The purpose of this Administration’s Dialogue and Evaluation (“MD&A”) is To current
an beneathstanding of our monetary situation and end outcomes of operations by
Specializing in modifications in sure key meaassembleives from yr-to-yr. This MD&A is
divided into The subsequent parts:
•Authorities abstract •Results of operations •Half end outcomes
•Liquidity and capital resupplys
•Non-GAAP meaassembleives
•Regulatory problems
•Essential accounting insurance coverage policies and estimates
Authorities Summary
Our operations are divided inTo three reportable segments: U.S. Shopper, Hawthorne and Completely different. U.S. Shopper consists of our consumer regulationn and backyard enterprise in America. Hawthorne consists of our indoor and hydroponic backyarding enterprise. Completely different primarily consists of our consumer regulationn and backyard enterprise outfacet America. This division of reportable segments is According to how the segments Report again to and are managed by our chief working choice maker. As properly as, Agency consists of broadspstudy and administrative funds and sure other income and expense merchandises not allotted to the enterprise segments. See "SEGMENT RESULTS" under For further information relating to our analysis of segment efficiency. By way of our U.S. Shopper and Completely different segments, We're the main producer and marketer of mannequined consumer regulationn and backyard merchandise in North America. Our merchandise are marketed beneath A pair of of In all probcapability the most acknowledged mannequin names Inside the enterprise. Our key consumer regulationn and backyard fashions embrace Scotts® and Turf Builder® regulationn fertilizer and Scotts® grass seed merchandise; Miracle-Gro® soil, plant meals and backyarding merchandise; Ortho® herbicide and pesticide merchandise; and Tomcat® rodent management and animal repellent merchandise. We Even have a presence in comparable mannequined consumer merchandise in China. We are the unique agent of Monsanto for the advertising and distribution of sure of Monsanto's consumer Roundup® mannequined merchandise within America and sure other specified nations. As properly as, We now have an egive upy curiosity in Bonnie Crops, LLC, a Three method partnership with AFC, focused on planting, rising, creating, distributing, advertising and promoteing stay plants.
By way of our Hawthorne segment, We’re A quantity one producer, marketer and
distributor of milding, dietary vitamins, rising media, rising environments and
exhaustingwrestlee merchandise for indoor and hydroponic backyarding in North America. Our key
fashions embrace General Hydroponics®, Gavita®, Botanicare®, Agrolux®,
Can-Filters®, Gro Professional®, Mom Earth®, Hurricane®, Grower’s Edge® and
HydroLogicTM.
As A quantity one consumer mannequined regulationn and backyard company, our product enhancement
and advertising efforts are largely focused on offering revolutionary and
differentiated merchandise and regularly growing mannequin and product consciousness
to encourage consumers to create retail demand. We have carried out this mannequin for
Pretty a few yrs by Specializing in analysis and enhancement and investing
roughly 3-5% of our U.S. Shopper segment annual internet gross sales in promoting
to assist and promote our consumer regulationn and backyard merchandise And varieties. We
regularly discover new and revolutionary stpricegies To converse with consumers. We
confacetr that we acquire An monumental revenue from these expfinishitures and
anticipate An identical dedication to analysis and enhancement, promoting and
advertising fundings Finally, with the persevering with objective of driving
class progress and revenueably primarytaining and/or growing market share.
Our consumer regulationn and backyard internet gross sales in Anyone yr are weak to
climate situations Inside the markets By which our merchandise are purchased. For event,
intervals of abregularly moist or dry climate can antagonisticly influence the sale of
sure merchandise, whereas growing demand for other merchandise. We confacetr that
our diversified product line and our geographic diversification scale again this
hazard, although to a much lesser extent in a yr By which unfavorable climate is
geographically broadspstudy and extfinishs throughout A great portion of the regulationn
and backyard season. We furtherly confacetr that climate situations in Anyone yr,
assembleive or adverse, Do not suppliesly influence prolongeder-time period class progress
trfinishs.
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(Dollars in hundreds of hundreds, besides per share knowledge)
As a Outcome of of seasonal nature of The client regulationn and backyard enterprise, for our
U.S. Shopper and Completely different segments, vital parts of our merchandise ship to
our retail buyers all through our second and third fiscal quarters, as famous in
The subsequent table. Our annual internet gross sales are further concentpriced Inside the second
and third fiscal quarters by retailers who Depfinish upon our capability to destayr
merchandise nearer to when consumers buy our merchandise, thereby reducing retailers'
pre-season inventories. For our Hawthorne segment, gross sales are furtherly influenceed by
seasonal patterns Needless to say product packages due to the timing Of outfacet
rising in North America all through our second and third fiscal quarters, and the
timing of sure managementled agricultural milding enterprise gross sales all through our
third and fourth fiscal quarters.
% of Net Sales from Continuing
Operations by Quarter
2022 2021 2020
First Quarter 14.4 % 15.2 % 8.9 %
Second Quarter 42.8 % 37.1 % 33.5 %
Third Quarter 30.2 % 32.7 % 36.1 %
Fourth Quarter 12.6 % 15.0 % 21.5 %
We Adjust to a 13-week quarterly accounting cycle pursuant to which The primary three
fiscal quarters finish on a Saturday and the fiscal yr On A daily basis finishs on September
30. This fiscal calfinishar convention requires us to cycle forward The primary three
fiscal quarter finishs every six yrs. Fiscal 2021 was influenceed by this course of
and, In consequence, our first quarter of fiscal 2021 had 5 further days and
our fourth quarter of fiscal 2021 had six fewer days As in contrast with the respective
quarters of fiscal 2020.
Administration focmakes use of on Pretty a Little bit of key indicators and working metrics to
monitor the monetary situation and efficiency of the persevering with operations of
our enterprise. These metrics embrace consumer buys (level-of-sale knowledge),
market share, class progress, internet gross sales (collectively with unit quantity, pricing and
overseas commerce actions), gross margins, promoting to internet gross sales ratios,
income from operations, income from persevering with operations, internet income, earnings
per share, earnings earlier than curiosity, taxes, depreciation and amortization
("EBITDA") and leverage ratio. To the extent relevant, these metrics are
considerd with and with out impairment, restructuring and other costs that do
not happen in or mirror the odd course of our ongoing enterprise operations.
Metrics that exclude impairment, restructuring and other nonrecurring merchandises are
Utilized by management To guage our efficiency, work together in monetary and
operational planning and decide incentive compensation beset off we confacetr
thOn these meaassembleives current further perspective on the efficiency of our
beneathlying, ongoing enterprise. We furtherly Confacetr meaassembleives to optimize money circulate
and return on invested capital, collectively with the management of working capital and
capital expfinishitures. Check with the "NON-GAAP MEASURES" part of this MD&A for
further discussion of non-GAAP meaassembleives.
Current Occasions
During fiscal 2022, our Hawthorne segment expertised antagonistic monetary end outcomes
due To diminishd gross sales quantity And greater transportation and wrestleehousing prices.
Sales quantity decreased due to an overcurrent of hashish, which confacetrably
decreased hashish completesale prices and indoor and outdoors hashish cultivation.
The overcurrent has been pushed by enhanced licensing exercise throughout the U.S.,
As properly as to vital capital funding Inside the hashish manufacturing market
over the previous a quantity of yrs and the market influences of the COVID-19 pandemic. Due
to the hazards and unsureties associated To these influences, we carried out interim
impairment look ating for Hawthorne prolonged-stayd asmannequins and goodwill By way of the third
quarter of fiscal 2022, which Outcomeed in non-money, pre-tax goodwill and
intangible asset impairment costs of $632.4 doced Inside the "Impairment,
restructuring and other" line Inside the Consolidated Statements of Operations.
Check with the "CRITICAL ACCOUNTING POLICIES AND ESTIMATES" part of this MD&A
and "Notice 5. GOODWILL AND INTANGIBLE Belongings, NET" for extra information. We
anticipate thOn the overcurrent of hashish And worth will enhance will proceed to
antagonisticly influence our Hawthorne segment. If the overcurrent of hashish And worth
will enhance persist prolongeder, or are extra vital than we anticipate or We're
unable to mitigate their influence, our end outcomes of operations Might be suppliesly
and antagonisticly influenceed for An extfulld interval and to a gooder extent than we
presently anticipate.
During fiscal 2022, our U.S. Shopper, Hawthorne and Completely different segments have
expertised greater transportation and suppliess prices, collectively with fertilizer
enters Similar to urea, due Halfially to the adverse influence of the wrestle in Ukraine on
The worldbroad financial system. We anticipate A unbroken inflationary environment That is
heightened by this battle, and We're persevering with To deal with these influences to
our operations. We Have not any operations in Russia or Ukraine.
On April 8, 2022, we entered into the Sixth A&R Credit rating Settlement, offering the
Agency and sure of its subsidiaries with 5-yr senior secured mortgage
amenities Inside The combination principal quantity of $2,500.0, comprised of a
revolving credit facility of $1,500.0 and a time period mortgage Inside The distinctive principal
quantity of $1,000.0. The Sixth A&R Credit rating Settlement incorpoprices, amongst other
obligations, an affirmative covenant relating to our leverage ratio decided as
of The prime Of every of our
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fiscal quarters. The utmost permitted leverage ratio uniquely established in
the Sixth A&R Credit rating Settlement was 4.50. During the third quarter of fiscal
2022, we expertised an sudden brieffall in earnings Which have an effect oned our
capability To primarytain in compliance with the leverage ratio covenant of the Sixth
A&R Credit rating Settlement. On June 8, 2022, we entered into Amfinishment No. 1 (the
"Amfinishment") to the Sixth A&R Credit rating Settlement which will enhance the most
permitted leverage ratio for the quarterly leverage covenant efficient for the
third quarter of fiscal 2022 till The quicklyer of (i) April 1, 2024 and (ii)
topic to sure situations specified Inside the Amfinishment, the time periodination by us
of such enhance (such interval, the "Leverage Adjustment Period"). We are
presently in compliance with our covenants and anticipate To primarytain in compliance,
by no meansthemuch less, we could expertise supplies modifications to forecasted incomes, funds
or money circulates And ought to expertise problem reprimarying in compliance with the
monetary covenants required by the amfulld Sixth A&R Credit rating Settlement. Check with
the "LIQUIDITY AND CAPITAL Assets" part of this MD&A for extra information
relating to the Amfinishment and the monetary covenants required by the Sixth A&R
Credit rating Settlement.
During fiscal 2022, due to a broader enterprise downturn, we started implementing a
collection of Agency-broad organizational modifications and initiatives meant to create
operational and management-diploma efficiencies. As An factor of The primary phase of
this restructuring program, we scale againd The measurement of our current chain internetwork,
scale againd staffing levels and carried out other value-discount initiatives, which
obtaind roughly $100.0 of annual value discounts. During fiscal 2022, we
incurred prices of $65.2 Related to this restructuring initiative primarily
associated to worker time periodination advantages and impairment of property, plant and
gear. On November 2, 2022, we introduced further particulars of a second phase
of this initiative, concentrating on An further $85.0 of annual value discounts.
Anticipated financial savings Shall be pushed by: (i) reducing the working footprint of our
Hawthorne and U.S. Shopper segments by closing factors of distribution, (ii)
further proper-sizing of overhead funds in our Hawthorne segment enabled by
integration into ScottsMiracle-Gro, (iii) enhancing revenuecapability through
enhanced product mix and fewer SKUs in our Hawthorne segment, (iv) executing on
current chain labor and suppliess efficiencies, (v) enhancing productiveness of
commerce packages, and (vi) further discounts in SG&A spending. As properly as, we
have contingency plans Which could further scale again or delay further funds
and money outlays, or scale again borrowings, ought to operations weaken past current
forecasts or if money incirculates Aren't acquired when anticipateed.
During fiscal 2022, we disproceedd and exited The market Needless to say Hawthorne
milding merchandise And varieties. These actions Outcomeed in inventory write-down
costs of $120.9 doced Inside the "Cost of gross sales-impairment, restructuring and
other" line Inside the Consolidated Statements of Operations and finite-stayd
intangible asset impairment costs of $35.3 doced Inside the "Impairment,
restructuring and other" line Inside the Consolidated Statements of Operations.
On February 6, 2020, Scotts Miracle-Gro introduced that its Board of Directors
accredited the rebuy of As a lot as $750.0 of Common Shares from April 30, 2020
through March 25, 2023. During fiscal 2022 And mointernetary 2021, Scotts Miracle-Gro
rebuyd 1.1 million and 0.6 million Common Shares beneath this share
rebuy authorization for $175.0 and $113.1, respectively. There have been no
share rebuys beneath this share rebuy authorization all through fiscal 2020.
On July 27, 2020, the Scotts Miracle-Gro Board of Directors accredited An enhance
in Scotts Miracle-Gro's quarterly money dividfinish from $0.58 to $0.62 per Common
Share, which was first paid Inside the fourth quarter of fiscal 2020. On July 30,
2021, the Scotts Miracle-Gro Board of Directors accredited An enhance in Scotts
Miracle-Gro's quarterly money dividfinish from $0.62 to $0.66 per Common Share,
which was first paid Inside the fourth quarter of fiscal 2021.
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Results of Operations
The Adjust toing table mannequins forth the factors of earnings as a proportion of internet
gross sales:
Year Ended September 30,
2022 % of Net Sales 2021 % of Net Sales 2020 % of Net Sales
Net gross sales $ 3,924.1 100.0 %
$ 4,925.0 100.0 % $ 4,131.6 100.0 %
Cost of gross sales
2,891.1 73.7 3,431.3 69.7 2,768.6 67.0 Cost of gross sales-impairment, restructuring and other 160.1 4.1 24.7 0.5 16.0 0.4 Gross margin 872.9 22.2 1,469.0 29.8 1,347.0 32.6 Operating funds: Promoting, broadspstudy and administrative 613.0 15.6 743.5 15.1 757.8 18.3 Impairment, restructuring and other 693.1 17.7 4.3 0.1 0.8 - Completely different (income) expense, internet 0.8 - (1.8) - 3.2 0.1 Income (loss) from operations (434.0) (11.1) 723.0 14.7 585.2 14.2 Egive upy in (income) Lack of unconsolidated associates 12.9 0.3 (14.4) (0.3) - - Costs associated to refinancing - - - - 15.1 0.4 Interest expense 118.1 3.0 78.9 1.6 79.6 1.9 Completely different non-working income, internet (6.9) (0.2) (18.6) (0.4) (20.1) (0.5) Income (loss) from persevering with operations earlier than income taxes (558.1) (14.2) 677.1 13.7 510.6 12.4 Income tax expense (revenue) from persevering with operations (120.6) (3.1) 159.8 3.2 123.7 3.0
Income (loss) from persevering with operations (437.5) (11.1)
517.3 10.5 386.9 9.4 Income (loss) from disproceedd operations, internet of tax - - (3.9) (0.1) 1.7 - Net income (loss) $ (437.5) (11.1) % $ 513.4 10.4 % $ 388.6 9.4 %
The sum of the factors might not equal due to rounding.
Net Sales
Net gross sales for fiscal 2022 have been $3,924.1, a decrease of 20.3% from internet gross sales of
$4,925.0 for fiscal 2021. Net gross sales for fiscal 2021 enhanced 19.2% from internet
gross sales of $4,131.6 for fiscal 2020. These modifications in internet gross sales have been attributable
to The subsequent:
Year Ended September 30,
2022 2021
Volume (27.0) % 16.9 %
Foreign commerce prices (0.4) 0.8
Pricing 6.2 1.5
Acquisitions 0.9 -
Change in internet gross sales (20.3) % 19.2 %
The decrease in internet gross sales for fiscal 2022 as As in contrast with fiscal 2021 was
primarily pushed by:
•decreased gross sales quantity pushed by milding, dietary vitamins, rising media, exhaustingwrestlee
and rising environments merchandise in our Hawthorne segment; and regulationn care,
soils, managements, plant meals and mulch merchandise in our U.S. Shopper segment;
•decreased internet gross sales Related to the Roundup® advertising agreement; and
•the unfavorable influence of overseas commerce prices As a Outcome of of
strengthening of the U.S. greenagain relative to the euro and the Canadian greenagain;
•partially offset by enhanced pricing in our U.S. Shopper, Hawthorne and Completely different
segments; and
•the addition of internet gross sales from acquisitions in our Hawthorne segment.
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The rise in internet gross sales for fiscal 2021 as As in contrast with fiscal 2020 was
primarily pushed by:
•enhanced gross sales quantity pushed by soils, fertilizer, grass seed, mulch,
managements, plant meals and direct to consumer merchandise in our U.S. Shopper
segment; milding, dietary vitamins, rising media, exhaustingwrestlee and rising environments
merchandise in our Hawthorne segment; and enhanced gross sales in our Completely different segment;
•enhanced pricing in our U.S. Shopper, Hawthorne and Completely different segments;
•enhanced internet gross sales Related to the Roundup® advertising agreement; and
•the favorable influence of overseas commerce prices As a Outcome of of weakening of
the U.S. greenagain relative to the euro and the Canadian greenagain.
Cost of Sales
The Adjust toing table reveals The primary factors of value of gross sales:
Year Ended September 30,
2022 2021 2020
Materials $ 1,616.7$ 1,962.5$ 1,599.3
Distribution and wrestleehousing 660.1 684.0 492.6
Manufacturing labor and overhead 546.4
714.0 615.1
Costs Related to Roundup® advertising agreement 67.9 70.8
61.6
Cost of gross sales 2,891.1 3,431.3 2,768.6
Cost of gross sales-impairment, restructuring and other 160.1 24.7 16.0
$ 3,051.2$ 3,456.0$ 2,784.6
Elements contributing to the change in value of gross sales are outlined Inside the
Adjust toing table:
Year Ended September 30,
2022 2021
Volume, product mix and other $ (641.4) $ 545.9
Foreign commerce prices (16.9) 24.6
Costs Related to Roundup® advertising agreement (2.9) 9.2
Material value modifications 121.0 83.0
(540.2) 662.7
Impairment, restructuring and other 135.4 8.7
Change in value of gross sales $ (404.8) $ 671.4
The decrease in value of gross sales for fiscal 2022 as As in contrast with fiscal 2021 was
primarily pushed by:
•decrease gross sales quantity in our U.S. Shopper, Hawthorne and Completely different segments;
•the favorable influence of overseas commerce prices As a Outcome of of strengthening
of the U.S. greenagain relative to the euro and the Canadian greenagain; and
•a decrease in prices Related to the Roundup® advertising agreement;
•partially offset by greater supplies prices in our U.S. Shopper and Completely different
segments;
•greater transportation and wrestleehousing prices embraced within “quantity, product
mix and other” in our U.S. Shopper, Hawthorne and Completely different segments; and
•An enhance in impairment, restructuring and other costs.
The rise in value of gross sales for fiscal 2021 as As in contrast with fiscal 2020 was
primarily pushed by:
•greater gross sales quantity in our U.S. Shopper, Hawthorne and Completely different segments;
•greater supplies prices in our U.S. Shopper, Hawthorne and Completely different segments;
•greater transportation and wrestleehousing prices embraced within “quantity, product
mix and other” in our U.S. Shopper and Hawthorne segments;
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•the unfavorable influence of overseas commerce prices As a Outcome of of weakening
of the U.S. greenagain relative to the euro and the Canadian greenagain;
•An enhance in prices Related to the Roundup® advertising agreement; and
•An enhance in impairment, restructuring and other costs.
Gross Margin
As a proportion of internet gross sales, our gross margin price was 22.2%, 29.8% And three2.6%
for fiscal 2022, fiscal 2021 And mointernetary 2020, respectively. Elements contributing
to the change in gross margin price are outlined Inside The subsequent table:
Year Ended September 30,
2022
2021
Volume, product mix and other (6.6) % (1.8) % Material prices (3.4)
(1.7)
Roundup® commissions and reimbursements (0.2) -
Acquisitions (0.1) -
Pricing 6.3 0.8
(4.0) (2.7)
Impairment, restructuring and other (3.6)
(0.1)
Change in gross margin price (7.6) %
(2.8) %
The decrease in gross margin price for fiscal 2022 as As in contrast with fiscal 2021 was
primarily pushed by:
•greater supplies prices in our U.S. Shopper, Hawthorne and Completely different segments;
•greater transportation and wrestleehousing prices embraced within “quantity, product
mix and other” Related to our U.S. Shopper, Hawthorne and Completely different segments;
•unfavorable leverage of fixed prices pushed by decrease gross sales quantity in our U.S.
Shopper, Hawthorne and Completely different segments;
•decreased internet gross sales Related to the Roundup® advertising agreement;
•an unfavorable internet influence from acquisitions in our Hawthorne segment; and
•An enhance in impairment, restructuring and other costs;
•partially offset by enhanced pricing in our U.S. Shopper, Hawthorne and Completely different
segments.
The decrease in gross margin price for fiscal 2021 as As in contrast with fiscal 2020 was
primarily pushed by:
•greater transportation and wrestleehousing prices embraced within “quantity, product
mix and other” in our U.S. Shopper and Hawthorne segments;
•greater supplies prices in our U.S. Shopper, Hawthorne and Completely different segments; and
•unfavorable mix pushed by greater gross sales progress in our Hawthorne segment relative
to our U.S. Shopper segment;
•partially offset by favorable leverage of fixed prices pushed by greater gross sales
quantity in our U.S. Shopper, Hawthorne and Completely different segments; and
•enhanced pricing in our U.S. Shopper, Hawthorne and Completely different segments.
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(Dollars in hundreds of hundreds, besides per share knowledge)
Promoting, General and Administrative Expenses
The Adjust toing table mannequins forth the factors of promoteing, broadspstudy and
administrative funds (“SG&A”):
Year Ended September 30,
2022 2021 2020
Advertising $ 120.3$ 165.7$ 147.4
Advertising as a proportion of internet gross sales 3.1 % 3.4 %
3.6 %
Research and enhancement 45.3 45.4 39.7
Share-based mostly compensation 34.3 40.6 57.9
Amortization of intangibles 31.0 29.1 31.5
Completely different promoteing, broadspstudy and administrative 382.1 462.7 481.3
$ 613.0$ 743.5$ 757.8
SG&A decreased $130.5, or 17.6%, all through fiscal 2022 As in contrast with fiscal 2021.
Advertising expense decreased $45.4, or 27.4%, in fiscal 2022 pushed by
decreased media spending in our U.S. Shopper and Hawthorne segments. Completely different SG&A
decreased $80.6, or 17.4%, in fiscal 2022 pushed by a decrease Briefly-time period
variable money incentive compensation expense, discounts in staffing levels and
other value-discount initiatives.
SG&A decreased $14.3, or 1.9%, all through fiscal 2021 As in contrast with fiscal 2020.
Share-based mostly compensation expense decreased $17.3, or 29.9%, in fiscal 2021 due
to a extra vital enhance Inside the anticipateed payout proportion on prolonged-time period
efficiency-based mostly awrestleds all through fiscal 2020 as As in contrast with fiscal 2021.
Advertising expense enhanced $18.3, or 12.4%, in fiscal 2021 pushed by
enhanced media spending in our U.S. Shopper, Hawthorne, and Completely different segments.
Completely different SG&A decreased $18.6, or 3.9%, in fiscal 2021 pushed by decrease brief-time period
variable money incentive compensation expense of $48.8 and decrease corpoprice
spending, partially offset by will enhance in numerous packages assisting the
proceedd progress of the enterprise collectively with information know-how, stpricegy and
people prices.
Impairment, Restructuring and Completely different
Activity described herein Is assessed Infacet the "Cost of gross sales-impairment,
restructuring and other," "Impairment, restructuring and other" and "Income
(loss) from disproceedd operations, internet of tax" spractices Inside the Consolidated
Statements of Operations. The Adjust toing table particulars impairment, restructuring
and other costs (recowlies) for every of the intervals launched:
Year Ended September 30,
2022 2021 2020
Cost of gross sales-impairment, restructuring and other:
COVID-19 associated prices
$ - $ 25.0$ 15.5 Restructuring and other costs (recowlies), internet 143.6 (0.3) (0.1) Professionalperty, plant and gear impairments 16.6 - 0.6
Operating funds-impairment, restructuring and other:
COVID-19 associated prices
- 4.2 3.9 Restructuring and other costs (recowlies), internet 40.9 0.1 (3.1) Positive elements on sale of property, plant and gear (16.2) - - Goodwill and intangible asset impairments 668.3 - - Impairment, restructuring and other costs from persevering with operations 853.2 29.0 16.8
Restructuring and other costs (recowlies), internet, from
disproceedd operations
- - (3.1)
Complete impairment, restructuring and other costs $ 853.2
$ 29.0$ 13.7
During fiscal 2022, we acknowledged non-money, pre-tax goodwill and intangible
asset impairment costs of $632.4 As a Outcome of of interim impairment look ating of
our Hawthorne segment Inside the "Impairment, restructuring and other" line Inside the
Consolidated Statements of Operations, comprised of $522.4 of goodwill
impairment costs and $110.0 of finite-stayd intangible asset impairment
costs.
During fiscal 2022, we incurred inventory write-down costs of $120.9 Inside the
"Cost of gross sales-impairment, restructuring and other" line Inside the Consolidated
Statements of Operations and finite-stayd intangible asset impairment costs of
$35.3 in
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(Dollars in hundreds of hundreds, besides per share knowledge)
the "Impairment, restructuring and other" line Inside the Consolidated Statements of
Operations Related to our choice to disproceed and exit The market for
sure Hawthorne milding merchandise And varieties.
During fiscal 2022, we started implementing a collection of organizational modifications and
initiatives meant to create operational and management-diploma efficiencies. As
An factor of this restructuring program, We're reducing The measurement of our current chain
internetwork, reducing staffing levels and implementing other value-discount
initiatives. During fiscal 2022, we incurred prices of $65.2 Related to this
restructuring initiative primarily associated to worker time periodination advantages and
impairment of property, plant and gear. We incurred prices of $9.7 in our
U.S. Shopper segment and $27.1 in our Hawthorne segment Inside the "Cost of
gross sales-impairment, restructuring and other" line Inside the Consolidated Statements
of Operations all through fiscal 2022. We incurred prices of $11.9 in our U.S.
Shopper segment, $8.1 in our Hawthorne segment, $0.7 in our Completely different segment and
$7.7 at Agency Inside the "Impairment, restructuring and other" line Inside the
Consolidated Statements of Operations all through fiscal 2022. We proceed to
consider further internetwork and organizational modifications, which, if executed, might
End in further restructuring costs in future intervals.
During fiscal 2022, we acknowledged obtains of $16.2 Inside the “Impairment,
restructuring and other” line Inside the Consolidated Statements of Operations
Related to the sale of property, plant and gear.
Costs incurred all through fiscal 2022 associated to COVID-19 have been imsupplies. During fiscal 2021, we incurred prices of $29.2 Related to the COVID-19 pandemic primarily associated to premium pay. We incurred prices of $21.2 in our U.S. Shopper segment, $3.2 in our Hawthorne segment and $0.6 in our Completely different segment in the "Cost of gross sales-impairment, restructuring and other" line Inside the Consolidated Statements of Operations all through fiscal 2021. We incurred prices of $4.0 in our U.S. Shopper segment and $0.2 in our Completely different segment Inside the "Impairment, restructuring and other" line Inside the Consolidated Statements of Operations all through fiscal 2021. During fiscal 2020, we incurred prices of $19.4 associated with the COVID-19 pandemic primarily associated to premium pay. We incurred prices of $12.4 in our U.S. Shopper segment, $2.6 in our Hawthorne segment and $0.5 in our Completely different segment Inside the "Cost of gross sales-impairment, restructuring and other" line Inside the Consolidated Statements of Operations all through fiscal 2020. We incurred prices of $3.8 in our U.S. Shopper segment and $0.1 in our Completely different segment Inside the "Impairment, restructuring and other" line Inside the Consolidated Statements of Operations all through fiscal 2020.
Completely different (Income) Expense, internet
Completely different (income) expense is comprised of actions Similar to royalty income from the licensing of sure of our mannequin names and overseas commerce transaction obtains and losses. Completely different (income) expense was $0.8, $(1.8) and $3.2 in fiscal 2022, fiscal 2021 And mointernetary 2020, respectively. The change for fiscal 2022 and fiscal 2021 was primarily due to overseas commerce transaction obtains and losses.
Income (Loss) from Operations
Income (loss) from operations was $(434.0) in fiscal 2022 As in contrast with $723.0 in fiscal 2021. The decrease was pushed by decrease internet gross sales, a decrease in gross margin price, greater impairment, restructuring and other costs and decrease other income, partially offset by decrease SG&A. Income from operations was $723.0 in fiscal 2021, An enhance of 23.5% in contrast to $585.2 in fiscal 2020. The rise was pushed by greater internet gross sales, decrease SG&A And greater other income, partially offset by a decrease in gross margin price And greater impairment, restructuring and other costs.
Egive upy in (Income) Loss of Unconsolidated Affiliates
We buyd a 50% egive upy curiosity in Bonnie Crops, LLC on December 31, 2020. Our curiosity is accounted for using the egive upy Stpricegy of accounting, with our proportionate share of Bonnie Crops, LLC earnings subsequent to December 31, 2020 mirrored Inside the Consolidated Statements of Operations. We doced egive upy in (income) Lack of unconsolidated associates Related to Bonnie Crops, LLC of $12.9, $(14.4) And 0 in fiscal 2022, fiscal 2021 And mointernetary 2020, respectively. Check with "Notice 9. INVESTMENT IN UNCONSOLIDATED AFFILIATES" of the Notes to the Consolidated Financial Statements embraced On This type 10-K for extra information relating to Bonnie Crops, LLC.
Costs Related to Refinancing
Costs associated to refinancing have been $15.1 in fiscal 2020, and we Did not incur
prices associated to refinancing in fiscal 2022 or fiscal 2021. The prices incurred
in fiscal 2020 have been Related to the redemption of our 6.000% Senior Notes
due 2023 (the "6.000% Senior Notes"), and are comprised of $12.0 of redemption
premium and $3.1 of unamortized bond issuance prices that have been written off. Refer
to "Notice 12. DEBT" of the Notes to the Consolidated Financial Statements
embraced On This type 10-K for extra information relating to the redemption of the
6.000% Senior Notes.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
Interest Expense
Interest expense was $118.1 in fiscal 2022, An enhance of 49.7% As in contrast with $78.9 in fiscal 2021. The rise was pushed by greater common borrowings of $1,119.6 due to greater inventory manufacturing, capital expfinishitures, acquisition exercise and rebuys of our Common Shares. Interest expense was $78.9 in fiscal 2021, a decrease of 0.9% As in contrast with $79.6 in fiscal 2020. The decrease was pushed by a decrease in our weighted common Rate of curiosity of 61 basis factors, partially offset by An enhance in common borrowings of $289.0. The decrease in our weighted common Rate of curiosity was pushed by decrease borrowing prices on the Fifth A&R Credit rating Settlement. The rise in common borrowings was primarily pushed by greater inventory manufacturing, capital expfinishitures and acquisition exercise.
Completely different Non-Operating Income, Net
Completely different non-working income was $6.9, $18.6 and $20.1 in fiscal 2022, fiscal 2021 And mointernetary 2020, respectively, which embraced curiosity income of $6.7, $4.1 and $7.6 for fiscal 2022, fiscal 2021 And mointernetary 2020, respectively. On December 31, 2020, we buyd a 50% egive upy curiosity in Bonnie Crops, LLC in commerce for money costs of $102.3, forgiveness of our excellent mortgage receivable with AFC And give up of our choices To enhance our financial curiosity Inside the Bonnie Crops enterprise. Our mortgage receivable with AFC, which was earlier thanhand acknowledged Inside the "Completely different asmannequins" line Inside the Consolidated Stcapability Sheets, had a carrying worth of $66.4 on December 31, 2020. We acknowledged a obtain of $12.5 By way of The primary quarter of fiscal 2021 To write down-up The worth of the mortgage to its Deadline truthful worth of $78.9.
During the fourth quarter of fiscal 2020, we acknowledged An enhance Inside the truthful
worth of our choices To enhance our financial curiosity Inside the Bonnie Crops
enterprise of $12.0 pushed by An enhance in gross sales and income of the Bonnie
Crops enterprise.
Income Tax Expense (Benefit) from Continuing Operations
A reconciliation of the federal corpoprice income tax price and the efficient tax
price on income from persevering with operations earlier than income taxes is summarized
under:
Year Ended September 30,
2022 2021 2020
Statutory income tax price 21.0 % 21.0 % 21.0 %
Impact of overseas operations (2.5) (0.1) (0.7)
State taxes, internet of federal revenue 2.6 3.9 3.5
Impact of other everlasting variations 2.8 (1.1) -
Research and Experimentation and other federal tax credit 0.2 (0.2) (0.3)
Impact of tax contingencies (1.8) - 0.1
Completely different (0.7) 0.1 0.6
Impactive income tax price 21.6 % 23.6 % 24.2 %
During fiscal 2022, we acknowledged non-money, pre-tax goodwill and intangible
asset impairment costs of $668.3 Inside the "Impairment, restructuring and other"
line Inside the Consolidated Statements of Operations. The tax influence of the
impairment costs was a Benefit of $148.3, which is internet of the influence of
non-deductible goodwill of $18.8, for fiscal 2022 and was doced Inside the
"Income tax expense (revenue) from persevering with operations" line Inside the
Consolidated Statements of Operations. The tax influence of non-deductible goodwill
was confacetred a discrete merchandise beset off We now Have not any reprimarying non-deductible
goodwill. This discrete merchandise, which is embraced Inside the "Impact of overseas
operations" line Inside the table above, decreased the fiscal 2022 efficient tax
price by roughly 340 bps beset off we incurred a internet loss By way of the interval.
Furtherextra, extra tax advantages associated to share-based mostly compensation, That are
embraced Inside the "Impact of other everlasting variations" line Inside the table above,
enhanced the fiscal 2022 efficient tax price by roughly 260 bps.
Income (Loss) from Continuing Operations
Income (loss) from persevering with operations was $(437.5), or $(7.88) per diluted share, in fiscal 2022 As in contrast with $517.3, or $9.03 per diluted share, in fiscal 2021. The decrease was pushed by decrease internet gross sales, a decrease in gross margin price, greater impairment, restructuring and other costs, decrease other income, decrease egive upy in income of unconsolidated associates, greater curiosity expense and decrease other non-working income, partially offset by decrease SG&A.
Diluted common broadspstudy shares used Inside the diluted loss per broadspstudy share
calculation for fiscal 2022 have been 55.5 million, which excluded potential Common
Shares of 0.6 million Since the effect of their inclusion Can be
anti-dilutive as we
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
incurred a internet loss for fiscal 2022. Diluted common broadspstudy shares used Inside the
diluted income per broadspstudy share calculation have been 57.2 million for fiscal 2021,
which embraced dilutive potential Common Shares of 1.5 million.
Income from persevering with operations was $517.3, or $9.03 per diluted share, in
fiscal 2021 As in contrast with $386.9, or $6.78 per diluted share, in fiscal 2020. The
enhance was pushed by greater internet gross sales, decrease SG&A, greater other income, greater
egive upy in income of unconsolidated associates and decrease prices associated to
refinancing, partially offset by a decrease in gross margin price And greater
impairment, restructuring and other costs.
Diluted common broadspstudy shares used Inside the diluted income per broadspstudy share
calculation have been 57.2 million for fiscal 2021 As in contrast with 56.9 million for
fiscal 2020. The rise was primarily The outcomes of the practice and issuance
of share-based mostly compensation awrestleds, partially offset by broadspstudy share rebuy
exercise. Dilutive equal shares for fiscal 2021 And mointernetary 2020 have been 1.5
million and 1.2 million, respectively.
Income (Loss) from Disproceedd Operations, internet of tax
Income (loss) from disproceedd operations, internet of tax, was zero, $(3.9) and $1.7 for fiscal 2022, fiscal 2021 And mointernetary 2020, respectively. On August 31, 2017, we fulld the sale of the Worldbroad Industry. As a Outcome, efficient in our fourth quarter of fiscal 2017, we categorized our end outcomes of operations for all intervals launched To mirror the Worldbroad Industry as a disproceedd operation. The transaction embraced contingent confacetration with a most payout of $23.8 and an preliminary truthful worth of $18.2, the cost of which Trusted the obtainment of sure efficiency standards by the Worldbroad Industry Adjust toing the closing of the transaction through fiscal 2020. During fiscal 2021, we agreed To merely settle for a contingent confacetration payout of $6.0 and doced a pre-tax cost of $12.2 all through fiscal 2021 To write down-down the contingent confacetration receivable to the agreed upon payout quantity. During fiscal 2022, we acquired the contingent confacetration cost and this quantity was categorized as a financing exercise Inside the "Completely different financing, internet" line Inside the Consolidated Statements Of money Flows.
Half Results
The efficiency Of every reportable segment is considerd based mostly on a quantity of
factors, collectively with income (loss) from persevering with operations earlier than income taxes,
amortization, impairment, restructuring and other costs ("Half Professionalfit
(Loss)"), which is a non-GAAP monetary meaassembleive. Senior management makes use of Half
Professionalfit (Loss) To guage segment efficiency Since they confacetr this meaassembleive
is indicative of efficiency trfinishs and The general earnings potential Of every
segment.
The Adjust toing table mannequins forth internet gross sales by segment:
Year Ended September 30,
2022 2021 2020
U.S. Shopper $ 2,928.8$ 3,197.7$ 2,883.5
Hawthorne 716.2 1,424.2 1,023.1
Completely different 279.1 303.1 225.0
Consolidated $ 3,924.1$ 4,925.0$ 4,131.6
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
The Adjust toing table mannequins forth Half Professionalfit (Loss) As properly as to a reconciliation
to income from persevering with operations earlier than income taxes, In all probcapability the most immediately
comparable GAAP meaassembleive:
Year Ended September 30,
2022 2021 2020
U.S. Shopper $ 568.6$ 726.7$ 694.3
Hawthorne (21.1) 163.8 111.9
Completely different 20.2 42.1 11.7
Complete Half Professionalfit (Non-GAAP) 567.7 932.6 817.9
Agency (112.4) (149.7) (183.4)
Intangible asset amortization (37.1) (30.9) (32.5)
Impairment, restructuring and other (852.2) (29.0) (16.8)
Egive upy in income (loss) of unconsolidated
associates (12.9) 14.4 -
Costs associated to refinancing - - (15.1)
Interest expense (118.1) (78.9) (79.6)
Completely different non-working income, internet 6.9 18.6 20.1
Income (loss) from persevering with operations earlier than
income taxes (GAAP) $ (558.1)$ 677.1$ 510.6
U.S. Shopper
U.S. Shopper segment internet gross sales have been $2,928.8 in fiscal 2022, a decrease of 8.4%
from fiscal 2021 internet gross sales of $3,197.7. The decrease was pushed by decrease gross sales
quantity of 15.6%, partially offset by enhanced pricing Of seven.2%. The decrease in
gross sales quantity for fiscal 2022 was pushed by regulationn care, soils, managements, plant
meals and mulch merchandise.
U.S. Shopper Half Professionalfit was $568.6 in fiscal 2022, a decrease of 21.8% from
fiscal 2021 Half Professionalfit of $726.7. The decrease for fiscal 2022 was primarily
due To diminish internet gross sales and a decrease gross margin price, partially offset by decrease
SG&A.
U.S. Shopper segment internet gross sales have been $3,197.7 in fiscal 2021, An enhance of
10.9% from fiscal 2020 internet gross sales of $2,883.5. The rise was pushed by the
favorable influences of quantity and pricing of 10.2% and 0.7%, respectively. The
enhance in gross sales quantity for fiscal 2021 was pushed by soils, fertilizer, grass
seed, mulch, managements, plant meals and direct to consumer merchandise As properly as to
enhanced internet gross sales Related to the Roundup® advertising agreement.
U.S. Shopper Half Professionalfit was $726.7 in fiscal 2021, An enhance of 4.7% from
fiscal 2020 Half Professionalfit of $694.3. The rise for fiscal 2021 was primarily
due to greater internet gross sales, partially offset by a decrease gross margin price and
greater SG&A.
Hawthorne
Hawthorne segment internet gross sales have been $716.2 in fiscal 2022, a decrease of 49.7% from fiscal 2021 internet gross sales of $1,424.2. The decrease was pushed by decrease gross sales quantity of 56.0% and unfavorable overseas commerce prices of 0.8%, partially offset by enhanced pricing Of three.8% and acquisitions Of three.3%. The decrease in gross sales quantity for fiscal 2022 was pushed by milding, dietary vitamins, rising media, exhaustingwrestlee and rising environments merchandise. Hawthorne Half Loss was $21.1 in fiscal 2022, a decrease from fiscal 2021 Half Professionalfit of $163.8. The decrease for fiscal 2022 was pushed by decrease internet gross sales and a decrease gross margin price, partially offset by decrease SG&A. Hawthorne segment internet gross sales have been $1,424.2 in fiscal 2021, An enhance Of three9.2% from fiscal 2020 internet gross sales of $1,023.1. The rise was pushed by the favorable influences of quantity, pricing and overseas commerce prices Of three5.1%, 3.4% and 0.7%, respectively. The rise in gross sales quantity for fiscal 2021 was pushed by milding, dietary vitamins, rising media, exhaustingwrestlee and rising environments merchandise. Hawthorne Half Professionalfit was $163.8 in fiscal 2021, An enhance of 46.4% from fiscal 2020 Half Professionalfit of $111.9. The rise for fiscal 2021 was pushed by greater internet gross sales, partially offset by a decrease gross margin price And greater SG&A.
Completely different
Completely different segment internet gross sales have been $279.1 in fiscal 2022, a decrease Of seven.9% from
fiscal 2021 internet gross sales of $303.1. The decrease was pushed by decrease gross sales quantity
of 13.7% and unfavorable overseas commerce prices of 1.9%, partially offset by
enhanced pricing Of seven.7%.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
Completely different Half Professionalfit was $20.2 in fiscal 2022, a decrease of 52.0% from fiscal
2021 Half Professionalfit of $42.1. The decrease was pushed by decrease internet gross sales and a
decrease gross margin price, partially offset by decrease SG&A.
Completely different segment internet gross sales have been $303.1 in fiscal 2021, An enhance Of three4.7% from
fiscal 2020 internet gross sales of $225.0. The rise was pushed by the favorable
influences of quantity, overseas commerce prices and pricing of 20.6%, 11.2% And a couple of.9%,
respectively.
Completely different Half Professionalfit was $42.1 in fiscal 2021, An enhance of 259.8% from fiscal
2020 Half Professionalfit of $11.7. The rise was pushed by greater internet gross sales and a
greater gross margin price, partially offset by greater SG&A.
Agency
Agency funds have been $112.4 in fiscal 2022, a decrease of 24.9% from fiscal 2021 funds of $149.7. The decrease was pushed by decrease brief-time period variable money incentive compensation expense, discounts in staffing levels and other value-discount initiatives. Agency funds have been $149.7 in fiscal 2021, a decrease of 18.4% from fiscal 2020 funds of $183.4. The decrease was pushed by decrease brief-time period variable money incentive compensation expense, decrease corpoprice spending and decrease share-based mostly compensation expense.
Liquidity and Capital Resupplys
The Adjust toing table summarizes money actions for the yrs fulld September 30:
2022 2021
2020
Net money (Utilized in) currentd by working actions $ (129.0)$ 271.5
$ 558.0 Net money (Utilized in) currentd by investing actions (283.2) (538.6) 46.9 Net money currentd by (Utilized in) financing actions 255.3 494.0 (607.1) Operating Activities Cash Utilized in working actions totaled $129.0 for fiscal 2022, a decrease of $400.5 as As in contrast with money currentd by working actions of $271.5 for fiscal 2021. This decrease was pushed by greater inventory, decrease accounts payable, decrease internet income And greater curiosity costs, partially offset by decrease tax costs and decrease brief-time period variable money incentive compensation payouts. Higher inventory was pushed by greater manufacturing, decrease gross sales And greater enter prices. Lower accounts payable was pushed by the timing of manufacturing. Fiscal 2022 was furtherly favorably influenceed by extfulld cost time durations with vfinishors throughout the U.S. Shopper and Hawthorne segments, As properly as to Monsanto, for costs uniquely due Inside The final weeks of fiscal 2022 that have been paid Inside The primary quarter of fiscal 2023. Cash currentd by working actions totaled $271.5 for fiscal 2021, a decrease of $286.5 as As in contrast with $558.0 for fiscal 2020. This decrease was pushed by greater inventory manufacturing, greater brief-time period variable money incentive compensation payouts And greater tax costs all through fiscal 2021, partially offset by greater internet income and decrease curiosity costs. Higher inventory manufacturing was pushed by The enlargement in internet gross sales and an effort To assemble inventory levels To fulfill anticipateed future demand. Fiscal 2021 was furtherly favorably influenceed by extfulld cost time durations with vfinishors throughout the U.S. Shopper and Hawthorne segments, As properly as to Monsanto, for costs uniquely due Inside the final weeks of fiscal 2021 that have been paid Inside The primary quarter of fiscal 2022. The seasonal nature of our North America consumer regulationn and backyard enterprise usually requires money to fund vital will enhance in inventories By way of the first half of the fiscal yr. Receivables and payables furtherly construct considerably in our second quarter of the fiscal yr Based on the timing of gross sales to assist our retailers' spring promoteing season.
Investing Activities
Cash Utilized in investing actions totaled $283.2 for fiscal 2022, a decrease of
$255.4 as As in contrast with $538.6 for fiscal 2021. Cash used for fundings in
property, plant and gear all through fiscal 2022 was $113.5. We furtherly fulld
the acquisitions of Luxx Lighting, Inc., True Liberty Luggage and Cyco all through
fiscal 2022 in commerce for combination money costs of $237.3, As properly as to the
issuance of 0.1 million Common Shares, a non-money investing and financing
exercise, with A great worth of $21.0 based mostly on the share worth On the time of
cost. As properly as, all through fiscal 2022, we made costs of $25.0 in
Reference to a minority non-egive upy convertible debt funding in RIV
Capital, acquired proceeds from the sale of prolonged-stayd asmannequins of $63.3 and
acquired $29.3 Related to foreign money forward contracts.
Cash Utilized in investing actions totaled $538.6 for fiscal 2021, a decrease of
$585.5 as As in contrast with money currentd by investing actions of $46.9 for fiscal
2020. Cash used for fundings in property, plant and gear all through fiscal
2021 was
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
$106.9. During fiscal 2021, we buyd a 50% egive upy curiosity in Bonnie Crops,
LLC in commerce for money costs of $102.3, As properly as to non-money investing
actions that embraced forgiveness of our excellent mortgage receivable with AFC
And give up of our choices To enhance our financial curiosity Inside the Bonnie
Crops enterprise. We furtherly made combination money costs of $127.8 in connection
with our acquisitions of Hydro-Logic Purification Methods, Inc., Rhizoflora,
Inc. and other contract and license propers, and made costs of $193.1 in
Reference to minority non-egive upy convertible debt fundings in RIV Capital
and other entities focused on mannequined hashish and Top extreme quality geinternetics. In
addition, we paid money of $8.7 Related to foreign money forward contracts all through
fiscal 2021.
For the three fiscal yrs fulld September 30, 2022, we allotted our capital
spending as Adjust tos: 72% for enlargement and upprimarytain of current productive
asmannequins; 6% For mannequin spanking new productive asmannequins; 16% to increase our information know-how
and transformation and integration capabilities; and 6% for corpoprice asmannequins.
Financing Activities
Cash currentd by financing actions totaled $255.3 for fiscal 2022 as in contrast to $494.0 for fiscal 2021. During fiscal 2022, we had internet borrowings beneath our Fifth A&R Credit rating Facilities and Sixth A&R Credit rating Facilities of $680.1 and paid financing and issuance costs of $9.6 in Reference to the execution of the Sixth A&R Credit rating Facilities. We furtherly rebuyd Common Shares for $257.9 and paid dividfinishs of $166.2 all through fiscal 2022. Cash currentd by financing actions totaled $494.0 in fiscal 2021 as in contrast to money Utilized in financing actions of $607.1 in fiscal 2020. During fiscal 2021, we had internet borrowings beneath our Fifth A&R Credit rating Facilities of $118.3. We furtherly problemd $500.0 combination principal quantity of 4.000% Senior Notes and $400.0 combination principal quantity of 4.375% Senior Notes, and paid financing and issuance costs of $13.1 in Reference to these Senior Notes issuances. In addition, all through fiscal 2021, we rebuyd Common Shares for $129.3, paid dividfinishs of $143.0, acquired money from the practice of inventory choices of $15.2 and made costs of $17.5 Related to the acquisition of the reprimarying excellent shares of AeroGrow.
Cash and Cash Equivalents
Our money and money equals have been held in money depository accounts with primary
monetary institutions Across the globe or invested in Top extreme quality, brief-time period
liquid fundings having unique maturities of three months or much less. The money
and money equals balances of $86.8 and $244.1 at September 30, 2022 and
2021, respectively, embraced $4.2 and $15.9, respectively, held by managementled
overseas firms. As of September 30, 2022, we primarytain our assertion of
indefinite refunding of the earnings of all supplies overseas subsidiaries.
Borrowing Settlements
Credit rating Facilities
Our primary supplys of liquidity are money genepriced by operations and borrowings
beneath our credit amenities, That are guaranteed by considerably all of Scotts
Miracle-Gro's home subsidiaries. On July 5, 2018, we entered Right into a fifth
amfulld and restated credit agreement (the "Fifth A&R Credit rating Settlement"), which
currentd us with 5-yr senior secured mortgage amenities Inside The combination
principal quantity of $2,300.0, comprised of a revolving credit facility of
$1,500.0 and a time period mortgage Inside The distinctive principal quantity of $800.0 (the "Fifth
A&R Credit rating Facilities"). Under the Fifth A&R Credit rating Facilities, we had the
capability To buy letters of credit As a lot as $75.0.
On April 8, 2022, we entered Right into a sixth amfulld and restated credit agreement
(the "Sixth A&R Credit rating Settlement"), offering The corpoprice and sure of its
subsidiaries with 5-yr senior secured mortgage amenities Inside The combination
principal quantity of $2,500.0, comprised of a revolving credit facility of
$1,500.0 and a time period mortgage Inside The distinctive principal quantity of $1,000.0 (the
"Sixth A&R Credit rating Facilities"). The Sixth A&R Credit rating Settlement furtherly currents us
with The biggest To hunt further dedicated credit beneath the agreement in an
combination quantity of As a lot as $500.0 plus An monumental further quantity, topic to
sure specified monetary and other situations. The Sixth A&R Credit rating Settlement
changed the Fifth A&R Credit rating Settlement And might time periodinate on April 8, 2027. The
Sixth A&R Credit rating Facilities Can be found for the issuance of letters of credit
As a lot as $100.0. The time durations of the Sixth A&R Credit rating Settlement embrace customary
illustrations and wrestleranties, affirmative and adverse covenants, monetary
covenants, and events of default.
Under the time durations of the Sixth A&R Credit rating Settlement, mortgages bear curiosity, at our
election, at a price Every yr equal to both (i) the Alternate Base Rate plus
the Applicable Unfold (every, as outlined Inside the Sixth A&R Credit rating Settlement) or
(ii) the Adjusted Term SOFR Rate for the Interest Period in effect for such
borrowing plus the Applicable Unfold (all as outlined Inside the Sixth A&R Credit rating
Settlement). Swingline Loans bear curiosity On the relevant Swingline Rate set
forth Inside the Sixth A&R Credit rating Settlement. Charges of curiosity for other choose
non-U.S. greenagain borrowings, collectively with borrowings denominated in euro, Kilos
Sterling and Canadian greenagains, are based mostly on sepaprice Rate of curiosity indices, as
set forth Inside the Sixth A&R Credit rating Settlement. The Sixth A&R Credit rating Settlement is
secured by (i) a perfected first precedence safety curiosity in All of the
accounts
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
receivable, inventory and gear of Scotts Miracle-Gro and sure of its
home subsidiaries and (ii) the pledge of All of the capital inventory of sure
of Scotts Miracle-Gro's home subsidiaries and a portion of the capital inventory
of sure of its overseas subsidiaries. The collateral Does not embrace any of
our mental property.
On June 8, 2022, we entered Right into an Amfinishment to the Sixth A&R Credit rating Settlement.
The Amfinishment will enhance the most permitted leverage ratio for the quarterly
leverage covenant By way of the Leverage Adjustment Period. The Amfinishment furtherly
will enhance The velocity of curiosity relevant to borrowings beneath the revolving credit
facility by 35 bps and the time period mortgage facility by 50 bps, and will enhance the
annual facility payment price on the revolving credit facility by 15 bps, in every
case, when our quarterly-look ated leverage ratio exceeds 4.75. Furtherextra, the
Amfinishment restricts our capability to declare or pay any discretionary dividfinishs,
distributions or other restricted costs By way of the Leverage Adjustment Period
to solely the cost of (i) frequently scheduled money dividfinishs to primarytainers of our
Common Shares in an combination quantity To not exceed $225.0 per fiscal yr and
(ii) other dividfinishs, distributions or other restricted costs in an combination
quantity To not exceed $25.0. The Amfinishment furtherly requires pro forma compliance
with sure leverage levels specified Inside the Amfinishment with respect to our
capability to consummate sure acquisitions and incur debt.
At September 30, 2022, we had letters of credit excellent Inside The combination
principal quantity of $14.1, and $1,185.5 of borrowing availcapability beneath the
Sixth A&R Credit rating Settlement. The weighted common Rate of pursuits on common
borrowings beneath the Fifth A&R Credit rating Settlement and Sixth A&R Credit rating Settlement
have been 2.8%, 1.9% And three.3% for fiscal 2022, fiscal 2021 And mointernetary 2020,
respectively.
The Sixth A&R Credit rating Settlement incorpoprices, amongst other obligations, an affirmative
covenant relating to our leverage ratio decided as of The prime Of every of our
fiscal quarters calculated as common total indebtedness, divided by our
earnings earlier than curiosity, taxes, depreciation and amortization, as adjusted
pursuant to the time durations of the Sixth A&R Credit rating Settlement ("Adjusted EBITDA").
Pursuant to the Amfinishment, the most permitted leverage ratio is (i) 6.25 for
the third quarter of fiscal 2022 through The primary quarter of fiscal 2023, (ii)
6.50 for the second and third quarters of fiscal 2023, (iii) 6.25 for the fourth
quarter of fiscal 2023 and The primary quarter of fiscal 2024, (iv) 5.50 for the
second quarter of fiscal 2024, and (v) 4.50 for the third quarter of fiscal 2024
and thereafter. Our leverage ratio was 6.01 at September 30, 2022. The Sixth A&R
Credit rating Settlement furtherly incorpoprices an affirmative covenant relating to our curiosity
cowlage ratio decided as of The prime Of every of our fiscal quarters. The
curiosity cowlage ratio is calculated as Adjusted EBITDA divided by curiosity
expense, as described Inside the Sixth A&R Credit rating Settlement, and excludes prices
associated to refinancings. The minimal required curiosity cowlage ratio is 3.00,
which is unchanged from the Fifth A&R Credit rating Settlement. Our curiosity cowlage
ratio was 4.83 for the twelve months fulld September 30, 2022.
As of September 30, 2022, we have been in compliance with all relevant covenants in
the agreements governing our debt. Based on our enterpriseions Of mointernetary
efficiency for the twelve-month interval subsequent to the date of the submitting of
the monetary statements on Type 10-K, we anticipate To primarytain in compliance with
the monetary covenants beneath the Sixth A&R Credit rating Settlement. However, our
evaluation of our capability To fulfill our future obligations is inherently
topicive, judgment-based mostly, and weak To vary based mostly on future events. A
covenant violation might End in an event of default. Such a default would permit
the lfinisher beneath the Sixth A&R Credit rating Settlement to acceleprice the maturity of
the debt and would furtherly implicate cross-default provisions beneath our Senior
Notes, making them due and payable In the meantime. As of September 30, 2022, our
indebtedness beneath the Sixth A&R Credit rating Settlement and Senior Notes was $2,875.5.
We do not have enough money Out there or available liquidity That Can be
make the most ofd to repay these excellent quantitys Inside the event of default.
As An factor of our contingency planning To deal with potential future circumstances
that could End in noncompliance, We now have contemplated various plans
collectively with further restructuring actions To Reduce working funds and
sure money management stpricegies Which are within our management. Furtherextra, we
have contemplated various plans Which are topic to market situations and
not in our management, collectively with, amongst others, discussions with our lfinisher to
amfinish the time durations of our monetary covenant beneath the debt instrument and
producing money by ending other financing transactions, Which might embrace
issuing egive upy. There's not a assurance That we'll Achieve success in implementing
these various plans.
Senior Notes
On December 15, 2016, Scotts Miracle-Gro problemd $250.0 combination principal
quantity of 5.250% Senior Notes due 2026. The 5.250% Senior Notes recurrent
broadspstudy unsecured senior obligations and rank equal in proper of cost with our
current and future unsecured senior debt. The 5.250% Senior Notes have curiosity
cost dates of June 15 and December 15 Of every yr.
On October 22, 2019, Scotts Miracle-Gro problemd $450.0 combination principal quantity
of 4.500% Senior Notes due 2029. The 4.500% Senior Notes recurrent broadspstudy
unsecured senior obligations and rank equal in proper of cost with our
current and future unsecured senior debt. The 4.500% Senior Notes have curiosity
cost dates of April 15 and October 15 Of every yr.
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On October 23, 2019, Scotts Miracle-Gro redeemed all of our
excellent 6.000% Senior Notes for a redemption worth of $412.5, comprised
of $0.5 of accrued and unpaid curiosity, $12.0 of redemption premium, and
$400.0 for excellent principal quantity. The $12.0 redemption premium was
acknowledged Inside the "Costs associated to refinancing" line on the Consolidated
Statements of Operations By way of The primary quarter of fiscal 2020. Furtherextra,
we had $3.1 in unamortized bond issuance prices Related to the 6.000% Senior
Notes, which have been written-off By way of The primary quarter of fiscal 2020 and have been
acknowledged Inside the "Costs associated to refinancing" line Inside the Consolidated
Statements of Operations.
On March 17, 2021, Scotts Miracle-Gro problemd $500.0 combination principal quantity
of 4.000% Senior Notes due 2031. The 4.000% Senior Notes recurrent broadspstudy
unsecured senior obligations and rank equal in proper of cost with our
current and future unsecured senior debt. The 4.000% Senior Notes have curiosity
cost dates of April 1 and October 1 Of every yr.
On August 13, 2021, Scotts Miracle-Gro problemd $400.0 combination principal quantity
of 4.375% Senior Notes due 2032. The 4.375% Senior Notes recurrent broadspstudy
unsecured senior obligations and rank equal in proper of cost with our
current and future unsecured senior debt. The 4.375% Senior Notes have curiosity
cost dates of February 1 and August 1 Of every yr.
Substantially all of Scotts Miracle-Gro's immediately And by no means immediately owned home
subsidiaries Carry out guarantors of the 5.250% Senior Notes, the 4.500% Senior
Notes, the 4.000% Senior Notes and the 4.375% Senior Notes.
Receivables Facility
We furtherly primarytain a Grasp Rebuy Settlement (collectively with the annexes thereto, the "Rebuy Settlement") and a Grasp Framework Settlement, as amfulld (the "Framework Settlement" and, Together with the Rebuy Settlement, the "Receivables Facility"). Under the Receivables Facility, we might promote a portfolio Of acquireable and eligible excellent buyer accounts receivable to the buyrs and conpresently Comply with rebuy the receivables on a weekly basis. The eligible accounts receivable Include accounts receivable genepriced by gross sales To three specified buyers. The eligible quantity of buyer accounts receivables Which Might Even be purchased beneath the Receivables Facility is $400.0 and the dedication quantity By way of the seasonal dedication interval starting on February 24, 2023 and ending on June 16, 2023 is $160.0. The Receivables Facility expires on August 18, 2023.
We account for the sale of receivables beneath the Receivables Facility as
brief-time period debt and proceed To primarytain the receivables on our Consolidated
Stcapability Sheets, primarily As a Outcome of of our requirement to rebuy
receivables purchased. As of September 30, 2022 And a couple of021, there have been $75.0 And 0,
respectively, in borrowings on receivables pledged as collateral beneath the
Receivables Facility, and the carrying worth of the receivables pledged as
collateral was $79.8 And 0, respectively.
Interest Rate Swap Settlements
We enter into Rate of curiosity swap agreements with primary monetary institutions
that effectively convert a portion of our variable price debt to A exhausting and quick price.
Interest costs made between the efficient date and expiration date are hedged
by the swap agreements. Swap agreements that have been hedging curiosity costs as
of September 30, 2022 And a couple of021 had a most total U.S. greenagain equal
notional quantity of $800.0 and $600.0, respectively. The notional quantity,
efficient date, expiration date and price Of every of the swap agreements
excellent at September 30, 2022 are proven Inside the table under:
Impactive Expiration Fixed
Notional Amount Date (a) Date Rate
100 12/21/2020 6/20/2023 1.36 %
300 (b) 1/7/2021 6/7/2023 1.34 %
200 10/7/2021 6/7/2023 1.37 %
200 (b) 1/20/2022 6/20/2024 0.58 %
200 6/7/2023 6/8/2026 0.85 %
(a)The efficient date Refers again to the date on which curiosity costs are first
hedged by the relevant swap agreement.
(b)Notional quantity adjusts in accordance with a specified seasonal schedule.
This recurrents the most notional quantity at any Time restrict.
Availcapability and Use Of money
We confacetr that our money circulates from operations and borrowings beneath our
agreements described herein Shall be enough To fulfill debt service, capital
expfinishitures And dealing capital wants for the foreseeable future. However, we
can't Make assembleive that our enterprise will geneprice enough money circulate from
operations or that future borrowings Shall be available beneath our borrowing
agreements in quantitys enough to pay indebtedness or fund other liquidity
wants. Exact end outcomes of operations will depfinish on numerous factors, Lots of
That are past our management as further talked about in "ITEM 1A. RISK FACTORS -
Risks Related
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(Dollars in hundreds of hundreds, besides per share knowledge)
to Our M&A, Lending and Financing Activities – Our indebtedness could restrict our
flexibility and antagonisticly have an effect on our monetary situation” of This type 10-K.
Financial Discloassembleives About Guarantors and Issuers of Assured Securities
The 5.250% Senior Notes, 4.500% Senior Notes, 4.000% Senior Notes and 4.375%
Senior Notes (collectively, the “Senior Notes”) have been problemd 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 sure
consolidated home subsidiaries of Scotts Miracle-Gro (collectively, the
“Guarantors”) and, subsequently, we report summarized monetary information in
accordance with SEC Regulation S-X, Rule 13-01, “Guarantors and Issuers of
Assured Securities Registered or Being Registered.”
The guarantees are "full and unsituational," as these time durations are Utilized in
Regulation S-X, Rule 3-10(b)(3), besides that a Guarantor's guarantee Shall be
launched in sure circumstances set forth Inside the indentures governing the
Senior Notes, Similar to: (i) upon any sale or other disposition of all or
considerably All of the asmannequins of the Guarantor (collectively with By Technique of merger or
consolidation) to any particular person Afacet from Scotts Miracle-Gro or any "restricted
subsidiary" beneath the relevant 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 relevant indenture or in any other case ceases to be a "restricted
subsidiary" (collectively with By Technique of liquidation or dissolution) in a transaction
permitted by such indenture; (iv) upon authorized or covenant defeasance; (v) On the
election of Scotts Miracle-Gro Adjust toing the Guarantor's launch as a guarantor
beneath the Sixth A&R Credit rating Settlement, besides a launch by or As a Outcome of of
reimbursement of the Sixth A&R Credit rating Settlement; or (vi) if the Guarantor ceases to
be a "restricted subsidiary" and the Guarantor Isn't in any other case required to
current a guarantee of the Senior Notes pursuant to the relevant indenture.
Our overseas subsidiaries and sure of our home subsidiaries Aren't
guarantors (collectively, the "Non-Guarantors") of the Senior Notes. Payments on
the Senior Notes are solely required to be made by Scotts Miracle-Gro and the
Guarantors. As a Outcome, no costs are required to be Professionalduced from the asmannequins of
the Non-Guarantors, till these asmannequins are changered by dividfinish or in any other case
to Scotts Miracle-Gro or a Guarantor. In the event of a chapter, insolvency,
liquidation or reorganization of any of the Non-Guarantors, primarytainers of their
indebtedness, collectively with their commerce collectors and other obligations, Shall be
entitled to cost of their clpurposes from the asmannequins of the Non-Guarantors earlier than
any asmannequins are made available for distribution to Scotts Miracle-Gro or the
Guarantors. As a Outcome, the Senior Notes are effectively subordinated to all
the liabilities of the Non-Guarantors.
The guarantees Might Even be topic to consider beneath federal chapter regulations or
related state fraudulent conveyance or fraudulent change regulations. In sure
circumstances, the courtroom could void the guarantee, subordinate The quantitys owing
beneath the guarantee, or take other actions detrimental to the primarytainers of the
Senior Notes.
As a broadspstudy matter, worth is given for a change or an obligation if, in
commerce for the change or obligation, property is changered or A respectable
antecedent debt is glad. A courtroom would probably discover that a Guarantor Did not
acquire truthfully equal worth or truthful confacetration for its guarantee to
the extent such Guarantor Did not acquire A truthfully equal revenue from
the issuance of the Senior Notes.
The meaassembleive of insolvency varies depending upon the regulation of the jurisdiction that
is being utilized. Regardmuch less of the meaassembleive being utilized, a courtroom could
decide that a Guarantor was insolvent on the date the guarantee was problemd,
So as that costs to the primarytainers of the Senior Notes would recurrent a
choice, fraudulent change or conveyances on other grounds. If a guarantee
is voided as a fraudulent conveyance or is found to be unenforceable for any
other set off, the primarytainers of the Senior Notes Will not have a clpurpose towrestledss the
Guarantor.
Each guarantee incorpoprices a provision meant to restrict the Guarantor's authorized obligation
to the most quantity that it could incur with out inflicting the incurrence of
obligations beneath its guarantee to be a fraudulent conveyance. However, there
Might be no assurance as to what regular a courtroom will apply in making a
detime periodination of the most authorized obligation Of every Guarantor. Furtherextra, this
provision May be not efficient To shield the guarantees from being voided beneath
fraudulent conveyance regulations. There is a hazard thOn The complete guarantee might
be Put afacet, By which case The complete authorized obligation Might Even be extinguished.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
The Adjust toing tables current summarized monetary information on a mixd
basis for Scotts Miracle-Gro and the Guarantors. Transactions between Scotts
Miracle-Gro and the Guarantors have been eradicated and the summarized monetary
information Does not mirror fundings of the Scotts Miracle-Gro and the
Guarantors Inside the Non-Guarantor subsidiaries.
September 30, 2022
Current asmannequins $ 1,749.6
Non-current asmannequins (a) 2,165.4
Current liabilities 851.4
Non-current liabilities 3,117.8
(a)Consists of quantitys due from Non-Guarantor subsidiaries of $46.7
Year Ended
September 30, 2022
Net gross sales $ 3,559.0
Gross margin 828.7
Loss from persevering with operations (a) (335.9)
Net loss (335.9)
Net loss attributable to managementling curiosity (335.9)
(a)Consists of intercompany income from Non-Guarantor subsidiaries of $14.1.
Judicial and Administrative Professionalceedings
We are celebration To various pending judicial and administrative proceedings arising Inside the odd course of enterprise, collectively with, amongst others, proceedings based mostly on accidents or product authorized obligation clpurposes and alleged violations of environmental regulations. We have considered these pending judicial and administrative proceedings, collectively with the possible outcomes, truthfully anticipated prices and funds, and The current and restricts of our insurance coverage cowlage, and have established what we confacetr to be relevant accruals. We confacetr that our evaluation of contingencies Is affordable and thOn the associated accruals, Inside The combination, are enough; by no meansthemuch less, there Might be no assurance that future quarterly or annual working end outcomes Will not be suppliesly have an effect oned by these proceedings, whether or not As a Outcome of of antagonistic outcomes or As a Outcome of Of good protection prices.
Contractual Obligations
The Adjust toing table summarizes our future money outcirculates for contractual
obligations as of September 30, 2022:
Payments Due by Period
Higher than
Contractual Cash Obligations Complete Lower than 1 Year 1-3 Years 3-5 Years 5 Years
Debt obligations $ 2,963.2 $
137.7 $ 100.0$ 1,375.5$ 1,350.0
Interest expense on debt obligations
813.7 137.6 263.2 225.4 187.5 Finance lease obligations 34.2 7.5 10.8 4.1 11.8 Operating lease obligations 326.0 85.2 139.2 61.1 40.5 Purchase obligations 1,468.2 547.2 559.7 276.5 84.8 Completely different, primarily retirement plan obligations 62.3 5.8 16.8 14.2 25.5 Complete contractual money obligations $ 5,667.6 $
921.0 $ 1,089.7$ 1,956.8$ 1,700.1
We had prolonged-time period debt obligations and curiosity costs due primarily beneath the 5.250% Senior Notes, 4.500% Senior Notes, 4.000% Senior Notes and 4.375% Senior Notes and our credit amenities. Portions Inside the table recurrent scheduled future maturities of debt principal for the intervals level outd.
The curiosity costs for our credit amenities are based mostly on excellent
borrowings as of September 30, 2022. Exact curiosity expense will probably be
greater due to the seasonality of our enterprise and associated greater common
borrowings.
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Purchase obligations primarily recurrent dedications for suppliess Utilized in our
manufacturing course ofes, collectively with urea and packaging, As properly as to dedications
for wrestleehouse providers, grass seed, advertising providers And information
know-how providers which comprise the unsituational buy obligations
disclosed in "Notice 19. COMMITMENTS" of the Notes to Consolidated Financial
Statements embraced On This type 10-K.
Completely different obligations embrace actuarially decided retiree revenue costs and
pension funding to Adjust to native funding requirements. Pension funding
requirements past fiscal 2022 are based mostly on preliminary estimates using
actuarial assumptions decided as of September 30, 2022. These quantitys
recurrent anticipateed costs through 2032. Based on the accounting guidelines for
outlined revenue pension plans and retirement well being care plans, the liabilities
mirrored in our Consolidated Stcapability Sheets differ from these anticipateed future
costs (see Notes to Consolidated Financial Statements embraced On this
Type 10-K). The above table excludes liabilities for unacknowledged tax advantages
and insurance coverage accruals as We're unable to estimate the timing of costs for
These problems.
Non-GAAP Meaassembleives
Use of Non-GAAP Meaassembleives
To complement the monetary meaassembleives studyy in accordance with U.S. usually
settle fored accounting guidelines ("GAAP"), we use sure non-GAAP monetary
meaassembleives. The reconciliations Of these non-GAAP monetary meaassembleives to In all probcapability the most
immediately comparable monetary meaassembleives calculated and launched in accordance
with GAAP are proven Inside The subsequent tables. These non-GAAP monetary meaassembleives
Should not be confacetred in isolation from, Instead to or superior to,
monetary meaassembleives reported in accordance with GAAP. Furtherextra, these non-GAAP
monetary meaassembleives have restrictations in that They do not mirror all the merchandises
Related to the operations of the enterprise as decided in accordance with
GAAP. Completely different corporations might calculate equally titled non-GAAP monetary meaassembleives
in A particular method than us, restricting the usefulness of these meaassembleives for comparative
features.
Together with GAAP monetary meaassembleives, we use these non-GAAP monetary meaassembleives
To guage our efficiency, work together in monetary and operational planning,
decide incentive compensation and monitor compliance with the monetary
covenants includeed in our borrowing agreements beset off we confacetr thOn these
non-GAAP monetary meaassembleives current further perspective on and, in some
circumstances are extra intently corassociated to, the efficiency of our beneathlying,
ongoing enterprise.
We confacetr thOn these non-GAAP monetary meaassembleives are useful to buyers in
their evaluation of our working efficiency and valuation. As properly as, these
non-GAAP monetary meaassembleives tackle questions routinely acquired from analysts
and buyers and, So as To Enassembleive That Every one buyers have entry to The identical
knowledge, We now have decided that It is relevant to make this knowledge available to
all buyers. Non-GAAP monetary meaassembleives exclude the influence of sure merchandises
(as further described under) And current complemental information relating to
working efficiency. By disclosing these non-GAAP monetary meaassembleives, we
intfinish To current buyers with a complemental comparcapability of working end outcomes
and trfinishs for the intervals launched. We confacetr these non-GAAP monetary
meaassembleives are furtherly useful to buyers as such meaassembleives permit buyers to
consider efficiency using The identical metrics that we use To guage previous
efficiency and prospects for future efficiency. We view free money circulate as an
important meaassembleive Beset off it's one problem Utilized in figuring out The quantity of
money available for dividfinishs and discretionary funding.
Exclusions from Non-GAAP Financial Meaassembleives
Non-GAAP monetary meaassembleives mirror modifications based mostly on The subsequent merchandises:
•Impairments, That are excluded beset off They do not happen in or mirror the
odd course of our ongoing enterprise operations and their exclusion end outcomes
in a metric That currents complemental Details Regarding the sustaincapability of
working efficiency.
•Restructuring and worker severance prices, which embrace costs for discrete
tasks or transactions that basically change our operations and are
excluded beset off They do not Appear to be An factor of The proceedd operations of our beneathlying
enterprise, Which incorpoprices regular levels of refunding Inside the enterprise.
•Costs associated to refinancing, That are excluded beset off They do not typically
happen Inside The conventional course of enterprise And ought to obscure analysis of trfinishs and
monetary efficiency. Furtherextra, The quantity and frequency of These Sort of
costs Isn't fixed and is confacetrably influenceed by the timing and measurement
of debt financing transactions.
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•Disproceedd operations and other unbroadspstudy merchandises, which embrace prices or obtains
associated to discrete tasks or transactions and are excluded beset off They're
not comparable from one interval to the subsequent And are not An factor of The proceedd
operations of our beneathlying enterprise.
The tax effect for every of the merchandises listed above Is set using the tax
price and other tax attributes relevant to the merchandise and the jurisdiction(s) in
which the merchandise is doced.
Definitions of Non-GAAP Financial Meaassembleives
The reconciliations under embrace The subsequent monetary meaassembleives That are not
calculated in accordance with GAAP:
•Adjusted income (loss) from operations: Income (loss) from operations excluding
impairment, restructuring and other costs / recowlies.
•Adjusted income (loss) from persevering with operations: Income (loss) from persevering with operations excluding impairment, restructuring and other costs / recowlies, prices associated to refinancing and sure other non-working income / expense merchandises, every internet of tax. •Adjusted internet income (loss) attributable to managementling curiosity from persevering with operations: Net income (loss) attributable to managementling curiosity excluding impairment, restructuring and other costs / recowlies, prices associated to refinancing, sure other non-working income / expense merchandises and disproceedd operations, every internet of tax. •Adjusted diluted income (loss) per broadspstudy share from persevering with operations: Diluted internet income (loss) per broadspstudy share from persevering with operations excluding impairment, restructuring and other costs / recowlies, prices associated to refinancing and sure other non-working income / expense merchandises, every internet of tax. •Adjusted EBITDA: Net income (loss) earlier than curiosity, taxes, depreciation and amortization As properly as to sure other merchandises such As a Outcome of the influence of the cumulative effect of modifications in accounting, prices Related to debt refinancing and other non-recurring or non-money merchandises have an effect oning internet income (loss). The currentation of adjusted EBITDA Is meant to be According to the calculation of that meaassembleive as required by our borrowing ardifferments, and used to calculate a leverage ratio (most of 6.25 at September 30, 2022) and an curiosity cowlage ratio (minimal Of three.00 for the twelve months fulld September 30, 2022).
•Free money circulate: Net money currentd by (Utilized in) working actions scale againd by
fundings in property, plant and gear.
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Reconciliations of the non-GAAP monetary meaassembleives to In all probcapability the most immediately
comparable GAAP monetary meaassembleives are launched Inside The subsequent table:
Year Ended September 30,
2022 2021 2020
Income (loss) from operations (GAAP) $ (434.0)$ 723.0$ 585.2
Impairment, restructuring and other costs 852.2 29.0 16.8
Adjusted income from operations (Non-GAAP) $ 418.2 $
752.1 $ 602.0
Income (loss) from persevering with operations (GAAP) $ (437.5) $
517.3 $ 386.9 Impairment, restructuring and other costs 852.2 29.0 16.8 Costs associated to refinancing - - 15.1 Completely different non-working (income) expense, internet - (12.6) 0.8 Adjustment to income tax expense (revenue) from persevering with operations (184.7) (5.1) (6.7) Adjusted income from persevering with operations (Non-GAAP) $ 230.0$ 528.6$ 412.9 Net income (loss) attributable to managementling curiosity (GAAP) $ (437.5) $
512.5 $ 387.4
(Income) loss from disproceedd operations, internet of
tax
- 3.9 (1.7) Impairment, restructuring and other costs 852.2 29.0 16.8 Costs associated to refinancing - - 15.1 Completely different non-working (income) expense, internet - (12.6) 0.8 Adjustment to income tax expense (revenue) from persevering with operations (184.7) (5.1) (6.7) Adjusted internet income attributable to managementling curiosity from persevering with operations (Non-GAAP) $ 230.0$ 527.7$ 411.7 Diluted income (loss) per broadspstudy share from persevering with operations (GAAP) $ (7.88)$ 9.03$ 6.78 Impairment, restructuring and other costs 15.19 0.51 0.30 Costs associated to refinancing - - 0.27 Completely different non-working (income) expense, internet - (0.22) 0.01 Adjustment to income tax expense (revenue) from persevering with operations (3.29) (0.09) (0.12) Adjusted diluted income per broadspstudy share from persevering with operations (Non-GAAP) $ 4.10 $
9.23 $ 7.24
Net money (Utilized in) currentd by working actions
(GAAP)
$ (129.0)$ 271.5$ 558.0 Investments in property, plant and gear (113.5) (106.9) (62.7) Free money circulate (Non-GAAP) $ (242.5) $
164.6 $ 495.3
The sum of the factors might not equal The complete due to rounding.
As a Outcome of of GAAP internet loss for fiscal 2022, diluted common broadspstudy shares Utilized in
the GAAP diluted loss per broadspstudy share calculation have been 55.5 million, which
excluded potential Common Shares of 0.6 million Since the effect of their
inclusion Can be anti-dilutive. Diluted common broadspstudy shares used Inside the
fiscal 2022 non-GAAP adjusted diluted income per broadspstudy share calculation, and
the calculation of the fiscal 2022 earnings per share influence from the GAAP to
non-GAAP reconciling merchandises, have been 56.1 million, which embraced dilutive potential
Common Shares of 0.6 million.
We view our credit facility as supplies to our capability to fund operations,
notably in mild of our seasonality. Check with "ITEM 1A. RISK FACTORS -
Risks Related to Our M&A, Lending and Financing Activities - Our indebtedness
could restrict our flexibility and antagonisticly have an effect on our monetary situation" of
This type 10-K for a extra full discussion of the hazards Related to our
debt and our credit facility and the restrictive covenants therein. Our capability
to geneprice money circulates enough to cowl our debt service prices Is important
to our capability To take care of our borrowing performance. We confacetr that Adjusted
EBITDA currents further information for figuring out our capability To fulfill debt
service requirements. The currentation of Adjusted EBITDA herein Is meant to
be According to the calculation of that meaassembleive as required by our borrowing
ardifferments, and used to calculate a leverage ratio (most of 6.25 at
September 30, 2022) and an curiosity cowlage ratio (minimal Of three.00 for the
twelve months fulld September 30, 2022). The leverage ratio is calculated as
common total indebtedness divided by Adjusted EBITDA. The curiosity cowlage
ratio is calculated as Adjusted EBITDA divided by curiosity expense, as described
Inside the Sixth A&R Credit rating Settlement, and excludes prices associated to refinancings.
Check with "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
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OPERATIONS – Liquidity and Capital Resupplys – Borrowing Settlements” of this
Type 10-K for extra information relating to our credit facility.
Beginning in fiscal 2022, egive upy in income / Lack of unconsolidated associates is excluded from the calculation of non-GAAP Adjusted EBITDA. This exclusion is According to the calculation of that meaassembleive as required by The corpoprice's borrowing ardifferments. This alteration has been mirrored Inside the calculation of Adjusted EBITDA for fiscal 2022. The prior interval quantitys Have not been recategorized To evolve to the revised calculation. Our calculation of Adjusted EBITDA Does not recurrent And will not be confacetred as An alternate selection to internet income or money circulates from working actions as decided by GAAP. We make no illustration or assertion that Adjusted EBITDA is indicative of our money circulates from working actions or end outcomes of operations. We have currentd a reconciliation of Adjusted EBITDA to internet income solely for the objective of complying with SEC regulations And by no means as An indication that Adjusted EBITDA is a substitute meaassembleive for internet income.
A reconciliation of internet income to Adjusted EBITDA is as Adjust tos:
Year Ended September 30,
2022 2021 2020
Net income (loss) (GAAP) $ (437.5)$ 513.4$ 388.6
Income tax expense (revenue) from persevering with
operations (120.6) 159.8 123.7
Income tax expense (revenue) from disproceedd
operations - (8.4) 0.1
Loss on contingent confacetration from disproceedd
operations
- 12.2 - Costs associated to refinancing - - 15.1 Interest expense 118.1 78.9 79.6 Depreciation 68.1 62.9 62.2 Amortization 37.1 30.9 32.5 Impairment, restructuring and other costs from persevering with operations 852.2 29.0 16.8 Impairment, restructuring and other costs (recowlies) from disproceedd operations - - (3.1) Egive upy in Lack of unconsolidated associates 12.9 - - Completely different non-working (income) expense, internet - (12.6) 0.8 Interest income (6.7) (4.1) (7.6) Share-based mostly compensation expense 34.3 40.6 57.9 Adjusted EBITDA (Non-GAAP) $ 557.9$ 902.6$ 766.6 Regulatory Matters We are topic to native, state, federal and overseas environmental shieldion regulations and regulations with respect to our enterprise operations and confacetr We're working in substantial compliance, or taking actions Aimed towrestleds making sure compliance with, such regulations and regulations. We are involved in a quantity of authorized actions with numerous governmental enterprisees associated to environmental problems. While It is troublesome to quantify the potential monetary influence of actions involving these environmental problems, notably remediation prices at waste disposal websites and future capital expfinishitures for environmental management gear, Inside the opinion of management, The final phrase authorized obligation arising from such environmental problems, Confacetring established accruals, Isn't anticipateed to have A supplies effect on our monetary situation, end outcomes of operations or money circulates. However, there Might be no assurance thOn the decision Of these problems Will not suppliesly have an effect on our future quarterly or annual end outcomes of operations, monetary situation or money circulates. Additional information on environmental problems have an effect oning us is currentd in "ITEM 1. BUSINESS - Regulatory Confacetrations" and "ITEM 3. LEGAL PROCEEDINGS" of This type 10-K.
Essential Accounting Policies and Estimates
The preparation Of mointernetary statements requires management To make the most of judgment and
make estimates Which have an effect on the reported quantitys of asmannequins, liabilities, incomes
and funds and associated discloassembleives of contingent asmannequins and liabilities. We
consider our estimates on an ongoing basis. By their nature, these judgments are
topic to unsurety. We base our estimates on historic expertise and on
numerous other supplys that we confacetr to be affordable beneath the circumstances.
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Certain accounting insurance coverage policies are notably vital, collectively with these
associated to income recognition, income taxes and goodwill and intangible asmannequins.
Our critical accounting insurance coverage policies are considered intervalically with the Audit
Committee of the Board of Directors of Scotts Miracle-Gro.
Revenue Recognition and Professionalmotional Allowances
Our income is primarily genepriced from gross sales of mannequined And particular personal label regulationn and backyard care and indoor and hydroponic backyarding fulld merchandise. Professionalduct gross sales are acknowledged at a Time restrict when management of merchandise changes to buyers and We now Have not any further obligation To current providers associated to such merchandise. Sales are typically acknowledged when merchandise are destayred to or picked up by the buyer. We Are often the principal in a transaction and, subsequently, primarily doc income on a gross basis. Revenue for product gross sales is doced internet of gross sales returns and permitances. Revenues are meaassembleived based mostly on The quantity of confacetration that we anticipate to acquire as derived from An inventory worth, scale againd by estimates for variable confacetration. Variable confacetration embraces The worth of current and persevering with promotional packages and anticipateed gross sales returns. Our promotional packages primarily embrace rebates based mostly on gross sales quantitys, in-retailer promotional permitances, cooperative promoting packages, direct consumer rebate packages and particular buying for incentives. The worth of promotional packages is estimated confacetring all truthfully available information, collectively with current anticipateations and historic expertise. Professionalmotional prices (collectively with permitances and rebates) incurred By way of the yr are expensed to interim intervals in relation to incomes and are doced as a discount of internet gross sales. Professionalvisions for estimated returns and permitances are doced On the time income is acknowledged based mostly on historic prices and are intervalically adjusted for acknowledged modifications in return levels. Delivery and dealing with prices are accounted for as contract obtainment prices and embraced Inside the "Cost of gross sales" line Inside the Consolidated Statements of Operations. We exclude from income any quantitys collected from buyers for gross sales or other taxes.
Income Taxes
Our annual efficient tax price is established based mostly on our pre-tax income (loss), statutory tax prices and the tax influences Of problems dealt with in A particular method for tax features than for monetary reporting features. We doc income tax liabilities using acknowledged obligations and estimates of potential obligations. A deferred tax asset or authorized obligation is acknowledged wheby no means there are future tax end outcomes from current short-term variations and working loss and tax credit carryforwards. Valuation permitances are used To Reduce deferred tax asmannequins to the balances that are extra probably than To not be realized. We should make estimates and judgments on future taxable income, confacetring possible tax planning stpricegies and taking Under confacetration current particulars and circumstances, To Search out out The proper valuation permitances. As quickly as we decide that deferred tax asmannequins Might be realized in gooder or much lesser quantitys than doced, the asset balance and Consolidated Statements of Operations mirror the change Inside the interval such detime periodination is made. As a Outcome of of modifications in particulars and circumstances and the estimates and judgments involved in figuring out The proper valuation permitances, variations between actual future events and prior estimates and judgments could End in modifications To these valuation permitances. We use an estimate of our annual efficient tax price at every interim interval based mostly on the particulars and circumstances available In the meantime, whereas the actual efficient tax price is calculated at yr-finish.
Goodwill and Indefinite-Lived Intangible Asmannequins
We have vital fundings in intangible asmannequins and goodwill. We perform
our annual goodwill and indefinite-stayd intangible asset look ating as of the
first day of our fiscal fourth quarter or extra frequently if circumstances
level out potential impairment. In our analysis of impairment for goodwill and
indefinite-stayd intangible asmannequins, we perform both an preliminary qualitative or
quantitative analysis for every of our reporting mannequins and indefinite-stayd
intangible asmannequins. Elements confacetred Inside the qualitative look at embrace working
end outcomes As properly as to new events and circumstances influenceing the operations or money
circulates of the reporting unit or indefinite-stayd intangible asmannequins. For the
quantitative look at, the consider for impairment of goodwill and indefinite-stayd
intangible asmannequins Is predicated on A combination of income-based mostly strategyes,
collectively with the aid-from-royalty method for indefinite-stayd commerce names, and
market-based mostly strategyes. Whether It is decided that an impairment has happenred, an
impairment loss is acknowledged for The quantity by which the carrying worth of the
reporting unit or intangible asset exceeds its estimated truthful worth.
Under the income-based mostly strategy, we decide truthful worth using A scale againd money
circulate strategy that requires vital judgment with respect to income and
revenuecapability progress prices, based mostly upon annual budgets and prolongeder-differ stpricegic
plans, and The selection of an relevant low cost price. These budgets and
plans are used for inner features and are furtherly The idea for communication
with outfacet events about future enterprise trfinishs. Under the market-based mostly
strategy, we decide truthful worth by evaluating our reporting mannequins to comparable
companies or guideline corporations whose securities are actively commerced in public
markets. We furtherly use The rule transaction method To Search out out truthful worth
based mostly on pricing multiples derived from the sale of corporations Which are comparable
to our reporting mannequins.
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Desk of Contents
THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in hundreds of hundreds, besides per share knowledge)
Fair worth estimates employed in our annual impairment consider of
indefinite-stayd intangible asmannequins and goodwill have been decided using fashions
involving a quantity of assumptions. Changes in our assumptions could suppliesly
influence our truthful worth estimates. Assumptions critical to our truthful worth
estimates have been: (i) low cost prices Utilized in figuring out the truthful worth of the
reporting mannequins and intangible asmannequins; (ii) royalty prices Utilized in our intangible
asset valuations; (iii) enterpriseed future incomes and revenuecapability used Inside the
reporting unit and intangible asset fashions; and (iv) enterpriseed prolonged-time period progress
prices used Inside the derivation of time periodinal yr worths. These and other
assumptions are influenceed by financial situations and anticipateations of management
And ought to change Finally based mostly on interval particular particulars and circumstances.
While we confacetr the assumptions we used to estimate future money circulates are
affordable, there Might be no assurance thOn the anticipateed future money circulates will
be realized. As a Outcome, impairment costs that probably would have been
acknowledged in earlier intervals May be not acknowledged till later intervals if
actual end outcomes deviate unfavorably from earlier estimates. Using different
assumptions would enhance or decrease low costed money circulates or earnings
enterpriseions and, subsequently, could change impairment detime periodinations.
During fiscal 2022, our Hawthorne reporting unit expertised antagonistic monetary
end outcomes due To diminishd gross sales quantity And greater transportation and wrestleehousing
prices. Sales quantity decreased due to an overcurrent of hashish, which
confacetrably decreased hashish completesale prices and indoor and outdoors
hashish cultivation. As a Outcome, we revised our inner forecasts Referring to
our Hawthorne reporting unit. We concluded thOn the modifications in circumstances in
this reporting unit and the decline Inside The corpoprice's market capitalization
set offed The want for an interim impairment consider of its goodwill By way of the
third quarter of fiscal 2022. We elected to bypass the qualitative evaluation
and perform quantitative interim goodwill impairment look ating for our Hawthorne
reporting unit. We up So far our assumptions from prior intervals To incorpoprice the
prolongeder interval and enhanced significance of decrease gross sales quantitys And worth
will enhance. This quantitative look at Outcomeed in a non-money, pre-tax goodwill
impairment cost of $522.4 associated to our Hawthorne reporting unit, which was
acknowledged By way of the third quarter of fiscal 2022 Inside the "Impairment,
restructuring and other" line Inside the Consolidated Statements of Operations. The
carrying worth of goodwill of our Hawthorne reporting unit, after recognizing
the impairment, is zero. The estimated truthful worth of our Hawthorne reporting
unit was based mostly upon an equal weighting of the income-based mostly and market-based mostly
strategyes, using estimated money circulates and a time periodinal worth, low costed at a
price of return that mirrors the relative hazard of the money circulates, As properly as to
valuation multiples derived from comparable publicly commerced corporations Which are
utilized to working efficiency of the reporting unit. The truthful worth estimate
make the most ofs vital unobservable enters and, subsequently, recurrents a Level 3
truthful worth meaassembleivement. While we confacetr our assumptions to be affordable and
relevant, They're complicated and topicive. Check with "Notice 5. GOODWILL AND
INTANGIBLE Belongings, NET" for extra information.
At September 30, 2022, goodwill totaled $254.0, with $243.9, zero and $10.1 for
our U.S. Shopper, Hawthorne and Completely different segments, respectively. We carried out
annual impairment look ating as of The primary day of our fiscal fourth quarter and,
Afacet from the Hawthorne reporting unit in fiscal 2022, concluded
ThOn there have been no impairments of goodwill As a Outcome of the estimated truthful worth Of every
reporting unit exceeded its carrying worth. Based on the end outcomes of the annual
quantitative analysis for fiscal 2022, the truthful worths of our U.S. Shopper
and Completely different segment reporting mannequins exceeded their respective carrying worths by
181% and 71%, respectively. A 100 basis level change Inside the low cost price would
not have Outcomeed in an impairment for any of our reporting mannequins.
At September 30, 2022, indefinite-stayd intangible asmannequins consisted of commerce
names of $168.2 and the Roundup® advertising agreement amfinishment of $155.7. Based
on the end outcomes of the annual analysis for fiscal 2022, the truthful worths of our
indefinite-stayd intangible asmannequins exceeded their respective carrying worths in
A selection of 11% to over 1,100%. A 100 basis level change Inside the low cost price
Wouldn't have Outcomeed in an impairment of any of our indefinite-stayd
intangible asmannequins.
Completely different Significant Accounting Policies
Completely different vital accounting insurance coverage policies, primarily these with decrease levels of unsurety than these talked about above, are furtherly critical to beneathstanding the consolidated monetary statements. The Notes to Consolidated Financial Statements embraced On This type 10-K include further information associated to our accounting insurance coverage policies, collectively with recent accounting pronouncements, and ought to be study Aprolongedside facet this discussion.
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