What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-11-23 compared with 2020-11-24 · 201 added, 260 removed, 301 unchanged (60% of the section changed)

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Financial summary:

• Net sales for fiscal 2020 increased $312.5 million, or 13.1%, to $2,695.5 million.

• Net sales for fiscal 2021 increased $608.2 million, or 22.6%, to $3,303.7 million, with organic net sales increasing $335.3 million and sales from our four recent acquisitions of $272.9 million.

Our Pet segment sales increased 12.9%, and our Garden segment sales increased 38.5%.

• Gross profit for fiscal 2021 increased $174.3 million, or 21.9%, to $970.9 million.

Gross margin improved 10 basis points in fiscal 2020 to 29.6%, from 29.5% in fiscal 2019.

• Our operating income increased $45.9 million, or 30.2%, to $198.0 million in fiscal 2020, and as a percentage of net sales improved to 7.3% as compared to 6.4% in fiscal 2019.

Gross margin declined 20 basis points in fiscal 2021 to 29.4%, from 29.6% in fiscal 2020.

• Our operating income increased $56.5 million, or 28.5%, to $254.5 million in fiscal 2021, and as a percentage of net sales improved to 7.7% from 7.3% in fiscal 2020.

• Net income for fiscal 2021 was $151.7 million, or $2.75 per share on a diluted basis, compared to net income in fiscal 2020 of $120.7 million, or $2.20 per share on a diluted basis.

Recent Developments

DMC Business Unit

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

In April 2020, DMC experienced a second fire in the same leased property in Athens, Texas, which resulted in inventory and property-related losses estimated to be approximately $10 million.

As of September 26, 2020, we had approximately $10 million of cost in excess of insurance proceeds related to these losses recorded on our balance sheet.

We currently believe our insurance coverage is sufficient to cover the remaining asset losses as well as the business interruption loss associated with these events.

Fiscal Year 2021 Acquisitions

D&D Commodities

On June 30, 2021, the Company purchased D&D Commodities, Ltd.

("D&D"), a provider of high-quality, premium bird feed, for approximately $88 million in cash and the assumption of approximately $30 million of long-term debt.

The addition of D&D expands Central's portfolio in the bird feed category and is expected to deepen the Company's relationship with major retailers.

Green Garden Products

On February 11, 2021, the Company acquired Flora Parent, Inc.

and its subsidiaries ("Green Garden Products"), a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients in North America, for approximately $571 million.

The addition of Green Garden Products expands the Company's portfolio into an adjacent garden category.

Hopewell Nursery

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 Nursery to the Central portfolio strengthens the Company's position as a leading live goods provider in the garden category.

On December 18, 2020, the Company acquired DoMyOwn, a leading online retailer of professional-grade control products, for approximately $81 million.

The acquisition strengthens the Company's position in the control products category and adds a leading online platform for eCommerce fulfillment and digital capabilities.

Change in Segment Components

During the first quarter of fiscal year 2021, we began reporting the results of our outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources.

These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment.

All prior period segment disclosures have been recast to reflect this segment change.

COVID-19 Impact

The outbreak of COVID-19 has led to adverse impacts on human health, the global economy and society at large.

The impact of COVID-19 and measures to prevent its spread are affecting our business in a number of ways.

Central is considered an essential business in most jurisdictions and almost all of our employees continue to work to meet essential needs.

We have been actively addressing the COVID-19 situation and its impact on our employees, customers and business.

From the beginning, our priority has been the safety of our employees, customers and consumers.

Our employees have prioritized the health and safety of fellow team members while collaborating across our business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers.

In the beginning of the pandemic, we mobilized a cross-functional task force focused on understanding and communicating the critical issues related to the COVID-19 pandemic to mitigate the potential impacts to our people and business.

Our 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;

• Adhere to all local, state and federal requirements.

Central is seeing varying impacts to our Garden and Pet businesses due to COVID-19.

In March 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, many state and county governments began phased re-openings of their local economies.

Access to outdoor garden departments resulted in increased demand for our products in May and June.

Additionally, during shelter-in-place requirements, pet ownership significantly increased and sales continued to increase in May and June across our Pet segment portfolio.

We also experienced a rapid increase in demand in the eCommerce channel.

During July through September, our fiscal fourth quarter, most of our businesses continued to experience high sales.

The increased demand for our products continues to place challenges on our supply chain and our ability to procure and manufacture enough 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.

Our manufacturing facilities and distribution centers are currently open and fully operational, except for one facility where we expect to lose one production day for cleaning and disinfection.

Central has been impacted by COVID-19 in a number of ways, including increased demand evidenced by our organic net sales increase of 13% in fiscal year 2021.

The increased demand for our products continues to challenge our supply chain and our ability to procure and manufacture enough product to meet the continued high levels of demand.

At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the balance of the pandemic.

Our manufacturing facilities and distribution centers are currently open and fully operational.

We have incurred and will continue to incur additional costs including personal protective equipment and sanitation costs.

The pandemic and near-term increase in demand have created operational challenges for our distribution network, although none have had a material impact on our results to date.

In our supply chain, it is possible we will experience increased operational and logistics costs, although these did not have a material impact on our fiscal year results.

We have hosted mobile vaccination clinics at some of our larger manufacturing and distribution sites, in order to make vaccines available to our employees.

The pandemic and related increase in demand have created operational challenges, which have impacted our service and fill rates.

In our supply chain, we may continue to experience increased operational and logistics costs.

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 and expect to be able to maintain adequate liquidity as we manage through the current economic and health environment.

As of September 26, 2020, we had approximately $650 million in cash.

We also have a revolving credit facility that provides up to a $400 million principal amount with an additional $200 million available with the consent of the lenders.

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 September 26, 2020, there were no borrowings outstanding under the credit facility.

Additionally, subsequent to fiscal year-end, we issued $500 million senior notes to replace $400 million in senior notes with the remainder for general corporate purposes (see subsequent events below).

We anticipate many small customers may permanently close, and we may experience collection delinquencies as customers seek to preserve liquidity.

Additionally, we have small company equity method investees, intangible assets and other long-lived assets whose value is dependent on cashflow.

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 quarter of fiscal 2020 and may be required to write off certain assets that could be material in future periods.

While the unfavorable impact of COVID-19 began to adversely affect the performance in certain portions of our business in March and April, thereafter we saw a large increase in demand in most areas of our business that resulted in a 16.5% increase in organic net sales in our third fiscal quarter and a 25% increase in organic net sales in our fourth fiscal quarter, which is generally a smaller sales quarter and therefore had a smaller base from which to increase from.

A few of our businesses continue to experience demand or profitability headwinds.

These businesses include our live fish, live animal, pet bedding, aquatics and grass seed businesses.

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.

We continue to face supply constraints of commodities, material and freight and the limited availability of labor and inflationary pressures stemming from the COVID-19 operating environment, including notable increases in costs for key commodities, material, labor and freight.

We believe we have sufficient liquidity to satisfy our cash needs with our cash and revolving credit facility as we manage through the current economic and health environment.

The volatility in demand, changing consumer consumption patterns, uncertainty regarding vaccination uptake and new variants of the virus make it difficult to predict when more normal order patterns may return.

Forecasting and planning remain challenging in the current environment and will continue to be challenging as the pandemic eases in the future.

In the current uncertain environment, our employees, customers and consumers will continue to be our priority as we manage our business to deliver long-term growth.

Subsequent Events

Issuance of 2030 Notes

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030.

We used the proceeds to redeem all of our outstanding 6.125% senior notes due 2023 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.

Breeder's Choice Transaction

We recently agreed to the sale of our Breeder's Choice business unit, a manufacturer of branded and private label natural pet food, in order to focus on businesses that more closely align with our strategy.

The transaction is subject to certain conditions and we expect to finalize the transaction in December 2020.

Results of Operations (GAAP)

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Income taxes 1.3 1.2 1.1

Noncontrolling interest — — —

Net income 4.6 % 4.5 % 3.9 %

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Organic net sales, which excludes the impact of acquisitions and divestitures in the last 12 months, increased $335.3 million, or 12.5% in fiscal 2021.

The growth occurred in the second half of our fiscal year reflecting a rapid increase in consumer demand of a magnitude that continues to stress our supply chain.

In the first six months of fiscal 2020 our organic net sales were relatively flat at 0.2% reflecting, among other things, the initial impact of the pandemic and shelter-in-place mandates and the negative retail impact of reduced or eliminated foot traffic associated with COVID-19.

In the second half of fiscal 2020, with the reduction of shelter-in-place restrictions, listing gains and favorable garden season weather, our organic net sales increased 20.2% .

Our branded product sales increased $216.3 million, and sales of other manufacturers’ products increased $96.2 million.

Branded product sales increased $459.8 million, and sales of other manufacturers’ products increased $148.4 million.

Branded product sales include products we produce under Central brand names and products we produce under third-party brands.

Sales of our branded products represented 77.7% of our total sales in fiscal 2020 compared with 78.8% in fiscal 2019.

Private label sales represented approximately 15% of consolidated net sales.

Sales of branded products represented 77% of our total sales in fiscal 2021 compared with 78% in fiscal 2020.

Private label sales represent approximately 10% to 15% of our consolidated net sales.

The following table indicates each class of similar products which represented approximately 10% or more of our consolidated net sales in the fiscal years presented:

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Dog & cat products 570.9 502.1 452.1

Wild bird 340.1 — (1) — (1)

Controls & fertilizer products — (1) 279.9 252.2

Total $ 3,303.7 $ 2,695.5 $ 2,383.0

Pet net sales for fiscal 2020 increased $177.5 million, or 12.8%, to $1,562.2 million from $1,384.7 million in fiscal 2019.

The increase in net sales was due primarily to organic sales growth and secondarily to non-organic sales from C&S Products which was acquired in May 2019.

Organic net sales increased $147.9 million, or 10.7%, impacted by COVID-19 related increased consumption, as more consumers were at home, and increased pet ownership.

The sales increase was broad-based across our Pet segment portfolio led by increased sales in our dog and cat, third-party, wild bird feed and animal health businesses.

These increases were partially offset by 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 resulting from COVID-19 restrictions.

(1) The product category was less than 10% of our consolidated net sales in the period.

Pet net sales increased $216.9 million, or 12.9%, to $1,894.9 million in fiscal 2021 from $1,678.0 million in fiscal 2020.

Net sales in the prior year include sales from the Breeder’s Choice business unit which we sold in December 2020.

Organic net sales increased $235.8 million, or 14.2%, as compared to the prior year.

The sales increase was broad-based across our entire Pet portfolio and we continue to see increased demand due, among other things, to increased pet ownership of dogs, cats, small animals and reptiles during the pandemic.

Organic sales gains were most significant in our dog and cat, sales of other manufacturers’ products, and outdoor cushion businesses.

The organic sales increase was primarily volume driven but price increases did have a more limited positive impact.

Pet branded sales increased $176.3 million and sales of other manufacturers' products increased $40.6 million.

Garden net sales for fiscal 2020 increased $135.0 million, or 13.5%, to $1,133.3 million from $998.3 million in fiscal 2019.

The increase in net sales was due primarily to organic sales growth and secondarily to non-organic sales from Arden, which became 100% owned upon our acquisition of the remaining equity interest in February 2019.

Organic sales increased $106.2 million, or 10.6%, impacted by the increased consumer demand in the second half of the fiscal year.

The organic sales increase was broad-based across our Garden segment portfolio driven by increased sales of third-party products, control and fertilizer products and wild bird feed.

Garden segment sales benefited from increased home gardening and yard care due to COVID-19 restrictions, new listings and favorable garden weather.

The increase in sales was partially offset by our exit of the fashion décor pottery product line in mid-2019 and lower grass seed sales which were negatively impacted by competitive pressures, reduced promotional activity and commodity price pressure.

Garden net sales increased $391.3 million, or 38.5%, to $1,408.8 million in fiscal 2021 from $1,017.5 million in fiscal 2020.

Organic sales increased $99.5 million, or 9.8%, and sales from our recent acquisitions of DoMyOwn, Hopewell Nursery, Green Garden Products and D&D Commodities contributed $291.8 million.

The increased organic sales were broad-based across our entire Garden portfolio, including sales increases in sales of other manufacturers’ products, wild bird feed, live plants and controls and fertilizers.

We believe the sales increase across our Garden portfolio was driven in significant part by increased consumer home gardening related to the pandemic and retailer listing gains.

The organic sales increase was primarily volume driven but was also aided by price increases necessitated by the current inflationary cost environment, especially in our wild bird feed business.

Garden branded sales increased $283.5 million and sales of other manufacturers' products increased $107.8 million.

Gross profit for fiscal 2020 increased $92.5 million, or 13.1%, to $796.6 million from $704.0 million in fiscal 2019, and gross margin increased 10 basis points to 29.6% in fiscal 2020 from 29.5% in fiscal 2019.

Both operating segments contributed to the increase in gross profit, while the Garden segment was the driver of the increase in gross margin.

Overall, increased sales resulted in improved overhead leverage partially offset by a negative sales mix impacted by the sales growth in our distribution businesses.

In the Pet segment, gross profit increased due to increased segment sales while gross margin was flat as compared to the prior year.

Increased sales and volume-related efficiencies, cost improvements and a positive sales mix within the animal health and dog and cat businesses were offset by lower margins in our live fish, impacted by a large retailers decision to exit the live fish business, and aquatics businesses due primarily to lower sales and the related under absorption of overhead.

In the Garden segment, gross profit increased due to increased sales and a slightly improved gross margin.

Garden’s gross margin was aided by the increased sales and the resulting overhead leverage partially offset by an unfavorable sales mix.

Gross margin improved in most of our Garden businesses, including our controls and fertilizers business and vendor partner business, but was negatively impacted by a lower gross margin in our grass seed business, impacted by lower sales, and our wild bird feed business, impacted by customer mix and higher commodity costs.

Although the gross margin of the vendor partner business improved, its higher sales negatively impacted the Garden segments overall margin due the lower margins associated with the distribution business.

Gross profit for fiscal 2021 increased $174.3 million, or 21.9%, to $970.9 million from $796.6 million in fiscal 2020.

Both Garden and Pet contributed to the increase in gross profit.

The decline in gross margin was due to significant cost inflation and the impact of inventory-related purchase accounting which was largely offset by price increases and productivity gains.

Both segments are being impacted by the rapidly increasing cost environment where we are seeing widespread inflation across commodities (e.g., sunflower, milo, millet and foam), freight and labor.

We intend to seek price increases to offset continued inflationary pressures but do not anticipate we will be able to fully offset the cost pressures in fiscal 2022.

In the Pet segment, gross profit increased due to increased sales, favorable product mix and productivity gains, partially offset by significant inflationary headwinds.

In the Garden segment, gross profit increased due to increased sales, including the inorganic contribution of the four recent acquisitions and gross productivity efforts, partially offset by heightened costs across commodities, freight and labor.

Selling, General and Administrative

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As a percentage of net sales, selling, general and administrative expenses decreased from 22.2% in fiscal 2020 to 21.7% in fiscal 2021;

The increase in selling, general and administrative expense dollars, and the decline as a percentage of net sales occurred in both operating segments and in corporate.

both the Pet segment and corporate contributed to the improvement.

Selling, general and administrative expense as a percentage of net sales increased in the Garden segment due to the four fiscal 2021 acquisitions which include the amortization of the intangible assets resulting from purchase accounting.

Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resource, and information technology functions.

Selling and delivery expense increased $19.8 million, or 7.0%, from $282.3 million in fiscal 2019 to $302.1 million in fiscal 2020 but as a percentage of net sales decreased from 11.8% in fiscal 2019 to 11.2% in fiscal 2020.

The increase in selling and delivery expense was due primarily to our recent acquisitions, increased marketing expense which includes our increased spend in eCommerce and digital marketing, and increased delivery expense due to the sales volume increase and higher freight costs.

The decline in selling and delivery expense as a percentage of net sales was due primarily to improved overhead absorption and reduced travel and entertainment expense.

Warehouse and administrative expense increased $26.9 million, or 10.0%, from $269.6 million in fiscal 2019 to $296.5 million in fiscal 2020 and decreased as a percentage of net sales to 11.0% in fiscal 2020 from 11.3% in fiscal 2019.

In our operating segments, the increase was due primarily to our two recent acquisitions, increased labor expense, front-line worker bonuses, and increased variable compensation expense partially offset by the impact of our exit of the fashion décor pottery product line in mid-2019.

Corporate expense increased due primarily to variable compensation expense due to improved results, third-party expense, which includes costs related to the development of our Vison 2025 plan, equity compensation expense and personal protection equipment (PPE) costs.

Also, we incurred additional expense for PPE in both operating segments and at corporate.

Selling and delivery expense increased $61.5 million, or 20.4%, to $363.7 million in fiscal 2021 but decreased as a percentage of net sales from 11.2% in fiscal 2020 to 11.0% in fiscal 2021.

The increase in selling and delivery expense was due primarily to the addition of our four fiscal 2021 acquisitions, increased delivery expense resulting from increased sales volumes and higher shipping costs, and increased headcount and marketing investments for market research, brand development and innovation.

The decline in selling and delivery expense as a percentage of net sales was due primarily to improved overhead absorption.

Warehouse and administrative expense increased $56.3 million, or 19.0%, to $352.7 million in fiscal 2021 and decreased as a percentage of net sales to 10.7% in fiscal 2021 from 11.0% in fiscal 2020.

The increased expense was driven by the addition of the four recent acquisitions in the Garden segment and a $2.6 million loss in our Pet segment resulting from the sale of the Breeder’s Choice business in our fiscal 2021 first quarter.

Additionally, both operating segments experienced increased labor and payroll-related expense from wage inflation.

Corporate expenses increased $3.6 million due primarily to increased variable compensation, payroll expense and increased non-cash equity compensation expense.

Operating Income

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Our operating margin was 7.7% in fiscal 2021, increasing from 7.3% in fiscal 2020.

Increased sales of $312.5 million, a 10 basis point improvement in gross margin and a 100 basis point improvement in selling, general and administrative expense as a percentage of net sales all contributed to the operating margin improvement.

Pet operating income increased $31.5 million, or 25.6%, to $154.2 million in fiscal 2020 from $122.7 million for fiscal 2019.

The increase was due to increased sales partially offset by increased selling, general and administrative expenses.

Our Pet operating margin

improved to 9.9% in fiscal 2020 from 8.9% in fiscal 2019 due to lower selling, general and administrative expense as a percentage of net sales.

Both operating income and margin were favorably impacted by significant pandemic-related increases in demand for our products.

Garden operating income increased $30.4 million, or 29.8%, to $132.6 million for fiscal 2020 from $102.2 million for fiscal 2019.

The increase was due to increased sales and higher gross margin partially offset by higher selling, general and administrative expenses.

Increased sales of $608.2 million and a 50 basis point decrease in selling, general and administrative expense as a percentage of net sales were partially offset by a 20 basis point decline in gross margin.

Both operating income and margin were favorably impacted by significant pandemic-related increases in demand for our products.

Corporate expense increased due primarily to higher variable compensation expense due to improved results, third-party expense, which includes costs related to the development of our Vision 2025 plan, equity compensation expense and PPE costs.

Pet operating income increased $36.8 million, or 21.5%, to $208.2 million in fiscal 2021 from $171.4 million for fiscal 2020.

Pet operating income increased due to higher sales and gross profit partially offset by higher selling, general and administrative expense.

Pet operating margin improved 80 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 $23.3 million, or 20.2%, to $138.8 million for fiscal 2021.

The increase was due to increased sales and higher gross profit partially offset by higher selling, general and administrative expenses.

Garden operating margin declined 150 basis points to 9.8% due primarily to higher selling, general and administrative expense as a percentage of net sales and the initial inventory-related impact of purchase accounting from our four recent acquisitions.

Corporate expenses increased $3.6 million due primarily to increased variable compensation, payroll expense and increased non-cash equity compensation expense.

Net Interest Expense

Net interest expense increased $18.2 million, or 45.5%, from $40.0 million in fiscal 2020 to $58.2 million in fiscal 2021.

The increase in net interest expense was due primarily to lower interest income due to the lower rates available on our cash balance during fiscal 2020.

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 first quarter of fiscal 2021.

Also contributing to the increase in net interest expense was a higher debt balance during fiscal 2021.

In April 2021, we issued $400 million aggregate principal amount of 4.125% senior notes due April 2031.

We used a portion of the net proceeds to repay outstanding amounts under our senior secured revolving credit facility, with the remainder available for general corporate purposes.

Debt outstanding on September 25, 2021 was $1,185.8 million compared to $694.1 million as of September 26, 2020.

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Other Income (Expense)

Other income (expense) is comprised of income or loss from investments accounted for under the equity method of accounting, including any associated impairments of equity method investments and foreign currency exchange gains and losses.

Other expense was $4.3 million for the fiscal year ended September 26, 2020 compared to income of $0.2 million for the fiscal year ended September 28, 2019, due primarily to a $3.6 million impairment of two investments in private companies impacted by the COVID-19 pandemic during fiscal 2020.

Other income (expense) is comprised of income or loss from investments accounted for under the equity method of accounting, including any associated impairments of investments and foreign currency exchange gains and losses.

Other expense was $1.5 million for the fiscal year ended September 25, 2021 compared to $4.3 million for the fiscal year ended September 26, 2020, due primarily to a $3.6 million impairment in fiscal 2020 of two investments in private companies impacted by the COVID-19 pandemic.

Our effective income tax rate was 21.6% for fiscal 2021 compared to 21.0% for fiscal 2020.

The decrease in our effective income tax rate in fiscal 2020 compared to fiscal 2019 was due primarily to both lower state tax rates and the use of state net operating losses.

The increased effective income tax rate in fiscal 2021 was due primarily to a decrease in benefit from income tax credits and an increase in taxable foreign earnings.

Net Income and Earnings Per Share

Our net income for fiscal 2021 was $151.7 million, or $2.75 per diluted share, compared to $120.7 million, or $2.20 per diluted share, for fiscal 2020.

The fiscal 2020 36.6% improvement in earnings per diluted share was due to strong revenue and operating income growth and a 5% reduction in fully diluted shares.

The reduction in outstanding shares reflected shares repurchased in the first half of fiscal 2020 offset by issuances of stock from our 401K and equity plans.

The fiscal 2021 25.0% improvement in earnings per diluted share was due to strong revenue growth and operating margin improvement.

Fiscal 2020 Compared to Fiscal 2019

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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 EBITDA, organic sales, non-GAAP operating income on a consolidated and segment basis, and non-GAAP net income and diluted net income per share.

However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including adjusted EBITDA, organic sales;

and non-GAAP net income and diluted net income per share.

Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their 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.

Adjusted 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 adjusted EBITDA because we believe that adjusted 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.

Adjusted EBITDA is used by our management to perform such evaluation.

Adjusted 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 adjusted EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present adjusted EBITDA when reporting their results.

Other companies may calculate adjusted 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.

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.

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

• Gains from the fair value remeasurement of previously held investment interests:

we have excluded the impact of the fair value remeasurement of a previously held investment interest as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods.

We believe the adjustment of this gain supplements the GAAP information with a measure that may be used to assess the sustainability of our operating performance.

• Asset impairment charges:

we have excluded the impact of asset impairments on intangible assets as such non-cash amounts are inconsistent in amount and frequency.

We believe that the adjustment of these charges supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

• Tax impact:

adjustment represents the impact of the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income.

The tax impact of the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment.

• Incremental expenses from note redemption and issuance:

we have excluded the impact of the incremental expenses incurred from the note redemption and issuance as they represent an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods.

We believe the adjustment of these expenses supplements the GAAP information with a measure that may be used to assess the sustainability of our operating performance.

• Loss on sale of business:

we have excluded the impact of the loss on the sale of a business as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods.

We believe the adjustment of this loss supplements the GAAP information with a measure that 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 made reflect the following:

(1) During the third quarter of fiscal 2020, we recorded a $3.6 million non-cash impairment charge for two private company investments.

The Impairment was recorded as part of other income (expense).

(2) During the second quarter of fiscal 2019, we recorded a $3.2 million non-cash gain in our Garden segment from the fair value remeasurement of our previously held 45% interest in Arden upon our acquisition of the remaining 55% interest.

The gain was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations.

(3) 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.

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

September 26, 2020 September 28, 2019

(in thousands)

Operating Income Reconciliation

GAAP operating income

$ 197,977 $ 152,068

Previously held investment interest fair value remeasurement (2)

Intangible asset impairment (3)

Non-GAAP operating income $ 197,977 $ 151,393

Pet Segment Operating Income Reconciliation

GAAP Pet segment operating income $ 154,190 $ 122,727

Intangible asset impairment (3)

Non-GAAP Pet segment operating income $ 154,190 $ 125,267

Garden Segment Operating Income Reconciliation

GAAP Garden segment operating income $ 132,592 $ 102,170

Previously held investment interest fair value remeasurement (2)

$ — $ (3,215)

Non-GAAP Garden segment operating income $ 132,592 $ 98,955

(1) During the first quarter of fiscal 2021, we issued $500 aggregate principal amount of 4.125% senior notes due October 2030.

We used a portion of the proceeds to redeem all of our outstanding 6.125% senior notes due 2023.

As a result of our redemption of the 2023 Notes, we incurred incremental expenses of approximately $10.0 million, comprised of a call premium payment of $6.1 million, overlapping interest expense of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized financing costs in interest expense.

These amounts are included in interest expense in the condensed consolidated statements of operations.

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

(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 (expense) income.

GAAP to Non-GAAP Reconciliation

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Net Income and Diluted Net Income Per Share Reconciliation

GAAP net income attributable to Central Garden & Pet $ 120,676 $ 92,786

GAAP net income attributable to Central Garden & Pet Company $ 151,746 $ 120,676

Incremental expenses from note redemption and issuance (1)

Loss on sale of business (2)

Investment Impairments (3)

Previously held investment interest fair value remeasurement (2)

Intangible asset impairment (3)

Tax effect of remeasurement and impairment (747) 151

Non-GAAP net income attributable to Central Garden & Pet $ 123,495 $ 92,262

Tax effect of incremental expenses, loss on sale and impairment (2,711) (747)

Non-GAAP net income attributable to Central Garden & Pet Company $ 161,598 $ 123,495

GAAP diluted net income per share $ 2.75 $ 2.20

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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

CONSOLIDATED GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 25, 2021

Net sales (GAAP) Effect of acquisitions & divestiture on increase in net sales Net sales organic

(in millions)

Consolidated Pet Segment Garden Segment

Percent Change Percent Change Percent Change

Reported net sales FY 2020 (GAAP) $ 2,695.5 $ 1,562.2 $ 1,133.3

Reported net sales FY 2019 (GAAP) 2,383.0 1,384.7 998.3

Increase in net sales 312.5 13.1 % 177.5 12.8% 135.0 13.5%

Effect of acquisitions and dispositions on increase in net sales 58.4 29.6 28.8

Increase in organic net sales $ 254.1 10.7% $ 147.9 10.7% $ 106.2 10.6%

GAAP to Non-GAAP Reconciliation

Reported net sales FY 2021 $ 3,303.7 $ 291.8 $ 3,011.9

Reported net sales FY 2020 2,695.5 18.9 2,676.6

$ increase $ 608.2 $ 272.9 $ 335.3

% increase 22.6 % 12.5 %

PET GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 25, 2021

Net sales (GAAP) Effect of acquisitions & divestitures on increase in net sales Net sales organic

(in millions)

Consolidated Pet Segment Garden Segment

Percent Change Percent Change Percent Change

Reported net sales FY 2019 (GAAP) $ 2,383.0 $ 1,384.7 $ 998.3

Reported net sales FY 2018 (GAAP) 2,215.4 1,340.9 874.5

Increase in net sales 167.6 7.6 % 43.8 3.3 % 123.8 14.2 %

Effect of acquisitions and dispositions on increase in net sales 134.7 46.3 88.4

Increase (decrease) in organic net sales $ 32.9 1.5 % $ (2.5) (0.2) % $ 35.4 4.0 %

Reported net sales FY 2021 $ 1,894.9 $ — $ 1,894.9

Reported net sales FY 2020 1,678.0 18.9 1,659.1

$ increase $ 216.9 $ (18.9) $ 235.8

% increase 12.9 % 14.2 %

GARDEN GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 25, 2021

Net sales (GAAP) Effect of acquisitions & divestitures on increase in net sales Net sales organic

(in millions)

Reported net sales FY 2021 $ 1,408.8 $ 291.8 $ 1,117.0

Reported net sales FY 2020 1,017.5 — 1,017.5

$ increase $ 391.3 $ 291.8 $ 99.5

% increase 38.5 % 9.8 %

GAAP to non-GAAP Reconciliation

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(in thousands)

EBITDA Reconciliation Total Garden Pet Corp

Adjusted EBITDA Reconciliation Total Garden Pet Corp

Net income attributable to Central Garden & Pet $ 151,746 — — —

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Depreciation & amortization 74,727 33,050 36,952 4,725

EBITDA $ 253,336 $ 146,112 $ 189,376 $ (82,152)

Adjusted EBITDA $ 329,223 $ 171,805 $ 245,153 $ (87,735)

GAAP to non-GAAP Reconciliation

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(in thousands)

EBITDA Reconciliation Total Garden Pet Corp

Adjusted EBITDA Reconciliation Total Garden Pet Corp

Net income attributable to Central Garden & Pet $ 120,676 — — —

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Depreciation & amortization 55,359 10,590 38,116 6,653

EBITDA $ 202,896 $ 114,129 $ 155,530 $ (66,763)

Adjusted EBITDA $ 253,336 $ 126,003 $ 209,485 $ (82,152)

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, commodity costs as well as freight and labor costs increased.

During fiscal 2019, commodity costs increased, even as freight costs moderated.

In fiscal 2020 and 2019, tariffs implemented during the year did have a negative impact in instances where we were unable to pass through the incremental costs.

During fiscal 2021, inflation was broad-based and we saw significant increases across commodity and material costs, freight and labor.

During fiscal 2020, we saw more moderate increases to commodity, labor and freight costs.

During fiscal 2019, commodity costs increased

while freight costs moderated.

In fiscal 2020 and 2019, tariffs implemented during the year had a negative impact in instances where we were unable to pass through the incremental costs.

Weather and Seasonality

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Operating Activities

Net cash provided by operating activities decreased $13.5 million, from $264.3 million in fiscal 2020 to $250.8 million in fiscal 2021.

The decrease in cash provided was due primarily to changes in our working capital accounts, primarily an increase in inventory from an intentional build-up due to the overall increased demand for our products, as compared to the prior year.

Net cash provided by operating activities increased $59.3 million, from $205.0 million in fiscal 2019 to $264.3 million in fiscal 2020.

The increase in cash provided was due primarily to changes in our working capital accounts, predominately an increase in accounts receivable, due to the increase in sales during the latter half of the fourth quarter compared to the prior year, better working capital management and stronger operating performance during the current fiscal year.

Net cash provided by operating activities increased $90.9 million, from $114.1 million in fiscal 2018 to $205.0 million in fiscal 2019.

The increase in cash provided was due primarily to changes in our working capital accounts for fiscal 2019 compared to fiscal 2018.

Investing Activities

Net cash used in investing activities increased $851.3 million from $48.1 million in fiscal 2020 to $899.4 million in fiscal 2021.

The increase in cash used in investing activities was due primarily to acquisition activity and an increase in capital expenditures of approximately $37 million in the current year compared to the prior year, partially offset by proceeds received from the sale of our Breeder's Choice business during the first quarter of fiscal 2021 and decreased investments in the current year compared to the prior year.

During the first quarter of fiscal 2021, we acquired DoMyOwn for approximately $81 million.

During the second quarter of fiscal 2021, we acquired Hopewell Nursery on December 31, 2020 for approximately $81 million and Green Garden Products on February 11, 2021 for approximately $571 million and in the fourth quarter of fiscal 2021, we acquired D&D Commodities for approximately $88 million.

Net cash used in investing activities decreased $28.2 million from $76.3 million in fiscal 2019 to $48.1 million in fiscal 2020.

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During the second quarter of fiscal 2019, we acquired the remaining 55% interest in Arden Companies for approximately $11 million, and during the third quarter of fiscal 2019 we acquired C&S Products for approximately $30 million.

Net cash used in investing activities decreased $64.6 million from $140.9 million in fiscal 2018 to $76.3 million in fiscal 2019.

The decrease in cash used in investing activities was due primarily to decreased investment and acquisition activity as well as a $6.2 million decrease in capital expenditures in fiscal 2019 compared to fiscal 2018.

During the second quarter of fiscal 2018, we acquired Bell Nurseries for approximately $62 million, and during the third quarter of fiscal 2018 we acquired General Pet Supply for approximately $24.3 million.

We also made fewer investments in fiscal 2019 than in fiscal 2018.

Financing Activities

Net cash used in financing activities decreased $50.2 million from $110.8 million of cash used in fiscal 2019 to $60.6 million of cash used in fiscal 2020.

Net cash provided by financing activities increased $481.0 million from $60.6 million of cash used in fiscal 2020 to $420.5 million of cash provided in fiscal 2021.

The increase in cash provided by financing activities during the current year was due primarily to the issuance of $500 million of our 2030 Notes in October 2020 and $400 million of our 2031 Notes in April 2021, partially offset by the repayment of our 2023 Notes and the corresponding premium paid on extinguishment as well as debt issuance costs incurred on the issuances of the 2030 Notes and 2031 Notes.

We also decreased open market purchases of our common stock during the current year period as compared to the prior year.

During fiscal 2021, the Company repurchased approximately 0.5 million shares of its non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $21.8 million, or $41.91 per share, in addition to $8.2 million used for minimum statutory tax withholdings related to the net share settlement of our stock.

Net cash used in financing activities decreased $50.2 million from $110.8 million of cash provided in fiscal 2019 to $60.6 million cash used in fiscal 2020.

The decrease in cash used in financing activities during the current year was due primarily to our repayment of approximately $46 million of acquired long-term debt subsequent to our acquisitions of Arden and C&S Products during fiscal 2019, as well as decreased open market purchases of our common stock during the current year.

During fiscal 2020, we repurchased approximately 0.2 million shares of our voting common stock (CENT) at an aggregate cost of approximately $6.6 million, or approximately $26.63 per share, and 1.8 million shares of our non-voting Class A common stock (CENTA) at an aggregate cost of approximately $45.7 million, or approximately $25.90 per share, in addition to $6.9 million used for minimum statutory tax withholdings related to the net share settlement of our stock.

Net cash used in financing activities decreased $585.5 million from $474.8 million of cash provided in fiscal 2018 to $110.8 million cash used in fiscal 2019.

The decrease in cash provided by financing activities during fiscal 2019 was due primarily to our December 2017 issuance of $300 million aggregate principal amount 5.125% senior notes due February 2028, partially offset by deferred financing costs of approximately $4.8 million associated with this issuance.

Additionally, during the fourth quarter of fiscal 2018, we issued 5,550,000 shares of Class A common stock at a public offering price of $37.00 per share and received net proceeds of approximately $196 million.

We repaid approximately $46 million of acquired long-term debt subsequent to our acquisitions of Arden Companies and C&S Products during fiscal

During fiscal 2019, we also repurchased approximately 0.6 million shares of our voting common stock (CENT) in the open market at an aggregate cost of approximately $14.7 million, or approximately $24.41 per share, and approximately 1.8 million shares of our non-voting common stock (CENTA) in the open market at an aggregate cost of approximately $43.4 million, or $24.69 per share, in addition to $5.3 million used for minimum statutory tax withholdings related to the net share settlement of our stock.

We also paid $1.3 million in financing costs associated with the amendment of our asset-based loan facility during fiscal 2019.

We expect that our principal sources of funds will be cash generated from our operations, proceeds from our debt and equity offerings, and, if necessary, borrowings under our $400 million asset backed loan facility.

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We believe that cash flows from operating activities, funds available under our asset backed loan facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital requirements for the foreseeable future.

We anticipate that our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $75 million over the next 12 months.

As part of our growth strategy, we have acquired a large number of businesses in the past, and we anticipate that we will continue to evaluate potential acquisition candidates in the future.

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Stock Repurchases

In fiscal 2011, our Board of Directors authorized a $100 million share repurchase program, which authorization was fully utilized in the fourth quarter of fiscal 2019.

In August 2019, our Board of Directors authorized a new share repurchase program to purchase up to $100 million of our common stock (the "2019 Repurchase Authorization").

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At September 25, 2021, our total debt outstanding was $1,185.8 million versus $694.1 million at September 26, 2020.

Issuance of $400 million 4.125% Senior Notes due 2031

In April 2021, we issued $400 million aggregate principal amount of 4.125% senior notes due April 2031 (the "2031 Notes").

We used the net proceeds from the offering to repay all outstanding borrowings under our Amended Credit Facility, with the remainder to be used for general corporate purposes.

We incurred approximately $6 million of debt issuance costs in conjunction with this issuance, which included underwriter fees and legal, accounting and rating agency expenses.

The debt issuance costs are being amortized over the term of the 2031 Notes.

The 2031 Notes require semi-annual interest payments on April 30 and October 30, which commenced October 30, 2021.

The 2031 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 Amended Credit Facility.

The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the Securities Act of 1933.

We may redeem some or all of the 2031 Notes at any time, at our option, prior to April 30, 2026 at the principal amount plus a "make whole" premium.

At any time prior to April 30, 2024, we may also redeem, at our option, up to 40% 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 2031 Notes at our option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.

The holders of the 2031 Notes have the right to require us to repurchase all or a portion of the 2031 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 specific kinds of changes of control.

The 2031 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 September 25, 2021.

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, which commenced 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 September 25, 2021.

$300 Million, 5.125% Senior Notes due 2028

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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% plus accrued and unpaid interest.

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We were in compliance with all covenants as of September 25, 2021.

$400 Million, 6.125% Senior Notes due 2023

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 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 were being amortized over the term of the 2023 Notes.

We redeemed the 2023 Notes on November 15, 2020 for 101.531%, plus accrued and unpaid interest.

Issuance of $500 million 4.125% Senior Notes due 2030

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes").

The 2030 Notes require interest payments on April 15 and October 15 of each year, beginning April 15, 2021.

We used the net proceeds to redeem all of our 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.

As a result of our redemption of the 2023 Notes, we will recognize a charge in our first quarter of fiscal 2021 of approximately $6.1 million related to the payment of the call premium and a $2.5 million non-cash charge for the write-off of unamortized financing costs in interest expense.

We incurred debt issuance costs of approximately $8 million in conjunction with this issuance.

We expect our annual interest expense on the 2030 Notes going forward to be approximately $3.9 million less than under the 2023 Notes notwithstanding the additional $100 million of aggregate principal amount.

We may redeem some or all of the 2030 Notes, at our option, at any time on or after October 15, 2025, at a redemption price of 102.063%, at any time on or after October 15, 2026 at a redemption price of 101.375%, at any time on or after October 15, 2027 at a redemption price of 100.688% and any time on or after October 15, 2028 for a redemption price of 100.000%, plus accrued and unpaid interest.

We may also redeem up to 40% of the notes using the proceeds of certain equity offerings before October 15, 2023, at a redemption price equal to 104.125% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, at any time prior to October 15, 2025, we may redeem some or all of the notes at a price equal to 100% of the principal amount thereof, plus a “make-whole” premium plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

If we sell certain of our assets and do not reinvest the proceeds or repay senior debt or experience specific kinds of changes of control, we must offer to purchase the notes.

The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions.

Asset-Based Loan Facility Amendment

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There were other letters of credit of $1.5 million outstanding as of September 25, 2021.

Borrowings under the Amended Credit Facility will 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%.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR or, at our option, the Base Rate (defined as the highest of (a) the Truist 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% and 1.50% and was 1.00% as of September 25, 2021, and such applicable margin for Base Rate borrowings fluctuates between 0.00% and 0.50% , and was 0.00% as of September 25, 2021.

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

In July 2017, the Financial Conduct Authority in the United Kingdom, the governing body responsible for regulating the London Interbank Offered Rate (LIBOR), announced that it no longer will compel or persuade financial institutions and panel banks to make LIBOR submissions after 2021.

This decision is expected to result in the end of the use of LIBOR as a reference rate for commercial loans and other indebtedness.

We have both LIBOR-denominated and Euro Interbank Offer Rate (EURIBOR)-denominated indebtedness.

The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not believe that the impact would be material to us, we do not yet have insight into what the impacts might be.

The Amended Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon triggered quarterly testing (e.g.

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Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

In November 2015, Central (the "Parent/Issuer") issued $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the "2023 Notes") and on December 14, 2017, Central issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes").

The 2023 Notes were and the 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 Amended Credit Facility.

The 2023 Notes were and the 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Amended Credit Facility, to the extent of the value of the collateral securing such indebtedness.

In April 2021, Central (the "Parent/Issuer") issued $400 million of 2031 Notes.

In October 2020, Central issued $500 million of 2030 Notes.

In December 2017, Central issued $300 million of 2028 Notes.

The 2031 Notes, 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 2031 Notes, 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.

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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.

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.

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(1) Excludes $1.5 million of outstanding letters of credit related to normal business transactions.

Debt repayments do not reflect the unamortized portion of deferred financing costs associated with the 2023 Notes and 2028 Notes of $6.1 million as of September 26,

2020, of which $2.5 million was amortizable until November 2023 and $3.4 million is amortizable until February 2028 and is included in the carrying value of the long-term debt.

See Note 11 to the consolidated financial statements for further discussion of long-term debt.

(2) Estimated interest payments to be made on our 2023 and 2028 Notes.

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030.

The 2030 Notes require interest payments on April 15 and October 15 of each year, beginning April 15, 2021.

We used the net 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 for general corporate purposes.

We expect our annual interest expense on the 2030 Notes going forward to be approximately $3.9 million less than under the 2023 Notes.

See Note 11 to the consolidated financial statements for description of interest rate terms.

Debt repayments do not reflect the unamortized portion of deferred financing costs associated with the 2028 Notes, 2030 Notes and 2031 Notes of approximately $16.0 million as of September 25, 2021, of which, $2.9 million is amortizable until February 2028, $7.3 million is amortizable until October 2030 and $5.8 million is amortizable until April 2031, and is included in the carrying value of the long-term debt.

See Note 11 - Long-Term Debt to the consolidated financial statements for further discussion of long-term debt.

(2) Estimated interest payments to be made on our 2028 Notes, our 2030 Notes and our 2031 Notes.

See Note 11 - Long-Term Debt to the consolidated financial statements for description of interest rate terms.

(3) Contracts for purchases of grains, grass seed and pet food ingredients, used primarily to mitigate risk associated with increases in market prices and commodity availability, may obligate us to make future purchases based on estimated yields.

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(4) Possible performance-based payments associated with prior acquisitions of businesses are not included in the above table, because they are based on future performance of the businesses acquired, which is not yet known.

Performance-based payments of approximately $6.0 million were made in fiscal 2020 related to Segrest and $0.2 million were made in fiscal 2020 related to Hydro-Organics Wholesale, Inc.

Potential performance-based periods extend through fiscal 2020 for Segrest, calendar year 2020 for B2E and fiscal 2025 for Hydro-Organics Wholesale, Inc.

Performance-based payments of approximately $0.4 million were made in fiscal 2021 related to Hydro-Organics Wholesale, Inc.

Potential performance-based periods extend through fiscal 2025 for Hydro-Organics Wholesale, Inc.

Payments are capped at $1.0 million per year related to Hydro-Organics Wholesale, Inc.

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Although not all inclusive, we believe that the following represent the more critical accounting policies, which are subject to estimates and assumptions used in the preparation of our consolidated financial statements.

Inventory, which primarily consists of lawn and garden products, pet supplies, raw materials and finished goods, is stated at the lower of first-in first-out (“FIFO”) cost or market.

Cost includes certain indirect purchasing, merchandise handling and storage costs incurred to acquire or manufacture inventory, costs to unload, process and put away shipments received to prepare them to be picked for orders, and certain overhead costs.

We compute the amount of such costs capitalized to inventory based on an estimate of costs related to the procurement and processing of inventory to prepare it for sale compared to total product purchases.

When necessary, we have reduced the carrying value of our inventory if market conditions indicate that we will not recover the carrying cost upon sale.

Future adverse changes in market conditions related to our products could result in an additional charge to income in the period in which such conditions occur.

Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

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We test goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount.

If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test.

If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the two-step test is performed to identify potential goodwill impairment.

Based on certain circumstances, we may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test, which compares the fair value of our reporting units to their related carrying values, including goodwill.

If the fair value of the reporting unit is less than its carrying value, we perform an additional step to determine the implied fair value of goodwill associated with that reporting unit.

The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities.

If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly, we recognize such impairment.

Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of its two reporting units to the Company’s total market capitalization.

The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations, legal and regulatory environments and historical performance.

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 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 quantitative test is performed to identify potential goodwill impairment.

Based on certain circumstances, we may elect to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test, which compares the estimated fair value of our reporting units to their related carrying values, including goodwill.

Impairment is indicated if the estimated fair value of the reporting unit is less than its carrying value, and an impairment charge is recognized for the differential.

Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of our two reporting units to the Company’s total market capitalization.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.

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Most of our goodwill is associated with our Pet segment.

In connection with our annual goodwill impairment testing performed during fiscal 2020 and 2019, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of its reporting units under the two-step goodwill impairment test.

We completed our qualitative assessment of potential goodwill impairment and it was determined that it was more likely than not the fair values of our reporting units were greater than their carrying amounts, and accordingly, no further testing of goodwill was required.

In connection with our annual goodwill impairment testing performed during fiscal 2021, 2020 and 2019, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the estimated fair values of our reporting units under the quantitative goodwill impairment test.

We completed our

qualitative assessment of potential goodwill impairment and it was determined that it was more likely than not the fair values of our reporting units were greater than their carrying amounts, and accordingly, no further testing of goodwill was required.

Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future cash flows and discount rates, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in additional impairment of goodwill.

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No impairment was indicated during our fiscal 2021, 2020 and 2019 analyses of our indefinite-lived trade names and trademarks.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.

An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.

In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Changes in these factors could materially impact our consolidated financial statements.

In connection with businesses we acquire, management must determine the fair values of assets acquired and liabilities assumed.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis