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 1,~~December 30, 2023


☐			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 5, 2023,~~February 2, 2024, there were ~~56,072,125~~56,692,312 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 ~~April 1, 2023~~December 3 0 , 202 3 and ~~April 2,~~December 31 , 2022	3
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~ (Income)Loss — Three ~~and six~~ months ended ~~April 1, 2023~~December 3 0 , 202 3 and ~~April 2,~~December 31 , 2022	4
	Condensed Consolidated Statements of Cash Flows — ~~Six~~Three months ended ~~April 1, 2023~~December 3 0 , 202 3 and ~~April 2,~~December 31 , 2022	5
	Condensed Consolidated Balance Sheets —~~April 1, 2023, April 2,~~ D ecember 3 0 , 202 3 , December 31 , 2022 and September 30, ~~2022~~20 23	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2526
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3938
Item 4.	Controls and Procedures	3938

PART II. OTHER INFORMATION:

Item 1.	Legal Proceedings	4039
Item 1A.	Risk Factors	4039
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4140
Item 3.	Defaults Upon Senior Securities	4140
Item 4.	Mine Safety Disclosures	4140
Item 5.	Other Information	4140
Item 6.	Exhibits	4140
Index to Exhibits		4241
Signatures		4342

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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net sales	Net sales	$	1,531.5	$	1,678.4	$	2,058.1	$	2,244.3
Net sales
Net sales
Cost of sales	Cost of sales	1,000.1		1,084.7		1,420.7		1,532.0
Cost of sales
Cost of sales
Cost of sales—impairment, restructuring and other
Cost of sales—impairment, restructuring and other
Cost of sales—impairment, restructuring and other	Cost of sales—impairment, restructuring and other	118.7		5.3		129.0		5.3

Gross margin	Gross margin	412.7		588.4		508.4		707.0

Gross margin

Gross margin
Operating expenses:
Operating expenses:
Operating expenses:	Operating expenses:
Selling, general and administrative	Selling, general and administrative	186.3		204.7		314.8		358.7
Selling, general and administrative
Selling, general and administrative
Impairment, restructuring and other
Impairment, restructuring and other
Impairment, restructuring and other	Impairment, restructuring and other	21.8		0.1		30.2		1.8

Other income, net		(1.6)		(4.3)		(1.0)		(6.0)
Income from operations		206.2		387.9		164.4		352.5
Other expense, net

Other expense, net

Other expense, net
Loss from operations
Loss from operations
Loss from operations
Equity in loss of unconsolidated affiliates
Equity in loss of unconsolidated affiliates
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	7.3		6.5		18.7		13.8

Interest expense	Interest expense	48.3		28.3		91.0		52.1

Interest expense

Interest expense
Other non-operating (income) expense, net	Other non-operating (income) expense, net	0.8		(1.9)		(0.8)		(3.7)
Income before income taxes		149.8		355.0		55.5		290.3
Income tax expense		40.4		78.5		10.8		63.9
Other non-operating (income) expense, net
Other non-operating (income) expense, net
Loss before income taxes
Loss before income taxes
Loss before income taxes
Income tax benefit
Income tax benefit
Income tax benefit

Net income		$	109.4	$	276.5	$	44.7	$	226.4
Net loss

Net loss

Net loss

Basic net loss per common share:

Basic net loss per common share:

Basic net loss per common share:

Basic net income per common share		$	1.95	$	4.98	$	0.80	$	4.08

Diluted net loss per common share:

Diluted net income per common share		$	1.94	$	4.94	$	0.80	$	4.02

Diluted net loss per common share:

Diluted net loss per common share:

Weighted-average common shares outstanding during the period

Weighted-average common shares outstanding during the period

Weighted-average common shares outstanding during the period	Weighted-average common shares outstanding during the period	56.0		55.5		55.8		55.5
Weighted-average common shares outstanding during the period plus dilutive potential common shares	Weighted-average common shares outstanding during the period plus dilutive potential common shares	56.5		56.0		56.1		56.3
Weighted-average common shares outstanding during the period plus dilutive potential common shares
Weighted-average common shares outstanding during the period plus dilutive potential common shares

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

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

(In millions)

(Unaudited)

Three Months Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Net income $ 109.4 $ 276.5 $ 44.7 $ 226.4
Other comprehensive income (loss):
Net foreign currency translation adjustment 1.1 (1.3) 8.3 (5.6)
Net unrealized gain (loss) on derivative instruments, net of tax (4.8) 16.2 (9.6) 25.8
Reclassification of net unrealized gains on derivative instruments to net income, net of tax (8.2) (4.3) (11.9) (4.5)
Net unrealized gain (loss) on securities, net of tax (5.6) 0.1 (26.0) 0.3
Pension and other post-retirement benefit adjustments, net of tax (0.3) 1.6 (3.2) 2.1
Total other comprehensive income (loss) (17.8) 12.3 (42.4) 18.1
Comprehensive income $ 91.6 $ 288.8 $ 2.3 $ 244.5


	Three Months Ended
		December 30, 2023		December 31, 2022
Net loss		$	(80.5)	$	(64.7)
Other comprehensive income (loss):
Net foreign currency translation adjustment		3.1		7.2
Net unrealized loss on derivative instruments, net of tax		(8.2)		(4.8)
Reclassification of net unrealized gains on derivative instruments to net loss, net of tax		(1.5)		(3.7)

Net unrealized loss on securities, net of tax		(0.9)		(20.4)
Pension and other post-retirement benefit adjustments, net of tax		(1.4)		(2.9)
Total other comprehensive loss		(8.9)		(24.6)
Comprehensive loss		$	(89.4)	$	(89.3)

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

Three Months Ended

April 1,
2023

April 2,
2022

December 30,
2023

December 31,
2022

OPERATING ACTIVITIES

Net income

44.7

226.4

Adjustments to reconcile net income to net cash used in operating activities:

Net loss

Adjustments to reconcile net loss to net cash used in operating activities:

Impairment, restructuring and other

44.4

4.5

Deferred taxes

17.5

(0.2)

Share-based compensation expense

58.3

23.2

Depreciation

33.6

32.4

Amortization

14.1

19.3

Deferred taxes

Equity in loss of unconsolidated affiliates

18.7

13.8

Equity in loss of unconsolidated affiliates

Other, net

0.2

(4.1)

Changes in assets and liabilities, net of acquisitions:

Changes in assets and liabilities, net of acquired businesses:

Accounts receivable

(1,075.6)

(945.6)

Inventories

205.3

(436.4)

Prepaid and other current assets

(47.5)

(37.6)

Prepaid and other assets

Accounts payable

7.2

(73.7)

Other current liabilities

123.0

37.4

Other non-current items

(14.1)

(2.3)

Other, net

3.3

0.3

Net cash used in operating activities

(566.9)

(1,142.6)

INVESTING ACTIVITIES

Proceeds from sale of long-lived assets

0.7

8.5

INVESTING ACTIVITIES

Investments in property, plant and equipment

(51.8)

(66.0)

Proceeds from loans receivable

37.0

—

Investments in property, plant and equipment

Payment for acquisitions, net of cash acquired

—

(202.8)

Investments in unconsolidated affiliates

Other investing, net

(6.5)

4.5

Net cash used in investing activities

(20.6)

(255.8)

FINANCING ACTIVITIES

Borrowings under revolving and bank lines of credit and term loans

1,193.2

1,609.7

Repayments under revolving and bank lines of credit and term loans

(583.8)

(96.2)

Dividends paid

(74.9)

(93.2)

Dividends paid

Purchase of Common Shares

(6.4)

(256.4)

Cash received from exercise of stock options

1.2

1.8

Cash received from exercise of stock options

Other financing, net

(4.0)

5.6

Net cash provided by financing activities

525.3

1,171.3

Effect of exchange rate changes on cash

0.4

0.1

Net decrease in cash and cash equivalents

(61.8)

(227.0)

Cash and cash equivalents at beginning of period

86.8

244.1

Cash and cash equivalents at end of period

25.0

17.1

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 1, 2023		April 2, 2022		September 30, 2022
	December 30, 2023								December 30, 2023	December 31, 2022	September 30, 2023
ASSETS	ASSETS							ASSETS
Current assets:	Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	25.0	$	17.1	$	86.8
Accounts receivable, less allowances of $22.2, $16.5 and $14.4, respectively		1,035.7		990.1		299.0
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, less allowances of $15.9, $12.0 and $15.1, respectively
Accounts receivable pledged	Accounts receivable pledged	422.2		444.5		79.8
Inventories	Inventories	1,127.6		1,594.1		1,343.5

Prepaid and other current assets	Prepaid and other current assets	231.9		208.6		172.8
Prepaid and other current assets
Prepaid and other current assets
Total current assets	Total current assets	2,842.4		3,254.4		1,981.9
Investment in unconsolidated affiliates	Investment in unconsolidated affiliates	174.2		193.2		193.8
Property, plant and equipment, net of accumulated depreciation of $793.5, $764.9 and $777.9, respectively		588.9		621.0		606.0
Property, plant and equipment, net of accumulated depreciation of $760.5, $780.6 and $765.4, respectively
Goodwill	Goodwill	254.3		688.1		254.0
Intangible assets, net	Intangible assets, net	565.5		799.9		580.2
Other assets	Other assets	562.8		650.9		680.9
Total assets	Total assets	$	4,988.1	$	6,207.5	$	4,296.8
								LIABILITIES AND EQUITY
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:	Current liabilities:
Current portion of debt
Current portion of debt
Current portion of debt	Current portion of debt	$	435.4	$	459.7	$	144.3
Accounts payable	Accounts payable	415.5		507.5		422.6

Other current liabilities

Other current liabilities

Other current liabilities	Other current liabilities	521.6		503.1		397.0
Total current liabilities	Total current liabilities	1,372.5		1,470.3		963.9
Long-term debt	Long-term debt	3,138.0		3,350.0		2,826.2

Other liabilities	Other liabilities	340.1		412.2		359.0
Other liabilities
Other liabilities
Total liabilities	Total liabilities	4,850.6		5,232.5		4,149.1
Commitments and contingencies (Note 11)
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 56.0, 55.4 and 55.5, respectively		374.3		361.8		364.0
Commitments and contingencies (Note 10)								Commitments and contingencies (Note 10)
Equity (deficit):
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 56.7, 55.9 and 56.5, respectively
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 56.7, 55.9 and 56.5, respectively
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 56.7, 55.9 and 56.5, respectively
Retained earnings	Retained earnings	990.3		1,758.8		1,020.1
Treasury shares, at cost; 12.1, 12.8 and 12.8 shares, respectively		(1,040.0)		(1,097.2)		(1,091.8)
Treasury shares, at cost; 11.5, 12.3 and 11.6 shares, respectively
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(187.1)		(48.4)		(144.6)

Total equity		137.5		975.0		147.7
Total liabilities and equity		$	4,988.1	$	6,207.5	$	4,296.8
Total equity (deficit)

Total equity (deficit)

Total equity (deficit)
Total liabilities and equity (deficit)

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

The Company’s North America consumer lawn and garden business is highly seasonal, with approximately 75% of its annual net sales occurring in the second and third fiscal quarters. The Company’s Hawthorne segment ~~sales are~~is also impacted by seasonal sales patterns for certain product categories due to the timing of ~~outdoor~~ growing patterns in North America during the second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during the third and fourth fiscal quarters.

Organization and Basis of Presentation

The Company’s unaudited condensed consolidated financial statements for the three ~~and six~~ months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022 are presented in accordance with accounting principles generally accepted in the United States of America (“~~GAAP��~~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. 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 for the fiscal quarter ended ~~April 1,~~December 30, 2023 (this “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, ~~2022~~2023 (the ~~“2022~~“2023 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, ~~2022~~2023 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.

Accounts Receivable

On October 27, 2023, the Company entered into a Master Receivables Purchase Agreement (the “Master Receivables Purchase Agreement”), under which it may sell up to $600.0 of available and eligible outstanding customer accounts receivable generated by sales to four specified customers. The agreement is uncommitted and has an initial term that expires October 25, 2024, unless earlier terminated by the purchaser. The receivable sales are non-recourse to the Company, other than with respect to (i) repurchase and indemnification obligations for any violations by the Company of its respective representations or obligations as seller or servicer and (ii) certain repurchase and payment obligations arising from any dilution of, or dispute with respect to, any purchased receivables that arise after the sale of such purchased receivables to the purchaser not contemplated in the applicable purchase price of such purchased receivable. The recourse obligations of the Company that may arise from time to time are supported by standby letters of credit of $70.0. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheets at the time of the sales transaction. Proceeds received from the sales of accounts receivable are classified as operating cash flows and collections of previously sold accounts receivable not yet submitted to the financial institution are classified as financing cash flows in the Condensed Consolidated Statements of Cash Flows. The Company records the discount in the “Other expense, net” line in the Condensed Consolidated Statements of Operations. At December 30, 2023, net receivables of $140.1 were derecognized. During the three months ended December 30, 2023, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $199.6.


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

Supplier Finance Program

The Company has an agreement to provide a supplier finance program which facilitates participating suppliers’ ability to finance payment obligations of the Company with a designated third-party financial institution. Participating suppliers may, at their sole discretion, elect to finance payment obligations of the Company prior to their scheduled due dates at a discounted price to the participating financial institution. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under this arrangement. The payment terms that the Company negotiates with its suppliers are consistent, regardless of whether a supplier participates in the program. The Company’s current payment terms with a majority of its suppliers generally range from 30 to 60 days, which is deemed to be commercially reasonable. The Company’s outstanding payment obligations under its supplier finance program were $30.8, $20.4, and $18.3 at December 30, 2023, December 31, 2022 and September 30, 2023, respectively, and are recorded within accounts payable in the Condensed Consolidated Balance Sheets. The associated payments were $69.8 and $50.5 for the three months ended December 30, 2023 and December 31, 2022, respectively, and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows.

Long-Lived Assets

The Company had non-cash investing activities of ~~$15.3~~$8.6 and ~~$13.0~~$19.2 during the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022, respectively, representing unpaid liabilities to acquire property, plant and equipment.

Statements of Cash Flows

Supplemental cash flow information was as follows:

Three Months Ended

December 30,
2023

December 31,
2022

Interest paid

Income taxes paid (refunded), net

Six Months Ended

April 1,
2023

April 2,
2022

Interest paid

87.4

58.9

Income tax refunds

(21.1)

(7.0)

Cash flow from operating activities for the ~~six~~three months ended ~~April 1, 2023~~December 31, 2022 was ~~favorably~~ impacted by extended payment terms with vendors across the U.S. Consumer and Hawthorne segments for payments originally due in the final weeks of ~~the second quarter of~~ fiscal ~~2023~~2022 that were paid in the ~~third~~first quarter of fiscal 2023.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-04, “Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This ASU requires disclosure of the key terms of outstanding supplier finance programs and a roll-forward of the related obligations. ASU No. 2022-04 is effective for fiscal years beginning after December 15, 2022, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The Company ~~also received proceeds~~adopted the ASU as of ~~$37.0 during~~October 1, 2023. The adoption relates to disclosures only and does not have any impact on the ~~six months ended April 1,~~Company’s consolidated financial position, results of operations or cash flows.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2023, ~~related~~the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU requires enhanced disclosures about significant segment expenses regularly provided to the ~~payoff~~chief operating decision maker that are included within each reported measure of ~~seller financing~~segment profit or loss, and also requires all annual disclosures currently required by Topic 280 to be included in interim periods. ASU No. 2023-07 is to be applied retrospectively for all periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the ~~Company provided in connection with a fiscal 2017 divestiture, which was classified as an investing activity~~adoption of this guidance will have on the Company’s disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU primarily requires enhanced disclosures and disaggregation of income tax information by jurisdiction in the ~~Condensed Consolidated Statements~~annual income tax reconciliation and quantitative and qualitative disclosures regarding income taxes paid. ASU No. 2023-09 is to be applied prospectively, with the option to apply the standard retrospectively, effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of ~~Cash Flows.~~this guidance will have on the Company’s disclosures.


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

~~NOTE 2. ACQUISITIONS AND INVESTMENTS~~

~~Cyco~~

On April 28, 2022, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of S.J. Enterprises PTY LTD, d.b.a. Cyco (“Cyco”), an Australia-based provider of premium nutrients, additives and growing media products for indoor growing sold mostly in the United States, for an estimated purchase price of $37.3. The purchase price includes contingent consideration, a non-cash investing activity, with an initial fair value of $3.1 and a maximum payout of $10.0, which will be paid by the Company based on the achievement of certain performance metrics through December 31, 2024. Prior to the transaction, the Company served as the exclusive distributor of Cyco’s products in the United States. The valuation of the acquired assets included (i) $1.3 of inventory, (ii) $10.5 of finite-lived identifiable intangible assets and (iii) $25.6 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

~~Luxx Lighting~~

On December 30, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of Luxx Lighting, Inc., a provider of lighting products for indoor growing. The purchase price was $213.2, a portion of which was paid by the issuance of 0.1 million common shares 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) $32.8 of inventory and accounts receivable, (ii) $5.7 of other current assets, (iii) $24.2 of current liabilities, (iv) $47.3 of finite-lived identifiable intangible assets and (v) $151.6 of tax-deductible goodwill. Identifiable intangible assets included trade names, customer relationships and non-compete agreements with useful lives ranging between 5 and 25 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

~~True Liberty Bags~~

On December 23, 2021, the Company’s Hawthorne segment completed the acquisition of substantially all of the assets of True Liberty Bags, a leading provider of liners and storage solutions to dry and cure plant products, for $10.1. The valuation of the acquired assets included (i) $1.1 of inventory, (ii) $5.8 of finite-lived identifiable intangible assets and (iii) $3.2 of tax-deductible goodwill. Identifiable intangible assets included trade names and customer relationships with useful lives of 15 years. The estimated fair values of the identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate discount rate.

NOTE 3.2. INVESTMENT IN UNCONSOLIDATED AFFILIATES

On December 31, 2020, the Company acquired a 50% equity interest in Bonnie Plants, LLC, a joint venture with Alabama Farmers Cooperative, Inc. (“AFC”) focused on planting, growing, developing, distributing, marketing and selling live plants. During the three months ended December 31, 2022, the Company and AFC ~~agreed to amend~~amended the joint venture agreement to allow AFC to make an additional equity contribution to Bonnie Plants, LLC, and, ~~subsequent to~~as a result of this contribution by AFC, the ~~Company now owns a 45%~~Company’s equity interest in Bonnie Plants, ~~LLC.~~LLC was reduced to 45%. On November 7, 2023, the Company purchased an additional 5% equity interest in Bonnie Plants, LLC from AFC for $21.4, which restores its total equity interest back to 50%. The Company’s interest is accounted for using the equity method of accounting, with the Company’s proportionate share of Bonnie Plants, ~~LLC’s~~LLC earnings reflected in the Condensed Consolidated Statements of Operations.

During the three ~~and six~~ months ended ~~April 1,~~December 30, 2023 and December 31, 2022, the Company recorded equity in loss of unconsolidated affiliates of $22.5 and $11.4, respectively, associated with Bonnie Plants, ~~LLC of $7.3 and $18.7, respectively, as compared to $6.5 and $13.8 during~~LLC. During the three ~~and six~~ months ended ~~April 2, 2022, respectively.~~

December 30, 2023, the Company recorded a pre-tax impairment charge of $10.4 associated with its investment in Bonnie Plants, LLC in the “Equity in loss of unconsolidated affiliates” line in the Condensed Consolidated Statements of Operations. The estimated fair value of Bonnie Plants, LLC was based upon an equal weighting of the income-based and market-based approaches, utilizing estimated cash flows and a terminal value discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the investment. The fair value estimate utilizes significant unobservable inputs and thus represents a Level 3 fair value measurement.


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

NOTE 4.3. IMPAIRMENT, RESTRUCTURING AND OTHER

Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the 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
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Cost of sales—impairment, restructuring and other:
Restructuring and other charges, net $ 99.9 $ 2.5 $ 105.6 $ 2.5
Right-of-use asset impairments 14.1 — 15.4 —
Property, plant and equipment impairments 4.7 2.8 8.0 2.8
Operating expenses:
Restructuring and other charges, net 21.8 0.1 30.2 1.8
Total impairment, restructuring and other charges $ 140.5 $ 5.4 $ 159.2 $ 7.1


	Three Months Ended
		December 30, 2023		December 31, 2022

Cost of sales—impairment, restructuring and other:

Restructuring and other charges (recoveries), net		$	(5.8)	$	7.1

Property, plant and equipment impairments		—		3.2
Operating expenses—impairment, restructuring and other:

Restructuring and other charges (recoveries), net		(7.1)		8.5




Total impairment, restructuring and other charges (recoveries), net		$	(12.9)	$	18.8

The following table summarizes the activity related to liabilities associated with restructuring activities during the ~~six~~three months ended ~~April 1,~~December 30, 2023:


Amounts accrued at September 30, ~~2022~~2023	$	~~31.5~~40.5
Restructuring charges	~~21.3~~3.6

Payments	~~(21.7)~~(10.1)
Amounts accrued at ~~April 1,~~December 30, 2023	$	~~31.1~~34.0

As of ~~April 1,~~December 30, 2023, restructuring accruals include ~~$9.7~~$13.8 that is classified as long-term.

During fiscal 2022, the Company began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. ~~As part of this restructuring initiative, the Company is~~These changes and initiatives include reducing the size of ~~its~~the supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. ~~During the second quarter of fiscal 2023, the~~The Company has also accelerated the optimization of its Hawthorne supply chain network by announcing the closure of four additional distribution centers. In order to reduce on hand inventory to align with the optimized network capacity, the Company sold its non-core HurricaneTM ~~branded fans business for $5.0 and commenced plans to accelerate~~ the reduction of certain ~~other~~ Hawthorne inventory, primarily lighting, growing environments and hardware ~~products.~~products, to reduce its on hand inventory to align with the reduced network capacity. During the three ~~and six~~ months ended ~~April 1,~~December 30, 2023, the Company ~~incurred costs~~recorded recoveries of ~~$136.8 and $151.4, respectively,~~$3.7 associated with this restructuring initiative, primarily related to the sale of certain previously-reserved inventory ~~write-down charges,~~at amounts in excess of estimated net realizable value, partially offset by employee termination benefits and facility closure ~~costs and impairment of right-of-use assets and property, plant and equipment.~~costs. The Company incurred costs of ~~$0.2 and $1.2~~$2.0 in its U.S. Consumer segment and ~~$118.5 and $127.0~~recorded recoveries of $7.7 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 ~~April 1, 2023, respectively.~~December 30, 2023. The Company recorded recoveries of $0.8 in its U.S. Consumer segment and incurred costs of $0.3 in its Hawthorne segment and $2.4 at Corporate in the


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

“Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 30, 2023. During the three months ended December 31, 2022, the Company incurred costs of $14.5 associated with this restructuring initiative primarily related to employee termination benefits, facility closure costs and impairment of property, plant and equipment. The Company incurred costs of ~~$0.1 and $0.3~~$1.0 in its U.S. Consumer segment ~~$17.1~~ and ~~$18.2~~$8.4 in its Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 31, 2022. The Company incurred costs of $0.2 in its U.S. Consumer segment, $1.0 in its Hawthorne segment, $0.1 ~~and $0.2~~ in its Other segment and ~~$0.8 and $4.5~~$3.8 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three ~~and six~~ months ended ~~April 1, 2023, respectively.~~December 31, 2022. Costs incurred ~~from~~since the inception of this restructuring initiative through ~~April 1,~~December 30, 2023 were ~~$180.3~~$217.1 for the Hawthorne segment, ~~$23.1~~$46.7 for the U.S. Consumer segment, ~~$0.9~~$1.6 for the Other segment and ~~$12.2~~$25.1 for Corporate.

During the three months ended December 30, 2023, the Company recorded a gain of $12.1 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with a payment received in resolution of a dispute with the former ownership group of a business that was acquired in fiscal 2022. This payment was classified as an operating activity in the Condensed Consolidated Statements of Cash Flows.

NOTE 5.4. INVENTORIES

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

April 1,
2023 April 2,
2022 September 30,
2022
Finished goods $ 759.0 $ 1,153.2 $ 926.2
Raw materials 279.0 332.5 293.2
Work-in-process 89.6 108.4 124.1
Total $ 1,127.6 $ 1,594.1 $ 1,343.5


	December 30, 2023		December 31, 2022		September 30, 2023

Finished goods	$	770.6	$	1,045.0	$	506.2
Raw materials	298.1		360.6		272.5
Work-in-process	100.9		120.3		101.6
Total inventories, net	$	1,169.6	$	1,525.9	$	880.3


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

NOTE 6.5. 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. The annual commission payable under the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”) is equal to 50% of the actual earnings before interest and income taxes of Monsanto’s consumer Roundup® business for each program year in the markets covered by the Third Restated Agreement (“Program EBIT”). The Third Restated Agreement also requires the Company to make annual payments of $18.0 to Monsanto as a contribution against the overall expenses of its consumer Roundup® business, subject to reduction pursuant to the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.

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

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

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

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

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


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

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






		Three Months Ended				Six Months Ended
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022

Gross commission	Gross commission	$	48.9	$	46.7	$	58.5	$	52.4

Gross commission

Gross commission
Contribution expenses
Contribution expenses
Contribution expenses	Contribution expenses	(4.5)		(4.5)		(9.0)		(9.0)

Net commission	Net commission	44.4		42.2		49.5		43.4

Net commission

Net commission
Reimbursements associated with Roundup® marketing agreement
Reimbursements associated with Roundup® marketing agreement
Reimbursements associated with Roundup® marketing agreement	Reimbursements associated with Roundup® marketing agreement	27.2		22.0		42.4		41.6
Total net sales associated with Roundup® marketing agreement	Total net sales associated with Roundup® marketing agreement	$	71.6	$	64.2	$	91.9	$	85.0
Total net sales associated with Roundup® marketing agreement
Total net sales associated with Roundup® marketing agreement


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

NOTE 7.6. DEBT

The components of debt are as follows:


		April 1, 2023		April 2, 2022		September 30, 2022
	December 30, 2023							December 30, 2023	December 31, 2022	September 30, 2023

Credit Facilities:	Credit Facilities:
Credit Facilities:
Credit Facilities:
Revolving loans
Revolving loans
Revolving loans	Revolving loans	$	642.5	$	1,135.0	$	300.5
Term loans	Term loans	950.0		650.0		975.0
Senior Notes due 2031 – 4.000%	Senior Notes due 2031 – 4.000%	500.0		500.0		500.0
Senior Notes due 2032 – 4.375%	Senior Notes due 2032 – 4.375%	400.0		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	380.0		400.0		75.0
Receivables facility
Receivables facility
Finance lease obligations	Finance lease obligations	17.9		30.5		28.9
Other	Other	3.1		13.6		12.7
Total debt	Total debt	3,593.5		3,829.1		2,992.1
Less current portions	Less current portions	435.4		459.7		144.3
Less unamortized debt issuance costs	Less unamortized debt issuance costs	20.1		19.4		21.6
Long-term debt	Long-term debt	$	3,138.0	$	3,350.0	$	2,826.2

Credit Facilities

On April 8, 2022, the Company entered into a sixth amended and restated credit agreement (the “Sixth A&R Credit Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $1,000.0 (the “Sixth A&R Credit Facilities”). The Sixth A&R Credit Agreement will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the issuance of letters of credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and warranties, affirmative and negative covenants, financial covenants, and events of default.

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


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

On June 8, 2022, the Company entered into Amendment No. 1 ~~(the “Amendment”)~~ to the Sixth A&R Credit ~~Agreement. The~~ Agreement (“Amendment ~~increases~~No. 1”). Amendment No. 1 increased the maximum permitted leverage ratio for the quarterly leverage covenant until ~~the earlier of (i)~~ April 1, ~~2024 and (ii) subject to certain conditions specified in the~~2024. Amendment ~~the termination by the Company of such increase (such period, the “Leverage Adjustment Period”). The Amendment~~No. 1 also ~~increases~~increased the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50 bps, and ~~increases~~increased the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when the Company’s quarterly-tested leverage ratio exceeded 4.75.

On July 31, 2023, the Company entered into Amendment No. 2 to the Sixth A&R Credit Agreement (“Amendment No. 2”). Amendment No. 2 (i) reduces the revolving loan commitments by $250.0; (ii) increases the maximum permitted leverage ratio for the quarterly leverage covenant until the earlier of (a) October 1, 2025 and (b) subject to certain conditions specified in Amendment No. 2, the termination by the Company of such adjustment (such period, the “Leverage Adjustment Period”); (iii) replaces the interest coverage covenant with a fixed charge coverage covenant; (iv) increases the interest rate applicable to borrowings under the revolving credit facility and the term loan facility by 25 bps for each existing pricing tier and adds a pricing tier applicable to periods when the leverage ratio exceeds ~~4.75.~~6.00; (v) limits the amount of certain incremental investments, loans and advances to $25.0 during the Leverage Adjustment Period; and (vi) adds the Company’s intellectual property (subject to certain exceptions) as collateral to secure its obligations under the Sixth A&R Credit Agreement. Additionally, ~~the~~ Amendment No. 2 limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of its Common Shares in an aggregate amount not to exceed ~~$225.0~~225.0 per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. ~~The~~ Amendment No. 2 also ~~requires~~subjects the Company’s ability to make certain investments to pro forma compliance with certain leverage levels specified in Amendment No. 2. Pursuant to Amendment No. 2, the ~~Amendment with respect~~Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts receivable, inventory, equipment and intellectual property (subject to certain exceptions) of Scotts Miracle-Gro and certain of its domestic subsidiaries and (ii) the ~~Company’s ability to consummate~~pledge of all of the capital stock of certain ~~acquisitions~~of Scotts Miracle-Gro’s domestic subsidiaries and ~~incur debt.~~


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

a portion of the capital stock of certain of its foreign subsidiaries.

At ~~April 1,~~December 30, 2023, the Company had letters of credit outstanding in the aggregate principal amount of ~~$5.0~~$78.0, and had ~~$852.5~~$660.7 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings under the credit facilities, excluding the impact of interest rate swaps, were ~~7.0%~~9.1% and ~~1.8%~~6.6% for the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022, respectively.

The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s leverage ratio determined as of the end of each of its fiscal quarters calculated as average total indebtedness, divided by the Company’s earnings before interest, taxes, depreciation and amortization, as adjusted pursuant to the terms of ~~the Sixth A&R Credit Agreement~~Amendment No. 2 (“Adjusted EBITDA”). Pursuant to ~~the~~ Amendment No. 2, the maximum permitted leverage ratio is (i) ~~6.50~~8.25 for ~~the second and third quarters of fiscal 2023, (ii) 6.25 for the fourth quarter of fiscal 2023 and~~ the first quarter of fiscal 2024, ~~(iii) 5.50~~(ii) 7.75 for the second quarter of fiscal 2024, ~~and (iv) 4.50~~(iii) 6.50 for the third quarter of fiscal 2024, (iv) 6.00 for the fourth quarter of fiscal 2024, (v) 5.50 for the first quarter of fiscal 2025, (vi) 5.25 for the second quarter of fiscal 2025, (vii) 5.00 for the third quarter of fiscal 2025, (viii) 4.75 for the fourth quarter of fiscal 2025 and (ix) 4.50 for the first quarter of fiscal 2026 and thereafter. The Company’s leverage ratio was ~~6.01~~7.20 at ~~April 1,~~December 30, 2023. ~~The~~Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement also contains an affirmative covenant regarding the Company’s ~~interest~~fixed charge coverage ratio determined as of the end of each of its fiscal ~~quarters. The interest coverage ratio is~~quarters, calculated as Adjusted EBITDA minus capital expenditures and expense for taxes paid in cash, divided by the sum of interest expense plus restricted payments, as described in ~~the Sixth A&R Credit Agreement, and excludes costs related to refinancings.~~Amendment No. 2. The minimum required ~~interest~~fixed charge coverage ratio is ~~3.00.~~(i) 0.75 for the first quarter of fiscal 2024 through the third quarter of fiscal 2024 and (ii) 1.00 for the fourth quarter of fiscal 2024 and thereafter. The Company’s ~~interest~~fixed charge coverage ratio was ~~3.66~~1.08 for the twelve months ended ~~April 1,~~December 30, 2023.

As of ~~April 1,~~December 30, 2023, the Company was in compliance with all applicable covenants in the agreements governing its debt. Based on the Company’s projections of its financial performance for the twelve-month period subsequent to the date of the filing of this Form 10-Q, the Company expects to remain in compliance with the financial covenants under the Sixth A&R Credit Agreement. However, the Company’s assessment of its ability to meet its future obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default would allow the lenders under the Sixth A&R Credit Agreement to accelerate the maturity of the indebtedness thereunder and would also implicate cross-default provisions under the Senior Notes, as defined below, and cause the Senior Notes to become due and payable at that time. As of ~~April 1,~~December 30, 2023, the Company’s indebtedness under the Sixth A&R Credit Agreement and Senior Notes was ~~$3,192.5.~~$3,023.7. The Company does not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.


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

As part of its contingency planning to address potential future circumstances that could result in noncompliance, the Company has contemplated alternative plans including additional restructuring activities to reduce operating expenses and certain cash management strategies that are within the Company’s control. Additionally, the Company has contemplated alternative plans that are subject to market conditions and not in the Company’s control, including, among others, discussions with its lenders to amend the terms of its financial covenants under the Sixth A&R Credit Agreement and generating cash by completing other financing transactions, which may include issuing equity. There is no assurance that the Company will be successful in implementing these alternative plans.

Senior Notes

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

On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”). The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year.

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

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

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


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

The Senior Notes contain an affirmative covenant regarding the Company’s interest coverage ratio determined as of the end of each of its fiscal quarters, calculated as Adjusted EBITDA divided by interest expense excluding costs related to refinancings. The minimum required interest coverage ratio is 2.00. The Company’s interest coverage ratio was 2.49 for the twelve months ended December 30, 2023.

Receivables Facility

On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”)~~. Under the Receivables Facility,~~, under which the Company ~~may~~could sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers ~~and simultaneously agree~~subject to agreeing to repurchase the receivables on a weekly basis. The eligible accounts receivable ~~consist~~consisted of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts ~~receivable~~receivables which ~~may~~could be sold under the Receivables Facility iswas $400.0 and the commitment amount during the seasonal commitment period that began on February 24, 2023 and ~~ends~~ended on June 16, 2023 iswas $160.0. The Receivables Facility ~~expires~~expired on August 18, 2023.

The ~~Company accounts for the~~ sale of receivables under the Receivables Facility was accounted for as short-term debt and ~~continues~~the Company continued to carry the receivables on its Condensed Consolidated Balance Sheets, primarily as a result of ~~the Company’s~~its requirement to repurchase receivables sold. As of ~~April 1, 2023 and April 2,~~December 31, 2022, there were ~~$380.0 and $400.0, respectively,~~$161.0 in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was ~~$422.2 and $444.5, respectively.~~$178.9.


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

Interest Rate Swap Agreements

The Company enters into interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022~~2023 had a maximum total U.S. dollar equivalent notional amount of ~~$800.0. On May 4, 2023, the Company executed $200.0 of fixed notional amount interest rate swap agreements with an average fixed rate of 3.36%, an effective date of June 7, 2023~~$700.0, $800.0 and ~~an expiration date of April 7, 2027.~~$600.0, respectively. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at ~~April 1,~~December 30, 2023 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
100			12/21/2020	6/20/2023	1.36	%
300		(b)	1/7/2021	6/7/2023	1.34	%
200	200		10/7/2021	6/7/2023	1.37	%	200	(b)	(b)	1/20/2022			6/20/2024			0.49	%
200	200	(b)	1/20/2022	6/20/2024	0.58	%	200		6/7/2023			6/7/2023			6/8/2026				0.80	%
200			6/7/2023	6/8/2026	0.85	%
150							150				6/7/2023			4/7/2027				3.37	%
50							50				6/7/2023			4/7/2027				3.34	%
100							100	(b)		11/20/2023			3/22/2027			4.74	%

(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, including the impact of interest rate swaps, were ~~5.3%~~6.0% and ~~3.4%~~5.2% for the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022, respectively.


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

NOTE 8.7. EQUITY (DEFICIT)

The following tables provide a summary of the changes in equity (deficit) 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
Balance at September 30, 2022		$	364.0	$	1,020.1	$	(1,091.8)	$	(144.6)	$	147.7

												Common Shares and Capital in Excess of Stated Value	Retained Earnings	Treasury Shares	Accumulated Other Comprehensive Loss	Total Equity (Deficit)
Balance at September 30, 2023

Net income (loss)
Net income (loss)
Net income (loss)	Net income (loss)	—		(64.7)		—		—		(64.7)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(24.6)		(24.6)
Share-based compensation	Share-based compensation	20.8		—		—		—		20.8
Dividends declared ($0.66 per share)	Dividends declared ($0.66 per share)	—		(37.5)		—		—		(37.5)
Treasury share purchases	Treasury share purchases	—		—		(0.8)		—		(0.8)
Treasury share issuances	Treasury share issuances	(17.2)		—		35.9		—		18.7

Balance at December 31, 2022		367.6		917.9		(1,056.7)		(169.3)		59.5
Balance at December 30, 2023

Net income (loss)		—		109.4		—		—		109.4
Other comprehensive income (loss)		—		—		—		(17.8)		(17.8)
Share-based compensation		37.2		—		—		—		37.2
Dividends declared ($0.66 per share)		—		(37.0)		—		—		(37.0)
Treasury share purchases		—		—		(5.6)		—		(5.6)
Treasury share issuances		(30.4)		—		22.3		—		(8.1)

Balance at April 1, 2023		$	374.3	$	990.3	$	(1,040.0)	$	(187.1)	$	137.5
Balance at December 30, 2023

Balance at December 30, 2023

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
Balance at September 30, 2021		$	477.0	$	1,605.1	$	(1,002.4)	$	(66.4)	$	1,013.3

												Common Shares and Capital in Excess of Stated Value	Retained Earnings	Treasury Shares	Accumulated Other Comprehensive Loss	Total Equity (Deficit)
Balance at September 30, 2022

Net income (loss)
Net income (loss)
Net income (loss)	Net income (loss)	—		(50.0)		—		—		(50.0)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		5.7		5.7
Share-based compensation	Share-based compensation	7.3		—		—		—		7.3
Dividends declared ($0.66 per share)	Dividends declared ($0.66 per share)	—		(37.3)		—		—		(37.3)
Treasury share purchases	Treasury share purchases	—		—		(129.5)		—		(129.5)
Treasury share issuances	Treasury share issuances	2.6		—		19.5		—		22.1

Balance at January 1, 2022		486.9		1,517.8		(1,112.4)		(60.7)		831.6
Net income (loss)		—		276.5		—		—		276.5
Other comprehensive income (loss)		—		—		—		12.3		12.3
Share-based compensation		15.9		—		—		—		15.9
Dividends declared ($0.66 per share)		—		(35.5)		—		—		(35.5)
Treasury share purchases		—		—		(128.1)		—		(128.1)
Treasury share issuances		(141.0)		—		143.3		—		2.3
Balance at December 31, 2022

Balance at April 2, 2022		$	361.8	$	1,758.8	$	(1,097.2)	$	(48.4)	$	975.0

Balance at December 31, 2022

Balance at December 31, 2022

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


			Three Months Ended
			Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) On Derivative Instruments		Net Unrealized Gain (Loss) On Securities		Pension and Other Post-Retirement Benefit Adjustments		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2022			$	(21.7)	$	24.8	$	(100.2)	$	(72.2)	$	(169.3)
		Three Months Ended														Three Months Ended
		Foreign Currency Translation Adjustments											Foreign Currency Translation Adjustments	Net Unrealized Gain (Loss) On Derivative Instruments	Net Unrealized Gain (Loss) On Securities		Pension and Other Post-Retirement Benefit Adjustments	Accumulated Other Comprehensive Income (Loss)
Balance at September 30, 2023
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications		1.1		(6.4)		(7.3)		—		(12.6)
Amounts reclassified from accumulated other comprehensive net income (loss)	Amounts reclassified from accumulated other comprehensive net income (loss)		—		(11.0)		—		(0.4)		(11.4)
Income tax benefit (expense)	Income tax benefit (expense)		—		4.4		1.7		0.1		6.2
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)		1.1		(13.0)		(5.6)		(0.3)		(17.8)
Balance at April 1, 2023			$	(20.7)	$	11.8	$	(105.7)	$	(72.6)	$	(187.1)
Balance at December 30, 2023

Balance at January 1, 2022			$	(6.0)	$	19.5	$	(2.2)	$	(72.1)	$	(60.7)
Balance at September 30, 2022
Balance at September 30, 2022
Balance at September 30, 2022
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications		(1.3)		21.9		0.1		—		20.7
Amounts reclassified from accumulated other comprehensive net income (loss)	Amounts reclassified from accumulated other comprehensive net income (loss)		—		(5.8)		—		2.2		(3.6)
Income tax benefit (expense)	Income tax benefit (expense)		—		(4.2)		—		(0.6)		(4.8)
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)		(1.3)		11.9		0.1		1.6		12.3
Balance at April 2, 2022			$	(7.3)	$	31.5	$	(2.1)	$	(70.5)	$	(48.4)
Balance at December 31, 2022

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)
On Securities Pension and Other Post-Retirement
Benefit Adjustments Accumulated Other
Comprehensive Income (Loss)
Balance at September 30, 2022 $ (28.9) $ 33.3 $ (79.7) $ (69.3) $ (144.6)
Other comprehensive income (loss) before reclassifications 8.3 (12.9) (34.1) — (38.7)
Amounts reclassified from accumulated other comprehensive net income (loss) — (16.0) — (4.3) (20.3)
Income tax benefit (expense) — 7.4 8.1 1.1 16.6
Net current period other comprehensive income (loss) 8.3 (21.5) (26.0) (3.2) (42.4)
Balance at April 1, 2023 $ (20.7) $ 11.8 $ (105.7) $ (72.6) $ (187.1)
Balance at September 30, 2021 $ (1.7) $ 10.2 $ (2.3) $ (72.5) $ (66.4)
Other comprehensive income (loss) before reclassifications (5.6) 34.9 0.4 — 29.7
Amounts reclassified from accumulated other comprehensive net income (loss) — (6.1) — 2.8 (3.3)
Income tax benefit (expense) — (7.5) (0.1) (0.7) (8.2)
Net current period other comprehensive income (loss) (5.6) 21.3 0.3 2.1 18.1
Balance at April 2, 2022 $ (7.3) $ 31.5 $ (2.1) $ (70.5) $ (48.4)
Share-Based Awards

~~The sum~~In January 2024, the shareholders 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)~~

~~Share Repurchases~~

~~On February 6, 2020,~~ Scotts Miracle-Gro ~~announced that its Board~~approved an amendment and restatement of ~~Directors authorized~~The Scotts Miracle-Gro Company Long-Term Incentive Plan to increase the ~~repurchase of up to $750.0~~maximum number of Common Shares ~~from April 30, 2020 through March 25, 2023. There were no share repurchases~~available for grant to participants under ~~this share repurchase authorization during fiscal 2023 through its expiration on March 25, 2023. During~~ the ~~three and six~~ ~~months ended April 2, 2022, Scotts Miracle-Gro repurchased 0.4 million and 1.1~~Plan by 2.5 million Common Shares under this share repurchase authorization for $50.0 and $175.0, respectively. Treasury share purchases also include cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation of $5.6 and $6.4 for the ~~three and six~~ ~~months ended April 1, 2023, respectively, and $78.1 and $82.6 for the~~ ~~three and six months ended April 2, 2022, respectively.~~

~~Share-Based Awards~~Shares.

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

Three Months Ended

December 30,
2023

Three Months Ended

Six Months Ended

Share-based compensation

April 1,
2023

April 2,
2022

April 1,
2023

April 2,
2022

Share-based compensation

37.2

15.9

57.9

23.2

Related tax benefit recognized

6.1

1.7

10.8

3.5

Related tax benefit recognized

Stock Options

Stock option activity was as follows:


	No. of Options	Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Life	Aggregate Intrinsic Value
Awards outstanding at September 30, 2023	1,191,183	$	76.64	6.6 years
Granted	1,287,402	53.46

Forfeited	(18,381)	50.40
Awards outstanding at December 30, 2023	2,460,204	64.70		8.2 years	$	21.9
Exercisable	399,223	66.24		1.9 years	0.9


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

The weighted-average fair value per share of each option granted during the three months ended December 30, 2023 and December 31, 2022 was $15.16 and $13.67, respectively. There were no options exercised during the three months ended December 30, 2023 and December 31, 2022. As of December 30, 2023, there was $11.7 of total unrecognized pre-tax compensation cost, net of estimated forfeitures, related to nonvested stock options that is expected to be recognized over a weighted-average period of 2.6 years. Cash received from the exercise of stock options, including amounts received from employee purchases under the employee stock purchase plan, was $0.5 and $0.6 for the three months ended December 30, 2023 and December 31, 2022, respectively.

The grant date fair value of stock option awards is estimated using a binomial model. Expected market price volatility is based on implied volatilities from traded options on Common Shares and historical volatility specific to the Common Shares. Historical data, including demographic factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of stock options is based on historical experience and expectations for grants outstanding. The weighted average assumptions for awards granted in fiscal 2024 are as follows:



Expected volatility	38.8	%
Risk-free interest rate	4.7	%
Expected dividend yield	4.1	%
Expected life	6.1 years

Restricted ~~stock-based~~share-based awards

Restricted ~~stock-based awards granted to employees and non-employee directors~~share-based award activity (including restricted stock units and deferred stock units) ~~during the six months ended April 1, 2023 were~~was as follows:


		No. of Units	Wtd. Avg. Grant Date Fair Value per Unit
Awards outstanding at September 30, 2022		320,575	$	143.19
	No. of Units				No. of Units	Wtd. Avg. Grant Date Fair Value per Unit
Awards outstanding at September 30, 2023
Granted	Granted	433,880	59.54
Vested	Vested	(113,547)	117.22
Forfeited	Forfeited	(22,891)	104.90
Awards outstanding at April 1, 2023		618,017	90.65
Awards outstanding at December 30, 2023

The weighted-average grant-date fair value of restricted stock-based awards granted during the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022 was ~~$59.54~~$48.79 and ~~$134.00~~$50.59 per share, respectively. As of ~~April 1,~~December 30, 2023, there was ~~$23.0~~$18.2 of total unrecognized pre-tax compensation cost, net of estimated forfeitures, related to nonvested restricted stock-based awards that is expected to be recognized over a weighted-average period of ~~1.7~~1.9 years. ~~The total fair value of restricted stock-based awards vested was $8.9 for the six months ended April 1, 2023.~~

Performance-based awards

Performance-based award activity ~~during the six months ended April 1, 2023~~ was as follows (based on target award amounts):


		No. of Units	Wtd. Avg. Grant Date Fair Value per Unit
Awards outstanding at September 30, 2022		113,256	$	130.94
	No. of Units				No. of Units	Wtd. Avg. Grant Date Fair Value per Unit
Awards outstanding at September 30, 2023
Granted	Granted	682,797	65.97
Vested (a)	Vested (a)	(250,483)	69.05
Forfeited	Forfeited	(14,723)	104.82
Awards outstanding at April 1, 2023		530,847	77.32
Awards outstanding at December 30, 2023

(a) Vested at a weighted average of ~~102%~~100% of the target performance share units granted.

The weighted-average grant-date fair value of performance-based awards granted during the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022 was ~~$65.97~~$44.86 and ~~$132.87~~$63.61 per share, respectively. As of ~~April 1,~~December 30, 2023, there was ~~$16.4~~$2.2 of total unrecognized pre-tax compensation cost, net of estimated forfeitures, related to nonvested performance-based awards that is expected to be recognized over a weighted-average period of ~~0.9~~2.3 years. The total fair value of performance-based units vested ~~was $17.5 for~~during the ~~six~~three months ended ~~April 1, 2023.~~December 30, 2023 and December 31, 2022 was $10.6 and $6.0, respectively.


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

During the three months ended December 30, 2023, the Company determined that short-term variable incentive compensation for fiscal 2024 would be provided to certain employees as performance-based awards in lieu of a cash-based program. The program is structured so the fiscal 2024 incentive grant, if any, will be made on or near the incentive payout date, subject to certain performance conditions and a service requirement. The number of performance-based units that are ultimately issued to participating employees will be determined based on a target incentive payout amount for each employee adjusted up or down based on actual performance compared to the performance conditions, and then converted into a variable number of performance-based award units based on the fair value of the Company’s Common Shares on the grant date. The awards are classified as liability awards and, as of December 30, 2023, the Company had accrued $2.3 in the “Other current liabilities” line in the Condensed Consolidated Balance Sheets associated with these awards. As of December 30, 2023, there was $17.9 of total unrecognized pre-tax compensation cost related to these nonvested performance-based awards that is expected to be recognized over the remainder of fiscal 2024. The units associated with these awards are excluded from the table above.

NOTE 9.8. EARNINGS PER COMMON SHARE

The following table ~~sets forth a reconciliation of the weighted average number of shares outstanding (in millions) used~~presents information necessary to calculate basic and diluted ~~net~~ income (loss) per Common ~~Share:~~Share.


		Three Months Ended				Six Months Ended
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022

Net income		$	109.4	$	276.5	$	44.7	$	226.4

Basic net income per common share
Weighted-average common shares outstanding during the period		56.0		55.5		55.8		55.5
Basic net income per common share		$	1.95	$	4.98	$	0.80	$	4.08

Diluted net income per common share
Net loss

Net loss

Net loss

Basic net loss per common share:

Basic net loss per common share:

Basic net loss per common share:
Weighted-average common shares outstanding during the period
Weighted-average common shares outstanding during the period
Weighted-average common shares outstanding during the period
Basic net loss per common share:
Basic net loss per common share:
Basic net loss per common share:

Diluted net loss per common share:

Diluted net loss per common share:

Diluted net loss per common share:
Weighted-average common shares outstanding during the period
Weighted-average common shares outstanding during the period
Weighted-average common shares outstanding during the period	Weighted-average common shares outstanding during the period	56.0		55.5		55.8		55.5
Dilutive potential common shares	Dilutive potential common shares	0.5		0.5		0.3		0.8
Dilutive potential common shares
Dilutive potential common shares
Weighted-average common shares outstanding during the period plus dilutive potential common shares	Weighted-average common shares outstanding during the period plus dilutive potential common shares	56.5		56.0		56.1		56.3
Weighted-average common shares outstanding during the period plus dilutive potential common shares
Weighted-average common shares outstanding during the period plus dilutive potential common shares
Diluted net loss per common share:
Diluted net loss per common share:
Diluted net loss per common share:

Diluted net income per common share		$	1.94	$	4.94	$	0.80	$	4.02

Antidilutive stock options outstanding	Antidilutive stock options outstanding	0.2		0.2		0.3		0.2

Antidilutive stock options outstanding

Antidilutive stock options outstanding

Diluted average common shares used in the diluted loss per common share calculation for the three months ended December 30, 2023 and December 31, 2022 were 56.7 million and 55.5 million, respectively, which excluded potential Common Shares of 0.5 million and 0.2 million, respectively, because the effect of their inclusion would be anti-dilutive as the Company incurred a net loss for the three months ended December 30, 2023 and December 31, 2022.

NOTE ~~10.~~9. INCOME TAXES

Scotts Miracle-Gro or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Company is no longer subject to examination by these tax authorities for fiscal years prior to ~~2019.~~2020. 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 2018 through 2020 and a~~ Canadian audit covering fiscal years 2020 through 2021 ~~are~~is in process. The Company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years ~~2017~~2018 through ~~2021.~~2019. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved.


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

The Company currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such examinations are subject to significant uncertainty, the Company does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial position, results of operations or cash flows.

NOTE ~~11.~~10. CONTINGENCIES

Management regularly evaluates the Company’s contingencies, including various judicial and administrative proceedings and claims arising in the ordinary course of business, including product and general liabilities, workers’ compensation, property losses and other liabilities for which the Company is self-insured or retains a high exposure limit. Self-insurance accruals are established based on actuarial loss estimates for specific individual claims plus actuarially estimated amounts for incurred but not reported claims and adverse development factors applied to existing claims. Legal costs incurred in connection with the resolution of claims, lawsuits and other contingencies generally are expensed as incurred. In the opinion of management, the assessment of contingencies is reasonable and related accruals, in the aggregate, are adequate; however, there can be no assurance that final resolution of these matters will not have a material effect on the Company’s financial condition, results of operations or cash flows.


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

Regulatory Matters

At ~~April 1,~~December 30, 2023, the Company had recorded liabilities of ~~$2.4~~$2.6 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 condensed consolidated financial statements as the likelihood of a loss is not probable at this time; and the Company does not believe a reasonably possible loss would be material to, nor does it expect the ultimate resolution of these cases will have a material adverse effect on, the Company’s financial condition, results of operations or cash flows. There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results of operations or cash flows.

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

NOTE ~~12.~~11. 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 ~~$119.1, $184.9~~$112.5, $159.9 and ~~$178.6~~$123.1 at ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022,~~2023, respectively. Contracts outstanding at ~~April 1,~~December 30, 2023 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. Swap agreements that were hedging interest payments as of ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022~~2023 had a maximum total U.S. dollar equivalent notional amount of ~~$800.0.~~$700.0, $800.0 and $600.0, respectively. Refer to “NOTE 7.6. DEBT” for the terms of the swap agreements outstanding at ~~April 1,~~December 30, 2023. Included in the AOCL balance at ~~April 1,~~December 30, 2023 was a gain of ~~$9.1~~$10.3 related to interest rate swap agreements that is expected to be reclassified to earnings during the next twelve months, consistent with the timing of the underlying hedged transactions.

Commodity Price Risk Management

The Company enters into hedging arrangements designed to fix the price of a portion of its projected future urea and diesel requirements. Commodity contracts are valued using observable commodity exchange prices in active markets. Included in the AOCL balance at ~~April 1,~~December 30, 2023 was a loss of ~~$4.9~~$3.3 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.


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

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

Commodity

~~April 1,~~December 30,
2023

~~April 2,~~December 31,
2022

September 30,
~~2022~~2023

Urea

~~19,500~~18,000 tons

~~40,500~~27,000 tons

~~54,000~~52,500 tons

Diesel

~~2,394,000~~2,226,000 gallons

~~4,452,000~~2,058,000 gallons

~~3,150,000~~1,974,000 gallons

Heating Oil

~~1,260,000~~1,008,000 gallons

~~2,016,000~~1,092,000 gallons

~~1,218,000~~966,000 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)								Assets / (Liabilities)
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments		Balance Sheet Location	April 1, 2023		April 2, 2022		September 30, 2022		Derivatives Designated as Hedging Instruments	Balance Sheet Location	December 30, 2023	December 31, 2022	September 30, 2023

Interest rate swap agreements	Interest rate swap agreements		Prepaid and other current assets	$	12.7	$	2.2	$	12.8
Interest rate swap agreements
Interest rate swap agreements
		Other assets
			Other assets	11.5		15.7		18.2
			Other current liabilities	—		(0.5)		—

			Other liabilities
			Other liabilities
			Other liabilities
Commodity hedging instruments	Commodity hedging instruments		Prepaid and other current assets	—		12.2		2.4
			Other current liabilities	(0.4)		—		—
		Other current liabilities
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments			$	23.8	$	29.6	$	33.4

Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments		Balance Sheet Location
Derivatives Not Designated as Hedging Instruments
Derivatives Not Designated as Hedging Instruments											Balance Sheet Location
Currency forward contracts	Currency forward contracts		Prepaid and other current assets	$	—	$	3.9	$	3.4
			Other current liabilities	(2.3)		—		—
		Other current liabilities
Commodity hedging instruments	Commodity hedging instruments		Prepaid and other current assets	—		3.7		0.4
			Other current liabilities	(0.4)		—		—
		Other current liabilities
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments			(2.7)		7.6		3.8
Total derivatives	Total derivatives			$	21.1	$	37.2	$	37.2


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

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	Derivatives in Cash Flow Hedging Relationships		Amount of Gain / (Loss) Recognized in AOCL
			Three Months Ended				Six Months Ended
			April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022		Derivatives in Cash Flow Hedging Relationships	Amount of Gain / (Loss) Recognized in AOCL
	Three Months Ended
		December 30, 2023
		December 30, 2023
		December 30, 2023

Interest rate swap agreements

Interest rate swap agreements

Interest rate swap agreements	Interest rate swap agreements		$	(1.2)	$	11.5	$	(0.7)	$	14.4
Commodity hedging instruments	Commodity hedging instruments		(3.6)		4.7		(8.9)		11.4
Commodity hedging instruments
Commodity hedging instruments
Total	Total		$	(4.8)	$	16.2	$	(9.6)	$	25.8
Total
Total


Derivatives in Cash Flow Hedging Relationships	Reclassified from AOCL into Statement of Operations	Amount of Gain / (Loss)
		Three Months Ended
		December 30, 2023		December 31, 2022

Interest rate swap agreements	Interest expense	$	2.6	$	1.4
Commodity hedging instruments	Cost of sales	(1.1)		2.3
Total		$	1.5	$	3.7

Derivatives in Cash Flow Hedging Relationships

Reclassified from
AOCL into
Statement of Operations

Amount of Gain / (Loss)

Three Months Ended

Six Months Ended

April 1,
2023

April 2,
2022

April 1,
2023

April 2,
2022

Derivatives Not Designated as Hedging Instruments

Recognized in
Statement of Operations

Amount of Gain / (Loss)

Three Months Ended

December 30,
2023

Interest rate swap agreements

Interest expense

3.7

(1.3)

5.1

(2.1)

Currency forward contracts

Commodity hedging instruments

Cost of sales

4.5

5.6

6.8

6.6

Total

8.2

4.3

11.9

4.5

Total

1920


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

Derivatives Not Designated as Hedging Instruments Recognized in
Statement of Operations Amount of Gain / (Loss)
Three Months Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Currency forward contracts Other income / expense, net $ (5.3) $ 4.0 $ (16.6) $ 5.0
Commodity hedging instruments Cost of sales (0.6) 5.9 0.9 6.5
Total $ (5.9) $ 9.9 $ (15.7) $ 11.5

NOTE ~~13.~~12. 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:


			Fair Value Hierarchy Level		April 1, 2023						April 2, 2022						September 30, 2022
				Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
					December 30, 2023																				December 30, 2023			December 31, 2022		September 30, 2023
		Fair Value Hierarchy Level																				Fair Value Hierarchy Level	Carrying Amount	Estimated Fair Value		Carrying Amount	Estimated Fair Value		Carrying Amount	Estimated Fair Value
Assets	Assets
Cash equivalents
Cash equivalents
Cash equivalents	Cash equivalents		Level 1		$	2.9		$	2.9		$	3.8		$	3.8		$	64.3		$	64.3

Other	Other

Other

Other
Investment securities in non-qualified retirement plan assets
Investment securities in non-qualified retirement plan assets
Investment securities in non-qualified retirement plan assets	Investment securities in non-qualified retirement plan assets		Level 1		39.0			39.0			47.4			47.4			38.4			38.4

Convertible debt investments	Convertible debt investments		Level 3		84.8			84.8			192.4			192.4			117.0			117.0

Convertible debt investments

Convertible debt investments

Liabilities
Liabilities
Liabilities	Liabilities

Debt instruments	Debt instruments

Debt instruments

Debt instruments
Credit facilities – revolving loans
Credit facilities – revolving loans
Credit facilities – revolving loans	Credit facilities – revolving loans		Level 2		642.5			642.5			1,135.0			1,135.0			300.5			300.5
Credit facilities – term loans	Credit facilities – term loans		Level 2		950.0			950.0			650.0			650.0			975.0			975.0
Senior Notes due 2031 – 4.000%	Senior Notes due 2031 – 4.000%		Level 2		500.0			398.8			500.0			437.5			500.0			350.6
Senior Notes due 2032 – 4.375%	Senior Notes due 2032 – 4.375%		Level 2		400.0			320.5			400.0			352.0			400.0			284.0
Senior Notes due 2029 – 4.500%	Senior Notes due 2029 – 4.500%		Level 2		450.0			388.1			450.0			420.8			450.0			325.7
Senior Notes due 2026 – 5.250%	Senior Notes due 2026 – 5.250%		Level 2		250.0			238.8			250.0			252.5			250.0			230.0

Receivables facility	Receivables facility		Level 2		380.0			380.0			400.0			400.0			75.0			75.0
Receivables facility
Receivables facility

Other debt	Other debt		Level 2		3.1			3.1			13.6			13.6			12.7			12.7
Other debt
Other debt

Changes in the balance of Level 3 convertible debt investments carried at fair value are presented below. There were no transfers into or out of Level 3.

Three Months Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Fair value at beginning of period $ 91.2 $ 191.3 $ 117.0 $ 190.3
Total realized / unrealized gains included in net earnings 0.9 1.0 1.9 1.7
Total realized / unrealized gains (losses) included in OCI (7.3) 0.1 (34.1) 0.4
Fair value at end of period $ 84.8 $ 192.4 $ 84.8 $ 192.4


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


	Three Months Ended
	December 30, 2023		December 31, 2022
Fair value at beginning of period	$	85.8	$	117.0

Total realized / unrealized gains included in net earnings	0.1		1.0
Total realized / unrealized losses included in OCI	(0.9)		(26.8)
Fair value at end of period	$	85.0	$	91.2

The amortized cost basis of convertible debt investments was ~~$224.0, $195.1,~~$225.9, $223.0 and ~~$222.1~~$225.8 at ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022,~~2023, respectively. At ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022,~~2023, gross unrealized losses on convertible debt investments were ~~$139.2, $2.8,~~$140.9, $131.9 and ~~$105.1 respectively.~~$140.0, respectively, and there were no gross unrealized gains. These investments have been in a continuous unrealized loss position for greater than 12 months as of ~~April 1,~~December 30, 2023. The ~~decline in fair value of the convertible debt investments is related to a decline in the value of the underlying conversion options~~allowance for expected credit losses was $101.3, $0.0 and ~~is not reflective of a credit risk associated with the notes. The Company believes it will recover its cost basis in the convertible debt securities~~$101.3 at December 30, 2023, December 31, 2022 and ~~that the Company has the ability to hold the securities until they recover in value and had no intent to sell or convert them at April 1, 2023.~~September 30, 2023, respectively. At ~~April 1,~~December 30, 2023, the period until scheduled maturity of the Company’s convertible debt investments was between ~~4.4~~3.7 years and ~~6.5~~5.7 years.


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

NOTE ~~14.~~13. 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 1,~~December 30, 2023, the Company had entered into operating leases that were yet to commence with a combined total expected lease liability of ~~$50.3.~~$23.3. 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 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022.

The Company leases certain vehicles (primarily cars and light trucks) under agreements that are cancellable after the first year, but typically continue on a month-to-month basis until canceled by the Company. The vehicle leases and certain other non-cancelable operating leases contain residual value guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. If all such vehicle leases had been canceled as of ~~April 1,~~December 30, 2023, the Company’s residual value guarantee would have approximated ~~$3.9.~~$5.2.

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

Balance Sheet Location April 1,
2023 April 2,
2022 September 30,
2022
Operating leases:
Right-of-use assets Other assets $ 255.9 $ 293.2 $ 288.9
Current lease liabilities Other current liabilities 77.4 71.9 76.2
Non-current lease liabilities Other liabilities 203.2 230.3 223.2
Total operating lease liabilities $ 280.6 $ 302.2 $ 299.4
Finance leases:
Right-of-use assets Property, plant and equipment, net $ 15.7 $ 28.3 $ 26.4
Current lease liabilities Current portion of debt 1.9 6.0 6.4
Non-current lease liabilities Long-term debt 16.0 24.5 22.5
Total finance lease liabilities $ 17.9 $ 30.5 $ 28.9


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


	Balance Sheet Location	December 30, 2023		December 31, 2022		September 30, 2023

Operating leases:
Right-of-use assets	Other assets	$	282.6	$	281.2	$	262.6

Current lease liabilities	Other current liabilities	77.2		76.5		76.4
Non-current lease liabilities	Other liabilities	234.0		216.4		220.1
Total operating lease liabilities		$	311.2	$	292.9	$	296.5

Finance leases:
Right-of-use assets	Property, plant and equipment, net	$	14.8	$	16.4	$	14.5

Current lease liabilities	Current portion of debt	2.1		1.9		1.9
Non-current lease liabilities	Long-term debt	15.2		16.6		15.0
Total finance lease liabilities		$	17.3	$	18.5	$	16.9

Components of lease cost were as follows:


		Three Months Ended				Six Months Ended
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
		Three Months Ended
		Three Months Ended
		Three Months Ended
		December 30, 2023
		December 30, 2023
		December 30, 2023

Operating lease cost (a)	Operating lease cost (a)	$	23.9	$	21.5	$	46.1	$	42.4

Operating lease cost (a)

Operating lease cost (a)
Variable lease cost
Variable lease cost
Variable lease cost	Variable lease cost	7.1		11.2		13.6		21.0

Finance lease cost	Finance lease cost

Finance lease cost

Finance lease cost
Amortization of right-of-use assets
Amortization of right-of-use assets
Amortization of right-of-use assets	Amortization of right-of-use assets	0.6		1.6		2.0		3.2
Interest on lease liabilities	Interest on lease liabilities	0.1		0.3		0.4		0.6
Interest on lease liabilities
Interest on lease liabilities
Total finance lease cost	Total finance lease cost	$	0.7	$	1.9	$	2.4	$	3.8
Total finance lease cost
Total finance lease cost

(a)Operating lease cost includes amortization of right-of-use assets of ~~$23.8~~$18.2 and ~~$42.8~~$19.0 for the three ~~and six~~ months ended ~~April 1,~~December 30, 2023 ~~respectively,~~ and ~~$19.3 and $36.9 for the three and six months ended April 2,~~December 31, 2022, respectively. Short-term lease expense is excluded from operating lease cost and is not material.


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

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

Six Months Ended

April 1,
2023

April 2,
2022

Three Months Ended

December 30,
2023

December 31,
2022

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases, net

46.3

41.4

Operating cash flows from finance leases

0.4

0.6

Financing cash flows from finance leases

1.8

2.9

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

32.5

38.1

Operating leases

Finance leases

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


		April 1, 2023		April 2, 2022		September 30, 2022
	December 30, 2023										December 30, 2023				December 31, 2022
Weighted-average remaining lease term (in years):	Weighted-average remaining lease term (in years):
Operating leases
Operating leases
Operating leases	Operating leases	4.8		5.2		4.9		5.5				4.7
Finance leases	Finance leases	9.8		7.6		7.3		Finance leases	9.1				9.9

Weighted-average discount rate:	Weighted-average discount rate:
Weighted-average discount rate:
Weighted-average discount rate:
Operating leases
Operating leases
Operating leases	Operating leases	4.0	%	3.2	%	3.5	%	5.5	%			3.6	%
Finance leases	Finance leases	4.4	%	4.3	%	4.3	%	Finance leases	4.5	%			4.4	%

Maturities of lease liabilities by fiscal year for the Company’s leases as of ~~April 1,~~December 30, 2023 were as follows:


Year	Year	Operating Leases		Finance Leases		Year	Operating Leases	Finance Leases
2023 (remainder of the year)		$	44.9	$	1.3
2024		82.1		2.6
2024 (remainder of the year)
2025	2025	65.1		2.6
2026	2026	45.7		2.1
2027	2027	22.8		1.8
2028
Thereafter	Thereafter	48.6		11.8
Total lease payments	Total lease payments	309.2		22.2
Less: Imputed interest	Less: Imputed interest	(28.6)		(4.3)
Total lease liabilities	Total lease liabilities	$	280.6	$	17.9

2223


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

NOTE ~~15.~~14. SEGMENT INFORMATION

The Company divides its operations into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S. Consumer consists of the Company’s consumer lawn and garden business in the United States. Hawthorne consists of the Company’s indoor and hydroponic gardening business. Other primarily consists of the Company’s consumer lawn and garden business ~~outside the United States.~~in Canada. This identification of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of the Company. In addition, Corporate consists of general and administrative expenses and certain other income and expense items not allocated to the business segments.

The performance of each reportable segment is evaluated based on several factors, including income (loss) 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.

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






		Three Months Ended				Six Months Ended
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022

Net Sales:	Net Sales:

Net Sales:

Net Sales:
U.S. Consumer
U.S. Consumer
U.S. Consumer	U.S. Consumer	$	1,357.4	$	1,379.8	$	1,726.3	$	1,722.2
Hawthorne	Hawthorne	92.7		202.6		224.2		393.2
Hawthorne
Hawthorne
Other	Other	81.4		96.0		107.6		128.9
Other
Other
Consolidated
Consolidated
Consolidated	Consolidated	$	1,531.5	$	1,678.4	$	2,058.1	$	2,244.3

Segment Profit (Loss):	Segment Profit (Loss):

Segment Profit (Loss):

Segment Profit (Loss):
U.S. Consumer
U.S. Consumer
U.S. Consumer	U.S. Consumer	$	397.4	$	428.9	$	428.7	$	439.6
Hawthorne	Hawthorne	(16.8)		3.3		(33.0)		(2.0)
Hawthorne
Hawthorne
Other	Other	14.6		10.5		16.0		11.8
Total Segment Profit		395.2		442.7		411.7		449.4
Other
Other
Total Segment Profit (Loss)
Total Segment Profit (Loss)
Total Segment Profit (Loss)
Corporate	Corporate	(42.1)		(39.1)		(74.0)		(70.5)
Corporate
Corporate
Intangible asset amortization
Intangible asset amortization
Intangible asset amortization	Intangible asset amortization	(6.4)		(10.4)		(14.1)		(19.3)

Impairment, restructuring and other	Impairment, restructuring and other	(140.5)		(5.3)		(159.2)		(7.1)

Impairment, restructuring and other

Impairment, restructuring and other
Equity in loss of unconsolidated affiliates
Equity in loss of unconsolidated affiliates
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	(7.3)		(6.5)		(18.7)		(13.8)

Interest expense	Interest expense	(48.3)		(28.3)		(91.0)		(52.1)

Interest expense

Interest expense
Other non-operating income (expense), net	Other non-operating income (expense), net	(0.8)		1.9		0.8		3.7
Income before income taxes		$	149.8	$	355.0	$	55.5	$	290.3
Other non-operating income (expense), net
Other non-operating income (expense), net
Loss before income taxes
Loss before income taxes
Loss before income taxes

2324


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

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


		Three Months Ended
		Three Months Ended
		Three Months Ended
		December 30, 2023
		December 30, 2023
		December 30, 2023
		Three Months Ended				Six Months Ended
U.S. Consumer:
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
U.S. Consumer:

U.S. Consumer:	U.S. Consumer:
Lawn care	Lawn care	$	534.3	$	536.1	$	679.7	$	659.9
Lawn care
Lawn care
Growing media and mulch
Growing media and mulch
Growing media and mulch	Growing media and mulch	517.2		542.0		614.3		622.0
Controls	Controls	134.6		141.9		192.8		196.7
Controls
Controls
Roundup® marketing agreement
Roundup® marketing agreement
Roundup® marketing agreement	Roundup® marketing agreement	70.7		63.9		91.0		84.7
Other, primarily gardening	Other, primarily gardening	100.6		95.9		148.5		158.9
Other, primarily gardening
Other, primarily gardening
Hawthorne:
Hawthorne:
Hawthorne:	Hawthorne:
Lighting	Lighting	18.1		42.6		68.4		91.4
Lighting
Lighting
Nutrients
Nutrients
Nutrients	Nutrients	24.4		45.1		47.2		81.0
Growing environments	Growing environments	16.0		42.4		41.5		88.4
Growing environments
Growing environments
Growing media
Growing media
Growing media	Growing media	18.5		40.8		36.3		70.7
Other, primarily hardware	Other, primarily hardware	15.7		31.7		30.8		61.7
Other, primarily hardware
Other, primarily hardware
Other:
Other:
Other:	Other:
Growing media	Growing media	24.9		27.9		40.3		42.9
Growing media
Growing media
Lawn care
Lawn care
Lawn care	Lawn care	29.7		36.6		32.3		39.2
Other, primarily gardening and controls	Other, primarily gardening and controls	26.8		31.5		35.0		46.8
Other, primarily gardening and controls
Other, primarily gardening and controls
Total net sales	Total net sales	$	1,531.5	$	1,678.4	$	2,058.1	$	2,244.3
Total net sales
Total net sales

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


		Three Months Ended
		Three Months Ended
		Three Months Ended
		December 30, 2023
		December 30, 2023
		December 30, 2023
		Three Months Ended				Six Months Ended
Net sales:
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net sales:

Net sales:	Net sales:
United States	United States	$	1,447.2	$	1,575.5	$	1,912.2	$	2,082.2
United States
United States
International	International	84.3		102.9		145.9		162.1
		$	1,531.5	$	1,678.4	$	2,058.1	$	2,244.3
International
International
		$
		$
		$

2425


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 Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of our financial condition and results of operations by focusing on changes in certain key measures from year-to-year. This MD&A includes 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, ~~2022~~2023 (the ~~“2022~~“2023 Annual Report”) and our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

EXECUTIVE SUMMARY

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

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

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

Due to the seasonal nature of the consumer lawn and garden business, ~~for~~significant portions of our U.S. Consumer and Other ~~segments, significant portions of our products~~segment sales ship to our retail customers during our second and third fiscal quarters, as noted in the following table. Our annual net sales are further concentrated in the second and third fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our products. ~~For our~~Our Hawthorne segment ~~sales are~~is also impacted by seasonal sales patterns for certain product categories due to the timing of ~~outdoor~~ growing patterns in North America during our second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during our third and fourth fiscal quarters.


		Percent of Net Sales from Continuing Operations by Quarter							Percent of Net Sales from Continuing Operations by Quarter
		2022		2021		2020			2023		2022		2021
First Quarter	First Quarter	14.4	%	15.2	%	8.9	%	First Quarter	14.8	%	14.4	%	15.2	%
Second Quarter	Second Quarter	42.8	%	37.1	%	33.5	%	Second Quarter	43.2	%	42.8	%	37.1	%
Third Quarter	Third Quarter	30.2	%	32.7	%	36.1	%	Third Quarter	31.5	%	30.2	%	32.7	%
Fourth Quarter	Fourth Quarter	12.6	%	15.0	%	21.5	%	Fourth Quarter	10.5	%	12.6	%	15.0	%

2526


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

Recent Events

During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. ~~As part of this restructuring initiative, we are~~These changes and initiatives include reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. ~~During the second quarter of fiscal 2023, we~~We have also accelerated the optimization of our Hawthorne supply chain network by announcing the closure of four additional distribution centers. In order to reduce on hand inventory to align with the optimized network capacity, we sold our non-core HurricaneTM ~~branded fans business for $5.0 and commenced plans to accelerate~~ the reduction of certain ~~other~~ Hawthorne inventory, primarily lighting, growing environments and hardware ~~products. The acceleration of~~products, to reduce our on hand inventory to align with the reduced network capacity. We expect these ~~actions has resulted in earlier than planned savings related to our restructuring efforts. As a result of our continued focus on cost control and optimization~~ efforts ~~we now expect~~ to deliver run-rate annualized savings of at least ~~$200.0 versus our original goal~~$300.0, nearly all of ~~$185.0. We expect~~which is expected to ~~substantially complete the remaining actions required to achieve the expected savings~~be realized by the end of fiscal ~~2023.~~2024. The ~~benefits of the~~ restructuring ~~program are~~initiative is expected to ~~result in improvements in both~~improve our gross margin ~~rates~~rate and decrease SG&A. During the three ~~and six~~ months ended ~~April 1,~~December 30, 2023, we ~~incurred costs~~recorded recoveries of ~~$118.7 and $128.3, respectively,~~$5.8 in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations and ~~$18.1 and $23.2, respectively,~~incurred costs of $2.0 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with this restructuring initiative, primarily related to the sale of certain previously-reserved inventory ~~write-down charges,~~at amounts in excess of estimated net realizable value, partially offset by employee termination benefits and facility closure ~~costs and impairment of right-of-use assets and property, plant and equipment.~~costs. Costs incurred from the inception of this restructuring initiative through ~~April 1,~~December 30, 2023 were ~~$216.5.~~$290.5.

During the three months ended December 30, 2023, our Hawthorne segment continued to experience adverse financial results primarily due to decreased sales volume. The decrease in sales volume ~~decreased for the three and six months ended April 1, 2023 compared to the three and six months ended April 2, 2022 as a result of continued challenges in the hydroponic industry~~is attributable to an oversupply of cannabis, which significantly decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. The oversupply has been driven by increased licensing activity across the U.S., significant capital investment in the cannabis production marketplace over the past several years, inconsistent enforcement of regulations and the market impacts of the COVID-19 pandemic. We expect that the oversupply of cannabis will continue to adversely impact our Hawthorne segment. If the oversupply of cannabis persists longer, or is more significant than we expect, our results of operations could be materially and adversely impacted for a longer period and to a greater extent than we currently anticipate.

During the three ~~and six~~ months ended ~~April 1,~~December 30, 2023, we continued to experience the impacts of cost inflation, resulting in persistently high manufacturing ~~and logistics~~ costs, ~~as well as~~and volatile commodity costs. Higher costs ~~due in part to~~over the ~~negative impact of the war in Ukraine on the global economy. The higher costs~~past several years required us to implement ~~material~~significant price increases across our business in fiscal 2022 and ~~2023. An inflationary environment marked by higher manufacturing~~2023, and ~~logistics costs,~~we expect targeted price reductions on certain products during fiscal 2024. Inflationary headwinds, volatile commodity costs and higher interest rates isare expected to ~~continue through fiscal 2023.~~continue. The impact that these trends will continue to have on our operational and financial performance will depend on future developments, including inflationary and macroeconomic conditions and their impact on consumer behavior, which are difficult to ~~predict considering the rapidly evolving landscape.~~predict.


~~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 ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022:

April 1,
2023 % Of
Net Sales April 2,
2022 % Of
Net Sales
Net sales $ 1,531.5 100.0 % $ 1,678.4 100.0 %
Cost of sales 1,000.1 65.3 1,084.7 64.6
Cost of sales—impairment, restructuring and other 118.7 7.8 5.3 0.3
Gross margin 412.7 26.9 588.4 35.1
Operating expenses:
Selling, general and administrative 186.3 12.2 204.7 12.2
Impairment, restructuring and other 21.8 1.4 0.1 —
Other income, net (1.6) (0.1) (4.3) (0.3)
Income from operations 206.2 13.5 387.9 23.1
Equity in loss of unconsolidated affiliates 7.3 0.5 6.5 0.4
Interest expense 48.3 3.2 28.3 1.7
Other non-operating (income) expense, net 0.8 0.1 (1.9) (0.1)
Income before income taxes 149.8 9.8 355.0 21.2
Income tax expense 40.4 2.6 78.5 4.7
Net income $ 109.4 7.1 % $ 276.5 16.5 %

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

~~The following table sets forth the components of earnings as a percentage of net sales for the six months ended April 1, 2023 and April 2, 2022:~~


		April 1, 2023		% Of Net Sales		April 2, 2022		% Of Net Sales
	December 30, 2023													December 30, 2023					% of Net Sales				December 31, 2022				% of Net Sales
Net sales	Net sales	$	2,058.1	100.0	%	$	2,244.3	100.0	%	Net sales	$	410.4	100.0			100.0		%			$	526.6	100.0		100.0	%
Cost of sales	Cost of sales	1,420.7		69.0		1,532.0		68.3
Cost of sales—impairment, restructuring and other	Cost of sales—impairment, restructuring and other	129.0		6.3		5.3		0.2

Gross margin	Gross margin	508.4		24.7		707.0		31.5
Gross margin
Gross margin
Operating expenses:	Operating expenses:
Selling, general and administrative
Selling, general and administrative
Selling, general and administrative	Selling, general and administrative	314.8		15.3		358.7		16.0
Impairment, restructuring and other	Impairment, restructuring and other	30.2		1.5		1.8		0.1

Other income, net		(1.0)		—		(6.0)		(0.3)
Income from operations		164.4		8.0		352.5		15.7

Other expense, net
Other expense, net
Other expense, net
Loss from operations
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	18.7		0.9		13.8		0.6

Interest expense	Interest expense	91.0		4.4		52.1		2.3
Interest expense
Interest expense
Other non-operating (income) expense, net	Other non-operating (income) expense, net	(0.8)		—		(3.7)		(0.2)
Income before income taxes		55.5		2.7		290.3		12.9
Income tax expense		10.8		0.5		63.9		2.8
Loss before income taxes
Income tax benefit

Net income		$	44.7	2.2	%	$	226.4	10.1	%
Net loss

Net loss

Net loss											$	(80.5)			(19.6)		%			$	(64.7)			(12.3)	%

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


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

Net Sales

Net sales for the three months ended ~~April 1,~~December 30, 2023 were ~~$1,531.5,~~$410.4, a decrease of ~~8.8%~~22.1% from net sales of ~~$1,678.4~~$526.6 for the three months ended ~~April 2, 2022. Net sales for the six months ended April 1, 2023 were $2,058.1, a decrease of 8.3% from net sales of $2,244.3 for the six months ended April 2,~~December 31, 2022. Factors contributing to the change in net sales are outlined in the following table:

Three Months Ended Six Months Ended
April 1, 2023 April 1, 2023
Volume and mix (16.4) % (16.7) %
Foreign exchange rates (0.4) (0.6)
Pricing 8.0 8.7
Acquisitions — 0.3
Change in net sales (8.8) % (8.3) %


	Three Months Ended
	December 30, 2023
Volume and mix	(19.2)	%
Pricing	(3.1)
Foreign exchange rates	0.2

Change in net sales	(22.1)	%

The decrease in net sales for the three ~~and six~~ months ended ~~April 1,~~December 30, 2023 as compared to the three ~~and six~~ months ended ~~April 2,~~December 31, 2022 was primarily driven by:

•decreased sales volume driven by ~~hardware,~~ lighting, ~~nutrients,~~growing environments, growing media, hardware and ~~growing environments~~nutrients products in our Hawthorne segment; and lawn care, ~~soils, mulch~~gardens and controls products in our U.S. Consumer segment; and ~~decreased sales volume in our Other segment, and~~

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

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

Cost of Sales

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


		Three Months Ended					Six Months Ended
		April 1, 2023		April 2, 2022			April 1, 2023		April 2, 2022
				Three Months Ended
				Three Months Ended
				Three Months Ended
						December 30, 2023					December 30, 2023	December 31, 2022
Materials	Materials	$	587.6	$	627.4		$	812.6	$	864.6
Distribution and warehousing	Distribution and warehousing	191.8		235.3			295.3		350.3
Manufacturing labor and overhead	Manufacturing labor and overhead	193.5		200.0			270.4		275.5
Costs associated with Roundup® marketing agreement	Costs associated with Roundup® marketing agreement	27.2		22.0			42.4		41.6
Cost of sales	Cost of sales	1,000.1		1,084.7			1,420.7		1,532.0
Cost of sales—impairment, restructuring and other	Cost of sales—impairment, restructuring and other	118.7		5.3			129.0		5.3

		$	1,118.8	$	1,090.0		$	1,549.7	$	1,537.3
							$
							$
							$

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

Three Months Ended Six Months Ended
April 1, 2023 April 1, 2023
Volume, mix and other $ (154.4) $ (208.9)
Foreign exchange rates (4.6) (10.7)
Material cost changes 69.2 107.5
Costs associated with Roundup® marketing agreement
5.2 0.8
(84.6) (111.3)
Impairment, restructuring and other 113.4 123.7
Change in cost of sales $ 28.8 $ 12.4


	Three Months Ended
	December 30, 2023
Volume, mix and other	$	(80.4)
Material cost changes	9.0
Costs associated with Roundup® marketing agreement	4.0
Foreign exchange rates	0.8
	(66.6)
Impairment, restructuring and other	(16.1)

Change in cost of sales	$	(82.7)

The decrease in cost of sales for the three months ended December 30, 2023 as compared to the three months ended December 31, 2022 was primarily driven by:

•lower sales volume in our U.S. Consumer and Hawthorne segments;

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

•a decrease in impairment, restructuring and other charges;

•partially offset by higher material costs in our U.S. Consumer and Other segments;


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

~~The increase in cost of sales for the three and six months ended April 1, 2023 as compared to the three and six months ended April 2, 2022 was primarily driven by:~~

•~~an increase in impairment, restructuring and other charges;~~

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

•higher manufacturing costs, primarily labor, included ~~within~~with “volume, mix and other” in our U.S. Consumer, Hawthorne and Other segments; and

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

•~~partially offset by lower sales volume in our U.S. Consumer, Hawthorne and Other segments;~~

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

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

Gross Margin

As a percentage of net sales, our gross margin rate was ~~26.9%~~15.2% and ~~35.1%~~18.2% for the three months ended ~~April 1,~~December 30, 2023 and ~~April 2, 2022, respectively, and was 24.7% and 31.5% for the six months ended April 1, 2023 and April 2,~~December 31, 2022, respectively. Factors contributing to the change in gross margin rate are outlined in the following table:

Three Months Ended Six Months Ended
April 1, 2023 April 1, 2023
Material costs (4.9) % (5.7) %
Volume, mix and other (2.4) (2.8)
Pricing 6.6 7.6
Roundup® commissions and reimbursements
— 0.2
(0.7) % (0.7) %
Impairment, restructuring and other (7.5) (6.1)
Change in gross margin rate (8.2) % (6.8) %


	Three Months Ended
	December 30, 2023
Pricing	(3.2)	%
Material costs	(2.1)
Volume, mix and other	(0.8)
Roundup® commissions and reimbursements	(0.3)


	(6.4)	%
Impairment, restructuring and other	3.4

Change in gross margin rate	(3.0)	%

The decrease in gross margin rate for the three ~~and six~~ months ended ~~April 1,~~December 30, 2023 as compared to the three ~~and six~~ months ended ~~April 2,~~December 31, 2022 was primarily driven by:

•~~an increase~~decreased pricing in ~~impairment, restructuring~~our U.S. Consumer, Hawthorne and ~~other charges;~~Other segments;

•higher material costs in our U.S. Consumer and Other segments;

•unfavorable leverage of fixed costs, included with “volume, mix and other,” driven by lower sales volume in our U.S. Consumer and Hawthorne segments; and

•higher manufacturing costs, primarily labor, included ~~within~~with “volume, mix and other” in our U.S. Consumer ~~Hawthorne~~ and ~~Other segments; and~~

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

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

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

•favorable mix associated with our Hawthorne segment; and


~~Contents~~•a decrease in impairment, restructuring and other charges.			~~THE SCOTTS MIRACLE-GRO COMPANY~~
			~~(Dollars in millions, except per share data)~~

Selling, General and Administrative Expenses

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




		Three Months Ended					Six Months Ended				Three Months Ended
		April 1, 2023		April 2, 2022			April 1, 2023		April 2, 2022			December 30, 2023	December 31, 2022
Advertising	Advertising	$	61.2	$	49.1		$	78.7	$	67.3
Share-based compensation	Share-based compensation	28.6		15.9			47.4		23.2
Research and development	Research and development	8.3		12.4			17.2		24.9
Amortization of intangibles	Amortization of intangibles	5.7		8.9			12.8		16.3

Other selling, general and administrative	Other selling, general and administrative	82.5		118.4			158.7		227.0
		$	186.3	$	204.7		$	314.8	$	358.7
Other selling, general and administrative
Other selling, general and administrative
						$

SG&A decreased ~~$18.4,~~$13.7, or ~~9.0%~~10.7%, during the three months ended ~~April 1,~~December 30, 2023 compared to the three months ended ~~April 2,~~December 31, 2022. Advertising expense increased ~~$12.1,~~$2.1, or ~~24.6%~~13.7%, ~~during the three months ended April 1, 2023 driven by the timing of~~due to higher media spending in our U.S. Consumer segment. Share-based compensation expense, which excludes certain advertising expenses paid for in Common Shares, ~~increased $12.7,~~decreased $5.4, or ~~79.9%~~28.7%, driven by management’s assessment of a lower probability of achievement of performance goals for certain long-term performance-based award units as well as a decrease in short-term variable incentive compensation ~~that was~~ provided to employees as share-based ~~awards for fiscal 2023 in lieu of a cash-based program.~~awards. Amortization expense decreased ~~$3.2,~~$3.6 or ~~36.0%~~50.7%, ~~during the three months ended April 1, 2023~~ driven by the impairment of certain


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

Hawthorne segment intangible assets during fiscal ~~2022.~~2023. Other SG&A ~~and research and development costs~~ decreased ~~by a combined $40.0,~~$6.3, or ~~30.6%~~8.0%, ~~during the three months ended April 1, 2023 due to reductions in staffing levels and other cost-reduction initiatives.~~

SG&A decreased $43.9, or 12.2%, during the six months ended April 1, 2023 compared to the six months ended April 2, 2022. Advertising expense increased $11.4, or 16.9%, during the six months ended April 1, 2023 driven by the timing of media spending in our U.S. Consumer segment. Share-based compensation expense, which excludes certain advertising expenses paid for in Common Shares, increased $24.2, or 104.3%, driven by short-term variable incentive compensation that was provided to employees as share-based awards for fiscal 2023 in lieu of a cash-based program. Amortization expense decreased $3.5, or 21.5%, during the six months ended April 1, 2023 driven by the impairment of certain Hawthorne segment intangible assets during fiscal 2022. Other SG&A and research and development costs decreased by a combined $76.0, or 30.2%, during the six months ended April 1, 2023 driven by reductions in staffing levels and other cost-reduction initiatives.

Impairment, Restructuring and Other


	Three Months Ended
		December 30, 2023		December 31, 2022
Cost of sales—impairment, restructuring and other:

Restructuring and other charges (recoveries), net		$	(5.8)	$	7.1
Property, plant and equipment impairments		—		3.2

Operating expenses—impairment, restructuring and other:

Restructuring and other charges (recoveries), net		(7.1)		8.5




Total impairment, restructuring and other charges (recoveries), net		$	(12.9)	$	18.8


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

Hawthorne inventory, primarily lighting, growing environments and hardware ~~products.~~products, to reduce our on hand inventory to align with the reduced network capacity. During the three ~~and six~~ months ended ~~April 1,~~December 30, 2023, we ~~incurred costs~~recorded recoveries of ~~$136.8 and $151.4, respectively,~~$3.7 associated with this restructuring initiative, primarily related to the sale of certain previously-reserved inventory ~~write-down charges,~~at amounts in excess of estimated net realizable value, partially offset by employee termination benefits and facility closure ~~costs and impairment of right-of-use assets and property, plant and equipment.~~costs. We incurred costs of ~~$0.2 and $1.2~~$2.0 in our U.S. Consumer segment and ~~$118.5 and $127.0~~recorded recoveries of $7.7 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 ~~April 1, 2023, respectively.~~December 30, 2023. We ~~incurred costs~~recorded recoveries of ~~$0.1 and $0.3~~$0.8 in our U.S. Consumer segment ~~$17.1~~ and ~~$18.2~~incurred costs of $0.3 in our Hawthorne segment ~~$0.1~~ and ~~$0.2 in our Other segment and $0.8 and $4.5~~$2.4 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three ~~and six~~ months ended ~~April 1, 2023, respectively.~~December 30, 2023. During the three months ended December 31, 2022, we incurred costs of $14.5 associated with this restructuring initiative primarily related to employee termination benefits, facility closure costs and impairment of property, plant and equipment. We incurred costs of $1.0 in our U.S. Consumer segment and $8.4 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 31, 2022. We incurred costs of $0.2 in our U.S. Consumer segment, $1.0 in our Hawthorne segment, $0.1 in our Other segment and $3.8 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 31, 2022. Costs incurred ~~from~~since the inception of this restructuring initiative through ~~April 1,~~December 30, 2023 were ~~$180.3~~$217.1 for our Hawthorne segment, ~~$23.1~~$46.7 for our U.S. Consumer segment, ~~$0.9~~$1.6 for our Other segment and ~~$12.2~~$25.1 for Corporate. We continue to evaluate additional network and organizational changes, which, if executed, may result in additional restructuring charges in future periods.

~~Other Income, net~~During the three months ended December 30, 2023, we recorded a gain of $12.1 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with a payment received in resolution of a dispute with the former ownership group of a business that was acquired in fiscal 2022. This payment was classified as an operating activity in the Condensed Consolidated Statements of Cash Flows.

~~Other income is comprised of activities such as royalty income~~Loss from ~~the licensing of certain of our brand names and foreign exchange transaction gains and losses. Other income~~Operations

Loss from operations was ~~$1.6 and $4.3~~$47.3 for the three months ended ~~April 1,~~December 30, 2023, ~~and April 2, 2022, respectively; and was $1.0 and $6.0 for the six months ended April 1, 2023 and April 2, 2022, respectively. The decrease was primarily due~~an increase of 13.2% compared to ~~foreign exchange transaction gains and losses as well as gains on the sale of long-lived assets during the second quarter of fiscal 2022.~~

~~Income from Operations~~

~~Income from operations was $206.2~~$41.8 for the three months ended April 1, 2023, a decrease of 46.8% compared to $387.9 for the three months ended April 2, 2022; and was $164.4 for the six months ended April 1, 2023, a decrease of 53.4% compared to $352.5 for the six months ended April 2,December 31, 2022. The ~~decrease~~increase was ~~primarily due to~~driven by lower net sales and a decrease in gross margin rate, ~~higher~~partially offset by lower impairment, restructuring and other charges and ~~lower other income, partially offset by~~ lower SG&A.

Equity in Loss of Unconsolidated Affiliates

Equity in loss of unconsolidated affiliates associated with Bonnie Plants, LLC was ~~$7.3~~$22.5 and ~~$6.5 for~~$11.4 during the three months ended ~~April 1,~~December 30, 2023 and ~~April 2, 2022, respectively; and was $18.7 and $13.8 for the six months ended April 1, 2023 and April 2,~~December 31, 2022, respectively. We anticipated a net loss for Bonnie Plants, LLC ~~for~~in the ~~six months ended April 1, 2023~~first quarter due to the seasonal nature of its business, in which sales are heavily weighted to the spring and summer selling ~~periods during~~periods. During the three months ended December 30, 2023, equity in loss of unconsolidated affiliates also included a pre-tax impairment charge of $10.4 associated with our ~~third fiscal quarter.~~investment in Bonnie Plants, LLC.


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

Interest Expense

Interest expense was ~~$48.3~~$42.8 for the three months ended ~~April 1,~~December 30, 2023, an increase of ~~70.7%~~0.2% compared to ~~$28.3~~$42.7 for the three months ended ~~April 2,~~December 31, 2022. The increase was driven by ~~higher average borrowings of $70.2 and~~ an increase in our weighted average interest rate, net of the impact of interest rate swaps, of ~~210~~80 basis ~~points. The increase in~~points, partially offset by lower average borrowings ~~was due to inventory production, capital expenditures, acquisition activity and repurchases~~ of ~~our Common Shares.~~$428.9. The increase in our weighted average interest rate was primarily driven by higher borrowing rates on the Sixth A&R Credit Agreement.

~~Interest expense was $91.0 for the six months ended April 1, 2023, an increase of 74.7% compared to $52.1 for the six months ended April 2, 2022.~~ The ~~increase was driven by higher average borrowings of $363.1 and an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 190 basis points. The increase~~decrease in average borrowings was ~~due to inventory production, capital expenditures, acquisition activity and repurchases of our Common Shares. The increase in our weighted average interest rate was~~ primarily driven by ~~higher borrowing rates on~~net debt repayments during fiscal 2023 that resulted in a lower beginning debt balance for the ~~Sixth A&R Credit~~three months ended December 30, 2023 as well as the impact of the expiration of the Receivables Facility and the execution of the Master Receivables Purchase Agreement.

Income Tax ~~Expense~~Benefit

The effective tax rates for the six months ended April 1, 2023 and April 2, 2022 were 19.5% and 22.0%, respectively. The decrease in the effective tax rate was driven by the combination of lower pretax income and favorable discrete items recognized during the three months ended December 30, 2023 and December 31, 2022. We expect the full year fiscal 2023 effective tax rate to be higher than the effective tax rate for the six months ended April 1, 2023 due to a more significant impact of deductibility limitations on certain employee compensation2022 were 29.5% and ~~lower excess tax benefits related to share-based compensation.~~31.4%, respectively. The effective tax rate used for interim purposes is based on our best estimate of factors 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 as facts and


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

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.

Net ~~Income~~Loss

Net ~~income~~loss was ~~$109.4,~~$80.5, or ~~$1.94~~$1.42 per diluted share, for the three months ended ~~April 1,~~December 30, 2023 compared to ~~$276.5,~~$64.7, or ~~$4.94~~$1.17 per diluted share, for the three months ended ~~April 2,~~December 31, 2022. The ~~decrease~~increase was driven by lower net sales, a decrease in gross margin rate ~~higher impairment, restructuring~~ and ~~other charges, lower other income,~~ higher equity in loss of unconsolidated affiliates, ~~higher interest expense and lower other non-operating income,~~ partially offset by lower impairment, restructuring and other charges and lower SG&A.

Diluted average common shares used in the diluted ~~net income~~loss per common share calculation for the three months ended ~~April 1,~~December 30, 2023 and December 31, 2022 were ~~56.5~~56.7 million and 55.5 million, respectively, which ~~included dilutive~~excluded potential Common Shares of 0.5 ~~million. Diluted average common shares used in~~million and 0.2 million, respectively, because the ~~diluted~~effect of their inclusion would be anti-dilutive as we incurred a net ~~income per common share calculation~~loss for the three months ended ~~April 2, 2022 were 56.0 million, which included dilutive potential Common Shares of 0.5 million.~~December 30, 2023 and December 31, 2022. The increase in diluted average common shares was primarily the result of ~~the exercise and issuance of share-based compensation awards.~~

Net income was $44.7, or $0.80 per diluted share, for the six months ended April 1, 2023 compared to $226.4, or $4.02 per diluted share, for the six months ended April 2, 2022. The decrease was driven by lower net sales, a decrease in gross margin rate, higher impairment, restructuring and other charges, lower other income, higher equity in loss of unconsolidated affiliates, higher interest expense and lower other non-operating income, partially offset by lower SG&A.

Diluted average common shares used in the diluted net income per common share calculation for the six months ended April 1, 2023 were 56.1 million, which included dilutive potential Common Shares of 0.3 million. Diluted average common shares used in the diluted net income per common share calculation for the six months ended April 2, 2022 were 56.3 million, which included dilutive potential Common Shares of 0.8 million. The decrease in diluted average common shares was primarily the result of Common Share repurchase activity partially offset by the exercise and issuance of share-based compensation awards.

SEGMENT RESULTS

The performance of each reportable segment is evaluated based on several factors, including income (loss) 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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022			December 30, 2023	December 31, 2022
U.S. Consumer	U.S. Consumer	$	1,357.4	$	1,379.8	$	1,726.3	$	1,722.2
Hawthorne	Hawthorne	92.7		202.6		224.2		393.2
Other	Other	81.4		96.0		107.6		128.9
Consolidated	Consolidated	$	1,531.5	$	1,678.4	$	2,058.1	$	2,244.3

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




		Three Months Ended				Six Months Ended				Three Months Ended
		April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022			December 30, 2023	December 31, 2022
U.S. Consumer	U.S. Consumer	$	397.4	$	428.9	$	428.7	$	439.6
Hawthorne	Hawthorne	(16.8)		3.3		(33.0)		(2.0)
Other	Other	14.6		10.5		16.0		11.8
Total Segment Profit (Non-GAAP)		395.2		442.7		411.7		449.4
Total Segment Profit (Loss) (Non-GAAP)
Corporate	Corporate	(42.1)		(39.1)		(74.0)		(70.5)
Intangible asset amortization	Intangible asset amortization	(6.4)		(10.4)		(14.1)		(19.3)

Impairment, restructuring and other	Impairment, restructuring and other	(140.5)		(5.3)		(159.2)		(7.1)
Impairment, restructuring and other
Impairment, restructuring and other
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	(7.3)		(6.5)		(18.7)		(13.8)

Interest expense	Interest expense	(48.3)		(28.3)		(91.0)		(52.1)
Interest expense
Interest expense
Other non-operating income (expense), net	Other non-operating income (expense), net	(0.8)		1.9		0.8		3.7
Income before income taxes (GAAP)		$	149.8	$	355.0	$	55.5	$	290.3
Loss before income taxes (GAAP)

U.S. Consumer

U.S. Consumer segment net sales were ~~$1,357.4~~$306.7 in the ~~second~~first quarter of fiscal 2024, a decrease of 16.9% from first quarter of fiscal 2023 ~~a decrease of 1.6% from second quarter of fiscal 2022~~ net sales of ~~$1,379.8; and were $1,726.3 for the first six months of fiscal 2023, an increase of 0.2% from the first six months of fiscal 2022 net sales of $1,722.2. For the second quarter of fiscal 2023, the~~$369.0. The decrease was driven by lower sales volume of ~~10.4%, partially offset by increased~~13.3% and decreased pricing of ~~8.7%. For the six months ended April 1, 2023, the increase was driven by increased pricing of 9.6%, partially offset by lower sales volume of 9.4%~~3.6%. The decrease in sales volume ~~for the three and six months ended April 1, 2023~~ was driven by lawn care, ~~soils, mulch~~gardens and controls products.

U.S. Consumer Segment ~~Profit~~Loss was ~~$397.4~~$15.5 in the ~~second~~first quarter of fiscal 2024, a decrease from first quarter of fiscal 2023 ~~a decrease of 7.3% from the second quarter of fiscal 2022~~ Segment Profit of $428.9; and Segment Profit was $428.7 for the first six months of fiscal 2023, a decrease of 2.5% from the first six months of fiscal 2022 Segment Profit of $439.6. For the three and six months ended April 1, 2023, the$31.3. The decrease was ~~primarily~~ due to lower net sales and a lower gross margin rate, partially offset by lower SG&A.

Hawthorne

Hawthorne segment net sales were ~~$92.7~~$80.1 in the ~~second~~first quarter of fiscal 2024, a decrease of 39.1% from first quarter of fiscal 2023 ~~a decrease of 54.2% from second quarter of fiscal 2022~~ net sales of ~~$202.6; and were $224.2 for the first six months of fiscal 2023, a decrease of 43.0% from the first six months of fiscal 2022 net sales of $393.2. For the second quarter of fiscal 2023, the~~$131.5. The decrease was driven by lower sales volume of 38.0% and ~~unfavorable~~decreased pricing of 1.9%, partially offset by favorable foreign exchange rates of 59.9% and 0.2%, respectively, partially offset by increased pricing and acquisitions of 5.7% and 0.1%, respectively. For the six months ended April 1, 2023, the decrease was driven by lower sales volume and unfavorable foreign exchange rates of 48.3% and 1.3%, respectively, partially offset by increased pricing and acquisitions of 5.1% and 1.5%, respectively.0.8%. The decrease in sales volume ~~for the three and six months ended April 1, 2023~~ was driven by ~~hardware,~~ lighting, ~~nutrients,~~growing environments, growing media, hardware and ~~growing environments~~nutrients products.

Hawthorne Segment Loss was ~~$16.8~~$9.7 in the ~~second~~first quarter of fiscal 2024, a decrease from first quarter of fiscal 2023 ~~as compared to Segment Profit of $3.3 for the second quarter of fiscal 2022; and Segment Loss was $33.0 for the first six months of fiscal 2023 as compared to~~ Segment Loss of ~~$2.0 for the first six months of fiscal 2022. For the three and six months ended April 1, 2023, the change was driven by lower net sales and a lower gross margin rate, partially offset by lower SG&A.~~

~~Other~~

~~Other segment net sales were $81.4 in the second quarter of fiscal 2023, a~~$16.2. The decrease of 15.2% from the second quarter of fiscal 2022 net sales of $96.0; and were $107.6 for the first six months of fiscal 2023, a decrease of 16.5% from the first six months of fiscal 2022 net sales of $128.9. For the second quarter of fiscal 2023, the decrease was driven by lower sales volume and unfavorable foreign exchange rates of 11.1% and 5.9%, respectively, partially offset by increased pricing of 1.8%. For the six months ended April 1, 2023, the decrease was driven by lower sales volume and unfavorable foreign exchange rates of 17.8% and 5.7%, respectively, partially offset by increased pricing of 6.9%.


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

Other Segment Profit was $14.6 in the second quarter of fiscal 2023, an increase of 39.0% from the second quarter of fiscal 2022 Segment Profit of $10.5; and Segment Profit was $16.0 for the first six months of fiscal 2023, an increase of 35.6% from the first six months of fiscal 2022 Segment Profit of $11.8. For the three and six months ended April 1, 2023, the increase was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.

Other

Other segment net sales were $23.6 in the first quarter of fiscal 2024, a decrease of 9.6% from the first quarter of fiscal 2023 net sales of $26.1. The decrease was driven by lower sales volume of 8.0%, decreased pricing of 1.2% and unfavorable foreign exchange rates of 0.4%.

Other Segment Loss was $5.0 in the first quarter of fiscal 2024, a decrease from first quarter of fiscal 2023 Segment Profit of $1.4. The decrease was driven by lower net sales, a lower gross margin rate and higher SG&A.

Corporate

Corporate expenses were ~~$42.1~~$26.0 in the ~~second~~first quarter of fiscal 2024, a decrease of 18.5% from first quarter of fiscal 2023 ~~an increase of 7.7% from the second quarter of fiscal 2022~~ expenses of $39.1; and were $74.0 for the first six months of fiscal 2023, an increase of 5.0% from the first six months of fiscal 2022 expenses of $70.5. For the three and six months ended April 1, 2023, the increase$31.9. The decrease was ~~primarily~~ driven by ~~higher~~lower share-based compensation expense and ~~lower other income, partially offset by~~ reductions in staffing levels and other cost-reduction initiatives.


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

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes cash activities:

Three Months Ended

December 30,
2023

December 31,
2022

Six Months Ended

April 1,
2023

April 2,
2022

Net cash used in operating activities

(566.9)

(1,142.6)

Net cash used in investing activities

(20.6)

(255.8)

Net cash provided by financing activities

525.3

1,171.3

Operating Activities

Cash used in operating activities totaled ~~$566.9~~$343.2 for the ~~six~~three months ended ~~April 1,~~December 30, 2023, asa decrease of $88.4 compared to ~~$1,142.6~~$431.6 for the ~~six~~three months ended ~~April 2,~~December 31, 2022. This decrease was driven by lower ~~inventory production,~~accounts receivable, accounts payable timing and lower ~~short-term variable cash incentive compensation payouts~~SG&A, partially offset by higher inventory production, lower gross margin, higher payments to customers related to promotional programs and ~~higher~~lower income tax refunds ~~received, partially offset by lower income from operations, higher accounts receivable, higher interest payments and higher payments associated with restructuring activities. Higher~~received. Lower accounts receivable is driven by the ~~timing~~favorable impact of ~~sales.~~accounts receivable sold under the Master Receivables Purchase Agreement which was entered into on October 27, 2023. Accounts payable timing is driven by ~~lower inventory production and~~ the ~~favorable~~ impact of extended payment terms with vendors for payments originally due in the final weeks of ~~the second quarter of~~ fiscal ~~2023~~2022 that were paid in the ~~third~~first quarter of fiscal 2023.

Investing Activities

Cash used in investing activities totaled ~~$20.6~~$53.2 for the ~~six~~three months ended ~~April 1,~~December 30, 2023, asan increase of $17.2 compared to ~~$255.8~~$36.0 for the ~~six~~three months ended ~~April 2,~~December 31, 2022. Cash used for investments in property, plant and equipment during the first ~~six~~three months of fiscal 2024 and 2023 was $37.9 and $29.6, respectively. During the three months ended December 30, 2023, we acquired an additional equity interest in Bonnie Plants, LLC for $21.4. During the three months ended December 30, 2023 and December 31, 2022, was $51.8 and $66.0, respectively. We also received proceeds of $37.0 during the six months ended April 1, 2023 related to the payoff of seller financing that we provided in connection with a fiscal 2017 divestiture. In addition, we had other investing cash ~~outflows~~inflows (outflows) of ~~$6.5 during the six months ended April 1, 2023, comprised of cash outflows~~$6.1 and $(6.4), respectively, primarily associated with currency forward ~~contracts partially offset by proceeds from the sale of the Hurricane~~TM branded fans business. During the six months ended April 2, 2022, we completed the acquisitions of Luxx Lighting, Inc. and True Liberty Bags in exchange for cash payments of $202.8, 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 proceeds from the sale of long-lived assets of $8.5 and received $4.5 associated with currency forward contracts during the six months ended April 2, 2022.contracts.

Financing Activities

Cash provided by financing activities totaled ~~$525.3~~$374.2 for the ~~six~~three months ended ~~April 1,~~December 30, 2023 as compared to ~~$1,171.3~~$406.2 for the ~~six~~three months ended ~~April 2,~~December 31, 2022. During the ~~six~~three months ended ~~April 1,~~December 30, 2023, we had net borrowings ~~under~~on our ~~credit facilities~~debt instruments of ~~$609.4 and~~$410.2 due to our seasonal working capital build, paid dividends of ~~$74.9. During the six months ended April 2, 2022, we had net borrowings under our credit facilities of $1,513.5, paid dividends of $93.2~~$37.4 and repurchased Common Shares for ~~$256.4~~$3.1 (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation).

~~Share Repurchases~~

On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors authorized the repurchase of up to $750.0 of Common Shares from April 30, 2020 through March 25, 2023. There were no share repurchases under this share repurchase authorization during fiscal 2023 through its expiration on March 25, 2023. During the three ~~and six~~ months ended ~~April 2,~~December 31, 2022, ~~Scotts Miracle-Gro repurchased 0.4 million~~we had net borrowings on our debt instruments of $443.0 and ~~1.1 million Common Shares~~paid dividends of $36.6.

Accounts Receivable Sales

On October 27, 2023, we entered into the Master Receivables Purchase Agreement under which we may sell up to $600.0 of available and eligible outstanding customer accounts receivable generated by sales to four specified customers. The agreement is uncommitted and has an initial term that expires October 25, 2024, unless earlier terminated by the purchaser. Transactions under this ~~share repurchase authorization~~agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheets at the time of the sales transaction. Proceeds received from the sales of accounts receivable are classified as operating cash flows and collections of previously sold accounts receivable not yet submitted to the financial institution are classified as financing cash flows in the Condensed Consolidated Statements of Cash Flows. We record the discount in the “Other expense, net” line in the Condensed Consolidated Statements of Operations. At December 30, 2023, net receivables of $140.1 were derecognized. During the three months ended December 30, 2023, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $199.6.

Supplier Finance Program

We have an agreement to provide a supplier finance program which facilitates participating suppliers’ ability to finance our payment obligations with a designated third-party financial institution. Participating suppliers may, at their sole discretion, elect to finance our payment obligations prior to their scheduled due dates at a discounted price to the participating financial institution. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under this arrangement. The payment terms that we negotiate with our suppliers are consistent, regardless of whether a supplier participates in the program. Our current payment terms with a majority of our suppliers generally range from 30 to 60 days, which we deem to be commercially reasonable. Our outstanding payment

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

~~$50.0~~obligations under our supplier finance program were $30.8, $20.4 and ~~$175.0, respectively. Treasury share purchases also include cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation of $5.6~~$18.3 at December 30, 2023, December 31, 2022 and ~~$6.4 for the~~ ~~three and six~~ ~~months ended April 1,~~September 30, 2023, respectively, and ~~$78.1~~are recorded within accounts payable in the Condensed Consolidated Balance Sheets. The associated payments were $69.8 and ~~$82.6~~$50.5 for the three ~~and six~~ months ended ~~April 2,~~December 30, 2023 and December 31, 2022, ~~respectively.~~respectively, and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows.

Long-Lived Assets

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 ~~$25.0, $17.1~~$10.4, $25.6 and ~~$86.8~~$31.9 as of ~~April 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022,~~2023, respectively, included ~~$15.1,~~ $4.0, $11.6 and ~~$4.2,~~$26.6, respectively, held by controlled foreign corporations. As of ~~April 1,~~December 30, 2023, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.

Borrowing Agreements

Credit Facilities

Our primary sources of liquidity are cash generated by operations and borrowings under our credit facilities, which are guaranteed by substantially all of Scotts Miracle-Gro’s domestic subsidiaries. On April 8, 2022, we entered into the Sixth A&R Credit Agreement, providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $1,000.0. The Sixth A&R Credit Agreement will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the issuance of letters of credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and warranties, affirmative and negative covenants, financial covenants, and events of default.

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

On June 8, 2022, we entered into ~~the~~ Amendment No. 1 to the Sixth A&R Credit Agreement. ~~The~~ Amendment ~~increases~~No. 1 increased the maximum permitted leverage ratio for the quarterly leverage covenant ~~during the Leverage Adjustment Period. The~~until April 1, 2024. Amendment No. 1 also ~~increases~~increased the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50 bps, and ~~increases~~increased the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when our quarterly-tested leverage ratio exceeded 4.75.

On July 31, 2023, we entered into Amendment No. 2 to the Sixth A&R Credit Agreement. Amendment No. 2 (i) reduces the revolving loan commitments by $250.0; (ii) increases the maximum permitted leverage ratio for the quarterly leverage covenant during the Leverage Adjustment Period; (iii) replaces the interest coverage covenant with a fixed charge coverage covenant; (iv) increases the interest rate applicable to borrowings under the revolving credit facility and the term loan facility by 25 bps for each existing pricing tier and adds a pricing tier applicable to periods when the leverage ratio exceeds ~~4.75.~~6.00; (v) limits the amount of certain incremental investments, loans and advances to $25.0 during the Leverage Adjustment Period; and (vi) adds our intellectual property (subject to certain exceptions) as collateral to secure our obligations under the Sixth A&R Credit Agreement. Additionally, ~~the~~ Amendment No. 2 limits our ability to declare or pay any discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of our Common Shares in an aggregate amount not to exceed $225.0 per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. ~~The~~ Amendment No. 2 also ~~requires~~subjects our ability to make certain investments to pro forma compliance with certain leverage levels specified in Amendment No. 2. Pursuant to Amendment No. 2, the ~~Amendment with respect~~Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts receivable, inventory, equipment and intellectual property (subject to ~~our ability to consummate~~ certain ~~acquisitions~~exceptions) of Scotts Miracle-Gro and ~~incur debt.~~certain of its domestic subsidiaries and (ii) the pledge of all of the capital stock of certain of Scotts Miracle-Gro’s domestic subsidiaries and a portion of the capital stock of certain of its foreign subsidiaries.

At ~~April 1,~~December 30, 2023, we had letters of credit outstanding in the aggregate principal amount of ~~$5.0~~$78.0, and had ~~$852.5~~$660.7 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings


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

under the credit facilities, excluding the impact of interest rate swaps, were ~~7.0%~~9.1% and ~~1.8%~~6.6% for the ~~six~~three months ended ~~April 1,~~December 30, 2023 and ~~April 2,~~December 31, 2022, respectively.

The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage ratio determined as of the end of each of our fiscal quarters calculated as average total indebtedness, divided by our Adjusted EBITDA. Pursuant to ~~the~~ Amendment No. 2, the maximum permitted leverage ratio is (i) ~~6.50~~8.25 for ~~the second and third quarters of fiscal 2023, (ii) 6.25 for the fourth quarter of fiscal 2023 and~~ the first quarter of fiscal 2024, ~~(iii) 5.50~~(ii) 7.75 for the second quarter of fiscal 2024, ~~and (iv) 4.50~~(iii) 6.50 for the third quarter of fiscal 2024, (iv) 6.00 for the fourth quarter of fiscal 2024, (v) 5.50 for the first quarter of fiscal 2025, (vi) 5.25 for the second quarter of fiscal 2025, (vii) 5.00 for the third quarter of fiscal 2025, (viii) 4.75 for the fourth quarter of fiscal 2025 and (ix) 4.50 for the first quarter of fiscal 2026 and thereafter. Our leverage ratio was ~~6.01~~7.20 at ~~April 1,~~December 30, 2023. ~~The~~Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement also contains an affirmative covenant regarding our ~~interest~~fixed charge coverage ratio determined as of the end of each of our fiscal ~~quarters. The interest coverage ratio is~~quarters, calculated as Adjusted EBITDA minus capital expenditures and expense for taxes paid in cash, divided by the sum of interest expense plus restricted payments, as described in ~~the Sixth A&R Credit Agreement, and excludes costs related to refinancings.~~Amendment No. 2. The minimum required ~~interest~~fixed charge coverage ratio is ~~3.00.~~(i) 0.75 for the first quarter of fiscal 2024 through the third quarter of fiscal 2024 and (ii) 1.00 for the fourth quarter of fiscal 2024 and thereafter. Our ~~interest~~fixed charge coverage ratio was ~~3.66~~1.08 for the twelve months ended ~~April 1,~~December 30, 2023.


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

As of ~~April 1,~~December 30, 2023, we were in compliance with all applicable covenants in the agreements governing our debt. Based on our projections of financial performance for the twelve-month period subsequent to the date of the filing of this Form 10-Q, we expect to remain in compliance with the financial covenants under the Sixth A&R Credit Agreement. However, our assessment of our ability to meet our future obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default would allow the lenders under the Sixth A&R Credit Agreement to accelerate the maturity of the indebtedness thereunder and would also implicate cross-default provisions under the Senior Notes and cause the Senior Notes to become due and payable at that time. As of ~~April 1,~~December 30, 2023, our indebtedness under the Sixth A&R Credit Agreement and Senior Notes was ~~$3,192.5.~~$3,023.7. We do not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.

As part of our contingency planning to address potential future circumstances that could result in noncompliance, we have contemplated alternative plans including additional restructuring activities to reduce operating expenses and certain cash management strategies that are within our control. Additionally, we have contemplated alternative plans that are subject to market conditions and not in our control, including, among others, discussions with our lenders to amend the terms of our financial covenants under the Sixth A&R Credit Agreement and generating cash by completing other financing transactions, which may include issuing equity. There is no assurance that we will be successful in implementing these alternative plans.

Senior Notes

On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026. The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year.

On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029. The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year.

On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031. The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each year.

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

The Senior Notes contain an affirmative covenant regarding our interest coverage ratio determined as of the end of each of our fiscal quarters, calculated as Adjusted EBITDA divided by interest expense excluding costs related to refinancings. The minimum required interest coverage ratio is 2.00. Our interest coverage ratio was 2.49 for the twelve months ended December 30, 2023.


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

Receivables Facility

We also ~~maintain~~maintained a Receivables Facility under which we ~~may~~could sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers ~~and simultaneously agree~~subject to agreeing to repurchase the receivables on a weekly basis. The eligible accounts receivable ~~consist~~consisted of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts ~~receivable~~receivables which ~~may~~could be sold under the Receivables Facility iswas $400.0 and the commitment amount during the seasonal commitment period that began on February 24, 2023 and ~~ends~~ended on June 16, 2023 iswas $160.0. The Receivables Facility ~~expires~~expired on August 18, 2023.

~~We account for the~~The sale of receivables under the Receivables Facility was accounted for as short-term debt and ~~continue~~we continued to carry the receivables on our Condensed Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold. As of ~~April 1, 2023 and April 2,~~December 31, 2022, there were ~~$380.0 and $400.0, respectively,~~$161.0 in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was ~~$422.2 and $444.5, respectively.~~


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

$178.9.

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 1,~~December 30, 2023, ~~April 2,~~December 31, 2022 and September 30, ~~2022~~2023 had a maximum total U.S. dollar equivalent notional amount of ~~$800.0. On May 4, 2023, we executed $200.0 of fixed notional amount interest rate swap agreements with an average fixed rate of 3.36%, an effective date of June 7, 2023~~$700.0, $800.0 and ~~an expiration date of April 7, 2027.~~$600.0, respectively. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at ~~April 1,~~December 30, 2023 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

100			12/21/2020	6/20/2023	1.36	%
300		(b)	1/7/2021	6/7/2023	1.34	%

200

200

200	200		10/7/2021	6/7/2023	1.37	%		(b)	(b)		1/20/2022				6/20/2024				0.49		%
200	200	(b)	1/20/2022	6/20/2024	0.58	%	200			6/7/2023				6/7/2023				6/8/2026						0.80	%
200			6/7/2023	6/8/2026	0.85	%
150							150						6/7/2023				4/7/2027						3.37	%
50							50						6/7/2023				4/7/2027						3.34	%
100							100		(b)			11/20/2023				3/22/2027				4.74		%

(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. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in the ~~2022~~2023 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.”

Financial Disclosures About Guarantors and Issuers of Guaranteed Securities

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

The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that a Guarantor’s guarantee will be released in certain circumstances set forth in the indentures governing the Senior Notes, such as: (i) upon any sale or other disposition of all or substantially all of the assets of the Guarantor (including by way of merger or consolidation) to any person other than Scotts Miracle-Gro or any “restricted subsidiary” under the applicable indenture; (ii) if the Guarantor merges with and into Scotts Miracle-Gro, with Scotts Miracle-Gro surviving such merger; (iii) if the Guarantor is designated an “unrestricted subsidiary” in accordance with the applicable indenture or otherwise ceases to be a “restricted subsidiary” (including by way of liquidation or dissolution) in a transaction permitted by such indenture; (iv) upon legal or covenant defeasance; (v) at the election of Scotts Miracle-Gro following the Guarantor’s release as a guarantor under the Sixth


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

A&R Credit Agreement, except a release by or as a result of the repayment of the Sixth A&R Credit Agreement; or (vi) if the Guarantor ceases to be a “restricted subsidiary” and the Guarantor is not otherwise required to provide a guarantee of the Senior Notes pursuant to the applicable indenture.

Our foreign subsidiaries and certain of our domestic subsidiaries are not guarantors (collectively, the “Non-Guarantors”) of the Senior Notes. Payments on the Senior Notes are only required to be made by Scotts Miracle-Gro and the Guarantors. As a result, no payments are required to be made from the assets of the Non-Guarantors, unless those assets are transferred by dividend or otherwise to Scotts Miracle-Gro or a Guarantor. In the event of a bankruptcy, insolvency, liquidation or reorganization of any of the Non-Guarantors, holders of their indebtedness, including their trade creditors and other obligations, will be entitled to payment of their claims from the assets of the Non-Guarantors before any assets are made available for distribution to Scotts Miracle-Gro or the Guarantors. As a result, the Senior Notes are effectively subordinated to all the liabilities of the Non-Guarantors.


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

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

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

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

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

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.

December 30,
2023

April 1,
2023

September 30,
2022

Current assets

2,566.4

1,749.6

Non-current assets (a)

1,998.5

2,165.4

Non-current assets (a)

Current liabilities

1,286.9

851.4

Non-current liabilities

3,359.1

3,117.8

Non-current liabilities

(a)Includes amounts due from Non-Guarantor subsidiaries of ~~$56.0~~$20.2 and ~~$46.7,~~$26.2, respectively.

Three Months Ended

Year Ended

December 30,
2023

September 30,
2023

Six Months Ended

Year Ended

April 1,
2023

September 30,
2022

Net sales

1,909.9

3,559.0

Gross margin

482.8

828.7

Net income (loss) (a)

30.3

(335.9)

Net loss (a)

(a)Includes intercompany ~~income (expense)~~expense from Non-Guarantor subsidiaries of ~~$(11.2)~~$0.4 and ~~$14.1,~~$12.1, respectively.


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

Judicial and Administrative Proceedings

We are party to various pending judicial and administrative proceedings arising in the ordinary course of business, including, among others, proceedings based on accidents or product liability claims and alleged violations of environmental laws. We have reviewed these pending judicial and administrative proceedings, including the probable outcomes, reasonably anticipated costs and expenses, and the availability and limits of our insurance coverage, and have established what we believe to be appropriate accruals. We believe that our assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that future quarterly or annual operating results will not be materially affected by these proceedings, whether as a result of adverse outcomes or as a result of significant defense costs.


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

REGULATORY MATTERS

We are subject to local, state, federal and foreign environmental protection laws and regulations with respect to our business operations and believe we are operating in substantial compliance, or taking actions aimed at ensuring compliance, with such laws and regulations. We are involved in several legal actions with various governmental agencies related to environmental matters. While it is difficult to quantify the potential financial impact of actions involving these environmental matters, particularly remediation costs at waste disposal sites and future capital expenditures for environmental control equipment, in the opinion of management, the ultimate liability arising from such environmental matters, taking into account established accruals, is not expected to have a material effect on our financial condition, results of operations or cash flows. However, there can be no assurance that the resolution of these matters will not materially affect our future quarterly or annual results of operations, financial condition or cash flows. Additional information on environmental matters affecting us is provided in the ~~2022~~2023 Annual Report, under “ITEM 1. BUSINESS — Regulatory Considerations” and “ITEM 3. LEGAL PROCEEDINGS.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical experience and on various other sources that we believe to be reasonable under the circumstances. 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 estimates have not changed materially from those disclosed in the ~~2022~~2023 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks have not changed materially from those disclosed in the ~~2022~~2023 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 Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in the Registrant’s Securities 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, as amended (the ~~“Exchange~~“Securities 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 1,~~December 30, 2023.

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 1,~~December 30, 2023 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 Part I, Item 3 of the ~~2022~~2023 Annual Report. There have been no material 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, securities matters 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 1,~~December 30, 2023, have not materially changed from those described in Part I, Item 1A of the ~~2022~~2023 Annual 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, 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 dividends and repurchases of our Common Shares or other uses of cash flows. Forward-looking statements generally can be identified through the use of words such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” and other similar words and variations.

Forward-looking statements ~~contained~~ in this 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 ~~2022~~2023 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.

4039

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. ~~On June 8, 2022, the Company entered into the~~ Amendment No. 2 to the Sixth A&R Credit Agreement ~~which~~ limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of its Common Shares in an aggregate amount not to exceed $225.0 million per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0 million. ~~The Amendment also requires pro forma compliance with certain leverage levels specified in the Amendment with respect to the Company’s ability to consummate certain acquisitions and incur debt.~~

The 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, as amended)~~Act) of Scotts Miracle-Gro for each of the three fiscal months in the quarter ended ~~April 1,~~December 30, 2023:

Period Total Number of
Common Shares
Purchased(1) Average Price
Paid per
Common Share(2) Total Number of
Common Shares
Purchased as
Part of Publicly
Announced Plans or
Programs(3) Approximate Dollar
Value of Common Shares
That May Yet be
Purchased Under the
Plans or Programs(3)
January 1, 2023 through January 28, 2023 109 $ 63.19 — $ 461,912,353
January 29, 2023 through February 25, 2023 — $ — — $ 461,912,353
February 26, 2023 through April 1, 2023 2,640 $ 72.52 — N/A
Total 2,749 $ 72.15 —


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, 2023 through October 28, 2023	2,034	$	44.91	—	N/A
October 29, 2023 through November 25, 2023	—	$	—	—	N/A
November 26, 2023 through December 30, 2023	5,301	$	60.56	—	N/A
Total	7,335	$	56.22	—

(1)All of the Common Shares purchased during the ~~second~~first quarter of fiscal ~~2023~~2024 were purchased in open market transactions. The Common Shares purchased during the quarter consisted of ~~2,749~~7,335 Common Shares purchased by the trustee of the rabbi trust established by the Company as permitted pursuant to the terms of The Scotts Company LLC Executive Retirement Plan.

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

(3)On February 6, 2020, the Company announced a repurchase program allowing for repurchases of up to $750.0 million of Common Shares from April 30, 2020 through March 25, 2023. AsThe program expired on March 25, 2023 and, as of ~~the date of this Form 10-Q,~~December 30, 2023, the Company does not have an active repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

See Index to Exhibits at page 4241 for a list of the exhibits included herewith.

4140

Contents

THE SCOTTS MIRACLE-GRO COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~APRIL 1,~~DECEMBER 30, 2023

INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
No.

Exhibit

No.

Exhibit

No.

Description

Form

Exhibit

Filing Date

Filed Herewith

Description

Form

Exhibit

Filing Date

Filed Herewith

10.1

The Scotts Miracle-Gro Company Long-Term Incentive Plan (Effective as of January 23, 2023)

8-K

10.1

January 27, 2023

10.2

Form of Non-Employee Director Special Restricted Stock Unit Award

8-K

10.2

January 27, 2023

10.2

10.3

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

8-K

10.1

February 1, 2023

10.3

10.4

10.5

10.6

10.7

10.8

Form of Standard Nonqualified Stock Option Award Agreement for Employees used to evidence grants which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10.9

Form of Standard Restricted Stock Unit Award Agreement for Employees used to evidence grants which may be made under The Scotts Miracle-Gro Company Long-Term Incentive Plan

10.10

Form of Performance Unit Award Agreement which may be made under The Scotts Miracle-Gro 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)

31.1

Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)

31.2

Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)

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.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

4241

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 10, 2023~~February 7, 2024						/s/ MATTHEW E. GARTH
						Printed Name: Matthew E. Garth
						Title: Executive Vice President, ~~and~~ Chief Financial Officer & Chief Administrative Officer

4342


	Three Months Ended		Six Months Ended
	April 1, 2023		April 1, 2023
Volume and mix	(16.4)	%	(16.7)	%
Foreign exchange rates	(0.4)		(0.6)
Pricing	8.0		8.7
Acquisitions	—		0.3

Change in net sales	(8.8)	%	(8.3)	%


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 1, 2023 through January 28, 2023	109	$	63.19	—	$	461,912,353
January 29, 2023 through February 25, 2023	—	$	—	—	$	461,912,353
February 26, 2023 through April 1, 2023	2,640	$	72.52	—	N/A
Total	2,749	$	72.15	—