THE SCOTTS MIRACLE-GRO COMPANY
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
Executive Summary
We are the leading manufacturer and marketer of branded consumer lawn and garden
products in North America . 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. 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.
Beginning in fiscal 2015, our Hawthorne segment made a series of key
acquisitions and investments, including General Hydroponics, Gavita, Botanicare,
Vermicrop, Agrolux, Can-Filters and AeroGrow . On June 4, 2018 , our Hawthorne
segment acquired substantially all of the assets of Sunlight Supply. At the time
of the acquisition, Sunlight Supply was a leading developer, manufacturer,
marketer and distributor of horticultural, organics, lighting and hydroponic
gardening products. Prior to the transaction, Sunlight Supply served as a
non-exclusive distributor of our products. In connection with our acquisition of
Sunlight Supply, we announced the launch of an initiative called Project
Catalyst. Project Catalyst is a company-wide restructuring effort to reduce
operating costs throughout our U.S. Consumer, Hawthorne and Other segments and
drive synergies from acquisitions within our Hawthorne segment.
In addition, we are party to the Services Agreement and Term Loan Agreement with
Bonnie and its sole shareholder, AFC, pursuant to which we provide financing and
certain services to the Bonnie Business. The Services Agreement and Term Loan
Agreement include options, beginning in fiscal 2020, that provide for either (i)
the Company to increase its economic interest in the Bonnie Business or (ii) AFC
and Bonnie to repurchase the Company's economic interest in the Bonnie Business
(collectively, the "Bonnie Option"). On November 4, 2020 , we announced the
signing of a non-binding letter-of-intent to acquire a 50 percent equity
interest in the Bonnie Business. If the transactions contemplated by the
non-binding letter-of-intent are consummated, the Bonnie Option would be
terminated.
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 located in the geographic United States . Hawthorne consists of our
indoor and hydroponic gardening business. Other consists of our consumer lawn
and garden business in geographies other than the U.S. and our product sales to
commercial nurseries, greenhouses and other professional customers. In addition,
Corporate consists of general and administrative expenses and certain other
income and expense items not allocated to the business segments. This division
of reportable segments is consistent with how the segments report to and are
managed by our chief operating decision maker. See "SEGMENT RESULTS" below for
additional information regarding our evaluation of segment performance.
As a leading consumer branded lawn and garden company, our product development
and marketing efforts are largely focused on providing innovative and
differentiated products and continually increasing brand and product awareness
to inspire consumers to create retail demand. We have implemented this model for
a number of years by focusing on research and development and investing
approximately 4-5% of our U.S. Consumer segment annual net sales in advertising
to support and promote our consumer lawn and garden products and brands. We
continually explore new and innovative ways to communicate with consumers. We
believe that we receive a significant benefit from these expenditures and
anticipate a similar commitment to research and development, advertising and
marketing investments in the future, with the continuing objective of driving
category growth and profitably increasing market share.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Our consumer lawn and garden net sales in any one year are susceptible to
weather conditions in the markets in which our products are sold and our
services are offered. For instance, periods of abnormally wet or dry weather can
adversely impact the sale of certain products, while increasing demand for other
products. We believe that our diversified product line and our geographic
diversification reduce this risk, although to a lesser extent in a year in which
unfavorable weather is geographically widespread and extends across a
significant portion of the lawn and garden season. We also believe that weather
conditions in any one year, positive or negative, do not materially impact
longer-term category growth trends.
Due to the seasonal nature of the lawn and garden business, significant portions
of our products ship to our retail customers during our second and third fiscal
quarters, as noted in the chart 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.
Percent of Net Sales from Continuing
Operations by Quarter
2020 2019 2018
First Quarter 8.9 % 9.4 % 8.3 %
Second Quarter 33.5 % 37.7 % 38.0 %
Third Quarter 36.1 % 37.1 % 37.3 %
Fourth Quarter 21.5 % 15.8 % 16.3 %
We follow 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 us to cycle forward the first three
fiscal quarter ends every six years.
Management focuses on a variety of key indicators and operating metrics to
monitor the financial condition and performance of the continuing operations of
our business. These metrics include consumer purchases (point-of-sale data),
market share, category growth, net sales (including unit volume, pricing and
foreign exchange movements), gross profit margins, advertising to net sales
ratios, income from operations, income from continuing operations, net income
and earnings per share. To the extent applicable, these metrics are evaluated
with and without impairment, restructuring and other charges that do not occur
in or reflect the ordinary course of our ongoing business operations. Metrics
that exclude impairment, restructuring and other charges are used by management
to evaluate our performance, engage in financial and operational planning and
determine incentive compensation because we believe that these measures provide
additional perspective on the performance of our underlying, ongoing business.
Refer to "ITEM 6. SELECTED FINANCIAL DATA" for further discussion of non-GAAP
measures. We also focus on measures to optimize cash flow and return on invested
capital, including the management of working capital and capital expenditures.
On August 11, 2014 , Scotts Miracle-Gro announced that its Board of Directors
authorized the repurchase of up to $500.0 of Common Shares over a five-year
period (effective November 1, 2014 through September 30, 2019 ). On August 3,
2016 , Scotts Miracle-Gro announced that its Board of Directors authorized a
$500.0 increase to the share repurchase authorization ending on September 30,
2019 . On August 2, 2019 , the Scotts Miracle-Gro Board of Directors authorized an
extension of the share repurchase authorization through March 28, 2020 . The
amended authorization allowed for repurchases of Common Shares of up to an
aggregate amount of $1,000.0 through March 28, 2020 . During fiscal 2020
through March 28, 2020 , Scotts Miracle-Gro repurchased 0.4 million Common Shares
under the share repurchase authorization for $48.2 . There were no share
repurchases under the share repurchase authorization during fiscal 2019. From
the effective date of the share repurchase authorization in the fourth quarter
of fiscal 2014 through March 28, 2020 , Scotts Miracle-Gro repurchased
approximately 8.7 million Common Shares for $762.8 .
On February 6, 2020 , the Company announced a new share repurchase program
allowing for repurchases of up to $750.0 of Common Shares from April 30, 2020
through March 25, 2023 . Effective March 30, 2020 , management elected to
temporarily suspend share repurchase activity in order to enhance the Company's
financial flexibility in response to the COVID-19 pandemic. Accordingly, there
were no share repurchases under this share repurchase authorization during
fiscal 2020. Subsequent to September 30, 2020 , management has elected to
commence share repurchase activity.
On July 30, 2019 , the Scotts Miracle-Gro Board of Directors approved an increase
in our quarterly cash dividend from $0.55 to $0.58 per Common Share, which was
first paid in the fourth quarter of fiscal 2019. On July 27, 2020 , the Scotts
Miracle-Gro Board of Directors approved a special cash dividend of $5.00 per
Common Share, which was paid on September 10, 2020 to all shareholders of record
at the close of business on August 27, 2020 . In addition, on July 27, 2020 , the
Scotts Miracle-Gro Board of Directors also 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.
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) COVID-19 Response and Impacts TheWorld Health Organization recognized COVID-19 as a public health emergency of international concern onJanuary 30, 2020 and as a global pandemic onMarch 11, 2020 . Public health responses have included national pandemic preparedness and response plans, travel restrictions, quarantines, curfews, event postponements and cancellations and closures of facilities including local schools and businesses. The global pandemic and actions taken to contain COVID-19 have adversely affected the global economy and financial markets. In response to the COVID-19 pandemic, we have implemented additional measures intended to both protect the health and safety of our employees and maintain our ability to provide products to our customers, including (i) requiring a significant part of our workforce to work from home, (ii) monitoring our employees for COVID-19 symptoms, (iii) making additional personal protective equipment available to our operations team, (iv) requiring all manufacturing and warehousing associates to take their temperatures before beginning a shift, (v) modifying work methods and schedules of our manufacturing and field associates to create distance or add barriers between associates, consumers and others, (vi) expanding cleaning efforts at our operation centers, (vii) modifying attendance policies so that associates may elect to stay home if they have symptoms, (viii) prioritizing production for goods that are more essential to our customers and (ix) implementing an interim premium pay allowance for certain associates in our field sales force or working in manufacturing or distribution centers. In addition, to help address the critical shortage of personal protective equipment in the fight against COVID-19, we shifted production in ourTemecula, California manufacturing plant for a period of time to produce face shields to help protect healthcare workers and first responders in critical need areas across the country. As a result of these additional measures and initiatives, we incurred incremental costs, mostly related to premium pay provided to our associates. While we believe that these efforts should enable us to maintain our operations during the COVID-19 pandemic, we can provide no assurance that we will be able to do so as a result of the unpredictability of the ultimate impact of the COVID-19 pandemic, including its length, severity and the responses of local, state, federal and foreign governmental authorities to the pandemic. In those jurisdictions that were subject to business closures or limitations, our manufacturing and distribution operations were viewed as essential services and continued to operate. Likewise, our major retail partners were designated as essential services and remained open during this time but with reduced hours and with customer capacity limitations in certain locations. There have been no significant disruptions in incoming supplies or raw materials. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and are prepared to take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. AtSeptember 30, 2020 , we had$1,415.7 of borrowing availability under the Fifth A&R Credit Agreement. During fiscal 2020, we experienced increased demand for many of our products, especially our soils, fertilizer, grass seed, controls and plant food products, in response to the COVID-19 pandemic. This increased demand has driven an increase in sales and profits that were not previously projected for the fiscal year. In light of these events and in recognition of the dedication and efforts of our associates during this challenging time, we made one-time payments and retirement contributions to our hourly and certain salaried associateswho do not participate in our variable cash incentive compensation plans along with providing increased variable payments to our salaried associateswho participate in such plans. In addition, we increased our contributions supporting community initiatives and charities. 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 highly uncertain, rapidly evolving and difficult to predict at this time. Depending on the length and severity of the COVID-19 pandemic, we may experience an increase or decrease in future customer orders driven by volatility in retail foot traffic, consumer shopping and consumption behavior. We are not able to predict the impact, if any, that the COVID-19 pandemic may have on the seasonality of our business. 34
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Results of Operations
The following table sets forth the components of earnings as a percentage of net
sales:
Year Ended September 30,
2020 % of Net Sales 2019 % of Net Sales 2018 % of Net Sales
Net sales $ 4,131.6 100.0 %
2,768.6 67.0 2,130.5 67.5 1,778.3 66.8
Cost of sales-impairment, restructuring and
other 16.0 0.4 5.9 0.2 20.5 0.8
Gross profit 1,347.0 32.6 1,019.6 32.3 864.6 32.5
Operating expenses:
Selling, general and administrative 757.8 18.3 601.3 19.1 540.1 20.3
Impairment, restructuring and other 0.8 - 7.4 0.2 132.3 5.0
Other (income) expense, net 3.2 0.1 1.3 - (6.7) (0.3)
Income from operations 585.2 14.2 409.6 13.0 198.9 7.5
Equity in income of unconsolidated
affiliates - - (3.3) (0.1) (4.9) (0.2)
Costs related to refinancing 15.1 0.4 - - - -
Interest expense 79.6 1.9 101.8 3.2 86.4 3.2Other non-operating (income) expense, net (20.1) (0.5)
(270.5) (8.6) 1.7 0.1
Income from continuing operations before
income taxes 510.6 12.4 581.6 18.4 115.7 4.3
Income tax expense (benefit) from continuing
operations 123.7 3.0 144.9 4.6 (11.9) (0.4)
Income from continuing operations 386.9 9.4 436.7 13.8 127.6 4.8
Income (loss) from discontinued operations,
net of tax 1.7 - 23.5 0.7 (63.9) (2.4)
Net income $ 388.6 9.4 % $ 460.2 14.6 % $ 63.7 2.4 %
The sum of the components may not equal due to rounding.
Net Sales Net sales for fiscal 2020 were$4,131.6 , an increase of 30.9% from net sales of$3,156.0 for fiscal 2019. Net sales for fiscal 2019 increased 18.5% from net sales of$2,663.4 for fiscal 2018. These changes in net sales were attributable to the following: Year Ended September 30, 2020 2019 Volume 29.2 % 9.0 % Acquisitions - 8.7 Pricing 1.9 1.3 Foreign exchange rates (0.2) (0.5) Change in net sales 30.9 % 18.5 % The increase in net sales for fiscal 2020 as compared to fiscal 2019 was primarily driven by: •increased sales volume due to increased consumer demand including impacts of the COVID-19 pandemic and driven by soils, fertilizer, grass seed, controls and plant food products in ourU.S. Consumer segment; lighting, nutrients, hardware and growing environments products in our Hawthorne segment; and increased sales in our Other segment; partially offset by decreased sales of mulch products in ourU.S. Consumer segment and a decrease of approximately$29.7 due to the loss in sales from the Roundup® brand extension products that were sold to Monsanto during fiscal 2019; •increased pricing in ourU.S. Consumer and Hawthorne segments; and •increased net sales associated with the Roundup® marketing agreement and the Bonnie Services Agreement; 35
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THE SCOTTS MIRACLE-GRO COMPANY
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•partially offset by the unfavorable impact of foreign exchange rates as a
result of the strengthening of the U.S. dollar relative to the Canadian dollar.
The increase in net sales for fiscal 2019 as compared to fiscal 2018 was
primarily driven by:
•increased sales volume driven by increased sales of soils, mulch, grass seed
and fertilizer products in our U.S. Consumer segment and hydroponic gardening
products in our Hawthorne segment excluding the impact of acquisitions,
partially offset by decreased sales in our Other segment as a result of the
closure of our business in Mexico ;
•the addition of net sales from the Sunlight Supply acquisition of $231.4 in our
Hawthorne segment; and
•increased pricing in our U.S. Consumer and Other segments, partially offset by
higher volume-based customer rebates in our U.S. Consumer segment and decreased
pricing in our Hawthorne segment primarily driven by increased promotional
activities;
•partially offset by decreased net sales associated with the Roundup® marketing
agreement; and
•the unfavorable impact of foreign exchange rates as a result of the
strengthening of the U.S. dollar relative to the euro and the Canadian dollar.
Cost of Sales
The following table shows the major components of cost of sales:
Year Ended September 30,
2020 2019 2018
Materials $ 1,599.3 $ 1,196.4 $ 994.2
Manufacturing labor and overhead 615.1 485.8 401.3
Distribution and warehousing 492.6
394.9 328.3
Costs associated with Roundup® marketing agreement 61.6 53.4
54.5
Cost of sales 2,768.6 2,130.5 1,778.3
Cost of sales-impairment, restructuring and other 16.0 5.9 20.5
$ 2,784.6 $ 2,136.4 $ 1,798.8
Factors contributing to the change in cost of sales are outlined in the
following table:
Year Ended September 30,
2020 2019
Volume, product mix and other $ 643.0 $ 358.2
Costs associated with Roundup® marketing agreement 8.2 (1.1)
Foreign exchange rates (4.8) (10.5)
Material cost changes (8.3) 5.6
638.1 352.2
Impairment, restructuring and other 10.1 (14.6)
Change in cost of sales $ 648.2 $ 337.6
The increase in cost of sales for fiscal 2020 as compared to fiscal 2019 was
primarily driven by:
•higher sales volume in our U.S. Consumer, Hawthorne and Other segments;
•higher warehousing costs and inventory adjustments to net realizable value
included within "volume, product mix and other" associated with our U.S.
Consumer segment;
•an increase in costs associated with the Roundup® marketing agreement; and
•an increase in impairment, restructuring and other charges of $10.1 as a result
of costs associated with the COVID-19 pandemic;
•partially offset by the favorable impact of foreign exchange rates as a result
of the strengthening of the U.S. dollar relative to the Canadian dollar;
•lower material prices in our U.S. Consumer, Hawthorne and Other segments; and
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
•lower transportation prices included within "volume, product mix and other" in
our U.S. Consumer segment.
The increase in cost of sales for fiscal 2019 as compared to fiscal 2018 was
primarily driven by:
•costs of $199.6 included within "volume, product mix and other" related to
sales from the Sunlight Supply acquisition in our Hawthorne segment;
•higher sales volume in our U.S. Consumer and Hawthorne segments excluding the
impact of acquisitions, partially offset by decreased sales in our Other
segment;
•higher transportation costs included within "volume, product mix and other"
associated with our U.S. Consumer segment; and
•higher material costs in our U.S. Consumer and Other segments;
•partially offset by a decrease in costs associated with the Roundup® marketing
agreement;
•the favorable impact of foreign exchange rates as a result of the strengthening
of the U.S. dollar relative to the euro and the Canadian dollar; and
•a decrease in impairment, restructuring and other charges of $14.6 as a result
of lower costs associated with Project Catalyst.
Gross Profit
As a percentage of net sales, our gross profit rate was 32.6%, 32.3% and 32.5%
for fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Factors contributing
to the change in gross profit rate are outlined in the following table:
Year Ended September 30,
2020 2019
Pricing 0.8 % 0.8 %
Material costs 0.2 (0.2)
Roundup® commissions and reimbursements 0.1 (0.1)
Acquisitions -
(1.5)
Volume, product mix and other (0.6)
0.3
0.5 (0.7)
Impairment, restructuring and other (0.2)
0.5
Change in gross profit rate 0.3 %
(0.2) %
The increase in gross profit rate for fiscal 2020 as compared to fiscal 2019 was primarily driven by: •increased pricing in ourU.S. Consumer and Hawthorne segments; •lower material prices in ourU.S. Consumer, Hawthorne and Other segments; •increased net sales associated with the Roundup® marketing agreement; •increased net sales associated with the Bonnie Services Agreement included within "volume, product mix and other" in ourU.S. Consumer segment; •lower transportation prices included within "volume, product mix and other" in ourU.S. Consumer segment; and •favorable leverage of fixed costs driven by higher sales volume in ourU.S. Consumer, Hawthorne and Other segments; •partially offset by unfavorable mix driven by higher sales growth in our Hawthorne segment relative to ourU.S. Consumer segment and increased sales of lower tier and commodity soils products within ourU.S. Consumer segment; •higher warehousing costs and inventory adjustments to net realizable value included within "volume, product mix and other" associated with ourU.S. Consumer segment; and •an increase in impairment, restructuring and other charges of$10.1 as a result of costs associated with the COVID-19 pandemic. The decrease in gross profit rate for fiscal 2019 as compared to fiscal 2018 was primarily driven by: •an unfavorable impact from acquisitions in our Hawthorne segment related to Sunlight Supply; •higher material costs in ourU.S. Consumer and Other segments; and 37
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•higher transportation costs included within "volume, product mix and other"
associated with our U.S. Consumer segment;
•partially offset by the favorable impact within "volume, product mix and other"
of Sunlight Supply acquisition date inventory fair value adjustments of $12.2
incurred during fiscal 2018;
•increased pricing in our U.S. Consumer and Other segments, net of higher
volume-based customer rebates in our U.S. Consumer segment and decreased pricing
in our Hawthorne segment primarily driven by increased promotional activities;
•favorable leverage of fixed costs such as warehousing driven by higher sales
volume in our U.S. Consumer and Hawthorne segments; and
•a decrease in impairment, restructuring and other charges as a result of lower
costs associated with Project Catalyst.
Selling, General and Administrative Expenses
The following table sets forth the components of selling, general and
administrative expenses ("SG&A"):
Year Ended September 30,
2020 2019 2018
Advertising $ 147.4 $ 120.3 $ 104.2
Advertising as a percentage of net sales 3.6 % 3.8 % 3.9 %
Share-based compensation 57.9 38.4 40.4
Research and development 39.7 39.6 42.5
Amortization of intangibles 31.5 32.9 28.9
Other selling, general and administrative 481.3 370.1 324.1
$ 757.8 $ 601.3 $ 540.1
SG&A increased $156.5 , or 26.0%, during fiscal 2020 compared to fiscal 2019.
Advertising expense increased $27.1 , or 22.5%, during fiscal 2020 driven by
increased media spending in our U.S. Consumer and Hawthorne segments.
Share-based compensation expense increased $19.5 , or 50.8%, in fiscal 2020 due
to an increase in the expected payout percentage on long-term performance-based
awards. Other SG&A increased $111.2 , or 30.0%, in fiscal 2020 driven by higher
short-term variable cash incentive compensation expense of $67.6 , higher selling
expense of $18.6 , higher one-time payments and retirement contributions to our
hourly and certain salaried associates who do not participate in our short-term
variable cash incentive compensation plans and higher contributions supporting
community initiatives and charities.
SG&A increased $61.2 , or 11.3%, during fiscal 2019 compared to fiscal 2018.
Advertising expense increased $16.1 , or 15.5%, during fiscal 2019 driven by
increased media spending in our U.S. Consumer segment. Share-based compensation
expense decreased $2.0 , or 5.0%, in fiscal 2019 due to a more significant
increase in the expected payout percentage on long-term performance-based awards
during fiscal 2018 as compared to fiscal 2019. Amortization expense increased
$4.0 , or 13.8%, in fiscal 2019 due to the impact of recent acquisitions. Other
SG&A increased $46.0 , or 14.2%, in fiscal 2019 driven by higher short-term
variable cash incentive compensation expense of $33.3 and the impact of recent
acquisitions of $11.8 .
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(Dollars in millions, except per share data)
Impairment, Restructuring and Other
Activity described herein is classified within the "Cost of sales-impairment,
restructuring and other," "Impairment, restructuring and other" and "Income
(loss) from discontinued operations, net of tax" lines in the Consolidated
Statements of Operations. The following table details impairment, restructuring
and other charges (recoveries) for each of the periods presented:
Year Ended September 30,
2020 2019 2018
Cost of sales-impairment, restructuring and other: COVID-19 related costs
$ 15.5 $ - $ - Restructuring and other charges (recoveries) (0.1) 5.1 12.3 Intangible asset and property, plant and equipment impairments 0.6 0.8 8.2 Operating expenses: COVID-19 related costs 3.9 - - Restructuring and other charges (recoveries), net (3.1) 7.4 20.2 Goodwill and intangible asset impairments - - 112.1 Impairment, restructuring and other charges from continuing operations 16.8 13.3 152.8
Restructuring and other charges (recoveries), net, from discontinued operations
(3.1) (35.8) 86.8
Total impairment, restructuring and other charges
(recoveries) $ 13.7 $ (22.5) $ 239.6
COVID-19
In response to the COVID-19 pandemic, we have implemented additional measures
intended to both protect the health and safety of our employees and maintain our
ability to provide products to our customers as described in additional detail
above under "COVID-19 Response and Impacts." During fiscal 2020, we incurred
costs of $19.4 associated with the COVID-19 pandemic primarily related to an
interim premium pay allowance for certain associates in our field sales force or
working in manufacturing or distribution centers. We incurred costs of $12.4 in
our U.S. Consumer segment, $2.6 in our Hawthorne segment and $0.5 in our Other
segment in the "Cost of sales-impairment, restructuring and other" line in the
Consolidated Statements of Operations during fiscal 2020. We incurred costs of
$3.8 in our U.S. Consumer segment and $0.1 in our Other segment in the
"Impairment, restructuring and other" line in the Consolidated Statements of
Operations during fiscal 2020.
Project Catalyst
In connection with the acquisition of Sunlight Supply during the third quarter
of fiscal 2018, we announced the launch of an initiative called Project
Catalyst, which is a company-wide restructuring effort to reduce operating costs
throughout our U.S. Consumer, Hawthorne and Other segments and drive synergies
from acquisitions within our Hawthorne segment. Costs incurred during fiscal
2020 related to Project Catalyst were not material. Costs incurred to date since
the inception of Project Catalyst are $25.1 for our Hawthorne segment, $13.5 for
our U.S. Consumer segment, $1.3 for our Other segment and $2.8 for Corporate.
Additionally, during fiscal 2020, we 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
Consolidated Statements of Operations.
During fiscal 2019, we incurred charges of $13.7 related to Project Catalyst. We
incurred charges of $1.1 in our U.S. Consumer segment, $4.2 in our Hawthorne
segment and $0.6 in our Other segment in the "Cost of sales-impairment,
restructuring and other" line in the Consolidated Statements of Operations
during fiscal 2019 related to employee termination benefits, facility closure
costs and impairment of property, plant and equipment. We incurred charges of
$0.5 in our U.S. Consumer segment, $3.9 in our Hawthorne segment, $0.6 in our
Other segment and $2.8 at Corporate in the "Impairment, restructuring and other"
line in the Consolidated Statements of Operations during fiscal 2019 related to
employee termination benefits and facility closure costs.
During fiscal 2018, we incurred charges of $29.4 related to Project Catalyst. We
incurred charges of $8.2 in our U.S. Consumer segment and $12.4 in our Hawthorne
segment in the "Cost of sales-impairment, restructuring and other" line in the
Consolidated Statements of Operations during fiscal 2018 related to employee
termination benefits, facility closure costs and impairment of property, plant
and equipment. We incurred charges of $3.4 in our U.S. Consumer segment and $5.4
in our Hawthorne segment in the "Impairment, restructuring and other" line in
the Consolidated Statements of Operations during fiscal 2018 related to employee
termination benefits.
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data)
Other
We recognized insurance recoveries related to the previously disclosed legal matter In re Morning Song Bird Food Litigation of$1.5 and$13.4 during fiscal 2020 and fiscal 2019, respectively, in the "Income (loss) from discontinued operations, net of tax" line in the Consolidated Statements of Operations. In addition, during fiscal 2019, we recognized a favorable adjustment of$22.5 in the "Income (loss) from discontinued operations, net of tax" line in the Consolidated Statements of Operations as a result of the final resolution of the previously disclosed settlement agreement related to this matter. During fiscal 2018, we recognized a pre-tax charge of$85.0 for a probable loss related to this matter in the "Income (loss) from discontinued operations, net of tax" line in the Consolidated Statements of Operations. Refer to "NOTE 20. CONTINGENCIES" of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information. During fiscal 2019, we recognized a favorable adjustment of$0.4 related to the previously disclosed legal matter In re Scotts EZ Seed Litigation in the "Impairment, restructuring and other" line in the Consolidated Statements of Operations. During fiscal 2018, we recognized a charge of$11.7 for a probable loss related to this matter in the "Impairment, restructuring and other" line in the Consolidated Statements of Operations. Refer to "NOTE 20. CONTINGENCIES" of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information. During fiscal 2018, we recognized a non-cash impairment charge of$94.6 related to a goodwill impairment in our Hawthorne segment in the "Impairment, restructuring and other" line in the Consolidated Statements of Operations as a result of the Company's annual fourth quarter quantitative goodwill impairment test. Refer to "NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET" of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information for more information. During fiscal 2018, we recognized a non-cash impairment charge of$17.5 related to the settlement of a portion of certain previously acquired customer relationships due to the acquisition of Sunlight Supply in the "Impairment, restructuring and other" line in the Consolidated Statement of Operations. Refer to "NOTE 8. ACQUISITIONS AND INVESTMENTS" of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information. Other (Income) Expense, net Other (income) expense is comprised of activities outside our normal business operations, 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) expense was$3.2 ,$1.3 and$(6.7) in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The change for fiscal 2020 was primarily due to losses on long-lived assets. The change for fiscal 2019 was primarily due to foreign exchange transaction losses, a decrease in royalty income earned from Exponent related to its use of our brand names following the divestiture of the International Business due to the adoption of the amended revenue recognition accounting guidance and losses on long-lived assets. Income from Operations Income from operations was$585.2 in fiscal 2020, an increase of 42.9% compared to$409.6 in fiscal 2019. The increase was driven by higher net sales and an increase in gross profit rate, partially offset by higher SG&A. Income from operations was$409.6 in fiscal 2019, an increase of 105.9% compared to$198.9 in fiscal 2018. The increase was driven by higher net sales and lower impairment, restructuring and other charges, partially offset by a decrease in gross profit rate, higher SG&A and a decrease in other income. Equity in Income of Unconsolidated Affiliates Equity in income of unconsolidated affiliates was zero,$3.3 and$4.9 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The decrease for fiscal 2020 was attributable to theApril 1, 2019 sale of our noncontrolling equity interest in the IT&O Joint Venture. Costs Related to Refinancing Costs related to refinancing were$15.1 in fiscal 2020. The costs incurred in fiscal 2020 were associated with the redemption of our 6.000% Senior Notes due 2023 (the "6.000% Senior Notes"), and are comprised of$12.0 of redemption premium and$3.1 of unamortized bond issuance costs that were written off. Refer to "NOTE 12. DEBT" of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding the redemption of the 6.000% Senior Notes. 40
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Interest Expense Interest expense was$79.6 in fiscal 2020, a decrease of 21.8% compared to$101.8 in fiscal 2019. The decrease was driven by a decrease in average borrowings of$256.4 and a decrease in our weighted average interest rate of 50 basis points. The decrease in average borrowings was primarily driven by the application of the proceeds from the sale of our approximately 30% equity interest in the TruGreen Joint Venture, the payoff of second lien term loan financing by the TruGreen Joint Venture, the sale of our noncontrolling equity interest in the IT&O Joint Venture and the sale of the Roundup® brand extension assets to reduce our indebtedness. The decrease in our weighted average interest rate was driven by lower borrowing rates on the Fifth A&R Credit Agreement, the issuance of the 4.500% Senior Notes and the redemption of the 6.000% Senior Notes. Interest expense was$101.8 in fiscal 2019, an increase of 17.8% compared to$86.4 in fiscal 2018. The increase was driven by an increase in average borrowings of$111.9 and an increase in our weighted average interest rate of 50 basis points. The increase in average borrowings was driven by our acquisition activity and Common Share repurchase activity during fiscal 2018, partially offset by the application of the proceeds from the sale of our equity interests in the TruGreen Joint Venture and the IT&O Joint Venture to reduce our indebtedness. The increase in our weighted average interest rate was driven by higher borrowing rates. Other Non-Operating (Income) Expense, net Other non-operating (income) expense was$(20.1) ,$(270.5) and$1.7 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Interest income was$7.6 ,$8.6 and$10.0 for fiscal 2020, fiscal 2019 and fiscal 2018, respectively. During the fourth quarter of fiscal 2020, we recognized an increase in the fair value of the Bonnie Option of$12.0 driven by an increase in sales and profits of the Bonnie Business. OnMarch 19, 2019 , we entered into an agreement under which we sold, toTruGreen Companies L.L.C. , a subsidiary ofTruGreen Holding Corporation , all of our approximately 30% equity interest in the TruGreen Joint Venture. In connection with this transaction, we received cash proceeds of$234.2 related to the sale of our equity interest in the TruGreen Joint Venture and$18.4 related to the payoff of second lien term loan financing by the TruGreen Joint Venture. During fiscal 2019, we also received a distribution from the TruGreen Joint Venture intended to cover certain required tax payments of$3.5 , which was classified as an investing activity in the Consolidated Statements of Cash Flows. During fiscal 2019, we recognized a pre-tax gain of$259.8 related to this sale. The cash proceeds were applied to reduce our indebtedness. During fiscal 2019, we made cash tax payments of$99.5 associated with this disposition. OnApril 1, 2019 , we sold all of our noncontrolling equity interest in the IT&O Joint Venture for cash proceeds of$36.6 . During fiscal 2019, we recognized a pre-tax gain of$2.9 related to this sale. During fiscal 2019, we received a distribution of net earnings from the IT&O Joint Venture of$4.9 , which was classified as an operating activity in the Consolidated Statements of Cash Flows. During the second quarter of fiscal 2019, we recognized a charge of$2.5 related to the write-off of accumulated foreign currency translation loss adjustments of a foreign subsidiary that was substantially liquidated. As a result of the enactment of H.R.1 (the "Act," formerly known as the "Tax Cuts and Jobs Act") onDecember 22, 2017 , we repatriated cash from a foreign subsidiary during the second quarter of fiscal 2018 resulting in the liquidation of substantially all of the assets of the subsidiary and the write-off of accumulated foreign currency translation loss adjustments of$11.7 . 41
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Income Tax Expense (Benefit) from Continuing Operations
A reconciliation of the federal corporate income tax rate and the effective tax
rate on income from continuing operations before income taxes is summarized
below:
Year Ended September 30,
2020 2019 2018
Statutory income tax rate 21.0 % 21.0 % 24.5 %
Effect of foreign operations (0.7) 0.3 7.4
State taxes, net of federal benefit 3.5 1.8 6.5
Domestic Production Activities Deduction permanent difference - - (4.4)
Effect of other permanent differences - (0.2) (3.0)
Research and Experimentation and other federal tax credits (0.3) (0.3) (1.7)
Effect of tax contingencies 0.1 1.9 1.3
Effect of tax reform - - (38.7)
Other 0.6 0.4 (2.2)
Effective income tax rate 24.2 % 24.9 % (10.3) %
On December 22, 2017 , the Act was signed into law. The Act provides for
significant changes to the U.S. Internal Revenue Code of 1986, as amended (the
"Code"). Among other items, the Act implements a territorial tax system, imposed
a one-time transition tax on deemed repatriated earnings of foreign
subsidiaries, and reduces the federal corporate statutory tax rate to 21%
effective January 1, 2018 . As our fiscal year end falls on September 30 , the
federal corporate statutory tax rate for fiscal 2018 was prorated to 24.5%, with
the statutory rate for fiscal 2019 and beyond at 21%. Included in the effective
tax rate for fiscal 2018 are one-time impacts related to the tax law change of
$42.8 . These include a one-time $44.6 net tax benefit adjustment reflecting the
revaluation of our net deferred tax liability at the lower tax rate. In
addition, we recognized a one-time tax expense on deemed repatriated earnings
and cash of foreign subsidiaries as required by the Act of $21.2 , partially
offset by the recognition and application of foreign tax credits associated with
these foreign subsidiaries of $18.2 . We also reduced the value of deferred tax
liabilities associated with the write-off of previously acquired customer
relationship intangible assets by $7.3 , which was recognized in the "Income tax
expense (benefit) from continuing operations" line in the Consolidated Statement
of Operations in fiscal 2018. During the fourth quarter of fiscal 2018, we
recognized a non-cash goodwill impairment charge of $94.6 , of which $20.0 was
not tax-deductible.
Income from Continuing Operations
Income from continuing operations was $386.9 , or $6.78 per diluted share, in
fiscal 2020 compared to $436.7 , or $7.77 per diluted share, in fiscal 2019. The
decrease was driven by lower other non-operating income, higher SG&A and higher
costs related to refinancing, partially offset by higher net sales, an increase
in gross profit rate and lower interest expense.
Diluted average common shares used in the diluted income per common share
calculation were 56.9 million for fiscal 2020 compared to 56.3 million for
fiscal 2019. The increase was primarily the result of the exercise and issuance
of share-based compensation awards, partially offset by Common Share repurchase
activity. Dilutive equivalent shares for fiscal 2020 and fiscal 2019 were 1.2
million and 0.8 million, respectively.
Income from continuing operations was $436.7 , or $7.77 per diluted share, in
fiscal 2019 compared to $127.6 , or $2.23 per diluted share, in fiscal 2018. The
increase was driven by higher net sales, lower impairment, restructuring and
other charges and an increase in other non-operating income, partially offset by
a lower gross profit rate, higher SG&A, decreased other income and an increase
in interest expense.
Diluted average common shares used in the diluted income per common share
calculation were 56.3 million for fiscal 2019 compared to 57.1 million for
fiscal 2018. The decrease was primarily the result of Common Share repurchase
activity during fiscal 2018, partially offset by the exercise and issuance of
share-based compensation awards and the payment of a portion of the purchase
price of Sunlight Supply in Common Shares. Dilutive equivalent shares for fiscal
2019 and fiscal 2018 were 0.8 million and 0.9 million, respectively.
Income (Loss) from Discontinued Operations, net of tax
Income (loss) from discontinued operations, net of tax, was $1.7 , $23.5 and
$(63.9) for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
We recognized insurance recoveries related to the previously disclosed legal
matter In re Morning Song Bird Food Litigation of $1.5 and $13.4 during fiscal
2020 and fiscal 2019, respectively. In addition, during fiscal 2019, we
recognized a favorable pre-tax adjustment of $22.5 as a result of the final
resolution of the previously disclosed settlement agreement related to this
matter. During fiscal 2018, we recognized a pre-tax charge of $85.0 for a
probable loss related to this matter. Refer to "NOTE 20. CONTINGENCIES" of the
Notes to the Consolidated Financial Statements included in this Annual Report on
Form 10-K for more information.
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:
Year Ended September 30,
2020 2019 2018
U.S. Consumer $ 2,823.1 $ 2,281.1 $ 2,109.6
Hawthorne 1,083.5 671.2 344.9
Other 225.0 203.7 208.9
Consolidated $ 4,131.6 $ 3,156.0 $ 2,663.4
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:
Year Ended September 30,
2020 2019 2018
U.S. Consumer $ 686.1 $ 527.8 $ 496.6
Hawthorne 120.1 53.5 (6.1)
Other 11.7 10.3 11.2
Total Segment Profit (Non-GAAP) 817.9 591.6 501.7
Corporate (183.4) (135.3) (120.8)
Intangible asset amortization (32.5) (33.4) (29.2)
Impairment, restructuring and other (16.8) (13.3) (152.8)
Equity in income of unconsolidated affiliates - 3.3 4.9
Costs related to refinancing (15.1) - -
Interest expense (79.6) (101.8) (86.4)
Other non-operating income (expense), net 20.1 270.5 (1.7)
Income from continuing operations before income
taxes (GAAP) $ 510.6 $ 581.6 $ 115.7
U.S. Consumer
U.S. Consumer segment net sales were $2,823.1 in fiscal 2020, an increase of
23.8% from fiscal 2019 net sales of $2,281.1 . The increase was driven by the
favorable impacts of volume and pricing of 22.2% and 1.5%, respectively. The
increase in sales volume for fiscal 2020 was driven by soils, fertilizer, grass
seed, controls and plant food products, partially offset by decreased sales of
mulch products and the loss in sales from the Roundup® brand extension products
that were sold to Monsanto during fiscal 2019.
U.S. Consumer Segment Profit was $686.1 in fiscal 2020, an increase of 30.0%
from fiscal 2019 Segment Profit of $527.8 . The increase for fiscal 2020 was
primarily due to higher net sales and a higher gross profit rate, partially
offset by higher SG&A.
U.S. Consumer segment net sales were $2,281.1 in fiscal 2019, an increase of
8.1% from fiscal 2018 net sales of $2,109.6 . The increase was driven by the
favorable impacts of volume and pricing of 6.3% and 1.8%, respectively.
Increased sales volume for fiscal 2019 was driven by increased sales of soils,
mulch, grass seed and fertilizer products.
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data)U.S. Consumer Segment Profit was$527.8 in fiscal 2019, an increase of 6.3% from fiscal 2018 Segment Profit of$496.6 . The increase for fiscal 2019 was primarily due to higher net sales, partially offset by higher SG&A and lower other income.Hawthorne Hawthorne segment net sales were$1,083.5 in fiscal 2020, an increase of 61.4% from fiscal 2019 net sales of$671.2 . The increase was driven by the favorable impacts of volume and pricing of 57.7% and 3.7%, respectively. The increase in sales volume for fiscal 2020 was driven by lighting, nutrients, hardware and growing environments products. Hawthorne Segment Profit was$120.1 in fiscal 2020, an increase of 124.5% from fiscal 2019 Segment Profit of$53.5 . The increase for fiscal 2020 was driven by higher net sales and a higher gross profit rate, partially offset by higher SG&A. Hawthorne segment net sales were$671.2 in fiscal 2019, an increase of 94.6% from fiscal 2018 net sales of$344.9 . The increase was driven by the favorable impacts of acquisitions and volume of 67.1% and 31.7%, respectively, partially offset by the unfavorable impacts of pricing and foreign exchange rates of 2.2% and 2.0%, respectively. Hawthorne Segment Profit was$53.5 in fiscal 2019 as compared to fiscal 2018 Segment Loss of$6.1 . The increase for fiscal 2019 was driven by higher net sales, gross profit rate, cost savings and other synergies as a result of Project Catalyst activities. Other Other segment net sales were$225.0 in fiscal 2020, an increase of 10.5% from fiscal 2019 net sales of$203.7 . The increase was driven by the favorable impact of volume of 13.9%, partially offset by the unfavorable impacts of foreign exchange rates and pricing of 3.1% and 0.4%, respectively. Other Segment Profit was$11.7 in fiscal 2020, an increase of 13.6% from fiscal 2019 Segment Profit of$10.3 . The increase was driven by higher net sales, partially offset by higher SG&A. Other segment net sales were$203.7 in fiscal 2019, a decrease of 2.5% from fiscal 2018 net sales of$208.9 . The decrease was driven by the unfavorable impacts of foreign exchange rates and volume of 2.9% and 1.8%, respectively, partially offset by the favorable impact of pricing of 2.2%. The decrease in sales volume for fiscal 2019 was driven by the closure of our business inMexico . Other Segment Profit was$10.3 in fiscal 2019, a decrease of 8.0% from fiscal 2018 Segment Profit of$11.2 . The decrease was due to lower net sales and lower other income, partially offset by a higher gross profit rate. Corporate Corporate expenses were$183.4 in fiscal 2020, an increase of 35.6% from fiscal 2019 expenses of$135.3 . The increase was driven by higher short-term variable cash incentive compensation expense, an increase in the expected payout percentage on long-term performance-based awards, higher one-time payments and retirement contributions to our hourly and certain salaried associateswho do not participate in our short-term variable cash incentive compensation plans and higher contributions supporting community initiatives and charities. Corporate expenses were$135.3 in fiscal 2019, an increase of 12.0% from fiscal 2018 expenses of$120.8 . The increase was primarily due to higher short-term variable cash incentive compensation expense and a decrease in royalty income earned from Exponent related to its use of our brand names following our divestiture of the International Business due to the adoption of the amended revenue recognition accounting guidance, partially offset by a decrease in expense related to long-term performance-based awards due to a more significant increase in the expected payout percentage during fiscal 2018 as compared to fiscal 2019. Liquidity and Capital Resources The following table summarizes cash activities for the years endedSeptember 30 : 2020
2019 2018
Net cash provided by operating activities $ 558.0 $
226.8
Net cash provided by (used in) investing activities 46.9 255.2 (580.7)
Net cash (used in) provided by financing activities (607.1) (496.5) 151.2
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) Operating Activities Cash provided by operating activities totaled$558.0 for fiscal 2020, an increase of$331.2 as compared to$226.8 for fiscal 2019. This increase was driven by higher net sales and lower interest payments during fiscal 2020, payments made in connection with litigation settlements during fiscal 2019 of$73.9 which were partially offset by insurance reimbursements of$13.4 received during fiscal 2019, and lower tax payments including$99.5 of payments made in connection with the sale of our equity interest in the TruGreen Joint Venture during fiscal 2019, partially offset by higher short-term variable cash incentive compensation payouts and higher SG&A during fiscal 2020. Cash provided by operating activities totaled$226.8 for fiscal 2019, a decrease of$115.7 as compared to cash provided by operating activities of$342.5 for fiscal 2018. This decrease was driven by tax payments made in connection with the sale of our equity interest in the TruGreen Joint Venture of$99.5 , payments made in connection with litigation settlements during fiscal 2019 of$73.9 which were partially offset by insurance reimbursements of$13.4 , the timing of customer rebate payments, an increase in interest payments and higher SG&A, partially offset by increased net sales, lower short-term variable cash incentive payouts and a distribution of net earnings from the IT&O Joint Venture. The seasonal nature of ourNorth America consumer lawn and garden business generally requires cash to fund significant increases in inventories during the first half of the fiscal year. Receivables and payables also build substantially in our second quarter of the fiscal year in line with the timing of sales to support our retailers' spring selling season. These balances liquidate during the June through September period as the lawn and garden season unwinds. Investing Activities Cash provided by investing activities totaled$46.9 for fiscal 2020 as compared to$255.2 for fiscal 2019. Cash used for investments in property, plant and equipment during fiscal 2020 was$62.7 . During fiscal 2020, we received proceeds of$115.5 from the sale of the Roundup® brand extension assets. In addition, during fiscal 2020, we made loan investments of$3.4 and paid cash of$2.9 associated with currency forward contracts. Cash provided by investing activities totaled$255.2 for fiscal 2019 as compared to cash used in investing activities of$580.7 for fiscal 2018. During fiscal 2019, we sold our interest in the TruGreen Joint Venture for cash proceeds of$234.2 related to the sale of our equity interest and$18.4 related to the payoff of second lien term loan financing by the TruGreen Joint Venture, and we sold our equity interest in the IT&O Joint Venture for cash proceeds of$36.6 . Cash used for investments in property, plant and equipment during fiscal 2019 was$42.4 . During fiscal 2019, we paid a post-closing net working capital adjustment obligation of$6.6 related to the fiscal 2018 acquisition of Sunlight Supply and we received cash of$7.0 associated with currency forward contracts. For the three fiscal years endedSeptember 30, 2020 , our capital spending was allocated as follows: 74% for expansion and maintenance of existing productive assets; 6% for new productive assets; 13% to expand our information technology and transformation and integration capabilities; and 7% for corporate assets. We expect fiscal 2021 capital expenditures to be higher than 2020 as a result of increased demand for many of our products within ourU.S. Consumer and Hawthorne segments. Financing Activities Cash used in financing activities totaled$607.1 for fiscal 2020 as compared to$496.5 for fiscal 2019. This change was the result of an increase in dividends paid of$286.7 driven by the special cash dividend of$5.00 per Common Share paid onSeptember 10, 2020 , an increase in repurchases of our Common Shares of$50.1 during fiscal 2020, the redemption of all$400.0 aggregate principal amount of 6.000% Senior Notes, an increase in financing and issuance fees of$18.5 and a decrease in cash received from the exercise of stock options of$3.8 , partially offset by the issuance of$450.0 aggregate principal amount of 4.500% Senior Notes and net repayments of our Fifth A&R Credit Facilities (as defined below) of$191.1 during fiscal 2020 as compared to net repayments of our Fifth A&R Credit Facilities of$389.3 during fiscal 2019. Cash used in financing activities totaled$496.5 in fiscal 2019 as compared to cash provided by financing activities of$151.2 in fiscal 2018. This change was the result of net repayments of our Fifth A&R Credit Facilities of$389.3 during fiscal 2019 driven by proceeds from the sale of our equity interests in the TruGreen Joint Venture and the IT&O Joint Venture that were used to reduce our indebtedness and an increase in cash received from the exercise of stock options of$10.9 , as compared to net borrowings under our Fifth A&R Credit Facilities of$674.1 during fiscal 2018 driven by the acquisitions of Sunlight Supply and Can-Filters, repurchases of our Common Shares of$327.7 and a cash outflow of$70.7 related to the acquisition of the remaining 25% noncontrolling interest in Gavita during fiscal 2018. 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$16.6 and$18.8 atSeptember 30, 2020 and 2019, respectively, included$9.4 and$7.2 , respectively, 45
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) held by controlled foreign corporations. As ofSeptember 30, 2020 , we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries with the exception of the cumulative earnings of Scotts Luxembourg Sarl, which have generally been taxed on a current basis under "Subpart F" of the Code which prevents deferral of recognition ofU.S. taxable income through the use of foreign entities. 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 ofScotts Miracle-Gro's domestic subsidiaries. We maintain the Fifth A&R Credit Agreement that provides 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"). The Fifth A&R Credit Agreement is available for issuance of letters of credit up to$75.0 and will terminate onJuly 5, 2023 . AtSeptember 30, 2020 , we had letters of credit outstanding in the aggregate principal amount of$20.3 , and$1,415.7 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 3.3%, 4.6% and 4.0% for fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The Fifth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage ratio on the last day of each quarter calculated as average total indebtedness divided by our 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 was 4.75 for the second quarter of fiscal 2020 through the fourth quarter of fiscal 2020 and is 4.50 for the first quarter of fiscal 2021 and thereafter. Our leverage ratio was 2.48 atSeptember 30, 2020 . The Fifth 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. 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 endedSeptember 30, 2020 . Our interest coverage ratio was 10.12 for the twelve months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , we were in compliance with these financial covenants. The Fifth A&R Credit Agreement allows us to make unlimited restricted payments (as defined in the Fifth A&R Credit Agreement), including dividend payments and repurchases of 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 for fiscal 2020 and thereafter. We continue to monitor our compliance with the leverage ratio, interest coverage ratio and other covenants contained in the Fifth 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 2021. 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 Fifth 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 Fifth 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 OnDecember 15, 2016 , we 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 our existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates ofJune 15 andDecember 15 of each year. Substantially all of our directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes. OnOctober 22, 2019 , we issued$450.0 aggregate principal amount of 4.500% Senior Notes. The net proceeds of the offering were used to redeem all of our outstanding 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 our existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates ofApril 15 andOctober 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. OnOctober 23, 2019 , we redeemed all of our 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 Consolidated Statements of Operations during the first quarter of fiscal 2020. Additionally, we had$3.1 in unamortized bond issuance costs associated with 46
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
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 Consolidated Statements of Operations.
Receivables Facility
We also maintain 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, 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 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 .
We account for the sale of receivables under the Receivables Facility as
short-term debt and continue to carry the receivables on our Consolidated
Balance Sheets, primarily as a result of our requirement to repurchase
receivables sold. As of September 30, 2020 and 2019, there were $20.0 and $76.0 ,
respectively, in borrowings on receivables pledged as collateral under the
Receivables Facility, and the carrying value of the receivables pledged as
collateral was $22.3 and $84.5 , 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.
The swap agreements had a maximum total U.S. dollar equivalent notional amount
of $600.0 and $850.0 at September 30, 2020 and 2019, 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
September 30, 2020 are shown in the table below:
Effective Expiration Fixed
Notional Amount Date (a) Date Rate
$ 100 6/20/2018 10/20/2020 2.15 %
200 (b) 11/7/2018 6/7/2021 2.87 %
100 11/7/2018 7/7/2021 2.96 %
200 11/7/2018 10/7/2021 2.98 %
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.
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 highly uncertain, rapidly evolving and
difficult to predict at this time. Actual results of operations will depend on
numerous factors, many of which are beyond our control as further discussed in
"Item 1A. RISK FACTORS - Our indebtedness could limit our flexibility and
adversely affect our financial condition" and "Item 1A. RISK FACTORS - 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" of this Annual
Report on Form 10-K.
Financial Disclosures About Guarantors and Issuers of Guaranteed Securities
The 5.250% Senior Notes and 4.500% Senior Notes were issued by Scotts
Miracle-Gro on December 15, 2016 and October 22, 2019 , respectively. The 5.250%
Senior Notes and 4.500% Senior Notes are guaranteed by certain consolidated
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
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
5.250% Senior Notes and 4.500% Senior Notes, such as: (i) upon any sale or other
disposition of all or substantially all of the assets of the Guarantor
(including by way of merger or consolidation) to any person other than Scotts
Miracle-Gro or any "restricted subsidiary" under the applicable indenture; (ii)
if the Guarantor merges with and into Scotts Miracle-Gro , with Scotts
Miracle-Gro surviving such merger; (iii) if the Guarantor is designated an
"unrestricted subsidiary" in accordance with the applicable indenture or
otherwise ceases to be a "restricted subsidiary" (including by way of
liquidation or dissolution) in a transaction permitted by such indenture; (iv)
upon legal or covenant defeasance; (v) at the election of Scotts Miracle-Gro
following the Guarantor's release as a guarantor under the 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 5.250%Senior Notes and the 4.500% 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 5.250% Senior Notes and
4.500% Senior Notes. Payments on the 5.250% Senior Notes and 4.500% 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 5.250% Senior Notes and 4.500% 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
5.250% Senior Notes and 4.500% 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 5.250% Senior Notes or the 4.500% 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 5.250% Senior Notes and 4.500% 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 5.250% Senior Notes and
4.500% 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.
SEPTEMBER 30,
2020
Current assets $ 1,062.5
Noncurrent assets (a) 1,853.8
Current liabilities 872.1
Noncurrent liabilities 1,695.7
(a)Includes amounts due from Non-Guarantor subsidiaries of
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
YEAR ENDED
SEPTEMBER 30,
2020
Net sales $ 3,713.4
Gross profit 1,255.5
Income (loss) from continuing operations (a) 360.4
Net income (loss) 360.5
Net income (loss) attributable to controlling interest 360.5
(a)Includes intercompany expense from Non-Guarantor subsidiaries of $4.6 .
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
The following table summarizes our future cash outflows for contractual
obligations as of September 30, 2020 :
Payments Due by Period
More Than
Contractual Cash Obligations Total Less Than 1 Year 1-3 Years 3-5 Years 5 Years
Debt obligations $ 1,495.1 $
61.1
331.9 57.1 101.9 73.5 99.4
Finance lease obligations 43.4 6.5 13.1 9.0 14.8
Operating lease obligations 175.9 52.5 71.3 35.0 17.1
Purchase obligations 512.8 283.1 178.6 43.7 7.4
Other, primarily retirement plan obligations 85.9 12.2 24.1 23.3 26.3
Total contractual cash obligations $ 2,645.0 $
472.5
We had long-term debt obligations and interest payments due primarily under the 5.250% Senior Notes, 4.500% Senior Notes and our credit facilities. Amounts in the table represent scheduled future maturities of debt principal for the periods indicated. The interest payments for our credit facilities are based on outstanding borrowings as ofSeptember 30, 2020 . Actual interest expense will likely be higher due to the seasonality of our business and associated higher average borrowings. Purchase obligations primarily represent commitments for materials used in our manufacturing processes, including urea and packaging, as well as commitments for warehouse services, grass seed, marketing services and information technology services which comprise the unconditional purchase obligations disclosed in "NOTE 19. COMMITMENTS" of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Other obligations include actuarially determined retiree benefit payments and pension funding to comply with local funding requirements. Pension funding requirements beyond fiscal 2020 are based on preliminary estimates using actuarial assumptions determined as ofSeptember 30, 2020 . These amounts represent expected payments through 2030. Based on the accounting rules for defined benefit pension plans and retirement health care plans, the liabilities reflected in our Consolidated Balance Sheets differ from these expected future payments (see Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K). The above table excludes liabilities for unrecognized tax benefits and insurance accruals as we are unable to estimate the timing of payments for these items. Off-Balance Sheet Arrangements AtSeptember 30, 2020 , we have letters of credit in the aggregate face amount of$20.3 outstanding. 49
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) 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, should not 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 "ITEM 1. BUSINESS - Regulatory Considerations" and "ITEM 3. LEGAL PROCEEDINGS" of this Annual Report on Form 10-K. 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. On an ongoing basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, intangible assets, income taxes, restructuring, environmental matters, contingencies and litigation. 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 ofScotts Miracle-Gro . Revenue Recognition and Promotional Allowances Our revenue is primarily generated from sales of branded and private label lawn and garden care and indoor and hydroponic gardening finished products. Product sales are recognized at a point in time when control of products transfers to customers and we have no further obligation to provide services related to such products. Sales are typically recognized when products are delivered to or picked up by the customer. We are generally the principal in a transaction, therefore revenue is primarily recorded on a gross basis. Revenue for product sales is recorded net of sales returns and allowances. Revenues are measured based on the amount of consideration that we expect to receive as derived from a list price, reduced by estimates for variable consideration. Variable consideration includes the cost of current and continuing promotional programs and expected sales returns. Our promotional programs primarily include rebates based on sales volumes, in-store promotional allowances, cooperative advertising programs, direct consumer rebate programs and special purchasing incentives. The cost of promotional programs is estimated considering all reasonably available information, including current expectations and historical experience. Promotional costs (including allowances and rebates) incurred during the year are expensed to interim periods in relation to revenues and are recorded as a reduction of net sales. Provisions for estimated returns and allowances are recorded at the time revenue is recognized based on historical rates and are periodically adjusted for known changes in return levels. Shipping and handling costs are accounted for as contract fulfillment costs and included in the "Cost of sales" line in the Consolidated Statements of Operations. We exclude from revenue any amounts collected from customers for sales or other taxes. Income Taxes Our annual effective tax rate is established based on our pre-tax income (loss), statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. We record income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. Valuation allowances are used to reduce deferred tax assets to the balances that are more likely than not to be realized. We must make estimates and judgments on future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances, to determine the proper valuation allowances. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the asset balance and Consolidated Statements of Operations reflect the change in the period such determination is made. Due to changes in facts and circumstances and the estimates and judgments that are involved in determining the proper valuation allowances, differences between actual future events and prior estimates and judgments could 50
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THE SCOTTS MIRACLE-GRO COMPANY (Dollars in millions, except per share data) result in adjustments to these valuation allowances. We use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end.Goodwill and Indefinite-lived Intangible Assets We have significant investments in intangible assets and goodwill. Our annual goodwill and indefinite-lived intangible asset testing is performed as of the first day of our fiscal fourth quarter or more frequently if circumstances indicate potential impairment. In our evaluation of impairment for goodwill and indefinite-lived intangible assets, we perform either an initial qualitative or quantitative evaluation for each of our reporting units and indefinite-lived intangible assets. Factors considered in the qualitative test include operating results as well as new events and circumstances impacting the operations or cash flows of the reporting unit or indefinite-lived intangible assets. For the quantitative test, the review for impairment of goodwill and indefinite-lived intangible assets is based on a combination of income-based and market-based approaches. If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value of the reporting unit or intangible asset exceeds its estimated fair value. Under the income-based approach, we determine fair value using a discounted cash flow approach that requires significant judgment with respect to revenue and profitability growth rates, based upon annual budgets and longer-range strategic plans, and the selection of an appropriate discount rate. These budgets and plans are used for internal purposes and are also the basis for communication with outside parties about future business trends. Under the market-based approach, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the guideline transaction method to determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units. Fair value estimates employed in our annual impairment review of indefinite-lived intangible assets and goodwill were determined using models involving several assumptions. Changes in our assumptions could materially impact our fair value estimates. Assumptions critical to our fair value estimates were: (i) discount rates used in determining the fair value of the reporting units and intangible assets; (ii) royalty rates used in our intangible asset valuations; (iii) projected future revenues and profitability used in the reporting unit and intangible asset models; and (iv) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period specific facts and circumstances. While we believe the assumptions we used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. As a result, impairment charges that possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier estimates. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and, therefore, could change impairment determinations. AtSeptember 30, 2020 , goodwill totaled$544.1 , with$228.1 ,$305.5 and$10.5 for ourU.S. Consumer, Hawthorne and Other segments, respectively. We performed annual impairment testing as of the first day of our fiscal fourth quarter in fiscal 2020, 2019 and 2018 and, with the exception of our Hawthorne reporting unit in fiscal 2018, concluded that there were no impairments of goodwill as the estimated fair value of each reporting unit exceeded its carrying value. Based on the results of the annual quantitative evaluation for fiscal 2020, the fair values of ourU.S. Consumer, Hawthorne and Other segment reporting units exceeded their respective carrying values by 339%, 79% and 17%, respectively. A 100 basis point change in the discount rate would not have resulted in an impairment for ourU.S. Consumer, Hawthorne and Other segment reporting units. As discussed further in "NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET" of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, during the fourth quarter of fiscal 2018 we recognized a non-cash goodwill impairment charge of$94.6 related to our Hawthorne reporting unit in the "Impairment, restructuring and other" line in the Consolidated Statements of Operations. AtSeptember 30, 2020 , indefinite-lived intangible assets consisted of tradenames of$168.2 and the Roundup® marketing agreement amendment of$155.7 . Based on the results of the annual evaluation for fiscal 2020, the fair values of our indefinite-lived intangible assets exceeded their respective carrying values in a range of 19% to over 1,400%. A 100 basis point change in the discount rate would not have resulted in an impairment of any of our indefinite-lived intangible assets. Other Significant Accounting Policies Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above, are also critical to understanding the consolidated financial statements. The Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K contain additional information related to our accounting policies, including recent accounting pronouncements, and should be read in conjunction with this discussion. 51
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