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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 24, 2022
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-20221224_g1.jpg
Central Garden & Pet Company
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 classTrading Symbol(s)Name of each exchange on which registered
Common StockCENTThe NASDAQ Stock Market LLC
Class A Common StockCENTAThe 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 filerýAccelerated 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 25, 202311,237,135 
Class A Common Stock Outstanding as of January 25, 202341,165,880 
Class B Stock Outstanding as of January 25, 20231,602,374 



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
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, projected cost savings, capital expenditures, financing needs, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries and markets 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 examination of historical operating trends, 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 24, 2022, 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:
 
•high inflation, rising interest rates, a potential recession and other adverse macro-economic conditions, including any impact that could result if the U.S. government were to default on its debt obligations;
•fluctuations in market prices for seeds and grains and other raw materials;
2
Table of Contents
•our inability to pass through cost increases in a timely manner;
•fluctuations in energy prices, fuel and related petrochemical costs;
•declines in consumer spending and increased inventory risk during economic downturns;
•our ability to successfully manage the continuing 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 that benefited from the COVID-19 pandemic, including the potential for reduced orders as retailers work through excess inventory;
•adverse weather conditions;
•the success of our Central to Home strategy;
•risks associated with our acquisition strategy, including our ability to successfully integrate acquisitions and the impact of purchase accounting on our financial results;
•potential restructuring activities to improve long-term profitability;
•supply chain delays and disruptions resulting in lost sales, reduced fill rates and service levels and delays in expanding capacity and automating processes;
•seasonality and fluctuations in our operating results and cash flow;
•supply shortages in pet birds, small animals and fish;
•dependence on a small number of customers for a significant portion of our business;
•consolidation trends in the retail industry;
•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;
•impacts of tariffs or a trade war;
•access to and cost of additional capital;
•potential goodwill or intangible asset impairment;
•our dependence upon our key executives;
•our ability to recruit and retain new members of our management team to support our growing businesses and to hire and retain employees;
•our inability to protect our trademarks and other proprietary rights;
•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 possibility our effective tax rate will increase as a result of future changes in the corporate tax rate or other tax law changes.

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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 24, 2022December 25, 2021September 24, 2022
ASSETS
Current assets:
Cash and cash equivalents$87,800 $296,038 $177,442 
Restricted cash14,745 12,913 14,742 
Accounts receivable (less allowances of $26,115, $27,937 and $26,246)
329,129 343,659 376,787 
Inventories, net1,024,359 844,899 938,000 
Prepaid expenses and other56,590 34,213 46,883 
Total current assets1,512,623 1,531,722 1,553,854 
Plant, property and equipment, net396,675 340,133 396,979 
Goodwill546,436 369,391 546,436 
Other intangible assets, net534,207 130,190 543,210 
Operating lease right-of-use assets184,351 169,709 186,344 
Other assets54,777 576,896 55,179 
Total$3,229,069 $3,118,041 $3,282,002 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$194,159 $244,826 $215,681 
Accrued expenses179,231 225,062 201,783 
Current lease liabilities49,353 43,051 48,111 
Current portion of long-term debt296 411 317 
Total current liabilities423,039 513,350 465,892 
Long-term debt1,186,649 1,185,057 1,186,245 
Long-term lease liabilities145,261 132,174 147,724 
Deferred income taxes and other long-term obligations150,676 58,560 147,429 
Equity:
Common stock, $0.01 par value: 11,250,162, 11,335,658 and 11,296,351 shares outstanding at December 24, 2022, December 25, 2021 and September 24, 2022
113 113 113 
Class A common stock, $0.01 par value: 41,175,036, 42,205,761 and 41,336,223 shares outstanding at December 24, 2022, December 25, 2021 and September 24, 2022
412 422 413 
Class B stock, $0.01 par value: 1,602,374, 1,612,374 and 1,612,374 shares outstanding at December 24, 2022, December 25, 2021 and September 24, 2022
16 16 16 
Additional paid-in capital585,127 578,917 582,056 
Retained earnings740,549 650,032 755,253 
Accumulated other comprehensive loss(3,363)(1,273)(4,145)
Total Central Garden & Pet Company shareholders’ equity1,322,854 1,228,227 1,333,706 
Noncontrolling interest590 673 1,006 
Total equity1,323,444 1,228,900 1,334,712 
Total$3,229,069 $3,118,041 $3,282,002 
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 24, 2022December 25, 2021
Net sales$627,663 $661,398 
Cost of goods sold 455,964 463,202 
Gross profit171,699 198,196 
Selling, general and administrative expenses171,293 171,982 
Operating income406 26,214 
Interest expense(14,469)(14,484)
Interest income693 76 
Other income (expense)1,699 (209)
Income (loss) before income taxes and noncontrolling interest(11,671)11,597 
Income tax (benefit) expense (2,822)2,401 
Income (loss) including noncontrolling interest(8,849)9,196 
Net income (loss) attributable to noncontrolling interest(416)187 
Net income (loss) attributable to Central Garden & Pet Company$(8,433)$9,009 
Net income (loss) per share attributable to Central Garden & Pet Company:
Basic$(0.16)$0.17 
Diluted$(0.16)$0.16 
Weighted average shares used in the computation of net income (loss) per share:
Basic52,478 53,491 
Diluted52,478 54,909 
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 24, 2022December 25, 2021
Income (loss) including noncontrolling interest$(8,849)$9,196 
Other comprehensive income (loss):
Foreign currency translation782 (442)
Total comprehensive income (loss)(8,067)8,754 
Comprehensive income (loss) attributable to noncontrolling interest(416)187 
Comprehensive income (loss) attributable to Central Garden & Pet Company$(7,651)$8,567 
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 24, 2022December 25, 2021
Cash flows from operating activities:
Net income (loss)$(8,849)$9,196 
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization21,692 20,202 
Amortization of deferred financing costs675 640 
Non-cash lease expense12,738 11,405 
Stock-based compensation6,577 5,187 
Debt extinguishment costs— 169 
Deferred income taxes3,260 2,737 
Other operating activities(35)(70)
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable48,062 41,508 
Inventories(84,689)(159,932)
Prepaid expenses and other assets(11,620)(3,635)
Accounts payable(16,107)1,150 
Accrued expenses(23,049)(9,790)
Other long-term obligations(5)(53)
Operating lease liabilities(11,952)(11,172)
Net cash used by operating activities(63,302)(92,458)
Cash flows from investing activities:
Additions to plant, property and equipment(17,698)(24,210)
Investments(250)(1,918)
Net cash used in investing activities(17,948)(26,128)
Cash flows from financing activities:
Repayments of long-term debt(88)(767)
Repurchase of common stock, including shares surrendered for tax withholding(9,341)(7,775)
Payment of contingent consideration liability(7)(89)
Distribution to noncontrolling interest— (806)
Payment of financing costs— (2,153)
Net cash used by financing activities(9,436)(11,590)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1,047 (395)
Net decrease in cash, cash equivalents and restricted cash(89,639)(130,571)
Cash, cash equivalents and restricted cash at beginning of period192,184 439,522 
Cash, cash equivalents and restricted cash at end of period$102,545 $308,951 
Supplemental information:
Cash paid for interest$19,907 $19,750 
New operating lease right of use assets$11,022 $15,616 
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 24, 2022
(Unaudited)
1.     Basis of Presentation
The condensed consolidated balance sheets of Central Garden & Pet Company and subsidiaries (the “Company” or “Central”) as of December 24, 2022 and December 25, 2021, the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income and the condensed consolidated statements of cash flows for the three months ended December 24, 2022 and December 25, 2021 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 businesses in the United Kingdom and Canada, 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 subsidiaries 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 24, 2022 are not necessarily 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 Annual Report on Form 10-K for the fiscal year ended September 24, 2022, which has previously been filed with the Securities and Exchange Commission. The September 24, 2022 balance sheet presented herein was derived from the audited financial statements.
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 condensed consolidated statements of operations. See Note 7, 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 24, 2022, December 25, 2021 and September 24, 2022, respectively.
December 24, 2022December 25, 2021September 24, 2022
(in thousands)
Cash and cash equivalents$87,800 $296,038 $177,442 
Restricted cash14,745 12,913 14,742 
Total cash, cash equivalents and restricted cash$102,545 $308,951 $192,184 

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 information to estimate expected credit losses over the lives of the Company’s trade accounts receivable.

The Company maintains an allowance for credit losses related to its trade accounts receivable associated with future expected credit losses resulting from the inability of its customers to make required payments. The Company estimates the allowance based upon historical bad debts, current customer receivable balances and the customer’s financial condition. The allowance is adjusted to reflect changes in current and forecasted macroeconomic conditions. The Company’s estimate of credit losses includes expected current and future economic and market conditions.
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Revenue Recognition
Revenue Recognition and Nature of Products and Services

The Company manufactures, markets and distributes a wide variety of 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 (approximately one percent of consolidated net sales) comprising 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. 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 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.

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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
Recently Issued Accounting Updates
There are no recent accounting pronouncements that are anticipated to have a material impact on the Company's 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 Company's financial assets and liabilities measured at fair value on a recurring basis consist of contingent consideration within Level 3 of the fair value hierarchy. Such amounts are not material for all periods presented.
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 24, 2022 and December 25, 2021, the Company was not required to measure any significant non-financial assets and liabilities at fair value.
Fair Value of Other Financial Instruments
In April 2021, the Company issued $400 million aggregate principal amount of 4.125% senior notes due April 2031 (the "2031 Notes"). The estimated fair value of the Company's 2031 Notes as of December 24, 2022, December 25, 2021 and September 24, 2022 was $329.6 million, $400.1 million and $327.6 million, respectively, compared to a carrying value of $395.0 million, $394.4 million and $394.8 million, respectively.
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 24, 2022, December 25, 2021 and September 24, 2022 was $420.9 million, $504.3 million and $407.6 million, respectively, compared to a carrying value of $493.8 million, $493.0 million and $493.6 million, respectively.
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 24, 2022, December 25, 2021 and September 24, 2022 was $281.7 million, $314.4 million and $272.2 million, respectively, compared to a carrying value of $297.6 million, $297.1 million and $297.5 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.

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3.     Inventories, net
Inventories, net of allowance for obsolescence, consist of the following:
December 24, 2022December 25, 2021September 24, 2022
(in thousands)
Raw materials$296,929 $250,822 $266,695 
Work in progress140,769 100,933 99,842 
Finished goods543,971 469,819 528,481 
Supplies42,690 23,325 42,982 
Total inventories, net$1,024,359 $844,899 $938,000 

4.    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. The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations, legal and regulatory environments and historical performance. If it is determined that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, it is unnecessary to perform the quantitative goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative test is performed to identify potential goodwill impairment. Based on certain circumstances, the Company may elect to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test, which compares the estimated fair value of our reporting units to their related carrying values, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than its carrying value, and an impairment charge is recognized for the differential. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of its two reporting units to the Company’s total market capitalization. No impairment of goodwill was recorded for the three months ended December 24, 2022 and December 25, 2021.
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5.    Other Intangible Assets

The following table summarizes the components of gross and net acquired intangible assets:
GrossAccumulated
Amortization		Accumulated
Impairment		Net
Carrying
Value
 (in millions)
December 24, 2022
Marketing-related intangible assets – amortizable$22.1 $(20.9)$— $1.2 
Marketing-related intangible assets – nonamortizable252.5 — (26.0)226.5 
Total274.6 (20.9)(26.0)227.7 
Customer-related intangible assets – amortizable416.4 (125.4)(2.5)288.4 
Other acquired intangible assets – amortizable39.7 (27.6)— 12.2 
Other acquired intangible assets – nonamortizable7.1 — (1.2)5.9 
Total46.8 (27.6)(1.2)18.1 
Total other intangible assets, net$737.8 $(173.9)$(29.8)$534.2 
 GrossAccumulated
Amortization		Accumulated
Impairment		Net
Carrying
Value
 (in millions)
December 25, 2021
Marketing-related intangible assets – amortizable$22.1 $(19.4)$— $2.6 
Marketing-related intangible assets – nonamortizable70.6 — (26.0)44.6 
Total92.7 (19.4)(26.0)47.2 
Customer-related intangible assets – amortizable143.6 (78.3)(2.5)62.8 
Other acquired intangible assets – amortizable37.2 (22.9)— 14.3 
Other acquired intangible assets – nonamortizable7.1 — (1.2)5.9 
Total44.3 (22.9)(1.2)20.2 
Total other intangible assets, net$280.6 $(120.6)$(29.8)$130.2 
 GrossAccumulated
Amortization		Accumulated
Impairment		Net
Carrying
Value
 (in millions)
September 24, 2022
Marketing-related intangible assets – amortizable$22.1 $(20.5)$— $1.5 
Marketing-related intangible assets – nonamortizable252.5 — (26.0)226.5 
Total274.6 (20.5)(26.0)228.0 
Customer-related intangible assets – amortizable416.4 (117.8)(2.5)296.1 
Other acquired intangible assets – amortizable39.7 (26.6)— 13.2 
Other acquired intangible assets – nonamortizable7.1 — (1.2)5.9 
Total46.8 (26.6)(1.2)19.1 
Total other intangible assets, net$737.8 $(164.9)$(29.8)$543.2 
Other acquired intangible assets include contract-based and technology-based 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 24, 2022, and accordingly, no impairment testing was performed on these assets.
The Company amortizes its acquired intangible assets with definite lives over periods ranging from two years to 25 years; over weighted average remaining lives of two years for marketing-related intangibles, 12 years for customer-related intangibles and six years for
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other acquired intangibles. Amortization expense for intangibles subject to amortization was approximately $9.0 million and $4.2 million for the three months ended December 24, 2022 and December 25, 2021, 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 $35 million per year from fiscal 2023 through fiscal 2025 and $26 million per year from fiscal 2026 through fiscal 2027.
.
6.    Long-Term Debt
Long-term debt consists of the following:
December 24, 2022December 25, 2021September 24, 2022
 (in thousands)
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
500,000 500,000 500,000 
Senior notes, interest at 4.125%, payable semi-annually, principal due April 2031
400,000 400,000 400,000 
Unamortized debt issuance costs(13,645)(15,523)(14,116)
Net carrying value1,186,355 1,184,477 1,185,884 
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 December 2026.
— — — 
Other notes payable 590 991 678 
Total1,186,945 1,185,468 1,186,562 
Less current portion(296)(411)(317)
Long-term portion$1,186,649 $1,185,057 $1,186,245 
Senior Notes
Issuance of $400 million 4.125% Senior Notes due 2031
On April 30, 2021, the Company issued $400 million aggregate principal amount of 4.125% senior notes due April 2031 (the "2031 Notes"). The Company used a portion of the net proceeds from the offering to repay all outstanding borrowings under its Amended Credit Facility, with the remainder used for general corporate purposes.
The Company incurred approximately $6 million of debt issuance costs in conjunction with this issuance, which included underwriter fees and legal, accounting and rating agency expenses. The debt issuance costs are being amortized over the term of the 2031 Notes.
The 2031 Notes require semi-annual interest payments on April 30 and October 30. The 2031 Notes are unconditionally guaranteed on a senior basis by each of the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of Central's Amended Credit Facility. The 2031 Notes were issued in a private placement under Rule 144A and will not be registered under the Securities Act of 1933.
The Company may redeem some or all of the 2031 Notes at any time, at its option, prior to April 30, 2026 at the principal amount plus a "make whole" premium. At any time prior to April 30, 2024, the Company may also redeem, at its option, up to 40% of the notes with the proceeds of certain equity offerings at a redemption price of 104.125% of the principal amount of the notes. The Company may redeem some or all of the 2031 Notes at the Company’s option, at any time on or after April 30, 2026 for 102.063%, on or after April 30, 2027 for 101.375%, on or after April 30, 2028 for 100.688% and on or after April 30, 2029 for 100.0%, plus accrued and unpaid interest.
The holders of the 2031 Notes have the right to require the Company to repurchase all or a portion of the 2031 Notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest, upon the occurrence of specific kinds of changes of control.
The 2031 Notes contain customary high yield covenants, including covenants limiting debt incurrence and restricted payments, subject to certain baskets and exceptions. The Company was in compliance with all financial covenants as of December 24, 2022.

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Issuance of $500 million 4.125% Senior Notes due 2030
In October 2020, the Company issued $500 million aggregate principal amount of 4.125% senior notes due October 2030 (the "2030 Notes"). 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 used 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.
The 2030 Notes require semiannual interest payments on October 15 and April 15. The 2030 Notes are unconditionally guaranteed on a senior basis by each of the Company's existing and future domestic restricted subsidiaries which are borrowers under or guarantors of the Company's senior secured revolving credit facility or guarantee the Company'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 24, 2022.
$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 the Company's senior secured revolving credit facility, or which guarantee the Company's other debt.
The Company may redeem some or all of the 2028 Notes at any time, at its option, prior to January 1, 2024 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, 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 24, 2022.
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Asset-Based Loan Facility Amendment
On December 16, 2021, the Company entered into a Third Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement amended and restated the previous credit agreement dated September 27, 2019 (the "Predecessor Credit Agreement"), and provides for a $750 million principal amount senior secured asset-based revolving credit facility, with up to an additional $400 million principal amount available with the consent of the Lenders, as defined, if the Company exercises the uncommitted accordion feature set forth therein (collectively, the “Amended Credit Facility”). The Amended Credit Facility matures on December 16, 2026. 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 based upon eligible receivables and inventory, and at the Company's election, eligible real property, minus certain reserves. Proceeds of the Amended Credit Facility will be used for general corporate purposes. At December 24, 2022, the Company's applicable borrowing base calculation supported access to approximately $538 million under the Amended Credit Facility. The Amended Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $75 million sublimit for short-notice borrowings. As of December 24, 2022, there were no borrowings outstanding and no letters of credit outstanding under the Amended Credit Facility. There were other letters of credit of $1.6 million outstanding as of December 24, 2022.
Borrowings under the Amended Credit Facility will bear interest at an index based on LIBOR (which will not be less than 0.00%) or, at 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 Truist prime rate, (b) the Federal Funds Rate plus 0.50%, (c) one-month LIBOR plus 1.00% and (d) 0.00%. The applicable margin for LIBOR-based borrowings fluctuates between 1.00%-1.50%, and was 1.00% as of December 24, 2022, and such applicable margin for Base Rate borrowings fluctuates between 0.00%-0.50%, and was 0% as of December 24, 2022. An unused line fee shall be payable quarterly in respect of the total amount of the unutilized Lenders’ commitments and short-notice borrowings under the Amended Credit Facility. Letter of credit fees at the applicable margin on the average undrawn and unreimbursed amount of letters of credit shall be payable quarterly and a facing fee of 0.125% shall be payable quarterly for the stated amount of each letter of credit. The Company is also required to pay certain fees to the administrative agent under the Amended Credit Facility. The Amended Credit Facility provides for the transition from LIBOR to Secured Overnight Financing Rate ("SOFR") and does not require an amendment in connection with such transition. As of December 24, 2022, the applicable interest rate related to Base Rate borrowings was 7.5%, and the applicable interest rate related to one-month LIBOR-based borrowings was 5.4%.
The Company incurred approximately $2.4 million of debt issuance costs in conjunction with this transaction, which included lender fees and legal expenses. The debt issuance costs are being amortized over the term of the 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 1:1 upon triggered quarterly testing (e.g. when availability falls below certain thresholds established in the agreement), reporting requirements and events of default. The Amended Credit Facility is secured by substantially all assets of the borrowing parties, including (i) pledges of 100% of the stock or other equity interest of each domestic subsidiary that is directly owned by such entity and (ii) 65% of the stock or other equity interest of each foreign subsidiary that is directly owned by such entity, in each case subject to customary exceptions. The Company was in compliance with all financial covenants under the Amended Credit Facility as of December 24, 2022.


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7.    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 24, 2022 and December 25, 2021.
Controlling Interest
Common
Stock		Class A
Common
Stock		Class
B
Stock		Additional
Paid In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		TotalNoncontrolling
Interest		Total
(in thousands)
Balance September 24, 2022$113 $413 $16 $582,056 $755,253 $(4,145)$1,333,706 $1,006 $1,334,712 
Comprehensive loss— — — — (8,433)782 (7,651)(416)(8,067)
Amortization of share-based awards— — — 4,647 — — 4,647 — 4,647 
Restricted share activity, including net share settlement— — — (590)— — (590)— (590)
Issuance of common stock, including net share settlement of stock options— 1 — 1,707 — — 1,708 — 1,708 
Repurchase of stock— (2)— (2,693)(6,271)— (8,966)— (8,966)
Balance December 24, 2022$113 $412 $16 $585,127 $740,549 $(3,363)$1,322,854 $590 $1,323,444 

 Controlling Interest  
Common StockClass A Common StockClass B StockAdditional Paid In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)TotalNoncontrolling InterestTotal
(in thousands)
Balance September 25, 2021$113 $423 $16 $576,446 $646,082 $(831)$1,222,249 $1,292 $1,223,541 
Comprehensive income— — — — 9,009 (442)8,567 187 8,754 
Amortization of share-based awards— — — 3,886 — — 3,886 — 3,886 
Restricted share activity, including net share settlement— — — (705)— — (705)— (705)
Repurchase of stock— (1)— (1,600)(5,059)— (6,660)— (6,660)
Issuance of common stock, including net share settlement of stock options— — — 890 — — 890 — 890 
Distribution to Noncontrolling interest— — — — — — — (806)(806)
Balance December 25, 2021$113 $422 $16 $578,917 $650,032 $(1,273)$1,228,227 $673 $1,228,900 

 
8.    Stock-Based Compensation
The Company recognized share-based compensation expense of $6.6 million and $5.2 million for the three months ended December 24, 2022 and December 25, 2021, 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 24, 2022 and December 25, 2021 was $1.6 million and $1.2 million, respectively.
 
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9.    Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income (loss) from continuing operations.
Three Months Ended
December 24, 2022
IncomeSharesPer Share
(in thousands, except per share amounts)
Basic EPS:
     Net loss available to common shareholders$(8,433)52,478 $(0.16)
Effect of dilutive securities (1):
     Options to purchase common stock— — — 
     Restricted shares— — — 
     Performance stock units— — — 
Diluted EPS:
     Net loss available to common shareholders$(8,433)52,478 $(0.16)
(1) The potential effects of stock awards were excluded from the diluted earnings per share calculation for the three months ended December 24, 2022, because their inclusion in a loss period would be anti-dilutive to the earnings per share calculation.
Three Months Ended
December 25, 2021
IncomeSharesPer Share
(in thousands, except per share amounts)
Basic EPS:
     Net income available to common shareholders$9,009 53,491 $0.17 
Effect of dilutive securities:
     Options to purchase common stock— 632 — 
     Restricted shares— 786 (0.01)
Diluted EPS:
     Net income available to common shareholders$9,009 54,909 $0.16 

Options to purchase 2.1 million shares of Class A common stock at prices ranging from $21.37 to $51.37 per share were outstanding at December 24, 2022, and options to purchase 2.6 million shares of Class A common stock at prices ranging from $13.82 to $51.37 per share were outstanding at December 25, 2021.

For the three months ended December 24, 2022 and December 25, 2021, approximately 0.5 million and 21 thousand options outstanding, respectively, 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 24, 2022, 0.3 million options outstanding, 0.7 million restricted shares and 0.1 million performance stock units were excluded from 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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10.    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 the Pet segment and the Garden segment. Substantially all of the Company's assets and operations relate to its business in the United States. Financial information relating to the Company's business segments is presented in the table below.

 
 Three Months Ended
 December 24, 2022December 25, 2021
(in thousands)
Net sales:
Pet segment$415,820 $436,002 
Garden segment211,843 225,396 
Total net sales$627,663 $661,398 
Operating income (loss)
Pet segment39,555 45,251 
Garden segment(10,820)6,057 
Corporate(28,329)(25,094)
Total operating income406 26,214 
Interest expense - net(13,776)(14,408)
Other income (expense)1,699 (209)
Income tax (benefit) expense (2,822)2,401 
Income (loss) including noncontrolling interest(8,849)9,196 
Net income (loss) attributable to noncontrolling interest(416)187 
Net income (loss) attributable to Central Garden & Pet Company$(8,433)$9,009 
Depreciation and amortization:
Pet segment$10,112 $9,549 
Garden segment10,842 9,620 
Corporate738 1,033 
Total depreciation and amortization$21,692 $20,202 
 
December 24, 2022December 25, 2021September 24, 2022
(in thousands)
Assets:
Pet segment$1,041,944 $992,788 $1,069,167 
Garden segment1,472,102 1,417,011 1,405,802 
Corporate715,023 708,242 807,033 
Total assets$3,229,069 $3,118,041 $3,282,002 
Goodwill (included in corporate assets above):
Pet segment$277,067 $277,067 $277,067 
Garden segment269,369 92,324 269,369 
Total goodwill$546,436 $369,391 $