What changed in this filing

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Item 9A. Controls and Procedures

2021-11-23 compared with 2020-11-24 · 349 added, 345 removed, 1064 unchanged (39% of the section changed)

1 unchanged sentence

(a) Evaluation of Disclosure Controls and Procedures .

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.

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 September 25, 2021.

34 unchanged sentences

Herewith Filed, Not Furnished

Agreement and Plan of Merger, dated December 30, 2020, between Central Garden & Pet Company and Flora Parent, Inc.

8-K 001-33268 2.1 2/17/2021

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Amendment No.

1, dated April 27, 2021, to Agreement and Plan of Merger between Central Garden & Pet Company and Flora Parent, Inc.

10-Q 001-33268 2.1 8/5/2021

Amendment No.

2, dated June 17, 2021, to Agreement and Plan of Merger between Central Garden & Pet Company and Flora Parent, Inc.

10-Q 001-33268 2.2 8/5/2021

Amendment No.

3, dated June 23, 2021, to Agreement and Plan of Merger between Central Garden & Pet Company and Flora Parent, Inc .

10-Q 001-33268 2.3 8/5/2021

Fourth Amended and Restated Certificate of Incorporation

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8-K 001-33268 4.2 3/8/2010

Fourth Supplemental Indenture, dated as of March 25, 2016, by and among the Company, certain guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to 6.125% Senior Notes due 2023

10-K 001-33268 4.5 12/2/2016

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Fifth Supplemental Indenture, dated as of December 23, 2016, by and among the Company, certain guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to the 6.125% Senior Notes due 2023

10-Q 001-33268 4.1 2/2/2017

Sixth Supplemental Indenture, dated as of June 24, 2017, by and among the Company, certain guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to the 6.125% Senior Notes due 2023

10-Q 001-33268 4.1 8/3/2017

Seventh Supplemental Indenture, dated as of December 24, 2017, by and among the Company, certain guarantors named therein and Wells Fargo Bank National Association, as t0rustee, relating to the 5.125% Senior Notes due 2028

8-K 001-33268 4.1 12/14/2017

Eight Supplemental Indenture, dated as of December 14, 2017, by and among the Company, certain guarantors named therein and Wells Fargo Bank National Association, as trustee, relating to the 6.125% Senior Notes due 2023

8-K 001-33268 4.2 12/14/2017

Ninth Supplemental Indenture, dated as of March 30, 2019, by and among the Company, certain guarantors named therein and Wells Fargo Bank National Association, as trustee, relating to the 6.125% Senior Notes due 2023 and the 5.125% Senior Note due 2028

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8-K 001-33268 4.1 10/16/2020

Indenture, dated as of April 30, 2021, 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 2031.

8-K 001-33268 4.1 04/30/2021

Description of the Registrants Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

2 unchanged sentences

10-K 001-33268 10.1 11/29/2017

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Second Amended and Restated Credit Agreement dated September 27, 2019 among the Company, certain of the Company's domestic subsidiaries as borrowers and guarantors, a syndicate of financial institutions party thereto, Suntrust Bank, as issuing bank and administrative agent, Bank of America, N.A., U.S.

6 unchanged sentences

8-K 001-33268 10.2 2/15/2012

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Form of Nonstatutory Stock Option Agreement for 2003 Omnibus Equity Incentive Plan

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

10-K 001-33268 10.7 11/24/2020

Form of Nonstatutory Stock Option Agreement for Nonemployee Director Equity Incentive Plan

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10-Q 001-33268 10.1 2/5/2015

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Modification and Extension of Employment Agreement and Noncompetition Agreement, dated as of March 1, 2016, between the Company and Brooks M.

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10-K 001-33268 10.24 12/10/2015

Incorporated by Reference

Number Exhibit Form File

Exhibit Filing

Herewith Filed, Not Furnished

Employment Agreement between the Company and George Roeth, effective June 1, 2016

8-K 001-33268 10.25 5/6/2016

Employment Agreement between the Company and William Lynch, effective October 10, 2016

10-K 001-33268 10.22 11/28/2018

Employment Agreement between the Company and Timothy Cofer, effective October 14, 2019

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Brown Chairman November 23, 2021

/s/ Thomas J.

Colligan Director November 24, 2020

/s/ Brendan Dougher Director November 24, 2020

Brendan Dougher

/s/ Courtnee Chun Director November 23, 2021

Courtnee Chun

/s/ Lisa Coleman Director November 23, 2021

/s/ Brendan P.

Dougher Director November 23, 2021

/s/ Michael J.

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Griffith Director November 23, 2021

/s/ Christopher T.

Metz Director November 24, 2020

Christopher T.

/s/ Christopher Metz Director November 23, 2021

Christopher Metz

/s/ Daniel Myers Director November 23, 2021

/s/ Brooks M.

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Consolidated Statements of Operations for Fiscal Years Ended September 25, 2021, September 26, 2020 and September 28, 2019

Consolidated Statements of Comprehensive Income for Fiscal Years Ended September 26, 2020.

September 28, 2019 and September 29, 2018

Consolidated Statements of Comprehensive Income for Fiscal Years Ended September 25, 2021, September 26, 2020 and September 28, 2019

Consolidated Statements of Equity for Fiscal Years Ended September 25, 2021, September 26, 2020 and September 28, 2019

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Management evaluated the effectiveness of Central’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.

The scope of management's assessment of the effectiveness of our internal control over financial reporting included all of our consolidated operations.

The scope of management's assessment of the effectiveness of our internal control over financial reporting included all of our consolidated operations except for the operations of DoMyOwn, which we acquired on December 18, 2020;

Hopewell Nursery, which we acquired on December 31, 2020;

Green Garden Products, which we acquired on February 11, 2021;

and D&D Commodities Limited, which we acquired on June 30, 2021.

This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.

DoMyOwn, Hopewell Nursery, Green Garden Products and D&D Commodities Limited, combined constituted approximately 28% of the total assets and approximately nine percent of total net sales of the consolidated financial statements of the Company as of and for the fiscal year ended September 25, 2021.

Based on evaluation of the criteria set forth by COSO in Internal Control – Integrated Framework (2013) , management concluded that our internal control over financial reporting was effective as of September 25, 2021.

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 25, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at DoMyOwn, Hopewell Nursery, Green Garden Products, and D&D Commodities Limited, which were acquired during fiscal 2021.

The combined financial statements of these acquisitions constitute approximately 28% of total assets and approximately 9% of net sales of the consolidated financial statement amounts of the Company as of and for the year ended September 25, 2021.

Accordingly, our audit did not include the internal control over financial reporting at DoMyOwn, Hopewell Nursery, Green Garden Products, or D&D Commodities Limited.

Change in Accounting Principle

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Basis for Opinions

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on

the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisitions – C&S Products – Refer to Note 3 to the financial statements

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisitions—Refer to Note 3 to the financial statements

Critical Audit Matter Description

In May 2019, the Company purchased C&S Products, a manufacturer of suet and other wild bird feed products, for approximately $30.0 million.

The Company finalized the allocation of the purchase price to fair value of the tangible assets, intangible assets and liabilities acquired during the first quarter ended December 28, 2019.

We identified the accounting for this acquisition as a critical audit matter due to the complexity of the agreements and the significant judgments made by management in (1) evaluating the purchase and other agreements entered into on or around the acquisition date to identify the accounting treatment for different elements contained in each agreement, (2) determining the weighted-average cost of capital (WACC), including the discount rate to be used in the valuation, and (3) evaluating the fair value of certain land and buildings acquired.

Auditing this acquisition required significant audit effort in the form of more experienced personnel reading the purchase and other agreements to identify, analyze, and conclude on the reasonableness of management's accounting treatment for the different elements, including the purchase price recorded.

In addition, we used fair value specialists to (1) evaluate the reasonableness of the WACC and discount rate utilized in the valuation and (2) evaluate the reasonableness of key assumptions used in the sales comparison and cost approaches in determining the fair value of land and buildings acquired.

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

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.

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 $571 million.

The Company has not yet finalized the allocation of the purchase price to fair value of the tangible assets, intangible assets, and liabilities acquired.

D&D Commodities Limited—On June 30, 2021, the Company purchased D&D Commodities, Ltd., 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 Company has not yet finalized the allocation of the purchase price to fair value of the tangible assets, intangible assets, and liabilities acquired.

We identified the accounting for these acquisitions as a critical audit matter due to the complexity of the agreements and the significant judgments made by management in (1) evaluating the purchase and other agreements entered into on or around the acquisition dates to identify the accounting treatment for different elements contained in each agreement;

(2) determining the weighted-average cost of capital (WACC), including the discount rate to be used in the valuation;

and (3) evaluating the fair value of certain land and buildings acquired.

Auditing these acquisitions required significant audit effort in the form of more experienced personnel reading the purchase and other agreements to identify, analyze, and conclude on the reasonableness of management’s accounting treatment for the different elements, including the purchase price recorded.

In addition, we used our fair value specialists to (1) evaluate the reasonableness of the WACC and discount rate utilized in the valuation and (2) evaluate the reasonableness of key assumptions used in the sales comparison and cost approaches in determining the fair value of land and buildings acquired.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the C&S Products acquisition included the following, among others:

• We read and analyzed the purchase and other agreements entered into on or around the acquisition date to identify and conclude on the reasonableness of management’s accounting treatment for the different elements, including the purchase price recorded.

Our audit procedures related to the acquisitions included the following, among others:

• We tested the effectiveness of controls over the valuation methodology of acquired companies, including management’s controls over the selection of the WACC and discount rates as well as controls over the review of the purchase and other agreements for complex accounting matters and associated accounting analysis.

• We utilized more experienced personnel to read and analyze the purchase and other agreements entered into on or around the acquisition date to identify and conclude on the reasonableness of management’s accounting treatment for the different elements, including the purchase price recorded.

• With the assistance of fair value specialists, we evaluated the reasonableness of the WACC and discount rate by:

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Amortization of share-based awards — — — — — — 10,459 — — 10,459 — 10,459

Tax deficiency on exercise of stock options, net of tax benefit — — — — — — — — — — — —

Repurchase of stock ( 601,166 ) ( 6 ) ( 1,759,574 ) ( 17 ) — — ( 24,125 ) ( 33,967 ) — ( 58,115 ) — ( 58,115 )

Restricted share activity — — 437,035 4 — — ( 3,128 ) — — ( 3,124 ) — ( 3,124 )

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Issuance of common stock — — 408,740 5 — — 2,365 — — 2,370 — 2,370

Share conversion 39,888 — — — ( 39,888 ) — — — — — — —

Distribution to noncontrolling interest — — — — — — — — — — ( 143 ) ( 143 )

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Distribution to noncontrolling interest — — — — — — — — — — ( 606 ) ( 606 )

Share conversion 39,888 — — — ( 39,888 ) — — — — — — —

Repurchase of stock ( 700 ) — ( 520,299 ) ( 5 ) — — ( 5,389 ) ( 16,445 ) — ( 21,839 ) — ( 21,839 )

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Stock-based compensation 23,127 18,982 14,662

Debt extinguishment costs 8,577 — —

Loss on sale of business 2,611 — —

Deferred income taxes ( 14,744 ) ( 6,615 ) 6,659

Loss on disposal of property, plant and equipment 1,171 730 273

(Gain) loss on disposal of property, plant and equipment ( 256 ) 1,171 730

Asset impairments — 3,566 —

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Businesses acquired, net of cash acquired ( 820,453 ) — ( 41,161 )

Proceeds from sale of business 2,400 — —

Payments for investments ( 500 ) ( 4,439 ) ( 2,010 )

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Borrowings on revolving line of credit 858,000 200,000 —

Premium paid on extinguishment of debt ( 6,124 ) — —

Repayments of long-term debt ( 430,401 ) ( 113 ) ( 46,193 )

Issuance of long-term debt 900,000 — —

Proceeds from issuance of common stock, net of offering costs — — 195,631

Repurchase of common stock, including shares surrendered for tax withholding ( 27,892 ) ( 59,129 ) ( 62,974 )

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Payment of financing costs ( 14,129 ) ( 948 ) ( 1,352 )

Net cash (used in) provided by financing activities ( 60,560 ) ( 110,765 ) 474,783

Effect of exchange rate changes on cash and cash equivalents 89 ( 250 ) ( 50 )

Net increase in cash, cash equivalents and restricted cash 155,696 17,696 447,963

Net cash provided by (used in) financing activities 420,475 ( 60,560 ) ( 110,765 )

Effect of exchange rate changes on cash and equivalents 1,165 89 ( 250 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 226,875 ) 155,696 17,696

Cash, cash equivalents and restricted cash at beginning of year 666,397 510,701 493,005

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Actual results could differ from those estimates.

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 change.

Revenue Recognition and Nature of Products and Services

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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.

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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.

The Company routinely offers sales incentives and discounts through various regional and national programs to its 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.

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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 and other current assets on the condensed consolidated balance sheets.

Cost of goods sold and occupancy consists of cost of product, inbound freight charges, purchasing and receiving costs, certain indirect purchasing, merchandise handling and storage costs, internal transfer costs as well as allocations of overhead costs, including depreciation, related to the Company’s facilities.

Reserves for product returns, accrued rebates and promotional accruals are included in the consolidated balance sheets as part of accrued expenses, and the value of inventory associated with reserves for sales returns is included within prepaid and other current assets on the consolidated balance sheets.

Cost of goods sold consists of cost of product, inbound freight charges, purchasing and receiving costs, certain indirect purchasing, merchandise handling and storage costs, internal transfer costs as well as allocations of overhead costs, including depreciation, related to the Company’s facilities.

Cost of goods sold excludes substantially all shipping and handling and out-bound freight costs to customers, which are included in selling, general and administrative expenses as delivery expenses.

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Income taxes are accounted for under the asset and liability method.

Deferred income taxes reflect the impact of “temporary differences” between asset and liability amounts for financial reporting purposes and such amounts as determined based on existing tax laws.

Deferred income taxes result primarily from bad debt allowances, inventory and goodwill write-downs, amortization and depreciation.

1 unchanged sentence

As of fiscal year-end 2021 and 2020, the Company had valuation allowances related to various state and foreign net deferred tax assets of $ 7.0 million and $ 7.1 million, respectively.

On December 22, 2017, the U.S.

Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by the U.S.

The Tax Reform Act significantly revised the U.S.

corporate income tax code by, among other things, transitions the U.S.

tax system to a new territorial system and lowered the U.S.

federal corporate tax rate from 35% to 21% effective January 1, 2018.

In fiscal 2018, the Company's statutory federal corporate tax rate was a blended rate of 24.5 %, which was reduced to 21 % in fiscal 2019 and thereafter.

GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

In transitioning to the new territorial tax system, the Tax Reform Act required the Company to include certain untaxed foreign earnings of non-U.S.

subsidiaries in its fiscal 2018 taxable income.

Such foreign earnings were subject to a one-time tax at 15.5 % of the amount held in cash or cash equivalents and at 8 % on the remaining non-cash amount.

The 15.5 % and 8 % tax, collectively referred to as the "transition tax", was estimated to be $ 0.3 million on foreign undistributed earnings of approximately $ 1.8 million.

While the Tax Reform Act provides for the full deduction of future foreign earnings (beyond the $ 1.8 million subject to the transition tax noted above) paid to U.S.

parent corporations in the form of dividends, the Company continues to consider all such foreign earnings to be indefinitely reinvested overseas.

The Tax Reform Act provided two new sections dealing with how all future foreign earnings are taxed.

The first section deals with foreign earnings originating outside the United States, called Global Intangible Low Tax Income (GLTI), which annually taxes at 13.125% in the United States, foreign earnings above a 10% return on invested foreign assets.

The second new section, Foreign-Derived Intangible Income (FDII) deals with benefiting U.S.

exports by reducing the U.S.

tax rate on FDII earnings from 21% to 13.125%.

The Company derives the vast majority of its taxable income in the United States.

While both GLTI and FDII are estimated to be immaterial to the Company, it is anticipated that FDII tax benefits will fully offset GLTI taxes in the coming years.

As a result of the Tax Reform Act, the Company recorded a provisional tax benefit of $ 16.3 million due to the remeasurement of its deferred tax assets and liabilities, inclusive of a $ 0.2 million transition tax, in the three months ended December 30, 2017.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

analysis and refinement of its calculations, the Company completed its remeasurement of deferred tax assets and liabilities and adjusted its provisional amount by recording an additional tax benefit of $ 5.2 million during its fiscal quarter ended September 29, 2018, for a total 2018 tax benefit of $ 21.5 million.

No additional adjustments were required in fiscal 2019.

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.

1 unchanged sentence

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 September 26, 2020, September 28, 2019 and September 29, 2018, respectively (in thousands).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows as of September 25, 2021, September 26, 2020 and September 28, 2019, respectively (in thousands).

September 25, 2021 September 26, 2020 September 28, 2019

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thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are past due.

Allowance for doubtful accounts – Trade accounts receivable are regularly evaluated for collectability based on past credit history with customers, their current financial condition and their expected deductions.

See Note 5 – Allowance for Doubtful Accounts .

Allowance for Credit Losses and Customer Allowances – The Company’s trade accounts receivable are recorded at net realizable value, which includes an allowance for estimated credit losses, as well as allowances for contractual customer deductions accounted for as

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

variable consideration.

Under the guidance found in Accounting Standards Codification ("ASC") Topic 326, the “expected credit loss” model replaces the previous incurred loss model and requires consideration of a broader range of information to estimate expected credit losses over the lives of the Company’s trade accounts receivable.

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

The Company maintains an allowance for credit losses related to its trade accounts receivable for future expected credit losses for the inability of its customers to make required payments.

The Company estimates the allowance based upon historical bad debts, current customer receivable balances and the customer’s financial condition.

The allowance is adjusted to reflect changes in current and forecasted macroeconomic conditions.

The Company’s estimate of credit losses includes expected current and future economic and market conditions surrounding the COVID-19 pandemic, which did not significantly impact its allowance.

See Note 5 – Allowance for Credit Losses and Customer Allowances .

Inventories , which primarily consist of garden products and pet supplies finished goods, are stated at the lower of FIFO cost or market.

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Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

There were no impairment losses recorded in fiscal 2018.

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 consolidated statements of operations for the fiscal year ended September 28, 2019.

There were no impairment losses recorded in fiscal 2020.

There were no impairment losses recorded in fiscal years 2020 or 2021.

Should market conditions or the assumptions used by the Company in determining the fair value of assets change, or management changes plans regarding the future use of certain assets, additional charges to operations may be required in the period in which such conditions occur.

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See Note 8 – Goodwill .

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments – The Company owns membership interests ranging from 7 % to 50 % in eleven unconsolidated companies.

The Company accounts for its interest in these entities using the equity method and in accordance with Accounting Standards Codification (ASC) 321 – Investments – Equity Securities.

Equity method losses of $ 3.9 million in fiscal 2020, equity method income of $ 1.2 million in fiscal 2019 and equity method losses of $ 2.8 million in fiscal 2018 are included in other income (expense) in the consolidated statements of operations.

Investments – The Company owns membership interests ranging from 3 % to 50 % in twelve unconsolidated companies.

The Company accounts for its interest in these entities using the equity method and in accordance with ASC 321 – Investments – Equity Securities.

Equity method losses of $ 1.4 million in fiscal 2021, and $ 3.9 million in fiscal 2020 and equity method income of $ 1.2 million in fiscal 2019 are included in other income (expense) in the consolidated statements of operations.

The Company’s investment in these entities was $ 12.2 million at September 25, 2021 and $ 13.1 million at September 26, 2020 and is included in Other assets in the Company's consolidated balance sheets.

1 unchanged sentence

See Note 3 – Acquisitions .

Leases - Effective September 29, 2019, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842").

Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances.

On September 29, 2019, the Company began to record operating leases on its consolidated balance sheet.

As of December 28, 2019, long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities were presented separately in the consolidated balance sheets.

Finance lease ROU assets continue to be presented in property, plant and equipment, net, and the related finance liabilities have been presented with current and long-term debt in the consolidated balance sheets.

Leases - The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances.

Long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities are presented separately in the consolidated balance sheets.

Finance lease ROU assets are presented in property, plant and equipment, net, and the related finance liabilities are presented with current and long-term debt in the 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.

ROU assets are calculated based on the lease liability adjusted for any

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

lease payments paid to the lessor at or before the commencement date and excludes any lease incentives received from the lessor.

Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.

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net income and other comprehensive income (loss).

Other comprehensive income (loss) refers to gains and losses that under generally accepted accounting principles are recorded directly as an element of shareholders’ equity, but are excluded from net income, and is comprised of currency translation adjustments relating to the Company’s foreign subsidiary whose functional currency is not the U.S.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

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 2020, on a modified retrospective basis using the optional transition method, and accordingly, has not restated comparative periods.

Fiscal 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 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 no t record an adjustment to beginning retained earnings associated with the adoption of this standard.

Information on our current operating leases can be found in Note 10 - Leases .

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 Consolidated Financial Statements and moved to Part 1.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Accounting Standards Not Yet Adopted

Accounting Standards Recently 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.

The guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021.

The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 measured at amortized cost, including trade receivables.

The model replaces the probable, incurred loss model for 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 consolidated financial statements and related disclosures.

CENTRAL GARDEN & PET COMPANY

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An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The new guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or the Company's first quarter of fiscal 2021.

The amendment should be applied on a prospective basis.

Based on the Company's most recent annual goodwill impairment test performed as of June 28, 2020, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value;

therefore, this ASU would not currently have an impact on the Company's 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.

I n 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 consolidated financial statements and related disclosures.

The Company adopted this guidance as of September 27, 2020 on a prospective basis.

Based on the Company's annual goodwill impairment test performed as of July 1, 2020, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value;

therefore, the adoption of this ASU did not have an impact on the Company's 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 .

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Me asurement .

This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures.

ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted and is effective for the Company in fiscal 2021.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company is currently evaluating the effect that ASU 2018-13 will have on its consolidated financial statements and related disclosures.

The Company adopted this standard as of September 27, 2020, and the adoption did not have a material impact on its consolidated financial statements and related disclosures.

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 and enacted 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 became effective for the Company in its first quarter of fiscal 2022 beginning September 26, 2021 and requires 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 consolidated financial statements but does not expect the impact to be material.

Fair Value Measurements

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The carrying amount of these instruments approximates fair value because of their short-term nature.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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Total liabilities $ — $ — $ 1,606 $ 1,606

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 26, 2020:

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Total liabilities $ — $ — $ 1,369 $ 1,369

(a) The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015 and future performance-based contingent payments for Segrest, Inc., acquired in October 2016.

(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 performance period related to B2E ended on December 31, 2020.

The performance period related to Hydro-Organics Wholesale extends through fiscal year 2025.

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.

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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.

There were no impairment losses recorded in fiscal 2018.

There were no impairment losses recorded in fiscal 2020.

There were no impairment losses recorded in fiscal 2020 or fiscal 2021.

In February 2019, the Company purchased the remaining 55 % interest in Arden Companies, a manufacturer of outdoor cushions and pillows, for $ 13.4 million.

Accordingly, the Company remeasured its previously held investment at its acquisition-date fair value and recorded a gain of approximately $ 3.2 million as part of selling, general and administrative expenses in the Company's consolidated statements of operations.

Fair Value of Other Financial Instruments

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

The estimated fair value of the Company's 2031 Notes as of September 25, 2021 was $ 408.5 million compared to a carrying value of $ 394.2 million.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 September 25, 2021 was $ 517.2 million, compared to a carrying value of $ 492.8 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 September 25, 2021 and September 26, 2020 was $ 318.6 million and $ 316.0 million, respectively, compared to a carrying value of $ 297.0 million and $ 296.6 million, respectively.

In November 2015, the Company issued $ 400 million aggregate principal amount of 6.125 % senior notes due November 2023 (the “2023 Notes”).

The estimated fair values of the Company’s 2023 Notes were $ 409.2 million and $ 414.6 million and as of September 26, 2020 and September 28, 2019, and the carrying values were $ 397.5 million, $ 396.7 million as of September 26, 2020 and September 28, 2019.

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

In November 2020, the Company 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 is based on quoted market prices for these notes, which are Level 1 inputs within the fair value hierarchy.

Acquisitions and Investments in Joint Ventures

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.

The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $ 80.4 million, of which $ 11.9 million was allocated to identified intangible assets and approximately $ 68.5 million was included in goodwill in the Company’s consolidated balance sheet as of September 25,2021.

Financial results of DoMyOwn have been included in the results of operations within the Garden segment since the date of acquisition.

The following table summarizes the purchase price and recording of fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments.

Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted)

(in thousands)

Current assets, net of cash and cash equivalents acquired $ 3,922 $ — $ 3,922

Fixed assets 3,047 — 3,047

Goodwill — 68,512 68,512

Other assets 80,412 ( 80,412 ) —

Other intangible assets, net — 11,900 11,900

Current liabilities ( 6,446 ) — ( 6,446 )

Net assets acquired, less cash and cash equivalents $ 80,935 $ — $ 80,935

(1) As previously reported in the Company's Form 10-Q for the period ended June 26, 2021.

The impact to the consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets for DoMyOwn was immaterial.

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 purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $ 15 million, of which $ 4.1 million was allocated to identified intangible assets and $ 10.9 million was included in goodwill in the Company's consolidated balance sheet as of September 25, 2021.

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

Financial results of Hopewell Nursery have been included in the results of operations within the Garden segment since the date of acquisition.

The following table summarizes the purchase price and recording of fair values of the assets acquired

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and liabilities assumed as of the acquisition date and subsequent adjustments.

Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted)

(in thousands)

Current assets, net of cash and cash equivalents acquired $ 39,046 $ 3,742 $ 42,788

Fixed assets 31,940 ( 326 ) 31,614

Goodwill — 10,924 10,924

Other assets 18,470 ( 18,470 ) —

Other intangible assets, net — 4,130 4,130

Current liabilities ( 6,767 ) — ( 6,767 )

Other long-term liabilities ( 1,301 ) — ( 1,301 )

Net assets acquired, less cash and cash equivalents $ 81,388 $ — $ 81,388

(1) As previously reported in the Company's Form 10-Q for the period ended June 26, 2021.

The impact to the consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets for Hopewell Nursery was immaterial.

Proforma financial information has not been presented as the DoMyOwn and Hopewell Nursery acquisitions were not considered material to the Company's overall consolidated financial statements during the periods presented.

The Company expects all the goodwill from both of the acquisitions above to be deductible for tax purposes.

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 Company borrowed approximately $ 180 million under its credit facility to partially finance the acquisition.

The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired.

Approximately $ 487 million of the purchase price remains unallocated.

Deferred taxes associated with the intangible assets acquired will be finalized upon completion of the purchase accounting.

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

The financial results of Green Garden have been included in the results of operations within the Garden segment since the date of acquisition.

For the fiscal year ended September 25, 2021, net sales and net income related to Green Garden Products were approximately $ 122.4 million and $ 1.6 million, respectively.

The following unaudited pro forma financial information summarizes the combined results of operations for Central and Green Garden Products as if the companies were combined as of the beginning of fiscal year 2020.

Fiscal Year Ended

September 25, 2021 September 26, 2020

in thousands except per share amounts

Net sales $ 3,357,977 $ 2,850,678

Net income attributable to Central Garden & Pet Company $ 175,508 $ 146,277

Diluted net income per share attributable to Central Garden & Pet Company $ 3.18 $ 2.67

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

This pro forma information is based on historical results of operations, adjusted for the preliminary estimated allocation of the purchase price and other acquisition adjustments.

This pro forma information is not necessarily indicative of what the results of the Company would have been had it operated the business since the beginning of the periods presented.

The pro forma adjustments reflect the income statement effects of the elimination of intercompany sales and profit, amortization of intangible assets related to the fair value adjustments of the assets acquired, elimination of interest expense on Green Garden Products debt that was paid off at the time of acquisition, incremental interest expense directly resulting from the acquisition and the related tax effects.

D&D Commodities Limited

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.

Subsequent to the acquisition, $ 30 million of cash was used to eliminate the acquired long-term debt.

The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired.

Approximately $ 101 million of the purchase price remains unallocated.

Deferred taxes associated with the intangible assets acquired will be finalized upon completion of the purchase accounting.

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

The financial results of D&D have been included in the results of operations within the Garden segment since the date of acquisition.

The Company includes the unallocated purchase price for acquisitions in other assets on its consolidated balance sheet.

Breeder's Choice

In December 2020, the Company completed the sale of certain assets of its Breeder's Choice business unit.

Prior to the sale of Breeder's Choice assets, the Company recognized the financial results of the business unit in its Pet segment.

The Company received cash proceeds of $ 2.4 million and sold approximately $ 4.7 million of current and long-term net assets.

The Company recognized a loss on the sale of the Breeder's Choice business unit of approximately $ 2.6 million during the three months ended December 26, 2020 as part of selling, general and administrative expenses in the Company's condensed consolidated statement of operations.

The Company did no t make any acquisitions in fiscal 2020.

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Net assets acquired, less cash and cash equivalents $ 30,024 $ — $ 30,024

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $ 15.8 million, of which $ 10.9 million was allocated to identified intangible assets and approximately $ 4.9 million was included in goodwill in the Company's consolidated balance sheet as of September 28, 2019.

Subsequent to the acquisition, approximately $ 36 million of cash was used to

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

eliminate most of the acquired long-term debt.

Subsequent to the acquisition, approximately $ 36 million of cash was used to eliminate most of the acquired long-term debt.

Financial results of Arden have been included in the results of operations within the Garden segment since the date of acquisition of the remaining 55 % interest.

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Proforma financial information has not been presented as the C&S Products and Arden Companies acquisitions were not considered material to the Company's overall consolidated financial statements during the periods presented.

General Pet Supply

On April 2, 2018, the Company purchased substantially all of the assets of General Pet Supply, a leading Midwestern U.S.

supplier of pet food and supplies for a purchase price of approximately $ 24.3 million.

The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $ 13.6 million, of which $ 8.1 million was allocated to identified intangible assets and approximately $ 5.5 million was included in goodwill in the Company’s consolidated balance sheet as of September 29, 2018.

Financial results of General Pet Supply have been included in the results of operations within the Pet segment since the date of acquisition.

The following table summarizes the purchase price and recording of fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted)

(in thousands)

Current assets, net of cash and cash equivalents acquired $ 12,991 $ — $ 12,991

Fixed assets 1,014 516 1,530

Goodwill — 5,520 5,520

Other assets 14,147 ( 14,136 ) 11

Other intangible assets, net — 8,100 8,100

Current liabilities ( 3,506 ) — ( 3,506 )

Long-term obligations ( 361 ) ( 361 )

Net assets acquired, less cash and cash equivalents $ 24,285 $ — $ 24,285

(1) As previously reported in the Company's Form 10-Q for the period ended June 30, 2018.

The impact to the consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets for General Pet Supply was immaterial.

On March 12, 2018, the Company purchased Bell Nursery Holdings, LLC ("Bell"), a leading grower and distributor of live flowers and plants in the mid-Atlantic region of the United States, for a purchase price of approximately $ 61 million plus contingent consideration of up to $ 10 million.

The purchase price exceeded the estimated fair value of the net tangible assets acquired by approximately $ 13.6 million, of which $ 6.2 million was allocated to identified intangible assets and $ 7.4 million was included in goodwill in the Company's consolidated balance sheet as of September 29, 2018.

Financial results of Bell have been included in the results of operations within the Garden segment since the date of acquisition.

The following table summarizes the purchase price and recording of fair values of the assets acquired and liabilities assumed as of the acquisition date and subsequent adjustments.

Amounts Previously Recognized as of Acquisition Date (1) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as Adjusted)

(in thousands)

Current assets, net of cash and cash equivalents acquired $ 28,330 $ ( 359 ) $ 27,971

Fixed assets 30,278 383 30,661

Goodwill — 7,415 7,415

Other assets 11,647 ( 11,647 ) —

Other intangible assets, net — 6,230 6,230

Current liabilities ( 11,611 ) ( 2,022 ) ( 13,633 )

Net assets acquired, less cash and cash equivalents $ 58,644 $ — $ 58,644

(1) As previously reported in the Company's Form 10-Q for the periods ended March 31, 2018 and June 30, 2018.

The impact to the consolidated statement of operations associated with the finalization of purchase accounting and true-up of intangible assets for Bell was immaterial.

The Company expects all the goodwill from the acquisitions above to be deductible for tax purposes.

During fiscal 2021, the Company made an investment of $ 0.5 million for a 3 % ownership interest in one venture, which is accounted for in accordance with ASC 321 .

During fiscal 2020, the Company made investments ranging from an additional 3 % to 30 %, totaling $ 4.4 million, in two ventures, which are accounted for in accordance with ASC 321.

During fiscal 2019, the Company made investments up to 7 %, totaling $ 2.0 million, in two ventures, which are accounted for in accordance with ASC 321.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During fiscal 2020, the Company made investments ranging from an additional 3 % to 30 %, totaling $ 4.4 million, in two ventures, which are accounted for in accordance with ASC 321, Investments - Equity Securities .

During fiscal 2019, the Company made investments up to 7 %, totaling $ 2.0 million, in two ventures, which are accounted for in accordance with ASC 321.

During fiscal 2018, the Company made investments ranging from 13 % to 20 % in three ventures.

The Company invested a total of $ 9.0 million in these businesses, which are accounted for under ASC 321 and equity method of accounting.

Concentration of Credit Risk and Significant Customers and Suppliers

Customer Concentration – Approximately 51 % of the Company’s net sales for fiscal 2021, 52 % for fiscal 2020 and 49 % for fiscal 2019 were derived from sales to the Company’s top five customers.

The Company’s largest customer accounted for approximately 17 % of the Company’s net sales in fiscal 2020 and approximately 16 % in each of the fiscal years 2019 and 2018.

The Company’s second largest customer in 2020 accounted for approximately 13 % of the Company’s net sales in fiscal year 2020, 12 % of the Company's net sales in the fiscal year 2019 and 11 % in fiscal year 2018.

The Company’s third largest customer in 2020 accounted for approximately 10 % of the Company’s net sales in the fiscal year 2020, approximately 9 % in fiscal year 2019 and approximately 8 % in fiscal 2018, respectively.

The Company’s largest customer accounted for approximately 16 % of the Company’s net sales in fiscal 2021 and approximately 17 % in 2020 and 16 % in 2019.

The Company’s second largest customer in 2021 accounted for approximately 15 % of the Company’s net sales in fiscal 2021, 13 % of the Company's net sales in fiscal 2020 and 12 % in fiscal 2019.

The Company’s third largest customer in 2021 accounted for approximately 9 % of the Company’s net sales in fiscal 2021, approximately 10 % in fiscal 2020 and approximately 9 % in fiscal 2019, respectively.

The loss of, or significant adverse change in, the relationship between the Company and any of these three customers could have a material adverse effect on the Company’s business and financial results.

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Supplier Concentration – While the Company purchases products from many different manufacturers and suppliers, approximately 8 %, 7 % and 6 % of the Company’s cost of goods sold in fiscal years 2021, 2020 and 2019, respectively, were derived from products purchased from the Company’s five largest suppliers.

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes reserves for collectability determined by past credit history with customers, their current financial condition and their expected deductions.

Changes in the allowance for doubtful accounts are summarized below:

Allowance for Credit Losses and Customer Allowances

The Company’s trade accounts receivable are recorded at net realizable value, which includes an allowance for estimated credit losses, as well as allowances for contractual customer deductions accounted for as variable consideration as described in Note 1 - Organization and Significant Accounting Policies.

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 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 resulting from the inability of its customers to make required payments.

The Company estimates the allowance based upon historical bad debts, current customer receivable balances and the customer’s financial condition.

The allowance is adjusted to reflect differences in current conditions as well as changes in forecasted macroeconomic conditions.

The Company’s estimate of credit losses includes expected current and future economic and market conditions surrounding the COVID-19 pandemic, which did not significantly impact its allowance.

The following provides a reconciliation of the activity in the Allowance for Credit Losses and Customer Allowances:

Description Balances at

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Accumulated impairment losses ( 213,583 ) ( 195,978 ) ( 409,561 )

Balance as of 5,473 250,802 256,275

12,888 268,289 281,177

Additions in fiscal 2019 — 4,900 4,900

Write off related to sale of business — — —

Balance as of September 28, 2019

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

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

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

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

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

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

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

The 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, the Company 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.

The Company’s 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.

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(ii) estimated future cash flows;

and (iii) projected revenue and operating profit growth rates

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

used in the reporting unit models.

and (iii) projected revenue and operating profit growth rates used in the reporting unit models.

Actual results may differ from those estimates.

The valuations employ present value techniques to measure fair value and consider market factors.

In connection with the Company’s annual goodwill impairment testing performed during fiscal 2020 and fiscal 2019, the Company 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.

The Company completed its qualitative assessment of potential goodwill impairment in each fiscal year and it was determined that it was more likely than not the fair values of the Company's reporting units were greater than their carrying amounts in each fiscal year, and accordingly, no further testing of goodwill was required in fiscal 2020 and 2019.

In connection with the Company’s annual goodwill impairment testing performed during fiscal 2021 and 2020, the Company 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 goodwill impairment test.

The Company completed its qualitative assessment of potential goodwill impairment in

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

each fiscal year, and it was determined that it was more likely than not the fair values of the Company's reporting units were greater than their carrying amounts in each fiscal year, and accordingly, no further testing of goodwill was required in fiscal 2021 and 2020.

Other Intangible Assets

32 unchanged sentences

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

As part of its acquisition of the remaining 55 % interest in Arden Companies in the second quarter of fiscal 2019 and C&S Products in the third quarter of fiscal 2019, the Company acquired approximately $ 1.9 million of marketing related intangible assets and $ 11.8 million of customer related intangible assets.

As part of its acquisition of DoMyOwn in the first quarter of fiscal 2021 and Hopewell Nursery in the second quarter of fiscal 2021, the Company acquired approximately $ 1.5 million of marketing related intangible assets, $ 3.3 million of customer related intangible assets and $ 11.2 million of other intangible assets.

See Note 3 – Acquisitions .

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As part of its acquisition of K&H in the third quarter of fiscal 2017, Bell Nursery in the second quarter of fiscal 2018 and General Pet Supply during the third quarter of fiscal 2018, the Company acquired approximately $ 9.6 million of marketing related intangible assets, $ 36.7 million of customer related intangible assets and $ 3.3 million of other intangible assets.

See Note 3 – Acquisitions .

1 unchanged sentence

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 fiscal 2018, 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

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

certain amortizable intangible assets may not be recoverable were present during the quarter ended March 30, 2019.

Factors indicating the carrying value of the Company's amortizable intangible assets may not be recoverable were not present in fiscal 2020, and accordingly, no impairment testing was performed on these assets.

The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from three years to 25 years;

over weighted-average remaining lives of three years for marketing-related intangibles, 8 years for customer-related intangibles and 10 years for other acquired intangibles.

Factors indicating the carrying value of the Company's amortizable intangible assets may not be recoverable were not present in fiscal 2020 or 2021, and accordingly, no impairment testing was performed on these assets.

The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from two years to 25 years;

over weighted-average remaining lives of two years for marketing-related intangibles, seven years for customer-related intangibles and six years for other acquired intangibles.

Amortization expense for intangibles subject to amortization was approximately $ 16.5 million, $ 14.0 million and $ 14.5 million, for fiscal 2021, 2020 and 2019, respectively, and is classified within operating expenses in the consolidated statements of operations.

8 unchanged sentences

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.

See Note 1 – Organization and Significant Accounting Policies, 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

September 26, 2020

September 25, 2021 As of September 26, 2020

(in millions)

11 unchanged sentences

Fiscal Year Ended

September 25, 2021 Fiscal Year Ended

September 26, 2020

12 unchanged sentences

Fiscal Year Ended

September 25, 2021 Fiscal Year Ended

September 26, 2020

8 unchanged sentences

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

As of September 26, 2020

(in millions)

As of September 25, 2021 As of September 26, 2020

Weighted-average remaining lease term (in years):

4 unchanged sentences

Finance leases 4.86 % 4.80 %

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

As of September 26, 2020 As of September 28, 2019

ASC 842 ASC 840

Operating Leases Finance Leases Operating Leases

Lease liability maturities as of September 25, 2021 are as follows:

As of September 25, 2021

Operating Leases Finance Leases

Fiscal Year (in millions)

2022 $ 44.7 $ 0.1

2021 $ 36.6 $ 0.1 $ 29.3

2022 30.6 0.1 21.8

2023 20.1 — 11.3

2024 14.7 — 7.9

2025 11.1 — —

Thereafter 45.4 —

2 unchanged sentences

Total reported lease liability $ 170.8 $ 0.1

Rental expense associated with the Company's leases was $ 41.7 million for fiscal 2019 and $ 35.4 million for fiscal 2018 and is included in cost of goods sold and occupancy or selling, general and administrative expenses in the Company's consolidated statements of operations.

Rental expense associated with the Company's leases was $ 41.7 million for fiscal 2019 and is included in cost of goods sold and occupancy or selling, general and administrative expenses in the Company's consolidated statements of operations.

CENTRAL GARDEN & PET COMPANY

8 unchanged sentences

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 April 2031

Unamortized debt issuance costs ( 15,994 ) ( 6,142 )

5 unchanged sentences

Long-term portion $ 1,184,683 $ 693,956

$ 300 million 5.125 % Senior Notes

Issuance of $ 400 million 4.125 % Senior Notes due 2031

On April 30, 2021, the Company issued $ 400 million aggregate principal amount of 4.125 % senior notes due April 2031 (the "2031 Notes").

The Company used a portion of the net proceeds from the offering to repay all outstanding borrowings under its Amended Credit Facility, with the remainder to be used for general corporate purposes.

The Company 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, commencing October 30, 2021.

The 2031 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 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.

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

At any time prior to April 30, 2024, the Company may also redeem, at its 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.

The Company may redeem some or all of the 2031 Notes at the Company’s 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 the Company 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.

The Company was in compliance with all financial covenants as of September 25, 2021.

Issuance of $ 500 million 4.125 % Senior Notes due 2030

On October 16, 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.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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 September 25, 2021.

$ 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 the net proceeds from the offering to finance future acquisitions and for general corporate purposes.

The Company 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.

3 unchanged sentences

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.

2 unchanged sentences

The Company was in compliance with all financial covenants as of September 25, 2021.

$ 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 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 were unsecured senior obligations and were 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 were being amortized over the term of the 2023 Notes.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The 2023 Notes require semiannual interest payments on May 15 and November 15.

The 2023 Notes were 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 were 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 could redeem some or all of the 2023 Notes, at its option, at any time 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 had 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 contained 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 September 26, 2020.

Issuance of $ 500 million 4.125 % Senior Notes

Subsequent to Central's fiscal year ended September 26, 2020, on October 16, 2020, the Company issued $ 500 million aggregate principal amount of 4.125 % senior notes due October 2030 (the "2030 Notes").

Central used the net proceeds from the offering to redeem its outstanding 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.

See Note 20 - Subsequent Events .

Asset-Based Loan Facility Amendment

4 unchanged sentences

The Amended Credit Facility is subject to a borrowing base that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and adjustments.

The Amended Credit Facility also allows the Company to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders.

The Amended Credit Facility also allows the Company to add real property to the

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders.

Net availability under the Amended Credit Facility was $ 400 million as of September 25, 2021.

2 unchanged sentences

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 the option of the Company, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.50 %, (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 %.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the 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 the Company’s 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.

3 unchanged sentences

As of September 25, 2021, 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 1.1 %.

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.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

4 unchanged sentences

(in thousands)

2024 400,000 (1)

Thereafter 1,200,000

Total $ 1,201,758 (1)

(1) Subsequent to September 26, 2020, the Company repaid the $ 400 million aggregate principal amount of its 2023 Notes in conjunction with the issuance of its 2030 Notes.

See Note 20 - Subsequent Events .

(2) 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 is amortizable until November 2023, and $ 3.4 million is amortizable until February 2028 and is included in the carrying value.

In conjunction with the repayment of the $ 400 million aggregate principal amount of its 2023 Notes subsequent to September 26, 2020, the Company wrote off the $ 2.5 million of unamortized deferred financing costs related to the 2023 Notes.

(1) 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.

Commitments and Contingencies

2 unchanged sentences

The amount of cash collateral in these segregated accounts was $ 13.1 million and $ 13.7 million as of September 25, 2021 and September 26, 2020, respectively, and is reflected in “Restricted cash” on the Company's consolidated balance sheets.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Purchase commitments – Production and purchase agreements (primarily for grass seed and grains) entered into in the ordinary course of business may obligate the Company to make future purchases based on estimated yields.

9 unchanged sentences

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

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The Company filed its notice of appeal and the plaintiffs cross-appealed.

On July 14, 2021, the Federal Circuit Court of Appeals issued its decision on the appeal.

The Federal Circuit concluded that the Company did not infringe plaintiff's patent and determined that the breach of contract claim raised no non-duplicative damages and should be dismissed.

The court affirmed the jury's liability verdict on the misappropriation of confidential information claim but ordered a new trial on damages on that single claim limited to the "head start" benefit, if any, generated by the confidential information.

The Company intends to vigorously pursue its defenses in the future proceedings and believes that it will prevail on the merits as to the head start damages issue.

While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.

During fiscal 2013, the Company received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws.

In addition to seeking unclaimed property subject to escheat laws, the states may seek interest, penalties and other relief.

The examinations are continuing;

however, the ultimate resolution and impact on the Company's consolidated financial statements is uncertain.

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

The examinations are continuing, and the ultimate resolution and impact on the Company's consolidated financial statements is uncertain.

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

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

The Company currently believes its insurance coverage is sufficient to cover the remaining asset-related losses as well as the business interruption loss associated with these events.

The Company's insurance coverage was sufficient to cover the asset-related losses 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.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision for income tax expense (benefit) consists of the following:

21 unchanged sentences

Credits ( 0.4 ) ( 0.6 ) ( 0.9 )

Rate change – Tax reform — — ( 16.9 )

Stock based compensation ( 1.4 ) ( 1.4 ) ( 1.6 )

1 unchanged sentence

Effective income tax rate 21.6 % 21.0 % 22.3 %

Deferred income taxes reflect the impact of “temporary differences” between asset and liability amounts for financial reporting purposes and such amounts as determined based on existing tax laws.

The tax effect of temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:

18 unchanged sentences

Total $ 53,940 $ 106,757 $ 47,968 $ 86,905

The Company has state tax net operating losses of $ 97.7 million, which expire at various times between 2020 and 2040, and foreign losses of $ 4.8 million, of which $ 4.7 million do not expire, and $ 0.1 million which expire in 2029.

The Company has a federal net operating loss of $ 22.1 million from its acquisition of Green Garden, all of which will be carried back for a refund.

The Company also has state tax net operating losses of $ 104 million, which expire at various times between 2021 and 2041, and foreign losses of $ 4.1 million, which do not expire.

The Company has state income tax credits of $ 3.4 million, which expire at various times beginning in 2021 through 2041.

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table, which excludes interest and penalties, summarizes the activity related to the Company’s unrecognized tax benefits for fiscal years ended September 26, 2020 and September 28, 2019:

The following table summarizes the activity related to the Company’s unrecognized tax benefits for fiscal years ended September 25, 2021 and September 26, 2020:

(in thousands)

24 unchanged sentences

In October 2020, the Director Plan was amended such that the number of shares of restricted stock granted to each independent director would be equal to $ 70,000 divided by the fair market value of the Company's common stock on the date of each annual meeting of shareholders.

As of September 26, 2020, there were approximately 4.1 million shares of Class A Common Stock, no shares of Common Stock and no shares of Preferred Stock reserved for outstanding equity awards, and there were approximately 4.6 million shares of Common Stock, 9.9 million shares of Class A Common Stock and 0.5 million shares of Preferred Stock remaining for future awards.

As of September 25, 2021, there were approximately 4.3 million shares of Class A Common Stock and no shares of Common Stock and Preferred Stock reserved for outstanding equity awards, and there were approximately 4.6 million shares of Common Stock, 9.4 million shares of Class A Common Stock and 0.5 million shares of Preferred Stock remaining for future awards.

Stock Option Awards

The Company recognized stock-based compensation expense of $ 19.0 million, $ 14.7 million, and $ 11.6 million for the years ended September 26, 2020, September 28, 2019 and September 29, 2018, respectively, as a component of selling, general and administrative

The Company recognized stock-based compensation expense of $ 23.1 million, $ 19.0 million, and $ 14.7 million for the fiscal years ended September 25, 2021, September 26, 2020 and September 28, 2019, respectively, as a component of selling, general and

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

administrative expenses.

Share-based compensation expense in fiscal 2021, 2020 and 2019 consisted of $ 5.6 million, $ 5.1 million, and $ 4.5 million, respectively, for stock options, and $ 10.7 million, $ 7.5 million and $ 6.0 million, respectively, for stock awards.

1 unchanged sentence

During fiscal 2021, the Company granted time-based stock options with an exercise price based on the closing fair market value on the date of the grant.

The majority of the options granted in fiscal 2020 vest in four annual installments commencing approximately one year from the date of grant and expire approximately 6 years after the grant date.

The majority of the options granted in fiscal 2021 vest in four annual installments commencing approximately one year from the date of grant and expire approximately six years after the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model.

7 unchanged sentences

stock price volatility, 32.4 % in fiscal 2021, 32.6 % in fiscal 2020, and 30.4 % in fiscal 2019;

risk free interest rates, 1.4 % in fiscal 2020, 2.5 % in fiscal 2019 and 2.4 % in 2018;

risk free interest rates, 0.5 % in fiscal 2021, 1.4 % in fiscal 2020 and 2.5 % in fiscal 2019;

and no dividends during the expected term.

33 unchanged sentences

Nonvested at September 25, 2021 1,664 $ 33.47

As of September 26, 2020, there was $ 22.9 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of three years .

As of September 25, 2021, there was $ 40.9 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of four years .

Shareholders’ Equity

1 unchanged sentence

The preferences and relative rights of the Class A common stock are identical to common stock in all respects, except that the Class A common stock generally has no voting rights unless otherwise required by Delaware law.

There are 3,000,000 shares of Class B stock ($ 0.01 par value) authorized, of which 1,612,374 and 1,652,262 were outstanding at September 26, 2020 and September 28, 2019.

There are 3,000,000 shares of Class B stock ($ 0.01 par value) authorized, of which 1,612,374 were outstanding at September 25, 2021 and September 26, 2020.

The voting powers, preferences and relative rights of the Class B stock are identical to common stock in all respects except that (i) the holders of common stock are entitled to one vote per share and the holders of Class B stock are entitled to the lesser of ten votes per share or 49 % of the total votes cast, (ii) stock dividends on common stock may be paid only in shares of common stock and stock dividends on Class B stock may be paid only in shares of Class B stock and (iii) shares of Class B stock have certain conversion rights and are subject to certain restrictions on ownership and transfer.

2 unchanged sentences

There are 1,000,000 shares of preferred stock ($ 0.01 par value) authorized, of which none were outstanding at September 25, 2021 and September 26, 2020.

In August 2018, the Company closed an underwritten public offering of its Class A common stock pursuant to a registration statement on Form S-3.

The Company issued and sold an aggregate of 5,500,000 shares of common stock under the registration statement at a public offering price of $ 37.00 per share, including 550,000 shares issued upon exercise by the underwriters of their option to purchase additional shares.

The Company received net proceeds of approximately $ 195.6 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

During fiscal 2011, the Company’s Board of Directors authorized a $ 100 million share repurchase program, in part, to minimize the dilutive impact of the Company’s stock-based equity compensation programs over time, which was fully utilized in the fourth quarter of fiscal 2019.

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

1 unchanged sentence

As of September 25, 2021, the Company had $ 100 million remaining under its 2019 Repurchase Authorization.

During fiscal 2020, the Company repurchased approximately 0.2 million shares of its voting common stock (CENT) on the open market at an aggregate cost of approximately $ 6.6 million, or approximately $ 26.63 per share, and approximately 1.8 million shares of its non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $ 45.7 million, or $ 25.90 per share.

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 February 2019, the Board of Directors authorized the Company to make supplemental purchases to minimize dilution resulting from issuances under its equity compensation plans (the "Equity Dilution Authorization").

1 unchanged sentence

The Equity Dilution Authorization has no fixed expiration date and expires when the Board withdraws its authorization.

As of September 26, 2020, the Company had authorization remaining from the fiscal 2019 and 2018 equity plan activity to repurchase up to 0.7 million shares under its Equity Dilution Authorization.

As of September 26, 2021, the Company had authorization remaining from the fiscal 2021 equity plan activity to repurchase up to 1.2 million shares under its Equity Dilution Authorization.

CENTRAL GARDEN & PET COMPANY

14 unchanged sentences

For fiscal 2020, options to purchase 1.0 million shares 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 anti-dilutive.

For fiscal 2018, options to purchase two thousand shares 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 anti-dilutive.

Quarterly Financial Data – Unaudited

(in thousands, except per share amounts)

Net sales $ 482,828 $ 703,229 $ 833,483 $ 675,969

Gross profit 131,266 207,117 262,060 196,115

Net income (loss) attributable to Central Garden & Pet Company ( 4,417 ) 42,704 68,800 13,589

Net income (loss) per share:

Basic $ ( 0.08 ) $ 0.79 $ 1.29 $ 0.25

Diluted $ ( 0.08 ) $ 0.78 $ 1.27 $ 0.25

Weighted-average common shares outstanding:

Basic 54,755 54,281 53,441 53,619

Diluted 54,755 54,952 54,168 54,515

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

Net sales $ 461,990 $ 673,701 $ 706,575 $ 540,744

Gross profit 130,182 206,051 219,284 148,524

Net income attributable to Central Garden & Pet Company 1,803 42,391 46,152 2,440

Net income per share:

Basic $ 0.03 $ 0.74 $ 0.81 $ 0.04

Diluted $ 0.03 $ 0.73 $ 0.80 $ 0.04

Weighted-average common shares outstanding:

Basic 56,903 57,050 57,319 56,017

Diluted 58,001 58,026 57,985 56,618

For fiscal 2019, options to purchase 1.1 million shares 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 anti-dilutive.

Transactions with Related Parties

1 unchanged sentence

Tech Pac’s total purchases from CPI were approximately $ 42.6 million, $ 31.3 million and $ 32.5 million for fiscal years 2021, 2020 and 2019, respectively.

Amounts due from CPI as of September 26, 2020 and September 28, 2019 were $ 0.9 million and $ 0.3 million, respectively.

Amounts due to and from CPI as of September 25, 2021 and September 26, 2020 were $ 1.1 million and $ 0.9 million, respectively.

Business Segment Data

7 unchanged sentences

Substantially all of the Company’s assets and operations relate to its business in the United States.

The Pet segment consists of DMC, K&H Manufacturing, Four Paws Products, TFH Publications, Kaytee, C&S Products, Aquatics, Interpet, IMS, Pets International, Breeder’s Choice, Life Sciences and Segrest.

These businesses are engaged in the manufacturing, purchase, sale and delivery of internally and externally produced pet supplies, food, live fish and small animals principally to independent pet distributors, national and regional retail chains, grocery stores, mass merchants and bookstores, as well as through eCommerce.

The Garden segment consists of Pennington Seed, Hydro Organics, AMBRANDS, Lilly Miller, the Pottery Group, Bell Nursery, Arden Companies and Gulfstream.

Products manufactured, designed and sourced, grown or distributed are products found typically in the lawn and garden sections of mass merchandisers, warehouse-type clubs, home improvement centers and nurseries and include grass seed, bird feed, terra cotta pottery, live plants, herbicides and insecticides.

These products are sold directly to national and regional retail chains, independent garden distributors, grocery stores, nurseries and garden supply retailers.

The Corporate division includes expenses associated with corporate functions and projects, certain employee benefits, interest income, interest expense and inter-segment eliminations.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The Pet segment consists of TFH Publications, IMS Trading, Four Paws Products, Central Specialty Pet (Avian and Small Animal, C&S Products and Aquatics), Segrest, K&H Pet Products, Arden, DMC, Life Sciences, Interpet, General Pet and Pet Distribution.

These businesses are engaged in the manufacture, purchase, sale and delivery of internally and externally produced pet supplies, animal health and insect controls, aquariums, books, dog treats and food, as well as live fish and small animals principally to independent pet distributors, big-box retailers, regional retailer chains, e-commerce retailers, grocery stores and mass merchants.

The Garden segment consists of Grass Seed, Bird Feed, Chemicals and Fertilizers, Excel Marketing, Gulfstream, Hydro-Organics, Pottery (terra-cotta), Cedarworks, Bell Nursery, Hopewell Nursery, DMO, Green Garden, D&D Commodities and Garden Distribution.

Products manufactured, designed and sourced, or distributed include products found typically in the lawn and garden sections of mass merchandisers, warehouse-type clubs, home improvement centers and nurseries and include live plants;

grass, vegetable, flower and herb seed;

wild bird feed, bird houses and other birding accessories;

terra-cotta pottery;

herbicides, pesticides and insecticides.

These products are sold directly to national and regional retail chains, independent garden distributors, online retailers, grocery stores, nurseries and garden supply retailers.

The Corporate division includes expenses associated with corporate functions and projects, certain employee benefits, interest income, interest expense and inter-segment eliminations.

The following table indicates each class of similar products which represented approximately 10% or more of the Company’s consolidated net sales in the fiscal years presented (in millions).

5 unchanged sentences

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

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

See Note 4 – Concentration of Credit Risk and Significant Customers and Suppliers for the Company’s largest customers by segment.

37 unchanged sentences

(1) Includes a $ 2.5 million impairment charge in fiscal 2019.

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subsequent Events

Issuance of $ 500 million 4.125 % Senior Notes due 2030

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

Central used the net proceeds to redeem all of its outstanding 6.125 % senior notes due 2023 ("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 the Company's redemption of the 2023 Notes, it will recognize a charge in its fiscal 2021 first quarter 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.

The Company incurred approximately $ 8 million in financing costs associated with this issuance that will be amortized over the term of the 2030 Notes.

Breeder's Choice Transaction

In October 2020, Central agreed to the sale of its 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 the Company's strategy.

The transaction is subject to certain conditions and Central expects to finalize the transaction in December 2020.

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 9A. Controls and Procedures