SCOTTS MIRACLE-GRO CO

Previous wording

This MD&A should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Annual Report”) and our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Current wording

This MD&A should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the “2024 Annual Report”) and our condensed consolidated financial statements included in this Form 10-Q.

Previous wording

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

Current wording

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

Previous 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®.

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 Signature brands include General Hydroponics®, Gavita®, Botanicare®, Agrolux®, Gro Pro®, Mother Earth®, Grower’s Edge®, HydroLogic Purification System®and CYCO®.

Previous wording

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

Current wording

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

Previous wording

During the three and nine months ended June 29, 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.

Current wording

During the three months ended December 28, 2024, our Hawthorne segment continued to experience decreased sales volume. This was partially attributable to an oversupply of cannabis, which has led to a prolonged period of lower cannabis wholesale prices and reduced indoor and outdoor cannabis cultivation. The oversupply has been driven by increased licensing activity across the U.S. and significant capital investment in the cannabis production marketplace over the past several years, as well as inconsistent enforcement of regulations. 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 fiscal 2024, our Hawthorne segment announced a strategic partnership with BFG Supply (“BFG”), a leading national horticultural and agricultural product distributor, under which BFG will distribute Hawthorne’s proprietary Signature brand cultivation supplies and solutions. Our Hawthorne segment also announced it is discontinuing the distribution of other companies’ products and shifting its focus solely to marketing, innovating and supporting its portfolio of Signature brands, including General Hydroponics®, Gavita®, Botanicare®, Gro Pro®, Mother Earth®, Grower’s Edge®, HydroLogic Purification System®and Cyco®. We expect the discontinuation of sales of other companies’ products will decrease the sales volume of our Hawthorne segment in future periods, but will enable continued optimization of its operations and improvement of its profitability.

Current wording

During fiscal 2024, our Hawthorne segment discontinued distribution of other companies’ products in order to shift its focus solely to marketing, innovating and supporting its portfolio of Signature brands, including General Hydroponics®, Gavita®, Botanicare®, Gro Pro®, Mother Earth®, Grower’s Edge®, HydroLogic Purification System®and CYCO®. We expect the discontinuation of sales of other companies’ products will result in lower sales volume when compared to historical periods, but will enable continued optimization of Hawthorne’s operations and improvement of its profitability.

Previous wording

Net sales for the three months ended June 29, 2024 were $1,202.2, an increase of 7.5% from net sales of $1,118.7 for the three months ended July 1, 2023. Net sales for the nine months ended June 29, 2024 were $3,138.0, a decrease of 1.2% from net sales of $3,176.8 for the nine months ended July 1, 2023. Factors contributing to the change in net sales are outlined in the following table:

Current wording

Net sales for the three months ended December 28, 2024 were $416.8, an increase of 1.6% from net sales of $410.4 for the three months ended December 30, 2023. Factors contributing to the change in net sales are outlined in the following table:

Previous wording

•increased sales volume, comprised of the net impact of higher volume in our U.S. Consumer segment driven by fertilizer, mulch, controls and plant food products, partially offset by lower volume in our Hawthorne segment driven by the discontinuation of sales of other companies’ products;

Current wording

•increased sales volume of 10.5%, comprised of the net impact of higher volume in our U.S. Consumer segment driven by soils, controls and plant food products, partially offset by lower volume in our Hawthorne segment driven by lighting, growing environment, growing media and hardware products; and

Previous wording

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

Current wording

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

Previous wording

Hawthorne segment net sales were $67.7 in the third quarter of fiscal 2024, a decrease of 27.5% from third quarter of fiscal 2023 net sales of $93.4; and were $214.2 for the first nine months of fiscal 2024, a decrease of 32.6% from the first nine months of fiscal 2023 net sales of $317.6. For the third quarter of fiscal 2024, the decrease was driven by lower sales volume of 30.1%, partially offset by increased pricing of 2.7%. For the nine months ended June 29, 2024, the decrease was driven by lower sales volume and decreased pricing of 30.9% and 2.1%, respectively, partially offset by favorable foreign exchange rates of 0.4%. The decrease in sales volume for the three months ended June 29, 2024 was driven by the discontinuation of sales of other companies’ products. The decrease in sales volume for the nine months ended June 29, 2024 was driven by all product categories and the impact of the discontinuation of sales of other companies’ products.

Current wording

•lower sales volume in our Hawthorne segment; and

Previous wording

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

Current wording

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

Previous wording

As a percentage of net sales, our gross margin rate was 29.5% and 18.4% for the three months ended June 29, 2024 and July 1, 2023, respectively, and was 28.0% and 22.5% for the nine months ended June 29, 2024 and July 1, 2023, 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 22.7% and 15.2% for the three months ended December 28, 2024 and December 30, 2023, respectively. Factors contributing to the change in gross margin rate are outlined in the following table:

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. 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 months ended June 29, 2024, we recorded net recoveries associated with this restructuring initiative that were not material. During the nine months ended June 29, 2024, we incurred costs of $69.7 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 incurred costs of $3.7 in our U.S. Consumer segment and $62.9 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the nine months ended June 29, 2024. We recorded recoveries of $1.2 in our U.S. Consumer segment, and incurred costs of $1.0 in our Hawthorne segment, $0.8 in our Other segment and $2.4 at Corporate in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the nine months ended June 29, 2024. Costs incurred from the inception of this restructuring initiative through June 29, 2024 were $288.3 for our Hawthorne segment, $48.1 for our U.S. Consumer segment, $2.3 for our Other segment and $25.1 for Corporate.

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. As part of this restructuring initiative, we reduced the size of our supply chain network, reduced staffing levels and implemented other cost-reduction initiatives. We also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce on hand inventory to align with the reduced network capacity. During the three months ended December 28, 2024, we incurred costs of $1.4 in our U.S. Consumer segment and $3.7 in our Hawthorne segment associated with this restructuring initiative 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 $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. Costs incurred since the inception of this restructuring initiative through December 28, 2024 were $300.9 for our Hawthorne segment, $59.8 for our U.S. Consumer segment, $2.9 for our Other segment and $25.1 for Corporate.

Previous wording

During the three and nine months ended June 29, 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.

Current 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.

Previous wording

Other (income) expense is comprised of activities such as the discount on sales of accounts receivable under the Master Receivables Purchase Agreement, royalty income from the licensing of certain of our brand names and foreign exchange transaction gains and losses. Other (income) expense was $6.9 and $(1.6) for the three months ended June 29, 2024 and July 1, 2023, respectively; and was $19.6 and $(2.7) for the nine months ended June 29, 2024 and July 1, 2023, respectively. The increase in expense was primarily due to the discount on sales of accounts receivable under the Master Receivables Purchase Agreement.

Current wording

Other expense is comprised of activities such as the discount on sales of accounts receivable under the Master Receivables Purchase Agreement, royalty income from the licensing of certain of our brand names and foreign exchange transaction gains and losses. Other expense was $4.5 and $1.8 for the three months ended December 28, 2024 and December 30, 2023, respectively. The increase in expense during the three months ended December 28, 2024 was primarily due to higher sales of accounts receivable under the Master Receivables Purchase Agreement.

Previous wording

Equity in (income) loss of unconsolidated affiliates associated with Bonnie Plants, LLC was $(23.0) and $(22.2) for the three months ended June 29, 2024 and July 1, 2023, respectively; and was $6.5 and $(3.5) for the nine months ended June 29, 2024 and July 1, 2023, respectively. During the three and nine months ended June 29, 2024, equity in (income) 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.

Current wording

Equity in loss of unconsolidated affiliates associated with Bonnie Plants, LLC was $9.9 and $22.5 during the three months ended December 28, 2024 and December 30, 2023, 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.

Previous wording

Interest expense was $38.8 for the three months ended June 29, 2024, a decrease of 17.6% as compared to $47.1 for the three months ended July 1, 2023; and was $125.6 for the nine months ended June 29, 2024, a decrease of 9.1% as compared to $138.1 for the nine months ended July 1, 2023. For the three months ended June 29, 2024, the decrease was driven by lower average borrowings of $711.5, partially offset by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 20 basis points. For the nine months ended June 29, 2024, the decrease was driven by lower average borrowings of $591.6, partially offset by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 50 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 under the Sixth A&R Credit Agreement.

Current wording

Interest expense was $33.7 for the three months ended December 28, 2024, a decrease of 21.3% compared to $42.8 for the three months ended December 30, 2023. The decrease was driven by lower average borrowings of $390.1 and a decrease in our weighted average interest rate, net of the impact of interest rate swaps, of 50 basis points. The decrease in average borrowings was driven by our focus on using available cash flow to reduce our debt as well as higher sales of accounts receivable under the amended Master Receivables Purchase Agreement. The decrease in our weighted average interest rate was primarily driven by lower borrowing rates under the Sixth A&R Credit Agreement.

Previous wording

The effective tax rates for the nine months ended June 29, 2024 and July 1, 2023 were 27.5% and 17.7%, 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 three months ended December 28, 2024 and December 30, 2023 were 27.5% and 29.5%, 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.

Previous wording

Net income was $209.1, or $3.64 per diluted share, for the nine months ended June 29, 2024 as compared to $88.3, or $1.57 per diluted share, for the nine months ended July 1, 2023. The increase was driven by lower impairment, restructuring and other charges, a higher gross margin rate 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.

Current wording

Net loss was $69.5, or $1.21 per diluted share, for the three months ended December 28, 2024 compared to $80.5, or $1.42 per diluted share, for the three months ended December 30, 2023. The decrease was driven by higher net sales, an increase in gross margin rate, lower equity in loss of unconsolidated affiliates and lower interest expense, partially offset by higher impairment, restructuring and other charges, higher SG&A, higher other expense and lower income tax benefit.

Previous wording

Diluted average common shares used in the diluted net income per common share calculation for the three months ended June 29, 2024 and July 1, 2023 were 58.0 million and 56.6 million, respectively, which included dilutive potential Common Shares of 1.2 million and 0.4 million, respectively. 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 loss per common share calculation for the three months ended December 28, 2024 and December 30, 2023 were 57.3 million and 56.7 million, respectively, which excluded potential Common Shares of 1.5 million and 0.5 million, respectively, because the effect of their inclusion would be anti-dilutive as we incurred a net loss for the three months ended December 28, 2024 and December 30, 2023. The increase in diluted average Common Shares was primarily the result of the exercise and issuance of share-based compensation awards.

Previous 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:

Current 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:

Previous wording

U.S. Consumer Segment Profit was $210.3 in the third quarter of fiscal 2024, an increase of 68.5% from third quarter of fiscal 2023 Segment Profit of $124.8; and Segment Profit was $580.5 for the first nine months of fiscal 2024, an increase of 4.9% from the first nine months of fiscal 2023 Segment Profit of $553.5. For the three and nine months ended June 29, 2024, the increase was primarily due to higher net sales and a higher gross margin rate, partially offset by higher SG&A driven by advertising and higher other expense driven by the discount on sales of accounts receivable.

Current wording

U.S. Consumer Segment Profit was $10.0 in the first quarter of fiscal 2025, an increase from first quarter of fiscal 2024 Segment Loss of $15.5. The increase was due to higher net sales and a higher gross margin rate, partially offset by higher SG&A, and higher other expense driven by the discount on sales of accounts receivable.

Previous wording

Hawthorne Segment Profit was $3.8 in the third quarter of fiscal 2024 as compared to Segment Loss of $8.7 for the third quarter of fiscal 2023; and Segment Loss was $9.2 for the first nine months of fiscal 2024 as compared to $41.7 for the first nine months of fiscal 2023. For the three and nine months ended June 29, 2024, the improvement was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.

Current wording

Hawthorne Segment Profit was $1.7 in the first quarter of fiscal 2025, an increase from first quarter of fiscal 2024 Segment Loss of $9.7. The increase was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.

Previous wording

Cash used in investing activities totaled $80.0 for the nine months ended June 29, 2024 as compared to $44.6 for the nine months ended July 1, 2023. Cash used for investments in property, plant and equipment during the first nine months of fiscal 2024 and 2023 was $67.4 and $73.8, respectively. During the nine months ended June 29, 2024, we acquired an additional equity interest in Bonnie Plants, LLC for $21.4. We also had other investing cash inflows of $8.8 for the nine months ended June 29, 2024 primarily associated with currency forward contracts. During the nine months ended July 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 $7.8 during the nine months ended July 1, 2023 primarily associated with currency forward contracts.

Current wording

Cash used in investing activities totaled $23.3 for the three months ended December 28, 2024, a decrease of $29.9 compared to $53.2 for the three months ended December 30, 2023. Cash used for investments in property, plant and equipment during the first three months of fiscal 2025 and 2024 was $29.3 and $37.9, respectively, driven by the timing of spending on capital projects. 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 28, 2024 and December 30, 2023, we had other investing cash inflows of $6.0 and $6.1, respectively, primarily associated with currency forward contracts.

Previous wording

Cash used in financing activities totaled $221.1 for the nine months ended June 29, 2024 as compared to $11.0 for the nine months ended July 1, 2023. During the nine months ended June 29, 2024, we had net repayments under our credit facilities of $127.9 and paid dividends of $113.7. In addition, we had other financing cash inflows of $23.1 during the nine months ended June 29, 2024 related to collections of previously sold accounts receivable not yet submitted to the buyer. During the nine months ended July 1, 2023, we had net borrowings under our credit facilities of $112.6 and paid dividends of $112.0. During the nine months ended June 29, 2024 and July 1, 2023, we repurchased Common Shares for $5.0 and $9.3, respectively (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation).

Current wording

Cash provided by financing activities totaled $407.7 for the three months ended December 28, 2024 compared to $374.2 for the three months ended December 30, 2023. During the three months ended December 28, 2024, we had net borrowings on our debt instruments of $464.8 due to our seasonal working capital build. We also paid dividends of $39.2 and repurchased Common Shares for $15.6 (which represents cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation). During the three months ended December 30, 2023, we had net borrowings on our debt instruments of $410.2, paid dividends of $37.4 and repurchased Common Shares for $3.1 (which represents 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 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 June 29, 2024, net receivables of $477.3 were derecognized. During the three and nine months ended June 29, 2024, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $724.5 and $1,680.0, respectively, and the total discount recorded on sales was $8.7 and $21.6, respectively.

Current wording

On October 27, 2023, we entered into the Master Receivables Purchase Agreement, under which we could sell up to $600.0 of available and eligible outstanding customer accounts receivable generated by sales to four specified customers. On September 1, 2024, we amended the Master Receivables Purchase Agreement to permit us to sell up to $750.0 of available and eligible outstanding customer accounts receivable generated by sales to five specified customers. The agreement is uncommitted and expires on September 1, 2025. Transactions under the Master Receivables Purchase 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 expense, net” line in the Condensed Consolidated Statements of Operations. At December 28, 2024, December 30, 2023 and September 30, 2024, net receivables derecognized were $236.7, $140.1 and $186.6, respectively. During the three months ended December 28, 2024 and December 30, 2023, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $274.0 and $199.6, respectively, and the total discount recorded on sales was $3.3 and $2.2, 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 obligations under our supplier finance program were $22.8, $16.6 and $18.3 at June 29, 2024, July 1, 2023 and September 30, 2023, respectively, and are recorded within accounts payable in the Condensed Consolidated Balance Sheets. The associated payments were $218.6 and $157.6 for the nine months ended June 29, 2024 and July 1, 2023, respectively, and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows.

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 $27.1, $30.8 and $12.5 at December 28, 2024, December 30, 2023 and September 30, 2024, respectively, and are recorded within accounts payable in the Condensed Consolidated Balance Sheets. The associated payments were $73.6 and $69.8 for the three months ended December 28, 2024 and December 30, 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 $279.9, $27.4 and $31.9 as of June 29, 2024, July 1, 2023 and September 30, 2023, respectively, included $30.4, $17.7 and $26.6, respectively, held by controlled foreign corporations. As of June 29, 2024, 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 $9.8, $10.4 and $71.6 as of December 28, 2024, December 30, 2023 and September 30, 2024, respectively, included $6.1, $4.0 and $15.9, respectively, held by controlled foreign corporations. As of December 28, 2024, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.

Previous wording

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

Current wording

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

Previous wording

At June 29, 2024, we had letters of credit outstanding in the aggregate principal amount of $78.0, and had $1,172.0 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 9.0% and 7.3% for the nine months ended June 29, 2024 and July 1, 2023, respectively.

Current wording

At December 28, 2024, we had letters of credit outstanding in the aggregate principal amount of $83.1, and had $691.3 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 8.5% and 9.1% for the three months ended December 28, 2024 and December 30, 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) 6.50 for the third quarter of fiscal 2024, (ii) 6.00 for the fourth quarter of fiscal 2024, (iii) 5.50 for the first quarter of fiscal 2025, (iv) 5.25 for the second quarter of fiscal 2025, (v) 5.00 for the third quarter of fiscal 2025, (vi) 4.75 for the fourth quarter of fiscal 2025 and (vii) 4.50 for the first quarter of fiscal 2026 and thereafter. Our leverage ratio was 5.46 at June 29, 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 third quarter of fiscal 2024 and (ii) 1.00 for the fourth quarter of fiscal 2024 and thereafter. Our fixed charge coverage ratio was 1.15 for the twelve months ended June 29, 2024.

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) 5.50 for the first quarter of fiscal 2025, (ii) 5.25 for the second quarter of fiscal 2025, (iii) 5.00 for the third quarter of fiscal 2025, (iv) 4.75 for the fourth quarter of fiscal 2025 and (v) 4.50 for the first quarter of fiscal 2026 and thereafter. Our leverage ratio was 4.52 at December 28, 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 1.00. Our fixed charge coverage ratio was 1.38 for the twelve months ended December 28, 2024.

Previous wording

As of June 29, 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 June 29, 2024, our indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,487.5. 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 December 28, 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 December 28, 2024, our indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,688.1. 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 3.15 for the twelve months ended June 29, 2024.

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 3.95 for the twelve months ended December 28, 2024.

Previous wording

We enter into interest rate swap agreements with major financial institutions that effectively convert a portion of our variable rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of June 29, 2024, July 1, 2023 and September 30, 2023 had a maximum total U.S. dollar equivalent notional amount of $500.0, $600.0 and $600.0, respectively. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at June 29, 2024 are shown in the table below:

Current wording

We enter into interest rate swap agreements with major financial institutions that effectively convert a portion of our variable rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of December 28, 2024, December 30, 2023 and September 30, 2024 had a maximum total U.S. dollar equivalent notional amount of $450.0, $700.0 and $450.0, respectively. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at December 28, 2024 are shown in the table below:

Previous wording

We believe that our cash flows from operations and borrowings under our agreements described herein will be sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Our actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in the 2023 Annual Report, under “ITEM 1A. RISK FACTORS — Risks Related to Our M&A, Lending and Financing Activities — Our indebtedness could limit our flexibility and adversely affect our financial condition.”

Current wording

We believe that our cash flows from operations and borrowings under our agreements described herein will be sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in the 2024 Annual Report, under “ITEM 1A. RISK FACTORS — Risks Related to Our M&A, Lending and Financing Activities — Our indebtedness could limit our flexibility and adversely affect our financial condition.”

Previous wording

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

Current wording

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

Previous wording

(a)Includes amounts due from Non-Guarantor subsidiaries of $100.5 and $26.2, respectively.

Current wording

(a)Includes amounts due from Non-Guarantor subsidiaries of $61.6 and $49.5, respectively.

Previous wording

(a)Includes intercompany income (expense) from Non-Guarantor subsidiaries of $13.1 and $(12.1), respectively.

Current wording

(a)Includes intercompany income (expense) from Non-Guarantor subsidiaries of $(0.4) and $12.5, respectively.

Previous wording

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

Current wording

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

Previous wording

The preparation of financial statements requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical experience and on various other sources that we believe to be reasonable under the circumstances. Certain accounting estimates are particularly significant, including those related to revenue recognition, income taxes and goodwill and intangible assets. Our critical accounting estimates are reviewed periodically with the Audit Committee of the Board of Directors of Scotts Miracle-Gro. Our critical accounting estimates have not changed materially from those disclosed in the 2023 Annual Report.

Current wording

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of financial statements and related disclosures in accordance with GAAP requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical experience, current trends and other factors that we believe to be relevant under the circumstances at the time the estimate was made. Certain accounting estimates are particularly significant, including those related to revenue recognition and promotional allowances, income taxes and goodwill and indefinite-lived intangible assets.