Central Garden & Pet Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill

Goodwill

12 Months Ended

Sep. 25, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the carrying amount of goodwill for the fiscal years ended September 25, 2021, September 26, 2020 and September 28, 2019:


	Garden Products Segment		Pet Products Segment		Total
	(in thousands)
Balance as of September 29, 2018
Goodwill	$	226,471	$	464,267	$	690,738
Accumulated impairment losses	(213,583)		(195,978)		(409,561)
	12,888		268,289		281,177
Additions in fiscal 2019	—		4,900		4,900
Balance as of September 28, 2019
Goodwill	226,471		469,167		695,638
Accumulated impairment losses	(213,583)		(195,978)		(409,561)
	12,888		273,189		286,077
Additions in fiscal 2020	—		3,878		3,878
Balance as of September 26, 2020
Goodwill	226,471		473,045		699,516
Accumulated impairment losses	(213,583)		(195,978)		(409,561)
	12,888		277,067		289,955
Additions in fiscal 2021	79,436		—		79,436
Balance as of September 25, 2021
Goodwill	305,907		473,045		778,952
Accumulated impairment losses	(213,583)		(195,978)		(409,561)
	$	92,324	$	277,067	$	369,391

Additions or reductions to goodwill include acquisitions, sale of businesses, purchase price adjustments and adjustments of amounts upon finalization of purchase accounting.

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.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimate of fair value of each of the Company’s reporting units is based on the Company’s projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies. The Company bases its fair value estimates on assumptions the Company believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Assumptions critical to the Company’s fair value estimates were: (i) discount rates used in determining the fair value of the reporting units; (ii) estimated future cash flows; and (iii) projected revenue and operating profit growth rates used in the reporting unit models. Actual results may differ from those estimates. The valuations employ present value techniques to measure fair value and consider market factors.

In connection with the Company’s annual goodwill impairment testing performed during fiscal 2021 and 2020, the Company made a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of its reporting units under the goodwill impairment test. The Company completed its qualitative assessment of potential goodwill impairment in

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