0001546380-23-000015 | 10-Q | XBRL Viewer | Scotts Miraclegro CO

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Cover MARKETING AGREEMENT Notes Tables MARKETING AGREEMENT (Tables) Notes Details MARKETING AGREEMENT - Additional Information (Details) MARKETING AGREEMENT - Net Commission Earned Under Marketing Agreement (Details) Uncategorized Uncategorized Items - smg-20230401_htm.xml All Reports

MARKETING AGREEMENT

6 Months Ended

Apr. 01, 2023

Marketing Agreement [Abstract]

MARKETING AGREEMENT

MARKETING AGREEMENT

The Scotts Company LLC (“Scotts LLC”) is the exclusive agent of Monsanto Company, a subsidiary of Bayer AG (“Monsanto”), for the marketing and distribution of certain of Monsanto’s consumer Roundup® branded products in the United States and certain other specified countries. The annual commission payable under the Third Amended and Restated Exclusive Agency and Marketing Agreement (the “Third Restated Agreement”) is equal to 50% of the actual earnings before interest and income taxes of Monsanto’s consumer Roundup® business for each program year in the markets covered by the Third Restated Agreement (“Program EBIT”). The Third Restated Agreement also requires the Company to make annual payments of $18.0 to Monsanto as a contribution against the overall expenses of its consumer Roundup® business, subject to reduction pursuant to the Third Restated Agreement for any program year in which the Program EBIT does not equal or exceed $36.0.

Unless Monsanto terminates the Third Restated Agreement due to an event of default by the Company, termination rights under the Third Restated Agreement include the following:

•The Company may terminate the Third Restated Agreement upon the insolvency or bankruptcy of Monsanto;

•Monsanto may terminate the Third Restated Agreement in the event that Monsanto decides to decommission the permits, licenses and registrations needed for, and the trademarks, trade names, packages, copyrights and designs used in, the sale of the Roundup® products in the lawn and garden market (a “Brand Decommissioning Termination”); and

•Each party may terminate the Third Restated Agreement if Program EBIT falls below $50.0 and, in such case, no termination fee would be payable to either party.

The termination fee structure requires Monsanto to pay a termination fee to the Company in an amount equal to (i) $375.0 upon a Brand Decommissioning Termination, and (ii) the greater of $175.0 or four times an amount equal to the average of the Program EBIT for the three program years before the year of termination, minus $186.4, if Monsanto or its successor terminates the Third Restated Agreement as a result of a Roundup Sale or Change of Control of Monsanto (each, as defined in the Third Restated Agreement).

The elements of the net commission and reimbursements earned under the Third Restated Agreement and included in the “Net sales” line in the Condensed Consolidated Statements of Operations are as follows:


			Three Months Ended												Six Months Ended
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022

Gross commission			$	48.9					$	46.7					$	58.5					$	52.4
Contribution expenses			(4.5)						(4.5)						(9.0)						(9.0)

Net commission			44.4						42.2						49.5						43.4
Reimbursements associated with Roundup® marketing agreement			27.2						22.0						42.4						41.6
Total net sales associated with Roundup® marketing agreement			$	71.6					$	64.2					$	91.9					$	85.0

MARKETING AGREEMENT - Additional Information (Details) $ in Millions	Aug. 01, 2019 USD ($)
Restated Marketing Agreement
Marketing Agreement [Line Items]
Percentage of program earnings	50.00%
Annual payments	$ 18.0
Third Restated Agreement
Marketing Agreement [Line Items]
Minimum annual EBIT required to avoid reduction of contribution payment	36.0
Minimum EBIT	50.0
Brand decommissioning event payable	375.0
Termination fee payable	$ 175.0
Minimum termination fee payable multiple	4
Minimum termination fee payable threshold	$ 186.4

MARKETING AGREEMENT - Net Commission Earned Under Marketing Agreement (Details) - Restated Marketing Agreement - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Apr. 01, 2023	Apr. 02, 2022	Apr. 01, 2023	Apr. 02, 2022
Marketing Agreement [Line Items]
Gross commission	$ 48.9	$ 46.7	$ 58.5	$ 52.4
Net commission	44.4	42.2	49.5	43.4
Reimbursements associated with Roundup® marketing agreement	27.2	22.0	42.4	41.6
Total net sales associated with Roundup® marketing agreement	$ 71.6	$ 64.2	$ 91.9	$ 85.0

Label

Element

Value

Business Combination, Recognized Identifiable Assets Acquired And Liabilities Assumed, Accounts Receivable And Inventory

smg_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedAccountsReceivableAndInventory

$ 32,800,000

Business Combination, Recognized Identifiable Assets Acquired And Liabilities Assumed, Accounts Receivable And Inventory

smg_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedAccountsReceivableAndInventory

$ 1,100,000

Debt Instrument, Interest Rate, Increase (Decrease), Basis Points

smg_DebtInstrumentInterestRateIncreaseDecreaseBasisPoints

35

Debt Instrument, Interest Rate, Increase (Decrease), Basis Points

smg_DebtInstrumentInterestRateIncreaseDecreaseBasisPoints

50

Increase (Decrease) In Other, Net

smg_IncreaseDecreaseInOtherNet

$ (3,300,000)

Increase (Decrease) In Other, Net

smg_IncreaseDecreaseInOtherNet

(300,000)

Impairment, Restructuring, And Other (Recoveries) Charges, Continuing Operations

smg_ImpairmentRestructuringAndOtherRecoveriesChargesContinuingOperations

140,500,000

Impairment, Restructuring, And Other (Recoveries) Charges, Continuing Operations

smg_ImpairmentRestructuringAndOtherRecoveriesChargesContinuingOperations

5,400,000

Impairment, Restructuring, And Other (Recoveries) Charges, Continuing Operations

smg_ImpairmentRestructuringAndOtherRecoveriesChargesContinuingOperations

159,200,000

Impairment, Restructuring, And Other (Recoveries) Charges, Continuing Operations

smg_ImpairmentRestructuringAndOtherRecoveriesChargesContinuingOperations

$ 7,100,000

Percentage Of Annual Net Sales

smg_PercentageOfAnnualNetSales

75.00%

Business Combination, Recognized Identifiable Assets Acquired And Liabilities Assumed, Inventory And Other Current Assets

smg_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedInventoryAndOtherCurrentAssets

$ 1,300,000

Line of Credit Facility, Letters of Credit

smg_LineOfCreditFacilityLettersOfCredit

$ 100,000,000.0

Debt Instrument, Covenant, Leverage Ratio, Maximum

smg_DebtInstrumentCovenantLeverageRatioMaximum

4.75

Debt Instrument, Covenant, Leverage Ratio, Maximum

smg_DebtInstrumentCovenantLeverageRatioMaximum

6.50

Debt Instrument, Covenant, Leverage Ratio, Maximum

smg_DebtInstrumentCovenantLeverageRatioMaximum

6.25

Debt Instrument, Covenant, Leverage Ratio, Maximum

smg_DebtInstrumentCovenantLeverageRatioMaximum

5.50

Debt Instrument, Covenant, Leverage Ratio, Maximum

smg_DebtInstrumentCovenantLeverageRatioMaximum

4.50

Number Of Customers

smg_NumberOfCustomers

3

Lessee, Operating Lease, Liability, To Be Paid, After Year Four

smg_LesseeOperatingLeaseLiabilityToBePaidAfterYearFour

$ 48,600,000

Cost Of Sales, Impairment, Restructuring And Other Charges

smg_CostOfSalesImpairmentRestructuringAndOtherCharges

118,700,000

Cost Of Sales, Impairment, Restructuring And Other Charges

smg_CostOfSalesImpairmentRestructuringAndOtherCharges

5,300,000

Cost Of Sales, Impairment, Restructuring And Other Charges

smg_CostOfSalesImpairmentRestructuringAndOtherCharges

129,000,000.0

Cost Of Sales, Impairment, Restructuring And Other Charges

smg_CostOfSalesImpairmentRestructuringAndOtherCharges

$ 5,300,000

Long-Lived Assets [Policy Text Block]

smg_LongLivedAssetsPolicyTextBlock

Long-Lived Assets

The Company had non-cash investing activities of $15.3 and $13.0 during the six months ended April 1, 2023 and April 2, 2022, respectively, representing unpaid liabilities to acquire property, plant and equipment.

Debt Instrument, Annual Facility Fee Rate, Increase (Decrease), Basis Points

smg_DebtInstrumentAnnualFacilityFeeRateIncreaseDecreaseBasisPoints

15

Finance Lease, Cost

smg_FinanceLeaseCost

$ 700,000

Finance Lease, Cost

smg_FinanceLeaseCost

1,900,000

Finance Lease, Cost

smg_FinanceLeaseCost

2,400,000

Finance Lease, Cost

smg_FinanceLeaseCost

3,800,000

Accounts Receivable, Receivables Pledged As Collateral

smg_AccountsReceivableReceivablesPledgedAsCollateral

422,200,000

Accounts Receivable, Receivables Pledged As Collateral

smg_AccountsReceivableReceivablesPledgedAsCollateral

444,500,000

Accounts Receivable, Receivables Pledged As Collateral

smg_AccountsReceivableReceivablesPledgedAsCollateral

79,800,000

Debt Instrument, Covenant, Common Stock Cash Dividends, Annual Maximum

smg_DebtInstrumentCovenantCommonStockCashDividendsAnnualMaximum

$ 225,000,000.0

Debt, Maturity Period

smg_DebtMaturityPeriod

5 years

smg_LeverageRatio

6.01

Debt Instrument, Covenant, Other Dividends And Distributions, Maximum

smg_DebtInstrumentCovenantOtherDividendsAndDistributionsMaximum

$ 25,000,000.0

Finance Lease, Liability, To Be Paid, After Year Four

smg_FinanceLeaseLiabilityToBePaidAfterYearFour

$ 11,800,000

Interest Coverage Ratio

smg_InterestCoverageRatio

3.00

Interest Coverage Ratio

smg_InterestCoverageRatio

3.66

Assets And Liabilities, Lessee [Table Text Block]

smg_AssetsAndLiabilitiesLesseeTableTextBlock

Supplemental balance sheet information related to the Company’s leases was as follows:


			Balance Sheet Location						April 1, 2023						April 2, 2022						September 30, 2022

Operating leases:
Right-of-use assets			Other assets						$	255.9					$	293.2					$	288.9

Current lease liabilities			Other current liabilities						77.4						71.9						76.2
Non-current lease liabilities			Other liabilities						203.2						230.3						223.2
Total operating lease liabilities									$	280.6					$	302.2					$	299.4

Finance leases:
Right-of-use assets			Property, plant and equipment, net						$	15.7					$	28.3					$	26.4

Current lease liabilities			Current portion of debt						1.9						6.0						6.4
Non-current lease liabilities			Long-term debt						16.0						24.5						22.5
Total finance lease liabilities									$	17.9					$	30.5					$	28.9

Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:


			April 1, 2023						April 2, 2022						September 30, 2022
Weighted-average remaining lease term (in years):
Operating leases			4.8						5.2						4.9
Finance leases			9.8						7.6						7.3

Weighted-average discount rate:
Operating leases			4.0		%				3.2		%				3.5		%
Finance leases			4.4		%				4.3		%				4.3		%

Payments For Restructuring And Other

smg_PaymentsForRestructuringAndOther

$ 21,700,000

Restructuring And Other Related Charges, Continuing Operations

smg_RestructuringAndOtherRelatedChargesContinuingOperations

$ 21,300,000

Derivative Volume [Table Text Block]

smg_DerivativeVolumeTableTextBlock

The Company had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:

Commodity

April 1,
2023

April 2,
2022

September 30,
2022

Urea

19,500 tons

40,500 tons

54,000 tons

Diesel

2,394,000 gallons

4,452,000 gallons

3,150,000 gallons

Heating Oil

1,260,000 gallons

2,016,000 gallons

1,218,000 gallons

Organization Consolidation And Presentation Of Financial Statements Disclosure [Policy Text Block]

smg_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosurePolicyTextBlock

Organization and Basis of Presentation

The Company’s unaudited condensed consolidated financial statements for the three and six months ended April 1, 2023 and April 2, 2022 are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of Scotts Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and an objective evaluation and determination of effective management control. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of each acquisition or up to the date of disposal, respectively. In the opinion of management, interim results reflect all normal and recurring adjustments and are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, this Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2023 (this “Form 10-Q”) should be read in conjunction with Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “2022 Annual Report”), which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.

The Company’s Condensed Consolidated Balance Sheet at September 30, 2022 has been derived from the Company’s audited Consolidated Balance Sheet at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Share-Based Compensation Arrangement By Share-Based Payment Award, Shares Vested As A Percentage Of Shares Granted

smg_ShareBasedCompensationArrangementByShareBasedPaymentAwardSharesVestedAsAPercentageOfSharesGranted

102.00%

Nature Of Operations Policy [Policy Text Block]

smg_NatureOfOperationsPolicyPolicyTextBlock

Nature of Operations

The Scotts Miracle-Gro Company (“Scotts Miracle-Gro”) and its subsidiaries (collectively, with Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of products for lawn and garden care and indoor and hydroponic gardening. The Company’s products are sold in North America, Europe and Asia.

The Company’s North America consumer lawn and garden business is highly seasonal, with approximately 75% of its annual net sales occurring in the second and third fiscal quarters. The Company’s Hawthorne segment sales are also impacted by seasonal patterns for certain product categories due to the timing of outdoor growing in North America during the second and third fiscal quarters, and the timing of certain controlled agricultural lighting project sales during the third and fourth fiscal quarters.