Company Quick10K Filing
Scotts Miracle-Gro
Price102.32 EPS8
Shares56 P/E13
MCap5,761 P/FCF25
Net Debt1,647 EBIT739
TEV7,408 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-01-02 Filed 2021-02-10
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8-K 2020-11-04
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8-K 2019-11-06
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8-K 2019-10-15
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8-K 2018-01-19

SMG 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 3. Acquisitions and Investments
Note 4. Impairment, Restructuring and Other
Note 5. Inventories
Note 6. Marketing Agreement
Note 7. Debt
Note 8. Equity
Note 9. Income Taxes
Note 10. Contingencies
Note 11. Derivative Instruments and Hedging Activities
Note 12. Fair Value Measurements
Note 13. Leases
Note 14. Segment Information
Note 15. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-21 exhibit21smg20210102.htm
EX-22 exhibit22smg20210102.htm
EX-31.1 exhibit311smg20210102.htm
EX-31.2 exhibit312smg20210102.htm
EX-32 exhibit32smg20210102.htm

Scotts Miracle-Gro Earnings 2021-01-02

Balance SheetIncome StatementCash Flow
4.03.22.41.60.80.02012201420172020
Assets, Equity
1.31.00.70.40.1-0.22012201420172020
Rev, G Profit, Net Income
0.80.50.2-0.1-0.4-0.72012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
FORM 10-Q
_________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 2, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 001-11593
____________________________________ 
The Scotts Miracle-Gro Company

(Exact name of registrant as specified in its charter)
____________________________________________
Ohio31-1414921
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
14111 Scottslawn Road, Marysville, Ohio 43041
(Address of principal executive offices) (Zip Code)
(937) 644-0011
(Registrant’s telephone number, including area code)
_____________________________________________ 
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, $0.01 stated valueSMGNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  Accelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
YesNo
As of February 5, 2021, there were 55,703,094 Common Shares outstanding.
1

Table of Contents

THE SCOTTS MIRACLE-GRO COMPANY
INDEX
  PAGE NO.

2

Table of Contents
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

THE SCOTTS MIRACLE-GRO COMPANY
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
 
 THREE MONTHS ENDED
 JANUARY 2,
2021
DECEMBER 28,
2019
Net sales$748.6 $365.8 
Cost of sales548.8 311.3 
Cost of sales—impairment, restructuring and other 9.0 0.3 
Gross profit190.8 54.2 
Operating expenses:
Selling, general and administrative156.7 119.8 
Impairment, restructuring and other0.7 (2.5)
Other income, net(0.6)(0.5)
Income (loss) from operations34.0 (62.6)
Costs related to refinancing 15.1 
Interest expense16.1 20.0 
Other non-operating income, net(15.2)(2.6)
Income (loss) from continuing operations before income taxes33.1 (95.1)
Income tax expense (benefit) from continuing operations7.9 (23.8)
Income (loss) from continuing operations25.2 (71.3)
Income (loss) from discontinued operations, net of tax  
Net income (loss)$25.2 $(71.3)
Net income attributable to noncontrolling interest(0.8)(0.1)
Net income (loss) attributable to controlling interest$24.4 $(71.4)
Basic income (loss) per common share:
Income (loss) from continuing operations$0.44 $(1.28)
Income (loss) from discontinued operations  
Basic net income (loss) per common share$0.44 $(1.28)
Weighted-average common shares outstanding during the period55.7 55.8 
Diluted income (loss) per common share:
Income (loss) from continuing operations$0.43 $(1.28)
Income (loss) from discontinued operations  
Diluted net income (loss) per common share$0.43 $(1.28)
Weighted-average common shares outstanding during the period plus dilutive potential common shares57.1 55.8 
See Notes to Condensed Consolidated Financial Statements.
3

Contents
THE SCOTTS MIRACLE-GRO COMPANY
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)

 THREE MONTHS ENDED
 JANUARY 2,
2021
DECEMBER 28,
2019
Net income (loss)$25.2 $(71.3)
Other comprehensive income (loss):
Net foreign currency translation adjustment12.4 4.6 
Net unrealized gain (loss) on derivative instruments, net of tax2.5 (1.4)
Reclassification of net unrealized losses on derivative instruments to net income, net of tax1.9 0.8 
Pension and other post-retirement benefit adjustments, net of tax(1.2)(1.1)
Total other comprehensive income15.6 2.9 
Comprehensive income (loss)40.8 (68.4)
Comprehensive income attributable to noncontrolling interest(0.8)(0.1)
Comprehensive income (loss) attributable to controlling interest$40.0 $(68.5)
See Notes to Condensed Consolidated Financial Statements.

4

Contents
THE SCOTTS MIRACLE-GRO COMPANY
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 THREE MONTHS ENDED
 JANUARY 2,
2021
DECEMBER 28,
2019
OPERATING ACTIVITIES
Net income (loss)$25.2 $(71.3)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Costs related to refinancing 15.1 
Share-based compensation expense8.2 7.0 
Depreciation15.7 14.8 
Amortization7.4 7.6 
Deferred taxes(1.8)(2.1)
Other(12.5) 
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable1.1 72.9 
Inventories(442.8)(324.7)
Prepaid and other assets(10.2)(26.8)
Accounts payable126.8 114.2 
Other current liabilities(125.7)(115.7)
Restructuring and other(0.7)(2.3)
Other non-current items(11.3)(6.5)
Other, net(0.1)(0.4)
Net cash used in operating activities(420.7)(318.2)
INVESTING ACTIVITIES
Investments in property, plant and equipment(34.6)(21.9)
Investments in loans receivable (2.5)
Investments in unconsolidated affiliates(100.7) 
Payment for acquisitions, net of cash acquired(10.0) 
Other investing, net(2.9)(1.3)
Net cash used in investing activities(148.2)(25.7)
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans712.9 465.7 
Repayments under revolving and bank lines of credit and term loans(67.5)(112.8)
Proceeds from issuance of 4.500% Senior Notes
 450.0 
Repayment of 6.000% Senior Notes
 (400.0)
Financing and issuance fees (18.6)
Dividends paid(34.6)(32.4)
Purchase of Common Shares(38.4) 
Payments on seller notes (0.5)
Cash received from exercise of stock options1.1 0.9 
Net cash provided by financing activities573.5 352.3 
Effect of exchange rate changes on cash0.3 0.2 
Net increase in cash and cash equivalents4.9 8.6 
Cash and cash equivalents at beginning of period16.6 18.8 
Cash and cash equivalents at end of period$21.5 $27.4 
See Notes to Condensed Consolidated Financial Statements.
5

Contents
THE SCOTTS MIRACLE-GRO COMPANY
Condensed Consolidated Balance Sheets
(In millions, except per share data)
(Unaudited)
 
JANUARY 2,
2021
DECEMBER 28,
2019
SEPTEMBER 30,
2020
ASSETS
Current assets:
Cash and cash equivalents$21.5 $27.4 $16.6 
Accounts receivable, less allowances of $6.8, $4.2 and $7.5, respectively
346.6 192.7 474.8 
Accounts receivable pledged151.1 43.3 22.3 
Inventories1,068.3 866.1 621.9 
Prepaid and other current assets92.0 203.3 81.0 
Total current assets1,679.5 1,332.8 1,216.6 
Investment in unconsolidated affiliates202.9   
Property, plant and equipment, net of accumulated depreciation of $698.8, $642.2 and $682.1, respectively
560.9 545.4 560.0 
Goodwill548.9 540.9 544.1 
Intangible assets, net685.4 701.7 679.2 
Other assets323.1 335.2 380.6 
Total assets$4,000.7 $3,456.0 $3,380.5 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt$188.0 $93.8 $66.4 
Accounts payable498.9 309.4 391.0 
Other current liabilities367.6 206.5 493.0 
Total current liabilities1,054.5 609.7 950.4 
Long-term debt1,979.8 1,969.9 1,455.1 
Other liabilities287.4 247.1 272.1 
Total liabilities3,321.7 2,826.7 2,677.6 
Commitments and contingencies (Note 10)
Equity:
Common shares and capital in excess of $0.01 stated value per share; shares outstanding of 55.6, 55.8 and 55.8, respectively
490.5 448.9 482.5 
Retained earnings1,224.4 1,169.8 1,235.6 
Treasury shares, at cost; 12.6, 12.4 and 12.4 shares, respectively
(958.8)(903.1)(921.8)
Accumulated other comprehensive loss(83.5)(91.0)(99.1)
Total equity—controlling interest672.6 624.6 697.2 
Noncontrolling interest6.4 4.7 5.7 
Total equity679.0 629.3 702.9 
Total liabilities and equity$4,000.7 $3,456.0 $3,380.5 
See Notes to Condensed Consolidated Financial Statements.
6

THE SCOTTS MIRACLE-GRO COMPANY

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

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” or “Parent”) and its subsidiaries (collectively, together with Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of products for lawn and garden care and indoor and hydroponic gardening. The Company’s products are sold in North America, Europe and Asia.
The Company’s North America consumer lawn and garden business is highly seasonal, with more than 75% of its annual net sales occurring in the second and third fiscal quarters.
The Company follows a 13-week quarterly accounting cycle pursuant to which the first three fiscal quarters end on a Saturday and the fiscal year always ends on September 30. This fiscal calendar convention requires the Company to cycle forward the first three fiscal quarter ends every six years. Fiscal 2021 is impacted by this process and, as a result, the first quarter of fiscal 2021 had five additional days and the fourth quarter of fiscal 2021 will have six fewer days compared to the respective quarters of fiscal 2020. In addition, the second quarter of fiscal 2021 ends six days later than the second quarter of fiscal 2020 and those six days fall within the Company’s peak selling season. The Company’s first quarter of fiscal 2021 ended on January 2, 2021 while the Company’s first quarter of fiscal 2020 ended on December 28, 2019.
Organization and Basis of Presentation
The Company’s unaudited condensed consolidated financial statements for the three months ended January 2, 2021 and December 28, 2019 are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of Scotts Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and an objective evaluation and determination of effective management control. AeroGrow International, Inc. (“AeroGrow”), in which the Company has a controlling interest, is consolidated, with the equity owned by other shareholders shown as noncontrolling interest in the Condensed Consolidated Balance Sheets, and the other shareholders’ portion of net earnings and other comprehensive income shown as net (income) loss or comprehensive (income) loss attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of each acquisition or up to the date of disposal, respectively. In the opinion of management, interim results reflect all normal and recurring adjustments and are not necessarily indicative of results for a full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (the “2020 Annual Report”), which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.
The Company’s Condensed Consolidated Balance Sheet at September 30, 2020 has been derived from the Company’s audited Consolidated Balance Sheet at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
Long-Lived Assets
The Company had non-cash investing activities of $6.3 and $2.7 during the three months ended January 2, 2021 and December 28, 2019, respectively, representing unpaid liabilities to acquire property, plant and equipment.
Statements of Cash Flows
Supplemental cash flow information was as follows:
THREE MONTHS ENDED
JANUARY 2,
2021
DECEMBER 28,
2019
Interest paid$23.0 $28.1 
Income tax payments (refunds)0.2 (2.1)
7

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
Investment in Unconsolidated Affiliates
Non-marketable equity investments in which the Company has the ability to exercise significant influence, but does not control, are accounted for using the equity method of accounting, with the Company’s proportionate share of the earnings and losses of these entities reflected in the Condensed Consolidated Statements of Operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, an impairment loss is recognized in earnings for the amount by which the carrying amount of the investment exceeds its estimated fair value.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held.  The Company adopted this guidance on October 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this guidance on October 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2019, the FASB issued ASU No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The provisions are effective for the Company’s financial statements no later than the fiscal year beginning October 1, 2021.  The Company is continuing to assess the impact of the amended guidance.
NOTE 2. DISCONTINUED OPERATIONS
International Business
Prior to August 31, 2017, the Company operated consumer lawn and garden businesses located in Australia, Austria, Belgium, Luxembourg, Czech Republic, France, Germany, Poland and the United Kingdom (the “International Business”). On August 31, 2017, the Company completed the sale of the International Business. As a result, effective in its fourth quarter of fiscal 2017, the Company classified its results of operations for all periods presented to reflect the International Business as a discontinued operation. The sale proceeds were net of seller financing provided by the Company in the form of a $29.7 loan for seven years bearing interest at 5% for the first three years, with annual 2.5% increases thereafter. The seller financing loan receivable is recorded in the “Other assets” line in the Consolidated Balance Sheets as of January 2, 2021. The transaction also included contingent consideration with a maximum payout of $23.8 and an initial fair value of $18.2, the payment of which depends on the achievement of certain performance criteria by the International Business following the closing of the transaction through fiscal 2020. The Company has not yet established whether the International Business has achieved the performance criteria for fiscal 2020 and the recorded contingent consideration, which is based upon the best information available to the Company, will be adjusted once the results are determined. If the Company determines that the International Business has not achieved the performance criteria, the Company would be required to record a charge of approximately $18.7 in the “Income (loss) from discontinued operations, net of tax” line in the Condensed Consolidated Statements of Operations to write-off the contingent consideration receivable.
NOTE 3. ACQUISITIONS AND INVESTMENTS
On December 31, 2020, pursuant to the terms of the Contribution and Unit Purchase Agreement between the Company and Alabama Farmers Cooperative, Inc. (“AFC”), the Company acquired a 50% equity interest in the Bonnie Plants business of planting, growing, developing, manufacturing, distributing, marketing, and selling live plants, plant food, fertilizer and potting soil through a newly formed joint venture with AFC (“Bonnie Plants, LLC”) in exchange for a cash payment of $100.7, as well as non-cash investing activities that included forgiveness of the Company’s outstanding loan receivable with AFC and surrender of the Company’s options to increase its economic interest in the Bonnie Plants business. The Company’s loan
8

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
receivable with AFC, which was previously recognized in the “Other assets” line in the Condensed Consolidated Balance Sheets, had a carrying value of $66.4 on December 31, 2020 and the Company recognized a gain of $12.5 during the three months ended January 2, 2021 to write-up the value of the loan to its closing date fair value of $78.9 in the “Other non-operating income, net” line in the Condensed Consolidated Statements of Operations. The Company’s options to increase its economic interest in the Bonnie Plants business were previously recognized in the “Other assets” line in the Condensed Consolidated Balance Sheets and had an estimated fair value of $23.3 on December 31, 2020. The Company’s interest in Bonnie Plants, LLC had an initial fair value of $202.9 and is recorded in the “Investment in unconsolidated affiliates” line in the Condensed Consolidated Balance Sheets. The Company’s interest is accounted for using the equity method of accounting, with the Company’s proportionate share of Bonnie Plants, LLC earnings subsequent to December 31, 2020 reflected in the Condensed Consolidated Statements of Operations. The estimated fair value of the loan receivable with AFC was determined using an income-based approach, which includes market participant expectations of cash flows over the remaining useful life discounted to present value using an appropriate discount rate. The fair value estimate utilized significant unobservable inputs and thus represents a Level 3 nonrecurring fair value measurement.
On November 11, 2020, the Company entered into an agreement and plan of merger to acquire the remaining outstanding shares of AeroGrow for cash consideration of $3.00 per share, or approximately $20.1. The closing of the merger is expected to occur during the second quarter of fiscal 2021 and is subject to, among other conditions, the approval of the merger agreement by a majority of the outstanding shares of AeroGrow entitled to vote. SMG Growing Media, Inc., a wholly-owned subsidiary of Scotts Miracle-Gro, is the holder of 80.5% of the outstanding shares of AeroGrow.
NOTE 4. IMPAIRMENT, RESTRUCTURING AND OTHER
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the Condensed Consolidated Statements of Operations. The following table details impairment, restructuring and other charges (recoveries) for each of the periods presented:
THREE MONTHS ENDED
JANUARY 2,
2021
DECEMBER 28,
2019
Cost of sales—impairment, restructuring and other:
COVID-19 related costs$8.7 $ 
Restructuring and other charges0.3 0.3 
Operating expenses:
COVID-19 related costs0.6  
Restructuring and other charges (recoveries), net0.1 (2.5)
Total impairment, restructuring and other charges (recoveries)$9.7 $(2.2)
    The following table summarizes the activity related to liabilities associated with restructuring and other, excluding insurance reimbursement recoveries, during the three months ended January 2, 2021:
Amounts accrued for restructuring and other at September 30, 2020$3.9 
Restructuring and other charges from continuing operations9.7 
Payments and other(10.4)
Amounts accrued for restructuring and other at January 2, 2021$3.2 
Included in restructuring accruals, as of January 2, 2021, is $1.1 that is classified as long-term. Payments against the long-term accruals will be incurred as the employees covered by the restructuring plan retire or through the passage of time. The remaining amounts accrued will continue to be paid out over the course of the next twelve months.
COVID-19
The World Health Organization recognized COVID-19 as a public health emergency of international concern on January 30, 2020 and as a global pandemic on March 11, 2020. In response to the COVID-19 pandemic, the Company has implemented additional measures intended to both protect the health and safety of its employees and maintain its ability to provide products to its customers, including (i) requiring a significant part of its workforce to work from home, (ii) monitoring its employees for COVID-19 symptoms, (iii) making additional personal protective equipment available to its operations team, (iv) requiring all manufacturing and warehousing associates to take their temperatures before beginning a shift, (v) modifying work methods and schedules of its manufacturing and field associates to create distance or add barriers between associates, consumers and others, (vi) expanding cleaning efforts at its operation centers, (vii) modifying attendance policies so that associates may elect to stay
9

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
home if they have symptoms, (viii) prioritizing production for goods that are more essential to its customers and (ix) implementing an interim premium pay allowance for certain associates in its field sales force or working in manufacturing or distribution centers. During the three months ended January 2, 2021, the Company incurred costs of $9.3 associated with the COVID-19 pandemic primarily related to premium pay. The Company incurred costs of $8.3 in its U.S. Consumer segment and $0.4 in its Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended January 2, 2021. The Company incurred costs of $0.6 in its U.S. Consumer segment in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations during the three months ended January 2, 2021. Since the inception of the COVID-19 pandemic, total costs classified within the “Cost of sales—impairment, restructuring and other” and the “Impairment, restructuring and other” lines in the Condensed Consolidated Statements of Operations are $25.1 for the U.S. Consumer segment, $3.0 for the Hawthorne segment and $0.6 for the Other segment.
Project Catalyst
In connection with the acquisition of Sunlight Supply during the third quarter of fiscal 2018, the Company announced the launch of an initiative called Project Catalyst, which is a company-wide restructuring effort to reduce operating costs throughout the U.S. Consumer, Hawthorne and Other segments and drive synergies from acquisitions within the Hawthorne segment. Costs incurred during the three months ended January 2, 2021 and December 28, 2019 related to Project Catalyst were not material. Costs incurred to date since the inception of Project Catalyst are $25.1 for the Hawthorne segment, $13.9 for the U.S. Consumer segment, $1.3 for the Other segment and $2.8 for Corporate. Additionally, during the three months ended December 28, 2019, the Company received $2.6 from the final settlement of escrow funds related to a previous acquisition within the Hawthorne segment that was recognized in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations.
NOTE 5. INVENTORIES
    Inventories consisted of the following for each of the periods presented:
JANUARY 2,
2021
DECEMBER 28,
2019
SEPTEMBER 30,
2020
Finished goods$768.4 $609.2 $390.3 
Work-in-process84.0 79.1 164.8 
Raw materials215.9 177.8 66.8 
Total inventories$1,068.3 $866.1 $621.9 
    Adjustments to reflect inventories at net realizable values were $23.9 at January 2, 2021, $11.4 at December 28, 2019 and $31.3 at September 30, 2020.
NOTE 6. MARKETING AGREEMENT
The Scotts Company LLC (“Scotts LLC”) is the exclusive agent of Monsanto Company, a subsidiary of Bayer AG (“Monsanto”), for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries. Effective August 1, 2019, the Company entered into the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”) which amended, among other things, the provisions of the Second Amended and Restated Exclusive Agency and Marketing Agreement (the “Restated Marketing Agreement”) relating to commissions, contributions, noncompetition, and termination. The annual commission payable under the Third Restated Agreement is equal to 50% of the actual earnings before interest and income taxes of Monsanto’s consumer Roundup® business in the markets covered by the Third Restated Agreement (“Program EBIT”). The Third Restated Agreement also requires the Company to make annual payments of $18.0 to Monsanto as a contribution against the overall expenses of its consumer Roundup® business, subject to reduction pursuant to the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.
Unless Monsanto terminates the Third Restated Agreement due to an event of default by the Company, termination rights under the Third Restated Agreement include the following:
The Company may terminate the Third Restated Agreement (i) for any reason effective as of September 30, 2022 by delivery of notice of termination to Monsanto on January 15, 2021 (a “Convenience Termination”) or (ii) upon the insolvency or bankruptcy of Monsanto;
10

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
Monsanto may terminate the Third Restated Agreement in the event that Monsanto decides to decommission the permits, licenses and registrations needed for, and the trademarks, trade names, packages, copyrights and designs used in, the sale of the Roundup® products in the lawn and garden market (a “Brand Decommissioning Termination”); and
Each party may terminate the Third Restated Agreement if Program EBIT falls below $50.0 and, in such case, no termination fee would be payable to either party.
On January 15, 2021, the Company declined to exercise its Convenience Termination right.
The termination fee structure requires Monsanto to pay a termination fee to the Company in an amount equal to (i) $175.0 upon a Convenience Termination, which the Company declined to exercise, (ii) $375.0 upon a Brand Decommissioning Termination, and (iii) the greater of $175.0 or four times an amount equal to the average of the Program EBIT for the three program years before the year of termination, minus $186.4, if Monsanto or its successor terminates the Third Restated Agreement as a result of a Roundup Sale or Change of Control of Monsanto (each, as defined in the Third Restated Agreement).
In connection with the signing of the Third Restated Agreement, the Company also entered into the Brand Extension Agreement Asset Purchase Agreement (the “BEA Purchase Agreement”). The BEA Purchase Agreement provides for the sale by the Company to Monsanto of specified assets related to, among other things, the development, manufacture, production, advertising, marketing, promotion, distribution, importation, exportation, offer for sale and sale of specified Roundup® branded products sold outside the non-selective weedkiller category within the residential lawn and garden market. The consideration paid by Monsanto was $112.0 plus the value of finished goods inventory of $3.5. This consideration was recorded in the “Prepaid and other current assets” line in the Consolidated Balance Sheets until it was received by the Company on January 13, 2020. The carrying value of the assets sold included the brand extension agreement intangible asset with a carrying value of $111.7.
The elements of the net commission and reimbursements earned under the Restated Marketing Agreement and Third Restated Agreement and included in the “Net sales” line in the Condensed Consolidated Statements of Operations are as follows:
 THREE MONTHS ENDED
 JANUARY 2,
2021
DECEMBER 28,
2019
Gross commission$7.7 $ 
Contribution expenses(4.5)(4.5)
Net commission3.2 (4.5)
Reimbursements associated with Roundup® marketing agreement
14.0 13.4 
Total net sales associated with Roundup® marketing agreement
$17.2 $8.9 

NOTE 7. DEBT
The components of debt are as follows:
JANUARY 2,
2021
DECEMBER 28,
2019
SEPTEMBER 30,
2020
Credit Facilities:
Revolving loans$599.6 $537.1 $64.0 
Term loans700.0 750.0 710.0 
Senior Notes – 5.250%
250.0 250.0 250.0 
Senior Notes – 4.500%
450.0 450.0 450.0 
Receivables facility136.0 39.0 20.0 
Finance lease obligations34.8 36.9 36.1 
Other6.8 11.5 1.1 
Total debt2,177.2 2,074.5 1,531.2 
Less current portions188.0 93.8 66.4 
Less unamortized debt issuance costs9.4 10.8 9.7 
Long-term debt$1,979.8 $1,969.9 $1,455.1 
11

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
Credit Facilities
On July 5, 2018, the Company entered into a fifth amended and restated credit agreement (the “Fifth A&R Credit Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,300.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $800.0 (the “Fifth A&R Credit Facilities”).
At January 2, 2021, the Company had letters of credit outstanding in the aggregate principal amount of $19.8, and $880.6 of borrowing availability under the Fifth A&R Credit Agreement. The weighted average interest rates on average borrowings under the Fifth A&R Credit Agreement were 2.1% and 3.9% for the three months ended January 2, 2021 and December 28, 2019, respectively.
The Fifth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s leverage ratio on the last day of each quarter calculated as average total indebtedness, divided by the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”), as adjusted pursuant to the terms of the Fifth A&R Credit Agreement (“Adjusted EBITDA”). The maximum leverage ratio is 4.50. The Company’s leverage ratio was 2.26 at January 2, 2021. The Fifth A&R Credit Agreement also contains an affirmative covenant regarding the Company’s interest coverage ratio determined as of the end of each of its fiscal quarters. The interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the Fifth A&R Credit Agreement, and excludes costs related to refinancings. The minimum interest coverage ratio was 3.00 for the twelve months ended January 2, 2021. The Company’s interest coverage ratio was 11.84 for the twelve months ended January 2, 2021.
The Fifth A&R Credit Agreement allows the Company to make unlimited restricted payments (as defined in the Fifth A&R Credit Agreement), including dividend payments and repurchases of the common shares of Scotts Miracle-Gro (“Common Shares”), as long as the leverage ratio resulting from the making of such restricted payments is 4.00 or less. Otherwise, the Company may make further restricted payments in an aggregate amount for each fiscal year not to exceed $225.0.
Senior Notes
On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026 (the “5.250% Senior Notes”). The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year. Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes.
On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”). The net proceeds of the offering were used to redeem all of the Company’s outstanding 6.000% Senior Notes due 2023 (the “6.000% Senior Notes”) and for general corporate purposes. The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year. All of Scotts Miracle-Gro’s domestic subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.500% Senior Notes.
On October 23, 2019, Scotts Miracle-Gro redeemed all of its outstanding 6.000% Senior Notes for a redemption price of $412.5, comprised of $0.5 of accrued and unpaid interest, $12.0 of redemption premium, and $400.0 for outstanding principal amount. The $12.0 redemption premium was recognized in the “Costs related to refinancing” line on the Condensed Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, the Company had $3.1 in unamortized bond issuance costs associated with the 6.000% Senior Notes, which were written-off during the first quarter of fiscal 2020 and were recognized in the “Costs related to refinancing” line in the Condensed Consolidated Statements of Operations.
Receivables Facility
On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended annually (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”). Under the Receivables Facility, the Company may sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers and simultaneously agree to repurchase the receivables on a weekly basis. The eligible accounts receivable consist of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts receivables which may be sold under the Receivables
12

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
Facility is $400.0 and the commitment amount during the seasonal commitment period beginning on February 26, 2021 and ending on June 18, 2021 is $160.0. The Receivables Facility expires on August 20, 2021.
The Company accounts for the sale of receivables under the Receivables Facility as short-term debt and continues to carry the receivables on its Condensed Consolidated Balance Sheets, primarily as a result of the Company’s requirement to repurchase receivables sold. As of January 2, 2021 and December 28, 2019, there were $136.0 and $39.0, respectively, in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was $151.1 and $43.3, respectively.
Interest Rate Swap Agreements
The Company has outstanding interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. The swap agreements had a maximum total U.S. dollar equivalent notional amount of $600.0, $850.0 and $600.0 at January 2, 2021, December 28, 2019 and September 30, 2020, respectively. Interest payments made between the effective date and expiration date are hedged by the swap agreements, except as noted below.
The notional amount, effective date, expiration date and rate of each of these swap agreements outstanding at January 2, 2021 are shown in the table below:
Notional Amount Effective
Date (a)
Expiration
Date
Fixed
Rate
$200 
(b)
11/7/20186/7/20212.87 %
100 11/7/20187/7/20212.96 %
200 11/7/201810/7/20212.98 %
100 12/21/20206/20/20231.36 %
300 
(b)
1/7/20216/7/20231.34 %
200 10/7/20216/7/20231.37 %
200 
(b)
1/20/20226/20/20240.58 %
200 6/7/20236/8/20260.85 %
(a)The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement.
(b)Notional amount adjusts in accordance with a specified seasonal schedule. This represents the maximum notional amount at any point in time.
Weighted Average Interest Rate
The weighted average interest rates on the Company’s debt were 3.8% and 4.5% for the three months ended January 2, 2021 and December 28, 2019, respectively.
NOTE 8. EQUITY
The following tables provide a summary of the changes in total equity, equity attributable to controlling interest, and equity attributable to noncontrolling interests for each of the periods indicated:
 Common Shares and Capital in
Excess of Stated Value
Retained
Earnings
Treasury
Shares
Accumulated Other
Comprehensive Loss
Total Equity -
Controlling Interest
Noncontrolling
Interest
Total
Equity
Balance at September 30, 2020$482.5 $1,235.6 $(921.8)$(99.1)$697.2 $5.7 $702.9 
Net income (loss)— 24.4 — — 24.4 0.8 25.2 
Other comprehensive income (loss)— — — 15.6 15.6 — 15.6 
Share-based compensation8.2 — — — 8.2 — 8.2 
Dividends declared ($0.62 per share)
— (35.7)— — (35.7)— (35.7)
Treasury share purchases— — (38.4)— (38.4)— (38.4)
Treasury share issuances(0.1)— 1.3 — 1.2 — 1.2 
Balance at January 2, 2021$490.5 $1,224.4 $(958.8)$(83.5)$672.6 $6.4 $679.0 
The sum of the components may not equal due to rounding.
13

THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions, except per share data)
 Common Shares and Capital in
Excess of Stated Value
Retained
Earnings
Treasury
Shares
Accumulated Other
Comprehensive Loss
Total Equity -
Controlling Interest
Noncontrolling
Interest
Total
Equity
Balance at September 30, 2019$442.2 $1,274.7 $(904.3)$(93.9)$718.7 $4.5 $