CENTRAL GARDEN & PET COMPANY, 10-K, 2000-12-29

CENTRAL GARDEN & PET COMPANY
10-K, 2000-12-29
MISCELLANEOUS NONDURABLE GOODS

Previous: ZOLL MEDICAL CORPORATION, 10-K405, EX-27.1, 2000-12-29

Next: CENTRAL GARDEN & PET COMPANY, 10-K, EX-12, 2000-12-29

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended Commission File Number
September 30, 2000 0-20242

CENTRAL GARDEN & PET COMPANY
(Exact name of registrant as specified in its charter)

Delaware 68-0275553
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

___________________________

3697 Mt. Diablo Boulevard, Lafayette, California 94549
(Address of principal executive offices) (Zip Code)
Telephone Number: (925) 283-4573

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of Each Exchange
on Which Registered
Title of Each Class -------------------
------------------- None
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock
------------
(Title of Class)

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. Yes X . No______.
-----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

At December 22, 2000, the aggregate market value of the registrant's Common
Stock and Class B Stock held by non-affiliates of the registrant was
approximately $114,034,833 and $401,473, respectively.

At December 22, 2000, the number of shares outstanding of registrant's Common
Stock was 16,683,171. In addition, on such date the registrant had outstanding
1,656,462 shares of its Class B Stock which is convertible into Common Stock on
a share-for-share basis.

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Company's 2001 Annual Meeting of
Stockholders - Part III of this Form 10-K.
<PAGE>

Central Garden & Pet Company
Index to Annual Report on Form 10-K
For the fiscal year ended September 30, 2000

<TABLE>
<CAPTION>
Page
----

PART I
<S> <C>
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 13
Item 3. Legal Proceedings............................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................... 15
Item 6. Selected Financial Data...................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.................................... 29
Item 8. Financial Statements and Supplementary Data.................................................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 55

PART III

Item 10. Directors and Executive Officers of the Registrant........................................... 55
Item 11. Executive Compensation....................................................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 55
Item 13. Certain Relationships and Related Transactions............................................... 55

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 55
</TABLE>

2
<PAGE>

PART I

Item 1. Business

GENERAL

Overview

Central Garden & Pet Company offers a broadening array of branded lawn and
garden and pet supply products, including Pennington(R), Four Paws(R),
Zodiac(R), Kaytee(R), Nylabone(R), All-Glass(R), Lofts(R), Max-Q(R), Norcal
Pottery(R), Matthews(R), Amdro(R), Image(R) and Grant's(R). In the year ended
September 30, 2000 ("fiscal 2000"), Central's operations were grouped into three
business segments, the lawn and garden branded products business ("Garden
Products"), the pet branded products business ("Pet Products") and the
distribution business ("Distribution"). For fiscal 2000, Garden Products, Pet
Products and Distribution accounted for 30%, 18% and 52%, respectively, of
consolidated net sales. These businesses accounted for income (loss) from
operations before other charges and the allocation of certain corporate costs
and eliminations of $51.3 million, $32.7 million and $(12.1) million,
respectively, in fiscal 2000. These segments, their products, and the markets
they serve are described under the headings "The Garden Products Business," "The
Pet Products Business" and "The Distribution Business" in this Part I.

Central was incorporated in Delaware in June 1992 and is the successor to a
California corporation which was incorporated in 1955. References to "we,"
"us," "our" or "Central" mean Central Garden & Pet Company and its subsidiaries
and divisions, and their predecessor companies and subsidiaries. Our principal
executive offices are located at 3697 Mt. Diablo Boulevard, Lafayette,
California 94549 and our telephone number is (925) 283-4573.

Recent Developments

Acquisitions

On September 30, 2000, Central acquired All-Glass Aquarium Co., Inc., a
leading manufacturer and marketer of aquariums and related products. Based in
Franklin, Wisconsin, All-Glass had sales of approximately $61 million for the
twelve months ended September 30, 2000, with manufacturing facilities located in
Franklin and its Oceanic Systems subsidiary in Dallas, Texas. Its brands include
All-Glass Aquarium(R) and Oceanic Systems(R).

In March 2000, Central acquired the AMDRO(R) and IMAGE(R) consumer product
lines from American Cyanamid, the agricultural products division of American
Home Products Corporation. AMDRO and IMAGE had sales of approximately $14
million for the twelve months ended September 30, 2000. AMDRO(R) Fire Ant Bait
is the leading fire ant bait product available in the consumer market. IMAGE(R)
Consumer Concentrate is a selective herbicide for the control of difficult weeds
in Southern turf, such as nutsedge, dollarweed, wild onion and garlic, Virginia
buttonweed and others. Both products are sold primarily in the Southern and
Southeastern markets and are carried by key retailers including Wal-Mart, Home
Depot, Ace and Lowe's.

In March 2000, Central's Norcal Pottery Products, Inc. subsidiary acquired
White's Pottery, L.P., an importer and distributor of terra cotta pottery
products, which has a facility in Houston, Texas. White's Pottery had sales of
approximately $5 million for the twelve months ended September 30, 2000. White's
Pottery's customers include Wal-Mart and large home improvement stores such as
Home Depot, as well as regional chains and independent stores.

In January 2000, Central's Pennington subsidiary acquired Unicorn
Laboratories. Unicorn serves the U.S. animal health and lawn and garden
industries as a private label and branded manufacturer of lawn, garden and
animal health chemical products. Unicorn had sales of approximately $14 million
for the twelve months ended September 30, 2000.

In January 2000, Central's Pennington subsidiary acquired an equity stake in
Cedar Works, a manufacturer of bird feeders. Based in Ohio, Cedar Works had
sales of approximately $23 million for the twelve months ended September 30,
2000. Cedar Works is the largest producer of wooden bird feeders in the country.
Its brands include Country Home(R), Nature's Market(TM), Cedar Works(R), Harvest
Landing(TM), and The Address of Distinction(R).

3
<PAGE>

Termination of Scotts Distribution Relationship

Effective September 30, 2000, The Scotts Company discontinued its distribution
relationship with Central. The affected products included Scotts(R), Ortho(R)
and Miracle-Gro(R) products and consumer Roundup(R) products manufactured by
Pharmacia Corporation (formerly known as Monsanto Company) for which Scotts acts
as Pharmacia's exclusive sales agent. For Central's fiscal year ended September
30, 2000, the revenue attributable to the affected products was approximately
$176 million. Central has taken steps to downsize its lawn and garden
distribution operations to reflect the reduced business levels which it
anticipates for the fiscal year 2001. Scotts and Pharmacia have each initiated
litigation against Central arising out of the prior distribution relationship.
In addition, Central has filed suit against Scotts and Pharmacia seeking damages
and injunctive relief as well as restitution for, among other things, breach of
contract and violations of the antitrust laws by Scotts and Pharmacia. For
further information, please see "The Distribution Business - Expiration of the
Solaris Agreement and Termination of Our Distribution Relationship with Scotts."
and "Item 3. Legal Proceedings."

Corporate Reorganization

On December 19, 2000, Central announced that it had reorganized its garden and
pet businesses and cancelled the previously announced spin-off of its garden
distribution business. Under the reorganization, Central's garden products and
distribution businesses will become one operating unit, while its pet products
and distribution businesses will become another operating unit.

Share Repurchase Program

In August 1998, Central announced the commencement of a stock repurchase
program. As of December 8, 2000, Central had repurchased approximately 13.7
million shares of its common stock for an aggregate price of approximately
$143.8 million under this program.

THE GARDEN PRODUCTS BUSINESS

Overview

Garden Products manufactures a broadening array of proprietary branded lawn
and garden products, including Pennington(R), Amdro(R), Norcal Pottery(R),
Lofts(R), Matthews(R) and Grant's(R). Garden Products accounted for 30% of
Central's consolidated net sales before corporate eliminations in fiscal 2000,
24% in fiscal 1999 and 17% in fiscal 1998, and before the allocation of certain
corporate costs and eliminations accounted for income from operations before
other charges of $51.3 million in fiscal 2000, $40.6 million in fiscal 1999, and
$26.2 million in fiscal 1998. As a result of both acquisitions and internal
expansion, Garden Products has grown rapidly from sales of approximately $13
million in fiscal 1997 to approximately $439 million in fiscal 2000 and
increased the number of manufacturing facilities from one in 1990 to 14
currently.

Proprietary Branded Products

The principal lawn and garden product lines are the Pennington line of grass
seed, wild bird food and lawn care products, the Norcal Pottery line of pottery
products, the Amdro and Grant's line of ant control products, the Matthews line
of wooden garden products, and seven proprietary brands of fertilizer.

Pennington. Pennington offers a broad range of seed products in the lawn and
garden, forage, and wild game and bird markets. Pennington is also a large
manufacturer of lawn and garden chemicals, fertilizers, soils and related
products. The Pennington line of grass seed and lawn and garden products
includes the trademarks Pennington Seed(R), Pennington(R), Penkoted(R), Max-
Q(R), ProCare(R), Green Charm(R), Lofts(R) and Rebel. Pennington products are
offered nationwide and include:

. Grass Seed. Pennington manufactures numerous varieties and blends of
cool and warm season turf grass for both the residential and
professional markets, as well as forage and wild game seed varieties
under the Pennington name and under private labels, including
Wal*Mart's Better Homes and Gardens(R) licensed program. The
Pennington grass seed manufacturing facilities are some of the largest
and most modern seed

4
<PAGE>

conditioning facilities in the industry. Pennington has recently added
Lofts(R) and Rebel products to its offerings.

. Bird Seed Products. Pennington is one of the largest manufacturers of
wild bird feed including premium, specialty and gourmet mixes.
Pennington also manufactures liquid hummingbird food.

. Lawn and Garden Chemicals. Pennington manufactures a full line of lawn
and garden weed and insect control products, under the names
Eliminator(R), ProCare(R) and Pennington's Pride(R). Eliminator(R)
lawn and garden insecticides and herbicides are packaged exclusively
for Wal*Mart.

. Fertilizers and Soil Products. Pennington manufactures several lines
of lawn and garden fertilizers, including granular products and liquid
plant foods, under several brands, including Pennington(R) and other
private and controlled labels. In addition, Pennington's Earth Pak(R)
division also offers a complete line of soil, mulch and rock products
under several brands, including Pennington and other private and
controlled labels.

Norcal Pottery. Norcal Pottery designs and procures pottery products from
across the United States and around the world. The products include terra cotta,
stoneware, ceramics and porcelain pots and are sold to chain store accounts,
independent retailers and landscapers nationwide. Since the Company's
acquisition of Norcal and White's, the Norcal and White's lines of products have
been expanded into Pennington's logistics and sales network.

AMBRANDS. AMBRANDS manufactures AMDRO(R) Fire Ant Bait, the leading fire ant
bait product available in the consumer market, and IMAGE(R) Consumer
Concentrate, a selective herbicide for the control of difficult weeds in
Southern turf, such as nutsedge, dollarweed, wild onion and garlic, Virginia
buttonweed and others. Both products are sold primarily in the Southern and
Southeastern markets and are carried by key retailers including Wal-Mart, Home
Depot, Ace and Lowe's.

Grant's. Grant's manufactures ant baits, animal repellents and garden aid
products. The Grant's line of ant control products consists of Grant's ant baits
and granules. These products are sold nationwide through a network of lawn and
garden distributors.

Unicorn Laboratories. Unicorn serves the U.S. animal health and lawn and
garden industries as a private label and branded manufacturer of lawn, garden
and animal health chemical products.

Matthews Four Seasons. Matthews(R) manufactures a complete line of wooden
garden products, including planters, barrel fountains, arbors and trellises.
Matthews(R) also produces a cedar bird feeder line under the Kaytee(R) label.

Cedar Works. Pennington has an equity stake in Cedar Works, the largest
producer of wooden bird feeders in the country. Its brands include Country
Home(R), Nature's Market(R), Cedar Works(R), Harvest Landing(R), and The Address
of Distinction(R). In fiscal 2000, Cedar Works introduced their first injection
molded plastic bird feeders to complement their wooden feeder lines.

Fertilizers. Central has four proprietary brands of fertilizer -- Colorado's
Own(R) and Mountain States(R), which are manufactured by the Company, and Easy-
Gro(R) and Turf-Magic(R), which are supplied to Central by contract
manufacturers. In addition, Gro Tec, Inc., a subsidiary of Pennington, markets
fertilizers under Pennington(R), Pro Care(R), Green Charm(R) and other
proprietary brands.

Sales and Marketing

Garden Products' lawn and garden products are sold by approximately 110 sales
personnel to a network of lawn and garden and hardware wholesale distributors
nationwide. Most products are sold directly to retailers. A significant portion
of Pennington's sales are made under the Eliminator(R) line of lawn and garden
chemical products, which is manufactured by Pennington exclusively for Wal*Mart.
Historically, Garden Products' sales have been highly seasonal. Most retail
sales of lawn and garden products occur on weekends during the spring and fall.

5
<PAGE>

Sales to mass merchandisers, warehouse-type clubs and home improvement centers
represent a significant portion of Garden Products' sales. Sales to Wal*Mart
represented approximately 42% of Garden Products' sales in fiscal 2000, 41% in
fiscal 1999 and 42% in fiscal 1998. Sales to Lowe's represented approximately
13% of Garden Products' sales in fiscal 2000, 10% in fiscal 1999 and 15% in
fiscal 1998.

Manufacturing

Garden Products currently operates 14 manufacturing facilities. In addition,
certain of its proprietary branded products are manufactured by contract
manufacturers. Garden Products also has a development team that is responsible
for developing new products within existing proprietary branded product lines
and the development of new proprietary branded product lines.

Pennington has seed processing facilities in Madison, Georgia; Greenfield,
Missouri; Roll, Arizona; El Centro, California; and Lebanon, Oregon to test,
process and package a full range of Pennington seed varieties. Pennington also
maintains observation nurseries at all manufacturing locations, enabling it to
track seed growth for Pennington quality prior to selection. Pennington's
fertilizer plant, Gro Tec(R), is located in Eatonton, Georgia. Pennington wild
bird feed is manufactured in Penn Pak(R) facilities in Madison, Georgia;
Greenfield, Missouri; and Sidney, Nebraska. In addition, Pennington's Earth
Pak(R) plant in Shady Dale, Georgia produces a variety of soil amendments,
including pine bark nuggets and potting soils used in landscaping.

Unicorn Laboratories, Inc. is located in Clearwater, Florida where it
manufactures and formulates a variety of lawn, garden and animal health
products. Grant's operates a manufacturing facility in San Leandro, California,
and Matthews operates a manufacturing facility in Stockton, California. Garden
Products also operates a fertilizer manufacturing facility in Longmont,
Colorado.

Purchasing

Most of the raw materials purchased by Garden Products are acquired from a
number of different suppliers; however, a number of items are purchased from
limited or single sources of supply, and disruption of these sources could have
a temporary adverse effect on product shipments and Garden Products' financial
results. Garden Products believes alternative sources could be obtained to
supply these materials, but a prolonged inability to obtain certain materials
could result in lost sales.

Pennington obtains grass seed from various sources, which it presently
considers to be adequate. No one source is considered to be essential to
Pennington or to Garden Products' business as a whole. Pennington has never
experienced a significant interruption of supply. The principal raw materials
required for Pennington's wild bird seed manufacturing operations are bulk
commodity grains, including millet, milo, wheat and sunflower seeds. Pennington
generally purchases these raw materials one to three months in advance. Raw
materials are generally purchased from large national commodity companies and
local grain cooperatives. In order to ensure an adequate supply of seed to
satisfy expected production volume, Pennington enters into contracts to purchase
grain and seed at future dates by fixing the quantity, and often the price, at
the commitment date.

The key ingredients in the Garden Products' fertilizer and insect and weed
control products are various commodity and specialty chemicals including
phosphates, urea, potash, herbicides, insecticides and fungicides. Garden
Products obtains its raw materials from various sources, which it presently
considers to be adequate. No one source is considered to be essential to any of
Garden Products' companies or to its business as a whole. Garden Products has
never experienced a significant interruption of supply.

Distribution

Garden Products currently operates 13 distribution centers throughout the
country. The primary distribution centers for Pennington's products are located
both near the point of manufacture and at strategically located warehousing
facilities. These facilities are located in Columbia, South Carolina; Cullman,
Alabama; Greenfield, Missouri; Madison, Georgia; Petersburg, Virginia; Hammond,
Louisiana; Little Rock, Arkansas; Woburn, Massachusetts; and Laurel, Maryland.
In addition, Pennington uses other outside agents and distributors, including,
but not limited to Distribution. Norcal Pottery operates distribution centers
in San Leandro, California; Richmond, California; Ontario, California; and

6
<PAGE>

Houston, Texas. Pennington's products are shipped by rail and truck. While the
majority of truck shipments are made by contract carriers, a portion is made by
Pennington's fleet of trucks.

Competition

The lawn and garden products industry is highly competitive. Garden Products'
lawn and garden products compete against national and regional products and
private label products produced by various suppliers. Our turf and forage grass
seed products compete principally against products by Barenburg, J.R. Simplott,
Scotts and numerous regional seed suppliers. Our wild bird seed products
compete principally against products by Audubon Park and Wagner. Our
fertilizers, pesticides and combination products compete principally against
products marketed by such companies as Scotts, Lebanon Chemical Corp., United
Industries Corporation, Vigoro/Pursell Industries and Bayer/Pursell. Garden
Products competes primarily on the basis of its strong brand names, quality,
value, service and price.

THE PET PRODUCTS BUSINESS

Overview

Pet Products is a leading manufacturer of proprietary branded pet supply
products, including FourPaws(R), Zodiac(R), Kaytee(R), All-Glass Aquarium(R),
Oceanic Systems(R), Island Aquarium(R), Nylabone(R), and TFH(R). Pet Products
accounted for 18% of Central's consolidated net sales before corporate
eliminations in fiscal 2000, 13% in fiscal 1999 and 14% in fiscal 1998, and
before the allocation of certain corporate costs and eliminations accounted for
income from operations of $32.7 million in fiscal 2000, $27.1 million in fiscal
1999, and $23.7 million in fiscal 1998. As a result of both acquisitions and
internal expansion, Pet Products has grown from net sales of approximately $47
million in fiscal 1997 to approximately $262 million in fiscal 2000, and
increased the number of manufacturing facilities from one in 1994 to eleven
currently.

Proprietary Branded Pet Products

Pet Products' principal pet supply product lines include the Four Paws' line
of animal products, the TFH line of pet books and Nylabone premium dog chews and
pet carriers, the Kaytee line of bird and small animal food, the Wellmark line
of flea and tick products, and the All-Glass(R), Oceanic Systems(R) and Island
Aquarium(R) line of aquariums.

Four Paws. Four Paws is one of the largest manufacturers of dog, cat, reptile
and small animal products in the United States, according to the 2000-01 Pet Age
Retailer Report. Four Paws products include Magic Coat(R) shampoos, Wee-Wee
Pads, a line of grooming supplies for dogs and cats, tie out cables, leashes,
collars, and accessories, oral hygiene products and a complete line of catnip
products. Four Paws also offers a line of heating equipment and bedding
material for reptiles and a line of hard rubber toys called Rough & Rugged.
Four Paws products are distributed throughout the United States, Canada, Europe
and Asia.

TFH Publications. TFH is the largest producer of pet books in the United
States, according to P.K. Data, and the manufacturer of premium dog chews and
edible bones under the brand names Nylabone(R), Gumabone(R), Healthy Edibles(R)
and Flexibone(R). TFH currently has over 1,200 titles in print and publishes
two monthly magazines and ten quarterly magazines. TFH also offers a line of
premium dog houses, pet carriers and dog and cat toys under the Nylabone(R)
brand.

Kaytee. Kaytee is one of the nation's largest manufacturers of bird seed for
caged and wild birds, according to the 2000-01 Pet Age Retailer Report, as well
as a manufacturer of food for small animals under the Kaytee(R) brand. Kaytee
also manufactures wild bird feed under the brand name Natures Harvest for Kmart
Corporation and under the PETsMART private label.

Wellmark. Wellmark is a leading manufacturer of flea, tick and pest
protection products for a diversified group of pest control markets, according
to the 2000-01 Pet Age Retailer Report. These products--which include on-animal
sprays, shampoos and powders, collars, indoor foggers, aerosols, concentrates
and pump-sprays--are based on the active ingredient methoprene. Wellmark owns
the Zodiac(R) and Vet-Kem(R) trademarks in the United States and Canada as well
as those of Ovitrol(R), Siphotrol(R), Fleatrol, vIGRen(R), Petcor(R), Precor(R)
and Natural Signature(R).

7
<PAGE>

All-Glass Aquarium and Island Aquarium. All-Glass Aquarium and Island
Aquarium manufacture aquariums, terrariums, aquatic lighting systems, and
aquarium and terrarium furniture sold under the brand names All-Glass
Aquarium(R), Oceanic Systems(R) and Island(R) Aquarium.

Sales and Marketing

Pet Products' branded products are sold nationwide through distribution
networks and directly to retailers, including national specialty pet stores,
mass merchants, bookstores and independent pet retailers. Wellmark also sells
products to the professional pest control market and veterinarians. At
September 30, 2000, Pet Products employed approximately 220 sales and marketing
personnel.

Sales to mass merchants and national specialty pet stores represented in
excess of 33% of Pet Products' sales in fiscal 2000. Sales to Petco represented
16% of Pet Products' sales in fiscal 2000, 9% in fiscal 1999 and 7% in fiscal
1998. Sales to PETsMART represented 15% of Pet Products' sales in fiscal 2000,
11% in fiscal 1999 and 10% in fiscal 1998.

Manufacturing

Pet Products currently operates eleven manufacturing facilities. In addition,
certain of its proprietary branded products are manufactured by contract
manufacturers. Pet Products also has a development team that is responsible for
developing new products within existing proprietary branded product lines and
the development of new proprietary branded product lines.

Four Paws operates manufacturing facilities in Hauppauge, New York, along with
its nylon division in Damascus, Ohio. TFH's book division and Nylabone
manufacturing facilities are located in Neptune City, New Jersey. Kaytee
operates manufacturing facilities in Abilene, Kansas, Chilton, Wisconsin,
Cressona, Pennsylvania and Rialto, California. Wellmark operates a
manufacturing and technology center in Dallas, Texas. All-Glass Aquarium
operates manufacturing facilities in Franklin, Wisconsin and Dallas, Texas.
Island Aquarium operates a manufacturing facility in Fontana, California.

Purchasing

Most of the raw materials purchased by Pet Products are acquired from a number
of different suppliers; however, some items, including the active ingredient
Methoprene, are purchased from limited or single sources of supply, and
disruption of these sources could have a temporary adverse effect on product
shipments and Pet Products' financial results. Pet Products believes
alternative sources could be obtained to supply these materials, but a prolonged
delay in obtaining certain materials could result in lost sales.

The principal raw materials required for Kaytee's bird seed manufacturing
operations are bulk commodity grains, including millet, milo, wheat and
sunflower seeds. Kaytee generally purchases these raw materials one to three
months in advance. Raw materials are generally purchased from large national
commodity companies and local grain cooperatives. In order to ensure an
adequate supply of seed to satisfy expected production volume, Kaytee enters
into contracts to purchase grain and seed at future dates by fixing the
quantity, and often the price, at the commitment date.

Distribution

Pet Products sells its products directly to retailers and a network of
distributors, including Distribution as well as independent distributors.

Competition

The pet supply products industry is highly competitive. Our branded pet
products compete against national and regional products and private label
products produced by various suppliers. Our Four Paws and Wellmark branded
products compete principally against branded products marketed by such companies
as Hartz Mountain, Sargeant's, Doskocil and Eight in One. TFH Publications' pet
books compete principally against books published by Howell and Barrons, and
Nylabone products compete principally against products manufactured by
Aspen/Booda and Doskocil. Our Kaytee products compete principally against
products marketed by Hartz Mountain, Sun Seed, Audobon Park and

8
<PAGE>

Wagner. Our All-Glass Aquarium and Island Aquarium branded products compete
principally against Perfecto. Pet Products competes primarily on the basis of
its strong brand names, innovative new products, quality, value, service and
price.

THE DISTRIBUTION BUSINESS

Overview

Distribution supports Central's lawn and garden and pet supply branded
products and also performs logistics and sales activities for a variety of other
manufacturers of lawn and garden and pet supply products. Distribution accounted
for 52% of Central's consolidated net sales before corporate eliminations in
fiscal 2000, 63% in fiscal 1999 and 69% in fiscal 1998, and before the
allocation of certain corporate costs and eliminations accounted for income
(loss) from operations before other charges of $(12.1) million in fiscal 2000,
$11.4 million in fiscal 1999 and $38.5 million in fiscal 1998. Distribution
currently operates 19 distribution centers.

Distributed Products

Distribution offers its customers a comprehensive selection of brand name lawn
and garden and pet supply products. Distribution generally focuses on those lawn
and garden brand name products that are suited to distribution due to their
seasonality, variable sales movements, complexity to consumers and retailers,
handling and transportation difficulties, and which therefore generally require
value-added services. Distribution does not carry live plants, power tools or
high priced items which are generally sourced directly from manufacturers.
Distribution also carries many of the best-known brands in pet foods and
supplies and combines these products into single shipments, providing its pet
supply customers a wide variety of products on a cost-effective basis. Through
the acquisition of Kenlin in 1996 and Country Pet Supply in 1997, Distribution
has significantly expanded its pet supply distribution business.

Sales and Marketing

Distribution's strategy is to offer a broad range of services to increase
sales and to help retailers and manufacturers maximize their sales and
profitability. At September 30, 2000, Distribution employed approximately 400
sales and marketing personnel located throughout its distribution center
network.

Distribution's largest customer is Wal*Mart, which accounted for approximately
23% of Distribution's net sales for fiscal 2000 and 22% in fiscal 1999 and 1998.
Distribution's second largest customer is Home Depot, which accounted for
approximately 4% of Distribution's net sales for fiscal 2000, 11% in fiscal 1999
and 10% in fiscal 1998. Subsequent to the fiscal 2000 year end, Wal*Mart
informed Distribution of a number of significant changes in its lawn and garden
supplies purchasing programs and procedures for the coming year. These include
Wal*Mart's decision to purchase certain lawn and garden supplies directly from a
number of manufacturers whose supplies had previously been sold through
Distribution; a change from "store door" deliveries of many of the lawn and
garden supplies formerly delivered by Distribution to individual Wal*Mart stores
to a new procedure whereby Distribution will ship these products to Wal*Mart
distribution centers; and Wal*Mart's decision not to have Central Distribution
personnel perform lawn and garden supplies merchandising functions inside
Wal*Mart stores. As a result of these factors, and the closing of 13
distribution centers associated with the Distribution downsizing, sales to
Wal*Mart in 2001 are expected to decline significantly. The Distribution
facility closures coupled with the absence of our distributing Scotts products
in 2001 has also adversely impacted other Distribution customer relationships,
which are expected to result in significant declines in sales within the lawn
and garden distribution operations in fiscal 2001.

Retailers

Distribution focuses on selling lawn and garden products to retailers with
high volume retail stores. Distribution's lawn and garden supply customer base
is comprised of a wide range of retailers, including "do-it-yourself"
superstores, mass merchants, warehouse clubs, high volume local and regional
nurseries and regional and national chains of drug and grocery stores.
Distribution also focuses on selling pet supply products to a wide variety of
retailers, including independent, regional and national retail chains.

9
<PAGE>

Most major retailers, including customers of Distribution, currently purchase
a portion of their lawn and garden products and pet supplies directly from
certain large manufacturers rather than through distributors such as
Distribution. Subsequent to the fiscal 2000 year end, Wal*Mart informed
Distribution of its decision to purchase certain lawn and garden supplies
directly from a number of manufacturers whose supplies had previously been sold
through Distribution, and of a change from "store door" deliveries of many of
the lawn and garden supplies formerly delivered by Distribution to individual
Wal*Mart stores to a new procedure whereby Distribution will ship these products
to Wal*Mart distribution centers. As a result of these changes, Distribution's
sales of lawn and garden products to Wal*Mart in 2001 are expected to decline
significantly. If a number of Distribution's other major customers were to
substantially change their purchasing and merchandising procedures similarly,
our sales and earnings could be adversely affected further.

Distribution's current practice on product returns generally is to accept and
credit the return of unopened cases of products from customers where the
quantity is small, the product has been misshipped or the product is defective.
Distribution has arrangements with its manufacturers and suppliers to stock
balance and/or credit it for a certain percentage of returned or defective
products.

Manufacturers and Suppliers

Distribution's menu of value-added services available to retailers includes
product promotion and merchandising support that it believes many manufacturers
and suppliers could not perform as efficiently. While Distribution purchases
products from approximately 1,000 different manufacturers and suppliers,
management believes that approximately 25% of its net sales for fiscal 2000 were
derived from products purchased from Scotts and approximately 43% and 41% of its
net sales for fiscal 1999 and fiscal 1998, respectively, were derived from
products purchased from Solaris. Scotts acquired Solaris in January 1999 and
discontinued its distribution relationship with Central as of September 30,
2000.

Expiration of the Solaris Agreement and Termination of our Distribution
Relationship with Scotts

From October 1, 1995 to September 30, 1999, Distribution sold Solaris
products nationwide, pursuant to an exclusive distribution agreement (the
"Solaris Agreement"). Management believes that the relationship with Solaris
embodied in the Solaris Agreement had a substantial positive impact on our
results of operations. In January 1999, Pharmacia Corporation (formerly known
as Monsanto Company) sold its Solaris lawn and garden business exclusive of its
Roundup(R) herbicide products for consumer use to Scotts and entered into a
separate, long-term, exclusive agreement pursuant to which Pharmacia continues
to make Roundup herbicide products for consumer use and Scotts markets the
products. Beginning October 1, 1999, Scotts began to distribute Ortho(R) and
Roundup(R) products through a system that involved a combination of
distributors, of which we were the largest, as well as through direct sales by
Scotts to certain major retailers. In addition, Scotts began to sell Miracle-
Gro(R) directly to certain retailers.

Effective September 30, 2000, Scotts discontinued its distribution
relationship with Central. The affected products included Scotts(R), Ortho(R)
and Miracle-Gro(R) products and consumer Roundup(R) products manufactured by
Pharmacia for which Scotts acts as Pharmacia's exclusive sales agent. For
Central's fiscal year ended September 30, 2000, the revenue attributable to the
affected products was approximately $176 million. The gross profit associated
with these sales in fiscal 2000 was estimated to be $27 million based on
historical customer profitability. We expect this loss of gross profit to be
partially offset in fiscal 2001 with expense reductions.

Due to the termination of the Scotts' distribution relationship and
anticipated sales declines, we have taken actions to downsize our lawn and
garden distribution operations to reflect anticipated business levels for the
fiscal year 2001. As a result, we have recorded charges of $27.5 million in the
fiscal year ending September 30, 2000 as described in "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Fiscal 2000
Compared with Fiscal 1999."

10
<PAGE>

and violations of the antitrust laws by Scotts and Pharmacia. Each of these
cases is in its early stage. For this reason and because of the uncertainties
inherent in complex litigation, it is not currently possible to make an
assessment of the potential impact, losses or gains that may arise out of these
cases individually or collectively. Central believes that the reconciliation of
all accounts and claims with Pharmacia and Scotts will not result in additional
charges to Central. Further, Central believes it has substantial counterclaims
and rights of offset against both Scotts and Pharmacia, as well as meritorious
defenses, and intends to vigorously contest both suits. However, Central cannot
assure you that the resolution of this litigation will not have a material
adverse effect on its results of operations, financial position and/or cash
flows.

Competition

The lawn and garden products and pet supply distribution industries are highly
competitive. Traditionally, these industries have been characterized by intense
competition from large numbers of smaller local and regional distributors--with
competition based on price, service and personal relationships. In addition to
competition from other distributors, Distribution also faces increased
competition from manufacturers and suppliers which distribute some percentage of
their products directly to retailers, bypassing distributors, or through a dual
distribution system in which the manufacturer or supplier competes with
distributors for sales to certain accounts. Such competition is typically based
on service and price. The termination of the Scotts distribution relationship
is a significant competitive disadvantage for Distribution.

MATTERS RELATING TO CENTRAL GENERALLY

Significant Customers

Wal*Mart represented approximately 25% of Central's sales in fiscal 2000 and
1999 and 23% in fiscal 1998. Wal*Mart holds significant positions in the retail
lawn and garden and pet supplies markets. Subsequent to the fiscal 2000 year
end, Wal*Mart informed Distribution of a number of significant changes in its
purchasing programs and procedures related to lawn and garden supplies for the
coming year. These include Wal*Mart's decision to purchase certain lawn and
garden supplies directly from a number of manufacturers whose supplies had
previously been sold through Distribution; a change from "store door" deliveries
of many of the lawn and garden supplies formerly delivered by Distribution to
individual Wal*Mart stores to a new procedure whereby Distribution will ship
these products to Wal*Mart distribution centers; and Wal*Mart's decision not to
have Central Distribution personnel perform lawn and garden supplies
merchandising functions inside Wal*Mart stores. As a result of these factors,
and the closing of 13 distribution centers associated with the Distribution
downsizing, Distribution's sales of lawn and garden supplies to Wal*Mart in 2001
are expected to decline significantly. The loss of Wal*Mart or a substantial
decrease in the remaining Wal*Mart business could have a material adverse effect
on Central's business.

Patent and Other Proprietary Rights

Central's branded products companies hold numerous patents in the United
States and in other countries, and have many patent applications pending in the
United States and in other countries. Central considers the development of
patents through creative research and the maintenance of an active patent
program to be advantageous in the conduct of its business, but does not regard
the holding of any particular patent as essential to its operations. Central
grants licenses to certain manufacturers on various terms and enters into cross-
licensing arrangements with other parties.

Employees

As of September 30, 2000, Central had approximately 4,200 employees of which
approximately 3,800 were full-time employees and 400 were temporary or part-time
employees. We hire substantial numbers of temporary employees for the peak lawn
and garden shipping season of February through June to meet the increased demand
experienced during the spring and summer months, including merchandising in
stores. All of our temporary employees are paid on an hourly basis. Except for
certain employees at TFH Publications, Inc. and a Kaytee facility in Rialto,
California, none of our employees is represented by a labor union. We consider
our relationships with our employees to be good.

11
<PAGE>

Environmental Considerations

Many of the products that we manufacture or distribute are subject to local,
state, federal and foreign laws and regulations relating to environmental
matters. Such regulations are often complex and are subject to change. In the
United States, all products containing pesticides must be registered with the
United States Environmental Protection Agency ("USEPA") (and in many cases,
similar state and/or foreign agencies) before they can be sold. The inability to
obtain or the cancellation of any such registration could have an adverse effect
on our business. The severity of the effect would depend on which products were
involved, whether another product could be substituted and whether our
competitors were similarly affected. We attempt to anticipate regulatory
developments and maintain registrations of, and access to, substitute chemicals,
but there can be no assurance that we will continue to be able to avoid or
minimize these risks. Fertilizer and growing media products are also subject to
state and foreign labeling regulations. Grass seed is also subject to state,
federal and foreign labeling regulations.

The Food Quality Protection Act, enacted by the U.S. Congress in August 1996,
establishes a standard for food-use pesticides, which is that a reasonable
certainty of no harm will result from the cumulative effect of pesticide
exposures. Under this Act, the USEPA is evaluating the cumulative risks from
dietary and non-dietary exposures to pesticides. The pesticides in our products,
which are also used on foods, will be evaluated by the USEPA as part of this
non-dietary exposure risk assessment. It is possible that the USEPA may decide
that a pesticide that we use in our products, would be limited or made
unavailable to us. We cannot predict the outcome or the severity of the effect
of the USEPA's evaluation. Management believes that we should be able to obtain
substitute ingredients if selected pesticides are limited or made unavailable,
but there can be no assurance that it will be able to do so for all products.

In addition, the use of certain pesticide and fertilizer products is regulated
by various local, state, federal and foreign environmental and public health
agencies. These regulations may include requirements that only certified or
professional users apply the product or that certain products be used only on
certain types of locations (such as "not for use on sod farms or golf courses"),
may require users to post notices on properties to which products have been or
will be applied, may require notification of individuals in the vicinity that
products will be applied in the future or may ban the use of certain
ingredients. We believe we are operating in substantial compliance with, or
taking action aimed at ensuring compliance with, these laws and regulations.
Compliance with these regulations and the obtaining of registrations does not
assure, however, that our products will not cause injury to the environment or
to people under all circumstances.

Environmental regulations may affect us by restricting the manufacturing or
use of our products or regulating their disposal. Regulatory or legislative
changes may cause future increases in our operating costs or otherwise affect
operations. Although we believe we are and have been in substantial compliance
with such regulations and have strict internal guidelines on the handling and
disposal of our products, there is no assurance that in the future we may not be
adversely affected by such regulations or incur increased operating costs in
complying with such regulations. However, neither the compliance with
regulatory requirements nor our environmental procedures can ensure that we will
not be subject to claims for personal injury, property damages or governmental
enforcement. For a discussion of potential environmental issues arising from a
fire in our Phoenix distribution facility, please see Item 3-Legal Proceedings.

EXECUTIVE OFFICERS

Certain information regarding the executive officers of the Company is set
forth below:

<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
William E. Brown........... 59 Chairman of the Board and Chief Executive Officer

Glenn W. Novotny........... 53 President, Chief Operating Officer and Director

Lee D. Hines, Jr........... 54 Vice President, Chief Financial Officer, Secretary and Director

Brooks M. Pennington III... 46 Chief Executive Officer of Pennington Seed, Inc. and Director
</TABLE>

William E. Brown has been Chairman and Chief Executive Officer of the Company
since 1980. From 1977 to 1980, Mr. Brown was Senior Vice President of the
Vivitar Corporation with responsibility for Finance, Operations, and Research &
Development. From 1972 to 1977, he was with McKesson Corporation where he was
responsible for its 200-site data

12
<PAGE>

processing organization. Prior to joining McKesson Corporation, Mr. Brown spent
the first 10 years of his business career at McCormick, Inc. in manufacturing,
engineering and data processing.

Glenn W. Novotny has been President of the Company since June 1990 and was
President of the predecessor Weyerhaeuser Garden Supply ("WGS") since 1988.
Prior thereto, he was with Weyerhaeuser Corporation for 20 years with a wide
range of managerial experience including manufacturing, accounting, strategic
planning, sales, general management and business turnarounds.

Lee D. Hines, Jr. has been the Chief Financial Officer and Secretary of the
Company since January 2000, a position he previously held from 1991 until 1993.
Mr. Hines began his business career with the Chase Manhattan Bank in New York as
a domestic and international lending officer and International Trade Specialist.
From 1978 to 1982, he served as Vice President Finance and Chief Financial
Officer of Vivitar Corporation. Following his tenure at Vivitar, Hines held the
position of Chief Financial Officer of Applause, Inc. until 1987. From 1988 to
1990, he served as President and Chief Executive Officer of International
Tropic-Cal, a designer, manufacturer and distributor of sunglasses and women's
hair accessories. From 1993 until January 2000, Mr. Hines was a self-employed
consultant.

Brooks M. Pennington III joined the Company in February 1998 when the Company
acquired Pennington. Mr. Pennington has been the President and Chief Executive
Officer of Pennington since June 1994.

Item 2. Properties

Central currently operates 25 manufacturing facilities totaling approximately
3,083,000 square feet and 32 distribution facilities totaling approximately
3,385,000 square feet. Most distribution centers consist of office and warehouse
space, and several large bays for loading and unloading. Each distribution
center provides warehouse, distribution, sales and support functions for its
geographic area under the supervision of a regional manager. Central's executive
offices are located in Lafayette, California.

The table below lists Central's Garden Products manufacturing and distribution
facilities:

Clearwater, FL Laurel, MD Roll, AZ *
Columbia, SC * Lebanon, OR * San Leandro, CA (2)
Cullman, AL * Little Rock, AR * Shady Dale, GA *
Eatonton, GA * Longmont, CO * Sidney, NE *
El Centro, CA * Madison, GA (3) * Stockton, CA
Greenfield, MO (3) * Ontario, CA Woburn, MA
Hammond, LA * Petersburg, VA *
Houston, TX Richmond, CA

* Company owned

The table below lists Central's Pet Products manufacturing facilities:

Abilene, KS* Damascus, OH Neptune City, NJ
Chilton, WI* Fontana, CA Rialto, CA*
Cressona, PA* Franklin, WI *
Dallas, TX (2)* Hauppauge, NY*

* Company owned

The table below lists Central's Distribution facilities:

Algona, WA Houston, TX Portland, OR (2)
Atlanta, GA Mahwah, NJ Sacramento, CA (2)
China Grove, NC Miami, FL Santa Fe Springs, CA (2)
Dallas, TX (2) New Orleans, LA Salt Lake City, UT
Denver, CO Orlando, FL Tampa, FL

13
<PAGE>

Central's leases generally expire between 2001 and 2008. Substantially all of
the leases contain renewal provisions with automatic rent escalation clauses.
In addition to the facilities that are owned, Central's fixed assets are
comprised primarily of trucks and warehousing, transportation and computer
equipment. Central currently operates a fleet of approximately 225 trucks most
of which are leased. During Central's peak season it rents additional trucks.

Item 3. Legal Proceedings

TFH Litigation. In December 1997, the Company acquired all of the stock of TFH
Publications, Inc. In connection with the transaction, the Company made a $10
million loan to the sellers, which was evidenced by a Promissory Note. In
September 1998, the prior owners of TFH brought suit against the Company and
certain executives of the Company for damages and relief from their obligations
under the Promissory Note, alleging, among other things, that the Company's
failure to properly supervise the TFH management team had jeopardized their
prospects of achieving the earnouts. The Company believes that these allegations
are without merit. The Company counterclaimed against the prior owners for
enforcement of the Promissory Note, damages and other relief, alleging, among
things, fraud, misrepresentation and breach of fiduciary duty by the prior
owners of TFH. These actions, Herbert R. Axelrod and Evelyn Axelrod v. Central
Garden & Pet Company; Glen S. Axelrod; Gary Hersch; William E. Brown; Robert B.
Jones; Glen Novotny; and Neill Hines, Docket No. MON-L-5100-99, and TFH
Publications, Inc. v. Herbert Axelrod et al., Docket No. L-2127-99 (consolidated
cases), are in the New Jersey Superior Court. There is no trial date at this
time.

During the course of discovery in this action, the Company has become aware of
certain information which suggests that prior to the acquisition of TFH by the
Company, certain records of TFH were prepared in an inaccurate manner which
resulted in underpayment of taxes by certain individuals. Those individuals
could be liable for back taxes, interest, and penalties. In addition, even
though all of the events occurred prior to the acquisition of TFH by the
Company, there is a possibility that TFH could be liable for penalties for
events which occurred under prior management. The Company believes that TFH has
strong defenses available to the assertion of any penalties against TFH. The
Company cannot predict whether TFH will be required to pay any such penalties.
In the event that TFH were required to pay penalties, the Company would seek
compensations from the prior owners.

The Company, based on consultation with legal counsel, does not believe that
the outcome of the above matters will have a material adverse impact on its
operations, financial position, or cash flows.

Scotts and Pharmacia Litigation. On June 30, 2000, The Scotts Company filed
suit against Central to collect the purchase price of certain lawn and garden
products previously sold to Central. Central has withheld payments to Scotts of
approximately $17 million on the basis of claims it has against Scotts -
including amounts due for services and goods previously supplied by Central and
not yet paid for by Scotts. This action, The Scotts Company v. Central Garden &
Pet Company, Docket No. C2 00-755, is in the United States District Court for
the Southern District of Ohio, Eastern Division. On July 3, 2000, Pharmacia
Corporation (formerly known as Monsanto Company) filed suit against Central
seeking an accounting and unspecified amounts allegedly due Pharmacia under the
four-year alliance agreement between Central and Pharmacia which expired in
September 1999, as well as damages for breach of contract. This action,
Pharmacia Corporation v. Central Garden & Pet Company, Docket No. 00CC-002253 Q
CV, is in the Circuit Court of St. Louis County, Missouri. Central has filed
motions in both the Scotts and Pharmacia actions to have those cases dismissed
or stayed. Central's motion in the Scotts action is still pending. In the
Pharmacia action, the court denied Central's motion to stay but granted
Central's request that Scotts be joined as a party.

Central believes that the reconciliation of all accounts and claims with
Pharmacia and Scotts will not result in additional charges to Central. Further,
Central believes it has substantial counterclaims and rights of offset against
both Scotts and Pharmacia, as well as meritorious defenses, and intends to
vigorously contest both suits. However, Central cannot assure you that the
resolution of this litigation will not have a material adverse effect on its
results of operations, financial position and/or cash flows.

On July 7, 2000, Central filed suit against Scotts and Pharmacia seeking
damages and injunctive relief as well as restitution for, among other things,
breach of contract and violations of the antitrust laws by Scotts and Pharmacia.
This action, Central Garden & Pet Company, a Delaware Corporation v. The Scotts
Company, an Ohio corporation; and Pharmacia Corporation, formerly known as
Monsanto Company, a Delaware corporation, Docket No. C 00 2465, is in the United
States District Court for the Northern District of California. On October 26,
2000, the federal district court issued an order denying, for the most part,
Pharmacia's motion to dismiss Central's federal antitrust claims. Central was

14
<PAGE>

given leave to file an amended federal complaint to clarify certain of its
allegations. Central filed a first amended complaint on November 14, 2000. The
federal district court's October 26 order also ruled that it did not have
jurisdiction over Central's state law claims and that such claims should be
adjudicated in a state court. On October 31, 2000, Central filed an action
entitled Central Garden & Pet Company v. The Scotts Company and Pharmacia
Corporation, Docket No. C00-04586 in Contra Costa Superior Court asserting
various state law claims, including the claims previously asserted in the
federal action.

Phoenix Fire. On August 2, 2000, a fire destroyed the Company's leased
warehouse space in Phoenix, Arizona, and an adjoining warehouse space leased by
a third party. The adjoining warehouse tenant, the building owner, and nearby
businesses have presented claims for property damage and business interruption.
Local residents have filed, but not yet served, a purported class action lawsuit
alleging claims for bodily injury and property damage as a result of the fire.
In addition, the Arizona Department of Environmental Quality is monitoring the
cleanup operations and has asked the Company, the building owner and the
adjoining warehouse tenant to submit a plan for assessing whether the fire and
fire suppression efforts may have caused environmental impacts to soil,
groundwater and/or surface water. The overall amount of the damages to all
parties caused by the fire, and the overall amount of damages which the Company
may sustain as a result of the fire, have not been quantified. At the time of
the fire, the Company maintained property insurance covering losses to the
leased premises, the Company's inventory and equipment, and loss of business
income. The Company also maintained insurance providing $51 million of coverage
(with no deductible) against third party liability. The Company believes that
this insurance coverage will be available with respect to third party claims
against the Company if parties other than the Company are not found responsible.
The precise amount of the damages sustained in the fire, the ultimate
determination of the parties responsible and the availability of insurance
coverage are likely to depend on the outcome of complex litigation, involving
numerous claimants, defendants and insurance companies.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

The Common Stock of the Company has been traded on the Nasdaq National Market
under the symbol CENT since the Company's initial public offering on July 15,
1993. The following table sets forth, for the periods indicated, the highest
and lowest closing sale prices for the Common Stock, as reported by the Nasdaq
National Market.

<TABLE>
<CAPTION>
Fiscal 1999 High Low
----- -----
<S> <C> <C>
First Quarter................................ 22.81 12.25
Second Quarter............................... 17.50 12.78
Third Quarter................................ 16.88 10.25
Fourth Quarter............................... 10.88 7.50
Fiscal 2000
First Quarter................................ 9.63 6.75
Second Quarter............................... 10.69 8.06
Third Quarter................................ 13.00 7.75
Fourth Quarter............................... 10.50 6.44
</TABLE>

As of September 30, 2000, there were approximately 143 holders of record of
the Company's Common Stock and 6 holders of record of the Company's Class B
Stock.

Central has not paid any cash dividends on its common stock in the past.
Central currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its common stock in the
foreseeable future. In addition, Central's line of credit restricts its ability
to pay dividends. See Note 5 of Notes to Consolidated Financial Statements.

15
<PAGE>

Item 6. Selected Financial Data

The following selected income statement and balance sheet data of Central as
of and for the fiscal years ended September 28, 1996, September 27, 1997,
September 26, 1998, September 25, 1999 and September 30, 2000 have been derived
from our audited consolidated financial statements. The financial data set
forth below should be read in conjunction with "Item 8 -Financial Statements and
Supplemental Data - Consolidated Financial Statements of the Company and related
Notes thereto and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------------
September 28, September 27, September 26, September 25, September 30,
1996 1997 1998 1999 2000
--------------- -------------- -------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales (1)(2)........................... $619,622 $839,498 $1,293,330 $1,534,523 $1,355,151
Cost of goods sold and occupancy (3)....... 535,189 694,925 1,009,143 1,187,722 1,010,106
-------- -------- ---------- ---------- ----------
Gross profit............................. 84,433 144,573 284,187 346,801 345,045
Selling, general and administrative
expenses (4).............................. 66,945 109,160 213,114 289,379 303,112
Other charges (3)(4)....................... - - 6,903 2,708 27,156
-------- -------- ---------- ---------- ----------
Income from operations..................... 17,488 35,413 64,170 54,714 14,777
Interest expense - net..................... (4,061) (6,554) (7,609) (12,087) (22,551)
Other income (2)........................... 1,038 1,509 1,534 1,106 1,176
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes.......... 14,465 30,368 58,095 43,733 (6,598)
Income tax expense......................... 6,017 12,765 24,402 19,243 5,215
-------- -------- ---------- ---------- ----------
Net income (loss).......................... $ 8,448 $ 17,603 $ 33,693 $ 24,490 $ (11,813)
======== ======== ========== ========== ==========
Net income (loss) per common share:
Basic..................................... $ 0.74 $ 1.11 $ 1.18 $ 0.90 $ (0.63)
Diluted................................... $ 0.71 $ 1.07 $ 1.15 $ 0.89 $ (0.63)
Weighted average shares
outstanding:
Basic..................................... 11,430 15,832 28,502 27,328 18,786
Diluted................................... 11,904 19,970 33,007 27,437 18,786

<CAPTION>
September 28, September 27, September 26, September 25, September 30,
1996 1997 1998 1999 2000
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................ $ 95,670 $253,926 $ 277,713 $ 169,628 $ 121,128
Total assets............................... 283,664 559,043 928,700 955,830 947,418
Short-term borrowings...................... 29,508 72 8,095 97,368 134,516
Long-term borrowings....................... 7,635 115,200 125,125 123,898 148,242
Shareholders' equity....................... 129,559 281,807 588,774 495,727 463,947
</TABLE>

----------------
(1) See Management's Discussion and Analysis of Financial Condition and Results
of Operations herein for a discussion of sales fluctuations related to
internal growth and business acquisitions for fiscal years 2000, 1999 and
1998.
(2) Reflects the reclassification of $1.5 million, $1.5 million, and $1.1
million of earnings attributable to an equity-method investee from Net sales
to Other income, for fiscal 1997, 1998 and 1999, respectively.
(3) Reflects the reclassification of $4.9 million of charges to reduce the
carrying value of inventory to its estimated recoverable value from Other
charges to Cost of goods sold and occupancy for fiscal 1999.
(4) Reflects the reclassification of $4.1 million of exit-related costs incurred
during the close down process of various facilities from Other charges to
Selling, general and administrative expenses for fiscal 1998.

16
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

In fiscal 2000, Central's operations were grouped into three business
segments, the lawn and garden branded products business ("Garden Products"), the
pet branded products business ("Pet Products") and the distribution business
("Distribution"). For fiscal 2000, Garden Products, Pet Products and
Distribution accounted for approximately 30%, 18% and 52%, respectively, of
consolidated net sales. These businesses accounted for income (loss) from
operations before other charges and the allocation of certain corporate costs
and eliminations of $51.3 million, $32.7 million and $(12.1) million,
respectively, in fiscal 2000.

Historically, our lawn and garden distribution operations had a substantial
impact on our results of operations. In response to the expiration of the
Solaris Agreement in September 1999 and the discontinuance of our distribution
relationship with Scotts in September 2000, we have substantially downsized our
lawn and garden distribution operations. On December 19, 2000, Central
announced that it will reorganize its garden and pet businesses. Under the
reorganization, Central's garden products and distribution businesses will
become one operating unit, while its pet products and distribution businesses
will become another operating unit.

Garden Products and Pet Products. Branded products businesses, such as Garden
Products and Pet Products, typically operate with higher margins associated with
greater value added activities involved in design, manufacturing, and dedicated
marketing and sales functions.

From fiscal 1998 to fiscal 2000, net sales, before corporate eliminations,
associated with the Garden Products and Pet Products segments grew from $436.9
million to $701.8 million, with income from operations before other charges and
the allocation of certain corporate costs and eliminations of $49.9 million
and $84.0 million, respectively. Net sales, before corporate eliminations,
associated with Distribution during this same period declined from $887.5
million to $711.2 million, while income (loss) from operations before other
charges and the allocation of certain corporate costs and eliminations decreased
from income of $38.5 million to a loss of $12.1 million during the same period.
As a result of these trends, we expect our results of operations in fiscal 2001
and beyond to be more reflective of our Garden Products and Pet Products
businesses.

Distribution. From October 1, 1995 to September 30, 1999, Distribution
sold Solaris products nationwide, pursuant to an exclusive distribution
agreement (the "Solaris Agreement"). Management believes that the relationship
with Solaris embodied in the Solaris Agreement had a substantial impact on our
results of operations. Management believes that sales of products purchased from
Solaris, previously our largest supplier, accounted for approximately 43% of
Distribution's net sales and 27% of Central's net sales during fiscal 1999.

Under the Solaris Agreement, Distribution, in addition to serving as the
master agent and master distributor of Solaris products, provided a wide range
of value-added services including logistics, order processing and fulfillment,
inventory distribution and merchandising. However, Solaris continued to
negotiate its sales prices directly with its direct sales accounts. As a result
of the Solaris Agreement, a majority of our sales of Solaris products were
derived from sales to direct sales accounts, whereas in 1995 and prior, a
majority of our sales of Solaris products were made by us as a traditional
distributor. Direct accounts were customers to whom Central sold Solaris and
other manufacturers' products and performed certain in-store services, the
extent of these services varied based upon the agreement between the retailer,
Central and Solaris. Central also sold products to these same customers as a
traditional distributor. The services provided to these direct customers were
similar in nature to those services performed for all other traditional
accounts. During fiscal 2000, 1999 and 1998, Distribution's sales to customers
designated as direct accounts which also purchased products as traditional
accounts, totaled approximately $314 million, $458 million and $351 million,
respectively. Of these amounts, approximately 31%, 49% and 52%, respectively,
were made to such customers as direct accounts. The gross profit generated from
sales to customers as direct accounts were similar to the gross profit on
similar sized customers to whom the Company sold to as traditional accounts.

The Solaris Agreement required Central to be responsible for purchasing,

17
<PAGE>

products as a traditional distributor, Central was required to maintain
significantly higher inventory levels throughout its distribution network to
accommodate these expanded sales activities.

In January 1999, Pharmacia sold its Solaris lawn and garden business exclusive
of its Roundup(R) herbicide products for consumer use to Scotts and entered into
a separate, long-term, exclusive agreement pursuant to which Pharmacia continues
to make Roundup herbicide products for consumer use and Scotts markets the
products. Beginning October 1, 1999, Scotts began to distribute Ortho(R) and
Roundup(R) products through a system that involved a combination of
distributors, of which we were the largest, as well as through direct sales by
Scotts to certain major retailers. In addition, Scotts began to sell Miracle-
Gro(R) directly to certain retailers.

Due to the termination of the Scotts' distribution relationship, we have taken
actions to downsize our lawn and garden distribution operations to reflect
business levels for the fiscal year 2001. As a result, we have recorded charges
of $27.5 million in the fiscal year ending September 30, 2000 as described below
under "Fiscal 2000 Compared with Fiscal 1999."

The sale of the Solaris business by Pharmacia, the expiration of the Solaris
Agreement and termination of the Scotts distribution relationship subject our
distribution business to significant uncertainties. These include the
resolution of all payments due between us and Pharmacia under the Solaris
Agreement, such as the amounts receivable from Pharmacia for cost reimbursements
and payments for cost reductions; the amounts payable to Pharmacia for
inventory; and responsibility for obsolete inventory and for non-payment by
Solaris' sub-agents. Scotts and Pharmacia have each initiated litigation against
Central arising out of the prior distribution relationship. In addition, Central
has filed suit against Scotts and Pharmacia seeking damages and injunctive
relief as well as restitution for, among other things, breach of contract and
violations of the antitrust laws by Scotts and Pharmacia. Each of these cases is
in its early stage. For this reason and because of the uncertainties inherent in
complex litigation, it is not currently possible to make an assessment of the
potential impact, losses or gains that may arise out of these cases individually
or collectively. Central believes that the reconciliation of all accounts and
claims with Pharmacia and Scotts will not result in additional charges to
Central. Further, Central believes it has substantial counterclaims and rights
of offset against both Scotts and Pharmacia, as well as meritorious defenses,
and intends to vigorously contest both suits. However, central cannot assure you
that the resolution of this litigation will not have a material adverse effect
on its results of operations, financial position and/or cash flows.

Results of Operations

The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales:

<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0%
Cost of goods sold and occupancy................... 74.5% 77.4% 78.0%
-------- -------- --------
Gross profit....................................... 25.5% 22.6% 22.0%
Selling, general and administrative................ 22.4% 18.9% 16.5%
Other charges...................................... 2.0% 0.2% 0.5%
-------- -------- --------
Income from operations............................. 1.1% 3.6% 5.0%
Interest expense, net.............................. (1.7)% (0.8)% (0.6)%
Other income....................................... 0.1% 0.1% 0.1%
Income tax expense................................. 0.4% 1.3% 1.9%
-------- -------- --------
Net income (loss).................................. (0.9)% 1.6% 2.6%
======== ======== ========
</TABLE>

18
<PAGE>

Fiscal 2000 Compared with Fiscal 1999

Net sales for fiscal 2000 decreased by 11.7% or $179.3 million to $1,355.2
million from $1,534.5 million for fiscal 1999. The decrease was primarily due to
a $261.4 million decrease in Distribution sales (primarily attributable to
reduced Solaris sales) being partially offset by a $58.6 million increase in
Garden Products sales ($29.7 million attributable to the businesses acquired -
Norcal Pottery, acquired in January 1999; Unicorn Laboratories, acquired in
December 1999; and the Amdro and Image product lines, acquired in March 2000),
together with a $26.0 million increase in Pet Products sales.

Gross profit decreased by $1.8 million or 0.5% from $346.8 million during
fiscal 1999 to $345.0 million for fiscal 2000. Gross profit as a percentage of
net sales increased from 22.6% for fiscal 1999 to 25.5% for fiscal 2000. The
decrease in gross profit dollars was principally related to a $26.7 million
decrease in Distribution's gross profit partially offset by a $25.2 million
increase in Garden Products' and Pet Products' gross profit. As a result of
resizing our lawn and garden distribution operations, the carrying value of
inventory at the distribution centers to be closed was evaluated to determine
what products could be moved to the locations remaining open, how much of it
would represent significant overstock and what products would have to be
liquidated at the individual distribution centers. This evaluation resulted in a
write-down of lawn and garden inventory of $7.5 million to adjust such inventory
to its estimated fair value. This write-down resulted in an increase in cost of
goods sold and occupancy of $2.6 million in fiscal 2000 compared with the
inventory write-down of $4.9 million recorded in fiscal 1999. Excluding
Distribution, gross profit dollars from existing operations increased by $13.0
million. The increase in gross profit as a percentage of net sales was primarily
the result of an increase in Distribution's gross profit percentage combined
with a larger proportion of higher margin branded product sales relative to
total sales. The increased Distribution gross profit percentage was primarily
the result of the reduction in sales of low margin Solaris products principally
to retailers' distribution centers. Garden Products' and Pet Products' gross
profit percentages remained relatively constant.

Selling, general and administrative expenses increased $13.7 million, or 4.7%
from $289.4 million during fiscal 1999 to $303.1 million for fiscal 2000. Of
the $13.7 million increase, approximately $8.3 million was attributed to newly
acquired businesses. As a percentage of net sales, selling, general and
administrative expenses increased from 18.9% during fiscal 1999 to 22.4% for
fiscal 2000. Selling and delivery expenses increased by $3.2 million from $148.0
million in fiscal 1999 to $151.2 million in fiscal 2000. Of this increase, $3.7
million related to newly acquired businesses. These increases were offset by a
decrease from existing operations of $0.5 million primarily attributable to a
$6.7 million decrease in lawn and garden distribution operations resulting from
lower sales, offset by a $6.2 million increase principally related to Pennington
as a result of increased coop and media advertising, and expanded use of common
freight carriers coupled with increased fuel costs. Facilities expense totaled
$14.4 million in both fiscal 1999 and 2000. This results from an increase in
costs associated with newly acquired businesses of $0.3 million, offset by a
reduction in costs associated with existing operations of $0.3 million. The
decrease in existing operations related principally to lawn and garden
distribution operations resulting from certain facilities which were closed
during fiscal 1999. Warehouse and administrative expense increased $10.5 million
from $127.0 million in fiscal 1999 to $137.5 million in fiscal 2000. Of this
increase, $4.3 million related to newly acquired businesses. The increase from
existing operations, $6.2 million, related principally to increases in legal and
professional fees of $5.3 million related to our strategic planning and
evaluation process, increases in corporate personnel and related travel of $0.7
million and $0.2 million in additional corporate office space costs.

In September 2000, the Company recorded $27.5 million of charges resulting
from workforce reductions, employee benefit obligations, facility closures, and
asset impairments that were necessary due to the termination of the Company's
distribution arrangement with The Scotts Company and other anticipated sales
decreases in the Distribution business. These charges were offset by the
reversal of $0.3 million of certain exit-related costs recorded in connection
with the fiscal 1998 restructuring plan for which the Company was no longer
obligated.

As a result of the fiscal 2000, and anticipated future, sales decreases in the
Distribution segment, the Company initiated a plan to close 13 distribution
centers and reduce its workforce which is expected to be completed by the second
quarter of fiscal 2001. In connection with this plan, the Company recorded a
severance charge of $1.1 million associated with the termination of 309
employees, primarily in the sales force and distribution centers. Severance of
$0.7 million was paid to 196 employees terminated during fiscal 2000, with the
balance expected to be paid to employees who will be terminated in fiscal 2001.
In connection with the facilities closures, $3.6 million was accrued for
estimated lease costs, and $0.2 million for estimated property tax and
facilities maintenance costs, that the Company is obligated to pay for periods
subsequent to closure. The Company expects to complete the facility closures by
the end of the second quarter of

19
<PAGE>

fiscal 2001. The Company also recorded an $0.8 million impairment charge to
reduce certain facility assets to their estimated fair value based on an
independent appraisal, and an $0.8 million provision for estimated uncollectible
receivables from customers of the closed facilities.

In addition, as a direct result of the termination of the distribution
relationship with The Scotts Company, the Company recorded a charge of $4.7
million as the Company became obligated to make cash payments which were
guaranteed to certain employees in the event of such termination. These payments
will be paid during fiscal 2001.

As a result of the events described above, management has reevaluated the
recoverability of the intangible assets in the Distribution segment. Based on
an evaluation of estimated future cash flows associated with affected
facilities, the Company determined that goodwill and certain trademarks were
impaired, and accordingly recorded charges of $15.7 million and $0.6 million,
respectively, to reduce those assets to estimated fair values.

Remaining reserve balances totaling $9.5 million are included in the
Consolidated Balance Sheet within the category "accounts payable" and "accrued
expenses" comprised of $0.2 million associated with "Other Charges" recorded in
the year ended September 26, 1998; $0.4 million associated with "Other Charges"
recorded in the year ended September 25, 1999; and $8.9 million associated with
"Other Charges" recorded in the year ended September 30, 2000. With respect to
each of these amounts: (1) the reserve balance of $0.2 million associated with
the fiscal 1998 charges was the net result of severance payments of $1.0 million
made to 168 terminated employees, all of which was paid in 1998, exit related
and other costs totaling $3.9 million (principally lease payments), of which
$3.2 million was paid in 1998, $0.3 million was paid in 1999 and $0.1 million
paid in 2000, and $0.3 million of reserves which were reversed in fiscal 2000
that were no longer required related to costs associated with these exit
activities. The remainder of the costs associated with this reserve will be
incurred in the first quarter of 2001; (2) the reserve balance of $0.4 million
associated with the fiscal 1999 charges was the net result of severance payments
of $0.6 million made to 113 terminated employees. Of the $0.6 million of
severance, $0.2 million was paid in 1999 and $0.4 million was paid in 2000. The
remaining exit costs associated with this plan will be incurred during fiscal
2001; and (3) the reserve balance of $8.9 million associated with the fiscal
2000 charges is associated with severance payments of $0.4 million and the exit
costs of $8.5 million which will be paid during fiscal year 2001.

Net interest expense for the year ended September 30, 2000 increased by $10.5
million to $22.6 million from $12.1 million for the year ended September
25,1999. The increase is due to higher average outstanding short-term debt
resulting principally from the Company's stock repurchase program and the
businesses acquired. During the year ended September 30, 2000, the Company
repurchased 2,890,900 shares of its stock for a total cost of approximately
$21.7 million, primarily through the use of its revolving credit facility.

Average short-term borrowings for the year ended September 30, 2000 were
$176.9 million compared with $65.8 million for the year ended September 25,1999.
The average short-term interest rates for the years ended September 30, 2000 and
September 25, 1999 were 8.8% and 7.5%, respectively.

During fiscal 2000 the Company recognized tax expense of $5.2 million on a
pre-tax loss of $6.6 million primarily as the result of non-deductible charges,
primarily goodwill amortization and impairment charges, recorded during the
year.

Fiscal 1999 Compared with Fiscal 1998

Net sales for fiscal 1999 increased by 18.6% or $241.2 million to $1,534.5
million from $1,293.3 million for fiscal 1998. Of the $241.2 million increase,
approximately $132.7 million was attributable to businesses acquired. Of the
increase related to our existing business, approximately $85.2 million was
attributable to Distribution, $28.4 million to Garden Products, offset by a
decrease of $5.5 million attributable to Pet Products.

Gross profit increased by 22.0% or $62.6 million from $284.2 million during
fiscal 1998 to $346.8 million for fiscal 1999. Gross profit as a percentage
of net sales increased from 22.0% for fiscal 1998 to 22.6% for fiscal 1999. Of
the $62.6 million increase in gross profit, approximately $15.1 million was
attributable to our existing businesses. The $15.1 million increase included a
write down of $4.9 million related to (1) $4.6 million reduction in the carrying
value of inventory to be returned to Solaris to its estimated realizable value,
computed based on the difference between the manufacturer's list price for such
product and Central's carrying value, and (2) $0.3 million attributable to
certain inventory and supplies of our closed facilities which were determined to
be economically impractical to use at our other

20
<PAGE>

facilities. The increase in gross profit as a percentage of net sales is the
result of a larger proportion of Garden Products and Pet Products sales relative
to total sales in fiscal 1999 compared to fiscal 1998.

For fiscal 1999, selling, general and administrative expenses increased by
$76.3 million to $289.4 million from $213.1 million for fiscal 1998, an increase
of 35.8%. Of the $76.3 million increase, approximately $33.9 million related to
newly acquired operations. As a percentage of net sales, selling, general and
administrative expenses increased from 16.5% in fiscal 1998 to 18.9% in fiscal
1999. Selling and delivery expenses increased by $31.5 million from $116.5
million in fiscal 1998 to $148.0 million in fiscal 1999. Of this increase, $13.6
million related to newly acquired businesses. The increase from existing
operations, $17.9 million, related principally to (1) $15.4 million due to
increased sales volume, (2) $1.6 million due to increased store service
personnel, and (3) $1.5 million for expanded use of common freight carriers. The
increase of $17.9 million was net of $0.6 million of expenses incurred in fiscal
1998 as part of the closure of certain distribution facilities. Facilities
expenses increased by $4.1 million from $10.3 million in fiscal 1998 to $14.4
million in fiscal 1999. Of this increase, $0.4 million related to newly acquired
businesses. The increase from existing operations, $3.7 million, was primarily
attributable to $4.7 million of costs resulting from expanding our total square
footage of warehouse space, principally in our distribution segment. The $3.7
million increase was net of $1.0 million related to costs incurred in fiscal
1998 as part of the closure of certain of our distribution facilities. Warehouse
and administrative expenses increased by $40.7 million from $86.3 million in
fiscal 1998 to $127.0 million in fiscal 1999. Of this increase, $19.9 million
related to newly acquired businesses. The increase from existing operations,
$20.8 million, was principally related to: (1) $14.0 million due to increased
sales volume, including $2.5 million of additional bad debt expense related to a
bankruptcy, (2) $3.4 million related to product development and packaging design
and testing for both Pet Products and Garden Products segments, (3) $1.4 million
related to computer conversion costs for certain older systems acquired in
acquisitions, and expanded use of data communication lines to link all of our
computer systems, (4) $2.8 million related to increased medical insurance and
legal and professional costs, and (5) $1.7 million increase in amortization of
goodwill. The 20.8 million increase was net of $2.5 million related to costs
incurred in fiscal 1998 as part of the closure of certain of our distribution
facilities.

In September 1999, the Company recorded other charges totaling $2.7 million
related to the resizing of our Distribution operations and costs incurred
associated with the expiration of the Solaris Agreement. The resizing of our
Distribution operations was made to reflect the fact that our sales volume of
Solaris products in fiscal 2000 was expected to be reduced from the volume in
fiscal 1999 by an estimated $200-$250 million. In order to minimize the impact
of this loss of revenue, the Company initiated plans to close its distribution
centers located in Visalia, California; McAlester, Oklahoma; and Albuquerque,
New Mexico. Customers primarily serviced by these locations were assigned to
other Company facilities. Accordingly, the Company recorded charges totaling
$2.5 million, which included a $1.5 million reduction in the carrying value of a
building and certain facility assets which would no longer be used and were
disposed of during fiscal 2000, $0.6 million for severance costs associated with
a workforce reduction, $0.3 million for lease costs and $0.1 million for
property taxes and facilities maintenance costs to be paid by the Company during
the periods subsequent to the termination of operations. These actions were
expected to somewhat mitigate the impact of lost profits associated with the
Solaris Agreement by reducing future selling, general and administrative
expenses by approximately $2.3 million annually, partially beginning in fiscal
2000, to keep such costs in line with projected operating levels. Of the
remaining $0.2 million in charges, $0.1 million related to a reserve established
for estimated non-collectible amounts due from distributors involved in the
Solaris program, and $0.1 related to post-closure facility lease obligations of
the Company's facility which warehoused only inventory received under the
Solaris Agreement which was closed upon the expiration of the Agreement.

For the year ended September 26, 1998, the Company recorded other charges
totaling $6.9 million. Of these charges, $2.6 million related to the closure of
11 of the Company's distribution centers. Of the $2.6 million of exit-related
costs, $1.0 million related to severance costs associated with a workforce
reduction, $0.7 million to write off certain inventory and supplies which were
determined to be economically impractical to use at other Company facilities,
$0.5 million for the disposal of improvements and equipment, $0.3 million for
lease costs and $0.1 million for property taxes and facilities maintenance costs
to be paid by the Company during the periods subsequent to the termination of
operations. Of the 11 distribution centers which were closed, seven were related
to Distribution's pet supplies business; five in the Western U.S. and two in the
Northeast market. The closure and consolidation of these distribution centers
into other existing distribution centers was principally due to the acquisition
of regional pet retailers by two major pet retailers, and in the Northeast
market the decision by one major retailer to purchase a larger percentage of
their products directly from manufacturers into its retail store locations or
distribute these products through internal distribution centers. As a result of
these actions, the overall market for the Company's pet supplies business in
these geographic areas was reduced. The Company believes that the closure of
these locations enabled it to serve its customer base more cost effectively. The

<PAGE>

closure of two of the Company's Southern California lawn and garden distribution
centers was done in conjunction with the transfer of certain business previously
shipped from the Company's Central California facility. The operations of these
three distribution centers were consolidated into a larger existing facility in
Southern California. The Company believes that the move has reduced shipping
costs within California while at the same time provide better service to its
customers. The remaining distribution centers which were closed related to the
Company's vegetable seed distribution operation in Celaya, Mexico, and the
consolidation of the Pennington Seed operation in Arkansas into the Company's
distribution center in Arkansas. The Celaya distribution center was part of a
larger acquisition made by the Company several years ago. Since the sale of
vegetable seed has never been part of the Company's core business and revenues
have remained modest with little growth potential, the Company elected to exit
this business. These actions were expected to reduce the impact of lost profits
associated with the loss of customers due to the above events by reducing future
selling, general and administrative expenses by approximately $3.0 million
annually to keep such costs in line with projected operating levels. These cost
reductions were realized beginning in fiscal 1999. Of the remaining $4.3 million
charge, $2.2 million relates to costs associated with professional and due
diligence expenses principally related to a potential major acquisition that was
not completed. The remaining $2.1 million relates to package design and product
launch costs incurred pursuant to a test program initiated and completed in
fiscal 1998 which are not expected to recur in future years.

Net interest expense for the year ended September 25, 1999 increased by
approximately 59% or $4.5 million to $12.1 million for $7.6 million for the year
ended September 26, 1998. The increase is due to higher average outstanding
short-term debt resulting principally from the Company's stock repurchase
program and the acquisition in January 1999 of Norcal Pottery. During fiscal
1999, the Company repurchased its stock for a total cost of approximately $121.7
million primarily through the use of its revolving credit facility.

Average short-term borrowings for fiscal 1999 were $65.8 million compared with
$42.8 million for fiscal 1998. The average short-term interest rates for the
years ended September 25, 1999 and September 26, 1998 were 7.5% and 8.7%,
respectively.

The Company's effective income tax rate for 1999 was 44% compared with 42% for
fiscal 1998. The increase in the effective tax rate results principally from
non-deductible goodwill amortization being a higher percentage of taxable income
than was the case in fiscal 1998.

New Accounting Pronouncements

See Note 1, "Organization and Significant Accounting Policies" in the
accompanying consolidated financial statements.

Inflation

The results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation, the Company believes that the effects of inflation on its operations
have been immaterial.

Liquidity and Capital Resources

The Company has financed its growth through a combination of bank borrowings,
supplier credit, internally generated funds and sales of securities to the
public. The Company received net proceeds (after offering expenses) of
approximately $431.0 million from its five public offerings of common stock in
July 1993, November 1995, July 1996, August 1997 and January 1998. In November
1996, the Company completed the sale of $115 million 6% subordinated convertible
notes generating approximately $112 million net of underwriting commissions.

Historically, the Company's business has been highly seasonal and its working
capital requirements and capital resources tracked closely to this seasonal
pattern. During the first fiscal quarter accounts receivable reach their lowest
level while inventory, accounts payable and short-term borrowings begin to
increase. Since the Company's short-term credit line fluctuates based upon a
specified asset borrowing base, this quarter is typically the period when the
asset borrowing base is at its lowest and consequently the Company's ability to
borrow is at its lowest. During the second fiscal quarter, receivables, accounts
payable and short-term borrowings begin to increase, reflecting the build-up of
inventory and related payables in anticipation of the peak selling season.
During the third fiscal quarter, principally due to the Solaris

22
<PAGE>

Agreement for the period between October 1, 1995 and September 30, 1999,
inventory levels remained relatively constant while accounts receivable peaked
and short-term borrowings started to decline as cash collections were received
during the peak-selling season. During the fourth fiscal quarter, inventory
levels were at their lowest, and accounts receivable and payables were
substantially reduced through conversion of receivables to cash. As a result of
the termination of the Solaris agreement and the associated reduction in
Distribution sales as a percentage of overall sales, this seasonal pattern is
expected to be less significant in the future.

The Company's businesses service two broad markets: lawn and garden and pet
supplies. The pet supplies businesses basically deal with products that have a
year round selling cycle with very little change quarter to quarter. As a
result, it is not necessary to carry large quantities of inventory to meet peak
demands. Additionally, this level sales cycle eliminates the need for
manufacturers to give extended credit terms to either distributors or retailers.
On the other hand, the Company's garden distribution business is highly seasonal
with approximately 70% of its sales occurring during the fiscal second and third
quarters. For many manufacturers of garden products this seasonality requires
them to move large quantities of their product well ahead of the peak selling
periods. To encourage distributors to carry large amounts of inventory,
industry practice has been for manufacturers to give extended credit terms
and/or promotional discounts.

The Company generated cash from operating activities of $40.1 million during
fiscal 2000, which declined from $63.6 million during fiscal 1999, primarily due
to the decline in sales volume during the year. Net cash used in investing
activities of $51.1 million resulted from acquisitions of new companies and the
acquisition of office and warehouse equipment, including computer hardware and
software. Cash generated from financing activities of $8.7 million consisted
principally of net borrowings of $29.9 million under the Company's lines of
credit, partially offset by payments of $21.7 million to reacquire shares of the
Company's common stock.

The Company has a $200 million line of credit with Congress Financial
Corporation (Western). The available amount under the line of credit fluctuates
based upon a specific asset-borrowing base. The line of credit bears interest at
a rate either equal to the prime rate or LIBOR plus 2% at the Company's option,
and is secured by substantially all of the Company's assets. At September 30,
2000, the Company had $114.5 million of outstanding borrowings, and had $5.1
million of available borrowing capacity under this line. The Company's line of
credit contains certain financial covenants such as minimum net worth and
minimum working capital requirements. The line also requires the lender's prior
written consent to any acquisition of a business. In connection with the
acquisition of one company in fiscal 1998, the Company assumed a $60.0 million
line of credit. At September 30, 2000, there were $10.0 million of outstanding
borrowings and $50.0 million of available borrowing capacity under this line.
Interest related to this line is based on a rate either equal to the prime rate
or LIBOR plus .875% at the Company's option.

Excluding the potential impact of any adverse consequences associated with
legal matters discussed in "Item 3. Legal Proceedings", the Company believes
that cash flows from operating activities, funds available under its lines of
credit, and arrangements with suppliers will be adequate to fund its presently
anticipated working capital requirements for the foreseeable future. The Company
anticipates that its capital expenditures will not exceed $18.0 million for the
next 12 months.

As part of its growth strategy, the Company has engaged in acquisition
discussions with a number of companies in the past and it anticipates it will
continue to evaluate potential acquisition candidates. If one or more potential
acquisition opportunities, including those that would be material, become
available in the near future, the Company may require additional external
capital. In addition, such acquisitions would subject the Company to the
general risks associated with acquiring companies, particularly if the
acquisitions are relatively large.

Weather and Seasonality

Historically, the Company's sales of lawn and garden products have been
influenced by weather and climate conditions in the markets it serves.
Additionally, the Company's business has historically been highly seasonal. In
fiscal 2000, approximately 62% of the Company's sales occurred in the first six
months of the calendar year. Substantially all of the Company's operating
income is typically generated in this period which has historically offset the
operating losses incurred during the first fiscal quarter of the year. As a
result of the anticipated reduction in Distribution sales as a percentage of
overall sales, this seasonal pattern is expected to be less significant in the
future.

23
<PAGE>

Risk Factors Relating to Forward-Looking Statements

This Form 10-K contains forward-looking statements that involve risks and
uncertainties. These forward looking statements include information regarding
future financial results, the estimated effect of the termination of the Solaris
Agreement and future acquisition activity. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of factors both in and out of our control, including the risks faced by
us described below and elsewhere in this Form 10-K.

You should carefully consider the risks described below. We have separated
the risks into four groups:

. risks that relate to Garden Products;

. risks that relate to Pet Products;

. risks that relate to Distribution; and

. risks that relate to Central generally.

In addition, the risks described below are not the only ones facing us. We have
only described the risks we consider to be the most material. However, there may
be additional risks that are viewed by us as not material or are not presently
known to us.

If any of the events described below were to occur, our business, prospects,
financial condition, results of operations and/or cash flows could be materially
adversely affected. When we say below that something could or will have a
material adverse effect on us, we mean that it could or will have one or more of
these effects. In any such case, the price of our common stock could decline,
and you could lose all or part of your investment in our company.

Risks Relating to Garden Products

Adverse weather during the peak gardening season can hurt Garden Products' and
our net sales.

Because demand for lawn and garden products is significantly influenced by
weather, particularly weekend weather during the peak gardening season, our
results of operations could be adversely affected by certain weather patterns
such as unseasonably cool or warm temperatures, water shortages or floods.
During the last several years, our results of operations were negatively
affected by severe weather conditions in some parts of the country.
Additionally, our business is highly seasonal, with approximately 72% of our
sales in fiscal 2000 occurring during the second and third quarters of the
fiscal year. Historically, substantially all of our operating income is
generated in this period.

An increase in market prices for grains used to produce bird seed and grass seed
could have a negative impact on our operating income.

Garden Products' financial results depend to a large extent on the cost of raw
materials and the ability of Garden Products' to pass along to its customers
increases in these costs. In particular, our Pennington subsidiary is exposed
to fluctuation in market prices for commodity grains, used to produce bird seed
and grass seed. Historically, market prices for commodity grains have
fluctuated in response to a number of factors, including changes in United
States government farm support programs, changes in international agricultural
and trading policies and weather conditions during the growing and harvesting
seasons. For example, a significant rise in the white millet acquisition cost in
late 2000 and 2001 will have a negative impact on profitability of bird feed
products in fiscal 2001, although we do not believe this will be a long-term
problem. In the event of any increases in raw materials costs, Garden Products
would be required to increase sales prices for its products in order to avoid
margin deterioration. We cannot assure you as to the timing or extent of Garden
Products' ability to implement future price adjustments in the event of
increased raw material costs or as to whether any price increases implemented by
Garden Products may affect the volumes of future shipments.

To protect against changes in market prices, we generally enter into purchase
contracts for grains, bird seed and grass seed to cover up to approximately one-
third of the purchase requirements for a selling season. Since we hedge only a
portion of our purchase requirements, if market prices for grains increase, our
cost of production would increase.

24
<PAGE>

Garden Products depends on a few customers, including Wal*Mart and Lowes, for a
significant portion of its net sales.

Garden Products' largest customer is Wal*Mart, which accounted for
approximately 42%, 41% and 42% of its net sales for fiscal 2000, fiscal 1999 and
fiscal 1998, respectively. Garden Products' second largest customer is Lowes,
which accounted for approximately 13%, 10% and 15% of its net sales for fiscal
2000, fiscal 1999 and fiscal 1998, respectively. The loss of, or significant
adverse change in, the relationship between us and Wal*Mart or Lowes could cause
our net sales and income from operations to decline. The loss of or reduction
in orders from any significant customer, losses arising from customer disputes
regarding shipments, fees, merchandise condition or related matters, or our
inability to collect accounts receivable from any major customer could reduce
our income from operations.

Risks Relating to Pet Products

Pet Products depends on a few customers, including PETsMART and Petco, for a
significant portion of its net sales.

Pet Products' largest customer is Petco, which accounted for approximately
16%, 9% and 7% of Pet Products' net sales for fiscal 2000, fiscal 1999 and
fiscal 1998, respectively. Pet Products' second largest customer is PETsMART,
which accounted for approximately 15%, 11% and 10% of Pet Products' net sales
for fiscal 2000, fiscal 1999 and 1998, respectively. The loss of, or significant
adverse change in, the relationship between Pet Products and Petco or PETsMART
could have a material adverse effect on Pet Products' business and financial
results. The loss of or reduction in orders from any significant customer,
losses arising from customer disputes regarding shipments, fees, merchandise
condition or related matters, or Pet Products' inability to collect accounts
receivable from any major customer could have a material adverse impact on our
business and financial results.

An increase in market prices for grains could have a negative impact on our
operating income.

Pet Products' financial results depend to a large extent on the cost of raw
materials and the ability of Pet Products to pass along to its customers
increases in these costs. In particular, our Kaytee subsidiary is exposed to
fluctuation in market prices for commodity grains. Historically, market prices
for commodity grains have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons. In the event of any increases in raw
materials costs, Pet Products would be required to increase sales prices for its
products in order to avoid margin deterioration. There can be no assurance as
to the timing or extent of Pet Products' ability to implement future price
adjustments in the event of increased raw material costs or as to whether any
price increases implemented by Pet Products may affect the volumes of future
shipments.

To protect against changes in market prices, we generally enter into purchase
contracts for grains and bird seed to cover up to approximately one-third of the
purchase requirements for a selling season. Since we hedge only a portion of
our purchase requirements, if market prices for grains increase, our cost of
production would increase.

Risks Relating to Distribution

Distribution's net sales and operating income are expected to decrease
significantly due to the termination of our distribution relationship with
Scotts.

From October 1, 1995 to September 30, 1999, Distribution distributed Solaris
product nationwide, pursuant to an exclusive distribution agreement. Sales of
products purchased from Solaris, previously our largest supplier, accounted for
approximately 43% of Distribution's net sales and 27% of Central's net sales
during fiscal 1999. In January 1999, Pharmacia sold its Solaris lawn and garden
business exclusive of its Roundup(R) herbicide products for consumer use to
Scotts and entered into a separate, long-term, exclusive agreement pursuant to
which Pharmacia continues to make Roundup herbicide products for consumer use
and Scotts markets the products. Beginning October 1, 1999, Scotts began to
distribute Ortho(R) and Roundup(R) products through a system that involves a
combination of distributors, of which we were the largest, as well as through
direct sales by Scotts to certain major retailers. In addition, Scotts began to
sell Miracle-Gro(R) directly to certain retailers.

25
<PAGE>

Corporation (formerly known as Monsanto Company) for which Scotts acts as
Pharmacia's exclusive sales agent. For Central's fiscal year ended September 30,
2000, the revenue attributable to the affected products was approximately $176
million. The gross profit associated with these sales in fiscal 2000 was
estimated to be $27 million based on historical customer profitability. We
expect this loss of gross profit to be partially offset in fiscal 2001 with
expense reductions. Due to the termination of the Scotts' distribution
relationship, we have taken actions to downsize our lawn and garden distribution
operations to reflect business levels for the fiscal year 2001. As a result, we
have recorded charges of $27.5 million in the fiscal year ending September 30,
2000. We cannot assure you that we will be able to reduce expenses to offset the
loss in revenue from the termination of the Scotts distribution relationship or
that our lawn and garden distribution operations will be able to operate
profitably at the reduced revenue levels forecasted for fiscal 2001. If our
current downsizing efforts are not successful, we may be forced to record
additional charges in fiscal 2001, which would decrease our operating results
further.

The sale of the Solaris business by Pharmacia, the expiration of the Solaris
Agreement and termination of the Scotts distribution relationship subject our
distribution business to significant uncertainties. These include the resolution
of all payments due between us and Pharmacia under the Solaris Agreement, such
as the amounts receivable from Pharmacia for cost reimbursements and payments
for cost reductions; the amounts payable to Pharmacia for inventory; and
responsibility for obsolete inventory and for non-payment by Solaris' sub-
agents. Scotts and Pharmacia have each initiated litigation against Central
arising out of the prior distribution relationship. In addition, Central has
filed suit against Scotts and Pharmacia seeking damages and injunctive relief as
well as restitution for, among other things, breach of contract and violations
of the antitrust laws by Scotts and Pharmacia. Each of these cases is in its
early stage. For this reason and because of the uncertainties inherent in
complex litigation, it is not currently possible to make an assessment of the
potential impact, losses or gains that may arise out of these cases individually
or collectively. Central believes that the reconciliation of all accounts and
claims with Pharmacia and Scotts will not result in additional charges to
Central. Further, Central believes it has substantial counterclaims and rights
of offset against both Scotts and Pharmacia, as well as meritorious defenses,
and intends to vigorously contest both suits. However, Central cannot assure you
that the resolution of this litigation will not have a material adverse effect
on its results of operations, financial position and/or cash flows.

Distribution depends on a few customers, including Wal*Mart and Home Depot, for
a significant portion of its net sales.

Distribution's largest customer is Wal*Mart, which accounted for approximately
23% of Distribution's net sales for fiscal 2000 and 22% for fiscal 1999 and
1998. Distribution's second largest customer is Home Depot, which accounted for
approximately 4% of Distribution's net sales for fiscal 2000, 11% for fiscal
1999 and 10% in fiscal 1998. During fiscal 2000, Wal*Mart began to have certain
products delivered to its internal distribution centers rather than directly to
stores, which adversely affected our revenue from these products. Subsequent to
the fiscal 2000 year end, Wal*Mart informed Distribution of a number of
significant changes in its lawn and garden supplies purchasing programs and
procedures for the coming year. These include Wal*Mart's decision to purchase
certain lawn and garden supplies directly from a number of manufacturers whose
lawn and garden supplies had previously been sold through Distribution; a change
from "store door" deliveries of many of the lawn and garden supplies formerly
delivered by Distribution to individual Wal*Mart stores to a new procedure
whereby Distribution will ship these products to Wal*Mart distribution centers;
and Wal*Mart's decision not to have Central Distribution personnel perform lawn
and garden supplies merchandising functions inside Wal*Mart stores. As a result
of these factors, and the closing of 13 distribution centers associated with the
Distribution restructuring, Distribution's sales of lawn and garden supplies to
Wal*Mart in 2001 are expected to decline significantly. The Distribution
facility closures coupled with the absence of our distributing Scotts products
in 2001 has also adversely impacted other customer relationships. The loss of,
or further significant adverse change in, the relationship between Distribution
and Wal*Mart or Home Depot could have a material adverse effect on our business
and financial results. The loss of or reduction in orders from any significant
customer, losses arising from customer disputes regarding shipments, fees,
merchandise condition or related matters, or our inability to collect accounts
receivable from any major customer could have a material adverse impact on our
business and financial results.

The majority of our pet supply distribution sales are made to independent pet
retailers, whose market share has been eroded by the growth of national
specialty pet stores.

Historically, a majority of our pet supply distribution sales have been made
to independent pet retailers. In recent years, these independent pet retailers
have experienced severe competition from and a loss of market share to national
specialty pet retailers, like PETsMART and Petco, and mass merchants, like
Wal*Mart, Kmart and Target. In addition, these independent pet retailers are
now experiencing competition from internet e-retailers. The future success of
our pet

26
<PAGE>

supply distribution business will depend on our ability to offer competitive
costs and value-added services to independent pet dealers and to increase sales
to national specialty pet retailers and mass merchants. If independent pet
retailers continue to lose market share to national specialty pet retailers and
we are unable to expand our business with these pet retailers, Distribution's
net sales will decline and our operating income will suffer.

Adverse weather during the peak gardening season can hurt Distribution's and our
net sales.

Because demand for lawn and garden products is significantly influenced by
weather, particularly weekend weather during the peak gardening season,
Distribution's revenue and our results of operations could be adversely affected
by certain weather patterns such as unseasonably cool or warm temperatures,
water shortages or floods. During the last several years, our results of
operations were negatively affected by severe weather conditions in some parts
of the country. Additionally, Distribution's business is highly seasonal, with
approximately 64% of its sales in fiscal 2000 occurring during the second and
third quarters of the fiscal year. Historically, substantially all of
Distribution's operating income is generated in this period.

Because of intense competition, Distribution's product sales generate low
margins.

The lawn and garden and pet supply distribution industries in which we operate
are characterized by relatively low profit margins. As a result, Distribution's
success is highly dependent upon effective cost and management controls and
differentiating its services from those of its competitors. The wholesale lawn
and garden and pet supply distribution businesses are highly competitive, with
many companies competing principally on the basis of price and service. In
addition to competition from other distributors, Distribution also competes with
manufacturers and suppliers, like Scotts, that elect to distribute certain of
their products directly to retailers, including Distribution's major customers,
and private label product suppliers. There can be no assurance that
Distribution will not encounter increased competition in the future or will not
lose business from major manufacturers that elect to sell their products
directly to retailers, either of which could adversely affect our operations and
financial results.

Risks Relating to Central Generally

Our quarterly operating results are susceptible to fluctuations, which could
cause our stock price to decline.

We expect to continue to experience variability in our net sales and net
income on a quarterly basis. Factors that may contribute to this variability
include:

. weather conditions and seasonality during peak gardening seasons;

. shifts in demand for lawn and garden products;

. shifts in demand for pet products;

. changes in product mix, service levels and pricing by us and our
competitors;

. the effect of acquisitions;

. economic stability of retail customers;

. the final resolution of payments due between us and Pharmacia under the
Solaris Agreement, such as the amounts receivable from Pharmacia for cost
reimbursements, payments for cost reductions and payments for services; the
amounts payable to Pharmacia for inventory; and responsibility for obsolete
inventory and for non-payment by Solaris' direct sales accounts; and

. the extent of lost business from the termination of our distribution
relationship with Scotts and our ability to offset the loss of gross profit
as a result of the termination through expense reductions and other
business growth.

In addition, because our distribution business operates on relatively low
margins, our operating results in any quarterly period could be affected
significantly by slight variations in revenues or operating costs. For the same
reason,

27
<PAGE>

our quarterly results also may be vulnerable to problems in areas such as
collectibility of accounts receivable, inventory control and competitive price
pressures. The market price of our common stock could be subject to significant
fluctuations in response to these variations in quarterly operating results and
other factors.

Our ability to grow will depend upon internal expansion and acquisitions.

As part of our growth strategy, we aggressively pursue the acquisition of
other companies, assets and product lines that either complement or expand our
existing business. Acquisitions involve a number of special risks, including
the diversion of management's attention to the assimilation of the operations
and personnel of the acquired companies, adverse short-term effects on our
operating results, integration of financial reporting systems and the
amortization of acquired intangible assets. Since 1993, Central has completed
over 29 acquisitions. There can be no assurance that we can successfully
integrate acquired businesses or that such businesses will enhance our business.
We have also had preliminary acquisition discussions with, or have evaluated the
potential acquisition of, numerous other companies over the last several years.
We are unable to predict the likelihood of a material acquisition being
completed in the future. We may seek to finance any such acquisition through
additional debt or equity financings, which could result in dilution and
additional risk for the holders of our common stock.

We anticipate that one or more potential acquisition opportunities, including
those that would be material, may become available in the near future. If and
when appropriate acquisition opportunities become available, we intend to pursue
them actively. No assurance can be given that any acquisition by us will or
will not occur, that if an acquisition does occur that it will not materially
and adversely affect us or that any such acquisition will be successful in
enhancing our business. Our future results of operations will also depend in
part on our ability to successfully expand internally by increasing the number
of new product lines, and to manage any future growth. No assurance can be
given that we will be able to obtain or integrate additional product lines or
manage any future growth successfully.

Our success is dependent upon retaining key personnel.

Our future performance is substantially dependent upon the continued services
of William E. Brown, our Chairman and Chief Executive Officer, Glenn W. Novotny,
our President and Chief Operating Officer, and Brooks M. Pennington III, the
President of Pennington. The loss of the services of any of these persons could
have a material adverse effect upon us. In addition, our future performance
depends on our ability to attract and retain skilled employees. There can be no
assurance that we will be able to retain our existing personnel or attract
additional qualified employees in the future.

The holders of our Class B stock, through their voting power, can greatly
influence control of the Company.

As of December 1, 2000, William E. Brown, our Chairman and Chief Executive
Officer, controls approximately 48.7% of the voting power of our capital stock
and, therefore, can effectively control all matters requiring stockholder
approval, including the power to elect all of our directors. Holders of Class B
stock are entitled to the lesser of ten votes per share or 49% of the total
votes cast. Holders of common stock are entitled to one vote for each share
owned. The holders of Class B stock have approximately 49.9% of the combined
voting power, subject to the aforementioned voting restrictions. Holders of
Class B stock are likely to be able to elect all of our directors, control our
management and policies and determine the outcome of any matter submitted to a
vote of our stockholders except to the extent that a class vote of the common
stock is required by applicable law. The disproportionate voting rights of the
common stock and Class B stock could have an adverse effect on the market price
of the common stock. Such disproportionate voting rights may make us a less
attractive target for a takeover than we otherwise might be, or render more
difficult or discourage a merger proposal, a tender offer or a proxy contest,
even if such actions were favored by our common stockholders. Accordingly, such
disproportionate voting rights may deprive holders of common stock of an
opportunity to sell their shares at a premium over prevailing market prices,
since takeover bids frequently involve purchases of stock directly from
stockholders at such a premium price.

The products that we manufacture and distribute may subject us to environmental
considerations.

Many of the products that we manufacture and distribute are subject to
regulation by federal, state and local authorities. Such regulations are often
complex and are subject to change. Environmental regulations may affect us by
restricting the manufacturing or use of our products or regulating their
disposal. Regulatory or legislative changes may cause future increases in our
operating costs or otherwise affect operations. Although we believe we are and
have been in

28
<PAGE>

substantial compliance with such regulations and has strict internal guidelines
on the handling and disposal of our products, there is no assurance that in the
future we may not be adversely affected by such regulations or incur increased
operating costs in complying with such regulations. However, neither the
compliance with regulatory requirements nor our environmental procedures can
ensure that we will not be subject to claims for personal injury, property
damages or governmental enforcement.

The products that we manufacture could expose us to product liability claims.

Our business exposes us to potential product liability risks, which are
inherent in the manufacture and distribution of certain of our products.
Although we generally seek to insure against such risks, there can be no
assurance that such coverage is adequate or that we will be able to maintain
such insurance on acceptable terms. A successful product liability claim in
excess of our insurance coverage could have a material adverse effect on us and
could prevent us from obtaining adequate product liability insurance in the
future on commercially reasonable terms.

We have pending litigation which could adversely impact our operating results.

We are a party to certain legal proceedings including the litigation between
us and Scotts and Pharmacia arising out of disputes regarding the termination of
the Solaris Agreement and potential litigation arising from a fire which
destroyed our Phoenix, Arizona facility. We are currently unable to determine
the total expense or possible loss, if any, that may ultimately be incurred in
the resolution of these proceedings. Regardless of the ultimate outcome of these
proceedings, they could result in significant diversion of time by our
management. The results of these proceedings, including any potential
settlements, are uncertain and we cannot assure you that the outcome of these
disputes will not adversely affect our operating results. For more information
on our pending litigation, please see "Item 3. Legal Proceedings."

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Central is exposed to market risks, which include changes in U.S. interest
rates and commodity prices and, to a lesser extent, foreign exchange rates.
Central does not engage in financial transactions for trading or speculative
purposes.

Interest Rate Risk. The interest payable on Central's bank lines of credit is
based on variable interest rates and therefore affected by changes in market
interest rates. If interest rates on existing variable rate debt had been 10%
higher than actual rates, interest expense would have increased by approximately
$1.5 million and $500,000 for the years ended September 30, 2000 and September
25, 1999, respectively. In addition, Central has fixed income investments
consisting of cash equivalents and short-term investments in marketable debt
securities, which are also affected by changes in market interest rates. Except
for the interest rate swap agreements discussed in Note 5 of the Consolidated
Financial Statements, Central does not use derivative financial instruments in
its investment portfolio.

Commodity Prices. Central is exposed to fluctuation in market prices for
grains and grass seed. To mitigate risk associated with increases in market
prices and commodity availability, Central enters into contracts for grains,
bird seed and grass seed purchases. Such contracts are primarily entered into
to ensure commodity availability to the Company in the future. As of September
30, 2000, the Company had entered into fixed seed purchase commitments for
fiscal 2001 totaling approximately $85.1 million. A 10% change in the market
price for grain and grass seed would result in an additional pretax gain or loss
of $8.5 million related to the contracts outstanding as of September 30, 2000.
As of September 25, 1999, the Company had entered into fixed seed commitments
for fiscal 2000 totaling approximately $63 million. A 10% change in the market
price for grain and grass seed would have resulted in an additional pretax gain
or loss of $6.3 million related to the contracts outstanding as of September 25,
1999.

Foreign Currency Risks. Central has minimal sales outside of the United States
and, therefore, has only minimal exposure to foreign currency exchange risks.
Purchases made from foreign vendors are primarily made in U.S. dollars and,
therefore, the Company has only minimal exposure to foreign currency exchange
risk. Central does not hedge against foreign currency risks and believes that
foreign currency exchange risk is immaterial.

29
<PAGE>

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Central Garden & Pet Company

Independent Auditors' Report............................................................... 31

Consolidated Balance Sheets, September 30, 2000 and September 25, 1999..................... 32

Consolidated Statements of Income for Fiscal Years Ended September 30, 2000,
September 25, 1999 and September 26, 1998.................................................. 33

Consolidated Statements of Shareholders' Equity for Fiscal Years Ended September 30, 2000
September 25, 1999 and September 26, 1998.................................................. 34

Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2000,
September 25, 1999 and September 26, 1998.................................................. 35

Notes to Consolidated Financial Statements for Fiscal Years Ended September 30, 2000,
September 25, 1999 and September 26, 1998.................................................. 36
</TABLE>

30
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Central Garden & Pet Company
Lafayette, California

We have audited the accompanying consolidated balance sheets of Central Garden
& Pet Company and subsidiaries as of September 30, 2000 and September 25, 1999,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the fiscal years in the three-year period ended September 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Central Garden & Pet Company and
subsidiaries as of September 30, 2000 and September 25, 1999, and the results of
their operations and their cash flows for each of the fiscal years in the three-
year period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

December 18, 2000
San Francisco, California

31
<PAGE>

CENTRAL GARDEN & PET COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, September 25,
2000 1999
------------- -------------

(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 5,685 $ 8,017
Accounts receivable, less allowance for doubtful accounts of
$8,050 and $6,143.......................................... 151,190 149,411
Inventories................................................... 242,617 240,207
Inventories held for return to manufacturer................... -- 75,887
Prepaid expenses and other assets............................. 20,658 11,254
--------- ---------
Total current assets..................................... 420,150 484,776
Land, buildings, improvements and equipment:
Land.......................................................... 5,194 5,200
Buildings and improvements.................................... 56,554 38,969
Transportation equipment...................................... 6,138 5,842
Machinery and warehouse equipment............................. 59,325 47,354
Office furniture and equipment................................ 31,335 32,081
--------- ---------
Total.................................................... 158,546 129,446
Less accumulated depreciation and amortization................. 46,806 35,267
--------- ---------
Land, buildings, improvements and equipment--net......... 111,740 94,179
Goodwill........................................................ 382,294 346,488
Other assets.................................................... 33,234 30,387
--------- ---------
Total.................................................... $ 947,418 $ 955,830
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable................................................. $ 129,239 $ 95,883
Accounts payable.............................................. 121,705 188,113
Accrued expenses.............................................. 42,801 29,667
Current portion of long-term debt............................. 5,277 1,485
--------- ---------
Total current liabilities................................ 299,022 315,148
Long-term debt.................................................. 148,242 123,898
Deferred income taxes and other long-term obligations........... 36,207 21,057
Commitments and contingencies................................... -- --
Shareholders' equity:
Series A convertible preferred stock.......................... -- --
Class B stock................................................. 16 16
Common stock.................................................. 304 302
Additional paid-in capital.................................... 525,793 524,058
Retained earnings............................................. 82,661 94,474
Treasury stock................................................ (144,827) (123,123)
--------- ---------
Total shareholders' equity............................... 463,947 495,727
--------- ---------
Total.................................................... $ 947,418 $ 955,830
========= =========
</TABLE>

See notes to consolidated financial statements.

32
<PAGE>

CENTRAL GARDEN & PET COMPANY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
---------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales....................................... $1,355,151 $1,534,523 $1,293,330

Cost of goods sold and occupancy................ 1,010,106 1,187,722 1,009,143
---------- ---------- ----------

Gross profit.................................. 345,045 346,801 284,187

Selling, general and administrative expenses.... 303,112 289,379 213,114

Other charges................................... 27,156 2,708 6,903
---------- ---------- ----------

Income from operations........................ 14,777 54,714 64,170

Interest expense................................ (23,140) (12,680) (12,111)
Interest income................................. 589 593 4,502
Other income.................................... 1,176 1,106 1,534
---------- ---------- ----------

Income (loss) before income taxes (6,598) 43,733 58,095

Income taxes.................................... 5,215 19,243 24,402
---------- ---------- ----------

Net income (loss)............................... $ (11,813) $ 24,490 $ 33,693
========== ========== ==========

Net income (loss) per common share:

Basic......................................... $ (0.63) $ 0.90 $ 1.18
========== ========== ==========
Diluted....................................... $ (0.63) $ 0.89 $ 1.15
========== ========== ==========

Weighted average shares outstanding:

Basic......................................... 18,786 27,328 28,502
========== ========== ==========
Diluted....................................... 18,786 27,437 33,007
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

33
<PAGE>

CENTRAL GARDEN & PET COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Series A
Convertible Additional
Preferred Stock Class B Stock Common Stock Paid-in Retained
---------------- ------------- ------------
Shares Amount Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 27, 1997.......... 100 $ -- 1,663,167 $16 19,143,325 $191 $245,783 $ 36,291

Amortization, restricted stock
deferred compensation..............
Tax benefit from exercise of
stock options...................... 2,566
Conversion of Class B stock
into common stock................. (1,405) 1,405
Conversion of Class A preferred
stock into common stock........... (100) -- 100,000
Issuance of common stock............. 10,473,800 107 271,584
Treasury stock purchases.............
Net income........................... 33,693
----- ---- ----------- --- ----------- ---- -------- --------

Balance, September 26, 1998.......... -- -- 1,661,762 16 29,718,530 298 519,933 69,984

Amortization, restricted stock
deferred compensation..............
Tax benefit from exercise of
stock options...................... 120
Conversion of Class B stock
into common stock.................. (843) 843
Issuance of common stock............. 463,992 4 4,005
Treasury stock purchases.............
Net income........................... 24,490
----- ---- ----------- --- ----------- ---- -------- --------

Balance, September 25, 1999.......... -- -- 1,660,919 16 30,183,365 302 524,058 94,474
Tax benefit from exercise of
stock options..................... 14
Conversion of Class B stock
into common stock.................. (3,157) -- 3,157 --
Issuance of common stock............. 230,899 2 1,721
Treasury stock purchases.............
Net income (loss).................... (11,813)
----- ---- ----------- --- ----------- ---- -------- --------

Balance, September 30, 2000.......... -- $ -- $ 1,657,762 $16 30,417,421 $304 $525,793 $ 82,661
===== ==== =========== === =========== ==== ======== ========

<CAPTION>
Restricted
Stock Treasury Stock
Deferred --------------
Compensation Shares Amount Total
------------ ------ ------ -----
<S> <C> <C> <C> <C>
Balance, September 27, 1997.................. $(110) (26,000) $ (364) $281,807

Amortization, restricted stock
deferred compensation...................... 71 71
Tax benefit from exercise of
stock options.............................. 2,566
Conversion of Class B stock
into common stock.......................... --
Conversion of Class A
preferred stock into common stock.......... --
Issuance of common stock..................... 271,691
Treasury stock purchases..................... (46,000) (1,054) (1,054)
Net income................................... 33,693
----- ------------ --------- --------

Balance, September 26, 1998.................. (39) (72,000) (1,418) 588,774

Amortization, restricted stock
deferred compensation...................... 39 39
Tax benefit from exercise of
stock options.............................. 120
Conversion of Class B stock
into common stock.......................... --
Issuance of common stock..................... 4,009
Treasury stock purchases..................... (10,779,350) (121,705) (121,705)
Net income................................... 24,490
----- ------------ --------- --------

Balance, September 25, 1999.................. -- (10,851,350) (123,123) 495,727
Tax benefit from exercise of
stock options.............................. 14
Conversion of Class B stock
into common stock.......................... --
Issuance of common stock..................... 1,723
Treasury stock purchases..................... (2,890,900) (21,704) (21,704)
Net income (loss)............................ (11,813)
----- ------------ --------- --------

Balance, September 30, 2000.................. $ -- (13,742,250) $(144,827) $463,947
===== ============ ========= ========
</TABLE>

See notes to consolidated financial statements.

34
<PAGE>

CENTRAL GARDEN & PET COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................... $(11,813) $ 24,490 $ 33,693
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................................................... 26,035 20,492 16,114
Goodwill impairment charge...................................................... 15,739 - -
Deferred income taxes........................................................... (6,338) (1,104) 5,918
Loss (gain) on sale of land, building and improvements.......................... 883 118 (107)
Changes in assets and liabilities:
Receivables................................................................... 6,712 (5,882) 3,851
Inventories................................................................... 12,519 (20,001) 16,637
Prepaid expenses and other assets............................................. (6,265) 16,008 (1,396)
Accounts payable.............................................................. 4,024 33,896 (24,830)
Accrued expenses.............................................................. 965 (6,364) (22,374)
Other long-term obligations................................................... (2,385) 1,960 3,324
-------- --------- ---------
Net cash provided by operating activities.................................... 40,076 63,613 30,830
-------- --------- ---------
Cash flows from investing activities:
Additions to land, buildings, improvements and equipment........................ (16,663) (18,640) (18,904)
Payments to acquire companies, net of cash acquired............................. (34,406) (14,091) (219,892)
-------- --------- ---------
Net cash used by investing activities........................................ (51,069) (32,731) (238,796)
-------- --------- ---------
Cash flows from financing activities:
Borrowings (repayments) under lines of credit, net.............................. 29,869 87,398 (63,859)
Payments on long-term debt...................................................... (1,237) (1,366) (20,375)
Payments to reacquire stock..................................................... (21,704) (121,705) (1,054)
Proceeds from issuance of stock................................................. 1,733 2,480 203,457
-------- --------- ---------
Net cash provided (used) by financing activities............................. 8,661 (33,193) 118,169
-------- --------- ---------
Net decrease in cash............................................................. (2,332) (2,311) (89,797)
Cash at beginning of year........................................................ 8,017 10,328 100,125
-------- --------- ---------
Cash at end of year.............................................................. $ 5,685 $ 8,017 $ 10,328
======== ========= =========
Supplemental information:
Cash paid for interest.......................................................... $ 22,822 $ 11,275 $ 8,216
Cash paid for income taxes...................................................... 12,509 10,678 28,847
Assets (excluding cash) acquired through purchase of subsidiaries............... 43,225 4,907 222,710
Liabilities assumed through purchase of subsidiaries............................ 38,288 2,756 171,969
Inventory returned to manufacturer.............................................. 75,887 - -
</TABLE>

See notes to consolidated financial statements.

35
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended September 30, 2000, September 25, 1999

and September 26, 1998

1. Organization and Significant Accounting Policies

Organization -- Central Garden & Pet Company, a Delaware corporation, and
subsidiaries (the "Company"), is a national manufacturer, supplier and
merchandiser of lawn and garden and pet supply products. The Company offers an
array of proprietary branded lawn and garden and pet supply products.

Basis of Consolidation and Presentation -- The consolidated financial
statements include the accounts of the Company. Minority interest in equity-
method investees has been recorded under the caption "Other income." All
significant intercompany balances and transactions have been eliminated.

Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires that management make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period including accounts
receivable and inventory valuation and goodwill lives. Actual results could
differ from those estimates.

Revenue Recognition -- Sales are recorded, net of estimated returns and
discounts, when merchandise is shipped and title passes to the customer and the
Company has no further obligations to provide services related to such
merchandise. The Company's current practice on product returns generally is to
accept and credit the return of unopened cases of products from customers where
the quantity is small, where the product has been misshipped or the product is
defective.

Cost of goods sold and occupancy consist of cost to acquire the inventory
from vendors, certain indirect purchasing, merchandise handling and storage
costs, as well as allocations of certain facility costs, including rent,
property taxes, security, utilities, insurance and maintenance.

Advertising Costs -- The Company expenses the costs of advertising as
incurred. Advertising expenses were $16.7 million, $14.6 million and $5.9
million in fiscal 2000, 1999 and 1998, respectively.

Income Taxes are accounted for under the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting
for Income Taxes. Deferred income taxes result primarily from bad debt
allowances, inventory reserves, depreciation and nondeductible reserves.

Cash and cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition.

Inventories, which primarily consist of garden products and pet supplies
finished goods are stated at the lower of FIFO cost or market. Cost includes
certain indirect purchasing, merchandise handling and storage costs including
certain salary and data processing costs incurred to acquire inventory, costs to
unload, process and put away shipments received in order to prepare them to be
picked for orders, and certain overhead costs. The amounts of such costs
capitalized to inventory are computed based on an estimate of costs related to
the procurement and processing of inventory to prepare it for sale compared to
total product purchases.

36
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories held for return to manufacturer consist of Solaris garden
products inventory to be returned after September 25, 1999 in accordance with
the terms of the Solaris Agreement. Such inventory has been recorded at its
estimated net realizable value.

Long-lived assets - The Company periodically reviews its long-lived assets
for potential impairment based on a review of projected undiscounted cash flows
associated with these assets. Measurement of impairment losses for long-lived
assets that the Company expects to hold and use is based on the estimated fair
value of the assets.

Land, buildings, improvements and equipment are stated at cost.
Depreciation is computed by the straight-line method over thirty years for
buildings. Improvements are amortized on a straight-line basis over the shorter
of the useful life of the asset or the terms of the related leases. Depreciation
on equipment is computed by the straight-line and accelerated methods over the
estimated useful lives of 3 to 10 years.

Goodwill is amortized using the straight-line method over periods ranging
from 20 to 40 years. Accumulated amortization totaled $32,131,805 and
$22,006,000 at September 30, 2000 and September 25, 1999, respectively. The
carrying amounts of intangible assets and goodwill are reviewed if facts and
circumstances suggest that they may be impaired. If this review indicates that
the carrying amounts of intangible assets and goodwill will not be recoverable,
as determined based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying amounts of the
intangible assets and goodwill are reduced by the estimated shortfall of cash
flows. In addition, intangible assets and goodwill associated with assets
acquired in a purchase business combination are included in impairment
evaluations when event and circumstances exist that indicate the carrying amount
of those assets may not be recoverable.

Fair Value of Financial Instruments -- At September 30, 2000 and September
25, 1999, the carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and non convertible debt approximates its fair value. The fair
value of the Company's convertible subordinated notes was $67,850,000 and
$80,500,000 at September 30, 2000 and September 25, 1999, respectively, which
was determined by comparison to quoted market prices.

Derivative Financial Instruments - The Company's policy generally is to use
financial derivatives only to manage exposure to fluctuations in interest rates.
The Company has entered into interest rate swap agreements to hedge certain
interest rate risks which are accounted for using the settlement basis of
accounting. Premiums paid on interest rate swap agreements are deferred and
amortized to interest expense over the life of the underlying hedged instrument,
or immediately if the underlying hedged instrument is settled. As interest
rates change, the differential between the interest rate received and the
interest rate paid under the interest rate swap arrangements is reflected in
interest expense quarterly. No gains or losses are recorded for movements in
the swaps' values during the terms of the respective agreements.

Purchase commitments - Seed production and purchase agreements obligate the
Company to make future purchases based on estimated yields. These contracts vary
in their terms, a portion of which have fixed prices or quantities. At September
30, 2000, estimated annual seed purchase commitments were $85.1 million for
fiscal 2001, $14.5 million for fiscal 2002 and $9.0 million for fiscal 2003.

Comprehensive income-- SFAS No. 130 requires an enterprise report, by major
components and as a single total, the change in its net assets, during the
period from non-owner sources. The Company does not have any items of Other
Comprehensive Income, as defined by SFAS No. 130, and thus Net Income is equal
to Comprehensive Income.

Reclassifications -- Certain 1998 and 1999 balances have been reclassified
to conform with the 2000 presentation, including the following: $4.1 million of
exit-related costs incurred during the close down process of various facilities
have been reclassified from Other charges to Selling, general and administrative
expenses, and $1.5

37
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of earnings attributable to an equity-method investee have been reclassified
from Net sales to Other income, for fiscal 1998; and $4.9 million of charges to
reduce the carrying value of inventory to its estimated recoverable value have
been reclassified from Other charges to Cost of goods sold and occupancy, and
$1.1 of earnings attributable to an equity-method investee have been
reclassified from Net sales to Other income, for fiscal 1999.

New Accounting Pronouncements -- Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and amended by SFAS Nos. 137 and 138,
issued in June 2000. The requirements of SFAS No. 133 as amended by SFAS
Nos. 137 and 138 will be effective for the Company in the first quarter of the
fiscal year beginning October 1, 2000. The standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under the
standard, certain contracts that were not formerly considered derivatives may
now meet the definition of a derivative. The Company intends to adopt the
standard effective October 1, 2000. The adoption of SFAS No. 133, as amended by
SFAS Nos. 137 and 138, will not have an impact on the financial position or
results of operations of the Company because the Company does not have
derivative instruments which require valuation in the financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements", which provides the SEC staff's views on selected revenue
recognition issues. In March 2000, the SEC released SAB 101A, which delayed for
one quarter the implementation date of SAB 101 for registrants with fiscal years
beginning between December 16, 1999 and March 15, 2000. In June 2000, the SEC
released SAB 101B, which delayed the implementation date of SAB 101 until no
later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company is evaluating what impact, if any, SAB 101 will have on
the Company's income statement presentation, however, the Company does not
believe it will have any impact on its operating results or financial position.

The Solaris Agreement -- The Company entered into an agreement effective
October 1, 1995 with The Solaris Group ("Solaris"), a strategic business unit of
Monsanto Company (subsequently renamed Pharmacia Corporation), the manufacturer
of Ortho(R), Round-up(R) and Green Sweep(R) lawn and garden products (the
"Solaris Agreement"). Under the Solaris Agreement, which had a four year term,
the Company, in addition to serving as the master agent and master distributor
of Solaris products, provided a wide range of value-added services including
logistics, order processing and fulfillment, inventory distribution and
merchandising. However, Solaris continued to negotiate its sales prices directly
with its direct sales accounts. The Solaris Agreement provided for the Company
to be reimbursed for costs incurred in connection with services provided to
Solaris' direct sales accounts and to receive payments based on the growth of
sales of Solaris products. The Company was also entitled to share with Solaris
in the economic benefits of certain cost reductions, to the extent achieved.

In January 1999, Pharmacia sold its Solaris lawn and garden business
exclusive of its Roundup(R) herbicide products for consumer use to The Scotts
Company ("Scotts") and entered into a separate, long-term, exclusive agreement
pursuant to which Pharmacia continues to make Roundup herbicide products for
consumer use and Scotts markets the products. Beginning October 1, 1999, Scotts
began to distribute Ortho(R) and Roundup(R) products through a system that
involved a combination of distributors, of which we were the largest, as well as
through direct sales by Scotts to certain major retailers. In addition, Scotts
began to sell Miracle-Gro(R) directly to certain retailers.

Due to the termination of the Scotts' distribution relationship, we have
taken actions to downsize our lawn and garden distribution operations to reflect
business levels for the fiscal year 2001. As a result, we have recorded charges
of $27.5 million in the fiscal year ending September 30, 2000. See Note 2,
"Other Charges."

38
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The sale of the Solaris business by Pharmacia, the expiration of the Solaris
Agreement and termination of the Scotts distribution relationship subject our
distribution business to significant uncertainties. These include the resolution
of all payments due between us and Pharmacia under the Solaris Agreement, such
as the amounts receivable from Pharmacia for cost reimbursements and payments
for cost reductions; the amounts payable to Pharmacia for inventory; and
responsibility for obsolete inventory and for non-payment by Solaris' sub-
agents. Scotts and Pharmacia have each initiated litigation against Central
arising out of the prior distribution relationship. In addition, Central has
filed suit against Scotts and Pharmacia seeking damages and injunctive relief as
well as restitution for, among other things, breach of contract and violations
of the antitrust laws by Scotts and Pharmacia. Each of these cases is in its
early stage. For this reason and because of the uncertainties inherent in
complex litigation, it is not currently possible to make an assessment of the
potential impact, losses or gains that may arise out of these cases individually
or collectively. Central believes that the reconciliation of all accounts and
claims with Pharmacia and Scotts will not result in additional charges to
Central. Further, Central believes it has substantial counterclaims and rights
of offset against both Scotts and Pharmacia, as well as meritorious defenses,
and intends to vigorously contest both suits. However, Central cannot assure you
that the resolution of this litigation will not have a material adverse effect
on its results of operations, financial position and/or cash flows.

2. Other Charges

In fiscal 2000, 1999 and 1998, the Company recorded other charges as
follows (in millions):

<TABLE>
<CAPTION>
Cash Non Cash
--------------------- ------------
Asset
Exit Carrying
Related Value
Severance and Other Adjustments Total
----------- --------- ------------ --------
<S> <C> <C> <C> <C>
Fiscal 1998 other charges......................... $ 1.0 $ 4.1 $ 1.8 $ 6.9
Severance paid.................................... (1.0) (1.0)
Costs paid........................................ (3.2) (3.2)
Assets carrying value adjustments................. (1.8) (1.8)
----- ----- ------ ------
Reserve Balance September 26, 1998................ 0.0 0.9 0.0 0.9

Fiscal 1999 Other Charges......................... 0.6 0.4 1.7 2.7
Severance paid.................................... (0.2) (0.2)
Costs paid........................................ (0.3) (0.3)
Assets carrying value adjustments................. (1.7) (1.7)
----- ----- ------ ------
Reserve balance September 25, 1999................ 0.4 1.0 0.0 1.4

Fiscal 2000 other charges......................... 1.1 8.2 17.9 27.2
Severance paid.................................... (1.1) (1.1)
Costs paid........................................ (0.1) (0.1)
Assets carrying value adjustments................. (17.9) (17.9)
----- ----- ------ ------
Reserve balance September 30, 2000................ $ 0.4 $ 9.1 $ 0.0 $ 9.5
===== ===== ====== ======
</TABLE>

The remaining balances for severance and exit-related and other costs are
included in "Accounts payable" and "Accrued expenses" as of September 30, 2000,
September 25, 1999 and September 26, 1998."

39
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fiscal 2000
-----------

As a result of the fiscal 2000, and anticipated future, sales decreases in
the Distribution segment, the Company initiated a plan to close 13 distribution
centers and reduce its workforce which is expected to be completed by the second
quarter of fiscal 2001. In connection with this plan, the Company recorded a
severance charge of $1.1 million associated with the termination of 309
employees, primarily in the sales force and distribution centers. Severance of
$0.7 million was paid to 196 employees terminated during fiscal 2000, with the
balance expected to be paid to employees who will be terminated in fiscal 2001.
In connection with the facilities closures, $3.6 million was accrued for
estimated lease costs, and $0.2 million for estimated property tax and
facilities maintenance costs, that the Company is obligated to pay for periods
subsequent to closure. The Company expects to complete the facility closures by
the end of the second quarter of fiscal 2001. The Company also recorded an $0.8
million impairment charge to reduce certain facility assets to their estimated
fair value based on an independent appraisal, and an $0.8 million provision for
estimated uncollectible receivables from customers of the closed facilities.

Remaining reserve balances totaling $9.5 million are included in the
Consolidated Balance Sheet within the category "accounts payable" and "accrued
expenses", comprised of $0.2 million associated with "Other Charges" recorded in
the year ended September 26, 1998; $0.4 million associated with "Other Charges"
recorded in the year ended September 25, 1999; and $8.9 million associated with
"Other Charges" recorded in the year ended September 30, 2000. With respect to
each of these amounts: (1) the reserve balance of $0.2 million associated with
the fiscal 1998 charges was the net result of severance payments of $1.0 million
made to 168 terminated employees, all of which was paid in 1998, exit-related
and other costs totaling $3.9 million (principally lease payments), of which
$3.2 million was paid in 1998, $0.3 million was paid in 1999 and $0.1 million
paid in 2000, and $0.3 million of reserves which were reversed in fiscal 2000
that were no longer required related to costs associated with these exit
activities. The remainder of the costs associated with this reserve will be
incurred in the first quarter of 2001; (2) the reserve balance of $0.4 million
associated with the fiscal 1999 charges was the net result of severance payments
of $0.6 million made to 113 terminated employees. Of the $0.6 million of
severance, $0.2 million was paid in 1999 and $0.4 million was paid in 2000. The
remaining exit costs associated with this plan will be incurred during fiscal
2001; and (3) the reserve balance of $8.9 million associated with the fiscal
2000 charges associated with severance payments of $0.4 million and the exit
costs of $8.5 million which will be paid during fiscal year 2001.

Fiscal 1999
-----------

In September 1999, the Company recorded other charges totaling $2.7 million
associated with the expiration of the Solaris Agreement, workforce reductions,
facility closures.

40
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Of the $2.7 million charge, the Company established a $0.1 million reserve for
estimated non-collectible amounts due from distributors involved in the Solaris
program, and a $0.1 million charge for post-closure facility lease obligations
of the Company's facility which warehoused only inventory received under the
Solaris Agreement which was closed upon termination of the Solaris Agreement.

The Company initiated a plan for closure of three distribution centers as well
as a workforce reduction which is expected to be completed by the end of the
second quarter of fiscal 2000. Also included in the $2.7 million charge is $1.6
million related to such closures and workforce reductions in the Distribution
segment. As part of this plan, the Company recorded a severance charge of $0.6
million for workforce reductions. The severance charge relates to the
termination of 113 employees, primarily in the sales force and distribution
centers and associated back-office functions. Severance for 51 employees was
paid during fiscal 1999. Also related to such closures, a charge of $0.4
million was recorded for other exit-related costs, consisting primarily of
lease costs, property and other facility costs required to be paid subsequent to
the termination of operations. In addition, $0.3 million was required to write
off the carrying value of certain facility assets which will no longer be used
and are expected to be disposed of during the first half of fiscal 2000. $0.9
million of the $1.6 million of other charges related to these closures and
workforce reductions recorded in September 1999 is included in accrued expenses
as of September 25, 1999. These costs will be paid primarily in fiscal 2000,
with certain lease obligations to be paid in fiscal 2001.

The Company initiated a plan to dispose of a building and certain facility
assets in the Garden Products segment which have not operated at the level of
profitability required by the Company. Also included in the $2.7 million charge
is $1.2 million required to reduce the $3.0 million carrying value of the
building which is being held for disposal during fiscal 2000 to its estimated
net realizable value in accordance with SFAS No. 121. The charge was based on
the comparison of the net carrying cost of this facility and assets compared
with current market values, less costs to sell. The operations of this facility
are included in the Company's operations for fiscal 1999, and resulted in a
pretax loss of approximately $136,000.

Fiscal 1998
-----------

In fiscal 1998, the Company recorded other charges totaling $6.9 million.
These charges included approximately $2.6 million in exit-related costs related
to the closure of 11 of the Company's branch locations in the Distribution
segment, approximately $2.2 million in costs associated with professional and
due diligence expenses principally related to a potential acquisition that was
not completed, and $2.1 million associated with the development of a new product
line. $2.1 million of the $6.7 million relates to severance and other exit-
related costs, primarily for lease costs and property and other facility costs
for which the Company was obligated after the facilities have been closed. Of
the $2.1 million, $1.0 million represents a severance charge for workforce
reductions. The severance charge relates to the termination of 168 employees,
primarily in the sales force and distribution centers associated back-office
functions. Severance for all such employees was paid in fiscal years 1998. The
remaining $0.5 million relates to a loss associated with a facility which was no
longer fits into the Company's business plan, and was sold during the year.

3. Acquisitions

Fiscal 1998

In December 1997, the Company acquired Kaytee Products Incorporated
("Kaytee"), one of the nation's largest manufacturers of bird and small animal
food. Under the terms of the agreement, the Company paid approximately $50
million. An additional payment of $3 million based on future sales was recorded
in fiscal 1999 as a liability and an increase to the goodwill associated with
the acquisition. Such amount remained outstanding as of September 25, 1999 and
were paid during the Company's second quarter of fiscal 2000. The purchase price
of Kaytee exceeded the fair value of net assets acquired by approximately $49
million which was recorded as goodwill and is being amortized on a straight-line
basis over 40 years.

41
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In December 1997, the Company acquired TFH Publications, Inc. ("TFH"), a
manufacturer of premium dog chews and the largest producer of pet books in the
U.S. Under the terms of the agreement, the Company paid approximately $71
million in cash, and will pay $4.8 million in cash for the stock of a related
company over the next two years, subject to adjustment. Additional payments of
$35.65 million based on TFH achieving certain earnings targets over two and
five-year periods would be due in April 2000 and 2003 to the former shareholders
of TFH and the related company. Such amounts, if paid, would increase the
goodwill associated with the acquisition. The purchase price of TFH exceeded the
fair value of net assets acquired by approximately $82 million, which was
recorded as goodwill and is being amortized on a straight-line basis over 40
years.

In February 1998, the Company acquired Pennington Seed, Inc. ("Pennington"), a
manufacturer of proprietary branded grass and wild bird seed, and a manufacturer
and distributor of lawn and garden products. Under the terms of the agreement,
the Company paid approximately $83 million in cash and 2,178,866 shares of
common stock at a value of approximately $68 million. The purchase price
exceeded the fair market value of net assets acquired by approximately $109
million, which was recorded as goodwill and is being amortized on a straight-
line basis over 40 years.

Fiscal 1999

In January 1999, the Company acquired Norcal Pottery Products, Inc.
("Norcal"), an importer and distributor of lawn and garden pottery products.
Under the terms of the agreement, the Company paid approximately $14 million in
cash and 115,634 shares of common stock at a value of approximately $2 million.
The purchase price exceeded the fair market value of net assets acquired by
approximately $14 million, which was recorded as goodwill and is being amortized
on a straight-line basis over 40 years. The fair value of net assets acquired is
based on preliminary estimates which are subject to change.

Fiscal 2000

In September 2000, Central acquired All-Glass Aquarium Co., Inc., a leading
manufacturer and marketer of aquariums and related products, based in Franklin,
Wisconsin and its Oceanic Systems subsidiary in Dallas, Texas for approximately
$10 million. The purchase price exceeded the fair market value of net assets
acquired by approximately $10 million, which was recorded as goodwill and is
being amortized on a straight line basis over 20 years.

In March 2000, Central acquired the AMDRO(R) and IMAGE(R) consumer product
lines from American Cyanamid, the agricultural products division of American
Home Products Corporation for approximately $28 million. The purchase price
exceeded the fair market value of net assets acquired by approximately $27
million, which was recorded as goodwill and is being amortized on a straight
line basis over 20 years.

In March 2000, Central's Norcal Pottery Products, Inc. subsidiary acquired
White's Pottery, L.P., an importer and distributor of terra cotta pottery
products for approximately $2 million. The purchase price exceeded the fair
market value of net assets acquired by approximately $1 million, which was
recorded as goodwill and is being amortized on a straight line basis over 20
years.

In January 2000, Central's Pennington subsidiary acquired Unicorn
Laboratories. Unicorn serves the U.S. animal health and lawn and garden
industries as a private label and branded manufacturer of lawn, garden and
animal health chemical products for approximately $15 million. The purchase
price exceeded the fair market value of net assets acquired by approximately
$14 million, which was recorded as goodwill and is being amortized on a
straight line basis over 40 years.

In January 2000, Central's Pennington subsidiary acquired an equity stake in
Cedar Works, a manufacturer of bird feeders for approximately $6 million. The
purchase price exceeded the fair market value of net assets acquired

42
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

by approximately $4 million, which was recorded as goodwill and is being
amortized on a straight line basis over 40 years.

The fiscal 2000, 1999 and 1998 acquisitions have been accounted for under the
purchase method and have been included in the Company's consolidated statements
of income from date of acquisition. The value of stock issued in relation to the
above acquisitions has been determined by using the average daily closing market
price of the Company's stock prior to the closing of such acquisitions as
required under the acquisition agreements.

Unaudited Pro Forma Results of Operations -- The following table summarizes on
a pro forma basis the combined results of operations of the Company and its
subsidiaries for fiscal years 2000 and 1999 as if the fiscal year 2000 and 1999
acquisitions were made on September 26, 1998. The pro forma results of
operations also reflect pro forma adjustments for stock issued to facilitate the
acquisitions, adjustments for the amortization of goodwill and additional
interest expense which would have been incurred. Although this pro forma
combined information includes the results of operations of the acquisitions, it
does not necessarily reflect the results of operations that would have occurred
had the acquisitions been managed by the Company prior to their acquisition.

Fiscal Year Ended
-----------------------------
September 30, September 25,
2000 1999
------------- -------------
(Unaudited)
(In thousands, except
per share amounts)

Net sales.................................. $1,424,910 $1,616,030
Gross profit............................... 363,961 370,878
Income from operations..................... 22,878 62,556
Income before taxes........................ (2,266) 45,912
Net income................................. (9,213) 25,711

Net income per share:
Basic.............................. ($0.49) $ 0.94
Diluted............................ ($0.49) $ 0.94

Weighted average common shares outstanding:
Basic.............................. 18,786 27,357
Diluted............................ 18,786 27,466

4. Concentration of Credit Risk and Significant Customers and Suppliers

Customer Concentration -- Approximately 46%, 51% and 48% of the Company's
net sales for fiscal years 2000, 1999 and 1998, respectively, were derived from
sales to the Company's top ten customers. The Company's largest customer
accounted for approximately 25%, 22% and 23% of the Company's net sales for
fiscal years 2000, 1999 and 1998, respectively. The Company's second largest
customer accounted for approximately 5%, 9% and 8% of the Company's net sales
for fiscal years 2000, 1999 and 1998, respectively. The Company's third largest
customer accounted for approximately 5%, 6%, and 6% of the Company's net sales
for fiscal years 2000, 1999 and 1998. The loss of, or significant adverse change
in, the relationship between the Company and these three customers could have a
material adverse effect on the Company's business and financial results. The
loss of or reduction in orders from any significant customer, losses arising
from customer disputes regarding shipments, fees, merchandise condition or
related matters, or the Company's inability to collect accounts receivable from
any major customer could have a material adverse impact on the Company's
business and financial results. As of September 30, 2000 and September 25, 1999,
accounts receivable from the Company's top ten customers comprised 31% and 46%,

43
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

respectively, of the Company's total accounts receivable, including 12% and
24% for the Company's largest customer.

Supplier Concentration -- While the Company purchases products from over
1,000 different manufacturers and suppliers, approximately 16%, 40% and 42% of
the Company's net sales in fiscal years 2000, 1999 and 1998, respectively, were
derived from products purchased from the Company's five largest suppliers. The
Company believes that approximately 27% and 28% of the Company's net sales
during fiscal years 1999 and 1998, respectively, were derived from sales of
products purchased from Solaris. As discussed in Note 1, the Solaris Agreement
expired on September 30, 1999. The Company believes that approximately 14% of
the Company's net sales during fiscal year 2000 were derived from sales of
products purchased from Scotts. Scotts discontinued its distribution
relationship with the Company as of September 30, 2000.

5. Notes Payable

The Company has a line of credit providing for aggregate borrowings of up
to $200,000,000 which expires on July 12, 2002. The available amount under the
line of credit fluctuates based upon a specific asset borrowing base. At
September 30, 2000 and September 25, 1999, balances of $114,465,188 and
$75,779,726, respectively, were outstanding under this agreement, bearing
interest at a rate based on the prime rate (9.5% at September 30, 2000 and 8.25%
at September 25, 1999) or LIBOR plus 2% at the Company's option. Available
borrowing capacity at September 30, 2000 and September 25, 1999 was $5,085,173
and $49,220,274, respectively. This line is secured by substantially all of the
Company's assets, and contains certain financial covenants requiring maintenance
of minimum levels of net worth and working capital, places a ceiling on the
Company's treasury stock purchases and does not allow the Company to pay
dividends The line also requires the lender's prior written consent to any
acquisition of a business.

The Company also has available through its Pennington subsidiary a
$60,000,000 line of credit. As of September 30, 2000 and September 25, 1999, the
Company had $10,041,033 and $20,103,000, respectively, of borrowings under this
line of credit facility. Available borrowing capacity at September 30, 2000 and
September 25, 1999 was $50.0 million and $39.9 million, respectively. Interest
related to this line is based on a rate either equal to the prime rate or LIBOR
plus .875%, at the Company's option. The line of credit contains certain
restrictive financial covenants.

Pennington has entered into interest rate swap agreements to limit the
effect of increases in the interest rates on any variable rate debt. As interest
rates change, the differential between the interest rate received and the
interest rate paid under the interest rate swap arrangements is reflected in
interest expense quarterly. During 1996, Pennington entered into swap agreements
expiring in November 1999 and November 2000, with an aggregate notional amount
of $9.0 million. The effect of these agreements is that the Company exchanged
variable rate interest payments for fixed rate payments at 7.87% on $3.0 million
and 6.45% on $6.0 million of Pennington's line of credit. As a result of these
swap agreements, interest expense was increased by approximately $12,421 in 2000
and $155,000 in 1999. The fair value of the interest rate swap agreements was
not recognized in the consolidated financial statements since they are accounted
for as hedges. As the remaining swap agreement expires in November 2000, the
estimated fair value of such interest rate swap agreement was minimal as of
September 30, 2000. As of September 25, 1999, the estimated fair value of the
interest rate swap agreements, based on market rates, approximated a net payable
of $76,000.

<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Long-Term Debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
September 30, September 25,
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Convertible subordinated notes, interest at 6% payable semi-annually,
principal due 2003; convertible at the option of the holder into shares of
common stock of the Company, at any time prior to redemption or
maturity, at a conversion price of $28.00 per share (equal to a conversion
rate of 35.7143 shares per $1,000 principal amount of notes)............................ $115,000 $115,000
Promissory note, interest at 7% with annual principal and interest payments of
$5,550,289 beginning 2001 and ending 2004............................................... 18,800
Industrial development revenue bonds due in semi-annual sinking fund
Installments beginning 2003; bearing interest at floating rates, secured by letter
of credit collateralized by Plant and equipment......................................... 4,390
Industrial development revenue bonds due in annual sinking fund installments
of $305,000 to $310,000 through July 2010, bearing interest at floating rates,
secured by an unconditional letter of credit .......................................... 3,085 3,390
Mortgage note payable, interest at floating rates; payable in monthly principal
And interest installments of $60,000 with unpaid balance due 2004....................... 2,610
Note payable bank, interest at floating rates; payable in monthly principal
Installments of $100,000 plus interest with unpaid balance due 2002..................... 2,000
Industrial development revenue bonds due in annual sinking fund installments
of $300,000 through December 2005, bearing interest at floating rates,
secured by an unconditional letter of credit............................................ 1,830 2,100
Mortgage note payable to bank, interest based on a formula (7.0% at
September 30, 2000), principal and interest due in monthly installments
through March 2012...................................................................... 1,615 1,703
Mortgage note payable, interest at floating rates; payable in monthly principal
And interest installments of $6,250 with unpaid balance due 2004........................ 1,431
Industrial development revenue bonds due in annual sinking fund installments
ranging from $130,000 to $195,000 through July 2005, bearing interest at
floating rates, secured by an unconditional letter of credit............................ 910 1,105
Mortgage note payable to bank, interest based on a formula (6.8% at
September 30, 2000), principal and interest due in monthly installments
through December 2019................................................................... 994 1,017
Industrial development revenue bonds due in quarterly sinking fund
installments of $30,000, with a final principal installment of $90,000 due
March 2004, bearing interest at floating rates, secured by an unconditional
letter of credit........................................................................ 480 600
Note payable to a former owner of an acquired company, interest at 10%,
payable quarterly, principal due 2000................................................... 200 200
Other notes payable...................................................................... 174 268
-------- --------
Total................................................................................. 153,519 125,383
Less current portion of long-term debt................................................... 5,277 1,485
-------- --------
Total................................................................................ $148,242 $123,898
======== ========
</TABLE>

45
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Principal repayments on long-term debt are scheduled as follows:

(in thousands)
Fiscal year:
2001.................................................... $ 5,277
2002.................................................... 7,347
2003.................................................... 121,849
2004.................................................... 7,725
2005.................................................... 4,013
Thereafter.............................................. 7,308
--------
Total................................................ $153,519
========

7. Commitments and Contingencies

The Company has operating lease agreements principally for office and
warehouse facilities and equipment. Such leases have remaining terms, inclusive
of renewal options, of 1 to 8 years. Rental expense was $23,432,850, $20,477,000
and $13,948,000 for fiscal years 2000, 1999 and 1998, respectively.

Certain facility leases have renewal options and provide for additional
rent based upon increases in the Consumer Price Index.

Aggregate minimum annual payments on non-cancelable operating leases at
September 30, 2000 are as follows:

(in thousands)
Fiscal year:
2001................................................... $18,638
2002................................................... 13,950
2003................................................... 9,505
2004................................................... 7,289
2005................................................... 5,418
Thereafter............................................. 1,826
-------
Total $56,626
=======

In December 1997, the Company acquired all of the stock of TFH
Publications, Inc. In connection with the transaction, the Company made a $10
million loan to the sellers, which was evidenced by a Promissory Note. In
September 1998, the prior owners of TFH brought suit against the Company and
certain executives of the Company for damages and relief from their obligations
under the Promissory Note, alleging, among other things, that the Company's
failure to properly supervise the TFH management team had jeopardized their
prospects of achieving the earnouts. The Company believes that these allegations
are without merit. The Company counterclaimed against the prior owners for
enforcement of the Promissory Note, damages and other relief, alleging, among
things, fraud, misrepresentation and breach of fiduciary duty by the prior
owners of TFH. These actions, Herbert R. Axelrod and Evelyn Axelrod v. Central
Garden & Pet Company; Glen S. Axelrod; Gary Hersch; William E. Brown; Robert B.
Jones; Glen Novotny; and Neill Hines, Docket No. MON-L-5100-99, and TFH
Publications, Inc. v. Herbert Axelrod et al., Docket No. L-2127-99 (consolidated
cases), are in the New Jersey Superior Court. There is no trial date at this
time.

46
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

the Company, there is a possibility that TFH could be liable for penalties for
events which occurred under prior management. The Company believes that TFH has
strong defenses available to the assertion of any penalties against TFH. The
Company cannot predict whether TFH will be required to pay any such penalties.
In the event that TFH were required to pay penalties, the Company would seek
compensations from the prior owners.

The Company, based on consultation with legal counsel, does not believe
that the outcome of the above matters will have a material adverse impact on its
operations, financial position, or cash flows.

On August 2, 2000, a fire destroyed the Company's leased warehouse space in
Phoenix, Arizona, and an adjoining warehouse space leased by a third party. The
adjoining warehouse tenant, the building owner, and nearby businesses have
presented claims for property damage and business interruption. Local residents
have filed, but not yet served, a purported class action lawsuit alleging claims
for bodily injury and property damage as a result of the fire. In addition, the
Arizona Department of Environmental Quality is monitoring the cleanup operations
and has asked the Company, the building owner and the adjoining warehouse tenant
to submit a plan for assessing whether the fire and fire suppression efforts may
have caused environmental impacts to soil, groundwater and/or surface water. The
overall amount of the damages to all parties caused by the fire, and the overall
amount of damages which the Company may sustain as a result of the fire, have
not been quantified. At the time of the fire, the Company maintained property
insurance covering losses to the leased premises, the Company's inventory and
equipment, and loss of business income. The Company also maintained insurance
providing $51 million of coverage (with no deductible) against third party
liability. The Company believes that this insurance coverage will be available
with respect to third party claims against the Company if parties other than the
Company are not found responsible. The precise amount of the damages sustained
in the fire, the ultimate determination of the parties responsible and the
availability of insurance coverage are likely to depend on the outcome of
complex litigation, involving numerous claimants, defendants and insurance
companies.

In addition the Company is subject to litigation with Pharmacia and Scotts
(see Note 1).

8. Income Taxes

The provision for income taxes consists of the following:

Fiscal Year Ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------ ------------- --------------
Current:

Federal................. $ 9,544 $16,796 $15,277
State................... 2,009 3,551 3,207
------- ------- -------
Total........................ 11,553 20,347 18,484

Deferred..................... (6,338) (1,104) 5,918
------- ------- -------
Total................... $ 5,215 $19,243 $24,402
======= ======= =======

47
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

A reconciliation of the statutory federal income tax rate with the
Company's effective income tax rate is as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Statutory rate.............................. 35% 35% 35%
State income taxes, net of federal benefit.. (8.5) 5 5
Nondeductible expenses, primarily goodwill.. (103.5) 5 6
Other....................................... (1.0) (1) (4)
------ ---- ----
Effective tax rate (78.0)% 44% 42%
====== ==== ===
</TABLE>

Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The tax effect of temporary differences and
carryforwards which give rise to deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
September 30, 2000 September 25, 1999
------------------------- ------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
--------- ----------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Current:
Allowance for doubtful accounts receivable............. $ 1,910 $1,131
Inventory reserves..................................... 7,852 3,318
Prepaid expenses....................................... $ 1,364 $ 1,810
Nondeductible reserves................................. 4,750 2,708
State taxes............................................ 258 419
Other.................................................. 1,102 4
------- ------- ------ -------
Current 15,614 1,622 7,580 1,810
Noncurrent:
Depreciation and amortization.......................... 11,106 8,970
Joint venture income................................... 634 626
Nondeductible reserves................................. 920
Other.................................................. 386 147
------- ------- ------ -------
Noncurrent............................................... 12,126 1,067 9,596
------- ------- ------ -------
Total............................................... $15,614 $13,748 $8,647 $11,406
======= ======= ====== =======
</TABLE>

9. Shareholders' Equity

At September 30, 2000, there were 1,000 shares of Series A convertible
preferred stock ($0.01 par value) authorized, of which none were outstanding. In
July 1995, in connection with an agreement to become the master agent and
distributor for Solaris, the Company received from Monsanto Company $900,000 in
exchange for its issuance of 100 shares of Series A convertible preferred stock
and a warrant to purchase up to 500,000 shares of common stock with an exercise
price of $9.00 per share. Each share of Series A convertible preferred stock is
entitled to a liquidation preference of $9,000 per share, is convertible into
1,000 shares of common stock, is entitled to an annual 5% cumulative dividend,
votes together with common stock, and has a number of votes equal to the number
of shares of common stock into which it is convertible. In July 1997, the
Company redeemed the warrant for $7.0 million. In June 1998, the 100 shares of
Series A convertible preferred stock were converted into 100,000 shares of
common stock.

At September 30, 2000, there were 3,000,000 shares of Class B stock ($0.01
par value) authorized, of which 1,657,962 were outstanding. The voting powers,
preferences and relative rights of the Class B stock are identical to common
stock in all respects except that (i) the holders of common stock are entitled
to one vote per share and the

48
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(Continued)

holders of Class B stock are entitled to the lesser of ten votes per share or
49% of the total votes cast, (ii) stock dividends on common stock may be paid
only in shares of common stock and stock dividends on Class B stock may be paid
only in shares of Class B stock and (iii) shares of Class B stock have certain
conversion rights and are subject to certain restrictions on ownership and
transfer. Each share of Class B stock is convertible into one share of common
stock, at the option of the holder. Additional shares of Class B stock may only
be issued with majority approval of the holders of the common stock and Class B
stock, voting as separate classes.

At September 30, 2000, there were 80,000,000 shares of common stock ($0.01
par value) authorized, of which 16,675,171 were outstanding.

On January 15, 1998, the Company completed an offering of 8,050,000 shares
of its common stock at $26.25 per share before deduction for underwriting
commission and expenses related to the offering. The net proceeds were used to
finance recent acquisitions and for general corporate purposes.

In August 1998, the Company's Board of Directors authorized a program for
the Company to repurchase up to $25 million of common shares. In several
subsequent authorizations, the Company's Board of Directors increased such
authorization up to $155 million of common shares as of December 1, 1999. As of
December 8, 2000, the Company had repurchased approximately 13.7 million shares
of its common stock for an aggregate price of approximately $143.8 million under
this program.

In 1993, the Company adopted the Omnibus Equity Incentive Plan (the "Plan")
which provided for the grant of options to key employees and consultants of the
Company for the purchase of up to an aggregate of 900,000 shares of common stock
of the Company. In 1995, the Company amended the Plan to increase the number of
shares authorized for issuance by an additional 300,000, in 1996 the Company
amended the Plan to increase the number of shares authorized for issuance by an
additional 800,000 and in 1998 the Company further amended the Plan to increase
the number of shares authorized for issuance by an additional 2,000,000. The
Plan is administered by the Compensation Committee of the Board of Directors,
comprised of outside independent directors only, who determine individual awards
to be granted, vesting and exercise of share conditions.

The Company sponsors several 401(k) plans which cover substantially all
employees. The Company accrued contributions of $1,029,505, $987,000 and
$296,000 for fiscal years 2000, 1999 and 1998, respectively.

The Company maintains an employee discount stock purchase plan for eligible
employees. Under such plan, participants may use up to 15% of their annual
compensation up to certain dollar limitations, whichever is higher, to purchase,
through payroll deductions, the Company's common stock at the end of six-month
periods ending June 30 and December 31 of each plan year for 85% of the lower of
the beginning or ending stock price for the applicable six-month period of each
plan year.

Additional Stock Plan Information - The Company continues to account for
its stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board No. 25, Accounting for Stock Issued to Employees,
and its related interpretations.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net earnings and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1997. These
calculations require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life of
four years from date of grant; stock volatility, 57% in fiscal 2000, 64% in
fiscal 1999 and 59% in fiscal 1998; risk free interest rates, 5.29% in fiscal
2000, 4.6% in fiscal 1999 and 5.8% in fiscal 1998; and no dividends during the
expected term.

49
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(Continued)

The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
fiscal 2000, fiscal 1999, and fiscal 1998 awards had been amortized to expense
in the consolidated financial statements over the vesting period of the awards,
pro forma net earnings would have been as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------
September 30, 2000 September 25, 1999 September 26, 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net (loss) earnings (in thousands)... $(16,067) $20,849 $31,398
Net earnings (loss) per common share:
Basic........................................ $ (0.86) $ 0.76 $ 1.10
Diluted...................................... $ (0.86) $ 0.76 $ 1.08
</TABLE>

However, the impact of outstanding non-vested stock options granted prior
to fiscal 1996 has been excluded from the pro forma calculation; accordingly,
the fiscal 2000, fiscal 1999 and fiscal 1998 pro forma adjustments are not
indicative of future period pro forma adjustments, when the calculation will
apply to all stock options.

Option activity under the Plan is as follows:

<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
----------- ---------------
<S> <C> <C>
Balance at September 27, 1997...................... 1,447,890 $13.38

Granted (weighted average fair value of $13.32).... 918,224 21.75
Exercised.......................................... (215,297) 5.28
Cancelled.......................................... (35,264) 14.84
---------

Balance at September 26, 1998...................... 2,115,553 17.83

Granted (weighted average fair value of $7.26)..... 1,929,224 13.45
Exercised.......................................... (159,867) 4.36
Cancelled.......................................... (974,915) 22.85
---------

Balance at September 25, 1999...................... 2,909,995 14.35

Granted (weighted average fair value of $3.90)..... 493,170 8.21
Exercised.......................................... (48,617) 4.86
Cancelled.......................................... (194,600) 14.14
---------

Balance at September 30, 2000...................... 3,159,948 13.55
=========

Exercisable at September 30, 2000.................. 836,579 15.20
=========
</TABLE>

50
<PAGE>

CENTRAL GARDENING & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
September 30, 2000 September 30, 2000
------------------------------------------------------ ----------------------------------
Weighted
Average Weighted Weighted
Range Number of Remaining Average Number Average
of Exercise Options Contractual Exercise Of Options Exercise
Prices Outstanding Life (Years) Price Exercisable Price
---------------- ------------ ------------ --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.30 - $ 3.94 76,020 3.3 $ 1.96 47,879 $ 2.00
3.95 - 6.79 6,250 0.4 6.00 6,250 6.00
6.80 - 10.18 514,420 2.7 8.25 20,000 9.00
10.19 - 13.58 1,315,250 1.8 13.13 230,250 13.00
13.59 - 16.97 842,774 1.8 14.93 311,300 14.94
16.98 - 20.36 72,760 1.8 18.12 15,900 18.12
20.37 - 23.76 300,000 2.2 21.12 180,000 21.12
23.77 - 27.15 25,000 1.3 26.50 25,000 26.50
27.16 - 30.55 6,000 3.6 30.00 - -
30.56 - 33.94 1,474 2.4 33.94 - -
--------- -------
$ 1.30-$33.94 3,159,948 2.0 $13.55 836,579 $15.20
========= =======
</TABLE>

10. Earnings Per-Share

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per-share (EPS) computations:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 25, 1999 September 26, 1998
-------------------------- ----------------------------------- ----------------------------
(dollars and shares in thousands)
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
--------- ------ ------- ----------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss)............. $(11,813) $24,490 $33,693
Stock dividend payment
Net income (loss) available to
-------- -------- --------
common stock.................. (11,813) 18,786 $(0.63) 24,490 27,328 $0.90 33,693 28,502 $1.18
====== ======== =======

Effect of dilutive securities:
Options to purchase
common stock................ 109 324
Convertible notes 4,314 4,107
Series A convertible
Preferred stock............. 74

Diluted EPS:
Net income (loss) attributed
-------- ------ ----------- ---------- ------- ------
to common shareholders..... $(11,813) 18,786 $(0.63) $24,490 27,437 $0.89 $38,007 33,007 $1.15
======== ====== ====== =========== ========== ======== ======= ====== =======
</TABLE>

51
<PAGE>

CENTRAL GARDENING & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Quarterly Financial Data - unaudited (dollars and shares in thousands)

<TABLE>
<CAPTION>
Fiscal 2000
------------------------------------------------------------
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales(1).............................. $219,117 $382,944 $452,384 $300,706
Gross profit(1)....................... 58,754 98,778 113,328 74,185
Net income (loss)..................... (6,475) 12,095 12,875 (30,308)

Net income (loss) per common share:
Basic.............................. $ (0.33) $ 0.65 $ 0.69 $ (1.63)
Diluted............................ $ (0.33) $ 0.58 $ 0.61 $ (1.63)

Weighted average shares outstanding:
Basic.............................. 19,389 18,572 18,640 18,543
Diluted............................ 19,389 22,769 22,850 18,543

<CAPTION>
Fiscal 1999
-----------------------------------------------------------
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales(1).............................. $228,546 $446,524 $527,652 $331,801
Gross profit(1)(2).................... 57,006 101,679 106,130 81,985
Net income (loss)..................... (435) 15,549 13,684 (4,308)

Net income (loss) per common share:
Basic.............................. $ (0.01) $ 0.55 $ 0.50 $ (0.19)
Diluted............................ $ (0.01) $ 0.51 $ 0.47 $ (0.19)

Weighted average shares outstanding:
Basic.............................. 31,227 28,475 27,329 22,372
Diluted............................ 31,227 32,833 31,427 22,372
</TABLE>
_______________

(1) Reflects the reclassification of $(0.5) million and $1.4 million for the
first and third quarters of fiscal 2000, respectively, and $(0.5) million,
$0.6 million, $1.4 million and $(0.4) million for the first, second, third
and fourth quarters of fiscal 1999, respectively, of earnings (losses)
attributable to equity-method investees from Net sales to Other income. See
Note 1.

(2) Reflects the reclassification of $4.9 million of charges to reduce the
carrying value of inventory to its estimated recoverable value from Other
charges to Cost of goods sold and occupancy in the fourth quarter of fiscal
1999. See Note 1.

12. Transactions with Related Parties

The Company leased certain warehouse facilities and equipment from related
entities which had been controlled by the Company's principal shareholder.
Rental expense under these leases totaled $99,000 and $156,000 annually in
fiscal years 1999 and 1998, respectively. During fiscal year 1999, the
Company's principal shareholder disposed of these assets.

During fiscal 2000, 1999 and 1998, subsidiaries of the Company purchased
$1,890,000, $1,500,000 and $1,400,000, respectively, of products from Bio Plus,
Inc., a company that produces granular peanut hulls. As of September 30, 2000,
the Company owed Bio Plus, Inc. $4,902 for such purchases. Such amounts were
included in

52
<PAGE>

CENTRAL GARDENING & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accounts payable as of that date. A director and executive officer of the
Company is a minority shareholder and a director of Bio Plus, Inc.

13. Business Segment Data

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision making group is comprised of the Chief Executive Officer and the lead
executives of each of the Company's operating segments. The lead executive for
each operating segment is also a member of a Strategy Board that manages the
profitability of each respective segment's various product lines and business.
The operating segments are managed separately because each segment represents a
strategic business unit that offers different products or services. The chief
operating decision making group evaluates performance based on profit or loss
from operations The Company's Corporate division is included in the presentation
of reportable segment information since certain revenues and expenses of this
division are not allocated separately to the three operating segments. Segment
assets exclude cash equivalents, short-term investments, deferred taxes and
goodwill.

The Distribution segment is a national distributor of lawn and garden and
pet supply products. This segment operates 19 distribution centers across the
United States stocking approximately 45,000 products. Their products are sold to
independent retailers, national retail chains, grocery stores and mass
merchants.

The Garden Products segment consists of Pennington Seed, Matthews Four
Seasons, Grant's, Norcal Pottery and AMBRANDS. Products manufactured or
designed and sourced are products found typically in the lawn and garden
sections of mass merchandisers, warehouse-type clubs, home improvement centers
and nurseries and include grass seed, bird seed, clay pottery, outdoor wooden
planters and trellises, ant control and animal repellents. These products are
sold directly to retailers and to distributors.

The Pet Products segment consists of Four Paws Products, TFH Publications,
Wellmark, Kaytee, Island Aquarium and All Glass Aquarium, acquired September 30,
2000. These companies are engaged in the manufacturing, delivery and sale of
pet supplies, books and food principally to independent pet distributors and
retailers, national specialty pet stores, mass merchants and bookstores.

The Corporate division includes expenses associated with corporate
functions and projects, certain employee benefits and nonoperating items such as
interest income, interest expense, goodwill amortization, intersegment
eliminations, and net other charges of $27.2 million associated with
Distribution for fiscal 2000, $1.2 million and $1.5 million associated with
Garden Products and Distribution, respectively, for fiscal 1999, and $2.6
million and $4.3 million associated with Distribution and Corporate,
respectively, for fiscal 1998.

Financial information relating to the Company's business segments for each
of the three most recent fiscal years is presented in the tables below (dollars
in thousands). Amounts are in thousands.

53
<PAGE>

CENTRAL GARDEN & PET COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS__(Continued)

<TABLE>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales
Distribution.......................................................... $ 711,224 $ 972,670 $ 887,479
Garden Products....................................................... 439,409 380,777 239,796
Pet Products.......................................................... 262,341 236,336 197,149
Corporate, eliminations and all other................................. (57,823) (55,260) (31,094)
------------ ----------- ------------
Total net sales......................................................... $1,355,151 $1,534,523 $1,293,330
============ =========== ============
Intersegment sales
Distribution.......................................................... $ 273
Garden Products....................................................... $ 33,630 $ 20,679 16,032
Pet Products.......................................................... 24,193 34,581 14,789
Corporate, eliminations and all other................................. (57,823) (55,260) (31,094)
------------ ----------- ------------
Total intersegment sales................................................ $ 0 $ 0 $ 0
============ =========== ============
Income (loss) from operations before other charges
Distribution.......................................................... $ (12,125) $ 11,439 $ 38,456
Garden Products....................................................... 51,282 40,640 26,241
Pet Products.......................................................... 32,709 27,056 23,677
Corporate, eliminations and all other................................. (29,933) (21,713) (17,301)
------------ ----------- ------------
Total income (loss) from operations before other
charges................................................................. 41,933 57,422 71,073
Other charges........................................................... 27,156 2,708 6,903
Interest expense...................................................... (23,140) (12,680) (12,111)
Interest income....................................................... 589 593 4,502
Other income.......................................................... 1,176 1,106 1,534
Income taxes.......................................................... (5,215) (19,243) (24,402)
------------ ----------- ------------
Net income (loss)....................................................... $ (11,813) $ 24,490 $ 33,693
============ =========== ============
Assets
Distribution.......................................................... $ 111,080 $ 216,981 $ 198,641
Garden Products....................................................... 235,681 179,953 118,846
Pet Products.......................................................... 167,393 99,583 83,812
Corporate, eliminations and all other................................. 433,264 459,313 527,401
------------ ----------- ------------
Total assets............................................................ $ 947,418 $ 955,830 $ 928,700
============ =========== ============
Depreciation and amortization
Distribution.......................................................... $ 5,095 $ 3,137 $ 1,543
Garden Products....................................................... 3,797 3,404 2,522
Pet Products.......................................................... 5,520 4,225 3,391
Corporate, eliminations and all other................................. 11,623 9,726 8,658
------------ ----------- ------------
Total depreciation and amortization..................................... $ 26,035 $ 20,492 $ 16,114
============ =========== ============
Expenditures for long-lived assets
Distribution.......................................................... $ 4,189 $ 7,730 $ 3,291
Garden Products....................................................... 5,272 1,548 5,870
Pet Products.......................................................... 5,046 8,456 8,707
Corporate, eliminations and all other................................. 2,156 906 1,036
------------ ----------- ------------
Total expenditures for long-lived assets................................ $ 16,663 $ 18,640 $ 18,904
============ =========== ============
</TABLE>

54
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

The information required by this item is incorporated by reference from
Central's Definitive Proxy Statement for its 2001 Annual Meeting of Stockholders
under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance." See also Item 1 above.

Item 11. Executive Compensation

The information required by this item is incorporated by reference from
Central's Definitive Proxy Statement for its 2001 Annual Meeting of Stockholders
under the caption "Executive Compensation."

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference from
Central's Definitive Proxy Statement for its 2001 Annual Meeting of Stockholders
under the caption "Ownership of Management and Principal Stockholders."

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference from
Central's Definitive Proxy Statement for its 2001 Annual Meeting of Stockholders
under the captions "Compensation Committee Interlocks and Insider Participation"
and "Transactions with the Company."

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as part of this report:

(1) Consolidated Financial Statements of the Company are included in
Part II, Item 8:

Independent Auditors' Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Shareholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

55
<PAGE>

(2) Supplementary Consolidated Financial Statement Schedule as of and for
the fiscal years ended September 30, 2000, September 25, 1999 and September
26, 1998:

Independent Auditors' Report on Supplementary Consolidated
Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included
in the consolidated financial statements or notes thereto.

(3) Exhibits:

See attached Exhibit Index.

(b) The Company filed the following reports on Form 8-K during the fourth
quarter of fiscal 2000:

(1) A report dated July 6, 2000 disclosing the issuance of a press
release announcing litigation between Central and The Scotts Company and
Pharmacia Corporation.

(2) A report dated July 19, 2000 disclosing the issuance of a press
release announcing The Scotts Company's intent to discontinue its distribution
relationship with Central.

56
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date: December 28, 2000

CENTRAL GARDEN & PET COMPANY

By /s/ William E. Brown
-------------------------------------
William E. Brown
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.

<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ William E. Brown Chairman and Chief Executive December 28, 2000
--------------------------------
William E. Brown Officer (Principal Executive Officer)

/s/ Lee D. Hines, Jr. Director, Vice President, December 28, 2000
--------------------------------
Lee D. Hines, Jr. Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

/s/ Glenn W. Novotny Director December 28, 2000
--------------------------------
Glenn W. Novotny

/s/ Daniel P. Hogan, Jr. Director December 28, 2000
--------------------------------
Daniel P. Hogan, Jr.

/s/ Brooks M. Pennington, III Director December 28, 2000
--------------------------------
Brooks M. Pennington, III

/s/ Bruce A. Westphal Director December 28, 2000
--------------------------------
Bruce A. Westphal
</TABLE>

57
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors of Central Garden & Pet Company:

We have audited the accompanying consolidated balance sheets of Central
Garden & Pet Company and subsidiaries (the "Company") as of September 30, 2000
and September 25, 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the fiscal years in the three-
year period ended September 30, 2000, and have issued our report thereon dated
December 18, 2000; such report is included elsewhere in this Form 10-K. Our
audits also included the supplementary consolidated financial statement schedule
of the Company listed in Item 14(a)(2). This supplementary consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such supplementary consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California
December 18, 2000

58
<PAGE>

SCHEDULE II

CENTRAL GARDEN & PET COMPANY

VALUATION AND QUALIFYING ACCOUNTS
As of and for the Fiscal Years Ended September 30, 2000,
September 25, 1999 and September 26, 1998

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------------------------------------------- ----------- ----------------------- ---------- -----------
Additions
-----------------------
Balances at Charged to Charged to Balances at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
-------------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
AMOUNTS DEDUCTED FROM ASSETS TO
WHICH THEY APPLY:
Year ended September 26, 1998
Allowance for doubtful accounts receivable............. $5,204 $2,138 $3,266(1) $4,150 $6,458
Year ended September 25, 1999
Allowance for doubtful accounts receivable............. 6,458 4,909 - 5,224 6,143
Year ended September 30, 2000
Allowance for doubtful accounts receivable............. 6,143 3,572 314 1,979 8,050
</TABLE>

Note: (1) Recorded on the books of companies acquired

59
<PAGE>

EXHIBIT INDEX

Set forth below is a list of exhibits that are being filed or incorporated by
reference into this Form 10-K:

Exhibit
Number Exhibit
------ -------

3.1 Third Amended and Restated Certificate of Incorporation (Incorporated
by reference from Exhibit 3.1 to Registration Statement No. 33-98544).

3.1.1 Certificate of Amendment of Third Amended and Restated Certificate of
Incorporation (Incorporated by reference from Exhibit 3.1.1 to
Registration Statement No. 333-46437).

3.2 Copy of Registrant's Bylaws (Incorporated by reference from Exhibit
3.2 to Registration Statement No. 33-48070).

4.1 Specimen Common Stock Certificate (Incorporated by reference from
Exhibit 4.1 to Registration Statement No. 33-48070).

4.2 Indenture dated as of November 15, 1996 between the Company and
Chemical Trust Company of California, as Trustee, including the form
of Notes (Incorporated by reference from Exhibit 4.2 to Registration
Statement No. 333-21603).

4.3 Registration Rights Agreement dated as of November 15, 1996 among the
Company, Alex. Brown & Sons Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Hambrecht & Quist LLC and Wasserstein
Perella Securities (Incorporated by reference from Exhibit 4.2 to
Registration Statement No. 333-21603).

10.1 Lease between Central Garden Supply and Road 80 Investors dated as of
December 31, 1985 (Incorporated by reference from Exhibit 10.11 to
Registration Statement No. 33-48070).

10.2 Amendment to Lease between Central Garden & Pet and Road 80 Investors
dated as of May 29, 1998 (Incorporated by reference from Exhibit 10.2
to the Company's Form 10-K for the fiscal year ended September 26,
1998).

10.3 Supplementary Retirement Benefit Agreement for Key Employees between
Central Garden & Pet Supply Company and Glenn W. Novotny dated as of
July 1, 1991 (Incorporated by reference from Exhibit 10.12 to
Registration Statement No. 33-48070).

10.4 Supplementary Retirement Benefit Agreement for Key Employees between
Central Garden & Pet Supply Company and Neill J. Hines dated as of
July 1, 1991 (Incorporated by reference from Exhibit 10.13 to
Registration Statement No. 33-48070).

10.5 Form of Indemnification Agreement between Registrant and Executive
Officers and Directors (Incorporated by reference from Exhibit 10.18
to Registration Statement No. 33-48070).

10.6 Loan and Security Agreement by and among Congress Financial
Corporation (Western) and Central Garden & Pet Company, Matthews
Redwood and Nursery Supply, Inc., Four Paws Products, Ltd. and Ezell
Nursery Supply, Inc., dated December 17, 1997 (Incorporated by
reference from Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 27, 1998).

10.6.1 Amendment No. 8 to Loan and Security Agreement by and among Congress
Financial Corporation (Western) and Central Garden & Pet Company,
Matthews Redwood and Nursery Supply, Inc., Four Paws Products, Ltd.
and Ezell Nursery Supply, Inc., dated May 12, 2000 (Incorporated by
reference from Exhibit 10.6.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 24, 2000).

10.7 Intercreditor Agreement between Congress Financial Corporation
(Western) and Monsanto Corporation dated as of January 28, 1994
(Incorporated by reference to Exhibit 10.32.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 26, 1993).

60
<PAGE>

Exhibit
Number Exhibit
------ -------

10.8 Forms of Restricted Stock Grant Agreements (Incorporated by reference
from Exhibit 10.35 to Registration Statement No. 33-48070).

10.9 1993 Omnibus Equity Incentive Plan, as amended (Incorporated by
reference to Exhibits 4.1 to the Company's Registration Statements
Nos. 33-7236, 33-89216, 333-1238 and 333-41931).

10.10 Master Agreement by and between The Solaris Group, a Strategic
Business Unit of Monsanto Company, and the Company dated July 21, 1995
(Incorporated by reference to Exhibit 10.66 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 25, 1995).

10.11 Exclusive Agency and Distributor Agreement by and between The Solaris
Group and the Company dated July 21, 1995 (Incorporated by reference
to Exhibit 10.68 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 25, 1995).

10.12 Compensation Agreement by and between The Solaris Group and Central
Garden & Pet Company dated July 21, 1995 (Incorporated by reference to
Exhibit 10.69 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 25, 1995).

10.13 Stock Purchase Agreement dated as of December 17, 1996 among the
Company and the stockholder of Four Paws Products, Ltd. (Incorporated
by reference to Exhibit 1.2 to the Company's Report on Form 8-K dated
January 20, 1997).

10.14 Amended and Restated Asset Purchase Agreement among Novartis Inc. and
the Company dated as of February 3, 1997, as amended by Amendment No.
1 thereto, dated as of April 22, 1997, and Amendment No. 2 thereto,
dated as of May 23, 1997 (Incorporated by reference to Exhibit 1.2 to
the Company's Report on Form 8-K dated May 26, 1997).

10.15 Stock Purchase Agreement dated as of December 10, 1997 among the
Company and the shareholders of Kaytee Products Incorporated
(Incorporated by reference to Exhibit 1.2 to the Company's Report n
Form 8-K dated December 16, 1997).

10.16 Stock Purchase Agreement dated as of December 5, 1997 among the
Company and the shareholders of T.F.H. Publications, Inc.
(Incorporated by reference to Exhibit 1.2 to the Company's Report on
Form 8-K/A dated December 18, 1997)

10.17 Agreement and Plan of Reorganization dated as of February 17, 1998
among Pennington Seed, Inc., the stock holders of Pennington Seed,
Inc., the Company and PS Sub, Inc. (Incorporated by reference to
Exhibits 99.1 and 99.2 the Company's Report on Form 8-K dated February
27, 1998).

10.18 Nonemployee Director Stock Option Plan (Incorporated by reference to
Exhibit 4.1 of Registration Statement No. 333-09865).

10.19 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4.1
of Registration Statement No. 333-26387).

10.20 Employment Agreement dated as of February 27, 1998 between Pennington
Seed, Inc. of Delaware and Brooks Pennington III (Incorporated by
reference from Exhibit 10.20 to the Company's Form 10-K/A for the
fiscal year ended September 26, 1998).

12 Statement re Computation of Ratios of Earnings to Fixed Charges

21 List of Subsidiaries

23 Independent Auditors' Consent

27 Financial Data Schedule

____________________