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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________________________ 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 2020
or
TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-33268
CENT-20201226_G1.JPG
Delaware
 
68-0275553
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1340 Treat Blvd., Suite 600, Walnut Creek, California 94597
(Address of principal executive offices)
(925) 948-4000
(Registrant’s telephone number, including area code)
_______________________________________________________________________ 
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock CENT The NASDAQ Stock Market LLC
Class A Common Stock CENTA The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer  
Non-accelerated filer
Smaller reporting company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes    ý  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
Common Stock Outstanding as of January 31, 2021 11,336,358 
Class A Common Stock Outstanding as of January 31, 2021 42,219,410 
Class B Stock Outstanding as of January 31, 2021 1,612,374 






PART I. FINANCIAL INFORMATION
Item 1.
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7
8
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Form 10-Q includes “forward-looking statements.” Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries in which we operate and other information that is not historical information. When used in this Form 10-Q, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our future earnings expectations, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, beliefs and projections will be realized.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q are set forth in the Form 10-K for the fiscal year ended September 26, 2020, including the factors described in the section entitled “Item 1A – Risk Factors.” If any of these risks or uncertainties materializes, or if any of our underlying assumptions are incorrect, our actual results may differ significantly from the results that we express in, or imply by, any of our forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances, except as required by law. Presently known risk factors include, but are not limited to, the following factors:
 
our ability to successfully manage the impact of COVID-19 on our business, including but not limited to, the impact on our workforce, operations, fill rates, supply chain, demand for our products and services, and our financial results and condition;
the potential for future reductions in demand for product categories, which benefited from the COVID-19 pandemic;
the success of our new Central to Home strategy;
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seasonality and fluctuations in our operating results and cash flow;
fluctuations in market prices for seeds and grains and other raw materials;
our inability to pass through cost increases in a timely manner;
supply shortages in pet birds, small animals and fish;
adverse weather conditions;
dependence on a small number of customers for a significant portion of our business;
impacts of tariffs or a trade war;
consolidation trends in the retail industry;
declines in consumer spending during economic downturns;
risks associated with new product introductions, including the risk that our new products will not produce sufficient sales     to recoup our investment;
competition in our industries;
continuing implementation of an enterprise resource planning information technology system;
potential environmental liabilities;
risk associated with international sourcing;
access to and cost of additional capital;
risks associated with our acquisition strategy, including our ability to successfully integrate our recently announced     acquisitions;
potential goodwill or intangible asset impairment;
our dependence upon our key executives;
inflation, deflation and other adverse macro-economic conditions;
our inability to protect our trademarks and other proprietary rights;
fluctuations in energy prices, fuel and related petrochemical costs;
litigation and product liability claims;
regulatory issues;
the impact of product recalls;
potential costs and risks associated with actual or potential cyber attacks;
potential dilution from issuance of authorized shares;
the voting power associated with our Class B stock; and
the impact of new accounting regulations and the U.S. Tax Cuts and Jobs Act on the Company's tax rate.

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PART I. FINANCIAL INFORMATION
 
Item 1.    Financial Statements
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts, unaudited)

December 26, 2020 December 28, 2019 September 26, 2020
ASSETS
Current assets:
Cash and cash equivalents $ 608,285  $ 445,813  $ 652,712 
Restricted cash 13,670  12,990  13,685 
Accounts receivable (less allowances of $30,951, $21,257 and $27,661)
322,806  268,229  391,773 
Inventories, net 574,878  556,479  439,615 
Prepaid expenses and other 28,074  37,569  27,498 
Total current assets 1,547,713  1,321,080  1,525,283 
Plant, property and equipment, net 252,157  241,795  244,667 
Goodwill 289,955  289,854  289,955 
Other intangible assets, net 131,557  145,153  134,924 
Operating lease right-of-use assets 115,833  105,277  115,882 
Other assets 108,884  31,998  28,653 
Total $ 2,446,099  $ 2,135,157  $ 2,339,364 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 216,991  $ 184,659  $ 205,234 
Accrued expenses 189,290  124,774  201,436 
Current lease liabilities 34,834  34,320  33,495 
Current portion of long-term debt 97  107  97 
Total current liabilities 441,212  343,860  440,262 
Long-term debt 788,921  693,329  693,956 
Long-term lease liabilities 85,729  75,283  86,516 
Deferred income taxes and other long-term obligations 43,224  49,513  40,956 
Equity:
Common stock, $0.01 par value: 11,336,358, 11,484,297 and 11,336,358 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020
113  115  113 
Class A common stock, $0.01 par value: 42,171,329, 42,289,882 and 41,856,626 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020
422  423  419 
Class B stock, $0.01 par value: 1,612,374, 1,647,922 and 1,612,374 shares outstanding at December 26, 2020, December 28, 2019 and September 26, 2020
16  16  16 
Additional paid-in capital 570,678  570,117  566,883 
Retained earnings 516,394  403,693  510,781 
Accumulated other comprehensive loss (1,032) (1,240) (1,409)
Total Central Garden & Pet Company shareholders’ equity 1,086,591  973,124  1,076,803 
Noncontrolling interest 422  48  871 
Total equity 1,087,013  973,172  1,077,674 
Total $ 2,446,099  $ 2,135,157  $ 2,339,364 
See notes to condensed consolidated financial statements.
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CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)
 
  Three Months Ended
  December 26, 2020 December 28, 2019
Net sales $ 592,230  $ 482,828 
Cost of goods sold and occupancy 426,811  351,562 
Gross profit 165,419  131,266 
Selling, general and administrative expenses 138,379  129,201 
Operating income 27,040  2,065 
Interest expense (20,975) (10,641)
Interest income 206  2,004 
Other income 752  305 
Income (loss) before income taxes and noncontrolling interest 7,023  (6,267)
Income tax expense (benefit) 1,381  (1,728)
Income (loss) including noncontrolling interest 5,642  (4,539)
Net income (loss) attributable to noncontrolling interest 29  (122)
Net income (loss) attributable to Central Garden & Pet Company $ 5,613  $ (4,417)
Net income (loss) per share attributable to Central Garden & Pet Company:
Basic $ 0.10  $ (0.08)
Diluted $ 0.10  $ (0.08)
Weighted average shares used in the computation of net income (loss) per share:
Basic 53,734  54,755 
Diluted 54,686  54,755 
See notes to condensed consolidated financial statements.

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CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
 
  Three Months Ended
  December 26, 2020 December 28, 2019
Income (loss) including noncontrolling interest $ 5,642  $ (4,539)
Other comprehensive income:
Foreign currency translation 377  436 
Total comprehensive income (loss) 6,019  (4,103)
Comprehensive income (loss) attributable to noncontrolling interest 29  (122)
Comprehensive income (loss) attributable to Central Garden & Pet Company $ 5,990  $ (3,981)
See notes to condensed consolidated financial statements.

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CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
  Three Months Ended
December 26, 2020 December 28, 2019
Cash flows from operating activities:
Net income (loss) $ 5,642  $ (4,539)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization 12,915  13,140 
Amortization of deferred financing costs 475  446 
Non-cash lease expense 9,087  8,513 
Stock-based compensation 4,669  4,152 
Debt extinguishment costs 8,577  — 
Loss on sale of business 2,611  — 
Deferred income taxes 973  1,890 
Gain on sale of property and equipment (664) (8)
Other 210  474 
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable 68,929  32,173 
Inventories (137,635) (89,327)
Prepaid expenses and other assets (1,362) (8,065)
Accounts payable 10,134  35,700 
Accrued expenses (13,393) (4,422)
Other long-term obligations 1,437  115 
Operating lease liabilities (8,720) (8,264)
Net cash used by operating activities (36,115) (18,022)
Cash flows from investing activities:
Additions to plant, property and equipment (14,661) (9,877)
Payments to acquire companies, net of cash acquired (80,887) — 
Proceeds from the sale of business 2,400  — 
Investments —  (424)
Other investing activities (223) (75)
Net cash used in investing activities (93,371) (10,376)
Cash flows from financing activities:
Repayments of long-term debt (400,024) (31)
Proceeds from issuance of long-term debt 500,000  — 
Premium paid on extinguishment of debt (6,124) — 
Repurchase of common stock, including shares surrendered for tax withholding (871) (23,054)
Payment of contingent consideration liability (110) (77)
Distribution to noncontrolling interest (478) — 
Payment of financing costs (8,031) (869)
Net cash provided (used) by financing activities 84,362  (24,031)
Effect of exchange rate changes on cash and cash equivalents 682  531 
Net decrease in cash, cash equivalents and restricted cash (44,442) (51,898)
Cash, cash equivalents and restricted cash at beginning of period 666,397  510,701 
Cash, cash equivalents and restricted cash at end of period $ 621,955  $ 458,803 
Supplemental information:
Cash paid for interest $ 13,180  $ 12,944 
See notes to condensed consolidated financial statements.
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CENTRAL GARDEN & PET COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended December 26, 2020
(Unaudited)
1.     Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of December 26, 2020 and December 28, 2019, the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income (loss) for the three months ended December 26, 2020 and December 28, 2019 and the condensed consolidated statements of cash flows for the three months ended December 26, 2020 and December 28, 2019 have been prepared by the Company, without audit. In the opinion of management, the interim financial statements include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented.
For the Company’s foreign business in the United Kingdom, the local currency is the functional currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the period. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of its foreign subsidiary to be permanently reinvested. Transaction gains and losses are included in results of operations.
Due to the seasonal nature of the Company’s garden business, the results of operations for the three months ended December 26, 2020 are not indicative of the operating results that may be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes thereto, included in the Company’s 2020 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission. The September 26, 2020 balance sheet presented herein was derived from the audited financial statements.
Change in Segment Components
During the first quarter of fiscal year 2021, the Company began reporting the results of its outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources. These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment. All prior period segment disclosures have been recast to reflect this segment change.
Noncontrolling Interest
Noncontrolling interest in the Company’s condensed consolidated financial statements represents the 20% interest not owned by Central in a consolidated subsidiary. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 20% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interest on the consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations. See Note 9, Supplemental Equity Information, for additional information.
Cash, Cash Equivalents and Restricted Cash
The Company considers cash and all highly liquid investments with an original maturity of three months or less at date of purchase to be cash and cash equivalents. Restricted cash includes cash and highly liquid instruments that are used as collateral for stand-alone letter of credit agreements related to normal business transactions. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash the Company has available for other uses. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows as of December 26, 2020, December 28, 2019 and September 26, 2020, respectively.
December 26, 2020 December 28, 2019 September 26, 2020
(in thousands)
Cash and cash equivalents $ 608,285  $ 445,813  $ 652,712 
Restricted cash 13,670  12,990  13,685 
Total cash, cash equivalents and restricted cash $ 621,955  $ 458,803  $ 666,397 

Allowance for Credit Losses and Customer Allowances

The Company’s trade accounts receivable are recorded at net realizable value, which includes an allowance for estimated credit losses, as well as allowances for contractual customer deductions accounted for as variable consideration. Under the guidance found in ASC Topic 326, the “expected credit loss” model replaces the previous incurred loss model and requires consideration of a broader range of
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information to estimate expected credit losses over the lives of the Company’s trade accounts receivable. The Company’s prior methodology for estimating credit losses on its trade accounts receivable did not differ significantly from the new requirements of Topic 326.

The Company maintains an allowance for credit losses related to its trade accounts receivable for future expected credit losses for the inability of its customers to make required payments. The Company estimates the allowance based upon historical bad debts, current customer receivable balances and the customer’s financial condition. The allowance is adjusted to reflect changes in current and forecasted macroeconomic conditions. The Company’s estimate of credit losses includes expected current and future economic and market conditions surrounding the COVID-19 pandemic, which did not significantly impact its allowance.

Revenue Recognition
Revenue Recognition and Nature of Products and Services

The Company manufactures, markets and distributes a wide variety of branded, private label and third-party pet and garden products to wholesalers, distributors and retailers, primarily in the United States. The majority of the Company’s revenue is generated from the sale of finished pet and garden products. The Company also recognizes a minor amount of non-product revenue (less than 1% of consolidated net sales) from third-party logistics services, merchandising services and royalty income from sales-based licensing arrangements. Product and non-product revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company recognizes product revenue when control over the finished goods transfers to its customers, which generally occurs upon shipment to, or receipt at, customers’ locations, as determined by the specific terms of the contract. These revenue arrangements generally have single performance obligations. Non-product revenue is recognized as the services are provided to the customer in the case of third-party logistics services and merchandising services, or as third-party licensee sales occur for royalty income. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, unsaleable product, consumer coupon redemption and rebates. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.

Key sales terms are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, the Company does not capitalize contract inception costs. Product fulfillment costs are capitalized as a part of inventoriable costs in accordance with our inventory policies. The Company generally does not have unbilled receivables at the end of a period. Deferred revenues are not material and primarily include advance payments for services that have yet to be rendered. The Company does not receive noncash consideration for the sale of goods. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis; therefore, the Company does not have any significant financing components.

Sales Incentives and Other Promotional Programs
The Company routinely offers sales incentives and discounts through various regional and national programs to our customers and consumers. These programs include product discounts or allowances, product rebates, product returns, one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. The costs associated with these activities are accounted for as reductions to the transaction price of the Company’s products and are, therefore, recorded as reductions to gross sales at the time of sale. The Company bases its estimates of incentive costs on historical trend experience with similar programs, actual incentive terms per customer contractual obligations and expected levels of performance of trade promotions, utilizing customer and sales organization inputs. The Company maintains liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are generally not material and are recognized in earnings in the period such differences are determined. Reserves for product returns, accrued rebates and promotional accruals are included in the condensed consolidated balance sheets as part of accrued expenses, and the value of inventory associated with reserves for sales returns is included within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Leases
The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Long-term operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities are presented separately in the condensed consolidated balance sheets. Finance lease ROU assets are presented in property, plant and equipment, net, and the related finance liabilities are presented with current and long-term debt in the condensed consolidated balance sheets.

Lease ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and excludes any lease incentives received from the lessor. Lease
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liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. Non-lease components and the lease components to which they relate are accounted for as a single lease component, as the Company has elected to combine lease and non-lease components for all classes of underlying assets.

Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales or selling, general and administrative expenses, depending on the nature of the leased item. Interest expense is recorded over the lease term and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash flows from financing activities in the condensed consolidated statements of cash flows.

Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets measured at amortized cost, including trade receivables. The model replaces the probable, incurred loss model for those assets and broadens the information an entity must consider when developing its expected credit loss estimate for assets measured at amortized cost. The Company adopted the standard as of September 27, 2020, and the adoption did not have a material impact on the Company's condensed consolidated financial statements and related disclosures. Additionally, there have been no significant changes to the Company's accounting policies as disclosed in the Company's fiscal 2020 Form 10-K as a result of the adoption of this new accounting guidance.
Goodwill and Intangible Assets
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this standard as of September 27, 2020 on a prospective basis, and the adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted this guidance as of September 27, 2020 on a prospective basis. Based on the Company's most recent annual goodwill impairment test performed as of July 1, 2020, there were no reporting units for which the carrying amount of the reporting unit exceeded its fair value; therefore, the adoption of this ASU did not have an impact on the Company's condensed consolidated financial statements and related disclosures.

Fair Value Disclosures
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company adopted this standard as of September 27, 2020, and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.
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Accounting Standards Not Yet Adopted
Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company in its first quarter of fiscal 2022 and would require the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings, if applicable. The Company is currently evaluating the impact that ASU 2019-12 may have on its condensed consolidated financial statements.

2.     Fair Value Measurements
ASC 820 establishes a single authoritative definition of fair value, a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 requires financial assets and liabilities to be categorized based on the inputs used to calculate their fair values as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The Company’s financial instruments include cash and equivalents, short term investments consisting of bank certificates of deposit, accounts receivable and payable, derivative instruments, short-term borrowings, and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 26, 2020: 
Level 1 Level 2 Level 3 Total
(in thousands)
Liabilities:
Liability for contingent consideration (a) $ —  $ —  $ 1,227  $ 1,227 
Total liabilities $ —  $ —  $ 1,227  $ 1,227 

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 28, 2019: 
Level 1 Level 2 Level 3 Total
(in thousands)
Liabilities:
Liability for contingent consideration (a) $ —  $ —  $ 1,323  $ 1,323 
Total liabilities $ —  $ —  $ 1,323  $ 1,323 
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The following table presents our financial assets and liabilities at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of September 26, 2020: 
Level 1 Level 2 Level 3 Total
(in thousands)
Liabilities:
Liability for contingent consideration (a) $ —  $ —  $ 1,369  $ 1,369 
Total liabilities $ —  $ —  $ 1,369  $ 1,369 
 
(a)The fair values of the Company's contingent consideration liabilities from previous business acquisitions are considered "Level 3" measurements because the Company uses various estimates in the valuation models to project timing and amount of future contingent payments. The liability for contingent consideration relates to an earn-out for B2E, acquired in December 2012, future performance-based contingent payments for Hydro-Organics Wholesale, Inc., acquired in October 2015 and future performance-based contingent payments for Segrest, Inc., acquired in October 2016. In December 2019, performance-based criteria associated with the $6 million contingent consideration liability related to Segrest, Inc. were met and accordingly, the entire amount was released out of an independent escrow account to the former owners as of December 28, 2019. The fair value of the estimated contingent consideration arrangement is determined based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. This is presented as part of long-term liabilities in the Company's consolidated balance sheets.
The following table provides a summary of the changes in fair value of the Company's Level 3 financial instruments for the periods ended December 26, 2020 and December 28, 2019:
  Amount
(in thousands)
Balance September 26, 2020 $ 1,369 
Estimated contingent performance-based consideration established at the time of acquisition — 
Changes in the fair value of contingent performance-based payments established at the time of acquisition (32)
Performance-based payments (110)
Balance December 26, 2020 $ 1,227 
 
  Amount
(in thousands)
Balance September 28, 2019 $ 7,369 
Estimated contingent performance-based consideration established at the time of acquisition — 
Changes in the fair value of contingent performance-based payments established at the time of acquisition 31 
Performance-based payments (6,077)
Balance December 28, 2019 $ 1,323 
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain non-financial assets and liabilities, including long-lived assets, goodwill and intangible assets, at fair value on a non-recurring basis. Fair value measurements of non-financial assets and non-financial liabilities are used primarily in the impairment analyses of long-lived assets, goodwill and other intangible assets. During the periods ended December 26, 2020 and December 28, 2019, the Company was not required to measure any significant non-financial assets and liabilities at fair value.
Fair Value of Other Financial Instruments
In October 2020, the Company issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). The estimated fair value of the Company's 2030 Notes as of December 26, 2020 was $522.1 million, compared to a carrying value of $492.1 million.
In December 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The estimated fair value of the Company's 2028 Notes as of December 26, 2020, December 28, 2019 and September 26, 2020 was $318.1 million, $312.2 million and $316.0 million, respectively, compared to a carrying value of $296.7 million, $296.2 million and $296.6 million, respectively.
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In November 2020, the Company redeemed $400 million aggregate principal amount of 6.125% senior notes due November 2023 (the “2023 Notes”) at a price of 101.531%. The estimated fair value of the Company’s 2023 Notes as of December 28, 2019 and September 26, 2020 was $413.8 million and $409.2 million, respectively, compared to a carrying value of $397.0 million and $397.5 million, respectively.
The estimated fair value is based on quoted market prices for these notes, which are Level 1 inputs within the fair value hierarchy.

3.     Acquisitions and Divestitures

Acquisition
DoMyOwn
In December 2020, the Company acquired DoMyOwn, a leading online retailer of professional-grade control products in the United States, for approximately $83 million. The acquisition strengthens the Company's position in the control products category and adds a leading online platform for eCommerce fulfillment and digital capabilities. The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired. Approximately $80 million of the purchase price remains unallocated, and is included in other assets on the Company's condensed consolidated balance sheet as of December 26, 2020. The financial results of DoMyOwn have been included in the results of operations within the Garden segment since the date of acquisition.
Divestiture
Breeder's Choice
In December 2020, the Company completed the sale of certain assets of its Breeder's Choice business unit. Prior to the sale of Breeder's Choice assets, the Company recognized the financial results of the business unit in its Pet Segment. The Company received cash proceeds of $2.4 million and sold approximately $4.7 million of current and long-term net assets. The Company recognized a loss on the sale of the Breeder's Choice business unit of approximately $2.6 million during the three months ended December 26, 2020 as part of selling, general and administrative expenses in the Company's condensed consolidated statement of operations.

4.     Inventories, net
Inventories, net of allowance for obsolescence, consist of the following:
December 26, 2020 December 28, 2019 September 26, 2020
(in thousands)
Raw materials $ 167,135  $ 156,464  $ 152,692 
Work in progress 58,175  68,489  49,312 
Finished goods 335,086  314,213  218,847 
Supplies 14,482  17,313  18,764 
Total inventories, net $ 574,878  $ 556,479  $ 439,615 

5.    Goodwill
The Company tests goodwill for impairment annually (as of the first day of the fourth fiscal quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by first assessing qualitative factors to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the quantitative goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative test is performed to identify potential goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test, which compares the fair value of the Company’s reporting units to their related carrying values, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of its two reporting units to the Company’s total market capitalization. No impairment of goodwill was recorded for the three months ended December 26, 2020 and December 28, 2019. The Company recorded approximately $3.8 million of goodwill in its Pet segment during the three months ended December 28, 2019 as part of its finalization of the allocation of the purchase price paid for C&S Products.
13


6.    Other Intangible Assets

The following table summarizes the components of gross and net acquired intangible assets:
Gross Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
  (in millions)
December 26, 2020
Marketing-related intangible assets – amortizable $ 20.6  $ (17.8) $ —  $ 2.8 
Marketing-related intangible assets – nonamortizable 70.6  —  (26.0) 44.6 
Total 91.2  (17.8) (26.0) 47.4 
Customer-related intangible assets – amortizable 140.3  (66.8) (2.5) 71.0 
Other acquired intangible assets – amortizable 26.0  (18.7) —  7.3 
Other acquired intangible assets – nonamortizable 7.1  —  (1.2) 5.9 
Total 33.1  (18.7) (1.2) 13.2 
Total other intangible assets $ 264.6  $ (103.3) $ (29.8) $ 131.6 
  Gross Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
  (in millions)
December 28, 2019
Marketing-related intangible assets – amortizable $ 20.6  $ (16.8) $ —  $ 3.8 
Marketing-related intangible assets – nonamortizable 70.6  —  (26.0) 44.6 
Total 91.2  (16.8) (26.0) 48.4 
Customer-related intangible assets – amortizable 140.3  (56.0) (2.5) 81.8 
Other acquired intangible assets – amortizable 26.0  (16.9) —  9.1 
Other acquired intangible assets – nonamortizable 7.1  —  (1.2) 5.9 
Total 33.1  (16.9) (1.2) 15.0 
Total other intangible assets $ 264.6  $ (89.7) $ (29.7) $ 145.2 
  Gross Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
  (in millions)
September 26, 2020
Marketing-related intangible assets – amortizable $ 20.6  $ (17.6) $ —  $ 3.0 
Marketing-related intangible assets – nonamortizable 70.6  —  (26.0) 44.6 
Total 91.2  (17.6) (26.0) 47.6 
Customer-related intangible assets – amortizable 140.3  (64.1) (2.5) 73.7 
Other acquired intangible assets – amortizable 26.0  (18.2) —  7.8 
Other acquired intangible assets – nonamortizable 7.1  —  (1.2) 5.9 
Total 33.1  (18.2) (1.2) 13.6 
Total other intangible assets $ 264.6  $ (99.9) $ (29.8) $ 134.9 
Other acquired intangible assets include contract-based and technology-based intangible assets.
As part of its acquisition of C&S Products in the third quarter of fiscal 2019, the Company acquired approximately $0.9 million of amortizable marketing-related intangible assets and approximately $1.9 million of customer-related intangible assets.
The Company evaluates long-lived assets, including amortizable and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates indefinite-lived intangible assets on an annual basis. Factors indicating the carrying value of the Company’s amortizable intangible assets may not be recoverable were not present in the three months ended December 26, 2020, and accordingly, no impairment testing was performed on these assets.
14


The Company amortizes its acquired intangible assets with definite lives over periods ranging from three years to 25 years; over weighted average remaining lives of three years for marketing-related intangibles, eight years for customer-related intangibles and 10 years for other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $3.4 million and $3.8 million for the three months ended December 26, 2020 and December 28, 2019, respectively, and is classified within selling, general and administrative expenses in the condensed consolidated statements of operations. Estimated annual amortization expense related to acquired intangible assets in each of the succeeding five years is estimated to be approximately $12 million per year from fiscal 2021 through fiscal 2025 and thereafter.
.
7.    Leases

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

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

Balance Sheet Classification As of
December 26, 2020
As of
December 28, 2019
(in millions)
Operating leases
Right-of-use assets Operating lease right-of-use assets $ 115.8  $ 105.3 
Current lease liabilities Current operating lease liabilities $ 34.8  $ 34.3 
Non-current lease liabilities Long-term operating lease liabilities 85.7  75.3
Total operating lease liabilities $ 120.5  $ 109.6 
Finance leases
Right-of-use assets Property, plant and equipment, net $ 0.3  $ 0.4 
Current lease liabilities Current portion of long-term debt $ 0.1  $ 0.1 
Non-current lease liabilities Long-term debt 0.1  0.2 
Total finance lease liabilities $ 0.2  $ 0.3 



15


Components of lease cost were as follows:

Three months ended
December 26, 2020
Three months ended
December 28, 2019
(in millions)
Operating lease cost $ 10.0  $ 9.6 
Finance lease cost:
     Amortization of right-of-use assets $ —  $ — 
     Interest on lease liabilities —  — 
Total finance lease cost $ —  $ — 
Short-term lease cost $ 0.9  $ 0.7 
Variable lease cost $ 2.2  $ 0.9 
Total lease cost $ 13.1  $ 11.2 

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

Three Months Ended
December 26, 2020
Three months ended
December 28, 2019
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases $ 8.7  $ 8.6 
     Operating cash flows from finance leases $ —  $ — 
     Financing cash flows from finance leases $ —  $ — 
Right-of-use assets obtained in exchange for lease obligations:
     Operating leases $ 9.3  $ 2.5 
     Finance leases $ —  $ — 

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

As of December 26, 2020 As of December 28, 2019
Weighted-average remaining lease term (in years):
     Operating leases 4.7 4.9
     Finance leases 1.8 2.6
Weighted-average discount rate:
     Operating leases 3.16  % 3.88  %
     Finance leases 4.81  % 4.86  %



16


Future non-cancelable lease payments are as follows:

As of December 26, 2020
Operating Leases Finance Leases
Fiscal Year (in millions)
2021 (remaining nine months) $ 37.7  $ 0.1 
2022 30.4  0.1 
2023 19.7  — 
2024 15.4  — 
2025 11.9  — 
Thereafter 15.2  — 
Total future undiscounted lease payments $ 130.3  $ 0.2 
Less imputed interest (9.8) — 
Total reported lease liability $ 120.5  $ 0.2 


8.    Long-Term Debt
Long-term debt consists of the following:
December 26, 2020 December 28, 2019 September 26, 2020
  (in thousands)
Senior notes, interest at 6.125%, payable semi-annually, principal due November 2023
$ —  $ 400,000  $ 400,000 
Senior notes, interest at 5.125%, payable semi-annually, principal due February 2028
300,000  300,000  300,000 
Senior notes, interest at 4.125%, payable semi-annually, principal due October 2030
500,000  —  — 
Unamortized debt issuance costs (11,153) (6,841) (6,142)
Net carrying value 788,847  693,159  693,858 
Asset-based revolving credit facility, interest at LIBOR plus a margin of 1.00% to 1.50% or Base Rate plus a margin of 0.0% to 0.50%, final maturity September 2024.
—  —  — 
Other notes payable 171  277  195 
Total 789,018  693,436  694,053 
Less current portion (97) (107) (97)
Long-term portion $ 788,921  $ 693,329  $ 693,956 
Senior Notes
Issuance of $500 million 4.125% Senior Notes due 2030 and Redemption of $400 million 6.125% Senior Notes due 2023
In October 2020, the Company issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). In November 2020, the Company used a portion of the net proceeds to redeem all of its outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder for general corporate purposes.
The Company incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.
17


As a result of the Company's redemption of the 2023 Notes, the Company incurred a call premium payment of $6.1 million, overlapping interest expense for 30 days of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized deferred financing costs related to the 2023 Notes. These amounts are included in interest expense in the condensed consolidated statements of operations.
The 2030 Notes require semiannual interest payments on October 15 and April 15, commencing April 15, 2021. The 2030 Notes are unconditionally guaranteed on a senior basis by each of the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of Central's senior secured revolving credit facility or guarantee Central's other debt.
The Company may redeem some or all of the 2030 Notes at any time, at its option, prior to October 15, 2025 at a price equal to 100% of the principal amount plus a “make-whole” premium. Prior to October 15, 2023, the Company may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. The Company may redeem some or all of the 2030 Notes, at its option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.

The holders of the 2030 Notes have the right to require the Company to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of December 26, 2020.
$300 million 5.125% Senior Notes due 2028
On December 14, 2017, the Company issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). The Company used the net proceeds from the offering to finance acquisitions and for general corporate purposes.
The Company incurred approximately $4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on a senior basis by the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of Central's senior secured revolving credit facility, or which guarantee Central's other debt.
The Company may redeem some or all of the 2028 Notes at any time, at its option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. The Company may redeem some or all of the 2028 Notes, at its option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854%, and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.
The holders of the 2028 Notes have the right to require the Company to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of December 26, 2020.
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Asset-Based Loan Facility Amendment
On September 27, 2019, the Company entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement dated April 22, 2016 and continues to provide a $400 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders, as defined, if the Company exercises the accordion feature set forth therein (collectively, the “Amended Credit Facility”). The Amended Credit Facility matures on September 27, 2024. The Company may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Amended Credit Facility must be repaid in full.

The Amended Credit Facility is subject to a borrowing base that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and adjustments. The Amended Credit Facility also allows the Company to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders. Net availability under the Amended Credit Facility was $400 million as of December 26, 2020. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $40 million sublimit for short-notice borrowings. As of December 26, 2020, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $2.4 million outstanding as of December 26, 2020.

Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR or, at the option of the Company, the Base Rate, plus, in either case, an applicable margin based on the Company's usage under the credit facility. Base Rate is defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month LIBOR plus 1.00%) and (d) 0.00%. The applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of December 26, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0% as of December 26, 2020. An unused line fee shall be payable monthly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable monthly and a facing fee of 0.125% shall be paid on demand for the stated amount of each letter of credit. The Company is also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of December 26, 2020, the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to one-month LIBOR-based borrowings was 1.1%.

Banks currently reporting information used to set LIBOR will stop doing so after 2021. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. The Company is monitoring their efforts, and it will likely amend contracts to accommodate any replacement rate where it is not already provided. The Company's Amended Credit Facility already anticipates the potential loss of LIBOR and defines procedures for establishing a replacement rate.

The Company incurred approximately $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility.

The Amended Credit Facility continues to contain customary covenants, including financial covenants which require the Company to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of the borrowing parties. The Company was in compliance with all financial covenants under the Amended Credit Facility during the period ended December 26, 2020.
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9.    Supplemental Equity Information
The following table provides a summary of the changes in the carrying amounts of equity attributable to controlling interest and noncontrolling interest through the three months ended December 26, 2020 and December 28, 2019.
Controlling Interest
Common
Stock
Class A
Common
Stock
Class
B
Stock
Additional
Paid In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total Noncontrolling
Interest
Total
(in thousands)
Balance September 26, 2020 $ 113  $ 419  $ 16  $ 566,883  $ 510,781  $ (1,409) $ 1,076,803  $ 871  $ 1,077,674 
Comprehensive income —  —  —  —  5,613  377  5,990  29  6,019 
Amortization of share-based awards —  —  —  3,225  —  —  3,225  —  3,225 
Restricted share activity, including net share settlement —  —  (364) —  —  (361) —  (361)
Distribution to Noncontrolling interest —  —  —  —  —  —  —  (478) (478)
Issuance of common stock, including net share settlement of stock options —  —  —  934  —  —  934  —  934 
Balance December 26, 2020 $ 113  $ 422  $ 16  $ 570,678  $ 516,394  $ (1,032) $ 1,086,591  $ 422  $ 1,087,013 

  Controlling Interest    
Common Stock Class A Common Stock Class B Stock Additional Paid In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Noncontrolling Interest Total
(in thousands)
Balance September 28, 2019 $ 115  $ 430  $ 16  $ 575,380  $ 421,742  $ (1,676) $ 996,007  $ 170  $ 996,177 
Comprehensive income —  —  —  —  (4,417) 436  (3,981) (122) (4,103)
Amortization of share-based awards —  —  —  2,804  —  —  2,804  —  2,804 
Restricted share activity, including net share settlement —  —  —  (318) —  —  (318) —  (318)
Repurchase of stock (8) (8,488) (13,632) (22,128) (22,128)
Issuance of common stock, including net share settlement of stock options —  —  739  —  —  740  —  740 
Balance December 28, 2019 $ 115  $ 423  $ 16  $ 570,117  $ 403,693  $ (1,240) $ 973,124  $ 48  $ 973,172 

 
10.    Stock-Based Compensation
The Company recognized share-based compensation expense of $4.7 million and $4.2 million for the three months ended December 26, 2020 and December 28, 2019, respectively, as a component of selling, general and administrative expenses. The tax benefit associated with share-based compensation expense for the three months ended December 26, 2020 and December 28, 2019 was $1.1 million and $1.0 million, respectively.
 
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11.    Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations.
Three Months Ended
December 26, 2020
Income Shares Per Share
(in thousands, except per share amounts)
Basic EPS:
     Net income available to common shareholders $ 5,613  53,734  $ 0.10 
Effect of dilutive securities:
     Options to purchase common stock —  414  — 
     Restricted shares —  538  — 
Diluted EPS:
     Net income available to common shareholders $ 5,613  54,686  $ 0.10 

Three Months Ended
December 28, 2019
Income Shares Per Share
(in thousands, except per share amounts)
Basic EPS:
     Net income available to common shareholders $ (4,417) 54,755  $ (0.08)
Effect of dilutive securities (1):
     Options to purchase common stock —  —  — 
     Restricted shares —  —  — 
Diluted EPS:
     Net income available to common shareholders $ (4,417) 54,755  $ (0.08)

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

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

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

For the three months ended December 28, 2019, 0.4 million options outstanding and 0.3 million restricted shares were excluded in the diluted earnings per share calculation because their inclusion in a net loss period would be anti-dilutive to the earnings per share calculation.
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12.    Segment Information

Management has determined that the Company has two operating segments, which are also reportable segments based on the level at which the Chief Operating Decision Maker reviews the results of operations to make decisions regarding performance assessment and resource allocation. These operating segments are Pet segment and Garden segment and are presented in the table below.
During the first quarter of fiscal year 2021, the Company began reporting the results of its outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources. These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment. All prior period segment disclosures have been recast to reflect this segment change.
 
  Three Months Ended
  December 26, 2020 December 28, 2019
(in thousands)
Net sales:
Pet segment $ 436,410  $ 366,591 
Garden segment 155,820  116,237 
Total net sales $ 592,230  $ 482,828 
Operating Income
Pet segment 43,525  28,737 
Garden segment 4,651  (6,883)
Corporate (21,136) (19,789)
Total operating income 27,040  2,065 
Interest expense - net (20,769) (8,637)
Other income 752  305 
Income tax expense (benefit) 1,381  (1,728)
Income (loss) including noncontrolling interest 5,642  (4,539)
Net income (loss) attributable to noncontrolling interest 29  (122)
Net income (loss) attributable to Central Garden & Pet Company $ 5,613  $ (4,417)
Depreciation and amortization:
Pet segment $ 9,085  $ 9,072 
Garden segment 2,638  2,713 
Corporate 1,192  1,355 
Total depreciation and amortization $ 12,915  $ 13,140 
 
December 26, 2020 December 28, 2019 September 26, 2020
(in thousands)
Assets:
Pet segment $ 911,787  $ 884,564  $ 877,901 
Garden segment 599,097  470,413  481,401 
Corporate 935,215  780,180  980,062 
Total assets $ 2,446,099  $ 2,135,157  $ 2,339,364 
Goodwill (included in corporate assets above):
Pet segment $ 277,067  $ 276,966  $ 277,067 
Garden segment 12,888  12,888  12,888 
Total goodwill $ 289,955  $ 289,854  $ 289,955 

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The tables below presents the Company's disaggregated revenues by segment:

Three Months Ended December 26, 2020
Pet Segment Garden Segment Total
(in millions)
Other pet products $ 182.2  $ —  $ 182.2 
Dog and cat products 155.5  —  155.5 
Other manufacturers' products 98.7  44.0  142.7 
Garden controls and fertilizer products —  29.1  29.1 
Other garden supplies —  82.7  82.7 
     Total $ 436.4  $ 155.8  $ 592.2 

Three Months Ended December 28, 2019
Pet Segment Garden Segment Total
(in millions)
Other pet products $ 150.9  $ —  $ 150.9 
Dog and cat products 129.9  —  129.9 
Other manufacturers' products 85.8  29.8  115.6 
Garden controls and fertilizer products —  23.1  23.1 
Other garden supplies —  63.3  63.3 
     Total $ 366.6  $ 116.2  $ 482.8 

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13.    Contingencies

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

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the U.S. District Court for New Jersey against the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the three claims and awarded damages of approximately $12.6 million. The court ruled on post-trial motions in early June 2020, reducing the judgment amount to $12.4 million and denying the plaintiff's request for attorneys' fees. The Company has filed its notice of appeal and the plaintiffs have cross-appealed. The Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.
During fiscal 2013, the Company received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking unclaimed property subject to escheat laws, the states may seek interest, penalties and other relief. The examinations are continuing; however, the ultimate resolution and impact on the Company’s consolidated financial statements is uncertain.
In November 2019, the DMC business unit in the Company's Pet Segment experienced a fire in one of its leased properties located in Athens, Texas, which resulted in inventory, property-related and business interruption losses in the estimated range of $35 million to $40 million. In April 2020, DMC experienced an additional fire in the same leased property in Athens, Texas, which resulted in inventory and property-related losses estimated to be approximately $10 million.
As of December 26, 2020, the Company had approximately $10 million of cost in excess of insurance proceeds related to these losses recorded on its balance sheet. The Company currently believes its insurance coverage is sufficient to cover the remaining asset-related losses as well as the business interruption loss associated with this event.
The Company has experienced, and may in the future experience, issues with products that may lead to product liability, recalls, withdrawals, replacements of products, or regulatory actions by governmental authorities. The Company has not experienced recent issues with products, the resolution of which management believes would have a material effect on the Company’s financial position or results of operations.

14.    Subsequent Events

On December 31, 2020, the Company purchased substantially all of the assets of Hopewell Nursery, a leading live goods wholesale grower serving retail nurseries, landscape contractors, wholesalers and garden centers across the Northeast, for approximately $81 million. The addition of Hopewell to the Central portfolio strengthens the Company's position as a leading live goods provider in the garden category.
On December 30, 2020, the Company entered into a definitive agreement to acquire Green Garden Products, a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients in North America, for approximately $532 million. The acquisition is expected to be consummated in February 2021. The addition of Green Garden Products is intended to expand the Company's portfolio into an adjacent garden category.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Company
Central Garden & Pet Company (“Central”) is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the United States. Founded initially as a distribution company, we grew our business through a succession of over 50 acquisitions and created a broad portfolio which allows for economies of scale and market advantages.
Our pet supplies include products for dogs and cats like premium edible chews and treats, dog chew toys, dog play toys, natural dog treats and chews, pet dental chews and solutions, dog training pads, pet containment, grooming supplies and other accessories; products for birds, small animals and specialty pets, including food, cages and habitats, toys, chews and related accessories; animal and household
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health and insect control products; live fish and products for fish, reptiles and other aquarium-based pets, including aquariums, furniture and lighting fixtures, pumps, filters, water conditioners, food and supplements, products for horses and livestock, as well as outdoor cushions and pillows. These products are sold under the brands including Aqueon®, Cadet®, Comfort Zone®, Farnam®, Four Paws®, Kaytee®, K&H Pet Products®, Nylabone®, and Zilla® as well as a number of other brands including Adams™, Altosid®, Arden Companies, Coralife®, C&S Products®, Interpet®, Pet Select®, TFH™, and Zodiac®.
Our lawn and garden supplies products include proprietary and non-proprietary grass seed; wild bird feed, bird feeders, bird houses and other birding accessories; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers; and decorative outdoor lifestyle products including pottery, as well as live plants. These products are sold under the brands AMDRO®, Ironite®, Pennington®, and Sevin®, as well as a number of other brand names including Bell Nursery, Lilly Miller® and Over-N-Out®.
In fiscal 2020, our consolidated net sales were $2.7 billion, of which our Pet segment, or Pet, accounted for approximately $1.6 billion and our Garden segment, or Garden, accounted for approximately $1.1 billion. In fiscal 2020, our operating income was $198 million consisting of income from our Pet segment of $154 million, income from our Garden segment of $133 million and corporate expenses of $89 million.
We were incorporated in Delaware in May 1992 as the successor to a California corporation that was formed in 1955. Our executive offices are located at 1340 Treat Boulevard, Suite 600, Walnut Creek, California 94597, and our telephone number is (925) 948-4000. Our website is www.central.com. The information on our website is not incorporated by reference in this quarterly report.

Recent Developments
Fiscal 2021 First Quarter Financial Performance:
Net sales increased $109.4 million, or 22.7%, from the prior year quarter to $592.2 million due to an increase in organic sales. Pet segment sales increased $69.8 million, and Garden segment sales increased $39.6 million.
Organic net sales increased 23.0%, including 19.6% in our Pet segment and 33.8% in our Garden segment.
Gross profit increased $34.1 million from the prior year quarter, and gross margin increased 70 basis points to 27.9%.
Selling, general and administrative expense increased $9.2 million from the prior year quarter to $138.4 million, but declined as a percentage of net sales 340 basis points to 23.4%.
Operating income increased $25.0 million from the prior year quarter, to $27.0 million.
Net income in the first quarter of fiscal 2021 was $5.6 million, or $0.10 per diluted share, compared to a net loss of $4.4 million, or $0.08 loss per diluted share, in the first quarter of fiscal 2020.
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Financing
In October 2020, we issued $500 million 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 at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder available for general corporate purposes. As a result of our redemption of the 2023 Notes, we recognized incremental expenses in our fiscal 2021 first quarter of approximately $10 million related to the payment of the call premium, the payment of overlapping interest expense between the issuance of the 2030 Notes and redemption of the 2023 Notes and a non-cash charge for the write-off of unamortized financing costs, which are included in interest expense.
Acquisition
On December 18, 2020, we acquired DoMyOwn, a leading, fast-growing online retailer of professional-grade control products, for approximately $83 million. The acquisition strengthens our position in the control products category and adds a leading online platform for eCommerce fulfillment and digital capabilities.
Divestiture
In December 2020, we sold our Breeder’s Choice business unit, a manufacturer of branded and private label pet food, after concluding it was not a strategic business for our Pet segment. We recognized a loss on the sale of approximately $2.6 million in the quarter ended December 26, 2020, which is included in selling, general and administrative expense. The business represented approximately $28 million in revenue in fiscal 2020.
Change in Segment Components
During the first quarter of fiscal year 2021, we began reporting the results of our outdoor cushion operations in the Pet segment as a result of a change in internal management reporting lines due to potential synergies in sourcing, manufacturing and innovation and to be consistent with the reporting of financial information used to assess performance and allocate resources. These operations were previously reported in the Garden segment and are now managed and reported in the Pet segment. All prior period segment disclosures have been recast to reflect this segment change.
COVID-19 Impact
The outbreak of COVID-19 has led to adverse impacts on human health, the global economy and society at large. The impact of COVID-19 and measures to prevent its spread are affecting our business in a number of ways. Central is considered an essential business in most jurisdictions and almost all of our employees continue to work to meet essential needs. We have been actively addressing the COVID-19 situation and its impact on our employees, customers and business.
From the beginning, our priority has been the safety of our employees, customers and consumers. Our employees have prioritized the health and safety of fellow team members while collaborating across our business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers. We have a cross-functional task force to monitor the continually evolving situation to recommend action and mitigation of potential impacts to our people and business. Our facility maintenance of health and safety standards remains paramount.
Our teams have worked hard to do the following:
Ensure constant communication and regularly share pertinent information around health, safety and benefits;
Take extra precautions in our manufacturing facilities, distribution centers and offices with guidance from health authorities including social distancing, staggering shifts, procuring necessary personal protection equipment, partitions, sanitation supplies and investing in regular deep cleanings of our facilities;
Implement travel restrictions and work-from-home policies for employees who have the ability to work from home in accordance with shelter-in-place orders; and
Adhere to all local, state and federal requirements.
Central has seen varying impacts to our Garden and Pet businesses due to COVID-19. In March and April of 2020, we experienced increased demand in pet consumables due to consumers stocking up on products as the COVID-19 shelter-in-place mandates were implemented. We also saw reduced consumption on other items, such as live fish and live plants, due to in-store curtailments of foot traffic
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and limited access to outdoor garden departments. In May 2020, many state and county governments began phased re-openings of their local economies and access to outdoor garden departments resulted in increased demand for our products in May and June 2020. Additionally, during shelter-in-place requirements, pet ownership significantly increased and sales continued to increase across our Pet segment portfolio. We also experienced a rapid increase in demand in the eCommerce channel. During July through September 2020, our fiscal 2020 fourth quarter, most of our businesses continued to experience high sales. This same trend continued during October through December 2020, our first quarter of fiscal 2021. The increased demand for our products continues to place challenges on our supply chain and our ability to procure and manufacture enough product to meet the continued high levels of demand.
Our facilities have largely been exempt or partially exempt from government closure orders. We have experienced temporary closures of certain facilities, though there has not been a material impact from a plant closure to date. At some of our facilities, we have experienced reduced productivity and increased employee absences, which we expect to continue during the current pandemic. Recently, new cases of COVID-19 have been on the rise in the United States, and we have seen a similar rise in our employee population. Our manufacturing facilities and distribution centers are currently open and fully operational. We have incurred and will continue to incur additional costs including personal protective equipment and sanitation costs. The pandemic and near-term increase in demand have created operational challenges for our distribution network, although none have had a material impact on our results to date. In our supply chain, it is possible we will continue to experience increased operational and logistics costs, although these did not have a material impact on our first fiscal quarter results. We may also experience additional disruptions in our supply chain as the pandemic continues, although we cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.
We believe we 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. Our revolving credit facility provides up to a $400 million principal amount with an additional $200 million available with the consent of the lenders. As of December 26, 2020, there were no borrowings outstanding under our revolving credit facility. Additionally, in October 2020, we issued $500 million aggregate principal amount 4.125% senior notes due October 2030 to replace $400 million in senior notes with the remainder available for general corporate purposes.
It is possible many small customers may permanently close, and we may experience collection delinquencies as customers seek to preserve liquidity. Additionally, we have small company equity method investees, intangible assets and other long-lived assets whose value is dependent on cash flow. These investments and other assets could be impacted by the COVID-19 pandemic and, therefore, may be more susceptible to impairment. Management's assessment of possible asset impairment involves numerous assumptions that involve significant judgment. As a result of the uncertainties associated with the COVID-19 pandemic, the shelter-in-place orders and the post-COVID-19 economic recovery, these factors will be even more difficult to estimate. We recorded an impairment charge of $3.6 million in fiscal 2020 and may be required to write off certain assets that could be material in future periods.
While the unfavorable impact of COVID-19 began to adversely affect the performance in certain portions of our business in March and April 2020, thereafter we have continued to see a large increase in demand in most areas of our business. Our net sales increased 22.7% in our first fiscal quarter of 2021 but a few of our businesses continue to experience demand or profitability headwinds, including our pet bedding business. The volatility in demand, changing consumer consumption patterns and uncertainty regarding the duration of shelter-in-place requirements make it difficult to predict when more normal order patterns may return. Forecasting and planning remain challenging in the current environment and will continue to be challenging as the pandemic eases in the future. In the current uncertain environment, our employees, customers and consumers will continue to be our priority as we manage our business to deliver long-term growth.
Subsequent Events
On December 31, 2020, we purchased substantially all of the assets of Hopewell Nursery, a leading live goods wholesale grower serving garden centers, retail nurseries, landscape contractors and wholesalers across the Northeast, for approximately $81 million. The addition of Hopewell to the Central portfolio strengthens our position as a leading live goods provider in the garden segment
On December 30, 2020, we entered into a definitive agreement to acquire Green Garden Products, a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients in North America, for approximately $532 million. The acquisition is expected to be consummated in February 2021. The addition of Green Garden Products is intended to expand our garden portfolio into an adjacent category.


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Results of Operations
Three Months Ended December 26, 2020
Compared with Three Months Ended December 28, 2019
Net Sales
Net sales for the three months ended December 26, 2020 increased $109.4 million, or 22.7%, to $592.2 million from $482.8 million for the three months ended December 28, 2019. Organic net sales, which exclude the impact of acquisitions and divestitures in the last 12 months, increased $111.0 million, or 23.0%, as compared to the fiscal 2020 quarter. Our branded product sales increased $82.3 million, and sales of other manufacturers’ products increased $27.1 million.
Pet net sales increased $69.8 million, or 19.0%, to $436.4 million for the three months ended December 26, 2020 from $366.6 million for the three months ended December 28, 2019. The increase was broad-based across our entire Pet portfolio. Increased sales in our Pet segment were aided by COVID-19 shelter-in-place restrictions, which have led to increased pet ownership in dog, cat, small animals and reptiles. Organic sales gains were primarily in our dog and cat business, third-party products, wild bird feed and our animal health business. Pet branded product sales increased $56.9 million, and sales of other manufacturers' products increased $12.9 million.
Garden net sales increased $39.6 million, or 34.1%, to $155.8 million for the three months ended December 26, 2020 from $116.2 million for the three months ended December 28, 2019. The increase in net sales in the Garden segment was driven by increased consumer home gardening related to COVID-19 shelter-in-place restrictions, listing gains and favorable fall garden season weather. The increase in net sales was broad-based across our Garden portfolio including volume-based sales increases in third-party products, wild bird feed, grass seed and controls and fertilizers. Garden branded sales increased $25.4 million, and sales of other manufacturers' products increased $14.2 million.
Gross Profit
Gross profit for the three months ended December 26, 2020 increased $34.1 million, or 26.0%, to $165.4 million from $131.3 million for the three months ended December 28, 2019. Gross margin increased 70 basis points to 27.9% for the three months ended December 26, 2020 from 27.2% for the three months ended December 28, 2019. Gross profit and gross margin increased in both operating segments with the consolidated gross margin increase due primarily to the improvement in the Garden segment gross margin.
In the Pet segment, both gross profit and gross margin improved. Gross profit increased due to increased sales and margin improvement. Gross margin improved due primarily to a favorable sales mix, volume-related efficiencies and increased pricing. These improvements were partially offset by increased commodity costs in our wild bird feed business, increased ocean freight costs, which impacted our aquatics and dog bedding businesses and increased labor costs.
In the Garden segment, both gross profit and gross margin increased. Gross profit improved due to the increased sales and gross margin gains. The Garden gross margin improved in most of the Garden business units due primarily to increased sales which leveraged fixed production costs. This impact was especially noteworthy in our live plant and in our grass seed businesses. The increased gross margin was partially offset by a decline in gross margin in our wild bird feed business, which was adversely impacted by increased commodity costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $9.2 million, or 7.1%, to $138.4 million for the three months ended December 26, 2020 from $129.2 million for the three months ended December 28, 2019. Selling, general and administrative expense increased in both operating segments and in corporate. As a percentage of net sales, selling, general and administrative expenses decreased to 23.4% for the three months ended December 26, 2020, compared to 26.8% in the comparable prior year quarter impacted by improved operating leverage and reduced travel and entertainment expense.
Selling and delivery expense increased to $66.4 million for the three months ended December 26, 2020 as compared to $62.6 million in the prior year quarter. The increase was due primarily to increased delivery expense, as a result of increased sales volumes, and increased payroll-related costs. These increases were partially offset by reduced travel and entertainment expense, due to COVID-19 safety measures reducing our in-store merchandising presence and travel in general.
Warehouse and administrative expense increased $5.4 million, or 8.1%, to $72.0 million for the three months ended December 26, 2020 from $66.6 million for the three months ended December 28, 2019. The increase was due primarily to the $2.6 million loss in our Pet segment resulting from the sale of the Breeder’s Choice business. Additionally, both operating segments experienced increased labor and payroll-related expense. Corporate expenses increased $1.3 million due primarily to increased variable compensation, payroll expense and increased M&A expense. Corporate expenses are included within administrative expense and relate to the costs of unallocated executive, administrative, finance, legal, human resources, and information technology functions.
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Operating Income
Operating income increased $25.0 million to $27.0 million for the three months ended December 26, 2020. The increase in operating income was attributable to increased sales and an improved gross margin partially offset by increased selling, general and administrative expense. Our operating margin increased from 0.4% in the prior year quarter to 4.6% in the current year quarter due to a 70 basis point improvement in gross margin, improved overhead leverage, and a 340 basis point decline in selling, general and administrative expense as a percentage of net sales.
Pet operating income increased $14.8 million, or 51.5%, to $43.5 million for the three months ended December 26, 2020 from $28.7 million for the three months ended December 28, 2019. Pet operating income increased due to increased sales and gross profit partially offset by higher selling, general and administrative expense. Pet operating margin improved 220 basis points due to increased sales, an improved gross margin and lower selling, general and administrative expense as a percentage of net sales.
Garden operating income increased $11.5 million to $4.7 million for the three months ended December 26, 2020 from a $6.9 million loss for the three months ended December 28, 2019. Garden operating income increased due to increased sales and gross profit partially offset by higher selling, general and administrative expense. Garden operating margin improved to 3.0% due to increased sales, an improved gross margin and lower selling, general and administrative expense as a percentage of net sales.
Corporate operating expense increased $1.3 million, or 6.8%, to $21.1 million for the three months ended December 26, 2020 from $19.8 million for the three months ended December 28, 2019. Corporate expense increased due primarily to increased variable compensation, payroll expense and increased M&A expense, but declined as a percentage of net sales.
Net Interest Expense
Net interest expense for the three months ended December 26, 2020 increased $12.2 million, or 140.5%, to $20.8 million from $8.6 million for the three months ended December 28, 2019. In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 and used the proceeds to redeem all of our outstanding aggregate principal amount 6.125% senior notes due 2023 with the remainder available for general corporate purposes. As a result of our redemption of the 2023 Notes, we recognized incremental interest expense of approximately $10.0 million in the fiscal 2021 quarter. Also contributing to the increase in net interest expense was reduced interest income resulting from lower rates of interest earned on our cash balance during the quarter.
Debt outstanding on December 26, 2020 was $789.0 million compared to $693.4 million at December 28, 2019.
Other Income (Expense)
Other income (expense) is comprised of income or losses from investments accounted for under the equity method of accounting and foreign currency exchange gains and losses. Other income was $0.8 million for the quarter ended December 26, 2020 compared to income of $0.3 million for the quarter ended December 28, 2019, due primarily to increased earnings from investments during the quarter.
Income Taxes
Our effective income tax rate was 19.7% for the quarter ended December 26, 2020 compared to 27.6% for the quarter ended December 28, 2019. Both periods had a similar excess tax benefit from stock compensation (a discrete tax item). The quarter ended December 26, 2020 had pre-tax income and the discrete tax item decreased the tax expense rate while the quarter ended December 28, 2019 had a pre-tax loss and the discrete tax item increased the tax benefit rate in that quarter.
Net Income and Earnings Per Share
Our net income in the first quarter of fiscal 2021 was $5.6 million, or $0.10 per diluted share, compared to a net loss of $4.4 million, or $(0.08) per diluted share, in the first quarter of fiscal 2020.


Use of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net income and diluted net income per share, EBITDA and organic sales. Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods.
EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization (or operating income plus depreciation and amortization expense). We present EBITDA because we believe that EBITDA is a useful
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supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. EBITDA is used by our management to perform such evaluation. EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present EBITDA when reporting their results. Other companies may calculate EBITDA differently and it may not be comparable.
We have also provided organic net sales, a non-GAAP measure that excludes the impact of businesses purchased or exited in the prior 12 months, because we believe it permits investors to better understand the performance of our historical business without the impact of recent acquisitions or dispositions.
The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below. We believe that the non-GAAP financial measures provide useful information to investors and other users of our financial statements by allowing for greater transparency in the review of our financial and operating performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance, and we believe these measures similarly may be useful to investors in evaluating our financial and operating performance and the trends in our business from management's point of view. While our management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

Non-GAAP financial measures reflect adjustments based on the following items:
Incremental expenses from note redemption and issuance: we have excluded the impact of the incremental expenses incurred from the note redemption and issuance as they represent an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods. We believe the adjustment of these expenses supplements the GAAP information with a measure that may be used to assess the sustainability of our operating performance.
Loss on sale of business: we have excluded the impact of the loss on the sale of a business as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods. We believe the adjustment of this loss supplements the GAAP information with a measure that may be used to assess the sustainability of our operating performance.

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

The non-GAAP adjustments reflect the following:
(1)During the first quarter of fiscal 2021, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030. We used the proceeds to redeem all of our outstanding 6.125% senior notes due 2023. 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.
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GAAP to Non-GAAP Reconciliation
For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation December 26, 2020 December 28, 2019
(in thousands, except per share amounts)
GAAP net income (loss) attributable to Central Garden & Pet Company $ 5,613  $ (4,417)
Incremental expenses from note redemption and issuance (1) 9,952  — 
Loss on sale of business (2) 2,611  — 
Tax effect of incremental expenses and loss on sale (2,470) — 
Non-GAAP net income (loss) attributable to Central Garden & Pet Company $ 15,706  $ (4,417)
GAAP diluted net income (loss) per share $ 0.10  $ (0.08)
Non-GAAP diluted net income (loss) per share $ 0.29  $ (0.08)
Shares used in GAAP and non-GAAP diluted net earnings per share calculation 54,686  54,755 

Organic Net Sales Reconciliation

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

GAAP to Non-GAAP Reconciliation
For the Three Months Ended December 26 2020
Consolidated Pet Segment Garden Segment
Percent change Percent change Percent change
(in millions)
Reported net sales - Q1 FY21 (GAAP) $ 592.2  $ 436.4  $ 155.8 
Reported net sales - Q1 FY20 (GAAP) 482.8  366.6  116.2 
Increase in net sales 109.4  22.7  % 69.8  19.0  % 39.6  34.1  %
Effect of acquisition and divestitures on increase in net sales 1.6  1.9  (0.3)
Increase in organic net sales - Q1 FY21 $ 111.0  23.0  % $ 71.7  19.6  % $ 39.3  33.8  %

EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
For the Three Months Ended December 26, 2020
Garden Pet Corp Total
(in thousands)
Net income attributable to Central Garden & Pet Company —  —  —  $ 5,613 
     Interest expense, net —  —  —  20,769 
     Other income —  —  —  (752)
     Income tax expense —  —  —  1,381 
     Net income attributable to noncontrolling interest —  —  —  29 
          Sum of items below operating income —  —  —  21,427 
Income (loss) from operations $ 4,651  $ 43,525  $ (21,136) $ 27,040 
Depreciation & amortization 2,638  9,085  1,192  12,915 
EBITDA $ 7,289  $ 52,610  $ (19,944) $ 39,955 

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EBITDA Reconciliation GAAP to Non-GAAP Reconciliation
For the Three Months Ended December 28, 2019
Garden Pet Corp Total
(in thousands)
Net loss attributable to Central Garden & Pet Company $ (4,417)
     Interest expense, net 8,637 
     Other income (305)
     Income tax benefit (1,728)
     Net loss attributable to noncontrolling interest (122)
          Sum of items below operating income 6,482 
Income (loss) from operations $ (6,883) $ 28,737  $ (19,789) $ 2,065 
Depreciation & amortization 2,713  9,072  1,355  13,140 
EBITDA $ (4,170) $ 37,809  $ (18,434) $ 15,205 

Inflation
Our revenues and margins are dependent on various economic factors, including rates of inflation, energy costs, consumer attitudes toward discretionary spending, currency fluctuations, and other macro-economic factors which may impact levels of consumer spending. In certain fiscal periods, we have been adversely impacted by rising input costs related to domestic inflation, particularly relating to grain and seed prices, fuel prices and the ingredients used in our garden controls and fertilizer. Rising costs in those periods have made it difficult for us to increase prices to our retail customers at a pace sufficient to enable us to maintain margins.
During fiscal 2020 and in the first quarter of fiscal 2021, commodity costs as well as freight and labor costs increased. In fiscal 2020, tariffs implemented during the year did have a negative impact in instances where we were unable to pass through the incremental costs.
Weather and Seasonality
Our sales of lawn and garden products are influenced by weather and climate conditions in the different markets we serve. Our Garden segment’s business is highly seasonal. In fiscal 2020, approximately 67% of our Garden segment’s net sales and 57% of our total net sales occurred during our second and third fiscal quarters. Substantially all of the Garden segment’s operating income is typically generated in this period, which has historically offset the operating loss incurred during the first fiscal quarter of the year.
Liquidity and Capital Resources
We have financed our growth through a combination of internally generated funds, bank borrowings, supplier credit, and sales of equity and debt securities to the public.
Our business is seasonal and our working capital requirements and capital resources track closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. During the third fiscal quarter, inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season. During the fourth fiscal quarter, inventory levels are at their lowest, and accounts receivable and payables are substantially reduced through conversion of receivables to cash.
We service two broad markets: pet supplies and lawn and garden supplies. Our pet supplies businesses involve products that have a year round selling cycle with a slight degree of seasonality. As a result, it is not necessary to maintain large quantities of inventory to meet peak demands. Our lawn and garden businesses are highly seasonal with approximately 67% of our Garden segment’s net sales occurring during the second and third fiscal quarters. This seasonality requires the shipment of large quantities of product well ahead of the peak consumer buying periods. To encourage retailers and distributors to stock large quantities of inventory, industry practice has been for manufacturers to give extended credit terms and/or promotional discounts.
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Operating Activities
Net cash used by operating activities increased by $18.1 million, from $18.0 million for the three months ended December 28, 2019, to $36.1 million for the three months ended December 26, 2020. The increase in cash used was due primarily to changes in our working capital accounts for the period ended December 26, 2020, as compared to the prior year period, primarily an increase in inventory, due to our seasonal build in preparation for the lawn and garden season and the overall increased demand for our products.
Investing Activities
Net cash used in investing activities increased $83.0 million, from $10.4 million for the three months ended December 28, 2019 to $93.4 million during the three months ended December 26, 2020. The increase in cash used in investing activities was due primarily to acquisition activity in the current year and increased capital expenditures in the current year compared to the prior year, partially offset by proceeds received from the sale of our Breeder's Choice business during the first quarter of fiscal 2021. During the first quarter of fiscal 2021, we acquired DoMyOwn for approximately $81 million.
Financing Activities
Net cash provided by financing activities increased $108.4 million, from $24.0 million of cash used for the three months ended December 28, 2019, to $84.4 million of cash provided for the three months ended December 26, 2020. The increase in cash provided by financing activities during the current year was due primarily to the issuance of $500 million of our 2030 Notes, 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 issuance of the 2030 Notes. There were also decreased open market purchases of our common stock during the current year period as compared to the prior year. During the three months ended December 26, 2020, we did not make any open market purchases of our common stock. During the three months ended December 28, 2019, we repurchased approximately 0.1 million shares of our voting common stock (CENT) at an aggregate cost of approximately $1.7 million, or approximately $26.63 per share, and 0.8 million shares of our non-voting Class A common stock (CENTA) at an aggregate cost of approximately $20.4 million, or approximately $26.69 per share.
We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $400 million asset backed revolving credit facility. Based on our anticipated cash needs, availability under our asset backed revolving credit facility and the scheduled maturity of our debt, we believe that our sources of liquidity should be adequate to meet our working capital, capital spending and other cash needs for at least the next 12 months. However, we cannot assure you that these sources will continue to provide us with sufficient liquidity and, should we require it, that we will be able to obtain financing on terms satisfactory to us, or at all.
We believe that cash flows from operating activities, funds available under our asset backed loan facility, and arrangements with suppliers will be adequate to fund our presently anticipated working capital and capital expenditure requirements for the foreseeable future. We anticipate that our capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in our continued implementation of a scalable enterprise-wide information technology platform, will be approximately $75 million in fiscal 2021, of which we have invested approximately $15 million year to date.
As part of our growth strategy, we have acquired a number of companies in the past, and we anticipate that we will continue to evaluate potential acquisition candidates in the future. If one or more potential acquisition opportunities, including those that would be material, become available in the near future, we may require additional external capital. In addition, such acquisitions would subject us to the general risks associated with acquiring companies, particularly if the acquisitions are relatively large.
Total Debt
At December 26, 2020, our total debt outstanding was $789.0 million, as compared with $693.4 million at December 28, 2019.
Senior Notes
Issuance of $500 million 4.125% Senior Notes due 2030 and Redemption of $400 million 6.125% Senior Notes due 2023
In October 2020, we issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). In November 2020, we used a portion of the net proceeds to redeem all of our outstanding 6.125% senior notes due November 2023 (the "2023 Notes") at a redemption price of 101.531% plus accrued and unpaid interest, and to pay related fees and expenses, with the remainder for general corporate purposes.
We incurred approximately $8.0 million of debt issuance costs associated with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2030 Notes.
As a result of our redemption of the 2023 Notes, we incurred a call premium payment of $6.1 million, overlapping interest expense for 30 days of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized deferred financing costs related to the 2023 Notes. These amounts are included in interest expense in the condensed consolidated statements of operations.
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The 2030 Notes require semiannual interest payments on October 15 and April 15, commencing April 15, 2021. The 2030 Notes are unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries which are borrowers under or guarantors of our senior secured revolving credit facility or guarantee our other debt.
We may redeem some or all of the 2030 Notes at any time, at our option, prior to October 15, 2025 at a price equal to 100% of the principal amount plus a “make-whole” premium. Prior to October 15, 2023, we may redeem up to 40% of the original aggregate principal amount of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. We may redeem some or all of the 2030 Notes, at our option, in whole or in part, at any time on or after October 15, 2025 for 102.063%, on or after October 15, 2026 for 101.375%, on or after October 15, 2027 for 100.688% and on or after October 15, 2028 for 100.0%, plus accrued and unpaid interest.
The holders of the 2030 Notes have the right to require us to repurchase all or a portion of the 2030 Notes at a purchase price equal to 101.0% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2030 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of December 26, 2020.
$300 Million 5.125% Senior Notes due 2028
On December 14, 2017, we issued $300 million aggregate principal amount of 5.125% senior notes due February 2028 (the "2028 Notes"). We used the net proceeds from the offering to finance acquisitions and for general corporate purposes.
We incurred approximately $4.8 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2028 Notes.
The 2028 Notes require semiannual interest payments on February 1 and August 1. The 2028 Notes are unconditionally guaranteed on a senior basis by our existing and future domestic restricted subsidiaries who are borrowers under or guarantors of our senior secured revolving credit facility or who guarantee the 2030 Notes.
We may redeem some or all of the 2028 Notes at any time, at our option, prior to January 1, 2023 at the principal amount plus a “make whole” premium. We may redeem some or all of the 2028 Notes, at our option, at any time on or after January 1, 2023 for 102.563%, on or after January 1, 2024 for 101.708%, on or after January 1, 2025 for 100.854% and on or after January 1, 2026 for 100.0%, plus accrued and unpaid interest.
The holders of the 2028 Notes have the right to require us to repurchase all or a portion of the 2028 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control.
The 2028 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. We were in compliance with all financial covenants as of December 26, 2020.
Asset-Based Loan Facility Amendment
On September 27, 2019, we entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement dated April 22, 2016 and continues to provide up to a $400.0 million principal amount senior secured asset-based revolving credit facility, with up to an additional $200 million principal amount available with the consent of the Lenders, as defined, if we exercise the accordion feature set forth therein (collectively, the “Amended Credit Facility”). The Amended Credit Facility matures on September 27, 2024. We may borrow, repay and reborrow amounts under the Amended Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.
The Amended Credit Facility is subject to a borrowing base that is calculated using a formula initially based upon eligible receivables and inventory minus certain reserves and adjustments. The Amended Credit Facility also allows us to add real property to the borrowing base so long as the real property is subject to a first priority lien in favor of the Administrative Agent for the benefit of the Lenders. Net availability under the Amended Credit Facility was $400 million as of December 26, 2020. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and an increased $40 million sublimit for short-notice borrowings. We incurred approximately $1.6 million of debt issuance costs in conjunction with this transaction, which included underwriter fees and legal expenses. The debt issuance costs are being amortized over the term of the Amended Credit Facility. As of December 26, 2020, there were no borrowings outstanding and no letters of credit outstanding under the Credit Facility. There were other letters of credit of $2.4 million outstanding as of December 26, 2020.
Borrowings under the Amended Credit Facility bear interest at an index based on LIBOR or, at our option, the Base Rate (defined as the highest of (a) the SunTrust prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month LIBOR plus 1.00%), plus, in either case, an applicable margin based on our consolidated senior leverage ratio and (d) 0.00%. Such applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of December 26, 2020, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0.00% as of December 26, 2020. An unused line fee shall be payable monthly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable
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margin on the average undrawn and unreimbursed amount of letters of credit shall be payable monthly and a facing fee of 0.125% shall be paid on demand for the stated amount of each letter of credit. We are also required to pay certain fees to the administrative agent under the Amended Credit Facility. As of December 26, 2020, the applicable interest rate related to Base Rate borrowings was 3.3%, and the applicable interest rate related to LIBOR-based borrowings was 1.1%.
Banks currently reporting information used to set LIBOR will stop doing so after 2021. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. We are monitoring their efforts, and we will likely amend contracts to accommodate any replacement rate where it is not already provided. Our Amended Credit Facility already anticipates the potential loss of LIBOR and defines procedures for establishing a replacement rate.
In July 2017, the Financial Conduct Authority in the United Kingdom, the governing body responsible for regulating LIBOR, announced that it no longer will compel or persuade financial institutions and panel banks to make LIBOR submissions after 2021. This decision is expected to result in the end of the use of LIBOR as a reference rate for commercial loans and other indebtedness. We have both LIBOR-denominated and Euro Interbank Offer Rate (EURIBOR)-denominated indebtedness. The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not believe that the impact would be material to us, we do not yet have insight into what the impacts might be.
The Amended Credit Facility continues to contain customary covenants, including financial covenants which require us to maintain a minimum fixed charge coverage ratio of 1.00:1.00 upon triggered quarterly testing (e.g. 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. We were in compliance with all financial covenants under the Credit Facility during the period ended December 26, 2020.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities
In October 2020, Central (the "Parent/Issuer") issued $500 million of 2030 Notes and in November 2020, we redeemed our $400 million of 2023 Notes at price of 101.531% plus accrued and unpaid interest. In December 2017, Central issued $300 million of 2028 Notes. The 2030 Notes and 2028 Notes are fully and unconditionally guaranteed on a joint and several senior basis by each of our existing and future domestic restricted subsidiaries (the "Guarantors") which are borrowers under or guarantors of our senior secured revolving credit facility ("Credit Facility"). The 2030 Notes and 2028 Notes are unsecured senior obligations and are subordinated to all of our existing and future secured debt, including our Credit Facility, to the extent of the value of the collateral securing such indebtedness. There are no significant restrictions on the ability of the Guarantors to make distributions to the Parent/Issuer. Certain subsidiaries and operating divisions of the Company do not guarantee the 2030 or 2028 Notes and are referred to as the Non-Guarantors.
The Guarantors jointly and severally, and fully and unconditionally, guarantee the payment of the principal and premium, if any, and interest on the 2030 and 2028 Notes when due, whether at stated maturity of the 2030 and 2028 Notes, by acceleration, call for redemption or otherwise, and all other obligations of the Company to the holders of the 2030 and 2028 Notes and to the trustee under the indenture governing the 2030 and 2028 Notes (the "Guarantee"). The Guarantees are senior unsecured obligations of each Guarantor and are of equal rank with all other existing and future senior indebtedness of the Guarantors.
The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such Guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law.
The Guarantee of a Guarantor will be released:
(1) upon any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation), in accordance with the governing indentures, to any person other than the Company;
(2) if such Guarantor merges with and into the Company, with the Company surviving such merger;
(3) if the Guarantor is designated as an Unrestricted Subsidiary; or
(4) if the Company exercises its legal defeasance option or covenant defeasance option or the discharge of the Company's obligations under the indentures in accordance with the terms of the indentures.
The following tables present summarized financial information of the Parent/Issuer subsidiaries and the Guarantor subsidiaries. All intercompany balances and transactions between subsidiaries under Parent/Issuer and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Parent/Issuer's interests in the Guarantor Subsidiaries. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.


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Summarized Statements of Operations
Three Months Ended Fiscal Year Ended
December 26, 2020 September 26, 2020
Parent/Issuer Guarantors Parent/Issuer Guarantors
(in thousands)
Net sales $ 202,760  $ 374,499  $ 839,425  $ 1,720,279 
Gross profit $ 44,825  $ 118,602  $ 195,893  $ 555,616 
Income (loss) from operations $ (5,236) $ 37,003  $ 2,724  $ 187,114 
Equity in earnings of Guarantor subsidiaries $ 29,889  $ —  $ 148,349  $ — 
Net income (loss) $ (20,955) $ 29,889  $ (33,326) $ 148,349 



Summarized Balance Sheet Information
As of As of
December 26, 2020 September 26, 2020
Parent/Issuer Guarantors Parent/Issuer Guarantors
(in thousands)
Current assets $ 873,199  $ 603,166  $ 900,416  $ 560,919 
Intercompany receivable from Non-guarantor subsidiaries 121,397  61,511  36,329  61,595 
Other assets 2,069,449  1,605,206  $ 2,042,206  $ 1,631,167 
Total assets $ 3,064,045  $ 2,269,883  $ 2,978,951  $ 2,253,681 
Current liabilities $ 175,722  $ 232,309  $ 170,378  $ 247,810 
Long-term debt 788,921  —  693,956  — 
Other liabilities 1,066,864  101,783  1,095,288  101,912 
Total liabilities $ 2,031,507  $ 334,092  $ 1,959,622  $ 349,722 

Off-Balance Sheet Arrangements
There have been no material changes to the information provided in our Annual Report on Form 10-K for the fiscal year ended September 26, 2020 regarding off-balance sheet arrangements.
Contractual Obligations
Except as discussed in Note 8. Long Term Debt, related to our issuance of 2030 Notes and redemption of 2023 Notes, there have been no material changes outside the ordinary course of business in our contractual obligations set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended September 26, 2020.
New Accounting Pronouncements
Refer to Footnote 1 in the notes to the condensed consolidated financial statements for new accounting pronouncements.
Critical Accounting Policies, Estimates and Judgments
There have been no material changes to our critical accounting policies, estimates and assumptions or the judgments affecting the application of those accounting policies since our Annual Report on Form 10-K for the fiscal year ended September 26, 2020.
Item 3.     Quantitative and Qualitative Disclosures About Market Risk

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


Item 4.    Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and principal financial officer have reviewed, as of the end of the period covered by this report, the “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) that ensure that information relating to the Company required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported in a timely and proper manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon this review, such officers concluded that our disclosure controls and procedures were effective as of December 26, 2020.
(b) Changes in Internal Control Over Financial Reporting. Our management, with the participation of our Chief Executive Officer and our principal financial officer have evaluated whether any change in our internal control over financial reporting occurred during the first quarter of fiscal 2021. There were no other changes in our internal control over financial reporting during the first quarter of fiscal 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings

In 2012, Nite Glow Industries, Inc and its owner, Marni Markell, (“Nite Glow”) filed suit in the U.S. District Court for New Jersey against the Company alleging that the applicator developed and used by the Company for certain of its branded topical flea and tick products infringes a patent held by Nite Glow and asserted related claims for breach of contract and misappropriation of confidential information based on the terms of a Non-Disclosure Agreement. On June 27, 2018, a jury returned a verdict in favor of Nite Glow on each of the three claims and awarded damages of approximately $12.6 million. The court ruled on post-trial motions in early June 2020, reducing the judgment amount to $12.4 million and denying the plaintiff's request for attorneys' fees. The Company has filed its notice of appeal and the plaintiffs have cross-appealed. The Company intends to vigorously pursue its rights on appeal and believes that it will prevail on the merits. While the Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter may result in expense to the Company in excess of management's expectations.
From time to time, we are involved in certain legal proceedings in the ordinary course of business. Except as discussed above, we are not currently a party to any other legal proceedings that management believes would have a material effect on our financial position or results of operations.


Item 1A.    Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended September 26, 2020.
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

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

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Period Total Number of Shares (or Units) Purchased Average
Price Paid
per Share
(or Units)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)(2)
September 27, 2020 - October 31, 2020 1,786 
(3)
$ 36.73  —  $ 100,000,000 
November 1, 2020 - November 28, 2020 3,844 
(3)
$ 35.65  —  $ 100,000,000 
November 29, 2020 - December 26, 2020 4,264 
(3)
$ 37.16  —  $ 100,000,000 
Total 9,894  $ 36.50  —  $ 100,000,000  (4)
(1)During the fourth quarter of fiscal 2019, our Board of Directors authorized a $100 million share repurchase program, (the "2019 Repurchase Authorization"). The 2019 Repurchase Authorization has no fixed expiration date and expires when the amount authorized has been used or the Board withdraws its authorization. The repurchase of shares may be limited by certain financial covenants in our credit facility that restrict our ability to repurchase our stock. As of December 26, 2020, we had $100 million of authorization remaining under our 2019 Repurchase Authorization.
(2)In February 2019, our Board of Directors authorized us to make supplemental stock purchases to minimize dilution resulting from issuances under our equity compensation plans (the "Equity Dilution Authorization"). In addition to our regular share repurchase program, we are permitted to purchase annually a number of shares equal to the number of shares of restricted stock and stock options granted in the prior fiscal year, to the extent not already repurchased, and the current fiscal year. The Equity Dilution Authorization has no fixed expiration date and expires when the Board withdraws its authorization.
(3)Shares purchased during the period indicated represent withholding of a portion of shares to cover taxes in connection with the vesting of restricted stock and do not reduce the dollar value of shares that may be purchased under our stock repurchase plan.
(4)Excludes 1.0 million shares remaining under our Equity Dilution Authorization as of December 26, 2020.

Item 3.    Defaults Upon Senior Securities
Not applicable

Item 4.    Mine Safety Disclosures
Not applicable

Item 5.    Other Information
Not applicable

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