THE SCOTTS MIRACLE-GRO COMPANY

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SCOTTS MIRACLE-GRO CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/11/2022 | 04:17pm EDT

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

•Executive summary

•Results of operations

•Segment results

•Liquidity and capital resources

•Regulatory matters

•Critical accounting policies and estimates


This MD&A should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Scotts
Miracle-Gro's Annual Report on Form 10-K for the fiscal year ended September 30,
2021 (the "2021 Annual Report") and our condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q.

EXECUTIVE SUMMARY


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

Through our U.S. Consumer and Other segments, we are the leading manufacturer
and marketer of branded consumer lawn and garden products in North America. Our
products are marketed under some of the most recognized brand names in the
industry. Our key consumer lawn and garden brands include Scotts® and Turf
Builder® lawn and grass seed products; Miracle-Gro® soil, plant food and
insecticide, LiquaFeed® plant food and Osmocote® gardening and landscape
products; and Ortho®, Home Defense® and Tomcat® branded insect control, weed
control and rodent control 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.
We also have a presence in similar branded consumer products in China. In
addition, we own a 50% equity interest in Bonnie Plants, LLC, a joint venture
with AFC, focused on planting, growing, developing, distributing, marketing and
selling live plants.

Through our Hawthorne segment, we are the leading manufacturer, marketer and
distributor of lighting, nutrients, growing media, growing environments and
hardware products for indoor and hydroponic gardening in North America. Our key
brands include General Hydroponics®, Gavita®, Botanicare®, Agrolux®,
Can-Filters®, Sun System®, Gro Pro®, Mother Earth®, Hurricane®, Grower's Edge®,
Hydro-Logic® and Luxx Lighting®.

On December 30, 2021, our Hawthorne segment completed the acquisition of
substantially all of the assets of Luxx Lighting, Inc., a leading provider of
lighting products for indoor growing that significantly strengthens our
industry-leading lighting portfolio, for a purchase price of $213.2. On
April 28, 2022, our Hawthorne segment completed the acquisition of substantially
all of the assets of Cyco, an Australia-based provider of premium nutrients,
additives and growing media products for indoor growing, for a purchase price of
$34.4 plus contingent consideration with a maximum payout of $10.0.

During fiscal 2021, we announced the creation of a newly formed subsidiary, THC,
which will focus on strategic minority non-equity investments in areas of the
cannabis industry not currently pursued by our Hawthorne segment. This
initiative is designed to allow us, in the future, to participate directly in a
larger marketplace as the legal environment changes over time. On August 24,
2021, we made our initial investment under this initiative in the form of a
$150.0 six-year convertible note issued to us by Toronto-based RIV Capital (CSE:
RIV) (OTC: CNPOF), a cannabis investment and acquisition firm listed on the
Canadian Securities Exchange. On April 22, 2022, pursuant to our follow-on
investment rights, we made an additional investment in RIV Capital in the form
of a $25.0 convertible note. During the fourth quarter of fiscal 2021, we made
additional minority non-equity investments of $43.1 in other entities focused on
branded cannabis and high quality genetics. These investments include conversion
features that would provide us with minority ownership interests in these
entities if we exercise
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the conversion features. Refer to "NOTE 3. ACQUISITIONS AND INVESTMENTS" for more information regarding these investments.


Due to the seasonal nature of the consumer lawn and garden business, for our
U.S. Consumer and Other segments, significant portions of our products ship to
our retail customers during our second and third fiscal quarters, as noted in
the table below. 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, thereby reducing retailers'
pre-season inventories. For our Hawthorne segment, sales are also impacted by
seasonal patterns for certain product categories due to the timing of outdoor
growing in North America during our second and third fiscal quarters, and the
timing of certain controlled agricultural lighting project sales during our
third and fourth fiscal quarters.
                             Percent of Net Sales from Continuing
                                     Operations by Quarter
                                 2021                       2020        2019
First Quarter                                  15.2  %      8.9  %      9.4  %
Second Quarter                                 37.1  %     33.5  %     37.7  %
Third Quarter                                  32.7  %     36.1  %     37.1  %
Fourth Quarter                                 15.0  %     21.5  %     15.8  %


On February 6, 2020, Scotts Miracle-Gro announced that its Board of Directors
authorized the repurchase of up to $750.0 of Common Shares from April 30, 2020
through March 25, 2023. During the three and six months ended April 2, 2022,
Scotts Miracle-Gro repurchased approximately 0.4 million and 1.1 million Common
Shares under this share repurchase authorization for $50.0 and $175.0,
respectively. During the three and six months ended April 3, 2021, Scotts
Miracle-Gro repurchased approximately 0.1 million and 0.3 million Common Shares
under this share repurchase authorization for $12.5 and $50.5, respectively.

On July 27, 2020, the Scotts Miracle-Gro Board of Directors approved an increase
in our quarterly cash dividend from $0.58 to $0.62 per Common Share, which was
first paid in the fourth quarter of fiscal 2020. On July 30, 2021, the Scotts
Miracle-Gro Board of Directors approved an increase in our quarterly cash
dividend from $0.62 to $0.66 per Common Share, which was first paid in the
fourth quarter of fiscal 2021.

Recent Events


The COVID-19 pandemic has had, and continues to have, an impact on financial
markets, economic conditions, and portions of our business and industry. We have
actively addressed the pandemic's ongoing impact on our employees, operations,
customers, consumers, and communities, by, among other things, implementing
contingency plans, making operational adjustments where necessary, and providing
assistance to organizations that support front-line workers. The first priority
of our pandemic response has been and remains the health, safety and well-being
of our employees. In addition to implementing measures to help ensure the health
and safety of our employees, we implemented an interim premium pay allowance
during fiscal 2020 and 2021 for certain associates in our field sales force and
our manufacturing and distribution centers, which paid out nearly $50.0 in
aggregate.

The extent to which the COVID-19 pandemic will impact our business, results of
operations, financial condition and cash flows in the future will depend on
future developments, including the duration, spread and intensity of the
pandemic, our continued ability to manufacture and distribute our products, as
well as any future government actions affecting consumers and the economy
generally, all of which are uncertain and difficult to predict considering the
rapidly evolving landscape. We are not able to predict the impact, if any, that
the COVID-19 pandemic may have on the seasonality of our business.

Although we currently expect to be able to continue operating our business as
described above and we intend to continue to work with government authorities
and to follow the necessary protocols to maintain the health and safety of our
employees, the COVID-19 pandemic could result in additional disruptions to our
business, including our global supply chain and retailer network, and/or require
us to incur additional operational costs. For additional information on the
impacts of, and our response to, the COVID-19 pandemic, refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part II, Item 7 of the 2021 Annual Report.

We have experienced higher transportation and materials costs, including
fertilizer inputs such as urea, due in part to the negative impact of the war in
Ukraine on the global economy. We expect a continuing inflationary environment
that is heightened by this conflict, and we are continuing to address these
impacts to our operations. We have no operations in Russia or Ukraine.

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RESULTS OF OPERATIONS

The following table sets forth the components of earnings as a percentage of net sales for the three months ended April 2, 2022 and April 3, 2021:

                                                     April 2,                % Of                April 3,                % Of
                                                       2022               Net Sales                2021               Net Sales
Net sales                                          $ 1,678.4                    100.0  %       $ 1,828.8                    100.0  %
Cost of sales                                        1,084.7                     64.6            1,158.9                     63.4
Cost of sales-impairment, restructuring and other        5.3                      0.3               12.4                      0.7

Gross profit                                           588.4                     35.1              657.5                     36.0
Operating expenses:
Selling, general and administrative                    204.7                     12.2              231.5                     12.7
Impairment, restructuring and other                      0.1                        -                2.5                      0.1

Other income, net                                       (4.3)                    (0.3)              (0.6)                       -
Income from operations                                 387.9                     23.1              424.1                     23.2
Equity in loss of unconsolidated affiliates              6.5                      0.4                1.5                      0.1

Interest expense                                        28.3                      1.7               19.3                      1.1
Other non-operating income, net                         (1.9)                    (0.1)              (0.9)                       -
Income from continuing operations before income
taxes                                                  355.0                     21.2              404.2                     22.1
Income tax expense from continuing operations           78.5                      4.7               93.1                      5.1
Income from continuing operations                      276.5                     16.5              311.1                     17.0
Loss from discontinued operations, net of tax              -                        -               (0.9)                       -
Net income                                         $   276.5                     16.5  %       $   310.2                     17.0  %

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

The following table sets forth the components of earnings as a percentage of net sales for the six months ended April 2, 2022 and April 3, 2021:

                                                     April 2,                % Of                April 3,                % Of
                                                       2022               Net Sales                2021               Net Sales
Net sales                                          $ 2,244.3                    100.0  %       $ 2,577.4                    100.0  %
Cost of sales                                        1,532.0                     68.3            1,707.7                     66.3
Cost of sales-impairment, restructuring and other        5.3                      0.2               21.4                      0.8

Gross profit                                           707.0                     31.5              848.3                     32.9
Operating expenses:
Selling, general and administrative                    358.7                     16.0              388.2                     15.1
Impairment, restructuring and other                      1.8                      0.1                3.2                      0.1

Other income, net                                       (6.0)                    (0.3)              (1.2)                       -
Income from operations                                 352.5                     15.7              458.1                     17.8
Equity in loss of unconsolidated affiliates             13.8                      0.6                1.5                      0.1

Interest expense                                        52.1                      2.3               35.4                      1.4
Other non-operating income, net                         (3.7)                    (0.2)             (16.1)                    (0.6)
Income from continuing operations before income
taxes                                                  290.3                     12.9              437.3                     17.0
Income tax expense from continuing operations           63.9                      2.8              101.1                      3.9
Income from continuing operations                      226.4                     10.1              336.2                     13.0
Loss from discontinued operations, net of tax              -                        -               (0.9)                       -
Net income                                         $   226.4                     10.1  %       $   335.3                     13.0  %

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

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Net Sales

Net sales for the three months ended April 2, 2022 were $1,678.4, a decrease of
8.2% from net sales of $1,828.8 for the three months ended April 3, 2021. Net
sales for the six months ended April 2, 2022 were $2,244.3, a decrease of 12.9%
from net sales of $2,577.4 for the six months ended April 3, 2021. These changes
in net sales were attributable to the following:

                       Three Months Ended      Six Months Ended
                         April 2, 2022          April 2, 2022
Volume                            (16.0) %              (19.7) %
Pricing                             7.0                   6.1
Acquisitions                        0.8                   0.7

Change in net sales                (8.2) %              (12.9) %


The decrease in net sales for the three and six months ended April 2, 2022 as
compared to the three and six months ended April 3, 2021 was primarily driven
by:

•decreased sales volume driven by lighting, nutrients, growing media, hardware and growing environments products in our Hawthorne segment; and seed, fertilizer, soils and controls products in our U.S. Consumer segment;

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

•the addition of net sales from acquisitions.

Cost of Sales


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

                                                       Three Months Ended                     Six Months Ended
                                                   April 2,           April 3,           April 2,           April 3,
                                                     2022               2021               2022               2021
Materials                                        $   627.4          $   680.9          $   864.6          $   995.3
Distribution and warehousing                         235.3              216.1              350.3              324.3
Manufacturing labor and overhead                     200.0              235.3              275.5              347.5
Costs associated with Roundup® marketing
agreement                                             22.0               26.6               41.6               40.6
Cost of sales                                      1,084.7            1,158.9            1,532.0            1,707.7
Cost of sales-impairment, restructuring and
other                                                  5.3               12.4                5.3               21.4

                                                 $ 1,090.0          $ 1,171.3          $ 1,537.3          $ 1,729.1


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

                                                         Three Months Ended          Six Months Ended
                                                           April 2, 2022               April 2, 2022
Volume, product mix and other                          $            (122.3)         $         (224.0)
Material cost changes                                                 53.1                      47.6
Costs associated with Roundup® marketing agreement                    (4.7)                      1.0
Foreign exchange rates                                                (0.3)                     (0.3)
                                                                     (74.2)                   (175.7)
Impairment, restructuring and other                                   (7.1)                    (16.1)

Change in cost of sales                                $             (81.3)         $         (191.8)

The decrease in cost of sales for the three months ended April 2, 2022 as compared to the three months ended April 3, 2021 was primarily driven by:

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

•a decrease in impairment, restructuring and other charges; and

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•a decrease in costs associated with the Roundup® marketing agreement;

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

•higher transportation and warehousing costs included within "volume, product mix and other" in our U.S. Consumer, Hawthorne and Other segments.

The decrease in cost of sales for the six months ended April 2, 2022 as compared to the six months ended April 3, 2021 was primarily driven by:

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

•a decrease in impairment, restructuring and other charges;

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

•higher transportation and warehousing costs included within "volume, product mix and other" in our U.S. Consumer, Hawthorne and Other segments.

Gross Profit


As a percentage of net sales, our gross profit rate was 35.1% and 36.0% for the
three months ended April 2, 2022 and April 3, 2021, respectively. As a
percentage of net sales, our gross profit rate was 31.5% and 32.9% for the six
months ended April 2, 2022 and April 3, 2021, respectively. Factors contributing
to the change in gross profit rate are outlined in the following table:

                                           Three Months Ended      Six 

Months Ended

                                             April 2, 2022          April 2, 2022
Volume, product mix and other                          (3.4) %               (4.7) %
Material costs                                         (3.4)                 (2.3)
Acquisitions                                           (0.1)                 (0.1)
Roundup® commissions and reimbursements                 0.3                     -
Pricing                                                 5.4                   5.1

                                                       (1.2) %               (2.0) %
Impairment, restructuring and other                     0.3                 

0.6


Change in gross profit rate                            (0.9) %              

(1.4) %

The decrease in gross profit rate for the three months ended April 2, 2022 as compared to the three months ended April 3, 2021 was primarily driven by:

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

•higher transportation and warehousing costs of 300 bps included within "volume, product mix and other" in our U.S. Consumer, Hawthorne and Other segments; and

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

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

•a decrease in impairment, restructuring and other charges; and

•a decrease in costs associated with the Roundup® marketing agreement.

The decrease in gross profit rate for the six months ended April 2, 2022 as compared to the six months ended April 3, 2021 was primarily driven by:

•higher transportation and warehousing costs of 340 bps included within "volume, product mix and other" in our U.S. Consumer, Hawthorne and Other segments;

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

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

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

•a decrease in impairment, restructuring and other charges.

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Selling, General and Administrative Expenses

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


                                                             Three Months Ended                       Six Months Ended
                                                         April 2,             April 3,           April 2,           April 3,
                                                           2022                 2021               2022               2021
Advertising                                          $     49.1             $    68.8          $    67.3          $    95.5
Research and development                                   12.4                  10.3               24.9               20.6
Amortization of intangibles                                 8.9                   7.3               16.3               14.5
Share-based compensation                                   15.9                  17.7               23.2               25.8

Other selling, general and administrative                 118.4                 127.4              227.0              231.8
                                                     $    204.7             $   231.5          $   358.7          $   388.2


SG&A decreased $26.8, or 11.6%, during the three months ended April 2, 2022
compared to the three months ended April 3, 2021. Advertising expense decreased
$19.7, or 28.6%, during the three months ended April 2, 2022 driven by decreased
media spending in our U.S. Consumer segment. Other SG&A decreased $9.0, or 7.1%,
during the three months ended April 2, 2022 driven by a decrease in short-term
variable cash incentive compensation expense.

SG&A decreased $29.5, or 7.6%, during the six months ended April 2, 2022
compared to the six months ended April 3, 2021. Advertising expense decreased
$28.2, or 29.5%, during the six months ended April 2, 2022 driven by decreased
media spending in our U.S. Consumer segment. Other SG&A decreased $4.8, or 2.1%,
during the six months ended April 2, 2022 driven by a decrease in short-term
variable cash incentive compensation expense, partially offset by higher people
costs.

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 for each of the periods presented:

                                                        Three Months Ended                       Six Months Ended
                                                    April 2,           April 3,             April 2,             April 3,
                                                      2022               2021                 2022                 2021
Cost of sales-impairment, restructuring and
other:
COVID-19 related costs                            $       -          $    12.3          $       -              $    21.0
Restructuring and other charges, net                    2.5                0.1                2.5                    0.4
Property, plant and equipment impairments               2.8                  -                2.8                      -
Operating expenses:
COVID-19 related costs                                    -                2.6                  -                    3.2
Restructuring and other charges (recoveries), net       0.1               (0.1)               1.8                      -

Impairment, restructuring and other charges from
continuing operations                             $     5.4          $    14.9          $     7.1              $    24.6


During the second quarter of fiscal 2022, we announced plans to consolidate U.S.
lighting manufacturing for our Hawthorne segment into a single location and to
close another recently acquired assembly facility and move those operations to
our Santa Rosa, California facility. During the three and six months ended
April 2, 2022, our Hawthorne segment incurred costs of $5.3 in in the "Cost of
sales-impairment, restructuring and other" line in the Condensed Consolidated
Statements of Operations and $0.1 in the "Impairment, restructuring and other"
line in the Condensed Consolidated Statements of Operations in connection with
this restructuring initiative related to employee termination benefits and
impairment of property, plant and equipment.

Subsequent to April 2, 2022, we began evaluating actions to reduce the size of
our Hawthorne segment supply chain network and implement productivity and other
restructuring activities in our U.S. Consumer segment and Corporate functions,
which, if executed, may result in additional charges during our third and fourth
quarters of fiscal 2022.
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In response to the COVID-19 pandemic, we implemented measures intended to
protect the health and safety of our employees and maintain our ability to
provide products to our customers. Costs incurred during the three and six
months ended April 2, 2022 were immaterial. During the three and six months
ended April 3, 2021, we incurred costs of $14.9 and $24.2, respectively,
associated with the COVID-19 pandemic primarily related to premium pay. We
incurred costs of $10.7 and $19.0 in our U.S. Consumer segment, $1.5 and $1.9 in
our Hawthorne segment and $0.1 in our Other segment in the "Cost of
sales-impairment, restructuring and other" line in the Condensed Consolidated
Statements of Operations during the three and six months ended April 3, 2021,
respectively. We incurred costs of $2.6 and $3.2 in our U.S. Consumer segment in
the "Impairment, restructuring and other" line in the Condensed Consolidated
Statements of Operations during the three and six months ended April 3, 2021,
respectively.

Other Income, net

Other income is comprised of activities such as royalty income from the
licensing of certain of our brand names, foreign exchange transaction gains and
losses and gains and losses from the disposition of non-inventory assets. Other
income was $4.3 and $0.6 for the three months ended April 2, 2022 and April 3,
2021, respectively; and was $6.0 and $1.2 for the six months ended April 2, 2022
and April 3, 2021, respectively. The change for the three and six months ended
April 2, 2022 was primarily due to gains on the sale of long-lived assets during
the second quarter of fiscal 2022.

Income from Operations


Income from operations was $387.9 for the three months ended April 2, 2022, a
decrease of 8.5% compared to $424.1 for the three months ended April 3, 2021;
and was $352.5 for the six months ended April 2, 2022, a decrease of 23.1%
compared to $458.1 for the six months ended April 3, 2021. For the three and six
months ended April 2, 2022, the decrease was driven by lower net sales and a
decrease in gross profit rate, partially offset by lower impairment,
restructuring and other charges, lower SG&A and higher other income.

Equity in Loss of Unconsolidated Affiliates


We acquired a 50% equity interest in Bonnie Plants, LLC on December 31, 2020.
Our interest is accounted for using the equity method of accounting, with our
proportionate share of Bonnie Plants, LLC earnings subsequent to December 31,
2020 reflected in the Condensed Consolidated Statements of Operations. We
recorded equity in loss of unconsolidated affiliates associated with Bonnie
Plants, LLC of $6.5 and $13.8 during the three and six months ended April 2,
2022, respectively, as compared to $1.5 during the three and six months ended
April 3, 2021.

Interest Expense

Interest expense was $28.3 for the three months ended April 2, 2022, an increase
of 46.6% compared to $19.3 for the three months ended April 3, 2021. The
increase was driven by higher average borrowings of $1,158.2 due to higher
inventory production, capital expenditures, acquisition activity and repurchases
of our Common Shares.

Interest expense was $52.1 for the six months ended April 2, 2022, an increase
of 47.2% compared to $35.4 for the six months ended April 3, 2021. The increase
was driven by higher average borrowings of $1,041.5 due to higher inventory
production, capital expenditures, acquisition activity and repurchases of our
Common Shares.

Other Non-Operating Income, Net


Other non-operating income was $1.9 and $0.9 for the three months ended April 2,
2022 and April 3, 2021, respectively, and was $3.7 and $16.1 for the six months
ended April 2, 2022 and April 3, 2021, respectively. On December 31, 2020, we
acquired a 50% equity interest in Bonnie Plants, LLC in exchange for a cash
payment of $100.7, forgiveness of our outstanding loan receivable with AFC and
surrender of our options to increase our economic interest in the Bonnie Plants
business. Our loan 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 we 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.

Income Tax Expense from Continuing Operations


The effective tax rates related to continuing operations for the six months
ended April 2, 2022 and April 3, 2021 were 22.0% and 23.1%, 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
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that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year-end.

Income from Continuing Operations


Income from continuing operations was $276.5, or $4.94 per diluted share, for
the three months ended April 2, 2022 compared to $311.1, or $5.44 per diluted
share, for the three months ended April 3, 2021. The decrease was driven by
lower net sales, a decrease in gross profit rate, higher interest expense and
higher equity in loss of unconsolidated affiliates, partially offset by lower
impairment, restructuring and other charges, lower SG&A and higher other income.

Diluted average common shares used in the diluted income per common share
calculation for the three months ended April 2, 2022 were 56.0 million, which
included dilutive potential Common Shares of 0.5 million. Diluted average common
shares used in the diluted income per common share calculation for the three
months ended April 3, 2021 were 57.1 million, which included dilutive potential
Common Shares of 1.4 million. The decrease was primarily the result of Common
Share repurchase activity partially offset by the exercise and issuance of
share-based compensation awards.

Income from continuing operations was $226.4, or $4.02 per diluted share, for
the six months ended April 2, 2022 compared to $336.2, or $5.88 per diluted
share, for the six months ended April 3, 2021. The decrease was driven by lower
net sales, a decrease in gross profit rate, higher interest expense, higher
equity in loss of unconsolidated affiliates and lower other non-operating
income, partially offset by lower impairment, restructuring and other charges,
lower SG&A and higher other income.

Diluted average common shares used in the diluted income per common share
calculation for the six months ended April 2, 2022 were 56.3 million, which
included dilutive potential Common Shares of 0.8 million. Diluted average common
shares used in the diluted income per common share calculation for the six
months ended April 3, 2021 were 57.0 million, which included dilutive potential
Common Shares of 1.3 million. The decrease was primarily the result of Common
Share repurchase activity partially offset by the exercise and issuance of
share-based compensation awards.

SEGMENT RESULTS


The performance of each reportable segment is evaluated based on several
factors, including income (loss) from continuing operations before income taxes,
amortization, impairment, restructuring and other charges ("Segment Profit
(Loss)"), which is a non-GAAP financial measure. Senior management uses Segment
Profit (Loss) to evaluate segment performance because they believe this measure
is indicative of performance trends and the overall earnings potential of each
segment.

The following table sets forth net sales by segment:

                    Three Months Ended             Six Months Ended
                 April 2,       April 3,       April 2,       April 3,
                   2022           2021           2022           2021
U.S. Consumer   $ 1,379.8      $ 1,374.0      $ 1,722.2      $ 1,782.2
Hawthorne           202.6          363.8          393.2          673.2
Other                96.0           91.0          128.9          122.0
Consolidated    $ 1,678.4      $ 1,828.8      $ 2,244.3      $ 2,577.4


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                (Dollars in millions, except per share data)


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

                                                             Three Months Ended                       Six Months Ended
                                                         April 2,             April 3,           April 2,           April 3,
                                                           2022                 2021               2022               2021
U.S. Consumer                                        $    428.9             $   435.9          $   439.6          $   481.2
Hawthorne                                                   3.3                  41.4               (2.0)              81.8
Other                                                      10.5                  17.6               11.8               17.6
Total Segment Profit (Non-GAAP)                           442.7                 494.9              449.4              580.6
Corporate                                                 (39.1)                (48.1)             (70.5)             (82.7)
Intangible asset amortization                             (10.4)                 (7.8)             (19.3)             (15.2)

Impairment, restructuring and other                        (5.3)                (14.9)              (7.1)             (24.6)
Equity in loss of unconsolidated affiliates                (6.5)                 (1.5)             (13.8)              (1.5)

Interest expense                                          (28.3)                (19.3)             (52.1)             (35.4)
Other non-operating income, net                             1.9                   0.9                3.7               16.1
Income from continuing operations before income
taxes (GAAP)                                         $    355.0             $   404.2          $   290.3          $   437.3


U.S. Consumer

U.S. Consumer segment net sales were $1,379.8 in the second quarter of fiscal
2022, an increase of 0.4% from second quarter of fiscal 2021 net sales of
$1,374.0; and were $1,722.2 for the first six months of fiscal 2022, a decrease
of 3.4% from the first six months of fiscal 2021 net sales of $1,782.2. For the
second quarter of fiscal 2022, the increase was driven by the favorable impact
of increased pricing of 8.4%, partially offset by the unfavorable impact of
volume of 8.0%. For the six months ended April 2, 2022, the decrease was driven
by the unfavorable impact of volume of 10.7%, partially offset by the favorable
impact of increased pricing of 7.3%. The decrease in sales volume for the three
and six months ended April 2, 2022 was driven by seed, fertilizer, soils and
controls products.

U.S. Consumer Segment Profit was $428.9 in the second quarter of fiscal 2022, a
decrease of 1.6% from the second quarter of fiscal 2021 Segment Profit of
$435.9; and Segment Profit was $439.6 for the first six months of fiscal 2022, a
decrease of 8.6% from the first six months of fiscal 2021 Segment Profit of
$481.2. For the three months ended April 2, 2022, the decrease was primarily due
to a lower gross profit rate, partially offset by lower SG&A. For the six months
ended April 2, 2022, the decrease was primarily due to lower net sales and a
lower gross profit rate, partially offset by lower SG&A.

Hawthorne


Hawthorne segment net sales were $202.6 in the second quarter of fiscal 2022, a
decrease of 44.3% from second quarter of fiscal 2021 net sales of $363.8; and
were $393.2 for the first six months of fiscal 2022, a decrease of 41.6% from
the first six months of fiscal 2021 net sales of $673.2. For the second quarter
of fiscal 2022, the decrease was driven by the unfavorable impacts of volume and
foreign exchange rates of 50.9% and 0.1%, respectively, partially offset by the
favorable impacts of increased pricing and acquisitions of 2.7% and 4.0%,
respectively. For the six months ended April 2, 2022, the decrease was driven by
the unfavorable impacts of volume and foreign exchange rates of 47.0% and 0.2%,
respectively, partially offset by the favorable impacts of increased pricing and
acquisitions of 3.1% and 2.5%, respectively. The decrease in sales volume for
the three and six months ended April 2, 2022 was driven by lighting, nutrients,
growing media, hardware and growing environments products.

Hawthorne Segment Profit was $3.3 in the second quarter of fiscal 2022, a
decrease of 92.0% from the second quarter of fiscal 2021 Segment Profit of
$41.4; and Segment Loss was $2.0 for the first six months of fiscal 2022, a
decrease of 102.4% from the first six months of fiscal 2021 Segment Profit of
$81.8. For the three and six months ended April 2, 2022, the decrease was driven
by lower net sales, a lower gross profit rate and higher SG&A.
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Our Hawthorne segment has been negatively impacted during the six months ended
April 2, 2022 by both an oversupply of cannabis, which has slowed down indoor
and outdoor cultivation, and higher transportation and warehousing costs.
Although we expect that the oversupply of cannabis and cost increases will
continue to adversely impact our Hawthorne segment during the remainder of
fiscal 2022, we are taking actions intended to mitigate the impact, including
reducing costs. If the oversupply of cannabis and cost increases persist longer,
or are more significant than we expect or we are unable to mitigate their
impact, our results of operations could be adversely impacted for a longer
period and to a greater extent than we currently anticipate. At April 2, 2022,
the goodwill for our Hawthorne segment totaled $433.0. As of April 2, 2022, we
concluded that no goodwill impairment exists for our Hawthorne segment. This
assessment considered the impact of temporary lower sales volumes and increased
costs being experienced by our Hawthorne segment during the first six months of
fiscal 2022 as well as changes to other assumptions used in the fiscal 2021
annual impairment assessment, including the discount rate. While we consider our
assumptions to be reasonable and appropriate and informed by temporary downturns
in Hawthorne results experienced during 2018 and 2019, they are complex and
subjective. Adverse changes in key assumptions in the future may result in a
decline in the fair value of our Hawthorne segment below its carrying value and
an impairment of its goodwill. These adverse changes may include, among other
things: a failure to meet expected revenue and profitability growth rates; an
increase in the discount rate; a decrease in the long-term growth rate; or a
significant change in economic conditions.

Other


Other segment net sales were $96.0 in the second quarter of fiscal 2022, an
increase of 5.5% from the second quarter of fiscal 2021 net sales of $91.0; and
were $128.9 for the first six months of fiscal 2022, an increase of 5.7% from
the first six months of fiscal 2021 net sales of $122.0. For the second quarter
of fiscal 2022, the increase was driven by the favorable impacts of pricing,
volume and foreign exchange rates of 4.7%, 0.6% and 0.2%, respectively. For the
six months ended April 2, 2022, the increase was driven by the favorable impacts
of pricing and foreign exchange rates of 5.2% and 0.9%, respectively, partially
offset by the unfavorable impact of volume of 0.4%.

Other Segment Profit was $10.5 in the second quarter of fiscal 2022, a decrease
of 40.3% from the second quarter of fiscal 2021 Segment Profit of $17.6; and
Segment Profit was $11.8 for the first six months of fiscal 2022, a decrease of
33.0% from the first six months of fiscal 2021 Segment Profit of $17.6. For the
three and six months ended April 2, 2022, the decrease was driven by a lower
gross profit rate, partially offset by higher net sales.

Corporate


Corporate expenses were $39.1 in the second quarter of fiscal 2022, a decrease
of 18.7% from second quarter of fiscal 2021 expenses of $48.1; and were $70.5
for the first six months of fiscal 2022, a decrease of 14.8% from the first six
months of fiscal 2021 expenses of $82.7. For the three and six months ended
April 2, 2022, the decrease was driven by lower short-term variable cash
incentive compensation expense and higher other income.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes cash activities:


                                                 Six Months Ended
                                              April 2,       April 3,
                                                2022           2021

Net cash used in operating activities $ (1,142.6) $ (699.9) Net cash used in investing activities

           (255.8)       (173.8)

Net cash provided by financing activities 1,171.3 871.1

Operating Activities


Cash used in operating activities totaled $1,142.6 for the six months ended
April 2, 2022, an increase of $442.7 as compared to $699.9 for the six months
ended April 3, 2021. This increase was driven by higher inventory, lower net
income and higher interest payments, partially offset by lower tax payments and
lower short-term variable cash incentive compensation payouts. Higher inventory
was driven by higher production to meet expected future demand and higher input
costs. The six months ended April 2, 2022 was also impacted by extended payment
terms with several of our major vendors across the U.S. Consumer and Hawthorne
segments, as well as Monsanto, for payments originally due in the final weeks of
fiscal 2021 that were paid in the first quarter of fiscal 2022.
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Investing Activities


Cash used in investing activities totaled $255.8 for the six months ended
April 2, 2022, an increase of $82.0 as compared to $173.8 for the six months
ended April 3, 2021. Cash used for investments in property, plant and equipment
during the first six months of fiscal 2022 and 2021 was $66.0 and $53.7,
respectively. We also completed the acquisitions of Luxx Lighting, Inc. and True
Liberty Bags during the six months ended April 2, 2022 in exchange for cash
payments of $202.8, as well as the issuance of 0.1 million Common Shares, a
non-cash investing and financing activity, with a fair value of $21.0 based on
the share price at the time of payment. In addition, we received proceeds from
the sale of long-lived assets of $8.5 and received $4.5 associated with currency
forward contracts during the six months ended April 2, 2022. During the six
months ended April 3, 2021, we acquired a 50% equity interest in Bonnie Plants,
LLC in exchange for a cash payment of $100.7, as well as non-cash investing
activities that included forgiveness of our outstanding loan receivable with AFC
and surrender of our options to increase our economic interest in the Bonnie
Plants business. In addition, during the six months ended April 3, 2021, we
acquired contract rights within our U.S. Consumer segment for a cash payment of
$10.0 and we paid cash of $8.9 associated with currency forward contracts.

Financing Activities


Cash provided by financing activities totaled $1,171.3 for the six months ended
April 2, 2022 as compared $871.1 for the six months ended April 3, 2021. This
change was driven by an increase in net borrowings under our Fifth A&R Credit
Facilities of $994.3 during the six months ended April 2, 2022, partially offset
by the issuance of $500.0 aggregate principal amount of 4.00% Senior Notes
during the six months ended April 3, 2021, an increase in repurchases of our
Common Shares of $194.2 and an increase in dividends paid of $22.3 during the
six months ended April 2, 2022. In addition, during the six months ended
April 3, 2021, we made payments of $15.5 associated with the acquisition of the
remaining outstanding shares of AeroGrow and paid financing and issuance fees of
$7.0.

Cash and Cash Equivalents

Our cash and cash equivalents were held in cash depository accounts with major
financial institutions around the world or invested in high-quality, short-term
liquid investments having original maturities of three months or less. The cash
and cash equivalents balances of $17.1, $14.4 and $244.1 as of April 2, 2022,
April 3, 2021 and September 30, 2021, respectively, included $4.0, $6.2 and
$15.9, respectively, held by controlled foreign corporations. As of April 2,
2022, we maintain our assertion of indefinite reinvestment of the earnings of
all material foreign subsidiaries.

Borrowing Agreements

Credit Facilities


Our primary sources of liquidity are cash generated by operations and borrowings
under our credit facilities, which are guaranteed by substantially all of Scotts
Miracle-Gro's domestic subsidiaries. On July 5, 2018, we entered into a fifth
amended and restated credit agreement (the "Fifth A&R Credit Agreement"), which
provided us 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"). Under the Fifth A&R Credit Facilities, we had the
ability to obtain letters of credit up to $75.0.

At April 2, 2022, we had letters of credit outstanding in the aggregate
principal amount of $19.9 and had $345.2 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 1.8% and 1.9% for the six
months ended April 2, 2022 and April 3, 2021, respectively.

On April 8, 2022, we entered into a sixth amended and restated credit agreement
(the "Sixth A&R Credit Agreement"), providing us with five-year senior secured
loan facilities in the aggregate principal amount of $2,500.0, comprised of a
revolving credit facility of $1,500.0 and a term loan in the original principal
amount of $1,000.0 (the "Sixth A&R Credit Facilities"). The Sixth A&R Credit
Agreement also provides us with the right to seek additional committed credit
under the agreement in an aggregate amount of up to $500.0 plus an unlimited
additional amount, subject to certain specified financial and other conditions.
The Sixth A&R Credit Agreement replaces the Fifth A&R Credit Agreement and will
terminate on April 8, 2027. The Sixth A&R Credit Facilities will be available
for issuance of letters of credit up to $100.0. The terms of the Sixth A&R
Credit Agreement include customary representations and warranties, affirmative
and negative covenants, financial covenants, and events of default. The Fifth
A&R Credit Agreement would have terminated on July 5, 2023, if it had not been
amended and restated pursuant to the Sixth A&R Credit Agreement.

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

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 its
fiscal quarters ending on and after April 2, 2022 calculated as average total
indebtedness, divided by our earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as adjusted pursuant to the terms of the Sixth A&R
Credit Agreement ("Adjusted EBITDA"). The maximum permitted leverage ratio is
4.50, which is unchanged from the Fifth A&R Credit Agreement. Our leverage ratio
was 3.81 at April 2, 2022. The Sixth A&R Credit Agreement also contains an
affirmative covenant regarding our interest coverage ratio determined as of the
end of each of our fiscal quarters ending on and after April 2, 2022. The
interest coverage ratio is calculated as Adjusted EBITDA divided by interest
expense, as described in the Sixth A&R Credit Agreement, and excludes costs
related to refinancings. The minimum required interest coverage ratio is 3.00,
which is unchanged from the Fifth A&R Credit Agreement. Our interest coverage
ratio was 7.81 for the twelve months ended April 2, 2022. As of April 2, 2022,
we were in compliance with these financial covenants.

The Sixth A&R Credit Agreement allows us to make unlimited restricted payments
(as defined in the Sixth A&R Credit Agreement), including dividend payments on,
and repurchases of, our Common Shares, as long as the leverage ratio resulting
from the making of such restricted payments is 4.00 or less. Otherwise, we may
make further restricted payments in an aggregate amount for each fiscal year not
to exceed $225.0. We continue to monitor our compliance with the leverage ratio,
interest coverage ratio and other covenants contained in the Sixth A&R Credit
Agreement and, based upon our current operating assumptions, we expect to remain
in compliance with the permissible leverage ratio and interest coverage ratio
throughout fiscal 2022. However, an unanticipated shortfall in earnings, an
increase in net indebtedness or other factors could materially affect our
ability to remain in compliance with the financial or other covenants of the
Sixth A&R Credit Agreement, potentially causing us to have to seek an amendment
or waiver from our lending group which could result in repricing of the Sixth
A&R Credit Agreement. While we believe we have good relationships with our
lending group, we can provide no assurance that such a request would result in a
modified or replacement credit agreement on reasonable terms, if at all.

Senior Notes


On December 15, 2016, we issued $250.0 aggregate principal amount of 5.250%
Senior Notes due 2026. The 5.250% Senior Notes represent general unsecured
senior obligations and rank equal in right of payment with our existing and
future unsecured senior debt. The 5.250% Senior Notes have interest payment
dates of June 15 and December 15 of each year. Substantially all of our directly
and indirectly owned domestic subsidiaries serve as guarantors of the 5.250%
Senior Notes.

On October 22, 2019, we issued $450.0 aggregate principal amount
of 4.500% Senior Notes due 2029. The 4.500% Senior Notes represent general
unsecured senior obligations and rank equal in right of payment with our
existing and future unsecured senior debt. The 4.500% Senior Notes have interest
payment dates of April 15 and October 15 of each year. All of our domestic
subsidiaries that serve as guarantors of the 5.250% Senior Notes also serve as
guarantors of the 4.500% Senior Notes.

On March 17, 2021, we issued $500.0 aggregate principal amount of 4.000% Senior
Notes due 2031. The 4.000% Senior Notes represent general unsecured senior
obligations and rank equal in right of payment with our existing and future
unsecured senior debt. The 4.000% Senior Notes have interest payment dates of
April 1 and October 1 of each year. All of our domestic subsidiaries that serve
as guarantors of the 5.250% Senior Notes also serve as guarantors of the 4.000%
Senior Notes.

On August 13, 2021, we issued $400.0 aggregate principal amount of 4.375% Senior
Notes due 2032. The 4.375% Senior Notes represent general unsecured senior
obligations and rank equal in right of payment with our existing and future
unsecured senior debt. The 4.375% Senior Notes have interest payment dates of
February 1 and August 1 of each year. All of our domestic subsidiaries that
serve as guarantors of the 5.250% Senior Notes also serve as guarantors of the
4.375% Senior Notes.

Receivables Facility

We also maintain a Receivables Facility, under which we 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 Facility is $400.0 and the
commitment amount
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during the seasonal commitment period beginning on February 25, 2022 and ending on June 17, 2022 is $160.0. The Receivables Facility expires on August 19, 2022.

We account for the sale of receivables under the Receivables Facility as short-term debt and continue to carry the receivables on our Condensed Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold. As of April 2, 2022 and April 3, 2021, there were $400.0 and $160.0, respectively, in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was $444.5 and $177.8, respectively.

Interest Rate Swap Agreements


We enter into interest rate swap agreements with major financial institutions
that effectively convert a portion of our variable rate debt to a fixed rate.
Interest payments made between the effective date and expiration date are hedged
by the swap agreements. Swap agreements that were hedging interest payments as
of April 2, 2022, April 3, 2021 and September 30, 2021 had a maximum total
U.S. dollar equivalent notional amount of $800.0, $900.0 and $600.0,
respectively. The notional amount, effective date, expiration date and rate of
each of the swap agreements outstanding at April 2, 2022 are shown in the table
below:

 Notional          Effective        Expiration       Fixed
  Amount            Date (a)           Date           Rate

   100              12/21/2020         6/20/2023     1.36  %
   300      (b)       1/7/2021          6/7/2023     1.34  %
   200               10/7/2021          6/7/2023     1.37  %
   200      (b)      1/20/2022         6/20/2024     0.58  %
   200                6/7/2023          6/8/2026     0.85  %


(a)The effective date refers to the date on which interest payments are first
hedged by the applicable swap agreement.
(b)Notional amount adjusts in accordance with a specified seasonal schedule.
This represents the maximum notional amount at any point in time.

Availability and Use of Cash


We believe that our cash flows from operations and borrowings under our
agreements described herein will be sufficient to meet debt service, capital
expenditures and working capital needs for the foreseeable future. However, we
cannot ensure that our business will generate sufficient cash flow from
operations or that future borrowings will be available under our borrowing
agreements in amounts sufficient to pay indebtedness or fund other liquidity
needs. Additionally, the extent to which the COVID-19 pandemic will ultimately
impact our business, results of operations, financial condition and cash flows
depends on future developments that are uncertain and difficult to predict.
Actual results of operations will depend on numerous factors, many of which are
beyond our control as further discussed in the 2021 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" and "ITEM 1A. RISK FACTORS - Risks Related to Our Business - The
effects of the ongoing coronavirus (COVID-19) pandemic and any possible
recurrence of other similar types of pandemics, or any other widespread public
health emergencies, could have a material adverse effect on our business,
results of operations, financial condition and/or cash flows."

Financial Disclosures About Guarantors and Issuers of Guaranteed Securities

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


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

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

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

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

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

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

The following tables present summarized financial information on a combined
basis for Scotts Miracle-Gro and the Guarantors. Transactions between Scotts
Miracle-Gro and the Guarantors have been eliminated and the summarized financial
information does not reflect investments of the Scotts Miracle-Gro and the
Guarantors in the Non-Guarantor subsidiaries.
                          April 2,       September 30,
                            2022              2021

Current assets           $ 2,953.8      $      1,834.8
Noncurrent assets (a)      2,699.3             2,484.5
Current liabilities        1,354.0             1,038.1
Noncurrent liabilities     3,662.9             2,611.8


(a)Includes amounts due from Non-Guarantor subsidiaries of $69.5 and $39.8,
respectively.

                                                    Six Months Ended         Year Ended
                                                        April 2,           September 30,
                                                          2022                  2021

Net sales                                          $         2,085.7      $      4,507.6
Gross profit                                                   681.5             1,380.6
Income from continuing operations (a)                          230.1        

510.9

Net income                                                     230.1        

510.8

Net income attributable to controlling interest                230.1        

509.9

(a)Includes intercompany income from Non-Guarantor subsidiaries of $6.9 and $26.3, respectively.

                                       40
--------------------------------------------------------------------------------
  Contents             THE SCOTTS MIRACLE-GRO COMPANY
                (Dollars in millions, except per share data)


Judicial and Administrative Proceedings


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

Contractual Obligations


Other than as disclosed in this Quarterly Report on Form 10-Q, there have been
no material changes outside of the ordinary course of business in our
outstanding contractual obligations since the end of fiscal 2021 and through
April 2, 2022.

REGULATORY MATTERS

We are subject to local, state, federal and foreign environmental protection
laws and regulations with respect to our business operations and believe we are
operating in substantial compliance with, or taking actions aimed at ensuring
compliance with, such laws and regulations. We are involved in several legal
actions with various governmental agencies related to environmental matters.
While it is difficult to quantify the potential financial impact of actions
involving these environmental matters, particularly remediation costs at waste
disposal sites and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability arising from
such environmental matters, taking into account established accruals, is not
expected to have a material effect on our financial condition, results of
operations or cash flows. However, there can be no assurance that the resolution
of these matters will not materially affect our future quarterly or annual
results of operations, financial condition or cash flows. Additional information
on environmental matters affecting us is provided in the 2021 Annual Report,
under "ITEM 1. BUSINESS - Regulatory Considerations" and "ITEM 3. LEGAL
PROCEEDINGS."

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The preparation of financial statements requires management to use judgment and
make estimates that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosures of contingent assets and liabilities. We
evaluate our estimates on an ongoing basis. By their nature, these judgments are
subject to uncertainty. We base our estimates on historical experience and on
various other sources that we believe to be reasonable under the circumstances.
Certain accounting policies are particularly significant, including those
related to revenue recognition, income taxes and goodwill and intangible assets.
Our critical accounting policies are reviewed periodically with the Audit
Committee of the Board of Directors of Scotts Miracle-Gro. Our critical
accounting policies and estimates have not changed materially from those
disclosed in the 2021 Annual Report.

© Edgar Online, source Glimpses

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