Central Garden & Pet Company (CENT)

Compared with Three Months Ended December 25, 2004

Net sales for the three months ended December 24, 2005 increased $27.1 million, or 10.2%, to $292.7 million from $265.6 million for the three months ended December 25, 2004. Pet Products’ net sales increased $10.3 million, or 6.6%, to $167.1 million for the three months ended December 24, 2005 from $156.8 million in the comparable fiscal 2005 period. Garden Products’ net sales increased $16.8 million, or 15.4%, to $125.6 million for the three months ended December 24, 2005 from $108.8 million in the comparable fiscal 2005 period. Our branded product sales increased $23.3 million and sales of other manufacturers’ products increased $3.8 million. Our Pet Products’ branded product sales increased $9.6 million due primarily to recent acquisitions. Our Garden Products’ branded product sales increased $13.7 million due primarily to increased grass seed sales and $4 million from fiscal year 2005 acquisitions.

Gross profit for the three months ended December 24, 2005 increased $6.0 million, or 6.9%, to $92.0 million from $86.0 million for the three months ended December 25, 2004. Gross profit increased in both Garden Products and Pet Products. Gross profit as a percentage of net sales decreased from 32.4% for the three months ended December 25, 2004 to 31.4% for the three months ended December 24, 2005. While the Pet Products gross profit percentage remained relatively steady, the Garden Products percentage decreased 200 basis points. The decreased margin was due primarily to an unfavorable product mix shift within Garden’s product portfolio. The sales increase experienced in Garden in the first quarter was primarily in our lower margin products. Additionally, price increases to offset increased raw material costs had not taken effect during the first quarter of fiscal 2006.

Selling, general and administrative expenses increased $5.7 million, or 7.5%, from $76.5 million for the three months ended December 25, 2004 to $82.2 million for the three months ended December 24, 2005. All three components of selling, general and administrative expenses increased, as discussed further below. As a percentage of net sales, selling, general and administrative expenses decreased to 28.1% for the three months ended December 24, 2005, compared to 28.8% in the comparable prior year period.

Selling and delivery expense increased $3.8 million, or 10.2%, from $37.4 million for the three months ended December 25, 2004 to $41.2 million for the three months ended December 24, 2005. The increase was due primarily to increased sales as selling and delivery costs as a percentage of net sales remained unchanged at 14%.

Facilities expense increased $0.7 million to $3.5 million for the three months ended December 24, 2005 from $2.8 million for the three months ended December 25, 2004. The increase was due primarily to facility relocation costs incurred as part of our previously announced restructuring effort within the Garden Products segment.

Warehouse and administrative expense increased $1.2 million, or 3.3%, from $36.3 million for the three months ended December 25, 2004 to $37.5 million for the three months ended December 24, 2005. The increase was due primarily to $1 million for stock based compensation as a result of adopting SFAS 123(R). Decreased legal and litigation costs of $0.4 million were offset by restructuring costs.

Net interest expense for the three months ended December 24, 2005 increased $0.4 million, or 7.7%, to $5.6 million from $5.2 million for the three months ended December 25, 2004. The increase was due primarily to increased average long-term debt balances during the fiscal 2006 quarter as compared to the prior year quarter, as a result of acquisitions made in the last year and slightly higher interest rates on our floating rate debt, partially offset by increased interest income of $0.6 million.

Other income increased $0.3 million to essentially break-even from $0.3 million expense reported for the quarter ended December 25, 2004. Other income represents income from four equity method investments.

Our effective income tax rate for the quarter ended December 24, 2005 was 38.5% compared with 37.1% for the quarter ended December 25, 2004. The effective tax rate was lower in the prior year quarter due to estimated state tax decreases and a larger portion of income taxed at lower foreign rates.

Compared with Nine Months Ended June 26, 2004

Net sales for the nine months ended June 25, 2005 increased $101.8 million, or 10.7%, to $1,057.6 million from $955.8 million for the nine months ended June 26, 2004. Pet Products’ net sales increased $58.2 million, or 13.8%, to $478.6 million for the nine months ended June 25, 2005 from $420.4 million in the comparable fiscal 2004 period. Garden Products’ net sales increased $43.6 million, or 8.2%, to $579.0 million for the nine months ended June 25, 2005 from $535.4 million in the comparable fiscal 2004 period. Our branded product sales increased $99.0 million and sales of other manufacturers’ products increased $2.8 million. Our Pet Products’ branded product sales increased $47.7 million of which approximately $33.8 million related to acquisitions and approximately $13.9 million related to increased organic brand sales. Our Garden Products’ branded product sales increased $51.4 of which $32.7 million related to acquisitions and approximately $18.8 million related to increased organic brand sales.

Gross profit for the nine months ended June 25, 2005 increased $51.2 million, or 17.5%, to $343.2 million from $292.0 million for the nine months ended June 26, 2004. Gross profit increased $16.7 million in Garden Products and $34.5 million in Pet Products. Gross profit as a percentage of net sales increased to 32.4% for the nine months ended June 25, 2005, from 30.6% for the nine months ended June 26, 2004, as both Garden Products’ and Pet Products’ margins improved. The margin improvements were due primarily to the contributions from our acquisitions of approximately $29 million, increased grass seed margins of approximately $3 million resulting from focusing on higher profit product and the resulting flow through of our organic sales increase.

Selling, general and administrative expenses increased $33.4 million, or 15.0%, from $222.4 million for the nine months ended June 26, 2004 to $255.8 million for the nine months ended June 25, 2005. As a percentage of net sales, selling, general and administrative expenses increased to 24.2% for the nine months ended June 25, 2005, compared to 23.3% in the comparable prior year period.

Selling and delivery expenses increased $18.3 million, or 16.0%, from $114.7 million for the nine months ended June 26, 2004 to $133.0 million for the nine months ended June 25, 2005. The increase was primarily attributable to $10 million from acquisitions subsequent to the third quarter of fiscal 2004 and increased common carrier and fuel costs.

Facilities expense remained relatively flat, increasing $0.3 million to $8.7 million for the nine months ended June 25, 2005 from $8.4 million for the nine months ended June 26, 2004.

Warehouse and administrative expenses increased $14.8 million, or 14.9%, from $99.3 million for the nine months ended June 26, 2004 to $114.1 million for the nine months ended June 25, 2005. Approximately $9 million of the increase was due to recent acquisitions and professional fees of $3.9 million related to Sarbanes-Oxley compliance and litigation.

Net interest expense for the nine months ended June 25, 2005 increased $3.6 million, or 27.4%, to $16.7 million from $13.1 million for the nine months ended June 26, 2004. The increase was due primarily to increased average total long-term debt balances during the fiscal 2005 period as compared to the prior year period, resulting from acquisitions that were made subsequent to the third quarter of fiscal 2004, and slightly higher interest rates on our floating rate debt.

Other income increased $2.7 million to $4.6 million for the nine months ended June 25, 2005 from $1.9 million for the nine months ended June 26, 2004. Other income represents income from equity method investments. While our investments performed better in the current year, the majority of the increase was related to one of our equity method investments being positively impacted by sales in the current fiscal year, originally expected in the next fiscal year, due to a change in the buying pattern of a customer. As such, it is possible there will be no earnings in fiscal year 2006 from this investment.

Our effective income tax rate for the nine months ended June 25, 2005 was 37.5% compared with 38.2% for the nine months ended June 26, 2004. The lower rate reflects a one-time net tax benefit and additional tax credits recognized in the fiscal quarter ended June 25, 2005 and the impact of non-US tax rates at our U.K. based subsidiary.

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Compared with Six Months Ended March 27, 2004

Net sales for the six months ended March 26, 2005 increased $63.1 million, or 10.9%, to $644.4 million from $581.3 million for the six months ended March 27, 2004. Pet Products’ net sales increased $40.7 million, or 14.8%, to $315.2 million for the six months ended March 26, 2005 from $274.5 million in the comparable fiscal 2004 period. Garden Products’ net sales increased $22.4 million, or 7.3%, to $329.2 million for the six months ended March 26, 2005 from $306.8 million in the comparable fiscal 2004 period. Our branded product sales increased $61.8 million and sales of other manufacturers’ products increased $1.3 million. Our Pet Products’ branded product sales increased $33.4 million of which approximately $27 million related to acquisitions and approximately $6 million related to increased organic brand sales. Our Garden Products’ branded product sales increased $28.4 million due primarily to sales from New England Pottery, which was acquired in February 2004.

Gross profit for the six months ended March 26, 2005 increased $38.8 million, or 22.3%, to $ 212.9 million from $174.1 million for the six months ended March 27, 2004. Gross profit increased $13.4 million in Garden Products and $25.4 million in Pet Products. Gross profit as a percentage of net sales increased to 33.0% for the six months ended March 26, 2005, from 29.9% for the six months ended March 27, 2004, as both Garden Products’ and Pet Products’ margins improved. The margin improvements were due primarily to the contributions from our fiscal year 2004 acquisitions of approximately $13 million, increased grass seed margins of approximately $2 million resulting from focusing on higher profit product and the resulting flow through of our organic sales increase.

Selling, general and administrative expenses increased $27.5 million, or 20.2%, from $136.2 million for the six months ended March 27, 2004 to $163.7 million for the six months ended March 26, 2005. As a percentage of net sales, selling, general and administrative expenses increased to 25.4% for the six months ended March 26, 2005, compared to 23.4% in the comparable prior year period.

Selling and delivery expenses increased $15.9 million, or 24.2%, from $65.8 million for the six months ended March 27, 2004 to $81.7 million for the six months ended March 26, 2005. The increase was primarily attributable to $10 million from acquisitions subsequent to the second quarter of fiscal 2004 and approximately $1 million from increased fuel costs.

Facilities expense increased $0.4 million to $5.9 million for the six months ended March 26, 2005 from $5.5 million for the six months ended March 27, 2004. The increase was primarily related to our fiscal 2004 acquisitions.

Warehouse and administrative expenses increased $11.2 million, or 17.3%, from $64.9 million for the six months ended March 27, 2004 to $76.1 million for the six months ended March 26, 2005. Approximately $9 million of the increase was due to recent acquisitions and $2 million to increased Sarbanes-Oxley professional fees partially offset by a $1 million decrease in legal costs.

Net interest expense for the six months ended March 26, 2005 increased $2.4 million, or 28.9%, to $10.7 million from $8.3 million for the six months ended March 26, 2004. The increase was due primarily to an approximately $50 million increased average total long-term debt balances during the fiscal 2005 period as compared to the prior year period, resulting from acquisitions that were made subsequent to the first quarter of fiscal 2004, and slightly higher interest rates on our floating rate debt.

Other income increased $1.4 million to $1.7 million for the six months ended March 26, 2005 from $0.3 million for the six months ended March 27, 2004. Other income represents income from equity method investments. The increase was primarily related to one of our equity method investments being positively impacted by sales in the second fiscal quarter, originally expected throughout fiscal year 2005, due to a change in the buying pattern of a customer.

Our effective income tax rate for the six months ended March 26, 2005 was 38.0% compared with 39.2% for the six months ended March 27, 2004. The lower rate reflects decreased state income taxes and the impact of non-US tax rates at our U.K. based subsidiary.

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