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What changed in SCOTTS MIRACLE-GRO CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SCOTTS MIRACLE-GRO CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+403 added−397 removedSource: 10-K (2023-11-22) vs 10-K (2022-11-28)

Top changes in SCOTTS MIRACLE-GRO CO's 2023 10-K

403 paragraphs added · 397 removed · 283 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

52 edited+9 added−16 removed42 unchanged
Biggest changeEffective 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.
Biggest changeEffective August 1, 2019, we entered into the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”) pursuant to which 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.
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.
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 consumer lawn and garden industry.
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.
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, any of 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.
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.
Content is selected by associates and updated frequently to align to the development needs of our associates and address trending topics. Our 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.
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 and indoor gardening focused growing media and nutrients products are marketed under the Mother Earth ® , Botanicare ® , General Hydroponics ® and Cyco ® brand names as well as brands owned by third parties for which we serve as distributor.
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
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.
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.
Our utility patents provide protection generally extending to 20 years from the date of filing, and some 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.
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.
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 and Scotts Associates for a Greener Earth.
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.
Our Hawthorne segment is also impacted by seasonal sales 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.
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.
We use an EHS scorecard composed of leading and lagging indicators to evaluate our health and safety performance including 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.
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.
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 (“U.S.”) and certain other specified countries. In addition, we have an equity interest in Bonnie Plants, LLC, a joint venture with Alabama Farmers Cooperative, Inc.
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.
In some locations, these facilities have been required to create water retention ponds to control the sediment content of discharged water. In addition, in 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.
Financial information about these segments for each of the three fiscal years ended September 30, 2022, 2021 and 2020 is presented in “NOTE 21.
Financial information about these segments for each of the three fiscal years ended September 30, 2023, 2022 and 2021 is presented in “NOTE 21.
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.
The expansion of our business may expand 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.
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 further manage health and safety risks, we develop compliance calendars that highlight dates for health and safety inspections and deadlines to meet voluntary and regulatory requirements.
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.
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 in Canada.
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.
Included within these numbers, during fiscal 2023, we employed a total of approximately 2,500 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.
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 HydroLogic TM brand names as well as brands owned by third parties for which we serve as distributor.
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 ® , Gro Pro ® , AeroGarden ® and HydroLogic Purification System ® brand names as well as brands owned by third parties for which we serve as distributor.
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.
SEGMENT INFORMATION” of the Notes to Consolidated Financial Statements included in this Form 10-K. 4 Table of Contents Competitive Marketplace The markets in which we sell our products are highly competitive.
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.
We maintain a Supplier Code of Conduct that establishes the minimum standards that suppliers must satisfy to sell goods to or do business with the Company. Further ESG initiatives in fiscal 2023 included responding to the Carbon Disclosure Project’s climate questionnaire and completing the S&P Corporate Sustainability Assessment.
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.
We provide a variety of learning tools and experiences to our associates to help them embrace a growth mindset that leads to higher levels of achievement and personal satisfaction.
ITEM 1. BUSINESS Company Description and Development of the Business 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.
ITEM 1. BUSINESS Company Description and Development of the Business 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,” “our” or “us”), including general developments in our business during fiscal 2023.
Our key brands include General Hydroponics ® , Gavita ® , Botanicare ® , Agrolux ® , Can-Filters ® , Gro Pro ® , Mother Earth ® , Hurricane ® , Grower’s Edge ® , HydroLogic TM and Cyco ® . Scotts Miracle-Gro traces its heritage to a company founded by O.M. Scott in Marysville, Ohio in 1868.
Our key brands include General Hydroponics ® , Gavita ® , Botanicare ® , Agrolux ® , Gro Pro ® , Mother Earth ® , Grower’s Edge ® , HydroLogic Purification System ® and Cyco ® . Scotts Miracle-Gro traces its heritage to a company founded by O.M. Scott in Marysville, Ohio in 1868.
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.
The organization has embraced the scalable flexibility of the platform, and in doing so, has implemented other modules that integrate cohesively. 7 Table of Contents Environmental, Social and Governance Our stakeholders, including shareholders, customers, suppliers, associates, communities as well as the environment and society, are essential to our business.
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.
Spending on research and development was $35.7 million, $45.3 million and $45.4 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, including product registration costs of $12.4 million, $13.0 million and $12.3 million, respectively.
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.
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.
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.
All associates and business partners, including contractors, are covered by our EHS management system. Our associates are encouraged to participate in safety committees to spur associate engagement with safety on a local and national level.
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.
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 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.
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”). Associates As of September 30, 2023, we employed approximately 5,500 associates.
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.
Primary competitors include Spectrum Brands Holdings, Inc., Central Garden & Pet Company, 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., SBM Life Science Corp., Woodstream Corporation, Sunday Lawn Care and Hydrofarm Holdings Group, Inc.
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.
We are a Company that has been rooted in family since our founding in 1868, and one way we demonstrate this is our commitment to enhancing the health and financial security of our associates and their families and our support for everyday challenges through our LiveTotalHealth program – the Company’s holistic and comprehensive approach to wellness.
EPA in addition to various local, state and federal environmental and/ 5 Table of Contents or public health agencies.
EPA in addition to various local, state and federal environmental and/or public health agencies.
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.
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.
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.
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. 3 Table of Contents The majority of our shipments to customers are made via common carriers or through distributors in the United States.
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.
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 and make progress towards goals and seek continuous improvement around these focus areas.
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.
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.
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.
Regulatory Matters We are subject to various regulatory proceedings, none of which are expected to be material to our business. At September 30, 2023, $2.7 million was accrued for environmental matters. During fiscal 2023, fiscal 2022 and fiscal 2021, we expensed $0.4 million, $0.2 million and $0.5 million, respectively, for such environmental matters.
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.
During fiscal 2023, we continued strategic reductions in our workforce as part of an ongoing series of organizational changes and initiatives intended to create operational and management-level efficiencies. Engagement The level of engagement created through our associate experience directly impacts our business. To advance engagement, we take a purposeful approach focused on enhancing the employee experience.
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.
Professional Development We view development and retention of our associates as valuable components of our business operations and creating a culture of leadership throughout our Company. We offer both online micro-learning and virtual learning content that accelerates the development of practical skills and competencies.
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.
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.
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 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.
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.
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.
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.
During peak sales and production periods in fiscal 2023, our workforce totaled approximately 7,250, comprised of approximately 6,500 employees including seasonal associates and approximately 750 in temporary labor.
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.
We recognize that certain other stakeholders (such as customers, employees and non-governmental organizations) may be interested in more detailed information on these topics. We encourage you to review the “Supporting Our People” section of our 2023 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.
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.
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 2023.
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.
The Scotts ® , Miracle-Gro ® , Ortho ® , Tomcat ® , Hyponex ® , Earthgro ® , General Hydroponics ® , Gavita ® , Botanicare ® , Agrolux ® and Mother Earth ® 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.
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.
MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements included in this Form 10-K. Acquisitions and Divestitures There were no material acquisitions or divestitures during fiscal 2023. 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 fiscal 2022 and fiscal 2021 acquisitions and investments.
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.
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. Gardening and Landscape: The gardening and landscape category is designed to help consumers grow and enjoy flower and vegetable gardens and beautify landscaped areas.
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.
Controls: The controls category is designed to help consumers protect their homes from pests and maintain external home areas.
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.
We endeavor 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 2023, we published our 12th Corporate Responsibility Report, prepared in reference to the Global Reporting Initiative (“GRI”) Standards (2021) and with consideration for the Sustainability Accounting Standards Board’s (“SASB’s”) Chemicals industry standard.
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.
Communication between members of our leadership team and our other associates impacts our success by building trust and improving collaboration and overall engagement. We 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.
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.
We conduct an annual analysis of our pay and compensation practices, from both an external market and internal consistency perspective, to ensure that our pay decisions are fair and equitable. 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.
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Gardening and Landscape: The gardening and landscape category is designed to help consumers grow and enjoy flower and vegetable gardens and beautify landscaped areas.
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Our objectives surrounding the procurement of these materials are to ensure continuous supply, minimize costs and improve supply and pricing predictability. We seek to achieve these objectives through negotiation of contracts with favorable terms directly with vendors.
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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.
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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.
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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.
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Further, many states have taken action to address PFAS concerns ranging from appropriation legislation to funding scientific research, bans on certain categories of consumer products containing PFAS and/or broad prohibitions on PFAS across all products. Complicating this patchwork of state regulation is that various jurisdictions may define PFAS differently.
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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.
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It is possible, therefore, that some of these actions will have an impact – direct or indirect – on our business. 5 Table of Contents Packaging has also become subject to increased governmental scrutiny in many states.
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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.
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Specifically, state legislation is seeking to reduce single use plastics and establish extended producer responsibility programs, which are designed to bolster the recycling industry by transferring the cost of packaging disposal to the manufacturers. Extended producer responsibility programs typically include targets and reporting responsibilities for, among other things, post-consumer recycling usage, compostable packaging, material reduction and refill strategies.
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(“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.
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This feedback is shared and leveraged as human capital initiatives are defined. In light of our recent work force restructuring, we have prioritized ensuring that our associates have access to the information they need to understand the business decisions being made, the reasons behind them and how changes will impact them in their role.
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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.
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To accomplish this, we execute comprehensive change management plans to support our associates through business transitions.
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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.
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Recognizing there is value to associates in engaging directly with our leadership team, we host Town Hall meetings each quarter to disseminate enterprise-wide information and to allow interactive communication. 6 Table of Contents Diversity We value our associates’ diversity and encourage them to leverage their varied life experiences at our Company.
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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.
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We formed a partnership with an innovative leader in the healthcare navigation and advocacy space to provide our associates and their family members with access to healthcare experts who can guide them throughout their healthcare journeys. We also believe financial health is a core component to our associates’ overall wellbeing.
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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.
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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.
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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.
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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.
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Our commitment to LiveTotalHealth can be seen in the enhancements we made in 2022 and announced for 2023.
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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.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

64 edited+47 added−31 removed110 unchanged
Biggest changeFor 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.
Biggest changeFor 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. 16 Table of Contents 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 some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
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.
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. 17 Table of Contents • 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.
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.
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 damage can be quickly multiplied by social media), we will have incurred significant expenses without the benefit of higher revenues.
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.
Our payment of quarterly cash dividends on and repurchase of our Common Shares pursuant to a 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.
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.
Our most price sensitive consumers 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.
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.
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.
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.
Any of these issues could have a material adverse effect on our business and harm our reputation. Our operations, financial condition or reputation 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.
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.
For example, certain countries and 38 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.
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.
Forward-looking statements in this Form 10-K and our 2023 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.
The forward-looking statements that we make in this Form 10-K and our 2023 Annual Report are based on management’s current views and assumptions regarding future events and speak only as of their dates.
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 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 and the 4.000% Senior Notes, the “Senior Notes”) contain restrictive covenants and cross-default provisions.
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.
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 our retail customer’s e-commerce retail platforms.
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.
In addition, our efforts to remain competitive with technology trends, 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.
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.
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 2023 Annual Report to Shareholders (our “2023 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.
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.
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 therein.
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.
Our projections may not accurately predict the volume impact of price increases, which could adversely affect our business, financial condition and results of operations. Our proprietary technologies can limit our ability to locate or utilize alternative inputs for certain products.
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.
A significant interruption in the operation of our or our suppliers’ facilities 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.
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.
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 9 Table of Contents key customers.
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.
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, several provinces in Canada have adopted regulation that substantially restrict our ability to market and sell certain of our consumer pesticide products.
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.
In 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.
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.
In addition, if Program EBIT (as defined in the Third Restated Agreement) falls below $50.0 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 therein.
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.
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, vendors, suppliers and other parties critical to our business, could be significantly impaired, which may adversely impact our business.
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 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 dividends and repurchases of common shares of Scotts Miracle-Gro (“Common Shares”) or other uses of cash flows.
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.
During fiscal 2023 and fiscal 2022, we undertook a strategic reduction in our workforce as part of an on-going series of organizational changes and initiatives intended to create operational and management-level efficiencies.
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.
The oversupply has been driven by the impacts of increased licensing activity across the U.S., significant capital investment in the cannabis production marketplace over the past several years, inconsistent enforcement of regulations and the market impacts of the COVID-19 pandemic.
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.
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. Our manufacturing operations, including our reliance on third-party manufacturers, could harm our business.
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.
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, 2023, we had $2,630.6 million of debt and $1,156.7 million in available borrowings under our credit facility.
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.
We cannot provide any assurance that we will successfully develop and manufacture 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 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.
If we encounter difficulties with our distribution centers, or if any distribution centers shut down for any reason, including as a result of pandemics, acts of war, terrorism, government shut downs, work stoppages and fire or other natural disasters, 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.
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 August 2023, S&P Global Ratings lowered our issuer credit rating to B+ from BB- and lowered its rating on our Senior Notes to B- from B.
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.
As consumers demonstrate greater reliance on on e-commerce channels, the success of our business depends on our investment in e-commerce 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.
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.
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. 18 Table of Contents Our hedging arrangements expose us to certain counterparty risks.
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.
Even if we successfully maintain and develop 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.
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.
Our top two retail customers, Home Depot and Lowe’s, together accounted for 47% of our fiscal 2023 net sales and 41% of our outstanding accounts receivable as of September 30, 2023.
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.
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 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.
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, cash flows and reputation.
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.
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.
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.
For example, under our credit facility the maximum permitted leverage ratio is (i) 7.75 for the fourth quarter of fiscal 2023, (ii) 8.25 for the first quarter of fiscal 2024, (iii) 7.75 for the second quarter of fiscal 2024, (iv) 6.50 for the third quarter of fiscal 2024, (v) 6.00 for the fourth quarter of fiscal 2024, (vi) 5.50 for the first quarter of fiscal 2025, (vii) 5.25 for the second quarter of fiscal 2025, (viii) 5.00 for the third quarter of fiscal 2025, (ix) 4.75 for the fourth quarter of fiscal 2025 and (x) 4.50 for the first quarter of fiscal 2026 and thereafter.
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.
This negative publicity could materially and adversely affect our brands and reputation and our revenue and profits. 12 Table of Contents 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.
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.
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.
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.
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, any of our top customers, or a material reduction in the inventory of our products that they carry, could adversely affect our financial results.
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.
The effects of climate change could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, and changing temperature levels.
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.
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.
The process of integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties and expenditures.
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.
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.
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 could cause the market price of our Common Shares to decline.
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.
Hagedorn Partnership, L.P. beneficially owned approximately 23% of our outstanding Common Shares on a fully diluted basis as of November 17, 2023. 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.
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.
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.
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.
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.
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.
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. 20 Table of Contents Risks Related to Our Common Shares The Company’s decision 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.
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.
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 achievement of our strategic objectives.
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.
Prior to fiscal 2022, we generally increased the cash dividends on our Common Shares as well as engaged in share repurchase activity. Since fiscal 2022, we have not changed the dividend amount nor have we engaged in share repurchase activity outside of our compensation programs. As of September 30, 2023, we do not have a board authorized share repurchase program.
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.
We could fail, or be perceived to fail, to achieve such initiatives or goals, or we could fail to fully and accurately report 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.
We operate manufacturing, sales and service facilities outside of the United States, particularly in Canada, the Netherlands and China.
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, Mexico and China.
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.
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. 10 Table of Contents 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 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.
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. 8 Table of Contents 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.
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.
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.
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.
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 on the Company difficult to predict. Climate change continues to receive increasing global attention.
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.
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 our future financial results. Our lending activities may adversely impact our business and results of operations.
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.
Certain investors, customers, consumers, employees, governmental authorities 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.
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.
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, the pre-closing conditions must also be satisfied or waived, which may prevent us from completing the transaction.
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.
A failure to pay dividends, an inability to resume increases of our cash dividends or an inability to begin repurchasing Common Shares at historical levels could result in a lower market valuation of our Common Shares. Hagedorn Partnership, L.P. beneficially owns approximately 23% of our Common Shares and can significantly influence decisions that require the approval of shareholders.
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.
A breach of any of these financial ratio covenants or other covenants could result in a default and/or a cross default under the credit facility and Senior Notes, as applicable.
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.
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. Product recalls or other product liability claims could materially and adversely affect our business, financial condition and results of operation.
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.
Also in August 2023, Moody's Investors Service lowered our (i) Corporate Family Rating to B1 from Ba3 and our (ii) Probability of Default Rating to B1-PD from Ba3-PD and (iii) rating on the Senior Notes to B2 from B1. A failure to dispose of assets or businesses in a timely manner may cause the results of the Company to suffer.
Removed
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.
Added
An economic downturn and economic uncertainty may adversely affect demand for our products. We have observed increased economic uncertainty in the U.S. including the potential for an economic recession.
Removed
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.
Added
Impacts of such general economic weakness include, without limitation: falling overall demand for goods and services; reduced credit availability; reduced liquidity; volatility in credit, equity and foreign exchange markets; bankruptcies and rising interest rates.
Removed
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.
Added
Adverse economic conditions have included or resulted, and could continue to include or result, in a significant increase in inflation, which could have a material adverse impact on our business, including our operating margins. Continued high inflation has had a negative impact on our operating margins in recent periods.
Removed
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.
Added
Substitute manufacturers may not be available or, if available, may be unwilling or unable to manufacture the products we need on acceptable terms.
Removed
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.
Added
Climate change and unfavorable weather conditions could adversely impact financial results. Our consumer lawn and garden net sales in any year are susceptible to weather conditions in the markets in which our products are sold.
Removed
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.
Added
The increase in climate change attention has resulted in evolving policy, legal and regulatory changes which may impose substantial operational and compliance burdens. Collecting, measuring and analyzing information relating to such matters can be costly, time-consuming, dependent on third-party cooperation and unreliable.
Removed
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.
Added
Furthermore, methodologies for measuring, tracking and reporting on such matters continue to change over time, which requires our processes and controls for such data to evolve as well.
Removed
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.
Added
Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers, in which case, the costs of raw materials and component parts could increase. Consumers and businesses may independently change their behavior because of concerns regarding the impact of climate change and public perceptions.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+2 added−0 removed2 unchanged
Biggest changeWe 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
Biggest changeWe own or lease 15 manufacturing properties and 1 research and development property in Canada, 1 manufacturing property in the Netherlands and 1 research and development property in China.
The following is a summary of owned and leased properties by country as of September 30, 2022: Location Owned Leased United States 34 69 Canada 10 11 China — 6 The Netherlands — 2 Total 44 88 We own or lease 42 manufacturing properties, 23 distribution properties and 4 research and development properties in the United States.
The following is a summary of owned and leased primary operating properties by country as of September 30, 2023: Location Owned Leased United States 36 2 60 3,4 Canada 10 13 Mexico — 1 China — 6 The Netherlands — 2 Total 46 82 We own or lease 46 manufacturing properties, 16 distribution properties and 4 research and development properties in the United States.
Added
Most of the manufacturing properties, which include growing media properties and peat harvesting properties, have production lines, warehouses, offices and field processing areas. 2 Includes one distribution center that is not operational. Disposition efforts are underway. 3 Includes one manufacturing location under development with operations scheduled to begin in 2025. 4 Includes nine distribution centers that are not operational.
Added
Disposition efforts are underway. 21 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+1 added−0 removed6 unchanged
Biggest changeNo 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.
Biggest changeThe Company has not recorded any accruals in its consolidated financial statements as the likelihood of a loss from these cases is not probable at this time. The Company does not believe a reasonably possible loss would be material to 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.
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, securities matters and employment disputes.
Added
In addition, the Company does not believe the ultimate resolution of these cases will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

8 edited+3 added−3 removed0 unchanged
Biggest changeEvans 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.
Biggest changeHagedorn, an executive officer of the Company. Mr. Garth was named Executive Vice President, Chief Financial Officer and Chief Administrative Officer of the Company in October 2023. Prior to this appointment, Mr. Garth served as Executive Vice President and Chief Financial Officer, a position he held since December 2022. Previously, Mr.
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.
ITEM 4. MINE SAFETY DISCLOSURE Not Applicable. 22 PART II SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Scotts Miracle-Gro, their positions and, as of November 17, 2023, their ages and years with Scotts Miracle-Gro (and its predecessors) are set forth below.
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.
Prior to these appointments, 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.
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.
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. In October 2023, Mr. Hagedorn also assumed the additional duties of President.
Smith 53 Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer 19 Denise S. Stump 68 Executive Vice President, Global Human Resources and Chief Ethics Officer 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.
DeMuesy 53 Senior Vice President, Chief Human Resources Officer and Chief Ethics Officer 13 Christopher J. Hagedorn 39 Division President 12 Dimiter Todorov 51 Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer 15 Executive officers serve at the discretion of the Board of Directors of Scotts Miracle-Gro and pursuant to executive severance agreements or other arrangements.
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.
Hagedorn served as Senior Vice President and General Manager, Hawthorne, a position he held since January 2017. Mr. C. Hagedorn is the son of Mr. J. Hagedorn, the Chairman, President and CEO of Scotts Miracle-Gro. Mr. Todorov was named Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer of the Company in December 2022.
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.
DeMuesy served as Vice President, HR Operations from July 2018 until November 2021. Prior to July 2018, Ms. DeMuesy has held several senior leadership positions at the Company since 2016 when she rejoined the Company after a ten year absence. Mr. C. Hagedorn was named Division President of Scotts Miracle-Gro in January 2021. Prior to this appointment, Mr. C.
Name Age Position(s) Held Years with Company James Hagedorn 67 Chief Executive Officer and Chairman of the Board 35 David C. Evans 59 Executive Vice President and Interim Chief Financial Officer; Member of the Board of Directors 23 Michael C. Lukemire 64 President and Chief Operating Officer 26 Christopher J. Hagedorn 38 Division President 11 Ivan C.
Name Age Position(s) Held Years with Company James Hagedorn 68 Chief Executive Officer, President and Chairman of the Board 36 Matthew E. Garth 49 Executive Vice President, Chief Financial Officer and Chief Administrative Officer 1 Nathan E. Baxter 51 Executive Vice President and Chief Operating Officer 1 Julie A.
Removed
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.
Added
Garth served as Senior Vice President, Finance and Treasury, and Chief Financial Officer for Mineral Technologies Inc., a specialty mineral company. Mr. Baxter was named Executive Vice President and Chief Operating Officer of the Company in August 2023. Prior to this appointment, Mr. Baxter served as Executive Vice President, Global Technology and Operations, a position he held since April 2023.
Removed
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.
Added
Previously, Mr. Baxter served as President of Tokyo Electron U.S. Holdings, a semiconductor manufacturing equipment company. Ms. DeMuesy was named Senior Vice President, Chief Human Resources Officer and Chief Ethics Officer of the Company in October 2023. Prior to this appointment, Ms. DeMuesy served as Senior Vice President, HR Operations from November 2021 until September 2023. Previously, Ms.
Removed
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
Added
Prior to this appointment, Mr. Todorov served as Vice President, Legal, a position he held since June 2015. 23 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+3 added−8 removed1 unchanged
Biggest changeComparison 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.
Biggest changeThe program expired on March 25, 2023 and, as of September 30, 2023, the Company does not have an active repurchase program. 24 Table of Contents Comparison of Cumulative Five-Year Total Return* The following graph compares the yearly change in the cumulative total stockholder return on our Common Shares for the past five fiscal years with the cumulative total return of the Russell 2000 Index and the S&P 500 Household Products Index.
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”).
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 $2.5 billion, comprised of a revolving credit facility of $1.5 billion and a term loan in the original principal amount of $1.0 billion.
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.
Amendment No. 2 limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments 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 million per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0 million.
As of November 18, 2022, there were approximately 267,000 shareholders, including holders of record and our estimate of beneficial holders.
As of November 17, 2023, there were approximately 268,000 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 Total Number of Common Shares Purchased (1) Average Price Paid per Common Share (2) 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 or Programs (3) July 3, 2022 through July 30, 2022 1,255 $ 82.53 — $ 461,912,353 July 31, 2022 through August 27, 2022 1,389 $ 72.93 — $ 461,912,353 August 28, 2022 through September 30, 2022 2,308 $ 58.33 — $ 461,912,353 Total 4,952 $ 68.56 — (1) All of the Common Shares purchased during the fourth quarter of fiscal 2022 were purchased in open market transactions.
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, 2023: Period Total Number of Common Shares Purchased (1) Average Price Paid per Common Share (2) 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 or Programs (3) July 2, 2023 through July 29, 2023 1,291 $ 69.87 — N/A July 30, 2023 through August 26, 2023 1,743 $ 53.07 — N/A August 27, 2023 through September 30, 2023 4,270 $ 52.61 — N/A Total 7,304 $ 55.77 — (1) All of the Common Shares purchased during the fourth quarter of fiscal 2023 were purchased in open market transactions.
(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.
(3) On February 6, 2020, the Company announced a repurchase program allowing for repurchases of up to $750.0 million of Common Shares from April 30, 2020 through March 25, 2023.
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”).
The Common Shares purchased during the quarter consisted of 7,304 Common Shares 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. (2) The average price paid per Common Share is calculated on a settlement basis and includes commissions.
Removed
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.
Added
On July 31, 2023, the Company entered into Amendment No. 2 (“Amendment No. 2”) to the Sixth A&R Credit Agreement.
Removed
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.
Added
On December 14, 2022 and September 13, 2023, Scotts Miracle-Gro issued 388,878 and 373,831 Common Shares, respectively, having a contractual value of $20.0 million each, to a vendor who is an accredited investor as consideration for advertising services.
Removed
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”).
Added
The issuances of the Common Shares were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2). Scotts Miracle-Gro issued the Common Shares in privately negotiated transactions, and such restricted shares were acquired for the recipient’s accounts for investment purposes.
Removed
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.
Removed
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”).
Removed
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.
Removed
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.
Removed
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 & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

141 edited+55 added−56 removed79 unchanged
Biggest changeThe 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: Year Ended September 30, 2022 2021 2020 Income (loss) from operations (GAAP) $ (434.0) $ 723.0 $ 585.2 Impairment, restructuring and other charges 852.2 29.0 16.8 Adjusted income from operations (Non-GAAP) $ 418.2 $ 752.1 $ 602.0 Income (loss) from continuing operations (GAAP) $ (437.5) $ 517.3 $ 386.9 Impairment, restructuring and other charges 852.2 29.0 16.8 Costs related to refinancing — — 15.1 Other non-operating (income) expense, net — (12.6) 0.8 Adjustment to income tax expense (benefit) from continuing operations (184.7) (5.1) (6.7) Adjusted income from continuing operations (Non-GAAP) $ 230.0 $ 528.6 $ 412.9 Net income (loss) attributable to controlling interest (GAAP) $ (437.5) $ 512.5 $ 387.4 (Income) loss from discontinued operations, net of tax — 3.9 (1.7) Impairment, restructuring and other charges 852.2 29.0 16.8 Costs related to refinancing — — 15.1 Other non-operating (income) expense, net — (12.6) 0.8 Adjustment to income tax expense (benefit) from continuing operations (184.7) (5.1) (6.7) Adjusted net income attributable to controlling interest from continuing operations (Non-GAAP) $ 230.0 $ 527.7 $ 411.7 Diluted income (loss) per common share from continuing operations (GAAP) $ (7.88) $ 9.03 $ 6.78 Impairment, restructuring and other charges 15.19 0.51 0.30 Costs related to refinancing — — 0.27 Other non-operating (income) expense, net — (0.22) 0.01 Adjustment to income tax expense (benefit) from continuing operations (3.29) (0.09) (0.12) Adjusted diluted income per common share from continuing operations (Non-GAAP) $ 4.10 $ 9.23 $ 7.24 Net cash (used in) provided by operating activities (GAAP) $ (129.0) $ 271.5 $ 558.0 Investments in property, plant and equipment (113.5) (106.9) (62.7) Free cash flow (Non-GAAP) $ (242.5) $ 164.6 $ 495.3 The sum of the components may not equal the total due to rounding.
Biggest changeAdjusted EBITDA as used in those agreements includes additional adjustments to the Adjusted EBITDA presented in the reconciliations below which may decrease or increase Adjusted EBITDA for purposes of the Company’s financial covenants. • 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: Year Ended September 30, 2023 2022 2021 Income (loss) from operations (GAAP) $ (174.4) $ (434.0) $ 723.0 Impairment, restructuring and other charges 466.0 852.2 29.0 Adjusted income from operations (Non-GAAP) $ 291.7 $ 418.2 $ 752.1 Net income (loss) attributable to controlling interest (GAAP) $ (380.1) $ (437.5) $ 512.5 Loss from discontinued operations, net of tax — — 3.9 Impairment, restructuring and other charges 466.0 852.2 29.0 Equity in loss of unconsolidated affiliates 94.7 — — Other non-operating income, net — — (12.6) Adjustment to income tax expense (benefit) from continuing operations (112.5) (184.7) (5.1) Adjusted net income attributable to controlling interest from continuing operations (Non-GAAP) $ 68.1 $ 230.0 $ 527.7 Diluted net income (loss) per common share from continuing operations (GAAP) $ (6.79) $ (7.88) $ 9.03 Impairment, restructuring and other charges 8.26 15.19 0.51 Equity in loss of unconsolidated affiliates 1.68 — — Other non-operating income, net — — (0.22) Adjustment to income tax expense (benefit) from continuing operations (1.99) (3.29) (0.09) Adjusted diluted net income per common share from continuing operations (Non-GAAP) $ 1.21 $ 4.10 $ 9.23 Net cash provided by (used in) operating activities (GAAP) $ 531.0 $ (129.0) $ 271.5 Investments in property, plant and equipment (92.8) (113.5) (106.9) Free cash flow (Non-GAAP) $ 438.2 $ (242.5) $ 164.6 The sum of the components may not equal the total due to rounding.
Consumer 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 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.
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 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 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.
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, or as a substitute for or superior to, financial measures reported in accordance with GAAP.
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).
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 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 net 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).
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.
Additionally, Amendment No. 2 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.
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.
This quantitative test resulted in a non-cash, pre-tax goodwill impairment charge of $522.4 related to our Hawthorne reporting unit, which was recorded 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.
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: Year Ended September 30, 2022 2021 2020 U.S.
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: Year Ended September 30, 2023 2022 2021 U.S.
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.
This MD&A includes 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.
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 in Canada. This division of reportable segments is consistent with how the segments report to and are managed by our chief operating decision maker.
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.
Our Hawthorne segment is also impacted by seasonal sales 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.
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 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.
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”).
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 Facilities”).
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”).
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 Amendment No. 2 (“Adjusted EBITDA”).
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.
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”), leverage ratio, fixed charge coverage ratio and interest coverage ratio.
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.
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 were issued by Scotts Miracle-Gro on December 15, 2016, October 22, 2019, March 17, 2021 and August 13, 2021, respectively.
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”).
On July 5, 2018, we entered into a fifth amended and restated 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.
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.
As of September 30, 2023, 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 this Form 10-K, we expect to remain in compliance with the financial covenants under the Sixth A&R Credit Agreement.
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 (6.6) % (1.8) % Material costs (3.4) (1.7) Roundup ® commissions and reimbursements (0.2) — Acquisitions (0.1) — Pricing 6.3 0.8 (4.0) (2.7) Impairment, restructuring and other (3.6) (0.1) Change in gross margin rate (7.6) % (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.
Factors contributing to the change in gross margin rate are outlined in the following table: Year Ended September 30, 2023 2022 Volume, mix and other (4.0) % (6.6) % Material costs (3.3) (3.4) Roundup ® commissions and reimbursements (0.3) (0.2) Acquisitions — (0.1) Pricing 5.0 6.3 (2.6) (4.0) Impairment, restructuring and other (1.1) (3.6) Change in gross margin rate (3.7) % (7.6) % The decrease in gross margin rate for fiscal 2023 as compared to fiscal 2022 was primarily driven by: • higher material costs in our U.S.
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.
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. Refer to “ITEM 7.
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.
Due to the GAAP net loss for fiscal 2023 and fiscal 2022, diluted average common shares used in the GAAP diluted loss per common share calculation for fiscal 2023 and fiscal 2022 were 56.0 million and 55.5 million, respectively, which excluded potential common shares of 0.4 million and 0.6 million, respectively, because the effect of their inclusion would be anti-dilutive.
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.
Recent Events During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. As part of this restructuring initiative, we are reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives.
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.
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.
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.
The oversupply has been driven by increased licensing activity across the U.S., significant capital investment in the cannabis production marketplace over the past several years, inconsistent enforcement of regulations and the market impacts of the COVID-19 pandemic.
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 Other segments; • higher transportation and warehousing costs included within “volume, mix and other” in our U.S.
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 and Hawthorne segments. 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, mix and other” associated with our U.S.
A reconciliation of net income to Adjusted EBITDA is as follows: Year Ended September 30, 2022 2021 2020 Net income (loss) (GAAP) $ (437.5) $ 513.4 $ 388.6 Income tax expense (benefit) from continuing operations (120.6) 159.8 123.7 Income tax expense (benefit) from discontinued operations — (8.4) 0.1 Loss on contingent consideration from discontinued operations — 12.2 — Costs related to refinancing — — 15.1 Interest expense 118.1 78.9 79.6 Depreciation 68.1 62.9 62.2 Amortization 37.1 30.9 32.5 Impairment, restructuring and other charges from continuing operations 852.2 29.0 16.8 Impairment, restructuring and other charges (recoveries) from discontinued operations — — (3.1) Equity in loss of unconsolidated affiliates 12.9 — — Other non-operating (income) expense, net — (12.6) 0.8 Interest income (6.7) (4.1) (7.6) Share-based compensation expense 34.3 40.6 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.
A reconciliation of net income to Adjusted EBITDA is as follows: Year Ended September 30, 2023 2022 2021 Net income (loss) (GAAP) $ (380.1) $ (437.5) $ 513.4 Income tax expense (benefit) from continuing operations (73.2) (120.6) 159.8 Income tax benefit from discontinued operations — — (8.4) Loss on contingent consideration from discontinued operations — — 12.2 Interest expense 178.1 118.1 78.9 Depreciation 67.3 68.1 62.9 Amortization 25.2 37.1 30.9 Impairment, restructuring and other charges from continuing operations 466.0 852.2 29.0 Equity in loss of unconsolidated affiliates 101.1 12.9 — Other non-operating income, net — — (12.6) Interest income (6.4) (6.7) (4.1) Share-based compensation expense 68.9 34.3 40.6 Adjusted EBITDA (Non-GAAP) $ 446.9 $ 557.9 $ 902.6 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.
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.
The cash and cash equivalents balances of $31.9 and $86.8 at September 30, 2023 and 2022, respectively, included $26.6 and $4.2, respectively, held by controlled foreign corporations. As of September 30, 2023, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.
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.
Amendment No. 1 also increased the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50 bps, and increased the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when the Company’s quarterly-tested leverage ratio exceeded 4.75.
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 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 GAAP, we use non-GAAP financial measures.
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.
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, 2023, goodwill totaled $243.9, all of which was associated with 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”): Year Ended September 30, 2022 2021 2020 Advertising $ 120.3 $ 165.7 $ 147.4 Advertising as a percentage of net sales 3.1 % 3.4 % 3.6 % Research and development 45.3 45.4 39.7 Share-based compensation 34.3 40.6 57.9 Amortization of intangibles 31.0 29.1 31.5 Other selling, general and administrative 382.1 462.7 481.3 $ 613.0 $ 743.5 $ 757.8 SG&A decreased $130.5, or 17.6%, during fiscal 2022 compared to fiscal 2021.
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”): Year Ended September 30, 2023 2022 2021 Advertising $ 123.7 $ 120.3 $ 165.7 Advertising as a percentage of net sales 3.5 % 3.1 % 3.4 % Share-based compensation 49.7 34.3 40.6 Research and development 35.7 45.3 45.4 Amortization of intangibles 22.6 31.0 29.1 Other selling, general and administrative 319.6 382.1 462.7 $ 551.3 $ 613.0 $ 743.5 SG&A decreased $61.7, or 10.1%, during fiscal 2023 compared to fiscal 2022.
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.
Additionally, we have contemplated alternative plans that are subject to market conditions and not in our control, including, among others, discussions with our lenders to amend the terms of our financial covenants under the Sixth A&R Credit Agreement and generating cash by completing other financing transactions, which may include issuing equity.
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 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 our decision to discontinue and exit the market for certain Hawthorne lighting products and brands.
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.
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. • 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.
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.
Changes in our assumptions could materially impact our fair value estimates. Assumptions critical to our fair value estimates were: (i) discount rates; (ii) royalty rates used in our intangible asset valuations; (iii) projected future revenues and profitability; and (iv) projected long-term growth rates used in the derivation of terminal year values.
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.
Impairment, Restructuring and Other Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the Consolidated Statements of Operations.
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.
The Sixth A&R Credit Agreement replaced the fifth amended and restated 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.
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.
The Receivables Facility expired on August 18, 2023. The sale of receivables under the Receivables Facility was accounted for as short-term debt and we continued to carry the receivables on our Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold.
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.
Cash used in operating activities totaled $129.0 for fiscal 2022, a decrease of $400.5 compared to cash provided by operating activities of $271.5 for fiscal 2021. This decrease was driven by higher inventory, lower accounts payable, lower net income and higher interest payments, partially offset by lower tax payments and lower short-term variable cash incentive compensation payouts.
The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at September 30, 2022 are shown in the table below: Notional Amount Effective Date (a) Expiration Date Fixed Rate 100 12/21/2020 6/20/2023 1.36 % 300 (b) 1/7/2021 6/7/2023 1.34 % 200 10/7/2021 6/7/2023 1.37 % 200 (b) 1/20/2022 6/20/2024 0.58 % 200 6/7/2023 6/8/2026 0.85 % (a) The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement.
The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at September 30, 2023 are shown in the table below: Notional Amount ($) Effective Date (a) Expiration Date Fixed Rate 200 (b) 1/20/2022 6/20/2024 0.49 % 200 6/7/2023 6/8/2026 0.80 % 150 6/7/2023 4/7/2027 3.37 % 50 6/7/2023 4/7/2027 3.34 % (a) The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement.
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 sales volume of 13.7% and unfavorable foreign exchange rates of 1.9%, partially offset by increased pricing of 7.7%. Other Segment Profit was $20.2 in fiscal 2022, a decrease of 52.0% from fiscal 2021 Segment Profit of $42.1.
Consumer $ 568.6 $ 726.7 $ 694.3 Hawthorne (21.1) 163.8 111.9 Other 20.2 42.1 11.7 Total Segment Profit (Non-GAAP) 567.7 932.6 817.9 Corporate (112.4) (149.7) (183.4) Intangible asset amortization (37.1) (30.9) (32.5) Impairment, restructuring and other (852.2) (29.0) (16.8) Equity in income (loss) of unconsolidated affiliates (12.9) 14.4 — Costs related to refinancing — — (15.1) Interest expense (118.1) (78.9) (79.6) Other non-operating income, net 6.9 18.6 20.1 Income (loss) from continuing operations before income taxes (GAAP) $ (558.1) $ 677.1 $ 510.6 U.S.
Consumer $ 454.1 $ 568.6 $ 726.7 Hawthorne (48.1) (21.1) 163.8 Other 12.4 20.2 42.1 Total Segment Profit (Non-GAAP) 418.4 567.7 932.6 Corporate (101.6) (112.4) (149.7) Intangible asset amortization (25.2) (37.1) (30.9) Impairment, restructuring and other (466.0) (852.2) (29.0) Equity in income (loss) of unconsolidated affiliates (101.1) (12.9) 14.4 Interest expense (178.1) (118.1) (78.9) Other non-operating income, net 0.3 6.9 18.6 Income (loss) from continuing operations before income taxes (GAAP) $ (453.3) $ (558.1) $ 677.1 U.S.
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 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.
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 21.0 % 21.0 % 21.0 % Effect of foreign operations (2.5) (0.1) (0.7) State taxes, net of federal benefit 2.6 3.9 3.5 Effect of other permanent differences 2.8 (1.1) — Research and Experimentation and other federal tax credits 0.2 (0.2) (0.3) Effect of tax contingencies (1.8) — 0.1 Other (0.7) 0.1 0.6 Effective income tax rate 21.6 % 23.6 % 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.
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, 2023 2022 2021 Statutory income tax rate 21.0 % 21.0 % 21.0 % Effect of foreign operations 0.2 (1.6) (0.2) State taxes, net of federal benefit 3.2 2.6 3.9 Effect of other permanent differences (0.8) 2.8 (1.1) Research and Experimentation and other federal tax credits 0.2 0.2 (0.2) Effect of tax contingencies 0.1 (1.8) — Change in valuation allowances (8.7) (0.9) 0.1 Other 1.0 (0.7) 0.1 Effective income tax rate 16.2 % 21.6 % 23.6 % During fiscal 2023, we recorded a non-cash, pre-tax other-than-temporary impairment charge related to our convertible debt investments of $101.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations.
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.
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.
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.
Consumer segment, $20.7 in our Hawthorne segment, $0.8 in our Other segment and $14.9 at Corporate in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2023. 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.
These changes in net sales were attributable to the following: Year Ended September 30, 2022 2021 Volume (27.0) % 16.9 % Foreign exchange rates (0.4) 0.8 Pricing 6.2 1.5 Acquisitions 0.9 — Change in net sales (20.3) % 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.
Factors contributing to the change in net sales are outlined in the following table: Year Ended September 30, 2023 2022 Volume and mix (14.3) % (27.0) % Foreign exchange rates (0.4) (0.4) Pricing 5.0 6.2 Acquisitions 0.2 0.9 Change in net sales (9.5) % (20.3) % The decrease in net sales for fiscal 2023 as compared to fiscal 2022 was primarily driven by: • decreased sales volume across all segments driven by growing environments, growing media, hardware, nutrients and lighting products in our Hawthorne segment; and lawn care, plant food and controls products 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; • higher manufacturing costs, primarily labor, included within “volume, mix and other” in our U.S. Consumer, Hawthorne and Other segments; • unfavorable leverage of fixed costs, included within “volume, mix and other,” driven by lower sales and production volume 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 $168.5 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2023. We incurred costs of $7.7 in our U.S.
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 decrease was driven by lower impairment, restructuring and other charges and lower SG&A, partially offset by lower net sales and a decrease in gross margin rate. Income (loss) from operations was $(434.0) in fiscal 2022 compared to $723.0 in fiscal 2021.
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.
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, 2023 and 2022 had a maximum total U.S. dollar equivalent notional amount of $600.0 and $800.0, respectively.
Our key brands include General Hydroponics ® , Gavita ® , Botanicare ® , Agrolux ® , Can-Filters ® , Gro Pro ® , Mother Earth ® , Hurricane ® , Grower’s Edge ® and HydroLogic TM .
Our key brands include General Hydroponics ® , Gavita ® , Botanicare ® , Agrolux ® , Gro Pro ® , Mother Earth ® , Grower’s Edge ® , HydroLogic Purification System ® and Cyco ® .
Cost of Sales The following table shows the major components of cost of sales: Year Ended September 30, 2022 2021 2020 Materials $ 1,616.7 $ 1,962.5 $ 1,599.3 Distribution and warehousing 660.1 684.0 492.6 Manufacturing labor and overhead 546.4 714.0 615.1 Costs associated with Roundup ® marketing agreement 67.9 70.8 61.6 Cost of sales 2,891.1 3,431.3 2,768.6 Cost of sales—impairment, restructuring and other 160.1 24.7 16.0 $ 3,051.2 $ 3,456.0 $ 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 $ (641.4) $ 545.9 Foreign exchange rates (16.9) 24.6 Costs associated with Roundup ® marketing agreement (2.9) 9.2 Material cost changes 121.0 83.0 (540.2) 662.7 Impairment, restructuring and other 135.4 8.7 Change in cost of sales $ (404.8) $ 671.4 The decrease in cost of sales for fiscal 2022 as compared to fiscal 2021 was primarily driven by: • lower sales volume in our U.S.
Cost of Sales The following table shows the major components of cost of sales: Year Ended September 30, 2023 2022 2021 Materials $ 1,524.1 $ 1,616.7 $ 1,962.5 Distribution and warehousing 556.3 660.1 684.0 Manufacturing labor and overhead 545.4 546.4 714.0 Costs associated with Roundup ® marketing agreement 82.5 67.9 70.8 Cost of sales 2,708.3 2,891.1 3,431.3 Cost of sales—impairment, restructuring and other 185.7 160.1 24.7 $ 2,894.0 $ 3,051.2 $ 3,456.0 29 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Factors contributing to the change in cost of sales are outlined in the following table: Year Ended September 30, 2023 2022 Volume, mix and other $ (299.7) $ (641.4) Foreign exchange rates (10.4) (16.9) Material cost changes 112.7 121.0 Costs associated with Roundup ® marketing agreement 14.6 (2.9) (182.8) (540.2) Impairment, restructuring and other 25.6 135.4 Change in cost of sales $ (157.2) $ (404.8) The decrease in cost of sales for fiscal 2023 as compared to fiscal 2022 was primarily driven by: • lower sales volume in our U.S.
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.
During the third quarter of fiscal 2023, we experienced an unexpected shortfall in earnings that affected our ability to remain in compliance with the leverage ratio covenant of Amendment No. 1.
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.
In addition to GAAP 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. 43 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) We believe that these non-GAAP financial measures are useful to investors in their assessment of our operating performance and valuation.
The following table details impairment, restructuring and other charges (recoveries) for each of the periods presented: Year Ended September 30, 2022 2021 2020 Cost of sales—impairment, restructuring and other: COVID-19 related costs $ — $ 25.0 $ 15.5 Restructuring and other charges (recoveries), net 143.6 (0.3) (0.1) Property, plant and equipment impairments 16.6 — 0.6 Operating expenses—impairment, restructuring and other: COVID-19 related costs — 4.2 3.9 Restructuring and other charges (recoveries), net 40.9 0.1 (3.1) Gains on sale of property, plant and equipment (16.2) — — Goodwill and intangible asset impairments 668.3 — — Impairment, restructuring and other charges from continuing operations 853.2 29.0 16.8 Restructuring and other charges (recoveries), net, from discontinued operations — — (3.1) Total impairment, restructuring and other charges $ 853.2 $ 29.0 $ 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.
The following table details impairment, restructuring and other charges (recoveries) for each of the periods presented: Year Ended September 30, 2023 2022 2021 Cost of sales—impairment, restructuring and other: Restructuring and other charges (recoveries), net $ 148.5 $ 143.6 $ (0.3) Right-of-use asset impairments 25.8 — — Property, plant and equipment impairments 11.4 16.6 — COVID-19 related costs — — 25.0 Operating expenses—impairment, restructuring and other: Goodwill and intangible asset impairments 127.9 668.3 — Convertible debt other-than-temporary impairments 101.3 — — Restructuring and other charges, net 51.2 40.9 0.1 Gains on sale of property, plant and equipment — (16.2) — COVID-19 related costs — — 4.2 Total impairment, restructuring and other charges $ 466.1 $ 853.2 $ 29.0 During fiscal 2023, we recorded non-cash, pre-tax goodwill and intangible asset impairment charges of $127.9 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations, comprised of $117.7 of finite-lived intangible asset impairment charges associated with our Hawthorne segment and $10.3 of goodwill impairment charges associated with our Other segment.
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.
Share Repurchases 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. There were no share repurchases under this share repurchase authorization during fiscal 2023 through its expiration on March 25, 2023 .
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 loss per common share calculation for fiscal 2023 and fiscal 2022 were 56.0 million and 55.5 million, respectively, which excluded potential common shares of 0.4 million and 0.6 million, respectively, because the effect of their inclusion would be anti-dilutive as we incurred a net loss for fiscal 2023 and fiscal 2022.
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 THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Results of Operations The following table sets forth the components of earnings as a percentage of net sales: Year Ended September 30, 2022 % of Net Sales 2021 % of Net Sales 2020 % of Net Sales Net sales $ 3,924.1 100.0 % $ 4,925.0 100.0 % $ 4,131.6 100.0 % Cost of sales 2,891.1 73.7 3,431.3 69.7 2,768.6 67.0 Cost of sales—impairment, restructuring and other 160.1 4.1 24.7 0.5 16.0 0.4 Gross margin 872.9 22.2 1,469.0 29.8 1,347.0 32.6 Operating expenses: Selling, general and administrative 613.0 15.6 743.5 15.1 757.8 18.3 Impairment, restructuring and other 693.1 17.7 4.3 0.1 0.8 — Other (income) expense, net 0.8 — (1.8) — 3.2 0.1 Income (loss) from operations (434.0) (11.1) 723.0 14.7 585.2 14.2 Equity in (income) loss of unconsolidated affiliates 12.9 0.3 (14.4) (0.3) — — Costs related to refinancing — — — — 15.1 0.4 Interest expense 118.1 3.0 78.9 1.6 79.6 1.9 Other non-operating income, net (6.9) (0.2) (18.6) (0.4) (20.1) (0.5) Income (loss) from continuing operations before income taxes (558.1) (14.2) 677.1 13.7 510.6 12.4 Income tax expense (benefit) from continuing operations (120.6) (3.1) 159.8 3.2 123.7 3.0 Income (loss) from continuing operations (437.5) (11.1) 517.3 10.5 386.9 9.4 Income (loss) from discontinued operations, net of tax — — (3.9) (0.1) 1.7 — Net income (loss) $ (437.5) (11.1) % $ 513.4 10.4 % $ 388.6 9.4 % The sum of the components may not equal due to rounding.
Results of Operations The following table sets forth the components of earnings as a percentage of net sales: Year Ended September 30, 2023 % of Net Sales 2022 % of Net Sales 2021 % of Net Sales Net sales $ 3,551.3 100.0 % $ 3,924.1 100.0 % $ 4,925.0 100.0 % Cost of sales 2,708.3 76.3 2,891.1 73.7 3,431.3 69.7 Cost of sales—impairment, restructuring and other 185.7 5.2 160.1 4.1 24.7 0.5 Gross margin 657.3 18.5 872.9 22.2 1,469.0 29.8 Operating expenses: Selling, general and administrative 551.3 15.5 613.0 15.6 743.5 15.1 Impairment, restructuring and other 280.5 7.9 693.1 17.7 4.3 0.1 Other (income) expense, net (0.1) — 0.8 — (1.8) — Income (loss) from operations (174.4) (4.9) (434.0) (11.1) 723.0 14.7 Equity in (income) loss of unconsolidated affiliates 101.1 2.8 12.9 0.3 (14.4) (0.3) Interest expense 178.1 5.0 118.1 3.0 78.9 1.6 Other non-operating income, net (0.3) — (6.9) (0.2) (18.6) (0.4) Income (loss) from continuing operations before income taxes (453.3) (12.8) (558.1) (14.2) 677.1 13.7 Income tax expense (benefit) from continuing operations (73.2) (2.1) (120.6) (3.1) 159.8 3.2 Income (loss) from continuing operations (380.1) (10.7) (437.5) (11.1) 517.3 10.5 Loss from discontinued operations, net of tax — — — — (3.9) (0.1) Net income (loss) $ (380.1) (10.7) % $ (437.5) (11.1) % $ 513.4 10.4 % The sum of the components may not equal due to rounding. 28 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Net Sales Net sales for fiscal 2023 were $3,551.3, a decrease of 9.5% from net sales of $3,924.1 for fiscal 2022.
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.
As a result, the Senior Notes are effectively subordinated to all the liabilities of the Non-Guarantors. 41 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) The guarantees may be subject to review under federal bankruptcy laws or relevant state fraudulent conveyance or fraudulent transfer laws.
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.
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. 48 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data)
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.
We base our estimates on historical experience and on various other sources that we believe to be reasonable under the circumstances. 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.
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 THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Interest Expense Interest expense was $118.1 in fiscal 2022, an increase of 49.7% compared to $78.9 in fiscal 2021.
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. 33 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Interest Expense Interest expense was $178.1 in fiscal 2023, an increase of 50.8% compared to $118.1 in fiscal 2022.
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.
Consumer segment. Based on the results of the annual quantitative evaluation for fiscal 2023, the fair value of our U.S. Consumer segment reporting unit exceeded its carrying value by 182%. A 100 basis point change in the discount rate would not have resulted in an impairment for this reporting unit.
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.
Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts receivable, inventory, equipment and intellectual property (subject to certain exceptions) 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.
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.
Pursuant to Amendment No. 2, the maximum permitted leverage ratio is (i) 7.75 for the fourth quarter of fiscal 2023, (ii) 8.25 for the first quarter of fiscal 2024, (iii) 7.75 for the second quarter of fiscal 2024, (iv) 6.50 for the third quarter of fiscal 2024, (v) 6.00 for the fourth quarter of fiscal 2024, (vi) 5.50 for the first quarter of fiscal 2025, (vii) 5.25 for the second quarter of fiscal 2025, (viii) 5.00 for the third quarter of fiscal 2025, (ix) 4.75 for the fourth quarter of fiscal 2025 and (x) 4.50 for the first quarter of fiscal 2026 and thereafter.
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.
Other Segment Profit was $12.4 in fiscal 2023, a decrease of 38.6% from fiscal 2022 Segment Profit of $20.2. The decrease was driven by lower net sales and a lower gross margin rate. Other segment net sales were $279.1 in fiscal 2022, a decrease of 7.9% from fiscal 2021 net sales of $303.1.
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.
Income (Loss) from Continuing Operations Loss from continuing operations was $(380.1), or $(6.79) per diluted share, in fiscal 2023 compared to $(437.5), or $(7.88) per diluted share, in 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.
The fiscal 2021 amounts have not been reclassified to conform to the revised calculation. 45 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) 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.
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.
Other obligations include actuarially determined retiree benefit payments and pension funding to comply with local funding requirements. Pension funding requirements are based on preliminary estimates using actuarial assumptions determined as of September 30, 2023. These amounts represent expected payments through 2033.
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.
During fiscal 2022, we recorded 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. 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.
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.
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, 2023. Actual interest expense will likely be higher due to the seasonality of our business and associated higher average borrowings.
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.
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.
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.
This exclusion is consistent with the calculation of that measure as required by the Company’s borrowing arrangements. This change was first reflected in the calculation of Adjusted EBITDA for fiscal 2022.
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; • unfavorable leverage of fixed costs driven by lower sales volume in our U.S. Consumer, Hawthorne and Other segments; and • an increase in impairment, restructuring and other charges; • partially offset by increased pricing in our U.S.
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 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. Other Non-Operating Income, Net Other non-operating income was $0.3, $6.9 and $18.6 in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
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.
Diluted average common shares used in the diluted income per common share calculation for fiscal 2021 were 57.2 million, which included dilutive potential common shares of 1.5 million.
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.
Such a default would allow the lenders under the Sixth A&R Credit Agreement to accelerate the maturity of the indebtedness thereunder and would also implicate cross-default provisions under the Senior Notes and cause the Senior Notes to become due and payable at that time.
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 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 compared to 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeExpected Maturity Date Total Fair Value 2022 2023 2024 2025 2026 2027 After Long-term debt: Fixed rate debt $ — $ — $ — $ — $ 250.0 $ 1,350.0 $ 1,600.0 $ 1,190.3 Average rate — — — — 5.3 % 4.3 % 4.4 % — Variable rate debt $ 125.0 $ 50.0 $ 50.0 $ 50.0 $ 1,075.5 $ — $ 1,350.5 $ 1,350.5 Average rate 4.6 % 5.4 % 5.4 % 5.4 % 5.3 % — 5.2 % — Interest rate derivatives: Interest rate swaps $ 12.5 $ 8.4 $ 5.8 $ 4.3 $ — $ — $ 31.0 $ 31.0 Average rate 1.2 % 0.8 % 0.9 % 0.9 % — — 1.0 % — Expected Maturity Date Total Fair Value 2021 2022 2023 2024 2025 2026 After Long-term debt: Fixed rate debt $ — $ — $ — $ — $ — $ 1,600.0 $ 1,600.0 $ 1,625.8 Average rate — — — — — 4.4 % 4.4 % — Variable rate debt $ 40.0 $ 630.0 $ — $ — $ — $ — $ 670.0 $ 670.0 Average rate 1.1 % 1.1 % — — — — 1.1 % — Interest rate derivatives: Interest rate swaps $ (4.2) $ (2.5) $ 0.7 $ 0.6 $ 0.5 $ — $ (4.9) $ (4.9) Average rate 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.
Biggest changeExpected Maturity Date Total Fair Value 2023 2024 2025 2026 2027 2028 After Long-term debt: Fixed rate debt $ — $ — $ — $ 250.0 $ — $ 1,350.0 $ 1,600.0 $ 1,283.9 Average rate — — — 5.3 % — 4.3 % 4.4 % — Variable rate debt $ 50.0 $ 50.0 $ 50.0 $ 863.3 $ — $ — $ 1,013.3 $ 1,013.3 Average rate 8.2 % 8.2 % 8.2 % 8.1 % — — 8.1 % — Interest rate derivatives: Interest rate swaps $ 13.1 $ 9.3 $ 7.5 $ 1.5 $ — $ — $ 31.4 $ 31.4 Average rate 1.6 % 2.1 % 2.3 % 3.4 % — — 2.1 % — Expected Maturity Date Total Fair Value 2022 2023 2024 2025 2026 2027 After Long-term debt: Fixed rate debt $ — $ — $ — $ — $ 250.0 $ 1,350.0 $ 1,600.0 $ 1,190.3 Average rate — — — — 5.3 % 4.3 % 4.4 % — Variable rate debt $ 125.0 $ 50.0 $ 50.0 $ 50.0 $ 1,075.5 $ — $ 1,350.5 $ 1,350.5 Average rate 4.6 % 5.4 % 5.4 % 5.4 % 5.3 % — 5.2 % — Interest rate derivatives: Interest rate swaps $ 12.5 $ 8.4 $ 5.8 $ 4.3 $ — $ — $ 31.0 $ 31.0 Average rate 1.2 % 0.8 % 0.9 % 0.9 % — — 1.0 % — Excluded from the information provided above are miscellaneous debt instruments of $0.4 and $12.7 and finance lease obligations of $16.9 and $28.9 at September 30, 2023 and 2022, respectively.
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.
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.
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.
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. 49 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data)
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.
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.
These instruments are not used for speculative purposes. 48 Table of Contents THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Interest Rate Risk 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.
Interest Rate Risk 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, 2023 and 2022. For debt instruments, the table presents principal cash flows and related weighted-average interest rates by expected 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.
The swap agreements had a maximum total U.S. dollar equivalent notional amount of $600.0 and $800.0 at September 30, 2023 and 2022, respectively. Weighted-average variable rates are based on rates in effect at September 30, 2023 and 2022.
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.
Assuming average unhedged variable interest rate borrowing levels during fiscal 2023 of $1,200.0, a change in our variable interest rate of 100 basis points for a full twelve-month period would have an impact of $12.0 on interest expense.

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