SCOTTS COMPANY - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)

( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 30, 2001

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-13292
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THE SCOTTS COMPANY
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(Exact Name of Registrant as Specified in Its Charter)

OHIO 31-1414921
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) No.)

14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041
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(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: 937-644-0011
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Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _ .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )

The aggregate market value of Common Shares held by non-affiliates of the
registrant at November 27, 2001 was $844,217,245.

The number of Common Shares of the registrant outstanding as of November 27,
2001 was 28,999,727.

DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE PROXY STATEMENT FOR REGISTRANT'S 2002 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD JANUARY 25, 2002, ARE INCORPORATED BY REFERENCE INTO
PART III HEREOF.

PART I

ITEM 1. BUSINESS

GENERAL

The Scotts Company, an Ohio corporation, traces its heritage back to a
company founded by O.M. Scott in Marysville, Ohio in 1868. In the mid 1900's, we
became widely known for the development of quality lawn fertilizers and grass
seeds that led to the creation of a new industry -- consumer lawn care. Today,
the Turf Builder(R) line of fertilizers, control products, grass seeds and
related products makes Scotts(R) the most widely recognized name in lawn care in
the United States.

In the 1990's, we significantly expanded our product offering by acquiring
two powerful leading brands in the home lawn and garden industry. In 1995,
through a merger, we acquired the Miracle-Gro(R) brand, the industry leader in
water-soluble garden plant foods. In 1999, we acquired the Ortho(R) brand and
added industry-leading pesticides and herbicides to our portfolio. Through other
acquisitions, we added soils, growing media, barks and mulches for both the
residential and professional markets.

In 1997, our presence in Europe expanded with the acquisition of several
established brands. We now have a strong presence in the consumer garden
business in the United Kingdom, France and Germany, and expect to increase our
share in these markets through consumer-focused marketing, a model we have
successfully followed in the United States. We also have a strong presence in
the professional horticulture market in Europe and intend to aggressively expand
our consumer and professional businesses throughout Europe. We also sell
consumer lawn and garden products in Latin America, Australia and Japan.

We are among the most widely recognized marketers and manufacturers of
products for lawns, gardens, professional turf and horticulture. We believe that
our market leadership is driven by our leading brands, consumer-focused
marketing, product performance and extensive relationships with major U.S.
retailers. Our portfolio of consumer brands that we believe hold a top one or
two leading market share position in their respective U.S. markets includes the
following:

- Hyponex(R)
- Miracle-Gro(R)
- Ortho(R)
- Osmocote(R)
- Roundup(R)*
- Scotts(R)
- Turf Builder(R)

Our portfolio of European Union brands includes the following:

- Celaflor(R)
- Fertiligene(R)
- KB(R)
- Levington(R)
- Miracle-Gro(R)
- Nexa-Lotte(R)
- Shamrock(R)
- Substral(R)
- Weedol(R)
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* Roundup(R) is a registered trademark of Monsanto Technology LLC (an affiliate
of Monsanto Company (now known as Pharmacia Corporation)). We market and
distribute consumer Roundup(R) products for Monsanto under a long-term
marketing agreement. For additional information, please see the discussion
under the heading "-- Roundup(R) Marketing Agreement".

BUSINESS SEGMENTS

We divide our business into three reporting segments:

- North American Consumer;
- Global Professional; and
- International Consumer.

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Financial information about these segments for the three years ended September
30, 2001 is presented in Note 20 of the Notes to Consolidated Financial
Statements, which are included under Item 8 of this Form 10-K.

NORTH AMERICAN CONSUMER

In our North American Consumer segment, we manufacture and market products
and offer services that provide fast, easy and effective assistance to
homeowners who seek to nurture beautiful and weed and pest-free lawns, gardens
and indoor plants. These products and services are sold under brand names that
people know and trust, and that incorporate many of the best technologies
available to us. These products and services include:

TURF BUILDER(R). We sell a complete line of granular lawn fertilizer, weed
control, pest control and combination products under the Scotts Turf Builder(R)
brand name. The Turf Builder(R) line of products is designed to make it easy for
do-it-yourself consumers to select and properly apply the right product in the
right quantity for their lawns.

MIRACLE-GRO(R). We sell a complete line of water-soluble plant foods under
the Miracle-Gro(R) brand name. These products are designed to be dissolved in
water, creating a diluted nutrient solution which is poured over plants or
sprayed through an applicator and rapidly absorbed by a plant's roots and
leaves.

Miracle-Gro(R) products are specially formulated to give different kinds of
plants the right kind of nutrition. While Miracle-Gro(R) All-Purpose
Water-Soluble Plant food is the leading product in the Miracle-Gro(R) line by
market share, the Miracle-Gro(R) line includes other products such as
Miracle-Gro(R) Rose Plant Food, Miracle-Gro(R) Tomato Plant Food, Miracle-Gro(R)
Lawn Food and Miracle-Gro Bloom Booster(R). Miracle-Gro continues to look for
ways to improve the convenience of its products for the consumer. The
Miracle-Gro(R) Garden Feeder provides consumers with an easy, fast and effective
way to feed all the plants in their garden. We are also introducing a high
quality, slow release line of Miracle-Gro(R) plant foods for extended feeding
convenience.

ORTHO(R). We sell a broad line of weed control, indoor and outdoor pest
control and plant disease control products under the Ortho(R) brand name.
Ortho(R) products are available in aerosol, liquid ready-to-use, concentrated,
granular and dust forms.

Ortho(R) products include Weed-B-Gon(R) to control weeds, Brush-B-Gon(R) to
control brush, and Bug-B-Gon(R), RosePride(R), Ortho-Klor(R), Ant-Stop(R),
Orthene(R) Fire Ant control, Ortho(R) Home Defense(R) and Flea-B-Gon(R) to
control pests.

GROWING MEDIA. We sell a complete line of growing media products for indoor
and outdoor uses under the Miracle-Gro(R), Scotts(R), Hyponex(R) and EarthGro(R)
brand names, as well as other labels. These products include retail potting
soils, garden soils, topsoil, manures, sphagnum peat and decorative barks and
mulches. The addition of Miracle-Gro(R) fertilizers to potting soils and garden
soils have turned low-margin commodity products into value-added brand leaders.

SCOTTS LAWNSERVICE(R). In addition to our products, we provide residential
lawn care, tree and shrub care and external pest control services through our
Scotts LawnService(R) business. These services consist primarily of fertilizer,
weed control, pest control and disease control applications.

ROUNDUP(R). In 1998, we entered into a long-term marketing agreement with
Monsanto and became Monsanto's exclusive agent for the marketing and
distribution of consumer Roundup(R) non-selective herbicide products in the
consumer lawn and garden market within the United States and certain other
specified countries, including Australia, Austria, Canada, France, Germany and
the United Kingdom. For additional information, please see the discussion under
the heading "-- Roundup(R) Marketing Agreement".

OTHER PRODUCTS. We manufacture and market three lines of high quality lawn
spreaders under the Scotts(R) brand name: SpeedyGreen(R) rotary spreaders,
AccuGreen(R) drop spreaders and Handy Green(R) II lawn spreaders. We sell a line
of hose-end applicators for water-soluble plant foods like Miracle-Gro(R)
products, and lines of applicators under the Ortho(R), Dial 'n Spray(R),
Whirlybird(R) and Pull 'N Spray(R) trademarks for the application of certain
insect control products. We also sell numerous varieties and blends of high
quality grass seed, many of them proprietary, designed for different conditions
and

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geographies. These consumer grass seed products are sold under the Scotts Pure
Premium(R), Scotts Turf Builder(R), Scotts(R) and PatchMaster(R) brands.

LICENSED PRODUCTS. We have granted several royalty-bearing licenses to use
the Scotts(R) trademark, including: a license to Union Tools, Inc. for use on
garden tools; a license to Home Depot U.S.A., Inc. under which Home Depot
markets a line of motorized, walk-behind lawn mowers and tillers; and a license
under which Home Depot markets a line of high quality, riding/tractor lawn
mowers currently manufactured by Deere & Company.

GLOBAL PROFESSIONAL

Through our Global Professional segment, we sell professional products to
commercial nurseries, greenhouses, landscape service providers and specialty
crop growers in North America and internationally in many locations including
Africa, Australia, the Caribbean, the European Union, Japan, Latin America, the
Middle East, New Zealand and Southeast Asia.

We also sell a broad line of sophisticated controlled-release fertilizers,
water-soluble fertilizers, pesticide products, wetting agents and growing media
products to international professional customers under brand names that include
Banrot(R), Metro-Mix(R), Miracle-Gro(R), Osmocote(R), Peters(R), Poly-S(R),
Rout(R), ScottKote(R), Shamrock(R) and Sierra(R).

For information concerning risks attendant to our foreign operations,
please see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Forward-Looking Statements."

INTERNATIONAL CONSUMER

In our International Consumer segment, we sell consumer lawn and garden
products in over 25 countries outside of North America. Our International
Consumer segment also manages and markets the consumer Roundup(R) business with
Monsanto outside of North America under a long-term marketing agreement. For
additional information, please see the discussion under the heading
"-- Roundup(R) Marketing Agreement".

Our international consumer products and brand names vary from country to
country depending upon the market conditions, brand name strength and the nature
of our strategic relationships in a given country. In the United Kingdom, we
sell Miracle-Gro(R) plant fertilizers, Weedol(R) and Pathclear(R) herbicides,
EverGreen(R) lawn fertilizer and Levington(R) growing media. Our other
international brands include KB(R) and Fertiligene(R) in France, Celaflor(R),
Nexa-Lotte(R) and Substral(R) in Germany and Austria, and ASEF(R), KB(R) and
Substral(R) in the Benelux countries.

For information concerning risks attendant to our foreign operations,
please see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Forward-Looking Statements."

RESEARCH AND DEVELOPMENT

We believe strongly in the benefits of research and development, and we
continually invest in research and development to improve our existing products,
manufacturing processes, and packaging and delivery systems, and to develop new
products, manufacturing processes, and packaging and product delivery systems.
In fiscal years 2001, 2000 and 1999, we spent nearly $24.7 million (1.4% of our
net sales), $24.1 million (1.4% of our net sales) and $21.7 million (1.3% of our
net sales), respectively, on research and development including environmental
and regulatory expenses. We believe that our long-standing commitment to
innovation has benefited us, as evidenced by a portfolio of patents worldwide
which support most of our fertilizers and many of our grass seeds and
application devices. In addition to the benefits of our own research and
development, we benefit from the research and development activities of our
suppliers.

Our research and development headquarters for North America are located at
the Dwight G. Scott Research Center in Marysville, Ohio. We also have research
and development facilities in Levington, the United Kingdom; Ecully, France;
Ingelheim, Germany; Heerlen, the Netherlands and Sydney, Australia, as well as
several research field stations located throughout the United States.

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BIOTECHNOLOGY

In addition to our traditional research and development activities, we are
currently conducting biotechnology research with the goal of developing
turfgrass varieties and plants that consumers could find more desirable than
conventionally developed varieties. Before a product enhanced by biotechnology
may be sold in the United States, it must be "deregulated" by appropriate
governmental agencies. We have not submitted a petition for deregulation with
regard to any such product; however, we intend to submit a petition for
deregulation of a creeping bentgrass product enhanced by biotechnology in the
near future. There can be no assurance that if we submit a petition for
deregulation of this bentgrass product or any other product enhanced by
biotechnology, the petition will be approved, or that if approved and
commercially introduced by us, any such product will generate any revenues for
us or contribute to our earnings. As with all products commercially introduced
by us, any product enhanced by biotechnology will meet and may exceed all
legally required testing and safety standards prior to introduction.

TRADEMARKS, PATENTS AND LICENSES

The Scotts(R), Miracle-Gro(R), Hyponex(R) and Ortho(R) brand names and
logos, as well as a number of product trademarks, including Turf Builder(R),
Osmocote(R) and Peters(R), are federally and/or internationally registered and
are considered material to our business. We regularly monitor our trademark
registrations, which are generally effective for ten years, so that we can renew
those nearing expiration.

As of September 30, 2001, we held over 90 issued patents in the United
States covering fertilizer, chemical and growing media compositions and
processes, grasses and application devices. Many of these patents have also
issued in numerous countries around the world, bringing our total worldwide
patents to more than 300. International patents are subject to annual renewal,
with patent protection generally extending to 20 years from the date of filing.
Many of our patents extend well into the next decade. In addition, we continue
to file new patent applications each year. Currently, we have over 190 pending
patent applications worldwide. We also hold exclusive and non-exclusive patent
licenses from various raw material suppliers, permitting the use and sale of
additional patented fertilizers and pesticides.

During fiscal year 2001, we were granted a number of new U.S. patents
covering methylene-urea and coated fertilizers, as well as novel application
devices and growing media compositions.

One of our material methylene-urea patents expired in July 2001. This
product composition patent covered Scotts Turf Builder(R), Scotts Turf
Builder(R) with Plus 2(R) Weed Control and Scotts Turf Builder(R) with Halts(R)
Crabgrass Control, among other products. These products are also the subject of
a separate patent extending to 2010, which covers the current and preferred
manufacturing method for producing these products. Although these products
possibly could be manufactured by an alternative method, we believe that the
higher manufacturing costs to replicate these products and the strength of the
Scotts(R) brand should lessen the likelihood of product duplication by any
competitor.

ROUNDUP(R) MARKETING AGREEMENT

On September 30, 1998, we entered into a marketing agreement with Monsanto
and became Monsanto's exclusive agent for the marketing and distribution of
consumer Roundup(R) products in the consumer lawn and garden market within the
United States and other specified countries, including Australia, Austria,
Canada, France, Germany and the United Kingdom. In addition, if Monsanto
develops new products containing glyphosate, the active ingredient in
Roundup(R), or other non-selective herbicides, we have specified rights to
market these products in the consumer lawn and garden market. Glyphosate is no
longer subject to patent in the United States or elsewhere.

Under the marketing agreement, we and Monsanto jointly develop global
consumer and trade marketing programs for Roundup(R). We have assumed
responsibility for sales support, merchandising, distribution and logistics.
Monsanto continues to own the consumer Roundup(R) business and provides
significant oversight of its brand. In addition, Monsanto continues to own and
operate the agricultural Roundup(R) business. A Steering Committee comprised of
two Scotts designees and two Monsanto designees has ultimate oversight over the
consumer Roundup(R) business. In the event of a deadlock, the president of
Monsanto's agricultural division is entitled to the tie-breaking vote.

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We are compensated under the marketing agreement based on the success of
the consumer Roundup(R) business in the markets covered by the agreement. In
addition to recovering out-of-pocket costs on a fully burdened basis, we receive
a graduated commission to the extent that the earnings before interest and taxes
of the consumer Roundup(R) business in the included markets exceed specified
thresholds. Regardless of these earnings, we are required to make an annual
contribution payment against the overall expenses of the Roundup(R) business.
For fiscal year 2001, this contribution payment was $15 million and for fiscal
year 2002, it will be $20 million. Beginning in fiscal year 2003 until 2018 or
the earlier termination of the agreement, the contribution payment will be $25
million and may be higher if certain significant earnings targets are achieved.

Our net commission under the marketing agreement is equal to the graduated
commission amount described above less the applicable contribution payment and
amortization of the marketing rights advance payment. The net commission is the
amount that we actually recognize on our consolidated statements of operations.
For fiscal year 2001, the net commission was $20.8 million. See Note 3 of the
Notes to Consolidated Financial Statements, which are included under Item 8 of
this Form 10-K.

The marketing agreement has no definite term, except as it relates to the
European Union countries. With respect to the European Union countries, the
initial term of the marketing agreement extends through September 30, 2005.
After September 30, 2005, the parties may agree to renew the agreement with
respect to the European Union countries for three successive terms ending on
September 30, 2008, 2015 and 2018, respectively. However, if Monsanto does not
agree to any of the extension periods with respect to the European Union
countries, the commission structure will be recalculated in a manner likely to
be favorable to us.

Monsanto has the right to terminate the marketing agreement upon certain
specified events of default by Scotts, including uncured material breach,
material fraud, material misconduct or egregious injury to the Roundup(R) brand.
Monsanto also has the right to terminate the agreement upon a change of control
of Monsanto or the sale of the consumer Roundup(R) business, so long as the
termination occurs later than September 30, 2003. In addition, Monsanto may
terminate the agreement within specified regions, including North America, for
specified declines in the consumer Roundup(R) business.

We have rights similar to Monsanto's to terminate the marketing agreement
upon an uncured material breach, material fraud or material willful misconduct
by Monsanto. In addition, we may terminate the agreement upon Monsanto's sale of
the consumer Roundup(R) business or in certain other circumstances, although we
would then lose the termination fee described below.

If Monsanto terminates the marketing agreement upon a change of control of
Monsanto or the sale of the consumer Roundup(R) business, or if we terminate the
agreement upon an uncured material breach, material fraud or material willful
misconduct by Monsanto, we will be entitled to receive a termination fee of up
to $185 million if the termination occurs prior to September 30, 2003, with the
termination fee declining over time to $100 million if the termination occurs
prior to September 30, 2008.

Monsanto has agreed to provide us with notice of any proposed sale of the
consumer Roundup(R) business, allow us to participate in the sale process and
negotiate in good faith with us with respect to a sale. If the sale is run as an
auction, we would be entitled to a 15-day exclusive negotiation period following
the submission of all bids to Monsanto. In the event that we acquire the
consumer Roundup(R) business in such a sale, we would receive credit against the
purchase price in the amount of the termination fee that would otherwise have
been paid to us upon termination by Monsanto of the marketing agreement upon the
sale. If Monsanto decides to sell the consumer Roundup(R) business to another
party, we must let Monsanto know whether we intend to terminate the marketing
agreement and forfeit any right to a termination fee or whether we will agree to
continue to perform under the agreement on behalf of the purchaser, unless and
until the purchaser terminates our services and pays the applicable termination
fee.

COMPETITION

Each of our segments participates in markets that are highly competitive.
Many of our competitors sell their products at prices lower than ours, and we
compete primarily on the basis of product quality, product performance, value,
brand strength and advertising.

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In the North American consumer do-it-yourself lawn and garden markets and
pest control market, we compete against "control label" products as well as
branded products. "Control label" products are those sold under a retailer-owned
label or a supplier-owned label, which are sold exclusively at a specific retail
chain. The control label products that we compete with include Vigoro(R)
products sold at Home Depot, Sta-Green(R) products sold at Lowe's, Sam's
American Choice(R) products sold at Wal*Mart and KGRO(R) products sold at Kmart.
Our competitors in branded lawn and garden products and the consumer pest
control market include United Industries Corporation, Pursell Industries, Inc.,
Bayer AG, Central Garden & Pet Company, Lesco, Inc., Schultz Co., Garden Tech,
Enforcer Products, Inc., Green Light Company and Lebanon Chemical Corp.
TruGreen-ChemLawn, a division of ServiceMaster, has a majority of the market
share in the U.S. lawn care service market and has a substantially larger share
of this market than our Scotts LawnService(R). With respect to growing media
products, in addition to nationally distributed, branded competitive products,
we face competition from regional competitors who are able to compete
effectively on the basis of price.

In the North American professional horticulture markets, we face a broad
range of competition from numerous companies ranging in size from multi-national
chemical and fertilizer companies such as Dow AgroSciences Company, Uniroyal
Chemical Corporation and Chisso-Asahi Fertilizer Co. Ltd., to smaller,
specialized companies such as Pursell Technologies, Inc., Sun Gro-U.S. (a
Division of Hines Horticulture, Inc.) and Fafard, Inc. Some of these competitors
have significant financial resources and research departments.

The international professional horticulture markets in which we compete are
also very competitive, particularly the markets for controlled-release and
water-soluble fertilizer products. We have numerous U.S. and European
competitors in these international markets, including Pursell Industries, Inc.,
Lesco, Inc., Compo GmbH, Norsk Hydro ASA, Haifa Chemicals Ltd. and Kemira Oyj.
We also face competition from control label products.

Internationally, we face strong competition in the lawn and garden market,
particularly in Europe. Our competitors in the European Union include Bayer AG,
Kali & Salz (Compo, Algoflash brands) and a variety of local companies.

SIGNIFICANT CUSTOMERS

Seventy-five percent of our worldwide net sales in fiscal year 2001 were
made by our North American Consumer segment. Within the North American Consumer
segment, 37% of our net sales in fiscal year 2001 were made to Home Depot, 20%
to Wal*Mart, 11% to Lowe's and 12% to Kmart. We face strong competition for the
business of these significant customers. The loss of any of these significant
customers or a substantial decrease in the volume or profitability of our
business with any of these customers could have a material adverse affect on our
earnings and profits.

STRATEGIC INITIATIVES

SINGLE SALES FORCE/SUPPLY CHAIN

Prior to fiscal year 2001, our North American operations were aligned in
Business Units (e.g. Lawns, Ortho, Gardens, Growing Media) that operated
semi-autonomously from each other. Each Business Unit had a separate sales force
that contacted a largely common customer base and each Business Unit directed
separate marketing campaigns. Supply chain (manufacturing and distribution)
activities were also partly autonomous. In order to meet the needs of a changed
marketplace, where a few companies comprise a major portion of the retail home
and garden market, we redesigned, in fiscal year 2001, the manner in which the
Lawns, Ortho and Gardens Business Units go to market with their customers. The
Growing Media Business Unit, due to its production and sale of locally produced
products, was unaffected by this change.

The major changes initiated in fiscal year 2001 were the creation of a
single sales force aligned around our key customers, a reduction in the use of
distributors and agents to service customers, coordination of product
warehousing and delivery of ordered products to our customers, and coordination
of marketing programs. Further refinement of this process continues in fiscal
year 2002 and has led to restructuring charges, as described in more detail
under the heading "Strategic Initiatives -- Reduction in

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Force/Restructuring" below and in Note 4 of the Notes to Consolidated Financial
Statements, which are included under Item 8 of this Form 10-K.

ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEM

The consolidation of the sales force and the rationalization of our supply
chain could not have been achieved without a robust ERP system. We spent $55
million to acquire and implement SAP software. SAP is intended to enable the
smooth coordination of a centralized order entry system, allowing production
scheduling through company-owned and outsourced manufacturing facilities,
efficient distribution through a network of warehouses around the country,
real-time access to our transaction information and a data warehouse to track
our business activity. For further information about the implementation of the
ERP system, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

REDUCTION IN FORCE/RESTRUCTURING

During fiscal year 2001, in an effort to improve our profitability and
increase our return on invested capital, we decided to close several facilities
in the United States and Europe, limit headcount, eliminate redundancy in the
North American sales force and supply chain, consolidate the world headquarters
and North American headquarters at our main facility in Marysville, Ohio,
eliminate certain product lines and reevaluate or exit certain contractual
relationships. In the third and fourth quarters of fiscal year 2001, as these
decisions were being finalized or, in the case of the headcount limitation,
communicated to the affected associates, we recorded restructuring and other
charges that totaled $75.7 million. Of these costs, approximately $48 million
will require cash outlay and approximately $27 million will be in the form of
asset write-downs. Additional costs, estimated at approximately $4.5 million,
related to the relocation of employees and equipment and inventory, are expected
to be incurred and recorded as expense in fiscal year 2002. Under generally
accepted accounting principles, these costs cannot be accrued in advance of when
they actually occur. Additional restructuring costs or other charges may be
incurred in fiscal year 2002 as our evaluation of operations, profitability and
return on invested capital continues.

For further information on the restructuring charges recorded in fiscal
year 2001, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and Note 4 of the Notes to Consolidated
Financial Statements, which are included under Item 8 of this Form 10-K.

SEASONALITY AND BACKLOG

Our business is highly seasonal with approximately 77% and 75% of our net
sales occurring in our second and third fiscal quarters of fiscal years 2001 and
2000, respectively, excluding Roundup(R) product sales. Consistent with prior
years, we anticipate that significant orders for the upcoming Spring season will
start to be received late in the first fiscal quarter and continue through the
Spring season. Historically, substantially all orders are received and shipped
within the same fiscal year with minimal carryover of open orders at the end of
the fiscal year.

RAW MATERIALS

We purchase raw materials for our products from various sources that we
presently consider to be adequate, and no one source is considered essential to
any of our segments or to our business as a whole.

DISTRIBUTION

The primary distribution centers for our North American Consumer businesses
are located at or near our manufacturing plants in Marysville, Ohio and Fort
Madison, Iowa and contract packaging facilities in Sullivan, Missouri for
Ortho(R) and Roundup(R) products and three other contract packaging facilities
located throughout the United States for Miracle-Gro(R) products. In addition,
we also utilize nine regional distribution centers located in strategic areas
across the United States for direct service to customers during problem periods.
While the majority of truck shipments are made by contract carriers, a portion
is made by our own fleet of leased trucks.

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Our Global Professional business produces horticultural products at two
fertilizer and one growing media manufacturing facilities located in the United
States and one fertilizer manufacturing facility located in Heerlen, the
Netherlands. The majority of shipments is made via common carriers through
distributors in the United States and a network of public warehouses in Europe.
Professional products for the United Kingdom market are warehoused and shipped
from warehouses in Daventry (Northamptonshire) and Chasetown (Staffordshire), in
the United Kingdom.

Our International Consumer business utilizes production facilities in
Howden (East Yorkshire) and Bramford (Suffolk), in the United Kingdom and
distributes products for the U.K. markets through the Daventry warehouse.
Fertilizers and pesticide products manufactured in Bourth, France are shipped to
customers via a central distribution center located in Savigny, France. Growing
media products are packaged at Hatfield in the United Kingdom for local delivery
and are also produced in Hautmont, France for continental European customers.

EMPLOYEES

As of September 30, 2001, we employed 3,251 full-time workers in the United
States and an additional 1,234 full-time employees located outside the United
States. During peak production periods, we engage as many as 1,212 temporary
workers in the United States and 50 temporary workers internationally.

None of our U.S. employees are members of a union, with the exception of 26
employees at our Milpitas, California facility, who are represented by the
International Chemical Workers Union Council/ United Food and Commercial Workers
Union. Approximately 120 of our full-time U.K. employees are members of the
Transport and General Workers Union and have full collective bargaining rights.
An undisclosed number of our full-time employees at our international
headquarters office in Ecully, France are members of the Confederation Generale
des Cadres, Confederation Francaise Democratique du Travail and Confederation
Generale du Travail, participation in which is confidential under French law. In
addition, a number of union and non-union full-time employees are members of
works councils at three sites in Bourth, Hautmont and Ecully, France, and a
number of non-union employees are members of works councils in Ingelheim,
Germany. Works councils represent employees on labor and employment matters and
manage social benefits. We consider our current relationships with our
employees, both unionized and non-unionized, U.S. and international, to be good.

ENVIRONMENTAL AND REGULATORY CONSIDERATIONS

Local, state, federal and foreign laws and regulations relating to
environmental matters affect us in several ways. In the United States, all
products containing pesticides must be registered with the United States
Environmental Protection Agency ("U.S. EPA") (and similar state agencies) before
they can be sold. The inability to obtain or the cancellation of any such
registration could have an adverse effect on our business, the severity of which
would depend on the products involved, whether another product could be
substituted and whether our competitors were similarly affected. We attempt to
anticipate regulatory developments and maintain registrations of, and access to,
substitute chemicals, but there can be no assurance that we will continue to be
able to avoid or minimize these risks. Fertilizer and growing media products are
also subject to state and foreign labeling regulations. Our manufacturing
operations are subject to waste, water and air quality permitting and other
regulatory requirements of federal and state agencies.

The Food Quality Protection Act, enacted by the U.S. Congress in August
1996, establishes a standard for food-use pesticides, which is a reasonable
certainty that no harm will result from the cumulative effect of pesticide
exposures. Under this act, the U.S. EPA is evaluating the cumulative risks from
dietary and non-dietary exposures to pesticides. The pesticides in our products,
certain of which may be used on crops processed into various food products, are
typically manufactured by independent third parties and continue to be evaluated
by the U.S. EPA as part of this exposure risk assessment. The U.S. EPA or the
third party registrant may decide that a pesticide we use in our products will
be limited or made unavailable to us, such as has occurred in past years with
regard to diazinon and chlorpyrifos. We cannot predict the outcome or the
severity of the effect of these continuing evaluations.

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9

In addition, the use of certain pesticide and fertilizer products is
regulated by various local, state, federal and foreign environmental and public
health agencies. These regulations may include requirements that only certified
or professional users apply the product or that certain products be used only on
certain types of locations (such as "not for use on sod farms or golf courses"),
may require users to post notices on properties to which products have been or
will be applied, may require notification of individuals in the vicinity that
products will be applied in the future or may ban the use of certain
ingredients. We believe we are operating in substantial compliance with, or
taking action aimed at ensuring compliance with, these laws and regulations.
Compliance with these regulations and the obtaining of registrations does not
assure, however, that our products will not cause injury to the environment or
to people under all circumstances.

State and federal authorities generally require growing media facilities to
obtain permits (sometimes on an annual basis) in order to harvest peat and to
discharge storm water run-off or water pumped from peat deposits. The state
permits typically specify the condition in which the property must be left after
the peat is fully harvested, with the residual use typically being natural
wetland habitats combined with open water areas. We are generally required by
these permits to limit our harvesting and to restore the property consistent
with the intended residual use. In some locations, these facilities have been
required to create water retention ponds to control the sediment content of
discharged water.

Regulations and environmental concerns also exist surrounding peat
extraction in the United Kingdom and the European Union. In August 2000, the
nature conservation advisory body to the U.K. government notified us that three
of our peat harvesting sites in the United Kingdom were under consideration as
possible "Special Areas of Conservation" under European Union law. We are
currently challenging this consideration. If we are unsuccessful, local planning
authorities in the United Kingdom will be required to review the impact of
activities likely to affect these areas and it is possible that these
authorities could modify or revoke the applicable consents, in which case we
believe we should be entitled to compensation and we believe we would have
sufficient raw material supplies available to replace the peat produced in such
areas.

During fiscal year 2001, we spent approximately $1.3 million in
environmental capital expenditures and $2.1 million in other environmental
expenses, compared with approximately $1.2 million in environmental capital
expenditures and $1.8 million in other environmental expenses in fiscal year
2000. We anticipate that our environmental capital expenditures and other
environmental expenses for fiscal year 2002 will not differ significantly from
those incurred in fiscal year 2001.

REGULATORY ACTIONS

In June 1997, the Ohio Environmental Protection Agency ("Ohio EPA")
initiated an enforcement action against us with respect to alleged surface water
violations and inadequate treatment capabilities at our Marysville facility and
seeking corrective action under the federal Resource Conservation Recovery Act.
The action relates to several discontinued on-site disposal areas which date
back to the early operations of the Marysville facility that we had already been
assessing under a voluntary action program of the state. Since initiation of the
action, we have continued to meet with the Ohio Attorney General and the Ohio
EPA in an effort to complete negotiations of an amicable resolution of these
issues. On December 3, 2001, an agreed judicial Consent Order was submitted to
the Union County Common Pleas Court. Although this Consent Order is subject to
public comment and both parties may withdraw their consent to entry of the
Order, we anticipate the Consent Order will be entered by the court in January
2002.

Once the Consent Order is entered, we will be required to pay a $275,000
fine and satisfactorily remediate the Marysville site. Although a final
remediation plan has not yet been fully developed, we have already initiated
remediation activities with the knowledge and oversight of the Ohio EPA. We
estimate that the possible total cost that could be incurred in connection with
this matter is approximately $10 million. We have accrued for the amount we
consider to be the most probable and believe the outcome will not differ
materially from the amount reserved.

In addition to the dispute with the Ohio EPA, we are negotiating with the
Philadelphia District of the U.S. Army Corps of Engineers regarding the possible
discontinuation of our peat harvesting operations at our Lafayette, New Jersey
facility. We are also addressing remediation concerns raised by the Environment
Agency of the United Kingdom with respect to emissions to air and groundwater at
our Bramford (Suffolk),

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United Kingdom facility. We have reserved for our estimates of probable losses
to be incurred in connection with each of these matters as of September 30,
2001, but we do not believe that either issue is material.

We have accrued $7.0 million at September 30, 2001 in connection with the
regulatory actions described above and other remediation and similar issues. The
significant components of this accrual are:

- costs for site remediation of $4.7 million;
- costs for asbestos abatement of $1.8 million; and
- fines and penalties of $0.5 million.

Most of the costs accrued as of September 30, 2001 are expected to be paid
in fiscal year 2002; however, payments are expected to be made through fiscal
year 2003 and possibly for a period thereafter. We believe that the amounts
accrued as of September 30, 2001 are adequate to cover our known environmental
exposures based on current facts and estimates of likely outcome. However, the
adequacy of these accruals is based on several significant assumptions:

- that we have identified all of the significant sites that must be
remediated;
- that there are no significant conditions of potential contamination that
are unknown to us; and
- that with respect to the agreed judicial Consent Order in Ohio, that
potentially contaminated soil can be remediated in place rather than
having to be removed and only specific stream segments will require
remediation as opposed to the entire stream.

If there is a significant change in the facts and circumstances surrounding
these assumptions, it could have a material impact on the ultimate outcome of
these matters and our results of operations, financial position and cash flows.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

For certain information concerning our international revenues and
long-lived assets, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 20 of the Notes to
Consolidated Financial Statements, which are included under Item 8 of this Form
10-K.

ITEM 2. PROPERTIES

We have fee or leasehold interests in approximately 120 properties.

We lease land from the Union County Community Improvement Corporation in
Marysville, Ohio for our headquarters and the Dwight G. Scott Research Center
for our research and development functions. We own property in Marysville, Ohio
for our manufacturing and distribution facilities. Combined, these facilities
are situated on approximately 875 acres of land. During fiscal year 2001, we
leased space in downtown Columbus, Ohio for our World Headquarters office, which
we closed in September 2001 and relocated to the Marysville, Ohio facility.

The North American Consumer business utilizes three research facilities. We
own one in Apopka, Florida, another in Gervais, Oregon, and lease the third in
Waterloo, New York. We also own a production facility which encompasses 27 acres
in Fort Madison, Iowa and lease a spreader and other durable components
manufacturing facility in Temecula, California. We operate 24 growing media
facilities in 21 states; 20 of which are owned by us and four of which are
leased. Most of our growing media facilities include production lines,
warehouses, offices and field processing areas. As of October 1, 2001, we had
one compost facility, located at a bagging facility in Lebanon, Connecticut. We
lease property for 38 lawn care service centers in Connecticut, Georgia,
Illinois, Indiana, Kansas, Kentucky, Maryland, Michigan, Missouri, Nebraska, New
Jersey, Ohio, Pennsylvania and Rhode Island. We also lease sales offices in
Atlanta, Georgia; Troy, Michigan; Wilkesboro, North Carolina; Rolling Meadows,
Illinois; and Bentonville, Arkansas.

The Global Professional business has offices in Marysville, Ohio; and
Waardenburg, the Netherlands and a manufacturing facility in Heerlen, the
Netherlands. We also lease three manufacturing facilities for professional
horticultural products in Milpitas, California; North Charleston, South
Carolina; and Travelers Rest, South Carolina.

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The International Consumer business leases its U.K. office, located in
Godalming (Surrey); French headquarters and local operations office, located in
Ecully; and German office, located in Ingelheim. We own manufacturing facilities
in Howden, Hatfield and Swinefleet (East Yorkshire) and Bramford (Suffolk) in
the United Kingdom. We also own the Hautmont plant in France, which is a
blending and bagging facility for growing media; and a plant in Bourth, France,
that we use for formulating, blending and packaging control products for the
consumer market. The manufacturing site in Heerlen, the Netherlands is also used
to produce and pack coated fertilizers for the consumer market. We maintain a
sales and research and development facility at our Ingelheim, Germany site. We
lease a sales office in Saint Niklaas, Belgium. As a result of the Ortho
acquisition, we acquired a plant in Corwen, United Kingdom.

We lease warehouse space throughout the United States and continental
Europe as needed.

We believe that our facilities are adequate to serve their intended
purposes at this time and that our property leasing arrangements are
satisfactory.

ITEM 3. LEGAL PROCEEDINGS

As noted in the discussion in "ITEM 1. BUSINESS -- Environmental and
Regulatory Considerations" and "ITEM 1. BUSINESS -- Regulatory Actions," we are
involved in several pending environmental matters. We believe that our
assessment of contingencies is reasonable and that related reserves, in the
aggregate, are adequate; however, there can be no assurance that the final
resolution of these matters will not have a material adverse affect on our
results of operations, financial position and cash flows.

Pending material legal proceedings are as follows:

AGREVO ENVIRONMENTAL HEALTH, INC.

On June 3, 1999, AgrEvo Environmental Health, Inc. ("AgrEvo") (which
subsequently changed its name to Aventis Environmental Health Science USA LP)
filed a complaint in the U.S. District Court for the Southern District of New
York (the "New York Action"), against Scotts, a subsidiary of Scotts and
Monsanto seeking damages and injunctive relief for alleged antitrust violations
and breach of contract by Scotts and its subsidiary and antitrust violations and
tortious interference with contract by Monsanto. Scotts purchased a consumer
herbicide business from AgrEvo in May 1998. AgrEvo claims in the suit that
Scotts' subsequent agreement to become Monsanto's exclusive sales and marketing
agent for Monsanto's consumer Roundup(R) business violated the federal antitrust
laws. AgrEvo contends that Monsanto attempted to or did monopolize the market
for non-selective herbicides and conspired with Scotts to eliminate the
herbicide Scotts previously purchased from AgrEvo, which competed with
Monsanto's Roundup(R), in order to achieve or maintain a monopoly position in
that market. AgrEvo also contends that Scotts' execution of various agreements
with Monsanto, including the Roundup(R) marketing agreement, as well as Scotts'
subsequent actions, violated the purchase agreements between AgrEvo and Scotts.

AgrEvo is requesting unspecified damages as well as affirmative injunctive
relief, and seeking to have the court invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. On September 20, 1999,
Scotts filed an answer denying liability and asserting counterclaims that it was
fraudulently induced to enter into the agreement for the purchase of the
consumer herbicide business and the related agreements, and that AgrEvo breached
the representations and warranties contained in these agreements. On October 1,
1999, Scotts moved to dismiss the antitrust allegations against it on the ground
that the claims fail to state claims for which relief may be granted. On October
12, 1999, AgrEvo moved to dismiss Scotts' counterclaims. On May 5, 2000, AgrEvo
amended its complaint to add a claim for fraud and to incorporate the Delaware
Action described below. Thereafter, Scotts moved to dismiss the new claims, and
the defendants renewed their pending motions to dismiss. On June 2, 2000, the
court (i) granted Scotts' motion to dismiss the fraud claim AgrEvo had added to
its complaint; (ii) granted AgrEvo's motion to dismiss Scotts'
fraudulent-inducement counterclaim; (iii) denied AgrEvo's motion to dismiss
Scotts' counterclaims related to breach of representations and warranties; and
(iv) denied defendants' motion to dismiss the antitrust claims. On July 14,
2000, Scotts served an answer to AgrEvo's amended complaint and re-pleaded its
fraud counterclaim. Under the indemnification provisions of the Roundup(R)
marketing agreement, Monsanto and Scotts each have requested that the other
indemnify against any losses arising from this lawsuit. On September 5, 2001,
the magistrate judge, over the objections of Scotts and Monsanto, allowed AgrEvo
to file another amended complaint to add claims

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12

transferred to it by its German parent, AgrEvo GmbH, and its 100 percent
commonly owned affiliate, AgrEvo USA Company. Scotts and Monsanto have objected
to the magistrate judge's order allowing the new claims. The district court will
resolve these objections; if sustained, the newly-added claims will be stricken.

On June 29, 1999, AgrEvo also filed a complaint in the Superior Court of
the State of Delaware (the "Delaware Action") against two of Scotts'
subsidiaries seeking damages for alleged breach of contract. AgrEvo alleges
that, under the contracts by which a subsidiary of Scotts purchased a herbicide
business from AgrEvo in May 1998, two of Scotts' subsidiaries have failed to pay
AgrEvo approximately $0.6 million. AgrEvo is requesting damages in this amount,
as well as pre- and post-judgment interest and attorneys' fees and costs.
Scotts' subsidiaries have moved to dismiss or stay this action. On January 31,
2000, the Delaware court stayed AgrEvo's action pending the resolution of a
motion to amend the New York Action, and the resolution of the New York Action.
Scotts' subsidiaries intend to vigorously defend the asserted claims.

If the above actions are determined adversely to Scotts, the result could
have a material adverse effect on Scotts' results of operations, financial
position and cash flows. Scotts believes that if litigated to a conclusion, it
will prevail in the AgrEvo matters and that any potential exposure that Scotts
may face cannot be reasonably estimated. Therefore, no accrual has been
established related to these matters.

CENTRAL GARDEN & PET COMPANY

SCOTTS V. CENTRAL GARDEN, SOUTHERN DISTRICT OF OHIO

On June 30, 2000, Scotts filed suit against Central Garden & Pet Company in
the U.S. District Court for the Southern District of Ohio to recover
approximately $17 million in outstanding accounts receivable from Central Garden
with respect to Scotts' 2000 fiscal year. Scotts' complaint was later amended to
seek approximately $24 million in accounts receivable and additional damages for
other breaches of duty.

On April 13, 2001, Central Garden filed an answer and counterclaim in the
Ohio action. On April 24, 2001, Central Garden filed an amended counterclaim.
Central Garden's counterclaims include allegations that Scotts and Central
Garden had entered into an oral agreement in April 1998 whereby Scotts would
allegedly share with Central Garden the benefits and liabilities of any future
business integration between Scotts and Pharmacia Corporation (formerly
Monsanto). Based on these allegations, Central Garden has asserted several
causes of action, including breach of oral contract and fraudulent
misrepresentation, and seeks damages in excess of $900 million. Scotts believes
that the preliminary discussions regarding any acquisition from Pharmacia that
occurred are not actionable under any legal theory. In addition, Central Garden
asserts various other causes of action, including breach of written contract and
quantum valebant, and seeks damages in excess of $76 million based on
allegations that Central Garden was entitled to receive a cash payment rather
than a credit for the value of inventory Central Garden alleges was improperly
seized by Scotts. These allegations are made without regard to the fact that the
amounts sought from Central Garden in litigation filed by Scotts and Pharmacia
are net of any such alleged credit. Scotts believes all of Central Garden's
counterclaims in Ohio are without merit and it intends to vigorously defend
against them.

PHARMACIA CORPORATION V. CENTRAL GARDEN, CIRCUIT COURT OF ST. LOUIS, MISSOURI

On June 30, 2000, Pharmacia Corporation filed suit against Central Garden
in Missouri state court seeking unspecified damages allegedly due Pharmacia
under a series of agreements, generally referred to as the four-year "Alliance
Agreement" between Pharmacia and Central Garden. Scotts was, for a short time,
an assignee of the Alliance Agreement, which Scotts has reassigned to Pharmacia.
Pursuant to an order granting Central Garden's motion, on January 18, 2001,
Pharmacia joined Scotts as a nominal defendant in the Missouri state court
action.

On January 29, 2001, Central Garden filed its answer and cross-claims and
counterclaims in the Missouri action. On June 23, 2001, Scotts filed a
cross-claim against Central Garden for an equitable accounting to establish the
parties' relative financial positions under the Alliance Agreement at the
conclusion of that agreement. On August 10, 2001, the Missouri court granted
Central Garden leave to file amended counterclaims and cross-claims relating to
the Alliance Agreement and seeking an unspecified amount of damages. The claims
now pending in Missouri against Scotts are for declaratory relief and an

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accounting, various breaches of contract, breach of an indemnification
agreement, promissory estoppel, promissory fraud and unfair business practices
under Section 17200 of the California Business and Professions Code. By order of
the Missouri court, Central Garden's unfair business practices claims are stayed
pending resolution of the action pending between the parties in the United
States District Court for the Northern District of California.

On October 1, 2001, Scotts moved for summary judgment on Central Garden's
claims of breach of an indemnification agreement, promissory estoppel and
promissory fraud. On November 15, 2001, the Missouri court held a hearing on
Scotts' summary judgment motion and took the motion under submission. The trial
date for the Missouri action is set for January 22, 2002.

CENTRAL GARDEN V. SCOTTS & PHARMACIA, NORTHERN DISTRICT OF CALIFORNIA

On July 7, 2000, Central Garden filed suit against Scotts and Pharmacia in
the U.S. District Court for the Northern District of California (San Francisco
Division) alleging various claims, including breach of contract and violations
of federal antitrust laws, and seeking an unspecified amount of damages and
injunctive relief. On October 26, 2000, the District Court granted Scotts'
motion to dismiss Central Garden's breach of contract claims for lack of subject
matter jurisdiction. On November 17, 2000, Central Garden filed an amended
complaint in the District Court, re-alleging various claims for violations of
federal antitrust laws and also alleging state antitrust claims under the
Cartwright Act, Section 16726 of the California Business and Professions Code.
Fact discovery is set to conclude in December 2001. The trial date for the
California federal action is set for July 15, 2002.

CENTRAL GARDEN V. SCOTTS & PHARMACIA, CONTRA COSTA SUPERIOR COURT

On October 31, 2000, Central Garden filed a complaint against Scotts and
Pharmacia in the California Superior Court for Contra Costa County. That
complaint seeks to assert the breach of contract claims previously dismissed by
the District Court in the California federal action described above, and
additional claims under Section 17200 of the California Business and Professions
Code. On December 4, 2000, Scotts and Pharmacia jointly filed a motion to stay
this action based on the pendency of prior lawsuits (including the three actions
described above) that involve the same subject matter. By order dated February
23, 2001, the Superior Court stayed the action pending before it.

On April 6, 2001, Central Garden filed a motion to lift the stay of the
Contra Costa County action. Scotts and Pharmacia filed a joint opposition to
Central Garden's motion. On May 4, 2001, the Court issued a tentative ruling
denying Central Garden's motion to lift the stay of the action. Central Garden
did not challenge the tentative ruling, which accordingly became the ruling of
the court. Consequently, all claims in the Contra Costa action remain stayed.

Scotts believes that all of Central Garden's claims are without merit and
it intends to vigorously defend against them. If the above actions are
determined adversely to Scotts, the result could have a material adverse affect
on Scotts' results of operations, financial position and cash flows. Scotts
believes that if litigated to a conclusion, it will prevail in the Central
Garden matters and that any potential exposure that Scotts may face cannot be
reasonably estimated. Therefore, no accrual has been established related to
these matters.

RHONE-POULENC, S.A., RHONE-POULENC AGRO S.A. AND HOECHST, A.G.

On October 15, 1999, Scotts began arbitration proceedings before the
International Court of Arbitration of the International Chamber of Commerce
("ICA") against Rhone-Poulenc S.A. and Rhone-Poulenc Agro S.A. (collectively,
"Rhone-Poulenc") under arbitration provisions contained in contracts relating to
the purchase by Scotts of Rhone-Poulenc's European lawn and garden business,
Rhone-Poulenc Jardin, in 1998. Scotts alleged that the combination of
Rhone-Poulenc and Hoechst Schering AgrEvo GmbH ("AgrEvo") into a new entity,
Aventis S.A., would result in the violation of non-compete and other provisions
in the contracts mentioned above.

On October 9, 2000, the ICA issued a First Partial Award by the Tribunal
which, inter alia: (i) found that Rhone-Poulenc breached its duty of good faith
under French law by not disclosing to Scotts the contemplated combination of
Rhone-Poulenc and AgrEvo; (ii) directed that the parties re-negotiate a non-
compete provision; and (iii) ruled that a Research and Development Agreement
entered into ancillary to

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the purchase of Rhone-Poulenc Jardin is binding upon both Rhone-Poulenc and its
post-merger successor. On February 12, 2001, because of the parties' failure to
agree on revisions to the non-compete provision, the ICA issued a Second Partial
Award by the Tribunal revising that provision. A damages hearing was held from
July 2 to 5, 2001. The Tribunal is scheduled to hear closing arguments regarding
Scotts' claim to damages and restitution in January 2002.

Also on October 15, 1999, Scotts filed a complaint styled The Scotts
Company, et al. v. Rhone-Poulenc, S.A., Rhone-Poulenc Agro S.A. and Hoechst,
A.G. in the Court of Common Pleas for Union County, Ohio, seeking injunctive
relief maintaining the status quo in aid of the arbitration proceedings as well
as an award of damages against Hoechst for Hoechst's tortious interference with
Scotts' contractual rights. On October 19, 1999, the defendants removed the
Union County action to the U.S. District Court for the Southern District of
Ohio. On December 8, 1999, Scotts requested that this action be stayed pending
the outcome of the arbitration proceedings. Said stay was granted by the
District Court on February 18, 2000.

SCOTTS V. AGREVO USA COMPANY

Scotts filed suit against AgrEvo USA Company on August 8, 2000 in the Court
of Common Pleas for Union County, Ohio, alleging breach of contract relating to
an agreement dated June 22, 1998 entitled "Exclusive Distributor
Agreement -- Horticulture". The action seeks an unspecified amount of damages
resulting from AgrEvo's breaches of the Agreement, an order of specific
performance directing AgrEvo to comply with its obligations under the Agreement,
a declaratory judgment that Scotts' future performance under the Agreement is
waived as a result of AgrEvo's failure to perform, and such other relief to
which Scotts might be entitled. This action was dismissed without prejudice on
February 6, 2001, pending the outcome of settlement discussions.

Scotts is involved in other lawsuits and claims which arise in the normal
course of its business. In the opinion of management, these claims individually
and in the aggregate are not expected to result in a material adverse effect on
Scotts' results of operations, financial position or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the security holders during
the fourth quarter of fiscal year 2001.

SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT

The executive officers of The Scotts Company, their positions and, as of
November 27, 2001, their ages and years with The Scotts Company (and its
predecessors) are set forth below.

Executive officers serve at the discretion of the Board of Directors and in
the case of Mr. Berger, Mr. Hagedorn, Dr. Kelty, Mr. Norton, and Ms. Lefavre,
pursuant to employment agreements.

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15

The business experience of each of the persons listed above during at least
the past five years is as follows:

Mr. Berger was named Chairman of the Board of Scotts in May 2001. He served
as Chairman of the Board and Chief Executive Officer from April 2000 until May
2001. From August 1996 to April 2000, he served as Chairman of the Board,
President and Chief Executive Officer. Mr. Berger came to Scotts from H. J.
Heinz Company, where, from October 1994 to August 1996, he served as Chairman
and Chief Executive Officer of Heinz India Pvt. Ltd. (Bombay). During his
32-year career at Heinz, he also held the positions of Chairman, President and
Chief Executive Officer of Weight Watchers International, a Heinz affiliate;
Managing Director and Chief Executive Officer of Heinz-Italy (Milan), the
largest Heinz profit center in Europe; General Manager, Marketing, for all Heinz
U.S. grocery products; Marketing Director for Heinz UK (London); and Director of
Corporate Planning at Heinz World Headquarters.

Mr. Hagedorn was named President and Chief Executive Officer of Scotts in
May 2001. He served as President and Chief Operating Officer of Scotts from
April 2000 to May 2001. From December 1998 to April 2000, he served as
President, Scotts North America. He was previously Executive Vice President,
U.S. Business Groups, of Scotts, from October 1996 to December 1998. Mr.
Hagedorn also serves as a director of Scotts. Mr. Hagedorn is the son of Horace
Hagedorn, Director Emeritus of Scotts, and is the brother of Katherine Hagedorn
Littlefield, a director of Scotts.

Dr. Kelty was named Vice Chairman and Executive Vice President of Scotts in
May 2001. He served as Group Executive Vice President, Technology and
Operations, of Scotts, from February 2000 to May 2001. He was previously
Executive Vice President, Technology and Operations, of Scotts, from February
1999 to February 2000. From July 1995 to February 1999, he was Senior Vice
President, Professional Business Group, of Scotts.

Mr. Aronowitz was named Executive Vice President, General Counsel and
Secretary of Scotts in October 2001. He was previously Senior Vice President,
Assistant General Counsel and Assistant Secretary of Scotts, from February 2000
to October 2001. From October 1998 until February 2000, Mr. Aronowitz was Vice
President and Assistant General Counsel of Scotts. From January 1996 to October
1998, he was Assistant General Counsel for Insilco Corporation, a Delaware
corporation, based in Dublin, Ohio, and Group General Counsel for Taylor
Publishing Company, an Insilco subsidiary. From May 1995 to January 1996, he was
of counsel to the New York law firm of McCarrick, Finnerty & Mayer. From May
1993 to May 1995, he was Vice President, General Counsel and Secretary for
Grimes Aerospace Company, a company based in Columbus, Ohio.

Ms. Lefavre was named Executive Vice President, Human Resources Worldwide
of Scotts in May 2001. She served as Senior Vice President, Human Resources
Worldwide, of Scotts, from March 1999 to May 2001. From October 1995 to October
1998, she served as Senior Vice President, Human Resources Worldwide, at
Rhone-Poulenc Rorer Inc., a pharmaceutical company based in Pennsylvania.

Mr. Norton was named Executive Vice President and Chief Financial Officer
of Scotts in May 2000, having served as interim Chief Financial Officer of
Scotts since February 2000. From 1983 until February 1997, Mr. Norton was the
President, Chief Executive Officer and a director of Barefoot Inc., the second
largest lawn care company in the United States prior to its acquisition in
February 1997 by ServiceMaster. Mr. Norton also serves as a director of Scotts.

Mr. Farkouh was named Executive Vice President, International Consumer
Business Group, of Scotts in October 2001. From May 2001 to October 2001, he
served as Senior Vice President, International Consumer Business Group, of
Scotts, having served as interim from October 2000 to May 2001. From May 1999 to
October 2000, he served as Senior Vice President, Zone 3, International, having
joined Scotts France SAS in January 1999. From January 1997 to the time he
joined Scotts, he was Vice President, Worldwide Lawn and Garden Category
Manager, of Monsanto Company. From 1991 to January 1997, he was General Manager,
Lawn and Garden Europe, of Monsanto Company.

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Mr. Stohler was named Executive Vice President, North America, of Scotts in
October 2001. From July 2001 to October 2001, he served as acting Senior Vice
President, North America, of Scotts. From October 1998 to July 2001, he served
as Senior Vice President, Consumer Lawns Business Group, of Scotts. He served as
Senior Vice President, International Business Group, of Scotts from December
1996 to October 1998. From November 1995 to December 1996, he served as Vice
President, International Business Group, of Scotts.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common shares of The Scotts Company trade on the New York Stock
Exchange under the symbol "SMG".

We have not paid dividends on the common shares in the past and do not
presently plan to pay dividends on the common shares. It is presently
anticipated that earnings will be retained and reinvested to support the growth
of our business. The payment of any future dividends on common shares will be
determined by the Board of Directors of Scotts in light of conditions then
existing, including our earnings, financial condition and capital requirements,
restrictions in financing agreements, business conditions and other factors.

As of November 27, 2001, there were approximately 7,200 shareholders
including holders of record and our estimate of beneficial holders.

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ITEM 6. SELECTED FINANCIAL DATA

FIVE YEAR SUMMARY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)

- ---------------

NOTE: Prior year presentations have been changed to conform to fiscal 2001
presentation; these changes did not impact net income.

(1) Includes Substral(R) brand acquired from Henkel KGaA from January 2001.

(2) Includes Rhone-Poulenc Jardin (nka Scotts France SAS) from October 1998,
ASEF Holding BV from December 1998 and the non-Roundup(R) ("Ortho") business
from January 1999.

(3) Includes Levington Group Limited (nka The Scotts Company (UK) Ltd.) from
December 1997 and EarthGro, Inc. from February 1998.

(4) Includes Miracle Holdings Limited (nka The Scotts Company (UK) Ltd.) from
January 1997.

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(5) Income from operations for fiscal 2001 and 1998 includes $75.7 million and
$20.4 million of restructuring and other charges, respectively.

(6) EBITDA is defined as income from operations, plus depreciation and
amortization. We believe that EBITDA provides additional information for
determining our ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow will
be sufficient to meet cash requirements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Scotts is a leading manufacturer and marketer of consumer branded products
for lawn and garden care and professional horticulture in the United States and
Europe. During fiscal 2001, our operations were divided into three business
segments: North American Consumer, Global Professional and International
Consumer. The North American Consumer segment includes the Lawns, Gardens,
Growing Media, Ortho, Scotts LawnService(R) and Canada businesses.

As a leading consumer branded lawn and garden company, we focus on our
consumer marketing efforts, including advertising and consumer research, to
create demand to pull products through the retail distribution channels. In the
past three years, we have spent approximately 5% of our gross sales annually on
media advertising to support and promote our products and brands. We have
applied this consumer marketing focus over the past several years, and we
believe that Scotts continues to receive a significant return on these marketing
expenditures. We expect that we will continue to focus our marketing efforts
toward the consumer and to make a significant investment in consumer marketing
expenditures in the future to drive market share and sales growth.

In fiscal 2001, we began two major initiatives that affect the way we go to
business with our customers in our North American consumer business segment. One
was the "one face to the customer" initiative whereby the separate sales forces
under our previous "Business Unit" structure were combined into a single,
centrally managed and coordinated sales force. The other major initiative was
the reduction in the number of, and amount of business we do through
distributors. The end objective of these initiatives was to improve the service
levels and relationships with our customers in North America. While we generally
believe that these initiatives were successful in fiscal 2001, and are important
to our future success, they did have the effect of increasing some costs in
2001, such as selling expenses, and further complicated order processing and
fulfillment in an environment where we were also going live on our new ERP
system in two significant businesses -- Lawns and Ortho.

Scotts' sales are seasonal in nature and are susceptible to global weather
conditions, primarily in North America and Europe. For instance, periods of wet
weather can slow fertilizer sales but can increase demand for pesticide sales.
Periods of dry, hot weather can have the opposite effect on fertilizer and
pesticide sales. We believe that the acquisitions we have made over the past
several years diversify both our product line risk and geographic risk to
weather conditions.

In fiscal 1999, we expanded our reach of product line offerings into the
controls segment with the acquisition of the Ortho(R) brand of control products
from Monsanto and the execution of the Roundup(R) marketing agreement. In
addition, over the past several years, we have made several acquisitions to
strengthen our international market position in the lawn and garden category
including Rhone-Poulenc Jardin, ASEF Holding BV and, most recently, Substral.
Each acquisition provided a significant addition to our then existing European
platform and strengthened our foothold in the continental European consumer lawn
and garden market. Through these acquisitions, we have established a strong
presence in France, Germany, Austria and the Benelux countries. These
acquisitions may also mitigate, to a certain extent, our susceptibility to
weather conditions by expanding the regions in which we operate.

The following discussion and analysis of our consolidated results of
operations and financial position should be read in conjunction with our
Consolidated Financial Statements included elsewhere in this report.

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RESULTS OF OPERATIONS

The following table sets forth the components of income and expense as a
percentage of net sales for the three years ended September 30, 2001:

The following table sets forth net sales by business segment for the three
years ended September 30, 2001:

FISCAL 2001 COMPARED TO FISCAL 2000

Net sales for fiscal 2001 were $1,747.7 million, an increase of 2.3% over
fiscal 2000 sales of $1,709.0 million. As discussed below, net sales increased
over 4% in the North American Consumer segment; whereas, net sales declined by
3.8% in the International Consumer segment and Global Professional net sales
were flat.

North American Consumer net sales were $1,302.6 million in fiscal 2001, an
increase of 4% over fiscal 2000 net sales of $1,253.3 million. Net sales in the
Lawns business within this segment were $514.7 million in fiscal 2001, a 9.5%
increase over fiscal 2000 net sales of $470.1 million, primarily due to the
introduction of a new line of grass seed products. Net sales in the Growing
Media business increased

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4.3% to $305.3 million in fiscal 2001 from $292.8 million in fiscal 2000. 2001
saw the continuation of the successful roll out of the value-added line of
Miracle-Gro(R) branded garden and potting soils in the Growing Media business.
Sales of branded soils increased from $74 million in fiscal 2000 to $101 million
in fiscal 2001. Net sales in the Ortho business decreased 11% to $222.8 million
in fiscal 2001 from $250.2 million in fiscal 2000 due primarily to the weather
and product availability issues due to ERP system data problems. Net sales in
the Scotts LawnService(R) business increased 96.3% to $42.0 million in fiscal
2001 from $21.4 million in fiscal 2000. This growth reflects continued expansion
through acquisitions and new branch openings, as well as the success of our
direct marketing campaign utilizing the Scotts(R) brand name. The other sales
category consists of sales under a supply agreement to the purchaser of the
ProTurf(R) business in 2001 and actual sales of the ProTurf(R) business in
fiscal 2000 prior to the date of sale. Selling price changes were not material
to net sales in fiscal 2001 or fiscal 2000.

International Consumer net sales decreased 3.8% to $264.1 million in fiscal
2001 compared to $274.6 million in fiscal 2000. Excluding the adverse impact of
changes in exchange rates, net sales for International Consumer increased over
3% compared to the prior year. The increase in sales is primarily due to the
successful sell-in of a new line of fertilizer products under the Substral(R)
brand name acquired January 1, 2001.

Net sales for Global Professional of $181.0 million for fiscal 2001 were
flat with fiscal 2000 net sales of $181.1 million. Excluding the unfavorable
impact of changes in foreign exchange rates, Global Professional net sales
increased approximately 3.5% year over year.

Gross profit decreased to $651.4 million in fiscal 2001 compared to $658.5
million in fiscal 2000. Excluding restructuring charges, gross profit was flat
year over year. Gross profit, including restructuring charges, as a percentage
of net sales was 37.3% in fiscal 2001 compared to 38.5% in fiscal 2000. The
decrease in gross profit as a percentage of net sales was driven by unfavorable
product mix in the Ortho and Gardens businesses and increased sales of seed
which has a lower margin than fertilizers and control products, offset by lower
distribution costs and the favorable margin impact from the value-added Growing
Media products.

The net commission earned from marketing agreement in fiscal 2001 was $20.8
million, compared to $29.3 million in fiscal 2000. Despite worldwide earnings
for the consumer Roundup(R) business increasing by approximately $4.0 million
from fiscal 2000 to fiscal 2001, the gross commission earned by Scotts was flat
due to the increased earnings targets and reduced commission rate schedule in
the commission calculation for 2001 as compared to 2000. In addition, the net
commission decreased due to the $10 million increase in contribution expenses as
specified in the agreement.

Advertising and promotion expenses for fiscal 2001 were $151.0 million, a
decrease of $2.8 million from fiscal 2000 advertising and promotion expenses of
$153.8 million. This decrease reflects the impact of improved media buying
efficiencies and lower advertising rates compared to the prior year.

Selling, general and administrative expenses for fiscal 2001 were $317.2
million, an increase of $14.5 million, or 4.8%, over similar expenses in fiscal
2000 of $302.7 million. As a percentage of sales, selling, general and
administrative expenses were 18.1% for fiscal 2001 compared to 17.7% for fiscal
2000. The increase in selling, general and administrative expenses from the
prior year is partially due to an increase in selling expenses as a result of
the change in the selling and distribution model for the North American Consumer
businesses. The increase in selling, general and administrative expenses is also
due to an increase in information technology expenses from the prior year as a
result of the cost of many information technology resources being capitalized
toward the cost of our enterprise resource planning system in fiscal 2000 and
the increased depreciation on the new ERP system in fiscal 2001. Most of these
information technology resources have assumed a system support function that is
now being expensed as incurred.

Selling, general and administrative expenses associated with restructuring
and other non-operating expenses were $68.4 million for fiscal 2001. These
charges, along with the $7.3 million which is included in cost of sales for the
write-off of inventory, were primarily associated with the closure or relocation
of certain plants and administrative facilities. Included in the $68.4 million
charge in selling, general and administrative costs is $20.4 million to
write-down to fair value certain property and equipment and other assets; $5.8
million of facility exit costs; $27.0 million of severance costs; and $15.2
million in other restructuring and other costs. The severance costs related to
reduction in force initiatives and facility

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closures and consolidations in North America and Europe covering approximately
340 administrative, production, selling and other employees. Severance costs are
expected to be paid in fiscal 2002 with some payments extending into 2003. All
other fiscal 2001 restructuring related activities and costs are expected to be
completed by the end of fiscal 2002. The Company expects these restructuring
activities to result in expense savings of nearly $15 million in fiscal 2002
after reinvesting some of the savings to grow our brands in our International
businesses.

In fiscal 2002, the Company expects to recognize additional restructuring
and other charges, primarily for relocation costs for equipment, personnel and
inventory which must be expensed when incurred. Additional restructuring costs
may be incurred in fiscal 2002 as our review and evaluation of our facilities
and processes is an ongoing exercise aimed at achieving improved returns on
invested capital. See Note 4 of the Notes to Consolidated Financial Statements,
which are included in Item 8.

Amortization of goodwill and other intangibles increased to $27.7 million
in fiscal 2001 from $27.1 million in fiscal 2000 due to the additional
amortization related to the Substral acquisition in December 2000 and numerous
small acquisitions by Scotts LawnService(R) throughout fiscal 2001. In fiscal
2002, Scotts will adopt Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" which is expected to result in a
reduction in amortization expense in fiscal 2002 and future years. See Note 18
of the Notes to Consolidated Financial Statements, which are included in Item 8.

Other income for fiscal 2001 was $8.5 million compared to $6.0 million for
fiscal 2000. The increase in other income was primarily due to the favorable
settlement of certain legal matters in the current year and an insurance
settlement from a seed warehouse fire. The prior year results also included
losses on the sale of miscellaneous assets which did not recur in fiscal 2001.

Income from operations for fiscal 2001 was $116.4 million compared to
$210.2 million for fiscal 2000. The decrease was the result of the current year
restructuring and other charges and increased selling, general and
administrative costs, the decline in the marketing agreement net commission and
higher depreciation expense for the new ERP system which was fully in service
for all of fiscal 2001.

For segment reporting purposes, earnings before interest, taxes and
amortization is used as the measure for income from operations or operating
income. On that basis, operating income in the North American Consumer segment
increased from $244.2 million in fiscal 2000 to $250.0 million in fiscal 2001
due to the 4% increase in sales offset by lower margins due to mix and higher
expenses for selling and the new ERP system. Operating income in the Global
Professional segment declined from $26.4 million in fiscal 2000 to $17.4 million
in fiscal 2001 due to lower sales due to weather and higher operating costs in
the international Professional business. The operating cost structure in the
international Professional business was addressed in the restructuring
initiatives undertaken in late fiscal 2001. International Consumer segment
operating income declined from income of $21.0 million in fiscal 2000 to a loss
of $3.3 million in fiscal 2001. Excluding restructuring charges, International
Consumer reported operating income of $6.7 million. The decline in income was
due to lower sales due to poor weather in Europe and higher operating costs. The
International Consumer cost structure was also addressed in 2001's restructuring
initiatives. The Corporate operating loss increased from $54.2 million in fiscal
2000 to $120.0 million in fiscal 2001 primarily due to restructuring charges
related to the domestic business.

Interest expense for fiscal 2001 was $87.7 million, a decrease of $6.2
million from fiscal 2000 interest expense of $93.9 million. The decrease in
interest expense was primarily due to favorable interest rates. The average rate
on our variable rate debt was 7.85% in fiscal 2001 compared to 8.78% in fiscal
2000.

Income tax expense was $13.2 million for fiscal 2001 compared to $43.2
million in fiscal 2000. The effective tax rate in fiscal 2001 was 46% compared
to 37.1% for fiscal 2000. The primary driver of the change in the effective tax
rate was the restructuring and other charges recorded in fiscal 2001, which
reduced pre-tax income thereby increasing the effect of non-deductible goodwill
amortization on the effective tax rate. Also, the prior year effective tax rate
benefited from the elimination of tax reserves due to the settlement of certain
tax contingencies.

Net income was $15.5 million for fiscal 2001, or $.51 per common share on a
diluted basis, compared to net income of $73.1 million for fiscal 2000, or $2.25
per common share on a diluted basis. Common shares and equivalents used in the
computation of fully diluted earnings per share in fiscal 2001 and

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fiscal 2000 were 30.4 million and 29.6 million, respectively. The increase
reflects more common share equivalents due to higher average stock prices and
additional option grants to associates in fiscal 2001.

FISCAL 2000 COMPARED TO FISCAL 1999

Net sales for fiscal 2000 were $1,709 million, an increase of 6.6% over
fiscal 1999 net sales of $1,603 million. On a pro forma basis, assuming that the
Ortho and Rhone-Poulenc Jardin acquisitions had occurred on October 1, 1998, net
sales for fiscal 2000 were 4.5% higher than pro forma net sales for fiscal 1999.
The increase in net sales from year to year was driven by significant increases
in net sales across all businesses in the North American Consumer segment,
partially offset by decreases in net sales in the International Consumer segment
as discussed below.

North American Consumer net sales, excluding "Consumer Other" were $1,217
million in fiscal 2000, an increase of $154 million, or 14.5%, over net sales
for fiscal 1999 of $1,063 million. Net sales in the Lawns business increased
$45.9 million, or 10.8%, from fiscal 1999 to fiscal 2000, primarily due to a
significant increase in sales to and consumer takeaway from national home
centers. Net sales in the Gardens business increased $7.5 million, or 5.2%,
primarily driven by strong net sales and market share performance in the
water-soluble and tree spikes product lines and the successful introduction of
new products such as the Miracle-Gro(R) Garden Weed Preventer(TM) line in fiscal
2000. Net sales in the Growing Media business increased $35.7 million, or 13.9%,
due to strong category and market share growth, particularly for value-added
products such as Miracle-Gro(R) Potting Soils. Sales in the Ortho business
increased $39.4 million, or 18.7%, on an actual basis and $10.0 million, or
4.1%, on a pro forma basis, reflecting significantly improved volume with home
center retailers and improved category and market share performance on the
selective weed control product lines. Net sales for the Ortho business were
negatively impacted by the voluntary product return program for the registered
pesticide Ortho(R) Home Defense(R) Indoor & Outdoor Insect Killer, sold with the
Pull 'N Spray(R) pump dispenser, the phasing out of products containing the
active ingredient chlorpyrifos and reduced selling efforts by a primary
distributor prior to its termination on September 30, 2000. Consumer Other net
sales were the net sales of the ProTurf(R) business that was sold in May 2000.
Selling price changes did not have a significant impact on net sales in the
North American Consumer segment for fiscal 2000.

Global Professional segment net sales of $181.1 million in fiscal 2000 were
$8.4 million, or 4.9% above fiscal 1999 net sales of $172.7 million.

International Consumer segment net sales of $274.6 million in fiscal 2000
were $14.2 million lower than net sales for fiscal 1999 of $289.8 million.
Excluding the adverse impact of changes in exchange rates, net sales for the
International Consumer segment increased nearly 4% compared to the prior year
period. The increase is primarily due to improved results in the segment's
continental European consumer businesses partially offset by decreases in the
segment's U.K. consumer business caused by significant product rationalization
and unusually poor weather.

Gross profit increased to $658.5 million for fiscal 2000, an increase of
7.0% over fiscal 1999 gross profit of $615.2 million, driven by the 6.6%
increase in year-to-date net sales discussed above and a slight increase in
gross profit as a percentage of net sales. As a percentage of net sales, gross
profit was 38.5% for fiscal 2000 compared to 38.4% of net sales for fiscal 1999.
This increase in profitability on net sales was driven by a shift to direct
distribution to certain retail accounts, improved product mix toward higher
margin, value-added products and improved efficiencies in Scotts' production
plants, offset by increased urea, fuel and other raw material costs and a
significant erosion in the profitability of the ProTurf(R) business prior to its
sale.

The gross commission from marketing agreement in fiscal 2000 was $39.2
million, compared to $30.3 million in fiscal 1999. The increase in the gross
commission from year to year was driven by significantly higher sales of
consumer Roundup(R) worldwide year over year. Contribution expenses under
marketing agreement were $9.9 million for fiscal 2000, compared to $1.6 million
for fiscal 1999. The increase in contribution expenses was due to an increase in
the contribution payment to Monsanto and an increase of $3.2 million in the
amortization of the $32 million marketing fee paid to Monsanto as a result of
correcting the amortization period from 20 to 10 years. The $3.2 million of
additional amortization represents the additional amortization of $1.6 million
that was not recognized in fiscal 1999 and additional amortization of $1.6
million for fiscal 2000.

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Advertising expenses for fiscal 2000 were $153.8 million, an increase of
7.4% over fiscal 1999 advertising expenses of $143.2 million. Promotion expenses
are presented as a reduction of net sales. Promotion expenses increased from
$45.8 million in fiscal 1999 to $55.3 million in fiscal 2000. As a percentage of
net sales before deduction for promotion expenses, combined advertising and
promotion spending increased to 11.9% in fiscal 2000 from 11.5% in fiscal 1999.
This increase was primarily due to continued emphasis on increasing advertising
and promotion expenses to drive revenue growth within the North American
Consumer segment and investments in advertising and promotion to drive future
sales growth in the International Consumer segment.

Selling, general and administrative expenses in fiscal 2000 were $302.7
million, an increase of 7.6% over fiscal 1999 expenses of $281.2 million. As a
percentage of net sales, selling, general and administrative expenses were 17.7%
in fiscal 2000 and 17.6% in fiscal 1999. The increase in the dollar amount of
selling, general and administrative expenses was primarily related to additional
costs needed to support the increased net sales levels in the North American
Consumer businesses, infrastructure expenses within the International Consumer
segment, selling, general and administrative expenses for the Ortho business
which were not incurred in the first quarter of fiscal 1999 due to the timing of
the acquisition in January 1999, and increased legal costs as a result of the
various legal matters discussed in Note 15 of the Notes to Consolidated
Financial Statements, which are included in Item 8.

Amortization of goodwill and other intangibles in fiscal 2000 was $27.1
million, an increase of $1.5 million over fiscal 1999 amortization of $25.6
million. This increase was primarily due to fiscal 1999 not reflecting a full
year of amortization related to the Ortho acquisition since the acquisition
occurred in January 1999.

Restructuring and other charges were $1.4 million in fiscal 1999. These
charges represent severance costs associated with the reorganization of the
North American Professional Business Group to strengthen distribution and
technical sales support, integrate brand management across market segments and
reduce annual operating expenses. Substantially all payments have been made as
of September 30, 2000. There were no restructuring charges incurred in fiscal
2000.

Other income in fiscal 2000 was $6.0 million compared to other income of
$3.6 million in the prior year. The increase in other income, on a net basis,
was primarily due to the $4.6 million gain resulting from the sale of the
ProTurf(R) business, partially offset by costs incurred in connection with
Scotts' voluntary return program for the registered pesticide Ortho(R) Home
Defense(R) Indoor & Outdoor Insect Killer, sold with the Pull 'N Spray(R) pump
dispenser and additional losses on disposals of miscellaneous fixed assets.

Income from operations for fiscal 2000 was $210.2 million compared to
$196.1 million for fiscal 1999. The increase in income from operations was due
primarily to the increase in net sales across the North American Consumer
businesses as noted above, partially offset by the decrease in net sales due to
the sale of the ProTurf(R) business.

Interest expense for fiscal 2000 was $93.9 million, an increase of $14.8
million over fiscal 1999 interest expense of $79.1 million. The increase in
interest expense was due to increased borrowings to fund the Ortho acquisition
and an increase in average borrowing rates under our credit facility, partially
offset by reduced working capital requirements.

Income tax expense was $43.2 million for fiscal 2000 compared to $47.9
million in the prior year. Scotts' effective tax rate decreased to 37.1% for
fiscal 2000 compared to 41.0% for the previous year. The decrease in the
effective tax rate for fiscal 2000 is due primarily to a reversal of $3.2
million of tax reserves upon resolution of certain outstanding tax matters
during the third quarter of fiscal 2000 and a reduction in the base tax rate for
the year, before reversal of reserves, to 40.0%.

In conjunction with the Ortho acquisition, in January 1999, Scotts
completed an offering of $330 million of 8 5/8% Senior Subordinated Notes due
2009. The net proceeds from this offering, together with borrowings under our
credit facility, were used to fund the Ortho acquisition and repurchase
approximately 97% of the then outstanding $100 million of 9 7/8% Senior
Subordinated Notes due August 2004. We recorded an extraordinary loss on the
extinguishment of the 9 7/8% Notes of $9.3 million, including a call premium of
$7.2 million and the write-off of unamortized issuance costs and discounts of
$2.1 million.

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Scotts reported net income of $73.1 million for fiscal 2000, or $2.25 per
common share on a diluted basis, compared to net income of $63.2 million for
fiscal 1999, or $2.08 per common share on a diluted basis. The diluted earnings
per share for fiscal 2000 is net of a one-time reduction of $0.22 per share
resulting from the early conversion of Class A Convertible Preferred Stock in
October 1999. The diluted earnings per share for fiscal 1999 is net of a $0.19
per share charge associated with the extraordinary loss on early extinguishment
of debt discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $65.7 million for fiscal 2001
compared to cash provided by operating activities of $171.5 million for fiscal
2000. The seasonal nature of our operations generally requires cash to fund
significant increases in working capital (primarily inventory and accounts
receivable) during the first and second quarters. The third fiscal quarter is a
period for collecting accounts receivable and liquidating inventory levels. The
decrease in cash provided by operating activities for fiscal 2001 compared to
the prior year was due to higher levels of inventory at September 30, 2001
compared to September 30, 2000, due, in part, to the move by major retailers to
reduce inventory investments and lower than anticipated net sales in the fourth
quarter of fiscal 2001.

Cash used in investing activities was $101.0 million for fiscal 2001
compared to $89.5 million in the prior year. The additional cash used for
investing activities in fiscal 2001 was primarily due to the $13.3 million in
payments toward the purchase of the Substral(R) business discussed in Note 5 of
the Notes to Consolidated Financial Statements which are included in Item 8, and
other payments made toward several lawn service acquisitions during fiscal 2001
partially offset by reduced capital spending in fiscal 2001. Capital spending
was $63.4 million in fiscal 2001 compared to $72.5 million in fiscal 2000. In
line with our ongoing efforts to improve return on invested capital, capital
spending in fiscal 2002 is expected to be approximately $50.0 million.

Financing activities provided cash of $21.4 million for fiscal 2001
compared to using cash of $78.2 million in the prior year. The increase in cash
from financing activities was primarily due to an increase in borrowings under
our revolving credit facility to fund operating and investing activities during
fiscal 2001.

Total debt was $887.8 million as of September 30, 2001, an increase of
$25.0 million compared with debt at September 30, 2000 of $862.8 million. The
increase in debt compared to the prior year was primarily due to additional
borrowings to fund operating and investing activities as discussed above and
seller notes from the Substral(R) and Scotts LawnService(R) acquisitions in
fiscal 2001.

Our primary sources of liquidity are funds generated by operations and
borrowings under our credit facility. The credit facility provides for
borrowings in the aggregate principal amount of $1.1 billion and consists of
term loan facilities in the aggregate amount of $525 million and a revolving
credit facility in the amount of $575 million. Borrowings outstanding under the
term loan facilities and revolving credit facility were $398.6 million and $94.7
million, respectively at September 30, 2001.

In July 1998, our Board of Directors authorized the repurchase of up to
$100 million of our common shares on the open market or in privately negotiated
transactions on or prior to September 30, 2001. As of September 30, 2001, we
repurchased 1,106,295 common shares, at a cost of $40.6 million, under this
program.

In October 2000, the Board of Directors approved the cancellation of the
third year commitment of $50 million under the share repurchase program. The
Board did authorize repurchasing the amount still outstanding under the second
year repurchase commitment (approximately $9.0 million) through September 30,
2001. Share repurchases are subject to the covenants contained in our credit
facility or our other debt instruments. Repurchased shares are held in treasury
and will be used for the exercise of employee stock options and for other valid
corporate purposes.

We believe cash flows from operations and capital resources will be
sufficient to meet debt service and working capital needs during fiscal 2002,
and thereafter for the foreseeable future. However, we cannot ensure that our
businesses will generate sufficient cash flows from operations, that currently
anticipated cost savings and operating improvements will be realized on schedule
or at all, or that future borrowings will be available under our credit facility
in amounts sufficient to pay indebtedness or fund

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26

other liquidity needs. Actual results of operations will depend on numerous
factors, many of which are beyond our control. We cannot ensure that we will be
able to refinance any indebtedness, including our credit facility, on
commercially reasonable terms, or at all.

At September 30, 2001, Scotts was not in compliance with debt covenants
pertaining to net worth, leverage and interest coverage. A waiver of
non-compliance for these covenant violations was received in October 2001. In
December 2001, Scotts amended the credit facility resulting in the elimination
or resetting of certain negative and affirmative covenants. See Note 8 and Note
22 of the Notes to Consolidated Financial Statements, which are included in Item
8.

ENVIRONMENTAL 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 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 reserves,
should not have a material adverse effect on our financial position. However,
there can be no assurance that the resolution of these matters will not
materially affect future quarterly or annual operating results. Additional
information on environmental matters affecting us is provided in "ITEM 1.
BUSINESS -- Environmental and Regulatory Considerations," "ITEM 1.
BUSINESS -- Regulatory Actions" and "ITEM 3. LEGAL PROCEEDINGS".

ENTERPRISE RESOURCE PLANNING ("ERP")

In July 1998, we announced a project designed to bring our information
systems resources in line with our current strategic objectives. The project
included the redesign of certain key business processes in connection with the
installation of new software. SAP was selected as the primary software provider
for this project. As of October 1, 2000, all of the North American businesses
with the exception of Canada were operating under the new system. The
implementation of the Canadian system began during the third quarter of fiscal
2001 and was substantially complete by October 1, 2001. Through September 30,
2001, we spent approximately $55 million on the project, approximately 75% of
which has been capitalized and is being amortized over a period of four to eight
years. We are currently evaluating when, and to what extent, the new information
systems and applications will be implemented at our international locations.

EURO

A new currency called the "euro" has been introduced in certain Economic
and Monetary Union (EMU) countries. During 2002, all EMU countries are expected
to be operating with the euro as their single currency. Uncertainty exists as to
the effects the euro currency will have on the marketplace. We are assessing the
impact the EMU formation and euro implementation will have on our internal
systems and the sale of our products. Over $1.2 million of the costs associated
with this work was incurred during fiscal 2001. Some costs will likely be
incurred in the first quarter of fiscal 2002 and beyond as well but are not
expected to be material.

MANAGEMENT'S OUTLOOK

Results for fiscal 2001 were below management's expectations. Weather, the
economy, retailer initiatives to reduce their inventory investment and our own
product availability issues combined to make fiscal 2001 less profitable than
fiscal 2000. We believe we are aggressively addressing ways to improve
profitability of our business by the restructuring steps we took in late fiscal
2001 to reduce headcount and rationalize the supply chain, sales and
administrative organizations in North America and Europe. This process will
continue in fiscal 2002 and beyond. We also will continue to look for
opportunities to bring new products into the marketplace and profitably expand
our Scotts LawnService(R) business.

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27

Looking forward, we maintain the following broad tenets to our strategic
plan:

(1) Promote and capitalize on the strengths of the Scotts(R),
Miracle-Gro(R), Hyponex(R) and Ortho(R) industry-leading brands, as
well as our portfolio of powerful brands in our international markets.
This involves a commitment to our retail partners that we will support
these brands through advertising and promotion unequaled in the lawn
and garden consumables market. In the Professional categories, it
signifies a commitment to customers to provide value as an integral
element in their long-term success;

(2) Commit to continuously study and improve knowledge of the market, the
consumer and the competition;

(3) Simplify product lines and business processes, to focus on those that
deliver value, evaluate marginal ones and eliminate those that lack
future prospects; and

(4) Achieve world leadership in operations, leveraging technology and
know-how to deliver outstanding customer service and quality.

We anticipate that we can deliver significant revenue and earnings growth
through emphasis on executing our strategic plan. We believe that we can
generate annual sales growth of 4% to 6% in our core businesses and annual
earnings growth of at least 10%. In addition, we have targeted improving our
return on invested capital. We believe that we can achieve our goal of realizing
a return on our invested capital commensurate with the average return on
invested capital for our consumer products peer group in the next three to four
years. We expect to achieve this goal by reducing overhead spending, tightening
capital spending controls, implementing return on capital measures into our
incentive compensation plans and accelerating operating performance and gross
margin improvements utilizing our new ERP capabilities in North America.

FORWARD-LOOKING STATEMENTS

We have made and will make "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 in our 2001 Summary Annual Report, our 2001 Financial
Statements and Other Information booklet, in this Form 10-K and in other
contexts relating to future growth and profitability targets and strategies
designed to increase total shareholder value. Forward-looking statements also
include, but are not limited to, information regarding our future economic and
financial condition, the plans and objectives of our management and our
assumptions regarding our performance and these plans and objectives.

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information, so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statements. We desire to
take advantage of the "safe harbor" provisions of that Act.

The forward-looking statements that we make in our 2001 Summary Annual
Report, in our 2001 Financial Statements and Other Information booklet, in this
Form 10-K and in other contexts represent challenging goals for our company, and
the achievement of these goals is subject to a variety of risks and assumptions
and numerous factors beyond our control. Important factors that could cause
actual results to differ materially from the forward-looking statements we make
are described below. All forward-looking statements attributable to us or
persons working on our behalf are expressly qualified in their entirety by the
following cautionary statements.

- ADVERSE WEATHER CONDITIONS COULD ADVERSELY IMPACT FINANCIAL RESULTS.

Weather conditions in North America and Europe have a significant impact
on the timing of sales in the spring selling season and overall annual
sales. Periods of wet weather can slow fertilizer sales, while periods of
dry, hot weather can decrease pesticide sales. In addition, an abnormally
cold spring throughout North America and/or Europe could adversely affect
both fertilizer and pesticide sales and therefore our financial results.

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28

- OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO PAY OBLIGATIONS AS
THEY COME DUE AND OPERATING EXPENSES.

Because our products are used primarily in the spring and summer, our
business is highly seasonal. For the past two fiscal years, approximately
75% to 77% of our net sales have occurred in the second and third fiscal
quarters combined. Our working capital needs and our borrowings peak near
the middle of our second fiscal quarter because we are generating fewer
revenues while incurring expenditures in preparation for the spring
selling season. If cash on hand is insufficient to pay our obligations as
they come due, including interest payments on our indebtedness, or our
operating expenses, at a time when we are unable to draw on our credit
facility, this seasonality could have a material adverse affect on our
ability to conduct our business. Adverse weather conditions could heighten
this risk.

- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS.

Our substantial indebtedness could:

- make it more difficult for us to satisfy our obligations;

- increase our vulnerability to general adverse economic and industry
conditions;

- limit our ability to fund future working capital, capital
expenditures, research and development costs and other general
corporate requirements;

- require us to dedicate a substantial portion of cash flows from
operations to payments on our indebtedness, which would reduce the
cash flows available to fund working capital, capital expenditures,
research and development efforts and other general corporate
requirements;

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- place us at a competitive disadvantage compared to our competitors
that have less debt; and

- limit our ability to borrow additional funds.

If we fail to comply with any of the financial or other restrictive
covenants of our indebtedness, our indebtedness could become due and
payable in full prior to its stated due date. We cannot be sure that our
lenders would waive a default or that we could pay the indebtedness in
full if it were accelerated.

- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF
CASH, WHICH WE MAY NOT BE ABLE TO GENERATE.

Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures and research and development efforts
will depend on our ability to generate cash in the future. This, to some
extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. We
cannot assure that our business will generate sufficient cash flow from
operations or that currently anticipated cost savings and operating
improvements will be realized on schedule or at all. We also cannot assure
that future borrowings will be available to us under our credit facility
in amounts sufficient to enable us to pay our indebtedness or to fund
other liquidity needs. We may need to refinance all or a portion of our
indebtedness, on or before maturity. We cannot assure that we will be able
to refinance any of our indebtedness on commercially reasonable terms or
at all.

- PUBLIC PERCEPTIONS THAT THE PRODUCTS WE PRODUCE AND MARKET ARE NOT SAFE
COULD ADVERSELY AFFECT US.

We manufacture and market a number of complex chemical products, such as
fertilizers, growing media, herbicides and pesticides, bearing one of our
brands. On occasion, customers and some current or former employees have
alleged that some products failed to perform up to expectations or have
caused damage or injury to individuals or property. Public perception that
our products are not safe, whether justified or not, could impair our
reputation, damage our brand names and materially adversely affect our
business.

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29

- BECAUSE OF THE CONCENTRATION OF OUR SALES TO A SMALL NUMBER OF RETAIL
CUSTOMERS, THE LOSS OF ONE OR MORE OF OUR TOP CUSTOMERS COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS.

Our top 10 North American retail customers together accounted for
approximately 70% of our fiscal year 2001 net sales and 37% of our
outstanding accounts receivable as of September 30, 2001. Our top four
customers, Home Depot, Wal*Mart, Kmart and Lowe's represented
approximately 28%, 15%, 9% and 8%, respectively, of our fiscal year 2001
net sales. These customers hold significant positions in the retail lawn
and garden market. The loss of, or reduction in orders from, Home Depot,
Wal*Mart, Kmart, Lowe's or any other significant customer could have a
material adverse effect on our business and our financial results, as
could customer disputes regarding shipments, fees, merchandise condition
or related matters. Our inability to collect accounts receivable from any
of these customers could also have a material adverse affect.

- IF MONSANTO WERE TO TERMINATE THE MARKETING AGREEMENT FOR CONSUMER
ROUNDUP(R) PRODUCTS, WE WOULD LOSE A SUBSTANTIAL SOURCE OF FUTURE
EARNINGS.

If we were to commit a serious default under the marketing agreement with
Monsanto for consumer Roundup(R) products, Monsanto may have the right to
terminate the agreement. If Monsanto were to terminate the marketing
agreement rightfully, we would not be entitled to any termination fee, and
we would lose all, or a significant portion, of the significant source of
earnings we believe the marketing agreement provides. Monsanto may also be
able to terminate the marketing agreement within a given region, including
North America, without paying us a termination fee if sales to consumers
in that region decline:

- Over a cumulative three fiscal year period; or

- By more than 5% for each of two consecutive fiscal years.

- THE EXPIRATION OF PATENTS RELATING TO ROUNDUP(R) AND THE SCOTTS TURF
BUILDER(R) LINE OF PRODUCTS COULD SUBSTANTIALLY INCREASE OUR COMPETITION
IN THE UNITED STATES.

Glyphosate, the active ingredient in Roundup(R), was subject to a patent
in the United States that expired in September 2000. We cannot predict the
success of Roundup(R) now that glyphosate is no longer patented.
Substantial new competition in the United States could adversely affect
us. Glyphosate is no longer subject to patent in Europe and is not subject
to patent in Canada. While sales of Roundup(R) in such countries have
continued to increase despite the lack of patent protection, sales in the
United States may decline as a result of increased competition. Any such
decline in sales would adversely affect our financial results through the
reduction of commissions as calculated under the Roundup(R) marketing
agreement. We are aware that Spectrum Brands produced glyphosate
one-gallon products for Home Depot and Lowe's to be sold under the Real-
Kill(R) and No-Pest(R) brand names, respectively, in fiscal year 2001. We
anticipate that Lowe's will introduce a one-quart glyphosate product, and
that Ace Hardware Corporation will introduce one-gallon and one-quart
glyphosate products, in fiscal year 2002. It is too early to determine
whether these product introductions will have a material adverse effect on
our sales of Roundup(R).

Our methylene-urea product composition patent, which covered Scotts Turf
Builder(R), Scotts Turf Builder(R) with Plus 2(R) with Weed Control and
Scotts Turf Builder(R) with Halts(R) Crabgrass Preventer, expired in July
2001 and could also result in increased competition. Any decline in sales
of Turf Builder(R) products after the expiration of the methylene-urea
product composition patent could adversely affect our financial results.

- THE HAGEDORN PARTNERSHIP, L.P., BENEFICIALLY OWNS APPROXIMATELY 40% OF
THE OUTSTANDING COMMON SHARES OF SCOTTS ON A FULLY DILUTED BASIS.

The Hagedorn Partnership, L.P., beneficially owns approximately 40% of the
outstanding common shares of Scotts on a fully diluted basis and has
sufficient voting power to significantly influence the election of
directors and the approval of other actions requiring the approval of our
shareholders.

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30

- COMPLIANCE WITH ENVIRONMENTAL AND OTHER PUBLIC HEALTH REGULATIONS COULD
INCREASE OUR COST OF DOING BUSINESS.

Local, state, federal and foreign laws and regulations relating to
environmental matters affect us in several ways. In the United States, all
products containing pesticides must be registered with the United States
Environmental Protection Agency ("U.S. EPA") and, in many cases, similar
state agencies before they can be sold. The inability to obtain or the
cancellation of any registration could have an adverse effect on our
business. The severity of the effect would depend on which products were
involved, whether another product could be substituted and whether our
competitors were similarly affected. We attempt to anticipate regulatory
developments and maintain registrations of, and access to, substitute
chemicals. We may not always be able to avoid or minimize these risks.

The Food Quality Protection Act, enacted by the U.S. Congress in August
1996, establishes a standard for food-use pesticides, which is that a
reasonable certainty of no harm will result from the cumulative effect of
pesticide exposures. Under this act, the U.S. EPA is evaluating the
cumulative risks from dietary and non-dietary exposures to pesticides. The
pesticides in our products, certain of which may be used on crops
processed into various food products, continue to be evaluated by the U.S.
EPA as part of this exposure risk assessment. It is possible that the U.S.
EPA or a third party active ingredient registrant may decide that a
pesticide we use in our products will be limited or made unavailable to
us. For example, in June 2000, DowAgroSciences, an active ingredient
registrant, voluntarily agreed to a gradual phase-out of residential uses
of chlorpyrifos, an active ingredient used by us in our lawn and garden
products. In December 2000, the U.S. EPA reached agreement with various
parties, including manufacturers of the active ingredient diazinon,
regarding a phased withdrawal of residential uses of products containing
diazinon, used also by us in our lawn and garden products. We cannot
predict the outcome or the severity of the effect of the U.S. EPA's
continuing evaluations of active ingredients used in our products.

The use of certain pesticide and fertilizer products is regulated by
various local, state, federal and foreign environmental and public health
agencies. Regulations regarding the use of some pesticide and fertilizer
products may include requirements that only certified or professional
users apply the product, that the products be used only in specified
locations or that certain ingredients not be used. Users may be required
to post notices on properties to which products have been or will be
applied and may be required to notify individuals in the vicinity that
products will be applied in the future. Even if we are able to comply with
all such regulations and obtain all necessary registrations, we cannot
assure that our products, particularly pesticide products, will not cause
injury to the environment or to people under all circumstances. The costs
of compliance, remediation or products liability have adversely affected
operating results in the past and could materially affect future quarterly
or annual operating results.

The harvesting of peat for our growing media business has come under
increasing regulatory and environmental scrutiny. In the United States,
state regulations frequently require us to limit our harvesting and to
restore the property to an agreed-upon condition. In some locations, we
have been required to create water retention ponds to control the sediment
content of discharged water. In the United Kingdom, our peat extraction
efforts are also the subject of legislation.

In addition to the regulations already described, local, state, federal
and foreign agencies regulate the disposal, handling and storage of waste,
air and water discharges from our facilities. In June 1997, the Ohio
Environmental Protection Agency ("Ohio EPA") initiated an enforcement
action against us with respect to alleged surface water violations and
inadequate treatment capabilities at our Marysville facility and seeking
corrective action under the Resource Conservation Recovery Act. We have
met with the Ohio EPA and the Ohio Attorney General's office to negotiate
an amicable resolution of these issues. On December 3, 2001, an agreed
judicial Consent Order was submitted to the Union County Common Pleas
Court. Although this Consent Order is subject to public comment and both
parties may withdraw their consent to entry of the Order, we anticipate
the Consent Order will be entered by the court in January 2002.

During fiscal year 2001, we made approximately $1.3 million in
environmental capital expenditures and $2.1 million in other environmental
expenses, compared with approximately $1.2 million in

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31

environmental capital expenditures and $1.8 million in other environmental
expenses in fiscal year 2000. Management anticipates that environmental
capital expenditures and other environmental expenses for fiscal year 2002
will not differ significantly from those incurred in fiscal year 2001. The
adequacy of these anticipated future expenditures is based on our
operating in substantial compliance with applicable environmental and
public health laws and regulations and several significant assumptions:

- that we have identified all of the significant sites that must be
remediated;
- that there are no significant conditions of potential contamination that
are unknown to us; and
- that with respect to the agreed judicial Consent Order in Ohio, that
potentially contaminated soil can be remediated in place rather than
having to be removed and only specific stream segments will require
remediation as opposed to the entire stream.

If there is a significant change in the facts and circumstances
surrounding these assumptions or if we are found not to be in substantial
compliance with applicable environmental and public health laws and
regulations, it could have a material impact on future environmental
capital expenditures and other environmental expenses and our results of
operations, financial position and cash flows.

- THE IMPLEMENTATION OF THE EURO CURRENCY IN SOME EUROPEAN COUNTRIES
BETWEEN 1999 AND 2002 COULD ADVERSELY AFFECT US.

In January 1999, the "euro" was introduced in some Economic and Monetary
Union countries and by 2002, all Economic and Monetary Union countries are
expected to be operating with the euro as their single currency.
Uncertainty exists as to the effects the euro currency will have on the
marketplace. We are still assessing the impact the Economic and Monetary
Union formation and euro implementation may have on the sales of our
products and conduct of our business. We expect to take appropriate
actions based on the results of our assessment. However, there can be no
assurance that this issue will not have a material adverse effect on us or
our future operating results and financial condition.

- OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE US MORE SUSCEPTIBLE TO
FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND TO THE COSTS OF INTERNATIONAL
REGULATION.

We currently operate manufacturing, sales and service facilities outside
of North America, particularly in the United Kingdom, Germany and France.

Our international operations have increased with the acquisitions of
Levington, Miracle Garden Care Limited, Ortho and Rhone-Poulenc Jardin and
with the marketing agreement for consumer Roundup(R) products. In fiscal
year 2001, international sales accounted for approximately 20% of our
total sales. Accordingly, we are subject to risks associated with
operations in foreign countries, including:

- fluctuations in currency exchange rates;
- limitations on the conversion of foreign currencies into U.S. dollars;
- limitations on the remittance of dividends and other payments by foreign
subsidiaries;
- additional costs of compliance with local regulations; and
- historically, higher rates of inflation than in the United States.

The costs related to our international operations could adversely affect
our operations and financial results in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As part of our ongoing business, we are exposed to certain market risks,
including fluctuations in interest rates, foreign currency exchange rates and
commodity prices. We use derivative financial and other instruments, where
appropriate, to manage these risks. We do not enter into transactions designed
to mitigate our market risks for trading or speculative purposes.

INTEREST RATE RISK

We have various debt instruments outstanding at September 30, 2001 that are
impacted by changes in interest rates. As a means of managing our interest rate
risk on these debt instruments, we have

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32

entered into the following interest rate swap agreements to effectively convert
certain variable rate debt obligations to fixed rates:

- A 20 million British Pounds Sterling notional amount swap to convert
variable rate debt obligations denominated in British Pounds Sterling to
a fixed rate. The exchange rate used to convert British Pounds Sterling
to U.S. dollars at September 30, 2001 was $1.47: 1 GBP.

- Four interest rate swaps with a total notional amount of $105.0 million
which are used to hedge certain variable-rate obligations under our
credit facility. The credit facility requires that we enter into hedge
agreements to the extent necessary to provide that at least 50% of the
aggregate principal amount of the 8 5/8% Senior Subordinated Notes due
2009 and term loan facilities is subject to a fixed rate.

The following table summarizes information about our derivative financial
instruments and debt instruments that are sensitive to changes in interest rates
as of September 30, 2001. For debt instruments, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates. For interest rate swaps, the table presents expected cash flows based on
notional amounts and weighted-average interest rates by contractual maturity
dates. Weighted-average variable rates are based on implied forward rates in the
yield curve at September 30, 2001. The information is presented in U.S. dollars
(in millions):

OTHER MARKET RISKS

Our market risk associated with foreign currency rates is not considered to
be material. Through fiscal 2001, we had only minor amounts of transactions that
were denominated in currencies other than the currency of the country of origin.
We are subject to market risk from fluctuating market prices of certain raw
materials, including urea and other chemicals and paper and plastic products.
Our objectives surrounding the procurement of these materials are to ensure
continuous supply and to minimize costs. We seek to achieve these objectives
through negotiation of contracts with favorable terms directly with vendors. We
do not enter into forward contracts or other market instruments as a means of
achieving our objectives or minimizing our risk exposures on these materials.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and other information required by this Item are
contained in the financial statements, footnotes thereto and schedules listed in
the "Index to Consolidated Financial Statements and Financial Statement
Schedules" on page 40 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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33

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with General Instruction G(3), the information contained
under the captions "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY -- Section
16(a) Beneficial Ownership Reporting Compliance" and "PROPOSAL NO. 1 -- ELECTION
OF DIRECTORS" in the Registrant's definitive Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held on January 25, 2002 filed with the Securities
and Exchange Commission pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated herein
by reference. The information regarding executive officers of the Registrant
required by Item 401 of Regulation S-K is included in Part I hereof under the
caption "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT."

ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3), the information contained
under the captions "EXECUTIVE COMPENSATION" and "PROPOSAL NO. 1 -- ELECTION OF
DIRECTORS -- Compensation of Directors" in the Registrant's Proxy Statement, is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

In accordance with General Instruction G(3), the information contained
under the caption "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY" in the
Registrant's Proxy Statement, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In accordance with General Instruction G(3), the information contained
under the captions "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Registrant's Proxy
Statement, is incorporated herein by reference.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

1 and 2. Financial Statements and Financial Statement Schedules:

The response to this portion of Item 14 is submitted as a separate
section of this Annual Report on Form 10-K. Reference is made to the "Index
to Consolidated Financial Statements and Financial Statement Schedules" on
page 40 herein.

3. Exhibits:

Exhibits filed with this Annual Report on Form 10-K are attached
hereto or incorporated herein by reference. For a list of such exhibits,
see "Index to Exhibits" beginning at page 86. The following table provides
certain information concerning executive compensation plans and
arrangements required to be filed as exhibits to this Annual Report on Form
10-K.

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35

EXECUTIVE COMPENSATORY PLANS AND ARRANGEMENTS

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36

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37

- ---------------

* Filed herewith.

(b) REPORTS ON FORM 8-K

The Registrant filed no Current Reports on Form 8-K during the last
quarter of the period covered by this Report.

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38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

THE SCOTTS COMPANY
Dated: December 14, 2001 By: /s/ JAMES HAGEDORN
--------------------------------------------
James Hagedorn, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

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39

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

Schedules other than those listed above are omitted since they are not
required or are not applicable, or the required information is shown in the
Consolidated Financial Statements or Notes thereto.

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40

REPORT OF MANAGEMENT

Management of The Scotts Company is responsible for the preparation,
integrity and objectivity of the financial information presented in this Form
10-K. The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
and, accordingly, include some amounts that are based on management's best
judgments and estimates.

Management is responsible for maintaining a system of accounting and
internal controls which it believes is adequate to provide reasonable assurance
that assets are safeguarded against loss from unauthorized use or disposition
and that the financial records are reliable for preparing financial statements.
The selection and training of qualified personnel, the establishment and
communication of accounting and administrative policies and procedures and a
program of internal audits are important objectives of these control systems.

The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants selected by the Board of Directors. The independent
accountants conduct a review of internal accounting controls to the extent
required by generally accepted auditing standards and perform such tests and
related procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements in accordance with generally accepted
accounting principles.

The Board of Directors, through its Audit Committee consisting solely of
non-management directors, meets periodically with management, internal audit
personnel and the independent accountants to discuss internal accounting
controls and auditing and financial reporting matters. The Audit Committee
reviews with the independent accountants the scope and results of the audit
effort. Both internal audit personnel and the independent accountants have
access to the Audit Committee with or without the presence of management.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
The Scotts Company:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows present fairly, in all material respects,
the financial position of The Scotts Company at September 30, 2001, and
September 30, 2000, and the results of its operations and its cash flows for
each of the three years in the period ended September 30, 2001, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio

October 29, 2001, except for Note 22, as to which the date is December 12, 2001

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THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(IN MILLIONS, EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements.

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43

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(IN MILLIONS)

See Notes to Consolidated Financial Statements.

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44

THE SCOTTS COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND 2000
(IN MILLIONS EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements.

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45

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(IN MILLIONS)

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46

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME (CONTINUED)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(IN MILLIONS)

- ---------------
(a) Net of tax benefits of $5.5, $0.5, and $2.7 for fiscal 2001, 2000 and 1999,
respectively.

(b) Net of tax benefits of $1.1 for fiscal 2001.

See Notes to Consolidated Financial Statements.

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THE SCOTTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

The Scotts Company and its subsidiaries (collectively "Scotts" or the
"Company") are engaged in the manufacture and sale of lawn care and garden
products. The Company's major customers include mass merchandisers, home
improvement centers, large hardware chains, independent hardware stores,
nurseries, garden centers, food and drug stores, lawn and landscape service
companies, commercial nurseries and greenhouses, and specialty crop growers. The
Company's products are sold in the United States, Canada, the European Union,
the Caribbean, Southeast Asia, the Middle East, Africa, Australia, New Zealand,
Japan and Latin America.

ORGANIZATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of The Scotts
Company and its subsidiaries. All material intercompany transactions have been
eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the Company may
undertake in the future, actual results ultimately may differ from the
estimates.

REVENUE RECOGNITION

Revenue is recognized when products are shipped and when title and risk of
loss transfer to the customer. For certain large multi-location customers,
products may be shipped to third-party warehousing locations. Revenue is not
recognized until the customer places orders against that inventory and
acknowledges ownership of the goods in writing. Provisions for estimated returns
and allowances are recorded at the time of shipment based on historical rates of
returns as a percentage of sales.

ADVERTISING AND PROMOTION

The Company advertises its branded products through national and regional
media, and through cooperative advertising programs with retailers. Retailers
are also offered pre-season stocking and in-store promotional allowances.
Certain products are also promoted with direct consumer rebate programs.
Advertising and promotion costs (including allowances and rebates) incurred
during the year are expensed ratably to interim periods in relation to revenues.
All advertising and promotion costs, except for production costs, are expensed
within the fiscal year in which such costs are incurred. Production costs for
advertising programs are deferred until the period in which the advertising is
first aired. Amounts paid to or credited to customers for promotional activities
are classified as a reduction of net sales.

RESEARCH AND DEVELOPMENT

All costs associated with research and development are charged to expense
as incurred. Expense for fiscal 2001, 2000, and 1999 was $24.7 million, $24.1
million, and $21.7 million, respectively.

EARNINGS PER COMMON SHARE

Basic earnings per common share is based on the weighted-average number of
common shares outstanding each period. Diluted earnings per common share is
based on the weighted-average number of common shares and dilutive potential
common shares (stock options, convertible preferred stock and warrants)
outstanding each period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVENTORIES

Inventories are stated at the lower of cost or market, principally
determined by the FIFO method; however, certain growing media inventories are
accounted for by the LIFO method. At September 30, 2001 and 2000, approximately
9% and 13% of inventories, respectively, are valued at the lower of LIFO cost or
market. Inventories include the cost of raw materials, labor and manufacturing
overhead. The Company makes provisions for obsolete or slow-moving inventories
as necessary to properly reflect inventory value. Reserves for excess and
obsolete inventories were $22.3 million and $20.1 million at September 30, 2001
and 2000, respectively.

LONG-LIVED ASSETS

Property, plant and equipment, including significant improvements, are
stated at cost. Expenditures for maintenance and repairs are charged to
operating expenses as incurred. When properties are retired or otherwise
disposed of, the cost of the asset and the related accumulated depreciation are
removed from the accounts with the resulting gain or loss being reflected in
results of operations.

Depletion of applicable land is computed on the units-of-production method.
Depreciation of other property, plant and equipment is provided on the
straight-line method and is based on the estimated useful economic lives of the
assets as follows:

Land improvements 10 - 25 years
Buildings 10 - 40 years
Machinery and equipment 3 - 15 years
Furniture and fixtures 6 - 10 years
Software 3 - 8 years

Interest is capitalized on all significant capital projects. The Company
capitalized $3.1 million and $2.4 million of interest costs during fiscal 2001
and 2000, respectively.

Goodwill arising from business acquisitions is amortized over its useful
life, which is generally 20 to 40 years, on a straight-line basis. Intangible
assets include patents, trademarks and other intangible assets which are valued
at acquisition through independent appraisals. Patents, trademarks and other
intangible assets are being amortized on a straight-line basis over periods
varying from 7 to 40 years. Accumulated amortization at September 30, 2001 and
2000 was $150.2 million and $120.6 million, respectively.

Management assesses the recoverability of property and equipment, goodwill,
trademarks and other intangible assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable from its future undiscounted cash flows. If it is determined that an
impairment has occurred, an impairment loss is recognized for the amount by
which the carrying amount of the asset exceeds its estimated fair value.

INTERNAL USE SOFTWARE

The Company accounts for the costs of internal use software in accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". Accordingly, costs other than
reengineering costs are expensed or capitalized depending on whether they are
incurred in the preliminary project stage, application development stage, or the
post-implementation/ operation stage. As of September 30, 2001 and 2000, the
Company had $36.7 million and $37.3 million, respectively, in unamortized
capitalized internal use computer software costs. Amortization of these costs
was $4.3 million during fiscal 2001 and $0.9 million during fiscal 2000.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ENVIRONMENTAL COSTS

The Company recognizes environmental liabilities when conditions requiring
remediation are identified. The Company determines its liability on a site by
site basis and records a liability at the time when it is probable and can be
reasonably estimated. Expenditures which extend the life of the related property
or mitigate or prevent future environmental contamination are capitalized.
Environmental liabilities are not discounted or reduced for possible recoveries
from insurance carriers.

FOREIGN EXCHANGE INSTRUMENTS

Gains and losses on foreign currency transaction hedges are recognized in
income and offset the foreign exchange gains and losses on the underlying
transactions. Gains and losses on foreign currency firm commitment hedges are
deferred and included in the basis of the transactions underlying the
commitments.

All assets and liabilities in the balance sheets of foreign subsidiaries
whose functional currency is other than the U.S. dollar are translated into U.S.
dollar equivalents at year-end exchange rates. Translation gains and losses are
accumulated as a separate component of other comprehensive income and included
in shareholders' equity. Income and expense items are translated at average
monthly exchange rates. Foreign currency transaction gains and losses are
included in the determination of net income.

DERIVATIVE INSTRUMENTS

In the normal course of business, the Company is exposed to fluctuations in
interest rates and the value of foreign currencies. The Company has established
policies and procedures that govern the management of these exposures through
the use of a variety of financial instruments. The Company employs various
financial instruments, including forward exchange contracts and swap agreements,
to manage certain of the exposures when practical. By policy, the Company does
not enter into such contracts for the purpose of speculation or use leveraged
financial instruments. The Company's derivatives activities are managed by the
chief financial officer and other senior management of the Company in
consultation with the Finance Committee of the Board of Directors. These
activities include establishing the Company's risk-management philosophy and
objectives, providing guidelines for derivative-instrument usage and
establishing procedures for control and valuation, counterparty credit approval
and the monitoring and reporting of derivative activity. The Company's objective
in managing its exposure to fluctuations in interest rates and foreign currency
exchange rates is to decrease the volatility of earnings and cash flows
associated with changes in the applicable rates and prices. To achieve this
objective, the Company primarily enters into forward exchange contracts and swap
agreements whose values change in the opposite direction of the anticipated cash
flows. Derivative instruments related to forecasted transactions are considered
to hedge future cash flows, and the effective portion of any gains or losses is
included in other comprehensive income until earnings are affected by the
variability of cash flows. Any remaining gain or loss is recognized currently in
earnings. The cash flows of the derivative instruments are expected to be highly
effective in achieving offsetting cash flows attributable to fluctuations in the
cash flows of the hedged risk. If it becomes probable that a forecasted
transaction will no longer occur, the derivative will continue to be carried on
the balance sheet at fair value, and gains and losses that were accumulated in
other comprehensive income will be recognized immediately in earnings.

To manage certain of its cash flow exposures, the Company has entered into
forward exchange contracts and interest rate swap agreements. The forward
exchange contracts are designated as hedges of the Company's foreign currency
exposure associated with future cash flows. Amounts payable or receivable under
forward exchange contracts are recorded as adjustments to selling, general and
administrative expense. The interest rate swap agreements are designated as
hedges of the Company's interest rate risk associated with certain variable rate
debt. Amounts payable or receivable under the swap agreements are recorded as
adjustments to interest expense. Unrealized gains or losses resulting from
valuing these swaps at fair value are recorded in other comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company adopted Statement of Financial Accounting Standards No. 133 as
of October 2000. Since adoption, there have been no gains or losses recognized
in earnings for hedge ineffectiveness or due to excluding a portion of the value
from measuring effectiveness.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform to fiscal 2001 classifications.

NOTE 2. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. MARKETING AGREEMENT

Effective September 30, 1998, the Company entered into an agreement with
Monsanto Company ("Monsanto", now known as Pharmacia Corporation) for exclusive
domestic and international marketing and agency rights to Monsanto's consumer
Roundup(R) herbicide products. Under the terms of the agreement, the Company is
entitled to receive an annual commission from Monsanto in consideration for the
performance of its duties as agent. The annual commission is calculated as a
percentage of the actual earnings before interest and income taxes (EBIT), as
defined in the agreement, of the Roundup(R) business. Each year's percentage
varies in accordance with the terms of the agreement based on the achievement of
two earnings thresholds and on commission rates that vary by threshold and
program year.

The agreement also requires the Company to make fixed annual payments to
Monsanto as a contribution against the overall expenses of the Roundup(R)
business. The annual fixed payment is defined as $20 million. However, portions
of the annual payments for the first three years of the agreement are deferred.
No payment was required for the first year (fiscal 1999), a payment of $5
million was required for the second year and a payment of $15 million was
required for the third year so that a total of $40 million of the contribution
payments were deferred. Beginning in the fifth year of the agreement, the annual
payments to Monsanto increase to at least $25 million, which include per annum
interest charges at 8%. The annual payments may be increased above $25 million
if certain significant earnings targets are exceeded. If all of the deferred
contribution amounts are paid prior to 2018, the annual contribution payments
revert to $20 million. Regardless of whether the deferred contribution amounts
are paid, all contribution payments cease entirely in 2018.

The Company is recognizing a charge each year associated with the annual
contribution payments equal to the required payment for that year. The Company
is not recognizing a charge for the portions of the contribution payments that
are deferred until the time those deferred amounts are paid. The Company
considers this method of accounting for the contribution payments to be
appropriate after consideration of the likely term of the agreement, the
Company's ability to terminate the agreement without paying the deferred
amounts, and the fact that approximately $18.6 million of the deferred amount is
never paid, even if the agreement is not terminated prior to 2018, unless
significant earnings targets are exceeded.

The express terms of the agreement permit the Company to terminate the
agreement only upon Material Breach, Material Fraud or Material Willful
Misconduct by Monsanto, as such terms are defined in the agreement, or upon the
sale of the Roundup business by Monsanto. In such instances, the agreement
permits the Company to avoid payment of any deferred contribution and related
per annum charge. The Company's basis for not recording a financial liability to
Monsanto for the deferred portions of the annual contribution and per annum
charge is based on our assessment and consultations with our legal counsel and
the Company's independent accountants. In addition, the Company has obtained a
legal opinion from The Bayard Firm, P.A., which concluded, subject to certain
qualifications, that if the matter were litigated, a Delaware court would likely
conclude that the Company is entitled to terminate the agreement at will, with
appropriate prior notice, without incurring significant penalty, and avoid
paying the unpaid deferred amounts. We have concluded that, should the Company
elect to terminate the agreement at any balance sheet date, it will not incur
significant economic consequences as a result of such action.

The Bayard Firm was special Delaware counsel retained during fiscal 2000
solely for the limited purpose of providing a legal opinion in support of the
contingent liability treatment of the agreement previously adopted by the
Company and has neither generally represented or advised the Company nor

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

participated in the preparation or review of the Company's financial statements
or any SEC filings. The terms of such opinion specifically limit the parties who
are entitled to rely on it.

The Company's conclusion is not free from challenge and, in fact, would
likely be challenged if the Company were to terminate the agreement. If it were
determined that, upon termination, the Company must pay any remaining deferred
contribution amounts and related per annum charges, the resulting charge to
earnings could have a material impact on the Company's results of operations and
financial position. At September 30, 2001, contribution payments and related per
annum charges of approximately $46.4 million had been deferred under the
agreement. This amount is considered a contingent obligation and has not been
reflected in the financial statements as of and for the year then ended.

Monsanto has disclosed that it is accruing the $20 million fixed
contribution fee per year beginning in the fourth quarter of Monsanto's fiscal
year 1998, plus interest on the deferred portion.

The agreement has a term of seven years for all countries within the
European Union (at the option of both parties, the agreement can be renewed for
up to 20 years for the European Union countries). For countries outside of the
European Union, the agreement continues indefinitely unless terminated by either
party. The agreement provides Monsanto with the right to terminate the agreement
for an event of default (as defined in the agreement) by the Company or a change
in control of Monsanto or the sale of the Roundup(R)business. The agreement
provides the Company with the right to terminate the agreement in certain
circumstances including an event of default by Monsanto or the sale of the
Roundup(R) business. Unless Monsanto terminates the agreement for an event of
default by the Company, Monsanto is required to pay a termination fee to the
Company that varies by program year. The termination fee is $150 million for
each of the first five program years, gradually declines to $100 million by year
ten of the program and then declines to a minimum of $16 million if the program
continues for years 11 through 20.

In consideration for the rights granted to the Company under the agreement
for North America, the Company was required to pay a marketing fee of $32
million to Monsanto. The Company has deferred this amount on the basis that the
payment will provide a future benefit through commissions that will be earned
under the agreement and is amortizing the balance over ten years, which is the
estimated likely term of the agreement.

NOTE 4. RESTRUCTURING AND OTHER CHARGES

2001 CHARGES

During the third and fourth quarters of fiscal 2001, the Company recorded
$75.7 million of restructuring and other charges, primarily associated with the
closure or relocation of certain manufacturing and administrative facilities.
The $75.7 million in charges is segregated in the Statements of Operations in
two components: (i) $7.3 million included in cost of sales for the write-off of
inventory that was rendered unusable as a result of the restructuring activities
and (ii) $68.4 million included in selling, general and administrative costs.
Included in the $68.4 million charge in selling, general and administrative
costs is $20.4 million to write-down to fair value certain property and
equipment and other assets; $5.8 million of facility exit costs; $27.0 million
of severance costs; and $15.2 million in other restructuring and other costs.
The severance costs related to reduction in force initiatives and facility
closures and consolidations in North America and Europe covering approximately
340 administrative, production, selling and other employees. Severance costs are
expected to be paid in fiscal 2002 with some payments extending into 2003. All
other fiscal 2001 restructuring related activities and costs are expected to be
completed by the end of fiscal 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a rollforward of the restructuring and related charges
recorded in the third and fourth quarters of fiscal 2001:

1999 CHARGES

During fiscal 1999, the Company recorded $1.4 million of restructuring
charges associated with management's decision to reorganize the North American
Professional Business Group to strengthen distribution and technical sales
support, integrate brand management across market segments and reduce annual
operating expenses. These charges represent costs to sever approximately 60
in-house sales associates who were terminated in fiscal 1999. Approximately $1.1
million of severance payments were made to these former associates during fiscal
1999. Of the remaining $0.3 million, $0.2 million was paid in fiscal 2000, and
the remainder was paid in fiscal 2001.

NOTE 5. ACQUISITIONS AND DIVESTITURES

On January 1, 2001, the Company acquired the Substral(R) brand and consumer
plant care business from Henkel KGaA. Substral(R) is a leading consumer
fertilizer brand in many European countries including Germany, Austria, Belgium,
France and the Nordics. Under the terms of the asset purchase agreement, the
Company acquired specified working capital and intangible assets associated with
the Substral(R) business. The purchase price will be determined based on the
value of the working capital assets acquired and the performance of the business
for the period from June 15, 2000 to December 31, 2000. The parties to the
transaction are still in the process of determining a final purchase price;
however, the Company's management estimates that the final purchase price will
be approximately $40 million. On June 29, 2001 and December 29, 2000, the
Company advanced $6.4 million and $6.9 million, respectively, to Henkel KGaA
toward the Substral(R) purchase price.

The Substral(R) acquisition was made in exchange for cash and notes due to
seller and was accounted for under the purchase method of accounting.
Accordingly, Substral's results have been included from the date of its
acquisition and the purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. Intangible assets associated with the purchase were $33.7 million.

Statement of Financial Accounting Standards No. 141, "Business
Combinations" was issued in June 2001. This new standard mandates the purchase
method of accounting for all business combinations entered into after June 30,
2001. The standard also requires the valuation of intangible assets apart from
goodwill for assets that arise as a result of contractual or legal rights or if
the right is separable (able to be sold, transferred, leased, licensed, etc.).
Goodwill is the residual amount after all tangible and other intangible assets
have been valued. All acquisitions in fiscal 2001 were in process or completed
prior to the effective date of SFAS No. 141.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma results of operations give effect to the
Substral(R) brand acquisition as if it had occurred on October 1, 1999.

In May 2000, the Company sold its ProTurf(R) business to two buyers. The
terms of the agreement included the sale of certain inventory for approximately
$16.3 million and an arrangement for the use and eventual purchase of related
trademarks by the buyers. A gain of approximately $4.6 million for the sale of
this business is reflected in the Company's fiscal 2000 results of operations.

NOTE 6. RETIREMENT PLANS.

The Company offers a defined contribution profit sharing and 401(k) plan
for substantially all U.S. employees. Full-time employees may participate in the
plan on the first day of the month after being hired. Temporary employees may
participate after working at least 1,000 hours in their first twelve months of
employment and after reaching the age of 21. The plan allows participants to
contribute up to 15% of their compensation in the form of pre-tax or post-tax
contributions. The Company provides a matching contribution equivalent to 100%
of participants' initial 3% contribution and 50% of the participants' remaining
contribution up to 5%. Participants are immediately vested in employee
contributions, the Company's matching contributions and the investment return on
those monies. The Company also provides a base contribution to employees'
accounts regardless of whether employees are active in the plan. The base
contribution is 2% of compensation up to 50% of the Social Security taxable wage
base plus 4% of compensation in excess of 50% of the Social Security wage base.
Participants become vested in the Company's base contribution after three years
of service. The Company recorded charges of $10.3 million, $7.4 million and $8.4
million under the plan in fiscal 2001, 2000 and 1999, respectively.

In conjunction with the decision to offer the expanded defined contribution
profit sharing and 401(k) plan to domestic Company associates, management
decided to freeze benefits under certain defined benefit pension plans. These
pension plans covered substantially all full-time U.S. associates who had
completed one year of eligible service and reached the age of 21. The benefits
under these plans are based on years of service and the associates' average
final compensation or stated amounts. The Company's funding policy, consistent
with statutory requirements and tax considerations, is based on actuarial
computations using the Projected Unit Credit method. The Company also curtailed
its non-qualified supplemental pension plan which provides for incremental
pension payments from the Company so that total pension payments equal amounts
that would have been payable from the Company's pension plans if it were not for
limitations imposed by income tax regulations.

The Company also sponsors the following pension plans associated with the
international businesses it has acquired: Scotts Europe BV, ASEF Europe BV
(Netherlands), The Scotts Company (UK) Ltd., Miracle Garden Care, Scotts France
SAS, Scotts Celaflor GmbH (Germany) and Scotts Celaflor HG (Austria). These
plans generally cover all associates of the respective businesses and retirement
benefits are generally based on years of service and compensation levels. The
pension plans for Scotts Europe BV, ASEF Europe BV (Netherlands), The Scotts
Company (UK) Ltd., and Miracle Garden Care are funded plans. The remaining
international pension plans are not funded by separately held plan assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with reduction in force initiatives implemented in fiscal
2001, curtailment (gains) or losses of ($0.2) million and $2.7 million were
recorded as components of restructuring expense for the international and
domestic defined benefit pension plans, respectively.

The following tables present information about benefit obligations, plan
assets, annual expense and other assumptions about the Company's defined benefit
pension plans ($ millions):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2001, the status of the international plans was as
follows:

NOTE 7. ASSOCIATE BENEFITS

The Company provides comprehensive major medical benefits to certain of its
retired associates and their dependents. Substantially all of the Company's
domestic associates become eligible for these benefits if they retire at age 55
or older with more than ten years of service. The plan requires certain minimum
contributions from retired associates and includes provisions to limit the
overall cost increases the Company is required to cover. The Company funds its
portion of retiree medical benefits on a pay-as-you-go basis.

Prior to October 1, 1993, the Company effected several changes in plan
provisions, primarily related to current and ultimate levels of retiree and
dependent contributions. Retirees as of October 1, 1993 are entitled to benefits
existing prior to these plan changes. These plan changes resulted in a reduction
in unrecognized prior service cost, which is being amortized over future years.

In connection with the reduction in force in fiscal 2001, the plan incurred
a curtailment expense of $3.7 million which was included in restructuring
expense.

The following table set for the information about the retiree medical plan:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The discount rates used in determining the accumulated postretirement
benefit obligation were 7.5% and 7.75% in fiscal 2001 and 2000, respectively.
For measurement purposes, annual rates of increase in per capita cost of covered
retiree medical benefits assumed for fiscal 2001 and 2000 were 9.50% and 8.50%,
respectively. The rate was assumed to decrease gradually to 5.5% through the
year 2010 and remain at that level thereafter. A 1% increase in health cost
trend rate assumptions would increase the accumulated postretirement benefit
obligation (APBO) as of September 30, 2001 and 2000 by $0.5 million and $0.7
million, respectively. A 1% increase or decrease in the same rate would not have
a material effect on service or interest costs.

The Company is self-insured for certain health benefits up to $0.2 million
per occurrence per individual. The cost of such benefits is recognized as
expense in the period the claim is incurred. This cost was $14.7 million, $9.9
million and $11.0 million in fiscal 2001, 2000 and 1999, respectively. The
Company is self-insured for State of Ohio workers compensation up to $0.5
million per claim. Claims in excess of stated limits of liability and claims for
workers compensation outside of the State of Ohio are insured with commercial
carriers.

NOTE 8. DEBT

Maturities of short- and long-term debt, including capital leases for the
next five fiscal years and thereafter are as follows:

On December 4, 1998, The Scotts Company and certain of its subsidiaries
entered into a credit facility (the "Original Credit Agreement") which provided
for borrowings in the aggregate principal amount of $1.025 billion and consisted
of term loan facilities in the aggregate amount of $525 million and a revolving
credit facility in the amount of $500 million. Proceeds from borrowings under
the Original Credit Agreement of approximately $241.0 million were used to repay
amounts outstanding under the then existing credit

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

facility. The Company recorded a $0.4 million extraordinary loss, net of tax, in
connection with the retirement of the previous facility.

On December 5, 2000, The Scotts Company and certain of its subsidiaries
entered into an Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), amending and restating in its entirety the Original Credit
Agreement. Under the terms of the Amended Credit Agreement, the revolving credit
facility was increased from $500 million to $575 million and the net worth
covenant was amended.

The term loan facilities consist of two tranches. The Tranche A Term Loan
Facility consists of three sub-tranches of French Francs, German Deutsche Marks
and British Pounds Sterling in an aggregate principal amount of $265 million
which are to be repaid quarterly over a 6 1/2 year period. The Tranche B Term
Loan Facility replaced the Tranche B and Tranche C facilities from the Original
Credit Agreement. Those facilities were prepayable without penalty. The new
Tranche B Term Loan Facility has an aggregate principal amount of $260 million
and is repayable in installments as follows: quarterly installments of $0.25
million beginning June 30, 2001 through December 31, 2006, quarterly
installments of $63.5 million beginning March 31, 2007 through September 30,
2007 and a final quarterly installment of $63.8 million on December 31, 2007.

The revolving credit facility provides for borrowings of up to $575
million, which are available on a revolving basis over a term of 6 1/2 years. A
portion of the revolving credit facility not to exceed $100 million is available
for the issuance of letters of credit. A portion of the facility not to exceed
$258.8 million is available for borrowings in optional currencies, including
German Deutsche Marks, British Pounds Sterling, French Francs, Belgian Francs,
Italian Lira and other specified currencies, provided that the outstanding
revolving loans in optional currencies other than British Pounds Sterling does
not exceed $138 million. The outstanding principal amount of all revolving
credit loans may not exceed $150 million for at least 30 consecutive days during
any calendar year.

Interest rates and commitment fees under the Amended Credit Agreement vary
according to the Company's leverage ratios and interest rates also vary within
tranches. The weighted-average interest rate on the Company's variable rate
borrowings at September 30, 2001 was 7.85% and at September 30, 2000 was 8.78%.
In addition, the Amended Credit Agreement requires that Scotts enter into hedge
agreements to the extent necessary to provide that at least 50% of the aggregate
principal amount of the 8 5/8% Senior Subordinated Notes due 2009 and term loan
facilities is subject to a fixed interest rate or interest rate protection for a
period of not less than three years. Financial covenants include minimum net
worth, interest coverage and net leverage ratios. Other covenants include
limitations on indebtedness, liens, mergers, consolidations, liquidations and
dissolutions, sale of assets, leases, dividends, capital expenditures, and
investments. The Scotts Company and all of its domestic subsidiaries pledged
substantially all of their personal, real and intellectual property assets as
collateral for the borrowings under the Amended Credit Agreement. The Scotts
Company and its subsidiaries also pledged the stock in foreign subsidiaries that
borrow under the Amended Credit Agreement.

At September 30, 2001, primarily due to the restructuring charges recorded
in fiscal 2001, Scotts was in default of the covenants in the Amended Credit
Agreement pertaining to net worth, leverage and interest coverage. The defaults
were waived to and including December 31, 2001 and the Company is now in
compliance at September 30, 2001 with the covenants as modified by the December
2001 amendment. See Note 22 regarding the December 2001 amendment to the Amended
Credit Agreement.

Approximately $15.1 million of financing costs associated with the
revolving credit facility have been deferred as of September 30, 2001 and are
being amortized over a period of approximately 7 years, beginning in fiscal year
1999.

In January 1999, The Scotts Company completed an offering of $330 million
of 8 5/8% Senior Subordinated Notes due 2009. The net proceeds from the
offering, together with borrowings under the Original Credit Agreement, were
used to fund the Ortho acquisition and to repurchase approximately $97 million
of outstanding 9 7/8% Senior Subordinated Notes due August 2004. The Company
recorded an extraordinary loss before tax on the extinguishment of the 9 7/8%
Notes of approximately $9.3 million, including a call premium of $7.2 million
and the write-off of unamortized issuance costs and discounts of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$2.1 million. In August 1999, Scotts repurchased the remaining $2.9 million of
the 9 7/8% Notes, resulting in an extraordinary loss, net of tax, of $0.1
million.

Scotts entered into two interest rate locks in fiscal 1998 to hedge its
anticipated interest rate exposure on the 8 5/8% Notes offering. The total
amount paid under the interest rate locks of $12.9 million has been recorded as
a reduction of the 8 5/8% Notes' carrying value and is being amortized over the
life of the 8 5/8% Notes as interest expense. Approximately $11.8 million of
issuance costs associated with the 8 5/8% Notes were deferred and are being
amortized over the term of the Notes.

In conjunction with the acquisitions of Rhone-Poulenc Jardin and Sanford
Scientific, notes were issued for certain portions of the total purchase price
that are to be paid in annual installments over a four-year period. The present
value of the remaining note payments is $16.0 million and $4.4 million,
respectively. The Company is imputing interest on the non-interest bearing notes
using an interest rate prevalent for similar instruments at the time of
acquisition (approximately 9% and 8%, respectively). In conjunction with other
acquisitions, notes were issued for certain portions of the total purchase price
that are to be paid in annual installments over periods ranging from four to
five years. The present value of remaining note payments is $14.4 million. The
Company is imputing interest on the non-interest bearing notes using an interest
rate prevalent for similar instruments at the time of the acquisitions
(approximately 8%).

In conjunction with the Substral(R) acquisition, notes were issued for
certain portions of the total purchase price that are to be paid in semi-annual
installments over a two-year period. The remaining note payments total $21.5
million. The interest rate on these notes is of 5.5%.

The foreign term loans of $6.0 million issued on December 12, 1997, have an
8-year term and bear interest at 1% below LIBOR. The present value of these
loans at September 30, 2001 and 2000 was $2.8 million and $3.2 million,
respectively. The loans are denominated in British Pounds Sterling and can be
redeemed, on demand, by the note holder. The foreign bank borrowings of $6.6
million at September 30, 2001 and $3.9 million at September 30, 2000 represent
lines of credit for foreign operations and are primarily denominated in French
Francs.

NOTE 9. SHAREHOLDERS' EQUITY

Class A Convertible Preferred Stock ("Preferred Shares") with a liquidation
preference of $195.0 million was issued in conjunction with the 1995 Miracle-Gro
merger transactions. These Preferred Shares had a 5% dividend yield and were
convertible upon shareholder demand into common shares at any time and at The
Scotts Company's option after May 2000 at $19.00 per common share. The
conversion feature associated with the Preferred Shares issued in connection
with the Miracle-Gro merger transactions was negotiated as an integral part of
the overall transaction. The conversion price exceeded the fair market value of
The Scotts Company's common shares on the date the two companies reached
agreement and, therefore, the Preferred Shares did not provide for a beneficial
conversion feature. Additionally, warrants to purchase 3.0 million common shares
of The Scotts Company were issued as part of the purchase price. The warrants
are exercisable upon shareholder demand for 1.0 million common shares at $21.00
per share, 1.0 million common shares at $25.00 per share and 1.0 million common
shares at $29.00 per share. The exercise term for the warrants expires November
2003. The fair value of the warrants at issuance has been included in capital in
excess of par value in the Company's Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 1999, certain of the Preferred Shares were converted into 0.2
million common shares at the holder's option. In October 1999, all of the then
outstanding Preferred Shares were converted into 10.0 million common shares. In
exchange for the early conversion, The Scotts Company paid the holders of the
Preferred Shares $6.4 million. That amount represents the dividends on the
Preferred Shares that otherwise would have been payable from the conversion date
through May 2000, the month during which the Preferred Shares could first be
redeemed by The Scotts Company. In addition, The Scotts Company agreed to
accelerate the termination of many of the standstill provisions in the
Miracle-Gro merger agreement that would otherwise have terminated in May 2000.
These standstill provisions include the provisions related to the Board of
Directors and voting restrictions, as well as restrictions on transfer.
Therefore, the former shareholders of Stern's Miracle-Gro Products, Inc.,
including Hagedorn Partnership, L.P., may vote their common shares freely in the
election of directors and generally on all matters brought before The Scotts
Company's shareholders. Following the conversion and the termination of the
standstill provisions described above, the former shareholders of Miracle-Gro
own approximately 40% of The Scotts Company's outstanding common shares and have
the ability to significantly influence the election of directors and approval of
other actions requiring the approval of The Scotts Company's shareholders.

In January 2001, the Amended Articles of Incorporation of The Scotts
Company were amended to change the authorized preferred stock from 195,000
shares of Class A Convertible Preferred Stock to 195,000 preferred shares, each
without par value.

The limitations on the ability of the former shareholders of Miracle-Gro to
acquire additional voting securities of The Scotts Company contained in the
merger agreement terminated as of October 1, 1999, except for the restriction
under which the former shareholders of Miracle-Gro may not acquire, directly or
indirectly, beneficial ownership of Voting Stock (as that term is defined in the
Miracle-Gro merger agreement) representing more than 49% of the total voting
power of the outstanding Voting Stock, except pursuant to a tender offer for
100% of that total voting power, which tender offer is made at a price per share
which is not less than the market price per share on the last trading day before
the announcement of the tender offer and is conditioned upon the receipt of at
least 50% of the Voting Stock beneficially owned by shareholders of The Scotts
Company other than the former shareholders of Miracle-Gro and their affiliates
and associates.

Under The Scotts Company 1992 Long Term Incentive Plan (the "1992 Plan"),
stock options and performance share awards were granted to officers and other
key employees of the Company. The 1992 Plan also provided for the grant of stock
options to non-employee directors of Scotts. The maximum number of common shares
that may be issued under the 1992 Plan is 1.7 million, plus the number of common
shares surrendered to exercise options (other than non-employee director
options) granted under the 1992 Plan, up to a maximum of 1.0 million surrendered
common shares. Vesting periods under the 1992 Plan vary and were determined by
the Compensation and Organization Committee of the Board of Directors.

Under The Scotts Company 1996 Stock Option Plan (the "1996 Plan"), stock
options may be granted to officers and other key employees of the Company and
non-employee directors of The Scotts Company. The maximum number of common
shares that may be issued under the 1996 Plan is 5.5 million. Vesting periods
under the 1996 Plan vary. Generally, a 3-year cliff vesting schedule is used
unless decided otherwise by the Compensation and Organization Committee of the
Board of Directors.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aggregate stock option activity consists of the following (shares in
millions):

The following summarizes certain information pertaining to stock options
outstanding and exercisable at September 30, 2001 (shares in millions):

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which changes the measurement,
recognition and disclosure standards for stock-based compensation. The Company,
as allowable, has adopted SFAS No. 123 for disclosure purposes only.

The fair value of each option granted has been estimated on the grant date
using the Black-Scholes option-pricing model based on the following assumptions
for those granted in fiscal 2001, 2000 and 1999: (1) expected market-price
volatility of 29.5%, 27.05% and 24.44%, respectively; (2) risk-free interest
rates of 4.4%, 6.0% and 6.0%, respectively; and (3) expected life of options of
6 years. Options are generally granted with a ten-year term. The estimated
weighted-average fair value per share of options granted during fiscal 2001,
2000 and 1999 was $11.74, $14.94 and $13.64, respectively.

Had compensation expense been recognized for fiscal 2001, 2000 and 1999 in
accordance with provisions of SFAS No. 123, the Company would have recorded net
income and earnings per share as follows:

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62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The pro forma amounts shown above are not necessarily representative of the
impact on net income in future years as additional option grants may be made
each year.

NOTE 10. EARNINGS PER COMMON SHARE

The following table presents information necessary to calculate basic and
diluted earnings per common share.

NOTE 11. INCOME TAXES

The provision for income taxes, net of tax benefits associated with the
1999 extraordinary losses of $4.1 million consists of the following:

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63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The domestic and foreign components of income before taxes are as follows:

A reconciliation of the federal corporate income tax rate and the effective
tax rate on income before income taxes is summarized below:

The net current and non-current components of deferred income taxes
recognized in the Consolidated Balance Sheets at September 30 are:

The components of the net deferred tax asset are as follows:

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64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net operating loss carryforwards in foreign jurisdictions were $5.2 million
and $6.2 million at September 30, 2001 and 2000, respectively. The use of these
acquired carryforwards is subject to limitations imposed by the tax laws of each
applicable country.

The valuation allowance of $1.0 million at September 30, 2001 and September
30, 2000 is to provide for operating losses for which the benefits are not
expected to be realized. Foreign net operating losses of $1.9 million can be
carried forward indefinitely.

Deferred taxes have not been provided on unremitted earnings of certain
foreign subsidiaries and foreign corporate joint ventures that arose in fiscal
years beginning on or before September 2001 as such earnings have been
permanently reinvested.

NOTE 12. FINANCIAL INSTRUMENTS

A description of the Company's financial instruments and the methods and
assumptions used to estimate their fair values is as follows:

LONG-TERM DEBT

At September 30, 2001 and 2000, Scotts had $330 million outstanding of
8 5/8% Senior Subordinated Notes due 2009. The fair value of these notes was
estimated based on recent trading information. Variable rate debt outstanding at
September 30, 2001 and 2000 consisted of revolving borrowings and term loans
under the Company's credit facility and local bank borrowings for certain of the
Company's foreign operations. The carrying amounts of these borrowings are
considered to approximate their fair values.

INTEREST RATE SWAP AGREEMENTS

At September 30, 2001 and 2000, Scotts had outstanding five interest rate
swaps with major financial institutions that effectively convert variable-rate
debt to a fixed rate. One swap has a notional amount of 20.0 million British
Pounds Sterling under a five-year term expiring in April 2002 whereby Scotts
pays 7.6% and receives three-month LIBOR. The remaining four swaps have notional
amounts between $20 million and $35 million ($105 million in total) with three,
four or five year terms commencing in January 1999. Under the terms of these
swaps, the Company pays rates ranging from 5.05% to 5.18% and receives
three-month LIBOR.

Scotts enters into interest rate swap agreements as a means to hedge its
interest rate exposure on debt instruments. In addition, the Company's Amended
Credit Agreement requires that Scotts enter into hedge agreements to the extent
necessary to provide that at least 50% of the aggregate principal amount of the
8 5/8% Senior Subordinated Notes due 2009 and term loan facilities subject to a
fixed interest rate or interest rate protection for a period of not less than
three years. Since the interest rate swaps have been designated as hedging
instruments, their fair values are reflected in the Company's Consolidated
Balance Sheets. Net amounts to be received or paid under the swap agreements are
reflected as adjustments to interest expense. The fair value of the swap
agreements was determined based on the present value of the estimated future net
cash flows using implied rates in the applicable yield curve as of the valuation
date.

INTEREST RATE LOCKS

In fiscal 1998, Scotts entered into two contracts, each with notional
amounts of $100.0 million, to lock the treasury rate component of Scotts'
anticipated offering of debt securities in the first quarter of fiscal 1999. One
of the interest rate locks expired in October 1998 and was rolled over into a
new rate lock that expired in February 1999. The other rate lock expired in
February 1999.

Scotts entered into the interest rate locks to hedge its interest rate
exposure on the offering of the 8 5/8% Senior Subordinated Notes due 2009. The
net amount paid under the interest rate locks is reflected as an adjustment to
the carrying amount of the 8 5/8% Senior Subordinated Notes.

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65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values of the Company's financial instruments are as
follows for the fiscal years ended September 30:

Excluded from the fair value table above are the following items that are
included in the Company's total debt balances at September 30, 2001 and 2000:

The fair value of the non-interest bearing notes is not considered
determinable since there is no established market for notes with similar
characteristics and since they represent notes that were negotiated between the
Company and the seller as part of transactions to acquire businesses.

NOTE 13. OPERATING LEASES

The Company leases buildings, land and equipment under various
noncancellable lease agreements for periods of two to six years. The lease
agreements generally provide that the Company pay taxes, insurance and
maintenance expenses related to the leased assets. Certain lease agreements
contain purchase options. At September 30, 2001, future minimum lease payments
were as follows:

The Company also leases transportation and production equipment under
various one-year operating leases, which provide for the extension of the
initial term on a monthly or annual basis. Total rental expenses for operating
leases were $22.0 million, $17.8 million and $18.5 million for fiscal 2001, 2000
and 1999, respectively. The total to be received from sublease rentals in place
at September 30, 2001 is $0.6 million. The future minimum lease payments of $1.2
million related to the prior World Headquarters office lease are included in
restructuring expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. COMMITMENTS

The Company has entered into the following purchase commitments:

SEED: The Company is obligated to make future purchases based on estimated
yields and other market purchase commitments. At September 30, 2001, estimated
annual seed purchase commitments were as follows:

The Company made purchases of $53.9 million and $31.2 million under this
obligation in fiscal 2001 and 2000, respectively.

PEAT: In March 2000, the Company entered in a contract to purchase peat over
the next ten years. There is an option to extend the term of this agreement for
a further period of ten years, on or before the eighth anniversary of this
agreement. The minimum volume purchase obligations under the March 2000 contract
are as follows:

In the event that in any one contract year, the Company does not purchase
the minimum required volume, the Company will be required to pay a cash penalty
based upon the marginal contribution to the supplier of all those products which
the Company has failed to purchase.

In the event that the volume purchases in a contract year are less than 97%
of the contract requirements, the Company shall pay 80% of the supplier's
marginal contribution multiplied by the number of cubic meters by which the
volume equivalent to 97% of the contract requirements was not reached. An amount
of 50% of the supplier's marginal contribution multiplied by the number of cubic
meters would also be paid based on the remaining 3% contract purchase obligation
shortfall. A reverse approach applies for purchases made by the Company that are
in excess of the minimum volume purchase obligation in any contract year. The
Company purchased 974,000 cubic meters of peat under this arrangement in fiscal
2001.

MEDIA ADVERTISING: As of September 30, 2001 the Company has committed to
purchase $7.8 million of airtime for both national and regional television
advertising in fiscal 2002.

NOTE 15. CONTINGENCIES

Management continually evaluates the Company's contingencies, including
various lawsuits and claims which arise in the normal course of business,
product and general liabilities, property losses and other fiduciary liabilities
for which the Company is self-insured. In the opinion of management, its
assessment of contingencies is reasonable and related reserves, in the
aggregate, are adequate; however, there can be no assurance that future
quarterly or annual operating results will not be materially affected by final
resolution of these matters. The following matters are the more significant of
the Company's identified contingencies.

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67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ENVIRONMENTAL MATTERS

In June 1997, the Ohio Environmental Protection Agency ("Ohio EPA")
initiated an enforcement action against us with respect to alleged surface water
violations and inadequate treatment capabilities at our Marysville facility and
seeking corrective action under the federal Resource Conservation Recovery Act.
The action relates to several discontinued on-site disposal areas which date
back to the early operations of the Marysville facility that we had already been
assessing under a voluntary action program of the state. Since initiation of the
action, we have continued to meet with the Ohio Attorney General and the Ohio
EPA in an effort to complete negotiations of an amicable resolution of these
issues. On December 3, 2001, an agreed judicial Consent Order was submitted to
the Union County Common Pleas Court. Although this Consent Order is subject to
public comment and both parties may withdraw their consent to entry of the
Order, we anticipate the Consent Order will be entered by the court in January
2002.

Since receiving notice of the enforcement action in June 1997, we have
continually assessed the potential costs to satisfactorily remediate the
Marysville site and to pay any penalties sought by the state. Although the terms
of the Consent Order have now been agreed to, the extent of any possible
contamination and an appropriate remediation plan have yet to be determined. As
of September 30, 2001, we estimate that the possible total cost that could be
incurred in connection with this matter is approximately $10 million. We have
accrued for the amount we consider to be the most probable and believe the
outcome will not differ materially from the amount reserved.

In addition to the dispute with the Ohio EPA, we are negotiating with the
Philadelphia District of the U.S. Army Corps of Engineers regarding possible
discontinuation of our peat harvesting operations in at our Lafayette, New
Jersey facility. We are also addressing remediation concerns raised by the
Environmental Agency of the United Kingdom with respect to emissions to air and
groundwater at our Bramford (Suffolk), United Kingdom facility. We have reserved
for our estimates of probable losses to be incurred in connection with each of
these matters as of September 30, 2001, but we do not believe that either issue
is material.

Regulations and environmental concerns also exist surrounding peat
extraction in the United Kingdom and the European Union. In August 2000, the
nature conservation advisory body to the U.K. government notified us that three
of our peat harvesting sites in the United Kingdom were under consideration as
possible "Special Areas of Conservation" under European Union law. We are
currently challenging this consideration. If we are unsuccessful, local planning
authorities in the United Kingdom will be required to review the impact of
activities likely to affect these areas and it is possible that these
authorities could modify or revoke the applicable consents, in which case we
believe we should be entitled to compensation and we believe we would have
sufficient raw material supplies available to replace the peat produced in such
areas.

The Company has determined that quantities of cement containing asbestos
material at certain manufacturing facilities in the United Kingdom should be
removed.

At September 30, 2001, $7.0 million is accrued for the environmental
matters described herein. The significant components of the accrual are: (i)
costs for site remediation of $4.7 million; (ii) costs for asbestos abatement of
$1.8 million; and (iii) fines and penalties of $0.5 million. The significant
portion of the costs accrued as of September 30, 2001 are expected to be paid in
fiscal 2002 and 2003; however, payments could be made for a period thereafter.

We believe that the amounts accrued as of September 30, 2001 are adequate
to cover known environmental exposures based on current facts and estimates of
likely outcome. However, the adequacy of these accruals is based on several
significant assumptions:

(i) that we have identified all of the significant sites that must be
remediated;

(ii) that there are no significant conditions of potential contamination
that are unknown to the Company; and

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68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(iii) that with respect to the agreed judicial Consent Order in Ohio, that
potentially contaminated soil can be remediated in place rather than
having to be removed and only specific stream segments will require
remediation as opposed to the entire stream.

If there is a significant change in the facts and circumstances surrounding
these assumptions, it could have a material impact on the ultimate outcome of
these matters and the Company's results of operations, financial position and
cash flows.

AGREVO ENVIRONMENTAL HEALTH, INC.

On June 3, 1999, AgrEvo Environmental Health, Inc. ("AgrEvo") (which is
reported to have subsequently changed its name to Aventis Environmental Health
Science USA LP) filed a complaint in the U.S. District Court for the Southern
District of New York (the "New York Action"), against the Company, a subsidiary
of the Company and Monsanto (now Pharmacia) seeking damages and injunctive
relief for alleged antitrust violations and breach of contract by the Company
and its subsidiary and antitrust violations and tortious interference with
contact by Monsanto. AgrEvo also contends that the Company's execution of
various agreements with Monsanto, including the Roundup(R) marketing agreement,
as well as the Company's subsequent actions, violated the purchase agreements
between AgrEvo and the Company. AgrEvo is requesting unspecified damages as well
as affirmative injunctive relief, and is seeking to have the court invalidate
the Roundup(R) marketing agreement as violative of the federal antitrust laws.

On June 29, 1999, AgrEvo also filed a complaint in the Superior Court of
the State of Delaware (the "Delaware Action") against two of the Company's
subsidiaries seeking damages for alleged breach of contract. AgrEvo alleges
that, under the contracts by which a subsidiary of the Company purchased a
herbicide business from AgrEvo in May 1998, two of the Company's subsidiaries
have failed to pay AgrEvo approximately $0.6 million. AgrEvo is requesting
damages in this amount, as well as pre- and post-judgment interest and
attorneys' fees and costs. The Company's subsidiaries have moved to dismiss or
stay this action. On January 31, 2000, the Delaware court stayed AgrEvo's action
pending the resolution of a motion to amend the New York Action, and the
resolution of the New York Action. The Company's subsidiaries intend to
vigorously defend the asserted claims.

If the above actions are determined adversely to the Company, the result
could have a material adverse effect on our results of operations, financial
position and cash flows. The Company believes that it will prevail in the AgrEvo
matter and that any potential exposure that the Company may face cannot be
reasonably estimated. Therefore, no accrual has been established related to
these matters.

CENTRAL GARDEN & PET COMPANY

On June 30, 2000, the Company filed suit against Central Garden & Pet
Company in the U.S. District Court for the Southern District of Ohio to recover
approximately $17 million in outstanding accounts receivable from Central Garden
with respect to the Company's 2000 fiscal year. The Company's complaint was
later amended to seek approximately $24 million in accounts receivable and
additional damages for other breaches of duty. On April 13, 2001, Central Garden
filed an answer and counterclaim in the Ohio action. On April 24, 2001, Central
Garden filed an amended counterclaim. Central Garden's counterclaims include
allegations that the Company and Central Garden had entered into an oral
agreement in April 1998 whereby the Company would allegedly share with Central
Garden the benefits and liabilities of any future business integration between
the Company and Pharmacia Corporation (formerly Monsanto). Central Garden has
asserted several causes of action, including breach of oral contract and
fraudulent misrepresentation, and seeks damages in excess of $900 million. In
addition, Central Garden asserts various other causes of action including breach
of written contract and quantum valebant and seeks damages in excess of $76
million based on the allegations that Central Garden was entitled to receive a
cash payment rather than a credit for the value of inventory Central alleges was
improperly seized by the Company. These allegations are made without regard to
the fact that the amounts sought from Central in litigation filed by the Company
and Pharmacia are net of any such alleged credit. The Company believes all of
Central Garden's counterclaims in Ohio are without merit and it intends to
vigorously defend against them. Pharmacia (formerly Monsanto) also filed suit
against Central Garden in Missouri state court, seeking unspecified damages
allegedly due Pharmacia under a four-year alliance agreement between Pharmacia
and Central Garden.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 7, 2000, Central Garden filed suit against the Company and
Pharmacia in the U.S. District Court for the Northern District of California
(San Francisco Division) alleging various claims, including breach of contract
and violations of federal antitrust laws, and seeking an unspecified amount of
damages and injunctive relief. On October 26, 2000, the District Court granted
the Company's motion to dismiss Central Garden's breach of contract claims for
lack of subject matter jurisdiction. On November 17, 2000, Central Garden filed
an amended complaint in the District Court, re-alleging various claims for
violations of federal antitrust laws and also alleging state antitrust claims
under the Cartwright Act, Section 16726 of the California Business and
Professions Code. Fact discovery is set to conclude in December 2001. The trial
date for the California federal action is set for July 15, 2002.

On October 31, 2000, Central Garden filed an additional complaint against
the Company and Pharmacia in the California Superior Court of Contra Costa
County. That complaint seeks to assert the breach of contract claims previously
dismissed by the District Court in the California federal action described
above, and additional claims under Section 17200 of the California Business and
Professions Code. On December 4, 2000, the Company and Pharmacia jointly filed a
motion to stay this action based on the pendency of prior lawsuits (including
the three actions described above) that involve the same subject matter. By
order dated February 23, 2001, the Superior Court stayed the action pending
before it.

The Company believes that all of Central Garden's federal and state claims
are entirely without merit and it intends to vigorously defend against them. If
the above actions are determined adversely to the Company, the result could have
a material adverse effect on the Company's results of operations, financial
position and cash flows. The Company believes that it will prevail in the
Central Garden matters and that any potential exposure that the Company may face
cannot be reasonably estimated. Therefore, no accrual has been established
related to these matters.

NOTE 16. CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade accounts receivable.
The Company sells its consumer products to a wide variety of retailers,
including mass merchandisers, home centers, independent hardware stores,
nurseries, garden outlets, warehouse clubs and local and regional chains.
Professional products are sold to commercial nurseries, greenhouses, landscape
services, and growers of specialty agriculture crops.

At September 30, 2001, 70% of the Company's accounts receivable was due
from customers in North America. Approximately 85% of these receivables were
generated from the Company's North American Consumer segment. The most
significant concentration of receivables within this segment was from home
centers, which accounted for 20%, followed by mass merchandisers at 12% of the
Company's receivables balance at September 30, 2001. No other retail
concentrations (e.g., independent hardware stores, nurseries, etc. in similar
markets) accounted for more than 10% of the Company's accounts receivable
balance at September 30, 2001.

The remaining 15% of North American accounts receivable was generated from
customers of the Global Professional segment located in North America. As a
result of the changes in distribution methods made in fiscal 2000 for the Global
Professional segment customers in North America, nearly all products are sold
through distributors. Accordingly, nearly all of the Global Professional
segment's North American accounts receivable at September 30, 2001 is due from
distributors.

The 30% of accounts receivable generated outside of North America is due
from retailers, distributors, nurseries and growers. No concentrations of
customers or individual customers within this group account for more than 10% of
the Company's accounts receivable balance at September 30, 2001.

At September 30, 2001, the Company's concentrations of credit risk were
similar to those existing at September 30, 2000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's two largest customers accounted for the following percentage
of net sales in each respective period:

Sales to the Company's two largest customers are reported within Scotts'
North American Consumer segment. No other customers accounted for more than 10%
of fiscal 2001, 2000 or 1999 net sales.

NOTE 17. OTHER EXPENSE (INCOME)

Other expense (income) consisted of the following for the fiscal years
ended September 30:

NOTE 18. NEW ACCOUNTING STANDARDS

In May 2000, the Emerging Issues Task Force (EITF) reached consensus on
Issue 00-14, "Accounting for Certain Sales Incentives". This Issue requires
certain sales incentives (e.g., discounts, rebates, coupons) offered by the
Company to distributors, retail customers and consumers to be classified as a
reduction of sales revenue. Like many other consumer products companies, the
Company has historically classified these costs as advertising, promotion, or
selling expenses. The Company adopted the guidance in fiscal 2001 with no impact
on fiscal 2001 results of operations.

In January 2001, the EITF reached consensus on Issue 00-22, "Accounting for
Points and Certain Other Time or Volume-Based Sales Incentive Offers". This
Issue requires certain allowances and discounts (e.g., volume discounts) paid to
distributors and retail customers to be classified as a reduction of sales
revenue. Like many other consumer products companies, the Company has
historically classified these cost as advertising, promotion, or selling
expenses. The Company adopted the guidance in fiscal 2001 with no impact on
fiscal 2001 results of operations.

In April 2001, the EITF reached consensus on Issue 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products". This Issue requires that certain
consideration from a vendor to a retailer be classified as a reduction of sales
revenue. Like many other consumer products companies, the Company has
historically classified these costs as advertising, promotion, or selling
expenses. The guidance is effective for the Company's first quarter of fiscal
2002. Scotts does not anticipate that the new accounting policy will impact
fiscal 2002 results of operations.

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standard No. 141, "Business Combinations". SFAS No. 141
requires that all business combinations initiated after June 30, 2001, be
accounted for using the purchase accounting method and also established specific
criteria for recognition of intangible assets separately from goodwill. The
acquisitions discussed in Note 5 herein were accounted for using the purchase
method of accounting.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2001, the FASB issued Statement of Accounting Standard No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 eliminates the requirement
to amortize indefinite-lived assets such as goodwill. It also requires an annual
review for impairment of indefinite-lived assets. Scotts will adopt SFAS No. 142
beginning with the first quarter of fiscal 2002. The Company expects that the
elimination of amortization of indefinite-lived assets will increase earnings
per share in fiscal 2002 by $.50 to $.55. The Company is still evaluating the
impact that impairment testing may have on future periods.

Also in June 2001, the FASB issued Statement of Accounting Standard No.
143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
accounting and reporting standards for legal obligations associated with the
retirement of tangible long-lived assets. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Scotts is in the process of evaluating the impact of SFAS No. 143 on its
financial statements and will adopt the provisions of this statement in the
first quarter of fiscal year 2003.

In August 2001, the FASB issued Statement of Accounting Standard No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
supersedes Financial Accounting Standard No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" and Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations; Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequent Occurring Events and Transactions". SFAS No. 144 addresses
accounting and reporting standards for the impairment or disposal of long-lived
assets. It is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company is in the process of evaluating
the impact of SFAS No. 144 on its financial statements and will adopt the
provisions of this statement in the first quarter of fiscal year 2003.

NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 20. SEGMENT INFORMATION

For fiscal 2001, the Company was divided into three reportable
segments--North American Consumer, Global Professional and International
Consumer. The North American Consumer segment consists of the Lawns, Gardens,
Growing Media, Ortho, Lawn Service and Canada businesses. These segments differ
from those used in the prior year due to the sale of the Company's professional
turfgrass business in May 2000 and the resulting change in management reporting
structure.

The North American Consumer segment specializes in dry, granular
slow-release lawn fertilizers, lawn fertilizer combination and lawn control
products, grass seed, spreaders, water-soluble and controlled-release garden and
indoor plant foods, plant care products and potting soils, barks, mulches and
other growing media products and pesticides products. Products are marketed to
mass merchandisers, home improvement centers, large hardware chains, nurseries
and gardens centers.

The Global Professional segment is focused on a full line of horticulture
products including controlled-release and water-soluble fertilizers and plant
protection products, grass seed, spreaders, customer application services and
growing media. Products are sold to lawn and landscape service companies,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

commercial nurseries and greenhouses and specialty crop growers. Prior to June
2000, this segment also included the Company's ProTurf(R) business, which was
sold in May 2000.

The International Consumer segment provides products similar to those
described above for the North American Consumer segment to consumers in
countries other than the United States and Canada.

The following table presents segment financial information in accordance
with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Pursuant to SFAS No. 131, the presentation of the segment
financial information is consistent with the basis used by management (i.e.,
certain costs not allocated to business segments for internal management
reporting purposes are not allocated for purposes of this presentation). Prior
periods have been restated to conform to this basis of presentation.

- ---------------
nm -- Not meaningful

Income (loss) from operations reported for Scotts' three operating segments
represents earnings before amortization of intangible assets, interest and
taxes, since this is the measure of profitability used by management.
Accordingly, the Corporate operating loss for the fiscal years ended September
30, 2001, 2000 and 1999 includes amortization of certain intangible assets,
corporate general and administrative expenses, certain other income/expense not
allocated to the business segments and North America restructuring charges in
fiscal 2001. International restructuring charges of approximately $10.4 million
are included in International Consumer's operating loss in fiscal 2001. Global
Professional operating income in fiscal 2001 is net of restructuring charges of
$2.9 million.

Total assets reported for Scotts' operating segments include the intangible
assets for the acquired businesses within those segments. Corporate assets
primarily include deferred financing and debt issuance costs, corporate
intangible assets as well as deferred tax assets.

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73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for fiscal 2001 and 2000.

Certain reclassifications have been made within interim periods.

Common stock equivalents, such as stock options, are excluded from the
diluted loss per share calculation in periods where there is a net loss because
their effect is anti-dilutive.

Scotts' business is highly seasonal with approximately 75% of sales
occurring in the second and third fiscal quarters combined.

NOTE 22. SUBSEQUENT EVENT

In December 2001, the Amended Credit Agreement was amended to redefine
EBITDA, to eliminate the net worth covenant and to modify the covenants
pertaining to interest coverage and leverage. The amendment also increases the
amount that may be borrowed in optional currencies to $360 million from $258.8
million and amends how proceeds from future equity or subordinated debt
offerings, if any, will be used towards mandatory prepayments of revolving
credit facility borrowings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS

In January 1999, The Scotts Company issued $330 million of 8 5/8% Senior
Subordinated Notes due 2009 to qualified institutional buyers under the
provisions of Rule 144A of the Securities Act of 1933.

The Notes are general obligations of The Scotts Company and are guaranteed
by all of the existing wholly-owned, domestic subsidiaries and all future
wholly-owned, significant (as defined in Regulation S-X of the Securities and
Exchange Commission) domestic subsidiaries of The Scotts Company. These
subsidiary guarantors jointly and severally guarantee The Scotts Company's
obligations under the Notes. The guarantees represent full and unconditional
general obligations of each subsidiary that are subordinated in right of payment
to all existing and future senior debt of that subsidiary but are senior in
right of payment to any future junior subordinated debt of that subsidiary.

The following information presents consolidating Statements of Operations
and Statements of Cash Flows for the three years ended September 30, 2001 and
consolidated Balance Sheets as of September 30, 2001 and 2000. Separate audited
financial statements of the individual guarantor subsidiaries have not been
provided because management does not believe they would be meaningful to
investors.

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THE SCOTTS COMPANY
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
(IN MILLIONS)

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76

THE SCOTTS COMPANY
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
(IN MILLIONS)

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77

THE SCOTTS COMPANY
BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)

----
78

THE SCOTTS COMPANY
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
(IN MILLIONS)

----
79

THE SCOTTS COMPANY
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
(IN MILLIONS)

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80

THE SCOTTS COMPANY
BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)

----
81

THE SCOTTS COMPANY
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN MILLIONS)

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82

THE SCOTTS COMPANY
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN MILLIONS)

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83

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of The Scotts Company

Our audits of the consolidated financial statements referred to in our
report dated October 29, 2001, except for Note 22, as to which the date is
December 12, 2001, appearing in Item 14(a)(1) of this Annual Report on Form
10-K, also included an audit of the financial statement schedules appearing in
Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

/s/ PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio

October 29, 2001, except for Note 22, as to which the date is December 12, 2001

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84

THE SCOTTS COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
(IN MILLIONS)

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
(IN MILLIONS)

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN MILLIONS)

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85

THE SCOTTS COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

INDEX TO EXHIBITS

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* Filed herewith.

** Certain portions of this Exhibit have been omitted based upon a request for
extended confidential treatment filed with the Securities and Exchange
Commission.

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93