Table of ~~the Public Reference Room by calling the SEC at 1-800-SEC-0330.~~Contents


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

Cautionary Note Regarding Forward-Looking Statements

This ~~Annual Report on~~ Form 10-K, including the exhibits hereto and the information incorporated by reference herein, as well as our ~~2017~~2022 Annual Report to Shareholders (our ~~“2017~~“2022 Annual Report”), contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Information regarding activities, events and developments that we expect or anticipate will or may occur in the future, including, but not limited to, information relating to our future growth and profitability targets and strategies designed to increase total shareholder value, are forward-looking statements based on management’s estimates, assumptions and projections. Forward-looking statements also include, but are not limited to, statements regarding our future economic and financial condition and results of operations, the plans and objectives of management and our assumptions regarding our performance and such plans and objectives, as well as the amount and timing of repurchases of our Common Shares or other uses of cash flows. Forward-looking statements generally can be identified through the use of words such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” and other similar words and variations.

Forward-looking statements contained in this ~~Annual Report on~~ Form 10-K and our ~~2017~~2022 Annual Report are predictions only and actual results could differ materially from management’s expectations due to a variety of factors, including those described below. All forward-looking statements attributable to us or persons working on our behalf are expressly qualified in their entirety by such risk factors.

The forward-looking statements that we make in this ~~Annual Report on~~ Form 10-K and our ~~2017~~2022 Annual Report are based on management’s current views and assumptions regarding future events and speak only as of their dates. We disclaim any obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking statements that we make, or to make corrections to reflect future events or developments, except as required by the federal securities laws.

~~Compliance with environmental and other public health regulations~~Risks Related to Our Business

If we underestimate or ~~changes in such regulations or regulatory enforcement priorities could increase our costs of doing business or limit our ability to market all of our products.~~

Local, state, federal and foreign laws and regulations relating to environmental matters affect us in several ways. In the United States, all products containing pesticides must comply with FIFRA and most must be registered with the U.S. EPA and

similar state agencies before they can be sold or distributed. Our inability to obtain or maintain such compliance, or the cancellation of any such registration of our products, could have an adverse effect on our business, the severity of which would depend on such matters as the products involved, whether another product could be substituted and whether our competitors were similarly affected. We attempt to anticipate regulatory developments and maintain registrations of, and access to, substitute active ingredients, but there can be no assurance that we will be able to avoid or reduce these risks. In addition, in Canada, regulations have been adopted by several provinces that substantially restrict our ability to market and sell certain of our consumer pesticide products.

Under the Food Quality Protection Act, enacted by the U.S. Congress in 1996, food-use pesticides are evaluated to determine whether there is reasonable certainty that no harm will result from the cumulative effects of pesticide exposures. Under this Act, the U.S. EPA is evaluating the cumulative and aggregate risks from dietary and non-dietary exposures to pesticides. The pesticides in our products, certain of which may be used on crops processed into various food products, are typically manufactured by independent third parties and continue to be evaluated by the U.S. EPA as part of this exposure risk assessment. The U.S. EPA or the third-party registrant may decide that a pesticide we use in our products will be limited or made unavailable to us. We cannot predict the outcome or the severity of the effect of these continuing evaluations.

In addition, the use of certain pesticide and fertilizer products is regulated by various local, state, federal and foreign environmental and public health agencies. These regulations may, among other things, ban the use of certain ingredients or require (i) that only certified or professional users apply the product, (ii) that certain products be used only on certain types of locations, (iii) users to post notices on properties to which products have been or will be applied, and (iv) notification to individuals in the vicinity that products will be applied in the future. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, we cannot provide assurance that our products, particularly pesticide products, will not cause injury to the environment or to people under all circumstances. The costs of compliance, remediation or products liability have adversely affected operating results in the past and could materially adversely affect future quarterly or annual operating results.

Our products and operations may be subject to increased regulatory and environmental scrutiny in jurisdictions in which we do business. For example, we are subject to regulations relating to our harvesting of peat for our growing media business which has come under increasing regulatory and environmental scrutiny. In the United States, state regulations frequently require us to limit our harvesting and to restore the property to an agreed-upon condition. In some locations, we have been required to create water retention ponds to control the sediment content of discharged water. In Canada, our peat extraction efforts are also the subject of regulation.

In addition to the regulations already described, local, state, federal and foreign agencies regulate the disposal, transport, handling and storage of waste, remediation of contaminated sites, air and water discharges from our facilities, and workplace health and safety.

Under certain environmental laws, we may be liable for the costs of investigation and remediation of the presence of certain regulated materials, as well as related costs of investigation and remediation of damage to natural resources, at various properties, including our current and former properties as well as offsite waste handling or disposal sites that we have used. Liability may be imposed upon us without regard to whether we knew of or caused the presence of such materials and, under certain circumstances, on a joint and several basis. There can be no assurances that the presence of such regulated materials at any such locations, or locations that we may acquire in the future, will not result in liability to us under such laws or expose us to third-party actions such as tort suits based on alleged conduct or environmental conditions.

The adequacy of our current non-FIFRA compliance-related environmental accruals and future provisions depends upon our operating in substantial compliance with applicable environmental and public health laws and regulations, as well as the assumptions that we have both identified all of the significant sites that must be remediated and that there are no significant conditions of potential contamination that are unknown to us. A significant change in the facts and circumstances surrounding these assumptions or in current enforcement policies or requirements, or a finding that we are not in substantial compliance with applicable environmental and public health laws and regulations, could have a material adverse effect on future environmental capital expenditures and other environmental expenses, as well as our financial condition, results of operations and cash flows.

~~Damage to our reputation could have an adverse effect on our business.~~

Maintaining our strong reputation with both consumers and our retail customers is a key component in our success. Product recalls, our inability to ship, sell or transport affected products and governmental investigations may harm our reputation and acceptance of our products by consumers and our retail customers, which may materially and adversely affect our business operations, decrease sales and increase costs.

In addition, perceptions that the products we produce and market are not safe could adversely affect us and contribute to the risk we will be subjected to legal action. We manufacture and market a variety of products, such as fertilizers, growing media, herbicides and pesticides. On occasion, allegations are made that some of these products have failed to perform up to expectations or have caused damage or injury to individuals or property. For example, public commentary by media agencies, non-governmental organizations and/or litigation-related assertions, even if inaccurate, may lead consumers to believe that certain products we manufacture or market may be unsafe. Further, based on reports of contamination at a third-party supplier’s vermiculite mine, the public may perceive that some of our products manufactured in the past using vermiculite are or may be contaminated. Public perception that the products we manufacture or market are not safe, whether justified or not, could impair our reputation, involve us in litigation, damage our brand names and have a material adverse effect on our business.

Certain of our products may be purchased for use in new and emerging industries or segments and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.

In addition, we sell products that end users may purchase for use in industries or segments, including the growing of cannabis, that are subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain countries and 29 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.

Our gardening products, including our hydroponic gardening products, are multi-purpose products designed and intended for growing a wide range of plants and are generally purchased from retailers by end users who may grow any variety of plants, including cannabis. Although theoverestimate demand for our products ~~may~~and do not maintain appropriate inventory levels, our net sales and/or working capital could be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have onimpacted.

Our ability to manage our inventory levels to meet our customers’ demand for our products is important for our business.

Our ~~marketing activities~~production levels and inventory management goals for our products are based on estimates of demand, taking into account production capacity, timing of shipments, and inventory levels. If we overestimate or underestimate either channel or retail demand for any of our products during a given season, we may not ~~be successful.~~

~~We invest substantial resources in advertising, consumer promotions and other marketing activities~~maintain appropriate inventory levels, which could negatively impact our net sales, profit margins, net earnings, working capital and/or cash flow, hinder our ability to ~~maintain, extend and expand our brand image. There can be no assurances that our marketing strategies will be effective or that the amount we invest in advertising activities will~~meet customer demand, result in loss of customers, or cause us to incur excess and obsolete inventory charges or excess warehouse storage costs.

For example, during fiscal 2022, a ~~corresponding increase~~significant decrease in sales volume coupled with a recent expansion of our ~~products. If~~production and supply chain resulted in higher fixed costs and inventory levels. These factors negatively impacted our ~~marketing initiatives are not successful, we will have incurred significant expenses without the benefit of higher revenues.~~

~~Our success depends upon the retention~~net sales, profit margins, net earnings and ~~availability of key personnel and the effective succession of senior management.~~

Our success largely depends on the performance of our management team and other key personnel. Our future operations could be harmed if we are unable to attract and retain talented, highly qualified senior executives and other key personnel. In addition, if we are unable to effectively provide for the succession of senior management, including our chief executive officer, our business, prospects, results of operations, financial condition andoperating cash ~~flows may be materially adversely affected.~~flow.

Disruptions in availability or increases in the prices of raw materials, fuel or ~~fuel~~transportation costs could adversely affect our results of operations.

We source many of our commodities and other raw materials on a global basis. The general availability and price of those raw materials can be affected by numerous forces beyond our control, including political instability, trade restrictions and other government regulations, duties and tariffs, price controls, changes in currency exchange rates and weather.

A significant disruption in the availability or price of any of our key raw materials could negatively impact our business.

In ~~addition,~~February 2022, Russia invaded Ukraine. We have experienced, and expect to continue to experience, the indirect impacts of the conflict in Ukraine, including increases in the cost of raw materials (including fertilizer inputs such as urea) and commodities (including the price of oil), supply chain and logistics challenges and foreign currency volatility. Increases in the prices of key commodities and other raw materials could adversely affect our ability to manage our cost structure. Market conditions may limit our ability to raise selling prices to offset increases in our raw material costs. Further, sustained price increases may lead to declines in volume as competitors may not adjust their prices or customers and/or consumers may decide not to pay the higher prices, which could lead to sales declines and loss of market share. Our projections may not accurately predict the volume impact of price increases, which could adversely affect our business, financial condition and results of operations.

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Our proprietary technologies can limit our ability to locate or utilize alternative inputs for certain products. For certain inputs, new sources of supply may have to be qualified under regulatory standards, which can require additional investment and delay bringing a product to market.

We utilize hedge agreements periodically to fix the prices of a portion of our urea and fuel needs. The hedge agreements are designed to mitigate the earnings and cash flow fluctuations associated with the costs of urea and fuel. In periods of declining ~~urea and fuel~~ prices, utilizing these hedge agreements may effectively increase our expenditures for these raw materials.

The effects of the ongoing coronavirus (COVID-19) pandemic and any possible recurrence of other similar types of pandemics, or any other widespread public health emergencies, could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

The World Health Organization recognized COVID-19 as a public health emergency of international concern on January 30, 2020 and as a global pandemic on March 11, 2020. Public health responses have included national pandemic preparedness and response plans, travel restrictions, quarantines, curfews, event postponements and cancellations and closures of facilities including local schools and businesses. The global pandemic and actions taken to contain COVID-19 have disrupted the global economy and financial markets. Increases in COVID-19 cases may increase the possibility of further shutdowns, production delays, staffing and resource challenges which could materially harm our financial condition and results of operations.

~~Our hedging arrangements expose~~We have actively addressed the pandemic’s ongoing impact on our employees, operations, customers, consumers, and communities, by, among other things, implementing contingency plans, making operational adjustments where necessary, and providing assistance to organizations that support front-line workers. The first priority of our pandemic response has been and remains the health, safety and well-being of our employees which we have addressed by following Center for Disease Control health guidelines and applicable state and local guidelines. While we believe that these actions should enable us to ~~certain counterparty risks.~~maintain our operations during the COVID-19 pandemic, we can provide no assurance that we will be able to do so as a result of the unpredictability of the ultimate impact of the COVID-19 pandemic, including the responses of local, state, federal and foreign governmental authorities to the pandemic.

~~In addition~~The extent to ~~commodity hedge agreements, we utilize interest rate swap agreements~~which the COVID-19 pandemic will ultimately impact our business, results of operations, financial condition and cash flows depends on future developments that are highly uncertain, rapidly evolving and difficult to ~~manage~~ predict at this time, including:

•the ~~net interest rate risk inherent in~~duration, spread and intensity of the pandemic;

•the availability, usage and effectiveness of vaccines or alternative treatments;

•the ability of our suppliers, contract manufacturers, contractors and third-party logistics providers to meet their obligations to us (including supplying us with essential raw materials, components and finished products, or shipping finished goods to customers) on a timely basis and at previously anticipated costs without significant disruption, and our ability to identify alternative sources of ~~borrowing~~materials and services, if necessary;

•our ability to continue to meet our customers’ needs in the event of the suspension or interruption of essential elements of our manufacturing and supply arrangements and activities such as ~~well as foreign currency forward contracts~~the continued availability of raw materials, transportation, labor and production capacity and at previously anticipated costs;

•the effect of the COVID-19 pandemic on our customers (including retailers and distributors), including their ability to ~~hedge~~remain open, continue to sell our products, pay for the ~~exchange rate risk associated~~products purchased from us on a timely basis or at all and collect payment from their customers;

•the impact of the COVID-19 pandemic on the financial and credit markets and economic activity generally, including our ability to maintain compliance with ~~certain balances denominated~~financial covenants, access lending, capital markets, and other sources of liquidity when needed on reasonable terms or at all;

•higher costs of labor, commodities, components, parts and accessories and/or transportation related costs; and

•the demand for our products, which may be impacted by, among other things, the temporary inability of consumers to purchase our products due to illness, quarantine, travel restrictions or financial hardship, shifts in ~~foreign currencies. Utilizing~~short- or long-term consumer behavior including moving from one or more of our more discretionary and profitable products to less profitable products, or stockpiling and similar pantry-loading activity that could negatively impact future demand.

Negative developments with respect to any of these ~~hedge agreements exposes us~~items could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

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Because of the concentration of our sales to ~~certain counterparty risks. The failure~~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 ~~counterparties to fulfill their obligations under the hedge agreements, whether as a result~~inventory of ~~weakening financial stability or otherwise,~~our products that they carry, could adversely affect our financial results.

Our top two retail customers, Home Depot and Lowe’s, together accounted for 43% of our fiscal 2022 net sales and 46% of our outstanding accounts receivable as of September 30, 2022. The loss of, or reduction in orders from any major customer for any reason (including, for example, changes in a retailer’s strategy, reduction in inventories of our products that they maintain, claims or allegations that our products or products we market on behalf of third parties are unsafe, a decline in consumer demand, regulatory, legal or other external pressures or a change in marketing strategy), and customer disputes regarding shipments, fees, merchandise condition or related matters could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our inability to collect accounts receivable from one of our major customers, or a significant deterioration in the financial condition of one of these customers, including a bankruptcy filing or a liquidation, could also have a material adverse effect on our financial condition, results of operations orand cash flows.

~~Economic conditions~~We do not have long-term sales agreements with, or other contractual assurances as to future sales to, any of our major retail customers. In addition, continued consolidation in the retail industry has resulted in an increasingly concentrated retail base, and as a result, we are significantly dependent upon sales to key retailers who have significant bargaining strength. To the extent such concentration continues to occur, our net sales and income from operations may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments involving our relationship with, one or more of our key customers. In addition, our business may be negatively affected by changes in the policies of our retailers, such as inventory reductions, limitations on access to shelf space, price demands and other conditions.

We may not successfully develop new product lines and products or improve existing product lines and products.

Our future success depends on creating and successfully competing in markets for our products including our ability to improve our existing product lines and products and to develop and manufacture new product lines and products to meet evolving consumer needs. We cannot provide any assurance that we will be successful in developing and manufacturing new product lines and products or product innovations that satisfy consumer needs or achieve market acceptance, or that we will develop, manufacture and market new product lines and products or product innovations in a timely manner. If we fail to successfully develop and manufacture new product lines and products or product innovations, our ability to maintain or grow our market share may be adversely affected, which could materially adversely affect our ~~business.~~business, financial condition and results of operations. In addition, the development and introduction of new product lines and products and product innovations require substantial research and development expenditures, which we may be unable to recoup if such new product lines, products or innovations do not achieve market acceptance.

~~Uncertain global economic conditions~~Many of the products we manufacture and market contain active ingredients that are subject to regulatory approval. The need to obtain such approval could ~~adversely affect~~delay the launch of new products or product innovations that contain active ingredients or otherwise prevent us from developing and manufacturing certain products and product innovations.

Our marketing activities may not be successful.

We invest substantial resources in advertising, consumer promotions and other marketing activities to maintain, extend and expand our ~~business.~~brand image. Negative ~~global economic trends, such as decreased consumer~~publicity about us or our brands, including publicity regarding product safety, quality, efficacy, environmental impacts (including packaging, energy and ~~business spending, high unemployment levels, reduced rates of home ownership~~water use and ~~housing starts, high foreclosure rates~~matters related to climate impact and ~~declining consumer~~waste management) and ~~business confidence, pose challenges to our business~~other sustainability or similar issues, whether real or perceived, could occur and could ~~result~~be widely and rapidly disseminated, including through the use of social media sites. There can be no assurances that our marketing strategies will be effective or that the amount we invest in declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect consumer demand for our products. Consumers may reduce discretionary spending during periods of economic uncertainty, which could reduce sales volumes of our products oradvertising activities will result in a ~~shift~~corresponding increase in sales of our ~~product mix from~~products. If our marketing initiatives are unsuccessful, including our ability to leverage new media such as digital media and social networks to reach existing and potential customers or our brands suffer damage to reputation due to real or perceived quality issues which reputational damage can be quickly multiplied by social media, we will have incurred significant expenses without the benefit of higher ~~margin to lower margin products.~~revenues.

The highly competitive nature of our markets could adversely affect our ability to maintain or grow revenues.

Each of our operating segments participates in ~~markets that are~~ highly ~~competitive.~~competitive markets. Our products compete against national and regional products and private label products produced by various suppliers. Many of our competitors sell their products at prices lower than ours. Our most price sensitive customers may trade down to lower priced products during challenging economic times or if current economic conditions worsen. We compete primarily on the basis of product innovation, product quality, product performance, value, brand strength, supply chain competency, field sales support, in-store sales support, the strength of our relationships with major retailers and advertising. Some of our competitors have significant financial resources. The strong competition that we face in all of our markets may prevent us from achieving our revenue goals, which may have a material adverse effect on our financial condition, results of operations and cash flows. Our inability to continue to develop and grow brands with leading market positions, maintain our relationships with key retailers and deliver high quality products on a reliable basis at competitive prices could have a material adverse effect on our business.

We may not successfully develop new product lines and products or improve existing product lines and products or maintain our effectiveness in reaching consumers through rapidly evolving communication vehicles.

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Our ~~future success depends, in part, upon~~manufacturing operations, including our ability to improve our existing product lines and products and to develop, manufacture and market new product lines and products to meet evolving consumer needs, as well as our ability to leverage new media such as digital media and social networks to reach existing and potential consumers. We cannot be certain that we will be successful in developing, manufacturing and marketing new product lines and products or product innovations which satisfy consumer needs or achieve market acceptance, or that we will develop, manufacture and market new product lines and products or product innovations in a timely manner. If we fail to successfully develop, manufacture and market new product lines and products or product innovations, or if we fail to reach existing and potential consumers, our ability to maintain or grow our market share may be adversely affected, which in turn could materially adversely affect our business, financial condition and results of operations. In addition, the development and introduction of new product lines and products and product innovations require substantial research, development and marketing expenditures, which we may be unable to recoup if such new product lines, products or innovations do not achieve market acceptance.

Many of the products we manufacture and market contain active ingredients that are subject to regulatory approval. The need to obtain such approval could delay the launch of new products or product innovations that contain active ingredients or otherwise prevent us from developing and manufacturing certain products and product innovations.

~~Our ongoing investment in new product lines and products and technologies is inherently risky and could disrupt our ongoing businesses.~~

We have invested and expect to continue to invest in new product lines, products, and technologies. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, and unidentified issues not discovered in our due diligence of such strategies and offerings. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating 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, our top customers could adversely affect our financial results.

~~Our top three retail customers together accounted for 61% of our fiscal 2017 net sales and 60% of our outstanding accounts receivable as of~~ ~~September 30, 2017~~. The loss of, or reduction in orders from, our top three retail customers, Home Depot, Lowe’s, and Walmart, or any other significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows, as could customer disputes regarding shipments, fees, merchandise condition or related matters. Our inability to collect accounts receivable from one of our major customers, or a significant deterioration in the financial condition of one of these customers, including a bankruptcy filing or a liquidation, could also have a material adverse effect on our financial condition, results of operations and cash flows.

We do not have long-term sales agreements with, or other contractual assurances as to future sales to, any of our major retail customers. In addition, continued consolidation in the retail industry has resulted in an increasingly concentrated retail base, and as a result, we are significantly dependent upon sales to key retailers who have significant bargaining strength. To the extent such concentration continues to occur, our net sales and income from operations may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments involving our relationship with, one or more of our key customers. In addition, our business may be negatively affected by changes in the policies of our retailers, such as inventory destocking, limitations on access to shelf space, price demands and other conditions.

~~Our~~ reliance on third-party manufacturers, could harm our business.

We may not be able to maintain or develop efficient, low-cost manufacturing capability and processes that will enable us to meet the quality, price, design and product standards or production volumes required to successfully manufacture our products. Even if we are successful in maintaining and developing our manufacturing capabilities and processes, we may not be able to do so in time to satisfy the requirements of our customers.

We rely on ~~third-party service providers~~third parties to manufacture certain ~~of our~~ products. This reliance generates a number of risks, including decreased control over the production ~~process,~~and related processes, which could lead to production delays or interruptions and inferior product quality control. In addition, performance problems at these third-party ~~providers~~manufacturers could lead to cost overruns, shortages or other problems, which could increase our costs of production or result in delivery shortages or delays to our customers.

IfIn addition, if one or more of our third-party manufacturers becomes insolvent or unwilling to continue to manufacture products of acceptable quality, at acceptable costs and in a timely manner, our ability to deliver products to our retail customers could be significantly impaired. Substitute manufacturers ~~might~~may not be available or, if available, ~~might~~may be unwilling or unable to manufacture the products we need on acceptable terms. Moreover, if customer demand for our products increases, we may be unable to secure sufficient additional capacity from our current third-party manufacturers, or others, on commercially reasonable terms, or at all.

Our business is subject to risks associated with sourcing and manufacturing outside of the U.S. and risks from tariffs and/or international trade wars.

We import many of our raw materials and finished goods from countries outside of the United States, including but not limited to China. Our import operations are subject to complex customs laws, regulations, tax requirements, and trade regulations, such as tariffs set by governments, either through mutual agreements or bilateral actions. Tariffs on goods imported into the U.S., particularly goods from China, have increased the cost of the goods we purchase. Additional tariffs could be imposed by the U.S. with relatively short notice to us. These governmental actions could have, and any similar future actions may have, a material adverse effect on our business, financial condition and results of operations. The overall effect of these risks is that our costs may increase or we may experience supply disruptions, which in turn may result in lower profitability if we are unable to offset such increases through higher prices, and/or that we may suffer a decline in sales if our customers do not accept price increases.

Our reliance on a limited base of suppliers may result in disruptions to our business and adversely affect our financial results.

Although we continue to implement ~~risk-mitigation~~risk mitigation strategies for single-source suppliers, we also rely on a limited number of suppliers for certain of our raw materials, product components and other necessary supplies, including certain active ingredients used in our products. If we are unable to maintain supplier arrangements and relationships, if we are unable to contract with suppliers at the quantity and quality levels needed for our business, or if any of our key suppliers becomes insolvent or experience other financial distress, we could experience disruptions in production, which could have a material adverse effect on our financial condition, results of operations and cash flows.

A significant interruption in the operation of our or our suppliers’ facilities could impact our capacity to produce products and service our customers, which could adversely affect revenues and earnings.

Operations at our and our suppliers’ facilities are subject to disruption for a variety of reasons, including fire, flooding or other natural disasters, disease outbreaks or pandemics, acts of war, terrorism, government shut-downs and work stoppages. A significant interruption in the operation of our or our suppliers’ facilities, including as a result of COVID-19, could significantly impact our capacity to produce products and service our customers in a timely manner, which could have a material adverse effect on our revenues, earnings and financial ~~position. This is especially true for those~~position, particularly with respect to products that we manufacture at a limited number of facilities, such as our fertilizer and liquid products.

Disruptions to transportation channels that we use to distribute our products may adversely affect our margins and profitability.

We may experience disruptions to the transportation channels used to distribute our products, including increased congestion, a lack of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or shortages. Disruptions in our trucking capacity may result in reduced sales or increased costs, including the additional use of more expensive or less efficient alternatives to meet demand. Congestion can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs, reduction in our profitability or reduced sales. For example, the COVID-19 pandemic and resulting shifts in demand or changes in our extended supply chain has resulted in several disruptions and delays, as well as quantity limits and price increases, in our transportation channels.

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Climate change and unfavorable weather conditions could adversely impact financial results.

Our consumer lawn and garden net sales in any one year are susceptible to weather conditions in the markets in which our products are sold. For instance, periods of abnormally wet or dry weather can adversely impact the sale of certain products, while increasing demand for other products with the overall impact to the Company difficult to predict.

Climate change continues to receive increasing global attention. The ~~issue~~possible effects of climate change ~~is receiving ever increasing attention worldwide. The possible effects, as described in various public accounts,~~ could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, ~~and~~ changing temperature levels ~~that~~and changes in legislation, regulation and international accords. These changes could ~~adversely~~over time affect, for example, the availability and cost of raw materials, commodities and energy, which in turn may impact our ~~costs~~ability to procure goods or services required for the operation of our business at the quantities and levels we require.

Consumers and businesses also may change their behavior on their own as a result of concerns regarding the impact of climate change, governmental regulations and public perceptions. We will need to respond to new laws and regulations as well as consumer and business ~~operations and the supply and~~preferences resulting from climate change concerns. Climate change may decrease demand for our ~~fertilizer, garden soils~~products and ~~pesticide products.~~services, particularly in certain sectors. In addition, fluctuating climatic conditions may result in unpredictable modifications in the manner in which consumers garden or their attitudes towards gardening, making it more difficult for us to provide appropriate products to appropriate markets in time to meet consumer demand.

Additionally, climate change may present additional physical risks to our operations (including damage to our manufacturing and distribution facilities or the manufacturing and distribution facilities of our suppliers) which could disrupt our supply chain or harm or disrupt our operations or those of our customers or suppliers.

Our business could be negatively impacted by corporate citizenship and ESG matters and/or our reporting of such matters.

~~Because~~Certain investors, customers, consumers, employees, and other stakeholders are increasing their focus on corporate citizenship and sustainability matters. From time to time, we communicate certain initiatives, including goals, regarding environmental matters, responsible sourcing and social investments, including pursuant to our Corporate Responsibility Report. We could fail, or be perceived to fail, to achieve such initiatives or goals, or we could fail in fully and accurately reporting our progress on such initiatives and goals. In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. Our business could be negatively impacted by such matters. Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.

We sell products, including hydroponic gardening products, that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis, that may not grow or achieve market acceptance in a manner that we can predict. The demand for these products depends on the uncertain growth of these industries or segments. For example, our Hawthorne segment sales volume has decreased due to an oversupply of cannabis, which has driven cannabis wholesale prices down significantly and has resulted in a decrease in indoor and outdoor cultivation. The oversupply has been driven by the impacts of increased licensing activity across the U.S., as well as significant capital investment in the cannabis production marketplace over the past several years and the market impacts of the ~~uncertainty~~COVID-19 pandemic.

In addition, we sell products that end users may purchase for use in industries or segments, including the growing of ~~weather volatility related~~cannabis, that are subject to ~~climate change~~varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain countries and 39 U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S. Controlled Substances Act and the laws of other U.S. states prohibit growing cannabis.

If we are unable to effectively execute our e-commerce business, our reputation and operating results may be harmed.

We sell certain of our products over the Internet through our online store and other e-commerce retail platforms. The success of our e-commerce business depends on our investment in these platforms, consumer preferences and buying trends relating to e-commerce, and our ability to both maintain the continuous operation of our online store and our fulfillment operations that support both our own and our retail customers’ e-commerce platforms. It is essential that these platforms provide a shopping experience that will generate orders and return visits to the respective platforms.

We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce business, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues associated with website software, systems and technology investments and upgrades; data and system security; system failures, disruptions and breaches and the costs to address and remedy such failures, disruptions or breaches; computer viruses; and changes in and compliance with applicable federal and state regulations. In addition, our efforts to remain competitive with technology trends,

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including the use of new or improved technology, creative user interfaces and other e-commerce marketing tools such as paid search and mobile applications, among others, may increase our costs and may not increase sales or attract consumers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales of our e-commerce business, as well as damage our reputation and brands.

Additionally, the success of our e-commerce business and the satisfaction of our consumers depend on the timely receipt of our products by our consumers. The efficient delivery of our products to our consumers requires that our distribution centers have adequate capacity to support the current level of e-commerce operations and any ~~resulting unfavorable weather~~anticipated increased levels that may occur as a result of the growth of our e-commerce business. If we encounter difficulties with our distribution centers, or if any distribution centers shut down for any reason, including as a result of fire or other natural disaster, we could face inventory shortages that may result in out of stock conditions in our online store, incur significantly higher costs and longer lead times associated with distributing our products to our consumers and experience dissatisfaction from our consumers. Any of these issues could have a material adverse effect on our business and harm our reputation.

Our operations may be impaired if our information technology systems fail to perform adequately or if we ~~cannot predict its potential~~are the subject of a data breach or cyber attack.

We rely on information technology systems to conduct business, including communicating with employees and our key retail customers, ordering and managing materials from suppliers, shipping products to retail customers and analyzing and reporting results of operations. While we have taken steps to ensure the security of our information technology systems, our systems may nevertheless be vulnerable to computer viruses, security breaches and other disruptions from unauthorized users. If our information technology systems are damaged or cease to function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our retail customers could be significantly impaired, which may adversely impact our business.

Additionally, in the normal course of our business, we collect, store and transmit proprietary and confidential information regarding our customers, employees, suppliers and others, including personally identifiable information. An operational failure or breach of security from increasingly sophisticated cyber threats could lead to loss, misuse or unauthorized disclosure of this information about our employees or consumers, which may result in regulatory or other legal proceedings, and have a material adverse effect on our business and reputation. We also may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber attacks. Any such attacks or precautionary measures taken to prevent anticipated attacks may result in increasing costs, including costs for additional technologies, training and third party consultants. The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows.

Our international operations make us susceptible to the costs and risks associated with operating internationally.

We operate manufacturing, sales and service facilities outside of the United States, particularly in Canada, the Netherlands and China. Accordingly, we are subject to risks associated with operating in foreign countries, including:

•fluctuations in currency exchange rates;

•limitations on the remittance of dividends and other payments by foreign subsidiaries;

•additional costs of compliance with local regulations;

•historically, in certain countries, higher rates of inflation than in the United States;

•changes in the economic conditions or consumer preferences or demand for our products in these markets;

•restrictive actions by multinational governing bodies, foreign governments or subdivisions thereof;

•changes in foreign labor laws and regulations affecting our ability to hire and retain employees;

•changes in U.S. and foreign laws regarding trade and investment, including the impact of tariffs;

•less robust protection of our intellectual property under foreign laws; and

•difficulty in obtaining distribution and support for our products, including the impact of shipping port delays.

In addition, our operations outside the United States are subject to the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations and potentially adverse tax consequences. The costs associated with operating our continuing international business could adversely affect our results of operations, financial condition and cash flows in the future.

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In the event the Third Restated Agreement for Monsanto’s consumer Roundup® products terminates or Monsanto’s consumer Roundup® business materially declines, we would lose a substantial source of future earnings and overhead expense absorption.

If we (i) become insolvent, (ii) commit a material breach, material fraud or material willful misconduct under the Third Restated Agreement, (iii) experience a change of control (subject to certain exceptions), or (iv) impermissibly assign our rights or delegate our obligations under the Third Restated Agreement, Monsanto may terminate the Third Restated Agreement without paying a termination fee to the Company, subject to certain terms and conditions as set forth in the applicable agreements. In addition, if Program EBIT (as defined in the Third Restated Agreement) falls below $50 million in any program year, Monsanto may terminate the Third Restated Agreement without paying a termination fee to the Company, subject to certain terms and conditions as set forth in the applicable agreements.

Monsanto may also terminate the Third Restated Agreement in the event of (a) a change of control of Monsanto or a sale of the Roundup® business effective at the end of the fifth full year after providing notice of termination, subject to certain terms and conditions as set forth in the applicable agreements, or (b) Monsanto’s decision to decommission the permits, licenses and registrations needed for, and the trademarks, trade names, packages, copyrights and designs used in, the sale of the Roundup® products in the lawn and garden market (a “Brand Decommissioning Event”), but, in each case, Monsanto would have to pay a termination fee to the Company.

If circumstances exist or otherwise develop that result in a material decline in Monsanto’s consumer Roundup® business, or in the event of Monsanto’s insolvency or bankruptcy, we would seek to mitigate the impact on us by exercising various rights and remedies under the Third Restated Agreement and applicable law. We cannot, however, provide any assurance that our exercise of such rights or remedies would produce the desired outcomes or that a material decline in Monsanto’s consumer Roundup® business would not have a material adverse effect on our business, financial condition or results of operations.

In the event that the Third Restated Agreement terminates or Monsanto’s consumer Roundup® business materially declines, we would lose all, or a substantial portion, of the significant source of earnings and overhead expense absorption the Third Restated Agreement provides.

For additional information regarding the Third Restated Agreement including certain of our rights and remedies under the Third Restated Agreement, see “NOTE 7. MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements included in this Form 10-K.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.

Our ability to compete effectively depends in part on our rights to service marks, trademarks, trade names and other intellectual property rights we own or license, particularly our registered brand names and issued patents. We have not sought to register every one of our marks either in the United States or in every country in which such mark is used. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents we hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we could suffer a material adverse effect on our business, financial condition and results of operations.

Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain products or services, or using certain of our recognized brand names, which could have a material adverse effect on our business, financial condition and results of operations.

Our success depends upon the retention and availability of key personnel and the effective succession of senior management.

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Our workforce reductions may cause undesirable consequences and our results of operations may be harmed.

During fiscal 2022, we undertook a strategic reduction in our workforce as part of a series of organizational changes and initiatives intended to create operational and management-level efficiencies. This workforce reduction may yield unintended consequences, such as attrition beyond our intended reduction in workforce and reduced employee morale, which may cause our employees who were not affected by the reduction in workforce to seek alternate employment. Employees whose positions were eliminated or those who determine to seek alternate employment may seek employment with our competitors.

We cannot provide assurance that we will not undertake additional workforce reductions or that we will be able to realize the cost savings and other anticipated benefits from our previous or any future workforce reduction plans. In addition, if we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to any new product, growth or revenue opportunities and to execute on our business plans. Additionally, reductions in workforce may make it more difficult to recruit and retain new employees. If we need to increase the size of our workforce in the future, we may encounter a competitive hiring market due to labor shortages, increased employee turnover, changes in the availability of workers and increased wage costs.

We are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, some of these outcomes could adversely affect our business, financial condition, results of operations and cash flows.

We are involved in legal proceedings and are subject to investigations, inspections, audits, inquiries and similar actions by governmental authorities, arising in the course of our business (see the discussion in “ITEM 3. LEGAL PROCEEDINGS” of this Form 10-K). Legal proceedings, in general, can be expensive and disruptive. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts of damages, including punitive or exemplary damages, and may remain unresolved for several years. For example, product liability claims challenging the safety of our products or products we market on behalf of third parties may also result in a decline in sales for a particular product and could damage the reputation or the value of related brands, involve us in litigation and have a material adverse effect on our business.

From time to time, we are also involved in legal proceedings as a plaintiff involving contract, intellectual property and other matters. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations and, depending on the nature of the allegations, could negatively impact our reputation or the reputation of products we market on behalf of third parties. Additionally, defending against these legal proceedings may involve significant expense and diversion of management’s attention and resources.

Risks Related to Our M&A, Lending and Financing Activities

Our indebtedness could limit our flexibility and adversely affect our financial condition.

As of September 30, ~~2017~~,2022, we had ~~$1.4 billion~~$2,992.1 million of debt and ~~$1.3 billion was~~$1,185.5 million in available ~~to be borrowed~~borrowings under our credit ~~agreement.~~facility. Our inability to meet restrictive financial and non-financial covenants associated with that debt, or to generate sufficient cash flow to repay maturing debt, could adversely affect our financial condition.

For example, our debt level could:

•make it more difficult for us to satisfy our obligations with respect to our indebtedness;

•make us more vulnerable to general adverse economic and industry conditions;

•require us to dedicate a substantial portion of cash flows from operating activities to payments on our indebtedness, which would reduce the cash flows available to fund working capital, capital expenditures, advertising, research and development efforts, pay dividends, repurchase our Common Shares and other general corporate ~~requirements;~~activities;

•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•limit our ability to borrow additional funds;

•expose us to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates; and

•place us at a competitive disadvantage compared to our competitors that have less debt.

Our ability to make payments on or to refinance our indebtedness, fund planned capital expenditures and acquisitions, pay dividends and make repurchases of our Common Shares will depend on our ability to generate cash in the ~~future. This,~~future which, to

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some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot provide any assurance that our business will generate sufficient cash flow from operating activities or that future borrowings will be available to us ~~under our credit facility~~ in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

In addition, our credit facility and the indentures governing our ~~6.000% Senior Notes due 2023 (the “6.000% Senior Notes”) and our~~ 5.250% Senior Notes due 2026 (the “5.250% Senior Notes”), our 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”), our 4.000% Senior Notes due 2031 (the “4.000% Senior Notes”) and our 4.375% Senior Notes due 2032 (the “4.375% Senior Notes” and, collectively with the 5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes, the “Senior Notes”) contain restrictive covenants and cross-default provisions. Our credit facility also requires us to maintain specified financial ratios. For example, under our credit facility the maximum permitted leverage ratio is (i) 6.25 for the third quarter of fiscal 2022 through the first quarter of fiscal 2023, (ii) 6.50 for the second and third quarters of fiscal 2023, (iii) 6.25 for the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, (iv) 5.50 for the second quarter of fiscal 2024, and (v) 4.50 for the third quarter of fiscal 2024 and thereafter. Our ~~ability to comply with those covenants and satisfy those financial ratios can be affected by events beyond our control including prevailing economic, financial and industry conditions.~~leverage ratio was 6.01 at September 30, 2022. A breach of any of those financial ratio covenants or other covenants could result in a default. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, and could cease making further loans and institute foreclosure proceedings against our assets. We cannot provide any assurance that the holders of such indebtedness would waive a default or that we could pay the accelerated indebtedness in ~~full if it were accelerated.~~full.

Subject to compliance with certain covenants under our credit facility and the indentures governing the ~~6.000% Senior Notes and the 5.250%~~ Senior Notes, we may incur additional debt in the future. If we incur additional debt, the risks described above could intensify.

~~Our lending activities~~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.

~~As part~~Acquisitions, strategic alliances and investments are an important element of our overall long-term corporate strategy and use of capital, and these transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The process of integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks include:

•Assumptions implicit to our acquisition strategy or valuations are not realized.

•Diversion of management time and focus from operating our business to acquisition integration challenges.

•Failure to successfully further develop the acquired business or product lines.

•Implementation or remediation of controls, procedures and policies at the acquired company.

•Integration of the acquired company’s accounting, human resources and other administrative systems, and coordination of product, engineering and sales and marketing functions.

•Transition of operations, users and customers onto our existing platforms.

•Reliance on the expertise of our strategic ~~initiatives, we have provided financing~~partners with respect to ~~buyers~~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 ~~certain business assets we have sold~~an acquisition.

•In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to ~~certain~~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.~~ partners, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities.

•Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former shareholders or other third parties.

Our ~~exposure~~failure to ~~credit losses on~~address these ~~financing balances will depend on~~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.

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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 ~~of these counterparties and macroeconomic factors beyond our control, such as deteriorating conditions in the world economy~~ or in the industries served by the borrowers. 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.

Also, the anticipated benefits of many of our acquisitions may not materialize.

Changes in credit ratings issued by nationally recognized statistical rating organizations (NRSROs) could adversely affect our cost of financing and the market price of our ~~6.000% Senior Notes and 5.250%~~ Senior Notes.

NRSROs rate the ~~6.000% Senior Notes, the 5.250%~~ Senior Notes and the Company based on factors that include our operating results, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the NRSROs can include maintaining, upgrading or downgrading the current rating or placing us on a watch list for possible future downgrading. Downgrading the credit rating of the ~~6.000% Senior Notes or the 5.250%~~ Senior Notes or placing us on a watch list for possible future downgrading could increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of the ~~6.000%~~Senior Notes.

In September 2022, S&P Global Ratings lowered our issuer credit rating to BB- from BB and lowered its rating on our Senior Notes to B from B+. In June 2022, Moody's Investors Service changed our outlook to negative from stable, affirmed our Ba2 Corporate Family Rating, Ba2-PD Probability of Default Rating and Ba3 rating on the Senior Notes and downgraded our speculative grade liquidity rating to SGL-3 from SGL-2.

A failure to dispose of assets or businesses in a timely manner may cause the ~~5.250% Senior Notes.~~results of the Company to suffer.

We evaluate as necessary the potential disposition of assets and businesses that may no longer help meet our objectives. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives. Alternatively, we may dispose of a business at a price or on terms that are less than we had anticipated. After reaching an agreement with a buyer for the disposition of a business, we are subject to the satisfaction of pre-closing conditions, which may prevent us from completing the transaction. Dispositions may also involve continued financial involvement in the divested business, such as through continuing equity ownership, guarantees, indemnities or other financial obligations. Under these arrangements, performance by the divested businesses or other conditions outside our control could affect future financial results.

Our lending activities may adversely impact our business and results of operations.

As part of our strategic initiatives, we have provided financing to buyers of certain business assets we have sold and to certain strategic partners. Our exposure to credit losses on these financing balances and strategic investments will depend on the financial condition of these counterparties as well as legal, regulatory and macroeconomic factors beyond our control, such as deteriorating conditions in the world economy or in the industries served by the borrowers and federal legalization of the U.S. cannabis market. While we monitor our exposure, there can be no guarantee we will be able to successfully mitigate all of these risks. Credit losses, if significant, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Uncertainty regarding the LIBOR replacement process and expected discontinuance of LIBOR may adversely impact our current or future debt obligations, including certain hedging arrangements.

Certain of our debt obligations and instruments, including certain hedging arrangements, use the London Interbank Offered Rate (“LIBOR”) as a reference rate for establishing the variable interest rate applicable to such debt obligations and instruments. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. However, for U.S. dollar LIBOR, the cessation date has been deferred to June 30, 2023 for the most commonly used tenors (overnight and one, three and six months). This extension to 2023 means that many legacy U.S. dollar LIBOR contracts would terminate before related LIBOR rates cease to be published. The Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, has recommended the replacement of LIBOR with a new index, calculated by short-term repurchase agreements collateralized by U.S. Treasury securities, called the Secured Overnight Financing Rate (“SOFR”).

We have entered into LIBOR-based interest rate swap agreements to manage our exposure to interest rate movements under certain of our variable-rate debt obligations. Using SOFR as the basis on which interest on our variable-rate debt and/or under our interest rate swaps is calculated may result in interest rates and/or payments that do not directly correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form.

The potential effect of the replacement of LIBOR on our cost of capital cannot yet be determined.

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Our hedging arrangements expose us to certain counterparty risks.

In addition to commodity hedge agreements, we utilize interest rate swap agreements to manage the net interest rate risk inherent in our sources of borrowing as well as foreign currency forward contracts to manage the exchange rate risk associated with certain intercompany loans with foreign subsidiaries and other approved transactional currency exposures. Utilizing these hedge agreements exposes us to certain counterparty risks. The failure of one or more of the counterparties to fulfill their obligations under the hedge agreements, whether as a result of weakening financial stability or otherwise, could adversely affect our financial condition, results of operations or cash flows.

Our postretirement-related costs and funding requirements could increase as a result of volatility in the financial markets, changes in interest rates and actuarial assumptions.

We sponsor a number of defined benefit pension plans associated with our U.S. and former international businesses, as well as a postretirement medical plan in the United States for certain retired associates and their dependents. The performance of the financial markets and changes in interest rates impact the funded status of these plans and cause volatility in our postretirement-related costs and future funding requirements. If the financial markets do not provide the expected long-term returns on invested assets, we could be required to make significant pension contributions. Additionally, changes in interest rates and legislation enacted by governmental authorities can impact the timing and amounts of contribution requirements.

We utilize third-party actuaries to evaluate assumptions used in determining projected benefit obligations and the fair value of plan assets for our pension and other postretirement benefit plans. In the event we determine that our assumptions should be revised, such as the discount rate ~~the expected long-term rate~~ or expected return on assets, our future pension and postretirement benefit expenses could increase or decrease. The assumptions we use may differ from actual results, which could have a significant impact on our pension and postretirement liabilities and related costs and funding requirements.

Risks Related to Regulation of Our ~~international operations make~~Company

Compliance with environmental and other public health regulations or changes in such regulations or regulatory enforcement priorities could increase our costs of doing business or limit our ability to market all of our products.

Laws and regulations relating to environmental matters affect us ~~susceptible to the costs and risks associated with operating internationally.~~

~~Despite the sale of the International Business~~ in ~~August 2017, we continue to operate manufacturing, sales and service facilities outside of~~several ways. All pesticide products sold in the United States ~~particularly~~must comply with FIFRA and most must be registered with the U.S. EPA and similar state agencies. Our inability to obtain or maintain such registrations, or the cancellation of any such registration of our products, could have an adverse effect on our business, the severity of which would depend on a variety of factors, including the product(s) involved, whether another product could be substituted and whether our competitors were similarly affected. We attempt to anticipate regulatory developments and maintain registrations of, and access to, substitute active ingredients, but there can be no assurance that we will be able to avoid or reduce these risks. In addition, in Canada, ~~Mexico, China, Norway~~regulations have been adopted by several provinces that substantially restrict our ability to market and sell certain of our consumer pesticide products.

Under the Food Quality Protection Act, enacted by the U.S. Congress in 1996, food-use pesticides are evaluated to determine whether there is reasonable certainty that no harm will result from the cumulative effects of pesticide exposures. Under this Act, the U.S. EPA is evaluating the cumulative and aggregate risks from dietary and non-dietary exposures to pesticides. The ~~Netherlands. Accordingly,~~pesticides in our products, certain of which may be also used on crops processed into various food products, are manufactured by independent third parties and continue to be evaluated by the U.S. EPA as part of this exposure risk assessment. The U.S. EPA or the third-party registrant may decide that a pesticide we use in our products will be limited or made unavailable to us. We cannot predict the outcome or the severity of the effect of these continuing evaluations.

In addition, the use of certain fertilizer and pesticide products (including pesticide products that contain glyphosate) is regulated by various environmental and public health agencies. These regulations may, among other things, ban the use of certain ingredients contained in such products or require (i) that only certified or professional users apply the product, (ii) that certain products be used only on certain types of locations, (iii) users to post notices on properties to which products have been or will be applied, and/or (iv) notification to individuals in the vicinity that products will be applied in the future. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, we cannot provide assurance that our products, particularly pesticide products, will not cause or be alleged to cause injury to the environment or to people under all circumstances, particularly when used improperly or contrary to instructions. The costs of compliance, remediation or products liability have adversely affected operating results in the past and could materially adversely affect future quarterly or annual operating results.

Our products and operations may be subject to increased regulatory and environmental scrutiny in jurisdictions in which we do business. For example, we are subject to ~~risks associated with operating in foreign countries, including:~~

~~fluctuations in currency exchange rates;~~

~~limitations on the remittance~~regulations relating to our harvesting of ~~dividends~~peat for our growing media business which has come under increasing regulatory and ~~other payments by foreign subsidiaries;~~

~~additional costs of compliance with local regulations;~~

~~historically, in certain countries, higher rates of inflation than in~~environmental scrutiny. In the United ~~States;~~States, state regulations frequently require us to limit our harvesting and to restore the property to an agreed-upon condition. In some locations, we have been

~~changes in~~

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required to create water retention ponds to control the ~~economic conditions or consumer preferences or demand for~~sediment content of discharged water. In Canada, our ~~products in these markets;~~peat extraction efforts are also the subject of regulation.

~~restrictive actions by multi-national governing bodies, foreign governments or subdivisions thereof;~~

~~changes in foreign labor~~In addition to the laws and regulations ~~affecting~~already described, various governmental agencies regulate the disposal, transport, handling and storage of waste, the remediation of contaminated sites, air and water discharges from our ~~ability~~facilities, and workplace health and safety. Under certain environmental laws and regulations, we may be liable for the costs of investigation and remediation of the presence of certain regulated materials, as well as related costs of investigation and remediation of damage to ~~hire~~natural resources, at various properties, including our current and ~~retain employees;~~former properties as well as offsite waste handling or disposal sites that we have used. Liability may be imposed upon us without regard to whether we knew of or caused the presence of such materials and, under certain circumstances, on a joint and several basis. There can be no assurances that the presence of such regulated materials at any such locations, or locations that we may acquire in the future, will not result in liability to us under such laws or regulations or expose us to third-party actions such as tort suits based on alleged conduct or environmental conditions.

~~changes~~On October 18, 2021, the Biden Administration announced a multi-agency plan to address PFAS contamination. Various federal agencies, including the U.S. EPA, will take actions to prevent the release of PFAS into the air, drinking systems, and food supply and to expand cleanup efforts to remediate the impacts of PFAS pollution. As part of this announcement, the U.S. EPA released its PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024, which identifies timelines by which the U.S. EPA plans to take specific actions during the first term of the Biden Administration. It is possible that some of these actions may have an impact – direct or indirect – on our business. For example, in August 2022, the U.S. EPA proposed to designate PFAS chemicals, PFOA and ~~foreign laws regarding trade and investment;~~PFOS, as hazardous substances under CERCLA, which could have wide-ranging impact on companies across various industries. Until further detail is provided, including whether the rule is enacted as proposed, we cannot predict the outcome or the severity of the impact of these proposed actions.

~~less robust protection~~The adequacy of our ~~intellectual property under foreign laws;~~current non-FIFRA compliance-related environmental accruals and

~~difficulty~~ future provisions depends upon our operating in ~~obtaining distribution~~substantial compliance with applicable environmental and ~~support for~~public health laws and regulations, as well as the assumptions that we have both identified all of the significant sites that must be remediated and that there are no significant conditions of potential contamination that are unknown to us. A significant change in the facts and circumstances underlying these assumptions or in current enforcement policies or requirements, or a finding that we are not in substantial compliance with applicable environmental and public health laws and regulations, could have a material adverse effect on future environmental capital expenditures and other environmental expenses, as well as our ~~products.~~

In addition, our operations outside the United States are subject to the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations and potentially adverse tax consequences. The costs associated with operating our continuing international business could adversely affect ourfinancial condition, results of operations ~~financial condition~~ and cash ~~flows in the future.~~

flows.

Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our profitability and cash flows.

We are subject to income and other taxes in the United States federal jurisdiction and various local, state and foreign jurisdictions. Our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets (such as net operating losses and tax credits) and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. In particular, the carrying value of deferred tax assets, which are predominantly related to our operations in the United States, is dependent on our ability to generate future taxable income of the appropriate character in the relevant jurisdiction.

From time to time, tax proposals are introduced or considered by the U.S. Congress or the legislative bodies in local, state and foreign jurisdictions that could also affect our tax rate, the carrying value of our deferred tax assets, or our tax liabilities. Our tax liabilities are also affected by the amounts we charge for inventory, services, licenses, funding and other items in intercompany transactions. We are subject to ongoing tax audits in various jurisdictions. In connection with these audits (or future audits), tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. We regularly assess the likely outcomes of our audits in order to determine the appropriateness of our tax provision. As a result, the ultimate resolution of our tax audits, changes in tax laws or tax rates, and the ability to utilize our deferred tax assets could materially affect our tax provision, net income and cash flows in future periods.

Risks Related to Our ~~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.~~Common Shares

We rely on information technology systems in order to conduct business, including communicating with employees and our key retail customers, ordering and managing materials from suppliers, shipping products to retail customers and analyzing and reporting results of operations. While we have ~~taken steps to ensure~~a general history of increasing the ~~security~~rate of cash dividends on, and engaging in repurchases of, our ~~information technology systems,~~Common Shares, any future decisions to maintain, reduce or discontinue paying cash dividends to our ~~systems may nevertheless be vulnerable~~shareholders or repurchasing our Common Shares could cause the market price for our Common Shares to ~~computer viruses, security breaches~~decline.

Our payment of quarterly cash dividends on and repurchase of our Common Shares pursuant to our stock repurchase program are subject to, among other things, our financial position and results of operations, available cash and cash flow, capital requirements, credit facility provisions and other ~~disruptions from unauthorized users. If~~factors. Prior to fiscal 2022, we have generally increased the cash dividends on 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 internallyCommon Shares as well as ~~with our retail customers could be significantly impaired, which may adversely impact our business. Additionally, an operational failure or breach~~engaged in share repurchase activity. In fiscal 2022, the dividend amount was not

Table of ~~security~~Contents

increased from ~~increasingly sophisticated cyber threats could lead~~the prior year. On February 6, 2020, the Scotts Miracle-Gro Board of Directors authorized a new share repurchase program allowing for repurchases of up to ~~the loss or disclosure~~$750.0 million of ~~both our and our retail customers’ financial, product, and other confidential information,~~Common Shares from April 30, 2020 through March 25, 2023. The total remaining share repurchase authorization as ~~well as personally identifiable information about our employees or customers, result in regulatory or other legal proceedings, and have a material adverse effect on our business and reputation.~~of September 30, 2022 was $461.9 million.

We may ~~not be able to adequately protect~~maintain, or increase or decrease (including eliminating) the amount of cash dividends on, and increase or decrease the amount of repurchases of, our ~~intellectual property and other proprietary rights that are material~~Common Shares in the future. Any decision by us regarding the payment of quarterly cash dividends or repurchases of our Common Shares pursuant to our ~~business.~~

Our ability to compete effectively depends in part on our rights to service marks, trademarks, tradenames and other intellectual property rights we own or license, particularly our registered brand names and issued patents. We have not sought to register every onecurrent share repurchase authorization program could cause the market price of our ~~marks either~~Common Shares to decline. Moreover, in the ~~United States~~event our payment of quarterly cash dividends on or ~~in every country in which such mark is used. Furthermore, because~~repurchases of ~~the differences in foreign trademark, patent and other intellectual property~~our Common Shares are reduced or ~~proprietary rights laws, we may not receive the same protection in other countries as we would in the United States with respect~~discontinued, our failure or inability to ~~the registered brand names and issued patents we hold. If we are unable to protect our intellectual property, proprietary information and/~~resume paying cash dividends or ~~brand names, we could suffer a material adverse effect on our business, financial condition and results of operations.~~

Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or claims brought by or against usrepurchasing Common Shares at historical levels could result in ~~substantial costs and diversion~~a lower market valuation of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain products or services, or using certain of our recognized brand names, which could have a material adverse effect on our business, financial condition and results of operations.

~~In the event the Restated Marketing Agreement for consumer Roundup~~^® ~~products terminates, we would lose a substantial source of future earnings and overhead expense absorption.~~

If we (i) become insolvent, (ii) commit a material breach, material fraud or material misconduct under the Restated Marketing Agreement, (iii) experience a change of control of the Company (subject to certain exceptions), or (iv) impermissibly assign our rights or delegate our obligations under the Restated Marketing Agreement, Monsanto may terminate the Restated Marketing Agreement without paying a termination fee to the Company. Monsanto may also terminate the Restated Marketing Agreement in the event of a change of control of Monsanto or a sale of the Roundup^® ~~business effective at the end of the fifth full year after providing notice of termination, but would have to pay a termination fee to the Company. In the event the Restated Marketing~~

~~Agreement terminates, we would lose all, or a substantial portion, of the significant source of earnings and overhead expense absorption the Restated Marketing Agreement provides.~~

For additional information regarding the Restated Marketing Agreement, see “NOTE 6. MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.Common Shares.

Hagedorn Partnership, L.P. beneficially owns approximately ~~26%~~25% of our Common Shares and can significantly influence decisions that require the approval of shareholders.

Hagedorn Partnership, L.P. beneficially owned approximately ~~26%~~25% of our outstanding Common Shares on a fully diluted basis as of November ~~24, 2017.~~18, 2022. As a result, it has sufficient voting power to significantly influence the election of directors and the approval of other actions requiring the approval of our shareholders, including ~~the~~ entering into of certain business combination transactions. In addition, because of the percentage of ownership and voting concentration in Hagedorn Partnership, L.P., elections of our board of directors will generally be within the control of Hagedorn Partnership, L.P. While all of our shareholders are entitled to vote on matters submitted to our shareholders for approval, the concentration of our Common Shares and voting control presently lies with Hagedorn Partnership, L.P. As such, it would be difficult for shareholders to propose and have approved proposals not supported by Hagedorn Partnership, L.P. Hagedorn Partnership, L.P.’s interests could differ from, or ~~be in~~ conflict with, the interests of other shareholders.

While we have, over the past few years, increased the rate of cash dividends on, and engaged in repurchases of, our Common Shares, any future decisions to reduce or discontinue paying cash dividends to our shareholders or repurchasing our Common Shares pursuant to our previously announced repurchase program could cause the market price for our Common Shares to decline.

We may further increase or decrease the rate of cash dividends on, and the amount of repurchases of, our Common Shares in the future. Any reduction or discontinuance by us of the payment of quarterly cash dividends or repurchases of our Common Shares pursuant to our current share repurchase authorization program could cause the market price of our Common Shares to decline. Moreover, in the event our payment of quarterly cash dividends on or repurchases of our Common Shares are reduced or discontinued, our failure or inability to resume paying cash dividends or repurchasing Common Shares at historical levels could result in a lower market valuation of our Common Shares.

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 are an important element of our overall corporate strategy and use of capital, and these transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The process of integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks include:

~~Diversion of management time and focus from operating our business to acquisition integration challenges.~~

~~Failure to successfully further develop the acquired business or product lines.~~

~~Implementation or remediation of controls, procedures and policies at the acquired company.~~

~~Integration of the acquired company’s accounting, human resources and other administrative systems, and coordination of product, engineering and sales and marketing functions.~~

~~Transition of operations, users and customers onto our existing platforms.~~

~~Reliance on the expertise of our strategic partners with respect to market development, sales, local regulatory compliance and other operational matters.~~

Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from

~~completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition.~~

In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries.

~~Cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire.~~

Liability for or reputational harm from activities of the acquired company before the acquisition or from our strategic partners, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities.

~~Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former shareholders or other third parties.~~

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments or strategic alliances could cause us to fail to realize the anticipated benefits of such acquisitions, investments or alliances, incur unanticipated liabilities, and harm our business generally.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows. Also, the anticipated benefits of many of our acquisitions may not materialize.

~~A failure to dispose of assets or businesses in a timely manner may cause the results of the Company to suffer.~~

We are involved in legal proceedings and are subject to investigations, inspections, audits, inquiries and similar actions by governmental authorities, arising in the course of our business (see the discussion of Legal Proceedings in Part I, Item 3 of this Annual Report on Form 10-K). Legal proceedings, in general, can be expensive and disruptive. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts of damages, including punitive or exemplary damages, and may remain unresolved for several years. For example, product liability claims challenging the safety of our products may also result in a decline in sales for a particular product and could damage the reputation or the value of related brands.

From time to time, we are also involved in legal proceedings as a plaintiff involving contract, intellectual property and other matters. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations and, depending on the nature of the allegations, could negatively impact our reputation. Additionally, defending against these legal proceedings may involve significant expense and diversion of management’s attention and resources.


~~ITEM 1B.~~	~~UNRESOLVED STAFF COMMENTS~~

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


~~ITEM 2.~~	~~PROPERTIES~~

ITEM 2. PROPERTIES

Our corporate headquarters ~~are~~is located in Marysville, Ohio, where we own approximately ~~706 acres of land and lease approximately 24~~729 acres of land. In addition, we own and lease numerous industrial, commercial and office properties located in North America, Europe and Asia that support the management, manufacturing, distribution and research and development of our products and services. We believe our properties are suitable and adequate to serve the needs of our business and that our leased properties are subject to appropriate lease agreements.

The ~~Company has 45~~following is a summary of owned and leased properties ~~and 89 leased properties. These properties are located in the following countries:~~by country as of September 30, 2022:


Location	Owned	Leased	Location	Owned	Leased
United States	36	65	United States	34	69
Mexico	—	1
Canada	9	14	Canada	10	11
China	—	4	China	—	6
The Netherlands	—	4	The Netherlands	—	2
Norway	—	1
Total	45	89	Total	44	88

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(Dollars in millions, except per share data)

OPERATIONS — Liquidity and Capital Resources — Borrowing Agreements” of this Form 10-K for more information regarding our credit facility.

Beginning in fiscal 2022, equity in income / loss of unconsolidated affiliates is excluded from the calculation of non-GAAP Adjusted EBITDA. This exclusion is consistent with the calculation of that measure as required by the Company’s borrowing arrangements. This change has been reflected in the calculation of Adjusted EBITDA for fiscal 2022. The prior period amounts have not been reclassified to conform to the revised calculation.

Our calculation of Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash flows from operating activities as determined by GAAP. We make no representation or assertion that Adjusted EBITDA is indicative of our cash flows from operating activities or results of operations. We have provided a reconciliation of Adjusted EBITDA to net income solely for the purpose of complying with SEC regulations and not as an indication that Adjusted EBITDA is a substitute measure for net income.

A reconciliation of net income to Adjusted EBITDA is as follows:


	Year Ended September 30,
	2022		2021		2020

Net income (loss) (GAAP)	$	(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, ~~with,~~ or taking actions aimed at ensuring compliance with, such laws and regulations. We are involved in several legal actions with various governmental agencies related to environmental matters. While it is difficult to quantify the potential financial impact of actions involving these environmental matters, particularly remediation costs at waste disposal sites and future capital expenditures for environmental control equipment, in the opinion of management, the ultimate liability arising from such environmental matters, taking into account established accruals, ~~should~~is not expected to have a material effect on our financial condition, results of operations or cash flows. However, there can be no assurance that the resolution of these matters will not materially affect our future quarterly or annual results of operations, financial condition or cash flows. Additional information on environmental matters affecting us is provided in “ITEM 1. BUSINESS — Regulatory Considerations” and “ITEM 3. LEGAL PROCEEDINGS” of this ~~Annual Report on~~ Form 10-K.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Certain accounting policies are particularly significant, including those related to revenue recognition, goodwill and intangibles, certain associate benefits and income taxes. We believe these accounting policies, and others set forth in “NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, should be reviewed as they are integral to understanding our results of operations and financial position. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors of Scotts Miracle-Gro.

The preparation of financial statements requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. ~~On an ongoing basis, we~~We evaluate our estimates ~~including those related~~on an ongoing basis. By their nature, these judgments are subject to ~~customer programs and incentives, product returns, bad debts, inventories, intangible assets, income taxes, restructuring, environmental matters, contingencies and litigation.~~uncertainty. We base our estimates on historical experience and on various other ~~assumptions~~sources that we believe to be reasonable under the circumstances. ~~Although actual results historically have not deviated significantly from~~

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(Dollars in millions, except per share data)

Certain accounting policies are particularly significant, including those ~~determined using our estimates, our results~~related to revenue recognition, income taxes and goodwill and intangible assets. Our critical accounting policies are reviewed periodically with the Audit Committee of ~~operations or financial condition could differ, perhaps materially, from these estimates under different assumptions or conditions.~~the Board of Directors of Scotts Miracle-Gro.

Revenue Recognition and Promotional Allowances

~~Most of our~~Our revenue is ~~derived~~primarily generated from ~~the sale~~sales of ~~inventory,~~branded and private label lawn and garden care and indoor and hydroponic gardening finished products. Product sales are recognized at a point in time when control of products transfers to customers and we ~~recognize revenue when title and risk of loss transfer, generally~~have no further obligation to provide services related to such products. Sales are typically recognized when products are ~~received~~delivered to or picked up by the customer. ~~Provisions~~We are generally the principal in a transaction and, therefore, primarily record revenue on a gross basis. Revenue for ~~payment discounts,~~ product sales is recorded net of sales returns and allowances. Revenues are measured based on the amount of consideration that we expect to receive as derived from a list price, reduced by estimates for variable consideration. Variable consideration includes the cost of current and continuing promotional programs and expected sales returns.

Our promotional programs primarily include rebates based on sales volumes, in-store promotional allowances, cooperative advertising programs, direct consumer rebate programs and special purchasing incentives. The cost of promotional programs is estimated considering all reasonably available information, including current expectations and historical experience. Promotional costs (including allowances and rebates) incurred during the year are expensed to interim periods in relation to revenues and are recorded as a reduction of ~~sales~~net sales. Provisions for estimated returns and allowances are recorded at the time revenue is recognized based on historical ~~trends~~rates and are periodically adjusted ~~periodically~~for known changes in return levels. Shipping and handling costs are accounted for as ~~circumstances warrant. Similarly, accruals for uncollectible receivables due~~contract fulfillment costs and included in the “Cost of sales” line in the Consolidated Statements of Operations. We exclude from revenue any amounts collected from customers ~~are established based on management’s judgment as to the ultimate collectability of these balances. We offer~~for sales ~~incentives through various programs, consisting principally of volume rebates, cooperative advertising, consumer coupons and~~or other trade programs. The cost of these programs is recorded as a reduction of sales. The recognition of revenues, receivables and trade programs requires the use of estimates. While we believe these estimates to be reasonable based on the then current facts and circumstances, there can be no assurance that actual amounts realized will not differ materially from estimated amounts recorded.taxes.

Income Taxes

Our annual effective tax rate is established based on our pre-tax income (loss), statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. We record income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. Valuation allowances are used to reduce deferred tax assets to the balances that are more likely than not to be realized. We must make estimates and judgments on future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances, to determine the proper valuation allowances. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the asset balance and Consolidated Statements of Operations reflect the change in the period such determination is made. Due to changes in facts and circumstances and the estimates and judgments ~~that are~~ involved in determining the proper valuation allowances, differences between actual future events and prior estimates and judgments could result in adjustments to these valuation allowances. We use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end.

~~Inventories~~

Inventories are stated at the lower of cost or market, principally determined by the first-in, first-out method of accounting. Inventories include the cost of raw materials, labor, manufacturing overhead and freight and in-bound handling costs incurred to pre-position goods in our warehouse network. Adjustments to net realizable value for excess and obsolete inventory are based on a variety of factors, including product changes and improvements, changes in active ingredient availability and regulatory acceptance, new product introductions and estimated future demand. The adequacy of our adjustments could be materially affected by changes in the demand for our products or regulatory actions.

~~Long-lived Assets, including Property, Plant and Equipment~~

Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is provided on the straight-line method and is based on the estimated useful economic lives of the assets. Intangible assets with finite lives, and therefore subject to amortization, include technology (e.g., patents), customer relationships and certain tradenames. These intangible assets are being amortized over their estimated useful economic lives typically ranging from 3 to 25 years. We review long-lived assets whenever circumstances change such that the recorded value of an asset may not be recoverable and therefore impaired.

Goodwill and ~~Indefinite-lived~~Indefinite-Lived Intangible Assets

We have significant investments in intangible assets and goodwill. ~~Our~~We perform our annual goodwill and indefinite-lived intangible asset testing ~~is performed~~ as of the first day of our fiscal fourth quarter or more frequently if circumstances indicate potential impairment. In our evaluation of impairment for goodwill and indefinite-lived intangible assets, ~~impairment,~~ we perform either an initial qualitative or quantitative evaluation for each of our reporting units and indefinite-lived intangible assets. Factors considered in the qualitative test include operating results as well as new events and circumstances impacting the operations or cash flows of the reporting unit ~~and~~or indefinite-lived intangible assets. For the quantitative test, the review for impairment of goodwill and indefinite-lived intangible assets is ~~primarily~~ based on ~~our estimates~~a combination of income-based approaches, including the relief-from-royalty method for indefinite-lived trade names, and market-based approaches. If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value of the reporting unit or intangible asset exceeds its estimated fair value.

Under the income-based approach, we determine fair value using a discounted ~~future~~ cash ~~flows, which are~~flow approach that requires significant judgment with respect to revenue and profitability growth rates, based upon annual budgets and longer-range strategic ~~plans.~~plans, and the selection of an appropriate discount rate. These budgets and plans are used for internal purposes and are also the basis for communication with outside parties about future business trends. Under the market-based approach, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the guideline transaction method to determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units.

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THE SCOTTS MIRACLE-GRO COMPANY

(Dollars in millions, except per share data)

Fair value estimates employed in our annual impairment review of indefinite-lived intangible assets and goodwill were determined using models involving several assumptions. Changes in our assumptions could materially impact our fair value estimates. Assumptions critical to our fair value estimates were: (i) discount rates used in determining the fair value of the reporting units and intangible assets; (ii) royalty rates used in our intangible asset valuations; (iii) projected future revenues and profitability used in the reporting unit and intangible asset models; and (iv) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period specific facts and circumstances. While we believe the assumptions we ~~use~~used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. As a result, impairment charges that possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier estimates. An asset’s value is deemed impaired if the discounted cash flows or earnings projections generated do not substantiate the carrying value of the asset. The estimation of such amounts requires management to exercise judgment with respect to revenue and expense growth rates, changes in working capital, future capital expenditure requirements and selection of an appropriate discount rate, as applicable. The use of different assumptions would increase or decrease discounted ~~future operating~~ cash flows or earnings projections and, therefore, could ~~therefore,~~ change impairment determinations.

~~Fair value estimates employed~~During fiscal 2022, our Hawthorne reporting unit experienced adverse financial results due to decreased sales volume and higher transportation and warehousing costs. Sales volume decreased due to an oversupply of cannabis, which significantly decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. As a result, we revised our internal forecasts relating to our Hawthorne reporting unit. We concluded that the changes in ~~our annual~~circumstances in this reporting unit and the decline in the Company’s market capitalization triggered the need for an interim impairment review of ~~indefinite-lived intangible assets~~its goodwill during the third quarter of fiscal 2022. We elected to bypass the qualitative assessment and perform quantitative interim goodwill ~~were determined using discounted cash flow models involving several assumptions. Changes in~~impairment testing for our Hawthorne reporting unit. We updated our assumptions ~~could materially impact our fair value estimates. Assumptions critical~~from prior periods to include the longer duration and increased significance of lower sales volumes and cost increases. This quantitative test resulted in a non-cash, pre-tax goodwill impairment charge of $522.4 related to our ~~fair~~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 ~~estimates were: (i) discount rates used in determining~~of goodwill of our Hawthorne reporting unit, after recognizing the impairment, is zero. The estimated fair value of our Hawthorne reporting unit was based upon an equal weighting of the income-based and market-based approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting ~~units~~unit. The fair value estimate utilizes significant unobservable inputs and, ~~intangible assets; (ii) royalty rates used in~~therefore, represents a Level 3 fair value measurement. While we consider our ~~intangible asset valuations; (iii) projected revenue~~assumptions to be reasonable and ~~operating profit growth rates used in the reporting unit~~appropriate, they are complex and intangible asset models; and (iv) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period specific facts and circumstances.subjective. Refer to “NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET” for more information.

At September 30, ~~2017~~,2022, goodwill totaled ~~$441.6 million,~~$254.0, with ~~$228.1 million, $202.3 million~~$243.9, zero and ~~$11.2 million of goodwill~~$10.1 for ~~the~~our U.S. Consumer, Hawthorne and Other segments, respectively. ~~No goodwill~~We performed annual impairment ~~was recognized~~testing as ~~a result~~ of the ~~annual evaluation performed~~first day of our fiscal fourth quarter and, with the exception of the Hawthorne reporting unit in fiscal 2022, concluded that there were no impairments of goodwill as ~~of July 2, 2017. The~~the estimated fair value of each reporting unit ~~with a significant goodwill balance was substantially in excess of~~exceeded its carrying ~~value as~~value. Based on the results of the annual ~~test date. If we were to alter our impairment testing by increasing the discount rate in the discounted cash flow analysis by 100 basis points, there still would not be any impairment indicated~~quantitative evaluation for any reporting units. At September 30, 2017, indefinite-lived intangible assets consisted of tradenames of $168.2 million, as well as the Marketing Agreement Amendment of $155.7 million and the Brand Extension Agreement of $111.7 million which were both acquired during fiscal ~~2015. With the exception of the Ortho~~^® ~~tradename, each of the tradenames had an estimated fair value substantially in excess of its carrying value as of the annual test date. The fair value of the Ortho~~^® tradename was calculated based upon the evaluation of historical performance and future growth expectations. As a result of the annual impairment review in the fourth quarter of fiscal 2017, we concluded that2022, the fair ~~value of the Ortho~~^® ~~tradename exceeded the carrying value of the intangible asset and no impairment was necessary. If we were to increase the discount rate in the Ortho~~^® ~~brand fair value calculation by 100 basis points, the impairment charge for a non-recurring fair value adjustment would have been $10.2 million.~~

~~Associate Benefits~~

We sponsor various post-employment benefit plans, including pension plans, both defined contribution plans and defined benefit plans, and other post-employment benefit (“OPEB”) plans, consisting primarily of health care for retirees. For accounting purposes, the defined benefit pension and OPEB plans are dependent on a variety of assumptions to estimate the projected and accumulated benefit obligations and annual expense determined by actuarial valuations. These assumptions include the following: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on plan assets; and health care cost trend rates.

Assumptions are reviewed annually for appropriateness and updated as necessary. We base the discount rate assumption on investment yields available at fiscal year-end on high-quality corporate bonds that could be purchased to effectively settle the pension liabilities. The salary growth assumption reflects our long-term actual experience, the near-term outlook and assumed inflation. The expected return on plan assets assumption reflects asset allocation, investment strategy and the views of investment managers regarding the market. Retirement and mortality rates are based primarily on actual and expected plan experience. The effects of actual results that differ from our assumptions are accumulated and amortized over future periods.

~~Changes in the discount rate and investment returns can have a significant effect on the funded status~~values of our ~~pension plans~~U.S. Consumer and ~~shareholders’ equity. We cannot predict discount rates or investment returns with certainty~~Other segment reporting units exceeded their respective carrying values by 181% and therefore, cannot determine whether adjustments to our shareholders’ equity for pension-related activity in subsequent years will be significant. We also cannot predict future investment returns, and therefore cannot determine whether future pension plan funding requirements could materially affect our financial condition, results of operations or cash flows.71%, respectively. A 100 basis point change in the discount rate would not have resulted in an ~~immaterial effect~~impairment for any of our reporting units.

At September 30, 2022, indefinite-lived intangible assets consisted of trade names of $168.2 and the Roundup® marketing agreement amendment of $155.7. Based on the results of the annual evaluation for fiscal ~~2018 pension expense.~~2022, the fair values of our indefinite-lived intangible assets exceeded their respective carrying values in a range of 11% to over 1,100%. A 100 basis point change in the discount rate would not have ~~a $52.0 million change~~resulted in an impairment of any of our ~~projected benefit obligations as of September 30, 2017.~~

~~Insurance and Self-Insurance~~

We maintain insurance for certain risks, including workers’ compensation, general liability and vehicle liability, and are self-insured for employee-related health care benefits up to a specified level for individual claims. We establish accruals for losses based on our claims experience and industry actuarial estimates of the ultimate loss amount inherent in the claims, including losses for claims incurred but not reported. Our estimate of self-insured liabilities is subject to change as new events or circumstances develop which might materially impact the ultimate cost to settle these losses.

~~Derivative Instruments~~

In the normal course of business, we are exposed to fluctuations in interest rates, the value of foreign currencies and the cost of commodities. A variety of financial instruments, including forward and swap contracts, are used to manage these exposures. Our objective in managing these exposures is to better control these elements of cost and mitigate the earnings and cash flow volatility associated with changes in the applicable rates and prices. We have established policies and procedures that encompass risk-management philosophy and objectives, guidelines for derivative-instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity. We do not enter into derivative instruments for the purpose of speculation.

~~Contingencies~~

As described more fully in “NOTE 19. CONTINGENCIES” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, we are involved in environmental and legal proceedings which have a high degree of uncertainty associated with them. We continually assess the likely outcome of these proceedings and the adequacy of accruals, if any, provided for their resolution. There can be no assurance that the ultimate outcomes of these proceedings will not differ materially from our current assessment of them, nor that all proceedings that may currently be brought against us are known by us at this time.indefinite-lived intangible assets.

Other Significant Accounting Policies

Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above, are also critical to understanding the consolidated financial statements. The Notes to Consolidated Financial Statements included in this ~~Annual Report on~~ Form 10-K contain additional information related to our accounting policies, including recent accounting pronouncements, and should be read in conjunction with this discussion.


~~ITEM 7A.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

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 ~~derivative~~derivatives and other instruments are used to manage these risks. These instruments are not used for speculative purposes.

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THE SCOTTS MIRACLE-GRO COMPANY

(Dollars in millions, except per share data)

Interest Rate Risk

~~We had variable rate debt instruments outstanding at~~ ~~September 30, 2017~~ and 2016 that are impacted by changes in interest rates. As a means of managing our interest rate risk on these debt instruments, we entered into interest rate swap agreements with major financial institutions to effectively fix the LIBOR index on certain variable-rate debt obligations.

At ~~September 30, 2017~~ and 2016, we had outstanding interest rate swap agreements with a total U.S. dollar equivalent notional value of $1,100.0 million and $650.0 million, respectively. The weighted average fixed rate of swap agreements outstanding at ~~September 30, 2017~~ ~~was 1.6%.~~

The following table summarizes information about our ~~derivative financial~~debt instruments and ~~debt~~derivative financial instruments that are sensitive to changes in interest rates as of September 30, ~~2017~~2022 and ~~2016.~~2021. For debt instruments, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swap agreements, the table presents expected cash flows based on notional amounts and weighted-average interest rates by contractual maturity dates. We have outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. The swap agreements had a maximum total U.S. dollar equivalent notional amount of $800.0 and $600.0 at September 30, 2022 and 2021, respectively. Weighted-average variable rates are based on rates in effect at September 30, ~~2017~~2022 and ~~2016.~~2021. A change in our variable interest rate of 100 basis points for a full twelve-month period would have ~~a $2.5 million~~an impact of $10.0 on interest expense assuming approximately ~~$250 million~~$1,000.0 of our average ~~fiscal 2017~~ variable-rate debt had not been hedged via an interest rate swap agreement. ~~The information is presented in U.S. dollars (in millions):~~


	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		%	—


	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		%	—

Expected Maturity Date Total
Fair
Value
2017 2018 2019 2020 2021 2022 After
Long-term debt:
Fixed rate debt $ —
$ —
$ —
$ 273.8
$ —
$ 650.0
$ 923.8
$ 965.2
Average rate —
—
—
3.3 % —
5.7 % 5.0 % —
Variable rate debt $ 80.0
$ —
$ —
$ 300.5
$ —
$ —
$ 380.5
$ 380.5
Average rate 2.1 % —
—
2.9 % —
—
2.8 % —
Interest rate derivatives:
Interest rate swaps $ 1.3
$ (1.2 ) $ —
$ —
$ —
$ —
$ 0.1
$ 0.1
Average rate 0.9 % 2.1 % —
—
—
—
1.6 % —

Expected Maturity Date Total
Fair
Value
2016 2017 2018 2019 2020 2021 After
Long-term debt:
Fixed rate debt $ —
$ —
$ —
$ —
$ 288.8
$ 400.0
$ 688.8
$ 715.8
Average rate —
—
—
—
2.6 % 6.0 % 4.6 % —
Variable rate debt $ 138.6
$ —
$ —
$ —
$ 323.2
$ —
$ 461.8
$ 461.8
Average rate 1.4 % —
—
—
2.2 % —
2.0 % —
Interest rate derivatives:
Interest rate swaps $ (0.8 ) $ (0.9 ) $ (4.8 ) $ —
$ —
$ —
$ (6.5 ) $ (6.5 )
Average rate 3.0 % 1.3 % 2.1 % —
—
—
1.9 % —

Excluded from the information provided above are ~~$105.4 million~~miscellaneous debt instruments of $12.7 and ~~$71.3 million~~$11.9 and finance lease obligations of $28.9 and $33.4 at September 30, ~~2017~~2022 and ~~2016, respectively, of miscellaneous debt instruments.~~2021, respectively.

Other Market Risks

~~Through~~ ~~fiscal 2017~~, we had transactions that were denominated in currencies other than the currency of the country of origin. We use currency forward contracts to manage the exchange rate risk associated with intercompany loans and certain other

~~balances denominated in foreign currencies. At~~ ~~September 30, 2017, the notional amount of outstanding currency forward contracts was $268.3 million~~ ~~with a fair value~~ ~~of $1.8 million. At~~ ~~September 30, 2016, the notional amount of outstanding currency forward contracts was $165.8 million with a negative fair value of $0.4 million. The outstanding contracts will mature over the next fiscal quarter.~~

We are subject to market risk from fluctuations in foreign currency exchange rates and fluctuating prices of certain raw materials, including urea and other fertilizer inputs, resins, diesel, gasoline, natural gas, sphagnum peat, bark and grass seed. ~~Our objectives surrounding~~Refer to “NOTE 16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES” of the ~~procurement~~Notes to Consolidated Financial Statements included in this Form 10-K for discussion of these ~~materials are~~market risks and the derivatives used to ~~ensure continuous supply and to control costs. We seek to achieve~~manage these objectives through negotiation of contracts with favorable terms directly with vendors. In addition, we use derivatives to partially mitigate the effect of fluctuating diesel and gasoline costs on our businesses. We had outstanding derivative contracts for 6,972,000 and 8,106,000 gallons of fuel at September 30, 2017 and 2016, respectively. The outstanding derivative contracts had a positive fair value of $0.6 million at September 30, 2017, compared to a negative fair value of $0.1 million at September 30, 2016. We also enter into hedging arrangements designed to fix the price of a portion of our projected future urea requirements of our business. We had outstanding derivative contracts for 76,500 and 40,500 aggregate tons of urea at ~~September 30, 2017~~ ~~and 2016, respectively. The outstanding derivative contracts had a positive fair value of $3.2 million at September 30, 2017, compared to a negative fair value of $0.3 million at~~ ~~September 30, 2016~~.risks.


~~ITEM 8.~~	~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and other information required by this Item are contained in the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Schedules Supporting the Consolidated Financial Statements listed in the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 5556 of this ~~Annual Report on~~ Form 10-K.

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THE SCOTTS MIRACLE-GRO COMPANY

(Dollars in millions, except per share data)


~~ITEM 9.~~	~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


~~ITEM 9A.~~	~~CONTROLS AND PROCEDURES~~

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

With the participation of the principal executive officer and the principal financial officer of The Scotts Miracle-Gro Company (the “Registrant”), the Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the fiscal year covered by this ~~Annual Report on~~ Form 10-K. Based upon that evaluation, the Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures were effective as of the end of the fiscal year covered by this ~~Annual Report on~~ Form 10-K.

Management’s Annual Report on Internal Control Over Financial Reporting

The “Annual Report of Management on Internal Control Over Financial Reporting” required by Item 308(a) of SEC Regulation S-K is included on page 5657 of this ~~Annual Report on~~ Form 10-K.

Attestation Report of Independent Registered Public Accounting Firm

The “Report of Independent Registered Public Accounting Firm” required by Item 308(b) of SEC Regulation S-K is included on page 5758 of this ~~Annual Report on~~ Form 10-K.

Changes in Internal Control Over Financial Reporting

No changes in the Registrant’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Registrant’s fiscal quarter ended September 30, ~~2017,~~2022, that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.


~~ITEM 9B.~~	~~OTHER INFORMATION~~

ITEM 9B. OTHER INFORMATION

~~None.~~

As previously announced by the Company, David C. Evans will be stepping down from his role of Interim Chief Financial Officer effective as of November 30, 2022 but will continue to serve on Scotts Miracle-Gro’s Board of Directors.

At the time of Mr. Evan’s appointment as Interim Chief Financial Officer, the Compensation Committee of the Board of Directors (“Compensation Committee”) approved a grant of 17,181 Restricted Stock Units (“RSUs”) with a grant date of September 1, 2022, and a provision for ratable vesting at the rate of 1/7th of the RSUs granted for each full or partial month of service between September 1, 2022, and March 31, 2023.

In connection with his departure as Interim Chief Financial Officer, on November 27, 2022, the Compensation Committee elected to provide Mr. Evans with one additional month of the RSU vesting. As a result, Mr. Evans will receive an incremental 2,454 RSUs to the 7,362 RSUs he is already entitled to pursuant to the terms of the original grant.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not Applicable.

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PART III


~~ITEM 10.~~	~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers

The information required by Item 401 of SEC Regulation S-K concerning the directors of Scotts Miracle-Gro and the nominees for election or re-election as directors of Scotts Miracle-Gro at ~~the~~its Annual Meeting of Shareholders to be held on January ~~26, 2018~~23, 2023 (the ~~“2018~~“2023 Annual Meeting”) is incorporated herein by reference from the disclosure which will be included under the caption “PROPOSAL NUMBER 1 — ELECTION OF DIRECTORS” in Scotts Miracle-Gro’s definitive Proxy Statement relating to the ~~2018~~2023 Annual Meeting ~~(“Scotts Miracle-Gro’s Definitive Proxy~~(the “Proxy Statement”), which will be filed pursuant to SEC Regulation 14A not later than 120 days after the end of Scotts Miracle-Gro’s fiscal year ended September 30, ~~2017.~~2022.

The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Scotts Miracle-Gro is incorporated herein by reference from the disclosure included under the caption “SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT” in Part I of this ~~Annual Report on~~ Form 10-K.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in ~~Scotts Miracle-Gro’s Definitive~~its Proxy Statement.

Procedures for Recommending Director Nominees

Information concerning the procedures by which shareholders of Scotts Miracle-Gro may recommend nominees to Scotts Miracle-Gro’s Board of Directors is incorporated herein by reference from the disclosures which will be included under the captions “CORPORATE GOVERNANCE — Nominations of Directors” and “MEETINGS AND COMMITTEES OF THE BOARD — Committees of the Board — Nominating and Governance Committee” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement. These procedures have not materially changed from those described in Scotts Miracle-Gro’s definitive Proxy Statement for the ~~2017~~2022 Annual Meeting of Shareholders held on January ~~27, 2017.~~24, 2022.

Audit Committee

The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD — Committees of the Board” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

Committee Charters; Code of Business Conduct & Ethics; Corporate Governance Guidelines

The Board of Directors of Scotts Miracle-Gro has adopted charters for each of the Audit Committee, the Nominating and Governance Committee, the Compensation and Organization Committee, the Innovation and Technology Committee and the Finance Committee, as well as Corporate Governance Guidelines, as contemplated by the applicable sections of the New York Stock Exchange Listed Company Manual.

In accordance with the requirements of Section 303A.10 of the New York Stock Exchange Listed Company Manual and Item 406 of SEC Regulation S-K, the Board of Directors of Scotts Miracle-Gro has adopted a Code of Business Conduct & Ethics covering the members of Scotts Miracle-Gro’s Board of Directors and associates (employees) of Scotts Miracle-Gro and its subsidiaries, including, without limitation, Scotts Miracle-Gro’s principal executive officer, principal financial officer and principal accounting officer. Scotts Miracle-Gro intends to disclose the following events, if they occur, on its Internet website located at http://investor.scotts.com within four business days following their occurrence: (A) the date and nature of any amendment to a provision of Scotts Miracle-Gro’s Code of Business Conduct & Ethics that (i) applies to Scotts Miracle-Gro’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Business Conduct & Ethics granted to Scotts Miracle-Gro’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to one or more of the elements of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K. In addition, Scotts Miracle-Gro will disclose any waivers from the provisions of the Code of Business Conduct & Ethics granted to an executive

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officer or a director of Scotts

Miracle-Gro on Scotts Miracle-Gro’s Internet website located at http://investor.scotts.com within four business days of the determination to grant any such waiver.

The text of Scotts Miracle-Gro’s Code of Business Conduct & Ethics, Scotts Miracle-Gro’s Corporate Governance Guidelines, the Audit Committee charter, the Nominating and Governance Committee charter, the Compensation and Organization Committee charter, the Innovation and Technology Committee charter and the Finance Committee charter are posted under the “Corporate Governance” link on Scotts Miracle-Gro’s Internet website located at http://investor.scotts.com. Interested persons and shareholders of Scotts Miracle-Gro may also obtain copies of each of these documents without charge by writing to The Scotts Miracle-Gro Company, Attention: Corporate Secretary, 14111 Scottslawn Road, Marysville, Ohio 43041.


~~ITEM 11.~~	~~EXECUTIVE COMPENSATION~~

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosures which will be included under the captions “EXECUTIVE COMPENSATION,” “NON-EMPLOYEE DIRECTOR COMPENSATION,” “EXECUTIVE COMPENSATION TABLES,” “SEVERANCE AND CHANGE IN CONTROL (CIC) ARRANGEMENTS,” and “PAYMENTS ON TERMINATION OF EMPLOYMENT AND/OR CHANGE IN CONTROL” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD — Compensation and Organization Committee Interlocks and Insider Participation” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “COMPENSATION COMMITTEE REPORT” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.


~~ITEM 12.~~	~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Ownership of Common Shares of Scotts Miracle-Gro

The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

Equity Compensation Plan Information

The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure which will be included under the caption “EQUITY COMPENSATION PLAN INFORMATION” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.


~~ITEM 13.~~	~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Person Transactions

The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosures which will be included under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

Director Independence

The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosures which will be included under the captions “CORPORATE GOVERNANCE — Director Independence” and “MEETINGS AND COMMITTEES OF THE BOARD” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.


~~ITEM 14.~~	~~PRINCIPAL ACCOUNTING FEES AND SERVICES~~

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference from the disclosures which will be included under the captions “AUDIT COMMITTEE MATTERS — Fees of the Independent Registered Public Accounting Firm” and “AUDIT COMMITTEE MATTERS — Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm” in ~~Scotts Miracle-Gro’s Definitive~~the Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

1 and 2. Financial Statements and Financial Statement Schedules:

The response to this portion of Item 15 is submitted as a separate section of this Form 10-K. Reference is made to the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 56 of this Form 10-K.

(b) EXHIBITS

The exhibits listed on the “Index to Exhibits” beginning on page 109 of this Form 10-K are filed or furnished with this Form 10-K or incorporated herein by reference as noted in the “Index to Exhibits.”

The financial statement schedule filed with this Form 10-K is submitted in a separate section hereof. For a description of such financial statement schedules, see “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 56 of this Form 10-K.

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

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


			THE SCOTTS MIRACLE-GRO COMPANY

			By:						/s/ JAMES HAGEDORN
									James Hagedorn, Chief Executive Officer and Chairman of the Board

Dated: November 28, 2022

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

Signature

Title

Date

/s/ DAVID C. EVANS

Interim Chief Financial Officer, Executive Vice President and Director

November 28, 2022

David C. Evans

(Principal Financial Officer and Principal Accounting Officer)

/s/ JAMES HAGEDORN

Chief Executive Officer, Chairman of the Board and Director

November 28, 2022

James Hagedorn

(Principal Executive Officer)

/s/ BRIAN D. FINN*

Director

November 28, 2022

Brian D. Finn

/s/ ADAM HANFT*

Director

November 28, 2022

Adam Hanft

/s/ STEPHEN L. JOHNSON*

Director

November 28, 2022

Stephen L. Johnson

/s/ THOMAS N. KELLY JR.*

Director

November 28, 2022

Thomas N. Kelly Jr.

/s/ KATHERINE HAGEDORN LITTLEFIELD*

Director

November 28, 2022

Katherine Hagedorn Littlefield

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Signature

Title

Date

/s/ NANCY G. MISTRETTA*

Director

November 28, 2022

Nancy G. Mistretta

/s/ BRIAN E. SANDOVAL*

Director

November 28, 2022

Brian E. Sandoval

/s/ PETER E. SHUMLIN*

Director

November 28, 2022

Peter E. Shumlin

/s/ JOHN R. VINES*

Director

November 28, 2022

John R. Vines

/s/ GERALD VOLAS*

Director

November 28, 2022

Gerald Volas


*			The undersigned, by signing his name hereto, does hereby sign this Report on behalf of each of the directors of the Registrant identified above pursuant to Powers of Attorney executed by the directors identified above, which Powers of Attorney are filed with this Report as exhibits.


By:			/s/ DAVID C. EVANS
			David C. Evans, Attorney-in-Fact

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THE SCOTTS MIRACLE-GRO COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES


			Page
Consolidated Financial Statements of The Scotts Miracle-Gro Company and Subsidiaries:
Annual Report of Management on Internal Control Over Financial Reporting			57
Reports of Independent Registered Public Accounting Firm(PCAOB ID: 34)			58
Consolidated Statements of Operations for the fiscal years ended September 30, 2022, 2021 and 2020			62
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended September 30, 2022, 2021 and 2020			63
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022, 2021 and 2020			64
Consolidated Balance Sheets at September 30, 2022 and 2021			65
Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 30, 2022, 2021 and 2020			66
Notes to Consolidated Financial Statements			67
Schedules Supporting the Consolidated Financial Statements:
Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 30, 202 2 , 202 1 and 20 20			108

All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required or are not applicable, or the required information has been presented in the Consolidated Financial Statements or Notes thereto.

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ANNUAL REPORT OF MANAGEMENT ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of The Scotts Miracle-Gro Company and our consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of The Scotts Miracle-Gro Company and our consolidated subsidiaries are being made only in accordance with authorizations of management and directors of The Scotts Miracle-Gro Company and our consolidated subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of The Scotts Miracle-Gro Company and our consolidated subsidiaries that could have a material effect on our consolidated financial statements.

Management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2022, the end of our fiscal year. Management based its assessment on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed under the direction of management. As allowed by the SEC guidance, management excluded from the assessment the internal control over financial reporting at True Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY LTD, d.b.a. Cyco, which were acquired in fiscal 2022. These acquisitions constituted 1% of total assets and revenues and 0% of net income included in our consolidated financial statements as of and for the fiscal year ended September 30, 2022.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of September 30, 2022, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. We reviewed the results of management’s assessment with the Audit Committee of the Board of Directors of The Scotts Miracle-Gro Company.

Our independent registered public accounting firm, Deloitte & Touche LLP, independently audited our internal control over financial reporting as of September 30, 2022 and has issued their attestation report which appears herein.

/s/ JAMES HAGEDORN

/s/ DAVID C. EVANS

James Hagedorn

David C. Evans

Chief Executive Officer and Chairman of the Board

Interim Chief Financial Officer

Dated:

November 28, 2022

Dated:

November 28, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of

The Scotts Miracle-Gro Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Scotts Miracle‐Gro Company and subsidiaries (the “Company”) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 28, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Intangible Asset Impairment — Hawthorne Reporting Unit — Refer to Notes 1 and 5 to the financial statements.

Critical Audit Matter Description

The Company’s impairment evaluation of its Hawthorne goodwill, tradename finite-lived intangible assets, and customer relationships finite-lived intangible assets involves the comparison of the fair value of each reporting unit or intangible asset to its carrying value. For Hawthorne goodwill, the Company determines the fair value of its reporting unit using a combination of income-based and market-based approaches and incorporates assumptions it believes market participants would utilize. Under the income-based approach, the Company determines fair value using a discounted cash flow approach that requires significant judgment with respect to revenue growth rates based upon annual budgets and longer-range strategic plans and the selection of an appropriate discount rate. Under the market-based approach, the Company determines fair value by comparing its reporting unit to similar businesses or guideline companies whose securities are actively traded in public markets. For the Hawthorne tradename and customer relationships intangible assets the Company determines fair value using an income approach. The

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Company used a relief from royalty method for the Hawthorne tradename intangible assets’ fair values and a multi-period excess earnings method to estimate the fair values for the Hawthorne customer relationships intangible assets.

During the year, management recorded a $522.4 million impairment charge of its Hawthorne reporting unit goodwill and a $145.3 million impairment charge related to the Hawthorne tradenames and customer relationships intangible assets.

Given the significant estimates and assumptions management makes to estimate the fair values of the Hawthorne reporting unit goodwill, tradenames, and customer relationships and the sensitivity of Hawthorne’s operations to changes in the U.S. retail hydroponic market, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions with respect to the revenue growth rates, royalty rates, and the selection of appropriate discount rates for Hawthorne, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures with respect to revenue growth rates, royalty rates, and the selection of appropriate discount rates for Hawthorne included the following, among others:

•We tested the effectiveness of controls over management’s goodwill and intangible asset impairment evaluations, including those over the determination of the fair value of Hawthorne goodwill and finite-lived intangible assets, such as controls related to the revenue growth rates, royalty rates, and the selection of appropriate discount rates.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the long-term growth rate, including testing the source information underlying the determination of the long-term growth rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the long-term growth rate selected by management.

•We evaluated management’s ability to accurately forecast the revenue growth rates by comparing actual results to management’s historical forecasts. Due to the uncertain growth in the U.S. retail hydroponic market, we evaluated the reasonableness of management’s forecasts of the revenue growth rates by comparing the forecasts to (1) the historical results of Hawthorne, (2) internal communications to management and the board of directors, (3) external communications made by management to analysts and investors, and (4) industry reports containing analyses of the Company’s markets.

•We considered the impact of changes in the regulatory environment on management’s forecasts of the revenue growth rates.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the royalty rates, including testing the source information underlying the determination of the royalty rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the royalty rates selected by management.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates, including testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.


/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio
November 28, 2022
We have served as the Company’s auditor since 2005.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of The Scotts Miracle-Gro Company

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of The Scotts Miracle-Gro Company and subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our report dated November 28, 2022, expressed an unqualified opinion on those financial statements.

As described in Annual Report of Management on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at True Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY LTD, d.b.a. Cyco, which were acquired during the year ended September 30, 2022 and whose financial statements constitute 1% of total assets and revenues and 0% of net income of the consolidated financial statement amounts as of and for the fiscal year ended September 30, 2022. Accordingly, our audit did not include the internal control over financial reporting at True Liberty Bags, Luxx Lighting, Inc. and S.J. Enterprises PTY LTD, d.b.a. Cyco.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio
November 28, 2022

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THE SCOTTS MIRACLE-GRO COMPANY

Consolidated Statements of Operations

(In millions, except per share data)


	Year Ended September 30,
	2022		2021		2020
Net sales	$	3,924.1	$	4,925.0	$	4,131.6
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
Gross margin	872.9		1,469.0		1,347.0
Operating expenses:
Selling, general and administrative	613.0		743.5		757.8
Impairment, restructuring and other	693.1		4.3		0.8
Other (income) expense, net	0.8		(1.8)		3.2
Income (loss) from operations	(434.0)		723.0		585.2
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	(558.1)		677.1		510.6
Income tax expense (benefit) from continuing operations	(120.6)		159.8		123.7
Income (loss) from continuing operations	(437.5)		517.3		386.9
Income (loss) from discontinued operations, net of tax	—		(3.9)		1.7
Net income (loss)	$	(437.5)	$	513.4	$	388.6
Net income attributable to noncontrolling interest	—		(0.9)		(1.2)
Net income (loss) attributable to controlling interest	$	(437.5)	$	512.5	$	387.4

Basic income (loss) per common share:
Income (loss) from continuing operations	$	(7.88)	$	9.27	$	6.92
Income (loss) from discontinued operations	—		(0.07)		0.04
Basic net income (loss) per common share	$	(7.88)	$	9.20	$	6.96
Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(7.88)	$	9.03	$	6.78
Income (loss) from discontinued operations	—		(0.07)		0.03
Diluted net income (loss) per common share	$	(7.88)	$	8.96	$	6.81

See Notes to Consolidated Financial Statements.

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THE SCOTTS MIRACLE-GRO COMPANY

Consolidated Statements of Comprehensive Income (Loss)

(In millions)


	Year Ended September 30,
	2022		2021		2020
Net income (loss)	$	(437.5)	$	513.4	$	388.6
Other comprehensive income (loss):
Net foreign currency translation adjustment	(27.2)		4.5		11.3
Net unrealized gain (loss) on derivative instruments, net of tax	29.9		19.8		(14.6)
Reclassification of net unrealized (gains) losses on derivative instruments to net income, net of tax	(6.8)		5.4		7.5
Net unrealized loss on securities, net of tax	(77.4)		(2.3)		—
Net unrealized gain (loss) in pension and other post-retirement benefits, net of tax	(5.4)		5.1		(9.6)
Pension and other post-retirement benefit adjustments, net of tax	8.7		0.3		0.2
Total other comprehensive income (loss)	(78.2)		32.8		(5.2)
Comprehensive income (loss)	(515.7)		546.2		383.4
Comprehensive income attributable to noncontrolling interest	—		(0.9)		(1.2)
Comprehensive income (loss) attributable to controlling interest	$	(515.7)	$	545.3	$	382.2

See Notes to Consolidated Financial Statements.

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THE SCOTTS MIRACLE-GRO COMPANY

Consolidated Statements of Cash Flows

(In millions)


	Year Ended September 30,
	2022		2021		2020
OPERATING ACTIVITIES
Net income (loss)	$	(437.5)	$	513.4	$	388.6
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Impairment, restructuring and other	666.8		—		—
Costs related to refinancing	—		—		15.1
Share-based compensation expense	34.3		40.6		57.9
Depreciation	68.1		62.9		62.2
Amortization	37.1		30.9		32.5
Deferred taxes	(182.8)		22.5		(11.1)
Equity in (income) loss of unconsolidated affiliates, net of distributions	12.9		(2.6)		—
Other, net	1.1		(10.8)		4.2



Changes in assets and liabilities, net of acquisitions:
Accounts receivable	102.8		15.5		(188.1)
Inventories	(203.8)		(496.5)		(80.6)
Prepaid and other assets	(3.3)		(76.5)		(19.4)
Accounts payable	(171.2)		202.5		172.2
Other current liabilities	(68.4)		(21.6)		148.6

Other non-current items	20.1		(10.1)		(24.8)
Other, net	(5.2)		1.3		0.7
Net cash (used in) provided by operating activities	(129.0)		271.5		558.0
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets	63.3		0.2		0.4

Investments in property, plant and equipment	(113.5)		(106.9)		(62.7)
Investments in loans receivable	—		—		(3.4)

Proceeds from sale of brand extension assets	—		—		115.5
Investments in unconsolidated affiliates	—		(102.3)		—

Payment for acquisitions, net of cash acquired	(237.3)		(127.8)		—
Purchase of convertible debt investments	(25.0)		(193.1)		—
Other investing, net	29.3		(8.7)		(2.9)
Net cash (used in) provided by investing activities	(283.2)		(538.6)		46.9
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans	3,617.4		1,243.2		1,222.7
Repayments under revolving and bank lines of credit and term loans	(2,937.3)		(1,361.5)		(1,413.8)
Proceeds from issuance of 4.000% Senior Notes	—		500.0		—
Proceeds from issuance of 4.375% Senior Notes	—		400.0		—
Proceeds from issuance of 4.500% Senior Notes	—		—		450.0
Repayment of 6.000% Senior Notes	—		—		(400.0)
Financing and issuance fees	(9.6)		(13.1)		(18.7)
Dividends paid	(166.2)		(143.0)		(411.2)

Purchase of Common Shares	(257.9)		(129.3)		(53.2)
Payments on seller notes	—		—		(0.5)

Cash received from exercise of stock options	3.3		15.2		17.6
Acquisition of noncontrolling interests	—		(17.5)		—
Other financing, net	5.6		—		—
Net cash provided by (used in) financing activities	255.3		494.0		(607.1)
Effect of exchange rate changes on cash	(0.4)		0.6		—
Net increase (decrease) in cash and cash equivalents	(157.3)		227.5		(2.2)


Cash and cash equivalents at beginning of year	244.1		16.6		18.8
Cash and cash equivalents at end of year	$	86.8	$	244.1	$	16.6

See Notes to Consolidated Financial Statements.

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THE SCOTTS MIRACLE-GRO COMPANY

Consolidated Balance Sheets

(In millions, except per share data)


	September 30,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	86.8	$	244.1
Accounts receivable, less allowances of $14.4 in 2022 and $16.8 in 2021	299.0		483.4
Accounts receivable pledged	79.8		—
Inventories	1,343.5		1,126.6

Prepaid and other current assets	172.8		169.9
Total current assets	1,981.9		2,024.0
Investment in unconsolidated affiliates	193.8		207.0
Property, plant and equipment, net	606.0		622.2
Goodwill	254.0		605.2
Intangible assets, net	580.2		709.6
Other assets	680.9		632.0
Total assets	$	4,296.8	$	4,800.0
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	144.3	$	57.8
Accounts payable	422.6		609.4

Other current liabilities	397.0		473.2
Total current liabilities	963.9		1,140.4
Long-term debt	2,826.2		2,236.7

Other liabilities	359.0		409.6
Total liabilities	4,149.1		3,786.7
Commitments and contingencies (Notes 18, 19 and 20)
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 55.5 and 55.6, respectively	364.0		477.0
Retained earnings	1,020.1		1,605.1
Treasury shares, at cost; 12.8 and 12.6 shares, respectively	(1,091.8)		(1,002.4)
Accumulated other comprehensive loss	(144.6)		(66.4)


Total equity	147.7		1,013.3
Total liabilities and equity	$	4,296.8	$	4,800.0

See Notes to Consolidated Financial Statements.

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THE SCOTTS MIRACLE-GRO COMPANY

Consolidated Statements of Shareholders’ Equity

(In millions, except per share data)


	Common Shares			Capital in Excess of Stated Value		Retained Earnings		Treasury Shares			Accumulated Other Comprehensive Income (Loss)				Non-controlling Interest
	Shares	Amount						Shares	Amount				Total				Total
Balance at September 30, 2019	68.1	$	0.3	$	441.9	$	1,274.7	12.4	$	(904.3)	$	(93.9)	$	718.7	$	4.5	$	723.2

Net income (loss)	—	—		—		387.4		—	—		—		387.4		1.2		388.6
Other comprehensive income (loss)	—	—		—		—		—	—		(5.2)		(5.2)		—		(5.2)
Share-based compensation	—	—		57.9		—		—	—		—		57.9		—		57.9
Dividends declared ($7.36 per share)	—	—		—		(426.5)		—	—		—		(426.5)		—		(426.5)
Treasury share purchases	—	—		—		—		0.4	(53.2)		—		(53.2)		—		(53.2)
Treasury share issuances	—	—		(17.6)		—		(0.4)	35.7		—		18.1		—		18.1


Balance at September 30, 2020	68.1	0.3		482.2		1,235.6		12.4	(921.8)		(99.1)		697.2		5.7		702.9

Net income (loss)	—	—		—		512.5		—	—		—		512.5		0.9		513.4
Other comprehensive income (loss)	—	—		—		—		—	—		32.8		32.8		—		32.8
Share-based compensation	—	—		40.6		—		—	—		—		40.6		—		40.6
Dividends declared ($2.52 per share)	—	—		—		(143.0)		—	—		—		(143.0)		—		(143.0)
Treasury share purchases	—	—		—		—		0.7	(129.3)		—		(129.3)		—		(129.3)
Treasury share issuances	—	—		(32.6)		—		(0.5)	48.7		—		16.1		—		16.1
Acquisition of remaining noncontrolling interest in AeroGrow	—	—		(13.4)		—		—	—		—		(13.4)		(6.7)		(20.1)


Balance at September 30, 2021	68.1	0.3		476.7		1,605.1		12.6	(1,002.4)		(66.4)		1,013.3		—		1,013.3

Net income (loss)	—	—		—		(437.5)		—	—		—		(437.5)		—		(437.5)
Other comprehensive income (loss)	—	—		—		—		—	—		(78.2)		(78.2)		—		(78.2)
Share-based compensation	—	—		30.3		—		—	—		—		30.3		—		30.3
Dividends declared ($2.64 per share)	—	—		—		(147.5)		—	—		—		(147.5)		—		(147.5)
Treasury share purchases	—	—		—		—		1.7	(257.9)		—		(257.9)		—		(257.9)
Treasury share issuances	—	—		(143.3)		—		(1.5)	168.4		—		25.1		—		25.1




Balance at September 30, 2022	68.1	$	0.3	$	363.7	$	1,020.1	12.8	$	(1,091.8)	$	(144.6)	$	147.7	$	—	$	147.7

The sum of the components may not equal due to rounding.

See Notes to Consolidated Financial Statements.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share data)


~~ITEM 15.~~	~~EXHIBITS, FINANCIAL STATEMENT SCHEDULES~~

~~(a)~~ ~~LIST OF DOCUMENTS FILED AS PART OF THIS REPORT~~

~~1 and 2. Financial Statements and Financial Statement Schedules:~~

The response to this portion of Item 15 is submitted as a separate section of this Annual Report on Form 10-K. Reference is made to the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 55 of this Annual Report on Form 10-K.

~~(b)~~ ~~EXHIBITS~~

The exhibits listed on the “Index to Exhibits” beginning on page 129 of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K or incorporated herein by reference as noted in the “Index to Exhibits.”

~~(c)~~ ~~FINANCIAL STATEMENT SCHEDULES~~

The financial statement schedule filed with this Annual Report on Form 10-K is submitted in a separate section hereof. For a description of such financial statement schedules, see “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 55 of this Annual Report on Form 10-K.

~~SIGNATURES~~



	~~THE SCOTTS MIRACLE-GRO COMPANY~~

	~~By:~~		~~/s/ JAMES HAGEDORN~~
			~~James Hagedorn, Chief Executive Officer and Chairman of the Board~~

~~Dated: November 28, 2017~~



~~Signature~~	~~Title~~	~~Date~~

~~/s/ THOMAS RANDAL COLEMAN~~	~~Chief Financial Officer and Executive Vice President~~	~~November 28, 2017~~
~~Thomas Randal Coleman~~	~~(Principal Financial Officer and Principal Accounting Officer)~~

~~/s/ JAMES HAGEDORN~~	~~Chief Executive Officer, Chairman of the Board and Director~~	~~November 28, 2017~~
~~James Hagedorn~~	~~(Principal Executive Officer)~~

/s/ BRIAN D. FINN*	~~Director~~	~~November 28, 2017~~
~~Brian D. Finn~~

/s/ ADAM HANFT*	~~Director~~	~~November 28, 2017~~
~~Adam Hanft~~

/s/ MICHELLE A. JOHNSON*	~~Director~~	~~November 28, 2017~~
~~Michelle A. Johnson~~

/s/ STEPHEN L. JOHNSON*	~~Director~~	~~November 28, 2017~~
~~Stephen L. Johnson~~

/s/ THOMAS N. KELLY JR.*	~~Director~~	~~November 28, 2017~~
~~Thomas N. Kelly Jr.~~

/s/ KATHERINE HAGEDORN LITTLEFIELD*	~~Director~~	~~November 28, 2017~~
~~Katherine Hagedorn Littlefield~~



~~Signature~~	~~Title~~	~~Date~~

/s/ JAMES F. MCCANN*	~~Director~~	~~November 28, 2017~~
~~James F. McCann~~

/s/ NANCY G. MISTRETTA*	~~Director~~	~~November 28, 2017~~
~~Nancy G. Mistretta~~

/s/ PETER E. SHUMLIN*	~~Director~~	~~November 28, 2017~~
~~Peter E. Shumlin~~

/s/ JOHN R. VINES*	~~Director~~	~~November 28, 2017~~
~~John R. Vines~~



*	The undersigned, by signing his name hereto, does hereby sign this Report on behalf of each of the directors of the Registrant identified above pursuant to Powers of Attorney executed by the directors identified above, which Powers of Attorney are filed with this Report as exhibits.



~~By:~~	~~/s/ THOMAS RANDAL COLEMAN~~
	~~Thomas Randal Coleman, Attorney-in-Fact~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~AND FINANCIAL STATEMENT SCHEDULES~~



	~~Page~~
~~Consolidated Financial Statements of The Scotts Miracle-Gro Company and Subsidiaries:~~
~~Annual Report of Management on Internal Control Over Financial Reporting~~	56
~~Reports of Independent Registered Public Accounting Firm~~	57
~~Consolidated Statements of Operations for the fiscal years ended September 30, 2017, 2016 and 2015~~	59
~~Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended September 30, 2017, 2016 and 2015~~	60
~~Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2017, 2016 and 2015~~	61
~~Consolidated Balance Sheets at September 30, 2017 and 2016~~	62
~~Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 30, 2017, 2016 and 2015~~	63
~~Notes to Consolidated Financial Statements~~	64
~~Schedules Supporting the Consolidated Financial Statements:~~
~~Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 30, 2017, 2016 and 2015~~	~~128~~

~~ANNUAL REPORT OF MANAGEMENT ON INTERNAL~~

~~CONTROL OVER FINANCIAL REPORTING~~

Management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2017, the end of our fiscal year. Management based its assessment on criteria established in ~~Internal Control — Integrated Framework (2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed under the direction of management. As allowed by the SEC guidance, management excluded from the assessment the internal control over financial reporting at American Agritech, L.L.C., Natural Science, Inc. and Agrolux Holding B.V. and its subsidiaries, which were acquired in fiscal 2017. These acquisitions constituted 6.8% of total assets, 2.3% and 3.1% of revenues and net income, respectively, included in our consolidated financial statements as of and for the fiscal year ended September 30, 2017.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of September 30, 2017, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. We reviewed the results of management’s assessment with the Audit Committee of the Board of Directors of The Scotts Miracle-Gro Company.

Our independent registered public accounting firm, Deloitte & Touche LLP, independently audited our internal control over financial reporting as of September 30, 2017 and has issued their attestation report which appears herein.



~~/s/ JAMES HAGEDORN~~		~~/s/ THOMAS RANDAL COLEMAN~~
~~James Hagedorn~~		~~Thomas Randal Coleman~~
~~Chief Executive Officer and Chairman of the Board~~		~~Executive Vice President and Chief Financial Officer~~

~~Dated:~~	~~November 28, 2017~~	~~Dated:~~	~~November 28, 2017~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Shareholders of~~

~~The Scotts Miracle-Gro Company~~

~~Marysville, Ohio~~

We have audited the accompanying consolidated balance sheets of The Scotts Miracle-Gro Company and subsidiaries (the “Company”) as of September 30, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2017. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of September 30, 2017, based on the criteria established in ~~Internal Control — Integrated Framework (2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 28, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.



~~/s/ DELOITTE & TOUCHE LLP~~

~~Columbus, Ohio~~
~~November 28, 2017~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Shareholders of~~

~~The Scotts Miracle-Gro Company~~

~~Marysville, Ohio~~

~~We have audited the internal control over financial reporting of The Scotts Miracle-Gro Company and subsidiaries (the “Company”) as of September 30, 2017, based on criteria established in~~ ~~Internal Control — Integrated Framework (2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Annual Report of Management on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at American Agritech, L.L.C., Natural Science, Inc. and Agrolux Holding B.V. and its subsidiaries which were acquired in fiscal 2017. These acquisitions constituted 6.8% of total assets, 2.3% and 3.1% of revenues and net income, respectively, included in the consolidated financial statements as of and for the fiscal year ended September 30, 2017. Accordingly, our audit did not include the internal control over financial reporting at American Agritech, L.L.C., Natural Science, Inc. and Agrolux Holding B.V. and its subsidiaries. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the criteria established in~~ ~~Internal Control — Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended September 30, 2017 of the Company and our report dated November 28, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules.



~~/s/ DELOITTE & TOUCHE LLP~~

~~Columbus, Ohio~~
~~November 28, 2017~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Consolidated Statements of Operations~~

~~(In millions, except per share data)~~

Year Ended September 30,
2017 2016 2015
Net sales $ 2,642.1
$ 2,506.2
$ 2,371.1
Cost of sales 1,669.5
1,600.0
1,557.3
Cost of sales—impairment, restructuring and other —
5.9
3.0
Gross profit 972.6
900.3
810.8
Operating expenses:
Selling, general and administrative 550.9
518.0
488.8
Impairment, restructuring and other 4.9
(51.5 ) 70.4
Other income, net (16.6 ) (13.8 ) (2.2 )
Income from operations 433.4
447.6
253.8
Equity in (income) loss of unconsolidated affiliates 29.0
(7.8 ) —
Costs related to refinancing —
8.8
—
Interest expense 76.1
62.9
48.8
Other non-operating expense 13.4
—
—
Income from continuing operations before income taxes 314.9
383.7
205.0
Income tax expense from continuing operations 116.6
137.6
76.3
Income from continuing operations 198.3
246.1
128.7
Income from discontinued operations, net of tax 20.5
68.7
30.0
Net income $ 218.8
$ 314.8
$ 158.7
Net (income) loss attributable to noncontrolling interest (0.5 ) 0.5
1.1
Net income attributable to controlling interest $ 218.3
$ 315.3
$ 159.8

Basic income per common share:
Income from continuing operations $ 3.33
$ 4.04
$ 2.12
Income from discontinued operations 0.35
1.12
0.50
Basic net income per common share $ 3.68
$ 5.16
$ 2.62
Diluted income per common share:
Income from continuing operations $ 3.29
$ 3.98
$ 2.09
Income from discontinued operations 0.34
1.11
0.48
Diluted net income per common share $ 3.63
$ 5.09
$ 2.57

~~See Notes to Consolidated Financial Statements.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Consolidated Statements of Comprehensive Income (Loss)~~

~~(In millions)~~

Year Ended September 30,
2017 2016 2015
Net income $ 218.8
$ 314.8
$ 158.7
Other comprehensive income (loss):
Net foreign currency translation adjustment 28.2
(6.2 ) (14.2 )
Net unrealized gain (loss) on derivative instruments, net of tax of $3.1, $0.9 and $5.3 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively 4.9
(1.5 ) (8.6 )
Reclassification of net unrealized losses on derivatives to net income, net of tax of $1.1, $3.6 and $4.0 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively 1.8
5.8
6.5
Net unrealized gain (loss) in pension and other post-retirement benefits, net of tax of $6.0, $6.2 and $4.6 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively 9.6
(10.0 ) (7.4 )
Reclassification of net pension and post-retirement benefit losses to net income, net of tax of $2.3, $1.1 and $1.9 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively 3.6
1.8
3.1
Total other comprehensive income (loss) 48.1
(10.1 ) (20.6 )
Comprehensive income 266.9
304.7
138.1
Comprehensive (income) loss attributable to noncontrolling interest (0.9 ) 0.5
1.1
Comprehensive income attributable to controlling interest $ 266.0
$ 305.2
$ 139.2

~~See Notes to Consolidated Financial Statements.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Consolidated Statements of Cash Flows~~

~~(In millions)~~

Year Ended September 30,
2017 2016 2015
OPERATING ACTIVITIES
Net income $ 218.8
$ 314.8
$ 158.7
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment, restructuring and other 1.2
0.2
4.3
Costs related to refinancing —
2.2
—
Share-based compensation expense 25.2
15.6
13.2
Depreciation 55.1
53.8
51.4
Amortization 25.0
19.7
17.6
Deferred taxes (17.4 ) 83.6
1.3
Gain on long-lived assets (3.3 ) (0.8 ) —
Gain on sale / contribution of business (31.7 ) (131.2 ) —
Equity in (income) loss and distributions from unconsolidated affiliates 32.6
(0.3 ) —
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable 48.6
(29.8 ) (12.5 )
Inventories 3.6
(29.4 ) (17.5 )
Prepaid and other assets (12.2 ) (9.3 ) 1.8
Accounts payable 9.0
(45.3 ) 6.9
Other current liabilities 26.9
22.9
12.9
Restructuring (8.7 ) (7.3 ) 12.1
Other non-current items (19.6 ) (18.4 ) (3.4 )
Other, net 0.9
(3.6 ) 0.1
Net cash provided by operating activities 354.0
237.4
246.9
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets 5.7
2.4
5.5
Proceeds from sale of business, net of cash disposed of 180.3
—
—
Investments in property, plant and equipment (69.6 ) (58.3 ) (61.7 )
Investments in loans receivable (29.7 ) (90.0 ) —
Cash contributed to TruGreen Joint Venture —
(24.2 ) —
Net distributions from unconsolidated affiliates 57.4
194.1
—
Investment in marketing and license agreement —
—
(300.0 )
Investments in acquired businesses, net of cash acquired (121.7 ) (158.4 ) (180.2 )
Net cash (used in) provided by investing activities 22.4
(134.4 ) (536.4 )
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans 1,449.3
2,069.1
1,836.0
Repayments under revolving and bank lines of credit and term loans (1,618.3 ) (2,150.4 ) (1,458.0 )
Proceeds from issuance of 5.250% Senior Notes 250.0
—
—
Proceeds from issuance of 6.000% Senior Notes —
400.0
—
Repayment of 6.625% Senior Notes —
(200.0 ) —
Financing and issuance fees (4.4 ) (11.2 ) (0.5 )
Dividends paid (120.3 ) (116.6 ) (111.3 )
Distribution paid by AeroGrow to noncontrolling interest (8.1 ) —
—
Purchase of Common Shares (246.0 ) (130.8 ) (14.8 )
Payments on sellers notes (28.7 ) (2.8 ) (1.5 )
Excess tax benefits from share-based payment arrangements 7.9
5.8
4.7
Cash received from exercise of stock options 11.0
14.7
24.3
Net cash (used in) provided by financing activities (307.6 ) (122.2 ) 278.9
Effect of exchange rate changes on cash 1.6
(2.1 ) (7.3 )
Net increase (decrease) in cash and cash equivalents 70.4
(21.3 ) (17.9 )
Cash and cash equivalents at beginning of year excluding cash classified within assets held for sale 28.6
50.8
64.9
Cash and cash equivalents at beginning of year classified within assets held for sale 21.5
20.6
24.4
Cash and cash equivalents at beginning of year 50.1
71.4
89.3
Cash and cash equivalents at end of year $ 120.5
$ 50.1
$ 71.4

~~See Notes to Consolidated Financial Statements.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Consolidated Balance Sheets~~

~~(In millions, except stated value per share)~~

September 30,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 120.5
$ 28.6
Accounts receivable, less allowances of $3.1 in 2017 and $4.8 in 2016 197.7
127.0
Accounts receivable pledged 88.9
174.7
Inventories 407.5
394.7
Assets held for sale —
256.2
Prepaid and other current assets 67.1
51.7
Total current assets 881.7
1,032.9
Investment in unconsolidated affiliates 31.1
101.0
Property, plant and equipment, net 467.7
444.9
Goodwill 441.6
371.9
Intangible assets, net 748.9
690.0
Other assets 176.0
115.1
Total assets $ 2,747.0
$ 2,755.8
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt $ 143.1
$ 185.0
Accounts payable 153.1
131.2
Liabilities held for sale —
213.0
Other current liabilities 248.3
177.9
Total current liabilities 544.5
707.1
Long-term debt 1,258.0
1,030.9
Distributions in excess of investment in unconsolidated affiliate 21.9
—
Other liabilities 260.9
283.5
Total liabilities 2,085.3
2,021.5
Commitments and contingencies (Notes 17, 18 and 19)

Equity:
Common shares and capital in excess of $.01 stated value per share; shares outstanding of 58.1 in 2017 and 60.3 in 2016 407.6
401.7
Retained earnings 978.2
881.8
Treasury shares, at cost; 10.0 shares in 2017 and 7.8 shares in 2016 (667.8 ) (451.4 )
Accumulated other comprehensive loss (69.2 ) (116.9 )
Total equity—controlling interest 648.8
715.2
Noncontrolling interest 12.9
19.1
Total equity 661.7
734.3
Total liabilities and equity $ 2,747.0
$ 2,755.8

~~See Notes to Consolidated Financial Statements.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Consolidated Statements of Shareholders’ Equity~~

~~(In millions, except per share data)~~

Common Shares Capital in Excess of Stated Value Retained Earnings Treasury Shares Accumulated Other Comprehensive Income (Loss) Non-controlling Interest
Shares Amount Shares Amount Total Total
Balance at September 30, 2014 68.1
$ 0.3
$ 395.0
$ 636.9
7.4
$ (392.3 ) $ (86.2 ) $ 553.7
$ 13.5
$ 567.2
Net income (loss) —
—
—
159.8
—
—
—
159.8
(1.1 ) 158.7
Other comprehensive loss —
—
—
—
—
—
(20.6 ) (20.6 ) —
(20.6 )
Share-based compensation —
—
17.5
—
—
—
—
17.5
—
17.5
Dividends declared ($1.8200 per share) —
—
—
(112.5 ) —
—
—
(112.5 ) —
(112.5 )
Treasury share purchases —
—
—
—
0.2
(14.8 ) —
(14.8 ) —
(14.8 )
Treasury share issuances —
—
(12.4 ) —
(0.9 ) 50.0
—
37.6
—
37.6
Balance at September 30, 2015 68.1
0.3
400.1
684.2
6.7
(357.1 ) (106.8 ) 620.7
12.4
633.1
Net income (loss) —
—
—
315.3
—
—
—
315.3
(0.5 ) 314.8
Other comprehensive loss —
—
—
—
—
—
(10.1 ) (10.1 ) —
(10.1 )
Share-based compensation —
—
21.6
—
—
—
—
21.6
—
21.6
Dividends declared ($1.9100 per share) —
—
—
(117.7 ) —
—
—
(117.7 ) —
(117.7 )
Treasury share purchases —
—
—
—
1.8
(130.8 ) —
(130.8 ) —
(130.8 )
Treasury share issuances —
—
(20.3 ) —
(0.7 ) 36.5
—
16.2
—
16.2
Investment in noncontrolling interest —
—
—
—
—
—
—
—
7.2
7.2
Balance at September 30, 2016 68.1
0.3
401.4
881.8
7.8
(451.4 ) (116.9 ) 715.2
19.1
734.3
Net income —
—
—
218.3
—
—
—
218.3
0.5
218.8
Other comprehensive income —
—
—
—
—
—
47.7
47.7
0.4
48.1
Share-based compensation —
—
33.4
—
—
—
—
33.4
—
33.4
Dividends declared ($2.0300 per share) —
—
—
(121.9 ) —
—
—
(121.9 ) —
(121.9 )
Treasury share purchases —
—
—
—
2.7
(245.8 ) —
(245.8 ) —
(245.8 )
Treasury share issuances —
—
(26.5 ) —
(0.5 ) 29.4
—
2.9
—
2.9
Adjustment to noncontrolling interest due to ownership change —
—
(1.0 ) —
—
—
—
(1.0 ) 1.0
—
Distribution declared by AeroGrow —
—
—
—
—
—
—
—
(8.1 ) (8.1 )
Balance at September 30, 2017 68.1
$ 0.3
$ 407.3
$ 978.2
10.0
$ (667.8 ) $ (69.2 ) $ 648.8
$ 12.9
$ 661.7

~~See Notes to Consolidated Financial Statements.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” or “Parent”) and its subsidiaries (collectively, together with Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of ~~branded~~ products for lawn and garden care and indoor and hydroponic gardening. The Company’s primary customers include home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, food and drug stores, indoor gardening and hydroponic product distributors and retailers. The Company’s products are sold ~~primarily~~ in North America, Europe and Asia.

~~Prior to April 13, 2016, the Company operated the Scotts LawnService~~^® business (the “SLS Business”), which provided residential and commercial lawn care, tree and shrub care and pest control services in the United States. On April 13, 2016, pursuant to the terms of the Contribution and Distribution Agreement (the “Contribution Agreement”) between the Company and TruGreen Holding Corporation (“TruGreen Holdings”), the Company completed the contribution of the SLS Business to a newly formed subsidiary of TruGreen Holdings (the “TruGreen Joint Venture”) in exchange for a minority equity interest of approximately 30% in the TruGreen Joint Venture. As a result, effective in its second quarter of fiscal 2016, the Company classified its results of operations for all periods presented to reflect the SLS Business as a discontinued operation and classified the assets and liabilities of the SLS Business as held for sale. See “NOTE 2. DISCONTINUED OPERATIONS” and “NOTE 8. INVESTMENT IN UNCONSOLIDATED AFFILIATES” for further discussion.

~~Due to the nature of the~~North America consumer lawn and garden business ~~the majority~~is highly seasonal, with approximately 75% of ~~the Company’s~~its annual net sales ~~to customers occur~~occurring in the ~~Company’s~~ second and third fiscal quarters. ~~On a combined basis, net~~For the Company’s Hawthorne segment, sales are also impacted by seasonal patterns for certain product categories due to the timing of outdoor growing in North America during the second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during the ~~last three~~third and fourth fiscal ~~years represented in excess of~~ ~~75%~~ ~~of the Company’s annual net sales.~~quarters.

Organization and Basis of Presentation

The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Scotts Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and an objective evaluation and determination of effective management control. On February 26, 2021, the Company acquired the remaining outstanding shares of AeroGrow International, Inc. (“AeroGrow”) ~~and Gavita Holdings B.V., and its subsidiaries (collectively, “Gavita”), in which the Company has controlling interests, are consolidated, with~~. Prior to this date, the equity owned by other shareholders was shown as noncontrolling interest in the Consolidated Balance Sheets, and the other shareholders’ portion of net earnings and other comprehensive income was shown as net ~~income (loss)~~(income) loss or comprehensive (income) loss attributable to noncontrolling interest in the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss), respectively. The results of businesses acquired or disposed of are included in the consolidated financial statements from the date of each acquisition or up to the date of disposal, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes and related disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results ultimately may differ from the estimates.

~~Revenue Recognition~~

Revenue is recognized when title and risk of loss transfer, which generally occurs when products or services are received by the customer. Provisions for estimated returns and allowances are recorded at the time revenue is recognized based on historical

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~rates and are periodically adjusted for known changes in return levels. Outbound shipping and handling costs are included in cost of sales.~~

Under the terms of the Amended and Restated Exclusive Agency and Marketing Agreement (the “Original Marketing Agreement”) and the Second Amended and Restated Agency and Marketing Agreement (the “Restated Marketing Agreement”), pursuant to which the Company has served, since its 1998 fiscal year, as the exclusive agent of Monsanto Company (“Monsanto”) for the marketing and distribution of consumer Roundup^® non-selective weedkiller products in the United States and certain other specified countries, the Company performs certain functions, primarily sales, merchandising, warehousing and other selling and marketing services, on behalf of Monsanto in the conduct of the consumer Roundup^® business. The Company performs other services, including manufacturing conversion services, pursuant to ancillary agreements. The actual costs incurred for these activities are charged to and reimbursed by Monsanto. The Company records costs incurred for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of sales” line and the reimbursement of these costs in the “Net sales” line in the Consolidated Statements of Operations, with no effect on gross profit dollars or net income.

Under the terms of the Marketing, R&D and Ancillary Services Agreement (the “Services Agreement”) with Bonnie Plants, Inc. (“Bonnie”) and its sole shareholder, Alabama Farmers Cooperative, Inc. (“AFC”), entered into in the second quarter of fiscal 2016, the Company provides marketing, research and development and certain ancillary services to Bonnie for reimbursement of certain costs and a commission fee earned based on a percentage of the growth in earnings before interest, income taxes and amortization of Bonnie’s business of planting, growing, developing, manufacturing, distributing, marketing, and selling live plants, plant food, fertilizer and potting soil (the “Bonnie Business”). The commission earned under the Services Agreement is included in the “Net sales” line in the Consolidated Statements of Operations. Additionally, the Company records costs incurred under the Services Agreement for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of sales” line and the reimbursement of these costs in the “Net sales” line, with no effect on gross profit dollars or net income.

~~Promotional Allowances~~

The Company promotes its branded products through, among other things, cooperative advertising programs with retailers. Retailers may also be offered in-store promotional allowances and rebates based on sales volumes. Certain products are promoted with direct consumer rebate programs and special purchasing incentives. Promotion costs (including allowances and rebates) incurred during the year are expensed to interim periods in relation to revenues and are recorded as a reduction of net sales. Accruals for expected payouts under these programs are included in the “Other current liabilities” line in the Consolidated Balance Sheets.

Advertising

Advertising costs incurred during the year are expensed to interim periods in relation to revenues. All advertising costs, except for external production costs, are expensed within the fiscal year in which such costs are incurred. External production costs for advertising programs are deferred until the period in which the advertising is first aired. ~~The costs~~Costs deferred at September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$0.4 million and $0.1 million, respectively.~~

not material. Advertising expenses were ~~$123.0 million in~~$120.3, $165.7 and $147.4 for fiscal ~~2017, $122.3 million in~~2022, fiscal ~~2016~~2021 and ~~$121.5 million in~~ fiscal ~~2015.~~2020, respectively.

Research and Development

~~All costs~~Costs associated with research and development are generally charged to expense as incurred. Expenses for fiscal ~~2017~~, 2022, fiscal ~~2016~~2021 and fiscal ~~2015~~2020 were ~~$39.9 million, $36.0 million~~$45.3, $45.4 and ~~$36.5 million,~~$39.7, respectively, including product registration costs of ~~$10.6 million, $10.6 million~~$13.0, $12.3 and ~~$10.4 million,~~$11.0, respectively.

Environmental Costs

The Company recognizes environmental liabilities when conditions requiring remediation are probable and the amounts can be reasonably estimated. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. Environmental liabilities are not discounted or reduced for possible recoveries from insurance carriers.

~~THE SCOTTS MIRACLE-GRO COMPANY~~Earnings per Common Share

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~Basic income (loss) per common share of Scotts Miracle-Gro (“Common Share”) is computed by dividing income (loss) attributable to controlling interest from continuing operations, income (loss) from discontinued operations or net income (loss) attributable to controlling interest by the weighted average number of Common Shares outstanding each period. Diluted income (loss) per Common Share is computed by dividing income (loss) attributable to controlling interest from continuing operations, income (loss) from discontinued operations or net income (loss) attributable to controlling interest by the weighted


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average number of Common Shares outstanding plus all dilutive potential Common Shares (stock options, restricted stock units, deferred stock units and performance-based award units) outstanding each period.

Share-Based Compensation Awards

Scotts Miracle-Gro grants share-based awards annually to officers and certain other employees and to the non-employee directors of Scotts Miracle-Gro. The share-based awards have consisted of stock options, restricted stock units, deferred stock units and performance-based award units. All of these share-based awards have been made under plans approved by the shareholders. The fair value of awards is expensed over the requisite service period which is typically the vesting period, generally three to five years for awards granted to officers and other employees and one year for awards granted to non-employee directors.

For restricted stock units, deferred stock units and performance-based award units, the fair value of each award is estimated on the date of grant based on the current market price of the Common Shares. The grant date fair value of stock option awards is estimated using a binomial model. Expected market price volatility is based on implied volatilities from traded options on Common Shares and historical volatility specific to the Common Shares. Historical data, including demographic factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of stock options is based on historical experience and expectations for grants outstanding.

Vesting of performance-based award units depends on service and achievement of specified performance targets. Based on the extent to which the targets are achieved, vested shares may range from 50% to 250% of the target award amount. The total amount of compensation expense recognized reflects management’s assessment of the probability that performance goals will be achieved. A cumulative adjustment is recognized to compensation expense in the current period to reflect any changes in the probability of achievement of performance goals.

Restricted stock units, deferred stock units and performance-based award units receive dividend equivalents equal to the cash dividends earned during the vesting period that are only paid out upon vesting. Share-based award units are generally forfeited if a holder terminates employment or service with the Company prior to the vesting date, except in cases where employees are eligible for accelerated vesting based on having satisfied retirement requirements relating to age and years of service. ~~Performance-based~~The Company estimates that 15% of its share-based awards ~~are expensed over the requisite service period~~will be forfeited based on ~~achievement~~an analysis of ~~performance criteria.~~historical trends. The Company evaluates the estimated forfeiture rate on an annual basis and makes adjustments as appropriate. Stock options have exercise prices equal to the market price of the underlying Common Shares on the date of grant and a term of 10 years. If available, Scotts Miracle-Gro typically uses ~~a binomial model~~treasury shares, or if not available, newly-issued Common Shares, to ~~determine the fair value of its option grants.~~settle vested share-based awards. The Company classifies share-based compensation expense within selling, general and administrative expenses to correspond with the same line item as cash compensation paid to employees.

~~Other Non-Operating Expense~~

~~Other non-operating expense includes a $13.4 million non tax-deductible charge, driven by the October 2017 acquisition~~ Cash flows resulting from tax deductions in excess of the ~~remaining noncontrolling interest in Gavita and its subsidiaries, to write-up the fair value of the loan to the noncontrolling ownership group to the agreed upon buyout value.~~

~~Earnings per Common Share~~

Basic earnings per Common Share is computed based on the weighted-average number of Common Shares outstanding each period. Diluted earnings per Common Share is computed based on the weighted-average number of Common Shares and dilutive potential Common Shares (stock options, stock appreciation rights, performance shares and restricted stock unit awards) outstanding each period.cumulative compensation cost recognized for share-based awards (excess tax benefits) are classified as operating cash inflows.

Cash and Cash Equivalents

Cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or invested in high quality, short-term liquid investments. The Company considers all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. The Company maintains cash deposits in banks which from time to time exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the Company’s banks and believes that the risk of any potential credit loss is minimal.

Accounts Receivable and Allowances

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Allowances for doubtful accounts reflect the Company’s estimate of amounts in its existing accounts receivable that may not be collected due to customer claims or customer inability or unwillingness to pay. The allowance is determined based on a combination of factors, including the Company’s ongoing risk assessment regarding the credit worthiness of its customers, historical collection experience and length of time the receivables are past due. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

Inventories

Inventories are stated at the lower of cost or ~~market, principally determined by the first in, first out method of accounting. Inventories~~net realizable value and include the cost of raw materials, labor, manufacturing overhead and freight and ~~in-bound~~inbound handling costs incurred to pre-position goods in the Company’s warehouse network. The Company makes provisions for obsolete or slow-moving inventories as necessary to properly reflect inventory at


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the lower of cost or ~~market~~net realizable value. Inventories are valued using the first in, first out method. Adjustments to reflect inventories at net realizable values were ~~$10.5 million~~$118.8 and ~~$6.0 million~~$22.5 at September 30, ~~2017~~2022 and ~~2016~~,2021, respectively. Refer to “NOTE 4. IMPAIRMENT, RESTRUCTURING AND OTHER” for more information.

Loans Receivable

Loans receivable are carried at outstanding principal amount, and are recognized in the “Other assets” line in the Consolidated Balance Sheets. Loans receivable are impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the present value of expected future cash ~~flows~~flows. Interest income on loans receivable was $2.7, $3.8 and ~~recorded within “Operating expenses” in the Consolidated Statements of Operations.~~$7.6 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Interest income is recorded on an accrual basis and is ~~recognized~~classified in the “Other non-operating income, net” line in the Consolidated Statements of Operations. ~~Interest income was $10.0 million~~

Investment in Unconsolidated Affiliates

Non-marketable equity investments in which the Company has the ability to exercise significant influence, but does not control, are accounted for ~~fiscal 2017, $3.9 million~~using the equity method of accounting, with the Company’s proportionate share of the earnings and losses of these entities reflected in the Consolidated Statements of Operations. The Company evaluates its equity method investments for ~~fiscal 2016 and zero for fiscal 2015.~~

~~At September 30, 2017,~~impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value ~~and~~of an equity method investment is determined to be other than temporary, an impairment loss is recognized in earnings for the amount by which the carrying amount of the investment exceeds its estimated fair value of loans receivable was $110.4 million and $125.6 million, respectively. The estimated fair value was determined using an income-based approach, which includes market participant expectations of cash flows over the remaining useful life discounted to present value using an appropriate discount rate. The estimate requires subjective assumptions to be made, including those related to credit risk and discount rates. The fair value measurement is based on significant inputs unobservable in the market and thus represents a Level 3 measurement.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

value.

Long-Lived Assets

Property, plant and equipment are stated at cost. Interest capitalized in property, plant and equipment amounted to ~~$0.1 million, $0.3 million~~$2.2, $0.8 and $0.4 ~~million~~ during fiscal ~~2017,~~2022, fiscal ~~2016~~2021 and fiscal ~~2015,~~2020, respectively. Expenditures for maintenance and repairs are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in income from operations.

Depreciation of property, plant and equipment is provided on the straight-line method and is based on the estimated useful economic lives of the assets as follows:



Land improvements			10 – 25 years
Buildings			10 – 40 years
Machinery and equipment			3 – 15 years
Furniture and fixtures			6 – 10 years
Software			3 – 8 years

Intangible assets subject to amortization include technology, ~~such as~~ patents, customer relationships, non-compete agreements and certain ~~tradenames.~~trade names. These intangible assets are ~~being~~ amortized over their estimated useful economic lives, which typically range from 3 to 25 ~~years~~.years. The Company’s fixed assets and intangible assets subject to amortization are required to be tested for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If an evaluation of recoverability ~~was~~is required, the estimated undiscounted future cash flows associated with the asset group would be compared to the ~~asset’s~~asset group carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds fair value and classified as “Impairment, restructuring and ~~other charges”~~other” within “Operating expenses” in the Consolidated Statements of Operations.

The Company had non-cash investing activities of ~~$16.1 million, $12.4 million~~$33.3, $41.6 and ~~$8.5 million~~$26.4 during fiscal ~~2017,~~2022, fiscal ~~2016~~2021 and fiscal ~~2015,~~2020, respectively, representing unpaid liabilities ~~incurred during each fiscal year~~ to acquire property, plant and equipment.

~~Statements of Cash Flows~~

~~Supplemental cash flow information was as follows for fiscal 2017, fiscal 2016 and fiscal 2015:~~

Year Ended September 30,
2017 2016 2015
(In millions)
Interest paid $ (69.8 ) $ (54.1 ) $ (47.6 )
Call premium on 6.625% Senior Notes —
(6.6 ) —
Property and equipment acquired under capital leases (0.9 ) —
—
Income taxes paid (111.9 ) (80.9 ) (108.3 )

During fiscal 2017, the Company paid contingent consideration of $6.7 million, $6.5 million and $15.5 million related to the fiscal 2014 acquisition of Fafard & Brothers Ltd. (“Fafard”), the fiscal 2016 acquisition of a Canadian growing media operation and the fiscal 2017 acquisition of American Agritech, L.L.C., d/b/a Botanicare (“Botanicare”), respectively.

The Company uses the “cumulative earnings” approach for determining cash flow presentation of distributions from unconsolidated affiliates. Distributions received are included in the Consolidated Statements of Cash Flows as operating activities, unless the cumulative distributions exceed the portion of the cumulative equity in the net earnings of the unconsolidated affiliate, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in the Consolidated Statements of Cash Flows.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Internal Use Software

The Company capitalizes certain qualifying costs incurred in the acquisition and development of software for internal use, including the costs of ~~internal use~~the software, ~~are expensed or capitalized depending on whether they are~~materials, consultants, interest and payroll and payroll-related costs for employees during the application development stage. Internal and external costs incurred induring the preliminary project stage and post implementation-operation stage, mainly training and maintenance costs, are expensed as incurred. Once the application ~~development stage or~~is substantially complete and ready for its intended use, qualifying costs are amortized on a straight-line basis over the ~~post-implementation/operation stage. As of September 30, 2017 and 2016, the Company had $10.6 million and $10.9 million, respectively, in unamortized capitalized~~software’s estimated useful life. Capitalized internal use ~~computer~~ software ~~costs. Amortization~~is included in the “Property, plant and equipment, net” line in the


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Consolidated Balance Sheets. Capitalized software as a service is included in the “Prepaid and other current assets” line in the Consolidated Balance Sheets and is amortized using the straight-line method over the term of ~~these costs was $5.1 million, $6.1 million and $6.4 million during fiscal 2017, fiscal 2016 and fiscal 2015, respectively.~~the hosting arrangement which typically ranges from 3 to 7 years.

Goodwill and Indefinite-lived Intangible Assets

Goodwill and indefinite-lived intangible assets are not subject to amortization. Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if circumstances indicate impairment may have occurred. With respect to goodwill, the Company performs either a qualitative or quantitative evaluation for each of its reporting units. Factors considered in the qualitative test include reporting unit specific operating results as well as new events and circumstances impacting the operations or cash flows of the reporting units. For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of its reporting units to their respective fair ~~values and reviewing the Company’s market value of invested capital.~~values. A reporting unit is defined as an operating segment or one level below an operating segment. The Company ~~has identified seven reporting units. The Company~~ determines the fair value of its reporting units ~~under the~~using a combination of income-based ~~approach utilizing discounted cash flows~~and market-based approaches and incorporates assumptions it believes ~~marketplace~~market participants would utilize. The ~~Company also uses a comparative~~income-based approach utilizes discounted cash flows while the market-based approach ~~using~~utilizes market ~~multiples~~multiples. These approaches depend upon internally-developed forecasts based on annual budgets and ~~other factors~~longer-range strategic plans. The Company uses discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and in the internally-developed forecasts. To further substantiate fair value, the Company compares the aggregate fair value of the reporting units to ~~corroborate~~ the ~~discounted cash flow results.~~Company’s total market capitalization.

With respect to indefinite-lived intangible assets, the Company performs either a qualitative or quantitative evaluation for each ~~of its indefinite-lived intangible assets.~~asset. Factors considered in the qualitative test include ~~indefinite-lived intangible~~ asset specific operating results as well as new events and circumstances impacting the cash flows of the ~~indefinite-lived intangible~~ assets. For the quantitative test, the fair value of ~~all~~the Company’s indefinite-lived intangible assets is determined under the income-based approach utilizing discounted cash flows and incorporating assumptions the Company believes ~~marketplace~~market participants would utilize. For ~~tradenames,~~trade names, fair value ~~was~~is determined using a ~~royalty savings~~relief-from-royalty methodology similar to that employed when the associated businesses were acquired but using updated estimates of sales, cash flow and profitability.

If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value of the reporting unit or intangible asset exceeds its estimated fair value and classified as “Impairment, restructuring and ~~other charges”~~other” within “Operating expenses” in the Consolidated Statements of Operations.

Investments in Securities

Convertible debt investments are classified as “available for sale,” are reported at fair value and are presented in the “Other assets” line in the Consolidated Balance Sheets. Unrealized gains and losses on these investments are included in accumulated other comprehensive loss (“AOCL”) in the Consolidated Balance Sheets. When a decline in fair value is considered to be other-than-temporary at the balance sheet date, an allowance for credit losses (impairment), including any write-off of accrued interest receivable, is charged to earnings. If management can assert that it does not intend to sell the security and it is not more likely than not that it will have to sell the security before recovering its amortized cost basis (net of allowance), then the impairment allowance is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). Interest income is recorded on an accrual basis and is classified in the “Other non-operating income, net” line in the Consolidated Statements of Operations.

Insurance and Self-Insurance

The Company maintains insurance for certain risks, including workers’ compensation, general liability and vehicle liability, and is self-insured for employee-related health care benefits up to a specified level for individual claims. The Company accrues for the expected costs associated with these risks by considering historical claims experience, demographic factors, severity factors and other relevant information. Costs are recognized in the period the claim is incurred, and accruals include an actuarially determined estimate of claims incurred but not yet reported.

Income Taxes

The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.


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The Company establishes a liability for tax return positions in which there is uncertainty as to whether or not the position will ultimately be sustained. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available or when positions are effectively settled. The Company recognizes interest expense and penalties related to these unrecognized tax benefits within income tax expense. GAAP provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. The amount recognized is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.

U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision for U.S. income

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

or foreign withholding taxes is made. When circumstances change and the Company determines that some or all of the undistributed earnings will be remitted in the foreseeable future, the Company accrues an expense in the current period for U.S. income taxes and foreign withholding taxes attributable to the anticipated remittance.

Translation of Foreign Currencies

The functional currency for each Scotts Miracle-Gro subsidiary is generally its local currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each fiscal year-end. Income and expense accounts are translated at the average rate of exchange prevailing during the year. Translation gains and losses arising from the use of differing exchange rates from period to period are included in ~~accumulated other comprehensive income (loss)~~AOCL within shareholders’ equity. Foreign ~~currency~~exchange transaction gains and losses are included in the determination of net income and classified as “Other ~~income,~~(income) expense, net” in the Consolidated Statements of Operations. The Company recognized foreign exchange transaction (gains) losses of $1.3, $(1.8) and $0.9 during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Derivative Instruments

The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. A variety of financial instruments, including ~~forward~~forwards, futures and swap contracts, are used to manage these exposures. These financial instruments are recognized at fair value onin the Consolidated Balance Sheets, and all changes in fair value are recognized in net income or shareholders’ equity through ~~accumulated other comprehensive income (loss).~~AOCL. The Company’s objective in managing these exposures is to better control these elements of cost and mitigate the earnings and cash flow volatility associated with changes in the applicable rates and prices.

The Company has established policies and procedures that encompass risk-management philosophy and objectives, guidelines for ~~derivative-instrument~~derivative instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity. The Company does not enter into derivative instruments for the purpose of speculation.

The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlying exposures in accordance with GAAP. The Company formally assesses, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure. Fluctuations in the value of these instruments generally are offset by changes in the expected cash flows of the underlying exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument. ~~GAAP requires all derivative instruments to be recognized as either assets or liabilities at fair value in the Consolidated Balance Sheets.~~ The Company designates certain commodity hedges as cash flow hedges of forecasted purchases of commodities and interest rate swap agreements as cash flow hedges of interest payments on variable rate borrowings. ~~Any ineffective portion of a change~~Changes in the fair value of derivative contracts that qualify for hedge accounting are recorded in AOCL. For commodity hedges, realized gains or losses remain as a ~~qualifying~~component of AOCL until the related inventory is sold.

During the second quarter of fiscal 2016, the Company entered into definitive agreements with Bonnie Plants, Inc. and its sole shareholder, Alabama Farmers Cooperative, Inc. (“AFC”), that included options beginning in fiscal 2020 providing for either (i) the Company to increase its economic interest in Bonnie’s business of planting, growing, developing, manufacturing, distributing, marketing, and selling live plants, plant food, fertilizer and potting soil (the “Bonnie Business”) or (ii) AFC and Bonnie to repurchase the Company’s economic interest in the Bonnie Business (collectively, the “Bonnie Option”). The Bonnie Option was surrendered at the time of the formation of the Bonnie Plants, LLC joint venture on December 31, 2020. Prior to this, the Bonnie Option was required to be accounted for as a derivative instrument ~~is immediately~~and was recorded at fair value in the “Other assets” line in the Consolidated Balance Sheets, with changes in fair value recognized in ~~earnings.~~the “Other non-operating income, net” line in the Consolidated Statements of Operations.

~~RECENT~~Leases

The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease


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term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Company and exclude any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company’s leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term. The Company considers its credit rating and the current economic environment in determining this collateralized rate. Variable lease payments are the portion of lease payments that are not fixed over the lease term. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. The Company elected to exclude short-term leases, defined as leases with initial terms of 12 months or less, from its Consolidated Balance Sheets.

Statements of Cash Flows

Supplemental cash flow information was as follows:


	Year Ended September 30,
	2022		2021		2020

Interest paid	$	112.5	$	61.6	$	75.9


Income taxes paid	27.2		179.7		124.2

Cash flow from operating activities in fiscal 2022 and fiscal 2021 was favorably impacted by extended payment terms with vendors across the U.S. Consumer and Hawthorne segments, as well as Monsanto Company, a subsidiary of Bayer AG (“Monsanto”), for payments originally due in the final weeks of fiscal 2022 and fiscal 2021 that were paid in the first quarter of fiscal 2023 and 2022, respectively.

The Company received (paid) cash of $29.3, $(8.7) and $(2.9) during fiscal 2022, fiscal 2021 and fiscal 2020, respectively, associated with currency forward contracts, which was classified as an investing activity in the “Other investing, net” line in the Consolidated Statements of Cash Flows.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

~~Debt Issuance Costs~~

In ~~April 2015,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued anAccounting Standards Update (“ASU”) No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting ~~standard update that requires debt issuance costs related~~for income taxes by removing certain exceptions to ~~a recognized debt liability~~the general principles in ASC 740 and also clarifies and amends existing guidance to be presented in the balance sheet as a direct deduction from the corresponding debt liability rather than as an asset; however debt issuance costs relating to revolving credit facilities will remain in other assets.improve consistent application. The ~~Company~~company adopted this guidance on ~~a retrospective basis effective~~ October 1, 2016. As a result, debt issuance costs totaling $6.0 million have been presented as a component of the carrying amount of long-term debt in the Consolidated Balance Sheets as of September 30, 2016. This amount was previously reported within other assets.

~~Income Taxes~~

In November 2015, the FASB issued an accounting standard update to simplify the presentation of deferred income taxes by requiring that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted this guidance on a retrospective basis during the fourth quarter of fiscal 2017. As a result, deferred tax assets totaling $43.7 million have been presented net within other liabilities in the Consolidated Balance Sheets as of September 30, 2016. This amount was previously reported within prepaid and other current assets.

~~Going Concern~~

In April 2014, the FASB issued a new accounting standard that requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim period. If conditions or events give rise to

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

substantial doubt, disclosures are required. The Company adopted this guidance on a prospective basis effective October 1, 2016. The adoption of this guidance did not impact the Company’s financial statement disclosures.

~~Cloud Computing Arrangements~~

In April 2015, the FASB issued an accounting standard update that clarifies how customers in cloud computing arrangements should determine whether the arrangement includes a software license, and requires acquired software licenses to be accounted for as licenses of intangible assets. The Company adopted the provisions effective October 1, 2016.2021. The adoption of this guidance did not have a ~~significant~~material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~Business Combinations~~

NOTE 2. REVENUE RECOGNITION

Nature of Goods and Services

The Company’s revenue is primarily generated from sales of branded and private label lawn and garden care and indoor and hydroponic gardening finished products to home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, e-commerce platforms, food and drug stores, indoor gardening and hydroponic product distributors, retailers and growers. In ~~September 2015,~~addition to product sales, the ~~FASB issued an accounting standard update to simplify~~Company acts as the ~~accounting~~exclusive agent of Monsanto for ~~measurement-period adjustments by requiring an acquirer to recognize adjustments to provisional amounts that are identified during~~ the ~~measurement period~~marketing and distribution of certain of Monsanto’s consumer Roundup® branded products in the ~~reporting period~~United States and certain other specified countries, and performs certain other services under ancillary agreements with Monsanto. Prior to December 31, 2020, the Company also provided marketing, research and development and certain ancillary services to Bonnie. Refer to “NOTE 21. SEGMENT INFORMATION” for disaggregated revenue information and “NOTE 7. MARKETING AGREEMENT” for revenue information related to the Monsanto agreements.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Identification and Satisfaction of Performance Obligations

The Company recognizes product sales at a point in time when it transfers control of products to customers and has no further obligation to provide services related to such products. Control is the ability of customers to direct the “use of” and “obtain” the benefit from the Company’s products. In evaluating the timing of the transfer of control of products to customers, the Company considers several control indicators, including significant risks and rewards of products, the Company’s right to payment and the legal title of the products. Based on the assessment of control indicators, sales are typically recognized when products are delivered to or picked up by the customer. The Company is generally the principal in a transaction and, therefore, primarily records revenue on a gross basis. When the Company is a principal in a transaction, it has determined that it controls the ability to direct the use of the product prior to transfer to a customer, is primarily responsible for fulfilling the promise to provide the product or service to the customer, has discretion in establishing prices, and ultimately controls the transfer of the product or services provided to the customer.

Under the terms of the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”), pursuant to which the ~~adjustment amounts are determined,~~Company serves as the exclusive agent of Monsanto for the marketing and ~~requiring disclosure~~distribution of certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries, the Company is entitled to receive an annual commission from Monsanto as consideration for the performance of the ~~portion~~Company’s duties as agent. The Third Restated Agreement also requires the Company to make annual payments to Monsanto as a contribution against the overall expenses of its consumer Roundup® business. The gross commission earned under the ~~amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if~~Third Restated Agreement and the ~~adjustment~~contribution payments to the provisional amounts had been recognized as of the acquisition date. The Company adopted this guidance on a prospective basis effective October 1, 2016. The adoption of this guidance did not impact the Company’s consolidated financial position, results of operations or cash flows.

~~Share-Based Compensation~~

In March 2016, the FASB issued an accounting standard update that simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classificationMonsanto are included in the statement of cash flows. The provisions are effective, using a combination of retrospective, modified retrospective and prospective transition methods, for the Company’s financial statements no later than the fiscal year beginning October 1, 2017. The Company expects to adopt this amended accounting guidance during the first quarter of fiscal 2018, which will result in the prospective recognition of all excess tax benefits and tax deficiencies associated with share-based compensation as income tax benefit or expense in the Consolidated Statement of Operations. Excess tax benefits of $7.9 million, $5.8 million and $4.7 million for fiscal 2017, fiscal 2016 and fiscal 2015, respectively, have been recognized in the “Capital in excess of stated value”“Net sales” line in the Consolidated Statements of ~~Shareholders’ Equity.~~Operations. The Company performs other services, including conversion services, pursuant to ancillary agreements with Monsanto. The actual costs incurred for these activities are charged to and reimbursed by Monsanto. The Company records costs incurred for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of sales” line and the reimbursement of these costs in the “Net sales” line in the Consolidated Statements of Operations, with no effect on gross margin dollars or net income.

~~Revenue Recognition from Contracts with Customers~~

~~In May 2014, the FASB issued amended accounting guidance that replaces most existing revenue recognition guidance under GAAP. This guidance requires companies~~Prior to ~~recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled~~December 31, 2020, in exchange for ~~those goods or services.~~services performed pursuant to the terms of the Marketing, R&D and Ancillary Services Agreement (the “Services Agreement”) between the Company and AFC, Bonnie reimbursed the Company for certain costs and provided a commission fee earned based on a percentage of the growth in earnings before interest, income taxes and amortization of the Bonnie Business. The ~~standard involves a five-step process that includes identifying~~commission earned under the ~~contract with the customer, identifying the performance obligations~~Services Agreement was included in the ~~contract, determining~~“Net sales” line in the ~~transaction~~Consolidated Statements of Operations. Additionally, the Company recorded costs incurred under the Services Agreement for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of sales” line and the reimbursement of these costs in the “Net sales” line in the Consolidated Statements of Operations, with no effect on gross margin dollars or net income.

Transactional Price and Promotional Allowances

Revenue for product sales is recorded net of sales returns and allowances. Revenues are measured based on the amount of consideration that the Company expects to receive as derived from a list price, ~~allocating~~reduced by estimates for variable consideration. Variable consideration includes the ~~transaction price~~cost of current and continuing promotional programs and expected sales returns. Commission income related to the ~~performance obligations~~Monsanto agreements is recognized over the program year as the services are performed based upon the commission income formula in the contract and recognizing revenue when the entity satisfies the performance obligations. The new standard also will result in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Subsequently, additional guidance was issued on several areas including guidance intended to improve the operability and understandability of the implementation of principal versus agent considerations and clarifications on the identification of performance obligations and implementation of guidance related to licensing.agreements.

The ~~Company has made progress~~Company’s promotional programs primarily include rebates based on ~~its evaluation~~sales volumes, in-store promotional allowances, cooperative advertising programs, direct consumer rebate programs and special purchasing incentives. The cost of promotional programs is estimated considering all reasonably available information, including current expectations and historical experience. Promotional costs (including allowances and rebates) incurred during the ~~amended guidance, including identification~~year are expensed to interim periods in relation to revenues and are recorded as a reduction of revenue streams and customer contract reviews. The Company has begun the process of applying the five-step model to those contracts and revenue streams to evaluate the quantitative and qualitative impacts the new standard will have on its business and reported revenues. The provisionsnet sales. Accruals for expected payouts under these programs are ~~effective for the Company~~included in the ~~first quarter of fiscal 2019~~“Other current liabilities” line in the Consolidated Balance Sheets. Provisions for estimated returns and permit adoption under either the full retrospective approach (recognize effects of the amended guidance in each prior reporting period presented) or the modified retrospective approach (recognize the cumulative effect of adoption as an adjustment to retained earningsallowances are recorded at the ~~date of initial application). The Company~~time revenue is ~~still evaluating its method of adoption and the impact of this standard~~recognized based on ~~its consolidated results of operations and financial position.~~

~~Inventory~~

In July 2015, the FASB issued an accounting standard update that requires inventory to be measured “at the lower of cost and net realizable value,” thereby simplifying the current guidance that requires inventory to be measured at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The provisions

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~are effective prospectively for the Company’s financial statements for the fiscal year beginning October 1, 2017,~~historical rates and are ~~not expected to have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.~~

~~Leases~~

~~In February 2016, the FASB issued an accounting standard update which significantly~~periodically adjusted for known changes ~~the accounting for leases. This guidance requires lessees to recognize a lease liability for the obligation to make lease payments~~in return levels. Shipping and ~~a right-of-use asset for the right to use the underlying asset for the lease term. The provisions~~handling costs are effective for the Company’s financial statements no later than the fiscal year beginning October 1, 2019 and require a modified retrospective transition approach for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the impact of this standard on its consolidated results of operations, financial position and cash flows. The Company has made progress on its evaluation of the amended guidance, including identification of the population of leases affected including the $147.5 million of future minimum lease payments related to various operating lease agreements with third parties for property and equipment (see “NOTE 17. OPERATING LEASES” for further discussion), determining the information required to calculate the lease liability and right-of-use asset and evaluating models to assist in future reporting.

~~Cash Flow Presentation~~

In August 2016, the FASB issued an accounting standard update that amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The provisions are effective retrospectively for the Company’s financial statements no later than the fiscal year beginning October 1, 2018, and are not expected to have a significant impact on the Company’s consolidated cash flows.

~~Business Combinations~~

~~In January 2017, the FASB issued an accounting standard update that clarifies the definition of a business to provide additional guidance to assist in evaluating whether transactions should be~~ accounted for as an acquisition (or disposal) of either an asset or business. The provisions are effective prospectively for the Company’s financial statements no later than the fiscal year beginning October 1, 2018,contract fulfillment costs and ~~are not expected to have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.~~

~~Goodwill~~

In January 2017, the FASB issued an accounting standard update which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The provisions are effective prospectively for the Company’s financial statements no later than the fiscal year beginning October 1, 2020, and are not expected to have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

~~Employee Benefit Plans~~

In March 2017, the FASB issued an accounting standard update which requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employeesincluded in the ~~income statement, (2) present the other components elsewhere~~“Cost of sales” line in the ~~income statement and outside~~Consolidated Statements of income from operations if that subtotal is presented and (3) limit the amount of costs eligible for capitalization (e.g., as part of inventory or property, plant, and equipment) to only the service-cost component of net benefit cost. The provisions are effective for the Company’s financial statements no later than the fiscal year beginning October 1, 2018, and are required to be applied retrospectively for the presentation of cost components in the income statement and prospectively for the capitalization of cost components. The provisions are not expected to have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

~~Derivatives and Hedging~~

In August 2017, the FASB issued an accounting standard update that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness. The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities. The provisions are effective for the Company’s financial statements no later than the fiscal year

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~beginning October 1, 2019.~~Operations. The Company ~~is currently evaluating the impact of this standard on its consolidated results of operations, financial position and cash flows.~~excludes from revenue any amounts collected from customers for sales or other taxes.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

NOTE 2.3. DISCONTINUED OPERATIONS

International Business

Prior to August 31, 2017, the Company operated consumer lawn and garden businesses located in Australia, Austria, Belgium, Luxembourg, Czech Republic, France, Germany, Poland and the United Kingdom (the “International Business”). On August 31, 2017, the Company completed the ~~divestiture~~sale of the International Business. As a result, effective in its fourth quarter of fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business ~~for cash~~as a discontinued operation. The sale proceeds ~~at closing of $150.6 million, which is~~were net of seller financing provided by the Company in the form of a $29.7 ~~million~~ loan for 7seven years bearing interest at 5% for the first three years, with annual 2.5% increases thereafter. The seller financing loan receivable is recorded in the “Other assets” line in the Consolidated Balance Sheets as of September 30, 2022. The transaction also ~~includes~~included contingent consideration ~~a non-cash investing activity,~~ with a maximum payout of $23.8 ~~million~~ and aan initial fair value of $18.2, ~~million,~~ the payment of which ~~will depend~~depended on the achievement of certain performance criteria by the International Business following the closing of the transaction through fiscal 2020. ~~The seller financing loan and~~During fiscal 2021, the Company agreed to accept a contingent consideration receivable are recorded in the “Other assets” line in the Consolidated Balance Sheets. The cash proceeds are subject to post-closing adjustments that are expected to be finalized during the first quarterpayout of ~~fiscal 2018,~~$6.0 and the Company has accrued $27.8 million in the “Other current liabilities” line in the Consolidated Balance Sheets related to working capital adjustments in respect of the actual closing date financial position of the International Business. The Company recorded a pre-tax ~~gain on the sale~~charge of the International Business of $32.7 million, partially offset by the provision for income taxes of $12.0 million, during fiscal 2017. The pre-tax gain included a write-off of accumulated foreign currency translation adjustments of $18.5 million.

In connection with the transaction, the Company entered into certain ancillary agreements including a transition services agreement and a material supply agreement, which are not material, as well as a licensing agreement for the use of certain of the Company’s brand names with a fair value of $14.1 million.

During fiscal 2017 and fiscal 2016, the Company recognized $15.5 million and $2.5 million, respectively, in transaction related costs associated with the sale of the International Business as well as termination benefits and facility closure costs of $(0.4) million and $3.6 million, respectively,$12.2 in the ~~“Income~~“Income (loss) from discontinued operations, net of tax” line in the Consolidated Statements of ~~Operations.~~

~~Scotts LawnService~~^®

~~On April 13, 2016, pursuant~~Operations during fiscal 2021 to write-down the contingent consideration receivable to the ~~terms of the Contribution Agreement, the Company completed the contribution of the SLS Business to the TruGreen Joint Venture in exchange for~~agreed upon payout amount. This contingent consideration payment was received during fiscal 2022 and this amount was classified as a ~~minority equity interest of approximately 30%~~financing activity in the TruGreen Joint Venture. As a result, effective in its second quarter of fiscal 2016, the Company classified its results of operations for all periods presented to reflect the SLS Business as a discontinued operation and classified the assets and liabilities of the SLS Business as held for sale.

The Company recorded a gain on the contribution of $131.2 million, partially offset by the provision for deferred income taxes of $51.9 million, during fiscal 2016. During fiscal 2017, the Company recorded an adjustment to reduce the pre-tax gain by $1.0 million related to post-closing working capital adjustments.

During fiscal 2017 and fiscal 2016, the Company recognized $0.8 million and $4.6 million, respectively, in transaction related costs associated with the divestiture of the SLS Business in the “Income from discontinued operations, net of tax”“Other financing, net” line in the Consolidated Statements of Operations. During fiscal 2016, the Company recognized a charge of $9.0 million for the resolution of a prior SLS Business litigation matter within the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations.Cash Flows.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table summarizes the results of ~~the International Business~~discontinued operations described above and ~~SLS Business~~reflected within discontinued operations in the Company’s consolidated financial statements for each of the periods presented:

Year Ended September 30,
2017 2016 2015
(In millions)
Net sales $ 294.1
$ 431.1
$ 645.4
Operating costs 275.9
429.5
597.3
Impairment, restructuring and other 15.9
19.7
11.2
Other (income) expense, net 1.2
(1.5 ) (3.9 )
Gain on sale / contribution of business (31.7 ) (131.2 ) —
Interest expense 0.4
2.7
1.7
Income from discontinued operations before income taxes 32.4
111.9
39.1
Income tax expense from discontinued operations 11.9
43.2
9.1
Income from discontinued operations, net of tax $ 20.5
$ 68.7
$ 30.0

~~The following table summarizes the major classes of assets and liabilities held for sale:~~

September 30,
2016
(In millions)
Cash and cash equivalents $ 21.5
Accounts receivable, net 69.4
Inventories 53.5
Prepaid and other assets 9.5
Property, plant and equipment, net 25.9
Goodwill and intangible assets, net 62.2
Other assets 14.2
Assets held for sale $ 256.2

Accounts payable $ 34.7
Other current liabilities 64.3
Long-term debt 94.2
Other liabilities 19.8
Liabilities held for sale $ 213.0


	Year Ended September 30,
	2022		2021		2020


Operating and exit costs	$	—	$	—	$	1.3
Impairment, restructuring and other charges (recoveries)	—		—		(3.1)

Write-down of contingent consideration receivable	—		12.2		—

Income (loss) from discontinued operations before income taxes	—		(12.2)		1.8
Income tax expense (benefit) from discontinued operations	—		(8.3)		0.1
Income (loss) from discontinued operations, net of tax	$	—	$	(3.9)	$	1.7

The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately from cash flows from continuing operations. Cash provided by (used in) operating activities related to discontinued operations ~~totaled $(11.6) million, $18.8 million and $31.5 million~~was zero for fiscal ~~2017, fiscal 2016~~2022 and fiscal ~~2015, respectively.~~2021, and was $3.6 for fiscal 2020. Cash (used in) provided by ~~(used in)~~ investing activities related to discontinued operations ~~totaled $148.1 million, $(5.3) million and $(32.5) million~~was zero for fiscal ~~2017,~~2022, fiscal ~~2016~~2021 and fiscal ~~2015, respectively.~~2020.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

NOTE 3.4. IMPAIRMENT, RESTRUCTURING AND OTHER

Activity described herein is classified within the “Cost of sales—impairment, restructuring and other,” “Impairment, restructuring and other” and “Income (loss) from discontinued operations, net of tax” lines in the Consolidated Statements of Operations. The following table details impairment, restructuring and other charges (recoveries) ~~during fiscal 2017,~~ ~~fiscal 2016~~ ~~and~~ ~~fiscal 2015~~:for each of the periods presented:

~~THE SCOTTS MIRACLE-GRO COMPANY~~


	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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Year Ended September 30,
2017 2016 2015
(In millions)
Cost of sales—impairment, restructuring and other:
Restructuring and other charges $ —
$ 5.9
$ 3.0
Operating expenses:
Restructuring and other charges (recoveries), net 3.9
(51.5 ) 70.4
Intangible asset impairment 1.0
—
—
Impairment, restructuring and other charges (recoveries) from continuing operations $ 4.9
$ (45.6 ) $ 73.4
Restructuring and other charges from discontinued operations 15.9
19.7
11.2
Total impairment, restructuring and other charges (recoveries) $ 20.8
$ (25.9 ) $ 84.6

The following table summarizes the activity related to liabilities associated with restructuring ~~and other, excluding insurance reimbursement recoveries, during fiscal 2017,~~ ~~fiscal 2016~~ ~~and~~ ~~fiscal 2015~~:activities for each of the periods presented:

Year Ended September 30,
2017 2016 2015
(In millions)
Amounts accrued for restructuring and other at beginning of year $ 20.8
$ 28.1
$ 16.0
Restructuring and other charges from continuing operations 8.3
10.3
73.4
Restructuring and other charges from discontinued operations 15.9
19.7
11.2
Payments and other (32.9 ) (37.3 ) (72.5 )
Amounts accrued for restructuring and other at end of year $ 12.1
$ 20.8
$ 28.1


	Year Ended September 30,
	2022		2021		2020

Amounts accrued for restructuring activities at beginning of year	$	1.9	$	3.9	$	11.6
Restructuring and other charges from continuing operations	47.1		29.0		20.0

Payments and other	(17.5)		(31.0)		(27.7)
Amounts accrued for restructuring activities at end of year	$	31.5	$	1.9	$	3.9

Included in restructuring accruals, as of September 30, ~~2017,~~2022, is ~~$1.7 million~~$4.6 that is classified as long-term. ~~Payments against the long-term accruals will be incurred as the employees covered by the restructuring plan retire or through the passage of time.~~ The remaining amounts accrued will continue to be paid out over the course of the next twelve months.

~~Fiscal 2017~~

In the first quarter of fiscal 2016, the Company announced a series of initiatives called Project Focus designed to maximize the value of its non-core assets and focus on emerging categories of the lawn and garden industry in its core U.S. business. During fiscal ~~2017,~~2022, the Company recognized ~~restructuring costs related to termination benefits~~non-cash, pre-tax goodwill and ~~facility closure costs~~intangible asset impairment charges of ~~$8.3 million~~$632.4 as a result of interim impairment testing of its Hawthorne segment in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations, ~~including $6.7 million~~comprised of $522.4 of goodwill impairment charges and $110.0 of finite-lived intangible asset impairment charges.

During fiscal 2022, the Company incurred inventory write-down charges of $120.9 in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations and finite-lived intangible asset impairment charges of $35.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with its decision to discontinue and exit the market for certain Hawthorne lighting products and brands.

During fiscal 2022, the Company began implementing a series of organizational changes and initiatives intended to create operational and management-level efficiencies. As part of this restructuring program, the Company is reducing the size of its supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. During fiscal 2022, the Company incurred costs of $65.2 associated with this restructuring initiative primarily related to employee termination benefits and impairment of property, plant and equipment. The Company incurred costs of $9.7 in its U.S. Consumer segment ~~$0.9 million for the~~and $27.1 in its Hawthorne segment in the “Cost of sales—impairment, restructuring and ~~$0.7 million for~~other” line in the ~~Other segment. Costs~~Consolidated Statements of Operations during fiscal 2022. The Company incurred ~~to date since the inception~~costs of ~~the current Project Focus initiatives are $10.1 million for the~~$11.9 in its U.S. Consumer segment, ~~$0.9 million for the~~$8.1 in its Hawthorne segment, ~~and $1.2 million for the~~$0.7 in its Other segment ~~related to transaction activity, termination benefits~~ and ~~facility closure costs.~~

In the fourth quarter of fiscal 2017, the Company recognized a recovery of $4.4 million related to the reduction of a contingent consideration liability associated with a historical acquisition and recorded a $1.0 million impairment charge on the write-off of a trademark asset due to recent performance and future growth expectations. These items were recorded$7.7 at Corporate in the “Impairment, restructuring and other” line in the Consolidated Statements of ~~Operations.~~Operations during fiscal 2022.

On April 13, 2016, the Company completed the contribution of the SLS Business to the TruGreen Joint Venture. As a result, effective in its second quarter of fiscal 2016, the Company classified its results of operations for all periods presented to reflect the SLS Business as a discontinued operation and classified the assets and liabilities of the SLS Business as held for sale. Refer to “NOTE 2. DISCONTINUED OPERATIONS” for more information.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

During fiscal ~~2017,~~2022, the Company recognized ~~$0.8 million in transaction related costs associated with the divestiture~~gains of ~~the SLS Business in the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations.~~

On August 31, 2017, the Company completed the sale of the International Business. As a result, effective in its fourth quarter of fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business as a discontinued operation and classified the assets and liabilities of the International Business as held for sale. Refer to “NOTE 2. DISCONTINUED OPERATIONS” for more information. During fiscal 2017, the Company recognized $15.5 million in transaction

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

related costs associated with the sale of the International Business as well as adjustments to termination benefits of $(0.4) million in the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations.

~~Fiscal 2016~~

~~During the third quarter of fiscal 2015, the Company’s U.S. Consumer segment began experiencing an increase in certain consumer complaints related to the reformulated Bonus~~^® S fertilizer product sold in the southeastern United States during fiscal 2015 indicating customers were experiencing damage to their lawns after application. In fiscal 2016, the Company incurred $6.4 million in costs related to resolving these consumer complaints and the recognition of costs the Company expected to incur for consumer claims in the “Impairment, restructuring and other” and the “Cost of sales—impairment, restructuring and other” lines in the Consolidated Statements of Operations. Additionally, the Company recorded offsetting insurance reimbursement recoveries of $55.9 million in fiscal 2016$16.2 in the “Impairment, restructuring and other” line in the Consolidated Statements of ~~Operations.~~ Operations associated with the sale of property, plant and equipment.

Costs incurred during fiscal 2022 related to ~~date since the inception of this matter~~COVID-19 were ~~$73.8 million, partially offset by insurance reimbursement recoveries of $60.8 million.~~

immaterial. During ~~fiscal 2016,~~2021, the Company ~~recognized restructuring~~incurred costs of $29.2 associated with the COVID-19 pandemic primarily related to ~~termination benefits~~premium pay. The Company incurred costs of ~~$3.9 million related to Project Focus~~$21.2 in its U.S. Consumer segment, $3.2 in its Hawthorne segment and $0.6 in its Other segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2021. The Company incurred costs of $4.0 in its U.S. Consumer segment and $0.2 in its Other segment in the “Impairment, restructuring and other” line in the Consolidated Statements of ~~Operations.~~

Operations during fiscal 2021. During fiscal ~~2016,~~2020, the Company ~~recognized a charge~~incurred costs of ~~$9.0 million for the resolution of a prior SLS Business litigation matter, as well as $4.6 million in transaction related costs~~$19.4 associated with the ~~divestiture~~COVID-19 pandemic primarily related to premium pay. The Company incurred costs of ~~the SLS Business~~$12.4 in its U.S. Consumer segment, $2.6 in its Hawthorne segment and $0.5 in its Other segment in the ~~“Income from discontinued operations, net~~“Cost of ~~tax”~~sales—impairment, restructuring and other” line in the Consolidated Statements of ~~Operations.~~

During fiscal 2016, the Company recognized $2.5 million in transaction related costs associated with the sale of the International Business as well as $3.6 million in restructuring costs related to termination benefits and facility closure costs in the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations.

~~Fiscal 2015~~

~~During fiscal 2015, the Company recognized $67.3 million in costs related to consumer complaints and claims related to the reformulated Bonus~~^® ~~S fertilizer product sold in the southeastern United States~~Operations during fiscal ~~2015, partially offset by insurance reimbursement recoveries recorded~~2020. The Company incurred costs of ~~$4.9 million.~~

~~During fiscal 2015, the Company recognized restructuring costs related to termination benefits of $11.0 million as part of the Company’s restructuring of~~$3.8 in its U.S. administrative and overhead functions. The restructuring costs for fiscal 2015 included $4.3 million of costs related to the acceleration of equity compensation expense, and were comprised of $3.7 million related to the U.S. Consumer segment ~~$0.7 million related to the~~and $0.1 in its Other ~~Segment and $6.6 million related to Corporate. These costs were recognized~~segment in the “Impairment, restructuring and other” line in the Consolidated Statements of ~~Operations.~~Operations during fiscal 2020.

During fiscal 2015, the Company recognized restructuring costs related to termination benefits as part of the Company’s restructuring of its administrative and overhead functions, continuation of the international profitability improvement initiative and the liquidation and exit from the U.K. Solus business. Costs of $1.4 million related to the SLS Business and $9.8 million related to the International Business were recognized in the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE 4.5. GOODWILL AND INTANGIBLE ASSETS, NET

The following table displays a rollforward of the carrying amount of goodwill by reportable segment:


	U.S. Consumer		Hawthorne		Other		Total
Goodwill	$	229.9	$	400.1	$	10.5	$	640.5
Accumulated impairment losses	(1.8)		(94.6)		—		(96.4)
Balance at September 30, 2020	228.1		305.5		10.5		544.1
Acquisitions and measurement-period adjustments	—		60.5		—		60.5
Foreign currency translation	—		—		0.6		0.6
Reallocation	15.8		(15.8)		—		—


Goodwill	$	245.7	$	444.8	$	11.1	$	701.6
Accumulated impairment losses	(1.8)		(94.6)		—		(96.4)
Balance at September 30, 2021	243.9		350.2		11.1		605.2
Acquisitions and measurement-period adjustments	—		180.8		—		180.8
Foreign currency translation	—		(8.6)		(1.0)		(9.6)
Impairment	—		(522.4)		—		(522.4)


Goodwill	$	245.7	$	617.0	$	10.1	$	872.8
Accumulated impairment losses	(1.8)		(617.0)		—		(618.8)
Balance at September 30, 2022	$	243.9	$	—	$	10.1	$	254.0


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

U.S. Consumer Hawthorne Other Total
(In millions)
Goodwill $ 213.1
$ 63.4
$ 7.8
$ 284.3
Accumulated impairment losses (1.8 ) —
—
(1.8 )
Balance at September 30, 2015 211.3
63.4
7.8
282.5
Acquisitions, net of purchase price adjustments 0.6
83.0
4.7
88.3
Foreign currency translation —
0.9
0.2
1.1

Goodwill $ 213.7
$ 147.3
$ 12.7
$ 373.7
Accumulated impairment losses (1.8 ) —
—
(1.8 )
Balance at September 30, 2016 211.9
147.3
12.7
371.9
Acquisitions, net of purchase price adjustments (1.1 ) 67.6
(2.1 ) 64.4
Foreign currency translation —
4.7
0.6
5.3
Reallocation 17.3
(17.3 ) —
—

Goodwill $ 229.9
$ 202.3
$ 11.2
$ 443.4
Accumulated impairment losses (1.8 ) —
—
(1.8 )
Balance at September 30, 2017 $ 228.1
$ 202.3
$ 11.2
$ 441.6
The following table presents intangible assets, net of accumulated amortization and impairment charges:

~~As discussed in “NOTE 22. SEGMENT INFORMATION,”~~


	September 30, 2022						September 30, 2021
	Gross Carrying Amount		Accumulated Amortization/ Impairment Charges		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization/ Impairment Charges		Net Carrying Amount

Finite-lived intangible assets:
Trade names	$	318.4	$	(174.3)	$	144.1	$	293.4	$	(73.3)	$	220.1
Customer relationships	251.1		(158.4)		92.7		228.3		(91.7)		136.6
Technology	49.1		(43.3)		5.8		49.2		(41.3)		7.9
Other	34.7		(21.0)		13.7		35.3		(14.2)		21.1
Total finite-lived intangible assets, net					256.3						385.7
Indefinite-lived intangible assets:
Indefinite-lived trade names					168.2						168.2
Roundup® marketing agreement amendment					155.7						155.7

Total indefinite-lived intangible assets					323.9						323.9
Total intangible assets, net					$	580.2					$	709.6

During fiscal 2022, the Company’s ~~reportable segments differ from those used in prior periods~~Hawthorne reporting unit experienced adverse financial results due to decreased sales volume and higher transportation and warehousing costs. Sales volume decreased due to an oversupply of cannabis, which significantly decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. As a result, the ~~change~~Company revised its internal forecasts relating to its Hawthorne reporting unit. The Company concluded that the changes in circumstances in this reporting unit and the decline in the Company’s market capitalization triggered the need for an interim impairment review of its goodwill during the third quarter of fiscal 2022. These changes in circumstances also indicated that the carrying amounts of Hawthorne’s long-lived assets, including trade names and customer relationships, may not be recoverable. Accordingly, the Company performed a recoverability test for long-lived assets during the third quarter of fiscal 2022. The Company concluded that the carrying value of long-lived assets exceeded their estimated fair value and recorded pre-tax impairment charges of $69.0 related to trade names and $41.0 related to customer relationships, which were recognized during the third quarter of fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The fair values of long-lived assets were determined using income-based approaches, including the relief-from-royalty method for trade names, that include market participant expectations of cash flows that the assets will generate over the remaining useful life discounted to present value using an appropriate discount rate. These fair value estimates utilize significant unobservable inputs and, therefore, represent Level 3 fair value measurements.

After adjusting the carrying values of the finite-lived intangible assets, the Company completed an interim quantitative impairment test for goodwill during the third quarter of fiscal 2022. This quantitative test resulted in a non-cash, pre-tax goodwill impairment charge of $522.4 related to the Hawthorne reporting unit, which was recognized during the third quarter of fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The carrying value of goodwill of the Hawthorne reporting unit, after recognizing the impairment, is zero. The estimated fair value of the Hawthorne reporting unit was based upon an equal weighting of the income-based and market-based approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. The fair value estimate utilizes significant unobservable inputs and thus represents a Level 3 fair value measurement.

During fiscal 2022, the Company also incurred additional finite-lived intangible asset impairment charges of $35.3, comprised of $22.5 related to trade names and $12.8 related to customer relationships, which were recognized during the fourth quarter of fiscal 2022 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations, associated with its decision to discontinue and exit the market for certain Hawthorne lighting products and brands.

During fiscal 2021, the Company changed its internal organization structure ~~resulting from~~such that AeroGrow is now managed by and reported within the U.S. Consumer segment. Within the U.S. Consumer segment, AeroGrow is integrated into the Company’s ~~divestiture of~~overall direct to consumer focus and strategy. AeroGrow was previously managed by and reported within the ~~International Business.~~Hawthorne segment. This change in organization structure resulted in a change in the Company’s ~~operating segments and~~ reporting units. ~~The Company allocated~~As a result, goodwill ~~to the new~~included in impacted reporting units was reallocated using a relative fair value approach, resulting in ~~$17.3 million~~$15.8 of goodwill


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

reallocated from the Hawthorne segment to the U.S. Consumer segment during fiscal ~~2017.~~2021. In addition, the Company completed an assessment of ~~any~~ potential goodwill impairment immediately ~~prior to~~before and after the ~~allocation~~reallocation and determined that no impairment existed.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The following table presents intangible assets, net:~~

September 30, 2017 September 30, 2016

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount
(In millions)
Finite-lived intangible assets:
Technology $ 69.7
$ (52.8 ) $ 16.9
$ 61.1
$ (51.4 ) $ 9.7
Customer accounts 157.7
(28.0 ) 129.7
113.7
(15.8 ) 97.9
Tradenames 176.7
(28.4 ) 148.3
145.4
(19.8 ) 125.6
Other 59.5
(41.1 ) 18.4
59.8
(38.6 ) 21.2
Total finite-lived intangible assets, net 313.3
254.4
Indefinite-lived intangible assets:
Indefinite-lived tradenames 168.2
168.2
Marketing Agreement Amendment 155.7
155.7
Brand Extension Agreement 111.7
111.7
Total indefinite-lived intangible assets 435.6
435.6
Total intangible assets, net $ 748.9

$ 690.0

~~Fiscal 2017~~

As a result of the sale of the International Business during the fourth quarter of fiscal 2017, the Company included $32.6 million of the carrying amount of the Marketing Agreement Amendment intangible asset with the International Business disposal unit on the basis of the asset’s historical carrying amount, and classified this amount in the “Assets held for sale” line in the Consolidated Balance Sheets.

During the fourth quarter of fiscal 2017, the Company completed its annual impairment review and recognized an impairment charge for a non-recurring fair value adjustment of $1.0 million within the U.S. Consumer segment related to a trademark asset. The fair vale was calculated based upon the evaluation of the historical performance and future growth expectations of the trademark. The impact of the fair value adjustment was to reduce the carrying value of the definite-lived brand from $1.0 million to zero. No impairment of goodwill or other intangible assets were required.

~~Fiscal 2016~~

~~As a result of the annual impairment review in the fourth quarter of fiscal 2016, the Company determined that no charges for impairment of goodwill or intangible assets were required.~~

~~Fiscal 2015~~

~~As a result of the annual impairment review, in the fourth quarter of fiscal 2015, the Company determined that no charges for impairment of goodwill or intangible assets were required.~~

Total amortization expense was $37.1, $30.9 and $32.5 for ~~the years ended September 30, 2017, 2016,~~fiscal 2022, fiscal 2021 and ~~2015 was $23.3 million, $15.7 million and $11.4 million,~~fiscal 2020, respectively. Amortization expense is estimated to be as follows for the years ending September ~~30 (in millions):~~30:


2023	$	27.0
2024	22.8
2025	20.0
2026	18.6
2027	17.4

2018 $ 23.2
2019 21.4
2020 20.2
2021 19.3
2022 18.3

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE 5.6. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS

The following ispresents detail ofregarding certain financial statement accounts:


	September 30,
	2022		2021

INVENTORIES:
Finished goods	$	926.2	$	793.7
Raw materials	293.2		242.8
Work-in-progress	124.1		90.1
	$	1,343.5	$	1,126.6
PROPERTY, PLANT AND EQUIPMENT, NET:
Land and improvements	$	145.0	$	144.2
Buildings	262.2		268.5
Machinery and equipment	644.0		585.9
Furniture and fixtures	65.4		53.0
Software	127.9		116.2
Finance leases	43.9		42.4
Aircraft	—		16.6
Construction in progress	95.5		132.8
	1,383.9		1,359.6
Less: accumulated depreciation	(777.9)		(737.4)
	$	606.0	$	622.2
OTHER ASSETS:
Operating lease right-of-use assets	$	288.9	$	293.0
Deferred tax assets	143.5		—
Convertible debt investments	117.0		190.3
Accrued pension, postretirement and executive retirement assets	69.6		89.9
Loans receivable	32.8		35.8

Other	29.1		23.0
	$	680.9	$	632.0

During fiscal 2022, the Company sold certain property, plant and equipment, including building, land and aircraft, for proceeds of $63.3, and recognized gains of $16.2 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with these sales.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

September 30,
2017 2016
(In millions)
INVENTORIES:
Finished goods $ 210.6
$ 221.4
Work-in-progress 57.6
48.9
Raw materials 139.3
124.4
$ 407.5
$ 394.7

September 30,
2017 2016
(In millions)
PROPERTY, PLANT AND EQUIPMENT, NET:
Land and improvements $ 109.4
$ 105.3
Buildings 209.7
227.3
Machinery and equipment 546.8
491.2
Furniture and fixtures 37.2
35.5
Software 106.0
104.2
Aircraft 8.3
6.7
Construction in progress 41.4
28.0
1,058.8
998.2
Less: accumulated depreciation (591.1 ) (553.3 )
$ 467.7
$ 444.9
OTHER ASSETS:
Unamortized debt issuance costs $ 8.2
$ 10.8
Loans receivable 110.4
79.1
Contingent consideration receivable 18.1
—
Bonnie Option 11.8
10.9
Other 27.5
14.3
$ 176.0
$ 115.1


	September 30,
	2022		2021

OTHER CURRENT LIABILITIES:
Current operating lease liabilities	$	76.2	$	66.4
Advertising and promotional accruals	74.8		132.7
Payroll and other compensation accruals	44.2		91.5

Accrued taxes	29.4		31.7
Accrued interest	30.1		28.0



Other	142.3		122.9
	$	397.0	$	473.2
OTHER NON-CURRENT LIABILITIES:
Non-current operating lease liabilities	$	223.2	$	234.4
Accrued pension, postretirement and executive retirement liabilities	82.1		98.2
Deferred tax liabilities	8.5		47.8

Other	45.2		29.2
	$	359.0	$	409.6

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

September 30,
2017 2016
(In millions)
OTHER CURRENT LIABILITIES:
Payroll and other compensation accruals $ 55.9
$ 59.9
Accrued restructuring and other 10.4
19.3
Advertising and promotional accruals 23.8
26.8
Accrued interest 16.4
13.8
International Business divestiture accrual 27.8
—
Other 114.0
58.1
$ 248.3
$ 177.9
OTHER NON-CURRENT LIABILITIES:
Accrued pension, postretirement and executive retirement liabilities $ 78.6
$ 93.5
Deferred tax liabilities 157.5
172.0
Deferred licensing revenue 12.6
0.2
Other 12.2
17.8
$ 260.9
$ 283.5

September 30,
2017 2016 2015
(In millions)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrecognized loss on derivatives, net of tax of $1.3, $2.8 and $5.6 $ 2.0
$ (4.7 ) $ (9.0 )
Pension and other postretirement liabilities, net of tax of $33.4, $41.2 and $39.3 (54.5 ) (66.9 ) (63.7 )
Foreign currency translation adjustment (16.7 ) (45.3 ) (34.1 )
$ (69.2 ) $ (116.9 ) $ (106.8 )

NOTE 6.7. MARKETING AGREEMENT

The Scotts Company LLC (“Scotts LLC”) is the exclusive agent of Monsanto for the marketing and distribution of certain of Monsanto’s consumer Roundup^® ~~non-selective weedkiller~~ branded products in the consumer lawn and garden market in certain countries pursuant to an Amended and Restated Exclusive Agency and Marketing Agreement (the “Original Marketing Agreement”). In consideration for the rights granted to the Company under the Original Marketing Agreement in 1998, the Company paid a marketing fee of $32.0 million to Monsanto. The Company deferred this amount on the basis that the payment will provide a future benefit through commissions that will be earned under the Marketing Agreement. The economic useful life over which the marketing fee is being amortized is 20 years, with a remaining unamortized amount of $0.8 million and remaining amortization period of one year. On May 15, 2015, the Company and Monsanto entered into an Amendment to the Original Marketing Agreement (the “Marketing Agreement Amendment”), a Lawn and Garden Brand Extension Agreement (the “Brand Extension Agreement”) and a Commercialization and Technology Agreement (the “Commercialization and Technology Agreement”). In consideration for these agreements, the Company paid $300.0 million to Monsanto and recorded this amount as intangible assets for which the related economic useful life is indefinite.

On August 31, 2017, in connection with and as a condition to the consummation of the Company’s sale of its International Business, the Company 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 the purchaser of such business of the Company’s rights and responsibilities under the Original Marketing Agreement, as amended, and the Brand Extension Agreement relating to those countries subject to the sale. The Company included $32.6 million of the carrying amount of the intangible asset associated with the Marketing Agreement Amendment with the International Business disposal unit on the basis of the asset’s historical carrying amount and this amount was disposed of as part of the sale of the International Business.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~From 1998 until May 15, 2015, the Original Marketing Agreement covered~~ the United States and certain other specified countries, including Australia, Austria, Belgium, Canada, France, Germany, the Netherlands and the United Kingdom. The Marketing Agreement Amendment expanded the covered territories and countries to include all countries other than Japan and countries subject to a comprehensive U.S. trade embargo or certain other embargoes and trade restrictions. The Restated Marketing Agreement further revised the covered territories and countries to only include Israel, China and every country throughout the Caribbean and the continents of North America and South America that is not subject to a comprehensive U.S. trade embargo or certain other embargoes and trade restrictions.

~~Under the terms of the Restated Marketing Agreement, the Company is entitled to receive an annual commission from Monsanto as consideration for the performance of the Company’s duties as agent.~~countries. The annual commission payable under the Third Restated ~~Marketing~~ Agreement is equal to ~~(1)~~ 50% of the actual earnings before interest and income taxes of ~~the~~Monsanto’s consumer Roundup^® business for each program year in the markets covered by the Third Restated ~~Marketing~~ Agreement ~~for program years 2017 and 2018 and (2) 50% of the actual earnings before interest and income taxes of the consumer Roundup~~^® ~~business in the markets covered by the~~(“Program EBIT”). The Third Restated ~~Marketing Agreement in excess of $40 million for program years 2019 and thereafter. The Restated Marketing~~ Agreement also requires the Company to make annual payments of $18.0 ~~million~~ to Monsanto as a contribution against the overall expenses of ~~the~~its consumer Roundup^® ~~business.~~ business, subject to reduction pursuant to the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.

Unless Monsanto terminates the Third Restated ~~Marketing~~ Agreement due to an event of default by the Company, termination rights under the Third Restated ~~Marketing~~ Agreement include the following:

•The Company may terminate the Third Restated Agreement upon the insolvency or bankruptcy of Monsanto;

•Monsanto may terminate the Third Restated Agreement in the event that Monsanto decides to decommission the permits, licenses and registrations needed for, and the trademarks, trade names, packages, copyrights and designs used in, the sale of the Roundup® products in the lawn and garden market (a “Brand Decommissioning Termination”); and

•Each party may terminate the Third Restated Agreement if Program EBIT falls below $50.0 and, in such case, no termination fee would be payable to either party.

The termination fee structure requires Monsanto to pay a termination fee ~~payable~~ to the Company in an amount equal to (i) $375.0 upon a Brand Decommissioning Termination, and (ii) the greater of ~~(1)~~ $175.0 ~~million~~ or ~~(2)~~ four times ~~(A)~~an amount equal to the average of the ~~program earnings before interest and income taxes~~Program EBIT for the three ~~trailing~~ program years ~~prior to~~before the year of termination, minus ~~(B)~~ $186.4, ~~million.~~ if Monsanto or its successor terminates the Third Restated Agreement as a result of a Roundup Sale or Change of Control of Monsanto (each, as defined in the Third Restated Agreement).

The ~~term of~~Company entered into the ~~Restated Marketing Agreement will continue indefinitely for all included markets unless and until otherwise terminated in accordance therewith.~~

~~The Restated~~ Brand Extension Agreement Asset Purchase Agreement (the “BEA Purchase Agreement”) on August 1, 2019 in connection with signing of the Third Restated Agreement. The BEA Purchase Agreement provides for the Company an exclusive license in every country throughout the North American continent, South American continent, Central America, the Caribbean, Israel and China (in each case that is not subject to a comprehensive U.S. trade embargo or certain other embargoes and trade restrictions) to use the Roundup^® ~~brand on additional products offered~~sale by the Company to Monsanto of specified assets related to, among other things, the development, manufacture, production, advertising, marketing, promotion, distribution, importation, exportation, offer for sale and sale of specified Roundup® branded products sold outside of the non-selective ~~weed~~weedkiller category within the residential lawn and garden market. The ~~application~~consideration paid by Monsanto was $112.0 plus the value of finished goods inventory of $3.5. This consideration receivable was recorded in the “Prepaid and other current assets” line in the Consolidated Balance Sheets until it was received by the Company on January 13, 2020. The carrying value of the ~~Roundup~~^®assets sold, which included the brand ~~to these additional products is subject to~~extension agreement intangible asset with a ~~product review and approval process developed between~~carrying value of $111.7, approximated the ~~Company and Monsanto. Monsanto will maintain oversight of its brand,~~consideration received, resulting in an insignificant gain on the handling of brand registrations covering these new products and new territories, as well as primary responsibility for brand enforcement. The Restated Brand Extension Agreement has a term of twenty years, which will automatically renew for additional successive twenty year terms, at the Company’s sole option, for no additional monetary consideration.sale.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The ~~Commercialization~~elements of the net commission and Technology Agreement provides for the Company and Monsanto to further develop and commercialize new products and technology developed at Monsanto and intended for introduction into the residential lawn and garden market. Under the Commercialization and Technology Agreement, the Company receives an exclusive first look at new Monsanto technology and products and an annual review of Monsanto’s developing products and technologies. The Commercialization and Technology Agreement has a term of thirty years (subject to early termination upon a termination eventreimbursements earned under the Third Restated ~~Marketing~~ Agreement ~~or the Restated Brand Extension Agreement).~~

~~Under the terms of the Restated Marketing Agreement, the Company performs sales, merchandising, warehousing~~ and ~~other selling and marketing services, on behalf of Monsanto in the conduct of the consumer Roundup~~^® business. The Company performs other services, including manufacturing conversion services, pursuant to ancillary agreements. The actual costs incurred for these activities are charged to and reimbursed by Monsanto. The Company records costs incurred for which the Company is the primary obligor on a gross basis, recognizing such costs in the “Cost of sales” line and the reimbursement of these costsincluded in the “Net sales” line in the Consolidated Statements of Operations ~~with no effect on gross profit dollars or net income.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The gross commission earned under the Restated Marketing Agreement, the contribution payments to Monsanto and the amortization of the initial marketing fee paid to Monsanto in 1998 are included in the calculation of net sales in the Company’s Consolidated Statements of Operations. The elements of the net commission and reimbursements earned under the Marketing Agreement and included in “Net sales” are as follows:


	Year Ended September 30
	2022		2021		2020

Gross commission	$	83.4	$	94.0	$	90.4
Contribution expenses	(18.0)		(18.0)		(18.0)

Net commission	65.4		76.0		72.4
Reimbursements associated with Roundup® marketing agreement	67.9		70.8		61.6
Total net sales associated with Roundup® marketing agreement	$	133.3	$	146.8	$	134.0

Year Ended September 30
2017 2016 2015
(In millions)
Gross commission $ 87.7
$ 97.9
$ 78.4
Contribution expenses (18.0 ) (18.0 ) (18.0 )
Amortization of marketing fee (0.8 ) (0.8 ) (0.8 )
Net commission 68.9
79.1
59.6
Reimbursements associated with Marketing Agreement 56.1
55.8
52.6
Total net sales associated with Marketing Agreement $ 125.0
$ 134.9
$ 112.2

NOTE 7.8. ACQUISITIONS AND INVESTMENTS

~~Fiscal 2018~~Cyco

On October 2, 2017, the Company’s Hawthorne segment acquired the remaining 25% noncontrolling interest in Gavita and its subsidiaries, including Agrolux, for $72.2 million. The Company recorded a charge of $13.4 million during the fourth quarter of fiscal 2017 to write-up the fair value of the loan to the noncontrolling ownership group of Gavita to the agreed upon buyout value in the “Other non-operating expense” line in the Consolidated Statements of Operations.

On October 11, 2017, the Company’s Hawthorne segment completed the acquisition of substantially all of the United States and Canadian assets of Can-Filters Group Inc. (“Can-Filters”) for $72.2 million. Based in Nelson, British Columbia, Can-Filters is a leading wholesaler of ventilation products for indoor and hydroponic gardening and industrial markets worldwide.

~~Fiscal 2017~~

~~On August 11, 2017,~~April 28, 2022, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of S.J. Enterprises PTY LTD, d.b.a. Cyco (“Cyco”), an Australia-based provider of premium nutrients, additives and growing media products for indoor growing sold mostly in the United States, for an estimated purchase price of $37.3. The purchase price includes contingent consideration, a non-cash investing activity, with an initial fair value of $3.1 and a maximum payout of $10.0, which will be paid by the Company based on the achievement of certain performance metrics through December 31, 2024. Prior to the transaction, the Company served as the exclusive ~~manufacturer and formulator~~distributor of ~~branded Botanicare~~Cyco’s products ~~for $32.0 million.~~in the United States. The ~~preliminary~~ valuation of the acquired assets included (i) ~~$0.3 million~~$1.3 of inventory, (ii) ~~$5.0 million~~$10.5 of finite-lived identifiable intangible assets and (iii) ~~$26.7 million~~$25.6 of tax-deductible goodwill. Identifiable intangible assets included manufacturing know-how and non-compete agreements with useful lives ranging between 5 and 10 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

On May 26, 2017, the Company’s majority-owned subsidiary Gavita completed the acquisition of Agrolux Holding B.V., and its subsidiaries (collectively, “Agrolux”), for $21.8 million. Based in the Netherlands, Agrolux is a worldwide supplier of horticultural lighting. The purchase price included contingent consideration, a non-cash investing activity, with a maximum payout and estimated fair value of $5.2 million, the payment of which will depend on the performance of the business through calendar year 2017. The preliminary valuation of the acquired assets included (i) $8.0 million of cash, prepaid and other current assets, (ii) $10.1 million of inventory and accounts receivable, (iii) $0.5 million of fixed assets, (iv) $8.6 million of accounts payable and other current liabilities, (v) $6.7 million of short term debt, (vi) $16.1 million of finite-lived identifiable intangible assets, (vii) $6.4 million of non-deductible goodwill, and (viii) $4.0 million of deferred tax liabilities. Identifiable intangible assets included tradenames and customer relationships with useful lives ranging between 10 and 20 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate. Net sales for Agrolux included within the Hawthorne segment for fiscal 2017 were $16.4 million.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

On October 3, 2016, the Company’s Hawthorne segment completed the acquisition of Botanicare, an Arizona-based leading producer of plant nutrients, plant supplements and growing systems used for hydroponic gardening, for $92.6 million. The purchase price included contingent consideration, a non-cash investing activity, with a maximum payout and estimated fair value of $15.5 million, which was paid during the third quarter of fiscal 2017. The preliminary valuation of the acquired assets included (i) $1.2 million of cash, prepaid and other current assets, (ii) $8.4 million of inventory and accounts receivable, (iii) $1.4 million of fixed assets, (iv) $2.3 million of accounts payable and other current liabilities, (v) $53.0 million of finite-lived identifiable intangible assets, and (vi) $30.9 million of tax-deductible goodwill. Identifiable intangible assets included tradenames,trade names, customer relationships and non-compete ~~arrangements~~agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate. ~~Net sales for Botanicare included within the Hawthorne segment for fiscal year 2017 were $47.6 million.~~

During the first quarter of fiscal 2017, the Company’s U.S. Consumer segment completed two acquisitions of companies whose products support the Company’s focus on the emerging areas of water positive landscapes and internet-enabled technology for an aggregate purchase price of $3.2 million. The valuation of the acquired assets for the transactions included finite-lived identifiable intangible assets and goodwill of $2.8 million. During the third quarter of fiscal 2017,Luxx Lighting

On December 30, 2021, the Company’s Hawthorne segment completed the acquisition of ~~a company focused on~~substantially all of the ~~technology supporting hydroponic growing systems for an aggregate purchase price of $3.5 million, which included finite-lived identifiable intangible~~ assets of ~~$3.2 million.~~

~~Fiscal 2016~~

~~On May 26, 2016, the Company’s Hawthorne segment acquired majority control and~~Luxx Lighting, Inc., a ~~75% economic interest in Gavita~~provider of lighting products for ~~$136.2 million. The remaining 25% interest was retained by Gavita’s former ownership group. This transaction provided the Company’s Hawthorne segment with a presence in the lighting category of~~ indoor and urban gardening, which is a part of the Company’s long-term growth strategy. Gavita, which is based in the Netherlands, is a leading producer and marketer of indoor lighting used in the greenhouse and hydroponic markets, predominately in the United States and Europe.growing. The purchase price ~~included contingent consideration,~~was $213.2, a portion of which was paid by the issuance of 0.1 million Common Shares, a non-cash investing and financing activity, with ~~an estimated~~a fair value of ~~$2.5 million.~~$21.0 based on the share price at the time of payment. The valuation of the acquired assets included (i) ~~$6.4 million of cash, prepaid and other current assets, (ii) $37.9 million~~$32.8 of inventory and accounts receivable, ~~(iii) $1.3 million~~(ii) $5.7 of ~~fixed assets, (iv) $18.7 million of accounts payable and~~ other current assets, (iii) $24.2 of current liabilities, ~~(v) $5.5 million of short term debt, (vi) $102.6 million~~(iv) $47.3 of finite-lived identifiable intangible assets ~~(vii) $83.3 million~~and (v) $151.6 of ~~non-deductible goodwill, and (viii) $25.7 million of deferred tax liabilities.~~tax-deductible goodwill. Identifiable intangible assets included ~~tradenames,~~trade names, customer relationships and non-compete ~~arrangements~~agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate. Gavita’s former ownership group initially retained a 25% noncontrolling interest in Gavita consisting of ownership of 5% of the outstanding shares of Gavita and a loan with interest payable based on distributions by Gavita. The loan represented a non-cash financing activity and is recorded at fair value in the “Long-term debt” line in the Consolidated Balance Sheets. The initial valuation of the loan was $37.7 million. The fair value measurement was classified in Level 3 of the fair value hierarchy. Net sales for Gavita included within the Hawthorne segment for fiscal 2017 and fiscal 2016 were $122.3 million and $35.7 million, respectively.

During the ~~third~~fourth quarter of fiscal ~~2016,~~2022, the Company decided it would discontinue and exit the market for certain Hawthorne lighting products and brands, including Luxx Lighting. Refer to “NOTE 4. IMPAIRMENT, RESTRUCTURING AND OTHER” for more information.

True Liberty Bags

On December 23, 2021, the Company’s Hawthorne segment completed anthe acquisition ~~within~~of substantially all of the ~~Other segment~~assets of True Liberty Bags, a leading provider of liners and storage solutions to ~~expand its Canadian growing media operations~~dry and cure plant products, for an estimated purchase price of $33.9 million. The estimated purchase price included contingent consideration, a non-cash investing activity, with an estimated fair value of $10.8 million, of which $6.5 million was paid during the first quarter of fiscal 2017, and the remaining $4.3 million has been adjusted and reclassified to the acquired assets as the Company does not expect to pay out any additional consideration.$10.1. The valuation of the acquired assets included (i) ~~$4.7 million~~$1.1 of inventory, (ii) $5.8 of finite-lived identifiable intangible assets and (iii) $3.2 of tax-deductible goodwill. Identifiable intangible assets included trade names and customer relationships with useful lives of 15 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

Hydro-Logic

On August 27, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of Hydro-Logic Purification Systems, Inc., a leading provider of products, accessories and systems for water filtration and purification, for $65.3. The valuation of the acquired assets included (i) $4.5 of inventory and accounts receivable, (ii) ~~$18.5 million~~$1.6 of ~~fixed~~


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

non-current assets, (iii) ~~$9.3 million~~$2.6 of other liabilities, (iv) $23.1 of finite-lived identifiable intangible assets ~~(iv) $1.2 million of deferred tax liabilities,~~ and (v) ~~an investment in an unconsolidated joint venture~~$38.7 of ~~$0.5 million.~~tax-deductible goodwill. Identifiable intangible assets included ~~peat bog lease rights, tradenames,~~trade names, customer relationships and non-compete ~~arrangements~~agreements with useful lives ranging between 5 and 15 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

The Hawthorne Collective

On August 24, 2021, the Company’s wholly-owned subsidiary, The Hawthorne Collective, Inc. (“THC”), made its initial investment under the Company’s strategic minority non-equity investment initiative in the form of a $150.0 six-year convertible note issued to the Company by Toronto-based RIV Capital Inc. (“RIV Capital”) (CSE: RIV) (OTC: CNPOF), a cannabis investment and acquisition firm listed on the Canadian Securities Exchange. The note bears interest on the principal amount at a rate of approximately 2% for the first two years of the term. No interest will accrue on the note for the remainder of the term. The note is convertible into RIV Capital common shares at a conversion price of CAD $1.90 per share which is based upon the RIV Capital closing stock price on August 9, 2021.

On April 22, 2022, pursuant to its follow-on investment rights, the Company made an additional investment in RIV Capital in the form of a $25.0 convertible note which matures on August 24, 2027. The note bears interest on the principal amount at a rate of approximately 2% for the first two years of the term. No interest will accrue on the note for the remainder of the term. The note is convertible into RIV Capital common shares at a conversion price of CAD $1.65 per share which is based upon the RIV Capital closing stock price on March 29, 2022.

Accrued interest on the initial $150.0 convertible note and the follow-on $25.0 convertible note (collectively, the “RIV Convertible Notes”) will be payable to THC at maturity or will be included in the conversion value of the notes at the time of conversion. Assuming full conversion of the RIV Convertible Notes, including the full amount of the anticipated accrued interest over the life of the notes, THC would be entitled to receive approximately 123.0 million common shares of RIV Capital, representing approximately 42% of RIV Capital’s outstanding shares as of September 30, 2022. The RIV Convertible Notes are convertible into common shares of RIV Capital either (i) at the election of THC or (ii) at the election of RIV Capital after the date on which federal laws in the United States are amended to allow for the general cultivation, distribution, and possession of cannabis.

In connection with issuance of the RIV Convertible Notes, the Company entered into an investor rights agreement with RIV Capital providing for, among other things, customary registration rights, participation rights, as well as certain standstill and transfer restrictions. In addition, THC is entitled to designate three nominees to the RIV Capital board of directors for so long as the board is comprised of seven directors, and shall be entitled to designate four nominees to the RIV Capital board of directors if the size of the board is increased to nine directors.

During the fourth quarter of fiscal 2021, THC made minority non-equity investments of $43.1 in other entities focused on branded cannabis and high quality genetics. These additional investments also include conversion features that would provide the Company with minority ownership interests if it exercises the conversion features.

The Company or THC will not have control of or an active day-to-day role in any entity in which THC has a convertible debt investment. The convertible notes include restrictions that the funds received from the Company will be used for general corporate and other lawful purposes, which could include acquisitions, and that the funds will not be used in connection with or for any cannabis or cannabis-related operations in the U.S. unless and until such operations comply with all applicable U.S. federal laws.

Rhizoflora

On August 13, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of Rhizoflora, Inc., the manufacturer of terpene enhancing nutrient products Terpinator® and Purpinator®, for $33.7. The valuation of the acquired assets included (i) $0.6 of inventory, (ii) $10.9 of finite-lived identifiable intangible assets and (iii) $22.2 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate. ~~Net sales related to this acquisition included within the Other segment for fiscal 2017 and fiscal 2016 were $14.6 million and $6.4 million, respectively.~~

~~During the second quarter of fiscal 2016,~~


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

AeroGrow

On November 11, 2020, the Company entered into ~~definitive agreements with Bonnie~~an agreement and ~~its sole shareholder AFC, providing~~plan of merger to acquire the remaining outstanding shares of AeroGrow for cash consideration of $3.00 per share, or approximately $20.1. The merger closed on February 26, 2021. SMG Growing Media, Inc., a wholly-owned subsidiary of Scotts Miracle-Gro, was the ~~Company’s participation~~holder of 80.5% of the outstanding shares of AeroGrow prior to the closing and now holds 100% of the outstanding shares of AeroGrow. The closing date carrying value of the noncontrolling interest was $6.7 and the $13.4 difference between the purchase price and carrying value was recognized in the ~~Bonnie Business. The Company’s participation includes a Term Loan Agreement from the Company to AFC, with Bonnie as guarantor,~~“Common shares and capital in ~~the amount~~excess of $72.0 million with a fixed coupon rate of 6.95% (the “Term Loan”) as well as a Services Agreement pursuant to which the Company provides marketing, research and development and certain ancillary services to Bonnie for a commission fee based on the profits of the Bonnie Business and the reimbursement of certain costs. These agreements also include options beginning in fiscal 2020 that provide for either (i) the Company to increase its economic interest in the Bonnie Business (the “Bonnie Option”) or (ii) AFC and Bonnie to repurchase

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

the Company’s economic interest in the Bonnie Business. During fiscal 2017 and fiscal 2016, the Company recognized commission income of $2.2 million and $3.6 million, respectively, and cost reimbursements of $2.6 million and $0.6 million, respectively.

~~The Bonnie Option is required to be accounted for as a derivative instrument and is recorded at fair~~$0.01 stated value ~~in the “Other assets”~~per share” line within “Total equity” in the Consolidated Balance Sheets, with changes in fair value recognized in the “Other income (loss), net” line in the Consolidated Statements of Operations. The estimated fair value of the Bonnie Option was $11.8 million and $10.9 million as of September 30, 2017 and 2016, respectively, and the fair value measurement was classified in Level 3 of the fair value hierarchy.Sheets.

~~Fiscal 2015~~

On March 30, 2015, the Company’s Hawthorne segment acquired the assets of General Hydroponics, Inc. (“General Hydroponics”) and Bio-Organic Solutions, Inc. (“Vermicrop”) for $120.0 million and $15.0 million, respectively. This transaction provided the Company’s Hawthorne segment with an additional entry into the indoor and urban gardening market, which is a part of the Company’s long-term growth strategy. General Hydroponics and Vermicrop are leading producers of liquid plant food products, growing media, and accessories for the hydroponic markets. The General Hydroponics purchase price included non-cash investing activity of $1.0 million representing the deferral of a portion of the purchase price, of which $0.5 million was paid in the second quarter of fiscal 2016 and $0.5 million was paid in the second quarter of fiscal 2017. The Vermicrop purchase price included $5.0 million of contingent consideration, which was paid during the third quarter of fiscal 2016. The Vermicrop purchase price and contingent consideration were paid in common shares of Scotts Miracle-Gro (“Common Shares”) based on the average share price at the time of payment. The valuation of the acquired assets included (i) $14.2 million of inventory and accounts receivable, (ii) $5.7 million in fixed assets, (iii) $65.0 million of finite-lived identifiable intangible assets, and (iv) $53.9 million of tax-deductible goodwill. Identifiable intangible assets included tradenames, customer relationships and non-compete arrangements with useful lives ranging between 5 and 26 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate. Net sales for General Hydroponics and Vermicrop included within the Hawthorne segment for fiscal 2017 and fiscal 2016 were $73.5 million and $64.1 million, respectively.

During fiscal 2015, the Company completed three acquisitions of growing media operations within the U.S. Consumer segment for an aggregate purchase price of $34.0 million. These acquisitions expanded the Company’s growing media operations and distribution capabilities. The valuation of the acquired assets for the transactions included (i) $7.4 million in finite-lived identifiable intangible assets, (ii) $10.7 million in fixed assets, (iii) $9.4 million in tax deductible goodwill, and (iv) $7.5 million of inventory and accounts receivable. Identifiable intangible assets include tradenames and customer relationships with useful lives ranging between 7 and 20 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

The consolidated financial statements include the results of operations for these business combinations from the date of each acquisition. The pro forma results of operations and the results of operations for acquired businesses since the acquisition dates have not been separately disclosed because the effects were not significant compared to the consolidated financial statements, individually or in the aggregate.

NOTE 8.9. INVESTMENT IN UNCONSOLIDATED AFFILIATES

AsOn December 31, 2020, pursuant to the terms of ~~September 30, 2017,~~the Contribution and Unit Purchase Agreement between the Company ~~held~~and AFC, the Company acquired a ~~minority~~50% equity interest ~~of approximately 30%~~ in the ~~TruGreen Joint Venture. This~~Bonnie Plants business of planting, growing, developing, distributing, marketing and selling live plants through a joint venture with AFC (“Bonnie Plants, LLC”) in exchange for cash payments of $102.3, as well as non-cash investing activities that included forgiveness of the Company’s outstanding loan receivable with AFC and surrender of the Company’s options to increase its economic interest in the Bonnie Plants business. The Company’s loan receivable with AFC, which was previously recognized in the “Other assets” line in the Consolidated Balance Sheets, had a carrying value of $66.4 on December 31, 2020 and the Company recognized a gain of $12.5 during the first quarter of fiscal 2021 to write-up the value of the loan to its closing date fair value of $78.9 in the “Other non-operating income, net” line in the Consolidated Statements of Operations. The Company’s options to increase its economic interest in the Bonnie Plants business were previously recognized in the “Other assets” line in the Consolidated Balance Sheets and had an estimated fair value of $23.3 on December 31, 2020. The Company’s interest in Bonnie Plants, LLC had an initial fair value of ~~$294.0 million~~$202.9 and ~~subsequently~~is recorded in the “Investment in unconsolidated affiliates” line in the Consolidated Balance Sheets. The estimated fair value of the loan receivable with AFC was determined using an income-based approach, which includes market participant expectations of cash flows over the remaining useful life discounted to present value using an appropriate discount rate. The fair value estimate utilized significant unobservable inputs and thus represents a Level 3 nonrecurring fair value measurement.

The Company’s interest is accounted for using the equity method of accounting, with the Company’s proportionate share of ~~the TruGreen Joint Venture~~Bonnie Plants, LLC earnings subsequent to December 31, 2020 reflected in the Consolidated Statements of Operations. In addition, the Company and TruGreen Holdings entered into a limited liability company agreement (the “LLC Agreement”) governing the management of the TruGreen Joint Venture, as well as certain ancillary agreements including a transition services agreement and an employee leasing agreement. The LLC Agreement provides the Company with minority representation on the board of directors of the TruGreen Joint Venture.

In connection with the closing of the transactions contemplated by the Contribution Agreement on April 13, 2016, the TruGreen Joint Venture obtained debt financing and made a distribution of $196.2 million to the Company and the Company invested $18.0 million in second lien term loan financing to the TruGreen Joint Venture. The second lien term loan receivable had a carrying value of $18.1 million and $18.0 million at September 30, 2017 and 2016, respectively, and is recorded in the “Other assets” line in the Consolidated Balance Sheets. The Company was reimbursed $40.2 million and $52.6 million during fiscal 2017 and fiscal 2016, respectively, and had accounts receivable of $0.4 million and $14.9 million at September 30, 2017 and 2016, respectively, for expenses incurred pursuant to a short-term transition services agreement and an employee leasing agreement. The Company also had an indemnification asset of $4.8 million and $9.6 million at September 30, 2017 and 2016, respectively, for future payments on claims associated with insurance programs. The Company received distributions from unconsolidated

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

affiliates intended to cover required tax payments of $3.6 million and $7.5 million million during fiscal 2017 and fiscal 2016, respectively. During the fourth quarter of fiscal 2017, the Company received an $87.1 million distribution from the TruGreen Joint Venture in connection with its August 2017 debt refinancing. The Company has received cumulative distributions from the TruGreen Joint Venture in excess of our investment balance, which resulted in an amount recorded in the “Distributions in excess of investment in unconsolidated affiliate” line in the Consolidated Balance Sheets of $21.9 million at September 30, 2017. In accordance with the applicable accounting guidance, the Company reclassified the negative balance to the liability section of the Consolidated Balance Sheet.

During the fourth quarter of fiscal 2017, the Company made a $29.4 million investment in an unconsolidated subsidiary whose products support the professional U.S. industrial, turf and ornamental market.

~~The following tables present summarized financial information of the Company’s unconsolidated affiliates:~~

September 30,
2017 2016
(In millions)
Cash and cash equivalents $ 26.4
$ 92.3
Other current assets 180.9
159.1
Intangible assets, net 860.7
916.8
Goodwill 184.0
165.3
Other assets 229.5
376.0
Total assets $ 1,481.5
$ 1,709.5

Current liabilities $ 221.0
$ 210.9
Current portion of debt 15.5
6.9
Long-term debt 987.5
726.0
Other liabilities 57.9
80.6
Equity 199.6
685.1
Total liabilities and equity $ 1,481.5
$ 1,709.5

Year Ended September 30,
2017 2016
(in millions)
Revenue $ 1,340.2
$ 808.4
Gross margin 429.7
287.5
Selling and administrative expenses 316.8
167.8
Amortization expense 72.8
27.1
Interest expense 69.9
30.8
Restructuring and other charges 67.5
34.8
Net (loss) income $ (97.3 ) $ 27.0

The summarized financial information for the TruGreen Joint Venture includes activity from the date of formation of the TruGreen Joint Venture on April 13, 2016 through September 30, 2017. Net income does not include income taxes, which are recognized and paid by the partners of the TruGreen Joint Venture. The income taxes associated with the Company’s share of net income has been recorded in the “Income tax expense from continuing operations” line in the Consolidated Statement of Operations.

~~The Company recognized~~ equity in (income) loss of unconsolidated affiliates associated with Bonnie Plants, LLC of ~~$29.0 million~~$12.9 and ~~$(7.8) million in~~$(14.4) during fiscal ~~2017~~2022 and fiscal ~~2016,~~2021, respectively. ~~Included within (income) loss~~The Company also received a distribution of ~~unconsolidated affiliates for~~$12.0 from Bonnie Plants, LLC during fiscal ~~2017 and fiscal 2016, respectively, is~~2021, which was classified as an operating activity in the ~~Company’s $25.2 million and $11.7 million share~~Consolidated Statements of restructuring and other charges, refinancing costs and non-cash purchase accounting fair value adjustments related to deferred revenue and advertising incurred by the TruGreen Joint Venture. For fiscal 2017, these charges included $1.3 million for transaction costs, $12.1 million for nonrecurring integration and separation costs, $7.2 million of costs associated with the TruGreen Joint Venture’s August 2017 debt refinancing and $4.6 million for a non-cash purchase accounting fair value write-down adjustment related to deferred revenue and advertising. For fiscal 2016, theseCash Flows.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

charges included $6.0 million for transaction costs, $4.4 million for nonrecurring integration and separation costs and $1.3 million for a non-cash purchase accounting fair value write-down adjustment related to deferred revenue and advertising.

NOTE 9.10. RETIREMENT PLANS

The Company sponsors a defined contribution 401(k) plan for substantially all U.S. associates. The Company matches ~~150%~~200% of associates’ initial 4%3% contribution and 50% of their remaining contribution up to 6%. The Company may make additional discretionary profit sharing matching contributions to eligible employees on their initial 4% contribution. The Company recorded charges of ~~$13.9 million, $13.0 million~~$28.3, $30.1 and ~~$11.5 million~~$27.7 under the plan in fiscal ~~2017~~, 2022, fiscal ~~2016~~2021 and fiscal ~~2015~~,2020, respectively.

The Company sponsors two defined benefit pension plans for certain U.S. ~~associates.~~associates and three defined benefit pension plans associated with the former businesses in the United Kingdom and Germany. Benefits under these plans have been frozen and closed to new associates since ~~1997.~~1997 for the U.S. plans, 2010 for the United Kingdom plans and 2017 for the Germany plan. The benefits under the ~~primary plan~~plans are based on years of service and ~~the associates’ average final~~ compensation ~~or stated amounts.~~levels. The Company’s funding policy for the defined benefit pension plans, consistent with statutory requirements and tax considerations, is based on actuarial computations using the Projected Unit Credit method. ~~The second frozen plan is~~

During fiscal 2021, a non-qualified supplemental pension plan. This plan provides for incremental pension payments so that total pension payments equal amounts that would have been payable from the Company’s pension plan if it were not for limitations imposed by the income tax regulations.

~~The Company sponsors~~ defined benefit pension ~~plans~~plan associated with ~~its~~the former ~~international businesses~~business in the United Kingdom entered into a buy-in insurance policy in exchange for a premium payment of $67.7, which is subject to adjustment as a result of subsequent data cleansing activities. Under the terms of this buy-in insurance policy, the insurer is liable to pay the benefits to the plan but the plan still retains full legal responsibility to pay the benefits to plan participants using the insurance payments. The buy-in policy will be treated as an asset of the plan going forward until such time as the buy-in policy is converted to a buy-out policy, which is when individual insurance policies will be assigned to each plan participant and ~~Germany. These plans provide retirement benefits primarily based on years of service and compensation levels. On July 1, 2010,~~ the ~~Company froze its~~ ~~two~~ ~~U.K. defined benefit pension plans and transferred participants to an amended defined contribution plan. Prior to August 31, 2017, participants were~~plan will no longer ~~credited for service; however, salary increases continued~~have legal responsibility to ~~be factored into each participant’s final pension benefit. In connection with~~pay the ~~sale of the International Business on August 31, 2017, the Company (1) retained all obligations related~~benefits to the two U.K. defined benefit pension plans provided that future salary increases are no longer factored into each participant’s final pension benefit, (2) retained the Germany defined benefit pension obligations associated with inactive participants and (3) disposed of the Germany defined benefit pension obligations associated with active participants and all obligations associated with the France defined benefit pension plans. These changes resulted in a decrease in the projected benefit obligation of $7.1 million during fiscal 2017. The Company recognized a settlement charge of $1.4 million during fiscal 2017 as part of the gain on the sale of the International Business in the “Income from discontinued operations, net of tax” line in the Consolidated Statements of Operations..

plan participants.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following tables present information about benefit obligations, plan assets, annual expense, assumptions and other information about the Company’s defined benefit pension plans. The defined benefit pension plans are valued using a September 30 measurement date.

U.S. Defined
Benefit Pension Plans

International
Defined
Benefit Pension Plans
2017 2016 2017 2016
(In millions)
Change in projected benefit obligation:
Benefit obligation at beginning of year $ 118.2
$ 117.3
$ 206.2
$ 190.5
Service cost —
—
0.9
0.9
Interest cost 2.8
4.3
3.7
6.3
Actuarial (gain) loss (3.8 ) 3.8
(13.0 ) 44.0
Benefits paid (7.2 ) (7.2 ) (6.0 ) (7.7 )
Divestiture —
—
(7.1 ) —
Other —
—
(0.8 ) (0.9 )
Foreign currency translation —
—
6.8
(26.9 )
Projected benefit obligation at end of year $ 110.0
$ 118.2
$ 190.7
$ 206.2
Accumulated benefit obligation at end of year $ 110.0
$ 118.2
$ 190.7
$ 201.9
Change in plan assets:
Fair value of plan assets at beginning of year $ 89.4
$ 83.5
$ 173.9
$ 166.0
Actual return on plan assets 5.0
9.9
2.2
37.0
Employer contribution 0.3
3.2
5.6
5.9
Benefits paid (7.2 ) (7.2 ) (6.0 ) (7.7 )
Foreign currency translation —
—
6.3
(26.4 )
Other —
—
(0.8 ) (0.9 )
Fair value of plan assets at end of year $ 87.5
$ 89.4
$ 181.2
$ 173.9
Underfunded status at end of year $ (22.5 ) $ (28.8 ) $ (9.5 ) $ (32.3 )
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation $ 110.0
$ 118.2
$ 190.7
$ 206.2
Accumulated benefit obligation 110.0
118.2
190.7
201.9
Fair value of plan assets 87.5
89.4
181.2
173.9
Amounts recognized in the Consolidated Balance Sheets consist of:
Noncurrent assets $ —
$ —
$ 9.4
$ 0.5
Current liabilities (0.2 ) (0.2 ) (0.9 ) (0.8 )
Noncurrent liabilities (22.3 ) (28.6 ) (17.9 ) (32.0 )
Total amount accrued $ (22.5 ) $ (28.8 ) $ (9.4 ) $ (32.3 )
Amounts recognized in accumulated other comprehensive loss consist of:
Actuarial loss $ 40.7
$ 46.4
$ 50.8
$ 62.2
Total amount recognized $ 40.7
$ 46.4
$ 50.8
$ 62.2

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

U.S. Defined
Benefit Pension Plans

International
Defined
Benefit Pension Plans
2017 2016 2017 2016
(In millions, except percentage figures)
Total change in other comprehensive loss attributable to:
Pension benefit (loss) gain during the period $ 4.0
$ 1.1
$ 9.8
$ (14.5 )
Reclassification of pension benefit losses to net income 1.7
1.8
1.9
1.5
Settlement loss during the period —
—
1.4
—
Foreign currency translation —
—
(1.7 ) 7.8
Total change in other comprehensive loss $ 5.7
$ 2.9
$ 11.4
$ (5.2 )
Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in fiscal 2018 are as follows:
Actuarial loss $ 1.5
$ 1.1

Amount to be amortized into net periodic benefit cost $ 1.5
$ 1.1

Weighted average assumptions used in development of projected benefit obligation:
Discount rate 3.41 % 3.07 % 2.47 % 2.12 %
Rate of compensation increase n/a
n/a
n/a
3.50 %

U.S. Defined
Benefit Pension Plans

International
Defined Benefit Pension Plans
2017 2016 2015 2017 2016 2015
(In millions, except percentage figures)
Components of net periodic benefit cost:
Service cost $ —
$ —
$ —
$ 0.9
$ 0.9
$ 1.0
Interest cost 2.8
4.3
4.0
3.7
6.3
7.1
Expected return on plan assets (4.9 ) (5.0 ) (5.4 ) (7.7 ) (7.3 ) (8.9 )
Net amortization 1.7
1.8
3.3
1.8
1.5
1.6
Net periodic benefit (income) cost (0.4 ) 1.1
1.9
(1.3 ) 1.4
0.8
Settlement —
—
—
1.4
—
—
Total benefit (income) cost $ (0.4 ) $ 1.1
$ 1.9
$ 0.1
$ 1.4
$ 0.8
Weighted average assumptions used in development of net periodic benefit (income) cost:
Weighted average discount rate n/a
3.81 % 3.81 % n/a
3.58 % 3.78 %
Weighted average discount rate - service cost n/a
n/a
n/a
1.37 % n/a
n/a
Weighted average discount rate - interest cost 2.44 % n/a
n/a
1.84 % n/a
n/a
Expected return on plan assets 5.50 % 5.50 % 6.25 % 4.55 % 4.75 % 5.70 %
Rate of compensation increase n/a
n/a
n/a
3.50 % 3.53 % 3.70 %

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

U.S. Defined
Benefit Pension Plans

International
Defined
Benefit Pension Plans
(In millions, except percentage figures)
Other information:
Plan asset allocations:
Target for September 30, 2018:
Equity securities 25 % 30 %
Debt securities 70 % 67 %
Real estate securities 5 % — %
Cash and cash equivalents — % — %
Insurance contracts — % 3 %
September 30, 2017:
Equity securities 26 % 31 %
Debt securities 67 % 66 %
Real estate securities 4 % — %
Cash and cash equivalents 3 % — %
Insurance contracts — % 3 %
September 30, 2016:
Equity securities 23 % 30 %
Debt securities 70 % 70 %
Real estate securities 4 % — %
Cash and cash equivalents 3 % — %
Insurance contracts — % — %

Expected company contributions in fiscal 2018 $ 0.2
$ 6.8
Expected future benefit payments:
2018 $ 7.9
$ 5.3
2019 7.6
5.5
2020 7.6
5.6
2021 7.6
5.9
2022 7.5
6.3
2023 – 2028 35.4
35.8

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


	U.S. Defined Benefit Pension Plans				International Defined Benefit Pension Plans
	2022		2021		2022		2021

Change in projected benefit obligation:
Benefit obligation at beginning of year	$	100.2	$	109.8	$	193.6	$	193.7

Interest cost	1.7		1.5		3.0		2.6
Actuarial gain	(17.2)		(4.1)		(55.1)		(2.9)
Benefits paid	(7.0)		(7.0)		(7.5)		(7.6)





Foreign currency translation	—		—		(24.8)		7.8
Projected benefit obligation (“PBO”) at end of year	$	77.7	$	100.2	$	109.2	$	193.6
Accumulated benefit obligation (“ABO”) at end of year	$	77.7	$	100.2	$	109.2	$	193.6
Change in plan assets:
Fair value of plan assets at beginning of year	$	81.7	$	81.5	$	221.6	$	209.9
Actual return on plan assets	(15.8)		5.9		(61.2)		2.1
Employer contribution	0.2		1.3		5.3		7.9

Benefits paid	(7.0)		(7.0)		(7.5)		(7.6)

Foreign currency translation	—		—		(29.3)		9.3

Fair value of plan assets at end of year	$	59.1	$	81.7	$	128.9	$	221.6
Overfunded (underfunded) status at end of year	$	(18.6)	$	(18.5)	$	19.7	$	28.0

The ~~following tables set forth~~decrease in the ~~fair value~~PBO during fiscal 2022 was primarily driven by the increase in discount rates. These gains were partially offset by demographic experience losses, an update to the terminated vested retirement assumption, and the adoption of the ~~Company’s pension plan assets, segregated by level within the fair value hierarchy:~~updated mortality projection scale.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

September 30, 2017

Quoted Prices in Active
Markets for Identical
Assets (Level 1)

Significant Other
Observable
Inputs (Level 2)

Unobservable
Inputs
(Level 3)
Total
(In millions)
U.S. Defined Benefit Pension Plan Assets
Cash and cash equivalents $ 2.4
$ —
$ —
$ 2.4
Mutual funds—real estate —
3.7
—
3.7
Mutual funds—equities —
22.5
—
22.5
Mutual funds—fixed income —
58.9
—
58.9
Total $ 2.4
$ 85.1
$ —
$ 87.5
International Defined Benefit Pension Plan Assets
Cash and cash equivalents $ 0.4
$ —
$ —
$ 0.4
Insurance contracts —
4.7
—
4.7
Mutual funds—equities —
56.7
—
56.7
Mutual funds—fixed income —
119.4
—
119.4
Total $ 0.4
$ 180.8
$ —
$ 181.2


	U.S. Defined Benefit Pension Plans				International Defined Benefit Pension Plans
	2022		2021		2022		2021

Information for pension plans with an ABO in excess of plan assets:

Accumulated benefit obligation	$	77.7	$	100.2	$	11.6	$	16.9
Fair value of plan assets	59.1		81.7		—		—
Information for pension plans with a PBO in excess of plan assets:
Projected benefit obligation	$	77.7	$	100.2	$	11.6	$	16.9
Fair value of plan assets	59.1		81.7		—		—
Amounts recognized in the Consolidated Balance Sheets consist of:

Non-current assets	$	—	$	—	$	31.3	$	44.9
Current liabilities	(0.2)		(0.2)		(0.8)		(0.9)
Non-current liabilities	(18.4)		(18.3)		(10.8)		(16.0)
Total amount accrued	$	(18.6)	$	(18.5)	$	19.7	$	28.0
Amounts recognized in AOCL consist of:
Actuarial loss	$	38.8	$	39.2	$	51.2	$	51.4
Prior service cost	—		—		2.1		2.7
Total amount recognized	$	38.8	$	39.2	$	53.3	$	54.1


	U.S. Defined Benefit Pension Plans						International Defined Benefit Pension Plans
	2022			2021			2022			2021

Total change in other comprehensive loss attributable to:
Net gain (loss) during the period	$	(1.3)		$	6.6		$	(11.1)		$	(0.6)
Reclassification to net income	1.7			2.1			1.3			1.3



Foreign currency translation	—			—			10.6			(2.0)
Total change in other comprehensive loss	$	0.4		$	8.7		$	0.8		$	(1.3)




Weighted average assumptions used in development of projected benefit obligation:
Discount rate	5.06		%	2.37		%	4.96		%	1.90		%


	U.S. Defined Benefit Pension Plans									International Defined Benefit Pension Plans
	2022			2021			2020			2022			2021			2020

Components of net periodic benefit cost (income):

Interest cost	$	1.7		$	1.5		$	2.6		$	3.0		$	2.6		$	2.7
Expected return on plan assets	(2.8)			(3.4)			(3.9)			(5.1)			(5.5)			(6.9)
Net amortization	1.7			2.1			1.8			1.3			1.3			1.0
Net periodic benefit cost (income)	$	0.6		$	0.2		$	0.5		$	(0.8)		$	(1.6)		$	(3.2)




Weighted average assumptions used in development of net periodic benefit cost (income):


Weighted average discount rate - interest cost	1.74		%	1.43		%	2.44		%	1.64		%	1.26		%	1.42		%
Expected return on plan assets	3.50		%	4.25		%	5.00		%	2.37		%	2.45		%	3.39		%

September 30, 2016

Quoted Prices in Active
Markets for Identical
Assets (Level 1)

Significant Other
Observable
Inputs (Level 2)

Unobservable
Inputs
(Level 3)
Total
(In millions)
U.S. Defined Benefit Pension Plan Assets
Cash and cash equivalents $ 2.2
$ —
$ —
$ 2.2
Mutual funds—real estate —
3.8
—
3.8
Mutual funds—equities —
20.9
—
20.9
Mutual funds—fixed income —
62.5
—
62.5
Total $ 2.2
$ 87.2
$ —
$ 89.4
International Defined Benefit Pension Plan Assets
Cash and cash equivalents $ 0.7
$ —
$ —
$ 0.7
Mutual funds—equities —
51.8
—
51.8
Mutual funds—fixed income —
121.4
—
121.4
Total $ 0.7
$ 173.2
$ —
$ 173.9


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The fair value of the mutual funds are valued at the exchange-listed year end closing price or at the net asset value of shares held by the fund at the end of the year. Insurance contracts are valued by discounting the related cash flows using a current year end market rate or at cash surrender value, which is presumed to equal fair value.

Investment Strategy

Target allocation percentages among various asset classes are maintained based on an individual investment policy established for each of the various pension plans. Asset allocations are designed to achieve long-term objectives of return while mitigating against downside risk ~~and~~ considering expected cash requirements necessary to fund benefit payments. However, the Company cannot predict future investment returns and therefore cannot determine whether future pension plan funding requirements could materially and adversely affect its financial condition, results of operations or cash flows.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Basis for Long-Term Rate of Return on Asset Assumptions

The Company’s expected long-term rate of return on asset assumptions are derived from studies conducted by third parties. The studies include a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plans to determine the average rate of earnings expected. While the studies give appropriate consideration to recent fund performance and historical returns, the assumptions primarily represent expectations about future rates of return over the long term.


	U.S. Defined Benefit Pension Plans			International Defined Benefit Pension Plans

Other information:
Plan asset allocations:
Target for September 30, 2023:
Equity securities	22		%	25		%
Debt securities	74		%	44		%
Real estate securities	4		%	—		%
Cash and cash equivalents	—		%	1		%
Insurance contracts	—		%	30		%
September 30, 2022
Equity securities	17		%	25		%
Debt securities	75		%	44		%
Real estate securities	5		%	—		%
Cash and cash equivalents	3		%	1		%
Insurance contracts	—		%	30		%
September 30, 2021
Equity securities	20		%	22		%
Debt securities	73		%	48		%
Real estate securities	4		%	—		%
Cash and cash equivalents	3		%	—		%
Insurance contracts	—		%	30		%

Expected company contributions in fiscal 2023	$	0.2		$	1.1
Expected future benefit payments:
2023	$	7.4		$	5.6
2024	7.2			5.8
2025	7.0			6.1
2026	6.9			6.2
2027	6.8			6.2
2028 – 2032	30.5			33.8


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The following tables set forth the fair value of the Company’s pension plan assets, segregated by level within the fair value hierarchy:


		U.S. Defined Benefit Pension Plans				International Defined Benefit Pension Plans
	Fair Value Hierarchy Level	2022		2021		2022		2021
Cash and cash equivalents	Level 1	$	2.1	$	2.9	$	1.7	$	0.2
Insurance contracts	Level 3	—		—		38.1		66.7
Total assets in the fair value hierarchy		$	2.1	$	2.9	$	39.8	$	66.9
Common collective trusts measured at net asset value
Real estate		$	2.8	$	3.4	$	—	$	—
Equities		10.0		16.0		32.6		48.3
Fixed income		44.2		59.4		56.5		106.4

Total common collective trusts measured at net asset value		57.0		78.8		89.1		154.7
Total assets at fair value		$	59.1	$	81.7	$	128.9	$	221.6

The carrying value of cash equivalents approximated their aggregate fair value as of September 30, 2022 and 2021. The valuation of the buy-in insurance policy was calculated on an insurer pricing basis updated for changes in market implied insurance pricing, market rates, and inflation during the year, and was estimated using unobservable inputs. Common collective trusts are not publicly traded and were valued at a net asset value unit price determined by the portfolio’s sponsor based on the fair value of underlying assets held by the common collective trust on September 30, 2022 and 2021. The common collective trusts hold underlying investments that have prices derived from quoted prices in active markets. The underlying assets are principally marketable equity and fixed income securities.

NOTE ~~10.~~11. ASSOCIATE MEDICAL BENEFITS

The Company provides comprehensive major medical benefits to its associates. The Company is self-insured for certain health benefits up to $1.0 per occurrence per individual. The cost of ~~its~~such benefits is recognized as expense in the period the claim is incurred. This cost was $46.6, $43.7 and $34.2 in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

The Company also provides comprehensive major medical benefits to certain retired associates and their dependents. Substantially all of the Company’s domestic associates who were hired before January 1, 1998 become eligible for these benefits if they retire at age 55 or older with more than 10ten years of service. The retiree medical plan requires certain minimum contributions from retired associates and includes provisions to limit the overall cost increases the Company is required to cover. The Company funds its portion of retiree medical benefits ~~on a pay-as-you-go basis.~~as claims are paid.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The following ~~table sets~~tables set forth information about the retiree medical plan for domestic associates. The retiree medical plan is valued using a September 30 measurement date.

2017 2016
(In millions, except percentage figures)
Change in Accumulated Plan Benefit Obligation (APBO):
Benefit obligation at beginning of year $ 26.2
$ 26.0
Service cost 0.3
0.2
Interest cost 0.7
1.0
Plan participants’ contributions 0.3
0.5
Actuarial (gain) loss (1.2 ) 1.3
Benefits paid (2.4 ) (2.8 )
Benefit obligation at end of year $ 23.9
$ 26.2
Change in plan assets:
Fair value of plan assets at beginning of year $ —
$ —
Employer contribution 2.1
2.3
Plan participants’ contributions 0.3
0.5
Gross benefits paid (2.4 ) (2.8 )
Fair value of plan assets at end of year $ —
$ —
Unfunded status at end of year $ (23.9 ) $ (26.2 )
Amounts recognized in the Consolidated Balance Sheets consist of:
Current liabilities $ (1.8 ) $ (1.8 )
Noncurrent liabilities (22.1 ) (24.4 )
Total amount accrued $ (23.9 ) $ (26.2 )
Amounts recognized in accumulated other comprehensive loss consist of:
Actuarial loss $ 3.2
$ 4.7
Unamortized prior service credit (5.8 ) (6.9 )
Total amount recognized $ (2.6 ) $ (2.2 )
Total change in other comprehensive loss attributable to:
Benefit (gain) loss during the period $ (1.1 ) $ 1.5
Net amortization of prior service credit and actuarial loss during the year 0.7
1.0
Total change in other comprehensive loss (income) $ (0.4 ) $ 2.5

Discount rate used in development of APBO 3.56 % 3.26 %

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

2017 2016 2015
Components of net periodic benefit cost
Service cost $ 0.3
$ 0.2
$ 0.4
Interest cost 0.7
1.0
1.3
Amortization of actuarial loss 0.4
0.1
—
Amortization of prior service credit (1.1 ) (1.1 ) —
Total postretirement benefit cost $ 0.3
$ 0.2
$ 1.7

Discount rate used in development of net periodic benefit cost n/a
4.03 % 4.08 %
Discount rate used in development of service cost 3.44 % n/a
n/a
Discount rate used in development of interest cost 2.56 % n/a
n/a


	2022		2021

Change in Accumulated Plan Benefit Obligation (APBO):
Benefit obligation at beginning of year	$	20.1	$	22.4
Service cost	0.2		0.2
Interest cost	0.5		0.4
Plan participants’ contributions	0.4		0.4
Actuarial gain	(4.0)		(0.8)
Curtailment loss	0.6		—

Benefits paid	(2.1)		(2.4)

Benefit obligation at end of year	$	15.7	$	20.1
Change in plan assets:
Fair value of plan assets at beginning of year	$	—	$	—
Employer contribution	1.7		2.0
Plan participants’ contributions	0.4		0.4
Gross benefits paid	(2.1)		(2.4)
Fair value of plan assets at end of year	$	—	$	—
Unfunded status at end of year	$	(15.7)	$	(20.1)

The ~~estimated actuarial loss and prior service credit that will be amortized from accumulated loss into net~~decrease in the benefit obligation during fiscal 2022 was primarily driven by the increase in the discount rate. These gains were partially offset by demographic experience losses.


	2022			2021

Amounts recognized in the Consolidated Balance Sheets consist of:
Current liabilities	$	(1.6)		$	(1.5)
Non-current liabilities	(14.1)			(18.6)
Total amount accrued	$	(15.7)		$	(20.1)
Amounts recognized in AOCL consist of:
Actuarial (gain) loss	$	(1.2)		$	2.5
Prior service credit	(0.2)			(1.4)
Total accumulated other comprehensive (income) loss	$	(1.4)		$	1.1
Total change in other comprehensive loss attributable to:
Gain during the period	$	3.4		$	0.8

Reclassification to net income	(0.9)			(0.8)
Total change in other comprehensive loss	$	2.5		$	—

Discount rate used in development of APBO	5.60		%	2.66		%

Net periodic benefit cost ~~over the next~~(income) was $(0.2), $(0.2), and $(0.1) during fiscal ~~year is $0.2 million~~2022, fiscal 2021 and ~~$1.1 million,~~fiscal 2020, respectively.

For measurement as of September 30, ~~2017,~~2022, management has assumed that health care costs will increase at an annual rate of ~~6.75% in fiscal 2017,~~7.50%, and thereafter decreasing ~~0.25% per year~~ to an ultimate trend rate of 5.00% in 2024. A 1% increase or decrease in health cost trend rate assumptions would not have a material effect on the APBO as of September 30, 2017. A 1% increase or decrease in the health cost trend rate assumptions would not have a material effect on service or interest costs.2028.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The following benefit payments under the plan are expected to be paid by the Company and the retirees for the fiscal years indicated:


	Gross Benefit Payments		Retiree Contributions		Net Company Payments

2023	$	2.2	$	(0.6)	$	1.6
2024	2.2		(0.6)		1.6
2025	2.1		(0.5)		1.6
2026	2.1		(0.6)		1.5
2027	2.2		(0.7)		1.5
2028 – 2032	10.5		(3.9)		6.6

Gross
Benefit
Payments

Retiree
Contributions

Net
Company
Payments
(In millions)
2018 $ 2.3
$ (0.5 ) $ 1.8
2019 2.6
(0.7 ) 1.9
2020 2.7
(0.8 ) 1.9
2021 2.7
(0.8 ) 1.9
2022 2.8
(0.9 ) 1.9
2023 – 2027 12.0
(3.9 ) 8.1

The Company also provides comprehensive major medical benefits to its associates. The Company is self-insured for certain health benefits up to $0.6 million per occurrence per individual. The cost of such benefits is recognized as expense in the period the claim is incurred. This cost was $33.4 million, $31.8 million and $29.6 million in fiscal 2017, ~~fiscal 2016~~ ~~and~~ ~~fiscal 2015, respectively.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE ~~11.~~12. DEBT

The components of debt are as follows:


	September 30,
	2022		2021

Credit Facilities:
Revolving loans	$	300.5	$	—
Term loans	975.0		670.0
Senior Notes due 2031 – 4.000%	500.0		500.0
Senior Notes due 2032 – 4.375%	400.0		400.0
Senior Notes due 2029 – 4.500%	450.0		450.0
Senior Notes due 2026 – 5.250%	250.0		250.0

Receivables facility	75.0		—
Finance lease obligations	28.9		33.4
Other	12.7		11.9
Total debt	2,992.1		2,315.3
Less current portions	144.3		57.8
Less unamortized debt issuance costs	21.6		20.8
Long-term debt	$	2,826.2	$	2,236.7

September 30,
2017 2016
(In millions)
Credit Facilities:
Revolving loans $ 300.5
$ 323.2
Term loans 273.8
288.8
Senior Notes – 5.250% 250.0
—
Senior Notes – 6.000% 400.0
400.0
Receivables facility 80.0
138.6
Other 105.4
71.3
Total debt 1,409.7
1,221.9
Less current portions 143.1
185.0
Less unamortized debt issuance costs 8.6
6.0
Long-term debt $ 1,258.0
$ 1,030.9

The Company’s aggregate scheduled maturities of debt, ~~matures~~excluding finance lease obligations, are as ~~follows for each of the next five fiscal years and thereafter (in millions):~~

2018 $ 143.1
2019 16.2
2020 15.4
2021 529.3
2022 —
Thereafter 705.7
$ 1,409.7

follows:


2023	$	137.7
2024	50.0
2025	50.0
2026	50.0
2027	1,325.5
Thereafter	1,350.0
	$	2,963.2

Credit Facilities

On ~~December 20, 2013,~~July 5, 2018, the Company entered into ~~the third~~a fifth amended and restated credit agreement ~~providing~~(the “Fifth A&R Credit Agreement”), which provided the Company and certain of its subsidiaries with a five-year senior secured ~~revolving~~ loan ~~facility~~facilities in the aggregate principal amount of $2,300.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $800.0 (the “Fifth A&R Credit Facilities”). Under the Fifth A&R Credit Facilities, the Company had the ability to obtain letters of credit up to ~~$1.7 billion (the “former credit facility”).~~ $75.0.

On ~~October 29, 2015,~~April 8, 2022, the Company entered into ~~the fourth~~a sixth amended and restated credit agreement (the ~~“credit agreement”~~“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 ~~$1.9 billion,~~$2,500.0, comprised of a revolving credit facility of ~~$1.6 billion~~$1,500.0 and a term loan in the original principal amount of ~~$300.0 million~~$1,000.0 (the ~~“credit facilities”~~“Sixth A&R Credit Facilities”). The ~~credit agreement~~Sixth A&R Credit Agreement also provides the Company with


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

the right to seek additional committed credit under the agreement in an aggregate amount of up to $500.0 ~~million~~ plus an unlimited additional amount, subject to certain specified financial and other conditions. ~~Under~~The Sixth A&R Credit Agreement replaced the ~~credit agreement,~~Fifth A&R Credit Agreement and will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the ~~Company has the ability to obtain~~issuance of letters of credit up to $100.0 million. The credit agreement replaces the former credit facility, and will terminate on October 29, 2020. Borrowings on the revolving credit facility may be made in various currencies, including U.S. dollars, euro, British pounds, Australian dollars and Canadian dollars.$100.0. The terms of the ~~credit agreement~~Sixth A&R Credit Agreement include customary representations and warranties, affirmative and negative covenants, financial covenants, and events of default. The proceeds of borrowings on the credit facilities may be used: (i) to finance working capital requirements and other general corporate purposes of the Company and its subsidiaries; and (ii) to refinance the amounts outstanding under the former credit facility.

Under the terms of the ~~credit agreement,~~Sixth A&R Credit Agreement, loans bear interest, at the Company’s election, at a rate per annum equal to either (i) the ~~ABR or Adjusted LIBO~~Alternate Base Rate ~~(both~~plus the Applicable Spread (each, as defined in the ~~credit agreement)~~Sixth A&R Credit Agreement) or (ii) the Adjusted Term SOFR Rate for the Interest Period in effect for such borrowing plus the Applicable Spread (all as defined in the Sixth A&R Credit Agreement). Swingline Loans bear interest at the applicable ~~margin.~~Swingline Rate set forth in the Sixth A&R Credit Agreement. Interest rates for other select non-U.S. dollar borrowings, including borrowings denominated in euro, Pounds Sterling and Canadian dollars, are based on separate interest rate indices, as set forth in the Sixth A&R Credit Agreement. The ~~credit facilities are guaranteed by substantially all of the Company’s domestic subsidiaries, and are~~Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts receivable, inventory and equipment of ~~the Company~~Scotts Miracle-Gro and ~~the Company’s~~certain of its domestic subsidiaries ~~that are guarantors~~ and (ii) the pledge of all of the capital stock of certain of Scotts Miracle-Gro’s domestic subsidiaries and a portion of the capital stock of certain of its foreign subsidiaries. The collateral does not include any of the Company’s ~~domestic subsidiaries that are guarantors.~~intellectual property.

On June 8, 2022, the Company entered into Amendment No. 1 (the “Amendment”) to the Sixth A&R Credit Agreement. The Amendment increases the maximum permitted leverage ratio for the quarterly leverage covenant effective for the third quarter of fiscal 2022 until the earlier of (i) April 1, 2024 and (ii) subject to certain conditions specified in the Amendment, the termination by the Company of such increase (such period, the “Leverage Adjustment Period”). The Amendment also increases the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50 bps, and increases the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when the Company’s quarterly-tested leverage ratio exceeds 4.75. Additionally, the Amendment limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of its Common Shares in an aggregate amount not to exceed $225.0 per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. The Amendment also requires pro forma compliance with certain leverage levels specified in the Amendment with respect to the Company’s ability to consummate certain acquisitions and incur debt.

At September 30, ~~2017,~~2022, the Company had letters of credit outstanding in the aggregate principal amount of ~~$23.5 million,~~$14.1, and ~~$1.3 billion~~had $1,185.5 of borrowing availability under the ~~credit agreement, subject to the Company’s continued compliance with the covenants~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~discussed below.~~Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings under the ~~credit agreement~~Fifth A&R Credit Agreement and ~~the former credit facility~~Sixth A&R Credit Agreement were ~~3.9%~~2.8%, 1.9% and ~~3.5%~~3.3% for fiscal ~~2017~~2022, fiscal 2021 and fiscal ~~2016,~~2020, respectively.

The ~~credit agreement~~Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s leverage ratio ondetermined as of the ~~last day~~end of each ~~quarter~~of its fiscal quarters calculated as average total indebtedness, divided by the Company’s earnings before interest, taxes, depreciation and amortization, ~~(“EBITDA”),~~ as adjusted pursuant to the terms of the ~~credit agreement~~Sixth A&R Credit Agreement (“Adjusted EBITDA”). ~~The~~Pursuant to the Amendment, the maximum permitted leverage ratio ~~was~~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 asfor the third quarter of ~~September 30, 2017.~~fiscal 2024 and thereafter. The Company’s leverage ratio was ~~3.04~~6.01 at September 30, ~~2017.~~2022. The ~~credit agreement~~Sixth A&R Credit Agreement also ~~includes~~contains an affirmative covenant regarding ~~its~~the Company’s interest coverage ~~ratio.~~ratio determined as of the end of each of its fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the ~~credit agreement,~~Sixth A&R Credit Agreement, and excludes costs related to refinancings. The minimum required interest coverage ratio is 3.00, which is unchanged from the Fifth A&R Credit Agreement. The Company’s interest coverage ratio was ~~3.00~~4.83 for the twelve months ended September 30, ~~2017. The~~2022.

As of September 30, 2022, the Company was in compliance with all applicable covenants in the agreements governing its debt. Based on the Company’s ~~interest coverage ratio was 7.54~~projections of its financial performance for the ~~twelve months ended~~twelve-month period subsequent to the date of the filing of the financial statements on Form 10-K, the Company expects to remain in compliance with the financial covenants under the Company’s Sixth A&R Credit Agreement. However, the Company’s assessment of its ability to meet its future obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default would allow the lender under the Sixth A&R Credit Agreement to accelerate the maturity of the debt and would also implicate cross-default provisions under the Senior Notes, as defined below, making them due and payable at that time. As of September 30, ~~2017.~~2022, the Company’s indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,875.5. The ~~credit agreement allows~~Company does not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

As part of its contingency planning to address potential future circumstances that could result in noncompliance, the Company has contemplated alternative plans including additional restructuring activities to ~~make unlimited restricted payments (as defined~~reduce operating expenses and certain cash management strategies that are within the Company’s control. Additionally, the Company has contemplated alternative plans that are subject to market conditions and not in the ~~credit agreement),~~Company’s control, including, ~~increased or one-time dividend payments~~among others, discussions with its lender to amend the terms of its financial covenant under the debt instrument and ~~Common Share repurchases, as long as the leverage ratio resulting from the making of such restricted payments~~generating cash by completing other financing transactions, which may include issuing equity. There is ~~4.00 or less. Otherwise~~no assurance that the Company ~~may only make restricted payments~~will be successful in ~~an aggregate amount for each fiscal year not to exceed the amount set forth in the credit agreement for such fiscal year ($200.0 million for fiscal 2018 and each fiscal year thereafter).~~implementing these alternative plans.

Senior Notes ~~- 5.250%~~

On December 15, 2016, Scotts Miracle-Gro issued $250.0 ~~million~~ aggregate principal amount of 5.250% ~~senior notes~~Senior Notes due 2026 (the “5.250% Senior Notes”). ~~The net proceeds of the offering were used to repay outstanding borrowings under the credit facilities.~~ The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year. The 5.250% Senior Notes may be redeemed, in whole or in part, on or after December 15, 2021 at applicable redemption premiums. The 5.250% Senior Notes contain customary covenants and events of default and mature on December 15, 2026. Substantially all of Scotts Miracle-Gro’s domestic subsidiaries serve as guarantors of the 5.250% Senior Notes.

~~Senior Notes - 6.625%~~

On ~~December 15, 2015,~~October 22, 2019, Scotts Miracle-Gro ~~redeemed all $200.0 million~~issued $450.0 aggregate principal amount of its outstanding 6.625% senior notes due 2020 (the “6.625% Senior Notes”) paying a redemption price of $213.2 million, comprised of $6.6 million of accrued and unpaid interest, $6.6 million of call premium and $200.0 million for outstanding principal amount. The $6.6 million call premium charge was recognized within the “Costs related to refinancing” line on the Consolidated Statement of Operations in the first quarter of fiscal 2016. Additionally, the Company had $2.2 million in unamortized bond discount and issuance costs associated with the 6.625%4.500% Senior Notes ~~that were written off and recognized in the “Costs related to refinancing” line on the Consolidated Statement of Operations in the first quarter of fiscal 2016.~~

~~Senior Notes - 6.000%~~

~~On October 13, 2015, Scotts Miracle-Gro issued $400.0 million aggregate principal amount of 6.000% senior notes~~ due ~~2023~~2029 (the ~~“6.000%~~“4.500% Senior Notes”). The ~~net proceeds of the offering were used to repay outstanding borrowings under the former credit facility. The 6.000%~~4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The ~~6.000%~~4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year. ~~The~~

On October 23, 2019, Scotts Miracle-Gro redeemed all of its outstanding 6.000% Senior Notes ~~may be redeemed,~~due 2023 (the “6.000% Senior Notes”) for a redemption price of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption premium, and $400.0 for outstanding principal amount. The $12.0 redemption premium was recognized in ~~whole or~~the “Costs related to refinancing” line on the Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, the Company had $3.1 in ~~part, on or after October 15, 2018 at applicable redemption premiums. The~~unamortized bond issuance costs associated with the 6.000% Senior Notes, ~~contain customary covenants~~which were written-off during the first quarter of fiscal 2020 and ~~events~~were recognized in the “Costs related to refinancing” line in the Consolidated Statements of ~~default~~Operations.

On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031 (the “4.000% Senior Notes”). The 4.000% Senior Notes represent general unsecured senior obligations and ~~mature on~~rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October ~~15, 2023.~~ 1 of each year.

On August 13, 2021, Scotts Miracle-Gro issued $400.0 aggregate principal amount of 4.375% Senior Notes due 2032 (the “4.375% Senior Notes”). The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates of February 1 and August 1 of each year.

Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the ~~6.000%~~5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes.

Receivables Facility

On September 25, 2015, the Company entered into an amended and restated master accounts receivable purchase agreement (the “MARP Agreement”). The MARP Agreement provided for the discretionary sale by the Company, and the discretionary purchase by the participating banks, on a revolving basis, of accounts receivable generated by sales to three specified debtors in an aggregate amount not to exceed $400.0 million. The MARP Agreement terminated effective October 14, 2016 in accordance with its terms upon the Company’s repayment of its outstanding obligations thereunder using $133.5 million borrowed under the credit agreement. There were $138.6 million in borrowings or receivables pledged as collateral under the MARP Agreement as of September 30, 2016. The carrying value of the receivables pledged as collateral was $174.7 million as of September 30, 2016.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”). Under the Receivables Facility, the Company may sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers and simultaneously ~~agrees~~agree to repurchase the receivables on a weekly basis. The eligible accounts receivable consist of ~~up to $250.0 million in~~ accounts receivable generated by sales to three specified customers. The Receivables Facility is considered a secured financing with the customer accounts receivable, related contract rights and proceeds thereof (and the collection accounts into which the same are deposited) constituting the collateral therefor. The repurchase price for customer accounts receivable bears interest at LIBOR (with a zero floor), as defined in the Repurchase Agreement, plus 0.90%.

On August 25, 2017, the Company entered into Amendment No. 1 to Master Framework Agreement (“the Amendment”). The Amendment (i) extends the expiration date of the Receivables Facility from August 25, 2017 to August 24, 2018, (ii) defines the seasonal commitment period of the Receivables Facility as beginning on February 23, 2018 and ending on June 15, 2018, (iii) increases the eligible amount of customer accounts ~~receivable~~receivables which may be sold ~~from up to $250.0 million to up to~~under the Receivables Facility is $400.0 ~~million~~ and ~~(iv) increases~~ the commitment amount ~~of the Receivables Facility~~ during the seasonal commitment period ~~from up to$100.0 million to up to $160.0 million.~~beginning on February 24, 2023 and ending on June 16, 2023 is $160.0. The Receivables Facility expires on August 18, 2023.

The Company accounts for the sale of receivables under the Receivables Facility as short-term debt and continues to carry the receivables on its Consolidated Balance ~~Sheet,~~Sheets, primarily as a result of the Company’s requirement to repurchase receivables sold. ~~There~~As of September 30, 2022 and 2021, there were ~~$80.0 million~~$75.0 and zero, respectively, in borrowings oron receivables pledged as collateral under the Receivables Facility, ~~as of September 30, 2017. The~~and the carrying value of the receivables pledged as collateral was ~~$88.9 million as of September 30, 2017. As of September 30, 2017, there was $11.1 million of availability under the Receivables Facility.~~$79.8 and zero, respectively.

~~Other~~


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

In connection with the acquisition of a controlling interest in Gavita, the Company recorded a loan to the noncontrolling ownership group of Gavita. The fair value of the loan was $55.6 million and $38.3 million at September 30, 2017 and September 30, 2016, respectively. The Company recorded a charge of $13.4 million during the fourth quarter of fiscal 2017 to write-up the fair value of the loan to the noncontrolling ownership group of Gavita to the agreed upon buyout value in the “Other non-operating expense” line in the Consolidated Statements of Operations.

Interest Rate Swap Agreements

The Company ~~has outstanding~~enters into interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. ~~The swap agreements had a total U.S. dollar equivalent notional amount of $1,100.0 million and $650.0 million at September 30, 2017 and 2016, respectively.~~ Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements ~~except~~that were hedging interest payments as ~~noted below.~~

of September 30, 2022 and 2021 had a maximum total U.S. dollar equivalent notional amount of $800.0 and $600.0, respectively. The notional amount, effective date, expiration date and rate of each of ~~these~~the swap agreements outstanding at September 30, ~~2017~~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	%

Notional Amount
(in millions)

Effective
Date (a)

Expiration
Date

Fixed
Rate
$ 200

2/7/2014 11/7/2017 1.28 %
300
^(b)
11/21/2016 6/20/2018 0.83 %
200
^(b)
11/7/2016 8/7/2018 0.84 %
150
^(c)
2/7/2017 5/7/2019 2.12 %
50
^(c)
2/7/2017 5/7/2019 2.25 %
200
^(d)
12/20/2016 6/20/2019 2.12 %


~~(a)~~	(a)The effective date refers ~~to the date on which interest payments were first hedged by the applicable swap agreement.~~


~~(b)~~	~~Notional amount adjusts in accordance with a specified seasonal schedule. This represents the maximum notional amount at any point in time.~~


~~(c)~~	~~Interest payments made during the~~ ~~three-month~~ ~~period of each year that begins with the month and day of the effective date are hedged by the swap agreement.~~


~~(d)~~	~~Interest payments made during the~~ ~~six-month~~ ~~period of each year that begins with the month and day of the effective date are hedged by the swap agreement.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Estimated Fair Values~~

~~The methods and assumptions used to estimate the fair values of the Company’s debt instruments are described below:~~

~~Credit Facilities~~

~~The interest rate currently available~~ to the ~~Company fluctuates with~~date on which interest payments are first hedged by the applicable ~~LIBO rate, prime rate or Federal Funds Effective Rate and thus the carrying value is~~swap agreement.

(b)Notional amount adjusts in accordance with a ~~reasonable estimate of fair value. The fair value measurement for the credit facilities was classified in Level 2 of the fair value hierarchy.~~

~~5.250% Senior Notes~~

The fair value of the 5.250% Senior Notes was determined based on the trading of the 5.250% Senior Notes in the open market. The difference between the carrying value and the fair value of the 5.250% Senior Notesspecified seasonal schedule. This represents the ~~premium or discount on that date. The fair value measurement for the 5.250% Senior Notes was classified~~maximum notional amount at any point in ~~Level 1 of the fair value hierarchy.~~

~~6.000% Senior Notes~~

The fair value of the 6.000% Senior Notes was determined based on the trading of the 6.000% Senior Notes in the open market. The difference between the carrying value and the fair value of the 6.000% Senior Notes represents the premium or discount on that date. The fair value measurement for the 6.000% Senior Notes was classified in Level 1 of the fair value hierarchy.

~~Accounts Receivable Pledged~~

The interest rate on the short-term debt associated with accounts receivable pledged under the Receivables Facility fluctuated with the applicable LIBOR and thus the carrying value is a reasonable estimate of fair value. The fair value measurement for the Receivables Facility was classified in Level 2 of the fair value hierarchy.

~~The estimated fair values of the Company’s debt instruments are as follows:~~

Year Ended September 30,
2017 2016

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value
(In millions)
Revolving loans $ 300.5
$ 300.5
$ 323.2
$ 323.2
Term loans 273.8
273.8
288.8
288.8
Senior Notes – 5.250% 250.0
264.4
—
—
Senior Notes – 6.000% 400.0
427.0
400.0
427.0
Receivables facility 80.0
80.0
138.6
138.6
Other 105.4
105.4
71.3
71.3
time.

Weighted Average Interest Rate

The weighted average interest rates on the Company’s debt were ~~4.6%~~3.6%, 3.7% and ~~4.4%~~4.3% for fiscal ~~2017~~2022, fiscal 2021 and fiscal ~~2016,~~2020, respectively.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE ~~12.~~13. EQUITY

Authorized and issued shares consisted of the ~~following:~~

September 30,
2017 2016
(In millions)
Preferred shares, no par value:
Authorized 0.2 shares 0.2 shares
Issued 0.0 shares 0.0 shares
Common shares, no par value, $.01 stated value per share:
Authorized 100.0 shares 100.0 shares
Issued 68.1 shares 68.1 shares
following (in millions):


	September 30,
	2022	2021

Preferred shares, no par value:
Authorized	0.2 shares	0.2 shares
Issued	0.0 shares	0.0 shares
Common shares, no par value, $0.01 stated value per share:
Authorized	100.0 shares	100.0 shares
Issued	68.1 shares	68.1 shares

In fiscal 1995, The Scotts Company merged with Stern’s Miracle-Gro Products, Inc. (“Miracle-Gro”). At September 30, ~~2017,~~2022, the former shareholders of Miracle-Gro, including the Hagedorn Partnership, L.P., owned approximately 26% of Scotts Miracle-Gro’s outstanding Common Shares on a fully diluted basis and, ~~thus,~~therefore, have the ability to significantly influence the election of directors and other actions requiring the approval of Scotts Miracle-Gro’s shareholders.

Under the terms of the merger agreement with Miracle-Gro, the former shareholders of Miracle-Gro may not collectively acquire, directly or indirectly, beneficial ownership of Voting Stock (as that term is defined in the Miracle-Gro merger agreement) representing more than 49% of the total voting power of the outstanding Voting Stock, except pursuant to a tender offer for 100% of that total voting power, which tender offer is made at a price per share which is not less than the market price per share on the last trading day before the announcement of the tender offer and is conditioned upon the receipt of at least 50% of the Voting Stock beneficially owned by shareholders of Scotts Miracle-Gro other than the former shareholders of Miracle-Gro and their affiliates and associates.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Accumulated Other Comprehensive Loss

Changes in AOCL by component were as follows for the fiscal years ended September 30:


	Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) On Derivative Instruments		Net Unrealized Loss On Securities		Net Unrealized Gain (Loss) in Pension and Other Post- Retirement Benefits		Accumulated Other Comprehensive Income (Loss)
Balance at September 30, 2019	$	(17.4)	$	(8.1)	$	—	$	(68.4)	$	(93.9)
Other comprehensive income (loss) before reclassifications	10.5		(19.7)		—		(12.9)		(22.1)
Amounts reclassified from accumulated other comprehensive net income (loss)	0.8		10.1		—		0.3		11.2
Income tax benefit (expense)	—		2.5		—		3.2		5.7
Net current period other comprehensive income (loss)	11.3		(7.1)		—		(9.4)		(5.2)
Balance at September 30, 2020	(6.2)		(15.1)		—		(77.8)		(99.1)
Other comprehensive income (loss) before reclassifications	4.5		26.8		(3.1)		6.9		35.1
Amounts reclassified from accumulated other comprehensive net income (loss)	—		7.3		—		0.4		7.7
Income tax benefit (expense)	—		(8.9)		0.8		(1.9)		(10.0)
Net current period other comprehensive income (loss)	4.5		25.2		(2.3)		5.4		32.8
Balance at September 30, 2021	(1.7)		10.2		(2.3)		(72.5)		(66.4)
Other comprehensive income (loss) before reclassifications	(27.2)		40.1		(102.0)		(7.3)		(96.4)
Amounts reclassified from accumulated other comprehensive net income (loss)	—		(9.1)		—		11.7		2.6
Income tax benefit (expense)	—		(7.9)		24.6		(1.1)		15.6
Net current period other comprehensive income (loss)	(27.2)		23.1		(77.4)		3.3		(78.2)
Balance at September 30, 2022	$	(28.9)	$	33.3	$	(79.7)	$	(69.3)	$	(144.6)

The sum of the components may not equal due to rounding.

Dividends

On July 27, 2020, the Scotts Miracle-Gro Board of Directors approved an increase in Scotts Miracle-Gro’s quarterly cash dividend from $0.58 to $0.62 per Common Share, which was first paid in the fourth quarter of fiscal 2020. In addition, on July 27, 2020, the Scotts Miracle-Gro Board of Directors approved a special cash dividend of $5.00 per Common Share, which was paid on September 10, 2020 to all shareholders of record at the close of business on August 27, 2020. On July 30, 2021, the Scotts Miracle-Gro Board of Directors approved an increase in the Scotts Miracle-Gro’s quarterly cash dividend from $0.62 to $0.66 per Common Share, which was first paid in the fourth quarter of fiscal 2021.

Share Repurchases

InOn August 11, 2014, ~~the~~ Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $500.0 ~~million~~ of Common Shares over a five-year period (effective November 1, 2014 through September 30, 2019). On August 3, 2016, Scotts Miracle-Gro announced that its Board of Directors authorized a $500.0 ~~million~~ increase to the share repurchase authorization ending on September 30, 2019. On August 2, 2019, the Scotts Miracle-Gro Board of Directors authorized an extension of the share repurchase authorization through March 28, 2020. The amended authorization ~~allows~~allowed for repurchases of Common Shares of up to ~~$1.0 billion~~an aggregate amount of $1,000.0 through ~~September~~March 28, 2020. During fiscal 2020 through March 28, 2020, Scotts Miracle-Gro repurchased 0.4 million Common Shares under this share repurchase authorization for $48.2. From the effective date of this share repurchase authorization in the fourth quarter of fiscal 2014 through March 28, 2020, Scotts Miracle-Gro repurchased approximately 8.7 million Common Shares for $762.8.

On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0 of Common Shares from April 30, ~~2019.~~2020 through March 25, 2023. The authorization ~~provides~~permits the Company ~~with flexibility~~ to purchase


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Common Shares from time to time in open market purchases or through privately negotiated transactions. All or part of the repurchases may be made under Rule 10b5-1 plans, which the Company may enter into from time to time and which enable the repurchases to occur on a more regular basis, or pursuant to accelerated share repurchases. The share repurchase authorization ~~which expires September 30, 2019,~~ may be suspended or discontinued by the Board of Directors at any time, and there can be no guarantee as to the timing or amount of any repurchases. ~~From the inception of~~During fiscal 2022 and fiscal 2021, Scotts Miracle-Gro repurchased 1.1 million and 0.6 million Common Shares under this share repurchase ~~program in the fourth quarter~~authorization for $175.0 and $113.1, respectively. There were no share repurchases under this share repurchase authorization during fiscal 2020. Treasury share purchases also include cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation of $82.9, $16.3 and $4.9 for fiscal ~~2014 through September 30, 2017, Scotts Miracle-Gro repurchased approximately 4.8 million Common Shares for $391.5 million.~~

~~Exercise of Outstanding Aerogrow Warrants~~

On November 29, 2016, the Company’s wholly-owned subsidiary SMG Growing Media, Inc. fully exercised its outstanding warrants to acquire additional shares of common stock of AeroGrow for an aggregate warrant exercise price of $47.8 million in exchange for the issuance of 21.6 million shares of common stock of AeroGrow, which increased the Company’s percentage ownership of AeroGrow’s outstanding shares of common stock (on a fully diluted basis) from 45% to 80%. The financial results of AeroGrow have been consolidated into the Company’s consolidated financial statements since the fourth quarter of2022, fiscal ~~2014, when the Company obtained control of AeroGrow’s operations through increased involvement, influence~~2021 and a working capital loan provided to AeroGrow. Following the exercise of the warrants, the Board of Directors of AeroGrow declared a $40.5 million distribution ($1.21 per share) payable on January 3, 2017 to shareholders of record on December 20, 2016. On January 3, 2017, AeroGrow paid a distribution of $8.1 million to its noncontrolling interest holders.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

fiscal 2020, respectively.

Share-Based Awards

Scotts Miracle-Gro grants share-based awards annually to officers and certain other employees of the Company and non-employee directors of Scotts Miracle-Gro. The share-based awards have consisted of stock options, restricted stock units, deferred stock units and performance-based awards. All of these share-based awards have been made under plans approved by the shareholders. Generally, employee share-based awards provide for three-year cliff vesting. Vesting for non-employee director awards is generally one year from the time of the award. Vesting of performance-based awards is dependent on service and achievement of specified performance targets. Share-based awards are forfeited if a holder terminates employment or service with the Company prior to the vesting date, except in cases where employees are eligible for accelerated vesting based on having satisfied retirement requirements relating to age and years of service. The Company estimates that 15% to 20% of its share-based awards will be forfeited based on an analysis of historical trends. This assumption is re-evaluated on an annual basis and adjusted as appropriate. Stock options have exercise prices equal to the market price of the underlying Common Shares on the date of grant with a term of 10 years. All of these share-based awards have been made under plans approved by the shareholders. If available, Scotts Miracle-Gro will typically use treasury shares, or if not available, newly-issued Common Shares, in satisfaction of its share-based awards.

On January 30, 2017, the Company issued 0.5 million upfront performance-based award units, covering a five-year performance period, with an estimated fair value of $43.3 million on the date of grant to certain senior executives as part of its Project Focus initiative. These awards provide for a five-year vesting period based on achievement of specific performance goals aligned with the strategic objectives of the Company’s Project Focus initiatives. Based on the extent to which the targets are achieved, vested shares may range from 50 to 250 percent of the target award amount. The performance goals include a combination of five year cumulative operating cash flow less capital expenditures; five year average annual non-GAAP diluted EPS growth; and dividend yield. The Company assesses the probability of achievement of performance goals each period and records expense for the awards based on the probable achievement of such metrics. Performance-based award units accrue cash dividend equivalents that are payable upon vesting of the awards.

Subsequent to September 30, 2017, the Company issued 0.2 million upfront performance-based award units, covering a four-year performance period, with an estimated fair value of $20.2 million on the date of grant to certain Hawthorne employees as part of its Project Focus initiative. These awards provide for a vesting period of approximately four years based on achievement of specific performance goals aligned with the strategic objectives of the Company’s Project Focus initiatives. Based on the extent to which the targets are achieved, vested shares may range from 50 to 250 percent of the target award amount. The performance goal is based on cumulative Hawthorne non-GAAP adjusted earnings. Performance-based award units accrue cash dividend equivalents that are payable upon vesting of the awards.

A maximum of ~~7.3~~5.0 million Common Shares are available for issuance under share-based award plans. At September 30, ~~2017,~~2022, approximately ~~3.9~~3.4 million Common Shares were not subject to outstanding awards and were available to underlie the grant of new share-based awards. Common Shares held in treasury totaling ~~0.5~~0.9 million, 0.4 million and ~~0.6~~0.4 million were reissued in support of share-based compensation awards and employee purchases under the employee stock purchase plan during fiscal ~~2017~~2022, fiscal 2021 and fiscal ~~2016,~~2020, respectively.

~~THE SCOTTS MIRACLE-GRO COMPANY~~Subsequent to September 30, 2022, the Company awarded restricted stock units, performance-based award units and stock options representing 1.6 million Common Shares to employees with an estimated fair value of $51.8 on the date of grant.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following is a summary of the share-based awards granted during each of the periods indicated:


	Year Ended September 30,
	2022		2021		2020
Employees
Options	—		183,553		37,255
Restricted stock units	228,558		70,936		119,726

Performance units	105,756		1,903		37,570
Non-Employee Directors
Restricted and deferred stock units	20,015		9,173		18,948

Total share-based awards	354,329		265,565		213,499

Aggregate fair value at grant dates	$	41.2	$	30.2	$	21.5

Year Ended September 30,
2017 2016 2015
Employees
Options —
444,890
440,690
Restricted stock units 109,708
74,467
78,463
Performance units 487,809
56,315
78,352
Board of Directors
Deferred stock units 24,291
28,621
29,913
Total share-based awards 621,808
604,293
627,418

Aggregate fair value at grant dates (in millions) $ 57.8
$ 16.4
$ 17.0

Total share-based compensation was as follows for each of the periods indicated:


	Year Ended September 30,
	2022		2021		2020

Share-based compensation	$	30.3	$	40.6	$	57.9
Related tax benefit recognized	4.9		7.4		14.6

Excess tax benefits related to share-based compensation were $14.8, $18.3 and $5.8 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Stock Options

Stock option activity was as follows:


	No. of Options	Wtd. Avg. Exercise Price
Awards outstanding at September 30, 2021	568,191	$	118.38


Forfeited	(39,720)	236.53
Awards outstanding at September 30, 2022	528,471	110.86
Exercisable	388,002	65.36


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Year Ended September 30,
2017 2016 2015
(In millions)
Share-based compensation $ 25.2
$ 15.6
$ 13.2
Tax benefit recognized 9.8
6.0
5.1

~~As of~~At September 30, ~~2017,~~2022, the total ~~unrecognized~~pre-tax compensation cost, net of estimated forfeitures, related to ~~non-vested share-based awards amounted to $41.5 million. This cost~~nonvested stock options not yet recognized was $1.4, which is expected to be recognized over a weighted-average period of ~~3.1~~1.3 years. The ~~tax benefit realized~~total intrinsic value of stock options exercised was $41.8 and $21.9 during fiscal 2021 and fiscal 2020, respectively. Cash received from ~~the tax deductions associated with~~ the exercise of ~~share-based awards~~stock options, including amounts received from employee purchases under the employee stock purchase plan, was $3.3, $15.2, and ~~the vesting of restricted stock totaled $20.5 million~~$17.6 for fiscal ~~2017.~~

~~During~~2022, fiscal ~~2015, Scotts Miracle-Gro issued 0.2 million Common Shares, which represented a carrying value of $8.3 million, out of its treasury shares for payment of the acquisition of Vermicrop. During~~2021 and fiscal 2016, Scotts Miracle-Gro issued 0.1 million Common Shares, which represented a carrying value of $4.2 million, out of its treasury shares for payment of contingent consideration related to the acquisition of Vermicrop.

~~Stock Options~~

~~Aggregate stock option activity for fiscal 2017 was as follows:~~

No. of
Options

Wtd.
Avg.
Exercise
Price
Awards outstanding at September 30, 2016 1,801,041
$ 51.38
Granted —
—
Exercised (268,943 ) 40.81
Forfeited (14,788 ) 64.31
Awards outstanding at September 30, 2017 1,517,310
53.05
Exercisable 713,399
38.20

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

At September 30, 2017, the Company expects 0.8 million of the remaining unexercisable stock options (after forfeitures), with a weighted-average exercise price of $66.17, intrinsic value of $24.3 million and average remaining term of 7.8 years, to vest in the future.2020, respectively. The following summarizes certain information pertaining to stock option awards outstanding and exercisable at September 30, ~~2017 (options in millions):~~ 2022:

Awards Outstanding Awards Exercisable
Range of
Exercise Price

No. of
Options

Wtd.
Avg.
Remaining
Life

Wtd.
Avg.
Exercise
Price

No. of
Options

Wtd.
Avg.
Remaining
Life

Wtd.
Avg.
Exercise
Price
$20.59 – $20.59 0.2
1.01 $ 20.59
0.2
1.01 $ 20.59
$38.81 – $49.19 0.5
3.45 45.17
0.5
3.45 45.17
$63.43 – $68.68 0.8
7.86 66.24
—
0 —
1.5
5.47 $ 53.05
0.7
2.77 $ 38.20


	Awards Outstanding			Awards Exercisable
Range of Exercise Price	No. of Options	Wtd. Avg. Remaining Life	Wtd. Avg. Exercise Price	No. of Options	Wtd. Avg. Remaining Life	Wtd. Avg. Exercise Price
$59.62 - $64.55	380,932	2.85	62.18	380,932	2.85	62.18
$236.53 - $236.53	147,539	8.35	236.53	7,070	8.35	236.53

	528,471	4.39	110.86	388,002	2.95	65.36

The intrinsic values of the stock option awards outstanding and exercisable at September 30, ~~2017~~2022 were ~~as follows (in millions):~~

2017
Outstanding $ 67.2
Exercisable 42.2

The grant date fair value of stock option awards is estimated using a binomial model and the assumptions in the following table. Expected market price volatility is based on implied volatilities from traded options on Common Shares and historical volatility specific to the Common Shares. Historical data, including demographic factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life (normally ten years) of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of stock options is based on historical experience and expectations for grants outstanding. No stock options were granted in fiscal 2017. The weighted average assumptions for awards granted in fiscal 2016 and 2015 are as follows:

2016 2015
Expected market price volatility 25.5 % 26.6 %
Risk-free interest rates 1.5 % 1.3 %
Expected dividend yield 2.7 % 2.8 %
Expected life of stock options in years 6.0
6.0
Estimated weighted-average fair value per stock option $ 12.33
$ 11.51

The total intrinsic value of stock options exercised was $14.5 million, $13.6 million and $16.3 million during fiscal 2017, fiscal 2016 and fiscal 2015, respectively. Cash received from the exercise of stock options for fiscal 2017, fiscal 2016 and fiscal 2015 was $11.0 million, $14.7 million and $24.3 million, respectively.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

zero.

Restricted share-based awards

Restricted share-based award activity (including restricted stock units and deferred stock units) was as follows:


						No. of Shares	Wtd. Avg. Grant Date Fair Value per Share
	No. of Shares		Wtd. Avg. Grant Date Fair Value per Share
Awards outstanding at September 30, 2014	433,892		$	52.55

Awards outstanding at September 30, 2021					Awards outstanding at September 30, 2021	375,825	124.50
Granted	108,376		63.85		Granted	248,573	109.10
Vested	(135,562	)	47.33		Vested	(246,846)	75.38
Forfeited	(25,197	)	58.44		Forfeited	(56,977)	165.01
Awards outstanding at September 30, 2015	381,509		57.22
Granted	103,088		69.00
Vested	(161,440	)	47.21
Forfeited	(17,494	)	60.18
Awards outstanding at September 30, 2016	305,663		66.31
Granted	133,999		92.70
Vested	(144,029	)	60.66
Forfeited	(4,114	)	72.40
Awards outstanding at September 30, 2017	291,519		81.15
Awards outstanding at September 30, 2022					Awards outstanding at September 30, 2022	320,575	143.19

At September 30, 2022, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested restricted share units not yet recognized was $10.0, which is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of restricted stock units and deferred stock units vested was ~~$8.7 million, $7.6 million~~$28.2, $41.8 and ~~$6.2 million~~$15.2 during fiscal ~~2017,~~2022, fiscal ~~2016~~2021 and fiscal ~~2015,~~2020, respectively.

Performance-based awards

Performance-based award activity was as follows (based on target award amounts):


	No. of Units	Wtd. Avg. Grant Date Fair Value per Unit








Awards outstanding at September 30, 2021	572,557	95.09
Granted	105,756	132.74
Vested (a)	(533,441)	93.22
Forfeited	(31,616)	124.15
Awards outstanding at September 30, 2022	113,256	130.94

(a)Vested at a weighted average of 228% of the target performance share units granted.

At September 30, 2022, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested performance-based units not yet recognized was $3.6, which is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of performance-based units vested was $182.5, $11.9, and $3.9 during fiscal 2022, fiscal 2021, and fiscal 2020, respectively.

No. of
Units

Wtd. Avg.
Grant Date
Fair Value
per Unit
Awards outstanding at September 30, 2014 311,249
$ 51.21
Granted 78,352
63.36
Vested (49,467 ) 47.66
Forfeited (910 ) 47.66
Awards outstanding at September 30, 2015 339,224
54.86
Granted 56,315
68.68
Vested (128,941 ) 45.06
Forfeited —
—
Awards outstanding at September 30, 2016 266,598
62.52
Granted 487,809
92.95
Vested (147,696 ) 59.82
Forfeited (9,778 ) 65.39
Awards outstanding at September 30, 2017 596,933
88.01


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

NOTE ~~13.~~14. EARNINGS PER COMMON SHARE

~~Basic~~The following table presents information necessary to calculate basic and diluted income per Common ~~Share is computed by dividing income attributable to controlling interest from continuing operations, income (loss) from discontinued operations or net income attributable to controlling interest by~~Share.


	Year Ended September 30,
	2022		2021		2020

Income (loss) from continuing operations	$	(437.5)	$	517.3	$	386.9
Net income attributable to noncontrolling interest	—		(0.9)		(1.2)
Income (loss) attributable to controlling interest from continuing operations	(437.5)		516.4		385.7
Income (loss) from discontinued operations, net of tax	—		(3.9)		1.7
Net income (loss) attributable to controlling interest	$	(437.5)	$	512.5	$	387.4
Basic income (loss) per common share:
Weighted-average common shares outstanding during the period	55.5		55.7		55.7
Income (loss) from continuing operations	$	(7.88)	$	9.27	$	6.92
Income (loss) from discontinued operations	—		(0.07)		0.04
Basic net income (loss) per common share	$	(7.88)	$	9.20	$	6.96
Diluted income (loss) per common share:
Weighted-average common shares outstanding during the period	55.5		55.7		55.7
Dilutive potential common shares	—		1.5		1.2
Weighted-average number of common shares outstanding and dilutive potential common shares	55.5		57.2		56.9
Income (loss) from continuing operations	$	(7.88)	$	9.03	$	6.78
Income (loss) from discontinued operations	—		(0.07)		0.03
Diluted net income (loss) per common share	$	(7.88)	$	8.96	$	6.81

Diluted average common shares used in the ~~weighted average number of~~diluted loss per common share calculation for fiscal 2022 were 55.5 million, which excluded potential Common Shares ~~outstanding.~~of 0.6 million because the effect of their inclusion would be anti-dilutive as the Company incurred a net loss for fiscal 2022. Diluted average common shares used in the diluted income per Common Share is computed by dividing income attributable to controlling interest from continuing operations, income (loss) from discontinued operations or net income attributable to controlling interest by the weighted average number ofcommon share calculation were 57.2 million and 56.9 million for fiscal 2021 and fiscal 2020, respectively, which included dilutive potential Common Shares ~~outstanding plus all potentially dilutive securities outstanding each period.~~ of 1.5 million and 1.2 million, respectively.

Stock options with exercise prices greater than the average market price of the underlying Common Shares are excluded from the computation of diluted income per ~~Common Share~~common share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. For fiscal 2022 and fiscal 2021, the average number of out-of-the money options was 0.2 million and 0.1 million, respectively. There were no ~~Common Shares covered by~~ out-of-the-money options for ~~the year ended September 30,~~fiscal 2020.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

2017, and 0.2 million and 0.3 million for the years ended September 30, 2016 and 2015, respectively. The following table presents information necessary to calculate basic and diluted income per Common Share.

Year Ended September 30,
2017 2016 2015
(In millions, except per share data)
Income from continuing operations $ 198.3
$ 246.1
$ 128.7
Net (income) loss attributable to noncontrolling interest (0.5 ) 0.5
1.1
Income attributable to controlling interest from continuing operations 197.8
246.6
129.8
Income from discontinued operations 20.5
68.7
30.0
Net income attributable to controlling interest $ 218.3
$ 315.3
$ 159.8
BASIC INCOME PER COMMON SHARE:
Weighted-average Common Shares outstanding
during the period
59.4
61.1
61.1
Income from continuing operations $ 3.33
$ 4.04
$ 2.12
Income from discontinued operations 0.35
1.12
0.50
Net income $ 3.68
$ 5.16
$ 2.62
DILUTED INCOME PER COMMON SHARE:
Weighted-average Common Shares outstanding
during the period
59.4
61.1
61.1
Dilutive potential Common Shares 0.8
0.9
1.1
Weighted-average number of Common Shares outstanding and dilutive potential Common Shares 60.2
62.0
62.2
Income from continuing operations $ 3.29
$ 3.98
$ 2.09
Income from discontinued operations 0.34
1.11
0.48
Net income $ 3.63
$ 5.09
$ 2.57

NOTE ~~14.~~15. INCOME TAXES

The provision (benefit) for income taxes allocated to continuing operations consisted of the following:

Year Ended September 30,
2017 2016 2015
(In millions)
Current:
Federal $ 104.5
$ 89.7
$ 66.9
State 12.4
11.8
8.1
Foreign 8.1
4.3
1.7
Total Current 125.0
105.8
76.7
Deferred:
Federal (7.4 ) 30.7
(1.3 )
State (0.5 ) 2.5
1.2
Foreign (0.5 ) (1.4 ) (0.3 )
Total Deferred (8.4 ) 31.8
(0.4 )
Provision for income taxes $ 116.6
$ 137.6
$ 76.3

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


	Year Ended September 30,
	2022		2021		2020

Current:
Federal	$	22.8	$	113.7	$	104.3
State	9.3		31.6		25.3
Foreign	8.7		2.7		0.3
Total Current	40.8		148.0		129.9
Deferred:
Federal	(125.5)		9.1		(1.6)
State	(23.3)		1.5		(2.0)
Foreign	(12.6)		1.2		(2.6)
Total Deferred	(161.4)		11.8		(6.2)
Income tax expense (benefit) from continuing operations	$	(120.6)	$	159.8	$	123.7

The domestic and foreign components of income (loss) from continuing operations before income taxes were as follows:


	Year Ended September 30,							Year Ended September 30,
	2017		2016		2015			2022		2021		2020
	(In millions)
Domestic	$	296.0	$	357.0	$	173.5	Domestic	$	(427.3)	$	670.2	$	483.7
Foreign	18.9		26.7		31.5		Foreign	(130.8)		6.9		26.9
Income from continuing operations before income taxes	$	314.9	$	383.7	$	205.0
Income (loss) from continuing operations before income taxes							Income (loss) from continuing operations before income taxes	$	(558.1)	$	677.1	$	510.6

A reconciliation of the federal corporate income tax rate and the effective tax rate on income (loss) from continuing operations before income taxes is summarized below:


	Year Ended September 30,
	2022		2021		2020
Statutory income tax rate	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, the Company recognized non-cash, pre-tax goodwill and intangible asset impairment charges of $668.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The tax impact of the impairment charges was a benefit of $148.3, which is net of the impact of non-deductible goodwill of $18.8, for fiscal 2022 and was recorded in the “Income tax expense (benefit) from continuing operations” line in the Consolidated Statements of Operations. The tax impact of non-deductible goodwill was considered a discrete item because the Company has no remaining non-deductible goodwill. This discrete item, which is included in the “Effect of foreign operations” line in the table above, decreased the fiscal 2022 effective tax rate by approximately 340 bps because the Company incurred a net loss during this period. Additionally, excess tax benefits related to share-based compensation, which are included in the “Effect of other permanent differences” line in the table above, increased the fiscal 2022 effective tax rate by approximately 260 bps.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Year Ended September 30,
2017 2016 2015
Statutory income tax rate 35.0 % 35.0 % 35.0 %
Effect of foreign operations 3.1
0.3
0.9
State taxes, net of federal benefit 2.9
2.9
3.4
Domestic Production Activities Deduction permanent difference (3.1 ) (2.5 ) (3.1 )
Effect of other permanent differences 0.4
0.4
0.1
Research and Experimentation and other federal tax credits (0.4 ) (0.3 ) (0.3 )
Resolution of prior tax contingencies 0.9
(0.1 ) 0.4
Other (1.8 ) 0.2
0.8
Effective income tax rate 37.0 % 35.9 % 37.2 %

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities were as follows:


	September 30,
	2022		2021

DEFERRED TAX ASSETS
Accrued liabilities	$	80.8	$	65.6
Lease liabilities	70.7		71.0
Intangible assets	60.8		—
Inventories	43.2		16.8
Convertible debt investments	25.3		—
Net operating loss carryovers	21.7		14.2
Foreign tax credit carryovers	15.0		14.9
Accounts receivable	8.7		8.5
Other	12.5		5.0
Gross deferred tax assets	338.7		196.0
Valuation allowance	(40.7)		(32.3)
Total deferred tax assets	298.0		163.7
DEFERRED TAX LIABILITIES
Intangible assets	—		(73.3)
Lease right-of-use assets	(68.6)		(69.6)
Property, plant and equipment	(65.8)		(55.8)
Outside basis difference in equity investments	(14.8)		(7.2)
Derivative contracts	(10.5)		—
Other	(3.3)		(5.6)
Total deferred tax liabilities	(163.0)		(211.5)
Net deferred tax asset (liability)	$	135.0	$	(47.8)

September 30,
2017 2016
(In millions)
DEFERRED TAX ASSETS
Inventories $ 8.0
$ 9.2
Accrued liabilities 58.9
41.8
Postretirement benefits 19.9
28.2
Accounts receivable 5.3
5.9
Federal NOL carryovers 20.3
—
State NOL carryovers 1.3
0.4
Foreign NOL carryovers 3.7
4.6
Foreign tax credit carryovers 7.6
7.4
Interest rate swaps —
2.4
Other (1.6 ) (0.5 )
Gross deferred tax assets 123.4
99.4
Valuation allowance (29.7 ) (4.1 )
Total deferred tax assets 93.7
95.3
DEFERRED TAX LIABILITIES
Property, plant and equipment (68.5 ) (65.5 )
Intangible assets (127.5 ) (100.9 )
Outside basis difference in equity investments (47.5 ) (83.5 )
Other (7.7 ) (17.4 )
Total deferred tax liabilities (251.2 ) (267.3 )
Net deferred tax liability $ (157.5 ) $ (172.0 )

~~During fiscal 2017, the Company adopted accounting guidance that requires all~~At September 30, 2022, after netting by taxing jurisdiction, net deferred tax assets ~~and liabilities to be classified as noncurrent on~~of $143.5 were recorded in the balance sheet. The Company adopted this guidance on a retrospective basis effective September 30, 2017. As a result, deferred tax assets totaling $43.7 million have been presented as noncurrent and are included“Other assets” line in ~~other liabilities on~~ the Consolidated Balance Sheets, asand net deferred tax liabilities of $8.5 were recorded in the “Other liabilities” line in the Consolidated Balance Sheets. At September 30, ~~2016. These amounts~~2021, net deferred tax liabilities were ~~previously reported within prepaid~~$47.8 and ~~other current assets.~~

were recorded in the “Other liabilities” line in the Consolidated Balance Sheets. The change in the net deferred tax balance was primarily driven by deferred tax assets recorded during fiscal 2022 associated with goodwill and intangible asset impairment charges and unrealized losses on convertible debt investments.

GAAP requires that a valuation allowance be recorded against a deferred tax asset if it is more likely than not that the tax benefit associated with the asset will not be realized in the future. As shown in the table above, valuation allowances were recorded against ~~$29.7 million~~$40.7 and ~~$4.1 million~~$32.3 of deferred tax assets as of September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Most of these valuation allowances relate to certain credits and net operating losses (“NOLs”), as explained further below.

~~Foreign net operating losses of certain controlled~~Deferred tax assets related to foreign ~~corporations~~tax credits were ~~$14.4 million as of~~$15.0 and $14.9 at September 30, ~~2017, the majority of which have indefinite carryforward periods. Due to a history of losses in many of these entities, a~~2022 and 2021, respectively. A full valuation allowance has ~~also~~ been ~~placed~~established against ~~the statutory~~these foreign tax ~~benefit associated with all but $2.0 million of these losses~~credits at September 30, ~~2017.~~

~~Foreign~~2022 as the Company does not expect to utilize them prior to their expiration. Tax benefits associated with state tax credits ~~were $7.6 million~~will also expire if not utilized and ~~$7.4 million~~amounted to $1.4 at September 30, ~~2017~~2022 and ~~2016, respectively.~~2021. A valuation allowance in the amount of ~~$7.6 million~~$1.2 has been established ~~against those foreign tax~~at September 30, 2022 related to state credits the Company does not expect to ~~utilize prior~~utilize.

Deferred tax assets related to ~~their expiration.~~

~~The Company, through increased ownership of AeroGrow International, Inc. during fiscal 2017, may potentially utilize up to $63.2 million in~~certain federal ~~net operating losses (NOLs) of AeroGrow International, Inc.,~~NOLs subject to ~~limitations~~limitation under IRC §382 from current and prior ownership ~~changes.~~changes were $10.7 and $10.8 at September 30, 2022 and 2021, respectively. These NOLs will be subject to expiration gradually from fiscal year end 2023 through fiscal year end 2032. The Company determined that ~~$50.0 million~~$10.5 of these ~~NOLs~~deferred tax assets will expire unutilized due to the closing of statutes of limitation and has established a valuation allowance accordingly at September 30, 2022.

Deferred tax assets related to foreign NOLs of certain controlled foreign corporations were $3.7 and $1.8 as of September 30, 2022 and 2021, respectively. Due to a history of losses in some of these entities, a valuation allowance has been ~~established on these NOLs, accordingly. The Company~~


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~estimates that $11.4 million~~established against $2.9 of ~~the remaining $13.2 million of NOLs will be utilized as of the~~these deferred tax ~~year ending~~assets at September 30, ~~2018 with the remainder utilized gradually through the~~2022. A valuation allowance has also been established against deferred tax ~~year ending~~assets related to other foreign items of $6.3 at September 30, ~~2032.~~2022.

Deferred tax assets related to state ~~net operating losses~~NOLs were ~~$2.8 million~~$7.3 and $1.7 as of September 30, ~~2017,~~2022 and 2021, respectively, with carryforward periods ranging from 5 to 20 years. Any losses not utilized within a specific state’s carryforward period will expire. A valuation allowance was recorded against ~~$1.2 million~~$4.8 of these deferred tax assets as of September 30, ~~2017~~2022 for state ~~net operating losses~~NOLs that the ~~company~~Company does not expect to realize within their respective ~~carryover~~carryforward periods. ~~Tax benefits associated with state tax credits will expire if not utilized and amounted to $1.0 million and $0.7 million at~~

As of September 30, ~~2017 and 2016, respectively. A valuation allowance in the amount of $0.2 million has been established related to state credits~~2022, the Company ~~does not expect to utilize.~~

~~Deferred taxes have not been provided on unremitted~~maintains its assertions of indefinite reinvestment of the earnings of ~~$119.0 million for certain~~all material foreign subsidiaries and foreign corporate joint ventures as such earnings have been indefinitely reinvested. These foreign entities held cash and cash equivalents of $39.3 million and $39.9 million at September 30, 2017 and 2016, respectively. Our current plans do not demonstrate a need to, nor do we project we will, repatriate the retained earnings from these subsidiaries as the earnings are indefinitely reinvested. In the future, if we determine it is necessary to repatriate these funds, or we sell or liquidate any of these subsidiaries, we may be required to pay associated taxes on the repatriation. We may also be required to withhold foreign taxes depending on the foreign jurisdiction from which the funds are repatriated. The effective rate of tax on such repatriations may materially differ from the federal statutory tax rate and could have a material impact on tax expense in the year of repatriation. As such, the Company cannot reasonably estimate the amount of such a tax event.subsidiaries.

The Company had ~~$10.2 million, $5.1 million~~$35.8, $24.1 and ~~$9.2 million~~$30.2 of gross unrecognized tax benefits related to uncertain tax positions at September 30, ~~2017, 2016~~2022, 2021 and ~~2015,~~2020, respectively. Of these amounts, $0.2, $0.2 and $6.4 of gross unrecognized tax benefits are related to discontinued operations at September 30, 2022, 2021 and 2020, respectively. Included in the September 30, ~~2017, 2016~~2022, 2021 and ~~2015~~2020 balances were ~~$8.5 million, $3.5 million~~$31.5, $19.9 and ~~$6.6 million,~~$25.9, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate.

A reconciliation of the unrecognized tax benefits is as follows:


	Year Ended September 30,
	2022		2021		2020

Balance at beginning of year	$	24.1	$	30.2	$	29.5
Additions for tax positions of the current year	11.3		0.3		0.3
Additions for tax positions of prior years	2.2		6.1		4.5
Reductions for tax positions of prior years	(2.5)		(5.9)		(2.4)
Settlements with tax authorities	1.3		0.2		0.3
Expiration of statutes of limitation	(0.6)		(6.8)		(2.0)
Balance at end of year	$	35.8	$	24.1	$	30.2

Year Ended September 30,
2017 2016 2015
(In millions)
Balance at beginning of year $ 5.1
$ 9.2
$ 11.2
Additions for tax positions of the current year 1.4
0.3
0.2
Additions for tax positions of prior years 3.9
1.9
4.1
Reductions for tax positions of prior years (0.2 ) (2.6 ) (3.2 )
Settlements with tax authorities 0.9
(2.7 ) (2.7 )
Expiration of statutes of limitation (0.9 ) (1.0 ) (0.4 )
Balance at end of year $ 10.2
$ 5.1
$ 9.2

The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. As of September 30, ~~2017, 2016~~2022, 2021 and ~~2015, respectively,~~2020, the Company had ~~$1.1 million, $1.1 million~~$3.2, $2.7 and ~~$1.8 million~~$2.8, respectively, accrued for the payment of interest that, if recognized, would impact the effective tax rate. ~~As of September 30, 2017, 2016 and 2015, respectively, the~~The Company had ~~$0.4 million, $0.5 million and $0.7 million~~$1.6 accrued for the payment of penalties ~~that, if recognized, would impact the effective tax rate. For the fiscal year ended~~as of September 30, ~~2017, the Company recognized a benefit of $1.7 million for tax interest~~2022, 2021 and ~~tax penalties in its Consolidated Statement of Operations.~~2020.

~~The~~ Scotts Miracle-Gro ~~Company~~ or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Company is no longer subject to examination by these tax authorities for fiscal years prior to ~~2014. The Company is~~2019. There are currently ~~under examination by~~no ongoing audits with respect to the ~~Internal Revenue Service and certain foreign and U.S. state and local tax authorities. The~~ U.S. federal ~~examination is limited to fiscal years 2011 2012, and 2013.~~jurisdiction. With respect to the foreign jurisdictions, a German audit covering fiscal years ~~2009~~2014 through ~~2012 closed~~2017 is in ~~the third quarter of fiscal 2017 with no material impact to the financial statements. In regard to the multiple~~process. The Company is currently under examination by certain U.S. state and local ~~audits, the~~ tax authorities covering various periods ~~under examination are limited to~~from fiscal years ~~2011~~2017 through ~~2015.~~2020. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved.

The Company currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although ~~audit~~the outcomes of such examinations and the timing of ~~audit~~any payments required upon the conclusion of such examinations are subject to significant uncertainty, the Company does not anticipate

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial position, results of operations or cash flows.

The Inflation Reduction Act (the “Act”) was signed into law on August 16, 2022. The Act introduces a new 15% corporate minimum tax for certain large corporations that becomes effective for the Company’s fiscal year 2024 and it imposes a 1% excise tax on the value of share repurchases, net of new share issuances, after December 31, 2022. These provisions, as well as the other corporate tax changes included in the Act, are not expected to have a material impact on the Company’s financial statements.


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

NOTE ~~15.~~16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. To manage a portion of the volatility related to these exposures, the Company enters into various financial transactions. The utilization of these financial transactions is governed by policies covering acceptable counterparty exposure, instrument types and other hedging practices. The Company does not hold or issue derivative financial instruments for speculative trading purposes.

Exchange Rate Risk Management

The Company uses currency forward contracts to manage the exchange rate risk associated with intercompany loans ~~with foreign subsidiaries that are~~and certain other balances denominated in ~~local~~foreign currencies. ~~At September 30, 2017, the notional amount of outstanding currency~~Currency forward contracts was $268.3 million, with a fair value of $1.8 million. At September 30, 2016, the notional amount of outstanding currency forward contracts was $165.8 million, with a fair value of $0.4 million. The fair value of currency forward contracts is determinedare valued using observable forward rates in commonly quoted intervals for the full term of the contracts. The notional amount of outstanding currency forward contracts was $178.6 and $180.3 at September 30, 2022 and 2021, respectively. Contracts outstanding at September 30, 2022 will mature over the next fiscal quarter.

Interest Rate Risk Management

The Company enters into interest rate swap agreements as a means to hedge its variable interest rate risk on debt instruments. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since the interest rate swap agreements have been designated as hedging instruments, unrealized gains or losses resulting from adjusting these swaps to fair value are recorded as elements of accumulated other comprehensive income (loss) (“AOCI”) within the Consolidated Balance Sheets except for any ineffective portion of the change in fair value, which is immediately recorded in interest expense. The fair value of the swap agreements is determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date.

The Company has outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. ~~The~~Interest rate swap agreements are valued based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Swap agreements that were hedging interest payments as of September 30, 2022 and 2021 had a maximum total U.S. dollar equivalent notional amount of ~~$1,100.0 million~~$800.0 and ~~$650.0 million at September 30, 2017 and 2016,~~$600.0, respectively. Refer to “NOTE ~~11.~~12. DEBT” for the terms of the swap agreements outstanding at September 30, ~~2017.~~2022. Included in the ~~AOCI~~AOCL balance at September 30, ~~2017~~2022 was a gain of ~~$0.2 million~~$9.7 related to interest rate swap agreements that is expected to be reclassified to earnings during the next twelve months, consistent with the timing of the underlying hedged transactions.

Commodity Price Risk Management

The Company enters into hedging arrangements designed to fix the price of a portion of its projected future urea and diesel requirements. ~~The~~Commodity contracts are designated as hedges of the Company’s exposure to future cash flow fluctuations associated with the cost of urea. The objective of the hedges is to mitigate the earnings and cash flow volatility attributable to the risk of changing prices. Since the contracts have been designated as hedging instruments, unrealized gains or losses resulting from adjusting these contracts to fair value are recorded as elements of AOCI within the Consolidated Balance Sheets. Realized gains or losses remain as a component of AOCI until the related inventory is sold. Upon sale of the underlying inventory, the gain or loss is reclassified to cost of sales.valued using observable commodity exchange prices in active markets. Included in the ~~AOCI~~AOCL balance at September 30, ~~2017~~2022 was a gain of ~~$1.6 million~~$9.5 related to ~~urea derivatives~~commodity hedges that is expected to be reclassified to earnings during the next twelve months, consistent with the timing of the underlying hedged transactions.

The Company also uses derivatives to partially mitigate the effect of fluctuating diesel costs on operating results. These financial instruments are carried at fair value within the Consolidated Balance Sheets. Changes in the fair value of derivative contracts that qualify for hedge accounting are recorded in AOCI except for any ineffective portion of the change in fair value, which is immediately recorded in earnings. The effective portion of the change in fair value remains as a component of AOCI until the related fuel is consumed, at which time the accumulated gain or loss on the derivative contract is reclassified to cost of sales. Changes in the fair value of derivatives that do not qualify for hedge accounting are recorded as an element of cost of sales. At September 30, 2017, there were no amounts included within AOCI.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The Company~~ had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:


	September 30,
	2022	2021
Commodity
Urea	54,000 tons	94,500 tons

Diesel	3,150,000 gallons	5,880,000 gallons

Heating Oil	1,218,000 gallons	2,268,000 gallons

September 30,
2017 2016
Commodity
Urea 76,500 tons 40,500 tons
Diesel 5,586,000 gallons 6,384,000 gallons
Heating Oil 1,386,000 gallons 1,722,000 gallons


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Fair Values of Derivative Instruments

The fair values of the Company’s derivative instruments, which represent Level 2 fair value measurements, were as follows:


		Assets / (Liabilities)
		2022		2021
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value
Interest rate swap agreements	Prepaid and other current assets	$	12.8	$	—
	Other assets	18.2		3.3
	Other current liabilities	—		(5.7)
	Other liabilities	—		(2.5)
Commodity hedging instruments	Prepaid and other current assets	2.4		13.9

Total derivatives designated as hedging instruments		$	33.4	$	9.0

Derivatives Not Designated as Hedging Instruments	Balance Sheet Location
Currency forward contracts	Prepaid and other current assets	$	3.4	$	3.4
	Other current liabilities	—		(0.2)
Commodity hedging instruments	Prepaid and other current assets	0.4		1.3

Total derivatives not designated as hedging instruments		3.8		4.5
Total derivatives		$	37.2	$	13.5

Assets / (Liabilities)
2017 2016
Derivatives Designated As Hedging Instruments Balance Sheet Location Fair Value
(In millions)
Interest rate swap agreements Prepaid and other current assets $ 1.3
$ —
Other current liabilities (0.8 ) (3.3 )
Other liabilities (0.4 ) (3.1 )
Commodity hedging instruments Prepaid and other assets 3.2
—
Other current liabilities —
(0.3 )
Total derivatives designated as hedging instruments $ 3.3
$ (6.7 )

Derivatives Not Designated As Hedging Instruments Balance Sheet Location
Currency forward contracts Prepaid and other current assets $ 2.0
$ 1.2
Other current liabilities (0.2 ) (0.8 )
Commodity hedging instruments Prepaid and other current assets 0.6
—
Other current liabilities —
(0.1 )
Total derivatives not designated as hedging instruments 2.4
0.3
Total derivatives $ 5.7
$ (6.4 )

The effect of derivative instruments on ~~AOCI~~AOCL, net of tax, and the Consolidated Statements of Operations for the years ended September 30 was as follows:


	Amount of Gain / (Loss) Recognized in AOCL
Derivatives in Cash Flow Hedging Relationships	2022		2021

Interest rate swap agreements	$	24.1	$	3.4
Commodity hedging instruments	5.8		16.4
Total	$	29.9	$	19.8


	Reclassified from AOCL into	Amount of Gain / (Loss)
Derivatives in Cash Flow Hedging Relationships	Statement of Operations	2022		2021

Interest rate swap agreements	Interest expense	$	(2.1)	$	(7.7)
Commodity hedging instruments	Cost of sales	8.9		2.3
Total		$	6.8	$	(5.4)


	Recognized in	Amount of Gain / (Loss)
Derivatives Not Designated as Hedging Instruments	Statement of Operations	2022		2021

Currency forward contracts	Other income / expense, net	$	17.9	$	(4.2)
Commodity hedging instruments	Cost of sales	10.5		4.5
Total		$	28.4	$	0.3

100

Amount Of Gain / (Loss)
Recognized In AOCI
Derivatives In Cash Flow Hedging Relationships 2017 2016
(In millions)
Interest rate swap agreements $ 2.2
$ (0.9 )
Commodity hedging instruments 2.7
(0.6 )
Total $ 4.9
$ (1.5 )


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Reclassified From AOCI Into Amount Of Gain / (Loss)
Derivatives In Cash Flow Hedging Relationships Statement Of Operations 2017 2016
(In millions)
Interest rate swap agreements Interest expense $ (1.7 ) $ (5.0 )
Commodity hedging instruments Cost of sales (0.1 ) (0.8 )
Total $ (1.8 ) $ (5.8 )

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Recognized In Amount Of Gain / (Loss)
Derivatives Not Designated As Hedging Instruments Statement of Operations 2017 2016
(In millions)
Currency forward contracts Other income, net $ 0.1
$ (8.0 )
Commodity hedging instruments Cost of sales 0.7
(2.8 )
Total $ 0.8
$ (10.8 )

NOTE ~~16.~~17. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following describes the valuation methodologies used for financial assets and liabilities measured or disclosed at fair value on a recurring basis, as well as the general classification within the valuation hierarchy.

~~Derivatives~~

Derivatives consist of currency, interest rate and commodity derivative instruments. Currency forward contracts are valued using observable forward rates in commonly quoted intervals for the full term of the contracts. Interest rate swap agreements are valued based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Commodity contracts are measured using observable commodity exchange prices in active markets.

These derivative instruments are classified within Level 2 of the valuation hierarchy and are included within other assets and other liabilities in the Company’s Consolidated Balance Sheets, except for derivative instruments expected to be settled within the next 12 months, which are included within prepaid and other current assets and other current liabilities.

Cash Equivalents

Cash equivalents consist of highly liquid financial instruments with original maturities of three months or less. The carrying value of these cash equivalents approximates fair value due to their short-term maturities.

Other

~~Other consists of investment securities in non-qualified retirement plan assets and the Bonnie Option.~~ Investment securities in non-qualified retirement plan assets are valued using observable market prices in active ~~markets and~~markets. Loans receivable are ~~classified within Level 1 of the valuation hierarchy.~~carried at outstanding principal amount. The estimated fair value ~~of the Bonnie Option~~ is determined using ~~a simulation~~an income-based approach, ~~whereby~~which includes market participant expectations of cash flows over the ~~total value of the loan receivable and optional exchange for additional equity was estimated considering a distribution of possible future cash flows~~remaining useful life discounted to present value using an appropriate discount ~~rate, and is classified in Level 3 of the fair value hierarchy.~~

~~Long-Term Debt~~

Long-term debt consists of a loan provided to the noncontrolling ownership group of Gavita. The Company recorded a charge of $13.4 million during the fourth quarter of fiscal 2017 to write-up the fair value of the loan to the agreed upon buyout value in the “Other non-operating expense” line in the Consolidated Statements of Operations.rate. The estimate requires subjective assumptions to be made, including those related to ~~future business results~~credit risk and discount rates.

The fair values of convertible debt investments are determined using scenario-based internally developed valuation models that consider a probability-weighted assessment of possible future cash flows related to the debt component and the conversion component of the instruments, discounted to present value ~~measurement is~~using an appropriate discount rate. The probability of amendments to federal laws in the United States to allow for the general cultivation, distribution, and possession of cannabis, and the impact of such amendments on the value of the underlying investments are important assumptions in the fair value estimates. The valuation models and related assumptions require significant judgment. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on ~~significant inputs unobservable~~period specific facts and circumstances.

Debt Instruments

Debt instruments are recorded at cost. The interest rate on borrowings under the Sixth A&R Credit Agreement fluctuates in accordance with the ~~market~~terms of the Sixth A&R Credit Agreement and thus ~~represents~~the carrying value is a ~~Level 3 measurement.~~ reasonable estimate of fair value. The fair values of the 4.000% Senior Notes, 4.375% Senior Notes, 4.500% Senior Notes and 5.250% Senior Notes are determined based on quoted market prices. The interest rate on the short-term debt associated with accounts receivable pledged under the Receivables Facility fluctuates in accordance with the terms of the Receivables Facility and thus the carrying value is a reasonable estimate of fair value.

101


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table ~~presents~~summarizes the fair value of the Company’s ~~financial~~ assets and liabilities ~~measured~~for which disclosure of fair value is required:


		2022				2021
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash equivalents	Level 1	$	64.3	$	64.3	$	222.5	$	222.5




Other
Investment securities in non-qualified retirement plan assets	Level 1	38.4		38.4		45.0		45.0
Loans receivable	Level 3	32.8		32.8		35.8		35.8
Convertible debt investments	Level 3	117.0		117.0		190.3		190.3

Liabilities




Debt instruments
Credit facilities – revolving loans	Level 2	300.5		300.5		—		—
Credit facilities – term loans	Level 2	975.0		975.0		670.0		670.0
Senior Notes due 2031 – 4.000%	Level 2	500.0		350.6		500.0		498.8
Senior Notes due 2032 – 4.375%	Level 2	400.0		284.0		400.0		402.0
Senior Notes due 2029 – 4.500%	Level 2	450.0		325.7		450.0		466.9
Senior Notes due 2026 – 5.250%	Level 2	250.0		230.0		250.0		258.1

Receivables facility	Level 2	75.0		75.0		—		—

Other debt	Level 2	12.7		12.7		11.9		11.9

Changes in balances of Level 3 convertible debt investments carried at fair value ~~on a recurring~~are presented below. There were no transfers into or out of Level 3.


	Year Ended September 30,
	2022		2021
Fair value at beginning of year	$	190.3	$	—
Purchases	25.0		193.1
Total realized / unrealized gains included in net earnings	3.7		0.3
Total realized / unrealized losses included in OCI	(102.0)		$	(3.1)
Fair value at end of year	$	117.0	$	190.3

The amortized cost basis at ~~September 30, 2017~~:

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Unobservable
Inputs
(Level 3)
Total
(In millions)
Assets
Cash equivalents $ 26.2
$ —
$ —
$ 26.2
Derivatives
Interest rate swap agreements —
1.3
—
1.3
Currency forward contracts —
2.0
—
2.0
Commodity hedging instruments —
3.8
—
3.8
Other 15.7
—
11.8
27.5
Total $ 41.9
$ 7.1
$ 11.8
$ 60.8
Liabilities
Derivatives
Interest rate swap agreements $ —
$ (1.2 ) $ —
$ (1.2 )
Currency forward contracts —
(0.2 ) —
(0.2 )
Long-term debt —
—
(55.6 ) (55.6 )
Total $ —
$ (1.4 ) $ (55.6 ) $ (57.0 )

~~The following table presents the Company’s financial assets~~of convertible debt investments was $222.1 and ~~liabilities measured at fair value on a recurring basis~~$193.4 at September 30, ~~2016:~~2022 and 2021, respectively. At September 30, 2022 and 2021, gross unrealized losses on convertible debt investments were $105.1 and $3.1, respectively, and there were no gross unrealized gains. These investments have been in a continuous unrealized loss position for greater than 12 months as of September 30, 2022. The decline in fair value of the convertible debt investments is related to a decline in the value of the underlying conversion options and is not reflective of a credit risk associated with the notes. The Company believes it will recover its cost basis in the convertible debt securities and that the Company has the ability to hold the securities until they recover in value and had no intent to sell or convert them at September 30, 2022.

102

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)

Unobservable
Inputs
(Level 3)
Total
(In millions)
Assets
Cash equivalents $ 11.5
$ —
$ —
$ 11.5
Derivatives

Currency forward contracts —
1.2
—
1.2
Other 11.8
—
10.9
22.7
Total $ 23.3
$ 1.2
$ 10.9
$ 35.4
Liabilities

Derivatives

Interest rate swap agreements $ —
$ (6.4 ) $ —
$ (6.4 )
Currency forward contracts —
(0.8 ) —
(0.8 )
Commodity hedging instruments —
(0.4 ) —
(0.4 )
Long-term debt —
—
(38.3 ) (38.3 )
Total $ —
$ (7.6 ) $ (38.3 ) $ (45.9 )


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE ~~17. OPERATING~~18. LEASES

The Company leases certain property and equipment from third parties under various non-cancelable ~~operating lease agreements. Certain~~ lease agreements, ~~contain renewal~~including industrial, commercial and ~~purchase options.~~office properties and equipment that support the management, manufacturing, distribution and research and development of products marketed and sold by the Company. The lease agreements generally require that the Company pay taxes, insurance and maintenance expenses related to the leased assets. ~~Future minimum lease payments for non-cancelable~~At September 30, 2022, the Company had entered into operating leases at ~~September 30, 2017~~,that were ~~as follows (in millions):~~yet to commence with a combined total expected lease liability of $49.8. From time to time, the Company will sublease portions of its facilities, resulting in sublease income. Sublease income and the related cash flows were not material to the consolidated financial statements for fiscal 2022.

2018 $ 40.3
2019 35.7
2020 28.7
2021 21.2
2022 11.8
Thereafter 9.8
Total future minimum lease payments $ 147.5

The Company ~~also~~ leases certain vehicles (primarily cars and light trucks) under agreements that are ~~cancelable~~cancellable after the first year, but typically continue on a month-to-month basis until canceled by the Company. The vehicle leases and certain other non-cancelable operating leases contain residual value guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. If all such vehicle leases had been canceled as of September 30, ~~2017~~,2022, the Company’s residual value guarantee would have approximated ~~$3.6 million.~~$3.9.

~~Other residual value guarantee amounts that apply at~~Supplemental balance sheet information related to the ~~conclusion of non-cancelable lease terms are~~Company’s leases was as follows:


	Balance Sheet Location	September 30, 2022		September 30, 2021

Operating leases:
Right-of-use assets	Other assets	$	288.9	$	293.0

Current lease liabilities	Other current liabilities	76.2		66.4
Non-current lease liabilities	Other liabilities	223.2		234.4
Total operating lease liabilities		$	299.4	$	300.8

Finance leases:
Right-of-use assets	Property, plant and equipment, net	$	26.4	$	31.3

Current lease liabilities	Current portion of debt	6.4		5.9
Non-current lease liabilities	Long-term debt	22.5		27.5
Total finance lease liabilities		$	28.9	$	33.4

Components of lease cost were as follows:


	Year Ended September 30,
	2022		2021

Operating lease cost (a)	$	86.7	$	70.3
Variable lease cost	35.9		29.4


Finance lease cost
Amortization of right-of-use assets	6.4		6.0
Interest on lease liabilities	1.2		1.4
Total finance lease cost	$	7.6	$	7.4

(a)Operating lease cost includes amortization of ROU assets of $75.3 and $62.3 for fiscal 2022 and fiscal 2021, respectively. Short-term lease expense is excluded from operating lease cost and was $19.1 and $22.8 for fiscal 2022 and fiscal 2021, respectively.

103


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

Amount of
Guarantee

Lease
Termination Date
(In millions)
Corporate aircraft $ 27.0
2019
Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:


	Year Ended September 30,
	2022		2021

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net	$	83.9	$	66.9
Operating cash flows from finance leases	1.2		1.4
Financing cash flows from finance leases	5.9		5.3

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	71.9	$	200.0
Finance leases	1.5		2.6

~~Rent expense~~Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:


	September 30, 2022
Weighted-average remaining lease term (in years):
Operating leases	4.9
Finance leases	7.3

Weighted-average discount rate:
Operating leases	3.5	%
Finance leases	4.3	%

Maturities of lease liabilities by fiscal ~~2017~~, ~~fiscal 2016~~year for the Company’s leases as of September 30, 2022 were as follows:


Year	Operating Leases		Finance Leases
2023	$	85.2	$	7.5
2024	78.0		7.5
2025	61.2		3.3
2026	42.2		2.2
2027	18.9		1.9
Thereafter	40.5		11.8
Total lease payments	326.0		34.2
Less: Imputed interest	(26.6)		(5.3)
Total lease liabilities	$	299.4	$	28.9

On September 21, 2022, the Company completed an asset sale-leaseback transaction relating to a facility in Vancouver, Washington. The Company received proceeds of $44.7, net of selling costs, and ~~fiscal 2015~~ ~~totaled $53.6 million, $51.3 million~~the asset had a carrying value of $36.7, resulting in a $8.0 gain on the transaction which was recorded in the “Impairment, restructuring and ~~$48.3 million, respectively.~~other” line in the Consolidated Statements of Operations. The leaseback has a term of 3 years and is accounted for as an operating lease.

NOTE ~~18.~~19. COMMITMENTS

The Company has the following unconditional purchase obligations due during each of the next five fiscal years that have not been recognized in the Consolidated Balance Sheet at September 30, ~~2017~~ ~~(in millions):~~2022:


2023	$	547.2
2024	358.6
2025	201.1
2026	147.7
2027	128.8
Thereafter	84.8
	$	1,468.2

104


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

2018 $ 157.2
2019 83.0
2020 31.9
2021 20.7
2022 12.3
Thereafter 2.1
$ 307.2

Purchase obligations primarily represent commitments for materials used in the Company’s manufacturing processes, including urea and packaging, as well as commitments for warehouse services, grass seed, marketing services and ~~out-sourced~~ information technology services. In addition, the Company leases certain property and equipment from third parties under various non-cancelable operating lease agreements. Future minimum lease payments for non-cancelable operating leases not included above are included in “NOTE 17. OPERATING LEASES.”

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE ~~19.~~20. CONTINGENCIES

Management regularly evaluates the Company’s contingencies, including various ~~lawsuits~~judicial and administrative proceedings and claims ~~which arise~~arising in the ~~normal~~ordinary course of business, including product and general liabilities, workers’ compensation, property losses and other liabilities for which the Company is self-insured or retains a high exposure limit. Self-insurance accruals are established based on actuarial loss estimates for specific individual claims plus actuarially estimated amounts for incurred but not reported claims and adverse development factors applied to existing claims. Legal costs incurred in connection with the resolution of claims, lawsuits and other contingencies generally are expensed as incurred. In the opinion of management, the assessment of contingencies is reasonable and related accruals, in the aggregate, are adequate; however, there can be no assurance that final resolution of these matters will not have a material effect on the Company’s financial condition, results of operations or cash flows.

Regulatory Matters

At September 30, ~~2017, $4.8 million~~2022, $2.4 was accrued in the “Other liabilities” line in the Consolidated Balance ~~Sheet~~Sheets for environmental actions, the majority of which are for site remediation. The Company believes that the amounts accrued are ~~believed to be~~ adequate to cover such known environmental exposures based on current facts and estimates of likely outcomes. Although it is reasonably possible that the costs to resolve such known environmental exposures will exceed the amounts accrued, any variation from accrued amounts is not expected to be material.

Other

The Company has been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from exposure to asbestos-containing products, apparently based on the Company’s historic use of vermiculite in certain of its products. In many of these cases, the complaints are not specific about the plaintiffs’ contacts with the Company or its products. The cases vary, but complaints in these cases generally seek unspecified monetary damages (actual, compensatory, consequential and punitive) from multiple defendants. The Company believes that the claims against it are without merit and is vigorously defending against them. ~~It is not currently possible to reasonably estimate a probable loss, if any, associated with these cases and, accordingly, no~~No accruals have been recorded in the Company’s consolidated financial ~~statements. The~~statements as the likelihood of a loss is not probable at this time; and the Company ~~is reviewing agreements and policies that may provide insurance coverage or indemnity as~~does not believe a reasonably possible loss would be material to, ~~these claims and is pursuing coverage under some~~nor does it expect the ultimate resolution of these ~~agreements and policies, although there can be no assurance of~~cases will have a material adverse effect on, the Company’s financial condition, results of ~~these efforts.~~operations or cash flows. There can be no assurance that ~~these cases,~~future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results of operations or cash flows.

In connection with the sale of wild bird food products that were the subject of a voluntary recall in 2008, the Company, along with its Chief Executive Officer, have been named as defendants in four actions filed on and after June 27, 2012, which have been consolidated, and, on March 31, 2017, certified as a class action in the United States District Court for the Southern District of California as ~~In re Morning Song Bird Food Litigation~~, Lead Case No. 3:12-cv-01592-JAH-AGS. The plaintiffs allege various statutory and common law claims associated with the Company’s sale of wild bird food products and a plea agreement entered into in previously pending government proceedings associated with such sales. The plaintiffs allege, among other things, a class action on behalf of all persons and entities in the United States who purchased certain bird food products. The plaintiffs assert: (i) hundreds of millions of dollars in monetary damages (actual, compensatory, consequential, and restitution); (ii) punitive and treble damages; (iii) injunctive and declaratory relief; (iv) pre-judgment and post-judgment interest; and (v) costs and attorneys’ fees. The Company and its Chief Executive Officer dispute the plaintiffs’ assertions and intend to vigorously defend the consolidated action. At this point in the proceedings, it is not currently possible to reasonably estimate a probable loss, if any, associated with the action and, accordingly, no accruals have been recorded in the consolidated financial statements with respect to the action. There can be no assurance that this action, whether as a result of an adverse outcome or as a result of significant defense costs, will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims individually and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of operations or cash flows.

~~NOTE 20. CONCENTRATIONS OF CREDIT RISK~~

The Company maintains cash depository accounts with major financial institutions around the world and invests in high quality, short-term liquid investments. Such investments are made only in investments issued by highly rated institutions. These investments mature within three months and have not historically incurred any losses.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Trade accounts receivable are exposed to a concentration of credit risk with customers principally located in the United States. The Company’s customers include home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, food and drug stores, indoor gardening and hydroponic product distributors and retailers. Concentrations of net sales and accounts receivable in the United States as a percentage of consolidated net sales and accounts receivable at September 30 were as follows:

Percentage of Net Sales Percentage of Net Accounts Receivable at September 30,
2017 2016 2015 2017 2016
Concentration in United States 90 % 92 % 93 % 83 % 91 %

The remainder of the Company’s net sales and accounts receivable at September 30, 2017, 2016 and 2015 were generated from customers located outside of the United States, primarily retailers, distributors and nurseries in Europe and Canada. No concentrations of these customers or individual customers within this group accounted for more than 10% of the Company’s net sales or accounts receivable for any period presented above.

The Company’s three largest customers are the only customers that individually represent more than 10% of reported consolidated net sales and accounts receivable for each of the last three fiscal years. These three customers accounted for the following percentages of net sales for the fiscal years ended September 30:

Percentage of Net Sales
2017 2016 2015
Home Depot 35 % 38 % 38 %
Lowe’s 17 % 19 % 19 %
Walmart 9 % 12 % 14 %

~~Accounts receivable for these three largest customers as a percentage of consolidated accounts receivable were 60% and 69% for September 30, 2017 and 2016, respectively.~~

~~NOTE 21. OTHER INCOME, NET~~

~~Other (income) expense consisted of the following:~~

Year Ended September 30,
2017 2016 2015
(In millions)
Royalty income, net $ (4.8 ) $ (5.9 ) $ (1.2 )
Interest on loans receivable (10.0 ) (3.9 ) —
Foreign currency losses 0.8
0.3
1.3
Other (2.6 ) (4.3 ) (2.3 )
Total $ (16.6 ) $ (13.8 ) $ (2.2 )

NOTE ~~22.~~21. SEGMENT INFORMATION

The Company divides its ~~business~~operations into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S. Consumer consists of the Company’s consumer lawn and garden business ~~located~~ in the ~~geographic~~ United States. Hawthorne consists of the Company’s indoor ~~urban~~ and hydroponic gardening business. Other primarily consists of the Company’s consumer lawn and garden business ~~in geographies other than~~outside the U.S. and the Company’s product sales to commercial nurseries, greenhouses and other professional customers. Corporate consists of general and administrative expenses and certain other income/expense items not allocated to the business segments.United States. This identification of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of the Company. ~~These segments differ from those used in prior periods due~~In addition, Corporate consists of general and administrative expenses and certain other income and expense items not allocated to the ~~change in the Company’s internal organization structure resulting from the Company’s divestiture~~business segments.

The performance of the International Business, which closed on August 31, 2017. As a result, effective in its fourth quarter of fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business as a discontinued operation and classified the assets and liabilities of the International Business as held for sale. The prior period amounts have been reclassified to conform with the new segments.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

This change in organization structure resulted in a change in the Company’s operating segments and reporting units. The Company allocated goodwill to the new reporting units using a relative fair value approach, resulting in $17.3 million of goodwill reallocated from the Hawthorneeach reportable segment to the U.S. Consumer segment during fiscal 2017. In addition, the Company completed an assessment of any potential goodwill impairment immediately prior to the allocation and determined that no impairment existed.

~~Segment performance~~ is evaluated based on several factors, including income (loss) from continuing operations before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit (Loss)”). Senior management uses ~~this measure of profit (loss)~~Segment Profit (Loss) to evaluate segment performance because the Company believes this measure is indicative of performance trends and the overall earnings potential of each segment.

105


Table of Contents			THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in millions, except per share data)

The following tables present ~~summarized~~ financial information ~~concerning~~for the Company’s reportable segments for the periods indicated:


	Year Ended September 30,
	2022		2021		2020

Net Sales:
U.S. Consumer	$	2,928.8	$	3,197.7	$	2,883.5
Hawthorne	716.2		1,424.2		1,023.1
Other	279.1		303.1		225.0
Consolidated	$	3,924.1	$	4,925.0	$	4,131.6
Segment Profit (Loss):
U.S. Consumer	$	568.6	$	726.7	$	694.3
Hawthorne	(21.1)		163.8		111.9
Other	20.2		42.1		11.7
Total Segment Profit	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	$	(558.1)	$	677.1	$	510.6
Depreciation and amortization:
U.S. Consumer	$	55.8	$	48.6	$	48.0
Hawthorne	34.8		30.3		31.7
Other	7.0		7.0		7.5
Corporate	7.6		7.9		7.5
	$	105.2	$	93.8	$	94.7
Capital expenditures:
U.S. Consumer	$	97.4	$	78.3	$	52.3
Hawthorne	12.4		25.0		7.8
Other	3.7		3.6		2.6
	$	113.5	$	106.9	$	62.7


	September 30,
	2022		2021

Total assets:
U.S. Consumer	$	2,454.4	$	2,333.1
Hawthorne	1,061.5		1,442.8
Other	197.1		209.6
Corporate	583.8		814.5

Consolidated	$	4,296.8	$	4,800.0

106

Year Ended September 30,
2017 2016 2015
(In millions)
Net sales:
U.S. Consumer $ 2,160.5
$ 2,204.4
$ 2,144.8
Hawthorne 287.2
121.2
48.0
Other 194.4
180.6
178.3
Consolidated $ 2,642.1
$ 2,506.2
$ 2,371.1
Segment Profit (Loss):
U.S. Consumer $ 521.5
$ 493.7
$ 436.1
Hawthorne 35.5
11.8
0.1
Other 13.4
10.4
10.8
Total Segment Profit 570.4
515.9
447.0
Corporate (109.6 ) (98.9 ) (102.5 )
Intangible asset amortization (22.5 ) (14.9 ) (10.5 )
Impairment, restructuring and other (4.9 ) 33.8
(80.2 )
Equity in income (loss) of unconsolidated affiliates ^(a)
(29.0 ) 19.5
—
Costs related to refinancing —
(8.8 ) —
Interest expense (76.1 ) (62.9 ) (48.8 )
Other non-operating expense (13.4 ) —
—
Income from continuing operations before income taxes $ 314.9
$ 383.7
$ 205.0
Depreciation and amortization:
U.S. Consumer $ 47.9
$ 48.1
$ 45.8
Hawthorne 18.4
9.2
3.6
Other 7.5
5.0
4.1
$ 73.8
$ 62.3
$ 53.5
Capital expenditures:
U.S. Consumer $ 53.4
$ 46.3
$ 52.5
Hawthorne 7.1
1.2
—
Other 5.0
6.3
2.4
$ 65.5
$ 53.8
$ 54.9


~~(a)~~ Table of Contents			~~Included within equity~~THE SCOTTS MIRACLE-GRO COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars in ~~income (loss) of unconsolidated affiliates for fiscal 2017 are charges of $25.2 million, which represent the Company’s~~millions, except per share ~~of restructuring and other charges incurred by the TruGreen Joint Venture, including a charge of $7.2 million related to costs associated with TruGreen’s August 2017 refinancing. For~~ ~~fiscal 2016, the Company’s share of restructuring and other charges incurred by the TruGreen Joint Venture of $11.7 million were included within impairment, restructuring and other above.~~data)

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

September 30,
2017 2016
(In millions)
Total assets:
U.S. Consumer $ 1,650.3
$ 1,672.8
Hawthorne 648.0
393.7
Other 150.7
140.6
Corporate 298.0
292.5
Assets held for sale —
256.2
Consolidated $ 2,747.0
$ 2,755.8

The following table presents net sales by product ~~category:~~category for the periods indicated:


	Year Ended September 30,
	2022		2021		2020

U.S. Consumer:
Growing media and mulch	$	1,192.6	$	1,286.7	$	1,164.0
Lawn care	973.6		1,060.6		943.3
Controls	382.2		402.4		383.7
Roundup® marketing agreement	132.3		145.2		132.7
Other, primarily gardening	248.1		302.8		259.8
Hawthorne:
Lighting	200.0		452.4		328.7
Nutrients	148.0		324.7		250.1
Growing environment	143.7		264.0		154.2
Growing media	119.0		192.6		148.9
Other, primarily hardware	105.5		190.5		141.2
Other:
Growing media	96.6		116.7		90.6
Lawn care	92.9		99.2		73.7
Other, primarily gardening and controls	89.6		87.2		60.7
Total net sales	$	3,924.1	$	4,925.0	$	4,131.6

Year Ended September 30,
2017 2016 2015
Net sales:
Lawn care 30 % 31 % 33 %
Growing media 34
38
39
Controls 13
13
14
Indoor, urban and hydroponic gardening 11
5
2
Roundup^® Marketing Agreement
5
5
5
Other, primarily gardening and landscape 7
8
7
Segment total product sales 100 % 100 % 100 %
The Company’s two largest customers accounted for the following percentages of net sales for the fiscal years ended September 30:


	Percentage of Net Sales
	2022		2021		2020
Home Depot	28	%	24	%	26	%
Lowe’s	15	%	15	%	18	%

Accounts receivable for these two largest customers as a percentage of consolidated accounts receivable were 46% and 42% as of September 30, 2022 and 2021, respectively.

The following table presents net sales by geographic ~~area:~~area for the periods indicated:


	Year Ended September 30,
	2022		2021		2020

Net sales:
United States	$	3,554.6	$	4,507.0	$	3,773.4
International	369.5		418.0		358.2
	$	3,924.1	$	4,925.0	$	4,131.6

Year Ended September 30,
2017 2016 2015
(In millions)
Net sales:
United States $ 2,385.1
$ 2,314.8
$ 2,209.4
International 257.0
191.4
161.7
$ 2,642.1
$ 2,506.2
$ 2,371.1
Other than the United States, no other country accounted for more than 10% of the Company’s net sales for any period presented above.

The following table presents long-lived assets (property, plant and equipment and finite-lived intangibles) by geographic area:


	September 30,
	2022		2021

Long-lived assets:
United States	$	753.3	$	868.8
International	109.0		139.1
	$	862.3	$	1,007.9

107

September 30,
2017 2016
(In millions)
Long-lived assets:
United States $ 586.2
$ 527.5
International 194.8
171.8
$ 781.0
$ 699.3

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~NOTE 23. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)~~

~~The following is a summary~~Table of ~~the unaudited quarterly results of operations:~~Contents

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
Full Year
(In millions, except per share data)
FISCAL 2017
Net sales $ 207.4
$ 1,084.6
$ 973.4
$ 376.7
$ 2,642.1
Gross profit 36.8
464.3
383.4
88.1
972.6
Income (loss) from continuing operations (58.1 ) 154.1
144.6
(42.3 ) 198.3
Income (loss) from discontinued operations, net of tax (6.8 ) 11.1
7.3
8.9
20.5
Net income (loss) (64.9 ) 165.2
151.9
(33.4 ) 218.8
Net income (loss) attributable to controlling interest (65.3 ) 165.1
151.9
(33.4 ) 218.3
Basic income (loss) per Common Share:
Income (loss) from continuing operations $ (0.97 ) $ 2.58
$ 2.44
$ (0.72 ) $ 3.33
Income (loss) from discontinued operations, net of tax (0.12 ) 0.18
0.13
0.15
0.35
Basic net income (loss) per Common Share $ (1.09 ) $ 2.76
$ 2.57
$ (0.57 ) $ 3.68
Common Shares used in basic EPS calculation 60.1
59.8
59.2
58.4
59.4
Diluted income (loss) per Common Share:
Income (loss) from continuing operations $ (0.97 ) $ 2.55
$ 2.41
$ (0.72 ) $ 3.29
Income (loss) from discontinued operations, net of tax (0.12 ) 0.18
0.12
0.15
0.34
Diluted net income (loss) per Common Share $ (1.09 ) $ 2.73
$ 2.53
$ (0.57 ) $ 3.63
Common Shares and dilutive potential Common Shares used in diluted EPS calculation 60.1
60.6
60.0
58.4
60.2
FISCAL 2016
Net sales $ 153.0
$ 1,117.2
$ 887.1
$ 348.7
$ 2,506.2
Gross profit 7.9
476.1
324.0
92.2
900.3
Income (loss) from continuing operations (73.4 ) 213.2
117.7
(11.3 ) 246.1
Income (loss) from discontinued operations, net of tax (7.4 ) (3.4 ) 95.0
(15.6 ) 68.7
Net income (loss) (80.8 ) 209.8
212.7
(26.9 ) 314.8
Net income (loss) attributable to controlling interest (81.3 ) 210.1
213.1
(26.6 ) 315.3
Basic income (loss) per Common Share:
Income (loss) from continuing operations $ (1.20 ) $ 3.48
$ 1.93
$ (0.18 ) $ 4.04
Income (loss) from discontinued operations (0.12 ) (0.06 ) 1.56
(0.26 ) 1.12
Basic net income (loss) per Common Share $ (1.32 ) $ 3.42
$ 3.49
$ (0.44 ) $ 5.16
Common Shares used in basic EPS calculation 61.5
61.4
61.1
60.6
61.1
Diluted income (loss) per Common Share:
Income (loss) from continuing operations $ (1.20 ) $ 3.43
$ 1.91
$ (0.18 ) $ 3.98
Income (loss) from discontinued operations (0.12 ) (0.05 ) 1.53
(0.26 ) 1.11
Diluted net income (loss) per Common Share $ (1.32 ) $ 3.38
$ 3.44
$ (0.44 ) $ 5.09
Common Shares and dilutive potential Common Shares used in diluted EPS calculation 61.5
62.2
61.9
60.6
62.0

~~The sum of the quarters may not equal full year due to rounding.~~

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Common share equivalents, such as share-based awards, are excluded from the diluted loss per Common Share calculation in periods where there is a loss from continuing operations because the effect of their inclusion would be anti-dilutive. The Company’s business is highly seasonal, with in excess of ~~75%~~ ~~of net sales occurring in the second and third fiscal quarters.~~

Significant impairment, restructuring and other charges / recoveries reflected in the quarterly financial information during fiscal 2017 are as follows: first quarter restructuring costs of $2.0 million from discontinued operations including $0.6 million in transaction related costs associated with the divestiture of the SLS Business and $1.4 million in transaction related costs associated with the sale of the International Business; second quarter restructuring costs of $3.4 million from discontinued operations including $0.1 million in transaction related costs associated with the divestiture of the SLS Business and $3.3 million in transaction related costs associated with the sale of the International Business; third quarter restructuring costs of $4.2 million from discontinued operations including $0.1 million in transaction related costs associated with the divestiture of the SLS Business and $4.1 million in transaction related costs associated with the sale of the International Business; and fourth quarter restructuring costs of $11.2 million including costs of $8.3 million from continuing operations and recoveries of $0.4 million from discontinued operations related to termination benefits and facility closure costs associated with Project Focus, recovery of $4.4 million from continuing operations related to the reduction of a contingent consideration liability associated with a historical acquisition, an impairment charge of $1.0 million from continuing operations on the write-off of a trademark asset due to recent performance and future growth expectations, and costs of $6.7 million from discontinued operations for transaction related costs associated with the sale of the International Business.

Significant impairment, restructuring and other charges / recoveries reflected in the quarterly financial information during fiscal 2016 are as follows: first quarter restructuring costs of $9.3 million including costs of $5.4 million from continuing operations related to consumer complaints and claims related to the reformulated Bonus^® S fertilizer product sold in the southeastern United States during fiscal 2015, costs of $3.0 million from discontinued operations in transaction related costs associated with the divestiture of the SLS Business and costs of $0.9 million from discontinued operations in transaction related costs associated with the sale of the International Business; second quarter net recoveries of $36.7 million including net insurance reimbursement recoveries of $49.0 million from continuing operations related to Bonus^® S insurance reimbursements, a charge of $9.0 million from discontinued operations for the resolution of a prior SLS Business litigation matter, $1.6 million from discontinued operations in transaction related costs associated with the divestiture of the SLS Business and costs of $1.7 million from discontinued operations in transaction related costs associated with the sale of the International Business; third quarter net recoveries of $6.0 million including net insurance reimbursement recoveries of $5.4 million from continuing operations related to Bonus^® S insurance reimbursements, recoveries of $0.3 million from discontinued operations in transaction related costs associated with the sale of the International Business, and recoveries of $0.3 million from continuing operations in net recoveries related to termination benefits and facility closure costs associated with Project Focus; and fourth quarter restructuring costs of $7.5 million including net recoveries of $0.5 million from continuing operations related to Bonus^® S insurance reimbursements, costs of $0.2 million from discontinued operations in transaction related costs associated with the sale of the International Business, and costs of $4.2 million from continuing operations and $3.6 million from discontinued operations related to termination benefits and facility closure costs associated with Project Focus.

~~NOTE 24. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS~~

The 6.000% and 5.250% Senior Notes were issued on October 13, 2015 and December 15, 2016, respectively, and are guaranteed by certain of the Company’s domestic subsidiaries and, therefore, the Company reports condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, ~~Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered~~. On January 15, 2014 and December 15, 2015, Scotts Miracle-Gro redeemed, respectively, all of its outstanding $200.0 million aggregate principal amount of 7.25% Senior Notes and $200.0 million aggregate principal amount of 6.625% Senior Notes, each of which were previously guaranteed by certain of its domestic subsidiaries. The guarantees are “full and unconditional,” as those terms are used in Regulation S-X Rule 3-10, except that a subsidiary’s guarantee will be released in certain customary circumstances, such as (1) upon any sale or other disposition of all or substantially all of the assets of the subsidiary (including by way of merger or consolidation) to any person other than Scotts Miracle-Gro or any “restricted subsidiary” under the indentures governing the 6.000% and 5.250% Senior Notes; (2) if the subsidiary merges with and into Scotts Miracle-Gro, with Scotts Miracle-Gro surviving such merger; (3) if the subsidiary is designated an “unrestricted subsidiary” in accordance with the indentures governing the 6.000% and 5.250% Senior Notes or otherwise ceases to be a “restricted subsidiary” (including by way of liquidation or dissolution) in a transaction permitted by such indenture; (4) upon legal or covenant defeasance; (5) at the election of Scotts Miracle-Gro following the subsidiary’s release as a guarantor under the new credit agreement, except a release by or as a result of the repayment of the new credit agreement; or (6) if the subsidiary ceases to be a “restricted subsidiary” and the subsidiary is not otherwise required to provide a guarantee of the 6.000% and 5.250% Senior Notes pursuant to the indentures governing the 6.000% and 5.250% Senior Notes.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following 100% directly or indirectly owned subsidiaries fully and unconditionally guarantee at September 30, 2017 the 6.000% and 5.250% Senior Notes on a joint and several basis: Gutwein & Co., Inc.; Hyponex Corporation; Miracle-Gro Lawn Products, Inc.; OMS Investments, Inc.; Rod McLellan Company; Sanford Scientific, Inc.; Scotts Temecula Operations, LLC; Scotts Manufacturing Company; Scotts Products Co.; Scotts Professional Products Co.; Scotts-Sierra Investments LLC; SMG Growing Media, Inc.; Swiss Farms Products, Inc.; SMGM LLC; The Scotts Company LLC; The Hawthorne Gardening Company; Hawthorne Hydroponics LLC; HGCI, Inc.; GenSource, Inc.; and SLS Holdings, Inc. (collectively, the “Guarantors”). Effective in the three-month period ending July 1, 2017, American Agritech, L.L.C. was merged into Hawthorne Hydroponics LLC, and has been classified as a Guarantor for all periods presented. Effective in the three-month period ending July 2, 2016, the SLS Business was contributed to the TruGreen Joint Venture and the Company classified its results of operations for all periods presented to reflect the SLS Business as a discontinued operation and classified the assets and liabilities as held for sale within the financial information of the Guarantors. Subsequent to their contribution to the TruGreen Joint Venture, EG Systems, LLC (formerly known as EG Systems, Inc.) and SLS Franchise Systems LLC are no longer Guarantors of the 6.000% Senior Notes. SLS Holdings, Inc. was added as a Guarantor effective in the three-month period ending July 2, 2016, and HGCI, Inc. and GenSource, Inc. were added as Guarantors effective in the three-month period ending January 2, 2016, and have been classified as Guarantors for all periods presented. SLS Holdings, Inc., HGCI, Inc. and GenSource, Inc. did not have any activity for fiscal 2016.

The following information presents Condensed Consolidating Statements of Operations for each of the three years ended September 30, 2017, 2016 and 2015, Condensed Consolidating Statements of Comprehensive Income (Loss) for each of the three years ended September 30, 2017, 2016 and 2015, Condensed Consolidating Statements of Cash Flows for each of the three years ended September 30, 2017, 2016 and 2015, and Condensed Consolidating Balance Sheets as of September 30, 2017 and 2016. The condensed consolidating financial information presents, in separate columns, financial information for: Scotts Miracle-Gro on a Parent-only basis, carrying its investment in subsidiaries under the equity method; Guarantors on a combined basis, carrying their investments in subsidiaries which do not guarantee the debt (collectively, the “Non-Guarantors”) under the equity method; Non-Guarantors on a combined basis; and eliminating entries. The eliminating entries primarily reflect intercompany transactions, such as interest expense, accounts receivable and payable, short and long-term debt, and the elimination of equity investments, return on investments and income in subsidiaries. Because the Parent is obligated to pay the unpaid principal amount and interest on all amounts borrowed by the Guarantors or Non-Guarantors under the credit facility (and was obligated to pay the unpaid principal amount and interest on all amounts borrowed by the Guarantors and Non-Guarantors under the previous senior secured five-year revolving loan facility), the borrowings and related interest expense for the loans outstanding of the Guarantors and Non-Guarantors are also presented in the accompanying Parent-only financial information, and are then eliminated. Included in the Parent Condensed Consolidating Statement of Cash Flows for fiscal 2017 and fiscal 2016 are $909.4 million and $934.4 million, respectively, of dividends paid by the Guarantors and Non-Guarantors to the Parent representing return of investments and as such are classified within cash flows from investing activities. Included in the Parent Condensed Consolidating Statements of Cash Flows for fiscal 2015 are $255.5 million of dividends paid by the Guarantors and Non-Guarantors to the Parent representing return on investments and as such are classified within cash flows from operating activities.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Operations~~

~~for the fiscal year ended~~ ~~September 30, 2017~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors

Eliminations/
Consolidations
Consolidated
Net sales $ —
$ 2,308.4
$ 333.7
$ —
$ 2,642.1
Cost of sales —
1,415.8
253.7
—
1,669.5
Gross profit —
892.6
80.0
—
972.6
Operating expenses:
Selling, general and administrative —
480.4
69.1
1.4
550.9
Impairment, restructuring and other —
4.5
0.4
—
4.9
Other (income) loss, net (0.8 ) (14.2 ) (1.6 ) —
(16.6 )
Income (loss) from operations 0.8
421.9
12.1
(1.4 ) 433.4
Equity (income) loss in subsidiaries (250.4 ) (15.5 ) —
265.9
—
Other non-operating (income) loss (20.7 ) —
(21.4 ) 42.1
—
Equity in (income) loss of unconsolidated affiliates —
29.8
(0.8 ) —
29.0
Interest expense 70.1
43.8
4.3
(42.1 ) 76.1
Other non-operating expense —
—
13.4
—
13.4
Income (loss) from continuing operations before income taxes 201.8
363.8
16.6
(267.3 ) 314.9
Income tax (benefit) expense from continuing operations (18.0 ) 128.5
6.1
—
116.6
Income (loss) from continuing operations 219.8
235.3
10.5
(267.3 ) 198.3
Income from discontinued operations, net of tax —
(0.7 ) 21.2
—
20.5
Net income (loss) $ 219.8
$ 234.6
$ 31.7
$ (267.3 ) $ 218.8
Net (income) loss attributable to noncontrolling interest —
—
—
(0.5 ) (0.5 )
Net income (loss) attributable to controlling interest $ 219.8
$ 234.6
$ 31.7
$ (267.8 ) $ 218.3

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Comprehensive Income (Loss)~~

~~for the twelve months ended September 30, 2017~~

~~(In millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
Net income (loss) $ 219.8
$ 234.6
$ 31.7
$ (267.3 ) $ 218.8
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment 28.2
—
28.2
(28.2 ) 28.2
Net change in derivatives 6.7
2.8
—
(2.8 ) 6.7
Net change in pension and other post-retirement benefits 13.2
3.7
9.5
(13.2 ) 13.2
Total other comprehensive income (loss) 48.1
6.5
37.7
(44.2 ) 48.1
Comprehensive income (loss) $ 267.9
$ 241.1
$ 69.4
$ (311.5 ) $ 266.9
Comprehensive (income) loss attributable to noncontrolling interest —
—
—
(0.9 ) (0.9 )
Comprehensive income attributable to controlling interest $ 267.9
$ 241.1
$ 69.4
$ (312.4 ) $ 266.0

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Cash Flows~~

~~for the fiscal year ended~~ ~~September 30, 2017~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES^(a)
$ (48.3 ) $ 462.2
$ (16.1 ) $ (43.8 ) $ 354.0
INVESTING ACTIVITIES^(a)

Proceeds from sale of long-lived assets —
5.6
0.1
—
5.7
Proceeds from sale of business, net of cash disposed of —
178.6
1.7
—
180.3
Investments in property, plant and equipment —
(59.5 ) (10.1 ) —
(69.6 )
Investments in loans receivable —
(29.7 ) —
—
(29.7 )
Net distributions from (investments in) unconsolidated affiliates —
87.1
(29.7 ) —
57.4
Investments in acquired businesses, net of cash acquired —
(112.5 ) (9.2 ) —
(121.7 )
Return of investments from affiliates 909.4
32.4
—
(941.8 ) —
Investing cash flows from (to) affiliates (759.9 ) (208.6 ) —
968.5
—
Net cash provided by (used in) investing activities 149.5
(106.6 ) (47.2 ) 26.7
22.4
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans —
1,196.1
253.2
—
1,449.3
Repayments under revolving and bank lines of credit and term loans —
(1,319.6 ) (298.7 ) —
(1,618.3 )
Proceeds from issuance of 5.250% Senior Notes 250.0
—
—
—
250.0
Financing and issuance fees (3.8 ) (0.6 ) —
—
(4.4 )
Dividends paid (120.3 ) (909.4 ) (43.8 ) 953.2
(120.3 )
Distribution paid by AeroGrow to noncontrolling interest —
—
(40.5 ) 32.4
(8.1 )
Purchase of Common Shares (246.0 ) —
—
—
(246.0 )
Payments on seller notes —
(15.5 ) (13.2 ) —
(28.7 )
Excess tax benefits from share-based payment arrangements 7.9
—
—
—
7.9
Cash received from exercise of stock options 11.0
—
—
—
11.0
Financing cash flows from (to) affiliates —
730.5
238.0
(968.5 ) —
Net cash provided by (used in) financing activities (101.2 ) (318.5 ) 95.0
17.1
(307.6 )
Effect of exchange rate changes on cash —
—
1.6
—
1.6
Net increase (decrease) in cash and cash equivalents —
37.1
33.3
—
70.4
Cash and cash equivalents at beginning of year excluding cash classified within assets held for sale —
2.7
25.9
—
28.6
Cash and cash equivalents at beginning of year classified within assets held for sale —
—
21.5
—
21.5
Cash and cash equivalents at beginning of year —
2.7
47.4
—
50.1
Cash and cash equivalents at end of year $ —
$ 39.8
$ 80.7
$ —
$ 120.5

~~(a)~~

Cash received by the Parent from the Guarantors and Non-Guarantors in the form of dividends in the amount of $909.4 million represent return of investments and are included in cash flows from investing activities. Cash received by the Parent from the Guarantors and Non-Guarantors in the form of dividends in the amount of $28.8 million represent return on investments and are included in cash flows from operating activities. Cash received by the Guarantors from the Non-Guarantors in the form of distributions in the amount of $32.4 million represent return of investments and are included in cash flows from investing activities. Cash received by the Guarantors from the Non-Guarantors in the form of dividends in the amount of $15.0 million represent return on investments and are included in cash flows from operating activities.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Balance Sheet~~

~~As of~~ ~~September 30, 2017~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ —
$ 39.8
$ 80.7
$ —
$ 120.5
Accounts receivable, net —
137.6
60.1
—
197.7
Accounts receivable pledged —
88.9
—
—
88.9
Inventories —
314.0
93.5
—
407.5
Prepaid and other current assets 1.3
43.4
22.4
—
67.1
Total current assets 1.3
623.7
256.7
—
881.7
Investment in unconsolidated affiliates —
—
31.1
—
31.1
Property, plant and equipment, net —
406.4
61.3
—
467.7
Goodwill —
320.7
109.3
11.6
441.6
Intangible assets, net —
606.3
133.8
8.8
748.9
Other assets 8.1
158.3
9.6
—
176.0
Equity investment in subsidiaries 1,112.8
—
—
(1,112.8 ) —
Intercompany assets 759.7
—
—
(759.7 ) —
Total assets $ 1,881.9
$ 2,115.4
$ 601.8
$ (1,852.1 ) $ 2,747.0
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt $ 15.0
$ 97.8
$ 45.3
$ (15.0 ) $ 143.1
Accounts payable —
124.9
28.2
—
153.1
Other current liabilities 17.1
191.5
39.7
—
248.3
Total current liabilities 32.1
414.2
113.2
(15.0 ) 544.5
Long-term debt 1,200.7
508.6
108.0
(559.3 ) 1,258.0
Distributions in excess of investment in unconsolidated affiliate —
21.9
—
—
21.9
Other liabilities 0.3
197.4
58.2
5.0
260.9
Equity investment in subsidiaries —
82.6
—
(82.6 ) —
Intercompany liabilities —
17.1
152.7
(169.8 ) —
Total liabilities 1,233.1
1,241.8
432.1
(821.7 ) 2,085.3
Total equity—controlling interest 648.8
873.6
169.7
(1,043.3 ) 648.8
Noncontrolling interest —
—
—
12.9
12.9
Total equity 648.8
873.6
169.7
(1,030.4 ) 661.7
Total liabilities and equity $ 1,881.9
$ 2,115.4
$ 601.8
$ (1,852.1 ) $ 2,747.0

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Operations~~

~~for the fiscal year ended~~ ~~September 30, 2016~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
Net sales $ —
$ 2,285.6
$ 220.6
$ —
$ 2,506.2
Cost of sales —
1,434.7
165.3
—
1,600.0
Cost of sales—impairment, restructuring and other —
5.9
—
—
5.9
Gross profit —
845.0
55.3
—
900.3
Operating expenses:
Selling, general and administrative —
461.8
54.7
1.5
518.0
Impairment, restructuring and other —
(49.8 ) (1.7 ) —
(51.5 )
Other (income) loss, net (0.5 ) (12.8 ) (0.5 ) —
(13.8 )
Income (loss) from operations 0.5
445.8
2.8
(1.5 ) 447.6
Equity (income) loss in subsidiaries (348.2 ) (8.4 ) —
356.6
—
Other non-operating (income) loss (22.0 ) —
(22.4 ) 44.4
—
Equity in (income) loss of unconsolidated affiliates —
(7.9 ) 0.1
—
(7.8 )
Costs related to refinancing 8.8
—
—
—
8.8
Interest expense 62.1
43.6
1.6
(44.4 ) 62.9
Income (loss) from continuing operations before income taxes 299.8
418.5
23.5
(358.1 ) 383.7
Income tax (benefit) expense from continuing operations (17.2 ) 146.1
8.7
—
137.6
Income (loss) from continuing operations 317.0
272.4
14.8
(358.1 ) 246.1
Income from discontinued operations, net of tax —
66.3
2.4
—
68.7
Net income (loss) $ 317.0
$ 338.7
$ 17.2
$ (358.1 ) $ 314.8
Net (income) loss attributable to noncontrolling interest —
—
—
0.5
0.5
Net income (loss) attributable to controlling interest $ 317.0
$ 338.7
$ 17.2
$ (357.6 ) $ 315.3

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Comprehensive Income (Loss)~~

~~for the~~ ~~twelve months endedSeptember 30, 2016~~

~~(In millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
Net income (loss) $ 317.0
$ 338.7
$ 17.2
$ (358.1 ) $ 314.8
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment (6.2 ) —
(6.2 ) 6.2
(6.2 )
Net change in derivatives 4.3
0.3
—
(0.3 ) 4.3
Net change in pension and other post-retirement benefits (8.2 ) 0.4
(8.6 ) 8.2
(8.2 )
Total other comprehensive income (loss) (10.1 ) 0.7
(14.8 ) 14.1
(10.1 )
Comprehensive income (loss) $ 306.9
$ 339.4
$ 2.4
$ (344.0 ) $ 304.7
Comprehensive (income) loss attributable to noncontrolling interest —
—
—
0.5
0.5
Comprehensive income attributable to controlling interest $ 306.9
$ 339.4
$ 2.4
$ (343.5 ) $ 305.2

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Cash Flows~~

~~for the fiscal year ended~~ ~~September 30, 2016~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES^(a)
$ 18.0
$ 212.8
$ 10.2
$ (3.6 ) $ 237.4
INVESTING ACTIVITIES^(a)

Proceeds from sale of long-lived assets —
2.4
—
—
2.4
Investments in property, plant and equipment —
(49.0 ) (9.3 ) —
(58.3 )
Investments in loans receivable —
(90.0 ) —
—
(90.0 )
Cash contributed to TruGreen Joint Venture —
(24.2 ) —
—
(24.2 )
Net distributions from (investments in) unconsolidated affiliates —
194.1
—
—
194.1
Investments in acquired businesses, net of cash acquired —
—
(158.4 ) —
(158.4 )
Return of investments from affiliates 934.3
—
—
(934.3 ) —
Investing cash flows from (to) affiliates (914.2 ) (29.1 ) —
943.3
—
Net cash provided by (used in) investing activities 20.1
4.2
(167.7 ) 9.0
(134.4 )
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans —
1,819.5
249.6
—
2,069.1
Repayments under revolving and bank lines of credit and term loans —
(1,937.7 ) (212.7 ) —
(2,150.4 )
Proceeds from issuance of 6.000% Senior Notes 400.0
—
—
—
400.0
Repayment of 6.625% Senior Notes (200.0 ) —
—
—
(200.0 )
Financing and issuance fees (11.2 ) —
—
—
(11.2 )
Dividends paid (116.6 ) (909.4 ) (26.5 ) 935.9
(116.6 )
Purchase of Common Shares (130.8 ) —
—
—
(130.8 )
Payments on seller notes —
(2.3 ) (0.5 ) —
(2.8 )
Excess tax benefits from share-based payment arrangements 5.8
—
—
—
5.8
Cash received from exercise of stock options 14.7
—
—
—
14.7
Financing cash flows from (to) affiliates —
808.2
133.1
(941.3 ) —
Net cash provided by (used in) financing activities (38.1 ) (221.7 ) 143.0
(5.4 ) (122.2 )
Effect of exchange rate changes on cash —
—
(2.1 ) —
(2.1 )
Net increase (decrease) in cash and cash equivalents —
(4.7 ) (16.6 ) —
(21.3 )
Cash and cash equivalents at beginning of year excluding cash classified within assets held for sale —
7.4
43.4
—
50.8
Cash and cash equivalents at beginning of year classified within assets held for sale —
—
20.6
—
20.6
Cash and cash equivalents at beginning of year —
7.4
64.0
—
71.4
Cash and cash equivalents at end of year $ —
$ 2.7
$ 47.4
$ —
$ 50.1

~~(a)~~

Cash received by the Parent from the Guarantors and the Non-Guarantors in the form of distributions in the amount of $934.4 million represent return of investments and are included in cash flows from investing activities. Cash received by the Guarantors from the Non-Guarantors in the form of dividends in the amount of $1.5 million represent return on investments and are included in the cash flows from operating activities.

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Balance Sheet~~

~~As of September 30, 2016~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ —
$ 2.7
$ 25.9
$ —
$ 28.6
Accounts receivable, net —
92.4
34.6
—
127.0
Accounts receivable, pledged —
174.7
—
—
174.7
Inventories —
327.8
66.9
—
394.7
Assets held for sale —
—
256.2
—
256.2
Prepaid and other current assets 0.1
23.1
28.5
—
51.7
Total current assets 0.1
620.7
412.1
—
1,032.9
Investment in unconsolidated affiliates —
100.3
0.7
—
101.0
Property, plant and equipment, net —
392.1
52.8
—
444.9
Goodwill —
260.4
99.9
11.6
371.9
Intangible assets, net —
560.2
119.6
10.2
690.0
Other assets 13.2
103.8
0.6
(2.5 ) 115.1
Equity investment in subsidiaries 808.8
—
—
(808.8 ) —
Intercompany assets 1,013.0
—
—
(1,013.0 ) —
Total assets $ 1,835.1
$ 2,037.5
$ 685.7
$ (1,802.5 ) $ 2,755.8
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt $ 15.0
$ 154.2
$ 30.8
$ (15.0 ) $ 185.0
Accounts payable —
108.8
22.4
—
131.2
Liabilities held for sale —
—
213.0
—
213.0
Other current liabilities 16.6
143.3
18.0
—
177.9
Total current liabilities 31.6
406.3
284.2
(15.0 ) 707.1
Long-term debt 1,085.1
575.7
23.0
(652.9 ) 1,030.9
Other liabilities 3.2
221.9
56.0
2.4
283.5
Equity investment in subsidiaries —
161.0
—
(161.0 ) —
Intercompany liabilities —
100.2
234.1
(334.3 ) —
Total liabilities 1,119.9
1,465.1
597.3
(1,160.8 ) 2,021.5
Total equity—controlling interest 715.2
572.4
88.4
(660.8 ) 715.2
Noncontrolling interest —
—
—
19.1
19.1
Total equity 715.2
572.4
88.4
(641.7 ) 734.3
Total liabilities and equity $ 1,835.1
$ 2,037.5
$ 685.7
$ (1,802.5 ) $ 2,755.8

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Operations~~

~~for the fiscal year ended~~ ~~September 30, 2015~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
Net sales $ —
$ 2,192.1
$ 179.0
$ —
$ 2,371.1
Cost of sales —
1,427.0
130.3
—
1,557.3
Cost of sales—impairment, restructuring and other —
3.1
(0.1 )

3.0
Gross profit —
762.0
48.8
—
810.8
Operating expenses:
Selling, general and administrative —
435.0
52.1
1.7
488.8
Impairment, restructuring and other —
69.6
0.8
—
70.4
Other (income) loss, net —
(3.2 ) 1.0
—
(2.2 )
Income (loss) from operations —
260.6
(5.1 ) (1.7 ) 253.8
Equity (income) loss in subsidiaries (179.2 ) (6.1 ) —
185.3
—
Other non-operating (income) loss (27.9 ) —
(23.5 ) 51.4
—
Interest expense 55.2
44.1
0.9
(51.4 ) 48.8
Income (loss) from continuing operations before income taxes 151.9
222.6
17.5
(187.0 ) 205.0
Income tax (benefit) expense from continuing operations (9.6 ) 79.3
6.6
—
76.3
Income (loss) from continuing operations 161.5
143.3
10.9
(187.0 ) 128.7
Income (loss) from discontinued operations, net of tax —
29.1
0.9
—
30.0
Net income (loss) $ 161.5
$ 172.4
$ 11.8
$ (187.0 ) $ 158.7
Net (income) loss attributable to noncontrolling interest —
—
—
1.1
1.1
Net income (loss) attributable to controlling interest $ 161.5
$ 172.4
$ 11.8
$ (185.9 ) $ 159.8

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Comprehensive Income (Loss)~~

~~for the~~ ~~twelve months endedSeptember 30, 2015~~

~~(In millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
Net income (loss) $ 161.5
$ 172.4
$ 11.8
$ (187.0 ) $ 158.7
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment (14.2 ) —
(14.2 ) 14.2
(14.2 )
Net change in derivatives (2.1 ) (0.8 ) —
0.8
(2.1 )
Net change in pension and other post-retirement benefits (4.3 ) (5.4 ) 1.1
4.3
(4.3 )
Total other comprehensive income (loss) (20.6 ) (6.2 ) (13.1 ) 19.3
(20.6 )
Comprehensive income (loss) $ 140.9
$ 166.2
$ (1.3 ) $ (167.7 ) $ 138.1
Comprehensive (income) loss attributable to noncontrolling interest —
—
—
1.1
1.1
Comprehensive income attributable to controlling interest $ 140.9
$ 166.2
$ (1.3 ) $ (166.6 ) $ 139.2

~~THE SCOTTS MIRACLE-GRO COMPANY~~

~~Condensed, Consolidating Statement of Cash Flows~~

~~for the fiscal year ended~~ ~~September 30, 2015~~

~~(in millions)~~

Parent
Subsidiary
Guarantors

Non-
Guarantors
Eliminations/
Consolidations Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES^(a)
$ 239.4
$ 249.3
$ 39.5
$ (281.3 ) $ 246.9
INVESTING ACTIVITIES^(a)

Proceeds from sale of long-lived assets —
5.5
—
—
5.5
Proceeds from sale of business, net of transaction costs —
—
—
—
—
Investments in property, plant and equipment —
(56.6 ) (5.1 ) —
(61.7 )
Investment in marketing and license agreement —
(300.0 ) —
—
(300.0 )
Investments in acquired businesses, net of cash acquired —
(170.8 ) (9.4 ) —
(180.2 )
Investing cash flows from (to) affiliates (141.9 ) —
—
141.9
—
Net cash provided by (used in) investing activities (141.9 ) (521.9 ) (14.5 ) 141.9
(536.4 )
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans —
1,568.1
267.9
—
1,836.0
Repayments under revolving and bank lines of credit and term loans —
(1,284.1 ) (173.9 ) —
(1,458.0 )
Financing and issuance fees (0.4 ) (0.1 ) —
—
(0.5 )
Dividends paid (111.3 ) (255.5 ) (25.8 ) 281.3
(111.3 )
Purchase of Common Shares (14.8 ) —
—
—
(14.8 )
Payments on seller notes —
(1.5 ) —
—
(1.5 )
Excess tax benefits from share-based payment arrangements 4.7
—
—
—
4.7
Cash received from exercise of stock options 24.3
—
—
—
24.3
Financing cash flows from (to) affiliates —
230.0
(88.1 ) (141.9 ) —
Net cash provided by (used in) financing activities (97.5 ) 256.9
(19.9 ) 139.4
278.9
Effect of exchange rate changes on cash —
—
(7.3 ) —
(7.3 )
Net increase (decrease) in cash and cash equivalents —
(15.7 ) (2.2 ) —
(17.9 )
Cash and cash equivalents at beginning of year excluding cash classified within assets held for sale —
23.1
41.8
—
64.9
Cash and cash equivalents at beginning of year classified within assets held for sale —
—
24.4
—
24.4
Cash and cash equivalents at beginning of year —
23.1
66.2
—
89.3
Cash and cash equivalents at end of year $ —
$ 7.4
$ 64.0
$ —
$ 71.4

~~(a)~~

Cash received by the Parent from the Guarantors in the form of dividends in the amount of $255.5 million represent return on investments and are included in cash flows from operating activities. Cash received by the Guarantors from the Non-Guarantors in the form of dividends in the amount of $25.8 million represent return on investments and are included in the cash flows from operating activities.

Schedule II—Valuation and Qualifying Accounts

for the fiscal year ended September 30, ~~2017~~2022


Column A	Column B		Column C		Column D		Column E		Column F
Classification	Balance at Beginning of Period		Reserves Acquired		Additions Charged to Expense		Deductions Credited and Write-Offs		Balance at End of Period
	(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts	$	16.8	$	—	$	5.8	$	(8.2)	$	14.4
Income tax valuation allowance	32.3		—		9.0		(0.6)		40.7

Column A Column B Column C Column D Column E Column F
Classification
Balance
at
Beginning
of Period

Reserves
Acquired

Additions
Charged
to
Expense

Deductions
Credited
and
Write-Offs

Balance
at End of
Period
(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts $ 4.8
$ —
$ 1.0
$ (2.7 ) $ 3.1
Income tax valuation allowance 4.1
—
25.6
—
29.7

Schedule II—Valuation and Qualifying Accounts

for the fiscal year ended September 30, ~~2016~~2021


Column A	Column B		Column C		Column D		Column E		Column F
Classification	Balance at Beginning of Period		Reserves Acquired		Additions Charged to Expense		Deductions Credited and Write-Offs		Balance at End of Period
	(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts	$	7.5	$	—	$	11.1	$	(1.8)	$	16.8
Income tax valuation allowance	33.8		—		3.0		(4.5)		32.3

Column A Column B Column C Column D Column E Column F
Classification
Balance
at
Beginning
of Period

Reserves
Acquired

Additions
Charged
to
Expense

Deductions
Credited
and
Write-Offs

Balance
at End of
Period
(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts $ 5.1
$ —
$ 0.1
$ (0.4 ) $ 4.8
Income tax valuation allowance 4.3
—
0.3
(0.5 ) 4.1

Schedule II—Valuation and Qualifying Accounts

for the fiscal year ended September 30, ~~2015~~2020


Column A	Column B		Column C		Column D		Column E		Column F
Classification	Balance at Beginning of Period		Reserves Acquired		Additions Charged to Expense		Deductions Credited and Write-Offs		Balance at End of Period
	(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts	$	4.2	$	—	$	7.2	$	(3.9)	$	7.5
Income tax valuation allowance	35.8		—		0.5		(2.5)		33.8

108

Column A Column B Column C Column D Column E Column F
Classification
Balance
at
Beginning
of Period

Reserves
Acquired

Additions
Charged
to
Expense

Deductions
Credited
and
Write-Offs

Balance
at End of
Period
(In millions)
Valuation and qualifying accounts deducted from the assets to which they apply:
Allowance for doubtful accounts $ 4.4
$ —
$ 0.7
$ —
$ 5.1
Income tax valuation allowance 4.0
—
0.8
(0.5 ) 4.3

Table of Contents

The Scotts Miracle-Gro Company

Index to Exhibits

Incorporated by Reference

Exhibit
No.

Description

Form

Exhibit

Filing Date

Filed Herewith

3.1(a)

Initial Articles of Incorporation of The Scotts Miracle-Gro Company as filed with the Ohio Secretary of State on November 22, 2004

8-K

3.1

March 24, 2005

3.1(b)

Certificate of Amendment by Shareholders to Articles of Incorporation of The Scotts Miracle-Gro Company as filed with the Ohio Secretary of State on March 18, 2005

8-K

3.2

March 24, 2005

3.2

Code of Regulations of The Scotts Miracle-Gro Company

8-K

3.3

March 24, 2005

4.1(a)

Indenture, dated as of December 15, 2016, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

8-K

4.1

December 16, 2016

4.1(b)

First Supplemental Indenture, dated July 17, 2018, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

10.4

August 8, 2018

4.1(c)

Second Supplemental Indenture, dated March 24, 2020, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.2

May 6, 2020

4.1(d)

Third Supplemental Indenture, dated March 29, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.2

May 12, 2021

4.1(e)

Fourth Supplemental Indenture, dated June 24, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.1

August 11, 2021

4.1(f)

Form of 5.250% Senior Notes due 2026 (included in Exhibit 4.1)

8-K

4.2

December 16, 2016

4.2(a)

Indenture, dated as of October 22, 2019, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

8-K

4.1

October 28, 2019

4.2(b)

First Supplemental Indenture, dated March 24, 2020, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.1

May 6, 2020

4.2(c)

Second Supplemental Indenture, dated March 29, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.3

May 12, 2021

4.2(d)

Third Supplemental Indenture, dated June 24, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.2

August 11, 2021

4.2(e)

Form of 4.500% Senior Notes due 2029 (included in Exhibit 4.1)

8-K

4.2

October 28, 2019

4.3(a)

Indenture, dated as of March 17, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

8-K

4.1

March 17, 2021

4.3(b)

First Supplemental Indenture, dated as of June 24, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

10-Q

4.3

August 11, 2021

4.3(c)

Form of 4.000% Senior Notes due 2031 (included in Exhibit 4.1)

8-K

4.2

March 17, 2021

4.4(a)

Indenture, dated as of August 13, 2021, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee

8-K

4.1

August 13, 2021

4.4(b)

Form of 4.375% Senior Notes due 2032 (included in Exhibit 4.1)

8-K

4.2

August 13, 2021

4.5

Agreement to furnish copies of instruments and agreements defining rights of holders of long-term debt

109

Table of Contents

Incorporated by Reference

Exhibit
No.

Description

Form

Exhibit

Filing Date

Filed Herewith

4.6

Description of Capital Stock

10-K

4.4

November 27, 2019

10.1(a)(i)

Sixth Amended and Restated Credit Agreement, dated as of April 8, 2022, by and among The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as Administrative Agent; Wells Fargo Bank, National Association, Mizuho Bank, Ltd. and Bank of America, N.A., as Co-Syndication Agents; CoBank, ACB, Fifth Third Bank, National Association, Coöperatieve Rabobank U.A., New York Branch, Sumitomo Mitsui Banking Corporation, TD Bank N.A. and Truist Bank, as Co-Documentation Agents; and the several other banks and other financial institutions from time to time parties thereto

8-K

10.1

April 14, 2022

10.1(a)(ii)

Amendment No. 1, dated June 8, 2022, to Sixth Amended and Restated Credit Agreement, dated as of April 8, 2022, by and among The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as Administrative Agent; Wells Fargo Bank, National Association, Mizuho Bank, Ltd. and Bank of America, N.A., as Co-Syndication Agents; CoBank, ACB, Fifth Third Bank, National Association, Coöperatieve Rabobank U.A., New York Branch, Sumitomo Mitsui Banking Corporation, TD Bank N.A. and Truist Bank, as Co-Documentation Agents; and the several other banks and other financial institutions from time to time parties thereto

8-K

10.1

June 8, 2022

10.1(b)

Sixth Amended and Restated Guarantee and Collateral Agreement, dated as of April 8, 2022, made by The Scotts Miracle-Gro Company, each domestic Subsidiary Borrower under the Sixth Amended and Restated Credit Agreement, and certain of its and their domestic subsidiaries, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent

8-K

10.2

April 14, 2022

10.2(a)†

The Scotts Miracle-Gro Company Long-Term Incentive Plan (reflects amendment and restatement of plan formerly known as The Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan) [January 17, 2013 through January 26, 2017 version]

8-K

10.1

January 24, 2013

10.2(b)†

Form of Nonqualified Stock Option Award Agreement for Employees used to evidence grants made under The Scotts Miracle-Gro Company Long-Term Incentive Plan [January 17, 2013 through January 26, 2017 version]

10-Q

10.7

May 7, 2015

10.3(a)†

The Scotts Miracle-Gro Company Long-Term Incentive Plan [January 27, 2017 through January 23, 2022 version]

8-K

10.1

January 30, 2017

10.3(b)†

Form of Standard Restricted Stock Unit Award Agreement which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan [January 27, 2017 through January 23, 2022 version]

8-K

10.4

January 30, 2017

10.3(c)†

Form of Standard Non-Qualified Stock Option Award Agreement which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

8-K

10.5

January 30, 2017

10.3(d)†

Form of Deferred Stock Unit Award Agreement for Nonemployee Directors Retainer Deferrals (with Related Dividend Equivalents) used to evidence grants which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10-K

10.3(g)

November 29, 2018

10.3(e)(i)†

Form of Restricted Stock Unit Award Agreement for Third Party Service-Providers (with Related Dividend Equivalents) which may be used to evidence grants made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10-K

10.3(h)(i)

November 29, 2018

10.3(e)(ii)†

Form of Standard Restricted Stock Unit Award Agreement for Nonemployee Directors (with Related Dividend Equivalents) used to evidence grants which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10-K

10.3(h)(iii)

November 24, 2020

10.4(a)†

The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective January 24, 2022)

8-K

10.1

January 27, 2022

10.4(b)†

Form of Standard Performance Unit Award Agreement which may be made under The Scotts Miracle-Gro Long-Term Incentive Plan

110

Table of Contents

Incorporated by Reference

Exhibit
No.

Description

Form

Exhibit

Filing Date

Filed Herewith

10.4(c)†

Form of Standard Restricted Stock Unit Award Agreement which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10-Q

10.2

February 9, 2022

10.5(a)†

The Scotts Company LLC Amended and Restated Executive Incentive Plan (effective as of October 1, 2019)

10-Q

August 5, 2020

10.5(b)†

Form of Employee Confidentiality, Noncompetition, Nonsolicitation Agreement for employees participating in The Scotts Company LLC Executive/Management Incentive Plan (now known as The Scotts Company LLC Amended and Restated Executive Incentive Plan)

10-Q

10.1

August 10, 2006

10.6†

The Scotts Company LLC Executive Retirement Plan, as Amended and Restated as of January 1, 2015 (executed December 31, 2014)

10-Q

10.2

February 5, 2015

10.7(a)†

Employee Confidentiality, Noncompetition, Nonsolicitation Agreement, dated as of December 12, 2013, by and between The Scotts Company LLC, all companies controlled by, controlling or under common control with The Scotts Company LLC, and James Hagedorn

8-K

10.2

December 17, 2013

10.7(b)†

Executive Severance Agreement, dated as of December 11, 2013, by and between The Scotts Company LLC and James Hagedorn

8-K

10.1

December 17, 2013

10.8†

Summary of Compensation for Nonemployee Directors of The Scotts Miracle-Gro Company (effective as of January 24, 2022)

10.9(a)†

Consulting Agreement, dated February 15, 2021, between The Scotts Company LLC and Hanft Ideas LLC

10-Q

10.3

May 12, 2021

10.9(b)†

Consulting Agreement, dated February 8, 2022, between The Scotts Company LLC and Hanft Ideas LLC

10-Q

10.2

May 11, 2022

10.10(a)†

The Scotts Company LLC Executive Severance Plan, adopted on April 25, 2017

10-Q

10.9

May 10, 2017

10.10(b)†

Form of Tier 1 Participation Agreement under The Scotts Company LLC Executive Severance Plan

10-Q

10.10

May 10, 2017

10.11

Third Amended and Restated Exclusive Agency and Marketing Agreement, entered into on July 29, 2019 and effective as of August 1, 2019, between Monsanto Company and The Scotts Company LLC

8-K

10.2

July 31, 2019

10.12

Brand Extension Agreement Asset Purchase Agreement, entered into on July 29, 2019 and effective as of August 1, 2019, between Monsanto Company and The Scotts Company LLC

8-K

10.4

July 31, 2019

10.13(a)

Master Repurchase Agreement, and Annex I thereto, with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of April 7, 2017

8-K

10.1

April 13, 2017

10.13(b)

Amendment No. 1 to Master Repurchase Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 24, 2018

8-K

10.1

August 24, 2018

10.13(c)

Amendment No. 2 to Master Repurchase Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 21, 2020

8-K

10.1

August 25, 2020

10.13(d)

Amendment No. 3 to Master Repurchase Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 20, 2021

8-K

10.1

August 20, 2021

10.13(e)

Amendment No. 4 to Master Repurchase Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 19, 2022

8-K

10.1

August 23, 2022

10.14(a)

Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of April 7, 2017

8-K

10.2

April 13, 2017

111

Table of Contents

Incorporated by Reference

Exhibit
No.

Description

Form

Exhibit

Filing Date

Filed Herewith

10.14(b)

Amendment No. 1 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 25, 2017

8-K

10.1

August 31, 2017

10.14(c)

Amendment No. 2 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 24, 2018

8-K

10.2

August 24, 2018

10.14(d)

Amendment No. 3 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 23, 2019

8-K

10.1

August 20, 2019

10.14(e)

Amendment No. 4 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 21, 2020

8-K

10.2

August 25, 2020

10.14(f)

Amendment No. 5 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 20, 2021

8-K

10.2

August 20, 2021

10.14(g)

Amendment No. 6 to Master Framework Agreement with Coöperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 19, 2022

8-K

10.2

August 23, 2022

10.15

Form of Aircraft Time Sharing Agreement for Executive Officers

10-Q

10.4

May 11, 2016

10.16†

Retention Agreement, dated August 22, 2018, by and between The Scotts Company LLC and Denise S. Stump

8-K

10.3

August 24, 2018

10.17†

Separation Agreement and Release of All Claims, effective as of January 22, 2021, by and between The Scotts Company LLC and Thomas Randal Coleman

8-K

10.1

January 28, 2021

10.18†

Separation Agreement and Release of All Claims, effective as of October 4, 2022, by and between The Scotts Company LLC and Cory J. Miller

8-K

10.1

October 4, 2022

Subsidiaries of The Scotts Miracle-Gro Company

Guarantor Subsidiaries

Consent of Independent Registered Public Accounting Firm — Deloitte & Touche LLP

Powers of Attorney of Executive Officers and Directors of The Scotts Miracle-Gro Company

31.1

Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)

31.2

Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)

Section 1350 Certifications (Principal Executive Officer and Principal Financial Officer)

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



~~Exhibit~~ ~~No.~~†			~~Description~~	~~Location~~
~~3.1(a)~~	~~Initial Articles of Incorporation of The Scotts Miracle-Gro Company as filed with the Ohio Secretary of State on November 22, 2004~~	~~Incorporated herein by reference to the Current Report on Form 8-K of The Scotts Miracle-Gro Company (the “Registrant”) filed March 24, 2005 [Exhibit 3.1]~~

~~3.1(b)~~	~~Certificate of Amendment by Shareholders to Articles of Incorporation of The Scotts Miracle-Gro Company as filed with the Ohio Secretary of State on March 18, 2005~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed March 24, 2005 [Exhibit 3.2]~~

~~3.2~~	~~Code of Regulations of The Scotts Miracle-Gro Company~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed March 24, 2005 [Exhibit 3.3]~~

~~4.1(a)~~	~~Indenture, dated as of October 13, 2015, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed October 14, 2015 [Exhibit 4.1]~~

~~4.1(b)~~	~~First Supplemental Indenture, dated May 26, 2016, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2016 filed August 10, 2016 [Exhibit 4]~~

~~4.1(c)~~	~~Form of 6.000% Senior Notes due 2023~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed October 14, 2015 [Exhibit 4.2]~~

~~4.2(a)~~	~~Indenture, dated as of December 15, 2016, by and among The Scotts Miracle-Gro Company, the Guarantors (as defined therein) and U.S. Bank National Association, as trustee~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed December 16, 2016 [Exhibit 4.1]~~

~~4.2(b)~~	~~Form of 5.250% Senior Notes due 2026~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed December 16, 2016 [Exhibit 4.2]~~

~~4.3~~	~~Agreement to furnish copies of instruments and agreements defining rights of holders of long-term debt~~	*

~~10.1(a)~~	Amended and Restated Agreement and Plan of Merger, dated as of May 19, 1995, among Stern’s Miracle-Gro Products, Inc., Stern’s Nurseries, Inc., Miracle-Gro Lawn Products Inc., Miracle-Gro Products Limited, Hagedorn Partnership, L.P., the general partners of Hagedorn Partnership, L.P., Horace Hagedorn, Community Funds, Inc., and John Kenlon, The Scotts Company and ZYX Corporation	~~Incorporated herein by reference to the Current Report on Form 8-K of The Scotts Company, a Delaware corporation, filed June 2, 1995 [Exhibit 2(b)]~~

~~10.1(b)~~	First Amendment to Amended and Restated Agreement and Plan of Merger, made and entered into as of October 1, 1999, among The Scotts Company, Scotts’ Miracle-Gro Products, Inc. (as successor to ZYX Corporation and Stern’s Miracle-Gro Products, Inc.), Miracle-Gro Lawn Products Inc., Miracle-Gro Products Limited, Hagedorn Partnership, L.P., Community Funds, Inc., Horace Hagedorn and John Kenlon, and James Hagedorn, Katherine Hagedorn Littlefield, Paul Hagedorn, Peter Hagedorn, Robert Hagedorn and Susan Hagedorn	~~Incorporated herein by reference to the Current Report on Form 8-K of The Scotts Company, an Ohio corporation, filed October 5, 1999 [Exhibit 2]~~



~~10.2(a)~~	Fourth Amended and Restated Credit Agreement, dated as of October 29, 2015, by and among The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as Administrative Agent; Bank of America, N.A. and Wells Fargo Bank, National Association, as Co- Syndication Agents; CoBank, ACB, Mizuho Bank, LTD., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland”, New York Branch, TD Bank N.A. and U.S. Bank National Association, as Co-Documentation Agents; and the several other banks and other financial institutions from time to time parties thereto	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed November 3, 2015 [Exhibit 10.1]~~

~~10.2(b)~~	Amendment No. 1, dated as of February 8, 2016, to Fourth Amended and Restated Credit Agreement dated October 29, 2015, by and among The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as Administrative Agent; Bank of America, N.A. and Wells Fargo Bank, National Association, as Co- Syndication Agents; CoBank, ACB, Mizuho Bank, LTD., Coöperatieve Rabobank U.S., New York Branch (formerly known as Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland”, New York Branch), TD Bank N.A. and U.S. Bank National Association, as Co-Documentation Agents; and the several other banks and other financial institutions from time to time parties thereto	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2016 filed February 11, 2016 [Exhibit 10.3]~~

~~10.2(c)~~	Amendment No. 2, dated as of June 28, 2017, to Fourth Amended and Restated Credit Agreement dated October 29, 2015, by and among The Scotts Miracle-Gro Company, as a Borrower; the Subsidiary Borrowers (as defined therein); JPMorgan Chase Bank, N.A., as Administrative Agent; Bank of America, N.A. and Wells Fargo Bank, National Association, as Co-Syndication Agents; CoBank, ACB, Mizuho Bank, LTD., Coöperatieve Rabobank U.S., New York Branch (formerly known as Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland”, New York Branch), TD Bank N.A. and U.S. Bank National Association, as Co-Documentation Agents; and the several other banks and other financial institutions from time to time parties thereto	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2017 filed August 10, 2017 [Exhibit 10.5]~~

~~10.2(d)~~	Fourth Amended and Restated Guarantee and Collateral Agreement, dated as of October 29, 2015, made by The Scotts Miracle-Gro Company, each domestic Subsidiary Borrower under the Fourth Amended and Restated Credit Agreement, and certain of its and their domestic subsidiaries, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed November 3, 2015 [Exhibit 10.2]~~

~~10.2(e)~~	Amendment No. 1, dated July 29, 2016, to Fourth Amended and Restated Guarantee and Collateral Agreement, dated as of October 29, 2015, made by The Scotts Miracle-Gro Company, each domestic Subsidiary Borrower under the Fourth Amended and Restated Credit Agreement, and certain of its and their domestic subsidiaries, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2016 filed August 10, 2016 [Exhibit 10]~~

~~10.3(a)†~~	The Scotts Miracle-Gro Company Long-Term Incentive Plan (reflects amendment and restatement of plan formerly known as The Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan) [effective as of January 17, 2013] [pre-January 27, 2017 version]	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 24, 2013 [Exhibit 10.1]~~



~~10.3(b)†~~	~~Specimen form of Deferred Stock Unit Award Agreement for Nonemployee Directors (with Related Dividend Equivalents) used to evidence grants under the Long-Term Incentive Plan~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.3]~~

~~10.3(c)†~~	Specimen form of Deferred Stock Unit Award Agreement for Nonemployee Directors Retainer Deferrals (with Related Dividend Equivalents) used to evidence grants which may be made under the Long-Term Incentive Plan	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.4]~~

~~10.3(d)(i)†~~	Specimen form of Restricted Stock Unit Award Agreement for Third Party Service-Providers (with Related Dividend Equivalents) used to evidence grants which may be made under the Long-Term Incentive Plan	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.5]~~

~~10.3(d)(ii)†~~	~~Specimen form of Restricted Stock Unit Award Agreement for Employees (with Related Dividend Equivalents) used to evidence grants which may be made under the Long-Term Incentive Plan~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.8]~~

~~10.3(e)†~~	~~Specimen form of Performance Unit Award Agreement for Employees (with Related Dividend Equivalents) used to evidence grants which may be made under the Long-Term Incentive Plan~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.6]~~

~~10.3(f)(i)†~~	Specimen form of Nonqualified Stock Option Award Agreement for Employees used to evidence grants of Nonqualified Stock Options made under The Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan (now known as The Scotts Miracle-Gro Company Long-Term Incentive Plan) [October 30, 2007 through October 8, 2008 version]	~~Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 filed November 29, 2007 [Exhibit 10(t)(3)]~~

~~10.3(f)(ii)†~~	Specimen form of Nonqualified Stock Option Award Agreement for Employees used to evidence grants of Nonqualified Stock Options made under The Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term Incentive Plan (now known as The Scotts Miracle-Gro Company Long-Term Incentive Plan) [January 20, 2010 through January 19, 2012 version]	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2010 filed February 11, 2010 [Exhibit 10.4]~~

~~10.3(f)(iii)†~~	Specimen form of Nonqualified Stock Option Award Agreement for Employees used to evidence grants of Nonqualified Stock Options made under The Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term Incentive Plan (now known as The Scotts Miracle-Gro Company Long-Term Incentive Plan) [January 20, 2012 through January 17, 2013 version]	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2011 filed February 8, 2012 [Exhibit 10.3]~~

~~10.3(f)(iv)†~~	~~Specimen form of Nonqualified Stock Option Award Agreement for Employees used to evidence grants which may be made under the Long-Term Incentive Plan [post-January 17, 2013 version]~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 filed May 7, 2015 [Exhibit 10.7]~~

~~10.4(a)†~~	~~The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective as of January 27, 2017)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 30, 2017 [Exhibit 10.1]~~

~~10.4(b)†~~	~~Form of Project Focus Performance Unit Award Agreement under The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective as of January 30, 2017)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 30, 2017 [Exhibit 10.2]~~

~~10.4(c)†~~	~~Form of Standard Performance Unit Award Agreement under The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective as of January 30, 2017)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 30, 2017 [Exhibit 10.3]~~



~~10.4(d)†~~	~~Form of Standard Restricted Stock Unit Award Agreement under The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective as of January 30, 2017)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 30, 2017 [Exhibit 10.4]~~

~~10.4(e)†~~	~~Form of Standard Non-Qualified Stock Option Award Agreement under The Scotts Miracle-Gro Company Long-Term Incentive Plan (effective as of January 30, 2017)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 30, 2017 [Exhibit 10.5]~~

~~10.5(a)†~~	~~The Scotts Company LLC Amended and Restated Executive Incentive Plan (effective as of January 30, 2014)~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed February 5, 2014 [Exhibit 10.1]~~

~~10.5(b)(i)†~~	Specimen form of Employee Confidentiality, Noncompetition, Nonsolicitation Agreement for employees participating in The Scotts Company LLC Executive/Management Incentive Plan (now known as The Scotts Company LLC Amended and Restated Executive Incentive Plan)	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2006 filed August 10, 2006 [Exhibit 10.1]~~

~~10.5(b)(ii)†~~	Employee Confidentiality, Noncompetition, Nonsolicitation Agreement, dated as of December 12, 2013, by and between The Scotts Company LLC, all companies controlled by, controlling or under common control with The Scotts Company LLC, and James Hagedorn	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed December 17, 2013 [Exhibit 10.2]~~

~~10.6†~~	~~The Scotts Company LLC Executive Retirement Plan, as Amended and Restated as of January 1, 2015 (executed December 31, 2014)~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014 filed February 5, 2015 [Exhibit 10.2]~~

~~10.7†~~	~~Summary of Compensation for Nonemployee Directors of The Scotts Miracle-Gro Company (effective as of May 1, 2014)~~	~~Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 filed November 25, 2014 [Exhibit 10.9]~~

~~10.8†~~	~~Executive Severance Agreement, dated as of December 11, 2013, by and between The Scotts Company LLC and James Hagedorn~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed December 17, 2013 [Exhibit 10.1]~~

~~10.9(a)†~~	~~Consulting Agreement, dated February 12, 2016, between The Scotts Company LLC and Hanft Projects LLC [expired January 31, 2017]~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2016 filed May 11, 2016 [Exhibit 10.3]~~

~~10.9(b)†~~	~~Consulting Agreement, dated January 31, 2017, between The Scotts Company LLC and Hanft Projects LLC~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2017 filed May 10, 2017 [Exhibit 10.6]~~

~~10.10†~~	~~Incentive Compensation/Retention Award Agreement, dated February 11, 2016, between The Scotts Miracle-Gro Company and Michael C. Lukemire~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2016 filed May 11, 2016 [Exhibit 10.2]~~

~~10.11(a)†~~	~~The Scotts Company LLC Executive Severance Plan, adopted on May 4, 2011~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed May 10, 2011 [Exhibit 10.1]~~

~~10.11(b)†~~	~~Form of Tier 1 Participation Agreement under The Scotts Company LLC Executive Severance Plan~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed May 10, 2011 [Exhibit 10.2]~~

~~10.12(a)†~~	~~The Scotts Company LLC Executive Severance Plan, adopted on April 25, 2017~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2017 filed May 10, 2017 [Exhibit 10.9]~~

~~10.12.(b)†~~	~~Form of Tier 1 Participation Agreement under The Scotts Company LLC Executive Severance Plan~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2017 filed May 10, 2017 [Exhibit 10.10]~~



~~10.13(a)~~	Amended and Restated Exclusive Agency and Marketing Agreement, effective as of September 30, 1998, and amended and restated as of November 11, 1998, by and between Monsanto Company and The Scotts Company LLC (as successor to The Scotts Company, an Ohio corporation)	~~Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2005 filed December 15, 2005 [Exhibit 10(x)]~~

~~10.13(b)~~	Letter Agreement, dated March 10, 2005, amending the Amended and Restated Exclusive Agency and Marketing Agreement, dated as of September 30, 1998, between Monsanto Company and The Scotts Company LLC (as successor to The Scotts Company, an Ohio corporation)	~~Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 filed November 24, 2009 [Exhibit 10.17(b)]~~

~~10.13(c)~~	Letter Agreement, dated March 28, 2008, amending the Amended and Restated Exclusive Agency and Marketing Agreement, dated as of September 30, 1998, between Monsanto Company and The Scotts Company LLC	~~Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008 filed November 25, 2008 [Exhibit 10.18(b)]~~

~~10.13(d)~~	~~Amendment to Amended and Restated Exclusive Agency and Marketing Agreement, dated as of May 15, 2015, between Monsanto Company and The Scotts Company LLC~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K/A filed May 20, 2015 [Exhibit 10.2]~~

~~10.13(e)~~	~~Lawn and Garden Brand Extension Agreement, dated as of May 15, 2015, between Monsanto Company and The Scotts Company LLC~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K/A filed May 20, 2015 [Exhibit 10.3]~~

~~10.13(f)~~	~~Commercialization and Technology Agreement, dated as of May 15, 2015, between Monsanto Company and The Scotts Company LLC~~	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K/A filed May 20, 2015 [Exhibit 10.4]~~

~~10.14(a)~~	~~Second Amended and Restated Exclusive Agency and Marketing Agreement, dated as of August 31, 2017, by and between Monsanto Company and The Scotts Company LLC~~	*

~~10.14(b)~~	~~Amended and Restated Lawn and Garden Brand Extension Agreement - Americas, dated as of August 31, 2017, between Monsanto Company and The Scotts Company LLC~~	*

~~10.15~~	Purchase Agreement, dated October 7, 2015, among The Scotts Miracle-Gro Company, the subsidiary guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed October 14, 2015 [Exhibit 10.1]~~

~~10.16~~	Purchase Agreement, dated December 12, 2016, among The Scotts Miracle-Gro Company, the subsidiary guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed December 16, 2016 [Exhibit 10.1]~~

~~10.17(a)~~	Master Repurchase Agreement, and Annex I thereto, with Cooperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of April 7, 2017	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed April 13, 2017 [Exhibit 10.1]~~

~~10.17(b)(i)~~	Master Framework Agreement with Cooperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of April 7, 2017	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed April 13, 2017 [Exhibit 10.2]~~



~~10.17(b)(ii)~~	Amendment No. 1 to Master Framework Agreement with Cooperatieve Rabobank, U.A. (New York Branch), as agent and purchaser, and Sumitomo Mitsui Banking Corporation (New York Branch), as purchaser, dated as of August 25, 2017	~~Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed August 31, 2017 [Exhibit 10.1]~~

~~10.18~~	~~Contribution and Distribution Agreement, dated as of December 10, 2015, by and among The Scotts Miracle-Gro Company and TruGreen Holdings Corporation~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2016 filed February 11, 2016 [Exhibit 10.5]~~

~~10.19~~	~~Form of Aircraft Time Sharing Agreement for Executive Officers~~	~~Incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2016 filed May 11, 2016 [Exhibit 10.4]~~

~~10.20~~	~~Binding and Irrevocable Conditional Offer, dated April 29, 2017, from Garden Care Bidco Limited to Scotts-Sierra Investments LLC~~	*

12	~~Computation of Ratio of Earnings to Fixed Charges~~	*

21	~~Subsidiaries of The Scotts Miracle-Gro Company~~	*

23	~~Consent of Independent Registered Public Accounting Firm — Deloitte & Touche LLP~~	*

24	~~Powers of Attorney of Executive Officers and Directors of The Scotts Miracle-Gro Company~~	*

~~31.1~~	~~Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)~~	*

~~31.2~~	~~Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)~~	*

32	~~Section 1350 Certifications (Principal Executive Officer and Principal Financial Officer)~~	*

~~101.INS~~	~~XBRL Instance Document~~	*

~~101.SCH~~	~~XBRL Taxonomy Extension Schema~~	*

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase~~	*

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase~~	*

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase~~	*

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase~~	*



*	~~Filed or furnished herewith.~~
^†	Management contract, compensatory plan or arrangement.

~~134~~

112



Ohio		31-1414921
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~14111 Scottslawn Road,~~ ~~Marysville, Ohio~~	~~43041~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Shares, ~~without par~~$0.01 stated value	~~New York Stock Exchange~~SMG	NYSE



Large accelerated filer	þ☑	Accelerated filer	o☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~☐	Smaller reporting company	o☐
		Emerging growth company	o☐


			Page
Part I	Item 1.	Business	2
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	21
	Item 2.	Properties	21
	Item 3.	Legal Proceedings	22
	Item 4.	Mine Safety Disclosure	22
	Supplemental Item	Executive Officers of the Registrant	23
Part II	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
	Item 6.	[Reserve d ]	25
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7A.	Quantitative And Qualitative Disclosures About Market Risk	48
	Item 8.	Financial Statements and Supplementary Data	49
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
	Item 9A.	Controls and Procedures	50
	Item 9B.	Other Information	50
	Item 9 C .	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	50
Part III	Item 10.	Directors, Executive Officers, and Corporate Governance	51
	Item 11.	Executive Compensation	52
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	52
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	52
	Item 14.	Principal Accountant Fees and Services	52
Part IV	Item 15.	Exhibits and Financial Statement Schedules	53
	Item 16.	Form 10-K Summary	53
		Signatures	54
		Index to Exhibits	109



	Sale Prices
	High		Low
FISCAL 2017
First quarter	$	98.82	$	82.49
Second quarter	$	96.38	$	88.61
Third quarter	$	97.50	$	81.48
Fourth quarter	$	99.91	$	89.60
FISCAL 2016
First quarter	$	72.26	$	60.25
Second quarter	$	75.13	$	62.20
Third quarter	$	73.16	$	65.80
Fourth quarter	$	83.73	$	68.24



þ☑			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



~~________________________~~
¹ ~~Osmocote~~^® ~~is a registered trademark of Everris International B.V., a subsidiary of Israel Chemicals Ltd.~~
² ~~Roundup~~^® ~~is a registered trademark of Monsanto Technology LLC, a company affiliated with Monsanto Company.~~


________________________
1 Roundup® is a registered trademark of Monsanto Technology LLC, a company affiliated with Monsanto Company.


Name	Age	Position(s) Held	Years with Company	Name	Age	Position(s) Held	Years with Company
James Hagedorn	62	Chief Executive Officer and Chairman of the Board	30	James Hagedorn	67	Chief Executive Officer and Chairman of the Board	35

David C. Evans				David C. Evans	59	Executive Vice President and Interim Chief Financial Officer; Member of the Board of Directors	23
Michael C. Lukemire	59	President and Chief Operating Officer	21	Michael C. Lukemire	64	President and Chief Operating Officer	26
Thomas R. Coleman	48	Executive Vice President and Chief Financial Officer	18
Christopher J. Hagedorn				Christopher J. Hagedorn	38	Division President	11
Ivan C. Smith	48	Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer	14	Ivan C. Smith	53	Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer	19
Denise S. Stump	63	Executive Vice President, Global Human Resources and Chief Ethics Officer	17	Denise S. Stump	68	Executive Vice President, Global Human Resources and Chief Ethics Officer	22


~~ITEM 5.~~	~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~


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	—



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 through July 29, 2017	241,358	$	93.02	240,255	$	656,841,318
July 30 through August 26, 2017	229,054	$	95.57	229,050	$	634,951,420
August 27 through September 30, 2017	280,444	$	95.36	277,650	$	608,450,394
Total	750,856	$	94.67	746,955


~~(2)~~	~~The average price paid per Common Share is calculated on a settlement basis and includes commissions.~~


~~(1)~~	~~The Selected Financial Data has been retrospectively updated to recast activity for the following:~~


~~ITEM 1.~~	~~BUSINESS~~


~~(2)~~	~~Reconciliation of Non-GAAP Measures~~


~~ITEM 7.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~


~~(3)~~	~~Working capital is calculated as current assets minus current liabilities. Current ratio is calculated as current assets divided by current liabilities.~~


~~(4)~~	~~The total debt to total book capitalization percentage is calculated by dividing total debt by total debt plus total equity~~—~~controlling interest.~~


~~(7)~~	Amount represents a gain on our investment in AeroGrow recognized during the fourth quarter of 2014 as a result of our consolidation of the business. Excluded from this amount is $2.4 million of earnings on AeroGrow’s unconsolidated results for fiscal year 2014 recorded within “Other income, net” in the Consolidated Statements of Operations.


	Percent of Net Sales from Continuing Operations by Quarter
	2022		2021		2020
First Quarter	14.4	%	15.2	%	8.9	%
Second Quarter	42.8	%	37.1	%	33.5	%
Third Quarter	30.2	%	32.7	%	36.1	%
Fourth Quarter	12.6	%	15.0	%	21.5	%


•	~~increased sales of grass seed and Roundup~~^® ~~For Lawns products in our U.S. Consumer segment, and increased sales of hydroponic gardening products in our Hawthorne segment;~~


•	~~decreased net sales associated with the Marketing Agreement Amendment and the Restated Marketing Agreement for consumer Roundup~~^®~~; and~~


•	~~the impact of the Marketing Agreement Amendment for consumer Roundup~~^®~~; and~~


•	~~a decrease in other charges of $5.9 million related to costs incurred during fiscal 2016 to address consumer complaints regarding our reformulated Bonus~~^® ~~S product sold during fiscal 2015.~~


•	~~an increase in net sales attributable to reimbursements under the Marketing Agreement Amendment for consumer Roundup~~^®~~; and~~


•	~~an increase in other charges of $2.9 million related to addressing the consumer complaints regarding our reformulated Bonus~~^® ~~S product sold during fiscal 2015;~~


•	~~a decrease in net sales associated with the Marketing Agreement Amendment and the Restated Marketing Agreement for consumer Roundup~~^®.


•	~~other charges of $5.9 million primarily related to addressing the consumer complaints regarding our reformulated Bonus~~^® ~~S product sold during fiscal 2015.~~



Notional Amount (in millions)			Effective Date (a)	Expiration Date	Fixed Rate
$	200		2/7/2014	11/7/2017	1.28	%
300		^(b)	11/21/2016	6/20/2018	0.83	%
200		^(b)	11/7/2016	8/7/2018	0.84	%
150		^(c)	2/7/2017	5/7/2019	2.12	%
50		^(c)	2/7/2017	5/7/2019	2.25	%
200		^(d)	12/20/2016	6/20/2019	2.12	%


~~(a)~~	~~The effective date refers to the date on which interest payments were, or will be, first hedged by the applicable swap agreement.~~


~~(c)~~	~~Interest payments made during the three-month period of each year that begins with the month and day of the effective date are hedged by the swap agreement.~~


~~(d)~~	~~Interest payments made during the six-month period of each year that begins with the month and day of the effective date are hedged by the swap agreement.~~


	September 30, 2022

Current assets	$	1,749.6
Non-current assets (a)	2,165.4
Current liabilities	851.4
Non-current liabilities	3,117.8


	Year Ended
	September 30, 2022

Net sales	$	3,559.0
Gross margin	828.7
Loss from continuing operations (a)	(335.9)
Net loss	(335.9)
Net loss attributable to controlling interest	(335.9)


			Payments Due by Period											Payments Due by Period
Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
	(In millions)
Debt obligations	$	1,409.7	$	143.1	$	31.6	$	529.3	$	705.7	Debt obligations	$	2,963.2	$	137.7	$	100.0	$	1,375.5	$	1,350.0
Interest expense on debt obligations	359.4		69.4		119.1		75.8		95.1		Interest expense on debt obligations	813.7		137.6		263.2		225.4		187.5
Finance lease obligations											Finance lease obligations	34.2		7.5		10.8		4.1		11.8
Operating lease obligations	147.5		40.3		64.4		33.0		9.8		Operating lease obligations	326.0		85.2		139.2		61.1		40.5
Purchase obligations	307.2		157.2		114.9		33.0		2.1		Purchase obligations	1,468.2		547.2		559.7		276.5		84.8
Other, primarily retirement plan obligations	167.1		9.7		23.3		27.5		106.6		Other, primarily retirement plan obligations	62.3		5.8		16.8		14.2		25.5
Total contractual cash obligations	$	2,390.9	$	419.7	$	353.3	$	698.6	$	919.3	Total contractual cash obligations	$	5,667.6	$	921.0	$	1,089.7	$	1,956.8	$	1,700.1



	September 30, 2017							September 30, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In millions)
Finite-lived intangible assets:
Technology	$	69.7	$	(52.8	)	$	16.9	$	61.1	$	(51.4	)	$	9.7
Customer accounts	157.7		(28.0		)	129.7		113.7		(15.8		)	97.9
Tradenames	176.7		(28.4		)	148.3		145.4		(19.8		)	125.6
Other	59.5		(41.1		)	18.4		59.8		(38.6		)	21.2
Total finite-lived intangible assets, net						313.3							254.4
Indefinite-lived intangible assets:
Indefinite-lived tradenames						168.2							168.2
Marketing Agreement Amendment						155.7							155.7
Brand Extension Agreement						111.7							111.7
Total indefinite-lived intangible assets						435.6							435.6
Total intangible assets, net						$	748.9						$	690.0