UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended December 28, 2013
or
For the transition period from to
Commission File Number: 001-33268
CENTRAL GARDEN & PET COMPANY
(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.
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets as of December 28, 2013, December 29, 2012 and September 28, 2013
Condensed Consolidated Statements of Operations Three Months Ended December 28, 2013 and December 29, 2012
Condensed Consolidated Statements of Comprehensive Income (Loss) Three Months Ended December 28, 2013 and December 29, 2012
Condensed Consolidated Statements of Cash Flows Three Months Ended December 28, 2013 and December 29, 2012
Notes to Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
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 industries 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 thisForm 10-Q are set forth in the Form 10-K for the fiscal year ended September 28, 2013, 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:
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PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Unaudited
Current assets:
Cash and cash equivalents
Short term investments
Accounts receivable (less allowance for doubtful accounts of $20,547, $18,555 and $21,158)
Inventories
Prepaid expenses and other
Total current assets
Land, buildings, improvements and equipment—net
Goodwill
Other intangible assets—net
Deferred income taxes and other assets
Total
Current liabilities:
Accounts payable
Accrued expenses
Current portion of long-term debt
Total current liabilities
Long-term debt
Other long-term obligations
Equity:
Common stock, $.01 par value: 12,246,751, 12,247,359 and 12,246,751 shares outstanding at December 28, 2013, December 29, 2012 and September 28, 2013
Class A common stock, $.01 par value: 35,423,560, 34,765,783 and 35,291,001 shares outstanding at December 28, 2013, December 29, 2012 and September 28, 2013
Class B stock, $.01 par value: 1,652,262 shares outstanding
Additional paid-in capital
Accumulated earnings
Accumulated other comprehensive income
Total Central Garden & Pet Company shareholders’ equity
Noncontrolling interest
Total equity
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Net sales
Cost of goods sold and occupancy
Gross profit
Selling, general and administrative expenses
Loss from operations
Interest expense
Interest income
Other expense
Loss before income taxes and noncontrolling interest
Income tax benefit
Loss including noncontrolling interest
Net loss attributable to noncontrolling interest
Net loss attributable to Central Garden & Pet Company
Net loss per share attributable to Central Garden & Pet Company:
Basic and diluted
Weighted average shares used in the computation of net loss per share:
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss
Other comprehensive income (loss):
Foreign currency translation
Total comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to Central Garden & Pet Company
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Excess tax benefits from stock-based awards
Deferred income taxes
Unrealized losses on derivative financial instruments
Write-off of deferred financing costs
Loss on sale of property and equipment
Change in assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Additions to property and equipment
Payments to acquire companies, net of cash acquired
Proceeds from short term investments
Net cash used in investing activities
Cash flows from financing activities:
Repayments of long-term debt
Proceeds from issuance of common stock
Borrowings under revolving line of credit
Repayments under revolving line of credit
Payment of deferred financing costs
Repurchase of common stock
Distribution to noncontrolling interest
Net cash (used) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and equivalents at beginning of period
Cash and equivalents at end of period
Supplemental information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Non-cash investing activities:
Capital expenditures incurred but not paid
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended December 28, 2013
1. Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of December 28, 2013 and December 29, 2012, the condensed consolidated statements of operations for the three months ended December 28, 2013 and December 29, 2012, the condensed consolidated statements of comprehensive income (loss) for the three months ended December 28, 2013 and December 29, 2012 and the condensed consolidated statements of cash flows for the three months ended December 28, 2013 and December 29, 2012 have been prepared by the Company, without audit. In the opinion of management, the interim financial statements include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented.
For the Company’s foreign business in the UK, the local currency is the functional currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the period. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of its foreign subsidiary to be permanently reinvested. Transaction gains and losses are included in results of operations. See Note 9, Supplemental Equity Information, for further detail.
Due to the seasonal nature of the Company’s garden business, the results of operations for the three month period ended December 28, 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 2013 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September 28, 2013 balance sheet presented herein was derived from the audited statements.
Noncontrolling Interest
Noncontrolling interest in the Company’s condensed consolidated financial statements represents the 20% interest not owned by Central in a consolidated subsidiary. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 20% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interest on the consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations. See Note 9, Supplemental Equity Information, for additional information.
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 4, Derivative Instruments, for additional information.
Recent Accounting Pronouncements
Comprehensive Income
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
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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 became effective for the Company on September 29, 2013. This new guidance did not have a material impact on the Company’s condensed consolidated financial statements.
2. Business Combinations
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 and approximately $4.2 million of contingent future performance-based payments. The purchase price exceeded the estimated fair value of the tangible and intangible assets acquired by $3.2 million, which was recorded as goodwill. The operating results of FourStar Microbial had no material impact on the consolidated financial statements. In the future, we expect the acquisition will enhance the Company’s capability to service professional providers of mosquito abatement.
The following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date:
(In thousands)
Current assets, net of cash and cash equivalents acquired
Fixed assets
Intangible assets
Other long-term assets
Current liabilities
Other long-term liabilities
Assets of aquiree recorded prior to purchase of majority interest
Net assets acquired, less cash and cash equivalents
During fiscal 2013, the fair value measurements of assets acquired and liabilities assumed of FourStar Microbial as of the acquisition date were refined. This refinement did not have a significant impact on our condensed consolidated statements of operations, balance sheets or cash flows in any period and, therefore, we have not retrospectively adjusted our financial statements. These fair value assessments were finalized and reflected in our Form 10-K for the year ended September 28, 2013. Financial results for FourStar Microbial have been included in the results of operations within our Pet segment since the date of acquisition.
3. 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.
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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 December 28, 2013 (in thousands):
Assets:
Certificates of deposit (a)
Total assets
Liabilities:
Liability for contingent consideration (c)
Total liabilities
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 December 29, 2012:
Derivative assets (b)
Derivative liabilities (b)
The following table presents our financial assets and liabilities at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 28, 2013:
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The following table provides a summary of changes in fair value of our Level 3 financial instruments for the period ended September 28, 2013 and December 28, 2013 (in thousands):
Balance as of September 28, 2013
Changes in the fair value of contingent performance-based payments established at the time of acquisition
Balance as of December 28, 2013
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 December 28, 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 December 28, 2013, December 29, 2012 and September 28, 2013, was $434.3 million, $481.5 million and $449.5 million, respectively, compared to a carrying value of $449.4 million, $449.3 million and $449.4 million, respectively. The estimated fair value is based on quoted market prices for these notes, which are Level 1 inputs within the fair value hierarchy.
4. 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 September 28, 2013 and December 28, 2013, the Company had no outstanding derivative instruments. As of December 29, 2012, 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.
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The following table presents the fair value of all derivative instruments outstanding in the condensed consolidated balance sheets (in thousands):
Derivatives not designated as hedging instruments:
Commodity contracts
Total derivative instruments
The following table presents the effect of derivative instruments recorded in other income (expense) on the condensed consolidated statements of operations (in thousands):
Derivatives Not Designated as Hedging Instruments
The following table presents the gross contract notional volume of outstanding derivative contracts:
Commodity
Corn
Soy Meal
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5. Inventories, net
Inventories, net of allowance for obsolescence, consist of the following (in thousands):
Raw materials
Work in progress
Finished goods
Supplies
Total inventories, net
6. 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 its 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 2013, it concluded the carrying value of the Company’s Garden segment goodwill was impaired, resulting in a non-cash goodwill impairment charge of $7.7 million.
7. Other Intangible Assets
The following table summarizes the components of gross and net acquired intangible assets:
December 28, 2013
Marketing-related intangible assets – amortizable
Marketing-related intangible assets – nonamortizable
Customer-related intangible assets – amortizable
Other acquired intangible assets – amortizable
Other acquired intangible assets – nonamortizable
Total other intangible assets
December 29, 2012
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September 28, 2013
Other intangible assets acquired include contract-based and technology-based intangible assets.
As part of its acquisition of the remaining majority interest in FourStar Microbial during the first quarter of fiscal 2013, the Company acquired approximately $0.1 million of marketing-related intangible assets, $0.1 million of customer-related intangible assets and $6.9 million of other 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 2013, 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 2013 or during the three months ended December 28, 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 six years for marketing-related intangibles, 15 years for customer-related intangibles and 15 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $1.0 million and $1.1 million for the three months ended December 28, 2013 and December 29, 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 2014 through fiscal 2018.
8. Long-Term Debt
Long-term debt consists of the following:
Senior subordinated notes, net of unamortized discount (1), interest at 8.25%, payable semi-annually, principal due March 2018
Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.25% to 1.75%, or Base Rate plus a margin of 0.25% to 0.75%, final maturity December 2018
Revolving credit facility, interest at Alternate Base Rate plus a margin of 0.75% to 1.75%, or LIBOR plus a margin of 1.75% to 2.75%, final maturity June 2016
Other notes payable
Less current portion
Long-term portion
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Asset Backed Loan Facility
On December 5, 2013, the Company entered into a credit agreement which provides up to a $390 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if the Company exercises the accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 5, 2018 and replaced the Company’s prior revolving credit facility. The Company may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full. As of December 28, 2013, there were no borrowings outstanding under the Credit Facility. There were no letters of credit outstanding under the Credit Facility as of December 28, 2013. There were other letters of credit of $13.1 million outstanding as of December 28, 2013.
The Credit Facility is subject to a borrowing base, calculated using a formula based upon eligible receivables and inventory, minus certain reserves and subject to restrictions. The borrowing base as of December 28, 2013 was approximately $302.2 million. Borrowings under the Credit Facility will bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.5% and (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on the Company’s total outstanding borrowings. Such applicable margin for LIBOR-based borrowings fluctuates between 1.25%-1.75% (and was 1.25% at December 28, 2013) and such applicable margin for Base Rate borrowings fluctuates between 0.25%-0.75% (and was 0.25% at December 28, 2013). As of December 28, 2013, the applicable interest rate related to Base Rate borrowings, had any been outstanding, was 3.5%, and the applicable interest rate related to LIBOR-based borrowings, had any been outstanding, was 1.4%.
The Credit Facility contains customary covenants, including financial covenants which require the Company to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon reaching certain borrowing levels. The Credit Facility is secured by substantially all assets of the Company. The Company was in compliance with all covenants under the Credit Facility during the period ended December 28, 2013.
The Company incurred approximately $3.0 million of costs in conjunction with this transaction, which included banking fees and legal expenses. These costs will be amortized over the term of the Credit Facility.
The Company recorded a non-cash charge of $1.7 million for the period ended December 28, 2013, as part of interest expense, related to the unamortized deferred financing costs under the prior revolving credit facility.
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 13, 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 prior revolving credit facility.
The estimated fair value of our $450 million of 2018 Notes as of December 28, 2013 was approximately $434.3 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 the Company’s existing and future senior debt, including the Company’s prior revolving credit facility and Credit Facility. The obligations under the 2018 Notes are fully and unconditionally guaranteed on a senior subordinated basis by each of the Company’s 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 in the 2018 Notes indenture as of December 28, 2013.
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9. Supplemental Equity Information
The following table provides a summary of the changes in the carrying amounts of equity attributable to controlling interest and noncontrolling interest for the three months ended December 28, 2013 and December 29, 2012:
Balance September 28, 2013
Comprehensive loss
Stock based compensation
Restricted share activity
Issuance of common stock
Tax benefit on stock option exercise
Distribution to Noncontrolling interest
Other
Balance December 28, 2013
Balance September 29, 2012
Balance December 29, 2012
10. Stock-Based Compensation
The Company recognized share-based compensation expense of $1.8 million and $1.6 million for the three month periods ended December 28, 2013 and December 29, 2012, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the three month periods ended December 28, 2013 and December 29, 2012 was $0.7 million and $0.6 million, respectively.
11. Earnings Per Share
The potential effects of stock awards were excluded from the diluted earnings per share calculation for the three month periods ended December 28, 2013 and December 29, 2012 because their inclusion in a net loss period would be anti-dilutive to the earnings per share calculation.
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12. Segment Information
Management has determined that the Company has two operating segments which are also reportable segments based on the level at which the Chief Operating Decision Maker reviews the results of operations to make decisions regarding performance assessment and resource allocation. These operating segments are Pet segment and Garden segment and are presented in the table below (in thousands).
Net sales:
Pet segment
Garden segment
Total net sales
Income (loss) from operations:
Corporate
Total loss from operations
Interest expense—net
Depreciation and amortization:
Total depreciation and amortization
Goodwill (included in corporate assets above):
Total goodwill
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13. 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 2018 Notes. Certain subsidiaries and operating divisions are not guarantors of the Notes (collectively, the “Non-Guarantor entities”) 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)
In lieu of providing separate audited 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
Cost of products sold and occupancy
Income (loss) from operations
Interest – net
Other income (loss )
Loss before income taxes
Loss attributable to noncontrolling interest
Loss attributable to Central Garden & Pet Company before equity in undistributed income of guarantor subsidiaries
Equity in undistributed income of guarantor subsidiaries
Net loss attributable to Central Garden & Pet Co.
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Three Months Ended December 29, 2012
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CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
Other comprehensive income:
Other comprehensive loss:
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CONSOLIDATING CONDENSED BALANCE SHEET
ASSETS
Accounts receivable, net
Land, buildings, improvements and equipment, net
Investment in guarantors
LIABILITIES AND EQUITY
Accrued expenses and other current liabilities
Shareholders’ equity attributable to Central Garden & Pet Co.
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Other assets
Accrued expenses and other liabilities
Shareholders’ equity attributable to Central Garden & Pet
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CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
( in thousands)
Net cash provided (used) by operating activities
Investment in guarantor subsidiaries
Net cash provided (used) by investing activities
Distribution to minority interest
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Payment to acquire companies
The Company and its guarantor subsidiaries participate in a cash pooling program. As part of this program, cash balances are generally swept on a daily basis between the guarantor subsidiary bank accounts and those of the Company. In addition, the Company pays expenses on behalf of its guarantor subsidiaries on a regular basis. These types of transactions have been accounted for as investments in guarantor subsidiaries within investing activities.
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14. Contingencies
The Company may from time to time become involved in legal proceedings in the ordinary course of business. Currently, the Company is not a party to any legal proceedings that management believes would have a material effect on the Company’s financial position or results of operations.
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Our Company
Central Garden & Pet Company 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 $13.5 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 the master brands including AdamsTM, Aqueon®, Avoderm®, BioSpot®, Farnam®, Four Paws®, Kaytee®, Nylabone®, Pinnacle®, TFHTM, Zilla® as well as a number of other brands including Altosid, Comfort Zone®, Coralife®, Interpet, Kent Marine®, Oceanic Systems®, Pet Select®, Pre-Strike®, Super Pet®, 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 the master brands AMDRO®, GKI/Bethlehem Lighting®, Ironite®, Pennington®, and Sevin®, as well as a number of other brand names including Grant’s®, Lilly Miller®, Matthews Four SeasonsTM, New England Pottery®, Norcal Pottery®, Over-N-Out®, Smart Seed® and The Rebels®.
In fiscal 2013, our consolidated net sales were $1.7 billion, of which our Pet segment, or Pet, accounted for approximately $888 million and our Lawn and Garden segment, or Garden, accounted for approximately $765 million. In fiscal 2013, our branded product sales were approximately $1.4 billion, or approximately 83% of total sales, sales of other manufacturers’ products were approximately 17% of total sales. In fiscal 2013, our income from operations, before corporate expenses and eliminations of $64 million, was $104 million, of which the Pet segment accounted for $96 million and the Garden segment accounted for $8 million. See Note 12 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 2014 First Quarter Financial Performance:
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Results of Operations
Compared with Three Months Ended December 29, 2012
Net Sales
Net sales for the three months ended December 28, 2013 decreased $2.0 million, or 0.7%, to $290.5 million from $292.5 million for the three months ended December 29, 2012. Our branded product sales decreased $6.2 million and sales of other manufacturers’ products increased $4.2 million.
Pet segment net sales decreased $10.6 million, or 5.4%, to $184.6 million for the three months ended December 28, 2013 from $195.2 million for the three months ended December 29, 2012. Pet branded product sales decreased $13.7 million, due primarily to a $6.1 million sales decrease in wild bird feed and a $4.4 million sales decrease of aquatic products. The decreases were volume driven. Sales volume decreases were partially offset by increased prices. Sales of other manufacturers’ products increased $3.1 million.
Garden segment net sales increased $8.6 million, or 8.8%, to $105.9 million for the three months ended December 28, 2013 from $97.3 million for the three months ended December 29, 2012. Garden branded product sales increased $7.5 million and sales of other manufacturers’ products increased $1.1 million. The sales increase in our garden branded products was due primarily to a $4.6 million increase in controls and fertilizers, which was primarily volume driven and reflects orders that are starting earlier this year, and a $4.4 million increase in other garden supplies due to sales of our seasonal décor products into a new channel.
Gross Profit
Gross profit for the three months ended December 28, 2013 increased $2.7 million, or 3.6%, to $79.7 million from $77.0 million for the three months ended December 29, 2012. Gross margin increased from 26.3% for the three months ended December 29, 2012 to 27.4% for the three months ended December 28, 2013. Gross profit and gross margin increased in both segments.
Gross margin in the Pet segment improved due to increased pricing. The largest gross margin improvement was in our dog and cat category, which benefitted from both price increases and manufacturing improvements. Gross margin in the Garden segment increased due primarily to improved margins in our seasonal décor products business, which was impacted negatively in the prior year quarter by increased sales returns and expenses and by reduced sales of winter seasonal products and impacted positively in the current period by increased sales into a new channel, and declining commodity prices in our wild bird feed garden business. These improvements were partially offset by a decrease in our grass seed business gross margin due to increased raw material costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $2.0 million, or 2.2%, to $88.1 million for the three months ended December 28, 2013 from $90.1 million for the three months ended December 29, 2012. As a percentage of net sales, selling, general and administrative expenses decreased to 30.3% for the three months ended December 28, 2013, compared to 30.8% in the comparable prior year quarter. The change in selling, general and administrative expenses, discussed further below, was due to decreased selling and delivery expense. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and information technology functions.
Selling and delivery expense decreased $2.6 million, or 5.5%, to $44.7 million for the three months ended December 28, 2013 from $47.3 million for the three months ended December 29, 2012. Selling and delivery expense as a percentage of net sales decreased to 15.4% in the current year quarter from 16.2% in the prior year quarter. The $2.6 million decrease was due primarily to lower delivery expenses and lower commissions resulting from the lower sales in our Pet segment.
Warehouse and administrative expense increased $0.6 million, or 1.4%, to $43.4 million for the three months ended December 28, 2013 from $42.8 million for the three months ended December 29, 2012. Increased expenses at corporate and in our Garden segment due primarily to increased medical insurance and headcount reduction costs were partially offset by reduced expenses in our Pet segment due primarily to reduced employee related costs from headcount reductions in fiscal 2013.
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Loss from Operations
The loss from operations decreased $4.7 million for the three months ended December 28, 2013, or 36.2%, to $8.4 million from $13.1 million for the three months ended December 29, 2012. Operating income for the quarter increased in our Pet segment by $4.2 million due to lower selling, general and administrative expenses and an improved gross margin. The operating loss in our Garden segment decreased by $2.3 million due primarily to increased revenues partially offset by a $1.8 million increase in corporate operating expense resulting primarily from increases in medical insurance costs and headcount reduction expenses.
Net Interest Expense
Net interest expense for the three months ended December 28, 2013 increased $2.0 million, or 19.1%, to $12.2 million from $10.2 million for the three months ended December 29, 2012. The increase was due primarily to a non-cash charge of $1.7 million related to the unamortized deferred financing costs related to our prior revolving credit facility. On December 5, 2013, the Company entered into a Credit Agreement which provides for a $390 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if the Company exercises the accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 5, 2018 and replaced the Company’s prior credit facility. Our average borrowing rate for the current quarter declined to 8.6% compared to 8.7% for the prior year quarter.
Debt outstanding on December 28, 2013 was $449.5 million compared to $450.8 million as of December 29, 2012.
Other Expense
Other expense decreased $0.8 million to $0.2 million for the quarter ended December 28, 2013, from $1.0 million for the quarter ended December 29, 2012. The decrease was due primarily to realized and unrealized losses expensed in the prior year quarter from derivative contracts used to economically hedge anticipated commodity purchases for use in our products.
Income Taxes
Our effective income tax rate was 38.2% for the quarter ended December 28, 2013 and 36.9% for the quarter ended December 29, 2012. The income tax rate increase was due primarily to an increase in state tax rates compared to the prior year quarter.
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 fertilizer. 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 and throughout most of fiscal 2013, commodity costs continued to increase. Recently, commodity costs have been declining although we have seen increases in our grass seed costs. 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 2013, approximately 68% of our Garden segment’s net sales and 60% of our total net sales occurred during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is typically generated in this period, which has historically offset the operating loss incurred during the first fiscal quarter of the year.
Liquidity and Capital Resources
We have financed our growth through a combination of internally generated funds, bank borrowings, supplier credit, and sales of equity and debt securities.
Our business is seasonal and our working capital requirements and capital resources track closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are substantially reduced through collection of receivables.
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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 68% of our Garden segment’s net sales occurring during the second and third fiscal quarters. This seasonality requires the shipment of large quantities of product well ahead of the peak consumer buying periods. To encourage retailers and distributors to stock large quantities of inventory, industry practice has been for manufacturers to give extended credit terms and/or promotional discounts.
Operating Activities
Net cash provided by operating activities increased by $58.0 million, from $28.0 million of cash used in operating activities for the three months ended December 29, 2012, to $30.0 million of cash provided by operating activities for the three months ended December 28, 2013. The increase in cash provided by operating activities was due primarily to reduced spending on inventory in the current period compared to the prior year period. In the prior year first quarter, we built safety stock to ensure our ability to service our customers would not be disrupted. Although, we began the current quarter with a higher inventory balance than the prior year quarter and are building inventory for the coming garden season, we are focused on bringing our investment in inventory down over time, consistent with maintaining high fill rates and service levels to our customers.
Investing Activities
Net cash used in investing activities decreased $6.2 million, from $8.0 million for the three months ended December 29, 2012 to $1.8 million during the three months ended December 28, 2013. The decrease in cash used in investing activities was due primarily to our acquisition activity in the prior year period. In December 2012, the Company acquired the remaining majority interest in FourStar Microbial Products, LLC (“FourStar Microbial”) for approximately $4.8 million in cash with possible contingent future performance-based payments. Capital expenditures also decreased in the current year due to reduced expenditures related to facilities and our ERP implementation.
Financing Activities
Net cash used by financing activities increased $26.8 million, from $0.1 million of cash provided by financing activities for the three months ended December 29, 2012, to $26.7 million of cash used by financing activities for the three months ended December 28, 2013. The increase in cash used was due primarily to higher net repayments under our revolving credit facility during the three months ended December 28, 2013 compared to the three months ended December 29, 2012, as we paid down the amount outstanding under our prior revolving credit facility.
We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $390 million asset backed loan facility. Based on our anticipated cash needs, availability under our asset backed loan facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.
We believe that cash flows from operating activities, funds available under our asset backed loan facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital requirements for the foreseeable future. We anticipate that our capital expenditures, 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, will not exceed $30 million during fiscal 2014. 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 invested approximately $82 million from fiscal 2005 through fiscal 2013 in this initiative. Capital expenditures for 2014 and beyond will depend upon the pace of conversion of those remaining legacy systems. This initiative, when complete, will combine our numerous information systems , 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.
At December 28, 2013, our total debt outstanding was $449.5 million, as compared with $450.8 million at December 29, 2012.
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On December 5, 2013, we entered into a credit agreement which provides up to a $390 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if we exercise the accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on December 5, 2018 and replaced our prior revolving credit facility. We may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full. As of December 28, 2013 there were no borrowings outstanding under the Credit Facility. There were no letters of credit outstanding under the Credit Facility as of December 28, 2013. There were other letters of credit of $13.1 million outstanding as of December 28, 2013.
The Credit Facility contains customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon reaching certain borrowing levels. The Credit Facility is secured by substantially all assets of the Company. We were in compliance with all covenants under the Credit Facility during the period ended December 28, 2013.
We incurred approximately $3.0 million of costs in conjunction with this transaction, which included banking fees and legal expenses. These costs will be amortized over the term of the Credit Facility.
We recorded a non-cash charge of $1.7 million for the period ended December 28, 2013, as part of interest expense, related to the unamortized deferred financing costs under the prior revolving credit facility.
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 prior credit facility.
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.
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 related to the 2018 Notes indenture as of December 28, 2013.
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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 28, 2013 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 28, 2013.
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 28, 2013.
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 28, 2013.
(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 December 28, 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 first quarter of fiscal 2014. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the first quarter of fiscal 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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.
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 28, 2013.
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The following table sets forth the repurchases of any equity securities during the fiscal quarter ended December 28, 2013 and the dollar amount of authorized share repurchases remaining under our stock repurchase program.
Period
September 29, 2013 – November 2, 2013
November 3, 2013 – November 30, 2013
December 1, 2013 – December 28, 2013
Not applicable
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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.
Dated: February 6, 2014
President and Chief Executive Officer
(Principal Executive Officer)
Lori A. Varlas
Chief Financial Officer
(Principal Financial Officer)
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