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Item 7. Management’s Discussion and Analysis

2024-11-27 compared with 2023-11-28 · 250 added, 185 removed, 289 unchanged (60% of the section changed)

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Business Overview

Central Garden & Pet Company is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States.

Central Garden & Pet Company is a leading manufacturer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States.

In fiscal 2024, our consolidated net sales were $3.2 billion, of which our Pet segment, or Pet, accounted for approximately $1.8 billion and our Garden segment, or Garden, accounted for approximately $1.4 billion.

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Financial summary:

• 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.

• Net sales for fiscal 2024 decreased $109.6 million, or 3.3%, to $3.2 billion.

Organic net sales decreased 3.9% with Pet organic sales decreasing 5.9% and Garden organic sales decreasing 1.2%.

• Gross profit for fiscal 2024 declined $3.1 million, or 0.3%, to $943.7 million while gross margin increased 90 basis points in fiscal 2024 to 29.5%, from 28.6% in fiscal 2023.

On a non-GAAP basis, gross margin increased 110 basis points in fiscal 2024.

• Our operating income declined $25.3 million, or 12.0%, to $185.4 million in fiscal 2024.

On a non-GAAP basis, operating income declined $4.4 million in fiscal 2024.

• Net income for fiscal 2024 was $108.0 million, or $1.62 per share on a diluted basis compared to $125.6 million, or $1.88 per share on a diluted basis in fiscal 2023.

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.

On a non-GAAP basis, net income in fiscal 2024 was $142.4 million, or $2.13 per share on a diluted basis compared to $138.5 million, or $2.07 per share on a diluted basis in fiscal 2023.

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 .

Cost and Simplicity program - Facility Closures and Business Exit

The following activities reflect our ongoing network optimization initiative to achieve a simpler, more efficient manufacturing and distribution network.

In our Pet segment, during the fourth quarter of fiscal year 2024, as part of our Cost and Simplicity program we decided to close a manufacturing facility in California, which we plan to exit in June 2025, and a facility in Arizona, which we plan to exit in January 2025.

The associated pet bed, outdoor cushion and durable pet supply manufacturing and distribution activities will be transitioned to Central facilities in Indiana and North Carolina.

As a result, we incurred approximately $7.5 million of one-time costs, including $5.2 million in cost of goods sold and $2.3 million in selling, general and administrative costs, comprised of charges for facility closures, the impairment of inventory and severance, the majority of which were non-cash.

Additionally, related to the pet supplies business activities being transitioned, we recognized a non-cash impairment charge of $12.8 million related to the impairment of intangible assets due primarily to changing market conditions resulting from the decline in demand for durable products and increased international competition.

In our Garden segment, during the fourth quarter of fiscal year 2024, we recognized incremental expense of $3.9 million in selling, general and administrative expenses, related to facility closures and business exits announced in fiscal 2023 and earlier in fiscal 2024.

In our Garden segment, during the third quarter of fiscal year 2024, as part of our Cost and Simplicity program and in response to changing market conditions, we decided to exit the pottery business which we expect to be completed by calendar year-end 2025.

Additionally, we closed a live goods distribution facility in Delaware and relocated our grass seed research facility from Oregon to Texas.

As a result, in fiscal 2024 we incurred approximately $10.9 million of one-time costs, including $8.6 million in cost of goods sold and $2.3 million in selling, general and administrative costs, comprised of charges for the impairment of inventory and facility closures, the majority of which were non-cash.

In our Garden segment, during the second quarter of fiscal year 2024, as part of our Cost and Simplicity program we decided to close a manufacturing facility in California.

Additionally, in the second quarter, we began the Southeast consolidation of four distribution locations into one new modern facility, which we expect to be completed by calendar year-end.

As a result, we incurred approximately $5.3 million of one-time costs, including $2.5 million in cost of goods sold and $2.8 million in selling, general and administrative costs, comprised of charges for facility closures, severance, and impairment of inventory, the majority of which were non-cash.

Litigation Settlement Gain and Investment Impairment

Within corporate, we recognized a gain of $3.2 million during the fourth quarter of fiscal 2024, for the settlement of litigation, which is included in selling, general and administrative expense.

Additionally, we recognized a $7.5 million non-cash impairment charge for two related private company investments that is included within Other income (expense) in the consolidated statement of operations.

Stock Dividend

In December 2023, our Board of Directors approved a stock dividend in the form of one share of the Company's Class A Common Stock for every four outstanding shares of its Common Stock, Class A Common Stock and Class B Stock, which shares were distributed on February 8, 2024, to stockholders of record as of January 8, 2024.

The stock dividend did not affect the number of the Company's authorized shares and the par value of each share of stock remained unchanged.

Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and performance share units outstanding at January 8, 2024, which resulted in a proportional increase in the vesting of such stock options, restricted stock and performance share units, and, in the case of stock options, a proportional decrease in the exercise price of all such stock options.

Unless noted, all Class A Common share and per share amounts contained in this Form 10-K have been retroactively adjusted to reflect the one-for-four stock dividend.

Fiscal 2024 Acquisition

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

The addition of TDBBS expands our portfolio with bully and collagen sticks, bones and jerky, adds scale to our dog and cat business and enhances our eCommerce and direct-to-consumer capabilities.

Fiscal 2025 Stock Repurchases

Since our fiscal year ended September 28, 2024 through November 21, 2024, we repurchased 1.3 million shares of our non-voting common stock (CENTA) and 0.4 million shares of our voting common stock (CENT) on the open market at an aggregate cost of $51.7 million.

As of November 21, 2024, we had $30.3 million remaining under our 2019 Repurchase Authorization.

Results of Operations (GAAP)

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Fiscal 2024 Compared to Fiscal 2023

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.

Net sales for fiscal 2024 decreased $109.6 million, or 3.3%, to $3,200.5 million from $3,310.1 million in fiscal 2023.

Fiscal 2024 included 52 weeks while fiscal 2023 included 53 weeks.

Our branded product sales, which include products we produce under Central brand names and products we produce under third-party brands, decreased $80.2 million, and sales of other manufacturers’ products decreased $29.4 million.

Sales of branded products represented approximately 78% of our net sales in both fiscal 2024 and fiscal 2023, and sales of other manufacturers' products represented 22% of our net sales.

Organic net sales, which exclude net sales from the acquisition of TDBBS in November 2023 and net sales from the independent garden channel distribution business we sold in the prior fiscal year, declined $127.9 million, or 3.9%, as compared to the prior fiscal year.

The decline in organic net sales was due primarily to lower Pet 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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Total $ 3,200.5 $ 3,310.1 $ 3,338.6

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 net sales decreased $44.4 million, or 2.4%, to $1,832.8 million in fiscal 2024 from $1,877.2 million in fiscal 2023.

Pet organic sales, which exclude net sales from the acquisition of TDBBS in November 2023, declined $110.8 million.

Fiscal 2023 included an extra week compared to fiscal 2024.

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, aquatics business, and pet bed business.

These declines were partially offset by increased sales in our animal health business.

Pet branded sales decreased $45.4 million, and sales of other manufacturers' products increased $1.0 million.

Garden net sales decreased $65.2 million, or 4.5%, to $1,367.7 million in fiscal 2024 from $1,432.9 million in fiscal 2023.

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 organic sales, which exclude net sales from the independent garden channel distribution business sold in the fourth quarter of fiscal 2023, decreased $17.1 million, or 1.2%.

The Garden net sales decline was volume related and due primarily to lower sales in wild bird feed partially offset by increased sales in our controls and grass seed businesses.

Additionally, fiscal 2023 included an extra week compared to fiscal 2024.

Garden branded sales decreased $34.8 million, and sales of other manufacturers' products decreased $30.4 million.

Gross profit in fiscal 2024 decreased $3.1 million, or 0.3%, to $943.7 million from $946.8 million in fiscal 2023.

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.

Gross margin improved 90 basis points to 29.5% in fiscal 2024 from 28.6% in fiscal 2023.

The decline in gross profit resulted from decreased Garden gross profit, partially offset by an increase in Pet.

The improved gross margin was due primarily to the higher gross margin in Pet partially offset by a lower gross margin in Garden.

Both segments were adversely impacted by fiscal 2024 facility closure projects under our Cost and Simplicity initiative.

On a non-GAAP basis, excluding the charges associated with the facility closures in fiscal 2024, gross profit increased $3.5 million and gross margin improved 110 basis points to 30.0% in fiscal 2024.

These increases were due primarily to the benefits resulting from Central's Cost and Simplicity program and lower inflation.

Both Pet and Garden benefitted from the results of the Cost and Simplicity program and lower inflation.

The increase in the Pet gross margin was partially offset by a lower gross margin, as compared to the prior fiscal year.

The decrease in Garden was due primarily to an approximately $19 million write-down of the value of our grass seed inventory due to a recent significant decrease in the market prices of grass seed and what we believe to be an industry-wide over supply of grass seed and lower sell through in our Live Goods business.

Selling, General and Administrative

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As a percentage of net sales, selling, general and administrative expenses increased from 22.2% in fiscal 2023 to 23.7% in fiscal 2024.

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, 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 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).

The increase was due to $21.1 million in expense related to the closure of facilities in both the Pet and Garden segments and intangible asset impairments, partially offset by the gain from a litigation settlement.

Excluding these items and similar items in fiscal 2023, non-GAAP selling, general and administrative expense increased $7.9 million and increased as a percentage of net sales to 23.0% in fiscal 2024 compared from 22.0% in fiscal year 2023.

Selling and delivery expense increased $2.3 million, or 0.7%, to $339.8 million in fiscal 2024 and increased as a percentage of net sales from 10.2% in fiscal 2023 to 10.6% in fiscal 2024.

The increase in selling and delivery expense was in the Pet segment due primarily to our acquisition of TDBBS in November 2023.

Warehouse and administrative expense increased $19.8 million, or 5.0%, to $418.5 million in fiscal 2024 and increased as a percentage of net sales from 12.0% in fiscal 2023 to 13.1% in fiscal 2024.

The increase in warehouse and administrative expense was due to increases in both the Pet and the Garden segments, partially offset by lower corporate expense.

The increases in both the Pet and Garden segments were due primarily to the charges related to the closure of facilities, the exit of the pottery business and the impairment of intangible assets.

Excluding these expense items, warehouse and administrative expense increased $8.9 million in fiscal 2024 as compared to fiscal 2023, due primarily to the acquisition of TDBBS in November 2023.

Corporate expense decreased due primarily to lower equity compensation and the gain from a litigation settlement.

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

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Our operating margin was 5.8% in fiscal 2024, decreasing from 6.4% in fiscal 2023.

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.

Decreased sales of $109.6 million and increased selling, general and administrative expenses, partially offset by a 90 basis point increase in gross margin, contributed to the lower operating income.

The increased selling, general administrative expenses were due primarily to facility closures and intangible asset impairments.

Excluding the impact of these costs, on a non-GAAP basis, operating margin was 7.0% in fiscal 2024 compared to 6.9% in fiscal 2023.

Pet operating income increased $5.4 million, or 2.7%, to $203.4 million in fiscal 2024 from $198.0 million in fiscal 2023, due to an improved gross margin partially offset by lower net sales and increased selling, general and administrative expenses.

Pet operating margin increased from 10.5% in fiscal 2023 to 11.1% in fiscal 2024.

On a non-GAAP basis, Pet operating income increased $7.3 million in fiscal 2024 as compared to fiscal 2023 and operating margin improved to 12.2% in fiscal 2024 from 11.5% in fiscal 2023.

Garden operating income decreased $41.6 million, or 33.7%, to $81.9 million in fiscal 2024 from $123.5 million in fiscal 2023, due to lower sales, a lower gross margin, and higher selling, general and administrative expenses.

Both gross margin and selling, general and administrative expenses were impacted by charges related to the closure of facilities and the planned exit of the pottery business.

On a non-GAAP basis that excludes the impact of these charges in both fiscal 2024 and fiscal 2023, Garden non-GAAP operating income declined $19.4 million in fiscal 2024 as compared to fiscal 2023 and non-GAAP operating margin declined to 7.5% in fiscal 2024 from 8.5% in fiscal 2023 due primarily to a write-down of the value of our grass seed inventory due to a recent significant decrease in the market prices for grass seed and what we believe to be an industry-wide over supply of grass seed and lower sell through in our Live Plants business.

Corporate expenses decreased $10.9 million due primarily to lower equity compensation and the gain from a litigation settlement.

Net Interest Expense

Net interest expense decreased $11.8 million, or 23.7%, from $49.7 million in fiscal 2023 to $37.9 million in fiscal 2024.

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.

The decrease in net interest expense was due to increased interest income due primarily to higher cash balances during fiscal 2024.

Debt outstanding on September 28, 2024 was $1,190.0 million compared to $1,188.2 million as of September 30, 2023.

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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.

Other income (expense) was an expense of $5.1 million in fiscal 2024 compared to income of $1.5 million in fiscal 2023, due primarily to a $7.5 million impairment in fiscal 2024 for two private company investments.

Our effective income tax rate was 23.2% for fiscal 2024 compared to 22.4% for fiscal 2023.

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.

The increase in our effective income tax rate was primarily due to an increase in the blended state income tax rate in fiscal 2024 as compared to fiscal 2023.

Net Income and Earnings Per Share

Our net income for fiscal 2024 was $108.0 million, or $1.62 per diluted share, compared to $125.6 million, or $1.88 per diluted share, for fiscal 2023.

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

On a non-GAAP basis, net income in fiscal 2024 was $142.4 million, or $2.13 per diluted share, compared to $138.5 million, or $2.07 per diluted share, for fiscal 2023.

Fiscal 2023 Compared to Fiscal 2022

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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.

However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net income and diluted net income per share, non-GAAP operating income, non-GAAP gross profit and gross margin, non-GAAP selling, general and administrative expense, adjusted EBITDA and organic net sales.

Management uses these non-GAAP financial measures that exclude the impact of specific items (described below) in making financial, operating and planning decisions and in evaluating our performance.

Management believes that these non-GAAP financial measures 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.

While Management believes that non-GAAP measures are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

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.

Adjusted EBITDA further excludes one-time charges related to facility closures exits of business, intangible and investment impairments and gains from a litigation settlement.

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.

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

We believe that the non-GAAP financial measures provide useful information to investors and other users of our financial statements, by allowing for greater transparency in the review of our financial and operating performance.

Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance, and we believe these measures similarly may be useful to investors in evaluating our financial and operating performance and the trends in our business from management's point of view.

While our management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

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

• 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.

• Facility closures and business exit :

we have excluded charges related to the closure of distribution and manufacturing facilities and our decision to exit the pottery business as they represent infrequent transactions that impact the comparability between operating periods.

We believe these exclusions supplement the GAAP information with a measure that may be useful to investors in assessing the sustainability of our operating performance.

• Asset impairment charges :

we exclude the impact of asset impairments on intangible assets and investments 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.

• Gain from litigation settlement :

we exclude the gain from a litigation settlement as it is a one-time occurrence.

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

• Gain on sale of a business or service line :

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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 :

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The non-GAAP adjustments made reflect the following:

(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.

Facility closures and business exits

(1) During the fourth quarter of fiscal year 2024, we recognized incremental expense of $7.5 million in our Pet segment in the consolidated statement of operations, from the closure of manufacturing facilities in California and Arizona.

Additionally, we recognized incremental expense in our Garden segment of $3.9 million related to facility closures and business exits announced in fiscal 2023 and earlier in fiscal 2024.

(2) During the third quarter of fiscal 2024, we recognized incremental expense of $11.1 million in the consolidated statement of operations, from the decision to exit the pottery business, the closure of a live goods distribution facility in Delaware and the relocation of our grass seed research facility.

(3) During the second quarter of fiscal 2024, we recognized incremental expense of $5.3 million in the consolidated statement of operations from the closure of a manufacturing facility in California and the consolidation of our Southeast distribution network.

(4) 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 gain is included in selling, general and administrative expense in the consolidated statement of operations.

(5) In 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 manufacturing and distribution facility in Texas.

Additionally, we recognized incremental expense of $1.8 million in our Pet segment in the consolidated statement of operations, from the closure of a second manufacturing and distribution facility in Texas.

Intangible Impairments

(6) During the fourth quarter of fiscal 2024, we recognized a non-cash impairment charge in our Pet segment of $12.8 million related to the impairment of intangible assets due primarily to changing market conditions resulting from the decline in demand for durable products and increased international competition.

(7) In 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, 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.

Gain from litigation and investment impairment

(8) Within corporate, the Company received $3.2 million during the fourth quarter of fiscal 2024 in settlement of litigation which gain is included in selling, general and administrative expense.

Net Income and Diluted Net Income Per Share Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended

September 28, 2024 September 30, 2023

(in thousands, except per share amount)

GAAP net income attributable to Central Garden & Pet Company $ 107,983 $ 125,643

Facility closures (1)(2)(3)(5) 27,842 15,672

Intangible impairments (6)(7) 12,790 6,731

Litigation settlement (8) (3,200) —

Independent channel distribution business sale (4) — (5,844)

Investment impairment (8) 7,461 —

Tax effect of adjustments (10,437) (3,705)

Non-GAAP net income attributable to Central Garden & Pet Company $ 142,439 $ 138,497

GAAP diluted net income per share $ 1.62 $ 1.88

Non-GAAP diluted net income per share $ 2.13 $ 2.07

Shares used in GAAP and non-GAAP diluted net income per share calculation 66,860 66,783

Operating Income Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 30, 2023

Fiscal Year Ended September 28, 2024 Fiscal Year Ended September 30, 2023

GAAP Adjustments (1)(2)(3)(6)(8)

(in thousands)

Non-GAAP GAAP Adjustments (4)(5)(7)

(in thousands) (in thousands)

$ 3,200,460 $ — $ 3,200,460 $ 3,310,083 $ — $ 3,310,083

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Income from operations $ 185,387 $ (37,432) $ 222,819 $ 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

Gross margin 29.5 % 30.0% 28.6% 28.9 %

Operating margin 5.8 % 7.0% 6.4% 6.9 %

Pet Segment Operating Income Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended

September 28, 2024 September 30, 2023

(in thousands)

GAAP operating income $ 203,425 $ 198,004

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

Facility closures (1)(5) 7,549 15,672

Intangible impairments (6)(7) 12,790 2,785

Non-GAAP operating income $ 223,764 $ 216,461

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Non-GAAP operating margin 12.2 % 11.5 %

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

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

Garden Segment Operating Income Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended

September 28, 2024 September 30, 2023

(in thousands)

GAAP operating income $ 81,893 $ 123,455

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

Facility closures (1)(2)(3) 20,293 —

Independent channel distribution business sale (4) — (5,844)

Intangible impairments (7) — 3,946

Non-GAAP operating income $ 102,186 $ 121,557

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Non-GAAP operating margin 7.5 % 8.5 %

GAAP to Non-GAAP Reconciliation

For the Fiscal Year Ended

September 30, 2023 September 24, 2022

(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

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

GAAP diluted net income per share $ 2.35 $ 2.80

Non-GAAP diluted net income per share $ 2.59 $ 2.80

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

GAAP to non-GAAP Reconciliation

Organic Net Sales Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 28, 2024

Adjusted EBITDA Reconciliation Pet Garden Corp Total

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

(in millions)

Reported net sales FY 2024 $ 3,200.5 $ 66.4 $ 3,134.1

Reported net sales FY 2023 3,310.1 48.1 3,262.0

$ decrease $ (109.6) $ 18.3 $ (127.9)

% decrease (3.3) % (3.9) %

Organic Pet Segment Net Sales Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 28, 2024

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

(in millions)

Reported net sales FY 2024 $ 1,832.8 $ 66.4 $ 1,766.4

Reported net sales FY 2023 1,877.2 — 1,877.2

$ decrease $ (44.4) $ 66.4 $ (110.8)

% decrease (2.4) % (5.9) %

Organic Garden Segment Net Sales Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 28, 2024

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

(in millions)

Reported net sales FY 2024 $ 1,367.7 $ — $ 1,367.7

Reported net sales FY 2023 1,432.9 48.1 1,384.8

$ decrease $ (65.2) $ (48.1) $ (17.1)

% decrease (4.6) % (1.2) %

Adjusted EBITDA Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 28, 2024

Pet Garden Corp Total

(in thousands)

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Interest expense, net — — — 37,872

Other income — — — (1,462)

Other expense — — — 5,090

Income tax expense — — — 33,112

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Adjusted EBITDA $ 267,406 $ 146,589 $ (79,786) $ 334,209

GAAP to non-GAAP Reconciliation

Adjusted EBITDA Reconciliation GAAP to Non-GAAP Reconciliation

Fiscal Year Ended September 30, 2023

Adjusted EBITDA Reconciliation Pet Garden Corp Total

Pet Garden Corp Total

(in thousands)

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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 (4)(5)(7) 18,457 (1,898) — 16,559

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

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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.

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

Costs continued rise in fiscal 2023, however, and we were unable to continue to increase prices and our gross and operating margins were negatively impacted.

Inflation began to moderate in late fiscal year 2023 and continued to moderate in fiscal 2024, and we were able to benefit from lower cost inventory and significant productivity gains resulting in improved margins.

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

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

In fiscal 2024, we experienced moderating inflation.

Weather and Seasonality

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Operating Activities

Net cash provided by operating activities increased $13.3 million, from $381.6 million in fiscal 2023 to $394.9 million in fiscal 2024.

The increase in cash provided was due primarily to changes in our working capital accounts, due to increases in accounts payable and accrued expenses, partially offset by a lower amount of cash generated from the decrease in accounts receivable, as compared to the prior year.

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.

Investing Activities

Net cash used in investing activities increased $70.6 million from $34.6 million in fiscal 2023 to $105.2 million in fiscal 2024.

The increase in cash used in investing activities was due primarily to our acquisition of TDBBS, LLC.

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.

The decrease was partially offset by an increase in capital expenditures of approximately $35 million in the current year compared to the prior year and increased investments in the current year compared to the prior year.

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.

Financing Activities

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.

Net cash used in financing activities decreased $12.1 million from $37.6 million in fiscal 2023 to $25.4 million in fiscal 2024.

The decrease in cash used in financing activities during the current year was due primarily to lower stock repurchase activity in fiscal 2024 compared to fiscal 2023.

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

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.

Based on our anticipated cash needs, availability under our asset backed loan facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months.

See Note 11 - Long-Term Debt , for more information about our debt.

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.

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Stock Repurchases

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.

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.

During fiscal 2024, we repurchased approximately 0.3 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $10.7 million and approximately 3 thousand shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $109 thousand.

During fiscal 2023, we repurchased approximately 0.8 million shares of our non-voting common stock (CENTA) on the open market at an aggregate cost of approximately $22.9 million and approximately 0.3 million shares of our voting common stock (CENT) on the open market at an aggregate cost of approximately $8.7 million.

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").

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

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

As of September 28, 2024, the Company had authorization remaining to repurchase up to 38 thousand shares under its Equity Dilution Authorization.

During the period September 29, 2024 through November 21, 2024, we repurchased 1.3 million shares of our non-voting common stock (CENTA) and 0.4 million shares of our voting common stock (CENT) on the open market at an aggregate cost of $51.7 million.

As of November 21, 2024, we had $30.3 million remaining on under our 2019 Repurchase Authorization.

At September 28, 2024, our total debt outstanding was $1,190.0 million versus $1,188.2 million at September 30, 2023.

Issuance of $400 million 4.125% Senior Notes due 2031

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

$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 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.

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

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

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

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

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

The Company may redeem some or all of the 2031 Notes at its 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 28, 2024.

Issuance of $500 million 4.125% Senior Notes due 2030

$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").

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

We used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder used for general corporate purposes.

We incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and legal, accounting and rating agency expenses.

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

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 Amended Credit Facility.

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.

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

The 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 Credit Facility.

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

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

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

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$300 Million 5.125% Senior Notes due 2028

On December 14, 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes").

In December 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes").

We used the net proceeds from the offering to finance acquisitions and for general corporate purposes.

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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 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.

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 Credit Facility.

We may redeem some or all of the 2028 Notes, at our option, at any time before December 31, 2024 for 101.708%, on or after January 1, 2025 for 100.854% and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.

The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.

The 2028 Notes contain customary high-yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions.

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

Asset-Based Loan Facility Amendment

On December 16, 2021, we entered into a Third Amended and Restated Credit Agreement (“Amended Credit Agreement”).

The Amended Credit Agreement amended and restated the previous credit agreement dated September 27, 2019 (the "Predecessor Credit Agreement"), and provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400 million principal amount available with the consent of the Lenders, as defined, if we exercise the uncommitted accordion feature set forth therein (collectively, the “Amended Credit Facility”).

The Amended Credit Facility matures on December 16, 2026.

We may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full.

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

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 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 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%.

We were in compliance with all financial covenants as of September 28, 2024.

Asset-Based Loan Facility

On December 16, 2021, we entered into a Third Amended and Restated Credit Agreement (“Credit Agreement”).

The Credit Agreement provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400 million principal amount available with the consent of the Lenders, as defined, if we exercise the uncommitted accordion feature set forth therein (collectively, the “Credit Facility”).

The Credit Facility matures on December 16, 2026.

We may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.

The 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.

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

Net availability under the Credit Facility was approximately $481 million as of September 28, 2024.

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

As of September 28, 2024, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility.

Outside of the Credit Facility, there were other letters of credit of $3.0 million outstanding as of September 28, 2024.

Borrowings under the 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 28, 2024, and the applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of September 28, 2024.

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 was amended on May 15, 2023 to transition from LIBOR to SOFR.

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

As of September 28, 2024, the applicable interest rate related to Base Rate borrowings was 8.0%, and the applicable interest rate related to one-month SOFR-based borrowings was 5.8%.

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.

The Amended Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1:1 upon triggered quarterly testing (e.g.

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

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

The Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1:1 upon triggered quarterly testing (e.g.

when availability falls below certain thresholds established in the agreement), reporting requirements and events of default.

The Amended Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions.

We were in compliance with all financial covenants under the Amended Credit Facility as of September 30, 2023.

The Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions.

We were in compliance with all financial covenants under the Credit Facility as of September 28, 2024.

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities

Central (the "Parent/Issuer") issued $400 million of 2031 Notes in April 2021, $500 million of 2030 Notes in October 2020, and $300 million of 2028 Notes in December 2017.

The 2031 Notes, 2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are guarantors of our senior secured revolving credit facility ("Credit Facility").

The 2031 Notes, 2030 Notes and 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Amended Credit Facility, to the extent of the value of the collateral securing such indebtedness.

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some having fixed prices or quantities, others having variable pricing and quantities.

For certain agreements, management estimates are used to develop the quantities and pricing for anticipated purchases, and future purchases could vary significantly from such estimates.

For certain agreements,

management estimates are used to develop the quantities and pricing for anticipated purchases, and future purchases could vary significantly from such estimates.

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

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts and related disclosures in the consolidated financial statements.

Estimates and assumptions are required for, but are not limited to, accounts receivable and inventory realizable values, fixed asset lives, long-lived asset valuation and impairments, intangible asset lives, stock-based compensation, deferred and current income taxes, self-insurance accruals and the impact of contingencies and litigation.

Estimates and assumptions are required for, among other items, accounts receivable and inventory realizable values, fixed asset lives, long-lived asset valuation and impairments, intangible asset lives, stock-based compensation, deferred and current income taxes, self-insurance accruals and the impact of contingencies and litigation.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the result of which forms the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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

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

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

The estimate of fair value of each of our reporting units is based on our projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies.

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

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

The estimate of fair value of each of our reporting segments is based on our projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies.

We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty.

Assumptions critical to our fair value estimates were:

(i) discount rates used in determining the fair value of the reporting units;

(i) discount rates used in determining the fair value of the reporting segments;

(ii) estimated future cash flows;

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

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

Actual results may differ from those estimates.

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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 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.

In connection with our annual goodwill impairment testing performed during fiscal 2024, we made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting segments under the goodwill impairment test.

We completed our qualitative assessment of potential goodwill impairment and determined that it was more likely than not the fair values of our reporting segments were greater than their carrying amount in fiscal year 2024, and accordingly, no further testing of goodwill was required in fiscal 2024.

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 segments were greater than their carrying amounts.

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

We completed our qualitative assessment of potential goodwill impairment and determined that it was more likely than not the fair values of our reporting segments were greater than their carrying amount in fiscal year 2022, and accordingly, no further testing of goodwill was required in fiscal year 2022.

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

8 unchanged sentences

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

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.

We recognized impairment losses on certain intangible assets of $12.8 million and $11.5 million in fiscal years 2024 and 2023, respectively, and there were no impairment losses recorded in fiscal year 2022.

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

1 unchanged sentence

Under different assumptions, the resulting valuations could be materially different, which could materially impact the operating results we report.

We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business.

Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill.

Acquisition-related expenses and related restructuring costs are expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed.

For intangible assets, we typically use a variation of the income approach, whereby a forecast of future cash flows attributable to the asset is discounted to present value using a risk-adjusted discount rate.

Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life.

Refer to Note 3 - Acquisitions and Investments in Joint Ventures , to the consolidated financial statements included in this Annual Report for additional information regarding our acquisitions.

Our contractual commitments are presented under the caption Liquidity and Capital Resources.

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