SCOTTS MIRACLE-GRO CO

Previous wording

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of our financial condition and results of operations by focusing on changes in certain key measures from year-to-year. This MD&A includes the following sections:

Current wording

The purpose of this Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is to provide an understanding of our financial condition and results of operations by focusing on changes in certain key measures from year-to-year. This MD&A includes the following sections:

Previous wording

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

Current wording

Through our Hawthorne segment, we are a leading provider of nutrients, lighting and other materials used for indoor and hydroponic gardening in North America. Our key brands include General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Gro Pro®, Mother Earth®, Grower’s Edge®, HydroLogic Purification System®and Cyco®.

Previous wording

During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. These changes and initiatives include reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. We have also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce our on hand inventory to align with the reduced network capacity. We expect these efforts to deliver run-rate annualized savings of at least $300.0, nearly all of which is expected to be realized by the end of fiscal 2024. The restructuring initiative is expected to improve our gross margin rate and decrease SG&A. During the three months ended December 30, 2023, we recorded recoveries of $5.8 in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations and incurred costs of $2.0 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with this restructuring initiative, primarily related to the sale of certain previously-reserved inventory at amounts in excess of estimated net realizable value, partially offset by employee termination benefits and facility closure costs. Costs incurred from the inception of this restructuring initiative through December 30, 2023 were $290.5.

Current wording

During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. These changes and initiatives include reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. During the second quarter of fiscal 2024, we commenced plans to close additional Hawthorne distribution centers. We have also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce our on hand inventory to align with the reduced network capacity. We expect these efforts to deliver run-rate annualized savings of at least $300.0, nearly all of which is expected to be realized by the end of fiscal 2024. The restructuring initiative is expected to improve our gross margin rate and decrease SG&A. During the three and six months ended March 30, 2024, we incurred costs of $74.9 and $69.1, respectively, in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations and $2.0 and $4.1, respectively, in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with this restructuring initiative primarily related to inventory write-down charges, employee termination benefits, facility closure costs and impairment of right-of-use assets and property, plant and equipment. Costs incurred from the inception of this restructuring initiative through March 30, 2024 were $367.3.

Previous wording

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

Current wording

During the three and six months ended March 30, 2024, our Hawthorne segment continued to experience adverse financial results primarily due to decreased sales volume. The decrease in sales volume is attributable to an oversupply of cannabis, which significantly decreased cannabis wholesale prices and indoor and outdoor cannabis cultivation. The oversupply has been driven by increased licensing activity across the U.S., significant capital investment in the cannabis production marketplace over the past several years, inconsistent enforcement of regulations and the market impacts of the COVID-19 pandemic. We expect that the oversupply of cannabis will continue to adversely impact our Hawthorne segment. If the oversupply of cannabis persists longer, or is more significant than we expect, our results of operations could be materially and adversely impacted for a longer period and to a greater extent than we currently anticipate.

Previous wording

During the three months ended December 30, 2023, we continued to experience the impacts of cost inflation, resulting in persistently high manufacturing costs, and volatile commodity costs. Higher costs over the past several years required us to implement significant price increases across our business in fiscal 2022 and 2023, and we expect targeted price reductions on certain products during fiscal 2024. Inflationary headwinds, volatile commodity costs and higher interest rates are expected to continue. The impact that these trends will continue to have on our operational and financial performance will depend on future developments, including inflationary and macroeconomic conditions and their impact on consumer behavior, which are difficult to predict.

Current wording

During the three and six months ended March 30, 2024, we continued to experience the impacts of cost inflation and uncertain macroeconomic and geopolitical conditions (including the ongoing conflicts in Ukraine and the Middle East), resulting in persistently high manufacturing costs, higher interest rates and volatile commodity costs. Higher costs over the past several years required us to implement significant price increases across our business in fiscal 2022 and 2023, and we have implemented targeted price reductions on certain products during fiscal 2024. We expect inflationary headwinds, volatile commodity costs and elevated interest rates to continue. The impact that these trends will continue to have on our operational and financial performance will depend on future developments, including inflationary, macroeconomic and geopolitical conditions, and their potential impact on consumer behavior, which are difficult to predict.

Previous wording

Net sales for the three months ended December 30, 2023 were $410.4, a decrease of 22.1% from net sales of $526.6 for the three months ended December 31, 2022. Factors contributing to the change in net sales are outlined in the following table:

Current wording

Net sales for the three months ended March 30, 2024 were $1,525.4, a decrease of 0.4% from net sales of $1,531.5 for the three months ended April 1, 2023. Net sales for the six months ended March 30, 2024 were $1,935.8, a decrease of 5.9% from net sales of $2,058.1 for the six months ended April 1, 2023. Factors contributing to the change in net sales are outlined in the following table:

Previous wording

•decreased pricing in our U.S. Consumer, Hawthorne and Other segments.

Current wording

•decreased pricing in our U.S. Consumer and Hawthorne segments;

Previous wording

The following table shows the major components of cost of sales:

Current wording

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

Previous wording

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

Current wording

•lower material costs in our U.S. Consumer segment;

Previous wording

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

Current wording

As a percentage of net sales, our gross margin rate was 30.4% and 26.9% for the three months ended March 30, 2024 and April 1, 2023, respectively, and was 27.2% and 24.7% for the six months ended March 30, 2024 and April 1, 2023, respectively. Factors contributing to the change in gross margin rate are outlined in the following table:

Previous wording

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

Current wording

The increase in gross margin rate for the three months ended March 30, 2024 as compared to the three months ended April 1, 2023 was primarily driven by:

Previous wording

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

Current wording

•lower material costs in our U.S. Consumer segment;

Previous wording

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

Current wording

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

Previous wording

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

Current wording

•lower commission and higher reimbursements associated with the Roundup® marketing agreement.

Previous wording

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

Current wording

•unfavorable leverage of fixed costs driven by lower sales in our Hawthorne segment;

Previous wording

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

Current wording

SG&A decreased $7.6, or 4.1%, during the three months ended March 30, 2024 as compared to the three months ended April 1, 2023. Advertising expense increased $9.5, or 18.1%, due to higher media spending in our U.S. Consumer segment. Share-based compensation expense, which excludes certain advertising expenses paid for in Common Shares, decreased $10.4, or 36.4%, driven by a decrease in short-term variable incentive compensation provided to employees as share-based awards. Amortization expense decreased $2.2, or 38.6%, driven by the impairment of certain Hawthorne segment intangible assets during fiscal 2023. Other SG&A decreased $4.4, or 4.8%, driven by reductions in staffing levels and other cost-reduction initiatives. We revised our historical presentation of certain expenses for the three months ended April 1, 2023. Expenses totaling $8.8 for the three months ended April 1, 2023 were previously classified as advertising expense and were revised to be classified as other selling, general and administrative expense in the table above.

Previous wording

During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. These changes and initiatives include reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. We have also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce our on hand inventory to align with the reduced network capacity. During the three months ended December 30, 2023, we recorded recoveries of $3.7 associated with this restructuring initiative, primarily related to the sale of certain previously-reserved inventory at amounts in excess of estimated net realizable value, partially offset by employee termination benefits and facility closure costs. We incurred costs of $2.0 in our U.S. Consumer segment and recorded recoveries of $7.7 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 30, 2023. We recorded recoveries of $0.8 in our U.S. Consumer segment and incurred costs of $0.3 in our Hawthorne segment and $2.4 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 30, 2023. During the three months ended December 31, 2022, we incurred costs of $14.5 associated with this restructuring initiative primarily related to employee termination benefits, facility closure costs and impairment of property, plant and equipment. We incurred costs of $1.0 in our U.S. Consumer segment and $8.4 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 31, 2022. We incurred costs of $0.2 in our U.S. Consumer segment, $1.0 in our Hawthorne segment, $0.1 in our Other segment and $3.8 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended December 31, 2022. Costs incurred since the inception of this restructuring initiative through December 30, 2023 were $217.1 for our Hawthorne segment, $46.7 for our U.S. Consumer segment, $1.6 for our Other segment and $25.1 for Corporate. We continue to evaluate additional network and organizational changes, which, if executed, may result in additional restructuring charges in future periods.

Current wording

During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. These changes and initiatives include reducing the size of our supply chain network, reducing staffing levels and implementing other cost-reduction initiatives. During the second quarter of fiscal 2024, we commenced plans to close additional Hawthorne distribution centers. We have also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce our on hand inventory to align with the reduced network capacity. During the three and six months ended March 30, 2024, we incurred costs of $77.0 and $73.2, respectively, associated with this restructuring initiative primarily related to inventory write-down charges, employee termination benefits, facility closure costs and impairment of right-of-use assets and property, plant and equipment. We recorded recoveries of $0.5 and incurred costs of $1.4 in our U.S. Consumer segment and incurred costs of $75.4 and $67.8 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended March 30, 2024, respectively. We recorded recoveries of $0.1 and $0.9 in our U.S. Consumer segment and incurred costs of $1.9 and $2.3 in our Hawthorne segment, $0.2 and $0.3 in our Other segment and $0.0 and $2.4 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three and six months ended March 30, 2024, respectively. Costs incurred from the inception of this restructuring initiative through March 30, 2024 were $294.4 for our Hawthorne segment, $46.0 for our U.S. Consumer segment, $1.8 for our Other segment and $25.1 at Corporate.

Previous wording

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

Current wording

During the three and six months ended March 30, 2024, we recorded a gain of $0.0 and $12.1, respectively, in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with a payment received in resolution of a dispute with the former ownership group of a business that was acquired in fiscal 2022. This payment was classified as an operating activity in the Condensed Consolidated Statements of Cash Flows.

Previous wording

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

Current wording

Equity in loss of unconsolidated affiliates associated with Bonnie Plants, LLC was $7.0 and $7.3 for the three months ended March 30, 2024 and April 1, 2023, respectively; and was $29.5 and $18.7 for the six months ended March 30, 2024 and April 1, 2023, respectively. We anticipated a net loss for Bonnie Plants, LLC for the three and six months ended March 30, 2024 due to the seasonal nature of its business, in which sales are heavily weighted to the spring and summer selling periods during our third fiscal quarter. During the three and six months ended March 30, 2024, equity in loss of unconsolidated affiliates also included a pre-tax impairment charge of $0.0 and $10.4, respectively, associated with our investment in Bonnie Plants, LLC.

Previous wording

Interest expense was $42.8 for the three months ended December 30, 2023, an increase of 0.2% compared to $42.7 for the three months ended December 31, 2022. The increase was driven by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 80 basis points, partially offset by lower average borrowings of $428.9. The increase in our weighted average interest rate was primarily driven by higher borrowing rates on the Sixth A&R Credit Agreement. The decrease in average borrowings was primarily driven by net debt repayments during fiscal 2023 that resulted in a lower beginning debt balance for the three months ended December 30, 2023 as well as the impact of the expiration of the Receivables Facility and the execution of the Master Receivables Purchase Agreement.

Current wording

Interest expense was $44.1 for the three months ended March 30, 2024, a decrease of 8.7% as compared to $48.3 for the three months ended April 1, 2023; and was $86.8 for the six months ended March 30, 2024, a decrease of 4.6% as compared to $91.0 for the six months ended April 1, 2023. For the three months ended March 30, 2024, the decrease was driven by lower average borrowings of $633.5, partially offset by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 60 basis points. For the six months ended March 30, 2024, the decrease was driven by lower average borrowings of $530.1, partially offset by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 70 basis points. The decrease in average borrowings was driven by our focus on using available cash flow to reduce our debt as well as the impact of the expiration of the Receivables Facility and the execution of the Master Receivables Purchase Agreement. The increase in our weighted average interest rate was primarily driven by higher borrowing rates on the Sixth A&R Credit Agreement.

Previous wording

The effective tax rates for the three months ended December 30, 2023 and December 31, 2022 were 29.5% and 31.4%, respectively. The effective tax rate used for interim purposes is based on our best estimate of factors impacting the effective tax rate for the full fiscal year. Factors affecting the estimated effective tax rate include assumptions as to income by jurisdiction (domestic and foreign), the availability and utilization of tax credits and the existence of elements of income and expense that may not be taxable or deductible. The estimated effective tax rate is subject to revision in later interim periods and at fiscal year-end as facts and circumstances change during the course of the fiscal year. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year-end.

Current wording

The effective tax rates for the six months ended March 30, 2024 and April 1, 2023 were 27.1% and 19.5%, respectively. The increase in the effective tax rate was driven by favorable discrete items recorded during the six months ended April 1, 2023 which did not reoccur in the six months ended March 30, 2024. The effective tax rate used for interim purposes is based on our best estimate of factors impacting the effective tax rate for the full fiscal year. Factors affecting the estimated effective tax rate include assumptions as to income by jurisdiction (domestic and foreign), the availability and utilization of tax credits and the existence of elements of income and expense that may not be taxable or deductible. The estimated effective tax rate is subject to revision in later interim periods and at fiscal year-end as facts and circumstances change during the course of the fiscal year. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year-end.

Previous wording

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

Current wording

Diluted average common shares used in the diluted net income per common share calculation for the three months ended March 30, 2024 and April 1, 2023 were 57.4 million and 56.5 million, respectively, which included dilutive potential Common Shares of 0.6 million and 0.5 million, respectively. The increase in diluted average common shares was primarily the result of the exercise and issuance of share-based compensation awards.

Previous wording

Net loss was $80.5, or $1.42 per diluted share, for the three months ended December 30, 2023 compared to $64.7, or $1.17 per diluted share, for the three months ended December 31, 2022. The increase was driven by lower net sales, a decrease in gross margin rate and higher equity in loss of unconsolidated affiliates, partially offset by lower impairment, restructuring and other charges and lower SG&A.

Current wording

Net income was $77.0, or $1.34 per diluted share, for the six months ended March 30, 2024 as compared to $44.7, or $0.80 per diluted share, for the six months ended April 1, 2023. The increase was driven by lower impairment, restructuring and other charges, lower SG&A and lower interest expense, partially offset by lower net sales, higher other expense, higher equity in loss of unconsolidated affiliates and higher income tax expense.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

U.S. Consumer segment net sales were $1,379.8 in the second quarter of fiscal 2024, an increase of 1.7% from second quarter of fiscal 2023 net sales of $1,357.4; and were $1,686.5 for the first six months of fiscal 2024, a decrease of 2.3% from the first six months of fiscal 2023 net sales of $1,726.3. For the second quarter of fiscal 2024, the increase was driven by higher sales volume of 3.5%, partially offset by decreased pricing of 1.8%. For the six months ended March 30, 2024, the decrease was driven by decreased pricing of 2.1% and flat sales volume. The increase in sales volume for the second quarter of fiscal 2024 was driven by soils and mulch products, partially offset by lower sales volume for fertilizer, grass seed and plant food products. Flat sales volume for the six months ended March 30, 2024 was comprised of the net impact of higher sales volume for soils and mulch products, offset by lower sales volume for fertilizer, grass seed and plant food products.

Previous wording

Hawthorne Segment Loss was $9.7 in the first quarter of fiscal 2024, a decrease from first quarter of fiscal 2023 Segment Loss of $16.2. The decrease was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.

Current wording

Hawthorne Segment Loss was $3.4 in the second quarter of fiscal 2024 as compared to $16.8 for the second quarter of fiscal 2023; and Segment Loss was $13.0 for the first six months of fiscal 2024 as compared to $33.0 for the first six months of fiscal 2023. For the three and six months ended March 30, 2024, the improvement was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.

Previous wording

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

Current wording

Other Segment Profit was $6.4 in the second quarter of fiscal 2024, a decrease of 56.2% from second quarter of fiscal 2023 Segment Profit of $14.6; and Segment Profit was $1.2 for the first six months of fiscal 2024, a decrease of 92.5% from the first six months of fiscal 2023 Segment Profit of $16.0. For the three and six months ended March 30, 2024, the decrease was driven by lower net sales and a lower gross margin rate.

Previous wording

Corporate expenses were $26.0 in the first quarter of fiscal 2024, a decrease of 18.5% from first quarter of fiscal 2023 expenses of $31.9. The decrease was driven by lower share-based compensation expense and reductions in staffing levels and other cost-reduction initiatives.

Current wording

Corporate expenses were $35.7 in the second quarter of fiscal 2024, a decrease of 15.2% from the second quarter of fiscal 2023 expenses of $42.1; and were $61.7 for the first six months of fiscal 2024, a decrease of 16.6% from the first six months of fiscal 2023 expenses of $74.0. For the three and six months ended March 30, 2024, the decrease was primarily driven by lower share-based compensation expense, reductions in staffing levels and other cost-reduction initiatives.

Previous wording

Cash used in operating activities totaled $343.2 for the three months ended December 30, 2023, a decrease of $88.4 compared to $431.6 for the three months ended December 31, 2022. This decrease was driven by lower accounts receivable, accounts payable timing and lower SG&A, partially offset by higher inventory production, lower gross margin, higher payments to customers related to promotional programs and lower income tax refunds received. Lower accounts receivable is driven by the favorable impact of accounts receivable sold under the Master Receivables Purchase Agreement which was entered into on October 27, 2023. Accounts payable timing is driven by the impact of extended payment terms with vendors for payments originally due in the final weeks of fiscal 2022 that were paid in the first quarter of fiscal 2023.

Current wording

Cash used in operating activities totaled $39.0 for the six months ended March 30, 2024 as compared to $566.9 for the six months ended April 1, 2023. This decrease was driven by lower accounts receivable, higher gross margin, accounts payable timing and lower SG&A, partially offset by higher inventory production, higher payments to customers related to promotional programs and lower income tax refunds received. Lower accounts receivable is driven by the favorable impact of accounts receivable sold under the Master Receivables Purchase Agreement. Accounts payable timing is driven by the impact of extended payment terms with vendors for payments originally due in the final weeks of fiscal 2022 that were paid in the first quarter of fiscal 2023.

Previous wording

Cash used in investing activities totaled $53.2 for the three months ended December 30, 2023, an increase of $17.2 compared to $36.0 for the three months ended December 31, 2022. Cash used for investments in property, plant and equipment during the first three months of fiscal 2024 and 2023 was $37.9 and $29.6, respectively. During the three months ended December 30, 2023, we acquired an additional equity interest in Bonnie Plants, LLC for $21.4. During the three months ended December 30, 2023 and December 31, 2022, we had other investing cash inflows (outflows) of $6.1 and $(6.4), respectively, primarily associated with currency forward contracts.

Current wording

Cash used in investing activities totaled $71.1 for the six months ended March 30, 2024 as compared to $20.6 for the six months ended April 1, 2023. Cash used for investments in property, plant and equipment during the first six months of fiscal 2024 and 2023 was $54.2 and $51.8, respectively. During the six months ended March 30, 2024, we acquired an additional equity interest in Bonnie Plants, LLC for $21.4. We also had other investing cash inflows of $4.5 for the six months ended March 30, 2024 primarily associated with currency forward contracts. During the six months ended April 1, 2023, we received proceeds of $37.0 related to the payoff of seller financing that we provided in connection with a fiscal 2017 divestiture. In addition, we had other investing cash outflows of $5.8 during the six months ended April 1, 2023 primarily associated with currency forward contracts.

Previous wording

Cash provided by financing activities totaled $374.2 for the three months ended December 30, 2023 compared to $406.2 for the three months ended December 31, 2022. During the three months ended December 30, 2023, we had net borrowings on our debt instruments of $410.2 due to our seasonal working capital build, paid dividends of $37.4 and repurchased Common Shares for $3.1 (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation). During the three months ended December 31, 2022, we had net borrowings on our debt instruments of $443.0 and paid dividends of $36.6.

Current wording

Cash provided by financing activities totaled $142.8 for the six months ended March 30, 2024 as compared to $525.3 for the six months ended April 1, 2023. During the six months ended March 30, 2024, we had net borrowings under our credit facilities of $205.0 and paid dividends of $76.2. In addition, we had other financing cash inflows of $17.2 during the six months ended March 30, 2024 related to collections of previously sold accounts receivable not yet submitted to the buyer. During the six months ended April 1, 2023, we had net borrowings under our credit facilities of $609.4 and paid dividends of $74.9. During the six months ended March 30, 2024 and April 1, 2023, we repurchased Common Shares for $4.9 and $6.4, respectively (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation).

Previous wording

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

Current wording

On October 27, 2023, we entered into the Master Receivables Purchase Agreement under which we may sell up to $600.0 of available and eligible outstanding customer accounts receivable generated by sales to four specified customers. The agreement is uncommitted and has an initial term that expires October 25, 2024, unless earlier terminated by the purchaser. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheets at the time of the sales transaction. Proceeds received from the sales of accounts receivable are classified as operating cash flows and collections of previously sold accounts receivable not yet submitted to the buyer are classified as financing cash flows in the Condensed Consolidated Statements of Cash Flows. We record the discount on sales in the “Other (income) expense, net” line in the Condensed Consolidated Statements of Operations. At March 30, 2024, net receivables of $582.8 were derecognized. During the three and six months ended March 30, 2024, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $758.2 and $955.5, respectively, and the total discount recorded on sales was $10.7 and $12.9, respectively.

Previous wording

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

Current wording

We have an agreement to provide a supplier finance program which facilitates participating suppliers’ ability to finance our payment obligations with a designated third-party financial institution. Participating suppliers may, at their sole discretion, elect to finance our payment obligations prior to their scheduled due dates at a discounted price to the participating financial institution. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under this arrangement. The payment terms that we negotiate with our suppliers are consistent, regardless of whether a supplier participates in the program. Our current payment terms with a majority of our suppliers generally range from 30 to 60 days, which we deem to be commercially reasonable. Our outstanding payment obligations under our supplier finance program were $38.5, $31.0 and $18.3 at March 30, 2024, April 1, 2023 and September 30, 2023, respectively, and are recorded within accounts payable in the Condensed Consolidated Balance Sheets. The associated payments were $153.0 and $110.3 for the six months ended March 30, 2024 and April 1, 2023, respectively, and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows.

Previous wording

Our cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or invested in high-quality, short-term liquid investments having original maturities of three months or less. The cash and cash equivalents balances of $10.4, $25.6 and $31.9 as of December 30, 2023, December 31, 2022 and September 30, 2023, respectively, included $4.0, $11.6 and $26.6, respectively, held by controlled foreign corporations. As of December 30, 2023, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.

Current wording

Our cash and cash equivalents were held in cash depository accounts with major financial institutions around the world or invested in high-quality, short-term liquid investments having original maturities of three months or less. The cash and cash equivalents balances of $65.1, $25.0 and $31.9 as of March 30, 2024, April 1, 2023 and September 30, 2023, respectively, included $7.9, $15.1 and $26.6, respectively, held by controlled foreign corporations. As of March 30, 2024, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.

Previous wording

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

Current wording

At March 30, 2024, we had letters of credit outstanding in the aggregate principal amount of $78.0, and had $857.8 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings under the credit facilities, excluding the impact of interest rate swaps, were 8.9% and 7.0% for the six months ended March 30, 2024 and April 1, 2023, respectively.

Previous wording

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

Current wording

The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage ratio determined as of the end of each of our fiscal quarters, calculated as average total indebtedness, divided by our Adjusted EBITDA. Pursuant to Amendment No. 2, the maximum permitted leverage ratio is (i) 7.75 for the second quarter of fiscal 2024, (ii) 6.50 for the third quarter of fiscal 2024, (iii) 6.00 for the fourth quarter of fiscal 2024, (iv) 5.50 for the first quarter of fiscal 2025, (v) 5.25 for the second quarter of fiscal 2025, (vi) 5.00 for the third quarter of fiscal 2025, (vii) 4.75 for the fourth quarter of fiscal 2025 and (viii) 4.50 for the first quarter of fiscal 2026 and thereafter. Our leverage ratio was 6.95 at March 30, 2024. Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement also contains an affirmative covenant regarding our fixed charge coverage ratio determined as of the end of each of our fiscal quarters, calculated as Adjusted EBITDA minus capital expenditures and expense for taxes paid in cash, divided by the sum of interest expense plus restricted payments, as described in Amendment No. 2. The minimum required fixed charge coverage ratio is (i) 0.75 for the second and third quarters of fiscal 2024 and (ii) 1.00 for the fourth quarter of fiscal 2024 and thereafter. Our fixed charge coverage ratio was 0.95 for the twelve months ended March 30, 2024.

Previous wording

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

Current wording

As of March 30, 2024, we were in compliance with all applicable covenants in the agreements governing our debt. Based on our projections of financial performance for the twelve-month period subsequent to the date of the filing of this Form 10-Q, we expect to remain in compliance with the financial covenants under the Sixth A&R Credit Agreement. However, our assessment of our ability to meet our future obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default would allow the lenders under the Sixth A&R Credit Agreement to accelerate the maturity of the indebtedness thereunder and would also implicate cross-default provisions under the Senior Notes and cause the Senior Notes to become due and payable at that time. As of March 30, 2024, our indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,814.2. We do not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.

Previous wording

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

Current wording

The Senior Notes contain an affirmative covenant regarding our interest coverage ratio determined as of the end of each of our fiscal quarters, calculated as Adjusted EBITDA divided by interest expense excluding costs related to refinancings. The minimum required interest coverage ratio is 2.00. Our interest coverage ratio was 2.48 for the twelve months ended March 30, 2024.

Previous wording

The sale of receivables under the Receivables Facility was accounted for as short-term debt and we continued to carry the receivables on our Condensed Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold. As of December 31, 2022, there were $161.0 in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was $178.9.

Current wording

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

Previous wording

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

Current wording

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