases in a timely manner;

•

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;

•

fluctuations in energy prices, fuel and related petrochemical costs;

•

access to and cost of additional capital;

•

dependence on a small number of customers for a significant portion of our business;

•

consolidation trends in the retail industry;

•

uncertainty about new product innovations and marketing programs;

•

competition in our industries;

•

risks associated with our acquisition strategy;

•

potential goodwill or intangible asset impairment;

•

dependence upon our key executives;

•

implementation of a new enterprise resource planning information technology system;

•

our ability to protect our intellectual property rights;

•

potential environmental liabilities;

•

risk associated with international sourcing;

•

litigation and product liability claims;

•

regulatory issues;

•

the impact of product recalls;

•

potential costs and risks associated with actual or anticipated cyber attacks;

•

the voting power associated with our Class B stock; and

•

potential dilution from issuance of authorized shares.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

Unaudited


					(See Note 1)
	June 29, 2013		June 23, 2012		September 29, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	20,482	$	40,699	$	48,475
Short term investments		17,820		17,820		22,705
Accounts receivable (less allowance for doubtful accounts of $23,355, $18,297 and $18,574)		243,650		245,780		202,422
Inventories		413,070		334,796		330,032
Prepaid expenses and other		53,751		46,107		48,149

Total current assets		748,773		685,202		651,783
Land, buildings, improvements and equipment—net		190,921		185,225		191,163
Goodwill		210,223		210,223		210,223
Other intangible assets—net		75,670		80,529		78,853
Deferred income taxes and other assets		19,049		18,539		17,525

Total	$	1,244,636	$	1,179,718	$	1,149,547

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	112,313	$	125,111	$	126,662
Accrued expenses		93,213		106,818		79,491
Current portion of long-term debt		205		347		331

Total current liabilities		205,731		232,276		206,484
Long-term debt		509,430		449,530		449,483
Other long-term obligations		37,845		23,478		28,697
Equity:
Common stock, $.01 par value: 12,246,751, 12,247,571, and 12,247,571 shares outstanding at June 29, 2013, June 23, 2012 and September 29, 2012		122		122		122
Class A common stock, $.01 par value: 35,240,576, 34,506,329 and 34,706,902 shares outstanding at June 29, 2013, June 23, 2012 and September 29, 2012		352		345		347
Class B stock, $.01 par value: 1,652,262 shares outstanding		16		16		16
Additional paid-in capital		388,443		381,751		382,195
Retained earnings		100,173		89,777		79,718
Accumulated other comprehensive income		840		1,127		1,539

Total Central Garden & Pet Company shareholders’ equity		489,946		473,138		463,937
Noncontrolling interest		1,684		1,296		946

Total equity		491,630		474,434		464,883

Total	$	1,244,636	$	1,179,718	$	1,149,547

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended						Nine Months Ended
	June 29, 2013			June 23, 2012			June 29, 2013			June 23, 2012
Net sales	$	494,130		$	533,808		$	1,284,796		$	1,302,777
Cost of goods sold and occupancy		341,664			353,156			902,201			893,691

Gross profit		152,466			180,652			382,595			409,086
Selling, general and administrative expenses		119,574			131,683			316,051			326,175

Income from operations		32,892			48,969			66,544			82,911
Interest expense		(11,347	)		(10,723	)		(32,599	)		(30,738	)
Interest income		28			28			120			84
Other income (expense)		353			102			(676	)		(19	)

Income before income taxes and noncontrolling interest		21,926			38,376			33,389			52,238
Income taxes		7,520			14,554			11,370			19,716

Income including noncontrolling interest		14,406			23,822			22,019			32,522
Net income attributable to noncontrolling interest		681			1,123			1,367			1,290

Net income attributable to Central Garden & Pet Company	$	13,725		$	22,699		$	20,652		$	31,232

Net income per share attributable to Central Garden & Pet Company:
Basic	$	0.28		$	0.48		$	0.43		$	0.66

Diluted	$	0.28		$	0.47		$	0.42		$	0.65

Weighted average shares used in the computation of net income per share:
Basic		48,173			47,661			48,037			47,580
Diluted		48,822			48,388			48,766			48,253

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended						Nine Months Ended
	June 29, 2013			June 23, 2012			June 29, 2013			June 23, 2012
Net income	$	14,406		$	23,822		$	22,019		$	32,522
Other comprehensive income (loss):
Foreign currency translation		(92	)		(185	)		(699	)		108

Total comprehensive income		14,314			23,637			21,320			32,630
Comprehensive income attributable to noncontrolling interests		681			1,123			1,367			1,290

Comprehensive income attributable to Central Garden & Pet Company	$	13,633		$	22,514		$	19,953		$	31,340

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended
	June 29, 2013			June 23, 2012
Cash flows from operating activities:
Net income	$	22,019		$	32,522
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		24,158			23,076
Stock-based compensation		12,491			5,342
Excess tax benefits from stock-based awards		(345	)		(938	)
Deferred income taxes		9,252			12,117
Unrealized losses on derivative financial instruments		412			1
Loss (gain) on sale of property and equipment		412			(102	)
Change in assets and liabilities:
Accounts receivable		(41,240	)		(50,318	)
Inventories		(83,181	)		(5,189	)
Prepaid expenses and other assets		(149	)		6,911
Accounts payable		(15,545	)		7,768
Accrued expenses		8,624			31,959
Other long-term obligations		(2,366	)		1,005

Net cash (used in) provided by operating activities		(65,458	)		64,154

Cash flows from investing activities:
Additions to property and equipment		(19,534	)		(26,930	)
Payments to acquire companies, net of cash acquired		(4,835	)		0
Proceeds from sale of short term investments		4,885			0

Net cash used in investing activities		(19,484	)		(26,930	)

Cash flows from financing activities:
Repayments of long-term debt		(257	)		(266	)
Proceeds from issuance of long-term debt, net of discount		0			49,288
Proceeds from issuance of common stock		560			1,291
Borrowings under revolving line of credit		281,000			304,000
Repayments under revolving line of credit		(221,000	)		(339,000	)
Repurchase of common stock		(2,625	)		(23,151	)
Distribution to noncontrolling interest		(629	)		0
Payment of financing costs		0			(1,715	)
Excess tax benefits from stock-based awards		345			938

Net cash (used in) provided by financing activities		57,394			(8,615	)
Effect of exchange rate changes on cash and cash equivalents		(445	)		59

Net (decrease) increase in cash and cash equivalents		(27,993	)		28,668
Cash and equivalents at beginning of period		48,475			12,031

Cash and equivalents at end of period	$	20,482		$	40,699

Supplemental information:
Cash paid for interest	$	22,894		$	21,256

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended June 29, 2013

(unaudited)

1.	Basis of Presentation

The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of June 29, 2013 and June 23, 2012, the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three and nine months ended June 29, 2013 and June 23, 2012, and the condensed consolidated statements of cash flows for the nine months ended June 29, 2013 and June 23, 2012 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods mentioned above, have been made.

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. See Note 8, Supplemental Equity Information, for further detail.

Due to the seasonal nature of the Company’s garden business, the results of operations for the three and nine month periods ended June 29, 2013 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 2012 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September 29, 2012 balance sheet presented herein was derived from the audited statements.

Acquisition

In December 2012, the Company acquired the remaining majority interest in FourStar Microbial Products, LLC (Four Star Microbial) for approximately $4.8 million in cash with possible contingent future performance-based payments. The Company has not yet finalized its allocation of the purchase price to the fair value of the net assets acquired. The operating results of FourStar Microbial had no impact on the consolidated financial statements and the purchase price paid is included in other assets on the condensed consolidated balance sheets. While the acquisition is not expected to have a material impact on the Company’s 2013 financial results, it will enhance the Company’s capability to service professional providers of mosquito abatement.

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 fully 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 8, Supplemental Equity Information, for additional information.

Derivative Instruments

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 these 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.

The Company does not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in other income (expense) in its condensed consolidated statements of operations. See Note 3, Derivative Instruments, for additional information.

For tax purposes, these derivative positions are entered into as a hedge, as defined in Treasury Regulation Section 1.221-2, in the normal course of business to manage risk of price changes of raw material inventory components and are treated as ordinary income property.

Recent Accounting Pronouncements

Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued an update to ASU No. 2011-05, ASU No. 2011-12, which was issued to defer the effective date for amendments to the reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. ASU 2011-05 and the amendments in ASU No. 2011-12 are effective for fiscal years and interim periods within those years, beginning after December 15, 2011 and became effective for the Company on September 30, 2012. The Company elected to report other comprehensive income and its components in a separate statement of comprehensive income. While the new guidance changed the presentation of comprehensive income, there were no changes to the components that are recognized in net income or other comprehensive income as determined under previous accounting guidance. The amended guidance did not have a material effect on the Company’s condensed consolidated financial statements.

In 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 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 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 reference to other required accounting standard disclosures is required. This guidance is effective for the Company on September 29, 2013. The Company believes that the adoption of this guidance will not have a material impact on its condensed consolidated financial statements.

Goodwill

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The guidance is effective for fiscal years beginning after December 15, 2011, and became effective for the Company on September 30, 2012. This new guidance did not have a material impact on the Company’s condensed consolidated financial statements.

Intangible Assets

In July 2012, the FASB issued an ASU No. 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the manner in which companies test indefinite-lived intangible assets for impairment. The ASU permits companies to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The guidance became effective for the Company on September 30, 2012. This new guidance did not have a material impact on the Company’s condensed 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 29, 2013 (in thousands):


	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit	$	0	$	17,820	$	0	$	17,820

Total assets	$	0	$	17,820	$	0	$	17,820

Liabilities:
Derivative liabilities	$	0	$	197	$	0	$	197

Total liabilities	$	0	$	197	$	0	$	197

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 June 23, 2012 (in thousands):


	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit	$	0	$	17,820	$	0	$	17,820
Derivative assets		0		72		0		72

Total assets	$	0	$	17,892	$	0	$	17,892

Liabilities:
Derivative liabilities	$	0	$	44	$	0	$	44

Total liabilities	$	0	$	44	$	0	$	44


	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit	$	0	$	17,820	$	0	$	17,820
Derivative assets		0		334		0		334

Total assets	$	0	$	18,154	$	0	$	18,154

Liabilities:
Derivative liabilities	$	0	$	206	$	0	$	206

Total liabilities	$	0	$	206	$	0	$	206

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 period ended June 29, 2013, the Company was not required to measure any significant non-financial assets and liabilities at fair value.

Fair Value of Other Financial Instruments

The estimated fair value of the Company’s $450.0 million 8.25 % senior subordinated notes due 2018 as of June 29, 2013 was $457.3 million, compared to a carrying value of $449.4 million. The estimated fair value is based on quoted market prices for these notes.

3.	Derivative Instruments

Our operations are exposed to market risks from adverse changes in commodity prices affecting 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 nonperformance of the counterparty, 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 independent of those exposures. Generally, the Company economically hedges a portion of its anticipated consumption of commodity inputs for periods of up to 12 months. As of June 29, 2013, the Company had economically hedged certain portions of its anticipated consumption of commodity inputs using derivative instruments with expiration dates through July 2013.

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the condensed 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 consumption in other income (expense) on the condensed consolidated statement of operations.

The following table presents the fair value of all derivative instruments outstanding in the condensed consolidated balance sheets (in thousands):


	June 29, 2013				June 23, 2012				September 29, 2012
Derivatives Not Designated as Hedging Instruments	Other Current Assets		Other Current Liabilities		Other Current Assets		Other Current Liabilities		Other Current Assets		Other Current Liabilities
Commodity contracts	$	0	$	197	$	72	$	44	$	334	$	206

Total derivative instruments	$	0	$	197	$	72	$	44	$	334	$	206

The following table presents the effect of derivative instruments recorded in other income (expense) on the condensed consolidated statements of operations (in thousands):


	Three Months Ended					Nine Months Ended
Derivatives Not Designated as Hedging Instruments	June 29, 2013			June 23, 2012		June 29, 2013			June 23, 2012
Commodity contracts	$	(185	)	$	41	$	(922	)	$	1

Total derivative instruments	$	(185	)	$	41	$	(922	)	$	1

The following table presents the gross contract notional volume of outstanding derivative contracts:


Commodity	Metric		June 29, 2013		June 23, 2012		September 29, 2012
Corn		Bushels		366,000		200,000		400,000
Soy Meal		Tons		0		2,000		2,000

4.	Inventories, net

Inventories, net of allowance for obsolescence, consist of the following (in thousands):


	June 29, 2013		June 23, 2012		September 29, 2012
Raw materials	$	130,597	$	110,775	$	94,387
Work in progress		19,848		14,698		13,587
Finished goods		255,112		201,071		209,888
Supplies		7,513		8,252		12,170

Total inventories, net	$	413,070	$	334,796	$	330,032

5.	Goodwill

The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other,” and tests goodwill for impairment annually, 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. This assessment involves the use of significant accounting judgments and estimates as to future operating results and discount rates. Changes in estimates or use of different assumptions could produce significantly different results. An impairment loss is generally recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The Company uses discounted cash flow analysis to estimate the fair value of our reporting units. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of all four reporting units to the Company’s total market capitalization. Based on the Company’s annual analysis of goodwill performed during the fourth quarter of fiscal 2012, it concluded there was no impairment of goodwill during fiscal 2012.

6.	Other Intangible Assets

The following table summarizes the components of gross and net acquired intangible assets:


	Gross		Accumulated Amortization			Cumulative Impairment			Net Carrying Value
			(in millions)
June 29, 2013
Marketing-related intangible assets – amortizable	$	12.3	$	(8.1	)	$	0		$	4.2
Marketing-related intangible assets – nonamortizable		59.6		0			(16.9	)		42.7

Total		71.9		(8.1	)		(16.9	)		46.9

Customer-related intangible assets – amortizable		42.7		(17.2	)		0			25.5

Other acquired intangible assets – amortizable		10.8		(7.5	)		0			3.3
Other acquired intangible assets – nonamortizable		1.2		0			(1.2	)		0

Total		12.0		(7.5	)		(1.2	)		3.3

Total other intangible assets	$	126.6	$	(32.8	)	$	(18.1	)	$	75.7


	Gross		Accumulated Amortization			Cumulative Impairment			Net Carrying Value
			(in millions)
June 23, 2012
Marketing-related intangible assets – amortizable	$	12.3	$	(7.2	)	$	0		$	5.1
Marketing-related intangible assets – nonamortizable		59.6		0			(16.9	)		42.7

Total		71.9		(7.2	)		(16.9	)		47.8

Customer-related intangible assets – amortizable		42.7		(14.8	)		0			27.9

Other acquired intangible assets – amortizable		10.8		(6.0	)		0			4.8
Other acquired intangible assets – nonamortizable		1.2		0			(1.2	)		0

Total		12.0		(6.0	)		(1.2	)		4.8

Total other intangible assets	$	126.6	$	(28.0	)	$	(18.1	)	$	80.5


	Gross		Accumulated Amortization			Cumulative Impairment			Net Carrying Value
			(in millions)
September 29, 2012
Marketing-related intangible assets – amortizable	$	12.3	$	(7.5	)	$	0		$	4.8
Marketing-related intangible assets – nonamortizable		59.6		0			(16.9	)		42.7

Total		71.9		(7.5	)		(16.9	)		47.5

Customer-related intangible assets – amortizable		42.7		(15.4	)		0			27.3

Other acquired intangible assets – amortizable		10.8		(6.7	)		0			4.1
Other acquired intangible assets – nonamortizable		1.2		0			(1.2	)		0

Total		12.0		(6.7	)		(1.2	)		4.1

Total other intangible assets	$	126.6	$	(29.6	)	$	(18.1	)	$	78.9

Other intangible assets acquired include contract-based and technology-based 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. In fiscal 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 2012 or during the nine months ended June 29, 2013, and accordingly, no impairment testing was performed on these assets.

The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from 1 to 25 years; over weighted average remaining lives of seven years for marketing-related intangibles, 17 years for customer-related intangibles and five years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $1.1 million and $1.6 million for the three months ended June 29, 2013 and June 23, 2012, respectively, and $3.1 million and $4.0 million for the nine months ended June 29, 2013 and June 23, 2012, respectively, and is classified within operating 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 $5 million per year from fiscal 2013 through fiscal 2017.

7.	Long-Term Debt

Long-term debt consists of the following:


	June 29, 2013			June 23, 2012			September 29, 2012
	(in thousands)
Senior subordinated notes, net of unamortized discount ⁽¹⁾, interest at 8.25%, payable semi-annually, principal due March 2018	$	449,390		$	449,288		$	449,312
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		60,000			0			0
Other notes payable		245			589			502

Total		509,635			449,877			449,814
Less current portion		(205	)		(347	)		(331	)

Long-term portion	$	509,430		$	449,530		$	449,483

(1)	Represents unamortized original issue discount of $610, $712 and $688 as of June 29, 2013, June 23, 2012 and September 29, 2012, respectively.

Senior Credit Facility

On June 8, 2011, the Company amended its $275 million, five-year senior secured revolving credit facility (the “Credit Facility”) included in its Amended and Restated Credit Agreement (the “Credit Agreement”). Under the modified terms, the Credit Facility has a borrowing capacity of $375 million, an increase of $100 million, and an extension of maturity date by approximately one year, to June 2016. The Credit Facility bears lower interest rates and commitment fees and requires less interest coverage. The Company continues to have the option to increase the size of the Credit Facility by an additional $200 million of incremental term loans and/or revolving loans should it exercise its option and one or more lenders are willing to make such increased amounts available to it. There was $60 million outstanding as of June 29, 2013 under the Credit Facility. There were no letters of credit outstanding under the Credit Facility as of June 29, 2013. There were other letters of credit of $17.5 million outstanding as of June 29, 2013. As of June 29, 2013, there were $315 million of unused commitments under the Credit Facility or, after giving effect to the financial covenants in the Credit Agreement, $147.8 million of available unused commitments.

Interest on the amended Credit Facility is based, at the Company’s option, on a rate equal to the Alternate Base Rate (ABR), which is the greatest of the prime rate, the Federal Funds rate plus ¹/₂ of 1% or one month LIBOR plus 1%, plus a margin, which fluctuates from 0.75% to 1.75%, or LIBOR plus a margin, which fluctuates from 1.75% to 2.75% and commitment fees that range from 0.30% to 0.50%, determined quarterly based on consolidated total debt to consolidated EBITDA for the most recent trailing 12-month period. As of June 29, 2013, the applicable interest rate on the Credit Facility related to alternate base rate borrowings was 5.0%, and the applicable interest rate related to LIBOR rate borrowings was 3.0%.

The Credit Facility is guaranteed by the Company’s material subsidiaries and is secured by the Company’s assets, excluding real property but including substantially all of the capital stock of the Company’s subsidiaries. The Credit Agreement contains certain financial and other covenants which require the Company to maintain minimum levels of interest coverage and maximum levels of senior debt to EBITDA and that restrict the Company’s ability to repurchase its stock, make investments in or acquisitions of other businesses and pay dividends above certain levels over the life of the Credit Facility. Under the terms of the Company’s Credit Facility, it may make restricted payments, including cash dividends and stock repurchases, in an aggregate amount initially not to exceed $200 million over the life of the Credit Facility, subject to qualifications and baskets as defined in the Credit Agreement. As of June 29, 2013, the Company’s Total Leverage Ratio, as defined in the Credit Agreement, was 4.9 to 1.0, and the Company’s Senior Secured Leverage Ratio, as defined in the Credit Agreement with a maximum of 2.0 to 1.0, was 0.6 to 1.0. The Company’s minimum Interest Coverage Ratio was reduced to 2.50 times, from 2.75 times as part of the modification of the Credit Facility. As of June 29, 2013, the Company’s Interest Coverage ratio was 2.6 times. Apart from the covenants limiting restricted payments and capital expenditures, the Credit Facility does not restrict the use of retained earnings or net income. The Company was in compliance with all financial covenants as of June 29, 2013.

The Company amended its Credit Facility effective August 1, 2013. Under the terms of this amendment, the Company’s Minimum Interest Coverage Ratio was reduced to 2.25 times, from 2.5 times and a Minimum Asset Coverage Ratio was added at 1.1 times. The covenant modifications are effective through the fiscal quarter ending March 29, 2014.

Senior Subordinated Notes

On March 8, 2010, the Company issued $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 (the “2018 Notes”).

On February 8, 2012, the Company issued an additional $50 million aggregate principal amount of its 2018 Notes at a price of 98.501%, plus accrued interest from September 1, 2011, in a private placement. The Company used the net proceeds from the offering to pay a portion of the outstanding balance under its Credit Facility.

The estimated fair value of our $450 million of 2018 Notes as of June 29, 2013 was approximately $457.3 million. The estimated fair value is based on quoted market prices for these notes.

The 2018 Notes require semiannual interest payments, which commenced on September 1, 2010. The 2018 Notes are unsecured senior subordinated obligations and are subordinated to all of our existing and future senior debt, including our Credit Facility. The obligations under 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 obligations of the guarantors and are subordinated to all existing and future senior debt of the guarantors.

The Company may redeem some or all of the 2018 Notes at any time prior to March 1, 2014 at the principal amount plus a “make whole” premium. The Company may redeem some or all of the 2018 Notes at any time on or after March 1, 2014 for 104.125%, after March 1, 2015 for 102.063% and after March 1, 2016 for 100%, plus accrued and unpaid interest. The holders of the 2018 Notes have the right to require the Company to repurchase all or a portion of the 2018 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 2018 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 29, 2013.

8.	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 for the nine months ended June 29, 2013 and June 23, 2012:


	Controlling Interest
(in thousands)	Common Stock			Class A Common Stock			Class B Stock		Additional Paid In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total			Noncontrolling Interest			Total
Balance September 29, 2012	$	122		$	347		$	16	$	382,195		$	79,718		$	1,539		$	463,937		$	946		$	464,883
Comprehensive income													20,652			(699	)		19,953			1,367			21,320
Stock based compensation										3,489									3,489						3,489
Restricted share activity					4					2,478									2,482						2,482
Issuance of common stock					1					1,240									1,241						1,241
Repurchase of common stock										(1,304	)		(197	)					(1,501	)					(1,501	)
Tax benefit on stock option exercise										345									345						345
Distribution to Noncontrolling interest																						(629	)		(629	)

Balance June 29, 2013	$	122		$	352		$	16	$	388,443		$	100,173		$	840		$	489,946		$	1,684		$	491,630


	Controlling Interest
(in thousands)	Common Stock			Class A Common Stock			Class B Stock		Additional Paid In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total			Noncontrolling Interest			Total
Balance September 24, 2011	$	129		$	359		$	16	$	396,208		$	59,045		$	1,019		$	456,776		$	6		$	456,782
Comprehensive income		0			0			0		0			31,232			108			31,340			1,290			32,630
Stock based compensation		0			0			0		3,782			0			0			3,782			0			3,782
Restricted share activity		0			1			0		379			0			0			380			0			380
Issuance of common stock		0			4			0		802			0			0			806			0			806
Repurchase of common stock		(7	)		(19	)		0		(20,358	)		(500	)		0			(20,884	)		0			(20,884	)
Tax benefit on stock option exercise		0			0			0		938			0			0			938			0			938

Balance June 23, 2012	$	122		$	345		$	16	$	381,751		$	89,777		$	1,127		$	473,138		$	1,296		$	474,434

9.	Stock-Based Compensation

The Company recognized share-based compensation expense of $12.5 million and $5.3 million for the nine month periods ended June 29, 2013 and June 23, 2012, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the nine month periods ended June 29, 2013 and June 23, 2012 was $4.8 million and $2.0 million, respectively.

10.

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.


	Three Months Ended June 29, 2013							Nine Months Ended June 29, 2013
	Income		Shares		Per Share			Income		Shares		Per Share
	(in thousands, except per share amounts)
Basic EPS:
Net income available to common shareholders	$	13,725		48,173	$	0.28		$	20,652		48,037	$	0.43
Effect of dilutive securities:
Options to purchase common stock				141		0					284		0
Restricted shares				508		0					445		(0.01	)
Diluted EPS:

Net income available to common shareholders	$	13,725		48,822	$	0.28		$	20,652		48,766	$	0.42


	Three Months Ended June 23, 2012							Nine Months Ended June 23, 2012
	Income		Shares		Per Share			Income		Shares		Per Share
	(in thousands, except per share amounts)
Basic EPS:
Net income available to common shareholders	$	22,699		47,661	$	0.48		$	31,232		47,580	$	0.66
Effect of dilutive securities:
Options to purchase common stock				476		(0.01	)				455		(0.01	)
Restricted shares				251		0					218		0
Diluted EPS:

Net income available to common shareholders	$	22,699		48,388	$	0.47		$	31,232		48,253	$	0.65

Options to purchase 11.6 million shares of common stock at prices ranging from $4.60 to $16.23 per share were outstanding at June 29, 2013, and options to purchase 12.8 million shares of common stock at prices ranging from $4.60 to $17.99 per share were outstanding at June 23, 2012.

For the three month periods ended June 29, 2013 and June 23, 2012, options to purchase 10.7 and 10.8 million shares of common stock, respectively, were outstanding but 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 stock and, therefore, the effect would be anti-dilutive.

For the nine month period ended June 29, 2013 and June 23, 2012, options to purchase 7.5 and 9.9 million shares of common stock, respectively, were outstanding but 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 stock and, therefore, the effect would be anti-dilutive.

11.

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).


	Three Months Ended						Nine Months Ended
	June 29, 2013			June 23, 2012			June 29, 2013			June 23, 2012
Net sales:
Pet segment	$	237,851		$	271,345		$	667,781		$	693,114
Garden segment		256,279			262,463			617,015			609,663

Total net sales	$	494,130		$	533,808		$	1,284,796		$	1,302,777

Income (loss) from operations:
Pet segment	$	33,144		$	40,454		$	70,782		$	71,153
Garden segment		13,668			22,581			39,090			48,111
Corporate		(13,920	)		(14,066	)		(43,328	)		(36,353	)

Total income from operations		32,892			48,969			66,544			82,911

Interest expense - net		(11,319	)		(10,695	)		(32,479	)		(30,654	)
Other income (expense)		353			102			(676	)		(19	)
Income taxes		7,520			14,554			11,370			19,716

Income including noncontrolling interest		14,406			23,822			22,019			32,522
Net income attributable to noncontrolling interest		681			1,123			1,367			1,290

Net income attributable to Central Garden & Pet Company	$	13,725		$	22,699		$	20,652		$	31,232

Depreciation and amortization:
Pet segment	$	3,489		$	3,702		$	11,208		$	10,904
Garden segment		1,624			1,920			4,902			5,058
Corporate		2,698			2,402			8,048			7,114

Total depreciation and amortization	$	7,811		$	8,024		$	24,158		$	23,076



	June 29, 2013		June 23, 2012		September 29, 2012
Assets:
Pet segment	$	443,854	$	432,342	$	411,059
Garden segment		447,756		384,502		341,716
Corporate		353,026		362,874		396,772

Total assets	$	1,244,636	$	1,179,718	$	1,149,547

Goodwill (included in corporate assets above):
Pet segment	$	202,514	$	202,514	$	202,514
Garden segment		7,709		7,709		7,709

Total goodwill	$	210,223	$	210,223	$	210,223

12.

Consolidating Condensed Financial Information of Guarantor Subsidiaries

Certain 100% wholly-owned subsidiaries of the Company (as listed below, collectively the “Guarantor Subsidiaries”) have guaranteed fully and unconditionally, on a joint and several basis, the obligation to pay principal and interest on the Company’s $450 million 8.25% Senior Subordinated Notes (the “Notes”) due March 1, 2018. Certain subsidiaries and operating divisions are not guarantors of the Notes and have been included in the financial results of the Parent in the information below. These Non-Guarantor entities are not material to the Parent. Those subsidiaries that are guarantors and co-obligors of the Notes are as follows:

Farnam Companies, Inc.

Four Paws Products Ltd.

Gulfstream Home & Garden, Inc.

Kaytee Products, Inc.

Matson, LLC

New England Pottery, LLC

Pennington Seed, Inc. (including Gro Tec, Inc. and All-Glass Aquarium Co., Inc.)

Pets International, Ltd.

T.F.H. Publications, Inc.

Wellmark International (including B2E Corporation and B2E Biotech LLC)

During the fourth quarter of fiscal 2012, the Company merged certain subsidiaries into the Parent. In the first three quarters of fiscal 2012, the following were included as Guarantor Subsidiaries because they were separate legal entities at that time:

Grant Laboratories, Inc.

Interpet USA, LLC

Matthews Redwood & Nursery Supply, Inc.

Fiscal 2013 financial results reflect these entities as part of the Parent. Fiscal 2012 financial results presented herein have been restated to reflect the current Guarantor Subsidiaries.

In lieu of providing separate financial statements for the Guarantor Subsidiaries, the Company has included the accompanying consolidating condensed financial statements based on the Company’s understanding of the Securities and Exchange Commission’s interpretation and application of Rule 3-10 of the Securities and Exchange Commission’s Regulation S-X.


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Three Months Ended June 29, 2013 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	145,836		$	361,067		$	(12,773	)	$	494,130
Cost of products sold and occupancy		107,459			246,978			(12,773	)		341,664

Gross profit		38,377			114,089			0			152,466
Selling, general and administrative expenses		42,959			76,615			0			119,574

Income from operations		(4,582	)		37,474			0			32,892
Interest – net		(11,220	)		(99	)		0			(11,319	)
Other income (loss )		(2,722	)		3,075			0			353

Income (loss) before income taxes		(18,524	)		40,450			0			21,926
Income taxes (tax benefit)		(7,007	)		14,527			0			7,520

Income (loss) including noncontrolling interest		(11,517	)		25,923						14,406
Income attributable to noncontrolling interest		681			0			0			681

Income (loss) attributable to Central Garden & Pet Company before equity in undistributed income of guarantor subsidiaries		(12,198	)		25,923			0			13,725
Equity in undistributed income of guarantor subsidiaries		25,923			0			(25,923	)		0

Net income attributable to Central Garden & Pet Company	$	13,725		$	25,923		$	(25,923	)	$	13,725


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Three Months Ended June 23, 2012 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	162,029		$	394,197		$	(22,418	)	$	533,808
Cost of products sold and occupancy		110,363			265,211			(22,418	)		353,156

Gross profit		51,666			128,986			0			180,652
Selling, general and administrative expenses		42,832			88,851			0			131,683

Income from operations		8,834			40,135			0			48,969
Interest – net		(10,727	)		32			0			(10,695	)
Other income (loss )		(4,500	)		4,602			0			102

Income (loss) before income taxes		(6,393	)		44,769			0			38,376
Income taxes (tax benefit)		(2,485	)		17,039			0			14,554

Income (loss) including noncontrolling interest		(3,908	)		27,730			0			23,822
Income attributable to noncontrolling interest		1,123			0			0			1,123

Income (loss) attributable to Central Garden & Pet Company before equity in undistributed income of guarantor subsidiaries		(5,031	)		27,730			0			22,699
Equity in undistributed income of guarantor subsidiaries		27,730			0			(27,730	)		0

Net income attributable to Central Garden & Pet Company	$	22,699		$	27,730		$	(27,730	)	$	22,699


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Nine Months Ended June 29, 2013 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	400,778		$	921,693		$	(37,675	)	$	1,284,796
Cost of products sold and occupancy		298,861			641,015			(37,675	)		902,201

Gross profit		101,917			280,678			0			382,595
Selling, general and administrative expenses		108,405			207,646			0			316,051

Income from operations		(6,488	)		73,032			0			66,544
Interest – net		(32,441	)		(38	)		0			(32,479	)
Other income (loss )		(5,539	)		4,863			0			(676	)

Income (loss) before income taxes		(44,468	)		77,857			0			33,389
Income taxes (tax benefit)		(15,995	)		27,365			0			11,370

Income (loss) including noncontrolling interest		(28,473	)		50,492						22,019
Income attributable to noncontrolling interest		1,367			0			0			1,367

Income (loss) attributable to Central Garden & Pet Company before equity in undistributed income of guarantor subsidiaries		(29,840	)		50,492			0			20,652
Equity in undistributed income of guarantor subsidiaries		50,492			0			(50,492	)		0

Net income attributable to Central Garden & Pet Company	$	20,652		$	50,492		$	(50,492	)	$	20,652


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Nine Months Ended June 23, 2012 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	416,323		$	944,098	$	(57,644	)	$	1,302,777
Cost of products sold and occupancy		295,339			655,996		(57,644	)		893,691

Gross profit		120,984			288,102		0			409,086
Selling, general and administrative expenses		106,435			219,740		0			326,175

Income from operations		14,549			68,362		0			82,911
Interest – net		(30,769	)		115		0			(30,654	)
Other income (expense)		(5,167	)		5,148		0			(19	)

Income (loss) before income taxes		(21,387	)		73,625		0			52,238
Income tax (tax benefit)		(7,977	)		27,693		0			19,716

Income (loss) including noncontrolling interest		(13,410	)		45,932		0			32,522
Income attributable to noncontrolling interest		1,290			0		0			1,290

Income (loss) attributable to Central Garden & Pet Company before equity in undistributed income of guarantor subsidiaries		(14,700	)		45,932		0			31,232
Equity in undistributed income of guarantor subsidiaries		45,932			0		(45,932	)		0

Net income attributable to Central Garden & Pet Company	$	31,232		$	45,932	$	(45,932	)	$	31,232


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended June 29, 2013 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	(11,517	)	$	25,923	$	0		$	14,406
Other comprehensive loss:
Foreign currency translation		(92	)		0		0			(92	)

Total comprehensive income (loss)		(11,609	)		25,923		0			14,314
Comprehensive income attributable to noncontrolling interests		681			0		0			681

Comprehensive income (loss) attributable to Central Garden & Pet Company	$	(12,290	)	$	25,923	$	0		$	13,633


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended June 23, 2012 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	(3,908	)	$	27,730	$	0		$	23,822
Other comprehensive loss:
Foreign currency translation		(185	)		0		0			(185	)

Total comprehensive income (loss)		(4,093	)		27,730		0			23,637
Comprehensive income attributable to noncontrolling interests		1,123			0		0			1,123

Comprehensive income (loss) attributable to Central Garden & Pet Company	$	(5,216	)	$	27,730	$	0		$	22,514


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Nine Months Ended June 29, 2013 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries		Eliminations		Consolidated
Net income (loss)	$	(28,473	)	$	50,492	$	0	$	22,019
Other comprehensive loss:
Foreign currency translation		(699	)		0		0		(699	)

Total comprehensive income (loss)		(29,172	)		50,492		0		21,320
Comprehensive income attributable to noncontrolling interests		1,367			0		0		1,367

Comprehensive income (loss) attributable to Central Garden & Pet Company	$	(30,539	)	$	50,492	$	0	$	19,953


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Nine Months Ended June 23, 2012 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries		Eliminations		Consolidated
Net income (loss)	$	(13,410	)	$	45,932	$	0	$	32,522
Other comprehensive income:
Foreign currency translation		108			0		0		108

Total comprehensive income (loss)		(13,302	)		45,932		0		32,630
Comprehensive income attributable to noncontrolling interests		1,290			0		0		1,290

Comprehensive income (loss) attributable to Central Garden & Pet Company	$	(14,592	)	$	45,932	$	0	$	31,340


	CONSOLIDATING CONDENSED BALANCE SHEET June 29, 2013 (in thousands) (unaudited)
	Parent		Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	18,109	$	2,373	$	0		$	20,482
Short term investments		17,820		0		0			17,820
Accounts receivable, net		69,602		178,236		(4,188	)		243,650
Inventories		135,301		277,769		0			413,070
Prepaid expenses and other assets		24,040		29,711		0			53,751

Total current assets		264,872		488,089		(4,188	)		748,773
Land, buildings, improvements and equipment, net		82,107		108,814		0			190,921
Goodwill		0		210,223		0			210,223
Investment in guarantors		733,748		0		(733,748	)		0
Deferred income taxes and other assets		53,049		41,670		0			94,719

Total	$	1,133,776	$	848,796	$	(737,936	)	$	1,244,636

LIABILITIES AND EQUITY
Accounts payable	$	46,305	$	70,196	$	(4,188	)	$	112,313
Accrued expenses and other current liabilities		50,276		43,142		0			93,418

Total current liabilities		96,581		113,338		(4,188	)		205,731
Long-term debt		509,397		33		0			509,430
Other long-term obligations		36,168		1,677		0			37,845
Shareholders’ equity attributable to Central Garden & Pet Company		489,946		733,748		(733,748	)		489,946
Noncontrolling interest		1,684		0		0			1,684

Total equity		491,630		733,748		(733,748	)		491,630

Total	$	1,133,776	$	848,796	$	(737,936	)	$	1,244,636


	CONSOLIDATING CONDENSED BALANCE SHEET June 23, 2012 (in thousands) (unaudited)
	Parent		Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	37,280	$	3,419	$	0		$	40,699
Short term investments		17,820		0		0			17,820
Accounts receivable, net		84,305		170,748		(9,273	)		245,780
Inventories		105,336		229,460		0			334,796
Prepaid expenses and other assets		19,395		26,712		0			46,107

Total current assets		264,136		430,339		(9,273	)		685,202
Land, buildings, improvements and equipment, net		78,025		107,200		0			185,225
Goodwill		0		210,223		0			210,223
Investment in guarantors		672,339		0		(672,339	)		0
Deferred income taxes and other assets		43,602		55,466		0			99,068

Total	$	1,058,102	$	803,228	$	(681,612	)	$	1,179,718

LIABILITIES AND EQUITY
Accounts payable	$	53,994	$	80,390	$	(9,273	)	$	125,111
Accrued expenses and other current liabilities		59,182		47,983		0			107,165

Total current liabilities		113,176		128,373		(9,273	)		232,276
Long-term debt		449,406		124		0			449,530
Other long-term obligations		21,086		2,392		0			23,478
Shareholders’ equity attributable to Central Garden & Pet Company		473,138		672,339		(672,339	)		473,138
Noncontrolling interest		1,296		0		0			1,296

Total equity		474,434		672,339		(672,339	)		474,434

Total	$	1,058,102	$	803,228	$	(681,612	)	$	1,179,718


	CONSOLIDATING CONDENSED BALANCE SHEET September 29, 2012 (in thousands)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	44,662		$	3,813		$	0		$	48,475
Short term investments		22,705			0			0			22,705
Accounts receivable, net		48,339			159,328			(5,245	)		202,422
Inventories		97,017			233,015			0			330,032
Prepaid expenses and other assets		25,242			22,907			0			48,149

Total current assets		237,965			419,063			(5,245	)		651,783
Land, buildings, improvements and equipment, net		81,727			109,436			0			191,163
Goodwill		0			210,223			0			210,223
Investment in guarantors		654,362			0			(654,362	)		0
Other assets		54,910			41,468			0			96,378

Total	$	1,028,964		$	780,190		$	(659,607	)	$	1,149,547

LIABILITIES AND EQUITY
Accounts payable	$	49,894		$	82,013		$	(5,245	)	$	126,662
Accrued expenses and other liabilities		38,673			41,149			0			79,822

Total current liabilities		88,567			123,162			(5,245	)		206,484
Long-term debt		449,387			96			0			449,483
Other long-term obligations		26,127			2,570			0			28,697
Shareholders’ equity attributable to Central Garden & Pet Company		463,937			654,362			(654,362	)		463,937
Noncontrolling interest		946			0			0			946

Total equity		464,883			654,362			(654,362	)		464,883

Total	$	1,028,964		$	780,190		$	(659,607	)	$	1,149,547


	CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Nine Months Ended June 29, 2013 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	11		$	(14,977	)	$	(50,492	)	$	(65,458	)

Additions to property and equipment		(8,965	)		(10,569	)		0			(19,534	)
Proceeds from short term investments		4,885			0			0			4,885
Payment to acquire companies		0			(4,835	)		0			(4,835	)
Investment in guarantor subsidiaries		(79,386	)		28,894			50,492			0

Net cash provided (used) by investing activities		(83,466	)		13,490			50,492			(19,484	)

Repayments of long-term debt		(161	)		(96	)		0			(257	)
Borrowings under revolving line of credit		281,000			0			0			281,000
Repayments under revolving line of credit		(221,000	)		0			0			(221,000	)
Repurchase of common stock		(2,625	)		0			0			(2,625	)
Proceeds from issuance of common stock		560			0			0			560
Distribution to minority interest		(629	)		0			0			(629	)
Excess tax benefits from stock-based awards		345			0			0			345

Net cash provided (used) by financing activities		57,490			(96	)		0			57,394
Effect of exchange rate changes on cash		(588	)		143			0			(445	)

Net decrease in cash and cash equivalents		(26,553	)		(1,440	)		0			(27,993	)
Cash and cash equivalents at beginning of period		44,662			3,813			0			48,475

Cash and cash equivalents at end of period	$	18,109		$	2,373		$	0		$	20,482


	CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Nine Months Ended June 23, 2012 (in thousands) (unaudited)
	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	73,213		$	36,873		$	(45,932	)	$	64,154

Additions to property and equipment		(13,408	)		(13,522	)		0			(26,930	)
Investment in guarantor subsidiaries		(24,713	)		(21,219	)		45,932			0

Net cash used by investing activities		(38,121	)		(34,741	)		45,932			(26,930	)

Proceeds from issuance of long-term debt		49,288			0			0			49,288
Repayments of long-term debt		(175	)		(91	)		0			(266	)
Borrowings under revolving line of credit		304,000			0			0			304,000
Repayments under revolving line of credit		(339,000	)		0			0			(339,000	)
Repurchase of common stock		(23,151	)		0			0			(23,151	)
Proceeds from issuance of common stock		1,291			0			0			1,291
Deferred financing costs		(1,715	)		0			0			(1,715	)
Excess tax benefits from stock-based awards		938			0			0			938

Net cash used by financing activities		(8,524	)		(91	)		0			(8,615	)
Effect of exchange rate changes on cash		79			(20	)		0			59

Net increase in cash and cash equivalents		26,647			2,021			0			28,668
Cash and cash equivalents at beginning of period		10,633			1,398			0			12,031

Cash and cash equivalents at end of period	$	37,280		$	3,419		$	0		$	40,699

13.

Contingencies

The Company may from time to time become involved in certain legal proceedings in the ordinary course of business. Currently, the Company is not a party to any legal proceedings that management believes would have a material effect on the Company’s financial position or results of operations.

The Company has experienced, and may in the future experience, issues with products that may lead to product liability, recalls, withdrawls, replacements of products, or regulatory actions by governmental authorities. Currently, the Company does not expect any product liability, recalls, withdrawls or replacements of products that management believes would have a material effect on the Company’s financial position or results of operations.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Company

Central Garden & Pet Company (“Central”) is a leading innovator, marketer and producer of quality branded products. We are one of the largest suppliers in the pet and lawn and garden supplies industries in the United States. The total pet food and supplies industry is estimated to be approximately $30 billion in annual retail sales. We estimate the annual retail sales of the pet supplies and super premium pet food markets in the categories in which we participate to be approximately $15 billion. The total lawn and garden industry in the United States, which includes equipment, supplies and services, is estimated to be approximately $21 billion in annual retail sales. We estimate the annual retail sales of the lawn and garden supplies markets in the categories in which we participate to be approximately $6 billion. In addition, we participate in the pottery and seasonal décor markets.

Our pet supplies products include products for dogs and cats, including edible bones, premium healthy edible and non-edible chews, super premium dog and cat food and treats, toys, 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, food and supplements, and information and knowledge resources; and products for horses and livestock. These products are sold under a number of brand names including Adams^TM, Altosid, Aqueon^®, Avoderm^®, BioSpot^®, Coralife^®, Farnam^®, Four Paws^®, Interpet, Kaytee^®, Kent Marine^®, Nylabone^®, Oceanic Systems^®, Pet Select^®, Pre-Strike^®, Pinnacle^®, Super Pet^®, TFH^TM, Zilla^® and Zodiac^®.

Our lawn and garden supplies products include proprietary and non-proprietary grass seed; wild bird feed, bird feeders, bird houses and other birding accessories; weed, grass, ant and other herbicide, insecticide and pesticide products; and decorative outdoor lifestyle and lighting products including pottery, trellises and other wood products and holiday lighting. These products are sold under a number of brand names including AMDRO^®, GKI/Bethlehem Lighting^®, Grant’s^®, Ironite^®, Lilly Miller^®, Matthews Four Seasons^TM, New England Pottery^®, Norcal Pottery^®, Pennington^®, Over-N-Out^®, Sevin^®, Smart Seed^® and The Rebels^®.

In fiscal 2012, our consolidated net sales were $1.7 billion, of which our Pet segment, or Pet, accounted for approximately $931 million and our lawn and Garden segment, or Garden, accounted for approximately $769 million. In fiscal 2012, our income from operations was $74 million, of which the Pet segment accounted for $88 million and the Garden segment accounted for $40 million, before corporate expenses and eliminations of $54 million. Fiscal 2013 will include one less week as compared to fiscal 2012. See Note 11 to our consolidated financial statements for financial information about our two operating segments.

We were incorporated in Delaware in June 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 is www.central.com. The information on our website is not incorporated by reference in this annual report.

Recent Developments

Fiscal 2013 Third Quarter Financial Performance:

•

Our net sales declined $39.7 million, or 7.4%, to $494.1 million with the decrease primarily in our pet segment.

•

Gross margin declined 290 basis points to 30.9%; both operating segments contributed to the decline.

•

Selling, general & administrative expenses decreased as a percentage of net sales to 24.2% from 24.7% in the prior year quarter.

•

Operating income declined $16.1 million to $32.9 million due to a decrease in operating income in both the garden and pet segments.

•

Our effective income tax rate was 34.3% in the third quarter of fiscal 2013, compared to 37.9% in the third quarter of fiscal 2012.

•

Our net income in the third quarter of fiscal 2013 was $13.7 million, or $0.28 per share, compared to $22.7 million, or $0.47 per share, in the third quarter of fiscal 2012.

Credit Facility Amendment: We amended our Credit Facility effective August 1, 2013. Under the terms of this amendment, our Minimum Interest Coverage Ratio was reduced to 2.25 times, from 2.5 times and a Minimum Asset Coverage Ratio was added at 1.1 times. This amendment will be effective through the fiscal quarter ending March 29, 2014.

Results of Operations

Three Months Ended June 29, 2013

Compared with Three Months Ended June 23, 2012

Net Sales

Net sales for the three months ended June 29, 2013 decreased $39.7 million, or 7.4%, to $494.1 million from $533.8 million for the three months ended June 23, 2012. Our branded product sales decreased $40.2 million and sales of other manufacturers’ products increased $0.5 million. The decline in net sales was due primarily to two factors which benefitted the third quarter of fiscal 2012 but did not recur in the current quarter: the initial sell-in of pet products to a new channel and the shipment of orders which had been delayed from the second quarter of fiscal 2012.

Pet segment net sales decreased $33.5 million, or 12.3%, to $237.8 million for the three months ended June 29, 2013 from $271.3 million for the three months ended June 23, 2012. Pet branded product sales decreased $34.4 million, due primarily to a $23.2 million decrease in our animal health category which was heavily impacted by decreased sales volume of our flea and tick products. Flea and tick product sales in the prior year included the initial sell-in to a new channel.

Garden segment net sales decreased $6.2 million, or 2.4%, to $256.3 million for the three months ended June 29, 2013 from $262.5 million for the three months ended June 23, 2012. Garden branded product sales decreased $5.8 million and sales of other manufacturers’ products decreased $0.4 million. The sales decrease in our garden branded products was due primarily to a $13.0 million decrease in controls and fertilizers, partially offset by a $6.6 million increase in grass seed. In the prior year quarter, controls and fertilizers benefited from the shipment of delayed orders in the second quarter of fiscal 2012. Additionally, the increase in controls and fertilizer sales we reported in the second quarter of fiscal 2013, reflecting the launch of new products, did not carry through to this quarter as consumer sell-through of these products was lower than expected.

Gross Profit

Gross profit for the three months ended June 29, 2013 decreased $28.2 million, or 15.6%, to $152.5 million from $180.7 million for the three months ended June 23, 2012. Gross margin declined from 33.8% for the three months ended June 23, 2012 to 30.9% for the three months ended June 29, 2013. Gross profit decreased in both segments primarily as a result of the decreased sales.

The gross profit and gross margin decline in the pet segment was primarily impacted by decreased sales volume of our flea and tick products which generally have higher margins. Flea and tick product sales in the prior year included the initial sell-in to a new channel. Higher ingredient costs in our flea and tick products also impacted gross margin during the period. The gross profit decline in the garden segment was primarily due to the sales decrease in controls and fertilizers, which was also impacted by new product support expenses, and a gross margin decline in décor products, resulting from lower sales volumes and returns. Additionally, the garden segment gross margin was impacted by lower margins in our fertilizer business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $12.1 million, or 9.2%, to $119.6 million for the three months ended June 29, 2013 from $131.7 million for the three months ended June 23, 2012. As a percentage of net sales, selling, general and administrative expenses decreased to 24.2% for the three months ended June 29, 2013, compared to 24.7% in the comparable prior year quarter. Selling and delivery expense decreased $9.1 million, or 10.7%, to $75.6 million for the three months ended June 29, 2013 from $84.7 million for the three months ended June 23, 2012. The decrease was due primarily to decreased advertising and marketing expense in our pet segment, headcount reductions and lower delivery expenses resulting from our lower sales volume. These were partially offset by an increase in marketing expenditures in the garden segment associated with our new product introductions. Warehouse and administrative expense decreased $3.0 million, or 6.4%, to $44.0 million for the quarter ended June 29, 2013 from $47.0 million in the quarter ended June 23, 2012 due primarily to reduced payroll and third party provider expenses. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and informational technology functions.

Operating Income

Operating income decreased $16.1 million, or 32.8%, to $32.9 million for the three months ended June 29, 2013 from $49.0 million for the three months ended June 23, 2012. Operating income decreased due to decreased sales and gross profit, which was partially offset by decreased selling, general and administrative costs. Operating income as a percentage of net sales declined due to the decrease in gross margin, which was partially offset by an improvement in selling, general and administrative expenses as a percentage of sales. Operating income decreased in both our pet and garden segments.

Pet operating income decreased $7.3 million, or 18.1% to $33.1 million for the three months ended June 29, 2013 from $40.4 million for the three months ended June 23, 2012. The decrease was due primarily to lower sales of animal health products which was partially offset by decreased selling, general and administrative costs, primarily decreased selling and delivery costs. Garden operating income declined $8.9 million, or 39.5%, to $13.7 million from $22.6 million in fiscal 2012 due primarily to decreased sales and gross profit from our controls and fertilizer products and decreased margins in our décor business, both impacted by product introduction and support costs. In comparison, in the prior year third quarter the controls and fertilizers category benefited from the shipment of delayed orders. Also, additional advertising costs were incurred for new controls and fertilizer products. Corporate operating expense decreased $0.2 million, or 1.0%.

Net Interest Expense

Net interest expense for the three months ended June 29, 2013 increased $0.6 million, or 5.8%, to $11.3 million from $10.7 million for the three months ended June 23, 2012. Interest expense increased due to our higher average debt outstanding in the quarter ended June 29, 2013. Debt outstanding on June 29, 2013 was $509.6 million compared to $449.9 million as of June 23, 2012. Our average borrowing rate for the current quarter decreased to 7.5% compared to 8.4% for the prior year quarter due to a larger amount of debt on our revolver which had lower rates than our fixed debt.

Other Income

Other income increased $0.3 million for the three months ended June 29, 2013 to $0.4 million for the three months ended June 29, 2013 from $0.1 million for the three months ended June 23, 2012 due primarily to increased earnings from an investment accounted for under the equity method of accounting. Other income 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 Taxes

Our effective income tax rate was 34.3% for the quarter ended June 29, 2013 and 37.9% for the quarter ended June 23, 2012. The income tax rate decrease was due primarily to additional tax credits available in the quarter ended June 29, 2013, that had a larger impact due to lower earnings in the quarter.

Nine Months Ended June 29, 2013

Compared with Nine Months Ended June 23, 2012

Net Sales

Net sales for the nine months ended June 29, 2013 decreased $18.0 million, or 1.4%, to $1,284.8 million from $1,302.8 million for the nine months ended June 23, 2012. Our branded product sales decreased $16.4 million and sales of other manufacturers’ products declined $1.6 million.

Pet Products’ net sales decreased $25.3 million, or 3.7%, to $667.8 million for the nine months ended June 29, 2013 from $693.1 million in the comparable fiscal 2012 period. Pet branded product sales decreased $23.5 million from the prior year period, due primarily to a $14.7 million decrease in our animal health category which was primarily volume driven. The animal health product sales in the prior year included the initial sell-in of flea and tick products to a new channel. Sales of other manufacturers’ products decreased approximately $1.8 million compared to the prior year nine month period.

Garden Products’ net sales increased $7.3 million, or 1.2%, to $617.0 million for the nine months ended June 29, 2013 from $609.7 million in the comparable fiscal 2012 period. Garden branded product sales increased $7.1 million due primarily to a $11.0 million increase in wild bird feed, partially offset by decreased sales in our other garden supplies category. The wild bird feed sales increase was due to both price and volume increases. Sales of other manufacturers’ products increased approximately $0.2 million compared to the comparable prior year period.

Gross Profit

Gross profit for the nine months ended June 29, 2013 decreased $26.5 million, or 6.5%, to $382.6 million from $409.1 million for the nine months ended June 23, 2012. Gross margin declined from 31.4% for the nine months ended June 23, 2012 to 29.8% for the nine months ended June 29, 2013.

Gross profit decreased in the pet segment for the nine months ended June 29, 2013 due to decreased sales and a lower gross margin than the prior year period. The largest contributor to the lower gross profit and gross margin were our animal health products, which were impacted by decreased sales volume of our flea and tick products. Flea and tick product sales in the prior year included the initial sell-in to a new channel. Gross profit and gross margin declined in the garden segment for the nine months ended June 29, 2013. The decline in the garden segment was due primarily to sales returns and additional product introduction expenses in décor products and product introduction expense and margin decline in our controls and fertilizer business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $10.1 million, or 3.1%, to $316.1 million for the nine months ended June 29, 2013 from $326.2 million for the nine months ended June 23, 2012. As a percentage of net sales, selling, general and administrative expenses decreased to 24.6% for the nine months ended June 29, 2013, compared to 25.0% in the comparable prior year nine month period.

Selling and delivery expense decreased $8.0 million, or 4.2%, from $190.5 million for the nine months ended June 23, 2012 to $182.5 million for the nine months ended June 29, 2013. The decrease was due to decreased advertising and marketing expense in our pet segment, headcount reductions and lower delivery expenses resulting from our lower sales volume.

Warehouse and administrative expense decreased $2.1 million to $133.6 million for the nine months ended June 29, 2013 from $135.7 million in the nine months ended June 23, 2012. Warehouse and administrative expenses decreased in both the pet and garden segments, due primarily to decreased payroll related and third party provider costs, partially offset by increased corporate expenses, due primarily to increased insurance program costs and information technology costs.

Operating Income

Operating income decreased $16.4 million, or 19.7%, to $66.5 million for the nine months ended June 29, 2013 from $82.9 million for the nine months ended June 23, 2012. Operating income decreased due to a decrease in gross profit, as the impact of the decrease in sales was increased by a decline in gross margin, which was only partially offset by a decrease in selling, general and administrative expenses.

Pet operating income decreased $0.5 million to $70.8 million, or 0.5%, as decreased net sales and a decline in the gross margin were, for the most part, offset by a decrease in selling, general and administrative costs, primarily decreased selling and delivery costs. Garden operating income decreased $9.0 million to $39.1 million due primarily to the decline in gross margin. Corporate operating expense increased $6.9 million, or 19.2%, due primarily to an increase in insurance program costs and increased information technology expenses.

Net Interest Expense

Net interest expense for the nine months ended June 29, 2013 increased $1.8 million or 6.0%, to $32.5 million from $30.7 million for the nine months ended June 23, 2012. The increase in interest expense resulted from a higher amount of debt outstanding during the current fiscal period. Debt outstanding on June 29, 2013 was $509.6 million compared to $449.9 million as of June 23, 2012. Our average borrowing rate for the nine months ended June 29, 2013 was 7.9% compared to 8.1% for the prior year nine month period.

Other Expense

Other expense increased $0.6 million from $0.1 million for the nine months ended June 23, 2012, to $0.7 million for the nine months ended June 29, 2013. The increase 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, partially offset by increased earnings from an investment accounted for under the equity method of accounting. Other 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 Taxes

Our effective income tax rate was 34.1% for the nine months ended June 29, 2013 and 37.7% for the nine months ended June 23, 2012. Our 2013 tax rate benefited primarily from additional tax credits available in the current year applied to the lower fiscal 2013 earnings.

Inflation

Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending. Historically, in certain fiscal periods, we have been adversely impacted by rising input costs related to domestic inflation, particularly relating to grain and seed prices, fuel prices and the ingredients used in our garden controls and fertilizers. Rising costs have made it difficult for us to increase prices to our retail customers at a pace sufficient to enable us to maintain margins.

In recent years, our business was negatively impacted by low consumer confidence, as well as other macro-economic factors. In fiscal 2012 commodity costs continued to increase and 2013-to-date they remain at elevated levels. We continue to monitor commodity prices in order to take action to mitigate the impact of increasing raw material costs.

Weather and Seasonality

Our sales of lawn and garden products are influenced by weather and climate conditions in the different markets we serve. Additionally, our garden segment’s business is highly seasonal. In fiscal 2012, approximately 66% of our garden segment’s net sales and 59% of our total net sales occurred during our second and third fiscal quarters. Substantially all of our garden segment’s operating income is typically generated in this period, which has historically offset the operating loss incurred during the first fiscal quarter of the year.

Liquidity and Capital Resources

We have financed our growth through a combination of internally generated funds, bank borrowings, supplier credit and sales of equity and debt securities to the public.

Our business is seasonal and our working capital requirements and capital resources have tracked closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are substantially reduced through conversion of receivables to cash.

We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses involve products that have a year round selling cycle with a slight degree of seasonality. As a result, it is not necessary to maintain large quantities of inventory to meet peak demands. On the other hand, our lawn and garden businesses are highly seasonal with approximately 66% of our garden segment’s net sales occurring during the second and third fiscal quarters. This seasonality requires them to ship large quantities of their 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.

Net cash used in operating activities increased $129.6 million, from $64.2 million of cash provided by operating activities for the nine months ended June 23, 2012, to $65.4 million of cash used in operating activities for the nine months ended June 29, 2013. The increase in cash used in operating activities was due primarily to increases in our working capital accounts, specifically inventory. Inventory balances increased over the prior year as we built safety stock to ensure we could meet the anticipated needs of our customers for the launch of new products in our garden business. Additionally, strategic purchases and cost inflation impacted our inventory levels.

Net cash used in investing activities decreased $7.4 million, from $26.9 million for the nine months ended June 23, 2012 to $19.5 million during the nine months ended June 29, 2013. The decrease in cash used in investing activities was due primarily to a decrease in capital expenditures in the current year. The amount invested in facility consolidation and our ERP implementation in the prior year did not recur at the same levels in the current year. During the nine months ended June 29, 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, the Company acquired the remaining majority interest in FourStar Microbial for approximately $4.8 million in cash with possible contingent future performance-based payments. The Company has not yet finalized its allocation of the purchase price to the fair value of the net assets acquired. The operating results of FourStar Microbial had no impact on the consolidated financial statements and the purchase price paid is included in other assets on the condensed consolidated balance sheets. While the acquisition is not expected to have a material impact on the Company’s 2013 financial results, it will enhance the Company’s capability to service professional providers of mosquito abatement.

Net cash provided by financing activities increased $66.0 million, from $8.6 million of cash used by financing activities for the nine months ended June 23, 2012, to $57.4 million of cash provided by financing activities for the nine months ended June 29, 2013. The increase in cash provided was due to increased net borrowings under our revolving credit facility during the nine months ended June 29, 2013, as compared to the nine months ended June 23, 2012. The higher net borrowings during the nine months ended June 29, 2013 were partially offset by lower share repurchases in the current year period. The aggregate cost of our share repurchases during the nine months ended June 29, 2013 was $1.5 million, compared to $20.9 million for the nine months ended June 23, 2012.

We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $375 million revolving credit facility. Based on our anticipated cash needs, availability under our revolving credit facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.

We believe that cash flows from operating activities, funds available under our revolving credit facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital requirements for the foreseeable future. We anticipate that our capital expenditures will not exceed $30 million during fiscal 2013, which are related primarily to replacements and upgrades to plant and equipment and investment in our implementation of a scalable enterprise-wide information technology platform. 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 $78.5 million from fiscal 2005 through fiscal 2012 in this initiative and plan to invest up to an additional $11.0 million in fiscal 2013 for planned implementations. Capital expenditures for 2013 and beyond will depend upon the pace of conversion of those remaining legacy systems. This initiative, when complete, will combine our numerous information systems into one enterprise system and create a common business model and common data, which should create greater efficiency and effectiveness.

As part of our growth strategy, we have acquired a number of companies in the past, and we anticipate that we will continue to evaluate potential acquisition candidates in the future. If one or more potential acquisition opportunities, including those that would be material, become available in the near future, we may require additional external capital. In addition, such acquisitions would subject us to the general risks associated with acquiring companies, particularly if the acquisitions are relatively large.

Stock Repurchases

During the three months ended June 29, 2013, we did not repurchase our common stock. During the nine months ended June 29, 2013, we repurchased approximately 0.2 million shares of our Class A common stock for an aggregate cost of $1.5 million. During the third quarter of fiscal 2011, our Board of Directors authorized a $100 million share repurchase program, under which approximately $50 million is available for repurchases in fiscal 2013 and thereafter.

Senior Credit Facility

On June 8, 2011, we amended our $275 million, five-year senior secured revolving credit facility (the “Credit Facility”) included in our Amended and Restated Credit Agreement (the “Credit Agreement”). Under the modified terms, the Credit Facility has a borrowing capacity of $375 million, an increase of $100 million, and a maturity date of June 2016. The Credit Facility bears lower interest rates and commitment fees and requires less interest coverage. We continue to have the option to increase the size of the Credit Facility by an additional $200 million of incremental term loans and/or revolving loans should we exercise our option and one or more lenders are willing to make such increased amounts available to us. There was $60 million outstanding as of June 29, 2013 under the Credit Facility. There were no letters of credit outstanding under the Credit Facility as of June 29, 2013. There were other letters of credit of $17.5 million outstanding as of June 29, 2013. As of June 29, 2013, there were $315 million of unused commitments under the Credit Facility or, after giving effect to the financial covenants in the Credit Agreement, $147.8 million of available unused commitments.

Interest on the amended Credit Facility is based, at our option, on a rate equal to the Alternate Base Rate (ABR), which is the greatest of the prime rate, the Federal Funds rate plus 1/2 of 1% or one month LIBOR plus 1%, plus a margin, which fluctuates from 0.75% to 1.75%, or LIBOR plus a margin, which fluctuates from 1.75% to 2.75% and commitment fees that range from 0.30% to 0.50%, determined quarterly based on consolidated total debt to consolidated EBITDA for the most recent trailing 12-month period. As of June 29, 2013, the applicable interest rate on the Credit Facility related to alternate base rate borrowings was 5.0%, and the applicable interest rate related to LIBOR rate borrowings was 3.0%.

The Credit Facility is guaranteed by our material subsidiaries and is secured by our assets, excluding real property but including substantially all of the capital stock of our subsidiaries. The Credit Agreement contains certain financial and other covenants which require us to maintain minimum levels of interest coverage and maximum levels of senior debt to EBITDA and that restrict our ability to repurchase our stock, make investments in or acquisitions of other businesses and pay dividends above certain levels over the life of the Credit Facility. Under the terms of our Credit Facility, we may make restricted payments, including cash dividends and stock repurchases, in an aggregate amount initially not to exceed $200 million over the life of the Credit Facility, subject to qualifications and baskets as defined in the Credit Agreement. As of June 29, 2013, our Total Leverage Ratio, as defined in the Credit Agreement, was 4.9 to 1.0, and our Senior Secured Leverage Ratio, as defined in the Credit Agreement with a maximum of 2.0 to 1.0, was 0.6 to 1.0. Our minimum Interest Coverage Ratio was reduced to 2.5 times, from 2.75 times as part of the modification of the Credit Facility. As of June 29, 2013, our Interest Coverage ratio was 2.6 times. Apart from the covenants limiting restricted payments and capital expenditures, the Credit Facility does not restrict the use of retained earnings or net income. We were in compliance with all financial covenants as of June 29, 2013.

We amended our Credit Facility effective August 1, 2013. Under the terms of this amendment, our Minimum Interest Coverage Ratio was reduced to 2.25 times, from 2.5 times and a Minimum Asset Coverage Ratio was added at 1.1 times. The covenant modifications are effective through the fiscal quarter ending March 29, 2014.

Senior Subordinated Notes

On March 8, 2010, we issued $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 (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 used the net proceeds from the offering to pay a portion of the outstanding balance under our Credit Facility.

The estimated fair value of our $450 million of 2018 Notes as of June 29, 2013 was approximately $457.3 million. The estimated fair value is based on quoted market prices for these notes.

We may redeem some or all of the 2018 Notes at any time prior to March 1, 2014 at the principal amount plus a “make whole” premium. We may redeem some or all of the 2018 Notes at any time on or after March 1, 2014 for 104.125%, after March 1, 2015 for 102.063% and after March 1, 2016 for 100%, plus accrued and unpaid interest. The holders of the 2018 Notes have the right to require us to repurchase all or a portion of the 2018 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 2018 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of June 29, 2013.

Total Debt

At June 29, 2013, our total debt outstanding was $509.6 million, as compared with $449.9 million at June 23, 2012.

Off-Balance Sheet Arrangements

There have been no material changes to the information provided in our Annual Report on Form 10-K for the fiscal year ended September 29, 2012 regarding off-balance sheet arrangements.

Contractual Obligations

There have been no material changes outside the ordinary course of business in our contractual obligations set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

New Accounting Pronouncements

Refer to Footnote 1 in the notes to the condensed consolidated financial statements for new accounting pronouncements.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes to our critical accounting policies, estimates and assumptions or the judgments affecting the application of those accounting policies since our Annual Report on Form 10-K for the fiscal year ended September 29, 2012, with the exception of the following related to our goodwill.

We account for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other,” and test goodwill for impairment annually, 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. This assessment involves the use of significant accounting judgments and estimates as to future operating results and discount rates. Changes in estimates or use of different assumptions could produce significantly different results. An impairment loss is generally recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. We use discounted cash flow analysis to estimate the fair value of our reporting units. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of our reporting units to our total market capitalization. Based on our annual analysis of goodwill performed during the fourth quarter of fiscal 2012, we concluded there was no impairment of goodwill during fiscal 2012.

The Garden segment operating income has declined during the first nine months of fiscal 2013. Garden operating income has decreased $9.0 million, or 18.8% from the comparable fiscal 2012 period. Due to recent trends impacting our Garden segment, we qualitatively assessed the valuation of our Garden segment reporting units, which have goodwill of $7.7 million. This qualitative assessment resulted in a determination that it was more likely than not that the fair value of the reporting unit exceeded the carrying amount of the Garden Segment reporting units at June 29, 2013. If these trends continue through the remainder of the garden season, and our forecast of future operating performance further declines, there is the potential for goodwill impairment related to our Garden segment’s reporting units.

The Pet segment operating income for the first nine months of fiscal 2013 has been relatively consistent with the comparable fiscal 2012 period. The Pet segment reporting units have $202.5 million of goodwill. Our last annual impairment test in the fourth quarter of 2012 resulted in these units’ valuation exceeding carrying value by more than 20%.

When estimating the fair value of a reporting unit, we may need to adjust discount rates and/or other assumptions when comparing the sum of the fair values of our reporting units to our market capitalization. The comparison of the fair values of our reporting units to our market capitalization can be influenced by the movement of our stock price during our fiscal fourth quarter. Significant adverse changes to our business environment, future cash flows or stock price could cause us to record impairment charges in future periods, which could be material. Our annual goodwill impairment test will be performed in our fourth fiscal quarter, the results of which will be reported in our 10K for the fiscal year ending September 28, 2013.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risk from that discussed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief 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 Chief 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 June 29, 2013.

(b) Changes in Internal Control Over Financial Reporting. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in our internal control over financial reporting occurred during the third quarter of fiscal 2013. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the third quarter of fiscal 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we are involved in certain legal proceedings in the ordinary course of business. Currently, we are not a party to any legal proceedings that management believes would have a material effect on our financial position or results of operations.

Item 1A.

Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended September 29, 2012 except for the following.

If our goodwill, indefinite-lived intangible assets or other long-term assets become impaired, we will be required to record impairment charges, which may be significant.

A significant portion of our long-term assets consist of goodwill and other intangible assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We consider whether circumstances or conditions exist which suggest that the carrying value of our goodwill and other long-lived intangible assets might be impaired. If such circumstances or conditions exist, further steps are required to determine whether the carrying value of each of the individual assets exceeds its fair value. If analysis indicates that an individual asset’s carrying value does exceed its fair value, we would record a loss equal to the excess of the individual asset’s carrying value over its fair value.

The steps required by GAAP entail significant amounts of judgment and subjectivity. Events and changes in circumstances that may indicate that there may be an impairment and which may indicate that interim impairment testing is necessary include, but are not limited to: competitive conditions; the impact of the economic environment on our customer base and on broad market conditions that drive valuation considerations by market participants; our internal expectations with regard to future revenue growth and the assumptions we make when performing impairment reviews; a significant decrease in the market price 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 business, financial condition.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the repurchases of any equity securities during the fiscal quarter ended June 29, 2013 and the dollar amount of authorized share repurchases remaining under our stock repurchase program.


Period	Total Number of Shares (or Units) Purchased			Average Price Paid per Share (or Units)		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)
March 31, 2013 – May 4, 2013		4,338	⁽²⁾	$	8.67		0	$	50,093,000
May 5, 2013 – June 1, 2013		3,214	⁽²⁾	$	7.43		0	$	50,093,000
June 1, 2013 – June 29, 2013		2,471	⁽²⁾	$	7.25		0	$	50,093,000

Total		10,023		$	7.92		0	$	50,093,000

(1)

During the third quarter of fiscal 2011, our Board of Directors authorized a new $100 million share repurchase program. The program has no 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 and indenture 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 and the exercise of stock options.

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

Not applicable

Item 6.

Exhibits



31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.

CENTRAL GARDEN & PET COMPANY

Registrant

Dated: August 8, 2013

/s/ JOHN R. RANELLI

John R. Ranelli

President and Chief Executive Officer

(Principal Executive Officer)

/S/ LORI A. VARLAS

Lori A. Varlas

Chief Financial Officer

(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company