ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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 includes the following sections:
• Executive summary
• Results of operations
• Segment results
• Liquidity and capital resources
• Regulatory matters
• Critical accounting estimates
Executive Summary
U.S. Consumer consists of our consumer lawn and garden business in the United States. Hawthorne consists of our indoor and hydroponic gardening business. Other primarily consists of our consumer lawn and garden business in Canada. Corporate consists of general and administrative expenses and certain other income and expense items not allocated to the operating segments. See “SEGMENT RESULTS” below for additional information regarding our evaluation of segment performance.
Through our U.S. Consumer and Other segments, we are the leading marketer of branded consumer lawn and garden products in North America. Our products are marketed under some of the most recognized brand names in the industry. Our key consumer lawn and garden brands include Scotts ® Turf Builder ® lawn fertilizer and Scotts ® grass seed products; Miracle-Gro ® soil, plant food and gardening products; Ortho ® herbicide and pesticide products; and Tomcat ® rodent control and animal repellent products. We are the exclusive agent of Monsanto for the marketing and distribution of certain of Monsanto’s consumer Roundup ® branded products within the United States and certain other specified countries. In addition, we have an equity interest in Bonnie Plants, LLC, a joint venture with AFC, focused on planting, growing, developing, distributing, marketing and selling live plants.
Through our Hawthorne segment, we are a leading provider of nutrients, lighting and other materials used for indoor and hydroponic gardening in North America. Our signature brands include General Hydroponics ® , Gavita ® , Botanicare ® , Gro Pro ® , Mother Earth ® , Grower’s Edge ® , HydroLogic Purification System ® and CYCO ® .
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, advertising and consumer activation programs with our customers 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 we anticipate continued growth in these investments in the future, with the continuing objective of driving category growth and profitably maintaining and/or increasing market share.
Our consumer lawn and garden business in any year is susceptible to weather conditions in the markets in which our products are sold. These climate conditions may adversely impact the sale of certain products or increase demand for other products thereby making the overall impact of abnormal or extreme weather conditions on us difficult to predict. 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 consumer lawn and garden business, significant portions of our U.S. Consumer and Other segment net sales ship to our retail customers during our second and third fiscal quarters, as noted in the following table. Our annual net sales are further concentrated in the second and third fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our products.
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Percent of Net Sales by Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
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, e-commerce penetration, household penetration, net sales (including unit volume, mix, pricing and other drivers), gross margins, advertising to net sales ratios, income (loss) from operations, net income (loss), earnings per share, earnings before interest, taxes, depreciation and amortization (“EBITDA”), leverage ratio, fixed charge coverage ratio and interest coverage ratio. We also focus on measures to optimize cash flow and return on invested capital, including the management of working capital and capital expenditures.
Trends Affecting our Business
During fiscal 2025, our Hawthorne segment continued to experience decreased sales volume. This was partially attributable to an oversupply of cannabis, which has led to a prolonged period of lower cannabis wholesale prices, reduced indoor and outdoor cannabis cultivation and consolidation of retail establishments. The oversupply has been driven by increased licensing activity across the U.S. as well as inconsistent approaches to state regulation and enforcement. We expect that the oversupply of cannabis will continue to adversely impact our Hawthorne segment. If the oversupply of cannabis persists longer, or is more significant than we expect, our results of operations could be materially and adversely impacted for a longer period and to a greater extent than we currently anticipate.
During fiscal 2024, our Hawthorne segment discontinued distribution of other companies’ products in order to shift its focus solely to marketing, innovating and supporting its portfolio of signature brands. The discontinuation of sales of other companies’ products has resulted in lower sales volume when compared to historical periods, but has enabled continued optimization of Hawthorne’s operations and improvement of its profitability.
We continue to monitor the impacts of macroeconomic conditions, including elevated interest rates and the impact of inflationary pressures on input costs and consumer behavior; as well as geopolitical uncertainty, including the duration and resolution of ongoing conflicts, potential escalation of tensions and global supply chain disruptions. We are also continuing to monitor ongoing changes to global trade policies, including the imposition of tariffs. The impact that these events and conditions will have on our operational and financial performance will depend on future developments, which are difficult to predict.
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Results of Operations
The following table sets forth the components of earnings as a percentage of net sales:
Year Ended September 30,
% of Net Sales
% of Net Sales
% of Net Sales
Net sales
Cost of sales
Cost of sales—impairment, restructuring and other
Gross margin
Operating expenses:
Selling, general and administrative
Impairment, restructuring and other
Other (income) expense, net
Income (loss) from operations
Equity in loss of unconsolidated affiliates
Interest expense
Other non-operating (income) expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
The sum of the components may not equal due to rounding.
Net Sales
Net sales for fiscal 2025 were $3,413.1, a decrease of 3.9% from net sales of $3,552.7 for fiscal 2024. Net sales for fiscal 2024 were flat to net sales of $3,551.3 for fiscal 2023. Factors contributing to the change in net sales are outlined in the following table:
Year Ended September 30,
Volume and mix
Pricing
Change in net sales
The decrease in net sales for fiscal 2025 as compared to fiscal 2024 was primarily driven by:
• decreased net sales of 2.1% included within “volume and mix” related to nonrecurring fiscal 2024 sales of bulk raw materials and AeroGarden ® products in our U.S. Consumer segment and the discontinuation of sales of other companies’ products in our Hawthorne segment;
• decreased sales volume of 1.0% comprised of the net impact of lower volume in our Hawthorne segment driven by all product categories, partially offset by higher volume in our U.S. Consumer segment driven by soils, mulch, grass seed and spreader products; and
• decreased pricing, primarily driven by additional investments in consumer activation activities in our U.S. Consumer segment.
Net sales for fiscal 2024 as compared to fiscal 2023 were primarily driven by the offsetting changes below:
• increased sales volume, comprised of the net impact of higher volume in our U.S. Consumer segment driven by mulch, soils and controls products, partially offset by lower volume in our Hawthorne segment driven by the discontinuation of sales of other companies’ products; and
• increased net sales associated with the Roundup ® marketing agreement;
• offset by decreased pricing in our U.S. Consumer, Hawthorne and Other segments.
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Cost of Sales
The following table shows the major components of cost of sales:
Year Ended September 30,
Materials
Manufacturing labor and overhead
Distribution and warehousing
Costs associated with Roundup ® marketing agreement
Cost of sales
Cost of sales—impairment, restructuring and other
Factors contributing to the change in cost of sales are outlined in the following table:
Year Ended September 30,
Volume, mix and other
Material cost changes
Costs associated with Roundup ® marketing agreement
Foreign exchange rates
Impairment, restructuring and other
Change in cost of sales
The decrease in cost of sales for fiscal 2025 as compared to fiscal 2024 was primarily driven by:
• lower material costs in our U.S. Consumer segment;
• lower sales volume in our Hawthorne segment;
• nonrecurring fiscal 2024 sales of bulk raw materials and AeroGarden ® products in our U.S. Consumer segment and the discontinuation of sales of other companies’ products in our Hawthorne segment;
• lower warehousing and transportation costs included within “volume, mix and other” in our U.S. Consumer and Hawthorne segments;
• lower manufacturing costs included within “volume, mix and other” in our U.S. Consumer, Hawthorne and Other segments;
• lower inventory write-down charges included within “volume, mix and other” associated with our U.S. Consumer segment; and
• a decrease in impairment, restructuring and other charges;
• partially offset by higher sales volume in our U.S. Consumer segment.
The decrease in cost of sales for fiscal 2024 as compared to fiscal 2023 was primarily driven by:
• lower warehousing and transportation costs included within “volume, mix and other” in our U.S. Consumer and Hawthorne segments;
• lower material costs in our U.S. Consumer segment;
• lower sales volume in our Hawthorne segment; and
• a decrease in impairment, restructuring and other charges;
• partially offset by higher sales volume in our U.S. Consumer segment;
• inventory write-down charges included within “volume, mix and other” associated with our U.S. Consumer segment; and
• an increase in costs associated with the Roundup ® marketing agreement.
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Gross Margin
As a percentage of net sales, our gross margin rate was 30.6%, 23.9% and 18.5% for fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Factors contributing to the change in gross margin rate are outlined in the following table:
Year Ended September 30,
Volume, mix and other
Material costs
Roundup ® commissions and reimbursements
Pricing
Impairment, restructuring and other
Change in gross margin rate
The increase in gross margin rate for fiscal 2025 as compared to fiscal 2024 was primarily driven by:
• lower material costs in our U.S. Consumer segment;
• favorable mix associated with our U.S. Consumer and Hawthorne segments;
• lower warehousing and transportation costs included within “volume, mix and other” in our U.S. Consumer and Hawthorne segments;
• lower manufacturing costs included within “volume, mix and other” in our U.S. Consumer, Hawthorne and Other segments;
• lower inventory write-down charges included within “volume, mix and other” associated with our U.S. Consumer segment; and
• a decrease in impairment, restructuring and other charges;
• partially offset by decreased pricing, primarily driven by additional investments in consumer activation activities in our U.S. Consumer segment; and
• unfavorable leverage of fixed costs, included within “volume, mix and other” driven by lower sales volume in our Hawthorne segment.
The increase in gross margin rate for fiscal 2024 as compared to fiscal 2023 was primarily driven by:
• lower warehousing and transportation costs included within “volume, mix and other” in our U.S. Consumer and Hawthorne segments;
• favorable mix driven by lower sales in our Hawthorne segment relative to our U.S. Consumer segment;
• lower material costs in our U.S. Consumer segment; and
• a decrease in impairment, restructuring and other charges;
• partially offset by decreased pricing in our U.S. Consumer, Hawthorne and Other segments; and
• inventory write-down charges included within “volume, mix and other” associated with our U.S. Consumer segment.
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Selling, General and Administrative Expenses
The following table sets forth the components of selling, general and administrative expenses (“SG&A”):
Year Ended September 30,
Advertising
Advertising as a percentage of net sales
Share-based compensation
Research and development
Amortization of intangibles
Other selling, general and administrative
SG&A increased $44.4, or 7.9%, during fiscal 2025 compared to fiscal 2024. Advertising expense increased $11.3, or 8.0%, in fiscal 2025 due to higher media spending in our U.S. Consumer segment. Share-based compensation expense, which excludes certain advertising expenses paid for in Common Shares, decreased $10.5, or 18.4%, primarily due to lower long-term incentive compensation expense. Other SG&A increased by $45.6, or 14.6%, driven by higher short-term variable cash incentive compensation expense and higher marketing spend.
SG&A increased $7.7, or 1.4%, during fiscal 2024 compared to fiscal 2023. Advertising expense increased $17.3, or 14.0%, in fiscal 2024 driven by increased media spending in our U.S. Consumer segment. Share-based compensation expense, which excludes certain advertising expenses paid for in Common Shares, increased $7.5, or 15.1%, due to a cumulative adjustment recognized during fiscal 2023 for certain performance-based award units to reflect management’s assessment of a lower probability of achievement of performance goals. Amortization expense decreased $8.7, or 38.5%, driven by the impairment of certain Hawthorne segment intangible assets during fiscal 2023. Other SG&A decreased by $7.3, or 2.3%, driven by reductions in staffing levels and other cost-reduction initiatives.
Impairment, Restructuring and Other
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the Consolidated Statements of Operations. The following table details impairment, restructuring and other charges (recoveries) for each of the periods presented:
Year Ended September 30,
Cost of sales—impairment, restructuring and other:
Restructuring and other charges, net
Right-of-use asset impairments
Property, plant and equipment impairments
Operating expenses—impairment, restructuring and other:
Restructuring and other charges (recoveries), net
Loss on sale of business
Loss on exchange of convertible debt investment
Goodwill and intangible asset impairments
Convertible debt other-than-temporary impairments
Total impairment, restructuring and other charges
On September 30, 2025, we completed the divestiture of our Hawthorne professional horticulture business based in the Netherlands for $8.5, which was financed by us in the form of a loan bearing interest at 6.0% with a maturity date of December 31, 2029. The seller financing loan is recorded in the “Other assets” line in the Consolidated Balance Sheets and was classified as an investing activity in the Consolidated Statements of Cash Flows. We incurred a non tax-deductible loss on the sale of $17.7 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2025. The loss included a write-off of accumulated foreign currency translation adjustments of $9.5.
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During fiscal 2025, we incurred employee and executive severance charges of $25.3. We incurred charges of $6.1 in our U.S. Consumer segment and $1.2 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2025. We incurred charges of $2.3 in our U.S. Consumer segment, $3.0 in our Hawthorne segment, $1.1 in our Other segment and $11.6 at Corporate in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2025.
During fiscal 2025, we incurred a charge of $7.5 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with a settlement agreement to resolve litigation with the former shareholders of a business that was acquired in fiscal 2021.
During fiscal 2025, we incurred a non-cash loss of $7.0 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations related to the exchange of our convertible debt investment in RIV Capital Inc. (“RIV Capital”) for non-voting exchangeable shares of FLUENT Corp. (formerly Cansortium Inc.) (“FLUENT”). Refer to “NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATES” of the Notes to the Consolidated Financial Statements included in this Form 10-K for further details.
During fiscal 2025, we incurred impairment charges of $3.6 associated with Hawthorne finite-lived intangible assets in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations.
During fiscal 2022, we began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. As part of this restructuring initiative, we reduced the size of our supply chain network, reduced staffing levels and implemented other cost-reduction initiatives. We also accelerated the reduction of certain Hawthorne inventory, primarily lighting, growing environments and hardware products, to reduce on hand inventory to align with the reduced network capacity. During fiscal 2025, we incurred costs of $13.0 associated with this restructuring initiative primarily related to facility closure costs and impairment of right-of-use assets and property, plant and equipment. We incurred costs of $4.0 in our U.S. Consumer segment and $9.0 in our Hawthorne segment in the “Cost of sales—impairment, restructuring and other” line in the Consolidated Statements of Operations during fiscal 2025. During fiscal 2024, we incurred costs of $89.4 associated with this restructuring initiative primarily related to inventory write-down charges, employee termination benefits, facility costs and of right-of-use assets, intangible assets, property, plant and equipment and software. We incurred costs of $11.3 in our U.S. Consumer segment and $71.8 in our Hawthorne segment in the “Cost of sales—, and other” line in the Consolidated Statements of Operations during fiscal 2024. We incurred costs of $1.5 in our U.S. Consumer segment, $1.0 in our Hawthorne segment, $1.1 in our Other segment and $2.4 at Corporate in the “, and other” line in the Consolidated Statements of Operations during fiscal 2024. During fiscal 2023, we incurred costs of $229.0 associated with this initiative primarily related to inventory write-down charges, employee benefits, facility costs and of right-of-use assets and property, plant and equipment. We incurred costs of $16.3 in our U.S. Consumer segment and $168.5 in our Hawthorne segment in the “Cost of sales—, and other” line in the Consolidated Statements of Operations during fiscal 2023. We incurred costs of $7.7 in our U.S. Consumer segment, $20.7 in our Hawthorne segment, $0.8 in our Other segment and $14.9 at Corporate in the “, and other” line in the Consolidated Statements of Operations during fiscal 2023. Costs incurred since the inception of this initiative through September 30, 2025 were $62.4 for our U.S. Consumer segment, $306.2 for our Hawthorne segment, $2.9 for our Other segment and $25.1 at Corporate.
During fiscal 2024 and fiscal 2023, we recorded non-cash, pre-tax other-than-temporary impairment charges related to our convertible debt investments of $64.6 and $101.3, respectively, in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. Refer to “NOTE 15. FAIR VALUE MEASUREMENTS” of the Notes to the Consolidated Financial Statements included in this Form 10-K for further details.
During fiscal 2024, we recorded a gain of $12.1 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations associated with a payment received in resolution of a dispute with the former ownership group of a business that was acquired in fiscal 2022. This payment was classified as an operating activity in the Consolidated Statements of Cash Flows.
During fiscal 2023, we recorded non-cash, pre-tax goodwill and intangible asset impairment charges of $127.9 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations, comprised of $117.7 of finite-lived intangible asset impairment charges associated with our Hawthorne segment and $10.3 of goodwill impairment charges associated with our Other segment. Refer to “NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET” of the Notes to the Consolidated Financial Statements included in this Form 10-K for further details.
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Other (Income) Expense, net
Other (income) expense is comprised of activities such as the discount on sales of accounts receivable under the Master Receivables Purchase Agreement, royalty income from the licensing of certain of our brand names and foreign exchange transaction gains and losses. Other (income) expense was $18.8, $19.9 and $(0.1) in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. The increase in other expense for fiscal 2025 and fiscal 2024 compared to fiscal 2023 was primarily due to the discount on sales of accounts receivable under the Master Receivables Purchase Agreement.
Income (Loss) from Operations
Income (loss) from operations was $358.6 in fiscal 2025 compared to $208.8 in fiscal 2024. The increase was primarily driven by a higher gross margin rate, partially offset by lower net sales and higher SG&A.
Income (loss) from operations was $208.8 in fiscal 2024 compared to $(174.4) in fiscal 2023. The increase was primarily driven by lower impairment, restructuring and other charges and a higher gross margin rate, partially offset by higher other expense and higher SG&A.
Equity in Loss of Unconsolidated Affiliates
Equity in loss of unconsolidated affiliates was $2.8, $68.1 and $101.1 in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Equity in (income) loss of unconsolidated affiliates associated with Bonnie Plants, LLC was $(5.4), $68.1 and $101.1 in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. We recorded pre-tax impairment charges associated with our investment in Bonnie Plants, LLC of $61.9 and $94.7 during fiscal 2024 and fiscal 2023, respectively. Equity in loss of unconsolidated affiliates associated with FLUENT was $8.2 in fiscal 2025. Refer to “NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATES” of the Notes to the Consolidated Financial Statements included in this Form 10-K for further details.
Interest Expense
Interest expense was $128.8 in fiscal 2025, a decrease of 18.9% compared to $158.8 in fiscal 2024. The decrease was driven by lower average borrowings of $301.4 and a decrease in our weighted average interest rate, net of the impact of interest rate swaps, of 50 basis points. The decrease in average borrowings was driven by our focus on using available cash flow to reduce our debt. The decrease in our weighted average interest rate was primarily driven by lower borrowing rates under the Sixth A&R Credit Agreement.
Interest expense was $158.8 in fiscal 2024, a decrease of 10.8% compared to $178.1 in fiscal 2023. The decrease was driven by lower average borrowings of $554.8, partially offset by an increase in our weighted average interest rate, net of the impact of interest rate swaps, of 40 basis points. The decrease in average borrowings was driven by our focus on using available cash flow to reduce our debt as well as the impact of the expiration of the Receivables Facility and the execution of the Master Receivables Purchase Agreement. The increase in our weighted average interest rate was primarily driven by higher borrowing rates under the Sixth A&R Credit Agreement.
Income Tax Expense (Benefit)
A reconciliation of the federal corporate income tax rate and the effective tax rate on income (loss) before income taxes is summarized below:
Year Ended September 30,
Statutory income tax rate
Effect of foreign operations
State taxes, net of federal benefit
Effect of other permanent differences
Research and Experimentation and other federal tax credits
Effect of tax contingencies
Change in valuation allowances
Other
Effective income tax rate
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During fiscal 2025, we incurred a non tax-deductible loss on the sale of our Hawthorne professional horticulture business of $17.7 and this impact is included in the “Effect of other permanent differences” line in the table above. We also recorded a full valuation allowance during fiscal 2025 against deferred tax assets related to $8.2 of equity in loss of unconsolidated affiliates associated with FLUENT and $7.0 of non-cash loss related to the exchange of our convertible debt investment in RIV Capital, and this impact is included in the “Change in valuation allowances” line in the table above.
For fiscal 2024, the impact on the effective tax rate of the items noted in the table above increased due to the decrease in loss before income taxes for fiscal 2024 as compared to fiscal 2023. Deferred tax assets related to unrealized losses on convertible debt investments were $43.6 and $33.4 at September 30, 2024 and 2023, respectively. A full valuation allowance was recorded against these losses at September 30, 2024 and 2023 as we do not expect to utilize them prior to their expiration, and this impact is included in the “Change in valuation allowances” line in the table above.
Net Income (Loss)
Net income (loss) was $145.2, or $2.47 per diluted share, in fiscal 2025 compared to $(34.9), or $(0.61) per diluted share, in fiscal 2024. The increase was driven by a higher gross margin rate, lower equity in loss of unconsolidated affiliates and lower interest expense, partially offset by lower net sales, higher income tax expense and higher SG&A.
Diluted average common shares used in the diluted net income per common share calculation for fiscal 2025 were 58.7 million, which included dilutive potential common shares of 1.1 million. Diluted average common shares used in the diluted net loss per common share calculation for fiscal 2024 were 56.8 million, which excluded potential common shares of 0.9 million because the effect of their inclusion would be anti-dilutive as we incurred a net loss for fiscal 2024. The increase in diluted average common shares was also driven by the exercise and issuance of share-based compensation awards.
Net income (loss) was $(34.9), or $(0.61) per diluted share, in fiscal 2024 compared to $(380.1), or $(6.79) per diluted share, in fiscal 2023. The decrease was driven by lower impairment, restructuring and other charges, a higher gross margin rate, lower equity in loss of unconsolidated affiliates and lower interest expense, partially offset by higher other expense, higher income tax expense and higher SG&A.
Diluted average common shares used in the diluted net loss per common share calculation for fiscal 2024 and fiscal 2023 were 56.8 million and 56.0 million, respectively, which excluded potential common shares of 0.9 million and 0.4 million, respectively, because the effect of their inclusion would be anti-dilutive as we incurred a net loss for fiscal 2024 and 2023. The increase in diluted average common shares was primarily the result of the exercise and issuance of share-based compensation awards.
Segment Results
We have three operating segments and two reportable segments: U.S. Consumer and Hawthorne. U.S. Consumer consists of our consumer lawn and garden business in the United States. Hawthorne consists of our indoor and hydroponic gardening business. We have chosen to provide separate reportable segment disclosures for Hawthorne notwithstanding the fact that it does not meet any of the quantitative thresholds requiring such disclosure. The Other operating segment primarily consists of our consumer lawn and garden business in Canada and does not meet any of the quantitative thresholds requiring separate reportable segment disclosures.
Segment performance is evaluated based on several factors, including income (loss) before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit (Loss)”), which is a non-GAAP financial measure. We 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,
U.S. Consumer
Hawthorne
Reportable segment total
Other
Consolidated
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The following table sets forth Segment Profit (Loss) as well as a reconciliation to income (loss) before income taxes, the most directly comparable measure prepared in accordance with U.S. generally accepted accounting principles (“GAAP”):
Year Ended September 30,
U.S. Consumer
Hawthorne
Reportable segment total
Other
Corporate
Intangible asset amortization
Impairment, restructuring and other
Equity in loss of unconsolidated affiliates
Interest expense
Other non-operating income (expense), net
Income (loss) before income taxes (GAAP)
U.S. Consumer
U.S. Consumer segment net sales were $2,993.7 in fiscal 2025, a decrease of 0.7% from fiscal 2024 net sales of $3,013.7. The decrease was driven by nonrecurring fiscal 2024 sales of bulk raw materials and AeroGarden ® products of 1.4% and decreased pricing of 0.6%, partially offset by higher sales volume of 1.4%. The increase in sales volume for fiscal 2025 was driven by soils, mulch, grass seed and spreader products. Decreased pricing in fiscal 2025 was due to additional investments in consumer activation activities.
U.S. Consumer Segment Profit was $572.6 in fiscal 2025, an increase of 15.0% from fiscal 2024 Segment Profit of $498.0. The increase for fiscal 2025 was primarily due to a higher gross margin rate, partially offset by higher SG&A and lower net sales.
U.S. Consumer segment net sales were $3,013.7 in fiscal 2024, an increase of 6.0% from fiscal 2023 net sales of $2,843.7. The increase was driven by higher sales volume of 7.3%, partially offset by decreased pricing of 1.3%. The increase in sales volume for fiscal 2024 was driven by mulch, soils and controls products as well as increased net sales associated with the Roundup ® marketing agreement.
U.S. Consumer Segment Profit was $498.0 in fiscal 2024, an increase of 9.7% from fiscal 2023 Segment Profit of $454.1. The increase for fiscal 2024 was primarily due to higher net sales and a higher gross margin rate, partially offset by higher SG&A driven by advertising expense and higher other expense driven by the discount on sales of accounts receivable.
Hawthorne
Hawthorne segment net sales were $165.8 in fiscal 2025, a decrease of 43.7% from fiscal 2024 net sales of $294.7. The decrease was driven by lower sales volume of 32.8%, the discontinuation of sales of other companies’ products of 9.9% and decreased pricing of 1.4%.
Hawthorne Segment Profit was $2.8 in fiscal 2025 compared to fiscal 2024 Segment Loss of $(14.2). The improvement was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.
Hawthorne segment net sales were $294.7 in fiscal 2024, a decrease of 36.9% from fiscal 2023 net sales of $467.3. The decrease was driven by lower sales volume of 36.8% and decreased pricing of 0.5%, partially offset by favorable foreign exchange rates of 0.4%. The decrease in sales volume for fiscal 2024 was driven by all product categories and the impact of the discontinuation of sales of other companies’ products.
Hawthorne Segment Loss was $14.2 in fiscal 2024 compared to fiscal 2023 Segment Loss of $48.1. The improvement was driven by a higher gross margin rate and lower SG&A, partially offset by lower net sales.
Other
Other segment net sales were $253.6 in fiscal 2025, an increase of 3.8% from fiscal 2024 net sales of $244.3. The increase was driven by higher sales volume of 6.5% and increased pricing of 0.3%, partially offset by unfavorable foreign exchange rates of 2.5%.
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Other segment profit was $12.7 in fiscal 2025, an increase of 170.2% from fiscal 2024 segment profit of $4.7. The increase was driven by higher net sales and a higher gross margin rate, partially offset by higher SG&A.
Other segment net sales were $244.3 in fiscal 2024, an increase of 1.7% from fiscal 2023 net sales of $240.3. The increase was driven by higher sales volume of 3.5%, partially offset by decreased pricing of 1.0% and unfavorable foreign exchange rates of 0.8%.
Other segment profit was $4.7 in fiscal 2024, a decrease of 62.1% from fiscal 2023 segment profit of $12.4. The decrease was driven by a lower gross margin rate and higher SG&A, partially offset by higher net sales.
Corporate
Corporate expenses were $133.4 in fiscal 2025, an increase of 13.3% from fiscal 2024 expenses of $117.7. The increase was primarily driven by higher short-term variable incentive compensation expense, partially offset by lower share-based compensation expense.
Corporate expenses were $117.7 in fiscal 2024, an increase of 15.8% from fiscal 2023 expenses of $101.6. The increase was primarily driven by higher share-based compensation expense due to the recognition of a cumulative adjustment in fiscal 2023 for certain performance-based award units to reflect management’s assessment of a lower probability of achievement of performance goals, partially offset by reductions in staffing levels and other cost-reduction initiatives.
Liquidity and Capital Resources
The following table summarizes cash activities for the years ended September 30:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating Activities
Cash provided by operating activities totaled $371.3 for fiscal 2025 compared to $667.5 for fiscal 2024. The decrease was driven by higher inventory production, the timing of accounts receivable sales, higher short-term variable cash incentive compensation payments and higher SG&A, partially offset by higher gross margin and lower interest payments. Accounts receivable sale timing was driven by our entry into the Master Receivable Purchasing Agreement during fiscal 2024.
Cash provided by operating activities totaled $667.5 for fiscal 2024 compared to $531.0 for fiscal 2023. This increase was driven by lower accounts receivable, higher gross margin, accounts payable timing, lower payments associated with restructuring activities and lower interest payments, partially offset by higher inventory production, higher payments to customers related to promotional programs and lower income tax refunds received. Lower accounts receivable is driven by the favorable impact of accounts receivable sold under the Master Receivables Purchase Agreement. Accounts payable timing is driven by the impact of extended payment terms with vendors for payments originally due in the final weeks of fiscal 2022 that were paid in the first quarter of fiscal 2023.
The seasonal nature of our North 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.
Investing Activities
Cash used in investing activities totaled $112.1 for fiscal 2025 compared to $100.4 for fiscal 2024. Cash used for investments in property, plant and equipment during fiscal 2025 and fiscal 2024 was $97.4 and $84.0, respectively, driven by higher spending on capital projects in fiscal 2025. On September 30, 2025, we completed the divestiture of our Hawthorne professional horticulture business based in the Netherlands for $8.5, which was financed by us in the form of an interest bearing loan that was classified as an investing activity in the Consolidated Statements of Cash Flows. We also had other investing cash outflows of $3.7 during fiscal 2025.
Cash used in investing activities totaled $100.4 for fiscal 2024, an increase of $34.7 compared to $65.7 for fiscal 2023. Cash used for investments in property, plant and equipment during fiscal 2024 and fiscal 2023 was $84.0 and $92.8, respectively. We also acquired an additional equity interest in Bonnie Plants, LLC for $21.4 and had other investing cash inflows of $5.0 during fiscal 2024.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
For the three fiscal years ended September 30, 2025, we allocated our capital spending as follows: 68% for maintenance of existing productive assets; 22% for cost savings projects, focused primarily on supply chain and information technology; and 10% for innovation and expansion. We expect fiscal 2026 capital expenditures to be approximately $100.0 and we expect to allocate approximately 46% to maintenance of existing productive assets, 28% to cost savings projects and 26% to innovation and expansion projects.
Financing Activities
Cash used in financing activities totaled $294.0 for fiscal 2025 compared to $527.9 for fiscal 2024. During fiscal 2025, we had net debt repayments of $122.1, paid dividends of $154.3 and repurchased Common Shares for $18.4 (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation). In addition, we received cash from the exercise of stock options of $11.9 (which also includes amounts received from employee purchases under the employee stock purchase plan) during fiscal 2025. We also had other financing cash outflows of $11.1 during fiscal 2025 primarily related to prior year collections of previously sold accounts receivable that were submitted to the buyer in the current year.
Cash used in financing activities totaled $527.9 for fiscal 2024 compared to $520.1 for fiscal 2023. During fiscal 2024, we had net debt repayments of $391.0, paid dividends of $151.3 and repurchased Common Shares for $5.1 (which includes cash paid to tax authorities to satisfy statutory income tax withholding obligations related to share-based compensation). We also had other financing cash inflows of $15.7 during fiscal 2024 related to collections of previously sold accounts receivable not yet submitted to the buyer. Higher debt repayment is driven by our focus on using available cash flow to reduce our debt.
Accounts Receivable Sales
On October 27, 2023, we entered into the Master Receivables Purchase Agreement under which we could sell up to $600.0 of available and eligible outstanding customer accounts receivable generated by sales to four specified customers. On September 1, 2024, we amended the Master Receivables Purchase Agreement to permit us to sell up to $750.0 of available and eligible outstanding customer accounts receivable generated by sales to five specified customers. On August 28, 2025, the Master Receivables Purchase Agreement, which is uncommitted, was extended and now expires on September 1, 2026. Transactions under the Master Receivables Purchase Agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Consolidated Balance Sheets at the time of the sales transaction. Proceeds received from the sales of accounts receivable are classified as operating cash flows and collections of previously sold accounts receivable not yet submitted to the buyer are classified as financing cash flows in the Consolidated Statements of Cash Flows. We record the discount on sales in the “Other (income) expense, net” line in the Consolidated Statements of Operations. At September 30, 2025 and 2024, net receivables derecognized were $163.3 and $186.6, respectively. During fiscal 2025 and fiscal 2024, proceeds from the sale of receivables under the Master Receivables Purchase Agreement totaled $1,906.1 and $1,938.6, respectively, and the total discount recorded on sales was $20.7 and $24.6, respectively.
Supplier Finance Program
We have an agreement to provide a supplier finance program which facilitates participating suppliers’ ability to finance our payment obligations with a designated third-party financial institution. Participating suppliers may, at their sole discretion, elect to finance our payment obligations prior to their scheduled due dates at a discounted price to the participating financial institution. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under this arrangement. The payment terms that we negotiate with our suppliers are consistent, regardless of whether a supplier participates in the program. Our current payment terms with a majority of our suppliers generally range from 30 to 60 days, which we deem to be commercially reasonable. Our outstanding payment obligations under our supplier finance program are recorded within accounts payable in the Consolidated Balance Sheets and the associated payments are classified as operating activities in the Consolidated Statements of Cash Flows.
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 $36.6 and $71.6 at September 30, 2025 and 2024, respectively, included $4.2 and $15.9, respectively, held by controlled foreign corporations. As of September 30, 2025, we maintain our assertion of indefinite reinvestment of the earnings of all material foreign subsidiaries.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Borrowing Agreements
Credit Facilities
Our primary sources of liquidity are cash generated by operations and borrowings under our credit facilities, which are guaranteed by substantially all of Scotts Miracle-Gro’s domestic subsidiaries. On April 8, 2022, we entered into the Sixth A&R Credit Agreement, which provided the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $1,000.0.
At September 30, 2025, we had letters of credit outstanding in the aggregate principal amount of $83.1, and had $1,166.9 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings under the credit facilities, excluding the impact of interest rate swaps, were 7.9%, 9.1% and 7.6% for fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
During fiscal 2025 and fiscal 2024, we used available cash on hand to make prepayments on the term loan of the Sixth A&R Credit Agreement in the amount of $75.0 and $250.0, respectively, which was applied to the outstanding principal amount.
The Sixth A&R Credit Agreement, as amended on June 8, 2022 and July 31, 2023, contained, among other obligations, an affirmative covenant regarding our leverage ratio determined as of the end of each of our fiscal quarters. The maximum permitted leverage ratio was 4.75 for the fourth quarter of fiscal 2025. Our leverage ratio was 4.10 at September 30, 2025. The Sixth A&R Credit Agreement also contained an affirmative covenant regarding our fixed charge coverage ratio determined as of the end of each of our fiscal quarters. The minimum required fixed charge coverage ratio was 1.00. Our fixed charge coverage ratio was 1.42 for the twelve months ended September 30, 2025.
On November 21, 2025, we entered into the Seventh A&R Credit Agreement, providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,000.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $500.0. The Seventh A&R Credit Agreement also provides us with the right to seek additional committed credit under the agreement in an aggregate amount of up to $500.0 plus an unlimited additional amount, subject to certain specified financial and other conditions. The Seventh A&R Credit Agreement replaces the Sixth A&R Credit Agreement and will terminate on November 21, 2030. The Seventh A&R Credit Agreement will be available for issuance of letters of credit up to $100.0. The terms of the Seventh A&R Credit Agreement include customary representations and warranties, affirmative and negative covenants, financial covenants and events of default.
Borrowings under the Seventh A&R Credit Agreement bear interest at variable rates derived from the prevailing U.S. Prime Rate, Federal Reserve Bank of New York Rate, Secured Overnight Financing Rate, Euro Interbank Offered Rate, Canadian Prime Rate or Canadian Overnight Repo Rate Average (all as defined in the Seventh A&R Credit Agreement), based on our election, plus a spread that depends on our quarterly-tested leverage ratio.
The Seventh A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding our leverage ratio determined as of the end of each of our fiscal quarters, calculated as average total indebtedness, divided by our EBITDA, as adjusted pursuant to the terms of the Seventh A&R Credit Agreement (“Adjusted EBITDA”). The maximum permitted leverage ratio is 5.00 for the first quarter of fiscal 2026 and thereafter. The Seventh 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, calculated as Adjusted EBITDA divided by interest expense, as described in the Seventh A&R Credit Agreement. The minimum required interest coverage ratio is (i) 3.00 for each of the fiscal quarters within fiscal 2026, (ii) 3.25 for each of the fiscal quarters within fiscal 2027 and (iii) 3.50 for fiscal quarters thereafter.
The Seventh A&R Credit Agreement allows us to make unlimited restricted payments (as defined in the Seventh A&R Credit Agreement), including dividend payments on, 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 are limited to restricted payments in an aggregate amount for each fiscal year not to exceed $225.0.
Senior Notes
On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026. The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year.
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(Dollars in millions, except per share data)
On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029. The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year.
On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031. The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each year.
On August 13, 2021, Scotts Miracle-Gro issued $400.0 aggregate principal amount of 4.375% Senior Notes due 2032. The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates of February 1 and August 1 of each year.
Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes.
The Senior Notes contain an affirmative covenant regarding our interest coverage ratio determined as of the end of each of our fiscal quarters, calculated as Adjusted EBITDA divided by interest expense excluding costs related to refinancings. The minimum required interest coverage ratio is 2.00. Our interest coverage ratio was 4.78 for the twelve months ended September 30, 2025.
Receivables Facility
We also maintained a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”) under which we could sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers subject to agreeing to repurchase the receivables on a weekly basis. The eligible accounts receivable consisted of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts receivables which could be sold under the Receivables Facility was $400.0. The Receivables Facility expired on August 18, 2023. The sale of receivables under the Receivables Facility was accounted for as short-term debt and we continued to carry the receivables on our Consolidated Balance Sheets, primarily as a result of our requirement to repurchase receivables sold.
Interest Rate Swap Agreements
We enter into interest rate swap agreements with major financial institutions that effectively convert a portion of our variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of September 30, 2025 and 2024 had a maximum total U.S. dollar equivalent notional amount of $450.0. During fiscal 2024, we terminated an interest rate swap agreement in exchange for a cash payment of $11.0. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at September 30, 2025 are shown in the table below:
Notional
Amount ($)
Effective
Date (a)
Expiration
Date
Fixed
Rate
(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.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Availability and Use of Cash
We believe that our cash flows from operations and borrowings under our agreements described herein will be sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in “ITEM 1A. RISK FACTORS — Risks Related to Our M&A, Lending and Financing Activities — Our indebtedness could limit our flexibility and adversely affect our financial condition ” of this Form 10-K.
Financial Disclosures About Guarantors and Issuers of Guaranteed Securities
The 5.250% Senior Notes, 4.500% Senior Notes, 4.000% Senior Notes and 4.375% Senior Notes were issued by Scotts Miracle-Gro on December 15, 2016, October 22, 2019, March 17, 2021 and August 13, 2021, respectively. The Senior Notes are guaranteed by certain consolidated domestic subsidiaries of Scotts Miracle-Gro (collectively, the “Guarantors”) and, therefore, we report summarized financial information in accordance with SEC Regulation S-X, Rule 13-01, “Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that a Guarantor’s guarantee will be released in certain circumstances set forth in the indentures governing the Senior Notes, such as: (i) upon any sale or other disposition of all or substantially all of the assets of the Guarantor (including by way of merger or consolidation) to any person other than Scotts Miracle-Gro or any “restricted subsidiary” under the applicable indenture; (ii) if the Guarantor merges with and into Scotts Miracle-Gro, with Scotts Miracle-Gro surviving such merger; (iii) if the Guarantor is designated an “unrestricted subsidiary” in accordance with the applicable indenture or otherwise ceases to be a “restricted subsidiary” (including by way of liquidation or dissolution) in a transaction permitted by such indenture; (iv) upon legal or covenant defeasance; (v) at the election of Scotts Miracle-Gro following the Guarantor’s release as a guarantor under the Seventh A&R Credit Agreement, except a release by or as a result of the repayment of the Seventh A&R Credit Agreement; or (vi) if the Guarantor ceases to be a “restricted subsidiary” and the Guarantor is not otherwise required to provide a guarantee of the Senior Notes pursuant to the applicable indenture.
Our foreign subsidiaries and certain of our domestic subsidiaries are not guarantors (collectively, the “Non-Guarantors”) of the Senior Notes. Payments on the Senior Notes are only required to be made by Scotts Miracle-Gro and the Guarantors. As a result, no payments are required to be made from the assets of the Non-Guarantors, unless those assets are transferred by dividend or otherwise to Scotts Miracle-Gro or a Guarantor. In the event of a bankruptcy, insolvency, liquidation or reorganization of any of the Non-Guarantors, holders of their indebtedness, including their trade creditors and other obligations, will be entitled to payment of their claims from the assets of the Non-Guarantors before any assets are made available for distribution to Scotts Miracle-Gro or the Guarantors. As a result, the Senior Notes are effectively subordinated to all the liabilities of the Non-Guarantors.
The guarantees may be subject to review under federal bankruptcy laws or relevant state fraudulent conveyance or fraudulent transfer laws. In certain circumstances, the court could void the guarantee, subordinate the amounts owing under the guarantee, or take other actions detrimental to the holders of the Senior Notes.
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that a Guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such Guarantor did not obtain a reasonably equivalent benefit from the issuance of the Senior Notes.
The measure of insolvency varies depending upon the law of the jurisdiction that is being applied. Regardless of the measure being applied, a court could determine that a Guarantor was insolvent on the date the guarantee was issued, so that payments to the holders of the Senior Notes would constitute a preference, fraudulent transfer or conveyances on other grounds. If a guarantee is voided as a fraudulent conveyance or is found to be unenforceable for any other reason, the holders of the Senior Notes will not have a claim against the Guarantor.
Each guarantee contains a provision intended to limit the Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of each Guarantor. Moreover, this provision may not be effective to protect the guarantees from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
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, 2025
Current assets
Non-current assets (a)
Current liabilities
Non-current liabilities
(a) Includes amounts due from Non-Guarantor subsidiaries of $11.4.
Year Ended
September 30, 2025
Net sales
Gross margin
Net income (a)
(a) Includes intercompany income from Non-Guarantor subsidiaries of $5.7.
Judicial and Administrative Proceedings
We are party to various pending judicial and administrative proceedings and claims arising in the ordinary course of business relating to, among others, product and general liabilities, workers’ compensation, property losses and other liabilities for which we are self-insured or retain a high exposure limit. 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 related accruals are adequate, both individually and in the aggregate; however, there can be no assurance that final resolution of these matters will not have a material effect on our financial condition, results of operations or cash flows.
Contractual Obligations
The following table summarizes our future cash outflows for contractual obligations as of September 30, 2025:
Payments Due by Period
Contractual Cash Obligations
Total
Less Than 1 Year
1-3 Years
3-5 Years
More Than
5 Years
Debt obligations
Interest expense on debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Other, primarily retirement plan obligations
Total contractual cash obligations
We had long-term debt obligations and interest payments due primarily under the 5.250% Senior Notes, 4.500% Senior Notes, 4.000% Senior Notes, 4.375% 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 of September 30, 2025. 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 17. COMMITMENTS” of the Notes to Consolidated Financial Statements included in this Form 10-K.
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THE SCOTTS MIRACLE-GRO COMPANY
(Dollars in millions, except per share data)
Other obligations include actuarially determined retiree benefit payments and pension funding to comply with local funding requirements. Pension funding requirements are based on preliminary estimates using actuarial assumptions determined as of September 30, 2025. These amounts represent expected payments through 2035. 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 “NOTE 8. RETIREMENT PLANS” and “NOTE 9. ASSOCIATE MEDICAL BENEFITS” of the Notes to Consolidated Financial Statements included in this 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.
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, or taking actions aimed at ensuring compliance with, such laws and regulations. We are involved in several legal actions with various governmental agencies related to environmental matters. While it is difficult to quantify the potential financial impact of actions involving these environmental matters, particularly remediation costs at waste disposal sites and future capital expenditures for environmental control equipment, in the opinion of management, the ultimate liability arising from such environmental matters, taking into account established accruals, is not expected to have a material effect on our financial condition, results of operations or cash flows. However, there can be no assurance that the resolution of these matters will not materially affect our future quarterly or annual results of operations, financial condition or cash flows. Additional information on environmental matters affecting us is provided in “ITEM 1. BUSINESS — Regulatory Considerations” and “ITEM 3. LEGAL PROCEEDINGS” of this Form 10-K.
Critical Accounting Estimates
Our audited consolidated financial statements have been prepared in accordance with GAAP. The preparation of financial statements and related disclosures in accordance with GAAP requires management to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical experience, current trends and other factors that we believe to be relevant under the circumstances at the time the estimate was made. Certain accounting estimates are particularly significant, including those related to revenue recognition and promotional allowances, income taxes and goodwill and indefinite-lived intangible assets.
We believe that our estimates, assumptions and judgments are reasonable in that they were based on information available when the estimates, assumptions and judgments were made. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from those implied by our assumptions and estimates.
The Audit Committee of the Board of Directors of Scotts Miracle-Gro reviews our critical accounting estimates on an ongoing basis, including those related to revenue recognition and promotional allowances, income taxes and goodwill and indefinite-lived intangible assets.
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 and, therefore, primarily record revenue 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.
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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. In determining whether a valuation allowance is warranted, we take into account many factors, including the specific tax jurisdiction, both historical and projected future earnings, carryback and carryforward periods and tax planning strategies. Many of the judgments made in adjusting valuation allowances involve assumptions and estimates that are highly subjective. 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 involved in determining the proper valuation allowances, differences between actual future events and prior estimates and judgments could result in adjustments to these valuation allowances.
We also establish a liability for tax return positions in which there is uncertainty as to whether or not the position will ultimately be sustained. These uncertain tax positions are adjusted as a result of changes in factors such as tax legislation, interpretations of laws by courts, rulings by tax authorities, new audit developments, changes in estimates and the expiration of the statute of limitations. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available or when positions are effectively settled. Many of the judgments made in adjusting uncertain tax positions involve assumptions and estimates regarding audit outcomes and the timing of audit settlements, which are often uncertain and subject to change.
Goodwill and Indefinite-Lived Intangible Assets
We have significant investments in intangible assets and goodwill. We perform our annual goodwill and indefinite-lived intangible asset testing 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 a 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 an income-based approach, including the relief-from-royalty method for indefinite-lived trade names. If it is determined that an impairment has occurred, an impairment loss is recognized in earnings 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. 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; (ii) royalty rates used in our intangible asset valuations; (iii) projected future revenues and profitability; 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 from earlier estimates. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and, therefore, could change determinations.
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(Dollars in millions, except per share data)
At September 30, 2025, goodwill totaled $243.9, all of which was associated with our U.S. Consumer segment. Based on the results of the annual quantitative evaluation for fiscal 2025, the fair value of our U.S. Consumer segment reporting unit substantially exceeded its carrying value. A 100 basis point change in the discount rate would not have resulted in an impairment for this reporting unit.
At September 30, 2025, indefinite-lived intangible assets consisted of trade names of $168.2 and the Roundup ® marketing agreement amendment of $155.7, all of which were associated with our U.S. Consumer segment. Based on the results of the annual quantitative evaluation for fiscal 2025, the fair values of our indefinite-lived intangible assets substantially exceeded their respective carrying values. 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 Form 10-K contain additional information related to our accounting policies, including recent accounting pronouncements, and should be read in conjunction with this discussion.
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