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~~26, 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)

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 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

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~~January 31, 2021			~~12,160,023~~11,336,358
			Class A Common Stock Outstanding as of ~~February 1, 2018~~January 31, 2021			~~38,070,180~~42,219,410
			Class B Stock Outstanding as of ~~February 1, 2018~~January 31, 2021			~~1,652,262~~1,612,374

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		PART I. FINANCIAL INFORMATION

		~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of December ~~30, 2017,~~26, 2020, December ~~24, 2016~~28, 2019 and September ~~30, 2017~~26, 2020	4
		Condensed Consolidated Statements of Operations Three Months Ended December ~~30, 2017~~26, 2020 and December ~~24, 2016~~28, 2019	5
		Condensed Consolidated Statements of Comprehensive Income Three Months Ended December ~~30, 2017~~26, 2020 and December ~~24, 2016~~28, 2019	6
		Condensed Consolidated Statements of Cash Flows Three Months Ended December ~~30, 2017~~26, 2020 and December ~~24, 2016~~28, 2019	7
		Notes to Condensed Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2724
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3537
Item 4.		Controls and Procedures	3537

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	3537
Item 1A.		Risk Factors	3637
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3637
Item 3.		Defaults Upon Senior Securities	3638
Item 4.		Mine Safety Disclosures	3638
Item 5.		Other Information	3638
Item 6.		Exhibits	3739

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,~~26, 2020, 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:

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

•the potential for future reductions in demand for product categories, which benefited from the COVID-19 pandemic;

•the success of our new Central to Home strategy;

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

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

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

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

•adverse weather conditions;

•dependence on a small number of customers for a significant portion of our ~~dependence upon key executives;~~business;

•impacts of tariffs or a trade war;

•consolidation trends in the retail industry;

•declines in consumer spending during economic downturns;

•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;~~

•~~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;

•potential environmental liabilities;

•risk associated with international sourcing;

•access to and cost of additional capital;

•risks associated with our acquisition strategy, including our ability to successfully integrate our recently announced acquisitions;

•potential goodwill or intangible asset impairment;

•our dependence upon our key executives;

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

•our inability to protect our trademarks and other proprietary rights;

•~~potential environmental liabilities;~~fluctuations in energy prices, fuel and related petrochemical costs;

•~~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~~potential dilution from issuance of ~~the U.S. Tax Cuts and Jobs Act;~~authorized shares;

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

•~~potential dilution from issuance~~the impact of ~~authorized shares.~~new accounting regulations and the U.S. Tax Cuts and Jobs Act on the Company's tax rate.

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PART I. FINANCIAL INFORMATION


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

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share ~~amounts)~~amounts, unaudited)

(~~Unaudited)~~


	December 30, 2017			December 24, 2016			September 30, 2017				December 26, 2020		December 28, 2019		September 26, 2020
ASSETS										ASSETS
Current assets:										Current assets:
Cash and cash equivalents	$	283,466		$	6,581		$	32,397		Cash and cash equivalents	$	608,285	$	445,813	$	652,712
Restricted cash	12,419			10,981			12,645			Restricted cash	13,670		12,990		13,685
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 allowances of $30,951, $21,257 and $27,661)										Accounts receivable (less allowances of $30,951, $21,257 and $27,661)	322,806		268,229		391,773
Inventories, net										Inventories, net	574,878		556,479		439,615
Prepaid expenses and other	22,519			22,399			18,045			Prepaid expenses and other	28,074		37,569		27,498
Total current assets	993,900			662,356			683,056			Total current assets	1,547,713		1,321,080		1,525,283
Land, buildings, improvements and equipment—net	179,230			169,836			180,913
Plant, property and equipment, net										Plant, property and equipment, net	252,157		241,795		244,667
Goodwill	256,275			230,385			256,275			Goodwill	289,955		289,854		289,955
Other intangible assets—net	113,726			92,851			116,067
Other intangible assets, net										Other intangible assets, net	131,557		145,153		134,924
Operating lease right-of-use assets										Operating lease right-of-use assets	115,833		105,277		115,882
Other assets	74,221			61,326			70,595			Other assets	108,884		31,998		28,653
Total	$	1,617,352		$	1,216,754		$	1,306,906		Total	$	2,446,099	$	2,135,157	$	2,339,364
LIABILITIES AND EQUITY										LIABILITIES AND EQUITY
Current liabilities:										Current liabilities:
Accounts payable	$	124,583		$	135,237		$	103,283		Accounts payable	$	216,991	$	184,659	$	205,234
Accrued expenses	100,004			94,494			116,549			Accrued expenses	189,290		124,774		201,436
Current lease liabilities										Current lease liabilities	34,834		34,320		33,495
Current portion of long-term debt	372			397			375			Current portion of long-term debt	97		107		97
Total current liabilities	224,959			230,128			220,207			Total current liabilities	441,212		343,860		440,262
Long-term debt	690,964			395,011			395,278			Long-term debt	788,921		693,329		693,956
Deferred taxes and other long-term obligations	39,478			31,659			54,279
Long-term lease liabilities										Long-term lease liabilities	85,729		75,283		86,516
Deferred income taxes and other long-term obligations										Deferred income taxes and other long-term obligations	43,224		49,513		40,956
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: 11,336,358, 11,484,297 and 11,336,358 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020										Common stock, $0.01 par value: 11,336,358, 11,484,297 and 11,336,358 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020	113		115		113
Class A common stock, $0.01 par value: 42,171,329, 42,289,882 and 41,856,626 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020										Class A common stock, $0.01 par value: 42,171,329, 42,289,882 and 41,856,626 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020	422		423		419
Class B stock, $0.01 par value: 1,612,374, 1,647,922 and 1,612,374 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020										Class B stock, $0.01 par value: 1,612,374, 1,647,922 and 1,612,374 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020	16		16		16
Additional paid-in capital	396,702			392,402			396,790			Additional paid-in capital	570,678		570,117		566,883
Accumulated earnings	265,576			168,138			239,329
Retained earnings										Retained earnings	516,394		403,693		510,781
Accumulated other comprehensive loss	(907		)	(1,802		)	(951		)	Accumulated other comprehensive loss	(1,032)		(1,240)		(1,409)
Total Central Garden & Pet Company shareholders’ equity	661,889			559,249			635,686			Total Central Garden & Pet Company shareholders’ equity	1,086,591		973,124		1,076,803
Noncontrolling interest	62			707			1,456			Noncontrolling interest	422		48		871
Total equity	661,951			559,956			637,142			Total equity	1,087,013		973,172		1,077,674
Total	$	1,617,352		$	1,216,754		$	1,306,906		Total	$	2,446,099	$	2,135,157	$	2,339,364

See notes to condensed consolidated financial statements.

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CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share ~~amounts)~~

~~(Unaudited)~~amounts, unaudited)


	Three Months Ended							Three Months Ended
	December 30, 2017			December 24, 2016				December 26, 2020		December 28, 2019
Net sales	$	442,011		$	419,498		Net sales	$	592,230	$	482,828
Cost of goods sold and occupancy	310,174			298,820			Cost of goods sold and occupancy	426,811		351,562
Gross profit	131,837			120,678			Gross profit	165,419		131,266
Selling, general and administrative expenses	109,316			100,740			Selling, general and administrative expenses	138,379		129,201
Operating income	22,521			19,938			Operating income	27,040		2,065
Interest expense	(7,405		)	(6,873		)	Interest expense	(20,975)		(10,641)
Interest income	187			38			Interest income	206		2,004
Other expense	(3,089		)	(967		)
Income before income taxes and noncontrolling interest	12,214			12,136
Income tax (benefit) expense	(14,236		)	4,347
Income including noncontrolling interest	26,450			7,789
Net income attributable to noncontrolling interest	203			152
Net income attributable to Central Garden & Pet Company	$	26,247		$	7,637
Net income per share attributable to Central Garden & Pet Company:
Other income							Other income	752		305
Income (loss) before income taxes and noncontrolling interest							Income (loss) before income taxes and noncontrolling interest	7,023		(6,267)
Income tax expense (benefit)							Income tax expense (benefit)	1,381		(1,728)
Income (loss) including noncontrolling interest							Income (loss) including noncontrolling interest	5,642		(4,539)
Net income (loss) attributable to noncontrolling interest							Net income (loss) attributable to noncontrolling interest	29		(122)
Net income (loss) attributable to Central Garden & Pet Company							Net income (loss) attributable to Central Garden & Pet Company	$	5,613	$	(4,417)
Net income (loss) per share attributable to Central Garden & Pet Company:							Net income (loss) per share attributable to Central Garden & Pet Company:
Basic	$	0.52		$	0.15		Basic	$	0.10	$	(0.08)
Diluted	$	0.50		$	0.15		Diluted	$	0.10	$	(0.08)
Weighted average shares used in the computation of net income per share:
Weighted average shares used in the computation of net income (loss) per share:							Weighted average shares used in the computation of net income (loss) per share:
Basic	50,730			49,665			Basic	53,734		54,755
Diluted	52,695			51,810			Diluted	54,686		54,755

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in ~~thousands)~~

~~(Unaudited)~~thousands, unaudited)

Three Months Ended
December 30,
2017 December 24,
2016
Income including noncontrolling interest $ 26,450
$ 7,789
Other comprehensive income (loss):
Foreign currency translation 44
(508 )
Total comprehensive income 26,494
7,281
Comprehensive income attributable to noncontrolling interest 203
152
Comprehensive income attributable to Central Garden & Pet Company $ 26,291
$ 7,129


	Three Months Ended
	December 26, 2020		December 28, 2019
Income (loss) including noncontrolling interest	$	5,642	$	(4,539)
Other comprehensive income:
Foreign currency translation	377		436
Total comprehensive income (loss)	6,019		(4,103)
Comprehensive income (loss) attributable to noncontrolling interest	29		(122)
Comprehensive income (loss) attributable to Central Garden & Pet Company	$	5,990	$	(3,981)

See notes to condensed consolidated financial statements.

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CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Three Months Ended
	December 26, 2020		December 28, 2019
Cash flows from operating activities:
Net income (loss)	$	5,642	$	(4,539)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization	12,915		13,140
Amortization of deferred financing costs	475		446
Non-cash lease expense	9,087		8,513
Stock-based compensation	4,669		4,152
Debt extinguishment costs	8,577		0
Loss on sale of business	2,611		0
Deferred income taxes	973		1,890
Gain on sale of property and equipment	(664)		(8)
Other	210		474
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable	68,929		32,173
Inventories	(137,635)		(89,327)
Prepaid expenses and other assets	(1,362)		(8,065)
Accounts payable	10,134		35,700
Accrued expenses	(13,393)		(4,422)
Other long-term obligations	1,437		115
Operating lease liabilities	(8,720)		(8,264)
Net cash used by operating activities	(36,115)		(18,022)
Cash flows from investing activities:
Additions to plant, property and equipment	(14,661)		(9,877)
Payments to acquire companies, net of cash acquired	(80,887)		0
Proceeds from the sale of business	2,400		0
Investments	0		(424)
Other investing activities	(223)		(75)
Net cash used in investing activities	(93,371)		(10,376)
Cash flows from financing activities:
Repayments of long-term debt	(400,024)		(31)
Proceeds from issuance of long-term debt	500,000		0


Premium paid on extinguishment of debt	(6,124)		0
Repurchase of common stock, including shares surrendered for tax withholding	(871)		(23,054)
Payment of contingent consideration liability	(110)		(77)
Distribution to noncontrolling interest	(478)		0
Payment of financing costs	(8,031)		(869)
Net cash provided (used) by financing activities	84,362		(24,031)
Effect of exchange rate changes on cash and cash equivalents	682		531
Net decrease in cash, cash equivalents and restricted cash	(44,442)		(51,898)
Cash, cash equivalents and restricted cash at beginning of period	666,397		510,701
Cash, cash equivalents and restricted cash at end of period	$	621,955	$	458,803
Supplemental information:
Cash paid for interest	$	13,180	$	12,944

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 Months Ended December ~~30, 2017~~26, 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 ~~30, 2017~~26, 2020 and December ~~24, 2016,~~28, 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 months ended December ~~30, 2017~~26, 2020 and December ~~24, 2016,~~28, 2019 and the condensed consolidated statements of cash flows for the three months ended December 26, 2020 and December 28, 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,~~United Kingdom, 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 months ended December ~~30, 2017~~26, 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~~2020 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September ~~30, 2017~~26, 2020 balance sheet presented herein was derived from the audited financial statements.

Change in Segment Components

During the first quarter of fiscal year 2021, the Company began reporting the results of its outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources. These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment. All prior period segment disclosures have been recast to reflect this segment change.

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 ~~amount~~following table provides a reconciliation of cash, ~~collateral in these segregated accounts was approximately $12.4 million, $11.0 million~~cash equivalents and ~~$12.6 million~~restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of December ~~30, 2017,~~26, 2020, December ~~24, 2016~~28, 2019 and September ~~30, 2017, respectively,~~26, 2020, respectively.


	December 26, 2020		December 28, 2019		September 26, 2020
	(in thousands)
Cash and cash equivalents	$	608,285	$	445,813	$	652,712
Restricted cash	13,670		12,990		13,685
Total cash, cash equivalents and restricted cash	$	621,955	$	458,803	$	666,397

Allowance for Credit Losses and Customer Allowances

The Company’s trade accounts receivable are recorded at net realizable value, which includes an allowance for estimated credit losses, as well as allowances for contractual customer deductions accounted for as variable consideration. Under the guidance found in ASC Topic 326, the “expected credit loss” model replaces the previous incurred loss model and requires consideration of a broader range of

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information to estimate expected credit losses over the lives of the Company’s trade accounts receivable. The Company’s prior methodology for estimating credit losses on its trade accounts receivable did not differ significantly from the new requirements of Topic 326.

The Company maintains an allowance for credit losses related to its trade accounts receivable for future expected credit losses for the inability of its customers to make required payments. The Company estimates the allowance based upon historical bad debts, current customer receivable balances and the customer’s financial condition. The allowance is ~~reflected~~adjusted to reflect changes in ~~Restricted cash~~current and forecasted macroeconomic conditions. The Company’s estimate of credit losses includes expected current and future economic and market conditions surrounding the COVID-19 pandemic, which did not significantly impact its allowance.

Revenue Recognition

Revenue Recognition and Nature of Products and Services

The Company manufactures, markets and distributes a wide variety of branded, private label and third-party pet and garden products to wholesalers, distributors and retailers, primarily in the United States. The majority of the Company’s revenue is generated from the sale of finished pet and garden products. The Company also recognizes a minor amount of non-product revenue (less than 1% of consolidated net sales) from third-party logistics services, merchandising services and royalty income from sales-based licensing arrangements. Product and non-product revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company recognizes product revenue when control over the finished goods transfers to its customers, which generally occurs upon shipment to, or receipt at, customers’ locations, as determined by the specific terms of the contract. These revenue arrangements generally have single performance obligations. Non-product revenue is recognized as the services are provided to the customer in the case of third-party logistics services and merchandising services, or as third-party licensee sales occur for royalty income. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, unsaleable product, consumer coupon redemption and rebates. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.

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

Sales Incentives and Other Promotional Programs

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

Leases

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. Long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities are presented separately in the condensed consolidated balance sheets. Finance lease ROU assets are presented in property, plant and equipment, net, and the related finance liabilities are 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

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

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

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

Accounting Pronouncements Recently Adopted

~~Stock Based Compensation~~Credit Losses

In ~~March~~June 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)~~No. 2016-13, Financial Instruments - Credit Losses (Topic 326), ~~Simplifying~~which changes the ~~Measurement~~impairment model for most financial assets to require measurement and recognition of ~~Inventory. Under ASU 2015-11, inventory will be~~expected credit losses for financial assets measured at amortized cost, including trade receivables. The model replaces the ~~“lower of cost~~probable, incurred loss model for those assets and ~~net realizable value” and options that currently exist~~broadens the information an entity must consider when developing its expected credit loss estimate 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.assets measured at amortized cost. The Company adopted ~~ASU 2015-11 on October 1, 2017. The~~the standard as of September 27, 2020, and the adoption ~~of ASU 2015-11~~ did not have a material impact on the Company's condensed consolidated financial ~~statements.~~

~~Accounting Standards Not Yet Adopted~~

~~Revenue Recognition~~

~~In May 2014,~~statements and related disclosures. Additionally, there have been no significant changes to the ~~FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09),~~ ~~Revenue from Contracts with Customers. This update was issued~~Company's accounting policies 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 Companydisclosed in the ~~first quarter of its~~Company's 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 impact2020 Form 10-K as a result 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~~new accounting guidance.

Goodwill 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.Intangible Assets

~~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. ASU 2016-02 is effective for the Company in its first quarter of fiscal 2020 on a modified retrospective basis and earlier adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements, and it currently expects that most of its operating lease commitments will be subject to the new standard and the Company will record material operating lease liabilities and right-of-use assets upon the adoption of ASU 2016-02.

~~Statement of Cash Flows~~

In August ~~2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts 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.~~

~~In November 2016,~~2018, 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)~~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 ~~clarifies~~aligns the ~~presentation of restricted cash on~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with 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 effectiverequirements for ~~fiscal years, and interim periods within those fiscal years beginning after December 15, 2017,~~capitalizing implementation costs incurred to develop or ~~the Company's first quarter of fiscal 2019, with early adoption permitted.~~obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company ~~held restricted cash balances of~~ ~~$12.4 million, $11.0 million and $12.6 million~~adopted this standard as of ~~December 30, 2017, December 24, 2016~~September 27, 2020 on a prospective basis, and ~~September 30, 2017, respectively. The Company does not anticipate~~ the adoption of ~~ASU 2016-18 will~~this standard did not have a material impact on its condensed 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~~Company adopted this 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~~as of ~~fiscal 2021. The amendment should be applied~~September 27, 2020 on a prospective basis. Based on the Company's most recent annual goodwill impairment test performed as of ~~June 25, 2017,~~July 1, 2020, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value; therefore, the adoption of this ASU ~~would~~did not ~~currently~~ have an impact on the Company's condensed consolidated financial statements and related disclosures. ~~However, if upon adoption~~

Fair Value Disclosures

In August 2018, the ~~carrying amount of a reporting unit exceeds its~~FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. 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. The Company ~~would be impacted by~~adopted this standard as of September 27, 2020, and the ~~amount~~adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

Table of ~~impairment recognized.~~Contents

Accounting Standards Not Yet Adopted

Accounting for Income Taxes

OnIn December ~~22, 2017,~~2019, the ~~U.S. Tax Cuts~~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 ~~Jobs Act (the “Tax Reform Act”) was signed into law by~~ the ~~U.S. government. The Tax Reform Act significantly revised~~recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the ~~U.S. corporate income~~accounting for franchise taxes, enacts changes in tax ~~code by, among other things, lowering~~laws or rates and clarifies the ~~U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. U.S. GAAP requires~~accounting for transactions that ~~the impact of tax legislation be recognized~~result in a step-up 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 from the datetax basis of ~~enactment, to complete their accounting~~goodwill. ASU 2019-12 is effective for the ~~tax effects 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~~Company 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 accounting 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~~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 condensed 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 (in thousands):~~26, 2020:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities:
Liability for contingent consideration (a)	$	0	$	0	$	1,227	$	1,227
Total liabilities	$	0	$	0	$	1,227	$	1,227

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
	(in thousands)
Liabilities:
Liability for contingent consideration (a)	$	0	$	0	$	1,323	$	1,323
Total liabilities	$	0	$	0	$	1,323	$	1,323

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:~~26, 2020:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities:
Liability for contingent consideration (a)	$	0	$	0	$	1,369	$	1,369
Total liabilities	$	0	$	0	$	1,369	$	1,369

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 fair values of the Company's contingent consideration liabilities from previous business acquisitions are considered "Level 3" measurements because the Company uses various estimates in the valuation models to project timing and amount of future contingent payments. 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 ~~30, 2017~~26, 2020 and December ~~24, 2016 (in thousands):~~28, 2019:

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
	(in thousands)
Balance September 26, 2020	$	1,369
Estimated contingent performance-based consideration established at the time of acquisition	0
Changes in the fair value of contingent performance-based payments established at the time of acquisition	(32)
Performance-based payments	(110)
Balance December 26, 2020	$	1,227

	Amount
	(in thousands)
Balance September 28, 2019	$	7,369
Estimated contingent performance-based consideration established at the time of acquisition	0
Changes in the fair value of contingent performance-based payments established at the time of acquisition	31
Performance-based payments	(6,077)
Balance December 28, 2019	$	1,323

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 ~~30, 2017~~26, 2020 and December ~~24, 2016,~~28, 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 October 2020, the Company issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). The estimated fair value of the Company's 2030 Notes as of December 26, 2020 was $522.1 million, compared to a carrying value of $492.1 million.

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 ~~30, 2017~~26, 2020, December 28, 2019 and September 26, 2020 was ~~$300.8~~$318.1 million, $312.2 million and $316.0 million, respectively, compared to a carrying value of ~~$295.5 million.~~$296.7 million, $296.2 million and $296.6 million, respectively.

In November ~~2015,~~2020, the Company ~~issued~~redeemed $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the “2023 Notes”) at a price of 101.531%. The estimated fair value of the Company’s 2023 Notes as of December ~~30, 2017, December 24, 2016~~28, 2019 and September ~~24, 2016~~26, 2020 was ~~$424.2 million, $421.4~~$413.8 million and ~~$427.9~~$409.2 million, respectively, compared to a carrying value of ~~$395.4 million, $394.6~~$397.0 million and ~~$395.2~~$397.5 million, respectively.

The estimated fair value is based on quoted market prices for these notes, which are Level 1 inputs within the fair value hierarchy.


3.	~~Acquisitions~~

~~K&H Manufacturing~~

~~On April 28, 2017,~~

3. Acquisitions and Divestitures

Acquisition

DoMyOwn

In December 2020, the Company ~~purchased K&H Manufacturing,~~acquired DoMyOwn, a ~~producer~~leading online retailer of ~~premium pet supplies and the largest marketer of heated pet~~professional-grade control products in the ~~country,~~United States, for ~~a purchase price of~~ approximately ~~$48.0~~$83 million. The ~~purchase price exceeded~~acquisition strengthens the ~~estimated fair value of the net tangible assets acquired by approximately $41.8 million, which is included in other assets~~Company's position in the ~~Company’s condensed consolidated balance sheet as of December 30, 2017.~~control products category and adds a leading online platform for eCommerce fulfillment and digital capabilities. The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired. ~~K&H sells branded pet products under~~Approximately $80 million of the ~~K&H~~purchase price remains unallocated, and ~~K&H Pet brands. The acquisition~~ is ~~expected to complement~~included in other assets on the Company's ~~existing dog~~condensed consolidated balance sheet as of December 26, 2020. The financial results of DoMyOwn have been included in the results of operations within the Garden segment since the date of acquisition.

Divestiture

Breeder's Choice

In December 2020, the Company completed the sale of certain assets of its Breeder's Choice business unit. Prior to the sale of Breeder's Choice assets, the Company recognized the financial results of the business unit in its Pet Segment. The Company received cash proceeds of $2.4 million and ~~cat business.~~sold approximately $4.7 million of current and long-term net assets. The Company recognized a loss on the sale of the Breeder's Choice business unit of approximately $2.6 million during the three months ended December 26, 2020 as part of selling, general and administrative expenses in the Company's condensed consolidated statement of operations.

4. Inventories, net


4.	~~Inventories, net~~

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


	December 26, 2020		December 28, 2019		September 26, 2020
	(in thousands)
Raw materials	$	167,135	$	156,464	$	152,692
Work in progress	58,175		68,489		49,312
Finished goods	335,086		314,213		218,847
Supplies	14,482		17,313		18,764
Total inventories, net	$	574,878	$	556,479	$	439,615

5. Goodwill

December 30, 2017 December 24, 2016 September 30, 2017
Raw materials $ 120,710
$ 125,324
$ 116,591
Work in progress 13,778
21,024
16,394
Finished goods 291,812
273,730
241,420
Supplies 14,121
10,093
7,696
Total inventories, net $ 440,421
$ 430,171
$ 382,101


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~~quantitative 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~~quantitative 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~~quantitative goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values, including goodwill. If the ~~fair~~carrying value of the reporting unit ~~is less than~~exceeds its ~~carrying~~fair value, the Company ~~performs~~will recognize an ~~additional step~~impairment loss in an amount equal 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~~limited to the ~~assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the~~total amount of goodwill ~~impairment, and, accordingly, the Company recognizes such impairment.~~allocated to that reporting unit. 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 months ended December 26, 2020 and December 28, 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 allocation of the purchase price paid for 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
	Gross		Accumulated Amortization			Accumulated Impairment			Net Carrying Value			(in millions)
						(in millions)
December 30, 2017
December 26, 2020											December 26, 2020
Marketing-related intangible assets – amortizable	$	16.9	$	(13.1	)	$	—		$	3.8	Marketing-related intangible assets – amortizable	$	20.6	$	(17.8)	$	0	$	2.8
Marketing-related intangible assets – nonamortizable	62.7		—			(26.0		)	36.7		Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	79.6		(13.1		)	(26.0		)	40.5		Total	91.2		(17.8)		(26.0)		47.4
Customer-related intangible assets – amortizable	91.6		(33.9		)	—			57.7		Customer-related intangible assets – amortizable	140.3		(66.8)		(2.5)		71.0
Other acquired intangible assets – amortizable	22.1		(13.2		)	—			8.9		Other acquired intangible assets – amortizable	26.0		(18.7)		0		7.3
Other acquired intangible assets – nonamortizable	7.8		—			(1.2		)	6.6		Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	29.9		(13.2		)	(1.2		)	15.5		Total	33.1		(18.7)		(1.2)		13.2
Total other intangible assets	$	201.1	$	(60.1	)	$	(27.2	)	$	113.7	Total other intangible assets	$	264.6	$	(103.3)	$	(29.8)	$	131.6
	Gross		Accumulated Amortization			Accumulated Impairment			Net Carrying Value			Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
						(in millions)						(in millions)
December 24, 2016
December 28, 2019											December 28, 2019
Marketing-related intangible assets – amortizable	$	14.9	$	(11.5	)	$	—		$	3.4	Marketing-related intangible assets – amortizable	$	20.6	$	(16.8)	$	0	$	3.8
Marketing-related intangible assets – nonamortizable	62.8		—			(26.0		)	36.8		Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	77.7		(11.5		)	(26.0		)	40.2		Total	91.2		(16.8)		(26.0)		48.4
Customer-related intangible assets – amortizable	64.3		(27.0		)	—			37.3		Customer-related intangible assets – amortizable	140.3		(56.0)		(2.5)		81.8
Other acquired intangible assets – amortizable	20.8		(11.9		)	—			8.9		Other acquired intangible assets – amortizable	26.0		(16.9)		0		9.1
Other acquired intangible assets – nonamortizable	7.7		—			(1.2		)	6.5		Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	28.5		(11.9		)	(1.2		)	15.4		Total	33.1		(16.9)		(1.2)		15.0
Total other intangible assets	$	170.5	$	(50.4	)	$	(27.2	)	$	92.9	Total other intangible assets	$	264.6	$	(89.7)	$	(29.7)	$	145.2
	Gross		Accumulated Amortization			Accumulated Impairment			Net Carrying Value			Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
						(in millions)						(in millions)
September 30, 2017
September 26, 2020											September 26, 2020
Marketing-related intangible assets – amortizable	$	16.9	$	(12.7	)	$	—		$	4.2	Marketing-related intangible assets – amortizable	$	20.6	$	(17.6)	$	0	$	3.0
Marketing-related intangible assets – nonamortizable	62.7		—			(26.0		)	36.7		Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	79.6		(12.7		)	(26.0		)	40.9		Total	91.2		(17.6)		(26.0)		47.6
Customer-related intangible assets – amortizable	91.6		(32.2		)	—			59.4		Customer-related intangible assets – amortizable	140.3		(64.1)		(2.5)		73.7
Other acquired intangible assets – amortizable	22.1		(12.9		)	—			9.2		Other acquired intangible assets – amortizable	26.0		(18.2)		0		7.8
Other acquired intangible assets – nonamortizable	7.8		—			(1.2		)	6.6		Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	29.9		(12.9		)	(1.2		)	15.8		Total	33.1		(18.2)		(1.2)		13.6
Total other intangible assets	$	201.1	$	(57.8	)	$	(27.2	)	$	116.1	Total other intangible assets	$	264.6	$	(99.9)	$	(29.8)	$	134.9

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 months ended December ~~30, 2017,~~26, 2020, and accordingly, no impairment testing was performed on these assets.

The Company amortizes its acquired intangible assets with definite lives over periods ranging from 3three years to 25 years; over weighted average remaining lives of 4three years for marketing-related intangibles, 10eight years for customer-related intangibles and 1110 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately ~~$2.3~~$3.4 million and ~~$1.4~~$3.8 million for the three months ended December ~~30, 2017~~26, 2020 and December ~~24, 2016,~~28, 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~~2021 through fiscal ~~2022~~2025 and thereafter.


7.	~~Long-Term Debt~~

7. Leases

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

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


	Balance Sheet Classification	As of December 26, 2020		As of December 28, 2019
		(in millions)
Operating leases
Right-of-use assets	Operating lease right-of-use assets	$	115.8	$	105.3
Current lease liabilities	Current operating lease liabilities	$	34.8	$	34.3
Non-current lease liabilities	Long-term operating lease liabilities	85.7		75.3
Total operating lease liabilities		$	120.5	$	109.6

Finance leases
Right-of-use assets	Property, plant and equipment, net	$	0.3	$	0.4
Current lease liabilities	Current portion of long-term debt	$	0.1	$	0.1
Non-current lease liabilities	Long-term debt	0.1		0.2
Total finance lease liabilities		$	0.2	$	0.3

Components of lease cost were as follows:


	Three months ended December 26, 2020		Three months ended December 28, 2019
	(in millions)
Operating lease cost	$	10.0	$	9.6
Finance lease cost:
Amortization of right-of-use assets	$	0	$	0
Interest on lease liabilities	0		0
Total finance lease cost	$	0	$	0

Short-term lease cost	$	0.9	$	0.7
Variable lease cost	$	2.2	$	0.9

Total lease cost	$	13.1	$	11.2

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


	Three Months Ended December 26, 2020		Three months ended December 28, 2019
	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8.7	$	8.6
Operating cash flows from finance leases	$	0	$	0
Financing cash flows from finance leases	$	0	$	0

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	9.3	$	2.5
Finance leases	$	0	$	0

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


	As of December 26, 2020		As of December 28, 2019

Weighted-average remaining lease term (in years):
Operating leases	4.7		4.9
Finance leases	1.8		2.6

Weighted-average discount rate:
Operating leases	3.16	%	3.88	%
Finance leases	4.81	%	4.86	%

Future non-cancelable lease payments are as follows:


	As of December 26, 2020
	Operating Leases		Finance Leases
Fiscal Year	(in millions)
2021 (remaining nine months)	$	37.7	$	0.1
2022	30.4		0.1
2023	19.7		0
2024	15.4		0
2025	11.9		0
Thereafter	15.2		0
Total future undiscounted lease payments	$	130.3	$	0.2
Less imputed interest	(9.8)		0
Total reported lease liability	$	120.5	$	0.2

8. Long-Term Debt

Long-term debt consists of the following:


	December 30, 2017			December 24, 2016			September 30, 2017				December 26, 2020		December 28, 2019		September 26, 2020
	(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	$	0	$	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
Senior notes, interest at 4.125%, payable semi-annually, principal due October 2030										Senior notes, interest at 4.125%, payable semi-annually, principal due October 2030	500,000		0		0
Unamortized debt issuance costs	(9,161		)	(5,436		)	(4,840		)	Unamortized debt issuance costs	(11,153)		(6,841)		(6,142)
Net carrying value	690,839			394,564			395,160			Net carrying value	788,847		693,159		693,858
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.	0		0		0

Other notes payable	497			844			493			Other notes payable	171		277		195
Total	691,336			395,408			395,653			Total	789,018		693,436		694,053
Less current portion	(372		)	(397		)	(375		)	Less current portion	(97)		(107)		(97)
Long-term portion	$	690,964		$	395,011		$	395,278		Long-term portion	$	788,921	$	693,329	$	693,956

Senior Notes

Issuance of $500 million 4.125% Senior Notes due 2030 and Redemption of $400 million 6.125% Senior Notes due 2023

In October 2020, the Company issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). In November 2020, the Company used a portion of the net proceeds to redeem all of its outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder for general corporate purposes.

The Company incurred approximately $8.0 million of debt issuance costs associated 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 2030 Notes.

As a result of the Company's redemption of the 2023 Notes, the Company incurred a call premium payment of $6.1 million, overlapping interest expense for 30 days of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized deferred financing costs related to the 2023 Notes. These amounts are included in interest expense in the condensed consolidated statements of operations.

The 2030 Notes require semiannual interest payments on October 15 and April 15, commencing April 15, 2021. The 2030 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 or guarantee Central's other debt.

The Company may redeem some or all of the 2030 Notes at any time, at its option, prior to October 15, 2025 at a price equal to 100% of the principal amount plus a “make-whole” premium. Prior to October 15, 2023, the Company may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. The Company may redeem some or all of the 2030 Notes, at its option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

The holders of the 2030 Notes have the right to require the Company to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2030 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 26, 2020.

$300 ~~Million~~million 5.125% Senior Notes due 2028

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~~used 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.~~1. The 2028 Notes are unconditionally guaranteed on a senior basis by the Company's existing and future domestic restricted subsidiaries ~~who~~which are borrowers under or guarantors of Central's senior secured revolving credit facility, or ~~who~~which guarantee ~~the 2023 Notes.~~Central's other debt.

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.~~26, 2020.

~~$400 Million 6.125% Senior Notes~~

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

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

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

The Company may redeem some or all of the 2023 Notes at any time, at its option, 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 covenants as of December 30, 2017.

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 up~~dated April 22, 2016 and continues to provide a $400 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 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 that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and adjustments. 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. Net availability under the Amended Credit Facility was $400 million as of December 26, 2020. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $40 million sublimit for short-notice borrowings. As of December ~~30, 2017,~~26, 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~~$2.4 million outstanding as of December ~~30, 2017.~~26, 2020.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate, ~~(defined~~plus, in either case, an applicable margin based on the Company's usage under the credit facility. Base Rate is 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. Such~~ and (d) 0.00%. The 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,~~26, 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.~~26, 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,~~26, 2020, the applicable interest rate related to Base Rate borrowings was ~~4.8%~~3.3%, and the applicable interest rate related to one-month LIBOR-based borrowings was ~~2.8%~~1.1%.

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. The Company is monitoring their efforts, and it will likely amend contracts to accommodate any replacement rate where it is not already provided. The Company's Amended Credit Facility already anticipates the potential loss of LIBOR and defines procedures for establishing a replacement rate.

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. The Company was in compliance with all financial covenants under the Amended Credit Facility during the ~~quarter~~period ended December ~~30, 2017.~~

26, 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 months ended December ~~30, 2017~~26, 2020 and December ~~24, 2016.~~28, 2019.


	Controlling Interest
	Common Stock		Class A Common Stock		Class B Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Noncontrolling Interest		Total
	(in thousands)
Balance September 26, 2020	$	113	$	419	$	16	$	566,883	$	510,781	$	(1,409)	$	1,076,803	$	871	$	1,077,674
Comprehensive income	—		—		—		—		5,613		377		5,990		29		6,019
Amortization of share-based awards	—		—		—		3,225		—		—		3,225		—		3,225
Restricted share activity, including net share settlement	—		3		—		(364)		—		—		(361)		—		(361)

Distribution to Noncontrolling interest	—		—		—		—		—		—		—		(478)		(478)
Issuance of common stock, including net share settlement of stock options	—		—		—		934		—		—		934		—		934
Balance December 26, 2020	$	113	$	422	$	16	$	570,678	$	516,394	$	(1,032)	$	1,086,591	$	422	$	1,087,013

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
	Common Stock		Class A Common Stock		Class B Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Noncontrolling Interest		Total
	(in thousands)
Balance September 28, 2019	$	115	$	430	$	16	$	575,380	$	421,742	$	(1,676)	$	996,007	$	170	$	996,177
Comprehensive income	—		—		—		—		(4,417)		436		(3,981)		(122)		(4,103)
Amortization of share-based awards	—		—		—		2,804		—		—		2,804		—		2,804
Restricted share activity, including net share settlement	—		—		—		(318)		—		—		(318)		—		(318)
Repurchase of stock			(8)				(8,488)		(13,632)				(22,128)				(22,128)
Issuance of common stock, including net share settlement of stock options	—		1		—		739		—		—		740		—		740

Balance December 28, 2019	$	115	$	423	$	16	$	570,117	$	403,693	$	(1,240)	$	973,124	$	48	$	973,172

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~~

10. Stock-Based Compensation

The Company recognized share-based compensation expense of ~~$2.7~~$4.7 million and ~~$2.7~~$4.2 million for the three months ended December ~~30, 2017~~26, 2020 and December ~~24, 2016,~~28, 2019, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the three months ended December ~~30, 2017~~26, 2020 and December ~~24, 2016~~28, 2019 was ~~$0.7~~$1.1 million and $1.0 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.


	Three Months Ended
	December 26, 2020
	Income		Shares	Per Share
	(in thousands, except per share amounts)
Basic EPS:
Net income available to common shareholders	$	5,613	53,734	$	0.10
Effect of dilutive securities:
Options to purchase common stock	0		414	0
Restricted shares	0		538	0
Diluted EPS:
Net income available to common shareholders	$	5,613	54,686	$	0.10

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


	Three Months Ended
	December 28, 2019
	Income		Shares	Per Share
	(in thousands, except per share amounts)
Basic EPS:
Net income available to common shareholders	$	(4,417)	54,755	$	(0.08)
Effect of dilutive securities (1):
Options to purchase common stock	0		0	0
Restricted shares	0		0	0
Diluted EPS:
Net income available to common shareholders	$	(4,417)	54,755	$	(0.08)

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

(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.

Options to purchase ~~2.4~~3.0 million shares of common stock at prices ranging from ~~$6.43~~$10.63 to ~~$33.15~~$38.97 per share were outstanding at December ~~30, 2017,~~26, 2020, and options to purchase ~~2.9~~2.6 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.~~28, 2019.

For the three months ended December ~~30, 2017~~26, 2020 andDecember ~~24, 2016, all~~28, 2019, 0.5 million and 1.0 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 three months ended December 28, 2019, 0.4 million options outstanding and 0.3 million restricted shares were excluded in the diluted earnings per share calculation because their inclusion in a net loss period would be anti-dilutive to the earnings per share calculation.


~~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).~~below.


								Three Months Ended
	Three Months Ended							December 26, 2020		December 28, 2019
	December 30, 2017			December 24, 2016				(in thousands)
Net sales:							Net sales:
Pet segment	$	325,084		$	304,046		Pet segment	$	436,410	$	366,591
Garden segment	116,927			115,452			Garden segment	155,820		116,237
Total net sales	$	442,011		$	419,498		Total net sales	$	592,230	$	482,828

Operating Income							Operating Income
Pet segment	36,176			33,406			Pet segment	43,525		28,737
Garden segment	2,300			2,676			Garden segment	4,651		(6,883)
Corporate	(15,955		)	(16,144		)	Corporate	(21,136)		(19,789)
Total operating income	22,521			19,938			Total operating income	27,040		2,065
Interest expense - net	(7,218		)	(6,835		)	Interest expense - net	(20,769)		(8,637)
Other expense	(3,089		)	(967		)
Income tax (benefit) expense	(14,236		)	4,347
Income including noncontrolling interest	26,450			7,789
Net income attributable to noncontrolling interest	203			152
Net income attributable to Central Garden & Pet Company	$	26,247		$	7,637
Other income							Other income	752		305
Income tax expense (benefit)							Income tax expense (benefit)	1,381		(1,728)
Income (loss) including noncontrolling interest							Income (loss) including noncontrolling interest	5,642		(4,539)
Net income (loss) attributable to noncontrolling interest							Net income (loss) attributable to noncontrolling interest	29		(122)
Net income (loss) attributable to Central Garden & Pet Company							Net income (loss) attributable to Central Garden & Pet Company	$	5,613	$	(4,417)
Depreciation and amortization:							Depreciation and amortization:
Pet segment	$	7,145		5,830			Pet segment	$	9,085	$	9,072
Garden segment	1,569			1,507			Garden segment	2,638		2,713
Corporate	2,449			2,672			Corporate	1,192		1,355
Total depreciation and amortization	$	11,163		$	10,009		Total depreciation and amortization	$	12,915	$	13,140


	December 26, 2020		December 28, 2019		September 26, 2020
	(in thousands)
Assets:
Pet segment	$	911,787	$	884,564	$	877,901
Garden segment	599,097		470,413		481,401
Corporate	935,215		780,180		980,062
Total assets	$	2,446,099	$	2,135,157	$	2,339,364
Goodwill (included in corporate assets above):
Pet segment	$	277,067	$	276,966	$	277,067
Garden segment	12,888		12,888		12,888
Total goodwill	$	289,955	$	289,854	$	289,955

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:


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


	Three Months Ended December 26, 2020
	Pet Segment		Garden Segment		Total
	(in millions)
Other pet products	$	182.2	$	0	$	182.2
Dog and cat products	155.5		0		155.5
Other manufacturers' products	98.7		44.0		142.7
Garden controls and fertilizer products	0		29.1		29.1
Other garden supplies	0		82.7		82.7
Total	$	436.4	$	155.8	$	592.2

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:

~~Farnam Companies, Inc.~~


	Three Months Ended December 28, 2019
	Pet Segment		Garden Segment		Total
	(in millions)
Other pet products	$	150.9	$	0	$	150.9
Dog and cat products	129.9		0		129.9
Other manufacturers' products	85.8		29.8		115.6
Garden controls and fertilizer products	0		23.1		23.1
Other garden supplies	0		63.3		63.3
Total	$	366.6	$	116.2	$	482.8

~~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 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
13. Contingencies

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 U.S. 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 3 claims and awarded damages of approximately $12.6 million. The court ruled on post-trial motions in early June 2020, reducing the judgment amount to $12.4 million and denying the plaintiff's request for attorneys' fees. The Company has filed its notice of appeal and the plaintiffs have cross-appealed. The Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.

During fiscal 2013, the Company received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking unclaimed property subject to escheat laws, the states may seek interest, penalties and other relief. The examinations are continuing; however, the ultimate resolution and impact on the Company’s consolidated financial statements is uncertain.

In November 2019, the DMC business unit in the Company's Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 million to $40 million. In April 2020, DMC experienced an additional fire in the same leased property in Athens, Texas, which resulted in inventory and property-related losses estimated to be approximately $10 million.

As of December 26, 2020, the Company had approximately $10 million of cost in excess of insurance proceeds related to these losses recorded on its balance sheet. The Company currently believes its insurance coverage is sufficient to cover the remaining asset-related losses as well as the business interruption loss associated with this event.

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

14. Subsequent Events

On December 31, 2020, the Company purchased substantially all of the assets of Hopewell Nursery, a leading live goods wholesale grower serving retail nurseries, landscape contractors, wholesalers and garden centers across the Northeast, for approximately $81 million. The addition of Hopewell to the Central portfolio strengthens the Company's position as a leading live goods provider in the garden category.

On December 30, 2020, the Company entered into a definitive agreement to acquire Green Garden Products, a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients in North America, for approximately $532 million. The acquisition is expected to be consummated in February 2021. The addition of Green Garden Products is intended to expand the Company's portfolio into an adjacent garden category.


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

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

Our Company

Central Garden & Pet Company (“Central”) is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States. ~~The total pet food, treats~~Founded initially as a distribution company, we grew our business through a succession of over 50 acquisitions and ~~supplies industry in 2016 was estimated by Packaged Facts~~created a broad portfolio which allows for economies of scale and the pet industry to have been approximately $55.9 billion in annual retail sales. We estimate the annual retail sales of the pet supplies, live animal, and consumables and natural pet food markets in the categories in which we participate to be approximately $28.0 billion. The total lawn and garden consumables and decorative products industry in the United States is estimated to be approximately $27.6 billion in annual retail sales, including fertilizer, pesticides, growing media, seeds, mulch, other consumables and decorative products. We estimate the annual retail sales of the lawn and garden consumables and decorative products markets in the categories in which we participate to be approximately $18.9 billion.market advantages.

Our pet supplies ~~products~~ include products for dogs and cats ~~including~~like premium edible ~~bones, premium healthy edible and non-edible~~ chews ~~super premium dog and cat food~~ and treats, dog chew toys, dog play toys, natural dog treats and chews, pet ~~carriers,~~dental chews and solutions, dog training pads, pet containment, 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.~~livestock, as well as outdoor cushions and pillows. These products are sold under the brands including ~~Adams~~^™Aqueon®, ~~Aqueon~~^®Cadet®, ~~Avoderm~~^®Comfort Zone®, ~~Bio Spot Active Care~~^™~~, Cadet~~^®~~, Farnam~~^®Farnam®, Four ~~Paws~~^®Paws®, ~~Kaytee~~^®Kaytee®, K&H Pet ~~Products~~^®Products®, ~~Nylabone~~^®Nylabone®, ~~Pinnacle~~^®~~, TFH~~^™~~, Zilla~~^®and Zilla® as well as a number of other brands including ~~Altosid~~^®Adams™, ~~Comfort Zone~~^®Altosid®, ~~Coralife~~^®Arden Companies™, ~~Interpet~~^®Coralife®, ~~Kent Marine~~^®C&S Products®, Interpet®, Pet ~~Select~~^®Select®, ~~Super Pet~~^®TFH™, 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 and other wood products.~~as well as live plants. These products are sold under the brands AMDRO^®, Ironite^®, Pennington^®, and Sevin^®, as well as a number of other brand names including Bell Nursery, Lilly Miller^®~~, Over-N-Out~~^®~~, Smart Seed~~^® and ~~The Rebels~~^Over-N-Out®.

In fiscal ~~2017,~~2020, our consolidated net sales were ~~$2,054 million,~~$2.7 billion, of which our Pet segment, or Pet, accounted for approximately ~~$1,246 million~~$1.6 billion and our Garden segment, or Garden, accounted for approximately ~~$808 million.~~$1.1 billion. In fiscal ~~2017,~~2020, our operating income was ~~$156~~$198 million consisting of income from our Pet segment of ~~$132~~$154 million, income from our Garden segment of ~~$87~~$133 million and corporate expenses of ~~$63~~$89 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~~.www.central.com. The information on our website is not incorporated by reference in this ~~annual~~quarterly report.

Recent Developments

Fiscal ~~2018~~2021 First Quarter Financial Performance:

•Net sales increased ~~$22.5~~$109.4 million, or ~~5.4%~~22.7%, from the prior year quarter to ~~$442.0~~$592.2 million .due to an increase in organic sales. Pet segment sales increased ~~$21.1~~$69.8 million, and Garden segment sales increased ~~$1.4~~$39.6 million.

•Organic net sales ~~improved~~ 1%.

increased 23.0%, including 19.6% in our Pet segment and 33.8% in our Garden segment.

•Gross profit increased $34.1 million from the prior year quarter, and gross margin increased ~~100~~70 basis points to ~~29.8%, and gross profit increased $11.2 million.~~27.9%.

•Selling, general &and administrative expense increased ~~$8.6~~$9.2 million ~~to $109.3 million.~~

~~Operating income improved $2.6 million, or 13.0%,~~ from the prior year quarter to ~~$22.5~~$138.4 million, but declined as a percentage of net sales 340 basis points to 23.4%.

•Operating income increased $25.0 million from the prior year quarter, to $27.0 million.

•Net income in the first quarter of fiscal ~~2018. Excluding~~2021 was $5.6 million, or $0.10 per diluted share, compared to a net loss of $4.4 million, or $0.08 loss per diluted share, in the ~~gain~~first quarter of fiscal 2020.

Financing

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030. We used a portion of the proceeds to redeem all of our outstanding 6.125% senior notes due 2023 at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder available for general corporate purposes.As a result of our redemption of the 2023 Notes, we recognized incremental expenses in our fiscal 2021 first quarter of approximately $10 million related to the payment of the call premium, the payment of overlapping interest expense between the issuance of the 2030 Notes and redemption of the 2023 Notes and a non-cash charge for the write-off of unamortized financing costs, which are included in interest expense.

Acquisition

On December 18, 2020, we acquired DoMyOwn, a leading, fast-growing online retailer of professional-grade control products, for approximately $83 million.The acquisition strengthens our position in the control products category and adds a leading online platform for eCommerce fulfillment and digital capabilities.

Divestiture

In December 2020, we sold our Breeder’s Choice business unit, a manufacturer of branded and private label pet food, after concluding it was not a strategic business for our Pet segment. We recognized a loss on the sale of approximately $2.6 million in the quarter ended December 26, 2020, which is included in selling, general and administrative expense. The business represented approximately $28 million in revenue in fiscal 2020.

Change in Segment Components

During the first quarter of fiscal year 2021, we began reporting the results of our outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources.These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment.All prior period segment disclosures have been recast to reflect this segment change.

COVID-19 Impact

The outbreak of COVID-19 has led to adverse impacts on human health, the global 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, customers and business.

From the beginning, our priority has been the safety of our employees, customers and consumers.Our employees have prioritized the health and safety of fellow team members while collaborating across our business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers.We have a cross-functional task force to monitor the continually evolving situation to recommend action and mitigation of potential impacts to our people and business.Our facility maintenance of health and safety standards remains paramount.

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;

•Implement 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 has seen varying impacts to our Garden and Pet businesses due to COVID-19.In March and April of 2020, 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 May 2020, many state and county governments began phased re-openings of their local economies and access to outdoor garden departments resulted in increased demand for our products in May and June 2020.Additionally, during shelter-in-place requirements, pet ownership significantly increased and sales continued to increase across our Pet segment portfolio.We also experienced a rapid increase in demand in the eCommerce channel.During July through September 2020, our fiscal 2020 fourth quarter, most of our businesses continued to experience high sales.This same trend continued during October through December 2020, our first quarter of fiscal 2021.The increased demand for our products continues to place challenges on our supply chain and our ability to procure and manufacture enough product to meet the continued high levels of demand.

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.Recently, new cases of COVID-19 have been on the rise in the United States, and we have seen a similar rise in our employee population.Our manufacturing facilities and distribution centers are currently open and fully operational.We have incurred and will continue to incur additional costs including personal protective equipment and sanitation costs.The pandemic and near-term increase in demand have created operational challenges for our distribution network, although none have had a material impact on our results to date.In our supply chain, it is possible we will continue to experience increased operational and logistics costs, although these did not have a material impact on our first fiscal quarter results.We may also experience additional disruptions in our supply chain as the pandemic continues, although 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 have sufficient liquidity to satisfy our cash needs with our cash and revolving credit facility as we manage through the current economic and health environment.Our revolving credit facility provides up to a $400 million principal amount with an additional $200 million available with the consent of the lenders.As of December 26, 2020, there were no borrowings outstanding under our revolving credit facility.Additionally, in October 2020, we issued $500 million aggregate principal amount 4.125% senior notes due October 2030 to replace $400 million in senior notes with the remainder available for general corporate purposes.

It is possible 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 cash flow.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.We recorded an impairment charge of $3.6 million in fiscal 2020 and may be required to write off certain assets that could be material in future periods.

While the unfavorable impact of COVID-19 began to adversely affect the performance in certain portions of our business in March and April 2020, thereafter we have continued to see a large increase in demand in most areas of our business.Our net sales increased 22.7% in our first fiscal quarter of 2021 but a few of our businesses continue to experience demand or profitability headwinds, including our pet bedding business.The volatility in demand, changing consumer consumption patterns and uncertainty regarding the duration of shelter-in-place requirements make it difficult to predict when more normal order patterns may return.Forecasting and planning remain challenging in the current environment and will continue to be challenging as the pandemic eases in the future.In the current uncertain environment, our employees, customers and consumers will continue to be our priority as we manage our business to deliver long-term growth.

Subsequent Events

On December 31, 2020, we purchased substantially all of the assets of Hopewell Nursery, a leading live goods wholesale grower serving garden centers, retail nurseries, landscape contractors and wholesalers across the Northeast, for approximately $81 million. The addition of Hopewell to the Central portfolio strengthens our position as a leading live goods provider in the garden segment

On December 30, 2020, we entered into a definitive agreement to acquire Green Garden Products, a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients in North America, for approximately $532 million. The acquisition is expected to be consummated in February 2021. The addition of Green Garden Products is intended to expand our garden portfolio into an adjacent category.

Results of Operations

Three Months Ended December 26, 2020

Compared with Three Months Ended December 28, 2019

Net Sales

Net sales for the three months ended December 26, 2020 increased $109.4 million, or 22.7%, to $592.2 million from $482.8 million for the three months ended December 28, 2019. Organic net sales, which exclude the impact of acquisitions and divestitures in the last 12 months, increased $111.0 million, or 23.0%, as compared to the fiscal 2020 quarter. Our branded product sales increased $82.3 million, and sales of other manufacturers’ products increased $27.1 million.

Pet net sales increased $69.8 million, or 19.0%, to $436.4 million for the three months ended December 26, 2020 from $366.6 million for the three months ended December 28, 2019. The increase was broad-based across our entire Pet portfolio. Increased sales in our Pet segment were aided by COVID-19 shelter-in-place restrictions, which have led to increased pet ownership in dog, cat, small animals and reptiles. Organic sales gains were primarily in our dog and cat business, third-party products, wild bird feed and our animal health business. Pet branded product sales increased $56.9 million, and sales of other manufacturers' products increased $12.9 million.

Garden net sales increased $39.6 million, or 34.1%, to $155.8 million for the three months ended December 26, 2020 from $116.2 million for the three months ended December 28, 2019. The increase in net sales in the Garden segment was driven by increased consumer home gardening related to COVID-19 shelter-in-place restrictions, listing gains and favorable fall garden season weather. The increase in net sales was broad-based across our Garden portfolio including volume-based sales increases in third-party products, wild bird feed, grass seed and controls and fertilizers. Garden branded sales increased $25.4 million, and sales of other manufacturers' products increased $14.2 million.

Gross Profit

Gross profit for the three months ended December 26, 2020 increased $34.1 million, or 26.0%, to $165.4 million from $131.3 million for the three months ended December 28, 2019. Gross margin increased 70 basis points to 27.9% for the three months ended December 26, 2020 from 27.2% for the three months ended December 28, 2019. Gross profit and gross margin increased in both operating segments with the consolidated gross margin increase due primarily to the improvement in the Garden segment gross margin.

In the Pet segment, both gross profit and gross margin improved. Gross profit increased due to increased sales and margin improvement. Gross margin improved due primarily to a favorable sales mix, volume-related efficiencies and increased pricing.These improvements were partially offset by increased commodity costs in our wild bird feed business, increased ocean freight costs, which impacted our aquatics and dog bedding businesses and increased labor costs.

In the Garden segment, both gross profit and gross margin increased. Gross profit improved due to the increased sales and gross margin gains. The Garden gross margin improved in most of the Garden business units due primarily to increased sales which leveraged fixed production costs.This impact was especially noteworthy in our live plant and in our grass seed businesses.The increased gross margin was partially offset by a decline in gross margin in our wild bird feed business, which was adversely impacted by increased commodity costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $9.2 million, or 7.1%, to $138.4 million for the three months ended December 26, 2020 from $129.2 million for the three months ended December 28, 2019. Selling, general and administrative expense increased in both operating segments and in corporate. As a percentage of net sales, selling, general and administrative expenses decreased to 23.4% for the three months ended December 26, 2020, compared to 26.8% in the comparable prior year quarter impacted by improved operating leverage and reduced travel and entertainment expense.

Selling and delivery expense increased to $66.4 million for the three months ended December 26, 2020 as compared to $62.6 million in the prior year quarter.The increase was due primarily to increased delivery expense, as a result of increased sales volumes, and increased payroll-related costs. These increases were partially offset by reduced travel and entertainment expense, due to COVID-19 safety measures reducing our in-store merchandising presence and travel in general.

Warehouse and administrative expense increased $5.4 million, or 8.1%, to $72.0 million for the three months ended December 26, 2020 from $66.6 million for the three months ended December 28, 2019. The increase was due primarily to the $2.6 million loss in our Pet segment resulting from the sale of the Breeder’s Choice business.Additionally, both operating segments experienced increased labor and payroll-related expense. Corporate expenses increased $1.3 million due primarily to increased variable compensation, payroll expense and increased M&A expense. 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 $25.0 million to $27.0 million for the three months ended December 26, 2020. The increase in operating income was attributable to increased sales and an improved gross margin partially offset by increased selling, general and administrative expense. Our operating margin increased from 0.4% in the prior year quarter to 4.6% in the current year quarter due to a 70 basis point improvement in gross margin, improved overhead leverage, and a 340 basis point decline in selling, general and administrative expense as a percentage of net sales.

Pet operating income increased $14.8 million, or 51.5%, to $43.5 million for the three months ended December 26, 2020 from $28.7 million for the three months ended December 28, 2019. Pet operating income increased due to increased sales and gross profit partially offset by higher selling, general and administrative expense. Pet operating margin improved ~~$4.6 million.~~220 basis points due to increased sales, an improved gross margin and lower selling, general and administrative expense as a percentage of net sales.

Garden operating income increased $11.5 million to $4.7 million for the three months ended December 26, 2020 from a $6.9 million loss for the three months ended December 28, 2019. Garden operating income increased due to increased sales and gross profit partially offset by higher selling, general and administrative expense. Garden operating margin improved to 3.0% due to increased sales, an improved gross margin and lower selling, general and administrative expense as a percentage of net sales.

Corporate operating expense increased $1.3 million, or 6.8%, to $21.1 million for the three months ended December 26, 2020 from $19.8 million for the three months ended December 28, 2019. Corporate expense increased due primarily to increased variable compensation, payroll expense and increased M&A expense, but declined as a percentage of net sales.

Net Interest Expense

Net interest expense for the three months ended December 26, 2020 increased $12.2 million, or 140.5%, to $20.8 million from $8.6 million for the three months ended December 28, 2019. In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 and used the proceeds to redeem all of our outstanding aggregate principal amount 6.125% senior notes due 2023 with the remainder available for general corporate purposes.As a result of our redemption of the 2023 Notes, we recognized incremental interest expense of approximately $10.0 million in the fiscal 2021 quarter. Also contributing to the increase in net interest expense was reduced interest income resulting from lower rates of interest earned on our cash balance during the quarter.

Debt outstanding on December 26, 2020 was $789.0 million compared to $693.4 million at December 28, 2019.

Other Income (Expense)

Other 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 income was $0.8 million for the quarter ended December 26, 2020 compared to income of $0.3 million for the quarter ended December 28, 2019, due primarily to increased earnings from investments during the quarter.

Income Taxes

Our effective income tax rate was 19.7% for the quarter ended December 26, 2020 compared to 27.6% for the quarter ended December 28, 2019.Both periods had a similar excess tax benefit from stock compensation (a discrete tax item).The quarter ended December 26, 2020 had pre-tax income and the discrete tax item decreased the tax expense rate while the quarter ended December 28, 2019 had a pre-tax loss and the discrete tax item increased the tax benefit rate in that quarter.

Net Income and Earnings Per Share

Our net income in the first quarter of fiscal ~~2018~~2021 was ~~$26.2~~$5.6 million, or ~~$0.50~~$0.10 per diluted share, compared to ~~$7.6~~a net loss of $4.4 million, or ~~$0.15~~$(0.08) per diluted share, in the first quarter of fiscal ~~2017.~~2020.

Adjusting for 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 in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP ~~operating income on a consolidated and segment basis and non-GAAP~~ net income and diluted net income per ~~share.~~share, 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.

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.

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. 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.

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~~•Incremental expenses from note redemption 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:~~ issuance:we have excluded the impact of ~~gains or losses on~~ the ~~disposal of facilities~~incremental expenses incurred from the note redemption and issuance as ~~these~~they represent an infrequent ~~transactions~~transaction that ~~impact~~occurs in limited circumstances that impacts the comparability between operating periods.We believe the adjustment of these ~~gains or losses~~expenses 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~~•Loss on sale of business:we have excluded 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~~loss on the ~~consolidated effective tax rate on~~sale of a business as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods.We believe the adjustment of this loss supplements the GAAP ~~basis, applied to the non-GAAP adjustments, unless the underlying item has~~information with a ~~materially different tax treatment.~~

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

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)~~	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.

(1)During the first quarter of fiscal 2021, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030. We used the proceeds to redeem all of our outstanding 6.125% senior notes due 2023.As a result of our redemption of the 2023 Notes, we incurred incremental expenses of approximately $10.0 million, comprised of a call premium payment of $6.1 million, overlapping interest expense of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized financing costs in interest expense.These amounts are included in Interest expense in the consolidated statements of operations.

(2)During the first quarter of fiscal 2021, we recognized a loss of $2.6 million, included in selling, general and administrative expense in the consolidated statement of operations, from the sale of our Breeder’s Choice business unit after concluding it was not a strategic business for our Pet segment.

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 For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation		December 26, 2020		December 28, 2019
		(in thousands, except per share amounts)
GAAP net income (loss) attributable to Central Garden & Pet Company		$	5,613	$	(4,417)
Incremental expenses from note redemption and issuance	(1)	9,952		—
Loss on sale of business	(2)	2,611		—
Tax effect of incremental expenses and loss on sale		(2,470)		—
Non-GAAP net income (loss) attributable to Central Garden & Pet Company		$	15,706	$	(4,417)
GAAP diluted net income (loss) per share		$	0.10	$	(0.08)
Non-GAAP diluted net income (loss) per share		$	0.29	$	(0.08)
Shares used in GAAP and non-GAAP diluted net earnings per share calculation		54,686		54,755

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 For the Three Months Ended December 26 2020
	Consolidated				Pet Segment				Garden Segment
			Percent change				Percent change				Percent change
	(in millions)
Reported net sales - Q1 FY21 (GAAP)	$	592.2			$	436.4			$	155.8
Reported net sales - Q1 FY20 (GAAP)	482.8				366.6				116.2
Increase in net sales	109.4		22.7	%	69.8		19.0	%	39.6		34.1	%
Effect of acquisition and divestitures on increase in net sales	1.6				1.9				(0.3)
Increase in organic net sales - Q1 FY21	$	111.0	23.0	%	$	71.7	19.6	%	$	39.3	33.8	%


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation For the Three Months Ended December 26, 2020
	Garden		Pet		Corp		Total
	(in thousands)
Net income attributable to Central Garden & Pet Company	—		—		—		$	5,613
Interest expense, net	—		—		—		20,769
Other income	—		—		—		(752)
Income tax expense	—		—		—		1,381
Net income attributable to noncontrolling interest	—		—		—		29
Sum of items below operating income	—		—		—		21,427
Income (loss) from operations	$	4,651	$	43,525	$	(21,136)	$	27,040
Depreciation & amortization	2,638		9,085		1,192		12,915
EBITDA	$	7,289	$	52,610	$	(19,944)	$	39,955

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 %


EBITDA Reconciliation	GAAP to Non-GAAP Reconciliation For the Three Months Ended December 28, 2019
	Garden		Pet		Corp		Total
	(in thousands)
Net loss attributable to Central Garden & Pet Company	—		—		—		$	(4,417)
Interest expense, net	—		—		—		8,637
Other income	—		—		—		(305)
Income tax benefit	—		—		—		(1,728)
Net loss attributable to noncontrolling interest	—		—		—		(122)
Sum of items below operating income	—		—		—		6,482
Income (loss) from operations	$	(6,883)	$	28,737	$	(19,789)	$	2,065
Depreciation & amortization	2,713		9,072		1,355		13,140
EBITDA	$	(4,170)	$	37,809	$	(18,434)	$	15,205

~~Results of Operations~~

~~Three Months Ended December 30, 2017~~

~~Compared with Three Months Ended December 24, 2016~~

~~Net Sales~~

Net sales for the three months ended December 30, 2017 increased $22.5 million, or 5.4%, to $442.0 million from $419.5 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. Organic net sales, which excludes the impact of acquisitions and divestitures in the last 12 months, increased $4.8 million, or 1.1%, as compared to the fiscal 2016 quarter.

Pet net sales increased $21.1 million, or 6.9%, to $325.1 million for the three months ended December 30, 2017 from $304.0 million for the three months ended December 24, 2016. The increase in net sales was due primarily to sales from our acquisitions 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 business partially offset by a decline in wild bird feed. Sales of other manufacturers’ products increased $0.9 million.

~~Gross Profit~~

Gross profit for the three months ended December 30, 2017 increased $11.2 million, or 9.2%, to $131.8 million from $120.6 million for the three months ended December 24, 2016. Gross margin increased 100 basis points to 29.8% for the three months ended December 30, 2017 from 28.8% for the three months ended December 24, 2016. Both operating segments contributed to the increase in gross profit and improved gross margin. The increase in gross margin in our Garden segment was due primarily to improved gross margins in most of our Garden segment businesses, which benefited from our cost savings initiatives, only partially offset by a decline in our wild bird feed business. The increase in our gross margin in our Pet segment was favorably impacted by our two fiscal 2017 acquisitions as their gross margins were above the Pet segment's as a whole and by improved margins.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses increased $8.6 million, or 8.5%, to $109.3 million for the three months ended December 30, 2017 from $100.7 million for the three months ended December 24, 2016. Increased expense in both operating segments in the quarter was partially offset by a minor decrease at Corporate. As a percentage of net sales, selling, general and administrative expenses increased to 24.7% for the three months ended December 30, 2017, compared to 24.0% in the comparable prior year quarter.

Selling and delivery expense increased $3.4 million, or 6.9%, to $53.9 million for the three months ended December 30, 2017 from $50.5 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 from $50.2 million for the three months ended December 24, 2016. Increased expense in the Pet segment, due primarily to the two acquisitions made in fiscal 2017, 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. 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 million to $22.5 million for the three months ended December 30, 2017 from $19.9 million for the three months ended December 24, 2016. Increased sales of $22.5 million and an improved gross margin were partially offset by a $8.6 million increase 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 expenses as a percentage of net sales. Adjusting for the gain from the sales of

a distribution facility 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.

Pet operating income increased $2.8 million, or 8.3%, to $36.2 million for the three months ended December 30, 2017 from $33.4 million for the three months ended December 24, 2016. The increase was due to increased sales of $21.1 million and an improved gross margin, partially offset by increased selling, general and administrative expenses. 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 due to an improved gross margin partially offset by increased selling, general and administrative expenses as a percentage of net sales.

Garden operating income decreased $0.4 million to $2.3 million for the three months ended December 30, 2017 from $2.7 million for the three months ended December 24, 2016. Garden operating margin decreased to 2.0% for the three months ended December 30, 2017 from 2.3% 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 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.

~~Net Interest Expense~~

Net interest expense for the three months ended December 30, 2017 increased $0.4 million, or 5.6%, to $7.2 million from $6.8 million for the three months ended December 24, 2016. The increase in interest expense was due to higher average debt outstanding 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 was $691.3 million compared to $395.4 million as of December 24, 2016.~~

~~Other Expense~~

Other 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 $1.0 million for the quarter ended December 24, 2016 due to losses recorded from two investments made in fiscal 2017. One 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 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 in the quarter ended December 30, 2017:~~

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

•~~A lower expected corporate federal income tax rate 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 30, 2017. As a result, we now record excess tax benefits resulting from stock compensation in the provision for income taxes. For the current year quarter, this resulted 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 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 to the remeasurement of our net long-term deferred tax liabilities.~~

~~Net Income and Earnings Per Share~~

~~Our net income in the first quarter of fiscal 2018 was $26.2 million, or $0.50 per diluted share, compared to $7.6 million, or $0.15 per diluted share, in the first quarter of fiscal 2017.~~

Adjusting for the provisional 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 share in the first quarter of fiscal 2017.

We have adjusted for the provisional transitional impact on our deferred tax accounts of the Tax Reform Act. The adjustment does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.

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.

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,~~2020 and in the first quarter of fiscal 2021, commodity costs ~~generally declined, but~~as well as freight and labor costs increased. In fiscal 2020, tariffs implemented during the year did have a negative impact in ~~past years~~instances where we ~~have been impacted by volatility in a number of commodities, including grass seed and wild bird feed grains. We continue~~were unable to ~~monitor commodity prices in order to be in a position to take action to mitigate~~pass through the ~~impact of increasing raw material~~incremental 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,~~2020, approximately ~~66%~~67% of our Garden segment’s net sales and ~~56%~~57% 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%~~67% 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~~$18.1 million, from ~~$13.3~~$18.0 million for the three months ended December ~~24, 2016,~~28, 2019, to ~~$24.2~~$36.1 million for the three months ended December ~~30, 2017.~~26, 2020. The increase in cash used was due primarily to changes in our working capital accounts for the period ended December ~~30, 2017,~~26, 2020, as compared to the prior year period, ~~as the~~primarily an increase in ~~net income~~inventory, due to our seasonal build in preparation for the ~~three months ended December 30, 2017 was offset by~~lawn and garden season and the ~~non-cash effects of the impact of the Tax Reform Act as described in Note 1.~~overall increased demand for our products.

Investing Activities

Net cash used in investing activities ~~decreased $51.7~~increased $83.0 million, from ~~$67.4~~$10.4 million for the three months ended December ~~24, 2016~~28, 2019 to ~~$15.7~~$93.4 million during the three months ended December ~~30, 2017.~~26, 2020. The ~~decrease~~increase in cash used in investing activities was due primarily to ~~decreased~~ acquisition activity in the current year and 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 quarter of 2017, we acquired Segrest Inc., a wholesaler of aquarium fish, for total aggregate consideration of $60 million. This acquisition activity was partially offset by ~~an increase in~~ proceeds received from the sale of ~~a small veterinary division and a distribution facility in~~ our ~~Garden segment~~Breeder's Choice business during the first ~~fiscal~~ quarter of ~~2017. We also had a decrease in capital expenditures~~fiscal 2021. During the first quarter of fiscal 2021, we acquired DoMyOwn for approximately ~~$4.8 million in the current year period compared to the prior year period.~~

$81 million.

Financing Activities

Net cash provided by financing activities increased ~~$296.5~~$108.4 million, from ~~$5.5~~$24.0 million of cash used ~~by financing activities~~ for the three months ended December ~~24, 2016,~~28, 2019, to ~~$291.0~~$84.4 million of cash provided ~~by financing activities~~ for the three months ended December ~~30, 2017.~~26, 2020. The increase in cash provided by financing activities during the current year was due primarily to ~~our December 2017~~the issuance of ~~$300~~$500 million ~~aggregate principal amount 5.125% senior notes due February 2028,~~of our 2030 Notes, partially offset by ~~deferred financing~~the repayment of our 2023 Notes and the corresponding premium paid on extinguishment as well as debt issuance costs incurred on the issuance of the 2030 Notes. There were also decreased open market purchases of our common stock during the current year period as compared to the prior year. During the three months ended December 26, 2020, we did not make any open market purchases of our common stock. During the three months ended December 28, 2019, we repurchased approximately 0.1 million shares of our voting common stock (CENT) at an aggregate cost of approximately ~~$4.6~~$1.7 million, ~~associated with this issuance.~~or approximately $26.63 per share, and 0.8 million shares of our non-voting Class A common stock (CENTA) at an aggregate cost of approximately $20.4 million, or approximately $26.69 per share.

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 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 be approximately ~~$40~~$75 million in fiscal ~~2018.~~2021, of which we have invested approximately $15 million year to date.

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,~~26, 2020, our total debt outstanding was ~~$691.3~~$789.0 million, as compared with ~~$395.4~~$693.4 million at December ~~24, 2016.~~28, 2019.

Senior Notes

Issuance of $500 million 4.125% Senior Notes due 2030 and Redemption of $400 million 6.125% Senior Notes due 2023

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). In November 2020, we used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder for general corporate purposes.

We incurred approximately $8.0 million of debt issuance costs associated 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 2030 Notes.

As a result of our redemption of the 2023 Notes, we incurred a call premium payment of $6.1 million, overlapping interest expense for 30 days of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized deferred financing costs related to the 2023 Notes. These amounts are included in interest expense in the condensed consolidated statements of operations.

The 2030 Notes require semiannual interest payments on October 15 and April 15, commencing April 15, 2021. The 2030 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 or guarantee our other debt.

We may redeem some or all of the 2030 Notes at any time, at our option, prior to October 15, 2025 at a price equal to 100% of the principal amount plus a “make-whole” premium. Prior to October 15, 2023, we may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

The holders of the 2030 Notes have the right to require us to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2030 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 26, 2020.

$300 Million 5.125% Senior Notes due 2028

On December 14, 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). We ~~will use~~used 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.~~1. 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~~2030 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.~~26, 2020.

~~$400 Million 6.125% Senior Notes~~Asset-Based Loan Facility Amendment

~~In November 2015,~~On September 27, 2019, we ~~issued~~entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement dated April 22, 2016 and continues to provide up to a $400.0 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders, as defined, if we exercise the accordion feature set forth therein (collectively, the “Amended Credit Facility”). The Amended Credit Facility matures on 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 that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and adjustments. 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. Net availability under the Amended Credit Facility was $400 million ~~aggregate principal amount~~as of ~~6.125% senior notes due November 2023 (the "2023 Notes"). In~~ December ~~2015, we used~~26, 2020. The Amended Credit Facility includes a $50 million sublimit for the ~~net proceeds from the offering, together with available cash, to redeem our $400~~issuance of standby letters of credit and an increased $40 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.~~

sublimit for short-notice borrowings. We incurred approximately ~~$6.3~~$1.6 million of debt issuance costs in conjunction with ~~these transactions,~~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.~~Amended Credit Facility. As of December 26, 2020, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $2.4 million outstanding as of December 26, 2020.

Borrowings under the Amended Credit Facility bear interest at an index based on LIBOR or, at our option, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on our consolidated senior leverage ratio and (d) 0.00%. Such applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of December 26, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of December 26, 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 26, 2020, the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to LIBOR-based borrowings was 1.1%.

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. Our Amended Credit Facility already anticipates the potential loss of LIBOR and defines procedures for establishing a replacement rate.

In July 2017, the Financial Conduct Authority in the United Kingdom, the governing body responsible for regulating LIBOR, announced that it no longer will compel or persuade financial institutions and panel banks to make LIBOR submissions after 2021. This decision is expected to result in the end of the use of LIBOR as a reference rate for commercial loans and other indebtedness. We have both LIBOR-denominated and Euro Interbank Offer Rate (EURIBOR)-denominated indebtedness. The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not believe that the impact would be material to us, we do not yet have insight into what the impacts might be.

The Amended Credit Facility 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 triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of the borrowing parties. We were in compliance with all financial covenants under the Credit Facility during the period ended December 26, 2020.

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

In October 2020, Central (the "Parent/Issuer") issued $500 million of 2030 Notes and in November 2020, we redeemed our $400 million of 2023 Notes ~~require semiannual interest payments on May 15~~at price of 101.531% plus accrued and ~~November 15.~~unpaid interest. In December 2017, Central issued $300 million of 2028 Notes. The ~~2023~~2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are borrowers under or guarantors of our senior secured revolving credit ~~facility.~~facility ("Credit Facility"). The ~~2023~~2030 Notes and 2028 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. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent/Issuer. Certain subsidiaries and operating divisions of the Company do not guarantee the 2030 or 2028 Notes and are referred to as the Non-Guarantors.

~~We may redeem some~~The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and interest on the 2030 and 2028 Notes when due, whether at stated maturity of the 2030 and 2028 Notes, by acceleration, call for redemption or otherwise, and all other obligations of the Company to the holders of the 2030 and 2028 Notes and to the trustee under the indenture governing the 2030 and 2028 Notes (the "Guarantee"). The Guarantees are senior unsecured obligations of each Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.

The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law.

The Guarantee of a Guarantor will be released:

(1) upon any sale or other disposition of all or substantially all of the ~~2023 Notes at~~assets of that Guarantor (including by way of merger or consolidation), in accordance with the governing indentures, to any ~~time, at our~~person other than the Company;

(2) if such Guarantor merges with and into the Company, with the Company surviving such merger;

(3) if the Guarantor is designated as an Unrestricted Subsidiary; or

(4) if the Company exercises its legal defeasance option ~~prior~~or covenant defeasance option or the discharge of the Company's obligations under the indentures in accordance with the terms of the indentures.

The following tables present summarized financial information of the Parent/Issuer subsidiaries and the Guarantor subsidiaries. All intercompany balances and transactions between subsidiaries under Parent/Issuer and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to ~~November 15, 2018~~arrive at the ~~principal amount plus~~information on a ~~“make whole” premium. At any time prior~~consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to ~~November 15, 2018, we may also redeem, at our option, up to 35%~~the Parent/Issuer's interests in the Guarantor Subsidiaries. The summarized information excludes financial information 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%Non-Guarantors, including earnings from and ~~on or after November 15, 2021 for 100%, plus accrued and unpaid interest.~~investments in these entities.

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 covenants as of December 30, 2017.

~~Asset-Based Loan Facility Amendment~~

In April 2016, we entered into an amended and restated credit agreement which provides up to a $400 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders if we exercise the accordion feature set forth therein (collectively, the “Credit Facility”). The Credit Facility matures on April 22, 2021. We may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full. As of December 30, 2017, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $1.8 million outstanding as of December 30, 2017.


Summarized Statements of Operations
	Three Months Ended				Fiscal Year Ended
	December 26, 2020				September 26, 2020
	Parent/Issuer		Guarantors		Parent/Issuer		Guarantors
	(in thousands)
Net sales	$	202,760	$	374,499	$	839,425	$	1,720,279
Gross profit	$	44,825	$	118,602	$	195,893	$	555,616
Income (loss) from operations	$	(5,236)	$	37,003	$	2,724	$	187,114
Equity in earnings of Guarantor subsidiaries	$	29,889	$	—	$	148,349	$	—
Net income (loss)	$	(20,955)	$	29,889	$	(33,326)	$	148,349

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 Credit Facility bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.5% and (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on our consolidated senior leverage ratio. Such applicable margin for LIBOR-based borrowings fluctuates between 1.25% - 1.5%, and was 1.25% as of December 30, 2017, and such applicable margin for Base Rate borrowings fluctuates between 0.25% - 0.5%, and was 0.25% as of December 30, 2017. As of December 30, 2017, the applicable interest rate related to Base Rate borrowings was 4.8%, and the applicable interest rate related to LIBOR-based borrowings was 2.8%.

We incurred approximately $1.2 million of debt issuance costs in conjunction with this transaction, which included underwriter fees, legal and accounting expenses. The debt issuance costs will be amortized over the term of the Credit Facility.


Summarized Balance Sheet Information
	As of				As of
	December 26, 2020				September 26, 2020
	Parent/Issuer		Guarantors		Parent/Issuer		Guarantors
	(in thousands)
Current assets	$	873,199	$	603,166	$	900,416	$	560,919
Intercompany receivable from Non-guarantor subsidiaries	121,397		61,511		36,329		61,595
Other assets	2,069,449		1,605,206		$	2,042,206	$	1,631,167
Total assets	$	3,064,045	$	2,269,883	$	2,978,951	$	2,253,681

Current liabilities	$	175,722	$	232,309	$	170,378	$	247,810
Long-term debt	788,921		—		693,956		—
Other liabilities	1,066,864		101,783		1,095,288		101,912
Total liabilities	$	2,031,507	$	334,092	$	1,959,622	$	349,722

The Credit Facility contains customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon reaching certain borrowing levels. The Credit Facility is secured by substantially all of our assets. We were in compliance with all financial covenants under the Credit Facility during the period ended December 30, 2017.

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~~26, 2020 regarding off-balance sheet arrangements.

Contractual Obligations

Except ~~for the~~as discussed in Note 8. Long Term Debt, related to our issuance of ~~our 2028~~2030 Notes and redemption of 2023 Notes, 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.~~26, 2020.

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.~~26, 2020.


~~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.~~26, 2020.


~~Item 4.~~	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.~~26, 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 quarter of fiscal ~~2018. Based on that evaluation, management concluded that there has been~~2021. There were no ~~change~~other changes in our internal control over financial reporting during the first quarter of fiscal ~~2018~~2021 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

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the U.S. District Court for New Jersey against the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the three claims and awarded damages of approximately $12.6 million. The court ruled on post-trial motions in early June 2020, reducing the judgment amount to $12.4 million and denying the plaintiff's request for attorneys' fees. The Company has filed its notice of appeal and the plaintiffs have cross-appealed. The Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.

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~~

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended September ~~30, 2017.~~26, 2020.


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

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~~26, 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)
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


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)
September 27, 2020 - October 31, 2020	1,786	(3)	$	36.73	—	$	100,000,000
November 1, 2020 - November 28, 2020	3,844	(3)	$	35.65	—	$	100,000,000
November 29, 2020 - December 26, 2020	4,264	(3)	$	37.16	—	$	100,000,000
Total	9,894		$	36.50	—	$	100,000,000	(4)

~~(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.~~

(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 December 26, 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 1.0 million shares remaining under our Equity Dilution Authorization as of December 26, 2020.


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

Item 3. Defaults Upon Senior Securities

Not applicable


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

Item 4. Mine Safety Disclosures

Not applicable


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

Item 5. Other Information

Not applicable



~~Item 6.~~	~~Exhibits~~

~~4.1~~	Seventh 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 5.125% Senior Notes due 2028. (Incorporated by reference to the Registrant's Form 8-K filed December 14, 2017)

~~4.2~~	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~~

~~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~~

Item 6.

Exhibits

Incorporated by Reference

Exhibit Number

Exhibit

Form

File No.

Exhibit

Filing Date

Filed Herewith

Filed, Not Furnished

4.1

Eleventh Supplemental Indenture, dated as of October 16, 2020, by and among the Company, certain guarantors named therein and Wells Fargo Bank National Association, as trustee, relating to the 4.125% Senior Notes due 2030

8-K

001-33268

4.1

10/16/2020

10.1*

Nonemployee Director Equity Incentive Plan, as amended and restated effective October 7, 2020

10-K

001-33268

10.7

11/24/2020

10.2*

Employment Agreement between the Company and John E. Hanson, effective August 6, 2019.

List of Guarantor Subsidiaries

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: February 4, 2021
			~~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



	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



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		%



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