UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________________________________________

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June 27,~~December 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. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ý Yes ¨ 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

¨☐

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). ☐ Yes ý No

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

~~Title of each class~~

~~Trading Symbol(s)~~

~~Name of each exchange on which registered~~

~~Common Stock~~

~~CENT~~

~~The NASDAQ Stock Market LLC~~

~~Class A Common Stock~~

~~CENTA~~

~~The NASDAQ Stock Market LLC~~

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


			Common Stock Outstanding as of ~~July~~January 31, ~~2020~~2021			~~11,300,810~~11,336,358
			Class A Common Stock Outstanding as of ~~July~~January 31, ~~2020~~2021			~~41,748,750~~42,219,410
			Class B Stock Outstanding as of ~~July~~January 31, ~~2020~~2021			~~1,647,922~~1,612,374

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of ~~June 27~~,December 26, 2020, ~~June 29~~,December 28, 2019 and September ~~28, 2019~~26, 2020

Condensed Consolidated Statements of Operations Three ~~and~~ ~~Nine~~Months Ended ~~June 27~~,December 26, 2020 and ~~June 29~~,December 28, 2019

Condensed Consolidated Statements of Comprehensive Income Three ~~and~~ ~~Nine~~Months Ended ~~June 27~~,December 26, 2020 and ~~June 29~~,December 28, 2019

Condensed Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~June 27~~,December 26, 2020 and ~~June 29~~,December 28, 2019

Notes to Condensed Consolidated Financial Statements

Item 2.

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

2724

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4237

Item 4.

Controls and Procedures

4237

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4337

Item 3.

Defaults Upon Senior Securities

4438

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

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

This Form 10-Q includes “forward-looking statements.” Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries in which we operate and other information that is not historical information. When used in this Form 10-Q, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our future earnings expectations, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, beliefs and projections will be realized.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q are set forth in the Form 10-K for the fiscal year ended September ~~28, 2019,~~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 ~~the~~ COVID-19 ~~pandemic~~ 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; ~~our ability to successfully manage~~

•the ~~challenges associated with~~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;

~~Table of Contents~~

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

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

•~~our dependence upon our key executives;~~

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

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

•~~declines in consumer spending during economic downturns;~~

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

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

•adverse weather conditions;

•~~risks associated with our acquisition strategy;~~

•~~access to and cost of additional capital;~~

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

•impacts of tariffs or a trade war;

•consolidation trends in the retail industry;

•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;

•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;~~

•~~risk associated with international sourcing;~~fluctuations in energy prices, fuel and related petrochemical costs;

•litigation and product liability claims;

•regulatory issues;

•the impact of product recalls;

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

•potential dilution from issuance of authorized shares;

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

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

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

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

•~~potential dilution from issuance of authorized shares.~~rate.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

~~(Unaudited)~~amounts, unaudited)


		June 27, 2020		June 29, 2019		September 28, 2019			December 26, 2020		December 28, 2019		September 26, 2020
ASSETS	ASSETS							ASSETS
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	495,339	$	445,632	$	497,749	Cash and cash equivalents	$	608,285	$	445,813	$	652,712
Restricted cash	Restricted cash	13,536		10,924		12,952		Restricted cash	13,670		12,990		13,685
Short term investments		—		119		—
Accounts receivable (less allowance for doubtful accounts of $24,034, $15,875 and $21,128)		503,288		395,581		300,135
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	425,919		464,917		466,197		Inventories, net	574,878		556,479		439,615
Prepaid expenses and other	Prepaid expenses and other	29,211		32,453		30,160		Prepaid expenses and other	28,074		37,569		27,498
Total current assets	Total current assets	1,467,293		1,349,626		1,307,193		Total current assets	1,547,713		1,321,080		1,525,283
Plant, property and equipment, net	Plant, property and equipment, net	239,240		238,948		245,405		Plant, property and equipment, net	252,157		241,795		244,667
Goodwill	Goodwill	289,854		281,177		286,077		Goodwill	289,955		289,854		289,955
Other intangible assets, net	Other intangible assets, net	138,305		139,406		146,137		Other intangible assets, net	131,557		145,153		134,924
Operating lease right-of-use assets	Operating lease right-of-use assets	99,111		—		—		Operating lease right-of-use assets	115,833		105,277		115,882
Other assets	Other assets	30,166		55,761		40,208		Other assets	108,884		31,998		28,653
Total	Total	$	2,263,969	$	2,064,918	$	2,025,020	Total	$	2,446,099	$	2,135,157	$	2,339,364
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:							Current liabilities:
Accounts payable	Accounts payable	$	178,728	$	137,668	$	149,246	Accounts payable	$	216,991	$	184,659	$	205,234
Accrued expenses	Accrued expenses	174,776		141,029		129,166		Accrued expenses	189,290		124,774		201,436
Current lease liabilities	Current lease liabilities	31,648		—		—		Current lease liabilities	34,834		34,320		33,495
Current portion of long-term debt	Current portion of long-term debt	98		116		113		Current portion of long-term debt	97		107		97
Total current liabilities	Total current liabilities	385,250		278,813		278,525		Total current liabilities	441,212		343,860		440,262
Long-term debt	Long-term debt	693,915		692,948		693,037		Long-term debt	788,921		693,329		693,956
Long-term lease liabilities	Long-term lease liabilities	71,458		—		—		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	52,994		58,834		57,281		Deferred income taxes and other long-term obligations	43,224		49,513		40,956
Equity:	Equity:							Equity:
Common stock, $0.01 par value: 11,300,810, 12,145,135 and 11,543,969 shares outstanding at June 27, 2020, June 29, 2019 and September 28, 2019		113		121		115
Class A common stock, $0.01 par value: 41,747,928, 44,081,467 and 42,968,493 shares outstanding at June 27, 2020, June 29, 2019 and September 28, 2019		417		440		430
Class B stock, $0.01 par value: 1,647,922, 1,652,262 and 1,652,262 shares outstanding at June 27, 2020, June 29, 2019 and September 28, 2019		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	Additional paid-in capital	563,371		589,849		575,380		Additional paid-in capital	570,678		570,117		566,883
Retained earnings	Retained earnings	497,192		444,645		421,742		Retained earnings	516,394		403,693		510,781
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,684)		(1,426)		(1,676)		Accumulated other comprehensive loss	(1,032)		(1,240)		(1,409)
Total Central Garden & Pet Company shareholders’ equity	Total Central Garden & Pet Company shareholders’ equity	1,059,425		1,033,645		996,007		Total Central Garden & Pet Company shareholders’ equity	1,086,591		973,124		1,076,803
Noncontrolling interest	Noncontrolling interest	927		678		170		Noncontrolling interest	422		48		871
Total equity	Total equity	1,060,352		1,034,323		996,177		Total equity	1,087,013		973,172		1,077,674
Total	Total	$	2,263,969	$	2,064,918	$	2,025,020	Total	$	2,446,099	$	2,135,157	$	2,339,364

See notes to condensed consolidated financial statements.

Table of Contents

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

~~(Unaudited)~~amounts, unaudited)


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Net sales	Net sales	$	833,483	$	706,575	$	2,019,540	$	1,842,266	Net sales	$	592,230	$	482,828
Cost of goods sold and occupancy	Cost of goods sold and occupancy	571,423		487,291		1,419,097		1,286,749		Cost of goods sold and occupancy	426,811		351,562
Gross profit	Gross profit	262,060		219,284		600,443		555,517		Gross profit	165,419		131,266
Selling, general and administrative expenses	Selling, general and administrative expenses	157,420		150,413		427,633		414,312		Selling, general and administrative expenses	138,379		129,201
Operating income	Operating income	104,640		68,871		172,810		141,205		Operating income	27,040		2,065
Interest expense	Interest expense	(11,829)		(10,676)		(33,223)		(31,930)		Interest expense	(20,975)		(10,641)
Interest income	Interest income	358		2,178		3,779		6,970		Interest income	206		2,004
Other income (expense)		(3,541)		180		(4,215)		488
Income before income taxes and noncontrolling interest		89,628		60,553		139,151		116,733
Income tax expense		20,291		14,212		31,211		26,031
Income including noncontrolling interest		69,337		46,341		107,940		90,702
Net income attributable to noncontrolling interest		537		189		853		356
Net income attributable to Central Garden & Pet Company		$	68,800	$	46,152	$	107,087	$	90,346
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	Basic	$	1.29	$	0.81	$	1.97	$	1.58	Basic	$	0.10	$	(0.08)
Diluted	Diluted	$	1.27	$	0.80	$	1.95	$	1.56	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	Basic	53,441		57,319		54,261		57,021		Basic	53,734		54,755
Diluted	Diluted	54,168		57,985		54,984		57,937		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 Nine Months Ended
June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
Income including noncontrolling interest $ 69,337 $ 46,341 $ 107,940 $ 90,702
Other comprehensive loss:
Foreign currency translation (39) (146) (8) (208)
Total comprehensive income 69,298 46,195 107,932 90,494
Comprehensive income attributable to noncontrolling interest 537 189 853 356
Comprehensive income attributable to Central Garden & Pet Company $ 68,761 $ 46,006 $ 107,079 $ 90,138


	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)


		Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	107,940	$	90,702
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	5,642	$	(4,539)
Adjustments to reconcile net income (loss) to net cash used by operating activities:						Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization	Depreciation and amortization	39,598		37,311		Depreciation and amortization	12,915		13,140
Amortization of deferred financing costs	Amortization of deferred financing costs	1,397		1,374		Amortization of deferred financing costs	475		446
Non-cash lease expense	Non-cash lease expense	25,893		—		Non-cash lease expense	9,087		8,513
Stock-based compensation	Stock-based compensation	14,042		10,444		Stock-based compensation	4,669		4,152
Debt extinguishment costs						Debt extinguishment costs	8,577		0
Loss on sale of business						Loss on sale of business	2,611		0
Deferred income taxes	Deferred income taxes	5,447		9,875		Deferred income taxes	973		1,890
(Gain) loss on sale of property and equipment		(5)		58
Write-downs of investments		3,566		—
Gain on sale of property and equipment						Gain on sale of property and equipment	(664)		(8)
Other	Other	3,666		(281)		Other	210		474
Change in assets and liabilities (excluding businesses acquired):	Change in assets and liabilities (excluding businesses acquired):					Change in assets and liabilities (excluding businesses acquired):
Accounts receivable	Accounts receivable	(203,140)		(93,775)		Accounts receivable	68,929		32,173
Inventories	Inventories	40,750		(3,850)		Inventories	(137,635)		(89,327)
Prepaid expenses and other assets	Prepaid expenses and other assets	1,007		(239)		Prepaid expenses and other assets	(1,362)		(8,065)
Accounts payable	Accounts payable	29,879		19,728		Accounts payable	10,134		35,700
Accrued expenses	Accrued expenses	45,572		23,268		Accrued expenses	(13,393)		(4,422)
Other long-term obligations	Other long-term obligations	117		(1,811)		Other long-term obligations	1,437		115
Operating lease liabilities	Operating lease liabilities	(26,809)		—		Operating lease liabilities	(8,720)		(8,264)
Net cash provided by operating activities		88,920		92,804
Net cash used by operating activities						Net cash used by operating activities	(36,115)		(18,022)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to plant, property and equipment	Additions to plant, property and equipment	(26,796)		(20,888)		Additions to plant, property and equipment	(14,661)		(9,877)
Payments to acquire companies, net of cash acquired	Payments to acquire companies, net of cash acquired	—		(41,158)		Payments to acquire companies, net of cash acquired	(80,887)		0
Proceeds from the sale of business						Proceeds from the sale of business	2,400		0
Investments	Investments	(4,439)		(1,758)		Investments	0		(424)
Other investing activities	Other investing activities	(562)		(1,203)		Other investing activities	(223)		(75)
Net cash used in investing activities	Net cash used in investing activities	(31,797)		(65,007)		Net cash used in investing activities	(93,371)		(10,376)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments of long-term debt	Repayments of long-term debt	(88)		(46,162)		Repayments of long-term debt	(400,024)		(31)
Proceeds from issuance of long-term debt						Proceeds from issuance of long-term debt	500,000		0

Borrowings under revolving line of credit		200,000		—
Repayments under revolving line of credit		(200,000)		—

Premium paid on extinguishment of debt						Premium paid on extinguishment of debt	(6,124)		0
Repurchase of common stock, including shares surrendered for tax withholding	Repurchase of common stock, including shares surrendered for tax withholding	(57,703)		(17,796)		Repurchase of common stock, including shares surrendered for tax withholding	(871)		(23,054)
Payment of contingent consideration liability	Payment of contingent consideration liability	(154)		(104)		Payment of contingent consideration liability	(110)		(77)
Distribution to noncontrolling interest	Distribution to noncontrolling interest	(96)		(64)		Distribution to noncontrolling interest	(478)		0
Payment of financing costs	Payment of financing costs	(948)		—		Payment of financing costs	(8,031)		(869)
Net cash used by financing activities		(58,989)		(64,126)
Net cash provided (used) by financing activities						Net cash provided (used) by financing activities	84,362		(24,031)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	40		(120)		Effect of exchange rate changes on cash and cash equivalents	682		531
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(1,826)		(36,449)		Net decrease in cash, cash equivalents and restricted cash	(44,442)		(51,898)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	510,701		493,005		Cash, cash equivalents and restricted cash at beginning of period	666,397		510,701
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	508,875	$	456,556	Cash, cash equivalents and restricted cash at end of period	$	621,955	$	458,803
Supplemental information:	Supplemental information:					Supplemental information:
Cash paid for interest	Cash paid for interest	$	35,330	$	34,277	Cash paid for interest	$	13,180	$	12,944
Cash paid for income taxes		$	15,714	$	12,277

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and Nine~~ Months Ended ~~June 27,~~December 26, 2020

(Unaudited)

1. Basis of Presentation

The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019, the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income (loss) for the three ~~and nine~~ months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~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.

Due to the seasonal nature of the Company’s garden business, the results of operations for the three ~~and nine~~ months ended ~~June 27,~~December 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 ~~2019~~2020 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September ~~28, 2019~~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 9, Supplemental Equity Information, for additional information.

Cash, Cash Equivalents and Restricted Cash

The Company considers cash and all highly liquid investments with an original maturity of three months or less at date of purchase to be cash and cash equivalents. Restricted cash includes cash and highly liquid instruments that are used as collateral for stand-alone letter of credit agreements related to normal business transactions. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has available for other uses. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of ~~June 27,~~December 26, 2020, ~~June 29,~~December 28, 2019 and September ~~28, 2019, respectively (in thousands).~~26, 2020, respectively.


									December 26, 2020		December 28, 2019		September 26, 2020
		June 27, 2020		June 29, 2019		September 28, 2019			(in thousands)
Cash and cash equivalents	Cash and cash equivalents	$	495,339	$	445,632	$	497,749	Cash and cash equivalents	$	608,285	$	445,813	$	652,712
Restricted cash	Restricted cash	13,536		10,924		12,952		Restricted cash	13,670		12,990		13,685
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	508,875	$	456,556	$	510,701	Total cash, cash equivalents and restricted cash	$	621,955	$	458,803	$	666,397

Allowance for ~~Doubtful Accounts~~Credit Losses and Customer Allowances

~~Trade~~The Company’s trade accounts receivable are ~~regularly evaluated~~recorded at net realizable value, which includes an allowance for ~~collectability~~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 ~~on past~~upon historical bad debts, current customer receivable balances and the customer’s financial condition. The allowance is adjusted to reflect changes in current and forecasted macroeconomic conditions. The Company’s estimate of credit ~~history with customers, their~~losses includes expected current ~~financial condition~~ and ~~their expected deductions.~~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 ~~one percent~~1% of consolidated net sales) ~~comprising~~from third-party logistics services, merchandising services and royalty income from sales-based licensing

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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

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

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Recent Accounting Pronouncements

Accounting Pronouncements Recently ~~Adopted~~

~~Leases~~

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

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

~~Guarantor Financial Information~~

In March 2020, the Securities Exchange Commission (SEC) amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. The guidance is effective for filings on or after January 4, 2021, with early adoption permitted. The Company early adopted these amendments for the quarter ended June 27, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the Parent Issuer subsidiaries and Guarantor subsidiaries, as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, and a reconciliation to the consolidated results. Accordingly, summarized financial information has been presented for the Parent/Issuer subsidiaries and Guarantors on our senior notes for the most recent fiscal year and the year-to-date interim period, and the location of the required disclosures has been removed from the Notes to the Condensed Consolidated Financial Statements and moved to Part 1. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

~~Accounting Standards Not Yet~~ Adopted

Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets ~~held.~~measured at amortized cost, including trade receivables. The ~~guidance is effective~~model replaces the probable, incurred loss model for ~~annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or~~those assets and broadens the information an entity must consider when developing its expected credit loss estimate for assets measured at amortized cost. The Company adopted the standard as of September 27, 2020, and the adoption did not have a material impact on the Company's ~~first quarter~~condensed consolidated financial statements and related disclosures. Additionally, there have been no significant changes to the Company's accounting policies as disclosed in the Company's fiscal 2020 Form 10-K as a result of ~~fiscal 2021.~~the adoption of this new accounting guidance.

Goodwill and Intangible Assets

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company ~~is currently evaluating~~adopted this standard as of September 27, 2020 on a prospective basis, and the ~~effect that ASU 2016-13 will~~adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.

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~~Goodwill and Intangible Assets~~

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 July 1, ~~2019,~~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 the carrying amount of a reporting unit exceeds its fair value, the Company would be impacted by the amount of impairment recognized.

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted, and is effective for the Company in fiscal 2021. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect that ASU 2018-15 will have on its condensed consolidated financial statements and related disclosures.

Fair Value Disclosures

In August 2018, the 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. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted and is effective for the Company in fiscal 2021. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. ~~All other amendments should be applied retrospectively to all periods presented upon their effective date.~~ The Company ~~is currently evaluating~~adopted this standard as of September 27, 2020, and the ~~effect that ASU 2018-13 will~~adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

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Accounting Standards Not Yet Adopted

Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company in its first quarter of fiscal 2022 and would require the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings, if applicable. The Company is currently evaluating the impact that ASU 2019-12 may have on its condensed consolidated financial statements.

2. Fair Value Measurements

ASC 820 establishes a single authoritative definition of fair value, a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 requires financial assets and liabilities to be categorized based on the inputs used to calculate their fair values as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The Company’s financial instruments include cash and equivalents, short term investments consisting of bank certificates of deposit, accounts receivable and payable, derivative instruments, short-term borrowings, and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of ~~June 27, 2020 (in thousands):~~December 26, 2020:


											Level 1		Level 2		Level 3		Total
		Level 1		Level 2		Level 3		Total			(in thousands)
Liabilities:	Liabilities:									Liabilities:
Liability for contingent consideration (a)	Liability for contingent consideration (a)	$	—	$	—	$	1,246	$	1,246	Liability for contingent consideration (a)	$	0	$	0	$	1,227	$	1,227
Total liabilities	Total liabilities	$	—	$	—	$	1,246	$	1,246	Total liabilities	$	0	$	0	$	1,227	$	1,227


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:
Short term investments (b)		$	119	$	—	$	—	$	119
Total assets		$	119	$	—	$	—	$	119
											(in thousands)
Liabilities:	Liabilities:									Liabilities:
Liability for contingent consideration (a)	Liability for contingent consideration (a)	$	—	$	—	$	7,824	$	7,824	Liability for contingent consideration (a)	$	0	$	0	$	1,323	$	1,323
Total liabilities	Total liabilities	$	—	$	—	$	7,824	$	7,824	Total liabilities	$	0	$	0	$	1,323	$	1,323

The following table presents our financial assets and liabilities at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September ~~28, 2019 (in thousands):~~26, 2020:


											Level 1		Level 2		Level 3		Total
		Level 1		Level 2		Level 3		Total			(in thousands)
Liabilities:	Liabilities:									Liabilities:
Liability for contingent consideration (a)	Liability for contingent consideration (a)	$	—	$	—	$	7,369	$	7,369	Liability for contingent consideration (a)	$	0	$	0	$	1,369	$	1,369
Total liabilities	Total liabilities	$	—	$	—	$	7,369	$	7,369	Total liabilities	$	0	$	0	$	1,369	$	1,369

(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.

~~(b) The fair value of short-term investments are based on quoted prices in active markets for identical assets.~~

The following table provides a summary of the changes in fair value of the Company's Level 3 financial instruments for the periods ended ~~June 27,~~December 26, 2020 and ~~June 29, 2019 (in thousands):~~

December 28, 2019:


	Amount
	(in thousands)
Balance September ~~28, 2019~~26, 2020	$	~~7,369~~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	~~(6,154)~~(6,077)
Balance ~~June 27, 2020~~	$	~~1,246~~

	~~Amount~~
~~Balance September 29, 2018~~	$	~~8,224~~
~~Estimated contingent performance-based consideration established at the time of acquisition~~	—
~~Changes in the fair value of contingent performance-based payments established at the time of acquisition~~	~~(296)~~
~~Performance-based payments~~	~~(104)~~
~~Balance June 29,~~December 28, 2019	$	~~7,824~~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 periods ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 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 ~~June 27,~~December 26, 2020, ~~June 29,~~December 28, 2019 and September ~~28, 2019~~26, 2020 was ~~$310.9~~$318.1 million, ~~$295.0~~$312.2 million and ~~$307.1~~$316.0 million, respectively, compared to a carrying value of ~~$296.5~~$296.7 million, ~~$296~~$296.2 million and ~~$296.1~~$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 ~~June 27, 2020, June 29,~~December 28, 2019 and September ~~28, 2019~~26, 2020 was ~~$409.5 million, $415.8~~$413.8 million and ~~$414.6~~$409.2 million, respectively, compared to a carrying value of ~~$397.3 million, $396.5~~$397.0 million and ~~$396.7~~$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 and Divestitures

~~C&S Products~~Acquisition

DoMyOwn

In ~~May 2019,~~December 2020, the Company ~~purchased C&S Products,~~acquired DoMyOwn, a ~~manufacturer~~leading online retailer of ~~suet and other wild bird feed~~professional-grade control products ~~to complement our existing wild bird feed business~~in the United States, for approximately ~~$30.0~~$83 million. ~~Subsequent~~The acquisition strengthens the Company's position in the 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 ~~acquisition, approximately $4.7~~fair value of the tangible assets, intangible assets and liabilities acquired. Approximately $80 million of ~~cash was used to eliminate~~ the ~~acquired long-term debt.~~purchase price remains unallocated, and is included in other assets on the Company's condensed consolidated balance sheet as of December 26, 2020. The financial results of ~~C&S Products~~DoMyOwn have been included in the results of operations within the ~~Pet~~Garden segment since the date of acquisition. ~~The following table summarizes~~

Divestiture

Breeder's Choice

In December 2020, the ~~purchase price and recording~~Company completed the sale of ~~fair values~~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 ~~assets acquired~~business unit in its Pet Segment. The Company received cash proceeds of $2.4 million and ~~liabilities assumed as~~sold approximately $4.7 million of current and long-term net assets. The Company recognized a loss on the sale of the ~~acquisition date~~Breeder's Choice business unit of approximately $2.6 million during the three months ended December 26, 2020 as part of selling, general and ~~subsequent adjustments.~~

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

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

~~The impact to the~~condensed consolidated statement of ~~operations associated with the finalization of purchase accounting and true-up of intangible assets for C&S Products during the quarter ended December 28, 2019 was immaterial.~~operations.

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

June 27, 2020 June 29, 2019 September 28, 2019
Raw materials $ 151,412 $ 138,073 $ 145,331
Work in progress 42,185 36,355 51,154
Finished goods 218,542 275,286 255,870
Supplies 13,780 15,203 13,842
Total inventories, net $ 425,919 $ 464,917 $ 466,197

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 2 reporting units to the Company’s total market capitalization. NaN impairment of goodwill was recorded for the three ~~and nine~~ months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~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 ~~allocation of~~paid for C&S Products.

1513

6. Other Intangible Assets

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

Gross Accumulated
Amortization Accumulated
Impairment Net
Carrying
Value
(in millions)
June 27, 2020
Marketing-related intangible assets – amortizable $ 20.6 $ (17.3) $ — $ 3.3
Marketing-related intangible assets – nonamortizable 70.6 — (26.0) 44.6
Total 91.2 (17.3) (26.0) 47.9
Customer-related intangible assets – amortizable 140.3 (61.4) (2.5) 76.3
Other acquired intangible assets – amortizable 26.0 (17.8) — 8.2
Other acquired intangible assets – nonamortizable 7.1 — (1.2) 5.9
Total 33.0 (17.8) (1.2) 14.1
Total other intangible assets $ 264.6 $ (96.5) $ (29.7) $ 138.3
Gross Accumulated
Amortization Accumulated
Impairment Net
Carrying
Value
(in millions)
June 29, 2019
Marketing-related intangible assets – amortizable $ 18.6 $ (15.7) $ — $ 2.9
Marketing-related intangible assets – nonamortizable 70.6 — (26.0) 44.6
Total 89.2 (15.7) (26.0) 47.5
Customer-related intangible assets – amortizable 128.3 (50.0) (2.5) 75.8
Other acquired intangible assets – amortizable 26.0 (15.9) — 10.1
Other acquired intangible assets – nonamortizable 7.2 — (1.2) 6.0
Total 33.2 (15.9) (1.2) 16.1
Total other intangible assets $ 250.7 $ (81.6) $ (29.7) $ 139.4
Gross Accumulated
Amortization Accumulated
Impairment Net
Carrying
Value
(in millions)
September 28, 2019
Marketing-related intangible assets – amortizable $ 19.7 $ (16.3) $ — $ 3.4
Marketing-related intangible assets – nonamortizable 70.6 — (26.0) 44.6
Total 90.3 (16.3) (26.0) 48.0
Customer-related intangible assets – amortizable 138.4 (53.3) (2.5) 82.6
Other acquired intangible assets – amortizable 26.0 (16.4) — 9.6
Other acquired intangible assets – nonamortizable 7.1 — (1.2) 5.9
Total 33.1 (16.4) (1.2) 15.5
Total other intangible assets $ 261.8 $ (86.0) $ (29.7) $ 146.1


	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
December 26, 2020
Marketing-related intangible assets – amortizable	$	20.6	$	(17.8)	$	0	$	2.8
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	91.2		(17.8)		(26.0)		47.4
Customer-related intangible assets – amortizable	140.3		(66.8)		(2.5)		71.0
Other acquired intangible assets – amortizable	26.0		(18.7)		0		7.3
Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	33.1		(18.7)		(1.2)		13.2
Total other intangible assets	$	264.6	$	(103.3)	$	(29.8)	$	131.6
	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
December 28, 2019
Marketing-related intangible assets – amortizable	$	20.6	$	(16.8)	$	0	$	3.8
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	91.2		(16.8)		(26.0)		48.4
Customer-related intangible assets – amortizable	140.3		(56.0)		(2.5)		81.8
Other acquired intangible assets – amortizable	26.0		(16.9)		0		9.1
Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	33.1		(16.9)		(1.2)		15.0
Total other intangible assets	$	264.6	$	(89.7)	$	(29.7)	$	145.2
	Gross		Accumulated Amortization		Accumulated Impairment		Net Carrying Value
	(in millions)
September 26, 2020
Marketing-related intangible assets – amortizable	$	20.6	$	(17.6)	$	0	$	3.0
Marketing-related intangible assets – nonamortizable	70.6		—		(26.0)		44.6
Total	91.2		(17.6)		(26.0)		47.6
Customer-related intangible assets – amortizable	140.3		(64.1)		(2.5)		73.7
Other acquired intangible assets – amortizable	26.0		(18.2)		0		7.8
Other acquired intangible assets – nonamortizable	7.1		—		(1.2)		5.9
Total	33.1		(18.2)		(1.2)		13.6
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. Factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not present in the three ~~or nine~~ months ended ~~June 27,~~December 26, 2020, and accordingly, no impairment testing was performed on these assets. As a result of one of our retail customers exiting the live fish business, factors indicating the carrying value of certain amortizable intangible assets may not be recoverable were present during the quarter ended March 30, 2019. The Company performed impairment testing on these assets, found the carrying value was not recoverable and accordingly, recorded an impairment charge in its Pet segment of approximately $2.5 million as part of selling, general and administrative expenses in the condensed consolidated statements of operations for the nine-month period ended June 29, 2019.

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, 9eight years for customer-related intangibles and 10 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $3.4 million and ~~$3.4~~$3.8 million for the three months ended ~~June 27,~~December 26, 2020 and ~~June 29, 2019, respectively, and $10.6 million and $10.3 million for the nine months ended June 27, 2020 and June 29,~~December 28, 2019, respectively, and is classified within 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 $12 million per year from fiscal ~~2020~~2021 through fiscal ~~2024~~2025 and thereafter.

7. Leases

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

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


	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

~~Balance Sheet Classification~~

As of
June 27, 2020
(in millions)

~~Operating leases~~

~~Right-of-use assets~~

~~Operating lease right-of-use assets~~

~~99.1~~

~~Current lease liabilities~~

~~Current operating lease liabilities~~

~~31.6~~

~~Non-current lease liabilities~~

~~Long-term operating lease liabilities~~

~~71.5~~

~~Total operating lease liabilities~~

~~103.1~~

~~Finance leases~~

~~Right-of-use assets~~

~~Property, plant and equipment, net~~

~~0.3~~

~~Current lease liabilities~~

~~Current portion of long-term debt~~

~~0.1~~

~~Non-current lease liabilities~~

~~Long-term debt~~

~~0.1~~

~~Total finance lease liabilities~~

~~0.2~~

1715

Components of lease cost were as follows:


							Three months ended December 26, 2020		Three months ended December 28, 2019
		Three months ended June 27, 2020 (in millions)		Nine Months Ended June 27, 2020 (in millions)			(in millions)
Operating lease cost	Operating lease cost	$	9.7	$	29.0	Operating lease cost	$	10.0	$	9.6
Finance lease cost:	Finance lease cost:					Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	—	$	0.1	Amortization of right-of-use assets	$	0	$	0
Interest on lease liabilities	Interest on lease liabilities	—		—		Interest on lease liabilities	0		0
Total finance lease cost	Total finance lease cost	$	—	$	0.1	Total finance lease cost	$	0	$	0

Short-term lease cost	Short-term lease cost	$	1.0	$	2.7	Short-term lease cost	$	0.9	$	0.7
Variable lease cost	Variable lease cost	$	1.6	$	5.1	Variable lease cost	$	2.2	$	0.9

Total lease cost	Total lease cost	$	12.3	$	36.9	Total lease cost	$	13.1	$	11.2

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

Nine Months Ended
June 27, 2020
(in millions)

~~Cash paid for amounts included in the measurement of lease liabilities:~~

~~Operating cash flows from operating leases~~

~~26.8~~

~~Operating cash flows from finance leases~~

—

~~Financing cash flows from finance leases~~

~~0.1~~

~~Right-of-use assets obtained in exchange for lease obligations:~~

~~Operating leases~~

~~13.7~~

~~Finance leases~~

—


	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 June 27, 2020~~

~~Weighted-average remaining lease term (in years):~~

~~Operating leases~~

~~4.8~~

~~Finance leases~~

~~2.2~~

~~Weighted-average discount rate:~~

~~Operating leases~~

~~3.84~~

~~Finance leases~~

~~4.84~~


	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	%

1816

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


		As of June 27, 2020							As of September 28, 2019
		ASC 842							ASC 840			As of December 26, 2020
		Operating Leases		Finance Leases		Operating Leases				Operating Leases		Finance Leases
Fiscal Year	Fiscal Year							Fiscal Year		(in millions)
2020 (excluding the nine months ended June 27, 2020)		$	9.6	$	—
2020						$	38.0
2021		32.4		0.1		29.3
2021 (remaining nine months)								2021 (remaining nine months)		$	37.7	$	0.1
2022	2022	25.1		0.1		21.8		2022		30.4		0.1
2023	2023	14.7		—		11.3		2023		19.7		0
2024	2024	10.0		—		7.9		2024		15.4		0
2025								2025		11.9		0
Thereafter	Thereafter	21.9		—		20.7		Thereafter		15.2		0
Total future undiscounted lease payments	Total future undiscounted lease payments	$	113.7	$	0.2	$	129.0	Total future undiscounted lease payments		$	130.3	$	0.2
Less imputed interest	Less imputed interest	(10.6)		—				Less imputed interest		(9.8)		0
Total reported lease liability	Total reported lease liability	$	103.1	$	0.2			Total reported lease liability		$	120.5	$	0.2

8. Long-Term Debt

Long-term debt consists of the following:


		June 27, 2020		June 29, 2019		September 28, 2019			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	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	Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028	300,000		300,000		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	Unamortized debt issuance costs	(6,207)		(7,475)		(7,158)		Unamortized debt issuance costs	(11,153)		(6,841)		(6,142)
Net carrying value	Net carrying value	693,793		692,525		692,842		Net carrying value	788,847		693,159		693,858
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.	—		—		—		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	Other notes payable	220		539		308		Other notes payable	171		277		195
Total	Total	694,013		693,064		693,150		Total	789,018		693,436		694,053
Less current portion	Less current portion	(98)		(116)		(113)		Less current portion	(97)		(107)		(97)
Long-term portion	Long-term portion	$	693,915	$	692,948	$	693,037	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 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 $4.8 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. 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 the Company to repurchase all or a portion of the 2028 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 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 ~~June 27,~~December 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, at any time on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.

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

The 2023 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of June 27, 2020.

Asset-Based Loan Facility Amendment

On September 27, 2019, the Company 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~~$400 million principal amount senior secured asset-based revolving credit facility, with up to an additional ~~$200.0~~$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 “Amended Credit Facility”). The Amended Credit Facility matures on September 27, 2024. The Company may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full.

The Amended Credit Facility is subject to a borrowing base ~~reduced capacity due to reserves and certain other restrictions. The borrowing base~~that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and ~~was $400.0 million as of June 27, 2020.~~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. ~~The Company did not draw down any commitments~~Net availability under the Amended Credit Facility ~~upon closing. Proceeds~~was $400 million as of ~~the Amended Credit Facility will be used for general corporate purposes.~~December 26, 2020. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and ~~an increased~~a $40 million sublimit for short-notice borrowings. As of ~~June 27,~~December 26, 2020, there were 0 borrowings outstanding and 0 letters of credit outstanding under the Credit Facility. There were other letters of credit of ~~$3.2~~$2.4 million outstanding as of ~~June 27,~~December 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 0.50%, (c) one-month LIBOR plus 1.00%)~~, plus, in either case, an applicable margin based on the Company’s consolidated senior leverage ratio~~ and (d) 0.00%. ~~Such~~The applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of ~~June 27,~~December 26, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0% as of ~~June 27,~~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. The Company is also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of ~~June 27,~~December 26, 2020, the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to one-month LIBOR-based borrowings was ~~1.2%~~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 $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility.

The Amended Credit Facility 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 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, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity.parties. The Company was in compliance with all financial covenants under the Amended Credit Facility during the period ended ~~June 27,~~December 26, 2020.

2119

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 through the ~~nine~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019.


		Controlling Interest																															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 28, 2019		$	115	$	430	$	16	$	575,380	$	421,742	$	(1,676)	$	996,007	$	170	$	996,177
																					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																				Balance September 26, 2020	$	113	$	419	$	16	$	566,883	$	510,781	$	(1,409)	$	1,076,803	$	871	$	1,077,674
Comprehensive income	Comprehensive income	—		—		—		—		(4,417)		436		(3,981)		(122)		(4,103)		Comprehensive income	—		—		—		—		5,613		377		5,990		29		6,019
Amortization of share-based awards	Amortization of share-based awards	—		—		—		2,804		—		—		2,804		—		2,804		Amortization of share-based awards	—		—		—		3,225		—		—		3,225		—		3,225
Restricted share activity, including net share settlement	Restricted share activity, including net share settlement	—		—		—		(318)		—		—		(318)		—		(318)		Restricted share activity, including net share settlement	—		3		—		(364)		—		—		(361)		—		(361)
Repurchase of stock		—		(8)		—		(8,488)		(13,632)		—		(22,128)		—		(22,128)

Distribution to Noncontrolling interest																				Distribution to Noncontrolling interest	—		—		—		—		—		—		—		(478)		(478)
Issuance of common stock, including net share settlement of stock options	Issuance of common stock, including net share settlement of stock options	—		1		—		739		—		—		740		—		740		Issuance of common stock, including net share settlement of stock options	—		—		—		934		—		—		934		—		934
Balance December 28, 2019		$	115	$	423	$	16	$	570,117	$	403,693	$	(1,240)	$	973,124	$	48	$	973,172
Comprehensive income		—		—		—		—		42,704		(405)		42,299		438		42,737
Amortization of share-based awards		—		—		—		2,923		—		—		2,923		—		2,923
Restricted share activity, including net share settlement		—		3		—		(807)		—		—		(804)		—		(804)
Repurchase of stock		(2)		(8)		—		(10,121)		(14,911)		—		(25,042)		—		(25,042)
Issuance of common stock, including net share settlement of stock options		—		—		—		513		—		—		513		—		513
Distribution to Noncontrolling interest		—		—		—		—		—		—		—		(57)		(57)
Balance March 28, 2020		$	113	$	418	$	16	$	562,625	$	431,486	$	(1,645)	$	993,013	$	429	$	993,442
Comprehensive income		—		—		—		—		68,800		(39)		68,761		537		69,298
Amortization of share-based awards		—		—		—		3,754		—		—		3,754		—		3,754
Restricted share activity, including net share settlement		—		—		—		(1,425)		—		—		(1,425)		—		(1,425)
Issuance of common stock, including net share settlement of stock options		—		1		—		405		—		—		406		—		406
Repurchase of common stock		—		(2)		—		(1,988)		(3,094)		—		(5,084)		—		(5,084)
Distribution to Noncontrolling interest		—		—		—		—		—		—		—		(39)		(39)
Other		—		—		—		—		—		—		—				—
Balance June 27, 2020		$	113	$	417	$	16	$	563,371	$	497,192	$	(1,684)	$	1,059,425	$	927	$	1,060,352
Balance December 26, 2020																				Balance December 26, 2020	$	113	$	422	$	16	$	570,678	$	516,394	$	(1,032)	$	1,086,591	$	422	$	1,087,013


		Controlling Interest																															Controlling Interest
(in thousands)		Common Stock		Class A Common Stock		Class B Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Noncontrolling Interest		Total
Balance September 29, 2018		$	121	$	439	$	16	$	590,168	$	362,923	$	(1,218)	$	952,449	$	385	$	952,834
																					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																				Balance September 28, 2019	$	115	$	430	$	16	$	575,380	$	421,742	$	(1,676)	$	996,007	$	170	$	996,177
Comprehensive income	Comprehensive income	—		—		—		—		1,803		(274)		1,529		(164)		1,365		Comprehensive income	—		—		—		—		(4,417)		436		(3,981)		(122)		(4,103)
Amortization of share-based awards	Amortization of share-based awards	—		—		—		2,261		—		—		2,261		—		2,261		Amortization of share-based awards	—		—		—		2,804		—		—		2,804		—		2,804
Restricted share activity, including net share settlement	Restricted share activity, including net share settlement	—		1		—		(386)		—		—		(385)		—		(385)		Restricted share activity, including net share settlement	—		—		—		(318)		—		—		(318)		—		(318)
Repurchase of stock																				Repurchase of stock			(8)				(8,488)		(13,632)				(22,128)				(22,128)
Issuance of common stock, including net share settlement of stock options	Issuance of common stock, including net share settlement of stock options	—		1		—		408		—		—		409		—		409		Issuance of common stock, including net share settlement of stock options	—		1		—		739		—		—		740		—		740

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

Other		—		—		—		—		—		—		—		1		1
Balance March 28, 2020		$	121	$	444	$	16	$	592,331	$	407,117	$	(1,280)	$	998,749	$	553	$	999,302
Comprehensive income		$	—	$	—	$	—	$	—	$	46,152	$	(146)	$	46,006	$	189	$	46,195
Amortization of share-based awards		$	—	$	—	$	—	$	2,965	$	—	$	—	$	2,965	$	—	$	2,965
Restricted share activity, including net share settlement		$	—	$	1	$	—	$	(641)	$	—	$	—	$	(640)	$	—	$	(640)
Issuance of common stock, including net share settlement of stock options		$	—	$	1	$	—	$	870	$	—	$	—	$	871	$	—	$	871
Repurchase of common stock				$	(6)			$	(5,676)	$	(8,624)			$	(14,306)			$	(14,306)
Distribution to Noncontrolling interest		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(64)	$	(64)
Balance June 29, 2019		$	121	$	440	$	16	$	589,849	$	444,645	$	(1,426)	$	1,033,645	$	678	$	1,034,323
Balance December 28, 2019																				Balance December 28, 2019	$	115	$	423	$	16	$	570,117	$	403,693	$	(1,240)	$	973,124	$	48	$	973,172

10. Stock-Based Compensation

The Company recognized share-based compensation expense of ~~$14.0~~$4.7 million and ~~$10.4~~$4.2 million for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 was ~~$3.4~~$1.1 million and ~~$2.5~~$1.0 million, respectively.

2320

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


													Three Months Ended
		Three Months Ended								Nine Months Ended								December 26, 2020
		June 27, 2020								June 27, 2020								Income	Shares	Per Share
		Income		Shares	Per Share		Income		Shares	Per Share			(in thousands, except per share amounts)
Basic EPS:	Basic EPS:											Basic EPS:
Net income available to common shareholders	Net income available to common shareholders	$	68,800	53,441	$	1.29	$	107,087	54,261	$	1.97	Net income available to common shareholders	$	5,613	53,734	$	0.10
Effect of dilutive securities (1):
Effect of dilutive securities:												Effect of dilutive securities:
Options to purchase common stock	Options to purchase common stock	—		278	(0.01)		—		339	(0.01)		Options to purchase common stock	0		414	0
Restricted shares	Restricted shares	—		449	(0.01)		—		384	(0.01)		Restricted shares	0		538	0
Diluted EPS:	Diluted EPS:											Diluted EPS:
Net income available to common shareholders	Net income available to common shareholders	$	68,800	54,168	$	1.27	$	107,087	54,984	$	1.95	Net income available to common shareholders	$	5,613	54,686	$	0.10


	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)

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

Three Months Ended Nine Months Ended
June 29, 2019 June 29, 2019
Income Shares Per Share Income Shares Per Share
Basic EPS:
     Net income available to common shareholders $ 46,152 57,319 $ 0.81 $ 90,346 57,021 $ 1.58
Effect of dilutive securities:
     Options to purchase common stock — 412 (0.01) — 559 (0.01)
     Restricted shares — 254 — — 357 (0.01)
Diluted EPS:
     Net income available to common shareholders $ 46,152 57,985 $ 0.80 $ 90,346 57,937 $ 1.56

Options to purchase ~~3.1~~3.0 million shares of common stock at prices ranging from $10.63 to ~~$38.10~~$38.97 per share were outstanding at ~~June 27,~~December 26, 2020, and options to purchase 2.6 million shares of common stock at prices ranging from $8.56 to $38.10 per share were outstanding at ~~June 29,~~December 28, 2019.

For the three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019, 0.5 million and ~~1.8~~1.0 million options outstanding were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options would be antidilutive.

For the ~~nine~~three months ended ~~June 27, 2020 and June 29,~~December 28, 2019, ~~1.0 million and 1.1~~0.4 million options outstanding and 0.3 million restricted shares were ~~not included~~excluded in the ~~computation of~~ diluted earnings per share calculation because ~~the option exercise prices were greater than the average market price of the common shares and therefore, the effect of including these options~~their inclusion in a net loss period would be ~~antidilutive.~~anti-dilutive to the earnings per share calculation.

2421

12. Segment Information

Management has determined that the Company has 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						Nine Months Ended							December 26, 2020	December 28, 2019
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			(in thousands)
Net sales:	Net sales:									Net sales:
Pet segment	Pet segment	$	413,260	$	350,155	$	1,128,073	$	1,028,754	Pet segment	$	436,410	$	366,591
Garden segment	Garden segment	420,223		356,420		891,467		813,512		Garden segment	155,820		116,237
Total net sales	Total net sales	$	833,483	$	706,575	$	2,019,540	$	1,842,266	Total net sales	$	592,230	$	482,828
Operating Income (loss)
Operating Income										Operating Income
Pet segment	Pet segment	50,760		35,066		114,599		91,805		Pet segment	43,525		28,737
Garden segment	Garden segment	77,787		53,103		122,439		101,821		Garden segment	4,651		(6,883)
Corporate	Corporate	(23,907)		(19,298)		(64,228)		(52,421)		Corporate	(21,136)		(19,789)
Total operating income	Total operating income	104,640		68,871		172,810		141,205		Total operating income	27,040		2,065
Interest expense - net	Interest expense - net	(11,471)		(8,498)		(29,444)		(24,960)		Interest expense - net	(20,769)		(8,637)
Other income (expense)		(3,541)		180		(4,215)		488
Income tax expense		20,291		14,212		31,211		26,031
Income including noncontrolling interest		69,337		46,341		107,940		90,702
Net income attributable to noncontrolling interest		537		189		853		356
Net income attributable to Central Garden & Pet Company		$	68,800	$	46,152	$	107,087	$	90,346
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:									Depreciation and amortization:
Pet segment	Pet segment	$	8,374	$	8,083	$	25,305	$	24,178	Pet segment	$	9,085	$	9,072
Garden segment	Garden segment	3,538		3,497		10,157		8,635		Garden segment	2,638		2,713
Corporate	Corporate	1,371		1,502		4,136		4,498		Corporate	1,192		1,355
Total depreciation and amortization	Total depreciation and amortization	$	13,283	$	13,082	$	39,598	$	37,311	Total depreciation and amortization	$	12,915	$	13,140


									December 26, 2020		December 28, 2019		September 26, 2020
		June 27, 2020		June 29, 2019		September 28, 2019			(in thousands)
Assets:	Assets:							Assets:
Pet segment	Pet segment	$	810,524	$	742,938	$	734,380	Pet segment	$	911,787	$	884,564	$	877,901
Garden segment	Garden segment	635,671		558,260		463,889		Garden segment	599,097		470,413		481,401
Corporate	Corporate	817,774		763,720		826,751		Corporate	935,215		780,180		980,062
Total assets	Total assets	$	2,263,969	$	2,064,918	$	2,025,020	Total assets	$	2,446,099	$	2,135,157	$	2,339,364
Goodwill (included in corporate assets above):	Goodwill (included in corporate assets above):							Goodwill (included in corporate assets above):
Pet segment	Pet segment	$	272,066	$	268,289	$	268,289	Pet segment	$	277,067	$	276,966	$	277,067
Garden segment	Garden segment	17,788		12,888		17,788		Garden segment	12,888		12,888		12,888
Total goodwill	Total goodwill	$	289,854	$	281,177	$	286,077	Total goodwill	$	289,955	$	289,854	$	289,955

2522

The tables below presents the Company's disaggregated revenues by ~~segment (in millions):~~segment:


		Three Months Ended June 27, 2020										Nine Months Ended June 27, 2020									Three Months Ended December 26, 2020
		Pet Segment		Garden Segment		Total		Pet Segment		Garden Segment		Total			Pet Segment		Garden Segment		Total
															(in millions)
Other pet products	Other pet products	$	206.3	$	—	$	206.3	$	508.3	$	—	$	508.3	Other pet products	$	182.2	$	0	$	182.2
Dog and cat products	Dog and cat products	117.0		—		117.0		358.8		—		358.8		Dog and cat products	155.5		0		155.5
Other manufacturers' products	Other manufacturers' products	90.0		90.1		180.1		261.0		182.2		443.2		Other manufacturers' products	98.7		44.0		142.7
Garden controls and fertilizer products	Garden controls and fertilizer products	—		100.3		100.3		—		234.2		234.2		Garden controls and fertilizer products	0		29.1		29.1
Other garden supplies	Other garden supplies	—		229.8		229.8		—		475.0		475.0		Other garden supplies	0		82.7		82.7
Total	Total	$	413.3	$	420.2	$	833.5	$	1,128.1	$	891.5	$	2,019.5	Total	$	436.4	$	155.8	$	592.2


		Three Months Ended June 29, 2019										Nine Months Ended June 29, 2019									Three Months Ended December 28, 2019
		Pet Segment		Garden Segment		Total		Pet Segment		Garden Segment		Total			Pet Segment		Garden Segment		Total
															(in millions)
Other pet products	Other pet products	$	171.1	$	—	$	171.1	$	457.0	$	—	$	457.0	Other pet products	$	150.9	$	0	$	150.9
Dog and cat products	Dog and cat products	99.9		—		99.9		336.2		—		336.2		Dog and cat products	129.9		0		129.9
Other manufacturers' products	Other manufacturers' products	79.2		61.8		141.0		235.6		143.3		378.9		Other manufacturers' products	85.8		29.8		115.6
Garden controls and fertilizer products	Garden controls and fertilizer products	—		80.9		80.9		—		219.0		219.0		Garden controls and fertilizer products	0		23.1		23.1
Other garden supplies	Other garden supplies	—		213.7		213.7		—		451.2		451.2		Other garden supplies	0		63.3		63.3
Total	Total	$	350.2	$	356.4	$	706.6	$	1,028.8	$	813.5	$	1,842.3	Total	$	366.6	$	116.2	$	482.8

13. Contingencies

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

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the ~~United States~~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~~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 ~~at an early stage~~continuing; however, the ultimate resolution and ~~as such, management is unable to determine the~~ impact ~~if any,~~ on the Company’s consolidated financial ~~position or results of operations.~~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 ~~$11~~$10 million.

As of ~~June 27,~~December 26, 2020, the Company had approximately ~~$18~~$10 million of cost in excess of insurance proceeds related to these losses recorded on its balance sheet. ~~Subsequent to June 27, 2020, the Company received insurance proceeds of approximately $9 million related~~

~~to these losses.~~ 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

Our Company

Central Garden & Pet Company (“Central”) is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States. ~~The total annual retail sales~~Founded initially as a distribution company, we grew our business through a succession of ~~the pet food, treats & chews, supplies~~over 50 acquisitions and ~~live animal industry in 2018 was estimated by Packaged Facts~~created a broad portfolio which allows for economies of scale and the pet industry to have been approximately $51.9 billion. We estimate the annual retail sales of the pet supplies, live animal, and treats & chews and natural pet food markets in the categories in which we participate to be approximately $27.4 billion. The total lawn and garden consumables, decorative products, live plant and outdoor cushions and pillows industry in the United States is estimated by Packaged Facts, The Freedonia Group and TechNavio to have been approximately $23.3 billion in annual retail sales in 2018, including fertilizer, pesticides, growing media, seeds, mulch, other consumables, decorative products, live plants and outdoor cushions and pillows. We estimate the annual retail sales of the lawn and garden consumables, decorative products and live plant markets in the categories in which we participate to be approximately $16.3 billion.market advantages.

Our pet supplies ~~products~~ include products for dogs and cats ~~including~~like premium edible ~~bones, premium healthy edible~~chews and ~~non-edible chews,~~treats, dog chew toys, dog play toys, natural dog treats and ~~cat food~~chews, pet dental chews and ~~treats, toys,~~solutions, dog training pads, pet ~~carriers,~~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®, ~~Avoderm®~~Cadet®, ~~C&S Products®, Cadet®~~Comfort Zone®, Farnam®, Four Paws®, Kaytee®, K&H Pet Products®, Nylabone®, ~~Pinnacle®, TFH™,~~and Zilla® as well as a number of other brands including Adams™, Altosid®, ~~Comfort Zone®~~Arden Companies™, Coralife®, C&S Products®, Interpet®, Pet Select®, TFH™, and Zodiac®.

Our lawn and garden supplies products include proprietary and non-proprietary grass seed; wild bird feed, bird feeders, bird houses and other birding accessories; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle products including pottery, as well as live ~~plants and outdoor cushions and pillows.~~plants. These products are sold under the brands ~~AMDRO®~~AMDRO®, ~~Arden Companies™~~Ironite®, ~~Ironite®, Pennington®~~Pennington®, and ~~Sevin®~~Sevin®, as well as a number of other brand names including Bell Nursery, Lilly ~~Miller®, Over-N-Out®, Smart Seed®~~Miller® and ~~The Rebels®~~Over-N-Out®.

In fiscal ~~2019,~~2020, our consolidated net sales were ~~$2,383 million,~~$2.7 billion, of which our Pet segment, or Pet, accounted for approximately ~~$1,385 million~~$1.6 billion and our Garden segment, or Garden, accounted for approximately ~~$998 million.~~$1.1 billion. In fiscal ~~2019,~~2020, our operating income was ~~$152~~$198 million consisting of income from our Pet segment of ~~$123~~$154 million, income from our Garden segment of ~~$102~~$133 million and corporate expenses of ~~$73~~$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 quarterly report.

Recent Developments

Fiscal ~~2020 Third~~2021 First Quarter Financial Performance:

•Net sales increased ~~$126.9~~$109.4 million, or ~~18.0%~~22.7%, from the prior year quarter to ~~$833.5~~$592.2 million due ~~primarily~~ to an increase in organic sales. Pet segment sales increased ~~$63.1~~$69.8 million, and Garden segment sales increased ~~$63.8~~$39.6 million.

•Organic net sales increased ~~16.5%. Organic net sales increased 15.0%~~23.0%, including 19.6% in our Pet segment and ~~17.9%~~33.8% in our Garden segment.

•Gross profit increased ~~$42.8~~$34.1 million from the prior year quarter, and gross margin increased 4070 basis points to ~~31.4%~~27.9%.

•Selling, general &and administrative expense increased ~~$7.0~~$9.2 million from the prior year quarter to ~~$157.4~~$138.4 million, but declined as a percentage of net sales ~~240~~340 basis points to ~~18.9%~~23.4%.

•Operating income increased ~~$35.8~~$25.0 million from the prior year quarter, to ~~$104.6~~$27.0 million.

•Net income in the ~~third~~first quarter of fiscal ~~2020~~2021 was ~~$68.8~~$5.6 million, or ~~$1.27~~$0.10 per diluted share, compared to a net ~~income~~loss of ~~$46.2~~$4.4 million, or ~~$0.80~~$0.08 loss per diluted share, in the ~~third~~first quarter of fiscal ~~2019.~~2020.

~~DMC Business Unit~~

Financing

In ~~November 2019,~~October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030. We used a portion of the ~~DMC business unit~~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 Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 - $40 million. 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 $11 million.

As of June 27, 2020, we had approximately $18 million of cost in excess of insurance proceeds related to these losses recorded on our balance sheet. Subsequent to June 27, 2020, we received insurance proceedsfiscal 2021 first quarter of approximately $9$10 million related to ~~these losses.~~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 ~~currently believe~~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 ~~insurance coverage is sufficient~~outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to ~~cover~~potential synergies in sourcing, manufacturing and innovation and to be consistent with the ~~remaining asset-related losses as well as~~reporting of financial information used to assess performance and allocate resources.These operations were previously reported in the ~~business interruption loss associated with~~Garden segment and are now managed and reported in the Pet segment.All prior period segment disclosures have been recast to reflect this ~~event.~~segment change.

COVID-19 Impact

~~We have seen the effects~~The outbreak of COVID-19 ~~is having globally~~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. ~~We are proud of all that our~~Our employees have ~~done to prioritize~~prioritized the health and safety of fellow team members while collaborating across ~~the~~our business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers. ~~To that end, we mobilized~~We have a cross-functional task force ~~focused on understanding~~to monitor the continually evolving situation to recommend action and ~~communicating the critical issues related to the COVID-19 pandemic to mitigate the~~mitigation of potential impacts to our people and business. ~~Thankfully, the Central team has had a relatively small number of COVID-19 cases, and our~~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 ~~is experiencing~~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 ~~reopenings~~re-openings of their local ~~economies. Access~~economies and access to outdoor garden departments resulted in increased demand for our products in May and ~~June.~~ June 2020.Additionally, during shelter-in-place ~~requirement periods,~~requirements, pet ownership significantly increased and sales continued to increase ~~in May and June~~ across our Pet segment portfolio.We also ~~continue to see~~experienced a rapid increase in demand in the ~~e-commerce~~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. ~~All~~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, ~~and impacted~~although none have had a material impact on our ~~ability~~results to ~~meet~~date.In our ~~normal fill rate standards. Our~~ supply chain, ~~has been impacted by the rapid increase in demand and~~ it is possible we will continue to experience increased operational and logistics costs, although these did not have a material impact on our ~~third~~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 ~~are financially strong~~have sufficient liquidity to satisfy our cash needs with our cash and ~~expect to be able to maintain adequate liquidity~~revolving credit facility as we manage through the current economic and health environment. ~~As of June 27, 2020, we had approximately $500 million in cash. We also have a~~Our revolving credit facility ~~that~~ provides up to a $400 million principal amount with an additional $200 million available with the consent of the lenders. In April 2020, we borrowed $200 million under our revolving credit facility to increase financial flexibility during the early stages of the COVID-19 pandemic. In June 2020, we repaid the $200 million. As of ~~June 27,~~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 ~~Credit Facility.~~remainder available for general corporate purposes.

~~We anticipate~~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 ~~investments,~~investees, intangible assets and other long-lived assets whose value is dependent on ~~cashflows.~~ 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 ~~our third~~ fiscal ~~quarter~~2020 and may be required to write off certain assets that could be material in future periods.

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

While the unfavorable impact of COVID-19 began to adversely affect the performance in certain portions of our ~~portfolio~~business in March and April ~~in May and June~~2020, thereafter we ~~saw~~have continued to see a large increase in demand in most areas of our ~~portfolio which resulted in a 16.5% increase in organic~~business.Our net sales increased 22.7% in our ~~third~~first fiscal ~~quarter. A~~quarter of 2021 but a few of our businesses continue to experience demand or profitability ~~headwinds. These businesses include~~headwinds, including our ~~live animal, live plant,~~ pet bedding ~~and aquatics businesses.~~ 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.~~ 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 ~~June 27,~~December 26, 2020

Compared with Three Months Ended ~~June 29,~~December 28, 2019

Net Sales

Net sales for the three months ended ~~June 27,~~December 26, 2020 increased ~~$126.9~~$109.4 million, or ~~18.0%~~22.7%, to ~~$833.5~~$592.2 million from ~~$706.6~~$482.8 million for the three months ended ~~June 29,~~December 28, 2019. Organic net sales, which ~~excludes~~exclude the impact of acquisitions and divestitures in the last 12 months, increased ~~$116.5~~$111.0 million, or ~~16.5%~~23.0%, as compared to the fiscal ~~2019~~2020 quarter. Our branded product sales increased ~~$87.8~~$82.3 million, and sales of other manufacturers’ products increased ~~$39.1~~$27.1 million.

Pet net sales increased ~~$63.1~~$69.8 million, or ~~18.0%~~19.0%, to ~~$413.3~~$436.4 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$350.2~~$366.6 million for the three months ended ~~June 29,~~December 28, 2019. ~~The increase in net sales was due to an organic sales increase of $52.7 million and an inorganic sales increase of $10.4 million from our May 2019 acquisition of C&S Products.~~ The increase was broad-based across our pet portfolio with the exception of our live fish business, which was impacted by the initial implementation of shelter-in-place restrictions on retail outlets and a large retailer's decision in 2019 to exit the life fish business.entire Pet portfolio. Increased sales in our Pet segment were aided by COVID-19 shelter-in-place restrictions, which ~~has~~have led to increased pet ownership in dog, cat, small animals and reptiles. ~~Also noteworthy was the acceleration of sales in the e-commerce channel.~~ Organic sales gains were primarily in our dog and cat business, third-party products, wild bird feed and our animal health ~~business and in wild bird feed.~~business. Pet branded product sales increased ~~$52.3~~$56.9 million, and sales of other manufacturers' products increased ~~$10.8~~$12.9 million.

Garden net sales increased ~~$63.8~~$39.6 million, or ~~17.9%~~34.1%, to ~~$420.2~~$155.8 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$356.4~~$116.2 million for the three months ended ~~June 29,~~December 28, 2019. The increase in net sales ~~which was all organic,~~ 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. ~~Net sales increased in the e-commerce channel for garden products as consumers migrated from traditional brick and mortar outlets.~~ The increase in net sales was broad-based across our Garden portfolio including volume-based sales increases in third-party products, ~~controls and fertilizers,~~ wild bird feed, grass seed and ~~grass seed.~~controls and fertilizers. Garden branded sales increased ~~$35.5~~$25.4 million, and sales of other manufacturers' products increased ~~$28.3~~$14.2 million.

Gross Profit

Gross profit for the three months ended ~~June 27,~~December 26, 2020 increased ~~$42.8~~$34.1 million, or ~~19.5%~~26.0%, to ~~$262.1~~$165.4 million from ~~$219.3~~$131.3 million for the three months ended ~~June 29,~~December 28, 2019. Gross margin increased 4070 basis points to ~~31.4%~~27.9% for the three months ended ~~June 27,~~December 26, 2020 from ~~31.0%~~27.2% for the three months ended ~~June 29,~~December 28, 2019. ~~Both segments contributed to the gross~~Gross profit ~~increase~~ and gross margin ~~improvement.~~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 ~~volume-related efficiencies and~~ a favorable sales mix, ~~with~~volume-related efficiencies and increased ~~sales in both our dog and cat business and~~pricing.These improvements were partially offset by increased commodity costs in our ~~animal health business.~~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 ~~the improved~~in our grass seed businesses.The increased gross margin ~~from our controls and fertilizer business~~was partially offset by ~~an unfavorable business unit sales mix and~~ a ~~lower~~decline in gross margin in ~~grass seed hindered~~our wild bird feed business, which was adversely impacted by ~~an unfavorable customer mix and lower pricing.~~increased commodity costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$7.0~~$9.2 million, or ~~4.7%~~7.1%, to ~~$157.4~~$138.4 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$150.4~~$129.2 million for the three months ended ~~June 29,~~December 28, 2019. Selling, general and administrative expense increased in both ~~the Pet segment~~operating segments and in ~~corporate, partially offset by a decrease in the Garden segment.~~corporate. As a percentage of net sales, selling, general and administrative expenses decreased to ~~18.9%~~23.4% for the three months ended ~~June 27,~~December 26, 2020, compared to ~~21.3%~~26.8% in the comparable prior year quarter impacted by improved operating leverage and reduced travel and entertainment expense.

Selling and delivery expense ~~declined~~increased to ~~$77.4~~$66.4 million for the three months ended ~~June 27,~~December 26, 2020 as compared to ~~$78.4~~$62.6 million in the prior year quarter. The ~~decrease~~increase was due primarily to ~~improved overhead absorption,~~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, ~~and reduced labor related~~due to COVID-19 ~~prohibitions~~safety measures reducing our in-store merchandising ~~in-store presence.~~presence and travel in general.

Warehouse and administrative expense increased ~~$8.0~~$5.4 million, or ~~11.1%~~8.1%, to ~~$80.0 million for the three months ended June 27, 2020 from~~ $72.0 million for the three months ended ~~June 29,~~December 26, 2020 from $66.6 million for the three months ended December 28, 2019. ~~In our operating segments, the~~The increase was due primarily to ~~increased labor expense~~the $2.6 million loss in our ~~warehouses and to a thank you bonus to our front-line workers across manufacturing, logistics and merchandising.~~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 ~~$4.6~~$1.3 million due primarily to increased variable compensation, ~~expense resulting from improved results, increased third-party~~payroll expense and ~~personal protection (PPE) costs.~~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 ~~$35.8~~$25.0 million to ~~$104.6~~$27.0 million for the three months ended ~~June 27,~~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 ~~9.7%~~0.4% in the prior year quarter to ~~12.6%~~4.6% in the current year quarter due to a 4070 basis point improvement in gross margin, improved overhead leverage, and a ~~240~~340 basis point decline in selling, general and administrative expense as a percentage of net ~~sales, as well as COVID-19 pandemic-related reductions in promotional activity.~~sales.

Pet operating income increased ~~$15.7~~$14.8 million, or ~~44.8%~~51.5%, to ~~$50.8~~$43.5 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$35.1~~$28.7 million for the three months ended ~~June 29,~~December 28, 2019. Pet operating income increased due to increased sales ~~principally organic,~~ and ~~increased~~ gross profit partially offset by higher selling, general and administrative ~~costs.~~expense. Pet operating margin improved ~~230~~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 ~~$24.7~~$11.5 million ~~or 46.5%,~~ to ~~$77.8~~$4.7 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$53.1~~a $6.9 million loss for the three months ended ~~June 29,~~December 28, 2019. Garden operating income increased due to increased sales and gross profit ~~and lower~~partially offset by higher selling, general and administrative expense. Garden operating margin improved ~~360 basis points~~ to ~~18.5%~~3.0% due to increased sales, an improved gross margin and lower selling, general and administrative expense as a percentage of ~~sales..~~net sales.

Corporate operating expense increased ~~$4.6~~$1.3 million, or ~~23.9%~~6.8%, to ~~$23.9~~$21.1 million for the three months ended ~~June 27,~~December 26, 2020 from ~~$19.3~~$19.8 million for the three months ended ~~June 29,~~December 28, 2019. Corporate expense increased due primarily to increased variable compensation, ~~accruals due to improved results~~payroll expense and ~~higher third-party expense.~~increased M&A expense, but declined as a percentage of net sales.

Net Interest Expense

Net interest expense for the three months ended ~~June 27,~~December 26, 2020 increased ~~$3.0~~$12.2 million, or ~~35.0%~~140.5%, to ~~$11.5~~$20.8 million from ~~$8.5~~$8.6 million for the three months ended ~~June 29,~~December 28, 2019. ~~The~~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 ~~due to~~ reduced interest income resulting from a lower ~~rate~~rates of interest earned on our cash balance during the ~~quarter and interest expense from a temporary draw on our revolver during the~~ quarter.

Debt outstanding on ~~June 27,~~December 26, 2020 was ~~$694.0~~$789.0 million compared to ~~$693.1~~$693.4 million at ~~June 29,~~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 ~~expense~~income was ~~$3.5~~$0.8 million for the quarter ended ~~June 27,~~December 26, 2020 compared to income of ~~$0.2~~$0.3 million for the quarter ended ~~June 29,~~December 28, 2019, due primarily to ~~the impairment of two~~increased earnings from investments ~~in private companies impacted by the COVID-19 pandemic~~ during the ~~quarter ended June 27, 2020.~~quarter.

Income Taxes

Our effective income tax rate was ~~22.6%~~19.7% for the quarter ended ~~June 27,~~December 26, 2020 compared to ~~23.5%~~27.6% for the quarter ended ~~June 29,~~December 28, 2019.Both periods had a similar excess tax benefit from stock compensation (a discrete tax item).The ~~lower effective~~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 ~~the current year quarter was due primarily to a higher stock compensation benefit in the current year quarter compared to the prior year~~that quarter.

Net Income and Earnings Per Share

Our net income in the ~~third~~first quarter of fiscal ~~2020~~2021 was ~~$68.8~~$5.6 million, or ~~$1.27~~$0.10 per diluted share, compared to a net ~~income~~loss of ~~$46.2~~$4.4 million, or ~~$0.80~~$(0.08) per diluted share, in the ~~third~~first quarter of fiscal ~~2019.~~2020.

~~Nine Months Ended June 27, 2020~~

~~Compared with Nine Months Ended June 29, 2019~~

~~Net Sales~~

Net sales for the nine months ended June 27, 2020 increased $177.2 million, or 9.6%, to $2,019.5 million from $1,842.3 million for the nine months ended June 29, 2019. Organic net sales increased $118.8 million, or 6.4%, as compared to the prior year nine month period. Our branded product sales increased $110.0 million, and sales of other manufacturers’ products increased $67.2 million.

Pet net sales increased $99.3 million, or 9.7%, to $1,128.1 million for the nine months ended June 27, 2020 from $1,028.8 million for the nine months ended June 29, 2019. The increase in net sales was due to both organic growth and sales from C&S Products, which we acquired in May 2019. Organic net sales increased $69.7 million, or 6.8%. The increase was relatively broad-based across our Pet segment portfolio led by increased sales in our dog and cat and animal health businesses and sales of third-party products. These increases were partially offset by lower pet bed sales, negatively impacted in the prior quarter by a fire in one of our pet bedding facilities, and lower sales of live fish, due to a major retailer's decision in 2019 to exit the live fish business and the negative retail impact of reduced foot traffic associated with COVID-19. Pet branded sales increased $73.9 million, and sales of other manufacturer's products increased $25.4 million.

Garden net sales increased $77.9 million, or 9.6%, to $891.4 million for the nine months ended June 27, 2020 from $813.5 million for the nine months ended June 29, 2019. The increase in net sales was due to both organic growth and sales from Arden, which became 100% owned due to our acquisition of the remaining equity interest in February 2019. Organic sales increased $49.1 million, or 6.0%, due primarily to a 17.9% sales increase in the current fiscal quarter. The organic sales increase was relatively broad-based across our Garden segment portfolio, driven by increased sales of third-party products and of our control and fertilizer products. Both benefited from new listings and increased home gardening due to COVID-19 restrictions and favorable garden weather. The increase in sales was partially offset by lower grass seed sales, negatively impacted by competitive pressures and reduced promotions in our first two fiscal quarters, and our exit of the fashion decor pottery product line in mid-2019. Garden branded sales increased $36.1 million, and sales of other manufacturers’ products increased $41.8 million.

~~Gross Profit~~

Gross profit for the nine months ended June 27, 2020 increased $44.9 million, or 8.1%, to $600.4 million from $555.5 million for the nine months ended June 29, 2019. Gross margin decreased 50 basis points to 29.7% for the nine months ended June 27, 2020 from 30.2% for the nine months ended June 29, 2019. Both operating segments contributed to the gross profit increase and gross margin decline.

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

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

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses increased $13.3 million, or 3.2%, to $427.6 million for the nine months ended June 27, 2020 from $414.3 million for the nine months ended June 29, 2019 due primarily to increased corporate expense. As a percentage of net sales, selling, general and administrative expenses decreased to 21.2% for the nine months ended June 27, 2020, from 22.5% for the comparable prior year nine month period; both operating segments contributed to the improvement.

Selling and delivery expense increased $0.8 million, or 0.4%, to $211.8 million for the nine months ended June 27, 2020 from $211.0 million for the nine months ended June 29, 2019. The increase was due primarily to increased payroll related costs and delivery expense partially offset by cost saving initiatives enacted in response to a retailer's exit from the live fish business and our exit from the fashion decor pottery product line in 2019.

Warehouse and administrative expense increased $12.5 million, or 6.1%, to $215.8 million for the nine months ended June 27, 2020 from $203.3 million for the nine months ended June 29, 2019. Increased expense from our two recent acquisitions, a bonus to our front-line workers and at corporate was partially offset by cost reduction initiatives enacted in response to a retailer’s exit from the live fish business and our exit from the fashion décor pottery product line in 2019. Corporate expense increased due primarily to increased third-party expenses, which includes costs related to the development of our Vision 2025 plan, increased variable compensation expense due to improved results, and equity compensation expense. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and information technology functions.

~~Operating Income~~

Operating income increased $31.6 million to $172.8 million for the nine months ended June 27, 2020 from $141.2 million for the nine months ended June 29, 2019. Our operating margin increased to 8.6% for the nine months ended June 27, 2020 from 7.7% for the nine months ended June 29, 2019. Increased sales of $177.2 million and a 130 basis point improvement in selling, general and administrative expense as a percentage of net sales were partially offset by a 50 basis point decline in gross margin.

Pet operating income increased $22.8 million, or 24.8%, to $114.6 million for the nine months ended June 27, 2020 from $91.8 million for the nine months ended June 29, 2019. Adjusting for the $2.5 million intangible asset impairment in fiscal 2019, operating income increased $20.3 million. The increase in operating income was due to increased net sales of $99.3 million partially offset by a decline in gross margin and an increase in selling, general and administrative expense.

Garden operating income increased $20.6 million, or 20.2%, to $122.4 million for the nine months ended June 27, 2020 from $101.8 million in the nine months ended June 29, 2019. Adjusting for the non-cash gain from the fair value remeasurement of our previously held investment interest upon our acquisition of the remaining 55% interest of Arden in the prior six month period, garden operating income increased $23.8 million. The increase in operating income was due to increased net sales of $77.9 million and lower selling, general and administrative expense partially offset by a lower gross margin.

Corporate operating expense increased $11.8 million to $64.2 million in the current nine-month period from $52.4 million in the comparable fiscal 2019 period due primarily to increased third-party expenses, increased variable compensation expense and equity compensation expense.

~~Net Interest Expense~~

Net interest expense for the nine months ended June 27, 2020 increased $4.4 million, or 18.0%, to $29.4 million from $25.0 million for the nine months ended June 29, 2019. The increase in net interest expense was due to lower interest income from earnings on cash due to the lower rates available on our cash balance during the current year nine-month period.

Debt outstanding on June 27, 2020 was $694.0 million compared to $693.1 million as of June 29, 2019. Our average borrowing rate for the current nine-month period was 5.5% compared to the prior nine-month period of 5.8%.

~~Other Income~~

Other income (expense) was an expense of $4.2 million for the nine-month period ended June 27, 2020 compared to income of $0.5 million for the nine-month period ended June 29, 2019, due primarily to a $3.6 million impairment of two investments in private companies impacted by the COVID-19 pandemic during the quarter ended June 27, 2020.

~~Income Taxes~~

~~Our effective income tax rate was 22.4% for the nine month period ended June 27, 2020 compared to 22.3% for the nine-month period ended June 29, 2019.~~

~~Net Income and Earnings Per Share~~

~~Our net income for the nine months ended June 27, 2020 was $107.1 million, or $1.95 per diluted share, compared to $90.3 million, or $1.56 per diluted share, for the nine months ended June 29, 2019.~~

Use of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted 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 net income and diluted net income per 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.

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

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

•~~Asset impairment charges:~~ Loss on sale of business:we have excluded the impact of ~~asset impairments~~the loss on ~~intangible assets~~the sale of a business as ~~such non-cash amounts are inconsistent~~it represents an infrequent transaction that occurs in ~~amount and frequency.~~ limited circumstances that impacts the comparability between operating periods.We believe ~~that~~ the adjustment of ~~these charges~~this loss supplements the GAAP information with a measure that ~~can~~may be used to assess the sustainability of our operating performance.

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

The non-GAAP adjustments reflect the following:

(1)During the ~~second~~first quarter of fiscal ~~2019,~~2021, we ~~recorded~~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 ~~preliminary, pending the finalization~~result of our redemption of the ~~related purchase accounting,~~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 ~~$3.2~~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, ~~gain~~included in ~~our Garden segment~~selling, general and administrative expense in the consolidated statement of operations, from the ~~fair value remeasurement~~sale of our ~~previously held 45% interest in Arden~~Breeder’s Choice business unit after concluding it was not a strategic business for our Pet segment.

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~~upon our acquisition of the remaining 55% interest. The gain was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations.~~

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

~~(3)During the third quarter of fiscal 2020, we recorded a non-cash impairment charge for two private company investments. The impairment was recorded as part of other income (expense).~~

Operating Income Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands)
For the Nine Months Ended
Consolidated
June 27, 2020 June 29, 2019
GAAP operating income $ 172,810 $ 141,205
Previously held investment interest fair value remeasurement (1) — (3,215)
Intangible asset impairment (2) — 2,540
Non-GAAP operating income $ 172,810 $ 140,530

Pet Segment Operating Income Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands)
For the Nine Months Ended
Pet
June 27, 2020 June 29, 2019
GAAP operating income $ 114,599 $ 91,805
Intangible asset impairment (2) — 2,540
Non-GAAP operating income $ 114,599 $ 94,345

Garden Segment Operating Income Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands)
For the Nine Months Ended
Garden
June 27, 2020 June 29, 2019
GAAP operating income $ 122,439 $ 101,821
Previously held investment interest fair value remeasurement (1) — (3,215)
Non-GAAP operating income $ 122,439 $ 98,606

GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Nine Months Ended
Net Income and Diluted Net Income Per Share Reconciliation June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
GAAP net income attributable to Central Garden & Pet $ 68,800 $ 46,152 $ 107,087 $ 90,346
Previously held investment interest fair value remeasurement (1) — — (1) — (3,215)
Intangible asset impairment (2) — — (2) — 2,540
Investment impairments (3) 3,566 — (3) 3,566 —
Tax effect of remeasurement and impairment (807) — (800) 151
Non-GAAP net income attributable to Central Garden & Pet $ 71,559 $ 46,152 $ 109,853 $ 89,822
GAAP diluted net income per share $ 1.27 $ 0.80 $ 1.95 $ 1.56
Non-GAAP diluted net income per share $ 1.32 $ 0.80 $ 2.00 $ 1.55
Shares used in GAAP and non-GAAP diluted net earnings per share calculation 54,168 57,985 54,984 57,937


		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

Organic Net Sales Reconciliation

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

GAAP to Non-GAAP Reconciliation
(in millions)
For the Three Months Ended June 27, 2020
Consolidated Pet Segment Garden Segment
Percent change Percent change Percent change
Reported net sales - Q3 FY20 (GAAP) $ 833.5 $ 413.3 $ 420.2
Reported net sales - Q3 FY19 (GAAP) 706.6 350.2 356.4
Increase in net sales 126.9 18.0 % 63.1 18.0 % 63.8 17.9 %
Effect of acquisition and divestitures on increase in net sales 10.4 10.4 —
Increase in organic net sales - Q3 FY20 $ 116.5 16.5 % $ 52.7 15.0 % $ 63.8 17.9 %


	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	%

GAAP to Non-GAAP Reconciliation
(in millions)
For the Nine Months Ended June 27, 2020
Consolidated Pet Segment Garden Segment
Percent change Percent change Percent change
Reported net sales - Q3 FY20 YTD (GAAP) $ 2,019.5 $ 1,128.1 $ 891.4
Reported net sales - Q3 FY19 YTD (GAAP) 1,842.3 1,028.8 813.5
Increase in net sales 177.2 9.6 % 99.3 9.7 % 77.9 9.6 %
Effect of acquisition and divestitures on increase in net sales 58.4 29.6 28.8
Increase in organic net sales - Q3 FY20 YTD $ 118.8 6.4 % $ 69.7 6.8 % $ 49.1 6.0 %


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

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EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended June 27, 2020
Garden Pet Corp Total
Net income attributable to Central Garden & Pet — — — $ 68,800
     Interest expense, net — — — 11,471
     Other expense — — — 3,541
     Income tax expense — — — 20,291
     Net income attributable to noncontrolling interest — — — 537
          Sum of items below operating income — — — 35,840
Income (loss) from operations $ 77,787 $ 50,760 $ (23,907) $ 104,640
Depreciation & amortization 3,538 8,374 1,371 13,283
EBITDA $ 81,325 $ 59,134 $ (22,536) $ 117,923

EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended June 29, 2019
Garden Pet Corp Total
Net income attributable to Central Garden & Pet — — — $ 46,152
     Interest expense, net — — — 8,498
     Other income — — — (180)
     Income tax expense — — — 14,212
     Net income attributable to noncontrolling interest — — — 189
          Sum of items below operating income — — — 22,719
Income (loss) from operations $ 53,103 $ 35,066 $ (19,298) $ 68,871
Depreciation & amortization 3,497 8,083 1,502 13,082
EBITDA $ 56,600 $ 43,149 $ (17,796) $ 81,953

EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Nine Months Ended June 27, 2020
Garden Pet Corp Total
Net income attributable to Central Garden & Pet — — — $ 107,087
     Interest expense, net — — — 29,444
     Other expense — — — 4,215
     Income tax expense — — — 31,211
     Net income attributable to noncontrolling interest — — —�� 853
          Sum of items below operating income — — — 65,723
Income (loss) from operations $ 122,439 $ 114,599 $ (64,228) $ 172,810
Depreciation & amortization 10,157 25,305 4,136 39,598
EBITDA $ 132,596 $ 139,904 $ (60,092) $ 212,408

EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Nine Months Ended June 29, 2019
Garden Pet Corp Total
Net income attributable to Central Garden & Pet — — — $ 90,346
     Interest expense, net — — — 24,960
     Other income — — — (488)
     Income tax expense — — — 26,031
     Net income attributable to noncontrolling interest — — — 356
          Sum of items below operating income — — — 50,859
Income (loss) from operations $ 101,821 $ 91,805 $ (52,421) $ 141,205
Depreciation & amortization 8,635 24,178 4,498 37,311
EBITDA $ 110,456 $ 115,983 $ (47,923) $ 178,516


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

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 2020 and in the first quarter of fiscal 2021, commodity costs as well as freight and labor costs increased. In fiscal 2020, tariffs implemented during the year did have a negative impact in instances where we were unable to pass through the 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. Our Garden segment’s business is highly seasonal. In fiscal ~~2019,~~2020, approximately ~~69%~~67% of our Garden segment’s net sales and ~~58%~~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, 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 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 ~~69%~~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.

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Operating Activities

Net cash ~~provided~~used by operating activities ~~decreased~~increased by ~~$3.9~~$18.1 million, from ~~$92.8~~$18.0 million for the ~~nine~~three months ended ~~June 29,~~December 28, 2019, to ~~$88.9~~$36.1 million for the ~~nine~~three months ended ~~June 27,~~December 26, 2020. The ~~decrease~~increase in cash ~~provided~~used was due primarily to changes in our working capital accounts for the period ended ~~June 27,~~December 26, 2020, as compared to the prior year period, primarily an increase in ~~accounts receivable,~~inventory, due to our seasonal build in preparation for the ~~large increase in sales in~~lawn and garden season and the ~~latter half of the third quarter, compared to the prior year.~~overall increased demand for our products.

Investing Activities

Net cash used in investing activities ~~decreased $33.2~~increased $83.0 million, from ~~$65.0~~$10.4 million for the ~~nine~~three months ended ~~June 29,~~December 28, 2019 to ~~$31.8~~$93.4 million during the ~~nine~~three months ended ~~June 27,~~December 26, 2020. The ~~decrease~~increase in cash used in investing activities was due primarily to acquisition activity in the ~~prior~~current year ~~partially offset by~~and increased capital expenditures in the current year compared to the prior ~~year. During~~year, partially offset by proceeds received from the ~~second~~sale of our Breeder's Choice business during the first quarter of fiscal ~~2019, we acquired~~2021. During the ~~remaining 55% interest in Arden Companies for approximately $11.0 million, and during the third~~first quarter of fiscal ~~2019~~2021, we acquired ~~C&S Products~~DoMyOwn for approximately ~~$30.0~~$81 million.

Financing Activities

Net cash ~~used~~provided by financing activities ~~decreased $5.1~~increased $108.4 million, from ~~$64.1~~$24.0 million of cash used for the ~~nine~~three months ended ~~June 29,~~December 28, 2019, to ~~$59.0~~$84.4 million of cash provided for the ~~nine~~three months ended ~~June 27,~~December 26, 2020. The ~~decrease~~increase in cash ~~used~~provided by financing activities during the current year was due primarily to ~~our repayment~~the issuance of ~~approximately $36~~$500 million of ~~acquired long-term debt subsequent to~~ our ~~acquisition of Arden Companies in the prior year period,~~2030 Notes, partially offset by ~~increased~~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.~~period as compared to the prior year. During the ~~nine~~three months ended ~~June 27,~~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 ~~0.2~~0.1 million shares of our voting common stock (CENT) at an aggregate cost of approximately ~~$6.6~~$1.7 million, or approximately $26.63 per share, and ~~1.8~~0.8 million shares of our non-voting Class A common stock (CENTA) at an aggregate cost of approximately ~~$45.7~~$20.4 million, or approximately ~~$25.90~~$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 revolving credit facility. Based on our anticipated cash needs, availability under our asset backed 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 ~~previously estimated~~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, ~~would~~will be ~~$40 million to $45~~approximately $75 million in fiscal ~~2020,~~2021, of which we have invested approximately ~~$27~~$15 million year to date. ~~As a result of the uncertainties associated with the COVID-19 pandemic, we are reevaluating the appropriate amount of our fiscal 2020 capital expenditures.~~

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

Total Debt

At ~~June 27,~~December 26, 2020, our total debt outstanding was ~~$694.0~~$789.0 million, as compared with ~~$693.1~~$693.4 million at ~~June 29,~~December 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 ~~expect to use~~used the net proceeds from the offering to finance ~~future~~ acquisitions and for general corporate purposes.

We incurred approximately $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. 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 ~~June 27, 2020.~~

~~$400 Million 6.125% Senior Notes~~

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

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

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

We may redeem some or all of the 2023 Notes at any time, at our option, on or after November 15, 2019 for 103.063%, on or after November 15, 2020 for 101.531% and on or after November 15, 2021 for 100%, plus accrued and unpaid interest.

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

The 2023 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of June 27,26, 2020.

Asset-Based Loan Facility Amendment

On September 27, 2019, we 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 ~~now~~ 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 ~~reduced capacity due to reserves and certain other restrictions. The borrowing base~~that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and ~~was $400 million as of June 27, 2020.~~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. ~~Proceeds of~~Net availability under the Amended Credit Facility ~~will be used for general corporate purposes.~~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 an increased $40 million sublimit for short-notice borrowings. We incurred approximately $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility. As of ~~June 27,~~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 ~~$3.2~~$2.4 million outstanding as of June 27, 2020. Subsequent to our quarter ended March 28, 2020, we borrowed $200 million under our revolving credit facility to increase financial flexibility while we navigate an uncertain COVID-19 economic environment. We repaid $200 million under our revolving credit facility prior to our quarter ended June 27,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% ~~(previously between 1.25% and 1.50%)~~, and was 1.00% as of ~~June 27,~~December 26, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50% ~~(previously 0.25%-0.50%)~~, and was 0.00% as of ~~June 27,~~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 ~~June 27,~~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 ~~1.2%~~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.

~~The administering regulatory authority~~In July 2017, the Financial Conduct Authority in the United Kingdom, the governing body responsible for regulating LIBOR, announced that it ~~intends~~no longer will compel or persuade financial institutions and panel banks to ~~phase out London Interbank Offered Rate (LIBOR) by~~make LIBOR submissions after 2021. This decision is expected to result in the end of ~~2021.~~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. Once LIBOR is phased out it will be replaced by an alternative method equivalent to LIBOR. Any legal or regulatory changes made in response to LIBOR’s future discontinuance may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, or changes in the rules or methodologies in LIBOR. In addition, alternative methods to LIBOR may be impossible or impracticable to determine. The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not ~~expect~~believe that the ~~transition from LIBOR and risks related thereto will~~impact would be material to us, we do not yet have ~~a material adverse effect on our financing costs, it is still uncertain at this time.~~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, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity.parties. We were in compliance with all financial covenants under the Credit Facility during the period ended ~~June 27,~~December 26, 2020.

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

In ~~November 2015,~~October 2020, Central (the "Parent/Issuer") issued $500 million of 2030 Notes and in November 2020, we redeemed our $400 million ~~aggregate principal amount~~ of ~~6.125% senior notes due November~~ 2023 ~~(the "2023 Notes")~~Notes at price of 101.531% plus accrued and onunpaid interest. In December ~~14,~~ 2017, Central issued $300 million ~~aggregate principal amount~~ of ~~5.125% senior notes due February~~ 2028 ~~(the "2028 Notes").~~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 ("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 ~~2023~~2030 or 2028 Notes and are referred to as the Non-Guarantors.

The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and interest on the ~~2023~~2030 and 2028 Notes when due, whether at stated maturity of the ~~2023~~2030 and 2028 Notes, by acceleration, call for redemption or otherwise, and all other obligations of the Company to the holders of the ~~2023~~2030 and 2028 Notes and to the trustee under the indenture governing the ~~2023~~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 assets of that Guarantor (including by way of merger or consolidation), in accordance with the governing indentures, to any 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 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 arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Parent/Issuer's interests in the Guarantor Subsidiaries. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.

4035


Summarized Statements of Operations	Summarized Statements of Operations									Summarized Statements of Operations
(in thousands)		Nine Months Ended						Fiscal Year Ended
											Three Months Ended				Fiscal Year Ended
		June 27, 2020						September 28, 2019							December 26, 2020				September 26, 2020
		Parent/Issuer		Guarantors		Parent/Issuer		Guarantors			Parent/Issuer		Guarantors		Parent/Issuer		Guarantors
											(in thousands)
Net sales	Net sales	$	622,610	$	1,288,951	$	764,991	$	1,496,962	Net sales	$	202,760	$	374,499	$	839,425	$	1,720,279
Gross profit	Gross profit	$	144,963	$	419,114	$	172,075	$	495,968	Gross profit	$	44,825	$	118,602	$	195,893	$	555,616
Income (loss) from operations	Income (loss) from operations	$	7,836	$	155,629	$	(9,819)	$	162,725	Income (loss) from operations	$	(5,236)	$	37,003	$	2,724	$	187,114
Equity in earnings of Guarantor subsidiaries	Equity in earnings of Guarantor subsidiaries	$	120,159	$	—	$	127,439	$	—	Equity in earnings of Guarantor subsidiaries	$	29,889	$	—	$	148,349	$	—
Net income (loss)	Net income (loss)	$	(20,152)	$	120,159	$	(32,775)	$	127,439	Net income (loss)	$	(20,955)	$	29,889	$	(33,326)	$	148,349


Summarized Balance Sheet Information	Summarized Balance Sheet Information																	Summarized Balance Sheet Information
(in thousands)		As of						As of
											As of				As of
		June 27, 2020						September 28, 2019							December 26, 2020				September 26, 2020
		Parent/Issuer		Guarantors		Parent/Issuer		Guarantors			Parent/Issuer		Guarantors		Parent/Issuer		Guarantors
											(in thousands)
Current assets	Current assets	$	761,853	$	632,834	$	732,597	$	523,670	Current assets	$	873,199	$	603,166	$	900,416	$	560,919
Intercompany receivable from Non-guarantor subsidiaries	Intercompany receivable from Non-guarantor subsidiaries	31,666		61,346		37,544		61,333		Intercompany receivable from Non-guarantor subsidiaries	121,397		61,511		36,329		61,595
Other assets	Other assets	1,990,988		1,488,968		$	1,833,445	$	1,397,277	Other assets	2,069,449		1,605,206		$	2,042,206	$	1,631,167
Total assets	Total assets	$	2,784,507	$	2,183,148	$	2,603,586	$	1,982,280	Total assets	$	3,064,045	$	2,269,883	$	2,978,951	$	2,253,681

Current liabilities	Current liabilities	$	142,785	$	209,882	$	102,242	$	164,574	Current liabilities	$	175,722	$	232,309	$	170,378	$	247,810
Long-term debt	Long-term debt	693,915		—		693,037		—		Long-term debt	788,921		—		693,956		—
Other liabilities	Other liabilities	947,697		97,715		867,268		62,656		Other liabilities	1,066,864		101,783		1,095,288		101,912
Total liabilities	Total liabilities	$	1,784,397	$	307,597	$	1,662,547	$	227,230	Total liabilities	$	2,031,507	$	334,092	$	1,959,622	$	349,722

Off-Balance Sheet Arrangements

There have been no material changes to the information provided in our Annual Report on Form 10-K for the fiscal year ended September ~~28, 2019~~26, 2020 regarding off-balance sheet arrangements.

Contractual Obligations

~~There~~Except as discussed in Note 8. Long Term Debt, related to our issuance of 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 ~~28, 2019, except as set forth below.~~

In December 2019, performance-based criteria associated with the $6 million contingent consideration liability related to our fiscal 2017 acquisition of Segrest, Inc. were met and accordingly, the entire amount was released out of an independent escrow account to the former owners as of December 28, 2019.26, 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 ~~28, 2019.~~26, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risk from that discussed in our Annual Report on Form 10-K for the fiscal year ended September ~~28, 2019.~~26, 2020.

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 ~~June 27,~~December 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 ~~third~~first quarter of fiscal ~~2020. We implemented controls and a new lease accounting system related to the adoption of ASC 842 and the related financial statement reporting.~~2021. There were no other changes in our internal control over financial reporting during the ~~third~~first quarter of fiscal ~~2020~~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

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the ~~United States~~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. 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

~~Except as set forth below, there~~There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended September ~~28, 2019.~~

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

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

We have experienced varying impacts to our Garden and Pet businesses due to COVID-19. In March and April, 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, state and county governments began phased reopenings of their local economies. Access to outdoor garden departments resulted in increased demand for our products in May and June. Additionally, as a result of shelter-in-place requirement periods, pet ownership significantly increased and we saw increased sales continue in May and June across our Pet segment portfolio. We also continued to see rapid increase in demand in the e-commerce channel.

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

We have experienced temporary closures of certain production facilities and distribution centers, though there has not been a material impact from a plant closure to date. At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the current pandemic. The pandemic and near-term increase in demand for pet consumables have created operational challenges for our distribution network and impacted our ability to meet our normal fill rate standards. Our supply chain has been impacted by the rapid increase in demand and it is possible we will experience increased operational and logistics costs. We may experience additional disruptions in our supply chain as the pandemic continues, though we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.

We anticipate many small customers may permanently close, and we may experience collection delinquencies as customers seek to preserve liquidity. Additionally, we have small company equity method investments, intangible assets and other long-lived assets whose value is dependent on cashflows. These investments and other assets could be impacted by the COVID-19 pandemic and, therefore, may be more susceptible to impairment. Our assessment of possible asset impairment involves numerous assumptions that involve significant judgment. As a result of the uncertainties associated with the COVID-19 pandemic, the shelter-in-place orders and the post COVID-19 economic recovery, these factors will be even more difficult to estimate. We recorded an impairment charge of $3.6 million in our third fiscal quarter and may be required to write off certain assets that could be material in future periods.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, independent contractors and customers and consumers. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.26, 2020.

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

The following table sets forth the repurchases of any equity securities during the fiscal quarter ended ~~June 27,~~December 26, 2020 and the dollar amount of authorized share repurchases remaining under our stock repurchase program.

4337

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)
March 29, 2020 - May 2, 2020 194,160 (2) (3) $ 26.21 194,021 $ 100,000,000
May 3, 2020 - May 30, 2020 20,851
⁽³⁾
$ 32.63 — $ 100,000,000
May 31, 2020 - June 27, 2020 22,693
⁽³⁾
$ 32.64 — $ 100,000,000
Total 237,704 $ 27.38 194,021 $ 100,000,000 (4)


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 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 ~~June 27,~~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 ~~0.6~~1.0 million shares remaining under our Equity Dilution Authorization as of ~~June 27,~~December 26, 2020.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

4438


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

22			~~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~~

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

4539

SIGNATURES

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


			CENTRAL GARDEN & PET COMPANY
			Registrant

			Dated: ~~August 6, 2020~~February 4, 2021

			/s/ TIMOTHY P. COFER
			Timothy P. Cofer
			Chief Executive Officer
			(Principal Executive Officer)

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

4640


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


Operating Income Reconciliation		GAAP to Non-GAAP Reconciliation (in thousands) For the Nine Months Ended
		Consolidated
		June 27, 2020		June 29, 2019
GAAP operating income		$	172,810	$	141,205
Previously held investment interest fair value remeasurement	(1)	—		(3,215)
Intangible asset impairment	(2)	—		2,540
Non-GAAP operating income		$	172,810	$	140,530