UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~_______________________________________________________________________~~

_____________________________________________________________________________________________

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~December 30, 2017~~March 28, 2020



¨☐			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



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 principal 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. ýYes¨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). ýYes¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨~~(Do not check if a smaller reporting company)~~

Smaller reporting company

¨☐

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨☐ YesýNo

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

CENT

The NASDAQ Stock Market LLC

Class A Common Stock

CENTA

The NASDAQ Stock Market LLC

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 ~~February 1, 2018~~April 30, 2020			~~12,160,023~~11,300,810
			Class A Common Stock Outstanding as of ~~February 1, 2018~~April 30, 2020			~~38,070,180~~41,712,472
			Class B Stock Outstanding as of ~~February 1, 2018~~April 30, 2020			~~1,652,262~~1,647,922

Table of Contents

PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of ~~December~~March 28, 2020, March 30, ~~2017, December 24, 2016~~2019 and September ~~30, 2017~~28, 2019

Condensed Consolidated Statements of Operations Three and Six Months Ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016~~2019

Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended ~~December~~March 28, 20 20 and March 30, ~~2017 and December 24, 2016~~2019

Condensed Consolidated Statements of Cash Flows ~~Three~~Six Months Ended ~~December~~March 28, 20 20 and March 30 ~~2017 and December 24, 2016~~, 2019

Notes to Condensed Consolidated Financial Statements

Item 2.

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

2735

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3548

Item 4.

Controls and Procedures

3548

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3650

Item 3.

Defaults Upon Senior Securities

3650

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

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, capital expenditures, 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 future earnings expectations, 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 ~~30, 2017,~~28, 2019, including the factors described in the section entitled “Item 1A – Risk Factors.” If any of these risks or uncertainties materializes, 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, except as required by law. Presently known risk factors include, but are not limited to, the following factors:

•the impact of the COVID-19 pandemic on our business, including but not limited to, the impact on our workforce, operations, supply chain, demand for our products and services, and our financial results and condition; our ability to successfully manage the challenges associated with the COVID-19 pandemic;

•seasonality and fluctuations in our operating results and cash flow;

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

•our inability to pass through cost increases in a timely manner;

•our dependence upon our key executives;

•risks associated with new product introductions, including the risk that our new products will not produce sufficient sales to recoup our investment;

•fluctuations in energy prices, fuel and related petrochemical costs;

•declines in consumer spending during economic downturns;

•inflation, deflation and other adverse macro-economic conditions;

•supply shortages in pet birds, small animals and fish;

•adverse weather conditions;

•risks associated with our acquisition strategy;

•access to and cost of additional capital;

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

•impacts of tariffs or a trade war;

•consolidation trends in the retail industry;

•competition in our industries;

•potential goodwill or intangible asset impairment;

•continuing implementation of an enterprise resource planning information technology system;

•our inability to protect our trademarks and other proprietary 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 potential cyber attacks;

•the impact of new accounting regulations and the U.S. Tax Cuts and Jobs ~~Act;~~Act on the Company's tax rate;

•our ability to recover asset and business interruption losses caused by the recent fires at our DMC facility in Texas;

•the voting power associated with our Class B stock; and

•potential dilution from issuance of authorized shares.

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PART I. FINANCIAL INFORMATION


~~Item 1.~~	~~Financial Statements~~

Item 1. Financial Statements

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(~~Unaudited)~~(Unaudited)


	December 30, 2017			December 24, 2016			September 30, 2017				March 28, 2020		March 30, 2019		September 28, 2019
ASSETS										ASSETS
Current assets:										Current assets:
Cash and cash equivalents	$	283,466		$	6,581		$	32,397		Cash and cash equivalents	$	331,555	$	329,724	$	497,749
Restricted cash	12,419			10,981			12,645			Restricted cash	13,021		16,115		12,952
Accounts receivable (less allowance for doubtful accounts of $20,481, $22,157 and $21,436)	235,075			192,224			237,868
Inventories	440,421			430,171			382,101
Accounts receivable (less allowance for doubtful accounts of $22,103, $16,818 and $21,128)										Accounts receivable (less allowance for doubtful accounts of $22,103, $16,818 and $21,128)	460,985		456,129		300,135
Inventories, net										Inventories, net	517,207		517,158		466,197
Prepaid expenses and other	22,519			22,399			18,045			Prepaid expenses and other	36,160		33,161		30,160
Total current assets	993,900			662,356			683,056			Total current assets	1,358,928		1,352,287		1,307,193
Land, buildings, improvements and equipment—net	179,230			169,836			180,913
Plant, property and equipment, net										Plant, property and equipment, net	241,878		217,538		245,405
Goodwill	256,275			230,385			256,275			Goodwill	289,854		281,177		286,077
Other intangible assets—net	113,726			92,851			116,067
Other intangible assets, net										Other intangible assets, net	141,686		142,798		146,137
Operating lease right-of-use assets										Operating lease right-of-use assets	99,098		—		—
Other assets	74,221			61,326			70,595			Other assets	35,963		52,340		40,208
Total	$	1,617,352		$	1,216,754		$	1,306,906		Total	$	2,167,407	$	2,046,140	$	2,025,020
LIABILITIES AND EQUITY										LIABILITIES AND EQUITY
Current liabilities:										Current liabilities:
Accounts payable	$	124,583		$	135,237		$	103,283		Accounts payable	$	186,871	$	157,596	$	149,246
Accrued expenses	100,004			94,494			116,549			Accrued expenses	137,723		136,413		129,166
Current lease liabilities										Current lease liabilities	32,403		—		—
Current portion of long-term debt	372			397			375			Current portion of long-term debt	103		5,119		113
Total current liabilities	224,959			230,128			220,207			Total current liabilities	357,100		299,128		278,525
Long-term debt	690,964			395,011			395,278			Long-term debt	693,622		692,646		693,037
Deferred taxes and other long-term obligations	39,478			31,659			54,279
Long-term lease liabilities										Long-term lease liabilities	70,760		—		—
Deferred income taxes and other long-term obligations										Deferred income taxes and other long-term obligations	52,483		55,064		57,281
Equity:										Equity:
Common stock, 12,160,023, 11,998,472, and 12,160,023 shares outstanding at December 30, 2017, December 24, 2016 and September 30, 2017	122			120			122
Class A common stock, $0.01 par value: 38,029,367, 37,558,042 and 38,019,736 shares outstanding at December 30, 2017, December 24, 2016 and September 30, 2017	380			375			380
Class B stock, $0.01 par value: 1,652,262 shares outstanding	16			16			16
Common stock, $0.01 par value: 11,329,110, 12,145,135 and 11,543,969 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019										Common stock, $0.01 par value: 11,329,110, 12,145,135 and 11,543,969 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019	113		121		115
Class A common stock, $0.01 par value: 41,802,735, 44,386,792 and 42,968,493 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019										Class A common stock, $0.01 par value: 41,802,735, 44,386,792 and 42,968,493 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019	418		444		430
Class B stock, $0.01 par value: 1,647,922, 1,652,262 and 1,652,262 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019										Class B stock, $0.01 par value: 1,647,922, 1,652,262 and 1,652,262 shares outstanding at March 28, 2020, March 30, 2019 and September 28, 2019	16		16		16
Additional paid-in capital	396,702			392,402			396,790			Additional paid-in capital	562,625		592,331		575,380
Accumulated earnings	265,576			168,138			239,329
Retained earnings										Retained earnings	431,486		407,117		421,742
Accumulated other comprehensive loss	(907		)	(1,802		)	(951		)	Accumulated other comprehensive loss	(1,645)		(1,280)		(1,676)
Total Central Garden & Pet Company shareholders’ equity	661,889			559,249			635,686			Total Central Garden & Pet Company shareholders’ equity	993,013		998,749		996,007
Noncontrolling interest	62			707			1,456			Noncontrolling interest	429		553		170
Total equity	661,951			559,956			637,142			Total equity	993,442		999,302		996,177
Total	$	1,617,352		$	1,216,754		$	1,306,906		Total	$	2,167,407	$	2,046,140	$	2,025,020

See notes to condensed consolidated financial statements.

Table of Contents

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended							Three Months Ended						Six Months Ended
	December 30, 2017			December 24, 2016				March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Net sales	$	442,011		$	419,498		Net sales	$	703,229	$	673,701	$	1,186,057	$	1,135,691
Cost of goods sold and occupancy	310,174			298,820			Cost of goods sold and occupancy	496,112		467,650		847,674		799,458
Gross profit	131,837			120,678			Gross profit	207,117		206,051		338,383		336,233
Selling, general and administrative expenses	109,316			100,740			Selling, general and administrative expenses	141,012		143,898		270,213		263,899
Operating income	22,521			19,938			Operating income	66,105		62,153		68,170		72,334
Interest expense	(7,405		)	(6,873		)	Interest expense	(10,753)		(10,640)		(21,394)		(21,254)
Interest income	187			38			Interest income	1,417		2,255		3,421		4,792
Other expense	(3,089		)	(967		)
Other income (expense)							Other income (expense)	(979)		500		(674)		308
Income before income taxes and noncontrolling interest	12,214			12,136			Income before income taxes and noncontrolling interest	55,790		54,268		49,523		56,180
Income tax (benefit) expense	(14,236		)	4,347
Income tax expense							Income tax expense	12,648		11,546		10,920		11,819
Income including noncontrolling interest	26,450			7,789			Income including noncontrolling interest	43,142		42,722		38,603		44,361
Net income attributable to noncontrolling interest	203			152			Net income attributable to noncontrolling interest	438		331		316		167
Net income attributable to Central Garden & Pet Company	$	26,247		$	7,637		Net income attributable to Central Garden & Pet Company	$	42,704	$	42,391	$	38,287	$	44,194
Net income per share attributable to Central Garden & Pet Company:							Net income per share attributable to Central Garden & Pet Company:
Basic	$	0.52		$	0.15		Basic	$	0.79	$	0.74	$	0.70	$	0.78
Diluted	$	0.50		$	0.15		Diluted	$	0.78	$	0.73	$	0.69	$	0.76
Weighted average shares used in the computation of net income per share:							Weighted average shares used in the computation of net income per share:
Basic	50,730			49,665			Basic	54,281		57,050		54,517		56,976
Diluted	52,695			51,810			Diluted	54,952		58,026		55,220		58,013

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	Three Months Ended						Three Months Ended						Six Months Ended
	December 30, 2017		December 24, 2016				March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Income including noncontrolling interest	$	26,450	$	7,789		Income including noncontrolling interest	$	43,142	$	42,722	$	38,603	$	44,361
Other comprehensive income (loss):						Other comprehensive income (loss):
Foreign currency translation	44		(508		)	Foreign currency translation	(405)		212		32		(62)
Total comprehensive income	26,494		7,281			Total comprehensive income	42,737		42,934		38,635		44,299
Comprehensive income attributable to noncontrolling interest	203		152			Comprehensive income attributable to noncontrolling interest	438		331		316		167
Comprehensive income attributable to Central Garden & Pet Company	$	26,291	$	7,129		Comprehensive income attributable to Central Garden & Pet Company	$	42,299	$	42,603	$	38,319	$	44,132

See notes to condensed consolidated financial statements.

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CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Six Months Ended
	March 28, 2020		March 30, 2019
Cash flows from operating activities:
Net income	$	38,603	$	44,361
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization	26,316		24,229
Amortization of deferred financing costs	921		916
Non-cash lease expense	17,194		—
Stock-based compensation	8,423		5,907
Deferred income taxes	4,966		6,044
Gain on sale of property and equipment	(9)		(16)
Other	1,331		(710)
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable	(160,799)		(159,933)
Inventories	(50,471)		(59,630)
Prepaid expenses and other assets	(6,051)		(2,772)
Accounts payable	37,857		41,332
Accrued expenses	6,803		20,818
Other long-term obligations	23		135
Operating lease liabilities	(17,765)		—
Net cash used by operating activities	(92,658)		(79,319)
Cash flows from investing activities:
Additions to plant, property and equipment	(19,487)		(14,302)
Payments to acquire companies, net of cash acquired	—		(11,137)
Investments	(4,439)		(1,749)
Other investing activities	(437)		(368)
Net cash used in investing activities	(24,363)		(27,556)
Cash flows from financing activities:
Repayments of long-term debt	(59)		(36,466)



Repurchase of common stock, including shares surrendered for tax withholding	(48,026)		(3,739)
Payment of contingent consideration liability	(90)		(66)
Distribution to noncontrolling interest	(57)		—
Payment of financing costs	(959)		—
Net cash used by financing activities	(49,191)		(40,271)
Effect of exchange rate changes on cash and cash equivalents	87		(20)
Net decrease in cash, cash equivalents and restricted cash	(166,125)		(147,166)
Cash, cash equivalents and restricted cash at beginning of period	510,701		493,005
Cash, cash equivalents and restricted cash at end of period	$	344,576	$	345,839
Supplemental information:
Cash paid for interest	$	21,464	$	21,298

Three Months Ended
December 30,
2017 December 24,
2016
Cash flows from operating activities:
Net income $ 26,450
$ 7,789
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 11,163
10,009
Amortization of deferred financing costs 377
341
Stock-based compensation 2,680
2,687
Excess tax benefits from stock-based awards —
(4,356 )
Deferred income taxes (15,765 ) 3,527
Gain on sale of property and equipment (18 ) (95 )
Gain on sale of facility —
(2,050 )
Other 820
798
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable 2,822
11,590
Inventories (58,252 ) (67,678 )
Prepaid expenses and other assets (2,252 ) (1,238 )
Accounts payable 23,059
31,863
Accrued expenses (16,546 ) (6,420 )
Other long-term obligations 1,249
(80 )
Net cash used by operating activities (24,213 ) (13,313 )
Cash flows from investing activities:
Additions to property and equipment (8,186 ) (12,968 )
Payments to acquire companies, net of cash acquired —
(60,042 )
Proceeds from the sale of business, facility and other assets —
7,960
Change in restricted cash 226
(71 )
Investments (6,555 ) (2,000 )
Other investing activities (1,200 ) (265 )
Net cash used in investing activities (15,715 ) (67,386 )
Cash flows from financing activities:
Repayments of long-term debt (7 ) (74 )
Proceeds from issuance of long-term debt 300,000
—
Borrowings under revolving line of credit 23,000
1,000
Repayments under revolving line of credit (23,000 ) (1,000 )
Repurchase of common stock, including shares surrendered for tax withholding (2,768 ) (7,913 )
Payment of contingent consideration liability (93 ) (860 )
Distribution to noncontrolling interest (1,597 ) (1,018 )
Payment of financing costs (4,558 ) —
Excess tax benefits from stock-based awards —
4,356
Net cash provided (used) by financing activities 290,977
(5,509 )
Effect of exchange rate changes on cash and cash equivalents 20
(193 )
Net increase (decrease) in cash and cash equivalents 251,069
(86,401 )
Cash and equivalents at beginning of period 32,397
92,982
Cash and equivalents at end of period $ 283,466
$ 6,581
Supplemental information:
Cash paid for interest $ 12,757
$ 13,034

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended ~~December 30, 2017~~March 28, 2020

(Unaudited)


1.	~~Basis of Presentation~~

1. Basis of Presentation

The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016,~~2019, the condensed consolidated statements of operations ~~the condensed consolidated statements of cash flows~~ and the condensed consolidated statements of comprehensive income (loss) for the three and six months ended ~~December~~March 28, 2020 and March 30, ~~2017~~2019 and ~~December 24, 2016,~~the condensed consolidated statements of cash flows for the six months ended March 28, 2020 and March 30, 2019 have been prepared by the Company, without audit. In the opinion of management, the interim financial statements include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented.

For the Company’s foreign business in the UK, the local currency is the functional currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the period. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of its foreign subsidiary to be permanently reinvested. Transaction gains and losses are included in results of operations. ~~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 six months ended ~~December 30, 2017~~March 28, 2020 are not indicative of the operating results that may be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes thereto, included in the Company’s ~~2017~~2019 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September ~~30, 2017~~28, 2019 balance sheet presented herein was derived from the audited financial statements.

Noncontrolling Interest

Noncontrolling interest in the Company’s condensed consolidated financial statements represents the 20% interest not owned by Central in a consolidated subsidiary. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 20% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interest on the consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations. See Note 8,9, Supplemental Equity Information, for additional information.

Cash, Cash Equivalents and Restricted Cash

The Company considers cash and all highly liquid investments with an original maturity of three months or less at date of purchase to be cash and cash equivalents. Restricted cash includes cash and highly liquid instruments that are used as collateral for stand-alone letter of credit agreements related to normal business transactions. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has available for other uses. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of March 28, 2020, March 30, 2019 and September 28, 2019, respectively (in thousands).


	March 28, 2020		March 30, 2019		September 28, 2019
Cash and cash equivalents	$	331,555	$	329,724	$	497,749
Restricted cash	13,021		16,115		12,952
Total cash, cash equivalents and restricted cash	$	344,576	$	345,839	$	510,701

Revenue Recognition

Revenue Recognition and Nature of Products and Services

The Company manufactures, markets and distributes a wide variety of branded, private label and third-party pet and garden products to wholesalers, distributors and retailers, primarily in the United States. The majority of the Company’s revenue is generated from the sale of finished pet and garden products. The Company also recognizes a minor amount of ~~cash collateral~~non-product revenue (less than one percent of consolidated net sales) comprising third-party logistics services, merchandising services and royalty income from sales-based licensing arrangements. Product and non-product revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company recognizes product revenue when control over the finished goods transfers to its customers, which generally occurs upon shipment to, or receipt at, customers’ locations, as determined by the specific terms of the contract. These revenue arrangements generally have single performance obligations. Non-product revenue is recognized as the services are provided to the customer in the case of third-party logistics services and merchandising services, or as third-party licensee sales occur for royalty income.

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Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, unsaleable product, consumer coupon redemption and rebates. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.

Key sales terms are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, the Company does not capitalize contract inception costs. Product fulfillment costs are capitalized as a part of inventoriable costs in accordance with our inventory policies. The Company generally does not have unbilled receivables at the end of a period. Deferred revenues are not material and primarily include advance payments for services that have yet to be rendered. The Company does not receive noncash consideration for the sale of goods. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis; therefore, the Company does not have any significant financing components.

Sales Incentives and Other Promotional Programs

The Company routinely offers sales incentives and discounts through various regional and national programs to our customers and consumers. These programs include product discounts or allowances, product rebates, product returns, one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. The costs associated with these ~~segregated accounts was approximately $12.4 million, $11.0 million~~activities are accounted for as reductions to the transaction price of the Company’s products and ~~$12.6 million~~are, therefore, recorded as reductions to gross sales at the time of ~~December 30, 2017, December 24, 2016~~sale. The Company bases its estimates of incentive costs on historical trend experience with similar programs, actual incentive terms per customer contractual obligations and ~~September 30, 2017, respectively,~~expected levels of performance of trade promotions, utilizing customer and sales organization inputs. The Company maintains liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are generally not material and are recognized in earnings in the period such differences are determined. Reserves for product returns, accrued rebates and promotional accruals are included in the condensed consolidated balance sheets as part of accrued expenses, and the value of inventory associated with reserves for sales returns is ~~reflected in Restricted cash~~included within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Leases

Effective September 29, 2019, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842"). Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. On September 29, 2019, the Company began to record operating leases on its condensed consolidated balance sheet. As of December 28, 2019, long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities were presented separately in the condensed consolidated balance sheets. Finance lease ROU assets continue to be presented in property, plant and equipment, net, and the related finance liabilities have been presented with current and long-term debt in the condensed consolidated balance sheets.

Lease ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. Non-lease components and the lease components to which they relate are accounted for as a single lease component, as the Company has elected to combine lease and non-lease components for all classes of underlying assets.

Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales or selling, general and administrative expenses, depending on the nature of the leased item. Interest expense is recorded over the lease term and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash flows from financing activities in the condensed consolidated statements of cash flows.

Table of Contents

Recent Accounting Pronouncements ~~and U.S. Tax Reform~~

Accounting Pronouncements Recently Adopted

~~Stock Based Compensation~~

~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,~~ ~~Stock Compensation~~, which is intended to simplify several aspects of the accounting for share-based payment award transactions. ASU 2016-09 (i) requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, (ii) requires classification of excess tax benefits as an operating activity in the statement of cash flows rather than a financing activity, (iii) eliminates the requirement to defer recognition of an excess tax benefit until the benefit is realized through a reduction to taxes payable, (iv) modifies statutory withholding tax requirements and (v) provides for a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 on October 1, 2017. As a result of the adoption of ASU 2016-09, the Company now records excess tax benefits currently in its provision for income taxes. Upon adoption, the Company determined it had no previously unrecognized excess tax benefits. Additionally, the Company elected to account for forfeitures as they occur using a modified retrospective transition method, which requires the Company to record a cumulative-effect adjustment to accumulated earnings, and the Company determined that the cumulative impact was immaterial. The Company presents its excess tax benefits as a component of operating cash flows rather than financing cash flows on a prospective basis.

~~Inventory Measurement~~

~~In July 2015, the FASB issued ASU 2015-11 (ASU 2015-11),~~ ~~Simplifying the Measurement of Inventory~~. Under ASU 2015-11, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The standard defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. The Company adopted ASU 2015-11 on October 1, 2017. The adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.

~~Accounting Standards Not Yet Adopted~~

~~Revenue Recognition~~

~~In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09),~~ ~~Revenue from Contracts with Customers~~. This update was issued as Accounting Standards Codification Topic 606. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date of ASU 2014-09 for one year. ASU 2014-09 is now effective for the Company in the first quarter of its fiscal year ending September 28, 2019.

Early adoption is permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is still in the early stages of assessing the adoption method and analyzing the impact of the adoption of this update on its consolidated financial statements. As part of its assessment work to-date, the Company has formed an implementation work team and conducted training sessions on the new ASU’s revenue recognition model and begun the process of scoping of revenue streams under the new ASU. Additionally, the Company is also analyzing the impact of the new standard on its current accounting policies and internal controls. Upon completion of these and other assessments, the Company will evaluate the impact of adopting the new standard on its consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02 (ASU 2016-02),Leases (Topic 842). ASU 2016-02 requires companies to ~~generally~~ recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use ~~assets.~~assets and disclose key information about leasing information. Topic 842 was subsequently amended by ASU ~~2016-02 is effective~~2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The Company adopted the new standard in ~~its~~the first quarter of fiscal year 2020, on a modified retrospective basis using the optional transition method, and ~~earlier adoption is permitted.~~accordingly, has not restated comparative periods. Fiscal year 2019 balances and related disclosures supporting those comparative period balances continue to be presented under ASC 840, "Leases." The new standard provides a number of optional practical expedients in transition. The Company ~~is currently evaluating~~elected the ~~impact~~'package of ~~its pending adoption of ASU 2016-02 on its consolidated financial statements, and~~practical expedients,' which permit it ~~currently expects that most of its operating lease commitments will be subject~~ to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company elected not to recognize ROU assets and lease liabilities for short-term operating leases with terms of 12 months or less. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable. Upon adoption, the Company ~~will record material~~ recorded operating lease ~~liabilities and~~ right-of-use assets ~~upon~~and lease liabilities of approximately $111 million and $115 million, respectively, in the condensed consolidated balance sheet, which included the reclassifications of amounts presented in comparative periods as deferred rent as a reduction of the ROU assets. The Company did not record an adjustment to beginning retained earnings associated with the adoption of ~~ASU 2016-02~~.this standard. See Note 7. Leases for more information.

~~Statement of Cash Flows~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts~~Accounting Standards Not Yet Adopted

Goodwill and ~~Cash~~ ~~Payments~~ ~~(ASU 2016-15)~~ . The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017 with early adoption permitted. ~~The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its consolidated financial statements.~~Intangible Assets

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)~~ ~~(ASU 2016-18)~~. This ASU clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending cash balances on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, or the Company's first quarter of fiscal 2019, with early adoption permitted. The Company held restricted cash balances of ~~$12.4 million, $11.0 million and $12.6 million~~ as of December 30, 2017, December 24, 2016 and September 30, 2017, respectively. The Company does not anticipate the adoption of ASU 2016-18 will have a material impact on its consolidated financial statements and related disclosures.

~~Business Combinations~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Clarifying the Definition of a Business~~ ~~(ASU 2017-01), which requires an evaluation of whether substantially all of the fair value of assets acquired is concentrated in a single identifiable asset or a group of similar~~

identifiable assets. If so, the transaction does not qualify as a business. The guidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. The Company is required to apply this guidance to annual periods beginning after December 15, 2017, including interim periods within those periods, or the Company's first quarter of fiscal 2019. The adoption of this ASC may have an impact on accounting for any future acquisitions the Company may have.

~~Goodwill~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021. The amendment should be applied on a prospective basis. Based on the Company's most recent annual goodwill impairment test performed as of ~~June 25, 2017,~~July 1, 2018, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value; therefore, this ASU would not currently have an impact on the Company's condensed consolidated financial statements and related disclosures. However, if upon adoption the carrying amount of a reporting unit exceeds its fair value, the Company would be impacted by the amount of impairment recognized.

~~Income Taxes~~

OnIn August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December ~~22, 2017,~~15, 2019 and interim periods within those annual periods, with early adoption permitted, and is effective for the ~~U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by the U.S. government.~~Company in fiscal 2021. The ~~Tax Reform Act significantly revised the U.S. corporate income tax code by, among other things, lowering the U.S. federal corporate tax rate from 35%~~amendments in this ASU should be applied either retrospectively or prospectively to ~~21% effective January 1, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.~~

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017. This guidance allows registrants a “measurement period,” not to exceed one year fromall implementation costs incurred after the date of ~~enactment,~~adoption. The Company is currently evaluating the effect that ASU 2018-15 will have on its condensed consolidated financial statements and related disclosures.

Table of Contents

Fair Value Disclosures

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to ~~complete~~the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted and is effective for the Company in fiscal 2021. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the effect that ASU 2018-13 will have on its condensed consolidated financial statements and related disclosures.

Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax ~~effects~~basis of the Act. SAB 118 further directs that during the measurement period, registrants who are able to make reasonable estimates of the tax effects of the Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accountinggoodwill. ASU 2019-12 is effective for the ~~tax effects of the Act. We have made reasonable estimates and recorded provisional amounts within the meaning of SAB 118.~~ ~~Any adjustments recorded to the provisional amounts through the~~Company in its first quarter of fiscal ~~2019 will be included as an~~2022 and would require the Company to recognize a cumulative effect adjustment to ~~tax expense.~~the opening balance of retained earnings, if applicable. The ~~provisional amounts incorporate assumptions made based upon~~Company is currently evaluating the ~~Company’s current interpretation of the Tax Reform Act and~~impact that ASU 2019-12 may ~~change as the Company receives additional clarification and implementation guidance.~~have on its consolidated financial statements.

As a result of the Tax Reform Act, the Company recorded a provisional tax benefit of $16.3 million due to the remeasurement of its deferred tax assets and liabilities in the three months ended December 30, 2017. This tax benefit represents provisional amounts and the Company’s current best estimates.

2. Fair Value Measurements


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 ~~December 30, 2017~~March 28, 2020 (in thousands):


	Level 1		Level 2		Level 3		Total
Liabilities:
Liability for contingent consideration (a)	$	—	$	—	$	1,310	$	1,310
Total liabilities	$	—	$	—	$	1,310	$	1,310

Level 1 Level 2 Level 3 Total
Liabilities:
Liability for contingent consideration (a) $ —
$ —
$ 9,058
$ 9,058
Total liabilities $ —
$ —
$ 9,058
$ 9,058


	Level 1		Level 2		Level 3		Total
Liabilities:
Liability for contingent consideration (a)	$	—	$	—	$	7,729	$	7,729
Total liabilities	$	—	$	—	$	7,729	$	7,729

Level 1 Level 2 Level 3 Total
Liabilities:
Liability for contingent consideration (a) $ —
$ —
$ 4,253
$ 4,253
Total liabilities $ —
$ —
$ 4,253
$ 4,253

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 ~~30, 2017:~~28, 2019 (in thousands):


	Level 1		Level 2		Level 3		Total
Liabilities:
Liability for contingent consideration (a)	$	—	$	—	$	7,369	$	7,369
Total liabilities	$	—	$	—	$	7,369	$	7,369

Level 1 Level 2 Level 3 Total
Liabilities:
Liability for contingent consideration (a) $ —
$ —
$ 9,343
$ 9,343
Total liabilities $ —
$ —
$ 9,343
$ 9,343

(a)The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015 and future performance-based contingent payments for Segrest, Inc., acquired in October 2016. In December 2019, performance-based criteria associated with the $6 million contingent consideration liability related to Segrest, Inc. were met and accordingly, the entire amount was released out of an independent escrow account to the former owners as of December 28, 2019. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.

~~(a)~~

The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015, and future performance-based contingent payment for Segrest, Inc., acquired in October 2016. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.

The following table provides a summary of the changes in fair value of the Company's Level 3 financial instruments for the periods ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016~~2019 (in thousands):

Amount
Balance September 30, 2017 $ 9,343
Estimated contingent performance-based consideration established at the time of acquisition —
Changes in the fair value of contingent performance-based payments established at the time of acquisition (192 )
Performance-based payments (93 )
Balance December 30, 2017 $ 9,058

Amount
Balance September 24, 2016 $ 5,113
Estimated contingent performance-based consideration established at the time of acquisition (860 )
Changes in the fair value of contingent performance-based payments established at the time of acquisition —
Balance December 24, 2016 $ 4,253


	Amount
Balance September 28, 2019	$	7,369
Estimated contingent performance-based consideration established at the time of acquisition	—
Changes in the fair value of contingent performance-based payments established at the time of acquisition	31
Performance-based payments	(6,090)
Balance March 28, 2020	$	1,310

	Amount
Balance September 29, 2018	$	8,224
Estimated contingent performance-based consideration established at the time of acquisition	—
Changes in the fair value of contingent performance-based payments established at the time of acquisition	(429)
Performance-based payments	(66)
Balance March 30, 2019	$	7,729

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 ~~three-month~~ periods ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016,~~2019, the Company was not required to measure any significant non-financial assets and liabilities at fair value.

Fair Value of Other Financial Instruments

In December 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The estimated fair value of the Company's 2028 Notes as of ~~December~~March 28, 2020, March 30, ~~2017~~2019 and September 28, 2019 was ~~$300.8~~$270.2 million, $278.2 million and $307.1 million, respectively, compared to a carrying value of ~~$295.5 million.~~$296.3 million, $295.9 million and $296.1 million, respectively.

In November 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the “2023 Notes”). The estimated fair value of the Company’s 2023 Notes as of ~~December~~March 28, 2020, March 30, ~~2017, December 24, 2016~~2019 and September ~~24, 2016~~28, 2019 was ~~$424.2~~$385.0 million, ~~$421.4~~$417.7 million and ~~$427.9~~$414.6 million, respectively, compared to a carrying value of ~~$395.4~~$397.2 million, ~~$394.6~~$396.3 million and ~~$395.2~~$396.7 million, respectively.


3.	~~Acquisitions~~

~~K&H Manufacturing~~

~~On April 28, 2017,~~

3. Acquisitions

C&S Products

In May 2019, the Company purchased ~~K&H Manufacturing,~~C&S Products, a ~~producer~~manufacturer of ~~premium pet supplies~~suet and other wild bird feed products, to complement our existing wild bird feed business for approximately $30.0 million. Subsequent to the ~~largest marketer~~acquisition, approximately $4.7 million of ~~heated pet products~~cash was used to eliminate the acquired long-term debt. The financial results of C&S Products have been included in the ~~country, for a purchase price~~results of ~~approximately $48.0 million.~~operations within the Pet segment since the date of acquisition. The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $41.8 million, which is included in other assets in the Company’s condensed consolidated balance sheet as of December 30, 2017. The Company has not yet finalized the allocation offollowing table summarizes the purchase price and recording of fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments.


In thousands	Amounts Previously Recognized as of Acquisition Date (1)		Measurement Period Adjustments		Amounts Recognized as of Acquisition Date (as Adjusted)
Current assets, net of cash and cash equivalents acquired	$	9,794	$	441	$	10,235
Fixed assets	23,743		(3,786)		19,957
Goodwill	—		3,777		3,777
Other assets	5,081		(3,242)		1,839
Other intangible assets, net	—		2,810		2,810
Current liabilities	(2,137)		—		(2,137)
Long-term obligations	(6,457)		$	—	(6,457)
Net assets acquired, less cash and cash equivalents	$	30,024	$	—	$	30,024

(1) As previously reported in the Company's Form 10-K for the period ended September 28, 2019.

The impact to the ~~fair value~~consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets ~~acquired. K&H sells branded pet products under the K&H and K&H Pet brands. The acquisition is expected to complement the Company's existing dog and cat business.~~for C&S Products was immaterial.

4. Inventories, net


4.	~~Inventories, net~~

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


	December 30, 2017		December 24, 2016		September 30, 2017			March 28, 2020		March 30, 2019		September 28, 2019
Raw materials	$	120,710	$	125,324	$	116,591	Raw materials	$	148,730	$	136,879	$	145,331
Work in progress	13,778		21,024		16,394		Work in progress	66,866		58,529		51,154
Finished goods	291,812		273,730		241,420		Finished goods	286,448		305,569		255,870
Supplies	14,121		10,093		7,696		Supplies	15,163		16,181		13,842
Total inventories, net	$	440,421	$	430,171	$	382,101	Total inventories, net	$	517,207	$	517,158	$	466,197


5.	~~Goodwill~~

5. Goodwill

The Company tests goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the two-step test is performed to identify potential goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values, including goodwill. If the fair value of the reporting unit is less than its carrying value, the Company performs an additional step to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and accordingly, the Company recognizes such impairment. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of its ~~two~~2 reporting units to the Company’s total market capitalization. NaN impairment of goodwill was recorded for the three and six months ended March 28, 2020 and March 30, 2019. The Company recorded approximately $3.8 million of goodwill in its Pet segment during the three months ended December 28, 2019 as part of its finalization of the purchase price allocation of C&S Products.


6.	~~Other Intangible Assets~~

6. Other Intangible Assets

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


	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
March 28, 2020
Marketing-related intangible assets – amortizable	$	20.6	$	(17.1)	$	—	$	3.5
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	91.2		(17.1)		(26.0)		48.1
Customer-related intangible assets – amortizable	140.3		(58.8)		(2.5)		79.0
Other acquired intangible assets – amortizable	26.0		(17.3)		—		8.7
Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	33.1		(17.3)		(1.2)		14.6
Total other intangible assets	$	264.6	$	(93.2)	$	(29.7)	$	141.7
	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
March 30, 2019
Marketing-related intangible assets – amortizable	$	18.6	$	(15.2)	$	—	$	3.4
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	89.2		(15.2)		(26.0)		48.0
Customer-related intangible assets – amortizable	128.3		(47.5)		(2.5)		78.3
Other acquired intangible assets – amortizable	26.0		(15.5)		—		10.5
Other acquired intangible assets – nonamortizable	7.2		—		(1.2)		6.0
Total	33.2		(15.5)		(1.2)		16.5
Total other intangible assets	$	250.7	$	(78.2)	$	(29.7)	$	142.8
	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
September 28, 2019
Marketing-related intangible assets – amortizable	$	19.7	$	(16.3)	$	—	$	3.4
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	90.3		(16.3)		(26.0)		48.0
Customer-related intangible assets – amortizable	138.4		(53.3)		(2.5)		82.6
Other acquired intangible assets – amortizable	26.0		(16.4)		—		9.6
Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	33.1		(16.4)		(1.2)		15.5
Total other intangible assets	$	261.8	$	(86.0)	$	(29.7)	$	146.1

Gross
Accumulated
Amortization

Accumulated
Impairment

Net
Carrying
Value
(in millions)
December 30, 2017
Marketing-related intangible assets – amortizable $ 16.9
$ (13.1 ) $ —
$ 3.8
Marketing-related intangible assets – nonamortizable 62.7
—
(26.0 ) 36.7
Total 79.6
(13.1 ) (26.0 ) 40.5
Customer-related intangible assets – amortizable 91.6
(33.9 ) —
57.7
Other acquired intangible assets – amortizable 22.1
(13.2 ) —
8.9
Other acquired intangible assets – nonamortizable 7.8
—
(1.2 ) 6.6
Total 29.9
(13.2 ) (1.2 ) 15.5
Total other intangible assets $ 201.1
$ (60.1 ) $ (27.2 ) $ 113.7
Gross
Accumulated
Amortization

Accumulated
Impairment

Net
Carrying
Value
(in millions)
December 24, 2016
Marketing-related intangible assets – amortizable $ 14.9
$ (11.5 ) $ —
$ 3.4
Marketing-related intangible assets – nonamortizable 62.8
—
(26.0 ) 36.8
Total 77.7
(11.5 ) (26.0 ) 40.2
Customer-related intangible assets – amortizable 64.3
(27.0 ) —
37.3
Other acquired intangible assets – amortizable 20.8
(11.9 ) —
8.9
Other acquired intangible assets – nonamortizable 7.7
—
(1.2 ) 6.5
Total 28.5
(11.9 ) (1.2 ) 15.4
Total other intangible assets $ 170.5
$ (50.4 ) $ (27.2 ) $ 92.9
Gross
Accumulated
Amortization

Accumulated
Impairment

Net
Carrying
Value
(in millions)
September 30, 2017
Marketing-related intangible assets – amortizable $ 16.9
$ (12.7 ) $ —
$ 4.2
Marketing-related intangible assets – nonamortizable 62.7
—
(26.0 ) 36.7
Total 79.6
(12.7 ) (26.0 ) 40.9
Customer-related intangible assets – amortizable 91.6
(32.2 ) —
59.4
Other acquired intangible assets – amortizable 22.1
(12.9 ) —
9.2
Other acquired intangible assets – nonamortizable 7.8
—
(1.2 ) 6.6
Total 29.9
(12.9 ) (1.2 ) 15.8
Total other intangible assets $ 201.1
$ (57.8 ) $ (27.2 ) $ 116.1

Other acquired intangible assets include contract-based and technology-based intangible assets.

As part of its acquisition of C&S Products in the third quarter of fiscal 2019, the Company acquired approximately $0.9 million of amortizable marketing-related intangible assets and approximately $1.9 million of customer-related intangible assets.

The Company evaluates long-lived assets, including amortizable and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates indefinite-lived intangible assets on an annual basis. ~~Other factors~~Factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not present in ~~fiscal 2017 or during~~ the three or six months ended ~~December 30, 2017,~~March 28, 2020, and accordingly, no impairment testing was performed on these assets.

As a result of one of our retail customers exiting the live fish business, factors indicating the carrying value of certain amortizable intangible assets may not be recoverable were present during the quarter ended March 30, 2019. The Company performed impairment testing on these assets, found the carrying value was not recoverable and accordingly, recorded an impairment charge in its Pet segment of approximately $2.5 million as part of selling, general and administrative expenses in the condensed consolidated statements of operations.

The Company amortizes its acquired intangible assets with definite lives over periods ranging from 3 years to 25 years; over weighted average remaining lives of 4 years for marketing-related intangibles, 109 years for customer-related intangibles and 1110 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately ~~$2.3~~$3.5 million and ~~$1.4~~$3.4 million for the three months ended ~~December~~March 28, 2020 and March 30, ~~2017~~2019, respectively, and ~~December 24, 2016,~~$7.3 million and $6.9 million for the six months ended March 28, 2020 and March 30, 2019, respectively, and is classified within ~~operating~~selling, general and administrative expenses in the condensed consolidated statements of operations. Estimated annual amortization expense related to acquired intangible assets in each of the succeeding five years is estimated to be approximately $8$12 million per year from fiscal ~~2018~~2020 through fiscal ~~2022~~2024 and thereafter.

7. Leases

The Company has operating and finance leases for manufacturing and distribution facilities, vehicles, equipment and office space. The Company's leases have remaining lease terms of one to 10 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company does not include significant restrictions or covenants in its lease agreements, and residual value guarantees are not included within its operating leases. Some of the Company's leasing arrangements require variable payments that are dependent on usage or output or may vary for other reasons, such as product costs, insurance and tax payments. These variable payments are not included in the Company's recorded lease assets and liabilities and are expensed as incurred. Certain leases are tied to a variable index or rate and are included in lease assets and liabilities based on the indices or rates as of lease commencement. See Note 1. Basis of Presentation, Leases, for more information about the Company's lease accounting policies.

Supplemental balance sheet information related to the Company's leases was as follows:


7.	~~Long-Term Debt~~	Balance Sheet Classification	As of March 28, 2020 (in millions)
Operating leases
Right-of-use assets		Operating lease right-of-use assets	$	99.1
Current lease liabilities		Current operating lease liabilities	$	32.4
Non-current lease liabilities		Long-term operating lease liabilities	70.8
Total operating lease liabilities			$	103.2

Finance leases
Right-of-use assets		Property, plant and equipment, net	$	0.4
Current lease liabilities		Current portion of long-term debt	$	0.1
Non-current lease liabilities		Long-term debt	0.1
Total finance lease liabilities			$	0.2

Components of lease cost were as follows:


	Three months ended March 28, 2020 (in millions)		Six months ended March 28, 2020 (in millions)
Operating lease cost	$	9.7	$	19.3
Finance lease cost:
Amortization of right-of-use assets	$	—	$	—
Interest on lease liabilities	—		—
Total finance lease cost	$	—	$	—

Short-term lease cost	$	1.0	$	1.7
Variable lease cost	$	2.6	$	3.5

Total lease cost	$	13.3	$	24.5

Supplemental cash flow information and non-cash activity related to the Company's leases was as follows:


	Six months ended March 28, 2020 (in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17.8
Operating cash flows from finance leases	$	—
Financing cash flows from finance leases	$	—

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5.0
Finance leases	$	—

Weighted-average remaining lease term and discount rate for the Company's leases were as follows:


	As of March 28, 2020
Weighted-average remaining lease term (in years):
Operating leases	4.8
Finance leases	2.4

Weighted-average discount rate:
Operating leases	3.83	%
Finance leases	4.85	%

Future non-cancelable lease payments under prior lease accounting rules (ASC 840) and under the new lease accounting rules (ASC 842) that went into effect September 29, 2019 were as follows (in millions):


	As of March 28, 2020						As of September 28, 2019
	ASC 842						ASC 840
	Operating Leases		Finance Leases		Operating Leases
Fiscal Year
2020 (excluding the six months ended March 28, 2020)	$	19.2	$	—
2020					$	38.0
2021	30.4		0.1		29.3
2022	22.9		0.1		21.8
2023	12.5		—		11.3
2024	8.8		—		7.9
Thereafter	21.2		—		20.7
Total future undiscounted lease payments	$	115.0	$	0.2	$	129.0
Less imputed interest	(11.8)		—
Total reported lease liability	$	103.2	$	0.2

8. Long-Term Debt

Long-term debt consists of the following:


	December 30, 2017			December 24, 2016			September 30, 2017				March 28, 2020		March 30, 2019		September 28, 2019
	(in thousands)										(in thousands)
Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023	$	400,000		$	400,000		$	400,000		Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023	$	400,000	$	400,000	$	400,000
Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028	300,000			—			—			Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028	300,000		300,000		300,000
Unamortized debt issuance costs	(9,161		)	(5,436		)	(4,840		)	Unamortized debt issuance costs	(6,524)		(7,791)		(7,158)
Net carrying value	690,839			394,564			395,160			Net carrying value	693,476		692,209		692,842
Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.25% to 1.50% or Base Rate plus a margin of 0.25% to 0.50%, final maturity April 2021	—			—			—
Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.00% to 1.50% or Base Rate plus a margin of 0.0% to 0.50%, final maturity September 2024.										Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.00% to 1.50% or Base Rate plus a margin of 0.0% to 0.50%, final maturity September 2024.	—		—		—

Other notes payable	497			844			493			Other notes payable	249		5,556		308
Total	691,336			395,408			395,653			Total	693,725		697,765		693,150
Less current portion	(372		)	(397		)	(375		)	Less current portion	(103)		(5,119)		(113)
Long-term portion	$	690,964		$	395,011		$	395,278		Long-term portion	$	693,622	$	692,646	$	693,037

Senior Notes

$300 ~~Million~~million 5.125% Senior Notes

On December 14, 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The Company will use the net proceeds from the offering to finance future acquisitions and for general corporate purposes.

The Company incurred approximately ~~$4.6~~$4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.

The 2028 Notes require semiannual interest payments on February 1 and August 1, commencing August 1, 2018. The 2028 Notes are unconditionally guaranteed on a senior basis by the Company's existing and future domestic restricted subsidiaries who are borrowers under or guarantors of Central's senior secured revolving credit facility, or who guarantee the 2023 Notes.

The Company may redeem some or all of the 2028 Notes at any time, at its option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. At any time prior to January 1, 2021, the Company may also redeem, at its option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 105.125% of the principal amount of the notes. The Company may redeem some or all of the 2028 Notes, at its option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854%, and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.

The holders of the 2028 Notes have the right to require usthe Company to repurchase all or a portion of the 2028 Notes at a purchase price equal to ~~101%~~101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of ~~December 30, 2017.~~

March 28, 2020.

$400 ~~Million~~million 6.125% Senior Notes

On November 9, 2015, the Company issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the "2023 Notes"). In December 2015, the Company used the net proceeds from the offering, together with available cash, to redeem its $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 ("2018 Notes") at a price of 102.063% of the principal amount and to pay fees and expenses related to the offering. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.

The Company incurred approximately $6.3 million of debt issuance costs in conjunction with these transactions, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2023 Notes.

The 2023 Notes require semiannual interest payments on May 15 and November 15. The 2023 Notes are unconditionally guaranteed on a senior basis by each of the Company’s existing and future domestic restricted subsidiaries which are borrowers under or guarantors of Central’s senior secured revolving credit facility. The 2023 Notes are unsecured senior obligations and are subordinated to all of the Company’s existing and future secured debt, including the Company’s Credit Facility, to the extent of the value of the collateral securing such indebtedness.

The Company may redeem some or all of the 2023 Notes at any time, at its option, prior to November 15, 2018 at the principal amount plus a “make whole” premium. At any time prior to November 15, 2018, the Company may also redeem, at its option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 106.125% of the principal amount of the notes. The Company may redeem some or all of the 2023 Notes, at its option, at any time ~~on or after November 15, 2018 for 104.594%,~~ on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.

The holders of the 2023 Notes have the right to require the Company to repurchase all or a portion of the 2023 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2023 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of ~~December 30, 2017.~~March 28, 2020.

Asset-Based Loan Facility Amendment

On ~~April 22, 2016,~~September 27, 2019, the Company entered into ana Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement ~~which provides~~dated April 22, 2016 and continues to provide up to a ~~$400~~$400.0 million principal amount senior secured asset-based revolving credit facility, with up to an additional ~~$200~~$200.0 million principal amount available with the consent of the Lenders, as defined, if the Company exercises the accordion feature set forth therein (collectively, the ~~“Credit~~“Amended Credit Facility”). The Amended Credit Facility matures on ~~April 22, 2021.~~September 27, 2024. The Company may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full.

The Amended Credit Facility is subject to a borrowing base, reduced capacity due to reserves and certain other restrictions. The borrowing base is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves, and was $400.0 million as of March 28, 2020. The Amended Credit Facility also allows the Company to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders. The Company did not draw down any commitments under the Amended Credit Facility upon closing. Proceeds of the Amended Credit Facility will be used for general corporate purposes. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and an increased $40 million sublimit for short-notice borrowings. As of ~~December 30, 2017,~~March 28, 2020, there were no0 borrowings outstanding and no0 letters of credit outstanding under the Credit Facility. There were other letters of credit of ~~$1.8~~$3.2 million outstanding as of ~~December 30, 2017.~~March 28, 2020. Subsequent to quarter end, the Company borrowed $200 million under its revolving credit facility to increase financial flexibility while it navigates an uncertain COVID-19 economic environment.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus ~~0.5% and~~0.50%, (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on the Company’s consolidated senior leverage ~~ratio.~~ratio and (d) 0.00%. Such applicable margin for LIBOR-based borrowings fluctuates between ~~1.25% - 1.50%~~1.00%-1.50%, and was ~~1.25%~~1.00% as of ~~December 30, 2017,~~March 28, 2020, and such applicable margin for Base Rate borrowings fluctuates between ~~0.25%-0.5%~~0.00%-0.50%, and was ~~0.25%~~0% as of ~~December 30, 2017.~~March 28, 2020. An unused line fee shall be payable monthly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable monthly and a facing fee of 0.125% shall be paid on demand for the stated amount of each letter of credit. The Company is also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of ~~December 30, 2017,~~March 28, 2020, the applicable interest rate related to Base Rate borrowings was ~~4.8%~~3.3%, and the applicable interest rate related to LIBOR-based borrowings was ~~2.8%~~2.0%.

The Company incurred approximately ~~$1.2~~$1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees ~~legal~~ and ~~accounting~~legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility.

The Amended Credit Facility ~~contains~~continues to contain customary covenants, including financial covenants which require the Company to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon ~~reaching~~triggered quarterly testing (e.g. when availability falls below certain ~~borrowing levels.~~thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of the ~~Company.~~borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity. The Company was in compliance with all financial covenants under the Amended Credit Facility during the ~~quarter~~period ended ~~December 30, 2017.~~

March 28, 2020.


8.	~~Supplemental Equity Information~~

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~~through the ~~three~~six months ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016.~~2019.

Controlling Interest
(in thousands)
Common
Stock

Class A
Common
Stock

Class
B
Stock

Additional
Paid In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total
Noncontrolling
Interest
Total
Balance September 30, 2017 $ 122
$ 380
$ 16
$ 396,790
$ 239,329
$ (951 ) $ 635,686
$ 1,456
$ 637,142
Comprehensive income 26,247
44
26,291
203
26,494
Amortization of share-based awards 2,143
2,143
2,143
Restricted share activity, including net share settlement
(2,397 ) (2,397 ) (2,397 )
Issuance of common stock, including net share settlement of stock options

166
166
166
Distribution to Noncontrolling interest (1,597 ) (1,597 )
Balance December 30, 2017 $ 122
$ 380
$ 16
$ 396,702
$ 265,576
$ (907 ) $ 661,889
$ 62
$ 661,951


																										Controlling Interest
(in thousands)																									(in thousands)	Common Stock		Class A Common Stock		Class B Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Noncontrolling Interest		Total
Balance September 28, 2019																									Balance September 28, 2019	$	115	$	430	$	16	$	575,380	$	421,742	$	(1,676)	$	996,007	$	170	$	996,177
Comprehensive income																									Comprehensive income	—		—		—		—		(4,417)		436		(3,981)		(122)		(4,103)
Amortization of share-based awards																									Amortization of share-based awards	—		—		—		2,804		—		—		2,804		—		2,804
Restricted share activity, including net share settlement																									Restricted share activity, including net share settlement	—		—		—		(318)		—		—		(318)		—		(318)
Repurchase of stock																									Repurchase of stock	—		(8)		—		(8,488)		(13,632)		—		(22,128)		—		(22,128)
Issuance of common stock, including net share settlement of stock options																									Issuance of common stock, including net share settlement of stock options	—		1		—		739		—		—		740		—		740
Balance December 28, 2019																									Balance December 28, 2019	$	115	$	423	$	16	$	570,117	$	403,693	$	(1,240)	$	973,124	$	48	$	973,172
Comprehensive income																									Comprehensive income	—		—		—		—		42,704		(405)		42,299		438		42,737
Amortization of share-based awards																									Amortization of share-based awards	—		—		—		2,923		—		—		2,923		—		2,923
Restricted share activity, including net share settlement																									Restricted share activity, including net share settlement	—		3		—		(807)		—		—		(804)		—		(804)
Repurchase of stock																									Repurchase of stock	(2)		(8)		—		(10,121)		(14,911)		—		(25,042)		—		(25,042)
Issuance of common stock, including net share settlement of stock options																									Issuance of common stock, including net share settlement of stock options	—		—		—		513		—		—		513		—		513
Distribution to Noncontrolling interest																									Distribution to Noncontrolling interest	—		—		—		—		—		—		—		(57)		(57)
Balance March 28, 2020																									Balance March 28, 2020	$	113	$	418	$	16	$	562,625	$	431,486	$	(1,645)	$	993,013	$	429	$	993,442

	Controlling Interest
(in thousands)	Common Stock		Class A Common Stock			Class B Stock		Additional Paid In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total			Noncontrolling Interest			Total
Balance September 24, 2016	$	120	$	374		$	16	$	393,297		$	160,501	$	(1,294	)	$	553,014		$	1,573		$	554,587
Comprehensive income											7,637		(508		)	7,129			152			7,281
Amortization of share-based awards								2,118								2,118						2,118
Restricted share activity, including net share settlement			(1		)			(3,312		)						(3,313		)				(3,313		)
Issuance of common stock, including net share settlement of stock options			2					(4,033		)						(4,031		)				(4,031		)
Tax benefit on stock option exercise, net of tax deficiency								4,332								4,332						4,332
Distribution to Noncontrolling interest																			(1,018		)	(1,018		)
Balance December 24, 2016	$	120	$	375		$	16	$	392,402		$	168,138	$	(1,802	)	$	559,249		$	707		$	559,956


9.	~~Stock-Based Compensation~~


	Controlling Interest
(in thousands)	Common Stock		Class A Common Stock		Class B Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Noncontrolling Interest		Total
Balance September 29, 2018	$	121	$	439	$	16	$	590,168	$	362,923	$	(1,218)	$	952,449	$	385	$	952,834
Comprehensive income	—		—		—		—		1,803		(274)		1,529		(164)		1,365
Amortization of share-based awards	—		—		—		2,261		—		—		2,261		—		2,261
Restricted share activity, including net share settlement	—		1		—		(386)		—		—		(385)		—		(385)
Issuance of common stock, including net share settlement of stock options	—		1		—		408		—		—		409		—		409

Balance December 29, 2018	$	121	$	441	$	16	$	592,451	$	364,726	$	(1,492)	$	956,263	$	221	$	956,484
Comprehensive income	—		—		—		—		42,391		212		42,603		331		42,934
Amortization of share-based awards	—		—		—		2,473		—		—		2,473		—		2,473
Restricted share activity, including net share settlement	—		2		—		(1,773)		—		—		(1,771)		—		(1,771)
Issuance of common stock, including net share settlement of stock options	—		1		—		(820)		—		—		(819)		—		(819)

Other	—		—		—		—		—		—		—		1		1
Balance March 30, 2019	$	121	$	444	$	16	$	592,331	$	407,117	$	(1,280)	$	998,749	$	553	$	999,302

10. Stock-Based Compensation

The Company recognized share-based compensation expense of ~~$2.7~~$8.4 million and ~~$2.7~~$5.9 million for the ~~three~~six months ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016,~~2019, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the ~~three~~six months ended ~~December~~March 28, 2020 and March 30, ~~2017 and December 24, 2016~~2019 was ~~$0.7~~$2.0 million and ~~$1.0~~$1.4 million, respectively.

11. Earnings Per Share


~~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.~~operations (in thousands except share and per share amounts).


	Three Months Ended								Six Months Ended
	March 28, 2020								March 28, 2020
	Income		Shares	Per Share		Income		Shares	Per Share
Basic EPS:
Net income available to common shareholders	$	42,704	54,281	$	0.79	$	38,287	54,517	$	0.70
Effect of dilutive securities (1):
Options to purchase common stock	—		343	(0.01)		—		368	(0.01)
Restricted shares	—		328	—		—		335	—
Diluted EPS:
Net income available to common shareholders	$	42,704	54,952	$	0.78	$	38,287	55,220	$	0.69

Three Months Ended
December 30, 2017
Income Shares Per Share
Basic EPS:
     Net income available to common shareholders $ 26,247
50,730
$ 0.52
Effect of dilutive securities:
     Options to purchase common stock
1,147
(0.01 )
     Restricted shares
818
(0.01 )
Diluted EPS:

     Net income available to common shareholders $ 26,247
52,695
$ 0.50

(1) The potential effects of stock awards were excluded from the diluted earnings per share calculation for the three months ended December 28, 2019, because their inclusion in a net loss period would be anti-dilutive to the earnings per share calculation.


	Three Months Ended								Six Months Ended
	March 30, 2019								March 30, 2019
	Income		Shares	Per Share		Income		Shares	Per Share
Basic EPS:
Net income available to common shareholders	$	42,391	57,050	$	0.74	$	44,194	56,976	$	0.78
Effect of dilutive securities:
Options to purchase common stock	—		609	(0.01)		—		639	(0.01)
Restricted shares	—		367	—		—		398	(0.01)
Diluted EPS:
Net income available to common shareholders	$	42,391	58,026	$	0.73	$	44,194	58,013	$	0.76

Three Months Ended
December 24, 2016
Income
Shares
Per Share
Basic EPS:

     Net income available to common shareholders
$ 7,637

49,665

$ 0.15
Effect of dilutive securities:

     Options to purchase common stock

1,356

—
     Restricted shares

789

—
Diluted EPS:

     Net income available to common shareholders
$ 7,637

51,810

$ 0.15

Options to purchase ~~2.4~~3.4 million shares of common stock at prices ranging from ~~$6.43~~$10.63 to ~~$33.15~~$38.10 per share were outstanding at ~~December 30, 2017,~~March 28, 2020, and options to purchase ~~2.9~~2.8 million shares of common stock at prices ranging from ~~$6.43~~$8.56 to ~~$15.56~~$38.10 per share were outstanding at ~~December 24, 2016.~~March 30, 2019.

For the three months ended ~~December~~March 28, 2020 and March 30, ~~2017~~2019, 1.5 million and~~December 24, 2016, all~~ 1.8 million options outstanding were not included in the computation of diluted earnings per ~~share.~~share because the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options would be antidilutive.

For the six months ended March 28, 2020 and March 30, 2019, 1.2 million and 1.8 million options outstanding were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options would be antidilutive.


~~11.~~	~~Segment Information~~

12. Segment Information

Management has determined that the Company has ~~two~~2 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							Three Months Ended						Six Months Ended
	December 30, 2017			December 24, 2016				March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Net sales:							Net sales:
Pet segment	$	325,084		$	304,046		Pet segment	$	360,792	$	338,183	$	714,813	$	678,599
Garden segment	116,927			115,452			Garden segment	342,437		335,518		471,244		457,092
Total net sales	$	442,011		$	419,498		Total net sales	$	703,229	$	673,701	$	1,186,057	$	1,135,691

Operating Income (loss)							Operating Income (loss)
Pet segment	36,176			33,406			Pet segment	33,617		26,984		63,839		56,739
Garden segment	2,300			2,676			Garden segment	53,020		53,355		44,652		48,718
Corporate	(15,955		)	(16,144		)	Corporate	(20,532)		(18,186)		(40,321)		(33,123)
Total operating income	22,521			19,938			Total operating income	66,105		62,153		68,170		72,334
Interest expense - net	(7,218		)	(6,835		)	Interest expense - net	(9,336)		(8,385)		(17,973)		(16,462)
Other expense	(3,089		)	(967		)
Income tax (benefit) expense	(14,236		)	4,347
Other income (expense)							Other income (expense)	(979)		500		(674)		308
Income tax expense							Income tax expense	12,648		11,546		10,920		11,819
Income including noncontrolling interest	26,450			7,789			Income including noncontrolling interest	43,142		42,722		38,603		44,361
Net income attributable to noncontrolling interest	203			152			Net income attributable to noncontrolling interest	438		331		316		167
Net income attributable to Central Garden & Pet Company	$	26,247		$	7,637		Net income attributable to Central Garden & Pet Company	$	42,704	$	42,391	$	38,287	$	44,194
Depreciation and amortization:							Depreciation and amortization:
Pet segment	$	7,145		5,830			Pet segment	$	8,441	$	8,039	$	16,931	$	16,095
Garden segment	1,569			1,507			Garden segment	3,324		2,312		6,619		5,138
Corporate	2,449			2,672			Corporate	1,411		1,526		2,766		2,996
Total depreciation and amortization	$	11,163		$	10,009		Total depreciation and amortization	$	13,176	$	11,877	$	26,316	$	24,229


	March 28, 2020		March 30, 2019		September 28, 2019
Assets:
Pet segment	$	796,080	$	700,638	$	734,380
Garden segment	712,061		687,951		463,889
Corporate	659,266		657,551		826,751
Total assets	$	2,167,407	$	2,046,140	$	2,025,020
Goodwill (included in corporate assets above):
Pet segment	$	272,066	$	268,289	$	268,289
Garden segment	17,788		12,888		17,788
Total goodwill	$	289,854	$	281,177	$	286,077

December 30,
2017 December 24,
2016 September 30,
2017
Assets:
Pet segment $ 620,681
$ 575,192
$ 612,337
Garden segment 356,821
354,674
311,026
Corporate 639,850
286,888
383,543
Total assets $ 1,617,352
$ 1,216,754
$ 1,306,906
Goodwill (included in corporate assets above):
Pet segment $ 250,802
$ 224,912
$ 250,802
Garden segment 5,473
5,473
5,473
Total goodwill $ 256,275
$ 230,385
$ 256,275
The tables below presents the Company's disaggregated revenues by segment (in millions):


	Three Months Ended March 28, 2020										Six Months Ended March 28, 2020
	Pet Segment		Garden Segment		Total		Pet Segment		Garden Segment		Total

Other pet products	$	164.2	$	—	$	164.2	$	302.0	$	—	$	302.0
Dog and cat products	111.4		—		111.4		241.8		—		241.8
Other manufacturers' products	85.2		65.1		150.3		171.0		95.0		266.0
Garden controls and fertilizer products	—		110.8		110.8		—		133.9		133.9
Other garden supplies	—		166.5		166.5		—		242.3		242.3
Total	$	360.8	$	342.4	$	703.2	$	714.8	$	471.2	$	1,186.1


~~12.~~	~~Consolidating Condensed Financial Information of Guarantor Subsidiaries~~


	Three Months Ended March 30, 2019										Six Months Ended March 30, 2019
	Pet Segment		Garden Segment		Total		Pet Segment		Garden Segment		Total

Other pet products	$	154.8	$	—	$	154.8	$	285.6	$	—	$	285.6
Dog and cat products	105.2		—		105.2		236.3		—		236.3
Other manufacturers' products	78.2		52.3		130.5		156.7		81.4		238.1
Garden controls and fertilizer products	—		113.8		113.8		—		138.1		138.1
Other garden supplies	—		169.4		169.4		—		237.6		237.6
Total	$	338.2	$	335.5	$	673.7	$	678.6	$	457.1	$	1,135.7

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 2023 Notes and 2028 Notes. Certain subsidiaries and operating divisions are not guarantors of the 2023 Notes and 2028 Notes. Those subsidiaries that are guarantors and co-obligors of the 2023 Notes and 2028 Notes are as follows:

Arden Companies, LLC

C&S Products Co., Inc.

Farnam Companies, Inc.

Four Paws Products Ltd.

Gulfstream Home & Garden, Inc.

Hydro-Organics Wholesale, Inc.

IMS Trading, LLC

IMS Southern, LLC

K&H Manufacturing, LLC

Kaytee Products, Inc.

Matson, LLC

New England Pottery, LLC

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

Pets International, Ltd.

Segrest, Inc. (including Blue Springs Hatchery, Inc., Segrest Farms, Inc., Florida Tropical Distributors International, Inc., Sun Pet, Ltd, Aquatica Tropicals, Inc., Quality Pets, LLC and Midwest Tropicals, LLC)

T.F.H. Publications, Inc.

Wellmark International (including B2E Corporation, B2E Microbials, LLC, B2E Manufacturing, LLC, Four Star Microbial Products, LLC 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
	Three Months Ended March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net sales	$	218,951	$	35,651	$	473,627	$	(25,000)	$	703,229
Cost of goods sold and occupancy	167,640		33,240		318,451		(23,219)		496,112
Gross profit	51,311		2,411		155,176		(1,781)		207,117
Selling, general and administrative expenses	47,616		8,988		86,189		(1,781)		141,012
Operating income (loss)	3,695		(6,577)		68,987		—		66,105
Interest expense	(10,666)		(84)		(3)		—		(10,753)
Interest income	1,409		8		—		—		1,417
Other income (expense)	(361)		(668)		50		—		(979)
Income (loss) before taxes and equity in earnings (losses) of affiliates	(5,923)		(7,321)		69,034		—		55,790
Income tax expense (benefit)	(433)		185		12,896		—		12,648
Equity in earnings (loss) of affiliates	48,194		—		69		(48,263)		—
Net income (loss) including noncontrolling interest	42,704		(7,506)		56,207		(48,263)		43,142
Net loss attributable to noncontrolling interest	—		438		—		—		438
Net income (loss) attributable to Central Garden & Pet Company	$	42,704	$	(7,944)	$	56,207	$	(48,263)	$	42,704


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
	Three Months Ended March 30, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net sales	$	214,042	$	35,191	$	449,810	$	(25,342)	$	673,701
Cost of goods sold and occupancy	163,133		30,343		297,864		(23,690)		467,650
Gross profit	50,909		4,848		151,946		(1,652)		206,051
Selling, general and administrative expenses	47,135		10,485		87,930		(1,652)		143,898
Operating income (loss)	3,774		(5,637)		64,016		—		62,153
Interest expense	(10,482)		(141)		(17)		—		(10,640)
Interest income	2,250		5		—		—		2,255
Other income (expense)	305		243		(48)		—		500
Income (loss) before taxes and equity in earnings (losses) of affiliates	(4,153)		(5,530)		63,951		—		54,268
Income tax expense (benefit)	(1,748)		(55)		13,349				11,546
Equity in earnings of affiliates	44,796		—		(101)		(44,695)		—
Net income (loss) including noncontrolling interest	42,391		(5,475)		50,501		(44,695)		42,722
Net income attributable to noncontrolling interest	—		331		—		—		331
Net income (loss) attributable to Central Garden & Pet Company	$	42,391	$	(5,806)	$	50,501	$	(44,695)	$	42,391


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
	Six Months Ended March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net sales	$	389,279	$	59,488	$	774,668	$	(37,378)	$	1,186,057
Cost of goods sold and occupancy	299,913		56,952		525,435		(34,626)		847,674
Gross profit	89,366		2,536		249,233		(2,752)		338,383
Selling, general and administrative expenses	90,853		16,807		165,305		(2,752)		270,213
Operating income (loss)	(1,487)		(14,271)		83,928		—		68,170
Interest expense	(21,244)		(144)		(6)		—		(21,394)
Interest income	3,406		15		—		—		3,421
Other income (expense)	(436)		69		(307)		—		(674)
Income (loss) before taxes and equity in earnings (losses) of affiliates	(19,761)		(14,331)		83,615		—		49,523
Income tax expense (benefit)	(4,331)		(180)		15,431		—		10,920
Equity in earnings of affiliates	53,717		—		(611)		(53,106)		—
Net income (loss) including noncontrolling interest	38,287		(14,151)		67,573		(53,106)		38,603
Net income attributable to noncontrolling interest	—		316		—		—		316
Net income (loss) attributable to Central Garden & Pet Company	$	38,287	$	(14,467)	$	67,573	$	(53,106)	$	38,287


	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
	Six Months Ended March 30, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net sales	$	387,448	$	58,820	$	729,644	$	(40,221)	$	1,135,691
Cost of goods sold and occupancy	299,146		52,346		485,547		(37,581)		799,458
Gross profit	88,302		6,474		244,097		(2,640)		336,233
Selling, general and administrative expenses	90,800		17,836		157,903		(2,640)		263,899
Operating income (loss)	(2,498)		(11,362)		86,194		—		72,334
Interest expense	(20,979)		(255)		(20)		—		(21,254)
Interest income	4,783		9		—		—		4,792
Other income (expense)	342		27		(61)		—		308
Income (loss) before taxes and equity in earnings (losses) of affiliates	(18,352)		(11,581)		86,113		—		56,180
Income tax expense (benefit)	(3,836)		(311)		15,966		—		11,819
Equity in earnings (losses) of affiliates	58,710		—		(1,213)		(57,497)		—
Net income (loss) including noncontrolling interest	44,194		(11,270)		68,934		(57,497)		44,361
Net income attributable to noncontrolling interest	—		167		—		—		167
Net income (loss) attributable to Central Garden & Pet Company	$	44,194	$	(11,437)	$	68,934	$	(57,497)	$	44,194


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Three Months Ended March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net income (loss)	$	42,704	$	(7,506)	$	56,207	$	(48,263)	$	43,142
Other comprehensive loss:
Foreign currency translation	(405)		(227)		(83)		310		(405)
Total comprehensive income (loss)	42,299		(7,733)		56,124		(47,953)		42,737
Comprehensive income attributable to noncontrolling interests	—		438		—		—		438
Comprehensive income (loss) attributable to Central Garden & Pet Company	$	42,299	$	(8,171)	$	56,124	$	(47,953)	$	42,299


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Three Months Ended March 30, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net income (loss)	$	42,391	$	(5,475)	$	50,501	$	(44,695)	$	42,722
Other comprehensive income:
Foreign currency translation	212		127		35		(162)		212
Total comprehensive income (loss)	42,603		(5,348)		50,536		(44,857)		42,934
Comprehensive income attributable to noncontrolling interests	—		331		—		—		331
Comprehensive income (loss) attributable to Central Garden & Pet Company	$	42,603	$	(5,679)	$	50,536	$	(44,857)	$	42,603


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Six Months Ended March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net income	$	38,287	$	(14,151)	$	67,573	$	(53,106)	$	38,603
Other comprehensive income (loss):
Foreign currency translation	32		70		(62)		(8)		32
Total comprehensive income (loss)	38,319		(14,081)		67,511		(53,114)		38,635
Comprehensive income attributable to noncontrolling interests	—		316		—		—		316
Comprehensive income (loss) attributable to Central Garden & Pet Company	$	38,319	$	(14,397)	$	67,511	$	(53,114)	$	38,319


	CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Six Months Ended March 30, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net income	$	44,194	$	(11,270)	$	68,934	$	(57,497)	$	44,361
Other comprehensive loss:
Foreign currency translation	(62)		(2)		(60)		62		(62)
Total comprehensive income	44,132		(11,272)		68,874		(57,435)		44,299
Comprehensive income (loss) attributable to noncontrolling interests	—		167		—		—		167
Comprehensive income (loss) attributable to Central Garden & Pet Company	$	44,132	$	(11,439)	$	68,874	$	(57,435)	$	44,132


	CONSOLIDATING CONDENSED BALANCE SHEET
	March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	319,187	$	11,165	$	1,203	$	—	$	331,555
Restricted cash	13,021		—		—		—		13,021

Accounts receivable, net	137,422		18,661		304,902		—		460,985
Inventories, net	125,002		46,241		345,964		—		517,207
Prepaid expenses and other	7,626		1,839		26,695		—		36,160
Total current assets	602,258		77,906		678,764		—		1,358,928
Property, plant and equipment, net	27,561		34,962		179,355		—		241,878
Goodwill	20,577		7,414		261,863		—		289,854
Operating lease right-of-use assets	48,013		5,916		45,169		—		99,098
Other long-term assets	48,172		4,791		133,690		(9,004)		177,649
Intercompany receivable	62,722		—		815,955		(878,677)		—
Investment in subsidiaries	1,838,475		—		—		(1,838,475)		—
Total	$	2,647,778	$	130,989	$	2,114,796	$	(2,726,156)	$	2,167,407
LIABILITIES AND EQUITY
Accounts payable	$	53,323	$	22,800	$	110,748	$	—	$	186,871
Accrued expenses	59,861		5,216		72,646		—		137,723
Current operating lease liability	19,306		3,206		9,891		—		32,403
Current portion of long-term debt	103		—		—		—		103
Total current liabilities	132,593		31,222		193,285		—		357,100
Long-term debt	693,622		—		—		—		693,622
Operating lease long term liabilities	30,721		2,670		37,369		—		70,760
Intercompany payable	797,082		81,595		—		(878,677)		—
Losses in excess of investment in subsidiaries	—		—		26,408		(26,408)		—
Other long-term obligations	747		—		60,740		(9,004)		52,483
Total Central Garden & Pet shareholders’ equity (deficit)	993,013		15,073		1,796,994		(1,812,067)		993,013
Noncontrolling interest	—		429		—		—		429
Total equity	993,013		15,502		1,796,994		(1,812,067)		993,442
Total	$	2,647,778	$	130,989	$	2,114,796	$	(2,726,156)	$	2,167,407


	CONSOLIDATING CONDENSED BALANCE SHEET
	March 30, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	322,149	$	6,354	$	1,221	$	—	$	329,724
Restricted cash	10,888		—		5,227		—		16,115
Accounts receivable, net	134,251		22,844		299,034		—		456,129
Inventories, net	138,778		46,035		332,345		—		517,158
Prepaid expenses and other	8,355		1,386		23,420		—		33,161
Total current assets	614,421		76,619		661,247		—		1,352,287
Property, plant and equipment, net	29,701		36,180		151,657		—		217,538
Goodwill	20,578		7,414		253,185		—		281,177
Other long-term assets	47,512		6,273		147,035		(5,682)		195,138
Intercompany receivable	59,152		—		680,937		(740,089)		—
Investment in subsidiaries	1,688,163		—		—		(1,688,163)		—
Total	$	2,459,527	$	126,486	$	1,894,061	$	(2,433,934)	$	2,046,140
LIABILITIES AND EQUITY
Accounts payable	$	41,488	$	21,833	$	94,275	$	—	$	157,596
Accrued expenses	55,181		6,200		75,032		—		136,413
Current portion of long-term debt	119		—		5,000		—		5,119
Total current liabilities	96,788		28,033		174,307		—		299,128
Long-term debt	692,459		—		187		—		692,646
Intercompany payable	662,927		77,163		—		(740,090)		—
Losses in excess of investment in subsidiaries	—		—		26,248		(26,248)		—
Other long-term obligations	8,604		—		52,142		(5,682)		55,064
Total Central Garden & Pet shareholders’ equity (deficit)	998,749		20,737		1,641,177		(1,661,914)		998,749
Noncontrolling interest	—		553		—		—		553
Total equity	998,749		21,290		1,641,177		(1,661,914)		999,302
Total	$	2,459,527	$	126,486	$	1,894,061	$	(2,433,934)	$	2,046,140


	CONSOLIDATING CONDENSED BALANCE SHEET
	September 28, 2019
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	489,590	$	7,308	$	851	$	—	$	497,749
Restricted cash	12,952		—		—		—		12,952
Accounts receivable, net	99,372		11,551		189,212		—		300,135
Inventories, net	121,344		30,826		314,027		—		466,197
Prepaid expenses and other assets	9,339		1,241		19,580		—		30,160
Total current assets	732,597		50,926		523,670		—		1,307,193
Property, plant and equipment, net	27,395		35,854		182,156		—		245,405
Goodwill	20,578		7,414		258,085		—		286,077
Other long-term assets	55,690		5,487		139,138		(13,970)		186,345
Intercompany receivable	37,544		—		879,231		(916,775)		—
Investment in subsidiaries	1,784,750		—		—		(1,784,750)		—
Total	$	2,658,554	$	99,681	$	1,982,280	$	(2,715,495)	$	2,025,020
LIABILITIES AND EQUITY
Accounts payable	$	47,506	$	6,895	$	94,845	$	—	$	149,246
Accrued expenses and other liabilities	54,623		4,814		69,729		—		129,166
Current portion of long term debt	113		—		—		—		113
Total current liabilities	102,242		11,709		164,574		—		278,525
Long-term debt	693,037		—		—		—		693,037
Intercompany payable	858,673		58,102		—		(916,775)		—
Losses in excess of investment in subsidiaries	—		—		25,567		(25,567)		—
Other long-term obligations	8,595		—		62,656		(13,970)		57,281
Total Central Garden & Pet shareholders’ equity (deficit)	996,007		29,700		1,729,483		(1,759,183)		996,007
Noncontrolling interest	—		170		—		—		170
Total equity	996,007		29,870		1,729,483		(1,759,183)		996,177
Total	$	2,658,554	$	99,681	$	1,982,280	$	(2,715,495)	$	2,025,020


	CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
	Six Months Ended March 28, 2020
	(in thousands)
	Parent		Non- Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net cash used by operating activities	$	(25,504)	$	(19,073)	$	(47,851)	$	(230)	$	(92,658)
Additions to property, plant and equipment	(4,236)		(291)		(14,960)		—		(19,487)



Investments	(4,439)		—		—		—		(4,439)
Other investing activities	(437)		—		—		—		(437)
Intercompany investing activities	(25,179)		—		63,276		(38,097)		—
Net cash (used) provided by investing activities	(34,291)		(291)		48,316		(38,097)		(24,363)



Repayments of long-term debt	(59)		—		—		—		(59)
Payment of financing costs	(959)								(959)
Repurchase of common stock	(48,026)		—		—		—		(48,026)
Distribution to parent	—		(230)		—		230		—
Distribution to noncontrolling interest	—		(57)		—		—		(57)
Payment of contingent consideration liability	—		—		(90)		—		(90)
Intercompany financing activities	(61,589)		23,492		—		38,097		—
Net cash (used) provided by financing activities	(110,633)		23,205		(90)		38,327		(49,191)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	94		16		(23)		—		87
Net increase (decrease) in cash, cash equivalents and restricted cash	(170,334)		3,857		352		—		(166,125)
Cash, cash equivalents and restricted cash at beginning of period	502,542		7,308		851		—		510,701
Cash, cash equivalents and restricted cash at end of period	$	332,208	$	11,165	$	1,203	$	—	$	344,576


	CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
	Six Months Ended March 30, 2019
	(in thousands)
	Parent		Non-Guarantor Subsidiaries		Guarantor Subsidiaries		Eliminations		Consolidated
Net cash (used) provided by operating activities	$	(23,565)	$	(17,128)	$	(38,626)	$	—	$	(79,319)
Additions to property, plant and equipment	(1,716)		(3,350)		(9,236)		—		(14,302)
Payments to acquire companies, net of cash acquired	(11,137)		—		—		—		(11,137)

Investments	(1,749)		—		—		—		(1,749)
Other investing activities	(368)		—		—		—		(368)
Intercompany investing activities	(18,788)		—		88,949		(70,161)		—
Net cash used by investing activities	(33,758)		(3,350)		79,713		(70,161)		(27,556)


Repayments of long-term debt	(3)		—		(36,463)		—		(36,466)



Repurchase of common stock	(3,739)		—		—		—		(3,739)


Payment of contingent consideration	—		—		(66)		—		(66)
Intercompany financing activities	(91,005)		20,844		—		70,161		—
Net cash provided (used) by financing activities	(94,747)		20,844		(36,529)		70,161		(40,271)
Effect of exchange rates on cash, cash equivalents and restricted cash	(2)		(17)		(1)		—		(20)
Net increase (decrease) in cash, cash equivalents and restricted cash	(152,072)		349		4,557		—		(147,166)
Cash, cash equivalents and restricted cash at beginning of period	485,109		6,005		1,891		—		493,005
Cash, cash equivalents and restricted cash at end of period	$	333,037	$	6,354	$	6,448	$	—	$	345,839

14. Contingencies

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended December 30, 2017
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net sales $ 159,061
$ 13,743
$ 286,424
$ (17,217 ) $ 442,011
Cost of goods sold and occupancy 125,479
11,816
189,051
(16,172 ) 310,174
Gross profit 33,582
1,927
97,373
(1,045 ) 131,837
Selling, general and administrative expenses 36,639
3,905
69,817
(1,045 ) 109,316
Operating income (loss) (3,057 ) (1,978 ) 27,556
—
22,521
Interest expense (7,385 ) (16 ) (4 ) —
(7,405 )
Interest income 186
1
—
—
187
Other (expense) income (2,918 ) 54
(225 ) —
(3,089 )
Income (loss) before taxes and equity in earnings (losses) of affiliates (13,174 ) (1,939 ) 27,327
—
12,214
Income tax expense (benefit) 14,425
1,282
(29,943 ) —
(14,236 )
Equity in earnings (losses) of affiliates 53,846
—
(2,900 ) (50,946 ) —
Net income (loss) including noncontrolling interest 26,247
(3,221 ) 54,370
(50,946 ) 26,450
Net income attributable to noncontrolling interest —
203
—
—
203
Net income (loss) attributable to Central Garden & Pet Company $ 26,247
$ (3,424 ) $ 54,370
$ (50,946 ) $ 26,247

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended December 24, 2016
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net sales $ 155,518
$ 14,024
$ 266,438
$ (16,482 ) $ 419,498
Cost of goods sold and occupancy 121,136
11,678
181,440
(15,434 ) 298,820
Gross profit 34,382
2,346
84,998
(1,048 ) 120,678
Selling, general and administrative expenses 35,965
3,664
62,159
(1,048 ) 100,740
Operating income (loss) (1,583 ) (1,318 ) 22,839
—
19,938
Interest expense (6,851 ) (17 ) (5 ) —
(6,873 )
Interest income 38
—
—
—
38
Other expense (603 ) (193 ) (171 ) —
(967 )
Income (loss) before taxes and equity in earnings (losses) of affiliates (8,999 ) (1,528 ) 22,663
—
12,136
Income tax expense (benefit) (3,192 ) (411 ) 7,950
—
4,347
Equity in earnings (losses) of affiliates 13,444
—
(811 ) (12,633 ) —
Net income (loss) including noncontrolling interest 7,637
(1,117 ) 13,902
(12,633 ) 7,789
Net income attributable to noncontrolling interest —
152
—
—
152
Net income (loss) attributable to Central Garden & Pet Company $ 7,637
$ (1,269 ) $ 13,902
$ (12,633 ) $ 7,637

CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended December 30, 2017
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net income (loss) $ 26,247
$ (3,221 ) $ 54,370
$ (50,946 ) $ 26,450
Other comprehensive income (loss):
Foreign currency translation 44
43
(16 ) (27 ) 44
Total comprehensive income (loss) 26,291
(3,178 ) 54,354
(50,973 ) 26,494
Comprehensive income attributable to noncontrolling interests —
203
—
—
203
Comprehensive income (loss) attributable to Central Garden & Pet Company $ 26,291
$ (3,381 ) $ 54,354
$ (50,973 ) $ 26,291

CONSOLIDATING CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended December 24, 2016
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net income (loss) $ 7,637
$ (1,117 ) $ 13,902
$ (12,633 ) $ 7,789
Other comprehensive loss:
Foreign currency translation
(508 )
(355 )
(50 )
405

(508 )
Total comprehensive income (loss) 7,129
(1,472 ) 13,852
(12,228 ) 7,281
Comprehensive income attributable to noncontrolling interests —
152
—
—
152
Comprehensive income (loss) attributable to Central Garden & Pet Company $ 7,129
$ (1,624 ) $ 13,852
$ (12,228 ) $ 7,129

CONSOLIDATING CONDENSED BALANCE SHEET
December 30, 2017
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
ASSETS
Cash and cash equivalents $ 277,608
$ 5,858
$ —
$ —
$ 283,466
Restricted cash 12,419
—
—
—
12,419
Accounts receivable, net 89,039
5,617
140,419
—
235,075
Inventories 141,788
12,723
285,910
—
440,421
Prepaid expenses and other 6,645
1,059
14,815
—
22,519
Total current assets 527,499
25,257
441,144
—
993,900
Land, buildings, improvements and equipment, net 35,972
4,180
139,078
—
179,230
Goodwill 15,058
—
241,217
—
256,275
Other long-term assets 55,752
2,032
143,741
(13,578 ) 187,947
Intercompany receivable 38,956
—
677,979
(716,935 ) —
Investment in subsidiaries 1,437,506
—
—
(1,437,506 ) —
Total $ 2,110,743
$ 31,469
$ 1,643,159
$ (2,168,019 ) $ 1,617,352
LIABILITIES AND EQUITY
Accounts payable $ 40,775
$ 9,241
$ 74,567
$ —
$ 124,583
Accrued expenses 45,973
2,313
51,718
—
100,004
Current portion of long-term debt —
—
372
—
372
Total current liabilities 86,748
11,554
126,657
—
224,959
Long-term debt 690,839
—
125
—
690,964
Intercompany payable 663,241
53,694
—
(716,935 ) —
Losses in excess of investment in subsidiaries —
—
29,069
(29,069 ) —
Other long-term obligations 8,026
—
45,030
(13,578 ) 39,478
Total Central Garden & Pet shareholders’ equity (deficit) 661,889
(33,841 ) 1,442,278
(1,408,437 ) 661,889
Noncontrolling interest —
62
—
—
62
Total equity (deficit) 661,889
(33,779 ) 1,442,278
(1,408,437 ) 661,951
Total $ 2,110,743
$ 31,469
$ 1,643,159
$ (2,168,019 ) $ 1,617,352

CONSOLIDATING CONDENSED BALANCE SHEET
December 24, 2016
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
ASSETS
Cash and cash equivalents $ 1,772
$ 3,997
$ 812
$ —
$ 6,581
Restricted cash 10,981
—
—
—
10,981
Accounts receivable, net 72,850
6,919
112,455
—
192,224
Inventories 137,615
15,435
277,121
—
430,171
Prepaid expenses and other 7,972
897
13,530
—
22,399
Total current assets 231,190
27,248
403,918
—
662,356
Land, buildings, improvements and equipment, net 39,384
3,858
126,594
—
169,836
Goodwill 15,058
—
215,327
—
230,385
Other long-term assets 44,012
3,542
129,849
(23,226 ) 154,177
Intercompany receivable 38,559
—
586,588
(625,147 ) —
Investment in subsidiaries 1,251,408
—
—
(1,251,408 ) —
Total $ 1,619,611
$ 34,648
$ 1,462,276
$ (1,899,781 ) $ 1,216,754
LIABILITIES AND EQUITY
Accounts payable $ 46,208
$ 7,146
$ 81,883
$ —
$ 135,237
Accrued expenses 42,223
1,362
50,909
—
94,494
Current portion of long-term debt 22
—
375
—
397
Total current liabilities 88,453
8,508
133,167
—
230,128
Long-term debt 394,564
—
447
—
395,011
Intercompany payable 575,187
49,960
—
(625,147 ) —
Losses in excess of investment in subsidiaries —
—
21,014
(21,014 ) —
Other long-term obligations 2,158
—
52,727
(23,226 ) 31,659
Total Central Garden & Pet shareholders’ equity (deficit) 559,249
(24,527 ) 1,254,921
(1,230,394 ) 559,249
Noncontrolling interest —
707
—
—
707
Total equity (deficit) 559,249
(23,820 ) 1,254,921
(1,230,394 ) 559,956
Total $ 1,619,611
$ 34,648
$ 1,462,276
$ (1,899,781 ) $ 1,216,754

CONSOLIDATING CONDENSED BALANCE SHEET
September 30, 2017
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
ASSETS
Cash and cash equivalents $ 19,238
$ 11,693
$ 1,466
$ —
$ 32,397
Restricted cash 12,645
—
—
—
12,645
Accounts receivable, net 78,692
5,586
153,590
—
237,868
Inventories 125,797
9,493
246,811
—
382,101
Prepaid expenses and other assets 6,059
811
11,175
—
18,045
Total current assets 242,431
27,583
413,042
—
683,056
Land, buildings, improvements and equipment, net 38,170
4,225
138,518
—
180,913
Goodwill 15,058
—
241,217
—
256,275
Other long-term assets 61,715
2,376
146,372
(23,801 ) 186,662
Intercompany receivable 36,606
—
662,137
(698,743 ) —
Investment in subsidiaries 1,383,633
—
—
(1,383,633 ) —
Total $ 1,777,613
$ 34,184
$ 1,601,286
$ (2,106,177 ) $ 1,306,906
LIABILITIES AND EQUITY
Accounts payable $ 36,760
$ 3,076
$ 63,447
$ —
$ 103,283
Accrued expenses and other liabilities 54,909
2,391
59,249
—
116,549
Current portion of long term debt —
—
375
—
375
Total current liabilities 91,669
5,467
123,071
—
220,207
Long-term debt 395,160
—
118
—
395,278
Intercompany payable 647,409
51,334
—
(698,743 ) —
Losses in excess of investment in subsidiaries —
—
19,782
(19,782 ) —
Other long-term obligations 7,689
—
70,391
(23,801 ) 54,279
Total Central Garden & Pet shareholders’ equity (deficit) 635,686
(24,073 ) 1,387,924
(1,363,851 ) 635,686
Noncontrolling interest —
1,456
—
—
1,456
Total equity (deficit) 635,686
(22,617 ) 1,387,924
(1,363,851 ) 637,142
Total $ 1,777,613
$ 34,184
$ 1,601,286
$ (2,106,177 ) $ 1,306,906

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended December 30, 2017
(in thousands)
Parent
Non-
Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net cash provided (used) by operating activities $ (38,709 ) $ (105 ) $ 20,988
$ (6,387 ) $ (24,213 )
Additions to property and equipment (1,608 ) (83 ) (6,495 )

(8,186 )
Change in restricted cash and cash equivalents 226
—

—
226
Investments (6,555 ) —

—
(6,555 )
Other investing activities (1,200 ) —
—
—
(1,200 )
Intercompany investing activities (2,351 ) —
(15,842 ) 18,193
—
Net cash used by investing activities (11,488 ) (83 ) (22,337 ) 18,193
(15,715 )
Repayments on revolving line of credit (23,000 ) —
—
—
(23,000 )
Borrowings under revolving line of credit 23,000
—
—
—
23,000
Issuance of long-term debt 300,000
—
—
—
300,000
Repayments under long-term debt —
—
(7 ) —
(7 )
Payment of financing costs
(4,558 )
—

—

—

(4,558 )
Repurchase of common stock (2,768 ) —
—
—
(2,768 )
Distribution to parent

(6,387 ) —
6,387
—
Distribution to noncontrolling interest

(1,597 ) —
—
(1,597 )
Payment of contingent consideration liability

—
(93 ) —
(93 )
Intercompany financing activities 15,833
2,360

(18,193 ) —
Net cash provided (used) by financing activities 308,507
(5,624 ) (100 ) (11,806 ) 290,977
Effect of exchange rate changes on cash and cash equivalents 60
(23 ) (17 ) —
20
Net increase (decrease) in cash and cash equivalents 258,370
(5,835 ) (1,466 ) —
251,069
Cash and cash equivalents at beginning of period 19,238
11,693
1,466
—
32,397
Cash and cash equivalents at end of period $ 277,608
$ 5,858
$ —
$ —
$ 283,466

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended December 24, 2016
(in thousands)
Parent
Non-Guarantor
Subsidiaries

Guarantor
Subsidiaries
Eliminations Consolidated
Net cash (used) provided by operating activities $ (27,540 ) $ (4,428 ) $ 22,731
$ (4,076 ) $ (13,313 )
Additions to property, plant and equipment (1,831 ) (110 ) (11,027 ) —
(12,968 )
Payments to acquire companies, net of cash acquired (60,042 ) —

—
(60,042 )
Change in restricted cash and cash equivalents (71 ) —
—
—
(71 )
Proceeds from sale of plant assets 2
7,958
7,960
Investments
(2,000 )

(2,000 )
Other investing activities (265 )

(265 )
Intercompany investing activities (5,781 ) —
(19,214 ) 24,995
—
Net cash used by investing activities (69,988 ) (110 ) (22,283 ) 24,995
(67,386 )
Repayments under revolving line of credit (1,000 ) —

—
(1,000 )
Borrowings under revolving line of credit 1,000
—
—
—
1,000
Issuance of long-term debt (66 ) —
(8 ) —
(74 )
Excess tax benefits from stock-based awards 4,356
—
—
—
4,356
Repurchase of common stock (7,913 )

—

(7,913 )
Distribution to parent —
(4,076 ) —
4,076
—
Distribution to noncontrolling interest —
(1,018 ) —
—
(1,018 )
Payment of contingent consideration
—

—

(860 )
—

(860 )
Intercompany financing activities 21,223
3,772
—
(24,995 ) —
Net cash provided (used) by financing activities 17,600
(1,322 ) (868 ) (20,919 ) (5,509 )
Effect of exchange rates on cash (458 ) 162
103
—
(193 )
Net decrease in cash and cash equivalents (80,386 ) (5,698 ) (317 ) —
(86,401 )
Cash and cash equivalents at beginning of year 82,158
9,695
1,129
—
92,982
Cash and cash equivalents at end of year $ 1,772
$ 3,997
$ 812
$ —
$ 6,581


~~13.~~	~~Contingencies~~

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

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the United States District Court for New Jersey against the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the three claims and awarded damages of approximately $12.6 million. The case is currently in the post-trial motion phase of proceedings and is expected to proceed to appeal once all such motions have been resolved. Unless the verdicts are over-turned in the post-trial proceedings, the Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.

During fiscal 2013, the Company received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking unclaimed property subject to escheat laws, the states may seek interest, penalties and other relief. The examinations are at an early stage and, as such, management is unable to determine the impact, if any, on the Company’s financial position or results of operations.

In November 2019, the Company's DMC business unit in its Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 million to $40 million.

As of March 28, 2020, the Company had incurred losses of approximately $25 million and received approximately $19 million in insurance proceeds. As such, the Company had approximately $6 million of cost in excess of insurance proceeds recorded on its balance sheet as of March 28, 2020. The Company believes its insurance coverage is sufficient to cover the asset losses as well as the business interruption loss associated with this event.

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

15. Subsequent Events


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

In April 2020, the Company’s DMC business unit in its Pet Segment experienced a fire in one of its leased properties located in Athens, Texas. As a result, the Company sustained inventory and property-related losses estimated to be approximately $10 million. This event has temporarily had a limited impact on the Company’s ability to fulfill orders to certain of its customers.

Over the last few months, the Company has seen the effects a novel strain of coronavirus (“COVID-19”) is having globally on human health, the economy and society at large. The impact of COVID-19 and measures to prevent its spread are affecting the Company’s business in a number of ways. Central is considered an essential business in most jurisdictions and almost all of its employees continue to work to meet essential needs. The Company has been actively addressing the COVID-19 situation and its impact on its employees and business.

Subsequent to quarter end, the Company borrowed $200 million under its revolving credit facility to increase financial flexibility while it navigates an uncertain COVID-19 economic environment.

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, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States. The total annual retail sales of the pet food, treats & chews, supplies and ~~supplies~~live animal industry in ~~2016~~2018 was estimated by Packaged Facts and the pet industry to have been approximately ~~$55.9 billion in annual retail sales.~~$51.9 billion. We estimate the annual retail sales of the pet supplies, live animal, and ~~consumables~~treats & chews and natural pet food markets in the categories in which we participate to be approximately ~~$28.0~~$27.4 billion. The total lawn and garden consumables, ~~and~~ decorative products, live plant and outdoor cushions and pillows industry in the United States is estimated by Packaged Facts, The Freedonia Group and TechNavio to behave been approximately ~~$27.6~~$23.3 billion in annual retail sales in 2018, including fertilizer, pesticides, growing media, seeds, mulch, other consumables, decorative products, live plants and ~~decorative products.~~outdoor cushions and pillows. We estimate the annual retail sales of the lawn and garden consumables, ~~and~~ decorative products and live plant markets in the categories in which we participate to be approximately ~~$18.9~~$16.3 billion.

Our pet supplies products include products for dogs and cats, including edible bones, premium healthy edible and non-edible chews, ~~super premium~~natural 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; live fish and 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 brands including ~~Adams~~^™Adams™, ~~Aqueon~~^®Aqueon®, ~~Avoderm~~^®Avoderm®, ~~Bio Spot Active Care~~^™C&S Products®, ~~Cadet~~^®Cadet®, ~~Farnam~~^®Farnam®, Four ~~Paws~~^®Paws®, ~~Kaytee~~^®Kaytee®, K&H Pet ~~Products~~^®Products®, ~~Nylabone~~^®Nylabone®, ~~Pinnacle~~^®Pinnacle®, ~~TFH~~^™TFH™, ~~Zilla~~^®Zilla® as well as a number of other brands including ~~Altosid~~^®Altosid®, Comfort ~~Zone~~^®Zone®, ~~Coralife~~^®Coralife®, ~~Interpet~~^®~~, Kent Marine~~^®Interpet®, Pet ~~Select~~^®~~, Super Pet~~^®,Select® and ~~Zodiac~~^®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, and other herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle products including pottery, ~~trellises~~as well as live plants and ~~other wood products.~~outdoor cushions and pillows. These products are sold under the brands ~~AMDRO~~^®AMDRO®, ~~Ironite~~^®Arden Companies™, ~~Pennington~~^®Ironite®, Pennington®, and ~~Sevin~~^®Sevin®, as well as a number of other brand names including Lilly ~~Miller~~^®Miller®, ~~Over-N-Out~~^®Over-N-Out®, Smart ~~Seed~~^®Seed® and The ~~Rebels~~^®Rebels®.

In fiscal ~~2017,~~2019, our consolidated net sales were ~~$2,054~~$2,383 million, of which our Pet segment, or Pet, accounted for approximately ~~$1,246~~$1,385 million and our Garden segment, or Garden, accounted for approximately ~~$808~~$998 million. In fiscal ~~2017,~~2019, our operating income was ~~$156~~$152 million consisting of income from our Pet segment of ~~$132~~$123 million, income from our Garden segment of ~~$87~~$102 million and corporate expenses of ~~$63~~$73 million.

We were incorporated in Delaware in May 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 ~~2018 First~~2020 Second Quarter Financial Performance:

•Net sales increased ~~$22.5~~$29.5 million, or ~~5.4%~~4.4%, from the prior year quarter to ~~$442.0~~$703.2 million .due primarily to the inclusion of two acquisitions that were not part of the second quarter fiscal 2019 results. Pet segment sales increased ~~$21.1~~$22.6 million, and Garden segment sales increased ~~$1.4~~$6.9 million.

•Organic net sales ~~improved~~ 1%increased 0.5%.

Our Pet segment organic net sales increased 3.8% and our Garden segment's declined 2.8%.

•Gross profit increased $1.1 million, and gross margin ~~increased 100~~declined 110 basis points to ~~29.8%, and gross profit increased $11.2 million.~~29.5%.

•Selling, general & administrative expense ~~increased $8.6~~declined $2.9 million to ~~$109.3 million.~~$141.0 million and decreased as a percentage of net sales 130 basis points to 20.1%.

•Operating income ~~improved $2.6~~increased $3.9 million ~~or 13.0%,~~ from the prior year quarter, to ~~$22.5~~$66.1 million in the ~~first~~second quarter of fiscal ~~2018. Excluding the gain on the sale of a facility in the prior year quarter, operating income improved $4.6 million.~~2020.

~~Our net~~•Net income in the ~~first~~second quarter of fiscal ~~2018~~2020 was ~~$26.2~~$42.7 million, or ~~$0.50~~$0.78 per diluted share, compared to ~~$7.6~~net income of $42.4 million, or ~~$0.15~~$0.73 per diluted share, in the ~~first~~second quarter of fiscal ~~2017.~~2019.

~~Adjusting~~DMC Business Unit

In November 2019, our DMC business unit in our Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 - $40 million. We had approximately $6 million of cost in excess of insurance proceeds recorded on our balance sheet at quarter end. We currently believe our insurance coverage is sufficient to cover the asset losses as well as the business interruption loss associated with this event.

In April 2020, our DMC business unit in our Pet segment experienced a second fire in one of its leased properties located in Athens, Texas. As a result, we sustained inventory and property-related losses estimated to be approximately $10 million. This event has temporarily had a limited impact on our ability to fulfill orders to certain of our customers. We currently believe our insurance coverage is sufficient to cover the asset losses as well as the business interruption loss associated with this event.

COVID-19 Impact

Over the last few months, we have seen the effects a novel strain of coronavirus (“COVID-19”) is having globally on human health, the economy and society at large. The impact of COVID-19 and measures to prevent its spread are affecting our business in a number of ways. Central is considered an essential business in most jurisdictions and almost all of our employees continue to work to meet essential needs. We have been actively addressing the COVID-19 situation and its impact on our employees and business.

From the beginning, our priority has been the safety of our employees, customers and consumers. We are proud of all that our employees have done to prioritize the health and safety of fellow team members while collaborating across the business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers. To that end, we mobilized a cross-functional task force focused on understanding and communicating the critical issues related to the COVID-19 pandemic to mitigate the potential impacts to our people and business.

Our teams have worked hard to do the following:

•Ensure constant communication and regularly share pertinent information around health, safety and benefits;

•Take extra precautions in our manufacturing facilities, distribution centers and offices with guidance from health authorities including social distancing, staggering shifts, procuring necessary personal protection equipment, partitions, sanitation supplies and investing in regular deep cleanings of our facilities;

•Implemented travel restrictions and work-from-home policies for employees who have the ability to work from home in accordance with shelter-in-place orders; and

•Adhere to all local, state and federal requirements.

Central is seeing varying impacts to our Garden and Pet businesses due to COVID-19. In March, we experienced increased demand in pet consumables due to consumers stocking up on products as the COVID-19 shelter-in-place mandates were implemented. We also saw

reduced consumption on other items, such as live fish and live plants, due to in-store curtailments of foot traffic and limited access to outdoor garden departments. The garden business is seasonal and the timing of the COVID-19 outbreak is occurring during the garden season. Additionally, we saw a pronounced shift to the e-commerce channel and a slow-down in brick and mortar retailers.

Our facilities have largely been exempt or partially exempt from government closure orders. We have experienced temporary closures of certain facilities, though there has not been a material impact from a plant closure to date. At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the current pandemic. The pandemic and near-term increase in demand has created operational challenges for our distribution network, though none have had a material impact on our results to date. In our supply chain, it is possible we will experience increased operational and logistics costs, though these did not have a material impact on our second fiscal quarter results. We may experience additional disruptions in our supply chain as the pandemic continues, though we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.

We believe we are financially strong and expect to be able to maintain adequate liquidity as we manage through the current economic and health environment. As of March 28, 2020, we had approximately $330 million in cash. We also have a revolving credit facility that provides up to a $400 million principal amount with an additional $200 million available with the consent of the lenders. As of March 28, 2020, there were no borrowings outstanding under the Credit Facility. Subsequent to quarter end, we borrowed $200 million under our revolving credit facility to increase financial flexibility while we navigate an uncertain COVID-19 economic environment.

We anticipate many small customers may permanently close, and we may experience collection delinquencies as customers seek to preserve liquidity. Additionally, we have small company equity method investees, intangible assets and other long-lived assets whose value is dependent on cashflows. These investments and other assets could be impacted by the COVID-19 pandemic and, therefore, may be more susceptible to impairment. Management's assessment of possible asset impairment involves numerous assumptions that involve significant judgment. As a result of the uncertainties associated with the COVID-19 pandemic, the shelter-in-place orders and the post-COVID-19 economic recovery, these factors will be even more difficult to estimate. Although no impairment charges were indicated or recorded in our second fiscal quarter, we may be required to write-off certain assets that could be material in future periods.

As a result of the COVID-19 pandemic and its current impact on society and the global economic environment, our work on developing our Vision 2025 strategy has been slowed, and we now expect to communicate that strategy in late 2020.

While the unfavorable impact of COVID-19 began to adversely affect the performance in certain portions of our portfolio in March, we expect that most of the impact ~~of the Tax Reform Act~~ on our deferred tax accounts in the first quarter of fiscal 2018 and for the gain from the sale of a distribution facility in the first quarter of fiscal 2017, our net income in the first quarter of fiscal 2018 was $9.9 million, or $0.19 per diluted share, compared to $6.3 million, or $0.12 per diluted share, in the first quarter of fiscal 2017.

~~Issuance of 2028 Notes:~~

•In December 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028. We intend to use the net proceeds to finance acquisitions of suitable businesses and for general corporate purposes.

~~Use of Non-GAAP Financial Measures~~

~~We report~~ our financial results will be in ~~accordance with U.S. generally accepted accounting principles (GAAP). However, to supplement~~our third and fourth fiscal quarters. As a result of the ~~financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP operating income on~~COVID-19 customer and consumer impact, a consolidated and segment basis and non-GAAP net income and diluted net income per share. Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their assessmentfew of our ~~ongoing operating performance~~businesses experienced demand head winds in March which continued into April, and ~~provide additional meaningful comparisons between~~it is difficult to predict when more normal order patterns may return. These businesses include our live animal, live plant, pet bedding and aquatics businesses and our UK operations. In the current ~~results~~uncertain environment, our employees, customers and ~~results in prior operating periods.~~

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below. We believe that the non-GAAP financial measures provide useful information to investors and other users ofconsumers will be our financial statements, by allowing for greater transparency in the review of our financial and operating performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance, andpriority as we ~~believe these measures similarly may be useful to investors in evaluating our financial and operating performance and the trends in~~manage our business ~~from management's point of view. While our management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended~~ to replace our GAAP financial results and should be read in conjunction with those GAAP results. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis, because such reconciliation cannot be done without unreasonable efforts due to the potential significant variability and limited visibility of the excluded items discussed below. deliver long-term growth.

~~Non-GAAP financial measures reflect adjustments based on the following items:~~

The U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Job Act (the "Tax Reform Act") in December 2017. We have excluded the transitional impact of the Tax Reform Act as the remeasurement of our deferred tax assets and liabilities does not reflect the ongoing impact of the lower U.S. statutory rate on our current year earnings.

Gains or losses on disposals of significant plant assets: we have excluded the impact of gains or losses on the disposal of facilities as these represent infrequent transactions that impact comparability between operating periods. We believe the adjustment of these gains or losses supplements the GAAP information with a measure that may be used to help assess the sustainability of our continuing operating performance.

Tax impact: the adjustment represents the impact of the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income. The tax impact of the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment.

We have also provided organic net sales, a non-GAAP measure that excludes the impact of businesses purchased or exited in the prior 12 months, because we believe it permits investors to better understand the performance of our historical business without the impact of recent acquisitions or dispositions.

~~From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.~~

~~The non-GAAP adjustments reflect the following:~~


~~(1)~~	Transitional impact of U.S. Tax Reform: As a result of the Tax Reform Act, the Company recorded a provisional tax benefit of $16.3 million due to the remeasurement of its deferred tax assets and liabilities. We have excluded only this transitional impact and have not included in the adjustment the ongoing impact of the lower U.S. statutory rate on our current year earnings.


~~(2)~~	During the first quarter of fiscal 2017, we recorded a $2.0 million gain in our Garden segment from the sale of a distribution facility resulting from rationalizing our facilities to reduce excess capacity. This adjustment was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations.

Operating Income Reconciliation
GAAP to Non-GAAP Reconciliation
(in thousands)
For the Three Months Ended

Consolidated
Garden

December 30, 2017
December 24, 2016
December 30, 2017
December 24, 2016
GAAP operating income
$ 22,521

$ 19,938

$ 2,300

$ 2,676
Gain on sale of distribution facility
⁽²⁾
—

(2,050 )
—

(2,050 )
Non-GAAP operating income
$ 22,521

$ 17,888

$ 2,300

$ 626
GAAP operating margin
5.1 %
4.8 %
2.0 %
2.3 %
Non-GAAP operating margin
5.1 %
4.3 %
2.0 %
0.5 %

GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
December 30, 2017 December 24, 2016
GAAP net income attributable to Central Garden & Pet
$ 26,247
$ 7,637
Gain on sale of distribution facility
⁽²⁾
—
(2,050 )
Tax effect of sale of distribution facility adjustment
—

734
Tax effect of revaluation of deferred assets
⁽¹⁾
16,343
—
Total impact on net income from non-GAAP adjustments
16,343
(1,316 )
Non-GAAP net income attributable to Central Garden & Pet
$ 9,904
$ 6,321
GAAP diluted net income per share
$ 0.50
$ 0.15
Non-GAAP diluted net income per share
$ 0.19
$ 0.12
Shares used in GAAP and non-GAAP diluted net earnings per share calculation
52,695
51,810

~~Organic Net Sales Reconciliation~~

We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical business. We define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months. After an acquired business has been part of our consolidated results for 12 months, the change in net sales thereafter is considered part of the increase or decrease in organic net sales.

GAAP to Non-GAAP Reconciliation
(in millions)
For the Three Months Ended December 30, 2017

Consolidated
Pet Segment

Percentage change

Percentage change

Reported net sales - Q1 FY18 (GAAP)
$ 442.0

$ 325.1

Reported net sales - Q1 FY17 (GAAP)
419.5

304.0

Increase in net sales
22.5

5.4 %
21.1

6.9 %
Effect of acquisition and divestitures on increase in net sales
17.7

4.3 %
17.7

5.8 %
Increase in organic net sales - Q1 2018
$ 4.8

1.1 %
$ 3.4

1.1 %

Results of Operations

Three Months Ended ~~December 30, 2017~~March 28, 2020

Compared with Three Months Ended ~~December 24, 2016~~March 30, 2019

Net Sales

Net sales for the three months ended ~~December 30, 2017~~March 28, 2020 increased ~~$22.5~~$29.5 million, or ~~5.4%~~4.4%, to ~~$442.0~~$703.2 million from ~~$419.5~~$673.7 million for the three months ended ~~December 24, 2016. Our branded product sales increased $17.1 million, and sales of other manufacturers’ products increased $5.4 million.~~March 30, 2019. Organic net sales, which excludes the impact of acquisitions and divestitures in the last 12 months, increased ~~$4.8~~$3.4 million, or ~~1.1%~~0.5%, as compared to the fiscal ~~2016~~2019 quarter. Our branded product sales increased $9.7 million, and sales of other manufacturers’ products increased $19.8 million.

Pet net sales increased ~~$21.1~~$22.6 million, or ~~6.9%~~6.7%, to ~~$325.1~~$360.8 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~$304.0~~$338.2 million for the three months ended ~~December 24, 2016.~~March 30, 2019. The increase in net sales was due to a $12.7 million, or 3.8%, increase in organic net sales and $9.9 million of sales from C&S Products, which we acquired in May 2019. The increase in organic net sales was due primarily to a volume-based sales increase in our dog and cat business and in third-party sales. Both businesses were aided by COVID-19 related consumable pantry loading, and, for our dog and cat business, the increased sales occurred despite headwinds from a fire in one of our pet bedding facilities in the first quarter of fiscal 2020. These increases were partially offset by lower sales in our live fish business due to a major retailer's decision in 2019 to exit the live fish business, and the COVID-19 negative impact on the access to live fish at retailers. Pet branded product sales increased $15.6 million, and sales of other manufacturers' products increased $7.0 million.

Garden net sales increased $6.9 million, or 2.1%, to $342.4 million for the three months ended March 28, 2020 from $335.5 million for the three months ended March 30, 2019. The increase in net sales was due primarily to sales from Arden, which became 100% owned due to our ~~acquisitions~~acquisition of the remaining equity interest in fiscal 2017. Pet organic net sales increased 1.1%. Organic net sales growth was due primarily to increased sales in the e-commerce channel. Pet branded product sales increased $16.6 million due primarily to the two recent acquisitions and, to a lesser extent, organic net sales growth.

Garden net sales increased $1.4 million, or 1.3%, to $116.9 million for the three months ended December 30, 2017 from $115.5 million for the three months ended December 24, 2016. The net sales increase was all organic. Garden branded product sales increased $0.5 million, due primarily to increased sales in our control & fertilizer businessFebruary 2019, partially offset by ~~a decline~~lower organic sales, which decreased $9.3 million, or 2.8%. The decrease in ~~wild bird feed. Sales~~Garden organic sales was due to lower grass seed sales, impacted by the loss of customer promotion support due to COVID-19, lost distribution and lower in-store traffic due to COVID-19, and our exit of the fashion decor pottery product line in mid-2019. These decreases were partially offset by increased sales of third-party products. Garden branded sales decreased $5.9 million, and sales of other ~~manufacturers’~~manufacturers' products increased ~~$0.9~~$12.8 million.

Gross Profit

Gross profit for the three months ended ~~December 30, 2017~~March 28, 2020 increased ~~$11.2~~$1.1 million, or ~~9.2%~~0.5%, to ~~$131.8~~$207.1 million from ~~$120.6~~$206.1 million for the three months ended ~~December 24, 2016.~~March 30, 2019. Gross margin ~~increased 100~~declined 110 basis points to ~~29.8%~~29.5% for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~28.8%~~30.6% for the three months ended ~~December 24, 2016. Both operating~~March 30, 2019. The gross profit increase was due to the Pet segment while both segments contributed to the gross margin decline.

In the Pet segment, gross profit increased but gross margin declined. The gross profit increase was due primarily to recently acquired C&S Products.The gross margin decline was due primarily to lower sales in our live fish business, impacted by a major retailer’s decision in 2019 to exit the live fish business and the impact of COVID-19 on deemed non-essential retail products, and the negative impact on product mix of increased sales of third-party products.

In the Garden segment, both gross profit and ~~improved~~ gross ~~margin. The increase in~~margin declined. Both gross profit and gross margin were negatively impacted by an unfavorable sales mix due primarily to reduced sales and a lower gross margin in our ~~Garden segment was due primarily to improved gross margins in most of~~grass seed business and our ~~Garden segment businesses, which benefited~~exit from ~~our cost savings initiatives, only partially offset by a decline in our wild bird feed business. The increase in our~~the fashion décor pottery product line.Additionally, gross margin ~~in our Pet segment~~ was ~~favorably~~negatively impacted by ~~our two fiscal 2017 acquisitions as their gross margins were above the Pet segment's as a whole and by improved margins.~~increased third-party sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~increased $8.6~~decreased $2.9 million, or ~~8.5%~~2.0%, to ~~$109.3~~$141.0 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~$100.7~~$143.9 million for the three months ended ~~December 24, 2016. Increased~~March 30, 2019. Selling, general and administrative expense decreased in both operating segments ~~in the quarter was~~ partially offset by ~~a minor decrease at Corporate.~~an increase in corporate expense. As a percentage of net sales, selling, general and administrative expenses ~~increased~~decreased to ~~24.7%~~20.1% for the three months ended ~~December 30, 2017,~~March 28, 2020, compared to ~~24.0%~~21.4% in the comparable prior year quarter.

Selling and delivery expense ~~increased $3.4 million, or 6.9%, to $53.9~~was relatively flat at $71.8 million for the three months ended ~~December 30, 2017~~March 28, 2020 as compared to the prior year quarter.Increased costs from ~~$50.5~~our two recent acquisitions were offset by cost saving initiatives enacted in response to a retailer’s exit from the live fish business and our exit from the fashion décor pottery product line in 2019.

Warehouse and administrative expense decreased $2.8 million, or 3.9%, to $69.2 million for the three months ended December 24, 2016. The increase in selling and delivery was primarily in our Pet segment due primarily to our two recent acquisitions. Secondarily, selling and delivery expenses increased in both Pet and Garden segments due primarily to increased investment in selling and marketing activities.

~~Warehouse and administrative expense increased $5.2 million, or 10.4%, to $55.4 million for the quarter ended December 30, 2017~~March 28, 2020 from ~~$50.2~~$72.0 million for the three months ended ~~December 24, 2016. Increased expense~~March 30, 2019. In our operating segments, cost reductions in response to a retailer’s exit from the ~~Pet segment,~~live fish business, our exit from the fashion décor pottery product line in 2019 and an insurance settlement more than offset costs from our two recent acquisitions.Corporate expenses increased $2.3 million due primarily to ~~the two acquisitions made in fiscal 2017,~~increased medical insurance and ~~increased expense in the Garden segment, due primarily to a $2.0 million gain from the sale of a distribution facility in the prior year quarter, was offset by a slight decrease at Corporate.~~equity compensation costs. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resources, and information technology functions.

Operating Income

Operating income increased ~~$2.6~~$3.9 million to ~~$22.5~~$66.1 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~$19.9~~$62.2 million for the three months ended ~~December 24, 2016. Increased~~March 30, 2019. The increase in operating income was attributable to increased sales ~~of $22.5 million~~ and ~~an improved gross margin were~~lower selling, general and administrative costs partially offset by a ~~$8.6 million~~lower gross margin. Our operating margin increased from 9.2% in the prior year quarter to 9.4% in the current year quarter due to an increase in sales and a 130 basis point decline in selling, general and administrative costs. Operating margin improved to 5.1% for the three months ended December 30, 2017 from 4.8% for the three months ended December 24, 2016 due to a 100 basis point improvement in gross margin partially offset by a 70 basis point increase in selling, general and administrative expensesexpense as a percentage of net ~~sales. Adjusting for the gain from the~~ sales of

partially offset by a ~~distribution facility~~110 basis point decline in ~~the prior year quarter, selling, general and administrative expenses increased 20 basis points for the quarter ended December 30, 2017 as compared to the prior year quarter.~~gross margin.

Pet operating income increased ~~$2.8~~$6.6 million, or ~~8.3%~~24.6%, to ~~$36.2~~$33.6 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~$33.4~~$27.0 million for the three months ended ~~December 24, 2016. The increase was~~March 30, 2019. Pet operating income increased due to increased sales, ~~of $21.1 million~~due to an acquisition and ~~an improved~~increased organic sales, increased gross ~~margin, partially offset by increased~~profit and decreased selling, general and administrative ~~expenses.~~costs. Pet operating margin increased ~~to 11.1% for the three months ended December 30, 2017 from 11.0% for the three months ended December 24, 2016~~130 basis points due to ~~an improved gross margin partially offset by~~ increased sales and lower selling, general and administrative ~~expenses~~expense as a percentage of net ~~sales.~~sales partially offset by a lower gross margin.

Garden operating income decreased $0.4 million, or 0.6%, to ~~$2.3~~$53.0 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~$2.7~~$53.4 million for the three months ended ~~December 24, 2016.~~March 30, 2019. Garden operating income decreased due to lower gross profit and increased selling, general and administrative expense that more than offset increased sales. Garden operating margin ~~decreased~~declined 40 basis points due to ~~2.0%~~a lower gross margin partially offset by lower selling, general and administrative expense as a percentage of sales.

Corporate operating expense increased $2.3 million, or 12.9%, to $20.5 million for the three months ended ~~December 30, 2017~~March 28, 2020 from ~~2.3%~~$18.2 million for the three months ended ~~December 24, 2016. Adjusting for the $2.0 million gain in the prior year quarter for the sale of a distribution facility, both Garden operating income~~March 30, 2019. Corporate expense increased due to increased medical insurance and ~~operating margin reflected improvement over the prior year quarter.~~

Corporate operating expense decreased $0.2 million to $16.0 million in the current year quarter from $16.2 million in the fiscal 2017 quarter due primarily to lower third party service provider expenses and legal accruals, partially offset by insurance related expenses.non-cash equity compensation expense.

Net Interest Expense

Net interest expense for the three months ended ~~December 30, 2017~~March 28, 2020 increased ~~$0.4~~$0.9 million, or ~~5.6%~~11.3%, to ~~$7.2~~$9.3 million from ~~$6.8~~$8.4 million for the three months ended ~~December 24, 2016.~~March 30, 2019. The increase in net interest expense was due to ~~higher average debt outstanding~~lower interest income from earnings on cash due to the lower rates available on our cash balance during the ~~current year~~ quarter. ~~In December 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028.~~

Debt outstanding on ~~December 30, 2017~~March 28, 2020 was ~~$691.3~~$693.7 million compared to ~~$395.4~~$697.8 million ~~as of December 24, 2016.~~at March 30, 2019.

Other ~~Expense~~Income (Expense)

Other ~~expense~~income (expense) is comprised of income or losses from investments accounted for under the equity method of accounting and foreign currency exchange gains and losses. Other expense ~~increased $2.1 million to $3.1 million for the quarter ended December 30, 2017, from~~was $1.0 million for the quarter ended ~~December 24, 2016 due~~March 28, 2020 compared to ~~losses recorded from two investments made in fiscal 2017. One~~income of ~~these investments, our largest joint venture investment, is seasonal in nature. As such, we expect other expense (income) to be more favorable in our second and third fiscal quarters.~~

~~Income Taxes~~

~~For the quarter ended December 30, 2017, we had an income tax benefit of $14.2~~$0.5 million ~~versus income tax expense of $4.3 million and an effective tax rate of 35.8%~~ for the quarter ended ~~December 24, 2016.~~

~~Three items impacted our income tax~~March 30, 2019. The change was due primarily to foreign exchange losses in the quarter ~~ended December 30, 2017:~~and the absence of income from our formerly held equity interest in Arden. The Arden business has been part of our consolidated results since our purchase of the remaining ownership interest in February 2019.

•~~The revaluation of net long-term deferred tax liabilities~~Income Taxes

•~~A lower expected corporate federal~~Our effective income tax rate was 22.7% for ~~three of our four quarters of our 2018 fiscal year~~

•~~The adoption of ASU 2016-09,~~ ~~Stock Compensation~~

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”). This guidance allows registrants a “measurement period,” not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Act. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Act. We have made reasonable estimates and recorded provisional amounts within the meaning of SAB 118. In subsequent periods, but within the measurement period, we will analyze that guidance and other necessary information to refine our estimates and complete our accounting for the tax effects of the Act.

~~Additionally, we adopted ASU 2016-09 during~~ the quarter ended ~~December~~March 28, 2020 compared to 21.3% for the quarter ended March 30, ~~2017. As a result, we now record excess~~2019. The higher effective income tax ~~benefits resulting from stock compensation~~rate in ~~the provision for income taxes. For~~ the current year quarter ~~this resulted~~was due primarily to a lower stock compensation benefit in ~~a further reduction of approximately one million dollars of income tax expense.~~

~~Our federal corporate tax rate for fiscal 2018 has declined to approximately 24.5% from 35% in fiscal 2017. The effective tax rate for~~ the current year quarter ended December 30, 2017 is a blended rate that reflects the estimated benefit of three quarters of federal tax rate reductions for fiscal 2018. We expect our effective tax rate to be approximately 27% in fiscal 2018, excluding the impact of discrete items which includes the revaluation of our deferred tax accounts and the adoption of ASU 2016-09, stock compensation.

Our first quarter of fiscal 2018 results include the impact of the December 2017 enactment of the Tax Reform Act which, among numerous provisions, included the reduction of the corporate federal income tax rate from 35% to 21%, effective January 1, 2018. As a result, we recorded a provisional tax benefit of ~~$16.3 million~~ ~~due~~compared to the ~~remeasurement of our net long-term deferred tax liabilities.~~prior year quarter.

Net Income and Earnings Per Share

Our net income in the ~~first~~second quarter of fiscal ~~2018~~2020 was ~~$26.2~~$42.7 million, or ~~$0.50~~$0.78 per diluted share, compared to ~~$7.6~~net income of $42.4 million, or ~~$0.15~~$0.73 per diluted share, in the ~~first~~second quarter of fiscal ~~2017.~~2019.

Six Months Ended March 28, 2020

Compared with Six Months Ended March 30, 2019

Net Sales

Net sales for the six months ended March 28, 2020 increased $50.4 million, or 4.4%, to $1,186.1 million from $1,135.7 million for the six months ended March 30, 2019. Organic net sales increased $2.5 million, or 0.2%, as compared to the prior year six month period. Our branded product sales increased $22.5 million, and sales of other manufacturers’ products increased $27.9 million.

Pet net sales increased $36.2 million, or 5.3%, to $714.8 million for the six months ended March 28, 2020 from $678.6 for the six months ended March 30, 2019. The increase in net sales was due to both organic growth and sales from C&S Products, which we acquired in May 2019. Organic net sales increased $17.1 million, or 2.5%, due primarily to increased sales of dog treats, aided by consumable pantry loading associated with COVID-19, and increased third-party sales. These increases were partially offset by lower pet bed sales, negatively impacted by the November 2019 fire in one of our pet bedding facilities, and lower sales of live fish, due to a major retailer's decision in 2019 to exit the live fish business and the negative retail impact of reduced or eliminated foot traffic associated with COVID-19. Pet branded sales increased $21.9 million, and sales of other manufacturer's products increased $14.3 million.

Garden net sales increased $14.2 million, or 3.1%, to $471.3 million for the six months ended March 28, 2020 from $457.1 million for the six months ended March 30, 2019. The increase in net sales was due primarily to sales from Arden, which became 100% owned due to our acquisition of the remaining equity interest in February 2019. Organic sales declined $14.6 million, or 3.2%, due primarily to lower grass seed sales, negatively impacted by competitive pressures and reduced promotions in response to lower in store traffic due to COVID-19, and our exit of the fashion decor pottery product line in mid-2019. These decreases were partially offset by increased sales of third-party products due to new listings and expanded distribution. Garden branded sales increased $0.6 million, and sales of other manufacturers’ products increased $13.6 million.

Gross Profit

Gross profit for the six months ended March 28, 2020 increased $2.2 million, or 0.6%, to $338.4 million from $336.2 million for the six months ended March 30, 2019. Gross margin decreased 110 basis points to 28.5% for the six months ended March 28, 2020 from 29.6% for the six months ended March 30, 2019. The Pet segment was the driver of the gross profit increase, while both operating segments contributed to the decline in gross margin.

In the Pet segment, gross profit increased due primarily to the acquisition of C&S Products and increased sales in dog treats and chews, partially offset by the impact of the lower sales volume in our live fish business. The decline in gross margin was due primarily to the impact of the lower sales volume in our live fish business, an unfavorable product mix in sales of dog treats and chews and increased sales of third-party products partially offset by the contribution from our acquisition of C&S Products.

In the Garden segment, both gross profit and gross margin were negatively impacted by reduced grass seed sales and our exit from of the fashion décor pottery product line, which was partially offset by the positive impact of the Arden acquisition. Additionally, gross margin was negatively impacted by increased third-party sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $6.3 million, or 2.4%, to $270.2 million for the six months ended March 28, 2020 from $263.9 million for the six months ended March 30, 2019 due primarily to increased corporate expense. As a percentage of net sales, selling, general and administrative expenses decreased to 22.8% for the six months ended March 28, 2020, from 23.2% for the comparable prior year six month period; both operating segments contributed to the improvement.

Selling and delivery expense increased $1.8 million, or 1.4%, to $134.4 million for the six months ended March 28, 2020 from $132.6 million for the six months ended March 30, 2019. The increase was due primarily to recent acquisitions partially offset by cost saving initiatives enacted in response to a retailer's exit from the live fish business and our exit from the fashion decor pottery product line in 2019.

Warehouse and administrative expense increased $4.5 million, or 3.4%, to $135.8 million for the six months ended March 28, 2020 from $131.3 million for the six months ended March 30, 2019. Increased expense from our two recent acquisitions and in corporate expense was partially offset by cost reduction initiatives enacted in response to a retailer’s exit from the live fish business and our exit from the fashion décor pottery product line in 2019. Corporate expense increased due primarily to increased third-party expenses, which included costs related to the development of our Vision 2025 plan and increased legal expense, increased medical insurance and equity compensation 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.

Operating Income

Operating income decreased $4.1 million to $68.2 million for the six months ended March 28, 2020 from $72.3 million for the six months ended March 30, 2019. Our operating margin decreased to 5.7% for the six months ended March 28, 2020 from 6.4% for the six months ended March 30, 2019. Increased sales of $50.4 million and a 40 basis point improvement in selling, general and administrative expense as a percentage of net sales were more than offset by a 110 basis point decline in gross margin.

Pet operating income increased $7.1 million, or 12.5%, to $63.8 million for the six months ended March 28, 2020 from $56.7 million for the six months ended March 30, 2019. Adjusting for the ~~provisional impact~~$2.5 million intangible asset impairment in fiscal 2019, operating income increased $4.6 million. The increase in operating income was due to increased net sales of $36.2 million partially offset by a decline in gross margin and an increase in selling, general and administrative expense.

Garden operating income declined $4.0 million, or 8.3%, to $44.7 million for the ~~Tax Reform Act on our deferred tax accounts~~six months ended March 28, 2020 from $48.7 million in the ~~first quarter of fiscal 2018 and~~six months ended March 30, 2019. Adjusting for the non-cash gain from the ~~sale~~fair value remeasurement of ~~a distribution facility~~our previously held investment interest upon our acquisition of the remaining 55% interest of Arden in the ~~first quarter~~prior six month period, garden operating income decreased $0.8 million. The decrease in operating income was due primarily to a lower gross margin partially offset by increased sales from the Arden acquisition.

Corporate operating expense increased $7.2 million to $40.3 million in the current six-month period from $33.1 million in the comparable fiscal 2019 period due primarily to increased third-party expenses, increased medical insurance and equity compensation expense.

Net Interest Expense

Net interest expense for the six months ended March 28, 2020 increased $1.5 million, or 9.2%, to $18.0 million from $16.5 million for the six months ended March 30, 2019. The increase in net interest expense was due to lower interest income from earnings on cash due to the lower rates available on our cash balance during the current year six-month period.

Debt outstanding on March 28, 2020 was $693.7 million compared to $697.8 million as of ~~fiscal 2017,~~March 30, 2019. Our average borrowing rate for the current and prior year six-month periods was 5.8%.

Other Income

Other income (expense) was an expense of $0.7 million for the six-month period ended March 28, 2020 compared to income of $0.3 million for the six-month period ended March 30, 2019. The $1.0 million decrease was due primarily to the absence of income from our formerly held equity interest in Arden. The Arden business has been part of our consolidated results since our purchase of the remaining ownership interest in February 2019.

Income Taxes

Our effective income tax rate was 22.1% for the six month period ended March 28, 2020 compared to 21.0% for the six-month period ended March 30, 2019. The higher effective income tax rate in the current six-month period was due primarily to a lower stock compensation benefit compared to the prior year six-month period.

Net Income and Earnings Per Share

Our net income infor the ~~first quarter of fiscal 2018~~six months ended March 28, 2020 was ~~$9.9~~$38.3 million, or ~~$0.19~~$0.69 per diluted share, compared to ~~$6.3~~$44.2 million, or ~~$0.12~~$0.76 per diluted share, for the six months ended March 30, 2019.

Use of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the ~~first~~United States (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including EBITDA and organic sales. Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods.

EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization (or operating income plus depreciation and amortization expense). We present EBITDA because we believe that EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. EBITDA is used by our management to perform such evaluation. EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present EBITDA when reporting their results. Other companies may calculate EBITDA differently and it may not be comparable.

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below. We believe that the non-GAAP financial measures provide useful information to investors and other users of our financial statements by allowing for greater transparency in the review of our financial and operating performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance, and we believe these measures similarly may be useful to investors in evaluating our financial and operating performance and the trends in our business from management's point of view. While our management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

Non-GAAP financial measures reflect adjustments based on the following items:

•Gains from the fair value remeasurement of previously held investment interests: we have excluded the impact of the fair value remeasurement of a previously held investment interest as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods. We believe the adjustment of these gains supplements the GAAP information with a measure that may be used to assess the sustainability of our operating performance.

•Asset impairment charges: we have excluded the impact of asset impairments on intangible assets as such non-cash amounts are inconsistent in amount and frequency. We believe that the adjustment of these charges supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.

The non-GAAP adjustments reflect the following:

(1)During the second quarter of fiscal ~~2017.~~2019, we recorded a preliminary, pending the finalization of the related purchase accounting, non-cash $3.2 million gain in our Garden segment from the fair value remeasurement of our previously held 45% interest in Arden upon our acquisition of the remaining 55% interest. The gain was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations.

(2)During the second quarter of fiscal 2019, we recognized a non-cash impairment charge in our Pet segment of $2.5 million related to the impairment of intangible assets caused by a retail customer exiting the live fish business. The adjustment was recorded as part of selling, general and administrative costs.


Operating Income Reconciliation		GAAP to Non-GAAP Reconciliation (in thousands) For the Three Months Ended						GAAP to Non-GAAP Reconciliation (in thousands) For the Six Months Ended
		Consolidated						Consolidated
		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
GAAP operating income		$	66,105	$	62,153	$	68,170	$	72,334
Previously held investment interest fair value remeasurement	(1)	—		(3,215)		—		(3,215)
Intangible asset impairment	(2)	—		2,540		—		2,540
Non-GAAP operating income		$	66,105	$	61,478	$	68,170	$	71,659


Pet Segment Operating Income Reconciliation		GAAP to Non-GAAP Reconciliation (in thousands) For the Three Months Ended						GAAP to Non-GAAP Reconciliation (in thousands) For the Six Months Ended
		Pet						Pet
		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
GAAP operating income		$	33,617	$	26,984	$	63,839	$	56,739
Intangible asset impairment	(2)	—		2,540		—		2,540
Non-GAAP operating income		$	33,617	$	29,524	$	63,839	$	59,279


Garden Segment Operating Income Reconciliation		GAAP to Non-GAAP Reconciliation (in thousands) For the Three Months Ended						GAAP to Non-GAAP Reconciliation (in thousands) For the Six Months Ended
		Garden						Garden
		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
GAAP operating income		$	53,020	$	53,355	$	44,652	$	48,718
Previously held investment interest fair value remeasurement	(1)	—		(3,215)		—		(3,215)
Non-GAAP operating income		$	53,020	$	50,140	$	44,652	$	45,503

Organic Net Sales Reconciliation

We have ~~adjusted~~provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical business. We define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months. After an acquired business has been part of our consolidated results for 12 months, the ~~provisional transitional impact on our deferred tax accounts~~change in net sales thereafter is considered part of the ~~Tax Reform Act. The adjustment does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.~~increase or decrease in organic net sales.

The final impact of the Tax Reform Act may differ due to, among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions the Company may take as a result of the Tax Reform Act.


	GAAP to Non-GAAP Reconciliation (in millions) For the Three Months Ended March 28, 2020
	Consolidated						Pet Segment						Garden Segment
			Percent change				Percent change				Percent change

Reported net sales - Q2 FY20 (GAAP)	$	703.2			$	360.8			$	342.4
Reported net sales - Q2 FY19 (GAAP)	673.7				338.2				335.5
Increase in net sales	29.5		4.4	%	22.6		6.7	%	6.9		2.1	%
Effect of acquisition and divestitures on increase in net sales	26.1				9.9				16.2
Increase in organic net sales - Q2 FY20	$	3.4	0.5	%	$	12.7	3.8	%	$	(9.3)	(2.8)	%


	GAAP to Non-GAAP Reconciliation (in millions) For the Six Months Ended March 28, 2020
	Consolidated						Pet Segment						Garden Segment
			Percent change				Percent change				Percent change
Reported net sales - Q2 FY20 YTD (GAAP)	$	1,186.1			$	714.8			$	471.3
Reported net sales - Q2 FY19 YTD (GAAP)	1,135.7				678.6				457.1
Increase in net sales	50.4		4.4	%	36.2		5.3	%	14.2		3.1	%
Effect of acquisition and divestitures on increase in net sales	47.9				19.1				28.8
Increase (decrease) in organic net sales - Q2 FY20 YTD	$	2.5	0.2	%	$	17.1	2.5	%	$	(14.6)	(3.2)	%


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Three Months Ended March 28, 2020
	Garden		Pet		Corp		Total
Net income attributable to Central Garden & Pet	—		—		—		$	42,704
Interest expense, net	—		—		—		9,336
Other income	—		—		—		979
Income tax expense	—		—		—		12,648
Net income attributable to noncontrolling interest	—		—		—		438
Sum of items below operating income	—		—		—		23,401
Income (loss) from operations	$	53,020	$	33,617	$	(20,532)	$	66,105
Depreciation & amortization	3,324		8,441		1,411		13,176
EBITDA	$	56,344	$	42,058	$	(19,121)	$	79,281


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Three Months Ended March 30, 2019
	Garden		Pet		Corp		Total
Net income attributable to Central Garden & Pet	—		—		—		$	42,391
Interest expense, net	—		—		—		8,385
Other expense	—		—		—		(500)
Income tax expense	—		—		—		11,546
Net income attributable to noncontrolling interest	—		—		—		331
Sum of items below operating income	—		—		—		19,762
Income (loss) from operations	$	53,355	$	26,984	$	(18,186)	$	62,153
Depreciation & amortization	2,312		8,039		1,526		11,877
EBITDA	$	55,667	$	35,023	$	(16,660)	$	74,030


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Six Months Ended March 28, 2020
	Garden		Pet		Corp		Total
Net income attributable to Central Garden & Pet	—		—		—		$	38,287
Interest expense, net	—		—		—		17,973
Other income	—		—		—		674
Income tax expense	—		—		—		10,920
Net income attributable to noncontrolling interest	—		—		—		316
Sum of items below operating income	—		—		—		29,883
Income (loss) from operations	$	44,652	$	63,839	$	(40,321)	$	68,170
Depreciation & amortization	6,619		16,931		2,766		26,316
EBITDA	$	51,271	$	80,770	$	(37,555)	$	94,486


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Six Months Ended March 30, 2019
	Garden		Pet		Corp		Total
Net income attributable to Central Garden & Pet	—		—		—		$	44,194
Interest expense, net	—		—		—		16,462
Other expense	—		—		—		(308)
Income tax expense	—		—		—		11,819
Net income attributable to noncontrolling interest	—		—		—		167
Sum of items below operating income	—		—		—		28,140
Income (loss) from operations	$	48,718	$	56,739	$	(33,123)	$	72,334
Depreciation & amortization	5,138		16,095		2,996		24,229
EBITDA	$	53,856	$	72,834	$	(30,127)	$	96,563

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. 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 in those periods have made it difficult for us to increase prices to our retail customers at a pace sufficient to enable us to maintain margins.

During fiscal years 2015 through 2017, commodity costs generally declined, but in past years we have been impacted by volatility in a number of commodities, including grass seed and wild bird feed grains. We continue to monitor commodity prices in order to be in a position to take action to mitigate the impact of increasing raw material costs.

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~~Our Garden segment’s business is highly seasonal. In fiscal ~~2017,~~2019, approximately ~~66%~~69% of our Garden segment’s net sales and ~~56%~~58% 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.~~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 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 conversion of receivables to cash.

We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses ~~primarily~~ 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. Our lawn and garden businesses are highly seasonal with approximately ~~66%~~69% 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 used by operating activities increased by ~~$10.9~~$13.4 million, from ~~$13.3~~$79.3 million for the ~~three~~six months ended ~~December 24, 2016,~~March 30, 2019, to ~~$24.2~~$92.7 million of cash used for the ~~three~~six months ended ~~December 30, 2017.~~March 28, 2020. The increase in cash used was due primarily to changes in our working capital accounts for the period ended ~~December 30, 2017,~~March 28, 2020, as compared to the prior year ~~period, as the increase in net income for the three months ended December 30, 2017 was offset by the non-cash effects of the impact of the Tax Reform Act as described in Note 1.~~period.

Investing Activities

Net cash used in investing activities decreased ~~$51.7~~$3.2 million, from ~~$67.4~~$27.6 million for the ~~three~~six months ended ~~December 24, 2016~~March 30, 2019 to ~~$15.7~~$24.4 million during the ~~three~~six months ended ~~December 30, 2017.~~March 28, 2020. The decrease in cash used in investing activities was due primarily to decreased acquisition activity, partially offset by increased capital expenditures in the current year compared to the prior ~~year and a decrease in capital expenditures during the current~~ year. During the ~~first fiscal~~second quarter of ~~2017,~~fiscal 2019, we acquired ~~Segrest Inc., a wholesaler of aquarium fish,~~the remaining 55% interest in Arden Companies for ~~total aggregate consideration of $60~~approximately $11.0 million. This acquisition activity was partially offset by an increase in proceeds from the sale of a small veterinary division and a distribution facility in our Garden segment during the first fiscal quarter of 2017. We also had a decrease in capital expenditures of approximately $4.8 million in the current year period compared to the prior year period.

Financing Activities

Net cash ~~provided~~used by financing activities increased ~~$296.5~~$8.9 million, from ~~$5.5~~$40.3 million offor the six months ended March 30, 2019, to $49.2 million for the six months ended March 28, 2020. The increase in cash used by financing activities ~~for~~during the ~~three months ended December 24, 2016, to $291.0 million of cash provided by financing activities for the three months ended December 30, 2017. The increase in cash provided by financing activities~~current year was due primarily to purchases of our ~~December 2017 issuance~~common stock. During the six months ended March 28, 2020, we repurchased approximately 0.2 million shares of ~~$300 million~~our voting common stock (CENT) on the open market at an aggregate ~~principal amount 5.125% senior notes due February 2028, partially offset by deferred financing costs~~cost of approximately ~~$4.6~~$5.8 million, ~~associated with this issuance.~~or approximately $26.53 per share, and 1.6 million shares of our non-voting Class A common stock (CENTA) on the open market at an aggregate cost of approximately $41.4 million, or approximately $25.89 per share. Additionally, during the six months ended March 30, 2019, we repaid approximately $36 million of acquired long-term debt subsequent to our acquisition of Arden Companies.

We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $400 million asset backed ~~loan~~revolving credit facility. Based on our anticipated cash needs, availability under our asset backed ~~loan~~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 asset backed loan facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital and capital expenditure requirements for the foreseeable future. We ~~anticipate that~~previously estimated our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and

equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, ~~will~~would be ~~approximately $40~~$45 million to $50 million in fiscal ~~2018.~~2020. As a result of the uncertainties associated with the COVID-19 pandemic, we are reevaluating the appropriate amount of our fiscal 2020 capital expenditures.

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.

Total Debt

At ~~December 30, 2017,~~March 28, 2020, our total debt outstanding was ~~$691.3~~$693.7 million, as compared with ~~$395.4~~$697.8 million at ~~December 24, 2016.~~March 30, 2019.

Senior Notes

$300 Million 5.125% Senior Notes

On December 14, 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). We ~~will~~expect to use the net proceeds from the offering to finance future acquisitions and for general corporate purposes.

We incurred approximately ~~$4.6~~$4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.

The 2028 Notes require semiannual interest payments on February 1 and August 1, commencing August 1, 2018. The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our senior secured revolving credit facility or who guarantee the 2023 Notes.

We may redeem some or all of the 2028 Notes at any time, at our option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. At any time prior to January 1, 2021, we may also redeem, at our option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 105.125% of the principal amount of the notes. We may redeem some or all of the 2028 Notes, at our option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854% and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.

The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 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 2028 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 ~~December 30, 2017.~~March 28, 2020.

$400 Million 6.125% Senior Notes

In November 2015, we issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the "2023 Notes"). In December 2015, we used the net proceeds from the offering, together with available cash, to redeem our $400 million aggregate principal amount of 8.25% senior subordinated notes due March 1, 2018 (the "2018 Notes") at a price of 102.063% of the principal amount and to pay fees and expenses related to the offering.

We incurred approximately $6.3 million of debt issuance costs in conjunction with these transactions, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.

The 2023 Notes require semiannual interest payments on May 15 and November 15. The 2023 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our senior secured revolving credit facility. The 2023 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Credit Facility, to the extent of the value of the collateral securing such indebtedness.

We may redeem some or all of the 2023 Notes at any time, at our option, prior to November 15, 2018 at the principal amount plus a “make whole” premium. At any time prior to November 15, 2018, we may also redeem, at our option, up to 35% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 106.125% of the principal amount of the notes. We may redeem some or all of the 2023 Notes, at our option, at any time on or after November 15, 2018 for 104.594%, on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.

The holders of the 2023 Notes have the right to require us to repurchase all or a portion of the 2023 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2023 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of ~~December 30, 2017.~~March 28, 2020.

Asset-Based Loan Facility Amendment

~~In April 2016,~~On September 27, 2019, we entered into ana Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement ~~which provides~~dated April 22, 2016 and continues to provide up to a ~~$400~~$400.0 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, as defined, if we exercise the accordion feature set forth therein (collectively, the ~~“Credit~~“Amended Credit Facility”). The Amended Credit Facility now matures on ~~April 22, 2021.~~September 27, 2024. We may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.

The Amended Credit Facility is subject to a borrowing base, reduced capacity due to reserves and certain other restrictions. The borrowing base is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves, and was $400 million as of March 28, 2020. The Amended Credit Facility also allows us to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders. Proceeds of the Amended Credit Facility will be used for general corporate purposes. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and an increased $40 million sublimit for short-notice borrowings. We incurred approximately $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility. As of ~~December 30, 2017,~~March 28, 2020, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of ~~$1.8~~$3.2 million outstanding as of ~~December 30, 2017.~~March 28, 2020. Subsequent to our quarter ended March 28, 2020, we borrowed $200 million under our revolving credit facility to increase financial flexibility while we navigate an uncertain COVID-19 economic environment.

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. As of December 30, 2017, the borrowing base and remaining borrowing availability was $330.2 million. Borrowings under the Amended Credit Facility bear interest at an index based on LIBOR or, at ~~the~~our 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~~0.50%, (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on our consolidated senior leverage ~~ratio.~~ratio and (d) 0.00%. Such applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50% (previously between 1.25% ~~- 1.5%,~~and 1.50%) and was ~~1.25%~~1.00% as of ~~December 30, 2017,~~March 28, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50% (previously 0.25% ~~- 0.5%~~-0.50%), and was ~~0.25%~~0.00% as of ~~December 30, 2017.~~March 28, 2020. An unused line fee shall be payable monthly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable monthly and a facing fee of 0.125% shall be paid on demand for the stated amount of each letter of credit. We are also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of ~~December 30, 2017,~~March 28, 2020, the applicable interest rate related to Base Rate borrowings was ~~4.8%~~3.3%, and the applicable interest rate related to LIBOR-based borrowings was ~~2.8%~~2.0%. Banks currently reporting information used to set LIBOR will stop doing so after 2021. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. We are monitoring their efforts, and we will likely amend contracts to accommodate any replacement rate where it is not already provided.

The administering regulatory authority announced it intends to phase out London Interbank Offered Rate (LIBOR) by the end of 2021. We ~~incurred approximately $1.2 million of debt issuance costs in conjunction with this transaction, which included underwriter fees, legal~~have both LIBOR-denominated and ~~accounting expenses. The debt issuance costs~~Euro Interbank Offer Rate (EURIBOR)-denominated indebtedness. Once LIBOR is phased out it will be ~~amortized over~~replaced by an alternative method equivalent to LIBOR. Any legal or regulatory changes made in response to LIBOR’s future discontinuance may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the ~~term~~publication of LIBOR, or changes in the ~~Credit Facility.~~rules or methodologies in LIBOR. In addition, alternative methods to LIBOR may be impossible or impracticable to determine. The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not expect that the transition from LIBOR and risks related thereto will have a material adverse effect on our financing costs, it is still uncertain at this time.

The Amended Credit Facility ~~contains~~continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon ~~reaching~~triggered quarterly testing (e.g. when availability falls below certain ~~borrowing levels.~~thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of ~~our assets.~~the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity. We were in compliance with all financial covenants under the Credit Facility during the period ended ~~December 30, 2017.~~March 28, 2020.

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 ~~30, 2017~~28, 2019 regarding off-balance sheet arrangements.

Contractual Obligations

~~Except for the issuance of our 2028 Notes, there~~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 ~~30, 2017.~~28, 2019, except as set forth below.

In December 2019, performance-based criteria associated with the $6 million contingent consideration liability related to our fiscal 2017 acquisition of Segrest, Inc. were met and accordingly, the entire amount was released out of an independent escrow account to the former owners as of December 28, 2019.

Subsequent to quarter end, the Company borrowed $200 million under its revolving credit facility to increase financial flexibility while it navigates an uncertain COVID-19 economic environment.

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 ~~30, 2017.~~28, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk


~~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~~10-K for the fiscal year ended September ~~30, 2017.~~28, 2019.


~~Item 4.~~	~~Controls and Procedures~~

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and principal 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 principal 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 30, 2017.~~March 28, 2020.

(b) Changes in Internal Control Over Financial Reporting. Our management, with the participation of our Chief Executive Officer and our principal financial officer have evaluated whether any change in our internal control over financial reporting occurred during the ~~first~~second quarter of fiscal ~~2018. Based on that evaluation, management concluded that there has been~~2020. We implemented controls and a new lease accounting system related to the adoption of ASC 842 and the related financial statement reporting. There were no ~~change~~other changes in our internal control over financial reporting during the ~~first~~second quarter of fiscal ~~2018~~2020 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~~

Item 1. Legal Proceedings

outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.

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


~~Item 1A.~~	~~Risk Factors~~

~~There~~

Item 1A. Risk Factors

Except as set forth below, 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 ~~30, 2017.~~28, 2019.

The COVID-19 pandemic has impacted how we are operating our business, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.


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

The outbreak of the COVID-19 virus in Wuhan, China in late 2019 and subsequent spread of the virus throughout the world has impacted our day-to-day operations and the operations of the vast majority of our customers, suppliers, and consumers. The World Health Organization’s March 2020 declaration of the COVID-19 outbreak as a global pandemic has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, and business limitations and shutdowns. COVID-19 has adversely affected and may continue to adversely affect how we and our customers are operating our businesses and overall demand for our products.

We have experienced varying impacts to our Garden and Pet businesses due to COVID-19. In March, we experienced increased demand in pet consumables due to consumers stocking up on products as the COVID-19 shelter-in-place mandates were implemented. We also saw reduced consumption on other items, such as live fish and live plants, due to in-store curtailments of foot traffic and limited access to outdoor garden departments. In addition, we saw a pronounced shift to the e-commerce channel and a slow-down in brick and mortar retailers.

Although our facilities have largely been exempt or partially exempt from government closure orders as essential businesses, to support the health and well-being of our employees, customers and communities, we are requiring a significant portion of our workforce to work remotely, and local and state governments in the United States and in the United Kingdom have imposed shelter-in-place requirements and certain travel restrictions, all of which have changed how we operate our business. For our employees who are not working remotely, we have taken several actions to ensure their safety, including instituting workplace safety measures and ensuring the availability of personal protective equipment. While we believe that such actions will help to ensure the safety of our employees, there is no guarantee that such actions will ultimately be successful.

We have experienced temporary closures of certain production facilities and distribution centers, though there has not been a material impact from a plant closure to date. At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the current pandemic. The pandemic and near-term increase in demand for pet consumables has created operational challenges for our distribution network, though none have had a material impact on our results to date. In our supply chain, it is possible we will experience increased operational and logistics costs. We may experience additional disruptions in our supply chain as the pandemic continues, though we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.

We anticipate many small customers may permanently close, and we may experience collection delinquencies as customers seek to preserve liquidity. Additionally, we have small company equity method investees, intangible assets and other long-lived assets whose value is dependent on cashflows. These investments and other assets could be impacted by the COVID-19 pandemic and, therefore, may be more susceptible to impairment. Our assessment of possible asset impairment involves numerous assumptions that involve significant judgment. As a result of the uncertainties associated with the COVID-19 pandemic, the shelter-in-place orders and the post COVID-19 economic recovery, these factors will be even more difficult to estimate. Although no impairment charges were recorded in our second fiscal quarter, we may be required to write-off certain assets that could be material in future periods.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, independent contractors and customers and consumers. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

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 ~~December 30, 2017~~March 28, 2020 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)(2)
December 29, 2019 - February 1, 2020	23,162	(3)	$	30.38	—	$	100,000,000
February 2, 2020 - February 29, 2020	90,123	⁽²⁾⁽³⁾	$	26.76	87,562	$	100,000,000
March 1, 2020 - March 28, 2020	901,448	⁽²⁾⁽³⁾	$	25.22	900,336	$	100,000,000
Total	1,014,733		$	25.47	987,898	$	100,000,000	(4)

(1)During the fourth quarter of fiscal 2019, our Board of Directors authorized a $100 million share repurchase program, (the "2019 Repurchase Authorization"). The 2019 Repurchase Authorization has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its authorization. The repurchase of shares may be limited by certain financial covenants in our credit facility that restrict our ability to repurchase our stock. As of March 28, 2020, we had $100 million of authorization remaining under our 2019 Repurchase Authorization.

(2)In February 2019, our Board of Directors authorized us to make supplemental stock purchases to minimize dilution resulting from issuances under our equity compensation plans (the "Equity Dilution Authorization"). In addition to our regular share repurchase program, we are permitted to purchase annually a number of shares equal to the number of shares of restricted stock and stock options granted in the prior fiscal year, to the extent not already repurchased, and the current fiscal year. The Equity Dilution Authorization has no fixed expiration date and expires when the Board withdraws its authorization.

(3)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 do not reduce the dollar value of shares that may be purchased under our stock repurchase plan.

(4)Excludes 0.8 million shares remaining under our Equity Dilution Authorization as of March 28, 2020.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

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)
October 1, 2017 - November 4, 2017 —

⁽²⁾
$ —
—
$ 34,968,000
November 5, 2017 - December 2, 2017 10,240

⁽²⁾
$ 37.89
—
$ 34,968,000
December 3, 2017 - December 30, 2017 52,252

⁽²⁾
$ 38.46
—
$ 34,968,000
Total 62,492
$ 38.36
—
$ 34,968,000

~~(1)~~

During the third quarter of fiscal 2011, our Board of Directors authorized a $100 million share repurchase program. The program has no 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.~~


~~Item 3.~~	~~Defaults Upon Senior Securities~~

~~Not applicable~~


~~Item 4.~~	~~Mine Safety Disclosures~~

~~Not applicable~~


~~Item 5.~~	~~Other Information~~

~~Not applicable~~



Item 6.		Exhibits

~~4.1~~3.1		~~Seventh Supplemental Indenture,~~Amended and Restated By-laws effective February 4, 2020 (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 7, 2020).

10.1*		Modification and Extension of Employment Agreement and Noncompetition Agreement, dated as of ~~December 14, 2017, by and among~~March 1, 2020, between the Company ~~certain guarantors named therein~~ and ~~Wells Fargo Bank National Association, as trustee, relating to the 5.125% Senior Notes due 2028. (Incorporated by reference to the Registrant's Form 8-K filed December 14, 2017)~~Brooks M. Pennington III.

~~4.2~~31.1		Eighth Supplemental Indenture, dated as of December 14, 2017, by and among the Company, certain guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to the 6.125% Senior Notes due 2023. (Incorporated by reference to the Registrant's Form 8-K filed December 14, 2017)

~~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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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

*		Management contract or compensatory plan or arrangement

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

			~~CENTRAL GARDEN & PET COMPANY~~Dated: May 7, 2020
			~~Registrant~~
			/s/ TIMOTHY P. COFER
			~~Dated: February 8, 2018~~Timothy P. Cofer

	~~/s/ GEORGE C. ROETH~~
	~~George C. Roeth~~
	~~President and~~ Chief Executive Officer
			(Principal Executive Officer)

			/s/ NICHOLAS LAHANAS
			Nicholas Lahanas
			Chief Financial Officer
			(Principal Financial Officer)



	Amount
Balance September 30, 2017	$	9,343
Estimated contingent performance-based consideration established at the time of acquisition	—
Changes in the fair value of contingent performance-based payments established at the time of acquisition	(192		)
Performance-based payments	(93		)
Balance December 30, 2017	$	9,058

	Amount
Balance September 24, 2016	$	5,113
Estimated contingent performance-based consideration established at the time of acquisition	(860		)
Changes in the fair value of contingent performance-based payments established at the time of acquisition	—
Balance December 24, 2016	$	4,253



	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
	Three Months Ended December 30, 2017
	(in thousands)
	Parent			Non- Guarantor Subsidiaries			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	159,061		$	13,743		$	286,424		$	(17,217	)	$	442,011
Cost of goods sold and occupancy	125,479			11,816			189,051			(16,172		)	310,174
Gross profit	33,582			1,927			97,373			(1,045		)	131,837
Selling, general and administrative expenses	36,639			3,905			69,817			(1,045		)	109,316
Operating income (loss)	(3,057		)	(1,978		)	27,556			—			22,521
Interest expense	(7,385		)	(16		)	(4		)	—			(7,405		)
Interest income	186			1			—			—			187
Other (expense) income	(2,918		)	54			(225		)	—			(3,089		)
Income (loss) before taxes and equity in earnings (losses) of affiliates	(13,174		)	(1,939		)	27,327			—			12,214
Income tax expense (benefit)	14,425			1,282			(29,943		)	—			(14,236		)
Equity in earnings (losses) of affiliates	53,846			—			(2,900		)	(50,946		)	—
Net income (loss) including noncontrolling interest	26,247			(3,221		)	54,370			(50,946		)	26,450
Net income attributable to noncontrolling interest	—			203			—			—			203
Net income (loss) attributable to Central Garden & Pet Company	$	26,247		$	(3,424	)	$	54,370		$	(50,946	)	$	26,247



	CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
	Three Months Ended December 24, 2016
	(in thousands)
	Parent			Non- Guarantor Subsidiaries			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	155,518		$	14,024		$	266,438		$	(16,482	)	$	419,498
Cost of goods sold and occupancy	121,136			11,678			181,440			(15,434		)	298,820
Gross profit	34,382			2,346			84,998			(1,048		)	120,678
Selling, general and administrative expenses	35,965			3,664			62,159			(1,048		)	100,740
Operating income (loss)	(1,583		)	(1,318		)	22,839			—			19,938
Interest expense	(6,851		)	(17		)	(5		)	—			(6,873		)
Interest income	38			—			—			—			38
Other expense	(603		)	(193		)	(171		)	—			(967		)
Income (loss) before taxes and equity in earnings (losses) of affiliates	(8,999		)	(1,528		)	22,663			—			12,136
Income tax expense (benefit)	(3,192		)	(411		)	7,950			—			4,347
Equity in earnings (losses) of affiliates	13,444			—			(811		)	(12,633		)	—
Net income (loss) including noncontrolling interest	7,637			(1,117		)	13,902			(12,633		)	7,789
Net income attributable to noncontrolling interest	—			152			—			—			152
Net income (loss) attributable to Central Garden & Pet Company	$	7,637		$	(1,269	)	$	13,902		$	(12,633	)	$	7,637



		GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation		December 30, 2017		December 24, 2016
GAAP net income attributable to Central Garden & Pet		$	26,247	$	7,637
Gain on sale of distribution facility	⁽²⁾	—		(2,050		)
Tax effect of sale of distribution facility adjustment		—		734
Tax effect of revaluation of deferred assets	⁽¹⁾	16,343		—
Total impact on net income from non-GAAP adjustments		16,343		(1,316		)
Non-GAAP net income attributable to Central Garden & Pet		$	9,904	$	6,321
GAAP diluted net income per share		$	0.50	$	0.15
Non-GAAP diluted net income per share		$	0.19	$	0.12
Shares used in GAAP and non-GAAP diluted net earnings per share calculation		52,695		51,810



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)
October 1, 2017 - November 4, 2017	—	⁽²⁾	$	—	—	$	34,968,000
November 5, 2017 - December 2, 2017	10,240	⁽²⁾	$	37.89	—	$	34,968,000
December 3, 2017 - December 30, 2017	52,252	⁽²⁾	$	38.46	—	$	34,968,000
Total	62,492		$	38.36	—	$	34,968,000