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Item 7. Management’s Discussion and Analysis

2023-11-28 compared with 2022-11-22 · 183 added, 186 removed, 291 unchanged (56% of the section changed)

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In fiscal 2023, our consolidated net sales were $3.3 billion, of which our Pet segment, or Pet, accounted for approximately $1.9 billion and our Garden segment, or Garden, accounted for approximately $1.4 billion.

In fiscal 2022, our operating income was $260 million

consisting of income from our Pet segment of $209 million, income from our Garden segment of $154 million and corporate expenses of $103 million .

In fiscal 2023, our operating income was $211 million, consisting of income from our Pet segment of $198 million, income from our Garden segment of $123 million and corporate expenses of $111 million.

Fiscal 2023 Financial Highlights

Financial summary:

• Net sales for fiscal 2022 increased $34.9 million, or 1.1%, to $3,339 million.

Our Pet segment sales decreased 0.9%, and our Garden segment sales increased 3.7%.

• Organic net sales declined 3.3%, due primarily to a 6.8% decline in our Garden segment.

• Gross profit for fiscal 2022 increased $21.4 million, or 2.2%, to $992.3 million.

Gross margin improved 30 basis points in fiscal 2022 to 29.7%, from 29.4% in fiscal 2021.

• Our operating income increased $5.5 million, or 2.2%, to $260.0 million in fiscal 2022, and as a percentage of net sales improved to 7.8% from 7.7% in fiscal 2021.

• Net income for fiscal 2022 was $152.2 million, or $2.80 per share on a diluted basis, compared to net income in fiscal 2021 of $151.7 million, or $2.75 per share on a diluted basis.

COVID-19 Impact

Central has been impacted by COVID-19 in a number of ways, including increased demand and sales in fiscal 2020 and 2021.

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

Our supply chain experienced disruptions and delays which resulted in increased operational and logistics costs.

At some of our facilities, we have experienced reduced productivity and increased employee absences.

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

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

To mitigate the impact of supply constraints of commodity, materials, freight and labor and extended inventory transit times and the resulting impact on our service and fill rates, we increased inventory levels in fiscal 2022 and our service and fill rates significantly improved in fiscal 2022.

We continue to face high inflation in commodities, materials, labor and freight and the limited availability of labor.

We have instituted significant pricing actions to mitigate the impact of the current inflationary environment although inflationary pressures continue to result in significant increases in costs for commodities, materials, labor and freight.

Recently, inflation and global economic conditions have impacted consumer purchasing behavior resulting in higher inventory levels at our retail customers and at Central.

We may experience additional disruptions in our supply chain as the pandemic continues, although we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.

While vaccination efforts and the easing of government restrictions have signaled an improving public health environment, there remain concerns about COVID variants and the coming flu season, and the timing of a full recovery remains uncertain.

The ultimate effect of the COVID-19 pandemic and the current high inflation environment on consumer behavior is unclear.

Forecasting and planning remain challenging in the current environment and will continue to be challenging with public health concerns and inflationary cost pressures expected to continue into fiscal year 2023.

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

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

• Net sales for fiscal 2023 decreased $28.5 million, or 0.9%, to $3,310 million.

The decline in sales was primarily in our Garden segment, the sales of which decreased $27.6 million, or 1.9%.

• Gross profit for fiscal 2023 decreased $45.5 million, or 4.6%, to $946.8 million.

Gross margin declined 110 basis points in fiscal 2023 to 28.6%, from 29.7% in fiscal 2022.

On a non-GAAP basis, gross margin declined 80 basis points in fiscal 2023.

• Our operating income decreased $49.4 million, or 19.0%, to $210.6 million in fiscal 2023.

On a non-GAAP basis, operating income declined $32.8 million in fiscal 2023.

• Net income for fiscal 2023 was $125.6 million, or $2.35 per share on a diluted basis compared to $152.2 million, or $2.80 per share on a diluted basis in fiscal 2022.

On a non-GAAP basis, net income was $138.5 million, or $2.59 per share on a diluted basis compared to $152.2 million, or $2.80 per share on a diluted basis in fiscal 2022.

Recent Developments:

Pet Segment Facility Closures

As part of our Cost and Simplicity program, we closed several facilities in fiscal 2023.

In the third quarter of fiscal 2023, we closed a leased manufacturing and distribution facility in Athens, Texas.

In the fourth quarter of fiscal 2023, we closed a leased manufacturing and distribution facility in Amarillo, Texas.

The closures reflect our purposeful exit of low-margin private-label pet bed product lines and our efforts to leverage the supply chain synergies of our cushion facilities, and to achieve a simpler, more efficient manufacturing and distribution network in our outdoor cushion facilities.

As a result, in fiscal 2023 we incurred approximately $15.7 million of one-time costs, including $9.8 million in cost of goods sold and $5.9 million in selling, general and administrative expenses, composed of charges for facilities closure, severance, inventory liquidation and related intangibles, the majority of which was non-cash.

Sale of Garden Segment Independent Distribution Business

In the fourth quarter of fiscal 2023, we sold our independent garden center distribution business for approximately $20 million for inventory and the related customer data.

Associated with the sale, we are closing one facility and part of another facility due to excess space previously dedicated to serving the independent garden channel.

As a result of these planned closures, we recorded a gain of $5.8 million

which is net of the inventory sold, inventory transport costs and the associated facility closure costs, including severance.

The gain was recorded as part of selling, general and administrative expenses.

We exited the independent garden center distribution business to simplify our garden business and optimize our customer footprint.

While we exited the distribution of products to the independent garden center channel, we retained our third-party distribution business with our largest three retail partners and other select national accounts.

The business sold represented less than 5% of our Garden net sales.

Subsequent Event

On November 3, 2023, we acquired TDBBS, LLC (“TDBBS”), a provider of premium natural dog chews and treats for approximately $60 million.

The addition of TDBBS will expand our portfolio with bully and collagen sticks, bones and jerky, add scale to our dog and cat business and enhance our eCommerce and digital capabilities .

Results of Operations (GAAP)

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Fiscal 2023 Compared to Fiscal 2022

Net sales for fiscal 2022 increased $34.9 million, or 1.1%, to $3,338.6 million from $3,303.7 million in fiscal 2021, due primarily to the impact of recent acquisitions in our Garden segment.

Organic net sales, which excludes the impact of acquisitions and divestitures in the last 12 months, decreased $108.1 million, or 3.3% in fiscal 2022.

Generally, in both operating segments, volume declines were only partially offset by increased prices we implemented in response to high inflation.

Our branded product sales, which include products we produce under Central brand names and products we produce under third-party brands, increased $53.8 million to $2.6 billion, and sales of other manufacturers’ products decreased $18.9 million to $730 million.

Sales of branded products represented 78% of our net sales in fiscal 2022 compared with 77% in fiscal 2021.

Sales of other manufacturers' products represented the balance of our net sales.

Net sales for fiscal 2023 decreased $28.5 million, or 0.9%, to $3,310.1 million from $3,338.6 million in fiscal 2022, even with the benefit of an additional week in fiscal 2023 compared to fiscal 2022.

Our branded product sales, which include products we produce under Central brand names and products we produce under third-party brands, decreased $33.2 million, and sales of other manufacturers’ products increased $4.7 million.

The decline in branded sales was due primarily to lower sales of private label products we produce under third-party brands in both the Garden and Pet segments.

Sales of branded products represented 78% of our net sales in both fiscal 2023 and fiscal 2022.

Sales of other manufacturers' products represented 22% of our net sales.

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

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Wild bird 475.0 434.3 340.1

Controls & fertilizer products — (1) — (1) 279.9

Total $ 3,310.1 $ 3,338.6 $ 3,303.7

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

Pet net sales decreased $16.8 million, or 0.9%, to $1,878.1 million in fiscal 2022 from $1,894.9 million in fiscal 2021.

Net sales in the prior year included $3.9 million of sales from the Breeder’s Choice business we sold in December 2020.

Organic net sales decreased $12.9 million, or 0.7%, as compared to the prior year.

The decline in organic sales was due primarily to a volume-based sales decrease in our private label pet bed business attributable primarily to SKU rationalization and listing losses as we exited some profit-challenged product lines.

Additionally, both aquatics and live fish had sales declines.

The declines were partially offset by price driven increases in our dog and cat treats and toy business, outdoor cushion business and animal health business.

Pet net sales decreased $0.9 million, to $1,877.2 million in fiscal 2023 from $1,878.1 million in fiscal 2022.

The decline in Pet net sales was volume-related and due primarily to lower demand for durable pet products, particularly in our outdoor cushion business and aquatics business, and our exit of profit-challenged product lines in our private label pet bed business.

These declines were partially offset by

increased sales in our dog and cat treats and toys business and our wild bird feed business.

Pet branded sales decreased $14.1 million, and sales of other manufacturers' products increased $13.2 million.

Garden net sales increased $51.7 million, or 3.7%, to $1,460.5 million in fiscal 2022 from $1,408.8 million in fiscal 2021.

The sales increase was due to our fiscal 2021 acquisitions of DoMyOwn, Hopewell Nursery, Green Garden Products and D&D Commodities, which contributed $146.9 million of non-organic sales partially offset by an organic sales decrease of $95.2 million, or 6.8%.

The organic sales decrease was due primarily to unfavorable weather and changing consumer and retailer buying patterns in response to high inflation and recessionary pressures.

Most of our garden businesses had decreased sales, most notably in our chemical and controls business and in our sales of other manufacturers’ products, with the exception of wild bird feed which benefited from price increases taken to offset significant commodity inflation.

Garden branded sales increased $79.7 million while sales of other manufacturers' products decreased $28.0 million.

Gross profit in fiscal 2022 increased $21.4 million, or 2.2%, to $992.3 million from $970.9 million in fiscal 2021.

Gross margin improved 30 basis points to 29.7% in fiscal 2022 from 29.4% in fiscal 2021.

Garden drove the increase in gross profit and gross margin but both segments were impacted by the rapidly increasing cost environment.

We have implemented significant price increases that positively impacted our fiscal 2022 results and intend to continue to seek further price increases to help offset the rising costs, but we do not anticipate we will be able to fully offset the expected cost pressures in fiscal 2023.

In the Pet segment, gross profit and margin were relatively flat due primarily to increased commodity, freight and labor costs and a volume decline in our pet bedding business, partially offset by price increases taken to combat inflation.

In the Garden segment, the improved gross profit and margin were due primarily to price increases and the favorable impact of our fiscal 2021 acquisitions, which included the impact of purchase accounting in fiscal 2021, partially offset by increased commodity, freight and labor costs, most notably in our chemical and controls business, which was also impacted by volume declines.

Garden net sales decreased $27.6 million, or 1.9%, to $1,432.9 million in fiscal 2023 from $1,460.5 million in fiscal 2022.

The decrease in Garden net sales was due primarily to lower sales in our private-label controls and fertilizer business and our grass seed business, partially offset by increased sales in our wild bird feed business.

The volume related sales decline was due primarily to adverse weather during our second quarter of fiscal 2023, unfavorable retailer inventory management and lighter retailer foot traffic.

Garden branded sales decreased $19.1 million and sales of other manufacturers' products decreased $8.5 million.

Gross profit in fiscal 2023 decreased $45.5 million, or 4.6%, to $946.8 million from $992.3 million in fiscal 2022.

Gross margin declined 110 basis points to 28.6% in fiscal 2023 from 29.7% in fiscal 2022.

The decrease in gross profit resulted from declines in both net sales and gross margin, primarily in Garden, impacted by unfavorable overhead absorption and inflation.

On a non-GAAP basis, excluding $9.8 million related to the facility closures in Pet, gross profit decreased $35.7 million and gross margin declined 80 basis points.

Garden decreases in both gross profit and gross margin were partially offset by minor increases in Pet, compared to the prior year.

The decline in Garden gross margin was due primarily to unfavorable overhead absorption, impacted by lower sales and production volumes, initial start-up costs associated with a live goods facility acquired in the prior year, and cost inflation, partially offset by pricing actions.

Selling, General and Administrative

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As a percentage of net sales, selling, general and administrative expenses increased from 21.9% in fiscal 2022 to 22.2% in fiscal 2023.

both the Garden segment and corporate contributed to the increased percentage.

Selling, general and administrative expense increased due primarily to the four fiscal 2021 acquisitions in our Garden segment including the amortization of the intangible assets resulting from purchase accounting, which did not have a full 12 months of expense in the prior year, and increased corporate expenses.

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

The increase was due to $6.8 million related to the closure of facilities in the Pet segment and intangible asset impairments, partially offset by the gain from the sale of the independent garden center distribution business.

Excluding these items, non-GAAP selling, general and administrative expense declined $2.9 million and as a percentage of net sales was 22.0%.

Selling and delivery expense decreased $20.6 million, or 5.8%, to $337.5 million in fiscal 2023 and decreased as a percentage of net sales from 10.7% in fiscal 2022 to 10.2% in fiscal 2023.

The decrease in selling and delivery expense was due primarily to a customer change from store delivery to warehouse pick-up, and a lower product volume delivered, partially offset by the increased expense related to the four fiscal 2021 acquisitions.

The decrease in selling and delivery expense, in both the Garden and Pet segments, was due primarily to reduced commercial spend in an effort to align with the lower retailer foot traffic and lower product volume.

Warehouse and administrative expense increased $24.5 million, or 6.6%, to $398.7 million in fiscal 2023 and increased as a percentage of net sales to 12.0% in fiscal 2023 from 11.2% in fiscal 2022.

The increased expense was driven by the addition of our four fiscal 2021 acquisitions in the Garden segment and increased rent expense at several facilities.

Corporate expenses increased $10.3 million due primarily to growth in headcount, resulting in increased payroll costs, and increased third-party spend as we increased our investment in implementing our Central to Home strategy and to increased non-cash equity compensation.

These increases were partially offset by lower variable compensation expense.

The increase in warehouse and administrative expense was primarily in the Pet segment and secondarily in Corporate.

Pet included $8.7 million of expense related to facility closures and the impairment of an intangible asset.

Garden had a relatively small increase in warehouse and administrative expense, due to income of $1.8 million resulting from a $5.8 million gain from the sale of the independent garden center distribution business, which is net of related facility closure costs, and intangible asset impairment.

Corporate expenses increased $8.0 million due primarily to an increase in payroll related costs, medical insurance and legal expense partially offset by discretionary spend reductions (e.g., travel and entertainment expense).

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

Operating Income

Operating income increased $5.5 million, or 2.2%, to $260.0 million in fiscal 2022 from $254.5 million in fiscal 2021.

Our operating margin was 7.8% in fiscal 2022, increasing from 7.7% in fiscal 2021.

Increased sales of $34.9 million and a 30 basis point increase in gross margin were partially offset by increased selling, general and administrative expense.

Both operating income and margin were favorably impacted by significant pricing actions taken in response to the current high inflationary environment.

The near-term economic environment remains volatile and likely to have an unfavorable impact on our results as we expect our margins and results to continue to be challenged in fiscal 2023.

Pet operating income increased $0.7 million, or 0.3%, to $208.9 million in fiscal 2022 from $208.2 million in fiscal 2021.

Pet operating income increased due to lower selling, general and administrative expense partially offset by a decrease in net sales.

Pet operating margin improved 10 basis points due to lower selling, general and administrative expense as a percentage of net sales.

Garden operating income increased $15.2 million, or 11.0%, to $154.0 million in fiscal 2022.

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

Garden’s operating results were positively

impacted by a full year’s results from the acquisitions made in fiscal 2021, partially offset by poor weather conditions during the peak garden season.

Garden operating margin improved 70 basis points to 10.5% due primarily to increased sales and an improved gross margin partially offset by higher selling, general and administrative expense as a percentage of net sales and the initial inventory-related impact of purchase accounting from our four recent acquisitions.

These increases were partially offset by lower variable compensation expense.

Operating income decreased $49.4 million, or 19.0%, to $210.6 million in fiscal 2023 from $260.0 million in fiscal 2022.

Our operating margin was 6.4% in fiscal 2023, decreasing from 7.8% in fiscal 2022.

Decreased sales of $28.5 million, a 110 basis point decline in gross margin and increased selling, general and administrative expenses all contributed to a lower operating income.

Contributing to the lower gross margin and increased selling, general administrative expenses were facility closures and intangible asset impairments.

Excluding the impact of these costs, on a non-GAAP basis, operating margin was 6.9%.

Pet operating income decreased $10.9 million, or 5.2%, to $198.0 million in fiscal 2023 from $208.9 million in fiscal 2022.

Pet operating income decreased due to slightly lower sales, a decrease in gross margin and increased selling, general and administrative expenses.

Pet operating margin decreased from 11.1% in fiscal 2022 to 10.5% in fiscal 2023.

On a non-GAAP basis, Pet operating income increased $7.5 million and operating margin increased to 11.5% in fiscal 2023.

Garden operating income decreased $30.5 million, or 19.8%, to $123.5 million in fiscal 2023 from $154.0 million in fiscal 2022.

Garden was the largest contributor to the Company’s lower operating income and operating margin.

Garden operating income decreased due to lower sales and a lower gross margin, partially offset by lower selling, general and administrative expenses.

Garden operating income and operating margin were negatively impacted by lower sales volumes due primarily to adverse weather, unfavorable retailer inventory management and lighter retailer foot traffic.

Net Interest Expense

Net interest expense decreased $7.9 million, or 13.7%, from $57.5 million in fiscal 2022 to $49.7 million in fiscal 2023.

In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 and used the proceeds to redeem all of our outstanding aggregate principal amount 6.125% senior notes due 2023 with the remainder for general corporate purposes.

As a result of our redemption of the 2023 Notes, we recognized incremental interest expense of approximately $10.0 million in fiscal 2021.

Partially offsetting the reduction from the prior year’s incremental interest expense was increased interest expense in the current year due primarily to higher average debt outstanding related to our issuance in April 2021 of $400 million aggregate principal amount of 4.125% senior notes due April 2031.

The decrease in net interest expense was due to increased interest income resulting from both higher interest rates and higher cash balances during fiscal 2023.

Debt outstanding on September 30, 2023 was $1,188.2 million compared to $1,186.6 million as of September 24, 2022.

Our average borrowing rate for fiscal 2022 was 4.5% compared to 4.4% for fiscal 2021.

Other Expense

Other expense is comprised of income or loss from investments accounted for under the equity method of accounting and foreign currency exchange gains and losses.

Other expense was $3.6 million for fiscal 2022 compared to $1.5 million for fiscal 2021, due primarily to foreign currency losses in fiscal 2022.

Our average borrowing rate was 4.5% in both fiscal 2023 and fiscal 2022.

Other Income (Expense)

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

Other income (expense) was $1.5 million of income in fiscal 2023 compared to an expense of $3.6 million for fiscal 2022, due primarily to foreign currency gains in fiscal 2023 as compared to foreign currency losses in fiscal 2022.

Our effective income tax rate was 22.4% for fiscal 2023 compared to 23.2% for fiscal 2022.

The increase in our effective income tax rate was due primarily to a reduced tax benefit from stock compensation compared to the prior year.

The decrease in our effective income tax rate was primarily due to a decrease in the blended state income tax rate from a mix change in the states where income was earned in the current year as compared to the prior year.

Net Income and Earnings Per Share

Our net income for fiscal 2023 was $125.6 million, or $2.35 per diluted share, compared to $152.2 million, or $2.80 per diluted share, for fiscal 2022.

An improvement in operating income in fiscal 2022 was partially offset by increased other expense and income taxes.

Additionally, fiscal 2022 EPS was aided by a 1% decrease in diluted shares.

On a non-GAAP basis, net income in fiscal 2023 was $138.5 million, or $2.59 per diluted share.

Fiscal 2022 Compared to Fiscal 2021

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Use of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP).

However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including adjusted EBITDA, organic sales, and non-GAAP net income and diluted net income per share.

We report our financial results in accordance with GAAP.

However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including adjusted EBITDA, non-GAAP operating income, and non-GAAP net income and diluted net income per share.

Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods.

Adjusted EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization and stock-based compensation expense (or operating income plus depreciation and amortization expense and stock-based compensation expense).

Adjusted EBITDA further excludes one-time charges related to facility closures, the gain from the sale of our independent garden center distribution business and intangible asset impairment charges.

We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations.

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

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

Adjusted EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP.

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Other companies may calculate adjusted EBITDA differently and it may not be comparable.

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

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below.

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

• Incremental expenses from note redemption and issuance:

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

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

• Loss on sale of business:

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

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

• Facility closures:

we exclude the impact of the closure of facilities as they represent infrequent transactions that occur in limited circumstances that impact the comparability between operating periods.

We believe the adjustment of closure costs supplements the GAAP information with a measure that may be used to assess the performance of our ongoing operations.

• Gain on sale of a business or service line:

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

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

• Asset impairment charges:

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

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

• Tax impact:

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

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

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

The non-GAAP adjustments made reflect the following:

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

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

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

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

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

(1) During the third quarter of fiscal 2023, we recognized incremental expense of $13.9 million in our Pet segment in the consolidated statement of operations, from the closure of a leased manufacturing and distribution facility in Athens, Texas.

During the fourth quarter of fiscal 2023, we recognized incremental expense of $1.8 million in our Pet segment in the consolidated statement of operations, from the closure of a leased manufacturing and distribution facility in Amarillo, Texas.

(2) During the fourth quarter of fiscal 2023, we recognized a gain of $5.8 million from the sale of our independent garden center distribution business, which includes the impact of associated facility closure costs.

The gain is included in selling, general and administrative expense in the consolidated statements of operations.

(3) During the fourth quarter of fiscal 2023, we recognized a non-cash impairment charge in our Pet segment of $2.8 million related to the impairment of intangible assets caused by the loss of a significant customer in our live fish business.

Also, during the fourth quarter of fiscal 2023, we recognized a non-cash impairment charge in our Garden segment of $3.9 million related to the impairment of intangible assets due to reduced demand for products we sold under an acquired trade name.

The impairments were recorded as part of selling, general and administrative costs.

Operating Income Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 30, 2023

GAAP Adjustments (1)(2)(3)

(in thousands)

$ 3,310,083 $ — $ 3,310,083

Cost of goods sold and occupancy 2,363,241 9,761 2,353,480

Gross profit 946,842 (9,761) 956,603

Selling, general and administrative expenses 736,196 6,798 729,398

Income from operations $ 210,646 $ (16,559) $ 227,205

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

Pet Segment Operating Income Reconciliation September 30, 2023 September 24, 2022

(in thousands)

GAAP operating income $ 198,004 $ 208,924

Facility closure and intangible asset impairment (1)(3) 18,457 —

Non-GAAP operating income $ 216,461 $ 208,924

GAAP operating margin 10.5 % 11.1 %

Non-GAAP operating margin 11.5 % 11.1 %

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

Garden Segment Operating Income Reconciliation September 30, 2023 September 24, 2022

(in thousands)

GAAP operating income $ 123,455 $ 153,956

Garden independent distribution sale and intangible asset impairment (2)(3) (1,898) —

Non-GAAP operating income $ 121,557 $ 153,956

GAAP operating margin 8.6 % 10.5 %

Non-GAAP operating margin 8.5 % 10.5 %

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

September 30, 2023 September 24, 2022

(in thousands, except per share amounts)

(in thousands, except per share amount)

Net Income and Diluted Net Income Per Share Reconciliation

GAAP net income attributable to Central Garden & Pet Company $ 125,643 $ 152,152

Incremental expenses from note redemption and issuance (1)

Loss on sale of business (2)

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

Pet facilities closures (1) 15,672 —

Independent garden channel distribution sale and related facility closure (2) (5,844) —

Intangible impairments (3) 6,731 —

Tax effect of adjustments (3,705) —

Non-GAAP net income attributable to Central Garden & Pet Company $ 138,497 $ 152,152

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Shares used in GAAP and non-GAAP diluted net income per share calculation 53,427 54,425

Organic Net Sales Reconciliation

We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical business.

We define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months.

After an acquired business has been part of our consolidated results for 12 months, the change in net sales thereafter is considered part of the increase or decrease in organic net sales.

CONSOLIDATED GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 24, 2022

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

(in millions)

Reported net sales FY 2022 $ 3,338.6 $ 146.9 $ 3,191.7

Reported net sales FY 2021 3,303.7 3.9 3,299.8

$ increase (decrease) $ 34.9 $ 143.0 $ (108.1)

% increase (decrease) 1.1 % (3.3) %

PET GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 24, 2022

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

(in millions)

Reported net sales FY 2022 $ 1,878.1 $ — $ 1,878.1

Reported net sales FY 2021 1,894.9 3.9 1,891.0

$ decrease $ (16.8) $ (3.9) $ (12.9)

% decrease (0.9) % (0.7) %

GARDEN GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended September 24, 2022

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

(in millions)

Reported net sales FY 2022 $ 1,460.5 $ 146.9 $ 1,313.6

Reported net sales FY 2021 1,408.8 — 1,408.8

$ increase (decrease) $ 51.7 $ 146.9 $ (95.2)

% increase (decrease) 3.7 % (6.8) %

GAAP to non-GAAP Reconciliation

Fiscal Year Ended September 30, 2023

Adjusted EBITDA Reconciliation Pet Garden Corp Total

(in thousands)

Adjusted EBITDA Reconciliation Garden Pet Corp Total

Net income attributable to Central Garden & Pet $ — $ — $ — $ 125,643

Interest expense, net — — — 49,663

Other expense — — — 3,596

Other income — — — (1,462)

Income tax expense — — — 36,348

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Noncash stock-based compensation — — 27,990 27,990

Non-GAAP adjustments (1)(2)(3) 18,457 (1,898) — 16,559

Adjusted EBITDA $ 257,587 $ 164,932 $ (79,624) $ 342,895

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Fiscal Year Ended September 24, 2022

Adjusted EBITDA Reconciliation Pet Garden Corp Total

(in thousands)

Adjusted EBITDA Reconciliation Garden Pet Corp Total

Net income attributable to Central Garden & Pet $ — $ — $ — $ 152,152

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Adjusted EBITDA $ 247,884 $ 190,539 $ (71,622) $ 366,801

Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending.

In fiscal years 2020 through 2022, we have been adversely impacted by rising input costs related to inflation, particularly relating to grain and seed prices, fuel prices and the ingredients used in our garden controls and fertilizer business as well as heightened import costs such as shipping container costs and tariffs.

Although our gross and operating margins increased in fiscal 2022, rising costs are making it difficult for us to further increase prices to our customers at a pace sufficient for us to maintain our margins.

Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, interest rates, consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending.

In fiscal years 2021 through 2023, we were adversely impacted by high input costs due to inflation, particularly relating to prices for grain and seed, fuel and the ingredients used in our garden controls and fertilizer business as well as heightened import costs such as shipping container costs and tariffs.

In fiscal 2022, our gross and operating margins increased as we were able to increase prices to offset higher input costs.

Costs continued rise in fiscal 2023, however, and we were unable to continue to increase prices to our customers at a pace sufficient for us to maintain our margins.

In fiscal 2023, we continued to experience inflationary pressures, although at a reduced rate in the latter months of the fiscal year.

In fiscal 2022, we continued to experience increasing inflationary pressure, including notable increases in costs for key commodities, materials, labor and freight.

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

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

Weather and Seasonality

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Operating Activities

Net cash provided by operating activities increased $415.6 million, from $34.0 million of cash used in operating activities in fiscal 2022 to $381.6 million of cash provided by operating activities in fiscal 2023.

The increase in cash provided was due primarily to changes in our working capital accounts, primarily a decrease in inventory, due to our focus on converting inventory to cash, and in accounts receivable.

Net cash used in operating activities increased $284.8 million, from $250.8 million of cash provided by operating activities in fiscal 2021 to $34.0 million of cash used in operating activities in fiscal 2022.

The increase in cash used was due primarily to changes in our working capital accounts, primarily an increase in inventory, driven in part by higher costs of inventory in this inflationary environment as well as management's decision to increase inventory levels to help improve fill rates and customer service adversely impacted by a challenged supply chain.

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

The decrease in cash provided was due primarily to changes in our working capital accounts, primarily an increase in inventory from an intentional build-up due to the overall increased demand for our products, as compared to fiscal 2020.

Investing Activities

Net cash used in investing activities decreased $108.4 million from $143.0 million in fiscal 2022 to $34.6 million in fiscal 2023.

The decrease in cash used in investing activities was due primarily to reduced capital expenditures, decreased investments in fiscal 2023 compared to fiscal 2022, and proceeds received from the sale of our independent garden center distribution business.

Net cash used in investing activities decreased $756.4 million from $899.4 million in fiscal 2021 to $143.0 million in fiscal 2022.

The decrease in cash used in investing activities was due primarily to acquisition activity in the prior year.

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During fiscal 2021, we acquired DoMyOwn for approximately $81 million, Hopewell Nursery for approximately $81 million, Green Garden Products for approximately $571 million and D&D Commodities for approximately $88 million.

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

The increase in cash used in investing activities was due primarily to acquisition activity and an increase in capital expenditures of approximately $37 million in fiscal 2021 compared to fiscal 2020, partially offset by proceeds received from the sale of our Breeder's Choice business during the first quarter of fiscal 2021 and decreased investments in fiscal 2021 compared to fiscal 2020.

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

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

Financing Activities

Net cash used by financing activities increased $487.3 million from $420.5 million of cash provided in fiscal 2021 to $66.8 million of cash used in fiscal 2022.

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

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

During fiscal 2022, we repurchased approximately 1.4 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $56.2 million, or $40.79 per share, and approximately 39,000 shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $1.6 million, or $39.72 per share, in addition to $5.4 million used for minimum statutory tax withholdings related to the net share settlement of our stock.

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

The increase in cash provided by financing activities during fiscal 2021 was due primarily to the issuance of $500 million of our 2030 Notes in October 2020 and $400 million of our 2031 Notes in April 2021, partially offset by the repayment of our 2023

Notes and the corresponding premium paid on extinguishment as well as debt issuance costs incurred on the issuances of the 2030 Notes and 2031 Notes.

We also decreased open market purchases of our common stock during fiscal 2021 as compared to fiscal 2020.

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

Net cash used by financing activities decreased $29.2 million from $66.8 million of cash used in fiscal 2022 to $37.6 million of cash used in fiscal 2023.

The decrease in cash used by financing activities during the current year was due primarily to lower stock repurchase activity in fiscal 2023 compared to fiscal 2022.

Net cash used in financing activities increased $487.3 million from $420.5 million of cash provided in fiscal 2021 to $66.8 million of cash used in fiscal 2022.

The increase in cash used in financing activities during the fiscal 2022 was due primarily to our prior year issuance of $500 million of our 2030 Notes in October 2020 and $400 million of our 2031 Notes in April 2021, partially offset by the prior year repayment of our 2023 Notes and the corresponding premium paid on extinguishment as well as debt issuance costs incurred on the issuances of the 2030 Notes and 2031 Notes.

We also increased open market purchases of our common stock during fiscal 2022 as compared to fiscal 2021.

We expect that our principal sources of funds will be cash generated from our operations, proceeds from our debt and equity offerings, and, if necessary, borrowings under our $750 million asset backed loan facility.

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However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.

We anticipate that our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $70 million - $80 million over the next 12 months.

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

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Stock Repurchases

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

During fiscal 2023, we repurchased approximately 0.6 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $22.2 million, or $35.31 per share, and approximately 0.2 million of our voting common stock (CENT) on the open market at an aggregate cost of approximately $8.5 million, or $37.31 per share.

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

The 2019 Repurchase Authorization has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its authorization.

As of September 24, 2022, no repurchases had been made under the $100 million 2019 Repurchase Authorization.

As of September 30, 2023, we had $83.2 million remaining under our 2019 Repurchase Authorization.

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

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

As of September 25, 2022, we had authorization remaining to repurchase up to 0.1 million shares under our Equity Dilution Authorization.

As of September 30, 2023, we did not have any shares remaining to repurchase under our Equity Dilution Authorization.

At September 30, 2023, our total debt outstanding was $1,188.2 million versus $1,186.6 million at September 24, 2022.

Issuance of $400 million 4.125% Senior Notes due 2031

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

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

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

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

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

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At any time prior to April 30, 2024, we may also redeem, at our option, up to 40% of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes.

We may redeem some or all of the 2031 Notes at

our option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.

We may redeem some or all of the 2031 Notes at our option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.

The holders of the 2031 Notes have the right to require us to repurchase all or a portion of the 2031 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of specific kinds of changes of control.

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We were in compliance with all financial covenants as of September 30, 2023.

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

Issuance of $500 million 4.125% Senior Notes due 2030

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

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The debt issuance costs are being amortized over the term of the 2030 Notes.

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

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

The 2030 Notes require semiannual interest payments on October 15 and April 15, which commenced April 15, 2021.

The 2030 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our senior secured revolving credit facility or guarantee our other debt.

The 2030 Notes require semiannual interest payments on October 15 and April 15.

We may redeem some or all of the 2030 Notes at anytime, at our option, prior to October 15, 2025, at a price equal to 100% of the principal amount plus a “make-whole” premium.

Prior to October 15, 2023, we may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes.

We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

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The 2028 Notes require semiannual interest payments on February 1 and August 1.

The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our senior secured revolving credit facility or who guarantee the 2023 Notes.

We may redeem some or all of the 2028 Notes at anytime, at our option, prior to January 1, 2023 at the principal amount plus a "make whole" premium.

The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our Amended Credit Facility.

We may redeem some or all of the 2028 Notes, at our option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854% and on or after January 1, 2026 for 100%, plus accrued and unpaid interest.

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The Amended Credit Facility is subject to a borrowing base that is calculated using a formula based upon eligible receivables and inventory, and at our election, eligible real property, minus certain reserves.

We did not draw down any commitments under the Amended Credit Facility upon closing.

Proceeds of the Amended Credit Facility will be used for general corporate purposes.

Net availability under the Amended Credit Facility was approximately $493 million as of September 30, 2023.

The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $75 million sublimit for short-notice borrowings.

The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $75 million sublimit for Swing Loan borrowings.

As of September 30, 2023, there were no borrowings outstanding and no letters of credit outstanding under the Amended Credit Facility.

Outside of the Amended Credit Facility, there were other letters of credit of $1.3 million outstanding as of September 24, 2022.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR (which will not be less than 0.00%) or, at our option, the Base Rate, plus, in either case, an applicable margin based on our usage under the credit facility.

Base Rate is 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% and (d) 0.00%.

The applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.0% as of September 24, 2022, and the applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of September 24, 2022.

An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility.

Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable quarterly and a facing fee of 0.125% shall be payable quarterly for the stated amount of each letter of credit.

Outside of the Amended Credit Facility, there were other standby and commercial letters of credit of $1.3 million outstanding as of September 30, 2023.

Borrowings under the Amended Credit Facility will bear interest at an index based on SOFR (which will not be less than 0.00%) or, at our option, the Base Rate, plus, in either case, an applicable margin based on our usage under the credit facility.

Base Rate is defined as the

highest of (a) the Truist prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month SOFR plus 1.00% and (d) 0.00%.

The applicable margin for SOFR-based borrowings fluctuates between1.00%-1.50%, and was 1.0% as of September 30, 2023, and the applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of September 30, 2023.

An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments under the Amended Credit Facility.

Standby letter of credit fees accruing at the applicable margin on the average undrawn and unreimbursed amounts of standby letters of credit are payable quarterly, and a facing fee of 0.125% is payable quarterly for the stated amount of each letter of credit.

We are also required to pay certain fees to the administrative agent under the Amended Credit Facility.

The Amended Credit Facility provides for the transition from LIBOR to Secured Overnight Financing Rate ("SOFR") and does not require an amendment in connection with such transition.

As of September 24, 2022, the applicable interest rate related to Base Rate borrowings was 6.3%, and the applicable interest rate related to one-month LIBOR-based borrowings was 4.1%.

We incurred approximately $2.4 million of debt issuance costs in conjunction with this transaction, which included lender fees and legal expenses.

The Amended Credit Facility was amended on May 15, 2023 to transition from LIBOR to SOFR.

As of September 30, 2023, the applicable interest rate related to Base Rate borrowings was 8.5%, and the applicable interest rate related to one-month SOFR-based borrowings was 6.3%.

We incurred approximately $2.4 million of debt issuance costs in conjunction with the Amended Credit Agreement, which included lender fees and legal expenses.

The debt issuance costs are being amortized over the term of the Amended Credit Facility.

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The Guarantees are senior unsecured obligations of each Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.

respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law.

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

The Guarantee of a Guarantor will be released:

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

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

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

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

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Current liabilities $ 155,793 $ 294,686 $ 162,793 $ 267,872

Intercompany payable from Non-guarantor subsidiaries — 766

Long-term debt 1,187,771 186 1,185,891 —

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

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

and the payments are capped at $1.0 million per year.

Recent Accounting Pronouncements

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Our goodwill is associated with our Pet segment and our Garden segment.

In connection with our annual goodwill impairment testing performed during fiscal 2022, 2021 and 2020, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the estimated fair values of our reporting units under the quantitative goodwill impairment test.

In connection with our annual goodwill impairment testing performed during fiscal 2023, we elected to bypass the qualitative assessment and proceeded directly to performing the quantitative goodwill

impairment test.

We completed our quantitative assessment of potential goodwill and determined that it was more likely than not the fair values of our reporting units were greater than their carrying amounts.

In connection with our annual goodwill impairment testing performed during fiscal 2022, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the estimated fair values of our reporting units under the quantitative goodwill impairment test.

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

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Our expected revenues were based on our future operating plan and market growth or decline estimates for future years.

No impairment was indicated during our fiscal 2022, 2021 and 2020 analyses of our indefinite-lived trade names and trademarks.

We recognized impairment losses on certain intangible assets of $11.5 million in fiscal year 2023, and there were no impairment losses recorded in fiscal years 2021 and 2022.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis