UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


��☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April 3, 2021~~January 1, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-11593

____________________________________

The Scotts Miracle-Gro Company

(Exact name of registrant as specified in its charter)


Ohio									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)

(937) 644-0011

(Registrant’s telephone number, including area code)

_____________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, $0.01 stated value

SMG

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes			☐			No			☒

As of ~~May 7, 2021,~~February 4, 2022, there were ~~55,703,042~~55,583,886 Common Shares outstanding.

Table of Contents


THE SCOTTS MIRACLE-GRO COMPANY INDEX
		PAGE NO.
PART I. FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations — Three ~~and six~~months ended ApJanuary 1, 2022 ~~ril 3~~ and January 2 , 2021 ~~and~~ ~~March 28, 2020~~	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three ~~and six~~ months ended J ~~April 3,~~anuary 1, 2022 and Jan uary 2, 2021 ~~and March 28, 2020~~	4
	Condensed Consolidated Statements of Cash Flows — ~~Six~~Three months ended J anuary 1, 2022 ~~April 3~~a ,nd January 2, 2021 ~~and~~M ~~arch~~ ~~28, 20~~20	5
	Condensed Consolidated Balance Sheets — ~~April~~J 3anuary 1, 2022, January 2 , 2021 ~~March 28, 2020~~and September 30, ~~2020~~2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4338
Item 4.	Controls and Procedures	4338

PART II. OTHER INFORMATION:

Item 1.	Legal Proceedings	4339
Item 1A.	Risk Factors	4339
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4440
Item 3.	Defaults Upon Senior Securities	4440
Item 4.	Mine Safety Disclosures	4440
Item 5.	Other Information	4440
Item 6.	Exhibits	4540
Index to Exhibits		4641
Signatures		4742

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Net sales $ 1,828.8 $ 1,382.8 $ 2,577.4 $ 1,748.6
Cost of sales 1,158.9 829.2 1,707.7 1,140.6
Cost of sales—impairment, restructuring and other 12.4 3.4 21.4 3.6
Gross profit 657.5 550.2 848.3 604.4
Operating expenses:
Selling, general and administrative 231.5 195.6 388.2 315.4
Impairment, restructuring and other 2.5 0.3 3.2 (2.2)
Other (income) expense, net (0.6) 0.6 (1.2) 0.1
Income from operations 424.1 353.7 458.1 291.1
Equity in loss of unconsolidated affiliates 1.5 0 1.5 0
Costs related to refinancing 0 0 0 15.1
Interest expense 19.3 22.7 35.4 42.7
Other non-operating income, net (0.9) (2.8) (16.1) (5.4)
Income from continuing operations before income taxes 404.2 333.8 437.3 238.7
Income tax expense from continuing operations 93.1 84.0 101.1 60.2
Income from continuing operations 311.1 249.8 336.2 178.5
Income (loss) from discontinued operations, net of tax (0.9) 2.6 (0.9) 2.6
Net income $ 310.2 $ 252.4 $ 335.3 $ 181.1
Net income attributable to noncontrolling interest (0.2) (0.2) (0.9) (0.3)
Net income attributable to controlling interest $ 310.0 $ 252.2 $ 334.4 $ 180.8
Basic income (loss) per common share:
Income from continuing operations $ 5.58 $ 4.48 $ 6.02 $ 3.20
Income (loss) from discontinued operations (0.01) 0.05 (0.02) 0.05
Basic net income per common share $ 5.57 $ 4.53 $ 6.00 $ 3.25
Weighted-average common shares outstanding during the period 55.7 55.7 55.7 55.7
Diluted income (loss) per common share:
Income from continuing operations $ 5.44 $ 4.43 $ 5.88 $ 3.15
Income (loss) from discontinued operations (0.01) 0.04 (0.01) 0.04
Diluted net income per common share $ 5.43 $ 4.47 $ 5.87 $ 3.19
Weighted-average common shares outstanding during the period plus dilutive potential common shares 57.1 56.4 57.0 56.6


	Three Months Ended
	January 1, 2022		January 2, 2021
Net sales	$	566.0	$	748.6
Cost of sales	447.3		548.8
Cost of sales—impairment, restructuring and other	—		9.0

Gross profit	118.7		190.8
Operating expenses:
Selling, general and administrative	154.1		156.7
Impairment, restructuring and other	1.8		0.7

Other income, net	(1.8)		(0.6)
Income (loss) from operations	(35.4)		34.0
Equity in loss of unconsolidated affiliates	7.3		—

Interest expense	23.8		16.1
Other non-operating income, net	(1.8)		(15.2)
Income (loss) from continuing operations before income taxes	(64.7)		33.1
Income tax expense (benefit) from continuing operations	(14.7)		7.9
Income (loss) from continuing operations	(50.0)		25.2
Income (loss) from discontinued operations, net of tax	—		—
Net income (loss)	$	(50.0)	$	25.2
Net income attributable to noncontrolling interest	—		(0.8)
Net income (loss) attributable to controlling interest	$	(50.0)	$	24.4

Basic income (loss) per common share:
Income (loss) from continuing operations	$	(0.90)	$	0.44
Income (loss) from discontinued operations	—		—
Basic net income (loss) per common share	$	(0.90)	$	0.44
Weighted-average common shares outstanding during the period	55.4		55.7

Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(0.90)	$	0.43
Income (loss) from discontinued operations	—		—
Diluted net income (loss) per common share	$	(0.90)	$	0.43
Weighted-average common shares outstanding during the period plus dilutive potential common shares	55.4		57.1

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Net income $ 310.2 $ 252.4 $ 335.3 $ 181.1
Other comprehensive income (loss):
Net foreign currency translation adjustment (4.3) (9.9) 8.1 (5.3)
Net unrealized gain (loss) on derivative instruments, net of tax 7.4 (11.1) 9.9 (12.5)
Reclassification of net unrealized losses on derivative instruments to net income, net of tax 2.0 1.9 3.9 2.7
Pension and other post-retirement benefit adjustments, net of tax 0.4 2.2 (0.8) 1.1
Total other comprehensive income (loss) 5.5 (16.9) 21.1 (14.0)
Comprehensive income 315.7 235.5 356.4 167.1
Comprehensive income attributable to noncontrolling interest (0.2) (0.2) (0.9) (0.3)
Comprehensive income attributable to controlling interest $ 315.5 $ 235.3 $ 355.5 $ 166.8


	Three Months Ended
		January 1, 2022		January 2, 2021
Net income (loss)		$	(50.0)	$	25.2
Other comprehensive income (loss):
Net foreign currency translation adjustment		(4.3)		12.4
Net unrealized gains on derivative instruments, net of tax		9.6		2.5
Reclassification of net unrealized (gains) losses on derivative instruments to net income (loss), net of tax		(0.2)		1.9

Net unrealized gains on securities, net of tax		0.1		—
Pension and other post-retirement benefit adjustments, net of tax		0.5		(1.2)
Total other comprehensive income		5.7		15.6
Comprehensive income (loss)		(44.3)		40.8
Comprehensive income attributable to noncontrolling interest		—		(0.8)
Comprehensive income (loss) attributable to controlling interest		$	(44.3)	$	40.0

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

Six Months Ended
April 3,
2021 March 28,
2020
OPERATING ACTIVITIES
Net income $ 335.3 $ 181.1
Adjustments to reconcile net income to net cash used in operating activities:
Costs related to refinancing 0 15.1
Share-based compensation expense 25.8 19.0
Depreciation 31.3 30.1
Amortization 15.2 15.8
Other, net (7.5) (3.3)
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable (908.1) (866.8)
Inventories (393.8) (206.7)
Prepaid and other assets (50.9) (35.1)
Accounts payable 176.0 129.8
Other current liabilities 90.0 115.4
Other non-current items (13.3) (2.3)
Other, net 0.1 0.8
Net cash used in operating activities (699.9) (607.1)
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets 0 0.2
Investments in property, plant and equipment (53.7) (29.4)
Investments in loans receivable 0 (2.5)
Proceeds from sale of brand extension assets 0 115.5
Investments in unconsolidated affiliates (100.7) 0
Payment for acquisitions, net of cash acquired (10.5) 0
Other investing, net (8.9) (1.7)
Net cash provided by (used in) investing activities (173.8) 82.1
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans 1,113.7 1,089.3
Repayments under revolving and bank lines of credit and term loans (594.5) (469.1)
Proceeds from issuance of 4.000% Senior Notes 500.0 0
Proceeds from issuance of 4.500% Senior Notes 0 450.0
Repayment of 6.000% Senior Notes 0 (400.0)
Financing and issuance fees (7.0) (18.7)
Dividends paid (70.9) (65.4)
Purchase of Common Shares (62.2) (50.4)
Payments on seller notes 0 (0.5)
Cash received from exercise of stock options 7.5 2.1
Acquisition of noncontrolling interests (15.5) 0
Net cash provided by financing activities 871.1 537.3
Effect of exchange rate changes on cash 0.4 (0.3)
Net increase (decrease) in cash and cash equivalents (2.2) 12.0
Cash and cash equivalents at beginning of period 16.6 18.8
Cash and cash equivalents at end of period $ 14.4 $ 30.8


	Three Months Ended
	January 1, 2022		January 2, 2021
OPERATING ACTIVITIES
Net income (loss)	$	(50.0)	$	25.2
Adjustments to reconcile net income (loss) to net cash used in operating activities:


Share-based compensation expense	7.3		8.2
Depreciation	16.0		15.7
Amortization	8.9		7.4





Equity in loss of unconsolidated affiliates	7.3		—
Other, net	6.7		(14.3)
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable	71.6		1.1
Inventories	(503.1)		(442.8)
Prepaid and other assets	(34.4)		(10.2)
Accounts payable	(145.2)		126.8
Other current liabilities	(149.0)		(125.7)

Other non-current items	(1.3)		(11.3)
Other, net	0.1		(0.8)
Net cash used in operating activities	(765.1)		(420.7)

INVESTING ACTIVITIES


Investments in property, plant and equipment	(46.1)		(34.6)





Investments in unconsolidated affiliates	—		(100.7)
Payment for acquisitions, net of cash acquired	(202.5)		(10.0)
Other investing, net	3.4		(2.9)
Net cash used in investing activities	(245.2)		(148.2)

FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans	989.1		712.9
Repayments under revolving and bank lines of credit and term loans	(40.8)		(67.5)






Dividends paid	(37.1)		(34.6)

Purchase of Common Shares	(129.5)		(38.4)


Cash received from exercise of stock options	0.9		1.1


Net cash provided by financing activities	782.6		573.5
Effect of exchange rate changes on cash	—		0.3
Net (decrease) increase in cash and cash equivalents	(227.7)		4.9


Cash and cash equivalents at beginning of period	244.1		16.6
Cash and cash equivalents at end of period	$	16.4	$	21.5

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Balance Sheets

(In millions, except per share data)

(Unaudited)

April 3,
2021 March 28,
2020 September 30,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 14.4 $ 30.8 $ 16.6
Accounts receivable, less allowances of $12.4, $12.6 and $7.5, respectively 1,230.3 994.7 474.8
Accounts receivable pledged 177.8 177.8 22.3
Inventories 1,019.2 743.3 621.9
Prepaid and other current assets 132.0 95.8 81.0
Total current assets 2,573.7 2,042.4 1,216.6
Investment in unconsolidated affiliates 201.4 0 0
Property, plant and equipment, net of accumulated depreciation of $713.3, $655.7 and $682.1, respectively 565.3 535.4 560.0
Goodwill 546.1 538.3 544.1
Intangible assets, net 674.9 692.0 679.2
Other assets 372.7 327.6 380.6
Total assets $ 4,934.1 $ 4,135.7 $ 3,380.5
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt $ 212.8 $ 212.2 $ 66.4
Accounts payable 549.9 324.7 391.0
Other current liabilities 584.8 444.3 493.0
Total current liabilities 1,347.5 981.2 950.4
Long-term debt 2,322.5 2,113.8 1,455.1
Other liabilities 323.2 246.1 272.1
Total liabilities 3,993.2 3,341.1 2,677.6
Commitments and contingencies (Note 11) 0 0 0
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 55.7, 55.5 and 55.8, respectively 473.0 450.5 482.5
Retained earnings 1,500.2 1,389.0 1,235.6
Treasury shares, at cost; 12.4, 12.7 and 12.4 shares, respectively (954.3) (941.9) (921.8)
Accumulated other comprehensive loss (78.0) (107.9) (99.1)
Total equity—controlling interest 940.9 789.7 697.2
Noncontrolling interest 0 4.9 5.7
Total equity 940.9 794.6 702.9
Total liabilities and equity $ 4,934.1 $ 4,135.7 $ 3,380.5


	January 1, 2022		January 2, 2021		September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	16.4	$	21.5	$	244.1
Accounts receivable, less allowances of $9.8, $6.8 and $16.8, respectively	310.8		346.6		483.4
Accounts receivable pledged	104.4		151.1		—
Inventories	1,657.2		1,068.3		1,126.6

Prepaid and other current assets	203.8		92.0		169.9
Total current assets	2,292.6		1,679.5		2,024.0
Investment in unconsolidated affiliates	199.7		202.9		207.0
Property, plant and equipment, net of accumulated depreciation of $753.0, $698.8 and $737.4, respectively	615.8		560.9		622.2
Goodwill	681.5		548.9		605.2
Intangible assets, net	811.7		685.4		709.6
Other assets	640.9		323.1		632.0
Total assets	$	5,242.2	$	4,000.7	$	4,800.0

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	160.7	$	188.0	$	57.8
Accounts payable	427.7		498.9		609.4


Other current liabilities	326.8		367.6		473.2
Total current liabilities	915.2		1,054.5		1,140.4
Long-term debt	3,082.2		1,979.8		2,236.7

Other liabilities	413.2		287.4		409.6
Total liabilities	4,410.6		3,321.7		3,786.7
Commitments and contingencies (Note 11)	0		0		0
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 55.0, 55.6 and 55.6, respectively	486.9		490.5		477.0
Retained earnings	1,517.8		1,224.4		1,605.1
Treasury shares, at cost; 13.2, 12.6 and 12.6 shares, respectively	(1,112.4)		(958.8)		(1,002.4)
Accumulated other comprehensive loss	(60.7)		(83.5)		(66.4)
Total equity—controlling interest	831.6		672.6		1,013.3
Noncontrolling interest	—		6.4		—
Total equity	831.6		679.0		1,013.3
Total liabilities and equity	$	5,242.2	$	4,000.7	$	4,800.0

See Notes to Condensed Consolidated Financial Statements.


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

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” or “Parent”) and its subsidiaries (collectively, together with Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of products for lawn and garden care and indoor and hydroponic gardening. The Company’s products are sold in North America, Europe and Asia.

The Company’s North America consumer lawn and garden business is highly seasonal, with more than 75% of its annual net sales occurring in the second and third fiscal quarters.

The Company follows a 13-week quarterly accounting cycle pursuant to which the first three fiscal quarters end on a Saturday and the fiscal year always ends on September 30. This fiscal calendar convention requires the Company to cycle forward the first three fiscal quarter ends every six years. Fiscal 2021 is impacted by this process and, as a result, the first quarter of fiscal 2021 had five additional days and the fourth quarter of fiscal 2021 will have six fewer days compared to the respective quarters of fiscal 2020. In addition, the second quarter of fiscal 2021 ended six days later than the second quarter of fiscal 2020 and those six days fall within the Company’s peak selling season. The Company’s second quarter of fiscal 2021 ended on April 3, 2021 while the Company’s second quarter of fiscal 2020 ended on March 28, 2020.

Organization and Basis of Presentation

The Company’s unaudited condensed consolidated financial statements for the three ~~and six~~ months ended ~~April 3,~~January 1, 2022 and January 2, 2021 ~~and March 28, 2020~~ are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of Scotts Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and an objective evaluation and determination of effective management control. On February 26, 2021, the Company acquired the remaining outstanding shares of AeroGrow International, Inc. (“AeroGrow”). Prior to this date, the equity owned by other shareholders was shown as noncontrolling interest in the Condensed Consolidated Balance Sheets, and the other shareholders’ portion of net earnings and other comprehensive income was shown as net (income) loss or comprehensive (income) loss attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of each acquisition or up to the date of disposal, respectively. In the opinion of management, interim results reflect all normal and recurring adjustments and are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”), which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.

The Company’s Condensed Consolidated Balance Sheet at September 30, ~~2020~~2021 has been derived from the Company’s audited Consolidated Balance Sheet at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Long-Lived Assets

The Company had non-cash investing activities of ~~$7.9~~$5.5 and ~~$3.7~~$6.3 during the ~~six~~three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020,~~ respectively, representing unpaid liabilities to acquire property, plant and equipment.

Statements of Cash Flows

Supplemental cash flow information was as follows:


		Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

Interest paid	Interest paid	$	32.1	$	40.2	Interest paid	$	32.1	$	23.0

Income tax payments	Income tax payments	25.1		15.4		Income tax payments	0.6		0.2

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance on October 1, 2021. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.


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

~~Investment in Unconsolidated Affiliates~~

Non-marketable equity investments in which the Company has the ability to exercise significant influence, but does not control, are accounted for using the equity method of accounting, with the Company’s proportionate share of the earnings and losses of these entities reflected in the Condensed Consolidated Statements of Operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, an impairment loss is recognized in earnings for the amount by which the carrying amount of the investment exceeds its estimated fair value.

~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The Company adopted this guidance on October 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this guidance on October 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

In December 2019, the FASB issued ASU No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The provisions are effective for the Company’s financial statements no later than the fiscal year beginning October 1, 2021. The Company is continuing to assess the impact of the amended guidance.

~~NOTE 2. DISCONTINUED OPERATIONS~~

~~International Business~~

Prior to August 31, 2017, the Company operated consumer lawn and garden businesses located in Australia, Austria, Belgium, Luxembourg, Czech Republic, France, Germany, Poland and the United Kingdom (the “International Business”). On August 31, 2017, the Company completed the sale of the International Business. As a result, effective in its fourth quarter of fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business as a discontinued operation. The sale proceeds were net of seller financing provided by the Company in the form of a $29.7 loan for seven years bearing interest at 5% for the first three years, with annual 2.5% increases thereafter. The seller financing loan receivable is recorded in the “Other assets” line in the Consolidated Balance Sheets as of April 3, 2021. The transaction also included contingent consideration with a maximum payout of $23.8 and an initial fair value of $18.2, the payment of which depends on the achievement of certain performance criteria by the International Business following the closing of the transaction through fiscal 2020. The Company has not yet established whether the International Business has achieved the performance criteria for fiscal 2020 and the recorded contingent consideration, which is based upon the best information available to the Company, will be adjusted once the results are determined. If the Company determines that the International Business has not achieved the performance criteria, the Company would be required to record a charge of approximately $18.0 ~~in the “Income (loss) from discontinued operations, net of tax” line in the Condensed Consolidated Statements of Operations to write-off the contingent consideration receivable~~.

NOTE 3.2. ACQUISITIONS AND INVESTMENTS

Luxx Lighting

On December ~~31, 2020, pursuant~~30, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of Luxx Lighting, Inc., a leading provider of lighting products for indoor growing. The purchase price was $213.5, a portion of which was paid by the issuance of 0.1 million of the common shares of Scotts Miracle-Gro (“Common Shares”), a non-cash investing and financing activity, with a fair value of $21.0 based on the share price at the time of payment. The valuation of the acquired assets included (i) $31.5 of inventory and accounts receivable, (ii) $3.8 of current assets, (iii) $0.6 of noncurrent assets, (iv) $4.3 of current liabilities, (v) $106.9 of finite-lived identifiable intangible assets and (vi) $75.0 of tax-deductible goodwill. Identifiable intangible assets included tradenames, 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.

True Liberty Bags

On December 23, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of True Liberty Bags, a leading provider of liners and storage solutions to dry and cure plant products, for $10.0. The valuation of the acquired assets included (i) $1.2 of inventory and accounts receivable, (ii) $0.1 of noncurrent assets, (iii) $1.7 of current liabilities, (iv) $5.8 of finite-lived identifiable intangible assets and (v) $4.6 of tax-deductible goodwill. Identifiable intangible assets included tradenames and customer relationships with useful lives ranging between 15 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.

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 purchase price is subject to a post-closing net working capital adjustment for which the Company has accrued its expected obligation of $0.4 as of January 1, 2022 in the “Other current liabilities” line in the Condensed Consolidated Balance Sheets. The valuation of the acquired assets included (i) $5.3 of inventory and accounts receivable, (ii) $1.7 of noncurrent assets, (iii) $2.1 of other liabilities, (iv) $23.1 of finite-lived identifiable intangible assets and (v) $37.3 of tax-deductible goodwill. Identifiable intangible assets included tradenames, customer relationships and non-complete 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.

The Hawthorne Collective

On August 24, 2021, the Company’s newly formed 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 ~~terms~~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 accrues interest at 2 percent annually for the first two years and provides additional follow-on investment rights. Accrued interest will be payable to THC at maturity or will be included in the conversion value of the ~~Contribution and Unit Purchase Agreement between~~note at the time of conversion. The conversion feature, which is based upon the RIV Capital closing stock price on August 9, 2021, would provide the Company with approximately 42 percent ownership of RIV Capital if it exercises the conversion feature. In connection with the Company’s investment, RIV Capital increased the size of its board of directors from 4 to 7 members, and ~~Alabama Farmers Cooperative, Inc. (“AFC”),~~added 3 nominees of the Company ~~acquired a 50% equity interest~~to the board of directors. The Company will not have control of or an active day-to-day role in RIV Capital nor any of the companies in which RIV Capital invests. RIV Capital has agreed to use the funds for general corporate and other lawful purposes, which could include acquisitions, and has agreed that the funds will not be used in connection with or for any cannabis or cannabis-related operations in the ~~Bonnie Plants business~~U.S. unless and until such operations comply with all applicable U.S. federal laws.

During the fourth quarter of ~~planting, growing, developing, manufacturing, distributing, marketing,~~fiscal 2021, THC made additional minority non-equity investments of $43.1 in other entities focused on branded cannabis and ~~selling live plants, plant food, fertilizer and potting soil through a newly formed joint venture~~high quality genetics. These additional investments also include conversion features that would provide the Company with ~~AFC (“Bonnie Plants, LLC”) in exchange for a cash payment of $100.7,~~minority ownership interests if it exercises the conversion features, as well as ~~non-cash investing activities~~restrictions that ~~included forgiveness of~~ the ~~Company’s outstanding loan receivable~~funds will not be used in connection with ~~AFC and surrender of the Company’s options to increase its economic interest~~or for any cannabis or cannabis-related operations in the ~~Bonnie Plants business. The Company’s loan~~U.S. unless and until such operations comply with all applicable U.S. federal laws.


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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) $0.5 of inventory, (ii) $10.9 of finite-lived identifiable intangible assets and (iii) $22.2 of tax-deductible goodwill. Identifiable intangible assets included tradenames, 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.

AeroGrow

On November 11, 2020, the Company entered into an agreement and plan of merger to acquire the remaining outstanding shares of AeroGrow for cash consideration of $3.00 per share, or approximately $20.1. The merger closed on February 26, 2021. Prior to closing, SMG Growing Media, Inc., a wholly-owned subsidiary of Scotts Miracle-Gro, was the holder of 80.5% of the outstanding shares of AeroGrow and now holds 100% of the outstanding shares of AeroGrow. The closing date carrying value of the noncontrolling interest was $6.7 and the $13.4 difference between the purchase price and carrying value was recognized in the “Common shares and capital in excess of $0.01 stated value per share” line within “Total equity—controlling interest” in the Condensed Consolidated Balance Sheets.

NOTE 3. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

On December 31, 2020, pursuant to the terms of the Contribution and Unit Purchase Agreement between the Company and Alabama Farmers Cooperative, Inc. (“AFC”), the Company acquired a 50% equity interest in the Bonnie Plants business of planting, growing, developing, distributing, marketing and selling live plants through a newly formed joint venture with AFC (“Bonnie Plants, LLC”) in exchange for a cash payment of $100.7, 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 Condensed 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 three months ended January 2, 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 Condensed 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 Condensed Consolidated Balance Sheets and had an estimated fair value of $23.3 on December 31, 2020. The Company’s interest in Bonnie Plants, LLC had an initial fair value of $202.9 and is recorded in the “Investment in unconsolidated affiliates” line in the Condensed Consolidated Balance Sheets. The Company’s interest is accounted for using the equity method of accounting, with the Company’s proportionate share of Bonnie Plants, LLC earnings subsequent to December 31, 2020 reflected in the Condensed Consolidated Statements of Operations. During the three months ended January 1, 2022, the Company recorded equity in loss of unconsolidated affiliates of $7.3 associated with Bonnie Plants, LLC. 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.

On November 11, 2020, the Company entered into an agreement and plan of merger to acquire the remaining outstanding shares of AeroGrow for cash consideration of $3.00 per share, or approximately $20.1. The merger closed on February 26, 2021. Prior to closing, SMG Growing Media, Inc., a wholly-owned subsidiary of Scotts Miracle-Gro, was the holder of 80.5% of the outstanding shares of AeroGrow. The closing date carrying value of the noncontrolling interest was $6.7 and the $13.4 difference between the purchase price and carrying value was recognized in the “Common shares and capital in excess of $0.01 stated value per share” line within “Total equity—controlling interest” in the Condensed Consolidated Balance Sheets.


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NOTE 4. IMPAIRMENT, RESTRUCTURING AND OTHER

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


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021

Cost of sales—impairment, restructuring and other:	Cost of sales—impairment, restructuring and other:									Cost of sales—impairment, restructuring and other:
COVID-19 related costs	COVID-19 related costs	$	12.3	$	3.1	$	21.0	$	3.1	COVID-19 related costs		$	—	$	8.7
Restructuring and other charges		0.1		0.3		0.4		0.5
Restructuring and other charges, net										Restructuring and other charges, net		—		0.3

Operating expenses:	Operating expenses:									Operating expenses:
COVID-19 related costs	COVID-19 related costs	2.6		0.7		3.2		0.7		COVID-19 related costs		—		0.6
Restructuring and other charges (recoveries), net		(0.1)		(0.4)		0		(2.9)
Restructuring and other charges, net										Restructuring and other charges, net		1.8		0.1

Impairment, restructuring and other charges from continuing operations	Impairment, restructuring and other charges from continuing operations	14.9		3.7		24.6		1.4		Impairment, restructuring and other charges from continuing operations		$	1.8	$	9.7
Restructuring and other charges (recoveries), net, from discontinued operations		0		(3.1)		0		(3.1)
Total impairment, restructuring and other charges (recoveries)		$	14.9	$	0.6	$	24.6	$	(1.7)

The following table summarizes the activity related to liabilities associated with restructuring and other during the ~~six~~three months ended ~~April 3, 2021:~~January 1, 2022:


Amounts accrued for restructuring and other at September 30, ~~2020~~2021	$	~~3.9~~1.9
~~Restructuring and other charges from continuing operations~~	~~24.6~~

Payments and other	~~(25.9)~~(0.2)
Amounts accrued for restructuring and other at ~~April 3, 2021~~January 1, 2022	$	~~2.6~~1.7

Included in restructuring accruals, as of ~~April 3, 2021,~~January 1, 2022, is ~~$1.1~~$0.6 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.

COVID-19

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. In response to the~~ COVID-19 pandemic has had, and continues to have, an impact on financial markets, economic conditions, and portions of the Company’s business and industry. The Company has actively addressed the pandemic’s ongoing impact on its 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. Many of the Company’s employees continue to work from home. In those instances where the Company’s employees cannot perform their work at home, the Company has implemented additional ~~measures intended to both protect the~~ health and safety measures and social distancing protocols, consistent with government recommendations and/or requirements, to help to ensure their safety. In addition, the Company implemented an interim premium pay allowance for certain associates in its field sales force and its manufacturing or distribution centers during fiscal 2020 and 2021. Costs incurred during the three months ended January 1, 2022 related to COVID-19 were immaterial. During the three months ended January 2, 2021, the Company incurred costs of $9.3 associated with the COVID-19 pandemic primarily related to premium pay. The Company incurred costs of $8.3 in its ~~employees~~U.S. Consumer segment and ~~maintain~~$0.4 in its ~~ability to provide products~~Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended January 2, 2021. The Company incurred costs of $0.6 in its U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended January 2, 2021.

910


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			(Dollars in millions, except per share data)

to its customers, including (i) requiring a significant part of its workforce to work from home, (ii) monitoring its employees for COVID-19 symptoms, (iii) making additional personal protective equipment available to its operations team, (iv) requiring all manufacturing and warehousing associates to take their temperatures before beginning a shift, (v) modifying work methods and schedules of its manufacturing and field associates to create distance or add barriers between associates, consumers and others, (vi) expanding cleaning efforts at its operation centers, (vii) modifying attendance policies so that associates may elect to stay home if they have symptoms, (viii) prioritizing production for goods that are more essential to its customers and (ix) implementing an interim premium pay allowance for certain associates in its field sales force or working in manufacturing or distribution centers. During the three and six months ended April 3, 2021, the Company incurred costs of $14.9 and $24.2, respectively, associated with the COVID-19 pandemic primarily related to premium pay. The Company incurred costs of $10.7 and $19.0 in its U.S. Consumer segment, $1.5 and $1.9 in its Hawthorne segment and $0.1 in its Other segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended April 3, 2021, respectively. The Company incurred costs of $2.6 and $3.2 in its U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended April 3, 2021, respectively. Since the inception of the COVID-19 pandemic, total costs classified within the “Cost of sales—impairment, restructuring and other” and the “Impairment, restructuring and other” lines in the Condensed Consolidated Statements of Operations are $38.4 for the U.S. Consumer segment, $4.5 for the Hawthorne segment and $0.7 for the Other segment.

During the three and six months ended March 28, 2020, the Company incurred costs of $3.8 associated with the COVID-19 pandemic primarily related to premium pay and incremental cleaning costs. The Company incurred costs of $2.6 in its U.S. Consumer segment and $0.5 in its Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended March 28, 2020. The Company incurred costs of $0.7 in its U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended March 28, 2020.

~~Project Catalyst~~

In connection with the acquisition of Sunlight Supply during the third quarter of fiscal 2018, the Company announced the launch of an initiative called Project Catalyst, which is a company-wide restructuring effort to reduce operating costs throughout the U.S. Consumer, Hawthorne and Other segments and drive synergies from acquisitions within the Hawthorne segment. Costs incurred during the three and six months ended April 3, 2021 and March 28, 2020 related to Project Catalyst were not material. Costs incurred to date since the inception of Project Catalyst are $25.1 for the Hawthorne segment, $14.0 for the U.S. Consumer segment, $1.3 for the Other segment and $2.8 for Corporate. Additionally, during the three and six months ended March 28, 2020, the Company received 0 and $2.6, respectively, from the final settlement of escrow funds related to a previous acquisition within the Hawthorne segment that was recognized in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations.

NOTE 5. INVENTORIES

Inventories consisted of the following for each of the periods presented:


		April 3, 2021		March 28, 2020		September 30, 2020			January 1, 2022		January 2, 2021		September 30, 2021

Finished goods	Finished goods	$	709.1	$	520.0	$	390.3	Finished goods	$	1,208.5	$	768.4	$	793.7
Raw materials								Raw materials	338.8		215.9		242.8
Work-in-process	Work-in-process	71.7		67.6		164.8		Work-in-process	109.9		84.0		90.1
Raw materials		238.4		155.7		66.8
Total inventories	Total inventories	$	1,019.2	$	743.3	$	621.9	Total inventories	$	1,657.2	$	1,068.3	$	1,126.6

Adjustments to reflect inventories at net realizable values were ~~$21.4~~$19.4 at ~~April 3,~~January 1, 2022, $23.9 at January 2, 2021 ~~$12.5 at March 28, 2020~~ and ~~$31.3~~$22.5 at September 30, ~~2020.~~2021.

NOTE 6. MARKETING AGREEMENT

The Scotts Company LLC (“Scotts LLC”) is the exclusive agent of Monsanto Company, a subsidiary of Bayer AG (“Monsanto”), for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries. Effective August 1, 2019, the Company entered into the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”) which amended, among other things, the provisions of the Second Amended and Restated ~~Exclusive~~ Agency and Marketing Agreement (the “Restated Marketing Agreement”) relating to commissions, contributions, noncompetition, and termination. The annual commission payable under the Third Restated Agreement is equal to 50% of the actual earnings before interest and income taxes of Monsanto’s consumer


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			~~(Dollars in millions, except per share data)~~

Roundup® business for each program year in the markets covered by the Third Restated Agreement (“Program EBIT”). The Third Restated Agreement also requires the Company to make annual payments of $18.0 to Monsanto as a contribution against the overall expenses of its consumer Roundup® business, subject to reduction pursuant to the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.

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

•The Company may terminate the Third Restated Agreement ~~(i) for any reason effective as of September 30, 2022 by delivery of notice of termination to Monsanto on January 15, 2021 (a “Convenience Termination”) or (ii)~~ 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.

~~On January 15, 2021, the Company declined to exercise its Convenience Termination right.~~

The termination fee structure requires Monsanto to pay a termination fee to the Company in an amount equal to (i) ~~$175.0 upon a Convenience Termination, which the Company declined to exercise, (ii)~~ $375.0 upon a Brand Decommissioning Termination, and ~~(iii)~~(ii) the greater of $175.0 or 4 times an amount equal to the average of the Program EBIT for the three program years before the year of termination, minus $186.4, if Monsanto or its successor terminates the Third Restated Agreement as a result of a Roundup Sale or Change of Control of Monsanto (each, as defined in the Third Restated Agreement).

In connection with the signing of the Third Restated Agreement, the Company also entered into the Brand Extension Agreement Asset Purchase Agreement (the “BEA Purchase Agreement”). The BEA Purchase Agreement provides for the sale by the Company to Monsanto of specified assets related to, among other things, the development, manufacture, production, advertising, marketing, promotion, distribution, importation, exportation, offer for sale and sale of specified Roundup® branded products sold outside the non-selective weedkiller category within the residential lawn and garden market. The consideration paid by Monsanto was $112.0 plus the value of finished goods inventory of $3.5. This consideration receivable was recorded in the “Prepaid and other current assets” line in the Consolidated Balance Sheets until it was received by the Company on January 13, 2020. The carrying value of the assets sold included the brand extension agreement intangible asset with a carrying value of $111.7.

The elements of the net commission and reimbursements earned under the ~~Restated Marketing Agreement and~~ Third Restated Agreement and included in the “Net sales” line in the Condensed Consolidated Statements of Operations are as follows:

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Gross commission $ 42.5 $ 42.1 $ 50.2 $ 42.1
Contribution expenses (4.5) (4.5) (9.0) (9.0)
Net commission 38.0 37.6 41.2 33.1
Reimbursements associated with Roundup® marketing agreement
26.6 17.0 40.6 30.3
Total net sales associated with Roundup® marketing agreement
$ 64.6 $ 54.6 $ 81.8 $ 63.4


	Three Months Ended
	January 1, 2022		January 2, 2021

Gross commission	$	5.7	$	7.7
Contribution expenses	(4.5)		(4.5)

Net commission	1.2		3.2
Reimbursements associated with Roundup® marketing agreement	19.6		14.0
Total net sales associated with Roundup® marketing agreement	$	20.8	$	17.2


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			(Dollars in millions, except per share data)

NOTE 7. DEBT

The components of debt are as follows:


		April 3, 2021		March 28, 2020		September 30, 2020			January 1, 2022		January 2, 2021		September 30, 2021

Credit Facilities:	Credit Facilities:							Credit Facilities:
Revolving loans	Revolving loans	$	460.2	$	691.9	$	64.0	Revolving loans	$	856.5	$	599.6	$	—
Term loans	Term loans	690.0		740.0		710.0		Term loans	660.0		700.0		670.0
Senior Notes – 4.000%		500.0		0		0
Senior Notes – 4.500%		450.0		450.0		450.0
Senior Notes – 5.250%		250.0		250.0		250.0
Senior Notes due 2031 – 4.000%								Senior Notes due 2031 – 4.000%	500.0		—		500.0
Senior Notes due 2032 – 4.375%								Senior Notes due 2032 – 4.375%	400.0		—		400.0
Senior Notes due 2029 – 4.500%								Senior Notes due 2029 – 4.500%	450.0		450.0		450.0
Senior Notes due 2026 – 5.250%								Senior Notes due 2026 – 5.250%	250.0		250.0		250.0

Receivables facility	Receivables facility	160.0		160.0		20.0		Receivables facility	94.0		136.0		—
Finance lease obligations	Finance lease obligations	33.5		35.9		36.1		Finance lease obligations	31.9		34.8		33.4
Other	Other	7.6		8.7		1.1		Other	20.6		6.8		11.9
Total debt	Total debt	2,551.3		2,336.5		1,531.2		Total debt	3,263.0		2,177.2		2,315.3
Less current portions	Less current portions	212.8		212.2		66.4		Less current portions	160.7		188.0		57.8
Less unamortized debt issuance costs	Less unamortized debt issuance costs	16.0		10.5		9.7		Less unamortized debt issuance costs	20.1		9.4		20.8
Long-term debt	Long-term debt	$	2,322.5	$	2,113.8	$	1,455.1	Long-term debt	$	3,082.2	$	1,979.8	$	2,236.7

Credit Facilities

On July 5, 2018, the Company entered into a fifth amended and restated credit agreement (the “Fifth A&R Credit Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,300.0, 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”).

At ~~April 3, 2021,~~January 1, 2022, the Company had letters of credit outstanding in the aggregate principal amount of ~~$19.8~~$19.9 and had ~~$1,020.0~~$623.5 of borrowing availability under the Fifth A&R Credit Agreement. The weighted average interest rates on average borrowings under the Fifth A&R Credit Agreement were ~~1.9%~~1.8% and ~~3.7%~~2.1% for the ~~six~~three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020,~~ respectively.

The Fifth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s leverage ratio on the last day of each quarter 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 Fifth A&R Credit Agreement (“Adjusted EBITDA”). The maximum leverage ratio is 4.50. The Company’s leverage ratio was ~~2.11~~3.32 at ~~April 3, 2021.~~January 1, 2022. The Fifth A&R Credit Agreement also contains an affirmative covenant regarding the Company’s interest coverage ratio determined as of the end of each of its fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the Fifth A&R Credit Agreement, and excludes costs related to refinancings. The minimum interest coverage ratio was 3.00 for the twelve months ended ~~April 3, 2021.~~January 1, 2022. The Company’s interest coverage ratio was ~~13.58~~8.73 for the twelve months ended ~~April 3, 2021.~~January 1, 2022.

The Fifth A&R Credit Agreement allows the Company to make unlimited restricted payments (as defined in the Fifth A&R Credit Agreement), including dividend payments on, and repurchases of, ~~the common shares of Scotts Miracle-Gro (“~~Common ~~Shares”),~~Shares, as long as the leverage ratio resulting from the making of such restricted payments is 4.00 or less. Otherwise, the Company may make further restricted payments in an aggregate amount for each fiscal year not to exceed $225.0.

Senior Notes

On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026 (the “5.250% Senior Notes”). The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year. Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes.

On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”). The ~~net proceeds of the offering were used to redeem all of the Company’s outstanding 6.000%~~4.500% Senior Notes ~~due 2023 (the “6.000% Senior Notes”)~~represent general unsecured senior obligations and ~~for general corporate purposes. The 4.500% Senior Notes~~rank equal in right


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

~~represent general unsecured senior obligations and rank equal in right~~ of payment with the Company’s existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year. All of Scotts Miracle-Gro’s domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.500% Senior Notes.

On October 23, 2019, Scotts Miracle-Gro redeemed all of its outstanding 6.000% Senior Notes for a redemption price of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption premium, and $400.0 for outstanding principal amount. The $12.0 redemption premium was recognized in the “Costs related to refinancing” line on the Condensed Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, the Company had $3.1 in unamortized bond issuance costs associated with the 6.000% Senior Notes, which were written-off during the first quarter of fiscal 2020 and were recognized in the “Costs related to refinancing” line in the Condensed Consolidated Statements of Operations.

On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031 (the “4.000% Senior Notes”). ~~The net proceeds of the offering were used to reduce borrowings under the Fifth A&R Credit Facilities.~~ The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each ~~year, commencing October 1, 2021.~~year. All of Scotts Miracle-Gro’s domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.000% Senior Notes.

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. All of Scotts Miracle-Gro’s domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.375% Senior Notes.

Receivables Facility

On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended ~~annually~~ (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”). Under the Receivables Facility, the Company may sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers and simultaneously agree to repurchase the receivables on a weekly basis. The eligible accounts receivable consist of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts receivables which may be sold under the Receivables Facility is $400.0 and the commitment amount during the seasonal commitment period beginning on February ~~26, 2021~~25, 2022 and ending on June ~~18, 2021~~17, 2022 is $160.0. The Receivables Facility expires on August ~~20, 2021.~~19, 2022.

The Company accounts for the sale of receivables under the Receivables Facility as short-term debt and continues to carry the receivables on its Condensed Consolidated Balance Sheets, primarily as a result of the Company’s requirement to repurchase receivables sold. As of ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020,~~ there were ~~$160.0~~$94.0 and $136.0, respectively, in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was ~~$177.8.~~$104.4 and $151.1, respectively.

Interest Rate Swap Agreements

The Company has outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of ~~April 3,~~January 1, 2022, January 2, 2021 ~~March 28, 2020~~ and September 30, ~~2020~~2021 had a maximum total U.S. dollar equivalent notional amount of ~~$900.0, $850.0 and $600.0, respectively.~~$600.0. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at ~~April 3, 2021~~January 1, 2022 are shown in the table below:


Notional Amount	Notional Amount		Effective Date (a)	Expiration Date	Fixed Rate		Notional Amount		Effective Date (a)	Expiration Date	Fixed Rate
$	200	(b)	11/7/2018	6/7/2021	2.87	%
100			11/7/2018	7/7/2021	2.96	%
200			11/7/2018	10/7/2021	2.98	%
100	100		12/21/2020	6/20/2023	1.36	%	100		12/21/2020	6/20/2023	1.36	%
300	300	(b)	1/7/2021	6/7/2023	1.34	%	300	(b)	1/7/2021	6/7/2023	1.34	%
200	200		10/7/2021	6/7/2023	1.37	%	200		10/7/2021	6/7/2023	1.37	%
200	200	(b)	1/20/2022	6/20/2024	0.58	%	200	(b)	1/20/2022	6/20/2024	0.58	%
200	200		6/7/2023	6/8/2026	0.85	%	200		6/7/2023	6/8/2026	0.85	%

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

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

Weighted Average Interest Rate

The weighted average interest rates on the Company’s debt were 3.6% and 3.8% for the three months ended January 1, 2022 and January 2, 2021, respectively.


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

~~Weighted Average Interest Rate~~

~~The weighted average interest rates on the Company’s debt were 3.5% and 4.3% for the six months ended April 3, 2021 and March 28, 2020, respectively.~~

NOTE 8. EQUITY

The following tables provide a summary of the changes in total equity, equity attributable to controlling interest, and equity attributable to noncontrolling interests for each of the periods indicated:


		Common Shares and Capital in Excess of Stated Value		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss		Total Equity - Controlling Interest		Noncontrolling Interest		Total Equity			Common Shares and Capital in Excess of Stated Value		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss		Total Equity - Controlling Interest		Noncontrolling Interest		Total Equity
Balance at September 30, 2020		$	482.5	$	1,235.6	$	(921.8)	$	(99.1)	$	697.2	$	5.7	$	702.9
Balance at September 30, 2021																Balance at September 30, 2021	$	477.0	$	1,605.1	$	(1,002.4)	$	(66.4)	$	1,013.3	$	—	$	1,013.3

Net income (loss)	Net income (loss)	—		24.4		—		—		24.4		0.8		25.2		Net income (loss)	—		(50.0)		—		—		(50.0)		—		(50.0)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		15.6		15.6		—		15.6		Other comprehensive income (loss)	—		—		—		5.7		5.7		—		5.7
Share-based compensation	Share-based compensation	8.2		—		—		—		8.2		—		8.2		Share-based compensation	7.3		—		—		—		7.3		—		7.3
Dividends declared ($0.62 per share)		—		(35.7)		—		—		(35.7)		—		(35.7)
Dividends declared ($0.66 per share)																Dividends declared ($0.66 per share)	—		(37.3)		—		—		(37.3)		—		(37.3)
Treasury share purchases	Treasury share purchases	—		—		(38.4)		—		(38.4)		—		(38.4)		Treasury share purchases	—		—		(129.5)		—		(129.5)		—		(129.5)
Treasury share issuances	Treasury share issuances	(0.1)		—		1.3		—		1.2		—		1.2		Treasury share issuances	2.6		—		19.5		—		22.1		—		22.1

Balance at January 2, 2021		$	490.5	$	1,224.4	$	(958.8)	$	(83.5)	$	672.6	$	6.4	$	679.0

Net income (loss)		—		310.0		—		—		310.0		0.2		310.2
Other comprehensive income (loss)		—		—		—		5.5		5.5		—		5.5
Share-based compensation		17.7		—		—		—		17.7		—		17.7
Dividends declared ($0.62 per share)		—		(34.2)		—		—		(34.2)		—		(34.2)
Treasury share purchases		—		—		(23.8)		—		(23.8)		—		(23.8)
Treasury share issuances		(21.7)		—		28.3		—		6.6		—		6.6
Acquisition of noncontrolling interests		(13.4)		—		—		—		(13.4)		(6.7)		(20.1)
Balance at April 3, 2021		$	473.0	$	1,500.2	$	(954.3)	$	(78.0)	$	940.9	$	0	$	940.9
Balance at January 1, 2022																Balance at January 1, 2022	$	486.9	$	1,517.8	$	(1,112.4)	$	(60.7)	$	831.6	$	—	$	831.6

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


		Common Shares and Capital in Excess of Stated Value		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss		Total Equity - Controlling Interest		Noncontrolling Interest		Total Equity			Common Shares and Capital in Excess of Stated Value		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss		Total Equity - Controlling Interest		Noncontrolling Interest		Total Equity
Balance at September 30, 2019		$	442.2	$	1,274.7	$	(904.3)	$	(93.9)	$	718.7	$	4.5	$	723.2
Balance at September 30, 2020																Balance at September 30, 2020	$	482.5	$	1,235.6	$	(921.8)	$	(99.1)	$	697.2	$	5.7	$	702.9

Net income (loss)	Net income (loss)	—		(71.4)		—		—		(71.4)		0.1		(71.3)		Net income (loss)	—		24.4		—		—		24.4		0.8		25.2
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		2.9		2.9		—		2.9		Other comprehensive income (loss)	—		—		—		15.6		15.6		—		15.6
Share-based compensation	Share-based compensation	7.0		—		—		—		7.0		—		7.0		Share-based compensation	8.2		—		—		—		8.2		—		8.2
Dividends declared ($0.58 per share)		—		(33.5)		—		—		(33.5)		—		(33.5)

Dividends declared ($0.62 per share)																Dividends declared ($0.62 per share)	—		(35.7)		—		—		(35.7)		—		(35.7)
Treasury share purchases																Treasury share purchases	—		—		(38.4)		—		(38.4)		—		(38.4)
Treasury share issuances	Treasury share issuances	(0.3)		—		1.2		—		0.9		—		0.9		Treasury share issuances	(0.1)		—		1.3		—		1.2		—		1.2

Balance at December 28, 2019		$	448.9	$	1,169.8	$	(903.1)	$	(91.0)	$	624.6	$	4.7	$	629.3
Net income (loss)		—		252.2		—		—		252.2		0.2		252.4
Other comprehensive income (loss)		—		—		—		(16.9)		(16.9)		—		(16.9)
Share-based compensation		12.0		—		—		—		12.0		—		12.0
Dividends declared ($0.58 per share)		—		(33.0)		—		—		(33.0)		—		(33.0)
Treasury share purchases		—		—		(52.9)		—		(52.9)		—		(52.9)
Treasury share issuances		(10.5)		—		14.2		—		3.7		—		3.7

Balance at March 28, 2020		$	450.5	$	1,389.0	$	(941.9)	$	(107.9)	$	789.7	$	4.9	$	794.6
Balance at January 2, 2021																Balance at January 2, 2021	$	490.5	$	1,224.4	$	(958.8)	$	(83.5)	$	672.6	$	6.4	$	679.0

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


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

Accumulated Other Comprehensive Loss

Changes in ~~AOCL~~accumulated other comprehensive loss (“AOCL”) by component were as follows for each of the periods indicated:


		Three Months Ended									Three Months Ended
		Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) On Derivative Instruments		Net Unrealized Gain (Loss) in Pension and Other Post-Retirement Benefits		Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustments		Net Unrealized Gains (Losses) On Derivative Instruments		Net Unrealized Gains (Losses) On Securities		Pension and Other Post-Retirement Benefit Adjustments		Accumulated Other Comprehensive Income (Loss)
Balance at January 2, 2021		$	6.2	$	(10.7)	$	(79.0)	$	(83.5)
Balance at September 30, 2021										Balance at September 30, 2021	$	(1.7)	$	10.2	$	(2.3)	$	(72.5)	$	(66.4)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(4.3)		10.0		0		5.7		Other comprehensive income (loss) before reclassifications	(4.3)		13.0		0.1		—		8.8
Amounts reclassified from accumulated other comprehensive net income (loss)	Amounts reclassified from accumulated other comprehensive net income (loss)	0		2.7		0.5		3.2		Amounts reclassified from accumulated other comprehensive net income (loss)	—		(0.3)		—		0.7		0.4
Income tax benefit (expense)	Income tax benefit (expense)	0		(3.3)		(0.1)		(3.4)		Income tax benefit (expense)	—		(3.3)		—		(0.2)		(3.5)
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	(4.3)		9.4		0.4		5.5		Net current period other comprehensive income (loss)	(4.3)		9.4		0.1		0.5		5.7
Balance at April 3, 2021		$	1.9	$	(1.3)	$	(78.6)	$	(78.0)
Balance at January 1, 2022										Balance at January 1, 2022	$	(6.0)	$	19.5	$	(2.2)	$	(72.1)	$	(60.7)

Balance at December 28, 2019		$	(12.8)	$	(8.7)	$	(69.5)	$	(91.0)
Balance at September 30, 2020										Balance at September 30, 2020	$	(6.2)	$	(15.1)	$	—	$	(77.8)	$	(99.1)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(9.9)		(15.0)		0		(24.9)		Other comprehensive income (loss) before reclassifications	12.4		3.4		—		—		15.8
Amounts reclassified from accumulated other comprehensive net income (loss)	Amounts reclassified from accumulated other comprehensive net income (loss)	0		2.6		2.9		5.5		Amounts reclassified from accumulated other comprehensive net income (loss)	—		2.6		—		(1.6)		1.0
Income tax benefit (expense)	Income tax benefit (expense)	0		3.2		(0.7)		2.5		Income tax benefit (expense)	—		(1.6)		—		0.4		(1.2)
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	(9.9)		(9.2)		2.2		(16.9)		Net current period other comprehensive income (loss)	12.4		4.4		—		(1.2)		15.6
Balance at March 28, 2020		$	(22.7)	$	(17.9)	$	(67.3)	$	(107.9)
Balance at January 2, 2021										Balance at January 2, 2021	$	6.2	$	(10.7)	$	—	$	(79.0)	$	(83.5)

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

Six Months Ended
Foreign Currency
Translation Adjustments Net Unrealized Gain (Loss)
On Derivative Instruments Net Unrealized Gain (Loss) in
Pension and Other Post-Retirement Benefits Accumulated Other
Comprehensive Income (Loss)
Balance at September 30, 2020 $ (6.2) $ (15.1) $ (77.8) $ (99.1)
Other comprehensive income (loss) before reclassifications 8.1 13.4 0 21.5
Amounts reclassified from accumulated other comprehensive net income (loss) 0 5.3 (1.1) 4.2
Income tax benefit (expense) 0 (4.9) 0.3 (4.6)
Net current period other comprehensive income (loss) 8.1 13.8 (0.8) 21.1
Balance at April 3, 2021 $ 1.9 $ (1.3) $ (78.6) $ (78.0)
Balance at September 30, 2019 $ (17.4) $ (8.1) $ (68.4) $ (93.9)
Other comprehensive income (loss) before reclassifications (5.3) (16.8) 0 (22.1)
Amounts reclassified from accumulated other comprehensive net income (loss) 0 3.6 1.5 5.1
Income tax benefit (expense) 0 3.4 (0.4) 3.0
Net current period other comprehensive income (loss) (5.3) (9.8) 1.1 (14.0)
Balance at March 28, 2020 $ (22.7) $ (17.9) $ (67.3) $ (107.9)

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


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

Dividends

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

~~Share Repurchases~~

Share Repurchases

On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0 of Common Shares from April 30, 2020 through March 25, 2023. The authorization provides the Company with flexibility to purchase Common Shares from time to time in open market purchases or through privately negotiated transactions. All or part of the repurchases may be made under Rule 10b5-1 plans, which the Company may enter into from time to time and which enable the repurchases to occur on a more regular basis, or pursuant to accelerated share repurchases. The share repurchase authorization may be suspended or discontinued by the Board of Directors at any time, and there can be no guarantee as to the timing or amount of any repurchases. ~~There were~~ ~~0 share~~ ~~repurchases under this share repurchase authorization during fiscal 2020.~~ During the three ~~andsix~~months ended ~~April 3,~~January 1, 2022 and January 2, 2021, Scotts Miracle-Gro repurchased approximately ~~0.1~~0.8 million and ~~0.3~~0.2 million Common Shares under this share repurchase authorization for ~~$12.5~~$125.0 and ~~$50.5,~~$38.0, respectively. The “Treasury share purchases” lines in the tables above include cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation of ~~$11.3~~$4.5 and ~~$11.7~~$0.3 for the three ~~andsix~~months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~respectively, and $4.7 for~~ respectively.~~the three and six months ended March 28, 2020.~~

~~Share-Based Awards~~

~~The following is a summary of the share-based awards granted during each of the periods indicated:~~

Six Months Ended
April 3,
2021 March 28,
2020
Employees
Options 183,553 0
Restricted stock units 61,749 117,266
Performance units 1,903 37,166
Non-Employee Directors
Restricted and deferred stock units 8,187 15,483
Total share-based awards 255,392 169,915
Aggregate fair value at grant dates $ 27.9 $ 20.6

~~Total share-based compensation was as follows for each of the periods indicated:~~

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Share-based compensation $ 17.7 $ 12.0 $ 25.8 $ 19.0
Related tax benefit recognized 1.9 2.1 3.9 3.8

1615


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

~~Stock Options~~Share-Based Awards

~~Stock option activity~~The following is a summary of the share-based awards granted during each of the ~~six months ended April 3, 2021~~periods indicated:


	Three Months Ended
	January 1, 2022		January 2, 2021
Employees

Restricted stock units	4,818		1,687

Non-Employee Directors
Restricted and deferred stock units	434		595
Total share-based awards	5,252		2,282

Aggregate fair value at grant dates	$	0.8	$	0.3

Total share-based compensation was as ~~follows:~~

No. of
Options Wtd. Avg.
Exercise Price
Awards outstanding at September 30, 2020 619,225 $ 57.90
Granted 183,553 236.53
Exercised (99,902) 61.45
Awards outstanding at April 3, 2021 702,876 104.04
Exercisable 519,323 57.21

At April 3, 2021, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested stock options not yet recognized was $4.1, which is expected to be recognized over a weighted-average period of 2.7 years. The total intrinsic value of stock options exercised was $17.1follows for the six months ended April 3, 2021. Cash received from the exercise of stock options, including amounts received from employee purchases under the employee stock purchase plan, was $7.5 and $2.1 for the six months ended April 3, 2021 and March 28, 2020, respectively. The following summarizes certain information pertaining to stock option awards outstanding and exercisable at April 3, 2021:

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
$42.60 - $42.60 0.1 0.80 $ 42.60 0.1 0.80 $ 42.60
$59.62 - $64.55 0.4 4.34 62.18 0.4 4.34 62.18
$236.53 - $236.53 0.2 9.84 236.53 0 0 0
0.7 5.11 104.04 0.5 3.44 57.21

~~The intrinsic values~~each of the ~~stock option~~periods indicated:


	Three Months Ended
	January 1, 2022		January 2, 2021

Share-based compensation	$	7.3	$	8.2
Related tax benefit recognized	1.8		2.0

Performance-based awards ~~outstanding and exercisable at April 3, 2021 were as follows:~~


~~Outstanding~~	$	~~102.6~~
~~Exercisable~~	~~100.1~~

~~The grant date~~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 ~~stock option~~$43.3 on the date of grant to certain senior executives as part of its Project Focus initiative. These awards ~~is estimated using~~provided for a ~~binomial model. Expected market price volatility is~~five-year vesting period based on ~~implied volatilities~~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 were achieved, vested shares may range from ~~traded options on Common Shares~~50 to 250 percent of the target award amount. The Company’s actual performance far exceeded the pre-defined performance goals of this award. As a result, the participants earned the maximum payout equal to 250% of the target shares granted (for a total payout of 1.1 million shares). As of December 1, 2021, the award payout was both fully earned and ~~historical volatility specific~~fully vested and the vested shares were delivered to the recipients on January 30, 2022. As such, these units are included in the computation of weighted-average common shares used for the Company’s basic income per Common ~~Shares. Historical data, including demographic factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within~~ Share calculation for 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. The weighted average assumptions for awards granted in fiscal 2021 are as follows:



three ~~Expected market price volatility~~	~~31.9~~		%
~~Risk-free interest rate~~	~~0.7~~		%
~~Expected dividend yield~~	~~1.8~~		%
~~Expected life of stock options in years~~	~~6.06~~
~~Estimated weighted-average fair value per stock option~~	$	~~61.15~~

~~Restricted share-based awards~~

~~Restricted share-based award activity (including restricted stock units and deferred stock units) during the six~~ months ended ~~April 3, 2021 was as follows:~~ January 1, 2022.

No. of
Units Wtd. Avg. Grant Date
Fair Value per Unit
Awards outstanding at September 30, 2020 500,237 $ 94.53
Granted 69,936 232.70
Vested (132,105) 97.00
Forfeited (5,630) 98.67
Awards outstanding at April 3, 2021 432,438 116.07

~~At April 3, 2021, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested restricted stock~~

1716


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

units not yet recognized was $13.8, which is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of restricted stock units and deferred stock units vested was $29.5 for the six months ended April 3, 2021.

~~Performance-based awards~~

~~Performance-based award activity during the six months ended April 3, 2021 was as follows (based on target award amounts):~~

No. of
Units Wtd. Avg. Grant Date
Fair Value per Unit
Awards outstanding at September 30, 2020 666,128 $ 92.85
Granted 1,903 236.53
Vested (1)
(26,729) 87.99
Forfeited (63,959) 90.91
Awards outstanding at April 3, 2021 577,343 96.75

~~(1) Vested at an average of 196 percent of the target performance share units granted.~~

At April 3, 2021, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested performance-based units not yet recognized was $16.9, which is expected to be recognized over a weighted-average period of 1.3 years. The total fair value of performance-based units vested was $11.9 for the six months ended April 3, 2021.

NOTE 9. EARNINGS PER COMMON SHARE

The following table presents information necessary to calculate basic and diluted income per Common Share.

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Income from continuing operations $ 311.1 $ 249.8 $ 336.2 $ 178.5
Net income attributable to noncontrolling interest (0.2) (0.2) (0.9) (0.3)
Income attributable to controlling interest from continuing operations 310.9 249.6 335.3 178.2
Income (loss) from discontinued operations, net of tax (0.9) 2.6 (0.9) 2.6
Net income attributable to controlling interest $ 310.0 $ 252.2 $ 334.4 $ 180.8
Basic Income Per Common Share:
Weighted-average Common Shares outstanding
during the period 55.7 55.7 55.7 55.7
Income from continuing operations $ 5.58 $ 4.48 $ 6.02 $ 3.20
Income (loss) from discontinued operations (0.01) 0.05 (0.02) 0.05
Net income $ 5.57 $ 4.53 $ 6.00 $ 3.25
Diluted Income Per Common Share:
Weighted-average Common Shares outstanding
during the period 55.7 55.7 55.7 55.7
Dilutive potential Common Shares 1.4 0.7 1.3 0.9
Weighted-average number of Common Shares outstanding and dilutive potential Common Shares 57.1 56.4 57.0 56.6
Income from continuing operations $ 5.44 $ 4.43 $ 5.88 $ 3.15
Income (loss) from discontinued operations (0.01) 0.04 (0.01) 0.04
Net income $ 5.43 $ 4.47 $ 5.87 $ 3.19


	Three Months Ended
	January 1, 2022		January 2, 2021

Income (loss) from continuing operations	$	(50.0)	$	25.2
Net income attributable to noncontrolling interest	—		(0.8)
Income (loss) attributable to controlling interest from continuing operations	(50.0)		24.4
Income (loss) from discontinued operations, net of tax	—		—
Net income (loss) attributable to controlling interest	$	(50.0)	$	24.4
Basic income (loss) per common share:
Weighted-average common shares outstanding during the period	55.4		55.7
Income (loss) from continuing operations	$	(0.90)	$	0.44
Income (loss) from discontinued operations	—		—
Basic net income (loss) per common share	$	(0.90)	$	0.44
Diluted income (loss) per common share:
Weighted-average common shares outstanding during the period	55.4		55.7
Dilutive potential common shares	—		1.4
Weighted-average common shares outstanding during the period plus dilutive potential common shares	55.4		57.1
Income (loss) from continuing operations	$	(0.90)	$	0.43
Income (loss) from discontinued operations	—		—
Diluted net income (loss) per common share	$	(0.90)	$	0.43

Stock options with exercise prices greater than the average market price of the underlying Common Shares are excluded from the computation of diluted income per Common Share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. For the three ~~and six~~ months ended ~~April 3, 2021,~~January 1, 2022, the average number of out-of-the-money options was ~~0.1~~0.2 million. There were 0no out-of-the-money options for the three ~~and six~~ months ended ~~March 28, 2020.~~January 2, 2021.


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

NOTE 10. INCOME TAXES

The effective tax rates related to continuing operations for the ~~six~~three months ended ~~April 3,~~January 1, 2022 and January 2, 2021 were 22.7% and ~~March 28, 2020 were 23.1% and 25.2%~~23.9%, respectively. The effective tax rate used for interim reporting purposes is based on management’s best estimate of factors impacting the effective tax rate for the full fiscal year and includes the impact of discrete items recognized in the quarter. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year end.

Scotts Miracle-Gro or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Company is no longer subject to examination by these tax authorities for fiscal years prior to ~~2017.~~2018. There are currently no ongoing audits with respect to the U.S. federal jurisdiction. With respect to the foreign jurisdictions, a German audit covering fiscal years 2014 through 2017 is ~~underway~~in process with no known material impact to the financial statements. The Company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2012 through ~~2019.~~2020. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved.

The Company currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such


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

examinations are subject to significant uncertainty, the Company does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial position, results of operations or cash flows.

NOTE 11. 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 ~~April 3, 2021, $3.6~~January 1, 2022, $3.0 was accrued in the “Other liabilities” line in the Condensed Consolidated Balance Sheets for environmental actions, the majority of which are for site remediation. The Company believes that the amounts accrued are adequate to cover such known environmental exposures based on current facts and estimates of likely outcomes. Although it is reasonably possible that the costs to resolve such known environmental exposures will exceed the amounts accrued, any variation from accrued amounts is not expected to be material.

Other

The Company has been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from exposure to asbestos-containing products, apparently based on the Company’s historic use of vermiculite in certain of its products. In many of these cases, the complaints are not specific about the plaintiffs’ contacts with the Company or its products. The cases vary, but complaints in these cases generally seek unspecified monetary damages (actual, compensatory, consequential and punitive) from multiple defendants. The Company believes that the claims against it are without merit and is vigorously defending against them. No accruals have been recorded in the Company’s consolidated financial statements as the likelihood of a loss is not probable at this time; and the Company does not believe a reasonably possible loss would be material to, nor the ultimate resolution of these cases will have a material adverse effect on, the Company’s financial condition, results of operations or cash flows. There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results of operations or cash flows.

The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims individually and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of operations or cash flows.


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

NOTE 12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. To manage a portion of the volatility related to these exposures, the Company enters into various financial transactions. The utilization of these financial transactions is governed by policies covering acceptable counterparty exposure, instrument types and other hedging practices. The Company does not hold or issue derivative financial instruments for speculative trading purposes.

Exchange Rate Risk Management

The Company uses currency forward contracts to manage the exchange rate risk associated with intercompany loans and certain other balances denominated in foreign currencies. Currency forward contracts are valued using observable forward rates in commonly quoted intervals for the full term of the contracts. The notional amount of outstanding currency forward contracts was ~~$168.0, $141.2~~$164.2, $161.5 and ~~$160.1~~$180.3 at ~~April 3,~~January 1, 2022, January 2, 2021 ~~March 28, 2020~~ and September 30, ~~2020,~~2021, respectively. Contracts outstanding at ~~April 3, 2021~~January 1, 2022 will mature over the next fiscal quarter.


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

Interest Rate Risk Management

The Company enters into interest rate swap agreements as a means to hedge its variable interest rate risk on debt instruments. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. The Company has outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. Interest rate swap agreements are valued based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. The swap agreements had a maximum total U.S. dollar equivalent notional amount of ~~$900.0, $850.0 and~~ $600.0 at ~~April 3,~~January 1, 2022, January 2, 2021 ~~March 28, 2020~~ and September 30, ~~2020, respectively.~~2021. Refer to “NOTE 7. DEBT” for the terms of the swap agreements outstanding at ~~April 3, 2021.~~January 1, 2022. Included in the AOCL balance at ~~April 3, 2021~~January 1, 2022 was a loss of ~~$5.6~~$3.0 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, diesel and resin requirements. Commodity contracts are valued using observable commodity exchange prices in active markets. Included in the AOCL balance at ~~April 3, 2021~~January 1, 2022 was a gain of ~~$3.8~~$13.3 related to commodity hedges that is expected to be reclassified to earnings during the next twelve months, consistent with the timing of the underlying hedged transactions.

The Company had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:

Commodity

~~April 3,~~January 1,
~~2021~~2022

~~March 28,~~January 2,
~~2020~~2021

September 30,
~~2020~~2021

Urea

~~6,000~~58,500 tons

~~30,000~~40,500 tons

~~76,500~~94,500 tons

Resin

0— pounds

~~8,100,000~~4,000,000 pounds

~~9,100,000~~— pounds

Diesel

~~4,368,000~~4,662,000 gallons

~~5,418,000~~4,704,000 gallons

~~5,838,000~~5,880,000 gallons

Heating Oil

~~1,680,000~~2,184,000 gallons

~~1,890,000~~2,100,000 gallons

~~2,142,000~~2,268,000 gallons

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)
Derivatives Designated as Hedging Instruments	Balance Sheet Location	January 1, 2022		January 2, 2021		September 30, 2021


Interest rate swap agreements	Other assets	$	5.2	$	—	$	3.3
	Other current liabilities	(4.3)		(9.4)		(5.7)
	Other liabilities	(0.6)		(7.9)		(2.5)
Commodity hedging instruments	Prepaid and other current assets	9.6		2.1		13.9

Total derivatives designated as hedging instruments		$	9.9	$	(15.2)	$	9.0

Derivatives Not Designated as Hedging Instruments	Balance Sheet Location
Currency forward contracts	Prepaid and other current assets	$	1.1	$	—	$	3.4
	Other current liabilities	(0.2)		(6.6)		(0.2)
Commodity hedging instruments	Prepaid and other current assets	1.2		0.4		1.3

Total derivatives not designated as hedging instruments		2.1		(6.2)		4.5
Total derivatives		$	12.0	$	(21.4)	$	13.5


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (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)
Derivatives Designated As Hedging Instruments Balance Sheet Location April 3,
2021 March 28,
2020 September 30,
2020
Interest rate swap agreements Other assets $ 4.9 $ 0 $ 0
Other current liabilities (8.1) (10.5) (10.4)
Other liabilities (4.7) (11.1) (9.7)
Commodity hedging instruments Prepaid and other current assets 1.3 0 0.9
Other current liabilities 0 (1.6) (0.7)
Total derivatives designated as hedging instruments $ (6.6) $ (23.2) $ (19.9)
Derivatives Not Designated As Hedging Instruments Balance Sheet Location
Currency forward contracts Prepaid and other current assets $ 1.3 $ 4.5 $ 0.5
Other current liabilities (1.0) (0.4) (1.9)
Commodity hedging instruments Prepaid and other current assets 1.2 0 0
Other current liabilities 0 (1.9) (0.9)
Total derivatives not designated as hedging instruments 1.5 2.2 (2.3)
Total derivatives $ (5.1) $ (21.0) $ (22.2)

The effect of derivative instruments on AOCL, net of tax, and the Condensed Consolidated Statements of Operations for each of the periods presented was as follows:


Derivatives In Cash Flow Hedging Relationships		Amount Of Gain / (Loss) Recognized In AOCL
		Three Months Ended				Six Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Derivatives in Cash Flow Hedging Relationships										Derivatives in Cash Flow Hedging Relationships	Amount of Gain / (Loss) Recognized in AOCL
											Three Months Ended
											January 1, 2022		January 2, 2021

Interest rate swap agreements	Interest rate swap agreements	$	4.9	$	(10.1)	$	5.2	$	(9.7)	Interest rate swap agreements	$	2.8	$	0.3
Commodity hedging instruments	Commodity hedging instruments	2.5		(1.0)		4.7		(2.8)		Commodity hedging instruments	6.8		2.2
Total	Total	$	7.4	$	(11.1)	$	9.9	$	(12.5)	Total	$	9.6	$	2.5


Derivatives in Cash Flow Hedging Relationships	Reclassified from AOCL into Statement of Operations	Amount of Gain / (Loss)
		Three Months Ended
		January 1, 2022		January 2, 2021

Interest rate swap agreements	Interest expense	$	(0.8)	$	(1.8)
Commodity hedging instruments	Cost of sales	1.0		(0.1)
Total		$	0.2	$	(1.9)

Derivatives In Cash Flow Hedging Relationships Reclassified From AOCL Into
Statement Of Operations Amount Of Gain / (Loss)
Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Interest rate swap agreements Interest expense $ (2.3) $ (1.2) $ (4.1) $ (2.0)
Commodity hedging instruments Cost of sales 0.3 (0.7) 0.2 (0.7)
Total $ (2.0) $ (1.9) $ (3.9) $ (2.7)


Derivatives Not Designated As Hedging Instruments		Recognized In Statement Of Operations	Amount Of Gain / (Loss)
			Three Months Ended				Six Months Ended
			April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Derivatives Not Designated as Hedging Instruments											Derivatives Not Designated as Hedging Instruments	Recognized in Statement of Operations	Amount of Gain / (Loss)
													Three Months Ended
													January 1, 2022		January 2, 2021

Currency forward contracts	Currency forward contracts	Other income / expense, net	$	0.9	$	5.9	$	(7.1)	$	1.1	Currency forward contracts	Other income / expense, net	$	1.0	$	(8.0)
Commodity hedging instruments	Commodity hedging instruments	Cost of sales	1.4		(2.8)		2.1		(2.3)		Commodity hedging instruments	Cost of sales	0.6		0.7
Total	Total		$	2.3	$	3.1	$	(5.0)	$	(1.2)	Total		$	1.6	$	(7.3)

2120


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

NOTE 13. FAIR VALUE MEASUREMENTS

The following table summarizes the fair value of the Company’s assets and liabilities for which disclosure of fair value is required:


		January 1, 2022				January 2, 2021				September 30, 2021
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash equivalents	Level 1	$	1.6	$	1.6	$	3.3	$	3.3	$	222.5	$	222.5




Other
Investment securities in non-qualified retirement plan assets	Level 1	50.1		50.1		38.7		38.7		45.0		45.0


Convertible debt investments	Level 3	191.3		191.3		—		—		190.3		190.3

Liabilities




Debt instruments
Credit facilities – revolving loans	Level 2	856.5		856.5		599.6		599.6		—		—
Credit facilities – term loans	Level 2	660.0		660.0		700.0		700.0		670.0		670.0
Senior Notes due 2031 – 4.000%	Level 2	500.0		495.0		—		—		500.0		498.8
Senior Notes due 2032 – 4.375%	Level 2	400.0		399.0		—		—		400.0		402.0
Senior Notes due 2029 – 4.500%	Level 2	450.0		468.6		450.0		484.9		450.0		466.9
Senior Notes due 2026 – 5.250%	Level 2	250.0		256.6		250.0		263.4		250.0		258.1

Receivables facility	Level 2	94.0		94.0		136.0		136.0		—		—

Other debt	Level 2	20.6		20.6		6.8		6.8		11.9		11.9

April 3, 2021 March 28, 2020 September 30, 2020
Fair Value
Hierarchy
Level Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value
Assets:
Cash equivalents Level 1 $ 2.4 $ 2.4 $ 2.1 $ 2.1 $ 2.4 $ 2.4
Other
Investment securities in non-qualified retirement plan assets Level 1 43.5 43.5 22.6 22.6 29.8 29.8
Bonnie Option Level 3 0 0 11.3 11.3 23.3 23.3
Liabilities:
Debt instruments
Credit facilities – revolving loans Level 2 460.2 460.2 691.9 691.9 64.0 64.0
Credit facilities – term loans Level 2 690.0 690.0 740.0 740.0 710.0 710.0
Senior Notes – 4.000% Level 2 500.0 497.5 0 0 0 0
Senior Notes – 4.500% Level 2 450.0 464.6 450.0 400.5 450.0 476.4
Senior Notes – 5.250% Level 2 250.0 261.6 250.0 239.1 250.0 266.6
Receivables facility Level 2 160.0 160.0 160.0 160.0 20.0 20.0
Other debt Level 2 7.6 7.6 8.7 8.7 1.1 1.1

The cost basis of convertible debt investments was $193.1 at January 1, 2022 and September 30, 2021. There were no purchases of convertible debt investments during the three months ended January 1, 2022. During the three months ended January 1, 2022, the Company recorded an unrealized gain of $0.2 in AOCL and recorded investment income of $0.8 associated with its Level 3 convertible debt investments. The amortized cost basis of convertible debt investments was $194.2 and $193.4 at January 1, 2022 and September 30, 2021, respectively.

NOTE 14. LEASES

The Company leases certain property and equipment from third parties under various non-cancelable lease agreements, including industrial, commercial and office properties and equipment that support the management, manufacturing, distribution and research and development of products marketed and sold by the Company. The lease agreements generally require that the Company pay taxes, insurance and maintenance expenses related to the leased assets. At ~~April 3, 2021,~~January 1, 2022, there were no material operating leases that the Company had entered into ~~operating leases~~ that were yet to ~~commence with a combined total expected lease liability of $45.3.~~commence. 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 condensed consolidated financial statements for the three ~~and six~~ months ended ~~April 3, 2021~~January 1, 2022 and ~~March 28, 2020.~~January 2, 2021.

The Company leases certain vehicles (primarily cars and light trucks) under agreements that are cancellable after the first year, but typically continue on a month-to-month basis until canceled by the Company. The vehicle leases and certain other non-cancelable operating leases contain residual value guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. If all such vehicle leases had been canceled as of ~~April 3, 2021,~~January 1, 2022, the Company’s residual value guarantee would have approximated ~~$4.1.~~$5.0.

2221


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

Supplemental balance sheet information related to the Company’s leases was as follows:


		Balance Sheet Location	April 3, 2021		March 28, 2020		September 30, 2020			Balance Sheet Location	January 1, 2022		January 2, 2021		September 30, 2021

Operating leases:	Operating leases:								Operating leases:
Right-of-use assets	Right-of-use assets	Other assets	$	208.0	$	125.6	$	156.0	Right-of-use assets	Other assets	$	294.4	$	169.6	$	293.0

Current lease liabilities	Current lease liabilities	Other current liabilities	60.1		44.6		47.5		Current lease liabilities	Other current liabilities	70.2		52.9		66.4
Non-current lease liabilities	Non-current lease liabilities	Other liabilities	154.9		85.7		113.3		Non-current lease liabilities	Other liabilities	232.8		122.9		234.4
Total operating lease liabilities	Total operating lease liabilities		$	215.0	$	130.3	$	160.8	Total operating lease liabilities		$	303.0	$	175.8	$	300.8

Finance leases:	Finance leases:								Finance leases:
Right-of-use assets	Right-of-use assets	Property, plant and equipment, net	$	31.9	$	35.0	$	34.7	Right-of-use assets	Property, plant and equipment, net	$	29.8	$	33.3	$	31.3

Current lease liabilities	Current lease liabilities	Current portion of debt	5.3		4.7		5.2		Current lease liabilities	Current portion of debt	5.9		5.2		5.9
Non-current lease liabilities	Non-current lease liabilities	Long-term debt	28.2		31.2		30.9		Non-current lease liabilities	Long-term debt	26.0		29.6		27.5
Total finance lease liabilities	Total finance lease liabilities		$	33.5	$	35.9	$	36.1	Total finance lease liabilities		$	31.9	$	34.8	$	33.4

Components of lease cost were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

Operating lease cost (a)	Operating lease cost (a)	$	16.1	$	13.5	$	31.5	$	26.6	Operating lease cost (a)	$	20.9	$	15.4
Variable lease cost	Variable lease cost	12.1		3.5		15.2		5.8		Variable lease cost	9.7		3.1

Finance lease cost	Finance lease cost									Finance lease cost
Amortization of right-of-use assets	Amortization of right-of-use assets	1.5		1.4		3.0		2.3		Amortization of right-of-use assets	1.6		1.5
Interest on lease liabilities	Interest on lease liabilities	0.3		0.4		0.7		0.7		Interest on lease liabilities	0.3		0.4
Total finance lease cost	Total finance lease cost	$	1.8	$	1.8	$	3.7	$	3.0	Total finance lease cost	$	1.9	$	1.9

(a)Operating lease cost includes amortization of ROU assets of ~~$14.6~~$17.6 and ~~$27.9~~$13.3 for the three ~~and six~~ months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~respectively, and $11.8 and $22.9 for the three and six months ended March 28, 2020,~~ respectively. Short-term lease expense is excluded from operating lease cost and is not material.

Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:


		Six Months Ended						Three Months Ended
			April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net	Operating cash flows from operating leases, net		$	29.0	$	27.1	Operating cash flows from operating leases, net		$	20.2	$	13.9
Operating cash flows from finance leases	Operating cash flows from finance leases		0.7		0.7		Operating cash flows from finance leases		0.3		0.4
Financing cash flows from finance leases	Financing cash flows from finance leases		2.6		1.4		Financing cash flows from finance leases		1.4		1.3

Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:						Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases		$	77.6	$	19.4	Operating leases		$	20.6	$	25.6
Finance leases			0		11.9

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			NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
			(Dollars in millions, except per share data)

Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:


	~~April 3,~~January 1, ~~2021~~2022
Weighted-average remaining lease term (in years):
Operating leases	~~4.2~~5.4
Finance leases	~~8.2~~7.7

Weighted-average discount rate:
Operating leases	~~3.4~~3.2	%
Finance leases	~~4.3~~4.2	%

Maturities of lease liabilities by fiscal year for the Company’s leases as of ~~April 3, 2021~~January 1, 2022 were as follows:

Year Operating Leases Finance Leases
2021 (remainder of the year) $ 34.6 $ 3.3
2022 59.3 6.5
2023 44.3 6.6
2024 35.6 6.6
2025 29.2 2.4
Thereafter 30.0 14.8
Total lease payments 233.0 40.2
Less: Imputed interest (18.0) (6.7)
Total lease liabilities $ 215.0 $ 33.5


Year	Operating Leases		Finance Leases
2022 (remainder of the year)	$	59.7	$	5.3
2023	71.9		7.1
2024	62.8		7.1
2025	48.6		2.9
2026	32.6		1.9
Thereafter	54.8		13.6
Total lease payments	330.4		37.9
Less: Imputed interest	(27.4)		(6.0)
Total lease liabilities	$	303.0	$	31.9

NOTE 15. SEGMENT INFORMATION

The Company divides its operations into 3 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 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. In addition, Corporate consists of general and administrative expenses and certain other income and 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.

~~During the three months ended January 2, 2021, the Company changed its internal organization structure such that AeroGrow is now managed by~~ In addition, Corporate consists of general and ~~reported within the U.S. Consumer segment. Within the U.S. Consumer segment, AeroGrow is integrated into the Company’s overall direct to consumer focus~~administrative expenses and ~~strategy. AeroGrow was previously managed by~~certain other income and ~~reported within the Hawthorne segment. The prior period amounts have been reclassified to conform~~expense items not allocated to the new organization structure. This change in organization structure resulted in a change in the Company’s reporting units. As a result, goodwill included in impacted reporting units was reallocated using a relative fair value approach, resulting in $15.8 of goodwill reallocated from the Hawthorne segment to the U.S. Consumer segment during the three months ended January 2, 2021. In addition, the Company completed an assessment of potential goodwill impairment immediately before and after the reallocation and determined that no impairment existed.business segments.

The performance of each reportable segment is evaluated based on several factors, including income (loss) from continuing operations before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit (Loss)”). Senior management uses Segment Profit (Loss) to evaluate segment performance because the Company believes this measure is indicative of performance trends and the overall earnings potential of each segment.

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

The following tables present financial information for the Company’s reportable segments for the periods indicated:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

Net Sales:	Net Sales:									Net Sales:
U.S. Consumer	U.S. Consumer	$	1,374.0	$	1,113.2	$	1,782.2	$	1,278.6	U.S. Consumer	$	342.4	$	408.2
Hawthorne	Hawthorne	363.8		219.5		673.2		400.3		Hawthorne	190.6		309.4
Other	Other	91.0		50.1		122.0		69.7		Other	33.0		31.0
Consolidated	Consolidated	$	1,828.8	$	1,382.8	$	2,577.4	$	1,748.6	Consolidated	$	566.0	$	748.6

Segment Profit:
Segment Profit (Loss):										Segment Profit (Loss):
U.S. Consumer	U.S. Consumer	$	435.9	$	374.6	$	481.2	$	334.6	U.S. Consumer	$	10.7	$	45.3
Hawthorne	Hawthorne	41.4		23.8		81.8		36.3		Hawthorne	(5.3)		40.4
Other	Other	17.6		4.0		17.6		0.4		Other	1.3		—
Total Segment Profit		494.9		402.4		580.6		371.3
Total Segment Profit (Loss)										Total Segment Profit (Loss)	6.7		85.7
Corporate	Corporate	(48.1)		(36.9)		(82.7)		(63.0)		Corporate	(31.4)		(34.6)
Intangible asset amortization	Intangible asset amortization	(7.8)		(8.1)		(15.2)		(15.8)		Intangible asset amortization	(8.9)		(7.4)

Impairment, restructuring and other	Impairment, restructuring and other	(14.9)		(3.7)		(24.6)		(1.4)		Impairment, restructuring and other	(1.8)		(9.7)
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	(1.5)		0		(1.5)		0		Equity in loss of unconsolidated affiliates	(7.3)		—
Costs related to refinancing		0		0		0		(15.1)

Interest expense	Interest expense	(19.3)		(22.7)		(35.4)		(42.7)		Interest expense	(23.8)		(16.1)
Other non-operating income, net	Other non-operating income, net	0.9		2.8		16.1		5.4		Other non-operating income, net	1.8		15.2
Income from continuing operations before income taxes		$	404.2	$	333.8	$	437.3	$	238.7
Income (loss) from continuing operations before income taxes										Income (loss) from continuing operations before income taxes	$	(64.7)	$	33.1

The following table presents net sales by product category for the periods indicated:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

U.S. Consumer:	U.S. Consumer:									U.S. Consumer:
Lawn care										Lawn care	$	123.8	$	166.0
Growing media and mulch	Growing media and mulch	$	532.4	$	416.8	$	622.4	$	461.6	Growing media and mulch	80.0		90.0
Lawn care		530.3		451.2		696.3		502.0
Controls	Controls	142.2		115.0		204.7		143.8		Controls	54.8		62.5
Roundup® marketing agreement	Roundup® marketing agreement	63.8		54.1		81.1		63.0		Roundup® marketing agreement	20.8		17.3
Other, primarily gardening		105.3		76.1		177.7		108.2
Other										Other	63.0		72.4
Hawthorne:	Hawthorne:									Hawthorne:
Lighting	Lighting	108.5		59.9		223.8		120.7		Lighting	48.8		115.3
Growing environments										Growing environments	46.0		55.8
Nutrients	Nutrients	76.0		54.3		132.9		91.9		Nutrients	35.9		61.1
Growing media	Growing media	58.4		39.8		94.0		65.3		Growing media	29.9		35.6
Other, primarily hardware and growing environments		120.9		65.5		222.5		122.4
Other, primarily hardware										Other, primarily hardware	30.0		41.6
Other:	Other:									Other:
Growing media	Growing media	27.9		13.5		44.7		24.7		Growing media	15.0		16.8
Lawn care	Lawn care	34.4		20.9		39.2		24.3		Lawn care	2.6		4.8
Other, primarily gardening and controls	Other, primarily gardening and controls	28.7		15.7		38.1		20.7		Other, primarily gardening and controls	15.4		9.4
Total net sales	Total net sales	$	1,828.8	$	1,382.8	$	2,577.4	$	1,748.6	Total net sales	$	566.0	$	748.6

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			NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
			(Dollars in millions, except per share data)

The following table presents net sales by geographic area for the periods indicated:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

Net sales:	Net sales:									Net sales:
United States	United States	$	1,711.2	$	1,318.8	$	2,391.7	$	1,639.2	United States	$	506.7	$	680.5
International	International	117.6		64.0		185.7		109.4		International	59.3		68.1
		$	1,828.8	$	1,382.8	$	2,577.4	$	1,748.6		$	566.0	$	748.6

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Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this ~~discussion~~Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of ~~the~~our financial condition and results of operations ~~of The Scotts Miracle-Gro Company (“Scotts Miracle-Gro”) and its subsidiaries (collectively, together with Scotts Miracle-Gro, the “Company,” “we” or “us”)~~ by focusing on changes in certain key measures from year-to-year. This ~~Management’s Discussion and Analysis (“~~MD~~&A”)~~&A is divided into the following sections:

•Executive summary

•Results of operations

•Segment results

•Liquidity and capital resources

•Regulatory matters

•Critical accounting policies and estimates

This MD&A should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”). and our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

EXECUTIVE SUMMARY

WeThrough our U.S. Consumer and Other segments, we are the leading manufacturer and marketer of branded consumer lawn and garden products in North America. Our products are marketed under some of the most recognized brand names in the industry. Our key consumer lawn and garden brands include Scotts® and Turf Builder® lawn and grass seed products; Miracle-Gro® soil, plant food and insecticide, LiquaFeed® plant food and Osmocote® gardening and landscape products; and Ortho®, Home Defense® and Tomcat® branded insect control, weed control and rodent control products. We are the exclusive agent of Monsanto for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products within the United States and certain other specified countries. We also have a presence in similar branded consumer products in China. In addition, we own a 50% equity interest in Bonnie Plants, LLC, a joint venture with AFC, focused on planting, growing, developing, distributing, marketing and selling live plants.

Through our Hawthorne segment, we are the leading manufacturer, marketer and distributor of lighting, nutrients, growing media, growing environments and hardware products for indoor and hydroponic ~~gardening.~~gardening in North America. Our key brands include General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Can-Filters®, Sun System®, Gro Pro®, Mother Earth®, Hurricane®, Grower’s Edge® and Hydro-Logic®.

~~Beginning in fiscal 2015,~~On December 30, 2021, our Hawthorne segment ~~made a series~~completed the acquisition of ~~key acquisitions and investments, including General Hydroponics, Gavita, Botanicare, Vermicrop, Agrolux and Can-Filters. On June 4, 2018, our Hawthorne segment acquired~~ substantially all of the assets of ~~Sunlight Supply. At the time of the acquisition, Sunlight Supply was~~Luxx Lighting, Inc., a leading ~~developer, manufacturer, marketer and distributor~~provider of ~~horticultural, organics,~~ lighting ~~and hydroponic gardening products. Prior to the transaction, Sunlight Supply served as~~products for indoor growing that significantly strengthens our industry-leading lighting portfolio, for a ~~non-exclusive distributor~~purchase price of ~~our products. In connection with our acquisition of Sunlight Supply,~~$213.5.

During fiscal 2021, we announced the ~~launch~~creation of ~~an initiative called Project Catalyst. Project Catalyst is~~ a ~~company-wide restructuring effort to reduce operating costs throughout our U.S. Consumer, Hawthorne and Other segments and drive synergies from acquisitions within~~newly formed subsidiary, THC, which will focus on strategic minority non-equity investments in areas of the cannabis industry not currently pursued by our Hawthorne segment. This initiative is designed to allow us, in the future, to participate directly in a larger marketplace as the legal environment changes over time. On August 24, 2021, we made our initial investment under this initiative in the form of a $150.0 six-year convertible note issued to us by Toronto-based RIV Capital (CSE: RIV) (OTC: CNPOF), a cannabis investment and acquisition firm listed on the Canadian Securities Exchange. During the fourth quarter of fiscal 2021, we made additional minority non-equity investments of $43.1 in other entities focused on branded cannabis and high quality genetics. These investments include conversion features that would provide us with minority ownership interests in these entities if we exercise the conversion features. Refer to “NOTE 2. ACQUISITIONS AND INVESTMENTS” for more information regarding these investments.

Our operations are divided into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S. Consumer consists of our consumer lawn and garden business ~~located~~ in the ~~geographic~~ United States. Hawthorne consists of our indoor and hydroponic gardening business. Other primarily consists of our consumer lawn and garden business ~~in geographies other than~~outside the ~~U.S.~~United States. This division of reportable segments is consistent with how the segments report to and are managed by our ~~product sales to commercial nurseries, greenhouses and other professional customers.~~chief operating decision maker. In addition, Corporate consists of general and administrative expenses and certain other income and expense items not allocated to the business segments. ~~This division of reportable segments is consistent with how the segments report to and are managed by our chief operating decision maker.~~ See “SEGMENT RESULTS” below for additional information regarding our evaluation of segment performance.

Due to the seasonal nature of the lawn and garden business, significant portions of our products ship to our retail customers during our second and third fiscal quarters, as noted in the chart below. Our annual net sales are further concentrated in the second and third fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our products, thereby reducing retailers’ pre-season inventories. We follow a 13-week quarterly accounting cycle pursuant to which the first three fiscal quarters end on a Saturday and the fiscal year always ends on September 30. This fiscal calendar convention requires us to cycle forward the first three fiscal quarter ends every six years. Fiscal 2021 is impacted by this process and, as a result, our first quarter of fiscal 2021 had five additional days and our fourth quarter of fiscal 2021 will have six fewer days compared to the respective quarters of fiscal 2020. In addition, our second quarter of fiscal 2021 ended six days later than our second quarter of fiscal 2020 and those six days fall within our peak selling season. This resulted in an increase in net sales of approximately $122.5 and $176.9, and an increase in net income attributable to controlling interest from continuing operations per diluted share of $0.55 and $0.70 for the three and six months ended April 3, 2021, respectively, compared to the three and six months ended March 28, 2020.

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Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

Percent of Net Sales from Continuing
Operations by Quarter
2020 2019 2018
First Quarter 8.9 % 9.4 % 8.3 %
Second Quarter 33.5 % 37.7 % 38.1 %
Third Quarter 36.1 % 37.1 % 37.3 %
Fourth Quarter 21.5 % 15.8 % 16.3 %

On August 11, 2014, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $500.0 of Common Shares over a five-year period (effective November 1, 2014 through September 30, 2019). On August 3, 2016, Scotts Miracle-Gro announced that its Board of Directors authorized a $500.0 increaseDue to the ~~share repurchase authorization ending on September 30, 2019. On August 2, 2019, the Scotts Miracle-Gro Board of Directors authorized an extension~~seasonal nature of the ~~share repurchase authorization through March 28, 2020. The amended authorization allowed~~consumer lawn and garden business, for ~~repurchases~~our U.S. Consumer and Other segments, significant portions of ~~Common Shares of up~~our products ship to ~~an aggregate amount of $1,000.0 through March 28, 2020. During the three~~our retail customers during our second and six months ended 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 authorizationthird fiscal quarters, as noted in the table below. Our annual net sales are further concentrated in the second and third fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our products, thereby reducing retailers’ pre-season inventories. For our Hawthorne segment, sales are also impacted by seasonal patterns for certain product categories due to the timing of outdoor growing in North America during our second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during our third and fourth ~~quarter of~~ fiscal ~~2014 through March 28, 2020, Scotts Miracle-Gro repurchased approximately 8.7 million Common Shares for $762.8.~~quarters.


	Percent of Net Sales from Continuing Operations by Quarter
	2021		2020		2019
First Quarter	15.2	%	8.9	%	9.4	%
Second Quarter	37.1	%	33.5	%	37.7	%
Third Quarter	32.7	%	36.1	%	37.1	%
Fourth Quarter	15.0	%	21.5	%	15.8	%

On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0 of Common Shares from April 30, 2020 through March 25, 2023. ~~There were no share repurchases under this share repurchase authorization during fiscal 2020.~~ During the three ~~andsix~~months ended ~~April 3,~~January 1, 2022 and January 2, 2021, Scotts Miracle-Gro repurchased approximately ~~0.1~~0.8 million and ~~0.3~~0.2 million Common Shares under this share repurchase authorization for ~~$12.5~~$125.0 and ~~$50.5,~~$38.0, respectively.

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. In addition, on July 27, 2020, the Scotts Miracle-Gro Board of Directors approved an increase in our quarterly cash dividend from $0.58 to $0.62 per Common Share, which was first paid in the fourth quarter of fiscal 2020. On July 30, 2021, the Scotts Miracle-Gro Board of Directors approved an increase in our quarterly cash dividend from $0.62 to $0.66 per Common Share, which was first paid in the fourth quarter of fiscal 2021.

COVID-19 Response and Impacts

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 adversely affected the global economy and financial markets.

~~In response to the~~ COVID-19 pandemic has had, and continues to have, an impact on financial markets, economic conditions, and portions of our business and industry. 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. Many of our employees continue to work from home. In those instances where our employees cannot perform their work at home, we have implemented additional ~~measures intended to both protect the~~ health and safety ~~of our employees~~measures and ~~maintain our ability~~social distancing protocols, consistent with government recommendations and/or requirements, to ~~provide products~~help to our customers, including (i) requiring a significant part of our workforce to work from home, (ii) monitoring our employees for COVID-19 symptoms, (iii) making additional personal protective equipment available to our operations team, (iv) requiring all manufacturing and warehousing associates to takeensure their temperatures before beginning a shift, (v) modifying work methods and schedules of our manufacturing and field associates to create distance or add barriers between associates, consumers and others, (vi) expanding cleaning efforts at our operation centers, (vii) modifying attendance policies so that associates may elect to stay home if they have symptoms, (viii) prioritizing production for goods that are more essential to our customers and (ix) implementingsafety. In addition, we implemented an interim premium pay allowance for certain associates in our field sales force ~~or working in~~and our manufacturing or distribution ~~centers. As a result of these additional measures~~centers, which paid out nearly $50.0 in aggregate during fiscal 2020 and ~~initiatives, we have incurred incremental costs, mostly related to premium pay provided to our associates, and we expect to continue to incur incremental costs through the end of fiscal~~ 2021. While we believe that these efforts should enable us to maintain our operations during the COVID-19 pandemic, we can provide no assurance that we will be able to do so as a result of the unpredictability of the ultimate impact of the COVID-19 pandemic, including its length, severity and the responses of local, state, federal and foreign governmental authorities to the pandemic.

For our fiscal quarter ended April 3, 2021, we continued to experience increased demand for many of our products in response to the COVID-19 pandemic. The impacts of the pandemic remain uncertain and vary by geography, as infection rates of COVID-19 continue to increase in many regions, and authorities have taken different approaches to address the pandemic and resume economic activity. In those jurisdictions that were subject to business closures or limitations, our manufacturing and distribution operations were viewed as essential services and continued to operate. Likewise, our major retail partners were designated as essential services and remained open. The extent to which the COVID-19 pandemic will ~~ultimately~~ impact our business, results of operations, financial condition and cash flows ~~depends~~in the future will depend on future developments, ~~that~~including the duration, spread and intensity of the pandemic, our continued ability to manufacture and distribute our products, as well as any future government actions affecting consumers and the economy generally, all of which are ~~highly~~ uncertain ~~rapidly evolving~~ and difficult to predict ~~at this time. Depending on~~considering the ~~length and severity of~~rapidly evolving landscape. We are not able to predict the impact, if any, that the COVID-19 pandemic may have on the seasonality of our business.

Although we currently expect to be able to continue operating our business as described above and we intend to continue to work with government authorities and to follow the necessary protocols to maintain the health and safety of our employees, the COVID-19 pandemic could result in additional disruptions to our business, including our global supply chain and retailer network, and/or require us to incur additional operational costs. For additional information on the impacts of, and our response to, the COVID-19 pandemic, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2021 Annual Report.


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

RESULTS OF OPERATIONS

The following table sets forth the components of earnings as a percentage of net sales for the three months ended January 1, 2022 and January 2, 2021:


	January 1, 2022		% Of Net Sales		January 2, 2021		% Of Net Sales
Net sales	$	566.0	100.0	%	$	748.6	100.0	%
Cost of sales	447.3		79.0		548.8		73.3
Cost of sales—impairment, restructuring and other	—		—		9.0		1.2

Gross profit	118.7		21.0		190.8		25.5
Operating expenses:
Selling, general and administrative	154.1		27.2		156.7		20.9
Impairment, restructuring and other	1.8		0.3		0.7		0.1

Other income, net	(1.8)		(0.3)		(0.6)		(0.1)
Income (loss) from operations	(35.4)		(6.3)		34.0		4.5
Equity in loss of unconsolidated affiliates	7.3		1.3		—		—

Interest expense	23.8		4.2		16.1		2.2
Other non-operating income, net	(1.8)		(0.3)		(15.2)		(2.0)
Income (loss) from continuing operations before income taxes	(64.7)		(11.4)		33.1		4.4
Income tax expense (benefit) from continuing operations	(14.7)		(2.6)		7.9		1.1
Income (loss) from continuing operations	(50.0)		(8.8)		25.2		3.4
Income (loss) from discontinued operations, net of tax	—		—		—		—
Net income (loss)	$	(50.0)	(8.8)	%	$	25.2	3.4	%

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

Net Sales

Net sales for the three months ended January 1, 2022 were $566.0, a decrease of 24.4% from net sales of $748.6 for the three months ended January 2, 2021. These changes in net sales were attributable to the following:


	Three Months Ended
	January 1, 2022
Volume	(28.6)	%
Pricing	3.9
Acquisitions	0.3

Change in net sales	(24.4)	%

The decrease in net sales for the three months ended January 1, 2022 as compared to the three months ended January 2, 2021 was primarily driven by:

•decreased sales volume driven by lighting, nutrients, growing media, hardware and growing environments products in our Hawthorne segment; and fertilizer, soils and controls products in our U.S. Consumer segment;

•partially offset by increased pricing in our U.S. Consumer, Hawthorne and Other segments; and

•the addition of net sales from acquisitions.


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

experience an increase or decrease in future customer orders driven by volatility in retail foot traffic, consumer shopping and consumption behavior. We are not able to predict the impact, if any, that the COVID-19 pandemic may have on the seasonalityCost of ~~our business.~~

For additional information on the impacts and our response to the COVID-19 pandemic, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

~~RESULTS OF OPERATIONS~~Sales

The following table ~~sets forth~~shows the major components of ~~earnings as a percentage~~cost of ~~net~~sales for the periods indicated:


	Three Months Ended
		January 1, 2022		January 2, 2021
Materials		$	235.9	$	312.1
Distribution and warehousing		115.1		108.1
Manufacturing labor and overhead		76.7		114.6
Costs associated with Roundup® marketing agreement		19.6		14.0
Cost of sales		447.3		548.8
Cost of sales—impairment, restructuring and other		—		9.0

		$	447.3	$	557.8

Factors contributing to the change in cost of sales are outlined in the following table:


	Three Months Ended
	January 1, 2022
Volume, product mix and other	$	(112.8)
Material cost changes	5.7

Costs associated with Roundup® marketing agreement	5.6
	(101.5)
Impairment, restructuring and other	(9.0)

Change in cost of sales	$	(110.5)

The decrease in cost of sales for the three months ended ~~April 3,~~January 1, 2022 as compared to the three months ended January 2, 2021 was primarily driven by:

•lower sales volume in our U.S. Consumer and ~~March 28, 2020:~~Hawthorne segments; and

April 3,
2021 % Of
Net Sales March 28,
2020 % Of
Net Sales
Net sales $ 1,828.8 100.0 % $ 1,382.8 100.0 %
Cost of sales 1,158.9 63.4 829.2 60.0
Cost of sales—impairment, restructuring and other 12.4 0.7 3.4 0.2
Gross profit 657.5 36.0 550.2 39.8
Operating expenses:
Selling, general and administrative 231.5 12.7 195.6 14.1
Impairment, restructuring and other 2.5 0.1 0.3 —
Other (income) expense, net (0.6) — 0.6 —
Income from operations 424.1 23.2 353.7 25.6
Equity in loss of unconsolidated affiliates 1.5 0.1 — —
Interest expense 19.3 1.1 22.7 1.6
Other non-operating income, net (0.9) — (2.8) (0.2)
Income from continuing operations before income taxes 404.2 22.1 333.8 24.1
Income tax expense from continuing operations 93.1 5.1 84.0 6.1
Income from continuing operations 311.1 17.0 249.8 18.1
Income (loss) from discontinued operations, net of tax (0.9) — 2.6 0.2
Net income $ 310.2 17.0 % $ 252.4 18.3 %
•a decrease in impairment, restructuring and other charges as a result of lower costs associated with the COVID-19 pandemic;

~~The sum of~~•partially offset by higher material costs in our U.S. Consumer segment;

•higher transportation, warehousing and labor costs included within “volume, product mix and other” in our U.S. Consumer and Hawthorne segments; and

•an increase in costs associated with the ~~components may not equal due to rounding.~~Roundup® marketing agreement.


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			(Dollars in millions, except per share data)

~~The following table sets forth the components of earnings as a percentage of net sales for the six months ended April 3, 2021 and March 28, 2020:~~

April 3,
2021 % Of
Net Sales March 28,
2020 % Of
Net Sales
Net sales $ 2,577.4 100.0 % $ 1,748.6 100.0 %
Cost of sales 1,707.7 66.3 1,140.6 65.2
Cost of sales—impairment, restructuring and other 21.4 0.8 3.6 0.2
Gross profit 848.3 32.9 604.4 34.6
Operating expenses:
Selling, general and administrative 388.2 15.1 315.4 18.0
Impairment, restructuring and other 3.2 0.1 (2.2) (0.1)
Other (income) expense, net (1.2) — 0.1 —
Income from operations 458.1 17.8 291.1 16.6
Equity in loss of unconsolidated affiliates 1.5 0.1 — —
Costs related to refinancing — — 15.1 0.9
Interest expense 35.4 1.4 42.7 2.4
Other non-operating income, net (16.1) (0.6) (5.4) (0.3)
Income from continuing operations before income taxes 437.3 17.0 238.7 13.7
Income tax expense from continuing operations 101.1 3.9 60.2 3.4
Income from continuing operations 336.2 13.0 178.5 10.2
Income (loss) from discontinued operations, net of tax (0.9) — 2.6 0.1
Net income $ 335.3 13.0 % $ 181.1 10.4 %

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

~~Net Sales~~

Net sales for the three months ended April 3, 2021 were $1,828.8, an increase of 32.3% from net sales of $1,382.8 for the three months ended March 28, 2020. Net sales for the six months ended April 3, 2021 were $2,577.4, an increase of 47.4% from net sales of $1,748.6 for the six months ended March 28, 2020. These changes in net sales were attributable to the following:

Three Months Ended Six Months Ended
April 3, 2021 April 3, 2021
Volume 31.2 % 45.3 %
Pricing 0.5 1.5
Foreign exchange rates 0.6 0.6
Change in net sales 32.3 % 47.4 %

~~The increase in net sales for the three months ended April 3, 2021 as compared to the three months ended March 28, 2020 was primarily driven by:~~

•increased sales volume due to increased consumer demand including impacts of the COVID-19 pandemic and driven by soils, fertilizer, grass seed, controls, plant food and direct to consumer products in our U.S. Consumer segment; lighting, nutrients, growing media, hardware and growing environments products in our Hawthorne segment; increased sales in our Other segment; and the impact of the fiscal calendar shift which caused our second quarter of fiscal 2021 to end six days later than our second quarter of fiscal 2020 with those six days falling within our peak selling season, resulting in an increase in net sales of approximately $122.5;

•~~increased pricing in our Hawthorne and Other segments;~~

•~~increased net sales associated with the Roundup~~® ~~marketing agreement; and~~

•~~the favorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro and the Canadian dollar.~~


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

~~The increase in net sales for the six months ended April 3, 2021 as compared to the six months ended March 28, 2020 was primarily driven by:~~

•increased sales volume due to increased consumer demand including impacts of the COVID-19 pandemic and driven by soils, fertilizer, grass seed, controls, plant food and direct to consumer products in our U.S. Consumer segment; lighting, nutrients, growing media, hardware and growing environments products in our Hawthorne segment; increased sales in our Other segment; and the impact of the fiscal calendar shift which caused our first quarter of fiscal 2021 to have five additional days and our second quarter of fiscal 2021 to end six days later than our second quarter of fiscal 2020 with those six days falling within our peak selling season, resulting in an increase in net sales of approximately $176.9;

•~~increased pricing in our Hawthorne and Other segments;~~

•~~increased net sales associated with the Roundup~~® ~~marketing agreement; and~~

•~~the favorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro and the Canadian dollar.~~

~~Cost of Sales~~

~~The following table shows the major components of cost of sales for the periods indicated:~~

Three Months Ended Six Months Ended
April 3,
2021 March 28,
2020 April 3,
2021 March 28,
2020
Materials $ 680.9 $ 486.1 $ 995.3 $ 653.8
Manufacturing labor and overhead 235.3 183.3 347.5 250.1
Distribution and warehousing 216.1 142.8 324.3 206.4
Costs associated with Roundup® marketing agreement
26.6 17.0 40.6 30.3
Cost of sales 1,158.9 829.2 1,707.7 1,140.6
Cost of sales—impairment, restructuring and other 12.4 3.4 21.4 3.6
$ 1,171.3 $ 832.6 $ 1,729.1 $ 1,144.2

~~Factors contributing to the change in cost of sales are outlined in the following table:~~

Three Months Ended Six Months Ended
April 3, 2021 April 3, 2021
Volume, product mix and other $ 299.8 $ 524.8
Material cost changes 14.0 24.0
Costs associated with Roundup® marketing agreement
9.7 10.3
Foreign exchange rates 6.2 8.0
329.7 567.1
Impairment, restructuring and other 9.0 17.8
Change in cost of sales $ 338.7 $ 584.9

~~The increase in cost of sales for the three months ended April 3, 2021 as compared to the three months ended March 28, 2020 was primarily driven by:~~

•~~higher sales volume in our U.S. Consumer, Hawthorne and Other segments;~~

•~~higher material prices in our U.S. Consumer, Hawthorne and Other segments;~~

•~~higher transportation prices and warehousing costs included within “volume, product mix and other” in our U.S. Consumer and Hawthorne segments;~~

•~~the unfavorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro and the Canadian dollar;~~

•~~an increase in costs associated with the Roundup~~® ~~marketing agreement; and~~

•~~an increase in impairment, restructuring and other charges as a result of costs associated with the COVID-19 pandemic.~~


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

~~The increase in cost of sales for the six months ended April 3, 2021 as compared to the six months ended March 28, 2020 was primarily driven by:~~

•~~higher sales volume in our U.S. Consumer, Hawthorne and Other segments;~~

•~~higher material prices in our U.S. Consumer, Hawthorne and Other segments;~~

•~~higher transportation prices and warehousing costs included within “volume, product mix and other” in our U.S. Consumer and Hawthorne segments;~~

•~~the unfavorable impact of foreign exchange rates as a result of the weakening of the U.S. dollar relative to the euro and the Canadian dollar;~~

•~~an increase in costs associated with the Roundup~~® ~~marketing agreement; and~~

•~~an increase in impairment, restructuring and other charges as a result of costs associated with the COVID-19 pandemic.~~

Gross Profit

As a percentage of net sales, our gross profit rate was ~~36.0%~~21.0% and ~~39.8%~~25.5% for the three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020, respectively. As a percentage of net sales, our gross profit rate was 32.9% and 34.6% for the six months ended April 3, 2021 and March 28, 2020,~~ respectively. Factors contributing to the change in gross profit rate are outlined in the following table:

Three Months Ended Six Months Ended
April 3, 2021 April 3, 2021
Material costs (0.8) % (0.9) %
Volume, product mix and other (2.6) (0.9)
Roundup® commissions and reimbursements
(0.2) 0.1
Pricing 0.2 0.6
(3.4) % (1.1) %
Impairment, restructuring and other (0.4) (0.6)
Change in gross profit rate (3.8) % (1.7) %


	Three Months Ended
	January 1, 2022
Volume, product mix and other	(8.2)	%
Material costs	(1.0)
Roundup® commissions and reimbursements	(0.5)
Acquisitions	(0.1)
Pricing	4.1

	(5.7)	%
Impairment, restructuring and other	1.2

Change in gross profit rate	(4.5)	%

The decrease in gross profit rate for the three months ended ~~April 3, 2021~~January 1, 2022 as compared to the three months ended ~~March 28, 2020~~January 2, 2021 was primarily driven by:

•unfavorable leverage of fixed costs driven by lower sales volume in our U.S. Consumer and Hawthorne segments;

•decreased net sales associated with the Roundup® marketing agreement;

•higher transportation, ~~prices~~warehousing and ~~warehousing~~labor costs included within “volume, product mix and other” in our U.S. Consumer and Hawthorne segments; and

•higher material ~~prices~~costs in ~~our U.S. Consumer, Hawthorne and Other segments;~~

•~~unfavorable mix driven by higher sales growth in our Hawthorne segment relative to~~ our U.S. Consumer segment;

•~~an increase in costs associated with the Roundup~~® ~~marketing agreement; and~~

•~~an increase in impairment, restructuring and other charges as a result of costs associated with the COVID-19 pandemic;~~

•partially offset by ~~favorable leverage of fixed costs driven by higher sales volume~~increased pricing in our U.S. Consumer, Hawthorne and Other segments; and

•~~increased pricing in our Hawthorne and Other segments.~~

~~The~~a decrease ~~in gross profit rate for the six months ended April 3, 2021 as compared to the six months ended March 28, 2020 was primarily driven by:~~

•~~higher transportation prices and warehousing costs included within “volume, product mix and other” in our U.S. Consumer and Hawthorne segments;~~

•~~higher material prices in our U.S. Consumer, Hawthorne and Other segments;~~

•~~unfavorable mix driven by higher sales growth in our Hawthorne segment relative to our U.S. Consumer segment; and~~


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

•~~an increase~~ in impairment, restructuring and other ~~charges as a result of costs associated with the COVID-19 pandemic;~~

•~~partially offset by favorable leverage of fixed costs driven by higher sales volume in our U.S. Consumer, Hawthorne and Other segments;~~

•~~increased pricing in our Hawthorne and Other segments; and~~

•~~increased net sales associated with the Roundup~~® ~~marketing agreement.~~charges.

Selling, General and Administrative Expenses

The following table sets forth the components of selling, general and administrative expenses (“SG&A”) for the periods indicated:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021
Advertising	Advertising	$	68.8	$	56.0	$	95.5	$	66.8	Advertising		$	18.3	$	26.7
Research and development	Research and development	10.3		9.7		20.6		18.9		Research and development		12.5		10.3
Amortization of intangibles										Amortization of intangibles		7.4		7.3
Share-based compensation	Share-based compensation	17.7		12.0		25.8		19.0		Share-based compensation		7.3		8.2
Amortization of intangibles		7.3		7.9		14.5		15.4

Other selling, general and administrative	Other selling, general and administrative	127.4		110.0		231.8		195.3		Other selling, general and administrative		108.6		104.2
		$	231.5	$	195.6	$	388.2	$	315.4			$	154.1	$	156.7

SG&A ~~increased $35.9,~~decreased $2.6, or ~~18.4%~~1.7%, during the three months ended ~~April 3, 2021~~January 1, 2022 compared to the three months ended ~~March 28, 2020.~~January 2, 2021. Advertising expense ~~increased $12.8,~~decreased $8.4, or ~~22.9%~~31.5%, during the three months ended ~~April 3, 2021~~January 1, 2022 driven by ~~increased~~the timing of media spending in our U.S. Consumer ~~and Hawthorne segments and the timing of our media spending. Share-based compensation expense~~segment. Other SG&A increased ~~$5.7,~~$4.4, or ~~47.5%~~4.2%, during the three months ended April 3, 2021 due to an increase in the expected payout percentage on long-term performance-based awards and a higher annual grant value. Other SG&A increased $17.4, or 15.8%, during the three months ended April 3, 2021January 1, 2022 driven by increases in various categories supporting the continued growth of the business as well as higher people costs, partially offset by a decrease in short-term variable cash incentive compensation ~~expense and investments in information technology.~~

SG&A increased $72.8, or 23.1%, during the six months ended April 3, 2021 compared to the six months ended March 28, 2020. Advertising expense increased $28.7, or 43.0%, during the six months ended April 3, 2021 driven by increased media spending in our U.S. Consumer and Hawthorne segments and the timing of our media spending. Share-based compensation expense increased $6.8, or 35.8%, during the six months ended April 3, 2021 due to an increase in the expected payout percentage on long-term performance-based awards and a higher annual grant value. Other SG&A increased $36.5, or 18.7%, during the six months ended April 3, 2021 driven by higher short-term variable cash incentive compensation expense and investments in information technology.expense.

3330


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

Impairment, Restructuring and Other


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021
Cost of sales—impairment, restructuring and other:	Cost of sales—impairment, restructuring and other:									Cost of sales—impairment, restructuring and other:
COVID-19 related costs	COVID-19 related costs	$	12.3	$	3.1	$	21.0	$	3.1	COVID-19 related costs		$	—	$	8.7
Restructuring and other charges		0.1		0.3		0.4		0.5
Restructuring and other charges, net										Restructuring and other charges, net		—		0.3

Operating expenses:	Operating expenses:									Operating expenses:
COVID-19 related costs	COVID-19 related costs	2.6		0.7		3.2		0.7		COVID-19 related costs		—		0.6
Restructuring and other charges (recoveries), net		(0.1)		(0.4)		—		(2.9)
Restructuring and other charges, net										Restructuring and other charges, net		1.8		0.1

Impairment, restructuring and other charges from continuing operations	Impairment, restructuring and other charges from continuing operations	14.9		3.7		24.6		1.4		Impairment, restructuring and other charges from continuing operations		$	1.8	$	9.7
Restructuring and other charges (recoveries), net, from discontinued operations		—		(3.1)		—		(3.1)
Total impairment, restructuring and other charges (recoveries)		$	14.9	$	0.6	$	24.6	$	(1.7)

COVID-19

In response to the COVID-19 pandemic, we ~~have~~ implemented ~~additional~~ measures intended to ~~both~~ protect the health and safety of our employees and maintain our ability to provide products to our customers as described in additional detail above under “COVID-19 Response and Impacts.” Costs incurred during the three months ended January 1, 2022 were immaterial. During the three ~~and six~~ months ended ~~April 3,~~January 2, 2021, we incurred costs of ~~$14.9 and $24.2, respectively,~~$9.3 associated with the COVID-19 pandemic primarily related to premium pay. We incurred costs of $10.7 and $19.0 in our U.S. Consumer segment, $1.5 and $1.9 in our Hawthorne segment and $0.1 in our Other segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended April 3, 2021, respectively. We incurred costs of $2.6 and $3.2 in our U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended April 3, 2021, respectively. Since the inception of the COVID-19 pandemic, total costs classified within the “Cost of sales—impairment, restructuring and other” and the “Impairment, restructuring and other” lines in the Condensed Consolidated Statements of Operations are $38.4 for our U.S. Consumer segment, $4.5 for our Hawthorne segment and $0.7 for our Other segment.

During the three and six months ended March 28, 2020, we incurred costs of $3.8 associated with the COVID-19 pandemic primarily related to premium pay and incremental cleaning costs. We incurred costs of $2.6$8.3 in our U.S. Consumer segment and ~~$0.5~~$0.4 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three ~~and six~~ months ended ~~March 28, 2020.~~January 2, 2021. We incurred costs of ~~$0.7~~$0.6 in our U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three ~~and six~~ months ended ~~March 28, 2020.~~

~~Project Catalyst~~

In connection with the acquisition of Sunlight Supply during the third quarter of fiscal 2018, we announced the launch of an initiative called Project Catalyst, which is a company-wide restructuring effort to reduce operating costs throughout our U.S. Consumer, Hawthorne and Other segments and drive synergies from acquisitions within our Hawthorne segment. Costs incurred during the three and six months ended April 3, 2021 and March 28, 2020 related to Project Catalyst were not material. Costs incurred to date since the inception of Project Catalyst are $25.1 for the Hawthorne segment, $14.0 for our U.S. Consumer segment, $1.3 for our Other segment and $2.8 for Corporate. Additionally, during the three and six months ended March 28, 2020, we received zero and $2.6, respectively, from the final settlement of escrow funds related to a previous acquisition within the Hawthorne segment that was recognized in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations.


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

January 2, 2021.

Other ~~(Income) Expense,~~Income, net

Other ~~(income) expense~~income is comprised of activities ~~outside our normal business operations,~~ such as royalty income from the licensing of certain of our brand names, foreign exchange transaction gains and losses and gains and losses from the disposition of non-inventory assets. Other ~~(income) expense~~income was ~~$(0.6)~~$1.8 and $0.6 for the three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020, respectively; and was $(1.2) and $0.1 for the six months ended April 3, 2021 and March 28, 2020,~~ respectively. ~~The change for the three and six months ended April 3, 2021 was primarily due to foreign exchange transaction gains and losses.~~

Income (Loss) from Operations

~~Income~~Loss from operations was ~~$424.1~~$35.4 for the three months ended ~~April 3, 2021, an increase~~January 1, 2022, a decrease of ~~19.9%~~204.1% compared to ~~$353.7~~income from operations of $34.0 for the three months ended ~~March 28, 2020; and was $458.1 for the six months ended April 3, 2021, an increase of 57.4% compared to $291.1 for the six months ended March 28, 2020.~~January 2, 2021. For the three ~~and six~~ months ended ~~April 3, 2021,~~January 1, 2022, the ~~increase~~decrease was driven by ~~higher~~lower net sales ~~partially offset by~~and a decrease in gross profit rate, ~~higher~~partially offset by lower impairment, restructuring and other charges, lower SG&A and higher ~~impairment, restructuring and~~ other ~~charges.~~income.

Equity in Loss of Unconsolidated Affiliates

We acquired a 50% equity interest in Bonnie Plants, LLC on December 31, 2020. Our interest is accounted for using the equity method of accounting, with our proportionate share of Bonnie Plants, LLC earnings subsequent to December 31, 2020 reflected in the Condensed Consolidated Statements of Operations. ~~Equity~~During the three months ended January 1, 2022, we recorded equity in loss of unconsolidated affiliates of $7.3 associated with Bonnie Plants, LLC. We anticipated a net loss for Bonnie Plants, LLC ~~was $1.5 for~~in the ~~three and six months ended April 3, 2021.~~

~~Costs Related to Refinancing~~

~~Costs related to refinancing were zero and $15.1 for the three and six months ended March 28, 2020, respectively. These costs were associated with the redemption~~first quarter of ~~our 6.000% Senior Notes~~fiscal 2022 due ~~2023 (the “6.000% Senior Notes”), and are comprised of $12.0 of redemption premium and $3.1 of unamortized bond issuance costs that were written off. Refer to “NOTE 7. DEBT” of the Notes~~ to the ~~Condensed Consolidated Financial Statements (Unaudited) included~~seasonal nature of its business, in ~~this Quarterly Report on Form 10-Q for more information regarding~~which sales are heavily weighted to the ~~redemption of the 6.000% Senior Notes.~~spring and summer selling periods during our second and third fiscal quarters.

Interest Expense

Interest expense was ~~$19.3~~$23.8 for the three months ended ~~April 3, 2021, a decrease~~January 1, 2022, an increase of ~~15.0%~~47.8% compared to ~~$22.7~~$16.1 for the three months ended ~~March 28, 2020.~~January 2, 2021. The ~~decrease~~increase was driven by an increase in average borrowings of $927.7, partially offset by a decrease in our weighted average interest rate of 9516 basis ~~points, partially offset by an~~points. The increase in average borrowings ~~of $226.9.~~was primarily driven by higher inventory production, capital expenditures and acquisition activity. The decrease in our weighted average interest rate was primarily driven by lower borrowing rates on the Fifth A&R Credit Agreement, ~~and~~partially offset by the issuance of the 4.000% and 4.375% Senior ~~Notes due 2031 (the “4.000% Senior Notes”). The increase in average borrowings was primarily driven by higher inventory production and acquisition activity.~~Notes.

Interest expense was $35.4 for the six months ended April 3, 2021, a decrease of 17.1% compared to $42.7 for the six months ended March 28, 2020. The decrease was driven by a decrease our weighted average interest rate of 85 basis points, partially offset by an increase in average borrowings of $67.9. The decrease in our weighted average interest rate was driven by lower borrowing rates on the Fifth A&R Credit Agreement. The increase in average borrowings was primarily driven by higher inventory production and acquisition activity.


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

Other Non-Operating Income, ~~net~~Net

Other non-operating income was ~~$0.9~~$1.8 and ~~$2.8~~$15.2 for the three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020, respectively, and was $16.1 and $5.4 for the six months ended April 3, 2021 and March 28, 2020,~~ respectively.

On December 31, 2020, we acquired a 50% equity interest in Bonnie Plants, LLC in exchange for a cash payment of $100.7, forgiveness of our outstanding loan receivable with AFC and surrender of our options to increase our economic interest in the Bonnie Plants business. Our loan receivable with AFC, which was previously recognized in the “Other assets” line in the Condensed Consolidated Balance Sheets, had a carrying value of $66.4 on December 31, 2020 and we recognized a gain of $12.5 during the three months ended January 2, 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 Condensed Consolidated Statements of Operations.~~$78.9.

Income Tax Expense (Benefit) from Continuing Operations


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

impacting the effective tax rate for the full fiscal year. Factors affecting the estimated effective tax rate include assumptions as to income by jurisdiction (domestic and foreign), the availability and utilization of tax credits and the existence of elements of income and expense that may not be taxable or deductible. The estimated effective tax rate is subject to revision in later interim periods and at fiscal ~~year end~~year-end as facts and circumstances change during the course of the fiscal year. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal ~~year end.~~year-end.

Income (Loss) from Continuing Operations

~~Income~~Loss from continuing operations was ~~$311.1,~~$50.0, or ~~$5.44~~$0.90 per diluted share, for the three months ended ~~April 3, 2021~~January 1, 2022 compared to ~~$249.8,~~income from continuing operations of $25.2, or ~~$4.43~~$0.43 per diluted share, for the three months ended ~~March 28, 2020.~~January 2, 2021. The ~~increase~~decrease was driven by ~~higher~~lower net sales, ~~and lower interest expense, partially offset by~~ a decrease in gross profit rate, higher ~~SG&A, higher impairment, restructuring and other charges,~~interest expense, higher equity in loss of unconsolidated affiliates and lower other non-operating income, partially offset by lower impairment, restructuring and other charges, lower SG&A and higher ~~income tax expense.~~other income.

Diluted average common shares used in the diluted loss per common share calculation for the three months ended January 1, 2022 were 55.4 million, which excluded 1.3 million dilutive potential Common Shares because the effect of their inclusion would be anti-dilutive as the Company incurred a net loss for the three months ended January 1, 2022. Diluted average common shares used in the diluted income per common share calculation for the three months ended ~~April 3,~~January 2, 2021 were 57.1 million, which included 1.4 million dilutive potential Common Shares of 1.4 million. Diluted average common shares used in the diluted income per common share calculation for the three months ended March 28, 2020 were 56.4 million, which included dilutive potential Common Shares of 0.7 million. The increase was primarily the result of the exercise and issuance of share-based compensation awards, partially offset by Common Share repurchase activity.

Income from continuing operations was $336.2, or $5.88 per diluted share, for the six months ended April 3, 2021 compared to $178.5, or $3.15 per diluted share, for the six months ended March 28, 2020. The increase was driven by higher net sales, lower costs related to refinancing, lower interest expense and higher other non-operating income, partially offset by a decrease in gross profit rate, higher SG&A, higher impairment, restructuring and other charges, higher equity in loss of unconsolidated affiliates and higher income tax expense.

Diluted average common shares used in the diluted income per common share calculation for the six months ended April 3, 2021 were 57.0 million, which included dilutive potential Common Shares of 1.3 million. Diluted average common shares used in the diluted income per common share calculation for the six months ended March 28, 2020 were 56.6 million, which included dilutive potential Common Shares of 0.9 million. The increase was primarily the result of the exercise and issuance of share-based compensation awards, partially offset by Common Share repurchase activity.Shares.

SEGMENT RESULTS

During the three months ended January 2, 2021, we changed our internal organization structure such that AeroGrow is now managed by and reported within our U.S. Consumer segment. Within our U.S. Consumer segment, AeroGrow is integrated into our overall direct to consumer focus and strategy. AeroGrow was previously managed by and reported within our Hawthorne segment. The prior period amounts have been reclassified to conform to the new organization structure.

The performance of each reportable segment is evaluated based on several factors, including income (loss) from continuing operations before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit (Loss)”), which is a non-GAAP financial measure. Senior management uses Segment Profit (Loss) to evaluate segment performance because they believe this measure is indicative of performance trends and the overall earnings potential of each segment.

The following table sets forth net sales by segment:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021
U.S. Consumer	U.S. Consumer	$	1,374.0	$	1,113.2	$	1,782.2	$	1,278.6	U.S. Consumer		$	342.4	$	408.2
Hawthorne	Hawthorne	363.8		219.5		673.2		400.3		Hawthorne		190.6		309.4
Other	Other	91.0		50.1		122.0		69.7		Other		33.0		31.0
Consolidated	Consolidated	$	1,828.8	$	1,382.8	$	2,577.4	$	1,748.6	Consolidated		$	566.0	$	748.6

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The following table sets forth Segment Profit (Loss) as well as a reconciliation to income from continuing operations before income taxes, the most directly comparable GAAP measure:


		Three Months Ended				Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020				January 1, 2022		January 2, 2021
U.S. Consumer	U.S. Consumer	$	435.9	$	374.6	$	481.2	$	334.6	U.S. Consumer		$	10.7	$	45.3
Hawthorne	Hawthorne	41.4		23.8		81.8		36.3		Hawthorne		(5.3)		40.4
Other	Other	17.6		4.0		17.6		0.4		Other		1.3		—
Total Segment Profit (Non-GAAP)		494.9		402.4		580.6		371.3
Total Segment Profit (Loss) (Non-GAAP)										Total Segment Profit (Loss) (Non-GAAP)		6.7		85.7
Corporate	Corporate	(48.1)		(36.9)		(82.7)		(63.0)		Corporate		(31.4)		(34.6)
Intangible asset amortization	Intangible asset amortization	(7.8)		(8.1)		(15.2)		(15.8)		Intangible asset amortization		(8.9)		(7.4)

Impairment, restructuring and other	Impairment, restructuring and other	(14.9)		(3.7)		(24.6)		(1.4)		Impairment, restructuring and other		(1.8)		(9.7)
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	(1.5)		—		(1.5)		—		Equity in loss of unconsolidated affiliates		(7.3)		—
Costs related to refinancing		—		—		—		(15.1)

Interest expense	Interest expense	(19.3)		(22.7)		(35.4)		(42.7)		Interest expense		(23.8)		(16.1)
Other non-operating income, net	Other non-operating income, net	0.9		2.8		16.1		5.4		Other non-operating income, net		1.8		15.2
Income from continuing operations before income taxes (GAAP)		$	404.2	$	333.8	$	437.3	$	238.7
Income (loss) from continuing operations before income taxes (GAAP)										Income (loss) from continuing operations before income taxes (GAAP)		$	(64.7)	$	33.1

U.S. Consumer

U.S. Consumer segment net sales were ~~$1,374.0~~$342.4 in the ~~second~~first quarter of fiscal 2022, a decrease of 16.1% from first quarter of fiscal 2021 ~~an increase of 23.4% from second quarter of fiscal 2020~~ net sales of ~~$1,113.2; and were $1,782.2 for~~$408.2. The decrease was driven by the ~~first six months~~unfavorable impact of ~~fiscal 2021, an increase~~volume of ~~39.4% from the first six months of fiscal 2020 net sales of $1,278.6 . For the second quarter of fiscal 2021, the increase was driven~~20.1%, partially offset by the favorable impact of ~~volume of 23.7%, which includes the impact of the calendar shift, partially offset by the unfavorable impact of~~increased pricing of ~~0.3%~~4.0%. ~~For the six months ended April 3, 2021, the increase~~The decrease in sales volume was driven by ~~the favorable impacts of volume, which includes the impact of the calendar shift,~~fertilizer, soils and ~~pricing of 38.9% and 0.5%, respectively. The increase in sales volume for the three and six months ended April 3, 2021 was driven by soils, fertilizer, grass seed,~~ controls ~~plant food and direct to consumer products as well as increased net sales associated with the Roundup~~® ~~marketing agreement.~~products.

U.S. Consumer Segment Profit was ~~$435.9~~$10.7 in the ~~second~~first quarter of fiscal 2022, a decrease of 76.4% from the first quarter of fiscal 2021 ~~an increase of 16.4% from the second quarter of fiscal 2020~~ Segment Profit of $374.6; and was $481.2 for the first six months of fiscal 2021, an increase of 43.8% from the first six months of fiscal 2020 Segment Profit of $334.6. For the three and six months ended April 3, 2021, the increase$45.3. The decrease was due to ~~higher~~lower net sales ~~partially offset by~~and a lower gross profit rate, ~~and higher~~partially offset by lower SG&A.

Hawthorne

Hawthorne segment net sales were ~~$363.8~~$190.6 in the ~~second~~first quarter of fiscal 2022, a decrease of 38.4% from first quarter of fiscal 2021 ~~an increase of 65.7% from second quarter of fiscal 2020~~ net sales of ~~$219.5;~~$309.4. The decrease was driven by the unfavorable impacts of volume and ~~were $673.2 for the first six months~~foreign exchange rates of ~~fiscal 2021, an increase of 68.2% from the first six months of fiscal 2020 net sales of $400.3. For the second quarter of fiscal 2021, the increase was driven~~42.5% and 0.2%, respectively, partially offset by the favorable impacts of ~~volume,~~increased pricing and ~~foreign exchange rates~~acquisitions of ~~61.3%, 3.6%~~3.5% and ~~0.9%, respectively. For the six months ended April 3, 2021, the increase was driven by the favorable impacts of volume, pricing and foreign exchange rates of 62.8%, 4.5%, 0.9%~~0.8%, respectively. The ~~increase~~decrease in sales volume ~~for the three and six months ended April 3, 2021~~ was driven by lighting, nutrients, growing media, hardware and growing environments products.

Hawthorne Segment ~~Profit~~Loss was ~~$41.4~~$5.3 in the ~~second~~first quarter of fiscal 2022, a decrease of 113.1% from the first quarter of fiscal 2021 ~~an increase of 73.9% from the second quarter of fiscal 2020~~ Segment Profit of $23.8; and was $81.8 for the first six months of fiscal 2021, an increase of 125.3% from the first six months of fiscal 2020 Segment Profit of $36.3. For the second quarter of fiscal 2021, the increase$40.4. The decrease was driven by ~~higher~~lower net sales, ~~partially offset by~~ a lower gross profit rate and ~~higher SG&A. For the six months ended April 3, 2021, the increase was driven by higher net sales, partially offset by~~ higher SG&A.

Other

Other segment net sales were ~~$91.0~~$33.0 in the ~~second~~first quarter of fiscal 2022, an increase of 6.5% from the first quarter of fiscal 2021 ~~an increase of 81.6% from second quarter of fiscal 2020~~ net sales of ~~$50.1; and were $122.0 for the first six months of fiscal 2021, an increase of 75.0% from the first six months of fiscal 2020 net sales of $69.7. For the second quarter of fiscal 2021, the~~$31.0. The increase was driven by the favorable impacts of ~~volume,~~ pricing and foreign exchange rates of ~~64.3%~~6.7% and 2.8%, ~~4.3%~~respectively, partially offset by the unfavorable impact of volume of 3.4%.

Other Segment Profit was $1.3 in the first quarter of fiscal 2022, an increase of 100.0% from the first quarter of fiscal 2021 Segment Profit of $0.0. The increase was driven by higher net sales and ~~13.2%, respectively. For~~a higher gross profit rate, partially offset by higher SG&A.

Corporate

Corporate expenses were $31.4 in the ~~six months ended April 3,~~first quarter of fiscal 2022, a decrease of 9.2% from first quarter of fiscal 2021 expenses of $34.6. The decrease was driven by lower short-term variable cash incentive compensation expense.

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~~the increase was driven by the favorable impacts of volume, pricing and foreign exchange rates of 63.0%, 2.2% and 9.9%, respectively.~~

Other Segment Profit was $17.6 in the second quarter of fiscal 2021, an increase of 340.0% from the second quarter of fiscal 2020 Segment Profit of $4.0; and was $17.6 for the first six months of fiscal 2021, an increase of 4,300.0% from the first six months of fiscal 2020 Segment Profit of $0.4. For the three and six months ended April 3, 2021, the increase was driven by higher net sales and a higher gross profit rate, partially offset by higher SG&A.

~~Corporate~~

Corporate expenses were $48.1 in the second quarter of fiscal 2021, an increase of 30.4% from second quarter of fiscal 2020 expenses of $36.9; and were $82.7 for the first six months of fiscal 2021, an increase of 31.3% from the first six months of fiscal 2020 expenses of $63.0. For the three and six months ended April 3, 2021, the increase was driven by higher short-term variable cash incentive compensation expense as well as an increase in the expected payout percentage on long-term performance-based awards and a higher annual grant value of share-based awards.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes cash activities:


		Six Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020			January 1, 2022		January 2, 2021

Net cash used in operating activities	Net cash used in operating activities	$	(699.9)	$	(607.1)	Net cash used in operating activities	$	(765.1)	$	(420.7)
Net cash provided by (used in) investing activities		(173.8)		82.1
Net cash used in investing activities						Net cash used in investing activities	(245.2)		(148.2)
Net cash provided by financing activities	Net cash provided by financing activities	871.1		537.3		Net cash provided by financing activities	782.6		573.5

Operating Activities

Cash used in operating activities totaled ~~$699.9~~$765.1 for the ~~six~~three months ended ~~April 3, 2021,~~January 1, 2022, an increase of ~~$92.8~~$344.4 as compared to ~~cash used in operating activities of $607.1~~$420.7 for the ~~six~~three months ended ~~March 28, 2020.~~January 2, 2021. This increase was driven by higher inventory production, lower net income and higher interest payments, partially offset by lower short-term variable cash incentive compensation ~~payouts~~payouts. Higher inventory production was driven by our effort to build inventory levels to meet expected future demand and higher ~~SG&A during the six~~input costs. The three months ended ~~April 3,~~January 1, 2022 was also impacted by extended payment terms with several of our major vendors across the U.S. Consumer and Hawthorne segments, as well as Monsanto, for payments originally due in the final weeks of fiscal 2021 ~~partially offset by higher net sales and lower interest payments.~~that were paid in the first quarter of fiscal 2022.

Investing Activities

Cash used in investing activities totaled ~~$173.8~~$245.2 for the ~~six~~three months ended ~~April 3, 2021~~January 1, 2022, an increase of $97.0 as compared to ~~cash provided by investing activities of $82.1~~$148.2 for the ~~six~~three months ended ~~March 28, 2020.~~January 2, 2021. Cash used for investments in property, plant and equipment during the first ~~six~~three months of fiscal 2022 and 2021 was $46.1 and ~~2020 was $53.7~~$34.6, respectively. We also completed the acquisitions of Luxx Lighting, Inc. and ~~$29.4, respectively.~~True Liberty Bags during the three months ended January 1, 2022 in exchange for cash payments of $202.5, as well as the issuance of 0.1 million Common Shares, a non-cash investing and financing activity, with a fair value of $21.0 based on the share price at the time of payment. In addition, we received cash of $3.4 associated with currency forward contracts during the three months ended January 1, 2022. During the ~~six~~three months ended ~~April 3,~~January 2, 2021, we acquired a 50% equity interest in Bonnie Plants, LLC in exchange for a cash payment of $100.7, as well as non-cash investing activities that included forgiveness of our outstanding loan receivable with AFC and surrender of our options to increase our economic interest in the Bonnie Plants business. In addition, during the ~~six~~three months ended ~~April 3,~~January 2, 2021, we acquired contract rights within our U.S. Consumer segment for a cash payment of $10.0 and we paid cash of ~~$8.9~~$2.9 associated with currency forward contracts. ~~During the six months ended March 28, 2020, we received proceeds of $115.5 from the sale of the Roundup~~® ~~brand extension assets, made a $2.5 loan investment and paid cash of $1.7 associated with currency forward contracts.~~

Financing Activities

Cash provided by financing activities totaled ~~$871.1~~$782.6 for the ~~six~~three months ended ~~April 3, 2021~~January 1, 2022 as compared ~~to $537.3~~$573.5 for the ~~six~~three months ended ~~March 28, 2020.~~January 2, 2021. This ~~increase~~change was driven by ~~the issuance of $500.0 aggregate principal amount of 4.000% Senior Notes, partially offset by~~an increase in net borrowings under our Fifth A&R Credit Facilities (as defined below) of ~~$519.2~~$302.9 during the ~~six~~three months ended April 3, 2021 as compared to $620.2 during the six months ended March 28, 2020, the issuance of $450.0 aggregate principal amount of 4.500% Senior Notes and the redemption of all $400.0 aggregate principal amount of 6.000% Senior Notes during the six months ended March 28, 2020,January 1, 2022, partially offset by an increase in repurchases of our Common Shares of ~~$11.8~~$91.1 and an increase in dividends paid of $2.5 during the ~~six~~three months ended ~~April 3, 2021 and a payment of $15.5 associated with the acquisition of the remaining outstanding shares of AeroGrow.~~January 1, 2022.

Cash and Cash Equivalents

Our cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or invested in high-quality, short-term liquid investments having original maturities of three months or less. The cash and cash equivalents balances of ~~$14.4, $30.8~~$16.4, $21.5 and ~~$16.6~~$244.1 as of ~~April 3,~~January 1, 2022, January 2, 2021 ~~March 28, 2020~~ and September 30, ~~2020,~~2021, respectively,


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

included ~~$6.2, $19.9~~$8.7, $4.2 and ~~$9.4,~~$15.9, respectively, held by controlled foreign corporations. As of ~~April 3, 2021,~~January 1, 2022, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.

Borrowing Agreements

Credit Facilities

Our primary sources of liquidity are cash generated by operations and borrowings under our credit facilities, which are guaranteed by substantially all of Scotts Miracle-Gro’s domestic subsidiaries. We maintain the Fifth A&R Credit Agreement that provides senior secured loan facilities in the aggregate principal amount of $2,300.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $800.0 (the “Fifth A&R Credit Facilities”). The Fifth A&R Credit Agreement is available for issuance of letters of credit up to $75.0 and will terminate on July 5, 2023.


Contents			THE SCOTTS MIRACLE-GRO COMPANY
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At ~~April 3, 2021,~~January 1, 2022, we had letters of credit outstanding in the aggregate principal amount of ~~$19.8~~$19.9 and had ~~$1,020.0~~$623.5 of borrowing availability under the Fifth A&R Credit Agreement. The weighted average interest rates on average borrowings under the Fifth A&R Credit Agreement were ~~1.9%~~1.8% and ~~3.7%~~2.1% for the ~~six~~three months ended ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020,~~ respectively.

The Fifth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage ratio on the last day of each quarter calculated as average total indebtedness, divided by our earnings before interest, taxes, depreciation and amortization (“EBITDA”), as adjusted pursuant to the terms of the Fifth A&R Credit Agreement (“Adjusted EBITDA”). The maximum leverage ratio is 4.50. Our leverage ratio was ~~2.11~~3.32 at ~~April 3, 2021.~~January 1, 2022. The Fifth A&R Credit Agreement also contains an affirmative covenant regarding our interest coverage ratio determined as of the end of each of our fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the Fifth A&R Credit Agreement, and excludes costs related to refinancings. The minimum interest coverage ratio was 3.00 for the twelve months ended ~~April 3, 2021.~~January 1, 2022. Our interest coverage ratio was ~~13.58~~8.73 for the twelve months ended ~~April 3, 2021.~~January 1, 2022. As of ~~April 3, 2021,~~January 1, 2022, we were in compliance with these financial covenants.

The Fifth A&R Credit Agreement allows us to make unlimited restricted payments (as defined in the Fifth A&R Credit Agreement), including dividend payments on, and repurchases of, our Common Shares, as long as the leverage ratio resulting from the making of such restricted payments is 4.00 or less. Otherwise, we may make further restricted payments in an aggregate amount for each fiscal year not to exceed $225.0. We continue to monitor our compliance with the leverage ratio, interest coverage ratio and other covenants contained in the Fifth A&R Credit Agreement and, based upon our current operating assumptions, we expect to remain in compliance with the permissible leverage ratio and interest coverage ratio throughout fiscal ~~2021.~~2022. However, an unanticipated shortfall in earnings, an increase in net indebtedness or other factors could materially affect our ability to remain in compliance with the financial or other covenants of the Fifth A&R Credit Agreement, potentially causing us to have to seek an amendment or waiver from our lending group which could result in repricing of the Fifth A&R Credit Agreement. While we believe we have good relationships with our lending group, we can provide no assurance that such a request would result in a modified or replacement credit agreement on reasonable terms, if at all.

Senior Notes

On December 15, 2016, we issued $250.0 aggregate principal amount of 5.250% Senior ~~Notes due 2026 (the “5.250% Senior Notes”).~~Notes. The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year. Substantially all of our directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes.

On October 22, 2019, we issued $450.0 aggregate principal amount of 4.500% Senior Notes. The ~~net proceeds of the offering were used to redeem all of our outstanding 6.000% Senior Notes and for general corporate purposes. The~~ 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year. All of our domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.500% Senior Notes.

On October 23, 2019, we redeemed all of our outstanding 6.000% Senior Notes for a redemption price of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption premium, and $400.0 for outstanding principal amount. The $12.0 redemption premium was recognized in the “Costs related to refinancing” line on the Condensed Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, we had $3.1 in unamortized bond issuance costs associated with the 6.000% Senior Notes, which were written-off during the first quarter of fiscal 2020 and were recognized in the “Costs related to refinancing” line in the Condensed Consolidated Statements of Operations.


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

On March 17, 2021, we issued $500.0 aggregate principal amount of 4.000% Senior Notes. ~~The net proceeds of the offering were used to reduce borrowings under the Fifth A&R Credit Facilities.~~ The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with ~~the~~ our existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each ~~year, commencing October 1, 2021. Substantially all~~year. All of our ~~directly and indirectly owned~~ domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.000% Senior Notes.

On August 13, 2021, we issued $400.0 aggregate principal amount of 4.375% Senior Notes. The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates of February 1 and August 1 of each year. All of our domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.375% Senior Notes.

Receivables Facility

We also maintain a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”). Under the Receivables Facility, under which we may sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers and simultaneously agree to repurchase the receivables on a weekly basis. The eligible accounts receivable consist of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts receivables which may be sold under the Receivables Facility is $400.0 and the commitment amount during the seasonal commitment period beginning on February ~~26, 2021~~25, 2022 and ending on June ~~18, 2021~~17, 2022 is $160.0. The Receivables Facility expires on August ~~20, 2021 but is expected to be renewed prior to its expiration.~~19, 2022.

We account for the sale of receivables under the Receivables Facility as short-term debt and continue to carry the receivables on our Condensed Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold. As of ~~April 3,~~January 1, 2022 and January 2, 2021, ~~and March 28, 2020,~~ there were ~~$160.0~~$94.0 and $136.0, respectively, in borrowings on receivables


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was ~~$177.8.~~$104.4 and $151.1, respectively.

Interest Rate Swap Agreements

We enter into interest rate swap agreements with major financial institutions that effectively convert a portion of our variable rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of ~~April 3,~~January 1, 2022, January 2, 2021 ~~March 28, 2020~~ and September 30, ~~2020~~2021 had a maximum total U.S. dollar equivalent notional amount of ~~$900.0, $850.0 and $600.0, respectively.~~$600.0. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at ~~April 3, 2021~~January 1, 2022 are shown in the table below:


Notional Amount	Notional Amount		Effective Date (a)	Expiration Date	Fixed Rate		Notional Amount		Effective Date (a)	Expiration Date	Fixed Rate
$	200	(b)	11/7/2018	6/7/2021	2.87	%
100			11/7/2018	7/7/2021	2.96	%
200			11/7/2018	10/7/2021	2.98	%

100	100		12/21/2020	6/20/2023	1.36	%	100		12/21/2020	6/20/2023	1.36	%
300	300	(b)	1/7/2021	6/7/2023	1.34	%	300	(b)	1/7/2021	6/7/2023	1.34	%
200	200		10/7/2021	6/7/2023	1.37	%	200		10/7/2021	6/7/2023	1.37	%
200	200	(b)	1/20/2022	6/20/2024	0.58	%	200	(b)	1/20/2022	6/20/2024	0.58	%
200	200		6/7/2023	6/8/2026	0.85	%	200		6/7/2023	6/8/2026	0.85	%

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

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

Availability and Use of Cash

We believe that our cash flows from operations and borrowings under our agreements described herein will be sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Additionally, the extent to which the COVID-19 pandemic will ultimately impact our business, results of operations, financial condition and cash flows depends on future developments that are ~~highly~~ uncertain ~~rapidly evolving~~ and difficult to ~~predict at this time.~~predict. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in the ~~2020~~2021 Annual Report, under “ITEM 1A. RISK FACTORS — Risks Related to Our M&A, Lending and Financing Activities — Our indebtedness could limit our flexibility and adversely affect our financial condition” and “ITEM 1A. RISK FACTORS — Risks Related to Our Business — 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.”


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			~~(Dollars in millions, except per share data)~~

Financial Disclosures About Guarantors and Issuers of Guaranteed Securities

The 5.250% Senior Notes, 4.500% Senior Notes, ~~and~~ 4.000% Senior Notes and 4.375% Senior Notes (collectively, the “Senior Notes”) were issued by Scotts Miracle-Gro on December 15, 2016, October 22, 2019, ~~and~~ March 17, 2021 and August 13, 2021, respectively. The ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes are guaranteed by certain consolidated domestic subsidiaries of Scotts Miracle-Gro (collectively, the “Guarantors”) and, therefore, we report summarized financial information in accordance with SEC Regulation S-X, Rule 13-01, “Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”

The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that a Guarantor’s guarantee will be released in certain circumstances set forth in the indentures governing the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes, such asas: (i) upon any sale or other disposition of all or substantially all of the assets of the Guarantor (including by way of merger or consolidation) to any person other than Scotts Miracle-Gro or any “restricted subsidiary” under the applicable indenture; (ii) if the Guarantor merges with and into Scotts Miracle-Gro, with Scotts Miracle-Gro surviving such merger; (iii) if the Guarantor is designated an “unrestricted subsidiary” in accordance with the applicable indenture or otherwise ceases to be a “restricted subsidiary” (including by way of liquidation or dissolution) in a transaction permitted by such indenture; (iv) upon legal or covenant defeasance; (v) at the election of Scotts Miracle-Gro following the Guarantor’s release as a guarantor under the Fifth A&R Credit Agreement, except a release by or as a result of the repayment of the Fifth A&R Credit Agreement; or (vi) if the Guarantor ceases to be a “restricted subsidiary” and the Guarantor is not otherwise required to provide a guarantee of the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes pursuant to the applicable indenture.

Our foreign subsidiaries and certain of our domestic subsidiaries are not guarantors (collectively, the “Non-Guarantors”) on the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes. Payments on the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes are only required to be made by Scotts Miracle-Gro and the Guarantors. As


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

a result, no payments are required to be made from the assets of the Non-Guarantors, unless those assets are transferred by dividend or otherwise to Scotts Miracle-Gro or a Guarantor. In the event of a bankruptcy, insolvency, liquidation or reorganization of any of the Non-Guarantors, holders of their indebtedness, including their trade creditors and other obligations, will be entitled to payment of their claims from the assets of the Non-Guarantors before any assets are made available for distribution to Scotts Miracle-Gro or the Guarantors. As a result, the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes are effectively subordinated to all the liabilities of the Non-Guarantors.

The guarantees may be subject to review under federal bankruptcy laws or relevant state fraudulent conveyance or fraudulent transfer laws. In certain circumstances, the court could void the guarantee, subordinate the amounts owing under the guarantee, or take other actions detrimental to the holders of the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes.

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that a Guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such Guarantor did not obtain a reasonably equivalent benefit from the issuance of the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes.

The measure of insolvency varies depending upon the law of the jurisdiction that is being applied. Regardless of the measure being applied, a court could determine that a Guarantor was insolvent on the date the guarantee was issued, so that payments to the holders of the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes would constitute a preference, fraudulent transfer or conveyances on other grounds. If a guarantee is voided as a fraudulent conveyance or is found to be unenforceable for any other reason, the holders of the ~~5.250% Senior Notes, 4.500% Senior Notes and 4.000%~~ Senior Notes will not have a claim against the Guarantor.

Each guarantee contains a provision intended to limit the Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of each Guarantor. Moreover, this provision may not be effective to protect the guarantees from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.

The following tables present summarized financial information on a combined basis for Scotts Miracle-Gro and the Guarantors. Transactions between Scotts Miracle-Gro and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Scotts Miracle-Gro and the Guarantors in the Non-Guarantor subsidiaries.


~~Contents~~			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

April 3,
2021 September 30,
2020
Current assets $ 2,326.4 $ 1,087.1
Noncurrent assets (a)
2,075.0 1,871.5
Current liabilities 1,244.9 881.2
Noncurrent liabilities 2,559.0 1,697.0


	January 1, 2022		September 30, 2021

Current assets	$	2,098.8	$	1,834.8
Noncurrent assets (a)	2,652.1		2,484.5
Current liabilities	830.5		1,038.1
Noncurrent liabilities	3,427.7		2,611.8

(a)Includes amounts due from Non-Guarantor subsidiaries of ~~$47.8~~$28.5 and ~~$24.8,~~$39.8, respectively.

Six Months Ended Year Ended
April 3,
2021 September 30,
2020
Net sales $ 2,397.6 $ 3,773.8
Gross profit 809.9 1,281.4
Income from continuing operations (a)
331.8 364.0
Net income 331.8 364.1
Net income attributable to controlling interest 330.9 362.9


	Three Months Ended		Year Ended
	January 1, 2022		September 30, 2021

Net sales	$	510.8	$	4,507.6
Gross profit	111.1		1,380.6
Income (loss) from continuing operations (a)	(48.5)		510.9
Net income (loss)	(48.5)		510.8
Net income (loss) attributable to controlling interest	(48.5)		509.9

(a)Includes intercompany ~~(income) expense~~income from Non-Guarantor subsidiaries of ~~$(10.3)~~$0.9 and ~~$6.3,~~$26.3, respectively.

Judicial and Administrative Proceedings

We are party to various pending judicial and administrative proceedings arising in the ordinary course of business, including, among others, proceedings based on accidents or product liability claims and alleged violations of environmental laws. We have reviewed these pending judicial and administrative proceedings, including the probable outcomes, reasonably anticipated costs and expenses, and the availability and limits of our insurance coverage, and have established what we believe to be appropriate accruals. We believe that our assessment of contingencies is reasonable and that the related accruals, in the


Contents			THE SCOTTS MIRACLE-GRO COMPANY
			(Dollars in millions, except per share data)

aggregate, are adequate; however, there can be no assurance that future quarterly or annual operating results will not be materially affected by these proceedings, whether as a result of adverse outcomes or as a result of significant defense costs.

Contractual Obligations

Other than as disclosed in this Quarterly Report on Form 10-Q, there have been no material changes outside of the ordinary course of business in our outstanding contractual obligations since the end of fiscal ~~2020~~2021 and through ~~April 3, 2021.~~January 1, 2022.

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 the ~~2020~~2021 Annual Report, under “ITEM 1. BUSINESS — Regulatory Considerations” and “ITEM 3. LEGAL PROCEEDINGS.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The ~~preceding discussion and analysis~~preparation of ~~our consolidated results of operations and financial condition should be read in conjunction with our condensed consolidated~~ financial statements ~~included elsewhere in this Quarterly Report~~requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on ~~Form 10-Q. The 2020 Annual Report includes additional information about us,~~an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our ~~operations, our financial condition, our~~estimates on historical experience and on various other sources that we believe to be reasonable under the circumstances. Certain accounting policies are particularly significant, including those related to revenue recognition, income taxes and goodwill and intangible assets. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors of Scotts Miracle-Gro. Our critical accounting policies and ~~accounting~~ estimates ~~and should be read~~have not changed materially from those disclosed in ~~conjunction with this Quarterly Report on Form 10-Q.~~

the 2021 Annual Report.

~~Contents~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks have not changed materially from those disclosed in the ~~2020~~2021 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Scotts Miracle-Gro Company (the “Registrant”) maintains “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in the Registrant’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and its principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Registrant’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, the Registrant’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

With the participation of the principal executive officer and principal financial officer of 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 amended (the “Exchange Act”)) as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. 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 ~~April 3, 2021.~~January 1, 2022.

Changes in Internal Control Over Financial Reporting

In addition, there were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Registrant’s fiscal quarter ended ~~April 3, 2021~~January 1, 2022 that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Contents

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the legal proceedings that have been previously disclosed in ~~our~~Part I, Item 3 of the 2021 Annual ~~Report on Form 10-K for the fiscal year ended September 30, 2020.~~Report. There have been no material ~~changes~~developments to the pending legal proceedings set forth therein.

We are involved in other lawsuits and claims which arise in the normal course of our business including the initiation and defense of proceedings to protect intellectual property rights, advertising claims and employment disputes. In our opinion, these claims individually and in the aggregate are not expected to have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

The Company’s risk factors, as of ~~April 3, 2021,~~January 1, 2022, have not materially changed from those described in Part I, Item 1A of ~~our~~the 2021 Annual ~~Report on Form 10-K for the fiscal year ended September 30, 2020 filed on November 24, 2020.~~Report.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the exhibits hereto and the information incorporated by reference herein, contains “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,”

~~Contents~~

~~“target,~~ “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 Quarterly Report on Form 10-Q are predictions only and actual results could differ materially from management’s expectations due to a variety of factors, including those described in “ITEM 1A. RISK FACTORS” in the ~~2020~~2021 Annual Report. 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 Quarterly Report on Form 10-Q 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.

Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The payment of future dividends, if any, on the Common Shares will be determined by the Board of Directors in light of conditions then existing, including the Company’s earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. The Fifth A&R Credit Agreement allows the Company to make unlimited restricted payments (as defined in the Fifth A&R Credit Agreement), including dividend payments on, and repurchases of, the Company’s Common ~~Share repurchases,~~Shares, as long as the leverage ratio resulting from the making of such restricted payments is 4.00 or less. Otherwise, the Company may make further restricted payments in an aggregate amount for each fiscal year not to exceed $225.0 million. The Company’s leverage ratio was ~~2.11~~3.32 at ~~April 3, 2021.~~January 1, 2022.

~~(a) Issuer Purchases~~On December 30, 2021, Scotts Miracle-Gro issued 132,076 Common Shares as part of ~~Equity~~the purchase price for assets purchased under the Purchase Agreement, dated December 29, 2021, by and among Luxx Lighting, Inc., Brandon Burkhart, Ivan Van Ortwick and Hawthorne Hydroponics LLC. The issuances of the Common Shares were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act. Scotts Miracle-Gro issued the shares in a privately negotiated transaction, and such shares were acquired for the recipients’ accounts for investment purposes. A legend was placed on Common Shares referencing the restricted nature of the Common Shares.

The following table shows the purchases of Common Shares made by or on behalf of Scotts Miracle-Gro or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Scotts Miracle-Gro for each of the three fiscal months in the quarter ended ~~April 3, 2021:~~January 1, 2022:

Period Total Number of
Common Shares
Purchased(1) Average Price
Paid per
Common Share(2) Total Number of
Common Shares
Purchased as
Part of Publicly
Announced Plans or
Programs(3) Approximate Dollar
Value of Common Shares
That May Yet be
Purchased Under the
Plans or Programs(3)
January 3, 2021 through January 30, 2021
470 $ 229.73 — $ 711,954,191
January 31, 2021 through February 27, 2021
27,699 $ 231.34 27,189 $ 705,655,504
February 28, 2021 through April 3, 2021
30,756 $ 218.57 28,552 $ 699,452,657
Total 58,925 $ 224.66 55,741


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)
October 1, 2021 through October 30, 2021	115,489	$	148.22	114,724	$	619,944,047
October 31, 2021 through November 27, 2021	521,406	$	168.53	520,962	$	532,144,622
November 28, 2021 through January 1, 2022	134,685	$	152.64	132,556	$	511,923,145
Total	771,580	$	162.72	768,242

(1)All of the Common Shares purchased during the ~~second fiscal~~first quarter of ~~2021~~fiscal 2022 were purchased in open market transactions. The total number of Common Shares purchased during ~~this~~the quarter includes ~~3,183~~3,338 Common Shares purchased by the trustee of the rabbi trust established by the Company as permitted pursuant to the terms of The Scotts Company LLC Executive Retirement Plan (the “ERP”).

(2)The average price paid per Common Share is calculated on a settlement basis and includes commissions.

(3)On February 6, 2020, ~~Scotts Miracle-Gro~~the Company announced ~~that its Board of Directors authorized the~~a new repurchase program allowing for repurchases of up to $750.0 million of Common Shares from April 30, 2020 through March 25, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

~~Contents~~

ITEM 6. EXHIBITS

See Index to Exhibits at page 4641 for a list of the exhibits included herewith.

4540

Contents

THE SCOTTS MIRACLE-GRO COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~APRIL 3, 2021~~JANUARY 1, 2022

INDEX TO EXHIBITS

Incorporated by Reference
Exhibit
No. Description Form Exhibit Filing Date Filed Herewith
4.1(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
4.1(b)
Form of 4.000% Senior Notes due 2031 (included in Exhibit 4.1)
8-K 4.2 March 17, 2021
4.1(c)
Registration Rights Agreement, dated as of March 17, 2021, by and among The Scotts Miracle-Gro Company, the guarantors named therein and J.P. Morgan Securities LLC, as representative of the several initial purchasers named therein
8-K 4.3 March 17, 2021
4.2
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, with respect to the 5.250% Senior Notes
X
4.3
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, with respect to the 4.500% Senior Notes
X
10.1
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
10.2
Purchase Agreement, dated as of March 11, 2021, by and among The Scotts Miracle-Gro Company, the guarantors named therein and J.P. Morgan Securities LLC, as representative of the several initial purchasers named therein
8-K 10.1 March 17, 2021
10.3
Consulting Agreement, dated February 15, 2021, between The Scotts Company LLC and Hanft Ideas
X
21
Subsidiaries of The Scotts Miracle-Gro Company
X
22
Guarantor Subsidiaries
X
31.1
Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)
X
31.2
Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)
X
32
Section 1350 Certifications (Principal Executive Officer and Principal Financial Officer)
X
101.SCH XBRL Taxonomy Extension Schema X
101.CAL XBRL Taxonomy Extension Calculation Linkbase X
101.DEF XBRL Taxonomy Extension Definition Linkbase X
101.LAB XBRL Taxonomy Extension Label Linkbase X
101.PRE XBRL Taxonomy Extension Presentation Linkbase X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X

Incorporated by Reference

Exhibit
No.

Description

Form

Exhibit

Filing Date

Filed Herewith

10.1

Form of Standard Performance Unit Award Agreement which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10.2

Form of Standard Restricted Stock Unit Award Agreement which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

Subsidiaries of The Scotts Miracle-Gro Company

Guarantor Subsidiaries

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)

4641

Contents

SIGNATURES

Pursuant to the requirements 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

Date: ~~May 12, 2021~~February 9, 2022						/s/ CORY J. MILLER
						Printed Name: Cory J. Miller
						Title: ~~Senior~~Executive Vice President and ~~Interim~~ Chief Financial Officer

4742


	No. of Options	Wtd. Avg. Exercise Price
Awards outstanding at September 30, 2020	619,225	$	57.90
Granted	183,553	236.53
Exercised	(99,902)	61.45

Awards outstanding at April 3, 2021	702,876	104.04
Exercisable	519,323	57.21


	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
$42.60 - $42.60	0.1	0.80	$	42.60	0.1	0.80	$	42.60
$59.62 - $64.55	0.4	4.34	62.18		0.4	4.34	62.18
$236.53 - $236.53	0.2	9.84	236.53		0	0	0
	0.7	5.11	104.04		0.5	3.44	57.21


	No. of Units	Wtd. Avg. Grant Date Fair Value per Unit
Awards outstanding at September 30, 2020	500,237	$	94.53
Granted	69,936	232.70
Vested	(132,105)	97.00
Forfeited	(5,630)	98.67
Awards outstanding at April 3, 2021	432,438	116.07


Derivatives In Cash Flow Hedging Relationships	Reclassified From AOCL Into Statement Of Operations	Amount Of Gain / (Loss)
		Three Months Ended				Six Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020

Interest rate swap agreements	Interest expense	$	(2.3)	$	(1.2)	$	(4.1)	$	(2.0)
Commodity hedging instruments	Cost of sales	0.3		(0.7)		0.2		(0.7)
Total		$	(2.0)	$	(1.9)	$	(3.9)	$	(2.7)


		April 3, 2021				March 28, 2020				September 30, 2020
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash equivalents	Level 1	$	2.4	$	2.4	$	2.1	$	2.1	$	2.4	$	2.4




Other
Investment securities in non-qualified retirement plan assets	Level 1	43.5		43.5		22.6		22.6		29.8		29.8
Bonnie Option	Level 3	0		0		11.3		11.3		23.3		23.3


Liabilities:




Debt instruments
Credit facilities – revolving loans	Level 2	460.2		460.2		691.9		691.9		64.0		64.0
Credit facilities – term loans	Level 2	690.0		690.0		740.0		740.0		710.0		710.0
Senior Notes – 4.000%	Level 2	500.0		497.5		0		0		0		0
Senior Notes – 4.500%	Level 2	450.0		464.6		450.0		400.5		450.0		476.4
Senior Notes – 5.250%	Level 2	250.0		261.6		250.0		239.1		250.0		266.6

Receivables facility	Level 2	160.0		160.0		160.0		160.0		20.0		20.0

Other debt	Level 2	7.6		7.6		8.7		8.7		1.1		1.1