The Scotts Miracle-Gro Company
2022 Annual Report
SHAREHOLDER INFORMATION
World Headquarters
14111 Scottslawn Road
Marysville, Ohio 43041
(937) 644-0011
www.scottsmiraclegro.com
Annual Meeting
The annual meeting of shareholders will be held
on Monday, January 23, 2023, at 9 a.m. EST.
The annual meeting will be a virtual meeting
and shareholders will be able to participate,
vote, and submit questions during the virtual
meeting.
NYSE Symbol
The common shares of The Scotts Miracle-Gro
Company trade on the New York Stock
Exchange under the symbol SMG.
Transfer Agent and Registrar
EQ Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
Shareholder and Investor
Relations Contact
Aimee DeLuca
Senior Vice President
Investor Relations
The Scotts Miracle-Gro Company
14111 Scottslawn Road
Marysville, Ohio 43041
(937) 644-0011
Dividends
The Scotts Miracle-Gro Company began paying
dividends in 2005. On July 30, 2021, the
Company announced that its Board of Directors
had increased the quarterly cash dividend to
$0.66 per share, which was first paid to
shareholders in the fourth quarter of fiscal 2021.
The payment of future dividends, if any, on
common shares will be determined by the Board
of Directors of the Company in light of
conditions then existing, including the
Company's earnings, financial condition and
capital requirements, restrictions in financing
agreements, business conditions and other
factors. The Company's credit facility restricts
future dividend payments to an aggregate of
$225 million per year so long as no default has
occurred or would occur as a result of the
dividend payment. For further discussion
regarding the restrictions on dividend payments,
see "NOTE 12. DEBT" of the Notes to
Consolidated Financial Statements included in
the Company's 2022 Annual Report on Form
10-K.
Stock Price Performance
See page 25 for stock price performance.
The Scotts Miracle-Gro Company’s common
shares have been publicly traded since
January 31, 1992.
Shareholders
As of November 18, 2022, there were
approximately 267,000 shareholders, including
holders of record and the Company's estimate
of beneficial holders.
Publications for Shareholders
In addition to this 2022 Annual Report, The
Scotts Miracle-Gro Company informs
Shareholders about the Company through its
Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, its Current Reports on
Form 8-K, and its Notice of Annual Meeting of
Shareholders and Proxy Statement.
Copies of any of these documents may be
obtained without charge on the Company's
investor relations website at
http:// investor.scotts.com.
Safe Harbor Statement under the
Private Securities Litigation
Reform Act of 1995
Statements contained in this 2022 Annual
Report, other than statements of historical fact,
which address activities, events, and
developments that the Company expects or
anticipates will or may occur in the future,
including, but not limited to, information
regarding the future economic performance and
financial condition of the Company, the plans
and objectives of the Company's management,
the Company's assumptions regarding such
performance and plans, as well as the amount
and timing of repurchases of the Company's
common shares are "forward-looking
statements" within the meaning of the U.S.
federal securities laws that are subject to risks
and uncertainties. Actual results could differ
materially from the forward-looking information
in this 2022 Annual Report due to a variety of
factors. Additional detailed information
concerning a number of the important factors
that could cause actual results to differ
materially from the forward-looking information
contained in this 2022 Annual Report is readily
available in the Company's Annual Report on
Form 10-K for the fiscal year ended September
30, 2022, which is filed with the Securities and
Exchange Commission.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
Form 10-K
_____________________________________
(Mark One)
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-11593
______________________________________________________________
The Scotts Miracle-Gro Company
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
31-1414921
(I.R.S. Employer
Identification No.)
14111 Scottslawn Road, Marysville, Ohio 43041
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(937) 644-0011
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares, $0.01 stated value
Trading Symbol(s)
SMG
Name of Each Exchange on Which Registered
NYSE
Securities registered pursuant to Section 12(g) of the Act:
None
______________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Non-accelerated filer
☑
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
The aggregate market value of Common Shares (the only common equity of the registrant) held by non-affiliates (for this purpose, executive officers and directors of the
registrant are considered affiliates) as of April 1, 2022 (the last business day of the most recently completed second quarter) was approximately $5,115,863,599.
There were 55,464,721 Common Shares of the registrant outstanding as of November 18, 2022.
______________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the registrant’s 2023 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on
Form 10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended September 30, 2022.
Table of Contents
The Scotts Miracle-Gro Company
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 2022
Table of Contents
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Supplemental Item
Executive Officers of the Registrant
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative And Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Index to Exhibits
Page
2
9
21
21
22
22
23
24
25
26
48
49
50
50
50
50
51
52
52
52
52
53
53
54
109
Table of Contents
ITEM 1.
BUSINESS
Company Description and Development of the Business
PART I
The discussion below describes the business conducted by The Scotts Miracle-Gro Company, an Ohio corporation
(“Scotts Miracle-Gro” and, together with its subsidiaries, the “Company,” “we” or “us”), including general developments in our
business during fiscal 2022. Each reference in this Annual Report on Form 10-K (“Form 10-K”) to a “fiscal” year is to our
fiscal year ended or ending, as applicable, on September 30 of the referenced year. For additional information on recent
business developments, see “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS” of this Form 10-K.
Through our U.S. Consumer and Other segments, we are the leading manufacturer and marketer of branded consumer
lawn and garden products in North America. Our products are marketed under some of the most recognized brand names in the
industry. Our key consumer lawn and garden brands include Scotts® and Turf Builder® lawn fertilizer and Scotts® grass seed
products; Miracle-Gro® soil, plant food and gardening products; Ortho® herbicide and pesticide products; and Tomcat® rodent
control and animal repellent products. We also have a presence in similar branded consumer products in China. We are the
exclusive agent of the Monsanto Company, a subsidiary of Bayer AG (“Monsanto”), for the marketing and distribution of
certain of Monsanto’s consumer Roundup®1 branded products within the United States and certain other specified countries. In
addition, we have an equity interest in Bonnie Plants, LLC, a joint venture with Alabama Farmers Cooperative, Inc. (“AFC”),
focused on planting, growing, developing, distributing, marketing, and selling live plants.
Through our Hawthorne segment, we are a leading manufacturer, marketer and distributor of lighting, nutrients, growing
media, growing environments and hardware products for indoor and hydroponic gardening in North America. Our key brands
include General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Can-Filters®, Gro Pro®, Mother Earth®, Hurricane®, Grower’s
Edge®, HydroLogicTM and Cyco®.
Scotts Miracle-Gro traces its heritage to a company founded by O.M. Scott in Marysville, Ohio in 1868. In the
mid-1900s, we became widely known for the development of quality lawn fertilizers and grass seeds that led to the creation of a
new industry – consumer lawn care. In the 1990s, we significantly expanded our product offering with three leading brands in
the U.S. home lawn and garden industry. In fiscal 1995, through a merger with Stern’s Miracle-Gro Products, Inc., which was
founded by Horace Hagedorn and Otto Stern in Long Island, New York in 1951, we acquired the Miracle-Gro® brand, the
industry leader in water-soluble garden plant foods. In fiscal 1999, we acquired the Ortho® brand in the United States and
obtained exclusive rights to market Monsanto’s consumer Roundup® brand within the United States and other contractually
specified countries, thereby adding industry-leading weed, pest and disease control products to our portfolio. Today, the
Scotts®, Turf Builder®, Miracle-Gro®, Ortho® and Roundup® brands make us the most widely recognized company in the
consumer lawn and garden industry in the United States.
Business Segments
We divide our business into the following reportable segments:
•
•
•
U.S. Consumer
Hawthorne
Other
U.S. Consumer consists of our consumer lawn and garden business in the United States. Hawthorne consists of our
indoor and hydroponic gardening business. Other primarily consists of our consumer lawn and garden business outside the
United States. This division of reportable segments is consistent with how the segments report to and are managed by our Chief
Executive Officer (the chief operating decision maker of the Company). In addition, Corporate consists of general and
administrative expenses and certain other income and expense items not allocated to the business segments. Financial
information about these segments for each of the three fiscal years ended September 30, 2022, 2021 and 2020 is presented in
“NOTE 21. SEGMENT INFORMATION” of the Notes to Consolidated Financial Statements included in this Form 10-K.
________________________
1 Roundup® is a registered trademark of Monsanto Technology LLC, a company affiliated with Monsanto Company.
2
Table of Contents
Principal Products and Services
In our reportable segments, we manufacture, market and sell lawn and garden products in the following categories:
Lawn Care: The lawn care category is designed to help users grow and enjoy the lawn they want. Products within
this category include lawn fertilizer products under the Scotts® and Turf Builder® brand names; grass seed products under the
Scotts®, Turf Builder®, EZ Seed®, PatchMaster® and Thick’R LawnTM brand and sub-brand names; and lawn-related weed, pest
and disease control products primarily under the Scotts® brand name, including sub-brands such as GrubEx®. The lawn care
category also includes spreaders and other durables under the Scotts® brand name, including Turf Builder® EdgeGuard®
spreaders and Handy Green® II handheld spreaders. In addition, we market outdoor cleaners under the Scotts® brand name.
Gardening and Landscape: The gardening and landscape category is designed to help consumers grow and enjoy
flower and vegetable gardens and beautify landscaped areas. Products within this category include a complete line of water-
soluble plant foods under the Miracle-Gro® brand and sub-brands such as LiquaFeed®, continuous-release plant foods under the
Miracle-Gro® brand and sub-brands such as Shake ‘N Feed®; potting mixes, garden soils, ground cover and mulches under the
Miracle-Gro®, Scotts®, Hyponex® and Earthgro® brand names; plant-related pest and disease control products under the Ortho®
brand; organic garden products under the Miracle-Gro® Performance Organics®, Miracle-Gro® Organic Choice®, Scotts®,
Whitney Farms® and EcoScraps® brand names; and live goods and seeding solutions under the Miracle-Gro® brand.
Hydroponic and indoor gardening focused growing media and nutrients products are marketed under the Mother Earth®,
Botanicare®, General Hydroponics®, Vermicrop® and Cyco® brand names as well as brands owned by third parties for which we
serve as distributor.
Hydroponic hardware and growing environments: This category is designed to provide durable goods to grow
plants, flowers and vegetables using little or no soil. Products within this category include growing systems, trays, fans, filters,
humidifiers, dehumidifiers, timers, instruments, water pumps, irrigation supplies and hand tools, and are marketed under the
Botanicare®, Can-Filters®, Gro Pro®, Hurricane®, AeroGarden® and HydroLogicTM brand names as well as brands owned by
third parties for which we serve as distributor.
Lighting: The lighting category is designed to provide growers a complete selection of lighting systems and
components for use in hydroponic and indoor gardening applications. Products in this category include lighting sensors,
controls, fixtures, reflectors, lamps, cords and hangars, and are marketed under the Gavita®, Agrolux® and Titan® brand names
as well as brands owned by third parties for which we serve as distributor. During the fourth quarter of fiscal 2022, the
Company decided it would discontinue and exit the market for certain Hawthorne lighting products and brands, including Luxx
Lighting, Inc. (“Luxx Lighting”).
Controls: The controls category is designed to help consumers protect their homes from pests and maintain external
home areas. Insect control products are marketed under the Ortho® brand name, including Ortho Max®, Home Defense® and
Bug B Gon® sub-brands; rodent control products are marketed under the Tomcat® and Ortho® brands; selective weed control
products are marketed under the Ortho Weed B GonTM sub-brand; and non-selective weed killer products are marketed under
the Groundclear® brand name. Hydroponic gardening focused controls products are marketed under the Alchemist® and
General Hydroponics® brand names as well as brands owned by third parties for which we serve as distributor.
Marketing Agreement: We are Monsanto’s exclusive agent for the marketing and distribution of certain of
Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries. On May 15,
2015, we entered into an amendment (the “Marketing Agreement Amendment”) to the Amended and Restated Exclusive
Agency and Marketing Agreement (as amended, the “Original Marketing Agreement”) with Monsanto and also entered into a
lawn and garden brand extension agreement (the “Brand Extension Agreement”) and a commercialization and technology
agreement (the “Commercialization and Technology Agreement”) with Monsanto. On August 31, 2017, in connection with the
sale of our consumer lawn and garden businesses located in Australia, Austria, Belgium, Luxembourg, Czech Republic, France,
Germany, Poland and the United Kingdom (the “International Business”), we entered into the Second Amended and Restated
Agency and Marketing Agreement (the “Restated Marketing Agreement”) and the Amended and Restated Lawn and Garden
Brand Extension Agreement – Americas (the “Restated Brand Extension Agreement”) to reflect the Company’s transfer and
assignment to Exponent Private Equity LLP (“Exponent”) of the Company’s rights and responsibilities under the Original
Marketing Agreement, as amended, and the Brand Extension Agreement relating to those countries and territories subject to the
sale.
Effective August 1, 2019, we entered into (i) the Third Amended and Restated Exclusive Agency and Marketing
Agreement (the “Third Restated Agreement”) which amends and restates the Restated Marketing Agreement, (ii) a Brand
Extension Agreement Asset Purchase Agreement (the “BEA Purchase Agreement”) under which we sold certain assets to
Monsanto related to the development, manufacture, production, advertising, marketing, promotion, distribution, importation,
exportation, offer for sale and sale of specified Roundup® branded products sold outside the non-selective weedkiller category
within the residential lawn and garden market and (iii) agreements terminating both the Restated Brand Extension Agreement
and the Commercialization and Technology Agreement.
3
Table of Contents
Under the terms of the Third Restated Agreement, we provide certain consumer and trade marketing program
services, sales, merchandising, warehousing and other selling and marketing support for certain of Monsanto’s consumer
Roundup® branded products. Among other things, the Third Restated Agreement amends the provisions of the Restated
Marketing Agreement relating to commissions, contributions, noncompetition, and termination. The Company also performs
other services on behalf of Monsanto, including manufacturing conversion services, pursuant to ancillary agreements. For
additional details regarding the Third Restated Agreement, see “ITEM 1A. RISK FACTORS — Risks Related to Our Business
— In the event the Third Restated Agreement for Monsanto’s consumer Roundup® products terminates or Monsanto’s
consumer Roundup® business materially declines, we would lose a substantial source of future earnings and overhead expense
absorption” of this Form 10-K and “NOTE 7. MARKETING AGREEMENT” of the Notes to Consolidated Financial
Statements included in this Form 10-K.
Acquisitions and Divestitures
On April 28, 2022, our Hawthorne segment completed the acquisition of substantially all of the assets of S.J. Enterprises
PTY LTD, d.b.a. Cyco (“Cyco”), an Australia-based provider of premium nutrients, additives and growing media products for
indoor growing sold mostly in the United States, for a purchase price of $37.3 million.
On April 22, 2022, pursuant to our follow-on investment rights, we made an additional investment in Toronto-based RIV
Capital Inc. (“RIV Capital”) (CSE: RIV) (OTC: CNPOF), a cannabis investment and acquisition firm listed on the Canadian
Securities Exchange, in the form of a $25.0 million convertible note which matures on August 24, 2027.
On December 30, 2021, our Hawthorne segment completed the acquisition of substantially all of the assets of Luxx
Lighting, Inc., a provider of lighting products for indoor growing. The purchase price was $213.2 million, a portion of which
was paid through the issuance of 0.1 million common shares of Scotts Miracle-Gro (“Common Shares”) with a fair value of
$21.0 million based on the share price at the time of payment.
On December 23, 2021, our Hawthorne segment completed the acquisition of substantially all of the assets of True
Liberty Bags, a leading provider of liners and storage solutions to dry and cure plant products, for $10.1 million.
Refer to “NOTE 8. ACQUISITIONS AND INVESTMENTS” of the Notes to the Consolidated Financial Statements
included in this Form 10-K for more information regarding these acquisitions and investments.
Principal Markets and Methods of Distribution
We sell our products through our direct sales force, e-commerce website and our network of brokers and distributors
primarily to home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores,
nurseries, garden centers, e-commerce platforms, food and drug stores, indoor gardening and hydroponic product distributors,
retailers and growers.
The majority of our shipments to customers are made via common carriers, our own private fleet or through distributors
in the United States. We primarily utilize third parties to manage the key distribution centers for our consumer lawn and garden
business, which are strategically located across the United States and Canada. For our Hawthorne business, we primarily self-
manage distribution centers across the United States and Canada. Growing media products are generally shipped direct-to-store
without passing through a distribution center.
Raw Materials
We purchase raw materials for our products from various sources. We are subject to market risk as a result of the
fluctuating prices of raw materials, including urea and other fertilizer inputs, resins, diesel, gasoline, natural gas, sphagnum
peat, bark and grass seed. Our objectives surrounding the procurement of these materials are to ensure continuous supply,
minimize costs and improve predictability. We seek to achieve these objectives through negotiation of contracts with favorable
terms directly with vendors. When appropriate, we commit to purchase a certain percentage of our needs in advance of the
lawn and garden season to secure pre-determined prices. We also hedge certain commodities, particularly diesel and urea, to
improve cost predictability and control. Sufficient raw materials were available during fiscal 2022.
Trademarks, Patents, Trade Secrets and Licenses
We believe that our trademarks, patents, trade secrets and licenses provide us with significant competitive advantages.
We pursue a vigorous trademark protection strategy consisting of registration, renewal and maintenance of key trademarks and
proactive monitoring and enforcement activities to protect against infringement. The Scotts®, Miracle-Gro®, Ortho®, Tomcat®,
Hyponex®, Earthgro®, General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Mother Earth® and Can-Filters® brand names
and logos, as well as a number of product trademarks, including Turf Builder®, EZ Seed®, Organic Choice®, Home Defense
Max®, Nature Scapes®, and Weed B Gon Max® are registered in the United States and/or internationally and are considered
material to our business.
4
Table of Contents
In addition, we actively develop and maintain an extensive portfolio of utility and design patents covering a variety of
subject matters and technologies relevant to the business such as fertilizer, weed killer, chemical and growing media
compositions and processes; grass seed varieties; mechanical dispensing devices such as applicators, spreaders and sprayers;
lighting applications; and hydroponic growing systems. Our utility patents provide protection generally extending to 20 years
from the date of filing, and many of our patents will continue well into the next decade. We also hold exclusive and non-
exclusive patent licenses and supply arrangements, permitting the use and sale of additional patented fertilizers, pesticides,
electrical and mechanical devices. Although our portfolio of trade secrets, patents and patent licenses is important to our
success, no single trade secret, patent or group of related patents, alone, is considered critical to the operation of any of our
business segments or the business as a whole.
Seasonality and Backlog
Our North America consumer lawn and garden business is highly seasonal, with approximately 75% of our annual net
sales occurring in our second and third fiscal quarters combined. Our annual sales for this business are further concentrated in
our second and third fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our
products, thereby reducing retailers’ pre-season inventories. We anticipate significant orders for our North America consumer
lawn and garden business for the upcoming spring season will start to be received late in the winter and continue through the
spring season. Historically, substantially all orders have been received and shipped within the same fiscal year with minimal
carryover of open orders at the end of the fiscal year.
For our Hawthorne segment, sales are also impacted by seasonal patterns for certain product categories due to the timing
of outdoor growing in North America during our second and third fiscal quarters, and the timing of certain controlled
agricultural lighting project sales during our third and fourth fiscal quarters.
Significant Customers
Home Depot and Lowe’s are our two largest customers and are the only customers that individually represent more than
10% of reported consolidated net sales during any of the three most recent fiscal years. For additional details regarding
significant customers, see “ITEM 1A. RISK FACTORS — Risks Related to Our Business — Because of the concentration of
our sales to a small number of retail customers, the loss of one or more of, or a significant reduction in orders from, our top
customers, or a material reduction in the inventory of our products that they carry, could adversely affect our financial results”
of this Form 10-K and “NOTE 21. SEGMENT INFORMATION” of the Notes to Consolidated Financial Statements included
in this Form 10-K.
Competitive Marketplace
The markets in which we sell our products are highly competitive. We compete primarily on the basis of brand strength,
product innovation, product quality, product performance, advertising, value, supply chain competency, field sales support, in-
store sales support and the strength of our relationships with major retailers and distributors.
In the lawn and garden, pest control and indoor gardening and hydroponic markets, our products compete against private-
label as well as branded products. Primary competitors include Spectrum Brands Holdings, Inc., Central Garden & Pet
Company, Enforcer Products, Inc., Kellogg Garden Products, Oldcastle Retail, Inc., Lebanon Seaboard Corporation, Reckitt
Benckiser Group plc, FoxFarm Soil & Fertilizer Company, Nanolux Technology, Inc., Sun Gro Horticulture, Inc., Advanced
Nutrients, Ltd. and Hydrofarm Holdings Group, Inc. In addition, we face competition from smaller regional competitors that
operate in many of the areas where we compete.
In Canada, we face competition in the lawn and garden market from Premier Tech Ltd. and a variety of local companies
including private label brands.
Research and Development
We continually invest in research and development, both in the laboratory and at the consumer level, to improve our
products, manufacturing processes, packaging and delivery systems. Spending on research and development was $45.3 million,
$45.4 million and $39.7 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, including product registration costs of
$13.0 million, $12.3 million and $11.0 million, respectively. In addition to our own research and development activities, we
actively seek ways to leverage the research and development activities of our suppliers and other business partners.
Regulatory Considerations
Laws and regulations in the United States and other countries affect the manufacture, sale, distribution, use and/or
application of our products in several ways. For example, in the United States, all pesticide products must comply with the
Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), and most pesticide products require registration with the U.S.
Environmental Protection Agency (the “U.S. EPA”) and similar state agencies before they can be sold or distributed. The use
of certain pesticide products is also regulated by the U.S. EPA in addition to various local, state and federal environmental and/
5
Table of Contents
or public health agencies. These regulations may, for example, include requirements that only certified or professional users
apply the product, that certain products be used only on certain types of locations (such as “not for use on sod farms or golf
courses”), that users post notices on properties to which products have been or will be applied, or that may require notification
to individuals in the vicinity that products will be applied in the future, or may ban the use of certain ingredients or categories of
products altogether. Analogous regulatory regimes apply to certain pesticides that we sell or distribute in other countries.
Fertilizer and growing media products are also subject to various laws and regulations, some of which require
registration, mandate labeling requirements, and/or govern the sale and distribution of the products. Our grass seed products
are regulated in the U.S. by the Federal Seed Act and various state regulations. In addition, governmental agencies regulate the
disposal, transport, handling and storage of waste, the remediation of contaminated sites, air and water discharges from our
facilities, and workplace health and safety.
Governmental authorities generally require operating facilities to obtain permits (sometimes on an annual basis) relating
to site-specific conditions and/or activities. For example, permits must be obtained in order to harvest peat and to discharge
storm water run-off or water pumped from peat deposits. The permits typically specify the condition in which the property
must be left after the peat is fully harvested, with the residual use typically being natural wetland habitats combined with open
water areas. We are generally required by these permits to limit our harvesting and to restore the property consistent with the
intended residual use. In some locations, these facilities have been required to create water retention ponds to control the
sediment content of discharged water.
In addition, on October 18, 2021, the Biden Administration announced a multi-agency plan to address per- and
polyfluoroalkyl substances (“PFAS”) contamination nationwide. Agencies, including the U.S. EPA, the Department of
Defense, the Food and Drug Administration, the U.S. Department of Agriculture, the Department of Homeland Security, and
the Department of Health and Human Services, will take actions to prevent the release of PFAS into the air, drinking systems,
and food supply and to expand cleanup efforts to remediate the impacts of PFAS pollution. As part of this announcement, the
U.S. EPA released its PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024, which sets timelines by which the
U.S. EPA plans to take specific actions during the first term of the Biden Administration. It is possible that some of these
actions may have an impact – direct or indirect – on our business.
The growth and expansion of our business has expanded the regulatory oversight to which we are subject. If we enter
new product categories and/or new jurisdictions, we may become subject to additional applicable legal and regulatory
requirements.
For more information regarding how compliance with local, state, federal and foreign laws and regulations may affect us,
see “ITEM 1A. RISK FACTORS — Risks Related to Regulation of Our Company — Compliance with environmental and
other public health regulations or changes in such regulations or regulatory enforcement priorities could increase our costs of
doing business or limit our ability to market all of our products” of this Form 10-K.
Regulatory Matters
We are subject to various environmental proceedings, the majority of which are for site remediation. At September 30,
2022, $2.4 million was accrued for such environmental matters. During fiscal 2022, fiscal 2021 and fiscal 2020, we expensed
$0.2 million, $0.5 million and $0.5 million, respectively, for such environmental matters. We had no material capital
expenditures during the last three fiscal years related to environmental or regulatory matters.
Human Capital
We believe our culture and commitment to our associates provides unique value to us and our shareholders. Every
associate, and every job, is important to our success and helping us achieve our purpose. We seek to create an environment that
values the health, safety and wellness of our teams, and we work to equip them with the knowledge and skills to serve our
business and develop in their careers.
This discussion includes information regarding human capital matters that we believe may be of interest to shareholders
generally. We recognize that certain other stakeholders (such as customers, employees and non-governmental organizations),
as well as certain of our shareholders, may be interested in more detailed information on these topics. We encourage you to
review the “Supporting Our People” section of our 2022 Corporate Responsibility Report, located on our website at https://
scottsmiraclegro.com/responsibility/environmental-social-and-governance, for more detailed information regarding our human
capital programs and initiatives. The contents of our corporate website are not incorporated by reference in this Form 10-K or
in any other report or document we file with the Securities and Exchange Commission (the “SEC”).
6
Table of Contents
Associates
As of September 30, 2022, we employed approximately 6,100 employees. During peak sales and production periods in
fiscal 2022, our workforce totaled 8,620, which was comprised of approximately 7,660 employees including seasonal associates
and approximately 960 in temporary labor. Included within these numbers, during fiscal 2022, we employed a total of
approximately 2,430 full-time and seasonal in-store associates within the United States to help our retail partners merchandise
our products in their lawn and garden departments directly to consumers. During fiscal 2022, we undertook a strategic
reduction in our workforce as part of a series of organizational changes and initiatives intended to create operational and
management-level efficiencies.
Engagement
Our business is directly impacted by the level of engagement created through our associate experience. To advance
engagement, we have taken a purposeful approach to focus on the employee experience. This year we focused on creating a
positive workplace and strong leadership as our business has experienced a great deal of change. We prioritized change
management and providing support to our associates through business transitions. We continue to gather the voices of our
associates formally and informally throughout the year through, among other initiatives, executive town halls, pulse surveys
and leadership skip level meetings. This feedback is shared and leveraged as human capital initiatives are defined.
Diversity
We value our associates’ diversity and encourage them to leverage their varied life experiences at our Company. This
includes diversity in terms of gender, sexuality, race, thoughts, interests, languages, beliefs and more. We continue to hold
ourselves accountable to fostering a positive workplace, one that creates a sense of belonging and community. This comes to
life in the programs and support we provide our associates.
We received a score of 100% on the Human Rights Campaign Corporate Equality Index (HRC CEI) and the designation
of being one of the “Best Places to Work for LGBTQ Equality” for calendar year 2021. The HRC CEI is a benchmarking
survey and report measuring corporate policies and practices related to LGBTQ+ workplace equality.
Our Employee Resource Groups (“ERGs”) are voluntary, associate-led groups usually formed by people with a common
affinity such as gender, race, national origin, sexual orientation, military status or other attributes. Each ERG establishes a
mission to positively impact the business by cultivating relationships through networking and developing talent through
experiences, programs and mentoring. Our ERGs drive continuous improvement of our inclusive work environment and are
open to all associates, regardless of the business department, location or management level. Our ERGs consist of the Scotts
Women’s Network, the Scotts Black Employees Network, the Scotts Veterans Network, the Scotts Young Professionals, Scotts
GroPride, Scotts Associates for a Greener Earth and Scotts Family TREE.
Professional Development
We view development and retention of our associates as valuable components of our business operations and to creating a
culture of leadership throughout our Company. We partner with industry experts to ensure our professional development
curriculum offers both live and on-demand learning content that accelerates the development of practical skills and
competencies. Content is selected by associates and updated frequently to align to the development needs of our associates and
address trending topics. All associates have the opportunity to learn new skills through exposure and involvement in business
challenges. Our managers support associates as development happens on the job through cross-functional team assignments,
expanded roles and rotational assignments. We provide a variety of best-in-class learning tools and experiences to our
associates to help them embrace a growth mindset that leads to higher levels of achievement and personal satisfaction. Our
ongoing development processes are designed to grow knowledge, improve skills and capabilities, and achieve competence in
specific behaviors to meet performance expectations and prepare for potential future roles within our Company.
Compensation and Benefits
Our passion extends far beyond gardening and growing to include the well-being of our associates. We are a company
that has been rooted in family since our founding in 1868, and one major way we continue to bring this to life is in our
commitment to enhancing our associates and their family’s health, financial security, and support for everyday challenges
through our LiveTotalHealth program – our holistic and comprehensive approach to wellness. Our commitment to
LiveTotalHealth can be seen in the enhancements we made in 2022 and announced for 2023. Some of the highlights include a
new partnership with Quantum Health – an innovative leader in health care navigation and care coordination, a new wellness
reimbursement program to support our associates’ physical, mental and financial well-being, and a decrease to most associates’
medical plan premiums. We were able to provide pay increases for most of our associates in the first quarter of fiscal 2023,
with an opportunity for another pay increase during fiscal 2023.
7
Table of Contents
Health and Safety
We maintain several health and safety programs to protect our team members, including our comprehensive
Environmental Health and Safety (“EHS”) management system. All associates and business partners, including contractors, are
covered by our EHS management system. Across our operational sites and sales teams, our associates participate in safety
committees to spur associate engagement with safety on a local and national level. To further mitigate health and safety risks,
we develop compliance calendars that highlight dates for health and safety inspections and deadlines to meet voluntary and
regulatory requirements. To evaluate our health and safety performance, we use an EHS scorecard composed of leading and
lagging indicators, such as progress measurements for safety training, behavioral-based safety observations, near-miss
reporting, total recordable incident rate and lost time accident rate.
Information Systems
We understand the critical nature of real-time, measurable data and insights from a human capital perspective. Our
cloud-based human capital management solution unifies our wide range of human relations functionality onto one single
platform. This structure enables us to support the entire enterprise with qualitative and quantitative analytics specific to
associate transactions, processes and programs, and connection to other organizational data creating a culture where data and
analytics are the norm. The organization has embraced this transformation and the scalable flexibility of the platform, and in
doing so, has implemented other modules that integrate cohesively.
Environmental, Social and Governance
All of our stakeholders are essential to our business – shareholders, customers, suppliers, associates, communities as well
as the environment and society. We are working to make our workforce more inclusive, our business more sustainable, and our
communities more engaged by maintaining strong environmental, social and governance (“ESG”) practices.
In fiscal 2022, we published our 11th Corporate Responsibility Report, prepared in accordance with the Global Reporting
Initiative (“GRI”) Standards: Core option and with consideration for the Sustainability Accounting Standards Board’s (SASB’s)
Chemicals industry standard. This report provides detailed information regarding our ESG strategy, focus areas and
governance structure. The Company’s ESG focus areas are Product Stewardship and Safety, Operations and Supply Chain,
Associate Engagement and Wellness, Community Engagement and Governance and Transparency. The Company continues to
benchmark, set goals and seek continuous improvement around these focus areas.
We publish our Corporate Responsibility Report and several ESG-related policies and statements on the ESG section of
our corporate website, which is located at https://scottsmiraclegro.com/responsibility/environmental-social-and-governance.
These policies and statements address environmental, health and safety and human rights concerns. We also published a
Supplier Code of Conduct in fiscal 2022 that establishes the minimum standards that suppliers must satisfy to sell goods or do
business with the Company. Further ESG initiatives in fiscal 2022 included responding to the Carbon Disclosure Project’s
climate questionnaire and completing the S&P Corporate Sustainability Assessment. The contents of our corporate website are
not incorporated by reference in this Form 10-K or in any other report or document we file with the SEC.
Website and General Information
We maintain a website at http://investor.scotts.com. Information on our websites will not be deemed incorporated by
reference into, and do not form any part of, this Form 10-K or any other report or document that we file with or furnish to the
SEC. We file reports with the SEC and make available, free of charge, on or through our website, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our proxy and
information statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC.
8
Table of Contents
ITEM 1A. RISK FACTORS
Cautionary Note Regarding Forward-Looking Statements
This Form 10-K, including the exhibits hereto and the information incorporated by reference herein, as well as our 2022
Annual Report to Shareholders (our “2022 Annual Report”), contain “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are subject to risks and uncertainties. Information regarding activities, events and developments that we expect or
anticipate will or may occur in the future, including, but not limited to, information relating to our future growth and
profitability targets and strategies designed to increase total shareholder value, are forward-looking statements based on
management’s estimates, assumptions and projections. Forward-looking statements also include, but are not limited to,
statements regarding our future economic and financial condition and results of operations, the plans and objectives of
management and our assumptions regarding our performance and such plans and objectives, as well as the amount and timing
of repurchases of our Common Shares or other uses of cash flows. Forward-looking statements generally can be identified
through the use of words such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,”
“strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” and other similar words
and variations.
Forward-looking statements contained in this Form 10-K and our 2022 Annual Report are predictions only and actual
results could differ materially from management’s expectations due to a variety of factors, including those described below. All
forward-looking statements attributable to us or persons working on our behalf are expressly qualified in their entirety by such
risk factors.
The forward-looking statements that we make in this Form 10-K and our 2022 Annual Report are based on
management’s current views and assumptions regarding future events and speak only as of their dates. We disclaim any
obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking
statements that we make, or to make corrections to reflect future events or developments, except as required by the federal
securities laws.
Risks Related to Our Business
If we underestimate or overestimate demand for our products and do not maintain appropriate inventory levels, our net
sales and/or working capital could be negatively impacted.
Our ability to manage our inventory levels to meet our customers’ demand for our products is important for our business.
Our production levels and inventory management goals for our products are based on estimates of demand, taking into account
production capacity, timing of shipments, and inventory levels. If we overestimate or underestimate either channel or retail
demand for any of our products during a given season, we may not maintain appropriate inventory levels, which could
negatively impact our net sales, profit margins, net earnings, working capital and/or cash flow, hinder our ability to meet
customer demand, result in loss of customers, or cause us to incur excess and obsolete inventory charges or excess warehouse
storage costs.
For example, during fiscal 2022, a significant decrease in sales volume coupled with a recent expansion of our production
and supply chain resulted in higher fixed costs and inventory levels. These factors negatively impacted our net sales, profit
margins, net earnings and operating cash flow.
Disruptions in availability or increases in the prices of raw materials, fuel or transportation costs could adversely affect
our results of operations.
We source many of our commodities and other raw materials on a global basis. The general availability and price of
those raw materials can be affected by numerous forces beyond our control, including political instability, trade restrictions and
other government regulations, duties and tariffs, price controls, changes in currency exchange rates and weather. A significant
disruption in the availability or price of any of our key raw materials could negatively impact our business.
In February 2022, Russia invaded Ukraine. We have experienced, and expect to continue to experience, the indirect
impacts of the conflict in Ukraine, including increases in the cost of raw materials (including fertilizer inputs such as urea) and
commodities (including the price of oil), supply chain and logistics challenges and foreign currency volatility. Increases in the
prices of key commodities and other raw materials could adversely affect our ability to manage our cost structure. Market
conditions may limit our ability to raise selling prices to offset increases in our raw material costs. Further, sustained price
increases may lead to declines in volume as competitors may not adjust their prices or customers and/or consumers may decide
not to pay the higher prices, which could lead to sales declines and loss of market share. Our projections may not accurately
predict the volume impact of price increases, which could adversely affect our business, financial condition and results of
operations.
9
Table of Contents
Our proprietary technologies can limit our ability to locate or utilize alternative inputs for certain products. For certain
inputs, new sources of supply may have to be qualified under regulatory standards, which can require additional investment and
delay bringing a product to market. We utilize hedge agreements periodically to fix the prices of a portion of our urea and fuel
needs. The hedge agreements are designed to mitigate the earnings and cash flow fluctuations associated with the costs of urea
and fuel. In periods of declining prices, utilizing these hedge agreements may effectively increase our expenditures for these
raw materials.
The effects of the ongoing coronavirus (COVID-19) pandemic and any possible recurrence of other similar types of
pandemics, or any other widespread public health emergencies, could have a material adverse effect on our business, results
of operations, financial condition and/or cash flows.
The World Health Organization recognized COVID-19 as a public health emergency of international concern on January
30, 2020 and as a global pandemic on March 11, 2020. Public health responses have included national pandemic preparedness
and response plans, travel restrictions, quarantines, curfews, event postponements and cancellations and closures of facilities
including local schools and businesses. The global pandemic and actions taken to contain COVID-19 have disrupted the global
economy and financial markets. Increases in COVID-19 cases may increase the possibility of further shutdowns, production
delays, staffing and resource challenges which could materially harm our financial condition and results of operations.
We have actively addressed the pandemic’s ongoing impact on our employees, operations, customers, consumers, and
communities, by, among other things, implementing contingency plans, making operational adjustments where necessary, and
providing assistance to organizations that support front-line workers. The first priority of our pandemic response has been and
remains the health, safety and well-being of our employees which we have addressed by following Center for Disease Control
health guidelines and applicable state and local guidelines. While we believe that these actions should enable us to maintain our
operations during the COVID-19 pandemic, we can provide no assurance that we will be able to do so as a result of the
unpredictability of the ultimate impact of the COVID-19 pandemic, including the responses of local, state, federal and foreign
governmental authorities to the pandemic.
The extent to which the COVID-19 pandemic will ultimately impact our business, results of operations, financial
condition and cash flows depends on future developments that are highly uncertain, rapidly evolving and difficult to predict at
this time, including:
•
•
•
•
•
•
•
•
the duration, spread and intensity of the pandemic;
the availability, usage and effectiveness of vaccines or alternative treatments;
the ability of our suppliers, contract manufacturers, contractors and third-party logistics providers to meet their
obligations to us (including supplying us with essential raw materials, components and finished products, or
shipping finished goods to customers) on a timely basis and at previously anticipated costs without significant
disruption, and our ability to identify alternative sources of materials and services, if necessary;
our ability to continue to meet our customers’ needs in the event of the suspension or interruption of essential
elements of our manufacturing and supply arrangements and activities such as the continued availability of raw
materials, transportation, labor and production capacity and at previously anticipated costs;
the effect of the COVID-19 pandemic on our customers (including retailers and distributors), including their ability
to remain open, continue to sell our products, pay for the products purchased from us on a timely basis or at all and
collect payment from their customers;
the impact of the COVID-19 pandemic on the financial and credit markets and economic activity generally,
including our ability to maintain compliance with financial covenants, access lending, capital markets, and other
sources of liquidity when needed on reasonable terms or at all;
higher costs of labor, commodities, components, parts and accessories and/or transportation related costs; and
the demand for our products, which may be impacted by, among other things, the temporary inability of consumers
to purchase our products due to illness, quarantine, travel restrictions or financial hardship, shifts in short- or long-
term consumer behavior including moving from one or more of our more discretionary and profitable products to
less profitable products, or stockpiling and similar pantry-loading activity that could negatively impact future
demand.
Negative developments with respect to any of these items could have a material adverse effect on our business, results of
operations, financial condition and/or cash flows.
10
Table of Contents
Because of the concentration of our sales to a small number of retail customers, the loss of one or more of, or a
significant reduction in orders from, our top customers, or a material reduction in the inventory of our products that they
carry, could adversely affect our financial results.
Our top two retail customers, Home Depot and Lowe’s, together accounted for 43% of our fiscal 2022 net sales and 46%
of our outstanding accounts receivable as of September 30, 2022. The loss of, or reduction in orders from any major customer
for any reason (including, for example, changes in a retailer’s strategy, reduction in inventories of our products that they
maintain, claims or allegations that our products or products we market on behalf of third parties are unsafe, a decline in
consumer demand, regulatory, legal or other external pressures or a change in marketing strategy), and customer disputes
regarding shipments, fees, merchandise condition or related matters could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Our inability to collect accounts receivable from one of our major
customers, or a significant deterioration in the financial condition of one of these customers, including a bankruptcy filing or a
liquidation, could also have a material adverse effect on our financial condition, results of operations and cash flows.
We do not have long-term sales agreements with, or other contractual assurances as to future sales to, any of our major
retail customers. In addition, continued consolidation in the retail industry has resulted in an increasingly concentrated retail
base, and as a result, we are significantly dependent upon sales to key retailers who have significant bargaining strength. To the
extent such concentration continues to occur, our net sales and income from operations may be increasingly sensitive to
deterioration in the financial condition of, or other adverse developments involving our relationship with, one or more of our
key customers. In addition, our business may be negatively affected by changes in the policies of our retailers, such as
inventory reductions, limitations on access to shelf space, price demands and other conditions.
We may not successfully develop new product lines and products or improve existing product lines and products.
Our future success depends on creating and successfully competing in markets for our products including our ability to
improve our existing product lines and products and to develop and manufacture new product lines and products to meet
evolving consumer needs. We cannot provide any assurance that we will be successful in developing and manufacturing new
product lines and products or product innovations that satisfy consumer needs or achieve market acceptance, or that we will
develop, manufacture and market new product lines and products or product innovations in a timely manner. If we fail to
successfully develop and manufacture new product lines and products or product innovations, our ability to maintain or grow
our market share may be adversely affected, which could materially adversely affect our business, financial condition and
results of operations. In addition, the development and introduction of new product lines and products and product innovations
require substantial research and development expenditures, which we may be unable to recoup if such new product lines,
products or innovations do not achieve market acceptance.
Many of the products we manufacture and market contain active ingredients that are subject to regulatory approval. The
need to obtain such approval could delay the launch of new products or product innovations that contain active ingredients or
otherwise prevent us from developing and manufacturing certain products and product innovations.
Our marketing activities may not be successful.
We invest substantial resources in advertising, consumer promotions and other marketing activities to maintain, extend
and expand our brand image. Negative publicity about us or our brands, including publicity regarding product safety, quality,
efficacy, environmental impacts (including packaging, energy and water use and matters related to climate impact and waste
management) and other sustainability or similar issues, whether real or perceived, could occur and could be widely and rapidly
disseminated, including through the use of social media sites. There can be no assurances that our marketing strategies will be
effective or that the amount we invest in advertising activities will result in a corresponding increase in sales of our products. If
our marketing initiatives are unsuccessful, including our ability to leverage new media such as digital media and social
networks to reach existing and potential customers or our brands suffer damage to reputation due to real or perceived quality
issues which reputational damage can be quickly multiplied by social media, we will have incurred significant expenses without
the benefit of higher revenues.
The highly competitive nature of our markets could adversely affect our ability to maintain or grow revenues.
Each of our operating segments participates in highly competitive markets. Our products compete against national and
regional products and private label products produced by various suppliers. Many of our competitors sell their products at
prices lower than ours. Our most price sensitive customers may trade down to lower priced products during challenging
economic times or if current economic conditions worsen. We compete primarily on the basis of product innovation, product
quality, product performance, value, brand strength, supply chain competency, field sales support, in-store sales support, the
strength of our relationships with major retailers and advertising. Some of our competitors have significant financial resources.
The strong competition that we face in all of our markets may prevent us from achieving our revenue goals, which may have a
material adverse effect on our financial condition, results of operations and cash flows.
11
Table of Contents
Our manufacturing operations, including our reliance on third-party manufacturers, could harm our business.
We may not be able to maintain or develop efficient, low-cost manufacturing capability and processes that will enable us
to meet the quality, price, design and product standards or production volumes required to successfully manufacture our
products. Even if we are successful in maintaining and developing our manufacturing capabilities and processes, we may not
be able to do so in time to satisfy the requirements of our customers.
We rely on third parties to manufacture certain products. This reliance generates a number of risks, including decreased
control over the production and related processes, which could lead to production delays or interruptions and inferior product
quality control. In addition, performance problems at these third-party manufacturers could lead to cost overruns, shortages or
other problems, which could increase our costs of production or result in delivery shortages or delays to our customers.
In addition, if one or more of our third-party manufacturers becomes insolvent or unwilling to continue to manufacture
products of acceptable quality, at acceptable costs and in a timely manner, our ability to deliver products to our retail customers
could be significantly impaired. Substitute manufacturers may not be available or, if available, may be unwilling or unable to
manufacture the products we need on acceptable terms. Moreover, if customer demand for our products increases, we may be
unable to secure sufficient additional capacity from our current third-party manufacturers, or others, on commercially
reasonable terms, or at all.
Our business is subject to risks associated with sourcing and manufacturing outside of the U.S. and risks from tariffs
and/or international trade wars.
We import many of our raw materials and finished goods from countries outside of the United States, including but not
limited to China. Our import operations are subject to complex customs laws, regulations, tax requirements, and trade
regulations, such as tariffs set by governments, either through mutual agreements or bilateral actions. Tariffs on goods
imported into the U.S., particularly goods from China, have increased the cost of the goods we purchase. Additional tariffs
could be imposed by the U.S. with relatively short notice to us. These governmental actions could have, and any similar future
actions may have, a material adverse effect on our business, financial condition and results of operations. The overall effect of
these risks is that our costs may increase or we may experience supply disruptions, which in turn may result in lower
profitability if we are unable to offset such increases through higher prices, and/or that we may suffer a decline in sales if our
customers do not accept price increases.
Our reliance on a limited base of suppliers may result in disruptions to our business and adversely affect our financial
results.
Although we continue to implement risk mitigation strategies for single-source suppliers, we also rely on a limited
number of suppliers for certain of our raw materials, product components and other necessary supplies, including certain active
ingredients used in our products. If we are unable to maintain supplier arrangements and relationships, if we are unable to
contract with suppliers at the quantity and quality levels needed for our business, or if any of our key suppliers becomes
insolvent or experience other financial distress, we could experience disruptions in production, which could have a material
adverse effect on our financial condition, results of operations and cash flows.
A significant interruption in the operation of our or our suppliers’ facilities could impact our capacity to produce
products and service our customers, which could adversely affect revenues and earnings.
Operations at our and our suppliers’ facilities are subject to disruption for a variety of reasons, including fire, flooding or
other natural disasters, disease outbreaks or pandemics, acts of war, terrorism, government shut-downs and work stoppages. A
significant interruption in the operation of our or our suppliers’ facilities, including as a result of COVID-19, could significantly
impact our capacity to produce products and service our customers in a timely manner, which could have a material adverse
effect on our revenues, earnings and financial position, particularly with respect to products that we manufacture at a limited
number of facilities, such as our fertilizer and liquid products.
Disruptions to transportation channels that we use to distribute our products may adversely affect our margins and
profitability.
We may experience disruptions to the transportation channels used to distribute our products, including increased
congestion, a lack of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or
shortages. Disruptions in our trucking capacity may result in reduced sales or increased costs, including the additional use of
more expensive or less efficient alternatives to meet demand. Congestion can affect previously negotiated contracts with
shipping companies, resulting in unexpected increases in shipping costs, reduction in our profitability or reduced sales. For
example, the COVID-19 pandemic and resulting shifts in demand or changes in our extended supply chain has resulted in
several disruptions and delays, as well as quantity limits and price increases, in our transportation channels.
12
Table of Contents
Climate change and unfavorable weather conditions could adversely impact financial results.
Our consumer lawn and garden net sales in any one year are susceptible to weather conditions in the markets in which our
products are sold. For instance, periods of abnormally wet or dry weather can adversely impact the sale of certain products,
while increasing demand for other products with the overall impact to the Company difficult to predict.
Climate change continues to receive increasing global attention. The possible effects of climate change could include
changes in rainfall patterns, water shortages, changing storm patterns and intensities, changing temperature levels and changes
in legislation, regulation and international accords. These changes could over time affect, for example, the availability and cost
of raw materials, commodities and energy, which in turn may impact our ability to procure goods or services required for the
operation of our business at the quantities and levels we require.
Consumers and businesses also may change their behavior on their own as a result of concerns regarding the impact of
climate change, governmental regulations and public perceptions. We will need to respond to new laws and regulations as well
as consumer and business preferences resulting from climate change concerns. Climate change may decrease demand for our
products and services, particularly in certain sectors. In addition, fluctuating climatic conditions may result in unpredictable
modifications in the manner in which consumers garden or their attitudes towards gardening, making it more difficult for us to
provide appropriate products to appropriate markets in time to meet consumer demand.
Additionally, climate change may present additional physical risks to our operations (including damage to our
manufacturing and distribution facilities or the manufacturing and distribution facilities of our suppliers) which could disrupt
our supply chain or harm or disrupt our operations or those of our customers or suppliers.
Our business could be negatively impacted by corporate citizenship and ESG matters and/or our reporting of such
matters.
Certain investors, customers, consumers, employees, and other stakeholders are increasing their focus on corporate
citizenship and sustainability matters. From time to time, we communicate certain initiatives, including goals, regarding
environmental matters, responsible sourcing and social investments, including pursuant to our Corporate Responsibility Report.
We could fail, or be perceived to fail, to achieve such initiatives or goals, or we could fail in fully and accurately reporting our
progress on such initiatives and goals. In addition, we could be criticized for the scope of such initiatives or goals or perceived
as not acting responsibly in connection with these matters. Our business could be negatively impacted by such matters. Any
such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.
Certain of our products may be purchased for use in new and emerging industries or segments and/or be subject to
varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial
interpretations, and consumer perceptions.
We sell products, including hydroponic gardening products, that end users may purchase for use in new and emerging
industries or segments, including the growing of cannabis, that may not grow or achieve market acceptance in a manner that we
can predict. The demand for these products depends on the uncertain growth of these industries or segments. For example, our
Hawthorne segment sales volume has decreased due to an oversupply of cannabis, which has driven cannabis wholesale prices
down significantly and has resulted in a decrease in indoor and outdoor cultivation. The oversupply has been driven by the
impacts of increased licensing activity across the U.S., as well as significant capital investment in the cannabis production
marketplace over the past several years and the market impacts of the COVID-19 pandemic.
In addition, we sell products that end users may purchase for use in industries or segments, including the growing of
cannabis, that are subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement
approaches, judicial interpretations, and consumer perceptions. For example, certain countries and 39 U.S. states have adopted
frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-
medicinal use, while the U.S. Controlled Substances Act and the laws of other U.S. states prohibit growing cannabis.
If we are unable to effectively execute our e-commerce business, our reputation and operating results may be harmed.
We sell certain of our products over the Internet through our online store and other e-commerce retail platforms. The
success of our e-commerce business depends on our investment in these platforms, consumer preferences and buying trends
relating to e-commerce, and our ability to both maintain the continuous operation of our online store and our fulfillment
operations that support both our own and our retail customers’ e-commerce platforms. It is essential that these platforms
provide a shopping experience that will generate orders and return visits to the respective platforms.
We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce business, including:
changes in required technology interfaces; website downtime and other technical failures; costs and technical issues associated
with website software, systems and technology investments and upgrades; data and system security; system failures, disruptions
and breaches and the costs to address and remedy such failures, disruptions or breaches; computer viruses; and changes in and
compliance with applicable federal and state regulations. In addition, our efforts to remain competitive with technology trends,
13
Table of Contents
including the use of new or improved technology, creative user interfaces and other e-commerce marketing tools such as paid
search and mobile applications, among others, may increase our costs and may not increase sales or attract consumers. Our
failure to successfully respond to these risks and uncertainties might adversely affect the sales of our e-commerce business, as
well as damage our reputation and brands.
Additionally, the success of our e-commerce business and the satisfaction of our consumers depend on the timely receipt
of our products by our consumers. The efficient delivery of our products to our consumers requires that our distribution centers
have adequate capacity to support the current level of e-commerce operations and any anticipated increased levels that may
occur as a result of the growth of our e-commerce business. If we encounter difficulties with our distribution centers, or if any
distribution centers shut down for any reason, including as a result of fire or other natural disaster, we could face inventory
shortages that may result in out of stock conditions in our online store, incur significantly higher costs and longer lead times
associated with distributing our products to our consumers and experience dissatisfaction from our consumers. Any of these
issues could have a material adverse effect on our business and harm our reputation.
Our operations may be impaired if our information technology systems fail to perform adequately or if we are the subject
of a data breach or cyber attack.
We rely on information technology systems to conduct business, including communicating with employees and our key
retail customers, ordering and managing materials from suppliers, shipping products to retail customers and analyzing and
reporting results of operations. While we have taken steps to ensure the security of our information technology systems, our
systems may nevertheless be vulnerable to computer viruses, security breaches and other disruptions from unauthorized users.
If our information technology systems are damaged or cease to function properly for an extended period of time, whether as a
result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our retail customers
could be significantly impaired, which may adversely impact our business.
Additionally, in the normal course of our business, we collect, store and transmit proprietary and confidential information
regarding our customers, employees, suppliers and others, including personally identifiable information. An operational failure
or breach of security from increasingly sophisticated cyber threats could lead to loss, misuse or unauthorized disclosure of this
information about our employees or consumers, which may result in regulatory or other legal proceedings, and have a material
adverse effect on our business and reputation. We also may not have the resources or technical sophistication to anticipate or
prevent rapidly-evolving types of cyber attacks. Any such attacks or precautionary measures taken to prevent anticipated
attacks may result in increasing costs, including costs for additional technologies, training and third party consultants. The
losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address
this evolving risk may adversely impact our financial condition, results of operations and cash flows.
Our international operations make us susceptible to the costs and risks associated with operating internationally.
We operate manufacturing, sales and service facilities outside of the United States, particularly in Canada, the
Netherlands and China. Accordingly, we are subject to risks associated with operating in foreign countries, including:
•
•
•
•
•
•
•
•
•
•
fluctuations in currency exchange rates;
limitations on the remittance of dividends and other payments by foreign subsidiaries;
additional costs of compliance with local regulations;
historically, in certain countries, higher rates of inflation than in the United States;
changes in the economic conditions or consumer preferences or demand for our products in these markets;
restrictive actions by multinational governing bodies, foreign governments or subdivisions thereof;
changes in foreign labor laws and regulations affecting our ability to hire and retain employees;
changes in U.S. and foreign laws regarding trade and investment, including the impact of tariffs;
less robust protection of our intellectual property under foreign laws; and
difficulty in obtaining distribution and support for our products, including the impact of shipping port delays.
In addition, our operations outside the United States are subject to the risk of new and different legal and regulatory
requirements in local jurisdictions, potential difficulties in staffing and managing local operations and potentially adverse tax
consequences. The costs associated with operating our continuing international business could adversely affect our results of
operations, financial condition and cash flows in the future.
14
Table of Contents
In the event the Third Restated Agreement for Monsanto’s consumer Roundup® products terminates or Monsanto’s
consumer Roundup® business materially declines, we would lose a substantial source of future earnings and overhead
expense absorption.
If we (i) become insolvent, (ii) commit a material breach, material fraud or material willful misconduct under the Third
Restated Agreement, (iii) experience a change of control (subject to certain exceptions), or (iv) impermissibly assign our rights
or delegate our obligations under the Third Restated Agreement, Monsanto may terminate the Third Restated Agreement
without paying a termination fee to the Company, subject to certain terms and conditions as set forth in the applicable
agreements. In addition, if Program EBIT (as defined in the Third Restated Agreement) falls below $50 million in any program
year, Monsanto may terminate the Third Restated Agreement without paying a termination fee to the Company, subject to
certain terms and conditions as set forth in the applicable agreements.
Monsanto may also terminate the Third Restated Agreement in the event of (a) a change of control of Monsanto or a sale
of the Roundup® business effective at the end of the fifth full year after providing notice of termination, subject to certain terms
and conditions as set forth in the applicable agreements, or (b) Monsanto’s decision to decommission the permits, licenses and
registrations needed for, and the trademarks, trade names, packages, copyrights and designs used in, the sale of the Roundup®
products in the lawn and garden market (a “Brand Decommissioning Event”), but, in each case, Monsanto would have to pay a
termination fee to the Company.
If circumstances exist or otherwise develop that result in a material decline in Monsanto’s consumer Roundup® business,
or in the event of Monsanto’s insolvency or bankruptcy, we would seek to mitigate the impact on us by exercising various
rights and remedies under the Third Restated Agreement and applicable law. We cannot, however, provide any assurance that
our exercise of such rights or remedies would produce the desired outcomes or that a material decline in Monsanto’s consumer
Roundup® business would not have a material adverse effect on our business, financial condition or results of operations.
In the event that the Third Restated Agreement terminates or Monsanto’s consumer Roundup® business materially
declines, we would lose all, or a substantial portion, of the significant source of earnings and overhead expense absorption the
Third Restated Agreement provides.
For additional information regarding the Third Restated Agreement including certain of our rights and remedies under the
Third Restated Agreement, see “NOTE 7. MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements
included in this Form 10-K.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our
business.
Our ability to compete effectively depends in part on our rights to service marks, trademarks, trade names and other
intellectual property rights we own or license, particularly our registered brand names and issued patents. We have not sought
to register every one of our marks either in the United States or in every country in which such mark is used. Furthermore,
because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not
receive the same protection in other countries as we would in the United States with respect to the registered brand names and
issued patents we hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we
could suffer a material adverse effect on our business, financial condition and results of operations.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to
defend against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or
claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of
trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our
intellectual property, could subject us to damages or prevent us from providing certain products or services, or using certain of
our recognized brand names, which could have a material adverse effect on our business, financial condition and results of
operations.
Our success depends upon the retention and availability of key personnel and the effective succession of senior
management.
Our success largely depends on the performance of our management team and other key personnel. Our future operations
could be harmed if we are unable to attract and retain talented, highly qualified senior executives and other key personnel. In
addition, if we are unable to effectively provide for the succession of senior management, including our chief executive officer,
our business, prospects, results of operations, financial condition and cash flows may be materially adversely affected.
15
Table of Contents
Our workforce reductions may cause undesirable consequences and our results of operations may be harmed.
During fiscal 2022, we undertook a strategic reduction in our workforce as part of a series of organizational changes and
initiatives intended to create operational and management-level efficiencies. This workforce reduction may yield unintended
consequences, such as attrition beyond our intended reduction in workforce and reduced employee morale, which may cause
our employees who were not affected by the reduction in workforce to seek alternate employment. Employees whose positions
were eliminated or those who determine to seek alternate employment may seek employment with our competitors.
We cannot provide assurance that we will not undertake additional workforce reductions or that we will be able to realize
the cost savings and other anticipated benefits from our previous or any future workforce reduction plans. In addition, if we
continue to reduce our workforce, it may adversely impact our ability to respond rapidly to any new product, growth or revenue
opportunities and to execute on our business plans. Additionally, reductions in workforce may make it more difficult to recruit
and retain new employees. If we need to increase the size of our workforce in the future, we may encounter a competitive
hiring market due to labor shortages, increased employee turnover, changes in the availability of workers and increased wage
costs.
We are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and
other contingencies with certainty, some of these outcomes could adversely affect our business, financial condition, results
of operations and cash flows.
We are involved in legal proceedings and are subject to investigations, inspections, audits, inquiries and similar actions
by governmental authorities, arising in the course of our business (see the discussion in “ITEM 3. LEGAL PROCEEDINGS”
of this Form 10-K). Legal proceedings, in general, can be expensive and disruptive. Some of these suits may purport or may
be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts of damages, including
punitive or exemplary damages, and may remain unresolved for several years. For example, product liability claims
challenging the safety of our products or products we market on behalf of third parties may also result in a decline in sales for a
particular product and could damage the reputation or the value of related brands, involve us in litigation and have a material
adverse effect on our business.
From time to time, we are also involved in legal proceedings as a plaintiff involving contract, intellectual property and
other matters. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs
incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do
sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations
regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of
operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid.
The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions
which could negatively affect our operations and, depending on the nature of the allegations, could negatively impact our
reputation or the reputation of products we market on behalf of third parties. Additionally, defending against these legal
proceedings may involve significant expense and diversion of management’s attention and resources.
Risks Related to Our M&A, Lending and Financing Activities
Our indebtedness could limit our flexibility and adversely affect our financial condition.
As of September 30, 2022, we had $2,992.1 million of debt and $1,185.5 million in available borrowings under our credit
facility. Our inability to meet restrictive financial and non-financial covenants associated with that debt, or to generate
sufficient cash flow to repay maturing debt, could adversely affect our financial condition. For example, our debt level could:
• make it more difficult for us to satisfy our obligations with respect to our indebtedness;
• make us more vulnerable to general adverse economic and industry conditions;
•
•
•
•
•
require us to dedicate a substantial portion of cash flows from operating activities to payments on our indebtedness,
which would reduce the cash flows available to fund working capital, capital expenditures, advertising, research
and development efforts, pay dividends, repurchase our Common Shares and other general corporate activities;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit our ability to borrow additional funds;
expose us to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of
interest, which could result in higher interest expense in the event of increases in interest rates; and
place us at a competitive disadvantage compared to our competitors that have less debt.
Our ability to make payments on or to refinance our indebtedness, fund planned capital expenditures and acquisitions,
pay dividends and make repurchases of our Common Shares will depend on our ability to generate cash in the future which, to
16
Table of Contents
some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control. We cannot provide any assurance that our business will generate sufficient cash flow from operating activities or that
future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs.
In addition, our credit facility and the indentures governing our 5.250% Senior Notes due 2026 (the “5.250% Senior
Notes”), our 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”), our 4.000% Senior Notes due 2031 (the “4.000%
Senior Notes”) and our 4.375% Senior Notes due 2032 (the “4.375% Senior Notes” and, collectively with the 5.250% Senior
Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes, the “Senior Notes”) contain restrictive
covenants and cross-default provisions. Our credit facility also requires us to maintain specified financial ratios. For example,
under our credit facility the maximum permitted leverage ratio is (i) 6.25 for the third quarter of fiscal 2022 through the first
quarter of fiscal 2023, (ii) 6.50 for the second and third quarters of fiscal 2023, (iii) 6.25 for the fourth quarter of fiscal 2023
and the first quarter of fiscal 2024, (iv) 5.50 for the second quarter of fiscal 2024, and (v) 4.50 for the third quarter of fiscal
2024 and thereafter. Our leverage ratio was 6.01 at September 30, 2022. A breach of any of those financial ratio covenants or
other covenants could result in a default. In the event of such default, the holders of such indebtedness could elect to declare all
the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, and could cease making
further loans and institute foreclosure proceedings against our assets. We cannot provide any assurance that the holders of such
indebtedness would waive a default or that we could pay the accelerated indebtedness in full.
Subject to compliance with certain covenants under our credit facility and the indentures governing the Senior Notes, we
may incur additional debt in the future. If we incur additional debt, the risks described above could intensify.
Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution, and other harmful
consequences that may adversely impact our business and results of operations.
Acquisitions, strategic alliances and investments are an important element of our overall long-term corporate strategy and
use of capital, and these transactions could be material to our financial condition and results of operations. We expect to
continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The process of
integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties
and expenditures. The areas where we face risks include:
•
•
•
•
•
•
•
•
•
•
•
•
Assumptions implicit to our acquisition strategy or valuations are not realized.
Diversion of management time and focus from operating our business to acquisition integration challenges.
Failure to successfully further develop the acquired business or product lines.
Implementation or remediation of controls, procedures and policies at the acquired company.
Integration of the acquired company’s accounting, human resources and other administrative systems, and
coordination of product, engineering and sales and marketing functions.
Transition of operations, users and customers onto our existing platforms.
Reliance on the expertise of our strategic partners with respect to market development, sales, local regulatory
compliance and other operational matters.
Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed
upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from
completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an
acquisition.
In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to
address the particular economic, currency, political and regulatory risks associated with specific countries.
Cultural challenges associated with integrating employees from the acquired company into our organization, and
retention of employees from the businesses we acquire.
Liability for or reputational harm from activities of the acquired company before the acquisition or from our
strategic partners, including patent and trademark infringement claims, violations of laws, commercial disputes, tax
liabilities and other known and unknown liabilities.
Litigation or other claims in connection with the acquired company, including claims from terminated employees,
customers, former shareholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and
investments or strategic alliances could cause us to fail to realize the anticipated benefits of such acquisitions, investments or
alliances, incur unanticipated liabilities, and harm our business generally.
17
Table of Contents
Our acquisitions, strategic alliances and investments could also result in dilutive issuances of our equity securities, the
incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill and purchased long-lived assets,
and restructuring charges, any of which could harm our financial condition or results of operations and cash flows. Also, the
anticipated benefits of many of our acquisitions may not materialize.
Changes in credit ratings issued by nationally recognized statistical rating organizations (NRSROs) could adversely affect
our cost of financing and the market price of our Senior Notes.
NRSROs rate the Senior Notes and the Company based on factors that include our operating results, actions that we take,
their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the
NRSROs can include maintaining, upgrading or downgrading the current rating or placing us on a watch list for possible future
downgrading. Downgrading the credit rating of the Senior Notes or placing us on a watch list for possible future downgrading
could increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of the
Senior Notes.
In September 2022, S&P Global Ratings lowered our issuer credit rating to BB- from BB and lowered its rating on our
Senior Notes to B from B+. In June 2022, Moody's Investors Service changed our outlook to negative from stable, affirmed our
Ba2 Corporate Family Rating, Ba2-PD Probability of Default Rating and Ba3 rating on the Senior Notes and downgraded our
speculative grade liquidity rating to SGL-3 from SGL-2.
A failure to dispose of assets or businesses in a timely manner may cause the results of the Company to suffer.
We evaluate as necessary the potential disposition of assets and businesses that may no longer help meet our objectives.
When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on
acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives. Alternatively, we may
dispose of a business at a price or on terms that are less than we had anticipated. After reaching an agreement with a buyer for
the disposition of a business, we are subject to the satisfaction of pre-closing conditions, which may prevent us from completing
the transaction. Dispositions may also involve continued financial involvement in the divested business, such as through
continuing equity ownership, guarantees, indemnities or other financial obligations. Under these arrangements, performance by
the divested businesses or other conditions outside our control could affect future financial results.
Our lending activities may adversely impact our business and results of operations.
As part of our strategic initiatives, we have provided financing to buyers of certain business assets we have sold and to
certain strategic partners. Our exposure to credit losses on these financing balances and strategic investments will depend on
the financial condition of these counterparties as well as legal, regulatory and macroeconomic factors beyond our control, such
as deteriorating conditions in the world economy or in the industries served by the borrowers and federal legalization of the
U.S. cannabis market. While we monitor our exposure, there can be no guarantee we will be able to successfully mitigate all of
these risks. Credit losses, if significant, could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Uncertainty regarding the LIBOR replacement process and expected discontinuance of LIBOR may adversely impact our
current or future debt obligations, including certain hedging arrangements.
Certain of our debt obligations and instruments, including certain hedging arrangements, use the London Interbank
Offered Rate (“LIBOR”) as a reference rate for establishing the variable interest rate applicable to such debt obligations and
instruments. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it
intends to phase out LIBOR by the end of 2021. However, for U.S. dollar LIBOR, the cessation date has been deferred to June
30, 2023 for the most commonly used tenors (overnight and one, three and six months). This extension to 2023 means that
many legacy U.S. dollar LIBOR contracts would terminate before related LIBOR rates cease to be published. The Federal
Reserve System, in conjunction with the Alternative Reference Rates Committee, has recommended the replacement of LIBOR
with a new index, calculated by short-term repurchase agreements collateralized by U.S. Treasury securities, called the Secured
Overnight Financing Rate (“SOFR”).
We have entered into LIBOR-based interest rate swap agreements to manage our exposure to interest rate movements
under certain of our variable-rate debt obligations. Using SOFR as the basis on which interest on our variable-rate debt and/or
under our interest rate swaps is calculated may result in interest rates and/or payments that do not directly correlate over time
with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current
form.
The potential effect of the replacement of LIBOR on our cost of capital cannot yet be determined.
18
Table of Contents
Our hedging arrangements expose us to certain counterparty risks.
In addition to commodity hedge agreements, we utilize interest rate swap agreements to manage the net interest rate risk
inherent in our sources of borrowing as well as foreign currency forward contracts to manage the exchange rate risk associated
with certain intercompany loans with foreign subsidiaries and other approved transactional currency exposures. Utilizing these
hedge agreements exposes us to certain counterparty risks. The failure of one or more of the counterparties to fulfill their
obligations under the hedge agreements, whether as a result of weakening financial stability or otherwise, could adversely affect
our financial condition, results of operations or cash flows.
Our postretirement-related costs and funding requirements could increase as a result of volatility in the financial
markets, changes in interest rates and actuarial assumptions.
We sponsor a number of defined benefit pension plans associated with our U.S. and former international businesses, as
well as a postretirement medical plan in the United States for certain retired associates and their dependents. The performance
of the financial markets and changes in interest rates impact the funded status of these plans and cause volatility in our
postretirement-related costs and future funding requirements. If the financial markets do not provide the expected long-term
returns on invested assets, we could be required to make significant pension contributions. Additionally, changes in interest
rates and legislation enacted by governmental authorities can impact the timing and amounts of contribution requirements.
We utilize third-party actuaries to evaluate assumptions used in determining projected benefit obligations and the fair
value of plan assets for our pension and other postretirement benefit plans. In the event we determine that our assumptions
should be revised, such as the discount rate or expected return on assets, our future pension and postretirement benefit expenses
could increase or decrease. The assumptions we use may differ from actual results, which could have a significant impact on
our pension and postretirement liabilities and related costs and funding requirements.
Risks Related to Regulation of Our Company
Compliance with environmental and other public health regulations or changes in such regulations or regulatory
enforcement priorities could increase our costs of doing business or limit our ability to market all of our products.
Laws and regulations relating to environmental matters affect us in several ways. All pesticide products sold in the
United States must comply with FIFRA and most must be registered with the U.S. EPA and similar state agencies. Our
inability to obtain or maintain such registrations, or the cancellation of any such registration of our products, could have an
adverse effect on our business, the severity of which would depend on a variety of factors, including the product(s) 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 active ingredients, but there can be no assurance
that we will be able to avoid or reduce these risks. In addition, in Canada, regulations have been adopted by several provinces
that substantially restrict our ability to market and sell certain of our consumer pesticide products.
Under the Food Quality Protection Act, enacted by the U.S. Congress in 1996, food-use pesticides are evaluated to
determine whether there is reasonable certainty that no harm will result from the cumulative effects of pesticide exposures.
Under this Act, the U.S. EPA is evaluating the cumulative and aggregate risks from dietary and non-dietary exposures to
pesticides. The pesticides in our products, certain of which may be also used on crops processed into various food products, are
manufactured by independent third parties and continue to be evaluated by the U.S. EPA as part of this exposure risk
assessment. The U.S. EPA or the third-party registrant may decide that a pesticide we use in our products will be limited or
made unavailable to us. We cannot predict the outcome or the severity of the effect of these continuing evaluations.
In addition, the use of certain fertilizer and pesticide products (including pesticide products that contain glyphosate) is
regulated by various environmental and public health agencies. These regulations may, among other things, ban the use of
certain ingredients contained in such products or require (i) that only certified or professional users apply the product, (ii) that
certain products be used only on certain types of locations, (iii) users to post notices on properties to which products have been
or will be applied, and/or (iv) notification to individuals in the vicinity that products will be applied in the future. Even if we
are able to comply with all such regulations and obtain all necessary registrations and licenses, we cannot provide assurance
that our products, particularly pesticide products, will not cause or be alleged to cause injury to the environment or to people
under all circumstances, particularly when used improperly or contrary to instructions. The costs of compliance, remediation or
products liability have adversely affected operating results in the past and could materially adversely affect future quarterly or
annual operating results.
Our products and operations may be subject to increased regulatory and environmental scrutiny in jurisdictions in which
we do business. For example, we are subject to regulations relating to our harvesting of peat for our growing media business
which has come under increasing regulatory and environmental scrutiny. In the United States, state regulations frequently
require us to limit our harvesting and to restore the property to an agreed-upon condition. In some locations, we have been
19
Table of Contents
required to create water retention ponds to control the sediment content of discharged water. In Canada, our peat extraction
efforts are also the subject of regulation.
In addition to the laws and regulations already described, various governmental agencies regulate the disposal, transport,
handling and storage of waste, the remediation of contaminated sites, air and water discharges from our facilities, and
workplace health and safety. Under certain environmental laws and regulations, we may be liable for the costs of investigation
and remediation of the presence of certain regulated materials, as well as related costs of investigation and remediation of
damage to natural resources, at various properties, including our current and former properties as well as offsite waste handling
or disposal sites that we have used. Liability may be imposed upon us without regard to whether we knew of or caused the
presence of such materials and, under certain circumstances, on a joint and several basis. There can be no assurances that the
presence of such regulated materials at any such locations, or locations that we may acquire in the future, will not result in
liability to us under such laws or regulations or expose us to third-party actions such as tort suits based on alleged conduct or
environmental conditions.
On October 18, 2021, the Biden Administration announced a multi-agency plan to address PFAS contamination. Various
federal agencies, including the U.S. EPA, will take actions to prevent the release of PFAS into the air, drinking systems, and
food supply and to expand cleanup efforts to remediate the impacts of PFAS pollution. As part of this announcement, the U.S.
EPA released its PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024, which identifies timelines by which the
U.S. EPA plans to take specific actions during the first term of the Biden Administration. It is possible that some of these
actions may have an impact – direct or indirect – on our business. For example, in August 2022, the U.S. EPA proposed to
designate PFAS chemicals, PFOA and PFOS, as hazardous substances under CERCLA, which could have wide-ranging impact
on companies across various industries. Until further detail is provided, including whether the rule is enacted as proposed, we
cannot predict the outcome or the severity of the impact of these proposed actions.
The adequacy of our current non-FIFRA compliance-related environmental accruals and future provisions depends upon
our operating in substantial compliance with applicable environmental and public health laws and regulations, as well as the
assumptions that we have both identified all of the significant sites that must be remediated and that there are no significant
conditions of potential contamination that are unknown to us. A significant change in the facts and circumstances underlying
these assumptions or in current enforcement policies or requirements, or a finding that we are not in substantial compliance
with applicable environmental and public health laws and regulations, could have a material adverse effect on future
environmental capital expenditures and other environmental expenses, as well as our financial condition, results of operations
and cash flows.
Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities
could affect our profitability and cash flows.
We are subject to income and other taxes in the United States federal jurisdiction and various local, state and foreign
jurisdictions. Our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in
the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets (such as net
operating losses and tax credits) and liabilities, changes in tax laws and the discovery of new information in the course of our
tax return preparation process. In particular, the carrying value of deferred tax assets, which are predominantly related to our
operations in the United States, is dependent on our ability to generate future taxable income of the appropriate character in the
relevant jurisdiction.
From time to time, tax proposals are introduced or considered by the U.S. Congress or the legislative bodies in local, state
and foreign jurisdictions that could also affect our tax rate, the carrying value of our deferred tax assets, or our tax liabilities.
Our tax liabilities are also affected by the amounts we charge for inventory, services, licenses, funding and other items in
intercompany transactions. We are subject to ongoing tax audits in various jurisdictions. In connection with these audits (or
future audits), tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters
and assess additional taxes. We regularly assess the likely outcomes of our audits in order to determine the appropriateness of
our tax provision. As a result, the ultimate resolution of our tax audits, changes in tax laws or tax rates, and the ability to utilize
our deferred tax assets could materially affect our tax provision, net income and cash flows in future periods.
Risks Related to Our Common Shares
While we have a general history of increasing the rate of cash dividends on, and engaging in repurchases of, our
Common Shares, any future decisions to maintain, reduce or discontinue paying cash dividends to our shareholders or
repurchasing our Common Shares could cause the market price for our Common Shares to decline.
Our payment of quarterly cash dividends on and repurchase of our Common Shares pursuant to our stock repurchase
program are subject to, among other things, our financial position and results of operations, available cash and cash flow,
capital requirements, credit facility provisions and other factors. Prior to fiscal 2022, we have generally increased the cash
dividends on our Common Shares as well as engaged in share repurchase activity. In fiscal 2022, the dividend amount was not
20
Table of Contents
increased from the prior year. On February 6, 2020, the Scotts Miracle-Gro Board of Directors authorized a new share
repurchase program allowing for repurchases of up to $750.0 million of Common Shares from April 30, 2020 through
March 25, 2023. The total remaining share repurchase authorization as of September 30, 2022 was $461.9 million.
We may maintain, or increase or decrease (including eliminating) the amount of cash dividends on, and increase or
decrease the amount of repurchases of, our Common Shares in the future. Any decision by us regarding the payment of
quarterly cash dividends or repurchases of our Common Shares pursuant to our current share repurchase authorization program
could cause the market price of our Common Shares to decline. Moreover, in the event our payment of quarterly cash
dividends on or repurchases of our Common Shares are reduced or discontinued, our failure or inability to resume paying cash
dividends or repurchasing Common Shares at historical levels could result in a lower market valuation of our Common Shares.
Hagedorn Partnership, L.P. beneficially owns approximately 25% of our Common Shares and can significantly influence
decisions that require the approval of shareholders.
Hagedorn Partnership, L.P. beneficially owned approximately 25% of our outstanding Common Shares on a fully diluted
basis as of November 18, 2022. As a result, it has sufficient voting power to significantly influence the election of directors and
the approval of other actions requiring the approval of our shareholders, including entering into certain business combination
transactions. In addition, because of the percentage of ownership and voting concentration in Hagedorn Partnership, L.P.,
elections of our board of directors will generally be within the control of Hagedorn Partnership, L.P. While all of our
shareholders are entitled to vote on matters submitted to our shareholders for approval, the concentration of our Common
Shares and voting control presently lies with Hagedorn Partnership, L.P. As such, it would be difficult for shareholders to
propose and have approved proposals not supported by Hagedorn Partnership, L.P. Hagedorn Partnership, L.P.’s interests
could differ from, or conflict with, the interests of other shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters is located in Marysville, Ohio, where we own approximately 729 acres of land. In addition,
we own and lease numerous industrial, commercial and office properties located in North America, Europe and Asia that
support the management, manufacturing, distribution and research and development of our products and services. We believe
our properties are suitable and adequate to serve the needs of our business and that our leased properties are subject to
appropriate lease agreements.
The following is a summary of owned and leased properties by country as of September 30, 2022:
Location
Owned
Leased
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
10
—
—
44
69
11
6
2
88
We own or lease 42 manufacturing properties, 23 distribution properties and 4 research and development properties in the
United States. We own or lease 17 manufacturing, 1 distribution and 1 research and development property in Canada, 1
manufacturing property in the Netherlands and 1 manufacturing and 1 research and development property in China. Most of
the manufacturing properties, which include growing media properties and peat harvesting properties, have production lines,
warehouses, offices and field processing areas.
21
Table of Contents
ITEM 3.
LEGAL PROCEEDINGS
As noted in the discussion in “ITEM 1. BUSINESS — Regulatory Considerations — Regulatory Matters” of this
Form 10-K, we are involved in several pending environmental and regulatory matters. We believe that our assessment of
contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that
the final resolution of these matters will not have a material effect on our financial condition, results of operations or cash
flows.
The Company has been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from
exposure to asbestos-containing products, apparently based on the Company’s historic use of vermiculite in certain of its
products. In many of these cases, the complaints are not specific about the plaintiffs’ contacts with the Company or its
products. The cases vary, but complaints in these cases generally seek unspecified monetary damages (actual, compensatory,
consequential and punitive) from multiple defendants. The Company believes that the claims against it are without merit and is
vigorously defending against them. No accruals have been recorded in the Company’s consolidated financial statements as the
likelihood of a loss is not probable at this time; and the Company does not believe a reasonably possible loss would be material
to, nor the ultimate resolution of these cases will have a material adverse effect on, the Company’s financial condition, results
of operations or cash flows. There can be no assurance that future developments related to pending claims or claims filed in the
future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the
Company’s financial condition, results of operations or cash flows.
We are involved in other lawsuits and claims which arise in the normal course of our business including the initiation and
defense of proceedings to protect intellectual property rights, advertising claims and employment disputes. In our opinion,
these claims individually and in the aggregate are not expected to have a material adverse effect on our financial condition,
results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
22
Table of Contents
PART II
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Scotts Miracle-Gro, their positions and, as of November 18, 2022, their ages and years with
Scotts Miracle-Gro (and its predecessors) are set forth below.
Name
James Hagedorn
David C. Evans
Age
67 Chief Executive Officer and Chairman of the Board
Position(s) Held
59 Executive Vice President and Interim Chief Financial Officer; Member
of the Board of Directors
Michael C. Lukemire
64 President and Chief Operating Officer
Christopher J. Hagedorn
38 Division President
Ivan C. Smith
53 Executive Vice President, General Counsel, Corporate Secretary and
Chief Compliance Officer
Denise S. Stump
68 Executive Vice President, Global Human Resources and Chief Ethics
Officer
Years with
Company
35
23
26
11
19
22
Executive officers serve at the discretion of the Board of Directors of Scotts Miracle-Gro and pursuant to executive
severance agreements or other arrangements. The business experience of each of the individuals listed above during at least the
past five years is as follows:
Mr. Hagedorn was named Chairman of the Board of Scotts Miracle-Gro’s predecessor in January 2003 and Chief
Executive Officer of Scotts Miracle-Gro’s predecessor in May 2001. Prior to this appointment, Mr. Hagedorn held several
senior leadership positions at the Company. Mr. Hagedorn serves on Scotts Miracle-Gro’s Board of Directors, a position he has
held with Scotts Miracle-Gro (or its predecessor) since 1995. Mr. Hagedorn is the brother of Katherine Hagedorn Littlefield, a
director of Scotts Miracle-Gro, and is the father of Christopher J. Hagedorn, an executive officer of the Company.
Mr. Evans was named Executive Vice President and Interim Chief Financial Officer in August 2022. He served as
Chief Financial Officer of the Company from 2006 until 2013 and was named to its Board of Directors in 2018. Mr. Evans
served as the interim Chief Financial Officer of Cardinal Health, Inc., a global integrated healthcare services and products
company, from September 2019 until May 2020, after a transition role beginning in July 2019, and as Executive Vice President
and Chief Financial Officer of Battelle Memorial Institute, a private research and development organization, from 2013 until
2018. Mr. Evans is a director of Cardinal Health, Inc.
Mr. Lukemire was named President and Chief Operating Officer of Scotts Miracle-Gro in February 2016. Prior to
this appointment, Mr. Lukemire held several senior leadership positions at the Company.
Mr. C. Hagedorn was named Division President of Scotts Miracle-Gro in January 2021. Prior to this appointment,
Mr. C. Hagedorn was named President of The Hawthorne Gardening Company, a position he has held since May 2014. Mr. C.
Hagedorn is the son of James Hagedorn, the Chairman and CEO of Scotts Miracle-Gro.
Mr. Smith was named Executive Vice President, General Counsel and Corporate Secretary of Scotts Miracle-Gro in
July 2013 and Chief Compliance Officer of Scotts Miracle-Gro in October 2013. Prior to this appointment, Mr. Smith held
several senior leadership positions at the Company.
Ms. Stump was named Executive Vice President, Global Human Resources of Scotts Miracle-Gro (or its
predecessor) in February 2003 and Chief Ethics Officer of Scotts Miracle-Gro in October 2013. Prior to this appointment, Ms.
Stump held several senior leadership positions at the Company.
23
Table of Contents
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Common Shares trade on the New York Stock Exchange under the symbol “SMG.” The payment of future dividends,
if any, on the Common Shares will be determined by the Board of Directors in light of conditions then existing, including the
Company’s earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and
other factors.
On April 8, 2022, the Company entered into a sixth amended and restated credit agreement (the “Sixth A&R Credit
Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate
principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal
amount of $1,000.0 (the “Sixth A&R Credit Facilities”). The Sixth A&R Credit Agreement also provides the Company with
the right to seek additional committed credit under the agreement in an aggregate amount of up to $500.0 plus an unlimited
additional amount, subject to certain specified financial and other conditions. The Sixth A&R Credit Agreement replaced the
Fifth A&R Credit Agreement and will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the
issuance of letters of credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and
warranties, affirmative and negative covenants, financial covenants, and events of default.
On June 8, 2022, the Company entered into Amendment No. 1 (the “Amendment”) to the Sixth A&R Credit Agreement.
The Amendment increases the maximum permitted leverage ratio for the quarterly leverage covenant effective for the third
quarter of fiscal 2022 until the earlier of (i) April 1, 2024 and (ii) subject to certain conditions specified in the Amendment, the
termination by the Company of such increase (such period, the “Leverage Adjustment Period”). Additionally, the Amendment
limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments during the
Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of its Common Shares in
an aggregate amount not to exceed $225.0 per fiscal year and (ii) other dividends, distributions or other restricted payments in
an aggregate amount not to exceed $25.0. The Amendment also requires pro forma compliance with certain leverage levels
specified in the Amendment with respect to the Company’s ability to consummate certain acquisitions and incur debt.
The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s
leverage ratio determined as of the end of each of its fiscal quarters calculated as average total indebtedness, divided by the
Company’s earnings before interest, taxes, depreciation and amortization, as adjusted pursuant to the terms of the Sixth A&R
Credit Agreement (“Adjusted EBITDA”). Pursuant to the Amendment, the maximum permitted leverage ratio is (i) 6.25 for the
third quarter of fiscal 2022 through the first quarter of fiscal 2023, (ii) 6.50 for the second and third quarters of fiscal 2023, (iii)
6.25 for the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, (iv) 5.50 for the second quarter of fiscal 2024, and
(v) 4.50 for the third quarter of fiscal 2024 and thereafter. The Company’s leverage ratio was 6.01 at September 30, 2022 and
restricted payments during fiscal 2022 were within the amounts allowed by the Sixth A&R Credit Agreement. See “NOTE 12.
DEBT” of the Notes to Consolidated Financial Statements included in this Form 10-K for further discussion regarding the
restrictions on dividend payments.
As of November 18, 2022, there were approximately 267,000 shareholders, including holders of record and our estimate
of beneficial holders.
The following table shows the purchases of Common Shares made by or on behalf of Scotts Miracle-Gro or any
“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Scotts
Miracle-Gro for each of the three fiscal months in the quarter ended September 30, 2022:
Period
July 3, 2022 through July 30, 2022 . . . . . . . . .
July 31, 2022 through August 27, 2022 . . . . . .
August 28, 2022 through September 30, 2022
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Number
of Common
Shares
Purchased
(1)
Average Price
Paid per
Common
(2)
Share
1,255 $
1,389 $
2,308 $
4,952 $
82.53
72.93
58.33
68.56
Total Number
of Common
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(3)
Approximate
Dollar Value of
Common Shares
That May Yet
be Purchased
Under the Plans
(3)
or Programs
— $
461,912,353
— $
461,912,353
— $
461,912,353
—
(1) All of the Common Shares purchased during the fourth quarter of fiscal 2022 were purchased in open market
transactions. The total number of Common Shares purchased during the quarter includes 4,952 Common Shares
24
Table of Contents
purchased by the trustee of the rabbi trust established by the Company as permitted pursuant to the terms of The Scotts
Company LLC Executive Retirement Plan (the “ERP”).
(2) The average price paid per Common Share is calculated on a settlement basis and includes commissions.
(3) On February 6, 2020, the Company announced a new repurchase program allowing for repurchases of up to $750.0
million of Common Shares from April 30, 2020 through March 25, 2023.
Comparison of Cumulative Five-Year Total Return*
The following graph compares the yearly change in the cumulative total stockholder return on our Common Stock for the
past five fiscal years with the cumulative total return of the Russell 2000 Index and the S&P 500 Household Products Index.
ITEM 6.
RESERVED
Reserved by the SEC.
25
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of our financial
condition and results of operations by focusing on changes in certain key measures from year-to-year. This MD&A is divided
into the following sections:
•
•
•
•
•
•
•
Executive summary
Results of operations
Segment results
Liquidity and capital resources
Non-GAAP measures
Regulatory matters
Critical accounting policies and estimates
Executive Summary
Our operations are divided into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S. Consumer
consists of our consumer lawn and garden business in the United States. Hawthorne consists of our indoor and hydroponic
gardening business. Other primarily consists of our consumer lawn and garden business outside the United States. This
division of reportable segments is consistent with how the segments report to and are managed by our chief operating decision
maker. In addition, Corporate consists of general and administrative expenses and certain other income and expense items not
allocated to the business segments. See “SEGMENT RESULTS” below for additional information regarding our evaluation of
segment performance.
Through our U.S. Consumer and Other segments, we are the leading manufacturer and marketer of branded consumer
lawn and garden products in North America. Our products are marketed under some of the most recognized brand names in the
industry. Our key consumer lawn and garden brands include Scotts® and Turf Builder® lawn fertilizer and Scotts® grass seed
products; Miracle-Gro® soil, plant food and gardening products; Ortho® herbicide and pesticide products; and Tomcat® rodent
control and animal repellent products. We also have a presence in similar branded consumer products in China. We are the
exclusive agent of Monsanto for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products
within the United States and certain other specified countries. In addition, we have an equity interest in Bonnie Plants, LLC, a
joint venture with AFC, focused on planting, growing, developing, distributing, marketing and selling live plants.
Through our Hawthorne segment, we are a leading manufacturer, marketer and distributor of lighting, nutrients, growing
media, growing environments and hardware products for indoor and hydroponic gardening in North America. Our key brands
include General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Can-Filters®, Gro Pro®, Mother Earth®, Hurricane®, Grower’s
Edge® and HydroLogicTM.
As a leading consumer branded lawn and garden company, our product development and marketing efforts are largely
focused on providing innovative and differentiated products and continually increasing brand and product awareness to inspire
consumers to create retail demand. We have implemented this model for a number of years by focusing on research and
development and investing approximately 3-5% of our U.S. Consumer segment annual net sales in advertising to support and
promote our consumer lawn and garden products and brands. We continually explore new and innovative ways to
communicate with consumers. We believe that we receive a significant benefit from these expenditures and anticipate a similar
commitment to research and development, advertising and marketing investments in the future, with the continuing objective of
driving category growth and profitably maintaining and/or increasing market share.
Our consumer lawn and garden net sales in any one year are susceptible to weather conditions in the markets in which our
products are sold. For instance, periods of abnormally wet or dry weather can adversely impact the sale of certain products,
while increasing demand for other products. We believe that our diversified product line and our geographic diversification
reduce this risk, although to a lesser extent in a year in which unfavorable weather is geographically widespread and extends
across a significant portion of the lawn and garden season. We also believe that weather conditions in any one year, positive or
negative, do not materially impact longer-term category growth trends.
26
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Due to the seasonal nature of the consumer lawn and garden business, for our U.S. Consumer and Other segments,
significant portions of our products ship to our retail customers during our second and third fiscal quarters, as noted in the
following table. Our annual net sales are further concentrated in the second and third fiscal quarters by retailers who rely on
our ability to deliver products closer to when consumers buy our products, thereby reducing retailers’ pre-season inventories.
For our Hawthorne segment, sales are also impacted by seasonal patterns for certain product categories due to the timing of
outdoor growing in North America during our second and third fiscal quarters, and the timing of certain controlled agricultural
lighting project sales during our third and fourth fiscal quarters.
Percent of Net Sales from Continuing
Operations by Quarter
2022
2021
2020
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.4 %
42.8 %
30.2 %
12.6 %
15.2 %
37.1 %
32.7 %
15.0 %
8.9 %
33.5 %
36.1 %
21.5 %
We follow a 13-week quarterly accounting cycle pursuant to which the first three fiscal quarters end on a Saturday and
the fiscal year always ends on September 30. This fiscal calendar convention requires us to cycle forward the first three fiscal
quarter ends every six years. Fiscal 2021 was impacted by this process and, as a result, our first quarter of fiscal 2021 had five
additional days and our fourth quarter of fiscal 2021 had six fewer days compared to the respective quarters of fiscal 2020.
Management focuses on a variety of key indicators and operating metrics to monitor the financial condition and
performance of the continuing operations of our business. These metrics include consumer purchases (point-of-sale data),
market share, category growth, net sales (including unit volume, pricing and foreign exchange movements), gross margins,
advertising to net sales ratios, income from operations, income from continuing operations, net income, earnings per share,
earnings before interest, taxes, depreciation and amortization (“EBITDA”) and leverage ratio. To the extent applicable, these
metrics are evaluated with and without impairment, restructuring and other charges that do not occur in or reflect the ordinary
course of our ongoing business operations. Metrics that exclude impairment, restructuring and other nonrecurring items are
used by management to evaluate our performance, engage in financial and operational planning and determine incentive
compensation because we believe that these measures provide additional perspective on the performance of our underlying,
ongoing business. We also focus on measures to optimize cash flow and return on invested capital, including the management
of working capital and capital expenditures. Refer to the “NON-GAAP MEASURES” section of this MD&A for further
discussion of non-GAAP measures.
Recent Events
During fiscal 2022, our Hawthorne segment experienced adverse financial results due to decreased sales volume and
higher transportation and warehousing costs. Sales volume decreased due to an oversupply of cannabis, which significantly
decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. The oversupply has been driven by increased
licensing activity across the U.S., as well as significant capital investment in the cannabis production marketplace over the past
several years and the market impacts of the COVID-19 pandemic. Due to the risks and uncertainties related to these impacts,
we performed interim impairment testing for Hawthorne long-lived assets and goodwill during the third quarter of fiscal 2022,
which resulted in non-cash, pre-tax goodwill and intangible asset impairment charges of $632.4 recorded in the “Impairment,
restructuring and other” line in the Consolidated Statements of Operations. Refer to the “CRITICAL ACCOUNTING
POLICIES AND ESTIMATES” section of this MD&A and “NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET” for
more information. We expect that the oversupply of cannabis and cost increases will continue to adversely impact our
Hawthorne segment. If the oversupply of cannabis and cost increases persist longer, or are more significant than we expect or
we are unable to mitigate their impact, our results of operations could be materially and adversely impacted for a longer period
and to a greater extent than we currently anticipate.
During fiscal 2022, our U.S. Consumer, Hawthorne and Other segments have experienced higher transportation and
materials costs, including fertilizer inputs such as urea, due in part to the negative impact of the war in Ukraine on the global
economy. We expect a continuing inflationary environment that is heightened by this conflict, and we are continuing to address
these impacts to our operations. We have no operations in Russia or Ukraine.
On April 8, 2022, we entered into the Sixth A&R Credit Agreement, providing the Company and certain of its
subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,500.0, comprised of a revolving
credit facility of $1,500.0 and a term loan in the original principal amount of $1,000.0. The Sixth A&R Credit Agreement
contains, among other obligations, an affirmative covenant regarding our leverage ratio determined as of the end of each of our
27
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
fiscal quarters. The maximum permitted leverage ratio originally established in the Sixth A&R Credit Agreement was 4.50.
During the third quarter of fiscal 2022, we experienced an unexpected shortfall in earnings that affected our ability to remain in
compliance with the leverage ratio covenant of the Sixth A&R Credit Agreement. On June 8, 2022, we entered into
Amendment No. 1 (the “Amendment”) to the Sixth A&R Credit Agreement which increases the maximum permitted leverage
ratio for the quarterly leverage covenant effective for the third quarter of fiscal 2022 until the earlier of (i) April 1, 2024 and (ii)
subject to certain conditions specified in the Amendment, the termination by us of such increase (such period, the “Leverage
Adjustment Period”). We are currently in compliance with our covenants and expect to remain in compliance, however, we
could experience material changes to forecasted revenues, expenses or cash flows and may experience difficulty remaining in
compliance with the financial covenants required by the amended Sixth A&R Credit Agreement. Refer to the “LIQUIDITY
AND CAPITAL RESOURCES” section of this MD&A for more information regarding the Amendment and the financial
covenants required by the Sixth A&R Credit Agreement.
During fiscal 2022, due to a broader business downturn, we began implementing a series of Company-wide
organizational changes and initiatives intended to create operational and management-level efficiencies. As part of the first
phase of this restructuring program, we reduced the size of our supply chain network, reduced staffing levels and implemented
other cost-reduction initiatives, which achieved approximately $100.0 of annual cost reductions. During fiscal 2022, we
incurred costs of $65.2 associated with this restructuring initiative primarily related to employee termination benefits and
impairment of property, plant and equipment. On November 2, 2022, we announced further details of a second phase of this
initiative, targeting an additional $85.0 of annual cost reductions. Expected savings will be driven by: (i) reducing the operating
footprint of our Hawthorne and U.S. Consumer segments by closing points of distribution, (ii) further right-sizing of overhead
expenses in our Hawthorne segment enabled by integration into ScottsMiracle-Gro, (iii) enhancing profitability through
improved product mix and fewer SKUs in our Hawthorne segment, (iv) executing on supply chain labor and materials
efficiencies, (v) improving productivity of trade programs, and (vi) further reductions in SG&A spending. In addition, we have
contingency plans which would further reduce or delay additional expenses and cash outlays, or reduce borrowings, should
operations weaken beyond current forecasts or if cash inflows are not received when expected.
During fiscal 2022, we discontinued and exited the market for certain Hawthorne lighting products and brands. These
actions resulted in inventory write-down charges of $120.9 recorded in the “Cost of sales—impairment, restructuring and other”
line in the Consolidated Statements of Operations and finite-lived intangible asset impairment charges of $35.3 recorded in the
“Impairment, restructuring and other” line in the Consolidated Statements of Operations.
On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0
of Common Shares from April 30, 2020 through March 25, 2023. During fiscal 2022 and fiscal 2021, Scotts Miracle-Gro
repurchased 1.1 million and 0.6 million Common Shares under this share repurchase authorization for $175.0 and $113.1,
respectively. There were no share repurchases under this share repurchase authorization during fiscal 2020.
On July 27, 2020, the Scotts Miracle-Gro Board of Directors approved an increase in Scotts Miracle-Gro’s quarterly cash
dividend from $0.58 to $0.62 per Common Share, which was first paid in the fourth quarter of fiscal 2020. On July 30, 2021,
the Scotts Miracle-Gro Board of Directors approved an increase in Scotts Miracle-Gro’s quarterly cash dividend from $0.62 to
$0.66 per Common Share, which was first paid in the fourth quarter of fiscal 2021.
28
Table of Contents
Results of Operations
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
The following table sets forth the components of earnings as a percentage of net sales:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,924.1
2,891.1
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160.1
Cost of sales—impairment, restructuring and other . . .
872.9
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
Year Ended September 30,
2021
% of Net
Sales
100.0 % $ 4,925.0
3,431.3
73.7
24.7
4.1
1,469.0
22.2
2020
% of Net
Sales
100.0 % $ 4,131.6
2,768.6
69.7
16.0
0.5
1,347.0
29.8
% of Net
Sales
100.0 %
67.0
0.4
32.6
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . .
Equity in (income) loss of unconsolidated affiliates . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income, net . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
613.0
693.1
0.8
(434.0)
12.9
—
118.1
(6.9)
15.6
17.7
—
(11.1)
0.3
—
3.0
(0.2)
743.5
4.3
(1.8)
723.0
(14.4)
—
78.9
(18.6)
15.1
0.1
—
14.7
(0.3)
—
1.6
(0.4)
757.8
0.8
3.2
585.2
—
15.1
79.6
(20.1)
18.3
—
0.1
14.2
—
0.4
1.9
(0.5)
(558.1)
(14.2)
677.1
13.7
510.6
12.4
Income tax expense (benefit) from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . .
Income (loss) from discontinued operations, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (437.5)
(120.6)
(437.5)
The sum of the components may not equal due to rounding.
Net Sales
(3.1)
(11.1)
159.8
517.3
3.2
10.5
123.7
386.9
3.0
9.4
—
(3.9)
(11.1) % $ 513.4
(0.1)
1.7
10.4 % $ 388.6
—
9.4 %
Net sales for fiscal 2022 were $3,924.1, a decrease of 20.3% from net sales of $4,925.0 for fiscal 2021. Net sales for
fiscal 2021 increased 19.2% from net sales of $4,131.6 for fiscal 2020. These changes in net sales were attributable to the
following:
Year Ended September 30,
2022
2021
Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27.0) %
(0.4)
6.2
0.9
(20.3) %
16.9 %
0.8
1.5
—
19.2 %
The decrease in net sales for fiscal 2022 as compared to fiscal 2021 was primarily driven by:
•
•
•
•
•
decreased sales volume driven by lighting, nutrients, growing media, hardware and growing environments
products in our Hawthorne segment; and lawn care, soils, controls, plant food and mulch products in our U.S.
Consumer segment;
decreased net sales associated with the Roundup® marketing agreement; and
the unfavorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar relative to the
euro and the Canadian dollar;
partially offset by increased pricing in our U.S. Consumer, Hawthorne and Other segments; and
the addition of net sales from acquisitions in our Hawthorne segment.
29
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
The increase in net sales for fiscal 2021 as compared to fiscal 2020 was primarily driven by:
•
•
•
•
increased sales volume driven by soils, fertilizer, grass seed, mulch, controls, plant food and direct to consumer
products in our U.S. Consumer segment; lighting, nutrients, growing media, hardware and growing environments
products in our Hawthorne segment; and increased sales in our Other segment;
increased pricing in our U.S. Consumer, Hawthorne and Other segments;
increased net sales associated with the Roundup® marketing agreement; and
the favorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro
and the Canadian dollar.
Cost of Sales
The following table shows the major components of cost of sales:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Distribution and warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing labor and overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs associated with Roundup® marketing agreement . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales—impairment, restructuring and other . . . . . . . . . . . . . . .
$
Year Ended September 30,
2022
2021
2020
1,616.7 $
660.1
546.4
67.9
2,891.1
160.1
3,051.2 $
1,962.5 $
684.0
714.0
70.8
3,431.3
24.7
3,456.0 $
1,599.3
492.6
615.1
61.6
2,768.6
16.0
2,784.6
Factors contributing to the change in cost of sales are outlined in the following table:
Year Ended September 30,
2022
2021
Volume, product mix and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs associated with Roundup® marketing agreement . . . . . . . . . . . . .
Material cost changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(641.4) $
(16.9)
(2.9)
121.0
(540.2)
135.4
(404.8) $
The decrease in cost of sales for fiscal 2022 as compared to fiscal 2021 was primarily driven by:
545.9
24.6
9.2
83.0
662.7
8.7
671.4
•
•
•
•
•
•
lower sales volume in our U.S. Consumer, Hawthorne and Other segments;
the favorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar relative to the
euro and the Canadian dollar; and
a decrease in costs associated with the Roundup® marketing agreement;
partially offset by higher material costs in our U.S. Consumer and Other segments;
higher transportation and warehousing costs included within “volume, product mix and other” in our U.S.
Consumer, Hawthorne and Other segments; and
an increase in impairment, restructuring and other charges.
The increase in cost of sales for fiscal 2021 as compared to fiscal 2020 was primarily driven by:
•
•
•
higher sales volume in our U.S. Consumer, Hawthorne and Other segments;
higher material costs in our U.S. Consumer, Hawthorne and Other segments;
higher transportation and warehousing costs included within “volume, product mix and other” in our U.S.
Consumer and Hawthorne segments;
30
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
•
•
•
the unfavorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro
and the Canadian dollar;
an increase in costs associated with the Roundup® marketing agreement; and
an increase in impairment, restructuring and other charges.
Gross Margin
As a percentage of net sales, our gross margin rate was 22.2%, 29.8% and 32.6% for fiscal 2022, fiscal 2021 and fiscal
2020, respectively. Factors contributing to the change in gross margin rate are outlined in the following table:
Year Ended September 30,
2022
2021
Volume, product mix and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Material costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roundup® commissions and reimbursements . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in gross margin rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6.6) %
(3.4)
(0.2)
(0.1)
6.3
(4.0)
(3.6)
(7.6) %
(1.8) %
(1.7)
—
—
0.8
(2.7)
(0.1)
(2.8) %
The decrease in gross margin rate for fiscal 2022 as compared to fiscal 2021 was primarily driven by:
•
•
•
•
•
•
•
higher material costs in our U.S. Consumer, Hawthorne and Other segments;
higher transportation and warehousing costs included within “volume, product mix and other” associated with our
U.S. Consumer, Hawthorne and Other segments;
unfavorable leverage of fixed costs driven by lower sales volume in our U.S. Consumer, Hawthorne and Other
segments;
decreased net sales associated with the Roundup® marketing agreement;
an unfavorable net impact from acquisitions in our Hawthorne segment; and
an increase in impairment, restructuring and other charges;
partially offset by increased pricing in our U.S. Consumer, Hawthorne and Other segments.
The decrease in gross margin rate for fiscal 2021 as compared to fiscal 2020 was primarily driven by:
•
•
•
•
•
higher transportation and warehousing costs included within “volume, product mix and other” in our U.S.
Consumer and Hawthorne segments;
higher material costs in our U.S. Consumer, Hawthorne and Other segments; and
unfavorable mix driven by higher sales growth in our Hawthorne segment relative to our U.S. Consumer segment;
partially offset by favorable leverage of fixed costs driven by higher sales volume in our U.S. Consumer,
Hawthorne and Other segments; and
increased pricing in our U.S. Consumer, Hawthorne and Other segments.
31
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Selling, General and Administrative Expenses
The following table sets forth the components of selling, general and administrative expenses (“SG&A”):
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advertising as a percentage of net sales . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other selling, general and administrative . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2022
2021
2020
120.3
$
165.7
$
3.1 %
45.3
34.3
31.0
382.1
613.0
$
3.4 %
45.4
40.6
29.1
462.7
743.5
$
147.4
3.6 %
39.7
57.9
31.5
481.3
757.8
SG&A decreased $130.5, or 17.6%, during fiscal 2022 compared to fiscal 2021. Advertising expense decreased $45.4, or
27.4%, in fiscal 2022 driven by decreased media spending in our U.S. Consumer and Hawthorne segments. Other SG&A
decreased $80.6, or 17.4%, in fiscal 2022 driven by a decrease in short-term variable cash incentive compensation expense,
reductions in staffing levels and other cost-reduction initiatives.
SG&A decreased $14.3, or 1.9%, during fiscal 2021 compared to fiscal 2020. Share-based compensation expense
decreased $17.3, or 29.9%, in fiscal 2021 due to a more significant increase in the expected payout percentage on long-term
performance-based awards during fiscal 2020 as compared to fiscal 2021. Advertising expense increased $18.3, or 12.4%, in
fiscal 2021 driven by increased media spending in our U.S. Consumer, Hawthorne, and Other segments. Other SG&A
decreased $18.6, or 3.9%, in fiscal 2021 driven by lower short-term variable cash incentive compensation expense of $48.8 and
lower corporate spending, partially offset by increases in various categories supporting the continued growth of the business
including information technology, strategy and people costs.
Impairment, Restructuring and Other
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other,” “Impairment,
restructuring and other” and “Income (loss) from discontinued operations, net of tax” lines in the Consolidated Statements of
Operations. The following table details impairment, restructuring and other charges (recoveries) for each of the periods
presented:
Cost of sales—impairment, restructuring and other:
COVID-19 related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring and other charges (recoveries), net . . . . . . . . . . . . . . . . . . .
Property, plant and equipment impairments . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses—impairment, restructuring and other:
COVID-19 related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges (recoveries), net . . . . . . . . . . . . . . . . . . .
Gains on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other charges from continuing operations . . .
Restructuring and other charges (recoveries), net, from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2022
2021
2020
— $
25.0 $
143.6
16.6
—
40.9
(16.2)
668.3
853.2
—
(0.3)
—
4.2
0.1
—
—
29.0
—
853.2 $
29.0 $
15.5
(0.1)
0.6
3.9
(3.1)
—
—
16.8
(3.1)
13.7
During fiscal 2022, we recognized non-cash, pre-tax goodwill and intangible asset impairment charges of $632.4 as a
result of interim impairment testing of our Hawthorne segment in the “Impairment, restructuring and other” line in the
Consolidated Statements of Operations, comprised of $522.4 of goodwill impairment charges and $110.0 of finite-lived
intangible asset impairment charges.
During fiscal 2022, we incurred inventory write-down charges of $120.9 in the “Cost of sales—impairment, restructuring
and other” line in the Consolidated Statements of Operations and finite-lived intangible asset impairment charges of $35.3 in
32
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with our decision to
discontinue and exit the market for certain Hawthorne lighting products and brands.
During fiscal 2022, we began implementing a series of organizational changes and initiatives intended to create
operational and management-level efficiencies. As part of this restructuring program, we are reducing the size of our supply
chain network, reducing staffing levels and implementing other cost-reduction initiatives. During fiscal 2022, we incurred costs
of $65.2 associated with this restructuring initiative primarily related to employee termination benefits and impairment of
property, plant and equipment. We incurred costs of $9.7 in our U.S. Consumer segment and $27.1 in our Hawthorne segment
in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal
2022. We incurred costs of $11.9 in our U.S. Consumer segment, $8.1 in our Hawthorne segment, $0.7 in our Other segment
and $7.7 at Corporate in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations during
fiscal 2022. We continue to evaluate additional network and organizational changes, which, if executed, may result in
additional restructuring charges in future periods.
During fiscal 2022, we recognized gains of $16.2 in the “Impairment, restructuring and other” line in the Consolidated
Statements of Operations associated with the sale of property, plant and equipment.
Costs incurred during fiscal 2022 related to COVID-19 were immaterial. During fiscal 2021, we incurred costs of $29.2
associated with the COVID-19 pandemic primarily related to premium pay. We incurred costs of $21.2 in our U.S. Consumer
segment, $3.2 in our Hawthorne segment and $0.6 in our Other segment in the “Cost of sales—impairment, restructuring and
other” line in the Consolidated Statements of Operations during fiscal 2021. We incurred costs of $4.0 in our U.S. Consumer
segment and $0.2 in our Other segment in the “Impairment, restructuring and other” line in the Consolidated Statements of
Operations during fiscal 2021. During fiscal 2020, we incurred costs of $19.4 associated with the COVID-19 pandemic
primarily related to premium pay. We incurred costs of $12.4 in our U.S. Consumer segment, $2.6 in our Hawthorne segment
and $0.5 in our Other segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements
of Operations during fiscal 2020. We incurred costs of $3.8 in our U.S. Consumer segment and $0.1 in our Other segment in
the “Impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2020.
Other (Income) Expense, net
Other (income) expense is comprised of activities such as royalty income from the licensing of certain of our brand
names and foreign exchange transaction gains and losses. Other (income) expense was $0.8, $(1.8) and $3.2 in fiscal 2022,
fiscal 2021 and fiscal 2020, respectively. The change for fiscal 2022 and fiscal 2021 was primarily due to foreign exchange
transaction gains and losses.
Income (Loss) from Operations
Income (loss) from operations was $(434.0) in fiscal 2022 compared to $723.0 in fiscal 2021. The decrease was driven
by lower net sales, a decrease in gross margin rate, higher impairment, restructuring and other charges and lower other income,
partially offset by lower SG&A.
Income from operations was $723.0 in fiscal 2021, an increase of 23.5% compared to $585.2 in fiscal 2020. The increase
was driven by higher net sales, lower SG&A and higher other income, partially offset by a decrease in gross margin rate and
higher impairment, restructuring and other charges.
Equity in (Income) Loss of Unconsolidated Affiliates
We acquired a 50% equity interest in Bonnie Plants, LLC on December 31, 2020. Our interest is accounted for using the
equity method of accounting, with our proportionate share of Bonnie Plants, LLC earnings subsequent to December 31, 2020
reflected in the Consolidated Statements of Operations. We recorded equity in (income) loss of unconsolidated affiliates
associated with Bonnie Plants, LLC of $12.9, $(14.4) and zero in fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Refer to
“NOTE 9. INVESTMENT IN UNCONSOLIDATED AFFILIATES” of the Notes to the Consolidated Financial Statements
included in this Form 10-K for more information regarding Bonnie Plants, LLC.
Costs Related to Refinancing
Costs related to refinancing were $15.1 in fiscal 2020, and we did not incur costs related to refinancing in fiscal 2022 or
fiscal 2021. The costs incurred in fiscal 2020 were associated with the redemption of our 6.000% Senior Notes due 2023 (the
“6.000% Senior Notes”), and are comprised of $12.0 of redemption premium and $3.1 of unamortized bond issuance costs that
were written off. Refer to “NOTE 12. DEBT” of the Notes to the Consolidated Financial Statements included in this Form 10-
K for more information regarding the redemption of the 6.000% Senior Notes.
33
Table of Contents
Interest Expense
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Interest expense was $118.1 in fiscal 2022, an increase of 49.7% compared to $78.9 in fiscal 2021. The increase was
driven by higher average borrowings of $1,119.6 due to higher inventory production, capital expenditures, acquisition activity
and repurchases of our Common Shares.
Interest expense was $78.9 in fiscal 2021, a decrease of 0.9% compared to $79.6 in fiscal 2020. The decrease was driven
by a decrease in our weighted average interest rate of 61 basis points, partially offset by an increase in average borrowings of
$289.0. The decrease in our weighted average interest rate was driven by lower borrowing rates on the Fifth A&R Credit
Agreement. The increase in average borrowings was primarily driven by higher inventory production, capital expenditures and
acquisition activity.
Other Non-Operating Income, Net
Other non-operating income was $6.9, $18.6 and $20.1 in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, which
included interest income of $6.7, $4.1 and $7.6 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
On December 31, 2020, we acquired a 50% equity interest in Bonnie Plants, LLC in exchange for cash payments of
$102.3, forgiveness of our outstanding loan receivable with AFC and surrender of our options to increase our economic interest
in the Bonnie Plants business. Our loan receivable with AFC, which was previously recognized in the “Other assets” line in the
Consolidated Balance Sheets, had a carrying value of $66.4 on December 31, 2020. We recognized a gain of $12.5 during the
first quarter of fiscal 2021 to write-up the value of the loan to its closing date fair value of $78.9.
During the fourth quarter of fiscal 2020, we recognized an increase in the fair value of our options to increase our
economic interest in the Bonnie Plants business of $12.0 driven by an increase in sales and profits of the Bonnie Plants
business.
Income Tax Expense (Benefit) from Continuing Operations
A reconciliation of the federal corporate income tax rate and the effective tax rate on income from continuing operations
before income taxes is summarized below:
Year Ended September 30,
2022
2021
2020
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of other permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and Experimentation and other federal tax credits . . . . . . . . . . . . .
Effect of tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0 %
(2.5)
2.6
2.8
0.2
(1.8)
(0.7)
21.6 %
21.0 %
(0.1)
3.9
(1.1)
(0.2)
—
0.1
23.6 %
21.0 %
(0.7)
3.5
—
(0.3)
0.1
0.6
24.2 %
During fiscal 2022, we recognized non-cash, pre-tax goodwill and intangible asset impairment charges of $668.3 in the
“Impairment, restructuring and other” line in the Consolidated Statements of Operations. The tax impact of the impairment
charges was a benefit of $148.3, which is net of the impact of non-deductible goodwill of $18.8, for fiscal 2022 and was
recorded in the “Income tax expense (benefit) from continuing operations” line in the Consolidated Statements of Operations.
The tax impact of non-deductible goodwill was considered a discrete item because we have no remaining non-deductible
goodwill. This discrete item, which is included in the “Effect of foreign operations” line in the table above, decreased the fiscal
2022 effective tax rate by approximately 340 bps because we incurred a net loss during the period. Additionally, excess tax
benefits related to share-based compensation, which are included in the “Effect of other permanent differences” line in the table
above, increased the fiscal 2022 effective tax rate by approximately 260 bps.
Income (Loss) from Continuing Operations
Income (loss) from continuing operations was $(437.5), or $(7.88) per diluted share, in fiscal 2022 compared to $517.3,
or $9.03 per diluted share, in fiscal 2021. The decrease was driven by lower net sales, a decrease in gross margin rate, higher
impairment, restructuring and other charges, lower other income, lower equity in income of unconsolidated affiliates, higher
interest expense and lower other non-operating income, partially offset by lower SG&A.
Diluted average common shares used in the diluted loss per common share calculation for fiscal 2022 were 55.5 million,
which excluded potential Common Shares of 0.6 million because the effect of their inclusion would be anti-dilutive as we
34
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
incurred a net loss for fiscal 2022. Diluted average common shares used in the diluted income per common share calculation
were 57.2 million for fiscal 2021, which included dilutive potential Common Shares of 1.5 million.
Income from continuing operations was $517.3, or $9.03 per diluted share, in fiscal 2021 compared to $386.9, or $6.78
per diluted share, in fiscal 2020. The increase was driven by higher net sales, lower SG&A, higher other income, higher equity
in income of unconsolidated affiliates and lower costs related to refinancing, partially offset by a decrease in gross margin rate
and higher impairment, restructuring and other charges.
Diluted average common shares used in the diluted income per common share calculation were 57.2 million for fiscal
2021 compared to 56.9 million for fiscal 2020. The increase was primarily the result of the exercise and issuance of share-
based compensation awards, partially offset by common share repurchase activity. Dilutive equivalent shares for fiscal 2021
and fiscal 2020 were 1.5 million and 1.2 million, respectively.
Income (Loss) from Discontinued Operations, net of tax
Income (loss) from discontinued operations, net of tax, was zero, $(3.9) and $1.7 for fiscal 2022, fiscal 2021 and fiscal
2020, respectively. On August 31, 2017, we completed the sale of the International Business. As a result, effective in our
fourth quarter of fiscal 2017, we classified our results of operations for all periods presented to reflect the International Business
as a discontinued operation. The transaction included contingent consideration with a maximum payout of $23.8 and an initial
fair value of $18.2, the payment of which depended on the achievement of certain performance criteria by the International
Business following the closing of the transaction through fiscal 2020. During fiscal 2021, we agreed to accept a contingent
consideration payout of $6.0 and recorded a pre-tax charge of $12.2 during fiscal 2021 to write-down the contingent
consideration receivable to the agreed upon payout amount. During fiscal 2022, we received the contingent consideration
payment and this amount was classified as a financing activity in the “Other financing, net” line in the Consolidated Statements
of Cash Flows.
Segment Results
The performance of each reportable segment is evaluated based on several factors, including income (loss) from
continuing operations before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit
(Loss)”), which is a non-GAAP financial measure. Senior management uses Segment Profit (Loss) to evaluate segment
performance because they believe this measure is indicative of performance trends and the overall earnings potential of each
segment.
The following table sets forth net sales by segment:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,928.8 $
716.2
279.1
3,924.1 $
3,197.7 $
1,424.2
303.1
4,925.0 $
2,883.5
1,023.1
225.0
4,131.6
Year Ended September 30,
2022
2021
2020
35
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
The following table sets forth Segment Profit (Loss) as well as a reconciliation to income from continuing operations
before income taxes, the most directly comparable GAAP measure:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Segment Profit (Non-GAAP) . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . .
Equity in income (loss) of unconsolidated affiliates . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income, net . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income
taxes (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
U.S. Consumer
Year Ended September 30,
2022
2021
2020
568.6 $
(21.1)
20.2
567.7
(112.4)
(37.1)
(852.2)
(12.9)
—
(118.1)
6.9
726.7 $
163.8
42.1
932.6
(149.7)
(30.9)
(29.0)
14.4
—
(78.9)
18.6
694.3
111.9
11.7
817.9
(183.4)
(32.5)
(16.8)
—
(15.1)
(79.6)
20.1
(558.1) $
677.1 $
510.6
U.S. Consumer segment net sales were $2,928.8 in fiscal 2022, a decrease of 8.4% from fiscal 2021 net sales of $3,197.7.
The decrease was driven by lower sales volume of 15.6%, partially offset by increased pricing of 7.2%. The decrease in sales
volume for fiscal 2022 was driven by lawn care, soils, controls, plant food and mulch products.
U.S. Consumer Segment Profit was $568.6 in fiscal 2022, a decrease of 21.8% from fiscal 2021 Segment Profit of
$726.7. The decrease for fiscal 2022 was primarily due to lower net sales and a lower gross margin rate, partially offset by
lower SG&A.
U.S. Consumer segment net sales were $3,197.7 in fiscal 2021, an increase of 10.9% from fiscal 2020 net sales of
$2,883.5. The increase was driven by the favorable impacts of volume and pricing of 10.2% and 0.7%, respectively. The
increase in sales volume for fiscal 2021 was driven by soils, fertilizer, grass seed, mulch, controls, plant food and direct to
consumer products as well as increased net sales associated with the Roundup® marketing agreement.
U.S. Consumer Segment Profit was $726.7 in fiscal 2021, an increase of 4.7% from fiscal 2020 Segment Profit of $694.3.
The increase for fiscal 2021 was primarily due to higher net sales, partially offset by a lower gross margin rate and higher
SG&A.
Hawthorne
Hawthorne segment net sales were $716.2 in fiscal 2022, a decrease of 49.7% from fiscal 2021 net sales of $1,424.2. The
decrease was driven by lower sales volume of 56.0% and unfavorable foreign exchange rates of 0.8%, partially offset by
increased pricing of 3.8% and acquisitions of 3.3%. The decrease in sales volume for fiscal 2022 was driven by lighting,
nutrients, growing media, hardware and growing environments products.
Hawthorne Segment Loss was $21.1 in fiscal 2022, a decrease from fiscal 2021 Segment Profit of $163.8. The decrease
for fiscal 2022 was driven by lower net sales and a lower gross margin rate, partially offset by lower SG&A.
Hawthorne segment net sales were $1,424.2 in fiscal 2021, an increase of 39.2% from fiscal 2020 net sales of $1,023.1.
The increase was driven by the favorable impacts of volume, pricing and foreign exchange rates of 35.1%, 3.4% and 0.7%,
respectively. The increase in sales volume for fiscal 2021 was driven by lighting, nutrients, growing media, hardware and
growing environments products.
Hawthorne Segment Profit was $163.8 in fiscal 2021, an increase of 46.4% from fiscal 2020 Segment Profit of $111.9.
The increase for fiscal 2021 was driven by higher net sales, partially offset by a lower gross margin rate and higher SG&A.
Other
Other segment net sales were $279.1 in fiscal 2022, a decrease of 7.9% from fiscal 2021 net sales of $303.1. The
decrease was driven by lower sales volume of 13.7% and unfavorable foreign exchange rates of 1.9%, partially offset by
increased pricing of 7.7%.
36
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Other Segment Profit was $20.2 in fiscal 2022, a decrease of 52.0% from fiscal 2021 Segment Profit of $42.1. The
decrease was driven by lower net sales and a lower gross margin rate, partially offset by lower SG&A.
Other segment net sales were $303.1 in fiscal 2021, an increase of 34.7% from fiscal 2020 net sales of $225.0. The
increase was driven by the favorable impacts of volume, foreign exchange rates and pricing of 20.6%, 11.2% and 2.9%,
respectively.
Other Segment Profit was $42.1 in fiscal 2021, an increase of 259.8% from fiscal 2020 Segment Profit of $11.7. The
increase was driven by higher net sales and a higher gross margin rate, partially offset by higher SG&A.
Corporate
Corporate expenses were $112.4 in fiscal 2022, a decrease of 24.9% from fiscal 2021 expenses of $149.7. The decrease
was driven by lower short-term variable cash incentive compensation expense, reductions in staffing levels and other cost-
reduction initiatives.
Corporate expenses were $149.7 in fiscal 2021, a decrease of 18.4% from fiscal 2020 expenses of $183.4. The decrease
was driven by lower short-term variable cash incentive compensation expense, lower corporate spending and lower share-based
compensation expense.
Liquidity and Capital Resources
The following table summarizes cash activities for the years ended September 30:
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . .
2022
2021
2020
(129.0) $
271.5 $
(283.2)
255.3
(538.6)
494.0
558.0
46.9
(607.1)
Operating Activities
Cash used in operating activities totaled $129.0 for fiscal 2022, a decrease of $400.5 as compared to cash provided by
operating activities of $271.5 for fiscal 2021. This decrease was driven by higher inventory, lower accounts payable, lower net
income and higher interest payments, partially offset by lower tax payments and lower short-term variable cash incentive
compensation payouts. Higher inventory was driven by higher production, lower sales and higher input costs. Lower accounts
payable was driven by the timing of production. Fiscal 2022 was also favorably impacted by extended payment terms with
vendors across the U.S. Consumer and Hawthorne segments, as well as Monsanto, for payments originally due in the final
weeks of fiscal 2022 that were paid in the first quarter of fiscal 2023.
Cash provided by operating activities totaled $271.5 for fiscal 2021, a decrease of $286.5 as compared to $558.0 for fiscal
2020. This decrease was driven by higher inventory production, higher short-term variable cash incentive compensation
payouts and higher tax payments during fiscal 2021, partially offset by higher net income and lower interest payments. Higher
inventory production was driven by the growth in net sales and an effort to build inventory levels to meet expected future
demand. Fiscal 2021 was also favorably impacted by extended payment terms with vendors across the U.S. Consumer and
Hawthorne segments, as well as Monsanto, for payments originally due in the final weeks of fiscal 2021 that were paid in the
first quarter of fiscal 2022.
The seasonal nature of our North America consumer lawn and garden business generally requires cash to fund significant
increases in inventories during the first half of the fiscal year. Receivables and payables also build substantially in our second
quarter of the fiscal year in line with the timing of sales to support our retailers’ spring selling season.
Investing Activities
Cash used in investing activities totaled $283.2 for fiscal 2022, a decrease of $255.4 as compared to $538.6 for fiscal
2021. Cash used for investments in property, plant and equipment during fiscal 2022 was $113.5. We also completed the
acquisitions of Luxx Lighting, Inc., True Liberty Bags and Cyco during fiscal 2022 in exchange for aggregate cash payments of
$237.3, as well as the issuance of 0.1 million Common Shares, a non-cash investing and financing activity, with a fair value of
$21.0 based on the share price at the time of payment. In addition, during fiscal 2022, we made payments of $25.0 in
connection with a minority non-equity convertible debt investment in RIV Capital, received proceeds from the sale of long-
lived assets of $63.3 and received $29.3 associated with currency forward contracts.
Cash used in investing activities totaled $538.6 for fiscal 2021, a decrease of $585.5 as compared to cash provided by
investing activities of $46.9 for fiscal 2020. Cash used for investments in property, plant and equipment during fiscal 2021 was
37
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
$106.9. During fiscal 2021, we acquired a 50% equity interest in Bonnie Plants, LLC in exchange for cash payments of $102.3,
as well as non-cash investing activities that included forgiveness of our outstanding loan receivable with AFC and surrender of
our options to increase our economic interest in the Bonnie Plants business. We also made aggregate cash payments of $127.8
in connection with our acquisitions of Hydro-Logic Purification Systems, Inc., Rhizoflora, Inc. and other contract and license
rights, and made payments of $193.1 in connection with minority non-equity convertible debt investments in RIV Capital and
other entities focused on branded cannabis and high quality genetics. In addition, we paid cash of $8.7 associated with currency
forward contracts during fiscal 2021.
For the three fiscal years ended September 30, 2022, we allocated our capital spending as follows: 72% for expansion and
maintenance of existing productive assets; 6% for new productive assets; 16% to expand our information technology and
transformation and integration capabilities; and 6% for corporate assets.
Financing Activities
Cash provided by financing activities totaled $255.3 for fiscal 2022 as compared to $494.0 for fiscal 2021. During fiscal
2022, we had net borrowings under our Fifth A&R Credit Facilities and Sixth A&R Credit Facilities of $680.1 and paid
financing and issuance fees of $9.6 in connection with the execution of the Sixth A&R Credit Facilities. We also repurchased
Common Shares for $257.9 and paid dividends of $166.2 during fiscal 2022.
Cash provided by financing activities totaled $494.0 in fiscal 2021 as compared to cash used in financing activities of
$607.1 in fiscal 2020. During fiscal 2021, we had net borrowings under our Fifth A&R Credit Facilities of $118.3. We also
issued $500.0 aggregate principal amount of 4.000% Senior Notes and $400.0 aggregate principal amount of 4.375% Senior
Notes, and paid financing and issuance fees of $13.1 in connection with these Senior Notes issuances. In addition, during fiscal
2021, we repurchased Common Shares for $129.3, paid dividends of $143.0, received cash from the exercise of stock options of
$15.2 and made payments of $17.5 associated with the acquisition of the remaining outstanding shares of AeroGrow.
Cash and Cash Equivalents
Our cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or
invested in high quality, short-term liquid investments having original maturities of three months or less. The cash and cash
equivalents balances of $86.8 and $244.1 at September 30, 2022 and 2021, respectively, included $4.2 and $15.9, respectively,
held by controlled foreign corporations. As of September 30, 2022, we maintain our assertion of indefinite reinvestment of the
earnings of all material foreign subsidiaries.
Borrowing Agreements
Credit Facilities
Our primary sources of liquidity are cash generated by operations and borrowings under our credit facilities, which are
guaranteed by substantially all of Scotts Miracle-Gro’s domestic subsidiaries. On July 5, 2018, we entered into a fifth amended
and restated credit agreement (the “Fifth A&R Credit Agreement”), which provided us with five-year senior secured loan
facilities in the aggregate principal amount of $2,300.0, comprised of a revolving credit facility of $1,500.0 and a term loan in
the original principal amount of $800.0 (the “Fifth A&R Credit Facilities”). Under the Fifth A&R Credit Facilities, we had the
ability to obtain letters of credit up to $75.0.
On April 8, 2022, we entered into a sixth amended and restated credit agreement (the “Sixth A&R Credit Agreement”),
providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal
amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of
$1,000.0 (the “Sixth A&R Credit Facilities”). The Sixth A&R Credit Agreement also provides us with the right to seek
additional committed credit under the agreement in an aggregate amount of up to $500.0 plus an unlimited additional amount,
subject to certain specified financial and other conditions. The Sixth A&R Credit Agreement replaced the Fifth A&R Credit
Agreement and will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the issuance of letters of
credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and warranties,
affirmative and negative covenants, financial covenants, and events of default.
Under the terms of the Sixth A&R Credit Agreement, loans bear interest, at our election, at a rate per annum equal to
either (i) the Alternate Base Rate plus the Applicable Spread (each, as defined in the Sixth A&R Credit Agreement) or (ii) the
Adjusted Term SOFR Rate for the Interest Period in effect for such borrowing plus the Applicable Spread (all as defined in the
Sixth A&R Credit Agreement). Swingline Loans bear interest at the applicable Swingline Rate set forth in the Sixth A&R
Credit Agreement. Interest rates for other select non-U.S. dollar borrowings, including borrowings denominated in euro,
Pounds Sterling and Canadian dollars, are based on separate interest rate indices, as set forth in the Sixth A&R Credit
Agreement. The Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts
38
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
receivable, inventory and equipment of Scotts Miracle-Gro and certain of its domestic subsidiaries and (ii) the pledge of all of
the capital stock of certain of Scotts Miracle-Gro’s domestic subsidiaries and a portion of the capital stock of certain of its
foreign subsidiaries. The collateral does not include any of our intellectual property.
On June 8, 2022, we entered into an Amendment to the Sixth A&R Credit Agreement. The Amendment increases the
maximum permitted leverage ratio for the quarterly leverage covenant during the Leverage Adjustment Period. The
Amendment also increases the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term
loan facility by 50 bps, and increases the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when
our quarterly-tested leverage ratio exceeds 4.75. Additionally, the Amendment limits our ability to declare or pay any
discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment
of (i) regularly scheduled cash dividends to holders of our Common Shares in an aggregate amount not to exceed $225.0 per
fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. The
Amendment also requires pro forma compliance with certain leverage levels specified in the Amendment with respect to our
ability to consummate certain acquisitions and incur debt.
At September 30, 2022, we had letters of credit outstanding in the aggregate principal amount of $14.1, and $1,185.5 of
borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings
under the Fifth A&R Credit Agreement and Sixth A&R Credit Agreement were 2.8%, 1.9% and 3.3% for fiscal 2022, fiscal
2021 and fiscal 2020, respectively.
The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage
ratio determined as of the end of each of our fiscal quarters calculated as average total indebtedness, divided by our earnings
before interest, taxes, depreciation and amortization, as adjusted pursuant to the terms of the Sixth A&R Credit Agreement
(“Adjusted EBITDA”). Pursuant to the Amendment, the maximum permitted leverage ratio is (i) 6.25 for the third quarter of
fiscal 2022 through the first quarter of fiscal 2023, (ii) 6.50 for the second and third quarters of fiscal 2023, (iii) 6.25 for the
fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, (iv) 5.50 for the second quarter of fiscal 2024, and (v) 4.50 for
the third quarter of fiscal 2024 and thereafter. Our leverage ratio was 6.01 at September 30, 2022. The Sixth A&R Credit
Agreement also contains an affirmative covenant regarding our interest coverage ratio determined as of the end of each of our
fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the
Sixth A&R Credit Agreement, and excludes costs related to refinancings. The minimum required interest coverage ratio is
3.00, which is unchanged from the Fifth A&R Credit Agreement. Our interest coverage ratio was 4.83 for the twelve months
ended September 30, 2022.
As of September 30, 2022, we were in compliance with all applicable covenants in the agreements governing our debt.
Based on our projections of financial performance for the twelve-month period subsequent to the date of the filing of the
financial statements on Form 10-K, we expect to remain in compliance with the financial covenants under the Sixth A&R
Credit Agreement. However, our assessment of our ability to meet our future obligations is inherently subjective, judgment-
based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default
would allow the lender under the Sixth A&R Credit Agreement to accelerate the maturity of the debt and would also implicate
cross-default provisions under our Senior Notes, making them due and payable at that time. As of September 30, 2022, our
indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,875.5. We do not have sufficient cash on hand
or available liquidity that can be utilized to repay these outstanding amounts in the event of default.
As part of our contingency planning to address potential future circumstances that could result in noncompliance, we
have contemplated alternative plans including additional restructuring activities to reduce operating expenses and certain cash
management strategies that are within our control. Additionally, we have contemplated alternative plans that are subject to
market conditions and not in our control, including, among others, discussions with our lender to amend the terms of our
financial covenant under the debt instrument and generating cash by completing other financing transactions, which may
include issuing equity. There is no assurance that we will be successful in implementing these alternative plans.
Senior Notes
On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026.
The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing
and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each
year.
On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029.
The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing
and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each
year.
39
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
On October 23, 2019, Scotts Miracle-Gro redeemed all of our outstanding 6.000% Senior Notes for a redemption price
of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption premium, and $400.0 for outstanding
principal amount. The $12.0 redemption premium was recognized in the “Costs related to refinancing” line on the
Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, we had $3.1 in unamortized bond
issuance costs associated with the 6.000% Senior Notes, which were written-off during the first quarter of fiscal 2020 and were
recognized in the “Costs related to refinancing” line in the Consolidated Statements of Operations.
On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031.
The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing
and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each year.
On August 13, 2021, Scotts Miracle-Gro issued $400.0 aggregate principal amount of 4.375% Senior Notes due 2032.
The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing
and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates of February 1 and August 1 of each
year.
Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the
5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes.
Receivables Facility
We also maintain a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a
Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the
“Receivables Facility”). Under the Receivables Facility, we may sell a portfolio of available and eligible outstanding customer
accounts receivable to the purchasers and simultaneously agree to repurchase the receivables on a weekly basis. The eligible
accounts receivable consist of accounts receivable generated by sales to three specified customers. The eligible amount of
customer accounts receivables which may be sold under the Receivables Facility is $400.0 and the commitment amount during
the seasonal commitment period beginning on February 24, 2023 and ending on June 16, 2023 is $160.0. The Receivables
Facility expires on August 18, 2023.
We account for the sale of receivables under the Receivables Facility as short-term debt and continue to carry the
receivables on our Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold. As of
September 30, 2022 and 2021, there were $75.0 and zero, respectively, in borrowings on receivables pledged as collateral under
the Receivables Facility, and the carrying value of the receivables pledged as collateral was $79.8 and zero, respectively.
Interest Rate Swap Agreements
We enter into interest rate swap agreements with major financial institutions that effectively convert a portion of our
variable rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap
agreements. Swap agreements that were hedging interest payments as of September 30, 2022 and 2021 had a maximum total
U.S. dollar equivalent notional amount of $800.0 and $600.0, respectively. The notional amount, effective date, expiration date
and rate of each of the swap agreements outstanding at September 30, 2022 are shown in the table below:
Notional Amount
Effective
Date (a)
Expiration
Date
Fixed
Rate
100
300 (b)
200
200 (b)
200
12/21/2020
1/7/2021
10/7/2021
1/20/2022
6/7/2023
6/20/2023
6/7/2023
6/7/2023
6/20/2024
6/8/2026
1.36 %
1.34 %
1.37 %
0.58 %
0.85 %
(a)
(b)
The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement.
Notional amount adjusts in accordance with a specified seasonal schedule. This represents the maximum notional amount at any
point in time.
Availability and Use of Cash
We believe that our cash flows from operations and borrowings under our agreements described herein will be sufficient
to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that
our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing
agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Actual results of operations will depend on
numerous factors, many of which are beyond our control as further discussed in “ITEM 1A. RISK FACTORS — Risks Related
40
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
to Our M&A, Lending and Financing Activities — Our indebtedness could limit our flexibility and adversely affect our
financial condition” of this Form 10-K.
Financial Disclosures About Guarantors and Issuers of Guaranteed Securities
The 5.250% Senior Notes, 4.500% Senior Notes, 4.000% Senior Notes and 4.375% Senior Notes (collectively, the
“Senior Notes”) were issued by Scotts Miracle-Gro on December 15, 2016, October 22, 2019, March 17, 2021 and August 13,
2021, respectively. The Senior Notes are guaranteed by certain consolidated domestic subsidiaries of Scotts Miracle-Gro
(collectively, the “Guarantors”) and, therefore, we report summarized financial information in accordance with SEC Regulation
S-X, Rule 13-01, “Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that a
Guarantor’s guarantee will be released in certain circumstances set forth in the indentures governing the Senior Notes, such as:
(i) upon any sale or other disposition of all or substantially all of the assets of the Guarantor (including by way of merger or
consolidation) to any person other than Scotts Miracle-Gro or any “restricted subsidiary” under the applicable indenture; (ii) if
the Guarantor merges with and into Scotts Miracle-Gro, with Scotts Miracle-Gro surviving such merger; (iii) if the Guarantor is
designated an “unrestricted subsidiary” in accordance with the applicable indenture or otherwise ceases to be a “restricted
subsidiary” (including by way of liquidation or dissolution) in a transaction permitted by such indenture; (iv) upon legal or
covenant defeasance; (v) at the election of Scotts Miracle-Gro following the Guarantor’s release as a guarantor under the Sixth
A&R Credit Agreement, except a release by or as a result of the repayment of the Sixth A&R Credit Agreement; or (vi) if the
Guarantor ceases to be a “restricted subsidiary” and the Guarantor is not otherwise required to provide a guarantee of the Senior
Notes pursuant to the applicable indenture.
Our foreign subsidiaries and certain of our domestic subsidiaries are not guarantors (collectively, the “Non-Guarantors”)
of the Senior Notes. Payments on the Senior Notes are only required to be made by Scotts Miracle-Gro and the Guarantors. As
a result, no payments are required to be made from the assets of the Non-Guarantors, unless those assets are transferred by
dividend or otherwise to Scotts Miracle-Gro or a Guarantor. In the event of a bankruptcy, insolvency, liquidation or
reorganization of any of the Non-Guarantors, holders of their indebtedness, including their trade creditors and other obligations,
will be entitled to payment of their claims from the assets of the Non-Guarantors before any assets are made available for
distribution to Scotts Miracle-Gro or the Guarantors. As a result, the Senior Notes are effectively subordinated to all the
liabilities of the Non-Guarantors.
The guarantees may be subject to review under federal bankruptcy laws or relevant state fraudulent conveyance or
fraudulent transfer laws. In certain circumstances, the court could void the guarantee, subordinate the amounts owing under the
guarantee, or take other actions detrimental to the holders of the Senior Notes.
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is
transferred or a valid antecedent debt is satisfied. A court would likely find that a Guarantor did not receive reasonably
equivalent value or fair consideration for its guarantee to the extent such Guarantor did not obtain a reasonably equivalent
benefit from the issuance of the Senior Notes.
The measure of insolvency varies depending upon the law of the jurisdiction that is being applied. Regardless of the
measure being applied, a court could determine that a Guarantor was insolvent on the date the guarantee was issued, so that
payments to the holders of the Senior Notes would constitute a preference, fraudulent transfer or conveyances on other grounds.
If a guarantee is voided as a fraudulent conveyance or is found to be unenforceable for any other reason, the holders of the
Senior Notes will not have a claim against the Guarantor.
Each guarantee contains a provision intended to limit the Guarantor’s liability to the maximum amount that it could incur
without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no
assurance as to what standard a court will apply in making a determination of the maximum liability of each Guarantor.
Moreover, this provision may not be effective to protect the guarantees from being voided under fraudulent conveyance laws.
There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.
41
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
The following tables present summarized financial information on a combined basis for Scotts Miracle-Gro and the
Guarantors. Transactions between Scotts Miracle-Gro and the Guarantors have been eliminated and the summarized financial
information does not reflect investments of the Scotts Miracle-Gro and the Guarantors in the Non-Guarantor subsidiaries.
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-current assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,749.6
2,165.4
851.4
3,117.8
September 30, 2022
(a)
Includes amounts due from Non-Guarantor subsidiaries of $46.7
Year Ended
September 30, 2022
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,559.0
828.7
(335.9)
(335.9)
(335.9)
(a)
Includes intercompany income from Non-Guarantor subsidiaries of $14.1.
Judicial and Administrative Proceedings
We are party to various pending judicial and administrative proceedings arising in the ordinary course of business,
including, among others, proceedings based on accidents or product liability claims and alleged violations of environmental
laws. We have reviewed these pending judicial and administrative proceedings, including the probable outcomes, reasonably
anticipated costs and expenses, and the availability and limits of our insurance coverage, and have established what we believe
to be appropriate accruals. We believe that our assessment of contingencies is reasonable and that the related accruals, in the
aggregate, are adequate; however, there can be no assurance that future quarterly or annual operating results will not be
materially affected by these proceedings, whether as a result of adverse outcomes or as a result of significant defense costs.
Contractual Obligations
The following table summarizes our future cash outflows for contractual obligations as of September 30, 2022:
Total
Contractual Cash Obligations
Debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,963.2 $
Interest expense on debt obligations . . . . . . . . . . . . . . . . . .
Finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily retirement plan obligations . . . . . . . . . . . .
Total contractual cash obligations . . . . . . . . . . . . . . . . . . . . $ 5,667.6 $
813.7
34.2
326.0
1,468.2
62.3
Less Than 1
Year
Payments Due by Period
1-3 Years
3-5 Years
More Than
5 Years
137.7 $
137.6
7.5
85.2
547.2
5.8
100.0 $ 1,375.5 $ 1,350.0
187.5
225.4
263.2
11.8
4.1
10.8
40.5
61.1
139.2
84.8
276.5
559.7
25.5
14.2
16.8
921.0 $ 1,089.7 $ 1,956.8 $ 1,700.1
We had long-term debt obligations and interest payments due primarily under the 5.250% Senior Notes, 4.500% Senior
Notes, 4.000% Senior Notes and 4.375% Senior Notes and our credit facilities. Amounts in the table represent scheduled future
maturities of debt principal for the periods indicated.
The interest payments for our credit facilities are based on outstanding borrowings as of September 30, 2022. Actual
interest expense will likely be higher due to the seasonality of our business and associated higher average borrowings.
42
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Purchase obligations primarily represent commitments for materials used in our manufacturing processes, including urea
and packaging, as well as commitments for warehouse services, grass seed, marketing services and information technology
services which comprise the unconditional purchase obligations disclosed in “NOTE 19. COMMITMENTS” of the Notes to
Consolidated Financial Statements included in this Form 10-K.
Other obligations include actuarially determined retiree benefit payments and pension funding to comply with local
funding requirements. Pension funding requirements beyond fiscal 2022 are based on preliminary estimates using actuarial
assumptions determined as of September 30, 2022. These amounts represent expected payments through 2032. Based on the
accounting rules for defined benefit pension plans and retirement health care plans, the liabilities reflected in our Consolidated
Balance Sheets differ from these expected future payments (see Notes to Consolidated Financial Statements included in this
Form 10-K). The above table excludes liabilities for unrecognized tax benefits and insurance accruals as we are unable to
estimate the timing of payments for these items.
Non-GAAP Measures
Use of Non-GAAP Measures
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”), we use certain non-GAAP financial measures. The reconciliations of these non-GAAP financial measures to the
most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the following
tables. These non-GAAP financial measures should not be considered in isolation from, as a substitute for or superior to,
financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that
they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other
companies may calculate similarly titled non-GAAP financial measures differently than us, limiting the usefulness of those
measures for comparative purposes.
In addition to GAAP financial measures, we use these non-GAAP financial measures to evaluate our performance,
engage in financial and operational planning, determine incentive compensation and monitor compliance with the financial
covenants contained in our borrowing agreements because we believe that these non-GAAP financial measures provide
additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying,
ongoing business.
We believe that these non-GAAP financial measures are useful to investors in their assessment of our operating
performance and valuation. In addition, these non-GAAP financial measures address questions routinely received from
analysts and investors and, in order to ensure that all investors have access to the same data, we have determined that it is
appropriate to make this data available to all investors. Non-GAAP financial measures exclude the impact of certain items (as
further described below) and provide supplemental information regarding operating performance. By disclosing these non-
GAAP financial measures, we intend to provide investors with a supplemental comparison of operating results and trends for
the periods presented. We believe these non-GAAP financial measures are also useful to investors as such measures allow
investors to evaluate performance using the same metrics that we use to evaluate past performance and prospects for future
performance. We view free cash flow as an important measure because it is one factor used in determining the amount of cash
available for dividends and discretionary investment.
Exclusions from Non-GAAP Financial Measures
Non-GAAP financial measures reflect adjustments based on the following items:
•
•
•
Impairments, which are excluded because they do not occur in or reflect the ordinary course of our ongoing
business operations and their exclusion results in a metric that provides supplemental information about the
sustainability of operating performance.
Restructuring and employee severance costs, which include charges for discrete projects or transactions that
fundamentally change our operations and are excluded because they are not part of the ongoing operations of
our underlying business, which includes normal levels of reinvestment in the business.
Costs related to refinancing, which are excluded because they do not typically occur in the normal course of
business and may obscure analysis of trends and financial performance. Additionally, the amount and
frequency of these types of charges is not consistent and is significantly impacted by the timing and size of debt
financing transactions.
43
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
•
Discontinued operations and other unusual items, which include costs or gains related to discrete projects or
transactions and are excluded because they are not comparable from one period to the next and are not part of
the ongoing operations of our underlying business.
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the
item and the jurisdiction(s) in which the item is recorded.
Definitions of Non-GAAP Financial Measures
The reconciliations below include the following financial measures that are not calculated in accordance with GAAP:
•
•
•
•
•
•
Adjusted income (loss) from operations: Income (loss) from operations excluding impairment, restructuring
and other charges / recoveries.
Adjusted income (loss) from continuing operations: Income (loss) from continuing operations excluding
impairment, restructuring and other charges / recoveries, costs related to refinancing and certain other non-
operating income / expense items, each net of tax.
Adjusted net income (loss) attributable to controlling interest from continuing operations: Net income
(loss) attributable to controlling interest excluding impairment, restructuring and other charges / recoveries,
costs related to refinancing, certain other non-operating income / expense items and discontinued operations,
each net of tax.
Adjusted diluted income (loss) per common share from continuing operations: Diluted net income (loss)
per common share from continuing operations excluding impairment, restructuring and other charges /
recoveries, costs related to refinancing and certain other non-operating income / expense items, each net of tax.
Adjusted EBITDA: Net income (loss) before interest, taxes, depreciation and amortization as well as certain
other items such as the impact of the cumulative effect of changes in accounting, costs associated with debt
refinancing and other non-recurring or non-cash items affecting net income (loss). The presentation of adjusted
EBITDA is intended to be consistent with the calculation of that measure as required by our borrowing
arrangements, and used to calculate a leverage ratio (maximum of 6.25 at September 30, 2022) and an interest
coverage ratio (minimum of 3.00 for the twelve months ended September 30, 2022).
Free cash flow: Net cash provided by (used in) operating activities reduced by investments in property, plant
and equipment.
44
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are
presented in the following table:
Income (loss) from operations (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted income from operations (Non-GAAP) . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from continuing operations (GAAP) . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to income tax expense (benefit) from continuing operations . . . . .
Adjusted income from continuing operations (Non-GAAP) . . . . . . . . . . . . $
Net income (loss) attributable to controlling interest (GAAP) . . . . . . . . . . . $
(Income) loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to income tax expense (benefit) from continuing operations . . . . .
Adjusted net income attributable to controlling interest from continuing
operations (Non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share from continuing operations
(GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to income tax expense (benefit) from continuing operations . . . . .
Adjusted diluted income per common share from continuing operations
(Non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash (used in) provided by operating activities (GAAP) . . . . . . . . . . . . $
Investments in property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Free cash flow (Non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
The sum of the components may not equal the total due to rounding.
Year Ended September 30,
2022
2021
2020
(434.0) $
723.0 $
852.2
418.2 $
(437.5) $
852.2
—
—
(184.7)
230.0 $
(437.5) $
—
852.2
—
—
(184.7)
29.0
752.1 $
517.3 $
29.0
—
(12.6)
(5.1)
528.6 $
512.5 $
3.9
29.0
—
(12.6)
(5.1)
585.2
16.8
602.0
386.9
16.8
15.1
0.8
(6.7)
412.9
387.4
(1.7)
16.8
15.1
0.8
(6.7)
230.0 $
527.7 $
411.7
(7.88) $
15.19
—
—
(3.29)
4.10 $
(129.0) $
(113.5)
(242.5) $
9.03 $
0.51
—
(0.22)
(0.09)
9.23 $
271.5 $
(106.9)
164.6 $
6.78
0.30
0.27
0.01
(0.12)
7.24
558.0
(62.7)
495.3
Due to the GAAP net loss for fiscal 2022, diluted average common shares used in the GAAP diluted loss per common
share calculation were 55.5 million, which excluded potential Common Shares of 0.6 million because the effect of their
inclusion would be anti-dilutive. Diluted average common shares used in the fiscal 2022 non-GAAP adjusted diluted income
per common share calculation, and the calculation of the fiscal 2022 earnings per share impact from the GAAP to non-GAAP
reconciling items, were 56.1 million, which included dilutive potential Common Shares of 0.6 million.
We view our credit facility as material to our ability to fund operations, particularly in light of our seasonality. Refer to
“ITEM 1A. RISK FACTORS — Risks Related to Our M&A, Lending and Financing Activities — Our indebtedness could
limit our flexibility and adversely affect our financial condition” of this Form 10-K for a more complete discussion of the risks
associated with our debt and our credit facility and the restrictive covenants therein. Our ability to generate cash flows
sufficient to cover our debt service costs is essential to our ability to maintain our borrowing capacity. We believe that
Adjusted EBITDA provides additional information for determining our ability to meet debt service requirements. The
presentation of Adjusted EBITDA herein is intended to be consistent with the calculation of that measure as required by our
borrowing arrangements, and used to calculate a leverage ratio (maximum of 6.25 at September 30, 2022) and an interest
coverage ratio (minimum of 3.00 for the twelve months ended September 30, 2022). The leverage ratio is calculated as average
total indebtedness divided by Adjusted EBITDA. The interest coverage ratio is calculated as Adjusted EBITDA divided by
interest expense, as described in the Sixth A&R Credit Agreement, and excludes costs related to refinancings. Refer to
“ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
45
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
OPERATIONS — Liquidity and Capital Resources — Borrowing Agreements” of this Form 10-K for more information
regarding our credit facility.
Beginning in fiscal 2022, equity in income / loss of unconsolidated affiliates is excluded from the calculation of non-
GAAP Adjusted EBITDA. This exclusion is consistent with the calculation of that measure as required by the Company’s
borrowing arrangements. This change has been reflected in the calculation of Adjusted EBITDA for fiscal 2022. The prior
period amounts have not been reclassified to conform to the revised calculation.
Our calculation of Adjusted EBITDA does not represent and should not be considered as an alternative to net income or
cash flows from operating activities as determined by GAAP. We make no representation or assertion that Adjusted EBITDA
is indicative of our cash flows from operating activities or results of operations. We have provided a reconciliation of Adjusted
EBITDA to net income solely for the purpose of complying with SEC regulations and not as an indication that Adjusted
EBITDA is a substitute measure for net income.
A reconciliation of net income to Adjusted EBITDA is as follows:
Year Ended September 30,
2022
2021
2020
Net income (loss) (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax expense (benefit) from continuing operations . . . . . . . . . . . . . . . . .
(437.5) $
(120.6)
Income tax expense (benefit) from discontinued operations . . . . . . . . . . . . . . .
Loss on contingent consideration from discontinued operations . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other charges from continuing operations . . . . .
Impairment, restructuring and other charges (recoveries) from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
118.1
68.1
37.1
852.2
—
12.9
—
(6.7)
34.3
513.4 $
159.8
(8.4)
12.2
—
78.9
62.9
30.9
29.0
—
—
(12.6)
(4.1)
40.6
388.6
123.7
0.1
—
15.1
79.6
62.2
32.5
16.8
(3.1)
—
0.8
(7.6)
57.9
Adjusted EBITDA (Non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
557.9 $
902.6 $
766.6
Regulatory Matters
We are subject to local, state, federal and foreign environmental protection laws and regulations with respect to our
business operations and believe we are operating in substantial compliance, or taking actions aimed at ensuring compliance
with, such laws and regulations. We are involved in several legal actions with various governmental agencies related to
environmental matters. While it is difficult to quantify the potential financial impact of actions involving these environmental
matters, particularly remediation costs at waste disposal sites and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability arising from such environmental matters, taking into account
established accruals, is not expected to have a material effect on our financial condition, results of operations or cash flows.
However, there can be no assurance that the resolution of these matters will not materially affect our future quarterly or annual
results of operations, financial condition or cash flows. Additional information on environmental matters affecting us is
provided in “ITEM 1. BUSINESS — Regulatory Considerations” and “ITEM 3. LEGAL PROCEEDINGS” of this Form 10-
K.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to use judgment and make estimates that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our
estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical
experience and on various other sources that we believe to be reasonable under the circumstances.
46
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Certain accounting policies are particularly significant, including those related to revenue recognition, income taxes and
goodwill and intangible assets. Our critical accounting policies are reviewed periodically with the Audit Committee of the
Board of Directors of Scotts Miracle-Gro.
Revenue Recognition and Promotional Allowances
Our revenue is primarily generated from sales of branded and private label lawn and garden care and indoor and
hydroponic gardening finished products. Product sales are recognized at a point in time when control of products transfers to
customers and we have no further obligation to provide services related to such products. Sales are typically recognized when
products are delivered to or picked up by the customer. We are generally the principal in a transaction and, therefore, primarily
record revenue on a gross basis. Revenue for product sales is recorded net of sales returns and allowances. Revenues are
measured based on the amount of consideration that we expect to receive as derived from a list price, reduced by estimates for
variable consideration. Variable consideration includes the cost of current and continuing promotional programs and expected
sales returns.
Our promotional programs primarily include rebates based on sales volumes, in-store promotional allowances,
cooperative advertising programs, direct consumer rebate programs and special purchasing incentives. The cost of promotional
programs is estimated considering all reasonably available information, including current expectations and historical
experience. Promotional costs (including allowances and rebates) incurred during the year are expensed to interim periods in
relation to revenues and are recorded as a reduction of net sales. Provisions for estimated returns and allowances are recorded
at the time revenue is recognized based on historical rates and are periodically adjusted for known changes in return levels.
Shipping and handling costs are accounted for as contract fulfillment costs and included in the “Cost of sales” line in the
Consolidated Statements of Operations. We exclude from revenue any amounts collected from customers for sales or other
taxes.
Income Taxes
Our annual effective tax rate is established based on our pre-tax income (loss), statutory tax rates and the tax impacts of
items treated differently for tax purposes than for financial reporting purposes. We record income tax liabilities utilizing known
obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax
effects from existing temporary differences and operating loss and tax credit carryforwards. Valuation allowances are used to
reduce deferred tax assets to the balances that are more likely than not to be realized. We must make estimates and judgments
on future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances,
to determine the proper valuation allowances. When we determine that deferred tax assets could be realized in greater or lesser
amounts than recorded, the asset balance and Consolidated Statements of Operations reflect the change in the period such
determination is made. Due to changes in facts and circumstances and the estimates and judgments involved in determining the
proper valuation allowances, differences between actual future events and prior estimates and judgments could result in
adjustments to these valuation allowances. We use an estimate of our annual effective tax rate at each interim period based on
the facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end.
Goodwill and Indefinite-Lived Intangible Assets
We have significant investments in intangible assets and goodwill. We perform our annual goodwill and indefinite-lived
intangible asset testing as of the first day of our fiscal fourth quarter or more frequently if circumstances indicate potential
impairment. In our evaluation of impairment for goodwill and indefinite-lived intangible assets, we perform either an initial
qualitative or quantitative evaluation for each of our reporting units and indefinite-lived intangible assets. Factors considered in
the qualitative test include operating results as well as new events and circumstances impacting the operations or cash flows of
the reporting unit or indefinite-lived intangible assets. For the quantitative test, the review for impairment of goodwill and
indefinite-lived intangible assets is based on a combination of income-based approaches, including the relief-from-royalty
method for indefinite-lived trade names, and market-based approaches. If it is determined that an impairment has occurred, an
impairment loss is recognized for the amount by which the carrying value of the reporting unit or intangible asset exceeds its
estimated fair value.
Under the income-based approach, we determine fair value using a discounted cash flow approach that requires
significant judgment with respect to revenue and profitability growth rates, based upon annual budgets and longer-range
strategic plans, and the selection of an appropriate discount rate. These budgets and plans are used for internal purposes and are
also the basis for communication with outside parties about future business trends. Under the market-based approach, we
determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively
traded in public markets. We also use the guideline transaction method to determine fair value based on pricing multiples
derived from the sale of companies that are similar to our reporting units.
47
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Fair value estimates employed in our annual impairment review of indefinite-lived intangible assets and goodwill were
determined using models involving several assumptions. Changes in our assumptions could materially impact our fair value
estimates. Assumptions critical to our fair value estimates were: (i) discount rates used in determining the fair value of the
reporting units and intangible assets; (ii) royalty rates used in our intangible asset valuations; (iii) projected future revenues and
profitability used in the reporting unit and intangible asset models; and (iv) projected long-term growth rates used in the
derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of
management and may change in the future based on period specific facts and circumstances. While we believe the assumptions
we used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be
realized. As a result, impairment charges that possibly would have been recognized in earlier periods may not be recognized
until later periods if actual results deviate unfavorably from earlier estimates. The use of different assumptions would increase
or decrease discounted cash flows or earnings projections and, therefore, could change impairment determinations.
During fiscal 2022, our Hawthorne reporting unit experienced adverse financial results due to decreased sales volume and
higher transportation and warehousing costs. Sales volume decreased due to an oversupply of cannabis, which significantly
decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. As a result, we revised our internal forecasts
relating to our Hawthorne reporting unit. We concluded that the changes in circumstances in this reporting unit and the decline
in the Company’s market capitalization triggered the need for an interim impairment review of its goodwill during the third
quarter of fiscal 2022. We elected to bypass the qualitative assessment and perform quantitative interim goodwill impairment
testing for our Hawthorne reporting unit. We updated our assumptions from prior periods to include the longer duration and
increased significance of lower sales volumes and cost increases. This quantitative test resulted in a non-cash, pre-tax goodwill
impairment charge of $522.4 related to our Hawthorne reporting unit, which was recognized during the third quarter of fiscal
2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The carrying value of
goodwill of our Hawthorne reporting unit, after recognizing the impairment, is zero. The estimated fair value of our Hawthorne
reporting unit was based upon an equal weighting of the income-based and market-based approaches, utilizing estimated cash
flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation
multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.
The fair value estimate utilizes significant unobservable inputs and, therefore, represents a Level 3 fair value measurement.
While we consider our assumptions to be reasonable and appropriate, they are complex and subjective. Refer to “NOTE 5.
GOODWILL AND INTANGIBLE ASSETS, NET” for more information.
At September 30, 2022, goodwill totaled $254.0, with $243.9, zero and $10.1 for our U.S. Consumer, Hawthorne and
Other segments, respectively. We performed annual impairment testing as of the first day of our fiscal fourth quarter and, with
the exception of the Hawthorne reporting unit in fiscal 2022, concluded that there were no impairments of goodwill as the
estimated fair value of each reporting unit exceeded its carrying value. Based on the results of the annual quantitative
evaluation for fiscal 2022, the fair values of our U.S. Consumer and Other segment reporting units exceeded their respective
carrying values by 181% and 71%, respectively. A 100 basis point change in the discount rate would not have resulted in an
impairment for any of our reporting units.
At September 30, 2022, indefinite-lived intangible assets consisted of trade names of $168.2 and the Roundup® marketing
agreement amendment of $155.7. Based on the results of the annual evaluation for fiscal 2022, the fair values of our indefinite-
lived intangible assets exceeded their respective carrying values in a range of 11% to over 1,100%. A 100 basis point change in
the discount rate would not have resulted in an impairment of any of our indefinite-lived intangible assets.
Other Significant Accounting Policies
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above, are
also critical to understanding the consolidated financial statements. The Notes to Consolidated Financial Statements included in
this Form 10-K contain additional information related to our accounting policies, including recent accounting pronouncements,
and should be read in conjunction with this discussion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of our ongoing business, we are exposed to certain market risks, including fluctuations in interest rates, foreign
currency exchange rates and commodity prices. Financial derivatives and other instruments are used to manage these risks.
These instruments are not used for speculative purposes.
48
Table of Contents
Interest Rate Risk
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
The following table summarizes information about our debt instruments and derivative financial instruments that are
sensitive to changes in interest rates as of September 30, 2022 and 2021. For debt instruments, the table presents principal cash
flows and related weighted-average interest rates by expected maturity dates. For interest rate swap agreements, the table
presents expected cash flows based on notional amounts and weighted-average interest rates by contractual maturity dates. We
have outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the
Company’s variable-rate debt to a fixed rate. The swap agreements had a maximum total U.S. dollar equivalent notional
amount of $800.0 and $600.0 at September 30, 2022 and 2021, respectively. Weighted-average variable rates are based on
rates in effect at September 30, 2022 and 2021. A change in our variable interest rate of 100 basis points for a full twelve-
month period would have an impact of $10.0 on interest expense assuming approximately $1,000.0 of our average variable-rate
debt had not been hedged via an interest rate swap agreement.
2022
Long-term debt:
Fixed rate debt . . . . . . . . . . .
Average rate . . . . . . . . . . . . .
Variable rate debt . . . . . . . . .
Average rate . . . . . . . . . . . . .
Interest rate derivatives:
Interest rate swaps . . . . . . . .
Average rate . . . . . . . . . . . . .
2021
Long-term debt:
Fixed rate debt . . . . . . . . . . .
Average rate . . . . . . . . . . . . .
Variable rate debt . . . . . . . . .
Average rate . . . . . . . . . . . . .
Interest rate derivatives:
Interest rate swaps . . . . . . . .
Average rate . . . . . . . . . . . . .
2023
2024
2025
2026
2027
After
Total
Expected Maturity Date
Fair
Value
$ —
$ —
$ —
$ —
$ 250.0
$ 1,350.0
$ 1,600.0
$ 1,190.3
—
—
—
—
5.3 %
4.3 %
4.4 %
—
$ 125.0
$ 50.0
$ 50.0
$ 50.0
$ 1,075.5
$ —
$ 1,350.5
$ 1,350.5
4.6 %
5.4 %
5.4 %
5.4 %
5.3 % —
5.2 %
—
$ 12.5
$
8.4
$
5.8
$
4.3
$ —
$ —
$ 31.0
$
31.0
1.2 %
0.8 %
0.9 %
0.9 % —
—
1.0 %
—
2022
2023
2024
2025
2026
After
Total
Expected Maturity Date
Fair
Value
$ —
$ —
$ —
$ —
$ —
$ 1,600.0
$ 1,600.0
$ 1,625.8
—
—
—
—
—
4.4 %
4.4 %
—
$ 40.0
$ 630.0
$ —
$ —
$ —
$ —
$ 670.0
$
670.0
1.1 %
1.1 % —
—
—
—
1.1 %
—
$
(4.2)
$
(2.5)
$
0.7
$
0.6
$
0.5
$ —
$
(4.9)
$
(4.9)
1.3 %
1.1 %
0.8 %
0.9 %
0.9 % —
1.1 %
—
Excluded from the information provided above are miscellaneous debt instruments of $12.7 and $11.9 and finance lease
obligations of $28.9 and $33.4 at September 30, 2022 and 2021, respectively.
Other Market Risks
We are subject to market risk from fluctuations in foreign currency exchange rates and fluctuating prices of certain raw
materials, including urea and other fertilizer inputs, resins, diesel, gasoline, natural gas, sphagnum peat, bark and grass seed.
Refer to “NOTE 16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES” of the Notes to Consolidated Financial
Statements included in this Form 10-K for discussion of these market risks and the derivatives used to manage these risks.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other information required by this Item are contained in the Consolidated Financial
Statements, Notes to Consolidated Financial Statements and Schedules Supporting the Consolidated Financial Statements listed
in the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 56 of this Form 10-K.
49
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the principal executive officer and the principal financial officer of The Scotts Miracle-Gro
Company (the “Registrant”), the Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the fiscal
year covered by this Form 10-K. Based upon that evaluation, the Registrant’s principal executive officer and principal financial
officer have concluded that the Registrant’s disclosure controls and procedures were effective as of the end of the fiscal year
covered by this Form 10-K.
Management’s Annual Report on Internal Control Over Financial Reporting
The “Annual Report of Management on Internal Control Over Financial Reporting” required by Item 308(a) of SEC
Regulation S-K is included on page 57 of this Form 10-K.
Attestation Report of Independent Registered Public Accounting Firm
The “Report of Independent Registered Public Accounting Firm” required by Item 308(b) of SEC Regulation S-K is
included on page 58 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
No changes in the Registrant’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) occurred during the Registrant’s fiscal quarter ended September 30, 2022, that have materially affected,
or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
As previously announced by the Company, David C. Evans will be stepping down from his role of Interim Chief
Financial Officer effective as of November 30, 2022 but will continue to serve on Scotts Miracle-Gro’s Board of Directors.
At the time of Mr. Evan’s appointment as Interim Chief Financial Officer, the Compensation Committee of the Board of
Directors (“Compensation Committee”) approved a grant of 17,181 Restricted Stock Units (“RSUs”) with a grant date of
September 1, 2022, and a provision for ratable vesting at the rate of 1/7th of the RSUs granted for each full or partial month of
service between September 1, 2022, and March 31, 2023.
In connection with his departure as Interim Chief Financial Officer, on November 27, 2022, the Compensation
Committee elected to provide Mr. Evans with one additional month of the RSU vesting. As a result, Mr. Evans will receive an
incremental 2,454 RSUs to the 7,362 RSUs he is already entitled to pursuant to the terms of the original grant.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
50
Table of Contents
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of Scotts Miracle-Gro and the
nominees for election or re-election as directors of Scotts Miracle-Gro at its Annual Meeting of Shareholders to be held on
January 23, 2023 (the “2023 Annual Meeting”) is incorporated herein by reference from the disclosure which will be included
under the caption “PROPOSAL NUMBER 1 — ELECTION OF DIRECTORS” in Scotts Miracle-Gro’s definitive Proxy
Statement relating to the 2023 Annual Meeting (the “Proxy Statement”), which will be filed pursuant to SEC Regulation 14A
not later than 120 days after the end of Scotts Miracle-Gro’s fiscal year ended September 30, 2022.
The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Scotts Miracle-Gro is
incorporated herein by reference from the disclosure included under the caption “SUPPLEMENTAL ITEM. EXECUTIVE
OFFICERS OF THE REGISTRANT” in Part I of this Form 10-K.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in its
Proxy Statement.
Procedures for Recommending Director Nominees
Information concerning the procedures by which shareholders of Scotts Miracle-Gro may recommend nominees to Scotts
Miracle-Gro’s Board of Directors is incorporated herein by reference from the disclosures which will be included under the
captions “CORPORATE GOVERNANCE — Nominations of Directors” and “MEETINGS AND COMMITTEES OF THE
BOARD — Committees of the Board — Nominating and Governance Committee” in the Proxy Statement. These procedures
have not materially changed from those described in Scotts Miracle-Gro’s definitive Proxy Statement for the 2022 Annual
Meeting of Shareholders held on January 24, 2022.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference
from the disclosure which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD —
Committees of the Board” in the Proxy Statement.
Committee Charters; Code of Business Conduct & Ethics; Corporate Governance Guidelines
The Board of Directors of Scotts Miracle-Gro has adopted charters for each of the Audit Committee, the Nominating and
Governance Committee, the Compensation and Organization Committee, the Innovation and Technology Committee and the
Finance Committee, as well as Corporate Governance Guidelines, as contemplated by the applicable sections of the New York
Stock Exchange Listed Company Manual.
In accordance with the requirements of Section 303A.10 of the New York Stock Exchange Listed Company Manual and
Item 406 of SEC Regulation S-K, the Board of Directors of Scotts Miracle-Gro has adopted a Code of Business Conduct &
Ethics covering the members of Scotts Miracle-Gro’s Board of Directors and associates (employees) of Scotts Miracle-Gro and
its subsidiaries, including, without limitation, Scotts Miracle-Gro’s principal executive officer, principal financial officer and
principal accounting officer. Scotts Miracle-Gro intends to disclose the following events, if they occur, on its Internet website
located at http://investor.scotts.com within four business days following their occurrence: (A) the date and nature of any
amendment to a provision of Scotts Miracle-Gro’s Code of Business Conduct & Ethics that (i) applies to Scotts Miracle-Gro’s
principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar
functions, (ii) relates to any element of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K, and
(iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the
nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit
waiver, from a provision of the Code of Business Conduct & Ethics granted to Scotts Miracle-Gro’s principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to one
or more of the elements of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K. In addition, Scotts
Miracle-Gro will disclose any waivers from the provisions of the Code of Business Conduct & Ethics granted to an executive
51
Table of Contents
officer or a director of Scotts Miracle-Gro on Scotts Miracle-Gro’s Internet website located at http://investor.scotts.com within
four business days of the determination to grant any such waiver.
The text of Scotts Miracle-Gro’s Code of Business Conduct & Ethics, Scotts Miracle-Gro’s Corporate Governance
Guidelines, the Audit Committee charter, the Nominating and Governance Committee charter, the Compensation and
Organization Committee charter, the Innovation and Technology Committee charter and the Finance Committee charter are
posted under the “Corporate Governance” link on Scotts Miracle-Gro’s Internet website located at http://investor.scotts.com.
Interested persons and shareholders of Scotts Miracle-Gro may also obtain copies of each of these documents without charge by
writing to The Scotts Miracle-Gro Company, Attention: Corporate Secretary, 14111 Scottslawn Road, Marysville, Ohio 43041.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosures
which will be
the captions “EXECUTIVE COMPENSATION,” “NON-EMPLOYEE DIRECTOR
COMPENSATION,” “EXECUTIVE COMPENSATION TABLES,” “SEVERANCE AND CHANGE IN CONTROL (CIC)
ARRANGEMENTS,” and “PAYMENTS ON TERMINATION OF EMPLOYMENT AND/OR CHANGE IN CONTROL” in
the Proxy Statement.
included under
The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the
disclosure which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD — Compensation
and Organization Committee Interlocks and Insider Participation” in the Proxy Statement.
The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the
disclosure which will be included under the caption “COMPENSATION COMMITTEE REPORT” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Ownership of Common Shares of Scotts Miracle-Gro
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT” in the Proxy Statement.
Equity Compensation Plan Information
The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “EQUITY COMPENSATION PLAN INFORMATION” in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Person Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosures
which will be included under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” in the Proxy
Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosures
which will be included under the captions “CORPORATE GOVERNANCE — Director Independence” and “MEETINGS
AND COMMITTEES OF THE BOARD” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference from the disclosures which will be included
under the captions “AUDIT COMMITTEE MATTERS — Fees of the Independent Registered Public Accounting Firm” and
“AUDIT COMMITTEE MATTERS — Pre-Approval of Services Performed by the Independent Registered Public Accounting
Firm” in the Proxy Statement.
52
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
1 and 2. Financial Statements and Financial Statement Schedules:
The response to this portion of Item 15 is submitted as a separate section of this Form 10-K. Reference is made to
the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 56 of this Form 10-K.
(b) EXHIBITS
The exhibits listed on the “Index to Exhibits” beginning on page 109 of this Form 10-K are filed or furnished with this
Form 10-K or incorporated herein by reference as noted in the “Index to Exhibits.”
(c) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule filed with this Form 10-K is submitted in a separate section hereof. For a description of
such financial statement schedules, see “Index to Consolidated Financial Statements and Financial Statement Schedules” on
page 56 of this Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
53
Table of Contents
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.
THE SCOTTS MIRACLE-GRO COMPANY
By:
/s/ JAMES HAGEDORN
James Hagedorn, Chief Executive Officer and
Chairman of the Board
Dated: November 28, 2022
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 and on the dates indicated.
Signature
Title
Date
/s/ DAVID C. EVANS
David C. Evans
Interim Chief Financial Officer, Executive Vice President and
Director
November 28, 2022
(Principal Financial Officer and Principal Accounting Officer)
/s/ JAMES HAGEDORN
James Hagedorn
Chief Executive Officer, Chairman of the Board and Director November 28, 2022
(Principal Executive Officer)
/s/ BRIAN D. FINN*
Brian D. Finn
/s/ ADAM HANFT*
Adam Hanft
Director
Director
/s/ STEPHEN L. JOHNSON*
Director
Stephen L. Johnson
/s/ THOMAS N. KELLY JR.*
Director
Thomas N. Kelly Jr.
/s/ KATHERINE HAGEDORN
LITTLEFIELD*
Katherine Hagedorn Littlefield
Director
November 28, 2022
November 28, 2022
November 28, 2022
November 28, 2022
November 28, 2022
54
Table of Contents
Signature
Title
Date
/s/ NANCY G. MISTRETTA*
Director
Nancy G. Mistretta
/s/ BRIAN E. SANDOVAL*
Director
Brian E. Sandoval
November 28, 2022
November 28, 2022
/s/ PETER E. SHUMLIN*
Director
November 28, 2022
Peter E. Shumlin
/s/ JOHN R. VINES*
John R. Vines
Director
November 28, 2022
/s/ GERALD VOLAS*
Director
November 28, 2022
Gerald Volas
*
The undersigned, by signing his name hereto, does hereby sign this Report on behalf of each of the directors of the
Registrant identified above pursuant to Powers of Attorney executed by the directors identified above, which Powers of
Attorney are filed with this Report as exhibits.
By:
/s/ DAVID C. EVANS
David C. Evans, Attorney-in-Fact
55
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements of The Scotts Miracle-Gro Company and Subsidiaries:
Annual Report of Management on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the fiscal years ended September 30, 2022, 2021 and 2020 . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended September 30, 2022, 2021
and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022, 2021 and 2020 . . . . . . . .
Consolidated Balance Sheets at September 30, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 30, 2022, 2021 and 2020
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
57
58
62
63
64
65
66
67
Schedules Supporting the Consolidated Financial Statements:
Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 30, 2022, 2021 and 2020
108
All other financial statement schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are omitted because they are not required or are not applicable, or the required
information has been presented in the Consolidated Financial Statements or Notes thereto.
56
Table of Contents
ANNUAL REPORT OF MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of The Scotts Miracle-Gro Company and our
consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures of The Scotts Miracle-Gro Company and our consolidated subsidiaries are being made only in
accordance with authorizations of management and directors of The Scotts Miracle-Gro Company and our consolidated
subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of The Scotts Miracle-Gro Company and our consolidated subsidiaries that could
have a material effect on our consolidated financial statements.
Management, with the participation of our principal executive officer and principal financial officer, assessed the
effectiveness of our internal control over financial reporting as of September 30, 2022, the end of our fiscal year. Management
based its assessment on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as
the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our
overall control environment. This assessment is supported by testing and monitoring performed under the direction of
management. As allowed by the SEC guidance, management excluded from the assessment the internal control over financial
reporting at True Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY LTD, d.b.a. Cyco, which were acquired in fiscal
2022. These acquisitions constituted 1% of total assets and revenues and 0% of net income included in our consolidated
financial statements as of and for the fiscal year ended September 30, 2022.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with
respect to financial statement preparation.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of
September 30, 2022, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United
States of America. We reviewed the results of management’s assessment with the Audit Committee of the Board of Directors
of The Scotts Miracle-Gro Company.
Our independent registered public accounting firm, Deloitte & Touche LLP, independently audited our internal control
over financial reporting as of September 30, 2022 and has issued their attestation report which appears herein.
/s/ JAMES HAGEDORN
James Hagedorn
/s/ DAVID C. EVANS
David C. Evans
Chief Executive Officer and Chairman of the Board
Interim Chief Financial Officer
Dated: November 28, 2022
Dated: November 28, 2022
57
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
The Scotts Miracle-Gro Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Scotts Miracle-Gro Company and subsidiaries (the
“Company”) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income
(loss), shareholders’ equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related
notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and
2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 28, 2022, expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Goodwill and Intangible Asset Impairment — Hawthorne Reporting Unit — Refer to Notes 1 and 5 to the financial
statements.
Critical Audit Matter Description
The Company’s impairment evaluation of its Hawthorne goodwill, tradename finite-lived intangible assets, and customer
relationships finite-lived intangible assets involves the comparison of the fair value of each reporting unit or intangible asset to
its carrying value. For Hawthorne goodwill, the Company determines the fair value of its reporting unit using a combination of
income-based and market-based approaches and incorporates assumptions it believes market participants would utilize. Under
the income-based approach, the Company determines fair value using a discounted cash flow approach that requires significant
judgment with respect to revenue growth rates based upon annual budgets and longer-range strategic plans and the selection of
an appropriate discount rate. Under the market-based approach, the Company determines fair value by comparing its reporting
unit to similar businesses or guideline companies whose securities are actively traded in public markets. For the Hawthorne
tradename and customer relationships intangible assets the Company determines fair value using an income approach. The
58
Table of Contents
Company used a relief from royalty method for the Hawthorne tradename intangible assets’ fair values and a multi-period
excess earnings method to estimate the fair values for the Hawthorne customer relationships intangible assets.
During the year, management recorded a $522.4 million impairment charge of its Hawthorne reporting unit goodwill and a
$145.3 million impairment charge related to the Hawthorne tradenames and customer relationships intangible assets.
Given the significant estimates and assumptions management makes to estimate the fair values of the Hawthorne reporting unit
goodwill, tradenames, and customer relationships and the sensitivity of Hawthorne’s operations to changes in the U.S. retail
hydroponic market, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions
with respect to the revenue growth rates, royalty rates, and the selection of appropriate discount rates for Hawthorne, required a
high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures with respect to revenue growth rates, royalty rates, and the selection of appropriate discount rates for
Hawthorne included the following, among others:
• We tested the effectiveness of controls over management’s goodwill and intangible asset impairment evaluations, including
those over the determination of the fair value of Hawthorne goodwill and finite-lived intangible assets, such as controls
related to the revenue growth rates, royalty rates, and the selection of appropriate discount rates.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the long-term growth rate, including
testing the source information underlying the determination of the long-term growth rate, testing the mathematical accuracy
of the calculation, and developing a range of independent estimates and comparing those to the long-term growth rate
selected by management.
• We evaluated management’s ability to accurately forecast the revenue growth rates by comparing actual results to
management’s historical forecasts. Due to the uncertain growth in the U.S. retail hydroponic market, we evaluated the
reasonableness of management’s forecasts of the revenue growth rates by comparing the forecasts to (1) the historical
results of Hawthorne, (2) internal communications to management and the board of directors, (3) external communications
made by management to analysts and investors, and (4) industry reports containing analyses of the Company’s markets.
• We considered the impact of changes in the regulatory environment on management’s forecasts of the revenue growth
rates.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the royalty rates, including testing the
source information underlying the determination of the royalty rates, testing the mathematical accuracy of the calculations,
and developing a range of independent estimates and comparing those to the royalty rates selected by management.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates, including testing the
source information underlying the determination of the discount rates, testing the mathematical accuracy of the
calculations, and developing a range of independent estimates and comparing those to the discount rates selected by
management.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
November 28, 2022
We have served as the Company’s auditor since 2005.
59
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of The Scotts Miracle-Gro Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Scotts Miracle-Gro Company and subsidiaries (the
“Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our
report dated November 28, 2022, expressed an unqualified opinion on those financial statements.
As described in Annual Report of Management on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at True Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY
LTD, d.b.a. Cyco, which were acquired during the year ended September 30, 2022 and whose financial statements constitute
1% of total assets and revenues and 0% of net income of the consolidated financial statement amounts as of and for the fiscal
year ended September 30, 2022. Accordingly, our audit did not include the internal control over financial reporting at True
Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY LTD, d.b.a. Cyco.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of
Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
60
Table of Contents
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
November 28, 2022
61
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Operations
(In millions, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales—impairment, restructuring and other . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,924.1 $
2,891.1
160.1
872.9
4,925.0 $
3,431.3
24.7
1,469.0
4,131.6
2,768.6
16.0
1,347.0
Year Ended September 30,
2022
2021
2020
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (income) loss of unconsolidated affiliates . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . . . . . . .
Income tax expense (benefit) from continuing operations . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to controlling interest . . . . . . . . . . . . . . . . . . . $
Basic income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . $
613.0
693.1
0.8
(434.0)
12.9
—
118.1
(6.9)
(558.1)
(120.6)
(437.5)
—
(437.5) $
—
(437.5) $
(7.88) $
—
(7.88) $
(7.88) $
—
(7.88) $
See Notes to Consolidated Financial Statements.
743.5
4.3
(1.8)
723.0
(14.4)
—
78.9
(18.6)
677.1
159.8
517.3
(3.9)
513.4 $
(0.9)
512.5 $
9.27 $
(0.07)
9.20 $
9.03 $
(0.07)
8.96 $
757.8
0.8
3.2
585.2
—
15.1
79.6
(20.1)
510.6
123.7
386.9
1.7
388.6
(1.2)
387.4
6.92
0.04
6.96
6.78
0.03
6.81
62
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
Net foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gain (loss) on derivative instruments, net of tax . . . . . . . .
Reclassification of net unrealized (gains) losses on derivative
instruments to net income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gain (loss) in pension and other post-retirement benefits,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other post-retirement benefit adjustments, net of tax . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interest . . . . . . . . . . . . . .
Comprehensive income (loss) attributable to controlling interest . . . . . . . . . . . . $
Year Ended September 30,
2022
2021
2020
(437.5) $
513.4 $
388.6
(27.2)
29.9
(6.8)
(77.4)
(5.4)
8.7
(78.2)
(515.7)
4.5
19.8
5.4
(2.3)
5.1
0.3
32.8
546.2
—
(0.9)
11.3
(14.6)
7.5
—
(9.6)
0.2
(5.2)
383.4
(1.2)
(515.7) $
545.3 $
382.2
See Notes to Consolidated Financial Statements.
63
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
(437.5) $
513.4 $
388.6
Year Ended September 30,
2022
2021
2020
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (income) loss of unconsolidated affiliates, net of distributions . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of brand extension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of convertible debt investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES
666.8
—
34.3
68.1
37.1
(182.8)
12.9
1.1
102.8
(203.8)
(3.3)
(171.2)
(68.4)
20.1
(5.2)
(129.0)
63.3
(113.5)
—
—
—
(237.3)
(25.0)
29.3
(283.2)
—
—
40.6
62.9
30.9
22.5
(2.6)
(10.8)
15.5
(496.5)
(76.5)
202.5
(21.6)
(10.1)
1.3
271.5
0.2
(106.9)
—
—
(102.3)
(127.8)
(193.1)
(8.7)
(538.6)
—
15.1
57.9
62.2
32.5
(11.1)
—
4.2
(188.1)
(80.6)
(19.4)
172.2
148.6
(24.8)
0.7
558.0
0.4
(62.7)
(3.4)
115.5
—
—
—
(2.9)
46.9
Borrowings under revolving and bank lines of credit and term loans . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving and bank lines of credit and term loans . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 4.000% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 4.375% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 4.500% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of 6.000% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing and issuance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on seller notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,617.4
(2,937.3)
—
—
—
—
(9.6)
(166.2)
(257.9)
—
3.3
—
5.6
255.3
(0.4)
(157.3)
244.1
86.8 $
1,243.2
(1,361.5)
500.0
400.0
—
—
(13.1)
(143.0)
(129.3)
—
15.2
(17.5)
—
494.0
0.6
227.5
16.6
244.1 $
1,222.7
(1,413.8)
—
—
450.0
(400.0)
(18.7)
(411.2)
(53.2)
(0.5)
17.6
—
—
(607.1)
—
(2.2)
18.8
16.6
See Notes to Consolidated Financial Statements.
64
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
(In millions, except per share data)
September 30,
2022
2021
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, less allowances of $14.4 in 2022 and $16.8 in 2021 . . . . . . . . . . . .
Accounts receivable pledged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86.8 $
299.0
79.8
1,343.5
172.8
1,981.9
193.8
606.0
254.0
580.2
680.9
244.1
483.4
—
1,126.6
169.9
2,024.0
207.0
622.2
605.2
709.6
632.0
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,296.8 $
4,800.0
Current liabilities:
LIABILITIES AND EQUITY
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144.3 $
422.6
397.0
963.9
2,826.2
359.0
4,149.1
57.8
609.4
473.2
1,140.4
2,236.7
409.6
3,786.7
Commitments and contingencies (Notes 18, 19 and 20)
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding
of 55.5 and 55.6, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost; 12.8 and 12.6 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
364.0
1,020.1
477.0
1,605.1
(1,091.8)
(1,002.4)
(144.6)
147.7
4,296.8 $
(66.4)
1,013.3
4,800.0
See Notes to Consolidated Financial Statements.
65
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
Common Shares
Shares
Amount
Capital in
Excess of
Stated
Value
Retained
Earnings
Treasury Shares
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Total
Balance at September 30, 2019 . . . .
68.1 $
0.3 $ 441.9 $ 1,274.7
12.4 $
(904.3) $
(93.9) $ 718.7 $
4.5 $ 723.2
Net income (loss) . . . . . . . . . . . . . . .
—
Other comprehensive income (loss)
Share-based compensation . . . . . . .
Dividends declared ($7.36 per
share) . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Treasury share purchases . . . . . . . . .
—
Treasury share issuances . . . . . . . . .
—
Balance at September 30, 2020 . . . .
68.1
Net income (loss) . . . . . . . . . . . . . . .
—
Other comprehensive income (loss)
Share-based compensation . . . . . . .
Dividends declared ($2.52 per
share) . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Treasury share purchases . . . . . . . . .
—
Treasury share issuances . . . . . . . . .
—
Acquisition of remaining
noncontrolling interest in
AeroGrow . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2021 . . . .
—
68.1
Net income (loss) . . . . . . . . . . . . . . .
—
Other comprehensive income (loss)
Share-based compensation . . . . . . .
Dividends declared ($2.64 per
share) . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Treasury share purchases . . . . . . . . .
—
Treasury share issuances . . . . . . . . .
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
57.9
—
—
(17.6)
387.4
—
—
—
—
—
(426.5)
—
—
—
—
—
—
—
0.4
(0.4)
(53.2)
35.7
482.2
1,235.6
12.4
(921.8)
—
—
40.6
—
—
(32.6)
512.5
—
—
—
—
—
(143.0)
—
—
—
—
—
—
—
0.7
(0.5)
(129.3)
48.7
—
(5.2)
—
—
—
—
(99.1)
—
32.8
—
—
—
—
387.4
(5.2)
57.9
(426.5)
(53.2)
18.1
697.2
512.5
32.8
40.6
(143.0)
(129.3)
16.1
1.2
—
—
—
—
—
5.7
0.9
—
—
—
—
—
388.6
(5.2)
57.9
(426.5)
(53.2)
18.1
702.9
513.4
32.8
40.6
(143.0)
(129.3)
16.1
(13.4)
—
—
—
—
(13.4)
(6.7)
(20.1)
476.7
1,605.1
12.6
(1,002.4)
(66.4)
1,013.3
—
—
30.3
—
—
(143.3)
(437.5)
—
—
—
—
—
(147.5)
—
—
—
—
—
—
—
1.7
(1.5)
(257.9)
168.4
—
(437.5)
(78.2)
—
—
—
—
(78.2)
30.3
(147.5)
(257.9)
25.1
—
—
—
—
—
—
—
1,013.3
(437.5)
(78.2)
30.3
(147.5)
(257.9)
25.1
Balance at September 30, 2022 . . . .
68.1 $
0.3 $ 363.7 $ 1,020.1
12.8 $ (1,091.8) $
(144.6) $ 147.7 $
— $ 147.7
The sum of the components may not equal due to rounding.
See Notes to Consolidated Financial Statements.
66
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” or “Parent”) and its subsidiaries (collectively, together with
Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of products for lawn and garden
care and indoor and hydroponic gardening. The Company’s products are sold in North America, Europe and Asia.
The Company’s North America consumer lawn and garden business is highly seasonal, with approximately 75% of its
annual net sales occurring in the second and third fiscal quarters. For the Company’s Hawthorne segment, sales are also
impacted by seasonal patterns for certain product categories due to the timing of outdoor growing in North America during the
second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during the third and
fourth fiscal quarters.
Organization and Basis of Presentation
The Company’s consolidated financial statements are presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Scotts
Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The
Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and
an objective evaluation and determination of effective management control. On February 26, 2021, the Company acquired the
remaining outstanding shares of AeroGrow International, Inc. (“AeroGrow”). Prior to this date, the equity owned by other
shareholders was shown as noncontrolling interest in the Consolidated Balance Sheets, and the other shareholders’ portion of
net earnings and other comprehensive income was shown as net (income) loss or comprehensive (income) loss attributable to
noncontrolling interest in the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
(Loss), respectively. The results of businesses acquired or disposed of are included in the consolidated financial statements
from the date of each acquisition or up to the date of disposal, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes and related
disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company
may undertake in the future, actual results ultimately may differ from the estimates.
Advertising
Advertising costs incurred during the year are expensed to interim periods in relation to revenues. All advertising costs,
except for external production costs, are expensed within the fiscal year in which such costs are incurred. External production
costs for advertising programs are deferred until the period in which the advertising is first aired. Costs deferred at
September 30, 2022 and 2021 were not material. Advertising expenses were $120.3, $165.7 and $147.4 for fiscal 2022, fiscal
2021 and fiscal 2020, respectively.
Research and Development
Costs associated with research and development are generally charged to expense as incurred. Expenses for fiscal 2022,
fiscal 2021 and fiscal 2020 were $45.3, $45.4 and $39.7, respectively, including product registration costs of $13.0, $12.3 and
$11.0, respectively.
Environmental Costs
The Company recognizes environmental liabilities when conditions requiring remediation are probable and the amounts
can be reasonably estimated. Expenditures which extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. Environmental liabilities are not discounted or reduced for possible recoveries
from insurance carriers.
Earnings per Common Share
Basic income (loss) per common share of Scotts Miracle-Gro (“Common Share”) is computed by dividing income (loss)
attributable to controlling interest from continuing operations, income (loss) from discontinued operations or net income (loss)
attributable to controlling interest by the weighted average number of Common Shares outstanding each period. Diluted
income (loss) per Common Share is computed by dividing income (loss) attributable to controlling interest from continuing
operations, income (loss) from discontinued operations or net income (loss) attributable to controlling interest by the weighted
67
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
average number of Common Shares outstanding plus all dilutive potential Common Shares (stock options, restricted stock units,
deferred stock units and performance-based award units) outstanding each period.
Share-Based Compensation Awards
Scotts Miracle-Gro grants share-based awards annually to officers and certain other employees and to the non-employee
directors of Scotts Miracle-Gro. The share-based awards have consisted of stock options, restricted stock units, deferred stock
units and performance-based award units. All of these share-based awards have been made under plans approved by the
shareholders. The fair value of awards is expensed over the requisite service period which is typically the vesting period,
generally three to five years for awards granted to officers and other employees and one year for awards granted to non-
employee directors.
For restricted stock units, deferred stock units and performance-based award units, the fair value of each award is
estimated on the date of grant based on the current market price of the Common Shares. The grant date fair value of stock
option awards is estimated using a binomial model. Expected market price volatility is based on implied volatilities from traded
options on Common Shares and historical volatility specific to the Common Shares. Historical data, including demographic
factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within the
valuation model. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield
curve in effect at the time of grant. The expected life of stock options is based on historical experience and expectations for
grants outstanding.
Vesting of performance-based award units depends on service and achievement of specified performance targets. Based
on the extent to which the targets are achieved, vested shares may range from 50% to 250% of the target award amount. The
total amount of compensation expense recognized reflects management’s assessment of the probability that performance goals
will be achieved. A cumulative adjustment is recognized to compensation expense in the current period to reflect any changes
in the probability of achievement of performance goals.
Restricted stock units, deferred stock units and performance-based award units receive dividend equivalents equal to the
cash dividends earned during the vesting period that are only paid out upon vesting. Share-based award units are generally
forfeited if a holder terminates employment or service with the Company prior to the vesting date, except in cases where
employees are eligible for accelerated vesting based on having satisfied retirement requirements relating to age and years of
service. The Company estimates that 15% of its share-based awards will be forfeited based on an analysis of historical trends.
The Company evaluates the estimated forfeiture rate on an annual basis and makes adjustments as appropriate. Stock options
have exercise prices equal to the market price of the underlying Common Shares on the date of grant and a term of 10 years. If
available, Scotts Miracle-Gro typically uses treasury shares, or if not available, newly-issued Common Shares, to settle vested
share-based awards. The Company classifies share-based compensation expense within selling, general and administrative
expenses to correspond with the same line item as cash compensation paid to employees. Cash flows resulting from tax
deductions in excess of the cumulative compensation cost recognized for share-based awards (excess tax benefits) are classified
as operating cash inflows.
Cash and Cash Equivalents
Cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or
invested in high quality, short-term liquid investments. The Company considers all highly liquid financial instruments with
original maturities of three months or less to be cash equivalents. The Company maintains cash deposits in banks which from
time to time exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the
Company’s banks and believes that the risk of any potential credit loss is minimal.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Allowances for doubtful
accounts reflect the Company’s estimate of amounts in its existing accounts receivable that may not be collected due to
customer claims or customer inability or unwillingness to pay. The allowance is determined based on a combination of factors,
including the Company’s ongoing risk assessment regarding the credit worthiness of its customers, historical collection
experience and length of time the receivables are past due. Account balances are charged off against the allowance when the
Company believes it is probable the receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost or net realizable value and include the cost of raw materials, labor,
manufacturing overhead and freight and inbound handling costs incurred to pre-position goods in the Company’s warehouse
network. The Company makes provisions for obsolete or slow-moving inventories as necessary to properly reflect inventory at
68
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
the lower of cost or net realizable value. Inventories are valued using the first in, first out method. Adjustments to reflect
inventories at net realizable values were $118.8 and $22.5 at September 30, 2022 and 2021, respectively. Refer to “NOTE 4.
IMPAIRMENT, RESTRUCTURING AND OTHER” for more information.
Loans Receivable
Loans receivable are carried at outstanding principal amount, and are recognized in the “Other assets” line in the
Consolidated Balance Sheets. Loans receivable are impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. If it is
determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value of
the asset exceeds the present value of expected future cash flows. Interest income on loans receivable was $2.7, $3.8 and $7.6
for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Interest income is recorded on an accrual basis and is classified in the
“Other non-operating income, net” line in the Consolidated Statements of Operations.
Investment in Unconsolidated Affiliates
Non-marketable equity investments in which the Company has the ability to exercise significant influence, but does not
control, are accounted for using the equity method of accounting, with the Company’s proportionate share of the earnings and
losses of these entities reflected in the Consolidated Statements of Operations. The Company evaluates its equity method
investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such
investments may be impaired. If a decline in the value of an equity method investment is determined to be other than
temporary, an impairment loss is recognized in earnings for the amount by which the carrying amount of the investment
exceeds its estimated fair value.
Long-Lived Assets
Property, plant and equipment are stated at cost. Interest capitalized in property, plant and equipment amounted to $2.2,
$0.8 and $0.4 during fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Expenditures for maintenance and repairs are
charged to expense as incurred. When properties are retired or otherwise disposed of, the cost of the asset and the related
accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in income from
operations.
Depreciation of property, plant and equipment is provided on the straight-line method and is based on the estimated
useful economic lives of the assets as follows:
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 – 25 years
10 – 40 years
3 – 15 years
6 – 10 years
3 – 8 years
Intangible assets subject to amortization include technology, patents, customer relationships, non-compete agreements
and certain trade names. These intangible assets are amortized over their estimated useful economic lives, which typically
range from 3 to 25 years. The Company’s fixed assets and intangible assets subject to amortization are required to be tested for
recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If an
evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset group would be
compared to the asset group carrying amount to determine if a write-down is required. If the undiscounted cash flows are less
than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds fair value and classified
as “Impairment, restructuring and other” within “Operating expenses” in the Consolidated Statements of Operations.
The Company had non-cash investing activities of $33.3, $41.6 and $26.4 during fiscal 2022, fiscal 2021 and fiscal 2020,
respectively, representing unpaid liabilities to acquire property, plant and equipment.
Internal Use Software
The Company capitalizes certain qualifying costs incurred in the acquisition and development of software for internal
use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees
during the application development stage. Internal and external costs incurred during the preliminary project stage and post
implementation-operation stage, mainly training and maintenance costs, are expensed as incurred. Once the application is
substantially complete and ready for its intended use, qualifying costs are amortized on a straight-line basis over the software’s
estimated useful life. Capitalized internal use software is included in the “Property, plant and equipment, net” line in the
69
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Consolidated Balance Sheets. Capitalized software as a service is included in the “Prepaid and other current assets” line in the
Consolidated Balance Sheets and is amortized using the straight-line method over the term of the hosting arrangement which
typically ranges from 3 to 7 years.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not subject to amortization. Goodwill and indefinite-lived intangible
assets are reviewed for impairment by applying a fair-value based test on an annual basis as of the first day of the Company’s
fiscal fourth quarter or more frequently if circumstances indicate impairment may have occurred. With respect to goodwill, the
Company performs either a qualitative or quantitative evaluation for each of its reporting units. Factors considered in the
qualitative test include reporting unit specific operating results as well as new events and circumstances impacting the
operations or cash flows of the reporting units. For the quantitative test, the Company assesses goodwill for impairment by
comparing the carrying value of its reporting units to their respective fair values. A reporting unit is defined as an operating
segment or one level below an operating segment. The Company determines the fair value of its reporting units using a
combination of income-based and market-based approaches and incorporates assumptions it believes market participants would
utilize. The income-based approach utilizes discounted cash flows while the market-based approach utilizes market multiples.
These approaches depend upon internally-developed forecasts based on annual budgets and longer-range strategic plans. The
Company uses discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units
and in the internally-developed forecasts. To further substantiate fair value, the Company compares the aggregate fair value of
the reporting units to the Company’s total market capitalization.
With respect to indefinite-lived intangible assets, the Company performs either a qualitative or quantitative evaluation for
each asset. Factors considered in the qualitative test include asset specific operating results as well as new events and
circumstances impacting the cash flows of the assets. For the quantitative test, the fair value of the Company’s indefinite-lived
intangible assets is determined under the income-based approach utilizing discounted cash flows and incorporating assumptions
the Company believes market participants would utilize. For trade names, fair value is determined using a relief-from-royalty
methodology similar to that employed when the associated businesses were acquired but using updated estimates of sales, cash
flow and profitability.
If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the
carrying value of the reporting unit or intangible asset exceeds its estimated fair value and classified as “Impairment,
restructuring and other” within “Operating expenses” in the Consolidated Statements of Operations.
Investments in Securities
Convertible debt investments are classified as “available for sale,” are reported at fair value and are presented in the
“Other assets” line in the Consolidated Balance Sheets. Unrealized gains and losses on these investments are included in
accumulated other comprehensive loss (“AOCL”) in the Consolidated Balance Sheets. When a decline in fair value is
considered to be other-than-temporary at the balance sheet date, an allowance for credit losses (impairment), including any
write-off of accrued interest receivable, is charged to earnings. If management can assert that it does not intend to sell the
security and it is not more likely than not that it will have to sell the security before recovering its amortized cost basis (net of
allowance), then the impairment allowance is separated into two components: (i) the amount related to credit losses (recorded in
earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). Interest income is recorded
on an accrual basis and is classified in the “Other non-operating income, net” line in the Consolidated Statements of Operations.
Insurance and Self-Insurance
The Company maintains insurance for certain risks, including workers’ compensation, general liability and vehicle
liability, and is self-insured for employee-related health care benefits up to a specified level for individual claims. The
Company accrues for the expected costs associated with these risks by considering historical claims experience, demographic
factors, severity factors and other relevant information. Costs are recognized in the period the claim is incurred, and accruals
include an actuarially determined estimate of claims incurred but not yet reported.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are
recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their
respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized
based upon available evidence. A valuation allowance is established when management believes that it is more likely than not
that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are
included in the Company’s tax provision in the period of change.
70
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The Company establishes a liability for tax return positions in which there is uncertainty as to whether or not the position
will ultimately be sustained. Amounts for uncertain tax positions are adjusted in quarters when new information becomes
available or when positions are effectively settled. The Company recognizes interest expense and penalties related to these
unrecognized tax benefits within income tax expense. GAAP provides that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits of the position. The amount recognized is measured as the
largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.
U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not
indefinitely reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision
for U.S. income or foreign withholding taxes is made. When circumstances change and the Company determines that some or
all of the undistributed earnings will be remitted in the foreseeable future, the Company accrues an expense in the current
period for U.S. income taxes and foreign withholding taxes attributable to the anticipated remittance.
Translation of Foreign Currencies
The functional currency for each Scotts Miracle-Gro subsidiary is generally its local currency. Assets and liabilities of
these subsidiaries are translated at the exchange rate in effect at each fiscal year-end. Income and expense accounts are
translated at the average rate of exchange prevailing during the year. Translation gains and losses arising from the use of
differing exchange rates from period to period are included in AOCL within shareholders’ equity. Foreign exchange
transaction gains and losses are included in the determination of net income and classified as “Other (income) expense, net” in
the Consolidated Statements of Operations. The Company recognized foreign exchange transaction (gains) losses of $1.3,
$(1.8) and $0.9 during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
Derivative Instruments
The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity
prices. A variety of financial instruments, including forwards, futures and swap contracts, are used to manage these exposures.
These financial instruments are recognized at fair value in the Consolidated Balance Sheets, and all changes in fair value are
recognized in net income or shareholders’ equity through AOCL. The Company’s objective in managing these exposures is to
better control these elements of cost and mitigate the earnings and cash flow volatility associated with changes in the applicable
rates and prices.
The Company has established policies and procedures that encompass risk-management philosophy and objectives,
guidelines for derivative instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity.
The Company does not enter into derivative instruments for the purpose of speculation.
The Company formally designates and documents instruments at inception that qualify for hedge accounting of
underlying exposures in accordance with GAAP. The Company formally assesses, both at inception and at least quarterly,
whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related
underlying exposure. Fluctuations in the value of these instruments generally are offset by changes in the expected cash flows
of the underlying exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being
hedged and the hedging instrument. The Company designates certain commodity hedges as cash flow hedges of forecasted
purchases of commodities and interest rate swap agreements as cash flow hedges of interest payments on variable rate
borrowings. Changes in the fair value of derivative contracts that qualify for hedge accounting are recorded in AOCL. For
commodity hedges, realized gains or losses remain as a component of AOCL until the related inventory is sold.
During the second quarter of fiscal 2016, the Company entered into definitive agreements with Bonnie Plants, Inc. and its
sole shareholder, Alabama Farmers Cooperative, Inc. (“AFC”), that included options beginning in fiscal 2020 providing for
either (i) the Company to increase its economic interest in Bonnie’s business of planting, growing, developing, manufacturing,
distributing, marketing, and selling live plants, plant food, fertilizer and potting soil (the “Bonnie Business”) or (ii) AFC and
Bonnie to repurchase the Company’s economic interest in the Bonnie Business (collectively, the “Bonnie Option”). The
Bonnie Option was surrendered at the time of the formation of the Bonnie Plants, LLC joint venture on December 31, 2020.
Prior to this, the Bonnie Option was required to be accounted for as a derivative instrument and was recorded at fair value in the
“Other assets” line in the Consolidated Balance Sheets, with changes in fair value recognized in the “Other non-operating
income, net” line in the Consolidated Statements of Operations.
Leases
The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the
right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other
facts and circumstances. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease
71
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are
calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date
and initial direct costs incurred by the Company and exclude any lease incentives received from the lessor. Lease liabilities are
recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the
Company’s leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the
lease liability using its incremental borrowing rate at the lease commencement date based on the lease term. The Company
considers its credit rating and the current economic environment in determining this collateralized rate. Variable lease
payments are the portion of lease payments that are not fixed over the lease term. Variable lease payments are expensed as
incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other
charges included in the lease, as applicable. The Company elected to exclude short-term leases, defined as leases with initial
terms of 12 months or less, from its Consolidated Balance Sheets.
Statements of Cash Flows
Supplemental cash flow information was as follows:
Year Ended September 30,
2022
2021
2020
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112.5 $
27.2
61.6 $
179.7
75.9
124.2
Cash flow from operating activities in fiscal 2022 and fiscal 2021 was favorably impacted by extended payment terms
with vendors across the U.S. Consumer and Hawthorne segments, as well as Monsanto Company, a subsidiary of Bayer AG
(“Monsanto”), for payments originally due in the final weeks of fiscal 2022 and fiscal 2021 that were paid in the first quarter of
fiscal 2023 and 2022, respectively.
The Company received (paid) cash of $29.3, $(8.7) and $(2.9) during fiscal 2022, fiscal 2021 and fiscal 2020,
respectively, associated with currency forward contracts, which was classified as an investing activity in the “Other investing,
net” line in the Consolidated Statements of Cash Flows.
The Company uses the “cumulative earnings” approach for determining cash flow presentation of distributions from
unconsolidated affiliates. Distributions received are included in the Consolidated Statements of Cash Flows as operating
activities, unless the cumulative distributions exceed the portion of the cumulative equity in the net earnings of the
unconsolidated affiliate, in which case the excess distributions are deemed to be returns of the investment and are classified as
investing activities in the Consolidated Statements of Cash Flows.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for
income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing
guidance to improve consistent application. The company adopted this guidance on October 1, 2021. The adoption of this
guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
NOTE 2. REVENUE RECOGNITION
Nature of Goods and Services
The Company’s revenue is primarily generated from sales of branded and private label lawn and garden care and indoor
and hydroponic gardening finished products to home centers, mass merchandisers, warehouse clubs, large hardware chains,
independent hardware stores, nurseries, garden centers, e-commerce platforms, food and drug stores, indoor gardening and
hydroponic product distributors, retailers and growers. In addition to product sales, the Company acts as the exclusive agent of
Monsanto for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products in the United
States and certain other specified countries, and performs certain other services under ancillary agreements with Monsanto.
Prior to December 31, 2020, the Company also provided marketing, research and development and certain ancillary services to
Bonnie. Refer to “NOTE 21. SEGMENT INFORMATION” for disaggregated revenue information and “NOTE 7.
MARKETING AGREEMENT” for revenue information related to the Monsanto agreements.
72
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Identification and Satisfaction of Performance Obligations
The Company recognizes product sales at a point in time when it transfers control of products to customers and has no
further obligation to provide services related to such products. Control is the ability of customers to direct the “use of” and
“obtain” the benefit from the Company’s products. In evaluating the timing of the transfer of control of products to customers,
the Company considers several control indicators, including significant risks and rewards of products, the Company’s right to
payment and the legal title of the products. Based on the assessment of control indicators, sales are typically recognized when
products are delivered to or picked up by the customer. The Company is generally the principal in a transaction and, therefore,
primarily records revenue on a gross basis. When the Company is a principal in a transaction, it has determined that it controls
the ability to direct the use of the product prior to transfer to a customer, is primarily responsible for fulfilling the promise to
provide the product or service to the customer, has discretion in establishing prices, and ultimately controls the transfer of the
product or services provided to the customer.
Under the terms of the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated
Agreement”), pursuant to which the Company serves as the exclusive agent of Monsanto for the marketing and distribution of
certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries, the
Company is entitled to receive an annual commission from Monsanto as consideration for the performance of the Company’s
duties as agent. The Third Restated Agreement also requires the Company to make annual payments to Monsanto as a
contribution against the overall expenses of its consumer Roundup® business. The gross commission earned under the Third
Restated Agreement and the contribution payments to Monsanto are included in the “Net sales” line in the Consolidated
Statements of Operations. The Company performs other services, including conversion services, pursuant to ancillary
agreements with Monsanto. The actual costs incurred for these activities are charged to and reimbursed by Monsanto. The
Company records costs incurred for which the Company is the primary obligor on a gross basis, recognizing such costs in the
“Cost of sales” line and the reimbursement of these costs in the “Net sales” line in the Consolidated Statements of Operations,
with no effect on gross margin dollars or net income.
Prior to December 31, 2020, in exchange for services performed pursuant to the terms of the Marketing, R&D and
Ancillary Services Agreement (the “Services Agreement”) between the Company and AFC, Bonnie reimbursed the Company
for certain costs and provided a commission fee earned based on a percentage of the growth in earnings before interest, income
taxes and amortization of the Bonnie Business. The commission earned under the Services Agreement was included in the “Net
sales” line in the Consolidated Statements of Operations. Additionally, the Company recorded costs incurred under the
Services Agreement for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of
sales” line and the reimbursement of these costs in the “Net sales” line in the Consolidated Statements of Operations, with no
effect on gross margin dollars or net income.
Transactional Price and Promotional Allowances
Revenue for product sales is recorded net of sales returns and allowances. Revenues are measured based on the amount
of consideration that the Company expects to receive as derived from a list price, reduced by estimates for variable
consideration. Variable consideration includes the cost of current and continuing promotional programs and expected sales
returns. Commission income related to the Monsanto agreements is recognized over the program year as the services are
performed based upon the commission income formula in the agreements.
The Company’s promotional programs primarily include rebates based on sales volumes, in-store promotional
allowances, cooperative advertising programs, direct consumer rebate programs and special purchasing incentives. The cost of
promotional programs is estimated considering all reasonably available information, including current expectations and
historical experience. Promotional costs (including allowances and rebates) incurred during the year are expensed to interim
periods in relation to revenues and are recorded as a reduction of net sales. Accruals for expected payouts under these programs
are included in the “Other current liabilities” line in the Consolidated Balance Sheets. Provisions for estimated returns and
allowances are recorded at the time revenue is recognized based on historical rates and are periodically adjusted for known
changes in return levels. Shipping and handling costs are accounted for as contract fulfillment costs and included in the “Cost
of sales” line in the Consolidated Statements of Operations. The Company excludes from revenue any amounts collected from
customers for sales or other taxes.
73
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 3. DISCONTINUED OPERATIONS
International Business
Prior to August 31, 2017, the Company operated consumer lawn and garden businesses located in Australia, Austria,
Belgium, Luxembourg, Czech Republic, France, Germany, Poland and the United Kingdom (the “International Business”). On
August 31, 2017, the Company completed the sale of the International Business. As a result, effective in its fourth quarter of
fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business as a
discontinued operation. The sale proceeds were net of seller financing provided by the Company in the form of a $29.7 loan for
seven years bearing interest at 5% for the first three years, with annual 2.5% increases thereafter. The seller financing loan
receivable is recorded in the “Other assets” line in the Consolidated Balance Sheets as of September 30, 2022. The transaction
also included contingent consideration with a maximum payout of $23.8 and an initial fair value of $18.2, the payment of which
depended on the achievement of certain performance criteria by the International Business following the closing of the
transaction through fiscal 2020. During fiscal 2021, the Company agreed to accept a contingent consideration payout of $6.0
and recorded a pre-tax charge of $12.2 in the “Income (loss) from discontinued operations, net of tax” line in the Consolidated
Statements of Operations during fiscal 2021 to write-down the contingent consideration receivable to the agreed upon payout
amount. This contingent consideration payment was received during fiscal 2022 and this amount was classified as a financing
activity in the “Other financing, net” line in the Consolidated Statements of Cash Flows.
The following table summarizes the results of discontinued operations described above and reflected within discontinued
operations in the Company’s consolidated financial statements for each of the periods presented:
Year Ended September 30,
2022
2021
2020
Operating and exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges (recoveries) . . . . . . . . . . . . . . .
Write-down of contingent consideration receivable . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations before income taxes . . . . . . . . .
Income tax expense (benefit) from discontinued operations . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . $
— $
—
—
—
—
— $
— $
—
12.2
(12.2)
(8.3)
(3.9) $
1.3
(3.1)
—
1.8
0.1
1.7
The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately from
cash flows from continuing operations. Cash provided by (used in) operating activities related to discontinued operations was
zero for fiscal 2022 and fiscal 2021, and was $3.6 for fiscal 2020. Cash (used in) provided by investing activities related to
discontinued operations was zero for fiscal 2022, fiscal 2021 and fiscal 2020.
74
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 4. IMPAIRMENT, RESTRUCTURING AND OTHER
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other,” “Impairment,
restructuring and other” and “Income (loss) from discontinued operations, net of tax” lines in the Consolidated Statements of
Operations. The following table details impairment, restructuring and other charges (recoveries) for each of the periods
presented:
Cost of sales—impairment, restructuring and other:
COVID-19 related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring and other charges (recoveries), net . . . . . . . . . . . . . . . . . . .
Property, plant and equipment impairments . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses—impairment, restructuring and other:
COVID-19 related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges (recoveries), net . . . . . . . . . . . . . . . . . . .
Gains on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other charges from continuing operations . . .
Restructuring and other charges (recoveries), net, from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impairment, restructuring and other charges . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2022
2021
2020
— $
143.6
16.6
—
40.9
(16.2)
668.3
853.2
—
25.0 $
(0.3)
—
4.2
0.1
—
—
29.0
—
853.2 $
29.0 $
15.5
(0.1)
0.6
3.9
(3.1)
—
—
16.8
(3.1)
13.7
The following table summarizes the activity related to liabilities associated with restructuring activities for each of the
periods presented:
Year Ended September 30,
2022
2021
2020
Amounts accrued for restructuring activities at beginning of year . . . . . . . . . $
Restructuring and other charges from continuing operations . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts accrued for restructuring activities at end of year . . . . . . . . . . . . . $
1.9 $
47.1
(17.5)
31.5 $
3.9 $
29.0
(31.0)
1.9 $
11.6
20.0
(27.7)
3.9
Included in restructuring accruals, as of September 30, 2022, is $4.6 that is classified as long-term. The remaining
amounts accrued will continue to be paid out over the course of the next twelve months.
During fiscal 2022, the Company recognized non-cash, pre-tax goodwill and intangible asset impairment charges of
$632.4 as a result of interim impairment testing of its Hawthorne segment in the “Impairment, restructuring and other” line in
the Consolidated Statements of Operations, comprised of $522.4 of goodwill impairment charges and $110.0 of finite-lived
intangible asset impairment charges.
During fiscal 2022, the Company incurred inventory write-down charges of $120.9 in the “Cost of sales—impairment,
restructuring and other” line in the Consolidated Statements of Operations and finite-lived intangible asset impairment charges
of $35.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with its
decision to discontinue and exit the market for certain Hawthorne lighting products and brands.
During fiscal 2022, the Company began implementing a series of organizational changes and initiatives intended to create
operational and management-level efficiencies. As part of this restructuring program, the Company is reducing the size of its
supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. During fiscal 2022, the
Company incurred costs of $65.2 associated with this restructuring initiative primarily related to employee termination benefits
and impairment of property, plant and equipment. The Company incurred costs of $9.7 in its U.S. Consumer segment and
$27.1 in its Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements
of Operations during fiscal 2022. The Company incurred costs of $11.9 in its U.S. Consumer segment, $8.1 in its Hawthorne
segment, $0.7 in its Other segment and $7.7 at Corporate in the “Impairment, restructuring and other” line in the Consolidated
Statements of Operations during fiscal 2022.
75
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
During fiscal 2022, the Company recognized gains of $16.2 in the “Impairment, restructuring and other” line in the
Consolidated Statements of Operations associated with the sale of property, plant and equipment.
Costs incurred during fiscal 2022 related to COVID-19 were immaterial. During 2021, the Company incurred costs of
$29.2 associated with the COVID-19 pandemic primarily related to premium pay. The Company incurred costs of $21.2 in its
U.S. Consumer segment, $3.2 in its Hawthorne segment and $0.6 in its Other segment in the “Cost of sales—impairment,
restructuring and other” line in the Consolidated Statements of Operations during fiscal 2021. The Company incurred costs of
$4.0 in its U.S. Consumer segment and $0.2 in its Other segment in the “Impairment, restructuring and other” line in the
Consolidated Statements of Operations during fiscal 2021. During fiscal 2020, the Company incurred costs of $19.4 associated
with the COVID-19 pandemic primarily related to premium pay. The Company incurred costs of $12.4 in its U.S. Consumer
segment, $2.6 in its Hawthorne segment and $0.5 in its Other segment in the “Cost of sales—impairment, restructuring and
other” line in the Consolidated Statements of Operations during fiscal 2020. The Company incurred costs of $3.8 in its U.S.
Consumer segment and $0.1 in its Other segment in the “Impairment, restructuring and other” line in the Consolidated
Statements of Operations during fiscal 2020.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET
The following table displays a rollforward of the carrying amount of goodwill by reportable segment:
U.S.
Consumer
Hawthorne
Other
Total
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and measurement-period adjustments . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reallocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229.9 $
400.1 $
10.5 $
(1.8)
(94.6)
228.1
—
—
15.8
305.5
60.5
—
(15.8)
—
10.5
—
0.6
—
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and measurement-period adjustments . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245.7 $
444.8 $
11.1 $
(1.8)
(94.6)
243.9
—
—
—
350.2
180.8
(8.6)
(522.4)
—
11.1
—
(1.0)
—
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
245.7 $
(1.8)
243.9 $
617.0 $
(617.0)
— $
10.1 $
—
10.1 $
640.5
(96.4)
544.1
60.5
0.6
—
701.6
(96.4)
605.2
180.8
(9.6)
(522.4)
872.8
(618.8)
254.0
76
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following table presents intangible assets, net of accumulated amortization and impairment charges:
September 30, 2022
September 30, 2021
Gross
Carrying
Amount
Accumulated
Amortization/
Impairment
Charges
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization/
Impairment
Charges
Net
Carrying
Amount
Finite-lived intangible assets:
Trade names . . . . . . . . . . . . . . . . . . . $
Customer relationships . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Total finite-lived intangible assets,
net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived intangible assets:
Indefinite-lived trade names . . . . . . .
Roundup® marketing agreement
amendment . . . . . . . . . . . . . . . . . . . .
Total indefinite-lived intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets, net . . . . . . . . . . .
318.4 $
(174.3) $
144.1 $
293.4 $
(73.3) $
251.1
49.1
34.7
(158.4)
(43.3)
(21.0)
$
92.7
5.8
13.7
256.3
168.2
155.7
323.9
580.2
228.3
49.2
35.3
(91.7)
(41.3)
(14.2)
$
220.1
136.6
7.9
21.1
385.7
168.2
155.7
323.9
709.6
During fiscal 2022, the Company’s Hawthorne reporting unit experienced adverse financial results due to decreased sales
volume and higher transportation and warehousing costs. Sales volume decreased due to an oversupply of cannabis, which
significantly decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. As a result, the Company
revised its internal forecasts relating to its Hawthorne reporting unit. The Company concluded that the changes in
circumstances in this reporting unit and the decline in the Company’s market capitalization triggered the need for an interim
impairment review of its goodwill during the third quarter of fiscal 2022. These changes in circumstances also indicated that
the carrying amounts of Hawthorne’s long-lived assets, including trade names and customer relationships, may not be
recoverable. Accordingly, the Company performed a recoverability test for long-lived assets during the third quarter of fiscal
2022. The Company concluded that the carrying value of long-lived assets exceeded their estimated fair value and recorded
pre-tax impairment charges of $69.0 related to trade names and $41.0 related to customer relationships, which were recognized
during the third quarter of fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of
Operations. The fair values of long-lived assets were determined using income-based approaches, including the relief-from-
royalty method for trade names, that include market participant expectations of cash flows that the assets will generate over the
remaining useful life discounted to present value using an appropriate discount rate. These fair value estimates utilize
significant unobservable inputs and, therefore, represent Level 3 fair value measurements.
After adjusting the carrying values of the finite-lived intangible assets, the Company completed an interim quantitative
impairment test for goodwill during the third quarter of fiscal 2022. This quantitative test resulted in a non-cash, pre-tax
goodwill impairment charge of $522.4 related to the Hawthorne reporting unit, which was recognized during the third quarter of
fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The carrying value
of goodwill of the Hawthorne reporting unit, after recognizing the impairment, is zero. The estimated fair value of the
Hawthorne reporting unit was based upon an equal weighting of the income-based and market-based approaches, utilizing
estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well
as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the
reporting unit. The fair value estimate utilizes significant unobservable inputs and thus represents a Level 3 fair value
measurement.
During fiscal 2022, the Company also incurred additional finite-lived intangible asset impairment charges of $35.3,
comprised of $22.5 related to trade names and $12.8 related to customer relationships, which were recognized during the fourth
quarter of fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations, associated
with its decision to discontinue and exit the market for certain Hawthorne lighting products and brands.
During fiscal 2021, the Company changed its internal organization structure such that AeroGrow is now managed by and
reported within the U.S. Consumer segment. Within the U.S. Consumer segment, AeroGrow is integrated into the Company’s
overall direct to consumer focus and strategy. AeroGrow was previously managed by and reported within the Hawthorne
segment. This change in organization structure resulted in a change in the Company’s reporting units. As a result, goodwill
included in impacted reporting units was reallocated using a relative fair value approach, resulting in $15.8 of goodwill
77
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
reallocated from the Hawthorne segment to the U.S. Consumer segment during fiscal 2021. In addition, the Company
completed an assessment of potential goodwill impairment immediately before and after the reallocation and determined that no
impairment existed.
Total amortization expense was $37.1, $30.9 and $32.5 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
Amortization expense is estimated to be as follows for the years ending September 30:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.0
22.8
20.0
18.6
17.4
NOTE 6. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
The following presents detail regarding certain financial statement accounts:
INVENTORIES:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
PROPERTY, PLANT AND EQUIPMENT, NET:
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
OTHER ASSETS:
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued pension, postretirement and executive retirement assets . . . . . . . . . . . . . . . . .
Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
September 30,
2022
2021
926.2 $
293.2
124.1
1,343.5 $
145.0 $
262.2
644.0
65.4
127.9
43.9
—
95.5
1,383.9
(777.9)
606.0 $
288.9 $
143.5
117.0
69.6
32.8
29.1
680.9 $
793.7
242.8
90.1
1,126.6
144.2
268.5
585.9
53.0
116.2
42.4
16.6
132.8
1,359.6
(737.4)
622.2
293.0
—
190.3
89.9
35.8
23.0
632.0
During fiscal 2022, the Company sold certain property, plant and equipment, including building, land and aircraft, for
proceeds of $63.3, and recognized gains of $16.2 in the “Impairment, restructuring and other” line in the Consolidated
Statements of Operations associated with these sales.
78
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
OTHER CURRENT LIABILITIES:
Current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advertising and promotional accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll and other compensation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
OTHER NON-CURRENT LIABILITIES:
Non-current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued pension, postretirement and executive retirement liabilities . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
September 30,
2022
2021
76.2 $
74.8
44.2
29.4
30.1
142.3
397.0 $
223.2 $
82.1
8.5
45.2
359.0 $
66.4
132.7
91.5
31.7
28.0
122.9
473.2
234.4
98.2
47.8
29.2
409.6
NOTE 7. MARKETING AGREEMENT
The Scotts Company LLC (“Scotts LLC”) is the exclusive agent of Monsanto for the marketing and distribution of
certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries. The
annual commission payable under the Third Restated Agreement is equal to 50% of the actual earnings before interest and
income taxes of Monsanto’s consumer Roundup® business for each program year in the markets covered by the Third Restated
Agreement (“Program EBIT”). The Third Restated Agreement also requires the Company to make annual payments of $18.0 to
Monsanto as a contribution against the overall expenses of its consumer Roundup® business, subject to reduction pursuant to
the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.
Unless Monsanto terminates the Third Restated Agreement due to an event of default by the Company, termination rights
under the Third Restated Agreement include the following:
•
The Company may terminate the Third Restated Agreement upon the insolvency or bankruptcy of Monsanto;
• Monsanto may terminate the Third Restated Agreement in the event that Monsanto decides to decommission the
permits, licenses and registrations needed for, and the trademarks, trade names, packages, copyrights and designs
used in, the sale of the Roundup® products in the lawn and garden market (a “Brand Decommissioning
Termination”); and
•
Each party may terminate the Third Restated Agreement if Program EBIT falls below $50.0 and, in such case, no
termination fee would be payable to either party.
The termination fee structure requires Monsanto to pay a termination fee to the Company in an amount equal to (i) $375.0
upon a Brand Decommissioning Termination, and (ii) the greater of $175.0 or four times an amount equal to the average of the
Program EBIT for the three program years before the year of termination, minus $186.4, if Monsanto or its successor terminates
the Third Restated Agreement as a result of a Roundup Sale or Change of Control of Monsanto (each, as defined in the Third
Restated Agreement).
The Company entered into the Brand Extension Agreement Asset Purchase Agreement (the “BEA Purchase Agreement”)
on August 1, 2019 in connection with signing of the Third Restated Agreement. The BEA Purchase Agreement provides for
the sale by the Company to Monsanto of specified assets related to, among other things, the development, manufacture,
production, advertising, marketing, promotion, distribution, importation, exportation, offer for sale and sale of specified
Roundup® branded products sold outside the non-selective weedkiller category within the residential lawn and garden market.
The consideration paid by Monsanto was $112.0 plus the value of finished goods inventory of $3.5. This consideration
receivable was recorded in the “Prepaid and other current assets” line in the Consolidated Balance Sheets until it was received
by the Company on January 13, 2020. The carrying value of the assets sold, which included the brand extension agreement
intangible asset with a carrying value of $111.7, approximated the consideration received, resulting in an insignificant gain on
the sale.
79
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The elements of the net commission and reimbursements earned under the Third Restated Agreement and included in the
“Net sales” line in the Consolidated Statements of Operations are as follows:
Gross commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contribution expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements associated with Roundup® marketing agreement . . . . . . . .
Total net sales associated with Roundup® marketing agreement . . . . . . $
83.4 $
(18.0)
65.4
67.9
133.3 $
94.0 $
(18.0)
76.0
70.8
146.8 $
90.4
(18.0)
72.4
61.6
134.0
Year Ended September 30
2022
2021
2020
NOTE 8. ACQUISITIONS AND INVESTMENTS
Cyco
On April 28, 2022, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of S.J.
Enterprises PTY LTD, d.b.a. Cyco (“Cyco”), an Australia-based provider of premium nutrients, additives and growing media
products for indoor growing sold mostly in the United States, for an estimated purchase price of $37.3. The purchase price
includes contingent consideration, a non-cash investing activity, with an initial fair value of $3.1 and a maximum payout of
$10.0, which will be paid by the Company based on the achievement of certain performance metrics through December 31,
2024. Prior to the transaction, the Company served as the exclusive distributor of Cyco’s products in the United States. The
valuation of the acquired assets included (i) $1.3 of inventory, (ii) $10.5 of finite-lived identifiable intangible assets and (iii)
$25.6 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete
agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets
were determined using an income-based approach, which includes market participant expectations of cash flows that an asset
will generate over the remaining useful life discounted to present value using an appropriate discount rate.
Luxx Lighting
On December 30, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of
Luxx Lighting, Inc., a provider of lighting products for indoor growing. The purchase price was $213.2, a portion of which was
paid by the issuance of 0.1 million Common Shares, a non-cash investing and financing activity, with a fair value
of $21.0 based on the share price at the time of payment. The valuation of the acquired assets included (i) $32.8 of inventory
and accounts receivable, (ii) $5.7 of other current assets, (iii) $24.2 of current liabilities, (iv) $47.3 of finite-lived identifiable
intangible assets and (v) $151.6 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer
relationships and non-compete agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the
identifiable intangible assets were determined using an income-based approach, which includes market participant expectations
of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount
rate.
During the fourth quarter of fiscal 2022, the Company decided it would discontinue and exit the market for certain
Hawthorne lighting products and brands, including Luxx Lighting. Refer to “NOTE 4. IMPAIRMENT, RESTRUCTURING
AND OTHER” for more information.
True Liberty Bags
On December 23, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of
True Liberty Bags, a leading provider of liners and storage solutions to dry and cure plant products, for $10.1. The valuation of
the acquired assets included (i) $1.1 of inventory, (ii) $5.8 of finite-lived identifiable intangible assets and (iii) $3.2 of tax-
deductible goodwill. Identifiable intangible assets included trade names and customer relationships with useful lives of 15
years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which
includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to
present value using an appropriate discount rate.
Hydro-Logic
On August 27, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of
Hydro-Logic Purification Systems, Inc., a leading provider of products, accessories and systems for water filtration and
purification, for $65.3. The valuation of the acquired assets included (i) $4.5 of inventory and accounts receivable, (ii) $1.6 of
80
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
non-current assets, (iii) $2.6 of other liabilities, (iv) $23.1 of finite-lived identifiable intangible assets and (v) $38.7 of tax-
deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete agreements
with useful lives ranging between 5 and 15 years. The estimated fair values of the identifiable intangible assets were
determined using an income-based approach, which includes market participant expectations of cash flows that an asset will
generate over the remaining useful life discounted to present value using an appropriate discount rate.
The Hawthorne Collective
On August 24, 2021, the Company’s wholly-owned subsidiary, The Hawthorne Collective, Inc. (“THC”), made its initial
investment under the Company’s strategic minority non-equity investment initiative in the form of a $150.0 six-year convertible
note issued to the Company by Toronto-based RIV Capital Inc. (“RIV Capital”) (CSE: RIV) (OTC: CNPOF), a cannabis
investment and acquisition firm listed on the Canadian Securities Exchange. The note bears interest on the principal amount at
a rate of approximately 2% for the first two years of the term. No interest will accrue on the note for the remainder of the term.
The note is convertible into RIV Capital common shares at a conversion price of CAD $1.90 per share which is based upon the
RIV Capital closing stock price on August 9, 2021.
On April 22, 2022, pursuant to its follow-on investment rights, the Company made an additional investment in RIV
Capital in the form of a $25.0 convertible note which matures on August 24, 2027. The note bears interest on the principal
amount at a rate of approximately 2% for the first two years of the term. No interest will accrue on the note for the remainder
of the term. The note is convertible into RIV Capital common shares at a conversion price of CAD $1.65 per share which is
based upon the RIV Capital closing stock price on March 29, 2022.
Accrued interest on the initial $150.0 convertible note and the follow-on $25.0 convertible note (collectively, the “RIV
Convertible Notes”) will be payable to THC at maturity or will be included in the conversion value of the notes at the time of
conversion. Assuming full conversion of the RIV Convertible Notes, including the full amount of the anticipated accrued
interest over the life of the notes, THC would be entitled to receive approximately 123.0 million common shares of RIV
Capital, representing approximately 42% of RIV Capital’s outstanding shares as of September 30, 2022. The RIV Convertible
Notes are convertible into common shares of RIV Capital either (i) at the election of THC or (ii) at the election of RIV Capital
after the date on which federal laws in the United States are amended to allow for the general cultivation, distribution, and
possession of cannabis.
In connection with issuance of the RIV Convertible Notes, the Company entered into an investor rights agreement with
RIV Capital providing for, among other things, customary registration rights, participation rights, as well as certain standstill
and transfer restrictions. In addition, THC is entitled to designate three nominees to the RIV Capital board of directors for so
long as the board is comprised of seven directors, and shall be entitled to designate four nominees to the RIV Capital board of
directors if the size of the board is increased to nine directors.
During the fourth quarter of fiscal 2021, THC made minority non-equity investments of $43.1 in other entities focused on
branded cannabis and high quality genetics. These additional investments also include conversion features that would provide
the Company with minority ownership interests if it exercises the conversion features.
The Company or THC will not have control of or an active day-to-day role in any entity in which THC has a convertible
debt investment. The convertible notes include restrictions that the funds received from the Company will be used for general
corporate and other lawful purposes, which could include acquisitions, and that the funds will not be used in connection with or
for any cannabis or cannabis-related operations in the U.S. unless and until such operations comply with all applicable U.S.
federal laws.
Rhizoflora
On August 13, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of
Rhizoflora, Inc., the manufacturer of terpene enhancing nutrient products Terpinator® and Purpinator®, for $33.7. The
valuation of the acquired assets included (i) $0.6 of inventory, (ii) $10.9 of finite-lived identifiable intangible assets and (iii)
$22.2 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete
agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets
were determined using an income-based approach, which includes market participant expectations of cash flows that an asset
will generate over the remaining useful life discounted to present value using an appropriate discount rate.
81
Table of Contents
AeroGrow
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
On November 11, 2020, the Company entered into an agreement and plan of merger to acquire the remaining outstanding
shares of AeroGrow for cash consideration of $3.00 per share, or approximately $20.1. The merger closed on February 26,
2021. SMG Growing Media, Inc., a wholly-owned subsidiary of Scotts Miracle-Gro, was the holder of 80.5% of the
outstanding shares of AeroGrow prior to the closing and now holds 100% of the outstanding shares of AeroGrow. The closing
date carrying value of the noncontrolling interest was $6.7 and the $13.4 difference between the purchase price and carrying
value was recognized in the “Common shares and capital in excess of $0.01 stated value per share” line within “Total equity” in
the Consolidated Balance Sheets.
NOTE 9. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On December 31, 2020, pursuant to the terms of the Contribution and Unit Purchase Agreement between the Company
and AFC, the Company acquired a 50% equity interest in the Bonnie Plants business of planting, growing, developing,
distributing, marketing and selling live plants through a joint venture with AFC (“Bonnie Plants, LLC”) in exchange for cash
payments of $102.3, as well as non-cash investing activities that included forgiveness of the Company’s outstanding loan
receivable with AFC and surrender of the Company’s options to increase its economic interest in the Bonnie Plants business.
The Company’s loan receivable with AFC, which was previously recognized in the “Other assets” line in the Consolidated
Balance Sheets, had a carrying value of $66.4 on December 31, 2020 and the Company recognized a gain of $12.5 during the
first quarter of fiscal 2021 to write-up the value of the loan to its closing date fair value of $78.9 in the “Other non-operating
income, net” line in the Consolidated Statements of Operations. The Company’s options to increase its economic interest in the
Bonnie Plants business were previously recognized in the “Other assets” line in the Consolidated Balance Sheets and had an
estimated fair value of $23.3 on December 31, 2020. The Company’s interest in Bonnie Plants, LLC had an initial fair value of
$202.9 and is recorded in the “Investment in unconsolidated affiliates” line in the Consolidated Balance Sheets. The estimated
fair value of the loan receivable with AFC was determined using an income-based approach, which includes market participant
expectations of cash flows over the remaining useful life discounted to present value using an appropriate discount rate. The
fair value estimate utilized significant unobservable inputs and thus represents a Level 3 nonrecurring fair value measurement.
The Company’s interest is accounted for using the equity method of accounting, with the Company’s proportionate share
of Bonnie Plants, LLC earnings subsequent to December 31, 2020 reflected in the Consolidated Statements of Operations. The
Company recorded equity in (income) loss of unconsolidated affiliates associated with Bonnie Plants, LLC of $12.9 and $(14.4)
during fiscal 2022 and fiscal 2021, respectively. The Company also received a distribution of $12.0 from Bonnie Plants, LLC
during fiscal 2021, which was classified as an operating activity in the Consolidated Statements of Cash Flows.
NOTE 10. RETIREMENT PLANS
The Company sponsors a defined contribution 401(k) plan for substantially all U.S. associates. The Company matches
200% of associates’ initial 3% contribution and 50% of their remaining contribution up to 6%. The Company may make
additional discretionary profit sharing matching contributions to eligible employees on their initial 4% contribution. The
Company recorded charges of $28.3, $30.1 and $27.7 under the plan in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
The Company sponsors two defined benefit pension plans for certain U.S. associates and three defined benefit pension
plans associated with the former businesses in the United Kingdom and Germany. Benefits under these plans have been frozen
and closed to new associates since 1997 for the U.S. plans, 2010 for the United Kingdom plans and 2017 for the Germany plan.
The benefits under the plans are based on years of service and compensation levels. The Company’s funding policy for the
defined benefit pension plans, consistent with statutory requirements and tax considerations, is based on actuarial computations
using the Projected Unit Credit method.
During fiscal 2021, a defined benefit pension plan associated with the former business in the United Kingdom entered
into a buy-in insurance policy in exchange for a premium payment of $67.7, which is subject to adjustment as a result of
subsequent data cleansing activities. Under the terms of this buy-in insurance policy, the insurer is liable to pay the benefits to
the plan but the plan still retains full legal responsibility to pay the benefits to plan participants using the insurance payments.
The buy-in policy will be treated as an asset of the plan going forward until such time as the buy-in policy is converted to a
buy-out policy, which is when individual insurance policies will be assigned to each plan participant and the plan will no longer
have legal responsibility to pay the benefits to the plan participants.
82
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following tables present information about benefit obligations, plan assets, annual expense, assumptions and other
information about the Company’s defined benefit pension plans. The defined benefit pension plans are valued using a
September 30 measurement date.
Change in projected benefit obligation:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation (“PBO”) at end of year . . . . . . . . $
Accumulated benefit obligation (“ABO”) at end of year . . $
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . $
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . $
Overfunded (underfunded) status at end of year . . . . . . . . $
U.S. Defined
Benefit Pension Plans
International
Defined
Benefit Pension Plans
2022
2021
2022
2021
100.2 $
109.8 $
193.6 $
193.7
1.7
(17.2)
(7.0)
—
77.7 $
77.7 $
81.7 $
(15.8)
0.2
(7.0)
—
59.1 $
(18.6) $
1.5
(4.1)
(7.0)
—
100.2 $
100.2 $
3.0
(55.1)
(7.5)
(24.8)
109.2 $
109.2 $
2.6
(2.9)
(7.6)
7.8
193.6
193.6
81.5 $
221.6 $
209.9
5.9
1.3
(7.0)
—
81.7 $
(18.5) $
(61.2)
5.3
(7.5)
(29.3)
128.9 $
19.7 $
2.1
7.9
(7.6)
9.3
221.6
28.0
The decrease in the PBO during fiscal 2022 was primarily driven by the increase in discount rates. These gains were
partially offset by demographic experience losses, an update to the terminated vested retirement assumption, and the adoption
of the updated mortality projection scale.
83
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Information for pension plans with an ABO in excess of
plan assets:
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information for pension plans with a PBO in excess of
plan assets:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in the Consolidated Balance Sheets
consist of:
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amount accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amounts recognized in AOCL consist of:
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total change in other comprehensive loss attributable to:
Net gain (loss) during the period . . . . . . . . . . . . . . . . . . . . . . . $
Reclassification to net income . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in other comprehensive loss . . . . . . . . . . . . . . . . $
Weighted average assumptions used in development of
projected benefit obligation:
U.S. Defined
Benefit Pension Plans
International
Defined
Benefit Pension Plans
2022
2021
2022
2021
77.7 $
100.2 $
11.6 $
59.1
81.7
—
77.7 $
100.2 $
11.6 $
59.1
81.7
—
— $
— $
31.3 $
(0.2)
(18.4)
(0.2)
(18.3)
(0.8)
(10.8)
(18.6) $
(18.5) $
19.7 $
38.8 $
39.2 $
51.2 $
—
—
2.1
38.8 $
39.2 $
53.3 $
16.9
—
16.9
—
44.9
(0.9)
(16.0)
28.0
51.4
2.7
54.1
U.S. Defined
Benefit Pension Plans
International
Defined
Benefit Pension Plans
2022
2021
2022
2021
(1.3)
$
1.7
—
0.4
$
6.6
2.1
—
8.7
$
(11.1)
$
1.3
10.6
0.8
$
$
(0.6)
1.3
(2.0)
(1.3)
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.06 %
2.37 %
4.96 %
1.90 %
Components of net periodic benefit cost
(income):
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Expected return on plan assets . . . . . . . . . . . . .
Net amortization . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost (income) . . . . . . . . . $
Weighted average assumptions used in
development of net periodic benefit cost
(income):
U.S. Defined
Benefit Pension Plans
International
Defined Benefit Pension Plans
2022
2021
2020
2022
2021
2020
1.7
(2.8)
1.7
0.6
$
$
1.5
(3.4)
2.1
0.2
$
$
2.6
(3.9)
1.8
0.5
$
$
3.0
(5.1)
1.3
(0.8)
$
$
2.6
(5.5)
1.3
(1.6)
$
$
2.7
(6.9)
1.0
(3.2)
Weighted average discount rate - interest cost
Expected return on plan assets . . . . . . . . . . . . .
1.74 %
3.50 %
1.43 %
4.25 %
2.44 %
5.00 %
1.64 %
2.37 %
1.26 %
2.45 %
1.42 %
3.39 %
84
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Investment Strategy
Target allocation percentages among various asset classes are maintained based on an individual investment policy
established for each of the various pension plans. Asset allocations are designed to achieve long-term objectives of return while
mitigating against downside risk considering expected cash requirements necessary to fund benefit payments. However, the
Company cannot predict future investment returns and therefore cannot determine whether future pension plan funding
requirements could materially and adversely affect its financial condition, results of operations or cash flows.
Basis for Long-Term Rate of Return on Asset Assumptions
The Company’s expected long-term rate of return on asset assumptions are derived from studies conducted by third
parties. The studies include a review of anticipated future long-term performance of individual asset classes and consideration
of the appropriate asset allocation strategy given the anticipated requirements of the plans to determine the average rate of
earnings expected. While the studies give appropriate consideration to recent fund performance and historical returns, the
assumptions primarily represent expectations about future rates of return over the long term.
U.S. Defined
Benefit Pension Plans
International
Defined
Benefit Pension Plans
Other information:
Plan asset allocations:
Target for September 30, 2023:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2022
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2021
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 %
74 %
4 %
— %
— %
17 %
75 %
5 %
3 %
— %
20 %
73 %
4 %
3 %
— %
Expected company contributions in fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Expected future benefit payments:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 – 2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.2
7.4
7.2
7.0
6.9
6.8
30.5
25 %
44 %
— %
1 %
30 %
25 %
44 %
— %
1 %
30 %
22 %
48 %
— %
— %
30 %
1.1
5.6
5.8
6.1
6.2
6.2
33.8
85
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following tables set forth the fair value of the Company’s pension plan assets, segregated by level within the fair
value hierarchy:
Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . .
Total assets in the fair value hierarchy . . . . . . . . .
Common collective trusts measured at net asset
value
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total common collective trusts measured at
net asset value . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . .
Fair Value
Hierarchy Level
Level 1
Level 3
$
$
$
U.S. Defined
Benefit Pension Plans
International
Defined
Benefit Pension Plans
2022
2021
2022
2021
2.1 $
2.9 $
1.7 $
—
—
38.1
2.1 $
2.9 $
39.8 $
0.2
66.7
66.9
2.8 $
3.4 $
— $
10.0
44.2
57.0
16.0
59.4
78.8
32.6
56.5
89.1
$
59.1 $
81.7 $
128.9 $
—
48.3
106.4
154.7
221.6
The carrying value of cash equivalents approximated their aggregate fair value as of September 30, 2022 and 2021. The
valuation of the buy-in insurance policy was calculated on an insurer pricing basis updated for changes in market implied
insurance pricing, market rates, and inflation during the year, and was estimated using unobservable inputs. Common
collective trusts are not publicly traded and were valued at a net asset value unit price determined by the portfolio’s sponsor
based on the fair value of underlying assets held by the common collective trust on September 30, 2022 and 2021. The
common collective trusts hold underlying investments that have prices derived from quoted prices in active markets. The
underlying assets are principally marketable equity and fixed income securities.
NOTE 11. ASSOCIATE MEDICAL BENEFITS
The Company provides comprehensive major medical benefits to its associates. The Company is self-insured for certain
health benefits up to $1.0 per occurrence per individual. The cost of such benefits is recognized as expense in the period the
claim is incurred. This cost was $46.6, $43.7 and $34.2 in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
The Company also provides comprehensive major medical benefits to certain retired associates and their dependents.
Substantially all of the Company’s domestic associates who were hired before January 1, 1998 become eligible for these
benefits if they retire at age 55 or older with more than ten years of service. The retiree medical plan requires certain minimum
contributions from retired associates and includes provisions to limit the overall cost increases the Company is required to
cover. The Company funds its portion of retiree medical benefits as claims are paid.
86
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following tables set forth information about the retiree medical plan for domestic associates. The retiree medical
plan is valued using a September 30 measurement date.
Change in Accumulated Plan Benefit Obligation (APBO):
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unfunded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022
2021
20.1 $
0.2
0.5
0.4
(4.0)
0.6
(2.1)
15.7 $
— $
1.7
0.4
(2.1)
— $
(15.7) $
22.4
0.2
0.4
0.4
(0.8)
—
(2.4)
20.1
—
2.0
0.4
(2.4)
—
(20.1)
The decrease in the benefit obligation during fiscal 2022 was primarily driven by the increase in the discount rate. These
gains were partially offset by demographic experience losses.
Amounts recognized in the Consolidated Balance Sheets consist of:
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amount accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amounts recognized in AOCL consist of:
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accumulated other comprehensive (income) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total change in other comprehensive loss attributable to:
Gain during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reclassification to net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022
2021
(1.6)
(14.1)
(15.7)
(1.2)
(0.2)
(1.4)
3.4
(0.9)
2.5
$
$
$
$
$
$
(1.5)
(18.6)
(20.1)
2.5
(1.4)
1.1
0.8
(0.8)
—
Discount rate used in development of APBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.60 %
2.66 %
Net periodic benefit cost (income) was $(0.2), $(0.2), and $(0.1) during fiscal 2022, fiscal 2021 and fiscal 2020,
respectively. For measurement as of September 30, 2022, management has assumed that health care costs will increase at an
annual rate of 7.50%, and thereafter decreasing to an ultimate trend rate of 5.00% in 2028.
87
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following benefit payments under the plan are expected to be paid by the Company and the retirees for the fiscal
years indicated:
Gross
Benefit
Payments
Retiree
Contributions
Net
Company
Payments
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 – 2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 $
2.2
2.1
2.1
2.2
10.5
(0.6) $
(0.6)
(0.5)
(0.6)
(0.7)
(3.9)
1.6
1.6
1.6
1.5
1.5
6.6
NOTE 12. DEBT
The components of debt are as follows:
September 30,
2022
2021
Credit Facilities:
Revolving loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes due 2031 – 4.000% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes due 2032 – 4.375% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes due 2029 – 4.500% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes due 2026 – 5.250% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
300.5 $
975.0
500.0
400.0
450.0
250.0
75.0
28.9
12.7
2,992.1
144.3
21.6
2,826.2 $
The Company’s aggregate scheduled maturities of debt, excluding finance lease obligations, are as follows:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
670.0
500.0
400.0
450.0
250.0
—
33.4
11.9
2,315.3
57.8
20.8
2,236.7
137.7
50.0
50.0
50.0
1,325.5
1,350.0
2,963.2
Credit Facilities
On July 5, 2018, the Company entered into a fifth amended and restated credit agreement (the “Fifth A&R Credit
Agreement”), which provided the Company and certain of its subsidiaries with five-year senior secured loan facilities in the
aggregate principal amount of $2,300.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original
principal amount of $800.0 (the “Fifth A&R Credit Facilities”). Under the Fifth A&R Credit Facilities, the Company had the
ability to obtain letters of credit up to $75.0.
On April 8, 2022, the Company entered into a sixth amended and restated credit agreement (the “Sixth A&R Credit
Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate
principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal
amount of $1,000.0 (the “Sixth A&R Credit Facilities”). The Sixth A&R Credit Agreement also provides the Company with
88
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
the right to seek additional committed credit under the agreement in an aggregate amount of up to $500.0 plus an unlimited
additional amount, subject to certain specified financial and other conditions. The Sixth A&R Credit Agreement replaced the
Fifth A&R Credit Agreement and will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the
issuance of letters of credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and
warranties, affirmative and negative covenants, financial covenants, and events of default.
Under the terms of the Sixth A&R Credit Agreement, loans bear interest, at the Company’s election, at a rate per annum
equal to either (i) the Alternate Base Rate plus the Applicable Spread (each, as defined in the Sixth A&R Credit Agreement) or
(ii) the Adjusted Term SOFR Rate for the Interest Period in effect for such borrowing plus the Applicable Spread (all as defined
in the Sixth A&R Credit Agreement). Swingline Loans bear interest at the applicable Swingline Rate set forth in the Sixth
A&R Credit Agreement. Interest rates for other select non-U.S. dollar borrowings, including borrowings denominated in euro,
Pounds Sterling and Canadian dollars, are based on separate interest rate indices, as set forth in the Sixth A&R Credit
Agreement. The Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts
receivable, inventory and equipment of Scotts Miracle-Gro and certain of its domestic subsidiaries and (ii) the pledge of all of
the capital stock of certain of Scotts Miracle-Gro’s domestic subsidiaries and a portion of the capital stock of certain of its
foreign subsidiaries. The collateral does not include any of the Company’s intellectual property.
On June 8, 2022, the Company entered into Amendment No. 1 (the “Amendment”) to the Sixth A&R Credit Agreement.
The Amendment increases the maximum permitted leverage ratio for the quarterly leverage covenant effective for the third
quarter of fiscal 2022 until the earlier of (i) April 1, 2024 and (ii) subject to certain conditions specified in the Amendment, the
termination by the Company of such increase (such period, the “Leverage Adjustment Period”). The Amendment also
increases the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50
bps, and increases the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when the Company’s
quarterly-tested leverage ratio exceeds 4.75. Additionally, the Amendment limits the Company’s ability to declare or pay any
discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment
of (i) regularly scheduled cash dividends to holders of its Common Shares in an aggregate amount not to exceed $225.0 per
fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. The
Amendment also requires pro forma compliance with certain leverage levels specified in the Amendment with respect to the
Company’s ability to consummate certain acquisitions and incur debt.
At September 30, 2022, the Company had letters of credit outstanding in the aggregate principal amount of $14.1, and
had $1,185.5 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average
borrowings under the Fifth A&R Credit Agreement and Sixth A&R Credit Agreement were 2.8%, 1.9% and 3.3% for fiscal
2022, fiscal 2021 and fiscal 2020, respectively.
The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s
leverage ratio determined as of the end of each of its fiscal quarters calculated as average total indebtedness, divided by the
Company’s earnings before interest, taxes, depreciation and amortization, as adjusted pursuant to the terms of the Sixth A&R
Credit Agreement (“Adjusted EBITDA”). Pursuant to the Amendment, the maximum permitted leverage ratio is (i) 6.25 for the
third quarter of fiscal 2022 through the first quarter of fiscal 2023, (ii) 6.50 for the second and third quarters of fiscal 2023, (iii)
6.25 for the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, (iv) 5.50 for the second quarter of fiscal 2024, and
(v) 4.50 for the third quarter of fiscal 2024 and thereafter. The Company’s leverage ratio was 6.01 at September 30, 2022. The
Sixth A&R Credit Agreement also contains an affirmative covenant regarding the Company’s interest coverage ratio
determined as of the end of each of its fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by
interest expense, as described in the Sixth A&R Credit Agreement, and excludes costs related to refinancings. The minimum
required interest coverage ratio is 3.00, which is unchanged from the Fifth A&R Credit Agreement. The Company’s interest
coverage ratio was 4.83 for the twelve months ended September 30, 2022.
As of September 30, 2022, the Company was in compliance with all applicable covenants in the agreements governing its
debt. Based on the Company’s projections of its financial performance for the twelve-month period subsequent to the date of
the filing of the financial statements on Form 10-K, the Company expects to remain in compliance with the financial covenants
under the Company’s Sixth A&R Credit Agreement. However, the Company’s assessment of its ability to meet its future
obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation
may result in an event of default. Such a default would allow the lender under the Sixth A&R Credit Agreement to accelerate
the maturity of the debt and would also implicate cross-default provisions under the Senior Notes, as defined below, making
them due and payable at that time. As of September 30, 2022, the Company’s indebtedness under the Sixth A&R Credit
Agreement and Senior Notes was $2,875.5. The Company does not have sufficient cash on hand or available liquidity that can
be utilized to repay these outstanding amounts in the event of default.
89
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
As part of its contingency planning to address potential future circumstances that could result in noncompliance, the
Company has contemplated alternative plans including additional restructuring activities to reduce operating expenses and
certain cash management strategies that are within the Company’s control. Additionally, the Company has contemplated
alternative plans that are subject to market conditions and not in the Company’s control, including, among others, discussions
with its lender to amend the terms of its financial covenant under the debt instrument and generating cash by completing other
financing transactions, which may include issuing equity. There is no assurance that the Company will be successful in
implementing these alternative plans.
Senior Notes
On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026
(the “5.250% Senior Notes”). The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right
of payment with the Company’s existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment
dates of June 15 and December 15 of each year.
On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029
(the “4.500% Senior Notes”). The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right
of payment with the Company’s existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment
dates of April 15 and October 15 of each year.
On October 23, 2019, Scotts Miracle-Gro redeemed all of its outstanding 6.000% Senior Notes due 2023 (the “6.000%
Senior Notes”) for a redemption price of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption
premium, and $400.0 for outstanding principal amount. The $12.0 redemption premium was recognized in the “Costs related to
refinancing” line on the Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, the
Company had $3.1 in unamortized bond issuance costs associated with the 6.000% Senior Notes, which were written-off during
the first quarter of fiscal 2020 and were recognized in the “Costs related to refinancing” line in the Consolidated Statements of
Operations.
On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031 (the
“4.000% Senior Notes”). The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of
payment with the Company’s existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates
of April 1 and October 1 of each year.
On August 13, 2021, Scotts Miracle-Gro issued $400.0 aggregate principal amount of 4.375% Senior Notes due 2032 (the
“4.375% Senior Notes”). The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of
payment with the Company’s existing and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates
of February 1 and August 1 of each year.
Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the
5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes.
Receivables Facility
On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the
“Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with
the Repurchase Agreement, the “Receivables Facility”). Under the Receivables Facility, the Company may sell a portfolio of
available and eligible outstanding customer accounts receivable to the purchasers and simultaneously agree to repurchase the
receivables on a weekly basis. The eligible accounts receivable consist of accounts receivable generated by sales to three
specified customers. The eligible amount of customer accounts receivables which may be sold under the Receivables Facility is
$400.0 and the commitment amount during the seasonal commitment period beginning on February 24, 2023 and ending on
June 16, 2023 is $160.0. The Receivables Facility expires on August 18, 2023.
The Company accounts for the sale of receivables under the Receivables Facility as short-term debt and continues to
carry the receivables on its Consolidated Balance Sheets, primarily as a result of the Company’s requirement to repurchase
receivables sold. As of September 30, 2022 and 2021, there were $75.0 and zero, respectively, in borrowings on receivables
pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was $79.8
and zero, respectively.
90
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements with major financial institutions that effectively convert a portion
of the Company’s variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are
hedged by the swap agreements. Swap agreements that were hedging interest payments as of September 30, 2022 and 2021 had
a maximum total U.S. dollar equivalent notional amount of $800.0 and $600.0, respectively. The notional amount, effective
date, expiration date and rate of each of the swap agreements outstanding at September 30, 2022 are shown in the table below:
Notional Amount
Effective
Date (a)
Expiration
Date
Fixed
Rate
100
300
200
200
200
(b)
(b)
12/21/2020
1/7/2021
10/7/2021
1/20/2022
6/7/2023
6/20/2023
6/7/2023
6/7/2023
6/20/2024
6/8/2026
1.36 %
1.34 %
1.37 %
0.58 %
0.85 %
(a)
(b)
The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement.
Notional amount adjusts in accordance with a specified seasonal schedule. This represents the maximum notional amount at any
point in time.
Weighted Average Interest Rate
The weighted average interest rates on the Company’s debt were 3.6%, 3.7% and 4.3% for fiscal 2022, fiscal 2021 and
fiscal 2020, respectively.
NOTE 13. EQUITY
Authorized and issued shares consisted of the following (in millions):
Preferred shares, no par value:
Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2 shares
0.0 shares
0.2 shares
0.0 shares
Common shares, no par value, $0.01 stated value per share:
Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0 shares
68.1 shares
100.0 shares
68.1 shares
September 30,
2022
2021
In fiscal 1995, The Scotts Company merged with Stern’s Miracle-Gro Products, Inc. (“Miracle-Gro”). At September 30,
2022, the former shareholders of Miracle-Gro, including the Hagedorn Partnership, L.P., owned approximately 26% of Scotts
Miracle-Gro’s outstanding Common Shares on a fully diluted basis and, therefore, have the ability to significantly influence the
election of directors and other actions requiring the approval of Scotts Miracle-Gro’s shareholders.
Under the terms of the merger agreement with Miracle-Gro, the former shareholders of Miracle-Gro may not collectively
acquire, directly or indirectly, beneficial ownership of Voting Stock (as that term is defined in the Miracle-Gro merger
agreement) representing more than 49% of the total voting power of the outstanding Voting Stock, except pursuant to a tender
offer for 100% of that total voting power, which tender offer is made at a price per share which is not less than the market price
per share on the last trading day before the announcement of the tender offer and is conditioned upon the receipt of at least 50%
of the Voting Stock beneficially owned by shareholders of Scotts Miracle-Gro other than the former shareholders of Miracle-
Gro and their affiliates and associates.
91
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Accumulated Other Comprehensive Loss
Changes in AOCL by component were as follows for the fiscal years ended September 30:
Balance at September 30, 2019 . . . . . . . . . . . . . $
(17.4) $
(8.1) $
— $
(68.4) $
(93.9)
Foreign
Currency
Translation
Adjustments
Net Unrealized
Gain (Loss)
On Derivative
Instruments
Net
Unrealized
Loss On
Securities
Net Unrealized
Gain (Loss) in
Pension and
Other Post-
Retirement
Benefits
Accumulated
Other
Comprehensive
Income (Loss)
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive net income (loss) . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . . . .
Net current period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . .
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive net income (loss) . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . . . .
Net current period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2021 . . . . . . . . . . . . .
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive net income (loss) . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . . . .
Net current period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2022 . . . . . . . . . . . . . $
The sum of the components may not equal due to rounding.
Dividends
10.5
(19.7)
0.8
—
10.1
2.5
11.3
(6.2)
(7.1)
(15.1)
—
—
—
—
—
4.5
—
—
4.5
(1.7)
26.8
(3.1)
7.3
(8.9)
25.2
10.2
—
0.8
(2.3)
(2.3)
(12.9)
(22.1)
0.3
3.2
(9.4)
(77.8)
6.9
0.4
(1.9)
5.4
(72.5)
11.2
5.7
(5.2)
(99.1)
35.1
7.7
(10.0)
32.8
(66.4)
(27.2)
40.1
(102.0)
(7.3)
(96.4)
—
—
(9.1)
(7.9)
—
24.6
11.7
(1.1)
2.6
15.6
(27.2)
(28.9) $
23.1
(77.4)
3.3
(78.2)
33.3 $
(79.7) $
(69.3) $
(144.6)
On July 27, 2020, the Scotts Miracle-Gro Board of Directors approved an increase in Scotts Miracle-Gro’s quarterly cash
dividend from $0.58 to $0.62 per Common Share, which was first paid in the fourth quarter of fiscal 2020. In addition, on
July 27, 2020, the Scotts Miracle-Gro Board of Directors approved a special cash dividend of $5.00 per Common Share, which
was paid on September 10, 2020 to all shareholders of record at the close of business on August 27, 2020. On July 30, 2021,
the Scotts Miracle-Gro Board of Directors approved an increase in the Scotts Miracle-Gro’s quarterly cash dividend from $0.62
to $0.66 per Common Share, which was first paid in the fourth quarter of fiscal 2021.
Share Repurchases
On August 11, 2014, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $500.0
of Common Shares over a five-year period (effective November 1, 2014 through September 30, 2019). On August 3, 2016,
Scotts Miracle-Gro announced that its Board of Directors authorized a $500.0 increase to the share repurchase authorization
ending on September 30, 2019. On August 2, 2019, the Scotts Miracle-Gro Board of Directors authorized an extension of the
share repurchase authorization through March 28, 2020. The amended authorization allowed for repurchases of Common
Shares of up to an aggregate amount of $1,000.0 through March 28, 2020. During fiscal 2020 through March 28, 2020, Scotts
Miracle-Gro repurchased 0.4 million Common Shares under this share repurchase authorization for $48.2. From the effective
date of this share repurchase authorization in the fourth quarter of fiscal 2014 through March 28, 2020, Scotts Miracle-Gro
repurchased approximately 8.7 million Common Shares for $762.8.
On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0
of Common Shares from April 30, 2020 through March 25, 2023. The authorization permits the Company to purchase
92
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Common Shares from time to time in open market purchases or through privately negotiated transactions. All or part of the
repurchases may be made under Rule 10b5-1 plans, which the Company may enter into from time to time and which enable the
repurchases to occur on a more regular basis, or pursuant to accelerated share repurchases. The share repurchase authorization
may be suspended or discontinued by the Board of Directors at any time, and there can be no guarantee as to the timing or
amount of any repurchases. During fiscal 2022 and fiscal 2021, Scotts Miracle-Gro repurchased 1.1 million and 0.6 million
Common Shares under this share repurchase authorization for $175.0 and $113.1, respectively. There were no share
repurchases under this share repurchase authorization during fiscal 2020. Treasury share purchases also include cash paid to
tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation of $82.9, $16.3 and
$4.9 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
Share-Based Awards
A maximum of 5.0 million Common Shares are available for issuance under share-based award plans. At September 30,
2022, approximately 3.4 million Common Shares were not subject to outstanding awards and were available to underlie the
grant of new share-based awards. Common Shares held in treasury totaling 0.9 million, 0.4 million and 0.4 million were
reissued in support of share-based compensation awards and employee purchases under the employee stock purchase plan
during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
Subsequent to September 30, 2022, the Company awarded restricted stock units, performance-based award units and
stock options representing 1.6 million Common Shares to employees with an estimated fair value of $51.8 on the date of grant.
The following is a summary of the share-based awards granted during each of the periods indicated:
Employees
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Employee Directors
Restricted and deferred stock units . . . . . . . . . . . . . . . . . . .
Total share-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2022
2021
2020
—
228,558
105,756
20,015
354,329
183,553
70,936
1,903
9,173
265,565
37,255
119,726
37,570
18,948
213,499
Aggregate fair value at grant dates . . . . . . . . . . . . . . . . . . . . . . . $
41.2 $
30.2 $
21.5
Total share-based compensation was as follows for each of the periods indicated:
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Related tax benefit recognized . . . . . . . . . . . . . . . . . . . . . . . . . .
30.3 $
4.9
40.6 $
7.4
57.9
14.6
Excess tax benefits related to share-based compensation were $14.8, $18.3 and $5.8 for fiscal 2022, fiscal 2021 and fiscal
Year Ended September 30,
2022
2021
2020
2020, respectively.
Stock Options
Stock option activity was as follows:
Awards outstanding at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. of
Options
568,191 $
(39,720)
528,471
388,002
Wtd.
Avg.
Exercise
Price
118.38
236.53
110.86
65.36
93
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
At September 30, 2022, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested stock
options not yet recognized was $1.4, which is expected to be recognized over a weighted-average period of 1.3 years. The total
intrinsic value of stock options exercised was $41.8 and $21.9 during fiscal 2021 and fiscal 2020, respectively. Cash received
from the exercise of stock options, including amounts received from employee purchases under the employee stock purchase
plan, was $3.3, $15.2, and $17.6 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. The following summarizes certain
information pertaining to stock option awards outstanding and exercisable at September 30, 2022:
Range of
Exercise Price
$59.62 - $64.55 . . . . . . . . . . . . . . . . . . . . . . .
$236.53 - $236.53 . . . . . . . . . . . . . . . . . . . . .
Awards Outstanding
Awards Exercisable
No. of
Options
380,932
147,539
528,471
Wtd.
Avg.
Remaining
Life
Wtd.
Avg.
Exercise
Price
2.85
8.35
4.39
62.18
236.53
110.86
No. of
Options
380,932
7,070
388,002
Wtd.
Avg.
Remaining
Life
Wtd.
Avg.
Exercise
Price
2.85
8.35
2.95
62.18
236.53
65.36
The intrinsic values of the stock option awards outstanding and exercisable at September 30, 2022 were zero.
Restricted share-based awards
Restricted share-based award activity (including restricted stock units and deferred stock units) was as follows:
Awards outstanding at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. of
Shares
375,825
248,573
(246,846)
(56,977)
320,575
Wtd. Avg.
Grant Date
Fair Value
per Share
124.50
109.10
75.38
165.01
143.19
At September 30, 2022, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested restricted
share units not yet recognized was $10.0, which is expected to be recognized over a weighted-average period of 1.7 years. The
total fair value of restricted stock units and deferred stock units vested was $28.2, $41.8 and $15.2 during fiscal 2022, fiscal
2021 and fiscal 2020, respectively.
Performance-based awards
Performance-based award activity was as follows (based on target award amounts):
Awards outstanding at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a)
Vested at a weighted average of 228% of the target performance share units granted.
No. of
Units
572,557
105,756
(533,441)
(31,616)
113,256
Wtd. Avg.
Grant Date
Fair Value
per Unit
95.09
132.74
93.22
124.15
130.94
At September 30, 2022, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested
performance-based units not yet recognized was $3.6, which is expected to be recognized over a weighted-average period of 2.1
years. The total fair value of performance-based units vested was $182.5, $11.9, and $3.9 during fiscal 2022, fiscal 2021, and
fiscal 2020, respectively.
94
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 14. EARNINGS PER COMMON SHARE
The following table presents information necessary to calculate basic and diluted income per Common Share.
Year Ended September 30,
2022
2021
2020
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . .
(437.5) $
517.3 $
—
(0.9)
Income (loss) attributable to controlling interest from continuing operations
(437.5)
516.4
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . .
Net income (loss) attributable to controlling interest . . . . . . . . . . . . . . . . . . . $
Basic income (loss) per common share:
Weighted-average common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share:
Weighted-average common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of common shares
outstanding and dilutive potential common shares . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . $
—
(3.9)
(437.5) $
512.5 $
55.5
(7.88) $
—
(7.88) $
55.5
—
55.5
(7.88) $
—
(7.88) $
55.7
9.27 $
(0.07)
9.20 $
55.7
1.5
57.2
9.03 $
(0.07)
8.96 $
386.9
(1.2)
385.7
1.7
387.4
55.7
6.92
0.04
6.96
55.7
1.2
56.9
6.78
0.03
6.81
Diluted average common shares used in the diluted loss per common share calculation for fiscal 2022 were 55.5 million,
which excluded potential Common Shares of 0.6 million because the effect of their inclusion would be anti-dilutive as the
Company incurred a net loss for fiscal 2022. Diluted average common shares used in the diluted income per common share
calculation were 57.2 million and 56.9 million for fiscal 2021 and fiscal 2020, respectively, which included dilutive potential
Common Shares of 1.5 million and 1.2 million, respectively.
Stock options with exercise prices greater than the average market price of the underlying Common Shares are excluded
from the computation of diluted income per common share because they are out-of-the-money and the effect of their inclusion
would be anti-dilutive. For fiscal 2022 and fiscal 2021, the average number of out-of-the money options was 0.2 million and
0.1 million, respectively. There were no out-of-the-money options for fiscal 2020.
95
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 15. INCOME TAXES
The provision (benefit) for income taxes allocated to continuing operations consisted of the following:
Year Ended September 30,
2022
2021
2020
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) from continuing operations . . . . . . . . . . . . . . . $
22.8 $
9.3
8.7
40.8
(125.5)
(23.3)
(12.6)
(161.4)
(120.6) $
113.7 $
31.6
2.7
148.0
9.1
1.5
1.2
11.8
159.8 $
104.3
25.3
0.3
129.9
(1.6)
(2.0)
(2.6)
(6.2)
123.7
The domestic and foreign components of income (loss) from continuing operations before income taxes were as follows:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . . . . . . . . . . $
(427.3) $
(130.8)
(558.1) $
670.2 $
6.9
677.1 $
483.7
26.9
510.6
A reconciliation of the federal corporate income tax rate and the effective tax rate on income (loss) from continuing
operations before income taxes is summarized below:
Year Ended September 30,
2022
2021
2020
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of other permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and Experimentation and other federal tax credits . . . . . . . . . . . . .
Effect of tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2022
2021
2020
21.0 %
(2.5)
2.6
2.8
0.2
(1.8)
(0.7)
21.6 %
21.0 %
21.0 %
(0.1)
3.9
(1.1)
(0.2)
—
0.1
(0.7)
3.5
—
(0.3)
0.1
0.6
23.6 %
24.2 %
During fiscal 2022, the Company recognized non-cash, pre-tax goodwill and intangible asset impairment charges of
$668.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The tax impact of the
impairment charges was a benefit of $148.3, which is net of the impact of non-deductible goodwill of $18.8, for fiscal 2022 and
was recorded in the “Income tax expense (benefit) from continuing operations” line in the Consolidated Statements of
Operations. The tax impact of non-deductible goodwill was considered a discrete item because the Company has no remaining
non-deductible goodwill. This discrete item, which is included in the “Effect of foreign operations” line in the table above,
decreased the fiscal 2022 effective tax rate by approximately 340 bps because the Company incurred a net loss during this
period. Additionally, excess tax benefits related to share-based compensation, which are included in the “Effect of other
permanent differences” line in the table above, increased the fiscal 2022 effective tax rate by approximately 260 bps.
96
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and
liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets
and liabilities were as follows:
DEFERRED TAX ASSETS
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAX LIABILITIES
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside basis difference in equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2022
2021
80.8 $
70.7
60.8
43.2
25.3
21.7
15.0
8.7
12.5
338.7
(40.7)
298.0
—
(68.6)
(65.8)
(14.8)
(10.5)
(3.3)
(163.0)
135.0 $
65.6
71.0
—
16.8
—
14.2
14.9
8.5
5.0
196.0
(32.3)
163.7
(73.3)
(69.6)
(55.8)
(7.2)
—
(5.6)
(211.5)
(47.8)
At September 30, 2022, after netting by taxing jurisdiction, net deferred tax assets of $143.5 were recorded in the “Other
assets” line in the Consolidated Balance Sheets, and net deferred tax liabilities of $8.5 were recorded in the “Other liabilities”
line in the Consolidated Balance Sheets. At September 30, 2021, net deferred tax liabilities were $47.8 and were recorded in
the “Other liabilities” line in the Consolidated Balance Sheets. The change in the net deferred tax balance was primarily driven
by deferred tax assets recorded during fiscal 2022 associated with goodwill and intangible asset impairment charges and
unrealized losses on convertible debt investments.
GAAP requires that a valuation allowance be recorded against a deferred tax asset if it is more likely than not that the tax
benefit associated with the asset will not be realized in the future. As shown in the table above, valuation allowances were
recorded against $40.7 and $32.3 of deferred tax assets as of September 30, 2022 and 2021, respectively. Most of these
valuation allowances relate to certain credits and net operating losses (“NOLs”), as explained further below.
Deferred tax assets related to foreign tax credits were $15.0 and $14.9 at September 30, 2022 and 2021, respectively. A
full valuation allowance has been established against these foreign tax credits at September 30, 2022 as the Company does not
expect to utilize them prior to their expiration. Tax benefits associated with state tax credits will also expire if not utilized and
amounted to $1.4 at September 30, 2022 and 2021. A valuation allowance in the amount of $1.2 has been established at
September 30, 2022 related to state credits the Company does not expect to utilize.
Deferred tax assets related to certain federal NOLs subject to limitation under IRC §382 from current and prior ownership
changes were $10.7 and $10.8 at September 30, 2022 and 2021, respectively. These NOLs will be subject to expiration
gradually from fiscal year end 2023 through fiscal year end 2032. The Company determined that $10.5 of these deferred tax
assets will expire unutilized due to the closing of statutes of limitation and has established a valuation allowance accordingly at
September 30, 2022.
Deferred tax assets related to foreign NOLs of certain controlled foreign corporations were $3.7 and $1.8 as of
September 30, 2022 and 2021, respectively. Due to a history of losses in some of these entities, a valuation allowance has been
97
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
established against $2.9 of these deferred tax assets at September 30, 2022. A valuation allowance has also been established
against deferred tax assets related to other foreign items of $6.3 at September 30, 2022.
Deferred tax assets related to state NOLs were $7.3 and $1.7 as of September 30, 2022 and 2021, respectively, with
carryforward periods ranging from 5 to 20 years. Any losses not utilized within a specific state’s carryforward period will
expire. A valuation allowance was recorded against $4.8 of these deferred tax assets as of September 30, 2022 for state NOLs
that the Company does not expect to realize within their respective carryforward periods.
As of September 30, 2022, the Company maintains its assertions of indefinite reinvestment of the earnings of all material
foreign subsidiaries.
The Company had $35.8, $24.1 and $30.2 of gross unrecognized tax benefits related to uncertain tax positions at
September 30, 2022, 2021 and 2020, respectively. Of these amounts, $0.2, $0.2 and $6.4 of gross unrecognized tax benefits are
related to discontinued operations at September 30, 2022, 2021 and 2020, respectively. Included in the September 30, 2022,
2021 and 2020 balances were $31.5, $19.9 and $25.9, respectively, of unrecognized tax benefits that, if recognized, would have
an impact on the effective tax rate.
A reconciliation of the unrecognized tax benefits is as follows:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions of the current year . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statutes of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2022
2021
2020
24.1 $
11.3
2.2
(2.5)
1.3
(0.6)
35.8 $
30.2 $
0.3
6.1
(5.9)
0.2
(6.8)
24.1 $
29.5
0.3
4.5
(2.4)
0.3
(2.0)
30.2
The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component
of the provision for income taxes. As of September 30, 2022, 2021 and 2020, the Company had $3.2, $2.7 and $2.8,
respectively, accrued for the payment of interest that, if recognized, would impact the effective tax rate. The Company had $1.6
accrued for the payment of penalties as of September 30, 2022, 2021 and 2020.
Scotts Miracle-Gro or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state,
local and foreign jurisdictions. Subject to the following exceptions, the Company is no longer subject to examination by these
tax authorities for fiscal years prior to 2019. There are currently no ongoing audits with respect to the U.S. federal jurisdiction.
With respect to the foreign jurisdictions, a German audit covering fiscal years 2014 through 2017 is in process. The Company
is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2017
through 2020. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous
years remain unresolved.
The Company currently anticipates that few of its open and active audits will be resolved within the next twelve months.
The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may
occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such
examinations are subject to significant uncertainty, the Company does not anticipate that the resolution of these tax matters or
any events related thereto will result in a material change to its consolidated financial position, results of operations or cash
flows.
The Inflation Reduction Act (the “Act”) was signed into law on August 16, 2022. The Act introduces a new 15%
corporate minimum tax for certain large corporations that becomes effective for the Company’s fiscal year 2024 and it imposes
a 1% excise tax on the value of share repurchases, net of new share issuances, after December 31, 2022. These provisions, as
well as the other corporate tax changes included in the Act, are not expected to have a material impact on the Company’s
financial statements.
98
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity
prices. To manage a portion of the volatility related to these exposures, the Company enters into various financial transactions.
The utilization of these financial transactions is governed by policies covering acceptable counterparty exposure, instrument
types and other hedging practices. The Company does not hold or issue derivative financial instruments for speculative trading
purposes.
Exchange Rate Risk Management
The Company uses currency forward contracts to manage the exchange rate risk associated with intercompany loans and
certain other balances denominated in foreign currencies. Currency forward contracts are valued using observable forward rates
in commonly quoted intervals for the full term of the contracts. The notional amount of outstanding currency forward contracts
was $178.6 and $180.3 at September 30, 2022 and 2021, respectively. Contracts outstanding at September 30, 2022 will
mature over the next fiscal quarter.
Interest Rate Risk Management
The Company enters into interest rate swap agreements as a means to hedge its variable interest rate risk on debt
instruments. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense.
The Company has outstanding interest rate swap agreements with major financial institutions that effectively convert a portion
of the Company’s variable-rate debt to a fixed rate. Interest rate swap agreements are valued based on the present value of the
estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Swap agreements that
were hedging interest payments as of September 30, 2022 and 2021 had a maximum total U.S. dollar equivalent notional
amount of $800.0 and $600.0, respectively. Refer to “NOTE 12. DEBT” for the terms of the swap agreements outstanding at
September 30, 2022. Included in the AOCL balance at September 30, 2022 was a gain of $9.7 related to interest rate swap
agreements that is expected to be reclassified to earnings during the next twelve months, consistent with the timing of the
underlying hedged transactions.
Commodity Price Risk Management
The Company enters into hedging arrangements designed to fix the price of a portion of its projected future urea and
diesel requirements. Commodity contracts are valued using observable commodity exchange prices in active markets.
Included in the AOCL balance at September 30, 2022 was a gain of $9.5 related to commodity hedges that is expected to be
reclassified to earnings during the next twelve months, consistent with the timing of the underlying hedged transactions.
The Company had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:
Commodity
Urea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heating Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,000 tons
94,500 tons
3,150,000 gallons
1,218,000 gallons
5,880,000 gallons
2,268,000 gallons
September 30,
2022
2021
99
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Fair Values of Derivative Instruments
The fair values of the Company’s derivative instruments, which represent Level 2 fair value measurements, were as
follows:
Assets / (Liabilities)
2022
2021
Derivatives Designated as Hedging Instruments
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . Prepaid and other current assets . . . $
Balance Sheet Location
Fair Value
12.8 $
Other liabilities . . . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . Prepaid and other current assets . . .
Other assets . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . .
18.2
—
—
2.4
Total derivatives designated as hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33.4 $
Derivatives Not Designated as Hedging Instruments
Currency forward contracts . . . . . . . . . . . . . . . . . . . . Prepaid and other current assets . . . $
Balance Sheet Location
Other current liabilities . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . Prepaid and other current assets . . .
Total derivatives not designated as hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . .
Total derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.4 $
—
0.4
3.8
37.2 $
—
3.3
(5.7)
(2.5)
13.9
9.0
3.4
(0.2)
1.3
4.5
13.5
The effect of derivative instruments on AOCL, net of tax, and the Consolidated Statements of Operations for the years
ended September 30 was as follows:
Derivatives in Cash Flow Hedging Relationships
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commodity hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Gain / (Loss)
Recognized in AOCL
2022
2021
24.1 $
5.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
29.9 $
Amount of Gain / (Loss)
2022
2021
(2.1) $
8.9
6.8 $
Amount of Gain / (Loss)
2022
2021
17.9 $
10.5
28.4 $
Reclassified from AOCL into
Derivatives in Cash Flow Hedging Relationships
Interest rate swap agreements . . . . . . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . $
Statement of Operations
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives Not Designated as Hedging Instruments
Currency forward contracts . . . . . . . . . . . . . . . . . . . . Other income / expense, net . . . . . . $
Commodity hedging instruments . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . .
Statement of Operations
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Recognized in
100
3.4
16.4
19.8
(7.7)
2.3
(5.4)
(4.2)
4.5
0.3
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 17. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy
requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of
inputs used to measure fair value are as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
The following describes the valuation methodologies used for financial assets and liabilities measured or disclosed at fair
value on a recurring basis, as well as the general classification within the valuation hierarchy.
Cash Equivalents
Cash equivalents consist of highly liquid financial instruments with original maturities of three months or less. The
carrying value of these cash equivalents approximates fair value due to their short-term maturities.
Other
Investment securities in non-qualified retirement plan assets are valued using observable market prices in active markets.
Loans receivable are carried at outstanding principal amount. The estimated fair value is determined using an income-based
approach, which includes market participant expectations of cash flows over the remaining useful life discounted to present
value using an appropriate discount rate. The estimate requires subjective assumptions to be made, including those related to
credit risk and discount rates.
The fair values of convertible debt investments are determined using scenario-based internally developed valuation
models that consider a probability-weighted assessment of possible future cash flows related to the debt component and the
conversion component of the instruments, discounted to present value using an appropriate discount rate. The probability of
amendments to federal laws in the United States to allow for the general cultivation, distribution, and possession of cannabis,
and the impact of such amendments on the value of the underlying investments are important assumptions in the fair value
estimates. The valuation models and related assumptions require significant judgment. These and other assumptions are
impacted by economic conditions and expectations of management and may change in the future based on period specific facts
and circumstances.
Debt Instruments
Debt instruments are recorded at cost. The interest rate on borrowings under the Sixth A&R Credit Agreement fluctuates
in accordance with the terms of the Sixth A&R Credit Agreement and thus the carrying value is a reasonable estimate of fair
value. The fair values of the 4.000% Senior Notes, 4.375% Senior Notes, 4.500% Senior Notes and 5.250% Senior Notes are
determined based on quoted market prices. The interest rate on the short-term debt associated with accounts receivable pledged
under the Receivables Facility fluctuates in accordance with the terms of the Receivables Facility and thus the carrying value is
a reasonable estimate of fair value.
101
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following table summarizes the fair value of the Company’s assets and liabilities for which disclosure of fair value is
required:
Assets
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
2022
2021
Fair Value
Hierarchy Level
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Level 1
$
64.3 $
64.3 $
222.5 $
222.5
Investment securities in non-qualified retirement plan
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt investments . . . . . . . . . . . . . . . . . . . . . .
Level 1
Level 3
Level 3
38.4
32.8
117.0
38.4
32.8
117.0
45.0
35.8
190.3
45.0
35.8
190.3
Liabilities
Debt instruments
Credit facilities – revolving loans . . . . . . . . . . . . . . . . . . .
Credit facilities – term loans . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes due 2031 – 4.000% . . . . . . . . . . . . . . . . . . .
Senior Notes due 2032 – 4.375% . . . . . . . . . . . . . . . . . . .
Senior Notes due 2029 – 4.500% . . . . . . . . . . . . . . . . . . .
Senior Notes due 2026 – 5.250% . . . . . . . . . . . . . . . . . . .
Receivables facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
300.5
975.0
500.0
400.0
450.0
250.0
75.0
12.7
300.5
975.0
350.6
284.0
325.7
230.0
75.0
12.7
—
670.0
500.0
400.0
450.0
250.0
—
11.9
—
670.0
498.8
402.0
466.9
258.1
—
11.9
Changes in balances of Level 3 convertible debt investments carried at fair value are presented below. There were no
transfers into or out of Level 3.
Fair value at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized / unrealized gains included in net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized / unrealized losses included in OCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
190.3 $
25.0
3.7
(102.0) $
117.0 $
—
193.1
0.3
(3.1)
190.3
Year Ended September 30,
2022
2021
The amortized cost basis of convertible debt investments was $222.1 and $193.4 at September 30, 2022 and 2021,
respectively. At September 30, 2022 and 2021, gross unrealized losses on convertible debt investments were $105.1 and $3.1,
respectively, and there were no gross unrealized gains. These investments have been in a continuous unrealized loss position
for greater than 12 months as of September 30, 2022. The decline in fair value of the convertible debt investments is related to
a decline in the value of the underlying conversion options and is not reflective of a credit risk associated with the notes. The
Company believes it will recover its cost basis in the convertible debt securities and that the Company has the ability to hold the
securities until they recover in value and had no intent to sell or convert them at September 30, 2022.
102
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
NOTE 18. LEASES
The Company leases certain property and equipment from third parties under various non-cancelable lease agreements,
including industrial, commercial and office properties and equipment that support the management, manufacturing, distribution
and research and development of products marketed and sold by the Company. The lease agreements generally require that the
Company pay taxes, insurance and maintenance expenses related to the leased assets. At September 30, 2022, the Company
had entered into operating leases that were yet to commence with a combined total expected lease liability of $49.8. From time
to time, the Company will sublease portions of its facilities, resulting in sublease income. Sublease income and the related cash
flows were not material to the consolidated financial statements for fiscal 2022.
The Company leases certain vehicles (primarily cars and light trucks) under agreements that are cancellable after the first
year, but typically continue on a month-to-month basis until canceled by the Company. The vehicle leases and certain other
non-cancelable operating leases contain residual value guarantees that create a contingent obligation on the part of the Company
to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the
conclusion of the lease term. If all such vehicle leases had been canceled as of September 30, 2022, the Company’s residual
value guarantee would have approximated $3.9.
Supplemental balance sheet information related to the Company’s leases was as follows:
Operating leases:
Right-of-use assets . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . $
288.9 $
293.0
Balance Sheet Location
September 30, 2022
September 30, 2021
Current lease liabilities . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . .
Non-current lease liabilities . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . .
76.2
223.2
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
299.4 $
Finance leases:
Right-of-use assets . . . . . . . . . . . . . . . . . . Property, plant and equipment, net . . . $
26.4 $
Current lease liabilities . . . . . . . . . . . . . . . Current portion of debt . . . . . . . . . . . .
Non-current lease liabilities . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . .
6.4
22.5
Total finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
28.9 $
Components of lease cost were as follows:
Operating lease cost (a)
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance lease cost
Amortization of right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total finance lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
86.7 $
35.9
6.4
1.2
7.6 $
Year Ended September 30,
2022
2021
66.4
234.4
300.8
31.3
5.9
27.5
33.4
70.3
29.4
6.0
1.4
7.4
(a)
Operating lease cost includes amortization of ROU assets of $75.3 and $62.3 for fiscal 2022 and fiscal 2021,
respectively. Short-term lease expense is excluded from operating lease cost and was $19.1 and $22.8 for fiscal 2022
and fiscal 2021, respectively.
103
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for lease obligations:
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2022
2021
83.9 $
1.2
5.9
71.9 $
1.5
66.9
1.4
5.3
200.0
2.6
Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:
Weighted-average remaining lease term (in years):
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate:
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2022
4.9
7.3
3.5 %
4.3 %
Maturities of lease liabilities by fiscal year for the Company’s leases as of September 30, 2022 were as follows:
Year
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Leases
Finance Leases
85.2 $
78.0
61.2
42.2
18.9
40.5
326.0
(26.6)
299.4 $
7.5
7.5
3.3
2.2
1.9
11.8
34.2
(5.3)
28.9
On September 21, 2022, the Company completed an asset sale-leaseback transaction relating to a facility in Vancouver,
Washington. The Company received proceeds of $44.7, net of selling costs, and the asset had a carrying value of $36.7,
resulting in a $8.0 gain on the transaction which was recorded in the “Impairment, restructuring and other” line in the
Consolidated Statements of Operations. The leaseback has a term of 3 years and is accounted for as an operating lease.
NOTE 19. COMMITMENTS
The Company has the following unconditional purchase obligations due during each of the next five fiscal years that have
not been recognized in the Consolidated Balance Sheet at September 30, 2022:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
547.2
358.6
201.1
147.7
128.8
84.8
1,468.2
104
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
Purchase obligations primarily represent commitments for materials used in the Company’s manufacturing processes,
including urea and packaging, as well as commitments for warehouse services, grass seed, marketing services and information
technology services.
NOTE 20. CONTINGENCIES
Management regularly evaluates the Company’s contingencies, including various judicial and administrative proceedings
and claims arising in the ordinary course of business, including product and general liabilities, workers’ compensation, property
losses and other liabilities for which the Company is self-insured or retains a high exposure limit. Self-insurance accruals are
established based on actuarial loss estimates for specific individual claims plus actuarially estimated amounts for incurred but
not reported claims and adverse development factors applied to existing claims. Legal costs incurred in connection with the
resolution of claims, lawsuits and other contingencies generally are expensed as incurred. In the opinion of management, the
assessment of contingencies is reasonable and related accruals, in the aggregate, are adequate; however, there can be no
assurance that final resolution of these matters will not have a material effect on the Company’s financial condition, results of
operations or cash flows.
Regulatory Matters
At September 30, 2022, $2.4 was accrued in the “Other liabilities” line in the Consolidated Balance Sheets for
environmental actions, the majority of which are for site remediation. The Company believes that the amounts accrued are
adequate to cover such known environmental exposures based on current facts and estimates of likely outcomes. Although it is
reasonably possible that the costs to resolve such known environmental exposures will exceed the amounts accrued, any
variation from accrued amounts is not expected to be material.
Other
The Company has been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from
exposure to asbestos-containing products, apparently based on the Company’s historic use of vermiculite in certain of its
products. In many of these cases, the complaints are not specific about the plaintiffs’ contacts with the Company or its
products. The cases vary, but complaints in these cases generally seek unspecified monetary damages (actual, compensatory,
consequential and punitive) from multiple defendants. The Company believes that the claims against it are without merit and is
vigorously defending against them. No accruals have been recorded in the Company’s consolidated financial statements as the
likelihood of a loss is not probable at this time; and the Company does not believe a reasonably possible loss would be material
to, nor does it expect the ultimate resolution of these cases will have a material adverse effect on, the Company’s financial
condition, results of operations or cash flows. There can be no assurance that future developments related to pending claims or
claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a
material effect on the Company’s financial condition, results of operations or cash flows.
The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims
individually and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of
operations or cash flows.
NOTE 21. SEGMENT INFORMATION
The Company divides its operations into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S.
Consumer consists of the Company’s consumer lawn and garden business in the United States. Hawthorne consists of the
Company’s indoor and hydroponic gardening business. Other primarily consists of the Company’s consumer lawn and garden
business outside the United States. This identification of reportable segments is consistent with how the segments report to and
are managed by the chief operating decision maker of the Company. In addition, Corporate consists of general and
administrative expenses and certain other income and expense items not allocated to the business segments.
The performance of each reportable segment is evaluated based on several factors, including income (loss) from
continuing operations before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit
(Loss)”). Senior management uses Segment Profit (Loss) to evaluate segment performance because the Company believes this
measure is indicative of performance trends and the overall earnings potential of each segment.
105
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following tables present financial information for the Company’s reportable segments for the periods indicated:
Year Ended September 30,
2022
2021
2020
Net Sales:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,928.8 $
3,197.7 $
716.2
279.1
1,424.2
303.1
2,883.5
1,023.1
225.0
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,924.1 $
4,925.0 $
4,131.6
Segment Profit (Loss):
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in income (loss) of unconsolidated affiliates . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
568.6 $
(21.1)
20.2
567.7
(112.4)
(37.1)
(852.2)
(12.9)
—
(118.1)
6.9
726.7 $
163.8
42.1
932.6
694.3
111.9
11.7
817.9
(149.7)
(183.4)
(30.9)
(29.0)
14.4
—
(78.9)
18.6
Income (loss) from continuing operations before income taxes . . . $
(558.1) $
677.1 $
Depreciation and amortization:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55.8 $
48.6 $
34.8
7.0
7.6
30.3
7.0
7.9
$
105.2 $
93.8 $
Capital expenditures:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
97.4 $
12.4
3.7
113.5 $
78.3 $
25.0
3.6
106.9 $
(32.5)
(16.8)
—
(15.1)
(79.6)
20.1
510.6
48.0
31.7
7.5
7.5
94.7
52.3
7.8
2.6
62.7
Total assets:
U.S. Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hawthorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,454.4 $
1,061.5
197.1
583.8
4,296.8 $
2,333.1
1,442.8
209.6
814.5
4,800.0
September 30,
2022
2021
106
Table of Contents
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in millions, except per share data)
The following table presents net sales by product category for the periods indicated:
Year Ended September 30,
2022
2021
2020
U.S. Consumer:
Growing media and mulch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Lawn care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roundup® marketing agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily gardening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,192.6 $
973.6
382.2
132.3
248.1
1,286.7 $
1,060.6
402.4
145.2
302.8
Hawthorne:
Lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nutrients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growing environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growing media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200.0
148.0
143.7
119.0
105.5
452.4
324.7
264.0
192.6
190.5
Other:
Growing media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawn care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily gardening and controls . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
96.6
92.9
89.6
3,924.1 $
116.7
99.2
87.2
4,925.0 $
1,164.0
943.3
383.7
132.7
259.8
328.7
250.1
154.2
148.9
141.2
90.6
73.7
60.7
4,131.6
The Company’s two largest customers accounted for the following percentages of net sales for the fiscal years ended
September 30:
Percentage of Net Sales
2022
2021
2020
Home Depot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lowe’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 %
15 %
24 %
15 %
26 %
18 %
Accounts receivable for these two largest customers as a percentage of consolidated accounts receivable were 46% and
42% as of September 30, 2022 and 2021, respectively.
The following table presents net sales by geographic area for the periods indicated:
Net sales:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2022
2021
2020
3,554.6 $
369.5
3,924.1 $
4,507.0 $
418.0
4,925.0 $
3,773.4
358.2
4,131.6
Other than the United States, no other country accounted for more than 10% of the Company’s net sales for any period
presented above.
The following table presents long-lived assets (property, plant and equipment and finite-lived intangibles) by geographic
area:
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
September 30,
2022
2021
753.3 $
109.0
862.3 $
868.8
139.1
1,007.9
107
Table of Contents
Column A
Classification
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2022
Column B
Column C
Column D
Column E
Column F
Balance
at
Beginning
of Period
Reserves
Acquired
Additions
Charged
to
Expense
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
(In millions)
Valuation and qualifying accounts deducted from the assets to
which they apply:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
16.8 $
32.3
— $
—
5.8 $
9.0
(8.2) $
(0.6)
14.4
40.7
Column A
Classification
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2021
Column B
Column C
Column D
Column E
Column F
Balance
at
Beginning
of Period
Reserves
Acquired
Additions
Charged
to
Expense
(In millions)
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
Valuation and qualifying accounts deducted from the assets to
which they apply:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
7.5 $
33.8
— $
—
11.1 $
3.0
(1.8) $
(4.5)
16.8
32.3
Column A
Classification
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2020
Column B
Column C
Column D
Column E
Column F
Balance
at
Beginning
of Period
Reserves
Acquired
Additions
Charged
to
Expense
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
(In millions)
Valuation and qualifying accounts deducted from the assets to
which they apply:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 $
35.8
— $
—
7.2 $
0.5
(3.9) $
(2.5)
7.5
33.8
108
Form Exhibit
8-K 3.1
Incorporated by Reference
Filing
Date
March 24,
2005
March 24,
2005
8-K 3.2
Filed
Herewith
8-K 3.3
8-K 4.1
Table of Contents
The Scotts Miracle-Gro Company
Index to Exhibits
Exhibit
No.
3.1(a)
3.1(b)
Description
Initial Articles of Incorporation of The Scotts Miracle-Gro Company
as filed with the Ohio Secretary of State on November 22, 2004
Certificate of Amendment by Shareholders to Articles of Incorporation
of The Scotts Miracle-Gro Company as filed with the Ohio Secretary
of State on March 18, 2005
3.2
Code of Regulations of The Scotts Miracle-Gro Company
4.1(a)
4.1(b)
4.1(c)
4.1(d)
4.1(e)
Indenture, dated as of December 15, 2016, by and among The Scotts
Miracle-Gro Company, the Guarantors (as defined therein) and U.S.
Bank National Association, as trustee
First Supplemental Indenture, dated July 17, 2018, by and among The
Scotts Miracle-Gro Company, the Guarantors (as defined therein) and
U.S. Bank National Association, as trustee
10-Q 10.4
Second Supplemental Indenture, dated March 24, 2020, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
Third Supplemental Indenture, dated March 29, 2021, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
Fourth Supplemental Indenture, dated June 24, 2021, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
10-Q 4.2
10-Q 4.2
10-Q 4.1
4.1(f)
Form of 5.250% Senior Notes due 2026 (included in Exhibit 4.1)
8-K 4.2
4.2(a)
4.2(b)
4.2(c)
4.2(d)
Indenture, dated as of October 22, 2019, by and among The Scotts
Miracle-Gro Company, the Guarantors (as defined therein) and U.S.
Bank National Association, as trustee
First Supplemental Indenture, dated March 24, 2020, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
Second Supplemental Indenture, dated March 29, 2021, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
Third Supplemental Indenture, dated June 24, 2021, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
8-K 4.1
10-Q 4.1
10-Q 4.3
10-Q 4.2
4.2(e)
Form of 4.500% Senior Notes due 2029 (included in Exhibit 4.1)
8-K 4.2
4.3(a)
4.3(b)
Indenture, dated as of March 17, 2021, by and among The Scotts
Miracle-Gro Company, the Guarantors (as defined therein) and U.S.
Bank National Association, as trustee
First Supplemental Indenture, dated as of June 24, 2021, by and among
The Scotts Miracle-Gro Company, the Guarantors (as defined therein)
and U.S. Bank National Association, as trustee
8-K 4.1
10-Q 4.3
4.3(c)
Form of 4.000% Senior Notes due 2031 (included in Exhibit 4.1)
8-K 4.2
4.4(a)
Indenture, dated as of August 13, 2021, by and among The Scotts
Miracle-Gro Company, the Guarantors (as defined therein) and U.S.
Bank National Association, as trustee
8-K 4.1
4.4(b)
Form of 4.375% Senior Notes due 2032 (included in Exhibit 4.1)
8-K 4.2
March 24,
2005
December
16, 2016
August 8,
2018
May 6,
2020
May 12,
2021
August 11,
2021
December
16, 2016
October
28, 2019
May 6,
2020
May 12,
2021
August 11,
2021
October
28, 2019
March 17,
2021
August 11,
2021
March 17,
2021
August 13,
2021
August 13,
2021
4.5
Agreement to furnish copies of instruments and agreements defining
rights of holders of long-term debt
X
109
Table of Contents
Exhibit
No.
4.6
10.1(a)(i)
10.1(a)(ii)
10.1(b)
10.2(a)†
10.2(b)†
10.3(a)†
10.3(b)†
10.3(c)†
10.3(d)†
10.3(e)(i)†
10.3(e)(ii)†
10.4(a)†
10.4(b)†
Description of Capital Stock
Description
Sixth Amended and Restated Credit Agreement, dated as of April 8,
2022, by and among The Scotts Miracle-Gro Company, as a Borrower;
the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank,
N.A., as Administrative Agent; Wells Fargo Bank, National
Association, Mizuho Bank, Ltd. and Bank of America, N.A., as Co-
Syndication Agents; CoBank, ACB, Fifth Third Bank, National
Association, Coöperatieve Rabobank U.A., New York Branch,
Sumitomo Mitsui Banking Corporation, TD Bank N.A. and Truist
Bank, as Co-Documentation Agents; and the several other banks and
other financial institutions from time to time parties thereto
Amendment No. 1, dated June 8, 2022, to Sixth Amended and
Restated Credit Agreement, dated as of April 8, 2022, by and among
The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary
Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as
Administrative Agent; Wells Fargo Bank, National Association,
Mizuho Bank, Ltd. and Bank of America, N.A., as Co-Syndication
Agents; CoBank, ACB, Fifth Third Bank, National Association,
Coöperatieve Rabobank U.A., New York Branch, Sumitomo Mitsui
Banking Corporation, TD Bank N.A. and Truist Bank, as Co-
Documentation Agents; and the several other banks and other financial
institutions from time to time parties thereto
Sixth Amended and Restated Guarantee and Collateral Agreement,
dated as of April 8, 2022, made by The Scotts Miracle-Gro Company,
each domestic Subsidiary Borrower under the Sixth Amended and
Restated Credit Agreement, and certain of its and their domestic
subsidiaries, in favor of JPMorgan Chase Bank, N.A., as
Administrative Agent
The Scotts Miracle-Gro Company Long-Term Incentive Plan (reflects
amendment and restatement of plan formerly known as The Scotts
Miracle-Gro Company 2006 Long-Term Incentive Plan) [January 17,
2013 through January 26, 2017 version]
Form of Nonqualified Stock Option Award Agreement for Employees
used to evidence grants made under The Scotts Miracle-Gro Company
Long-Term Incentive Plan [January 17, 2013 through January 26,
2017 version]
The Scotts Miracle-Gro Company Long-Term Incentive Plan [January
27, 2017 through January 23, 2022 version]
Form of Standard Restricted Stock Unit Award Agreement which may
be made under The Scotts Miracle-Gro Company Long-Term
Incentive Plan [January 27, 2017 through January 23, 2022 version]
Form of Standard Non-Qualified Stock Option Award Agreement
which may be made under The Scotts Miracle-Gro Company Long-
Term Incentive Plan
Form of Deferred Stock Unit Award Agreement for Nonemployee
Directors Retainer Deferrals (with Related Dividend Equivalents) used
to evidence grants which may be made under The Scotts Miracle-Gro
Company Long-Term Incentive Plan
Form of Restricted Stock Unit Award Agreement for Third Party
Service-Providers (with Related Dividend Equivalents) which may be
used to evidence grants made under The Scotts Miracle-Gro Company
Long-Term Incentive Plan
Form of Standard Restricted Stock Unit Award Agreement for
Nonemployee Directors (with Related Dividend Equivalents) used to
evidence grants which may be made under The Scotts Miracle-Gro
Company Long-Term Incentive Plan
The Scotts Miracle-Gro Company Long-Term Incentive Plan
(effective January 24, 2022)
Form of Standard Performance Unit Award Agreement which may be
made under The Scotts Miracle-Gro Long-Term Incentive Plan
110
Form Exhibit
10-K 4.4
Incorporated by Reference
Filing
Date
November
27, 2019
April 14,
2022
8-K 10.1
Filed
Herewith
8-K 10.1
June 8,
2022
8-K 10.2
April 14,
2022
8-K 10.1
January 24,
2013
10-Q 10.7
May 7,
2015
8-K 10.1
8-K 10.4
8-K 10.5
10-K 10.3(g)
January 30,
2017
January 30,
2017
January 30,
2017
November
29, 2018
10-K 10.3(h)(i)
November
29, 2018
10-K 10.3(h)(iii) November
24, 2020
8-K 10.1
January 27,
2022
X
Table of Contents
Exhibit
No.
10.4(c)†
10.5(a)†
10.5(b)†
10.6†
10.7(a)†
10.7(b)†
10.8†
10.9(a)†
10.9(b)†
10.10(a)†
10.10(b)†
10.11
10.12
10.13(a)
10.13(b)
10.13(c)
10.13(d)
10.13(e)
10.14(a)
Description
Form of Standard Restricted Stock Unit Award Agreement which may
be made under The Scotts Miracle-Gro Company Long-Term
Incentive Plan
The Scotts Company LLC Amended and Restated Executive Incentive
Plan (effective as of October 1, 2019)
Form of Employee Confidentiality, Noncompetition, Nonsolicitation
Agreement for employees participating in The Scotts Company LLC
Executive/Management Incentive Plan (now known as The Scotts
Company LLC Amended and Restated Executive Incentive Plan)
The Scotts Company LLC Executive Retirement Plan, as Amended
and Restated as of January 1, 2015 (executed December 31, 2014)
Employee Confidentiality, Noncompetition, Nonsolicitation
Agreement, dated as of December 12, 2013, by and between The
Scotts Company LLC, all companies controlled by, controlling or
under common control with The Scotts Company LLC, and James
Hagedorn
Executive Severance Agreement, dated as of December 11, 2013, by
and between The Scotts Company LLC and James Hagedorn
Summary of Compensation for Nonemployee Directors of The Scotts
Miracle-Gro Company (effective as of January 24, 2022)
Consulting Agreement, dated February 15, 2021, between The Scotts
Company LLC and Hanft Ideas LLC
Consulting Agreement, dated February 8, 2022, between The Scotts
Company LLC and Hanft Ideas LLC
The Scotts Company LLC Executive Severance Plan, adopted on April
25, 2017
Form of Tier 1 Participation Agreement under The Scotts Company
LLC Executive Severance Plan
Third Amended and Restated Exclusive Agency and Marketing
Agreement, entered into on July 29, 2019 and effective as of August 1,
2019, between Monsanto Company and The Scotts Company LLC
Brand Extension Agreement Asset Purchase Agreement, entered into
on July 29, 2019 and effective as of August 1, 2019, between
Monsanto Company and The Scotts Company LLC
Master Repurchase Agreement, and Annex I thereto, with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of April 7, 2017
Amendment No. 1 to Master Repurchase Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 24, 2018
Amendment No. 2 to Master Repurchase Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 21, 2020
Amendment No. 3 to Master Repurchase Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 20, 2021
Amendment No. 4 to Master Repurchase Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 19, 2022
Master Framework Agreement with Coöperatieve Rabobank, U.A.
(New York Branch), as agent and purchaser, and Sumitomo Mitsui
Banking Corporation (New York Branch), as purchaser, dated as of
April 7, 2017
111
Incorporated by Reference
Filing
Date
February 9,
2022
Form Exhibit
10-Q 10.2
Filed
Herewith
10-Q 10
10-Q 10.1
10-Q 10.2
8-K 10.2
August 5,
2020
August 10,
2006
February 5,
2015
December
17, 2013
8-K 10.1
December
17, 2013
X
10-Q 10.3
10-Q 10.2
10-Q 10.9
10-Q 10.10
8-K 10.2
8-K 10.4
8-K 10.1
8-K 10.1
8-K 10.1
8-K 10.1
8-K 10.1
May 12,
2021
May 11,
2022
May 10,
2017
May 10,
2017
July 31,
2019
July 31,
2019
April 13,
2017
August 24,
2018
August 25,
2020
August 20,
2021
August 23,
2022
8-K 10.2
April 13,
2017
Incorporated by Reference
Filing
Date
August 31,
2017
Form Exhibit
8-K 10.1
Filed
Herewith
Table of Contents
Exhibit
No.
10.14(b)
10.14(c)
10.14(d)
10.14(e)
10.14(f)
10.14(g)
Description
Amendment No. 1 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 25, 2017
Amendment No. 2 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 24, 2018
Amendment No. 3 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 23, 2019
Amendment No. 4 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 21, 2020
Amendment No. 5 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 20, 2021
Amendment No. 6 to Master Framework Agreement with
Coöperatieve Rabobank, U.A. (New York Branch), as agent and
purchaser, and Sumitomo Mitsui Banking Corporation (New York
Branch), as purchaser, dated as of August 19, 2022
8-K 10.2
8-K 10.1
8-K 10.2
8-K 10.2
8-K 10.2
10.15
Form of Aircraft Time Sharing Agreement for Executive Officers
10-Q 10.4
10.16†
10.17†
10.18†
21
22
23
24
31.1
31.2
32
101.SCH
101.CAL
101.DEF
Retention Agreement, dated August 22, 2018, by and between The
Scotts Company LLC and Denise S. Stump
Separation Agreement and Release of All Claims, effective as of
January 22, 2021, by and between The Scotts Company LLC and
Thomas Randal Coleman
Separation Agreement and Release of All Claims, effective as of
October 4, 2022, by and between The Scotts Company LLC and Cory
J. Miller
8-K 10.3
8-K 10.1
8-K 10.1
Subsidiaries of The Scotts Miracle-Gro Company
Guarantor Subsidiaries
Consent of Independent Registered Public Accounting Firm —
Deloitte & Touche LLP
Powers of Attorney of Executive Officers and Directors of The Scotts
Miracle-Gro Company
Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)
Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)
Section 1350 Certifications (Principal Executive Officer and Principal
Financial Officer)
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
104
XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
†
Management contract, compensatory plan or arrangement.
112
August 24,
2018
August 20,
2019
August 25,
2020
August 20,
2021
August 23,
2022
May 11,
2016
August 24,
2018
January 28,
2021
October 4,
2022
X
X
X
X
X
X
X
X
X
X
X
X
X
I, James Hagedorn, certify that:
Rule 13a-14(a)/15d-14(a) Certifications
(Principal Executive Officer)
CERTIFICATIONS
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K of The Scotts Miracle-Gro Company for the fiscal year ended
September 30, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: November 28, 2022
By:
/s/ JAMES HAGEDORN
Printed Name: James Hagedorn
Title: Chief Executive Officer and
Chairman of the Board
I, David C. Evans, certify that:
Rule 13a-14(a)/15d-14(a) Certifications
(Principal Financial Officer)
CERTIFICATIONS
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K of The Scotts Miracle-Gro Company for the fiscal year ended
September 30, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: November 28, 2022
By:
/s/ DAVID C. EVANS
Printed Name: David C. Evans
Title: Interim Chief Financial Officer
SECTION 1350 CERTIFICATIONS*
Exhibit 32
In connection with the Annual Report on Form 10-K of The Scotts Miracle-Gro Company (the “Company”) for the fiscal year
ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned James Hagedorn, Chief Executive Officer and Chairman of the Board of the Company, and David C. Evans,
Executive Vice President and Interim Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
their knowledge:
1)
2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition
and results of operations of the Company and its subsidiaries.
/s/ JAMES HAGEDORN
Printed Name: James Hagedorn
Title: Chief Executive Officer and Chairman of the
Board
/s/ DAVID C. EVANS
Printed Name: David C. Evans
Title: Interim Chief Financial Officer
November 28, 2022
November 28, 2022
*
THESE CERTIFICATIONS ARE BEING FURNISHED AS REQUIRED BY RULE 13a-14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (THE “EXCHANGE ACT”) AND SECTION 1350 OF CHAPTER 63 OF
TITLE 18 OF THE UNITED STATES CODE, AND SHALL NOT BE DEEMED “FILED” FOR PURPOSES OF
SECTION 18 OF THE EXCHANGE ACT OR OTHERWISE SUBJECT TO THE LIABILITY OF THAT SECTION.
THESE CERTIFICATIONS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT
THAT THE COMPANY SPECIFICALLY INCORPORATES THESE CERTIFICATIONS BY REFERENCE.